Filed with the Securities and Exchange Commission on November 8, 1996
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
RIVER VALLEY BANCORP
(Exact name of registrant as specified in its charter)
Indiana 6712 35-1984567
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code No.) Identification No.)
incorporation or
organization)
303 Clifty Drive James E. Fritz
P.O. Box 626 Madison First Federal
Madison, Indiana 47250 Savings and Loan Association
(812) 273-4949 303 Clifty Drive
P.O. Box 626
(Address, including zip code, Madison, Indiana 47250
and telephone number, including (812) 273-4949
area code, of registrant's principal
executive offices) (Address, including zip code,
and telephone number, including
area code, of agent for service)
Copy to:
Claudia S. Swhier, Esq.
Barnes & Thornburg
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, Indiana 46204
Approximate date of commencement of proposed sale to the public: As
promptly as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box:
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
CALCULATION OF REGISTRATION FEE
<TABLE>
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Proposed Proposed Maximum Amount of
Title of each Class of Amount to be Maximum Offering Aggregate Offering Registration
Securities to be Registered Registered Price Per Unit Price (1) Fee
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<S> <C> <C> <C> <C>
Common Stock, without par value 1,190,250 $10.00 $11,902,500 $4,104.31 (2)
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee.
(2) Previously filed with Form S-1 Registration Statement.
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 Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Item in Form S-1 Caption in Prospectus
- ------------------------------------------------------ ----------------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside Forepart of Registration Statement and Outside
Front Cover Page of Prospectus Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover Pages of
Prospectus Prospectus
3. Summary Information, Risk Factors, and Ratio of "PROSPECTUS SUMMARY"; "RISK
Earnings to Fixed Charges FACTORS"
4. Use of Proceeds "USE OF PROCEEDS"
5. Determination of Offering Price "THE CONVERSION - Stock Pricing"
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution "PROSPECTUS SUMMARY"; "THE
CONVERSION
-
Subscription Offering,"
"- Direct Community Offering,"
"-Agent," "Selected Dealers"
9. Description of Securities to be Registered "DESCRIPTION OF CAPITAL STOCK"
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to Registrant
(a) Description of Business "RIVER VALLEY BANCORP";
"MADISON FIRST FEDERAL SAVINGS AND
LOAN ASSOCIATION"; "CITIZENS NATIONAL
BANK OF MADISON"; "BUSINESS OF FIRST
FEDERAL"; "BUSINESS OF CITIZENS"
(b) Description of Property "BUSINESS OF FIRST FEDERAL - Properties";
"BUSINESS OF CITIZENS - Properties"
(c) Legal Proceedings "BUSINESS OF FIRST FEDERAL - Legal Proceedings";
"BUSINESS OF CITIZENS - Legal Proceedings"
(d) Market Price of and Dividends on the "MARKET FOR THE COMMON STOCK;"
Registrant's Common Equity and Related "DIVIDEND POLICY;" "ANTICIPATED
Stockholder Matters MANAGEMENT PURCHASES"; "DESCRIPTION
OF CAPITAL STOCK"
(e) Financial Statements "FINANCIAL STATEMENTS"; "SELECTED PRO
FORMA UNAUDITED CONDENSED COMBINED
FINANCIAL DATA OF THE HOLDING COMPANY";
"UNAUDITED PRO FORMA CONSOLIDATED
COMBINED FINANCIAL STATEMENTS";
"PRO FORMA DATA"
(f) Selected Financial Data "SELECTED CONSOLIDATED FINANCIAL
DATA OF MADISON FIRST FEDERAL
SAVINGS AND LOAN ASSOCIATION AND
SUBSIDIARIES"; "SELECTED CONSOLIDATED
FINANCIAL DATA OF CITIZENS NATIONAL BANK
OF MADISON"
(g) Supplementary Financial Information Not Applicable
(h) Management's Discussion and Analysis of "MANAGEMENT'S DISCUSSION AND
Financial Condition and Results of Operations ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF MADISON FIRST
FEDERAL SAVINGS AND LOAN ASSOCIATION";
"MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CITIZENS NATIONAL
BANK OF MADISON"
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(i) Changes in and Disagreements with Accountants Not Applicable
on Accounting and Financial Disclosure
(j) Directors and Executive Officers "MANAGEMENT OF THE HOLDING
COMPANY"; "MANAGEMENT OF
FIRST FEDERAL"; "MANAGEMENT OF
CITIZENS"
(k) Executive Compensation "EXECUTIVE COMPENSATION AND
RELATED TRANSACTIONS OF FIRST
FEDERAL"; "EXECUTIVE COMPENSATION
AND RELATED TRANSACTIONS OF
CITIZENS"
(l) Security Ownership of Certain Beneficial "ANTICIPATED MANAGEMENT
Owners and Management PURCHASES"
(m) Certain Relationships and Related Transactions "EXECUTIVE COMPENSATION AND
RELATED TRANSACTIONS OF
FIRST FEDERAL - Transactions with Certain
Related Persons"; "EXECUTIVE
COMPENSATION AND RELATED
TRANSACTIONS OF CITIZENS -
- Transactions with Certain Related Persons"
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
</TABLE>
<PAGE>
SUBSCRIPTION AND DIRECT COMMUNITY OFFERING PROSPECTUS
River Valley Bancorp
Madison, Indiana
(Proposed Holding Company for Madison First
Federal Savings and Loan Association
and Citizens National Bank of Madison)
Up to 1,035,000 (Anticipated Maximum) Shares of Common Stock
River Valley Bancorp, an Indiana corporation (the "Holding Company"), is
offering for sale, as described below, up to 1,035,000 shares of its common
stock, without par value (the "Common Stock"), in connection with (i) its
acquisition of the common stock of Madison First Federal Savings and Loan
Association ("Madison First") to be issued upon the conversion of Madison First
from a federal mutual savings and loan association to a federal stock savings
and loan association (the "Conversion") and (ii) its acquisition (the
"Acquisition") of 120,429 shares of common stock, $8.00 par value per share (the
"Citizens Shares"), of Citizens National Bank of Madison ("Citizens"),
constituting 95.6 % of the issued and outstanding shares of Citizens' common
stock. Madison First and Citizens are together hereinafter referred to as the
"Institutions." The purchase price for the Common Stock (the "Purchase Price")
is $10.00 per share. As part of the Conversion, Madison First will adopt a
Federal Stock Charter and amended and restated By-Laws. For a description of the
Conversion transaction, see "The Conversion." For a description of the
Acquisition, see "The Acquisition." Pursuant to the Conversion, the Common Stock
is first being offered in a subscription offering (the "Subscription Offering"),
in order of priority and subject to availability, to: (i) certain holders of
deposit accounts at Madison First with an aggregate balance of $50.00 or more as
of December 31, 1994 ("Eligible Account Holders"); (ii) the Holding Company's
tax-qualified Employee Stock Ownership Plan and Trust (the "ESOP"); (iii)
certain holders of deposit accounts at Madison First with an aggregate balance
of $50.00 or more as of September 30, 1996 ("Supplemental Eligible Account
Holders"); and (iv) other deposit account holders and borrowers of Madison First
as of November 1, 1996 ("Other Members"), subject to the limitations described
herein. (continued on next page.)
SEE "RISK FACTORS" BEGINNING ON PAGE 25 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
THE SHARES OF COMMON STOCK BEING OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
SAVINGS DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION (THE "FDIC") OR ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "SEC"), ANY STATE SECURITIES COMMISSION, THE OTS OR
THE FDIC, NOR HAS THE SEC, ANY STATE SECURITIES COMMISSION, THE OTS OR THE FDIC
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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Estimated Estimated
Underwriting Fees and Net Conversion
Purchase Price (1) Other Expenses (2) Proceeds (3)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Per Share.................................... $10.00 $0.83 $9.17
Midpoint Per Share................................... $10.00 $0.74 $9.26
Maximum Per Share.................................... $10.00 $0.67 $9.33
Maximum Per Share, as adjusted (4)................... $10.00 $0.62 $9.38
Total Minimum........................................ $7,650,000 $636,000 $7,014,000
Total Midpoint....................................... $9,000,000 $667,000 $8,333,000
Total Maximum........................................ $10,350,000 $698,000 $9,652,000
Total Maximum, as adjusted (4)....................... $11,902,500 $735,000 $11,167,500
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</TABLE>
(1) The current aggregate value of the Common Stock is based upon an
independent appraisal of the Common Stock by Keller & Company, Inc.
("Keller") as of May 3, 1996, as updated as of October 22, 1996. See "The
Conversion -- Stock Pricing." The total offering will be within a range of
$7,650,000 to $10,350,000 (the "Estimated Valuation Range"), unless market
and financial conditions necessitate a change in this range, which change
would be supported by a change in the appraisal. Changes in the size of the
offering will have an effect on the estimated net proceeds of the offering
and pro forma capitalization and book value per share of the Holding
Company. If the final valuation is not within a range between the minimum
of the Estimated Valuation Range to 15% above the maximum of the Estimated
Valuation Range, subscribers will be given notice of such change, which
notice will set a date by which subscribers must elect whether to continue
their subscriptions during any offering at a revised Estimated Valuation
Range. In such event, subscribers will be given the right to have their
subscriptions returned promptly after they inform the Holding Company of
their decision not to continue their subscriptions. Subscriptions as to
which the Holding Company receives no affirmative or negative election by
the date specified in the notice will be returned promptly after such date.
See "Use of Proceeds," "Capitalization," and "Pro Forma Data."
(2) Consists of estimated costs to Madison First and the Holding Company
arising from the Conversion, including estimated management fees,
commissions and reimbursable out-of-pocket expenses to be paid to Trident
Securities, Inc. (the "Agent") in connection with the Agent's engagement as
exclusive sales agent and financial advisor to the Holding Company and
Madison First. Madison First and the Holding Company will pay the Agent a
management fee equal to 0.5% of the aggregate number of shares of Common
Stock sold in the Conversion. Commissions are estimated based on the total
number of shares of Common Stock sold, assuming a 2.0% commission paid to
the Agent with respect to all shares sold in the Subscription Offering and
the Direct Community Offering (except for purchases by the ESOP, officers
and directors of the Institutions and their Associates, as hereinafter
defined), and assuming no sales have been made through selected dealers.
See "Use of Proceeds." Total estimated management fees and commissions, not
including reimbursable expenses, to be paid to the Agent will be
approximately $154,050 and $253,559 based on sales at the minimum and the
adjusted maximum, respectively, assuming no sales through selected dealers
and assuming purchases of 196,800 shares by officers and directors of the
Institutions and by the ESOP. Offers and sales in the Direct Community
Offering will be on a best efforts basis. The Holding Company and Madison
First have agreed to indemnify the Agent against certain liabilities,
including liabilities arising under the Securities Act of 1933, as amended
(the "1933 Act"). See "The Conversion -- Agent."
(3) Net Conversion proceeds may vary from the estimated amounts. The Holding
Company will initially receive 50% of the net Conversion proceeds after
providing for the loan to the ESOP to allow the ESOP to purchase shares of
Common Stock in the Conversion. The Holding Company will use $3,010,715 of
the proceeds to acquire the Citizens Shares in the Acquisition. The Holding
Company will also use a portion of the proceeds remaining after acquisition
of the Citizens Shares to make a capital contribution to Citizens of up to
$1.5 million. See "Pro Forma Data" and "Use of Proceeds."
(4) Gives effect to an increase in the number of shares which could occur due
to an increase of up to 15% above the maximum number of shares which may be
offered in the Conversion to reflect changes in market and financial
conditions following commencement of the Subscription and Direct Community
Offerings. No resolicitation of subscribers will be made and subscribers
will not be permitted to modify or cancel their subscriptions unless the
gross proceeds from the sale of Common Stock in the Conversion are less
than the minimum or more than 15% above the maximum of the Estimated
Valuation Range. See "The Conversion -- Number of Shares to be Issued."
TRIDENT SECURITIES, INC.
The date of this Prospectus is November ___ 1996.
<PAGE>
Pursuant to Office of Thrift Supervision ("OTS") regulations, subscription
rights granted to the above persons are non-transferable; persons violating such
provisions may lose their right to purchase Common Stock in the Conversion and
be subject to other possible sanctions and penalties imposed by the OTS.
Shareholders, depositors and borrowers of Citizens do not have subscription
rights under Madison First's Plan of Conversion (the "Plan" or the "Plan of
Conversion") unless such persons are otherwise Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members of Madison First. See
"The Conversion -- Subscription Offering." Commencing concurrently with the
Subscription Offering, and subject to the prior rights of holders of
subscription rights, the Common Stock is also being offered to members of the
general public, with preference given to residents of Jefferson County, Indiana,
pursuant to a direct community offering (the "Direct Community Offering").
Madison First has the right to terminate the Direct Community Offering as soon
as it has received orders for at least the minimum number of shares available
for purchase in the Conversion. See "The Conversion--Direct Community Offering."
The Subscription Offering will expire at 4:00 p.m., Madison time, on
December 11, 1996, unless extended by Madison First and the Holding Company. The
Direct Community Offering may expire as early as December 11, 1996, or at any
time thereafter (until January 25, 1997, unless extended by Madison First and
the Holding Company) when orders for at least 765,000 shares of Common Stock
have been received in both the Subscription Offering and the Direct Community
Offering, if any. Neither the Subscription Offering nor the Direct Community
Offering may be extended beyond January 25, 1997, without regulatory approval.
See "The Conversion--Subscription Offering" and "--Direct Community Offering."
All purchases will be subject to maximum and minimum purchase limitations, and
to certain other terms and conditions described below. Under the Plan, no
Eligible Account Holder, Supplemental Eligible Account Holder or Other Member
may purchase more than 10,000 shares per deposit account held or loan owed to
Madison as of the applicable date for his or her subscription rights. No
subscribing member, alone or with an Associate or group of persons acting in
concert, may purchase more than 20,000 shares of Common Stock in the Conversion.
No person, alone or with an Associate or group of persons acting in concert, may
purchase more than 10,000 shares of Common Stock in the Direct Community
Offering. A member who, together with his Associates and persons acting in
concert, has subscribed for shares in the Subscription Offering may subscribe
for a number of additional shares in the Direct Community Offering that does not
exceed the lesser of (i) 10,000 shares or (ii) the number of shares which, when
added to the number of shares subscribed for by the member (and his Associates
and persons acting in concert) in the Subscription Offering, would not exceed
20,000. Notwithstanding the foregoing, the ESOP may purchase up to 10% of the
Common Stock sold in the Conversion. The ESOP currently intends to acquire 8% of
the shares sold in the Conversion. The ESOP may purchase Common Stock if shares
remain available after satisfying the subscriptions of Eligible Account Holders
up to $10,350,000, the maximum of the Estimated Valuation Range. The ESOP
reserves the right to have all or part of its order filled by purchases in the
open market following the Conversion. See "Executive Compensation and Related
Transactions of Madison First -- Employee Stock Ownership Plan and Trust" and
"Executive Compensation and Related Transactions of Citizens -- Employee Stock
Ownership Plan and Trust." The minimum number of shares of Common Stock that may
be purchased by any person or entity is 25 shares. Madison First and the Holding
Company, in their sole discretion, may increase or decrease subscription rights
and the purchase limitations. See "The Conversion -- Limitations on Common Stock
Purchases."
Shares of Common Stock may be ordered at the Purchase Price directly from
the Holding Company by returning the appropriate stock order form and
certification (the "Order Form"), together with full payment, or appropriate
instructions authorizing withdrawals from accounts at Madison First, for the
shares to be purchased. Orders must be received at Madison First's Stock
Information Center, by 4:00 p.m., Madison time, on December 11, 1996. All
amounts subscribed for by check will be placed in a special savings account at
Madison First and will earn interest at the then-current passbook rate, which is
currently 3.00% per annum (for an annual percentage yield ("APY") of 3.04%),
from the date of receipt until completion or termination of the Conversion.
Subscriptions are irrevocable until 45 days after the expiration of the
Subscription Offering (January 25, 1997). Funds authorized for withdrawal from
accounts will continue to earn interest at the rate specified on the account
until completion of the Conversion and will not be subject to early withdrawal
penalties. If the Conversion is not completed by January 25, 1997, and Madison
First and the Holding Company elect to extend the time required to complete the
Conversion, subscribers will be given the right to increase, decrease or rescind
their subscriptions as set forth in the Plan of Conversion. If Madison First and
the Holding Company decide to extend the Subscription Offering, subscribers will
be given the right to have their subscriptions promptly refunded following the
conclusion of the current offering (which will end no later than January 25,
1997), and Madison First will return subscriptions with interest unless
subscribers affirmatively elect to continue their subscriptions during the
period of extension. If the offering period is not extended and the Conversion
is not completed, all subscription funds will be promptly returned, together
with accrued interest from the date of receipt, and all withdrawal
authorizations will be terminated. Any delay in completing the Conversion may
result in a delay in shareholders of the Holding Company receiving their stock
certificates, increased Conversion costs and expenses or a change in the
Estimated Valuation Range. See "Risk Factors -- Risk of Delayed Offering." The
offering may be extended, subject to OTS approval, until 24 months following the
members' approval, or until December 18, 1998.
Under the Plan of Conversion, the Conversion will not become effective
until such time as all conditions precedent to the Acquisition are satisfied.
See "The Acquisition." Therefore, a delay in the satisfaction of any conditions
precedent to the Acquisition would result in a delay in completing the
Conversion. See "Risk Factors -- Risk of Delayed Offering." If at any time it
becomes clear that any condition precedent to the Acquisition will not be
satisfied, the Conversion and the Plan will terminate, and Madison First will
promptly refund all subscription funds with accrued interest and cancel all
withdrawal authorizations. See "The Conversion -- Conditions and Termination."
<PAGE>
The maximum number of 1,035,000 shares of Common Stock offered hereby
represents the high end of a range from 765,000 shares to 1,035,000 shares at an
offering price of $10.00 per share, based upon an independent appraisal of the
aggregate pro forma market value of the Common Stock as of May 3, 1996, as
updated as of October 22, 1996, in accordance with applicable regulations. The
number of shares to be sold in the Conversion must fall within this range unless
market and financial conditions necessitate a change in the range, which change
would be supported by a change in the appraisal. The Holding Company and Madison
First reserve the right to reject any orders received in the Direct Community
Offering in whole or in part. Funds received pursuant to rejected orders will be
refunded promptly with any interest due thereon.
The Holding Company and Madison First have engaged the Agent as exclusive
sales agent to assist on a best efforts basis in the sale of Common Stock in
both the Subscription Offering and the Direct Community Offering, if any. In
addition to assisting in the marketing of the Common Stock, the Agent will
assist the Holding Company and Madison First by, among other things, training
Madison First's employees regarding the mechanics and regulatory requirements of
the conversion process, conducting informational meetings for subscribers and
other potential purchasers and keeping records of all stock subscriptions. The
Agent will only be assisting the Holding Company on a best efforts basis in
effecting the sale of Common Stock directly. The Agent will have no obligation
to take or purchase any Common Stock. The Agent intends to make a market in the
Common Stock following the Conversion, although it is under no obligation to do
so. See "The Conversion -- Agent." Upon a determination by the Holding Company,
Madison First and the Agent, the Agent may enter into agreements to use the
services of dealers selected by the Holding Company, Madison First and the Agent
in the Direct Community Offering, if any. If used, any selected dealers will
solicit indications of interest on a best efforts basis from their customers to
place orders for Common Stock, which orders will be placed only when and if the
Agent, the Holding Company and Madison First believe that enough indications of
interest and orders have been received in the Subscription Offering and the
Direct Community Offering to consummate the Conversion. See "The Conversion --
Selected Dealers."
The Holding Company has received approval to have its Common Stock quoted
on the National Association of Securities Dealers Automated Quotation ("NASDAQ")
Small Cap Market under the symbol "RIVR," subject to certain conditions which
the Holding Company and Madison First believe will be met. Prior to this
offering, there was no public market for the Common Stock and there can be no
assurance that an established and liquid market for the Common Stock will
develop or, if such a market does develop, that it will continue. In addition,
there can be no assurance that resales of the Common Stock after completion of
the Conversion can be made at or above the Purchase Price. See "Market for the
Common Stock."
The number of shares of Common Stock directors and executive officers of
Madison First may purchase is limited under the Plan. Directors and executive
officers of the Institutions expect to purchase 124,800 shares, or 13.9% of the
total shares offered in the Conversion (at the midpoint of the Estimated
Valuation Range). See "Anticipated Management Purchases." Purchases made by
directors and executive officers of the Institutions will apply toward the
minimum required number of shares (765,000) to be sold in the Conversion and
will be made for investment purposes only.
CONSUMMATION OF THE CONVERSION IS SUBJECT TO THE SATISFACTION OF ALL
CONDITIONS PRECEDENT TO THE ACQUISITION AND THE APPROVAL OF THE PLAN OF
CONVERSION BY A MAJORITY OF THE TOTAL VOTES OF MADISON FIRST'S MEMBERS ELIGIBLE
TO BE CAST AT A SPECIAL MEETING CALLED FOR DECEMBER 18, 1996.
<PAGE>
Madison First Federal Savings
and Loan Association and
Citizens National Bank of Madison
Madison, Indiana
[MAP OF INDIANA WITH JEFFERSON COUNTY PULLED OUT AND
THE LOCATIONS OF HANOVER AND MADISON ARE INDICATED]
<PAGE>
PROSPECTUS SUMMARY
This summary and the selected financial data which follow this summary do
not purport to be complete and are qualified in their entirety by the more
detailed information and financial statements appearing elsewhere herein.
Risk Factors
There are certain risk factors relating to an investment in the Common
Stock which should be carefully examined by prospective purchasers of the Common
Stock, including risks inherent in the potential impact of changes in interest
rates, risks associated with the Holding Company's commitment to cause Madison
First to divest its Hanover, Indiana branch as a condition to obtaining the
requisite approval for the Acquisition from the Board of Governors of the
Federal Reserve System (the "FRB"), risks associated with the Acquisition, risks
associated with Citizens' commercial lending, risks associated with the
Institutions' nonresidential real estate and multi-family lending, the impact of
Madison First's decreasing earnings and the effect on return on equity, the
existence of the Minority Shares (as defined below), the possible dilutive
effect of stock-based benefit plans expected to be adopted by the Holding
Company following the Conversion, the potential benefits to management of the
Holding Company and the Institutions upon and subsequent to the Conversion, the
potential impact of ESOP compensation expenses, the absence of an established
trading market for the Common Stock, competition in the Institutions' local
market area, the Institutions' geographic concentration of loans, the risk of a
delayed offering, anti-takeover provisions, the possible effects of regulatory
oversight and recent legislation, and the potential income tax consequences of
subscription rights. See "Risk Factors."
The Holding Company
The Holding Company is an Indiana corporation organized in May, 1996, to
acquire all of the common stock of Madison First in the Conversion and the
Citizens Shares in the Acquisition, and thereafter to act as the savings and
loan holding company for Madison First and as the bank holding company for
Citizens. Pursuant to the Plan of Conversion, the Holding Company will offer the
Common Stock to Eligible Account Holders, the ESOP, Supplemental Eligible
Account Holders, Other Members, and to the general public. The holding company
structure will provide increased flexibility in conducting future business
activities related to the Institutions. The Holding Company currently intends to
maintain the independence of the Institutions, but may in the future evaluate a
possible merger or combination of the Institutions. The Holding Company has
received the approval of the OTS to become a savings and loan holding company
through the acquisition of the common stock of Madison First in the Conversion.
The Holding Company has also received the approval of the FRB to become a bank
holding company through the acquisition of the Citizens Shares in the
Acquisition; however, the FRB's approval was conditioned on the Holding
Company's commitment to cause Madison First to (i) enter into a definitive
agreement to sell Madison First's Hanover, Indiana branch, including the
physical facilities and at least $7.5 million of deposits originated at that
branch, prior to consummation of the Acquisition and (ii) complete the sale of
the Hanover, Indiana branch within 180 days of consummation of the Acquisition.
See "Risk Factors -- Divestiture of Hanover Branch." Prior to the Conversion and
the Acquisition, the Holding Company will not engage in any material operations.
Upon consummation of the Acquisition, the Holding Company will be a savings and
loan holding company and a bank holding company, the activities of which will be
restricted generally by federal law and FRB regulations to activities considered
related to banking. See "Regulation -- Bank Holding Company Regulation" and "--
Savings and Loan Holding Company Regulation." Upon consummation of the
Conversion and the Acquisition, the Holding Company will have no significant
assets other than the common stock of Madison First, the Citizens Shares, the
ESOP loan and that portion of the net Conversion proceeds retained by the
Holding Company and not used by the Holding Company to purchase the Citizens
Shares, some of which will be used to make a capital contribution to Citizens of
up to $1.5 million. The Holding Company may also use a portion of such remaining
funds, if any, to pay dividends and, subject to applicable regulatory
restrictions, to repurchase shares of its Common Stock, although it has no
present plans to do so. See "Use of Proceeds." Other than in connection with the
Acquisition, the Holding Company has no current arrangements, negotiations or
agreements, written or oral, with respect to any future acquisition. The Holding
Company's executive office is located at 303 Clifty Drive, Post Office Box 626,
Madison, Indiana 47250, and its telephone number is (812) 273-4949. See "River
Valley Bancorp."
<PAGE>
Madison First
Madison First, organized as a federally chartered savings and loan
association in 1875, currently conducts its business from three full-service
offices and one stand-alone drive-through branch, all located in Jefferson
County, Indiana. However, as a condition to the Holding Company obtaining the
requisite approval for the Acquisition from the FRB, the Holding Company
committed to cause Madison First to (i) enter into a definitive agreement to
sell Madison First's Hanover, Indiana branch prior to consummation of the
Acquisition and (ii) complete the sale of the Hanover, Indiana branch, including
the physical facilities and at least $7.5 million of deposits originated at that
branch, within 180 days of consummation of the Acquisition. In the event Madison
First does not complete the divestiture of its Hanover branch within 180 days of
the consummation of the Acquisition, the Hanover branch will be placed in trust,
and an independent trustee will proceed with an immediate disposition of the
Hanover branch without regard to price. See "Risk Factors -- Divestiture of
Hanover Branch." Madison First's principal business historically has been
attracting deposits from the general public and originating fixed-rate and
adjustable-rate loans secured by first mortgage liens on one- to four-family
real estate within Jefferson County, Madison First's principal market area. See
"Business of Madison First." Jefferson County is located in southern Indiana,
approximately 95 miles south of Indianapolis, 55 miles northeast of Louisville,
Kentucky and 75 miles west of Cincinnati, Ohio. According to the U.S. Bureau of
Census, the city of Madison, the county seat of Jefferson County, had a
population of 12,006, and Jefferson County had a population of 29,797, at the
time of the 1990 census. See "Market Area." Madison First's deposits are insured
up to applicable limits by the FDIC through the Savings Association Insurance
Fund ("SAIF").
At June 30, 1996, Madison First had total assets of $81.9 million, deposits
of $74.7 million and net equity capital of $6.7 million, an amount equal to 8.2%
of total assets. Madison First's net income for the year ended December 31, 1995
and the six months ended June 30, 1996 was $258,000 and $181,000, respectively.
Madison First's net yield on weighted average interest-earning assets for the
year ended December 31, 1995 and the six months ended June 30, 1996 was 2.61%
and 2.94%, respectively. Madison First's capital ratios are now, and on a pro
forma basis will be, in excess of all regulatory capital requirements, as
prescribed by law. See "Pro Forma Data -- Regulatory Capital Compliance."
Madison First has no current arrangements, negotiations, or agreements, written
or oral, with respect to any future acquisition.
Madison First is the oldest independent financial institution headquartered
in Jefferson County. Management believes Madison First has developed a solid
reputation among its loyal customer base because of its commitment to personal
service and its strong support of the local community. By focusing primarily on
residential real estate mortgage lending in Jefferson County, Madison First has
achieved the following:
o Asset Quality and Emphasis on Residential Mortgage Lending. Since its
inception, Madison First has emphasized the financing of
single-family, owner-occupied residences in its market area. Madison
First anticipates a continued commitment to financing the purchase or
improvement of such residences. By emphasizing one- to four-family
residential mortgage loans, Madison First's strategy previously
minimized the credit risk of its asset base in exchange for lower
yields than would typically be available on riskier investments, such
as commercial loans. At June 30, 1996, 76.5% of Madison First's total
loan portfolio consisted of one- to four-family residential mortgage
loans. At that date, non-performing assets totaled $223,000, or .27%
of total assets, and Madison First's ratio of allowance for loan
losses to total loans outstanding was .72%. See "Business of Madison
First -- Non-Performing and Problem Assets."
o Community Orientation. Madison First is committed to meeting the
financial needs of the community in which it operates. Madison First
believes it is large enough to provide a wide range of personal and
business financial services, and yet is small enough to be able to
provide such services on a personalized and efficient basis.
Management believes that Madison First can be more effective in
servicing its customers than many of its non-local competitors because
of Madison First's ability to quickly and effectively provide senior
management responses to customer needs and inquiries.
<PAGE>
Citizens
Citizens was organized as a national bank in 1981. Citizens conducts its
business from four full-service offices, all located in Jefferson County,
Indiana. Citizens offers a broad array of lending, deposit and other financial
services to its retail and commercial customers. See "Business of Citizens."
Citizens' principal market area is also Jefferson County in southern Indiana.
See "Market Area." Citizens' deposits are insured up to applicable limits by the
FDIC through the Bank Insurance Fund ("BIF").
At June 30, 1996, Citizens had total assets of $56.2 million, deposits of
$51.8 million and stockholders' equity of $3.4 million, an amount equal to 6.1%
of total assets. See "Business of Citizens." Citizens' capital ratios are
currently in excess of all regulatory capital requirements, as prescribed by
law. Citizens has no current arrangements, negotiations, or agreements, written
or oral, with respect to any future acquisition.
By providing its individual and commercial customers a broad array of
services and products, Citizens has achieved the following:
o Profitability. Citizens has reported positive net income in every year
since 1990. Citizens' net income increased from $120,000 for the year
ended December 31, 1991 to $342,000 for the year ended December 31,
1995. Citizens had net income of $134,000 for the six months ended
June 30, 1996, a decrease of $62,000 from the six-month period ended
June 30, 1995, due primarily to a $150,000 provision for loan losses
in the quarter ended March 31, 1996. Citizens' net interest income for
the six months ended June 30, 1996 totaled $1.0 million, an increase
of $118,000, or 13.1%, from the $904,000 for the six months ended June
30, 1995. Citizens' net yield on weighted average interest-earning
assets for the year ended December 31, 1995 and the six months ended
June 30, 1996 was 4.25% and 3.74%, respectively.
o Asset Growth and Asset Quality. Citizens' total assets have increased
from $30.1 million at December 31, 1991 to $56.2 million at June 30,
1996. Citizens' growth in total assets is attributable to a sustained
growth in virtually all areas of lending, including one- to
four-family residential mortgage lending, consumer lending and
commercial lending. Despite its aggressive growth, Citizens has thus
far been successful in maintaining the quality of its loan and
investment portfolios. At June 30, 1996, non-performing assets totaled
$593,000, or 1.06% of total assets. See "Business of Citizens --
Non-Performing and Problem Assets."
o Low Interest Rate Risk. At June 30, 1996, Citizens' NPV (as defined
below) would increase 10.2% in the event of a 2% increase in market
interest rates and would decrease 11.2% in the event of a 2% decrease
in market interest rates. These calculations indicate that Citizens'
net portfolio value is more sensitive to decreases in market interest
rates but that Citizens' interest rate risk would be well within the
OTS' definition of normal level of exposure described below in
"Management's Discussion and Analysis of Financial Condition and
Results of Operations of Madison First Federal Savings and Loan
Association -- Asset/Liability Management." Although these regulations
have not been implemented by the OTS, and Citizens, as a national
bank, would not be subject to the regulations if implemented by the
OTS, the methodology set forth in the OTS' regulations provides an
informational basis on which Citizens' interest rate risk can be
evaluated. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Citizens National Bank of
Madison -- Asset/ Liability Management." Citizens has achieved this
asset/liability posture by emphasizing adjustable-rate loans and
investments and by selling its fixed-rate one- to four-family
residential mortgage loans to the Federal Home Loan Mortgage
Corporation (the "FHLMC") on the secondary market. See "Business of
Citizens."
o Community Orientation. Citizens has developed a solid reputation in
its market by offering a wide variety of lending, deposit and other
financial services to its retail and commercial customers on a
personalized and efficient basis. By building on its reputation as a
responsive lender, Citizens plans to strengthen its position as a
leading financial institution in Jefferson County.
<PAGE>
The Acquisition
On March 4, 1996, Madison First and Eloise A. Durocher ("Ms. Durocher")
entered into an Amended and Restated Stock Purchase Agreement (the "Agreement")
pursuant to which Madison First agreed to purchase through the Holding Company,
and Ms. Durocher agreed to sell to the Holding Company, the Citizens Shares,
which constitute 95.6% of the issued and outstanding capital stock of Citizens.
As consideration for the Citizens Shares, the Holding Company will pay to Ms.
Durocher cash in the amount of $3,010,725, or $25.00 per Citizens Share. The
Holding Company and Madison First estimate that the total cost of the
Acquisition, including all professional fees and expenses, will be $3,075,725.
Consummation of the Acquisition is conditioned upon the satisfaction of certain
conditions, including the Holding Company's (i) completing a satisfactory due
diligence review of Citizens and (ii) obtaining all necessary regulatory
approvals to acquire the Citizens Shares in the Acquisition. The Holding
Company's due diligence review of Citizens may continue through the date of the
Acquisition. The Holding Company has obtained the approval of the FRB to become
a bank holding company upon the acquisition of the Citizens Shares in the
Acquisition, subject to certain conditions. See "The Acquisition -- Regulatory
Approvals" and "Regulation -- Bank Holding Company Regulation."
The Agreement may be terminated by Madison First and the Holding Company
if, among other things, it is determined that the audited financial statements
of Citizens as of and for the year ended December 31, 1995, do not fairly
present the financial position and results of operations for Citizens as of and
for the year then ended or that there has been a material adverse change in the
operations, prospects or financial condition of Citizens since December 31,
1995. The Agreement further provides that Ms. Durocher may terminate the
Agreement if it becomes clear that any condition precedent to her obligations
under the Agreement cannot be satisfied on or prior to December 31, 1996. Either
party may terminate the Agreement at any time if there is a final determination
that any material provision of the Agreement is illegal, invalid or
unenforceable or if it becomes clear that any condition precedent to such
party's obligations under the Agreement cannot be satisfied on or prior to June
30, 1997.
The Conversion will not become effective until such time as all conditions
precedent to the Acquisition are satisfied. If at any time it becomes clear that
any condition precedent to the Acquisition will not be satisfied, the Conversion
and the Plan of Conversion will terminate. See "The Conversion -- Conditions and
Termination."
The Acquisition will enable Madison First to expand its banking services.
In addition, the Acquisition will enable Madison First to expand efficiently its
lending emphasis to include installment, commercial and agricultural loan
products through Citizens' established experience in such lending areas.
Moreover, the Acquisition in combination with the Conversion will permit the
Holding Company to put to use a significant portion of the capital raised in the
Conversion to acquire the Citizens Shares, loan money to the ESOP and increase
the capital of Citizens. Each of the Institutions will qualify as a "well
capitalized" institution for regulatory purposes. The Acquisition is also
expected to reduce the pressure to leverage the Holding Company's consolidated
balance sheet that typically exists when a "well capitalized" institution
engages in a standard conversion transaction. See "Unaudited Pro Forma Condensed
Consolidated Combined Financial Statements" and "Pro Forma Data -- Regulatory
Capital Compliance."
The Holding Company and Madison First currently intend to maintain Citizens
as an independent entity but may in the future consider a merger or
consolidation of the Institutions. The Holding Company may also evaluate
alternatives to purchase the 4.4% of Citizens' issued and outstanding common
stock not being acquired by the Holding Company in the Acquisition (the
"Minority Shares") through a transaction in which holders of the Minority Shares
would receive fair consideration, most likely in the form of cash, shares of
Common Stock or a combination thereof. In the meantime, the Holding Company and
the Institutions will explore opportunities to integrate certain aspects of the
Institutions' operations in a manner designed to achieve operating efficiencies,
including the possible combination or integration of the Institutions' data
processing, marketing, financial reporting, collections and human resources
functions, compliance functions, their deposit and loan operations, and their
insurance and employee benefit programs. The Holding Company and the
Institutions may also explore opportunities to utilize their offices and
physical locations in a more efficient manner. See "The Acquisition --
Operations After the Acquisition and the Conversion."
As a condition to the Holding Company obtaining approval for the
Acquisition from the FRB, the Holding Company committed to cause Madison First
to divest its Hanover, Indiana branch. The Holding Company's commitment requires
that (i) Madison First enter into a definitive agreement to divest the Hanover
branch, including the physical
<PAGE>
facilities and at least $7.5 million of deposits originated at that branch
(consisting of 10% of Madison First's deposits at June 30, 1996), prior to
consummation of the Acquisition and (ii) the Hanover branch be divested by
Madison First within 180 days of the Acquisition. In the event Madison First
does not complete the divestiture of its Hanover branch within 180 days of the
consummation of the Acquisition, the Hanover branch will be placed in trust, and
an independent trustee will proceed with an immediate disposition of the Hanover
branch without regard to price. See "Risk Factors -- Divestiture of Hanover
Branch."
For further information regarding the Acquisition, see "The Acquisition."
For further information regarding Citizens, see "Citizens National Bank of
Madison," "Business of Citizens" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Citizens National Bank of
Madison."
The Conversion
General. The Board of Directors of Madison First unanimously adopted a Plan
of Conversion pursuant to which Madison First will convert from a federal mutual
savings and loan association to a federal stock savings and loan association,
subject to certain conditions set forth therein, including consummation of the
Acquisition. The Plan of Conversion and the Federal Stock Charter (the
"Charter") will be submitted for the approval of the members of Madison First at
a special meeting currently scheduled for December 18, 1996 (the "Special
Meeting"). The Conversion will not become effective until such time as all
conditions precedent to the Acquisition are satisfied. If at any time it becomes
clear that any condition precedent to the Acquisition will not be satisfied, the
Conversion and the Plan will terminate and Madison First will refund all
payments and cancel all withdrawal authorizations, as applicable, for
subscriptions received in the Conversion. See "The Conversion -- Conditions and
Termination."
The proceeds from the sale of the Common Stock made as a part of the
Conversion will strengthen the Institutions' capital positions and will allow
Madison First to be structured in a corporate form similar to that of most
business entities. The Conversion will not affect Madison First's normal
business or its existing services to depositors and borrowers other than the
divestiture of its Hanover branch required in connection with the FRB's approval
of the Acquisition. See "Risk Factors -- Divestiture of Hanover Branch."
Deposits at Madison First will continue to be insured by the FDIC up to the
applicable limits. After the Conversion, the Holding Company will have exclusive
voting rights with respect to Madison First and no account holder or borrower
will have any voting rights with respect to, or be a member or a shareholder of,
Madison First. Holders of shares of Common Stock will have voting rights only
with respect to the Holding Company.
Stock Pricing and Independent Appraisal. The aggregate purchase price of
the Common Stock being sold in the Conversion will be based upon the aggregate
pro forma market value of the Common Stock, as determined by an independent
valuation. Keller, a financial advisory firm experienced in the valuation of
financial institutions, was retained by Madison First to prepare an appraisal of
the estimated pro forma market value of the Common Stock. Keller's appraisal
concluded that as of May 3, 1996, and as updated as of October 22, 1996, the
Estimated Valuation Range was from a minimum of $7,650,000 to a maximum of
$10,350,000, with a midpoint of $9,000,000. The aggregate number of shares of
the Common Stock to be sold at $10.00 per share will be within the range of
765,000 to 1,035,000, unless market and financial conditions necessitate a
change in the range. The appraisal will be updated shortly before the completion
of the Conversion and the Acquisition. The Board of Directors reviewed with
management Keller's methods and assumptions and accepted Keller's appraisal as
reasonable and adequate. Madison First has agreed to pay Keller a fee of $17,000
for its appraisal services, plus out-of-pocket expenses not to exceed $500.
Keller has also prepared a business plan for Madison First, which includes
three-year pro forma financial statements for the Holding Company for a fee of
$5,000. See "The Conversion -- Stock Pricing" and "-- Number of Shares to be
Issued."
The independent valuation is not intended and must not be construed as a
recommendation of any kind as to the advisability of voting to approve the
Conversion or of purchasing the shares of the Common Stock. Moreover, because
the valuation is necessarily based upon estimates and projections of a number of
matters (including certain assumptions as to the Acquisition, the amount of net
proceeds and the earnings thereon), all of which are subject to change from time
to time, no assurance can be given that persons purchasing shares in the
Conversion will thereafter be able to sell shares of Common Stock at prices
related to the valuation of the pro forma market value.
Members Meeting. The sale of shares of Common Stock in the Conversion is
conditioned upon, among other things, approval of the Plan and the adoption of
the Charter by a majority of the votes eligible to be cast by the
<PAGE>
members of Madison First at the Special Meeting. If the Conversion is not
approved by the members at the Special Meeting, no shares will be issued, the
Conversion will not take place, all subscription funds received will be promptly
returned together with interest at the passbook rate, which is currently 3.00%
per annum, or 3.04% APY, and all withdrawal authorizations will be canceled.
Subscription Offering. Pursuant to the Plan of Conversion, up to 1,035,000
shares of Common Stock are being offered by the Holding Company at the price of
$10.00 per share in the Subscription Offering to the following persons in the
following order of priority: (i) Eligible Account Holders; (ii) the ESOP; (iii)
Supplemental Eligible Account Holders who are not Eligible Account Holders and
(iv) Other Members who are not Eligible Account Holders or Supplemental Eligible
Account Holders. Shareholders, depositors and borrowers of Citizens do not have
subscription rights under the Plan unless such persons are otherwise Eligible
Account Holders, Supplemental Eligible Account Holders or Other Members of
Madison First. The Subscription Offering expires at 4:00 p.m., Madison time, on
December 11, 1996, unless extended by Madison First and the Holding Company. The
Subscription Offering may be extended, subject to OTS approval, until 24 months
after the Special Meeting, or until December 18, 1998. See "The Conversion --
Subscription Offering."
Subscriptions may be paid by check or by withdrawal from accounts at
Madison First. Funds authorized for withdrawal from deposit accounts will
continue to earn interest at the rate specified for the account until completion
of the Conversion. All amounts paid will be placed in a savings account at
Madison First and will earn interest at Madison First's passbook rate from the
date of receipt until completion of the Conversion. That rate is currently
3.00%, for an APY of 3.04%. Amounts may be withdrawn from certificate accounts
at Madison First to purchase Common Stock in the Conversion without the payment
of early withdrawal penalties. However, if the amount withdrawn reduces the
balance of the certificate account to less than the applicable required minimum
balance, such account after completion of the Conversion will earn interest at
the then-current passbook rate.
Refunds. In the event that a subscriber's order cannot be filled in full as
a result of an oversubscription or the Conversion is not consummated, refunds
(including interest at the passbook rate of interest for payments made other
than through authorization of withdrawal from deposit accounts) will be made
upon closing of the Conversion by check or, if payment was made through
authorization of withdrawal from a deposit account, through cancellation of an
appropriate portion of such withdrawal authorization.
If the Conversion is not completed by January 25, 1997, and Madison First
and the Holding Company elect to extend the time required to complete the
Conversion, with the OTS' approval, subscribers will be given the right to
increase, decrease or rescind their subscriptions pursuant to procedures
approved by the OTS and as set forth in the Plan of Conversion. If Madison First
and the Holding Company decide to extend the Subscription Offering, subscribers
will be given the right to have their subscriptions promptly refunded following
the conclusion of the current offering (which will end no later than January 25,
1997), and Madison First will return subscriptions with interest unless
subscribers affirmatively elect to continue their subscriptions during the
period of extension.
Under the Plan of Conversion, the Conversion will not become effective
until such time as all conditions precedent to the Acquisition are satisfied.
Therefore, a delay in the satisfaction of any condition precedent to the
Acquisition would result in a delay in completing the Conversion, possibly
delaying the Holding Company's ability to issue certificates and commence
trading following receipt of subscription orders. See "Risk Factors -- Risk of
Delayed Offering." If at any time it becomes clear that any condition precedent
to the Acquisition will not be satisfied, the Conversion and the Plan will
terminate, and Madison First will promptly refund all subscription funds with
accrued interest and cancel all withdrawal authorizations. See "The Conversion
- -- Conditions and Termination."
Direct Community Offering. Commencing concurrently with the Subscription
Offering and subject to availability, shares of Common Stock are being offered
to the general public, giving preference to residents of Jefferson County, in a
Direct Community Offering. The purchase price in the Direct Community Offering
will also be $10.00 per share. The Direct Community Offering may, subject to OTS
approval, be extended until 24 months after the Special Meeting, or until
December 18, 1998. The Holding Company and Madison First reserve the absolute
right to reject or accept any orders received in the Direct Community Offering,
in whole or in part, either at the time of receipt of an order, or as soon as
practicable following the expiration of the Direct Community Offering.
<PAGE>
The Direct Community Offering may expire as early as December 11, 1996, or
at any time thereafter (until January 25, 1997, unless extended by Madison First
and the Holding Company) when orders and indications of interest for at least
765,000 shares have been received in the Subscription Offering and the Direct
Community Offering, if any. Accordingly, persons wishing to purchase Common
Stock in the Direct Community Offering directly from the Holding Company should
return the Order Form to Madison First on or before December 11, 1996. If a
person waits until after that date, the Direct Community Offering may be
terminated prior to the time the Order Form is submitted, and that person may be
precluded from purchasing shares of Common Stock in the Direct Community
Offering. See "The Conversion -- Direct Community Offering."
In the event that the Holding Company, Madison First and the Agent
determine and agree to use selected dealers to assist with the Direct Community
Offering, each such selected dealer will receive commissions at an agreed upon
rate, not to exceed 4.5%, for all shares sold by the selected dealer. See "The
Conversion -- Selected Dealers."
Purchase Limitations. The minimum purchase by any person or entity in the
Conversion is 25 shares. No subscribing member may purchase more than 10,000
shares with respect to each deposit account held and each loan owed to Madison
First as of the applicable date of his or her subscription rights. For this
purpose, joint account holders collectively may not exceed the 10,000 share
limit. Notwithstanding the foregoing, the maximum number of shares of Common
Stock which may be purchased in the Subscription Offering by any member
(including such person's Associates) or group acting in concert shall be 20,000
shares in the aggregate, except that the ESOP may purchase in the aggregate not
more than 10% of the total number of shares offered in the Conversion. The
maximum number of shares of Common Stock which may be purchased in the Direct
Community Offering by any person (including such person's Associates) or persons
acting in concert is 10,000 in the aggregate. A member who, together with his
Associates and persons acting in concert, has subscribed for shares in the
Subscription Offering may subscribe for a number of additional shares in the
Direct Community Offering that does not exceed the lesser of (i) 10,000 shares
or (ii) the number of shares which, when added to the number of shares
subscribed for by the member (and his Associates and persons acting in concert)
in the Subscription Offering, would not exceed 20,000. The ESOP expects to
purchase a number of shares equal to 8% of the total number of shares sold in
the Conversion. These purchase limitations are subject to increase or decrease
under certain circumstances by the Boards of Directors of Madison First and the
Holding Company. See "The Conversion -- Limitations on Common Stock Purchases."
Participation of the Agent in the Offerings. In consideration for acting as
exclusive sales agent in the Subscription Offering and the Direct Community
Offering, if any, and for providing consulting and financial advisory services
to the Holding Company and Madison First, the Agent will receive a management
fee equal to 0.5% of the aggregate dollar amount of shares of Common Stock sold
in the Conversion and commissions in an amount equal to 2.0% of the aggregate
dollar amount of shares of Common Stock sold in the Conversion (other than
through broker-dealers) except for shares sold to the ESOP, or to officers and
directors of the Institutions and their Associates. The Agent will also be
reimbursed for out-of-pocket expenses which are not to exceed $12,000 without
the Holding Company's and Madison First's consent and for legal fees and
expenses which are not to exceed $35,000 without the Holding Company's and
Madison First's consent. See "The Conversion -- Agent."
Shares to be Purchased by Management and the ESOP. Directors and executive
officers of the Institutions expect to purchase 124,800 shares at $10.00 per
share, or 16.3% and 12.1% of the shares of Common Stock offered in the
Conversion based upon the minimum and maximum, respectively, of the Estimated
Valuation Range. See "Anticipated Management Purchases." Employees of the
Institutions, including executive officers, will also participate in the ESOP
and be able to vote shares allocated to their accounts under the ESOP, which is
expected to purchase a number of shares equal to 8% of the shares of Common
Stock issued in the Conversion with the proceeds of a loan made to the ESOP by
the Holding Company. The ESOP may purchase Common Stock if shares remain
available after satisfying the subscriptions of Eligible Account Holders up to
$10,350,000, the maximum of the Estimated Valuation Range.
Use of Proceeds
The net proceeds from the sale of Common Stock offered hereby are estimated
at $8.3 million, based upon the sale of 900,000 shares at $10.00 per share. The
Holding Company will initially receive 50% of the net Conversion proceeds after
providing for the loan to the ESOP to allow the ESOP to purchase shares of
Common Stock in the Conversion. See "Executive Compensation and Related
Transactions of Madison First -- Employee Stock Ownership Plan and Trust" and
"Executive Compensation and Related Transactions of Citizens -- Employee Stock
Ownership Plan and Trust."
<PAGE>
The Holding Company will use $3.0 million of the proceeds to acquire the
Citizens Shares in the Acquisition. See "The Acquisition." The Holding Company
will also use a portion of the proceeds remaining after acquiring the Citizens
Shares to make a capital contribution to Citizens of up to $1.5 million. The
remaining proceeds retained by the Holding Company, if any, will be used for
general corporate purposes, including the possible payment of dividends and
future repurchases of the Holding Company's Common Stock as permitted by the OTS
and applicable regulations. However, the Holding Company has no present plans to
pay dividends or effect repurchases of the Common Stock.
The remaining Conversion proceeds will be received by Madison First and
will be used primarily to support Madison First's lending and investment
activities. The proceeds received by Citizens from the Holding Company will be
used primarily to support Citizens' lending and investment activities. Any
remaining proceeds may be used by the Institutions for general corporate
purposes, including contributions to the proposed management recognition and
retention plan and trust (the "RRP"). In the interim, the net proceeds will be
invested in U.S. government securities, other U.S. agency securities and
mortgage-backed securities. See "Use of Proceeds."
Market for the Common Stock
The Holding Company will use its best efforts to develop a public trading
market for the Common Stock. The Holding Company has received approval to have
its Common Stock quoted on the NASDAQ Small Cap Market under the symbol "RIVR"
upon successful closing of the Subscription and Direct Community Offerings,
subject to certain conditions which the Holding Company and Madison First
believe will be met. It is anticipated that upon the completion of the
Conversion at least two market makers will make a market in the Common Stock,
although the Holding Company has not yet obtained any market makers and will not
do so until the offering is completed. The Agent intends to make a market in the
Common Stock, although it is under no obligation to do so. There can be no
assurance that an active and liquid market for the Common Stock will develop in
the foreseeable future or, if such a market does develop, that it will continue.
In addition, there can be no assurance that shareholders will be able to sell
their shares at or above the Purchase Price after the completion of the
Conversion. Accordingly, purchasers of Common Stock should have a long-term
investment intent and recognize that the absence of an active and liquid trading
market may make it difficult to sell the Common Stock, and may have an adverse
effect on the price. See "Risk Factors -- No Prior Market for Common Stock" and
"Market for the Common Stock."
Dividend Policy
Although no decision has been made yet regarding the payment of dividends,
the Holding Company may consider a policy of paying cash dividends on the Common
Stock following the Conversion. Dividends, when and if paid, will be subject to
determination and declaration by the Board of Directors in its discretion, which
will take into account the Holding Company's consolidated financial condition
and results of operations, tax considerations, industry standards, economic
conditions, capital levels, regulatory restrictions on dividend payments by the
Institutions to the Holding Company, general business practices and other
factors. Citizens does not anticipate paying dividends on its common stock in
the foreseeable future. Moreover, following the Acquisition, Citizens may decide
not to pay dividends on its shares of common stock until the Holding Company
acquires the Minority Shares. See "Dividend Policy," "Regulation -- Regulatory
Capital," and "-- Dividend Limitations."
Executive Compensation and Related Transactions
Employment Contracts. Effective January 1, 1996, Madison First entered into
a three-year Employment Agreement with James E. Fritz, Madison First's President
and Chief Executive Officer (the "Fritz Agreement"). The Fritz Agreement
provides, among other things, for: (i) the payment to Mr. Fritz of his current
base salary subject to annual review and adjustment by Madison First's Board of
Directors; (ii) Mr. Fritz's participation in other bonus and fringe benefit
plans available to Madison First's employees; (iii) the lump-sum payment to Mr.
Fritz of an amount equal to the difference between (A) the product of 2.99 times
his "base amount" (as defined in Section 280G(b)(3) of the Internal Revenue Code
of 1986, as amended (the "Code")) and (B) the sum of any other parachute
payments, as determined under Section 280G(b)(2) of the Code in certain
circumstances involving the termination of Mr. Fritz's employment by Madison
First for other than cause or by Mr. Fritz for reasons specified in the Fritz
Agreement within twelve months following a change in control (as defined
therein) of Madison First or the Holding Company; and (iv) the lump-sum or
periodic payment to Mr. Fritz of an amount equal to the sum of (A) Mr. Fritz's
base salary through the end of the then-current term, plus (B)
<PAGE>
Mr. Fritz's base salary for an additional twelve-month period, plus (C) in Mr.
Fritz's sole discretion and in lieu of continued participation in Madison
First's fringe benefit plans, cash in an amount equal to the cost of obtaining
all health, life, disability and other benefits to which Mr. Fritz would
otherwise be entitled, in certain circumstances involving the constructive
termination of Mr. Fritz (as described therein) or the termination of Mr. Fritz
without just cause (as defined therein) other than during a period which is
within twelve months after a change in control of Madison First or the Holding
Company. As of the date hereof, the cash compensation that would be paid to Mr.
Fritz under the Fritz Agreement if such agreement were terminated within twelve
months after a change in control of Madison First or the Holding Company would
be $194,000. See "Executive Compensation and Related Transactions of Madison
First -- Employment Contract." Upon completion of the Conversion, the Holding
Company intends to guarantee Madison First's obligations under the Fritz
Agreement.
Citizens and Robert D. Hoban, Citizens' President and Chief Executive
Officer, entered into an Employment Agreement effective as of January 1, 1995
(the "1995 Agreement"). The 1995 Agreement is a one-year agreement that
automatically renews for an additional one-year term unless terminated by
Citizens or Mr. Hoban in accordance with the terms of the 1995 Agreement. The
1995 Agreement provides, among other things, for (i) the payment to Mr. Hoban of
a base salary subject to annual review and adjustment by Citizens' Board of
Directors; (ii) Mr. Hoban's participation in other fringe benefit plans in the
same manner and on the same basis as may be furnished to other executive
management personnel of Citizens; (iii) Mr. Hoban's use of an automobile to be
provided by Citizens; and (iv) Mr. Hoban's participation in a performance-based
bonus program to be established and maintained by Citizens' Board of Directors.
If Citizens gives notice of its intention not to renew the 1995 Agreement at any
time not following a change in control (as defined therein) of Citizens, the
1995 Agreement provides for (i) a severance payment to Mr. Hoban in an amount
equal to his then-current annual salary, and (ii) continued health care coverage
at Citizens' sole expense for Mr. Hoban and his eligible family members for a
period of one year. The 1995 Agreement further provides that in the event that
Mr. Hoban's duties and responsibilities are changed or the Board of Directors
elects not to renew the 1995 Agreement following a change in control of
Citizens, such events may, at Mr. Hoban's election and upon written notice to
Citizens, be deemed a termination of the 1995 Agreement entitling Mr. Hoban to
(i) payment of a lump-sum amount equal to three times Mr. Hoban's then-current
annual salary, subject to reduction to the extent necessary to prevent it from
constituting a parachute payment under Section 280G of the Code, and (ii)
continued health care coverage at Citizens' sole expense for Mr. Hoban and his
eligible family members for a period of three years. As of the date hereof, the
cash compensation that would be paid to Mr. Hoban under the 1995 Agreement if
such agreement were terminated after a change in control of Citizens (which
would include the Acquisition) would be $300,000.
Effective upon consummation of the Acquisition, Citizens expects to enter
into a three-year Employment Agreement with Mr. Hoban (the "Hoban Agreement").
If entered into, the Hoban Agreement would supercede the 1995 Agreement. The
Hoban Agreement will provide, among other things, for: (i) the payment to Mr.
Hoban of his current base salary subject to annual review and adjustment by
Citizens' Board of Directors; (ii) Mr. Hoban's participation in other bonus and
fringe benefit plans available to Citizens' employees; (iii) the lump-sum
payment to Mr. Hoban of an amount equal to the difference between (A) the
product of 2.99 times his "base amount" (as defined in Section 280G(b)(3) of the
Code) and (B) the sum of any other parachute payments, as determined under
Section 280G(b)(2) of the Code in certain circumstances involving the
termination of Mr. Hoban's employment by Citizens for other than cause or by Mr.
Hoban for reasons specified in the Hoban Agreement within twelve months
following a change in control (as defined therein) of Citizens or the Holding
Company; and (iv) the lump-sum or periodic payment to Mr. Hoban of an amount
equal to the sum of (A) Mr. Hoban's base salary through the end of the
then-current term, plus (B) Mr. Hoban's base salary for an additional
twelve-month period, plus (C) in Mr. Hoban's sole discretion and in lieu of
continued participation in Citizens' fringe benefit plans, cash in an amount
equal to the cost of obtaining all health, life, disability and other benefits
to which Mr. Hoban would otherwise be entitled, in certain circumstances
involving the constructive termination of Mr. Hoban (as described therein) or
the termination of Mr. Hoban without just cause (as defined therein) other than
during a period which is within twelve months after a change in control of
Citizens or the Holding Company. See "Executive Compensation and Related
Transactions of Citizens -- Employment Contracts." Upon completion of the
Acquisition, the Holding Company intends to guarantee Citizens' obligations
under the Hoban Agreement.
Special Termination Agreements. Each of the Institutions expect to enter
into Special Termination Agreements effective as of the date of the Conversion,
in the case of Madison First, and as of the date of consummation of the
Acquisition, in the case of Citizens (collectively, the "Termination
Agreements"), with all executive officers of the Institutions other than
<PAGE>
Messrs. Fritz and Hoban (collectively, the "Covered Employees"). The Termination
Agreements have terms of one year, subject to annual extensions by the Board of
Directors of the employing Institution, and provide that upon the termination of
a Covered Employee's employment by the employer for other than cause or by the
Covered Employee for reasons specified in the Termination Agreements during the
18-month period following the effective date of the Termination Agreements or
within a 12-month period following a "change in control" (as defined in the
Termination Agreements) of the employing Institution or the Holding Company
which occurs during the term of the applicable Termination Agreements, such
Covered Employee shall be entitled to a lump sum payment of 100% of his or her
base amount of compensation, as determined pursuant to the Code (the
"Termination Benefit"). Covered Employees may elect to receive the Termination
Benefit in semi-monthly payments over a twelve-month period. The Termination
Agreements also provide for continued life, health and disability coverage for
Covered Employees until the expiration of twelve months following the
termination of employment or until the Covered Employee obtains coverage from
another employer, whichever occurs first. If a Covered Employee obtains coverage
from another employer and does not have substantially identical life, health and
disability coverage, the employing Institution shall maintain substantially
identical coverage on behalf of the Covered Employee for a period of twelve
months.
Severance Programs. Each of the Institutions expect to implement a
severance program as of the date of the Conversion, in the case of Madison
First, and as of the date of the Acquisition, in the case of Citizens, for the
benefit of all employees of the Institutions who are not covered by Termination
Agreements or by employment contracts. Pursuant to the severance programs, any
employee of the Institutions whose employment is terminated by the employer
Institution within twelve months following a change in control of the Holding
Company or the employing Institution or within 18 months following the effective
date of the program will be entitled to receive a lump-sum payment in an amount
equal to three weeks compensation for every year of service with the employing
Institution, up to a maximum of twelve months compensation. See "Executive
Compensation and Related Transactions of Madison First -- Severance Program" and
"Executive Compensation and Related Transactions of Citizens -- Severance
Program."
Employee Stock Ownership Plan and Trust. In connection with the Conversion,
the Holding Company has established the ESOP effective January 1, 1996, for
eligible employees of the Institutions, including executive officers. The ESOP
intends to purchase a number of shares equal to 8% of the Common Stock issued in
the Conversion for the benefit of its participants. The ESOP intends to borrow
the funds necessary to purchase the Common Stock from the Holding Company. See
"Executive Compensation and Related Transactions of Madison First -- Employee
Stock Ownership Plan and Trust" and "Executive Compensation and Related
Transactions of Citizens -- Employee Stock Ownership Plan and Trust."
