As filed with the Securities and Exchange Commission on January 12, 2018April 6, 2020
RegistrationNo. 333-222038333-237236
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO THE
FORMS-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
KEARNY FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
| Maryland | 6036 | 30-0870244 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
120 Passaic Avenue
Fairfield, New Jersey 07004
(973)244-4500
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Craig L. Montanaro
President and Chief Executive Officer
120 Passaic Avenue
Fairfield, New Jersey 07004
(973)244-4500
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
Copies to:
| Lawrence M.F. Spaccasi, Esq. | ||
| Marc P. Levy, Esq. | ||
| Luse Gorman, PC | ||
| 5335 Wisconsin Avenue, N.W., Suite 780 | ||
| Washington, D.C. 20015 | Washington, D.C. | |
| Phone: (202)274-2000 | Phone: (202) |
Approximate date of commencement of proposed sale to the public:As soon as practicable after this registration statement becomes effective and upon completion of the merger.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
| Emerging growth company | ☐ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule13e-4(i) (Cross-Border Issuer Tender Offer) ☐
Exchange Act Rule14d-1(d) (Cross-Border Third-Party Tender Offer) ☐
CALCULATION OF REGISTRATION FEE
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Title of each class of securities to be registered | Amount to be registered | Proposed maximum offering price per share | Proposed maximum aggregate offering price | Amount of registration fee | ||||
Common Stock, $0.01 par value per share | N/A | $ | $ | |||||
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| (1) | Represents the maximum number of shares of Kearny Financial Corp. (“Kearny”) common stock estimated to be issuable upon the completion of the merger described herein. This number is based on the product of (a) the number of shares of |
| (2) | The proposed maximum aggregate offering price of Kearny’s common stock was calculated based upon the market value of shares of |
| (3) | Previously paid. |
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
Information contained in this joint proxy statement/prospectus is subject to completion or amendment. A registration statement relating to the shares of Kearny Financial Corp. common stock to be issued in the merger has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This joint proxy statement/prospectusdocument shall not constitute an offer to sell or the solicitation of anany offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale is not permitted or would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
PRELIMINARY JOINT PROXY STATEMENT/PROSPECTUS,
SUBJECT TO COMPLETION, DATED JANUARY 12, 2018APRIL 6, 2020
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MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT
Dear MSB Financial Stockholder:
On November 1, 2017,December 18, 2019, Kearny Financial Corp. (which we refer to as “Kearny”) and Clifton Bancorp Inc.MSB Financial Corp. (which we refer to as “Clifton”“MSB”) entered into an Agreement and Plan of Merger (which we refer to as the “merger agreement”) under which CliftonMSB will merge with and into Kearny, with Kearny remaining as the surviving entity. This transaction is referred to in this document as the “merger.” Immediately following the merger, Clifton SavingsMillington Bank, the wholly-owned subsidiary of Clifton,MSB, will merge with and into Kearny Bank, the wholly-owned subsidiary of Kearny, with Kearny Bank as the surviving entity. This transaction is referred to in this document as the “bank merger.” Before we complete the merger, the stockholders of Kearny and CliftonMSB must approve the merger agreement and the merger.
If the merger is completed, CliftonMSB stockholders will be entitled to receive, at their election, for each share of CliftonMSB common stock they own, 1.191either 1.30 shares of Kearny common stock.stock (the “stock consideration”) or $18.00 in cash (the “cash consideration,” and collectively with the stock consideration, the “merger consideration”) or a combination thereof, provided that, in the aggregate, 90% of the total number of shares of MSB common stock will be converted into stock consideration and the remaining MSB common stock will be converted into cash consideration. The maximum number of shares of Kearny common stock estimated to be issuable upon completion of the merger is 26,320,879.6,066,350. Based on Kearny’s closing price of $15.05$14.10 on November 1, 2017,December 17, 2019, which was the last trading date preceding the public announcement of the proposed merger, each share of CliftonMSB common stock exchanged for 1.1911.30 shares of Kearny common stock would have a value of $17.92,$18.33, or approximately $396.0$94.0 million in aggregate merger consideration. Based on Kearny’s closing price of $14.10$8.32 on January 9, 2018,March 25, 2020, which is the most recent practicable trading day prior to the printingdate of this document,the attached proxy statement/prospectus, each share of CliftonMSB common stock exchanged for 1.1911.30 shares of Kearny common stock would have a value of $16.79.$10.82. The common stock of Kearny trades on the Nasdaq Global Select Market under the symbol “KRNY.” The common stock of CliftonMSB trades on the Nasdaq Global Select Market under the symbol “CSBK.“MSBF.” The market price of both Kearny common stock and CliftonMSB common stock will fluctuate before the completion of the merger; therefore, you are urged to obtain current market quotations for Kearny common stock and CliftonMSB common stock.
Although the number of shares of Kearny common stock that holders of CliftonMSB common stock will be entitled to receive is fixed, the market value of the stock consideration will fluctuate with the market price of Kearny common stock and will not be known at the time CliftonMSB stockholders vote on the merger. However, CliftonMSB has the right to terminate the merger agreement if, at any time during afive-day period commencing on the tenth day prior to closing, the average closing price of Kearny common stock over the 20 consecutive trading days prior to the tenth day prior to closing (i) is less than $12.42$11.28 and (ii) fails to meet certain comparison thresholds relative to the NASDAQ Bank Index. If CliftonMSB elects to exercise this termination right, then Kearny has the option to override the proposed termination by increasing the exchange ratio to a level that would eliminate the effects of either of the two requirements of this termination right.
The affirmative vote of a majority of the issued and outstanding shares of KearnyMSB common stock is required to approve the merger agreement and the merger. KearnyMSB stockholders will vote to adopt the merger agreement and the merger and on the other matters described below at a special meeting of stockholders to be held as a virtual meeting only at 10:11:00 a.m., local time,Eastern Time, on March 1, 2018 atMay 28, 2020. This virtual meeting will be in the Crowne Plaza Hotel located at 690 Route 46 East, Fairfield, New Jersey 07004.form of a live webcast and will permit attendance electronically only, there will be no physical meeting location.
Kearny’sMSB’s board of directors unanimously recommends that KearnyMSB common stockholders vote “FOR” the adoption of the merger agreement and the merger and “FOR” the other matters to be considered at the Kearny special meeting.
The affirmative vote of a majority of the issued and outstanding shares of Clifton common stock is required to approve the merger agreement and the merger. Clifton stockholders will vote to adopt the merger agreement and the merger and on the other matters described below at a special meeting of stockholders to be held at 9:30 a.m., local time, on March 1, 2018 at the Saddle Brook Marriott located at 138 New Pehle Avenue, Saddle Brook, New Jersey 07663.
Clifton’s board of directors unanimously recommends that Clifton common stockholders vote “FOR” the adoption of the merger agreement and the merger and “FOR” the other matters to be considered at the CliftonMSB special meeting.
This document contains information that you should consider in evaluating the proposed merger.merger. In particular, you should carefully read the section captioned “Risk Factors” beginning on page 18 13 for a discussion of certain risk factors relating to the merger. You can also obtain information about Kearny and CliftonMSB from documents filed with the Securities and Exchange Commission.
We look forwardinvite you to seeing you at theparticipate in our virtual stockholders meetingsmeeting and we appreciate your continued support.
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Michael A. Shriner | ||
President and Chief Executive Officer | ||
MSB Financial Corp. |
The shares of Kearny common stock to be issued in the merger are not deposits or savings accounts or other obligations of any bank or savings association subsidiary of Kearny or Clifton,MSB, and are not insured by the FDIC or any other governmental agency.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the merger described in this document or the Kearny common stock to be issued in the merger, or passed upon the adequacy or accuracy of this document. Any representation to the contrary is a criminal offense.
The date of this joint proxy statement/prospectus is [●], 2018,2020, and it is first being mailed or otherwise delivered to stockholders of Kearny and CliftonMSB on or about January 23, 2018.April 22, 2020.
ABOUT THIS DOCUMENT
This joint proxy statement/prospectus, which we refer to as “this document,” which forms part of a registration statement on FormS-4 filed with the Securities and Exchange Commission (the “SEC”) by Kearny, constitutes a prospectus of Kearny under the Securities Act of 1933, as amended, which we refer to in this document as the “Securities Act,” with respect to the shares of Kearny common stock to be issued to CliftonMSB stockholders, as required by the merger agreement. This document also constitutes a proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended, which we refer to in this document as the “Exchange Act,” and a notice of virtual meeting in the form of a live webcast with respect to the special meeting of stockholders of Kearny and the special meeting of stockholders of Clifton.MSB.
You should rely only on the information contained in, or incorporated by reference into, this document. No one has been authorized to provide you with information that is different from the information contained in this document. This document is dated [●], 2018.2020. You should not assume that the information contained in this document is accurate as of any date other than that date. Neither the mailing of this document to either Kearny stockholders or CliftonMSB stockholders nor the issuance by Kearny of its common stock in connection with the merger will create any implication to the contrary.
This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this document regarding Kearny has been provided by Kearny and information contained in this document regarding CliftonMSB has been provided by Clifton.MSB.
KEARNYMSB FINANCIAL CORP.
120 Passaic Avenue,1902 Long Hill Road
Fairfield,Millington, New Jersey 0700407946-0417
Notice of Virtual Special Meeting of Stockholders to be held March 1, 2018May 28, 2020
This meeting will be held electronically only; There will be no physical meeting location.
To the Stockholders of Kearny:MSB:
KearnyMSB will hold a virtual special meeting of stockholders (which we refer to as the “Kearny“MSB special meeting”) at 10:11:00 a.m., local time, Eastern Time, on March 1, 2018, at the Crowne Plaza Hotel, 690 Route 46 East, Fairfield, New Jersey 07004May 28, 2020, to consider and vote upon the following matters:
| 1. | a proposal to approve the merger agreement, dated as of |
| 2. | a proposal to approve, on anon-binding advisory basis, the compensation that may become payable to the named executive officers of MSB in connection with the merger (which we refer to as the “merger-related compensation proposal”); and |
| 3. | a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to approve the merger agreement and the merger (which we refer to as the |
All of these items are described in more detail in the accompanying joint proxy statement/prospectus and its annexes. We urge you to read these materials carefully and in their entirety. The enclosed document forms a part of this notice.
Kearny’sMSB’s board of directors unanimously recommends that KearnyMSB stockholders vote “FOR” each of the proposals.
KearnyMSB stockholders of record as of the close of business on January 9, 2018March 25, 2020 are entitled to notice of, and to vote at, the KearnyMSB special meeting and any adjournments or postponements of the KearnyMSB special meeting.
Shareholders will be able to attend this special meeting in the form of a live webcast, to listen to the meeting, vote, and submit questions for discussion at the meeting from their home, office or any remote location that has Internet connectivity. There will be no physical location for shareholders to attend. In order to participate in this MSB special meeting, you will need to access www.meetingcenter.io/295836689 and enter your control number found on your proxy card, voting form or notice you previously received. The meeting password is: MSBF2020. As noted below, you may vote your shares in advance of the MSB special meeting by mail, by internet or by phone. You may also vote during the meeting by following the instructions available on the meeting website during the meeting. Whether or not you plan to attend the MSB special meeting electronically, we urge you to vote and submit your proxy in advance of the meeting by one of the methods described below. NOTE: If you need technical assistance accessing this webcast before or during the meeting, please access on the Internet https://support.vevent.com/.
Your vote is very important. Your proxy is being solicited by Kearny’sMSB’s board of directors. For the proposed merger to be completed, the proposal to approve the merger agreement and the merger must be approved by the affirmative vote of a majority of the issued and outstanding shares of KearnyMSB common stock. The Kearnymerger-related compensation proposal will be approved if a majority of the votes cast on such proposal at the MSB special meeting are voted in favor of such proposal. The MSB adjournment proposal will be approved if a majority of the votes cast on such proposal at the KearnyMSB special meeting are voted in favor of such proposal.
Whether or not you plan to attend the KearnyMSB special meeting, we urge you to vote. Stockholders of record may vote:
By internet – access www.investorvote.com/KRNYMSBF and follow theon-screen instructions;
By telephone – call 1-800-652-VOTE (8683)1-800-652-8683 (toll-free) and follow the instructions;
By mail – complete, sign, date and mail your proxy card in the envelope provided as soon as possible; or
In person – vote your shares in person by attending virtually the KearnyMSB special meeting.meeting in the form of a live webcast.
If you hold your stock in “street name” through a banker or broker, please follow the instructions on the voting instruction card furnished by the record holder.
If you have any questions or need assistance voting your shares in advance of the meeting, please contact our proxy solicitor, Laurel Hill Advisory Group, LLC, toll free at (888) 742-1305.742-1305, toll-free. Banks and Brokers, please call (516) 933-3100.
| By Order of the Board of Directors, |
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| Nancy E. Schmitz |
Fairfield,Millington, New Jersey
January 23, 2018
CLIFTON BANCORP INC.
1433 Van Houten Avenue
Clifton, New Jersey 07015
Notice of Special Meeting of Stockholders to be held March 1, 2018
To the Stockholders of Clifton:
Clifton will hold a special meeting of stockholders (which we refer to as the “Clifton special meeting”) at 9:30 a.m., local time, on March 1, 2018, at the Saddle Brook Marriott, 138 New Pehle Avenue, Saddle Brook, New Jersey 07663 to consider and vote upon the following matters:
All of these items are described in more detail in the accompanying joint proxy statement/prospectus and its annexes. We urge you to read these materials carefully and in their entirety. The enclosed document forms a part of this notice.
Clifton’s board of directors unanimously recommends that Clifton stockholders vote “FOR” each of the proposals.
Clifton stockholders of record as of the close of business on January 9, 2018 are entitled to notice of, and to vote at, the Clifton special meeting and any adjournments or postponements of the Clifton special meeting.
Your vote is very important. Your proxy is being solicited by Clifton’s board of directors. For the proposed merger to be completed, the proposal to approve the merger agreement and the merger must be approved by the affirmative vote of a majority of the issued and outstanding shares of Clifton common stock. The merger-related compensation proposal will be approved if a majority of the votes cast on such proposal at the Clifton special meeting are voted in favor of such proposal. The Clifton adjournment proposal will be approved if a majority of the votes cast on such proposal at the Clifton special meeting are voted in favor of such proposal.
Whether or not you plan to attend the Clifton special meeting, we urge you to vote. Stockholders of record may vote:
If you hold your stock in “street name” through a banker or broker, please follow the instructions on the voting instruction card furnished by the record holder.
If you have any questions or need assistance voting your shares, please contact our proxy solicitor, Laurel Hill Advisory Group, LLC, toll free at (888) 742-1305.
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Clifton, New Jersey
January 23, 2018April 22, 2020
REFERENCES TO AVAILABLE INFORMATION
This document incorporates important business and financial information about Kearny and Clifton from documents filed with the SEC that have not been included in or delivered with this document. You may read and copy these documents at the SEC’s public reference room located at 100 F Street, NE, Washington, DC 20549. Copies of these documents also can be obtained at prescribed rates by writing to the Public Reference Section of the SEC, at 100 F Street, NE, Washington, DC 20549 or by calling1-800-SEC-0330 for additional information on the operation of the public reference facilities. This information is also available at the Internet site the SEC maintains athttp://www.sec.gov.See “Where You Can Find More Information” on page 121.110.
You also may request orally or in writing copies of these documents at no cost by contacting the appropriate companyKearny at the following address:
Kearny Financial Corp. 120 Passaic Avenue, Fairfield, New Jersey 07004 Attention: Gail Corrigan, Corporate Secretary Telephone:(973) 244-4500 |
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If you are a Kearny stockholder or Cliftonan MSB stockholder and would like to request documents from Kearny, or Clifton, please do so byFebruary 22, 2018 May 20, 2020 to receive them before the stockholder meetings.meeting.
This document is also available on Kearny’s website at www.kearnybank.com under the tab “Company Info” under “Investor Relations” and on Clifton’sMSB’s website at www.csbk.bankwww.millingtonbank.com under the tab “About Us” under “Investor Relations.” The information on Kearny’s and Clifton’sMSB’s websites is not part of this document. References to Kearny’s and Clifton’sMSB’s websites in this document are intended to serve as textual references only.
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL | 1 | |||
SELECTED HISTORICAL FINANCIAL AND OTHER DATA OF KEARNY FINANCIAL CORP. | ||||
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| 23 | ||||
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| F-1 |
Annex A | Agreement and Plan of Merger, dated as of | A-1 | ||||
Annex B | B-1 | |||||
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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGSMEETING
The following are answers to certain questions that you may have regarding the merger the Kearny special meeting or the CliftonMSB special meeting. We urge you to read carefully the remainder of this document because the information in this section may not provide all the information that might be important to you in determining how to vote. Additional important information is also contained in the annexes to, and the documents incorporated by reference in this document.
| Q: | WHY AM I RECEIVING THIS DOCUMENT? |
| A. | You are receiving this document because you are |
In order to approve the merger agreement and the merger, KearnyMSB has called a virtual special meeting of its stockholders (which we refer to as the “Kearny special meeting”) and Clifton has called a special meeting of its stockholders (which we refer to as the “Clifton“MSB special meeting”). This document also serves as a notice of the Kearny special meeting and the CliftonMSB special meeting, and describes the proposals to be presented at eachthe MSB special meeting.
You should read this document carefully and in its entirety. The enclosed materials allow you to have your shares voted by proxy without attending your special meeting.Your vote is important. We encourage you to submit your proxy as soon as possible.
| Q: | WHY ARE YOU HOLDING A VIRTUAL MEETING INSTEAD OF A PHYSICAL MEETING? |
| A: | Due to the emerging public health impact of the coronavirus outbreak (COVID-19) and to support the health and well-being of our shareholders, our employees and our community members, our MSB special meeting will be held in a virtual meeting format only as a live webcast. There will not be any attendance at this meeting at any physical location. Whether or not you plan to attend the MSB special meeting, we urge you to vote and submit your proxy in advance of the meeting by one of the methods described in the proxy statement/prospectus for the MSB special meeting. |
| Q: | WHAT AM I BEING ASKED TO VOTE ON? |
| A: | You are being asked to vote on the approval of a merger agreement that provides for the merger of |
For Clifton Stockholders: You are being asked to vote on the approval of a merger agreement that provides for the merger of Clifton with and into Kearny. You are also being asked to vote on anon-binding advisory resolution approving the compensation that may become payable to the named executive officers of Clifton in connection with the merger (“merger-related compensation proposal”). You are also being asked to vote on a proposal to adjourn the stockholder meeting to a later date or dates, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the meeting to approve the merger agreement and the merger (which we refer to as the “Clifton adjournment proposal”). Completion of the merger is not conditioned upon approval of the merger-related compensation proposal or the Clifton adjournment proposal.
| Q: | WHAT VOTE DOES |
| A: | MSB’s board of directors has determined that the proposed merger is in the best interests of |
| Q: | WHAT WILL |
| A: | If the merger is completed, |
| common stock for the 10 |
| Q: | HOW WILL |
| A: |
MSB equity awards will be affected as follows: |
Stock Options: At the effective time of the merger, each option to purchase shares of CliftonMSB common stock outstanding immediately before the effective time of the merger, whether or not vested, will be canceled and, upon Kearny’sMSB’s receipt of an option surrender agreement from the holder, exchanged for a cash payment equal to the product of (1) the number of shares of CliftonMSB common stock subject to the stock option multiplied by (2) the amount by which $18.25$18.00 exceeds the exercise price of such option, less applicable withholding taxes.
Restricted Stock Awards: At the effective time of the merger, each outstanding share of restricted stock will vest and be converted into the right to receive 1.191 shares of Kearny common stock.the merger consideration.
| Q: | WHAT EQUITY STAKE WILL |
| A: | Following completion of the merger, current Kearny stockholders will own in the aggregate approximately |
| Q: | WHAT HAPPENS IF I AM ELIGIBLE TO RECEIVE A FRACTION OF A SHARE OF KEARNY COMMON STOCK AS PART OF THE MERGER CONSIDERATION? |
| A: | If the aggregate number of shares of Kearny common stock that you are entitled to receive as part of the merger consideration includes a fraction of a share of Kearny common stock, you will receive cash instead of that fractional share. See the section entitled “Description of the Merger—Consideration to be Received in the Merger” beginning on page |
| Q: | CAN MSB STOCKHOLDERS |
| A: | Yes, MSB stockholders may elect to receive all cash, all stock or cash for some of their shares and stock for the remainder of the shares they own, subject to the election and proration procedures set forth in the merger |
| Q: | HOW DO MSB STOCKHOLDERS |
| A: | A stock election form (the “Election Form”) has been mailed separately to you for you to complete, sign and return in the enclosed return envelope. For an election to be properly submitted, an Election Form must be received by Computershare Trust Company, N.A., the exchange agent for the merger (the “Exchange Agent”), at its designated office, or an election must be submitted online using the instructions in the Election Form, by the election deadline, which is 5:00 p.m., Eastern Time, on May 28, 2020 (the “Election Deadline”).Stockholders holding their shares of MSB common stock in certificate form must also include their original MSB stock certificate(s) with the Election Form. |
| Q. | WHAT HAPPENS IF I DO NOT SEND AN ELECTION FORM, OR SUBMIT AND ELECTION ONLINE, OR THE ELECTION FORM IS NOT RECEIVED BY THE ELECTION DEADLINE? |
| A: | If the Exchange Agent does not receive a properly completed Election Form from an MSB stockholder at or prior to the Election Deadline and that MSB stockholder has not properly submitted an election online at or prior to the Election Deadline, then such MSB stockholder will be deemed to have made no election with respect to his, her or its shares of MSB common stock. |
| Q. | CAN I CHANGE MY ELECTION AFTER THE FORM OF ELECTION HAS BEEN SUBMITTED? |
| A: | Yes. An election may be changed by written notice received by the Exchange Agent prior to the Election Deadline accompanied by a properly completed and signed revised Election Form. Additionally, you may revoke an election by written notice received by the Exchange Agent prior to the Election Deadline or by withdrawal prior to the Election Deadline of your certificates that were previously deposited with the Exchange Agent. |
| Q: | ARE MSB’S STOCKHOLDERS ENTITLED TO APPRAISAL RIGHTS? |
| A: | No. Because |
| Q: | IS COMPLETION OF THE MERGER SUBJECT TO ANY CONDITIONS BESIDES STOCKHOLDER APPROVAL? |
| A: | Yes. The merger must receive the required regulatory approvals, and there are other customary closing conditions that must be satisfied. For more information about the conditions to the completion of the merger, see “Description of the Merger—Conditions to Completing the Merger” on page |
| Q: | WHEN IS THE MERGER EXPECTED TO BE COMPLETED? |
| A: | We will complete the merger as soon as possible. Before that happens, the merger agreement and the merger must be approved by |
| Q: | ARE THERE RISKS THAT I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE TO APPROVE THE MERGER AGREEMENT AND THE MERGER? |
| A: | Yes. You should consider the risk factors set out in the section entitled “Risk Factors” beginning on page |
| Q: | WHAT VOTE IS REQUIRED TO APPROVE THE MATTERS TO BE CONSIDERED AT THE SPECIAL |
| A: | The proposal to approve the merger agreement and the merger must be approved by the affirmative vote of a majority of the issued and outstanding shares of |
The affirmative vote of a majority of votes cast at the Kearny special meeting is required to approve the Kearny adjournment proposal. Abstentions and brokernon-votes will not affect the outcome of such proposal.
For Clifton Stockholders: The proposal to approve the merger agreement and the merger must be approved by the affirmative vote of a majority of the issued and outstanding shares of Clifton common stock. Consequently, abstentions and brokernon-votes with respect to the merger agreement and the merger will effectively act as “against” votes on such proposal.
Approval of the merger-related compensation proposal and the CliftonMSB adjournment proposal require that the votes cast in favor of each such proposal exceed the votes cast against such proposal. Abstentions and brokernon-votes will not affect the outcome of such proposals.
| Q: | WHAT IS THE QUORUM REQUIREMENT FOR THE |
| A: | The presence at the |
| Q: | WHEN AND WHERE IS THE |
| A: | The |
| Q: | WHO IS ENTITLED TO VOTE AT THE SPECIAL |
| A: | Holders of shares of |
Holders of shares of Clifton common stock at the close of business on January 9, 2018 are entitled to vote at the Clifton special meeting. As of the record date, 22,099,814 shares of Clifton common stock were outstanding and entitled to vote.
| Q: | IF I PLAN TO ATTEND |
| A: | Yes. Whether or not you plan to attend |
| Q: | HOW DO I REGISTER TO ATTEND THE MSB SPECIAL MEETING VIRTUALLY ON THE INTERNET? |
| A: | If you are a registered shareholder (i.e., you hold your shares in the form of an MSB stock certificate or through our transfer agent, Computershare), you do not need to register to attend the meeting virtually on the Internet. Please follow the instructions on the notice of meeting or proxy card that you received. |
If you hold your shares through an intermediary, such as a bank or broker, you must register in advance to attend the meeting virtually on the Internet.
To register to attend the meeting online by webcast you must submit proof of your proxy power (legal proxy) reflecting your MSB holdings along with your name and email address to Computershare. Requests for meeting registration must be labeled as “Legal Proxy” and be received no later than 5:00 p.m., Eastern Time, on May 22, 2020.
You will receive a confirmation of your registration to attend the meeting by email after we receive your registration materials.
Requests for registration should be directed to us at the following:
By email:
Forward the email from your broker, or attach an image of your legal proxy, to legalproxy@computershare.com
By mail:
Computershare
MSB Financial Legal Proxy
P.O. Box 43001
Providence, RI 02940-3001
| Q: | WHAT DO I NEED TO DO NOW TO VOTE MY SHARES OF COMMON STOCK? |
| A: | If you are a “stockholder of record,” you can vote your shares as follows: |
via internet at www.investorvote.com/KRNY;MSBF;
via telephone by calling 1-800-652-VOTE (8683);1-800-652-8683, toll-free;
by completing and returning the proxy card that is enclosed; or
by voting in personelectronically at the virtual MSB special meeting.
Please refer to the specific instructions set forth on the proxy card. We encourage you to vote via the internet or by telephone.
For Clifton Stockholders: If you are a “stockholder of record,” you can vote your shares as follows:
Please refer to the specific instructions set forth on the proxy card. We encourage you to vote via the internet or by telephone.
| Q: |
Clifton stockholders: You may change your vote at any time before your proxy is voted at the Clifton special meeting by: (1) filing with the Corporate Secretary a duly executed revocation of proxy; (2) submitting a new proxy card with a later date; (3) voting again via the internet or by telephone; or (4) voting in person at the meeting (your attendance at the meeting will not by itself revoke your proxy). Clifton’s Corporate Secretary’s mailing address is 1433 Van Houten Avenue, Clifton, New Jersey 07015.
If you hold your shares of Kearny common stock or Clifton common stock in “street name” through a bank or broker, you should contact your bank or broker to change your vote or revoke your proxy.
| IF MY SHARES ARE HELD IN “STREET NAME” BY MY BROKER, BANK OR OTHER NOMINEE, WILL MY BROKER, BANK OR OTHER NOMINEE AUTOMATICALLY VOTE MY SHARES FOR ME? |
| A: | No. Your broker, bank or other nominee will not be able to vote your shares of common stock on the proposal to approve the merger agreement and the merger or on the other proposals unless you provide instructions on how to vote. Please instruct your broker, bank or other nominee how to vote your shares, following the directions that your broker, bank or other nominee provides. If you do not provide instructions to your broker, bank or other nominee, your shares will not be voted, and this will have the effect of voting |
| Q: | HOW CAN I CHANGE MY VOTE AFTER I HAVE SUBMITTED MY PROXY? |
| A: | You may change your vote at any time before your proxy is voted at the MSB special meeting by: (1) filing with the Corporate Secretary a duly executed revocation of proxy; (2) submitting a new proxy card with a later date; (3) voting again via the internet or by telephone; or (4) voting electronically at the meeting (your attendance electronically at the meeting will not by itself revoke your proxy). MSB’s Corporate Secretary’s mailing address is 1902 Long Hill Road, Millington, New Jersey 07946-0417. |
If you hold your shares of MSB common stock in “street name” through a bank or broker, you should contact your bank or broker to change your vote or revoke your proxy.
| Q: | WHAT ARE THE DEADLINES FOR VOTING? |
| A: | You may: (1) vote by mail at any time before the meeting as long as your proxy is received before the time of the meeting; or (2) vote by internet or telephone by |
If your shares are held in “street name,” you must vote your shares according to the voting instructions form by the deadline set by your broker, bank or other nominee.
| Q: | AS A |
| A: | The SEC’s rules require |
| Q: | WHAT WILL HAPPEN IF |
| A: | The vote with respect to the “golden parachute” compensation is an advisory vote and will not be binding on |
| Q: | WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO |
| A: | The tax consequence of the merger |
You should read“Description of the Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 7277 of this document for more information about the United States federal income tax consequences of the merger. Tax matters can be complicated and the tax consequences of the merger to you will depend on your particular tax situation. You should consult your tax advisor to determine the tax consequences of the merger to you.
| Q: | HOW DO I VOTE IF I OWN SHARES THROUGH THE |
| A: | Participants in the |
The deadline for returning your Voting Instruction Form to each plan’s trustee is FebruaryMay 22, 2018.2020 at 4:00 p.m. Eastern Time.
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The deadline for returning your Voting Instruction Form to each plan’s trustee is February 22, 2018.
| WHAT SHOULD I DO IF I HOLD MY SHARES OF |
| A: | You are not required to take any additional actions if your shares of |
| Q: | WHOM MAY I CONTACT IF I CANNOT LOCATE MY |
| A: | If you are unable to locate your original |
| Q: | WHAT SHOULD I DO IF I RECEIVE MORE THAN ONE SET OF VOTING MATERIALS? |
| A: | MSB stockholders may receive more than one set of voting materials, including multiple copies of this |
| Q: | WHO CAN ANSWER MY OTHER QUESTIONS? |
| A: | MSB stockholders who have more questions about the merger, the |
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Laurel Hill Advisory Group LLC at (888) 742-1305 (toll-free); Banks and Brokers, please call (516) 933-3100
This summary highlights selected information in this document and may not contain all of the information important to you. To understand the merger more fully, you should read this entire document carefully, including the annexes and the documents attached to or incorporated by reference into this document.
The Companies
Kearny Financial Corp.
120 Passaic Avenue
Fairfield, New Jersey 07004
(973) 244-4500
Kearny Financial Corp. is the holding company of Kearny Bank, a New Jersey chartered savings bank. Kearny Bank operates from its administrative headquarters in Fairfield, New Jersey, and a total of 4248 retail branch offices located throughout northern and central New Jersey and Brooklyn and Staten Island, New York. Kearny is principally engaged in the business of attracting deposits from the general public in New Jersey and New York and using these deposits, together with other funds, to originate or purchase loans for its portfolio and invest in securities. Kearny’s loan portfolio is primarily comprised of loans collateralized by commercial and residential real estate augmented by secured and unsecured loans to businesses and consumers. Kearny also maintains a portfolio of investment securities, primarily comprised of U.S. agency mortgage-backed securities, U.S. government and agency debentures, bank-qualified municipal obligations, corporate bonds, asset-backed securities, collateralized loan obligations and subordinated debt. Kearny Bank was recently named to Forbes’ list of the 50 Most Trustworthy Financial Companies. At September 30, 2017,December 31, 2019, Kearny had approximately $4.8$6.61 billion in total assets, total deposits of $2.95$4.19 billion and total stockholders’ equity of $1.01$1.09 billion.
Clifton Bancorp Inc.MSB Financial Corp.
1433 Van Houten Avenue1902 Long Hill Road
Clifton,Millington, New Jersey 0701507946-0417
(973) 473-2200(908)647-4000
Clifton Bancorp Inc.MSB Financial Corp. is the holding company for Clifton SavingsMillington Bank, a federallystate chartered savings bank headquartered in Clifton,Millington, New Jersey. Founded in 1928, Clifton SavingsMillington Bank is a metropolitan, community-focused bank serving residents and businesses in its market area through 12four full-service banking centers. Clifton Savings Bank offers traditional financial services and products to consumers and businessescenters located in its market area. Clifton Savings Bank attracts deposits from the general public and uses these deposits, together with other funds, to invest in securities and to make loans collateralized by residential and multi-family and commercial real estate and, to a lesser extent, commercial lines of credit, consumer and other types of loans.northern New Jersey. At September 30, 2017, CliftonDecember 31, 2019, MSB had total consolidated assets of $1.55 billion,$593.1 million, total deposits of $914.6$472.8 million and total stockholders’ equity of $285.9$65.4 million.
Special Meeting of KearnyMSB Stockholders; Required Vote (page 31)52)
The KearnyMSB special meeting is scheduled to be held as a virtual meeting only in the form of a live online webcast at the Crowne Plaza Hotel, 690 Route 46 East, Fairfield, New Jersey 07004 at 10:11:00 a.m., local time,Eastern Time, on March 1, 2018.May 28, 2020. To participate in the MSB special meeting, you will need to access www.meetingcenter.io/295836689 and enter your control number found on your proxy card, voting form or notice you previously received. There will be no physical meeting location. At the KearnyMSB special meeting, KearnyMSB stockholders will be asked to vote on a proposal to approve the merger agreement and the merger by and between CliftonMSB and Kearny. Kearny stockholders may also be asked to approve the Kearny adjournment proposal if there are not sufficient votes at the time of the Kearny special meeting to approve the merger agreement and the merger.
Only Kearny stockholders of record as of the close of business on January 9, 2018 are entitled to notice of, and to vote at, the Kearny special meeting and any adjournments or postponements of the meeting.
Approval of the merger agreement and the merger requires the affirmative vote of the holders of a majority of the issued and outstanding shares of Kearny common stock entitled to vote. Approval of the Kearny adjournment proposal will require the affirmative vote of the holders of a majority of the votes cast by the Kearny stockholders at the Kearny special meeting. As of January 9, 2018, the record date for the Kearny special meeting, there were 79,270,460 shares of Kearny common stock outstanding and entitled to vote. The directors and executive officers of Kearny, as a group, beneficially owned 2,958,450 shares of Kearny common stock, not including shares that may be acquired upon the exercise of stock options, representing approximately 3.73% of the outstanding shares of Kearny common stock as of the record date.
Each of the directors of Kearny, solely in his capacity as a Kearny stockholder, has entered into a separate voting agreement with Clifton, pursuant to which each such Kearny director has agreed to vote in favor of the merger agreement and the merger.
Special Meeting of Clifton Stockholders; Required Vote (page 35)
The Clifton special meeting is scheduled to be held at the Saddle Brook Marriott, 138 New Pehle Avenue, Saddle Brook, New Jersey 07663 at 9:30 a.m., local time, on March 1, 2018. At the Clifton special meeting, Clifton stockholders will be asked to vote on a proposal to approve the merger agreement and the merger by and between Clifton and Kearny. CliftonMSB stockholders will also be asked to vote to approve the merger-related compensation proposal and may be asked to approve the CliftonMSB adjournment proposal if there are not sufficient votes at the CliftonMSB special meeting to approve the merger agreement and the merger.
Only CliftonMSB stockholders of record as of the close of business on January 9, 2018March 25, 2020 are entitled to notice of, and to vote at, the CliftonMSB special meeting and any adjournments or postponements of the meeting.
Approval of the merger agreement and the merger requires the affirmative vote of the holders of a majority of the issued and outstanding shares of CliftonMSB common stock entitled to vote. Approval of the merger-related compensation proposal and the CliftonMSB adjournment proposal will require the affirmative vote of a majority of the votes cast by the CliftonMSB stockholders at the CliftonMSB special meeting. As of January 9, 2018,March 25, 2020, the record date for the CliftonMSB special meeting, there were 22,099,8145,184,914 shares of CliftonMSB common stock outstanding and entitled to vote. The directors and executive officers of Clifton,MSB, as a group,
beneficially owned 1,099,4181,014,031 shares of CliftonMSB common stock, not including shares that may be acquired upon the exercise of stock options, representing approximately 5.0%19.56% of the outstanding shares of CliftonMSB common stock as of the record date.
Each of the directors and executive officers of Clifton,MSB, solely in his or her capacity as a Cliftonan MSB stockholder, has entered into a separate voting agreement with Kearny, pursuant to which each such CliftonMSB director has agreed to vote in favor of the merger agreement and the merger.
The Merger and the Merger Agreement (page 40)56)
The merger of CliftonMSB with and into Kearny is governed by the merger agreement. The merger agreement provides that if all of the conditions are satisfied or waived, CliftonMSB will be merged with and into Kearny, with Kearny as the surviving entity.We encourage you to read the merger agreement, which is included as Annex A to this document.
What CliftonMSB Stockholders Will Receive in the Merger (page 40)56)
If the merger is completed, Clifton commonMSB stockholders willmay receive, 1.191at their election, either 1.30 shares (such number being referred to as the “exchange ratio”) of Kearny common stock for each share of CliftonMSB common stock held immediately prior to the merger.merger, or $18.00, or a combination thereof, provided that, in the aggregate, 90% of the total number of MSB common stock will be converted into stock consideration and the remaining MSB common stock will be converted into cash consideration. MSB stockholders may elect, subject to proration, to receive cash consideration for some of their shares and stock consideration for the remainder of their shares. Kearny will not issue any fractional shares of Kearny common stock in the
merger. Kearny will pay to each former CliftonMSB common stockholder who holds fractional shares an amount in cash determined by multiplying the average of the closing sale prices of Kearny common stock for the 10 full trading days ending on the third business day preceding the closing date of the merger by the fraction of a share (rounded to the nearest cent) of Kearny common stock that such stockholder would otherwise be entitled to receive.
Based on Kearny’s closing price of $15.05$14.10 on November 1, 2017,December 17, 2019, which was the last trading date preceding the public announcement of the proposed merger, each share of CliftonMSB common stock exchanged for 1.1911.30 shares of Kearny common stock would have a value of $17.92,$18.33, or approximately $396.0$94.0 million in aggregate merger consideration. Based on Kearny’s closing price of $14.10$8.32 on January 9, 2018,March 25, 2020, which is the most recent practicable trading day prior to the printing of this document, each share of CliftonMSB common stock exchanged for 1.1911.30 shares of Kearny common stock would have a value of $16.79.$10.82. The common stock of Kearny trades on the Nasdaq Global Select Market under the symbol “KRNY.” The common stock of CliftonMSB trades on the Nasdaq Global Select Market under the symbol “CSBK.“MSBF.” The market price of both Kearny common stock and CliftonMSB common stock will fluctuate before the completion of the merger; therefore, you are urged to obtain current market quotations for Kearny common stock and CliftonMSB common stock.
Market Price and Share Information (page 115)107)
The following table shows the closing price per share of Kearny common stock, the closing price per share of CliftonMSB common stock and the equivalent price per share of CliftonMSB common stock, giving effect to the merger, on November 1, 2017,December 17, 2019, which is the last day on which shares of each of Kearny common stock and CliftonMSB common stock traded preceding the public announcement of the proposed merger, and on January 9, 2018,March 25, 2020, the most recent practicable date before the mailing of this document. The implied value of one share of CliftonMSB common stock is computed by multiplying the price of a share of Kearny common stock by the 1.1911.30 exchange ratio. See “Description of the Merger—Consideration to be Received in the Merger.”
| Kearny Common Stock | Clifton Common Stock | Implied Value of One Share of Clifton Common Stock | ||||||||||
November 1, 2017 | $ | 15.05 | $ | 16.95 | $ | 17.92 | ||||||
January 9, 2018 | $ | 14.10 | $ | 16.65 | $ | 16.79 | ||||||
| Kearny Common Stock | MSB Common Stock | Implied Value of One Share of MSB Common Stock | ||||||||||
December 17, 2019 | $ | 14.10 | $ | 15.00 | $ | 18.33 | ||||||
March 25, 2020 | $ | 8.32 | $ | 11.80 | $ | 10.82 | ||||||
Treatment of CliftonMSB Equity Awards (page 71)73)
At the effective time of the merger, each option to purchase shares of CliftonMSB common stock outstanding immediately before the effective time of the merger, whether or not vested, will be canceled and, upon Kearny’sMSB’s receipt of an option
surrender agreement from the holder, exchanged for a cash payment equal to the product of (1) the number of shares of CliftonMSB common stock subject to the stock option multiplied by (2) the amount by which $18.25$18.00 exceeds the exercise price of such option, less applicable withholding taxes.
At the effective time of the merger, each outstanding share of restricted stock will vest and be converted into the right to receive 1.191 shares of Kearny common stock.the merger consideration.
Recommendation of Kearny’sMSB’s Board of Directors (page 58)64)
The KearnyMSB board of directors has unanimously approved the merger agreement and the proposed merger. The KearnyMSB board believes that the merger agreement, including the merger, is in the best interests of KearnyMSB and its stockholders, and thereforeunanimously recommends that KearnyMSB stockholders vote “FOR” the approval of the merger agreement and the merger. In reaching this decision, Kearny’sMSB’s board of directors considered a variety of factors, which are described in the section captioned “Description of the Merger—Kearny’s Reasons for the Merger” and “ —Recommendation of Kearny’s Board of Directors.”
In addition, the Kearny board of directors unanimously recommends that Kearny stockholders vote“FOR” the Kearny adjournment proposal.
Recommendation of Clifton’s Board of Directors (page 45)
The Clifton board of directors has unanimously approved the merger agreement and the proposed merger. The Clifton board believes that the merger agreement, including the merger, is in the best interests of Clifton and its stockholders, and thereforeunanimously recommends that Clifton stockholders vote “FOR” the approval of the merger agreement and the merger. In reaching this decision, Clifton’s board of directors considered a variety of factors, which are described in the section captioned “Description of the Merger—Clifton’sMSB’s Reasons for the Merger and Recommendation of the Board of Directors.”
In addition, the CliftonMSB board of directors unanimously recommends that CliftonMSB stockholders vote“FOR” the merger-related compensation proposal and the CliftonMSB adjournment proposal.
RP Financial’s Opinion to Clifton Bancorp Inc.of MSB Financial Corp.’s Board of DirectorsFinancial Advisor (page 48)64)
On November 1, 2017,December 18, 2019, the CliftonMSB board of directors received an opinion from RP Financial, LC.FinPro Capital Advisors, Inc. (which we refer to as “RP Financial”“FCA”) to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by RP FinancialFCA as set forth in its opinion, the exchange ratiomerger consideration in the proposed merger was fair, from a financial point of view, to the holders of CliftonMSB common stock. Subsequent changes in the operations and prospects of CliftonMSB or Kearny, general market and economic conditions and other factors that may be beyond the control of CliftonMSB or Kearny may significantly alter the value of CliftonMSB or Kearny or the prices of CliftonMSB common stock or Kearny common stock by the time the merger is completed. Because CliftonMSB does not anticipate asking RP FinancialFCA to update its opinion, the opinion will not address the fairness of the merger consideration from a financial point of view at the time the merger is completed or as of any other date other than the date of such opinion.
The description of the opinion set forth herein is qualified in its entirety by reference to the full text of the opinion, which is attached asAnnex B to this document and is incorporated herein by reference, and describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by RP FinancialFCA in preparing the opinion.
RP Financial’sFCA’s opinion speaks only as of the date of the opinion. The opinion was for the information of, and was directed to, the CliftonMSB board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion addressed only the fairness, from a financial point of view, as of the date of the opinion, of the exchange ratiomerger consideration in the merger to the holders of CliftonMSB common stock. It did not address, among other things as set forth in RP Financial’sFCA’s opinion, the underlying business decision of the CliftonMSB board of directors to engage in the merger or enter into the merger agreement or constitute a recommendation to the CliftonMSB board of directors in connection with the merger, and it does not constitute a recommendation to any holder of CliftonMSB common stock as to how to vote in connection with the merger or any other matter.
For a description of the opinion that the CliftonMSB board of directors received from RP Financial,FCA, please refer to the section entitled “Description of the Merger—RP Financial’sFCA’sOpinion to Clifton’sMSB’s Board of Directors.”
Opinion of Kearny’s Financial Advisor (page 58)
In connection with the merger, Kearny’s financial advisor, Keefe, Bruyette & Woods, Inc. (“KBW”) delivered a written opinion, dated November 1, 2017, to the Kearny board of directors as to the fairness, from a
financial point of view and as of the date of the opinion, to Kearny of the exchange ratio in the proposed merger. The full text of KBW’s opinion, which describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW in preparing the opinion, is attached asAnnex C to this document.The opinion was for the information of, and was directed to, the Kearny board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion did not address the underlying business decision of Kearny to engage in the merger or enter into the merger agreement or constitute a recommendation to the Kearny board of directors in connection with the merger, and it does not constitute a recommendation to any holder of Kearny common stock or any stockholder of any other entity as to how to vote in connection with the merger or any other matter.
For a description of the opinion that the Kearny board of directors received from Kearny’s financial advisor, please refer to the section entitled “Description of the Merger—Opinion of Kearny’s Financial Advisor.”
Interests of Certain PersonsMSB’s Directors and Executive Officers in the Merger that are Different from Yours (page 76)81)
In considering the information contained in this document, you should be aware that Clifton’sMSB’s directors and executive officers have employment and other compensation agreements or plans that give them financial interests in the merger that are different from, or in addition to, the interests of CliftonMSB stockholders generally. The Clifton board of directors was aware of these interests at the time it approved the merger agreement. These interests include, among other things:
change in control agreements between Clifton, Clifton SavingsMSB, Millington Bank and each of Paul M. Aguggia,Michael A. Shriner, President and Chief Executive Officer, of Clifton, Christine R. Piano, Executive Vice President and Chief Financial Officer of Clifton, and Stephen Hoogerhyde, Executive Vice President of Clifton, that provide for cash severance payments and continued life, medical, health and disability insurance if the executive’s employment is voluntarily terminated for good reason or involuntarily terminated without just cause following a change in control and during the term of the employment agreement;
Schmitz, Senior Vice President, Chief Credit Officer and Corporate Secretary, John Bailey, Executive Vice President and Chief Lending Officer and one other officer that each provide for cash severance payments if the executive’s employment is voluntarily terminated for good reason or involuntarily terminated without just cause within twenty-four (24) months following a change in control and during the term of the change in control agreement; |
the acceleration of vesting of all outstanding CliftonMSB restricted stock awards, which will be exchanged for the merger consideration;awards;
a Settlement Agreementsettlement agreement that Kearny, Kearny Bank, CliftonMSB and Clifton SavingsMillington Bank entered into with Mr. Aguggia, in full satisfactioneach of Mr. Aguggia’s rights under his employment agreement in connection with his termination of employmentMessrs. Shriner, Russell, Bailey, Ms. Schmitz and one other officer providing for payments upon completioncancellation of the merger;
change in control agreements referenced above; and
Regulatory Matters Relating to the Merger (page 75)80)
Under the terms of the merger agreement, the merger cannot be completed unless it is first approved by, or a waiver of such applications is obtained from, the Federal Deposit Insurance Corporation (the “FDIC”), the Department of Banking and Insurance of the State of New Jersey (the “NJDBI”), and the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Kearny has filed the required applications with the FDIC and intends to requestthe NJDBI and has requested a waiver for filing an application with the Federal Reserve. While Kearny does not know of any reason why it would not obtain the approvals in a timely manner, Kearny cannot be certain when or if it will receive the regulatory approvals or requested waiver.
Conditions to Completing the Merger (page 81)84)
The completion of the merger is subject to the fulfillment of a number of customary closing conditions, including:
approval of the merger agreement by Clifton and KearnyMSB stockholders;
receipt of all required regulatory approvals, consents or waivers and the expiration of all statutory waiting periods;
the absence of any order, decree, injunction, statute, rule or regulation that prevents the consummation of the merger or the bank merger or that makes completion of the merger or the bank merger illegal;
receipt of consent of all third parties whose consent is required to consummate the merger, except where failure to obtain such consent would not have a material adverse effect on Kearny;
effectiveness of the registration statement of which this document is a part;
authorization for listing on the Nasdaq Stock Market of the shares of Kearny common stock to be issued in the merger;
receipt by Kearny and CliftonMSB of an opinion from their respective legal counsel to the effect that the merger will be treated for federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code;
subject to the materiality standards provided in the merger agreement, the continued accuracy of the representations and warranties of Kearny and CliftonMSB in the merger agreement;
performance in all material respects by each of Kearny and CliftonMSB of its respective obligations under the merger agreement, unless waived by the other party;
the absence of any material adverse effect with respect to Kearny or CliftonMSB since the date of the merger agreement; and
none of the regulatory approvals containing any materially burdensome conditions.
Terminating the Merger Agreement (page 90)92)
The merger agreement may be terminated by mutual written consent of Kearny and CliftonMSB at any time prior to the completion of the merger. Additionally, subject to conditions and circumstances described in the merger
agreement, either Kearny or CliftonMSB may terminate the merger agreement any time prior to the completion of the merger if, among other things, any of the following occur:
MSB stockholders do not approve the merger agreement at the CliftonMSB special meeting or Kearny special meeting, respectively, provided each partyit has complied with certain obligations pursuant to the merger agreement;
any required regulatory approval has been denied and such denial has become final andnon-appealable, or a governmental authority or court has issued a final, unappealable order prohibiting consummation of the transactions contemplated by the merger agreement;
the merger has not been consummated by September 30, 2018,2020, unless the failure to complete the merger by that time was due to the failure of the party seeking to terminate the merger agreement to perform or observe the covenants and agreements provided in the merger agreement; or
there is a breach by the other party of any covenant or agreement contained in the merger agreement, or any representation or warranty of the other party becomes untrue, in each case such that the conditions to closing would not be satisfied and such breach or untrue representation or warranty has not been or cannot be cured within 30 days after the giving of written notice to such party of such breach.
Kearny may also terminate the merger agreement if CliftonMSB breaches its obligations in any material respect regarding the solicitation of other acquisition proposals or submission of the merger agreement to Clifton’sMSB’s stockholders or if the CliftonMSB board of directors does not publicly recommend in this document that CliftonMSB stockholders approve the merger agreement or withdraws or revises its recommendation in a manner adverse to Kearny.Kearny, provided that in either case MSB stockholders fail to adopt the merger agreement.
CliftonMSB may also terminate the merger agreement:
within the five day period commencing with the tenth day prior to the closing date of the merger (which we refer to as the “determination date”), if both of the following conditions have been satisfied:
the average of the daily closing sale prices of a share of Kearny common stock as reported on the Nasdaq Global Select Market for the 20 consecutive full trading days immediately preceding the determination date is less than $12.42 (82.5%$11.28 (80% of the closing sale price of Kearny common stock on the last trading date before the date of the first public announcement of the merger agreement); and
the decline in Kearny’s common stock underperformsbeing at least 20% greater than a corresponding decline in the value of the NASDAQ Bank Index by more than 17.5% during the same period.
However, if CliftonMSB chooses to exercise this termination right, Kearny has the option, within five business days of receipt of notice from Clifton,MSB, to adjust the merger consideration and prevent termination under this provision.
Termination Fee (page 91)93)
Under certain circumstances described in the merger agreement in connection with the termination of the merger agreement, including circumstances involving alternative acquisition proposals with respect to CliftonMSB and changes in the recommendation of the CliftonMSB board of directors, CliftonMSB will owe Kearny a $15,000,000$3.54 million termination fee. See“Description of the Merger—Termination Fee” on page 9193 for a description of the circumstances under which the termination fee is payable. The termination fee could discourage other companies from seeking to acquire Clifton.MSB.
Accounting Treatment of the Merger (page 72)77)
The merger will be accounted for using the acquisition method in accordance with U.S. generally accepted accounting principles.
Comparison of Rights of Stockholders (page 106)99)
When the merger is completed, Cliftonmost MSB stockholders will receive shares of Kearny common stock and become Kearny stockholders with their rights governed by Maryland law and by Kearny’s articles of incorporation and bylaws. The rights of CliftonMSB stockholders will change as a result of the merger due to differences in Kearny’s and Clifton’sMSB’s governing documents. See“Comparison of Rights of Stockholders” for a summary of the material differences between the respective rights of CliftonMSB stockholders and Kearny stockholders.
CliftonMSB Stockholders are NOT entitled to Dissenters’ Rights (page 22)16)
Appraisal or dissenters’ rights are statutory rights that, if applicable under law, enable stockholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in that extraordinary transaction. Under the Maryland General Corporation Law, and pursuant to Clifton’sMSB’s articles of incorporation, holders of CliftonMSB common stock are not entitled to appraisal rights in the merger with respect to their shares of CliftonMSB common stock because CliftonMSB common stock is listed on a national securities exchange and Clifton’sMSB’s articles of incorporation do not provide for appraisal rights unless specifically granted by Clifton’sMSB’s board of directors.
Material U.S. Federal Income Tax Consequences of the Merger (page 72)77)
The merger is intended to qualify for U.S federal income tax purposes as a “reorganization” within the meaning of Section 368(a)consequence of the Internal Revenue Codemerger to MSB stockholders will depend on whether only cash consideration, stock consideration, or a combination of 1986, as amended. Accordingly, U.S. holderscash consideration and stock consideration is received in exchange for shares of CliftonMSB common stock. If shares are exchanged solely for stock generally will not recognize anyconsideration, no gain or loss onshould be recognized except with respect to the exchange of shares of Clifton common stock for shares of Kearny common stock. However, a U.S. holder of Clifton common stock generally will be subject to U.S. federal income tax on cash received in lieuinstead of any fractional share of Kearnystock consideration. If shares are exchanged solely for cash consideration, a gain or loss should be recognized on the exchange. If shares were exchanged for a combination of stock consideration and cash consideration, a gain should be recognized equal to the lesser of the cash received or the gain realized in the merger (that is, the fair market value of the stock consideration received, plus the cash received, and minus the MSB shareholder’s basis in the shareholder’s MSB common stock). Because the allocations of cash consideration and stock that a holder would otherwise be entitled to receive.
This tax treatment may not apply to all Clifton stockholders. Determiningconsideration received will depend on the elections of other MSB stockholders, the actual tax consequences of the merger to Clifton stockholders canwill not be complicated and will depend on your particular circumstances. Clifton stockholdersknown until the allocations are completed.
You should consult their own tax advisor for a full understanding of the merger’s tax consequences that are particular to each stockholder.
To review the tax consequences of the merger to Clifton stockholders in greater detail, please see the sectionread“Description of the Merger—Material U.S. Federal Income Tax Consequences of the MergerMerger”.” beginning on page 77 of this document for more information about the United States federal income tax consequences of the merger. Tax matters can be complicated and the tax consequences of the merger to you will depend on your particular tax situation. You should consult your tax advisor to determine the tax consequences of the merger to you.
Risk Factors (page 18)13)
You should consider all the information contained in or incorporated by reference into this document in deciding how to vote for the proposals presented in the document. In particular, you should consider the factors described under “Risk Factors.”
In deciding how to vote, you should consider carefully all of the information included in this document and its annexes and all of the information incorporated by reference and the risk factors identified by Kearny and CliftonMSB with respect to their operations included in their filings with the SEC, including Kearny’s Annual Report onForm 10-K for the year ended June 30, 20172019 and Clifton’sMSB’s Annual Report on Form10-K for the year ended MarchDecember 31, 2017.2019. See “Where You Can Find More Information.” In addition, you should consider the following risk factors.
Risks Related to the Merger and Kearny’s Business Upon Completion of the Merger
Because the price of Kearny common stock will fluctuate, CliftonMSB stockholders cannot be certain of the market value of the merger consideration.
Upon the completion of the merger, each share of CliftonMSB common stock outstanding immediately prior to the completion of the merger will be converted into the right to receive 1.191either 1.30 shares of Kearny common stock.stock or $18.00, or a combination thereof, provided that, in the aggregate, 90% of the total number of MSB common stock will be converted into stock consideration and the remaining MSB common stock will be converted into cash consideration. The market value of the merger consideration may vary from the closing price of Kearny common stock on the date we announced the execution of the merger agreement, on the date that this document was mailed to Clifton stockholders and KearnyMSB stockholders, on the date of the Clifton special meeting and the KearnyMSB special meeting and on the date we complete the merger. The market price of Kearny common stock may fluctuate as a result of a variety of factors, including general market and economic conditions, changes in Kearny’s business, operations and prospects, and regulatory considerations. Therefore, at the time of the CliftonMSB special meeting, CliftonMSB stockholders will not know or be able to calculate the market value of the Kearny common stock they will receive upon completion of the merger. For example, based on the range of closing prices of Kearny common stock during the period from November 1, 2017,December 17, 2019, the last trading day before public announcement of the merger, through January 9, 2018,March 25, 2020, the last practicable date before the date of this document, the merger consideration represented a market value ranging from a low of $16.79$10.05 to a high of $17.98$18.33 for each share of CliftonMSB common stock. You should obtain current market quotations for shares of Kearny common stock and CliftonMSB common stock. See “Market Price and Dividend Information” on page 115107 for ranges of historic market prices of Kearny common stock and CliftonMSB common stock.
MSB stockholders may receive a form of merger consideration different from what they elect.
Although each MSB stockholder may elect to receive either the cash consideration or the stock consideration, or a combination of both, in the merger, the merger agreement provides that the total number of shares of MSB common stock (including MSB restricted stock awards) to be entitled to receive the cash consideration shall be capped. As a result, depending on the elections made by other MSB stockholders, an MSB stockholder might receive a portion of the merger consideration in the form such holder did not elect. Moreover, if an MSB stockholder does not submit a properly completed and signed Election Form by the Election Deadline, then such holder will have no control over the type of merger consideration such holder may receive. Accordingly, electing one form of merger consideration will not guarantee you will receive that form of merger consideration for all of your shares of MSB common stock, and proration may be necessary. See “The Merger Agreement—Merger Consideration” for a more detailed explanation of the cap on the cash consideration, the election procedures, the Election Deadline, and proration.
The price of Kearny common stock might decrease after the merger.
Upon completion of the merger, holders of CliftonMSB common stock will become stockholders of Kearny. Kearny common stock could decline in value after the merger. For example, during the twelve-month period ending on January 9, 2018March 25, 2020 (the most recent practicable date before the printing of this document), the closing price of Kearny common stock varied from a low of $13.60$7.73 to a high of $15.65$14.31 and ended that period at $14.10.$8.32. The market value of Kearny common stock fluctuates based upon general market conditions, Kearny’s business, operations and prospects and other factors. Further, the market price of Kearny common stock after the merger may be affected by factors different from those currently affecting the common stock of Kearny or Clifton.MSB. The businesses of CliftonMSB and Kearny differ and, accordingly, the results of operations of the combined company and the market price of the combined company’s shares of common stock may be affected by factors different from those currently affecting the independent results of operations and market prices of common stock of each of CliftonMSB and Kearny. For a discussion of the businesses of CliftonMSB and Kearny and of certain factors to consider in connection with those businesses, see the documents incorporated by reference in this document and referred to under“Where You Can Find More Information” beginning on page 121.110 and“Information About MSB Financial Corp” beginning on page 23.
Clifton
MSB and Kearny will be subject to business uncertainties and contractual restrictions while the merger is pending.
Uncertainty about the effects of the merger on employees and customers may have an adverse effect on CliftonMSB or Kearny. These uncertainties may impair Clifton’sMSB’s or Kearny’s ability to attract, retain and motivate key
personnel until the merger is completed, and could cause customers and others that interact with CliftonMSB or Kearny to seek to change existing business relationships with CliftonMSB or Kearny. Retention of certain employees by CliftonMSB or Kearny may be challenging while the merger is pending, as certain employees may experience uncertainty about their future roles with the combined company. If key employees depart because of issues relating to the uncertainty and difficulty of integration, or a desire not to remain with CliftonMSB or Kearny, Clifton’sMSB’s business or Kearny’s business could be harmed. In addition, subject to certain exceptions, CliftonMSB has agreed to operate its business in the ordinary course prior to closing. See “Description of the Merger—Conduct of Business Before the Merger” for a description of the restrictive covenants applicable to CliftonMSB and Kearny.
Failure to complete the merger could negatively impact the stock prices and future businesses and financial results of Kearny and Clifton.MSB.
There can be no assurance that the merger will be completed. If the merger is not completed, the ongoing businesses of Kearny and CliftonMSB may be adversely affected and Kearny and CliftonMSB will be subject to a number of risks, including the following:
Kearny and CliftonMSB will be required to pay certain costs relating to the merger, whether or not the merger is completed, such as legal, accounting, financial advisor, proxy solicitation and printing fees;
under the merger agreement, Kearny and CliftonMSB are subject to certain restrictions on the conduct of their respective businesses before completing the merger, which may adversely affect its ability to execute certain of its business strategies if the merger is terminated; and
matters relating to the merger may require substantial commitments of time and resources by Kearny and CliftonMSB management, which could otherwise have been devoted to other opportunities that may have been beneficial to Kearny and CliftonMSB as independent companies, as the case may be.
In addition, if the merger is not completed, Kearny and/or CliftonMSB may experience negative reactions from the financial markets and from their respective customers and employees. Kearny and/or CliftonMSB also could be subject to litigation related to any failure to complete the merger or to proceedings commenced by Kearny or CliftonMSB against the other seeking damages or to compel the other to perform its obligations under the merger agreement. These factors and similar risks could have an adverse effect on the results of operation, business and stock prices of Kearny and Clifton.MSB.
Kearny may be unable to successfully integrate Clifton’sMSB’s operations or retain Clifton’sMSB’s employees, which could adversely affect the combined company.
The merger involves the integration of two companies that have previously operated independently. The difficulties of combining the operations of the two companies include, among other things: integrating personnel with diverse business backgrounds; combining different corporate cultures; and retaining key employees.
The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of the business and the loss of key personnel. The integration of the two companies will substantially benefit from the experience and expertise of certain key employees of CliftonMSB who are expected to be retained by Kearny. Kearny may not be successful in retaining these employees for the time period necessary to successfully integrate Clifton’sMSB’s operations with those of Kearny. The diversion of management’s attention and any delays or difficulties encountered in connection with the merger and the integration of the two companies’ operations could have an adverse effect on the business and results of operations of Kearny following the merger.
Additionally, Kearny may not be able to successfully achieve the level of cost savings, revenue enhancements and other synergies that it expects, and may not be able to capitalize upon the existing customer relationships of CliftonMSB to the extent anticipated, or it may take longer, or be more difficult or expensive than expected, to achieve these goals. These matters could have an adverse effect on Kearny’s business, results of operation and stock price.
The termination fee and the restrictions on solicitation contained in the merger agreement may discourage other companies from trying to acquire Clifton.MSB.
Until the completion of the merger, with some exceptions, CliftonMSB is prohibited from soliciting, initiating, encouraging or participating in any discussion of or otherwise considering any inquiry or proposal that may lead to an acquisition proposal, such as a merger or other business combination transactions, with any person other than Kearny. In addition, CliftonMSB has agreed to pay a $15.0$3.54 million termination fee to Kearny in specified circumstances. These provisions could discourage other companies that may have an interest in acquiring CliftonMSB from considering or proposing such an acquisition even though those other companies might be willing to offer greater value to Clifton’sMSB’s stockholders than Kearny has offered in the merger. The payment of the termination fee could also have a material adverse effect on Clifton’sMSB’s financial condition.
Certain of Clifton’sMSB’s officers and directors have interests that are different from, or in addition to, interests of CliftonMSB stockholders generally.
The directors and certain officers of CliftonMSB have interests in the merger that are different from, or in addition to, the interests of Clifton shareholdersMSB stockholders generally. These include: (1) employment and change in control agreements for certain officers of CliftonMSB and Clifton SavingsMillington Bank that provide for cash severance payments and continued health insurance benefits upon a termination without just cause or a termination with good reason within twenty-four months following the completion of the merger; (2) a cash payment in connection with the termination of all outstanding CliftonMSB stock options; (3) the acceleration of vesting of all outstanding restricted stock awards; (4) aNon-Competition Agreement settlement agreement entered into with Paul M. Aguggia, Presidenteach of Messrs. Shriner, Russell, Bailey, Ms. Schmitz and Chief Executive Officer of Clifton; (5) a Settlement Agreement entered into with Paul M. Aguggia, President and Chief Executive Officer of Clifton,one other officer concurrent with the execution of the merger agreement; (6) cash payments in connection with the termination of the Amended and Restated Clifton Savings Bank Supplemental Executive Retirement Plan and Clifton Savings Bank Directors’ Retirement Plan; (7) the appointment of three directors of Clifton to the board of directors of Kearny immediately following the merger; and (8)(5) provisions in the merger agreement relating to indemnification of directors and officers and insurance for directors and officers of CliftonMSB for events occurring before the merger.
For a more detailed discussion of these interests, see “Description of the Merger—Interests ofCertain PersonsMSB’s Directors and Executive Officers in the Merger that are Different from Yours” beginning on page 76.81.
Both Kearny and CliftonMSB stockholders will have a reduced ownership and voting interest after the merger and will exercise less influence over management of the combined organization.
Each of Kearny and CliftonMSB stockholders currently have the right to vote in the election of their respective boards of directors and on various other matters affecting their respective companies. Upon the completion of the merger, Clifton’sMSB’s stockholders will become stockholders of Kearny with a percentage ownership of the combined organization that is substantially smaller than such stockholders’ percentage ownership of Clifton.MSB. Further, because shares of Kearny common stock will be issued to existing CliftonMSB stockholders, the stockholders of Kearny common stock will have their ownership and voting interests diluted by approximately 24%6%.
The shares of Kearny common stock to be received by CliftonMSB stockholders as a result of the merger will have different rights from shares of CliftonMSB common stock.
Following completion of the merger, CliftonMSB stockholders will no longer be stockholders of CliftonMSB but will instead be stockholders of Kearny. There are differences between the current rights of CliftonMSB stockholders and the rights of Kearny stockholders that may be important to CliftonMSB stockholders. See “Comparison of Rights ofStockholders” beginning on page 10699 for a discussion of the different rights associated with Kearny common stock and CliftonMSB common stock.
The fairness opinionsopinion to the boardsboard of directors of Kearny and CliftonMSB rendered on the date of the signing of the merger agreement dodoes not reflect any changes in circumstances after the date of such fairness opinions.opinion.
KBW, Kearny’s financial advisor in connection with the merger,FCA delivered to the board of directors of KearnyMSB its opinion on November 1, 2017. RP Financial delivered to the board of directors of Clifton itsDecember 18, 2019. The opinion on November 1, 2017. The opinions dodoes not reflect changes that may occur or may have occurred after the date of such opinions,opinion, including changes to the operations and prospects of Kearny or Clifton,MSB, changes in general market and economic conditions or regulatory or other factors that may materially alter or affect the value of Kearny common stock or CliftonMSB common stock. The opinions speakopinion speaks only as of the date on which they wereit was rendered and not as of the date of this joint proxy statement/prospectus or any other date.
There is no assurance when or even if the merger will be completed.
Completion of the merger is subject to satisfaction or waiver of a number of conditions. See “Description of the Merger—Conditions to Completing the Merger” beginning on page 81.84. There can be no assurance that Kearny and CliftonMSB will be able to satisfy the closing conditions or that closing conditions beyond their control will be satisfied or waived.
Kearny and CliftonMSB can agree at any time to terminate the merger agreement, even if Clifton and KearnyMSB stockholders have already voted to approve the merger agreement and the merger. Kearny and CliftonMSB can also terminate the merger agreement under other specified circumstances.
Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the merger.
Before the merger and the bank merger may be completed, Kearny and CliftonMSB must obtain approvals (or waivers) from the Federal Reserve, the FDIC and the NJDBI. Other approvals, waivers or consents from regulators may also be required. In determining whether to grant these approvals (or waivers) the regulators consider a variety of factors, including the regulatory standing of each party. An adverse development in either party’s regulatory standing or other factors could result in an inability to obtain approval or delay their receipt. These regulators may impose conditions on the completion of the merger or the bank merger or require changes to the terms of the merger or the bank merger. Such conditions or changes could have the effect of delaying or preventing completion of the merger or the bank merger or imposing additional costs on or limiting the revenues of the combined company following the merger and the bank merger, any of which might have an adverse effect on the combined company following the merger.
Goodwill incurred in the merger may negatively affect Kearny’s financial condition.
To the extent that the merger consideration, consisting of shares of Kearny common stock to be issued in the merger, exceeds the fair value of the net assets, including identifiable intangibles of Clifton,MSB, that amount will be reported as goodwill by Kearny. In accordance with current accounting guidance, goodwill will not be amortized but will be evaluated for impairment annually. A failure to realize expected benefits of the merger could adversely impact the carrying value of the goodwill recognized in the merger, and in turn negatively affect Kearny’s financial condition.
The unaudited pro forma combined condensed financial statements included in this document are preliminary and the actual financial condition and results of operations of Kearny after the merger may differ materially.
The unaudited pro forma combined condensed financial statements in this document are presented for illustrative purposes only and are not necessarily indicative of what Kearny’s actual financial condition or results
of operations would have been had the merger been completed on the dates indicated. The unaudited pro forma combined condensed financial data, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the benefits of expected cost savings or opportunities to earn additional revenue and, accordingly, does not attempt to predict or suggest future results. The unaudited pro forma combined condensed financial statements reflect adjustments, which are based upon preliminary estimates, to record the Clifton identifiable assets acquired and liabilities assumed at fair value and the resulting goodwill recognized. The purchase price allocation reflected in this document is preliminary, and final allocation of the purchase price will be based on the actual purchase price and the fair value of the assets and liabilities of Clifton as of the date of the completion of the merger. Accordingly, the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected in this document. For more information, please see“Unaudited Pro Forma Combined Condensed Consolidated Financial Data” beginning on page 93.
CliftonMSB stockholders do not have appraisal or dissenters’dissenters’ rights in the merger.merger.
Appraisal or dissenters’ rights are statutory rights that, if applicable under law, enable stockholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in that extraordinary transaction. Under the Maryland General Corporation Law, and pursuant to Clifton’sMSB’s articles of incorporation, holders of CliftonMSB common stock are not entitled to appraisal rights in the merger with respect to their shares of CliftonMSB common stock because CliftonMSB common stock is listed on a national securities exchange and Clifton’sMSB’s articles of incorporation do not provide for appraisal rights unless specifically granted by Clifton’sMSB’s board of directors.
The recent global coronavirus outbreak may pose risks and could harm business and results of operations for each of Kearny and MSB and the combined company following the completion of the merger.
In December 2019, a coronavirus(COVID-19) was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. Since first being reported in China, the coronavirus has spread to additional countries including the United States. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the coronavirus outbreak on businesses of Kearny, MSB and the combined company, and there is no guarantee that efforts by Kearny, MSB and the combined company to address the adverse impacts of the coronavirus will be effective. The extent of such impact will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and actions taken to contain the coronavirus or its impact, among others.
The ultimate risk posed by coronavirus remains highly uncertain; however, reports as of the date of this proxy statement/prospectus suggestthat COVID-19 spreads more quickly and has a higher mortality ratethan flu-like epidemics of the recentpast. COVID-19 therefore poses a material risk to the business, financial condition and results of operations of both Kearny and MSB, and potentially could create risks for the combined company, including:
risks to the capital markets that may impact the performance of the investment securities portfolios of Kearny and MSB;
effects on key employees, including operational management personnel and those charged with preparing, monitoring and evaluating the companies’ financial reporting and internal controls;
declines in demand for loans and other banking services and products, as well as a decline in the credit quality of our loan portfolio, owing to the effects ofCOVID-19 in the markets served by Kearny and MSB;
declines in demand resulting from adverse impacts of the disease on businesses deemed to be“non-essential” by governments in the markets served by Kearny and MSB; and
increasing or protracted volatility in the price of Kearny common stock.
These factors, together or in combination with other events or occurrences not yet known or anticipated, could adversely affect the value of the merger consideration or could delay or prevent the consummation of the merger and the related transactions. If Kearny or MSB is unable to recover from a business disruption on a timely basis, the merger and the combined company’s business and financial conditions and results of operations following the completion of the merger could be adversely affected. The merger and efforts to integrate the businesses of Kearny and MSB may also be delayed and adversely affected by the coronavirus outbreak, and become more costly. Each of Kearny, MSB and the combined company may also incur additional costs to remedy damages caused by such disruptions, which could adversely affect its financial condition and results of operations.
Risks Relating to Kearny’s Business.Business
You should read and consider risk factors specific to Kearny’s business that will also affect the combined company after the merger. These risks are described in the sections entitled “Risk Factors” in Kearny’s Annual Report on Form10-K for the fiscal year ended June 30, 20172019 and in other documents incorporated by reference into this document. Please see the section entitled “Where You Can Find More Information” beginning on page 121110 of this document for the location of information incorporated by reference into this document. In addition, you should consider the following Risk Factor:
Risks RelatingActs of terrorism, severe weather, natural disasters, pandemics, public health issues and other external events could impact our ability to Clifton’s Business.conduct business.
You should read and considerOur business is subject to risk factors specific to Clifton’s businessfrom external events that will alsocould affect the combined company afterstability of our deposit base, impair the merger. These risks are describedability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue, and/or cause us to incur additional expenses. For example, financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising their operating and communication systems. The metropolitan New York area remains a central target for potential acts of terrorism, including cyber terrorism, which could affect not only our operations but those of our customers. Additionally, there could be sudden increases in electrical, telecommunications or other major physical infrastructure outages, natural disasters, the emergence of widespread health emergencies or pandemics, events arising from local or larger scale political or social matters, including terrorist acts, and cyber attacks. Events such as these may become more common in the sections entitled “Risk Factors”future and could cause significant damage, such as disrupt power and communication services, impact the stability of our facilities and result in Clifton’s Annual Reportadditional expenses, impair the ability of our borrowers to repay their loans, reduce the value of collateral securing the repayment of our loans, which could result in the loss of revenue. While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on Form10-K for the fiscal year ended March 31, 2017our business, operations and in other documents incorporated by reference into this document. Please see the section entitled “Where You Can Find More Information” beginning on page 121 of this document for the location of information incorporated by reference into this document.financial condition.
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
Some of the statements contained or incorporated by reference in this document are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 giving Kearny’s or Clifton’sMSB’s expectations or predictions of future financial or business performance or conditions. Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “target,” “estimate,” “continue,” “positions,” “projections,” “prospects” or “potential,” by future conditional verbs such as “will,” “would,” “should,” “could” or “may,” or by variations of such words or by similar expressions. Such forward-looking statements include, but are not limited to, statements about the benefits of the merger or the bank merger, including future financial and operating results of Kearny, CliftonMSB or the combined company following the merger, the combined company’s plans, objectives, expectations and intentions, the expected timing of the completion of the merger, financing plans and the availability of capital, the likelihood of success and impact of litigation and other statements that are not historical facts. These statements are only predictions based on Kearny’s and Clifton’sMSB’s current expectations and projections about future events. There are important factors that could cause Kearny’s and Clifton’sMSB’s actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, you should consider the numerous risks and uncertainties described in the section entitled “Risk Factors” beginning on page 18.13.
These forward-looking statements are subject to numerous assumptions, risks, and uncertainties which change over time. In addition to factors previously disclosed in Kearny’s and Clifton’sMSB’s reports filed with the SEC, the following factors, among others, could cause actual results to differ materially from forward-looking statements:
the inability to close the merger and the bank merger in a timely manner;
the failure to complete the merger due to the failure of Kearny or CliftonMSB stockholders to approve the merger agreement and the merger;
failure to obtain applicable regulatory approvals and meet other closing conditions to the merger on the expected terms and schedule;
the potential impact of announcement or consummation of the proposed merger with CliftonMSB on relationships with third parties, including customers, employees, and competitors;
business disruption following the merger;
difficulties and delays in integrating the Kearny and CliftonMSB businesses or fully realizing cost savings and other benefits;
Kearny’s potential exposure to unknown or contingent liabilities of Clifton;MSB;
the challenges of integrating, retaining, and hiring key personnel;
failure to attract new customers and retain existing customers in the manner anticipated;
the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future, including litigation related to the merger;
any interruption or breach of security resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems;
changes in Kearny’s stock price before closing, including as a result of the financial performance of CliftonMSB prior to closing;
operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which Kearny and CliftonMSB are highly dependent;
changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S. Department of the Treasury and the Federal Reserve;
changes in interest rates, which may affect Kearny’s or Clifton’sMSB’s net income, prepayment penalty income, mortgage banking income, and other future cash flows, or the market value of Kearny’s or Clifton’sMSB’s assets, including its investment securities;
potential changes to the federal tax code;
changes in accounting principles, policies, practices, or guidelines;
changes in Kearny’s credit ratings or in Kearny’s ability to access the capital markets;
natural disasters, war, or terrorist activities; and
other economic, competitive, governmental, regulatory, technological, and geopolitical factors affecting Kearny’s or Clifton’sMSB’s operations, pricing, and services.
Additionally, the timing and occurrence ornon-occurrence of events may be subject to circumstances beyond Kearny’s or Clifton’sMSB’s control.
Annualized, pro forma, projected and estimated numbers are used for illustrative purposes only, are not forecasts and may not reflect actual results.
For any forward-looking statements made in this document or in any documents incorporated by reference into this document, Kearny and CliftonMSB claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this document or the date of the applicable document incorporated by reference in this document. Except to the extent required by applicable law, Kearny and CliftonMSB do not undertake to update forward-looking statements to reflect facts, circumstances, assumptions, or events that occur after the date the forward-looking statements are made. All written and oral forward-looking statements concerning the merger or other matters addressed in this document and attributable to Kearny, Clifton,MSB, or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this document.
SELECTED HISTORICAL FINANCIAL AND OTHER DATA OF KEARNY FINANCIAL CORP.
The following tables present selected historical consolidated financial data for Kearny as of and for each of the years ended June 30, 2019, 2018, 2017, 2016 2015, 2014 and 2013.2015. This information has been derived in part from and should be read in conjunction with the audited consolidated financial statements of Kearny. The following table also presents selected historical consolidated financial data for Kearny as of and for each of the threesix months ended September 30, 2017December 31, 2019 and September 30, 2016.December 31, 2018. This information has been derived in part from and should be read in conjunction with the unaudited consolidated financial statements of Kearny. You should read this information in conjunction with the historical financial statements of Kearny and the related notes, including those contained in Kearny’s Annual Report on Form10-K for the year ended June 30, 20172019 and in Kearny’s Quarterly Report on Form10-Q for the three monthsperiod ended September 30, 2017,December 31, 2019, each of which is incorporated by reference in this document.
| At September 30, | At June 30, | At December 31, | At June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2015 | 2014 | 2013 | 2019 | 2018 | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets | $ | 4,808,150 | $ | 4,523,281 | $ | 4,818,127 | $ | 4,500,059 | $ | 4,237,187 | $ | 3,510,009 | $ | 3,145,360 | $ | 6,610,401 | $ | 6,702,440 | $ | 6,634,829 | $ | 6,579,874 | $ | 4,818,127 | $ | 4,500,059 | $ | 4,237,187 | ||||||||||||||||||||||||||||
Net loans receivable | 3,230,883 | 2,820,602 | 3,215,975 | 2,649,758 | 2,087,258 | 1,729,084 | 1,349,975 | 4,461,760 | 4,719,866 | 4,645,654 | 4,470,483 | 3,215,975 | 2,649,758 | 2,087,258 | ||||||||||||||||||||||||||||||||||||||||||
Debt securities available for sale | 475,819 | 392,487 | 444,497 | 389,910 | 420,660 | 407,898 | 300,122 | |||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities available for sale | 160,781 | 296,664 | 169,263 | 283,627 | 346,619 | 437,223 | 780,652 | |||||||||||||||||||||||||||||||||||||||||||||||||
Debt securities held to maturity | 145,954 | 142,082 | 144,713 | 167,171 | 219,862 | 216,414 | 210,015 | |||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities held to maturity | 336,972 | 396,237 | 348,608 | 410,115 | 443,479 | 295,658 | 101,114 | |||||||||||||||||||||||||||||||||||||||||||||||||
Investment securities available for sale | 1,402,206 | 666,602 | 714,263 | 725,085 | 613,760 | 673,537 | 767,279 | |||||||||||||||||||||||||||||||||||||||||||||||||
Investment securities held to maturity | 36,073 | 598,318 | 576,652 | 589,730 | 493,321 | 577,286 | 663,341 | |||||||||||||||||||||||||||||||||||||||||||||||||
Cash and equivalents | 38,823 | 72,593 | 78,237 | 199,200 | 340,136 | 135,034 | 127,034 | 41,796 | 51,483 | 38,935 | 128,864 | 78,237 | 199,200 | 340,136 | ||||||||||||||||||||||||||||||||||||||||||
Goodwill | 108,591 | 108,591 | 108,591 | 108,591 | 108,591 | 108,591 | 108,591 | 210,895 | 210,895 | 210,895 | 210,895 | 108,591 | 108,591 | 108,591 | ||||||||||||||||||||||||||||||||||||||||||
Deposits | 2,953,268 | 2,733,960 | 2,930,127 | 2,694,833 | 2,465,650 | 2,479,941 | 2,370,508 | 4,188,822 | 4,173,434 | 4,147,610 | 4,073,604 | 2,929,745 | 2,694,687 | 2,465,570 | ||||||||||||||||||||||||||||||||||||||||||
Borrowings | 808,554 | 633,389 | 806,228 | 614,423 | 571,499 | 512,257 | 287,695 | 1,275,049 | 1,310,547 | 1,321,982 | 1,198,646 | 806,228 | 614,423 | 571,499 | ||||||||||||||||||||||||||||||||||||||||||
Stockholders’ equity | 1,014,233 | 1,119,534 | 1,057,181 | 1,147,629 | 1,167,375 | 494,676 | 467,707 | 1,094,570 | 1,183,261 | 1,127,159 | 1,268,748 | 1,057,181 | 1,147,629 | 1,167,375 | ||||||||||||||||||||||||||||||||||||||||||
| For the three months ended September 30, | For the Years Ended June 30 | For the six months ended December 31, | For the Years Ended June 30 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2015 | 2014 | 2013 | 2019 | 2018 | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except per share and ratio amounts) | (in thousands, except per share and ratio amounts) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Operations: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest income | $ | 37,592 | $ | 32,806 | $ | 139,093 | $ | 126,888 | $ | 106,039 | $ | 95,819 | $ | 88,258 | $ | 117,081 | $ | 118,228 | $ | 237,333 | $ | 171,431 | $ | 139,093 | $ | 126,888 | $ | 106,039 | ||||||||||||||||||||||||||||
Interest expense | 10,782 | 8,785 | 36,519 | 31,903 | 25,431 | 21,998 | 22,001 | 45,787 | 38,669 | 82,020 | 50,138 | 36,519 | 31,903 | 25,431 | ||||||||||||||||||||||||||||||||||||||||||
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Net interest income | 26,810 | 24,021 | 102,574 | 94,985 | 80,608 | 73,821 | 66,257 | 71,294 | 79,529 | 155,313 | 121,293 | 102,574 | 94,985 | 80,608 | ||||||||||||||||||||||||||||||||||||||||||
Provisions for loan losses | 630 | 1,129 | 5,381 | 10,690 | 6,108 | 3,381 | 4,464 | |||||||||||||||||||||||||||||||||||||||||||||||||
(Reversal of) provision for loan losses | (2,247 | ) | 3,071 | 3,556 | 2,706 | 5,381 | 10,690 | 6,108 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Net interest income after loan loss provision | 26,180 | 22,892 | 97,193 | 84,295 | 74,500 | 70,440 | 61,793 | 73,541 | 76,458 | 151,757 | 118,587 | 97,193 | 84,295 | 74,500 | ||||||||||||||||||||||||||||||||||||||||||
Non-interest income, excluding asset gains, losses and write-downs | 2,872 | 2,344 | 9,920 | 10,426 | 8,616 | 6,967 | 6,179 | 7,274 | 6,272 | 13,309 | 12,270 | 9,920 | 10,426 | 8,616 | ||||||||||||||||||||||||||||||||||||||||||
Non-interest income (loss), from asset gains, losses and write-downs | 222 | 285 | 1,428 | 301 | (675 | ) | 1,156 | 10,209 | 1,242 | 219 | 246 | 993 | 1,428 | 301 | (675 | ) | ||||||||||||||||||||||||||||||||||||||||
Debt-extinguishment expenses | — | — | — | — | — | — | 8,688 | |||||||||||||||||||||||||||||||||||||||||||||||||
Contribution to charitable foundation | — | — | — | — | 10,000 | — | — | — | — | — | — | — | — | 10,000 | ||||||||||||||||||||||||||||||||||||||||||
Othernon-interest expenses | 21,286 | 18,660 | 81,118 | 72,417 | 68,081 | 64,158 | 60,737 | 52,671 | 53,727 | 109,243 | 97,850 | 81,118 | 72,417 | 68,081 | ||||||||||||||||||||||||||||||||||||||||||
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Income before taxes | 7,988 | 6,861 | 27,423 | 22,605 | 4,360 | 14,405 | 8,756 | 29,386 | 29,222 | 56,069 | 34,000 | 27,423 | 22,605 | 4,360 | ||||||||||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 2,756 | 2,194 | 8,820 | 6,783 | (1,269 | ) | 4,217 | 2,250 | 7,364 | 7,308 | 13,927 | 14,404 | 8,820 | 6,783 | (1,269 | ) | ||||||||||||||||||||||||||||||||||||||||
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Net income | $ | 5,232 | $ | 4,667 | $ | 18,603 | $ | 15,822 | $ | 5,629 | $ | 10,188 | $ | 6,506 | $ | 22,022 | $ | 21,914 | $ | 42,142 | $ | 19,596 | $ | 18,603 | $ | 15,822 | $ | 5,629 | ||||||||||||||||||||||||||||
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| For the three months ended September 30, | For the Years Ended June 30 | For the six months ended December 31, | For the Years Ended June 30 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2015 | 2014 | 2013 | 2019 | 2018 | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except per share and ratio amounts) | (in thousands, except per share and ratio amounts) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Per Share Data: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income per share—Basic and diluted | $ | 0.07 | $ | 0.05 | $ | 0.22 | $ | 0.18 | $ | 0.06 | $ | 0.11 | $ | 0.07 | $ | 0.26 | $ | 0.23 | $ | 0.46 | $ | 0.24 | $ | 0.22 | $ | 0.18 | $ | 0.06 | ||||||||||||||||||||||||||||
Weighted average number of common shares outstanding (in thousands): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic | 79,649 | 86,246 | 84,590 | 89,591 | 91,717 | 90,825 | 91,316 | 83,794 | 93,780 | 91,054 | 82,587 | 84,590 | 89,591 | 91,717 | ||||||||||||||||||||||||||||||||||||||||||
Diluted | 79,708 | 86,304 | 84,661 | 89,625 | 91,841 | 90,880 | 91,316 | 83,835 | 93,831 | 91,100 | 82,643 | 84,661 | 89,625 | 91,841 | ||||||||||||||||||||||||||||||||||||||||||
Cash dividends per share | $ | 0.15 | (1) | $ | 0.02 | $ | 0.10 | $ | 0.08 | $ | — | $ | — | $ | — | $ | 0.13 | $ | 0.25 | $ | 0.37 | $ | 0.25 | $ | 0.10 | $ | 0.08 | $ | — | |||||||||||||||||||||||||||
Dividend payout ratio | 232.20 | % | 36.60 | % | 44.99 | % | 45.28 | % | — | % | — | % | — | % | 49.06 | % | 107.17 | % | 80.75 | % | 102.87 | % | 44.99 | % | 45.28 | % | — | % | ||||||||||||||||||||||||||||
| (1) |
Represents cash dividends declared divided by net income. |
| At or for the three months ended September 30, | At or For the Years Ended June 30, | At or for the six months ended December 31, | At or For the Years Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2015 | 2014 | 2013 | 2019 | 2018 | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||
Performance ratios: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Return on average assets (net income divided by average total assets) | 0.43 | % | 0.41 | % | 0.40 | % | 0.36 | % | 0.15 | % | 0.31 | % | 0.22 | % | 0.66 | % | 0.66 | % | 0.63 | % | 0.37 | % | 0.40 | % | 0.36 | % | 0.15 | % | ||||||||||||||||||||||||||||
Return on average equity (net income divided by average total equity) | 2.01 | 1.66 | 1.68 | 1.36 | 0.98 | 2.17 | 1.33 | 3.97 | 3.55 | 3.52 | 1.81 | 1.68 | 1.36 | 0.98 | ||||||||||||||||||||||||||||||||||||||||||
Net interest rate spread | 2.13 | 2.02 | 2.14 | 2.06 | 2.20 | 2.32 | 2.34 | 2.09 | 2.37 | 2.31 | 2.25 | 2.14 | 2.06 | 2.20 | ||||||||||||||||||||||||||||||||||||||||||
Net interest margin | 2.40 | 2.32 | 2.41 | 2.35 | 2.34 | 2.44 | 2.50 | 2.36 | 2.62 | 2.56 | 2.50 | 2.41 | 2.35 | 2.34 | ||||||||||||||||||||||||||||||||||||||||||
Average interest-earning assets to average interest-earning liabilities | 128.31 | 134.28 | 132.09 | 136.19 | 119.04 | 116.81 | 118.83 | 117.42 | 119.67 | 118.88 | 125.12 | 132.14 | 136.23 | 119.08 | ||||||||||||||||||||||||||||||||||||||||||
Efficiency ratio(non-interest expenses divided by sum of net interest income andnon-interest income) | 71.18 | 70.02 | 71.20 | 68.50 | 88.18 | 78.30 | 84.00 | 66.00 | 62.46 | 64.69 | 72.72 | 71.20 | 68.50 | 88.18 | ||||||||||||||||||||||||||||||||||||||||||
Non-interest expense to average assets | 1.77 | 1.66 | 1.76 | 1.64 | 2.10 | 1.96 | 2.38 | 1.59 | 1.61 | 1.64 | 1.86 | 1.76 | 1.64 | 2.10 | ||||||||||||||||||||||||||||||||||||||||||
Asset Quality Ratios: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-performing loans to total loans | 0.56 | 0.77 | 0.58 | 0.79 | 1.09 | 1.45 | 2.27 | 0.49 | 0.44 | 0.43 | 0.37 | 0.58 | 0.79 | 1.09 | ||||||||||||||||||||||||||||||||||||||||||
Non-performing assets to total assets | 0.43 | 0.51 | 0.43 | 0.49 | 0.56 | 0.77 | 1.05 | 0.33 | 0.32 | 0.31 | 0.27 | 0.43 | 0.49 | 0.56 | ||||||||||||||||||||||||||||||||||||||||||
Net charge-offs to average loans outstanding | 0.06 | 0.05 | 0.01 | 0.08 | 0.16 | 0.12 | 0.28 | 0.00 | 0.01 | 0.02 | 0.03 | 0.01 | 0.08 | 0.16 | ||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses to total loans | 0.90 | 0.88 | 0.90 | 0.91 | 0.74 | 0.71 | 0.80 | 0.68 | 0.70 | 0.70 | 0.68 | 0.90 | 0.91 | 0.74 | ||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses tonon-performing loans | 162.58 | 114.46 | 155.18 | 115.07 | 68.17 | 48.96 | 35.24 | 140.92 | 161.38 | 164.15 | 183.08 | 155.18 | 115.07 | 68.17 | ||||||||||||||||||||||||||||||||||||||||||
Capital Ratios: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average equity to average assets | 21.58 | 25.01 | 24.02 | 26.47 | 15.49 | 14.29 | 16.70 | 16.70 | 18.53 | 17.97 | 20.54 | 24.02 | 26.47 | 15.49 | ||||||||||||||||||||||||||||||||||||||||||
Equity to assets at period end | 21.09 | 24.75 | 21.94 | 25.50 | 27.55 | 14.09 | 14.87 | 16.56 | 17.65 | 16.99 | 19.28 | 21.94 | 25.50 | 27.55 | ||||||||||||||||||||||||||||||||||||||||||
Tangible equity to tangible assets at period end(1) | 19.27 | 22.89 | 20.14 | 23.65 | 25.63 | 11.32 | 11.93 | 13.75 | 14.90 | 14.19 | 16.53 | 20.14 | 23.65 | 25.63 | ||||||||||||||||||||||||||||||||||||||||||
| (1) | Tangible equity equals total stockholders’ equity reduced by goodwill and core deposit intangible assets. |
SELECTED HISTORICAL FINANCIAL AND OTHER DATA OF CLIFTON BANCORP INC.
The following tables present selected historical consolidated financial data for Clifton as of and for each of the years ended March 31, 2017, 2016, 2015, 2014 and 2013. This information has been derived in part from and should be read in conjunction with the audited consolidated financial statements of Clifton. The following table also presents selected historical consolidated financial data for Clifton as of and for each of the six months ended September 30, 2017 and September 30, 2016. This information has been derived in part from and should be read in conjunction with the unaudited consolidated financial statements of Kearny. You should read this information in conjunction with the historical financial statements of Clifton and the related notes, including those contained in Clifton’s Annual Report on Form10-K for the year ended March 31, 2017 and in Clifton’s Quarterly Report on Form10-Q for the six months ended September 30, 2017, each of which is incorporated by reference in this document.
| At September 30, | At March 31, | |||||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||||||
Assets | $ | 1,554,521 | $ | 1,312,190 | $ | 1,431,803 | $ | 1,253,127 | $ | 1,186,924 | $ | 1,265,990 | $ | 1,016,084 | ||||||||||||||
Net loans receivable | 1,140,419 | 881,593 | 1,007,844 | 780,229 | 641,084 | 584,507 | 456,812 | |||||||||||||||||||||
Debt securities available for sale | — | — | — | — | 5,000 | — | 5,004 | |||||||||||||||||||||
Mortgage-backed securities available for sale | 3,974 | 5,079 | 4,435 | 9,591 | 13,314 | 3,599 | 10,395 | |||||||||||||||||||||
Debt securities held to maturity | 55,844 | 52,520 | 58,837 | 80,313 | 136,052 | 119,919 | 119,916 | |||||||||||||||||||||
Mortgage-backed securities held to maturity | 239,822 | 259,548 | 252,076 | 267,558 | 264,509 | 298,777 | 342,812 | |||||||||||||||||||||
Cash and equivalents | 16,044 | 22,758 | 14,653 | 31,069 | 49,308 | 192,581 | 25,896 | |||||||||||||||||||||
Deposits | 914,573 | 772,306 | 844,825 | 694,662 | 699,476 | 763,912 | 763,692 | |||||||||||||||||||||
Borrowings | 340,700 | 224,500 | 275,800 | 231,500 | 107,500 | 142,500 | 52,500 | |||||||||||||||||||||
Stock subscription deposits | — | — | — | — | — | 154,345 | — | |||||||||||||||||||||
Stockholders’ equity | 285,943 | 302,890 | 296,619 | 315,277 | 368,001 | 194,137 | 187,328 | |||||||||||||||||||||
| For the Six Months Ended September 30, | For the Years Ended March 31 | |||||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||
| (Dollars in thousands, except per share and ratio data) | ||||||||||||||||||||||||||||
Summary of Operations: | ||||||||||||||||||||||||||||
Interest income | $ | 23,715 | $ | 19,507 | $ | 40,474 | $ | 35,345 | $ | 35,162 | $ | 33,737 | $ | 35,393 | ||||||||||||||
Interest expense | 7,623 | 5,496 | 11,813 | 9,102 | 9,034 | 9,862 | 11,837 | |||||||||||||||||||||
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Net interest income | 16,092 | 14,011 | 28,661 | 26,243 | 26,128 | 23,875 | 23,556 | |||||||||||||||||||||
Provisions for loan losses | 1,200 | 1,031 | 1,985 | 1,065 | 717 | 777 | 762 | |||||||||||||||||||||
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Net interest income after loan loss provision | 14,892 | 12,980 | 26,676 | 25,178 | 25,411 | 23,098 | 22,794 | |||||||||||||||||||||
Non-interest income, excluding asset gains, losses and write-downs | 900 | 944 | 1,842 | 1,796 | 2,308 | 1,301 | 1,136 | |||||||||||||||||||||
Non-interest income, from asset gains, losses and write-downs | 658 | 4 | 72 | 70 | 2005 | 566 | 545 | |||||||||||||||||||||
Debt-extinguishment expenses | — | — | ��� | — | — | — | (527 | ) | ||||||||||||||||||||
Contribution to charitable foundation | — | — | — | — | — | — | — | |||||||||||||||||||||
Othernon-interest expenses | 11,002 | 10,790 | 21,702 | 19,101 | 17,106 | 15,081 | 13,911 | |||||||||||||||||||||
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Income before taxes Income tax expense Net income Per Share Data: Net income per share—Basic and diluted Weighted average number of common shares outstanding (in thousands): Basic Diluted Cash dividends per share Dividend payout ratio(1) For the Six Months Ended
September 30, For the Years Ended March 31 2017 2016 2017 2016 2015 2014 2013 (Dollars in thousands, except per share and ratio data) 5,448 3,218 6,888 7,943 12,618 9,884 10,037 1,742 961 2,166 2,542 4,064 3,419 3,427 $ 3,706 $ 2,257 $ 4,722 $ 5,401 $ 8,554 $ 6,465 $ 6,610 $ 0.17 $ 0.10 $ 0.21 $ 0.22 $ 0.33 $ 0.25 $ 0.26 21,322 22,495 22,224 24,477 25,538 25,391 25,149 21,474 22,555 22,315 24,533 25,698 25,633 25,231 $ 0.37 $ 0.12 $ 0.24 $ 0.30 $ 0.30 $ 0.18 $ 0.24 212.55 % 119.36 % 112.75 % 135.40 % 89.22 % 71.88 % 93.09 %
| At and For the Six Months Ended September 30, | At or For the Years Ended March 31, | |||||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||
Performance ratios(4): | ||||||||||||||||||||||||||||
Return on average assets (net income divided by average total assets) | 0.49 | % | 0.35 | % | 0.36 | % | 0.46 | % | 0.70 | % | 0.59 | % | 0.63 | % | ||||||||||||||
Return on average equity (net income divided by average total equity) | 2.55 | 1.46 | 1.54 | 1.59 | 2.38 | 3.41 | 3.54 | |||||||||||||||||||||
Net interest rate spread(1) | 2.05 | 2.10 | 2.07 | 2.10 | 2.09 | 2.20 | 2.18 | |||||||||||||||||||||
Net interest margin(2) | 2.27 | 2.35 | 2.31 | 2.39 | 2.36 | 2.37 | 2.39 | |||||||||||||||||||||
Average interest-earning assets to average interest-earning liabilities | 121 | 127 | 126 | 135 | 133 | 117 | 118 | |||||||||||||||||||||
Efficiency ratio(non-interest expenses divided by sum of net interest income andnon-interest income)(3) | 62.33 | 71.75 | 70.98 | 67.95 | 56.19 | 58.59 | 56.30 | |||||||||||||||||||||
Non-interest expense to average assets | 1.47 | 1.69 | 1.64 | 1.62 | 1.41 | 1.39 | 1.33 | |||||||||||||||||||||
Asset Quality Ratios: | ||||||||||||||||||||||||||||
Non-performing loans to total gross loans | 0.41 | 0.32 | 0.41 | 0.47 | 0.88 | 0.88 | 1.29 | |||||||||||||||||||||
Non-performing assets to total assets | 0.32 | 0.29 | 0.34 | 0.30 | 0.48 | 0.41 | 0.60 | |||||||||||||||||||||
Net charge-offs to average loans outstanding | — | 0.05 | 0.03 | 0.03 | 0.05 | 0.04 | 0.08 | |||||||||||||||||||||
Allowance for loan losses to total gross loans | 0.64 | 0.59 | 0.60 | 0.56 | 0.54 | 0.52 | 0.55 | |||||||||||||||||||||
Allowance for loan losses tonon-performing loans | 154.12 | 185.52 | 146.11 | 119.19 | 61.53 | 59.84 | 42.41 | |||||||||||||||||||||
Capital Ratios: | ||||||||||||||||||||||||||||
Average equity to average assets | 19.34 | 24.17 | 23.07 | 28.95 | 29.55 | 17.42 | 17.81 | |||||||||||||||||||||
Equity to assets at period end | 18.39 | 23.08 | 20.72 | 25.16 | 31.00 | 15.33 | 18.44 | |||||||||||||||||||||
Tangible equity to tangible assets at period end | 18.39 | 23.08 | 20.72 | 25.16 | 31.00 | 15.33 | 18.44 | |||||||||||||||||||||
SUMMARY SELECTED UNAUDITED PRO FORMA COMBINED DATA
The following tables show selected unaudited financial information on a pro forma combined basis giving effect to the merger as if the merger had become effective at the end of the period presented, in the case of balance sheet information, and at the beginning of the periods presented, in the case of income statement information. The selected unaudited pro forma information reflects the acquisition method of accounting.
Kearny anticipates that the combined company will derive financial benefits that include reduced operating expenses and the opportunity to earn more revenue. The selected unaudited pro forma information, while helpful in illustrating the financial characteristics of Kearny following the merger under one set of assumptions, does not reflect all of these benefits and, accordingly, does not attempt to predict or suggest future results. The selected unaudited pro forma information also does not necessarily reflect what the historical results of Kearny would have been had Kearny and Clifton been combined during these periods. The pro forma balance sheet information presented below combines the historical balance sheet data of Kearny and Clifton as of September 30, 2017. The pro forma income statement information for the three months ended September 30, 2017 presented below combines the historical income statement data of Kearny and Clifton for that period. The pro forma income statement information for the year ended June 30, 2017 presented below combines the historical income statement data for Kearny for the year ended June 30, 2017 and Clifton for the year ended March 31, 2017, as permitted under Regulation S-X for the calculation of pro forma financial information utilizing period ends that differ by fewer than 93 days.
An exchange ratio of 1.191 was used in preparing this selected pro forma information. You should read this selected summary pro forma information in conjunction with the information under“Unaudited Pro Forma Combined Condensed Consolidated Financial Data”and with the historical information incorporated by reference into this document on which it is based.
| Three Months Ended September 30, 2017 | Year Ended June 30, 2017 | |||||||
| (In thousands, except per share data) | ||||||||
Pro forma combined income statement data: | ||||||||
Interest income | $ | 50,992 | $ | 184,249 | ||||
Interest expense | 13,950 | 44,898 | ||||||
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Net interest income | 37,042 | 139,351 | ||||||
Provision for loan losses | 1,240 | 7,366 | ||||||
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Net interest income after provision for loan losses | 35,802 | 131,985 | ||||||
Non-interest income | 4,205 | 13,262 | ||||||
Non-interest expense | 26,867 | 103,584 | ||||||
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Income before income taxes | 13,140 | 41,663 | ||||||
Income tax expense | 4,517 | 13,993 | ||||||
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Net income | $ | 8,623 | $ | 27,670 | ||||
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Pro forma per share data: | ||||||||
Basic earnings per share | $ | 0.08 | $ | 0.25 | ||||
Diluted earnings per share | $ | 0.08 | $ | 0.25 | ||||
| At September 30, 2017 | ||||
| (In thousands) | ||||
Pro forma combined balance sheet data: | ||||
Total assets | $ | 6,453,883 | ||
Loans receivable, net of allowance for loan losses | 4,359,021 | |||
Investment securities | 1,418,626 | |||
Deposits | 3,872,651 | |||
Total stockholders’ equity | 1,386,237 | |||
UNAUDITED COMPARATIVE PRO FORMA PER SHARE DATA
The following table shows information about Kearny’s and Clifton’sMSB’s earnings per common share, dividends per share and book value per share, and similar information giving effect to the merger (which we refer to as “pro forma” information). In presenting the unaudited comparative pro forma information as of and for the periods shown, we assumed that Kearny and CliftonMSB had been merged on the date indicated or at the beginning of the periods presented, as applicable. The pro forma balance sheet information presented below combines the historical balance sheet data of Kearny and CliftonMSB as of SeptemberDecember 31, 2019. Kearny and MSB have different fiscal years. MSB’s fiscal year ends on December 31 of each year and Kearny’s fiscal year ends on June 30 2017. Theof each year. As the fiscal years differed by more than 93 days, pursuant to SEC rules, MSB’s financial information was adjusted for the purpose of preparing the unaudited comparative pro forma information. The historical financial statement information of MSB used in the historical and pro forma combined share data for the six months ended December 31, 2019 was prepared by taking the audited income statement information for the threeyear ended December 31, 2019 and subtracting the unaudited condensed combined income statement for the six months ended SeptemberJune 30, 2017 presented below combines2019. The historical financial statement information of MSB used in the historical and pro forma combined share data for the year ended June 30, 2019combines the historical income statement data of Kearny and Clifton for that period. The pro forma statement informationMSB for the yearyears ended June 30, 2017 presented below combines the historical income statement data of Kearny for the year ended June 30, 20172019 and Clifton for the year ended MarchDecember 31, 2017, as permitted under Regulation S-X for the calculation of pro forma financial information utilizing period ends that differ by fewer than 93 days.2019, respectively.
The information listed as “pro forma combined” was prepared using an exchange ratio of 1.191.1.30. The information listed as “per equivalent CliftonMSB share” was obtained by multiplying the pro forma amounts by an exchange ratio of 1.191.1.30. Kearny anticipates that the combined company will derive financial benefits from the merger that include the opportunity to earn more revenue. The unaudited pro forma combined information, while helpful in illustrating the financial characteristics of Kearny following the merger under one set of assumptions, does not reflect these benefits and, accordingly, does not attempt to predict or suggest future results. The unaudited pro forma combined information also does not necessarily reflect what the historical results of Kearny would have been had our companies been combined during this period.
The information in the following table is based on, and should be read together with, the historical financial information that we have presented in or incorporated by reference in this document.
| Kearny Historical | Clifton Historical | Pro Forma Combined(1)(2) | Per Equivalent Clifton Share | |||||||||||||
Book value per share: | ||||||||||||||||
At September 30, 2017 | $ | 12.44 | $ | 12.96 | $ | 12.86 | $ | 15.32 | ||||||||
Cash dividends declared per share: | ||||||||||||||||
Three months ended September 30, 2017 | 0.15 | (3) | 0.06 | 0.15 | (3) | 0.18 | (4) | |||||||||
Year ended June 30, 2017 | 0.10 | 0.24 | 0.10 | 0.12 | ||||||||||||
Basic earnings per share: | ||||||||||||||||
Three months ended September 30, 2017 | 0.07 | 0.11 | 0.08 | 0.10 | ||||||||||||
Year ended June 30, 3017 | 0.22 | 0.21 | 0.25 | 0.30 | ||||||||||||
Diluted earnings per share: | ||||||||||||||||
Three months ended September 30, 2017 | 0.07 | 0.11 | 0.08 | 0.10 | ||||||||||||
Year ended June 30, 2017 | 0.22 | 0.21 | 0.25 | 0.30 | ||||||||||||
| Kearny Historical | MSB Historical | Pro Forma Combined(1)(2) | Per Equivalent MSB Share | |||||||||||||
Book value per share: | ||||||||||||||||
At December 31, 2019 | $ | 12.85 | $ | 12.61 | $ | 13.02 | $ | 16.93 | ||||||||
Cash dividends declared per share: | ||||||||||||||||
Six months ended December 31, 2019 | $ | 0.13 | $ | 0.50 | $ | 0.13 | $ | 0.17 | ||||||||
Year ended June 30, 2019 | $ | 0.37 | $ | 0.50 | $ | 0.37 | $ | 0.48 | ||||||||
Basic earnings per share: | ||||||||||||||||
Six months ended December 31, 2019 | $ | 0.26 | $ | 0.47 | $ | 0.29 | $ | 0.38 | ||||||||
Year ended June 30, 3019 | $ | 0.46 | $ | 0.83 | $ | 0.52 | $ | 0.68 | ||||||||
Diluted earnings per share: | ||||||||||||||||
Six months ended December 31, 2019 | $ | 0.26 | $ | 0.47 | $ | 0.29 | $ | 0.38 | ||||||||
Year ended June 30, 2019 | $ | 0.46 | $ | 0.82 | $ | 0.52 | $ | 0.68 | ||||||||
| (1) | Pro forma dividends per share represent Kearny’s historical dividends per share. |
| (2) | The pro forma combined book value per share of Kearny common stock is based upon the pro forma combined common stockholders’ equity for Kearny and |
INFORMATION ABOUT MSB FINANCIAL, INC.
BUSINESS OF MSB
General
MSB is a Maryland-chartered corporation organized in 2014 to be the successor to MSB Financial Corp., a federal corporation (“Old MSB”) upon completion of the second-step conversion of Millington Bank from thetwo-tier mutual holding company structure to the stock holding company structure. MSB Financial, MHC (the “MHC”) was the former mutual holding company for Old MSB prior to completion of the second-step conversion. In conjunction with the second-step conversion, each of the MHC and Old MSB ceased to exist. The second-step conversion was completed on July 16, 2015 at which time MSB sold 3,766,592 shares of its common stock (including 150,663 shares purchased by Millington Bank’s employee stock ownership plan) at $10.00 per share for gross proceeds of approximately $37.7 million. Expenses related to the stock offering totaled $1.5 million and were netted against proceeds. As part of the second-step conversion, each of the outstanding shares of common stock of Old MSB held by persons other than the MHC were converted into 1.1397 shares of Company common stock with cash paid in lieu of fractional shares. As a result, a total of 2,187,242 shares were issued in exchange for Old MSB shares in the second-step conversion.
MSB’s principal business is the ownership and operation of Millington Bank. Millington Bank is a New Jersey-chartered stock savings bank and its deposits are insured by the FDIC. The primary business of Millington Bank is attracting retail deposits from the general public and using those deposits together with funds generated from operations, principal repayments on securities and loans and borrowed funds, for its lending and investing activities. Millington Bank’s loan portfolio primarily consists ofone-to-four family and home equity residential loans, commercial loans, and construction loans. It also invests in U.S. government obligations and mortgage-backed securities. Millington Bank is regulated by the NJDBI and the FDIC. The Federal Reserve regulates MSB as a bank holding company.
In accordance with the provisions of the Exchange Act, MSB is the successor issuer to Old MSB and all financial data included herein up through the completion of the second-step conversion is that of Old MSB.
Change in Fiscal Year End
Effective November 17, 2014, MSB changed its fiscal year end from June 30 to December 31.
Competition
MSB operates in a market area with a high concentration of banking and other financial institutions, and faces substantial competition in attracting deposits and in originating loans. A number of MSB’s competitors are significantly larger institutions with greater financial and managerial resources and lending limits. MSB’s ability to compete successfully is a significant factor affecting MSB’s growth potential and profitability.
MSB’s competition for deposits and loans historically has come from other insured financial institutions such as local and regional commercial banks, savings institutions, and credit unions located in MSB’s primary market area. MSB also competes with mortgage banking and finance companies for real estate loans and with commercial banks and savings institutions for consumer loans, and faces competition for funds from investment products such as mutual funds, short-term money funds and corporate and government securities. There are large competitors operating throughout MSB’s total market area, and MSB also faces strong competition from other community-based financial institutions.
Lending Activities
MSB has traditionally focused on the origination ofone- to four-family loans and home equity loans and lines of credit, which together comprise a sizable portion of the total loan portfolio. During the past two years, MSB has significantly grown its commercial real estate portfolio, which includes multi-family dwellings/apartment buildings, service/retail andmixed-use properties, churches andnon-profit properties, medical and dental facilities and other commercial real estate. Additionally, MSB originates residential and commercial construction loans and commercial and industrial loans. MSB’s consumer loans are comprised of automobile loans, personal loans, account loans and overdraft lines of credit.
Loan Portfolio Composition. The following tables analyze the composition of MSB’s loan portfolio by loan category at the dates indicated. Except as set forth below, there were no concentrations of loans exceeding 10% of total loans.
| At December 31, | ||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||
Type of Loans: | ||||||||||||||||||||||||||||||||||||||||
One- to four-family real estate | $ | 130,966 | 24.69 | % | $ | 143,391 | 27.62 | % | $ | 157,876 | 31.63 | % | $ | 160,534 | 42.28 | % | $ | 154,624 | 57.07 | % | ||||||||||||||||||||
Commercial real estate and multi-family | 227,441 | 42.88 | 212,606 | 40.95 | 196,681 | 39.40 | 124,656 | 32.83 | 59,642 | 22.02 | ||||||||||||||||||||||||||||||
Construction | 47,635 | 8.98 | 29,628 | 5.71 | 43,718 | 8.76 | 16,554 | 4.36 | 10,895 | 4.02 | ||||||||||||||||||||||||||||||
Home equity | 22,853 | 4.31 | 24,365 | 4.69 | 26,803 | 5.37 | 32,262 | 8.50 | 35,002 | 12.92 | ||||||||||||||||||||||||||||||
Commercial and industrial | 101,062 | 19.06 | 108,602 | 20.92 | 73,465 | 14.72 | 45,246 | 11.92 | 10,275 | 3.79 | ||||||||||||||||||||||||||||||
Consumer | 432 | 0.08 | 540 | 0.11 | 618 | 0.12 | 446 | 0.11 | 493 | 0.18 | ||||||||||||||||||||||||||||||
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Total loans receivable | 530,389 | 100.00 | % | 519,132 | 100.00 | % | 499,161 | 100.00 | % | 379,698 | 100.00 | % | 270,931 | 100.00 | % | |||||||||||||||||||||||||
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Less: | ||||||||||||||||||||||||||||||||||||||||
Construction loans in process | (16,109 | ) | (10,677 | ) | (19,868 | ) | (6,557 | ) | (4,600 | ) | ||||||||||||||||||||||||||||||
Allowance for loan losses | (5,722 | ) | (5,655 | ) | (5,414 | ) | (4,476 | ) | (3,602 | ) | ||||||||||||||||||||||||||||||
Deferred loan fees | (536 | ) | (501 | ) | (474 | ) | (658 | ) | (417 | ) | ||||||||||||||||||||||||||||||
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Total loans receivable, net | $ | 508,022 | $ | 502,299 | $ | 473,405 | $ | 368,007 | 262,312 | |||||||||||||||||||||||||||||||
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Loan Maturity Schedule. The following table sets forth the maturity of MSB’s loan portfolio at December 31, 2019. Demand loans, loans having no stated maturity, and overdrafts are presented as due in one year or less. The construction loans presented in the table as of December 31, 2019 are net of $16.1 million of undistributed amounts. The table presents contractual maturities and does not reflect repricing or the effect of prepayments. Actual maturities may differ.
| At December 31, 2019 | ||||||||||||||||||||||||||||
| One- to Four- Family Real Estate | Commercial and Multi- family Real Estate | Construction | Consumer | Home Equity | Commercial and Industrial | Total | ||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
Amounts Due: | ||||||||||||||||||||||||||||
Within 1 Year | $ | 633 | $ | 4,097 | $ | 18,081 | $ | 49 | $ | 1,569 | $ | 20,937 | $ | 45,366 | ||||||||||||||
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After 1 year: | ||||||||||||||||||||||||||||
1 to 5 years | 2,209 | 57,751 | 10,505 | — | 2,065 | 53,934 | 126,464 | |||||||||||||||||||||
5 to 10 years | 16,718 | 122,568 | — | 77 | 3,339 | 21,760 | 164,462 | |||||||||||||||||||||
After 10 years | 111,406 | 43,025 | 2,940 | 306 | 15,880 | 4,431 | 177,988 | |||||||||||||||||||||
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Total due after one year | 130,333 | 223,344 | 13,445 | 383 | 21,284 | 80,125 | 468,914 | |||||||||||||||||||||
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Total | $ | 130,966 | $ | 227,441 | $ | 31,526 | $ | 432 | $ | 22,853 | $ | 101,062 | $ | 514,280 | ||||||||||||||
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The following table sets forth the dollar amount of all loans due after December 31, 2020, which have fixed interest rates and which have floating or adjustable interest rates.
| Fixed Rates | Floating or Adjustable Rates | Total | ||||||||||
| (In thousands) | ||||||||||||
One-to four-family real estate | $ | 91,874 | $ | 39,092 | $ | 130,966 | ||||||
Commercial real estate and multi-family | 94,085 | 133,356 | 227,441 | |||||||||
Construction | 10,622 | 20,904 | 31,526 | |||||||||
Consumer | 102 | 330 | 432 | |||||||||
Home equity | 4,725 | 18,128 | 22,853 | |||||||||
Commercial and industrial | 45,755 | 55,307 | 101,062 | |||||||||
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Total | $ | 247,163 | $ | 267,117 | $ | 514,280 | ||||||
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One- to Four-Family Real Estate Mortgages. Historically, the primary focus of MSB’s lending activity was the origination ofone- to four-family first mortgage loans. MSB continues to offer fixed rate, conventional mortgage loans with terms from 5 to 30 years.
MSB also originates adjustable rate mortgages, or ARMs, with up to 30 year terms at rates based upon the U.S. Treasury One Year Constant Maturity as an index. MSB’s ARMs currently reset on an annual basis, beginning with the first year, and have a 200 basis point annual increase cap and a 600 basis point lifetime adjustment cap. MSB does not originate “teaser” rate or negative amortization loans.
MSB is also offering a loan program whereby it offers an initial rate for a fixed period of time, normally 5 to 10 years, and thereafter there is one preset interest rate adjustment based on competitive rates.
Substantially all residential mortgages include “due on sale” clauses, which are provisions giving MSB the right to declare a loan immediately payable if the borrower sells or otherwise transfers an interest in the property to a third party. Property appraisals on real estate securingone-to four-family residential loans are made by state certified or licensed independent appraisers and are performed in accordance with applicable regulations and policies. MSB requires title insurance policies on all first lienone-to four-family residential loans and all home equity loans over $250,000. Homeowners, liability, fire and, if applicable, flood insurance policies are also required.
MSB provides financing on residential investment properties with 5 to 30 year fixed duration mortgages. MSB’s investment property lending product is available to individuals or proprietorships, partnerships, limited liability corporations, and corporations with personal guarantees. All investment property is underwritten on its ability substantially to carry itself, unless the property is atwo-family residence with the mortgagor living in one of the units. Preference is given to those loans where rental income covers all operating expenditures, including but not limited to principal and interest, real estate taxes, hazard insurance, utilities, maintenance, and reserve. The cash coverage ratio to cover operating expenses must be at least 1.25 times. Any negative cash flow will be included in the borrower’s total debt ratio. At December 31, 2019, investment property loans secured byone- to four-family homes totaled $34.5 million.
MSB generally originatesone-to four-family first mortgage loans for primary residences and investment properties withloan-to-value ratios ranging from 65% to 80% depending on the collateral value.
Commercial and Multi-Family Real Estate Mortgages. MSB’s commercial real estate lending includes multi-family dwellings/apartment buildings, service/retail andmixed-use properties, churches andnon-profit properties, medical and dental facilities and other commercial real estate. MSB’s commercial real estate mortgage loans are typically a 5 to 10 year balloon mortgage. Multi-family and commercial real estate loans can be amortized over 30 years with periodic rate resets or 15 year fixed duration mortgages. This type of lending is made available to proprietorships, partnerships, limited liability companies and corporations with personal guarantees and/or carve out guarantees. All commercial property loans are substantially underwritten on the ability of the underlying property to provide satisfactory cash flows. A cash flow and lease analysis is performed for each property. Preference is given to those loans where rental income covers all operating expenditures, including but not limited to principal and interest, real estate tax, hazard insurance, utilities, maintenance, and reserves. The cash coverage ratio to cover operating expenses must be at least 1.20 times for multi-family and 1.25 times for all other commercial loans. Any negative cash flow will be included in the limit on the borrower’s total debt ratio. Cash from
other assets of the borrower, who may own multiple properties and generate a surplus, can be made available to coverdebt-service shortages of the financed property. Maximumloan-to-value ratios on commercial real estate loans range from 65% to 80%.
The management skills of the borrower are judged on the basis of his/her professional experience and must be documented to meet MSB’s satisfaction in relation to the desired project. The assets of the borrower must indicate his/her ability to support the proposed investment, both in terms of liquidity and net worth, and tangible history of the borrower’s capability and experience must be evident.
Unlike single-family residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and other income, and which are secured by real property the value of which tends to be more easily ascertainable, multi-family and commercial real estate loans typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business or rental income. As a result, the availability of funds for the repayment of commercial real estate and multi-family loans may be substantially dependent on the success of the business itself, the tenants and the general economic environment. Commercial real estate and multi-family loans, therefore, have greater credit risk thanone-to four-family residential mortgages or consumer loans. In addition, commercial real estate and multi-family loans generally result in larger balances to single borrowers, or related groups of borrowers and also generally require substantially greater evaluation and oversight efforts.
Construction Loans. MSB originates construction loans for an owner-occupied residence or to a builder with a valid contract of sale. MSB also provides financing for speculative residential or commercial construction and development with individual consideration given to builders based on their past performance, workmanship, and financial worth. MSB’s construction lending includes loans for construction or major renovations or improvements of owner-occupied residences. The portfolio consists primarily of properties held by real estate developers.
Construction loans are mortgages up to 24 months in duration. Funds are disbursed periodically upon inspections made by MSB’s inspectors on the percentage of work completed, as per the approved budget. Funds disbursed may not exceed 60% of theloan-to-value of land and 80% of theloan-to-value of improvements any time during construction. The majority of MSB’s construction loans are variable rate loans with rates tied to the prime rate published inThe Wall Street Journal, plus a premium. Millington Bank also has established a floor rate on all transactions. A minimum of interest-only payments on disbursed funds must be made on a monthly basis.
Construction lending is generally considered to involve a higher degree of credit risk than residential mortgage lending. If the estimate of construction cost proves to be inaccurate, MSB may be compelled to advance additional funds to complete the construction with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. If MSB is forced to foreclose on a project prior to completion, there is no assurance that MSB will be able to recover the entire unpaid portion of the loan. In addition, MSB may be required to fund additional amounts to complete a project and may have to hold the property for an indeterminate period of time.
Consumer Loans. MSB’s consumer lending products consist of new and used automobile loans, secured and unsecured personal loans, account loans and overdraft lines of credit. The maximum term for a loan on a new or used automobile is six years and four years, respectively. MSB will lend up to 80% of the retail value or dealer invoice on a car loan. MSB offers a reduction on the interest rate for car loans if payments are automatically deducted from a Millington Bank checking or statement savings account.
MSB’s personal loans have terms of up to four years with a minimum and maximum balance of $1,000 and $5,000, respectively. A reduction to the interest rate is offered for loans with automatic debit repayment from a Millington Bank checking or statement savings account. MSB’s account loans permit a depositor to borrow up to 90% of his or her funds on deposit with MSB in certificate of deposit accounts. The interest rate is the current rate paid to the depositor, plus a premium. A minimum payment of interest only is required. MSB also offers an overdraft line of credit with a minimum of $500 and up to a maximum of $5,000 and an interest rate tied to the prime rate published inThe Wall Street Journal, plus a premium.
Consumer lending is generally considered to involve a higher degree of credit risk than residential mortgage lending. Consumer loan repayment is dependent on the borrower’s continuing financial stability and can be adversely affected by job loss, divorce, illness, personal bankruptcy and other factors. The application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on consumer loans in the event of a default. Account loans are fully secured.
Home Equity Loans and Lines of Credit. MSB offers fixed rate home equity loans and variable rate home equity lines of credit with a minimum credit limit of $5,000. Collateral valuation is established through a variety of methods, including anon-line appraisal valuation estimator,drive-by appraisals, recent assessed tax value, purchase price or consideration value as evidenced by a deed or property search report or a report of comparable real estate properties from a licensed realtor. Loan requests over $50,000, however, require adrive-by appraisal and amounts over $100,000 require full appraisals. Loan requests over $500,000 require Loan Committee approval. Any policy exception requires approval from the Board of Directors. Theloan-to-value limit on home equity lending varies depending on the collateral value and ranges from 65% up to 80%. The variable rate on home equity lines of credit is adjusted monthly and is currently set at prime for owner occupied properties and prime plus a premium for investment properties. The fixed rate loans on investment property are also higher than fixed rate owner occupied home equity loans. MSB generally provides home equity financing only for a first or second lien position.
MSB’s fixed rate home equity loans have terms of 5 to 30 years. All new variable rate home equity lines of credit have terms of 10 years interest only draw period and a 15 year repayment period with a loan to value ranging from 65% to 80%. MSB’s existing portfolio of home equity lines is also comprised of interest only home equity lines of credit based on a 10 year draw period and 15 year repayment period consisting of principal and interest repayments. Theloan-to-value limit on interest only home equity financing is 80% on owner-occupied property and 70% on investment property. MSB also offers bridge loans with a variable rate and a 70%loan-to-value limit on owner-occupied property and 60% on investment property.
Commercial and Industrial Loans. MSB offers revolving lines of credit to businesses to financeshort-term working capital needs like accounts receivable and inventory. These lines of credit may be unsecured or secured by liquid assets, accounts receivable and inventory or real estate. MSB generally provides such financing for no more than a 3 year term and with a variable rate. MSB also offers unsecured lines of credit to high net worth borrowers for short term working capital and/or business or investment purposes. These lines have a maximum term of two years with a variable interest rate.
MSB also originates commercial term loans to fundlonger-term borrowing needs such as purchasing equipment, property improvements or other fixed asset needs. These loans are secured by new and used machinery, equipment, fixtures, furniture or other long-term fixed assets and have terms of 1 to 15 years. MSB originates commercial term loans for other general long-term business purposes, and these loans are secured by real estate. Principal and interest on commercial term loans is payable monthly.
The normal minimum amount for MSB’s commercial term loans and lines of credit is $5,000. The maximum amount is based on the loan to value limits set in MSB’s policy. MSB typically does not provide working capital loans to businesses outside MSB’s normal market area or to new businesses where repayment is dependent solely on future profitable operation of the business. MSB avoids originating loans for which the primary source of repayment could be liquidation of the collateral securing the loan in light of poor repayment prospects. MSB typically requires personal and/or carve out guarantees on all commercial loans, regardless of other collateral securing the loan.
Theloan-to-value limits on commercial loans vary according to the collateral. Loans secured by real estate may be originated for up to an 80%loan-to-value ratio. Other limits are typically: Savings accounts-90% of the deposit amount; newequipment-75% of purchase price; and usedequipment-the lesser of 75% of the purchase price or current market value.
Loans to One Borrower. Millington Bank’s regulatory limit on total loans to any borrower or attributed to any one borrower is 15% of unimpaired capital and surplus. Accordingly, as of December 31, 2019, MSB’s loans to one borrower legal limit was approximately $10.1 million.
Millington Bank’s lending policies require that any transaction between $500,000 and Millington Bank’s legal lending limit must be approved by the Senior Loan Committee. Any exceptions to policy requires prior Board approval.
At December 31, 2019, Millington Bank’s largest lending relationship with a single borrower was a $9.0 million commercial loan to anon-depository financial institution.
Loan Originations, Purchases, Sales, Solicitation and Processing. MSB’s customary sources of loan applications include repeat customers, referrals from realtors and other professionals,“walk-in” customers and business opportunities generated by MSB’s commercial lenders. MSB’s residential loan originations are driven by Millington Bank’s reputation, as opposed to being advertising driven.
Generally, it has been MSB’s policy to retain the loans it originates in its portfolio. MSB has not uniformly originated real estate mortgage loans to meet the documentation standards to sell loans in the secondary market. MSB may do so, however, in the future if MSB finds it desirable in connection with interest rate risk management to sell longer term fixed rate mortgages into the secondary mortgage market. However, in 2018, MSB began to sell loans with servicing released into the secondary mortgage market. MSB sold ten residential mortgage loans through December 31, 2019 and eight residential mortgage loans through December 31, 2018.
MSB purchased $11.3 million in participated commercial real estate loans during the year ended December 31, 2019. In addition, MSB participated out $8.1 million and sold $2.5 million in loans originated by MSB to other banks during 2019. MSB will continue to actively utilize purchases and participations to grow the portfolio.
Loan Approval Procedures and Authority. Lending policies and loan approval limits are approved and adopted by the Millington Bank Board of Directors. Lending authority is vested primarily in the Millington Bank’s Senior Loan Committee comprised of Millington Bank’s Chief Executive Officer, Chief Operating Officer, Chief Lending Officer and the Chief Credit Officer who will review and approve loans over $500,000 and up to Millington Bank’s legal lending limit. Each of the above individuals also has lending authority of up to $500,000. Certain other Millington Bank employees also have limited lending authority. Prior Board approval is required for all loan products with any exceptions to loan policy, regardless of amount.
Asset Quality
Loan Delinquencies and Collection Procedures. MSB’s procedures for delinquent loans are as follows:
| 15 days delinquent: | late charge added, first delinquent notice mailed | |
| 30 days delinquent: | second delinquent notice mailed | |
| 45 days delinquent: | additional late charge, third delinquent notice mailed, telephone contact made | |
| 60 days delinquent: | telephone contact made, separate letter mailed | |
| 90 days delinquent: | decision made to refer to attorney to send demand letter | |
120 days delinquent: | attorney to file complaint to begin legal action |
When a loan is 90 days delinquent, the MSB Senior Vice President and Chief Credit Officer or the President may determine to refer it to an attorney to send a demand letter. After 120 days, the attorney is able to start the foreclosure proceedings by filing a complaint with the court. All reasonable attempts are made to collect from borrowers prior to referral to an attorney for collection. In certain instances, MSB may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize his or her financial affairs, and MSB attempts to work with the borrower to establish a repayment schedule to cure the delinquency.
As to mortgage loans, if a foreclosure action is taken and the loan is not reinstated, paid in full or refinanced, the property is sold at judicial sale at which MSB may be the buyer if there are no adequate offers to satisfy the debt. Any property acquired as the result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until it is sold or otherwise disposed of. When real estate owned is acquired, it is recorded at its fair value less estimated selling costs. The initial write-down of the property is charged to the allowance for loan losses. Adjustments to the carrying value of the property that result from subsequent declines in value are charged to operations in the period in which the declines occur. At December 31, 2019, MSB had no other real estate owned.
As to commercial loans, MSB requests updated financial statements when the loan becomes 90 days delinquent. As to account loans, the outstanding balance is collected from the related account along with accrued interest when the loan is 180 days delinquent.
Loans are reviewed on a regular basis, and all delinquencies of 60 days or more are reported to the MSB Board of Directors. Loans are placed on nonaccrual status when they are more than 90 days delinquent, except for such loans which are “well secured” and “in the process of collection.” In addition a loan may be placed on nonaccrual status at any time if, in the opinion of MSB management, the collection of the loan in full is doubtful. An asset is “well secured” if it is secured (1) by collateral in the form of liens on or pledges of real or personal property, including securities, that have a realizable value sufficient to discharge the debt (including accrued interest) in full, or (2) by the guarantee of a financially responsible party. An asset is “in process of collection” if collection of the asset is proceeding in due course either (1) through legal action, including judgment enforcement procedures, or (2) in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or its restoration to a current status in the near future.
When loans with interest accrued and unpaid are placed on nonaccrual status, the accrued interest is reversed and charged against interest income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment of the ultimate collectability of the loan. At December 31, 2019, MSB had approximately $3.1 million of loans that were held on a nonaccrual basis and classified as impaired with only $372,000 subject to specific loss allowance reserves totaling $34,000. The remaining nonaccrual impaired loans did not require specific loss allowances.
Non-Performing Assets. The following table provides information regarding MSB’snon-performing loans and othernon-performing assets as of the dates indicated.
| At December 31, | ||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
Loans accounted for on a nonaccrual basis: | ||||||||||||||||||||
One-to four-family real estate | $ | 1,169 | $ | 2,276 | $ | 3,446 | $ | 5,744 | $ | 3,744 | ||||||||||
Commercial and multi-family real estate | 996 | 1,032 | 315 | 760 | 827 | |||||||||||||||
Construction | — | — | — | — | — | |||||||||||||||
Consumer | — | — | — | — | — | |||||||||||||||
Home equity | 943 | 608 | 115 | 126 | 803 | |||||||||||||||
Commercial and industrial | — | 215 | 99 | 350 | 542 | |||||||||||||||
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Total(1) | 3,108 | 4,131 | 3,975 | 6,980 | 5,916 | |||||||||||||||
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Accruing loans contractually past due 90 days or more: | ||||||||||||||||||||
One-to four-family real estate | — | 2 | — | — | 235 | |||||||||||||||
Commercial real estate | — | — | — | — | — | |||||||||||||||
Construction | — | — | — | — | — | |||||||||||||||
Consumer | — | — | 1 | — | — | |||||||||||||||
Home equity | — | — | 157 | — | 50 | |||||||||||||||
Commercial and industrial | — | — | — | — | — | |||||||||||||||
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Total | — | 2 | 158 | — | 285 | |||||||||||||||
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Totalnon-performing loans | $ | 3,108 | $ | 4,133 | $ | 4,133 | $ | 6,980 | $ | 6,201 | ||||||||||
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Totalnon-performing assets(2) | $ | 3,108 | $ | 4,133 | $ | 4,133 | $ | 6,980 | $ | 6,201 | ||||||||||
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Accruing loans modified in troubled debt restructurings | $ | 9,452 | $ | 10,481 | $ | 9,703 | $ | 8,459 | $ | 10,962 | ||||||||||
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Totalnon-performing loans to total loans | 0.59 | % | 0.81 | % | 0.83 | % | 1.84 | % | 2.29 | % | ||||||||||
Totalnon-performing loans to total assets | 0.52 | % | 0.71 | % | 0.73 | % | 1.51 | % | 1.65 | % | ||||||||||
Totalnon-performing assets to total assets | 0.52 | % | 0.71 | % | 0.73 | % | 1.51 | % | 1.65 | % | ||||||||||
| (1) | Includes $1.8 million, $915,000, $1.7 million, $2.2 million and $4.1 million in troubled debt restructurings (“TDRs”) at December 31, 2019, 2018, 2017, 2016 and 2015, respectively. |
| (2) | Totalnon-performing assets consist of totalnon-performing loans and other real estate owned of $0, $0, $0, $0 and $1.3 million at December 31, 2019, 2018 ,2017, 2016 and 2015. |
At December 31, 2019, there were no loans not disclosed in the table above where known information about possible credit problems of borrowers causes MSB management to have serious doubts as to the ability of such borrowers to comply with present loan repayment terms and which may result in disclosure of such loans in the future.
During the year ended December 31, 2019, gross interest income of $163,000 would have been recorded on loans accounted for on a nonaccrual basis and an additional $97,000 would have been recorded on TDRs if those loans had been current in accordance with their original terms. Interest collected on such loans totaling $443,000 was included in interest income during the period.
Classified Assets. MSB in compliance with the Uniform Credit Classification and Account Management Policy adopted by the FDIC, and MSB has an internal loan review program, wherebynon-performing loans are classified as special mention, substandard, doubtful or loss. It is MSB’s policy to review the commercial real estate, construction, and commercial loan portfolios, in accordance with regulatory classification procedures, on at least a quarterly basis. When a loan is classified as
substandard or doubtful, management is required to evaluate the loan for impairment. When MSB management classifies a portion of a loan as loss, a reserve equal to 100% of the loss amount is required to be established or the loan is to becharged-off, if a conforming loss event has occurred.
An asset that does not currently expose MSB to a sufficient degree of risk to warrant an adverse classification, but which possesses credit deficiencies or potential weaknesses that deserve MSB management’s close attention is classified as “special mention.”
An asset classified as “substandard” is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Assets so classified havewell-defined weaknesses and are characterized by the distinct possibility that MSB will sustain some loss if the deficiencies are not corrected.
An asset classified as “doubtful” has all the weaknesses inherent in a “substandard” asset with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of a loss on a doubtful asset is high.
That portion of an asset classified as “loss” is considered uncollectible and of such little value that its continuance as an asset, withoutcharge-off, is not warranted. This classification does not necessarily mean that an asset has absolutely no recovery or salvage value; but rather, it is not practical or desirable to defer writing off a basically worthless asset even though partial recovery may be affected in the future.
MSB management’s classification of assets is reviewed by the MSB Board on a regular basis and by the regulatory agencies as part of their examination process.
The following table discloses MSB’s classification of loans as of December 31, 2019.
| At December 31, 2019 | ||||
| (In thousands) | ||||
Special Mention | $ | 1,548 | ||
Substandard | 1,717 | |||
Doubtful | — | |||
Loss | — | |||
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Total | $ | 3,265 | ||
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At December 31, 2019, 2 out of the 9 loans adversely classified, totaling $1.0 million, are included asnon-performing loans in thenon-performing assets table.
MSB management further monitors the performance and credit quality of the retail portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. These credit quality indicators are assessed in the aggregate in these relatively homogeneous portfolios. Loans greater than 90 days past due are generally considered nonperforming and placed on nonaccrual status.
Allowance for Credit Losses. The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded credit commitments. The allowance for loan losses represents MSB management’s estimate of probable incurred losses in the loan portfolio as of the Statement of Financial Condition date and is recorded as a reduction to loans. The reserve for unfunded credit commitments represents management’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on MSB’s consolidated Statement of Financial Condition. No additional provisions are recorded in the event the unallocated portion of the allowance for credit losses exceeds the calculated reserve for unfunded credit commitments. The allowance for credit losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. All, or part, of the principal balance of loans receivable that are deemed uncollectible are charged against the allowance when MSB management determines that the repayment of that amount is highly unlikely. Any subsequent recoveries are credited to theallowance. Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, earlier in the event of bankruptcy, or if there is an amount deemed uncollectible.
MSB management, in determining the allowance for loan losses, considers MSB’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available. The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price of the impaired loan) is lower than the carrying value of that loan. The general component covers pools of loans by loan class. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these classes of loans, adjusted for qualitative factors. Each factor is assigned a value to reflect improving, stable or declining conditions based on MSB management’s best judgment using relevant information available at the time of the evaluation. The unallocated component is maintained to cover uncertainties that could affect MSB management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
The allowance calculation methodology includes segregation of the total loan portfolio into segments. MSB’s loans receivable portfolio is comprised of the following segments: residential mortgage, commercial real estate, construction, consumer and commercial and industrial. Some segments of MSB’s loan receivable portfolio are further disaggregated into classes which allows MSB management to better monitor risk and performance.
The residential mortgage loan segment is disaggregated into two classes:one-to four-family loans, which are primarily first liens, and home equity loans, which consist of first and second liens. The commercial real estate loan segment consists of both owner andnon-owner occupied loans and is further disaggregated into owner-occupied loans and investor properties, which have medium risk due to historical activity on these type loans. The construction loan segment is further disaggregated into two classes:one-to four-family owner occupied, which includes land loans, whereby the owner is known and there is less risk, and other, whereby the property is generally under development and tends to have more risk than theone-to four-family owner occupied loans. The commercial and industrial loan segment consists of loans made for the purpose of financing the activities of commercial customers. The commercial and industrial loans consist of a mix of loans secured by real estate and unsecured lines of credit some of which are for high net worth individuals. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.
A loan is considered impaired when, based on current information and events, it is probable that MSB will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by MSB management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. MSB management determines the significance of payment delays and payment shortfalls on acase-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.
Loans whose terms are modified are classified as TDRs if MSB grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a TDR generally involve a reduction in interest rate, a below market interest rate based on risk, or an extension of a loan’s stated maturity date. Nonaccrual troubled debt restructuring are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. Loans classified as TDRs are designated as impaired.
The evaluation of the need and amount of the allowance for impaired loans and whether a loan can be removed from impairment status is made on a quarterly basis. MSB’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.
In addition, the NJDBI and the FDIC, as an integral part of their examination processes, periodically review MSB’s loan and real estate owned portfolios and the related allowance for loan losses and valuation allowance for real estate owned. They may require the allowance for loan losses or the valuation allowance for real estate owned to be increased based on their review of information available at the time of the examination, which would negatively affect MSB’s earnings.
The following table sets forth information with respect to MSB’s allowance for loan losses for the periods indicated:
| Year Ended December 31, | ||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
Allowance balance at beginning of period | $ | 5,655 | $ | 5,414 | $ | 4,476 | $ | 3,602 | $ | 3,634 | ||||||||||
Provision for loan losses | — | 240 | 1,185 | 800 | 113 | |||||||||||||||
Charge-offs: | ||||||||||||||||||||
One-to four-family real estate | — | — | 178 | 64 | 61 | |||||||||||||||
Commercial and multi-family real estate | — | — | 43 | — | 47 | |||||||||||||||
Construction | — | — | — | — | 22 | |||||||||||||||
Consumer | 4 | 8 | 4 | 12 | — | |||||||||||||||
Home equity | — | — | — | — | 6 | |||||||||||||||
Commercial and industrial | — | — | 30 | — | 30 | |||||||||||||||
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Total charge-offs | 4 | 8 | 255 | 76 | 166 | |||||||||||||||
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Recoveries: | ||||||||||||||||||||
Consumer | 2 | 1 | — | 1 | — | |||||||||||||||
One-to four-family real estate | 69 | 8 | 7 | 16 | 7 | |||||||||||||||
Construction | — | — | — | — | 12 | |||||||||||||||
Home equity | — | — | — | 2 | 2 | |||||||||||||||
Commercial and industrial | — | — | 1 | 131 | — | |||||||||||||||
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Total recoveries | 71 | 9 | 8 | 150 | 21 | |||||||||||||||
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Net charge-offs (recoveries) | (67 | ) | (1 | ) | 247 | (74 | ) | 145 | ||||||||||||
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Allowance balance at end of period | $ | 5,722 | $ | 5,655 | $ | 5,414 | $ | 4,476 | $ | 3,602 | ||||||||||
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Total loans outstanding at end of period | $ | 530,389 | $ | 519,132 | $ | 499,161 | $ | 379,698 | $ | 270,931 | ||||||||||
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Average loans outstanding during period | $ | 502,186 | $ | 495,719 | $ | 429,848 | $ | 301,764 | $ | 247,997 | ||||||||||
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Allowance for loan losses as a percentage ofnon-performing loans | 184.11 | % | 136.83 | % | 130.99 | % | 64.13 | % | 58.09 | % | ||||||||||
Allowance for loan losses as a percentage of total loans | 1.08 | % | 1.09 | % | 1.08 | % | 1.18 | % | 1.33 | % | ||||||||||
Net loanscharged-off as a percentage of average loans | — | % | — | % | 0.06 | % | (0.02 | )% | 0.06 | % | ||||||||||
Allocation of Allowance for Loan Losses. The following table sets forth the allocation of MSB’s allowance for loan losses by loan category and the percent of loans in each category to total loans receivable at the dates indicated. The portion of the loan loss allowance allocated to each loan category does not represent the total available for future losses that may occur within the loan category since the total loan loss allowance is a valuation allocation applicable to the entire loan portfolio.
| At December 31, | ||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||||
| Amount | Percent of Loans to Total Loans | Amount | Percent of Loans to Total Loans | Amount | Percent of Loans to Total Loans | Amount | Percent of Loans to Total Loans | Amount | Percent of Loans to Total Loans | |||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||
One-to-four family real estate | $ | 1,581 | 27.63 | % | $ | 1,872 | 27.62 | % | $ | 1,667 | 31.63 | % | $ | 1,595 | 42.28 | % | 1,723 | 57.07 | % | |||||||||||||||||||||
Commercial and multi-family real estate | 2,612 | 45.65 | 2,173 | 40.95 | 2,267 | 39.40 | 1,441 | 32.83 | 1,015 | 22.02 | ||||||||||||||||||||||||||||||
Construction | 433 | 7.57 | 222 | 5.71 | 302 | 8.76 | 248 | 4.36 | 143 | 4.02 | ||||||||||||||||||||||||||||||
Home equity | 165 | 2.88 | 243 | 4.69 | 185 | 5.37 | 213 | 8.50 | 204 | 12.92 | ||||||||||||||||||||||||||||||
Commercial and industrial | 929 | 16.24 | 1,142 | 20.92 | 710 | 14.72 | 882 | 11.92 | 235 | 3.79 | ||||||||||||||||||||||||||||||
Consumer | 2 | 0.03 | 3 | 0.11 | 5 | 0.12 | 6 | 0.11 | 9 | 0.18 | ||||||||||||||||||||||||||||||
Unallocated | — | — | — | — | 278 | — | 91 | — | 273 | — | ||||||||||||||||||||||||||||||
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Total allowance | $ | 5,722 | 100.00 | % | $ | 5,655 | 100.00 | % | $ | 5,414 | 100.00 | % | $ | 4,476 | 100.00 | % | 3,602 | 100.00 | % | |||||||||||||||||||||
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Securities Portfolio
MSB’s investment policy is designed to manage cash flows and foster earnings within prudent interest rate risk and credit risk guidelines. The portfolio mix is governed by MSB’s short term and long term liquidity needs.Rate-of-return, cash flow, rating andguarantor-backing are also considered when making investment decisions. The purchase of principal only and stripped coupon interest only security instruments is specifically not authorized by MSB’s investment policy. Furthermore, other than government related securities which may not be rated, MSB only purchases securities with a rating of AAA or AA. MSB invests primarily in mortgage-backed securities, U.S. Government obligations, U.S. Government agency issued securities, state and political subdivision general obligations and to a lesser extent in Corporate Bonds and Certificates of Deposits.
Mortgage-backed securities represent a participation interest in a pool of mortgages issued by U.S. government agencies orgovernment-sponsored enterprises, such as Federal Home Loan Mortgage Corporation (“Freddie Mac”), the Government National Mortgage Association (“Ginnie Mae”), and the Federal National Mortgage Association (“Fannie Mae”), as well asnon-government, private corporate issuers.Mortgage-backed securities arepass-through securities and generally yield less than the mortgage loans underlying the securities. The characteristics of the underlying pool of mortgages,i.e.,fixed-rate oradjustable-rate, as well as prepayment risk, are passed on to the certificate holder.
Mortgage-backed securities issued or sponsored by U.S. government agencies andgovernment-sponsored entities are guaranteed as to the payment of principal and interest to investors.
Corporate bonds often pay higher rates than government or municipal bonds, because they tend to be riskier. The bond holder receives interest payments (yield) and principal and is repaid on a fixed maturity date. Corporate bonds can mature anywhere between 1 to 30 years and changes in interest rates are generally reflected in the bond prices. Corporate bonds carry no claims to ownership and do not pay a dividend, but are considered to be less risky than stocks, since the company has to pay off all of its debts (including bonds) before it handles its obligations to stockholders. Corporate bonds have a wide range of ratings and yields because the financial health of the issuers can vary widely,
Accounting standards require that securities be categorized as “held to maturity,” “trading securities” or “available for sale,” based on management’s intent as to the ultimate disposition of each security. These standards allow debt securities to be classified as “held to maturity” and reported in financial statements at amortized cost if the reporting entity has the positive intent and ability to hold these securities to maturity. Securities that might be sold in response to changes in market interest rates, changes in the security’s prepayment risk, increases in loan demand, or other similar factors cannot be classified as “held to maturity.”
At December 31, 2019, MSB’s entire securities portfolio was classified as held to maturity. All securities were purchased with the intent to hold each security until maturity. Securities not classified as “held to maturity” or as “trading securities” are classified as “available for sale” and are reported at fair value with unrealized gains and losses on the securities impacting equity. MSB held no available for sale or trading securities during the years ended December 31, 2019 and 2018.
Individual securities are considered impaired when their fair values are less than their amortized cost. MSB management evaluates all securities with unrealized losses quarterly to determine if such impairments are “temporary” or “other-than-temporary” in accordance with applicable accounting guidance. Accordingly, MSB accounts for temporary impairments based upon security classification as either trading, available for sale or held to maturity. Temporary impairments on “available for sale” securities would be recognized, on atax-effected basis, through other comprehensive income with offsetting entries adjusting the carrying value of the security and the balance of deferred taxes. Temporary impairments of held to maturity securities are not recognized in the consolidated financial statements; however, information concerning the amount and duration of impairments on held to maturity securities is disclosed in the notes to the consolidated financial statements. The carrying value of securities held in a trading portfolio would be adjusted to fair value through earnings on a quarterly basis.
Other-than-temporary impairments on securities that MSB has decided to sell or will more likely than not be required to sell prior to the full recovery of their fair value to a level equal to or exceeding amortized cost are recognized in earnings. Otherwise, the other-than-temporary impairment is bifurcated into credit-related and noncredit-related components. The credit-related impairment generally represents the amount by which the present value of the cash flows
expected to be collected on a debt security falls below its amortized cost. The noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. Credit-related other-than-temporary impairments are recognized in earnings while noncredit-related other-than-temporary impairments are recognized, net of deferred taxes, in other comprehensive income.
At December 31, 2019, MSB’s securities portfolio did not contain securities of any issuer, other than the U.S. Government agencies and government-sponsored enterprises, having an aggregate book value in excess of 10% of stockholders’ equity. MSB does not currently participate in hedging programs, interest rate caps, floors or swaps, or other activities involving the use ofoff-balance sheet derivative financial instruments, however, MSB may in the future utilize such instruments if MSB believes it would be beneficial for managing MSB’s interest rate risk.
The following table sets forth certain information regarding the carrying values, weighted average yields and maturities of MSB’s held to maturity securities portfolio at December 31, 2019. MSB’s held to maturity securities portfolio is carried at amortized cost. This table shows contractual maturities and does not reflect repricing or the effect of prepayments. Actual maturities of the securities held by MSB may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without prepayment penalties. Callable securities pose reinvestment risk because MSB may not be able to reinvest the proceeds from called securities at an equivalent or higher interest rate.
| At December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||
| One Year or Less | One to Five Years | Five to Ten Years | More than Ten Years | Total Investment Securities | ||||||||||||||||||||||||||||||||||||||||
| Carrying Value | Average Yield | Carrying Value | Average Yield | Carrying Value | Average Yield | Carrying Value | Average Yield | Carrying Value | Average Yield | Market Value | ||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||
U.S. Government Agency Obligations | $ | — | — | % | $ | — | — | % | $ | 3,000 | 2.98 | % | $ | 3,000 | 3.27 | % | $ | 6,000 | 3.12 | % | $ | 6,013 | ||||||||||||||||||||||
Mortgage-Backed Securities: | ||||||||||||||||||||||||||||||||||||||||||||
Government National Mortgage Association | — | — | 4 | 3.12 | — | — | — | — | $ | 4 | 3.12 | 4 | ||||||||||||||||||||||||||||||||
Federal Home Loan Mortgage Corporation | — | — | 3 | 3.78 | 1,700 | 1.76 | 1,771 | 2.61 | $ | 3,474 | 2.19 | 3,470 | ||||||||||||||||||||||||||||||||
Federal National Mortgage Association | 1,151 | 3.49 | 11,363 | 2.63 | 880 | 1.94 | 5,579 | 2.86 | $ | 18,973 | 2.72 | 19,240 | ||||||||||||||||||||||||||||||||
Corporate bonds | 1,500 | 3.01 | — | — | 1,000 | 1.59 | 4,000 | 2.69 | $ | 6,500 | 2.60 | 6,077 | ||||||||||||||||||||||||||||||||
State and political subdivisions | 171 | 1.40 | 705 | 1.78 | — | — | — | — | $ | 876 | 1.71 | 892 | ||||||||||||||||||||||||||||||||
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Total | $ | 2,822 | 3.11 | % | $ | 12,075 | 2.58 | % | $ | 6,580 | 2.31 | % | $ | 14,350 | 2.87 | % | $ | 35,827 | 2.69 | % | $ | 35,696 | ||||||||||||||||||||||
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The following table sets forth the carrying value of MSB’s held to maturity securities portfolio at the dates indicated. All securities are classified as held to maturity and, therefore, are shown at amortized cost.
| At December 31, | ||||||||
| 2019 | 2018 | |||||||
| (In thousands) | ||||||||
U.S. Government Agency Obligations | $ | 6,000 | $ | 8,000 | ||||
Government National Mortgage Association | 4 | 5 | ||||||
Federal Home Loan Mortgage Corporation | 3,474 | 2,140 | ||||||
Federal National Mortgage Association | 18,973 | 21,791 | ||||||
Corporate bonds | 6,500 | �� | 6,500 | |||||
State and political subdivisions | 876 | 1,040 | ||||||
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Total securities held to maturity | $ | 35,827 | $ | 39,476 | ||||
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Sources of Funds
General. Deposits are MSB’s major source of funds for lending and other investment purposes. To the extent that MSB’s loan originations may exceed the funding available from deposits, MSB has borrowed funds from the Federal Home Loan Bank (“FHLB”) to supplement the amount of funds for lending and funding daily operations.
In addition, MSB derives funds from loan andmortgage-backed securities principal repayments, interest, and proceeds from the maturity and call of investment securities. Loan and securities payments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by pricing strategies and money market conditions.
Deposits. MSB’s current deposit products include checking and savings accounts, certificates of deposit and fixed or variable rate individual retirement accounts (IRAs). Deposit account terms vary, primarily as to the required minimum balance amount, the amount of time, if any, that the funds must remain on deposit and the applicable interest rate. MSB’s savings account menu includes regular passbook, statement, money market and club accounts. MSB also offers asix-level tiered savings account. MSB’s certificates of deposit currently range in terms from 6 months to 10 years. MSB’s IRAs are available with the same maturities as certificates of deposit accounts, with the exception of the 30 month term. MSB offers a two year certificate of deposit that permits the depositor to increase the interest rate to the current two year rate once during the term.
Deposits are obtained primarily from within New Jersey. Millington Bank may utilize brokered deposits and a listing service as funding sources. As of December 31, 2019 Millington Bank had $21.4 million in listing service deposits. Premiums or incentives for opening accounts are sometimes offered. Periodically MSB selects particular certificate of deposit maturities for promotion in connection with asset/liability management and interest rate risk concerns.
The determination of deposit and certificate interest rates is based upon a number of factors, including: (1) need for funds based on loan demand, current maturities of deposits and other cash flow needs; (2) a current survey of a selected group of competitors’ rates for similar products; (3) economic conditions; and (4) business plan projections.
A large percentage of MSB’s deposits are in certificates of deposit. The inflow of certificates of deposit and the retention of such deposits upon maturity are significantly influenced by general interest rates and money market conditions, making certificates of deposit traditionally a more volatile source of funding than core deposits. MSB’s liquidity could be reduced if a significant amount of certificates of deposit maturing within a short period of time were not renewed. To the extent that such deposits do not remain with MSB, they may need to be replaced with borrowings which could increase MSB’s cost of funds and negatively impact MSB’s net interest rate spread and MSB’s financial condition.
The following table sets forth the distribution of average deposits for the periods indicated and the weighted average nominal interest rates for each period on each category of deposits presented.
| For the Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | ||||||||||||||||||||||||||||||||||
| Average Balance | Percent of Total Deposits | Weighted Average Nominal Rate | Average Balance | Percent of Total Deposits | Weighted Average Nominal Rate | Average Balance | Percent of Total Deposits | Weighted Average Nominal Rate | ||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
Non-interest-bearing demand | $ | 47,228 | 10.88 | % | — | % | 41,746 | 9.82 | % | — | % | $ | 42,312 | 10.95 | % | — | % | |||||||||||||||||||
Interest-bearing demand | 140,208 | 32.30 | 1.19 | 153,367 | 36.06 | 0.82 | 119,096 | 30.82 | 0.44 | |||||||||||||||||||||||||||
Savings | 99,391 | 22.90 | 0.74 | 105,623 | 24.84 | 0.52 | 105,444 | 27.28 | 0.26 | |||||||||||||||||||||||||||
Certificates of deposit | 147,253 | 33.92 | 1.95 | 124,556 | 29.28 | 1.63 | 119,618 | 30.95 | 1.38 | |||||||||||||||||||||||||||
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Total deposits | $ | 434,080 | 100.00 | % | 1.37 | % | $ | 425,292 | 100.00 | % | 1.00 | % | $ | 386,470 | 100.00 | % | 0.71 | % | ||||||||||||||||||
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The following table sets forth certificates of deposit classified by interest rate categories as of the dates indicated.
| At December 31, | ||||||||||||||||||||||||
| 2019 | 2018 | 2017 | ||||||||||||||||||||||
| Amount | Percent of Total | Amount | Percent of Total | Amount | Percent of Total | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
Interest Rate: | ||||||||||||||||||||||||
Under - 1.00% | $ | 11,874 | 7.60 | % | $ | 17,760 | 14.70 | % | $ | 25,133 | 20.21 | % | ||||||||||||
1.00% - 1.99% | 61,970 | 39.69 | 53,118 | 43.95 | 70,750 | 56.90 | ||||||||||||||||||
2.00% - 2.99% | 81,554 | 52.23 | 49,368 | 40.85 | 26,536 | 21.34 | ||||||||||||||||||
3.00% - 3.99% | 756 | 0.48 | 570 | 0.47 | 645 | 0.52 | ||||||||||||||||||
4.00% - 4.99% | — | — | 39 | 0.03 | 332 | 0.27 | ||||||||||||||||||
5.00% - 5.99% | — | — | — | — | 943 | 0.76 | ||||||||||||||||||
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Total | $ | 156,154 | 100.00 | % | $ | 120,855 | 100.00 | % | $ | 124,339 | 100.00 | % | ||||||||||||
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The following table sets forth the amount and maturities of certificates of deposit at December 31, 2019.
| Amount Due Year Ended December 31, | ||||||||||||||||||||||||||||
| 2020 | 2021 | 2022 | 2023 | 2024 | After 2024 | Total | ||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||
Interest Rate: | ||||||||||||||||||||||||||||
Under - 1.00% | $ | 10,485 | $ | 1,385 | $ | 4 | $ | — | $ | — | $ | — | $ | 11,874 | ||||||||||||||
1.00% - 1.99% | 37,527 | 16,713 | 6,263 | 707 | 290 | 470 | 61,970 | |||||||||||||||||||||
2.00% - 2.99% | 47,852 | 26,180 | 4,641 | 2,403 | 55 | 423 | 81,554 | |||||||||||||||||||||
3.00% - 3.99% | 239 | — | — | — | 517 | — | 756 | |||||||||||||||||||||
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Total | $ | 96,103 | $ | 44,278 | $ | 10,908 | $ | 3,110 | $ | 862 | $ | 893 | $ | 156,154 | ||||||||||||||
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The following table shows the amount of MSB’s certificates of deposit of $100,000 or more by time remaining until maturity as of December 31, 2019.
| Certificates of Deposit | ||||
| (In thousands) | ||||
Remaining Time Until Maturity: | ||||
Within three months | $ | 10,861 | ||
Three through six months | 40,754 | |||
Six through twelve months | 21,604 | |||
Over twelve months | 39,574 | |||
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Total | $ | 112,793 | ||
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Borrowings. To supplement MSB’s deposits as a source of funds for lending or investment, MSB has borrowed funds in the form of advances from the FHLB of New York (“FHLB of NY”). At December 31, 2019, MSB’s collateralized borrowing limit with the FHLB of NY was $173.6 million and MSB’s outstanding borrowings with the FHLB of NY totaled $51.6 million. Information regarding MSB’s total borrowings as of December 31, 2019 is set forth in the following table.
| At December 31, 2019 | ||||||||||||
| Balance | Rate | Maturity | ||||||||||
| (Dollars in thousands) | ||||||||||||
Total Borrowings: | ||||||||||||
Overnight Advance | $ | 23,900 | 1.81 | % | January 2, 2020 | |||||||
Five year fixed rate advance | $ | 2,675 | 1.79 | % | July 6, 2020 | |||||||
Three year fixed rate advance | $ | 5,000 | 1.75 | % | September 8, 2020 | |||||||
Three year fixed rate advance | $ | 10,000 | 2.27 | % | November 23, 2020 | |||||||
Four year fixed rate advance | $ | 5,000 | 1.89 | % | September 8, 2021 | |||||||
Five year fixed rate advance | $ | 5,000 | 2.01 | % | September 8, 2022 | |||||||
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| $ | 51,575 | |||||||||||
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A summary of short-term borrowings for 2019, 2018 and 2017 is set forth in the following table.
| For Years ended December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| (Dollars in thousands) | ||||||||||||
Overnight Advance at Period End | $ | 23,900 | $ | 66,600 | $ | — | ||||||
Maximum amount outstanding at any month end during period | 67,400 | 66,600 | 32,500 | |||||||||
Average amounts outstanding during period | 45,799 | 40,373 | 14.849 | |||||||||
Weighted Average Interest Rate | 2.51 | % | 2.28 | % | 1.22 | % | ||||||
Advances from the FHLB of NY are typically secured by the FHLB stock and a portion of MSB’s residential mortgage loans and by other assets, mainly securities which are obligations of or guaranteed by the U.S. government. Additional information regarding MSB’s borrowings is included under Note 7 to MSB’s consolidated financial statements beginning on page F-1.
Subsidiary Activity
MSB has no direct subsidiaries other than Millington Bank. Millington Bank has one wholly owned subsidiary, Millington Savings Service Corp., formed in 1984. The service corporation is currently inactive.
Regulation and Supervision
Millington Bank and MSB operate in a highly regulated industry. This regulation establishes a comprehensive framework of activities in which they may engage and is intended primarily for the protection of the Deposit Insurance Fund and depositors. Set forth below is a brief description of certain laws that relate to the regulation of Millington Bank and MSB. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.
Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on operations, the classification of assets and the adequacy of the allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation could have a material adverse impact on MSB and Millington Bank. The adoption of regulations or the enactment of laws that restrict the operations of Millington Bank and/or MSB or impose burdensome requirements upon one or both of them could reduce their profitability and could impair the value of Millington Bank’s franchise, resulting in negative effects on the trading price of MSB’s common stock.
Regulation of MSB
General. MSB is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the “BHC Act”), and is regulated by the Federal Reserve. The Federal Reserve has enforcement authority over MSB and MSB’snon-bank subsidiaries which also permits the Federal Reserve to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary bank. This regulation and oversight is intended primarily for the protection of the depositors of Millington Bank and not for shareholders of MSB.
As a bank holding company, MSB is required to file with the Federal Reserve an annual report and any additional information as the Federal Reserve may require under the BHC Act. The Federal Reserve will also examine MSB and its subsidiaries.
Under the BHC Act, MSB must obtain the prior approval of the Federal Reserve before it may acquire control of another bank or bank holding company, merge or consolidate with another bank holding company, acquire all or substantially all of the assets of another bank or bank holding company, or acquire direct or indirect control of any voting shares of any bank or bank holding company if, after such acquisition, MSB would directly or indirectly own or control more than 5% of such shares.
Federal statutes impose restrictions on the ability of a bank holding company and its nonbank subsidiaries to obtain extensions of credit from its subsidiary bank, on the subsidiary bank’s investments in the stock or securities of the holding company, and on the subsidiary bank’s taking of the holding company’s stock or securities as collateral for loans to any borrower. A bank holding company and its subsidiaries are also prevented from engaging in certain tying arrangements in connection with any extension of credit, lease or sale of property, or furnishing of services by the subsidiary bank.
Source of Strength Doctrine. A bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the policy of the Federal Reserve that a bank holding company should stand ready to use available resources to provide adequate capital to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company’s failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a violation of the Federal Reserve regulations, or both.
Non-Banking Activities. The business activities of MSB, as a bank holding company, are restricted by the BHC Act. In general, the BHC Act and the Federal Reserve’s regulations limit the nonbanking activities permissible for bank holding companies to those activities that the Federal Reserve has determined to be so closely related to banking or managing or controlling banks to be a proper incident thereto. These include any incidental activities necessary to carry on those activities, as well as a lengthy list of activities that the Federal Reserve has determined to be so closely related to the business of banking as to be a proper incident thereto. In addition, a bank holding company that has elected to be a financial holding company may engage in, or acquire and retain shares of companies engaged in, a broader range of activities that are considered (i) “financial in nature” (as defined by the Gramm-Leach-Bliley Act of 1999 and Federal Reserve regulations) or incidental to such financial activities (as determined by the Federal Reserve in consultation with the Secretary of the Treasury), or (ii) complementary to a financial activity and do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. These activities include, among other things, securities underwriting, dealing and market-making, sponsoring mutual funds and investment companies, insurance underwriting and agency activities, and merchant banking MSB has not submitted notice to the Federal Reserve of its intent to be deemed a financial holding company.
Regulatory Capital Requirements. The Federal Reserve has adopted capital adequacy guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a bank holding company and in analyzing applications to it under the BHC Act. The Federal Reserve’s capital adequacy guidelines are similar to those imposed on the Bank by the FDIC. See “��Regulation of Millington Bank—Regulatory Capital Requirements.” The Federal Reserve, however, has adopted a policy statement that exempts bank holding companies with less than $3.0 billion in consolidated assets that are not engaged in significantnon-banking oroff-balance sheet activities and that do not have a material amount of debt or equity securities registered with the SEC from its regulatory capital requirements as long as their bank subsidiaries are well capitalized. The Federal Reserve may apply its regulatory capital standards at its discretion to any bank holding company, regardless of asset size, if such action is warranted for supervisory purposes.
Federal Securities Law. MSB’s common stock is registered under Section 12(b) of the Exchange Act, and MSB is subject to the periodic reporting and other requirements of Section 12(b) of the Exchange Act.
Regulation of Millington Bank
General. As a New Jersey chartered, FDIC-insured bank, Millington Bank is regulated by the NJDBI and Insurance and the FDIC. Millington Bank’s operations are subject to extensive regulation, including restrictions or requirements with respect to loans to one borrower, the percentage ofnon-mortgage loans or investments to total assets, capital distributions, permissible investments and lending activities, liquidity, transactions with affiliates and community reinvestment. Millington Bank must file regulatory reports concerning its activities and financial condition, and must obtain regulatory approvals prior to entering into certain transactions, such as mergers with or acquisitions of other financial institutions. The NJDBI and the FDIC regularly examine Millington Bank and prepare reports to Millington Bank’s Board of Directors on deficiencies, if any, found in its operations. The regulatory authorities have substantial discretion to impose enforcement action on an institution that fails to comply with applicable regulatory requirements, particularly with respect to its capital requirements.
Federal Deposit Insurance.The FDIC, through the Deposit Insurance Fund, insures deposit accounts in Millington Bank up to $250,000 per separately insured deposit ownership right or category.
The FDIC assesses insured depository institutions to maintain the Deposit Insurance Fund. Under the FDIC’s risk-based assessment system, banks that are deemed to be less risky pay lower assessments. Assessments for institutions with assets of less than $10 billion of assets, such as Millington Bank, are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of failure of an institution’s failure within three years.
By FDIC rule effective April 1, 2011, the deposit insurance assessment range was set at 2.5 to 45 basis points of total assets less tangible equity. In conjunction with the Deposit Insurance Fund’s reserve ratio reaching 1.15%, effective July 1, 2016, the assessment range was reduced for insured institutions of less than $10 billion of total assets to 1.5 basis points to 30 basis points.
The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC was required to achieve the 1.35% ratio by September 30, 2020. The law required insured institutions with assets of $10 billion or more to fund the increase from 1.15% to 1.35% and, effective July 1, 2016, such institutions were subjected to a surcharge to achieve that goal. The 1.35% ratio was reached effective September 30, 2018. As a result, the surcharges ceased and institutions with less than $10 billion of assets received credits for assessment payments made that contributed to achieving the 1.35% ratio. The Dodd-Frank Act also eliminated the 1.5% statutory maximum ratio for the Deposit Insurance Fund and delegated to the FDIC the authority to set a maximum ratio. The FDIC has established a long-term target reserve ratio of 2.0% for the Deposit Insurance Fund, and it is expected that the current deposit insurance assessment structure will continue until the target reserve ratio is attained.
Regulatory Capital Requirements. The FDIC has promulgated capital adequacy requirements for state-chartered banks that, like Millington Bank, are not members of the Federal Reserve System. Effective January 1, 2015, the capital adequacy requirements were substantially revised to conform them to the international regulatory standards agreed to by the Basel Committee on Banking Supervision in the accord often referred to as “Basel III”. The current capital rules apply to all depository institutions as well as to alltop-tier bank and savings and loan holding companies that are not subject to the Federal Reserve’s Small Bank Holding Company Policy Statement.
Under the FDIC’s capital adequacy regulations, Millington Bank is required to meet four minimum capital standards: (1) “Tier 1” or “core” capital leverage ratio equal to at least 4% of total adjusted assets, (2) a common equity Tier 1 capital ratio equal to 4.5% of risk-weighted assets, (3) a Tier 1 risk-based ratio equal to 6% of risk-weighted assets, and (4) a total capital ratio equal to 8% of total risk-weighted assets. Common equity Tier 1 capital is defined as common stock instruments, retained earnings, any common equity Tier 1 minority interest and, unless the bank has made an“opt-out” election, accumulated other comprehensive income, net of goodwill and certain other intangible assets. Tier 1 or core capital is defined as common equity Tier 1 capital plus certain qualifying subordinated interests and grandfathered capital instruments. Total capital consists of Tier 1 capital plus Tier 2 or supplementary capital items, which include allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, qualifying subordinated instruments and certain grandfathered capital instruments. An institution’s risk-based capital requirements are measured against risk-weighted assets, which equal the sum of eachon-balance-sheet asset and the credit-equivalent amount of eachoff-balance-sheet item after being multiplied by an assigned risk weight. Risk weightings range from 0% for cash to 100% for property acquired through foreclosure, commercial loans, and certain other assets to 150% for exposures that are more than 90 days past due or are on nonaccrual status and certain commercial real estate facilities that finance the acquisition, development or construction of real property. Pursuant to the Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”), enacted in 2018, the federal banking agencies may only apply a heightened risk weight to a higher volatility commercial real estate
exposure that constitutes a higher volatility commercial real estate acquisition, development or construction loan as defined in EGRRCPA and which was originated on or after January 1, 2015.
The capital rules require banks to maintain and covered financial institution holding companies to maintain a capital conservation buffer of at least 2.5% of risk-weighted assets over and above the minimum risk-based capital requirements. Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement effectively raise the minimum required risk-based capital ratios to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital on a fullyphased-in basis.
In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors but also qualitative factors, and has the authority to establish higher capital requirements for individual institutions where necessary.
EGRRCPA directs the federal banking agencies to develop a community bank leverage ratio of tangible capital to average total consolidated assets of between 8% and 10% as an alternative to the current leverage and risk-based capital rules for qualifying community banks and satisfying any other leverage or capital requirements to which they are subject. Qualifying community banks meeting the community bank leverage ratio would also be deemed well-capitalized for purposes of the prompt corrective action rules. A qualifying community bank is a depository institution or holding company with total consolidated assets of less than $10 billion that is not excluded from qualification by the federal banking regulators based on the institution’s risk profile. The federal banking agencies have issued a final rule, effective January 1, 2020, under which a qualifying community bank may opt in to the community bank leverage ratio framework if its community bank leverage ratio exceeds 9%. To date, Millington Bank has not elected to opt into community bank leverage ratio framework.
Prompt Corrective Regulatory Action. Under applicable federal statutes, the federal bank regulatory agencies are required to take “prompt corrective action” with respect to institutions that do not meet specified minimum capital requirements. For these purposes, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under the FDIC’s prompt corrective action regulations, an institution is deemed to be “well capitalized” if it has a Total Risk-Based Capital Ratio of 10.0% or greater, a Tier 1 Risk-Based Capital Ratio of 8.0% or greater, a Common Equity Tier 1 risk-based capital ratio of 6.5% or better and a leverage ratio of 5.0% or greater. Under the final community bank leverage ratio regulations, a qualifying community bank will be deemed well capitalized if it maintains a community bank leverage ratio greater than 9.0%. In addition, a bank that has elected to use the community bank leverage ratio framework will continue to be considered well capitalized during atwo-quarter grace period after its leverage ratio falls below 9.0%, provided that the leverage ratio remains above 8.0%.
An institution is “adequately capitalized” if it has a Total Risk-Based Capital Ratio of 8.0% or greater, a Tier 1 Risk-Based Capital Ratio of 6.0% or greater, a Common Equity Tier 1 Capital Ratio of 4.5% or better and a Leverage Ratio of 4.0% or greater. An institution is “undercapitalized” if it has a Total Risk-Based Capital Ratio of less than 8.0%, a Tier 1 Risk-Based Capital ratio of less than 6.0%, a Common Equity Tier 1 ratio of less than 4.5% or a Leverage Ratio of less than 4.0%. An institution is deemed to be “significantly undercapitalized” if it has a Total Risk-Based Capital Ratio of less than 6.0%, a Tier 1 Risk-Based Capital Ratio of less than 4.0%, a Common Equity Tier 1 ratio of less than 3.0% or a Leverage Ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%
The prompt corrective action regulations provide for the imposition of a variety of requirements and limitations on institutions that fail to meet the above capital requirements. In particular, the FDIC may require anynon-member bank that is not “adequately capitalized” to take certain action to increase its capital ratios. If thenon-member bank’s capital is significantly below the minimum required levels of capital or if it is unsuccessful in increasing its capital ratios, the bank’s activities may be restricted.
At December 31, 2019, Millington Bank qualified as “well capitalized” under the prompt corrective action rules.
Community Reinvestment Act. Under the Community Reinvestment Act, every insured depository institution, including Millington Bank, has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The Community Reinvestment Act does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s
discretion to develop the types of products and services that it believes are best suited to its particular community. The Community Reinvestment Act requires the depository institution’s record of meeting the credit needs of its community to be assessed and taken into account in the evaluation of certain applications by such institution, such as a merger or the establishment of a branch office by Millington Bank. An unsatisfactory Community Reinvestment Act examination rating may be used as the basis for the denial of an application. Millington Bank received a “satisfactory” rating in its most recent Community Reinvestment Act examination.
Transactions with Related Parties.Millington Bank is subject to the Federal Reserve’s Regulation W, which implements statutory restrictions on transactions between a bank and its affiliates and incorporates the Federal Reserve’s interpretations and exemptions under Sections 23A and 23B of the Federal Reserve Act. Section 23A and Regulation W generally place limits on the amount of a bank’s loans or extensions of credit to, investments in, or certain other transactions with affiliated companies, and on the amount of advances to third parties collateralized by the securities or obligations of affiliated companies. In addition, Section 23B and Regulation W generally require a bank’s transactions with its affiliates to be on terms substantially the same, or at least as favorable to the bank, as those prevailing at the time for comparable transactions withnon-affiliated companies.
Millington Bank is also subject to restrictions under Section 22(h) of the Federal Reserve Act on its extensions of credit to executive officers, directors, certain principal shareholders and their related interests. Such extensions of credit must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and must not involve more than the normal risk of repayment or present other unfavorable features.
Federal Home Loan Bank System. Millington Bank is a member of the FHLB of NY, which is one of eleven regional federal home loan banks. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from funds deposited by financial institutions and proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members pursuant to policies and procedures established by its board of directors.
As a member, Millington Bank is required to purchase and maintain stock in the FHLB of NY in an amount equal to the greater of 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of its outstanding FHLB advances. The FHLB imposes various limitations on advances such as limiting the amount of certain types of real estate related collateral to 30% of a member’s capital and limiting total advances to a member.
The FHLB is required to provide funds for the resolution of troubled savings institutions and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment andlow- and moderate-income housing projects. These contributions have adversely affected the level of FHLB dividends paid and could continue to do so in the future. In addition, these requirements could result in the FHLB imposing a higher rate of interest on advances to their members.
Properties
At December 31, 2019, MSB’s investment in property and equipment, net of depreciation and amortization, totaled $8.0 million, including leasehold improvements and construction in progress. The following table lists MSB’s offices.
Office Location | Year Facility Opened | Leased or Owned | ||||||
Millington Main Office | 1994 | (1) | Owned | |||||
RiverWalk Branch Office | 2005 | (2) | Leased | |||||
Martinsville Branch Office | 2006 | Leased | ||||||
Bernardsville Branch Office | 2008 | Owned | ||||||
Lending Office | 2017 | Leased | ||||||
| (1) | Millington Bank’s main office opened in 1911 in Millington, New Jersey. Millington Bank moved into its current main office in 1994. |
| (2) | Millington Bank’s first branch office opened in 1998 in Liberty Corner, New Jersey. This office was relocated in 2005. |
Legal Proceedings
Millington Bank, from time to time, is a party to routine litigation which arises in the normal course of business, such as claims to enforce liens, condemnation proceedings on properties in which MSB holds security interests, claims involving the making and servicing of real property loans, and other issues incident to MSB’s business. There were no lawsuits pending or known to be contemplated against MSB or Millington Bank at December 31, 2019 that would have a material effect on operations or income.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis reflects MSB’s consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of MSB’s financial condition and results of operations. You should read the information in this section in conjunction with MSB’s consolidated financial statements and accompanying notes thereto beginning on pageF-1.
Critical Accounting Policies
MSB’s accounting policies are integral to understanding the results reported and are described in Note 2 to MSB’s consolidated financial statements beginning on pageF-1. In preparing the consolidated financial statements, MSB management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates. A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses.
The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is maintained at a level by MSB management which represents the evaluation of known and probable incurred losses in the loan portfolio at the consolidated balance sheet date that are reasonable to estimate.
Management’s periodic evaluation of the adequacy of the allowance is based on MSB’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, the composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on impaired loans.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review MSB’s allowance for loan losses. Such agencies may require MSB to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examinations.
MSB’s loan portfolio is comprised of the following segments: residential mortgage, commercial real estate, construction, commercial and industrial and consumer. Some segments of MSB’s loan receivable portfolio are further disaggregated into classes which allow management to more accurately monitor risk and performance. Accordingly, the methodology and allowance calculation includes the segmentation of the total loan portfolio.
The residential mortgage loan segment is disaggregated into two classes:one-to-four family loans, which are primarily first liens, and home equity loans, which consist of first and second liens. The commercial real estate loan segment includes owner andnon-owner occupied loans which have medium risk based on historical experience with these types of loans. The construction loan segment is further disaggregated into two classes:one-to-four family owner-occupied, which includes land loans, whereby the owner is known and there is less risk, and other, whereby the property is generally under development and tends to have more risk than theone-to-four family owner-occupied loans. The commercial and industrial loan segment consists of loans made for the purpose of financing the activities of commercial customers. The commercial and industrial loans carry a mix of loans secured by real estate and unsecured lines of credit some of which are for high net worth individuals. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.
The allowance consists of specific, general and unallocated components. The specific component is related to loans that are classified as impaired. For loans classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class and is based on historical loss experience adjusted for qualitative factors. These qualitative risk factors include:
| 1. | Lending policies and procedures, including underwriting standards and collection,charge-off, and recovery practices. |
| 2. | National, regional, and local economic and business conditions as well as the condition of various market segments, including the value of underlying collateral for collateral dependent loans. |
| 3. | Nature and volume of the portfolio and terms of loans. |
| 4. | Experience, ability, and depth of lending management and staff. |
| 5. | Volume and severity of past due, classified and nonaccrual loans as well as and other loan modifications. |
| 6. | Quality of MSB’s loan review system, and the degree of oversight by MSB’s Board of Directors. |
| 7. | Existence and effect of any concentrations of credit and changes in the level of such concentrations. |
| 8. | Effect of external factors, such as competition and legal and regulatory requirements. |
Each factor is assigned a value to reflect improving, stable or declining conditions based on MSB management’s best judgment using relevant information available at the time of the evaluation.
The unallocated component is maintained to cover uncertainties that could affect MSB management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
A loan is considered impaired when, based on current information and events, it is probable that MSB will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by MSB management in determining impairment include payment status, collateral value and the
probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. MSB management determines the significance of payment delays and payment shortfalls on acase-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.
Loans the terms of which are modified are classified as TDRs if, in connection with the modification, MSB grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a TDR generally involve a reduction in interest rate below market rate given the associated credit risk, or an extension of a loan’s stated maturity date. Nonaccrual TDRs are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. Loans classified as TDRs are designated as impaired until they are ultimately repaid in full or foreclosed and sold.
Once the determination has been made that a loan is impaired, impairment is measured by comparing the recorded investment in the loan to one of the following:(a) the present value of expected cash flows (discounted at the loan’s effective interest rate), (b) the loan’s observable market price or (c) the fair value of collateral adjusted for expected selling costs. The method is selected on a loan by loan basis with management primarily utilizing the fair value of collateral method.
The estimated fair values of the real estate collateral are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, theloan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.
The estimated fair values ofnon-real estate collateral, such as accounts receivable, inventory and equipment, are determined based on the borrower’s financial statements, inventory reports, accounts receivable agings or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.
The evaluation of the need and amount of the allowance for impaired loans and whether a loan can be removed from impairment status is made on a quarterly basis. MSB’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.
Overview
MSB’s primary business is attracting deposits from the general public and using those deposits, together with funds generated from operations, principal repayments on securities and loans and borrowed funds, for MSB’s lending and investing activities. MSB’s loan portfolio consists ofone-to-four-family residential real estate mortgages, commercial real estate mortgages, construction loans, commercial and industrial loans, home equity loans and lines of credit, and other consumer loans. MSB also invests in U.S. Government obligations and mortgage-backed securities and, to a lesser extent, corporate bonds.
MSB reported net income of $4.1 million for the year ended December 31, 2019 as compared to a net income of $4.8 million for 2018. Net income for 2019 was affected by an increase in professional expenses associated with increased audit scope and identification of material weakness.
Net interest income for 2019 was down approximately $382,000, or 2.13%, as compared to 2018. For the year ended December 31, 2019, interest income increased by $1.2 million, or 5.18%, while interest expense increased by $1.6 million, or 29.49%, as compared to 2018.Non-interest expense increased by $908,000, or 7.66%, whilenon-interest income increased by $174,000, or 21.75%, for the same comparative period. The net interest rate spread decreased in 2019 to 2.91%, compared to 3.08% for 2018, mainly as a result of increased competition for deposits caused an increase in deposit rates paid.
Total assets were $593.1 million at December 31, 2019, a 1.47% increase compared to $584.5 million at December 31, 2018. The increase in assets occurred primarily as the result of a $6.7 million increase in cash and cash equivalents, and a $5.7 million increase in loans receivable, net, offset by a decrease of $3.6 million in securities held to maturity. Deposits were $472.8 million at December 31, 2019, compared to $420.6 million at December 31, 2018. FHLB advances were $51.6 million at December 31, 2019 compared to $94.3 million at December 31, 2018.
Stockholders’ equity at December 31, 2019 was $65.4 million compared to MSB’s stockholders’ equity at December 31, 2018 of $66.6 million. MSB had net income of $4.1 million for the year ended December 31, 2019. The decline in shareholders’ equity was primarily due to the repurchase of 199,202 shares of common stock at a total cost of $3.3 million and the declaration of a $2.6 million dividend. MSB’s return on average equity for the year ended December 31, 2019 was 6.19% compared to 6.88% for the year ended December 31, 2018.
Comparison of Financial Condition at December 31, 2019 and 2018
General. Total assets at December 31, 2019 were $593.1 million versus $584.5 million at December 31, 2018 with the increase primarily attributable to an increase in cash and cash equivalents and loan growth. During the year ended December 31, 2019, MSB experienced growth of $6.7 million, or 56.38%, in cash and cash equivalents and of $5.7 million, or 1.14%, in loans receivable, net. Securities held to maturity decreased $3.6 million primarily as a result of the purchase of $10.0 million in securities offset by maturities and principal repayments, while FHLB of NY stock decreased $1.9 million, or 40.12%. Other assets increased $2.0 million primarily due to the recording of the new lease accounting standard. Deposits decreased by $52.2 million while FHLB advances decreased by $42.7 million.
The ratio of average interest-earning assets to average-interest bearing liabilities was 120.42% for the year ended December 31, 2019 as compared to 120.21% for the year ended December 31, 2018.
Loans. Loans receivable, net, increased $5.7 million, or 1.14%, from $502.3 million at December 31, 2018 to $508.0 million at December 31, 2019. Millington Bank’s construction loan portfolio increased approximately $18.0 million due to new projects, while the commercial and multi-family real estate loan portfolio grew by $14.8 million, or 6.98%, since December 31, 2018. The residential mortgage portfolio, consisting ofone-to-four family residential loans and home equity loans, decreased $13.9 million to $153.8 million from $167.8 million, while commercial and industrial loans decreased $7.5 million as ofyear-end 2018. All remaining portfolios were consistent with prioryear-end levels.
Securities. The securities held to maturity portfolio totaled $35.8 million at December 31, 2019 compared to $39.5 million at December 31, 2018. Maturities, calls and principal repayments during 2019 totaled $13.6 million and $10.0 million in securities were purchased compared to $7.9 million of maturities, calls and principal repayments and $9.0 million in purchases during 2018.
Deposits. Total deposits at December 31, 2019 increased to $472.8 million from $420.6 million at December 31, 2018. Overall, deposits increased by $52.2 million withnon-interest bearing balances increasing $1.2 million and interest-bearing deposits increasing $50.9 million since December 31, 2018, as MSB focused on deposit pricing and the development of deeper commercial and small business relationships.
Borrowings. Total borrowings were $51.6 million at December 31, 2019 compared to $94.3 million at December 31, 2018. Overnight advances with the FHLB of NY at December 31, 2019 were $23.9 million compared to $66.6 million at December 31, 2018.
Equity. Stockholders’ equity was $65.4 million at December 31, 2019 compared to $66.6 million at December 31, 2018, a decrease of $1.3 million or 1.91%. The decrease in shareholders’ equity was primarily due to the repurchase of 199,202 shares of common stock at a total cost of $3.3 million and the declaration of a $2.6 million dividend. This reduction was partially offset by a $4.1 million increase in retained earnings related to net income.
Comparison of Operating Results for the Years Ended December 31, 2019 and 2018
General. MSB’s results of operations depend primarily on MSB’s net interest income. Net interest income is the difference between the interest income MSB earns on its interest-earning assets and the interest it pays on its interest-bearing liabilities. It is a function of the average balances of loans and investments versus deposits and borrowed funds outstanding in any one period and the yields earned on those loans and investments and the cost of those deposits and borrowed funds. MSB’s results of operations are also affected by MSB’s provision for loan losses,non-interest income andnon-interest expense.Non-interest income includes service fees and charges, and income on bank owned life insurance.Non-interest expense includes salaries and employee benefits, occupancy and equipment expense and other general and administrative expenses such as service bureau fees and advertising costs.
MSB reported net income of $4.1 million for December 31, 2019 compared to net income of $4.8 million for the year ended December 31, 2018, representing a decrease of $732,000 or 15.14%. This decrease was largely driven by an increase innon-interest expense of $908,000 and a decrease of $382,000 in net interest income. Offsetting this was a decrease in the provision for loan losses of $240,000, and an increase of $174,000 innon-interest income. Income tax expense decreased $144,000 for the year ended December 31, 2019 versus 2018 as a result of lower earnings.
Net Interest Income. Net interest income for the year ended December 31, 2019 totaled $17.6 million compared to $17.9 million for the year ended December 31, 2018. Interest income for the year ended December 31, 2019 was $24.6 million compared to $23.3 million for the year end December 31, 2018, while interest expense increased by $1.6 million to $7.0 million from $5.4 million the same period a year earlier.
Average earning assets increased $7.8 million, or 1.44%, to $554.3 million year over year while the average yield on interest earning assets increased by 0.16% to 4.43% for the year ended December 31, 2019. The result of those variances was an increase in interest income of $1.2 million for the year ended December 31, 2019 compared to the year ended December 31, 2018. Interest income for the year ended December 31, 2019 was $24.6 million compared to $23.3 million for the year end December 31, 2018. Interest income on loans receivable grew by $1.0 million to $23.0 million mainly due to an increase in loan rate. Average loans were $502.2 million and $495.7 million for the years ended December 31, 2019 and 2018, respectively. The average yield on loans increased by .15% which contributed to the increase in interest income from loans. Average securities held to maturity declined by $2.1 million to $37.8 million from $39.9 million. The average rate earned on the portfolio increased 0.15% to 2.82% from 2.67% for the prior year. Overall, the decreased volume combined with the increased rate resulted in a decrease of $1,000 in interest income from securities. Other interest-earning assets, consisting of MSB’s Federal Reserve account, FHLB stock and other interest-bearing deposits with other financial institutions, increased by $3,5 million on average, to $14.4 million for the year ended December 31, 2019 compared with $10.9 million for the year ended December 31, 2018. Partnered with this increase was an increase in the average yield from 2.94% to 3.37%. This increase in rate was largely attributed to larger balances held at the Federal Reserve Bank earning an average rate of 2.13%. The combined impact was an increase in interest income on other interest-earning assets of $164,000.
Total interest expense increased by $1.6 million to $7.0 million for the year ended December 31, 2019 as a result of higher rates. Overall, average interest-bearing liabilities increased $5.7 million, or 1.3%, to $460.3 million for the year ended December 31, 2019 as compared to $454.6 million for the year ended December 31, 2018. Interest expense on certificates of deposit increased $848,000 as average balances were approximately $22.7 million higher for the year ended 2019 period totaling $147.3 million compared to $124.6 million for the year ended December 31, 2018. The average cost of certificates of deposit increased by 0.32%. Savings accounts averaged $99.4 million for the year ended December 31, 2019 versus $105.6 million for the year ended December 31, 2018. The 0.22% increase in the average rate was the primary reason for the $187,000 increase in interest expense for these accounts in 2019 as compared to the same period in 2018.Interest demand and money market accounts on average decreased $13.2 million to $140.2 million, while interest expense increased $413,000 for the year ended December 31, 2019. The average interest rate paid on these accounts rose 0.37% to 1.19% from 0.82% as a result of larger balance accounts earning a higher rate of interest. Interest expense on FHLB advances rose by $144,000 to $1.7 million from $1.6 million a year earlier. The average cost of advances increased by 0.12% to 2.32% from 2.20%. Average FHLB advances were $73.5 million for the year ended December 31, 2019 versus $71.1 million for the year ended December 31, 2018.
MSB’s net interest spread and margin declined over the periods and were 2.91% and 3.17%, respectively for the year ended December 31, 2019 compared to 3.08% and 3.28%, respectively for the year ended December 31, 2018.
Provision for Loan Losses. The loan loss provision for the year ended December 31, 2019 was $0 compared to $240,000 for the year ended December 31, 2018. MSB’s management reviews the level of the allowance for loan losses on a quarterly basis based on a variety of factors including, but not limited to, (1) the risk characteristics of the loan portfolio, (2) current economic conditions, (3) actual losses previously experienced, (4) MSB’s level of loan growth and (5) the existing level of reserves for loan losses that are probable and estimable. This analysis resulted in a lower provision for loan loss being required for the period ended December 31, 2019. The decrease in the level of provision for loan loss primarily reflects other credit metrics generally improving year over year. There was a stabilization of the quantitative and qualitative factors during the year ended December 31, 2019 and December 31, 2018. MSB had $4,000 in charge-offs and $71,000 in recoveries for the year ended December 31, 2019 compared to $8,000 in charge-offs and $9,000 in recoveries for the year ended December 31, 2018. MSB had $3.1 million innon-performing loans as of December 31, 2019, compared to $4.1 million at December 31, 2018. The allowance for loan losses as a percentage of total loans was 1.08% for December 31,
2019 and December 31, 2018, respectively, while the allowance for loan losses as a percentage ofnon-performing loans increased to 184.11% at December 31, 2019 from 136.83% at December 31, 2018.Non-performing loans to total loans were 0.59% at December 31, 2019 compared to 0.81% at December 31, 2018. Net charge-offs to average loans outstanding ratios were 0.00% for the year ended December 31, 2019 and December 31, 2018. While MSB’s management believes the allowance for loan losses is adequate for the risk in the loan portfolio, there can be no assurance that future increases may not be necessary.
Non-Interest Income. This category includes fees derived from checking accounts, ATM transactions, debit card use and other fees. It also includes increases in the cash-surrender value of MSB’s bank owned life insurance. Overall,non-interest income was $974,000 for the year ended December 31, 2019 compared to $800,000 for the year ended December 31, 2018, an increase of $174,000 or 21.75%.
Income from fees and service charges totaled $346,000 for the year ended December 31, 2019 compared to $334,000 for the year ended December 31, 2018, an increase of $12,000 or 3.59%. The increase was attributable to higher volume in services fees charged during the year.
Income on bank owned life insurance was $554,000 and $388,000 for the years ended December 31, 2019 and 2018, while othernon-interest income was $74,000 and $78,000 for the years ended December 31, 2019 and 2018, respectively. Bank owned life insurance increased as a result of a death benefit recorded during the year.
Non-Interest Expenses. Totalnon-interest expenses increased by $908,000, or 7.66%, during the year ended December 31, 2019 and totaled $12.8 million as compared to $11.9 million for the year ended December 31, 2018.
Salaries and employee benefits expense increased by $96,000, or 1.44%, to $6.8 million for the year ended December 31, 2019 compared to $6.7 million for the year ended December 31, 2018. Salary and benefits increased due to normal increases in salaries and benefits expenses.
Directors’ compensation expense totaled $524,000 for the year ended December 31, 2019 compared to $490,000 for the year ended December 31, 2018, representing an increase of $34,000 or 6.94% as one director was added during the year.
Occupancy and equipment expense decreased by $30,000, or 1.92%, to $1.5 million for the year ended December 31, 2019 compared to $1.6 million for the same period a year earlier.
Service bureau fees increased by $228,000, or 65.71%, to $575,000 for the year ended December 31, 2019 compared to $347,000 for the year ended December 31, 2018 as a result of a reduction in MSB’s relationship credit that had completed during the year.
FDIC assessment expense decreased $111,000, or 52.61%, to $100,000 for the year ended December 31, 2019 compared to $211,000 for the same period a year earlier. The reduction in expense was related to an FDIC credit received for the past two quarters.
Professional services increased $685,000 totaling $2.4 million for the year ended December 31, 2019 compared with $1.7 million for the year ended December 31, 2018. The increase is associated with increased audit scope and identification of material weakness.
Othernon-interest expense totaled $831,000 for the year ended December 31, 2019, compared to $813,000 for the year earlier, reflecting an increase of $18,000, or 2.21%, due to various expense category increases.
Income Taxes. The income tax expense for the year ended December 31, 2019 was $1.7 million, or 28.9% of income before taxes as compared to income tax expense of $1.8 million, or 27.2%, of the reported income before income taxes, for the year ended December 31, 2018. The increase in tax rate was primarily attributable to the taxtrue-up from 2018.
Average Balance Sheet. The following tables set forth certain information for the year ended December 31, 2019 and 2018. The average yields and costs are derived by dividing interest income and expense by the average daily balance of assets and liabilities, respectively, for the periods presented.
| Year Ended December 31, | ||||||||||||||||||||||||
| 2019 | 2018 | |||||||||||||||||||||||
| Average Balance | Interest Earned/ Paid | Average Yield/ Cost | Average Balance | Interest Earned/ Paid | Average Yield/ Cost | |||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans receivable(1) | $ | 502,186 | $ | 23,007 | 4.58 | % | $ | 495,719 | $ | 21,960 | 4.43 | % | ||||||||||||
Securities | 37,787 | 1,064 | 2.82 | % | 39,893 | 1,065 | 2.67 | % | ||||||||||||||||
Other interest-earning assets(2) | 14,367 | 484 | 3.37 | % | 10,885 | 320 | 2.94 | % | ||||||||||||||||
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Total interest-earning assets | 554,340 | 24,555 | 4.43 | % | 546,497 | 23,345 | 4.27 | % | ||||||||||||||||
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Non-interest-earning assets | 22,698 | 22,435 | ||||||||||||||||||||||
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Total assets | $ | 577,038 | $ | 568,932 | ||||||||||||||||||||
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Interest-bearing liabilities: | ||||||||||||||||||||||||
Interest demand & money market demand | $ | 140,208 | 1,670 | 1.19 | % | $ | 153,367 | 1,257 | 0.82 | % | ||||||||||||||
Savings and club deposits | 99,391 | 735 | 0.74 | % | 105,623 | 548 | 0.52 | % | ||||||||||||||||
Certificates of deposit | 147,253 | 2,877 | 1.95 | % | 124,556 | 2,029 | 1.63 | % | ||||||||||||||||
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Total interest-bearing deposits | 386,852 | 5,282 | 1.37 | % | 383,546 | 3,834 | 1.00 | % | ||||||||||||||||
FHLB of New York advances | 73,473 | 1,708 | 2.32 | % | 71,064 | 1,564 | 2.20 | % | ||||||||||||||||
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Total interest-bearing liabilities | 460,325 | 6,990 | 1.52 | % | 454,610 | 5,398 | 1.19 | % | ||||||||||||||||
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Non-interest-bearing deposits | 47,228 | 41,746 | ||||||||||||||||||||||
Othernon-interest-bearing liabilities | 3,194 | 2,345 | ||||||||||||||||||||||
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Total liabilities | 510,747 | 498,701 | ||||||||||||||||||||||
Stockholders’ equity | 66,291 | 70,231 | ||||||||||||||||||||||
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Total liabilities and stockholders’ equity | $ | 577,038 | $ | 568,932 | ||||||||||||||||||||
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Net interest income/net interest rate spread(3) | $ | 17,565 | 2.91 | % | $ | 17,947 | 3.08 | % | ||||||||||||||||
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Net interest margin(4) | 3.17 | % | 3.28 | % | ||||||||||||||||||||
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Ratio of interest-earning assets to interest-bearing liabilities | 120.42 | % | 120.21 | % | ||||||||||||||||||||
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| (1) | Non-accruing loans have been included, and the effect of such inclusion was not material. The allowance for loan losses is excluded, while construction loans in process and deferred fees are included. |
| (2) | Includes FHLB of NY stock at cost and term deposits with other financial institutions. |
| (3) | Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. |
| (4) | Net interest margin represents net interest income as a percentage of |
Rate/Volume Analysis. The following table reflects the sensitivity of MSB’s interest income and interest expense to changes in volume and in prevailing interest rates during the periods indicated. Each category reflects the: (1) changes in volume (changes in volume multiplied by past rate); (2) changes in rate (changes in rate multiplied by past volume); and (3) net change. The net change attributable to the combined impact of volume and rate has been allocated proportionally to the absolute dollar amounts of change in each.
| Year Ended December 31, 2019 vs. 2018 Increase (Decrease) | ||||||||||||
| Volume | Due to Rate | Net | ||||||||||
Interest and dividend income: | ||||||||||||
Loans receivable | $ | 292 | 755 | 1,047 | ||||||||
Securities | (29 | ) | 28 | (1 | ) | |||||||
Other interest-earning assets | 113 | 51 | 164 | |||||||||
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Increase in total interest income | 376 | 834 | 1,210 | |||||||||
Interest expense: | ||||||||||||
Interest demand and money market accounts | (25 | ) | 438 | 413 | ||||||||
Savings and club | (6 | ) | 193 | 187 | ||||||||
Certificates of deposit | 408 | 440 | 848 | |||||||||
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Total interest-bearing deposits | 377 | 1,071 | 1,448 | |||||||||
FHLB of New York advances | 55 | 89 | 144 | |||||||||
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Increase in total interest expense | 432 | 1,160 | 1,592 | |||||||||
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Change in net interest income | $ | (56 | ) | (326 | ) | (382 | ) | |||||
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Liquidity, Commitments and Capital Resources
Millington Bank must be capable of meeting its customer obligations at all times. Potential liquidity demands include funding loan commitments, cash withdrawals from deposit accounts and other funding needs as they present themselves. Accordingly, liquidity is measured by MSB’s ability to have sufficient cash reserves on hand, at a reasonable cost and/or with minimum losses.
Senior management is responsible for managing MSB’s overall liquidity position and risk and is responsible for ensuring that MSB’s liquidity needs are being met on both a daily and long-term basis. The MSB Financial Review Committee, comprised of MSB senior management and chaired by the President and Chief Executive Officer is responsible for establishing and reviewing MSB’s liquidity procedures, guidelines, and strategy on a periodic basis.
MSB’s approach to managingday-to-day liquidity is measured through MSB’s daily calculation of investable funds and/or borrowing needs to ensure adequate liquidity. In addition, senior management constantly evaluates MSB’s short-term and long-term liquidity risk and strategy based on current market conditions, outside investment and/or borrowing opportunities, short and long-term economic trends, and anticipated short and long-term liquidity requirements. Millington Bank’s loan and deposit rates may be adjusted as another means of managing short and long-term liquidity needs. MSB does not at present participate in derivatives or other types of hedging instruments to meet liquidity demands, as MSB takes a conservative approach in managing liquidity.
At December 31, 2019, Millington Bank had outstanding commitments to originate loans of $15.4 million, unused lines of credit of $86.4 million (including $13.3 million for home equity lines of credit and $73.1 million for commercial lines of credit), and standby letters of credit of $513,000. Certificates of deposit scheduled to mature in one year or less at December 31, 2019, totaled $96.1 million.
Millington Bank had contractual obligations related to the long-term operating leases for the two branch and one operations center location that it leases (Loan Production Office, RiverWalk and Martinsville). For additional information regarding Millington Bank’s lease commitments as of December 31, 2019, see Note 9 to MSB’s consolidated financial statements beginning on pageF-1.
Millington Bank has access to cash through borrowings from the FHLB, as needed, to meet itsday-to-day funding obligations. At December 31, 2019, its total loans to deposits ratio was 107.46%. At December 31, 2019, Millington Bank’s collateralized borrowing limit with the FHLB was $173.6 million, of which $51.6 million was outstanding. As of December 31, 2019, Millington Bank also had a $13.0 million line of credit with a financial institution for an unsecured line of credit (which is a form of borrowing) that it could access if necessary.
Consistent with its goals to operate a sound and profitable financial organization, Millington Bank actively seeks to maintain its status as a well-capitalized institution in accordance with regulatory standards. As of December 31, 2019, MSB and Millington Bank exceeded all applicable regulatory capital requirements. See Note 8 to MSB’s consolidated financial statements beginning at pageF-1 for more information about MSB and Millington Bank’s regulatory capital compliance.
Off-Balance Sheet Arrangements
MSB is a party to financial instruments withoff-balance-sheet risk in the normal course of MSB’s business of investing in loans and securities as well as in the normal course of maintaining and improving Millington Bank facilities. These financial instruments include significant purchase commitments such as commitments to purchase investment securities or mortgage-backed securities and commitments to extend credit to meet the financing needs of MSB’s customers. At December 31, 2019, MSB’s significantoff-balance sheet commitments consisted of commitments to originate loans of $15.4 million, unused lines of credit of $86.4 million (including $13.3 million for home equity lines of credit and $73.1 million for commercial lines of credit) and standby letters of credit of $513,000.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. MSB’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do foron-balance-sheet instruments. Since a number of commitments typically expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. For additional information regarding MSB’s outstanding lending commitments at December 31, 2019, see Note 13 to MSB’s consolidated financial statements beginning on pageF-1.
Impact of Inflation
MSB’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.
MSB’s primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on MSB’s performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation. In a period of rapidly rising interest rates, the liquidity and maturities of MSB’s assets and liabilities are critical to the maintenance of acceptable performance levels.
The principal effect of inflation on earnings, as distinct from levels of interest rates, is in the area ofnon-interest expense. Expense items such as employee compensation, employee benefits and occupancy and equipment costs may be subject to increases as a result of inflation. An additional effect of inflation is the possible increase in the dollar value of the collateral securing loans that MSB has made. MSB is are unable to determine the extent, if any, to which properties securing MSB’s loans have appreciated in dollar value due to inflation.
Recent Accounting Pronouncements
See Note 2 to MSB’s consolidated financial statements beginning on page F-1.