RRP. At a meeting of the Holding Company's shareholders to be held at least
six months after the completion of the Conversion, the Board of Directors
intends to submit for shareholder approval the RRP, and at that time to make
certain awards pursuant to the RRP, as a means of providing the directors,
officers and employees of the Institutions and the Holding Company with an
ownership interest in the Holding Company in a manner designed to encourage such
persons to remain with the Holding Company and the Institutions. If the RRP is
approved by the Holding Company's shareholders, the Institutions will contribute
funds to the RRP to enable it to acquire an aggregate amount of Common Stock
equal to up to 4% of the shares issued in the Conversion, either directly from
the Holding Company or on the open market. Shares awarded under the RRP will
vest at a rate of 20% at the end of each full twelve months of service with the
Holding Company or the Institutions after the date of grant, subject to earlier
vesting in the event of death or disability. Assuming the shares purchased by
the RRP have a market value on the date of grant of $10.00 per share, the shares
available for distribution under the RRP would have an aggregate market value of
between $306,000 and $414,000, based upon the minimum and maximum of the
Estimated Valuation Range, respectively. It is anticipated that on the date of
the Holding Company's first shareholder meeting following the Conversion, the
following awards will be made under the RRP:
<PAGE>
<TABLE>
<CAPTION>
Shares Awarded Under RRP
--------------------------------------------------------------
Minimum of Estimated Maximum of Estimated
% of Shares Valuation Range Valuation Range
Issued in -------------------------- ------------------------
Conversion Number Value (1) Number Value (1)
---------- ------ --------- ------ ---------
James E. Fritz
President, Chief Executive Officer
<S> <C> <C> <C> <C> <C>
and Director (2)................... 0.595% 4,552 $ 45,520 6,158 $ 61,580
Robert D. Hoban
President, Chief Executive Officer
and Director (3)................... 0.500 3,825 38,250 5,175 51,750
John Wayne Deveary
Vice President and Treasurer (2)... 0.300 2,295 22,950 3,105 31,050
Larry C. Fouse
Chief Financial Officer
and Controller (3)................. 0.250 1,912 19,120 2,588 25,880
Carolyn B. Flowers
Vice President --
Compliance/Operations (3).......... 0.250 1,912 19,120 2,588 25,880
Mark A. Goley
Vice President and
Senior Loan Officer (3)............ 0.250 1,912 19,120 2,588 25,880
Fred W. Koehler
Chairman (2)....................... 0.200 1,530 15,300 2,070 20,700
Robert W. Anger
Vice President -- Lending
and Director (2)................... 0.220 1,683 16,830 2,277 22,770
Michael J. Hensley
Director (2)....................... 0.200 1,530 15,300 2,070 20,700
Cecil L. Dorten
Vice Chairman (2).................. 0.200 1,530 15,300 2,070 20,700
Earl W. Johann
Director (2)....................... 0.200 1,530 15,300 2,070 20,700
Lonnie D. Collins
Secretary (2)...................... 0.200 1,530 15,300 2,070 20,700
Traci A. Bridgford
Vice President --
Compliance/Operations (2).......... 0.150 1,148 11,480 1,552 15,520
Jonnie L. Davis
Director (3)....................... 0.150 1,148 11,480 1,552 15,520
Burton P. Chambers
Chairman (3)....................... 0.075 574 5,740 776 7,760
Van E. Shelton
Director (3)....................... 0.075 574 5,740 776 7,760
Ralph E. Storm
Director (3)....................... 0.075 574 5,740 776 7,760
Other Employees....................... 0.110 841 8,410 1,139 11,390
----- ------ -------- ------ --------
Total............................ 4.000% 30,600 $306,000 41,400 $414,000
===== ====== ======== ====== ========
</TABLE>
- ------------------
(1) Assumes value of shares on date of award of $10.00 per share.
(2) Of Madison First.
(3) Of Citizens.
See "Executive Compensation and Related Transactions of Madison First -- RRP"
and "Executive Compensation and Related Transactions of Citizens -- RRP."
<PAGE>
Stock Option Plan. At a meeting of the Holding Company's shareholders to
be held at least six months after completion of the Conversion, the Board of
Directors intends to submit for shareholder approval a stock option plan (the
"Stock Option Plan"), and at that time to make certain awards pursuant to the
Stock Option Plan. Options will become exercisable at a rate of 20% at the
end of each full twelve months of service with the Holding Company or the
Institutions after the date of award, subject to early vesting in the event
of death or disability. If approved by the Holding Company's shareholders,
Common Stock in an aggregate amount of 10.0% of the shares issued in the
Conversion (or between 76,500 and 103,500 shares, based upon the Estimated
Valuation Range) will be reserved for issuance upon the exercise of options
granted under the Stock Option Plan. It is anticipated that on the date of
the Holding Company's first shareholder meeting following the Conversion, the
following grants will be made under the Stock Option Plan:
<TABLE>
<CAPTION>
Options Granted Under Option Plan
-------------------------------------------------
% of Shares Number at Minimum of Number at Maximum
Issued in of Estimated Valuation of Estimated Valuation
Conversion Range Range
--------- ---------------------- ----------------------
<S> <C> <C> <C>
James E. Fritz
President, Chief Executive Officer
and Director (1).............................. 1.20% 9,180 12,420
Robert D. Hoban
President, Chief Executive Officer
and Director (2).............................. 1.00 7,650 10,350
John Wayne Deveary
Vice President and Treasurer (1).............. 0.60 4,590 6,210
Larry C. Fouse
Chief Financial Officer and Controller (2).... 0.50 3,825 5,175
Carolyn B. Flowers
Vice President --
Compliance/Operations (2)..................... 0.50 3,825 5,175
Mark A. Goley
Vice President and
Senior Loan Officer (2)....................... 0.50 3,825 5,175
Fred W. Koehler
Chairman (1).................................. 0.50 3,825 5,175
Robert W. Anger
Vice President-- Lending and Director (1)..... 0.45 3,443 4,658
Michael J. Hensley
Director (1).................................. 0.45 3,443 4,658
Cecil L. Dorten
Vice Chairman (1)............................. 0.45 3,443 4,658
Earl W. Johann
Director (1).................................. 0.45 3,443 4,658
Lonnie D. Collins
Secretary (1)................................. 0.40 3,060 4,140
Traci A. Bridgford
Vice President --
Compliance/Operations (1)..................... 0.30 2,295 3,105
Jonnie L. Davis
Director (2).................................. 0.30 2,295 3,105
Burton P. Chambers
Chairman (2).................................. 0.15 1,147 1,552
Van E. Shelton
Director (2).................................. 0.15 1,147 1,552
Ralph E. Storm
Director (2).................................. 0.15 1,147 1,552
Other Employees................................... 1.95 14,917 20,182
---- ------ ------
Total......................................... 10.00% 76,500 103,500
===== ====== =======
</TABLE>
- ------------------
(1) Of Madison First.
(2) Of Citizens.
See "Executive Compensation and Related Transactions of Madison First -- Stock
Option Plan" and "Executive Compensation and Related Transactions of Citizens --
Stock Option Plan."
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF
MADISON FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARIES
The following selected consolidated financial data of Madison First and its
subsidiaries is qualified in its entirety by, and should be read in conjunction
with, the consolidated financial statements, including notes thereto, included
elsewhere in this Prospectus. Information at June 30, 1996 and for the six
months ended June 30, 1996 and 1995 is unaudited but, in the opinion of
management, includes all adjustments (comprising only normal recurring accruals)
necessary for a fair presentation of the financial position and results of
operations as of and for such dates.
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT JUNE 30, --------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(Unaudited) (In thousands)
Summary of Financial Condition Data:
<S> <C> <C> <C> <C> <C> <C>
Total assets................................ $81,904 $86,604 $87,072 $84,086 $82,157 $75,397
Loans receivable, net....................... 57,449 57,945 56,287 51,970 53,685 57,735
Mortgage-backed and related securities...... 8,690 9,917 11,328 13,925 13,548 7,968
Cash and cash equivalents (1)............... 2,442 2,689 2,416 5,803 7,070 2,938
Investment securities (2)................... 9,940 13,018 14,097 9,491 5,485 4,329
FHLB advances............................... --- 4,471 4,986 --- --- ---
Deposits.................................... 74,727 75,233 75,458 78,081 76,688 70,813
Equity capital, net, substantially restricted 6,703 6,574 6,304 5,668 4,950 4,165
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED JUNE 30, -------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------------------------------------------------------------------------------
(Unaudited) (In thousands)
Summary of Operating Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income....................... $2,942 $2,869 $5,794 $5,419 $5,684 $6,174 $6,785
Total interest expense...................... 1,735 1,691 3,594 2,854 3,042 3,645 4,678
------ -------- -------- -------- -------- ------ ------
Net interest income...................... 1,207 1,178 2,200 2,565 2,642 2,529 2,107
Provision for loan losses................... 12 3 150 29 55 37 143
------ -------- -------- -------- -------- ------ ------
Net interest income after provision
for loan losses........................ 1,195 1,175 2,050 2,536 2,587 2,492 1,964
Other income:
Insurance commissions.................... 104 92 175 181 182 180 158
Service fees, charges, and
other operating income................. 97 94 187 189 182 129 117
------ -------- -------- -------- -------- ------ ------
Total other income..................... 201 186 362 370 364 309 275
Other expenses:
Employee compensation and benefits....... 592 484 998 888 869 811 821
Data processing.......................... 141 118 237 243 234 157 126
Federal deposit insurance premiums....... 88 88 177 178 117 149 141
Other.................................... 286 284 554 549 582 748 611
------ -------- -------- -------- -------- ------ ------
Total other expenses.................. 1,107 974 1,966 1,858 1,802 1,865 1,699
------ -------- -------- -------- -------- ------ ------
Income before income tax expense and cumulative
effect of change in accounting method.... 289 387 446 1,048 1,149 936 540
Income tax expense.......................... 108 151 188 412 456 305 250
Cumulative effect of change in accounting
for income tax expense................... --- --- --- --- 25 --- ---
------ -------- -------- -------- -------- ------ ------
Net income............................... $181 $ 236 $ 258 $ 636 $ 718 $ 631 $ 290
====== ======== ======== ======== ======== ====== ======
Supplemental Data:
Interest rate spread during period.......... 2.76% 2.63% 2.36% 3.00% 3.24% 3.23% 2.66%
Net yield on interest-earning assets (3) (4) 2.94 2.82 2.61 3.15 3.32 3.35 2.89
Return on assets (4) (5).................... 0.42 0.56 0.30 0.74 0.86 0.80 0.39
Return on equity (4) (6).................... 5.39 7.26 4.01 10.62 13.52 13.84 7.21
Equity to assets (7)........................ 8.18 7.40 7.59 7.24 6.74 6.03 5.52
Average interest-earning assets to average
interest-bearing liabilities............. 104.17 104.82 105.62 104.43 101.96 102.39 103.83
Non-performing assets to total assets (7)... 0.27 --- 0.01 0.01 0.01 0.18 0.17
Allowance for loan losses to total loans
outstanding (7).......................... 0.72 0.44 0.70 0.45 0.44 0.49 0.39
Allowance for loan losses to
non-performing loans (7)................. 186.55 4,183.33 5,087.50 1,938.46 3,242.86 166.88 150.33
Net charge-offs to average
total loans outstanding ................. .01 .01 (0.01) 0.01 0.17 .--- 0.02
Other expenses to
average assets (8)....................... 2.57 2.33 2.26 2.20 2.15 2.36 2.09
Number of full service offices (7).......... 3 3 3 3 3 3 3
</TABLE>
- --------------
(1) Includes certificates of deposit in other financial institutions.
(2) Includes investment securities designated as available for sale.
(3) Net interest income divided by average interest-earning assets.
(4) Information for six months ended June 30, 1996 and 1995, has been
annualized. Interim results are not necessarily indicative of the results
of operations for an entire year.
(5) Net income divided by average total assets.
(6) Net income divided by average total equity.
(7) At end of period.
(8) Other expenses divided by average total assets.
<PAGE>
SELECTED FINANCIAL DATA OF
CITIZENS NATIONAL BANK OF MADISON
The following selected financial data of Citizens is qualified in its
entirety by, and should be read in conjunction with, the financial statements,
including notes thereto, included elsewhere in this Prospectus. Information at
June 30, 1996 and for the six months ended June 30, 1996 and 1995 is unaudited
but, in the opinion of management, includes all adjustments (comprising only
normal recurring accruals) necessary for a fair presentation of the financial
position and results of operations as of and for such dates.
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT JUNE 30, -----------------------------------------------------------
1996 1995 1994 1993 1992 1991
----------- --------- ------- ------- -------- -------
(Unaudited) (In thousands)
Summary of Financial Condition Data:
<S> <C> <C> <C> <C> <C> <C>
Total assets................................ $56,185 $54,503 $41,252 $33,123 $31,496 $30,092
Loans receivable, net....................... 43,003 40,432 29,834 19,898 18,673 17,344
Mortgage-backed and related securities (1).. 3,137 3,562 5,049 6,008 2,407 2,864
Cash and cash equivalents (2)............... 2,598 6,826 2,191 3,512 4,578 5,811
Investment securities (1)................... 4,982 1,657 2,769 2,399 4,601 2,782
Deposits.................................... 51,770 49,227 38,011 30,089 28,828 27,586
Shareholders' equity, net................... 3,448 3,396 3,000 2,749 2,479 2,270
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED JUNE 30, -------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
(Unaudited) (In thousands, except per share data)
Summary of Operating Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income....................... $2,156 $1,680 $3,695 $2,525 $2,100 $2,185 $2,220
Total interest expense...................... 1,134 776 1,820 1,025 880 1,081 1,277
------ ------ ------ ------ ------ ------ ------
Net interest income...................... 1,022 904 1,875 1,500 1,220 1,104 943
Provision for loan losses................... 180 24 104 17 50 54 60
------ ------ ------ ------ ------ ------ ------
Net interest income after provision
for loan losses........................ 842 880 1,771 1,483 1,170 1,050 883
Other income:
Service charges on deposits accounts..... 108 79 293 219 215 149 127
Other service charges and fees........... 176 127 157 143 309 159 19
Realized gain (loss) on investments, net. (16) 4 4 (71) --- --- ---
Other.................................... 27 69 109 53 24 --- 45
------ ------ ------ ------ ------ ------ ------
Total other income..................... 295 279 563 344 548 308 191
Other expenses:
Employment compensation and benefits..... 452 380 831 677 612 509 458
Premises and equipment expenses.......... 156 125 292 279 226 195 170
Other.................................... 328 350 646 504 518 408 326
------ ------ ------ ------ ------ ------ ------
Total other expenses................... 936 855 1,769 1,460 1,356 1,112 954
------ ------ ------ ------ ------ ------ ------
Income before income tax expense and
cumulative effect of change in
accounting method........................ 201 304 565 367 362 246 120
Income tax expense.......................... 67 108 223 129 92 37 ---
------ ------ ------ ------ ------ ------ ------
Net income before cumulative effect of change
in accounting method.................... 134 196 342 238 270 209 120
Cumulative effect of change in
accounting method...................... --- --- --- 86 --- --- ---
------ ------ ------ ------ ------ ------ ------
Net income .............................. $ 134 $ 196 $ 342 $ 324 $ 270 $ 209 $ 120
====== ====== ====== ====== ====== ====== ======
Earnings per share....................... $ 1.06 $ 1.56 $ 2.71 $ 2.57 $ 2.14 $ 1.66 $ 0.96
====== ====== ====== ====== ====== ====== ======
Supplemental Data:
Interest rate spread during period.......... 3.56% 4.24% 3.78% 4.04% 3.53% 3.60% 3.90%
Net yield on interest-earning assets (3) (4) 3.74 4.36 4.25 4.49 4.19 3.99 3.41
Return on assets (4) (5).................... 0.48 7.90 0.71 0.87 0.84 0.68 0.40
Return on equity (4) (6).................... 7.83 12.52 10.69 11.27 10.33 8.80 5.40
Equity to assets (7)........................ 6.14 6.86 6.23 7.27 8.30 7.87 7.55
Average interest-earning assets to average
interest-bearing liabilities............. 104.18 103.14 111.50 114.79 121.74 109.92 109.78
Non-performing assets to total assets (7)... 1.06 1.02 0.54 0.23 0.11 0.05 0.05
Allowance for loan losses to total loans
outstanding (7).......................... 1.16 0.89 0.86 1.13 1.80 1.69 1.85
Allowance for loan losses to
non-performing loans (7)................. 84.15 66.74 117.17 361.29 997.22 1,504.76 1,436.36
Net charge-offs to average
total loans outstanding ................. .07 .11 0.25 0.17 0.04 0.30 ---
Other expenses to
average assets (8)..................... 3.17 3.91 3.89 4.24 4.56 3.69 3.64
Number of full service offices (7).......... 4 4 4 2 2 2 2
</TABLE>
- -----------------
(1) Includes securities designated as available for sale.
(2) Includes certificates of deposit in other financial institutions.
(3) Net interest income divided by average interest-earning assets.
(4) Information for six months ended June 30, 1996 and 1995, has been
annualized. Interim results are not necessarily indicative of the results
of operations for an entire year.
(5) Net income divided by average total assets.
(6) Net income divided by average total equity.
(7) At end of period.
(8) Other expenses divided by average total assets.
<PAGE>
SELECTED PRO FORMA UNAUDITED CONSOLIDATED CONDENSED COMBINED FINANCIAL DATA
OF THE HOLDING COMPANY
The selected pro forma consolidated financial data of the Holding Company
set forth below is derived in part from and should be read in conjunction with,
the Unaudited Pro Forma Consolidated Condensed Combined Financial Statements
(the "Pro Forma") of Madison First Federal and notes thereto presented elsewhere
in this Prospectus. In deriving the amounts in the tables below, the Acquisition
reflected in the "Acquisition Adjustments" to the Pro Forma and the issuance of
Common Stock, reflected in the "Conversion Adjustments" to the Pro Forma, are
assumed to have occurred. In deriving the amounts for Selected Financial
Condition Data, the Acquisition and the Conversion were assumed to have been
consummated at June 30, 1996. In deriving the amounts for the Select Operating
Data, the Acquisition and the Conversion were assumed to have been consummated
on January 1, 1996 and January 1, 1995, respectively, for the six months ended
June 30, 1996, and the year ended December 31, 1995. Except as noted below, all
amounts presented below are determined on a basis consistent with the Select
Consolidated Financial Data of Madison First presented previously. See
"Unaudited Pro Forma Consolidated Condensed Combined Financial Statements."
Pro Forma Consolidated
Condensed Combined
At June 30, 1996
----------------------
(In Thousands)
Selected Financial Condition Data:
Assets:
Cash and cash equivalents................................. $ 6,218
Investment securities..................................... 14,923
Mortgage-backed and related securities.................... 11,826
Loans receivable, net..................................... 100,452
Goodwill, net of accumulated amortization................. 719
Liabilities:
Total deposits............................................ 123,497
FHLB advances............................................. 500
Total shareholders' equity .............................. 13,940
For the For the
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
------------- -----------------
(In Thousands)
Selected Operating Data:
Total interest income.............. $5,130 $9,552
Total interest expense............. 2,791 5,258
------ ------
Net interest income........... 2,339 4,294
Provision for loan losses.......... 192 254
------ ------
Net interest income after
provision for loan losses..... 2,147 4,040
Other income....................... 469 816
Other expense...................... 2,039 3,729
Income tax expense................. 210 457
------ ------
Net income......................... $ 367 $ 670
====== ======
<PAGE>
RECENT DEVELOPMENTS OF MADISON FIRST
The following table sets forth selected consolidated financial
condition data for Madison First at September 30, 1996, and December 31, 1995,
and selected consolidated operating data for Madison First for the three months
and nine months ended September 30, 1996 and 1995. Information at September 30,
1996 and for the nine months ended September 30, 1996 and 1995 is unaudited but,
in the opinion of management, includes all adjustments (comprising only normal
recurring accruals) necessary for a fair presentation of the financial position
and results of operations as of and for such dates. The selected financial and
other data of Madison First set forth below does not purport to be complete and
should be read in conjunction with, and is qualified in its entirety by, the
more detailed information, including the consolidated financial statements and
related notes thereto, appearing elsewhere herein:
<TABLE>
<CAPTION>
At September 30, At December 31,
Selected consolidated financial condition data: 1996 1995
---------------- ---------------
(Unaudited)
(In Thousands)
Total amount of:
<S> <C> <C>
Assets $84,100 $86,604
Cash and cash equivalents(1) 4,293 2,689
Investment securities - at cost 5,600 8,000
Investment securities available for sale - at market 3,956 5,018
Mortgage-backed securities - at cost 8,233 9,917
Loans receivable - net 58,725 57,945
Deposits 76,829 74,727
Advances from the FHLB --- 4,471
Unrealized gain (loss) on securities designated as
available for sale, net of related tax effects (29) 12
Retained earnings, net, substantially restricted 6,509 6,574
</TABLE>
- ------------
(1) Includes cash due from banks and interest-bearing deposits in other
financial institutions.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
Selected consolidated operating data: 1996 1995 1996 1995
------- ------- ---- -------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Interest income $1,424 $1,483 $4,366 $4,352
Interest expense 804 956 2,539 2,647
------- ------- ---- -------
Net interest income 620 527 1,827 1,705
Provision for loan losses 6 --- 18 3
------- ------- ---- -------
Net interest income after provision
for loan losses 614 527 1,809 1,702
Other income 111 120 312 306
Other expenses 1,041 521 2,148 1,495
------- ------- ---- -------
Income (loss) before income taxes (316) 126 (27) 513
Income taxes (credits) (103) 54 5 205
------- ------- ---- -------
Net income (loss) $ (213) $ 72 $(32) $ 308
======= ======= ==== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
At or for the three months At or for the nine months
ended September 30, ended September 30,
-------------------------- ---------------------------
Selected consolidated financial 1996 1995 1996 1995
----- ------ ----- ------
ratios and other data(1):
<S> <C> <C> <C> <C>
Return (loss) on average assets(2) (1.03%) .33% (0.05%) 0.47%
Average interest rate spread during period 3.01 2.29 2.92 2.54
Net interest margin 3.16 2.49 3.01 2.72
Return on average equity(2) (12.92) 4.38 (0.65) 6.36
Equity to total assets at end of period 7.71 7.52 7.71 7.52
Average interest-earning assets to
average interest-bearing liabilities 103.61 103.80 103.45 103.71
Net interest income to other expenses 59.56 101.15 85.06 114.05
Other expenses to average total assets(2) 5.02 2.36 3.36 2.28
Number of full-service offices 3 3 3 3
Capital Ratios at September 30, 1996
Tangible capital 7.74%
Core capital 7.74
Risk-based capital 16.66
</TABLE>
- ------------------
(1) Ratios for three months and nine months ended September 30, 1996 and 1995,
have been annualized.
(2) Based on the arithmetic average of beginning and ending balances.
Management's Discussion and Analysis
Financial Condition. Madison First's total assets at September 30, 1996
amounted to $84.1 million representing a decline of $2.5 million, or 2.9%, from
December 31, 1995 levels. The reduction in assets resulted from a $4.5 million
reduction in FHLB advances which was partially offset by a $1.4 million, or
1.8%, increase in deposits.
Cash and cash equivalents increased $1.6 million, or 59.7%, over the
amount recorded at December 31, 1995. The increase in cash and cash equivalents
is due to deposits increasing during the period.
Loans increased by $780,000, or 1.3%, due to net loan disbursements
during the nine month period ended September 30, 1996. Madison First had
nonperforming loans of $81,000 and no real estate acquired through foreclosure
at September 30, 1996. Management is of the opinion that the allowance for loan
losses of $422,000 at September 30, 1996 is adequate to cover any inherent
losses in the portfolio. See "Business of Madison First - Lending Activities."
Mortgage-backed and related securities decreased by $1.7 million, or
17.2%, during the nine month period ended September 30, 1996. This decrease is
primarily attributable to principal repayments as Madison First did not purchase
any mortgage-backed and related securities during the nine month period ended
September 30, 1996. Investment securities decreased by $3.5 million, or 26.6%,
during the period as investment maturities were used to repay maturing FHLB
advances.
Retained earnings totaled $6.5 million at September 30, 1996, a
decrease of $65,000 from the amount recorded at December 31, 1995. The decline
is primarily attributable to the realized loss recognized for the period due to
the SAIF recapitalization and an increase in the unrealized loss on securities
designated as available for sale.
Results of Operations. The net loss for the three months ended
September 30, 1996, totaled $213,000 compared to net income of $72,000 for the
same period in 1995. The primary reason for the net loss was an increase in
other expenses due to the pre-tax SAIF recapitalization expense of $503,000,
which was recorded in the quarter ended September 30, 1996. See "Recent
Developments -- Regulatory Oversight and Recent Legislation." Without the SAIF
assessment, net income would have been approximately $112,000, representing a
$40,000 increase over the amount recorded during the same period in 1995.
The net loss for the nine months ended September 30, 1996 totaled
$32,000 compared to net income of $308,000 for the nine months ended September
30, 1995. Without the pre-tax effects of the SAIF assessment, Madison First's
net income would have been approximately $286,000. Net interest income increased
by $122,000, or 7.2%, which was partially offset by a $15,000 increase in the
provision for loan losses and an increase of $150,000, or 10.0%, in other
expenses, net of the SAIF recapitalization assessment.
<PAGE>
Other income increased by $6,000, or 2.0%, from $306,000 for the nine months
ended September 30, 1995, to $312,000 for the nine months ended September 30,
1996. This increase was primarily attributable to an increase in insurance
commissions received period to period.
The increase in other expense, net of the SAIF assessment, was
primarily attributable to a $165,000, or 12.4%, increase in employee
compensation. The increase in employee compensation was primarily attributable
to increased staffing levels and normal merit increases.
Income tax expense decreased by $200,000, or 97.6%, from $205,000 for
the period ended September 30, 1995 to $5,000 for the period ended September 30,
1996. The decline in income tax expense is primarily attributable to the
$540,000 reduction in pre-tax earnings. For the three month period ended
September 30, 1996, income tax credits of $103,000 as compared to income tax
expense of $54,000 is again due to the SAIF recapitalization assessment which
resulted in a net loss.
<PAGE>
RECENT DEVELOPMENTS OF CITIZENS
The following table sets forth selected financial data for Citizens at
September 30, 1996, and December 31, 1995, and selected operating data for
Citizens for the three months and nine months ended September 30, 1996 and 1995.
Information at September 30, 1996 and for the nine months ended September 30,
1996 and 1995 is unaudited but, in the opinion of management, includes all
adjustments (comprising only normal recurring accruals) necessary for a fair
presentation of the financial position and results of operations as of and for
such dates. The selected financial and other data of Citizens set forth below
does not purport to be complete and should be read in conjunction with, and is
qualified in its entirety by, the more detailed information, including the
financial statements and related notes thereto, appearing elsewhere herein:
<TABLE>
<CAPTION>
At September 30, At December 31,
Selected financial condition data: 1996 1995
---------------- ---------------
(Unaudited)
(In Thousands)
Total amount of:
<S> <C> <C>
Assets $59,545 $54,503
Cash and cash equivalents(1) 446 5,124
Investment securities available for sale - at market 3,429 1,657
Mortgage-backed securities available for sale - at market 3,739 3,562
Loans receivable - net 47,494 40,432
Deposits 52,081 49,227
Advances from the FHLB and other borrowings 3,250 1,500
Unrealized gain (loss) on securities designated as
available for sale, net of related tax effects (89) (18)
Stockholders equity 3,678 3,396
</TABLE>
(1) Includes cash due from banks and interest-bearing deposits in other
financial institutions.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
Selected operating data: 1996 1995 1996 1995
------ ------ ------ -------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Interest income $1,160 $961 $3,316 $2,641
Interest expense 553 506 1,687 1,282
------ ------ ------ -------
Net interest income 607 455 1,629 1,359
Provision for loan losses 30 62 210 86
------ ------ ------ -------
Net interest income after provision
for loan losses 577 393 1,419 1,273
Other income 168 146 463 425
Other expenses 550 491 1,486 1,346
------ ------ ------ -------
Income before income taxes 195 48 396 352
Income taxes 65 18 132 126
------ ------ ------ -------
Net income $ 130 $ 30 $ 264 $ 226
====== ====== ====== =======
</TABLE>
<PAGE>
Changes in Financial Condition
Total assets at September 30, 1996, amounted to $59.5 million, representing
growth over December 31, 1995 levels of $5.0 million, or 9.3%. Citizens' asset
growth was primarily funded by a $2.9 million, or 5.8%, increase in deposits and
a $1.8 million increase in FHLB advances and other borrowings. The growth in
deposits during the 1996 nine month period reflects a continuation of
management's competitive deposit pricing, as well as an increase in advertising
expense. Cash and investment securities declined during the 1996 nine month
period by $2.9 million, or 42.8%, as liquidity was utilized to increase the loan
portfolio by $7.1 million, or 17.5%. The increase in the portfolio reflects
managements's desire to invest in higher yielding loans.
At September 30, 1996, Citizens' nonperforming loans totaled $554,000 or
1.2% of the loan portfolio. On that date, Citizens' allowance for loan losses
totaled $501,000 or 90.4% of nonperforming loans.
Citizens' risk-based capital ratio, Tier I risk-based capital ratio and
leverage ratio at September 30, 1996, were 9.73%, 8.56% and 6.31%, respectively,
each of which is in excess of its regulatory capital requirements imposed by
applicable law.
Comparison of Results of Operations for the Nine and Three Month Periods Ended
September 30, 1996 and 1995.
Net income for the nine months ended September 30, 1996, totaled $264,000,
an increase of $38,000, or 16.8%, over the comparable 1995 period. The increased
earnings were primarily attributable to a $270,000, or 19.9%, increase in net
interest income, generally reflecting asset growth year-to-year. The enhanced
net interest income during the 1996 period was partially offset by a $124,000
increase in the provision for loan losses and a $140,000 or 10.4%, increase in
other expenses. The increase in other expenses was primarily attributable to a
$110,000, or 19.0% increase in employee compensation, generally reflecting the
addition of new personnel and normal merit increases.
Net income for the three months ended September 30, 1996, totaled $130,000,
representing an increase of $100,000 over the comparable 1995 period. The
increase was primarily attributable to a $152,000, or 33.4% increase in net
interest income, which was partially offset by a $59,000 increase in other
expense and a $47,000 increase in the provision for income taxes.
The increases in net interest income and other expense are generally
reflective of Citizens' growth year-to-year, while increased income taxes is
primarily a result of of the $147,000 increase in pre-tax earnings.
<PAGE>
RISK FACTORS
Before investing in shares of the Common Stock offered hereby, prospective
investors should consider carefully the matters presented below.
Potential Impact of Changes in Interest Rates
Madison First's profitability is dependent to a large extent upon its net
interest income, which is the difference between its interest income on
interest-earning assets, such as loans and investments, and its interest expense
on interest-bearing liabilities, such as deposits and other borrowings. At June
30, 1996, a substantial portion of the adjustable-rate mortgage loans in Madison
First's portfolio were one-year adjustable-rate mortgage loans which provide for
maximum rate adjustments of 1% per year and 5% over the terms of the loans,
although Madison First began offering one-year adjustable-rate mortgage loans
with maximum rate adjustments of 1.5% per year and 6% over the terms of the
loans in late 1995. In a period of rising interest rates, these restrictions on
rate adjustments may prevent Madison First's adjustable-rate loans from
repricing upward as quickly or by as much as market rates. In addition, a
substantial portion of Madison First's adjustable-rate mortgage loans are
indexed to the 11th District Cost of Funds which is considered a "lagging"
index; i.e., the index is tied to variables that may not reprice on a basis as
quickly as market rates (e.g, the One-Year Treasury). In a period of rising
interest rates, Madison First's adjustable-rate mortgage loans tied to this
lagging index may not adjust upward as quickly as market rates. See "Business of
Madison First." As a result of the foregoing, Madison First's net interest
income could be adversely affected in periods of rising interest rates.
At June 30, 1996, based on financial modeling information provided by the
OTS, it was estimated that Madison First's NPV (the present value of cash flows
from assets, liabilities, and off-balance sheet items) would increase 4%, 4%, 7%
and 13% in the event of 1%, 2%, 3% and 4% decreases in market interest rates,
respectively. Madison First's NPV at the same date would decrease 8%, 18%, 30%
and 43% in the event of 1%, 2%, 3% and 4% increases in market rates,
respectively. These calculations indicate that Madison First's net portfolio
value could be adversely affected by increases in interest rates but that
Madison First's interest rate risk is within the definition of "normal" level of
exposure under the net market value methodology proposed by the OTS, which is 2%
of the present value of its assets. As a result, if the OTS' NPV methodology had
been effective and if Madison First had been subject to the OTS' reporting
requirements under this methodology, it would not have been required to take a
deduction from capital available to calculate its risk-based capital requirement
at June 30, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Madison First Federal Savings and Loan
Association -- Asset/Liability Management."
Like Madison First, Citizens' profitability is to a large extent dependent
upon its net interest income. Citizens' one-year adjustable-rate mortgage loans
provide for maximum rate adjustments of 1% per year and 5% over the terms of the
loans. In a period of rising interest rates, these restrictions on rate
adjustments may prevent Citizens' adjustable-rate loans from repricing upward as
quickly or by as much as market rates. This could negatively affect Citizens'
net interest income. See "Business of Citizens."
Although Citizens' NPV is not as sensitive to fluctuations in market rates
as Madison First's at June 30, 1996, Citizens' net portfolio value may be
negatively impacted by changes in market rates. At June 30, 1996, based on
financial modeling information provided by Baxter Capital Management, Inc.,
Madison First's financial advisor, it was estimated that Citizens' NPV would
increase 10.2% in the event of a 2% increase in market interest rates and would
decrease 11.2% in the event of a 2% decrease in market interest rates. These
calculations indicate that Citizens' net portfolio value is more sensitive to
decreases in market interest rates but that Citizens' interest rate risk would
be within the definition of normal level of exposure if the OTS methodology
described above was effective and applicable to Citizens. As a result, Citizens
would not have been required to take a deduction from capital at June 30, 1996
under such methodology. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Citizens National Bank of Madison --
Asset/Liability Management."
Madison First and Citizens, like most financial institutions, will continue
to be affected by general changes in levels of interest rates and other economic
factors beyond their control.
Divestiture of Hanover Branch
As a condition to the Holding Company obtaining approval for the
Acquisition from the FRB, the Holding Company committed to cause Madison First
to divest its Hanover, Indiana branch. The Holding Company's commitment requires
that
<PAGE>
(i) Madison First enter into a definitive agreement to divest the Hanover
branch, including the physical facilities and at least $7.5 million of deposits
originated at that branch (consisting of 10% of Madison First's deposits at June
30, 1996), prior to consummation of the Acquisition and (ii) the Hanover branch
be divested by Madison First within 180 days of the Acquisition. In the event
Madison First does not complete the divestiture of its Hanover branch within 180
days of the consummation of the Acquisition, the Hanover branch will be placed
in trust, and an independent trustee will proceed with an immediate disposition
of the Hanover branch without regard to price.
Delays in Madison First's divestiture of its Hanover branch may cause
significant delays in the completion of the Conversion and the Acquisition, and
could force the Holding Company and Madison First to abandon both the Conversion
and the Acquisition. See " -- Risks of Delayed Offering." The Holding Company
cannot consummate the Acquisition until Madison First has entered into a
definitive agreement providing for the sale of the Hanover branch. Unless
Madison First has entered into such a definitive agreement and the Holding
Company has completed the Acquisition by December 31, 1996, Mrs. Durocher may
terminate the Agreement. See "The Acquisition -- Termination of the Agreement --
Termination by Mrs. Durocher." Although Mrs. Durocher could extend the date by
which the Acquisition must be completed, she is under no obligation to do so,
and no assurance can be given that she would do so if requested by the Holding
Company and Madison First. If Madison First has not entered into a definitive
sale agreement by December 31, 1996 and Mrs. Durocher terminates the Agreement,
the Plan of Conversion will terminate and neither the Acquisition nor the
Conversion will be completed. See "The Acquisition -- Acquisition as Condition
to Conversion." Moreover, if Madison First does enter into a definitive
agreement for the sale of the Hanover branch but does not complete the sale
within 180 days of consummation of the Acquisition, the Hanover branch will be
placed in trust and will be sold by an independent trustee without regard to
price. A forced sale of the Hanover branch by an independent trustee would
likely result in Madison First receiving less for the Hanover branch than that
which it considers a fair market value.
Risks Relating to the Acquisition
In connection with the Conversion, the Holding Company will acquire the
Citizens Shares in the Acquisition. The Holding Company and Madison First have
never acquired another financial institution, and the future success of the
Holding Company will, in part, depend on the success of Citizens and the
Acquisition. The success of the Acquisition will, in turn, depend on a number of
factors, including the ability of the Holding Company to integrate the
operations of the Institutions, where appropriate, in a manner that allows the
Institutions to benefit from overall operating efficiencies and the Holding
Company's ability to control incremental non-operating expense from the
Acquisition. There can be no assurance that Citizens' business will be
successfully integrated into Madison First's operations or result in improved
profits. Moreover, because the Holding Company will become a bank holding
company as a result of the Acquisition, it anticipates that it will be required
to divest the insurance operations of its service corporation subsidiary within
two years following consummation of the Acquisition, and during that two-year
period, to limit such insurance activities to the renewal of existing policies.
See "Business of Madison First -- Service Corporation Subsidiaries." A material
delay in consummating the Acquisition may result in a significant increase in
the costs of completing the Conversion and the Acquisition. See "-- Risk of
Delayed Offering."
<PAGE>
Commercial Lending
Citizens is an active commercial lender in its market area. Citizens'
commercial loans are usually adjustable-rate loans and have varying terms
depending on the nature of the collateral, if any. As of June 30, 1996,
approximately 75.8% of Citizens' commercial loans were secured by some type of
collateral. While such lending assists Citizens in its asset/liability
management and provides a greater yield than one- to four-family residential
mortgage lending, this type of lending involves a higher degree of credit risk
due to the concentration of principal in a limited number of loans and borrowers
and the effects of general economic conditions on the projects involved. In
addition, the nature of these loans makes them more difficult to monitor and
evaluate. As of June 30, 1996, $5.8 million, or 13.4% of Citizens' total loan
portfolio, was comprised of commercial loans. On the same date, $305,000, or
51.4%, of Citizens' non-performing loans consisted of commercial loans or
participations therein. See "Business of Citizens -- Lending Activities --
Commercial Loans" and "-- Non-Performing and Problem Assets."
Nonresidential Real Estate and Multi-Family Lending
In an effort to generate loan growth, Citizens has been, and after the
Acquisition will continue to be, active in the origination of nonresidential
real estate and multi-family loans. As of June 30, 1996, Citizens' total
portfolio of nonresidential real estate and multi-family loans amounted to $8.4
million and $1.1 million, respectively, or 19.2% and 2.6%, respectively, of
Citizens'
<PAGE>
total loan portfolio. Madison First, while generally less active than Citizens
in these lending areas, had nonresidential real estate and multi-family loans of
$6.6 million and $1.5 million, respectively, or 11.3% and 2.6%, respectively, of
Madison First's total loan portfolio at June 30, 1996. Although nonresidential
real estate and multi-family loans provide higher interest rates and shorter
terms, these loans have higher credit risk than one- to four-family residential
loans. Nonresidential real estate and multi-family loans often involve large
loan balances to single borrowers or groups of related borrowers. In addition,
payment experience on loans secured by such properties is typically dependent on
the successful operation of the properties and thus may be subject to a greater
extent to adverse conditions in the real estate market or in the general
economy. Accordingly, the nature of the loans make them more difficult for
management to monitor and evaluate. Moreover, to the extent that the properties
constitute new ventures, predictions about their operating results are
inherently speculative, and cash flow and other financial problems may take some
time to develop. If these borrowers develop problems, because of the relatively
large size of the loans, such problems may require significant increases in
allowances for loan losses, and may result in significant reductions in net
income. Such reductions could have an adverse effect on the shares of Common
Stock offered hereby. Madison First's largest nonresidential real estate and
multi-family loans had outstanding balances of $825,000 and $729,000,
respectively, as of June 30, 1996. Citizens' largest nonresidential real estate
and multi-family loans had outstanding balances of $339,000 and $397,000,
respectively, as of June 30, 1996. None of Madison First's nonresidential real
estate and multi-family loans was non-performing as of June 30, 1996. As of the
same date, none of Citizens' multi-family loans was included in non-performing
assets, and nonresidential real estate loans totalling $114,000 were
non-performing, constituting 19.2% of all non-performing loans. See "Business of
Madison First -- Lending Activities" and "Business of Citizens -- Lending
Activities."
Decreasing Earnings and Impact on Return on Equity
Due to the strong competition in the Institutions' market area, Madison
First has been aggressively pricing its deposit products to assist it in
maintaining its deposit base. Similarly, Madison First has attempted to
competitively price its loan products within its market area. These pricing
strategies, together with Madison First's emphasis on residential mortgage loans
which have lower yields than other loan products with higher credit risk, have
negatively affected Madison First's net interest income and its interest rate
spread. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Madison First Federal Savings and Loan Association."
While Madison First has strategies to increase its earnings, there can be no
guarantee that it will be successful in doing so. Moreover, it is not expecting
immediate reductions in expenses following the Conversion and the Acquisition,
and the Holding Company is expected to incur additional expenses as a result of
the Conversion and the Acquisition, including expenses that may be incurred in
connection with any acquisition by it of the Minority Shares. Moreover, while
Madison First is not converting primarily as a capital raising tool, Madison
First will have a substantially increased capital position following the
Conversion. Based on the Holding Company's pro forma capital at June 30, 1996 of
$13.9 million and 1995 pro forma net income of $670,000 (based on the midpoint
of the Estimated Valuation Range), the Holding Company would have pro forma
return on shareholders' equity of less than 7%, which in the opinion of
management is not an acceptable long-term return. See "Pro Forma Data."
Unacceptable returns likely will continue for the foreseeable future. In
pursuing the Conversion and the Acquisition, the Holding Company and the
Institutions are committed to building profitable, independent community-based
financial institutions. As a result, following consummation of the Conversion
and the Acquisition, the Holding Company expects to pursue a long-term strategy
to enhance shareholder value.
Existence of Minority Shares
The Holding Company will be acquiring only 95.6% of the outstanding shares
of Citizens. Following the Acquisition, the Holding Company may consider the
acquisition of the remaining 4.4% interest in a transaction in which fair
consideration would be provided to the holders of the Minority Shares, most
likely in the form of cash or Common Stock, or a combination thereof. Unless and
until the Minority Shares are acquired, Citizens may decide not to declare cash
dividends, as the holders of the Minority Shares would have to participate in
those dividends on a pro rata basis. A transaction in which the Holding Company
acquires the Minority Shares could result in increased costs and expenses to the
Holding Company and, to the extent that Common Stock is issued in such a
transaction, could dilute the interests of the Holding Company's existing
shareholders.
Possible Dilutive Effect of Future Stock Benefit Plans
Following the Conversion, it is likely that the Holding Company will adopt,
subject to shareholder approval, employee and management benefit plans which may
involve the issuance of additional shares of Common Stock. In particular, the
Holding Company anticipates adopting the RRP and the Stock Option Plan following
the Conversion, subject to receiving shareholder
<PAGE>
approval of such plans at a shareholders' meeting to be held at least six months
after the completion of the Conversion. Under the RRP, directors, officers, and
employees of the Holding Company and the Institutions could be awarded an
aggregate amount of Common Stock equal to 4% of the shares issued in the
Conversion. Under the Stock Option Plan, directors, officers, and employees of
the Holding Company and the Institutions could be granted options to purchase an
aggregate amount of Common Stock equal to 10% of the shares issued in the
Conversion at exercise prices equal to the fair market value of the shares on
the date of grant.
It is currently anticipated that the shares issued to directors, officers,
and employees of the Holding Company and the Institutions under the RRP will be
shares purchased on the open market. However, to the extent shares are not
available on the open market or the Holding Company decides not to purchase such
shares on the open market, authorized but unissued shares of Common Stock may be
issued to recipients of awards under the RRP. If newly issued shares are used,
the interests of existing shareholders will be diluted. Assuming that 900,000
shares of Common Stock are issued in the Conversion and that all awards under
the RRP are from authorized but unissued shares, the Holding Company estimates
that the per share book value for the Common Stock would be diluted $0.60 per
share, or 3.8%, on a pro forma basis as of June 30, 1996. See "Pro Forma Data."
It is also expected that options to purchase a number of shares of Common
Stock equal to 10.0% of the shares sold in the Conversion will be granted
pursuant to the Stock Option Plan. The grant of these stock options may also be
considered dilutive of the interests of shareholders.
Potential Benefits to Management Upon and Subsequent to Conversion
ESOP. The Holding Company has adopted the ESOP effective January 1, 1996
for eligible employees of the Holding Company and the Institutions, including
executive officers. As part of the Conversion, the ESOP intends to borrow funds
from the Holding Company and use such funds to purchase a number of shares of
Common Stock equal to 8% of the shares issued in the Conversion. Collateral for
the loan will be the Common Stock purchased by the ESOP in the Conversion. The
loan will be repaid principally from the Institutions' discretionary
contributions to the ESOP over a period of 10 years. Shares purchased by the
ESOP will be held in a suspense account for allocation among participants as the
loan is repaid. Assuming shares of Common Stock appreciate in value over time,
compensation expense relating to the ESOP will also incease over time. See "--
ESOP Compensation Expense," "Executive Compensation and Related Transactions of
Madison First -- Employee Stock Ownership Plan and Trust" and "Executive
Compensation and Related Transactions of Citizens -- Employee Stock Ownership
Plan and Trust."
Stock Options. The Board of Directors of the Holding Company intends to
implement the Stock Option Plan, contingent upon receipt of shareholder approval
at a meeting to be held at least six months following completion of the
Conversion. Assuming 900,000 shares of Common Stock are issued in the Conversion
and receipt of the required approval, it is expected that stock options for
90,000 shares of Common Stock will be granted under the Stock Option Plan. The
exercise price of the options, which would be granted at no cost to the
recipient thereof, would be the fair market value of the Common Stock subject to
the option on the date the option is granted, which is expected to be the date
of the shareholder meeting.
RRP. The Board of Directors of the Holding Company intends to implement the
RRP contingent upon receipt of approval from the Holding Company's shareholders
at a meeting to be held at least six months following completion of the
Conversion. Subject to such approval, the RRP will purchase an amount of shares
after the Conversion equal to up to 4% of the shares issued in the Conversion
(36,000 shares at the midpoint of the Estimated Valuation Range). Awards under
the RRP would be granted at no cost to the recipient thereof.
ESOP Compensation Expense
In November, 1993, the American Institute of Certified Public Accountants
(the "AICPA") issued Statement of Position ("SOP") 93-6, "Employers' Accounting
for Employee Stock Ownership Plans." SOP 93-6 requires an employer to record
compensation expense in an amount equal to the fair value of shares committed to
be released to employees from an employee stock ownership plan. If shares of
Common Stock appreciate in value over time, the adoption of SOP 93-6 may
increase compensation expense relating to the ESOP to be established in
connection with the Conversion as compared with prior guidance which required
the recognition of compensation expense based on the cost of shares acquired by
the ESOP. It is impossible to determine at this time the extent of such impact
on future net income.
<PAGE>
No Prior Market for Common Stock
The Holding Company has never issued Common Stock to the public;
consequently, there is no established market for the Common Stock. However, the
Holding Company will use its best efforts to develop a public market for the
Common Stock. The Holding Company has received approval to have its Common Stock
quoted on the NASDAQ Small Cap Market under the symbol "RIVR" upon successful
completion of the offering, subject to certain conditions which the Holding
Company and Madison First believe will be met. The Holding Company anticipates
that there will be at least two market makers for the Common Stock upon the
completion of the Conversion, depending upon the volume of trading activity in
the Common Stock and subject to compliance with applicable provisions for
federal and state securities laws and other regulatory requirements. The Agent
intends to make a market in the Common Stock, although it is under no obligation
to do so.
An active and liquid public trading market for the securities of any
issuer, including the Holding Company, depends upon the presence in the
marketplace of both willing buyers and willing sellers of the securities at any
given time. Although the Holding Company has received approval to have its
shares quoted on the NASDAQ Small Cap Market, no assurance can be given that an
active and liquid trading market will develop or that the trading price per
share of the Common Stock will equal or exceed the Purchase Price. Purchasers of
Common Stock should consider, therefore, the potentially illiquid and long-term
nature of their investment in the shares of Common Stock being offered hereby.
Even if a market develops, there can be no assurance that shareholders will be
able to sell their shares at or above the Purchase Price after the completion of
the Conversion. See "Market for the Common Stock."
Competition
The Institutions experience strong competition in their local market area
in both originating loans and attracting deposits. This competition arises
principally from commercial banks, thrifts and credit unions. The recent
enactment of federal and Indiana interstate branching legislation may also
increase the Institutions' competition in their market. Such competition may
limit the Institutions' growth in the future. See "Competition."
Geographic Concentration of Loans
At December 31, 1995, 95.2% of Madison First's real estate mortgage loans
and 90.3% of Citizens' real estate mortgage loans were secured by properties
located in Indiana. A substantial portion of such loans is located in the
Institutions' primary market area. While each of the Institutions currently
believes that its loans reflect sufficient collateral coverage and its loss
allowances are adequate, in the event that real estate prices in Jefferson
County substantially weaken or economic conditions in the Institutions' primary
market area deteriorate, reducing the value of properties securing such loans,
it is possible both that some borrowers may default and that the value of the
real estate collateral may be insufficient to fully secure the loan. In either
event, the Institutions may experience increased levels of delinquencies and
related losses having an adverse impact on net income.
Risk of Delayed Offering
The Holding Company and Madison First expect to complete the Conversion
within the time periods indicated in this Prospectus. Nevertheless, it is
possible, although not anticipated, that adverse market, economic or other
factors could significantly delay the completion of the Conversion and result in
a delay in shareholders of the Holding Company receiving their stock
certificates, increased Conversion costs and expenses or a change in the
Estimated Valuation Range. Moreover, consummation of the Conversion is
conditioned on the satisfaction of all conditions precedent to the Acquisition.
Therefore, a delay in the satisfaction of any condition precedent to the
Acquisition would result in a delay in completing the Conversion, and the
inability of Madison First to enter into a definitive agreement for the sale of
its Hanover branch prior to December 31, 1996 could result in the termination of
the Agreement and the Plan of Conversion. See "-- Divestiture of Hanover Branch.
The Subscription Offering could be extended to January 25, 1997 and the Direct
Community Offering extended to as late as January 25, 1997, before subscribers
would have the right to modify or rescind their subscriptions. If the
Subscription Offering or the Direct Community Offering is extended beyond such
dates, all subscribers will have the right to modify or rescind their
subscriptions and to have their subscription funds returned promptly, with
interest, or to have their withdrawal authorizations terminated. See "The
Conversion."
<PAGE>
Anti-Takeover Provisions
Provisions in the Holding Company's Governing Instruments. The Articles of
Incorporation of the Holding Company contain certain provisions which could
impede a non-negotiated, unsolicited change in control of the Holding Company,
even if desired by a majority of the shareholders. The Articles of Incorporation
provide that: (i) no person shall directly or indirectly offer to acquire or
acquire the beneficial ownership of more than 10% of any class of equity
security of the Holding Company (provided that such limitations shall not apply
to the acquisition of equity securities by any one or more tax-qualified
employee stock benefit plans maintained by the Holding Company, if the plan or
plans beneficially own no more than 25% of any class of such equity security of
the Holding Company); and that (ii) shares beneficially owned in violation of
the stock ownership restriction described above shall not be entitled to vote
and shall not be voted by any person or counted as voting stock in connection
with any matter submitted to a vote of the shareholders. For these purposes, a
person (including management) who has obtained the right to vote shares of the
Common Stock pursuant to revocable proxies shall not be deemed to be the
"beneficial owner" of those shares if that person is not otherwise deemed to be
the beneficial owner of those shares. See "Restrictions on Acquisition of the
Holding Company -- Provisions of the Holding Company's Articles and By-Laws." In
addition, the Articles of Incorporation provide for the issuance of serial
preferred stock with such designations and preferences as may be determined by
the Holding Company's Board of Directors, without obtaining shareholder
approval. Such preferred stock could be used by the Holding Company to impede a
non-negotiated change of control, even if the change in control might result in
shareholders receiving a substantial premium for their shares over then-current
market prices. Moreover, federal and Indiana laws contain provisions that
restrict the acquisition of control of the Holding Company and the Institutions.
Indiana law specifically authorizes directors, in considering the best interest
of the corporation, to consider the effects of any action on shareholders,
employees, suppliers, and customers of the corporation, and communities in which
offices or other facilities of the corporation are located, and any other
factors the directors consider pertinent. Indiana law also provides that
directors are not required to approve a business combination or other corporate
action if the directors determine in good faith that such approval is not in the
best interest of the corporation. See "Restrictions on Acquisition of the
Holding Company -- Other Restrictions on Acquisition of the Holding Company and
the Institutions."
Although the Holding Company's Board of Directors believes that the
restrictions on acquisition are beneficial to shareholders, the provisions may
have the effect of rendering the Holding Company less attractive to potential
acquirors thereby discouraging future takeover attempts which would not be
approved by the Board of Directors but which certain shareholders might deem to
be in their best interest or pursuant to which shareholders might receive a
substantial premium for their shares over then current market prices. These
provisions will also render the removal of the incumbent Board of Directors and
of management more difficult. The Board of Directors has, however, concluded
that the potential benefits of these restrictive provisions outweigh the
possible disadvantages.
Voting Control of Directors and Executive Officers. Directors and executive
officers of the Holding Company and the Institutions and their Associates expect
to purchase 124,800 shares at $10.00 per share, or 16.3% and 12.1% of the shares
of Common Stock offered in the Conversion based upon the minimum and maximum,
respectively, of the Estimated Valuation Range. Employees of the Institutions,
including their executive officers, will also be eligible to participate in the
ESOP and be able to vote shares allocated to their accounts under the ESOP. See
"Executive Compensation and Related Transactions of Madison First -- Employee
Stock Ownership Plan and Trust" and "Executive Compensation and Related
Transactions of Citizens -- Employee Stock Ownership Plan and Trust." Moreover,
the Holding Company intends to adopt, after the Conversion, stock benefit plans
for employees and management of the Holding Company and the Institutions. See
"Executive Compensation and Related Transactions of Madison First -- RRP," "--
Stock Option Plan," "Executive Compensation and Related Transactions of Citizens
- -- RRP" and "-- Stock Option Plan." Accordingly, directors and executive
officers of the Holding Company and the Institutions as a group may have
effective control over an even greater amount of stock in the future. Assuming
the sale of 900,000 shares of Common Stock in the Conversion and that all shares
awarded under the RRP are purchased on the open market and upon (i) the full
vesting of the restricted stock awards to directors and executive officers
contemplated under the RRP and (ii) the exercise in full of all options expected
to be granted to directors and executive officers under the Stock Option Plan,
the Institutions' and the Holding Company's directors and executive officers
would receive an additional 107,460 shares of Common Stock and would exercise
effective control of 23.9% of the outstanding shares of Common Stock.
Regulatory Oversight and Recent Legislation
Madison First is subject to extensive regulation, supervision and
examination by the OTS as its primary federal regulator and by the FDIC, which
insures its deposits up to applicable limits. Madison First is a member of the
FHLB of Indianapolis
<PAGE>
and is subject to certain limited regulation by the FRB. Citizens is subject to
extensive regulation, supervision and examination by the Office of Comptroller
of Currency (the "OCC") as its primary federal regulator and by the FDIC, which
insures its deposits up to applicable limits. Citizens is also a member of the
FHLB of Indianapolis and the Federal Reserve System. As a savings and loan
holding company, the Holding Company will be subject to regulation and oversight
by the OTS. As a bank holding company, the Holding Company will also be subject
to regulation and oversight by the FRB. See "Regulation." Such regulation and
supervision govern the activities in which an institution can engage and are
intended primarily for the protection of the insurance fund and deposits. With a
view to strengthening the banking industry, regulatory authorities have been
granted extensive discretion in connection with their supervisory and
enforcement activities. The assessments, filing fees and other costs associated
with reports, examinations and other regulatory matters are significant, and
increases in such costs may have an adverse effect on the Holding Company's
results of operations.
On September 30, 1996, President Clinton signed into law legislation which
included provisions designed to recapitalize the SAIF and eliminate the
significant premium disparity between the BIF and the SAIF. Under the new law,
Madison First will be charged a one-time special assessment equal to $.657 per
$100 in assessable deposits at March 31, 1995. This one-time assessment will be
recognized as a non-recurring operating expense during the three-month period
ending September 30, 1996, will be due November 27, 1996 and will be fully
deductible for both federal and state income tax purposes. For a description of
the impact of this assessment on Madison First, see "Recent Developments."
Beginning January 1, 1997, the annual deposit insurance premium for Madison
First will be reduced from .23% to .0644% of total assessable deposits. The law
also provides for the merger of the SAIF and the BIF by 1999, but not until such
time as bank and thrift charters are combined. Until the charters are combined,
savings associations with SAIF deposits are precluded from switching deposits
into the BIF. See "Regulation -- Insurance of Deposits."
A recently enacted law also effected significant changes in the available
methods of computing bad debt deductions for savings associations, like Madison
First. Historically, savings associations have been permitted to compute bad
debt deductions using either the bank experience method or the percentage of
taxable income method. However, for years beginning after December 31, 1995,
Madison First will no longer be able to use the percentage of taxable income
method of computing its allowable tax bad debt deduction. Madison First will be
required to compute its allowable deduction using the experience method. As a
result of the repeal of the percentage of taxable income method, reserves taken
after 1987 using the percentage of taxable income method generally must be
included in future taxable income over a six-year period, although a two-year
delay may be permitted for institutions meeting a residential mortgage loan
origination test. In addition, the pre-1988 reserve, for which no deferred taxes
have been recorded, will not have to be recaptured into income unless (i)
Madison First no longer qualifies as a bank under the Code, or (ii) excess
dividends are paid out by Madison First. See "Taxation."
Congress is considering legislation that would consolidate the supervision
and regulation of all U.S. financial institutions into one administrative body,
would expand the powers of financial institutions, and would provide regulatory
relief to financial institutions (the "Legislation"). It cannot be predicted
with certainty whether or when the Legislation will be enacted or the extent to
which the Holding Company, would be affected thereby.
Income Tax Consequences of Subscription Rights
If the subscription rights granted in connection with the Conversion are
deemed to have an ascertainable value, receipt of such rights will be taxable to
recipients, either as ordinary income or capital gain, in an amount not in
excess of such value. In the opinion of Keller, the subscription rights have no
ascertainable fair market value. See "The Conversion -- Principal Effects of
Conversion -- Tax Effects."
RIVER VALLEY BANCORP
The Holding Company was incorporated under the laws of the State of Indiana
on May 22, 1996, for the purpose of acquiring all of the common stock of Madison
First in the Conversion and the Citizens Shares in the Acquisition and acting as
the Institutions' holding company. As the Holding Company was not incorporated
until recently and is currently a shell corporation, no Holding Company
financial statements are included herein. The holding company structure will
provide increased flexibility in conducting future business activities related
to the Institutions. The Holding Company has received approval of the OTS to
become a savings and loan holding company through the acquisition of all of the
common stock of Madison First to be issued upon completion of the Conversion.
The Holding Company has also received the approval of the FRB to become a bank
holding company through the acquisition of the Citizens Shares upon consummation
of the Acquisition; however, the FRB's approval was conditioned on the Holding
Company's commitment to cause Madison First to (i) enter into
<PAGE>
a definitive agreement to sell Madison First's Hanover, Indiana branch,
including the physical facilities and at least $7.5 million of deposits
originated at that branch, prior to consummation of the Acquisition and (ii)
complete the sale of the Hanover, Indiana branch within 180 days of consummation
of the Acquisition. See "Risk Factors -- Divestiture of Hanover Branch."