Quarterly Results of Operations
Three months ended | 12/31/2019 | 9/30/2019 | 6/30/2019 | 3/31/2019 | 12/31/2018 | 9/30/2018 | 6/30/2018 | 3/31/2018 | ||||||||||||||||||||||||
(In Thousands, Except Per Share Data) | ||||||||||||||||||||||||||||||||
Interest income | $ | 6,101 | $ | 6,179 | $ | 6,167 | $ | 6,108 | $ | 6,003 | $ | 6,175 | $ | 5,738 | $ | 5,429 | ||||||||||||||||
Interest expense | 1,711 | 1,838 | 1,756 | 1,685 | 1,544 | 1,420 | 1,307 | 1,127 | ||||||||||||||||||||||||
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Net Interest Income | 4,390 | 4,341 | 4,411 | 4,423 | 4,459 | 4,755 | 4,431 | 4,302 | ||||||||||||||||||||||||
Provision for loan losses | — | — | — | — | — | 60 | 90 | 90 | ||||||||||||||||||||||||
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Net Interest Income after Provision for Loan Losses | 4,390 | 4,341 | 4,411 | 4,423 | 4,459 | 4,695 | 4,341 | 4,212 | ||||||||||||||||||||||||
Non-interest income | 381 | 199 | 204 | 190 | 198 | 190 | 208 | 204 | ||||||||||||||||||||||||
Non-interest expenses | 3,077 | 2,919 | 2,906 | 3,867 | 2,911 | 3,064 | 2,899 | 2,987 | ||||||||||||||||||||||||
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Income before Income Taxes | 1,694 | 1,621 | 1,709 | 746 | 1,746 | 1,821 | 1,650 | 1,429 | ||||||||||||||||||||||||
Income tax expense (benefit) | 443 | 505 | 487 | 232 | 491 | 506 | 407 | 407 | ||||||||||||||||||||||||
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Net Income | $ | 1,251 | $ | 1,116 | $ | 1,222 | $ | 514 | $ | 1,255 | $ | 1,315 | $ | 1,243 | $ | 1,022 | ||||||||||||||||
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Earnings per share: | ||||||||||||||||||||||||||||||||
Basic | $ | 0.25 | $ | 0.22 | $ | 0.24 | $ | 0.10 | $ | 0.24 | $ | 0.25 | $ | 0.23 | $ | 0.19 | ||||||||||||||||
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Diluted | $ | 0.25 | $ | 0.22 | $ | 0.24 | $ | 0.10 | $ | 0.24 | $ | 0.24 | $ | 0.23 | $ | 0.19 | ||||||||||||||||
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Management of Interest Rate Risk and Market Risk
Qualitative Analysis. Because the majority of MSB’s assets and liabilities are sensitive to changes in interest rates, a significant form of market risk for MSB is interest rate risk, or changes in interest rates.
MSB derives its income mainly from the difference or “spread” between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. In general, the larger the spread, the more MSB earns. When market rates of interest change, the interest MSB receives on its assets and the interest MSB pays on its liabilities will fluctuate. This can cause decreases in MSB’s spread and can adversely affect income.
Quantitative Analysis. The following table presents Millington Bank’s economic value of equity (“EVE”) as of December 31, 2019. Millington Bank outsources its interest rate risk modeling and the EVE values in this table were calculated by an outside consultant, based on information provided by Millington Bank. This analysis shows:
Changes in Interest Rates (base points) | % Change in Pretax Net Interest Income | Economic Value of Equity | ||
| +400 | 4.30% | 12.00% | ||
| +300 | 3.60% | 12.80% | ||
| +200 | 2.80% | 13.60% | ||
| +100 | 1.70% | 14.30% | ||
| 0 | (-)% | 14.60% | ||
| -100 | (3.60)% | 14.50% | ||
| -200 | (9.60)% | 14.40% |
Future interest rates or their effect on EVE or net interest income are not predictable. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, prepayments, and depositrun-offs, and should not be relied upon as indicative of actual results. Certain shortcomings are inherent in this type of computation. Although certain assets and liabilities may have similar maturity or periods of repricing, they may react at different times and in different degrees to changes in the market interest rates. The interest rate on certain types of assets and liabilities, such as demand deposits and savings accounts, may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable rate mortgages, generally have features that restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayments and early withdrawal levels could deviate significantly from those assumed in making calculations set forth above. Additionally, an increased credit risk may result as the ability of many borrowers to service their debt may decrease in the event of an interest rate increase.
Notwithstanding the discussion above, the quantitative interest rate analysis presented above indicates that a rapid increase or decrease in interest rates would adversely affect MSB’s net interest margin and earnings.
SPECIAL MEETING OF KEARNYMSB STOCKHOLDERS
This document is being provided to holders of KearnyMSB common stock as Kearny’sMSB’s proxy statement in connection with the solicitation of proxies by and on behalf of Kearny’sits board of directors to be voted at the KearnyMSB special meeting and at any adjournment or postponement of the KearnyMSB special meeting. This document is also being provided to holders of MSB common stock as Kearny’s prospectus in connection with the issuance by Kearny of its shares of common stock as consideration in the proposed merger.
Date, Time and Place of Meeting
The KearnyMSB special meeting is scheduled to be held as follows:
Date: March 1, 201828, 2020
Time: 10:11:00 a.m., local timeEastern Time
Place: Crowne Plaza Hotel, 690 Route 46 East, Fairfield, New Jersey 07004
| Place: | The MSB special meeting will be in virtual format only. You can virtually attend the live webcast of the MSB special meeting at www.meetingcenter.io/295836689 |
Purpose of the Meeting
At the KearnyMSB special meeting, Kearny’sMSB’s stockholders will be asked to:
Approve the merger agreement and the merger, pursuant to which CliftonMSB will merge with and into Kearny, with Kearny surviving the merger, and each share of CliftonMSB common stock outstanding immediately prior to the completion of the merger will be converted into the right to receive, 1.191at their election, for each share of MSB common stock they own, either 1.30 shares of Kearny common stock.stock (the “stock consideration”) or $18.00 in cash (the “cash consideration,” and collectively with the stock consideration, the “merger consideration”), or a combination thereof, provided that, in the aggregate, 90% of the total number of MSB common stock will be converted into stock consideration and the remaining MSB common stock will be converted into cash consideration.
Approve, on anon-binding advisory basis, the merger-related compensation proposal.
Approve the KearnyMSB adjournment proposal, if necessary.
Who Can Vote at the Meeting
You are entitled to vote if the records of KearnyMSB showed that you held shares of KearnyMSB common stock as of the close of business on January 9, 2018,March 25, 2020, which is the record date for the KearnyMSB special meeting. As of the close of business on the record date, 79,270,4605,184,914 shares of KearnyMSB common stock were outstanding. Each share of KearnyMSB common stock has one vote on each matter presented to stockholders. If your shares are held in “street name” by your broker, bank or other nominee and you wish to vote in person at the Kearnyvirtual MSB special meeting, you will have to obtain a “legal proxy” from your broker, bank or other nominee entitling you to vote at the KearnyMSB special meeting.
Quorum; Vote Required
The presence, in person or by proxy, of the holders of a majority of the issued and outstanding shares of Kearny common stock at the Kearny special meeting constitutes a quorum for the transaction of business at the Kearny special meeting. If you submit valid proxy instructions or attend the meeting in person, your shares will be counted to determine whether there is a quorum, even if you abstain from voting. If you fail to provide voting instructions to your broker, bank or other nominee with respect to a proposal, that broker, bank or other nominee will not vote your shares of Kearny common stock with respect to that proposal.
Approval of the merger agreement and the merger requires the affirmative vote of a majority of the issued and outstanding shares of Kearny common stock entitled to vote at the meeting.Failure to submit valid proxy instructions or to vote in person will have the same effect as a vote against the merger agreement and the merger. Brokernon-votes and abstentions from voting will have the same effect as voting against the merger agreement and the merger.
The affirmative vote of a majority of votes cast at the Kearny special meeting is required to approve the Kearny adjournment proposal. The failure to vote in person or submit valid proxy instructions, brokernon-votes and abstentions will have no effect on the voting on the proposal.
Shares Held by Kearny Officers and Directors and by Clifton
As of January 9, 2018, directors and executive officers of Kearny beneficially owned 2,958,450 shares of Kearny common stock. This equals 3.73% of the outstanding shares of Kearny common stock as of the January 9, 2018. Each of Kearny’s directors, solely in his or her capacity as a Kearny stockholder, has entered into a separate voting agreement with Clifton, pursuant to which each such director has agreed to vote all shares of Kearny common stock over which he or she exercises sole disposition and voting rights in favor of the approval of the merger agreement and the merger and certain related matters and against alternative transactions. As of January 9, 2018, the Kearny directors that are party to these voting agreements exercised sole disposition and voting rights with respect to 2,083,428 shares of Kearny common stock, representing 2.63% of the outstanding shares of Kearny common stock. As of January 9, 2018, Clifton did not own any shares of Kearny common stock.
Voting and Revocability of Proxies
You may vote in person or by proxy at the Kearny special meeting. To ensure your representation at the Kearny special meeting, Kearny recommends that you vote by proxy even if you plan to attend the special meeting. You can always change your vote in person at the special meeting.
If you are a “stockholder of record,” you can vote your shares:
Please refer to the specific instructions set forth on the proxy card. We encourage you to vote via the internet or by telephone.
Kearny stockholders whose shares are held in “street name” by their broker, bank or other nominee must follow the instructions provided by their broker, bank or other nominee to vote their shares. Your broker, bank or other nominee may allow you to deliver your voting instructions via telephone or the internet. If your shares are held in “street name” and you wish to vote in person at the special meeting, you will have to obtain a “legal proxy” from your broker, bank or other nominee entitling you to vote at the special meeting.
If you are a holder of record of Kearny common stock, voting instructions are included on the enclosed proxy card. If you properly complete and timely submit your proxy, your shares will be voted as you have directed. You may vote for, against or abstain with respect to each matter. If you are the holder of record of your shares of Kearny common stock and submit your proxy without specifying a voting instruction, your shares of Kearny common stock will be voted “FOR” the proposal to approve the merger agreement and the merger and “FOR” the Kearny adjournment proposal. If your shares are held in street name and you return an incomplete instruction card to your broker, bank or other nominee, that broker, bank or other nominee will not vote your shares with respect to any matter.
You may revoke your proxy at any time before it is voted at the special meeting by:
If your shares are held in “street name,” you should contact your broker, bank or other nominee to change your vote.
Attendance at the Kearny special meeting will not, in and of itself, constitute a revocation of a proxy. All written notices of revocation and other communication with respect to the revocation of proxies should be addressed to:
Kearny Financial Corp.
120 Passaic Avenue,
Fairfield, New Jersey 07004
Attention: Gail Corrigan
If any matters not described in this document are properly presented at the Kearny special meeting, the persons named in the proxy card will use their judgment to determine how to vote your shares of Kearny common stock. Kearny does not know of any other matters to be presented at the Kearny special meeting.
Participants in the Kearny ESOP or the Kearny 401(k) Plan
Participants in the Kearny ESOP will each receive a Voting Instruction Form that reflects all of the shares that the participant may direct the trustee to vote on his or her behalf under the Kearny ESOP. Under the terms of the Kearny ESOP, the Kearny ESOP trustee votes all shares held by the Kearny ESOP, but each Kearny ESOP participant may direct the trustee how to vote the shares of Kearny common stock allocated to his or her account. The Kearny ESOP trustee will vote all unallocated shares of Kearny common stock held by the Kearny ESOP and allocated shares for which no voting instructions are received in the same proportion as shares for which it has received timely voting instructions.
In addition, participants in the Kearny 401(k) Plan with an interest in the Kearny Stock Fund will receive a Voting Instruction Form that allows them to direct the Kearny 401(k) Plan trustee to vote their interest in the Kearny Stock Fund. If a participant does not direct the Kearny 401(k) Plan trustee how to vote his or her interests in the Kearny Stock Fund, the trustee will vote such interest in the same proportion as it has received timely voting instructions from other Kearny 401(k) Plan participants. The deadline for returning your Voting Instruction Form to each plan’s trustee is February 22, 2018.
Solicitation of Proxies
Kearny will pay for the solicitation of proxies from Kearny stockholders. In addition to soliciting proxies by mail, Laurel Hill Advisory Group, LLC, a proxy solicitation firm, will assist Kearny in soliciting proxies for the Kearny special meeting. Kearny will pay $8,000 for these services plusout-of-pocket expenses. Additionally, directors, officers and employees of Kearny may solicit proxies personally and by telephone. None of these persons will receive additional or special compensation for soliciting proxies. Kearny will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions.
KEARNY PROPOSAL NO. 1
APPROVAL OF THE MERGER AGREEMENT AND THE MERGER
At the Kearny special meeting, Kearny stockholders will consider and vote on a proposal to approve the merger agreement and the merger. Details about the merger agreement, including each party’s reasons for the merger, the effect of approval and adoption of the merger agreement and the merger and the timing of effectiveness of the merger, are discussed in the section entitled“Description of the Merger” beginning on page 40 of this document.
Kearny’s board of directors unanimously recommends
that Kearny stockholders vote “FOR”
approval of the merger agreement and the merger.
KEARNY PROPOSAL NO. 2
ADJOURNMENT OF THE KEARNY SPECIAL MEETING
If there are insufficient proxies at the time of the meeting to approve the merger agreement and the merger, the Kearny stockholders may be asked to vote on a proposal to adjourn the meeting to a later date to allow additional time to solicit additional proxies. Kearny’s board of directors does not currently intend to propose adjournment at the Kearny special meeting if there are sufficient votes to approve the merger agreement and the merger (Proposal No. 1).
Kearny board of directors unanimously recommends a vote “FOR”
the Kearny adjournment proposal.
SPECIAL MEETING OF CLIFTON STOCKHOLDERS
This document is being provided to holders of Clifton common stock as Clifton’s proxy statement in connection with the solicitation of proxies by and on behalf of its board of directors to be voted at the Clifton special meeting and at any adjournment or postponement of the Clifton special meeting. This document is also being provided to holders of Clifton common stock as Kearny’s prospectus in connection with the issuance by Kearny of its shares of common stock as consideration in the proposed merger.
Date, Time and Place of Meeting
The Clifton special meeting is scheduled to be held as follows:
Date: March 1, 2018
Time: 9:30 a.m., local time
Place: Saddle Brook Marriott, 138 New Pehle Avenue, Saddle Brook, New Jersey 07663
Purpose of the Meeting
At the Clifton special meeting, Clifton’s stockholders will be asked to:
Who Can Vote at the Meeting
You are entitled to vote if the records of Clifton showed that you held shares of Clifton common stock as of the close of business on January 9, 2018, which is the record date for the Clifton special meeting. As of the close of business on the record date, 22,099,814 shares of Clifton common stock were outstanding. Each share of Clifton common stock has one vote on each matter presented to stockholders. If your shares are held in “street name” by your broker, bank or other nominee and you wish to vote in person at the Clifton special meeting, you will have to obtain a “legal proxy” from your broker, bank or other nominee entitling you to vote at the Clifton special meeting.
Quorum; Vote Required
The CliftonMSB special meeting will conduct business only if a majority of the outstanding shares of CliftonMSB common stock is represented in person or by proxy at the meeting to constitute a quorum. If you submit valid proxy instructions or attend the meeting in person, your shares will be counted to determine whether there is a quorum, even if you abstain from voting. If you fail to provide voting instructions to your broker, bank or other nominee with respect to a proposal, that broker, bank or other nominee will not vote your shares with respect to that proposal.proposal and your shares will not be counted to determine whether there is a quorum.
Approval of the merger agreement and the merger requires the affirmative vote of a majority of the outstanding shares of CliftonMSB common stock.Failure to submit valid proxy instructions or to vote in person will have the same effect as a vote against the merger agreement and the merger. Brokernon-votes and abstentions from voting will have the same effect as voting against the merger agreement and the merger.
Approval of the merger-related compensation proposal requires that the votes cast in favor of the proposal exceed the votes cast against the proposal. The failure to vote in person or submit valid proxy instructions, brokernon-votes and abstentions will have no effect on the voting on the proposal.
Approval of the CliftonMSB adjournment proposal requires that the votes cast in favor of the proposal exceed the votes cast against the proposal. The failure to vote in person or submit valid proxy instructions, brokernon-votes and abstentions will have no effect on the voting on the proposal.
Shares Held by CliftonMSB Directors and Executive Officers and Directors and by Kearny
As of January 9, 2018,March 25, 2020, directors and executive officers of CliftonMSB beneficially owned 1,099,4181,014,031 shares of CliftonMSB common stock. This equals 5.0%19.56% of the outstanding shares of CliftonMSB common stock as of the January 9, 2018.March 25, 2020. Each of Clifton’sMSB’s directors and executive officers, solely in his or her capacity as a Cliftonan MSB stockholder, has entered into a separate voting agreement with Kearny, pursuant to which each such director has agreed to vote all shares of CliftonMSB common stock over which he or she exercises sole disposition and voting rights in favor of the approval of the merger agreement and the merger and certain related matters and against alternative transactions. As of January 9, 2018,March 25, 2020, the CliftonMSB directors and executive officers that are party to these voting agreements exercised sole disposition and voting rights with respect to 679,0671,014,031 shares of CliftonMSB common stock, representing 3.1%19.56% of the outstanding shares of CliftonMSB common stock. As of January 9, 2018,March 25, 2020, Kearny did not own any shares of CliftonMSB common stock.
Voting and Revocability of Proxies
You may vote in person at the CliftonMSB special meeting or by proxy. To ensure your representation at the CliftonMSB special meeting, CliftonMSB recommends that you vote by proxy even if you plan to attend the CliftonMSB special meeting. You can always change your vote at the special meeting.
If you are a “stockholder of record,” you can vote your shares:
via internet at www.investorvote.com/KRNY;MSBF;
via telephone by calling 1-800-652-VOTE (8683)1-800-652-8683 (toll-free);
by completing and mailing in the proxy card that is enclosed; or
by voting in personelectronically at the Cliftonvirtual MSB special meeting.
Please refer to the specific instructions set forth on the proxy card. We encourage you to vote via the internet or by telephone.
CliftonMSB stockholders whose shares are held in “street name” by their broker, bank or other nominee must follow the instructions provided by their broker, bank or other nominee to vote their shares. Your broker, bank or other nominee may allow you to deliver your voting instructions via telephone or the internet. If your shares are held in “street name” and you wish to vote in person at the CliftonMSB special meeting, you will have to obtain a “legal proxy” from your broker, bank or other nominee entitling you to vote at the special meeting.
If you are a holder of record of CliftonMSB common stock, voting instructions are included on the enclosed proxy card. If you properly complete and timely submit your proxy, your shares will be voted as you have directed. You may vote for, against or abstain with respect to each matter. If you are the holder of record of your shares of CliftonMSB common stock and submit your proxy without specifying a voting instruction, your shares of CliftonMSB common stock will be voted “FOR” the proposal to approve the merger agreement and the merger, “FOR” the approval of the merger-related compensation proposal, and “FOR” the CliftonMSB adjournment proposal. If your shares are held in street name and you return an incomplete instruction card to your broker, bank or other nominee, that broker, bank or other nominee will not vote your shares with respect to any matter.
You may revoke your proxy at any time before it is voted at the special meeting by:
filing with the Corporate Secretary of CliftonMSB a duly executed revocation of proxy;
submitting a new proxy with a later date;
voting again via the internet or by telephone not later than 11:59 p.m.8:00 a.m., Eastern Time, on FebruaryMay 28, 2018;2020; or
voting in personelectronically at the virtual MSB special meeting.
If your shares are held in “street name,” you should contact your broker, bank or other nominee to change your vote.
Attendance at the CliftonMSB special meeting will not, in and of itself, constitute a revocation of a proxy. All written notices of revocation and other communication with respect to the revocation of proxies should be addressed to:
Clifton Bancorp Inc.MSB Financial Corp.
1433 Van Houten Avenue1902 Long Hill Road
Clifton,Millington, New Jersey 0701507946-0417
Attention: Michael Lesler,Nancy E. Schmitz, Corporate Secretary
If any matters not described in this document are properly presented at the CliftonMSB special meeting, the persons named in the proxy card will use their judgment to determine how to vote your shares of CliftonMSB common stock. CliftonMSB does not know of any other matters to be presented at the CliftonMSB special meeting.
Participants in Clifton’sMSB’s ESOP or Clifton’sMSB’s 401(k) Savings Plan
If you participate in the Clifton SavingsMillington Bank Employee Stock Ownership Plan or if you hold shares through the Clifton SavingsMillington Bank 401(k) Savings Plan, you will receive a vote authorization form for each plan that reflects all shares you may direct the trustees to vote on your behalf under the plans. Under the terms of the ESOP, the ESOP trustee votes all shares held by the ESOP, but each ESOP participant may direct the trustee how to vote the shares of common stock allocated to his or her account. The ESOP trustee, subject to the exercise of its fiduciary duties, will vote all unallocated shares of CliftonMSB common stock held by the ESOP and allocated shares for which no voting instructions are received in the same proportion as shares for which it has received timely voting instructions.instructions from ESOP participants. Under the terms of the 401(k) Plan, a participant is entitled to direct the trustee as to the shares in the Clifton Bancorp Inc.MSB Financial Corp. Stock Fund credited to his or her account. The trustee, subject to its fiduciary duties, will vote all shares for which no directions are given or for which instructions were not received inas directed by the same proportion as shares for whichMSB Board of Directors or the trustee received timely voting instructions.401(K) Plan Committee of the Board.The deadline for returning your Voting Instruction Form to each plan’s trustee isFebruary 4:00 p.m., Eastern Time, on May 22,, 2018. 2020.
Solicitation of Proxies
CliftonMSB will pay for the solicitation of proxies from Clifton shareholders.MSB stockholders. In addition to soliciting proxies by mail, Laurel Hill Advisory Group, LLC, a proxy solicitation firm, will assist CliftonMSB in soliciting proxies for the CliftonMSB special meeting. CliftonMSB will pay $8,000$6,000 for these services plusout-of-pocket expenses. Additionally, directors, officers and employees of CliftonMSB and Clifton SavingsMillington Bank may solicit proxies personally and by telephone. None of these persons will receive additional or special compensation for soliciting proxies. CliftonMSB will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions.
CLIFTONMSB PROPOSAL NO. 1
APPROVAL OF THE MERGER AGREEMENT AND THE MERGER
At the CliftonMSB special meeting, stockholders will consider and vote on a proposal to approve the merger agreement and the merger. Details about the merger agreement, including each party’s reasons for the merger, the effect of approval and adoption of the merger agreement and the timing of effectiveness of the merger, are discussed in the section entitled “Description of the Merger” beginning on page 4056 of this document.
Clifton’sMSB’s board of directors unanimously recommends
that CliftonMSB stockholders vote “FOR”
approval of the merger agreement and the merger.
CLIFTONMSB PROPOSAL NO. 2
NON-BINDING ADVISORY VOTE TO APPROVE THE COMPENSATION THAT MAY BECOME
PAYABLE TO THE NAMED EXECUTIVE OFFICERS OF CLIFTONMSB IN CONNECTION WITH THE
MERGER
In accordance with the requirements of the Dodd-Frank Act and the rules of the SEC adopted thereunder, Clifton’sMSB’s board of directors is providing stockholders with the opportunity to cast anon-binding advisory vote on the compensation that may become payable to the sixfour “named executive officers” of CliftonMSB in connection with the merger, as summarized in the table under the caption “Description of the Merger—Interests ofCertain Persons MSB’s Directors and Executive Officers in the Merger that are Different from Yours —Merger-RelatedMerger—Merger-Related Executive Compensation for Clifton’sMSB’s Named Executive Officers”beginning on page 7683 of this document.
Accordingly, at the CliftonMSB special meeting, CliftonMSB is asking its stockholders to approve, in anon-binding advisory vote, the compensation that may become payable to its named executive officers in connection with the merger through the adoption of the following resolution:
“RESOLVED, that the compensation that may become payable to its named executive officers in connection with the merger, as disclosed in the table under the caption “Description of the Merger— Interests ofCertain Persons MSB’s Directors and Executive Officers in the Merger that are Different from Yours —Merger-Related Executive Compensation for Clifton’sMSB’s Named Executive Officers” in the joint proxy statement/prospectus in accordance with Item 402(t) of RegulationS-K, including the associated narrative discussion, and the agreements or understandings pursuant to which such compensation may be paid or become payable, is hereby APPROVED.”
The vote on this Proposal No. 2 is a vote separate and distinct from the vote on Proposal No. 1 to approve the merger agreement and the merger. Because the vote is advisory in nature only, it will not be binding on either CliftonMSB or Kearny, regardless of whether the merger agreement and the merger are approved. Accordingly, as the compensation to be paid in connection with the merger is a contractual obligation to the named executive officers of Clifton,MSB, regardless of the outcome of this advisory vote, such compensation will be payable if the merger agreement and the merger are approved and the merger is completed, subject only to the contractual conditions applicable to such payment.
Clifton’sMSB’s board of directors unanimously recommends a vote “FOR”
approval of the merger-related compensation proposal.
CLIFTONMSB PROPOSAL NO. 3
ADJOURNMENT OF THE CLIFTONMSB SPECIAL MEETING
If there are insufficient proxies at the time of the CliftonMSB special meeting to approve the merger agreement and the merger, CliftonMSB stockholders may be asked to vote on a proposal to adjourn the meeting to a later date to allow additional time to solicit additional proxies. Clifton’sMSB’s board of directors does not currently intend to propose adjournment at the CliftonMSB special meeting if there are sufficient votes to approve the merger agreement and the merger (Proposal No. 1).
Clifton’sMSB’s board of directors unanimously recommends a vote “FOR”
approval of the CliftonMSB adjournment proposal.
The following summary of the merger agreement and the merger is qualified by reference to the complete text of the merger agreement. A copy of the merger agreement is attached asAnnex A to this document and is incorporated by reference into this document. You should read the merger agreement completely and carefully as it, rather than this description, is the legal document that governs the merger.
General
The merger agreement provides for the merger of CliftonMSB with and into Kearny, with Kearny as the surviving entity. Immediately following the merger of CliftonMSB with Kearny, Clifton SavingsMillington Bank will merge with and into Kearny Bank, with Kearny Bank as the surviving entity.
Consideration to be Received in the Merger
When the merger becomes effective, each share of CliftonMSB common stock issued and outstanding immediately before completion of the merger will automatically be converted into the right to receive 1.191at their election, for each share of MSB common stock they own, either 1.30 shares of Kearny common stock plusor $18.00 in cash, or a combination thereof, provided that, in lieuthe aggregate, 90% of any fractional share, without interest.the total number of shares of MSB common stock will be converted into stock consideration and the remaining MSB common stock will be converted into cash consideration.
If Kearny declares a stock dividend or distribution on shares of its common stock or subdivides, splits, reclassifies or combines the shares of Kearny common stock before the effective time of the merger, then the exchange ratio will be adjusted to provide CliftonMSB stockholders with the same economic effect as contemplated by the merger agreement before any of these events.
Clifton’sMSB’s stockholders will not receive fractional shares of Kearny common stock. Instead, Clifton’sMSB’s stockholders will receive a cash payment for any fractional shares in an amount equal to the product of (1) the fraction of a share of Kearny common stock to which he, she or it is entitled multiplied by (2) the average closing sales price of Kearny common stock over the 10 trading days ending on the third business day before the closing date of the merger.
Background of the Merger
Since completing Millington’s conversion from a mutual holding company structure to a fully converted stock savings bank in July 2015, the MSB Board of Directors and management have periodically reviewed MSB’s strategic plans and financial prospects, including various strategies for improving MSB’s profitability as an independent institution. The Clifton boardpurpose of directorseach review meeting was to assist the MSB Board of Directors in considering strategic alternatives designed to enhance long-term stockholder value. At such meetings, MSB’s Board of Directors has regularly reviewedalso considered the increasing difficulty in growing profitability and discussed Clifton’s business strategy, performanceoperating a community financial institution under current local and prospectsnational economic conditions, including the costs for technology enhancements, financial reporting and regulatory compliance and the current competitive environment. Between 2013 and January 2018, Mr. Donald J. Musso, served as a director of MSB and Millington Bank, as well as being President of FinPro Capital Advisors, Inc., a financial institutions consulting and investment banking firm with an established relationship with MSB and with significant experience advising community banks in the contextareas of strategic acquisitions and mergers. Mr. Musso participated in these Board discussions regarding strategic alternatives designed to enhance stockholder value during his tenure as a director.
In April 2018, representatives from FCA provided the MSB Board of Directors with a briefing related to strategic alternatives and market metrics for buyers and sellers. At this meeting, FCA discussed with the Board an overview of the nationalfuture prospects of MSB as an independent entity, including scenarios involving additional growth strategies. The presentation ended with a request by the Board that FCA be invited to attend its June 2018 Board meeting to provide additional details on several companies that had a realistic chance of participating in merger or acquisition activity with MSB. In May 2018, the Board received a briefing from representatives of Jones Walker LLP, its corporate counsel, a law firm with extensive knowledge and local economic environment, developmentsexperience in representing community banking organizations in the regulationarea of financial institutions and the competitive landscape. Among other things, these reviews and discussions have included possible strategic initiatives available to Clifton, such as capital management strategies, potential acquisitions, and business combinations involving other financial institutions. These reviews and discussions included analyses of the mergers and acquisitions environment, including multiples(“Jones Walker”), regarding the merger and premiumsacquisition process and the Board’s fiduciary duties associated with being paid,an acquirer or merging with another entity. In June 2018, the Board received a briefing from representatives of FCA related to strategic alternatives, market metrics for sellers, discussion of a potential process to explore strategic partnerships,
and discussed examples of capacity to pay by potential partners. FCA also discussed potential acquisition transactions and a general discussion of potential merger partners for MSB if its Board of Directors were to decide to move forward in exploring a potential strategic acquisition or merger transaction. The MSB Board of Directors did not make any determination as to a possible strategic transaction at this meeting. The MSB Board of Directors requested that management continue to assess the business prospects of MSB on a stand-alone basis, the prospects of implementing improvements and enhancements to increase earnings in both the short and long term, and to apprise the Board of any potential acquisition or merger transactions that might arise from time to time. The Board also requested that FCA provide MSB with a proposal to assist MSB in its review and consideration of strategic alternatives and to assist the Board in reviewing and assessing options and operating scenarios intended to maximize stockholder value.
During June and July 2018, management negotiated with FCA regarding an engagement letter for FCA to serve as financial advisor related to capital markets and as mergers and acquisition advisor. The Board sought an engagement proposal from FCA based upon MSB’s long-standing relationship with FCA and an assessmentunderstanding that such engagement letter would reflect market competitive terms and conditions, subject to Board review and negotiation. MSB received an initial draft engagement proposal on June 19, 2018 which was reviewed and negotiated. On July 16, 2018, FCA provided MSB with a final proposed engagement letter to assist MSB in its review and consideration of potential partners for Clifton. In connectionstrategic alternatives. The Board met on July 17, 2018, and approved FCA’s engagement letter and it was executed on that date.
During July 2018, MSB’s President, Michael Shriner, met with the evaluation of these strategic alternatives, Paul M. Aguggia, President and Chief Executive Officer of Clifton, hasanother financial institution (“Party A”) to discuss matters of common interest, including regulatory compliance matters, the competitive environment in their market areas, and technology issues. The possibility of a strategic partnership was discussed in general terms. Later that month, Mr. Shriner and a director of MSB, met with the Chief Executive Officer of another New Jersey financial institution and had from time to time, informal discussions with representatives of other financial institutions, including Kearny, and has regularly updated the Clifton board of directors regarding such discussions.similar general conversations.
On July 19, 2017,30, 2018, the Clifton boardBoard met with representatives from FCA to discuss in more detail the merger and acquisition process, the current market metrics for buyers and sellers, and illustrations of directors held a special meeting that was attendedpotential ability to pay by representatives of Sandler O’Neill & Partners, L.P. (which we refer to as Sandler O’Neill).potential buyers. At this meeting the Clifton boardBoard detailed for FCA a list of directors discussed the future and strategic plans of Clifton. Representatives of Sandler O’Neill provided the Clifton board of directors with an overview of the current mergers and acquisitions market with respect25 potential partners for FCA to financial institutions generally and Clifton in particular. Representatives of Sandler O’Neill reviewed, and the Clifton board of directors discussed, Clifton’s strategic plan and its prospects for creation of stockholder value through organic growth, the viability of growth through acquisition, and the potential creation of value throughexplore as a strategic business combinationmerger partner. At this meeting, FCA also presented the Board with another financial institution. The Clifton board of directors discussed the risks and challenges associated with the path of independence and organic growth, the attractiveness of potential
acquisition targets and likelihood of successfully consummating an acquisition, and the potential benefits associated with various strategic business combinations. The Clifton board of directors noted that Kearny stood alone among the possible partnersa proposed timeline for a business combination as having a strong strategic fit based on various factors, including its business model, corporate culture, financial capacity to engage in a transaction and geographic footprint, and noted that for other likely merger partners the financial metrics were significantly less attractive. As a result of this discussion, the Clifton board of directors authorized Mr. Aguggia to contact Kearny management to determine Kearny’s interest in evaluating a business combination with Clifton.
Over the following weeks, Mr. Aguggia evaluated the viability of various potential acquisitions and consulted with the Clifton board of directors as to the attractiveness of the potential acquisition targets from a strategic and financial point of view. The Clifton board of directors determined that none of the potential acquisitions presented a viable or attractive strategic alternative for Clifton at that time.proposed market solicitation process.
On August 10, 2017, Mr. Aguggia met27, 2018, the Board had a meeting with Craig L. Montanaro, Presidentrepresentatives from FCA and Chief Executive OfficerJones Walker to discuss the status of Kearny. Their discussion focused on the New Jerseyproposed process, establishing a virtual data room, confirming the list of 25 potential partners to be contacted as previously developed, a proposed timeline for a market solicitation process, and New York banking markets, their respective companies’ business modelsreview and strategies, and the potential operational and cultural fit between Kearny and Clifton. In particular, they discussed the similarity of their respective companies’ efforts to deploy their substantial capital bases following their conversions from mutual holding company to stock holding company form, their need to generate additional earnings power and the synergies that might be achieved in combining the two organizations in that effort. No specific termsapproval of a business combination were discussed. Mr. Montanaro and Mr. Aguggia agreedconfidential information memorandum for distribution to discuss with their respective boards of directors their interest in evaluating specific terms ofpotential partners after they sign a business combination.
On August 15, 2017, Mr. Aguggia metconfidentiality agreement. At this meeting, the Board authorized FCA, with the chief executive officerassistance of anothermanagement, and legal counsel, to contact the identified potential partners and negotiate the confidentiality agreements. Upon signing such confidentiality agreement, such party would be furnished the confidential information memorandum and granted access to a confidential virtual data room.
The list of potential partners included financial institutioninstitutions that had previously expressed an interest in exploring a business combinationmerger transaction with Clifton. The chief executive officerMSB. Other possible merger partners were identified based on, among other factors, their apparent financial capacity to pay, regulatory standing, geographic location, and market presence and market share held by the financial institutions. Beginning on August 27, 2018, FCA began contacting the 25 potential merger partners approved by the Board. A virtual data room containing the Confidential Memorandum and additional information about MSB was opened at such time to those parties who entered into a confidentiality agreement and expressed an interest in receiving additional information regarding a potential transaction with MSB. FCA distributed 19 confidentiality agreements and 16 were signed and returned. Each party had an opportunity to negotiate the terms of the confidentiality agreement. The parties that returned a signed confidentiality agreement received a confidential information memorandum and, if requested, access to a virtual data room. Interested potential parties were asked to provide preliminarynon-binding indications of interest by October 1, 2018.
The confidentiality agreements signed by the parties in order to receive access to the MSB data room provided that the parties participating in the process agreed to a standstill provision that generally prohibits them from taking certain actions, including making a merger or acquisition proposal to MSB other than as invited to do so by its Board of Directors as part of the solicitation process being conducted by MSB. Such confidentiality agreement specifically provides that nothing shall prevent the signing party from making a nonbinding, confidential proposal related to a proposed transaction as part of the solicitation process being undertaken. MSB granted to each party signing the confidentiality agreement access to an electronic data room, if requested, containing certain business, financial, legal, and other information regarding MSB. Such
agreements are standard provisions included in confidentiality agreements as part of a solicitation process in order for the process to remain orderly and to encourage parties submitting indications of interest to furnish their highest and best offers. All potential bidders were encouraged to provide their highest and best offer.
In 2018, Kearny was contacted and invited to sign a confidentiality agreement and have access to the data room. At the time, Kearny declined to participate in the process.
As of the initial letter of interest deadline of October 1, 2018, one written letter of interest was received by FCA from Party A. Suchnon-binding letter from Party A proposed a price of $19.00 per share of MSB stock in the form of 100% of stock from Party A or a mix of cash and stock with cash comprising not more than 10% of the total consideration. The exchange ratio of MSB stock for Party A stock would be fixed. The Board held a conference call with FCA in October 1, 2018 to discuss the status of the solicitation process and the letter of interest received from Party A. At this meeting the Board authorized allowing Party A to conduct additional due diligence in order tofirm-up its pricing proposal. Party A declined the opportunity to conduct additional due diligence or to modify its pricing proposal included in its written letter of interest. Party A indicated that the proposal was based upon an exchange ratio determined as of the date of the October 1 letter of interest.
The Board met on October 8, 2018 to discuss the solicitation process, the proposal from Party A and other potential partners and several potential acquisition candidates. At this meeting, representatives from FCA discussed this proposal from Party A as well as the recent market volatility of financial stocks, including recent declines in the market price of stock of Party A. The Board requested that FCA seek clarification from Party A on its proposal and provide the Board with an update at its meeting on October 15, 2018. FCA received clarification of the proposal from Party A on October 9, 2018, and the Board was updated on these clarifications to be discussed at the October 15, 2018 meeting. Such clarifications included correcting the assumptions on the number of shares of restricted stock outstanding for MSB, that one Board seat was being offered by Party A, and that any dividends paid by MSB before closing would reduce the offer price. At the Board meeting on October 15, 2018, FCA updated the Board on the revised proposal from Party A and the continued market volatility of financial stocks at the time, including the pricing of the stock of Party A. The Board determined based upon the market volatility of financial stocks and the exchange ratio being offered by Party A along with the recent market declines in the stock of Party A, not to move ahead with negotiations with Party A. Further, the Board authorized FCA and management to contact another financial institution informedto explore a potential acquisition transaction. Contact was made with this potential partner, but after a few weeks of exploration, the other party determined not to continue such discussions. As part of MSB’s efforts to enhance shareholder value, the Board approved a special cash dividend on November 7, 2018 as part of its determination to continue executing on its business plan and remaining independent.
In March 2019, MSB had inquiries and discussions with a potential strategic partner, Party B. Party B had previously been contacted in 2018, but had elected not to participate in the 2018 process. Party B signed a confidentiality agreement with MSB in March 2019 and was provided limited due diligence materials. Party B had periodic discussions with MSB management during subsequent months. Additionally, in April 2019, Mr. Aguggia that his company could not structureShriner, MSB’s President and Chief Executive Officer had a transaction that would be financially attractive to Clifton.
On August 16, 2017, with all officers excused during the regular meeting of the Kearny board of directors, Mr. Montanaro discussed his recentlunch meeting with Kearny’s Chief Executive Officer, Craig L. Montanaro. The meeting provided an opportunity for each Chief Executive Officer to share general information about each organization and for the two executives to get more acquainted with each other. In July 2019, Mr. Aguggia,Shriner and Mr. Seidman, a MSB director, met with an executive from Party B regarding thea potential business combination between Cliftonmerger partner. Following that meeting, Party B expressed an interest in exploring a potential transaction with MSB and Kearny. The discussion focused on the similarities between the companies in terms of operating models, credit culture, market demographics, capital structure and the potential earnings growth the combined entity could achieve through improved operating leverage and cost efficiencies. The Kearny board agreedrequested access to move forward with further exploration of this potential business combination.additional due diligence materials regarding MSB.
At the regularBoard’s request, representatives from FCA met with the MSB Board on September 17, 2019 and provided the Board with an updated briefing on the M&A market since October 2018 and a capacity to pay analysis from a list of potential selected partners compiled by management, the Board and FCA. FCA representatives then fielded questions from the Board. Following such discussions, the Board concluded that it would complete the current repurchase plan and payout a special cash dividend based upon earnings since the 2018 special cash dividend, when feasible. The Board also agreed that they will keep a dialog open with institutions that may be interested in a potential transaction with MSB and will consider offers on an individual basis. In addition, the Board stated that it would continue to access other options, such as remaining independent or a potential merger of equals transaction, if appropriate. Shortly after the meeting, the Board authorized management and FCA to contact several financial institutions deemed to have the highest capacity to pay, including Kearny, Party B and other parties. Kearny and Party B were both invited to provide anon-binding letter of the Clifton board of directors held on August 16, 2017, Mr. Aguggia updated the directors on his meeting with Mr. Montanaro.
On August 18, 2017, Mr. Montanaro informed Mr. Aguggia that the Kearny board of directors had aninterest. The other parties contacted expressed no interest in a possible transaction and had authorized Mr. Montanaro to prepare preliminary pro forma financial information to determine if a transaction could be structuredpursuing the opportunity at that would be financially attractive to both parties. Mr. Aguggia and Mr. Montanaro agreed to have Sandler O’Neill assist them in generating a preliminary financial analysis of the transaction.time.
On August 23, 2017, CliftonOctober 1, 2019, MSB, through FCA, received a written,non-binding letter of interest from Kearny. Such proposal anticipated pricing to be between $17.50 and $18.00 per share for MSB stock. On October 7, 2019, MSB receivedfollow-up correspondence from Kearny entered into a mutualnon-disclosure agreement.
Over the following days, Sandler O’Neill, with input from management of Clifton and Kearny, prepared a preliminary financial analysis of a combination of Clifton and Kearny. Mr. Aguggia and Mr. Montanaro discussed the financial analysis and Mr. Montanaro informed Mr. Aguggia that Kearny had a strongreiterating its interest in pursuing a transaction at upwith MSB with a 45 day exclusive period. MSB arranged a meeting on October 15, 2019 with Kearny’s Chief Executive Officer to $18.00 per sharediscuss the letter of Clifton common stock in astock-for-stock transaction.interest. Mr. AguggiaShriner and Mr. Seidman met with Mr. Montanaro to request some additional time to review the offer. Mr. Shriner also used the meeting to ask Mr. Montanaro questions about Kearny’s products and services, technology initiatives and wealth management services. In addition, Mr. Montanaro was told that MSB was also in discussions with another financial institution regarding a potential transaction and that such party may be submitting an offer soon. Mr. Montanaro was told that the Board plans on reviewing these offers at the October 22, 2019 Board Meeting. Mr. Montanaro understood and had no issues with the additional time request.
On October 14, 2019, MSB’s Chief Executive Officer had a conversation with an executive officer of Party B. On October 22, 2019, MSB received anon-binding letter of interest from Party B, including a request for a 45 day exclusivity period.
The MSB Board of Directors held a regular meeting on October 22, 2019, at which meeting FCA discussed the leveltwo written letters of representation by Clifton directorsinterest recently received. The Board requested that FCA request additional clarifications from Kearny and Party B of their respective proposals. The Board also invited Kearny to conduct due diligence on anon-exclusive basis. Kearny indicated that it did not wish to invest resources in due diligence without an exclusivity period. On October 23, 2019, MSB management conferred with Party B to discuss their proposal and pricing; Party B indicated that it would review its proposal. On October 29, 2019, Party B indicated that it would revise its pricing metric. On October 30, 2019, Party B indicated that it would consider permitting MSB to continue payment of dividends through the Kearny board of directors. Mr. Aguggia informed Mr. Montanaro that he believed that for a transaction to be of interest
to the Clifton board of directors the price needed to be within the range of $18.00 to $19.00closing, and that it wouldfollow-up with a revised letter of interest. On that same day, Kearny was asked to clarify if its pricing is a fixed exchange ratio or a fixed price, and if MSB may continue to pay dividends through the Clifton stockholders would need to be well represented on the Kearny boardclosing.
The MSB Board of directors.
On September 5, 2017, the Kearny board of directorsDirectors held a special meeting to reviewon October 30, 2019, at which meeting FCA provided an updated presentation addressing the current assessment of the capital markets and discuss the above-referenced preliminary financial analysis. Mr. Montanaro reviewed the analysis, focusing on an offering range of $18.00 to $18.25 per share, the earnings accretion achievable by this business combination, an acceptable level of tangible book value dilution and associated earn-back period for the proposed transaction assuming an all-stock consideration. Following a comprehensivedetailed discussion of strategic, economic,the two written letters of interest recently received along with the additional conversations with Kearny and social benefitsParty B. The Board requested that FCA request additional clarifications from Kearny and Party B of their respective proposals in order to assist the proposed business combination, theBoard in its evaluation of each proposal. Kearny board authorized President Montanaro to continue discussions with Clifton relative to the proposed business combination.
After theindicated that it would review its latest proposal andfollow-up. The Board meeting Mr. Montanaro informed Mr. Aguggia that theadjourned pending receipt of additional clarifications from both Kearny board of directors continued to be interested in pursuing a possible business combination on the terms that he and Mr. Aguggia had discussed. Mr. Montanaro also advised Mr. Aguggia that Kearny had established, based on metrics widely usedParty B. Later in the current mergers and acquisitions market, certain parameters regarding the levelday, Party B provides an updated letter of earnings accretion, tangible book value dilution and earn-back period that would have to be met in order for Kearny to proceed with the transaction. Based on those metrics, Mr. Montanaro indicated that Kearny’s price range was $18.00 - $18.25 and that Kearny would be unlikely to reach a priceinterest dated October 30, 2019.
The MSB Board of $18.50.
On September 6, 2017, the Clifton board of directorsDirectors held a special meeting at which Mr. Aguggia updated the Clifton board of directors on the preliminary discussions with Kearny. Mr. Aguggia informed the Clifton board of directors that Clifton and Kearny had shared financial projections pursuantOctober 31, 2019, to anon-disclosure agreement, and that Kearny continued to have an interest in a possible transaction but had indicated that it would be unlikely to reach a price of $18.50. The Clifton board of directors discussed the fact that Sandler O’Neill routinely represents both Clifton and Kearny in strategic matters and that Kearny will retain a different financial advisor should the companies move forward with a transaction. The Clifton board of directors engaged in a robust discussion of the advantages and disadvantages of engaging in a business combination with Kearny at this time. At the conclusion of the discussion, the Clifton board of directors authorized Mr. Aguggia to inform Kearny that Clifton would be interested in pursuing a business combination with Kearny if Kearny provided a fair value to Clifton stockholders, a meaningful role for Mr. Aguggia in the combined company, and representation on the Kearny board of directors commensurate with the percentage interest of Clifton stockholders in the combined company. The Clifton board of directors authorized management to provide additionalnon-public information to Kearny through the electronic data room established for the parties.
On September 13, 2017, the Clifton board of directors held a special meeting at which Mr. Aguggia updated the directors onreview the status of discussions with both Kearny and Party B. The Board decided to invite both parties to conduct additional due diligence on anon-exclusive basis in that neither proposal distinguished itself sufficiently to warrant exclusivity at this point. On November 1, 2019, Party B was invited to continue conducting additional due diligence on anon-exclusive basis. Party B revised its October 30, 2019 letter of interest removing its exclusivity condition and agreeing to continue its due diligence review. Party B was granted access to additional due diligence materials through MSB’s data room. Kearny indicated on November 1, 2019, that it would not conduct due diligence without an exclusivity agreement. On November 7, 2019, Party B notified MSB that it was pursuing another transaction at the Clifton boardpresent time and would not continue pursuing this opportunity with MSB. On that same day, MSB invited Kearny to conduct due diligence with an exclusivity period. The term of the exclusivity period was subject to negotiations. Kearny provided MSB with a revised letter of interest dated November 8, 2019 and a 38 day exclusivity period. On November 11, 2019, MSB accepted Kearny’s latest letter of interest with a 35 day exclusivity period ending on December 15, 2019.
Kearny was granted access to MSB’s data room. On November 20, 2019, MSB signed a confidentiality agreement regarding Kearny’s information so that it could conduct reverse due diligence. On November 25, 2019, Kearny conducted management interviews with MSB senior officers at FCA’s facilities. MSB conducted due diligence on Kearny during this period. On November 26, 2019, MSB received an initial draft of the Agreement, the MSB directors approved the retention of Sandler O’Neill as Clifton’s financial advisor, based on, among other factors, Sandler O’Neill’s reputation, experience in mergers and acquisitions, valuations, financing and capital markets and its familiarity with Clifton, Clifton’s strategic goalsvoting agreements and the industrysettlement agreements with the MSB officers who previously entered into Change in Control Retention Agreements with Millington Bank.
Several weeks of negotiations between the parties followed related to the Agreement and other ancillary documents. Simultaneously, management and financial and legal advisors for Kearny and MSB’s management, legal advisor, and FCA continued due diligence efforts, which Clifton operates.
On September 25, 2017, Kearny delivered anon-binding indicationincluded an exchange of interest letter that proposedschedules and exhibits to the acquisition of Clifton by Kearny at a price of $18.00 to $18.25 per share in anall-stock transaction utilizing a fixed exchange ratio, which would be determined prior to signing a definitive merger agreement.
Over
On December 6, 2019, Kearny’s Chief Executive Officer and its investment advisor met with MSB’s Chief Executive Officer and other MSB representatives and FCA and negotiated to resolve several remaining transaction terms. On December 13, 2019, the next several days, Mr. Aguggiaparties held a telephone conference and Mr. Montanaro discussed possible revisions tofinalized certain remaining issues and set the indication of interest letter that would make the proposal more attractive to the Clifton board of directors, including providing more specificity as to the value of the merger consideration, the number of directors that would be added to the Kearny board of directors and the role that Mr. Aguggia would play in the combined company.stock exchange ratio.
On September 28, 2017, Kearny delivered an updatednon-binding indicationDecember 17, 2019, the Board of interest letter that proposedDirectors of MSB, as the acquisitionlast item of Clifton by Kearnybusiness at a price of $18.25 per shareits regularly scheduled meeting, discussed in anall-stock transaction utilizing a fixed exchange ratio. Kearny proposed to add three directors tofull detail the Kearny board of directors, one of whom would be
Mr. Aguggia, and stated that Mr. Aguggia would serve as Chairman of Kearny’s Enterprise Risk Management Committee and board liaison to Kearny’s Capital Markets Committee. The indication of interest letter required that Clifton agree to a30-day period of exclusive negotiations.
On September 29, 2017, the Clifton board of directors held a special meeting, attended by representatives of Sandler O’Neill and Kilpatrick Townsend, to review thenon-binding indication of interest letter. A representative of Kilpatrick Townsend reviewed with the Clifton board of directors the applicable legal standards in connection with a possible transaction. The Clifton board of directors engaged in a robust discussion regarding the indication of interest. There was significant discussion regarding the use of a fixed exchange ratio, the process and timing for calculating the exchange ratio, and the impact on both Clifton and Kearny stockholders of using a fixed exchange ratio. Representatives of Sandler O’Neill presented to the Clifton board of directors an analysis of the financial condition and trading prices of Clifton and Kearny, its views on valuation and a pro forma analysis of the proposed transaction. The Clifton board of directors determined to proceed with negotiation of a definitive merger agreement and authorized Mr. Aguggia to execute thenon-binding indicationancillary documents with representatives of interest letter.
On October 2, 2017, Clifton executed thenon-binding indicationFCA and legal counsel who were in attendance. Each MSB director received prior notice of interest letter, which included the30-day exclusivity period discussed above. Promptly thereafter, Clifton and Kearny began to make available to each other additionalnon-public information regarding their respective loans, investments and deposits, credit quality, vendor contracts, revenues and operating expenses.
On October 11, 2017, the Clifton board of directors held asuch special meeting at which it further considered Sandler O’Neill’s role in the transactionon December 12, 2019, and relationship with Kearny and determined to hire an independent third party that was familiar with Clifton but that had not participated in anyeach director received copies of the discussions relatingnear-final draft of the definitive merger agreement and ancillary documents prior to such meeting. FCA reviewed its financial presentation analyzing the proposed transaction to provide it with a fairness opinion in connection with the proposed transaction. At this meeting,MSB Board of Directors. The members of the Clifton boardMSB Board of directors approved the engagement of RP Financial, LC., which we refer to as RP Financial, to provide the Clifton board of directors with a fairness opinion based on, among other factors, RP Financial’s reputation, experience in mergers and acquisitions and valuations, and its familiarity with the industry in which Clifton operates.
On October 16, 2017, representatives of Clifton, Sandler O’Neill, RP Financial and Kilpatrick Townsend metDirectors, along with representatives of Kearny, Keefe, Bruyette & Woods, Inc. (which we refer to as KBW) as Kearny’s financial advisorfrom FCA and Luse Gorman, PC (which we refer to as Luse Gorman) as Kearny’s outside legal counsel, and engageddiscussed the proposed transaction in detailed discussions regarding various aspectsdetail, including the provisions of the parties’ respective businesses. KBW, which began providing services to Kearny in early September 2017, was selected by Kearny to act as its financial advisor in connection with a possible transaction based on, amongdefinitive merger agreement, the potentialbreak-up fee and other factors, KBW’s reputation, experience in mergers and acquisitions, valuations, financing and capital markets and its familiarity with the industry in which Kearny operates.
On October 18, 2017, the Clifton board of directors held a special meeting at which Mr. Aguggia updated the Clifton board of directors on the status of discussions with Kearnycontingencies, and the companies’ reciprocal due diligence efforts.
On October 19, 2017, Kearny and Luse Gorman provided Clifton and Kilpatrick Townsend with an initial draft merger agreement for the proposed transaction.
Over the following days, Kilpatrick Townsend and Luse Gorman exchanged draftsdisclosure schedules prepared by each parties. Such discussions included a review of the merger agreement and Luse Gorman provided draftsterms of other transaction documents, including voting agreements to be entered into by the Clifton and Kearny directors and a settlement agreement andnon-competition agreement to be entered into by Mr. Aguggia in connection with thedefinitive merger agreement and the two firms worked towards finalizingitems revised during negotiations, including a reduction in the terms and conditionstermination fee that MSB might become obligated to pay in certain limited circumstances, an exchange ratio that had a value greater than $18 at the time of the transaction. During this period, Cliftontransaction signing, the opportunity for stockholders to elect the form of merger consideration to be received, rather than all stockholders being required to receive the same mixture of stock and cash, the agreement providing that Kearny continuedis giving MSB additional representations regarding Kearny’s company and its operations, the opportunity for MSB stockholders to receive cash dividends on their reciprocal due diligence efforts.
At its regular meeting held on October 24, 2017, which was attended by representatives of Sandler O’Neill, RP Financial and Kilpatrick Townsend, as well as members of Clifton senior executive management, representatives of RP Financial, in connection withMSB stock between the delivery of its fairness opinion, reviewed its financial analysissigning date of the proposed transaction, including a comparison of transaction pricing ratios and multiples and a net present value analysis of Clifton, and discussed with the directors the strategic rationale for a combination with Kearny and the pro forma characteristics of the combined company. A representative of Kilpatrick Townsend reviewed the then-current draft of thedefinitive merger agreement and the Clifton directors engaged in a robust discussion regarding the terms and conditionsEffective Time of the merger. The membersMerger based upon parity with any cash dividends paid by Kearny on its common stock, and the opportunity for MSB stockholders to receive an additional cash dividend on its stock based upon certain potential cost savings which may be realized before the Effective Time of Clifton senior executive management reviewed the due diligence findings relatedMerger in settling certainon-going litigation with Fidelity Information Services, LLC. Such discussions also included the definitive merger agreement pricing protection in the form of a “double trigger walkaway” provision. This pricing provision would give MSB the right to their functional areas.
On October 25, 2017,terminate the Kearny board of directors met to discussmerger agreement if the proposed transaction. Membersprice of Kearny’s executive managementcommon stock were to fall by more than a specified percentage compared to both its initial value and representatives of KBW and Luse Gorman were also in attendance. Representatives of KBW discussedthe NASDAQ Bank Index. FCA reviewed with the Kearny boardMSB Board of Directors the financial aspects of the proposed transaction including transaction pricing ratios and, multiples andat the pro forma financial characteristicsrequest of the combined company. A representativeMSB Board of Luse Gorman reviewedDirectors, rendered to the then-current draftBoard of the merger agreement and the Kearny directors engaged in a discussion regarding the material termsDirectors of the merger. The members of Kearny’s executive management reviewed the due diligence findings.
Over the following days, Clifton and Kearny, with the assistance of their financial and legal advisors, continued to negotiate the outstanding terms of the merger agreement and related transaction documents. On October 31, 2017, Clifton and Kearny agreed toMSB an exchange ratio of 1.191, which was calculated as $18.25 divided by the10-day volume-weighted average common stock price of $15.32 for Kearny as of October 31, 2017.
At its regular meeting held on November 1, 2017, which was attended by members of Clifton’s senior executive management and representatives of Sandler O’Neill, RP Financial and Kilpatrick Townsend, the Clifton board of directors considered the approval of the merger agreement and the transactions contemplated by the merger agreement. The Clifton board of directors had been provided with a set of meeting materials in advance of the meeting, including the merger agreement and a summary of the material terms of the merger agreement prepared by Kilpatrick Townsend. At the meeting, RP Financial rendered a written opinion (a copy of which is attached to this joint proxy statement/prospectus asAnnex B), to the effect that, as of thatsuch date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by RP FinancialFCA, as set forth in suchits written opinion dated December 17, 2019 (as attached as Annex B to this proxy statement/prospectus), the exchange ratioMerger Consideration (as described in the mergeropinion) in the Merger was fair, from a financial point of view, to the holdersMSB stockholders. Legal counsel again reviewed the MSB Board of Clifton common stock. A representativeDirectors’ fiduciary duties as directors of Kilpatrick Townsend discussedMSB in connection with its consideration of the proposed transaction.
The MSB Board of Directors and legal counsel then reviewed in detail the terms of the merger agreement and related transactionancillary documents, (includingincluding the voting agreements and the settlement agreement andnon-competition agreement to be executedentered into by Mr. Aguggia) with the Clifton board of directors,MSB directors. The MSB Board also discussed the anticipated transaction fees and expenses, including the changesproposed fees to be paid to FCA in accordance with its engagement letter signed in July 2018. Following these presentations and discussion among the merger agreement since the meeting on October 24, 2017. After considering the proposed termsmembers of the merger agreement and related transaction documents and the various presentationsMSB Board of its financial and legal advisors, and taking intoDirectors, including consideration the matters discussed during that meeting and prior meetings of the Clifton board, including the strategic alternatives discussed at those meetings and the factors described under the section of this joint proxy statement/prospectus entitled“— Clifton’s“The Merger—MSB’s Reasons for the Merger andMerger; Recommendation of theMSB’s Board of Directors,” the Clifton boardMSB Board of directors unanimouslyDirectors determined that the merger, the merger agreementMerger Agreement and the other transactions contemplated by the merger agreementthereby were advisable and in the best interests of CliftonMSB and its stockholders, and thestockholders. The MSB directors unanimously approvedvoted to adopt and adoptedapprove the merger agreementMerger Agreement and the transactions contemplated by itthereby and unanimously determined to recommendthe MSB Board of Directors’ recommendation that Clifton’sthe MSB stockholders approve and adopt the merger agreement.Merger Agreement.
Also on November 1, 2017,On December 18, 2019, following the Kearny board of directors met to discuss the proposed transaction. Members of Kearny’s executive management and representatives of KBW and Luse Gorman were also in attendance as the Kearny board of directors considered the approval of the merger agreement and the transactions contemplated by the merger agreement. The Kearny board of directors had been provided with a set of meeting materials in advance of the meeting, including the merger agreement, a summary of the material terms of the merger
agreement prepared by Luse Gorman and a financial presentation provided by KBW. At the meeting, KBW reviewed with the Kearny board of directors its financial analysis of the exchange ratio and rendered its written opinion (a copy of which is attached to this joint proxy statement/prospectus asAnnex C), dated November 1, 2017, to the Kearny board of directors to the effect that, as of that date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW as set forth in such opinion, the exchange ratio in the merger was fair, from a financial point of view, to Kearny. A representative of Luse Gorman discussed the terms of the merger agreement and related transaction documents with the Kearny board of directors, including the changes to the merger agreement since the meeting on October 25, 2017. After considering the proposed terms of the merger agreement and related transaction documents and the various presentations of its financial and legal advisors, and taking into consideration the matters discussed during that meeting and prior meetingscompletion of the Kearny board, including the factors described under the sectionBoard meeting, representatives of this joint proxy statement/prospectus entitled “ — Kearny’s Reasons for the Merger,” the Kearny board of directors unanimously determined that the merger, the merger agreement and the other transactions contemplated by the merger agreement were in the best interests of Kearny and its stockholders, and the directors unanimously approved and adopted the merger agreement and the transactions contemplated by it and unanimously determined to recommend that Kearny’s stockholders approve the merger agreement.
Following the respective board meetings of Clifton and Kearny, CliftonMSB and Kearny executed the merger agreement,Merger Agreement and ancillary documents, and the MSB directors of Clifton executed the voting agreements withagreements. On December 18, 2019, after the close of trading on NASDAQ, Kearny and the directors of Kearny executed the voting agreements with Clifton, and Mr. Aguggia executed the settlement agreement and thenon-competition agreement. Later that evening, Kearny and CliftonMSB issued a joint press release announcing the execution of the merger agreement.proposed transaction between Kearny and MSB.
Clifton’sMSB’s Reasons for the Merger and Recommendation of the Board of Directors
After careful consideration, the MSB Board of Directors, at a meeting held on November 1, 2017, the Clifton board of directors unanimouslyDecember 17, 2019, determined that the merger agreement, including the merger and the other transactions contemplated thereby,with Kearny is in the best interests of CliftonMSB and its stockholders and approved and declared advisable the merger agreement and the related transaction documents.
transactions contemplated therein, including the merger, and unanimously recommends that MSB’s stockholders vote “FOR” the approval of the MSB merger proposal. In reaching its decision to approve and recommend the approval of the merger agreement, the merger and the other transactions contemplated byMSB Board of Directors evaluated the merger agreement and recommend that its stockholders vote “FOR” the merger agreement, the Clifton board of directors consultedin consultation with CliftonMSB’s management, as well as its independentMSB’s financial and legal advisors, and considered a number of factors,
including the following material factors:factors which are not intended to be exhaustive and are not presented in any relative order of importance:
the consideration offered by Kearny, which, as of December 17, 2019 (the date that the MSB Board of Directors approved the merger agreement) represented: 146% of MSB’s tangible book value per share; 20.6x MSB’s trailing twelve month earnings, and a 8.0% core deposit premium;
its knowledgeunderstanding of Clifton’sthe current and prospective environment in which MSB operates, including national and local economic conditions, the interest rate environment and various fluctuations in interest rates, concentration in commercial real estate loans, the competitive environment for financial institutions generally and especially with respect to deposit gathering and retention and pricing, and the likely effect of these factors on MSB both with and without the proposed merger and the execution risks of attempting to address the foregoing considerations as a standalone entity;
each of Kearny’s, MSB’s, and the combined company’s business, operations, regulatory and financial condition, asset quality, earnings, loan portfolio, capital and prospects both as an independent organization,prospects. In reviewing these factors, the MSB Board of Directors considered its view that Kearny’s financial condition and as a partasset quality were sound, that Kearny’s business and operations complemented those of MSB, and that the merger would result in a combined company with Kearny;larger market presence and resources and what is anticipated to be greater value to MSB stockholders. The MSB Board of Directors further considered that Kearny’s earnings and prospects, and synergies potentially available in the proposed transaction, created an opportunity for the combined company to have higher future earnings and prospects compared to MSB’s earnings and prospects on a stand-alone basis. In particular, the MSB Board of Directors considered, among other things, the following:
MSB’s future potential growth and business model without doing a business combination, especially in light of Kearny’s business, operations, regulatoryfactors such as increased competition and financial condition, asset quality, earnings, capitaluncertainty in the banking sector and prospects, taking into account presentations by senior management of its due diligence review of Kearny and information furnished by Sandler O’Neill;the marketplace as a whole;
the Clifton board’slow probability of MSB completing a desirable acquisition in the near term and/or having sufficient assets and resources to do so;
the belief that continued significant growth in earnings is required for CliftonMSB to be in a position to deliver a competitive return to its stockholders and that achieving such growth in earnings would require significant investment in both resources and time to achieve those results;
the belief that the merger will result in a more competitive banking franchise with strong capital ratios and an attractive funding base that has the potential to deliver a higher value to Clifton’sMSB stockholders as compared to continuing to operate as a stand-alone entity;
the expanded possibilities, including organic growth and future acquisitions, that would be available to the combined company, given its larger size, asset base, capital, market capitalization and footprint;
the expected socialcurrent and economicfuture value of MSB’s common stock should MSB not enter into the merger agreement versus the merger consideration being paid pursuant to the merger agreement;
the ability to strengthen Kearny’s scale and competitive position in the New Jersey market, thereby adding expected value to MSB stockholders through a combined company;
the anticipated cost savings that may be realized by Kearny through integration of MSB into its franchise with significant synergies and cost-savings;
its high level of familiarity with Kearny’s franchise and client base;
its review and discussions with Kearny’s management and advisors concerning MSB’s due diligence examination of Kearny’s business;
the anticipated pro forma financial impact of the merger on the constituencies served by Clifton,combined company, including its borrowers, customers, depositors, employees, and communities;the estimated accretion to earnings in first year of fullyphased-in cost-savings;
the effectsexpectation that the merger consideration, other than the cash consideration, will be generallytax-free for United States federal income tax purposes to MSB’s stockholders;
that 90% of the merger on Clifton employees, includingMSB shares will be exchanged for Kearny stock and 10% of the prospectsMSB shares will be exchanged for continued employmentcash, thereby providing MSB stockholders the opportunity to elect to receivestock-for-stock consideration, which offers MSB stockholders the opportunity to participate as stockholders of Kearny in a larger organization and various benefits agreedthe future performance of the combined company, or to sell their shares in the market if they do not wish to be provided to Clifton employees;stockholders of Kearny;
the enhanced likelihoodfact that the exchange ratio is fixed, which the MSB Board of realizingDirectors believes is consistent with market practice for transactions of this type and with the strategic benefitspurpose of the proposed combinationtransaction;
the fact that the Clifton board of directors believes will result from the continuity provided to Cliftonmore active trading market in Kearny common stock would give MSB stockholders by the corporate governance aspects of the proposed combination, including Clifton’s agreement, upon the closing of the merger, to appoint three current members of the Clifton board of directors, including Mr. Aguggia, as directors of Kearny and Kearny Bank and to appoint Mr. Aguggia to certain committee positions;greater liquidity for their investment;
the low probability of securing a more attractive proposal from another institution capable of consummating the transaction;transaction in light of the process undertaken;
| • | that the Merger Agreement does not preclude a third party from making an unsolicited acquisition proposal to MSB and that, under certain circumstances more fully described under “The Merger Agreement—Agreement Not to Solicit Other Offers,” MSB may furnishnon-public information to, and enter into discussions with, such a third party regarding an acquisition proposal; |
the low probabilityability of Clifton completingMSB to terminate the Merger Agreement (subject to Kearny’s right to increase the Exchange Ratio) if the price of Kearny’s common stock declines more than 20% relative to its price before public announcement of the transaction and combined with such decline being at least 20% greater than a desirable acquisitioncorresponding decline in the near term; andvalue of the NASDAQ Bank Index during the same period;
the board’sability of MSB to terminate the Merger Agreement to enter into a definitive agreement for a superior proposal if certain requirements are met, subject to the payment of a termination fee by MSB of $3.54 million, an amount that was negotiated atarm’s-length and was determined by the MSB Board of Directors to be reasonable under the circumstances and generally comparable to termination fees in other similar transactions;
the financial analyses of FCA presented on December 17, 2019 to the MSB Board of Directors, as well as the related opinion of FCA, dated December 17, 2019, to the effect that, as of such date and based on and subject to the various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by FCA, as more fully described in the opinion, the merger consideration set forth in the merger agreement was fair, from a financial point of view, to the holders of MSB common stock;
the opportunity for MSB stockholders to receive additional consideration in the form of a special cash dividend if certain pending litigation is settled before the merger effective date on favorable terms;
the fact that MSB’s stockholders will have a chance to vote on the merger; and
its review with itsMSB’s independent legal advisor, Kilpatrick Townsend,counsel, Jones Walker, of the material terms of the merger agreement, including, (i)without limitation, deal protection and fee reimbursement provisions, the board’s ability, under certain circumstances, to consider an unsolicited acquisition proposal and terminate the merger agreement in order to enter into an agreement with respect to a superior proposal, subjectas well as the nature of the covenants, representations and warranties and termination provisions in the merger agreement.
The MSB Board of Directors also considered potential risks relating to the required payment by Cliftonmerger but concluded that the anticipated benefits of a termination feethe merger were likely to
|
The Clifton board of directors also considered a number of substantially outweigh these risks. These potential risks and uncertainties associated with the merger in connection with its deliberation of the proposed transaction, including,included, without limitation, the following:limitation:
the potential risks associated withpossibility of Kearny encountering difficulties in achieving anticipated cost synergiescost-savings in the amounts estimated or in the time frame contemplated;
the risk of losing key MSB employees during the pendency of the merger and savings andthereafter, thereby impacting the earnings projections of the combined entity;
the possibility of encountering difficulties in successfully integrating Clifton’sMSB’s business, operations, and workforce with those of Kearny;
the possibility of Kearny’s stock price fluctuating and decreasing between signing the merger agreement and the completion of the merger, which could decrease the value of the consideration to be paid to MSB stockholders;
certain merger-related costs, including the payments and other benefits to be received by MSB personnel in connection with the merger pursuant to existing MSB equity plans, change of control agreements, and the merger agreement;
the merger’s effect on Kearny’s regulatory capital levels;
diversion of management attention and resources from the operation of MSB’s business towards the completion of the merger;
the regulatory and other approvals required in connection with the merger and the risk that such regulatory approvals will not be received in a timely manner, or at all, or may otherwise impose unacceptable conditions;
the risk of having to pay a termination fee should the merger agreement be terminated under certain circumstances;
the risk that other third parties might be deterred from making a superior acquisition proposal in light of the termination fee, and that MSB would prohibited from affirmatively soliciting acquisition proposals after execution of the merger agreement;
| • | that the interests of certain of |
| • | the other risks described under the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.” |
The MSB Board of Directors unanimously determined that the benefits of the merger proposal substantially outweighed the potential risks, and concluded that the merger agreement and the transactions contemplated thereby are advisable and in the best interests of MSB and its stockholders. For the reasons stated above, the MSB Board of Directors unanimously voted to approve the merger, the merger agreement, and the transactions contemplated thereby, and to recommend that MSB’s stockholders approve the merger agreement.
Accordingly, the MSB Board of Directors unanimously recommends that MSB stockholders vote “FOR” the MSB merger proposal, “FOR” the MSB compensation proposal, and “FOR” the MSB adjournment proposal.
It should be noted that this explanation of the MSB Board of Directors’ reasoning presented in this section contains information that is forward-looking in nature, and therefore should be read in light of the factors discussed under the heading “Cautionary Statement Regarding Forward-Looking Statements.”
In addition, the MSB Board of Directors was aware of the fact that some of MSB’s directors and executive officers may have other interests in the merger that may be different from, or in addition to, their interests as MSB stockholders, as more fully described under “—Interests of MSB’s Directors and Executive Officers in the Merger.” The MSB Board of Directors also realized that there can be no assurance about future results, including results expected or considered in the factors listed above.
The foregoing discussion of the information and factors considered by the Clifton boardMSB Board of directorsDirectors is not intended to be exhaustive, but includes the material factors considered by the boardMSB Board of directors.Directors. The MSB Board of Directors also considered various other factors that are set forth in the section under the heading “The Merger—Background of the Merger.” In reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, the Clifton boardMSB Board of directorsDirectors did not quantify or assign any relative weightsweight to the factors considered and individual directors may have given different weightsweight to different factors. The Clifton boardMSB Board of directors
Directors considered all these factors as a whole, including discussions with, and questioning of, Clifton’s management and Clifton’s independent financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination.
The CliftonMSB board of directors unanimously recommends that Clifton’sMSB’s stockholders vote “FOR” the approval of the merger agreement and the merger, “FOR” the merger-related compensation proposal and “FOR” the CliftonMSB adjournment proposal. CliftonMSB stockholders should be aware that Clifton’sMSB’s directors and executive officers have interests in the merger that are different from, or in addition to, those of other CliftonMSB stockholders. The CliftonMSB board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement, and in recommending that the merger proposal be approved by the stockholders of Clifton.MSB. See “ —Interests—Interests of Certain PersonsMSB’s Directors and Executive Officers in the Merger that are Different from Yours.”
This summary of the reasoning of the CliftonMSB board of directors and other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement About Forward-Looking Statements.”
RP Financial’s Opinion to Clifton’sRecommendation of the MSB Board of Directors
Clifton retained RP Financial on October 16, 2017, to render an opinion regarding the fairness from a financial point of view of the exchange ratio to be received by Clifton’s stockholders in the merger. In engaging RP Financial for its opinion regarding fairness, the Clifton board of directors did not give any special instructions to RP Financial, nor did it impose any limitations upon the scope of the investigation that RP Financial wished to conduct to enable it to give its opinion. RP Financial has delivered to Clifton its written opinion, dated November 1, 2017, to the effect that, based upon and subject to the matters set forth therein, including various assumptions, considerations, qualifications and limitations, and other matters it considered relevant, as of that date, the exchange ratio to be received in connection with the merger with Kearny was fair to the Clifton stockholders from a financial point of view. The opinion of RP Financial is directed to the board of directors of Clifton in its consideration of the merger agreement, and does not constitute a recommendation to any stockholder of Clifton as to any action that such stockholder should take in connection with the merger agreement or otherwise. RP Financial’s opinion is directed only to the fairness of the exchange ratio to the current stockholders of Clifton from a financial point of view as of the date of the merger agreement. A copy of the RP Financial opinion is set forth asAnnex B to this joint proxy statement/prospectus, and Clifton stockholders should read it in its entirety. RP Financial has consented to the inclusion and description of its written opinion in this joint proxy statement/prospectus.
Clifton selected RP Financial to render an opinion regarding fairness because of RP Financial’s expertise in the valuation of financial services businesses and their securities for a variety of purposes, including its expertise in connection with mergers and acquisitions of financial institutions. Pursuant to a letter agreement executed by Clifton on October 16, 2017, RP Financial estimates that it will receive from Clifton total professional fees of approximately $250,000, $235,000 of which has been paid to date, plus reimbursement of certainout-of-pocket expenses, for its services in connection with the merger.
In addition, Clifton has agreed to indemnify and hold harmless RP Financial, any affiliates of RP Financial, and the respective directors, officers, agents and employees of RP Financial or their successors and assigns who act for or on behalf of RP Financial in connection with the services called for under Clifton’s engagement letter with RP Financial, from and against any and all losses, claims, damages and liabilities (including, but not limited to, all losses and expenses in connection with claims under the federal securities laws), actually incurred by RP Financial and attributable to: (i) any untrue statement or alleged untrue statement of a material fact contained in the financial statements or other information furnished or otherwise provided by Clifton to RP Financial, either orally or in writing; (ii) the omission or alleged omission of a material fact from the financial statements or other information furnished or otherwise made available by the Clifton to RP Financial; or (iii) any action or omission to act by Clifton or Clifton’s respective officers, directors, employees or agents which action or omission is
willful or negligent. Notwithstanding the foregoing, Clifton will be under no obligation to indemnify RP Financial hereunder if a court determines that RP Financial was negligent or acted in bad faith or willfully with respect to any actions or omissions of RP Financial related to a matter for which indemnification is sought. Any time devoted by employees of RP Financial to situations for which indemnification is provided are indemnifiable costs payable by Clifton at the normal hourly professional rate chargeable by RP Financial for such employee.
In rendering its opinion, RP Financial reviewed the following material and/or conducted the following analyses with respect to the merger agreement and Clifton:
In addition, RP Financial reviewed or considered the following materials or information for Kearny and as further described below certain peers of Kearny:
RP Financial also reviewed and considered certain information and materials detailing the merger provided by Kearny, including the estimated amount and timing of the cost savings and related expenses, purchase accounting adjustment and synergies expected to result from the merger, the pro forma financial impact of the merger on the combined company’s earnings, tangible book value, financial ratios and other relevant financial metrics.
In rendering its opinion, RP Financial relied, without independent verification, on the accuracy and completeness of the information concerning Clifton and Kearny furnished by or on behalf of the respective institutions to RP Financial for review for purposes of its opinion, as well as publicly-available information regarding other financial institutions and competitive, economic and demographic data. RP Financial has further relied on the assurances of management of Clifton and Kearny as included in the merger agreement. RP Financial has also relied upon the management of Clifton and Kearny as to the reasonableness and achievability of the financial forecasts, projections and other forward-looking information provided to RP Financial by or on behalf of Clifton and Kearny, and RP Financial has assumed such forecasts, projections and other forward-looking information have been reasonably prepared by or on behalf of Clifton and Kearny on a basis reflecting the best currently available information and Clifton’s and Kearny’s judgements and estimates. RP Financial has assumed that such forecasts, projections and other forward-looking information would be realized in the amounts and at the times contemplated thereby, and RP Financial does not assume any responsibility for the accuracy or reasonableness thereof. RP Financial was authorized by Clifton to rely on such forecasts, projections and other information and data, and RP Financial expressed no view as to the ability of Clifton to achieve the results set forth in any such forecasts, projections or other forward-looking information or data, or the bases or assumptions on which they were prepared. RP Financial has not been asked to, and has not undertaken an independent verification of any of such information, or information RP Financial obtained from public sources and RP Financial did not assume any responsibility or liability for the accuracy or completeness thereof.
RP Financial has not undertaken any independent analysis of any pending or threatened litigation, regulatory action, possible unasserted claims or other contingent liabilities to which Clifton or Kearny is a party or may be subject to, and RP Financial’s opinion makes no assumption concerning, and therefore does not consider, the possible assertion of claims, outcomes or damages arising out of any such matters. RP Financial also assumed that neither Clifton or Kearny is party to any material pending transaction, including without limitation any financing, recapitalization, acquisition or merger, divestiture orspin-off, other than the merger contemplated by the merger agreement. RP Financial, with Clifton’s consent, relied upon the advice Clifton has received from its legal, accounting, financial and tax advisors as to all legal, accounting and tax matters relating to the merger agreement and other transactions contemplated by the merger agreement. In rendering its opinion, RP Financial assumed that, in the course of obtaining the necessary regulatory and governmental approvals for the proposed merger, no restriction will be imposed on Kearny that would have a material adverse effect on the ability of the merger to be consummated as set forth in the merger agreement. RP Financial also assumed that there have been no material changes in the financial condition of Clifton or Kearny since the date of the most recent financial statement made available to RP Financial. RP Financial has assumed, in all respects material to RP Financial’s analyses, that all of the representations and warranties contained in the merger agreement and all related agreements are true and correct, that each party to such agreements will perform all of the covenants required to be performed by such party under such agreements and that the conditions precedent in the merger agreement are not waived.
RP Financial’s opinion was based on market conditions and other circumstances existing on November 1, 2017. RP Financial specifically stated in its opinion that events occurring after November 1, 2017, could
materially affect the assumptions RP Financial used in preparing its opinion. In connection with rendering its opinion dated November 1, 2017, RP Financial performed a variety of financial analyses that are summarized below. Although the evaluation of the fairness, from a financial point of view, of the exchange ratio was to some extent subjective based on the experience and judgment of RP Financial and not merely the result of mathematical analyses of financial data, RP Financial relied, in part, on the financial analyses summarized below in its determinations. The preparation of a fairness opinion is a complex process and RP Financial believes its analyses must be considered as a whole. Selecting portions of such analyses and factors considered by RP Financial without considering all such analyses and factors could create an incomplete view of the process underlying RP Financial’s opinion. In its analyses, RP Financial took into account its assessment of general business, market, financial and economic conditions, banking and thrift industry performance and other matters, many of which are beyond the control of Clifton and Kearny, as well as RP Financial’s experience in securities valuation, its knowledge of financial institutions, its knowledge of the current operating and merger and acquisition environments for financial institutions, and its experience in similar transactions. With respect to the comparable transactions and control premium analyses described below, no public company utilized as a comparison is identical to Clifton and such analyses necessarily involve complex considerations and judgments concerning the differences in financial and operating characteristics of the companies and other factors that could affect the trading and/or acquisition values of the companies concerned. RP Financial prepared its analyses solely for purposes of providing its opinion as to the fairness of the exchange ratio.
Comparable Transactions Analysis. RP Financial compared the merger on the basis of multiples and/or ratios involving reported earnings, tangible book value and tangible book premium to core deposits reported in a selected comparable group of completed and pending bank and thrift mergers and acquisitions. The comparable transaction groups consisted of sale of control transactions and included two groups with the following characteristics:
The transactions comprising the nationwide transactions group and the regional transactions group are set forth below.
Nationwide Transactions Group
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Regional Transactions Group
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The average and median selected financial data and acquisition pricing multiples or ratios at announcement for the nationwide transaction group and the regional transaction group relative to the Clifton pricing multiples or ratios based on the merger consideration are shown below:
Comparable Transactions(1) | ||||||||||||||||||||
| National Trans. Group | Regional Trans. Group | |||||||||||||||||||
| Average | Median | Average | Median | Clifton(2) | ||||||||||||||||
Financial Data and Ratios | ||||||||||||||||||||
Assets ($ 000) | $ | 1,634,264 | $ | 1,350,869 | $ | 899,153 | $ | 802,198 | $ | 1,554,521 | ||||||||||
Tangible Equity/Assets (%) | 12.62 | % | 10.81 | % | 11.35 | % | 10.65 | % | 18.39 | % | ||||||||||
Return on Average Assets (%) | 0.73 | 0.75 | 0.60 | 0.61 | 0.42 | |||||||||||||||
Return on Average Equity (%) | 5.48 | 5.61 | 4.90 | 5.39 | 2.10 | |||||||||||||||
Non-Performing Assets/Assets (%) | 1.24 | 1.11 | 1.19 | 1.18 | 0.32 | |||||||||||||||
Deal Value and Pricing Ratios(3) | ||||||||||||||||||||
Deal Value ($ Millions) | $ | 325.40 | $ | 260.00 | $ | 149.20 | $ | 136.70 | $ | 407.20 | ||||||||||
Price/Tangible Book (%) | 166.92 | % | 165.30 | % | 149.21 | % | 136.89 | % | 140.80 | % | ||||||||||
Price/Earnings (x) | 21.12 | x | 22.44 | x | 27.31 | x | 27.38 | x | 62.93 | x | ||||||||||
Tang. Book Premium/Deposits (%) | 10.62 | % | 10.59 | % | 8.02 | % | 6.72 | % | 19.58 | % | ||||||||||
The average and median pricing multiples (price/tangible book value multiple, price/earnings multiple and core deposit premium multiple) of the nationwide transactions group and regional transactions group were applied to Clifton’s actual financial measures as of or for the last twelve months through September 30, 2017 and budgeted earnings for the 12 months ending June 30, 2018 (tangible book value, core and budgeted earnings and core deposits) to derive a valuation range before adjustments. The resulting values indicated by the comparable transactions indicated a range of value of $7.58 per share to $20.38 per share. RP Financial concluded with a valuation range of $15.00 per share to $19.00 per share pursuant to the comparable transactions approach after taking into consideration, among other things, Clifton’s lower return on assets and return on equity relative to both the nationwide transactions group and regional transactions group average and median values. In addition, RP Financial considered Clifton’s high tangible equity/assets ratio as acquirers are typically unwilling to pay a premium on capital materially in excess of industry norms for community banks and thrifts. Overall, the value of the merger consideration implied by the exchange ratio of $18.25 per share was at the upper end of the $15.00 to $19.00 per share value range derived pursuant to the comparable transactions approach.
Control Premium Analysis. In the control premium analysis, RP Financial applied a multiple to thepre-announcement fair market value or trading value of an acquisition target’s common stock at various points in time (one week and one month prior to announcement) to derive a sale of control value for a share of the acquisition target’s stock. It is atwo-step process.
First the fair market value of a minority ownership position (i.e.,non-controlling) of Clifton common stock was estimated based on a peer group of comparable publicly-traded companies. Then a multiple was applied to the fair market value and the trading value of Clifton common stock based on control premium multiples paid in comparable transactions.
The fair market value of Clifton common stock was based on the trading multiples of a peer group of comparable publicly-traded institutions. The peer group consisted of a group of publicly-traded (listed on the NASDAQ Stock Market or the New York Stock Exchange) thrift holding companies where the principal operating subsidiary was a thrift with total assets of between $1 billion and $5 billion and which were profitable on a trailing twelve month basis through June 30, 2017, had tangible equity/tangible assets ratios greater than 12% andnon-performing assets/total assets ratios less than 3%. There were a total of 9 institutions included in the peer group as follows:
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RP Financial compared the financial condition and recent performance of Clifton to the median financial conditions and recent performance measures of the peer group, as displayed in the table on the following below.
| Peer Group | ||||||||||||
| Average | Median | Clifton(1) | ||||||||||
Financial Data and Ratios | ||||||||||||
Assets ($ 000) | $ | 2,567,036 | $ | 1,924,115 | $ | 1,554,521 | ||||||
Tangible Equity/Assets (%) | 15.48 | % | 15.47 | % | 18.39 | % | ||||||
Return on Average Assets (%) | 0.91 | 0.91 | 0.42 | |||||||||
Return on Average Equity (%) | 5.85 | 6.81 | 2.10 | |||||||||
Non-Performing Assets/Assets (%) | 0.65 | 0.57 | 0.32 | |||||||||
Market Capitalization and Pricing Ratios(2) | ||||||||||||
Market Capitalization ($ 000) | $ | 551,353 | $ | 549,968 | $ | 319,942 | ||||||
Price/Tangible Book (%) | 141.32 | % | 141.46 | % | 111.90 | % | ||||||
Price/Earnings (x) | 22.96 | x | 21.19 | x | 46.12 | x | ||||||
Relative to the peer group, RP Financial made qualitative valuation adjustments to account for differences between Clifton and the peer group from a valuation standpoint including, but not limited to, downward valuation adjustments for Clifton’s smaller asset size, higher tangible equity/tangible assets ratio, lower return on average assets and return on average equity ratio and an upward valuation adjustment for credit quality. RP Financial concluded with a public equivalent value for Clifton equal to $14.50 per share.
Second, a control premium analysis, which involved applying a control premium to the estimated peer group based trading value of Clifton stock of $14.50, was applied by RP Financial. The control premium was applied to the $14.50 per share as well as to the actual trading value of Clifton stock as of October 31, 2017, which equaled $17.03 per share (Clifton’s stock traded on the NASDAQ Market) to arrive at a range of sale of control values under this approach. The control premium applied was the median of the1-week,1-month and3-month premiums paid over the trading value of the stock (i.e., acquisition price at announcement divided by price of target1-week,1-month and3-months prior to announcement date involving selling institutions with total assets between $1 billion and $5 billion that announced a transaction over the period from October 21, 2016 through October 20, 2017). The control premiums ranged from 14% to 30% relative to thepre-announcement trading prices
Applying this premium to the fair market value of Clifton’s stock that RP Financial derived based on the peer group-based valuation of $14.50 per share resulted in a sale of control valuation range of $16.55 to $18.85 per share. The value of the merger consideration as of October 31, 2017, implied by the exchange ratio, was within the range of value indicated pursuant to the control premium approach.
Discounted Cash Flow Analysis. RP Financial evaluated the value per share of the current offer to the implied value of Clifton’s current business plan under two alternative scenarios. Pursuant to the application of the discounted cash flow approach, RP Financial measured the present value per share of future dividends and the terminal value to Clifton’s current stockholders, based on financial data as of September 30, 2017, and shares outstanding of 22,064,768, for a five year period through September 30, 2022, under the two alternative operating scenarios.
The first scenario was based on Clifton’s internal budget through September 30, 2019. Projected earnings and asset growth estimates for the period from September 30, 2019 to September 30, 2022, were derived based on information provided by management of Clifton to RP Financial, under the assumption that Clifton would remain an independent financial institution.
The discounted cash flow analysis pursuant to the first scenario incorporated the following assumptions:
This first scenario was based on Clifton management’s belief and projections regarding its long term earnings, assets and other growth targets. RP Financial also considered a second scenario based upon information provided by and discussed with Clifton’s management using assumptions focusing on potential adverse conditions such as business plan execution risk attributable to regulatory, competitive interest rate and a variety of other internal and external factors which could individually or in the aggregate negatively or positively impact Clifton’s ability to achieve the projected financial results. Accordingly, RP Financial considered a second operating scenario.
The second scenario incorporated into the discounted cash flow analysis is based on Clifton’s internal budget through September 30, 2019 and projected earnings and asset growth estimates for the period from September 30, 2019 to September 30, 2022. The second scenario reflects lower earnings and asset growth assumptions relative to the assumptions incorporated into the first scenario and was undertaken in consultation with and based on information provided by management of Clifton.
The discounted cash flow analysis pursuant to the second scenario incorporated the following assumptions:
The discounted cash flow analyses reflected the following valuation and discount rate assumptions:
The present per share value generated by the discounted cash flow under these assumptions ranged from $12.30 per share to $15.78 per share in the first scenario and $11.98 to $15.38 per share in the second scenario. The value of the merger consideration as of October 31, 2017, implied by the exchange ratio exceeded the range of value indicated pursuant to the discounted cash flow approach.
Pro Forma Impact Analysis. Since the merger consideration consists solely of Kearny common stock, RP Financial considered the estimated pro forma impact of the merger on Kearny’s financial condition, operating results and stock pricing ratios. Based on, among other things, estimated transaction costs, restructuring charges and cost saves, RP Financial estimated the merger to be approximately 3% dilutive to Kearny’s tangible book value per share. In addition, RP Financial estimated the merger to be accretive to Kearny’s pro forma earnings per share within the first year of completing the merger, assuming incorporation of certain anticipated merger synergies and core earnings estimates for Clifton. RP Financial further considered that the merger will increase Kearny’s market capitalization and shares outstanding. Furthermore, RP Financial considered the increased asset size, competitive profile and geographic footprint of Kearny on a pro forma basis. RP Financial also considered the pro forma impact of the merger on Kearny’s per share data and pricing ratios based on Kearny’spre-announcement trading price. RP Financial further considered other benefits of the merger to Clifton’s stockholders, including but not limited to, the potential for increased liquidity of the stock for Clifton’s stockholders given Kearny’s larger size, greater market capitalization, greater number of shares outstanding, and greater liquidity of Kearny’s common stock on a post- acquisition basis. Moreover, RP Financial considered the enhanced ability to pursue growth within the expanded market area and expanded management team. In comparing the pro forma impact of the merger, RP Financial also took into consideration that, following the merger, Clifton’s stockholders will own approximately 24% of the common stock in Kearny and that three directors of Clifton, including its Chairman and Chief Executive Officer, will serve on the board of directors of both Kearny Bank and Kearny following the closing of the merger.
In addition to the above analyses and other factors considered, RP Financial considered and evaluated the operating history of Clifton, the historical trading activity and trading price of Clifton common stock, and the national, regional and local risks that could both negatively and positively impact Clifton’s future operations on a stand-alone basis. RP Financial’s opinion and presentation to the Clifton board of directors was one of many factors taken into consideration by the Clifton board of directors in making its determination to approve the merger agreement. Although the foregoing summary describes the material components of the analyses presented by RP Financial to the Clifton board of directors in anticipation of issuing the November 1, 2017 opinion, it does not purport to be a complete description of all the analyses performed by RP Financial and is qualified by reference to the written opinion of RP Financial set forth asAnnex B, which Clifton stockholders are urged to read in its entirety.
RP Financial Background and Experience. RP Financial, as part of its financial institution valuation and financial advisory practice, is regularly engaged in the valuation of federally-insured depository institution securities in connection with mergers and acquisitions, initial and secondary stock offerings, and business valuations for financial institutions for other purposes. As specialists in the valuation of securities and providing financial advisory services to insured financial institutions, RP Financial has experience in, and knowledge of, the markets for the securities of such institutions nationwide.
Kearny’s Reasons for the Merger
Kearny’s board of directors believes that the merger is in the best interests of Kearny and its stockholders. In deciding to approve the merger and the merger agreement, Kearny’s board of directors considered a number of factors, including:
Kearny’s board of directors also considered a number of potential risks and uncertainties associated with the merger in connection with its deliberation of the merger, including, without limitation, the following:
The foregoing discussion of the information and factors considered by Kearny’s board of directors is not intended to be exhaustive, but includes the material factors considered by Kearny’s board of directors. In reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, Kearny’s board of directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. Kearny’s board of directors considered all these factors as a whole, with the assistance of Kearny’s management and Kearny’s outside financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination.
Recommendation of Kearny’s Board of Directors
Kearny’sMSB’s board of directors has unanimously approved the merger agreement and the merger and unanimously recommends that Kearny stockholdersyou vote “FOR” the approval of the merger agreement and the merger.
Opinion of Kearny’sMSB’s Financial Advisor
KearnyMSB engaged Keefe, Bruyette & Woods,FinPro Capital Advisors, Inc. to renderact as its financial advisoryadvisor in connection with its merger and investment banking servicesacquisition activities. FCA was also engaged to Kearny, including anprovide its opinion to the Kearny board of directors as to the fairness, from a financial point of view, to KearnyMSB stockholders, of the exchange ratioconsideration as proposed in the proposed merger. Kearny selected KBW because KBW is a nationally recognized investment banking firm with substantial experiencemerger agreement, to be received by MSB’s common equity stockholders in transactions similar to the merger. As part of its investment banking business, KBWFCA is continuallyregularly engaged in the valuation of financial services businessesinstitutions and their securities in connection with mergers and acquisitions.
As partacquisitions and other corporate transactions. MSB selected FCA because of its engagement, representativesknowledge of, KBW attendedexperience with, and reputation in the meetingfinancial services industry.
MSB’s Board of Directors considered and approved the Kearny boardmerger agreement at a Board of Directors meeting held on November 1, 2017 at which the Kearny board evaluated the proposed merger. At this meeting, KBW reviewed the financial aspects of the proposed merger and rendered an opinionDecember 17, 2019. FCA delivered to the Kearny boardBoard of directorsDirectors a fairness opinion presentation concluding that the merger consideration was fair to MSB stockholders from a financial point of view.
The full text of FCA’s written opinion is attached asAnnex B to this proxy statement/prospectus and is incorporated herein by reference.
MSB stockholders are urged to read the effect that, asopinion in its entirety for a description of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW as set forth in such opinion, the exchange ratio in the proposed merger was fair, from a financial point of view, to Kearny. The Kearny board approved the merger agreement at this meeting.FCA.
The description of the opinion set forth herein is qualified in its entirety by reference to the full text of the opinion, which is attached asAnnex C to this document and is incorporated herein by reference, and describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW in preparing the opinion.
KBW’sFCA’s opinion speaks only as of the date of thesuch opinion. TheFCA’s opinion was for the information of, and was directed to, the Kearny board (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion addressedaddresses only the fairness, from a financial point of view, of the exchange ratioconsideration offered in the merger to Kearny.merger. It diddoes not address the underlying business decision of Kearny to engage in the merger or enter into the merger agreement or constitute a recommendation to the Kearny board in connectionproceed with the merger and it does not constitute a recommendation to any holder of Kearny common stock or anyMSB stockholder of any other entity as to how tothe stockholder should vote in connection withat the MSB special meeting on the merger agreement or any other matter, nor does it constitute a recommendation as to whether or not any such stockholder should enter into a voting, stockholders’, affiliates’ or other agreement with respect to the merger or exercise any dissenters’ or appraisal rights that may be available to such stockholder.
KBW’s opinion was reviewed and approved by KBW’s Fairness Opinion Committee in conformity with its policies and procedures established under the requirements of Rule 5150 of the Financial Industry Regulatory Authority.related matter.
In connection with therendering its opinion, KBW reviewed, analyzed and relied upon material bearing upon the financial and operating condition of Kearny and Clifton and bearing upon the merger, including,FCA considered among other things:
The merger agreement, dated October 25, 2017 (the most recent draft then made available to KBW);agreement;
The most recentyear-end andquarter-end audited and unaudited financial statements for each of MSB and the Annual Reports on Form10-K for the three fiscal years ended June 30, 2017 of Kearny;
Certain other public and preliminarynon-public information regarding each of MSB and Kearny relating to the business, earnings, cash flow, assets, liabilities and prospects of each, including among other things, (a) internal financial results for the quarter ended September 30, 2017 of Kearny (provided to KBW by representatives of Kearny);
KBW’s consideration of financial information and other factors that it deemed appropriate under the circumstances or relevant to its analyses included, among others, the following:
Reverse due diligence conducted on Kearny;
The sales process MSB undertook with the consent of the Kearny board.
KBW also performed such other studies and analyses as it considered appropriate and took into account its assessment of general economic, market and financial conditions and its experience in other transactions, as wellFCA as its experience in securities valuationadvisor;
The trading and knowledgemerger market for bank and thrift stocks;
Acquisition multiples of comparable institutions;
The potential investment value of MSB’s shares; and
The ability for Kearny to execute on the banking industry generally. KBW also participated in discussions that were heldproposed transaction, including analyses and forecasts of certain cost savings and other synergies expected by management of MSB and Kearny, discussed with management of MSB and Kearny’s financial advisor, to result from the managements of Kearny and Clifton regarding the past and current business operations, regulatory relations, financial condition and future prospects of their respective companies and such other matters as KBW deemed relevant to its inquiry.merger.
In conductingperforming its review and arriving atin rendering its opinion, KBWFCA has relied upon the completeness and assumed the accuracy and completeness of all of the financial and other information that was available to it from public sources, that was provided to it by MSB and Kearny, or their representatives, or that was publicly availableotherwise reviewed by FCA, and didhas assumed such completeness and accuracy for purposes of rendering its opinion. FCA has further relied on the assurances of management of MSB that they are not independently verify the accuracy or completenessaware of any facts or circumstances not within the actual knowledge of FCA, as the case may be, that would make any of such information inaccurate or misleading. FCA has not been asked to verify and has not undertaken any independent verification of such information, and FCA does not assume any responsibility or liability for such verification,the completeness and accuracy thereof. FCA has not made an independent evaluation or completeness. KBW relied upon the management of Kearny as to the reasonableness and achievabilityappraisal of the publicly available consensus “street estimates”specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of CliftonMSB, Kearny, or any subsidiaries, or the collectability of any such assets, nor has FCA been furnished with any such evaluations or appraisals. FCA has not made any independent evaluation of the adequacy of the allowance for loan losses of MSB or Kearny, nor has FCA reviewed any individual credit files, and FCA has assumed that the respective allowance for loan losses for each of MSB and Kearny (in each case as adjusted as referred to above),is adequate. Without limiting the assumed long-term growth rates of Clifton and Kearny, and the estimates regarding certain pro forma financial effectsgenerality of the merger on Kearny (including, without limitation,foregoing, for the cost savingspurpose of its analyses and related expenses expectedopinion, FCA assumed that with respect to result or be derived from the merger), all as referred to above, as well as the assumptions set forth infinancial forecasts, estimates and the bases for all such information. KBW assumed, at the direction of Kearny,other forward-looking information reviewed by FCA, that all of such information was reasonably prepared and represented, or in the case of the publicly available consensus “street estimates” of Clifton and Kearny referred to above that such estimates (as adjusted) were consistent with,based on assumptions reflecting the best currently available estimates and judgments of Kearnythe management of MSB as to the expected future results of operations and that the forecasts, projections and estimates reflected in such information would be realized in the amounts and in the time periods estimated.
It is understood that the portionfinancial condition of the foregoing financial information of Kearny and Clifton that was provided to KBW was not prepared with the expectation of public disclosure, that all of the foregoing financial information, including the publicly available consensus “street estimates” of Kearny and Clifton referred to above, was based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions and that, accordingly, actual results could vary significantly from those set forth in such information. KBW assumed, based on discussions with Kearny management and with the consent of the Kearny board, that all such information provided a reasonable basis upon which KBW could form its opinion and KBWMSB. FCA expressed no viewopinion as to any such financial forecasts, estimates or forward-looking information (including the synergies) or the assumptions or bases therefor. KBW relied on all such information without independent verification or analysis and did not in any respect assume any responsibility or liability for the accuracy or completeness thereof. Given
the substantial level of excess capital currently at both Clifton and Kearny and givenFCA also assumed, with MSB’s consent, that the publicly available consensus “street estimates” of Clifton and Kearny (in(i) each case as adjusted by Kearny management) and the assumed Clifton and Kearny long-term growth rates provided to KBW by Kearny management did not reflect the impact of the expected future deployment of such excess capital (the actual timing and amount of which deployment are subjectparties to substantial uncertainty), KBW did not rely upon a discounted cash flow analysis of either Clifton or Kearny.
KBW also assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of either Kearny or Clifton since the date of the last financial statements of each such entity that were made available to KBW and that KBW was directed to use. KBW is not an expert in the independent verification of the adequacy of allowances for loan and lease losses and KBW assumed, without independent verification and with Kearny’s consent, that the aggregate allowances for loan and lease losses for each of Kearny and Clifton are adequate to cover such losses. In rendering its opinion, KBW did not make or obtain any evaluations or appraisals or physical inspection of the property, assets or liabilities (contingent or otherwise) of Kearny or Clifton, the collateral securing any of such assets or liabilities, or the collectability of any such assets, nor did KBW examine any individual loan or credit files, nor did it evaluate the solvency, financial capability or fair value of Kearny or Clifton under any state or federal laws, including those relating to bankruptcy, insolvency or other matters. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Because such estimates are inherently subject to uncertainty, KBW assumed no responsibility or liability for their accuracy.
KBW assumed, in all respects material to its analyses, that:
KBW assumedin any respect that the merger would be consummated in a manner that complied with the applicable provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and all other applicable federal and state statutes, rules and regulations. KBW was further advised by representatives of Kearny that Kearny relied upon advice from its advisors (other than KBW) or other appropriate sources asmaterial to all legal, financial reporting, tax, accounting and regulatory matters with respect to Kearny, Clifton,FCA’s analyses, (iii) the merger and any related transaction (includingwould be consummated in accordance with the bank subsidiary merger), and the merger agreement. KBW did not provide advice with respect to any such matters.