As an Indiana corporation, the Holding Company is authorized to engage in
any activity that is permitted by the Indiana Business Corporation Law, as
amended (the "IBCL"). The Board of Directors of the Holding Company anticipates
that, after completion of the Conversion, the Holding Company will conduct its
business as a bank holding company in respect of Citizens and as a savings and
loan holding company in respect of Madison First. As a bank holding company for
Citizens, the Holding Company's activities will be limited to those permitted by
FRB regulations. See "Regulation -- Bank Holding Company Regulation." The
holding company structure will provide the Holding Company with greater
flexibility than the Institutions to diversify their business activities, either
through newly-formed subsidiaries or through acquisitions. The Holding Company
has no current arrangements, discussions or agreements, written or oral,
regarding any such business activities or acquisitions other than in connection
with the Acquisition at this time. However, after the Conversion the Holding
Company will be able to take advantage of favorable business or acquisition
opportunities that may arise. The Holding Company currently intends to maintain
the independence of the Institutions, but may in the future evaluate a possible
merger or consolidation of the Institutions. Upon consummation of the Conversion
and the Acquisition, the Holding Company will have no significant assets other
than the common stock of Madison First to be issued in connection with the
Conversion, the Citizens Shares, the ESOP loan and that portion of the net
Conversion proceeds retained by the Holding Company and not used by the Holding
Company to purchase the Citizens Shares. The Holding Company will initially
receive 50% of the net Conversion proceeds after providing for the Holding
Company's loan to the ESOP which will permit the ESOP to purchase Common Stock
in the Conversion. The Holding Company will use $3.0 million of the proceeds to
purchase the Citizens Shares in the Acquisition and a portion of the proceeds to
make a capital contribution to Citizens of up to $1.5 million. The Holding
Company may use any remaining funds for general corporate purposes, including
the payment of dividends and, subject to OTS approval, repurchases of shares of
its Common Stock in the future. However, the Holding Company has no present
plans to pay dividends or effect repurchases of the Common Stock. Any activities
of the Holding Company will initially be funded from such net proceeds,
repayments on the ESOP loan and through future dividends from the Institutions,
which are subject to certain limitations. Citizens does not anticipate paying
dividends on its common stock in the foreseeable future and may be effectively
precluded from paying dividends until the Holding Company acquires the Minority
Shares. See "Dividend Policy," "Regulation -- Dividend Limitations," and "Use of
Proceeds."
Assuming net Conversion proceeds at the midpoint of the Estimated Valuation
Range and assuming (i) the Holding Company's purchase of the Citizens Shares for
$3.0 million and (ii) the Holding Company's $1.5 million capital contribution to
Citizens, the Holding Company's pro forma total risk-based capital ratio, Tier I
risk-based capital ratio and leverage ratio would be 17.2%, 16.1% and 9.6%,
respectively.
The executive offices of the Holding Company are located at 303 Clifty
Drive, Post Office Box 626, Madison, Indiana 47250 and its telephone number is
(812) 273-4949.
MADISON FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
Madison First was organized as a federally chartered savings and loan
association in 1875 and currently conducts its business from three full-service
offices and one stand-alone drive-through branch all located in Jefferson
County, Indiana. However, as a condition to the Holding Company obtaining the
requisite approval for the Acquisition from the FRB, the Holding Company
committed to cause Madison First to (i) enter into a definitive agreement to
sell Madison First's Hanover, Indiana branch prior to consummation of the
Acquisition and (ii) complete the sale of the Hanover, Indiana branch, including
the physical facilities and at least $7.5 million of deposits originated at that
branch, within 180 days of consummation of the Acquisition. In the event Madison
First does not complete the divestiture of its Hanover branch within 180 days of
the consummation of the Acquisition, the Hanover branch will be placed in trust,
and an independent trustee will proceed with an immediate disposition of the
Hanover branch without regard to price. See "Risk Factors -- Divestiture of
Hanover Branch." Management believes Madison First has developed a solid
reputation among its loyal customer base because of its commitment to personal
service and its strong support of the local community. Madison First offers a
variety of lending, deposit and other financial services to its retail and
commercial customers.
Madison First attracts deposits from the general public and originates
mortgage loans, most of which are secured by one- to four-family residential
real property in Jefferson County, Indiana. Madison First also offers second
mortgage loans,
<PAGE>
indemnification mortgage loans, construction loans, multi-family loans,
nonresidential real estate loans, land loans and consumer loans, including
automobile loans, loans secured by deposits, home equity loans and installment
loans. Madison First derives most of the funds for its lending from deposits of
its customers consisting primarily of certificates of deposit, demand accounts
and savings accounts.
Madison First has maintained a relatively strong capital position by
focusing on residential real estate mortgage lending in Jefferson County,
Indiana. At June 30, 1996, Madison First had total assets of $81.9 million,
deposits of $74.7 million and net equity capital of $6.7 million. For the fiscal
year ended December 31, 1995, Madison First had net income of $258,000, a return
on assets of 0.30% and a return on equity of 4.01%. Madison First has
experienced very few asset quality problems in its total loan portfolio, and at
June 30, 1996, its ratio of non-performing assets to total assets was .27%.
During the year ended December 31, 1995, Madison First recovered $5,000 of loans
previously charged off. Madison First made no charge offs during the same
period.
At June 30, 1996, Madison First's equity capital equaled 8.2% of total
assets. Assuming net proceeds at the midpoint of the Estimated Valuation Range,
Madison First's pro forma equity to assets ratio at June 30, 1996, after
adjustments, would have been 12.3%. Assuming net proceeds are allocated to
Madison First at the midpoint of the Estimated Valuation Range (except for 50%
of the net Conversion proceeds after providing for the Holding Company's loan to
the ESOP retained by the Holding Company), Madison First's pro forma tangible
capital, core capital and risk-based capital ratios would have been 12.2%, 12.2%
and 23.4%, respectively, at June 30, 1996. Madison First's capital ratios are
now, and on a pro forma basis will be, in excess of the capital requirements
imposed by applicable law. See "Pro Forma Data -- Regulatory Capital
Compliance." Madison First has no current arrangements, negotiations, or
agreements, written or oral, with respect to any future acquisition.
CITIZENS NATIONAL BANK OF MADISON
Citizens was organized as a national bank in 1981. Citizens conducts its
business from four full-service offices, all located in Jefferson County,
Indiana. Citizens has cultivated a solid reputation in its market area as a
responsive full-service community bank through its offering of a wide variety of
lending, deposit and other financial services to its retail and commercial
customers.
Citizens attracts deposits from the general public and originates
residential, multi-family, land, nonresidential mortgage, construction and home
equity loans, most of which are secured by real property located in Jefferson
County, Indiana, nonmortgage commercial loans, mobile home loans, and consumer
loans, including automobile loans, loans secured by deposits, and installment
loans. Citizens derives most of the funds for its lending activities from
deposits of its customers consisting primarily of certificates of deposits,
demand accounts and savings accounts. See "Business of Citizens -- Lending
Activities -- Origination, Purchase and Sale of Loans."
By offering a wide variety of lending, deposit and other financial services
to its retail and commercial customers, Citizens has benefited from consistent
and sustained growth. At June 30, 1996, Citizens had total assets of $56.2
million, deposits of $51.8 million and net shareholders' equity of $3.4 million.
Citizens has no accounting goodwill or other intangible assets on its balance
sheet. For the fiscal year ended December 31, 1995, Citizens had net income of
$342,000, or $2.71 per share, a return on assets of 0.7% and a return on equity
of 10.7%. Despite its commitment to achieving aggressive growth in its loan
portfolio, Citizens has been relatively successful in maintaining its asset
quality. At June 30, 1996, Citizens' ratio of non-performing loans to total
assets was 1.06%. For the year ended December 31, 1995, Citizens charged off
$92,000 of loans, net of recoveries.
At June 30, 1996, Citizens' stockholders' equity totaled $3.4 million, or
6.1% of total assets. Assuming consummation of the Conversion and the
Acquisition and assuming Citizens' receipt of a $1.5 million capital
contribution from the Holding Company, Citizens' pro forma stockholders' equity
to total assets ratio at June 30, 1996 would have been 8.8%. Assuming Citizens'
receipt of the $1.5 million capital contribution from the Holding Company
anticipated upon completion of the Conversion and consummation of the
Acquisition, Citizens' pro forma total risk-based capital ratio, Tier I
risk-based capital ratio and leverage ratio would have been 13.9%, 12.7% and
8.8%, respectively. Citizens' capital ratios are now, and on a pro forma basis
will be, in excess of its regulatory capital requirements imposed by applicable
law. See "Pro Forma Data -- Regulatory Capital Compliance."
<PAGE>
THE ACQUISITION
General
On March 4, 1996, Madison First and Ms. Durocher entered into the Agreement
pursuant to which Madison First agreed to purchase through the Holding Company,
and Ms. Durocher agreed to sell to the Holding Company, the Citizens Shares,
which constitute 95.6% of the issued and outstanding capital stock of Citizens.
In consideration of the Citizens Shares, the Agreement provides that the Holding
Company will pay to Ms. Durocher cash in the amount of $3,010,725, or $25.00 per
Citizens Share. For further information regarding Citizens, see "Citizens
National Bank of Madison," "Business of Citizens" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Citizens
National Bank of Madison."
Reasons for the Acquisition
The Acquisition will enable Madison First to expand its banking services.
In addition, the Acquisition will enable Madison First to efficiently expand its
lending emphasis to include installment, commercial and agricultural loan
products through Citizens' established experience in such lending areas.
Moreover, the Acquisition in combination with the Conversion will permit the
Holding Company to put to use a significant portion of its capital, with the
Institutions qualifying as "well capitalized" institutions for regulatory
purposes. The Acquisition is also expected to reduce the pressure to leverage
the Holding Company's consolidated balance sheet that typically exists when a
"well capitalized" institution engages in a standard conversion transaction. See
"Unaudited Pro Forma Consolidated Condensed Combined Financial Statements" and
"Pro Forma Data -- Regulatory Capital Compliance." The Acquisition will also
create an affiliation between the Institutions which is expected to enable the
Holding Company and the Institutions to explore opportunities to integrate
certain aspects of the Institutions' operations in a manner designed to achieve
operating efficiencies, including the possible combination or integration of the
Institutions' data processing, marketing, financial reporting, collections and
human resources functions, compliance functions, their deposit and loan
operations, and their insurance and employee benefit programs. The Holding
Company and the Institutions will also be able to explore opportunities to
utilize their offices and physical locations in a more efficient manner
following the Acquisition.
Closing
The Agreement provides that the Acquisition will be consummated on such
date as all conditions precedent to the Acquisition are satisfied, or at such
later time as the parties may agree (the "Closing Date").
Conditions to the Acquisition
Conditions to Each Party's Obligations. The respective obligations of each
party to effect the Acquisition are subject to the condition that the Conversion
shall have been consummated and any necessary regulatory approvals for the
Acquisition shall have been obtained. The Holding Company has obtained the
approval of the FRB to become a bank holding company upon the acquisition of the
Citizens Shares in the Acquisition, subject to certain conditions. See "--
Regulatory Approvals" and "Regulation -- Bank Holding Company Regulation."
Conditions to the Obligations of Madison First and the Holding Company. The
obligations of Madison First and the Holding Company to effect the Acquisition
are further subject to the satisfaction at or prior to the Closing Date of the
following conditions: (i) the representations and warranties of Ms. Durocher
contained in the Agreement shall be true and correct on the Closing Date; and
(ii) Madison First and the Holding Company shall have completed a due diligence
review of Citizens and the results of such review shall be satisfactory to
Madison First and the Holding Company. The due diligence review of Citizens may
continue until consummation of the Acquisition.
Conditions to the Obligations of Ms. Durocher. The obligations of Ms.
Durocher to effect the Acquisition are further subject to the satisfaction at or
prior to the Closing Date of the conditions that the representations and
warranties of Madison First contained in the Agreement shall be true and correct
on the Closing Date.
Regulatory Approvals
Consummation of the Acquisition is conditioned on the Holding Company's
obtaining all necessary regulatory approvals to acquire the Citizens Shares in
the Acquisition. The Holding Company has obtained the approval of the FRB to
become a bank holding company upon the acquisition of the Citizens Shares in the
Acquisition. However, as a condition to the Holding Company obtaining the
requisite approval for the Acquisition from the FRB, the Holding Company
committed to cause Madison First to (i) enter into a definitive agreement to
sell Madison First's Hanover, Indiana branch prior to consummation
<PAGE>
of the Acquisition and (ii) complete the sale of the Hanover, Indiana branch,
including the physical facilities and at least $7.5 million of deposits
originated at that branch, within 180 days of consummation of the Acquisition.
In the event Madison First does not complete the divestiture of its Hanover
branch within 180 days of the consummation of the Acquisition, the Hanover
branch will be placed in trust, and an independent trustee will proceed with an
immediate disposition of the Hanover branch without regard to price. See "Risk
Factors -- Divestiture of Hanover Branch" and "Regulation -- Bank Holding
Company Regulation."
Termination of the Agreement
Termination by Either Party. The Agreement may be terminated by either
party if: (i) at any time there shall have been a final determination that any
material provision of the Agreement is illegal, invalid or unenforceable; or
(ii) if it becomes clear that any condition precedent to such party's
obligations under the Agreement cannot be satisfied on or prior to June 30,
1997.
Termination by Madison First and the Holding Company. The Agreement may be
terminated by Madison First and the Holding Company if: (i) Madison First and
the Holding Company determine that the audited balance sheet of Citizens as of
December 31, 1995 does not fairly present the financial position of Citizens as
of such date; (ii) Madison First and the Holding Company determine that the
audited income statement of Citizens for the year ended December 31, 1995 does
not fairly present the financial results of operations of Citizens for such
period; or (iii) Madison First and the Holding Company determine that there has
been a material adverse change in the operations, prospects or financial
condition of Citizens since December 31, 1995.
Termination by Ms. Durocher. The Agreement may be terminated by Ms.
Durocher if it becomes clear that any condition precedent to her obligations
under the Agreement cannot be satisfied on or prior to December 31, 1996.
Acquisition as Condition to Conversion
The Conversion will not become effective until such time as all conditions
precedent to the Acquisition are satisfied. If at any time it becomes clear that
any condition precedent to the Acquisition will not be satisfied, the Conversion
and the Plan of Conversion will terminate. See "The Conversion -- Conditions and
Termination."
Accounting and Tax Treatment
The Holding Company will treat the Acquisition as a purchase for accounting
purposes. For income tax purposes, the Acquisition will be treated as a purchase
by the Holding Company of the Citizens Shares owned by Ms. Durocher.
Accordingly, Ms. Durocher will realize a gain or loss equal to the difference
between the purchase price and tax basis in the shares sold by her. None of the
Holding Company, Madison First, Citizens, or the members of Madison First will
realize a gain or loss by reason of the Acquisition.
Operations After the Acquisition and the Conversion
The Holding Company and Madison First currently intend to maintain Citizens
as an independent entity but may in the future consider a merger or
consolidation of the Institutions. The Holding Company may also evaluate
alternatives to purchase the Minority Shares through a transaction in which
holders of the Minority Shares would receive fair consideration, most likely in
the form of cash, shares of Common Stock or a combination thereof. In the
meantime, the Holding Company and the Institutions will explore opportunities to
integrate certain aspects of the Institutions' operations in a manner designed
to achieve operating efficiencies, including the possible combination or
integration of the Institutions' data processing, marketing, financial
reporting, collections and human resources functions, their deposit and loan
operations, and their insurance and employee benefit programs. The Holding
Company and the Institutions may also explore opportunities to utilize their
offices and physical locations in a more efficient manner.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited consolidated financial statements reflect the
acquisition of the Citizens Shares by the Holding Company in the Acquisition and
the Conversion of Madison First from a federally chartered mutual savings and
loan association to a federally chartered stock savings and loan association.
Pro forma adjustments related to the consolidated condensed combined pro forma
statements of operations for the fiscal year ended December 31, 1995, and the
six months ended June 30, 1996, have been prepared using the midpoint of the
Estimated Valuation Range, and assuming both the Acquisition and the Conversion
were consummated as of January 1, 1995 and January 1, 1996, respectively. The
consolidated condensed combined pro forma statement of financial condition was
prepared assuming both the Acquisition and the Conversion were consummated on
June 30, 1996.
The historical financial information has been derived from the historical
financial statements of Madison First and Citizens. The consolidated condensed
combined pro forma financial statements should be read in conjunction with the
other financial information pertaining to Madison First and Citizens included
elsewhere in this Prospectus.
The consolidated condensed combined pro forma financial statements have
been prepared under the purchase method of accounting. Under purchase
accounting, the acquired assets and liabilities of Citizens are recorded at fair
value as of the date of consummation of the Acquisition.
The pro forma consolidated condensed combined financial statements do not
purport to be indicative of the financial position or operating results which
would have been achieved had the Acquisition and the Conversion been consummated
as of the dates or for the periods indicated and should not be construed as
representative of future financial position or operating results. The pro forma
adjustments are based on available information and assumptions Madison First
believes are reasonable under the circumstances.
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Consolidated Condensed Combined Statements of Financial Condition
-------------------------------------------------------------------------------------
June 30, 1996
Pro-Forma
Conversion Acquisition Consolidated
Adjustments (1) Adjustments (2) Condensed Footnote
Madison First Citizens Dr. (Cr.) Dr. (Cr.) Combined References
------------- -------- --------- --------- -------- ----------
(In Thousands)
Assets:
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 2,442 $ 2,598 $8,333 $(3,075) $ 6,218 (1)(2)
(720)
(360)
(3,000)
Investment securities............... 9,940 4,982 14,922 (2)
Mortgage-backed and related
securities........................ 8,690 3,137 11,827
Loans receivable, net............... 57,449 43,003 100,452 (2)
Goodwill, net of accumulated
amortization.................... 144 --- 567 711 (1)(2)(7)
Other assets........................ 3,239 2,465 (85) 5,619 (3)(6)
------- ------- ------- ------- --------
Total assets...................... $81,904 $56,185 $4,253 $(2,593) $139,749
======= ======= ====== ======= ========
Liabilities:
Total deposits...................... $74,727 $51,770 $3,000 $123,497 (1)(2)
FHLB advances....................... --- 500 500
Other liabilities................... 474 467 (683) 1,624 (5)
Minority interest in
consolidated subsidiary........... --- --- (172) 172 (4)
------- ------- ------- ------- --------
Total liabilities................. 75,201 52,737 3,000 (855) 125,793
Shareholders' Equity:
Preferred stock..................... --- --- (1)(2)
Common stock........................ --- 1,008 1,008 --- (1)(2)
Additional paid in capital.......... --- 1,657 (8,333) 1,657 8,333 (1)(2)
Employee stock ownership plan....... --- --- 720 (720) (1)(2)
Recognition and retention plan...... --- --- 360 (360) (1)(2)
Retained earnings,
substantially restricted.......... 6,743 883 883 6,743 (1)(2)
Net unrealized losses on
securities available for sale,
net of related tax effects........ (40) (100) (100) (40) (2)
------- ------- ------- ------- --------
Total shareholders' equity..... 6,703 3,448 (7,253) 3,440 13,956
------- ------- ------- ------- --------
Total liabilities
and shareholders' equity ..... $81,904 $56,185 $(4,253) $ 2,593 $139,749
======= ======= ======= ======= ========
</TABLE>
(Footnotes on following page)
<PAGE>
(1) The pro forma financial statements reflect the sale of the Holding
Company's Common Stock in the Conversion at the midpoint of the
Estimated Valuation Range. The pro forma financial statements
contemplate that $3.0 million of such Common Stock sales are effected
via withdrawals from existing savings deposits. The pro forma
Conversion adjustments also reflect the ESOP's and RRP's purchases of
8% and 4% of the shares offered in the Conversion, respectively, at the
initial $10.00 Purchase Price. The RRP will be subject to approval by
the shareholders at the Holding Company's first meeting of
shareholders.
(2) The pro forma financial statements depict the acquisition of 95.6% of
Citizens' outstanding common stock for $3.0 million plus capitalized
Acquisition costs totaling approximately $65,000. The Acquisition will
be accounted for using the purchase method of accounting which requires
that assets acquired and liabilities assumed are recorded at fair value
at the Acquisition date. In the Acquisition, pro forma fair value
adjustments have been effected to provide for exit costs related to
data processing contracts and duplicative equipment, lease agreements
and severance packages for personnel with overlapping responsibilities
and estimated revision to employee benefit plans. Additionally, such
pro forma adjustments take into consideration the costs of liquidating
overlapping branch facilities. Fair value adjustments were not required
for cash, investments and mortgage-backed securities due to fact that
such instruments were carried at fair value. A fair value adjustment
was not applied to the loan portfolio at June 30, 1996, based on an
immaterial difference (less than $75,000) between the historic cost
carrying value and fair value. The fair value adjustments described
above were derived from analysis developed by management of Madison
First and its investment banking firm. The following table sets forth
the purchase price adjustments:
<TABLE>
<CAPTION>
(In Thousands)
Dr. (Cr.)
<S> <C>
Goodwill arising from the Acquisition 575
Write down of duplicative special purpose office premises and equipment (550)
Tax benefits attendant to write down of office premises and equipment,
as well as tax benefits attendant to termination of data processing contracts,
employee benefit plan revision and personnel severance packages 465
Pre-tax costs of servicing certain data
processing contract, revision to employee
benefit plans, and personnel severance packages (683)
Residual 4.4% minority interest in Citizens after the Acquisition (172)
Total purchase price adjustments $(365)
</TABLE>
(3) This pro forma adjustment reflects the write-down of duplicative
special purpose premises and equipment to estimated net realizable
value upon disposal ($550,000) net of the tax benefits resulting from
the Acquisition totaling $465,000.
(4) This adjustment represents the residual 4.4% minority interest in
Citizens after the Acquisition. Based on materiality, no effect has
been given as to the ultimate cost of such shares, if any.
(5) This pro forma adjustment reflects the pre-tax costs of severing
certain data processing contract, revision to employee benefit plans
and personnel severance packages.
(6) Tax benefits attendant to write down of office premises and equipment,
as well as tax benefits attendant to termination of data processing
contracts, revision to employee benefit plans and personnel severance
packages.
(7) Goodwill arising from Acquisition.
(8) No consideration has been given to the financial statement effects
attendant to the proposed sale of Madison First's Hanover branch,
because such effects are not material to the financial condition or
operating results of Madison First.
<PAGE>
Unaudited Pro Forma Consolidated Condensed Combined Statements of Operations
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1996
---------------------------------------------------------------------------------------
Conversion Purchase Pro Forma Combined
Adjustments Adjustments After Conversion Footnote
Madison First Citizens Dr. (Cr.) Dr. (Cr.) and Acquisition References
------------- -------- --------- --------- --------------- ----------
(In thousands)
Interest Income:
<S> <C> <C> <C> <C> <C>
Loans.................................... $2,251 $1,824 $ --- $ --- $4,075
Investment securities.................... 291 96 (32) --- 419 (8)
Mortgage-backed and
related securities..................... 291 109 --- --- 400
Interest-bearing deposits and other...... 109 127 --- --- 236
----- ----- ------ ------ -------
Total interest income................ 2,942 2,156 (32) --- 5,130
----- ----- ------ ------ -------
Interest Expense:
Deposits................................. 1,691 1,100 (78) --- 2,713 (8)
Borrowed funds........................... 44 34 --- --- 78
----- ----- ------ ------ -------
Total interest expense................. 1,735 1,134 (78) --- 2,791
----- ----- ------ ------ -------
Net interest income.................... 1,207 1,022 (110) --- 2,339
Provision for loan losses................... 12 180 --- --- 192
----- ----- ------ ------ -------
Net interest income after
provision for loan losses................ 1,195 842 (110) --- 2,147
Other Income:
Insurance commissions.................... 104 --- --- --- 104
Service fees, charges and
other operating........................ 97 284 --- --- 381
Loss on sale of investment............... (16) --- --- (16)
Other.................................... --- 27 --- 27 ---
----- ----- ------ ------ -------
Total other income.................... 201 295 --- 27 469
Other Expense:
Employee compensation and benefits....... 592 452 --- (90) 954 (9)
ESOP and RRP benefits.................... --- --- 72 --- 72 (10)
Occupancy and equipment..................... 98 156 --- (10) 244 (11)
Federal deposit insurance premiums.......... 88 20 --- --- 108
Data processing.......................... 141 --- --- --- 141
Amortization of goodwill
and other intangibles.................. 4 --- --- 24 28 (12)
Other ..................................... 184 308 --- --- 492
----- ----- ------ ------ -------
Total other expense................... 1,107 936 72 (76) 2,039
----- ----- ------ ------ -------
Income before income tax expense............ 289 201 (38) (49) 577
Income tax expense.......................... 108 67 15 20 210 (13)
----- ----- ------ ------ -------
Net income.................................. $ 181 $ 134 $ (23) $ (29) $ 367
===== ===== ====== ====== =======
Earnings per share (based on 900,000
weighted average shares outstanding)..... $ 0.41
======
</TABLE>
(8) Represents six month earnings of 5.25% (one-year Treasury rate) on
$1,208,000 of the net proceeds retained after the Acquisition, as well as a
reduction in the cost of savings on $3.0 million of deposit withdrawals at
an assumed weighted average cost of 5.2%.
(9) Represents the reduction in employee compensation due to severance
packages.
(10) Reflects six month amortization expense related to RRP (5-year term) and
ESOP (10-year term).
(11) Represents six month reduction in depreciation expense due to disposal of
branch facilities and equipment.
(12) Amortization of goodwill and other intangible assets over an estimated
12-year life.
(13) Tax effects of pro forma adjustments.
<PAGE>
Unaudited Pro Forma Consolidated Condensed Combined Statements of Operations
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
-------------------------------------------------------------------------------------------
Pro Forma
Conversion Purchase Combined After
Adjustments Adjustments Conversion and Footnote
Madison First Citizens Dr. (Cr.) Dr. (Cr.) Acquisition References
(In thousands)
Interest Income:
<S> <C> <C> <C> <C> <C>
Loans ............................... $4,240 $3,194 $ --- $ --- $7,434
Investment securities................ 777 270 (63) --- 1,110 (8)
Mortgage-backed and
related securities................. 670 231 --- --- 901
Interest-bearing deposits and other.. 107 --- --- --- 107
------- ------- ------- ------- --------
Total interest income.............. 5,794 3,695 (63) --- 9,552
------- ------- ------- ------- --------
Interest Expense:
Deposits........................... 3,419 1,750 (156) --- 5,013 (8)
Borrowed funds..................... 175 70 --- --- 245
------- ------- ------- ------- --------
Total interest expense............. 3,594 1,820 (156) --- 5,258
------- ------- ------- ------- --------
Net interest income............ 2,200 1,875 (219) --- 4,294
Provision for loan losses............ 150 104 --- --- 254
------- ------- ------- ------- --------
Net interest income after
provision for loan losses.......... 2,050 1,771 (219) --- 4,040
Other Income:
Insurance commissions................ 175 --- --- --- 175
Service fees, charges
and other operating................ 187 450 --- --- 637
Gain on sales of
investment securities.............. --- 4 --- --- 4
Other ............................... --- 109 --- 109 ---
------- ------- ------- ------- --------
Total other income................. 362 563 --- 109 816
------- ------- ------- ------- --------
Other Expenses:
Employee compensation
and benefits....................... 998 831 --- (180) 1,649 (9)
ESOP and RRP benefits................ --- --- 144 144 (10)
Occupancy and equipment.............. 212 293 --- (18) 487 (11)
Federal deposit insurance
premiums........................... 177 60 --- --- 237
Data processing...................... 237 87 --- --- 324
Amortization of goodwill
and other intangibles.............. 7 --- --- 48 55 (12)
Other ............................... 335 498 --- --- 833
------- ------- ------- ------- --------
Total other expense................ 1,966 1,769 144 (150) 3,729
------- ------- ------- ------- --------
Income before income tax expense........ 446 565 (75) (41) 1,127
Income tax expense...................... 188 223 30 16 457 (13)
------- ------- ------- ------- --------
Net income.............................. $ 258 $ 342 $ (45) $ (25) $ 670
======= ======= ======= ======= ========
Earnings per share (based
on 900,000 weighted average
shares outstanding)................ $ 0.74
=======
</TABLE>
- ------------
(8) Represents earnings of 5.25% (one-year Treasury rate) on $1,208,000 of the
net proceeds retained after the Acquisition, as well as a reduction in the
cost of savings on $3.0 million of deposit withdrawals at an assumed
weighted average cost of 5.2%.
(9) Represents the reduction in employee compensation due to termination of
pension liability and severance packages.
(10) Reflects amortization expense related to RRP (5-year term) and ESOP
(10-year term).
(11) Represents reduction in depreciation expense due to disposal of branch
facilities.
(12) Amortization of goodwill and other intangible assets over an estimated
12-year life.
(13) Tax effects of pro forma adjustments.
<PAGE>
MARKET AREA
The Institutions' primary market area is Jefferson County, Indiana.
Madison, the county seat of Jefferson County, is located in southern Indiana,
approximately 95 miles south of Indianapolis, 55 miles northeast of Louisville,
Kentucky and 75 miles west of Cincinnati, Ohio. According to the U.S. Bureau of
Census, the city of Madison, the county seat of Jefferson County, had a
population of 12,006, and Jefferson County had a population of 29,797, at the
time of the 1990 census.
According to the Indiana Department of Employment and Training Services,
the total work force in Jefferson County was 14,830 as of January, 1996. As of
the same date, 13,940 persons were employed, resulting in an unemployment rate
for Jefferson County of approximately 6.0%. As of the same date, the
unemployment for Indiana was 5.0%, and the nationwide unemployment rate was
6.3%.
According to the Madison-Jefferson County Industrial Development
Corporation, Jefferson County's largest employer with approximately 1,144
employees is Grote Industries, Inc., which manufactures truck, bus and trailer
safety equipment. Jefferson County's second largest employer is Rotary Lift, a
division of Dover Industries, which employs approximately 500 persons and
manufactures automotive vehicle lift equipment.
According to the Data Users Center and the CACI Sourcebook, average per
capita income for residents of Jefferson County totaled $15,558 for 1995,
compared to $16,405 for the United States and $16,671 for Indiana. The 1995
average per capita income for Jefferson County residents, however, increased
33.8% from the average per capita income of $11,631 for 1990. Average per capita
income for residents of Madison, Indiana totaled $16,359 for 1995, an increase
of 68.0% from $9,737 for 1990. Median household income for residents of
Jefferson County totaled $34,597 for 1995, compared to $21,280 for 1990. Median
household income for the United States and Indiana totaled $33,610 and $36,137,
respectively, for 1995. Median household income for Madison totaled $34,456 for
1995.
According to the United State Department of Commerce and the CACI
Sourcebook, median housing values for Jefferson County and Madison in 1990 were
$44,899 and $46,432, respectively. This compares to the national and state
medians of $79,098 and $53,909, respectively. According to the United States
Bureau of Census, new single-family housing starts in 1994 for Jefferson County
and Madison increased 8.9% and 7.9%, respectively. New housing starts in 1994
for the United States and Indiana increased 8.8% and 10.2%, respectively.
USE OF PROCEEDS
The Holding Company will initially receive 50% of the net Conversion
proceeds after providing for the loan to the ESOP to allow the ESOP to purchase
shares of Common Stock in the Conversion. See "Executive Compensation and
Related Transactions of Madison First -- Employee Stock Ownership Plan and
Trust" and "Executive Compensation and Related Transactions of Citizens --
Employee Stock Ownership Plan and Trust." The Holding Company will use $3.0
million of the proceeds to acquire the Citizens Shares in the Acquisition. See
"The Acquisition." The Holding Company will use a portion of the proceeds
remaining after acquisition of the Citizens Shares to make a capital
contribution to Citizens of up to $1.5 million. The Holding Company may use a
portion of any remaining proceeds for the payment of dividends and future
repurchases of its Common Stock as permitted by the OTS and applicable
regulations, although it has no current plans to do so. See "The Conversion --
Restrictions on Repurchase of Stock."
The funds received by the Institutions will be used primarily to make
adjustable-rate mortgage loans, nonresidential real estate loans and consumer
loans to the extent there is demand for such loans and subject to market
conditions. On an interim basis, the net proceeds will be invested in U.S.
government securities, other U.S. agency securities and mortgage-backed
securities. See "Business of Madison First -- Investments and Mortgage-Backed
Securities" and "Business of Citizens -- Investments and Mortgage-Backed
Securities." Any remaining net proceeds may be used for general corporate
purposes, including contributions to the proposed RRP. Neither the Holding
Company nor Madison First has any current plans to acquire any other financial
institutions, other than in connection with the Acquisition.
<PAGE>
The following table shows estimated gross and net proceeds based upon
shares of Common Stock being sold in the Conversion at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range.
<TABLE>
<CAPTION>
15% Above
Minimum, Midpoint, Maximum, Maximum,
765,000 900,000 1,035,000 1,190,250
Shares Shares Shares Shares
Sold at Price Sold at Price Sold at Price Sold at Price
of $10.00 of $10.00 of $10.00 of $10.00(3)
---------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Gross Proceeds.......................... $7,650 $9,000 $10,350 $11,903
Less:
Estimated Underwriting Fees
and Other Expenses(1) (2)............ (636) (667) (698) (735)
---- ---- ---- ----
Estimated net Conversion
proceeds(1).......................... $7,014 $8,333 $ 9,652 $11,168
====== ====== ======== =======
</TABLE>
(1) In calculating estimated net Conversion proceeds, it has been assumed that
no sales will be made through selected dealers, that all shares are sold in
the Subscription Offering, and that executive officers and directors of
Citizens and Madison First and their Associates purchase 124,800 shares of
Common Stock in the Conversion.
(2) Does not include expenses related to the Acquisition estimated to be
$65,000. For a disclosure regarding the impact of the Acquisition on
tangible capital, see "Pro Forma Data."
(3) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following the
commencement of the Subscription and Direct Community Offerings.
The actual net proceeds may differ from the estimated net proceeds
calculated above for various reasons, including variances in the actual amount
of legal and accounting expenses incurred in connection with the Conversion,
commissions paid for sales made through other dealers, and the actual number of
shares of Common Stock sold in the Conversion. Any variance in the actual net
proceeds from the estimates provided in the table above is not expected to be
material.
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Holding Company will have
the authority to declare dividends on the Common Stock, subject to statutory and
regulatory requirements. The Board of Directors may consider a policy of paying
cash dividends on the Common Stock in the future. However, no decision has been
made as to the amount or timing of any such dividends. The declaration and
payment of dividends, if any, will depend upon a number of factors including the
Holding Company's then-current and projected consolidated operating results and
financial condition, regulatory restrictions, future growth plans and such other
factors as the Board of Directors deems relevant.
After the Conversion, the Institutions will be direct subsidiaries of the
Holding Company. Initially, the Holding Company will have no independent
operations or other subsidiaries to generate income. Consequently, other than
the net proceeds of the Conversion that the Holding Company will receive (after
funding the loan to the ESOP, purchasing the Citizens Shares in the Acquisition
and making up to a $1.5 million capital contribution to Citizens) and repayments
of the ESOP loan, the ability of the Holding Company to accumulate earnings for
the payment of cash dividends to its shareholders or possible repurchases of
shares of Common Stock will depend upon the ability of the Institutions to pay
dividends to the Holding Company.
Under OTS regulations, a converted savings association may not declare or
pay a cash dividend if the effect would be to reduce its net worth below the
amount required for the liquidation account. See "The Conversion -- Principal
Effects of Conversion -- Effect on Liquidation Rights." The liquidation account
will initially equal approximately $6.7 million. In addition, under OTS
regulations, the extent to which a savings association may make a "capital
distribution," which includes, among other things, cash dividends, will depend
upon in which one of three categories, based upon levels of capital, that
savings association is classified. Madison First is now, and expects to be after
the Conversion, a "tier one institution" and therefore would be able to pay cash
dividends to the Holding Company during any calendar year of up to 100% of its
net income during that calendar year plus the amount that would reduce by one
half its "surplus capital ratio" (the excess over its Capital Requirements) at
the beginning of the calendar year. See "Regulation -- Capital Distributions
Regulation." Prior notice of any dividend to be paid by Madison First to the
Holding Company will have to be given to the OTS.
<PAGE>
Income of Madison First appropriated to bad debt reserves and deducted from
gross income for federal income tax purposes is not available for payment of
cash dividends or other distributions to the Holding Company without the payment
of federal income taxes by Madison First on the amount of such income. At
December 31, 1995, approximately $2.4 million of Madison First's retained
earnings represented bad debt deductions for which no federal income tax
provision had been made. See "Taxation -- Federal Taxation." Madison First's
unrecorded deferred income tax liability on such accumulated bad debt deduction
at December 31, 1995 was approximately $700,000. See Note H to the Notes to
Consolidated Financial Statements for additional information. For a description
of a recently enacted law concerning deductions for bad debt reserves, see
"Taxation -- Federal Taxation."
Citizens is subject to OCC limits on its dividends. The approval of the OCC
is required for any dividend by a national bank subsidiary if the total of all
dividends, including any proposed dividends by the national bank in any calendar
year, exceeds the total of its net profits (as defined by the OCC) for that year
combined with its retained net profits for the preceding two years, less any
required transfers to surplus. Moreover, a national bank may not pay a dividend
on its common stock if the dividend would exceed net undivided profits then on
hand. In certain cases, even if prior approval of the OCC is not required, the
OCC may find a dividend payment to be an unsafe and unsound practice. Following
the Acquisition, Citizens may decide not to pay dividends to the Holding Company
until the Holding Company purchases the Minority Shares through a transaction in
which holders of the Minority Shares receive fair value, most likely in the form
of cash, Common Stock or a combination thereof. In the event Citizens paid a
dividend on its shares of common stock before such time, holders of the Minority
Shares would receive the same per share amount as the Holding Company. Citizens
does not anticipate paying dividends on its common stock in the foreseeable
future.
Generally, there is no OTS regulatory restriction on the payment of
dividends by the Holding Company unless there is a determination by the Director
of the OTS that there is reasonable cause to believe that the payment of
dividends constitutes a serious risk to the financial safety, soundness or
stability of Madison First. Under FRB supervisory policy, a bank holding company
generally should not maintain its existing rate of cash dividends on common
shares unless (i) the organization's net income available to common shareholders
over the past year has been sufficient to fully fund the dividends and (ii) the
prospective rate of earnings retention appears consistent with the
organization's capital needs, asset quality, and overall financial condition.
The FDIC also has authority under current law to prohibit a bank from paying
dividends if, in its opinion, the payment of dividends would constitute an
unsafe or unsound practice in light of the financial condition of the
Institutions. Indiana law, however, would prohibit the Holding Company from
paying a dividend, if, after giving effect to the payment of that dividend, the
Holding Company would not be able to pay its debts as they become due in the
usual course of business or the Holding Company's total assets would be less
than the sum of its total liabilities plus preferential rights of holders of
preferred stock, if any. See "Regulation -- Regulatory Capital" and "-- Dividend
Limitations."
MARKET FOR THE COMMON STOCK
The Holding Company has never issued Common Stock to the public.
Consequently, there is no established market for the Common Stock. The Holding
Company has received approval to have its Common Stock quoted on the NASDAQ
Small Cap Market under the symbol "RIVR" upon successful closing of the
offering. The Holding Company anticipates that there will be at least two market
makers for its shares upon the completion of the Conversion, depending upon the
volume of trading activity in the Common Stock and subject to compliance with
applicable provisions of federal and state securities laws and other regulatory
requirements. The Holding Company has not yet obtained any market makers and
will not do so until the offering is completed. The Agent intends to make a
market in the Common Stock, although it is under no obligation to do so.
An active and liquid public trading market for the securities of any
issuer, including the Holding Company, depends upon the presence in the
marketplace of both willing buyers and willing sellers of the securities at any
given time. The Holding Company has received approval to have its shares quoted
on the NASDAQ Small Cap Market, subject to certain conditions which the Holding
Company and Madison First believe will be met, including having at least 300
holders of Common Stock, at least 100,000 publicly held shares of Common Stock,
and two market makers for the Common Stock. However, no assurance can be given
that an active and liquid trading market will develop or that the trading price
per share of the Common Stock will equal or exceed the Purchase Price.
Purchasers of Common Stock should consider the potentially illiquid and
long-term nature of their investment in the shares being offered hereby.
The aggregate price of the Common Stock is based upon an independent
appraisal of the pro forma market value of the Common Stock. However, there can
be no assurance that an investor will be able to sell the Common Stock purchased
in the Conversion at or above the Purchase Price.
<PAGE>
COMPETITION
The Institutions originate most of their loans to and accept most of their
deposits from residents of Jefferson County, Indiana. The Institutions are
subject to competition from various financial institutions, including state and
national banks, state and federal savings associations, credit unions, and
certain nonbanking consumer lenders that provide similar services in Jefferson
County with significantly larger resources than the Institutions. In total,
there are 11 financial institutions located in Jefferson County, Indiana,
including the Institutions. The Institutions also compete with money market
funds with respect to deposit accounts and with insurance companies with respect
to individual retirement accounts.
Under current law, bank holding companies may acquire savings associations.
Savings associations may also acquire banks under federal law. To date, several
bank holding company acquisitions of savings associations and savings
association acquisitions of banks in Indiana have been completed. Affiliations
between banks and savings associations based in Indiana may also increase the
competition faced by the Holding Company and the Institutions.
In addition, The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Riegle-Neal Act") permits bank holding companies to acquire
banks in other states and, with state consent and subject to certain
limitations, allows banks to acquire out-of-state branches either through merger
or de novo expansion. The State of Indiana recently passed a law establishing
interstate branching provisions for Indiana state-chartered banks consistent
with those established by the Riegle-Neal Act (the "Indiana Branching Law"). The
Indiana Branching Law authorizes Indiana banks to branch interstate by merger or
de novo expansion and authorizes out-of-state banks meeting certain requirements
to branch into Indiana by merger or de novo expansion. The Indiana Branching Law
became effective March 15, 1996, provided that prior to June 1, 1997 interstate
mergers and de novo branches are not permitted to out-of-state banks unless the
laws of their home states permit Indiana banks to merge or establish de novo
branches on a reciprocal basis. This new legislation may also result in
increased competition for the Holding Company and the Institutions.
Because of recent changes in federal law, interstate acquisitions of banks
are less restricted than they were under prior law. Savings and loan
associations have certain powers to acquire savings associations based in other
states, and Indiana law expressly permits reciprocal acquisitions of Indiana
savings assocations. In addition, federal savings associations are permitted to
branch on an interstate basis. See "Regulation -- Acquisitions or Dispositions
and Branching."
The primary factors influencing competition for deposits are interest
rates, service and convenience of office locations. The Institutions compete for
loan originations primarily through the efficiency and quality of services they
provide borrowers and through interest rates and loan fees charged. Competition
is affected by, among other things, the general availability of lendable funds,
general and local economic conditions, current interest rate levels, and other
factors that are not readily predictable.
<PAGE>
ANTICIPATED MANAGEMENT PURCHASES
The following table sets forth information as to subscription rights to
Common Stock intended at this time to be exercised by each director of Madison
First and Citizens and the executive officers who are not directors of Madison
First and Citizens (including shares to be purchased by their Associates) and
all directors and executive officers of the Institutions as a group. For
purposes of the following table, it has been assumed that sufficient shares will
be available to satisfy subscriptions in all categories and that shares will be
sold for $10.00 per share.
<TABLE>
<CAPTION>
Aggregate Amount of Shares Percent of Shares Percent of Shares Percent of Shares Percent of Shares
Purchase Proposed to be Assuming Assuming Assuming Assuming
Price of Subscribed 765,000 Shares 900,000 Shares 1,035,000 Shares 1,190,250 Shares
Name and Intended for all in are Sold in the are Sold in the are Sold in the are Sold in the
Position Purchases(1) Categories Conversion Conversion Conversion Conversion
- -------- ------------ ---------- ---------- ---------- ---------- ----------
Madison First
<S> <C> <C> <C> <C> <C> <C>
Robert W. Anger, $ 50,000 5,000 0.65% 0.56% 0.48% 0.42%
Vice President
Lending and Director
Traci A. Bridgford, 25,000 2,500 0.33 0.28 0.24 0.21
Vice President
Compliance/
Operations (2)
Lonnie D. Collins, 200,000 20,000 2.61 2.22 1.93 1.68
Secretary
John Wayne Deveary, 100,000 10,000 1.31 1.11 0.97 0.84
Vice President and
Treasurer
Cecil L. Dorten, 200,000 20,000 2.61 2.22 1.93 1.68
Vice Chairman
James E. Fritz, 200,000 20,000 2.61 2.22 1.93 1.68
President, Chief
Executive Officer
and Director (2)
Michael J. Hensley, 100,000 10,000 1.31 1.11 0.97 0.84
Director
Earl W. Johann, 50,000 5,000 0.65 0.56 0.48 0.42
Director
Fred W. Koehler, 200,000 20,000 2.61 2.22 1.93 1.68
Chairman
Citizens
Burton P. Chambers, 1,000 100 0.01 0.01 0.01 0.01
Chairman (2)
Jonnie L. Davis, 5,000 500 0.07 0.06 0.05 0.04
Director (2)
Carolyn B. Flowers, 10,000 1,000 0.13 0.11 0.10 0.08
Vice President
Compliance/
Operations (2)
Larry C. Fouse, 2,000 200 0.03 0.02 0.02 0.02
Chief Financial
Officer and
Controller (2)
Mark A. Goley, 1,000 100 0.01 0.01 0.01 0.01
Vice President and
Senior Loan Officer (2)
Robert D. Hoban, 100,000 10,000 1.31 1.11 0.97 0.84
President, Chief
Executive Officer and
Director (2)
Van E. Shelton, 3,000 300 0.04 0.03 0.03 0.03
Director (2)
Ralph E. Storm, 1,000 100 0.01 0.01 0.01 0.01
---------- ------- ----- ----- ----- -----
Director (2)
All directors and $1,248,000 124,800 16.30% 13.86% 12.06% 10.49%
========== ======= ===== ===== ===== =====
executive officers
as a group
(17 persons)(3)
</TABLE>
Footnotes on following page
<PAGE>
(1) Does not include shares subject to stock options which may be granted under
the Stock Option Plan, shares which may be awarded under the RRP, or any
shares which may be allocated to officers under the ESOP.
(2) Although all of the persons in the table above have subscription rights,
this footnote identifies those individuals who are not Eligible Account
Holders.
(3) Assuming that all shares awarded under the RRP are purchased on the open
market and upon (i) the full vesting of the restricted stock awards to
directors and executive officers contemplated under the RRP and (ii) the
exercise in full of all options expected to be granted to directors and
executive officers under the Stock Option Plan, all directors and executive
officers as a group would beneficially own 216,141 shares (26.1%), 232,260
shares (23.9%), 248,380 shares (22.2%), and 266,916 shares (20.8%) upon
sales at the minimum, midpoint, maximum, and 15% above the maximum of the
Estimated Valuation Range, respectively. See "Executive Compensation and
Related Transactions of Madison First -- RRP," "-- Stock Option Plan,"
"Executive Compensation and Related Transactions of Citizens -- RRP" and
"-- Stock Option Plan."
CAPITALIZATION
The following table presents the historical capitalization of Madison First
at June 30, 1996, and the pro forma consolidated capitalization of the Holding
Company as of that date, giving effect to the Acquisition and the sale of Common
Stock offered by this Prospectus based on the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range, and subject to the other
assumptions set forth below. The pro forma data set forth below may change
significantly at the time the Holding Company completes the Conversion due to,
among other factors, a change in the Estimated Valuation Range or a change in
the current estimated expenses of the Conversion. If the Estimated Valuation
Range changes so that between 765,000 and 1,190,250 shares are not sold in the
Conversion, subscriptions will be returned to subscribers who do not
affirmatively elect to continue their subscriptions during the offering at the
revised Estimated Valuation Range.
<TABLE>
<CAPTION>
At June 30, 1996
-----------------------------------------------------------------------------------
Pro Forma Holding Company
Capitalization Based on Sale of
765,000 900,000 1,035,000 1,190,250
Shares Shares Shares Shares
Sold at Sold at Sold at Sold at
Madison First Price of Price of Price of Price of
Historical $10.00 $10.00 $10.00 $10.00(6)
------------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits (1)..................................... 74,727 123,497 123,497 123,497 123,497
Federal Home Loan Bank advances.................. --- 500 500 500 500
Capital and retained earnings:
Preferred stock, without par
value, 2,000,000 shares
authorized, none issued....................... --- --- --- --- ---
Common Stock, without par
value, 5,000,000 shares
authorized; indicated number
of shares assumed outstanding (2)............. --- --- --- --- ---
Additional paid in capital..................... --- 7,014 8,333 9,652 11,168
Retained earnings and net unrealized losses
on securities available for sale (3).......... 6,703 6,703 6,703 6,703 6,703
Less:
Common Stock acquired by RRP (4).............. --- (306) (360) (414) (476)
Common Stock acquired by the ESOP (5)......... --- (612) (720) (828) (952)
-------- --------- --------- --------- ---------
Total capital and retained earnings.............. $ 6,703 $ 12,799 $ 13,956 $ 15,113 $ 16,443
======== ========= ========= ========= =========
</TABLE>
Footnotes on following page
<PAGE>
(1) Excludes accrued interest. The pro forma capitalization assumes $3.0
million of withdrawals from deposit accounts to purchase the Common Stock.
(2) The number of shares to be issued in the Conversion may be increased or
decreased based on market and financial conditions prior to the completion
of the Conversion. Assumes estimated expenses of $636,000, $667,000,
$698,000 and $735,000 at the minimum, midpoint, maximum and adjusted
maximum of the Estimated Valuation Range, respectively. See "Use of
Proceeds."
(3) Retained earnings are substantially restricted. See Notes H and K to
Madison First's Consolidated Financial Statements. See also "The Conversion
-- Principal Effects of Conversion -- Effect on Liquidation Rights."
Retained earnings do not reflect the federal income tax consequences of the
restoration to income of Madison First's special bad debt reserve for
income tax purposes which would be required in the unlikely event of a
liquidation or if a substantial portion of retained earnings were otherwise
used for a purpose other than absorption of bad debt losses and will be
required under a recently enacted law. See "Taxation -- Federal Taxation."
Equity capital includes retained earnings decreased by net unrealized
losses on securities available for sale.
(4) Assuming the receipt of shareholder approval at the Holding Company's first
meeting of shareholders, the Holding Company intends to implement the RRP.
Assuming such implementation, the RRP will purchase an amount of shares
equal to 4.0% of the Common Stock sold in the Conversion for issuance to
directors, officers and employees of the Holding Company and the
Institutions. Such shares may be purchased from authorized but unissued
shares or on the open market. The Holding Company currently intends that
the RRP will purchase the shares on the open market. Under the terms of the
RRP, shares will vest at the rate of 20% per year. The Common Stock to be
purchased by the RRP represents unearned compensation and is, accordingly,
reflected as a reduction to pro forma shareholders' equity. As shares of
the Common Stock granted pursuant to the RRP vest, a corresponding
reduction in the charge against capital will occur. In the event that
authorized but unissued shares are acquired, the interests of existing
shareholders will be diluted. Assuming that 900,000 shares of Common Stock
are issued in the Conversion and that all awards under the RRP are from
authorized but unissued shares, the Holding Company estimates that the per
share book value for the Common Stock would be diluted $0.60 per share, or
3.8% on a pro forma basis as of June 30, 1996.
(5) Assumes purchases by the ESOP of a number of shares equal to 8% of the
shares issued in the Conversion. The funds used to acquire the ESOP shares
will be borrowed from the Holding Company. See "Use of Proceeds." The
Institutions intend to make contributions to the ESOP sufficient to service
and ultimately retire its debt. The Common Stock acquired by the ESOP is
reflected as a reduction of shareholders' equity. See "Executive
Compensation and Related Transactions of Madison First -- Employee Stock
Ownership Plan and Trust" and "Executive Compensation and Related
Transactions of Citizens -- Employee Stock Ownership Plan and Trust."
(6) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following the
commencement of the Subscription and Direct Community Offerings.
PRO FORMA DATA
Pro forma combined consolidated net income of the Holding Company for the
six months ended June 30, 1996 and for the year ended December 31, 1995 have
been calculated based upon (i) Madison First's historic net income for the
respective periods, (ii) Citizens' historic net income for the respective
periods, (iii) the interest earned on residual net cash proceeds, and (iv)
foregone interest expense on $3.0 million of assumed deposit withdrawals to
purchase the Common Stock. Pro forma income has been calculated assuming the
Common Stock had been sold in the Conversion and the Acquisition had been
consummated at the beginning of the periods and the net proceeds had been
invested at 5.65% (the yield of a one-year U.S. Treasury bill on May 15, 1996).
The pro forma after-tax return for the Holding Company on a consolidated basis
is assumed to be 3.27% for the reported periods after giving effect to (i) the
yield on net proceeds, (ii) foregone interest expense on deposit withdrawals at
a weighted average cost of 5.2%, and (iii) adjusting for taxes using a federal
statutory tax rate of 34% and a net state statutory income tax rate of 6%.
Historical and per share amounts have been calculated by dividing historical
amounts and pro forma amounts by the indicated number of shares of Common Stock
assuming that such number of shares had been outstanding during each of the
entire periods.
Book value represents the difference between the stated amount of
consolidated assets and consolidated liabilities of the Holding Company computed
in accordance with generally accepted accounting principles. Book value does not
necessarily reflect current market value of assets and liabilities, does not
reflect the effect of the liquidation account to be established in the
Conversion, see "The Conversion -- Principal Effects of Conversion -- Effect on
Liquidation Rights," or the federal income tax consequences of the restoration
to income of Madison First's pre-1987 special bad debt reserves for income tax
purposes which would be required in the unlikely event of liquidation and will
be required under a recently enacted law and has not been reduced for intangible
assets such as goodwill. See "Taxation -- Federal Taxation." Pro forma net
earnings assume amortization of the goodwill arising from the Acquisition over a
twelve-year period. Tangible book value represents the difference between
consolidated tangible assets (all assets less goodwill) and consolidated
liabilities of the Holding Company computed in accordance with generally
accepted accounting principles. Pro forma book value and pro forma tangible book
value includes only net proceeds as of the indicated dates and does not include
earnings on the proceeds for the periods then ended.
The pro forma net earnings derived from the assumptions set forth above
should not be considered indicative of the actual results of operations of the
Holding Company that would have been attained for any period if the Conversion
had been actually consummated at the beginning of such periods and the
assumptions regarding investment yields should not be considered
<PAGE>
indicative of the actual yield expected to be achieved during any future period.
Further, the pro forma net earnings totals that follow do not take into account
any known cost reductions contemplated in connection with the Acquisition. See
"Pro Forma Consolidated Condensed Combined Statements of Operations" for
additional information regarding such expenses. The pro forma book values or
tangible book values at the dates indicated should not be considered as
reflecting the potential trading value of the Holding Company's stock. There can
be no assurance that an investor will be able to sell the Common Stock purchased
in the Conversion at prices within the range of the pro forma book values of the
Common Stock or at or above the Purchase Price.
<TABLE>
<CAPTION>
765,000 Shares 900,000 Shares 1,035,000 Shares
Sold at Sold at Sold at
$10.00 Per Share $10.00 Per Share $10.00 Per Share
---------------- ---------------- ----------------
Six Months Year Six Months Year Six Months Year
ended ended ended ended ended ended
6/30/96 12/31/95 6/30/96 12/31/95 6/30/96 12/31/95
------- -------- ------- -------- ------- --------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C>
Gross proceeds ..................... $ 7,650 $ 7,650 $ 9,000 $ 9,000 $ 10,350 $ 10,350
Less offering expenses ............. (636) (636) (667) (667) (698) (698)
Less employee benefit plans ........ (918) (918) (1,080) (1,080) (1,242) (1,242)
-------- -------- -------- -------- ----------- -----------
Investable net proceeds ............ $ 6,096 $ 6,096 7,253 $ 7,253 $ 8,410 $ 8,410
======== ======== ======== ======== =========== ===========
Consolidated net income:
Historical (3) ................... $ 315 $ 600 $ 315 $ 600 $ 315 $ 600
Pro forma income (4) ............. 65 110 95 156 113 193
Pro forma ESOP adjustment (7) .... (19) (37) (22) (43) (25) (50)
Pro forma RRP adjustment (5) ..... (19) (37) (22) (43) (25) (50)
-------- -------- -------- -------- ----------- -----------
Pro forma net income ............. $ 342 $ 636 $ 367 $ 670 $ 379 $ 693
======== ======== ======== ======== =========== ===========
Consolidated earnings per share (7):
Historical ....................... $ .45 $ 0.85 $ 0.38 $ 0.72 $ 0.33 $ 0.63
Pro forma income (4) ............. 0.11 0.16 0.12 0.19 0.12 0.20
Pro forma ESOP adjustment (7) .... (0.05) (0.05) (0.03) (0.05) (0.03) (0.05)
Pro forma RRP adjustment (5) ..... (0.03) (0.05) (0.03) (0.05) (0.03) (0.05)
-------- -------- -------- -------- ----------- -----------
Pro forma earnings per share ..... $ 0.50 $ 0.91 $ 0.44 $ 0.81 $ 0.39 $ 0.73
======== ======== ======== ======== =========== ===========
Consolidated book value (6):
Historical ....................... $ 6,703 $ 6,574 $ 6,703 $ 6,574 $ 6,703 $ 6,574
Estimated net conversion
proceeds (2) .................... 7,014 7,014 8,333 8,333 9,652 9,652
Less:
Common Stock acquired
by RRP (5) .................... (306) (306) (360) (360) (414) (414)
Common Stock acquired
by ESOP (7) ................... (612) (612) (720) (720) (828) (828)
-------- -------- -------- -------- ----------- -----------
Pro forma book value ............. $ 12,799 $ 12,670 $ 13,956 $ 13,827 $ 15,113 $ 14,984
======== ======== ======== ======== =========== ===========
Consolidated book value
per share (6)(8):
Historical ....................... $ 8.76 $ 8.59 $ 7.45 $ 7.30 $ 6.48 $ 6.35
Estimated net conversion
proceeds per share .............. 9.17 9.17 9.26 9.26 9.33 9.33
Less:
Common Stock acquired
by RRP (5) .................... (0.43) (0.43) (0.43) (0.43) (0.43)
Common Stock acquired
by ESOP (7) ................... (0.87) (0.87) (0.87) (0.87) (0.87) (0.87)
-------- -------- -------- -------- ----------- -----------
Pro forma book value per share ... $ 16.63 $ 16.46 $ 15.41 $ 15.26 $ 14.50 $ 14.38
======= ======= ======= ======= ======= =======
Offering price as a
percentage of pro
forma book value per share ....... 60.12% 60.74% 64.90% 65.51% 68.95% 69.55%
======== ======== ======== ======== =========== ===========
Offering price to pro
forma earnings per share ......... 9.98% 5.47% 11.32% 6.21% 12.61% 6.90%
======== ======== ======== ======== =========== ===========
Tangible book value per share ...... $ 15.79 $ 15.62 $ 14.71 $ 14.56 $ 13.91 $ 13.78
======== ======== ======== ======== =========== ===========
Number of shares used in
calculating EPS .................. 706,860 706,860 831,800 831,800 956,340 956,340
Number of shares used in
calculating book value and
tangible book value .............. 765,000 765,000 900,000 900,000 1,035,000 1,035,000
======= ======= ======= ======= ========= =========
</TABLE>
<PAGE>
1,190,250 Shares(1)
Sold at
$10.00 Per Share
--------------------------------
Six Months Year
ended ended
6/30/96 12/31/95
------- --------
Gross proceeds ................... $ 11,903 $ 11,903
Less offering expenses ........... (735) (735)
Less employee benefit plans ...... (1,428) (1,428)
--------- ---------
Investable net proceeds .......... $ 9,740 $ 9,740
========= =========
Consolidated net income:
Historical (3) ................. $ 315 $ 600
Pro forma income (4) ........... 145 257
Pro forma ESOP adjustment (7) .. (29) (57)
Pro forma RRP adjustment (5) ... (29) (57)
--------- ---------
Pro forma net income ........... $ 403 $ 743
========= =========
Consolidated earnings per share (7
Historical ..................... $ 0.33 $ 0.63
Pro forma income (4) ........... 0.13 0.23
Pro forma ESOP adjustment (7) .. (0.03) (0.05)
Pro forma RRP adjustment (5) ... (0.03) (0.05)
--------- ---------
Pro forma earnings per share ... $ 0.40 $ 0.76
========= =========
Consolidated book value (6):
Historical ..................... $ 6,703 $ 6,574
Estimated net conversion
proceeds (2) .................. 11,168 11,168
Less:
Common Stock acquired
by RRP (5) .................. (476) (476)
Common Stock acquired
by ESOP (7) ................. (952) (952)
--------- ---------
Pro forma book value ........... $ 16,443 $ 16,314
========= =========
Consolidated book value
per share (6)(8):
Historical ..................... $ 5.63 $ 6.35
Estimated net conversion
proceeds per share ............ 9.38 9.38
Less:
Common Stock acquired
by RRP (5) .................. (0.43) (0.43)
Common Stock acquired
by ESOP (7) ................. (0.87) (0.87)
--------- ---------
Pro forma book value per share . $ 13.72 $ 15.84
========= =========
Offering price as a
percentage of pro
forma book value per share ..... 72.91% 63.12%
========= =========
Offering price to pro
forma earnings per share ....... 12.22% 6.60%
========= =========
Tangible book value per share .... $ 13.21 $ 13.10
========= =========
Number of shares used in
calculating EPS ................ 1,099,791 1,099,791
Number of shares used in
calculating book value and
tangible book value ............ 1,190,250 1,190,250
(Footnotes on following page.)