KBW’s opinion addressed only the fairness, from a financial point of view, as of the date of such opinion, of the exchange ratio in the merger to Kearny. KBW expressed no view or opinion as to any other terms or aspects of the merger agreement without any waiver, modification or any term or aspectamendment of any related transaction (including the bank subsidiary merger), including without limitation, the formmaterial term, condition or structure of the merger or any such related transaction, any consequences of the merger to Kearny, its stockholders, creditors or otherwise, or any terms, aspects, merits or implications of any employment, retention, consulting, voting, support, cooperation, stockholder oragreement thereof and in compliance with all applicable laws and other agreements, arrangements or understandings contemplated or entered into in connection with the merger, any such related transaction, or otherwise. KBW’s opinion was necessarily based upon conditions as they existedrequirements, and could be evaluated on the date of such opinion and the information made available to KBW through such date. Developments subsequent to the date of KBW’s opinion may have affected, and may affect, the conclusion reached in KBW’s opinion and KBW did not and does not have an obligation to update, revise or reaffirm its opinion. For purposes of its analyses, KBW did not incorporate previously publicly-announced proposed changes to United States tax laws regarding corporate tax rates. KBW’s opinion did not address, and KBW expressed no view or opinion with respect to:
In performingFCA’s analyses and the views expressed in its analyses, KBW made numerous assumptions with respect to industry performance, general business,opinion were necessarily based on financial, economic, regulatory, market and financialother conditions as in effect on, and other matters, which are beyond the controlinformation made available to FCA as of, KBW, Kearny and Clifton. Any estimates contained in the analyses performed by KBW aredate of its opinion. Events occurring after the date of the opinion could materially affect FCA’s views. FCA has not necessarily indicativeundertaken to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring after the date thereof. FCA expressed no opinion as to the trading values of actual valuesMSB common stock after the date of its opinion or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates ofwhat the value of businesses or securities do not purport toKearny common stock will be appraisals or to reflect the prices at which such businesses or securities mightonce it is actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, the KBW opinion was among several factors taken into considerationreceived by the Kearny board in making its determination to approve the merger
agreement and the merger. Consequently, the analyses described below should not be viewed as determinativeholders of the decision of the Kearny board with respect to the fairness of the exchange ratio. The type and amount of consideration payable in the merger were determined through negotiation between Kearny and Clifton and the decision of Kearny to enter into the merger agreement was solely that of the Kearny board.MSB common stock.
The following is a summary of the material financial analyses presentedperformed by KBWFCA and presented to the Kearny board in connection with its opinion.MSB Board of Directors on December 17, 2019. The summary is not a complete description of all the financial analyses underlying the opinion or the presentation made by KBW to the Kearny board, but summarizes the material analyses performed and presented in connection with such opinion. The financial analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the financial analyses.FCA’s opinions. The preparation of a fairness opinion is a complex analytic process involving various determinationssubjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. FCA believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses considered, without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion. The financial analyses summarized below include information presented in a tabular format. In order to understand fully the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses.
No company included in FCA’s comparative analyses described below is identical to MSB or Kearny and no transaction is identical to the merger. An analysis of comparable companies or transactions involves complex considerations and
judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values or merger transaction values, as the case may be, of MSB and Kearny and the companies to which they are being compared. In arriving at its opinion, KBWFCA did not attribute any particular weight to any analysis or factor that it considered, but ratherconsidered. Rather, FCA made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, KBW believes thatFCA did not form an opinion as to whether any individual analysis or factor (positive or negative) considered in isolation supported or failed to support its opinion, rather, FCA made its determination as to the fairness of the merger consideration, from a financial perspective, to MSB shareholders on the basis of its experience and professional judgment after considering the results of all its analyses and the summary oftaken as a whole.
In performing its analyses, mustFCA also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which cannot be considered as a wholepredicted and that selecting portionsare beyond the control of MSB, Kearny, and FCA. The analyses performed by FCA are not necessarily indicative of actual values or future results, both of which may be significantly more or less favorable than suggested by such analyses. FCA prepared its analyses solely for purposes of rendering its opinion and factors or focusingprovided such analyses to the MSB board of directors at its December 17, 2019 meeting. Estimates on the information presented below in tabular format, without considering allvalues of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different. Accordingly, FCA’s analyses and factorsdo not necessarily reflect the value of MSB common stock or the full narrative descriptionprices at which MSB or Kearny common stock may be sold at any time. The analyses of FCA and its opinion were among a number of factors taken into consideration by the financial analyses, includingMSB board of directors in making its determination to approve the methodologiesmerger agreement and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion.
For purposes of the financial analyses described below KBW utilized an implied transaction value forshould not be viewed as determinative of the proposed mergerdecision of $400.6 million, or $17.92 per outstanding share of Clifton common stock, based on the 1.191x exchange ratio in the proposed merger and the closing price of Kearny common stock on October 31, 2017. In addition to the financial analyses described below, KBW reviewed with the KearnyMSB board of directors for informational purposes, among other things, implied transaction multiples foror management with respect to the proposed merger (based on the implied transaction value forfairness of the merger of $17.92 per outstanding share of Clifton common stock) of 47.9x Clifton’s estimated earnings per share (“EPS”) correspondingconsideration to Kearny’s fiscal year ending June 30, 2018 and 41.7x Clifton’s estimated EPS corresponding to Kearny’s fiscal year ending June 30, 2019 using publicly available EPS consensus “street estimates” of Clifton (giving effect to certain adjustments provided by Kearny management regarding the number of diluted shares of Clifton common stock) as well as assumed Clifton long-term growth rates provided to KBW by Kearny management.MSB stockholders.
Kearny Selected Companies AnalysisMarket Value Approach (Acquisition Comparables).. Using publicly available information, KBW compared the financial performance, financial condition and market performance of Kearny to 11 selected banks and thrifts that were listed on NASDAQ, the New York Stock Exchange or NYSE MKT and headquartered in theMid-Atlantic or Northeast United States with total assets between $1.0 billion and $10.0 billion, latest twelve months (“LTM”) core return on average assets less than 1%, and tangible common equity / tangible assets ratio greater than 10%. Merger targets and mutual holding companies were excluded from the selected companies.
The selected companies were as follows:
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To perform this analysis, KBW used profitability and other financial information for the LTM period available (which in the case of Kearny and Clifton were the twelve months ended September 30, 2017 as provided by Kearny management and Clifton management, respectively) or as of the end of such LTM period
and market price information as of October 31, 2017. KBW also used EPS estimates taken from consensus “street estimates” for Kearny and the selected companies, giving effect to certain adjustments provided by Kearny management regarding the number of diluted shares in the case of Kearny and Clifton. Where consolidated holding company level financial data for the selected companies was unreported, subsidiary bank level data was utilized to calculate ratios. Certain financial data prepared by KBW, as referenced in the tables presented below, may not correspond to the data presented in Kearny’s historical financial statements, or the data prepared by RP Financial presented under the section “ — RP Financial’s Opinion to Clifton’s Board of Directors,” as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented.
KBW’s analysis showed the following concerning the financial performance of Kearny and the selected companies:
| Selected Companies | ||||||||||||||||||||
| Kearny | Bottom Quartile | Average | Median | Top Quartile | ||||||||||||||||
LTM Core Return on Average Assets (%)(1) | 0.40 | 0.52 | 0.67 | 0.78 | 0.80 | |||||||||||||||
LTM Core Return on Average Equity (%)(1) | 1.79 | 3.67 | 5.46 | 5.38 | 6.75 | |||||||||||||||
LTM Net Interest Margin (%) | 2.43 | 2.93 | 3.08 | 3.07 | 3.27 | |||||||||||||||
LTM Fee Income / Revenue Ratio(2) | 10.20 | 7.80 | 13.20 | 8.70 | 15.40 | |||||||||||||||
LTM Efficiency Ratio (%) | 71.50 | 73.50 | 66.20 | 66.00 | 56.50 | |||||||||||||||
KBW’s analysis also showed the following concerning the financial condition of Kearny and the selected companies:
| Selected Companies | ||||||||||||||||||||
| Kearny | Bottom Quartile | Average | Median | Top Quartile | ||||||||||||||||
Tangible Common Equity / Tangible Assets (%) | 19.27 | 10.99 | 13.67 | 12.35 | 15.35 | |||||||||||||||
Total Risk Based Capital Ratio (%) | 28.58 | 14.31 | 19.48 | 16.74 | 21.79 | |||||||||||||||
Loans / Deposits (%) | 110.00 | 101.00 | 102.00 | 105.00 | 115.00 | |||||||||||||||
Loan Loss Reserve / Gross Loans (%) | 0.90 | 0.65 | 0.84 | 0.83 | 0.98 | |||||||||||||||
Nonperforming Assets / Loans + OREO (%) | 0.63 | 1.32 | 1.10 | 0.84 | 0.60 | |||||||||||||||
LTM NetCharge-Offs / Average Loans (%) | 0.01 | 0.13 | 0.07 | 0.03 | — | |||||||||||||||
In addition, KBW’s analysis showed the following concerning the market performance of Kearny and the selected companies (excluding the impact of the LTM EPS multiple for one of the selected companies, which multiple was considered to be not meaningful because it was greater than 75.0x):
| Kearny | Selected Companies | |||||||||||||||||||
| Bottom Quartile | Average | Median | Top Quartile | |||||||||||||||||
One–Year Stock Price Change (%)(1) | 7.90 | 15.40 | 37.80 | 28.50 | 43.60 | |||||||||||||||
Year-to-Date (“YTD”) Stock Price Change (%)(1) | (3.20 | ) | (4.40 | ) | 6.30 | 7.50 | 12.40 | |||||||||||||
Stock Price / Tangible Book Value per Share (x) | 1.36 | 1.38 | 1.57 | 1.48 | 1.65 | |||||||||||||||
Stock Price / 2017 Estimated EPS (x) | 68.40 | (2) | 20.90 | 33.40 | 25.10 | 38.10 | ||||||||||||||
Stock Price / 2018 Estimated EPS (x) | 62.20 | (3) | 17.90 | 27.80 | 24.70 | 33.60 | ||||||||||||||
Dividend Yield (%)(4) | 0.80 | 0.30 | 1.10 | 1.10 | 1.70 | |||||||||||||||
LTM Dividend Payout Ratio (%)(4) | 55.00 | 6.00 | 32.00 | 24.00 | 49.00 | |||||||||||||||
No company used as a comparison in the above selected companies analysis is identical to Kearny. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.
Clifton Selected Companies Analysis. Using publicly available information, KBW compared the financial performance, financial condition and market performance of Clifton to 15 selected banks that were listed on NASDAQ, the New York Stock Exchange or NYSE MKT and headquartered in theMid-Atlantic or Northeast United States with total assets between $500 million and $5.0 billion, LTM core return on average assets less than 1%, and tangible common equity / tangible assets ratio greater than 10%. Merger targets and mutual holding companies were excluded from the selected companies.
The selected companies were as follows:
To perform this analysis, KBW used profitability and other financial information for the LTM period available (which in the case of Clifton and Kearny were the twelve months ended September 30, 2017 as provided by Clifton management and Kearny management, respectively) or as of the end of such LTM period and market price information as of October 31, 2017. KBW also used EPS estimates taken from consensus “street estimates” for Clifton and the selected companies, to the extent publicly available (consensus “street” estimates were not publicly available for six of the selected companies) and giving effect to certain adjustments provided by Kearny management regarding the number of diluted shares in the case of Clifton and Kearny. Where consolidated holding company level financial data for the selected companies was unreported, subsidiary bank level data was utilized to calculate ratios. Certain financial data prepared by KBW, as referenced in the tables presented below, may not correspond to the data presented in Clifton’s historical financial statements, or the data prepared by RP Financial presented under the section “— RP Financial’s Opinion to Clifton’s Board of Directors,” as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented.
KBW’s analysis showed the following concerning the financial performance of Clifton and the selected companies:
| Selected Companies | ||||||||||||||||||||
| Clifton | Bottom Quartile | Average | Median | Top Quartile | ||||||||||||||||
LTM Core Return on Average Assets (%)(1) | 0.42 | 0.40 | 0.49 | 0.49 | 0.72 | |||||||||||||||
LTM Core Return on Average Equity (%)(1) | 2.11 | 2.51 | 3.98 | 3.81 | 5.09 | |||||||||||||||
LTM Net Interest Margin (%) | 2.28 | 2.84 | 3.04 | 3.08 | 3.22 | |||||||||||||||
LTM Fee Income / Revenue Ratio(2) | 7.40 | 7.30 | 16.90 | 12.70 | 23.00 | |||||||||||||||
LTM Efficiency Ratio (%) | 66.00 | 78.60 | 73.50 | 76.60 | 66.10 | |||||||||||||||
KBW’s analysis also showed the following concerning the financial condition of Clifton and the selected companies:
| Selected Companies | ||||||||||||||||||||
| Clifton | Bottom Quartile | Average | Median | Top Quartile | ||||||||||||||||
Tangible Common Equity / Tangible Assets (%) | 18.39 | 10.89 | 13.55 | 13.84 | 15.13 | |||||||||||||||
Total Risk Based Capital Ratio (%) | 32.23 | 14.95 | 19.08 | 16.86 | 21.35 | |||||||||||||||
Loans / Deposits (%) | 125.00 | 87.00 | 99.00 | 105.00 | 110.00 | |||||||||||||||
Loan Loss Reserve / Gross Loans (%) | 0.64 | 0.66 | 0.82 | 0.83 | 0.92 | |||||||||||||||
Nonperforming Assets / Loans + OREO (%) | 0.32 | 2.70 | 1.90 | 1.71 | 0.95 | |||||||||||||||
LTM NetCharge-Offs / Average Loans (%) | 0.01 | 0.13 | 0.12 | 0.02 | — | |||||||||||||||
In addition, KBW’s analysis showed the following concerning the market performance of Clifton and, to the extent available, the selected companies (excluding the impact of the LTM EPS multiples for four of the selected companies, the 2017 EPS multiples for two of the selected companies and the 2018 EPS multiple for one of the selected companies, which multiples were considered to be not meaningful because they were either less than 0.0x or greater than 75.0x):
| Selected Companies | ||||||||||||||||||||
| Clifton | Bottom Quartile | Average | Median | Top Quartile | ||||||||||||||||
One–Year Stock Price Change (%) | 11.40 | 8.00 | 33.10 | 26.70 | 43.60 | |||||||||||||||
YTD Stock Price Change (%) | 0.70 | (1.70 | ) | 8.20 | 8.90 | 15.00 | ||||||||||||||
Stock Price / Tangible Book Value per Share (x) | 1.31 | 1.15 | 1.35 | 1.32 | 1.43 | |||||||||||||||
Stock Price / LTM EPS (x) | 56.80 | 23.10 | 35.00 | 27.10 | 40.50 | |||||||||||||||
Stock Price / 2017 EPS Estimate (x) | 68.10 | (1) | 21.70 | 36.70 | 26.10 | 49.70 | ||||||||||||||
Stock Price / 2018 EPS Estimate (x) | 45.50 | (2) | 18.00 | 32.20 | 27.40 | 41.10 | ||||||||||||||
Dividend Yield (%)(3) | 1.40 | — | 0.60 | — | 1.00 | |||||||||||||||
LTM Dividend Payout Ratio (%)(3) | 80.00 | — | 21.00 | — | 47.00 | |||||||||||||||
No company used as a comparison in the above selected companies analysis is identical to Clifton. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.
Selected Transactions Analysis. KBW FCA reviewed publicly available information related to 24 selected whole bank transactions in the United States announced since January 1, 2016 with announced deal values between $100 million and $700 million andMSB’s geographic region. The financial performance metrics of the acquired companies’ tangible common equity / tangible assets ratios greater than 10%. Terminated transactions andmerger-of-equals transactionscompanies were excluded fromcompared to MSB’s most recent publicly available financials. Multiples for the Kearny/MSB transaction were analyzed relative to a comparable transaction group selected transactions. The selected transactions were as follows:by FCA. A regional comparable acquisition group was used for the market value approach. FCA considered the following pricing multiples:
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For each selected transaction, KBW derived the following implied transaction statistics, in each case based on the transaction consideration valuePrice/Tangible Book Value: price per common share paid for the acquired company and using financial data based on the acquired company’s then latest publicly available financial statements prior to the announcement of the acquisition:
Price/LTM (last twelve months) Earnings: price per common share paid for the acquired company this transaction statistic was calculated as total transaction consideration divided by totalto last twelve months earnings per share of the acquired company based on the latest publicly available financial statements of the company available prior to the announcement of the acquisition;
Core Deposit Premium: (excess of purchase price over tangible common equity);
KBW also reviewed the price per share paid for the acquired company for the 13 selected transactions in which the acquired company was publicly traded as a premium to the closing price of the acquired company one
dayavailable prior to the announcement of the respectiveacquisition.
Comparable Regional Group.FCA used the following criteria to determine the Comparable Regional Group: Whole bank transactions announced after January 1, 2019, where the acquired company was headquartered in theMid-Atlantic and Northeast regions, where the acquired company had total assets between $250 million and $1.0 billion. The following transaction (expressedtypes were excluded from the analysis: transactions where the acquired company was structured as a percentage and referred to as theone-day market premium). mutual or MHC.
The above transaction statistics for the selected transactions were compared with the corresponding transaction statistics for the proposed merger based on the implied transaction value for the proposed merger of $400.6 million and using historical financial information for Clifton as of or for the 12 months ended September 30, 2017 provided by Clifton management.were:
Acquirer’s Full Name | Seller’s Full Name | Seller’s City, State | ||
Fidelity D & D Bancorp, Inc. | MNB Corporation | Bangor, PA | ||
Cambridge Bancorp | Wellesley Bancorp, Inc. | Wellesley, MA | ||
Centreville Bank | PB Bancorp, Inc. | Putnam, CT | ||
Community Bank System, Inc. | Steuben Trust Corporation | Hornell, NY | ||
Citizens Financial Services, Inc. | MidCoast Community Bancorp, Inc. | Wilmington, DE | ||
ConnectOne Bancorp, Inc. | Bancorp of New Jersey, Inc. | Fort Lee, NJ | ||
OceanFirst Financial Corp. | Country Bank Holding Company, Inc. | New York, NY | ||
Investors Bancorp, Inc. | Gold Coast Bancorp, Inc. | Islandia, NY | ||
ACNB Corporation | Frederick County Bancorp, Inc. | Frederick, MA | ||
1st Constitution Bancorp | Shore Community Bank | Toms River, NJ | ||
Columbia Financial, Inc. (MHC) | Stewardship Financial Corporation | Midland Park, NJ | ||
Liberty Bank | SBT Bancorp, Inc. | Weatogue, CT | ||
Community Bank System, Inc. | Kinderhook Bank Corp. | Kinderhook, NY |
The results of the analysis are set forth in the following table (excluding the impact of the LTM EPS multiple for one of the selected transactions, which multiple was considered to be not meaningful because it was greater than 75.0x):table:
| Selected Transactions | ||||||||||||||||||||
Transaction Price to | Kearny /Clifton | Bottom Quartile | Average | Median | Top Quartile | |||||||||||||||
Tangible Book Value (x) | 1.38 | 1.37 | 1.63 | 1.68 | 1.83 | |||||||||||||||
Core Deposit Premium (%) | 18.70 | 6.00 | 10.70 | 11.70 | 13.90 | |||||||||||||||
Core LTM EPS (x)(1) | 59.70 | 16.50 | 24.50 | 23.10 | 32.40 | |||||||||||||||
One Day Market Premium (%) | 5.30 | 10.40 | 23.20 | 15.80 | 25.70 | |||||||||||||||
| Regional Comparable Transactions(1) | ||||||||||||||||
| Comparison | MSB / Kearny | 25th Percentile | Median | 75th Percentile | ||||||||||||
Transaction Pricing at Announcement | ||||||||||||||||
Price/LTM Earnings (x) | 23.0 | 15.4 | 17.3 | 21.0 | ||||||||||||
Price/Tang. Book Value (%) | 147.2 | 145.3 | 162.3 | 170.5 | ||||||||||||
Core Deposit Premium (%)(2) | 8.3 | 6.9 | 8.2 | 9.5 | ||||||||||||
Target’s Financials at Announcement | ||||||||||||||||
Total Assets ($, in millions) | 591,253 | 442,421 | 572,323 | 783,352 | ||||||||||||
Tang. Equity/Tang. Assets (%) | 10.86 | 8.08 | 9.04 | 10.27 | ||||||||||||
NPAs/Assets (%)(3) | 2.07 | 0.46 | 0.62 | 1.02 | ||||||||||||
LTM ROAA (%) | 0.71 | 0.69 | 0.83 | 0.94 | ||||||||||||
LTM ROAE (%) | 6.24 | 7.54 | 9.95 | 11.08 | ||||||||||||
Asset Growth (%)(4) | 0.15 | 2.39 | 4.25 | 5.69 | ||||||||||||
Deposit Growth (%)(4) | 8.79 | 1.94 | 4.85 | 5.68 | ||||||||||||
| (1) | Source: SNL |
| (2) | Core Deposit Premium calculated as (Deal Value – Tangible Equity) / (Core Deposits). Core deposits defined as total deposits less time deposits >$100,000. |
| (3) | Balances include all performing TDRs. |
| (4) | Most recent reported data relative to prior year. |
No company
Below is the full table and financial multiples and metrics that are shown above utilizing the 25th percentile, median and 75th percentile for the Regional Comparable Transactions:
| Transaction Pricing at Announcement | Target’s Financials at Announcement | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transaction Name | Target City | Target State | Announce Date | Deal ($mil) | Price/ Earnings | Price/ Tangible Book Value (%) | Franchise Core | Total ($000s) | Tang. Tang. (%) | NPAs/ (%) | ALLL/ (%) | LTM (%)(1) | LTM ROAE (%)(1) | Asset Growth (%)(2) | Deposit (%)(2) | |||||||||||||||||||||||||||||||||||||||||||||||
| 1 | Fidelity D & D / MNB Corp. | Bangor | PA | 12/10/19 | 78.7 | 21.0 | 200.4 | 11.56 | 412,770 | 9.51 | 0.53 | 126.81 | 0.94 | 10.79 | 4.25 | 5.75 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2 | Cambridge Bancorp / Wellesley Bancorp | Wellesley | MA | 12/5/19 | 119.8 | 17.4 | 158.5 | 7.89 | 985,867 | 7.28 | 0.17 | NA | 0.70 | 9.48 | 13.13 | 5.68 | ||||||||||||||||||||||||||||||||||||||||||||||
| 3 | Centreville Bank / PB Bancorp | Putnam | CT | 10/22/19 | 115.5 | 25.4 | 145.3 | NA | 538,030 | 14.72 | 1.20 | 58.85 | 0.82 | 5.09 | 3.39 | 4.90 | ||||||||||||||||||||||||||||||||||||||||||||||
| 4 | Community Bank System / Steuben Trust | Hornell | NY | 10/21/19 | 108.6 | 15.4 | 170.5 | 11.50 | 576,601 | 11.05 | 0.55 | 517.24 | 1.25 | 11.96 | 4.63 | 4.85 | ||||||||||||||||||||||||||||||||||||||||||||||
| 5 | Citizens Financial / MidCoast Community | Wilmington | DE | 9/18/19 | 29.9 | 12.2 | 117.1 | 2.90 | 268,546 | 9.51 | 0.17 | 466.44 | 0.97 | 9.85 | 10.99 | 9.90 | ||||||||||||||||||||||||||||||||||||||||||||||
| 6 | ConnectOne Bancorp / Bancorp of New Jersey | Fort Lee | NJ | 8/16/19 | 113.4 | 19.6 | 122.0 | 4.62 | 924,718 | 10.01 | 1.42 | 72.25 | 0.65 | 6.56 | 4.64 | 3.43 | ||||||||||||||||||||||||||||||||||||||||||||||
| 7 | OceanFirst Financial / Country Bank Hold Co. | New York | NY | 8/9/19 | 102.2 | 9.8 | 151.0 | 7.50 | 783,352 | NA | 1.00 | NA | NA | NA | 7.53 | 6.93 | ||||||||||||||||||||||||||||||||||||||||||||||
| 8 | Investors Bancorp / Gold Coast Bancorp | Islandia | NY | 7/24/19 | 63.6 | 25.1 | 134.9 | 5.05 | 572,323 | 8.07 | 0.00 | NA | 0.45 | 5.65 | 2.85 | 1.94 | ||||||||||||||||||||||||||||||||||||||||||||||
| 9 | ACNB Corp. / Frederick County Bancorp | Frederick | MD | 7/2/19 | 62.3 | 21.8 | 162.7 | 8.29 | 442,421 | 8.18 | 0.46 | 203.20 | 0.65 | 7.87 | 5.69 | 5.67 | ||||||||||||||||||||||||||||||||||||||||||||||
| 10 | 1st Constitution / Shore Community Bank | Toms River | NJ | 6/24/19 | 53.1 | 13.2 | 162.3 | 10.70 | 273,938 | 11.62 | 0.62 | 343.90 | 1.45 | 13.20 | 2.39 | 2.08 | ||||||||||||||||||||||||||||||||||||||||||||||
| 11 | Columbia Financial / Stewardship Financial | | Midland Park | | NJ | 6/7/19 | 137.2 | 17.3 | 166.7 | 8.19 | 961,130 | 8.56 | 0.77 | 108.70 | 0.83 | 10.08 | 0.58 | 0.19 | ||||||||||||||||||||||||||||||||||||||||||||
| 12 | Liberty Bank / SBT Bancorp | Weatogue | CT | 3/21/19 | 71.4 | 17.3 | 202.0 | 9.15 | 478,676 | 7.34 | 1.02 | NA | 0.81 | 12.42 | (5.03 | ) | (6.42 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| 13 | Community Bank System / Kinderhook Bank | Kinderhook | NY | 1/22/19 | 93.2 | 17.1 | 184.3 | 9.14 | 631,996 | 8.08 | 1.48 | NA | 0.86 | 10.04 | 2.16 | 1.79 | ||||||||||||||||||||||||||||||||||||||||||||||
| 25% Percentile | 63.6 | 15.4 | 145.3 | 6.89 | 442,421 | 8.08 | 0.46 | 99.59 | 0.69 | 7.54 | 2.39 | 1.94 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Median: | 93.2 | 17.3 | 162.3 | 8.24 | 572,323 | 9.04 | 0.62 | 165.00 | 0.83 | 9.95 | 4.25 | 4.85 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 75% Percentile: | 113.4 | 21.0 | 170.5 | 9.54 | 783,352 | 10.27 | 1.02 | 374.54 | 0.94 | 11.08 | 5.69 | 5.68 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| MSB Financial Corp. | 95.0 | 23.0 | 147.2 | 8.33 | 591,253 | 10.86 | 2.07 | 46.28 | 0.71 | 6.24 | 0.15 | 8.79 | ||||||||||||||||||||||||||||||||||||||||||||||||||
The merger consideration price to tangible book multiple of 147.2% was between the median and the 25th percentile for the regional comparable group, and price to LTM earnings of 23.0x was above the 75th percentile for the regional comparable group. The merger consideration core deposit premium of 8.3% was above the median for the regional comparable group.
Investment Value Approach (Discounted Cash Flow). FCA performed a discounted cash flow (“DCF”) analysis to estimate a range of the present values of free cash flows, inclusive of projected cash dividends to stockholders and net income held in retained earnings that MSB could generate on a stand-alone basis. The purpose of this analysis was to determine the range of present values of a potential MSB liquidity event at September 30, 2024. The DCF analysis does not include any synergies or transaction used as a comparisoncost savings in the above selected transaction analysis as it is identical to Clifton or the proposed merger. Accordingly, an analysis of these resultsMSB operating independently from September 30, 2019 through September 30, 2024 and then a projected sale of MSB at that time. The DCF analysis is not mathematical. Rather, it involves complex considerationsa widely used valuation methodology that relies on numerous assumptions, including MSB’s financial projections, terminal values, and judgments concerning differencesdiscount rates. In performing this analysis, FCA utilized projections provided and verified by MSB through September 30, 2024. The projections utilized for the investment value approach are shown below.
| Period Ending | 9/30/2019 Actual LTM | 12 Months ending 9/30/2020 (Projected) | 12 Months ending 9/30/2021 (Projected) | 12 Months ending 9/30/2022 (Projected) | 12 Months ending 9/30/2023 (Projected) | 12 Months ending 9/30/2024 (Projected) | ||||||||||||||||||
Net Income (in thousands) | 4,107 | 4,307 | 4,269 | 4,483 | 4,707 | 4,942 | ||||||||||||||||||
Fully Diluted Shares (in thousands) | 5,070 | 5,054 | 5,054 | 5,054 | 5,054 | 5,054 | ||||||||||||||||||
Earnings Per Share | 0.81 | 0.85 | 0.84 | 0.89 | 0.93 | 0.98 | ||||||||||||||||||
Tangible Common Equity (in thousands) | 64,220 | 64,213 | 64,213 | 64,213 | 64,213 | 64,213 | ||||||||||||||||||
Total Shares Outstanding (in thousands) | 5,201 | 5,185 | 5,185 | 5,185 | 5,185 | 5,185 | ||||||||||||||||||
Tangible Book Value Per Share | 12.35 | 12.38 | 12.38 | 12.38 | 12.38 | 12.38 | ||||||||||||||||||
Dividends Per Share | 0.96 | 0.83 | 0.82 | 0.86 | 0.91 | 0.95 | ||||||||||||||||||
FCA utilized a discount rate based on a Capital Asset Pricing Model (“CAPM”) approach. The CAPM model utilized the Duff & Phelps long-term risk-free rate, the decile 10 size premium (the premium for companies with market
capitalization of companies between $2.455 million and $321.578 million) , and the beta based on the 3 Year Benchmark—SNL U.S. Bank $500M-$1B benchmarked against the S&P 500 as of December 12, 2019. This resulted in financiala base discount rate of 10.6%.
CAPM Discount Rate Build Up:
| Long Term Risk Free Rate (LTRFR) | 3.5% | Duff & Phelps Normalized Rate | ||||
| Beta | 0.3499 | 3-Year Benchmark- SNL U.S. Bank $500M—$1B Benchmarked Against S&P 500 | ||||
| Equity Risk Premium (ERP) | 5.5% | Duff & Phelps Recommended ERP | ||||
| Size Premium (SP) | 5.2% | 10—Smallest—Market Cap of Smallest Company $2.455 Million and Largest Company $321.578 Million | ||||
| Discount Rate: | 10.6% | CAPM = LTRFR + SP + (Beta x ERP) | ||||
A range of discount rates were utilized that were 2% and operating characteristics1% below the base rate and 1% and 2% above the base rate. Thereby the discount rates ranged from 8.6% to 12.6%. In calculating the terminal value, FCA utilized between 146.3% and 178.3% for a P/TBVS (price to tangible book value approach) and earnings multiples between 15.3 times and 19.3 times for a P/E (price to earnings) approach. The midpoint of the companies involved.P/TBVS and P/E multiple ranges are the medians of the regional comparable group. The sensitivity analysis range provides for values both above and below this midpoint. This resulted in a range of present values from $13.26 to $18.15 on a tangible book value basis and $11.52 to $16.04 per share on an earnings basis. The consideration at issuance of the fairness opinion was a takeout value of $18.16 per share1. All present values calculated on a tangible book value basis and an earnings basis were below the consideration price.
Relative ContributionKearny—Financial Condition, Performance and Comparable Company Analysis. KBW analyzed
FCA conducted an analysis of Kearny common stock to determine that the relative standalone contributionvalue of its common stock in the exchange falls within a reasonable valuation range. Kearny is traded on the NASDAQ exchange. FCA considered the financial condition and performance of Kearny and Cliftoncomparisons to various pro forma balance sheetcomparable companies on a trading basis.
FCA selected 10 companies it considered comparable to Kearny, utilizing the following criteria:
Publicly traded banks located in theMid-Atlantic region (excluding Puerto Rico);
With total assets less between $5.0 billion and income statement items and the pro forma market capitalization$8.0 billion;
With NPAs (including performing TDRs) as a percentage of the combined entity. This analysis did not include purchase accounting adjustments or cost savings. To perform this analysis, KBW used (i) historical balance sheet data for Kearny and Clifton as of September 30, 2017 provided by Kearny management and Clifton management, respectively, (ii)total assets less than 2%;
Excluding institutions with an MHC ownership structure;
Excluding any publicly available net income consensus “street estimates” of Kearny and Clifton, (iii) assumed Kearny and Clifton long-term growth rates provided by Kearny management, and (iv) market price data as of October 31, 2017. announced merger targets.
| 1 | Under the terms of the proposed transaction, Kearny will acquire MSB in a 10% cash and 90% stock transaction, based upon a fixed exchange ratio of 1.30 and a fixed cash consideration price of $18.00 per share. Utilizing Kearny’s10-Day Volume Weighted Average Price (“VWAP”) as of December 12, 2019 results in a consideration price of $18.16 per share (combined consideration). |
The results of KBW’s analysis are set forthcriteria resulted in the following table, which also compares the results of KBW’s analysis with the implied pro forma ownership percentages of Kearny and Clifton shareholders in the combined company based on the 1.191x exchange ratio in the proposed merger:Comparable Trading Group:
| Kearny as a % of Total | Clifton as a % of Total | |||||||
Ownership | ||||||||
Pro Forma Ownership | 76 | % | 24 | % | ||||
Balance Sheet | ||||||||
Total Assets | 76 | % | 24 | % | ||||
Gross Loans Held For Investment | 74 | % | 26 | % | ||||
Total Deposits | 76 | % | 24 | % | ||||
Tangible Common Equity | 76 | % | 24 | % | ||||
Income Statement | ||||||||
Fiscal Year Ending June 30, 2018 Estimated Net Income | 71 | % | 29 | % | ||||
Fiscal Year Ending June 30, 2019 Estimated Net Income | 69 | % | 31 | % | ||||
Market Capitalization | ||||||||
Market Capitalization | 77 | % | 23 | % | ||||
Company Name | City | State | ||
| Amalgamated Bank | New York | NY | ||
| ConnectOne Bancorp, Inc. | Englewood Cliffs | NJ | ||
| Dime Community Bancshares, Inc. | Brooklyn | NY | ||
| Flushing Financial Corporation | Uniondale | NY | ||
| Lakeland Bancorp, Inc. | Oak Ridge | NJ | ||
| S&T Bancorp, Inc. | Indiana | PA | ||
| Tompkins Financial Corporation | Ithaca | NY | ||
| TriState Capital Holdings, Inc. | Pittsburgh | PA | ||
| TrustCo Bank Corp NY | Glenville | NY | ||
| Univest Financial Corporation | Souderton | PA |
Market Pricing and Valuation as of December 12, 2019
Below is the full table of trading information for the Comparable Trading Group:
Company Name | Market Cap ($mil) | Price/ MRQ Core EPS (x) | Price/ LTM Core EPS (x) | Price/ Tangible Book (%) | Tangible Premium Core Dep (%) | Dividend Payout Ratio (%) | Dividend Yield (%) | Avg. Daily Volume (3 mo) | Avg. Daily Volume (1 yr) | |||||||||||||||||||||||||||
Amalgamated Bank | 627.9 | 11.8 | 12.0 | 134.7 | 4.0 | 16.5 | 1.6 | 96,343 | 57,545 | |||||||||||||||||||||||||||
ConnectOne Bancorp, Inc. | 895.2 | 9.7 | 11.0 | 163.1 | NA | 16.7 | 1.4 | 90,235 | 112,214 | |||||||||||||||||||||||||||
Dime Community Bancshares, Inc. | 729.0 | 39.6 | 17.4 | 132.1 | 5.1 | 48.7 | 2.8 | 155,288 | 143,460 | |||||||||||||||||||||||||||
Flushing Financial Corporation | 588.0 | 13.8 | 14.6 | 107.8 | NA | 58.7 | 4.0 | 80,580 | 62,475 | |||||||||||||||||||||||||||
Lakeland Bancorp, Inc. | 865.5 | 11.5 | 12.1 | 156.7 | 6.7 | 36.6 | 2.9 | 117,328 | 136,896 | |||||||||||||||||||||||||||
S&T Bancorp, Inc. | 1325.6 | 12.1 | 12.9 | 191.3 | 11.8 | 36.6 | 2.9 | 146,127 | 116,961 | |||||||||||||||||||||||||||
Tompkins Financial Corporation | 1345.8 | 16.3 | 17.0 | 240.9 | NA | 38.8 | 2.3 | 49,795 | 44,137 | |||||||||||||||||||||||||||
TriState Capital Holdings, Inc. | 746.7 | 12.5 | 12.7 | 176.9 | 6.5 | NM | NA | 116,837 | 121,143 | |||||||||||||||||||||||||||
TrustCo Bank Corp NY | 849.0 | 14.4 | 14.2 | 161.5 | NA | 44.0 | 3.1 | 291,335 | 248,955 | |||||||||||||||||||||||||||
Univest Financial Corporation | 788.6 | 11.0 | 11.2 | 161.6 | 7.6 | 34.2 | 3.0 | 75,590 | 97,403 | |||||||||||||||||||||||||||
25% Percentile: | 733.4 | 11.6 | 12.0 | 140.2 | 5.5 | 34.2 | 2.3 | 82,994 | 71,207 | |||||||||||||||||||||||||||
Median: | 818.8 | 12.3 | 12.8 | 161.6 | 6.6 | 36.6 | 2.9 | 106,590 | 114,588 | |||||||||||||||||||||||||||
75% Percentile: | 887.8 | 14.2 | 14.5 | 173.4 | 7.4 | 44.0 | 3.0 | 138,927 | 132,958 | |||||||||||||||||||||||||||
Mid-Atlantic Region Liquid Comps | 330.9 | 12.3 | 13.1 | 145.3 | 6.4 | 34.5 | 2.6 | 27,699 | 23,431 | |||||||||||||||||||||||||||
National Median—Liquid Comps | 483.6 | 12.5 | 13.1 | 153.6 | 7.4 | 31.4 | 2.3 | 40,401 | 41,022 | |||||||||||||||||||||||||||
Kearny Financial Corp. | 1157.8 | 25.1 | 26.7 | 135.3 | NA | 52.1 | 2.0 | 265,879 | 290,318 | |||||||||||||||||||||||||||
Kearny trades below the 25th percentile on a price to tangible book value basis but above the 75th percentile on a price to earnings basis. Dividend yield is below the 25th percentile while liquidity is higher relative to the 75th percentile.
Below are the full tables of financial performance for the Comparable Trading Group:
Balance Sheet Strength, Composition & Liquidity Growth
Company Name | City | State | Total Assets ($000s) | Cash/ Deposits (%) | Gross Loans HFI/ Total Assets (%) | Gross Loans HFI/ Deposits (%) | Nonint. Bearing Deposits/ Total Dep. (%) | Wholesale Funding Ratio (%)(1) | Asset Growth Rate (%)(2) | Loan Growth Rate (%)(2) | Deposit Growth Rate (%)(2) | |||||||||||||||||||||||||||||
Amalgamated Bank | New York | NY | 5,029,769 | 1.65 | 69.60 | 80.99 | 45.42 | NA | 8.47 | 9.38 | 7.07 | |||||||||||||||||||||||||||||
ConnectOne Bancorp, Inc. | Englewood Cliffs | NJ | 6,161,269 | 4.08 | 82.95 | 107.56 | 17.43 | 30.09 | 14.76 | 15.26 | 19.12 | |||||||||||||||||||||||||||||
Dime Community Bancshares, Inc. | Brooklyn | NY | 6,425,335 | 2.56 | 85.33 | 124.86 | 9.48 | 27.50 | 2.08 | 1.32 | (0.01 | ) | ||||||||||||||||||||||||||||
Flushing Financial Corporation | Uniondale | NY | 7,110,895 | 1.75 | 81.08 | 115.91 | 8.48 | 27.97 | 8.74 | 7.17 | 5.47 | |||||||||||||||||||||||||||||
Lakeland Bancorp, Inc. | Oak Ridge | NJ | 6,492,474 | 5.41 | 75.83 | 94.49 | 21.13 | 13.78 | 15.55 | 13.79 | 12.23 | |||||||||||||||||||||||||||||
S&T Bancorp, Inc. | Indiana | PA | 7,571,991 | 2.90 | 81.82 | 103.56 | 24.91 | 10.15 | 6.57 | 6.75 | 9.42 | |||||||||||||||||||||||||||||
Tompkins Financial Corporation | Ithaca | NY | 6,627,982 | 2.37 | 73.26 | 90.42 | 27.99 | 6.95 | (1.76 | ) | 1.13 | 6.86 | ||||||||||||||||||||||||||||
TriState Capital Holdings, Inc. | Pittsburgh | PA | 7,198,449 | 6.30 | 83.58 | 98.72 | 5.12 | 18.70 | 29.16 | 26.44 | 28.18 | |||||||||||||||||||||||||||||
TrustCo Bank Corp NY | Glenville | NY | 5,222,469 | 10.10 | 76.31 | 89.33 | 10.16 | 4.90 | 6.92 | 4.17 | 6.22 | |||||||||||||||||||||||||||||
Univest Financial Corporation | Souderton | PA | 5,353,611 | 5.19 | 79.42 | 98.02 | 27.63 | 7.96 | 11.49 | 10.05 | 13.56 | |||||||||||||||||||||||||||||
25% Percentile: | 5,555,526 | 2.42 | 75.95 | 91.44 | 9.65 | 7.96 | 6.66 | 4.82 | 6.38 | |||||||||||||||||||||||||||||||
Median: | 6,458,905 | 3.49 | 80.25 | 98.37 | 19.28 | 13.78 | 8.61 | 8.25 | 8.25 | |||||||||||||||||||||||||||||||
75% Percentile: | 6,990,167 | 5.36 | 82.67 | 106.56 | 26.95 | 27.50 | 13.94 | 12.86 | 13.23 | |||||||||||||||||||||||||||||||
Mid-Atlantic Region Liquid Comps | 2,313,677 | NA | 74.97 | 95.58 | 21.10 | NA | 7.42 | 6.52 | 7.81 | |||||||||||||||||||||||||||||||
National Median – Liquid Comps | 3,152,669 | NA | 73.36 | 92.94 | 23.37 | NA | 7.42 | 6.83 | 7.42 | |||||||||||||||||||||||||||||||
Kearny Financial Corp. | Fairfield | NJ | 6,641,006 | 3.08 | 69.34 | 109.71 | 7.69 | 27.45 | (0.23 | ) | (1.00 | ) | 6.26 | |||||||||||||||||||||||||||
Source: S&P Global
| (1) | Borrowings (ex. Sub Debt/TruPs) + Brokered & Listing Service Deposits as a % of Total Deposits and Borrowings |
| (2) | Growth rates are for the trailing twelve months |
Kearny’s asset size is slightly above the comparable median, while loans as a percentage of total assets is below the 25th percentile. Noninterest bearing deposit levels are lower relative to the comparable group median, and reliance on wholesale funding is higher than the comparable group median.
Capital, Asset Quality and Profitability
Company Name | City | State | Tangible Common Equity/ Tangible Assets (%) | Tier 1 Leverage Ratio (%) | Adjusted Texas Ratio (%)(1,2) | NPAs/ Total Assets (%)) | LLR/ Gross Loans (%) | Core ROAA (%) | Core ROAE (%) | Noninterest Income/ Avg (%) | Noninterest Expense/ Avg (%) | Net Interest Margin (FTE) (%) | 2020 Median Household Income ($) | Projected Annualized Change in Median HHI (%) | ||||||||||||||||||||||||||||||||||||||
Amalgamated Bank | New York | NY | 9.31 | 9.03 | 13.44 | 1.42 | 0.96 | 1.11 | 11.82 | 0.60 | 2.67 | 3.57 | NA | NA | ||||||||||||||||||||||||||||||||||||||
ConnectOne Bancorp, Inc. | Englewood Cliffs | NJ | 9.21 | 9.39 | 9.48 | 1.17 | 0.75 | 1.38 | 11.92 | 0.12 | 1.52 | 3.30 | 98,478 | 10.25 | ||||||||||||||||||||||||||||||||||||||
Dime Community Bancshares, Inc. | Brooklyn | NY | 8.69 | 8.76 | 2.58 | 0.26 | 0.50 | 0.66 | 6.97 | 0.16 | 1.41 | 2.38 | 80,744 | 14.05 | ||||||||||||||||||||||||||||||||||||||
Flushing Financial Corporation | Uniondale | NY | 7.78 | 8.71 | 3.50 | 0.26 | 0.38 | 0.60 | 7.41 | 0.00 | 1.61 | 2.55 | 97,390 | 12.52 | ||||||||||||||||||||||||||||||||||||||
Lakeland Bancorp, Inc. | Oak Ridge | NJ | 8.72 | 10.12 | 2.62 | 0.34 | 0.78 | 1.16 | 10.65 | 0.39 | 2.01 | 3.42 | 93,576 | 8.89 | ||||||||||||||||||||||||||||||||||||||
S&T Bancorp, Inc. | Indiana | PA | 9.51 | 10.20 | 8.56 | 1.19 | 1.00 | 1.43 | 10.92 | 0.67 | 2.11 | 3.61 | 63,889 | 9.59 | ||||||||||||||||||||||||||||||||||||||
Tompkins Financial Corporation | Ithaca | NY | 8.58 | 9.43 | 4.32 | 0.45 | 0.85 | 1.21 | 12.77 | 1.15 | 2.72 | 3.34 | 71,615 | 9.39 | ||||||||||||||||||||||||||||||||||||||
TriState Capital Holdings, Inc. | Pittsburgh | PA | 5.92 | 7.91 | 0.72 | 0.06 | 0.22 | 0.99 | 11.95 | 0.80 | 1.72 | 2.05 | NA | NA | ||||||||||||||||||||||||||||||||||||||
TrustCo Bank Corp NY | Glenville | NY | 10.07 | 10.21 | 6.12 | 0.67 | 1.11 | 1.18 | 11.93 | 0.51 | 2.08 | 3.19 | 72,960 | 11.74 | ||||||||||||||||||||||||||||||||||||||
Univest Financial Corporation | Souderton | PA | 9.42 | 9.97 | 5.46 | 0.71 | 0.79 | 1.38 | 10.98 | 1.25 | 2.78 | 3.62 | 88,283 | 12.46 | ||||||||||||||||||||||||||||||||||||||
25% Percentile: | 8.60 | 8.83 | 2.84 | 0.28 | 0.56 | 1.02 | 10.72 | 0.22 | 1.64 | 2.71 | 72,624 | 9.54 | ||||||||||||||||||||||||||||||||||||||||
Median: | 8.97 | 9.41 | 4.89 | 0.56 | 0.79 | 1.17 | 11.40 | 0.56 | 2.05 | 3.32 | 84,514 | 11.00 | ||||||||||||||||||||||||||||||||||||||||
75% Percentile: | 9.39 | 10.08 | 7.95 | 1.05 | 0.93 | 1.34 | 11.93 | 0.77 | 2.53 | 3.53 | 94,530 | 12.47 | ||||||||||||||||||||||||||||||||||||||||
Mid-Atlantic Region Liquid Comps | 9.32 | 10.04 | 5.43 | 0.65 | 0.94 | 1.07 | 9.75 | 0.67 | 2.45 | 3.43 | 79,474 | 10.21 | ||||||||||||||||||||||||||||||||||||||||
National Median – Liquid Comps | 9.75 | 10.23 | 4.30 | 0.55 | 0.90 | 1.21 | 10.40 | 0.74 | 2.62 | 3.62 | 67,883 | 10.72 | ||||||||||||||||||||||||||||||||||||||||
Kearny Financial Corp. | Fairfield | NJ | 13.93 | 13.79 | 2.40 | 0.41 | 0.70 | 0.69 | 3.97 | 0.16 | 1.63 | 2.59 | 89,637 | 11.11 | ||||||||||||||||||||||||||||||||||||||
Source: S&P Global
| (1) | Texas Ratio is defined as NPA ex. Performing TDRs / Tangible Equity + ALLL |
| (2) | Adjusted = adjusted for FDIC loss share coverage |
Kearny’s capital levels are less leveraged relative to the comparable group, while asset quality is generally stronger. Core ROAA, ROAE, and net interest margin are below the comparable group medians. Median household income is above a strong median.
Pro Forma Financial Impact Analysis. KBW performed a FCA considered and reviewed the pro forma financial impact analysisof the transaction to ensure that Kearny, post-transaction, has key ratios for the combined projected income statemententity that are likely to be acceptable from a regulatory perspective. FCA analyzed certain potential pro forma effects of the merger, based on the following assumptions that were verified by MSB management: (i) the merger closes during the second quarter of 2020; (ii) 90% of the outstanding shares of MSB common stock are converted into the stock consideration at a 1.3000 exchange ratio and balance sheet information10% of Kearnythe outstanding shares of MSB common stock receive $18.00 in cash; (iii) all outstanding MSB stock options with an exercise price less than $18.00 will be cancelled in exchange for a cash payment equal to the difference between $18.00 and Clifton. Using closing
balance sheet estimates as of March 31, 2018the per share exercise price. FCA also utilized the following assumptions: (a) estimated earnings per share for Kearny and Clifton provided by Kearny management, publicly available net income consensus “street estimates”management; (b) estimated earnings per share for MSB utilizing the same source projections as those utilized in the investment value approach; (c) purchase accounting adjustments consisting of Kearny and Clifton, assumed Kearny and Clifton long-term growth ratesa credit mark on loans equal to 1.5% of MSB Loans; (d) cost savings projections provided by Kearny management,equal to 45% of MSBnon-interest expense; (e) estimated costs and pro forma assumptions (including, without limitation,expenses associated with the cost savings and related expenses expected to result from the merger certain accounting adjustments and restructuring charges) provided by Kearny management, KBW analyzed the estimated financial impact of the merger on certain projected financial results. Thisequal to $9.1 millionpre-tax; and (f) a core deposit intangible asset provided by Kearny equal to 2.0% and amortized over 10 years utilizingsum-of-the-digits methodology. The analysis indicated that the merger could be accretive to Kearny’s estimated EPS for the fiscal years ending June 30, 2019earnings per share (excludingone-time transaction costs and June 30, 2020expenses) after closing and modestly dilutive to Kearny’s estimated tangible book value per share at closing. Furthermore,closing of the transaction with a workback period of less than 3 years.
The assumptions provided by Kearny for use by FCA were based on numerous variables and other assumptions that are inherently uncertain and may be beyond Kearny’s and MSB’s control. The assumptions necessarily involve judgments with respect to, among other things, current and future economic, competitive and regulatory conditions and financial market conditions and current and future business decisions that may not be realized and that are inherently subject to significant
business, economic, competitive and regulatory uncertainties and contingencies, including, among other things, the inherent uncertainty of the business and economic conditions affecting the industry in which Kearny and MSB operate, and the risks and uncertainties described in “Forward-Looking Statements” and “Risk Factors,” all of which are difficult or impossible to predict accurately. In connection with its analysis, FCA considered and discussed with MSB and its board how the analysis indicated that,could be affected by changes in the underlying assumptions.
Pro Forma Contribution Analysis. FCA considered and reviewed the pro forma financial impact of the transaction to ensure that Kearny post-transaction has key ratios for the merger, eachcombined entity that are likely to be acceptable from a regulatory perspective. FCA also analyzed the potential future benefit to MSB stockholders and the relative contribution analysis of Kearny’sassets, gross loans, nonmaturity core deposits, tangible common equity to tangible assets ratio and Leverage Ratio at closing could be lower and each of Kearny’s Tier 1Risk-Based Capital Ratio and Total Risk-Based Capital Ratio at closing could be higher. For allnet income based upon pro forma financial analysis as of the above analysis,closing of the actual results achieved bytransaction. Based upon the exchange ratio, Kearny followingstockholders would own approximately 93% of the merger may vary frompro forma company and MSB stockholders would own approximately 7% of the projected results, and the variations may be material.pro forma company.
| Kearny Contribution | MSB Contribution | |||||||
Total Assets | 92 | % | 8 | % | ||||
Gross Loans (including HFS) | 90 | % | 10 | % | ||||
Core Deposits(1) | 87 | % | 13 | % | ||||
Tangible Common Equity | 93 | % | 7 | % | ||||
Historical Net Income(2) | 90 | % | 10 | % | ||||
Pro Forma Ownership | 93 | % | 7 | % | ||||
| (1) | Core deposits shown in this table are all nonmaturity deposit balances |
| (2) | Historical net income adjusted for nonrecurring items |
Miscellaneous. KBW FCA acted as financial advisor to Kearny in connectionMSB associated with the proposed mergeracquisition and did not act as an advisor to or agent of any other person. As part of its investment banking business, KBW is continually engaged in the valuation of bank and bank holding company securities in connection with acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for various other purposes. As specialists in the securities of banking companies, KBW has experience in, and knowledge of, the valuation of banking enterprises. KBW and its affiliates, in the ordinary course of its and their broker-dealer businesses (and in the case of Kearny, further to an existing sales and trading relationship with a KBW broker-dealer affiliate), may from time to time purchase securities from, and sell securities to, Kearny and Clifton. In addition, as a market maker in securities, KBW and its affiliates may from time to time have a long or short position in, and buy or sell, debt or equity securities of Kearny or Clifton
FCA was compensated for its and their own accounts and for the accounts of its and their respective customers and clients.
Pursuant to the KBW engagement agreement, Kearny agreed to pay KBW anon-refundable cashservices. FCA’s fee is equal to 0.67%1.00% of the aggregate merger consideration, $500,000purchase price. $15,000 of whichthe fee became payable concurrently withat signing of the agreement, $300,000 of the fee became payable to FCA upon its rendering its fairness opinion to the Board of KBW’s opinionDirectors of MSB and the signing of the merger agreement, and $20,000 became payable upon the mailing of this document to MSB’s stockholders. The balance of whichFCA’s fee is payable on the day of closing the merger and is contingent upon the consummation of the merger. Kearny alsoAdditionally, MSB has agreed to reimburse KBWFCA for reasonableitsout-of-pocket expenses and disbursementshas agreed to indemnify FCA and certain related persons against certain liabilities possibly incurred in connection with itsthe services performed.
Prior to this engagement, and to indemnify KBW against certain liabilities relating to or arising out of KBW’s engagement or KBW’s role in connection therewith. Other than in connection with this present engagement, in the two years preceding the date of KBW’s opinion, KBWFCA has not provided investment banking and financial advisory services to Kearny. InMSB for which it received a fee within the past two years. FinPro, Inc., FCA’s parent organization, has provided consulting partnership services to MSB within the past two years. The amount of compensation received from MSB for these services is not, and has not been, material to FinPro’s annual gross revenue. FCA has provided services to Kearny within the past two years, preceding the datebut has not done work with Kearny during this process. The amount of KBW’s opinion, KBWcompensation received from Kearny for these services is not, and has not been, material to FinPro’s annual gross revenue. FCA has not provided investment banking and financial advisory services to Clifton. KBW may in the future provide investment banking and financial advisory services to Kearny or Cliftonin the past two years.
FCA and receive compensation for such services.
Unaudited Prospective Financial Information
FinPro do have relationships with MSB. Donald Musso, President of FinPro and FCA and Scott Martorana, Executive Managing Director of FCA and FCA both own stock in MSB. Donald Musso is also a former board member of MSB, having left in January 2018. Neither KearnyDonald Musso nor CliftonScott Martorana voted on the transaction as a matterpart of course makes public projections as to future performance, revenues, earnings orFCA’s Fairness Opinion Committee. No other financial results due to, among other reasons, the inherent uncertaintySeries 24 licensed voting member of the underlying assumptions and estimates. However, Kearny and Clifton are each includingFairness Opinion Committee owns stock in this document certain unaudited prospective financial information that was made available by Clifton or by Kearny in connection with the merger as described below. The inclusion of this information should not be regarded as an indication that any of Clifton, Kearny, RP Financial or KBW, their respective representatives or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results, or that it should be construed as financial guidance, and it should not be relied on as such. This information was prepared solely for internal use and is subjective in many respects. While presented with numeric specificity, the unaudited prospective financial information reflects numerous estimates and assumptions made with respect to business, economic, market, competition, regulatory and financial conditions and matters specific to Kearny’s and Clifton’s business, all of which are difficult to predict and many of which are beyond each party’s control. The unaudited prospective financial information reflects both assumptions as to certain business decisions that are
subject to change and, in many respects, subjective judgment, and thus is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. No assurance can be given that the unaudited prospective financial information and the underlying estimates and assumptions will be realized. In addition, since the unaudited prospective financial information covers multiple years, such information by its nature becomes less predictive with each successive year. Actual results may differ materially from those set forth below, and important factors that may affect actual results and cause the unaudited prospective financial information to be inaccurate include, but are not limited to, risks and uncertainties relating to Kearny’s and Clifton’s business, industry performance, general business and economic conditions, customer requirements, competition and adverse changes in applicable laws, regulations or rules. For other factors that could cause actual results to differ, please see the sections entitled “Risk Factors” and “Cautionary Statement About Forward-Looking Statements” beginning on pages 18 and 23, respectively, of this document.
The unaudited prospective financial information was not prepared with a view toward public disclosure, nor was it prepared with a view toward compliance with generally accepted accounting principles, published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. In addition, the unaudited prospective financial information requires significant estimates and assumptions that make it inherently less comparable to the similarly titled generally accepted accounting principles measures in each party’s historical generally accepted accounting principles financial statements. Neither Kearny’s nor Clifton’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the unaudited prospective financial information contained in this document, nor have they expressed any opinion or any other form of assurance on such information or its achievability.
Furthermore, the unaudited prospective financial information does not take into account any circumstances or events occurring after the date it was prepared. No assurance can be given that, had the unaudited prospective financial information been prepared as of the date of this document, similar estimates and assumptions would be used. Neither Kearny nor Clifton intends to, and each party disclaims any obligation to, make publicly available any update or other revision to the unaudited prospective financial information to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even if any or all of the underlying assumptions are shown to be in error, or to reflect changes in general economic or industry conditions. The unaudited prospective financial information does not take into account the possible financial and other effects on either Clifton or Kearny, as applicable, of the merger and does not attempt to predict or suggest future results of the combined company after giving effect to the merger. The unaudited prospective financial information does not give effect to the merger, including the impact of negotiating or executing the merger agreement, the expenses that may be incurred in connection with completing the merger, the potential synergies that may be achieved by the combined company as a result of the merger, the effect on either Clifton or Kearny, as applicable, of any business or strategic decision or action that has been or will be taken as a result of the merger agreement having been executed, or the effect of any business or strategic decisions or actions that would likely have been taken if the merger agreement had not been executed, but that were instead altered, accelerated, postponed or not taken in anticipation of the merger. Further, the unaudited prospective financial information does not take into account the effect on either Clifton or Kearny, as applicable, of any possible failure of the merger to occur. By inclusion of the unaudited prospective financial information in this document, none of Clifton, Kearny, RP Financial, KBW or their respective affiliates, associates, officers, directors, advisors, agents or other representatives makes any representation to any stockholder of Clifton, stockholder of Kearny or any other person regarding Clifton’s ultimate performance compared to the information contained in the unaudited prospective financial information or that the projected results will be achieved. The inclusion of the unaudited prospective financial information in this document should not be deemed an admission or representation by Clifton or Kearny that it is viewed as material information, particularly in light of the inherent risks and uncertainties associated with such forecasts. The summary of the unaudited prospective financial information included below is not being included to influence your decision whether to vote for the merger agreement, but is being provided solely because it was made available by Clifton or by Kearny, in connection with the merger as described below.
In light of the foregoing, and considering that the special meetings of Kearny’s and Clifton’s stockholders will be held many months after the unaudited prospective financial information was prepared, as well as the uncertainties inherent in any forecasted information, stockholders are cautioned not to place unwarranted reliance on such information, and Kearny and Clifton urge all stockholders to review Kearny’s and Clifton’s financial statements and other information contained elsewhere in this document for a description of Kearny’s and Clifton’s respective businesses and reported financial results.
The following table presents the unaudited prospective earnings estimates for Clifton for the 12 months ending September 30, 2018 through September 30, 2022, unaudited prospective tangible common equity at September 30, 2018, 2019, 2020, 2021 and 2022, and unaudited prospective common shares outstanding at September 30, 2018, 2019, 2020, 2021 and 2022 used by RP Financial for the first scenario under its discounted cash flow analysis as described above.
| At or For the 12 Months Ended September 30, | ||||||||||||||||||||
| (in thousands) | 2018 | 2019 | 2020 | 2021 | 2022 | |||||||||||||||
Earnings | $ | 8,905 | $ | 13,299 | $ | 15,958 | $ | 19,150 | $ | 22,980 | ||||||||||
Tangible common equity | 275,468 | 276,898 | 287,874 | 302,042 | 320,040 | |||||||||||||||
Common shares outstanding | 21,182 | 20,759 | 20,759 | 20,759 | 20,759 | |||||||||||||||
The following table presents the unaudited prospective earnings estimates for Clifton for the 12 months ending September 30, 2018 through September 30, 2022, unaudited prospective tangible common equity at September 30, 2018, 2019, 2020, 2021 and 2022, and unaudited prospective common shares outstanding at September 30, 2018, 2019, 2020, 2021 and 2022 used by RP Financial for the second scenario under its discounted cash flow analysis as described above.
| At or For the 12 Months Ended September 30, | ||||||||||||||||||||
| (in thousands) | 2018 | 2019 | 2020 | 2021 | 2022 | |||||||||||||||
Earnings | $ | 8,905 | $ | 13,299 | $ | 14,628 | $ | 16,091 | $ | 17,700 | ||||||||||
Tangible common equity | 275,468 | 276,898 | 279,722 | 284,035 | 289,945 | |||||||||||||||
Common shares outstanding | 21,182 | 20,759 | 20,344 | 19,937 | 19,538 | |||||||||||||||
In addition, for purposes of the financial analyses performed in connection with KBW’s opinion, Kearny discussed with KBW, and KBW used (except with respect to Clifton’s fiscal quarters ended June 30, 2017 and September 30, 2017 and Kearny’s fiscal quarter ended September 30, 2017), publicly available consensus “street estimates” of net income for Clifton and Kearny, which were $6.8 million for Clifton’s fiscal year ending March 31, 2018, $8.9 million for Clifton’s fiscal year ending March 31, 2019, $18.2 million for Kearny’s fiscal year ending June 30, 2018 and $20.6 million for Kearny’s fiscal year ending June 30, 2019. For purposes of these financial analysis, Kearny management also provided to and discussed with KBW an estimated annual earnings growth rate for Clifton and Kearny of 8% per year for periods beyond June 30, 2019.MSB.
Treatment of CliftonMSB Stock Options and Restricted Stock
At the effective time of the merger, each option to purchase shares of CliftonMSB common stock outstanding immediately before the effective time of the merger, whether or not vested, will be canceled and, upon Kearny’sMSB’s receipt of an option surrender agreement from the holder, exchanged for a cash payment equal to the product of (1) the number of shares of CliftonMSB common stock subject to the stock option multiplied by (2) the amount by which $18.25$18.00 exceeds the exercise price of such option, less applicable withholding taxes.
At the effective time of the merger, each outstanding share of restricted stock will vest and be converted into the right to receive 1.191 shares of Kearny common stock.
Surrender ofCash Election; Stock CertificatesElection;Non-Election Shares
The conversion of Clifton commonmerger agreement provides that each MSB stockholder who makes a valid stock intoelection will have the right to receive, in exchange for each share of MSB common stock held by such holder, 1.30 shares Kearny common stock. We refer to this stock amount as the merger“stock consideration.” The total number of shares of MSB common stock that will be converted into the stock consideration will occur automaticallyis fixed at the effective time90% of the merger. As soon as practicable aftertotal number of shares of MSB common stock outstanding immediately prior to the completion of the merger but in no event later than five business days thereafter,(excluding excluded shares), which we refer to as the exchange agent will mail to Clifton stockholders a letter“stock conversion number,” and the remaining approximately 10% of transmittal, together with instructions for the exchangeshares of their CliftonMSB common stock certificateswill be converted into the cash consideration. As a result, even if an MSB stockholder makes a stock election, that holder may nevertheless receive a mix of cash and stock.
The merger agreement also provides that each MSB stockholder who makes a valid cash election will have the right to receive, in exchange for each share of MSB common stock held, an amount equal to $18.00. We refer to this stock amount as the merger“cash consideration. Until you surrender your Clifton” Because the stock certificates for exchange afterconversion number is fixed at 90% of the total number of shares of MSB common stock outstanding immediately prior to the completion of the merger (excluding excluded shares), even if an MSB stockholder makes a cash election, that holder may nevertheless receive a mix of cash and stock.
If you are an MSB stockholder and you do not make an election to receive cash or Kearny common stock in the merger, your elections are not received by the Exchange Agent by the Election Deadline or your Election Form is improperly completed and/or are not signed, you will be deemed not to have made an “election” and your shares will be considered“non-election shares,” and you may be paid dividendsin only cash, only Kearny common stock or a mix of cash and shares of Kearny common stock depending on, and after giving effect to, the number of valid cash elections and stock elections that have been made by other MSB stockholders using the proration adjustment described below.
If, after the date of the merger agreement and prior to the effective time, the outstanding shares of Kearny common stock or MSB common stock change in number or type as a result of a reclassification, recapitalization,split-up, stock split, subdivision, combination or exchange of shares, or any dividend payable in stock or other distributionssecurities is declared afterthereon or rights issued in respect thereof with a record date within such period, or any similar event occurs, then the merger consideration will be adjusted to provide the holders of MSB common stock the same economic effect as contemplated by the merger agreement.
Proration
As described above, the stock conversion number is fixed at 90% of the total number of shares of MSB common stock outstanding immediately prior to the completion of the merger. As a result, if the aggregate number of shares of MSB common stock with respect to which stock elections have been made, which we refer to as the “stock election number,” exceeds the stock conversion number, all MSB stockholders who have elected to receive stock consideration will have such form of consideration proportionately reduced, and will instead receive a portion of their consideration in cash consideration, despite their election. Correspondingly, if the stock election number is less than the stock conversion number, MSB stockholders who have elected to receive cash consideration may have such form of consideration proportionately reduced, and may receive a portion of their consideration in stock consideration, despite their election, depending on the number ofnon-election shares, as described below. The cash and stock elections are subject to adjustment to preserve the limitations described above on the stock and cash to be issued and paid in the merger. As a result, if an MSB stockholder makes a cash election or stock election, that holder may nevertheless receive a mix of cash and stock.
Adjustment if the Stock Election is Oversubscribed
Cash consideration may be issued to MSB stockholders who make stock elections if the stock election number is greater than the stock conversion number — in other words, if the stock election is oversubscribed. If the stock election is oversubscribed, then:
an MSB stockholder making a cash election, no election, or an invalid election will receive the cash consideration for each share of MSB common stock as to which such MSB stockholder made a cash election, no election, or an invalid election; and
an MSB stockholder making a stock election will receive:
| ○ | The stock consideration for a number of shares of MSB common stock equal to the product obtained by multiplying (1) the number of shares of MSB common stock for which such stockholder has made a stock election by (2) a fraction, the numerator of which is the stock conversion number, and the denominator of which is the stock election number; and |
| ○ | The cash consideration for the remaining shares of MSB common stock for which the MSB stockholder made a stock election. |
Example of Oversubscription of Stock Election
As an example, assuming that:
the stock conversion number was 5 million; and
the stock election number was 10 million (in other words, the number of shares of MSB common stock converted into stock consideration is capped at 5 million, but the number of shares of MSB common stock for which MSB stockholders have made stock elections is 10 million),
then an MSB stockholder making a stock election with respect to 1,000 shares of MSB common stock would receive the stock consideration with respect to approximately 500 shares of MSB common stock (1,000 * (5,000,000/(10,000,000) and the cash consideration with respect to the remaining approximately 500 shares of MSB common stock. Therefore, given the exchange ratio of 1.30, that MSB stockholder would receive approximately 650 shares of Kearny common stock and approximately $9,000 in cash (as well as cash in lieu of any fractional shares).
Adjustment if the Stock Election is Undersubscribed
Stock consideration may be issued to MSB stockholders who make cash elections if the stock election number is less than the stock conversion number — in other words, if the stock election is undersubscribed. The amount by which the stock election number is less than the stock conversion number is referred to as the “shortfall number.” If the stock election is undersubscribed, then all MSB stockholders making a stock election will receive the stock consideration for all shares of MSB common stock as to which they made a stock election. MSB stockholders making a cash election, MSB stockholders who make no election, and MSB stockholders who failed to make a valid election will receive Kearny common stock and/or cash depending on whether the shortfall number is less than or greater than the number ofnon-election shares, as described below.
Scenario 1: Undersubscription of Stock Election and Shortfall Number is Less than or Equal to Number ofNon-Election Shares
If the shortfall number is less than or equal to the number ofnon-election shares, then:
an MSB stockholder making a stock election will receive the stock consideration for each share of MSB common stock as to which such MSB stockholder made a stock election;
an MSB stockholder making a cash election will receive the cash consideration for each share of MSB common stock as to which such MSB stockholder made a cash election; and
an MSB stockholder who made no election or who did not make a valid election with respect to any of such MSB stockholder’s shares will receive:
| ○ | the stock consideration with respect to that number of shares of MSB common stock equal to the product obtained by multiplying (1) the number ofnon-election shares held by such holder by (2) a fraction, the numerator of which is the shortfall number and the denominator of which is the total number ofnon-election shares; and |
| ○ | the cash consideration with respect to the remainingnon-election shares held by such MSB stockholder. |
Example of Scenario 1
As an example, assuming that:
the stock conversion number is 5 million,
the stock election number is 2 million (in other words, the number of shares of MSB common stock that must be converted into stock consideration is 5 million, but the number of shares of MSB common stock for which MSB stockholders have made a stock election is only 2 million, so the shortfall number is 3 million), and
the total number ofnon-election shares is 4 million,
then an MSB stockholder that has not made an election with respect to 1,000 shares of MSB common stock would receive the per share stock consideration with respect to 750 shares of MSB common stock (1,000 * 3,000,000/4,000,000) and the per share cash consideration with respect to the remaining 250 shares of MSB common stock. Therefore, given the exchange ratio of 1.30, that MSB stockholder would receive 975 shares of Kearny common stock and approximately $4,500 in cash (as well as cash in lieu of any fractional shares).
Scenario 2: Undersubscription of Stock Election and Shortfall Number is Greater than Number ofNon-Election Shares
If the shortfall number exceeds the number ofnon-election shares, then:
an MSB stockholder making a stock election will receive the stock consideration for each share of MSB common stock as to which such MSB stockholder made a stock election;
an MSB stockholder who made no election or who did not make a valid election will receive stock consideration for each of such MSBstockholder’s non-election shares; and
an MSB stockholder making a cash election will receive:
| ○ | the stock consideration with respect to the number of shares of MSB common stock equal to the product obtained by multiplying (1) the number of shares of MSB common stock with respect to which the stockholder made a cash election by (2) a fraction, the numerator of which is equal to the amount by which the shortfall number exceeds the number ofnon-election shares and the denominator of which is equal to the total number of cash election shares; and |
| ○ | the cash consideration with respect to the remaining shares of MSB common stock held by such MSB stockholder as to which such MSB stockholder made a cash election. |
Example of Scenario 2
As an example, assuming that:
the stock conversion number is 5 million,
the stock election number is 2 million (in other words, the number of shares of MSB common stock that must be converted into stock consideration is 5 million, but the number of shares of MSB common stock for which your CliftonMSB stockholders have made a stock election is only 2 million, so the shortfall number is 3 million),
the number ofnon-election shares have been converted. When you surrender your Cliftonis 2 million (so the shortfall number exceeds the number ofnon-election shares by 1 million), and
the total number of cash election shares is 10 million,
then an MSB stockholder that has made a cash election with respect to 1,000 shares of MSB common stock would receive the stock consideration with respect to 100 shares of MSB common stock (1,000 * 1,000,000/10,000,000) and the cash consideration with respect to the remaining 900 shares of MSB common stock. Therefore, given the exchange ratio of 1.30, that MSB stockholder would receive 130 shares of Kearny common stock and $16,200 in cash (as well as cash in lieu of any fractional shares).
Election as to Form of Consideration
MSB stockholders, including holders of MSB restricted stock awards, will initially be mailed an Election Form, including transmittal materials, as of the date of this MSB proxy statement so as to permit each MSB stockholder to exercise such MSB stockholder’s right to make an election prior to the Election Deadline. Each Election Form will allow an MSB stockholder to make cash or stock elections or a combination of both with respect to shares of MSB common stock. Following the initial mailing of the Election Form, Kearny will use all reasonable efforts to make available as promptly as possible an Election Form to any holder who requests such Election Form prior to the Election Deadline.
Unless otherwise agreed to in advance by Kearny and MSB, the Election Deadline will be 5:00 p.m., Eastern Time, May 28, 2020.
If an MSB stockholder wishes to elect the type of merger consideration such MSB stockholder will receive in the merger, such MSB stockholder should carefully review and follow the instructions that will be set forth in the Election Form. MSB stockholders who hold their shares of MSB common stock in “street name” or through a bank, broker or other nominee should follow the instructions of the bank, broker or other nominee for making an election with respect to such shares of MSB common stock. Shares of MSB common stock as to which the holder has not made a valid election prior to the Election Deadline will be treated as though they had not made an election.
To make a valid election, each MSB stockholder and holder of MSB restricted stock awards must submit a properly completed Election Form (including duly executed transmittal materials included in the Election Form), as described below, or submit an online election, so that it is received by the Exchange Agent at or prior to the Election Deadline in accordance with the instructions on the Election Form. For MSB stockholders holding their shares of MSB common stock in certificated form, an Election Form will be considered properly completed only if accompanied by one or more MSB stock certificates (or customary affidavits and indemnification regarding the loss or destruction of such certificates) representing all shares of MSB common stock covered by such Election Form, together with duly executed transmittal materials included with the Election Form.
Generally, an election may be changed, but only by written notice received by the Exchange Agent prior to the Election Deadline accompanied by a properly completed letterand signed revised Election Form. Additionally, any MSB stockholder may revoke an election by written notice received by the Exchange Agent prior to the Election Deadline or by withdrawal prior to the election deadline of transmittal,such MSB stockholder’s certificates that were previously deposited with the Exchange Agent. An MSB stockholder will not be entitled to revoke or change such MSB stockholder’s elections following the Election Deadline. As a result, if an MSB stockholder has made elections, such MSB stockholder will be unable to revoke such MSB stockholder’s elections or sell shares of MSB common stock during the interval between the Election Deadline and the date of completion of the merger. All elections will automatically be deemed revoked upon receipt by the Exchange Agent of written notification that Kearny will pay any unpaid dividends or other distributions, without interest, that had become payableand MSB have terminated the merger agreement in accordance with respectits terms.
Shares of MSB common stock as to which an MSB holder has not made a valid election prior to the Election Deadline, including as a result of revocation, will be deemednon-election shares. If it is determined that any purported cash election or stock election was not properly made (none of Kearny, MSB or the exchange agent being under any duty to notify any holder of such defect), the purported election will be deemed to be of no force or effect and the holder making the purported election will be deemed not to have made an election for these purposes, unless a proper election is subsequently made on a timely basis. Kearny in the exercise of its reasonable, good faith discretion, will have the right to make all determinations, not inconsistent with the terms of the merger agreement, governing (i) the validity of the Election Forms and compliance by any holder with the election procedures set forth in the merger agreement, (ii) the method of issuance and delivery of new certificates representing the whole number of shares of Kearny common stock into which your Clifton shares had been converted.
If you own shares of CliftonMSB common stock are converted in “street name” through a broker, bank or other nominee, you should receive or seek instructions from the broker, bank or other nominee holding your shares concerning how to surrender yourmerger and (iii) the method of payment of cash for shares of CliftonMSB common stock converted into the right to receive the cash consideration and cash in exchange for the merger consideration.
If your Clifton stock certificates have been lost, stolen or destroyed, you will have to provide an affidavit claiming your Clifton stock certificates to be lost, stolen or destroyed, and post a bond in such amount as the exchange agent may direct before you receive any consideration for your shares.
After the completionlieu of the merger, there will be no further transfersfractional shares of CliftonKearny common stock. Clifton stock certificates presented for transfer after the completion of the merger will be canceled and exchanged for the merger consideration.
Accounting Treatment of the Merger
Kearny will account for the merger under the “acquisition” method of accounting according to U.S. generally accepted accounting principles. Using the acquisition method of accounting, the assets (including identifiable intangible assets) and liabilities of CliftonMSB will be recorded by Kearny at their respective fair values at the time of the completion of the merger. The excess of Kearny’s purchase price over the net fair value of the assets acquired and liabilities assumed will then be recorded as goodwill.
Material U.S. Federal Income Tax Consequences of the Merger
General. The following discussion sets forth the material United States federal income tax consequences of the merger to U.S. holders (as defined below) of CliftonMSB common stock. This discussion does not address any tax consequences arising under the laws of any state, locality, foreign jurisdiction or U.S. federal tax laws other than federal income tax law. This discussion is based upon the Internal Revenue Code, the regulations of the United States Department of the Treasury and court and administrative rulings and decisions in effect on the date of this document. These laws may change, possibly retroactively, and any change could affect the continuing validity of this discussion.
For purposes of this discussion, the term “U.S. holder” means:
a citizen or resident of the United States for U.S. federal income tax purposes;
a corporation created or organized under the laws of the United States or any of its political subdivisions;
a trust that (1) is subject to the supervision of a court within the United States and the control of one or more United States persons or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as United States person; or
an estate that is subject to United States federal income tax on its income regardless of its source.
This discussion assumes that you hold your shares of CliftonMSB common stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code. Further, the discussion does not address all aspects of United States federal income taxation that may be relevant to you in light of your particular circumstances or that may be applicable to you if you are subject to special treatment under the United States federal income tax laws, including if you are:
a financial institution;
atax-exempt organization;
an S corporation or other pass-through entity;
an insurance company;
a mutual fund;
a dealer in securities or foreign currencies;
a trader in securities who elects themark-to-market method of accounting for your securities;
an MSB stockholder whose shares are qualified small business stock for purposes of Section 1202 of the Internal Revenue Code or who may otherwise be subject to the alternative minimum tax provisions of the Internal Revenue Code;
an MSB stockholder who received CliftonMSB common stock through the exercise of employee stock options or otherwise as compensation or through atax-qualified retirement plan;
a person who has a functional currency other than the U.S. dollar; or
an MSB stockholder who holds CliftonMSB common stock as part of a hedge, straddle or a constructive sale or conversion transaction.
If a partnership (including an entity treated as a partnership for United States federal income tax purposes) holds CliftonMSB common stock, the tax treatment of a partner in the partnership will generally depend on the status of such partner and the activities of the partnership.
This discussion is not intended to be tax advice to any particular holder of CliftonMSB common stock. Tax matters regarding the merger are complicated, and the tax consequences of the merger to you will depend on your particular situation. CliftonMSB stockholders are urged to consult their tax advisors as to the U.S. federal income tax consequences of the merger, as well as the effects of state, local, federalnon-income andnon-U.S. tax laws.
It is a condition to the closing of the merger that Kearny receive the opinion of its legal counsel, Luse Gorman, PC, and CliftonMSB receive the opinion of its legal counsel, Kilpatrick Townsend & StocktonJones Walker LLP, each dated as of the effective time of the merger, substantially to the effect that, on the basis of facts, representations and assumptions set forth or referred to in that opinion (including factual representations contained in certificates of officers of Kearny and Clifton)MSB), the merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. The tax opinions are not binding on the Internal Revenue Service, or “IRS,” or any court. Kearny and CliftonMSB have not sought and will not seek any ruling from the IRS regarding any matters relating to the merger and, as a result, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth below. In addition, if any of the representations or assumptions upon which the opinions are based are inconsistent with the actual facts, the U.S. federal income tax consequences of the merger could be adversely affected.
Based on the opinions that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, the material U.S. federal income tax consequences of the merger are as follows:
Exchange Solely for the Cash Consideration. An MSB stockholder who receives solely cash in lieuexchange for all of such a fractional sharehis or her shares of MSB common stock (and is not treated as constructively owning Kearny common stock will generally be treated as having received the fractional share pursuant toafter the merger and then having sold that fractional share of Kearny common stock for cash. Asunder the circumstances referred to below under“—Possible Dividend Treatment”) will recognize a result, a U.S. holder will generally recognize gain or loss for federal income tax purposes equal to the difference between the amount of cash received and such shareholder’s tax basis in the portionMSB common stock surrendered in exchange for the cash. Such gain or loss will be a capital gain or loss, provided that such shares were held as capital assets of the holder’s aggregate adjusted tax basisMSB stockholder at the effective time of the shares of Clifton stock surrendered that is allocable to its fractional share. Any capitalmerger. Such gain or loss will be long-term capital gain or loss if the MSB stockholder’s holding period for the fractional share (including the holding period of the shares of Clifton stock surrendered therefor) is more than one year. Long-term capital gains of individuals generally are eligible for reduced rates of taxation. The deductibility ofInternal Revenue Code contains limitations on the extent to which a taxpayer may deduct capital losses is subjectfrom ordinary income.
Exchange for the Stock Consideration and Cash Consideration. An MSB stockholder who receives a combination of Kearny common stock and cash in exchange for his or her MSB common stock will not be permitted to limitations.
For purposesrecognize any loss for federal income tax purposes. Such a shareholder will recognize gain, if any, equal to the lesser of (1) the amount of cash received or (2) the amount of gain “realized” in the transaction. The amount of gain an MSB stockholder “realizes” will equal the amount by which (a) the cash plus the fair market value at the effective time of the above discussionmerger of Kearny common stock received exceeds (b) the bases and holding periodsshareholder’s basis in the MSB common stock to be surrendered in the exchange for shares of Clifton stockthe cash and Kearny common stock. Any recognized gain could be taxed as a capital gain or a dividend, as described below. The tax basis of the shares of Kearny common stock Clifton stockholders whoreceived by such MSB stockholder will be the same as the basis of the shares of MSB common stock surrendered in exchange for the shares of Kearny common stock, plus any gain recognized by such shareholder in the merger, and minus any cash received by the shareholder in the merger. If an MSB stockholder purchased or acquired MSB common stock on different blocks of Clifton stock at different timesdates or at different prices, must calculate theirthen solely for purposes of determining the basis and holding periods separatelyof the Kearny common stock received in the merger, such shareholder may designate which share of Kearny common stock is received in exchange for each identifiable blockparticular share of MSB common stock. The holding period for shares of Kearny common stock received by such MSB stockholder will include such shareholder’s holding period for the MSB common stock exchangedsurrendered in exchange for the Kearny common stock, provided that such shares were held as capital assets of the shareholder at the effective time of the merger.
An MSB stockholder’s federal income tax consequences will also depend on whether his or her shares of MSB common stock were purchased at different times at different prices. If they were, the MSB stockholder could realize gain with respect to some of the shares of MSB common stock and loss with respect to other shares. Such MSB stockholder would have to recognize such gain to the extent such shareholder receives cash with respect to those shares in which the shareholder’s adjusted tax basis is less than the amount of cash plus the fair market value at the effective time of the merger of the Kearny common stock received, but could not recognize loss with respect to those shares in which the MSB stockholder’s adjusted tax basis is greater than the amount of cash plus the fair market value at the effective time of the merger of the Kearny common stock received. Any disallowed loss would be included in the adjusted basis of the Kearny common stock. Such an MSB stockholder is urged to consult his or her own tax advisor respecting the tax consequences of the merger to that shareholder.
Possible Dividend Treatment. The determination of whether a cash payment has that effect generally is based on a comparison of the MSB stockholder’s proportionate interest in Kearny after the merger with the proportionate interest the stockholder would have had if the stockholder had received solely Kearny common stock in the merger. Possible dividend treatment could apply because of a stockholder’s purchase (or the purchase by a family member or certain entities described
below) of additional Kearny stock or a repurchase of shares by Kearny. For purposes of this comparison, the MSB stockholder may be deemed to constructively own shares of Kearny common stock held by certain members of the stockholder’s family or certain entities in which the stockholder has an ownership or beneficial interest and certain stock options may be aggregated with the stockholder’s shares of Kearny common stock. The amount of the cash payment that may be treated as a dividend is generally limited to the stockholder’s ratable share of the accumulated earnings and profits of MSB at the effective time of the merger, although the applicable law on this point is not entirely clear. Dividends which are “qualified dividends,” as defined in Section 1(h)(11) of the Code, which for individuals, is taxed at the same federal rate as capital gain; however, none of the basis of the U.S. holder’s stock could be used to reduce the income attributable to such income. Dividends which are not “qualified dividends” are generally taxed at ordinary income rates. Any gain that is not treated as a dividend generally will be taxed as a capital gain. Because the determination of whether a cash payment will be treated as having the effect of a dividend depends primarily upon the facts and circumstances of each MSB stockholder, MSB stockholders are urged to consult their own tax advisors regarding the tax treatment of any cash received in the merger.
Backup Withholding. PaymentsCash in Lieu of cash (includingFractional Shares. MSB stockholders who hold MSB common stock as a capital asset and who receive in the merger, in exchange for such stock, solely Kearny common stock and cash in lieu of a fractional share if any) to a U.S. holder of Cliftoninterest in Kearny common stock may, under certain circumstances, be subject to information reporting and backup withholding (at a rate of 24% for 2018) unless such holder provides proof of an applicable exemption or, in the case of backup withholding, furnishes its taxpayer identification number and otherwise complies with the backup withholding rules. Any amounts withheld from payments to a U.S. holder of Clifton stock under the backup withholding rules are not an additional tax and generally will be allowedtreated as having received such fractional share and then having received such cash in redemption of such fractional share. Gain or loss generally will be recognized based on the difference between the amount of cash received in lieu of the fractional share and the portion of the stockholder’s aggregate adjusted basis in the shares of MSB common stock surrendered which is allocable to the fractional share. Such gain or loss generally will be long-term capital gain or loss if the stockholder’s holding period for its MSB common stock exceeds one year at the effective time of the merger.
Tax Treatment of the Entities. No gain or loss will be recognized by Kearny or MSB as a refund or credit against such holder’s federal income tax liability provided thatresult of the holder timely furnishes the required information to the IRS.merger.
Reporting Requirements. U.S. holders of Clifton stockRequirements
MSB stockholders who receive Kearny common stock pursuant toas a result of the merger will be required to retain records pertaining to the merger, and anymerger. Certain MSB stockholders are subject to certain reporting requirements with respect to the merger. In particular, such holder who, immediately before the merger, holds at least 5% (by vote or value) of the outstanding Clifton stock, or securities of Clifton with a basis for federal income tax purposes of at least $1 million,stockholders will be required to file with its U.S. federal incomeattach a statement to their tax returnreturns for the year in whichof the merger takes place athat contains the information listed in TreasuryRegulation Section 1.368-3(b). The statement setting forth certain facts relating tomust include the stockholder’s adjusted tax basis in its MSB common stock and other information regarding the merger. U.S. holdersMSB’s stockholders are urged to consult with their tax advisorsadvisers with respect to these and other reporting requirements applicable to the merger.
The preceding discussion isWithholding Requirements
Certain MSB stockholders may be subject to U.S. federal backup withholding (currently at a summaryrate of 24%), on cash received pursuant to the merger. Backup withholding will not apply, however, to MSB stockholders who provide proof of an applicable exemption or furnish their taxpayer identification number, and otherwise comply with all applicable requirements of the materialbackup withholding rules. Amounts withheld, if any, generally are not an additional tax and may be refunded or credited against the MSB stockholder’s U.S. federal income tax consequences ofliability, provided that the mergerMSB stockholder timely furnishes the required information to athe Internal Revenue Service.
THE PRECEDING DISCUSSION IS A SUMMARY OF THE MATERIAL U.S. holder of Clifton stock does not address all potential tax consequences that apply or that may vary with, or are contingent on, individual circumstances, and should not be construed as tax advice. Moreover, the discussion does not address anyFEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX CONSEQUENCES RELEVANT THERETO. STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS AS TO THE U.S. federalnon-income tax or any foreign, state or local tax consequences of the merger. Tax matters are very complicated and, accordingly, we strongly urge you to consult with a tax advisor to determine the particular federal, state, local and foreign income and other tax consequences to you of the merger.FEDERAL INCOME TAX CONSEQUENCES TO THEM OF THE MERGER (INCLUDING, BUT NOT LIMITED TO, TAX RETURN REPORTING REQUIREMENTS), AS WELL AS THE EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND ANY PROPOSED CHANGES TO APPLICABLE TAX LAWS.
Regulatory Matters Relating to the Merger
Completion of the merger is subject to the receipt of all required approvals and consents from regulatory authorities. The merger is subject to approval by the FDIC, the NJDBI and the Federal Reserve. Kearny has filed the required applications with the FDIC and intends to requestthe NJDBI and has requested a waiver for filing an application with the Federal Reserve.
Bank Merger. The bank merger whereby Clifton SavingsMillington Bank will merge with and into Kearny Bank is subject to the approval of the FDIC under the Bank Merger Act and the NJDBI under applicable New Jersey law. In granting its approval under the Bank Merger Act, the FDIC must consider the financial and managerial resources and future prospects of the existing and resulting institutions, the convenience and needs of the communities to be served, competitive factors, any risk to the stability of the United States banking or financial system and the effectiveness of the institutions involved in combating money laundering activities. The NJDBI follows criteria similar to those used by the FDIC.
Holding Company Merger. The merger of CliftonMSB with and into Kearny, with Kearny as the surviving savings and loan holding company, requires the approval of the Federal Reserve unless the Federal Reserve grants a waiver of the formal application process upon request of the acquiror.
The Federal Reserve takes into consideration a number of factors when acting on applications under the Bank Merger Act and the Home Owners Loan Act of 1934, including: (1) the financial and managerial resources and the effect of the proposed merger on these resources (including capital and pro forma capital ratios of the combined organization, the management expertise, internal controls, and risk management systems, especially those with respect to compliance with laws applicable to consumers and “fair lending” laws); (2) the effect of the proposal on competition; (3) the future prospects of the existing and merged entities; (4) the convenience and needs of the communities served; (5) any risk to the stability of the United States banking or financial system; and (6) the effectiveness of the acquiring entity in combating money laundering activities. The Federal Reserve also reviews the records of the relevant insured depository institutions under the Community Reinvestment Act of 1997, which we refer to in this document as the “CRA.” In connection with such a review, the Federal Reserve will provide an opportunity for public comment on the application and is authorized to hold a public meeting or other proceeding if it determines such meeting or other proceeding would be appropriate.
Anti-Competitive Matters. A period of 15 to 30 days must expire following approval by the FDIC before completion of the merger is allowed, within which period the United States Department of Justice may file objections to the merger under the federal antitrust laws. While Kearny and CliftonMSB believe that the likelihood of objection to the merger by the Department of Justice is remote, there can be no assurance that the Department of Justice will not initiate proceedings to block the merger, or that the Attorney General of the State of New Jersey will not challenge the merger, or if any proceeding is instituted or challenge is made, what the result of such challenge or proceeding would be.
The merger cannot proceed in the absence of the requisite regulatory approvals. See “—Conditions to Completing the Merger” and “—Terminating the Merger Agreement.” There can be no assurance that the requisite regulatory approvals will be obtained, and if obtained, there can be no assurance as to the date of any approval. There also can be no assurance that any regulatory approvals will not contain a condition or requirement that causes the approvals to fail to satisfy one or more conditions set forth in the merger agreement and described under “—Conditions to Completing the Merger.”
The approval of any application merely implies the satisfaction of regulatory criteria for approval, which does not include, for example, review of the merger from the standpoint of the adequacy of the merger consideration. Furthermore, regulatory approvals do not constitute an endorsement or recommendation with respect to the merger.
Interests of Certain PersonsMSB’s Directors and Executive Officers in the Merger that are Different from Yours
In considering the recommendation of the board of directors of CliftonMSB to approve and adopt the merger agreement, and the merger, you should be aware that Clifton’sMSB’s directors and executive officers have employment and other compensation agreements or plans that give them financial interests in the merger that are different from, or in addition to, the interests of CliftonMSB stockholders generally, which are described below. Clifton’sMSB’s board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement and the transactions contemplated by the merger agreement.
Treatment of Stock Options.
The merger agreement provides that all options to purchase CliftonMSB common stock outstanding at the effective time of the merger, whether or not vested, will be canceledcancelled and, subject to Kearny’supon MSB’s receipt of an option surrender agreement from the holder, will be entitled to receiveexchanged for a lump sum cash payment equal to the product of (i)(1) the number of shares of CliftonMSB common stock subject to the Clifton stock option multiplied by (ii)(2) the amount by which $18.25$18.00 exceeds the exercise price of such Clifton stock option, less requiredapplicable withholding taxes. If the exercise price of a Clifton stock option is greater than $18.25, then such Clifton stock option shall be canceled without any payment made in exchange therefor.
Treatment of Restricted Stock Awards.Awards
The merger agreement provides that at the effective time of the merger, each unvested share of restricted stock issued by CliftonMSB and outstanding at the effective time of the merger will fully vest and convertbe converted into the right to receive either the same mergerstock consideration that all other shares of Clifton common stock are entitled to receive inor the merger.cash consideration.
Stock Options and Restricted Stock Awards Held by Clifton’sMSB’s Executive Officers and Directors.Directors
For an estimate of the amounts that would be payable to each of Clifton’sMSB’s named executive officers on settlement of their unvested CliftonMSB equity awards, see “—“Merger-Related Executive Compensation for Clifton’sMSB’s Named Executive Officers” below. Clifton’sMSB’snon-employee directors Stephen Adzima, JohnRobert C. Andersen, H. Peto, Charles J. Pivirotto, Cynthia SiscoGary Gabriel, W. Scott Gallaway, Gary T. Jolliffe, Lawrence B. Seidman, Raymond Vanaria and Joseph C. SmithRobert D. Vollers, who each hold 10,556 vested andnon-vested stock options, respectively, will be entitled toeach receive aan estimated cash payment of $300,930, $300,930, $300,930, $0 and $300,930,$5,542, $5,542, $52,358, $52,358, $49,719, $52,358, $52,358, respectively, in exchange for the cancellation of their outstanding stock options upon consummationtermination of the merger. Stephen Adzima, John H. Peto, Charles J. Pivirotto, Cynthia Siscostock options. W. Scott Gallaway and Joseph C. SmithGary T. Jolliffe each hold 17,077, 16,377, 16,377, 16,377 and 16,3771,733 restricted stock awards (of which 866 are scheduled to vest on June 8, 2020, and accordingly, if the merger occurs after such date, Messrs. Gallaway and Jolliffe will hold 867 restricted stock awards), respectively, that will become fully vested at the effective time of the merger and convert into the right to receive the same merger consideration that all other shares of CliftonMSB common stock are entitled to receive in the merger.
Payments Under Employment Agreements With Clifton and Clifton Savings Bank.Clifton and Clifton Savings Bank each previously entered into separate employment agreements with Messrs. Aguggia, Hoogerhyde and Ms. Piano. The employment agreements provide that in the event of an involuntary termination of employment without just cause (as defined in each executive’s agreement) or voluntary termination by the executive for good reason (as defined in each executive’s agreement) following a change in control and during the term of the agreement, the executive will receive a cash severance payment equal to the greater of (i) the payments and benefits due for the remaining term of the employment agreement or (ii) three times the sum of: (a) the executive’s average base salary for the five years preceding the change in control (or, if a lesser period, the executive’s actual period of employment), (b) the average incentive or bonus compensation paid for the five years preceding the change in control (or, if a lesser period, the executive’s actual period of employment), (c) the average income realized on the vesting of stock awards for the five years preceding the change in control (or, if a lesser period, the executive’s actual period of employment), (d) the average of the contributions made on an executive’s behalf to the Clifton 401(k) Plan or Clifton ESOP and supplemental plans for the five years preceding the change in control (or, if a lesser period, the executive’s actual period of employment), and (e) the average of any other taxable income for the five years preceding the change in control (or, if a lesser period, the executive’s actual period of employment) excluding income realized with respect to stock options and income related to the distribution of benefits under any retirement plan. In addition, each executive is entitled to continued participation in Clifton’s health and welfare plans, with the executive paying the employee share of the insurance premiums, until the earlier of the executive’s death, his or her employment by another employer, or the
expiration of 36 months. If Clifton ceases to offer such plans following the change in control, the executive is entitled to a payment equal to the premiums for such benefits for the same time period. The payments to Mr. Hoogerhyde and Ms. Piano will be reduced by the minimum amount necessary so that such payments would not result in the loss of deductibility to Clifton under Section 280G of the Internal Revenue Code or imposition of excise taxes on the executive under Section 4999 of the Internal Revenue Code. Mr. Aguggia’s benefits under his employment agreements will be determined pursuant to a settlement agreement entered into concurrent with the execution of the merger agreement, as discussed in more detail below. For an estimate of the amounts that would be payable to each of Clifton’s named executive officers under their employment agreements, see “—Merger-Related Executive Compensation for Clifton’s Named Executive Officers” below.
Payments Under Change in Control Agreements With Clifton Savings Bank.Clifton SavingsMSB and Millington Bank
MSB and Millington Bank previously entered into change in control agreements with Messrs. Shriner, Russell, Bailey, Ms. Hrotko, Mr. LeslerSchmitz and Ms. Scriveri thatone other officer. Each of the agreements provide that, in the event that the executive’s employment is involuntarily terminated without just cause (as such term defined in connection withthe agreement) or voluntarily terminated for good reason (as such term defined in the agreement) within twenty-four months following a change in control (as such term defined in the agreement), he or she will be entitled to receive (i) a lump sum payment equal to three times his five year average annual compensation (FormW-2, Box 1) in the case of Mr. Shriner and two times his or her base salary astheir respective five year average annual compensation (FormW-2, Box 1) in the case of his or her termination dateMr. Russell, Ms. Schmitz and (ii) continued benefits coverage underMr. Bailey. Concurrent with the Bank’s healthsigning of the merger agreement, each officer entered into a settlement agreement with Kearny, Kearny Bank, MSB and welfare plans for a period of twenty-four months following his or her termination of employment. TheMillington Bank that cancelled the officer’s applicable change in control payments to Ms. Hrotko, Mr. Lesleragreement and Ms. Scriveriquantified the amount of the payment each officer will be reduced by the minimum amount necessary so thatentitled to receive at closing in exchange for cancellation of such payments would not result in the loss of deductibility to Clifton under Section 280G of the Internal Revenue Code or imposition of excise taxes on the executive under Section 4999 of the Internal Revenue Code. For an estimate of the amounts that would be payable to each of Clifton’s named executive officers under their change in control agreements, see “—Merger-Related Executive Compensation for Clifton’s Named Executive Officers” below.agreement and a general release.
Settlement Agreement with Paul M. Aguggia.Agreements
In connection with the merger agreement, Kearny, Kearny Bank CliftonMSB and Clifton SavingsMillington Bank entered into a settlement agreement with Mr. AguggiaMessrs. Shriner, Russell, Bailey, Ms. Schmitz and one other officer that fixed the amount of cash severance payable pursuant to the terms of his employment agreementseach individual’s change in control agreement with CliftonMSB and Clifton Savings Bank,Millington Bank. None of the payments will be subject to possible reduction so that no paymentsan excise tax under Section 4999 of the Code or subject to Mr. Aguggia would result in the loss of deductibility to Cliftonpenalties under Section 280G of the Internal Revenue Code or imposition of excise taxes on Mr. Aguggia under Section 4899 of the Internal Revenue Code, and waived his right to continued insurance coverage.Code. For an estimate of the amount that would be payable to Mr. Aguggiaeach of MSB’s named executive officers, Messrs. Shriner, Russell, Bailey and Ms. Schmitz, under this agreement,their settlement agreements, see “—“—Merger-Related Executive Compensation for Clifton’sMSB’s Named Executive Officers” below.
Non-Competition Agreement With Paul M. Aguggia.In connection with the merger agreement, Kearny Bank entered into anon-competition agreement with Mr. Aguggia, which was subsequently amended and restated to finalize the compensation payable to Mr. Aguggia, which provides generally that Mr. Aguggia may not compete with Kearny Bank for six months following the date of the merger and he may not solicit business, customers and employees for two years following the date of the merger. For the amount that would be payable to Mr. Aguggia under this agreement, see “—Merger-Related Executive Compensation for Clifton’s Named Executive Officers” below.
Payments under Amended and Restated Supplemental Executive Retirement Plan.Clifton Savings Bank maintains an Amended and Restated Supplemental Executive Retirement Plan, in which Mr. Aguggia and Ms. Piano are the only participants. This plan provides for a benefit if a change in control occurs prior to the complete scheduled payment of the employee stock ownership plan (ESOP) acquisition loans. The amount of the change in control benefit is equal to the benefit the participant would have received under the Clifton ESOP and the supplemental executive retirement plan had the participant remained employed throughout the term of the employee stock ownership plan loan, less the benefits actually provided under the employee stock ownership plan and the supplemental executive retirement plan on the participant’s behalf. The merger agreement provides that the Amended and Restated Supplemental Executive Retirement Plan will be terminated at or immediately prior to the effective time of the merger and each participant will receive a lump sum payment equal to the benefit which such participant is entitled to under the terms of the plan. For an estimate of the amounts that would be payable to Mr. Aguggia and Ms. Piano, see “—Merger-Related Executive Compensation for Clifton’s Named Executive Officers” below.
Payments under Directors’ Retirement Plan.Clifton Savings Bank maintains the Clifton Savings Bank Directors’ Retirement Plan toprovide non-employee directors with supplemental retirement income. Allcurrent non-employee directors participate in the plan. Upon a directors’ retirement following the completion of three years of service and the attainment of age 68, participants receive an annual retirement benefit, payable for life, equal to a percentage of the sum of the annual fees and retainer paid during the twelve-month period ending on the (or for a minimum of 10 years) date preceding retirement. The percentage paid as an annual benefit is determined by multiplying the participant’s years of service (up to a maximum of 10) by 10 percent. Upon a change in control, the benefit equals the sum of the annual fees and retainer paid to the participant during the twelve-month period preceding the date of a termination of service due to a change in control, payable annually for the life of the participant (or for a minimum of 15 years) or, at a director’s election, an actuarially equivalent determined lump sum payment. The merger agreement provides that the Directors’ Retirement Plan will be terminated at or immediately prior to the effective time of the merger and each participant will receive a lump sum payment equal to their change in control benefit. Clifton’snon-employee directors Stephen Adzima, John H. Peto, Charles J. Pivirotto, Cynthia Sisco and Joseph C. Smith, respectively, will receive an estimated cash payment of $895,428, $862,578, $852,954, $803,940, and $883,900, respectively, upon termination of the plan, payable at the effective time of the merger. In connection with the merger agreement, Cynthia Sisco entered into a cutback agreement which provides that payments made to her as a result of the merger, which include payments under the Clifton Savings Bank Directors’ Retirement Plan, will be reduced, if necessary, so that such payments would not result in the loss of deductibility to Clifton under Section 280G of the Internal Revenue Code or imposition of excise taxes on Ms. Sisco under Section 4999 of the Internal Revenue Code.