<PAGE>
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following
commencement of the Subscription and Direct Community Offerings.
(2) See "Use of Proceeds" for assumptions utilized to determine the estimated
net proceeds of the sale of Common Stock.
(3) Historic net income for the six months ended June 30, 1996 and the year
ended December 31, 1995 is computed as follows:
<TABLE>
<CAPTION>
6 months ended Year ended
June 30, 1996 December 31, 1995
-----------------------------------------
(In thousands)
<S> <C> <C>
Madison First $181 $258
Citizens 134 342
--- ---
Pro forma combined - historic $315 $ 600
==== =====
</TABLE>
(4) Pro forma net income for the six months ended June 30, 1996, and the year
ended December 31, 1995 has been computed as follows:
<TABLE>
<CAPTION>
6 months ended Year ended
June 30, 1996 December 31, 1995
-----------------------------------------
(In thousands)
<S> <C> <C>
Sale of 765,000 shares
Yield on residual cash proceeds of $.021
million ($6.096 million - $3.075
million Acquisition
Price - $3.0 million of deposit withdrawals)
at 5.25% $ 1 $ 1
Reduced interest expense on $3.0 million of
deposit withdrawals at 5.20% 78 156
Purchase price adjustments 49 41
---- ----
Subtotal 127 198
Less tax effects at 40% 51 79
---- ----
Pro forma net income $ 76 $ 119
==== ====
Sale of 900,000 shares
Yield on residual net cash proceeds of $1.208 million
($7.253 million -
$3.075 million Acquisition Price -
$3.0 million of deposit withdrawals) at 5.25% $ 32 $ 63
Reduced interest expense on $3.0 million of deposit
withdrawals at 5.20% 78 156
Purchase price adjustments 49 41
---- ----
Subtotal 159 260
Less tax effects at 40% 64 104
---- ----
Pro forma net income $ 95 $156
==== ====
Sale of 1,035,000 shares
Yield on residual net cash proceeds of
$2.355 million ($8.410 million -
$3.075 million Acquisition Price -
$3.0 million of deposit withdrawals) at 5.25% $ 82 $124
Reduced interest expense on $3.0 million of deposit
withdrawals at 5.20% 78 156
Purchase price adjustments 49 41
---- ----
Subtotal 189 321
Less tax effects at 40% 76 128
---- ----
Pro forma net income $113 $193
==== ====
Sale of 1,190,250 shares
Yield on residual net cash proceeds of
$3.740 million ($9.740 million -
$3.075 million Acquisition Price -
$3.0 million of deposit withdrawals) at 5.25% $ 115 $ 231
Reduced interest expense on $3.0 million
of deposit
withdrawals at 5.20% 78 156
Purchase price adjustments 49 41
---- ----
Subtotal 242 428
Less tax effects at 40% 97 171
---- ----
Pro forma net income $145 $257
==== ====
</TABLE>
(5) Assuming the receipt of shareholder approval at the Holding Company's first
meeting of shareholders, the Holding Company intends to implement the RRP.
Assuming such implementation, the RRP will purchase an amount of shares
equal to 4.0% of the Common Stock sold in the Conversion for issuance to
directors, officers and employees of the Holding Company and the
Institutions. Such shares may be purchased from authorized but unissued
shares or on the open market. The Holding Company currently intends that
the RRP will purchase the shares on the open market, and the estimated net
Conversion proceeds have been reduced for the purchase of the shares in
determining estimated proceeds available for investment. Under the terms of
the RRP, shares will vest at the rate of 20% per year. A tax benefit of 40%
has been assumed. The Common Stock to be purchased by the RRP represents
unearned compensation and is, accordingly, reflected as a reduction to pro
forma shareholders' equity. As shares of the Common Stock granted pursuant
to the RRP vest, a corresponding reduction in the charge against capital
will occur. In the event that authorized but unissued shares are acquired,
the interests of existing shareholders will be diluted. Assuming that
900,000 shares of Common Stock are issued in the Conversion and that all
awards under the RRP are from authorized but unissued shares, the Holding
Company estimates that the per share book value for the Common Stock would
be diluted $.60 per share, or 3.8% on a pro forma basis as of June 30,
1996.
(6) Book value represents the excess of assets over liabilities. The effect of
the liquidation account is not reflected in these computations. (For
additional information regarding the liquidation account, see "The
Conversion -- Principal Effects of Conversion -- Effect on Liquidation
Rights.") Tangible book value equals tangible assets (all assets less
goodwill) less liabilities.
(7) It is assumed that 8% of the shares of Common Stock issued in the
Conversion will be purchased by the ESOP. The funds used to acquire the
ESOP shares will be borrowed by the ESOP from the Holding Company (see "Use
of Proceeds"). The Institutions intend to make annual contributions to the
ESOP in an amount at least equal to the principal and interest requirements
on the debt. The Institutions' total annual expense in payment of the ESOP
debt is based upon 10 equal annual installments of principal and interest,
with an assumed tax benefit of 40%. The pro forma net income assumes: (i)
The Institutions' total contributions are equivalent to the debt service
requirement for the year, and (ii) the effective tax rate applicable to the
debt was 40%. Expense for the ESOP beginning in December, 1996 and
thereafter will be based on the number of shares committed to be released
to participants for the year at the average market value of the shares
during the year. Accordingly, the Institutions' total annual expense in
payment of the ESOP for such years may be higher than that discussed above.
The amount borrowed is reflected as a reduction of shareholders' equity.
(8) Assuming the receipt of shareholder approval at the Holding Company's first
meeting of shareholders, the Holding Company intends to implement the Stock
Option Plan. Assuming such implementation, Common Stock in an aggregate
amount equal to 10.0% of the shares issued in the Conversion will be
reserved for issuance by the Holding Company upon the exercise of the stock
options granted under the Stock Option Plan. No effect has been given to
the shares of Common Stock reserved for issuance under the Stock Option
Plan. Upon the exercise of stock options granted under the Stock Option
Plan, the interests of existing shareholders will be diluted. Assuming the
issuance of 900,000 shares in the Conversion and the exercise of 90,000
options at an exercise price of $10.00 per share, the Holding Company
estimates that the per share book value for the Common Stock would be
diluted $0.50 per share, or 3.2% on a pro forma basis as of June 30, 1996.
(9) Management believes that the Conversion and Acquisition are interdependent.
Therefore, additional pro forma statements showing the other variations of
the transaction have not been provided.
<PAGE>
Regulatory Capital Compliance
The following table compares Madison First's historical and pro forma
regulatory capital levels as of June 30, 1996 to Madison First's capital
requirements after giving effect to the Conversion.
<TABLE>
<CAPTION>
At June 30, 1996
---------------------------------------------------------------------------------------
Pro Forma Capital Based on Sale of
-----------------------------------------------------------------------
765,000 Shares 900,000 Shares 1,035,000 Shares1,190,250 Shares
Madison First Sold at Price of Sold at Price of Sold at Price of Sold at Price of
Historical $10.00 $10.00 $10.00 $10.00 (1)
Amount Ratio (2)Amount Ratio (2) Amount Ratio (2)Amount Ratio (2) Amount Ratio (2)
---------------------------------------------------------------------------------------
(Dollars in thousands)
Equity capital based upon
generally accepted
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
accounting principles (3).............. $6,703 8.2% $8,986 10.6% $9,790 11.4% $9,863 11.4% $11,587 13.3%
====== === ====== ==== ======== ==== ======== ==== ======== ====
Tangible capital (3):
Historical or
pro forma............................ $6,599 8.1% $8,882 10.4% $9,686 11.3% $9,759 11.3% $11,483 13.2%
Required............................... 1,229 1.5 1,277 1.5 1,286 1.5 1,295 1.5 1,305 1.5
------ --- ------ ---- -------- ---- -------- ---- -------- ----
Excess............................... $5,370 6.6% $7,605 8.9% $8,400 9.8% $8,464 9.8% $10,178 11.7%
====== === ====== ==== ======== ==== ======== ==== ======== ====
Core capital (3):
Historical or
pro forma (4)........................ $6,599 8.1% $8,882 10.4% $9,686 11.3% $9,759 11.3% $11,483 13.2%
Required............................... 2,457 3.0 2,553 3.0 2,571 3.0 2,589 3.0 2,610 3.0
------ --- ------ ---- -------- ---- -------- ---- -------- ----
Excess............................... $4,142 5.1% $6,329 7.4% $7,115 8.3% $7,170 8.3% $ 8,873 10.2%
====== === ====== ==== ======== ==== ======== ==== ======== ====
Risk-based capital (3):
Historical or
pro forma ........................... $7,011 16.9% $9,294 22.0% $10,098 23.9% $10,171 24.0% $11,895 28.0%
Required............................... 3,322 8.0 3,373 8.0 3,383 8.0 3,393 8.0 3,404 8.0
------ --- ------ ---- -------- ---- -------- ---- -------- ----
Excess............................... $3,689 8.9% $5,921 14.0% $ 7,115 15.9% $ 6,778 16.0% $ 8,395 20.0%
====== === ====== ==== ======== ==== ======== ==== ======== ====
</TABLE>
- ----------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following
commencement of the Subscription and Direct Community Offerings.
(2) Tangible and core capital levels are shown as a percentage of total assets;
risk-based capital levels are shown as a percentage of risk-weighted
assets.
(3) Pro forma capital levels assume receipt by Madison First of $3.2 million,
$3.8 million, $4.4 million and $5.1 million at the minimum, midpoint,
maximum and adjusted maximum of the Estimated Valuation Range,
respectively. Assumes net proceeds have been invested in 20% risk-weighted
assets.
(4) Pro forma tangible and core capital requirements are based on total assets
of $85.1 million, $85.7 million, $86.3 million and $87.0 million at the
minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation
Range, respectively. Risk-based assets are based on pro forma totals of
$42.1 million, $42.3 million, $42.4 million and $42.5 million at the
minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation
Range, respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF MADISON FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
General
The Holding Company was recently formed as an Indiana corporation on May
22, 1996, for the purpose of issuing the Common Stock and (i) owning all of the
outstanding common stock of Madison First to be issued in the Conversion and
(ii) acquiring the Citizens Shares in the Acquisition. As a newly formed
corporation, the Holding Company has no operating history.
The principal business of savings associations, including Madison First,
has historically consisted of attracting deposits from the general public and
making loans secured by residential real estate. Madison First's earnings are
primarily dependent upon its net interest income, the difference between
interest income and interest expense. Interest income is a function of the
balances of loans and investments outstanding during a given period and the
yield earned on such loans and investments. Interest expense is a function of
the amount of deposits and borrowings outstanding during the same period and
interest rates paid on such deposits and borrowings. Madison First's earnings
are also affected by provisions for loan losses, service charges, operating
expenses and income taxes.
Madison First is significantly affected by prevailing economic conditions,
as well as government policies and regulations concerning, among other things,
monetary and fiscal affairs, housing and financial institutions. See
"Regulation." Deposit flows are influenced by a number of factors, including
interest rates paid on competing investments, account maturities and level of
personal income and savings within the Institutions' market. In addition,
deposit growth is affected by how customers perceive the stability of the
financial services industry amid various current events such as regulatory
changes, failures of other financial institutions and financing of the deposit
insurance fund. Lending activities are influenced by the demand for and supply
of housing lenders, the availability and cost of funds and various other items.
Sources of funds for lending activities of Madison First include deposits,
payments on loans, borrowings and income provided from operations.
Current Business Strategy
Madison First's business strategy is to operate a well-capitalized,
profitable and independent financial institution dedicated primarily to
residential lending with an emphasis on personal service. Madison First has
sought to implement this strategy by (i) emphasizing the origination of one- to
four-family residential mortgage loans in its market area, (ii) maintaining
asset quality through diligent collection efforts and (iii) managing and
controlling Madison First's level of operating expenses. Management of Madison
First believes the Conversion and the Acquisition, as well as Madison First's
development of additional products and services, will assist it in furthering
this strategy as follows:
o Improving Interest Rate Risk. Historically, Madison First originated
one-year adjustable-rate residential mortgage loans indexed to the
11th District Cost of Funds, which is considered a lagging index, with
maximum rate adjustments of 1% per year and 5% over the terms of the
loans. In a period of rising interest rates, these loans may not
reprice upward as quickly or by as much as market rates, thereby
increasing Madison First's interest rate risk. See " --
Asset/Liability Management." However, in late 1995 Madison First began
originating its one-year adjustable-rate residential mortgage loans
tied to the U.S. Treasury securities yields (adjusted to a constant
maturity) with maximum rate adjustments of 1.5% per year and 6% over
the terms of the loans. In addition, Madison First expects to begin
originating its fixed-rate residential mortgage loans with terms of 15
years and greater for sale to the FHLMC on the secondary market. See
"Business of Madison First." The change in the index used and the
increase in the maximum rate adjustments for Madison First's
adjustable-rate residential mortgage loans as well as the
implementation of a secondary market program for Madison First's
longer term, fixed-rate residential mortgage loans should assist
Madison First in improving its interest rate risk.
o Pursuing Operating Efficiencies After the Acquisition. The
consummation of the Acquisition will enable the Holding Company and
the Institutions to explore opportunities to integrate certain aspects
of the Institutions' operations in a manner designed to result in more
efficient operations. Among those opportunities that may be targeted
are (i) data processing, (ii) marketing, (iii) collections, (iv)
financial reporting, (v) human resources, (vi) deposit and loan
operations, (vii) compliance, and (viii) insurance and employee
benefits programs. The Institutions will also be able to explore
opportunities to utilize their offices and physical locations in a
more efficient manner following the Acquisition. See "The Acquisition
-- Reasons for the Acquisition."
<PAGE>
o Emphasis on New Home Equity Loan Product. In May, 1996, Madison First
began offering a new home equity line of credit. This line of credit
is an adjustable-rate line of credit tied to the prime rate and has an
initial rate equal to 1% less than the prime rate for the first year.
Thereafter, the applicable interest rate is equal to the prime rate
plus 1%. See "Business of Madison First -- Lending Activities."
Madison First expects to actively market this new home equity line
within its market area.
o Emphasis on Nonresidential Real Estate Lending. In addition to
continuing its emphasis on originating adjustable-rate one- to
four-family residential mortgage loans and its implementation of the
FHLMC secondary market program, Madison First anticipates that
following the Conversion it will begin to place more emphasis on the
origination of mortgage loans secured by nonresidential real estate in
its market area. Management of Madison First believes that the higher
interest rates and shorter terms associated with nonresidential real
estate loans will assist Madison First in its asset/liability
management and improve Madison First's interest rate spread. Although
such loans typically involve more credit risk than one- to four-family
residential mortgage loans, management also believes that Madison
First's diligent collection efforts will assist Madison First in
maintaining its asset quality. See "Business of Madison First."
Asset/Liability Management
Madison First, like other savings associations, is subject to interest rate
risk to the degree that its interest-bearing liabilities, primarily deposits
with short- and medium-term maturities, mature or reprice at different rates
than its interest-earning assets. Management of Madison First believes it is
critical to manage the relationship between interest rates and the effect on
Madison First's net portfolio value ("NPV"). This approach calculates the
difference between the present value of expected cash flows from assets and the
present value of expected cash flows from liabilities, as well as cash flows
from off-balance sheet contracts. Management of Madison First's assets and
liabilities is done within the context of the marketplace, regulatory
limitations and within limits established by the Board of Directors on the
amount of change in NPV which is acceptable given certain interest rate changes.
The OTS issued a regulation, which has not yet been implemented, which uses
a net market value methodology to measure the interest rate risk exposure of
thrift institutions. Under this OTS regulation, an institution's "normal" level
of interest rate risk in the event of an assumed change in interest rates is a
decrease in the institution's NPV in an amount not exceeding 2% of the present
value of its assets. Thrift institutions with over $300 million in assets or
less than a 12% risk-based capital ratio would be required to file OTS Schedule
CMR. Data from Schedule CMR would be used by the OTS to calculate changes in NPV
(and the related "normal" level of interest rate risk) based upon certain
interest rate changes (discussed below). Institutions which do not meet either
of the filing requirements would not be required to file OTS Schedule CMR, but
could do so voluntarily. As Madison First does not currently meet either of
these requirements, it would not be required to file Schedule CMR. Under the
proposed regulation, institutions which would be required to file would be
required to take a deduction (the interest rate risk capital component) from
their total capital available to calculate their risk based capital requirement
if their interest rate exposure is greater than "normal." The amount of that
deduction would be one-half of the difference between (a) the institution's
actual calculated exposure to a 200 basis point interest rate increase or
decrease (whichever results in the greater pro forma decrease in NPV) and (b)
its "normal" level of exposure which is 2% of the present value of its assets.
Presented below, as of June 30, 1996, is an analysis performed by the OTS
of Madison First's interest rate risk as measured by changes in NPV for
instantaneous and sustained parallel shifts in the yield curve, in 100 basis
point increments, up and down 400 basis points and in accordance with the
proposed regulations. At June 30, 1996, 2% of the present value of Madison
First's assets was approximately $1.7 million. Because the interest rate risk of
a 200 basis point increase in market rates (which was greater than the interest
rate risk of a 200 basis point decrease ) was $1.5 million at June 30, 1996,
Madison First would not have been required to deduct any dollar amount from its
capital if the OTS' NPV methodology had been effective and if Madison First had
been subject to the OTS' reporting requirements under this methodology.
<PAGE>
<TABLE>
<CAPTION>
Change Net Portfolio Value NPV as % of PV of Assets
In Rates $ Amount $ Change % Change NPV Ratio Change
-------- -------- -------- -------- --------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
+ 400 bp * $4,779 $(3,579) (43)% 6.06% (394)bp
+ 300 bp 5,820 (2,538) (30)% 7.26% (274)bp
+ 200 bp 6,814 (1,544) (18)% 8.37% (164)bp
+ 100 bp 7,700 (659) (8)% 9.32% (68)bp
0 bp 8,359 --- --- % 10.00% --- bp
- 100 bp 8,662 303 4% 10.29% 29bp
- 200 bp 8,656 298 4% 10.25% 24bp
- 300 bp 8,915 556 7% 10.48% 48bp
- 400 bp 9,436 1,078 13% 10.98% 98bp
</TABLE>
* Basis points.
As with any method of measuring interest rate risk, certain
shortcomings are inherent in the methods of analysis presented above. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as adjustable-rate loans, have features which
restrict changes in interest rates on a short-term basis and over the life of
the asset. Further, in the event of a change in interest rates, expected rates
of prepayments on loans and early withdrawals from certificates could likely
deviate significantly from those assumed in calculating the table.
<PAGE>
Average Balances and Interest Rates and Yields
The following tables present at June 30, 1996, and for the six-month
periods ended June 30, 1996, and 1995, and the years ended December 31, 1995,
1994 and 1993, the average daily balances, of each category of Madison First's
interest-earning assets and interest-bearing liabilities, and the interest
earned or paid on such amounts.
<TABLE>
<CAPTION>
At June 30, Six Months Ended June 30,
1996 1996 1995
-------------------- ----------------------------- ------------------------------
Average Average Average Average
Balance Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits
<S> <C> <C> <C> <C> <C> <C> <C> <C>
and other........................ $ 2,671 5.69% $ 4,708 $ 109 4.63% $ 1,944 $ 24 2.47%
Investment securities (1).......... 9,940 5.23 10,660 291 5.46 14,010 403 5.75
Mortgage-backed and
related securities............... 8,690 6.33 9,515 291 6.12 11,307 342 6.05
Loans receivable, net (2).......... 57,449 7.45 57,259 2,251 7.86 56,184 2,100 7.48
-------- ------- ------ ------- ------
Total interest-earning assets.... $ 78,750 6.99 $82,142 $2,942 7.16 $83,445 $2,869 6.88
======= ======= ====== ======= ======
Interest-bearing liabilities:
Deposits........................... $74,727 4.32 $77,740 $1,691 4.35 $75,930 $1,595 4.20
FHLB advances...................... --- --- 1,111 44 7.92 3,678 96 5.22
-------- ------- ------ ------- ------
Total interest-bearing
liabilities...................... $74,727 4.32 $78,851 $1,735 4.40 $79,608 $1,691 4.25
======= ======= ====== ======= ======
Net interest-earning assets........... $ 4,023 $ 3,291 $ 3,837
======== ======== ========
Net interest income................... $1,207 $1,178
====== ======
Interest rate spread (3).............. 2.67% 2.76% 2.63%
==== ==== ====
Net yield on weighted average
interest-earning assets (4)........ ---% 2.94% 2.82%
==== ==== ====
Average interest-earning
assets to average interest-bearing
liabilities........................ 105.38% 104.17% 104.82%
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------
1995 1994 1993
---------------------------- -------------------------------- -----------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning deposits and other..$ 2,610 $ 107 4.10% $ 2,288 $ 112 4.90% $ 3,589 $ 175 4.88%
Investment securities (1)............ 13,925 777 5.58 13,685 713 5.21 8,615 494 5.73
Mortgage-backed and
related securities................. 10,989 670 6.10 12,702 743 5.85 14,681 866 5.90
Loans receivable, net (2)............ 56,916 4,240 7.45 52,708 3,851 7.31 52,719 4,149 7.87
-------- ------- -------- ------- -------- -------
Total interest-earning assets......$84,440 $5,794 6.86 $81,383 $5,419 6.66 $79,604 $5,684 7.14
======= ====== ======= ====== ======= ======
Interest-bearing liabilities:
Deposits.............................$76,983 $3,419 4.44 $77,703 $2,842 3.66 $78,053 $3,041 3.90
FHLB advances........................ 2,967 175 5.90 228 12 5.26 22 1 4.55
-------- ------- -------- ------- -------- -------
Total interest-bearing liabilities.$79,950 $3,594 4.50 $77,931 $2,854 3.66 $78,075 $3,042 3.90
======= ====== ======= ====== ======= ======
Net interest-earning assets.............$ 4,490 $ 3,452 $ 1,529
======= ======== ========
Net interest income..................... $2,200 $2,565 $2,642
====== ====== ======
Interest rate spread (3)................ 2.36% 3.00% 3.24%
==== ==== ====
Net yield on weighted average
interest-earning assets (4).......... 2.61% 3.15% 3.32%
==== ==== ====
Average interest-earning assets
to average interest-bearing
liabilities.......................... 105.62% 104.43% 101.96%
====== ====== ======
</TABLE>
(1) Includes securities available for sale at amortized cost prior to SFAS No.
115 adjustments.
(2) Total loans less loans in process.
(3) Interest rate spread is calculated by subtracting weighted average interest
rate cost from weighted average interest rate yield for the period
indicated.
(4) The net yield on weighted average interest-earning assets is calculated by
dividing net interest income by weighted average interest-earning assets
for the period indicated. No net yield amount is presented at June 30,
1996, because the computation of net yield is applicable only over a period
rather than at a specific date.
<PAGE>
Interest Rate Spread
Madison First's results of operations have been determined primarily by net
interest income and, to a lesser extent, fee income, miscellaneous income and
general and administrative expenses. Net interest income is determined by the
interest rate spread between the yields earned on interest-earning assets and
the rates paid on interest-bearing liabilities and by the relative amounts of
interest-earning assets and interest-bearing liabilities.
The following table sets forth the weighted average effective interest rate
earned by Madison First on its loan and investment portfolios, the weighted
average effective cost of Madison First's deposits and advances, the interest
rate spread of Madison First, and the net yield on weighted average
interest-earning assets for the periods and as of the dates shown. Average
balances are based on average daily balances.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
At June 30, ----------------- ---------------------------------
1996 1996 1995 1995 1994 1993
---- ---- ---- ---- ---- ----
Weighted average interest rate earned on:
<S> <C> <C> <C> <C> <C> <C>
Interest-earning deposits and other.......... 5.69% 4.63% 2.47% 4.10% 4.90% 4.88%
Investment securities........................ 5.23 5.46 5.75 5.58 5.21 5.73
Mortgage-backed and related securities....... 6.33 6.12 6.05 6.10 5.85 5.90
Loans receivable, net........................ 7.45 7.86 7.48 7.45 7.31 7.87
Total interest-earning assets.............. 6.99 7.16 6.88 6.86 6.66 7.14
Weighted average interest rate cost of:
Deposits..................................... 4.32 4.35 4.20 4.44 3.66 3.90
FHLB advances................................ --- 7.92 5.22 5.90 5.26 4.55
Total interest-bearing liabilities......... 4.32 4.40 4.25 4.50 3.66 3.90
Interest rate spread (1)........................ 2.67% 2.76% 2.63% 2.36% 3.00% 3.24%
==== ==== ==== ==== ==== ====
Net yield on weighted average
interest-earning assets (2).................. ---% 2.94% 2.82% 2.61% 3.15% 3.32%
==== ==== ==== ==== ==== ====
</TABLE>
(1) Interest rate spread is calculated by subtracting combined weighted
average interest rate cost from combined weighted average interest rate
earned for the period indicated. Interest rate spread figures must be
considered in light of the relationship between the amounts of
interest-earning assets and interest-bearing liabilities.
(2) The net yield on weighted average interest-earning assets is calculated
by dividing net interest income by weighted average interest-earning
assets for the period indicated. No net yield figure is presented at June
30, 1996 because the computation of net yield is applicable only over a
period rather than at a specific date.
<PAGE>
The following table describes the extent to which changes in interest rates
and changes in volume of interest-related assets and liabilities have affected
Madison First's interest income and expense during the periods indicated. For
each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to (1) changes in rate (changes
in rate multiplied by old volume) and (2) changes in volume (changes in volume
multiplied by old rate). Changes attributable to both rate and volume which
cannot be segregated have been allocated proportionally to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
Increase (Decrease) in Net Interest Income
----------------------------------------------------
Total
Due to Due to Net
Rate Volume Change
---- ------ ------
(In thousands)
Six months ended June 30, 1996 compared to
six months ended June 30, 1995
Interest-earning assets:
<S> <C> <C> <C>
Interest-earning deposits and other........................ $ 32 $ 53 $ 85
Investment securities...................................... (19) (93) (112)
Mortgage-backed and related securities..................... 4 (55) (51)
Loans receivable, net...................................... 110 41 151
------ ------ ------
Total.................................................... 127 (54) 73
------ ------ ------
Interest-bearing liabilities:
Deposits................................................... 57 39 96
FHLB advances.............................................. (22) (30) (52)
------ ------ ------
Total.................................................... 35 9 44
------ ------ ------
Net change in net interest income............................ $ 92 $ (63) $ 29
====== ====== ======
Year ended December 31, 1995 compared
to year ended December 31, 1994
Interest-earning assets:
Interest-earning deposits and other........................ $ (16) $ 11 $ (5)
Investment securities...................................... 52 12 64
Mortgage-backed and related securities..................... 32 (105) (73)
Loans receivable, net...................................... 77 312 389
------ ------ ------
Total.................................................... 145 230 375
------ ------ ------
Interest-bearing liabilities:
Deposits................................................... 614 (37) 577
FHLB advances.............................................. 16 147 163
------ ------ ------
Total.................................................... 630 110 740
------ ------ ------
Net change in net interest income............................ $(485) $ 120 $(365)
====== ====== ======
Year ended December 31, 1994 compared
to year ended December 31, 1993
Interest-earning assets:
Interest-earning deposits and other........................ $ 1 $ (64) $ (63)
Investment securities...................................... (20) 239 219
Mortgage-backed and related securities..................... (7) (116) (123)
Loans receivable, net...................................... (297) (1) (298)
------ ------ ------
Total.................................................... (323) 58 (265)
------ ------ ------
Interest-bearing liabilities:
Deposits................................................... (186) (13) (199)
FHLB advances.............................................. 0 11 11
------ ------ ------
Total.................................................... (186) (2) (188)
------ ------ ------
Net change in net interest income............................ $(137) $ 60 $ (77)
====== ====== ======
</TABLE>
<PAGE>
Financial Condition at June 30, 1996 Compared to Financial Condition at December
31, 1995
Madison First's total assets at June 30, 1996, amounted to $81.9 million, a
decrease of $4.7 million, or 5.4%, from December 31, 1995. This decrease was
primarily attributable to Madison First's deployment of approximately $4.2
million in proceeds from securities maturities to retire advances from the FHLB.
Liquid assets (cash and due from banks, certificates of deposit and
investment securities) totaled $12.4 million at June 30, 1996, a decrease of
$3.3 million, or 21.2%, over the total at December 31, 1995. This decrease
resulted primarily from the maturity of investment securities.
Loans receivable totaled $57.4 million at June 30, 1996, a decrease of
$496,000, or 0.9%, from December 31, 1995. The decrease resulted primarily from
principal repayments of $7.7 million, which exceeded loan disbursements of $7.3
million. Madison First's allowance for losses on loans totaled $416,000 at June
30, 1996, an increase of $9,000 over the balance at December 31, 1995. The
allowance represented 0.7% of total loans at each of June 30, 1996 and December
31, 1995. Non-performing loans totaled $223,000 and $8,000, at June 30, 1996 and
December 31, 1995, respectively. The increase in non-performing loans is
exclusively due to an increase in residential real estate past due 90 days or
more.
Deposits totaled $74.7 million at June 30, 1996, a decrease of $506,000, or
0.7%, over the total at December 31, 1995. The decrease resulted primarily from
withdrawals from passbook accounts.
There were no advances from the FHLB outstanding at June 30, 1996, compared
to $4.5 million at December 31, 1995. Advances were repaid with the
aforementioned proceeds from maturities of investment securities.
Financial Condition at December 31, 1995 Compared to Financial Condition at
December 31, 1994
Madison First's total assets amounted to $86.6 million at December 31,
1995, a decrease of $468,000, or 0.5%, from December 31, 1994. The decline in
assets resulted primarily from a reduction in deposits of $225,000, and a
decline in advances from the FHLB of Indianapolis of $515,000, which were
partially offset by an increase in retained earnings of $270,000.
Liquid assets (cash and due from banks, certificates of deposit and
investment securities) totaled $15.7 million at December 31, 1995, which
represented a reduction of $806,000, or 4.9%, from 1994 levels. During 1995,
management elected to fund net deposit outflows and repayments of advances from
the FHLB of Indianapolis with excess liquidity. Mortgage-backed securities
declined by $1.4 million, or 12.5%, to a total of $9.9 million in 1995, as a
result of principal repayments during the year.
Loans receivable totaled $57.9 million at December 31, 1995, an increase of
$1.7 million, or 2.9%, over the 1994 total. The increase resulted primarily from
loan disbursements of $15.6 million in excess of principal repayments of $13.7
million. Madison First's allowance for losses on loans amounted to $407,000 at
December 31, 1995, an increase of $155,000, or 61.5%, over the $252,000 total
maintained as of December 31, 1994. The allowance represented 0.7% and 0.5% of
total loans as of December 31, 1995 and 1994, respectively. The 1995 provision
was heavily influenced by $1.6 million of growth in nonresidential and
multi-family loans during the period. Although management intends to place more
emphasis on nonresidental real estate lending following the Conversion, it does
not anticipate further significant increases in the nonresidential loan
portfolio that would necessitate material additions to the allowance.
Non-performing loans totaled $8,000 and $13,000 as of December 31, 1995 and
1994, respectively.
Deposits totaled $75.2 million at December 31, 1995, a decrease of
$225,000, or 0.3%, from the total in 1994. Certificates of deposit increased by
$944,000 during 1995, while transaction and demand accounts declined by
approximately $1.2 million. The decline in passbook deposits resulted from
increased competition from financial institutions and other entities offering
investments with more attractive rates as customers became more rate conscious.
Certificates of deposits increased because of more competitive rates offered by
Madison First.
Advances from the FHLB of Indianapolis declined by $515,000, or 10.3%,
during 1995 to a total of $4.5 million. Management elected to utilize excess
liquidity to repay such advances in 1995.
<PAGE>
Comparison of Operating Results For Six Months Ended June 30, 1996 and 1995
Madison First's net income for the six months ended June 30, 1996 amounted
to $181,000, a decline of $55,000, or 23.3%, from the $236,000 in net income
recorded for the six-month period ended June 30, 1995. The decline in net income
resulted primarily from an increase of $108,000 in employee compensation and
benefits, an increase of $23,000 of data processing expense, and a $9,000
increase in the provision for loan losses, which were partially offset by an
increase in net interest income of $29,000 and a decrease in provision for
income taxes of $43,000.
Total interest income amounted to $2.9 million for the six-month period
ended June 30, 1996, an increase of $73,000, or 2.5%, from the amount recorded
for the six-month period ended June 30, 1995. Interest income on loans totaled
$2.3 million in 1996, an increase of $151,000, or 7.2%, over 1995. The increase
resulted primarily from growth of $1.1 million in weighted average balances
outstanding coupled with a 38 basis point increase in weighted average yield
from 7.48% in 1995 to 7.86% in 1996. Interest income on mortgage-backed
securities decreased by $51,000, or 14.9%, during the 1996 period, as compared
to 1995, as a result of a decline of $1.8 million in the weighted average
balance outstanding. Interest income on investment securities and
interest-bearing deposits decreased by $27,000, or 6.3%, due primarily to a
decrease in the weighted average balance outstanding of approximately $586,000
and a 63 basis point decline in the weighted average yield year-to-year.
Total interest expense amounted to $1.7 million for the six months ended
June 30, 1996, an increase of $44,000, or 2.6%, over the amount recorded for the
six-month period ended June 30, 1995. The increase resulted primarily from a 15
basis point increase in the cost of interest-bearing liabilities, partially
offset by a $757,000 decrease in average interest-bearing liabilities
outstanding period to period.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $29,000, or 2.5%, for the six-month
period ended June 30, 1996, as compared to the comparable period in 1995. The
interest rate spread increased by 13 basis points, from 2.63% in 1995 to 2.76%
in 1996, while the net interest margin increased by 12 basis points, from 2.82%
in 1995 to 2.94% in 1996.
The provision for losses on loans increased by $9,000 for the six months
ended June 30, 1996, compared to the same period in 1995. The increase was
attributed to growth in Madison First's loan portfolio. While non-performing
loans increased to $223,000 during the 1996 period, this level remains well
below the peer group and industry averages as a percentage of loans outstanding.
Other income totaled $201,000 for the six-month period ended June 30, 1996,
an increase of $15,000, or 8.1%, over the 1995 period. The increase resulted
primarily from an increase in non-recurring bonus insurance commissions recorded
during the 1996 period.
Other expenses totaled $1.1 million for the six months ended June 30, 1996,
an increase of $133,000, or 13.7%, over the 1995 period. The increase resulted
primarily from a $108,000, or 22.3%, increase in employee compensation and
benefits and an increase of $23,000 in data processing. The increase in employee
compensation and benefits was due primarily to increased staffing levels and
normal merit increases.
The provision for income taxes amount to $108,000 for the six-month period
ended June 30, 1996, a decrease of $43,000, or 28.5%, from the provision
recorded in the 1995 period. The decrease resulted primarily from a $98,000
decline in earnings before taxes. The effective tax rates were 37.4% and 39.0%
for the six-month periods ended June 30, 1996 and 1995, respectively.
Comparison of Operating Results For Fiscal Years Ended December 31, 1995 and
1994
Net income for the year ended December 31, 1995, amounted to $258,000, a
decrease of $378,000, or 59.4%, from the $636,000 in net income recorded in
1994. The decline in net income resulted primarily from a $365,000 decline in
net interest income, a $121,000 increase in the provision for losses on loans,
an $8,000 decline in other income and a $108,000 increase in other expense,
which were partially offset by a decrease of $224,000 in the provision for
income taxes. The reduction in 1995 earnings is generally reflective of, and
attributable to, the rise in the general level of interest rates in the economy
over the year, as well as additional provisions for loan losses brought on by
increased nonresidential lending. Management does not anticipate either trend to
have a continuing material adverse impact on operations due to (i) the
beneficial effects of favorable rate adjustments in the adjustable-rate segment
of Madison First's portfolio and (ii) management's belief that any decision to
increase the size of the nonresidential portfolio will not result in material
increases in the provision for loan losses.
<PAGE>
Total interest income amounted to $5.8 million for the year ended December
31, 1995, an increase of $375,000, or 6.9%, over 1994. Interest income on loans
totaled $4.2 million, an increase of $389,000 over the 1994 total. This increase
resulted primarily from growth of $4.2 million in the weighted average balance
outstanding, coupled with an increase in the weighted average yield of 14 basis
points to 7.45% in 1995. Interest income on mortgage-backed securities declined
by $73,000, or 9.8%, from the 1994 amount, due to a $1.7 million decline in the
weighted average balance outstanding, which was partially offset by a 25 basis
point increase in yield to 6.10% in 1995. Interest income on investment
securities and interest-bearing deposits increased by $59,000, or 7.2%, over
1994 due to an increase in yield and an increase in the weighted average balance
outstanding.
Interest expense on deposits increased for the year ended December 31,
1995, by $577,000, or 20.3%, to a total of $3.4 million, compared to $2.8
million in 1994. The increase resulted primarily from a 78 basis point increase
in the weighted average cost of deposits from 3.66% in 1994 to 4.44% in 1995.
The increase in cost of deposits was partially offset by a $720,000 decline in
the weighted average balance outstanding year-to-year. Interest expense on
borrowings increased by $163,000 during 1995 to a total of $175,000. This
increase was due primarily to a $2.7 million increase in borrowings outstanding
during 1995, coupled with a 64 basis point increase in the weighted average cost
of borrowings to 5.90% in 1995. The increases in rates paid on Madison First's
deposit and borrowing portfolios generally reflect the increase in interest
rates in the overall economy during 1995.
As a result of the foregoing changes in interest income and interest
expense, net interest income declined during 1995 by $365,000, or 14.2%, to a
total of $2.2 million. The interest rate spread declined by 64 basis points
during 1995 from 3.00% in 1994 to 2.36% in 1995, while the net interest margin
declined by 54 basis points, from 3.15% in 1994 to 2.61% in 1995.
Other income amounted to $362,000 during the year ended December 31, 1995,
a decrease of $8,000, or 2.2%, from 1994 due primarily to a decline in insurance
commissions year-to-year.
Other expense totaled approximately $2.0 million for the year ended
December 31, 1995, an increase of $108,000, or 5.8%, over the amount recorded
for 1994. The increase resulted primarily from a $110,000, or 12.4%, increase in
employee compensation and benefits, a $19,000, or 9.8%, increase in occupancy
and equipment and a $6,000, or 1.8%, increase in other operating expense, which
were partially offset by a $20,000 decrease in the provision for valuation
decline in mortgage-related securities. The increase in employee compensation
and benefits resulted primarily from an increase in staffing levels and normal
merit salary increases, coupled with a reduction in deferred loan origination
costs, as loan origination volume declined by $3.8 million year-to-year. The
increase in occupancy and equipment expense resulted generally from increases in
the cost of equipment maintenance contracts, while the increase in other
operating expense was due to pro-rata increases in various operating costs
year-to-year.
The provision for income taxes totaled $188,000 for the year ended December
31, 1995, a decline of $224,000, or 54.4%, from the 1994 amount. The decline
resulted primarily from a $602,000, or 57.4%, decrease in earnings before taxes.
Madison First's effective tax rates were 42.2% and 39.3% for the years ended
December 31, 1995 and 1994, respectively.
Comparison of Operating Results For Fiscal Years Ended December 31, 1994 and
1993
Net income for the year ended December 31, 1994, totaled $636,000, a
decrease of $82,000, or 11.4%, from the $718,000 in net earnings recorded in
1993. The decline in net income resulted primarily from a $77,000 decrease in
net interest income and a $56,000 increase in general, administrative and other
expense, which were partially offset by a $26,000 decrease in the provision for
losses on loans and a $44,000 decrease in the provision for income taxes. The
reduction in 1994 earnings was primarily attributable to the increase in the
general level of interest rates in the economy during 1994. Such increase had a
dual detrimental effect on Madison First's net income as both net interest
income and deferred loan origination costs declined.
Total interest income amounted to $5.4 million for the year ended December
31, 1994, a decrease of $265,000, or 4.7%, from 1993. Interest income on loans
totaled $3.9 million, a decline of $298,000, or 7.2%, from the 1993 total. The
decrease resulted from a decline in the average yield of 56 basis points, to
7.31% in 1994 from 7.87% in 1993, as the weighted average outstanding balance
remained constant year-to-year at $52.7 million. Interest income on
mortgage-backed securities decreased by $123,000, or 14.2%, due primarily to a
decline in the average balance outstanding of approximately $2.0 million, as the
weighted average yield remained relatively unchanged over the period. Interest
income on investment securities and interest-bearing deposits increased by
$156,000, or 23.3%, due to a $3.8 million increase in the weighted average
balance outstanding year-to-year.
<PAGE>
Interest expense on deposits declined by $199,000, or 6.5%, during the year
ended December 31, 1994, to a total of $2.8 million, compared to $3.0 million
for 1993. The decrease resulted primarily from a 24 basis point decline in the
weighted average cost of deposits, from 3.90% in 1993, to 3.66% in 1994.
As a result of the foregoing changes in interest income and interest
expense, net interest income decreased by $77,000, or 2.9%, to a total of $2.6
million for the year ended December 31, 1994. The interest rate spread decreased
by 24 basis points, to 3.00% in 1994 from 3.24% in 1993. The net interest margin
decreased by 17 basis points during the period, from 3.32% in 1993 to 3.15% in
1994.
The provision for losses on loans totaled $29,000 for the year ended
December 31, 1994, a decrease of $26,000, or 47.3%, from 1993. The decline in
the provision for 1994 resulted primarily from the decline in net charge-offs,
which totaled $90,000 in 1993 compared to $4,000 in 1994.
Other income totaled $370,000 for the year ended December 31, 1994, an
increase of $6,000, or 1.6%, over the amount recorded for 1993. The increase
resulted primarily from an increase in service fees and other charges on loans
and deposits.
Other expense totaled $1.9 million for the year ended December 31, 1994, an
increase of $56,000, or 3.1%, over the 1993 total. The increase resulted
primarily from a $19,000, or 2.2%, increase in employee compensation and
benefits and a $61,000, or 52.1%, increase in federal deposit insurance
premiums, which were partially offset by a $19,000, or 9.0%, decrease in
occupancy and equipment expense and a $10,000 decline in the provision for
valuation decline on mortgage-related securities. The increase in employee
compensation and benefits was due primarily to normal merit increases and a
decline in deferred loan origination costs attendant to a $4.7 million decline
in loan origination volume. The increase in federal deposit insurance premiums
resulted primarily from the recognition of a credit of $58,000 related to the
FSLIC Secondary Reserve deposit taken in the prior year.
The provision for income taxes totaled $412,000 for the year ended December
31, 1994, a decrease of $19,000, or 4.4%, from the amount recorded in 1993,
after giving effect to the $25,000 cumulative effect recognized in 1993 for
adoption of SFAS No. 109. The decline resulted primarily from a $101,000, or
8.8%, decline in earnings before taxes. Madison First's effective tax rates were
39.3% and 39.7% for the years ended December 31, 1994 and 1993, respectively.
Liquidity and Capital Resources
Madison First's primary sources of funds are deposits, borrowings, proceeds
from principal and interest payments on loans and proceeds from maturing
securities. While maturities and scheduled amortization of loans are a
predictable source of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions, and competition.
The primary investing activity of Madison First is the origination of
loans. During the years ended December 31, 1995, 1994 and 1993, Madison First
originated total loans in the amounts of $15.6 million, $19.4 million and $24.1
million, respectively. Loan principal repayments totaled $13.7 million, $15.0
million and $25.7 million during the respective periods.
During the six-month periods ended June 30, 1996 and 1995, Madison First
originated loans of $7.3 million and $7.8 million, respectively. Loan principal
repayments totaled $7.7 million and $7.1 million, respectively, during these
periods.
During the years ended December 31, 1994 and 1993, Madison First purchased
securities (including mortgage-backed securities) in the amounts of $4.6 and
$12.4 million, respectively. Maturities and repayments of securities were $2.4
million in 1995, $2.6 million in 1994 and $7.9 million in 1993.
Madison First had outstanding loan commitments of $1.0 million and unused
lines of credit of $207,000 at June 30, 1996. Madison First anticipates that it
will have sufficient funds from loan repayments to meet its current commitments
without having to borrow additional funds from the FHLB of Indianapolis.
Certificates of deposit scheduled to mature in one year or less at June 30, 1996
totaled $30.7 million. Management believes that a significant portion of such
deposits will remain with Madison First based upon historical deposit flow data
and Madison First's competitive pricing in its market area.
Liquidity management is both a daily and long-term function of Madison
First's management strategy. In the event that Madison First should require
funds beyond its ability to generate them internally, additional funds are
available through the use of FHLB advances and through sales of securities.
Madison First had no outstanding FHLB advances at June 30, 1996.
<PAGE>
The following is a summary of cash flows for Madison First, which are of
three major types. Cash flows from operating activities consist primarily of net
income generated by cash. Investing activities generate cash flows through the
origination and principal collection on loans as well as purchases and sales of
securities. Investing activities will generally result in negative cash flows
when Madison First is experiencing loan growth. Cash flows from financing
activities include savings deposits, withdrawals and maturities and changes in
borrowings. The following table summarizes cash flows for each of the six-month
periods ended June 30, 1996 and 1995 and each of the three years in the
three-year period ended December 31, 1995.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
------------------- --------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating activities.................... $ 218 $ 162 $ 459 $ 774 $ 862
Investing activities:
Investment purchases................. --- --- --- (4,592) (8,499)
Investment maturities/sales.......... 3,000 101 1,101 --- 4,500
Mortgage-backed
securities purchases............... --- --- --- --- (3,918)
Mortgage-backed
securities repayments.............. 1,228 533 1,417 2,576 3,399
Changes in loans..................... 475 (745) (1,892) (4,446) 1,562
Other................................ (100) 36 (22) (108) (400)
Financing activities:
Deposit increase/(decrease).......... (506) 4,053 (224) (2,624) 1,393
Borrowings increase/(decrease)....... (4,471) (2,986) (515) 4,986 ---
Other................................ 9 3 (1) (3) 2
------ ------- -------- ------- -------
Net increase/(decrease) in cash
and cash equivalents................. $ (147) $ 1,157 $ 323 $(3,437) $(1,099)
====== ======= ======== ======= =======
</TABLE>
Federal regulations require FHLB-member savings associations to maintain an
average daily balance of liquid assets equal to a monthly average of not less
than a specified percentage of its net withdrawable savings deposits plus
short-term borrowings. Liquid assets include cash, certain time deposits,
certain bankers' acceptances, specified U.S. government, state or federal agency
obligations, certain corporate debt securities, commercial paper, certain mutual
funds, certain mortgage-related securities, and certain first lien residential
mortgage loans. This liquidity requirement may be changed from time-to-time by
the OTS to any amount within the range of 4% to 10%, and is currently 5%. Also,
a savings association currently must maintain short-term liquid assets
constituting at least 1% of its average daily balance of net withdrawable
deposit accounts and current borrowings. Monetary penalties may be imposed for
failure to meet these liquidity requirements. As of June 30, 1996, Madison First
had liquid assets of $21 million, and a regulatory liquidity ratio of 26.7%, of
which 5.4% constituted short-term investments.
Pursuant to OTS capital regulations, savings associations must currently
meet a 1.5% tangible capital requirement, a 3% leverage ratio (or core capital)
requirement, and a total risk-based capital to risk-weighted assets ratio of 8%.
At June 30, 1996, Madison First's tangible capital ratio was 8.1%, its core
capital ratio was 8.1%, and its risk-based capital to risk-weighted assets ratio
was 16.9%. Therefore, at June 30, 1996, Madison First's capital exceeded all of
its capital requirements currently in effect. The following table provides the
minimum regulatory capital requirements and Madison First's capital ratios as of
June 30, 1996:
<PAGE>
<TABLE>
<CAPTION>
At June 30, 1996
-------------------------------------------------------------------------------
OTS Requirement Madison First's Capital Level
------------------------- ---------------------------------------------
% of % of Amount
Capital Standard Assets Amount Assets(1) Amount of Excess
- ---------------- ------ ------ --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tangible capital............................ 1.5% $1,229 8.1% $6,599 $5,370
Core capital (2)............................ 3.0 2,457 8.1 6,599 4,142
Risk-based capital.......................... 8.0 3,322 16.9 7,011 3,689
</TABLE>
(1) Tangible and core capital levels are shown as a percentage of total assets;
risk-based capital levels are shown as a percentage of risk-weighted
assets.
(2) The OTS has proposed and is expected to adopt a core capital requirement
for savings associations comparable to that recently adopted by the OCC for
national banks. The new regulation, as proposed, would require at least 3%
of total adjusted assets for savings associations that received the highest
supervisory rating for safety and soundness, and 4% to 5% for all other
savings associations. The final form of such new OTS core capital
requirement may differ from that which has been proposed. Madison First
expects to be in compliance with such new requirements. See "Regulation --
Regulatory Capital."
(3) Madison First's risk-based capital includes $412,000 of general valuation
allowances.
For definitions of tangible capital, core capital and risk-based capital,
see "Regulation -- Savings Association Regulatory Capital."
As of June 30, 1996, management is not aware of any current recommendations
by regulatory authorities which, if they were to be implemented, would have, or
are reasonably likely to have, a material adverse effect on Madison First's
liquidity, capital resources or results of operations.
Current Accounting Issues
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." In October 1994, the FASB issued SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure," which amends SFAS No. 114 to allow a creditor to use existing
methods for recognizing interest income on impaired loans. SFAS No.114, as
amended by SFAS No. 118 as to certain income recognition provisions and
financial statement disclosure requirements, is applicable to all creditors and
to all loans that are individually and specifically evaluated for impairment,
uncollateralized as well as collateralized, except those loans that are
accounted for at fair value or at the lower of cost or fair value. This
Statement requires that the expected loss of interest income on nonperforming
loans be taken into account when calculating loans loss reserves and that
specified impaired loans be measured based upon the present value of expected
future cash flows discounted at the loan's effective interest rate or, as an
alternative, at the loan's observable market price or fair value of the
collateral if the loan is collateral dependent. Madison First's loans which may
be affected are collateral dependent, and Madison First's current procedures for
evaluating impaired loans result in carrying such loans at the lower of cost or
fair value. Management adopted SFAS No. 114 on January 1, 1995, without a
significant detrimental effect on Madison First's overall consolidated financial
position or results of operations.
In May, 1995, the FASB issued SFAS No. 122 "Accounting for Mortgage
Servicing Rights," which requires that Madison First recognize as separate
assets, rights to service mortgage loans for others, regardless of how those
servicing rights are acquired. An institution that acquires mortgage servicing
rights through either the purchase or origination of mortgage loans and sells
those loans with servicing rights retained would allocate some of the cost of
the loans to the mortgage servicing rights.
SFAS No. 122 requires that securitizations of mortgage loans be accounted
for as sales of mortgage loans and acquisitions of mortgage-backed securities.
Additionally, SFAS No. 122 requires that capitalized mortgage servicing rights
and capitalized excess servicing rights be assessed for impairment. Impairment
is measured based on value.
SFAS No. 122 was effective for years beginning after December 15, 1995
(January 1, 1996, as to Madison First), for transactions in which an entity
acquires mortgage servicing rights and to impairment evaluations of all
capitalized mortgage servicing rights and capitalized excess servicing
receivables whenever acquired. Retroactive application is prohibited, and
earlier adoption is encouraged. Currently, Madison First does not sell any
loans; therefore, the provisions of SFAS No. 122 were adopted without material
effect.
In October, 1995, the FASB issued SFAS No. 123 entitled "Accounting for
Stock-Based Compensation." SFAS No. 123 establishes a fair value based method of
accounting and disclosing the amount of stock-based compensation paid to
employees. SFAS No. 123 recognizes the fair value of an award of stock or stock
options on the grant date and is required to be adopted
<PAGE>
by 1996, although earlier application is permitted. The disclosure provisions of
SFAS No. 123 will be adopted by management upon completion of the Conversion.
Management does not believe that adoption of SFAS No. 123 disclosure provisions
will have a material adverse effect on Madison First's consolidated financial
position or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers of
Financial Assets, Servicing Rights and Extinguishment of Liabilities," that
provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes use of
special purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting method, the
financial components approach, provides that the carrying amount of the
financial assets transferred be allocated to components of the transaction based
on their relative fair values. SFAS No. 125 provides criteria for determining
whether control of assets has been relinquished and whether a sale has occurred.
If the transfer does not qualify as a sale, it is accounted for as a secured
borrowing. Transactions subject to the provisions of SFAS No. 125 include, among
others, transfers involving repurchase agreements, securitizations of financial
assets, loan participations, factoring arrangements, and transfers of
receivables with recourse. An entity that undertakes an obligation to service
financial assets recognizes either a servicing asset or liability for the
servicing contract (unless related to a securitization of assets, and all the
securitized assets are retained and classified as held-to-maturity). A servicing
asset or liability that is purchased or assumed is initially recognized at its
fair value. Servicing assets and liabilities are amortized in proportion to and
over the period of estimated net servicing income or net servicing loss and are
subject to subsequent assessments for impairment based on fair value. SFAS No.
125 provides that a liability is removed from the balance sheet only if the
debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor. SFAS No. 125 is
effective for transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted. Management
does not believe that adoption of SFAS No. 125 will have a material adverse
effect on Madison First's financial position or results of operations.
Impact of Inflation
The consolidated financial statements presented herein have been prepared
in accordance with generally accepted accounting principles. 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.
The primary assets and liabilities of financial institutions such as
Madison First are monetary in nature. As a result, interest rates have a more
significant impact on Madison First'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 structures of Madison First's
assets and liabilities are critical to the maintenance of acceptable performance
levels.
The principal effect of inflation, as distinct from levels of interest
rates, on earnings is in the area of noninterest expense. Such expense items 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 made by Madison First. Madison First is unable to determine the
extent, if any, to which properties securing Madison First's loans have
appreciated in dollar value due to inflation.
BUSINESS OF MADISON FIRST
General
Madison First was organized as a federally chartered savings and loan
association in 1875 and currently conducts its business from three full-service
offices and one stand-alone drive-through branch all located in Jefferson
County. However, as a condition to the Holding Company obtaining the requisite
approval for the Acquisition from the FRB, the Holding Company committed to
cause Madison First to (i) enter into a definitive agreement to sell Madison
First's Hanover, Indiana branch prior to consummation of the Acquisition and
(ii) complete the sale of the Hanover, Indiana branch, including the physical
facilities and at least $7.5 million of deposits originated at that branch,
within 180 days of consummation of the Acquisition. In the event Madison First
does not complete the divestiture of its Hanover branch within 180 days of the
consummation of the Acquisition, the Hanover branch will be placed in trust, and
an independent trustee will proceed with an immediate disposition
<PAGE>
of the Hanover branch without regard to price. See "Risk Factors -- Divestiture
of Hanover Branch." Madison First's principal business consists of attracting
deposits from the general public and originating fixed-rate and adjustable-rate
loans secured primarily by first mortgage liens on one- to four-family real
estate. Madison First's deposit accounts are insured up to applicable limits by
the SAIF of the FDIC.
Madison First is the oldest independent financial institution headquartered
in Jefferson County, Indiana. Management believes Madison First has developed a
solid reputation among its loyal customer base because of its commitment to
personal service and its strong support of the local community. Madison First
offers a number of consumer and commercial financial services. These services
include: (i) residential real estate loans; (ii) indemnification mortgage loans;
(iii) construction loans; (iv) loans secured by deposits; (v) nonresidential
real estate loans; (vi) multi-family loans; (vii) land loans; (viii) installment
loans; (ix) automobile loans; (x) home equity loans; (xi) second mortgage loans;
(xii) NOW accounts; (xiii) money market demand accounts ("MMDAs") (xiv) passbook
savings accounts; (xv) certificates of deposit and (xvi) individual retirement
accounts.
Lending Activities
Madison First historically has concentrated its lending activities on the
origination of loans secured by first mortgage liens for the purchase,
construction or refinancing of one- to four-family residential real property.
One- to four-family residential mortgage loans continue to be the major focus of
Madison First's loan origination activities, representing 76.5% of Madison
First's total loan portfolio at June 30, 1996. Madison First also offers
multi-family mortgage loans, nonresidential real estate loans, land loans,
construction loans and consumer loans. Mortgage loans secured by multi-family
properties and nonresidential real estate totaled approximately 2.6% and 11.3%,
respectively, of Madison First's total loan portfolio at June 30, 1996. Land
loans totaled approximately 1.1% of Madison First's total loan portfolio at the
same date. Construction loans totaled approximately 2.4% of Madison First's
total loans as of June 30, 1996. Consumer loans constituted approximately 6.1%
of Madison First's total loan portfolio at June 30, 1996.
Loan Portfolio Data. The following table sets forth the composition of
Madison First's loan portfolio by loan type as of the dates indicated, including
a reconciliation of gross loans receivable after consideration of the allowance
for loan losses, deferred loan origination costs and loans in process.
<TABLE>
<CAPTION>
At December 31,
At June 30, --------------------------------------------------------------
1996 1995 1994 1993
------------------ ------------------ ----------------- ------------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ --------
TYPE OF LOAN (Unaudited) (Dollars in thousands)
Residential real estate:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to four-family..................... $44,517 76.5% $44,417 74.7% $46,378 81.5% $45,206 86.3%
Multi-family........................... 1,529 2.6 1,613 2.7 1,242 2.2 912 1.7
Construction........................... 1,406 2.4 2,489 4.2 748 1.3 809 1.5
Nonresidential real estate................ 6,596 11.3 6,005 10.1 4,740 8.3 2,945 5.6
Land loans................................ 638 1.1 1,558 2.6 1,034 1.8 91 0.2
Consumer loans:
Automobile loans....................... 1,451 2.5 1,392 2.3 1,022 1.8 978 1.9
Loans secured by deposits.............. 532 0.9 590 1.0 527 0.9 591 1.1
Home improvement loans................. 303 0.5 295 0.5 270 0.5 171 0.3
Other.................................. 1,271 2.2 1,129 1.9 977 1.7 717 1.4
Gross loans receivable.................... 58,243 100.0 59,488 100.0 56,938 100.0 52,420 100.0
Add/(Deduct):
Deferred loan orgination costs......... 226 0.4 234 0.4 243 0.4 236 0.4
Undisbursed portions
of loans in process.................. (604) (1.0) (1,370) (2.3) (642) (1.1) (459) (0.9)
Allowance for loan losses.............. (416) (0.7) (407) (0.7) (252) (0.4) (227) (0.4)
------- ---- ------- ---- ------- ---- ------- ----
Net loans receivable...................... $57,449 98.7% $57,945 97.4% $56,287 98.9% $51,970 99.1%
======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
The following table sets forth certain information at December 31, 1995,
regarding the dollar amount of loans maturing in Madison First's loan portfolio
based on the contractual terms to maturity. Demand loans having no stated
schedule of repayments and no stated maturity and overdrafts are reported as due
in one year or less. This schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses. Management expects
prepayments will cause actual maturities to be shorter.
<PAGE>
<TABLE>
<CAPTION>
Due During Years Ended December 31,
Balance ------------------------------------------------------------------------
Outstanding at 1999 2001 2006 2011
December 31, to to to and
1995 1996 1997 1998 2000 2005 2010 following
---- ---- ---- ---- ---- ---- ---- ---------
(In thousands)
Residential real estate loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to four-family................. $44,417 $ 526 $144 $ 339 $ 725 $ 710 $18,536 $23,437
Multi-family.......................... 1,613 --- --- 3 11 146 668 785
Construction....................... 2,489 800 --- --- --- --- 919 770
Nonresidential
real estate loans.................. 6,005 3 4 37 85 1,663 3,203 1,010
Land loans ......................... 1,558 800 7 9 546 98 98 ---
Consumer loans:
Loans secured by deposits.......... 590 482 25 29 20 32 2 ---
Other loans........................ 2,816 267 336 501 1,670 42 --- ---
------- ------ ---- ----- ------- ------- -------- -------
Total............................ $59,488 $2,878 $516 $ 918 $ 3,057 $ 2,691 $ 23,426 $26,002
======= ====== ==== ===== ======= ======= ======== =======
</TABLE>
The following table sets forth, as of December 31, 1995, the dollar amount
of all loans due after one year that have fixed interest rates and floating or
adjustable interest rates.