Appointment of Three Directors to Kearny’s Board of Directors.The merger agreement provides that immediately following the effective time of the merger, Paul M. Aguggia and two other members of Clifton’s board of directors will be appointed to Kearny’s board of directors and that it is the intent of Kearny to appoint Paul M. Aguggia as Chairman of Kearny’s Enterprise Risk Management Committee and as a Board liaison to Kearny’s Capital Markets Committee, effective immediately following the date of the merger.
Indemnification and Insurance of Directors and Officers.Officers
In the merger agreement, Kearny has agreed to indemnify and hold harmless each of the current and former officers and directors of CliftonMSB and its subsidiaries against any costs, expenses, judgments, fines, amounts paid in settlements, damages and other liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether arising before or after the effective time of the merger, pertaining to any matter that existed or occurred at or before the effective time of the merger to the samefullest extent as Clifton currently provides for indemnification of its officers and directors.permitted by applicable law. Kearny has also agreed to maintain in effect for a period of six years following the effective time of the merger the directors’ and officers’ liability insurance policy currently maintained by CliftonMSB or to provide a policy with comparable coverage, provided that, to obtain such insurance coverage, Kearny is not obligated to expend, in the aggregate, an amount exceeding 250%200% of the amount of the annual premiumspremium currently paid by CliftonMSB for such insurance.
Merger-Related Executive Compensation for Clifton’sMSB’s Named Executive Officers.The information set forth in the following table is intended to comply with Item 402(t) of the SEC’s RegulationS-K, which requires disclosure of information about certain compensation for each of Clifton’s named executive officers that is based on, or otherwise relates to, the merger (which we refer to as “merger-related compensation”). The merger-related compensation payable to these individuals is the subject of anon-binding advisory vote of Clifton stockholders, as described above in “Special Meeting of Clifton StockholdersOfficers —Clifton Proposal No. 2 —Non-Binding Advisory Vote to Approve the Compensation That May Become Payable to the Named Executive Officers of Clifton in Connection with the Merger.”
The following table sets forth the amount of payments andestimated potential severance benefits that each of Clifton’sto MSB’s named executive officers would receiveon termination of employment in connection with the merger, assuming: (i)a change in control and assumes that the effective time of the merger was November 30, 2017,will be March 16, 2020, the last practicable date prior to the date of this joint proxy statement/prospectus; (ii) a per share price of Clifton common stock of $17.25, which is the average closing price per share over the first five
business days following the announcement of the merger agreement; and (iii) each named executive officer experiences a qualifying termination of employment on November 30, 2017.these materials. If the merger closes after September 2, 2018,June 7, 2020, then the estimated paymentpayments in connection with a change of control listed below will changebe reduced as some of the stock options and restricted stock awards will have vested without regard to the change of control and cash payments may change because of the requirements to reduce severance under the employment agreements and change in control agreements if an executive is initially determined to be subject to excise taxes imposed under Section 280G of the Internal Revenue Code.control. This table does not include the value of benefits in which the named executive officers are vested without regard to the occurrence of a change in control. The amounts shown below are estimates based on multiple assumptions that may or may not actually occur, and as a result, the actual amounts to be received by a named executive officer may differ materially from the amounts shown below.
| Cash ($)(1) | Equity ($)(2) | Pension/NQDC ($)(3) | Perquisites/ Benefits ($)(4) | Total ($) | |||||||||||||||
Paul M. Aguggia | 2,060,827 | 2,225,023 | 1,464,664 | — | 5,750,514 | |||||||||||||||
Christine R. Piano | 507,698 | 951,579 | 472,022 | 33,871 | 1,965,170 | |||||||||||||||
Stephen Hoogerhyde | 725,593 | 488,512 | — | 38,241 | 1,252,347 | |||||||||||||||
Patricia C. Hrotko | 377,400 | 488,512 | — | 19,569 | 885,482 | |||||||||||||||
Michael Lesler | 535,600 | — | — | 52,496 | 588,096 | |||||||||||||||
Diane Scriveri | 450,000 | 103,500 | — | 36,178 | 589,678 | |||||||||||||||
Executive | Cash(1) | Equity(2) | Perquisites/ Benefits(3) | Total | ||||||||||||
Michael A. Shriner | $ | 1,476,531 | $ | 230,400 | $ | 18,253 | $ | 1,725,184 | ||||||||
Robert G. Russell, Jr. | 534,852 | 147,680 | 18,253 | 700,785 | ||||||||||||
Nancy E. Schmitz | 495,294 | 147,680 | 5,965 | 648,939 | ||||||||||||
John Bailey | 485,788 | 147,680 | 5,965 | 639,433 | ||||||||||||
| (1) | The cash payments consist |
| (2) | Represents the estimated cash payment to be made in exchange for the cancellation of thenon-vested stock options and the value of thenon-vested restricted stock awards that become vested at the effective time of the merger. The value of the stock options |
Name | Stock Options ($) | Restricted Stock ($) | ||||||
Paul M. Aguggia | 812,507 | 1,412,516 | ||||||
Christine R. Piano | 315,985 | 635,594 | ||||||
Stephen Hoogerhyde | 135,422 | 353,090 | ||||||
Patricia C. Hrotko | 135,422 | 353,090 | ||||||
Michael Lesler | — | — | ||||||
Diane Scriveri | — | 103,500 | ||||||
| (3) |
Represents the estimated value of continued medical, |
Employee Matters
Each person who is an employee of Clifton SavingsMSB or Millington Bank as of the effective time of the merger (whose employment is not specifically terminated as of the merger date) will become an employee of Kearny Bank and will be eligible to participate in employee benefit plans and compensation opportunities that are substantially comparable to the employee benefit and compensation opportunities that are generally made available to similarly situated employees of Kearny Bank; provided, however, that continuing employees will not be eligible to participate in any frozen plans of Kearny Bank. With respect to any Kearny Bank medical, dental or vision insurance plan, Kearny Bank will cause any preexisting condition limitations or eligibility waiting periods to be waived and credit each continuing employee for anyco-payments or deductibles incurred by such continuing employee under a Cliftonan MSB health plan for the plan year in which coverage commences under Kearny Bank’s health plan. Terminated Clifton Savings Bank employees that do not continue as employees of Kearny Bank following the effective time of the merger, and their qualified beneficiaries, will have the right to continued coverage in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”).
Continuing employees will receive prior service credit for purposes of eligibility and vesting (but not for purposes of benefit accrual) under the Kearny Bank employee benefit plans to the same extent that such service was credited for such purposes under MSB’s employee benefit plans, provided that such recognition of service will not (1) apply to the Kearny ESOP, (2) apply to paidtime-off, to the extent, at Kearny Bank’s discretion, the cash value of unused paidtime-off is paid to continuing employees, or (3) operate to duplicate any benefits with respect to the same period of service.
Each full-time employee of CliftonMSB or Clifton SavingsMSB, Millington Bank whose employment is involuntarily terminated by Kearny Bank (other than for cause) or who voluntarily terminates employment for good reason within six months following the effective time of the merger and who is not covered by a separate employment agreement, change in control agreement or other agreement that provides for the payment of severance will, upon executing an appropriate release in the form reasonably determined by Kearny Bank, receive a severance payment equal to two weeks of base pay for each year of service with Clifton,MSB, with a minimum payment equal to four weeks forof base pay and a maximum payment equal to 26 weeks of base pay. Kearny will offer Clifton Savings Bank employees whose jobs are eliminated as a result of the merger priority in applying for open positions with Kearny and Kearny Bank.
Operations of Kearny Bank after the Merger
The merger agreement provides for the merger of CliftonMSB with and into Kearny, with Kearny as the surviving entity. Following the merger of CliftonMSB with and into Kearny, Kearny will merge Clifton SavingsMillington Bank with and into Kearny Bank, with Kearny Bank as the surviving bank.
The directors and executive officers of Kearny Bank will remain the same following the merger, and Kearny Bank will appoint Paul M. Aguggia and two additional current Clifton directors to serve on the Kearny Bank board of directors.merger.
Resale of Shares of Kearny Common Stock
All shares of Kearny common stock issued to Clifton’sMSB’s stockholders in connection with the merger will be freely transferable. This document does not cover any resales of the shares of Kearny common stock to be received by Clifton’sMSB’s stockholders upon completion of the merger, and no person may use this document in connection with any resale.
Time of Completion
Unless the parties agree otherwise and unless the merger agreement has otherwise been terminated, the closing of the merger will take place no later than 30 days following the date on which all of the conditions to the merger contained in the merger agreement are satisfied or waived. See “—Conditions to Completing the Merger.” On the closing date, to merge CliftonMSB into Kearny, Kearny will file Articles of Merger with the Maryland State Department of Assessments and Taxation. The merger will become effective at the time stated in the Articles of Merger.
It is currently expected that the merger will be completed late in the firstsecond quarter or early in the secondthird quarter of 2018.2020. However, because completion of the merger is subject to regulatory approvals and other conditions, the parties cannot be certain of the actual timing of the completion of the merger.
Conditions to Completing the Merger
Kearny’s and Clifton’sMSB’s obligations to consummate the merger are conditioned on the following:
approval of the merger agreement by Clifton and KearnyMSB stockholders;
receipt of all required regulatory approvals, consents or waivers and the expiration of all statutory waiting periods;
the absence of any order, decree, injunction, statute, rule or regulation that prevents the consummation of the merger or the bank merger or that makes completion of the merger or the bank merger illegal;
receipt of consent of all third parties whose consent is required to consummate the merger, except where failure to obtain such consent would not have a material adverse effect on Kearny;
effectiveness of the registration statement of which this document is a part;
Kearny filing a notice with The Nasdaq Stock Market for the listing of the shares of Kearny common stock to be issued by Kearny in the merger, and The Nasdaq Stock Market authorizing and not objecting to the listing of such shares of Kearny common stock; and
receipt by Kearny and CliftonMSB of an opinion from their respective legal counsel to the effect that the merger will be treated for federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code.
In addition, Kearny’s obligations to consummate the merger are conditioned on the following:
the representations and warranties of CliftonMSB contained in the merger agreement will be true and correct as of the closing date of the merger (except to the extent such representations and warranties speak as of an earlier date and subject to materiality and material adverse effect standards described in the merger agreement), and the receipt by Kearny of a written certificate from Clifton’sMSB’s Chief Executive Officer and Chief Financial Officer to that effect;
MSB’s performance in all material respects of all of its obligations and covenants required to be performed prior to the effective time of the merger, and Kearny’s receipt of a written certificate from Clifton’sMSB’s Chief Executive Officer and Chief Financial Officer to that effect; and
None of the regulatory approvals, consents or waivers necessary to consummate the merger and the transactions contemplated by the merger agreement includes any condition or requirement that would so materially and adversely impact the economic or business benefits to Kearny of the transactions contemplated by the merger agreement that, had such condition or requirement been known, Kearny would not, in its reasonable judgment, have entered into the merger agreement.
In addition, Clifton’sMSB’s obligations to consummate the merger are conditioned on the following:
the representations and warranties of Kearny contained in the merger agreement will be true and correct as of the closing date of the merger (except to the extent such representations and warranties speak as of an earlier date and subject to materiality and material adverse effect standards described in the merger agreement), and MSB’s receipt of a written certificate from Kearny’s Chief Executive Officer and Chief Financial Officer to that effect; and
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Kearny’s performance in all material respects of all of its obligations and covenants required to be performed prior to the effective time of the merger, and Clifton’sMSB’s receipt of a written certificate from Clifton’sMSB’s Chief Executive Officer and Chief Financial Officer to that effect.
Kearny and CliftonMSB cannot guarantee that all of the conditions to the merger will be satisfied or waived by the party permitted to do so.
Conduct of Business Before the Merger
CliftonMSB has agreed that, until completion of the merger and unless consented to by Kearny, or to the extent required by law or regulation of any governmental entity, neither CliftonMSB nor its subsidiaries will:
General Business
conduct its business other than in the regular, ordinary and usual course consistent with past practice;
fail to use reasonable efforts to maintain and preserve intact its business organization, properties, leases, employees and advantageous business relationships and retain the services of its officers and key employees;
take any action that would adversely affect or materially delay the ability to perform its obligations under the merger agreement or to consummate the transactions contemplated by the merger agreement;
Indebtedness
incur, modify, extend or renegotiate any indebtedness for borrowed money or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any person, other than deposits in the ordinary course of business consistent with past practice and advances from the FHLB with a maturity of not more than ten years;one year;
prepay any indebtedness or other similar arrangements to cause CliftonMSB to incur any prepayment penalty;
purchase any brokered certificates of deposit;deposit, except as previously disclosed;
Capital Stock
adjust, split, combine or reclassify its capital stock;
adjust, split, combine or reclassify any capital stock;
make, declare or pay any dividendsdividend, or make any other distribution on its capital stock, except regular quarterly cashstock; provided however, MSB may pay the following dividends on Cliftonits common stock: (A) a dividend comparable to any dividend paid by Kearny on its common stock, after December 18, 2019 through the closing of no greater than $0.06the merger, with such MSB dividend equal to Kearny’s dividend payment per share withmultiplied by the exchange ratio, and MSB’s dividend record date and payment dates consistentdate being the same as those of Kearny’s corresponding dividend payment, and (B) a dividend comprised of the dollar amount of a specified “vendor cost savings” relating to MSB’s information technology services agreement, as amended, with past practice and dividendsFidelity Information Services, LLC, to be paid by Clifton Savings Bank to Clifton to enable Clifton to pay such regular quarterly cash dividends;after the date of this Agreement but with a dividend payment date no later than the closing date of the merger;
grant any Person any right to acquire any shares of its capital stock or make any grant or award under MSB’s equity plans;
issue any additional shares of capital stock or any securities or obligations convertible or exercisable for any shares of its capital stock, except pursuant to the exercise of stock options outstanding as of the date hereof;
redeem or otherwise acquire any shares of its capital stock other than a security interest or as a result of the enforcement of a security interest and other than as provided in this Agreement;
grant any person any right to acquire any shares of its capital stock or make any grant or award under the Clifton’sMSB’s equity plans;
issue any additional shares of capital stock or any securities or obligations convertible or exercisable for any shares of its capital stock, except pursuant to the exercise of stock options outstanding as of the date of the merger agreement;
redeem or otherwise acquire any shares of its capital stock other than a security interest or as a result of the enforcement of a security interest and other than provided in the merger agreement;
Dispositions
sell, transfer, mortgage, encumber or otherwise dispose of any of its real property or other assets to any person other than to its subsidiary or cancel, release or assign any indebtedness or claims, other than in the ordinary course of business consistent with past practice;
Investments
make any equity investment, either by purchase of stock or securities, contributions to capital, property transfers, or purchase of any property or assets of any other person, or form any new subsidiary;
purchase or sell any debt security other than U.S. government and U.S. government agency securities with final maturities of less than one year;
enter into any futures contract, option, swap agreement, interest rate cap, interest rate floor, interest rate exchange agreement, or take any other action for purposes of hedging the exposure of its interest-earning assets or interest-bearing liabilities to changes in market rates of interest;
Contracts
enter into, renew, amend or terminate any material contract or make any change in its leases or material contracts;
Loans
except for loans or commitments for loans that have previously been approved by CliftonMSB prior to the date of the merger agreement, (i) make, renegotiate, renew, increase the amount of, extend the term of, modify or purchase any loans, or make any commitment in respect of any of the foregoing, except in conformity with existing lending practices, (ii) make, renegotiate, renew, increase the amount of, extend the term of, modify or purchase any commercial and industrial loan, not secured by real estate, (iii) make, renegotiate, renew, increase the amount of, extend the term of, modify or purchase any loan, or make any commitment in respect of any of the foregoing, except (a) in conformity with existing lending practices in amounts not to exceed $150,000 if such loan is not fully secured, $1,500,000$500,000 if such loan is fully secured by residential real estate or, $4,000,000$2,000,000 if such loan is fully secured by commercial or multi-family real estate and the proposed credit facility does not represent an exception to Clifton’sMSB’s existing commercial loan policy, (b) loans as to which CliftonMSB has a binding obligation to make such loans as of the date of the merger agreement; provided, however, that neither CliftonMSB nor any of its subsidiaries will make, renegotiate, renew, increase the amount of, extend the term of, modify or purchase any loan, or make any commitment in respect of any of the foregoing, to any person if when aggregated with all outstanding loans and commitments for loans made to such person and such person’s family members and affiliates, the loans would exceed $10,000,000.$2,000,000. Any consent sought from Kearny must be given within two business days after the relevant loan package is provided;
make any new loan, or commit to make any new loan, to any director or executive officer of CliftonMSB or Clifton SavingsMillington Bank, or, except for in accordance with Regulation O of the Federal Reserve regulations, amend or renew any existing loan, or commit to do so, with any director or executive officer of CliftonMSB or Clifton SavingsMillington Bank;
purchase or sell any mortgage loan servicing rights other than in the ordinary course of business consistent with past practice;
Benefit Plans
increase the compensation or benefits payable to any employee or director other than in the ordinary course of business consistent with past practice and pursuant to policies in effect or pay any bonus, pension, retirement allowance or contribution except for cash bonuses, consistent with past practice;
amend the terms of any outstanding stock option or accelerate the vesting of, or lapsing of restrictions with respect to, any stock options or other stock-based compensation; make any contributions to any defined contribution plan not in the ordinary course of business consistent with past practice;practice, provided that MSB will not make any discretionary contributions to its 401(k) plan; or make any contribution to the CliftonMSB ESOP, forgive any indebtedness with respect to the CliftonMSB ESOP loan or take any action that would cause a release of any suspense shares, except as required by operation of the CliftonMSB ESOP or in the ordinary course of business consistent with past practice;practice, provided that MSB shall continue to accrue and pay its quarterly ESOP loan payments and will make a pro rata accrual and payment for the month end immediately prior to the closing of the merger;
elect any person to office with the title of Senior Vice President or higher who does not currently hold such office or elect any person who is not currently a board of director as of the date of the merger agreement;
hire any employee whose annual base salary would be greater than $50,000, except as may be necessary to replace anynon-officer employee;
Settling Claims
commence any action or proceeding other than to enforce any obligation owed to CliftonMSB and in accordance with past practice, or settle any claim, action or proceeding against it involving payment of money damages in excess of $50,000 that would not impose any material restrictions on Clifton’sMSB’s operations;
Governing Documents
amend Clifton’sMSB’s articles of incorporation or bylaws;
Deposits
increase or decrease the rate of interest paid on time deposits or on certificates of deposit, except in the ordinary course of business;
Capital Expenditures
make any capital expenditures in excess of $100,000 other than existing binding commitments as of the date of the merger agreement and expenditures reasonably necessary to maintain existing assets in good repair;
Branches
establish or commit to establish any new branch office or file any application to relocate or terminate any banking office;
Policies
Communications
except as required by law or for communications in the ordinary course of business consistent with past practice that do not relate to the merger: (i) issue any communication of a general nature to employees without prior consultation with Kearny and, to the extent relating to post-closing employment, benefit or compensation information, without the prior consent of Kearny; or (ii) issue any communication of a general nature to customers without the prior approval of Kearny;
Environmental Assessments
except with respect to foreclosures in process as of the date of the merger agreement, foreclose upon or take a deed or title to any commercial real estate (i) without providing prior notice to Kearny and conducting a Phase I environmental assessment of the property, or (ii) if the Phase I environmental assessment reflects the presence of any hazardous material or underground storage tank;
Taxes
make, change or rescind any material tax election concerning Clifton’sMSB’s taxes or tax returns or settle any material tax claim, assessment or surrender any right to claim a tax refund;
Accounting
implement or adopt any change in its accounting principles, practices or methods, other than as may be required by generally accepted accounting principles or regulatory guidelines;
New Lines of Business
enter into any new lines of business;
Merger or Liquidation
merge or consolidate Clifton SavingsMillington Bank or any subsidiary with any other corporation or restructure, reorganize or completely or partially liquidate or dissolve itself or any of its subsidiaries;
Tax-Free Reorganization
knowingly take action that would prevent or impede the merger from qualifying as a reorganization under the Internal Revenue Code;
Other Agreements
take any action that is intended or expected to result in any of Clifton’sMSB’s representations and warranties set forth in the merger agreement being or becoming untrue in any material respect at any time prior to the effective time, or in any of the closing conditions not being satisfied or in a violation of any provision of the merger agreement; or
Kearny has agreed that, until the completion of the merger and unless permitted by Clifton,MSB, or to the extent required by laws or regulation of any governmental entity, or as expressly contemplated or permitted by the merger agreement or as required by law, it will not:
conduct its business other than in the regular, ordinary and usual course consistent with past practice;
fail to use reasonable efforts to maintain and preserve intact its business organization, properties, leases, employees and advantageous business relationships and retain the services of its officers and key employees;
take any action that would adversely affect or materially delay the ability to perform its obligations under the merger agreement or to consummate the transactions contemplated by the merger agreement;
knowingly take action that would prevent or impede the merger from qualifying as a reorganization under the Internal Revenue Code;
agree to take, commit to take or adopt any resolutions in support of any of the actions prohibited by the section in the merger agreement governing Kearny’s conduct of business until the completion of the merger; or
amend or repeal its articles of incorporation or bylaws in a manner that would materially and adversely affect MSB or the economic benefits ofability to consummate the merger to Clifton’s stockholders or materially change the rights, terms or preferences of Kearny common stock.merger.
Additional Covenants of CliftonMSB and Kearny in the Merger Agreement
Agreement Not to Solicit Other Proposals. From the date of the merger agreement until the closing of the merger, CliftonMSB will not, and will not authorize or permit any of its subsidiaries or any of its subsidiaries’ officers, directors, employees, or any investment banker, financial advisor, attorney, accountant or other representative, directly or indirectly: (1) solicit, initiate, induce or encourage, or take any action to facilitate, any inquiries, offers, discussions or the making of any proposal that constitutes or could reasonably be expected to lead to, an acquisition proposal by a third party; (2) furnish any confidential ornon-public information regarding Clifton,MSB, or afford access to any such information or data, to any person in connection with or in response to an acquisition proposal by a third party or an inquiry or indication of interest that would reasonably be expected to lead to such an acquisition proposal; (3) continue or otherwise participate in any discussions or negotiations, or otherwise communicate in any way with any person other than Kearny, regarding an acquisition proposal by a third party; (4) approve, endorse or recommend any acquisition proposal by a third party; (5) release any person from, waive any provisions of, or fail to use its reasonable best efforts to enforce any confidentiality agreement or standstill agreement to which CliftonMSB is a party; or (6) enter into or consummate any agreement, agreement in principle, letter of intent, arrangement or understanding contemplating any acquisition proposal by a third party or requiring CliftonMSB to abandon, terminate or fail to consummate the transactions contemplated by the merger agreement.
An acquisition proposal is a proposal that could lead to the following transactions:
any merger, consolidation, share exchange, business combination or other similar transaction involving CliftonMSB or its subsidiaries;
any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 20%10% or more of the consolidated assets of CliftonMSB in a single transaction or series of transactions;
any tender offer or exchange offer for 20%10% or more of the outstanding shares of CliftonMSB capital stock or the filing of a registration statement under the Securities Act in connection therewith; and
any transaction that is similar in form, substance or purpose to any of the foregoing transactions; or
any public announcement, notice or regulatory filing or a proposal, plan or intention to do any of the foregoing transactions or any agreement to engage in any of the foregoing transactions.
Despite the agreement of CliftonMSB not to solicit other acquisition proposals, CliftonMSB may generally negotiate or have discussions with, or provide information to, a third party who makes a bona fide unsolicited written acquisition proposal prior to the adoption and approval of the merger agreement by the CliftonMSB stockholders at the meeting to vote on the merger agreement, provided that the CliftonMSB board of directors determines in its good faith, after consultation with its outside legal counsel, that the failure to take such action would reasonably be expected to violate the directors’ fiduciary obligations to Clifton’sMSB’s stockholders under applicable law and that the acquisition proposal constitutes or is reasonably likely to lead to a superior proposal. A “superior proposal” is an unsolicited, bona fide written offer or proposal made by a third party to consummate an acquisition proposal by a third party that: (i) Clifton’sMSB’s board of directors determines in good faith, after consulting with its outside legal counsel and its financial advisor, would, if consummated, result in a transaction that is more favorable to the stockholders of CliftonMSB than the transactions contemplated by the merger agreement (taking into account all factors relating to such proposed transaction deemed relevant by Clifton’sMSB’s board of directors, including without limitation, the amount and form of consideration, the timing of payment, the risk of consummation of the transaction, the financing thereof and all other conditions thereto (including any adjustments to the terms and conditions of such transactions proposed by Kearny in response to such acquisition proposal)); (ii) is for 100% of the outstanding shares of CliftonMSB common stock or all or
substantially all of the assets of Clifton;MSB; and (iii) is reasonably likely to be completed on the terms proposed, in each case taking into account all legal, financial, regulatory and other aspects of such acquisition proposal.
If CliftonMSB receives an acquisition proposal or information request from a third party or enters into negotiations with a third party regarding a superior proposal, CliftonMSB must notify Kearny orally within twenty-four hours, and within three days in writing, of the receipt of the acquisition proposal or information request and provide Kearny with information about the third party and its proposal or information request.
Certain Other Covenants. The merger agreement also contains other agreements relating to the conduct of Kearny and CliftonMSB before consummation of the merger, including the following:
each party will promptly advise the other party of (i) any representation or warranty made by it contained in the merger agreement becoming untrue or inaccurate in any material respect or (ii) the failure by it to comply in any material respect with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under the merger agreement;
Kearny and CliftonMSB will provide each other reasonable access during normal business hours to its books, records, contracts, properties, personnel, information technology systems and such other information relating to the other party as may be reasonably requested;
MSB will provide Kearny with a copy of each report filed with a governmental entity, each periodic report furnished to its board of directors, each press release and all other information concerning its business, properties and personnel as Kearny may reasonably request;
MSB will meet with Kearny on a regular basis to discuss and plan for the conversion of Clifton’sMSB’s data processing and related electronic information systems;
Kearny and Clifton,MSB, and their respective subsidiaries, will use their reasonable best efforts to obtain all third party consents that are required to consummate the merger, the bank merger and the other transactions contemplated by the merger agreement;
MSB will take all steps required to exempt Kearny, the merger agreement and the merger from any provisions of an anti-takeover nature in Clifton’sMSB’s articles of incorporation and bylaws, or similar organizational documents, and the provisions of any federal or state anti-takeover laws;
Kearny and CliftonMSB will use their reasonable best efforts to take promptly all actions and to do promptly all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by the merger agreement;
Kearny and CliftonMSB will consult with one another before issuing any press release or otherwise making public statements with respect to the merger and making any filings with any governmental entity;
MSB will take all actions necessary to convene a meeting of its stockholders to vote on the merger agreement and any other matters required to be approved or adopted by stockholders to carry out the terms of the merger agreement;
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as promptly as reasonably practicable following the date of the merger agreement, Kearny will prepare and file a registration statement, of which this document forms a part, with the SEC registering the shares of Kearny common stock to be issued in the merger to CliftonMSB stockholders;
Kearny will use its reasonable best efforts to have the registration statement, of which this document forms a part, declared effective by the SEC;
before completion of the merger, Kearny will notify The Nasdaq Stock Market of the additional shares of Kearny common stock that Kearny will issue in exchange for shares of CliftonMSB common stock;
Kearny will indemnify Clifton’sMSB’s and its subsidiaries’ current and former directors, officers and employees to the fullest extent as would have been permitted under Maryland law and the CliftonMSB articles of incorporation or the CliftonMSB bylaws and advance expenses as incurred to the fullest extent permitted under applicable law;
Kearny will maintain for a period of six years after completion of the merger Clifton’sMSB’s current directors’ and officers’ liability insurance policies, or policies of at least the same coverage and amount and containing terms and conditions that are no less favorable than the current policy, with respect to acts or omissions occurring after prior to the effective time of the merger, except that Kearny is not required to incur an annual premium expense greater than 250%200% of Clifton’sMSB’s current annual directors’ and officers’ liability insurance premium;
MSB will give Kearny the opportunity to participate in the defense or settlement of any stockholder litigation against CliftonMSB and/or its directors relating to the transactions contemplated by the merger agreement, and no such settlement will be agreed to without Kearny’s prior written consent; and
Representations and Warranties Made by Kearny and CliftonMSB in the Merger Agreement
Kearny and CliftonMSB have made certain customary representations and warranties to each other in the merger agreement relating to their businesses. The representations and warranties contained in the merger agreement were made only for purposes of such agreement and are made as of specific dates, were solely for the benefit of the parties to such agreement, and may be subject to limitations agreed to by Kearny or Clifton,MSB, including being qualified by disclosures between the parties. These representations and warranties may have been made for the purpose of allocating risk between the parties to the merger agreement instead of establishing these matters as facts, and may be subject to standards of materiality that differ from the standard of materiality that an investor may apply when reviewing statements of factual information.
Each of Kearny and CliftonMSB has made representations and warranties to the other regarding, among other things:
corporate matters, including due organization, qualification and the organizational structure;
capitalization, including total outstanding shares and classes of stock;
authority relative to execution and delivery of the merger agreement and the absence of conflicts with, violations of, or a default under organizational documents or other obligations as a result of the merger;
the timely filing of regulatory and securities reports;
financial statements;
undisclosed liabilities;
litigation matters;
tax matters;
the absence of any event or action that would, or reasonably be expected to, constitute a material adverse effect since June 30, 2017;2019;
legal proceedings;
the absence of regulatory actions;
compliance with applicable laws;
the existence, performance and legal effect of certain contracts;
intellectual property and IT systems;
labor and employee benefit matters;
real and personal property;
receipt of a fairness opinion;
brokers or financial advisor fees;
compliance with applicable environmental laws;
loan portfolio matters;
anti-takeover provisions;
insurance matters;
corporate documents and records;
indemnification;
community reinvestment act and regulatory compliance matters;
internal controls; and
tax treatment of the merger.
In addition, CliftonMSB has made other representations and warranties about itself to Kearny as to:
investment portfolio matters;
related party transactions; and
trust accounts.
The representations and warranties of each of Kearny and CliftonMSB will expire upon the effective time of the merger.
Terminating the Merger Agreement
The merger agreement may be terminated by mutual written consent of Kearny and CliftonMSB at any time prior to the completion of the merger. Additionally, subject to conditions and circumstances described in the merger
agreement, either Kearny or CliftonMSB may terminate the merger agreement any time prior to the completion of the merger if, among other things, any of the following occur:
MSB stockholders do not approve the merger agreement at the CliftonMSB special meeting, or Kearny special meeting, respectively, provided each partyMSB attempts to terminate the agreement in this context, it has complied with certain obligations pursuant to the merger agreement;
any required regulatory approval has been denied and such denial has become final andnon-appealable, or a governmental authority or court has issued a final, unappealable order prohibiting consummation of the transactions contemplated by the merger agreement;
the merger has not been consummated by September 30, 2018,2020, unless the failure to complete the merger by that time was due to the failure of the party seeking to terminate the merger agreement to perform or observe the covenants and agreements provided in the merger agreement; or
there is a breach by the other party of any covenant or agreement contained in the merger agreement, or any representation or warranty of the other party becomes untrue, in each case such that the conditions to closing would not be satisfied and such breach or untrue representation or warranty has not been or cannot be cured within 30 days after the giving of written notice to such party of such breach.
Kearny may also terminate the merger agreement if Clifton(i) MSB breaches its obligations in any material respect regarding the solicitation of other acquisition proposals or submission of the merger agreement to Clifton’sMSB’s stockholders, or (ii) if the CliftonMSB board of directors does not publicly recommend in this document that CliftonMSB stockholders approve the merger agreement or withdraws or revises
its recommendation in a manner adverse to Kearny.Kearny, provided, however, in either case, MSB’s stockholders fail to approve the merger agreement.
CliftonMSB may also terminate the merger agreement:
within the five day period commencing with the tenth day prior to the closing date of the merger (which we refer to as the “determination date”), if both of the following conditions have been satisfied:
the average of the daily closing sale prices of a share of Kearny common stock as reported on the Nasdaq Global Select Market for the 20 consecutive full trading days immediately preceding the determination date is less than $12.42 (82.5%$11.28 (80% of the closing sale price of Kearny common stock on the last trading date before the date of the first public announcement of the merger agreement); and
the decline in Kearny’s common stock underperformsbeing at least 20% greater than a corresponding decline in the value of the NASDAQ Bank Index by more than 17.5% during the same period.
However, if CliftonMSB chooses to exercise this termination right, Kearny has the option, within five business days of receipt of notice from Clifton,MSB, to adjust the merger consideration and prevent termination under this provision.
Termination Fee
The merger agreement requires CliftonMSB to pay Kearny a fee of $15.0$3.54 million if CliftonMSB terminates the merger agreement to enter into an agreement with respect to an acquisition proposal. Additionally, CliftonMSB must pay the
termination fee if Kearny terminates the merger agreement as a result of a breach by CliftonMSB of its covenants regarding acquisition proposals or its obligation to submit the merger agreement to its stockholders, or if Clifton’sMSB’s board of directors fails to recommend approval of the merger agreement or, after recommending the approval of the merger agreement, it withdraws, modifies or changes its recommendation, so long as at the time of such termination Kearny is not in material breach of any representation, warranty, or material covenant contained in the merger agreement.
If (i) Kearny terminates the merger agreement because CliftonMSB breaches a covenant or agreement or if any representation or warranty of CliftonMSB has become untrue and such breach or untrue representation or warranty has not been or cannot be cured within 30 days following written notice to CliftonMSB and such breach giving rise to such termination was knowing and intentional, or (ii) either party terminates the merger agreement because Clifton’sMSB’s stockholders fail to approve and adopt the merger agreement, then CliftonMSB must pay the termination fee if (1) an acquisition proposal was publicly announced (y) before the termination of the merger agreement if terminated in accordance with (i) above, or (z) before Clifton’sMSB’s stockholder meeting if terminated in accordance with (ii), above, and (2) within 12 months after termination of the merger agreement, CliftonMSB consummates or enters into an agreement with respect to an acquisition proposal.
Expenses
Each of Kearny and CliftonMSB will pay its own costs and expenses incurred in connection with the merger.
Changing the Terms of the Agreement and Plan of Merger
Before the completion of the merger, Kearny and CliftonMSB may agree to waive, amend or modify any provision of the merger agreement. However, after the vote by CliftonMSB stockholders, Kearny and CliftonMSB can make no amendment or modification that would reduce the amount or alter or change the kind of consideration to be received by Clifton’sMSB’s stockholders or that would contravene any provisions of the MGCL or applicable state and federal banking laws, rules and regulations.
Voting Agreements
Each of Kearny’sMSB’s directors and executive officers, in his or her capacity as a Kearnyan MSB stockholder, has entered into a separate voting agreement with Clifton,Kearny, pursuant to which each such director and executive officer has agreed to vote all
shares of KearnyMSB common stock over which he or she exercises sole disposition and voting rights in favor of the approval of the merger agreement and the merger and certain related matters and against alternative transactions. Under the voting agreements, Kearny’sMSB’s directors and executive officers may not, without the prior written consent of Clifton,Kearny, transfer any of their shares of KearnyMSB common stock except for certain limited purposes described in the voting agreements. These voting agreements will terminate if the merger agreement is terminated. As of the January 9, 2018,March 25, 2020, shares constituting 2.63%19.56% of the voting power of KearnyMSB common stock were subject to the voting agreements.
Each of Clifton’s directors, in his or her capacity as a Clifton stockholder, has entered into a separate voting agreement with Kearny, pursuant to which each such director has agreed to vote all shares of Clifton common stock over which he or she exercises sole disposition and voting rights in favor of the approval of the merger agreement and the merger and certain related matters and against alternative transactions. Under the voting agreements, Clifton’s directors may not, without the prior written consent of Kearny, transfer any of their shares of Clifton common stock except for certain limited purposes described in the voting agreements. These voting agreements will terminate if the merger agreement is terminated. As of the January 9, 2018, shares constituting 3.1% of the voting power of Clifton common stock were subject to the voting agreements.
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL DATA
The unaudited pro forma combined condensed consolidated financial information has been prepared using the acquisition method of accounting, giving effect to the merger of Clifton with Kearny. The unaudited pro forma combined condensed consolidated balance sheet combines the historical information of Kearny and Clifton as of September 30, 2017 and assumes that the merger was completed on that date. The unaudited pro forma combined condensed consolidated income statements combine the historical financial information of Kearny and Clifton and give effect to the merger as if it had been completed as of the beginning of Kearny’s fiscal year ended June 30, 2017 and Clifton’s fiscal year ended March 31, 2017, and as of the three months ended September 30, 2017. The unaudited pro forma combined condensed consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations or financial condition had the merger been completed on the dates described above, nor is it necessarily indicative of the results of operations in future periods or the future financial position of the combined entities. The financial information should be read in conjunction with the accompanying Notes to the Unaudited Pro Forma Combined Condensed Consolidated Financial Information. Certain reclassifications have been made to Clifton’s historical financial information to conform to Kearny’s presentation of financial information.
The actual value of Kearny common stock to be recorded as consideration in the merger will be based on the closing price of Kearny common stock on the date that the merger is completed. The merger is targeted for completion late in the first quarter of 2018 or early in the second quarter of 2018. For purposes of the pro forma financial information, the fair value of Kearny common stock to be issued in connection with the merger was based on Kearny’s closing stock price of $14.50 as of December 8, 2017.
The pro forma financial information includes estimated adjustments, including adjustments to record assets and liabilities of Clifton at their respective fair values and represents the pro forma estimates by Kearny based on available fair value information as of the date of the merger agreement. In some cases, where noted, more recent information has been used to support estimated adjustments in the pro forma financial information.
The pro forma adjustments included in this section are subject to change depending on changes in interest rates and the components of assets and liabilities and as additional information becomes available and additional analyses are performed. The final allocation of the purchase price for the merger will be determined after the merger is completed and after completion of thorough analyses to determine the fair value of Clifton tangible and identifiable intangible assets and liabilities as of the date the merger is completed. Increases or decreases in the estimated fair values of the net assets as compared with the information shown in the unaudited pro forma combined condensed consolidated financial information may change the amount of the purchase price allocated to other assets and liabilities and the residual goodwill value, and may impact Kearny’s income statement due to adjustments in yield and/or amortization of the adjusted assets or liabilities. Any changes to Clifton’s stockholders’ equity, including results of operations from September 30, 2017 through the date the merger is completed, will also change the purchase price allocation, which may include the recording of a lower or higher amount of goodwill. The final adjustments may be materially different from the unaudited pro forma adjustments presented in this document.
Kearny anticipates that the merger will provide the combined company with financial benefits that include reduced operating expenses. The unaudited pro forma combined condensed consolidated financial data, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the benefits of expected cost savings or opportunities to earn additional revenue and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had our companies been combined during these periods.
The unaudited pro forma combined condensed consolidated financial information has been derived from and should be read in conjunction with the historical consolidated financial statements and the related notes of Kearny and Clifton, which are incorporated in this document by reference.
Pro Forma Balance Sheet—September 30, 2017 Consolidated* Cash and cash equivalents Investment securities Loans held-for-sale Loans receivable (excluding held-for-sale) Allowance for loan losses Loans (excluding held-for-sale), net Core deposit intangible Goodwill Total intangibles Premises and equipment Other real estate owned Bank owned life insurance Other assets Total Assets Deposits Borrowings Other liabilities Total Liabilities Total Stockholders’ Equity Total Liabilities and Stockholders’ Equity Per share information Tangible common equity Common shares outstanding Book value per share Tangible book value per share KRNY
at September 30,
2017 CSBK
at September 30,
2017 Transaction
Adjustments Pro Forma
Combined at
September 30, 2017 (Dollars in thousands, except per share amounts) $ 38,823 $ 16,044 $ (24,300 )(1) $ 30,567 1,119,526 299,640 (540 )(2) 1,418,626 3,808 — — 3,808 3,260,328 1,147,729 (19,591 )(3) 4,388,466 (29,445 ) (7,310 ) 7,310 (4) (29,445 ) 3,230,883 1,140,419 (12,281 ) 4,359,021 261 — 4,200 (5) 4,461 108,591 — 110,711 (6) 219,302 108,852 — 114,911 223,763 40,132 8,360 — (7) 48,492 2,424 167 — 2,591 182,489 62,481 — 244,970 81,213 27,410 13,422 (8) 122,045 $ 4,808,150 $ 1,554,521 $ 91,212 $ 6,453,883 2,953,268 914,573 4,810 (9) 3,872,651 808,554 340,700 341 (10) 1,149,595 32,095 13,305 — 45,400 $ 3,793,917 $ 1,268,578 $ 5,151 $ 5,067,646 $ 1,014,233 $ 285,943 $ 86,061 (11) $ 1,386,237 $ 4,808,150 $ 1,554,521 $ 91,212 $ 6,453,883 $ 905,381 $ 285,943 $ (28,850 )(12) $ 1,162,474 81,548 22,065 4,214 (13) 107,827 $ 12.44 $ 12.96 $ 12.86 $ 11.10 $ 12.96 $ 10.78
|
Preliminary Purchase Accounting Allocation—September 30, 2017 Consolidated |
| |||
Purchase Price Allocation |
| |||
(all adjustments shown net of taxes assuming a statutory tax rate of 40.9%)** |
| |||
Cash consideration for net value of stock options | $ | 5,100 | ||
Common stock consideration (Clifton common shares outstanding of 22,064,768 at September 30, 2017 multiplied by the exchange ratio of 1.191 and Kearny’s stock price of $14.50 as of December 8, 2017) |
| 381,048 |
| |
|
| |||
Purchase Price (A) | 386,148 | |||
Clifton common equity at September 30, 2017 | 285,943 | |||
One-time transaction expense | (4,453 | ) | ||
Income tax benefit for cash out of stock options/benefits | 2,086 | |||
Loan credit mark, net of ALLL elimination | (2,476 | ) | ||
Investment interest rate mark | (319 | ) | ||
Loan interest rate mark | (4,782 | ) | ||
Time deposit interest rate mark | (2,843 | ) | ||
Borrowing/debt interest rate mark | (201 | ) | ||
Core deposit intangible | 2,482 | |||
|
| |||
Adjusted Clifton (B) | 275,437 | |||
Goodwill Created (A-B) | $ | 110,711 | ||
The final purchase price and resulting goodwill from the acquisition will vary based on the market price of Kearny’s common stock as of the consummation of the transaction. Management of Kearny estimates that a 17% fluctuation in the market price of its common stock is reasonably possible based on the average volatility of Kearny’s stock price since the closing of its second-step conversion and stock offering on May 18, 2015, resulting in the following aggregate purchase price and estimated goodwill.
| Price*** | Goodwill | |||||||
As presented in the pro forma combined results | $ | 386,148 | $ | 110,711 | ||||
17% increase in Kearny Common stock price | $ | 450,926 | $ | 175,489 | ||||
17% decrease in Kearny Common stock price | $ | 321,369 | $ | 45,933 | ||||
Pro Forma Income Statement—September 30, 2017 Consolidated
| KRNY for the three months ended September 30, 2017 | CSBK for the three months ended September 30, 2017 | Transaction Adjustments | Pro Forma Combined for the three months ended September 30, 2017 | |||||||||||||
| (Dollars in thousands, except per share amounts) | ||||||||||||||||
Interest on loans | $ | 30,473 | $ | 10,112 | $ | 1,139 | (1) | $ | 41,724 | |||||||
Interests on cash and investments | 7,119 | 2,117 | 32 | (2) | 9,268 | |||||||||||
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Interest income | $ | 37,592 | $ | 12,229 | $ | 1,171 | $ | 50,992 | ||||||||
Interest on deposits | 6,219 | 2,495 | (801 | )(3) | 7,913 | |||||||||||
Interest on borrowing | 4,563 | 1,531 | (57 | )(4) | 6,037 | |||||||||||
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|
|
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Interest expense | 10,782 | 4,026 | (858 | ) | 13,950 | |||||||||||
Net interest income before provision | 26,810 | 8,203 | 2,029 | 37,042 | ||||||||||||
Provision for loan losses | 630 | 610 | — | 1,240 | ||||||||||||
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Net interest income after provision | 26,180 | 7,593 | 2,029 | 35,802 | ||||||||||||
Fees and service charges | 1,539 | 59 | — | 1,598 | ||||||||||||
Gain on sale of loans | 331 | — | — | 331 | ||||||||||||
Gain on sale of securities | — | 593 | — | 593 | ||||||||||||
Loss (gain) on sale of real estate owned | (109 | ) | 75 | — | (34 | ) | ||||||||||
Income from bank owned life insurance | 1,267 | 384 | — | 1,651 | ||||||||||||
Other noninterest income | 66 | — | — | 66 | ||||||||||||
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Total noninterest income | 3,094 | 1,111 | — | 4,205 | ||||||||||||
Salaries and employee benefits | 12,867 | 3,367 | — | 16,234 | ||||||||||||
Occupancy expense of premises | 1,981 | 493 | — | 2,474 | ||||||||||||
Equipment and systems | 2,190 | 434 | — | 2,624 | ||||||||||||
Advertising and marketing | 710 | 167 | — | 877 | ||||||||||||
Federal deposit insurance premium | 360 | 108 | — | 468 | ||||||||||||
Directors’ compensation | 689 | 234 | — | 923 | ||||||||||||
Other noninterest expense | 2,458 | 587 | — | 3,045 | ||||||||||||
Amortization of intangible assets | 31 | — | 191 | (5) | 222 | |||||||||||
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Total noninterest expense | 21,286 | 5,390 | 191 | 26,867 | ||||||||||||
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Net income before taxes | 7,988 | 3,314 | 1,838 | 13,140 | ||||||||||||
Federal and state income taxes | 2,756 | 1,009 | 752 | (6) | 4,517 | |||||||||||
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Net income after taxes | $ | 5,232 | $ | 2,305 | $ | 1,086 | $ | 8,623 | ||||||||
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Per share information | ||||||||||||||||
Average fully diluted shares | 79,708 | 21,411 | 4,868 | (7) | 105,987 | |||||||||||
Average basic shares | 79,649 | 21,274 | 5,005 | (7) | 105,928 | |||||||||||
Earnings per share, diluted | $ | 0.07 | $ | 0.11 | $ | 0.08 | ||||||||||
Earnings per share, basic | $ | 0.07 | $ | 0.11 | $ | 0.08 | ||||||||||
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Pro Forma Income Statement - June 30, 2017 Consolidated
| KRNY 6/30/2017 (last twelve months) | CSBK 3/31/2017 (last twelve months) | Transaction Adjustments | Pro Forma Combined 6/30/17 (last twelve months) | |||||||||||||
| (Dollars in thousands, except per share amounts) | ||||||||||||||||
Interest on loans | $ | 111,181 | $ | 31,708 | $ | 4,555 | (1) | $ | 147,444 | |||||||
Interest on cash and investments | 27,912 | 8,766 | 127 | (2) | 36,805 | |||||||||||
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Interest income | 139,093 | 40,474 | 4,682 | 184,249 | ||||||||||||
Interest on deposits | 22,100 | 7,850 | (3,207 | )(3) | 26,743 | |||||||||||
Interest on borrowings | 14,419 | 3,963 | (227 | )(4) | 18,155 | |||||||||||
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Interest expense | 36,519 | 11,813 | (3,434 | ) | 44,898 | |||||||||||
Net interest income before provision | 102,574 | 28,661 | 8,116 | 139,351 | ||||||||||||
Provision for loan losses | 5,381 | 1,985 | — | 7,366 | ||||||||||||
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Net interest income after provision | 97,193 | 26,676 | 8,116 | 131,985 | ||||||||||||
Fees and service charges | 4,369 | 286 | — | 4,655 | ||||||||||||
Gain on sale of loans | 1,535 | — | — | 1,535 | ||||||||||||
(Loss) gain on sale of securities | (1 | ) | 84 | — | 83 | |||||||||||
Loss on sale of real estate owned | (106 | ) | (8 | ) | — | (114 | ) | |||||||||
Income from bank owned life insurance | 5,207 | 1,556 | — | 6,763 | ||||||||||||
Other noninterest income | 344 | (4 | ) | — | 340 | |||||||||||
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Total noninterest income | 11,348 | 1,914 | — | 13,262 | ||||||||||||
Salaries and employee benefits | 47,818 | 13,548 | — | 61,366 | ||||||||||||
Occupancy expense of premises | 8,018 | 1,871 | — | 9,889 | ||||||||||||
Equipment and systems | 8,350 | 1,712 | — | 10,062 | ||||||||||||
Advertising and marketing | 2,626 | 607 | — | 3,233 | ||||||||||||
Federal deposit insurance premium | 1,334 | 454 | — | 1,788 | ||||||||||||
Directors’ compensation | 1,982 | 1,014 | — | 2,996 | ||||||||||||
Other noninterest expense | 10,852 | 2,496 | — | 13,348 | ||||||||||||
Amortization of intangible assets | 138 | — | 764 | (5) | 902 | |||||||||||
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Total noninterest expense | 81,118 | 21,702 | 764 | 103,584 | ||||||||||||
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Net income before taxes | 27,423 | 6,888 | 7,352 | 41,663 | ||||||||||||
Federal and state income taxes | 8,820 | 2,166 | 3,007 | (6) | 13,993 | |||||||||||
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Net income after taxes | $ | 18,603 | $ | 4,722 | $ | 4,345 | $ | 27,670 | ||||||||
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Per Share Information | ||||||||||||||||
Average fully diluted shares | 84,661 | 22,315 | 3,964 | (7) | 110,940 | |||||||||||
Average basic shares | 84,590 | 22,224 | 4,055 | (7) | 110,869 | |||||||||||
Earnings per share, diluted | $ | 0.22 | $ | 0.21 | $ | 0.25 | ||||||||||
Earnings per share, basic | $ | 0.22 | $ | 0.21 | $ | 0.25 | ||||||||||
DESCRIPTION OF KEARNY CAPITAL STOCK
General
Under its articles of incorporation, Kearny is authorized to issue 800,000,000 shares of common stock, par value of $0.01 per share, and 100,000,000 shares of preferred stock, par value $0.01 per share. As of the record date for the KearnyMSB special meeting, there are 79,270,46083,689,427 shares of Kearny common stock issued and outstanding and no shares of Kearny preferred stock issued or outstanding. There are no other shares of capital stock of Kearny authorized, issued or outstanding. As of the record date for the KearnyMSB special meeting, Kearny had outstanding stock options to purchase an aggregate of 3,528,8093,294,452 shares of Kearny common stock.
Common Stock
Dividends. Kearny may pay dividends up to an amount equal to the excess of its capital surplus over payments that would be owed upon dissolution to stockholders whose preferential rights upon dissolution are superior to those receiving the dividend, and to an amount that would not make us insolvent, as and when declared by the board of directors. The payment of dividends by Kearny is also subject to limitations that are imposed by law and applicable regulation, including restrictions on payments of dividends that would reduce Kearny’s assets below the then-adjusted balance of its liquidation account. The holders of common stock of Kearny will be entitled to receive and share equally in dividends as may be declared by the board of directors out of funds legally available therefor. If Kearny issues shares of preferred stock, the holders thereof may have a priority over the holders of the common stock with respect to dividends.
Voting Rights. The holders of Kearny common stock have exclusive voting rights in Kearny. They elect Kearny’s board of directors and act on other matters as are required to be presented to them under Maryland law or as are otherwise presented to them by the board of directors. Generally, each holder of common stock is entitled to one vote per share and does not have any right to cumulate votes in the election of directors. Unless previously approved by a majority of Kearny’s unaffiliated directors, any person who beneficially owns more than 10% of the then-outstanding shares of Kearny’s common stock, however, is not be entitled or permitted to vote any shares of common stock held in excess of the 10% limit. If Kearny issues shares of preferred stock, holders of the preferred stock may also possess voting rights. Certain matters require the approval of 80% of Kearny’s outstanding common stock.
Liquidation. In the event of any liquidation, dissolution or winding up of Kearny Bank, Kearny, as the holder of 100% of Kearny Bank’s capital stock, would be entitled to receive all assets of Kearny Bank available for distribution, after payment or provision for payment of all debts and liabilities of Kearny Bank, including all deposit accounts and accrued interest thereon, and after distribution of the balance in the liquidation account to Eligible Account Holders and Supplemental Eligible Account Holders. In the event of liquidation, dissolution or winding up of Kearny, the holders of its common stock would be entitled to receive, after payment or provision for payment of all its debts and liabilities (including payments with respect to its liquidation account), all of the assets of Kearny available for distribution. If preferred stock is issued, the holders thereof may have a priority over the holders of the common stock in the event of liquidation or dissolution.
Preemptive Rights. Holders of Kearny common stock do not havepre-emptive rights with respect to any shares that may be issued, unless such preemptive rights are approved by the Board of Directors. The common stock is not subject to redemption.
Preferred Stock
Preferred stock may be issued with preferences and designations as the board of directors may from time to time determine. The board of directors may, without stockholder approval, issue shares of preferred stock with voting, dividend, liquidation and conversion rights that could dilute the voting strength of the holders of the common stock and may assist management in impeding an unfriendly takeover or attempted change in control.
Anti-Takeover Provisions
Kearny’s articles of incorporation and bylaws and the Maryland General Corporation Law contain a number of provisions relating to corporate governance and rights of stockholders that might discourage future takeover attempts. As a
result, stockholders who might desire to participate in such transactions may not have an opportunity to do so. In addition, such provisions may also render the removal of the board of directors or management of Kearny more difficult. The following is a general summary of the material provisions of such anti-takeover provisions.
Directors
The board of directors is divided into three classes. The members of each class are elected for a term of three years and only one class of directors is elected annually. Thus, it would take at least two annual elections to replace a majority of Kearny’s directors. The bylaws establish qualifications for board members, including a residency requirement, an age restriction, restrictions on affiliations with competitors and restrictions based upon prior legal or regulatory violations. Further, the bylaws impose notice and information requirements in connection with the nomination by stockholders of candidates for election to the board of directors or the proposal by stockholders of business to be acted upon at an annual meeting of stockholders. Such notice and information requirements are applicable to all stockholder business proposals and nominations, and are in addition to any requirements under the federal securities laws.
Evaluation of Offers
The articles of incorporation of Kearny provide that its board of directors, when evaluating a transaction that would or may involve a change in control of Kearny (whether by purchases of its securities, merger, consolidation, share exchange, dissolution, liquidation, sale of all or substantially all of its assets, proxy solicitation or otherwise), may, in connection with the exercise of its business judgment in determining what is in the best interests of Kearny and its stockholders and in making any recommendation to the stockholders, give due consideration to all relevant factors, including, but not limited to:
| (i) | the economic effect, both immediate and long-term, upon Kearny’s stockholders, including stockholders, if any, who do not participate in the transaction; |
| (ii) | the social and economic effect on the present and future employees, creditors and customers of, and others dealing with, Kearny and its subsidiaries and on the communities in which Kearny and its subsidiaries operate or are located; |
| (iii) | whether the proposal is acceptable based on the historical, current or projected future operating results or financial condition of Kearny; |
| (iv) | whether a more favorable price could be obtained for Kearny’s stock or other securities in the future; |
| (v) | the reputation and business practices of the other entity to be involved in the transaction and its management and affiliates as they would affect the employees of Kearny and its subsidiaries; |
| (vi) | the future value of the stock or any other securities of Kearny or the other entity to be involved in the proposed transaction; |
| (vii) | any antitrust or other legal and regulatory issues that are raised by the proposal; |
| (viii) | the business and historical, current or expected future financial condition or operating results of the other entity to be involved in the transaction, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the proposed transaction, and other likely financial obligations of the other entity to be involved in the proposed transaction; and |
| (ix) | the ability of Kearny to fulfill its objectives as a holding company and on the ability of its subsidiaries to fulfill their objectives under applicable statutes and regulations. |
If the board of directors determines that any proposed transaction should be rejected, it may take any lawful action to defeat such transaction.
Restrictions on Call of Special Meetings
The bylaws provide that a special meetingsmeeting of stockholders can be called by the president, the chairperson of the board, by a majority vote of the total number of directors that Kearny would have, if there were no vacancies on the board of directors, or by the secretary following a written request of stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting.
Prohibition of Cumulative Voting
The articles of incorporation prohibit cumulative voting for the election of directors.
Limitation of Voting Rights
The articles of incorporation provide that in no event will any person who beneficially owns more than 10% of the then-outstanding shares of common stock, be entitled or permitted to vote any of the shares of common stock held in excess of the 10% limit; provided that such 10% limit shall not apply if a majority of the unaffiliated directors approve the acquisition of shares in excess of the 10% limit prior to such acquisition.
Restrictions on Removing Directors from Office
The articles of incorporation provide that directors may be removed only for cause, and only by the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding capital stock entitled to vote generally in the election of directors (after giving effect to the limitation on voting rights discussed above in “—Limitation of Voting Rights”), voting together as a single class.
Authorized but Unissued Shares
Kearny has authorized but unissued shares of common and preferred stock. See “Description of Kearny Capital Stock.” Kearny is authorized to issue preferred stock from time to time in one or more series subject to applicable provisions of law, and the board of directors is authorized to fix the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of such shares. In addition, the articles of incorporation provide that a majority of the whole board may, without action by the stockholders, amend the articles of incorporation to increase or decrease the aggregate number of shares of stock of any class or series that Kearny has the authority to issue. In the event of a proposed merger, tender offer or other attempt to gain control of Kearny that the board of directors does not approve, it would be possible for the board of directors to authorize the issuance of a series of preferred stock with rights and preferences that would impede the completion of the transaction. An effect of the possible issuance of preferred stock therefore may be to deter a future attempt to gain control of Kearny. The board of directors has no present plan or understanding to issue any preferred stock.
Amendments to Articles of Incorporation and Bylaws
Except as provided under “—Authorized but Unissued Shares,” above, Kearny’s articles of incorporation may be amended, upon the submission of an amendment by the board of directors to a vote of the stockholders, by the affirmative vote of at leasttwo-thirds of the outstanding shares of common stock, or by the affirmative vote of a majority of the outstanding shares of common stock if at leasttwo-thirds of the members of the whole board of directors approves such amendment; provided, however, that approval by at least 80% of the outstanding voting stock is generally required to amend the following provisions:
| (i) | the limitation on voting rights of persons who directly or indirectly beneficially own more than 10% of the outstanding shares of common stock; |
| (ii) | the division of the board of directors into three staggered classes; |
| (iii) | the ability of the board of directors to fill vacancies on the board; |
| (iv) | the requirement that directors may only be removed for cause and by the affirmative vote of at least a majority of the votes eligible to be cast by stockholders; |
| (v) | the ability of the board of directors to amend and repeal the bylaws; |
| (vi) | the ability of the board of directors to evaluate a variety of factors in evaluating offers to purchase or otherwise acquire Kearny; |
| (vii) | the authority of the board of directors to provide for the issuance of preferred stock; |
| (viii) | the validity and effectiveness of any action lawfully authorized by the affirmative vote of the holders of a majority of the total number of outstanding shares of common stock; |
| (ix) | the number of stockholders constituting a quorum or required for stockholder consent; |
| (x) | the indemnification of current and former directors and officers, as well as employees and other agents, by Kearny; |
| (xi) | the limitation of liability of officers and directors to Kearny for money damages; |
| (xii) | the inability of stockholders to cumulate their votes in the election of directors; |
| (xiii) | the requirement that the forum for certain actions or disputes be a state or federal court located in Maryland; |
| (xiv) | the advance notice requirements for stockholder proposals and nominations; and |
| (xv) | the provision of the articles of incorporation regarding the amendment of the articles of incorporation. |
The articles of incorporation also provide that the bylaws may be amended by the affirmative vote of a majority of the directors or by the stockholders by the affirmative vote of at least 80% of the total votes eligible to be voted at a duly constituted meeting of stockholders.
Business Combinations with Interested Stockholders
Under Maryland law, “business combinations” between Kearny and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, statutory share exchange or, in circumstances specified in the statute, certain transfers of assets, certain stock issuances and transfers, liquidation plans and reclassifications involving interested stockholders and their affiliates or issuance or reclassification of equity securities. Maryland law defines an interested stockholder as: (i) any person who beneficially owns 10% or more of the voting power of Kearny’s voting stock after the date on which Kearny had 100 or more beneficial owners of its stock; or (ii) an affiliate or associate of Kearny at any time after the date on which Kearny had 100 or more beneficial owners of its stock who, within thetwo-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding voting stock of Kearny. A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.
After the five-year prohibition, any business combination between Kearny and an interested stockholder generally must be recommended by the board of directors of Kearny and approved by the affirmative vote of at least: (i) 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of Kearny, and(ii) two-thirds of the votes entitled to be cast by holders of voting stock of Kearny other than shares held by the
interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder. These super-majority vote requirements do not apply if Kearny’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.
Listing
Shares of Kearny’s common stock are listed on the NASDAQ Global Select Market under the symbol “KRNY.”
Transfer Agent and Registrar
The transfer agent and registrar for Kearny’s common stock is Computershare Trust Company, N.A., Canton, Massachusetts.
COMPARISON OF RIGHTS OF STOCKHOLDERS
The rights of stockholders of Kearny are currently governed by Kearny’s articles of incorporation and bylaws and by Maryland law. The rights of stockholders of CliftonMSB are currently governed by Clifton’sMSB’s articles of incorporation and bylaws and by Maryland law. If the merger is completed, CliftonMSB stockholders who receive Kearny common stock will become Kearny stockholders and their rights will likewise be governed by Kearny’s articles of incorporation and bylaws and Maryland law.
The following is a summary of the material differences between the rights of a Cliftonan MSB stockholder and the rights of a Kearny stockholder. This summary is not a complete statement of the differences between the rights of CliftonMSB stockholders and the rights of Kearny stockholders and is qualified in its entirety by reference to Maryland law and to the articles of incorporation and bylaws of each corporation. Copies of Kearny’s articles of incorporation and bylaws and Clifton’sMSB’s articles of incorporation and bylaws are on file with the Securities and Exchange Commission. Copies of Kearny’s articles of incorporation and bylaws are available upon written request addressed to Kearny Financial Corp., 120 Passaic Avenue, Fairfield, New Jersey 07004, Attention: Gail Corrigan, Corporate Secretary. Copies of Clifton’sMSB’s articles of incorporation and bylaws are available upon written request addressed to Clifton Bancorp Inc.MSB Financial Corp., 1433 Van Houten Avenue, Clifton,1902 Long Hill Road, Millington, New Jersey 07015,07946-0417, Attention: Michael Lesler,Nancy E. Schmitz, Corporate Secretary.
Authorized Stock | ||||||||
Kearny |
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• | The articles of incorporation authorize 900,000,000 shares of capital stock, consisting of 800,000,000 shares of common stock, $0.01 par value, and 100,000,000 shares of preferred stock, $0.01 par value. | • | The articles of incorporation authorize | |||||
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Limitations on Voting Rights | ||||||||
Kearny |
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| • | Kearny’s articles of incorporation provide that unless previously approved by a majority of Kearny’s unaffiliated directors, no beneficial owner, directly or indirectly, of more than 10% of the outstanding shares of common stock will be permitted to vote any shares in excess of such 10% limit. This limitation does not apply to any director or officer acting solely in their capacities as directors and officers, or any employee benefit plans of Kearny or any subsidiary or a trustee of a plan. Kearny’s board of directors has the power to construe and apply the provisions in the articles of incorporation regarding the 10% limitation on voting rights and to make all determinations necessary or desirable to implement such provisions. | • | ||||||
Required Vote for Authorization of Certain Actions | ||||||||
Kearny |
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| • | Under Maryland law, certain business combinations involving an interested stockholder or any affiliate of an interested stockholder are prohibited for five years after the interested stockholder becomes an interested stockholder. However, a person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. In approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board. After the five-year prohibition, any business combination between Kearny and an interested stockholder generally must be recommended by the board of directors of Kearny and approved by the affirmative vote of at least: (i) 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of Kearny, and(ii) two-thirds of the votes entitled to be cast by holders of voting stock of Kearny other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder. These super-majority vote requirements do not apply if Kearny’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. | • | As a Maryland corporation, | |||||
Evaluation of Offers | ||||||||
Kearny |
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| • | Kearny’s articles of incorporation provide that its board of directors, when evaluating a transaction that would or may involve a change in control of Kearny (whether by purchases of its securities, merger, consolidation, share exchange, dissolution, liquidation, sale of all or substantially all of its assets, proxy solicitation or otherwise), may, in connection with the exercise of its business judgment in determining what is in the best interests of Kearny and its stockholders and in making any recommendation to the stockholders, give due consideration to all relevant factors, including, but not limited to: (i) the economic effect, both immediate and long-term, upon | |||||||
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| Kearny’s stockholders, including stockholders, if any, who do not participate in the transaction, (ii) the social and economic effect on the present and future employees, creditors and customers of, and others dealing with, Kearny and its subsidiaries and on the communities in which Kearny and its subsidiaries operate or are located, (iii) whether the proposal is acceptable based on the historical, current or projected future operating results or financial condition of Kearny, (iv) whether a more favorable price could be obtained for | • | MSB’s articles of incorporation provide that its board of directors, in connection with the exercise of its business judgement involving any actual or proposed transaction that would or may involve a change in control of MSB (whether by purchases of its securities, tender offer, merger, consolidation, dissolution, liquidation, sale of all or substantially all of its assets or proxy solicitation), in determining what is in the best interests of MSB and its stockholders and in making any recommendation to its stockholders, give due consideration to all relevant factors, including, but not limited to the following: (a) the economic effect, both immediate and long-term, upon MSB’s stockholders, including stockholders, if any, choosing not to participate in the transaction; (b) effects, including any social and economic effects, on the employees, suppliers, creditors, depositors and customers of, and others dealing with, MSB and its subsidiaries and on the communities in which MSB and its subsidiaries operate or are located; (c) whether the proposal is acceptable based on the historical and current operating results or financial condition of MSB; (d) whether a more favorable price could be obtained for MSB’s stock or | ||||||
Evaluation of Offers | ||||||||
Kearny | MSB | |||||||
| Kearny’s stock or other securities in the future, (v) the reputation and business practices of the other entity to be involved in the transaction and its management and affiliates as they would affect the employees of Kearny and its subsidiaries, (vi) the future value of the stock or any other securities of Kearny or the other entity to be involved in the proposed transaction, (vii) any antitrust or other legal and regulatory issues that are raised by the proposal, (viii) the business and historical, current or expected future financial condition or operating results of the other entity to be involved in the transaction, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the proposed transaction, and other likely financial obligations of the other entity to be involved in the proposed transaction, and (ix) the ability of Kearny to fulfill its objectives as a holding company and on the ability of its subsidiaries to fulfill their objectives under applicable statutes and regulations. | ||||||||
Stockholders’ Meetings | ||||||||
Kearny |
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• | Kearny’s bylaws provide that it must deliver notice of the meeting and, in the case of a special | •
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• | Kearny’s bylaws provide that a special meeting may be called by the president, the chairperson of the board, by a majority vote of the total number of directors that Kearny would have, if there were no vacancies on the board of directors, or by the secretary following a written request of stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting. | |||||||
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Stockholder Nominations and Proposals | ||||||||
Kearny |
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• | Kearny’s bylaws provide that any stockholder desiring to make a nomination for the election of directors or a proposal for new business at a meeting of stockholders must submit written notice to Kearny not less than 110 days nor more than 120 days prior to the anniversary of the prior year’s annual meeting of stockholders; provided, however, that if the date of the annual meeting is advanced more than 30 days prior to the anniversary of the preceding year’s annual meeting, a stockholder’s written notice will be timely only if delivered or mailed to and received by the secretary of Kearny at the principal executive office of Kearny no earlier than the day on which public disclosure of the date of such annual meeting is first made and no later than the tenth day following the day on which public disclosure of the date of such annual meeting is first made. A stockholder who desires to raise new business must provide certain information to Kearny concerning the nature of the new business, the stockholder, the stockholder’s ownership in Kearny, the stockholder’s interest in the business matter and a representation that the stockholder intends to appear in person or by proxy to bring such business before the meeting. Similarly, a stockholder wishing to nominate any person for election as a director must provide Kearny with certain information concerning the nominee and the proposing stockholder. | • | ||||||
Board of Directors | ||||||||
Kearny |
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• | Kearny’s articles of incorporation require the board of directors to be divided into three classes and that the members of each class will be elected for a term of three years and until their successors are elected and qualified, with one class being elected annually. | • | MSB’s articles of incorporation provide for the same requirements as Kearny’s articles of incorporation regarding the classification of the board of directors and the election of directors. | |||||
• | Under Kearny’s bylaws, any vacancy occurring on the board of directors, including any vacancy |
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| created by reason of an increase in the number of directors, may be filled only by the affirmative vote oftwo-thirds of the remaining directors, and any director so chosen will hold office for the remainder of the term to which the director has been elected and until his or her successor is elected and qualified. | • | Under MSB’s bylaws, any vacancy occurring in the board of directors resulting from an increase in the size of the board of directors or the death, resignation or removal of a director may be filled only by | ||||||
• | Kearny’s bylaws provide that no person will be eligible for election or appointment to the board of directors if such person (i) has had a cease and desist, consent or other formal order that is subject to public disclosure, other than a civil money penalty, issued against him or her by a financial or securities regulatory agency, (ii) has been convicted of a crime involving dishonesty or breach | • | MSB’s bylaws provide that to be eligible to serve on the board of directors a person must not: (1) be under indictment for, or ever have been convicted of, a criminal offense involving dishonesty or breach of trust and the penalty for such offense could be imprisonment for more than one year, (2) be a person against whom a banking agency has, within the past ten years, issued a cease and | |||||
Board of Directors | ||||||||
Kearny | MSB | |||||||
| of trust which is punishable by imprisonment for a term exceeding one year or is currently charged with the commission of or participation in such a crime, (iii) did not, at the time when first elected or appointed to the board of directors of Kearny or Kearny Bank, maintain his or her principal residence within a county in which Kearny or any subsidiary maintains an office, or in any county contiguous to a county in which Kearny or a subsidiary maintains an office, for a period of at least one year prior to the date of the purported nomination, election or appointment to the board of directors. Kearny’s bylaws further state that no person will be elected to serve as a director after reaching the age of 75 years unless otherwise determined by the board of directors, based on criteria set forth in Kearny’s bylaws, by a vote of at leasttwo-thirds of its disinterested members. |
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| • | Kearny’s bylaws provide that no person may serve on the board of directors if such person (i) is at the same time, a director, officer, employee or 10% or more stockholder of, or is the nominee or representative of, a financial institution or similar organization, other than a subsidiary of Kearny, that engages in business activities or solicits customers, whether through a physical presence or electronically, in the same market area as Kearny or any subsidiary, (ii) does not agree in writing to comply with all of Kearny’s policies applicable to directors, or (iii) is a party to any agreement or arrangement with a party other than Kearny or a subsidiary that (a) provides him or her with | |||||||
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| material benefits which are tied to or contingent on Kearny entering into a merger, sale of control or similar transaction in which Kearny is not the surviving institution, (b) materially limits his or her voting discretion as a member of the board of directors of Kearny, or (c) materially impairs his or her ability to discharge his or her fiduciary duties with respect to the fundamental strategic direction of Kearny. | ||||||||
| • | Directors may be removed only for cause by the affirmative vote of at least 80% of the outstanding shares entitled to vote generally in the election of directors. | |||||||
• | Kearny’s bylaws provide that except as otherwise provided by the executive committee of the board of directors, the term of a director who is also an employee of Kearny or any subsidiary will expire on the date on which his or her employment terminates for any reason other than retirement. | |||||||
Director and Officer Liability | ||||||||
Kearny |
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| • | Kearny’s articles of incorporation provide that directors and officers will not be personally liable for monetary damages to Kearny or its stockholders for certain actions as directors or officers, except for (i) the receipt of an improper personal benefit, (ii) actions or omissions that are determined to have involved active and deliberate dishonesty that was material to a cause of action, or (iii) to the extent otherwise provided by Maryland law. | • | ||||||
Indemnification | ||||||||
Kearny |
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| • | The articles of incorporation of Kearny provide that it | |||||||
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| indemnification may be given if the acts or omissions of the person are adjudged to be in bad faith and material to the matter giving rise to the proceeding, if such person is liable to the corporation for an unlawful distribution, or if such person personally received a benefit to which he or she was not entitled. The right to indemnification includes the right to be paid the expenses incurred in advance of final disposition of a proceeding. | • | MSB’s articles of incorporation provide that MSB will indemnify (A) its directors and officers, whether serving MSB or at its request any other entity, to the fullest extent required or permitted by Maryland law, including the advance of expenses under the procedures required, and (B) other employees and agents to such extent as authorized by the board of directors or MSB’s bylaws and be permitted by law. Maryland law allows MSB to indemnify any person for expenses, liabilities, settlements, judgments and fines in suits in which such person has been made a party by reason of the fact that he or she is or was a director, officer or employee of MSB. No such indemnification may be given if the acts or omissions of the person are adjudged to be in bad faith and material to the matter giving rise to the proceeding, if such person is liable to the corporation for an unlawful distribution, or if such person personally received a benefit to which he or she was not entitled. The right to indemnification includes the right to be paid the expenses incurred in advance of final disposition of a proceeding. | ||||||
Amendment of the Bylaws | ||||||||
Kearny |
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| • | Kearny’s bylaws may be amended or repealed by either the approval of a majority of the board of directors or by the vote of 80% of the outstanding shares entitled to vote. | • | ||||||
Amendment of the Articles of Incorporation | ||||||||
Kearny |
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| • | Kearny’s articles of incorporation may be amended, upon the submission of an amendment by the board of directors to a vote of the stockholders, by the affirmative vote of at leasttwo-thirds of the outstanding shares of common stock, or by the affirmative vote of a majority of the outstanding shares of common stock if at leasttwo-thirds of the members of the whole board of directors approves such amendment; provided, however, that approval by at least 80% of the outstanding voting stock is generally required to amend the following provisions: (i) the limitation on voting rights of persons who directly or indirectly beneficially own more than 10% of the outstanding shares of common stock, (ii) the division of the board of directors into three staggered classes, (iii) the ability of the board of directors to fill vacancies on the board, (iv) the requirement that directors may only be removed for cause and by the affirmative vote of at least a majority of the votes eligible to be cast by stockholders, (v) the ability of the board of directors | |||||||
| to amend and repeal the bylaws, (vi) the ability of the board of directors to evaluate a variety of factors in evaluating offers to purchase or otherwise acquire Kearny, (vii) the authority of the board of directors to provide for the issuance of preferred stock, (viii) the validity and effectiveness of any action lawfully authorized by the affirmative vote of the holders of a majority of the total number of outstanding shares of common stock, (ix) the | ||||||||
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| number of stockholders constituting a quorum or required for stockholder consent, (x) the indemnification of current and former directors and officers, as well as employees and other agents, by Kearny, (xi) the limitation of liability of officers and directors to Kearny for money damages, (xii) the inability of stockholders to cumulate their votes in the election of directors, (xiii) the requirement that the forum for certain actions or disputes be a state or federal court located Maryland, (xiv) the advance notice requirements for stockholder proposals and nominations, and (xv) the provision of the articles of incorporation regarding the amendment of the articles of incorporation. | • | MSB’s articles of incorporation generally may be amended in the manner prescribed by Maryland law and no stockholder approval is required if the approval of stockholders is not required for the proposed amendment or repeal by Maryland law, and all rights conferred upon stockholders are granted subject to this reservation. The board of directors, pursuant to a resolution approved by a majority of the directors then in office, and without action by the stockholders, may amend the Articles of Incorporation to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that MSB has authority to issue. Notwithstanding any other provision of the Articles of Incorporation or any provision of law that might otherwise permit a lesser vote or no vote, any amendment of Section C of Article Sixth (limitation on common stock voting rights), Sections B and D of Article Seventh (classification and removal of board of directors), Sections F and J of Article Eighth (amendment of bylaws and elimination of director and officer liability) and Article Tenth (amendment of certain provisions of the articles), must be approved by the affirmative vote of the holders of at least 75% of the outstanding shares entitled to vote. | ||||||
Selection of Forum | ||||||||
Kearny |
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| • | Kearny’s articles of incorporation provide that, unless Kearny otherwise provides its consent, the forum for certain actions or disputes will be a state or federal court located in Maryland that has jurisdiction. | • | ||||||
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Board of Directors and Management
Upon the completionThe existing directors and executive officers of Kearny and Kearny Bank will not change as a result of the merger, Kearny’s board of directors will consist of all the current directors of Kearny plus Paul M. Aguggia and two additional existing Clifton directors.merger.
For information regarding the current directors of Kearny, executive compensation and relationships and related transactions, see Kearny’s proxy statement for the 20172019 annual meeting of stockholders and its Annual Report on Form10-K filed with the SEC, which are incorporated by reference in this document. See“Where I Can Find More Information.”
Management
The existing executive officers of Kearny and Kearny Bank will not change as a result of the merger.
Operations
While there can be no assurance as to the achievement of business and financial goals, Kearny currently expects to achieve cost savings equal to approximately 35%45% of Clifton’sMSB’s current annualizednon-interest expenses (excludingone-timenon-recurring costs in 20172019 identified by Clifton)MSB) through the elimination of redundant senior and executive management and other operating efficiencies (such as the elimination of duplicative data processing services). See “Cautionary Statement About Forward-Looking Statements.”
MARKET PRICE AND DIVIDEND INFORMATION
Kearny common stock is listed on The Nasdaq Global Select Market under the symbol “KRNY.” CliftonMSB common stock is listed on The Nasdaq Global Select Market under the symbol “CSBK.“MSBF.” The following table lists the high and low prices per share for Kearny common stock and for Clifton common stock and the cash dividends declared by each company for the periods indicated.
| Kearny Common Stock | Clifton Common Stock | |||||||||||||||||||||||
| High | Low | Dividends | High | Low | Dividends | |||||||||||||||||||
Quarter Ended | ||||||||||||||||||||||||
March 31, 2018 (through January 9, 2018) | $ | 14.60 | $ | 14.05 | $ | — | $ | 17.24 | $ | 16.60 | $ | — | ||||||||||||
December 31, 2017 | $ | 15.60 | $ | 14.05 | $ | 0.03 | $ | 17.94 | $ | 16.32 | $ | 0.06 | ||||||||||||
September 30, 2017 | $ | 15.45 | $ | 13.35 | $ | 0.15 | (1) | $ | 17.08 | $ | 15.21 | $ | 0.06 | |||||||||||
June 30, 2017 | $ | 15.63 | $ | 13.75 | $ | 0.03 | $ | 17.05 | $ | 15.61 | $ | 0.31 | (2) | |||||||||||
March 31, 2017 | $ | 15.85 | $ | 14.25 | $ | 0.03 | $ | 17.20 | $ | 15.40 | $ | 0.06 | ||||||||||||
December 31, 2016 | $ | 16.10 | $ | 13.45 | $ | 0.02 | $ | 17.49 | $ | 14.65 | $ | 0.06 | ||||||||||||
September 30, 2016 | $ | 14.09 | $ | 12.40 | $ | 0.02 | $ | 15.49 | $ | 14.11 | $ | 0.06 | ||||||||||||
June 30, 2016 | $ | 13.42 | $ | 12.14 | $ | 0.02 | $ | 15.30 | $ | 14.32 | $ | 0.06 | ||||||||||||
March 31, 2016 | $ | 12.67 | $ | 11.31 | $ | 0.02 | $ | 15.43 | $ | 13.09 | $ | 0.06 | ||||||||||||
December 31, 2015 | $ | 13.00 | $ | 11.23 | $ | 0.02 | $ | 14.98 | $ | 13.50 | $ | 0.06 | ||||||||||||
September 30, 2015 | $ | 11.90 | $ | 11.01 | $ | 0.02 | $ | 14.52 | $ | 13.42 | $ | 0.06 | ||||||||||||
The high and low trading prices for Kearny common stock as of November 1, 2017, the last trading day immediately before the public announcement of the merger, were $15.30 and $14.90, respectively. The high and low trading prices for Clifton common stock as of November 1, 2017, the last trading day immediately before the public announcement of the merger, were $17.06 and $16.85, respectively.
You should obtain current market quotations for Kearny common stock and CliftonMSB common stock, as the market price of Kearny common stock and CliftonMSB common stock will fluctuate between the date of this document and the date on which the merger is completed. You can get these quotations from a newspaper, on the internet or by calling your broker.
Changes in the market price of Kearny common stock prior to the completion of the merger will affect the value of the merger consideration that CliftonMSB stockholders will be entitled to receive upon completion of the merger.
As of January 9, 2018,March 25, 2020, there were approximately 3,714428 holders of record of Kearny common stock. As of January 9, 2018, there were approximately 1,136 holders of record of CliftonMSB common stock. These numbers do not reflect the number of persons or entities who may hold their stock in nominee or “street name” through brokerage firms.
Following the merger, the declaration of dividends will be at the discretion of Kearny’s board of directors and will be determined after consideration of various factors, including earnings, cash requirements, the financial condition of Kearny, applicable state law and government regulations and other factors deemed relevant by Kearny’s board of directors.
The following table provides information as of January 9, 2018 regarding certain beneficial owners of shares of Kearny common stock, including information regarding each director, each named executive officer and all directors and named executive officers of Kearny as a group. Kearny does not know of any person who beneficially owned more than 5% of the outstanding shares of Kearny common stock as of January 9, 2018. A person may be considered to own any shares of common stock over which he or she has, directly or indirectly, sole or shared voting or investment power. Unless otherwise indicated, each of the named individuals has sole voting and investment power with respect to the shares shown. The address for each director and executive officer listed in the table below is: c/o Kearny Financial Corp., 120 Passaic Avenue, Fairfield, New Jersey 07004. Percentage of beneficial ownership is based on 79,270,460 shares of Kearny common stock as of January 9, 2018.
Name of Beneficial Owner | Shares Beneficially Owned | Percent of All Common Stock Outstanding(1) | ||||||
Directors: | ||||||||
Theodore J. Aanensen | 164,377 | (2) | * | |||||
Raymond E. Chandonnet | 66,139 | * | ||||||
John N. Hopkins | 515,504 | (3) | * | |||||
John J. Mazur, Jr. | 199,510 | (4) | * | |||||
Joseph P. Mazza | 205,548 | * | ||||||
Matthew T. McClane | 132,700 | * | ||||||
John F. McGovern | 235,992 | * | ||||||
Craig L. Montanaro | 339,816 | (5) | * | |||||
Leopold W. Montanaro | 241,136 | (6) | * | |||||
Christopher Petermann | 44,339 | (7) | * | |||||
John F. Regan | 153,721 | * | ||||||
Executive Officers: | ||||||||
William C. Ledgerwood | 225,983 | (8) | * | |||||
Eric B. Heyer | 99,849 | (9) | * | |||||
Patrick M. Joyce | 112,767 | (10) | * | |||||
Erika K. Parisi | 178,146 | (11) | * | |||||
Thomas DeMedici | 42,923 | (12) | * | |||||
All directors and executive officers as a group (16 persons) | 2,958,450 | 3.73 | % | |||||
The following table provides information as of January 9, 2018December 31, 2019 with respect to persons and entities known to CliftonMSB to be the beneficial owner of more than 5% of Clifton’sMSB’s outstanding common stock. A person or entity may be considered to beneficially own any shares of common stock over which the person or entity has, directly or indirectly, sole or shared voting or investing power. Percentage of beneficial ownership is based on 5,184,194 shares of common stock outstanding as of December 31, 2019.
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Name and Address | Shares Beneficially Owned | Percent of All Common Stock Outstanding(1)(2)(3) | ||||||
Lawrence B. Seidman 100 Misty Lane Parsippany, NJ 07054 | 614,553 | (4) | 11.54 | % | ||||
Millington Bank Employee Stock Ownership Plan and Trust 1902 Long Hill Road Millington, NJ 07946 | 284,900 | (5) | 5.49 | % | ||||
| (1) | Based on |
| (2) | For purposes of this table, a |
| (3) | In calculating the percentage ownership of an individual or group, the number of shares |
| (4) | Includes 6,333 shares which Mr. Seidman has the right to acquire pursuant to the exercise of options within 60 days of the Record Date. Mr. Seidman has agreed with the |
| (5) | The ESOP trustee, Pentegra Trust Company, will vote all unallocated shares of the Common Stock held by the ESOP and all allocated shares for which no voting instructions are received in the same proportion it has received timely voting instructions “for” or “against” a |
The following table provides information as of January 9, 2018December 31, 2019 about the shares of CliftonMSB common stock that may be considered to be owned by each director, each named executive officer and by all directors and named executive officers of CliftonMSB as a group. A person may be considered to own any shares of common stock over which he or she has, directly or indirectly, sole or shared voting or investment power. Unless otherwise indicated, each of the named individuals has sole voting and investment power with respect to the shares shown. The address for each beneficial owner of more than 5% of a class of our common stock listed in the table below is: c/o Clifton Bancorp Inc.MSB Financial Corp., 1433 Van Houten Avenue, Clifton,1902 Long Hill Road, Millington, New Jersey 07015.07946-0417. Percentage of beneficial ownership is based on 5,184,194 shares of common stock outstanding as of December 31, 2019.
Name | Number of Shares Owned(1)(2) | Number of Shares That May be Acquired Within 60 Days by Exercising Options | Percent of Common Stock Outstanding(3) | |||||||||
Stephen Adzima | 93,987 | (4) | 27,296 | * | ||||||||
Paul M. Aguggia | 260,644 | (5) | — | 1.2 | % | |||||||
Stephen A. Hoogerhyde | 94,815 | — | * | |||||||||
Patricia C. Hrotko | 41,042 | 20,472 | * | |||||||||
Michael Lesler | 5,407 | 10,000 | * | |||||||||
John H. Peto | 64,005 | 27,296 | * | |||||||||
Christine R. Piano | 137,487 | — | * | |||||||||
Charles J. Pivirotto | 42,595 | (6) | 27,296 | * | ||||||||
Diane Scriveri | 11,236 | 10,000 | * | |||||||||
Cynthia Sisco | 217,865 | (7) | — | 1.0 | % | |||||||
Joseph C. Smith | 133,272 | (8) | 27,296 | * | ||||||||
All directors and executive officers as a group | 1,102,355 | 149,656 | 5.7 | % | ||||||||
Name | Number of Shares Owned(1)(2) | Number of Shares That May be Acquired Within 60 Days by Exercising Options | Percent of Common Stock Outstanding(3) | |||||||||
Robert C. Andersen, Director | 34,220 | 4,220 | * | |||||||||
Anthony M. Bruno, Jr., Director | — | — | * | |||||||||
H. Gary Gabriel, Director | 8,320 | 4,220 | * | |||||||||
W. Scott Gallaway, Director and Chairman | 33,067 | 6,333 | * | |||||||||
Gary T. Jolliffe, Director | 97,555 | (4) | 6,333 | 2.00 | % | |||||||
Lawrence B. Seidman, Director | 614,553 | 6,333 | 11.96 | % | ||||||||
Milena Schaefer, Director | — | — | * | |||||||||
Michael A. Shriner, President, Chief Executive Officer and Director | 112,509 | 21,600 | 2.58 | % | ||||||||
Raymond Vanaria, Director | 98,767 | (5) | 6,333 | 2.02 | % | |||||||
Robert D. Vollers, Director | 27,252 | 6,333 | * | |||||||||
Robert G. Russell, Jr., Executive Vice President and Chief Operating Officer | 28,238 | 12,000 | * | |||||||||
Nancy E. Schmitz, Senior Vice President, Chief Credit Officer and Corporate Secretary | 29,934 | 12,000 | * | |||||||||
John J. Bailey, Executive Vice President, Chief Lending Officer | 24,140 | 12,000 | * | |||||||||
John Kaufman, First Vice President and Chief Financial Officer | 7,981 | 4,800 | * | |||||||||
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| |||||||||
All directors and executive officers as a group | 1,116,536 | 102,505 | 23.06 | % | ||||||||
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| * | Does not exceed 1.0% of |
| (1) | As of the |
| (2) | Includes |
| (3) | In calculating the percentage ownership of an individual or group, the number of shares outstanding is deemed to include any share which the individual or group has the right to acquire through the exercise of |
| (4) | Includes |
| (5) | Includes |
The validity of the Kearny common stock to be issued in the proposed merger has been passed upon for Kearny by Luse Gorman, PC, Washington, D.C. Certain U.S. federal income taxes consequences relating to the merger will be passed upon for Kearny by Luse Gorman, PC, Washington, D.CD.C. and for CliftonMSB by Kilpatrick Townsend & StocktonJones Walker LLP, Washington, D.C.
The consolidated financial statements of Kearny as of June 30, 20172019 and 20162018 and for each of the threetwo years in the period ended June 30, 20172019 incorporated by reference into this document have been so incorporated in reliance upon the reports of Crowe LLP, an independent registered public accounting firm, incorporated herein by reference, given on the authority of said firm as experts in auditing and management’s assessmentaccounting.
The consolidated financial statements of Kearny for the effectiveness of internal control over financial reporting as ofyear ended June 30, 2017 incorporated by reference into this document from Kearny Financial Corp’s Annual Report on Form 10-K for the period ended June 30, 2019, have been so incorporated in reliance upon the reports of BDO USA, LLP, an independent registered public accounting firm, incorporated herein by reference, given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of CliftonMSB as of MarchDecember 31, 20172019 and 20162018 and for each of the threetwo years in the period ended MarchDecember 31, 2017 and management’s assessment of the effectiveness of internal control over financial reporting as of March 31, 2017 incorporated by reference2019 included in this document have been so incorporatedincluded in reliance onupon the reports of BDO USA,Crowe LLP, an independent registered public accounting firm, incorporated herein by reference,included in this document, given on the authority of said firm as experts in auditing and accounting.
STOCKHOLDER PROPOSALS AND NOMINATIONS
CliftonMSB intends to hold an annual meeting during the year ending MarchDecember 31, 20182020 only if the merger is not completed.
Clifton must receive proposals that stockholders seek to include in the proxy statement for Clifton’s nextIf MSB holds an annual meeting no later than March 1, 2018. If next year’s annual meeting is heldduring the year ending December 31, 2020 on a date that is more than 30 calendar days from August 9, 2018,May 21, 2020, a stockholder proposal must be received by a reasonable time before CliftonMSB begins to print and mail its proxy solicitation material for such annual meeting. Any stockholder proposals will be subject to the requirements of the proxy rules adopted by the SEC.
Clifton’sMSB’s Bylaws provide that a person may not be nominated for election as a director of CliftonMSB unless that person is nominated by or at the direction of Clifton’sMSB’s Board of Directors or by a stockholder who has given appropriate notice to CliftonMSB before the meeting. Similarly, a stockholder may not bring business before an annual meeting unless the stockholder has given CliftonMSB appropriate notice of their intention to bring that business before the meeting. Clifton’sMSB’s secretary must receive notice of the nomination or proposal not less than 90ninety (90) days before the annual meeting; provided, however, that if less than 100one hundred (100) days’ notice of prior public disclosure of the date of the meeting is given or made to the stockholders, notice by the stockholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder who desires to raise new business must provide certain information to CliftonMSB concerning the nature of the new business, the stockholder, the stockholder’s ownership in CliftonMSB and the stockholder’s interest in the business matter. Similarly, a stockholder wishing to nominate any person for election as a director must provide CliftonMSB with certain information concerning the nominee and the proposing stockholder. A copy of Clifton’sMSB’s Bylaws may be obtained from Clifton.
Kearny’s 2018 annual meeting of stockholders is expected to be held on October 25, 2018. Advance written notice for certain business, or nominations to the Board of Directors, to be brought before the next Kearny annual meeting must be provided to Kearny no earlier than June 28, 2018 and no later than July 8, 2018. If notice is received before June 28, 2018 or later than July 8, 2018, it will be considered untimely, and Kearny will not be required to present the matter at the stockholders meeting.
To be eligible for inclusion in the proxy materials for next year’s annual meeting of Kearny stockholders, any stockholder proposal under SEC Rule14a-8 to take action at such meeting must be received at Kearny’s executive office at 120 Passaic Avenue, Fairfield, New Jersey 07004 no later than May 16, 2018. Any such proposals shall be subject to the requirements of the proxy rules adopted under the Securities Exchange Act of 1934, as amended.
The Bylaws of Kearny also provide an advance notice procedure for certain business, or nominations to the Board of Directors, to be brought before an annual meeting of stockholders. In order for a stockholder to properly bring business before an annual meeting, the stockholder must give written notice to the Secretary of Kearny not less than 110 days nor more than 120 days prior to the anniversary of the prior year’s annual meeting of stockholders; provided, however, that if the date of the annual meeting is advanced more than 30 days prior to the anniversary of the preceding year’s annual meeting, a stockholder’s written notice shall be timely only if delivered or mailed to and received by the Secretary of Kearny at the principal executive office of the corporation no earlier than the day on which public disclosure of the date of such annual meeting is first made and no later than the tenth day following the day on which public disclosure of the date of such annual meeting is first made.MSB.
WHERE YOU CAN FIND MORE INFORMATION
Kearny and CliftonMSB file annual, quarterly and current reports, proxy statements and other information with the SEC under the Exchange Act. The SEC maintains an internet worldwide website that contains reports, proxy and information statements and other information about issuers, like Kearny and MSB, that file electronically with the SEC. These filings are available toThe address of the public over the internet at the SEC’s website at site is http://www.sec.gov. You may also readThe reports and copy any documentother information filed by Kearny or Clifton files with the SEC are also available at its public reference room locatedKearny’s website at 100 F Street, NE, Washington, DC 20549. Copies of these documents also can be obtained at prescribed rateswww.kearnybank.com under the tab “Investor Relations.” The reports and other information filed by writing to the Public Reference Section ofMSB with the SEC are also available at 100 F Street, NE, Washington, DC 20549 or by calling1-800-SEC-0330 for additional information onMSB’s website at www.millingtonbank.com under the operation of the public reference facilities.tab “About Us” under “Investor Relations.”
Kearny filed with the SEC a registration statement onForm S-4 under the Securities Act to register the shares of Kearny common stock to be issued to CliftonMSB stockholders in the merger. This document is a part of that registration statement and
constitutes a prospectus of Kearny in addition to being a proxy statement of Clifton for its special meeting and of KearnyMSB for its special meeting. As permitted by the SEC rules, this document does not contain all of the information that you can find in the registration statement or in the exhibits to the registration statement. The additional information may be inspected and copiedobtained as set forth above.
All information in this document concerning Kearny and its subsidiaries has been furnished by Kearny and all information in this document concerning CliftonMSB and its subsidiaries has been furnished by Clifton.MSB.
Each CliftonMSB stockholder will receive a separate copy of this document, regardless of whether such stockholder is residing at a shared address with one or more other CliftonMSB stockholders.
You should rely only on the information contained in, or incorporated by reference into, this document when evaluating the merger agreement and the merger. We have not authorized anyone to provide you with information that is different from what is contained in this document. This document is dated [●], 2018.2020. You should not assume that the information contained in this document is accurate as of any date other than such date, and neither the mailing of this document to stockholders of CliftonMSB or Kearny nor the issuance of shares of Kearny common stock as contemplated by the merger agreement shall create any implication to the contrary.
Kearny and Clifton incorporateincorporates by reference additional documents that each companyit may file with the SEC between the date of this document and the later of the date of the Kearny special meeting and the date of the CliftonMSB special meeting. These documents include periodic reports, such as annual reports on Form10-K, quarterly reports on Form10-Q and current reports on Form8-K (other than information furnished under Items 2.02 or 7.01 of Form8-K), as well as proxy statements.
KEARNY FILINGS (FILE NO(File No001-37399)
Filings | Period of Report or Date Filed | |
• Annual Report on Form10-K | Year endedJune 30, | |
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CLIFTON FILINGS (FILENO. 001-36390)
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• Quarterly Report on Form10-Q | Periods | |
• Current Reports on Form8-K | August | |
Documents incorporated by reference are available from Kearny and Clifton without charge (except for exhibits to the documents unless the exhibits are specifically incorporated in this document by reference). You may obtain documents incorporated by reference in this document by requesting them in writing or by telephone from the appropriate companyKearny at the following address:
Kearny Financial Corp. 120 Passaic Avenue, Fairfield, New Jersey 07004 Attention: Gail Corrigan, Corporate Secretary Telephone:(973) 244-4500 |
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If you would like to request documents from Kearny, and/or Clifton, please do so by February 22, 2018May 20, 2020 to receive them before each company’s meeting of stockholders. If you request any incorporated documents, Kearny and/or Clifton will mail them to you by first-class mail, or other equally prompt means, within one business day of its receipt of your request.
Neither Kearny nor CliftonMSB has authorized anyone to give any information or make any representation about the merger or the companies that is different from, or in addition to, that contained in this document or in any of the materials that have been incorporated in this document. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by document or the solicitation of proxies is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this document does not extend to you. The information contained in this document speaks only as of the date of this document unless the information specifically indicates that another date applies.
Report of Independent Registered Public Accounting Firm
Shareholders and the Board of Directors
MSB Financial Corp. and Subsidiaries
Millington, New Jersey
Opinion on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial condition of MSB Financial Corp. and Subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of income, changes in stockholders’ equity, and cash flows for the years ended December 31, 2019 and 2018, and the related notes (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of their operations and their cash flows for the years ended December 31, 2019 and 2018 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework: (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Crowe LLP
We have served as the Company’s auditor since 2018.
New York, New York
March 13, 2020
MSB Financial Corp. and Subsidiaries
Consolidated Statements of Financial Condition
| (Dollars in thousands, except per share amounts) | At December 31, 2019 | At December 31, 2018 | ||||||
Cash and due from banks | $ | 1,296 | $ | 1,558 | ||||
Interest-earning demand deposits with banks | 17,157 | 10,242 | ||||||
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Cash and Cash Equivalents | 18,453 | 11,800 | ||||||
Securities held to maturity (fair value of $35,696 and $38,569, respectively) | 35,827 | 39,476 | ||||||
Loans receivable, net of allowance for loan losses of $5,722 and $5,655, respectively | 508,022 | 502,299 | ||||||
Premises and equipment | 8,020 | 8,180 | ||||||
Federal Home Loan Bank of New York stock, at cost | 2,848 | 4,756 | ||||||
Bank owned life insurance | 14,480 | 14,585 | ||||||
Accrued interest receivable | 1,650 | 1,615 | ||||||
Other assets | 3,786 | 1,789 | ||||||
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Total Assets | $ | 593,086 | $ | 584,500 | ||||
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Liabilities and Stockholders’ Equity | ||||||||
Liabilities | ||||||||
Deposits: | ||||||||
Non-interest bearing | $ | 47,935 | $ | 46,690 | ||||
Interest bearing | 424,817 | 373,889 | ||||||
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Total Deposits | 472,752 | 420,579 | ||||||
Advances from Federal Home Loan Bank of New York | 51,575 | 94,275 | ||||||
Advance payments by borrowers for taxes and insurance | 722 | 749 | ||||||
Other liabilities | 2,662 | 2,251 | ||||||
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Total Liabilities | 527,711 | 517,854 | ||||||
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Stockholders’ Equity | ||||||||
Preferred stock, par value $0.01; 1,000,000 shares authorized; no shares issued or outstanding | — | — | ||||||
Common stock, par value $0.01; 49,000,000 shares authorized; 5,184,914 and 5,389,054 issued and outstanding at December 31, 2019 and December 31, 2018, respectively | 52 | 54 | ||||||
Paid-in capital | 41,857 | 44,726 | ||||||
Retained earnings | 24,989 | 23,498 | ||||||
Unearned common stock held by ESOP (168,538 and 179,464 shares, respectively) | (1,523 | ) | (1,632 | ) | ||||
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Total Stockholders’ Equity | 65,375 | 66,646 | ||||||
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Total Liabilities and Stockholders’ Equity | $ | 593,086 | $ | 584,500 | ||||
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See notes to consolidated financial statements.
MSB Financial Corp. and Subsidiaries
Consolidated Statements of Income
| Year Ended December 31, | ||||||||
| (in thousands except per share amounts) | 2019 | 2018 | ||||||
Interest Income | ||||||||
Loans receivable, including fees | $ | 23,007 | $ | 21,960 | ||||
Securities held to maturity | 1,064 | 1,065 | ||||||
Other | 484 | 320 | ||||||
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Total Interest Income | 24,555 | 23,345 | ||||||
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Interest Expense | ||||||||
Deposits | 5,282 | 3,834 | ||||||
Borrowings | 1,708 | 1,564 | ||||||
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Total Interest Expense | 6,990 | 5,398 | ||||||
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Net Interest Income | 17,565 | 17,947 | ||||||
Provision for Loan Losses | — | 240 | ||||||
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Net Interest Income after Provision for Loan Losses | 17,565 | 17,707 | ||||||
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Non-Interest Income | ||||||||
Fees and service charges | 346 | 334 | ||||||
Income from bank owned life insurance | 554 | 388 | ||||||
Other | 74 | 78 | ||||||
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TotalNon-Interest Income | 974 | 800 | ||||||
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Non-Interest Expenses | ||||||||
Salaries and employee benefits | 6,769 | 6,673 | ||||||
Directors compensation | 524 | 490 | ||||||
Occupancy and equipment | 1,534 | 1,564 | ||||||
Service bureau fees | 575 | 347 | ||||||
Advertising | 21 | 33 | ||||||
FDIC assessment | 100 | 211 | ||||||
Professional services | 2,415 | 1,730 | ||||||
Other | 831 | 813 | ||||||
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TotalNon-Interest Expenses | 12,769 | 11,861 | ||||||
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Income before Income Taxes | 5,770 | 6,646 | ||||||
Income Tax Expense | 1,667 | 1,811 | ||||||
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Net Income | $ | 4,103 | $ | 4,835 | ||||
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Earnings per share: | ||||||||
Basic | $ | 0.81 | $ | 0.90 | ||||
Diluted | $ | 0.80 | $ | 0.90 | ||||
See notes to consolidated financial statements.
MSB Financial Corp. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
| (Dollars in thousands) | Common Stock | Paid-In Capital | Retained Earnings | Unallocated Common Stock Held by ESOP | Total Stockholders’ Equity | |||||||||||||||
Balance - December 31, 2017 | $ | 58 | $ | 51,068 | $ | 23,641 | $ | (1,742 | ) | $ | 73,025 | |||||||||
Net income | — | — | 4,835 | — | 4,835 | |||||||||||||||
Allocation of ESOP stock | — | 219 | — | 110 | 329 | |||||||||||||||
Repurchased stock (390,089 shares) | (4 | ) | (7,026 | ) | — | — | (7,030 | ) | ||||||||||||
Exercise of stock options (10,511 shares) | — | 137 | — | — | 137 | |||||||||||||||
Stock-based compensation | — | 328 | — | — | 328 | |||||||||||||||
Cash paid for common stock dividend ($0.905 per share) | — | — | (4,978 | ) | — | (4,978 | ) | |||||||||||||
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Balance - December 31, 2018 | $ | 54 | $ | 44,726 | $ | 23,498 | $ | (1,632 | ) | $ | 66,646 | |||||||||
Net income | — | — | 4,103 | — | 4,103 | |||||||||||||||
Allocation of ESOP stock | — | 151 | — | 109 | 260 | |||||||||||||||
Repurchased stock (199,202 shares and 4,938 restricted) | (2 | ) | (3,347 | ) | — | — | (3,349 | ) | ||||||||||||
Stock-based compensation | — | 327 | — | — | 327 | |||||||||||||||
Cash paid for common stock dividends ($0.50 per share) | — | — | (2,612 | ) | — | (2,612 | ) | |||||||||||||
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Balance - December 31, 2019 | $ | 52 | $ | 41,857 | $ | 24,989 | $ | (1,523 | ) | $ | 65,375 | |||||||||
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See notes to consolidated financial statements.
MSB Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
| Year Ended December 31, | ||||||||
| (Dollars in thousands) | 2019 | 2018 | ||||||
Cash Flows from Operating Activities | ||||||||
Net income | $ | 4,103 | $ | 4,835 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Net (accretion) of securities premiums and discounts and deferred loan fees and costs | (181 | ) | (118 | ) | ||||
Depreciation and amortization of premises and equipment | 559 | 573 | ||||||
Stock-based compensation and allocation of ESOP stock | 587 | 657 | ||||||
Provision for loan losses | — | 240 | ||||||
Deferred income taxes | (191 | ) | 293 | |||||
Income from bank owned life insurance | (554 | ) | (388 | ) | ||||
Increase in accrued interest receivable | (35 | ) | (8 | ) | ||||
Decrease in other assets | 64 | 129 | ||||||
Decrease in other liabilities | (800 | ) | (490 | ) | ||||
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Net Cash Provided by Operating Activities | 3,552 | 5,723 | ||||||
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Cash Flows from Investing Activities | ||||||||
Activity in held to maturity securities: | ||||||||
Purchases | (9,961 | ) | (8,969 | ) | ||||
Maturities, calls and principal repayments | 13,556 | 7,898 | ||||||
Net decrease (increase) in loans receivable | 3,279 | (54,406 | ) | |||||
Purchased loans | (11,300 | ) | (7,096 | ) | ||||
Proceeds from sales of loans | 2,533 | 32,563 | ||||||
Purchase of bank premises and equipment | (399 | ) | (55 | ) | ||||
Purchase of Federal Home Loan Bank of New York stock | (14,697 | ) | (27,356 | ) | ||||
Redemption of Federal Home Loan Bank of New York stock | 16,605 | 24,731 | ||||||
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Net Cash Used by Investing Activities | (384 | ) | (32,690 | ) | ||||
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Cash Flows from Financing Activities | ||||||||
Net increase (decrease) in deposits | 52,173 | (28,334 | ) | |||||
Advances from Federal Home Loan Bank of New York | — | 66,600 | ||||||
Repayment of advances from Federal Home Loan Bank of New York | (42,700 | ) | (10,000 | ) | ||||
(Decrease) increase in advance payments by borrowers for taxes and insurance | (27 | ) | 63 | |||||
Cash dividends paid to stockholders | (2,612 | ) | (4,978 | ) | ||||
Net exercise of options and repurchase of shares | — | (53 | ) | |||||
Repurchase of common stock | (3,349 | ) | (6,840 | ) | ||||
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Net Cash Provided by Financing Activities | 3,485 | 16,458 | ||||||
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Net increase (decrease) in Cash and Cash Equivalents | 6,653 | (10,509 | ) | |||||
Cash and Cash Equivalents – Beginning | 11,800 | 22,309 | ||||||
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Cash and Cash Equivalents – Ending | $ | 18,453 | $ | 11,800 | ||||
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See notes to consolidated financial statements.
MSB Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
| Year Ended December 31, | ||||||||
| (Dollars in thousands) | 2019 | 2018 | ||||||
Supplementary Cash Flows Information | ||||||||
Interest paid | $ | 6,991 | $ | 5,407 | ||||
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Income taxes paid | $ | 2,077 | $ | 1,436 | ||||
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Supplemental noncash disclosures | ||||||||
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Lease liabilities arising from obtainingright-of-use assets | $ | 1,211 | $ | — | ||||
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See notes to consolidated financial statements.
Note 1 – Organization and Business
MSB Financial Corp. (the “Company”) is a Maryland-chartered corporation organized in 2014 to be the successor to MSB Financial Corp., a federal corporation (“Old MSB”) upon completion of the second-step conversion of Millington Bank (the “Bank”) from thetwo-tier mutual holding company structure to the stock holding company structure. MSB Financial, MHC (the “MHC”) was the former mutual holding company for Old MSB prior to completion of the second-step conversion. In conjunction with the second-step conversion, each of the MHC and Old MSB ceased to exist. The second-step conversion was completed on July 16, 2015 at which time the Company sold 3,766,592 shares of its common stock (including 150,663 shares purchased by the Bank’s employee stock ownership plan) at $10.00 per share for gross proceeds of approximately $37.7 million. Expenses related to the stock offering totaled $1.5 million and were netted against proceeds. As part of the second-step conversion, each of the outstanding shares of common stock of Old MSB held by persons other than the MHC were converted into 1.1397 shares of Company common stock with cash paid in lieu of fractional shares. As a result, a total of 2,187,242 additional shares were issued in the second-step conversion. As a result of the second-step conversion, all share and per share information has subsequently been revised to reflect the 1.1397 exchange ratio unless otherwise noted.
The Company’s principal business is the ownership and operation of the Bank. The Bank is a New Jersey-chartered stock savings bank and its deposits are insured by the Federal Deposit Insurance Corporation. The primary business of the Bank is attracting retail deposits from the general public and using those deposits together with funds generated from operations, principal repayments on securities and loans and borrowed funds, for its lending and investing activities. The Bank’s loan portfolio primarily consists ofone-to-four family and home equity residential loans, commercial real estate loans, commercial loans, and construction loans. It also invests in U.S. government obligations and mortgage-backed securities. The Bank is regulated by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation. The Board of Governors of the Federal Reserve System (the “Federal Reserve”) regulates the Company as a bank holding company.
The primary business of Millington Savings Service Corp (the “Service Corp”), the Bank’s wholly-owned subsidiary, was the ownership and operation of a single commercial rental property. This property was sold during the year ended June 30, 2007. Currently the Service Corp is inactive.
Note 2 – Summary of Significant Accounting Policies
Basis of Consolidated Financial Statement Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, the Bank and the Bank’s wholly owned subsidiary, the Service Corp. All significant intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). 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 dates of the consolidated statements of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash and amounts due from depository institutions and interest-bearing deposits with banks with original maturities of six months or less.
Securities
Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity securities and reported at amortized cost. Debt securities that are bought and held principally for the purpose of being sold in the near term are classified as trading securities and reported at fair value, with unrealized holding gains and losses included in earnings. Debt securities not classified as trading securities or as held to maturity securities are classified as available for sale securities and reported at fair value, with unrealized holding gains or losses, net of applicable income taxes, reported in a separate component of stockholders’ equity. The Company had no trading or available for sale securities as of December 31, 2019 and 2018.
Note 2 – Summary of Significant Accounting Policies—(Continued)
Equity investments are measured at fair value with changes in fair value recognized in net income. The Company had no equity investments with changes in fair value recorded in net income for the years ended December 31, 2019 and 2018.
Individual securities are considered impaired when their fair value is less than amortized cost. Management evaluates all securities with unrealized losses quarterly to determine if such impairments are “temporary” or “other-than-temporary” in accordance with applicable accounting guidance. Accordingly, the Company accounts for temporary impairments based upon a security’s classification as trading, available for sale or held to maturity. Temporary impairments on available for sale securities are recognized, on atax-effected basis, through other comprehensive income (loss) with offsetting entries adjusting the carrying value of the security and the balance of deferred taxes. Temporary impairments of held to maturity securities are not recognized in the consolidated financial statements; however, information concerning the amount and duration of impairments on held to maturity securities is disclosed in the notes to the consolidated financial statements. The carrying value of securities held in the trading portfolio is adjusted to fair value through earnings on a monthly basis.
Other-than-temporary impairments on securities that the Company has decided to sell or will more likely than not be required to sell prior to the full recovery of their fair value to a level equal to or exceeding amortized cost are recognized in earnings. Otherwise, the other-than-temporary impairment is bifurcated into credit-related and noncredit-related components. The credit-related impairment generally represents the amount by which the present value of the cash flows expected to be collected on the debt security falls below its amortizedcost. The noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. Credit-related other-than-temporary impairments are recognized in earnings while noncredit-related other-than-temporary impairments are recognized, net of deferred taxes, in other comprehensive income (loss).
The Company reviews its investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value of a security has been lower than the cost, and the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer. The Company also assesses its intent with regard to selling or holding each security as well as any conditions which may require the sale of security prior to the recovery of fair value to a level which equals or exceeds amortized cost.
Discounts and premiums on securities are accreted/amortized to maturity by use of the level-yield method. Gain or loss on sales of securities is based on the specific identification method.
Concentration of Risk
The Bank’s lending activities are concentrated in loans secured by real estate located in the State of New Jersey.
Loans Receivable
Loans are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct loan origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Company is generally amortizing these amounts based on the effective interest method.
Allowance for Credit Losses
The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents management’s estimate of probable incurred losses in the loan portfolio as of the statement of financial condition date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate of probable incurred losses in its unfunded loan commitments and is recorded in other liabilities, when required, on the consolidated statement of financial condition. The allowance for credit losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. All, or part, of the principal balance of loans receivable that are deemed uncollectible are charged against the allowance for loan losses when management determines that the repayment of that amount is highly unlikely. Any subsequent recoveries are credited to the allowance for loanlosses. Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, earlier in the event of bankruptcy, or if there is an amount deemed uncollectible.
Note 2 – Summary of Significant Accounting Policies—(Continued)
The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company’s three year loan loss experience, known and probable incurred losses in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, the composition of the loan portfolio, current economic conditions and other relevant factors.
This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.
For additional detail regarding the allowance for loan losses, see Note 4 to the Consolidated Financial Statements.
Other Real Estate Owned (“OREO”)
Other real estate owned represents real estate acquired through formal foreclosure or by taking possession of the real estate and is initially recorded at the lower of cost or fair value, less estimated selling costs establishing a new cost basis. Write-downs required at the time of acquisition are charged to the allowance for loan losses. Thereafter, the Company maintains an allowance for decreases in the property’s estimated fair value, through charges to earnings. Such charges are included in othernon-interest expense along with any additional property maintenance. There was no OREO at December 31, 2019 and 2018. We may obtain physical possession of residential and commercial real estate collateralizing consumer and commercial mortgage loans via foreclosure orin-substance repossession. As of December 31, 2019, we had consumer loans with a carrying value of $773,000 collateralized by residential real estate property for which formal foreclosure proceedings were in process.
Premises and Equipment
Premises and equipment are comprised of land, at cost, and buildings, building improvements, furnishings and equipment and leasehold improvements, at cost, less accumulated depreciation and amortization. Depreciation and amortization charges are computed on the straight-line method over the following estimated useful lives:
| Years | ||
Building and improvements | 5 – 50 | |
Furnishings and equipment | 3 – 7 | |
Leasehold improvements | Shorter of useful life or term of lease |
Significant renewals and betterments are capitalized to the premises and equipment account. Maintenance and repairs are charged to operations in the year incurred. Rental income is netted against occupancy costs in the consolidated statements of income.
Federal Home Loan Bank Stock
Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to hold restricted stock of its district’s FHLB according to a predetermined formula based on advances available and outstanding. The restricted stock is carried at cost. Management’s determination of whether these shares are impaired is based on an assessment of the ultimate recoverability of its cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB.
Management believes no impairment charge was necessary related to the FHLB restricted stock during the years ended December 31, 2019 and 2018.
Note 2 – Summary of Significant Accounting Policies—(Continued)
Bank Owned Life Insurance
Bank owned life insurance is carried at net cash surrender value. The change in the net cash surrender value is recorded as a component ofnon-interest income.
Stock-based Compensation Plans
In accordance with FASB ASC 718, “Compensation – Stock Compensation”, the Company recognizes compensation expense for the total of the fair value of all share-based compensation awards granted over the requisite service periods. In addition, ASC 718 requires that cash flow activity be reported on a financing rather than an operating cash flow basis for the benefits, if any, of realized tax deductions in excess of previously recognized tax benefits on compensation expense.
Advertising
The Company expenses advertising and marketing costs as incurred.
Income Tax Expense
The Company and its subsidiaries file a consolidated federal income tax return. Federal income taxes are allocated based on the contribution of their respective income or loss to the consolidated income tax return. Separate state income tax returns are filed.
Federal and state income taxes have been provided for these consolidated financial statements on the basis of reported income. The amounts reflected on the income tax returns differ from these provisions due principally to temporary differences in the reporting of certain items of income and expense for financial reporting and income tax reporting purposes. Deferred income taxes are recorded to recognize such temporary differences.
The Company follows the provisions of FASB ASC 740, “Income Taxes”, formerly FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes (“FIN48”). ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognizing, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the Company’s evaluation under ASC 740, no significant income tax uncertainties have been identified. Therefore, the Company recognized no adjustment for unrecognized income tax benefits for the years ended December 31, 2019 and 2018. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the consolidated statement of income. The Company did not recognize any interest and penalties for the years ended December 31, 2019 and 2018. The tax years subject to examination by the taxing authorities are the years ended December 31, 2019, 2018, 2017 and 2016.
Off-Balance Sheet Credit-Related Financial Instruments
In the ordinary course of business, the Company enters into commitments to extend credit, including commitments under lines of credit. Such financial instruments are recorded when they are funded.
Earnings per Share
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding, exclusive of the Employee Stock Ownership Plan (“ESOP”) shares not yet committed to be released. Diluted earnings per share is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of contracts or securities exercisable (such as stock options) or which could be converted into common stock, if dilutive, using the treasury stock method.
Note 2 – Summary of Significant Accounting Policies—(Continued)
The following table shows the computation of basic and diluted earnings per share:
| Year Ended December 31, | ||||||||
| (In Thousands, Except Per Share Data) | 2019 | 2018 | ||||||
Numerator: | ||||||||
Net income | $ | 4,103 | $ | 4,835 | ||||
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Denominator: | ||||||||
Weighted average common shares | 5,096 | 5,351 | ||||||
Dilutive potential common shares | 31 | 49 | ||||||
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Weighted average fully diluted shares | 5,127 | 5,400 | ||||||
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Earnings per share: | ||||||||
Basic | $ | 0.81 | $ | 0.90 | ||||
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Dilutive | $ | 0.80 | $ | 0.90 | ||||
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Outstanding common stock equivalents having no dilutive effect | — | — | ||||||
Recent Accounting Pronouncements
In February 2016, the FASB issued ASUNo. 2016-2, “Leases” (Topic 842). This ASU revises the method for lessee accounting. Under the new guidance, lessees will be required to recognize aright-of-use asset and a lease liability for all leases. The new lease guidance also simplified the accounting for sale and leaseback transactions primarily due to the recognition of lease assets and lease liabilities. ASU2016-2 is effective for the first interim period within annual periods beginning after December 15, 2018, with early adoption permitted. The standard is required to be adopted using the modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The adoption of ASC 842 resulted in the recognition of aright-of-use (ROU) asset of $1.2 million and a lease liability of $1.2 million on MSB’s Consolidated Statements of Financial Condition. The Company has elected to apply the package of practical expedients allowed by the new standard under which the Company need not reassess whether any expired contracts are leases or contain leases, the Company need not reassess the lease classification for any expired or existing lease, and the Company need not reassess initial direct costs for any existing leases. The Company has also elected not to restate comparative periods.
In June 2016, the FASB issued ASUNo. 2016-13, “Measurement of Credit Losses on Financial Instruments.” This ASU requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model. Under this model, entities will estimate credit losses over the entire contractual term of the instrument. The standard is effective for public companies in annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim or annual period provided that the entire standard is adopted. We are currently evaluating the impact of ASU2016-13 on MSB’s consolidated financial statements. We have taken steps to begin preparations for implementation, such as evaluating changes to MSB’s current loss recognition model and have selected an outside professional company’s model to begin loading MSB’s data into and determining next steps. On October 16, 2019, the FASB voted to a delay the effective date of ASU2016-13 for SEC filers who are smaller reporting companies (like the Company) and public entities that are not SEC filers and nonpublic entities. For these entities, the effective date for implementation of ASU2016-13 has been deferred to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.
Note 3 – Securities Held to Maturity
The amortized cost of securities held to maturity and their fair values are summarized as follows:
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| (In thousands) | ||||||||||||||||
December 31, 2019: | ||||||||||||||||
U.S. Government agencies | $ | 6,000 | $ | 13 | $ | — | $ | 6,013 | ||||||||
Mortgage-backed securities | 22,451 | 300 | 37 | 22,714 | ||||||||||||
Corporate bonds | 6,500 | 2 | 425 | 6,077 | ||||||||||||
State and political subdivisions | 876 | 16 | — | 892 | ||||||||||||
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| $35,827 | $331 | $462 | $35,696 | |||||||||||||
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December 31, 2018: | ||||||||||||||||
U.S. Government agencies | $ | 8,000 | $ | 11 | $ | 18 | $ | 7,993 | ||||||||
Mortgage-backed securities | 23,936 | 142 | 299 | 23,779 | ||||||||||||
Corporate bonds | 6,500 | — | 736 | 5,764 | ||||||||||||
State and political subdivisions | 1,040 | — | 7 | 1,033 | ||||||||||||
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| $ | 39,476 | $ | 153 | $ | 1,060 | $ | 38,569 | |||||||||
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All mortgage-backed securities at December 31, 2019 and 2018 have been issued by FNMA, FHLMC or GNMA and are secured by1-4 family residential real estate.
The amortized cost and fair value of securities held to maturity at December 31, 2019, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
| (In thousands) | Amortized Cost | Fair Value | ||||||
U.S. Government agencies: | ||||||||
Due within one year | $ | — | $ | — | ||||
Due after one year through five years | — | — | ||||||
Due after five through ten years | 3,000 | 3,011 | ||||||
Due thereafter | 3,000 | 3,002 | ||||||
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| 6,000 | 6,013 | |||||||
Mortgage-backed securities | ||||||||
Due within one year | 1,151 | 1,153 | ||||||
Due after one year through five years | 11,370 | 11,552 | ||||||
Due after five through ten years | 2,580 | 2,565 | ||||||
Due thereafter | 7,350 | 7,444 | ||||||
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| 22,451 | 22,714 | |||||||
Corporate Bonds | ||||||||
Due within one year | 1,500 | 1,502 | ||||||
Due after one year through five years | — | — | ||||||
Due after five years through ten years | 1,000 | 956 | ||||||
Due thereafter | 4,000 | 3,619 | ||||||
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| 6,500 | 6,077 | |||||||
State and political subdivisions | ||||||||
Due within one year | 171 | 171 | ||||||
Due after one year through five years | 705 | 721 | ||||||
Due after five years through ten years | — | — | ||||||
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| 876 | 892 | |||||||
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| $ | 35,827 | $ | 35,696 | |||||
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Note 3 – Securities Held to Maturity—(Continued)
There were no sales of securities held to maturity during the years ended December 31, 2019 and 2018. At December 31, 2019 and 2018, securities held to maturity with a fair value of approximately $3 million and $2 million, respectively, were pledged to secure public funds on deposit.
The following table provides the gross unrealized losses and fair value of securities in an unrealized loss position, by the length of time that such securities have been in a continuous unrealized loss position:
| Less than 12 Months | More than 12 Months | Total | ||||||||||||||||||||||
| Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||||
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December 31, 2019: | ||||||||||||||||||||||||
U.S. Government agencies | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Mortgage-backed securities | 1,716 | 8 | 3,140 | 29 | 4,856 | 37 | ||||||||||||||||||
Corporate bonds | — | — | 4,574 | 425 | 4,574 | 425 | ||||||||||||||||||
State and political subdivisions | — | — | — | — | — | — | ||||||||||||||||||
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| $ | 1,716 | $ | 8 | $ | 7,714 | $ | 454 | $ | 9,430 | $ | 462 | |||||||||||||
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December 31, 2018: | ||||||||||||||||||||||||
U.S. Government agencies | $ | — | $ | — | $ | 1,982 | $ | 18 | $ | 1,982 | $ | 18 | ||||||||||||
Mortgage-backed securities | 8 | 1 | 15,205 | 298 | 15,213 | 299 | ||||||||||||||||||
Corporate bonds | 1,487 | 13 | 4,277 | 723 | 5,764 | 736 | ||||||||||||||||||
State and political subdivisions | 180 | 1 | 853 | 6 | 1,033 | 7 | ||||||||||||||||||
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| $ | 1,675 | $ | 15 | $ | 22,317 | $ | 1,045 | $ | 23,992 | $ | 1,060 | |||||||||||||
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At December 31, 2019, management concluded that the unrecognized losses summarized above (which related to ten mortgage-backed securities and three corporate bonds, compared to two U.S. Government agency bonds, twenty mortgage-backed securities, five corporate bonds, and six state and political subdivision bonds as of December 31, 2018) are temporary in nature since they are not related to the underlying credit quality of the issuer. As of December 31, 2019, the Company did not intend to sell these securities and it is notmore-likely-than-not that the Company would be required to sell these securities prior to the anticipated recovery of the remaining amortized cost. Management believes that the losses above are primarily related to the change in market interest rates. Accordingly, the Company has not recognized any other-than-temporary impairment loss on these securities.
Note 4 – Loans Receivable and Allowance for Loan Losses
The composition of total loans receivable at December 31, 2019 and 2018 was as follows:
| At December 31, 2019 | At December 31, 2018 | |||||||
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Residential mortgage: | ||||||||
One-to-four family | $ | 130,966 | $ | 143,391 | ||||
Home equity | 22,853 | 24,365 | ||||||
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| 153,819 | 167,756 | |||||||
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Commercial and multi-family real estate | 227,441 | 212,606 | ||||||
Construction | 47,635 | 29,628 | ||||||
Commercial and industrial – Secured | 63,462 | 60,426 | ||||||
Commercial and industrial – Unsecured | 37,600 | 48,176 | ||||||
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| 376,138 | 350,836 | |||||||
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Consumer: | 432 | 540 | ||||||
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Total loans receivable | 530,389 | 519,132 | ||||||
Less: | ||||||||
Loans in process | 16,109 | 10,677 | ||||||
Deferred loan fees | 536 | 501 | ||||||
Allowance for loan losses | 5,722 | 5,655 | ||||||
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Total adjustments | 22,367 | 16,833 | ||||||
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Loans receivable, net | $ | 508,022 | $ | 502,299 | ||||
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Allowance for Loan Losses
The Company’s loan portfolio is comprised of the following segments: residential mortgage, commercial real estate, construction, commercial and industrial and consumer. Some segments of the Company’s loan receivable portfolio are further disaggregated into classes which allow management to more accurately monitor risk and performance. Accordingly, the methodology and allowance calculation includes the segmentation of the total loan portfolio.
The residential mortgage loan segment is disaggregated into two classes:one-to-four family loans, which are primarily first liens, and home equity loans, which consist of first and second liens. The commercial real estate loan segment includes owner andnon-owner occupied loans which have medium risk based on historical experience with these types of loans. The construction loan segment is further disaggregated into two classes:one-to-four family owner-occupied, which includes land loans, whereby the owner is known and there is less risk, and other, whereby the property is generally under development and tends to have more risk than theone-to-four family owner-occupied loans. The commercial and industrial loan segment consists of loans made for the purpose of financing the activities of commercial customers. The commercial and industrial loans carry a mix of loans secured by real estate and unsecured lines of credit some of which are for high net worth individuals. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.
The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments or principal or interest when due according to the contractual terms of the loan agreement. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these classes of loans, adjusted for qualitative factors. These qualitative risk factors include:
| 1. | Lending policies and procedures, including underwriting standards and collection,charge-off, and recovery practices. |
| 2. | National, regional, and local economic and business conditions as well as the condition of various market segments, including the value of underlying collateral for collateral dependent loans. |
Note 4 – Loans Receivable and Allowance for Loan Losses—(Continued)
| 3. | Nature and volume of the portfolio and terms of loans. |
| 4. | Experience, ability, and depth of lending management and staff. |
| 5. | Volume and severity of past due, classified and nonaccrual loans as well as other loan modifications. |
| 6. | Quality of the Company’s loan review system, and the degree of oversight by the Company’s Board of Directors. |
| 7. | Existence and effect of any concentrations of credit and changes in the level of such concentrations. |
| 8. | Effect of external factors, such as competition and legal and regulatory requirements. |
Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation.
Although management seeks to avoid intentionally creating an unallocated component, one will exist at times due to the dynamic interplay of balances, qualitative factors and other items that could impact management’s estimate of probable losses. The unallocated component of the allowances reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
The following tables provide an analysis of the allowance for loan losses and the loan receivable balances, by the portfolio segment segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of December 31, 2019 and 2018:
| Year Ended December 31, 2019 | ||||||||||||||||||||||||||||
| (in thousands) | Residential Mortgage | Commercial and Multi-Family Real Estate | Construction | Commercial and Industrial | Consumer | Unallocated | Total | |||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||
Balance, beginning | $ | 2,115 | $ | 2,187 | $ | 222 | $ | 1,128 | $ | 3 | $ | — | $ | 5,655 | ||||||||||||||
Provisions | (438 | ) | 425 | 211 | (199 | ) | 1 | — | — | |||||||||||||||||||
Loanscharged-off | — | — | — | — | (4 | ) | — | (4 | ) | |||||||||||||||||||
Recoveries | 69 | — | — | — | 2 | — | 71 | |||||||||||||||||||||
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Balance, ending | $ | 1,746 | $ | 2,612 | $ | 433 | $ | 929 | $ | 2 | $ | — | $ | 5,722 | ||||||||||||||
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Period-end allowance allocated to: | ||||||||||||||||||||||||||||
Loans individually evaluated for impairment | $ | 234 | $ | 74 | $ | — | $ | — | $ | — | $ | — | $ | 308 | ||||||||||||||
Loans collectively evaluated for impairment | 1,512 | 2,538 | 433 | 929 | 2 | — | $ | 5,414 | ||||||||||||||||||||
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| |||||||||||||||
Ending balance | $ | 1,746 | $ | 2,612 | $ | 433 | $ | 929 | $ | 2 | $ | — | $ | 5,722 | ||||||||||||||
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| |||||||||||||||
Period-end loan balances evaluated for: | ||||||||||||||||||||||||||||
Loans individually evaluated for impairment | $ | 10,199 | $ | 2,337 | $ | — | $ | 24 | $ | — | $ | — | $ | 12,560 | ||||||||||||||
Loans collectively evaluated for impairment | 143,570 | 224,760 | 31,465 | 100,957 | 432 | — | 501,184 | |||||||||||||||||||||
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|
|
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| |||||||||||||||
Ending balance | $ | 153,769 | $ | 227,097 | $ | 31,465 | $ | 100,981 | $ | 432 | $ | — | $ | 513,744 | ||||||||||||||
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| |||||||||||||||
Note 4 – Loans Receivable and Allowance for Loan Losses—(Continued)
| Year Ended December 31, 2018 | ||||||||||||||||||||||||||||
| (in thousands) | Residential Mortgage | Commercial and Multi-Family Real Estate | Construction | Commercial and Industrial | Consumer | Unallocated | Total | |||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||
Balance, beginning | $ | 1,852 | $ | 2,267 | $ | 302 | $ | 710 | $ | 5 | $ | 278 | $ | 5,414 | ||||||||||||||
Provisions | 255 | (80 | ) | (80 | ) | 418 | 5 | (278 | ) | $ | 240 | |||||||||||||||||
Loanscharged-off | — | — | — | — | (8 | ) | — | $ | (8 | ) | ||||||||||||||||||
Recoveries | 8 | — | — | — | 1 | — | $ | 9 | ||||||||||||||||||||
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| |||||||||||||||
Balance, ending | $ | 2,115 | $ | 2,187 | $ | 222 | $ | 1,128 | $ | 3 | $ | — | $ | 5,655 | ||||||||||||||
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| |||||||||||||||
Period-end allowance allocated to: | ||||||||||||||||||||||||||||
Loans individually evaluated for impairment | $ | 326 | $ | 69 | $ | — | $ | 20 | $ | — | $ | — | $ | 415 | ||||||||||||||
Loans collectively evaluated for impairment | 1,789 | 2,118 | 222 | 1,108 | 3 | — | 5,240 | |||||||||||||||||||||
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| |||||||||||||||
Ending balance | $ | 2,115 | $ | 2,187 | $ | 222 | $ | 1,128 | $ | 3 | $ | — | $ | 5,655 | ||||||||||||||
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| |||||||||||||||
Period-end loan balances evaluated for: | ||||||||||||||||||||||||||||
Loans individually evaluated for impairment | $ | 11,960 | $ | 2,411 | $ | — | $ | 243 | $ | — | $ | — | $ | 14,614 | ||||||||||||||
Loans collectively evaluated for impairment | 155,746 | 209,879 | 18,905 | 108,270 | 540 | — | 493,340 | |||||||||||||||||||||
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| |||||||||||||||
Ending balance | $ | 167,706 | $ | 212,290 | $ | 18,905 | $ | 108,513 | $ | 540 | $ | — | $ | 507,954 | ||||||||||||||
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| |||||||||||||||
Nonaccrual and Past Due Loans
For all classes of loans receivable, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due or when management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. Certain loans may remain on accrual status if they are in the process of collection and are either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed. Interest received on nonaccrual loans, including impaired loans, generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.
Note 4 – Loans Receivable and Allowance for Loan Losses—(Continued)
The following table represents the classes of the loans receivable portfolio summarized by aging categories of performing loans and nonaccrual loans as of December 31, 2019 and 2018:
As of December 31, 2019 | 30-59 Days Past Due and Still Accruing | 60-89 Days Past Due and Still Accruing | Greater than 90 Days and Still Accruing | Total Past Due and Still Accruing | Accruing Current Balances | Nonaccrual Loans | Total Loans Receivables | |||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
Residential Mortgage | ||||||||||||||||||||||||||||
One-to-four family | $ | 1,719 | $ | 287 | $ | — | $ | 2,006 | $ | 127,747 | $ | 1,169 | $ | 130,922 | ||||||||||||||
Home equity | 160 | — | — | 160 | 21,744 | 943 | 22,847 | |||||||||||||||||||||
Commercial and multi-family real estate | 260 | — | — | 260 | 225,841 | 996 | 227,097 | |||||||||||||||||||||
Construction | — | — | — | — | 31,465 | — | 31,465 | |||||||||||||||||||||
Commercial and industrial | — | — | — | — | 100,981 | — | 100,981 | |||||||||||||||||||||
Consumer | 3 | — | — | 3 | 429 | — | 432 | |||||||||||||||||||||
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| |||||||||||||||
Total | $ | 2,142 | $ | 287 | $ | — | $ | 2,429 | $ | 508,207 | $ | 3,108 | $ | 513,744 | ||||||||||||||
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| |||||||||||||||
As of December 31, 2018 | 30-59 Days Past Due and Still Accruing | 60-89 Days Past Due and Still Accruing | Greater than 90 Days and Still Accruing | Total Past Due and Still Accruing | Accruing Current Balances | Nonaccrual Loans(1) | Total Loans Receivables | |||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
Residential Mortgage | ||||||||||||||||||||||||||||
One-to-four family | $ | 1,328 | $ | 365 | $ | 2 | $ | 1,695 | $ | 139,371 | $ | 2,276 | $ | 143,342 | ||||||||||||||
Home equity | 1,602 | 75 | — | $ | 1,677 | 22,079 | 608 | 24,364 | ||||||||||||||||||||
Commercial and multi-family real estate | — | — | — | $ | — | 211,258 | 1,032 | 212,290 | ||||||||||||||||||||
Construction | — | — | — | $ | — | 18,905 | — | 18,905 | ||||||||||||||||||||
Commercial and industrial | — | — | — | $ | — | 108,298 | 215 | 108,513 | ||||||||||||||||||||
Consumer | 1 | — | — | $ | 1 | 539 | — | 540 | ||||||||||||||||||||
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| |||||||||||||||
Total | $ | 2,931 | $ | 440 | $ | 2 | $ | 3,373 | $ | 500,450 | $ | 4,131 | $ | 507,954 | ||||||||||||||
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| |||||||||||||||
Impaired Loans
Management evaluates individual loans in all of the loan segments (including loans in the residential mortgage and consumer segments) for possible impairment if the loan is either on nonaccrual status or is risk rated Substandard or worse or has been modified in a troubled debt restructuring (“TDR”). A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on acase-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.
Once the determination has been made that a loan is impaired, impairment is measured by comparing the recorded investment in the loan to one of the following: (a) the present value of expected cash flows (discounted at the loan’s effective interest rate), (b) the loan’s observable market price or (c) the fair value of collateral adjusted for expected selling costs. The method is selected on a loan by loan basis with management primarily utilizing the fair value of collateral method.
The estimated fair values of the real estate collateral are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, theloan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to
Note 4 – Loans Receivable and Allowance for Loan Losses—(Continued)
arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.
The estimated fair values ofnon-real estate collateral, such as accounts receivable, inventory and equipment, are determined based on the borrower’s financial statements, inventory reports, accounts receivable aging schedules or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.
The evaluation of the need and amount of the allowance for impaired loans and whether a loan can be removed from impairment status is made on a quarterly basis. The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.
The following tables provide an analysis of the impaired loans at December 31, 2019 and 2018 and the average balances of such loans for the years then ended:
| (In Thousands) | Recorded Investment | Loans with No Related Reserve | Loans with Related Reserve | Related Reserve | Contractual Principal Balance | Average Loan Balances | ||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||
Residential mortgage | ||||||||||||||||||||||||
One-to-four family | $ | 8,560 | $ | 1,169 | $ | 7,391 | $ | 200 | $ | 9,215 | $ | 9,469 | ||||||||||||
Home equity | 1,639 | 1,267 | 372 | 34 | 1,740 | 1,750 | ||||||||||||||||||
Commercial and multi-family real estate | 2,337 | 1,362 | 975 | 74 | 3,080 | 2,357 | ||||||||||||||||||
Construction | — | — | — | — | — | — | ||||||||||||||||||
Commercial and industrial | 24 | 24 | — | — | 25 | 153 | ||||||||||||||||||
Consumer | — | — | — | — | — | — | ||||||||||||||||||
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|
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| |||||||||||||
Total | $ | 12,560 | $ | 3,822 | $ | 8,738 | $ | 308 | $ | 14,060 | $ | 13,729 | ||||||||||||
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| |||||||||||||
| (In Thousands) | Recorded Investment | Loans with No Related Reserve | Loans with Related Reserve | Related Reserve | Contractual Principal Balance | Average Loan Balances | ||||||||||||||||||
December 31, 2018 | ||||||||||||||||||||||||
Residential mortgage | ||||||||||||||||||||||||
One-to-four family | $ | 10,224 | $ | 1,956 | $ | 8,268 | $ | 298 | $ | 10,907 | $ | 10,392 | ||||||||||||
Home equity | 1,736 | 609 | 1,127 | 28 | 1,827 | 1,484 | ||||||||||||||||||
Commercial and multi-family real estate | 2,411 | 1,405 | 1,006 | 69 | 3,067 | 2,059 | ||||||||||||||||||
Construction | — | — | — | — | — | — | ||||||||||||||||||
Commercial and industrial | 243 | 223 | 20 | 20 | 262 | 149 | ||||||||||||||||||
Consumer | — | — | — | — | — | 1 | ||||||||||||||||||
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| |||||||||||||
Total | $ | 14,614 | $ | 4,193 | $ | 10,421 | $ | 415 | $ | 16,063 | $ | 14,085 | ||||||||||||
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As of December 31, 2019 and 2018, impaired loans listed above include $11.3 and $11.4 million, of loans previously modified in TDRs and as such are considered impaired under GAAP. As of December 31, 2019 and 2018, $9.5 and $10.5 million, respectively, of these loans have been performing in accordance with their modified terms for an extended period of time and as such were removed from nonaccrual status and considered performing. During the year ended December 31, 2019, interest income of $443,000 was recorded on impaired loans related to accruing TDRs. During the year ended December 31, 2018, interest income of $543,000 was recorded on impaired loans related to accruing TDRs.
Credit Quality Indicators
Management uses a nine point internal risk rating system to monitor the credit quality of the loans in the Company’s commercial real estate, construction and commercial and industrial loan segments. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually or when credit deficiencies, such as delinquent loan payments, arise. The criticized rating categories utilized by management generally follow bank regulatory definitions.
Note 4 – Loans Receivable and Allowance for Loan Losses—(Continued)
The Bank’s rating categories are as follows:
1 – 5: The first five risk rating categories are considered not criticized, and are aggregated as “Pass” rated.
6: “Special Mention” category includes assets that are currently protected, but are potentially weak, resulting in increased credit risk and deserving management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects.
7: “Substandard” loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. This includes loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any.
8: “Doubtful” loans have all the weaknesses inherent in loans classified “Substandard” with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable.
9: “Loss” loans are considered uncollectible and subsequently charged off.
The following table presents the classes of the loans receivable portfolio summarized by the aggregate “Pass” and the criticized categories of “Special Mention”, “Substandard”, “Doubtful” and “Loss” within the internal risk rating system as of December 31, 2019 and 2018:
As of December 31, 2019 | Pass | Special Mention | Substandard | Doubtful | Loss | Total | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
Commercial and multi-family real estate | $ | 223,975 | $ | 1,490 | $ | 1,632 | $ | — | $ | — | $ | 227,097 | ||||||||||||
Construction | 31,465 | — | — | — | — | 31,465 | ||||||||||||||||||
Commercial and industrial | 100,838 | 58 | 85 | — | — | 100,981 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | 356,278 | $ | 1,548 | $ | 1,717 | $ | — | $ | — | $ | 359,543 | ||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||
As of December 31, 2018 | Pass | Special Mention | Substandard | Doubtful | Loss | Total | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
Commercial and multi-family real estate | $ | 209,206 | $ | 1,367 | $ | 1,717 | $ | — | $ | — | $ | 212,290 | ||||||||||||
Construction | 18,905 | — | — | — | — | 18,905 | ||||||||||||||||||
Commercial and industrial | 108,025 | 69 | 419 | — | — | 108,513 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | 336,136 | $ | 1,367 | $ | 1,717 | $ | — | $ | — | $ | 339,708 | ||||||||||||
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|
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| |||||||||||||
Management further monitors the performance and credit quality of the retail portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. These credit quality indicators are assessed in the aggregate in these relatively homogeneous portfolios. Loans greater than 90 days past due are generally considered nonperforming and placed on nonaccrual status.
| Residential mortgage | Consumer | Total Residential and Consumer | ||||||||||||||||||||||
As of December 31, | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
Nonperforming | $ | 2,112 | $ | 2,884 | $ | — | $ | — | $ | 2,112 | $ | 2,884 | ||||||||||||
Performing | 151,657 | 164,822 | 432 | 540 | $ | 152,089 | $ | 165,362 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | 153,769 | $ | 167,706 | $ | 432 | $ | 540 | $ | 154,201 | $ | 168,246 | ||||||||||||
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| |||||||||||||
Troubled Debt Restructurings
Loans whose terms are modified are classified as a TDR if, in connection with the modification, the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a TDR generally involve a reduction in interest rate below market rates given the associated credit risk, or an extension of a loan’s stated maturity date or capitalization of interest and/or escrow. Nonaccrual TDRs are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. Loans classified as TDRs are designated as impaired until they are ultimately repaid in full or foreclosed and sold. The nature and extent of impairment of TDRs, including those which experienced a subsequent default, is considered in the determination of an appropriate level of allowance for loan losses.
Note 4 – Loans Receivable and Allowance for Loan Losses—(Continued)
The recorded investment balance of TDRs totaled $11.3 million at December 31, 2019 and $11.4 million at December 31, 2018. The majority of the Company’s TDRs are on accrual status and totaled $9.5 million at December 31, 2019 versus $10.5 million at December 31, 2018. The total of TDRs on nonaccrual status was $1.8 million at December 31, 2019 and $915,000 at December 31, 2018.
For the year ended December 31, 2019, the terms of seven loans were modified into two TDRs. The Company restructured aone-to-four family adjustable rate mortgage, two home equity lines of credit and two commercial overdraft loans into oneone-to-four family TDR and extended the maturity date. In addition, the Company refinanced a commercial overdraft loan and a commercial owner-occupied fixed rate loan into one commercial owner-occupied fixed rate TDR. For the year ended December 31, 2018, one loan was modified into a TDR. The Company refinanced a multi-family & commercial loan that was restructured to extend the maturity date and capitalize the interest.
The following tables summarize by class loans modified into TDRs during the year ended December 31, 2019 and 2018:
| Year Ended December 31, 2019 | ||||||||||||
| Number of Contracts | Pre-Modification Outstanding Recorded Investments | Post- Modification Outstanding Recorded Investments | ||||||||||
| (Dollars in thousands) | ||||||||||||
Residential Mortgage | ||||||||||||
One-to-four family | 1 | $ | 421 | $ | 460 | |||||||
Commercial and multi-family real estate | 1 | 794 | 791 | |||||||||
|
|
|
|
|
| |||||||
Total | 2 | $ | 1,215 | $ | 1,251 | |||||||
|
|
|
|
|
| |||||||
| Year Ended December 31, 2018 | ||||||||||||
| Number of Contracts | Pre-Modification Outstanding Recorded Investments | Post- Modification Outstanding Recorded Investments | ||||||||||
| (Dollars in thousands) | ||||||||||||
Commercial and multi-family real estate | 1 | 374 | 392 | |||||||||
Total | 1 | $ | 374 | $ | 392 | |||||||
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|
|
|
| |||||||
A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.
Note 5 – Premises and Equipment
The components of premises and equipment at December 31, 2019 and 2018 were as follows:
| At December 31, 2019 | At December 31, 2018 | |||||||
| (In thousands) | ||||||||
Land | $ | 1,937 | $ | 1,937 | ||||
Buildings and improvements | 8,574 | 8,555 | ||||||
Leasehold improvements | 1,430 | 1,430 | ||||||
Furnishings and equipment | 2,696 | 3,070 | ||||||
Assets being developed for future use | 33 | — | ||||||
|
|
|
| |||||
| 14,670 | 14,992 | |||||||
Accumulated depreciation and amortization | (6,650 | ) | (6,812 | ) | ||||
|
|
|
| |||||
| $ | 8,020 | $ | 8,180 | |||||
|
|
|
| |||||
Note 6 – Deposits
Deposits at December 31, 2019 and 2018 consisted of the following classifications:
| At December 31, 2019 | At December 31, 2018 | |||||||||||||||
| Amount | Average Rate | Amount | Average Rate | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
Non-interest bearing demand | $ | 47,935 | — | % | $ | 46,690 | — | % | ||||||||
Interest demand | 141,935 | 1.19 | 134,123 | 1.01 | ||||||||||||
Savings | 99,036 | 0.73 | 102,740 | 0.63 | ||||||||||||
Money market demand | 27,692 | 1.38 | 16,171 | 0.78 | ||||||||||||
Certificates of deposit | 156,154 | 1.99 | 120,855 | 1.77 | ||||||||||||
|
|
|
| |||||||||||||
| $ | 472,752 | 1.25 | % | $ | 420,579 | 1.01 | % | |||||||||
|
|
|
| |||||||||||||
A summary of certificates of deposit by maturity at December 31, 2019 and 2018 is as follows:
| At December 31, 2019 | At December 31, 2018 | |||||||
| (Dollars in thousands) | ||||||||
Within one year | $ | 96,101 | $ | 39,790 | ||||
One to two years | 44,279 | 34,407 | ||||||
Two to three years | 10,908 | 31,947 | ||||||
Three to four years | 3,109 | 10,552 | ||||||
Four to five years | 863 | 2,949 | ||||||
Thereafter | 894 | 1,210 | ||||||
|
|
|
| |||||
| $ | 156,154 | $ | 120,855 | |||||
|
|
|
| |||||
The aggregate amount of certificates of deposit with a minimum denomination of $250,000 was approximately $22.4 million and $18.1 million at December 31, 2019 and 2018, respectively. Generally, deposits in excess of $250,000 are not insured by the FDIC.
A summary of interest expense on deposits for the years ended December 31, 2019 and 2018 is as follows:
| Year Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| (Dollars in thousands) | ||||||||
Interest demand and money market demand | $ | 1,670 | $ | 1,257 | ||||
Savings and club | 735 | 548 | ||||||
Certificates of deposit | 2,877 | 2,029 | ||||||
|
|
|
| |||||
| $ | 5,282 | $ | 3,834 | |||||
|
|
|
| |||||
Note 7 – Borrowings
The Company participates in the FHLB of New York Overnight Advance Program. Advances under this program allow the Company to borrow up to the balance of its qualifying mortgage loans that have been pledged as collateral, less any related outstanding indebtedness. As of December 31, 2019 and 2018, the Company had $173.6 million and $149.9 million, respectively, available for borrowing under this agreement.
Note 7 – Borrowings—(Continued)
Term advances due to the FHLB of NY at December 31, 2019 and 2018 consisted of the following:
| Fixed Interest Rate | At December 31, | |||||||||||
Maturity | 2019 | 2018 | ||||||||||
| (Dollars in thousands) | ||||||||||||
July 6, 2020 | 1.79 | % | $ | 2,675 | $ | 2,675 | ||||||
September 8, 2020 | 1.75 | 5,000 | 5,000 | |||||||||
November 23, 2020 | 2.27 | 10,000 | 10,000 | |||||||||
September 8, 2021 | 1.89 | 5,000 | 5,000 | |||||||||
September 8, 2022 | 2.01 | 5,000 | 5,000 | |||||||||
|
|
|
| |||||||||
| $ | 27,675 | $ | 27,675 | |||||||||
|
|
|
| |||||||||
The advances are secured by a blanket assignment of unpledged and qualifying mortgage and commercial real estate loans.
The Company had $23.9 million in overnight advances with the FHLB of NY at a rate of 1.81% as of December 31, 2019 and $66.6 million in overnight advances with the FHLB of NY at a rate of 2.60% as of December 31, 2018.
As of December 31, 2019 and 2018, the Company had a $13.0 million unsecured line of credit with another financial institution. There were no amounts outstanding on the line as of December 31, 2019 and 2018.
Note 8 – Stockholders’ Equity
Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by Federal and State 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 Company’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 certainoff-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 weighting, and other factors.
The Federal Reserve Board approved final rules on Basel III in July 2013 establishing a new comprehensive capital framework for U.S. banks. Basel III substantially revised the risk-based capital requirements applicable to bank holding companies and depository institutions. The minimum regulatory capital requirements became effective for the Company and the Bank on January 1, 2015 and include a minimum common equity Tier 1 capital ratio of 4.50% of risk-weighted assets and raised the Tier 1 capital ratio from 4.00% to 6.00% of risk-weighted assets. The rules also require a minimum Total capital ratio of 8.00% of risk-weighted assets and a minimum Tier 1 leverage capital ratio of 4.00% of average assets. The final rule also established a new capital conservation buffer, comprised of common equity Tier 1 capital, above the regulatory minimum capital requirements. Thephase-in of the capital conservation buffer began on January 1, 2016 at 0.625% of risk-weighted assets and increases each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. For 2019 and 2018, the capital conservation buffer was 2.500% and 1.875%, respectively.
Pursuant to the Federal Reserve’s Small Bank Holding Company Policy Statement, a bank holding company such as the Company with consolidated assets under $3 billion is exempt from regulatory capital requirements provided that: (i) it is not engaged in significantnon-banking oroff-balance sheet activities; (ii) it does not have a material amount of debt or equity securities registered with the SEC; and (iii) its bank subsidiary is well capitalized. As a result, the minimum capital requirements are not applicable to MSB Financial Corp. as of December 31, 2019 and December 31, 2018.
As of December 31, 2019, the most recent notification from the regulators 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 category.
Note 8 – Stockholders’ Equity—(Continued)
The following table presents a reconciliation of GAAP capital and regulatory capital and information as to the Bank’s capital levels at the dates presented:
| Actual | For capital adequacy purposes(1) | To be well capitalized under prompt corrective action provisions | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
December 31, 2019: | ||||||||||||||||||||||||
Tier 1 leverage capital ratio | ||||||||||||||||||||||||
Millington Bank | $ | 61,991 | 10.70 | % | $ | 23,164 | ³ | 4.00 | $ | 28,955 | ³5.00 | |||||||||||||
MSB Financial Corp. | 65,375 | 11.33 | N/A | N/A | N/A | N/A | ||||||||||||||||||
Common equity tier 1 capital ratio | ||||||||||||||||||||||||
Millington Bank | 61,991 | 11.43 | 24,396 | ³ | 4.50 | 35,239 | ³6.50 | |||||||||||||||||
MSB Financial Corp. | 65,375 | 12.06 | N/A | N/A | N/A | N/A | ||||||||||||||||||
Tier 1 capital ratio | ||||||||||||||||||||||||
Millington Bank | 61,991 | 11.43 | 32,528 | ³ | 6.00 | 43,371 | ³8.00 | |||||||||||||||||
MSB Financial Corp. | 65,375 | 12.06 | N/A | N/A | N/A | N/A | ||||||||||||||||||
Total capital ratio | ||||||||||||||||||||||||
Millington Bank | 67,801 | 12.51 | 43,371 | ³ | 8.00 | 54,213 | ³10.00 | |||||||||||||||||
MSB Financial Corp. | 71,185 | 13.13 | N/A | N/A | N/A | N/A | ||||||||||||||||||
| (1) | Amounts and ratios do not include the capital conservation buffer. |
| Actual | For capital adequacy purposes(1) | To be well capitalized under prompt corrective action provisions | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
December 31, 2018: | ||||||||||||||||||||||||
Tier 1 leverage capital ratio | ||||||||||||||||||||||||
Millington Bank | $ | 61,740 | 10.71 | % | $ | 23,052 | ³ | 4.00 | $ | 28,816 | ³5.00 | |||||||||||||
MSB Financial Corp. | 66,646 | 11.56 | N/A | N/A | N/A | N/A | ||||||||||||||||||
Common equity tier 1 capital ratio | ||||||||||||||||||||||||
Millington Bank | 61,740 | 11.90 | 23,351 | ³ | 4.50 | 33,729 | ³6.50 | |||||||||||||||||
MSB Financial Corp. | 66,646 | 12.84 | N/A | N/A | N/A | N/A | ||||||||||||||||||
Tier 1 capital ratio | ||||||||||||||||||||||||
Millington Bank | 61,740 | 11.90 | 31,134 | ³ | 6.00 | 41,512 | ³8.00 | |||||||||||||||||
MSB Financial Corp. | 66,646 | 12.84 | N/A | N/A | N/A | N/A | ||||||||||||||||||
Total capital ratio | ||||||||||||||||||||||||
Millington Bank | 67,467 | 13.00 | 41,512 | ³ | 8.00 | 51,891 | ³10.00 | |||||||||||||||||
MSB Financial Corp. | 72,373 | 13.95 | N/A | N/A | N/A | N/A | ||||||||||||||||||
| (1) | Amounts and ratios do not include the capital conservation buffer. |
Common Stock Repurchase Plan
The Company announced that on June 2, 2016 it had received thenon-objection of the Federal Reserve Bank of New York to purchase up to 112,600 shares of the Company’s common stock in order to fund future awards of restricted stock that may be made under the Company’s 2016 Equity Incentive Plan that was approved by stockholders at the Annual Meeting of Stockholders held on April 22, 2016. On August 4, 2016, the Company announced that it had approved a stock repurchase plan to purchase up to 595,342 shares of the Company’s common stock. On December 17, 2018, the Company announced that it had approved a stock repurchase plan to repurchase up to 273,150 shares, approximately 5% of the outstanding shares of the Company’s common stock.
Note 8 – Stockholders’ Equity—(Continued)
During the year ended December 31, 2019, the Company repurchased 199,202 shares of Company’s common stock with an average price of $16.40. During the year ended December 31, 2018, the Company repurchased 373,948 shares of Company’s common stock with an average price of $17.95.
Note 9 – Lease
The Company leases certain premises and equipment under operating leases including one branch and the loan operations office. The Company also has a short-term lease for one additional branch that at December 31, 2019, is being negotiated to a longer term lease. At December 31, 2019, the Company had lease liabilities totaling $964,000 andright-of-use assets totaling $902,000 related to these leases. Lease liabilities andright-of-use assets are reflected in other liabilities and other assets, respectively. For the twelve months ended December 31, 2019, the weighted average remaining lease term for operating leases was 4.2 years and the weighted average discount rate in the measurement of operating lease liabilities was 3.14%. The incremental borrowing rate for leases is generally determined by the length of the lease and are aligned with the Federal Home Loan Bank advance rates. In addition, the Company did not factor in lease renewals into the calculation as leases are typically renegotiated depending on market conditions.
Lease costs were as follows:
| (Dollars in thousands) | Twelve months ended December 31, 2019 | |||
Operating lease cost | $ | 317 | ||
Short-term lease cost | 182 | |||
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Total lease Cost | $ | 499 | ||
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Rent expense for the twelve months ended December 31, 2018, prior to the adoption of ASU2016-02 was $510,000.
There were no sale and leaseback transactions, leverage leases, finance leases, or lease transactions with related parties during the twelve months ended December 31, 2019. At December 31, 2019, the Company had no leases that had not yet commenced.
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability is as follows:
| December 31, 2019 | ||||
| (Dollars in thousands) | ||||
Lease payments due: | ||||
Within one year | $ | 332 | ||
After one but within two years | 289 | |||
After two but within three years | 198 | |||
After three but within four years | 202 | |||
After four but within five years | 154 | |||
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Total undiscounted cash flows | 1,175 | |||
Discount on cash flows | (211 | ) | ||
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Total lease liability | $ | 964 | ||
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Note 10 – Income Taxes
The total tax expense consisted of the following for the years ended December 31, 2019 and 2018:
| Year Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| (In thousands) | ||||||||
Current income tax expense: | ||||||||
Federal | $ | 1,202 | $ | 1,000 | ||||
State | 656 | 518 | ||||||
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| 1,858 | 1,518 | |||||||
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Deferred income tax expense (benefit): | ||||||||
Federal | (129 | ) | 180 | |||||
State | (62 | ) | 113 | |||||
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| (191 | ) | 293 | ||||||
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| $ | 1,667 | $ | 1,811 | |||||
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A reconciliation of the statutory federal income tax at a rate of 21%, to the income tax expense included in the statements of income for the year ended December 31, 2019 and 2018 is as follows:
| Year ended December 31, | ||||||||||||||||
| 2019 | 2018 | |||||||||||||||
| Amount | % of Pretax Income | Amount | % of Pretax Income | |||||||||||||
Federal income tax at statutory rate | $ | 1,212 | 21.0 | % | $ | 1,396 | 21.0 | % | ||||||||
State tax, net of federal benefit | 469 | 8.1 | 498 | 7.5 | ||||||||||||
Bank Owned Life Insurance | (116 | ) | (2.0 | ) | (81 | ) | (1.2 | ) | ||||||||
ESOP and stock-based compensation | 20 | 0.3 | (11 | ) | (0.2 | ) | ||||||||||
Other | 82 | 1.5 | 9 | 0.2 | ||||||||||||
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| $ | 1,667 | 28.9 | % | $ | 1,811 | 27.3 | % | |||||||||
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The components of the net deferred tax asset at December 31, 2019 and 2018 were as follows:
| At December 31, | At December 31, | |||||||
| 2019 | 2018 | |||||||
| (In thousands) | ||||||||
Deferred tax assets: | ||||||||
Allowances for losses on loans and commitments | $ | 1,633 | $ | 1,610 | ||||
Uncollected interest | 225 | 48 | ||||||
Benefit plans | 142 | 127 | ||||||
Restricted stock award | 38 | 38 | ||||||
Deferred Rent | 0 | 16 | ||||||
Accrued compensation | 118 | 131 | ||||||
Deferred loan costs | 151 | 0 | ||||||
Lease Liability | 271 | 0 | ||||||
Other | 55 | 55 | ||||||
|
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| 2,633 | 2,025 | |||||||
Deferred tax liabilities | ||||||||
Depreciation | (619 | ) | (427 | ) | ||||
Deferred loan costs | 0 | (125 | ) | |||||
Right of use asset | (254 | ) | 0 | |||||
Other | (172 | ) | (76 | ) | ||||
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| (1,045 | ) | (628 | ) | |||||
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Net deferred tax asset included in other assets | $ | 1,588 | $ | 1,397 | ||||
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Note 10 – Income Taxes—(Continued)
The company and its subsidiaries are subject to U.S. federal income tax as well as income tax in the state of New Jersey. The company is generally no longer subject to examination for federal for tax years prior to 2016 and the state of New Jersey for tax years prior to 2015. At December 31, 2019 and 2018, the Company had state net operating loss carryforwards of $1.4 million which begin to expire in 2030. Realization of deferred tax assets associated with net operating loss carryforwards is dependent upon generating sufficient taxable income prior to their expiration. A valuation allowance to reflect management’s estimate of the temporary deductible differences that may expire prior to their utilization has been recorded at December 31, 2019 and 2018. The deferred tax asset and valuation allowance related to state net operating losses was $100,000 as of December 31, 2019 and 2018.
Retained earnings included $1.5 million at December 31, 2019 and 2018 for which no provision for income tax has been made. These amounts represent deductions for bad debt reserves for tax purposes which were only allowed to savings institutions which met certain definitional tests prescribed by the Internal Revenue Code of 1986, as amended (the “Code”). The Small Business Job Protection Act of 1996 (the “Act”) eliminated the special bad debt deduction granted solely to thrifts. Under the terms of the Act, there would be no recapture of thepre-1988 (base year) reserves. However, thesepre-1988 reserves would be subject to recapture under the rules of the Code if the Bank itself pays a cash dividend in excess of earnings and profits, or liquidates. The Act also provides for the recapture of deductions arising from the “applicable excess reserve” defined as the total amount of reserve over the base year reserve. The Bank’s total reserve exceeds the base year reserve and deferred taxes have been provided for this excess.
Note 11 – Benefit Plans
Directors’ Retirement Plan
The Bank had a Directors’ Retirement Plan, which provided that certain directors meeting specified age and service requirements may retire and continue to be paid. This plan was unfunded. Effective September 1, 2016, the Company terminated its Directors’ Retirement Plan. The Company had between 12 and 24 months from the time the plan was terminate to distribute all funds to the plan’s participants. The Company distributed the remaining Directors’ Retirement Plan funds of $1.4 million during the month of January 2018.
401(k) Savings Plan
The Bank sponsors a savings and profit sharing plan, pursuant to Section 401(k) of the Code, for all eligible employees. Employees may elect to defer up to 80% of their compensation, subject to Code limitations. The Bank will match 50% of the first 6% of the employee’s salary deferral up to a maximum of 3% of each employee’s compensation. The Plan expense amounted to approximately $87,000 and $88,000 for the years ended December 31, 2019 and 2018, respectively.
Employee Stock Ownership Plan
Effective upon completion of Old MSB’s initial public stock offering in 2007, the Bank established the ESOP for all eligible employees who complete a twelve-month period of employment with the Bank, have attained the age of 21 and have completed at least 1,000 hours of service in a plan year. The ESOP used $2.0 million in proceeds from a term loan obtained from Old MSB to purchase 202,342 shares of Old MSB common stock. The term loan principal was payable over 48 equal quarterly installments through December 31, 2018. The interest rate on the term loan was 8.25%.
On July 16, 2015, the Company completed a second-step stock conversion that included the purchase of 150,663 shares by the ESOP and the conversion of 202,342 shares of Old MSB’s common stock at a conversion rate of 1.1397 to 230,609 shares of Company common stock bringing the total shares to 381,272. The old term loan was refinanced into a new term loan in the amount of $2.3 million which included additional funds of $1.5 million to cover the cost of the newly purchased shares. The term loan principal is payable over 80 equal quarterly installments through June 30, 2035. The interest rate on the term loan is 3.25%.
Each quarter, the Bank intends to make discretionary contributions to the ESOP, which will be equal to principal and interest payments required on the term loan. The ESOP may further pay down the loan with dividends paid, if any, on the Company common stock owned by the ESOP. Shares purchased with the loan proceeds provide collateral for the term loan
Note 11 – Benefit Plans—(Continued)
and are held in a suspense account for future allocations among participants. Base compensation is the basis for allocation to participants of contributions to the ESOP and shares released from the suspense account, as described by the ESOP, in the year of allocation.
ESOP shares pledged as collateral were initially recorded as unallocated ESOP shares in the consolidated statement of financial condition. On a monthly basis, 910 shares are allocated and compensation expense is recorded equal to the number of allocated shares multiplied by the monthly average market price of the Company’s common stock and the allocated shares become outstanding for basic earnings per common share computations. The difference between the fair value of shares and the cost of the shares allocated by the ESOP is recorded as an adjustment topaid-in capital. ESOP compensation expense was approximately $181,000 and $210,000 for the years ended December 31, 2019 and 2018, respectively.
ESOP shares at December 31, 2019 and 2018 are summarized as follows:
| At December 31, 2019 | At December 31, 2018 | |||||||
Allocated shares | 201,808 | 190,882 | ||||||
Shares earned and committed to be released | 10,926 | 10,926 | ||||||
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Allocated and earned | 212,734 | 201,808 | ||||||
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Total ESOP shares | 381,272 | 381,272 | ||||||
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Fair value of unallocated shares | $ | 3,033,684 | $ | 3,203,432 | ||||
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Stock-Based Compensation
After shareholder approval in 2016, the MSB Financial Corp. 2016 Equity Incentive Plan (the “2016 Plan”) became effective. In addition, the Company also has the MSB Financial Corp. 2008 Stock Compensation and Incentive Plan (the “2008 Plan”). No future awards are being granted under the 2008 Plan. The 2016 Plan will terminate on the tenth anniversary of its effective date, after which no awards may be granted. Collectively, the 2008 Plan and the 2016 Plan are referred to as Stock Option Plans. Under the 2016 Plan, the Company may grant options to purchase up to 281,499 shares of Company’s common stock and issue up to 112,600 shares of restricted stock. At December 31, 2019, there were 85,985 shares remaining for future option grants and 13,597 shares remaining for future restricted share grants under the plan.
On July 16, 2015, the Company completed a second-step stock conversion that included the conversion of the stock options issued and outstanding under the 2008 Plan at a conversion rate of 1.1397. As a result, the number of options outstanding was increased by the conversion factor and the exercise price per share was converted to $9.4323.
During 2019, there were no options to purchase shares awarded.
During 2018, options to purchase 10,556 shares of common stock at $17.65 per share were awarded and will expire no later than ten years following the grant date. The options granted vest over a five-year service period, with 20% of the awards vesting on each anniversary of the date of grant. The fair value of the options granted, as computed using the Black-Sholes option-pricing model, was determined to be $4.24 per option based upon the following underlying assumptions: a risk-free interest rate, expected option life, expected stock price volatility, and dividend yield of 2.49%, 6.5 years, 16.53%, and 0.00%, respectively.
The risk-free interest rate was based on the U.S. Treasury yield at the option grant date for securities with a term matching the expected life of the options granted. The expected life was calculated using the “simplified” method provided for under Staff Accounting Bulletin No. 110. Expected volatility was calculated based upon the actual price history of the Company’s common stock up until the date of the option grants. The dividend yield was not used in the calculation since no dividends were declared since the Company completed the full stock conversion.
Note 11 – Benefit Plans—(Continued)
A summary of stock options at December 31, 2019 and 2018 was as follows:
| Year Ended December 31, 2019 | Year Ended December 31, 2018 | |||||||||||||||
| Stock Options: | Shares | Weighted- Average Exercise Price | Shares | Weighted- Average Exercise Price | ||||||||||||
Outstanding at beginning of period | 185,003 | $ | 13.56 | 210,448 | $ | 13.27 | ||||||||||
Granted | — | — | 10,556 | 17.65 | ||||||||||||
Exercised | — | — | (10,511 | ) | 13.04 | |||||||||||
Forfeited | — | — | (25,490 | ) | 13.04 | |||||||||||
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Outstanding at end of period | 185,003 | 13.56 | 185,003 | 13.56 | ||||||||||||
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Nonvested at end of period | 79,497 | 13.88 | 116,072 | 13.73 | ||||||||||||
Exercisable at end of period | 105,506 | 13.32 | 68,931 | 13.25 | ||||||||||||
Weighted-average fair value of awards granted | $ | — | $ | 4.24 | ||||||||||||
The total amount of compensation cost remaining to be recognized relating to unvested option grants as of December 31, 2019 was $147,000. The weighted-average period over which the expense is expected to be recognized is 1.5 years. At December 31, 2019, the intrinsic value of options exercisable and all options outstanding was approximately $494,000 and $821,000, respectively.
The total amount of compensation cost remaining to be recognized relating to unvested option grants as of December 31, 2018 was $233,000. The weighted-average period over which the expense is expected to be recognized is 2.5 years. At December 31, 2018, the intrinsic value of options exercisable and all options outstanding was approximately $322,000 and $472,000, respectively.
The Company awarded 107,403 shares of restricted stock that vest over a five year period during the year ended December 31, 2016. The fair value of the restricted stock is equal to the fair value of the Company’s common stock on the date of grant. For the year ended December 31, 2019, there were 36,963 restricted shares that were unvested and outstanding with a fair value of $13.04. The total amount of compensation cost to be recognized relating tonon-vested restricted stock as of December 31, 2019, was $345,000. The weighted-average period over which the expense is expected to be recognized is 1.5 years.
During the year ended December 31, 2019 and 2018, stock-based compensation expense recorded in regard to the options and the restricted stock grants totaled $327,000 and $328,000 as of December 31, 2019 and 2018.
Note 12 – Transactions with Officers and Directors
The Bank has had, and may be expected to have in the future, banking transactions in the ordinary course of business with its officers, directors, their immediate families, and affiliated companies (commonly referred to as related parties). These persons were indebted to the Bank for loans totaling $8.7 million and $8.2 million at December 31, 2019 and 2018, respectively. During the year ended December 31, 2019, $1.4 million of new loans and $860,000 of repayments were made. Total deposits from related parties at December 31, 2019 were $67.6 million and $43.5 million at December 31, 2018.
Note 13 – Commitments
The Bank is a party to financial instruments withoff-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Such commitments involve, to varying degrees, elements of credit, and interest rate risk in excess of the amount recognized in the statements of financial condition.
The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does foron-balance-sheet instruments.
Note 13 – Commitments—(Continued)
At December 31, 2019 and 2018, the following financial instruments were outstanding whose contract amounts represent credit risk:
| At December 31, 2019 | At December 31, 2018 | |||||||
| (In thousands) | ||||||||
Commitments to grant loans | $ | 15,447 | $ | 14,236 | ||||
Unfunded commitments under lines of credit | 86,414 | 74,123 | ||||||
Standby letters of credit | 513 | 159 | ||||||
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| $ | 102,374 | $ | 88,518 | |||||
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At December 31, 2019, commitments to grant loans included, $2.0 million of construction loans, $2.5 million of commercial and industrial loans and $10.9 million of commercial and multi-family estate loans. Of the unfunded commitments under lines of credit at December 31, 2019, $12.9 million was available under the Bank’s home equity lending program, $374,000 was available under the overdraft protection lending program and $73.1 million was available under commercial lines of credit.
At December 31, 2018, commitments to grant loans included $281,000 ofone-to-four family mortgage loans, $4.8 million of construction loans, $6.9 million of commercial and multi-family real estate loans and $2.2 million of commercial and industrial loans. Of the unfunded commitments under lines of credit at December 31, 2018, $14.5 million was available under the Bank’s home equity lending program, $414,000 was available under the overdraft protection lending program and $59.3 million was available under the commercial lines of credit.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on acase-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies but primarily includes residential and income-producing commercial real estate properties.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Bank requires collateral supporting these letters of credit when deemed necessary. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The fair values of these obligations were immaterial as of December 31, 2019 and 2018.
Note 14 – Fair Value Measurements
The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures.
FASB ASC Topic 820,Fair Market Value Disclosures (“ASC 820”), defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.
Note 14 – Fair Value Measurements—(Continued)
ASC 820 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, ASC 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Bank did not have any financial assets measured at fair value on a recurring basis as of December 31, 2019 and 2018.
Assets and Liabilities Measured at Fair Value on aNon-Recurring Basis
Certain financial andnon-financial assets are measured at fair value on anon-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
Note 14 – Fair Value Measurements—(Continued)
The following tables summarize those assets measured at fair value on anon-recurring basis as of December 31, 2019 and 2018:
| December 31, 2019 | ||||||||||||||||
| Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Total Fair Value | |||||||||||||
Impaired loans | $ | — | $ | — | $ | 338 | $ | 338 | ||||||||
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| December 31, 2018 | ||||||||||||||||
| Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Total Fair Value | |||||||||||||
Impaired loans | $ | — | $ | — | $ | 350 | $ | 350 | ||||||||
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For Level 3 input assets measured at fair value onnon-recurring basis as of December 31, 2019 and 2018, the significant unobservable inputs used in fair value measurements were as follows:
| December 31, 2019 | ||||||||||
| Fair Value Estimate | Valuation Techniques | Unobservable Input | Range (Weighted Average) | |||||||
| (Dollars in thousands) | ||||||||||
Impaired loans | $ | 338 | Appraisal of Collateral | Appraisal adjustments | 0% (0%) | |||||
| Liquidation expense | 20.56% (20.56%) | |||||||||
| December 31, 2018 | ||||||||||
| Fair Value Estimate | Valuation Techniques | Unobservable Input | Range (Weighted Average) | |||||||
| (Dollars in thousands) | ||||||||||
Impaired loans | $ | 350 | Appraisal of Collateral | Appraisal adjustments | 0% (0%) | |||||
| Liquidation expense | 7.3% (7.3%) | |||||||||
An impaired loan is measured for impairment at the time the loan is identified as impaired. Loans are considered impaired when based on current information and events it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. The Company’s impaired loans are generally collateral dependent and, as such, are carried at the lower of cost or estimated fair value less estimated selling costs. Fair values are estimated through current appraisals and adjusted as necessary to reflect current market conditions and as such are classified as Level 3.
Disclosure about Fair Value of Financial Instruments
The fair value of a financial instrument is defined above. Significant estimates were used for the purposes of disclosing fair values. Estimated fair values have been determined using the best available data and estimation methodology suitable for each category of financial instruments. However, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective reporting dates, and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported.
The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.
Note 14 – Fair Value Measurements—(Continued)
The following presents the carrying amount, fair value and placement in the fair value hierarchy as of December 31, 2019 and 2018, of the Company’s financial instruments which are carried on the consolidated statement of financial condition at cost and are not measured or recorded at fair value on a recurring basis.
| Carrying Amount | Fair Value | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | ||||||||||||||||
As of December 31, 2019 | (In thousands) | |||||||||||||||||||
Financial assets: | ||||||||||||||||||||
Cash and due from banks | $ | 18,453 | $ | 18,453 | $ | 18,453 | $ | — | $ | — | ||||||||||
Securities held to maturity | 35,827 | 35,696 | — | 35,696 | — | |||||||||||||||
Loans receivable, net(1) | 508,022 | 506,634 | — | — | 506,634 | |||||||||||||||
Accrued interest receivable | 1,650 | 1,650 | — | 90 | 1,560 | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Deposits | 472,752 | 474,233 | — | 474,233 | — | |||||||||||||||
Advances from Federal Home Loan Bank of New York | 51,575 | 51,674 | — | 51,674 | — | |||||||||||||||
Accrued interest payable | 85 | 85 | — | 85 | — | |||||||||||||||
As of December 31, 2018 | ||||||||||||||||||||
Financial assets: | ||||||||||||||||||||
Cash and due from banks | $ | 11,800 | $ | 11,800 | $ | 11,800 | $ | — | $ | — | ||||||||||
Securities held to maturity | 39,476 | 38,569 | — | 38,569 | — | |||||||||||||||
Loans receivable, net(1) | 502,299 | 490,177 | — | — | 490,177 | |||||||||||||||
Accrued interest receivable | 1,615 | 1,615 | — | 111 | 1,504 | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Deposits | 420,579 | 421,164 | — | 421,164 | — | |||||||||||||||
Advances from Federal Home Loan Bank of New York | 94,275 | 93,839 | — | 93,839 | — | |||||||||||||||
Accrued interest payable | 86 | 86 | — | 86 | — | |||||||||||||||
| (1) | Includes impaired loans measured at fair value on anon-recurring basis as discussed above. |
Management used exit prices to estimate the fair values in the table above as of December 31, 2019 and 2018.
Off-Balance Sheet Financial Instruments
Fair values of commitments to extend credit are estimated using the fees currently charged to enter into similar agreement, into account market interest rates, the remaining terms, and the present credit worthiness of the counterparties. As of December 31, 2019 and 2018, the fair value of the commitments to extend credit was not considered to be material.
Note 15 – Parent Only Financial Statements
| At December 31, 2019 | At December 31, 2018 | |||||||
(In thousands) | ||||||||
| Assets | ||||||||
Cash and due from banks | $ | 1,389 | $ | 1,953 | ||||
Loan receivable | 1,909 | 2,003 | ||||||
Investments in subsidiaries | 61,991 | 61,741 | ||||||
Other assets | 135 | 1,015 | ||||||
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Total Assets | $ | 65,424 | $ | 66,712 | ||||
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Other liabilities | $ | 49 | $ | 66 | ||||
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Total Liabilities | 49 | 66 | ||||||
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| Stockholders’ Equity | ||||||||
Common stock | 52 | 54 | ||||||
Paid-in capital | 41,857 | 44,726 | ||||||
Retained earnings | 24,989 | 23,498 | ||||||
Unallocated common stock held by ESOP | (1,523 | ) | (1,632 | ) | ||||
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Total Stockholders’ Equity | 65,375 | 66,646 | ||||||
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Total Liabilities and Stockholders’ Equity | $ | 65,424 | $ | 66,712 | ||||
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| Years Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| (In thousands) | ||||||||
Dividends from Subsidiaries | $ | 4,500 | $ | 2,452 | ||||
Equity in undistributed earnings of subsidiaries | (9 | ) | 2,569 | |||||
Interest income | 64 | 67 | ||||||
Non-interest expense | (490 | ) | (283 | ) | ||||
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Income Before Income Tax Benefit | 4,065 | 4,805 | ||||||
Income tax benefit | (38 | ) | (30 | ) | ||||
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Net Income | $ | 4,103 | $ | 4,835 | ||||
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Note 15 – Parent Only Financial Statements—(Continued)
Condensed Statements of Cash Flows
| Years Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| (In thousands) | ||||||||
Cash Flows from Operating Activities | ||||||||
Net income | $ | 4,103 | $ | 4,835 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Equity in undistributed earnings of subsidiaries | 9 | (2,569 | ) | |||||
Net change in other assets and liabilities | 1,191 | (172 | ) | |||||
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Net Cash Provided by Operating Activities | 5,303 | 2,094 | ||||||
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Cash Flows from Investing Activities | ||||||||
Repayment of ESOP loan receivable | 94 | 91 | ||||||
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Net Cash Provided by Investing Activities | 94 | 91 | ||||||
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Cash Flows from Financing Activities | ||||||||
Repurchase of common stock | (3,349 | ) | (6,840 | ) | ||||
Cash dividends paid to stockholders | (2,612 | ) | (4,978 | ) | ||||
Net exercise of options and repurchase of shares | — | (53 | ) | |||||
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Net Cash Used in Financing Activities | $ | (5,961 | ) | $ | (11,871 | ) | ||
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Net Decrease in Cash and Cash Equivalents | (564 | ) | (9,686 | ) | ||||
Cash and Cash Equivalents – Beginning | 1,953 | 11,639 | ||||||
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Cash and Cash Equivalents – Ending | $ | 1,389 | $ | 1,953 | ||||
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Note 16 – Merger Agreement
On December 18, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Kearny Financial Corp. (“Kearny”), the parent company of Kearny Bank, pursuant to which the Company will merge with and into Kearny (the “Merger”). As part of the transaction, the Bank will also merge with and into Kearny Bank.
Subject to the terms and conditions of the Merger Agreement, upon consummation of the Merger, each outstanding share of common stock of the Company will be automatically converted into and exchangeable for the right to receive either: (i) $18 in cash (the “Cash Consideration”), or (ii) 1.3 shares of the Kearny’s common stock with cash being paid in lieu of fractional shares (the “Stock Consideration” and, together with the Cash Consideration, the “Merger Consideration”). The Merger Agreement provides that 90% of the outstanding shares of the Company common stock will be converted into Stock Consideration and 10% of the outstanding shares of the Company common stock will be converted into Cash Consideration. Each shareholder of the Company will be entitled to elect the number of shares of the Company common stock held by such shareholder that will be exchanged for the Stock Consideration or the Cash Consideration subject to proration in the event that a selected form of consideration is over-elected.
The Merger Agreement contains customary representations, warranties and covenants from both the Company and Kearny. Among other covenants, the Company has agreed: (i) to convene and hold a meeting of its shareholders to consider and vote upon the Merger, (ii) that, subject to certain exceptions, the board of directors of the Company will recommend the approval of the Merger and the Merger Agreement by its shareholders, and (iii) not to (A) solicit alternative third-party acquisition proposals or, (B) subject to certain exceptions, conduct discussions concerning or provide confidential information in connection with any alternative third-party acquisition proposal. The Merger Agreement contains provisions that provide for the termination of the Merger Agreement in certain circumstances, and such provisions may require the Company to pay to Kearny a termination fee of $3.54 million.
The Merger is expected to close during the second calendar quarter of 2020, subject to the Company receiving the requisite approval of its shareholders, receipt of all regulatory approvals and fulfillment of other customary closing conditions.
AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 1, 2017DECEMBER 18, 2019
BY AND BETWEEN
KEARNY FINANCIAL CORP.
AND
CLIFTON BANCORP INC.MSB FINANCIAL CORP.
Table of Contents
| A-5 | ||||||||
2.1 | The Merger | A-5 | ||||||
2.2 | Closing. | A-5 | ||||||
2.3 | Effective Time. | A-6 | ||||||
2.4 | Effects of the Merger. | A-6 | ||||||
2.5 | Effect on Outstanding Shares of Company Common Stock | A-6 | ||||||
2.6 | Exchange Procedures. | A-6 | ||||||
2.7 | Effect on Outstanding Shares of Purchaser Common Stock. | A-8 | ||||||
2.8 | Directors of Surviving Corporation After Effective Time | A-8 | ||||||
2.9 | Articles of Incorporation and Bylaws. | A-9 | ||||||
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2.16 | Withholding. | A-10 | ||||||
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3.1 | Disclosure Letters; | |||||||
3.2 | ||||||||
3.3 | ||||||||
| A-32 | ||||||||
4.1 | Forbearances by the Company | A-32 | ||||||
4.2 | Forbearances by Purchaser. | A-35 | ||||||
ARTICLE V COVENANTS | A-36 | |||||||
5.1 | Acquisition Proposals. | A-36 | ||||||
5.2 | Advice of Changes | A-36 | ||||||
5.3 | Access and Information. | A-37 | ||||||
5.4 | Applications; Consents. | A-38 | ||||||
5.5 | Anti-takeover Provisions. | A-38 | ||||||
5.6 | Additional Agreements | A-38 | ||||||
5.7 | Publicity | A-38 | ||||||
5.8 | Stockholder Meeting | A-39 | ||||||
5.9 | Registration of Purchaser Common Stock | A-39 | ||||||
5.10 | Notification of Certain Matters | A-40 | ||||||
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Disclosure Supplements | A-43 | |||||||
ARTICLE | A-43 | |||||||
6.1 | Conditions to Each Party’s Obligations | A-43 | ||||||
6.2 | Conditions to the Obligations of Purchaser | A-44 | ||||||
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| ARTICLE VII TERMINATION | A-45 | |||||||
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| ARTICLE VIII CERTAIN OTHER MATTERS | A-47 | |||||||
8.1 | Interpretation | A-47 | ||||||
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8.9 | ||||||
8.10 | ||||||
8.11 | Specific Performance | A-49 | ||||
8.12 | Waiver of Jury Trial | A-49 | ||||
8.13 | Delivery by Facsimile or Electronic Transmission | A-49 | ||||
EXHIBITS
Exhibit A Form of KearnyMSB Financial CorpCorp. Voting Agreement
Exhibit B Form of Clifton Bancorp Inc. Voting Agreement
Exhibit C Plan of Bank Merger
Agreement and Plan of Merger
This is anAgreement and Plan of Merger, dated as of the 1st18th day of November, 2017December, 2019 (“Agreement”), by and between Kearny Financial Corp., a Maryland corporation (“Purchaser”), and Clifton Bancorp Inc.MSB Financial Corp., a Maryland corporation (the “Company”).
Introductory Statement
The Board of Directors of each of Purchaser and the Company have determined that this Agreement and the business combination and related transactions contemplated hereby are advisable and in the best interests of Purchaser and the Company, as the case may be, and in the best interests of their respective stockholders.
The parties hereto intend that the Merger (as defined herein) shall qualify as a reorganization under the provisions of Section 368(a) of the IRC (as defined herein) for federal income tax purposes and that this Agreement be and is hereby adopted as a “plan of reorganization” within the meaning of Sections 354 and 361 of the IRC.
Purchaser and the Company each 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.
As a condition and inducement to Purchaser’s and Company’s willingness to enter into this Agreement, each executive officer and member of the Board of Directors of each of Purchaser and the Company has entered into an agreement dated as of the date hereof in the forms ofExhibitsExhibit A, andB, respectively, pursuant to which he or she will vote his or her shares of Purchaser Common Stock or Company Common Stock as the case may be, in favor of this Agreement and the transactions contemplated hereby (each a “Voting Agreement”).
In consideration of their mutual promises and obligations hereunder, the parties hereto, intending to be legally bound, 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:
DEFINITIONS
The following terms are defined in this Agreement in the Section indicated:
Defined Term | Location of Definition | |
Articles of Merger | Section 2.3 | |
Average Closing Price | Section 7.1(h) | |
Bank Merger | Section 2.12 | |
Cash Consideration | Section 2.5(a) | |
Change of Recommendation | Section 5.8(b) | |
| ||
Closing | Section 2.2 | |
Closing Date | Section 2.2 | |
Company | Preamble | |
| Cash Election | Section 2.6(b) | |
| Cash/Stock Consideration | Section 2.6(b) | |
| Company Benefit Plans | Section 3.2(s)(i) | |
| Company Contract | Section 3.2(p)(i) | |
| Company Equity Plans | Section 2.10 | |
| Company ERISA Affiliate | Section 3.2(s)(i) | |
| Company Intellectual Property | Section 3.2(q)(i) | |
| Company IT Systems | Section 3.2(q)(ii) |
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| Company Qualified Plans | Section 3.2(s)(iv) | |
| Company Reports | Section 3.2(h) | |
| Company Restricted Stock | Section 2.11 | |
| Company Stock Option | Section 2.10 | |
| Company Stockholder Meeting | Section 5.8(a) | |
| Continuing Employee | Section 5.11(a) |
Defined Term | Location of Definition | |
| Determination Date | Section | |
| Disclosure Letter | Section 3.1(a) | |
| DOL | Section 3.2(s)(ii) | |
| Effective Time | Section 2.3 | |
| Economic Value of Equity | Section 4.1(q) | |
| Election Deadline | Section 2.6(c) | |
| Election Form | Section 2.6(b) | |
| Election Form Record Date | Section 2.6(b) | |
| Exchange Agent | Section | |
| Exchange Ratio | Section 2.5(a) | |
| Final Index Price | Section | |
| Section | ||
| Indemnified Party | Section 5.12(a) | |
| Index Price | Section | |
| Index Ratio | Section | |
| Letter of Transmittal | Section 2.6(a) | |
| Mailing Date | Section 2.6(b) | |
| Merger | Section 2.1 | |
| Merger Consideration | Section 2.5(a) | |
| MGCL | Section 2.1 | |
| Millington Bank | Section 2.12 | |
| Mixed Election | Section 2.6(b) | |
| Mixed Election Shares | Section 2.6(b) | |
| Multiemployer Plan | Section 3.2(s)(vii) | |
| Multiple Employer Plan | Section 3.2(s)(vii) | |
| Net Interest Income | Section 4.1(q) | |
| Non-Election | Section 2.6(b) | |
| Option Payment Amount | Section 2.10 | |
| OREO | Section 4.1(d) | |
| PBGC | Section 3.2(s)(ii) | |
| Proxy Statement-Prospectus | Section 5.9(a) | |
| Purchaser | Preamble | |
| Purchaser Benefit Plans | Section 3.3(r)(i) | |
| Purchaser Contract | Section 3.3(p)(i) | |
| Purchaser ERISA Affiliate | Section 3.3(r)(i) | |
| Purchaser Intellectual Property | Section | |
| Purchaser IT Systems | Section | |
| Purchaser Qualified Plans | Section 3.3(r)(iv) | |
| Purchaser Ratio | Section | |
| Purchaser Reports | Section 3.3(h) | |
| Section | ||
| Settlement Agreement | Section 5.11(f) | |
| Shortfall Number | Section 2.6(e) | |
| Starting Date | Section | |
| Starting Price | Section | |
| Stock Consideration | Section 2.5(a) | |
| Stock Conversion Number | Section 2.6(a) | |
| Stock Election | Section 2.6(b) | |
| Surviving Corporation | Section 2.1 | |
| Voting Agreement | Preamble |
For purposes of this Agreement:
“Acquisition Proposal” means any proposal or offer, whether or not in writing, with respect to any of the following (other than the transactions contemplated hereunder): (i) any merger, consolidation, share exchange, business combination,
or other similar transaction or series of transactions involving the Company or any of its
Subsidiaries; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 20%25% or more of the Company’s consolidated assets in a single transaction or series of transactions; (iii) any tender offer or exchange offer for 20%25% or more of the outstanding shares of the Company’s capital stock or the filing of a registration statement under the Securities Act in connection therewith; (iv) any transaction that is similar in form, substance or purpose to any of the foregoing transactions, or any combination of the foregoing; or (v) any public announcement, notice or regulatory filing of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing.
“Affiliate” of a Person means any personPerson that, directly or indirectly through one or more intermediaries, controls, or is controlled by or is under common control with such Person.
“Agreement” means this Agreement and the exhibits and schedules hereto, each as amended, modified or restated from time to time in accordance with its terms.
“BHCA” means the Bank Holding Company Act of 1956, as amended.
“Business Day” means any day other than a Saturday, Sunday or Federal holiday.
“Certificate” means certificates or book entry shares evidencing shares of Company Common Stock held by its stockholders.
“COBRA” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and the regulations promulgated thereunder.
“Company Common Stock” means the common stock, par value $0.01 per share, of the Company.
“Company ESOP” means the Clifton SavingsMillington Bank Amended and Restated Employee Stock Ownership Plan.
“Company 401(k) Plan” means the Clifton SavingsMillington Bank 401(k) Savings Plan.
“Company Nonqualified Deferred Compensation Plan(s)” means the nonqualified plans of deferred compensation identified as such in the Company’s Disclosure Letter.
“CRA” means the Community Reinvestment Act.
“Environmental Law” means any federal, state or local law, statute, ordinance, rule, code, order, decree or regulation relating to (i) the protection, preservation or restoration of the environment (which includes, without limitation, air, water vapor, surface water, groundwater, drinking water supply, 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 (ii) 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, without limitation, the FederalComprehensive Environmental Response, Compensation and Liability Act of 1980, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Occupational Safety and Health Act of 1970 as it relates to Hazardous Materials, each as amended and as now in effect.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Excluded Shares” means shares of Company Common Stock owned or held (including as treasury shares), other than in a bona fide fiduciary or agency capacity or in satisfaction of a debt previously contracted, by Purchaser, the Company or a Subsidiary of either.
“FDIC” means the Federal Deposit Insurance Corporation.
“Federal Reserve” means the Board of Governors of the Federal Reserve System.
“FHLB” means the Federal Home Loan Bank of New York.
“GAAP” means U.S. generally accepted accounting principles.
“Governmental Entity” means any governmental or regulatory authority, agency, court, commission, or other administrative entity.
“Hazardous Material” means any substance (whether solid, liquid or gas) that is 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 orby-product thereof, radon, radioactive material, asbestos, asbestos-containing material, urea formaldehyde foam insulation, lead and polychlorinated biphenyl.
“HOLA” means the Home Owners Loan Act of 1934, as amended.
“IRC” means the Internal Revenue Code of 1986, as amended.
“IRS” means the Internal Revenue Service.
“Knowledge” means, with respect to the Company and Purchaser or any Subsidiary of either party, the actual Knowledge of those senior officers set forth in Purchaser’s Disclosure Letter and, with respect to the Company, the actual Knowledge of those senior officers set forth in the Company’s Disclosure Letter.
“Lien” means any charge, mortgage, pledge, security interest, claim, lien or encumbrance.
“Loan” means a loan, lease, advance, credit enhancement, guarantee, participation interest in a loan, or other extension of credit.
“Loan Property” means any property in which the applicable party (or a subsidiary of it) 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.
“Maryland Department” means the Maryland State Department of Assessments and Taxation.
“Material Adverse Effect” means an effect, circumstance, occurrence or change that is material and adverse to the business, financial condition or results of operations of the Company or Purchaser, as the context may dictate, and its Subsidiaries, taken as a whole, or materially prevents, impairs or threatens the ability of either the Company or Purchaser, as the context may dictate, to perform its obligations under this Agreement or consummate the transactions contemplated by this Agreement;provided, however, that any such effect, circumstance, occurrence or change resulting from any (i) changes, after the date hereof, in laws, rules or regulations or GAAP or regulatory accounting requirements or interpretations thereof that apply to financial and/or depository institutions and/or their holding companies generally, (ii) changes, after the date hereof, in economic conditions affecting financial institutions generally, including but not limited to, changes in the general level of market interest rates, (iii) actions and omissions of Purchaser or the Company required under this Agreement or taken or omitted to be taken with the prior written consent, or at the request, of the other, including
expenses incurred by the parties in consummating the transactions contemplated by this Agreement (iv) worsening of national or international political or social conditions including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon or within the United States (v) natural disaster or other force majeure event and (vi) any failure, in and of itself, to meet internal or other estimates, predictions, projections or forecasts of revenue, net income or any other measure of financial performance (except to the extent that, with respect to this clause (vi), the facts or circumstances giving rise or contributing to failure to meet estimates or projections may be deemed to constitute, or be taken into account in determining whether there has been, a Material Adverse Effect, except to the extent that such facts or circumstances are themselves excepted from the definition of Material Adverse Effect pursuant to any other clause of this definition) shall not be considered in determining if a Material Adverse Effect has occurred except, with respect to clauses (i) and (iv), to the extent that the effects of such change uniquely affects such party and its Subsidiaries as compared to comparable U.S. banking organizations.
“New Jersey Banking Law” means the New Jersey Banking Act of 1948, as amended, and any regulations promulgated thereunder.
“NJDepartment” means the Department of Banking and Insurance of the State of New Jersey, and where appropriate, it includes the Commissioner of the Department of Banking and Insurance of the State of New Jersey.
“OCC” means the Office of the Comptroller of the Currency.
“Participation Facility” means any facility in which the applicable party (or a Subsidiary of it) 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.
“Person” means an individual, corporation, limited liability company, partnership, association, trust, unincorporated organization or other entity.
“Purchaser Common Stock” means the common stock, par value $0.01 per share, of Purchaser.
“Purchaser ESOP” means the Kearny Bank Employee Stock Ownership Plan.
“Purchaser 401(k) Plan” means the Kearny Bank Employees’ Savings Plan.
“Registration Statement” means a registration statement on FormS-4 (and any amendments or supplements thereto) with respect to the issuance of Purchaser Common Stock in the Merger.
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended.
“Subsidiary” means a corporation, partnership, joint venture or other entity in which the Company or Purchaser, as the case may be, has, directly or indirectly, an equity interest representing 50% or more of any class of the capital stock thereof or other equity interests therein.
“Superior Proposal” means an unsolicited, bona fide written offer or proposal made by a third party to consummate an Acquisition Proposal that: (i) the Company’s Board of Directors determines in good faith, after consulting with its outside legal counsel and its financial advisor, would, if consummated, result in a transaction that is more favorable to the stockholders of the Company than the transactions contemplated hereby (taking into account all factors relating to such proposed transaction deemed relevant by the Company’s Board of Directors,
including without limitation, the amount and form of consideration, the timing of payment, the risk of consummation of the transaction, the financing thereof and all other conditions thereto (including any adjustments to the terms and conditions of such transactions proposed by Purchaser in response to such Acquisition Proposal)); (ii) is for 100% of the outstanding shares of Company Common Stock or all or substantially all of the assets of the Company; and (iii)(iii is reasonably likely to be completed on the terms proposed, in each case taking into account all legal, financial, regulatory and other aspects of such Acquisition Proposal.
“Taxes” means all income, franchise, gross receipts, real and personal property, real property transfer and gains, wage and employment taxes.
THE MERGER
2.1The Merger. Upon the terms and subject to the conditions set forth in this Agreement, the Company will merge with and into Purchaser (the “Merger”) at the Effective Time. At the Effective Time, the separate corporate existence of the Company shall cease. Purchaser shall be the surviving corporation (hereinafter sometimes referred to in such capacity as the “Surviving Corporation”) in the Merger and shall continue to be governed by the Maryland General Corporation Law (the “MGCL”) and its name and separate corporate existence, with all of its rights, privileges, immunities, powers and franchises, shall continue unaffected by the Merger.
2.2Closing. The closing of the Merger (the “Closing”) will take place by the electronic (PDF), facsimile or overnight courier exchange of executed documents or at a location and at a time as agreed to by the parties hereto on the date
designated by Purchaser within thirty (30) days following satisfaction or waiver (subject to applicable law) of the conditions to Closing set forth in Article VI (other than those conditions that by their nature are to be satisfied at the Closing), or such later date as the parties may otherwise agree (the “Closing Date”).
2.3Effective Time. In connection with the Closing, Purchaser and the Company shall duly execute and deliver Articles of Merger (the “Articles of Merger”) to the Maryland Department for filing pursuant to the MGCL. The Merger shall become effective at such time as the Articles of Merger are duly filed with the Maryland Department or at such later date or time as Purchaser and the Company agree and specify in the Articles of Merger (the date and time the Merger becomes effective being the “Effective Time”).
2.4Effects of the Merger. The Merger will have the effects set forth in this Agreement and in the MGCL. Without limiting the generality of the foregoing, and subject thereto, from and after the Effective Time, Purchaser shall possess all of the properties, rights, privileges, powers and franchises of the Company and be subject to all of the debts, liabilities and obligations of the Company.
2.5 Effect on Outstanding Shares of Company Common Stock.
(a) By virtue of the Merger, automatically and without any action on the part of the holder thereof, each share of Company Common Stock issued and outstanding at the Effective Time, other than Excluded Shares, shall become and be converted into the right to receive 1.191at the election of the holders thereof as provided in Section 2.6 either (i) $18.00 in cash (the “Cash Consideration”) or (ii) 1.30 shares (the “Exchange Ratio”) of Purchaser Common Stock (the “Stock Consideration” and collectively with the Cash Consideration, the “Merger Consideration”).
(b) Notwithstanding any other provision of this Agreement, no fraction of a share of Purchaser Common Stock and no certificates or scrip therefor will be issued in the Merger; instead, Purchaser shall pay to each holder of Company Common Stock who would otherwise be entitled to a fraction of a share of Purchaser Common Stock an amount in cash, rounded to the nearest cent, determined by multiplying such fraction by the average closing sales price of Purchaser Common Stock on The Nasdaq Stock Market LLC over the ten (10) trading days ending on the third Business Day prior to the Closing Date.
(c) If, between the date of this Agreement and the Effective Time, the outstanding shares of Purchaser 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, or there shall be any extraordinary dividend or distribution paid, the Exchange Ratio shall be adjusted appropriately to provide the holders of Company Common Stock the same economic effect as contemplated by this Agreement prior to such event.
(d) 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 Purchaser Common Stock that are held by the Company, if any, other than shares held in a fiduciary capacity or in satisfaction of a debt previously contracted, shall be canceled and shall constitute authorized but unissued shares.
(a) AtHolders of Company Common Stock may elect to receive Stock Consideration or prior toCash Consideration (in either case without interest) in exchange for their shares of Company Common Stock in accordance with the following procedures, provided that, in the aggregate,90% of the total number of shares of Company Common Stock issued and outstanding at the Effective Time, Purchaserexcluding any Treasury Stock (the “Stock Conversion Number”), shall deposit,be converted into the Stock Consideration and the remaining outstanding shares of Company Common Stock shall be converted into the Cash Consideration. Shares of Company Common Stock as to which a Cash Election (including, pursuant to a Mixed Election) has been made are referred to herein as “Cash Election Shares.” Shares of Company Common Stock as to which a Stock Election has been made (including, pursuant to a Mixed Election) are referred to as “Stock Election Shares.” Shares of Company Common Stock as to which no election has been made (or as to which an Election Form is not returned properly completed) are referred to herein as“Non-Election Shares.” The aggregate number of shares of Company Common Stock with respect to which a Stock Election has been made is referred to herein as the “Stock Election Number.”
(b) An election form and other appropriate and customary transmittal materials (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of such Certificates to
Computershare, Inc., or shall cause to be deposited, with Computershare, Inc.such other party designated by the Company as the exchange agent (the “Exchange Agent”), pursuantin such form as Company and Purchaser shall mutually agree (“Election Form”), shall be mailed on the same date as the Proxy Statement/Prospectus (as defined herein) is mailed to an agreement entered into priorstockholders of Company (the “Mailing Date”) to each holder of record of Company Common Stock eligible to vote at the Company Stockholders’ Meeting (the “Election Form Record Date”). Each Election Form shall permit such holder, subject to the Closing,allocation and election procedures set forth in thisSection 2.6, (i) to elect to receive the Cash Consideration for the benefitall of the holdersshares of Company Common Stock held by such holder, in accordance withSection 2.6 to elect to receive the Stock Consideration for all of such shares (a “Stock Election”), in accordance withSection 2.6 to elect to receive the Stock Consideration for a certain whole number of such holder’s shares and the Cash Consideration for all other shares of such holder’s shares (a “Mixed Election”) (all such shares together, the “Mixed Election Shares”), or (iv) to indicate that such record holder has no preference as to the receipt of cash or Purchaser Common Stock for such shares (a “Non-Election”). A holder of record of shares of Company Common Stock converted intowho holds such shares as nominee, trustee or in another representative capacity (a “Representative”) may submit multiple Election Forms, provided that each such Election Form covers all the right to receive the Merger Consideration, for exchange in accordance with thisSection 2.6, (i) the number of shares of PurchaserCompany Common Stock sufficientheld by such Stockholder Representative for a particular beneficial owner. Any shares of Company Common Stock with respect to deliverwhich the aggregate Merger Consideration and (ii) any cash payable in lieuholder thereof shall not, as of fractional shares pursuantthe Election Deadline, have made an election by submission toSection 2.5(b), and Parent shall instruct the Exchange Agent of an effective, properly completed Election Form shall be deemedNon-Election Shares.