<TABLE>
<CAPTION>
Due After December 31, 1996
--------------------------------------------------------------
Fixed Rates Variable Rates Total
----------- -------------- -----
(In thousands)
Residential real estate loans:
<S> <C> <C> <C>
One-to four-family................................ $14,298 $29,592 $43,890
Multi-family...................................... --- 1,613 1,613
Construction...................................... 680 1,009 1,689
Non-residential
real estate loans................................. 41 5,961 6,002
Land loans ........................................ 14 745 759
Consumer loans:
Loans secured by deposits......................... --- 108 108
Other loans....................................... 2,549 --- 2,549
------- ------- -------
Total........................................... $17,582 $39,028 $56,610
======= ======= =======
</TABLE>
Residential Loans. Residential loans consist primarily of one- to
four-family loans. Approximately $44.5 million, or 76.5% of Madison First's
portfolio of loans at June 30, 1996, consisted of one- to four-family
residential loans, of which approximately 70% had adjustable rates. Pursuant to
federal regulations, such loans must require at least semi-annual payments and
be for a term of not more than 40 years, and, if the interest rate is
adjustable, it must be correlated with changes in a readily verifiable index.
Madison First currently offers adjustable-rate one- to four-family
residential mortgage loans ("ARMs") which adjust annually and are indexed to the
one-year U.S. Treasury securities yields adjusted to a constant maturity,
although until late 1995 Madison First's ARMs were indexed to the 11th District
Cost of Funds. Madison First's residential ARMs are originated at a discount or
"teaser" rate which is generally 150 to 175 basis points below the "fully
indexed" rate. These ARMs then adjust annually to maintain a margin above the
applicable index, subject to maximum rate adjustments discussed below. Madison
First's ARMs have a current margin above such index of 2.5% for owner-occupied
properties and 3.75% for non-owner-occupied properties. A substantial portion of
the ARMs in Madison First's portfolio at June 30, 1996 provide for maximum rate
adjustments per year and over the life of the loan of 1% and 5%, respectively,
although Madison First recently began originating residential ARMs which provide
for maximum rate adjustments per year and over the life of the loan of 1.5% and
6%, respectively. Madison First's residential ARMs are amortized for terms up to
30 years.
Adjustable-rate loans decrease the risk associated with changes in interest
rates but involve other risks, primarily because as interest rates rise, the
payments by the borrowers may rise to the extent permitted by the terms of the
loan, thereby increasing the potential for default. Also, adjustable-rate loans
have features which restrict changes in interest rates on a short-term basis and
over the life of the loan. At the same time, the market value of the underlying
property may be adversely affected by higher interest rates.
<PAGE>
Madison First also currently offers fixed-rate one- to four-family
residential mortgage loans which provide for the payment of principal and
interest over periods of 10 to 20 years. Historically, Madison First has
retained all of its fixed-rate residential mortgage loans in its portfolio;
however, Madison First anticipates beginning to originate its fixed-rate
residential mortgage loans with terms of 15 years and greater for sale to the
Federal Home Loan Mortgage Corporation (the "FHLMC") on a servicing-retained
basis during the fourth quarter of 1996. See "-- Origination, Purchase and Sale
of Loans." At June 30, 1996, approximately 30% of Madison First's residential
mortgage loans had fixed rates.
Madison First does not currently originate residential mortgage loans if
the ratio of the loan amount to the lesser of the current cost or appraised
value of the property (i.e., the "Loan-to-Value Ratio") exceeds 95%. Madison
First generally requires private mortgage insurance on all conventional one- to
four-family residential real estate mortgage loans with Loan-to-Value Ratios of
in excess of 80%. The cost of such insurance is factored into the APY on such
loans, and is not automatically eliminated when the principal balance is reduced
over the term of the loan.
Substantially all of the one- to four-family residential mortgage loans
that Madison First originates include "due-on-sale" clauses, which give Madison
First the right to declare a loan immediately due and payable in the event that,
among other things, the borrower sells or otherwise disposes of the real
property subject to the mortgage and the loan is not repaid. However, Madison
First does permit assumptions of existing residential mortgage loans on a
case-by-case basis.
Madison First's residential mortgage loans historically have not been
originated on terms and conditions and using documentation that conform with the
standard underwriting criteria required to sell such loans on the secondary
market. However, Madison First has been approved to originate and sell its
residential mortgage loans to the FHLMC, and anticipates beginning to originate
its fixed-rate residential mortgage loans with terms of 15 years and greater for
sale to the FHLMC on a servicing-retained basis during the fourth quarter of
1996. See "-- Origination, Purchase and Sale of Loans."
Madison First also offers indemnification mortgage loans ("ID Mortgage
Loans"), which are typically written as fixed-rate second mortgage loans.
Madison First's ID Mortgage Loans are written for terms of 5 years and generally
have maximum Loan-to-Value Ratios of 80%.
Madison First also offers standard second mortgage loans. Madison First's
second mortgage loans are adjustable-rate loans tied to the U.S. Treasury
securities yields adjusted to a constant maturity and have a current margin
above such index of 4.25%. If another institution holds the first mortgage, the
initial interest rate on the second mortgage loan is set 50 basis points higher.
Madison First's second mortgage loans have maximum rate adjustments per year and
over the terms of the loans equal to 1.5% and 6%, respectively. Madison First's
second mortgage loans have terms of 10 to 20 years.
At June 30, 1996, one- to four-family residential mortgage loans amounting
to $220,000, or .38% of total loans, were included in non-performing assets. See
"-- Non-Performing and Problem Assets."
Construction Loans. Madison First offers construction loans with respect to
residential and nonresidential real estate and, in certain cases, to builders or
developers constructing such properties on a speculative basis (i.e., before the
builder/developer obtains a commitment from a buyer). At June 30, 1996,
approximately $1.4 million, or 2.4% of Madison First's total loan portfolio,
consisted of construction loans. The largest construction loan at June 30, 1996,
totalling $800,000, constituted a loan to a church in Madison, Indiana. No
construction loans were included in non-performing assets on that date.
Generally, construction loans are written as 12 month fixed-rate loans with
interest calculated on the amount disbursed under the loan and payable on a
semi-annual basis. Madison First generally requires an 80% Loan-to-Value Ratio
for its construction loans. Inspections are made prior to any disbursement under
a construction loan, and Madison First does not charge commitment fees for its
construction loans.
While providing Madison First with a comparable, and in some cases higher,
yield than a conventional mortgage loan, construction loans involve a higher
level of risk. For example, if a project is not completed and the borrower
defaults, Madison First may have to hire another contractor to complete the
project at a higher cost. Also, a project may be completed, but may not be
salable, resulting in the borrower defaulting and Madison First taking title to
the project.
Nonresidential Real Estate Loans. At June 30, 1996, approximately $6.6
million, or 11.3% of Madison First's total loan portfolio, consisted of
nonresidential real estate loans. Of these loans, approximately $330,000
constituted participations in loans secured by nonresidential real estate which
were purchased from other financial institutions. See "-- Origination, Purchase
and Sale of Loans." The nonresidential real estate loans included in Madison
First's portfolio are primarily secured by real estate such as churches and
small business properties. Madison First generally originates nonresidential
real estate
<PAGE>
loans as one-year adjustable-rate loans indexed to the one-year U.S. Treasury
securities yields adjusted to a constant maturity and are written for maximum
terms of 20 years and with maximum Loan-to-Value Ratios of 80%. Madison First's
nonresidential real estate loans have a margin above such index of 4.25%, and
maximum adjustments per year and over the life of the loan of 1.5% and 6%,
respectively. Madison First underwrites these loans on a case-by-case basis and,
in addition to its normal underwriting criteria, Madison First evaluates the
borrower's ability to service the debt from the net operating income of the
property. The largest nonresidential real estate loan as of June 30, 1996 was
$825,000 and was secured by a storage facility in Clarksville, Indiana. On the
same date, there were no nonresidential real estate loans included in
non-performing assets.
Loans secured by nonresidential real estate generally are larger than one-
to four-family residential loans and involve a greater degree of risk.
Nonresidential real estate loans often involve large loan balances to single
borrowers or groups of related borrowers. Payments on these loans depend to a
large degree on results of operations and management of the properties and may
be affected to a greater extent by adverse conditions in the real estate market
or the economy in general. Accordingly, the nature of the loans makes them more
difficult for management to monitor and evaluate.
Multi-Family Loans. At June 30, 1996, approximately $1.5 million, or 2.6%
of Madison First's total loan portfolio, consisted of mortgage loans secured by
multi-family dwellings (those consisting of more than four units). Madison
First's multi-family loans are written on terms and conditions similar to
Madison First's nonresidential real estate loans. The largest multi-family loan
as of June 30, 1996 was $729,000 and was secured by an apartment building in
Lawrenceburg, Indiana. On the same date, there were no multi-family loans
included in non-performing assets.
Multi-family loans, like nonresidential real estate loans, involve a
greater risk than do residential loans. See "-- Nonresidential Real Estate
Loans" above. Also, the loans-to-one borrowers limitation limits the ability of
Madison First to make loans to developers of apartment complexes and other
multi-family units.
Land Loans. At June 30, 1996, approximately $638,000, or 1.1% of Madison
First's total loan portfolio, consisted of mortgage loans secured by undeveloped
real estate. Madison First's land loans are generally written on terms and
conditions similar to Madison First's nonresidential real estate loans. Some of
Madison First's land loans are land development loans; i.e., the proceeds of the
loans are used for improvements to the real estate such as streets and sewers.
At June 30, 1996, Madison First's largest land loan totalled $432,000.
While none of Madison First's land development loans were included in
non-performing assets as of June 30, 1996, such loans are more risky than
conventional loans since land development borrowers who are over budget may
divert the loan funds to cover cost-overruns rather than direct them toward the
purpose for which such loans were made. In addition, those loans are more
difficult to monitor than conventional mortgage loans. As such, a defaulting
borrower could cause Madison First to take title to partially improved land that
is unmarketable without further capital investment.
Consumer Loans. Federal laws and regulations permit federally chartered
savings associations to make secured and unsecured consumer loans in an
aggregate amount of up to 35% of the association's total assets. In addition, a
federally chartered savings association has lending authority above the 35%
limit for certain consumer loans, such as property improvement loans and deposit
account loans. However, the Qualified Thrift Lender test places additional
limitations on a savings association's ability to make consumer loans. See
"Regulation -- Qualified Thrift Lender."
Madison First's consumer loans, consisting primarily of auto loans, home
improvement loans and loans secured by deposits, aggregated approximately $3.6
million at June 30, 1996, or 6.1% of Madison First's total loan portfolio.
Madison First consistently originates consumer loans to meet the needs of its
customers and to assist in meeting its asset/liability management goals. All of
Madison First's consumer loans, except loans secured by deposits, are fixed-rate
loans with terms that vary from six months (for unsecured installment loans) to
60 months (for home improvement loans and loans secured by new automobiles).
Madison First does not make indirect automobile loans. At June 30, 1996, 91% of
Madison First's consumer loans were secured by collateral.
Madison First's loans secured by deposits are made up to 90% of the
original account balance and accrue at a rate of 2% over the underlying passbook
or certificate of deposit rate. Interest on loans secured by deposits is paid
semi-annually.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans which are unsecured or are secured by
rapidly depreciable assets, such as automobiles. Further, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be affected
<PAGE>
by adverse personal circumstances. Furthermore, the application of various
federal and state laws, including bankruptcy and insolvency laws, may limit the
amount which can be recovered on such loans. At June 30, 1996, consumer loans
amounting to $3,000 were included in non-performing assets. See "--
Non-Performing and Problem Assets." There can be no assurances, however, that
additional delinquencies will not occur in the future.
Home Equity Loans. In May, 1996, Madison First began offering a new home
equity line of credit. This line of credit is written with a fixed rate of 1%
below the prime rate for the first year. Thereafter, the line is an
adjustable-rate line of credit tied to the prime rate with a margin of positive
1%. Madison First's home equity loans have interest rate minimums of 7.5% and
interest rate maximums of 18%. Madison First's home equity loans are amortized
based on a 20 year maturity and are generally not written in principal amounts
of less than $5,000. Madison First generally requires an 80% Loan-to-Value Ratio
for its home equity loans (taking into account any other mortgages on the
property).
Madison First's previous home equity line of credit was an adjustable-rate
line of credit tied to the prime rate with varying margins up to 3%, depending
on the amount committed under the line of credit. These lines of credit had
interest rate minimums of 8.5% and interest rate maximums of 18%. Madison
First's previous home equity lines were not written in amounts less than $5,000.
At June 30, 1996, Madison First had outstanding approximately $79,000 of
home equity loans, with unused lines of credit totalling approximately $285,000.
No home equity loans were included in non-performing assets on that date.
Origination, Purchase and Sale of Loans. Madison First historically has
originated its mortgage loans pursuant to its own underwriting standards which
were not in conformity with the standard criteria of the FHLMC or Federal
National Mortgage Association ("FNMA"). If it desired to sell its mortgage
loans, Madison First might therefore experience some difficulty selling such
loans quickly in the secondary market. Madison First's ARMs vary from secondary
market criteria because, among other things, Madison First does not require
current property surveys in most cases and does not permit the conversion of
those loans to fixed rate loans in the first three years of their term.
Madison First recently was approved to begin originating fixed-rate
residential mortgage loans for sale to the FHLMC on a servicing-retained basis.
Madison First anticipates beginning this fixed-rate program during the fourth
quarter of 1996. Loans originated for sale to the FHLMC in the secondary market
will be originated in accordance with the guidelines established by the FHLMC
and will be sold promptly after they are originated. Madison First will receive
a servicing fee of one-fourth of 1% of the principal balance of all loans
serviced.
Madison First confines its loan origination activities primarily to
Jefferson County. At June 30, 1996, loans totalling approximately $2.4 million
were secured by property located outside of Indiana. Madison First's loan
originations are generated from referrals from existing customers, real estate
brokers, and newspaper and periodical advertising. Loan applications are
underwritten at any of Madison First's three full-service offices and are
processed at Madison First's downtown office.
Madison First's loan approval process is intended to assess the borrower's
ability to repay the loan, the viability of the loan and the adequacy of the
value of the property that will secure the loan. To assess the borrower's
ability to repay, Madison First studies the employment and credit history and
information on the historical and projected income and expenses of its
mortgagors. All mortgage loans are approved by Madison First's Loan Committee.
Consumer loans up to $15,000 may be approved by a Loan Officer. Consumer loans
for more than $15,000 must be approved by the President. Madison First qualifies
all residential ARM loan borrowers based upon a fully-indexed interest rate
rather than the initial discounted or teaser rate.
Madison First generally requires appraisals on all real property securing
its loans and requires an attorney's opinion and a valid lien on its mortgaged
real estate. Appraisals for all real property securing mortgage loans are
performed by independent appraisers who are state-licensed. Madison First
requires fire and extended coverage insurance in amounts at least equal to the
principal amount of the loan and also requires flood insurance to protect the
property securing its interest if the property is in a flood plain. Madison
First also generally requires private mortgage insurance for all residential
mortgage loans with Loan-to-Value Ratios of greater than 80%. Madison First does
not require escrow accounts for insurance premiums or taxes.
Madison First's underwriting standards for consumer loans are intended to
protect against some of the risks inherent in making consumer loans. Borrower
character, paying habits and financial strengths are important considerations.
Madison First occasionally purchases participations in commercial loans,
nonresidential real estate and multi-family loans from other financial
institutions. At June 30, 1996, Madison First held in its loan portfolio
participations in nonresidential real estate mortgage loans aggregating
approximately $330,000 that it had purchased, all of which were serviced by
others. Madison First generally does not sell participations in any loans that
it originates.
<PAGE>
The following table shows loan origination and repayment activity for
Madison First during the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
--------------------- -----------------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
Loans Originated:
<S> <C> <C> <C> <C> <C>
Residential real estate loans................. $5,147 $4,319 $ 8,023 $12,097 $20,284
Multi-family loans............................ --- --- --- 758 57
Construction loans............................ 626 2,017 3,027 2,415 1,046
Non-residential real estate loans............. 55 193 1,805 1,031 1,211
Land loans.................................... 98 --- 333 981 91
Consumer loans................................ 1,328 1,285 2,412 2,137 1,419
------ ------- -------- -------- --------
Total originations........................ 7,254 7,814 15,600 19,419 24,108
Reductions:
Principal loan repayments..................... 7,729 7,069 13,708 14,973 25,670
Transfers from loans to real estate owned..... --- --- --- 15 35
------ ------- -------- -------- --------
Total reductions.......................... 7,729 7,069 13,708 14,988 25,705
Decrease in other items (1)................... (21) (4) (234) (114) (118)
------ ------- -------- -------- --------
Net increase (decrease) ...................... $ (496) $ 741 $ 1,658 $ 4,317 $ (1,715)
====== ======= ======== ======== ========
</TABLE>
(1) Other items consist of amortization of deferred loan origination costs and
the provision for losses on loans.
Madison First's residential loan originations during the year ended
December 31, 1995 totalled $8.0 million, compared to $12.1 million and $20.3
million in the years ended December 31, 1994 and 1993, respectively. The
decrease in residential loan origination from 1993 to 1995 was primarily
attributable to the substantial amount of refinancings during the lower interest
rate environment in 1993 which are reflected as originations in such year.
Refinancing activities decreased as a result of the less favorable interest rate
environment during 1994 and 1995. Madison First also experienced some decline in
its residential loan originations during 1994 and 1995 as a result of Madison
First not offering long-term (i.e., 30 year) fixed-rate residential loans.
During this time, demand for long-term fixed-rate loans increased, and because
Madison First did not offer such loans, it was unable to benefit from the
increased demand.
Origination and Other Fees. Madison First realizes income from late
charges, checking account service charges, and fees for other miscellaneous
services. Madison First does not currently charge any origination fees or points
on its loans. Late charges are generally assessed if payment is not received
within a specified number of days after it is due. The grace period depends on
the individual loan documents.
Non-Performing and Problem Assets
Mortgage loans are reviewed by Madison First on a regular basis and are
placed on a non-accrual status when management determines that the
collectability of the interest is less than probable or collection of any amount
of principal is in doubt. Generally, when loans are placed on non-accrual
status, unpaid accrued interest is written off, and further income is recognized
only to the extent received. Delinquency notices are sent with respect to all
mortgage loans contractually past due 15 days. When loans are 45 days in
default, additional delinquency notices are sent and personal contact is made
with the borrowers to establish acceptable repayment schedules. When loans are
60 days in default, contact is again made with the borrowers to establish
acceptable repayment schedules. Management is authorized to commence foreclosure
proceedings for any loan upon making a determination that it is prudent to do
so.
Consumer loans are treated similarly. Interest income on consumer and other
nonmortgage loans is accrued over the term of the loan except when serious doubt
exists as to the collectibility of a loan, in which case accrual of interest is
discontinued. It is Madison First's policy to recognize losses on these loans as
soon as they become apparent.
Non-performing Assets. At June 30, 1996, $223,000, or .27% of Madison
First's total assets, were non-performing assets (non-performing loans and
non-accruing loans) compared to $8,000, or .01%, of Madison First's total assets
at December 31, 1995. At June 30, 1996, residential loans and consumer loans
accounted for $220,000 and $3,000, respectively, of non-performing assets. There
were no REO or non-accruing investments at June 30, 1996.
<PAGE>
The table below sets forth the amounts and categories of Madison First's
non-performing assets (non-performing loans, foreclosed real estate and troubled
debt restructurings) for the last three years. It is the policy of Madison First
that all earned but uncollected interest on all loans be reviewed monthly to
determine if any portion thereof should be classified as uncollectible for any
loan past due in excess of 90 days.
<TABLE>
<CAPTION>
At December 31,
At June 30, ---------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
(Unaudited) (Dollars in thousands)
Non-performing assets:
<S> <C> <C> <C> <C>
Non-performing loans................................ $223 $ 8 $ 13 $ 7
Troubled debt restructurings........................ --- --- --- ---
---- ---- ---- ----
Total non-performing loans........................ 223 8 13 7
Foreclosed real estate.............................. --- --- --- ---
---- ---- ---- ----
Total non-performing assets....................... $223 $ 8 $ 13 $ 7
==== ==== ==== ====
Non-performing loans to total loans.................... 0.38% 0.01% 0.02% 0.01%
==== ==== ==== ====
Non-performing assets to total assets.................. 0.27% 0.01% 0.01% 0.01%
==== ==== ==== ====
</TABLE>
At June 30, 1996, Madison First held loans delinquent from 30 to 89 days
totalling $509,000. Madison First was not aware of any other loans, the
borrowers of which were experiencing financial difficulties. In addition there
were no other assets that would need to be disclosed as non-performing assets.
<PAGE>
<TABLE>
<CAPTION>
At June 30, 1996 At December 31, 1995
------------------------------------------------- ------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------- ------------------------- ----------------------- -----------------------
Principal Principal Principal Principal
Number Balance of Number Balance of Number Balance of Number Balance of
of Loans Loans of Loans Loans of Loans Loans of Loans Loans of
-------- ----- -------- ----- -------- ----- -------- ----- --
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real
estate loans............ 1 $49 6 $ 127 3 $ 61 5 $118
Multi-family loans......... --- --- --- --- --- --- --- ---
Construction loans......... --- --- --- --- 1 390 --- ---
Non-residential
real estate loans....... --- --- 1 114 --- --- 1 114
Consumer loans............. 22 109 11 47 20 65 6 35
Commercial loans........... 0 0 1 305 1 6 1 30
-- ---- -- ---- -- ---- -- ----
Total................... 37 $415 19 $593 25 $522 13 $297
== ==== == ==== == ==== == ====
Delinquent loans to
total gross loans....... 2.32% 2.01%
==== ====
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1994 At December 31, 1993
------------------------------------------------- ------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------- ------------------------- ----------------------- -----------------------
Principal Principal Principal Principal
Number Balance of Number Balance of Number Balance of Number Balance of
of Loans Loans of Loans Loans of Loans Loans of Loans Loans of
-------- ----- -------- ----- -------- ----- -------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real 1 $ 39 2 $47 3 $ 96 1 $18
estate loans............ --- --- --- --- --- --- --- ---
Multi-family loans......... --- --- --- --- --- --- --- ---
Construction loans.........
Non-residential 1 121 --- --- --- --- --- ---
real estate loans....... 9 37 9 46 17 96 4 13
Consumer loans............. 3 34 --- --- --- --- 1 5
-- ---- -- --- -- ---- - ---
Commercial loans........... 14 $231 11 $93 20 $192 6 $36
== ==== == === == ==== == ===
Total...................
Delinquent loans to 1.07% 1.13%
total gross loans....... ==== ====
</TABLE>
<PAGE>
Classified assets. Federal regulations and Madison First's Asset
Classification Policy provide for the classification of loans and other assets
such as debt and equity securities considered by the OTS to be of lesser quality
as "substandard," "doubtful" or "loss" assets. An asset is considered
"substandard" if it is inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the institution will sustain "some loss" if the deficiencies are not
corrected. Assets classified as "doubtful" have all of the weaknesses inherent
in those classified "substandard," with the added characteristic that the
weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets which do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "special mention" by management.
An insured institution is required to establish general allowances for loan
losses in an amount deemed prudent by management for loans classified
substandard or doubtful, as well as for other problem loans. General allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies problem assets as "loss," it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset so classified or to charge off such amount. An institution's determination
as to the classification of its assets and the amount of its valuation
allowances is subject to review by the OTS which can order the establishment of
additional general or specific loss allowances.
At June 30, 1996, the aggregate amount of Madison First's classified
assets, and of Madison First's general and specific loss allowances were as
follows:
At June 30, 1996
----------------
(Unaudited)
(In thousands)
Substandard assets............................................. $315
Doubtful assets................................................ ---
Loss assets.................................................... 4
----
Total classified assets.................................... $319
====
General loss allowances........................................ $412
Specific loss allowances....................................... 4
----
Total allowances........................................... $416
====
Madison First regularly reviews its loan portfolio to determine whether any
loans require classification in accordance with applicable regulations. Not all
of Madison First's classifed assets constitute non-performing assets.
Allowance for Loan Losses
The allowance for loan losses is maintained through the provision for loan
losses, which is charged to earnings. The provision for loan losses is
determined in conjunction with management's review and evaluation of current
economic conditions (including those of Madison First's lending area), changes
in the character and size of the loan portfolio, loan delinquencies (current
status as well as past and anticipated trends) and adequacy of collateral
securing loan delinquencies, historical and estimated net charge-offs, and other
pertinent information derived from a review of the loan portfolio. In
management's opinion, Madison First's allowance for loan losses is adequate to
absorb probable losses from loans at June 30, 1996. However, there can be no
assurance that regulators, when reviewing Madison First's loan portfolio in the
future, will not require increases in its allowances for loan losses or that
changes in economic conditions will not adversely affect Madison First's loan
portfolio.
<PAGE>
Summary of Loan Loss Experience. The following table analyzes changes in
the allowance during the past five fiscal years ended December 31, 1995, and the
six-month periods ended June 30, 1996, and June 30, 1995.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
------------------- -------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(Unaudited) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period.............. $ 407 $ 252 $ 252 $ 227 $ 262 $ 227 $ 102
Charge-offs:
Single-family residential.............. --- --- --- --- (75) (3) (19)
Consumer............................... (3) (4) --- (4) (25) --- ---
--------- --------- -------- --------- --------- --------- ---------
Total charge-offs.................... (3) (4) --- (4) (100) (3) (19)
Recoveries.................................. --- --- 5 --- 10 1 2
--------- --------- -------- --------- --------- --------- ---------
Net charge-offs.......................... (3) (4) 5 (4) (90) (2) (17)
Provision for losses on loans............... 12 3 150 29 55 37 142
--------- --------- -------- --------- --------- --------- ---------
Balance end of period.................... $ 416 $ 251 $ 407 $ 252 $ 227 $ 262 $ 227
========= ========= ======== ========= ========= ========= =========
Allowance for loan losses as a percent of
total loans outstanding.................. 0.72% 0.44% 0.70% 0.45% 0.44% 0.49% 0.39%
Ratio of net charge-offs to average
loans outstanding........................ 0.01 0.01 0.01 0.01 0.17 0.00 0.03
</TABLE>
Allocation of Allowance for Loan Losses. The following table presents an
analysis of the allocation of Madison First's allowance for loans losses at the
dates indicated.
<TABLE>
<CAPTION>
At June 30, At December 31,
---------------------------------------- --------------------------------------------------------
1996 1995 1995 1994 1993
------------------- ------------------ ------------------ ------------------ ----------------
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
category category category category category
to total total to total to total total
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
Balance at end of
period applicable to:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate..... $163 81.5% $151 83.4% $157 81.6% $152 85.0% $127 89.5%
Nonresidential real estate.. 102 12.4 --- 11.2 100 12.7 --- 10.1 --- 5.8
Consumer loans.............. 51 6.1 50 5.4 50 5.7 50 4.9 50 4.7
Unallocated................. 100 --- 50 --- 100 --- 50 --- 50 ---
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
Total....................... $416 100.0% $251 100.0% $407 100.0% $252 100.0% $227 100.0%
==== ===== ==== ===== ==== ===== ==== ===== ==== =====
</TABLE>
<PAGE>
Investments and Mortgage-Backed Securities
Investments. Madison First's investment portfolio consists of U.S.
government and agency obligations, asset management funds, and FHLB stock. At
June 30, 1996, approximately $10.6 million, or 13.0%, of Madison First's total
assets consisted of such investments.
The following table sets forth the amortized cost and the market value of
Madison First's investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
At June 30, At December 31,
1996 1995 1994 1993
------------------- ------------------- -------------------- --------------------
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- ----- ---- -----
(Unaudited) (In thousands)
Held to Maturity:
U.S. Government and
<S> <C> <C> <C> <C> <C> <C> <C> <C>
agency obligations............... $ 6,000 $ 5,886 $ 8,000 $ 7,930 $13,996 $13,120 $ 9,491 $ 9,574
Available for Sale:
U.S. Government and
agency obligations............... 4,000 3,940 5,000 5,018 --- --- --- ---
Asset management funds............. --- --- --- --- 101 101 --- ---
FHLB stock............................ 610 610 610 610 610 610 610 610
------- ------- ------- ------- ------- ------- ------- -------
Total investments................ $10,610 $10,436 $13,610 $13,558 $14,707 $13,831 $10,101 $10,184
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
The following table sets forth the amount of investment securities
(excluding FHLB stock) which mature during each of the periods indicated and the
weighted average yields for each range of maturities at June 30, 1996.
<TABLE>
<CAPTION>
Amount at June 30, 1996 which matures in
------------------------------------------------------------------------------------
One Year One Year Five Years After
or Less to Five Years to Ten Years Ten Years
------------------- ------------------ ------------------- ------------------
Amortized Average Amoritzed Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield
---- ----- ---- ----- ---- ----- ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and agency obligations...... $2,500 4.47% $7,500 5.48% $--- ---% $--- ---%
====== ==== ====== ==== ==== === ==== ===
</TABLE>
Mortgage-Backed Securities. Madison First maintains a significant portfolio
of mortgage-backed pass-through securities in the form of Federal Home Loan
Mortgage Corporation ("FHLMC"), Federal Mortgage Association ("FNMA") and
Government National Mortgage Association ("GNMA") participation certificates.
Mortgage-backed pass-through securities generally entitle Madison First to
receive a portion of the cash flows from an identified pool of mortgages and
gives Madison First an interest in that pool of mortgages. FHLMC, FNMA and GNMA
securities are each guaranteed by their respective agencies as to principal and
interest. Except for a $64,000 investment in FHLMC interest only strips, Madison
First does not invest in any derivative products.
Although mortgage-backed securities generally yield less than individual
loans originated by Madison First, they present less credit risk. Because
mortgage-backed securities have a lower yield relative to current market rates,
retention of such investments could adversely affect Madison First's earnings,
particularly in a rising interest rate environment. The mortgage-backed
securities portfolio is generally considered to have very low credit risk
because they are guaranteed as to principal repayment by the issuing agency.
In addition, Madison First has purchased adjustable-rate mortgage-backed
securities as part of its effort to reduce its interest rate risk. In a period
of declining interest rates, Madison First is subject to prepayment risk on such
adjustable rate mortgage-backed securities. Madison First attempts to mitigate
this prepayment risk by purchasing mortgage-backed securities at or near par. If
interest rates rise in general, the interest rates on the loans backing the
mortgage-backed securities will also adjust upward, subject to the interest rate
caps in the underlying mortgage loans. However, Madison First is still subject
to interest rate risk on such securities if interest rates rise faster than 1%
to 2% maximum annual interest rate adjustments on the underlying loans.
At June 30, 1996, Madison First had $8.7 million of mortgage-backed
securities outstanding, all of which were classified as held to maturity. These
mortgage-backed securities may be used as collateral for borrowings and through
repayments, as a source of liquidity.
The following table sets forth the carrying value and market value of
Madison First's mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
At June 30, --------------------------------------------------------------
1996 1995 1994 1993
------------------- -------------------- ------------------ --------------------
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- ----- ---- -----
(Unaudited) (In thousands)
Mortgage-backed
<S> <C> <C> <C> <C> <C> <C> <C> <C>
securities............................... $8,690 $8,607 $9,917 $9,941 $11,328 $10,715 $13,925 $14,195
====== ====== ====== ====== ======= ======= ======= =======
</TABLE>
The following table sets forth the amount of mortgage-backed securities
which mature during each of the periods indicated and the weighted average
yields for each range of maturities at December 31, 1995.
<TABLE>
<CAPTION>
Amount at December 31, 1995 which matures in
--------------------------------------------------------------------------------
One Year One Year to After
or Less Five Years Five Years
------------------------ ----------------------- -----------------------
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
---- ----- ---- ----- ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities...................... $139 8.00% $6,830 5.96% $2,948 6.54%
==== ==== ====== ==== ====== ====
</TABLE>
<PAGE>
The following table sets forth the changes in the Madison First's
mortgage-backed securities portfolio for the six-month periods ended June 30,
1996 and 1995 and for the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
For the Six Months For the Year Ended
Ended June 30, December 31,
------------------------- ----------------------------------------
1996 1995 1995 1994 1993
------ ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance........................... $9,917 $11,328 $11,328 $13,925 $13,548
Purchases................................... --- --- --- --- 3,918
Repayments/sales............................ (1,228) (533) (1,417) (2,576) (3,399)
Premium and discount
amortization, net........................ 1 2 6 (1) (37)
Unrealized loss on securities
available for sale....................... --- --- --- --- ---
Provision for other than temporary
decline.................................. --- --- --- (20) (105)
------ ------- ------- ------- -------
Ending balance.............................. $8,690 $10,797 $ 9,917 $11,328 $13,925
====== ======= ======= ======= =======
</TABLE>
Management intends to temporarily hold the proceeds from the Conversion in
U.S. government securities, other U.S. agency securities and mortgage-backed
securities. See "Use of Proceeds."
Sources of Funds
General. Deposits have traditionally been Madison First's primary source of
funds for use in lending and investment activities. In addition to deposits,
Madison First derives funds from scheduled loan payments, investment maturities,
loan prepayments, retained earnings, income on earning assets and borrowings.
While scheduled loan payments and income on earning assets are relatively stable
sources of funds, deposit inflows and outflows can vary widely and are
influenced by prevailing interest rates, market conditions and levels of
competition. Borrowings from the FHLB of Indianapolis may be used in the
short-term to compensate for reductions in deposits or deposit inflows at less
than projected levels.
Deposits. Deposits are attracted, principally from within Jefferson County,
through the offering of a broad selection of deposit instruments including
fixed-rate certificates of deposit, NOW, MMDAs and other transaction accounts,
individual retirement accounts and savings accounts. Madison First does not
actively solicit or advertise for deposits outside of Jefferson County.
Substantially all of Madison First's depositors are residents of that county.
Deposit account terms vary, with the principal differences being the minimum
balance required, the amount of time the funds remain on deposit and the
interest rate. Madison First does not pay a fee for any deposits it receives.
Interest rates paid, maturity terms, service fees and withdrawal penalties
are established by Madison First on a periodic basis. Determination of rates and
terms are predicated on funds acquisition and liquidity requirements, rates paid
by competitors, growth goals, and applicable regulations. Madison First relies,
in part, on customer service and long-standing relationships with customers to
attract and retain its deposits, but also closely prices its deposits in
relation to rates offered by its competitors.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition. The variety of deposit accounts offered by Madison First has
allowed it to be competitive in obtaining funds and to respond with flexibility
to changes in consumer demand. Madison First has become more susceptible to
short-term fluctuations in deposit flows as customers have become more interest
rate conscious. Madison First manages the pricing of its deposits in keeping
with its asset/liability management and profitability objectives. Based on its
experience, Madison First believes that its passbook, NOW and MMDAs are
relatively stable sources of deposits. However, the ability of Madison First to
attract and maintain certificates of deposit, and the rates paid on these
deposits, have been and will continue to be significantly affected by market
conditions.
<PAGE>
An analysis of deposit accounts by type, maturity, and rate at Madison
First at June 30, 1996, is as follows:
<TABLE>
<CAPTION>
Minimum Balance at Weighted
Opening June 30, % of Average
Type of Account Balance 1996 Deposits Rate
- --------------- ------- ---- -------- ----
(Unaudited)
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C>
Passbook accounts.......................................... $ 10 $17,011 22.7% 3.05%
MMDA..................................................... 1,000 6,794 9.1 3.00
NOW accounts............................................... 100 8,525 11.4 2.63
Super NOW accounts......................................... 1,000 1,033 1.4 2.67
------- -----
Total withdrawable....................................... 33,363 44.6 2.92
Certificates (original terms):
I.R.A...................................................... 100 5,990 8.0 5.20
3 months................................................... 2,500 229 0.3 4.16
6 months................................................... 2,500 5,117 6.8 4.80
12 months.................................................. 500 7,770 10.4 5.51
15 months.................................................. 500 5,465 7.3 6.16
18 months.................................................. 500 3,398 4.5 5.94
30 months ................................................. 500 5,150 6.9 5.60
48 months.................................................. 500 56 0.1 7.50
60 months.................................................. 500 2,855 3.9 5.76
72 months ................................................. 500 10 0.0 7.75
96 months.................................................. 500 155 0.2 8.00
120 months................................................. 500 4 0.0 4.00
Jumbo certificates............................................ 99,000 5,165 7.0 5.88
------- -----
Total certificates......................................... 41,364 55.4 5.58
------- ----- ----
Total deposits................................................ $74,727 100.0% 4.32%
======= ===== ====
</TABLE>
The following table sets forth by various interest rate categories the
composition of time deposits of Madison First at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
At June 30, ----------------------------------------------------
1996 1995 1994 1993
------- ------- ------- -------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
3.00 to 3.99%............................... $ --- $ --- $ 443 $25,420
4.00 to 4.99%............................... 5,657 98 30,882 9,900
5.00 to 5.99%............................... 25,564 30,116 5,276 3,578
6.00 to 6.99%............................... 9,728 10,731 3,365 303
7.00 to 7.99%............................... 415 232 267 ---
------- ------- ------- -------
Total.................................... $41,364 $41,177 $40,233 $39,201
======= ======= ======= =======
</TABLE>
The following table represents, by various interest rate categories, the
amounts of time deposits maturing during each of the three years following June
30, 1996. Matured certificates, which have not been renewed as of June 30, 1996,
have been allocated based upon certain rollover assumptions.
<PAGE>
<TABLE>
<CAPTION>
Amounts at June 30, 1996
-------------------------------------------------------------------------------
One Year Two Three Greater Than
or Less Years Years Three Years
------- ----- ----- -----------
(In thousands)
<S> <C> <C> <C> <C>
3.00 to 3.99%............................... $ --- $ --- $ --- $ ---
4.00 to 4.99%............................... 5,654 --- 3 ---
5.00 to 5.99%............................... 17,585 5,146 1,824 1,009
6.00 to 6.99%............................... 7,288 2,440 --- ---
7.00 to 7.99%............................... 210 4 40 161
------- ------ ------ ------
Total.................................... $30,737 $7,590 $1,867 $1,170
======= ====== ====== ======
</TABLE>
<PAGE>
The following table indicates the amount of Madison First's jumbo and other
certificates of deposit of $100,000 or more by time remaining until maturity as
of June 30, 1996.
At June 30, 1996
----------------
Maturity Period (In thousands)
Three months or less................................ $2,561
Greater than three months through six months........ 1,109
Greater than six months through twelve months....... 781
Over twelve months.................................. 602
------
Total.......................................... $5,053
======
The following table sets forth the dollar amount of savings deposits in the
various types of deposits offered by Madison First at the dates indicated, and
the amount of increase or decrease in such deposits as compared to the previous
period.
<TABLE>
<CAPTION>
DEPOSIT ACTIVITY
---------------------------------------------------------------------------------
Balance Increase Balance Increase
at (Decrease) at (Decrease)
June 30, % of from December 31, % of from
1996 Deposits 1995 1995 Deposits 1994
---- -------- ---- ---- -------- ----
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts............................. $17,011 22.7% $(900) $17,911 23.8% $(1,519)
MMDA ........................................ 6,794 9.1 (347) 7,141 9.5 (511)
NOW accounts.................................. 8,525 11.4 584 7,941 10.6 529
Super NOW accounts............................ 1,033 1.4 (30) 1,063 1.4 332
------- ----- ------ ------- ----- --------
Total withdrawable.......................... 33,363 44.6 (693) 34,056 45.3 (1,169)
Certificates (original terms):
I.R.A......................................... 5,990 8.0 207 5,783 7.7 (293)
3 months...................................... 229 0.3 134 95 0.1 (348)
6 months...................................... 5,117 6.8 (271) 5,388 7.1 (2,086)
12 months..................................... 7,770 10.4 424 7,346 9.8 (1,473)
15 months..................................... 5,465 7.3 (505) 5,970 7.9 5,970
18 months..................................... 3,398 4.5 113 3,285 4.4 840
30 months .................................... 5,150 6.9 (116) 5,266 7.0 (802)
48 months..................................... 56 0.1 --- 56 0.1 ---
60 months..................................... 2,855 3.9 (194) 3,049 4.1 (305)
72 months .................................... 10 --- --- 10 --- ---
96 months..................................... 155 0.2 (10) 165 0.2 (35)
120 months.................................... 4 --- --- 4 --- (7)
Jumbo certificates............................... 5,165 7.0 405 4,760 6.3 (517)
------- ----- ------ ------- ----- --------
Total certificates............................ 41,364 55.4 187 41,177 54.7 944
------- ----- ------ ------- ----- --------
Total deposits................................... $74,727 100.0% $ (506) $75,233 100.0% $ (225)
======= ===== ====== ======= ===== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DEPOSIT ACTIVITY
-------------------------------------------------------------------
Balance Increase Balance
at (Decrease) at
December 31, % of from December 31, % of
1994 Deposits 1993 1993 Deposits
---- -------- ---- ---- --------
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C> <C>
Passbook accounts............................. $19,430 25.8% $(3,713) $23,143 29.6%
MMDA.......................................... 7,652 10.1 (635) 8,287 10.6
NOW accounts.................................. 7,412 9.8 821 6,591 8.5
Super NOW accounts............................ 731 1.0 (128) 859 1.1
------- ----- ------- ------- -----
Total withdrawable.......................... 35,225 46.7 (3,655) 38,880 49.8
Certificates (original terms):
I.R.A......................................... 6,076 8.1 (207) 6,283 8.0
3 months...................................... 443 0.6 (25) 468 0.6
6 months...................................... 7,474 9.9 (828) 8,302 10.6
12 months..................................... 8,819 11.7 2,288 6,531 8.4
15 months..................................... --- --- --- --- ---
18 months..................................... 2,445 3.2 (707) 3,152 4.0
30 months .................................... 6,068 8.0 (662) 6,730 8.6
48 months..................................... 56 0.1 --- 56 0.1
60 months..................................... 3,354 4.4 (196) 3,550 4.6
72 months .................................... 10 --- --- 10 ---
96 months..................................... 200 0.3 (36) 236 0.3
120 months.................................... 11 --- (4) 15 --
Jumbo certificates............................... 5,277 7.0 1,409 3,868 5.0
------- ----- ------- ------- -----
Total certificates............................ 40,233 53.3 1,032 39,201 50.2
------- ----- ------- ------- -----
Total deposits................................... $75,458 100.0% $(2,623) $78,081 100.0%
======= ===== ======= ======= =====
</TABLE>
Total deposits at June 30, 1996 totaled $74.7 million, compared to $78.1
million at December 31, 1993. This decline in deposits was primarily
attributable to a $6.1 million decrease in passbook accounts, offset by a $2.2
million increase in certificates. The decrease in passbook deposits since 1993
resulted from increased competition from local financial institutions, mutual
funds and other alternative investment vehicles with more attractive interest
rates as customers became more rate conscious. Madison First's deposit base is
somewhat dependent upon the manufacturing sector of Jefferson County's economy.
Although Jefferson County's manufacturing sector is relatively diversified and
not significantly dependent upon any industry, a loss of a material portion of
the manufacturing workforce could adversely affect Madison First's ability to
attract deposits due to the loss of personal income attributable to the lost
manufacturing jobs and the attendant loss in service industry jobs.
In the unlikely event of liquidation of Madison First after the Conversion,
all claims of creditors (including those of deposit account holders, to the
extent of their deposit balances) would be paid first followed by distribution
of the liquidation account to certain deposit account holders, with any assets
remaining thereafter distributed to the Holding Company as the sole shareholder
of Madison First. See "The Conversion -- Principal Effects of Conversion --
Effect on Liquidation Rights."
Borrowings. Madison First focuses on generating high quality loans and then
seeks the best source of funding from deposits, investments or borrowings. At
June 30, 1996, Madison First had no borrowings from the FHLB of Indianapolis.
Madison First does not anticipate any difficulty in obtaining advances
appropriate to meet its requirements in the future.
The following table presents certain information relating to the Madison
First's borrowings at or for the six months ended June 30, 1996 and 1995 and at
or for the years ended December 31, 1995, 1994 and 1993.
<PAGE>
<TABLE>
<CAPTION>
At or for the
Six Months At or for the Year
Ended June 30, Ended December 31,
---------------------- ------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
FHLB Advances:
Outstanding at end of period.................... $ --- $2,000 $4,471 $4,986 $ ---
Average balance outstanding for period.......... 1,111 3,678 2,967 228 22
Maximum amount outstanding at any
month-end during the period................... 3,404 6,218 4,471 4,986 ---
Weighted average interest rate
during the period............................. 7.92 % 5.22% 5.90 % 5.26% 4.55%
Weighted average interest rate
at end of period.............................. --- 5.60 5.76 6.26 ---
</TABLE>
Properties
The following table provides certain information with respect of Madison
First's offices as of June 30, 1996.
<TABLE>
<CAPTION>
Net Book Value
of Property
Year Furniture, Approximate
Opened or Fixtures and Square
Description and Address Acquired Equipment Footage
- ----------------------- -------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Locations in Madison, Indiana
Downtown Office:
233 E. Main Street............................ 1952 $303 9,110
Drive-Through Branch:
401 E. Main Street............................ 1984 62 375
Hilltop Location:
303 Clifty Drive.............................. 1973 204 3,250
Location in Hanover, Indiana (1)
136 Thornton Road............................. 1980 286 2,584
</TABLE>
(1) As a condition to obtaining regulatory approval for the Acquisition from
the FRB, the Holding Company committed to cause Madison First to divest its
Hanover branch, including the physical facilities and at least $7.5 million
of deposits originated at that branch. See "Risk Factors -- Divestiture of
Hanover Branch."
The following table provides certain information with respect to real
estate owned by Madison First and rented to other entities as of June 30, 1996.
Except as otherwise provided below, all real estate listed in the table below is
rented on a month-to-month basis, and none of the parcels is subject to any
written lease agreement. This property was acquired by Madison First for future
expansion of its banking operations.
Address Tenant
------- ------
223 E. Main Street
Madison, Indiana 47250 Vicarious of Madison
(became tenant in July, 1996 and
subject to a two-year lease)
225 E. Main Street
Madison, Indiana 47250 Madison Gallery of Fine Art
227 E. Main Street
Madison, Indiana 47250 Heitz Photo
407 E. Jefferson
Madison, Indiana 47250 MIDCOR Community Foundation
<PAGE>
Madison First owns computer and data processing equipment which is used for
transaction processing, loan origination, and accounting. The net book value of
electronic data processing equipment owned by Madison First was approximately
$17,000 at June 30, 1996.
Madison First operates three automated teller machines ("ATMs"), one at
each office location other than its downtown branch. Madison First's ATMs
participate in the PLUS(R) and MagicLine(R) networks.
Madison First has also contracted for the data processing and reporting
services of BISYS, Inc. in Houston, Texas. The cost of these data processing
services is approximately $13,000 per month.
Service Corporation Subsidiaries
OTS regulations permit federal savings associations to invest in the
capital stock, obligations or other specified types of securities of
subsidiaries (referred to as "service corporations") and to make loans to such
subsidiaries and joint ventures in which such subsidiaries are participants in
an aggregate amount not exceeding 2% of an association's assets, plus an
additional 1% of assets if the amount over 2% is used for specified community or
inner-city development purposes. In addition, federal regulations permit
associations to make specified types of loans to such subsidiaries (other than
special purpose finance subsidiaries), in which the association owns more than
10% of the stock, in an aggregate amount not exceeding 50% of the association's
regulatory capital if the association's regulatory capital is in compliance with
applicable regulations. A savings association that acquires a non-savings
association subsidiary, or that elects to conduct a new activity within a
subsidiary, must give the FDIC and the OTS at least 30 days advance written
notice. The FDIC may, after consultation with the OTS, prohibit specified
activities if it determines such activities pose a serious threat to SAIF.
Moreover, a savings association must deduct from capital, for purposes of
meeting the core capital, tangible capital and risk-based capital requirements,
their entire investment in and loans to a subsidiary engaged in activities not
permissible for a national bank (other than exclusively agency activities for
its customers or mortgage banking subsidiaries).
Madison First currently has two subsidiaries, Madison First Service
Corporation ("First Service") and McCauley Insurance Agency, Inc. ("McCauley").
First Service was incorporated under the laws of the State of Indiana on July 3,
1973 and currently owns all of the outstanding capital stock of McCauley. First
Service has no other operations. McCauley was organized under the laws of the
State of Indiana under the name Builders Insurance Agency, Inc. on August 2,
1957 and changed its name to McCauley Insurance Agency, Inc. on August 29, 1957.
McCauley currently is engaged in the sale of general fire and accident, car,
home and life insurance to the general public. During the year ended December
31, 1995, McCauley received approximately $175,000 in commissions.
Upon consummation of the Acquisition, the Holding Company will become a
bank holding company and will be subject to the Bank Holding Company Act of
1956, as amended (the "BHCA"). At such time, the insurance operations of
McCauley will not be permitted under the BHCA, and Madison First will be
required to divest its ownership of McCauley within two years.
At June 30, 1996, Madison First's aggregate investment in First Service was
approximately $708,000, and First Service's aggregate investment in McCauley was
approximately $495,000. The consolidated statements of income of Madison First
and its subsidiaries included elsewhere herein include the operations of First
Service and McCauley. All intercompany balances and transactions have been
eliminated in the consolidation.
Employees
As of June 30, 1996, Madison First employed 28 persons on a full-time basis
and 3 persons on a part-time basis. None of Madison First's employees is
represented by a collective bargaining group. Management considers its employee
relations to be good.
Madison First's employee benefits for full-time employees include, among
other things, a Pentegra (formerly known as Financial Institutions Retirement
Fund) defined benefit pension plan ("Pension Plan"), and major medical, dental,
and long-term disability insurance.
Employee benefits are considered by management to be competitive with those
offered by other financial institutions and major employers in Madison First's
area. See "Executive Compensation and Related Transactions of Madison First."
Legal Proceedings
Although Madison First, from time to time, is involved in various legal
proceedings in the normal course of business, there are no material legal
proceedings to which Madison First is a party or to which any of its property is
subject.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF CITIZENS NATIONAL BANK OF MADISON
General
The principal business of national banks, including Citizens, consists of
providing a full complement of financial services through a broad array of
deposit and loan products to the small businesses, professionals and other
individuals located within its market area. Citizens' earnings are primarily
dependent upon its net interest income, the difference between interest income
and interest expense. Interest income is a function of the balances of loans and
investments outstanding during a given period and the yield earned on such loans
and investments. Interest expense is a function of the amount of deposits and
borrowings outstanding during the same period and interest rates paid on such
deposits and borrowings. Citizens' earnings are also affected by provisions for
loan losses, service charges, operating expenses and income taxes.
Citizens is significantly affected by prevailing economic conditions, as
well as government policies and regulations concerning, among other things,
monetary and fiscal affairs, housing and financial institutions. See
"Regulation." Deposit flows are influenced by a number of factors, including
interest rates paid on competing investments, account maturities and level of
personal income and savings within the Institutions' market. In addition,
deposit growth is affected by how customers perceive the stability of the
financial services industry amid various current events such as regulatory
changes, failures of other financial institutions and financing of the deposit
insurance fund. Lending activities are influenced by the demand for and supply
of other lenders, the availability and cost of funds and various other items.
Sources of funds for lending activities of Citizens include deposits, payments
on loans, borrowings and income provided from operations.
Current Business Strategy
Citizens' business strategy is to operate a well-capitalized and profitable
community bank dedicated to meeting the financial needs of the small businesses,
professionals and other individuals located in its market area by offering a
full complement of deposit and loan products and other financial services with
an emphasis on personal service. Citizens has sought to implement this strategy
by (i) expanding the products and services offered to its customers and
achieving consistent and sustained growth and (ii) managing its interest rate
risk by emphasizing adjustable-rate loan products and selling its fixed-rate
mortgage loans to the FHLMC on the secondary market.
The highlights of Citizens' business strategy are as follows:
o Profitability. Citizens has reported positive net income in every year
since 1990. Citizens' net income increased from $120,000 for the year
ended December 31, 1991 to $342,000 for the year ended December 31,
1995. Citizens had net income of $134,000 for the six months ended
June 30, 1996, a decrease of $62,000 from the six-month period ended
June 30, 1995, due primarily to a $150,000 provision for loan losses
in the quarter ended March 31, 1996. Citizens' net interest income for
the six months ended June 30, 1996 totaled $1.0 million, an increase
of $118,000, or 13.1%, from the $904,000 for the six months ended June
30, 1995. Citizens' net yield on weighted average interest-earning
assets for the year ended December 31, 1995 and the six months ended
June 30, 1996 was 4.25% and 3.74%, respectively.
o Asset Growth and Asset Quality. Citizens' total assets have increased
from $30.1 million at December 31, 1991 to $56.2 million at June 30,
1996. Citizens' growth in total assets is attributable to a sustained
growth in virtually all areas of lending, including one- to
four-family residential mortgage lending, consumer lending and
commercial lending. Despite its aggressive growth, Citizens has thus
far been successful in maintaining the quality of its loan and
investment portfolios. At June 30, 1996, Citizens' non-performing
loans totaled $593,000, or 1.06% of total assets.
o Low Interest Rate Risk. Management of Citizens believes that the
maturities and repricings of Citizens' interest rate-sensitive assets
and interest rate-sensitive liabilities are prudently positioned. At
June 30, 1996, Citizens' NPV would increase 10.2% in the event of a 2%
increase in market interest rates and would decrease 11.2% in the
event of a 2% decrease in market interest rates. This indicates that
Citizens' net portfolio value is more sensitive to decreases in market
interest rates but that Citizens' interest rate risk would be within
the definition of normal level of exposure contained in regulations
recently issued by the OTS. Although these regulations have not been
implemented by the OTS, and Citizens, as a national bank, would not be
subject to the regulations if implemented by the OTS, the methodology
set forth in the OTS' regulations provides an informational basis on
which Citizens' interest rate risk can be evaluated. Citizens has
achieved this asset/liability posture by emphasizing adjustable-rate
loans and investments and by selling its fixed-rate one- to
four-family residential mortgage loans to the FHLMC on the secondary
market.
<PAGE>
o Community Orientation. Citizens has developed a solid reputation in
its market by offering a wide variety of lending, deposit and other
financial services to its retail and commercial customers on a
personalized and efficient basis. By building on its reputation as a
responsive lender, Citizens plans to strengthen its position as a
leading financial institution in Jefferson County.
Asset/Liability Management
Citizens, like other financial institutions, is subject to interest rate
risk to the degree that its interest-bearing liabilities, primarily deposits
with short- and medium-term maturities, mature or reprice at different rates
than its interest-earning assets. Management of Citizens believes it is critical
to manage the relationship between interest rates and the effect on Citizens'
NPV. Management of Citizens' assets and liabilities is done within the context
of the marketplace, regulatory limitations and within limits established by the
Board of Directors.
Presented below, as of June 30, 1996, is an analysis performed by
Baxter Capital Management, Inc. of Citizens' interest rate risk as measured by
changes in NPV for instantaneous and sustained parallel shifts in the yield
curve, up and down 200 basis points. At June 30, 1996, 2% of the present value
of Citizens' assets was approximately $1.124 million. Because the interest rate
risk of a 200 basis point decrease in market rates (which was greater than the
interest rate risk of a 200 basis point increase ) was $562,000 at June 30,
1996, Citizens would not have been required to deduct any dollar amount from its
capital under the NPV methodology adopted by the OTS if such methodology was
applied to Citizens.
<TABLE>
<CAPTION>
Change Net Portfolio Value NPV as % of PV of Assets
In Rates $ Amount $ Change % Change NPV Ratio Change
--------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+ 200 bp $5,521 $510 10.2% 10.03% 111 bp
0 bp $5,011 --- --- 8.92% ---
- 200 bp $4,449 $(562) (11.2)% 7.76% (116)bp
</TABLE>
In evaluating Citizens' exposure to interest rate movements, certain
shortcomings are inherent in the method of analysis presented above. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as adjustable rate mortgages, have features
which restrict changes in interest rates on a short-term basis and over the life
of the asset. Further, in the event of a change in interest rates, prepayment
and early withdrawal levels would likely deviate significantly from those
assumed above. Finally, the ability of many borrowers to service their debt may
decrease in the event of an interest rate increase. Citizens considers all of
these factors in monitoring its exposure to interest rate risk.
<PAGE>
Average Balances and Interest
The following tables present at June 30, 1996 the balance of each category
of Citizens' interest-earning assets and interest-bearing liabilities, and their
yield/cost at that date and presents for the six months ended June 30, 1996 and
1995 and for the years ended December 31, 1995, 1994, and 1993, the average
daily balances of each category of Citizens' interest-earning assets and
interest-bearing liabilities, and the interest earned or paid on such amounts.
<TABLE>
<CAPTION>
Six Months Ended June 30,
At June 30, --------------------------------------------------------------------
1996 1996 1995
------------------- --------------------------------- --------------------------------
Average Interest Average Average Interest Average
Balance Yield/Cost Balance Earned/Paid Yield/Cost Balance Earned/Paid Yield/Cost
------- ---------- ------- ----------- ---------- ------- ----------- ----------
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning deposits and other... $ 2,368 6.91% $ 5,595 $ 127 4.54% $ 1,853 $ 24 2.59%
Investment securities (1)................ 4,631 6.34 4,345 96 4.42 1,897 47 4.96
Mortgage-backed and
related securities.................. 3,137 6.88 3,495 109 6.24 4,913 172 7.00
Loans receivable, net (2)............. 43,003 8.75 41,253 1,824 8.84 32,808 1,437 8.76
------- ------- ------ ------- ------
Total interest-earning assets....... $53,139 8.35 $54,688 $2,156 7.88 $41,471 $1,680 8.10
======= ======= ====== ======= ======
Interest-bearing liabilities:
Deposits.............................. $51,770 4.32 $51,661 $1,100 4.26 $39,445 $756 3.83
FHLB advances......................... 500 5.68 832 34 8.17 762 21 5.51
------- ------- ------ ------- ------
Total interest-bearing
liabilities....................... $52,270 4.33 $52,493 $1,134 4.32 $40,207 $777 3.86
======= ======= ====== ======= ====
Net interest-earning assets.............. $ 869 $ 2,195 $ 1,264
======= ======= ========
Net interest income...................... $1,022 $903
Interest rate spread (3)................. 4.02% 3.56% 4.24%
==== ==== ====
Net yield on weighted average
interest-earning assets (4)........... ---% 3.74% 4.36%
==== ==== ====
Average interest-earning
assets to average interest-bearing
liabilities........................... 101.66% 104.18% 103.14%
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------- ----------------------------- ----------------------------
Average Interest Average Average Interest Average Average Interest Average
Balance Earned/Paid Yield/Cost Balance Earned/Paid Yield/Cost BalanceEarned/PaidYield/Cost
------- ----------- ---------- ------- ----------- ---------- ------- ---------- ---------
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning deposits........ $ 1,425 $ 78 5.47% $ 1,085 $ 40 3.69% $ 2,701 $ 81 3.00%
Investment securities (1)........ 3,379 192 5.68 6,005 193 3.21 7,167 340 4.74
Mortgage-backed and
related securities............. 3,380 231 6.83 2,074 256 12.34 --- --- ---
Loans receivable, net (2)........ 35,890 3,194 8.90 24,221 2,036 8.41 19,257 1,679 8.72
------- ------ ------- ------ ------- -------
Total interest-earning assets.. $44,074 $3,695 8.38 $33,385 $2,525 7.56 $29,125 $2,100 7.21
======= ====== ======= ====== ======= ======
Interest-bearing liabilities:
Deposits......................... $38,393 $1,750 4.56 $29,054 $1,024 3.52 $23,924 $ 880 3.68
FHLB advances.................... 1,134 70 6.17 16 1 6.25 --- --- ---
Other borrowings................. --- --- --- 13 --- --- --- --- ---
------- ------ ------- ------ ------- -------
Total interest-bearing
liabilities.................. $39,527 $1,820 4.60 $29,083 $1,025 3.52 $23,924 $ 880 3.68
======= ====== ======= ====== ======= ======
Net interest-earning assets......... $ 4,547 $ 4,302 $ 5,201
======== ======== ========
Net interest income................. $1,875 $1,500 $1,220
====== ====== ======
Interest rate spread (3)............ 3.78% 4.04% 3.53%
==== ==== ====
Net yield on weighted average
interest-earning assets (4)...... 4.25% 4.49% 4.19%
==== ==== ====
Average interest-earning
assets to average interest-bearing
liabilities...................... 111.50% 114.79% 121.74%
====== ====== ======
</TABLE>
(1) Includes securities available for sale at amortized cost prior to SFAS No.
115 adjustments.
(2) Total loans less loans in process.
(3) Interest rate spread is calculated by subtracting weighted average interest
rate cost from weighted average interest rate yield for the period
indicated.
(4) The net yield on weighted average interest-earning assets is calculated by
dividing net interest income by weighted average interest-earning assets
for the period indicated. No net yield amount is presented at June 30,
1996, because the computation of net yield is applicable only over a period
rather than at a specific date.