(c) To be effective, a properly completed Election Form shall be submitted to timely deliver the Merger Consideration. Appropriate transmittal materials (“LetterExchange Agent on or before 5:00 p.m., New York City time, on the day of Transmittal”) in a form satisfactory tothe Company Stockholders’ Meeting (or such other time and date as Purchaser and Company may mutually agree) (the “Election Deadline”); provided, however, that the Election Deadline may not occur on or after the Closing Date. Company shall be maileduse its reasonable best efforts to make available up to two separate Election Forms, or such additional Election Forms as soon as practicable (but not later than five (5) Business Days) after the Effective TimePurchaser may permit, to each holder of recordall persons who become holders (or beneficial owners) of Company Common Stock. A LetterStock between the Election Form Record Date and the close of Transmittal willbusiness on the business day prior to the Election Deadline. Company shall provide to the Exchange Agent all information reasonably necessary for it to perform as specified herein. An election shall have been properly made only if the Exchange Agent shall have actually received a properly completed Election Form by the Election Deadline. An Election Form shall be deemed properly completed only if the completed Letter of Transmittal is accompanied by one or more Certificates representing Company Common Stock (or customary affidavits and if required by Purchaser pursuant toSection 2.6(i), indemnification regarding the loss or destruction of such Certificates or the guaranteed delivery of such Certificates) representing all shares of Company Common Stock covered by such Election Form, together with duly executed transmittal materials included with the Election Form. If a Company stockholder either (i) does not submit a properly completed Election Form in a timely fashion or (ii) revokes its Election Form prior to the Election Deadline (without later submitting a properly completed Election Form prior to the Election Deadline), the shares of Company Common Stock held by such stockholder shall be designated asNon-Election Shares. Any Election Form may be revoked or changed by the person submitting such Election Form to the Exchange Agent by written notice to the Exchange Agent only if such notice of revocation or change is actually received by the Exchange Agent at or prior to the Election Deadline. Purchaser shall cause the Certificate or Certificates relating to any revoked Election Form to be promptly returned without charge to the person submitting the Election Form to the Exchange Agent. Subject to the terms of this Agreement and of the Election Form, the Exchange Agent shall have discretion to determine when any election, modification or revocation is received and whether any such election, modification or revocation has been properly made. All Elections (whether Cash, Stock or Mixed) shall be revoked automatically if the Exchange Agent is notified in writing by Purchaser or Company, upon exercise by Purchaser or Company of its respective or their mutual rights to terminate this Agreement to the extent provided under Article VII, that this Agreement has been terminated in accordance with Article VII.
(d) If the Stock Election Number exceeds the Stock Conversion Number, then all Cash Election Shares and allNon-Election Shares shall be converted thereby.
(b) At and after the Effective Time, each Certificate shall represent onlyinto the right to receive the Merger Consideration. The Company shall provide to the Exchange Agent all information reasonably necessary for it to perform its obligations as specified herein.
(c) Prior to the Effective Time, Purchaser shall (i) reserve for issuance with its transfer agent and registrar a sufficient number of shares of Purchaser Common Stock to provide for payment of the aggregate MergerCash Consideration, and, (ii) deposit, or causesubject to be deposited, with the Exchange Agent for the benefit of the holders of shares of Company Common Stock, an amount of cash sufficient to pay cash in lieu of fractional shares.
(d) The Letter of Transmittal shall (i) 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, (ii) be in a form and contain any other provisions as Purchaser may reasonably determine and (iii) include instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon the proper surrender of the Certificates to the Exchange Agent, together with a properly completed and duly executed Letter of Transmittal, theSection 2.5(b) hereof, each holder of such Certificates shallStock Election Shares will be entitled to receive in exchange therefor a certificate, or, at the election of Purchaser, a statement reflecting shares issued in book entry form, representingStock Consideration only with respect to that number of whole shares of Purchaser Common Stock thatElection Shares held by such holder hasequal to the product obtained by multiplying (x) the number of Stock Election Shares held by such holder by (y) a fraction, the numerator of which is the Stock Conversion Number and the denominator of which is the Stock Election Number, with the remaining number of such holder’s Stock Election Shares being converted into the right to receive pursuantthe Cash Consideration.
(e) If the Stock Election Number is less than the Stock Conversion Number (the amount by which the Stock Conversion Number exceeds the Stock Election Number being referred toSection 2.5(a) herein as the “Shortfall Number”), then all Stock Election Shares shall be converted into the right to receive the Stock Consideration and a checktheNon-Election Shares and Cash Election Shares shall be treated in the amountfollowing manner:
(i) if the Shortfall Number is less than or equal to any cash in lieuthe number of fractional shares such holder is entitledNon-Election Shares, then all Cash Election Shares shall be converted into the right to pursuantreceive the Cash Consideration and, subject toSection 2.5(b)and any dividends or other distributions to which hereof, each holder of
Non-Election Shares shall receive the Stock Consideration in respect of that number ofNon-Election Shares held by such holder is entitled. Certificates so surrendered shall forthwith be canceled. As soon as practicable (but not later than five (5) Business Days) following receipt of the properly completed Letter of Transmittal and any necessary accompanying documentation, the Exchange Agent shall distribute Purchaser Common Stock and cash in lieu of fractional shares as provided herein. The Exchange Agent shall not be entitled to vote or exercise any rights of ownership
with respectequal to the sharesproduct obtained by multiplying (x) the number of Purchaser Common StockNon-Election Shares held by it from timesuch holder by (y) a fraction, the numerator of which is the Shortfall Number and the denominator of which is the total number ofNon-Election Shares, with the remaining number of such holder’sNon-Election Shares being converted into the right to time hereunder, except that itreceive the Cash Consideration; or
(ii) if the Shortfall Number exceeds the number ofNon-Election Shares, then allNon-Election Shares shall be converted into the right to receive the Stock Consideration, and, subject toSection 2.5(b) hereof, each holder of Cash Election Shares shall receive and hold all dividends or other distributions paid or distributed withthe Stock Consideration in respect toof that number of Cash Election Shares held by such shares for the account of the Persons entitled thereto. If there is a transfer of ownership of any shares of Company Common Stock not registered in the transfer records of the Company, the Merger Consideration shall be issuedholder equal to the transferee thereof ifproduct obtained by multiplying (x) the Certificates representingnumber of Cash Election Shares held by such Company Common Stock are presented toholder by (y) a fraction, the Exchange Agent, accompaniednumerator of which is the amount by all documents required, inwhich (1) the reasonable judgmentShortfall Number exceeds (2) the total number of PurchaserNon-Election Shares and the Exchange Agent,denominator of which is the total number of Cash Election Shares, with the remaining number of such holder’s Cash Election Shares being converted into the right to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid.receive the Cash Consideration.
(e)(f) No dividends or other distributions declared or made after the Effective Time with respect to Purchaser Common Stock issued pursuant to this Agreement shall be remitted to any personPerson entitled to receive shares of Purchaser Common Stock hereunder until such Person surrenders his or her Certificates in accordance with thisSection 2.6. Upon the surrender of such Person’s Certificates, such Person shall be entitled to receive any dividends or other distributions, without interest thereon, which subsequent to the Effective Time had become payable but not paid with respect to shares of Purchaser Common Stock represented by such Person’s Certificates.
(f)(g) The stock transfer books of the Company shall be closed immediately upon the Effective Time and from and after the Effective Time there shall be no transfers on the stock transfer records of the Company of any shares of Company Common Stock. If, after the Effective Time, Certificates are presented to Purchaser, 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 thisSection 2.6.
(g)(h) Any portion of the aggregate amount of cash to be paid in lieu of fractions of a share pursuant toSection 2.5, any dividends or other distributions to be paid pursuant to thisSection 2.6 or any proceeds from any investments thereof that remains unclaimed by the holders of Company Common Stock for six months after the Effective Time shall be repaid by the Exchange Agent to Purchaser upon the written request of Purchaser. After such request is made, each holder of Company Common Stock who has not theretofore complied with thisSection 2.6 shall look only to Purchaser for the Merger Consideration deliverable in respect of each share of Company Common Stock such stockholder holds, as determined pursuant toSection 2.5 of this Agreement, without any interest thereon. Notwithstanding the foregoing, neither the Exchange Agent nor any party to this Agreement (or any Affiliate thereof) shall be liable to any former holder of Company Common Stock for any amount delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.
(h)(i) Purchaser and the Exchange Agent shall be entitled to rely upon the Company’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. The Company shall provide to the Exchange Agent all information reasonably necessary for it to perform its obligations as specified herein. In the event of a dispute with respect to ownership of stock represented by any Certificate, Purchaser 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)(j) If 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 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 Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration deliverable in respect thereof pursuant toSection 2.5.
2.7Effect on Outstanding Shares of Purchaser Common Stock.At the Effective Time, and except as provided inSection 2.5(d), each share of Purchaser Common Stock issued and outstanding immediately prior to the Effective Time shall remain an issued and outstanding share of common stock of the Surviving Corporation and shall not be affected by the Merger.
2.8Directors of Surviving Corporation After Effective Time.Subject toSection 5.14, immediatelyImmediately after the Effective Time, until their respective successors are duly elected or appointed and qualified, the directors of the Surviving Corporation shall consist of the directors of Purchaser serving immediately prior to the Effective Time.
2.9Articles of Incorporation and Bylaws. The articles of incorporation of Purchaser, as in effect immediately prior to the Effective Time, shall be the articles of incorporation of the Surviving Corporation until thereafter amended in accordance with applicable law and the terms thereof. The bylaws of Purchaser, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation until thereafter amended in accordance with applicable law and the terms of such bylaws.
2.10Treatment of Stock Options. At the Effective Time, each option to acquire shares of Company Common Stock that is outstanding and unexercised immediately prior thereto (“Company Stock Option”) pursuant to the Clifton Bancorp Inc. 2005 EquityMSB Financial Corp. 2008 Stock Compensation and Incentive Plan, as Amended and Restated, or the Clifton Bancorp Inc. 2015MSB Financial Corp. 2016 Equity Incentive Plan (collectively referred to herein as the “Company Equity Plans”) shall automatically become vested and shall be cancelled and, subject to Purchaser’sCompany’s receipt of an option surrender agreement in the form set forth in the Purchaser’s Disclosure Letter, converted into the right to receive from PurchaserCompany a cash payment in an amount, less required withholding taxes, equal to the product of (i) the number of shares of Company Common Stock subject to the Company Stock Option, multiplied by (ii) the amount by which $18.25the Cash Consideration (the “Option Payment Amount”) exceeds the exercise price of such Company Stock Option. If the exercise price of a Company Stock Option is greater than the Option Payment Amount, then at the Effective Time such Company Stock Option shall be cancelled without any payment made in exchange therefor.
2.11Treatment of Restricted Stock. At the Effective Time, any vesting restrictions on each share of restricted stock outstanding immediately prior thereto (“Company Restricted Stock”) pursuant to the Company Equity Plans shall automatically lapse and shall be treated as issued and outstanding shares of Company Common Stock for the purposes of this Agreement, including but not limited to, the provisions ofSection 2.5. Notwithstanding anything herein to the contrary, the Company may withhold a sufficient amount of Merger Consideration necessary to satisfy the tax withholding requirements associated with such vesting of Company Restricted Stock.
2.12Bank Merger.Concurrently with or as soon as practicable after the execution and delivery of this Agreement, Kearny Bank, a wholly owned subsidiary of Purchaser, and Clifton SavingsMillington Bank (“Clifton SavingsMillington Bank”), a wholly owned subsidiary of the Company, shall enter into the Plan of Bank Merger, in the form attached hereto asExhibit C B, pursuant to which Clifton SavingsMillington Bank will merge with and into Kearny Bank (the “Bank Merger”). The parties intend that the Bank Merger will become effective simultaneously with or as soon as practicable following the Effective Time.
2.13Alternative Structure.Notwithstanding anything to the contrary contained in this Agreement, prior to the Effective Time, Purchaser may specify that the structure of the transactions contemplated by this Agreement be revised and the parties shall enter into such alternative transactions as Purchaser may reasonably determine to effect the purposes of this Agreement;provided, however, that such revised structure shall not (i) alter or change the amount or kind of the Merger Consideration, (ii) materially impede or delay consummation of the transactions contemplated by this Agreement, or (iii) adversely limit or impact the qualification of the Merger as a reorganization under the provisions of Section 368(a) of the IRC. In the event that Purchaser elects to make such a revision, the parties agree to execute appropriate documents to reflect the revised structure.
2.14Absence of Control.It is the intent of the parties hereto that Purchaser by reason of this Agreement shall not be deemed (until consummation of the transactions contemplated hereby) to control, directly or indirectly, the Company or to exercise, directly or indirectly, a controlling influence over the management or policies of the Company.
2.15Additional Actions.If, at any time after the Effective Time, Purchaser or Kearny Bank shall consider or be advised that any further deeds, assignments or assurances in law or any other acts are necessary or desirable to (i) vest, perfect or confirm, of record or otherwise, in Purchaser or Kearny Bank its right, title or interest in, to
or under any of the rights, properties or assets of the Company or Clifton Savings,Millington Bank, or (ii) otherwise carry out the purposes of this Agreement, Clifton Savings,Millington Bank, the Company and their officers and directors shall be deemed to have granted to Purchaser and Kearny Bank an irrevocable power of attorney to execute and deliver, in such official corporate capacities, all such deeds, assignments or assurances in law or any other acts as are necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in Purchaser or Kearny Bank its right, title or interest in, to or under any of the rights, properties or assets of the Company or Clifton SavingsMillington Bank or (b) otherwise carry out the purposes of this Agreement, and the officers and directors of Purchaser or Kearny Bank are authorized in the name of the Company or Clifton SavingsMillington Bank or otherwise to take any and all such action.
2.16Withholding. Purchaser or the Exchange Agent will be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement or the transactions contemplated hereby to any holder of Company Common Stock such amounts as Purchaser (or any Affiliate thereof) or the Exchange Agent are required to deduct and withhold with respect to the making of such payment under the IRC, or any applicable provision of U.S. federal, state, local ornon-U.S. tax law. To the extent that such amounts are properly withheld by Purchaser or the Exchange Agent, such withheld amounts will be treated for all purposes of this Agreement as having been paid to the holder of the Company Common Stock in respect of whom such deduction and withholding were made by Purchaser or the Exchange Agent.
REPRESENTATIONS AND WARRANTIES
3.1 Disclosure Letters; Standard.
(a) Prior to the execution and delivery of this Agreement, Purchaser and the Company have each 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 either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more of their respective representations and warranties contained inSection 3.2 orSection 3.3, as applicable, or to one or more of its covenants contained in Articles IV or V (and making specific reference to the Section of this Agreement to which they relate). Disclosure in any paragraph of the Disclosure Letter shall apply only to the indicated Section of this Agreement except to the extent that it is reasonably clear on the face of such disclosure (notwithstanding the absence of a specific cross reference) that it is relevant to another paragraph of the Disclosure Letter or another Section of this Agreement. Documents are deemed to have been made available by Purchaser to the Company or by the Company to Purchaser if such documents are available on the website of the SEC through its Electronic Data Gathering, Analysis, and Retrieval system (EDGAR).
(b) No representation or warranty of the Company or Purchaser contained inSections 3.2 or3.3, as applicable (other than (i) the representations and warranties contained inSections 3.2(c) and 3.3(c), which shall be true in all respects, and (ii) the representations and warranties contained inSections 3.2(a),3.2(d),3.2(e)(i) and(ii), 3.2(k),3.2(v),3.2(y),3.3(a),3.3(d),3.3(e)(i) and(ii), 3.3(k) and3.3(u), which shall be true in all material respects) will be deemed untrue or incorrect, and no party will be deemed to have breached a representation or warranty, as a consequence of the existence of any fact, event or circumstance unless such fact, event or circumstance, individually or taken together with all other facts, events or circumstances inconsistent with any representation or warranty contained inSections 3.2or3.3, has had or is reasonably likely to have a Material Adverse Effect with respect to the Company or Purchaser, as the case may be (it being understood that, except with respect toSection 3.2(j), for purposes of determining the accuracy of such representations and warranties, all “Material Adverse Effect” qualifications and other materiality qualifications contained in such representations and warranties shall be disregarded).
3.2Representations and Warranties of the Company. Except as (i) disclosed in the Company’s Disclosure Letter, and (ii) for information and documents commonly known as “confidential supervisory information” that
is prohibited from disclosure (and as to which nothing in this Agreement shall require the Company to make any representation, warranty or disclosure), the Company represents and warrants to Purchaser that:
(a)Organization and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland andMaryland. The Company is registered with the Federal Reserve as a savings and loanbank holding company. The Company has all requisite corporate power and authority to own, lease and operate its properties and to conduct the business currently being conducted by it. The Company is duly qualified or licensed as a foreign corporation to transact business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so qualified or licensed and in good standing would not have a Material Adverse Effect on the Company. The Company engages only in activities, and holds properties only of the types, permitted to savings and loanbank holding companies by the HOLA,BHCA, and the rules, regulations and interpretations promulgated thereunder.
(b)Subsidiaries.
(i) The Company’s Disclosure Letter sets forth with respect to each of the Company’s direct and indirect Subsidiaries its name, its jurisdiction of incorporation, the Company’s percentage ownership, the number of shares of stock or other equity interests owned or controlled by the Company and the name and number of shares held by any other personPerson who owns any stock of the Subsidiary. The Company owns, directly or indirectly, all of the issued and outstanding shares of capital stock or other equity interests of each of its Subsidiaries, free and clear of any Liens. There are no contracts, commitments, agreements or understandings relating to the Company’s right to vote or dispose of any equity securities of its Subsidiaries. The Company’s ownership interest in each of its Subsidiaries is in compliance with all applicable laws, rules and regulations relating to equity investments by savings and loan holding companies or federally charteredNew Jersey-chartered savings banks.
(ii) Each of the Company’s Subsidiaries is a corporation duly organized and validly existing under the laws of its jurisdiction of incorporation, has all requisite corporate power and authority to own, lease and operate its properties and to conduct the business currently being conducted by it and is duly qualified or licensed as a foreign corporation to transact business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so qualified or licensed and in good standing would not have a Material Adverse Effect.
(iii) The outstanding shares of capital stock of each Subsidiary have been validly authorized and are validly issued, fully paid and nonassessable. No shares of capital stock of any Subsidiary of the Company are or may be required to be issued by virtue of any options, warrants or other rights, no securities exist that are convertible into or exchangeable for shares of such capital stock or any other debt or equity security of any Subsidiary, and there are no contracts, commitments, agreements or understandings of any kind for the issuance of additional shares of capital stock or other debt or equity security of any Subsidiary or options, warrants or other rights with respect to such securities.
(iv) Clifton SavingsMillington Bank is a federally charteredNew Jersey-chartered stock savings bank. No Subsidiary of the Company other than Clifton SavingsMillington Bank is an “insured depository institution” as defined in the Federal Deposit Insurance Act, as amended, and the applicable regulations thereunder. Clifton Savings’Millington Bank’ deposits are insured by the FDIC through the Deposit Insurance Fund to the fullest extent permitted by law. Clifton SavingsMillington Bank is a member in good standing of the FHLB and owns the requisite amount of stock therein.
(c)Capital Structure.
(i) The authorized capital stock of the Company consists of 85,000,00049,000,000 shares of Company Common Stock, par value $0.01 per share, and 10,000,0001,000,000 shares of preferred stock, par value $0.01 per share.
(ii) As of the date of this Agreement:
(A) 22,064,7685,184,914 shares of Company Common Stock are issued and outstanding, all of which are validly issued, fully paid and nonassessable and were issued in full compliance with all applicable laws and not in violation of any preemptive rights;
(B) no shares of Company preferred stock are issued and outstanding; and
(C) 2,001,752185,003 shares of Company Common Stock are reserved for issuance pursuant to outstanding Company Stock Options (including exercisable and unexercisable Company Stock Options). and future awards of Company Restricted Stock.
(iii) Set forth in the Company’s Disclosure Letter are: (a) a complete and accurate list of all outstanding Company Stock Options, including the names of the optionees, dates of grant, exercise prices, dates of vesting, dates of termination, shares subject to each grant and whether stock appreciation, limited or other similar rights were granted in connection with such options and (b) a complete and accurate list of all outstanding shares of Company Restricted Stock, including the names of the grantees, dates of grant, dates of vesting and shares subject to each grant.
(iv) No bonds, debentures, notes or other indebtedness having the right to vote on any matters on which stockholders of the Company may vote are issued or outstanding.
(v) Except as set forth in thisSection 3.2(c), as of the date of this Agreement, (A) no shares of capital stock or other voting securities of the Company are issued, reserved for issuance or outstanding, and (B) other than Company Stock Options, neither the Company nor any of its Subsidiaries has or is bound by any outstanding subscriptions, options, warrants, calls, rights, convertible securities, commitments or agreements of any character obligating the Company 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 the Company (including any rights plan or agreement) or obligating the Company or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, right, convertible security, commitment or agreement. Neither the Company nor any of its Subsidiaries has or is bound by any rights of any character relating to the purchase, sale or issuance or voting of, or right to receive dividends or other distributions on shares of Company Common Stock, or any other security of the Company or a Subsidiary of the Company or any securities representing the right to vote, purchase or otherwise receive any shares of Company Common Stock or any other security of the Company or a Subsidiary of the Company. Other than as stated herein, there are no outstanding securities or instruments that contain any redemption or similar provisions, and there are no outstanding contractual obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its Subsidiaries.
(vi) Other than the Voting Agreements and as set forth in the Company’s Disclosure Letter, there are no voting trusts, shareholder agreements, proxies or similar agreements to which the Company or any of its Subsidiaries is a party in effect with respect to the voting or transfer of the Company Common Stock or other voting securities or equity interests of the Company or granting any shareholder or other personPerson any registration rights. The Company does not have in effect a “poison pill” or similar shareholder rights plan.
(d)Authority. The Company has all requisite corporate power and authority to enter into this Agreement, to perform its obligations hereunder and, subject to the consents, approvals and filings set forth inSection 3.2(f), to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate actions on the part of the Company’s Board of Directors, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions contemplated by this Agreement other than the approval and adoption of this Agreement by the affirmative vote of the holders of a majority of the outstanding shares of Company Common Stock. The Company’s Board of Directors has determined that this Agreement is advisable and has directed that this Agreement be submitted to the Company’s stockholders for approval and adoption and has unanimously adopted
a resolution to the foregoing effect and recommend that the stockholders adopt this Agreement. This Agreement has been duly and validly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights and remedies generally and to general principles of equity, whether applied in a court of law or a court of equity.
(e)No Violations. The execution, delivery and performance of this Agreement by the Company do not, and the consummation of the transactions contemplated by this Agreement will not, (i) assuming that the consents, approvals and filings referred to inSection 3.2(f)have been obtained and the applicable waiting periods have expired, violate any law, rule or regulation or any judgment, decree, order, governmental permit or license to which the Company or any of its Subsidiaries (or any of their respective properties) is subject, (ii) violate the articles of incorporation or bylaws of the Company or the similar organizational documents of any of its Subsidiaries or (iii) constitute a breach or violation of, or a default under (or an event that, 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 upon any of the properties or assets of the Company 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 the Company or any of its Subsidiaries is a party, or to which any of their respective properties or assets may be subject.
(f)Consents and Approvals. Except for (i) filings of applications and notices with, receipt of approvals or no objections from, and the expiration of related waiting periods required by, federal and state banking authorities, including filings and notices with the Federal Reserve, the FDIC and the NJ Department, and the OCC, (ii) the filing with the SEC of a Joint Proxy Statement-Prospectus in definitive form relating to the meetingsmeeting of the Company’s and Purchaser’s stockholders to be held in connection with this Agreement and the transactions contemplated hereby and of the Registration Statement in which such proxy statement will be included as a prospectus, and declaration of effectiveness of the Registration Statement, (iii) the filing of the Articles
of Merger with the Maryland Department pursuant to the MGCL and the filing of a certificate for the Bank Merger with the NJ Department, and the filing of a notice for the Bank Merger with the OCC, (iv) filing with The Nasdaq Stock Market LLC of a notification of the listing of the shares of Purchaser Common Stock to be issued in the Merger, and (v) 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 shares of Purchaser Common Stock pursuant to this Agreement,Agreement; no consents or approvals of, or filings or registrations with, any Governmental Entity or any third party are required to be made or obtained by the Company in connection with the execution and delivery by the Company of this Agreement or the consummation by the Company of the Merger and the other transactions contemplated by this Agreement, including the Bank Merger. As of the date hereof, the Company has no Knowledge of any reason pertaining to the Company why any of the approvals referred to in thisSection 3.2(f) should not be obtained without the imposition of any material condition or restriction described inSection 6.2(e).
(g)Governmental Filings. The Company and each of its Subsidiaries has filed all reports, schedules, registration statements and other documents that it has been required to file since January 1, 20142019 with the Federal Reserve, the OCCFDIC or any other Governmental Entity. As of their respective dates, each of such filings complied in all material respects with all laws or regulations under which it was filed (or was amended so as to be in compliance promptly following discovery of such noncompliance).
(h)Securities Filings. The Company has filed with the SEC all reports, schedules, registration statements, definitive proxy statements and exhibits thereto that it has been required to file under the Securities Act or the Exchange Act since AprilJanuary 1, 20142019 (collectively, “Company Reports”). None of the Company Reports contained any untrue statement of a material fact or omitted 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. As of their respective dates of filing with the SEC, all of the Company Reports complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder. Each of the financial statements (including, in
each case, any notes thereto) of the Company included in the Company 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.
(i)Financial Statements. The Company has previously made available to Purchaser copies of (i) the consolidated balance sheets of the Company and its Subsidiaries as of MarchDecember 31, 20172018 and 20162017 and related consolidated statements of operations, statements of comprehensive loss (income), changes in shareholders’ equity and cash flows for each of the three years in the three-year period ended MarchDecember 31, 2017,2018, together with the notes thereto, accompanied by the audit report of the Company’s independent registered public accounting firm, as reported in the Company’s Annual Report on Form10-K for the year ended MarchDecember 31, 20172018 filed with the SEC, and (ii) the unaudited consolidated balance sheets of the Company and its Subsidiaries as of JuneSeptember 30, 20172019 and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity and cash flows for the threenine months ended JuneSeptember 30, 20172019 and 2016,2018, as reported in the Company’s Quarterly Report on Form10-Q for the period ended JuneSeptember 30, 20172019 filed with the SEC. Such financial statements were prepared from the books and records of Company and its Subsidiaries, fairly present the consolidated financial position of Company and its Subsidiaries in each case at and as of the dates indicated and the consolidated results of operations and cash flows of Company and its Subsidiaries for the periods indicated, and, except as otherwise set forth in the notes thereto, were prepared in accordance with GAAP consistently applied throughout the periods covered thereby;provided, however, that the unaudited financial statements for interim periods are subject to normalyear-end adjustments (which will not be material individually or in the aggregate) and lack footnotes to the extent permitted under applicable regulations. The books and records of the Company and its Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and any other legal and accounting requirements and reflect only actual transactions.
(j)Undisclosed Liabilities. Neither the Company nor any of its Subsidiaries has incurred any debt, liability or obligation of any nature whatsoever (whether accrued, contingent, absolute or otherwise and whether due or to become due) other than liabilities reflected on or reserved against in the consolidated balance sheet of the Company as of JuneSeptember 30, 2017,2019, except for (i) liabilities incurred since JuneSeptember 30, 20172019 in the ordinary course of business consistent with past practice that, either alone or when combined with all similar liabilities, have not had, and would not reasonably be expected to have, a Material Adverse Effect on the Company and (ii) liabilities incurred for legal, accounting, financial advising fees andout-of-pocket or other expenses or fees in connection with the transactions contemplated by this Agreement.
(k)Absence of Certain Changes or Events.
(i) Since JuneSeptember 30, 2017,2019, the Company and its Subsidiaries have conducted their respective businesses only in the ordinary and usual course of such businesses consistent with their past practices and there has not been any event or occurrence that has had, or is reasonably expected to have, a Material Adverse Effect on the Company.
(ii) Since JuneSeptember 30, 2017,2019, none of the Company or any of its Subsidiaries have taken any action that would be prohibited by clauses (b)(i), (c), (d), (e), (h)(i)(ii), (j), (k), (n), (o) or (p) ofSection 4.1 if taken after the date hereof.
(l)Litigation.There.Except as disclosed in Company’s Disclosure Letter, there are no suits, actions or legal, administrative or arbitration proceedings pending or, to the Knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries or any property or asset of the Company or any of its Subsidiaries that (i) are seeking damages or declaratory relief against the Company or any of its Subsidiaries or (ii) challenge the validity or propriety of the transactions contemplated by this Agreement. There are no judgments, decrees, injunctions, orders or rulings of any Governmental Entity or arbitrator outstanding against the Company or any of its Subsidiaries or the assets of the Company or any of its Subsidiaries (or that, upon consummation of the Merger, would apply to Purchaser or any of its Subsidiaries). Since January 1, 2014,2019, (i) there have been no subpoenas, written demands, or document
requests received by the Company or any of its Subsidiaries from any Governmental Entity and (ii) no Governmental Entity has requested that the Company or any of its Subsidiaries enter into a settlement, negotiation or tolling agreement with respect to any matter related to any such subpoena, written demand, or document request.
(m)Absence of Regulatory Actions. Since January 1, 2014,2019, neither the Company nor any of its Subsidiaries has been a party to any cease and desist order, written agreement or memorandum of understanding with, or any commitment letter or similar undertaking to, or has been subject to any action, proceeding, order or directive by any Governmental Entity, or has adopted any board resolutions relating to such matters as are material to the business of the Company or its Subsidiaries at the request of any Governmental Entity, or has been advised by any Governmental Entity 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, commitment letter, board resolutions or similar undertaking. To the Knowledge of the Company, there are no material unresolved violations, criticisms or exceptions by any Governmental Entity with respect to any report or statement relating to any examinations of the Company or its Subsidiaries.
(n)Compliance with Laws. The Company and each of its Subsidiaries have complied in all material respects with and are not in material default or violation 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, including without limitation all laws related to data protection or privacy, the Equal Credit Opportunity Act and Regulation B, the Fair Housing Act, the Fair Credit Reporting Act, the Truth in Lending Act and Regulation Z, the Home Mortgage Disclosure Act, the Fair Debt Collection Practices Act, the Electronic Fund Transfer Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Interagency Policy Statement on Retail Sales of Nondeposit Investment Products, the SAFE Mortgage Licensing Act of 2008, the Real Estate Settlement Procedures Act and Regulation X, and any other law relating to bank secrecy, discriminatory lending, financing or leasing practices, money laundering prevention, Sections 23A and 23B of the Federal Reserve Act, the Sarbanes-Oxley Act, and all agency requirements relating to the origination, sale and servicing of mortgage and consumer loans. The Company and each of its Subsidiaries has all material 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 no suspension or cancellation of any of them is, to the Knowledge of the Company, threatened. Neither the Company nor any of its Subsidiaries has been given notice or been charged with any violation of, any law, ordinance, regulation, order, writ, rule, decree or condition to approval of any Governmental Entity that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on the Company.
(o)Taxes. All federal, state, local and foreign tax returns required to be filed by or on behalf of the Company 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 the Company or any of its Subsidiaries have been paid in full or adequate provision has been
made for any such Taxes on the Company’s balance sheet (in accordance with GAAP). To the Knowledge of the Company, there is no audit examination, deficiency assessment, tax investigation or refund litigation with respect to any Taxes of the Company or any of its Subsidiaries, and no claim has been made in writing by any authority in a jurisdiction where the Company or any of its Subsidiaries do not file tax returns that the Company 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 the Company or any of its Subsidiaries have been paid in full or adequate provision has been made for any such Taxes on the Company’s balance sheet (in accordance with GAAP). The Company and its Subsidiaries have not executed an extension or waiver of any statute of limitations on the assessment or collection of any tax due that is currently in effect. The Company 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 the Company and each of its Subsidiaries has timely complied with all applicable information reporting requirements under Part III, Subchapter A of Chapter 61 of the IRC and similar applicable state and local information reporting requirements. Neither the Company nor any of its Subsidiaries has made any payments and is not a party to any agreement, and does not maintain any plan, program or arrangement, which could require it to make any payments that would not be fully deductible by reason of Section 162(m) of the IRC.
(p)Agreements.
(i) The Company has previously delivered to Purchaser, and the Company’s Disclosure Letter lists, any contract, arrangement, commitment or understanding (whether written or oral) to which the Company or any of its Subsidiaries is a party or is bound:
(A) (1) with any officer or employee of the Company 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 the Company or any of its Subsidiaries of the nature contemplated by this Agreement; (2) with respect to the employment of any directors, officers, employees or consultants; or (3) 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 value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement (including any stock option plan, phantom stock or stock appreciation rights plan, restricted stock plan or stock purchase plan);
(B) that (1) contains anon-compete or client or customernon-solicit requirement or any other provision that restricts the conduct of, or the manner of conducting, any line of business of the Company or any of its Subsidiaries (or, following the consummation of the transactions contemplated hereby, Purchaser or any of its Subsidiaries), (2) obligates the Company or any of its Affiliates (or, following the consummation of the transactions contemplated hereby, Purchaser or any of its Subsidiaries) to conduct business with any third party on an exclusive or preferential basis, or (3) requires referrals of business or requires the Company or any of its Subsidiaries to make available investment opportunities to any personPerson on a priority or exclusive basis;
(C) pursuant to which the Company or any of its Subsidiaries may become obligated to invest in or contribute capital to any entity;
(D) that relates to borrowings of money (or guarantees thereof) by the Company or any of its Subsidiaries in excess of $100,000, other than FHLB borrowings and repurchase agreements with customers entered into in the ordinary course of business;
(E) that grants any right of first refusal, right of first offer or similar right with respect to any material assets, rights or properties of the Company or any of its Subsidiaries;
(F) that limits the payment of dividends by the Company or any of its Subsidiaries;
(G) that relates to the involvement of the Company or any Subsidiary in a joint venture, partnership, limited liability company agreement or other similar agreement or arrangement, or to the formation, creation or operation, management or control of any partnership or joint venture with any third parties;
(H) that relates to an acquisition, divestiture, merger or similar transaction and that contains representations, covenants, indemnities or other obligations (including indemnification,“earn-out” or other contingent obligations) that are still in effect,
(I) that is a lease or license with respect to any property, real or personal, whether as landlord, tenant, licensor or licensee, involving a liability or obligation as obligor in excess of $50,000 per annum;
(J) that is a consulting agreement or data processing, software programming or licensing contract involving the payment of more than $50,000 per annum; or
(K) that is not of the type described in clauses (A) through (J) above and which involved payments by, or to, the Company or any of its Subsidiaries in the fiscal year ended Marchending December 31, 2017,2019, or which could reasonably be expected to involve such payments during the fiscal year ending MarchDecember 31, 2018,2020, of more than $50,000 (excluding Loans) or the termination of which would require payment by the Company or any of its Subsidiaries in excess of $50,000.
Each contract, arrangement, commitment or understanding of the type described in this Section 3.2(p), whether or not set forth in the Company’s Disclosure Letter, is referred to herein as a “Company Contract,” and neither the Company nor any of its Subsidiaries knows of, or has received notice of, any material violation of the above by any of the other parties thereto.
(ii) Each Company Contract is valid and binding on the Company or one of its Subsidiaries, as applicable, and in full force and effect, except as, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company. The Company and each of its Subsidiaries has in all material respects performed all obligations required to be performed by it under each Company Contract. To the Company’s Knowledge each third-party counterparty to each Company Contract has in all material respects performed all obligations required to be performed by it under such Company Contract, and no event or condition exists that constitutes or, after notice or lapse of time or both, will constitute, a material default on the part of the Company or any of its Subsidiaries under any such Company Contract.
(iii) Neither the Company nor any of its Subsidiaries is in default under (and no event has occurred which, with due notice or lapse of time or both, would constitute a default under) or is in material 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 and, to the Knowledge of the Company, no other party to any such agreement (excluding any loan or extension of credit made by the Company or any of its Subsidiaries) is in default in any respect thereunder.
(q)Intellectual Property; Company IT Systems.
(i) The Company and each of its Subsidiaries owns or possesses valid and binding licenses and other rights to use (in the manner and the geographic areas in which they are currently used) without payment all patents, copyrights, trade secrets, trade names, service marks and trademarks material to its business. The Company’s Disclosure Letter sets forth a complete and correct list of all material trademarks, trade names, service marks and copyrights owned by or licensed to the Company or any of its Subsidiaries for use in its business, and all licenses and other agreements relating thereto and all agreements relating to third party intellectual property that the Company or any of its Subsidiaries is licensed or authorized to use in its business, including without limitation any software licenses but excluding anyso-called “shrink-wrap” license agreements and other similar computer software licensed in the ordinary course of business and/or otherwise resident on desktop computers (collectively, the “CompanyIntellectual Property”). With respect to each item of Company Intellectual Property owned by the Company or any of its Subsidiaries, the owner possesses all right, title and interest in and to the item, free and clear of any Lien. With respect to each item of Company Intellectual Property that the Company or any of its Subsidiaries is licensed or authorized to use, the license, sublicense or agreement covering such item is legal, valid, binding, enforceable and in full force and effect as to the Company and the Subsidiaries. Neither the Company nor any of its Subsidiaries has received any charge, complaint, claim, demand or notice alleging any interference, infringement, misappropriation or violation with or of any intellectual property rights of a third party (including any claims that the Company or any of its Subsidiaries must license or refrain from using any intellectual property rights of a third party). To the Knowledge of the Company, neither the Company nor any of its Subsidiaries has interfered with, infringed upon, misappropriated or otherwise come into conflict with any intellectual property rights of third parties and no third party has interfered with, infringed
upon, misappropriated or otherwise come into conflict with any intellectual property rights of the Company or any of its Subsidiaries.
(ii) To the Company’s Knowledge, all information technology and computer systems (including software, information technology and telecommunication hardware and other equipment) relating to the transmission, storage, maintenance, organization, presentation, generation, processing or analysis of data and information, whether or not in electronic format, used in or necessary to the conduct of the business of the Company or Clifton SavingsMillington Bank (collectively, the “Company IT Systems”) have been properly maintained by technically competent personnel,Personnel, in accordance with standards set by the manufacturers or otherwise in accordance with standards in the industry, to ensure proper operation, monitoring and use. The Company IT Systems are in good working condition to effectively perform all information technology operations necessary to conduct the Company’s consolidated business as currently conducted. Neither the Company nor Clifton SavingsMillington Bank has experienced within the past two years any material disruption to, or material interruption in, the conduct of its business attributable to a defect, bug, breakdown or other failure or deficiency of the Company IT Systems. No Person has gained unauthorized access to any of the Company IT Systems that has had, or is reasonably expected to have, a Material Adverse Effect on the Company. The Company and Clifton SavingsMillington Bank have taken reasonable measures to provide for theback-up and recovery of the data and information necessary to the conduct of their businesses without material disruption to, or material interruption in, the conduct of their respective businesses. The Company and its Subsidiaries are compliant in all material respects with all data protection and privacy laws and regulations as well as their own policies relating to data protection and the privacy and security of personal data and thenon-public personal information of their respective customers and employees, except for immaterial failures to comply or immaterial violations.
(r)Labor Matters.
(i) The Company and its Subsidiaries are in material compliance with all applicable laws respecting employment, retention of independent contractors, employment practices, terms and conditions of employment, and wages and hours. Neither the Company 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 the Company or any of its Subsidiaries the subject of any proceeding asserting that it has committed an unfair labor practice or seeking to compel it or any such Subsidiary to bargain with any labor organization as to wages and conditions of employment nor, to the Knowledge of the Company, has any such proceeding been threatened, nor is there any strike, other labor dispute or organizational effort involving the Company or any of its Subsidiaries pending or, to the Knowledge of the Company, threatened.
(ii) The Company’s Disclosure Letter identifies (A) all present employees (including any leased or temporary employees) of the Company and its Subsidiaries and any consultants or independent contractors providing services to the Company or any of its Subsidiaries; (B) each employee’s, consultant’s or independent contractor’s date of hire and current rate of compensation; and (C) each employee’s accrued vacation, sick leave or personal leave if applicable. The Company’s Disclosure Letter also names any employee who is absent from work due to a leave of absence (including, but not limited to, in accordance with the requirements of the Family and Medical Leave Act or the Uniformed Services Employment and Reemployment Rights Act) or a work-related injury, or who is receiving workers’ compensation or disability compensation. There are no unpaid wages, bonuses or commissions owed to any employee (other than those not yet due).
(s)Employee Benefit Plans.
(i) The Company’s Disclosure Letter lists all Company Benefit Plans. For purposes of this Agreement, (“Company Benefit Plans”) mean all employee benefit plans (as defined in Section 3(3) of ERISA, whether or not subject to ERISA, whether funded or unfunded, and all pension, benefit, retirement, bonus, stock option, stock purchase, restricted stock, stock-based, performance award, phantom equity, incentive, deferred
compensation, retiree medical or life insurance, supplemental retirement, severance, retention, employment, consulting, termination, change in control, salary continuation, accrued leave, sick leave, vacation, paid time off, health, medical, disability, life, accidental death and dismemberment, insurance, welfare, fringe benefit and other similar plans, programs, policies, practices or arrangements or other contracts or agreements (and any amendments thereto) to or with respect to which the Company or any Subsidiary or any trade or business of the Company or any of its Subsidiaries, whether or not incorporated, all of which together with the Company would be deemed a “single employer” within the meaning of Section 4001 of ERISA (a “Company ERISA Affiliate”), is a party or has any current or future obligation or that are sponsored, maintained, contributed to or required to be contributed to by the Company or any of its Subsidiaries or any Company ERISA Affiliate for the benefit of any current or former employee, officer, director, consultant or independent contractor (or any spouse or dependent of such individual) of the Company or any of its Subsidiaries or any Company ERISA Affiliate.
(ii) The Company has heretofore made available to Purchaser true, correct and complete copies of the following documents with respect to each of the Company Benefit Plans, to the extent applicable, (i) all plans and trust agreements, (ii) all summary plan descriptions, amendments, modifications or material supplements to any Company Benefit Plan, (iii) where any Company Benefit Plan has not been reduced to writing, a written summary of all the material plan terms, (iii) the annual report (Form 5500), if any, filed with the IRS for the last three (3) plan years and summary annual reports, with schedules and financial statements attached, (iv) the most recently received IRS determination letter, if any, relating to any Company Benefit Plan, (v) the most recently prepared actuarial report for each Company Benefit Plan (if applicable) for each of the last three (3) years and (vi) copies of material notices, letters or other correspondence with the IRS, U.S. Department of Labor (the “DOL”) or Pension Benefit Guarantee Corporation (the “PBGC”).
(iii) Each Company Benefit Plan has been established, operated and administered in all material respects in accordance with its terms and the requirements of all applicable laws, including ERISA and the IRC. Neither the Company nor any of its Subsidiaries has taken any action to take corrective action or made a filing under any voluntary correction program of the IRS, the DOL or any other Governmental Entity with respect to any Company Benefit Plan, and neither the Company nor any of its Subsidiaries has any Knowledge of any plan defect that would qualify for correction under any such program.
(iv) The Company’s Disclosure Letter identifies each Company Benefit Plan that is intended to be qualified under Section 401(a) of the IRC (the “Company Qualified Plans”). The IRS has issued a favorable determination letter with respect to each Company Qualified Plan and the related trust, which letter has not been revoked (nor has revocation been threatened), and, to the Knowledge of the Company, there are no existing circumstances and no events have occurred that could adversely affect the qualified status of any Company Qualified Plan or the exempt status of the related trust or increase the costs relating thereto. No trust funding any Company Benefit Plan is intended to meet the requirements of Section 501(c)(9) of the IRC.
(v) Each Company Benefit Plan that is subject to Section 409A of the IRC has been administered and documented in compliance with the requirements of Section 409A of the IRC, except where anynon-compliance has not and cannot reasonably be expected to result in material liability to the Company or any of its Subsidiaries or any employee of the Company or any of its Subsidiaries.
(vi) With respect to each Company Benefit Plan that is subject to Title IV or Section 302 of ERISA or Sections 412, 430 or 4971 of the IRC: (i) no such plan is in“at-risk” status for purposes of Section 430 of the IRC, (ii) the present value of accrued benefits under such Company Benefit Plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such Company Benefit Plan’s actuary with respect to such Company Benefit Plan, did not, as of its latest valuation date, exceed the then current fair market value of the assets of such Company Benefit Plan allocable to such accrued benefits, (iii) no reportable event within the meaning of Section 4043(c) of ERISA for which the30-day notice requirement has not been waived has occurred, (iv) all premiums to the PBGC have been timely paid in full, (v) no liability (other than for premiums to the PBGC) under Title IV of ERISA has been or is expected to be incurred by the Company
or any of its Subsidiaries, and (vi) the PBGC has not instituted proceedings to terminate any such Company Benefit Plan.
(vii) None of the Company, its Subsidiaries nor any Company ERISA Affiliate has, at any time during the last six years, contributed to or been obligated to contribute to any plan that is a “multiemployer plan” within the meaning of Section 4001(a)(3) of ERISA (a “Multiemployer Plan”) or a plan that has two or more contributing sponsors at least two of whom are not under common control, within the meaning of Section 4063 of ERISA (a “Multiple Employer Plan”), and none of the Company and its Subsidiaries nor any Company ERISA Affiliate has incurred any liability to a Multiemployer Plan or Multiple Employer Plan as a result of a complete or partial withdrawal (as those terms are defined in Part 1 of Subtitle E of Title IV of ERISA) from a Multiemployer Plan or Multiple Employer Plan.
(viii) NeitherExcept as set forth in the Company’s Disclosure Letter, neither the Company nor any of its Subsidiaries sponsors has sponsored or has any obligation with respect to any employee benefit plan that provides for any post-employment or post-retirement health or medical or life insurance benefits for retired, former or current employees or beneficiaries or dependents thereof, except as required by Section 4980B of the IRC.
(ix) All contributions required to be made to any Company Benefit Plan by applicable law or by any plan document or other contractual undertaking, and all premiums due or payable with respect to insurance policies funding any
Company Benefit Plan, for any period through the date hereof, have been timely made or paid in full or, to the extent not required to be made or paid on or before the date hereof, have been fully reflected on the books and records of the Company.
(x) There are no pending or, to the Company’s knowledge, threatened claims (other than claims for benefits in the ordinary course), lawsuits or arbitrations that have been asserted or instituted, and, to the Company’s Knowledge, no set of circumstances exists that may reasonably be expected to give rise to a claim or lawsuit, against the Company Benefit Plans, any fiduciaries thereof with respect to their duties to the Company Benefit Plans or the assets of any of the trusts under any of the Company Benefit Plans, that could reasonably be expected to result in any material liability of the Company or any of its Subsidiaries to the PBGC, the IRS, the DOL, any Multiemployer Plan, a Multiple Employer Plan, any participant in any Company Benefit Plan, or any other party.
(xi) To the Knowledge of the Company, none of the Company and its Subsidiaries nor any Company ERISA Affiliate nor any other person,Person, including any fiduciary, has engaged in any “prohibited transaction” (as defined in Section 4975 of the IRC or Section 406 of ERISA), which could subject any of the Company Benefit Plans or their related trusts, the Company, any of its Subsidiaries, any Company ERISA Affiliate or any personPerson that the Company or any of its Subsidiaries has an obligation to indemnify, to any material tax or penalty imposed under Section 4975 of the IRC or Section 502 of ERISA.
(xii) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (either alone or in conjunction with any other event) result in, cause the vesting, exercisability or delivery of, or increase in the amount or value of, any payment, compensation (including stock or stock-based), right or other benefit to any employee, officer, director, independent contractor, consultant or other service provider of the Company or any of its Subsidiaries, or result in any limitation on the right of the Company or any of its Subsidiaries to amend, merge, terminate or receive a reversion of assets from any Company Benefit Plan or related trust. Without limiting the generality of the foregoing, no amount paid or payable (whether in cash, in property, or in the form of benefits) by the Company or any of its Subsidiaries in connection with the transactions contemplated hereby (either solely as a result thereof or as a result of such transactions in conjunction with any other event) will be an “excess parachute payment” within the meaning of Section 280G of the IRC. Neither the Company nor any of its Subsidiaries maintains or contributes to a rabbi trust or similar funding vehicle, and the transactions contemplated by this Agreement will not cause or require the Company or any of its Affiliates to establish or make any contribution to a rabbi trust or similar funding vehicle.
(xiii) No Company Benefit Plan provides for thegross-up or reimbursement of Taxes under Section 409A or 4999 of the IRC, or otherwise. The Company has made available to Purchaser true, correct and complete copies of Section 280G calculations (whether or not final) with respect to any disqualified individual in connection with the transactions contemplated hereby.
(xiv) There are no pending or, to the Company’s Knowledge, threatened material labor grievances or material unfair labor practice claims or charges against the Company or any of its Subsidiaries, or any strikes or other material labor disputes against the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries are party to or bound by any collective bargaining or similar agreement with any labor organization, or work rules or practices agreed to with any labor organization or employee association applicable to employees of the Company or any of its Subsidiaries and, to the Knowledge of the Company, there are no organizing efforts by any union or other group seeking to represent any employees of the Company or any of its Subsidiaries and no employees of the Company or any of its Subsidiaries are represented by any labor organization.
(t)Properties.
(i) A list of all real property owned or leased by the Company or a Subsidiary of the Company is set forth in the Company’s Disclosure Letter. The Company and each of its Subsidiaries has good and marketable title to all real property owned by it (including any property acquired in a judicial foreclosure proceeding or by way of a deed in lieu of foreclosure or similar transfer), in each case free and clear of any Liens except (i) liens for Taxes not yet due and payable and (ii) such easements, restrictions and encumbrances, if any, as are not material in character, amount or extent, and do not materially detract from the value, or materially interfere with the present use of the properties subject thereto or affected thereby. Each lease pursuant to which the Company or any of its Subsidiaries as lessee, leases real or personal property is valid and in full force and effect as to the Company and the Subsidiaries and neither the Company nor any of its Subsidiaries, nor, to the Company’s Knowledge, any other party to any such lease, is in default or in violation of any material provisions
of any such lease. The Company has previously delivered to Purchaser a complete and correct copy of each such lease. All real property owned or leased by the Company or any of its Subsidiaries are in all material respects in a good state of maintenance and repair (normal wear and tear excepted), conform in all material respects with all applicable ordinances, regulations and zoning laws and are considered by the Company to be adequate for the current business of the Company and its Subsidiaries. To the Knowledge of the Company, none of the buildings, structures or other improvements located on any real property owned or leased by the Company or any of its Subsidiaries encroaches upon or over any adjoining parcel or real estate or any easement orright-of-way.
(ii) The Company and each of its Subsidiaries has good and marketable title to all tangible personal property owned by it, free and clear of all Liens except such Liens, if any, that are not material in character, amount or extent, and that do not materially detract from the value, or materially interfere with the present use of the properties subject thereto or affected thereby. With respect to personal property used in the business of the Company and its Subsidiaries that is leased rather than owned, neither the Company nor any of its Subsidiaries is in default under the terms of any such lease.
(u)Fairness Opinion. The board of directors of Company has received the opinion (which, if initially rendered verbally, has been or will be confirmed by a written opinion, dated the same date) of RP Financial LCFinPro Capital Advisors, Inc. (“RP FinancialFinPro”) to the effect that, as of the date of such opinion and subject to the assumptions, limitations and qualifications set forth therein, the Exchange Ratio in the Merger is fair, from a financial point of view, to the holders of Company Common Stock.
(v)Fees. Other than for financial advisory services performed for the Company by Sandler O’Neill & Partners, L.P.FinPro pursuant to an agreement dated September 13, 2017, a true and complete copy of which is included in the Company’s Disclosure Letter, and RP Financial pursuant to an agreement dated October 12, 2017,July 16, 2018, a true and complete copy of which is included in the Company’s Disclosure Letter, neither the Company 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 the Company or any of its Subsidiaries in connection with this Agreement or the transactions contemplated hereby.
(w)Environmental Matters.
(i) Each of the Company’s and its Subsidiaries’ properties, the Participation Facilities, and, to the Knowledge of the Company, the Loan Properties are, and have been during the period of the Company’s or its Subsidiaries’ ownership or operation thereof, in material compliance with all Environmental Laws.
(ii) There is no suit, claim, action, demand, executive or administrative order, directive, investigation or proceeding pending or, to the Knowledge of the Company, threatened, before any court or Governmental Entity against the Company or any of its Subsidiaries or any Participation Facility (A) for alleged noncompliance (including by any predecessor) with, or liability under, any Environmental Law or (B) 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 the Company or any of its Subsidiaries or any Participation Facility.
(iii) To the Knowledge of the Company, thereThere is no suit, claim, action, demand, executive or administrative order, directive, investigation or proceeding pending or, to the Knowledge of the Company, threatened before any court or Governmental Entity relating to or against any Loan Property (or the Company or any of its Subsidiaries in respect of such Loan Property) (A) relating to alleged noncompliance (including by any predecessor) with, or liability under, any Environmental Law or (B) relating to the presence of or release into the environment of any Hazardous Material, whether or not occurring at a Loan Property.
(iv) Neither the Company nor any of its Subsidiaries has received in writing any notice, demand letter, executive or administrative order, directive or request for information from any Governmental Entity or any third party indicating that it may be in violation of, or liable under, any Environmental Law.
(v) To the Knowledge of the Company, there are no underground storage tanks at any properties owned or operated by the Company or any of its Subsidiaries or any Participation Facility. Neither the Company nor any of its Subsidiaries nor, to the Knowledge of the Company, any other personPerson or entity, has closed or removed any underground storage tanks from any properties owned or operated by the Company or any of its Subsidiaries or any Participation Facility.
(vi) During the period of (A) the Company’s or its Subsidiary’s ownership or operation of any of their respective current properties or (B) the Company’s or its Subsidiary’s participation in the management of any Participation
Facility, to the Knowledge of the Company, there has been no release of Hazardous Materials in, on, under or affecting such properties except for releases of Hazardous Materials in quantities below the level at which they were regulated under any Environmental Law in effect at the time of such release. To the Knowledge of the Company, prior to the period of (A) the Company’s or its Subsidiary’s ownership or operation of any of their respective current properties or (B) the Company’s or its Subsidiary’s participation in the management of any Participation Facility, there was no contamination by or release of Hazardous Material in, on, under or affecting such properties except for releases of Hazardous Materials in quantities below the level at which they were regulated under any Environmental Law in effect at the time of such release.
(x)Loan Matters.
(i) All Loans held by the Company or any of its Subsidiaries were made in all material respects for good, valuable and adequate consideration in the ordinary course of the business, in accordance in all material respects with sound banking practices and, to the Knowledge of the Company, the Loans are not subject to any defenses, setoffs or counterclaims, including without limitation any such as are afforded by usury or truth in
lending laws, except as may be provided by bankruptcy, insolvency or similar laws or by general principles of equity. The notes or other evidences of indebtedness evidencing such Loans and all forms of pledges, mortgages and other collateral documents and security agreements are, in all material respects, enforceable and valid.
(ii) Neither the terms of any Loan, any of the documentation for any Loan, the manner in which any Loans have been administered and serviced, nor the Company’s practices of approving or rejecting Loan applications, violate in any material respect any federal, state, or local law, rule or regulation applicable thereto, including, without limitation, the Truth In Lending Act, Regulations O and Z of the Federal Reserve, the CRA, the Equal Credit Opportunity Act, and any state laws, rules and regulations relating to consumer protection, installment sales and usury.
(iii) The allowance for loan losses reflected in the Company’s audited balance sheet at MarchDecember 31, 20172018 was, and the allowance for loan losses shown on the balance sheets in the Company Reports for periods ending after such date, in the opinion of management, were, or will be, adequate, as of the dates thereof, under GAAP.
(iv) None of the agreements pursuant to which the Company or any of its Subsidiaries has sold Loans or pools of Loans or participations in Loans or pools of Loans contains any obligation to repurchase such Loans or interests therein solely on account of a payment default by the obligor on any such Loan.
(v) (A) The Company’s Disclosure Letter sets forth a list of all Loans as of the date hereof by the Company or Clifton SavingsMillington Bank to any directors, executive officers and principal stockholders (as such terms are defined in Regulation O of the Federal Reserve (12 C.F.R. Part 215)) of the Company or any of its Subsidiaries, (B) except as set forth in the Company’s Disclosure Letter, there are no Loans to any employee, officer, director or Affiliate thereof on which the borrower is paying a rate other than that reflected in the note or other relevant credit or security agreement or on which the borrower is paying a rate that was or is not in compliance with Regulation O and (C) all such Loans are and were originated in compliance in all material respects with all applicable laws.
(vi) The Company’s Disclosure Letter sets forth a listing, as of September 30, 2017,2019, by account, of: (A) each borrower, customer or other party that has notified Clifton SavingsMillington Bank during the past twelve (12) months of, or has asserted against the Company or Clifton Savings,Millington Bank, in each case in writing, any “lender liability” or similar claim, and, to the Knowledge of the Company or Clifton Savings,Millington Bank, each borrower, customer or other party that has given the Company or Clifton SavingsMillington Bank any oral notification of, or orally asserted to or against Company or Clifton Savings,Millington Bank, any such claim; and (B) all Loans (1) that are contractually past due ninety (90) days or more in the payment of principal and/or interest, (2) that are onnon-accrual status, (3) that are classified as “Pass“Watch 5,” “Special Mention,” “Substandard,” “Doubtful,” “Loss” or words of similar import, (4) that are considered troubled debt restructurings or where the interest rate terms have been reduced and/or the maturity dates have been extended subsequent to the origination of the Loan due to concerns regarding the borrower’s ability to pay in accordance with the Loan’s original terms and (5) where a specific reserve allocation exists in connection therewith; and (C) all other assets classified by the Company or Clifton SavingsMillington Bank as real estate acquired through foreclosure or in lieu of foreclosure, includingin-substance foreclosures, and all other assets currently held that were acquired through foreclosure or in lieu of foreclosure.
(y)Anti-takeover Provisions Inapplicable. TheExcept as set forth in the Company’s Disclosure Letter, the Company and its Subsidiaries have taken all actions required to exempt Purchaser, the Agreement, the Plan of Bank Merger, the
Merger and the Bank Merger from any provisions of an anti-takeover nature contained in their organizational documents, and the provisions of any federal or state “anti-takeover,” “fair price,” “moratorium,” “control share acquisition” or similar laws or regulations.
(z)Material Interests of Certain Persons. Except for deposit and loan relationships entered into in the ordinary course of business, no current or former officer or director of the Company, or any family member or Affiliate of any such Person, has any material interest, directly or indirectly, in any contract or property (real or personal), tangible or intangible, used in or pertaining to the business of the Company or any of its Subsidiaries.
(aa)Insurance. In the opinion of management, the Company and its Subsidiaries are presently insured for amounts deemed reasonable by management against such risks as companies engaged in a similar business, including engaging in the transactions contemplated by this Agreement, would, in accordance with good business practice, customarily be insured. The Company’s Disclosure Letter contains a list of all policies of insurance carried and owned by the Company or any of the Company’s Subsidiaries showing the name of the insurance company and agent, the nature of the coverage, the policy limit, the annual premiums and the expiration date. All of the insurance policies and bonds maintained by the Company and its Subsidiaries are in full force and effect, the Company and its Subsidiaries are not in default thereunder, all premiums and other payments due under any such policy have been paid and all material claims thereunder have been filed in due and timely fashion.
(bb)Investment Securities; Derivatives.
(i) Except for restrictions that exist for securities that are classified as “held to maturity,” none of the investment securities held by the Company or any of its Subsidiaries, including but not limited to FHLB stock, 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 the Company nor any of its Subsidiaries is a party to or has agreed to enter into an exchange-traded orover-the-counter equity, interest rate, foreign exchange or other swap, forward, future, option, cap, floor or collar or any other contract that is a derivative contract (including various combinations thereof) 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 materially exceed normal changes in value attributable to interest or exchange rate changes.
(cc)Indemnification. Except as provided in the Articles of Incorporation or bylaws of the Company and the similar organizational documents of its Subsidiaries, and in employment agreements, change in control agreements and other agreements related to employment or service as a director, officer or employee, neither the Company nor any of its Subsidiaries is a party to any agreement that provides for the indemnification of any of its present or former directors, officers, employees or stockholders, or other personsPersons who serve or served as a director, officer or employee of another corporation, partnership or other enterprise at the request of the Company and, to the Knowledge of the Company, there are no claims for which any such Person would be entitled to indemnification under the Articles of Incorporation or bylaws of the Company or the similar organizational documents of any of its Subsidiaries, under any applicable law or regulation or under any such employment-related agreement.
(dd)Corporate Documents and Records. The Company has previously provided a complete and correct copy of the Articles of Incorporation, bylaws and similar organizational documents of the Company and each of the Company’s Subsidiaries, as in effect as of the date of this Agreement. Neither the Company nor any of the Company’s Subsidiaries is in violation of its Articles of Incorporation, bylaws or similar organizational documents. The minute books of the Company and each of the Company’s Subsidiaries constitute a complete and correct record of all actions taken by their respective boards of directors (and each committee thereof) and their stockholders.
(ee)CRA, Anti-Money Laundering, OFAC and Customer Information Security. Clifton SavingsMillington Bank has received a rating of “Satisfactory” or better in its most recent examination or interim review with respect to the CRA. The Company does not have Knowledge of any facts or circumstances that would cause Clifton SavingsMillington Bank or any other Subsidiary of the Company: (i) to be deemed not to be in satisfactory compliance in any material respect with the CRA, and the regulations promulgated thereunder, or to be assigned a rating for CRA purposes by federal bank regulators of lower than “Satisfactory”; or (ii) to be deemed to be operating in violation in any material respect of the Bank Secrecy Act, the USA PATRIOT Act,
any order issued with respect to anti-money laundering by the U.S. Department of the Treasury’s Office of Foreign Assets Control, or any other applicable
anti-money laundering statute, rule or regulation; or (iii) to be deemed not to be in satisfactory compliance in any material respect with the applicable privacy of customer information requirements contained in any federal and state privacy laws and regulations, including without limitation, in Title V of the Gramm-Leach-Bliley Act of 1999 and the regulations promulgated thereunder, as well as the provisions of the information security program adopted by Clifton Savings.Millington Bank. To the Knowledge of the Company, nonon-public customer information has been disclosed to or accessed by an unauthorized third party in a manner that would cause either the Company or any of its Subsidiaries to undertake any remedial action. The Board of Directors of Clifton SavingsMillington Bank (or where appropriate of any other Subsidiary of the Company) has adopted, and Clifton SavingsMillington Bank (or such other Subsidiary of the Company) has implemented, an anti-money laundering program that contains adequate and appropriate customer identification verification procedures that comply with Section 326 of the USA PATRIOT Act and such anti-money laundering program meets the requirements in all material respects of Section 352 of the USA PATRIOT Act and the regulations thereunder, and Clifton SavingsMillington Bank (or such other Subsidiary of the Company) has complied in all material respects with any requirements to file reports and other necessary documents as required by the USA PATRIOT Act and the regulations thereunder.
(ff)Internal Controls. The Company and its Subsidiaries have devised and maintain a system of internal control over financial reporting as defined in RuleRule 13a-15(f) of the Exchange Act sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets, and (iii) access to assets is permitted only in accordance with management’s general or specific authorization. Except as disclosed in the Company Reports, there are no significant deficiencies or material weaknesses in the design or operation of internal controls over financial reporting that are reasonably likely to adversely affect in any material respect the Company’s ability to record, process, summarize and report financial information. To the Knowledge of the Company, there has occurred no fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.
(gg)Tax Treatment of the Merger. The Company has no Knowledge of any fact or circumstance relating to it that would prevent the transactions contemplated by this Agreement from qualifying as a reorganization under Section 368(a) of the IRC.
(hh)Related Party Transactions. Neither the Company nor any Company Subsidiary is a party to any transaction (including any loan or other credit accommodation) with any Affiliate of the Company or any Company Subsidiary where the amount exceeds $120,000. All such transactions involving indebtedness (a) were made in the ordinary course of business, (b) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons,Persons, and (c) did not involve more than the normal risk of collectability or present other unfavorable features. No loan or credit accommodation to any Affiliate of the Company or any Company Subsidiary is presently in default or, during the three-year period prior to the date of this Agreement, has been in default or has been restructured, modified or extended. Neither the Company nor any Company Subsidiary has been notified that principal or interest with respect to any such loan or other credit accommodation will not be paid when due or that the loan grade classification accorded such loan or credit accommodation is inappropriate.
(ii)Trust Accounts. The Company and each Subsidiary has properly administered all accounts for which it acts as a fiduciary in all material respects, including but not limited to accounts for which it serves as trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance with the terms of the governing documents and applicable laws and regulations. Neither the Company nor any other Subsidiary, nor has any of their respective directors, officers or employees, committed any breach of trust with respect to any such fiduciary account and the records for each such fiduciary account.
(jj)No Other Representations or Warranties.
(i) Except for the representations and warranties made by the Company in thisSection 3.2, neither the Company nor any other Person makes any express or implied representation or warranty with respect to the Company, its Subsidiaries, or their respective businesses, operations, assets, liabilities, conditions (financial or otherwise) or prospects, and the Company hereby disclaims any such other representations or warranties. In particular, without limiting the foregoing disclaimer, neither the Company nor any other Person makes or has made any representation or warranty to Purchaser or any of its Affiliates or representatives with respect to (A) any financial projection, forecast, estimate, budget or prospective information relating to the Company, any of its Subsidiaries or their respective businesses, or (B) except for the representations and warranties made by the Company in thisSection 3.2, any oral or written information presented to Purchaser or any of its Affiliates or representatives in the course of their due diligence investigation of the Company, the negotiation of this Agreement or in the course of the transactions contemplated hereby.
(ii) The Company hereby acknowledges and agrees that neither Purchaser nor any other Person has made or is making any express or implied representation or warranty other than those contained inSection 3.3.
3.3Representations and Warranties of Purchaser. Except (i) as disclosed in the Purchaser’s Disclosure Letter, and (ii) for information and documents commonly known as “confidential supervisory information” that is prohibited from disclosure (and as to which nothing in this Agreement shall require disclosure), the Purchaser represents and warrants to the Company that:
(a)Organization and Qualification. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and is registered with the Federal Reserve as a savings and loan holding
company. Purchaser has all requisite corporate power and authority to own, lease and operate its properties and to conduct the business currently being conducted by it. Purchaser is duly qualified or licensed as a foreign corporation to transact business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so qualified or licensed and in good standing would not have a Material Adverse Effect on Purchaser. Purchaser engages only in activities, and holds properties only of the types, permitted to savings and loan holding companies by the HOLA and the rules, regulations and interpretations promulgated thereunder.
(b)Subsidiaries.
(i) Purchaser’s Disclosure Letter sets forth with respect to each of Purchaser’s direct and indirect Subsidiaries its name, its jurisdiction of incorporation and Purchaser’s percentage ownership. Purchaser owns, directly or indirectly, all of the issued and outstanding shares of capital stock or other equity interests of each of its Subsidiaries free and clear of any Liens. There are no contracts, commitments, agreements or understandings relating to Purchaser’s right to vote or dispose of any equity securities of its Subsidiaries. Purchaser’s ownership interest in each of its Subsidiaries is in compliance with all applicable laws, rules and regulations relating to equity investments by savings and loan holding companies or New Jersey-chartered savings banks.
(ii) Each of Purchaser’s Subsidiaries is a corporation duly organized and validly existing under the laws of its jurisdiction of incorporation, has all requisite corporate power and authority to own, lease and operate its properties and to conduct the business currently being conducted by it and is duly qualified or licensed as a foreign corporation to transact business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so qualified or licensed and in good standing would not have a Material Adverse Effect.
(iii) The outstanding shares of capital stock of each Subsidiary have been validly authorized and are validly issued, fully paid and nonassessable. No shares of capital stock of any Subsidiary of Purchaser are or may be required to be issued by virtue of any options, warrants or other rights, no securities exist that are convertible into or exchangeable for shares of such capital stock or any other debt or equity security of any Subsidiary, and there are no contracts, commitments, agreements or understandings of any kind for the issuance of additional shares of capital stock or other debt or equity security of any Subsidiary or options, warrants or other rights with respect to such securities.
(iv) Kearny Bank is a New Jersey-chartered savings bank. No Subsidiary of Purchaser other than Kearny Bank is an “insured depository institution” as defined in the Federal Deposit Insurance Act, as amended, and the applicable regulations thereunder. Kearny Bank deposits are insured by the FDIC through the Deposit Insurance Fund to the fullest extent permitted by law. Kearny Bank is a member in good standing of the FHLB and owns the requisite amount of stock therein.
(c)Capital Structure.
(i) The authorized capital stock of Purchaser consists of 800,000,000 shares of Purchaser Common Stock, par value $0.01 per share, and 100,000,000 shares of preferred stock, par value $0.01 per share.
(ii) As of the date of this Agreement, (A) 81,067,84885,412,062 shares of Purchaser Common Stock are issued and outstanding, all of which are validly issued, fully paid and nonassessable and were issued in full compliance with all applicable laws and not in violation of any preemptive rights; (B) no shares of Purchaser preferred stock are issued and outstanding; and (C) 4,072,308512,334 shares of Purchaser Common Stock are reserved for issuance pursuant to outstanding grants or awards under Purchaser’s stock-based benefit plans.
(iii) The shares of Purchaser Common Stock to be issued in exchange for shares of Company Common Stock upon consummation of the Merger in accordance with this Agreement have been duly authorized and when issued in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable and subject to no preemptive rights.
(iv) No bonds, debentures, notes or other indebtedness having the right to vote on any matters on which stockholders of Purchaser may vote are issued or outstanding.
(v) Except as set forth in thisSection 3.3(c), as of the date of this Agreement, (A) no shares of capital stock or other voting securities of Purchaser are issued, reserved for issuance or outstanding, and (B) other than options to purchase shares of Purchaser Common Stock, neither the Company nor any of its Subsidiaries has or is bound by any outstanding subscriptions, options, warrants, calls, rights, convertible securities, commitments or agreements of any character obligating Purchaser 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 Purchaser (including any rights plan or agreement) or obligating Purchaser or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, right, convertible security, commitment or agreement. Neither Purchaser nor any of its Subsidiaries has or is bound by any rights of any character relating to the purchase, sale or issuance or voting of, or right to receive dividends or other distributions on shares of Purchaser Common Stock, or any other security of Purchaser or a Subsidiary of Purchaser or any securities representing the right to vote, purchase or otherwise receive any shares of Purchaser Common Stock or any other security of Purchaser or a Subsidiary of Purchaser. Other than as stated herein, there are no outstanding securities or instruments that contain any redemption or similar provisions, and there are no outstanding contractual obligations of Purchaser or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of Purchaser or any of its Subsidiaries.
(d)Authority. Purchaser has all requisite corporate power and authority to enter into this Agreement, to perform its obligations hereunder and, subject to the consents, approvals and filings set forth inSection 3.3(f), to
consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate actions on the part of Purchaser’s Board of Directors, and no other corporate proceedings on the part of Purchaser are necessary to authorize this Agreement or to consummate the transactions contemplated by this Agreement other than the approval and adoption of this Agreement by the affirmative vote of the holders of a majority of the outstanding shares of Purchaser Common Stock. Purchaser’s Board of Directors has determined that this Agreement is advisable and has directed that this Agreement be submitted to Purchaser’s stockholders for approval and adoption and has unanimously adopted a resolution to the foregoing effect and recommend that the stockholders adopt this Agreement. This Agreement has been duly and validly executed and delivered by Purchaser and constitutes a valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights and remedies generally and to general principles of equity, whether applied in a court of law or a court of equity.
(e)No Violations. The execution, delivery and performance of this Agreement by Purchaser do not, and the consummation of the transactions contemplated by this Agreement will not, (i) assuming that the consents, approvals and filings referred to inSection 3.3(f)have been obtained and the applicable waiting periods have expired, violate any law, rule or regulation or any judgment, decree, order, governmental permit or license to which Purchaser or any of its Subsidiaries (or any of their respective properties) is subject, (ii) violate the articles of incorporation or bylaws of Purchaser or the similar organizational documents of any of its Subsidiaries or (iii) constitute a breach or violation of, or a default under (or an event that, 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 upon any of the properties or assets of Purchaser 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 Purchaser or any of its Subsidiaries is a party, or to which any of their respective properties or assets may be subject.
(f)Consents and Approvals. Except for (i) filings of applications and notices with, receipt of approvals or no objections from, and the expiration of related waiting periods required by, federal and state banking authorities, including filings and notices with the Federal Reserve, the FDIC and the NJ Department, and the OCC, (ii) the filing with the SEC of a Joint Proxy Statement-Prospectus in definitive form relating to the meetingsmeeting of the Company’s and Purchaser’s stockholders to be held in connection with this Agreement and the transactions contemplated hereby and of the Registration Statement in which such proxy statement will be included as a prospectus, and declaration of effectiveness of the Registration Statement, (iii) the filing of the Articles of Merger with the Maryland Department pursuant to the MGCL and the filing of a certificate for the Bank Merger with the NJ Department, and the filing of a notice for the Bank Merger with the OCC, (iv) filing with The Nasdaq Stock Market LLC of a notification of the listing of the shares of Purchaser Common Stock to be issued in the Merger, and (v) 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 shares of Purchaser Common Stock pursuant to this Agreement.,Agreement, no consents or approvals of, or filings or registrations with, any Governmental Entity or any third party are required to be made or obtained in connection with the execution and delivery by Purchaser of this Agreement or the consummation by Purchaser of the Merger and the other transactions contemplated by this Agreement, including the Bank Merger. As of the date hereof, Purchaser has no Knowledge of any reason pertaining to Purchaser why any of the approvals referred to in thisSection 3.3(f) should not be obtained without the imposition of any material condition or restriction described inSection 6.2(e).
(g)Governmental Filings. Purchaser and each of its Subsidiaries has filed all reports, schedules, registration statements and other documents that it has been required to file since January 1, 20142019 with the Federal Reserve, the FDIC,
the NJ Department, or any other Governmental Entity. As of their respective dates, each of such filings complied in all material respects with all laws or regulations under which it was filed (or was amended so as to be in compliance promptly following discovery of such noncompliance).
(h)Securities Filings. Purchaser has filed with the SEC all reports, schedules, registration statements, definitive proxy statements and exhibits thereto that it has been required to file under the Securities Act or the Exchange Act since JulyJanuary 1, 20142019 (collectively, “Purchaser Reports”). None of Purchaser Reports contained any untrue statement of a material fact or omitted 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. As of their respective dates of filing with the SEC, all of Purchaser Reports complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder. Each of the financial statements (including, in each case, any notes thereto) of Purchaser included in Purchaser 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.
(i)Financial Statements. Purchaser has previously made available to the Company copies of (i) the consolidated statements of financial condition of Purchaser and its Subsidiaries as of June 30, 20172019 and 20162018 and related consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity and cash flows for each of the three years in the three-year period ended June 30, 2017,2019, together with the notes thereto, accompanied by the audit report of Purchaser’s independent registered public accounting firm, as reported in Purchaser’s Annual Report on Form10-K for the year ended June 30, 20172019 filed with the SEC. Such financial statements were prepared from the books and records of Purchaser and its Subsidiaries, fairly present the consolidated financial position of Purchaser and its Subsidiaries in each case at and as of the dates indicated and the consolidated results of operations and cash flows of Purchaser and its Subsidiaries for the periods indicated, and, except as otherwise set forth in the notes thereto, were prepared in accordance with GAAP consistently applied throughout the periods covered thereby;provided, however, that the unaudited financial statements for interim periods are subject to normalyear-end adjustments (which will not be material individually or in the aggregate) and lack footnotes to the extent permitted under applicable regulations. The books and records of Purchaser and its Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and any other legal and accounting requirements and reflect only actual transactions.
(j)Undisclosed Liabilities. Neither Purchaser nor any of its Subsidiaries has incurred any debt, liability or obligation of any nature whatsoever (whether accrued, contingent, absolute or otherwise and whether due or to become due) other than liabilities reflected on or reserved against in the consolidated balance sheet of Purchaser as of JuneSeptember 30, 2017,2019, except for (i) liabilities incurred since JuneSeptember 30, 20172019 in the ordinary course of business consistent with past practice that, either alone or when combined with all similar liabilities, have not had, and would not reasonably be expected to have, a Material Adverse Effect on Purchaser and (ii) liabilities incurred for legal, accounting, financial advising fees andout-of-pocket expenses in connection with the transactions contemplated by this Agreement.
(k)Absence of Certain Changes or Events. Since JuneSeptember 30, 2017,2019, Purchaser and its Subsidiaries have conducted their respective businesses only in the ordinary and usual course of such businesses consistent with their past practices and there has not been any event or occurrence that has had, or is reasonably expected to have, a Material Adverse Effect on Purchaser.
(l)Litigation.There are no suits, actions or legal, administrative or arbitration proceedings pending or, to the Knowledge of Purchaser, threatened against or affecting Purchaser or any of its Subsidiaries or any property or asset of Purchaser or any of its Subsidiaries that (i) are seeking damages or declaratory relief against Purchaser or any of its Subsidiaries or (ii) challenge the validity or propriety of the transactions contemplated by this Agreement. There are no judgments, decrees, injunctions, orders or rulings of any Governmental Entity or arbitrator outstanding against Purchaser or any of its Subsidiaries or the assets of Purchaser or any of its Subsidiaries. Since January 1, 20142019 (i) there have been no subpoenas, written demands, or document requests received by Purchaser or any of its Subsidiaries from any Governmental Entity and (ii) no Governmental Entity has requested that Purchaser or any of its Subsidiaries enter into a settlement, negotiation or tolling agreement with respect to any matter related to any such subpoena, written demand, or document request.
(m)Absence of Regulatory Actions. Since January 1, 2014,2019, neither Purchaser nor any of its Subsidiaries has been a party to any cease and desist order, written agreement or memorandum of understanding with, or any commitment letter or
similar undertaking to, or has been subject to any action, proceeding, order or directive by any Governmental Entity, or has adopted any board resolutions relating to such matters as are material to the business of Purchaser or its Subsidiaries at the request of any Governmental Entity, or has been advised by any Governmental Entity 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, commitment letter, board resolutions or similar undertaking. To the Knowledge of Purchaser, there are no material unresolved violations, criticisms or exceptions by any Governmental Entity with respect to any report or statement relating to any examinations of Purchaser or its Subsidiaries.
(n)Compliance with Laws. Purchaser and each of its Subsidiaries have complied in all material respects with and are not in material default or violation 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, including without limitation all laws related to data protection or privacy, the Equal Credit Opportunity Act and Regulation B, the Fair Housing Act, the Fair Credit Reporting Act, the Truth in Lending Act and Regulation Z, the Home Mortgage Disclosure Act, the Fair Debt Collection Practices Act, the Electronic Fund Transfer Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Interagency Policy Statement on Retail Sales of Nondeposit Investment Products, the SAFE Mortgage Licensing Act of 2008, the Real Estate Settlement Procedures Act and Regulation X, and any other law relating to bank secrecy, discriminatory lending, financing or leasing practices, money laundering prevention, Sections 23A and 23B of the Federal Reserve Act, the Sarbanes-Oxley Act, and all agency requirements relating to the origination, sale and servicing of mortgage and consumer loans. Purchaser and each of its Subsidiaries has all material 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 no suspension or cancellation of any of them is, to the Knowledge of Purchaser, threatened. Neither Purchaser nor any of its Subsidiaries has been given notice or been charged with any violation of, any law, ordinance, regulation, order, writ, rule, decree or condition to approval of any Governmental Entity that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Purchaser.
(o)Taxes. All federal, state, local and foreign tax returns required to be filed by or on behalf of Purchaser 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 Purchaser or any of its Subsidiaries have been paid in full or adequate provision has been made for any such Taxes on Purchaser’s balance sheet (in accordance with GAAP). To the Knowledge of Purchaser, there is no audit examination, deficiency assessment, tax investigation or refund litigation with respect to any Taxes of Purchaser or any of its Subsidiaries, and no claim has been made in writing by any authority in a jurisdiction where Purchaser or any of its Subsidiaries do not file tax returns that Purchaser 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 Purchaser or any of its Subsidiaries have been paid in full or adequate provision has been made for any such Taxes on Purchaser’s balance sheet (in accordance with GAAP). Purchaser and its Subsidiaries have not executed an extension or waiver of any statute of limitations on the assessment or collection of any tax due that is currently in effect. Purchaser 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 Purchaser and each of its Subsidiaries has timely complied with all applicable information reporting requirements under Part III, Subchapter A of Chapter 61 of the IRC and similar applicable state and local information reporting requirements.
(p)Agreements.
(i) Each contract, arrangement, commitment or understanding (whether written or oral) that is a “material contract” (as such term is defined in Item 601(b)(10) of RegulationRegulation S-K under the Securities Act) to which Purchaser or any of its Subsidiaries is a party or by which Purchaser or any of its Subsidiaries is bound as of the date hereof has been filed as an exhibit to the most recent Annual Report on FormForm 10-K filed by Purchaser, or a Quarterly Report on FormForm 10-Q or Current Report on FormForm 8-K subsequent thereto (each, a “Purchaser Contract”) and neither Purchaser nor any of its Subsidiaries knows of, or has received notice of, any material violation of the above by any of the other parties thereto.
(ii) Each Purchaser Contract is valid and binding on Purchaser or one of its Subsidiaries, as applicable, and in full force and effect, except as, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Purchaser. Purchaser and each of its Subsidiaries has in all material respects performed all obligations
required to be performed by it under each Purchaser Contract. To the Knowledge of Purchaser, each third-party counterparty to each Purchaser Contract has in all material respects performed all obligations required to be performed by it under such Purchaser Contract, and no event or condition exists which constitutes or, after notice or lapse of time or both, will constitute, a material default on the part of Purchaser or any of its Subsidiaries under any such Purchaser Contract.
(q)Labor Matters. Purchaser and its Subsidiaries are in material compliance with all applicable laws respecting employment, retention of independent contractors, employment practices, terms and conditions of employment, and wages and hours. Neither Purchaser 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 Purchaser or any of its Subsidiaries the subject of any proceeding asserting that it has committed an unfair labor practice or seeking to compel it or any such Subsidiary to bargain with any labor organization as to wages and conditions of employment nor, to the Knowledge of Purchaser, has any such proceeding been threatened, nor is there any strike, other labor dispute or organizational effort involving Purchaser or any of its Subsidiaries pending or, to the Knowledge of Purchaser, threatened.
(r)Employee Benefit Plans.
(i) Purchaser’s Disclosure Letter lists all Purchaser Benefit Plans. For purposes of this Agreement, “Purchaser Benefit Plans” mean all employee benefit plans (as defined in ERISA, whether or not subject to ERISA, whether funded or unfunded, and all pension, benefit, retirement, bonus, stock option, stock purchase, restricted stock, stock-based, performance award, phantom equity, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance, retention, employment, consulting, termination, change in control, salary continuation, accrued leave, sick leave, vacation, paid time off, health, medical, disability, life, accidental death and dismemberment, insurance, welfare, fringe benefit and other similar plans, programs, policies, practices or arrangements or other contracts or agreements (and any amendments thereto) to or with respect to which Purchaser or any Subsidiary or any trade or business of Purchaser or any of its Subsidiaries, whether or not incorporated, all of which together with Purchaser would be deemed a “single employer” within the meaning of Section 4001 of ERISA (a “Purchaser ERISA Affiliate”), is a party or has any current or future obligation or that are sponsored, maintained, contributed to or required to be contributed to by Purchaser or any of its Subsidiaries or any Purchaser ERISA Affiliate for the benefit of any current or former employee, officer, director, consultant or independent contractor (or any spouse or dependent of such individual) of Purchaser or any of its Subsidiaries or any Purchaser ERISA Affiliate.
(ii) Purchaser has heretofore made available to the Company true, correct and complete copies of the following documents with respect to each of Purchaser Benefit Plans, to the extent applicable, (i) all plans and trust agreements, (ii) all summary plan descriptions, amendments, modifications or material supplements to any Purchaser Benefit Plan, (iii) where any Purchaser Benefit Plan has not been reduced to writing, a written summary of all the material plan terms, (iii) the annual report (Form 5500), if any, filed with the IRS for the last three (3) plan years and summary annual reports, with schedules and financial statements attached, (iv) the most
recently received IRS determination letter, if any, relating to any Purchaser Benefit Plan, (v) the most recently prepared actuarial report for each Purchaser Benefit Plan (if applicable) for each of the last three (3) years and (vi) copies of material notices, letters or other correspondence with the IRS, DOL or the PBGC.
(iii) EachExcept as set forth in Purchaser’s Disclosure Letter, each Purchaser Benefit Plan has been established, operated and administered in all material respects in accordance with its terms and the requirements of all applicable laws, including ERISA and the IRC. Neither Purchaser nor any of its Subsidiaries has taken any action to take corrective action or made a filing under any voluntary correction program of the IRS, the DOL or any other Governmental Entity with respect to any Purchaser Benefit Plan, and neither Purchaser nor any of its Subsidiaries has any Knowledge of any plan defect that would qualify for correction under any such program.
(iv) Purchaser’s Disclosure Letter identifies each Purchaser Benefit Plan that is intended to be qualified under Section 401(a) of the IRC (the “Purchaser Qualified Plans”). The IRS has issued a favorable determination letter with respect to each Purchaser Qualified Plan and the related trust, which letter has not been revoked (nor has revocation been threatened), and, to the Knowledge of Purchaser, there are no existing circumstances and no events have occurred that could adversely affect the qualified status of any Purchaser Qualified Plan or the exempt status of the related trust or increase the costs relating thereto. No trust funding any Purchaser Benefit Plan is intended to meet the requirements of Section 501(c)(9) of the IRC.
(v) With respect to each Purchaser Benefit Plan that is subject to Title IV or Section 302 of ERISA or Sections 412, 430 or 4971 of the IRC: (i) no such plan is in“at-risk” status for purposes of Section 430 of the IRC, (ii) the present value of accrued benefits under such Purchaser Benefit Plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such Purchaser Benefit Plan’s actuary with respect to such Purchaser Benefit Plan, did not, as of its latest valuation date, exceed the then current fair market value of the assets of such Purchaser Benefit Plan allocable to such accrued benefits, (iii) no reportable event within the meaning of Section 4043(c) of ERISA for which the30-day notice requirement has not been waived has occurred, (iv) all premiums to the PBGC have been timely paid in full, (v) no liability (other than for premiums to the PBGC) under Title IV of ERISA has been or is expected to be incurred by Purchaser or any of its Subsidiaries, and (vi) the PBGC has not instituted proceedings to terminate any such Purchaser Benefit Plan.
(vi) There are no pending or threatened claims (other than claims for benefits in the ordinary course), lawsuits or arbitrations that have been asserted or instituted, and, to Purchaser’s Knowledge, no set of circumstances exists that may reasonably be expected to give rise to a claim or lawsuit, against Purchaser Benefit Plans, any fiduciaries thereof with respect to their duties to Purchaser Benefit Plans or the assets of any of the trusts under any of Purchaser Benefit Plans, that could reasonably be expected to result in any material liability of Purchaser or any of its Subsidiaries to the PBGC, the IRS, the DOL, any Multiemployer Plan, a Multiple Employer Plan, any participant in any Purchaser Benefit Plan, or any other party.
(vii) To the Knowledge of Purchaser, none of Purchaser and its Subsidiaries nor any Purchaser ERISA Affiliate nor any other person,Person, including any fiduciary, has engaged in any “prohibited transaction” (as defined in Section 4975 of the IRC or Section 406 of ERISA), which could subject any of Purchaser Benefit Plans or their related trusts, Purchaser, any of its Subsidiaries, any Purchaser ERISA Affiliate or any personPerson that Purchaser or any of its Subsidiaries has an obligation to indemnify, to any material tax or penalty imposed under Section 4975 of the IRC or Section 502 of ERISA.
(s)Properties.
(i) Purchaser and each of its Subsidiaries has good and marketable title to all real property owned by it (including any property acquired in a judicial foreclosure proceeding or by way of a deed in lieu of foreclosure or similar transfer), in each case free and clear of any Liens except (i) liens for Taxes not yet due and payable and (ii) such easements, restrictions and encumbrances, if any, as are not material in character, amount
or extent, and do not materially detract from the value, or materially interfere with the present use of the properties subject thereto or affected thereby. Each lease pursuant to which Purchaser or any of its Subsidiaries as lessee, leases real or personal property is valid and in full force and effect as to Purchaser and the Subsidiaries and neither Purchaser nor any of its Subsidiaries, nor, to Purchaser’s Knowledge, any other party to any such lease, is in default or in violation of any material provisions of any such lease. All real property owned or leased by Purchaser or any of its Subsidiaries are in all material respects in a good state of maintenance and repair (normal wear and tear excepted), conform in all material respects with all applicable ordinances, regulations and zoning laws and are considered by Purchaser to be adequate for the current business of Purchaser and its Subsidiaries.
(ii) Purchaser and each of its Subsidiaries has good and marketable title to all tangible personal property owned by it, free and clear of all Liens except such Liens, if any, that are not material in character, amount or extent, and that do not materially detract from the value, or materially interfere with the present use of the properties subject thereto or affected thereby. With respect to personal property used in the business of Purchaser and its Subsidiaries that is leased rather than owned, neither Purchaser nor any of its Subsidiaries is in default under the terms of any such lease.
(t)Loan Matters.
(i) All Loans held by Purchaser or any of its Subsidiaries were made in all material respects for good, valuable and adequate consideration in the ordinary course of the business, in accordance in all material respects with sound banking practices and, to the Knowledge of Purchaser, the Loans are not subject to any defenses, setoffs or counterclaims, including without limitation any such as are afforded by usury or truth in lending laws, except as may be provided by bankruptcy, insolvency or similar laws or by general principles of equity. The notes or other evidences of indebtedness evidencing such Loans and all forms of pledges, mortgages and other collateral documents and security agreements are, in all material respects, enforceable and valid.
(ii) Neither the terms of any Loan, any of the documentation for any Loan, the manner in which any Loans have been administered and serviced, nor the Purchaser’s practices of approving or rejecting Loan applications, violate in any material respect any federal, state, or local law, rule or regulation applicable thereto, including, without limitation, the Truth In Lending Act, Regulations O and Z of the Federal Reserve, the CRA, the Equal Credit Opportunity Act, and any state laws, rules and regulations relating to consumer protection, installment sales and usury.
(iii) None of the agreements pursuant to which Purchaser or any of its Subsidiaries has sold Loans or pools of Loans or participations in Loans or pools of Loans contains any obligation to repurchase such Loans or interests therein solely on account of a payment default by the obligor on any such Loan.
(u)Anti-takeover Provisions Inapplicable. Purchaser and its Subsidiaries have taken all actions required to exempt Purchaser, the Agreement, the Plan of Bank Merger, the Merger and the Bank Merger from any provisions of an anti-takeover nature contained in their organizational documents, and the provisions of any federal or state “anti-takeover,” “fair price,” “moratorium,” “control share acquisition” or similar laws or regulations.
(v)(u)Corporate Documents and Records. Purchaser has previously provided a complete and correct copy of the Articles of Incorporation, bylaws and similar organizational documents of Purchaser and each of Purchaser’s Subsidiaries, as in effect as of the date of this Agreement. Neither Purchaser nor any of Purchaser’s Subsidiaries is in violation of its Articles of Incorporation, bylaws or similar organizational documents. The minute books of Purchaser and each of Purchaser’s Subsidiaries constitute a complete and correct record of all actions taken by their respective boards of directors (and each committee thereof) and their stockholders.
(w)
(v)CRA, Anti-Money Laundering, OFAC and Customer Information Security. Kearny Bank has received a rating of “Satisfactory” or better in its most recent examination or interim review with respect to the
CRA. Purchaser does not have Knowledge of any facts or circumstances that would cause Kearny Bank or any other Subsidiary of Purchaser: (i) to be deemed not to be in satisfactory compliance in any material respect with the CRA, and the regulations promulgated thereunder, or to be assigned a rating for CRA purposes by federal bank regulators of lower than “Satisfactory”; or (ii) to be deemed to be operating in violation in any material respect of the Bank Secrecy Act, the USA PATRIOT Act, any order issued with respect to anti-money laundering by the U.S. Department of the Treasury’s Office of Foreign Assets Control, or any other applicable anti-money laundering statute, rule or regulation; or (iii) to be deemed not to be in satisfactory compliance in any material respect with the applicable privacy of customer information requirements contained in any federal and state privacy laws and regulations, including without limitation, in Title V of the Gramm-Leach-Bliley Act of 1999 and the regulations promulgated thereunder, as well as the provisions of the information security program adopted by Kearny Bank. To the Knowledge of Purchaser, nonon-public customer information has been disclosed to or accessed by an unauthorized third party in a manner that would cause either Purchaser or any of its Subsidiaries to undertake any remedial action. The Board of Directors of Kearny Bank (or where appropriate of any other Subsidiary of Purchaser) has adopted, and Kearny Bank (or such other Subsidiary of Purchaser) has implemented, an anti-money laundering program that contains adequate and appropriate customer identification verification procedures that comply with Section 326 of the USA PATRIOT Act and such anti-money laundering program meets the requirements in all material respects of Section 352 of the USA PATRIOT Act and the regulations thereunder, and Kearny Bank (or such other Subsidiary of Purchaser) has complied in all material respects with any requirements to file reports and other necessary documents as required by the USA PATRIOT Act and the regulations thereunder.
(x)(w)Internal Controls. Purchaser and its Subsidiaries have devised and maintain a system of internal control over financial reporting as defined in Rule13a-15(f) of the Exchange Act sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets, and (iii) access to assets is permitted only in accordance with management’s general or specific authorization. There are no significant deficiencies or material weaknesses in the design or operation of internal controls over financial reporting that are reasonably likely to adversely affect in any material respect Purchaser’s ability to record, process, summarize and report financial information. To the Knowledge of Purchaser, there has occurred no fraud, whether or not material, that involves management or other employees who have a significant role in Purchaser’s internal controls over financial reporting.
(y)(x)Tax Treatment of the Merger. Purchaser has no Knowledge of any fact or circumstance relating to it that would prevent the transactions contemplated by this Agreement from qualifying as a reorganization under Section 368(a) of the IRC.
(z)(y)Fairness Opinion. The board of directors of Purchaser has received the opinion (which, if initially rendered verbally, has been or will be confirmed by a written opinion, dated the same date) of Keefe, Bruyette & Woods,PNC FIG Advisory, Inc. to the effect that, as of the date of such opinion and subject to the assumptions, limitations and qualifications set forth therein, the Exchange Ratio in the Merger is fair, from a financial point of view, to Purchaser.
(aa)(z)Environmental Matters.
(i) Each of Purchaser’s and its Subsidiaries’ properties and the Participation Facilities, and, to the Knowledge of Purchaser, the Loan Properties, are, and have been during the period of Purchaser’s or its Subsidiaries’ ownership or operation thereof, in material compliance with all Environmental Laws.
(ii) There is no suit, claim, action, demand, executive or administrative order, directive, investigation or proceeding pending or, to the Knowledge of Purchaser, threatened, before any court or
Governmental Entity against Purchaser or any of its Subsidiaries or any Participation Facility (A) for alleged noncompliance (including by any predecessor) with, or liability under, any Environmental Law or (B) 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 Purchaser or any of its Subsidiaries or any Participation Facility.
(iii) To the Knowledge of Purchaser, there is no suit, claim, action, demand, executive or administrative order, directive, investigation or proceeding pending or threatened before any court or Governmental Entity relating to or against any Loan Property (or Purchaser or any of its Subsidiaries in respect of such Loan Property) (A) relating to alleged noncompliance (including by any predecessor) with, or liability under, any Environmental Law or (B) relating to the presence of or release into the environment of any Hazardous Material, whether or not occurring at a Loan Property.
(iv) Neither Purchaser nor any of its Subsidiaries has received in writing any notice, demand letter, executive or administrative order, directive or request for information from any Governmental Entity or any third party indicating that it may be in violation of, or liable under, any Environmental Law.
(v) To the Knowledge of Purchaser, there are no underground storage tanks at any properties owned or operated by Purchaser or any of its Subsidiaries or any Participation Facility. Neither Purchaser nor any of its Subsidiaries nor, to the Knowledge of Purchaser, any other person or entity, has closed or removed any underground storage tanks from any properties owned or operated by Purchaser or any of its Subsidiaries or any Participation Facility.
(vi) During the period of (A) Purchaser’s or its Subsidiary’s ownership or operation of any of their respective current properties or (B) Purchaser’s or its Subsidiary’s participation in the management of any Participation Facility, to the Knowledge of Purchaser, there has been no release of Hazardous Materials in, on, under or affecting such properties except for releases of Hazardous Materials in quantities below the level at which they were regulated under any Environmental Law in effect at the time of such release. To the Knowledge of Purchaser, prior to the period of (A) Purchaser’s or its Subsidiary’s ownership or operation of any of their respective current properties or (B) Purchaser’s or its Subsidiary’s participation in the management of any Participation Facility, there was no contamination by or release of Hazardous Material in, on, under or affecting such properties except for releases of Hazardous Materials in quantities below the level at which they were regulated under any Environmental Law in effect at the time of such release.
(bb)(aa)Insurance. In the opinion of management, Purchaser and its Subsidiaries are presently insured for amounts deemed reasonable by management against such risks as companies engaged in a similar business, including engaging in the transactions contemplated by the Agreement, would, in accordance with good business practice, customarily be insured. All of the insurance policies and bonds maintained by Purchaser and its Subsidiaries are in full force and effect, Purchaser and its Subsidiaries are not in default thereunder, all premiums and other payments due under any such policy have been paid and all material claims thereunder have been filed in due and timely fashion.
(cc)(bb)Intellectual Property;Purchaser IT Systems.
(i) Purchaser and each of its Subsidiaries owns or possesses valid and binding licenses and other rights to use (in the manner and the geographic areas in which they are currently used) without payment all patents, copyrights, trade secrets, trade names, service marks and trademarks material to its business. The Purchaser’s Disclosure Letter sets forth a complete and correct list of all material trademarks, trade names, service marks and copyrights owned by or licensed to Purchaser or any of its Subsidiaries for use in its business, and all licenses and other agreements relating thereto and all agreements relating to third party intellectual property that Purchaser or any of its Subsidiaries is licensed or authorized to use in its business, including without limitation any software licenses but excluding anyso-called “shrink-wrap” license agreements and other similar computer software licensed in the ordinary course of business and/or otherwise resident on desktop
computers (collectively, the “PurchaserIntellectual Property”). With respect to each item of Purchaser Intellectual Property owned by Purchaser or any of its Subsidiaries, the owner possesses all right, title and interest in and to the item, free and clear of any Lien. With respect to each item of Purchaser Intellectual Property that Purchaser or any of its Subsidiaries is licensed or authorized to use, the license, sublicense or agreement covering such item is legal, valid, binding, enforceable and in full force and effect as to Purchaser and the Subsidiaries. Neither Purchaser nor any of its Subsidiaries has received any charge, complaint, claim, demand or notice alleging any interference, infringement, misappropriation or violation with or of any intellectual property rights of a third party (including any claims that Purchaser or any of its Subsidiaries must license or refrain from using any intellectual property rights of a third party). To the Knowledge of Purchaser, neither Purchaser nor any of its Subsidiaries has interfered with, infringed upon, misappropriated or otherwise come into conflict with any intellectual property rights of third parties and no third party has interfered with, infringed upon, misappropriated or otherwise come into conflict with any intellectual property rights of Purchaser or any of its Subsidiaries.
(ii) To Purchaser’s Knowledge, all information technology and computer systems (including software, information technology and telecommunication hardware and other equipment) relating to the transmission, storage,
maintenance, organization, presentation, generation, processing or analysis of data and information, whether or not in electronic format, used in or necessary to the conduct of the business of Purchaser or Kearny Bank (collectively,“Purchaser IT Systems”) have been properly maintained by technically competent personnel, in accordance with standards set by the manufacturers or otherwise in accordance with standards in the industry, to ensure proper operation, monitoring and use. Purchaser IT Systems are in good working condition to effectively perform all information technology operations necessary to conduct Purchaser’s consolidated business as currently conducted. Neither Purchaser nor Kearny Bank has experienced within the past two years any material disruption to, or material interruption in, the conduct of its business attributable to a defect, bug, breakdown or other failure or deficiency of Purchaser IT Systems. No Person has gained unauthorized access to any of the Purchaser IT Systems that has had, or is reasonably expected to have, a Material Adverse Effect on Purchaser. Purchaser and Kearny Bank have taken reasonable measures to provide for theback-up and recovery of the data and information necessary to the conduct of their businesses without material disruption to, or material interruption in, the conduct of their respective businesses. Purchaser and its Subsidiaries are compliant in all material respects with all data protection and privacy laws and regulations as well as their own policies relating to data protection and the privacy and security of personal data and thenon-public personal information of their respective customers and employees, except for immaterial failures to comply or immaterial violations.
(dd)(cc)No Other RepresentationsLoan Matters. All loans reflected as assets in the Purchaser’s financial statements are evidenced by notes, agreements or Warranties.
(i) Except for the representationsother evidences of indebtedness which are true, genuine and warranties made by Purchaser in thisSection 3.3, neither Purchaser nor any other Person makes any express or implied representation or warranty with respect to Purchaser, its Subsidiaries, or their respective businesses, operations, assets, liabilities, conditions (financial or otherwise) or prospects,correct, and Purchaser hereby disclaims any such other representations or warranties. In particular, without limiting the foregoing disclaimer, neither Purchaser nor any other Person makes or has made any representation or warranty to the Company or any of its Affiliates or representatives with respect to (A) any financial projection, forecast, estimate, budget or prospective information relating to Purchaser, any of its Subsidiaries or their respective businesses, or (B) except for the representationsextent secured, are secured by valid liens and warranties made by Purchaser in thisSection 3.3, any oral or written information presented to the Company or any of its Affiliates or representatives in the course of their due diligence investigation of Purchaser, the negotiation of this Agreementsecurity interests which have been perfected, excluding loans, individually or in the courseaggregate, as to which the failure to satisfy the foregoing standards would not have a Material Adverse Effect.
(dd)Available Funds. Purchaser has cash, and immediately prior to the Effective Time, will have cash sufficient to pay the aggregate amount of the transactions contemplated hereby.cash as required pursuant to Section 2.5.
(ii) Purchaser hereby acknowledges and agrees that neither the Company nor any other Person has made or is making any express or implied representation or warranty other than those contained inSection 3.2.
CONDUCT PENDING THE MERGER
4.1Forbearances by the Company. Except as expressly contemplated or permitted by this Agreement, disclosed in the Company’s Disclosure Letter, or to the extent required by law or regulation or any Governmental Entity, during the period from the date of this Agreement to the Effective Time, the Company shall not, nor shall the Company permit any of its Subsidiaries to, without the prior written consent (which may include consent via electronic mail) of Purchaser (which consent shall not be unreasonably withheld, conditioned or delayed):
(a) conduct its business other than in the regular, ordinary and usual course consistent with past practice; fail to use reasonable efforts to maintain and preserve intact its business organization, properties, leases, employees and advantageous business relationships and retain the services of its officers and key employees; or take any action that would adversely affect or materially delay its ability to perform its obligations under this Agreement or to consummate the transactions contemplated hereby;
(b) (i) incur, modify, extend or renegotiate any indebtedness for borrowed money, or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other person,Person, other than (A) the creation of deposit liabilities in the ordinary course of business consistent with past practice and (B) advances from the FHLB with a maturity of not more than ten years;one year;
(ii) prepay any indebtedness or other similar arrangements so as to cause the Company to incur any prepayment penalty thereunder; or
(iii) purchase any brokered certificates of deposit;deposit, except as set forth in the Company Disclosure Letter;
(c) (i) adjust, split, combine or reclassify any capital stock;
(ii) make, declare or pay any dividend, or make any other distribution on its capital stock other than (A) regular quarterly cashstock; provided however, the Company may pay the following dividends on Companyits Common Stock no greater than $0.06 per share with record and payment dates consistent with past practice and (B) dividendsStock: (A) a dividend comparable to any dividend paid by Clifton Savings to enable the Company to pay such dividends;provided, however, thatPurchaser on its Common Stock, after the date hereof,of this Agreement through the Closing, with such Company shall coordinate with Purchaser regardingdividend equal to the declarationPurchaser’s dividend payment per share multiplied by the Exchange Ratio, and the Company’s dividend record date and payment date being the same as those of the Purchaser’s corresponding dividend, and (B) a dividend comprised of the dollar amount of any dividends“Vendor Cost Savings” relating to the Company’s Information Technology Services Agreement, as amended, with Fidelity Information Services, LLC, as such term is defined in respectPurchaser’s Disclosure Letter, to be paid after the date of Company Common Stock andthis Agreement but with a dividend payment date no later than the record dates and payment dates relating thereto, it being the intention of the parties hereto that holders of Company Common Stock shall not receive two (2) dividends for any single calendar quarter with respect to their shares of Company Common Stock and any shares of Purchaser Common Stock that such holders receive in exchange therefor in the Merger;Closing Date;
(iii) grant any personPerson any right to acquire any shares of its capital stock or make any grant or award under the Company Equity Plans;
(iv) issue any additional shares of capital stock or any securities or obligations convertible or exercisable for any shares of its capital stock, except pursuant to the exercise of stock options outstanding as of the date hereof; or
(v) redeem or otherwise acquire any shares of its capital stock other than a security interest or as a result of the enforcement of a security interest and other than as provided in this Agreement;
(d) other than in the ordinary course of business consistent with past practice (including the sale, transfer or disposal of other real estate owned (“OREO”)), (i) sell, transfer, mortgage, encumber or otherwise dispose of any of its real property or other assets to any personPerson other than a Subsidiary, or (ii) cancel, release or assign any indebtedness to any such Person or any claims held by any such Person;
(e) make any equity investment, either by purchase of stock or securities, contributions to capital, property transfers, or purchase of any property or assets of any other person,Person, or form any new subsidiary;
(f) enter into, renew, amend or terminate any material contract, plan or agreement, or make any change in any of its leases or material contracts;
(g) Except for Loans or commitments for Loans that have previously been approved by the Company prior to the date of this Agreement, (i) make, renegotiate, renew, increase the amount of, extend the term of, modify or purchase any Loans, or make any commitment in respect of any of the foregoing, except in conformity with existing lending practices, (ii) make, renegotiate, renew, increase the amount of, extend the term of, modify or purchase any commercial and industrial Loan, not secured by real estate, (iii) make, renegotiate, renew, increase the amount of, extend the term of, modify or purchase any Loan, or make any commitment in respect of any of the foregoing, except (a) in conformity with existing lending practices in amounts not to exceed $150,000 if such Loan is not fully secured $1,500,000or $500,000 if such Loan is fully secured by residential real estate or, $4,000,000$2,000,000 if such Loan is fully secured by commercial or multi-family real estate and the proposed credit facility does not represent an exception to the Company’s existing commercial loan policy, or (b) Loans as to which the Company has a binding obligation to make such Loans (including without limitation lines of credit and letters of credit) as of the date hereof and that are described in the Company’s Disclosure Letter; provided, however, that neither the Company nor any of its Subsidiaries shall make, renegotiate, renew, increase the amount of, extend the term of, modify or purchase any Loan, or make any commitment in respect of any of the foregoing, to any personPerson if when aggregated with all outstanding Loans and commitments for Loans made to such Person and such Person’s family members and Affiliates, the Loans would exceed $10,000,000.$2.0 million, and (iv) make, renegotiate, increase the amount of, extend the term of, modify or purchase any Loan, or make any commitment in respect of any of the foregoing to any religious organization. In the event that Purchaser’s prior written consent is required pursuant to thisSection 4.1(g), such consent shall be deemed to have been provided if Purchaser does not object in writing within two (2) Business Days after Purchaser’s chief credit officer receives a copy of the loanwrite-up containing the information customarily submitted in connection with approval of such loan;
(h) (i) make any new Loan, or commit to make any new Loan, to any director or executive officer of the Company or Clifton Savings,Millington Bank, or any entity controlled, directly or indirectly, by any of the foregoing or (ii) except for Loans made in accordance with Regulation O of the Federal Reserve (12 C.F.R. Part 215), amend, renew or increase any existing Loan, or commit to amend, renew or increase any such Loan, to any director or executive officer of the Company or Clifton Savings,Millington Bank, or any entity controlled, directly or indirectly, by any of the foregoing;
(i) (i) (a) increase in any manner the compensation, bonuses or other fringe benefits of any of its employees or directors other than in the ordinary course of business consistent with past practice and pursuant to policies then in effect, or (b) pay any bonus, pension, retirement allowance or contribution, except for cash bonuses consistent with past practice and as set forth in the Company’s Disclosure Letter;
(ii) become a party to, amend, renew, extend or commit itself to any pension, retirement, profit-sharing or welfare benefit plan or agreement or employment, severance or change in control agreement with or for the benefit of any employee or director, except for amendments to any plan or agreement that are required by law;
(iii) amend, modify or revise the terms of any outstanding stock option or voluntarily accelerate the vesting of, or the lapsing of restrictions with respect to, any stock options or other stock-based compensation; make any contributions to
any defined contribution plan not in the ordinary course of business consistent with past practice; provided, however, the Company will not make any discretionary contributions to the Company’s 401(k) Plan; or make any contribution to the Company ESOP, forgive any indebtedness with respect to the Company ESOP loan or take any action that would cause a release of any suspense shares, except as required by operation of the Company ESOP or in the ordinary course of business consistent with past practice, but in no event more than the minimum amount required pursuant to the Company ESOP Loan amortization schedules as in effect on September 30, 2017;2019; provided, however, the Company shall continue to accrue and pay its quarterly ESOP Loan payments and shall make a pro rata accrual and payment for the month end immediately prior to the Effective Time;
(iv) elect to any office with the title of Senior Vice President or higher any personPerson who does not hold such office as of the date of this Agreement or elect to its Board of Directors any personPerson who is not a member of its Board of Directors as of the date of this Agreement; or
(v) hire any employee with an annualized salary in excess of $50,000 except as may be necessary to replace anynon-officer employee whose employment is terminated, whether voluntarily or involuntarily;
(j) commence any action or proceeding, other than to enforce any obligation owed to the Company or any of its Subsidiaries and in accordance with past practice, or settle any claim, action or proceeding (i) involving payment by it of money damages in excess of $50,000 or (ii) that would impose any material restriction on its operations or the operations of any of its Subsidiaries;
(k) amend its Articles of Incorporation or bylaws, or similar governing documents;
(l) increase or decrease the rate of interest paid on time deposits or on certificates of deposit, except in the ordinary course of business;
(m) purchase or sell any debt security, including mortgage-backed and mortgage-related securities, other than U.S. government and U.S. government agency securities with final maturities of less than one year;
(n) make any capital expenditures in the aggregate in excess of $100,000, other than pursuant to binding commitments existing on the date hereof, which are described in the Company’s Disclosure Letter, and expenditures reasonably necessary to maintain existing assets in good repair;
(o) establish or commit to the establishment of any new branch or other office facilities or file any application to relocate or terminate the operation of any banking office;
(p) enter into any futures contract, option, swap agreement, interest rate cap, interest rate floor, interest rate exchange agreement, or take any other action for purposes of hedging the exposure of its interest-earning assets or interest-bearing liabilities to changes in market rates of interest;
(q) amend the Clifton Savings Bank Asset/Liability and Funds Management Policy (which is included in the Company’s Disclosure Letter), or any interest rate risk policies, plans or strategies of the Company or any of its Subsidiaries in a manner that would reasonably be expected to increase the Company’s or any of its Subsidiaries’ interest rate sensitivity as measured by Clifton Savings’ Economic Value of Equity (“EVE”) or Net Interest Income (“NII”) analysis; provided that any additions, amendments or discontinuation of the Company’s or any of its Subsidiaries’ interest rate risk policies, plans or strategies that would not reasonably be expected to increase the EVE or NII of the Company or any of its Subsidiaries shall be presented to Purchaser within five (5) Business Days after such action is taken;
(r) make any changes in policies in any material respect in existence on the date hereof with regard to: the extension of credit, or the establishment of reserves with respect to possible loss thereon or the charge off of losses incurred thereon; investments; asset/liability management; deposit pricing or gathering; underwriting, pricing, originating, acquiring, selling, servicing or buying or selling rights to service, loans; its hedging practices and policies; or other material banking policies, in each case except as may be required by changes in applicable law or regulations, GAAP, or at the direction of a Governmental Entity;
(s)(r) except as required by law or for communications in the ordinary course of business consistent with past practice that do not relate to the Merger or other transactions contemplated hereby:
(i) issue any communication of a general nature to employees (including general communications relating to benefits and compensation) without prior consultation with Purchaser and, to the extent relating to post-Closing employment, benefit or compensation information, without the prior consent of Purchaser (which shall not be unreasonably withheld, conditioned or delayed); or
(ii) issue any communication of a general nature to customers without the prior approval of Purchaser (which shall not be unreasonably withheld, conditioned or delayed);
(t)(s) except with respect to foreclosures in process as of the date hereof, foreclose upon or take a deed or title to any commercial real estate (i) without providing prior notice to Purchaser and conducting a Phase I environmental assessment of the property, or (ii) if the Phase I environmental assessment referred to in the prior clause reflects the presence of any Hazardous Material or underground storage tank;
(u)(t) make, change or rescind any material election concerning Taxes or Tax Returns, file any amended Tax Return, enter into any closing agreement with respect to Taxes, settle or compromise any material Tax claim or assessment, or surrender any right to claim a refund of Taxes or obtain any Tax ruling;
(v)(u) take any action that is intended or expected to result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time prior to the Effective Time, or in any of the conditions to the Merger set forth in Article VI not being satisfied or in a violation of any provision of this Agreement;
(w)(v) implement or adopt any change in its accounting principles, practices or methods, other than as may be required by GAAP or regulatory guidelines;
(x)(w) enter into any new lines of business;
(y)(x) purchase or sell any mortgage loan servicing rights other than in the ordinary course of business consistent with past practice;
(z)(y) merge or consolidate Clifton SavingsMillington Bank or any Subsidiary with any other corporation or restructure, reorganize or completely or partially liquidate or dissolve it or any of its Subsidiaries;
(aa)(z) knowingly take action that would prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368 of the IRC; or
(bb)(aa) agree to take, make any commitment to take, or adopt any resolutions of its Board of Directors in support of, any of the actions prohibited by thisSection 4.1.
Any request by the Company or response thereto by Purchaser shall be made in accordance with the notice provisions ofSection 8.7 and shall note that it is a request pursuant to thisSection 4.1.
4.2Forbearances by Purchaser. Except as expressly contemplated or permitted by this Agreement or to the extent required by law or regulation or any Governmental Entity, during the period from the date of this Agreement to the Effective Time, Purchaser shall maintain its rights and franchises in all material respects, and shall not, nor shall Purchaser permit any of its Subsidiaries to, without the prior written consent (which may include consent via electronic mail) of the Company (which consent shall not be unreasonably withheld, conditioned or delayed):
(a) conduct its business other than in the regular, ordinary and usual course consistent with past practice; fail to use reasonable efforts to maintain and preserve intact its business organization, properties, leases, employees and advantageous business relationships and retain the services of its officers and key employees;
(b) take any action that would adversely affect or materially delay its ability to perform its obligations under this Agreement or to consummate the transactions contemplated hereby;
(c) make, declare or pay any dividend, or make any distribution on its capital stock, except for regularly quarterly cash dividends, and dividends paid by Kearny Bank to enable Purchaser to pay such dividends; or increase such dividend, except for dividend increases consistent with past practice;
(d) take any action that is intended to or expected to result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time prior to the Effective Time, or in any of the conditions to the Merger set forth in Article VI not being satisfied or in a violation of any provision of this Agreement;
(e)(d) knowingly take action that would prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368 of the IRC;
(f)(e) agree to take, make any commitment to take, or adopt any resolutions of its Board of Directors in support of, any of the actions prohibited by thisSection 4.2; or
(g)
(f) amend, repeal or modify any provision of its Articles of Incorporation or Bylaws in a manner that would materially and adversely affect the Company or any Company stockholder orthe ability to consummate the transactions contemplated by this Agreement.
COVENANTS
(a) From the date of this Agreement until the earlier to occur of the Closing or the termination of this Agreement in accordance with its terms, the Company shall not, and shall not authorize or permit any of its Subsidiaries or any of its Subsidiaries’ officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative retained by the Company or any of its Subsidiaries to, directly or indirectly, (i) solicit, initiate, induce or encourage, or take any other action to facilitate, any inquiries, offers discussions or the making of any proposal that constitutes or could reasonably be expected to lead to an Acquisition Proposal, (ii) furnish any confidential ornon-public information or data regarding the Company or any of its Subsidiaries or afford access to any such information or data to any Person in connection with or in response to an Acquisition Proposal or an inquiry or indication of interest that would reasonably be expected to lead to an Acquisition Proposal, (iii) continue or otherwise participate in any discussions or negotiations, or otherwise communicate in any way with any personPerson (other than Purchaser), regarding an Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition Proposal, (v) release any personPerson from, waive any provisions of, or fail to use its reasonable best efforts to enforce any confidentiality agreement or standstill agreement to which the Company is a party or (vi) enter into or consummate any agreement, agreement in principle, letter of intent, arrangement or understanding contemplating any Acquisition Proposal or requiring the Company to abandon, terminate or fail to consummate the transactions contemplated hereby. Without limiting the foregoing, it is understood that any violation of the restrictions set forth in the preceding sentence by any officer, director or employee of the Company or any of the Subsidiaries or any investment banker, financial advisor, attorney, accountant or other representative retained by the Company or any of its Subsidiaries shall be deemed to be a breach of thisSection 5.1 by the Company. Notwithstanding the foregoing, prior to the adoption and approval of this Agreement by the Company’s stockholders at the Company Stockholder Meeting, thisSection 5.1(a) shall not prohibit the Company from furnishingnon-public information regarding the Company and its Subsidiaries to, or entering into discussions with, any personPerson in response to an Acquisition Proposal that is submitted to the Company by such Person (and not withdrawn) if (1) the Acquisition Proposal constitutes or is reasonably expected to result in a Superior Proposal, (2) the Company has not breached any of the covenants set forth in thisSection 5.1, (3) the Company’s Board of Directors determines in good faith, after consultation with outside legal counsel, that the failure to take such action would reasonably be expected to violate the directors’ fiduciary obligations to the Company’s stockholders under applicable law, and (4) prior to furnishing anynon-public information to, or entering into discussions with, such Person, the Company gives Purchaser written notice of the identity of such Person and of the Company’s intention to furnishnon-public information to, or enter into discussions with, such Person and the Company receives from such Person an executed confidentiality agreement on terms no more favorable to such Person than the confidentiality agreement between Purchaser and the Company is to Purchaser.
(b) The Company will notify Purchaser orally within twenty-four hours and in writing (within three (3) calendar days) of receipt of any Acquisition Proposal, any request fornon-public information that could reasonably be expected to lead to an Acquisition Proposal, or any inquiry with respect to or that could reasonably be expected to lead to an Acquisition Proposal, including, in each case, the identity of the Person making such Acquisition Proposal, requestrequires or inquiry and the terms and conditions thereof, and shall provide to Purchaser any written materials received by the Company or any of its Subsidiaries in connection therewith. The Company will keep Purchaser informed of any developments with respect to any such Acquisition Proposal, request or inquiry promptly orally (within one (1) calendar day)within twenty-four hours and in writing (within three (3) calendar days) upon the occurrence thereof.
(c) The Company will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted prior to the date of this Agreement with respect to any of the foregoing. The Company shall not, without the prior written consent of Purchaser, release any third party from, or waive any provisions of, any confidentiality agreements or standstill agreement to which it or any of its Subsidiaries is a party.
5.2Advice of Changes. Prior to the Closing, each party shall promptly advise the other party orally and in writing to the extent that it has Knowledge of (i) any representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate in any material respect or (ii) the failure by it to comply in any material respect with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement;provided,however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement.
(a) Upon reasonable notice and subject to applicable laws relating to the exchange of information, each of Purchaser and the Company, for purposes of verifying the representations and warranties of the other and preparing for the Merger and other matters contemplated by this Agreement, shall (and shall cause its respective Subsidiaries to) afford to the other party and its representatives (including, without limitation, officers and employees of the other party and its Affiliates and counsel, accountants and other professionals retained by the other party) such reasonable access during normal business hours throughout the period prior to the Effective Time to the books, records, contracts, properties, personnel,Personnel, information technology services and to such other information relating to the other party and its Subsidiaries as may be reasonably requested, except where such materials relate to (i) matters involving this Agreement, (ii) pending or threatened litigation or investigations if, in the opinion of counsel, the presence of such designees would or might adversely affect the confidential nature of, or any privilege relating to, the matters being discussed, or (iii) matters involving an Acquisition Proposal;provided, however,that no investigation pursuant to thisSection 5.3 shall affect or be deemed to modify any representation or warranty made in this Agreement. Neither party 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 its customers, jeopardize the attorney-client privilege of the entity in possession or control of such information 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 will make appropriate and reasonable substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply.
(b) From the date hereof until the Effective Time, the Company shall, and shall cause its respective Subsidiaries to, promptly provide to Purchaser (i) a copy of each report filed with a Governmental Entity (other than publicly available periodic reports filed with the SEC), (ii) a copy of each periodic report to its senior management and all materials relating to its business or operations furnished to its Board of Directors, (iii) a copy of each press release made available to the public and (iv) all other information concerning its business, properties and personnelPersonnel as may be reasonably requested, provided that Purchaser shall not be entitled to receive reports or other documents relating to (x) matters involving this Agreement, (y) pending or threatened litigation
or investigations if, in the opinion of counsel, the disclosure of such information would or might adversely affect the confidential nature of, or any privilege relating to, the matters being discussed, or (z) matters involving an Acquisition Proposal.
(c) The Company and Purchaser will not, and will cause its respective representatives not to, use any information and documents obtained in the course of the consideration of the consummation of the transactions contemplated by this Agreement, including any information obtained pursuant to thisSection 5.3, for any purpose unrelated to the consummation of the transactions contemplated by this Agreement and to hold such information and documents in confidence and treat such information and documents as secret and confidential and to use all reasonable efforts to safeguard the confidentiality of such information and documents.
(d) Following the receipt of all regulatory approvals, the Company shall give notice, and shall cause Clifton Savings to give notice, to a designee of Purchaser, and shall invite such person to attend all regular and special meetings of the Board of Directors of the Company and Clifton Savings during the thirty (30) days prior to the Closing Date. The Company’s Disclosure Schedule sets forth the regularly scheduled meetings of the Boards of Directors of the Company and Clifton Savings to be held in 2017 and 2018, which disclosure is hereby deemed to constitute notice of and an invitation to Purchaser’s designee to attend such meetings. Purchaser shall have one designee attend any such board meetings. Such designee shall have no right to vote and shall not attend sessions of the Boards of Directors or committees thereof during which there is being discussed (i) matters involving this Agreement, (ii) pending or threatened litigation or investigations if, in the opinion of counsel to the Company, the presence of such designees would or might adversely affect the confidential nature of, or any privilege relating to, the matters being discussed, or (iii) matters involving an Acquisition Proposal.
(e) From and after the date hereof, representatives of Purchaser and the Company shall meet on a regular basis to discuss and plan for the conversion of the Company’s and its Subsidiaries’ data processing and related electronic informational systems to those used by Purchaser and its Subsidiaries with the goal of conducting such conversion simultaneously with the consummation of the Bank Merger or as soon thereafter as possible.
(f)(e) Within ten (10) Business Days of the end of each calendar month, the Company shall provide Purchaser with an updated list of Loans described inSection 3.2(x)(vi).
(g)(f) The information regarding the Company and its Subsidiaries to be supplied by Company for inclusion in the Registration Statement, any filings or approvals under applicable state securities laws, or any filing pursuant to Rule 165 or Rule 425 under the Securities Act or RuleRule 14a-12 under the Exchange Act will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Joint Proxy Statement-Prospectus (except for such portions thereof that relate only to Purchaser or any of its Subsidiaries) will comply as to form in all material respects with
the provisions of the Exchange Act and the rules and regulations thereunder. The information supplied, or to be supplied, by the Company for inclusion in applications to Governmental Entities to obtain all permits, consents, approvals and authorizations necessary or advisable to consummate the transactions contemplated by this Agreement shall be accurate in all material respects.
(h)(g) The information regarding Purchaser and its Subsidiaries to be supplied by Purchaser for inclusion in the Registration Statement, any filings or approvals under applicable state securities laws, or any filing pursuant to Rule 165 or Rule 425 under the Securities Act or RuleRule 14a-12 under the Exchange Act will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Joint Proxy Statement-Prospectus (except for such portions thereof supplied by the Company or any of its Subsidiaries) will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder. The Registration Statement will comply as to form in all material respects with the provisions of the Securities Act and the rules and regulations thereunder.
(i) Within twenty (20) Business Days of each month end, beginning October 31, 2017, the Company shall provide to Purchaser a report from Darling Consulting Group, Inc. (or if Darling Consulting Group, Inc. is not available to produce such report, a consultant as agreed to by both parties) detailing its interest-rate sensitivity as measured by the Company’s EVE and NII. Such report shall include the sensitivity of the Company’s NII and EVE as of the relevant month end to all interest rate ramp and shock scenarios presented in the Clifton Savings Bank Asset/Liability Management Review as of June 30, 2017 (which is included in the Company’s Disclosure Letter). The Company will provide to Purchaser such other information related to the Company’s interest-rate sensitivity as may be reasonably requested.
(a) The parties hereto shall cooperate with each other and shall use their reasonable best efforts to prepare and file as soon as practicable after the date hereof, all necessary applications, notices and filings to obtain all permits, consents, approvals and authorizations of all Governmental Entities that are necessary or advisable to consummate the transactions contemplated by this Agreement. The Company and Purchaser shall furnish each other with all information concerning themselves, their respective Subsidiaries, and their respective Subsidiaries’ directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with any application, notice or filing made by or on behalf of Purchaser, the Company or any of their respective Subsidiaries to any Governmental Entity in connection with the transactions contemplated by this Agreement. Purchaser and the Company shall have the right to review in advance, and to the extent practicable each will consult with the other on, all the information relating to Purchaser and the Company, as the case may be, and any of their respective Subsidiaries, that appears in any filing made with, or written materials submitted to, any Governmental Entity pursuant to thisSection 5.4(a).
(b) As soon as practicable after the date hereof, each of the parties hereto shall, and they shall cause their respective Subsidiaries to, use its reasonable best efforts to obtain any consent, authorization or approval of any third party that is required to be obtained in connection with the transactions contemplated by this Agreement.
(c) Purchaser and the Company shall promptly advise each other upon receiving any communication from any Governmental Entity whose consent or approval is required for consummation of the transactions contemplated by this Agreement that causes such party to believe that there is a reasonable likelihood that such consent or approval will not be obtained or that the receipt of any such required consent or approval will be materially delayed.
5.5Anti-takeover Provisions. The Company 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 Purchaser, the Agreement, the Plan of Bank Merger, the Merger and the Bank Merger from any provisions of an anti-takeover nature in the Company’s or its Subsidiaries’ Articles of Incorporation and bylaws, or similar organizational documents, and the provisions of any federal or state anti-takeover laws.
5.6Additional 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 as expeditiously as possible, including using efforts to obtain all necessary actions ornon-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.
5.7Publicity. The initial press release announcing this Agreement shall be a joint press release. Thereafter, the Company and Purchaser shall consult with each other prior to issuing any press releases or otherwise making
public statements (including any written communications to stockholders) with respect to the Merger and any other transaction contemplated hereby and in making any filings with any Governmental Entity that are related to the transactions contemplated by this Agreement;provided, however, that nothing in thisSection 5.7 shall be deemed to prohibit any party from making any disclosure that its counsel deems necessary to satisfy such party’s disclosure obligations imposed by law.
5.8 Stockholder Meetings.Meeting.
(a) Purchaser and theThe Company will each submit to its respective stockholders this Agreement and any other matters required to be approved or adopted by stockholders to carry out the intentions of this Agreement. In furtherance of that obligation, Purchaser and the Company each will take, in accordance with applicable law and its Articles of Incorporation and bylaws, all action necessary to call, give notice of, convene and hold a meeting of its stockholders (the meeting of the stockholders of the Company referred to herein as the “Company Stockholder Meeting” and the meeting of the stockholders of Purchaser referred to herein as the “Purchaser Stockholder Meeting”) as promptly as practicable to consider and vote on approval and adoption of this Agreement and the transactions provided for in this Agreement. Each of Purchaser and, subjectSubject toSection 5.8(b), the Company shall, (i) through its Board of Directors, recommend to its stockholders adoption of this Agreement, (ii) include such recommendation in the Joint Proxy Statement-Prospectus and (iii) use commercially reasonable efforts to obtain from its stockholders a vote approving and adopting this Agreement, including but not limited to the solicitation of proxies and promotion of the transaction contemplated by this Agreement.
(b) Notwithstanding anything in this Agreement to the contrary, at any time prior to the Company Stockholder Meeting, the Company’s Board of Directors may, solely in response to an Acquisition Proposal and only if it concludes in good faith (after consultation with its outside legal advisors) that the failure to do so would be reasonably likely to result in a violation of its fiduciary duties under applicable law, withdraw, modify or change its recommendation that the stockholders of the Company approve this Agreement in a manner adverse to Purchaser (a “Change of Recommendation”); provided that prior to any such Change of Recommendation, the Company shall have complied in all material respects withSection 5.1, given Purchaser written notice promptly (and in any event within twenty-four (24) hours) advising it of the decision of the Company’s Board of Directors to take such action and if the decision relates to an Acquisition Proposal, given Purchaser the material terms and conditions of the Acquisition Proposal or inquiry, including the identity of the Person making any such Acquisition Proposal; and provided, further, that if the decision relates to an Acquisition Proposal:: (i) the Company shall have given Purchaser three (3) Business Days after delivery of such notice to Purchaser to propose revisions to the terms of this Agreement (or make another proposal) and if Purchaser proposes to revise the terms of this Agreement, the Company shall have negotiated in good faith with Purchaser with respect to such proposed revisions or other proposal; and (ii) the Company’s Board of Directors shall have determined in good faith, after considering the results of such negotiations and giving effect to any proposals, amendments or modifications made or agreed to by Purchaser, if any, that such Acquisition Proposal constitutes a Superior Proposal. If the Company’s Board of Directors does not make the determination that such Acquisition Proposal constitutes a Superior Proposal and thereafter determines not to withdraw, modify or change its recommendation that the stockholders of the Company approve this Agreement in connection with a new Acquisition Proposal, the procedures referred to above shall apply anew and shall also apply to any subsequent withdrawal, amendment or change. In the event of any material revisions to the Acquisition Proposal that result in terms that are less favorable to the Company, the Company shall be required to deliver a new written notice to Purchaser and to again comply with the requirements of thisSection 5.8(b) with respect to such new written notice, except that the three (3) Business Day period referred to above shall be reduced to two (2) Business Days. In addition to the foregoing, the Company shall not submit to the vote of its stockholders any Acquisition Proposal other than the Merger.
5.9 Registration of Purchaser Common Stock.
(a) As promptly as reasonably practicable following the date hereof, Purchaser shall prepare and file the Registration Statement with the SEC. The Registration Statement shall contain proxy materials relating to the matters to be submitted to each of Purchaser and the Company stockholders at the respective stockholders
meetingCompany Stockholder Meeting and shall also constitute the prospectus relating to the shares of Purchaser Common Stock to be issued in the Merger (such proxy statement/prospectus, and any amendments or supplements thereto, the “Joint Proxy Statement-Prospectus”). The Company will furnish to Purchaser the information required to be included in the Registration Statement with respect to its business and affairs and shall have the right to review and consult with Purchaser and approve the form of, and any characterizations of such information included in, the Registration Statement prior to its being filed with the SEC. Purchaser shall use its reasonable best efforts to have the Registration Statement declared effective by the SEC and to keep the Registration Statement effective as long as is necessary to consummate the Merger and the transactions contemplated hereby. Purchaser and theThe Company each will use its reasonable best efforts to cause the Joint Proxy Statement-Prospectus to be mailed to its respective stockholders as promptly as practicable after the Registration Statement is declared effective under the Securities Act. Purchaser will advise the Company, promptly after it receives notice thereof, of the time when the Registration Statement has become effective, the issuance of any stop order, the suspension of the qualification of Purchaser Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the SEC for amendment of the Joint Proxy Statement-Prospectus or the Registration Statement. If at any time prior to the Effective Time any information relating to Purchaser or the Company, or any of their respective Affiliates, officers or directors, should be discovered by Purchaser or the Company that should be set forth in an amendment or supplement to any of the Registration Statement or the Joint Proxy Statement-Prospectus so that any of such documents would not
include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the party that discovers such information shall promptly notify the other party hereto and, to the extent required by law, rules or regulations, an appropriate amendment or supplement describing such information shall be promptly filed by Purchaser with the SEC and disseminated by the Company to the stockholders of the Company.
(b) Purchaser shall also take any action required to be taken under any applicable state securities laws in connection with the Merger and each of the Company and Purchaser shall furnish all information concerning it and the holders of Company Common Stock as may be reasonably requested in connection with any such action.
(c) Prior to the Effective Time, Purchaser shall notify The Nasdaq Stock Market LLC of the additional shares of Purchaser Common Stock to be issued by Purchaser in exchange for the shares of Company Common Stock.
5.10Notification of Certain Matters. Each party shall give prompt notice to the other of: (i) 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 (ii) any event, condition, change or occurrence that individually or in the aggregate has, or that, 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 the Company and Purchaser 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.
5.11 Employee Benefit Matters.
(a) Purchaser shall honor the Company Benefit Plans set forth in the Company’s Disclosure Letter in accordance with the terms of such Company Benefit Plans, except to the extent an alternative treatment is set forth in thisSection 5.11 or inSections 2.10 or2.11 of this Agreement. Following the Effective Time, Purchaser shall maintain or cause to be maintained employee benefit plans and compensation opportunities for the benefit of all Persons who are employees of the Company and its Subsidiaries immediately prior to the Effective Time and whose employment is not specifically terminated at or prior to the Effective Time (a “Continuing Employee”) that, in the aggregate are substantially comparable to the employee benefit and compensation
opportunities that are generally made available to similarly situated employees of Purchaser or its Subsidiaries;provided, however, in no event shall any Continuing Employee be eligible to participate in any frozen plan of Purchaser or its Subsidiaries.
(b) At the sole discretion of Purchaser, Purchaser may maintain the Company’s health and welfare plans through the end of the calendar year in which the Effective Time occurs. Notwithstanding the foregoing, if Purchaser determines to terminate one or more of Company’s health and/or welfare plans, then at the request of Purchaser made at least thirty (30) days prior to the Effective Time, the Company shall adopt resolutions, to the extent required, providing that one or more of the Company’s health and welfare plans (excluding any plans that are mutually agreed to in writing between the parties) will be terminated effective immediately prior to the Effective Time (or such later date as requested by Purchaser in writing or as may be required to comply with any applicable advance notice or other requirements contained in such plans) and shall arrange for termination of all corresponding insurance policies, service agreements and related arrangements effective on the same date to the extent not prohibited by the terms of such arrangements. Notwithstanding the foregoing, no coverage of any of the Continuing Employees or their dependents shall terminate under any of the Company’s health and welfare plans prior to the time such Continuing Employees or their dependents, as applicable, become eligible to participate in the health plans, programs and benefits common to all employees of Purchaser and its Subsidiaries and their dependents and, consequently, no Continuing Employee shall experience a gap in coverage. Continuing Employees who become covered under health plans, programs and benefits of Purchaser or any of its Subsidiaries shall receive credit for anyco-payments and deductibles paid under the Company’s health plan for the plan year in which coverage commences under Purchaser’s health plan and shall not be subject to anypre-existing conditions under any such plans. Terminated Company employees and qualified beneficiaries will have the right to continued coverage under group health plans of Purchaser in accordance with COBRA.
(c) Purchaser shall cause each Purchaser Benefit Plan in which Continuing Employees are eligible to participate to take into account for purposes of eligibility and vesting under the Purchaser Benefit Plans (but not for purposes of benefit accrual) the service of such employees with Company to the same extent as such service was credited for such purpose by
Company; provided, however, that such service shall not be recognized: (i) under the Purchaser’s ESOP, (ii) to the extent that such recognition would result in a duplication of benefits under any of the Purchaser Benefit Plans, or (iii) to the extent, at the sole discretion of Purchaser, the cash value of unused paidtime-off is paid to Continuing Employees at the Effective Time. The value of each Company employee’s unused paidtime-off is set forth in the Company’s Disclosure Letter. This Agreement shall not be construed to limit the ability of Purchaser to terminate the employment of any Company employee or to review any employee benefit plan or program from time to time and to make such changes (including terminating any such plan or program) as PurchaserCompany deems appropriate.
(d) The Company shall take all necessary and appropriate actions to cause the Company 401(k) Planplan to be frozen as to future contributions effective immediately prior to the Effective Time and Purchaser shall take all necessary and appropriate actions to allow the Continuing Employees to participate in Purchaser’s 401(k) Plan on the first day immediately following the Effective Time. If requested in writing by Purchaser no later than thirty (30) days prior to Closing, the Company will also take all necessary steps to terminate the CompanyCompany’s 401(k) Planplan immediately prior to the Effective Time, subject to the occurrence of the Effective Time, and if further requested, shall prepare and submit a request to the IRS for a favorable determination letter on termination. If Purchaser requests that the Company apply for a favorable determination letter, then prior to the Effective Time, Company shall take all such actions as are necessary (determined in consultation with Purchaser) to submit the application for favorable determination letter in advance of the Effective Time, and following the Effective Time, Purchaser shall use its best efforts in good faith to obtain such favorable determination letter as promptly as possible (including, but not limited to, making such changes to the Company 401(k) Plan as may be required by the IRS as a condition to its issuance of a favorable determination letter). Prior to the Effective Time, the Company, and following the Effective Time, Purchaser, will adopt such amendments to the Company 401(k) Plan to effect the provisions of thisSection 5.11(d)5.11(c). In the event Purchaser requests the Company to submit an application to the IRS for a determination letter, Company 401(k) Plan participants who are terminated at or after the Closing, but
prior to the receipt of the IRS determination letter, may elect to receive a distribution from the Company 401(k) Plan upon termination of their employment. Purchaser shall take any and all actions as may be required to permit Continuing Employees to roll over their account balances in the Company’s 401(k) Plan into Purchaser’s 401(k) Plan; however, plan loans may not be rolled over into Purchaser’s 401(k) Plan.
(e) Purchaser agrees that each full-time Company employee who is involuntarily terminated by Purchaser (other than for “Cause” as determined by Purchaser) or who voluntarily terminates employment for “Good Reason” (as defined below) within six months following the Effective Time and who is not covered by a separate severance, change in control or employment agreement shall, upon executing an appropriate release in the form reasonably determined by Purchaser, receive a severance payment equal to two weeks of base pay (at the rate in effect on the termination date) for each year of service at the Company, with a minimum equal to four weeks of base pay and a maximum equal totwenty-six (26) weeks of base pay. For purposes of calculating the number of years of service, fractional years of service shall be rounded up or down to the nearest full year.month. For purposes of calculating base pay, Company employees who are paid on an hourly basis shall be deemed to have a base pay equal to the employee’s average weekly compensation over the two months prior to the termination date; provided that, in no event shall an employee’s base pay for this purpose be less than the employee’s base pay with the Company as in effect immediately prior to Closing. For employees whose compensation is determined in whole or in part on the basis of commission income, “base pay” shall include base salary or total hourly wages paid plus commissions earned during the most recent twelve (12) months ended as of the date of termination of employment. Purchaser will offer Clifton Savings employees whose jobs are eliminated as a result of the Bank Merger priority in applying for open positions within Purchaser and Kearny Bank. Any employee of the Company who has or is a party to any employment agreement, severance agreement, change in control agreement or any other agreement or arrangement that provides for any payment that may be triggered by a termination, including a termination following the Merger, shall not receive the severance benefits as provided in this Section but will receive the payment specified in such agreement or arrangement.date. “Good Reason” means a material decrease in the total amount of the employee’s base salary below its level in effect on the Effective DateTime without the employee’s prior written consent or a material geographical relocation of the employee without the employee’s prior written consent, which shall be deemed to mean relocation to an office more than twenty-five (25) miles from the employee’s location on the Effective Date.consent.
(f) Purchaser shall honor all obligations under the employment or change in control agreements as set forth in the Company’s Disclosure Letter, except to the extent any such agreement is superseded or terminated as of, or following, the Effective Time. ConcurrentlyNotwithstanding anything contained in the Company’s Disclosure Letter, no payment shall be made that would constitute a “parachute payment” (as such term is defined in Section 280G of the IRC), and to the extent any payments or benefits would constitute a “parachute payment,” such payments and/or benefits will be reduced to the extent necessary to avoid penalties under Sections 280G and 4999 of the IRC.Concurrently with the execution of this Agreement, Company shall obtain from Paul M. Aguggia,Michael Shriner, Robert Russell, Jr., Nancy Schmitz, John Bailey and John Kaufman, in the formforms included in Purchaser’s Disclosure Letter, an executeda settlement agreement (a “Settlement Agreement”) to accept in full settlement of his or her rights under his employment agreement, and an executednon-competition agreement with Paul M. Aguggia in the form included in Purchaser’s Disclosure Letter, to be effective as of the Effective Time. Purchaser and the Company agree that severance payments which may be triggered under the employment ortheir respective change in control agreements entered into with Christine R. Piano, Stephen Hoogerhyde, Patricia C. Hrotko, Michael Leslerthe amounts and Diane Scriveri will be calculatedbenefits determined under the same methodology as the Company’s severance analysis attached to Company’s Disclosure Letterhis or her Settlement Agreement (the aggregate amounts of such potential payments to each executive to be specified in the Company’s Disclosure Letter). and pay such amounts to such individuals who are employed at the Effective Time pursuant to the terms of each Settlement Agreement.
(g) SubjectThe Company and Millington Bank shall take or cause to be taken all such actions as may be necessary to effect the actions set forth below relating to the occurrence ofCompany ESOP prior to or simultaneous with the Closing, as applicable. Effective at least five (5) business days before the Closing, the Company ESOP shall be terminated by(the “ESOP Termination Date”). No new participants shall be admitted on or after the Company. In connection with the termination ofESOP Termination Date and all existing ESOP participants’ accounts shall become fully vested and 100%non-forfeitable. Millington Bank shall direct the Company ESOP and the merger of the Company with Purchaser, all accounts shall be fully vested, all outstanding indebtedness of the Company ESOP shall be repaid by deliveringtrustee to remit a sufficient number of unallocatedthe shares of Company Common Stock allocated to the suspense account pursuant to the Company
ESOP (the “Suspense Shares”) back to the Company to repay the outstanding ESOP loan in full, with each remitted share to be valued equal to the closing price of Company Common Stock on the day immediately beforeprior to the Effective Time, allESOP Termination Date. All remaining shares of Company Common Stock held by the Company ESOP as of the Effective Time shall be converted into the right to receiveexchanged for the Merger Consideration and the balance of the unallocated shares and any other unallocated assets remaining inas elected by the Company ESOP aftertrustee. After repayment of the Companyoutstanding ESOP loan and the exchange of the shares of Company Common Stock for the Merger Consideration, the Merger Consideration received upon conversion of the remaining Suspense Shares shall be deemed to be earnings and shall be allocated as earnings to the accounts of the Company ESOP participants who are employed as of the date of termination of the Company ESOP Termination Date based on their account balances under the Company ESOP as of the date of termination of the Company ESOP Termination Date and distributed to Company ESOP participants after the receipt of a favorable
determination letter from the IRS. No benefit distributions shall be made from the Company ESOP without the prior written consent of Purchaser before the IRS issues a favorable determination letter with respect to thetax-qualified status of the Company ESOP on termination. Prior to the Effective Time, the Company shall take all such actions as are necessary (determined in consultation with the Purchaser) to submit the application for favorable determination letter in advance of the Effective Time,Closing, and following the Effective Time,Closing, Purchaser shall use its best efforts in good faith to obtain such favorable determination letter as promptly as possible (including, but not limited to, making such changes to the Company ESOP as may be required by the IRS as a condition to its issuance of a favorable determination letter). The Company, Bank, and following the Effective Time, Purchaser, will adopt such amendments to the Company ESOP to effect the provisions of thisSection 5.11(g). Promptly following the receipt of a favorable determination letter from the IRS regarding the qualified status of the Company ESOP upon its termination, the account balances in the Company ESOP shall either be distributed to participants and beneficiaries or transferred to an eligibletax-qualified retirement plan or individual retirement account as a participant or beneficiary may direct.
(h) The Company shall cause Clifton SavingsPurchaser agrees to take all necessary actionhonor and maintain the Millington Bank Directors Deferred Compensation Plan (“Deferred Plan”) as set forth in Section 6.6(h) of the Company’s Disclosure Letter, and Purchaser specifically agrees that the timing and amount of the payments thereunder will not be accelerated and will continue to terminate the Clifton Savings Bank Directors’ Retirement Plan at or immediately prior to the Effective Timebe made in accordance with the terms of the Deferred Plan and Section 409A of the IRC and to pay to each participant a lump sum amount equal to the benefit to which such participant is entitled pursuant to the terms of such plan.IRC. The Company’s Disclosure Letter sets forth the names of all participants, and an estimatethe value of each participant’s account balance, the amount of each lump sum payment.
(i) The Company shall cause Clifton Savings to take all necessary actions to terminate the Amendedor installment payment and Restated Clifton Savings Bank Supplemental Executive Retirement Plan at or immediately prior to the Effective Time in accordance with Section 409A of the IRC and to pay to each participant a lump sum amount equal to the benefit to which such participant is entitled pursuant to the terms of such plan. The Company’s Disclosure Letter sets forth the names of all participants and an estimate of the amountcopy of each lump sum payment.payment election under the Deferred Plan.
(a) From and after the Effective Time, Purchaser shall indemnify and hold harmless each of the current or former directors, officers or employees of the Company or any of its Subsidiaries (each, an “Indemnified Party”), and any personPerson who becomes an Indemnified Party between the date hereof and the Effective Time, against any costs or expenses (including reasonable attorneys’ fees and expenses), judgments, fines, losses, claims, damages or liabilities and amounts paid in settlement incurred in connection with any actual or threatened 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, whether asserted or claimed prior to, at or after the Effective Time, based in whole or in part on, or arising in whole or in part out of, or pertaining to (i) the fact that he or she is or was a director, officer or employee of the Company, any of its Subsidiaries or any of their respective predecessors or was prior to the Effective Time serving at the request of any such party as a director, officer, employee, trustee or partner of another corporation, partnership, trust, joint venture, employee benefit plan or other entity or (ii) any matters arising in connection with the transactions contemplated by this Agreement, to the fullest extent such Person would have been indemnified or have the right to advancement of expenses pursuant to the Company’s Articles of Incorporation and bylaws as in effect on the date of this Agreement and as permitted by applicable law, and Purchaser and the Surviving Corporation shall also advance expenses as incurred to the fullest extent permitted under applicable law,provided that the Person to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined by a court of competent jurisdiction that such Person is not entitled to indemnification.
(b) Any Indemnified Party wishing to claim indemnification underSection 5.12(a), upon learning of any action, suit, proceeding or investigation described above, shall promptly notify Purchaser thereof. Any failure to so notify shall not affect the obligations of Purchaser underSection 5.12(a) unless and to the extent that Purchaser is actually prejudiced as a result of such failure.
(c) For a period of six (6) years following the Effective Time, Purchaser shall maintain in effect the Company’s current directors’ and officers’ liability insurance covering each Person currently covered by the
Company’s directors’ and officers’ liability insurance policy with respect to claims against such Persons arising from facts or events occurring at or prior to the Effective Time;provided, however, that in no event shall Purchaser be required to expend in the aggregate
pursuant to thisSection 5.12(c) more than 250%200% of the annual premiums currently paid by the Company for such insurance and, if Purchaser is unable to maintain such policy as a result of this proviso, Purchaser shall obtain as much comparable insurance as is available by payment of such time;provided further, that Purchaser may (i) request that the Company obtain an extended reporting period endorsement under the Company’s existing directors’ and officers’ liability insurance policy or (ii) substitute therefor “tail” policies the material terms of which, including coverage and amount, are no less favorable in any material respect to such Person than the Company’s existing insurance policies as of the date hereof.
(d) If Purchaser or any of its successors or assigns (i) consolidates with or merges into any other personPerson or entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) liquidates, dissolves, transfers or conveys all or substantially all of its properties and assets to any personPerson or entity, then, and in each such case, to the extent necessary, proper provision shall be made so that such successor and assign of Purchaser and its successors and assigns assume the obligations set forth in thisSection 5.12.
(e) The provisions of thisSection 5.12 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and his or her representatives.
(f) Any indemnification payments made pursuant to thisSection 5.12are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. 1828(k)) and the regulations promulgated thereunder by the Federal Deposit Insurance Corporation (12 C.F.R. Part 359).
5.13Stockholder Litigation. The Company shall give Purchaser the opportunity to participate at the Purchaser’s own expense in the defense or settlement of any stockholder litigation against the Company and/or its directors relating to the transactions contemplated by this Agreement, and no such settlement shall be agreed to without Purchaser’s prior written consent (such consent not to be unreasonably withheld or delayed).
5.14Board of Directors.Purchaser shall, and shall cause Kearny Bank to, (i) increase the size of its Board of Directors by three (3) members and (ii) take all action necessary to appoint Paul M. Aguggia and two additional members of the Company’s Board of Directors, who shall be selected by Purchaser after consultation with the Company, to the Boards of Directors of Purchaser and Kearny Bank, effective immediately following the Effective Time. It is the intent of Purchaser to appoint Paul M. Aguggia as Chairman of Purchaser’s Enterprise Risk Management Committee and as a Board liaison to Purchaser’s Capital Markets Committee, effective immediately following the Effective Time.
5.15Section 16 Matters.Prior to the Effective Time, Purchaser shall take all such steps as may be required to cause any acquisitions of Purchaser Common Stock resulting from the transactions contemplated by this Agreement by each director or officer of the Company who becomes subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Purchaser to be exempt under Rule16b-3 promulgated under the Exchange Act. The Company agrees to promptly furnish Purchaser with all requisite information necessary for Purchaser to take the actions contemplated by thisSection 5.15.
5.16Balance Sheet Strategy.The Company shall, within thirty (30) days following the date of this Agreement, take all actions necessary to execute Scenario 1 and Scenario 2 as set forth in the Company’s Disclosure Letter. The Company will provide to Purchaser weekly updates on the status of the execution of Scenario 1 and Scenario 2.
5.17Disclosure Supplements. From time to time prior to the Effective Time, the Company and Purchaser will promptly supplement or amend their respective Disclosure Letters delivered in connection herewith with respect to any matter hereafter arising that, if existing, occurring or known at the date of this Agreement, would have been required to be set forth or described in such Disclosure Letters or that is necessary to correct any
information in such Disclosure Letters that has been rendered materially inaccurate thereby. No supplement or amendment to such Disclosure Letters shall have any effect for the purpose of determining satisfaction of the conditions set forth in Article VI.
CONDITIONS TO CONSUMMATION
6.1Conditions to Each Party’s Obligations. The respective obligations of each party to effect the Merger shall be subject to the satisfaction of the following conditions:
(a)Stockholder Approval. This Agreement shall have been approved by the requisite vote of each of Purchaser’s and the Company’s stockholders in accordance with applicable laws and regulations.
(b)Regulatory Approvals. All approvals, consents or waivers of any Governmental Entity required to permit consummation of the transactions contemplated by this Agreement including the Merger and the Bank Merger, shall have been obtained and shall remain in full force and effect, and all statutory waiting periods shall have expired or been terminated.
(c)No Injunctions or Restraints; Illegality. No party hereto shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction that enjoins or prohibits the consummation of the Merger or the Bank Merger and no Governmental Entity shall have instituted any proceeding for the purpose of enjoining or prohibiting the consummation of the Merger, the Bank Merger or any transactions contemplated by this Agreement. No statute, rule or regulation shall have been enacted, entered, promulgated or enforced by any Governmental Entity that prohibits or makes illegal consummation of the Merger or the Bank Merger.
(d)Third Party Consents. Purchaser and the Company shall have obtained the consent or approval of each Person (other than the governmental approvals or consents referred to inSection 6.1(b)) whose consent or approval shall be required to consummate the transactions contemplated by this Agreement, except those for which failure to obtain such consents and approvals would not, individually or in the aggregate, have a Material Adverse Effect on Purchaser (after giving effect to the consummation of the transactions contemplated hereby).
(e)Registration Statement; Blue Sky Laws. 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, and Purchaser shall have received all required approvals by state securities or “blue sky” authorities with respect to the transactions contemplated by this Agreement.
(f)Nasdaq. Purchaser shall have filed with The Nasdaq Stock Market LLC a notification form for the listing of all shares of Purchaser Common Stock to be delivered as Merger Consideration, and The Nasdaq Stock Market LLC shall not have objected to the listing of such shares of Purchaser Common Stock.
(g)Tax Opinion. Purchaser and the Company shall have received written opinions of Luse Gorman, PC and Kilpatrick Townsend & StocktonJones Walker LLP, respectively, dated as of the Closing Date, in form and substance customary in transactions of the type contemplated hereby, and reasonably satisfactory to Purchaser and the Company, as the case may be, substantially to the effect that on the basis of the facts, representations and assumptions set forth in such opinions, which are consistent with the state of facts existing at the Effective Time, (i) the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the IRC and (ii) Purchaser and the Company will each be a party to that reorganization within the meaning of Section 368(b) of the IRC. Such opinions may be based on, in addition to the review of such matters of fact and law as counsel considers appropriate, representations contained in certificates of officers of Purchaser, the Company and others.
6.2Conditions to the Obligations of Purchaser.The obligations of Purchaser to effect the Merger shall be further subject to the satisfaction of the following additional conditions, any one or more of which may be waived by Purchaser:
(a)The Company’s Representations and Warranties. Subject to the standard set forth inSection 3.1, each of the representations and warranties of the Company contained in this Agreement and in any certificate or other writing delivered by the Company pursuant hereto shall be true and correct at and as of the Closing Date as though made at and as of the Closing Date, except that those representations and warranties that address matters only as of a particular date need only be true and correct as of such date.
(b)Performance of the Company’s Obligations. The Company shall have performed in all material respects all obligations and covenants required to be performed by it under this Agreement at or prior to the Effective Time.
(c)Officers’ Certificate. Purchaser shall have received a certificate signed by the chief executive officer and the chief financial or principal accounting officer of the Company to the effect that the conditions set forth inSections 6.2(a) and(b) have been satisfied.
(d)No Material Adverse Effect. Since the date of this Agreement, there shall not have occurred any Material Adverse Effect with respect to the Company.
(e)Burdensome Condition. None of the approvals, consents or waivers of any Governmental Entity required to permit consummation of the transactions contemplated by this Agreement shall contain any condition or requirement that would so materially and adversely impact the economic or business benefits to Purchaser of the transactions contemplated hereby that, had such condition or requirement been known, Purchaser would not, in its reasonable judgment, have entered into this Agreement.
6.3Conditions to the Obligations of the Company. The obligations of the Company to effect the Merger shall be further subject to the satisfaction of the following additional conditions, any one or more of which may be waived by the Company:
(a)Purchaser’s Representations and Warranties. Subject to the standard set forth inSection 3.1, each of the representations and warranties of Purchaser contained in this Agreement and in any certificate or other writing delivered by Purchaser pursuant hereto shall be true and correct at and as of the Closing Date as though made at and as of the Closing Date, except that those representations and warranties that address matters only as of a particular date need only be true and correct as of such date.
(b)Performance of Purchaser’s Obligations. Purchaser shall have performed in all material respects all obligations and covenants required to be performed by it under this Agreement at or prior to the Effective Time.
(c)Officers’ Certificate. The Company shall have received a certificate signed by the chief executive officer and the chief financial or principal accounting officer of Purchaser to the effect that the conditions set forth inSections 6.3(a) and(b) have been satisfied.
(d)No Material Adverse Effect. Since the date of this Agreement, there shall not have occurred any Material Adverse Effect with respect to Purchaser.
TERMINATION
7.1Termination. This Agreement may be terminated, and the Merger abandoned, at any time prior to the Effective Time, by action taken or authorized by the Board of Directors of the terminating party, either before or after any requisite stockholder approval:
(a) by the mutual written consent of Purchaser and the Company; or
(b) by either Purchaser or the Company, in the event of the failure of (i) the Company’s stockholders to approve the Agreement at the Company Stockholder Meeting;provided,however, that the Company shall only be entitled to terminate the Agreement pursuant to this clause if it has complied in all material respects with its obligations underSection 5.8 (subject toSection 5.8(b)) or (ii) Purchaser’s stockholders to approve the Agreement at Purchaser Stockholder Meeting;provided,however, that Purchaser shall only be entitled to terminate the Agreement pursuant to this clause if it has complied in all material respects with its obligations underSection 5.8;;
(c) by either Purchaser or the Company, if either (i) any approval, consent or waiver of a Governmental Entity required to permit consummation of the transactions contemplated by this Agreement shall have been denied and such denial has become final andnon-appealable or (ii) any court or other Governmental Entity of competent jurisdiction shall have issued a final, unappealable order enjoining or otherwise prohibiting consummation of the transactions contemplated by this Agreement;
(d) by either Purchaser or the Company, if the Merger is not consummated by September 30, 2018,2020, unless the failure to so consummate by such time is 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;
(e) by either Purchaser or the Company (provided that the party seeking termination is not then in material breach of any representation, warranty, covenant or other agreement contained herein), in the event of a breach of any covenant or agreement on the part of the other party set forth in this Agreement, or if any representation or warranty of the other party shall have become untrue, in either case such that the conditions set forth inSections 6.2(a) and(b) orSections 6.3(a)and(b), as the case may be, would not be satisfied and such breach or untrue representation or warranty has not been or cannot be cured within thirty (30) days following written notice to the party committing such breach or making such untrue representation or warranty;
(f) by Purchaser, if (i) the Company shall have breached its obligations underSection 5.1 orSection 5.8, in any material respect or (ii) if the Board of Directors of the Company does not publicly recommend in the Joint Proxy Statement-Prospectus that stockholders approve and adopt this Agreement or if, after recommending in the Joint Proxy Statement-Prospectus that stockholders approve and adopt this Agreement, the Board of Directors effects a Change of Recommendation; provided, however, that in either case stockholders fail to approve and adopt this Agreement; or
(g) by the Company, if Purchaser shall have breached its obligations underSection 5.8 in any material respect;
(h) by the Company, at any time prior to the adoption and approval of this Agreement by the Company’s stockholders, to enter into an agreement with respect to a Superior Proposal, but only if (i) the Company’s Board of Directors has determined in good faith based on the advice of legal counsel that failure to take such action would cause the Board of Directors to violate its fiduciary duties under applicable law, and (ii) the Company has not breached its obligations underSection 5.1; or.
(i)(h) By the Company, at any time during thefive-day period commencing with the Determination Date, if both of the following conditions are satisfied:
(i) The number obtained by dividing the Average Closing Price by the Starting Price (as defined below) (the “Purchaser Ratio”) shall be less than 0.825;0.80; and
(ii) (x) the Purchaser Ratio shall be less than (y) the number obtained by dividing the Final Index Price by the Index Price on the Starting Date (each as defined below) and subtracting 0.1750.20 from the quotient in this clause (ii) (y) (such number in this clause (ii) (y) being referred to herein as the “Index Ratio”);
subject, however, to the following three sentences. If the Company elects to exercise its termination right pursuant to thisSection 7.1(i)7.1(h), it shall give written notice to Purchaser (provided that such notice of election to
terminate may be withdrawn at any time within the aforementionedfive-day period). During thefive-day period commencing with its receipt of such notice, Purchaser shall have the option to increase the consideration to be received by the holders of Company Common Stock hereunder, by adjusting the Exchange Ratio (calculated to the nearest oneone-thousandth) to equal the lesser of (x) a number (rounded to the nearest oneone-thousandth) obtained by dividing (A) the product of the Starting Price, 0.8250.80 and the Exchange Ratio (as then in effect) by (B) the Average Closing Price and (y) a number (rounded to the nearest oneone-thousandth) obtained by dividing (A) the product of the Index Ratio and the Exchange Ratio (as then in effect) by (B) the Purchaser Ratio. If Purchaser so elects within suchfive-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 thisSection 7.1(i)7.1(h) and this Agreement shall remain in effect in accordance with its terms (except as the Exchange Ratio shall have been so modified).
For purposes of thisSection 7.1(i)7.1(h) the following terms shall have the meanings indicated:
“Average Closing Price” means the average closing price of Purchaser Common Stock as reported on The Nasdaq Stock Market, LLC for the twenty (20) consecutive trading days ending on the trading day immediately prior to the Determination Date.
“Determination Date” shall mean 10th day prior to the Closing Date, provided that if shares of the Purchaser Common Stock are not actually traded on The Nasdaq Stock Market, LLC on such day, the Determination Date shall be the immediately preceding day to the 10th day prior to the Closing Date on which shares of Purchaser Common Stock actually trade on The Nasdaq Stock Market, LLC.
“Final Index Price” shall mean the average of the Index Prices for the 20 consecutive full trading days ending on the Determination Date.
“Index Price” shall mean the closing price on such date of the NASDAQ Bank Index.
“Starting Date” shall mean the last trading day immediately preceding the date of the first public announcement of entry into this Agreement.
“Starting Price” shall mean the closing price of a share of Purchaser Common Stock on The Nasdaq Stock Market, LLC (as reported in The Wall Street Journal, or if not reported therein, in another authoritative source) on the Starting Date.
(a) In the event of termination of this Agreement by the Company pursuant toSection 7.1(h)7.1(g), the Company shall make payment to Purchaser of a termination fee of $15,000,000.$3.54 million.
(b) In the event of termination of this Agreement by Purchaser pursuant toSection 7.1(f), so long as at the time of such termination Purchaser is not in material breach of any representation, warranty or material covenant contained herein, and the Company has entered into an Acquisition Proposal, the Company shall make payment to Purchaser of a termination fee of $15,000,000.$3.54 million.
(c) If (i) this Agreement is terminated (A) by either party pursuant toSection 7.1(b)(i) or (B) by Purchaser pursuant toSection 7.1(e) if the breach giving rise to such termination was knowing or intentional, and (ii) at the time of such termination Purchaser is not in material breach of any representation, warranty or material covenant contained herein, and (iii) prior to the Company Stockholder Meeting (in the case of termination pursuant toSection 7.1(b)(i)) or the date of termination (in the case of termination pursuant toSection 7.1(e)), an Acquisition Proposal has been publicly announced, disclosed or communicated and (iv) within twelve (12) months of such termination the Company shall consummate or enter into any agreement with respect to the Acquisition Proposal set forth in clause (iii) of thisSection 7.2(c), then the Company shall make payment to Purchaser of a termination fee of $15,000,000.$3.54 million.
(d) The fee payable pursuant toSection 7.2(a) or(b) shall be made by wire transfer of immediately available funds at the time of termination. Any fee payable pursuant toSection 7.2(c) shall be made by wire transfer of immediately available funds within two (2) Business Days after notice of demand for payment. The Company and Purchaser acknowledge that the agreements contained in thisSection 7.2 are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, Purchaser would not enter into this Agreement. The amount payable by the Company pursuant toSections 7.2(a), (b) or (c) constitutes liquidated damages and not a penalty and shall be the sole remedy of Purchaser in the event of termination of this Agreement or on the bases specified in such sections.
7.3Effect of Termination. In the event of termination of this Agreement by either Purchaser or the Company as provided inSection 7.1, this Agreement shall forthwith become void and, subject toSection 7.2, have no effect, and there shall be no liability on the part of any party hereto or their respective officers and directors, except that (i) Sections 5.3(c),7.2and8.6, 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 fraud or willful and material breach of any provision of this Agreement.
CERTAIN OTHER MATTERS
8.1Interpretation. When a reference is made in this Agreement to Sections or Exhibits such reference shall be to a Section of, or Exhibit 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.
8.2Survival. Only those agreements and covenants of the parties that are by their terms applicable in whole or in part after the Effective Time, includingSection 5.12 of this Agreement, shall survive the Effective Time. All other representations, warranties, agreements and covenants shall be deemed to be conditions of the Agreement and shall not survive the Effective Time.
8.3Waiver; Amendment. Prior to the Effective Time, any provision of this Agreement may be: (i) waived in writing by the party benefited 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 the Company, no amendment or modification may be made that would reduce the amount or alter or change the kind of consideration to be received by holders of Company Common Stock or that would contravene any provision of the MGCL or the applicable state and federal banking laws, rules and regulations.
8.4Counterparts. 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. A facsimile or other electronic copy of a signature page shall be deemed to be an original signature page.
8.5Governing Law. This Agreement shall be governed by, and interpreted in accordance with, the laws of the State of Maryland, without regard to conflicts of laws principles.
8.6Expenses. Each party hereto will bear all expenses incurred by it in connection with this Agreement and the transactions contemplated hereby.
8.7Notices. All notices and other communications in connection with this Agreement shall be in writing and shall be deemed given if delivered personally, sent via facsimile (with confirmation), by email, by registered
or certified mail (return receipt requested) or by commercial overnight delivery service, 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):
If to Purchaser, to:
Kearny Financial Corp. 120 Passaic Avenue Fairfield, New Jersey 07004 | ||
| Facsimile: | 973-439-6914 | |
| Attention: | Craig L. Montanaro President and Chief Executive Officer | |
| Email: | cmontanaro@kearnybank.com | |
With copies to:
Luse Gorman, PC 5335 Wisconsin Avenue, NW, Suite 780 Washington, DC 20015 | ||
| Facsimile: | (202)362-2902 | |
| Attention: | Lawrence M.F. Spaccasi | |
| Email: | lspaccasi@luselaw.com | |
If to the Company, to:
| ||
| Facsimile: | ||
| Attention: | ||
Michael A. Shriner President and Chief Executive Officer | ||
| Email: | ||
With copies to:
Washington, DC | ||
| Facsimile: | ||
| Attention: | ||
| Email: | ||
8.8Entire Agreement; etc. This Agreement, together with the Exhibits and Disclosure Letters hereto, 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. Except forSection 5.12, which confers rights on the parties described therein, nothing in this Agreement is intended to confer upon any other personPerson any rights or remedies of any nature whatsoever under or by reason of this Agreement, including the right to rely upon the representations and warranties set forth herein. The representations and warranties in this Agreement are the product of negotiations among the parties hereto and are for the sole benefit of the parties. Any inaccuracies in such representations and warranties are subject to waiver by the parties hereto in accordance herewith without notice or liability to any other person.Person. In some instances, the representations and warranties in this Agreement may represent an allocation among the parties hereto of risks associated with particular matters regardless of the Knowledge of any of the parties hereto. Consequently, Persons other than the parties may not rely upon the representations and warranties in this Agreement as characterizations of actual facts or circumstances as of the date of this Agreement or as of any other date.
8.9Successors and Assigns; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement may not be assigned by either party hereto without the prior written consent of the other party.
8.10Severability. If any one or more provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, by any court of competent jurisdiction, such invalidity, illegality or unenforceability shall not
affect any other provisions of this Agreement and the parties shall use their reasonable efforts to substitute a valid, legal and enforceable provision which, insofar as practical, implements the purposes and intents of this Agreement.
8.11Specific Performance.Performance.The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and, accordingly, that the parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof (including the parties’ obligation to consummate the Merger), in addition to any other remedy to which they are entitled at law or in equity. Each of the parties hereby further waives (a) any defense in any action for specific performance that a remedy at law would be adequate and (b) any requirement under any law to post security or a bond as a prerequisite to obtaining equitable relief.
8.12Waiver of Jury Trial.Trial.EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW AT THE TIME OF INSTITUTION OF THE APPLICABLE LITIGATION, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT: (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.12.
8.13Delivery by Facsimile or Electronic Transmission.Transmission.This Agreement and any signed agreement or instrument entered into in connection with this Agreement, and any amendments or waivers hereto or thereto, to the extent signed and delivered by means of a facsimile machine or bye-mail delivery of a “.pdf” format data file, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in Person. No party hereto or to any such agreement or instrument shall raise the use of a facsimile machine ore-mail delivery of a “.pdf” format data file to deliver a signature to this Agreement or any amendment hereto or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine ore-mail delivery of a “.pdf” format data file as a defense to the formation of a contract and each party hereto forever waives any such defense.
[Signature page follows]
In Witness Whereof, the parties hereto have caused this Agreement and Plan of Merger to be executed by their duly authorized officers as of the date first above written.
| Kearny Financial Corp. | ||
| By: | /s/ Craig L. Montanaro | |
Craig L. Montanaro President and Chief Executive Officer | ||
| By: | /s/ | |
| ||
158 Route 206 • Gladstone, NJ 07934 • Tel: 908.234.9398 • www.finprocapitaladvisors.com
November 1, 2017December 17, 2019
Board of Directors
Clifton Bancorp, Inc.MSB Financial Corp
1433 Van Houten AvenueMillington Bank
Clifton, New Jersey 070131902 Long Hill Road
Members of the Board:Millington, NJ 07946
Dear Board Members:
You have requested RP®our written opinion, as to the fairness, from a financial point of view to MSB Financial LC.Corp (“RP Financial”MSBF”) and its stockholders, of the consideration as proposed in the Agreement and Plan of Merger by and among Kearny Financial Corp (“KRNY”) and MSBF (the “Agreement”), pursuant to which MSB Financial Corp will merge with Kearny Financial Corp and Millington Bank will merge with Kearny Bank.
Pursuant to the Agreement, each share of MSBF’s common stock has the right to receive, at the election of the holder, either $18.00 in cash consideration; or 1.3000 shares of KRNY Common Stock. 10% of the total consideration is payable in cash and 90% is payable in KRNY stock. MSBF’s stock option holders will be cashed out in this transaction.
FinPro Capital Advisors, Inc. (“FCA”), FINRA/SIPC, is a broker/dealer and an investment banking firm that provides valuation and merger advisory services to the bank and thrift industry, including appraisals and valuations of bank and thrift institutions and their securities in connection with mergers, acquisitions and other securities transactions. FCA has knowledge of and experience with theMid-Atlantic bank and thrift market and financial institutions operating in the New Jersey market. MSBF’s Board chose FCA because of its expertise, experience and familiarity with the bank and thrift industry.
MSBFengaged FCA to provide you with its opinion as to the fairness, from a financial point of view, to the shareholders of Clifton Bancorp, Inc. a corporation organized and existing under the laws of the State of Maryland (“CSBK” or the “Company”), the holding company for Clifton Savings Bank (“Clifton Savings”), Clifton, New Jersey, of the Exchange Ratio to be received by CSBK shareholders pursuant to the Agreement and Plan of Merger (the “Agreement”), dated November 1, 2017, by and between CSBK and Kearny Financial Corp. a corporation organized and existing under the laws of the State of Maryland (“KRNY or the “Purchaser”). As detailed in the Agreement, CSBK will merge with and into KRNY, and Clifton Savings will merge with and into Kearny Bank, the wholly-owned bank subsidiary of KRNY (the “Merger”). KRNY and Kearny Bank will be the surviving institutions. The other terms and conditions of the Merger are more fully set forthconsideration as defined in the Agreement. Unless otherwise defined, all capitalized terms incorporated herein have the meanings ascribedFCA will receive total advisory fees equal to them in the Agreement.
Summary Description of Merger Consideration
Each share of common stock, par value $0.01 per share,1.0% of the Company (“CSBK Common Stock”) issued and outstandingdeal value, which is approximately $950 thousand at the Effective Time, other thantime of this fairness opinion. A portion of FCA’s fees, $300 thousand, are payable upon rendering of the fairness opinion to MSBF. Additionally, MSBF has agreed to reimburse FCA for itsout-of-pocket expenses and has agreed to indemnify FCA and certain shares specified in the Agreement, shall become and be converted into the right to receive 1.191 shares (the “Exchange Ratio”) of common stock, par value $0.01 per share, of KRNY (“KRNY Common Stock”) as further described in the Agreement.
RP Financial Background and Experience
RP Financial, as part of its financial institution valuation and financial advisory practice, is regularly engaged in the valuation of federally-insured depository institution securitiesrelated persons against certain liabilities possibly incurred in connection with mergersthe services performed.
FinPro, Inc. (“FinPro”), FCA’s parent organization, has provided consulting partnership services to MSBF within the past two years. The amount of compensation received from MSBF for these services is not, and acquisitions, initialhas not been, material to FinPro’s annual gross revenue. FinPro has provided services to KRNY within the past two years, but has not done work with KRNY during this process. The amount of compensation received from KRNY for these services is not, and secondary stock offerings, and business valuations for financial institutions for other purposes. As specialistshas not been, material to FinPro’s annual gross revenue. FCA has not provided investment banking services to KRNY in the valuation of securities and providing financial advisory services to insured financial institutions, RP Financial has experience in, and knowledge of, the markets for the securities of such institutions nationwide.
Materials Reviewedpast two years.
In rendering thisconnection with its opinion, RP Financial reviewed or considered the following materials or information: (1) the Agreement, distributed to the CSBK Board of Directors on October 31, 2017; (2) the following financial information for CSBK – (a) certain annual reports, including audited financial statements, as presented in CSBK’s 10K filings, including for the fiscal year ended March 31, 2017; (b) certain unaudited financial data, including shareholder reports and financial statements, including for the quarter ended June 30, 2017; (c) certain quarterly financial reports submitted to the OCC by Clifton Savings, including for the quarter ended September 30, 2017; (d) certain historical publicly-available financial information as published by S&P Global Market Intelligence; and, (e) certain internal financial statements and other financial and operating data concerning CSBK, including for the quarter ended September 30, 2017; (f) publicly available mean and median
Board of Directors
November 1, 2017
Page 2
earnings per share estimates for CSBK for the years ending March 31, 2018 and March 31, 2019, and a range of estimated potential long-term annual growth rates in net income and net income per share thereafter provided by CSBK’s senior management; (3) the financial terms of certain other recently completed and pending acquisitions of financial institutions nationwide with comparable financial characteristics as CSBK; (4) the financial terms of certain other recently completed and pending acquisitions of thrift institutions headquartered in theMid-Atlantic and New England region of the United States with comparable financial characteristics as CSBK; (5) the estimated pro forma financial benefits of the Merger to CSBK shareholders; (6) certain CSBK financial information versus a peer group of comparable publicly-traded financial institutions; and (7) in person and telephonic discussions with executive officers of CSBK regarding CSBK’s business, financial condition, results of operations and future prospects; the history, past and current operations, historical financial performance and their assessment of the rationale for the Merger.
In addition, RP Financial reviewed or considered the following materials or information for KRNY, and as further described below, certain peers of KRNY: (1) certain annual reports, including audited financial statements, including for the fiscal year ended June 30, 2017, as presented in KRNY’s 10K filings; (2) certain quarterly call reports submitted to the OCC or FDIC by Kearny Bank, including for the quarter ended September 30, 2017; (3) certain internal financial statements and other financial and operating data concerning KRNY, including for the quarter ended September 30, 2017; (4) the quarterly earnings release for KRNY for the quarter ended September 30, 2017; (5) publicly available mean and median earnings per share estimates for KRNY for the years ending June 30, 2018 and June 30, 2019, and a long-term annual growth rate in net income and net income per share thereafter provided by KRNY’s senior management; (6) the stock price history for KRNY during past twelve months; (7) certain KRNY financial information versus a peer group of comparable publicly-traded financial institutions; and (8) in person discussions with executive officers of KRNY regarding KRNY’s business, financial condition, results of operations and future prospects; the history, past and current operations, historical financial performance and their assessment of the rationale for the Merger.
RP Financial alsoFCA reviewed and considered, certain information and materials detailingamong other things:
Reverse due diligence was conducted on KRNY;
Reviewed the Merger prepared by KRNY’sAgreement;
Reviewed the most recentyear-end andquarter-end audited and unaudited financial advisor,statements for each of MSBF and KRNY;
Reviewed certain other public andnon-public information regarding each of MSBF and KRNY including internal financial forecasts, regarding the estimated amountfinancial results and timingthe condition of MSBF and KRNY;
Fairness Opinion | Page: 2 |
The sales process MSBF undertook with FCA as its advisor;
Reviewed the cost savingstrading and related expenses, purchase accounting adjustmentmerger market for bank and synergies expectedthrift stocks;
Reviewed acquisition multiples of comparable institutions;
Reviewed the potential investment value of MSBF’s shares; and
Analyzed the ability for KRNY to result fromexecute on the Merger,proposed transaction.
FCA considered financial studies, analyses and investigations and economic and market information that FCA deemed relevant. FCA analyzed the trading values of KRNY relative to comparable financial institutions. FCA considered certain financial data of MSBF and compared that data to other banks, thrifts and their holding companies that were recently merged or acquired. FCA also considered the potential pro forma financial impact of the Merger on the combined company’s earnings, tangible book value, financial ratios and other relevant financial metrics.
Moreover, RP Financial assessed general economic, market and financial conditions, reviewedacquisition. Furthermore, FCA considered the financial terms of these business combinations involving these banks and their holding companies. FCA also considered, as a secondary check, a range of potential investment values for MSBF’s shares on a present value basis assuming the merger and acquisition transactions, to the extent publicly available and involving financial institutions that we considered relevant. We also took into consideration our experience in other similar transactions and securities valuations as well as our knowledgesuccessful execution of the banking and financial services industry. We reviewed market prices and trading volumes of CSBK and KRNY, reviewed certain publicly available financial and stock market data relating to select public companies that we deemed relevant to our analysis; and performed such other analyses and considered such other factors as we have deemed appropriate.their strategic plan.
In rendering its opinion, RP Financial relied, without independent verification, on the accuracy and completeness of the information concerning CSBK and KRNY furnished by the respective institutions as well as their respective financial advisors to RP Financial for review for purposes of its opinion, as well as publicly-available information regarding other financial institutions and competitive, economic and demographic data. We have further relied on the assurances of management of CSBK and KRNY as included in the Agreement. We have also relied upon the management of CSBK and KRNY as to the reasonableness and achievability ofFCA did not independently verify the financial forecasts, projections and other forward-looking informationdata provided to RP Financial by CSBK and KRNY and their respective financial advisors, and we have assumed such forecasts, projections and other
Boardor on behalf of Directors
November 1, 2017
Page 3
forward-looking information have been reasonably prepared by CSBK and KRNY as well as their respective financial advisors on a basis reflecting the best currently available information and CSBK’s and KRNY’s judgements and estimates. We have assumed that such forecasts, projections and other forward-looking information would be realized in the amounts and at the times contemplated thereby, and we do not assume any responsibility for the accuracy or reasonableness thereof. We have been authorized by CSBK to rely on such forecasts, projections and other information and data, and we express no view as to any such forecasts, projections or other forward-looking information or data, or the bases or assumptions on which they were prepared. We have not been asked to and have not undertaken an independent verification of any of such information or information we obtained from public sources and we do not assume any responsibility or liability for the accuracy or completeness thereof. Neither CSBK nor KRNY restricted RP Financial as to the material it was permitted to review.
RP Financial did not perform or obtain any independent appraisals or evaluations of the assets and liabilities, the collateral securing the assets or the liabilities (contingent or otherwise) of CSBKMSBF or KRNY, or the collectability of any such assets, nor have we been furnished with any such evaluations or appraisals. We did not make an independent evaluation of the adequacy of the allowance for loan losses of CSBK or KRNY nor have we reviewed any individual credit files relating to CSBK or KRNY. We are not experts in the evaluation of loan and lease portfolios for purposes of assessing the adequacy of the allowance for loan losses. We have assumed that such allowances for CSBK and KRNY are, in the aggregate, adequate to cover such losses, and will be adequate on a pro forma basis for the combined entity.
We have undertaken no independent analysis of any pending or threatened litigation, regulatory action, possible unasserted claims or other contingent liabilities to which CSBK or KRNY is a party or may be subject, and our opinion makes no assumption concerning, and therefore does not consider, the possible assertion of claims, outcomes or damages arising out of any such matters. We have also assumed that neither CSBK or KRNY is party to any material pending transaction, including without limitation any financing, recapitalization, acquisition or merger, divestiture orspin-off, other than the Merger contemplated by the Agreement. RP Financial is not opining in any manner on the future earnings, financial condition or operations of the parties generally, and we do not assume any responsibility or liability for any matters relating thereto.
RP Financial, with your consent, has relied upon the advice CSBK has received from its legal, accounting, financial and tax advisors as to all legal, accounting and tax matters relating to the Agreement and other transactions contemplated by the Agreement. In rendering its opinion, RP Financial assumed that, in the course of obtaining the necessary regulatory and governmental approvals for the proposed Merger, no restriction will be imposed on KRNY that would have a material adverse effect on the ability of the Merger to be consummated as set forth in the Agreement. We have also assumed that there have been no material changes in the financial condition of CSBK or KRNY since the date of the most recent financial statement made available to us. We have assumed, in all respects material to our analyses, that all of the representations and warranties contained in the Agreement and all related agreements are true and correct, that each party to such agreements will perform all of the covenants required to be performed by such party under such agreements and that the conditions precedent in the Agreement are not waived.
Opinion
This letter is directed to the Board of Directors of CSBK in its consideration of the Agreement, and does not constitute a recommendation to any shareholder of CSBK as to any action that such shareholder should take in connection with the Agreement, or otherwise. Our opinion should not be construed as implying that the Merger Consideration is necessarily the highest or best price that could be obtained in a sale, merger, or combination
Board of Directors
November 1, 2017
Page 4
transaction with a third party. We do not express any opinion as to the value of KRNY common stock following the announcement of the proposed Merger, or the value of KRNY common stock following the consummation of the Merger, or the prices at which shares of KRNY’ common stock may be purchased or sold at any time. Other than as specifically set forth herein, we are not expressing any opinion with respect to the terms and provisions of the Agreement or the enforceability of any such terms or provisions.
Our opinion is directed only to the fairness of the Exchange Ratio to the current holders of CSBK Common Stock from a financial point of view as of the date of the Agreement. It is understood that this opinion is based on market conditions and other circumstances existing on the date hereof. Events occurring after the date hereof could materially affect this opinion.
We will receive a fee for our fairness opinion services. CSBK has agreed to indemnify us against certain liabilities arising out of our engagement.
It is understood that this opinion may be included in its entirety in any communication by CSBK or its Board of Directors to the stockholders of CSBK. It is also understood that this opinion may be included in its entirety in any regulatory filing by CSBK, and that RP Financial consents to the summary of this opinion in the proxy materials of CSBK, and any amendments thereto. Except as described above, this opinion may not be summarized, excerpted from or otherwise publicly referred to without RP Financial’s prior written consent.
Based upon and subject to the foregoing, and other such matters we consider relevant, it is RP Financial’s opinion that, as of the date hereof, the Exchange Ratio in the Merger is fair to the holders of CSBK Common Stock from a financial point of view.
 |
November 1, 2017
The Board of Directors
Kearny Financial Corp.
120 Passaic Avenue
Fairfield, NJ 07004
Members of the Board:
You have requested the opinion of Keefe, Bruyette & Woods, Inc. (“KBW” or “we”) as investment bankers as to the fairness, from a financial point of view, to Kearny Financial Corp. (“Kearny”) of the Exchange Ratio (as defined below) in the proposed merger (the “Merger”) of Clifton Bancorp Inc. (“Clifton”) with and into Kearny, pursuant to the Agreement and Plan of Merger (the “Agreement”) to be entered into by and between Kearny and Clifton. Pursuant to the Agreement and subject to the terms, conditions and limitations set forth therein, by virtue of the Merger, automatically and without any action on the part of any holder of common stock, par value $0.01 per share, of Clifton (“Clifton Common Stock”), each share of Clifton Common Stock that is issued and outstanding at the Effective Time (as defined in the Agreement), other than Excluded Shares (as defined in the Agreement), shall become and be converted into the right to receive 1.191 shares of common stock, par value $0.01 per share, of Kearny (“Kearny Common Stock”). The ratio of 1.191 shares of Kearny Common Stock for one share of Clifton Common Stock is referred to herein as the “Exchange Ratio.” The terms and conditions of the Merger are more fully set forth in the Agreement.
The Agreement further provides that, simultaneously with or as soon as practicable following the Effective Time, Clifton Savings Bank, a wholly-owned subsidiary of Clifton, will be merged with and into Kearny Bank, a wholly-owned subsidiary of Kearny, pursuant to a separate plan of bank merger (such transaction, the “Bank Merger”).
KBW has acted as financial advisor to Kearny and not as an advisor to or agent of any other person. As part of our investment banking business, we are continually engaged in the valuation of bank and bank holding company securities in connection with acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for various other purposes. As specialists in the securities of banking companies, we have experience in, and knowledge of, the valuation of banking enterprises. We and our affiliates, in the ordinary course of our and their broker-dealer businesses (and in the case of Kearny, further to an existing sales and trading relationship with a KBW broker-dealer affiliate), may from time to time purchase securities from, and sell securities to, Kearny and Clifton. In addition, as a market maker in securities, we and our affiliates may from time to time have a long or short position in, and buy or sell, debt or equity securities of Kearny or Clifton for our and their own accounts and for the accounts of our and their respective customers and clients. We have acted exclusively for the board of directors of Kearny (the “Board”) in rendering this opinion and will receive a fee from Kearny for our services. A portion of our fee is payable upon the rendering of this opinion, and a significant portion is contingent upon the successful completion of the Merger. In addition, Kearny has agreed to indemnify us for certain liabilities arising out of our engagement.
Other than in connection with this present engagement, in the past two years, KBW has not provided investment banking and financial advisory services to Kearny. In the past two years, KBW has not provided investment banking and financial advisory services to Clifton. We may in the future provide investment banking and financial advisory services to Kearny or Clifton and receive compensation for such services.
The Board of Directors – Kearny Financial Corp.
November 1, 2017
Page 2 of 5
In connection with this opinion, we have reviewed, analyzed and relied upon material bearing upon the financial and operating condition of Kearny and Clifton and bearing upon the Merger, including among other things, the following: (i) a draft of the Agreement dated October 25, 2017 (the most recent draft made available to us); (ii) the audited financial statements and the Annual Reports onForm 10-K for the three fiscal years ended June 30, 2017 of Kearny; (iii) certain unaudited and preliminary financial results for the quarter ended September 30, 2017 of Kearny (provided to us by representatives of Kearny); (iv) the audited financial statements and the Annual Reports onForm 10-K for the three fiscal years ended March 31, 2017 of Clifton; (v) the unaudited quarterly financial statements and the Quarterly Report onForm 10-Q for the fiscal quarter ended June 30, 2017 of Clifton; (vi) certain unaudited and preliminary financial results for the quarter ended September 30, 2017 of Clifton (provided to us by representatives of Clifton); (vii) certain regulatory filings of Kearny, Clifton and their respective subsidiaries, including (as applicable) the quarterly reports onForm FRY-9C and quarterly call reports that were filed with respect to each quarter during the three year period ended June 30, 2017 (in the case of Kearny), the three year period ended March 31, 2017 and the quarter ended June 30, 2017 (in the case of Clifton); (viii) certain other interim reports and other communications of Kearny and Clifton to their respective stockholders; and (ix) other financial information concerning the respective businesses and operations of Kearny and Clifton that was furnished to us by Kearny and Clifton or which we were otherwise directed to use for purposes of our analysis. Our consideration of financial information and other factors that we deemed appropriate under the circumstances or relevant to our analyses included, among others, the following: (i) the historical and current financial position and results of operations of Kearny and Clifton; (ii) the assets and liabilities of Kearny and Clifton; (iii) the nature and terms of certain other merger transactions and business combinations in the banking industry; (iv) a comparison of certain financial and stock market information of Kearny and Clifton with similar information for certain other companies, the securities of which are publicly traded; (v) the publicly-available consensus “street estimates” of Clifton (giving effect to certain adjustments thereto provided to us by Kearny management), as well as assumed Clifton long-term growth rates provided to us by Kearny management, all of which information was discussed with us by Kearny management and used and relied upon by us at the direction of such management and with the consent of the Board; (vi) the publicly available consensus “street estimates” of Kearny (giving effect to certain adjustments thereto provided to us by Kearny management), as well as assumed Kearny long-term growth rates provided to us by Kearny management, all of which information was discussed with us by such management and used and relied upon by us at the direction of such management and with the consent of the Board; and (vii) estimates regarding certain pro forma financial effects of the Merger on Kearny (including without limitation the cost savings and related expenses expected to result or be derived from the Merger) that were prepared by Kearny management, provided to and discussed with us by such management, and used and relied upon by us at the direction of such management and with the consent of the Board. We have also performed such other studies and analyses as we considered appropriate and have taken into account our assessment of general economic, market and financial conditions and our experience in other transactions, as well as our experience in securities valuation and knowledge of the banking industry generally. We have also participated in discussions that were held by the managements of Kearny and Clifton regarding the past and current business operations, regulatory relations, financial condition and future prospects of their respective companies and such other matters as we have deemed relevant to our inquiry.
In conducting our review and arriving at our opinion, we havebut instead relied upon and assumed the accuracy and completeness of all of the financial and other information provided to us or that was publicly available and we have not independently verified the accuracy or completeness of any such information or assumed any responsibility or liability for such verification, accuracy or completeness. We have relied upon the management of Kearny as to the reasonableness and achievability of the publicly available consensus “street estimates” of Clifton and Kearny (in each case as adjusted as referred to above), the assumed long-term growth rates of Clifton and Kearny, and the estimates regarding certain pro forma financial effects of the Merger on Kearny (including,data provided.
The Board of Directors – Kearny Financial Corp.
November 1, 2017
Page 3 of 6
without limitation, the cost savings and related expenses expected to result or be derived from the Merger), all as referred to above, as well as the assumptions set forth in and the bases for all such information. We have assumed, at the direction of Kearny, that all of such information was reasonably prepared and represents, or in the case of the publicly available consensus “street estimates” of Clifton and Kearny referred to above that such estimates (as adjusted) are consistent with, the best currently available estimates and judgments of Kearny management, and that the forecasts, projections and estimates reflected in such information will be realized in the amounts and in the time periods currently estimated.
It is understood that the portion of the foregoing financial information of Kearny and Clifton that was provided to us was not prepared with the expectation of public disclosure, that all of the foregoing financial information, including the publicly available consensus “street estimates” of Clifton and Kearny referred to above, is based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions and that, accordingly, actual results could vary significantly from those set forth in such information. We have assumed, based on discussions with Kearny management and with the consent of the Board, that all such information provides a reasonable basis upon which we could form our opinion and we expressFCA expresses no view as to any such information or the assumptions or bases therefor. We have relied on all such information without independent verification or analysis and do not in any respect assume any responsibility or liability for the accuracy or completeness thereof. Given the substantial level of excess capital currently at both Clifton and Kearny and given that the publicly available consensus “street estimates” of Clifton and Kearny (in each case as adjusted by Kearny management) and the assumed Clifton and Kearny long-term growth rates provided to us by Kearny management do not reflect the impact of the expected future deployment of such excess capital (the actual timing and amount of which deployment are subject to substantial uncertainty), we have not relied upon a discounted cash flow analysis of either Clifton or Kearny.
We also have assumed that there have been no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of either Kearny or Clifton since the date of the last financial statements of each such entity that were made available to us and that we were directed to use. We are not experts in the independent verification of the adequacy of allowances for loan and lease losses and we have assumed, without independent verification and with your consent, that the aggregate allowances for loan and lease losses for each of Kearny and Clifton are adequate to cover such losses. In rendering our opinion, we have not made or obtained any evaluations or appraisals or physical inspection of the property, assets or liabilities (contingent or otherwise) of Kearny or Clifton, the collateral securing any of such assets or liabilities, or the collectability of any such assets, nor have we examined any individual loan or credit files, nor did we evaluate the solvency, financial capability or fair value of Kearny or Clifton under any state or federal laws, including those relating to bankruptcy, insolvency or other matters. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Because such estimates are inherently subject to uncertainty, we assume no responsibility or liability for their accuracy.
We have assumed, in all respects material to our analyses, the following: (i) that the Merger and any related transactions (including the Bank Merger) will be completed substantially in accordance with the terms set forth in the Agreement (the final terms of which we have assumed will not differ in any respect material to our analyses from the draft version reviewed by us and referred to above), with no adjustments to the Exchange Ratio and with no other consideration or payments in respect of Clifton Common Stock; (ii) that the representations and warranties of each party in the Agreement and in all related documents and instruments referred to in the Agreement are true and correct; (iii) that each party to the Agreement or any of the related documents will perform all of the covenants and agreements required to be performed by such party under such documents;
The Board of Directors – Kearny Financial Corp.
November 1, 2017
Page 4 of 6
(iv) that there are no factors that would delay or subject to any adverse conditions, any necessary regulatory or governmental approval for the Merger or any related transaction (including the Bank Merger) and that all conditions to the completion of the Merger and any such related transaction will be satisfied without any waivers or modifications to the Agreement or any of the related documents; and (v) that in the course of obtaining the necessary regulatory, contractual, or other consents or approvals for the Merger and any related transactions (including the Bank Merger), no restrictions, including any divestiture requirements, termination or other payments or amendments or modifications, will be imposed that will have a material adverse effect on the future results of operations or financial condition of Kearny, Clifton or the pro forma entity, or the contemplated benefits of the Merger, including without limitation the cost savings and related expenses expected to result or be derived from the Merger. We have assumed that the Merger will be consummated in a manner that complies with the applicable provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and all other applicable federal and state statutes, rules and regulations. We have further been advised by representatives of Kearny that Kearny has relied upon advice from its advisors (other than KBW) or other appropriate sources as to all legal, financial reporting, tax, accounting and regulatory matters with respect to Kearny, Clifton, the Merger and any related transaction (including the Bank Merger), and the Agreement. KBW has not provided advice with respect to any such matters.
This opinion addresses only the fairness, from a financial point of view, as of the date hereof, of the Exchange Ratio in the Merger to Kearny. We express no view or opinion as to any other terms or aspects of the Merger or any term or aspect of any related transaction (including the Bank Merger), including without limitation, the form or structure of the Merger or any such related transaction, any consequences of the Merger to Kearny, its stockholders, creditors or otherwise, or any terms, aspects, merits or implications of any employment, retention, consulting, voting, support, cooperation, stockholder or other agreements, arrangements or understandings contemplated or entered into in connection with the Merger, any such related transaction, or otherwise. Our opinion is necessarily based upon conditions as they exist and can be evaluated on the date hereof and the information made available to us through the date hereof. It is understood that subsequent developments may affect the conclusion reached in this opinion and that KBW does not have an obligation to update, revise or reaffirm this opinion. For purposes of our analyses, we have not incorporated previously publicly-announced proposed changes to United States tax laws regarding corporate tax rates. Our opinion does not address, and we express no view or opinion with respect to (i) the underlying business decision of Kearny to engage in the Merger or enter into the Agreement, (ii) the relative merits of the Merger as compared to any strategic alternatives that are, have been or may be available to or contemplated by Kearny or the Board, (iii) any business, operational or other plans with respect to Clifton or the pro forma entity that may be currently contemplated by Kearny or the Board or that may be implemented subsequent to the closing of the Merger, (iv) the fairness of the amount or nature of any compensation to any of Kearny’s officers, directors, or employees orof any class of such persons, relative to any compensationparty to the holders of Kearny Common Stock ortransaction relative to the Exchange Ratio, (v) the effect of the Merger or any related transaction (including the Bank Merger) on, or the fairness of the consideration to be received by, holders of any class of securities of Kearny, Clifton or any other partypaid to any transaction contemplated by the Agreement, (vi) any adjustment (as providedMSBF stockholders in the Agreement) to the Exchange Ratio assumed for purposes of our opinion, (vii) the actual value of Kearny Common Stock to be issued in connection with the Merger, (viii) the prices, trading rangetransaction or volume at which Kearny Common Stock or Clifton Common Stock will trade following the public announcement of the Merger or the prices, trading range or volume at which Kearny Common Stock will trade following the consummation of the Merger, (ix) any advice or opinions provided by any other advisor to any of the parties to the Merger or any other transaction contemplated by the Agreement, or (x) any legal, regulatory, accounting, tax or similar matters relating to Kearny, Clifton, any of their respective stockholders, or relating to or arising out of or as a consequence of the Merger or any other related transaction (including the Bank Merger), including whether or not the Merger will qualify as atax-free reorganization for United States federal income tax purposes.
The Board of Directors – Kearny Financial Corp.
November 1, 2017
Page 5 of 6
This opinion is for the information of, and is directed to, the Board (in its capacity as such) in connection with its consideration of the financial terms of the Merger. This opinion does not constitute a recommendation to the Board as to how it should vote on the Merger or to any holder of Kearny Common Stock or any stockholder of any other entity as to how to vote in connection with the Merger or any other matter, nor does it constitute a recommendation as to whether or not any such stockholder should enter into a voting, stockholders’, affiliates’ or other agreement with respect to the Merger or exercisefairness of any dissenters’ or appraisal rights that may be available to such stockholder.
Thiscompensation. The issuance of this opinion has been reviewed and approved by ourFCA’s Fairness Opinion Committee in conformity withCommittee.
In reaching our policies and procedures established underopinion, FCA took into consideration the requirements of Rule 5150financial benefits of the Financial Industry Regulatory Authority.
proposed transaction to MSBF stockholders. Based uponon all factors deemed relevant and subject toassuming the foregoing,accuracy and completeness of the information and data provided by MSBF and KRNY, it is ourFCA’s opinion that, as of this date, the date hereof, the Exchange Ratio in the Mergermerger consideration being offered by KRNY is fair, from a financial point of view, to Kearny.
Very truly yours,MSBF and its stockholders.
| Respectfully Submitted, |
 |
FinPro Capital Advisors, Inc. Gladstone, New Jersey |
Keefe, Bruyette & Woods,FinPro Capital Advisors, Inc. (Member FINRA/SIPC) is a wholly owned subsidiary of FinPro, Inc.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
| Item 20. | Indemnification of Directors and Officers |
The MGCL permits the charter of a Maryland corporation to include a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except to the extent that (i) it is proved that the director or officer actually received an improper benefit or profit in money, property or services for the amount of the benefit or profit in money, property or services actually received; or (ii) a judgment or other final adjudication adverse to the director or officer is entered in a proceeding based on a finding that the director’s or officer’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding.
Section 2-418 of the MGCL provides that a Maryland corporation may indemnify any director or officer of a corporation who is made a party to any proceeding by reason of service in that capacity unless it is established that (1) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty; or (2) the director or officer actually received an improper personal benefit in money, property or services; or (3) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.Section 2-418 of the MGCL further provides that indemnification may be against judgments, penalties, fines, settlements, and reasonable expenses actually incurred by the director or officer in connection with the proceeding, but if the proceeding was one by or in the right of the corporation, indemnification may not be made in respect of any proceeding in which the director or officer shall have been adjudged to be liable to the corporation. Such indemnification may not be made unless authorized for a specific proceeding after a determination has been made, in the manner prescribed by the law, that indemnification of the director or officer is permissible in the circumstances because the director or officer has met the applicable standard of conduct. On the other hand, unless limited by the corporation’s charter, the director or officer must be indemnified against reasonable expenses incurred by the director or officer if he or she has been successful in the defense of the proceeding, or in the defense of any claim, issue or matter in the proceeding, or as otherwise ordered by a court. The law also prescribes the circumstances under which the corporation may advance expenses to, or obtain insurance or similar protection for, directors and officers.
Articles 10 and 11 of the Articles of Incorporation of Kearny Financial Corp. (the “Corporation”) set forth circumstances under which directors, officers, employees and agents of the Corporation may be insured or indemnified against liability which they incur in their capacities as such:
ARTICLE 10. Indemnification, etc. of Directors and Officers.
A.Indemnification.The Corporation shall indemnify (1) its current and former directors and officers, whether serving the Corporation or at its request any other entity, to the fullest extent required or permitted by the MGCL now or hereafter in force, including the advancement of expenses under the procedures and to the fullest extent permitted by law, and (2) other employees and agents to such extent as shall be authorized by the Board of Directors and permitted by law; provided, however, that, except as provided in Section B of this Article 10 with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.
B.Procedure.If a claim under Section A of this Article 10 is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in
II-1
whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall also be entitled to be reimbursed the expense of prosecuting or defending such suit. It shall be a defense to any action for advancement of expenses that the Corporation has not received both (i) an undertaking as required by law to repay such advances in the event it shall ultimately be determined that the standard of conduct has not been met and (ii) a written affirmation by the indemnitee of his good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any
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suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met the applicable standard for indemnification set forth in the MGCL. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the MGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article 10 or otherwise shall be on the Corporation.
C.Non-Exclusivity.The rights to indemnification and to the advancement of expenses conferred in this Article 10 shall not be exclusive of any other right that any Person may have or hereafter acquire under any statute, these Articles, the Corporation’s Bylaws, any agreement, any vote of stockholders or the Board of Directors, or otherwise.
D.Insurance.The Corporation may maintain insurance, at its expense, to insure itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such Person against such expense, liability or loss under the MGCL.
E.Miscellaneous.The Corporation shall not be liable for any payment under this Article 10 in connection with a claim made by any indemnitee to the extent such indemnitee has otherwise actually received payment under any insurance policy, agreement, or otherwise, of the amounts otherwise indemnifiable hereunder. The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article 10 shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee’s heirs, executors and administrators.
F.Limitations Imposed by Federal Law. Notwithstanding any other provision set forth in this Article 10, in no event shall any payments made by the Corporation pursuant to this Article 10 exceed the amount permissible under applicable federal law, including, without limitation, Section 18(k) of the Federal Deposit Insurance Act and the regulations promulgated thereunder.
Any repeal or modification of this Article 10 shall not in any way diminish any rights to indemnification or advancement of expenses of such director or officer or the obligations of the Corporation arising hereunder with respect to events occurring, or claims made, while this Article 10 is in force.
ARTICLE 11. Limitation of Liability.An officer or director of the Corporation, as such, shall not be liable to the Corporation or its stockholders for money damages, except (A) to the extent that it is proved that the Person actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received; or (B) to the extent that a judgment or other
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final adjudication adverse to the Person is entered in a proceeding based on a finding in the proceeding that the Person’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding; or (C) to the extent otherwise provided by the MGCL. If the MGCL is amended to further eliminate or limit the personal liability of officers and directors, then the liability of officers and directors of the Corporation shall be eliminated or limited to the fullest extent permitted by the MGCL, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification.
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| Item 21. | Exhibits and Financial Statement Schedules |
The exhibits filed as part of this registration statement are as follows:
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| * | Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of RegulationS-K. Kearny Financial Corp. agrees to furnish supplementally a copy of any omitted attachment to the Securities and Exchange Commission on a confidential basis upon request. |
| ** | Previously |
| Item 22. | Undertakings. |
The undersigned registrant hereby undertakes:
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement (notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement); and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
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| (2) | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fideoffering thereof. |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| (4) | That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fideoffering thereof. |
| (5) | That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the registrant undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. |
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| (6) | That every prospectus (i) that is filed pursuant to paragraph (5) above, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment has become effective, and that for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fideoffering thereof. |
| (7) | To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. |
| (8) | To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of, and included in, this registration statement when it became effective. |
| (9) | Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
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Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fairfield, State of New Jersey, on January 12, 2018.April 6, 2020.
| KEARNY FINANCIAL CORP. | ||
| By: | /s/ Craig L. Montanaro | |
| Craig. L. Montanaro | ||
| President, Chief Executive Officer and Director | ||
| (Duly Authorized Representative) | ||
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signatures | Title | Date | ||
/s/ Craig L. Montanaro Craig L. Montanaro | President, Chief Executive Officer and Director (Principal Executive Officer) |
| ||
/s/
| Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
| ||
* Theodore J. Aanensen | Director |
| ||
* Raymond E. Chandonnet | Director |
| ||
* John N. Hopkins | Director | April 6, 2020 | ||
Catherine A. Lawton | Director | April 6, 2020 | ||
* John J. Mazur, Jr. | Director |
| ||
* Joseph P. Mazza | Director |
| ||
* Matthew T. McClane | Director |
| ||
* John F. McGovern | Director |
| ||
|
| |||
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Signatures | Title | Date | ||
* Leopold W. Montanaro | Director | April 6, 2020 | ||
* Christopher D. Petermann | Director | April 6, 2020 | ||
Charles J. Pivirotto | Director | April 6, 2020 | ||
* John F. Regan | Director |
| ||
| * | Pursuant to a Power of Attorney contained in the signature page to the Registration Statement on Form S-4 of Kearny Financial Corp. filed on |
/s/ Craig L. Montanaro | ||||
| Craig L. Montanaro | ||||
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