<PAGE>
Interest Rate Spread
Citizens' results of operations have been determined primarily by net
interest income and, to a lesser extent, fee income, miscellaneous income,
general and administrative expenses, taxes and the provision for loan losses.
Net interest income is determined by the interest rate spread between the yields
earned on interest-earning assets and the rates paid on interest-bearing
liabilities and by the relative amounts of interest-earning assets and
interest-bearing liabilities.
The following table sets forth the weighted average effective interest rate
earned by Citizens on its loan and investment portfolios, the weighted average
effective cost of Citizens' deposits, the interest rate spread of Citizens, and
the net yield on weighted average interest-earning assets for the periods and as
for the dates shown. Average balances for the six months ended June 30, 1996 and
1995, and the years ended December 31, 1995, 1994 and 1993, are based on average
daily balances.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
At June 30, ----------------- ---------------------------------
1996 1996 1995 1995 1994 1993
---- ---- ---- ---- ---- ----
Weighted average interest rate earned on:
<S> <C> <C> <C> <C> <C> <C>
Interest-earning deposits and other...... 6.91% 4.54% 2.59% 5.47% 3.69% 3.00%
Investment securities.................... 6.34 4.42 4.96 5.68 3.21 4.74
Mortgage-backed and
related securities..................... 6.88 6.24 7.00 6.83 12.34 ---
Loans receivable, net.................... 8.75 8.84 8.76 8.90 8.41 8.72
Total interest-earning assets.......... 7.88 8.10 8.38 7.56 7.21
Weighted average interest rate cost of:
Deposits................................. 4.32 4.26 3.83 4.56 3.52 3.68
FHLB advances............................ 5.68 8.17 5.51 6.17 6.25 ---
Total interest-bearing liabilities..... 4.33 4.32 3.86 4.60 3.52 3.68
Interest rate spread (1).................... 4.02% 3.56% 4.24% 3.78% 4.04% 3.53%
==== ==== ==== ==== ==== ====
Net yield on weighted average
interest-earning assets (2).............. ---% 3.74% 4.36% 4.25% 4.49% 4.19%
==== ==== ==== ==== ==== ====
</TABLE>
- -------------------------
(1) Interest rate spread is calculated by subtracting combined weighted
average interest rate cost from combined weighted average interest rate
earned for the period indicated. Interest rate spread figures must be
considered in light of the relationship between the amounts of
interest-earning assets and interest-bearing liabilities.
(2) The net yield on weighted average interest-earning assets is calculated
by dividing net interest income by weighted average interest-earning
assets for the period indicated. No net yield figure is presented at June
30, 1996 because the computation of net yield is applicable only over a
period rather than at a specific date.
<PAGE>
The following table describes the extent to which changes in interest rates
and changes in volume of interest-related assets and liabilities have affected
Citizens' interest income and expense during the periods indicated. For each
category of interest-earning asset and interest-bearing liability, information
is provided on changes attributable to (1) changes in rate (changes in rate
multiplied by old volume) and (2) changes in volume (changes in volume
multiplied by old rate). Changes attributable to both rate and volume which
cannot be segregated have been allocated proportionally to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
Increase (Decrease) in Net Interest Income
----------------------------------------------------
Total
Due to Due to Net
Rate Volume Change
---- ------ ------
(In thousands)
Six months ended June 30, 1996 compared
to six months ended June 30, 1995
Interest-earning assets:
<S> <C> <C> <C>
Interest-earning deposits and other.................. $ 28 $ 75 $ 103
Investment securities................................ (16) 65 49
Mortgage-backed and related securities............... (16) (47) (63)
Loans receivable, net................................ 13 374 387
------ ------- -------
Total.............................................. 9 467 476
------ ------- -------
Interest-bearing liabilities:
Deposits............................................. 92 253 345
FHLB advances........................................ 11 2 13
Other borrowings..................................... --- --- ---
------ ------- -------
Total.............................................. 103 255 358
------ ------- -------
Net change in net interest income...................... $ (94) $ 212 $ 118
====== ======= =======
Year ended December 31, 1995 compared
to year ended December 31, 1994
Interest-earning assets:
Interest-earning deposits and other.................. $ 23 $ 15 $ 38
Investment securities................................ 198 (199) (1)
Mortgage-backed and related securities............... (78) 53 (25)
Loans receivable, net................................ 127 1,031 1,158
------ ------- -------
Total.............................................. 270 900 1,170
------ ------- -------
Interest-bearing liabilities:
Deposits............................................. 330 396 726
FHLB advances........................................ 16 53 69
Other borrowings..................................... --- --- ---
------ ------- -------
Total.............................................. 346 449 795
------ ------- -------
Net change in net interest income...................... $ (76) $ 451 $ 375
====== ======= =======
Year ended December 31, 1994 compared
to year ended December 31, 1993
Interest-earning assets:
Interest-earning deposits and other.................. $ 24 $ (65) $ (41)
Investment securities................................ (98) (49) (147)
Mortgage-backed and related securities............... --- 256 256
Loans receivable, net................................ (58) 415 357
------ ------- -------
Total.............................................. (132) 557 425
------ ------- -------
Interest-bearing liabilities:
Deposits............................................. (35) 179 144
FHLB advances........................................ --- 1 1
Other borrowings..................................... --- --- ---
------ ------- -------
Total.............................................. (35) 180 145
------ ------- -------
Net change in net interest income...................... $ (97) $ 377 $ 280
====== ======= =======
</TABLE>
<PAGE>
Financial Condition at June 30, 1996 Compared to Financial Condition at December
31, 1995
Citizens' total assets at June 30, 1996 amounted to $56.2 million, an
increase of $1.7 million, or 3.1%, over the total at December 31, 1995. The
increase in assets was funded primarily through growth in deposits of $2.5
million.
Liquid assets (cash, federal funds sold, certificates of deposit and
investment securities) totaled $7.6 million at June 30, 1996, a decrease of
$903,000, or 11.1%, over the balance at December 31, 1995. The proceeds were
used to retire $1.0 million in FHLB advances.
Loans receivable totaled $43.0 million at June 30, 1996, an increase of
$2.6 million, or 6.4% over the total at December 31, 1995.
Deposits increased by $2.5 million, or 5.2%, to a total of $51.8 million at
June 30, 1996. This increase resulted primarily from a continuation of
management's goal to maintain deposit growth through advertising and pricing
strategies.
Financial Condition at December 31, 1995 Compared to Financial Condition at
December, 1994
Citizens' total assets amounted to $54.5 million at December 31, 1995, an
increase of $13.3 million, or 32.1%, over 1994. The increase was funded
primarily through growth in savings deposits of $11.2 million, an increase in
advances from the Federal Home Loan Bank of $1.5 million and a $396,000 increase
in shareholders' equity.
Liquid assets (cash, federal funds sold, certificates of deposit and
investment securities) totaled $8.5 million at December 31, 1995, an increase of
$3.8 million, or 71.0%, over 1994 levels. The increase was funded by growth in
savings deposits.
Loans receivable totaled $40.4 million at December 31, 1995, an increase of
$10.6 million, or 35.5%, over the 1994 amount. Growth in the loan portfolio was
funded through redeployment of deposit inflows as well as through use of
principal repayments on mortgage-backed securities, which declined by
approximately $1.5 million. The allowance for losses on loans totaled $348,000
at December 31, 1995, an increase of $12,000, or 3.6%, over 1994. The allowance
represented 0.9% and 1.1% of total loans at December 31, 1995 and 1994,
respectively. Non-performing loans totaled $297,000 and $93,000 at December 31,
1995 and 1994, which represented 0.7% and 0.3% of total loans and 85.3% and
27.7% of the allowance for losses on loans at those respective dates.
Deposits totaled $49.2 million at December 31, 1995, an increase of $11.2
million, or 29.5%, over the 1994 total. Citizens was able to achieve such a
level of growth as a result of several things, including changes in the product
line, very competitive rates, and a high level of advertising. Training and an
emphasis on improved personal service also contributed to the growth.
Comparison of Operating Results For Six Months Ended June 30, 1996 and 1995
Citizens recorded net income from operations for the six-month period ended
June 30, 1996 of $134,000, which represented a decrease of $62,000 from the
$196,000 in net income recorded for the comparable 1995 period. The decline in
net income resulted primarily from a $156,000 increase in the provision for
losses on loans and an increase in other expenses of $81,000, which were
partially offset by an increase in other income of $16,000 and a decrease in the
provision for income taxes of $41,000.
Total interest income amounted to $2.2 million for the six months ended
June 30, 1996, an increase of $476,000, or 28.3%, from the 1995 period. Interest
income on loans increased $387,000, or 26.9%, to a total of $1.8 million. This
increase resulted primarily from a $8.4 million increase in the average balance
outstanding, coupled with an 8 basis point increase in the weighted average
yield to 8.84% in 1996. Average loan balances grew because of Citizens'
increased sales and marketing efforts and its opening of two branches. Interest
income on investment and mortgage-backed securities and other interest bearing
deposits totaled $332,000 for the six- month period ended June 30, 1996, an
increase of $89,000, or 36.6%. The increase was due to a $4.8 million increase
in the average outstanding balance, which was partially offset by a 67 basis
point decline in the weighted average yield year-to-year to 4.94% in 1996.
Interest expense on deposits totaled $1.1 million for the six months ended
June 30, 1996, an increase of $345,000, or 45.7%, over the comparable period in
1995. This increase resulted primarily from a $12.2 million increase in the
average balance outstanding coupled with an increase in the weighted average
cost of deposits, which amounted to 4.26% in 1996, compared to 3.83% in 1995.
Average deposit balances increased as Citizens offered slightly higher rates on
deposits to maintain loan-to-deposit ratios within acceptable ranges. Interest
expense on borrowings increased by $13,000, due to an increase in average
borrowings outstanding of $70,000 coupled with an increase in the weighted
average rate of 266 basis points.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $118,000, or 13.1%, to a total of $1.0
million for the six months ended June 30, 1996. The interest rate spread
declined from 4.24% in 1995 to 3.56% in 1996, while the net interest margin
declined from 4.36% in 1995 to 3.74% in 1996.
<PAGE>
The provision for loan losses increased by $156,000, to a total of $180,000
for the six months ended June 30, 1996, as compared to the same period in 1996.
This increase resulted primarily from growth in the loan portfolio from period
to period and refinements in internal loss experience factors, as well as an
increase in non-performing loans from $297,000 at December 31, 1995 to $593,000
at June 30, 1996. Partly because substantial increases occurred in multi-family,
construction, non-residential and commercial loans, loans which are subject to
greater risk of loss, management deemed the increase in provision to be
warranted. A similiar increase in loans for 1995 of 35.5% and a similar increase
in 1994 prompted Citizens to make a large increase in its loan loss reserve.
Other expenses totaled $936,000 for the six months ended June 30, 1996, an
increase of $81,000, or 9.5%, over the comparable 1995 period. The increase
resulted primarily from a $72,000, or 18.9%, increase in employee compensation
and benefits and a $31,000, or 24.8%, increase in premises and equipment
expense. The increase in employee compensation and benefits resulted from normal
merit increases and increased staffing levels attendant to Citizens' growth over
the period. The increase in occupancy and equipment was due to the fact that
Citizens' Walmart branch opened in January, 1995, and Citizens was incurring
some expense for its Hanover branch, which opened in May, 1995.
Citizens recorded a provision for income taxes for the six months ended
June 30, 1996, of $67,000, which represented a decrease of $41,000 from the
$108,000 in income tax expense recorded for the same period in 1995. The
decrease resulted from the $103,000 decline in earnings before taxes. The
effective tax rates were 33.3% and 35.5% for the six months ended June 30, 1996
and 1995, respectively.
Comparison of Operating Results For Fiscal Years Ended December 31, 1995 and
1994
Net income for the year ended December 31, 1995 amounted to $342,000, an
increase of $18,000, or 5.6%, over the $324,000 in net income recorded in 1994.
The increase in net income resulted primarily from a $375,000 increase in net
interest income and a $219,000 increase in other income, which were partially
offset by an $87,000 increase in the provision for losses on loans, a $309,000
increase in other expenses and a $180,000 increase in the provision for income
taxes, including the recognition of an $86,000 cumulative effect of change in
accounting principle in 1994.
Total interest income amounted to $3.7 million for the year ended December
31, 1995, an increase of $1.2 million, or 46.3%, over 1994. Interest income on
loans totaled $3.2 million, an increase of $1.2 million, or 56.9%, over the $2.0
million recorded in 1994. The increase resulted primarily from an $11.7 million
increase in average loans outstanding year-to-year, coupled with a 49 basis
point increase in yield to 8.90% in 1995. The increase in the yield is due to
the increasing rate environment during the year. Interest income on investment
and mortgage-backed securities and other interest-bearing deposits totaled
$501,000 in 1995, an increase of $12,000, or 2.5%. The increase was due
primarily to a 78 basis point increase in yield to 6.12%, partially offset by a
$980,000 decrease in the average balance outstanding in 1995.
Interest expense on deposits increased by $726,000, or 70.9%, to a total of
$1.8 million for the year ended December 31, 1995. This increase resulted
primarily from a $9.3 million increase in the average balance outstanding,
coupled with a 104 basis point increase in the weighted average cost of deposits
year-to-year. The cost of funds increased throughout the year causing the
increase in the average weighted cost. Interest on borrowings increased by
$69,000 for the year ended December 31, 1995, due to an increase in borrowings
during the year.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $375,000, or 25.0%, to a total of $1.9
million for the year ended December 31, 1995. The interest rate spread declined
from 4.04% in 1994, to 3.78% in 1995, while the net interest margin declined to
4.25% in 1995 from 4.49% in 1994.
Citizens recorded a provision for losses on loans totaling $104,000 for the
year ended December 31, 1995, an increase of $87,000 over the $17,000 provision
recorded in 1994. The increase was attributable to the $10.6 million increase in
the loan portfolio over the period, which increased the inherent loss contained
within the loan portfolio. Also non-performing loans increased from $93,000 at
the end of 1994 to $297,000 at December 31, 1995.
Other income totaled $563,000 for the year ended December 31, 1995, an
increase of $219,000, or 63.7%, over 1994. The increase resulted primarily from
an $88,000, or 24.3%, increase in service fees and charges on deposits and other
services, an increase on the gain on sale of investment securities of $75,000,
and an increase of $56,000, or 105.7% in other income.
Other expense totaled $1.8 million for the year ended December 31, 1995, an
increase of $308,000, or 21.2%, over the $1.5 million recorded in 1994. The
increase in other expense resulted primarily from a $154,000, or 22.7%, increase
in employee compensation and benefits, a $24,000, or 40.6%, increase in
advertising, a $34,000, or 56.6%, increase in office supplies and postage and a
$55,000, or 26.4%, increase in other operating expenses. The increase in
employee compensation and benefits resulted primarily from normal merit
increases and additional staffing levels due to growth. The increase in office
supplies and postage and other operating expenses resulted primarily from
pro-rata increases in all expenses due to Citizens' growth year-to-year. The
increase in advertising was mainly due to the opening of two branches, the
introduction of new products and managements' emphasis on changing Citizens'
image.
<PAGE>
Citizens' provision for income taxes totaled $223,000 for the year ended
December 31, 1995, an increase of $181,000 over the provision recorded in 1994.
The 1994 provision, totaling $43,000, was net of a cumulative effect of adoption
of SFAS No. 109, totaling $86,000. The increase in the provision also resulted
from an increase in earnings before taxes of $198,000, or 54.0%. The effective
tax rates were 39.5% and 35.1% for the years ended December 31, 1995 and 1994,
respectively.
Comparison of Operating Results For Fiscal Years Ended December 31, 1994 and
1993
Citizens' net income for the year ended December 31, 1994 totaled $324,000,
an increase of $54,000, or 20.0%, over the $270,000 in net income recorded in
1993. The increase in net income resulted primarily from an increase of $280,000
in net interest income, a decrease of $33,000 in the provision for losses on
loans and an $86,000 cumulative effect of a change in accounting principle in
1994, which were partially offset by a decrease in other income of $204,000, an
increase in the provision for income taxes of $36,000, and an increase in other
expenses of $104,000.
Total interest income amounted to $2.5 million for the year ended December
31, 1994, an increase of $425,000, or 20.2%, over 1993. Interest income on loans
totaled $2.0 million, an increase of $357,000, or 21.3%, over 1993. This
increase resulted primarily from a $5.0 million increase in the weighted average
portfolio balance outstanding, which was partially offset by a decline in the
weighted average yield, from 8.72% in 1993 to 8.41% in 1994. Interest income on
investment and mortgage-backed securities and interest-bearing deposits totaled
$489,000 in 1994, an increase of $68,000, or 16.2%, over 1993. The increase
resulted primarily from an increase in the weighted average yield of 107 basis
points to 5.34% in 1994.
Interest expense on deposits totaled $1.0 million for the year ended
December 31, 1994, an increase of $144,000, or 16.4%, over 1993. The increase
was due primarily to a $5.1 million increase in the weighted average outstanding
balance, which was partially offset by a decline of 16 basis points in the
weighted average cost of deposits to 3.52% in 1994.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $280,000, or 23.0%, to a total of $1.5
million for the year ended December 31, 1994, as compared to 1993. The interest
rate spread increased to 4.04% in 1994 from 3.53% in 1993, while the net
interest margin increased to 4.49% in 1994, compared to 4.19% in 1993.
Citizens recorded a $17,000 provision for losses on loans for the year
ended December 31, 1994, a decrease of $33,000, or 66.0%, from the $50,000
provision recorded in 1993. Non-performing loans totaled $93,000 at December 31,
1994 and $36,000 at December 31, 1993, respectively, which represented 0.3 % and
0.2% of total loans on such dates. The changes to the provision for losses on
loans during 1994 were made to bring the allowance for loan losses more in line
with industry averages, consistent with the size and nature of the portfolio.
Other income totaled $344,000 for the year ended December 31, 1994, a
decrease of $204,000, or 37.2%, from the $548,000 in other income recorded in
1993. The decrease resulted primarily from a decline in other service charges
and fees of $162,000, or 30.9% and a $71,000 loss on sale of investment
securities recorded during 1994, which were partially offset by a $28,000
increase in other operating income. The decline in service charges and fees
resulted primarily from the decrease in FHLMC service charges. Fees decreased
from $524,000 to $367,000 as a result of the increase in mortgage rates.
Other expense totaled $1.5 million for the year ended December 31, 1994, an
increase of $104,000, or 7.7%, over the $1.4 million total recorded in 1993. The
increase resulted primarily from a $65,000, or 10.6%, increase in employee
compensation and benefits and a $53,000, or 23.5%, increase in premises and
equipment. The increase in employee compensation and benefits resulted primarily
from normal merit increases, coupled with additional staffing levels attendant
to Citizens' 25% growth in assets year-to-year. The increase in premises and
equipment resulted from expenses for Citizens' Walmart branch. Costs of $60,000
were expensed at the end of the year relating to the Walmart branch.
The provision for income taxes totaled $129,000 for the year ended December
31, 1994, before consideration of an $86,000 cumulative effect credit for a
change in method of accounting for income taxes. The 1994 provision represented
an increase of $37,000, or 40.2%, over 1993. Citizens' effective tax rates were
35.1% and 25.4% for the years ended December 31, 1994 and 1993, respectively.
Liquidity and Capital Resources
Citizens' primary sources of funds are deposits, proceeds from principal
and interest payments on loans and proceeds from maturing securities. While
maturities and scheduled amortization of loans are a predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions, competition and the restructuring of the
thrift industry.
<PAGE>
The primary investing activity of Citizens is the origination of mortgage,
commercial and consumer loans. During the years ended December 31, 1995, 1994
and 1993, Citizens originated mortgage loans in the amounts of $32.7 million,
$17.3 million and $28.2 million, respectively. Citizens originated commercial
loans in the amounts of $9.2 million, $6.2 and $4.8 million, respectively,
during these periods. Citizens originated consumer loans of $7.4 million, $6.6
million and $4.7 million, respectively, during these periods. Loan repayments,
sales, and other deductions were $39.0 million, $20.2 million and $36.3 million
during the respective three one-year periods.
During the six-month periods ended June 30, 1996 and 1995, Citizens
originated mortgage loans of $6.7 million and $5.3 million, respectively.
Citizens originated commercial loans in the amount of $1.5 million and $892,000,
respectively, during these periods. During the same periods, Citizens originated
consumer loans of $3.5 million and $4.3 million, respectively. Loan repayments,
sales, and other deductions were $9.1 million and $4.0 million, respectively,
during these periods.
During the years ended December 31, 1995, 1994, and 1993, Citizens
purchased securities (including mortgage-backed securities) in the amounts of
$2.1 million, $3.6, and $6.7 million, respectively. Maturities, sales, and
repayments of securities were $4.7 million in 1995, $4.0 million in 1994 and
$5.1 million in 1993. For the six months ended June 30, 1996 and 1995, Citizens
purchased $5.9 million and $1.3 million of securities (including mortgage-backed
securities), respectively. Maturities, sales and repayments of securities were
$2.8 million and $4.6 million for the six months ended June 30, 1996 and 1995,
respectively.
Citizens had outstanding loan commitments of $2.2 million and unused lines
of credit of $3.8 million at June 30, 1996. Citizens anticipates that it will
have sufficient funds from loan repayments to meet its current commitments
without having to borrow additional funds from the FHLB of Indianapolis.
Certificates of deposit scheduled to mature in one year or less at June 30, 1996
totaled $19.8 million. Management believes that a significant portion of such
deposits will remain with Citizens based upon historical deposit flow data and
Citizens' competitive pricing in its market area.
Liquidity management is both a daily and long-term function of Citizens'
management strategy. In the event that Citizens should require funds beyond its
ability to generate them internally, additional funds are available through the
use of FHLB advances and through sales of securities. FHLB advances totalled
$500,000 at June 30, 1996.
The following is a summary of cash flows for Citizens, which are of three
major types. Cash flows from operating activities consist primarily of net
income generated by cash. Investing activities generate cash flows through the
origination and principal collection on loans as well as purchases and sales of
securities. Investing activities will generally result in negative cash flows
when Citizens is experiencing loan growth. Cash flows from financing activities
include savings deposits, withdrawals and maturities and changes in borrowings.
The following table summarizes cash flows for the six months ended June 30, 1996
and 1995 and each of the three years in the period ended December 31, 1995.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
-------------------- ----------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating activities........................... $ 49 $ 126 $ 639 $ 514 $ 640
Investing activities:
Investment purchases........................ (5,902) (1,326) (2,072) (3,596) ---
Investment maturities/sales................. 2,849 4,559 4,748 3,967 ---
Net change in investment
securities................................ --- --- --- --- (1,562)
Changes in loans............................ (2,767) (6,591) (10,760) (9,977) (1,267)
Other....................................... --- (729) (2,339) 449 (438)
Financing activities:
Deposit increases........................... 2,543 4,349 11,216 7,922 1,261
Borrowings.................................. (1,000) 1,500 1,500 --- ---
------- ------ --------- -------- -------
Net change in cash and
cash equivalents............................ $(4,228) $1,888 $ 2,932 $ (721) $(1,366)
======= ====== ========= ======== =======
</TABLE>
At June 30, 1996, Citizens had Tier I leverage capital of $3.4 million and
total risk-based capital of $3.9 million, and therefore exceeded all capital
requirements imposed by applicable law. See "Regulation -- Bank Regulatory
Capital."
<PAGE>
Current Accounting Issues
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." In October 1994, the FASB issued SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure," which amends SFAS No. 114 to allow a creditor to use existing
methods for recognizing interest income on impaired loans. SFAS No.114, as
amended by SFAS No. 118 as to certain income recognition provisions and
financial statement disclosure requirements, is applicable to all creditors and
to all loans that are individually and specifically evaluated for impairment,
uncollateralized as well as collateralized, except those loans that are
accounted for at fair value or at the lower of cost or fair value. This
Statement requires that the expected loss of interest income on nonperforming
loans be taken into account when calculating loan loss reserves and that
specified impaired loans be measured based upon the present value of expected
future cash flows discounted at the loan's effective interest rate or, as an
alternative, at the loan's observable market price or fair value of the
collateral if the loan is collateral dependent. Citizens' loans which may be
affected are collateral dependent, and Citizens' current procedures for
evaluating impaired loans result in carrying such loans at the lower of cost or
fair value. Management adopted SFAS No. 114 on January 1, 1995, without
significant detrimental effect on Citizens' overall consolidated financial
position or results of operations.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights," which requires that Citizens recognize as separate assets,
rights to service mortgage loans for others, regardless of how those servicing
rights are acquired. An institution that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and sells those
loans with servicing rights retained would allocate some of the cost of the
loans to the mortgage servicing rights.
SFAS No. 122 requires that securitizations of mortgage loans be accounted
for as sales of mortgage loans and acquisitions of mortgage-backed securities.
Additionally, SFAS No. 122 requires that capitalized mortgage servicing rights
and capitalized excess servicing receivables be assessed for impairment.
Impairment is measured based on fair value.
SFAS No. 122 was effective for years beginning after December 15, 1995
(January 1, 1996, as to Citizens) with respect to transactions in which an
entity acquires mortgage servicing rights and to impairment evaluations of all
capitalized mortgage servicing rights and capitalized excess servicing
receivables whenever acquired. Retroactive application is prohibited, and
earlier adoption is encouraged. Management adopted SFAS No. 122 as of January 1,
1996 without adverse material effect on Citizens' financial position or results
of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers of
Financial Assets, Servicing Rights and Extinguishment of Liabilities," that
provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes use of
special purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting method, the
financial components approach, provides that the carrying amount of the
financial assets transferred be allocated to components of the transaction based
on their relative fair values. SFAS No. 125 provides criteria for determining
whether control of assets has been relinquished and whether a sale has occurred.
If the transfer does not qualify as a sale, it is accounted for as a secured
borrowing. Transactions subject to the provisions of SFAS No. 125 include, among
others, transfers involving repurchase agreements, securitizations of financial
assets, loan participations, factoring arrangements, and transfers of
receivables with recourse. An entity that undertakes an obligation to service
financial assets recognizes either a servicing asset or liability for the
servicing contract (unless related to a securitization of assets, and all the
securitized assets are retained and classified as held-to-maturity). A servicing
asset or liability that is purchased or assumed is initially recognized at its
fair value. Servicing assets and liabilities are amortized in proportion to and
over the period of estimated net servicing income or net servicing loss and are
subject to subsequent assessments for impairment based on fair value. SFAS No.
125 provides that a liability is removed from the balance sheet only if the
debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor. SFAS No. 125 is
effective for transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted. Management
does not believe that adoption of SFAS No. 125 will have a material adverse
effect on Citizens' financial position or results of operations.
Impact of Inflation
The financial statements presented herein have been prepared in accordance
with generally accepted accounting principles. 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.
<PAGE>
The primary assets and liabilities of financial institutions such as
Citizens are monetary in nature. As a result, interest rates have a more
significant impact on Citizens' 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 structures of Citizens' assets and
liabilities are critical to the maintenance of acceptable performance levels.
The principal effect of inflation, as distinct from levels of interest
rates, on earnings is in the area of noninterest expense. Such expense items 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 made by Citizens. Citizens is unable to determine the extent, if
any, to which properties securing Citizens' loans have appreciated in dollar
value due to inflation.
BUSINESS OF CITIZENS
General
Citizens was organized as a national bank in 1981 and conducts its business
from four full-service offices all located in Jefferson County, Indiana.
Citizens' business consists of attracting deposits from the general public and
originating residential and nonresidential real estate mortgage loans,
commercial loans and consumer loans. Citizens specially tailors loans to achieve
the structure and flexibility required by its borrowers. The small to medium
sized businesses, professionals and individuals who borrow from Citizens receive
the benefit of individual attention, review and oversight offered by Citizens
and its staff. Citizens' deposits are insured up to applicable limits by the BIF
of the FDIC.
Citizens offers a number of consumer and commercial financial services,
including: (i) residential mortgage loans; (ii) nonresidential real estate
loans; (iii) nonmortgage commercial loans; (iv) multi-family loans; (v)
agricultural loans; (vi) construction loans; (vii) home equity loans; (viii)
loans secured by deposits; (ix) installment loans; (x) mobile home loans; (xi)
NOW accounts; (xii) money market accounts; (xiii) savings accounts; (xiv)
certificates of deposit; (xv) annuities and (xvi) individual retirement
accounts.
Lending Activities
Citizens historically has concentrated its lending activities on the
origination of loans secured by first mortgage liens for the purchase,
construction or refinancing of one- to four-family residential real property.
One- to four-family residential mortgage loans continue to be the major focus of
Citizens' loan origination activities, representing 37.8% of Citizens' total
loan portfolio at June 30, 1996. Citizens also offers multi-family mortgage
loans, nonresidential real estate loans, nonmortgage commercial loans and
consumer loans. Mortgage loans secured by multi-family properties and
nonresidential real estate totaled approximately 2.6% and 19.2%, respectively,
of Citizens' total loan portfolio at June 30, 1996. Nonmortgage commercial loans
constituted approximately 13.4% of Citizens' total loan portfolio at June 30,
1996. Consumer loans constituted approximately 20.7% of Citizens' total loan
portfolio at June 30, 1996.
Loan Portfolio Data. The following table sets forth the composition of
Citizens' loan portfolio by loan type as of the dates indicated, including a
reconciliation of gross loans receivable after consideration of the allowance
for loan losses.
<TABLE>
<CAPTION>
At December 31,
At June 30, ---------------------------------------------------------------
1996 1995 1994 1993
------------------ -------------------- ----------------- ------------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ --------
TYPE OF LOAN (Dollars in thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to four-family................... $16,422 37.8% $15,386 37.7% $ 9,465 31.4% $ 6,603 32.7%
Multi-family......................... 1,136 2.6 881 2.2 710 2.4 130 0.6
Construction......................... 2,729 6.3 2,484 6.1 1,821 6.0 971 4.8
Nonresidential real estate........... 8,363 19.2 7,698 18.9 5,370 17.8 3,368 16.6
Consumer loans.......................... 9,019 20.7 9,135 22.4 7,673 25.4 4,904 24.2
Commercial loans........................ 5,833 13.4 5,196 12.7 5,131 17.0 4,281 21.1
------- ---- ------- ---- ------- ---- ------- ----
Gross loans receivable.................. 43,502 100.0 40,780 100.0 30,170 100.0 20,257 100.0
Deduct:
Allowance for loan losses............... (499) (1.2) (348) (0.9) (336) (1.1) (359) (1.8)
------- ---- ------- ---- ------- ---- ------- ----
Net loans receivable.................... $43,003 98.8% $40,432 99.1% $29,834 98.9% $19,898 98.2%
======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
<PAGE>
The following table sets forth certain information at December 31, 1995,
regarding the dollar amount of loans maturing in Citizens' loan portfolio based
on the date that final payment is due. Demand loans having no stated schedule of
repayments and no stated maturity and overdrafts are reported as due in one year
or less. This schedule does not reflect the effects of possible prepayments or
enforcement of due-on-sale clauses. Management expects prepayments will cause
actual maturities to be shorter.
<TABLE>
<CAPTION>
Due During Years Ended December 31,
--------------------------------------------------------------------------
Outstanding 1999 2001 2006 2011
December 31, to to to and
1995 1996 1997 1998 2000 2005 2010 following
---- ---- ---- ---- ---- ---- ---- ---------
(In thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to four-family............ $15,386 $ 931 $1,235 $1,226 $1,219 $1,704 $4,080 $4,991
Multi-family.................. 881 587 294 --- --- --- --- ---
Construction loans............ 2,484 2,484 --- --- --- --- --- ---
Nonresidential................ 7,698 6,786 912 --- --- --- --- ---
Consumer loans................... 9,135 2,913 2,331 1,741 889 985 276 ---
Commercial loans................. 5,196 2,897 864 398 419 208 410 ---
------- ------- ------ ------ ------ ------ ------ ------
Total......................... $40,780 $16,598 $5,636 $3,365 $2,527 $2,897 $4,766 $4,991
======= ======= ====== ====== ====== ====== ====== ======
</TABLE>
The following table sets forth, as of December 31, 1996, the dollar amount
of all loans due after one year that have fixed interest rates and floating or
adjustable interest rates.
<TABLE>
<CAPTION>
Due After December 31, 1996
------------------------------------------------------------
Fixed Rates Variable Rates Total
----------- -------------- -----
(In thousands)
Mortgage loans:
<S> <C> <C> <C>
One-to four-family................. $1,090 $13,365 $14,455
Multi-family....................... --- 294 294
Construction loans................. --- --- ---
Nonresidential..................... --- 912 912
Consumer loans........................ 6,222 --- 6,222
Commercial loans...................... 690 1,609 2,299
------ ------- -------
Total.............................. $8,002 $16,180 $24,182
====== ======= =======
</TABLE>
Residential Loans. Residential loans consist primarily of one- to
four-family loans. Approximately $16.4 million, or 37.8% of Citizens' portfolio
of loans at June 30, 1996, consisted of one- to four-family residential loans,
of which approximately 96% had adjustable rates.
Citizens currently offers adjustable-rate one- to four-family residential
ARMs which adjust annually and are indexed to the one-year U.S. Treasury
securities yields adjusted to a constant maturity. When an initial interest rate
is determined for a residential ARM loan, a margin is calculated by subtracting
the then-current index rate from the initial interest rate. Interest rate
adjustments are thereafter determined based upon fluctuations in the index rate
with a specific loan's margin remaining constant. Citizens' ARMs provide for
maximum rate adjustments per year and over the life of the loan of 1% and 5%,
respectively, and interest rate minimums of 1% below the origination rate.
Citizens' residential ARMs are amortized for terms up to 20 years. The average
margin on Citizens' ARM portfolio as of June 30, 1996, was approximately 2.5%.
Citizens generally does not originate one- to four-family residential ARMs if
the Loan-to-Value Ratio exceeds 80%.
Adjustable-rate loans decrease the risk associated with changes in interest
rates but involve other risks, primarily because as interest rates rise, the
payments by the borrowers may rise to the extent permitted by the terms of the
loan, thereby increasing the potential for default. Also, adjustable-rate loans
have features which restrict changes in interest rates on a short-term basis and
over the life of the loan. At the same time, the market value of the underlying
property may be adversely affected by higher interest rates.
Citizens also currently offers fixed-rate one- to four-family residential
mortgage loans in accordance with the guidelines established by the FHLMC to
facilitate the sale of such loans to the FHLMC in the secondary market. These
loans amortize on a monthly basis with principal and interest due each month and
are written with terms of 15, 20 and 30 years. Citizens' fixed-rate residential
mortgage loans have a maximum Loan-to-Value Ratio of 80%. Citizens retains the
servicing on all loans sold to the FHLMC. At June 30, 1996, Citizens had
<PAGE>
approximately $26.2 million of fixed-rate residential mortgage loans which were
sold to the FHLMC and for which Citizens provides servicing. At the same date,
Citizens had $901,000 of fixed-rate residential mortgage loans which were
maintained in Citizens' portfolio. See "-- Origination, Purchase and Sale of
Loans." At June 30, 1996, approximately 4% of Citizens' residential mortgage
loans had fixed rates.
Citizens' home equity lines of credit are adjustable-rate lines of credit
tied to the prime rate and are amortized based on a 10 year maturity. Citizens
generally allows a maximum 90% Loan-to-Value Ratio for its home equity loans
(taking into account any other mortgages on the property). Payments on such home
equity loans equal 1.5% of the outstanding principal balance per month.
At June 30, 1996, Citizens had approved $2.7 million of home equity loans,
of which $1.5 million were outstanding. No home equity loans were included in
non-performing assets on that date.
Substantially all of the one- to four-family residential mortgage loans
that Citizens originates include "due-on-sale" clauses, which give Citizens the
right to declare a loan immediately due and payable in the event that, among
other things, the borrower sells or otherwise disposes of the real property
subject to the mortgage and the loan is not repaid.
At June 30, 1996, one- to four-family residential mortgage loans amounting
to $127,000, or 0.3% of total loans, were included in non-performing assets. See
"-- Non-Performing and Problem Assets."
Construction Loans. Citizens offers construction loans with respect to
owner-occupied residential real estate and multi-family and nonresidential real
estate and to builders or developers constructing such properties on a
speculative basis (i.e., before the builder/developer obtains a commitment from
a buyer).
At June 30, 1996, $2.7 million, or 6.3% of Citizens' total loan portfolio,
consisted of construction loans. The largest construction loan at June 30, 1996,
totalled $213,000. No construction loans were included in non-performing assets
on that date.
Generally, construction loans are written as 12 month fixed-rate loans with
interest calculated on the amount disbursed under the loan and payable on a
monthly basis. Citizens generally requires an 80% Loan-to-Value Ratio for its
multi-family and nonresidential real estate construction loans and an 85%
Loan-to-Value Ratio for its one- to four-family residential construction loans.
Inspections are made prior to any disbursement under a construction loan, and
Citizens does not charge commitment fees for its construction loans.
While providing Citizens with a comparable, and in some cases higher, yield
than a conventional mortgage loan, construction loans involve a higher level of
risk. For example, if a project is not completed and the borrower defaults,
Citizens may have to hire another contractor to complete the premises at a
higher cost. Also, a house may be completed, but may not be salable, resulting
in the borrower defaulting and Citizens taking title to the premises.
Nonresidential Real Estate Loans. At June 30, 1996, $8.4 million, or 19.2%
of Citizens' total loan portfolio, consisted of nonresidential real estate
loans. The nonresidential real estate loans included in Citizens' portfolio are
primarily secured by real estate such as churches, farms and small business
properties. Citizens currently originates nonresidential real estate loans as
one-year adjustable-rate loans indexed to the one-year U.S. Treasury securities
yields adjusted to a constant maturity and are written for maximum terms of 15
years. When an initial interest rate is determined for an adjustable-rate
nonresidential real estate loan, a margin is calculated by subtracting the
then-current index rate from the initial interest rate. Interest rate
adjustments are thereafter determined based upon fluctuations in the index rate
with a specific loan's margin remaining constant. Citizens' adjustable-rate
nonresidential real estate loans have maximum adjustments per year and over the
life of the loan of 1% and 5%, respectively, and interest rate minimums of 1%
below the origination rate. Citizens generally requires Loan-to-Value Ratios of
65% to 85% for its nonresidential real estate loans, depending on the nature of
the real estate securing such loans. Citizens underwrites its nonresidential
real estate loans on a case-by-case basis and, in addition to its normal
underwriting criteria, Citizens evaluates the borrower's ability to service the
debt from the net operating income of the property. The largest nonresidential
real estate loan as of June 30, 1996 was $339,000. On the same date,
nonresidential real estate loans totalling $114,000 were included in
non-performing assets.
Loans secured by nonresidential real estate generally are larger than one-
to four-family residential loans and involve a greater degree of risk.
Nonresidential real estate loans often involve large loan balances to single
borrowers or groups of related borrowers. Payments on these loans depend to a
large degree on results of operations and management of the properties and may
be affected to a greater extent by adverse conditions in the real estate market
or the economy in general. Accordingly, the nature of the loans makes them more
difficult for management to monitor and evaluate.
<PAGE>
Multi-Family Loans. At June 30, 1996, $1.1 million, or 2.6% of Citizens'
total loan portfolio, consisted of mortgage loans secured by multi-family
dwellings (those consisting of more than four units). Citizens' multi-family
loans are generally written on the same terms and conditions as Citizens'
nonresidential real estate loans. The largest multi-family loan as of June 30,
1996 was $397,000. On the same date, there were no multi-family loans included
in non-performing assets.
Multi-family loans, like nonresidential real estate loans, involve a
greater risk than do residential loans. See "-- Nonresidential Real Estate
Loans" above. Also, the loans-to-one borrowers limitation limits the ability of
Citizens to make loans to developers of apartment complexes and other
multi-family units.
Commercial Loans. At June 30, 1996, $5.8 million, or 13.4% of Citizens'
total loan portfolio, consisted of nonmortgage commercial loans. Citizens'
commercial loans are written on either a fixed-rate or an adjustable-rate basis
with terms that vary depending on the type of security, if any. At June 30,
1996, approximately 75.8% of Citizens' commercial loans were secured by
collateral, such as equipment, inventory and crops. Citizens' adjustable-rate
commercial loans are generally indexed to the prime rate with varying margins
and terms depending on the type of collateral securing the loans and the credit
quality of the borrowers. At June 30, 1996, the largest commercial loan was
$397,000. As of the same date, commercial loans totalling $305,000 were included
in non-performing assets.
Commercial loans tend to bear somewhat greater risk than residential
mortgage loans, depending on the ability of the underlying enterprise to repay
the loan. Further, they are frequently larger in amount than Citizens' average
residential mortgage loans. See "Risk Factors."
Consumer Loans. Citizens' consumer loans, consisting primarily of auto,
mobile home, home improvement and unsecured installment loans, aggregated $9.0
million at June 30, 1996, or 20.7% of Citizens' total loan portfolio. Citizens
consistently originates consumer loans to meet the needs of its customers and to
assist in meeting its asset/liability management goals. All of Citizens'
consumer loans, except loans secured by deposits, are fixed-rate loans with
terms that vary depending on the collateral. At June 30, 1996, 74.7% of
Citizens' consumer loans were secured by collateral.
Citizens offers both direct and indirect automobile loans. Under Citizens'
indirect automobile program, participating automobile dealers receive loan
applications from prospective purchasers of automobiles at the point of sale and
deliver them to Citizens for immediate processing. The dealer receives a portion
of the interest payable on approved loans.
Citizens' loans secured by deposits are made up to 100% of the original
account balance and accrue at a rate of 2% over the underlying certificate of
deposit rate. Interest on loans secured by deposits is paid semi-annually.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans which are unsecured or are secured by
rapidly depreciable assets, such as automobiles and mobile homes. Further, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of greater
likelihood of damage, loss or depreciation. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. At June 30, 1996, consumer loans amounting to $47,000 were included
in non-performing assets. See "-- Non-Performing and Problem Assets." There can
be no assurances, however, that additional delinquencies will not occur in the
future.
Origination, Purchase and Sale of Loans. Citizens historically has
originated its ARM loans pursuant to its own underwriting standards which were
not in conformity with the standard criteria of the FHLMC or FNMA. If it desired
to sell its adjustable-rate mortgage loans, Citizens might therefore experience
some difficulty selling such loans quickly in the secondary market. Citizens'
ARMs vary from secondary market criteria because, among other things, Citizens
does not require current property surveys in most cases and does not permit the
conversion of those loans to fixed rate loans in the first three years of their
term.
Citizens participates in the secondary market as a seller of its fixed-rate
residential mortgage loans to the FHLMC, as described above. The loans sold by
Citizens to the FHLMC are designated for sale when originated. During the six
months ended June 30, 1996, Citizens sold $6.7 million in fixed-rate residential
mortgage loans to FHLMC, and at June 30, 1996 held no such loans for sale.
When it sells residential mortgage loans, Citizens generally retains the
responsibility for collecting and remitting loan payments, inspecting the
properties that secure the loans, making sure that monthly principal and
interest payments and real estate tax and insurance payments are made, and
otherwise servicing the loan. Citizens receives a servicing fee in the amount of
one-fourth of 1% per annum on the outstanding principal amount of the loans
serviced. The servicing fee is recognized as income over the life of the loan.
At June 30, 1996, Citizens serviced $26.2 million in loans sold to the FHLMC.
<PAGE>
Citizens confines its loan origination activities primarily to Jefferson
County. At June 30, 1996, loans totalling $1.2 million were secured by property
located outside of Indiana. Citizens' loan originations are generated from
referrals from real estate dealers and existing customers, and newspaper and
periodical advertising. Loan applications are processed and underwritten at any
of Citizens' four full-service offices.
Citizens' loan approval process is intended to assess the borrower's
ability to repay the loan, the viability of the loan and the adequacy of the
value of the property that will secure the loan. To assess the borrower's
ability to repay, Citizens studies the employment and credit history and
information on the historical and projected income and expenses of its
mortgagors. Mortgage loans up to $100,000 may be approved by Citizens' Senior
Loan Officer, and mortgage loans up to $200,000 may be approved by the
President. All other mortgage loans are approved by at least three members of
the Board of Directors. Loans secured by collateral other than real estate up to
$300,000 may be approved by Citizens' President and loans secured by collateral
other than real estate up to $100,000 may be approved by the Senior Loan
Officer. All other loans secured by collateral other than real estate are
approved by the Board of Directors. Citizens' President and Senior Loan Officer
have lending authority of up to $50,000 and $25,000, respectively, for unsecured
loans.
Citizens generally requires appraisals on all property securing its loans
and requires title insurance and a valid lien on its mortgaged real estate.
Appraisals for all real property securing mortgage loans are performed by an
independent appraiser who is a state-licensed appraiser. Citizens requires fire
and extended coverage insurance in amounts at least equal to the principal
amount of the loan and also requires flood insurance to protect the property
securing its interest if the property is in a flood plain. Citizens does not
currently require that accounts be established by its borrowers to escrow
insurance premiums and taxes for its portfolio loans.
Citizens' underwriting standards for consumer and commercial loans are
intended to protect against some of the risks inherent in making such loans.
Borrower character, paying habits and financial strengths are important
considerations.
Citizens occasionally purchases participations in nonresidential real
estate and multi-family loans from other financial institutions. At June 30,
1996, Citizens held in its loan portfolio participations in mortgage loans
aggregating $408,000 that it had purchased, all of which were serviced by
others.
The table below shows loan origination, purchase and repayment activities
of Citizens for the periods indicated.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
---------------------------- -----------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
Loan Originations:
<S> <C> <C> <C> <C> <C>
Single family residential....................... $3,907 $2,912 $24,992 $11,814 $25,219
Multi-family residential........................ 183 448 1,117 200 ---
Nonresidential real estate...................... 1,082 775 2,578 1,925 1,704
Construction.................................... 1,523 1,193 4,050 3,389 1,240
Commercial...................................... 1,528 892 9,213 6,150 4,787
Consumer and other.............................. 3,477 4,333 7,433 6,571 4,664
------ ------ ------- ------- -------
Total loans originated........................ 11,700 10,553 49,383 30,049 37,614
Purchases.......................................... 397 --- 200 7 ---
------ ------ ------- ------- -------
Total loans originated and purchased.......... 12,097 10,553 49,583 30,056 37,614
Sales and Loan Principal Reductions:
Loans sold...................................... (6,706) (327) 8,689 3,177 16,567
Loan principal reductions....................... (2,428) (3,637) 30,296 16,972 19,781
------ ------ ------- ------- -------
Total loans sold and principal reductions..... (9,134) (3,964) 38,985 20,149 36,348
Increase (decrease) due to other items, net........ (196) 2 --- 29 (41)
------ ------ ------- ------- -------
Net increase in loan portfolio..................... $2,767 $6,591 $10,598 $ 9,936 $ 1,225
====== ====== ======= ======= =======
</TABLE>
<PAGE>
Origination and Other Fees. Citizens realizes income from loan origination
fees, loan servicing fees, late charges, checking account service charges, and
fees for other miscellaneous services. Late charges are generally assessed if
payment is not received within a specified number of days after it is due. The
grace period depends on the individual loan documents.
Non-Performing and Problem Assets
All loans are written off to the extent and at such time as management
determines the loans are unsecured and uncollectible. Delinquency notices are
sent with respect to all mortgage loans contractually past due 5 to 10 days.
When loans are 30 days in default, personal contact is made with the borrower to
establish an acceptable repayment schedule. Management is authorized to commence
foreclosure proceedings for any loan upon making a determination that it is
prudent to do so. All loans for which foreclosure proceedings have been
commenced are written-off with recoveries taken upon the sale of the property
securing the loan.
Commercial and consumer loans are treated similarly. Interest income on
consumer and other nonmortgage loans is accrued over the term of the loan except
when serious doubt exists as to the collectibility of a loan, in which case the
loan is written-off or written down to the fair value of the collateral securing
the loan. It is Citizens' policy to recognize losses on these loans as soon as
they become apparent.
Loan Write-Offs. For the year ended December 31, 1995, Citizens wrote off
loans totaling $92,000, net of recoveries, compared to $40,000 for the year
ended December 31, 1994. For the six months ended June 30, 1996, Citizens wrote
off loans totaling $29,000, net of recoveries. Citizens held no REO as of June
30, 1996.
The following table sets forth information regarding Citizens'
non-performing loans, troubled debt restructuring, and real estate acquired
through foreclosure at the dates indicated. At June 30, 1996, residential real
estate loans, nonresidential real estate loans, consumer loans and commercial
loans accounted for $127,000, $114,000, $47,000 and $305,000, respectively, of
non-performing assets. Management attributes the growth in non-performing loans
since December 31, 1994 to the growth in its loan portfolio and to problems with
one significant commercial loan with a balance of approximately $114,000 at June
30, 1996.
<TABLE>
<CAPTION>
At December 31,
At June 30, -----------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
(Dollars in thousands)
Non-performing assets:
<S> <C> <C> <C> <C>
Non-performing loans (1).......................... $593 $ 297 $ 93 $ 36
Troubled debt restructurings...................... --- --- --- ---
---- ---- ---- ----
Total non-performing loans...................... 593 297 93 36
Foreclosed real estate............................ --- --- --- ---
---- ---- ---- ----
Total non-performing assets..................... $593 $ 297 $ 93 $ 36
==== ==== ==== ====
Non-performing loans to total loans.................. 1.38% 0.73% 0.31% 0.18%
==== ==== ==== ====
Non-performing assets to total assets................ 1.06% 0.54% 0.23% 0.11%
==== ==== ==== ====
</TABLE>
(1) Loans continue to accrue interest until such time as they are deemed
uncollectible. At that time, loans are written off, in the case of
unsecured loans, and written down to fair value of the collateral, in the
case of secured loans.
At June 30, 1996, Citizens held loans delinquent from 30 to 89 days
aggregating $1.5 million, or 2.7% of total assets. Citizens was not aware of any
other loans, the borrowers of which were experiencing financial difficulties. In
addition there were no other assets that would need to be disclosed as
non-performing assets.
<PAGE>
Delinquent Loans. The following table sets forth certain information at
June 30, 1996, and at December 31, 1995, 1994 and 1993, relating to
delinquencies in Citizens' portfolio.
<TABLE>
<CAPTION>
At June 30, 1996 At December 31, 1995
------------------------------------------------- ------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------- ------------------------- ----------------------- -----------------------
Principal Principal Principal Principal
Number Balance of Number Balance of Number Balance of Number Balance of
of Loans Loans of Loans Loans of Loans Loans of Loans Loans of
-------- ----- -------- ----- -------- ----- -------- ----- --
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real
estate loans............ 10 $226 6 $ 127 3 $ 61 5 $118
Multi-family loans......... --- --- --- --- --- --- --- ---
Construction loans......... --- --- --- --- 1 390 --- ---
Non-residential
real estate loans....... --- --- 1 114 --- --- 1 114
Consumer loans............. 22 109 11 47 20 65 6 35
Commercial loans........... 5 80 1 305 1 6 1 30
-- ---- -- ---- -- ---- -- ----
Total................... 37 $415 19 $593 25 $522 13 $297
== ==== == ==== == ==== == ====
Delinquent loans to
total gross loans....... 2.32% 2.01%
==== ====
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1994 At December 31, 1993
------------------------------------------------- ------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------- ------------------------- ----------------------- -----------------------
Principal Principal Principal Principal
Number Balance of Number Balance of Number Balance of Number Balance of
of Loans Loans of Loans Loans of Loans Loans of Loans Loans of
-------- ----- -------- ----- -------- ----- -------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real 1 $ 39 2 $47 3 $ 96 1 $18
estate loans............ --- --- --- --- --- --- --- ---
Multi-family loans......... --- --- --- --- --- --- --- ---
Construction loans.........
Non-residential 1 121 --- --- --- --- --- ---
real estate loans....... 9 37 9 46 17 96 4 13
Consumer loans............. 3 34 --- --- --- --- 1 5
-- ---- -- --- -- ---- - ---
Commercial loans........... 14 $231 11 $93 20 $192 6 $36
== ==== == === == ==== == ===
Total...................
Delinquent loans to 1.07% 1.13%
total gross loans....... ==== ====
</TABLE>
<PAGE>
Classified assets. Citizens' Asset Classification Policy provides for the
classification of loans and other assets such as debt and equity securities
considered to be of lesser quality as "substandard," "doubtful" or "loss"
assets. An asset is considered "substandard" if it is inadequately protected by
the current net worth and paying capacity of the obligor or of the collateral
pledged, if any. "Substandard" assets include those characterized by the
"distinct possibility" that the institution will sustain "some loss" if the
deficiencies are not corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted.
An insured institution is required to establish general allowances for loan
losses in an amount deemed prudent by management for loans classified
substandard or doubtful, as well as for other problem loans. General allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies problem assets as "loss," it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset so classified or to charge off such amount.
At June 30, 1996, the aggregate amount of Citizens' classified assets, and
of Citizens' general and specific loss allowances were as follows:
At June 30, 1996
----------------
(In thousands)
Substandard assets............................... $356
Doubtful assets.................................. ---
Loss assets...................................... ---
----
Total classified assets...................... $356
====
General loss allowances.......................... $499
Specific loss allowances......................... ---
----
Total allowances............................. $499
====
Citizens regularly reviews its loan portfolio to determine whether any
loans require classification in accordance with applicable regulations. Not all
of Citizens' classified assets constitute non-performing assets and not all of
Citizens' non-performing assets are classified.
Allowance for Loan Losses
The allowance for loan losses is maintained through the provision for loan
losses, which is charged to earnings. The provision for loan losses is
determined in conjunction with management's review and evaluation of current
economic conditions (including those of Citizens' lending area), changes in the
character and size of the loan portfolio, loan delinquencies (current status as
well as past and anticipated trends) and adequacy of collateral securing loan
delinquencies, historical and estimated net charge-offs, and other pertinent
information derived from a review of the loan portfolio. In management's
opinion, Citizens allowance for loan losses is adequate to absorb probable
losses from loans at June 30, 1996. However, there can be no assurance that
regulators, when reviewing Citizens' loan portfolio in the future, will not
require increases in its allowances for loan losses or that changes in economic
conditions will not adversely affect Citizens' loan portfolio.
<PAGE>
Summary of Loan Loss Experience. The following is a summary of activity in
Citizens' allowance for loan losses for the periods indicated. The allowance for
loan losses is not allocated to any specific loan type.
<TABLE>
<CAPTION>
Six months Year Ended
ended June 30, December 31,
---------------------- -----------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
Balance of allowance at beginning
<S> <C> <C> <C> <C> <C>
of period................................ $348 $336 $336 $359 $316
Charge-offs:
Single-family residential................ --- --- --- --- ---
Consumer and other....................... 53 57 147 83 70
Total charge-offs.................... 53 57 147 83 70
Recoveries.................................. 24 20 55 43 63
Net charge-offs............................. 29 37 92 40 7
Provision for losses on loans............... 180 24 104 17 50
Balance at end of period.................... $499 $323 $348 $336 $359
Allowance for loan losses as a percent
of total loans outstanding............... 1.16% 0.89% 0.86% 1.13% 1.80%
---- ---- ---- ---- ----
Ratio of net charge-offs to average
loans outstanding........................ 0.07% 0.11% 0.25% 0.17% 0.04%
==== ==== ==== ==== ====
</TABLE>
Allocation of Allowance for Loan Losses. The following table presents an
analysis of the allocation of Citizens' allowance for loans losses at the dates
indicated.
<TABLE>
<CAPTION>
At June 30, At December 31,
---------------------------------------- -------------------------------------------------------
1996 1995 1995 1994 1993
------------------- ----------------- ---------------- ----------------- ---------------
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
category category category category category
to total total to total to total total
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
Balance at end of
period applicable to:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate..... $50 40.4% $33 39.7% $35 39.9% $34 33.8% $35 33.3%
Nonresidential real estate.. 100 25.5 65 25.7 70 25.0 67 23.8 70 21.4
Consumer loans.............. 149 20.7 95 23.6 105 22.4 100 25.4 114 24.2
Commercial loans............ 150 13.4 95 11.0 103 12.7 100 17.0 105 21.1
Unallocated................. 50 --- 35 --- 35 --- 35 --- 35 ---
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
Total....................... $499 100.0% $323 100.0% $348 100.0% $336 100.0% $359 100.0%
==== ===== ==== ===== ==== ===== ==== ===== ==== =====
</TABLE>
Investments and Mortgage-Backed Securities
Investments. Citizens' investment portfolio consists of U.S. government and
agency obligations, municipal securities, FHLB stock and FRB Stock. At June 30,
1996, approximately $5.0 million, or 8.9%, of Citizens' total assets consisted
of such investments, all of which was classified as available for sale.
<PAGE>
The following table sets forth the composition of Citizens' investment
portfolio (excluding interest-bearing deposits) at the dates indicated.
<TABLE>
<CAPTION>
At June 30, At December 31,
1996 1995 1994 1993
------------------ ------------------ ------------------ -------------------
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- ----- ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity:
U.S. Government agency obligations.....$ --- $ --- $ ---$ --- $1,465 $1,453 $ 500 $ 505
Municipal securities................... --- --- --- --- 674 604 559 562
------ ------ ------ ------ ------ ------ ------ ------
Total held to maturity............... --- --- --- --- 2,139 2,057 1,059 1,067
Available for Sale and Equity Securities:
U. S. Treasury notes................... 484 484 --- --- --- --- --- ---
U. S. Government agency obligations.... 3,071 3,028 151 151 --- --- 500 513
Municipal securities................... 1,131 1,119 1,132 1,155 425 433 653 673
FRB stock................................. 80 80 80 80 80 80 80 80
FHLB stock................................ 271 271 271 271 118 118 107 107
------ ------ ------ ------ ------ ------ ------ ------
Total available for sale
and equity securities.............. 5,037 4,982 1,634 1,657 623 631 1,340 1,373
------ ------ ------ ------ ------ ------ ------ ------
Total.............................. $5,037 $4,982 $1,634 $1,657 $2,762 $2,688 $2,397 $2,440
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The following table sets forth the amount of investment securities
(excluding FHLB stock and FRB stock) which mature during each of the periods
indicated and the weighted average yields for each range of maturities at June
30, 1996.
<TABLE>
<CAPTION>
Amount at June 30, 1996 which matures in
----------------------------------------------------------------------------------------------------------
Less than One Year Five Years More Than
One Year to Five Years to Ten Years Ten Years Total
------------------ ------------------- ------------------ -------------------- ------------------
Amortized Market Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
(In thousands)
U.S. Government
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
agency obligations.... $ --- $ --- $1,740 $1,700 $1,331 $1,328 $ --- $ --- $3,071 $3,028
U.S. Treasury notes...... --- --- 484 484 --- --- --- --- 484 484
Municipal securities..... --- --- --- --- 1,131 1,119 --- --- 1,131 1,119
----- ----- ------ ------ ------ ------ --------- ------ ------ ------
Total............... $ --- $ --- $2,224 $2,184 $2,462 $2,447 $ --- $ --- $4,686 $4,631
===== ===== ====== ====== ====== ====== ========= ======= ====== ======
</TABLE>
<PAGE>
Mortgage-Backed Securities. At June 30, 1996, Citizens had approximately
$3.1 million of mortgage-backed securities outstanding, all of which were
classified as available for sale. These mortgage-backed securities may be used
as collateral for borrowings and through repayments, as a source of liquidity.
The following table sets forth the carrying value and market value of
Citizens' mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
At June 30, At December 31,
1996 1995 1994 1993
-------------------- ------------------- ------------------- ---------------------
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- ----- ---- -----
(In thousands)
Held to maturity:
FHLMC Participation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
certificates............. $ --- $ --- $ --- $ --- $ 462 $ 430 $ 701 $ 718
FNMA Participation
certificates............. --- --- --- --- 2,256 2,093 2,833 2,848
------ ------ ------ ------ ------ ------ ------ ------
Total mortgage backed
securities designated as
held to maturity....... --- --- --- --- 2,718 2,523 3,534 3,566
------ ------ ------ ------ ------ ------ ------ ------
Available for sale:
Government agency
securities............... 2,354 2,296 2,728 2,699 1,579 1,459 1,575 1,595
Collaterialized mortgage
obligations.............. 879 841 879 863 879 872 899 886
------ ------ ------ ------ ------ ------ ------ ------
Total mortgage backed
securities designated as
available for sale..... 3,233 3,137 3,607 3,562 2,458 2,331 2,474 2,481
------ ------ ------ ------ ------ ------ ------ ------
Total mortgage-backed
securities........... $3,233 $3,137 $3,607 $3,562 $5,176 $4,854 $6,008 $6,047
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The following table sets forth the amount of mortgage-backed securities
which mature during each of the periods indicated and the weighted average
yields for each range of maturities at December 31, 1995.
<PAGE>
<TABLE>
<CAPTION>
Amount at December 31, 1995 which matures in
------------------------------------------------------------------------------
One Year One Year to After
or Less Five Years Five Years
----------------------- ----------------------- ----------------------
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
---- ----- ---- ----- ---- -----
(Dollars in thousands)
Mortgage-backed securities
<S> <C> <C> <C> <C> <C> <C>
Available for sale........................... $--- ---% $2,609 6.99% $998 6.42%
==== ====== ====== ==== ==== ====
</TABLE>
The following table sets forth the changes in Citizens' mortgage-backed
securities portfolio for the six-month periods ended June 30, 1996 and 1995 and
for the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
For the Six Months For the Year Ended
Ended June 30, December 31,
----------------------- --------------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance........................... $3,562 $5,049 $5,049 $6,008 $5,929
Purchases................................... --- 448 887 1,495 5,553
Sales....................................... --- (1,925) (1,925) (916) (2,589)
Monthly repayments.......................... (367) (300) (494) (1,372) (2,758)
Premium and discount
amortization, net........................ (1) 6 (28) (39) (127)
Unrealized gains (losses) on securities
available for sale....................... (57) 88 73 (127) ---
------ ------ ------ ------ ------
Ending balance.............................. $3,137 $3,366 $3,562 $5,049 $6,008
====== ====== ====== ====== ======
</TABLE>
Sources of Funds
General. Deposits have traditionally been Citizens' primary source of funds
for use in lending and investment activities. In addition to deposits, Citizens
derives funds from scheduled loan payments, loan prepayments, investment
maturities, retained earnings and income on earning assets. While scheduled loan
payments and income on earning assets are relatively stable sources of funds,
deposit inflows and outflows can vary widely and are influenced by prevailing
interest rates, market conditions and levels of competition. Borrowings from the
FHLB of Indianapolis may be used in the short-term to compensate for reductions
in deposits or deposit inflows at less than projected levels. Citizens rarely
borrows on a longer-term basis, for example, to support expanded activities or
to assist in its asset/liability management.
Deposits. Deposits are attracted, principally from within Jefferson County,
through the offering of a broad selection of deposit instruments including
fixed-rate certificates of deposit, NOW and other transaction accounts,
individual retirement accounts and savings accounts. Citizens does not actively
solicit or advertise for deposits outside of Jefferson County. Substantially all
of Citizens' depositors are residents of that county. Deposit account terms
vary, with the principal differences being the minimum balance required, the
amount of time the funds remain on deposit and the interest rate. Citizens does
not pay a fee for any deposits it receives.
Interest rates paid, maturity terms, service fees and withdrawal penalties
are established by Citizens on a periodic basis. Determination of rates and
terms are predicated on funds acquisition and liquidity requirements, rates paid
by competitors, growth goals, and applicable regulations. Citizens relies, in
part, on customer service and long-standing relationships with customers to
attract and retain its deposits, but also closely prices its deposits in
relation to rates offered by its competitors.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition. The variety of deposit accounts offered by Citizens has allowed it
to be competitive in obtaining funds and to respond with flexibility to changes
in consumer demand. Citizens has become more susceptible to short-term
fluctuations in deposit flows as customers have become more interest rate
conscious. Citizens manages the pricing of its deposits in keeping with its
asset/liability management and profitability objectives. Based on its
experience, Citizens believes that its passbook, NOW and non-interest-bearing
checking accounts are relatively stable sources of deposits. However, the
ability of Citizens to attract and maintain certificates of deposit, and the
rates paid on these deposits, have been and will continue to be significantly
affected by market conditions. Citizens has experienced sustained growth in its
deposit portfolio over the past three years as a result of Citizens' emphasis on
cross-selling techniques. Management expects to continue to emphasize
cross-selling techniques in an effort to maintain growth in its deposit
portfolio, but no assurances can be given that such growth will continue in the
future.
<PAGE>
Deposit Accounts. The following table sets forth the deposit activities of
Citizens in dollar amounts and as percentages of total deposits at June 30,
1996.
<TABLE>
<CAPTION>
Minimum Balance at Weighted
Opening June 30, % of Average
Type of Account Balance 1996 Deposits Rate
- --------------- ------- ---- -------- ----
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C>
Demand deposits........................................ $ 100 $ 4,976 9.6% 2.15%
Savings and NOW accounts............................... 100 18,800 36.3 3.08
------ ----
Total withdrawable................................... 23,776 45.9 2.86
------ ----
Certificates (original terms):
6 months............................................... 500 902 1.7
9 months............................................... 500 312 0.6
12 months.............................................. 500 10,939 21.2
24 months.............................................. 500 942 1.8
30 months ............................................. 500 2,603 5.0
36 months.............................................. 500 2,807 5.4
48 months.............................................. 500 771 1.5
60 months.............................................. 500 711 1.4
IRAs:
12 months.............................................. 500 432 0.8
24 months.............................................. 500 393 0.8
30 months ............................................. 500 54 0.1
36 months.............................................. 500 578 1.1
48 months.............................................. 500 109 0.2
60 months.............................................. 500 700 1.4
Jumbo certificates........................................ 100,000 5,741 11.1
------ ----
Total certificates..................................... 27,994 54.1 5.89
------ ---- ----
Total deposits............................................ $51,770 100.0% 4.50%
======= ===== ====
</TABLE>
The following table presents the distribution of Citizens' time deposits by
various interest rate categories as of the dates indicated:
<TABLE>
<CAPTION>
At June 30, At December 31,
1996 1995 1994 1993
Amount Amount Amount Amount
------ ------ ------ ------
(In thousands)
<C> <C> <C> <C> <C>
3.00 to 4.00%....................... $1,347 $ 141 $ 2,573 $ 6,650
4.01 to 6.00%....................... 17,009 12,610 10,500 4,545
6.01 to 8.00%....................... 9,637 14,718 4,118 951
8.01 to 10.00%...................... 1 1 66 409
------- ------- ------- -------
Total.......................... $27,994 $27,470 $17,257 $12,555
======= ======= ======= =======
</TABLE>
The following table represents, by various interest rate categories, the
amounts of time deposits maturing during each of the three years following June
30, 1996. Matured certificates, which have not been renewed as of June 30, 1996,
have been allocated based upon certain rollover assumptions.
<PAGE>
<TABLE>
<CAPTION>
Amounts at June 30, 1996
-------------------------------------------------------------------------------
One Year Two Three Greater Than
or Less Years Years Three Years
------- ----- ----- -----------
(In thousands)
<S> <C> <C> <C> <C>
3.00 to 3.99%............................... $ 302 $ --- $ --- $ ---
4.00 to 4.99%............................... 2,147 --- --- ---
5.00 to 5.99%............................... 14,998 1,976 213 447
6.00 to 6.99%............................... 2,254 1,195 807 729
7.00 to 7.99%............................... 108 2,486 331 ---
8.00 to 8.99%............................... 1 --- --- ---
------- ------ ------ ------
Total.................................... $19,810 $5,657 $1,351 $1,176
======= ====== ====== ======
</TABLE>
<PAGE>
The following table indicates the amount of Citizens' jumbo and other
certificates of deposit of $100,000 or more by time remaining until maturity as
of June 30, 1996.
At June 30, 1996
----------------
Maturity Period (In thousands)
Three months or less................................ $3,134
Greater than three months through six months........ 605
Greater than six months through twelve months....... 1,000
Over twelve months.................................. 1,002
------
Total.......................................... $5,741
======
The following table sets forth the dollar amount of savings deposits in
the various types of deposits offered by Citizens at the dates indicated, and
the amount of increase or decrease in such deposits as compared to the previous
period.
<TABLE>
<CAPTION>
DEPOSIT ACTIVITY
--------------------------------------------------------------------------------
Balance Increase Balance Increase
at (Decrease) at (Decrease)
June 30, % of from December 31, % of from
1996 Deposits 1995 1995 Deposits 1994
---- -------- ---- ---- -------- ----
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C> <C> <C>
Demand Deposits............................... $ 4,976 9.6% $(3,975) $ 8,951 18.2% $ 108
Savings and NOW accounts...................... 18,800 36.3 5,994 12,806 26.0 895
------- ----- ------ ------- ----- -------
Total withdrawable.......................... 23,776 45.9 2,019 21,757 44.2 1,003
Certificates (original terms):
6 months...................................... 902 1.7 (218) 1,120 2.2 (636)
9 months...................................... 312 0.6 (1,126) 1,438 2.9 1,019
12 months..................................... 10,939 21.2 800 10,139 20.6 5,833
24 months..................................... 942 1.8 153 789 1.6 250
30 months .................................... 2,603 5.0 81 2,522 5.1 319
36 months..................................... 2,807 5.4 93 2,714 5.5 2,511
48 months..................................... 771 1.5 33 738 1.5 58
60 months..................................... 711 1.4 88 623 1.3 94
IRAs:
12 months..................................... 432 0.8 (66) 498 1.0 205
24 months..................................... 393 0.8 104 289 0.6 147
30 months .................................... 54 0.1 1 53 0.1 (3)
36 months..................................... 578 1.1 144 434 1.0 346
48 months..................................... 109 0.2 (75) 184 0.4 (20)
60 months..................................... 700 1.4 67 633 1.3 7
Jumbo certificates............................... 5,741 11.1 445 5,296 10.7 83
------- ----- ------ ------- ----- -------
Total certificates............................ 27,994 54.1 524 27,470 55.8 10,213
------- ----- ------ ------- ----- -------
Total deposits................................... $51,770 100.0% $2,543 $49,227 100.0% $11,216
======= ===== ====== ======= ===== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DEPOSIT ACTIVITY
-----------------------------------------------------------------
Balance Increase Balance
at (Decrease) at
December 31, % of from December 31, % of
1994 Deposits 1993 1993 Deposits
---- -------- ---- ---- --------
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C> <C>
Demand Deposits............................... $ 8,843 23.3% $ 181 $ 8,662 28.8%
Savings and NOW accounts...................... 11,911 31.3 3,039 8,872 29.5
------- ----- ------- ------- -----
Total withdrawable.......................... 20,754 54.6 3,220 17,534 58.3
Certificates (original terms):
6 months...................................... 1,756 4.6 (371) 2,127 7.2
9 months...................................... 419 1.1 (936) 1,355 4.5
12 months..................................... 4,306 11.4 2,013 2,293 7.6
24 months..................................... 539 1.4 (211) 750 2.5
30 months .................................... 2,203 5.9 2,198 5 *
36 months..................................... 203 0.5 (49) 252 0.8
48 months..................................... 680 1.8 132 548 1.8
60 months..................................... 529 1.4 (167) 696 2.3
IRAs:
12 months..................................... 293 0.8 9 284 0.9
24 months..................................... 142 0.4 7 135 0.4
30 months .................................... 56 (4) 60 0.2
36 months..................................... 88 0.2 5 83 0.3
48 months..................................... 204 0.5 (9) 213 0.7
60 months..................................... 626 1.6 150 476 1.6
Jumbo certificates............................... 5,213 13.8 1,935 3,278 10.9
------- ----- ------- ------- -----
Total certificates............................ 17,257 45.4 4,702 12,555 41.7
------- ----- ------- ------- -----
Total deposits................................... $38,011 100.0% $ 7,922 $30,089 100.0%
======= ===== ======= ======= =====
</TABLE>
Borrowings. Citizens focuses on generating high quality loans and then
seeks the best source of funding from deposits, investments or borrowings. At
June 30, 1996, Citizens had $500,000 in borrowings from the FHLB of
Indianapolis. Citizens does not anticipate any difficulty in obtaining advances
appropriate to meet its requirements in the future.
The following table presents certain information relating to the Citizens
borrowings at or for the six months ended June 30, 1996 and 1995 and at or for
the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
At or for the
Six Months At or for the Year
Ended June 30, Ended December 31,
---------------------- --------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
FHLB Advances:
<S> <C> <C> <C> <C> <C>
Outstanding at end of period......................... $500 $1,500 $1,500 $--- $---
Average balance outstanding for period............... 832 762 1,134 16 ---
Maximum amount outstanding at any
month-end during the period..................... 1,500 1,500 1,500 --- ---
Weighted average interest rate
during the period............................... 8.17% 5.51% 6.17% 6.25% ---%
Weighted average interest rate
at end of period................................ 5.49% 6.62% 6.62% ---% ---%
</TABLE>
<PAGE>
Properties
The following table provides certain information with respect to Citizens'
offices as of June 30, 1996.
<TABLE>
<CAPTION>
Net Book Value
of Property
Year Furniture, Approximate
Opened or Fixtures and Square
Description and Address Acquired Equipment Footage
(Dollars in thousands)
Offices in Madison, Indiana
Main Office:
<S> <C> <C> <C>
430 Clifty Drive........................................... 1983 $707 6,084
Downtown Office:
307 West Main Street...................................... 1986 14 1,500
Wal-Mart Banking Center:
567 Ivy Tech Drive......................................... 1995 141 517
Office in Hanover, Indiana
Hanover Banking Center:
10 Medical Plaza Drive..................................... 1995 511 656
</TABLE>
Citizens owns computer and data processing equipment which is used for
transaction processing, loan origination, and accounting. The net book value of
electronic data processing equipment owned by Citizens was approximately $85,000
at June 30, 1996.
Citizens operates four ATMs, one at each office location. Citizens' ATMs
participate in the PLUS(R) and MAC(R) networks.
Employees
As of June 30, 1996, Citizens employed 29 persons on a full-time basis and
4 persons on a part-time basis. None of Citizens' employees is represented by a
collective bargaining group. Management considers its employee relations to be
excellent.
Citizens' employee benefits for full-time employees include, among other
things, a 401(k) plan, major medical and long-term disability insurance.
Employee benefits are considered by management to be competitive with those
offered by other financial institutions and major employers in Citizens' area.
See "Executive Compensation and Related Transactions of Citizens."
Legal Proceedings
Although Citizens, from time to time, is involved in various legal
proceedings in the normal course of business, there are no material legal
proceedings to which Citizens is a party or to which any of its property is
subject.
MANAGEMENT OF THE HOLDING COMPANY
Directors and Executive Officers of the Holding Company
The Board of Directors of the Holding Company currently consists of six
directors, each of whom is also a director of Madison First. The directors of
the Holding Company are divided into three classes, and one-third of the Board
is to be elected at each annual meeting of the shareholders of the Holding
Company. Upon consummation of the Acquisition it is anticipated that Jonnie L.
Davis, who currently serves as a director of Citizens, will be appointed to the
Board of Directors of the Holding Company. The initial terms of the directors
expire at the Holding Company's first shareholders' meeting, which is
anticipated to be held in June, 1997. At that meeting, it is anticipated that
the directors will be nominated to serve for the following terms: the terms of
Messrs. Dorten and Johann and of Ms. Davis will expire in 1998, the terms of
Messrs. Hensley and Koehler will expire in 1999, and the terms of Messrs. Anger
and Fritz will expire in 2000.
The executive officers of the Holding Company are identified below. The
executive officers of the Holding Company are elected annually by the Holding
Company's Board of Directors.
Name Position with Holding Company
---- -----------------------------
James E. Fritz Director, President and Chief Executive Officer
Lonnie D. Collins Secretary
John Wayne Deveary Treasurer
<PAGE>
MANAGEMENT OF MADISON FIRST
Directors of Madison First
The Board of Directors of Madison First currently consists of six persons.
Each director holds office for a term of three years, and one-third of the Board
is elected at each annual meeting of the members of Madison First. Upon
consummation of the Acquisition it is anticipated that Jonnie L. Davis, who
currently serves as a director of Citizens, will be appointed to the Board of
Directors of Madison First.
The Board of Directors of Madison First met 13 times during the fiscal year
ended December 31, 1995. No director attended fewer than 75% of the meetings of
the Board of Directors held while he served as a director and the meetings of
committees on which he served.
Listed below are the current directors of Madison First:
<TABLE>
<CAPTION>
Director of Position
Madison First Expiration with
Director Since of Term Madison First
- -------- ----- ------- -------------
<S> <C> <C> <C>
Robert W. Anger 1981 1997 Director and
Vice President--Lending
Cecil L. Dorten 1990 1998 Vice Chairman
James E. Fritz 1995 1997 Director, President and
Chief Executive Officer
Michael J. Hensley 1995 1999 Director
Earl W. Johann 1987 1998 Director
Fred W. Koehler 1988 1999 Chairman
</TABLE>
Presented below is certain information concerning the directors of Madison
First:
Robert W. Anger (age 58) has served as Madison First's Vice President --
Lending since August, 1995. Prior to that, Mr. Anger served as Madison First's
President and Chief Executive Officer. Mr. Anger also serves as a director of
First Service and McCauley.
Cecil L. Dorten (age 52) has served as the President of Ohio Valley
Contractors, Inc., a highway and utility contracting firm, since 1983, and is a
Brigadier General in the Indiana National Guard. Mr. Dorten also serves a
director of First Service and McCauley.
James E. Fritz (age 34) has served as Madison First's President and Chief
Executive Officer since August, 1995. Prior to that Mr. Fritz served as the
Chief Financial Officer of First Federal Savings Bank of Kokomo until January,
1995, and as a consultant to National City Corporation from January, 1995 to
August, 1995. Mr. Fritz also serves as a director and the Secretary-Treasurer of
First Service and a director of McCauley.
Michael J. Hensley (age 41) has practiced law since January, 1989. Prior to
that, Mr. Hensley served as a Compliance Officer, Assistant Trust Officer and
the General Counsel to The Madison Bank & Trust Company from 1980 to January,
1989. Mr. Hensley also serves as a director of First Service and McCauley.
Earl W. Johann (age 64) has served as the President and Chairman of the
Board of Madison Distributing Co. since 1979. Mr. Johann also serves as a
director of First Service and McCauley.
Fred W. Koehler (age 56) is the former owner of Koehler Tire Co., a tire
and automotive parts store in Madison, Indiana, and is the Auditor for Jefferson
County. Mr. Koehler also serves as President of First Service and as a director
of First Service and McCauley.
Madison First also has a Director Emeritus program pursuant to which former
directors of Madison First may continue to serve Madison First as an advisor to
the Board of Directors upon their retirement or resignation from the Board.
Currently, Jerry D. Allen, Madison First's Vice President -- Commercial Lending,
and Joseph Hensley serve as Directors Emeritus of Madison First. Mr. Allen is
paid fees of $600 per month for his service as a Director Emeritus, and Mr.
Hensley receives no fees in connection with service as a Director Emeritus. See
"-- Compensation of Directors."
<PAGE>
Executive Officers of Madison First Who Are Not Directors
Presented below is certain information regarding the executive officers of
Madison First who are not directors:
Name Position
---- --------
Traci A. Bridgford Vice President -- Compliance/Operations
Lonnie D. Collins Secretary
John Wayne Deveary Vice President and Treasurer
Traci A. Bridgford (age 28) has served as the Vice President --
Compliance/Operations of Madison First since January, 1996. Prior to that, Ms.
Bridgford served as Compliance Officer of Madison First from May, 1995 to
January, 1996. Ms. Bridgford served as the Senior Auditor, Controller and
Compliance Officer for Union County National Bank ("Union County") from June,
1992 to April, 1995, and as Auditor and Controller of Union County from January,
1991 to June, 1992.
Lonnie D. Collins (age 48) has served as Secretary of Madison First since
September, 1994. Mr. Collins has also practiced law since October, 1975 and has
served as Madison First's outside counsel since 1980.
John Wayne Deveary (age 42) has served as a Vice President of Madison First
since January, 1996 and as Treasurer since January, 1978. Mr. Deveary has been
employed with Madison First since 1976.
Committees of the Boards of Directors of Madison First and the Holding Company
The Loan Committee is the only committee of Madison First's Board of
Directors that meets regularly and is comprised of all members of the Board. It
meets weekly and is responsible for approving all mortgage loans.
Madison First's Audit Committee, which is comprised of all outside
directors, met one time during the fiscal year ended December 31, 1995. The
Audit Committee recommends appointment of Madison First's independent
accountants and meets with them to outline the scope, and review the results, of
each audit.
The Chairman of the Board of Directors of Madison First is required by
Madison First's By-Laws to appoint a nominating committee consisting of three
members of Madison First 30 days prior to each annual meeting. Such Committee is
authorized to make nominations for directors in writing to Madison First's
Secretary at least 15 days prior to the annual meeting which nominations are
then posted at Madison First's office. Nominations for directors may also be
made in writing by members and delivered to Madison First's Secretary at least
10 days prior to Madison First's annual meeting.
EXECUTIVE COMPENSATION AND RELATED TRANSACTIONS OF MADISON FIRST
Remuneration of Named Executive Officer
The following table sets forth information as to annual, long-term and
other compensation for services in all capacities to the President and Chief
Executive Officer of Madison First for the fiscal year ended December 31, 1995.
There were no executive officers of Madison First, as of December 31, 1995, who
earned over $100,000 in salary and bonuses during that fiscal year.
<TABLE>
<CAPTION>
Summary Compensation Table
---------------------------------------------------------------------
Annual Compensation
---------------------------------------------------------------------
Name and Principal Fiscal Other Annual All Other
Position Year Salary Bonus Compensation(4) Compensation
-------- ---- ------ ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
James E. Fritz, President and 1995(1) $28,388 (3) $2,539 -- --
Chief Executive Officer
Robert W. Anger, President 1995(2) $65,045 (3) $5,784 -- --
and Chief Executive Officer
</TABLE>
(1) Mr. Fritz joined Madison First as President and Chief Executive Officer in
August, 1995.
(2) Mr. Anger served as President and Chief Executive Officer of Madison First
until August, 1995.
(3) Includes fees received for service on Madison First's Board of Directors.
Mr. Fritz's current annual salary is $65,000.
(4) Each of Mr. Fritz and Mr. Anger received certain perquisites, but the
incremental cost of providing such perquisites did not exceed the lesser of
$50,000 or 10% of his salary and bonus.
<PAGE>
Employment Contract
Effective January 1, 1996, Madison First entered into the Fritz Agreement
with James E. Fritz, Madison First's President and Chief Executive Officer. The
Fritz Agreement is a three-year agreement and extends annually for an additional
one-year term to maintain its three-year term if Madison First's Board of
Directors determines to so extend it. Under the Fritz Agreement, Mr. Fritz
receives an initial annual salary equal to his current salary subject to
increases approved by the Board of Directors. The Fritz Agreement also provides,
among other things, for Mr. Fritz's participation in other bonus and fringe
benefit and benefits plans available to Madison First's employees. Mr. Fritz may
terminate his employment upon ninety (90) days' prior written notice to Madison
First. Madison First may discharge Mr. Fritz for just cause (as defined in the
Fritz Agreement) at any time or in certain events specified by applicable law or
regulations. If Madison First terminates Mr. Fritz's employment for other than
just cause or Mr. Fritz terminates the Fritz Agreement for reasons specified
therein and such termination does not occur within twelve months after a change
in control of Madison First or the Holding Company, the Fritz Agreement provides
for Mr. Fritz's receipt of a lump-sum or periodic payment of an amount equal to
the sum of (A) Mr. Fritz's base salary through the end of the then-current term,
plus (B) Mr. Fritz's base salary for an additional twelve-month period, plus (C)
in Mr. Fritz's sole discretion and in lieu of continued participation in Madison
First's fringe benefit plans, cash in an amount equal to the cost of obtaining
all health, life, disability and other benefits in which Mr. Fritz would
otherwise be eligible to participate. In the event Madison First terminates Mr.
Fritz's employment for other than just cause or Mr. Fritz terminates the Fritz
Agreement for reasons permitted therein within twelve months following a change
in control of Madison First or the Holding Company, the Fritz Agreement provides
for Mr. Fritz's receipt of a lump-sum payment of an amount equal to the
difference between (A) the product of 2.99 times his "base amount" (as defined
in Section 280G(b)(3) of the Code) and (B) the sum of any other parachute
payments, as determined under Section 280G(b)(2) of the Code. If the payments
provided for under the Fritz Agreement, together with any other payments made to
Mr. Fritz by Madison First, are determined to be payments in violation of the
"golden parachute" rules of the Code, such payments will be reduced to the
largest amount which would not cause Madison First to lose a tax deduction for
such payments under those rules. As of the date hereof, the cash compensation
that would be paid to Mr. Fritz under the Fritz Agreement if such agreement were
terminated after a change in control of Madison First would be $194,000.
Special Termination Agreements
Effective as of the date of the Conversion, Madison First will enter into
the Termination Agreements with its Covered Employees. The Termination
Agreements have terms of one year, subject to annual extension by the Board of
Directors of Madison First, and provide that upon the termination of a Covered
Employee's employment by the employer for other than cause or by the Covered
Employee for reasons specified in the Termination Agreements, within 18 months
after the Conversion or within 12 months following a "change in control" (as
defined in the Termination Agreements) which occurs during the term of the
applicable Termination Agreement, such Covered Employee shall be entitled to a
lump sum payment of 100% of his or her base amount of compensation, as
determined pursuant to Section 280G(b)(3) of the Code (the "Termination
Benefit"). Covered Employees may elect to receive the Termination Benefit in
semi-monthly payments over a twelve month period. The Termination Agreements
also provide for continued life, health and disability coverage for Covered
Employees until the expiration of twelve months following the termination of
employment or until the Covered Employee obtains coverage from another employer,
whichever occurs first. If a Covered Employee obtains coverage from another
employer, and does not have substantially identical life, health and disability
coverage, Madison First shall maintain substantially identical coverage on
behalf of the Covered Employee for a period of twelve months.
Compensation of Directors
All directors of Madison First are entitled to receive monthly director
fees in the amount of $600 for their services. Jerry Allen also receives $600
per month as a Director Emeritus of Madison First. Outside directors of Madison
First also receive fees in the amount of $100 for each special meeting of the
Board. Total fees paid to directors of Madison First and Mr. Allen for the year
ended December 31, 1995 were approximately $56,000.
Madison First's directors and directors emeritus may, pursuant to deferred
compensation agreements, defer payment of some or all of such directors' fees or
salary for a maximum period of five years. Upon reaching the retirement age
specified in their respective joinder agreements, directors who participate in
the deferred compensation plan receive fixed monthly payments for a specific
period ranging from 60 to 180 months, depending on the specific director's
election in his joinder agreement, but may also elect to receive their benefits
in a lump sum in the event of financial hardship. The agreements also provide
for death and disability benefits.
<PAGE>
Madison First has purchased paid-up life insurance on the lives of
directors and directors emeritus participating in the deferred compensation plan
to fund benefits payable thereunder. The insurance is provided by Pacific Mutual
and Transamerica. At June 30, 1996, the cash surrender value of the policies was
carried on the books of Madison First at an amount equal to $735,000. Madison
First expensed $10,000 in connection with these agreements for the year ended
December 31, 1995.
Directors of the Holding Company, First Service and McCauley are not
currently paid directors' fees. The Holding Company may, if it believes it is
necessary to attract qualified directors or is otherwise beneficial to the
Holding Company, adopt a policy of paying directors' fees.
Benefits
Insurance Plans. Madison First's directors, officers and employees are
provided with hospitalization, major medical, major dental, life insurance,
short-term and long-term disability insurance, and other insurance benefits
under group plans sponsored by the Indiana League of Savings Institutions Group
Insurance Trust. Employees pay part of the premiums for individual and dependent
coverage.
Pension Plan. Madison First's full-time employees are included in the
Pentegra Group retirement plan, a noncontributory multiple employer
comprehensive pension plan (the "Pension Plan"). Separate actuarial valuations
are not made for individual employer members of the Pension Plan. Madison
First's employees are eligible to participate in the plan once they have
completed six months of service for Madison First, if they complete 1,000 hours
of service in a calendar year. An employee's pension benefits are 100% vested
after five years of service.
The Pension Plan provides for monthly or lump sum retirement benefits
determined as a percentage of the employee's average salary (for his highest
five consecutive years of salary) times his years of service. Salary includes
base annual salary as of each January 1, exclusive of overtime, bonuses, fees
and other special payments. Early retirement, disability, and death benefits are
also payable under the Pension Plan, depending upon the participant's age and
years of service. Madison First expensed approximately $9,000 for the Pension
Plan during the fiscal year ended December 31, 1995.
The estimated base annual retirement benefits presented on a straight-line
basis payable at normal retirement age (65) under the Pension Plan to persons in
specified salary and years of service classifications are as follows (benefits
noted in the table are not subject to any offset).
<TABLE>
<CAPTION>
Years of Service
-----------------------------------------------------------------------------------------------------
Highest 5-Year
Average
Compensation 15 20 25 30 35 40 50
-------- ------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 40,000 $15,000 $20,000 $25,000 $30,000 $ 35,000 $ 40,000 $ 45,000
$ 60,000 $22,500 $30,000 $37,500 $45,000 $ 52,500 $ 60,000 $ 67,500
$ 80,000 $30,000 $40,000 $50,000 $60,000 $ 70,000 $ 80,000 $ 90,000
$100,000 $37,500 $50,000 $62,500 $75,000 $ 87,500 $100,000 $112,500
$120,000 $45,000 $60,000 $75,000 $90,000 $105,000 $120,000 $135,000
</TABLE>
Benefits are currently subject to maximum Code limitations of $120,000 per
year. The years of service credited to Mr. Fritz under the Pension Plan as of
December 31, 1995 were eight. The years of service credited to Mr. Anger under
the Pension Plan as of December 31, 1995 were 23.
Severance Programs. Madison First expects to implement a severance program
as of the date of the Conversion for the benefit of all employees of Madison
First who are not covered by Termination Agreements or by employment contracts.
Pursuant to the severance program, any employee of Madison First who is
terminated by Madison First within 18 months following the Conversion or within
twelve months following a change in control of the Holding Company or Madison
First will be entitled to receive a lump-sum payment in an amount equal to three
weeks compensation for every year of service with Madison First, up to a maximum
of twelve months' compensation.
Transactions With Certain Related Persons
Madison First has followed a policy of offering to its directors, officers,
and employees real estate mortgage loans secured by their principal residence
and other loans. These loans are made in the ordinary course of business with
the same collateral, interest rates and underwriting criteria as those of
comparable transactions prevailing at the time and do not involve more than the
normal risk of collectibility or present other unfavorable features. Loans to
directors and executive officers totaled approximately $305,000, or 4.6% of
consolidated retained earnings at June 30, 1996.
<PAGE>
Current law requires that all loans or extensions of credit to executive
officers, directors, and principal shareholders be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with the general public and must not involve
more than the normal risk of repayment or present other unfavorable features. In
addition, loans made to a director or executive officer in excess of the greater
of $25,000 or 5% of Madison First's capital and surplus (up to a maximum of
$500,000) must be approved in advance by a majority of the disinterested members
of the Board of Directors. Madison First's policy regarding loans to directors
and all employees meets the requirements of current law.
Lonnie D. Collins, Secretary of the Holding Company and Madison First,
serves as counsel to and provides routine legal work for Madison First. In
connection with his services in such capacity, Mr. Collins is paid an annual
retainer of $3,000. In addition, Mr. Collins received $3,000 in fees for his
legal work for Madison First for the year ended December 31, 1995. Mr. Collins
also receives $600 per month for his service as Secretary to Madison First's
Board of Directors. Madison First expects to continue using Mr.
Collins' services for routine legal work following the Conversion and the
Acquisition.
Employee Stock Ownership Plan and Trust
The Holding Company has established for eligible employees of the
Institutions an ESOP effective January 1, 1996, subject to Madison First's
conversion to stock form. Employees with at least one year of employment with
the Institutions and who have attained age twenty-one are eligible to
participate. As part of the Conversion, the ESOP intends to borrow funds from
the Holding Company and use such funds to purchase a number of shares equal to
8% of the Common Stock to be issued in the Conversion. Collateral for the loan
will be the Common Stock purchased by the ESOP. The loan will be repaid
principally from the Institutions' discretionary contributions to the ESOP over
a period of 10 years. It is anticipated that the initial interest rate for the
loan will be approximately 8.25%. Shares purchased by the ESOP will be held in a
suspense account for allocation among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account in
an amount proportional to the repayment of the ESOP loan will be allocated among
ESOP participants on the basis of compensation in the year of allocation. No
allocations will be made to any employee with respect to any compensation in
excess of $50,000 per year, although the maximum is subject to cost-of-living
increases. Benefits generally become 100% vested after three years of credited
service. Prior to the completion of three years of credited service, a
participant who terminates employment for reasons other than death, retirement,
or disability will not receive any benefit under the ESOP. Forfeitures will be
reallocated among remaining participating employees upon the earlier of the
forfeiting participant's death or after the expiration of at least three years
from the date on which such participant's employment was terminated. Benefits
may be payable in the form of Common Stock or cash upon death, retirement, early
retirement, disability or separation from service. The Institutions'
contributions to the ESOP are not fixed, so benefits payable under the ESOP
cannot be estimated. SOP 93-6 requires the Institutions to record compensation
expense in an amount equal to the fair market value of the shares released from
the suspense account. See "Risk Factors -- ESOP Compensation Expense."
In connection with the establishment of the ESOP, the Holding Company will
establish a committee of employees of the Institutions to administer the ESOP.
First Bankers Trust Company will serve as corporate trustee of the ESOP. The
ESOP Committee may instruct the trustee regarding investment of funds
contributed to the ESOP. The ESOP trustee, subject to its fiduciary duty, must
vote all allocated shares held in the ESOP in accordance with the instructions
of participating employees. Under the ESOP, nondirected shares, and shares held
in the suspense account, will be voted in a manner calculated to most accurately
reflect the instructions it has received from participants regarding the
allocated stock so long as such vote is in accordance with the provisions of
ERISA.
Stock Option Plan
At a meeting of the Holding Company's shareholders to be held at least six
months after the completion of the Conversion, the Board of Directors intends to
submit for shareholder approval the Stock Option Plan for directors, officers
and employees of the Institutions and of the Holding Company. If approved by the
shareholders, Common Stock in an aggregate amount equal to 10.0% of the shares
issued in the Conversion would be reserved for issuance by the Holding Company
upon the exercise of the stock options granted under the Stock Option Plan.
Assuming the issuance of 900,000 shares in the Conversion, an aggregate of
90,000 shares would be reserved for issuance under the Stock Option Plan. No
options would be granted under the Stock Option Plan until the date on which
shareholder approval is received. At that time, it is anticipated that options
for the following number of shares will be granted to the following directors
and executive officers of the Institutions and the Holding Company:
<PAGE>
Percentage of Shares
Optionee Issued in Conversion
-------- --------------------
James E. Fritz
President, Chief Executive Officer and Director (1)...... 1.20%
Robert D. Hoban
President, Chief Executive Officer and Director (2)...... 1.00
John Wayne Deveary
Vice President and Treasurer (1)......................... 0.60
Larry C. Fouse
Chief Financial Officer and Controller (2)............... 0.50
Carolyn B. Flowers
Vice President-- Compliance/Operations (2).............. 0.50
Mark A. Goley
Vice President and Senior Loan Officer (2)............... 0.50
Fred W. Koehler
Chairman (1)............................................. 0.50
Robert W. Anger
Vice President Lending and Director (1).................. 0.45
Michael J. Hensley
Director (1)............................................. 0.45
Cecil L. Dorten
Vice Chairman (1)........................................ 0.45
Earl W. Johann
Director (1)............................................. 0.45
Lonnie D. Collins
Secretary (1)............................................ 0.40
Traci A. Bridgford
Vice President-- Compliance/Operations (1)............... 0.30
Jonnie L. Davis
Director (2)............................................. 0.30
Burton P. Chambers
Chairman (2)............................................. 0.15
Van E. Shelton
Director (2)............................................. 0.15
Ralph E. Storm
Director (2)............................................. 0.15
Other employees.............................................. 1.95
----
Total.................................................... 10.00%
=====
- -------------
(1) Of Madison First.
(2) Of Citizens.
It is anticipated that these options would be granted for terms of 10 years
(in the case of incentive options) or 10 years and one day (in the case of
non-qualified options), and at an option price per share equal to the fair
market value of the shares on the date of grant of the stock options. Options
will become exercisable at a rate of 20% at the end of each twelve (12) months
of service with the Institutions after the date of grant, subject to early
vesting in the event of death or disability. Options granted under the Stock
Option Plan are adjusted for capital changes such as stock splits and stock
dividends. Unless the Holding Company decides to call an earlier special meeting
of shareholders, the date of grant of these options would be the date of the
Holding Company's annual meeting of shareholders to be held at least six months
after the Conversion.
The Stock Option Plan would be administered by a Committee of non-employee
directors of the Holding Company's Board of Directors. Options granted under the
Stock Option Plan to employees could be "incentive" stock options designed to
result in a beneficial tax treatment to the employee but no tax deduction to the
Holding Company. Non-qualified stock options could also be granted under the
Stock Option Plan, and will be granted to the non-employee directors listed in
the chart above. In the event an option recipient terminated his or her
employment, the options would terminate during certain specified periods.
<PAGE>
RRP
At a meeting of the Holding Company's shareholders to be held at least six
months after the completion of the Conversion, the Board of Directors also
intends to submit for shareholder approval the RRP as a means of providing the
directors, officers and employees of the Institutions and of the Holding Company
with an ownership interest in the Holding Company in a manner designed to
encourage such persons to continue their service with the Institutions and the
Holding Company. The Institutions will contribute funds to the RRP from time to
time to enable it to acquire an aggregate amount of Common Stock equal to up to
4.0% of the shares of Common Stock issued in the Conversion, either directly
from the Holding Company or on the open market. In the event that additional
authorized but unissued shares would be acquired by the RRP after the
Conversion, the interests of existing shareholders would be diluted.
No awards under the RRP would be made until the date the RRP is approved by
the Holding Company's shareholders. At that time, it is anticipated that awards
of the following number of shares would be made to the following directors,
officers and employees of the Holding Company and the Institutions:
<TABLE>
<CAPTION>
Percentage of Shares
Recipient of Issued in Conversion to be
Awards Awarded Under RRP
------ -----------------
<S> <C>
James E. Fritz
President, Chief Executive Officer and Director (1)...... 0.595%
Robert D. Hoban
President, Chief Executive Officer and Director (2)...... 0.500
John Wayne Deveary
Vice President and Treasurer (1)......................... 0.300
Larry C. Fouse
Chief Financial Officer and Controller (2)............... 0.250
Carolyn B. Flowers
Vice President-- Compliance/Operations (2).............. 0.250
Mark A. Goley
Vice President and Senior Loan Officer (2)............... 0.250
Fred W. Koehler
Chairman (1)............................................. 0.200
Robert W. Anger
Vice President Lending and Director (1).................. 0.220
Michael J. Hensley
Director (1)............................................. 0.200
Cecil L. Dorten
Vice Chairman (1)........................................ 0.200
Earl W. Johann
Director (1)............................................. 0.200
Lonnie D. Collins
Secretary (1)............................................ 0.200
Traci A. Bridgford
Vice President-- Compliance/Operations (1)............... 0.150
Jonnie L. Davis
Director (2)............................................. 0.150
Burton P. Chambers
Chairman (2)............................................. 0.075
Van E. Shelton
Director (2)............................................. 0.075
Ralph E. Storm
Director (2)............................................. 0.075
Other employees.............................................. 0.110
-----
Total.................................................... 4.000%
=====
</TABLE>
- ---------------
(1) Of Madison First.
(2) Of Citizens.
Awards would be nontransferable and nonassignable, and during the lifetime
of the recipient could only be earned by and made to him or her. The shares
which are subject to an award would vest and be earned by the recipient at a
rate of 20% of the shares awarded at the end of each full twelve (12) months of
service with the Institutions after the date of grant of the award. Awards are
adjusted for capital changes such as stock dividends and stock splits.
Notwithstanding the foregoing, awards would be 100% vested upon termination of
employment or service due to death or disability. If employment or service were
to terminate for other reasons, the grantee's nonvested awards will be
forfeited. If employment or service is terminated for cause (as would be defined
in the RRP), or if conduct would have justified termination or removal for
cause, shares not already delivered under the RRP, whether or not vested, could
be forfeited by resolution of the Board of Directors of the Holding Company.
When shares become vested and could actually be distributed in accordance
with the RRP, the participants would also receive amounts equal to accrued
dividends and other earnings or distributions payable with respect thereto. When
shares become vested under the RRP, the participant will recognize income equal
to the fair market value of the Common Stock earned, determined as of the date
of vesting, unless the recipient makes an election under ss. 83(b) of the Code
to be taxed earlier. The amount of income recognized by the participant would be
a deductible expense for tax purposes for the Holding Company. Shares not yet
vested under the RRP will be voted by the Trustee of the RRP, taking into
account the best interests of the recipients of the RRP awards.
MANAGEMENT OF CITIZENS
Directors of Citizens
The Board of Directors of Citizens currently consists of five persons. Each
director holds office for a term of one year. Upon consummation of the
Acquisiton it is anticipated that James E. Fritz and Fred W. Koehler, who
currently serve as directors of Madison First and the Holding Company, will be
appointed to the Board of Directors of Citizens.
The Board of Directors of Citizens met 13 times during the fiscal year
ended December 31, 1995. No director attended fewer than 75% of the meetings of
the Board of Directors held while he served as a director and the meetings of
committees on which he served.
Listed below are the directors of Citizens:
Director of Position
Citizens with
Director Since Citizens
- -------- ----- --------
Burton P. Chambers 1982 Chairman
Jonnie L. Davis 1989 Director
Robert D. Hoban 1989 Director, President and
Chief Executive Officer
Van E. Shelton 1981 Director
Ralph E. Storm 1981 Director
Presented below is certain information concerning the directors of
Citizens:
Burton P. Chambers (age 84) has served as Chairman of Citizens' Board of
Directors since 1986. Until 1992, Mr. Chambers was also the owner and operator
of C&R Parts Service, Inc. of Madison, Indiana.
Jonnie L. Davis (age 61) is currently retired and involved in varioius
investment activities. From July, 1995 to August 1996, she served as an
administrative assistant with Fewel, Pettitt and Bender, a surveying firm in
Madison, Indiana. From July 1994 to July 1995, Ms. Davis served as an accounting
clerk for Stockdale Motors, an automobile retailer in Madison, Indiana. From
April 1984 to December 1994, Ms. Davis served as a bookkeeping clerk for D&B
Enterprises, a partnership involved in owning and operating apartment complexes
and other nonresidential real estate ventures. From September 1991 to June 1993,
Ms. Davis served as a Vice President and Assistant to the President and
performed all accounting and financial functions for the Gust. K. Newberg
Company, a general construction contractor in Madison, Indiana.
Robert D. Hoban (age 54) has served as Citizens' President and Chief
Executive Officer since October 1989. Prior to that, Mr. Hoban served as
Executive Vice President of Union National Bank in New Albany, Indiana.
<PAGE>
Van E. Shelton (age 71) has served as the President of Shelton Farms, Inc.
since 1976. Mr. Shelton also served as the Auditor for Jefferson County, Indiana
from 1986 to 1994.
Ralph E. Storm (age 66) has served as the President of the Charters & Tours
Division of White Star Lines, Inc. since prior to January, 1991. Mr. Storm also
served as President of Zingo, Inc., a refuse disposal company in Madison,
Indiana, until October 1992.
Executive Officers of Citizens Who Are Not Directors
Presented below is certain information regarding executive officers of
Citizens who are not directors:
Name Position
Carolyn B. Flowers Vice President -- Compliance/Operations
Larry C. Fouse Chief Financial Officer and Controller
Mark A. Goley Vice President and Senior Loan Officer
Carolyn B. Flowers (age 31) has served as Citizens' Vice President --
Compliance and Operations since December 1994. Ms. Flowers joined Citizens in
February 1988 and served as Citizens' Operations and Compliance Officer from
August 1993 to December 1994. Ms. Flowers also served as Citizens' internal
auditor from January 1991 to August 1993.
Larry C. Fouse (age 51) has served as Citizens' Chief Financial Officer and
Controller since 1993. From 1989 to 1993, Mr. Fouse served as Citizens' Vice
President and Operations Officer. Mr. Fouse joined Citizens in October 1988 and
was formerly employed by the First Bank of Charlestown, Indiana.
Mark A. Goley (age 40) has served as Citizens' Vice President and Senior
Loan Officer since February 1992. Mr. Goley joined Citizens in March 1989 and
served as a loan officer for Citizens from 1991 to February 1992. Prior to
joining Citizens, Mr. Goley performed appraisal services as an independent
contractor for the Federal Housing Administration and the Farm Credit Capital
Corporation from 1987 to 1989 and served as a loan review officer with the
Federal Land Bank from 1978 to 1986.
Committees of the Boards of Directors of Citizens
The full Board of Directors acts on all matters in lieu of action by
committees of the Board.
EXECUTIVE COMPENSATION AND RELATED TRANSACTIONS
OF CITIZENS
Remuneration of Named Executive Officer
The following table sets forth information as to annual, long-term and
other compensation for services in all capacities to the President and Chief
Executive Officer of Citizens for the fiscal year ended December 31, 1995. There
were no other executive officers of Citizens, as of December 31, 1995, who
earned over $100,000 in salary and bonuses during that fiscal year.
<TABLE>
<CAPTION>
Summary Compensation Table
-------------------------------------------------------------------
Annual Compensation
-------------------------------------------------------------------
Name and Principal Fiscal Other Annual All Other
Position Year Salary Bonus Compensation(2) Compensation
<S> <C> <C> <C> <C> <C>
Robert D. Hoban, President and 1995 $100,000 ____ -- $6,000 (1)
Chief Executive Officer
</TABLE>
- ----------
(1) Constitutes matching contributions made by Citizens to the 401(k) Plan (as
defined below).
(2) Mr. Hoban received certain perquisites, but the incremental cost of
providing such perquisites did not exceed the lesser of $50,000 or 10% of
his salary and bonus.
Employment Contracts
Citizens and Mr. Hoban entered into the 1995 Agreement which is a one-year
agreement that automatically renews for an additional one-year term unless
terminated by Citizens or Mr. Hoban in accordance with the terms of the 1995
Agreement. The 1995 Agreement provides, among other things, for (i) the payment
to Mr. Hoban of a base salary subject to annual review and adjustment by
Citizens' Board of Directors; (ii) Mr. Hoban's participation in other fringe
benefit plans in the same manner and on the same basis as may be furnished to
other executive management personnel of Citizens; (iii) Mr. Hoban's use of an
automobile to be provided by Citizens; and (iv) Mr. Hoban's participation in a
performance-based bonus program to be established and maintained by Citizens'
Board of Directors. If the 1995 Agreement is terminated by Citizens or Citizens
<PAGE>
gives notice of its intention not to renew the 1995 Agreement at any time not
following a change in control (as defined therein) of Citizens, the 1995
Agreement provides for (i) a severance payment to Mr. Hoban in an amount equal
to his then-current annual salary, and (ii) continued health care coverage at
Citizens' sole expense for Mr. Hoban and his eligible family members for a
period of one year. The 1995 Agreement further provides that in the event that
Mr. Hoban's duties and responsibilities are changed or the Board of Directors
elects not to renew the 1995 Agreement following a change in control of
Citizens, such may, at Mr. Hoban's election and upon written notice to Citizens,
be deemed a termination of the 1995 Agreement entitling Mr. Hoban to (i) payment
of a lump-sum amount equal to three times Mr. Hoban's then-current annual
salary, subject to reduction to the extent necessary to prevent it from
constituting a parachute payment under Section 280G of the Code, and (ii)
continued health care coverage at Citizens' sole expense for Mr. Hoban and his
eligible family members for a period of three years. The 1995 Agreement also
contains a non-competition provision precluding Mr. Hoban from competing with
Citizens for a period of one year after termination of the 1995 Agreement and
provides for the payment of Mr. Hoban's then-current salary in the event of Mr.
Hoban's disability up to a maximum of twelve months. As of the date hereof, the
cash compensation that would be paid to Mr. Hoban under the 1995 Agreement if
such agreement were terminated after a change in control of Citizens would be
$300,000.
Effective upon consummation of the Acquisition, Citizens expects to enter
into the Hoban Agreement with Mr. Hoban. The Hoban Agreement is a three-year
agreement and extends annually for an additional one-year term to maintain its
three-year term if Citizens' Board of Directors determines to so extend it.
Under the Hoban Agreement, Mr. Hoban receives an initial annual salary equal to
his current salary subject to increases approved by the Board of Directors. The
Hoban Agreement also provides, among other things, for Mr. Hoban's participation
in other bonus and fringe benefit plans available to Citizens' employees. Mr.
Hoban may terminate his employment upon ninety (90) days' prior written notice
to Citizens. Citizens may discharge Mr. Hoban for just cause (as defined in the
Hoban Agreement) at any time or in certain events specified by applicable law or
regulations. If Citizens terminates Mr. Hoban's employment for other than just
cause and not within twelve months after a change in control of Citizens or the
Holding Company, the Hoban Agreement provides for Mr. Hoban's receipt of a
lump-sum or periodic payment of an amount equal to the sum of (A) Mr. Hoban's
base salary through the end of the then-current term, plus (B) Mr. Hoban's base
salary for an additional twelve-month period, plus (C) in Mr. Hoban's sole
discretion and in lieu of continued participation in Citizens' fringe benefit
plans, cash in an amount equal to the cost of obtaining all health, life,
disability and other benefits in which Mr. Hoban would otherwise be eligible to
participate. In the event Citizens terminates Mr. Hoban's employment for other
than just cause or Mr. Hoban terminates the Hoban Agreement for reasons
specified therein within twelve months following a change in control of Citizens
or the Holding Company, the Hoban Agreement provides for Mr. Hoban's receipt of
a lump-sum payment of an amount equal to the difference between (A) the product
of 2.99 times his "base amount" (as defined in Section 280G(b)(3) of the Code)
and (B) the sum of any other parachute payments, as determined under Section
280G(b)(2) of the Code. If the payments provided for under the Hoban Agreement,
together with any other payments made to Mr. Hoban by Citizens, are determined
to be payments in violation of the "golden parachute" rules of the Code, such
payments will be reduced to the largest amount which would not cause Citizens to
lose a tax deduction for such payments under those rules.
Special Termination Agreements
Effective as of the date of consummation of the Acquisition, Citizens will
enter into the Termination Agreements with its Covered Employees. The
Termination Agreements have terms of one year, subject to annual extension by
the Board of Directors of Citizens, and provide that upon the termination of a
Covered Employee's employment by the employer for other than cause or by the
Covered Employee for reasons specified in the Termination Agreements, within 18
months following the Acquisition or within 12 months following a "change in
control" (as defined in the Termination Agreements) which occurs during the term
of the applicable Termination Agreement, such Covered Employee shall be entitled
to a lump sum payment of 100% of his or her base amount of compensation, as
determined pursuant to Section 280G(b)(3) of the Code (the "Termination
Benefit"). Covered Employees may elect to receive the Termination Benefit in
semi-monthly payments over a twelve-month period. The Termination Agreements
also provide for continued life, health and disability coverage for Covered
Employees until the expiration of twelve months following the termination of
employment or until the Covered Employee obtains coverage from another employer,
whichever occurs first. If a Covered Employee obtains other employment and does
not have substantially identical life, health and disability coverage, Citizens
shall maintain substantially identical coverage on behalf of the Covered
Employee for a period of twelve months.
<PAGE>
Compensation of Directors
All outside directors of Citizens are entitled to receive monthly director
fees in the amount of $125 for their services. Total fees paid to directors of
Citizens for the year ended December 31, 1995 were $4,925.
Benefits
Insurance Plans. Citizens' officers and employees are provided with
hospitalization, major medical, and other insurance benefits under group plans
with Blue Cross Blue Shield of Indiana. Employees pay $5 per month for employee
coverage and are responsible for all premiums for dependent coverage. Citizens'
officers and employees are also provided with long-term disability coverage
through UNUM Life Insurance Company of America at no cost to employees.
Non-officer employees and officers of Citizens are provided with life insurance
coverage in the amount of $20,000 and $50,000, respectively, through Accordia at
no cost to employees.
401(k) Plan. Citizens' employees also participate in the Citizens National
Bank of Madison 401(k) Plan (the "401(k) Plan"), a contributory tax-exempt trust
and savings plan. Participants may elect to make monthly contributions up to 15%
of their salary. Citizens may make a discretionary matching contribution up to
6% of an employee's salary. Citizens may also make elective non-matching
contributions under the 401(k) Plan. Contributions may be invested in a variety
of investment vehicles at the sole discretion of participants. Benefits under
the 401(k) Plan vest at a rate of 20% per year beginning after an employee's
second year of service. Participants may take benefits in a lump-sum
distribution or in installments. Participants also have an early withdrawal
option in the event employment is terminated prior to retirement. During the
fiscal year ended December 31, 1995, Citizens made contributions aggregating
approximately $26,000 to the 401(k) Plan, $6,000 of which was allocable to Mr.
Hoban.
Performance Incentives. Citizens routinely offers its non-officer employees
performance incentives which are based upon targeted goals established by
management. Citizens' executive officers other than Mr. Hoban also participate
in the 1996 Management Incentive Program adopted by Citizens' Board of Directors
(the "Management Bonus Plan"). Pursuant to the Management Bonus Plan, up to
$20,000 is available for bonuses to Mr. Fouse, Ms. Flowers and Mr. Goley if
certain performance goals for the year are met or exceeded. If some, but less
than all, of the performance goals are met, the participants are eligible to
receive a portion of the bonus pool based on the percentage of goals met for the
year.
Severance Programs. Citizens expects to implement a severance program as of
the date of the Acquisition for the benefit of all employees of Citizens who are
not covered by Termination Agreements or by employment contracts. Pursuant to
the severance program, any such employee of Citizens who is terminated by
Citizens within 18 months following the Acquisition or within twelve months
following a change in control of the Holding Company or Citizens will be
entitled to receive a lump-sum payment in an amount equal to three weeks
compensation for every year of service with Citizens, up to a maximum of twelve
months compensation.
Transactions With Certain Related Persons
Citizens has followed a policy of offering to its directors, officers, and
employees real estate mortgage loans secured by their principal residence and
other loans. These loans are made in the ordinary course of business with the
same collateral, interest rates and underwriting criteria as those of comparable
transactions prevailing at the time and do not involve more than the normal risk
of collectibility or present other unfavorable features. Loans to directors and
executive officers totaled approximately $228,000, or 6.6% of shareholders'
equity at June 30, 1996.
Current law requires that all loans or extensions of credit to executive
officers, directors, and principal shareholders be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with the general public and must not involve
more than the normal risk of repayment or present other unfavorable features. In
addition, loans made to a director or executive officer in excess of the greater
of $25,000 or 5% of Citizens' capital and surplus (up to a maximum of $500,000)
must be approved in advance by a majority of the disinterested members of the
Board of Directors. Citizens' policy regarding loans to directors and all
employees meets the requirements of current law.
Employee Stock Ownership Plan and Trust
Eligible employees of Citizens will be permitted to participate in the ESOP
established by the Holding Company. For a description of the ESOP, see
"Executive Compensation and Related Transactions of Madison First -- Employee
Stock Ownership Plan and Trust."
<PAGE>
Stock Option Plan
Directors, officers and employees of Citizens will be eligible to
participate in the Stock Option Plan which will be submitted to the shareholders
of the Holding Company for approval at a meeting of such shareholders at least
six months after completion of the Conversion. For a description of the Stock
Option Plan, including anticipated grants thereunder, see "Executive
Compensation and Related Transactions of Madison First -- Stock Option Plan."
RRP
Directors and employees of Citizens will be eligible to participate in the
RRP which will be submitted to the shareholders of the Holding Company for
approval at a meeting of such shareholders at least six months after completion
of the Conversion. For a description of the RRP, including anticipated awards
thereunder, see "Executive Compensation and Related Transactions of Madison
First -- RRP."
REGULATION
General
Madison First, as a federally chartered savings and loan association, is a
member of the Federal Home Loan Bank System ("FHLB System"), its deposits are
insured by the FDIC through the SAIF. Madison First is subject to extensive
regulation by the OTS. Federal associations may not enter into certain
transactions unless certain regulatory tests are met or they obtain prior
governmental approval, and the associations must file reports with the OTS about
their activities and their financial condition. Periodic examinations of Madison
First are conducted by the OTS which has, in conjunction with the FDIC in
certain situations, examination and enforcement powers. This supervision and
regulation are intended primarily for the protection of depositors and federal
deposit insurance funds. Madison First is also subject to certain reserve
requirements under regulations of the FRB.
An OTS regulation establishes a schedule for the assessment of fees upon
all savings associations to fund the operations of the OTS. The regulation also
establishes a schedule establishing fees for the various types of applications
and filings made by savings associations with the OTS. The general assessment,
to be paid on a semiannual basis, is based upon the savings association's total
assets, including consolidated subsidiaries, as reported in a recent quarterly
thrift financial report. Currently, the assessment rates range from .0172761% of
assets for associations with assets of $67 million or less to .0045864% for
associations with assets in excess of $35 billion. Madison First's semiannual
assessment under this method of assessment, based upon assets at June 30, 1996,
is approximately $14,000.
Citizens, as a national bank, is regulated by the OCC and its deposits are
insured by the FDIC through the BIF. Periodic examinations of Citizens are
conducted by the OCC which has, in conjunction with the FDIC in certain
situations, examination and enforcement powers with respect to Citizens.
Each of Madison First and Citizens is also subject to federal and state
regulation as to such matters as loans to officers, directors, or principal
shareholders, required reserves, limitations as to the nature and amount of its
loans and investments, regulatory approval of any merger or consolidation,
issuance or retirements of their own securities, and limitations upon other
aspects of banking operations. In addition, the activities and operations of
Madison First and Citizens are subject to a number of additional detailed,
complex and sometimes overlapping federal and state laws and regulations. These
include state usury and consumer credit laws, state laws relating to
fiduciaries, the Federal Truth-In-Lending Act and Regulation Z, the Federal
Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting Act,
the Community Reinvestment Act, anti-redlining legislation and antitrust laws.
Congress is considering legislation that would consolidate the supervision
and regulation of all U.S. financial institutions in one administrative body,
would expand the powers of financial institutions, and would provide regulatory
relief to financial institutions (the "Legislation"). It cannot be predicted
with certainty whether or when the Legislation will be enacted or the extent to
which Madison First, Citizens, or the Holding Company would be affected thereby.
Savings and Loan Holding Company Regulation
As the Holding Company for Madison First, the Holding Company will be
regulated as a "non-diversified savings and loan holding company" within the
meaning of the Home Owners' Loan Act of 1933, as amended ("HOLA"), and subject
to regulatory oversight of the Director of the OTS. As such, the Holding Company
is registered with the OTS and thereby subject to OTS regulations, examinations,
supervision and reporting requirements. As a subsidiary of a savings and loan
holding company, Madison First is subject to certain restrictions in its
dealings with the Holding Company and with other companies affiliated with the
Holding Company.
<PAGE>
HOLA generally prohibits a savings and loan company, without prior approval
of the Director of the OTS, from (i) acquiring control of any other savings
association or savings and loan holding company or controlling the assets
thereof or (ii) acquiring or retaining more than 5% of the voting shares of a
savings association or holding company thereof which is not a subsidiary.
Additionally, under certain circumstances a savings and loan holding company is
permitted to acquire, with the approval of the Director of the OTS, up to 15% of
previously unissued voting shares of an under-capitalized savings association
for cash without that savings association being deemed controlled by the holding
company. Except with the prior approval of the Director of the OTS, no director
or officer of a savings and loan holding company or person owning or controlling
by proxy or otherwise more than 25% of such company's stock, may also acquire
control of any savings institution, other than a subsidiary institution, or any
other savings and loan holding company.
The Director of the OTS may approve acquisitions resulting in the formation
of a multiple savings and loan holding company which controls savings
associations in more than one state, if the multiple savings and loan holding
company involved controls a savings association which operated a home or branch
office in the state of the association to be acquired as of March 5, 1987, or if
the laws of the state in which the institution to be acquired is located
specifically permit institutions to be acquired by state-chartered institutions
or savings and loan holding companies located in the state where the acquiring
entity is located (or by a holding company that controls such state-chartered
savings institutions). Also, the Director of the OTS may approve an acquisition
resulting in a multiple savings and loan holding company controlling savings
associations in more than one state in the case of certain emergency thrift
acquisitions.
Indiana law permits acquisitions of certain federal and state SAIF-insured
savings associations and their holding companies ("Savings Associations")
located in Indiana, Ohio, Kentucky, Illinois, and Michigan (the "Region") by
other Savings Associations located in the Region. Savings Associations with
their principal place of business in one of the states in the Region (other than
Indiana) may acquire Savings Associations with their principal place of business
in Indiana if, subject to certain other conditions, the state of the acquiring
association has reciprocal legislation permitting the acquisition of Savings
Associations and their holding companies in that state by Indiana Savings
Associations. Each of the states in the Region has, at least to a certain
degree, reciprocal legislation. The Indiana statute also authorizes Indiana
Savings Associations to acquire other Savings Associations in the Region.
Following the acquisition, an acquired Indiana Savings Association and any other
Indiana Savings Association subsidiary owned by the acquiror must hold no more
than 15% of the total Savings Association deposits in Indiana.
No subsidiary savings association of a savings and loan holding company may
declare or pay a dividend on its permanent or nonwithdrawable stock unless it
first gives the Director of the OTS 30 days advance notice of such declaration
and payment. Any dividend declared during such period or without giving notice
shall be invalid.
Bank Holding Company Regulation
As the holding company for Citizens, the Holding Company will be registered
as a bank holding company, and will be subject to the regulations of the FRB
under the BHCA. Bank holding companies are required to file periodic reports
with, and are subject to periodic examination by, the FRB. The FRB has issued
regulations under the BHCA requiring a bank holding company to serve as a source
of financial and managerial strength to its subsidiary banks. It is the policy
of the FRB that, pursuant to this requirement, a bank holding company should
stand ready to use its resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity. Additionally,
under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FedICIA"), a bank holding company is required to guarantee the compliance of
any insured depository institution subsidiary that may become "undercapitalized"
(as defined in the statute) with the terms of any capital restoration plan filed
by such subsidiary with its appropriate federal banking agency up to the lesser
of (i) an amount equal to 5% of the institution's total assets at the time the
institution became undercapitalized, or (ii) the amount that is necessary (or
would have been necessary) to bring the institution into compliance with all
applicable capital standards as of the time the institution fails to comply with
such capital restoration plan. Under the BHCA, the FRB has the authority to
require a bank holding company to terminate any activity or relinquish control
of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the
FRB's determination that such activity or control constitutes a serious risk to
the financial soundness and stability of any bank subsidiary of the bank holding
company.
<PAGE>
Under the BHCA, a bank holding company must obtain FRB approval before: (i)
acquiring, directly or indirectly, ownership or control of any voting shares of
another bank or bank holding company if, after such acquisition, it would own or
control more than 5% of such shares (unless it already owns or controls the
majority of such shares); (ii) acquiring all or substantially all of the assets
of another bank or bank holding company; or (iii) merging or consolidating with
another bank holding company.
Prior to September 29, 1995, the BHCA prohibited the FRB from approving any
direct or indirect acquisition by a bank holding company of more than 5% of the
voting shares, or of all or substantially all of the assets, of a bank located
outside of the state in which the operations of the bank holding company's
banking subsidiaries are principally located unless the laws of the state in
which the bank to be acquired is located specifically authorize such an
acquisition. Pursuant to amendments to the BHCA which took effect September 29,
1995, the FRB may now allow a bank holding company to acquire banks located in
any state of the United States without regard to geographic restriction or
reciprocity requirements imposed by state law, but subject to certain
conditions, including limitations on the aggregate amount of deposits that may
be held by the acquiring holding company and all of its insured depository
institution affiliates and state law provisions requiring the target bank to
have existed for some period of time (not exceeding five years) prior to the
date of acquisition.
The BHCA also prohibits the Holding Company, with certain exceptions noted
below, from acquiring direct of indirect ownership or control of more than 5% of
the voting shares of any company which is not a bank and from engaging in any
business other than that of banking, managing and controlling banks or
furnishing services to banks and their subsidiaries, except that bank holding
companies may engage in, and may own shares of companies engaged in, certain
businesses found by the FRB to be "so closely related to banking. . . as to be a
proper incident thereto." Under current regulations of the FRB, the Holding
Company and any non-bank subsidiaries it may control are permitted to engage in,
among other activities, such banking-related businesses as the operation of a
thrift, the operation of a trust company, sales, and consumer finance, equipment
leasing, the operation of a computer service bureau, including software
development, and mortgage banking and brokerage. The BHCA does not place
territorial restrictions on the activities of non-bank subsidiaries of bank
holding companies.
Capital Adequacy Guidelines for Bank Holding Companies
The FRB is the federal regulatory and examining authority for bank holding
companies. The FRB has adopted capital adequacy guidelines for bank holding
companies.
Bank holding companies are required to comply with the FRB's risk-based
capital guidelines which require a minimum ratio of total capital to
risk-weighted assets (including certain off-balance sheet activities such as
standby letters of credit) of 8%. At least half of the total required capital
must be "Tier I capital," consisting principally of common stockholders' equity,
noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries, less certain goodwill items. The remainder ("Tier II
capital") may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, cumulative perpetual preferred stock, and a limited amount of
the general loan loss allowance. In addition to the risk-based capital
guidelines, the FRB has adopted a Tier I (leverage) capital ratio under which
the bank holding company must maintain a minimum level of Tier I capital to
average total consolidated assets of 3% in the case of bank holding companies
which have the highest regulatory examination ratings and are not contemplating
significant growth or expansion. All other bank holding companies are expected
to maintain a ratio of at least 1% to 2% above the stated minimum.
The Holding Company is expected to satisfy these requirements following the
Conversion and the Acquisition.
Federal Home Loan Bank System
Madison First and Citizens are members of the FHLB System, which
consists of 12 regional banks. The Federal Housing Finance Board ("FHFB"), an
independent agency, controls the FHLB System including the FHLB of Indianapolis.
The FHLB System provides a central credit facility primarily for member savings
and loan associations and savings banks and other member financial institutions.
Each of Madison First and Citizens are required to hold shares of capital stock
in the FHLB of Indianapolis in an amount at least equal to the greater of 1% of
the aggregate principal amount of its unpaid residential mortgage loans, home
purchase contracts and similar obligations at the end of each calendar year,
0.3% of its assets or 1/20 (or such greater fraction established by the FHLB) of
outstanding FHLB advances, commitments, lines of credit and letters of credit.
Madison First and Citizens are currently in compliance with this requirement. At
June 30, 1996, Madison First's investment in stock of the FHLB of Indianapolis
was $610,000. At June 30, 1996, Citizens' investment in stock of the FHLB of
Indianapolis was $271,000.
<PAGE>
In past years, Madison First and Citizens have received dividends on their
FHLB stock. All 12 FHLBs are required by law to provide funds for the resolution
of troubled savings associations and to establish affordable housing programs
through direct loans or interest subsidies on advances to members to be used for
lending at subsidized interest rates for low- and moderate-income,
owner-occupied housing projects, affordable rental housing, and certain other
community projects. These contributions and obligations could adversely affect
the FHLBs' ability to pay dividends and the value of FHLB stock in the future.
For the year ended December 31, 1995, dividends paid to Madison First and
Citizens by the FHLB of Indianapolis totaled $48,000 and $19,000, respectively,
for an annual rate of 7.88% and 7.01% respectively.
The FHLB of Indianapolis serves as a reserve or central bank for member
institutions within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
advances to members in accordance with policies and procedures established by
the FHFB and the Board of Directors of the FHLB of Indianapolis.
All FHLB advances must be fully secured by sufficient collateral as
determined by the FHLB. Eligible collateral includes first mortgage loans less
than 90 days delinquent or securities evidencing interests therein, securities
(including mortgage-backed securities) issued, insured or guaranteed by the
federal government or any agency thereof, FHLB deposits and, to a limited
extent, real estate with readily ascertainable value in which a perfected
security interest may be obtained. Other forms of collateral may be accepted as
over collateralization or, under certain circumstances, to renew outstanding
advances. All long-term advances are required to provide funds for residential
home financing and the FHLB has established standards of community service that
members must meet to maintain access to long-term advances.
Interest rates charged for advances vary depending upon maturity, the cost
of funds to the FHLB of Indianapolis and the purpose of the borrowing.
Insurance of Deposits
Deposit Insurance. The FDIC is an independent federal agency that insures
the deposits, up to prescribed statutory limits, of banks and thrifts and
safeguards the safety and soundness of the banking and thrift industries. The
FDIC administers two separate insurance funds, the BIF for commercial banks such
as Citizens and state savings banks and the SAIF for savings associations such
as Madison First and banks that have acquired deposits from savings
associations. The FDIC is required to maintain designated levels of reserves in
each fund. As of September 30, 1996, the reserves of the SAIF were below the
level required by law, primarily because a significant portion of the
assessments paid into the SAIF have been used to pay the cost of prior thrift
failures, while the reserves of the BIF met the level required by law in May,
1995. However, on September 30, 1996, provisions designed to recapitalize the
SAIF and eliminate the premium disparity between the BIF and SAIF were signed
into law. See "-- Assessments" below.
Assessments. The FDIC is authorized to establish separate annual assessment
rates for deposit insurance for members of the BIF and members of the SAIF. The
FDIC may increase assessment rates for either fund if necessary to restore the
fund's ratio of reserves to insured deposits to the target level within a
reasonable time and may decrease such rates if such target level has been met.
The FDIC has established a risk-based assessment system for both SAIF and BIF
members. Under this system, assessments vary depending on the risk the
institution poses to its deposit insurance fund. Such risk level is determined
based on the institution's capital level and the FDIC's level of supervisory
concern about the institution.
On September 30, 1996, President Clinton signed into law legislation which
included provisions designed to recapitalize the SAIF and eliminate the
significant premium disparity between the BIF and the SAIF. Under the new law,
Madison First will be charged a one-time special assessment equal to $.657 per
$100 in assessable deposits at March 31, 1995. This one-time assessment will be
recognized as a non-recurring operating expense during the three-month period
ending September 30, 1996, will be due November 27, 1996 and will be fully
deductible for both federal and state income tax purposes. For the impact on
Madison First of this assessment, see "Recent Developments." Beginning January
1, 1997, the annual deposit insurance premium for Madison First will be reduced
from .23% to .0644% of total assessable deposits. The law also provides for the
merger of the SAIF and the BIF by 1999, but not until such time as bank and
thrift charters are combined. Until the charters are combined, savings
associations with SAIF deposits are precluded from switching deposits into the
BIF.
Bank Regulatory Capital
The OCC has adopted risk-based capital ratio guidelines to which Citizens
generally is subject. The guidelines establish a systematic analytical framework
that makes regulatory capital requirements more sensitive to differences in risk
<PAGE>
profiles among banking organizations. Risk-based capital ratios are determined
by allocating assets and specified off-balance sheet commitments to four risk
weighted categories, with higher levels of capital being required for the
categories perceived as representing greater risk.
Like the capital guidelines established by the FRB for the Holding Company,
these guidelines divide a bank's capital into two tiers. The first tier ("Tier
I") includes common shareholders' equity, certain non-cumulative perpetual
preferred stock (excluding auction rate issues) and minority interests in equity
accounts of consolidated subsidiaries, less goodwill and certain other
intangible assets (except mortgage servicing rights and purchased credit card
relationships, subject to certain limitations). Supplementary ("Tier II")
capital includes, among other items, cumulative perpetual and long-term
limited-life preferred stock, mandatory convertible securities, certain hybrid
capital instruments, term subordinated debt and the allowance for loan and lease
losses, subject to certain limitations, less required deductions. Banks are
required to maintain a total risk-based capital ratio of 8%, of which 4% must be
Tier I capital. The OCC may, however, set higher capital requirements when a
bank's particular circumstances warrant. Banks experiencing or anticipating
significant growth are expected to maintain capital ratios, including tangible
capital positions, well above the minimum levels.
In addition, the OCC established guidelines prescribing a minimum Tier I
leverage ratio (Tier I capital to adjusted total assets as specified in the
guidelines). These guidelines provide for a minimum Tier I leverage ratio of 3%
for banks that meet certain specified criteria, including that they have the
highest regulatory rating and are not experiencing or anticipating significant
growth. All other banks are required to maintain a Tier I leverage ratio of 3%
plus an additional cushion of at least 100 to 200 basis points.
Citizens currently exceeds the regulatory capital requirements imposed by
the OCC regulatory capital scheme.
Savings Association Regulatory Capital
Currently, savings associations are subject to three separate minimum
capital-to-assets requirements: (i) a leverage limit, (ii) a tangible capital
requirement, and (iii) a risk-based capital requirement. The leverage limit
requires that savings associations maintain "core capital" of at least 3% of
total assets. Core capital is generally defined as common stockholders' equity
(including retained income), noncumulative perpetual preferred stock and related
surplus, certain minority equity interests in subsidiaries, qualifying
supervisory goodwill, purchased mortgage servicing rights (which may be included
in an amount up to 50% of core capital, but which are to be reported on an
association's balance sheet at the lesser of 90% of their fair market value, 90%
of their original purchase price, or 100% of their unamortized book value), and
purchased credit card relationships (which may be included in an amount up to
25% of core capital) less nonqualifying intangibles. Under the tangible capital
requirement, a savings association must maintain tangible capital (core capital
less all intangible assets except purchased mortgage servicing rights which may
be included after making the above-noted adjustment in an amount up to 100% of
tangible capital) of at least 1.5% of total assets. Under the risk-based capital
requirements, a minimum amount of capital must be maintained by a savings
association to account for the relative risks inherent in the type and amount of
assets held by the savings association. The risk-based capital requirement
requires a savings association to maintain capital (defined generally for these
purposes as core capital plus general valuation allowances and permanent or
maturing capital instruments such as preferred stock and subordinated debt less
assets required to be deducted) equal to 8.0% of risk-weighted assets. Assets
are ranked as to risk in one of four categories (0-100%) with a credit risk-free
asset such as cash requiring no risk-based capital and an asset with a
significant credit risk such as a non-accrual loan being assigned a factor of
100%. At June 30, 1996, Madison First was in compliance with all capital
requirements imposed by law.
The OTS has promulgated a rule which sets forth the methodology for
calculating an interest rate risk component to be incorporated into the OTS
regulatory capital rule, although it has delayed the implementation of this
rule. Under the new rule, only savings associations with "above normal" interest
rate risk (institutions whose portfolio equity would decline in value by more
than 2% of assets in the event of a hypothetical 200-basis-point move in
interest rates) will be required to maintain additional capital for interest
rate risk under the risk-based capital framework. In addition, most institutions
with less than $300 million in assets and a risk-based capital ratio in excess
of 12%, such as Madison First, are subject to less stringent reporting
requirements and are exempt from the interest rate component of the new rule.
If an association is not in compliance with the capital requirements, the
OTS is required to prohibit asset growth and to impose a capital directive that
may restrict, among other things, the payment of dividends and officers'
compensation. In addition, the OTS and the FDIC generally are authorized to take
enforcement actions against a savings association that fails to meet its capital
requirements, which actions may include restrictions on operations and banking
activities, the imposition of a capital directive, a cease and desist order,
civil money penalties or harsher measures such as the appointment of a receiver
or conservator or a forced merger into another institution.
<PAGE>
Prompt Corrective Regulatory Action
FedICIA requires, among other things, federal bank regulatory authorities
to take "prompt corrective action" with respect to institutions that do not meet
minimum capital requirements. For these purposes, FedICIA establishes five
capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. At June 30,
1996, Madison First and Citizens were categorized as "well capitalized."
An institution is deemed to be "well capitalized" if it has a total
risk-based capital ratio of 10% or greater, a Tier I risk-based capital ratio of
6% or greater, and a leverage ratio of 5% or greater, and is not subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure. An institution is deemed to be "adequately
capitalized" if it has a total risk-based capital ratio of 8% or greater, a Tier
I risk-based capital ratio of 4% or greater, and generally a leverage ratio 4%
or greater. An institution is deemed to be "undercapitalized" if it has a total
risk-based capital ratio of less than 8%, a Tier I risk-based capital ratio of
less than 4%, or generally a leverage ratio of less than 4%; and (d)
"significantly undercapitalized" if it has a total risk-based capital ratio of
less than 6%, a Tier I risk-based capital ratio of less than 3%, or a leverage
ratio of less than 3%. An institution is deemed to be "critically
undercapitalized" if it has a ratio of tangible equity (as defined in the
regulations) to total assets that is equal to or less than 2%.
"Undercapitalized" institutions are subject to growth limitations and are
required to submit a capital restoration plan. A bank's compliance with such
plan is required to be guaranteed by any company that controls the
undercapitalized institution as described above. See "-- Bank Holding Company
Regulation." If an "undercapitalized" institution fails to submit, or fails to
implement in a material respect, an acceptable plan, it is treated as if it is
"significantly undercapitalized." "Significantly undercapitalized" institutions
are subject to one or more of a number of requirements and restrictions,
including an order by the FDIC to sell sufficient voting stock to become
adequately capitalized, requirements to reduce total assets and cease receipt of
deposits from correspondent banks, and restrictions on compensation of executive
officers. "Critically undercapitalized" institutions may not, beginning 60 days
after becoming "critically undercapitalized," make any payment of principal or
interest on certain subordinated debt or extend credit for a highly leveraged
transaction or enter into any transaction outside the ordinary course of
business. In addition, "critically undercapitalized" institutions are subject to
appointment of a receiver or conservator.
Dividend Limitations
Under FRB supervisory policy, a bank holding company generally should not
maintain its existing rate of cash dividends on common shares unless (i) the
organization's net income available to common shareholders over the past year
has been sufficient to fully fund the dividends and (ii) the prospective rate of
earnings retention appears consistent with the organization's capital needs,
asset quality, and overall financial condition. The FDIC also has authority
under the Financial Institutions Supervisory Act to prohibit a bank from paying
dividends if, in its opinion, the payment of dividends would constitute an
unsafe or unsound practice in light of the financial condition of the bank.
Under Indiana law, the Holding Company is precluded from paying cash dividends
if, after giving effect to such dividends, the Holding Company would be unable
to pay its debts as they become due or the Holding Company's total assets would
be less than its liabilities and obligations to preferential shareholders.
An OTS regulation imposes limitations upon all "capital distributions" by
savings associations, including cash dividends, payments by an institution to
repurchase or otherwise acquire its shares, payments to shareholders of another
institution in a cash-out merger and other distributions charged against
capital. The regulation establishes a three-tiered system of regulation, with
the greatest flexibility being afforded to well-capitalized institutions. A
savings association which has total capital (immediately prior to and after
giving effect to the capital distribution) that is at least equal to its fully
phased-in capital requirements would be a Tier 1 institution ("Tier 1
Institution"). An institution that has total capital at least equal to its
minimum capital requirements, but less than its capital requirements, would be a
Tier 2 institution ("Tier 2 Institution"). An institution having total capital
that is less than its minimum capital requirements would be a Tier 3 institution
("Tier 3 Institution"). However, an institution which otherwise qualifies as a
Tier 1 Institution may be designated by the OTS as a Tier 2 or Tier 3
Institution if the OTS determines that the institution is "in need of more than
normal supervision." Madison First is currently a Tier 1 Institution.
A Tier 1 Institution could, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year up to the greater of
100% of its net income to date during the calendar year or 75% of its net income
over the most recent four-quarter period plus an amount that would reduce by
one-half its "surplus capital ratio" (the smallest excess over its capital
requirements) at the beginning of the calendar year. Any additional amount of
capital distributions would require prior regulatory approval. Accordingly, at
June 30, 1996, Madison First had available approximately $1.9 million for
distribution, without consideration of any capital infusion from the Conversion.
<PAGE>
The OTS has proposed revisions to these regulations which would permit
savings associations to declare dividends in amounts which would assure that
they remain adequately capitalized following the dividend declaration. Savings
associations in a holding company system which are rated Camel 1 or 2 and which
are not in troubled condition would need to file a prior notice with the OTS
concerning such dividend declaration.
Pursuant to the Plan of Conversion, Madison First will establish a
liquidation account for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders. See "The Conversion -- Principal Effects of
Conversion." Madison First will not be permitted to pay dividends to the Holding
Company if its net worth would be reduced below the amount required for the
liquidation account.
Citizens is subject to OCC limits on its dividends. The approval of the OCC
is required for any dividend by a national bank if the total of all dividends,
including any proposed dividend declared by the national bank in any calendar
year, exceeds the total of its net profits (as defined by the OCC) for that year
combined with its retained net profits for the preceding two years, less any
required transfers to surplus. Moreover, a national bank may not pay a dividend
on its common stock if the dividend would exceed net undivided profits then on
hand. In certain cases, even if prior approval of the OCC is not required, the
OCC may find a dividend payment to be an unsafe and unsound practice.
Limitations on Repurchase of Common Stock of Holding Company
Regulations promulgated by the FRB provide that a bank holding company must
file written notice with the FRB prior to any repurchase of its equity
securities if the gross consideration for the purchase, when aggregated with the
net consideration paid by the bank holding company for all repurchases during
the preceding 12 months, is equal to 10% or more of the bank holding company's
consolidated net worth. This notice requirement is not applicable, however, to a
bank holding company that exceeds the thresholds established for a well
capitalized bank and that satisfies certain other regulatory requirements.
OTS regulations currently provide that the Holding Company is prohibited
from repurchasing any of its shares within one year of the Conversion. So long
as Madison First continues to meet certain capitalization requirements, the
Holding Company may repurchase shares in an open-market repurchase program
(which cannot exceed 5% of its outstanding shares in a twelve-month period)
during the second and third years following the Conversion by giving appropriate
prior notice to the OTS. The OTS has the authority to waive these restrictions
under certain circumstances. Unless repurchases are permitted under the
foregoing regulations, the Holding Company may not, for a period of three years
from the date of the Conversion, repurchase any of its capital stock from any
person, except in the event of an offer to purchase by the Holding Company on a
pro rata basis from all of its shareholders which is approved in advance by the
OTS or except in exceptional circumstances established to the satisfaction of
the OTS.
Under Indiana law, the Holding Company will be precluded from repurchasing
its equity securities if, after giving effect to such repurchase, the Holding
Company would be unable to pay its debts as they become due or the Holding
Company's assets would be less than its liabilities and obligations to
preferential shareholders.
Limitations on Rates Paid for Deposits
Regulations promulgated by the FDIC pursuant to FedICIA place limitations
on the ability of insured depository institutions to accept, renew or roll over
deposits by offering rates of interest which are significantly higher than the
prevailing rates of interest on deposits offered by other insured depository
institutions having the same type of charter in such depository institution's
normal market area. Under these regulations, "well-capitalized" depository
institutions may accept, renew or roll such deposits over without restriction,
"adequately capitalized" depository institutions may accept, renew or roll such
deposits over with a waiver from the FDIC (subject to certain restrictions on
payments of rates) and "undercapitalized" depository institutions may not
accept, renew or roll such deposits over. The regulations contemplate that the
definitions of "well capitalized," "adequately capitalized" and
"undercapitalized" will be the same as the definition adopted by the agencies to
implement the corrective action provisions of FedICIA. Madison First and
Citizens do not believe that these regulations will have a materially adverse
effect on their current operations.
Federal Reserve System
FRB regulations require member institutions to maintain reserves against
their transaction accounts (primarily NOW accounts) and certain nonpersonal time
deposits. The reserve requirements are subject to adjustment by the FRB. As of
June 30, 1996, Madison First and Citizens were in compliance with the applicable
reserve requirements of the FRB.
<PAGE>
Liquidity
For each calendar month, Madison First is required to maintain an average
daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances, specified United States Government, state or federal agency
obligations, shares of certain mutual funds and certain corporate debt
securities and commercial paper) equal to an amount not less than a specified
percentage of its net withdrawable deposit accounts plus short-term borrowings
during the preceding calendar month. This liquidity requirement may be changed
from time to time by the OTS to any amount within the range of 4% to 10%
depending upon economic conditions and the savings flows of member institutions,
and is currently 5%. OTS regulations also require each member savings
institution to maintain an average daily balance of short-term liquid assets at
a specified percentage (currently 1%) of the total of its net withdrawable
deposit accounts and short-term borrowings during the preceding calendar month.
Monetary penalties may be imposed for failure to meet these liquidity
requirements. The monthly average liquidity of Madison First for June, 1996 was
26.7% which exceeded the then applicable 5% liquidity requirement. Its average
short-term liquidity for June, 1996 was 5.4%. Madison First has never been
subject to monetary penalties for failure to meet its liquidity requirements.
Safety and Soundness Standards
On February 2, 1995, the federal banking agencies adopted final safety and
soundness standards for all insured depository institutions. The standards,
which were issued in the form of guidelines rather than regulations, relate to
internal controls, information systems, internal audit systems, loan
underwriting and documentation, compensation and interest rate exposure. In
general, the standards are designed to assist the federal banking agencies in
identifying and addressing problems at insured depository institutions before
capital becomes impaired. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan may result in enforcement
proceedings. The federal banking agencies have also published for comment
proposed asset quality and earning standards which, if adopted, would be added
to the safety and soundness guidelines.
Real Estate Lending Standards
OTS regulations require savings associations to establish and maintain
written internal real estate lending policies. Each association's lending
policies must be consistent with safe and sound banking practices and
appropriate to the size of the association and the nature and scope of its
operations. The policies must establish loan portfolio diversification
standards; establish prudent underwriting standards, including loan-to-value
limits, that are clear and measurable; establish loan administration procedures
for the association's real estate portfolio; and establish documentation,
approval, and reporting requirements to monitor compliance with the
association's real estate lending policies. The association's written real
estate lending policies must be reviewed and approved by the association's Board
of Directors at least annually. Further, each association is expected to monitor
conditions in its real estate market to ensure that its lending policies
continue to be appropriate for current market conditions. Similar standards
apply to national banks under OCC regulations.
Loans to One Borrower
Under OTS regulations, a federally-chartered savings association,
including Madison First, may not make a loan or extend credit to a single or
related group of borrowers in excess of 15% of the association's unimpaired
capital and surplus. Additional amounts may be lent, not in excess of 10% of
unimpaired capital and surplus, if such loans or extensions of credit are fully
secured by readily-marketable collateral, including certain debt and equity
securities but not including real estate. Similar loans-to-one borrower limits
apply to national banks, including Citizens. At June 30, 1996, neither of the
Institutions had loans or extensions of credit to a single or related group of
borrowers in excess of its lending limits.
Qualified Thrift Lender
Under current OTS regulations, the QTL test requires that a savings
association have at least 65% of its portfolio assets invested in "qualified
thrift investments" on a monthly average basis in 9 out of every 12 months.
Qualified thrift investments under the QTL test include: (i) loans made to
purchase, refinance, construct, improve or repair domestic residential housing
or manufactured housing; (ii) home equity loans; (iii) mortgage-backed
securities; (iv) direct or indirect existing obligations of either the FDIC or
the Federal Savings and Loan Insurance Corporation ("FSLIC") for ten years from
the date of issuance, if issued prior to July 1, 1989; (v) obligations of the
FDIC, FSLIC, FSLIC Resolution Fund and the Resolution Trust Corporation (the
"RTC") entered into on or after July 1, 1989, for the five-year period beginning
on the date such obligations were issued; (vi) FHLB stock; (vii) 50% of the
dollar amount of residential mortgage loans originated and sold within 90 days
<PAGE>
of origination; (viii) investments in service corporations that derive at least
80% of their gross revenues from activities directly related to purchasing,
refinancing, constructing, improving or repairing domestic residential real
estate or manufactured housing; (ix) 200% of the dollar amount of loans and
investments made to acquire, develop and construct one to four-family residences
that are valued at no more than 60% of the median value of homes constructed in
the area; (x) 200% of the dollar amount of loans for the acquisition or
improvement of residential real property, churches, schools, and nursing homes
located within, and loans for any purpose to any small business located within,
an area where credit needs of its low and moderate income residents are
determined not to have been adequately met; (xi) loans for the purchase,
construction, improvement or upkeep of churches, schools, nursing homes and
hospitals not qualified under (x); (xii) up to 10% of portfolio assets held in
consumer loans or loans for educational purposes; and (xiii) FHLMC and FNMA
stock. However, the aggregate amount of investments in categories (vii)-(xiii)
which may be taken into account for the purpose of whether an institution meets
the QTL test cannot exceed 20% of portfolio assets. Portfolio assets under the
QTL test include all of an association's assets less (i) goodwill and other
intangibles, (ii) the value of property used by the association to conduct its
business, and (iii) its liquid assets as required to be maintained under law up
to 20% of total assets.
A savings association which fails to meet the QTL test must either convert
to a bank (but its deposit insurance assessments and payments will be those of
and paid to SAIF) or be subject to the following penalties: (i) it may not enter
into any new activity except for those permissible for a national bank and for a
savings association; (ii) its branching activities shall be limited to those of
a national bank; (iii) it shall not be eligible for any new FHLB advances; and
(iv) it shall be bound by regulations applicable to national banks respecting
payment of dividends. Three years after failing the QTL test the association
must (i) dispose of any investment or activity not permissible for a national
bank and a savings association and (ii) repay all outstanding FHLB advances. If
such a savings association is controlled by a savings and loan holding company,
then such holding company must, within a prescribed time period, become
registered as a bank holding company and become subject to all rules and
regulations applicable to bank holding companies (including restrictions as to
the scope of permissible business activities).
A savings association failing to meet the QTL test may requalify as a QTL
if it thereafter meets the QTL test. In the event of such requalification it
shall not be subject to the penalties described above. A savings association
which subsequently again fails to qualify under the QTL test shall become
subject to all of the described penalties without application of any waiting
period.
At June 30, 1996, approximately 89.0% of Madison First's portfolio assets
(as defined on that date) were invested in qualified thrift investments (as
defined on that date), and Madison First met this standard in each of the prior
twelve months. Therefore Madison First's asset composition was in excess of the
amount required to qualify Madison First as a QTL. Madison First does not expect
to significantly change its lending or investment activities in the near future,
and therefore expects to continue to qualify as a QTL, although there can be no
such assurance.
Acquisitions or Dispositions and Branching
The BHCA specifically authorizes a bank holding company, upon receipt of
appropriate approvals from the FRB and the Director of the OTS, to acquire
control of any savings association or holding company thereof wherever located.
Similarly, a savings and loan holding company may now acquire control of a bank.
Moreover, subject to the moratorium provisions concerning conversions of SAIF to
BIF members and vice versa, federal savings associations may acquire or be
acquired by any insured depository institution. Pursuant to rules promulgated by
the FRB, a savings association acquired by a bank holding company (i) may, so
long as the savings association continues to meet the QTL test, continue to
branch to the same extent as permitted to other non-affiliated savings
associations similarly chartered in the state, and (ii) cannot continue any
non-banking activities not authorized for bank holding companies. Saving
associations acquired by a bank holding company may, if located in a state where
the bank holding company is legally authorized to acquire a bank, be converted
to the status of a bank but deposit insurance assessments and payments continue
to be paid by the association to the SAIF. A savings association so converted to
a bank becomes subject to the branching restrictions applicable to banks. Also
any insured depository institution may merge with, acquire the assets of, or
assume the liabilities of any other insured depository institution with the
appropriate regularity approvals if (i) continued payments of deposit insurance
are made on the acquired depository institution's deposits (including an assumed
rate of growth in such deposits) to SAIF (if the acquired institution was a SAIF
member) or to BIF (if the acquired institution was a BIF member), and (ii) the
acquiring institution and any holding company in control thereof meet all
applicable capital requirements at the time of the transaction.
A bank or savings association may sell branches and transfer deposit
liabilities to a savings association or bank that is a member of an insurance
fund which differs from the fund of the transferor without violating the
moratorium on switching insurance funds that is described above in "--Insurance
<PAGE>
of Deposits." To be permitted, the transfer must be approved by the FDIC and the
amount for deposits transferred must not exceed 35% of the lesser of (a) the
transferor's deposits as of May 1, 1989 (plus net interest on those accounts) or
(b) the transferor's total deposits on the date of transfer. Exit and entrance
fees are payable in connection with such dispositions. There are also special
entrance and exit fees for insured deposits transfers in failed savings
association resolutions. The resulting to acquiring institution is liable for
the fees.
Subject to certain exceptions, commonly controlled banks and savings
associations must reimburse the FDIC for any losses suffered in connection with
a failed bank or savings association affiliate. Institutions are commonly
controlled if one is owned by another or if both are owned by the same holding
company. Such claims by the FDIC under this provision are subordinate to claims
of depositors, secured creditors, and holders of subordinates debt, other than
affiliates.
The OTS has adopted regulations which permit nationwide branching to the
extent permitted by federal statute. Federal statutes permit federal savings
associations to branch outside of their home state if the association meets the
domestic building and loan test in ss.7701(a)(19) of the Code or the asset
composition test of ss.7701(c) of the Code. Branching that would result in the
formation of a multiple savings and loan holding company controlling savings
associations in more than one state is permitted if the law of the state in
which the savings association to be acquired is located specifically authorizes
acquisitions of its state-chartered associations by state-chartered associations
or their holding companies in the state where the acquiring association or
holding company is located.
Moreover, Indiana banks and savings associations are permitted to acquire
other Indiana banks and savings associations and to establish branches
throughout Indiana.
In addition, The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Riegle-Neal Act") permits bank holding companies to acquire
banks in other states and, with state consent and subject to certain
limitations, allows banks to acquire out-of-state branches either through merger
or de novo expansion. The State of Indiana recently passed a law establishing
interstate branching provisions for Indiana state-chartered banks consistent
with those established by the Riegle-Neal Act (the "Indiana Branching Law"). The
Indiana Branching Law authorizes Indiana banks to branch interstate by merger or
de novo expansion. The Indiana Branching Law became effective March 15, 1996,
provided that prior to June 1, 1997 interstate mergers and de novo branches are
not permitted to out-of-state banks unless the laws of their home states permit
Indiana banks to merge or establish de novo branches on a reciprocal basis.
Transactions with Affiliates
Madison First and Citizens are subject to Sections 22(h), 23A and 23B of
the Federal Reserve Acts, which restrict financial transactions between banks
and affiliated companies. The statute limits credit transactions between a bank
and its executive officers and its affiliates, prescribes terms and conditions
for bank affiliate transactions deemed to be consistent with safe and sound
banking practices, and restricts the types of collateral security permitted in
connection with a bank's extension of credit to an affiliate.
Federal Securities Law
The shares of Common Stock of the Holding Company will be registered with
the SEC under the 1934 Act. The Holding Company will be subject to the
information, proxy solicitation, insider trading restrictions and other
requirements of the 1934 Act and the rules of the SEC thereunder. After three
years following Madison First's conversion to stock form, if the Holding Company
has fewer than 300 shareholders, it may deregister its shares under the 1934 Act
and cease to be subject to the foregoing requirements.
Shares of Common Stock held by persons who are affiliates of the Holding
Company may not be resold without registration unless sold in accordance with
the resale restrictions of Rule 144 under the Securities Act of 1933, as amended
(the "1933 Act"). If the Holding Company meets the current public information
requirements under Rule 144, each affiliate of the Holding Company who complies
with the other conditions of Rule 144 (including the two-year holding period and
those that require the affiliate's sale to be aggregated with those of certain
other persons) would be able to sell in the public market, without registration,
a number of shares not to exceed, in any three-month period, the greater of (i)
1% of the outstanding shares of the Holding Company or (ii) the average weekly
volume of trading in such shares during the preceding four calendar weeks.
<PAGE>
Community Reinvestment Act Matters
Federal law requires that ratings of depository institutions under the
Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure includes
both a four-unit descriptive rating -- outstanding, satisfactory, needs to
improve, and substantial noncompliance -- and a written evaluation of each
institution's performance. Each FHLB is required to establish standards of
community investment or service that its members must maintain for continued
access to long-term advances from the FHLBs. The standards take into account a
member's performance under the CRA and its record of lending to first-time home
buyers. The examiners have determined that Madison First and Citizens have a
satisfactory record of meeting community credit needs.
TAXATION
Federal Taxation
Historically, savings associations, such as Madison First, have been
permitted to compute bad debt deductions using either the bank experience method
or the percentage of taxable income method. However, for years beginning after
December 31, 1995, Madison First will no longer be able to use the percentage of
taxable income method of computing its allowable tax bad debt deduction. Madison
First will be required to compute its allowable deduction using the experience
method. As a result of the repeal of the percentage of taxable income method,
reserves taken after 1987 using the percentage of taxable income method
generally must be included in future taxable income over a six-year period,
although a two-year delay may be permitted for institutions meeting a
residential mortgage loan origination test. In addition, the pre-1988 reserve,
for which no deferred taxes have been recorded, will not have to be recaptured
into income unless (i) Madison First no longer qualifies as a bank under the
Code, or (ii) excess dividends are paid out by Madison First.
Depending on the composition of its items of income and expense, a savings
association may be subject to the alternative minimum tax. A savings association
must pay an alternative minimum tax equal to the amount (if any) by which 20% of
alternative minimum taxable income ("AMTI"), as reduced by an exemption varying
with AMTI, exceeds the regular tax due. AMTI equals regular taxable income
increased or decreased by certain tax preferences and adjustments, including
depreciation deductions in excess of that allowable for alternative minimum tax
purposes, tax-exempt interest on most private activity bonds issued after August
7, 1986 (reduced by any related interest expense disallowed for regular tax
purposes), the amount of the bad debt reserve deduction claimed in excess of the
deduction based on the experience method and 75% of the excess of adjusted
current earnings over AMTI (before this adjustment and before any alternative
tax net operating loss). AMTI may be reduced only up to 90% by net operating
loss carryovers, but alternative minimum tax paid can be credited against
regular tax due in later years.
For federal income tax purposes, Madison First has been reporting its
income and expenses on the accrual method of accounting. Madison First's federal
income tax returns have not been audited in recent years.
Citizens, as a national banking association, is ineligible to use the
percentage of taxable income method of accounting for its bad debts, and instead
must use the method described above. The bank experience method is not available
to "large" banks, as defined by the Code. Large banks are not permitted to
deduct a reserve for bad debts, and instead must use the specific charge-off
method. Citizens does not expect to be classified as a large bank in the
foreseeable future. Citizens could also be subject to the AMTI described above.
For federal income tax purposes, Citizens has been reporting its income and
expenses on the accrual method of accounting. Citizens' federal income tax
returns have not been audited in recent years.
The Holding Company, Madison First and Citizens do not anticipate electing
to file a consolidated federal income tax return for 1996 or 1997.
State Taxation
Madison First and Citizens are subject to Indiana's Financial Institutions
Tax ("FIT"), which is imposed at a flat rate of 8.5% on "adjusted gross income."
"Adjusted gross income," for purposes of FIT, begins with taxable income as
defined by Section 63 of the Code and, thus, incorporates federal tax law to the
extent that it affects the computation of taxable income. Federal taxable income
is then adjusted by several Indiana modifications. Other applicable state taxes
include generally applicable sales and use taxes plus real and personal property
taxes.
Madison First's state income tax returns have not been audited in recent
years.
<PAGE>
For further information relating to the tax consequences of the Conversion,
see "The Conversion -- Principal Effects of Conversion -- Tax Effects."
THE CONVERSION
THE BOARDS OF DIRECTORS OF MADISON FIRST AND THE HOLDING COMPANY AND THE
OTS HAVE APPROVED THE PLAN OF CONVERSION SUBJECT TO APPROVAL BY THE MEMBERS OF
MADISON FIRST AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. OTS APPROVAL
DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY THE OTS.
General
On March 5, 1996, the Board of Directors of Madison First adopted a Plan of
Conversion pursuant to which Madison First will convert from a federal mutual
savings and loan association to a federal stock savings and loan association,
all the outstanding shares of which will be held by the Holding Company formed
under Indiana law. The Plan has also been approved by the Board of Directors of
the Holding Company and by the OTS, subject to approval of the Plan by Madison
First's members. A Special Meeting of Members has been scheduled for that
purpose on December 18, 1996. Such approval by the OTS does not constitute a
recommendation or endorsement of the Plan by the OTS.
In connection with the Special Meeting, Madison First has mailed to each
person eligible to vote at the Special Meeting a proxy statement (the "Proxy
Statement"). The Proxy Statement contains information concerning the business
purposes of the Conversion and the effects of the Plan and the Conversion with
respect to voting rights, liquidation rights, continuation of Madison First's
business and of existing savings accounts, FDIC insurance and loans. The Proxy
Statement also describes the manner in which the Plan may be amended or
terminated.
The following is a summary of all of the pertinent aspects of the Plan, the
Subscription Offering, and the Direct Community Offering. The Plan should be
consulted for a more detailed description of its terms.
Reasons for Conversion
As a stock institution, Madison First will be structured in the form used
by commercial banks, most business entities, and a growing number of savings
associations. Converting to the stock form is intended to have a positive effect
on the future growth and performance of Madison First by: (i) affording
depositors, other customers and employees of Madison First the opportunity to
become shareholders of the Holding Company and thereby participate more directly
in both Madison First's and the Holding Company's future; (ii) providing the
Holding Company with the flexibility through mergers and acquisitions by
permitting the offering of equity participations to the shareholders of acquired
companies; (iii) providing substantially increased net worth and equity capital
for investment in its business, thus enabling management to pursue new and
additional lending and investment opportunities and to expand operations; (iv)
providing future access to capital markets through the sale of stock of the
Holding Company in order to generate additional capital to accommodate or
promote future growth; and (v) providing the capital necessary to acquire the
Citizens Shares in the Acquisition. Madison First believes that the increased
capital and operating flexibility will enhance its competitiveness with other
types of financial services organizations. Although Madison First's current
members will, upon Conversion, lose the voting and liquidation rights they
presently have as members (except to the limited extent of their rights in the
liquidation account established in the Conversion), they are being offered a
priority right to purchase shares in the Conversion and thereby obtain voting
and liquidation rights in the Holding Company.
The net proceeds to Madison First from the sale of Common Stock offered
hereby, after retention by the Holding Company of 50% of the net proceeds after
accounting for the loan to the ESOP, estimated at $3.8 million, based upon the
sale of 900,000 shares at $10.00 per share, will increase Madison First's
existing net worth and thus provide an even stronger capital base to support
Madison First's lending and investment activities. Although Madison First's
regulatory capital at June 30, 1996, exceeded its capital requirements, Madison
First's Board of Directors believes that it is desirable to increase regulatory
capital for the foregoing purposes in view of the competitive and changing
financial conditions in which Madison First operates and the new opportunities
created and higher levels of regulatory capital required by the OTS and
regulations applicable to Madison First. The Holding Company will also
contribute up to $1.5 million to the capital of Citizens, thereby increasing its
regulatory capital, which will also exceed all of Citizens' capital
requirements.
In addition, the Conversion will provide Madison First with new
opportunities to attract and retain talented and experienced personnel through
offering stock incentive programs.
<PAGE>
The Board of Directors of Madison First believes that the Conversion to a
holding company structure is the best way to enable Madison First to diversify
its business activities should it choose to do so. The Holding Company will be
able to engage in banking-related activities permitted under the BHCA.
Currently, there are no plans, written or oral, for the Holding Company to
engage in any material activities apart from holding the shares of Madison First
to be acquired in connection with the Conversion, holding the Citizens Shares to
be acquired in connection with the Acquisition and loaning funds to the ESOP to
purchase shares of Common Stock in the Conversion, although the Board may
determine to further expand the Holding Company's activities after the
Conversion.
The preferred stock and additional Common Stock of the Holding Company
being authorized in the Conversion will be available for future acquisitions
(although the Holding Company has no current discussions, arrangements or
agreements with respect to any acquisition other than in connection with the
Acquisition) and for issuance and sale to raise additional equity capital,
subject to market conditions and generally without shareholder approval. The
Holding Company's ability to raise additional funds through the sale of debt
securities to the public or institutional investors should also be enhanced by
the increase in its equity capital base provided by the Conversion. Although the
Holding Company currently has no plans with respect to future issuances of
equity or debt securities, the more flexible operating structure provided by the
Holding Company and the stock form of ownership is expected to assist Madison
First in competing aggressively with other financial institutions in its market
area.
The Conversion will also permit Madison First's members who subscribe for
shares of Common Stock to become shareholders of the Holding Company, thereby
allowing members to indirectly own stock in the financial organization in which
they maintain deposit accounts. Such ownership may encourage shareholders to
promote Madison First to others, thereby further contributing to Madison First's
growth.
Principal Effects of Conversion
General. Each savings depositor in a mutual savings and loan association
such as Madison First has both a savings account and a pro rata ownership in the
net worth of that institution, based upon the balance in his or her savings
account, which has no tangible market value separate from the savings account.
Any other depositor who opens a savings account obtains a pro rata interest in
the net worth of the association without any additional payment beyond the
amount of the deposit. A depositor who reduces or closes his or her account
receives a portion or all of the balance in the account but nothing for his or
her ownership interest, which is lost to the extent that the balance in the
account is reduced. As a result, depositors normally can only realize the value
of their ownership in the unlikely event that the mutual association is
liquidated. In such event, the depositors of record at that time, as owners,
would share pro rata in any residual retained earnings (any remaining net worth)
after other claims are paid.
Upon conversion to stock form, the ownership of Madison First's net worth
will be represented by the outstanding shares of stock to be owned by the
Holding Company. Certificates are issued to evidence ownership of the capital
stock. The stock certificates are transferable and, therefore, the shares may be
transferred with no effect on any account the seller may hold in the savings
association.
Continuity. While the Conversion is being accomplished, the normal business
of Madison First in accepting deposits and making loans will be continued
without interruption; provided, however, that Madison First will be negotiating
with third parties for the sale of its Hanover branch as required by the Holding
Company's commitment to the FRB. See "Risk Factors -- Divestiture of Hanover
Branch." After the Conversion, Madison First will continue to provide services
for account holders and borrowers under current policies carried on by its
present management and staff.
The directors serving Madison First at the time of Conversion will continue
to serve in such capacity after the Conversion until the expiration of their
current terms, and thereafter, if reelected. Following the Conversion and the
Acquisition, Jonnie L. Davis, a director of Citizens, will be added to the Board
of Directors of Madison First. See "Management -- Directors of Madison First."
All executive officers of Madison First at the time of Conversion will retain
their positions after the Conversion.
Effect on Deposit Accounts. Under the Plan, each holder of a deposit
account in Madison First at the time of the Conversion will automatically
continue as a deposit account holder in Madison First after the Conversion to
stock form, and each such deposit account will remain the same with respect to
deposit balance, interest rate and other terms. Each such account will be
insured by the FDIC in exactly the same way as before. Depositors will continue
to hold their existing certificates, passbooks and other evidence of their
accounts.
Effect on Loans of Borrowers. No loan from Madison First will be affected
by the Conversion. The amount, interest rate, maturity and security for each
loan will be unchanged.
<PAGE>
Effect on Voting Rights of Members. Currently, all depositors and borrowers
of Madison First are members of, and have voting rights in, Madison First as to
all matters requiring membership action. Each depositor has one vote for each
$100, or fraction thereof, of the withdrawal value (deposit balance) of accounts
held by such member. Each borrower has one vote. However, no member may cast
more than 1,000 votes.
Following the Conversion, Madison First's members will cease to be members
and will no longer have voting rights in Madison First, and therefore will not
be able to elect directors of Madison First or control its affairs. All voting
rights in Madison First will be vested in the Holding Company as the sole
shareholder of Madison First. Voting rights in the Holding Company will be
vested exclusively in its shareholders, with one vote for each share of Common
Stock. Neither the Common Stock to be sold in the Conversion nor the capital
stock of Madison First will be insured by the FDIC or any other government
entity.
Effect on Liquidation Rights. If Madison First were to liquidate as a
mutual savings association, all claims of creditors (including those of deposit
account holders, to the extent of their deposit balances) would be paid first
and, if there were any assets remaining, account holders would then receive such
remaining assets, pro rata, based upon the deposit balances in their deposit
accounts just prior to liquidation. If Madison First were to liquidate after the
Conversion, all claims of creditors (including those of deposit account holders,
to the extent of their deposit balances) would also be paid first, followed by
distribution of the "liquidation account" to certain deposit account holders (as
described below), with any assets remaining thereafter distributed to the
Holding Company as the sole shareholder of Madison First.
Current federal regulations and the Plan of Conversion provide for the
establishment of a "liquidation account" by Madison First for the benefit of its
deposit account holders with balances of no less than $50.00 on December 31,
1994 ("Eligible Account Holders"), and its deposit account holders with balances
of no less than $50.00 on September 30, 1996 ("Supplemental Eligible Account
Holders"), who continue to maintain their accounts in Madison First after
Conversion. The liquidation account will be credited with the net worth of
Madison First as reflected in the latest statement of financial condition in the
final prospectus used in the Conversion. Each Eligible Account Holder and
Supplemental Eligible Account Holder will, with respect to each deposit account
held, have a related inchoate interest in a portion of the balance of the
liquidation account. This inchoate interest is referred to in the Plan as a
"subaccount balance." In the event of a complete liquidation of Madison First
after the Conversion (and only in such event), Eligible Account Holders and
Supplemental Eligible Account Holders of Madison First would be entitled to a
distribution from the liquidation account in an amount equal to the then current
adjusted subaccount balance then held, before any liquidation distribution would
be made to the Holding Company as sole shareholder of Madison First. Management
believes that a liquidation of Madison First is unlikely.
Each Eligible Account Holder will have a subaccount balance in the
liquidation account for each deposit account held as of December 31, 1994 (the
"Eligibility Record Date"). Each Supplemental Eligible Account Holder will have
a subaccount balance in the liquidation account for each deposit account held as
of September 30, 1996 (the "Supplemental Eligibility Record Date"). Each initial
subaccount balance will be the amount determined by multiplying the total
opening balance in the liquidation account by a fraction, the numerator of which
is the amount of the qualifying deposit (a deposit of at least $50 as of
December 31, 1994, or September 30, 1996, respectively) of such deposit account,
and the denominator of which is the total of all qualifying deposits on that
date. If the amount in the deposit account on any subsequent annual closing date
of Madison First is less than the balance in such deposit account on any other
annual closing date, or the balance in such account on the Eligibility Record
Date or the Supplemental Eligibility Record Date, as the case may be, this
interest in the liquidation account will be reduced by an amount proportionate
to any such reduction, and will not thereafter be increased despite any
subsequent increase in the related deposit account. An Eligible Account
Holder's, as well as a Supplemental Eligible Account Holder's, interest in the
liquidation account will cease to exist if the deposit account is closed. The
liquidation account will never increase and will be correspondingly reduced as
the interests in the liquidation account are reduced or cease to exist. In the
event of liquidation, any assets remaining after the above liquidation rights of
Eligible Account Holders and Supplemental Eligible Account Holders are satisfied
will be distributed to the Holding Company as the sole shareholder of Madison
First.
A merger, consolidation, sale of bulk assets, or similar combination or
transaction in which Madison First is not the surviving entity would not be
considered to be a "liquidation" under which distribution of the liquidation
account could be made, provided the surviving institution is an FDIC-insured
institution. In such a transaction, the liquidation account would be assumed by
the surviving institution. The OTS has stated that the consummation of a
transaction of the type described in the preceding sentence in which the
surviving entity is not an FDIC-insured institution would be reviewed on a
case-by-case basis to determine whether the transaction should constitute a
"complete liquidation" requiring distribution of any then-remaining balance in
the liquidation account.
<PAGE>
The creation and maintenance of the liquidation account will not restrict
the use of or application of any of the net worth accounts of Madison First,
except that Madison First may not declare or pay a cash dividend on or
repurchase its capital stock if the effect of such dividend or repurchase would
be to cause its net worth to be reduced below the aggregate amount then required
for the liquidation account.
Tax Effects. Madison First intends to proceed with the Conversion on the
basis of an opinion from its special counsel, Barnes & Thornburg, Indianapolis,
Indiana, as to certain tax matters. The opinion is based, among other things, on
certain representations made by Madison First, including the representation that
the exercise price of the subscription rights to purchase Holding Company Common
Stock will be approximately equal to the fair market value of the stock at the
time of the completion of the Conversion. With respect to the subscription
rights, Madison First has received an opinion of Keller which, based on certain
assumptions, concludes that the subscription rights to be received by Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members do not
have any economic value at the time of distribution or the time the subscription
rights are exercised, whether or not a Direct Community Offering takes place,
and Barnes & Thornburg's opinion is given in reliance thereon. Barnes &
Thornburg's opinion provides substantially as follows:
1. The change in form of Madison First from a mutual savings and loan
association to a stock savings and loan association will qualify as a
reorganization under Section 368(a)(1)(F) of the Code and no gain or loss
will be recognized to Madison First in either its mutual form or its stock
form by reason of the Conversion.
2. No gain or loss will be recognized by the converted savings association
upon receipt of money from the Holding Company for the converted savings
association's capital stock, and no gain or loss will be recognized to the
Holding Company upon the receipt of money for Common Stock of the Holding
Company.
3. The basis of the assets of the converted savings association will be the
same as the basis in Madison First's hands prior to the Conversion.
4. The holding period of the assets of the converted savings association will
include the period during which the assets were held by Madison First in
its mutual form prior to Conversion.
5. No gain or loss will be realized by the deposit account holders of Madison
First, upon the constructive issuance to them of withdrawable deposit
accounts of the converted savings association immediately after the
Conversion, interests in the liquidation account, and/or on the
distribution to them of nontransferable subscription rights to purchase
Holding Company Common Stock.
6. The basis of an account holder's deposit accounts in the converted savings
association after the Conversion will be the same as the basis of his or
her deposit account in Madison First prior to the Conversion.
7. The basis of each account holder's interest in the liquidation account will
be zero. The basis of the non-transferable subscription rights will be
zero.
8. The basis of the Holding Company Common Stock to its shareholders will be
the actual purchase price ($10.00) thereof, and a shareholder's holding
period for Holding Company Common Stock acquired through the exercise of
subscription rights will begin on the date on which the subscription rights
are exercised.
9. No taxable income will be realized by Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members as a result of the
exercise of the nontransferable subscription rights.
10. The converted savings association in its stock form will succeed to and
take into account the earnings and profits or deficit in earnings and
profits of Madison First, in its mutual form, as of the date of Conversion.
The opinion also concludes in effect that:
1. No taxable income will be realized by Madison First on the issuance of
subscription rights to eligible subscribers to purchase shares of Holding
Company Common Stock at fair market value.
2. The converted savings association will succeed to and take into account the
dollar amounts of those accounts of Madison First in its mutual form which
represent bad debt reserves in respect of which Madison First in its mutual
form has taken a bad debt deduction for taxable years on or before the date
of the transfer.
3. The creation of the liquidation account will have no effect on Madison
First's taxable income, deductions, or additions to bad debt reserves or
distributions to shareholders under Section 593 of the Code.
<PAGE>
Barnes & Thornburg has also issued an opinion stating in essence that the
Conversion will not be a taxable transaction to the Holding Company or Madison
First under any Indiana tax statute imposing a tax on income, and that Madison
First's depositors and borrowers will be treated under such laws in a manner
similar to the manner in which they will be treated under federal income tax
law.
The opinions of Barnes & Thornburg and Keller, unlike a letter ruling
issued by the Internal Revenue Service, are not binding on the Service and the
conclusions expressed herein may be challenged at a future date. The Service has
issued favorable rulings for transactions substantially similar to the proposed
Conversion, but any such ruling may not be cited as precedent by any taxpayer
other than the taxpayer to whom the ruling is addressed. Madison First does not
plan to apply for a letter ruling concerning the transactions described herein.
Offering of Holding Company Common Stock
Under the Plan of Conversion, up to 1,035,000 shares of Common Stock are
being offered for sale, initially through the Subscription Offering (subject to
a possible increase to 1,190,250 shares). See "-- Subscription Offering." The
Plan of Conversion requires, with certain exceptions, that a number of shares
equal to at least 765,000 be sold in order for the Conversion to be effective.
Shares will also be offered to the public in a Direct Community Offering which
will commence concurrently with the Subscription Offering. The Direct Community
Offering may expire as early as December 11, 1996, or at any time thereafter
(until January 25, 1997, unless extended by Madison First and the Holding
Company) when orders for at least 765,000 shares have been received in the
Subscription Offering and Direct Community Offering, if any. The offering may be
extended, subject to OTS approval, until 24 months following the members'
approval of the Plan of Conversion, or until December 18, 1998. The actual
number of shares to be sold in the Conversion will depend upon market and
financial conditions at the time of the Conversion, provided that no fewer than
765,000 shares or more than 1,190,250 shares will be sold in the Conversion. The
per share price to be paid by purchasers in the Direct Community Offering for
any remaining shares will be $10.00, the same price paid by subscribers in the
Subscription Offering. See "-- Stock Pricing."
The Subscription Offering expires at 4:00 p.m., Madison time, on December
11, 1996. OTS regulations and the Plan of Conversion require that Madison First
complete the sale of Common Stock within 45 days after the close of the
Subscription Offering. This 45-day period expires on January 25, 1997. In the
event Madison First is unable to complete the sale of Common Stock within the
45-day period, an extension of this time period may be requested of the OTS. No
single extension granted by the OTS, however, may exceed 90 days. No assurance
can be given that an extension would be granted if requested. The OTS has,
however, granted extensions due to the inability of mutual financial
institutions to complete the sale as a result of the development of adverse
conditions in the stock market. If an extension is granted, Madison First will
promptly notify subscribers of the granting of the extension of time and will
promptly return subscriptions unless subscribers affirmatively elect to continue
their subscriptions during the period of extension. Such extensions may not be
made beyond December 18, 1998.
As permitted by OTS regulations, the Plan of Conversion provides that if,
for any reason, purchasers cannot be found for an insignificant residue of
unsubscribed shares of the Common Stock, the Board of Directors of Madison First
will seek to make other arrangements for the sale of the remaining shares. Such
other arrangements will be subject to the approval of the OTS. If such other
purchase arrangements cannot be made, the Plan of Conversion will terminate. In
the event that the Conversion is not effected, Madison First will remain a
mutual savings and loan association, all subscription funds will be promptly
returned to subscribers with interest earned thereon at the passbook rate, which
is currently 3.00% per annum, or 3.04 APY (except for payments to have been made
through withdrawal authorizations which will have continued to earn interest at
the contractual account rates), and all withdrawal authorizations will be
canceled.
Subscription Offering
In accordance with OTS regulations, nontransferable rights to subscribe for
the purchase of the Holding Company's Common Stock have been granted under the
Plan of Conversion to the following persons in the following order of priority:
(1) depositors of Madison First with balances no less than $50.00 as of December
31, 1994 ("Eligible Account Holders"); (2) the ESOP; (3) depositors of Madison
First with balances no less than $50.00 as of September 30, 1996 ("Supplemental
Eligible Account Holders"); and (4) depositor and borrower members of Madison
First other than Eligible Account Holders and Supplemental Eligible Account
Holders, at the close of business on November 1, 1996, the voting record date
for the Special Meeting ("Other Members"). All subscriptions received will be
subject to the availability of Common Stock after satisfaction of all
subscriptions of all persons having prior rights in the Subscription Offering,
and to the maximum and minimum purchase limitations set forth in the Plan of
<PAGE>
Conversion (and described below). The December 31, 1994, date for determination
of Eligible Account Holders and the September 30, 1996 date for determination of
Supplemental Eligible Account Holders were selected in accordance with federal
regulations applicable to the Conversion. Shareholders, depositors and borrowers
of Citizens do not have subscription rights under the Plan unless such persons
otherwise qualify for subscription rights as a member of Madison First.
Category I: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, nontransferable subscription rights to
subscribe for up to 10,000 shares of the Common Stock for each deposit account
held on December 31, 1994; provided, however, that no Eligible Account Holder
may purchase alone or with his or her Associates (as defined in the Plan, and
including relatives living in the same household) and persons acting in concert,
more than 20,000 shares of Common Stock.
If sufficient shares are not available in this Category I, shares will be
allocated in a manner that will allow each Eligible Account Holder, to the
extent possible, to purchase a number of shares sufficient to make his or her
allocation consist of the lesser of 100 shares or the amount subscribed for.
Thereafter, unallocated shares will be allocated to subscribing Eligible Account
Holders in the proportion that the amounts of their respective qualifying
deposits bear to the total amount of qualifying deposits of all subscribing
Eligible Account Holders.
The "qualifying deposits" of an Eligible Account Holder is the amount of
the deposit balances (provided such aggregate balance is not less than $50.00)
in his or her deposit accounts as of the close of business on December 31, 1994.
Subscription rights received by directors and officers in this category based
upon their increased deposits in Madison First during the year preceding
December 31, 1994, are subordinated to the subscription rights of other Eligible
Account Holders. Notwithstanding the foregoing, shares of Common Stock with a
value in excess of $10,350,000, the maximum of the Estimated Valuation Range,
may be sold to the ESOP before fully satisfying the subscriptions of Eligible
Account Holders.
Category II: The ESOP. The ESOP will receive, without payment therefor,
nontransferable subscription rights to purchase up to 10% of the total number of
shares of Common Stock offered in the Conversion on behalf of participants,
provided that shares remain available after satisfying the subscription rights
of Eligible Account Holders up to the maximum of the Estimated Valuation Range
as described above. The ESOP currently intends to purchase 8% of the shares sold
in the Conversion. If the ESOP is unable to purchase all or part of the shares
of Common Stock for which it subscribes, the ESOP may purchase such shares on
the open market or may purchase authorized but unissued shares of the Holding
Company. If the ESOP purchases authorized but unissued shares, such purchases
could have a dilutive effect on the interests of the Holding Company's
shareholders.
Category III: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder will receive, without payment therefor, nontransferable
subscription rights to subscribe for up to 10,000 shares of the Common Stock for
each deposit account held on September 30, 1996; provided, however, that no
Supplemental Eligible Account Holder may purchase alone or with his or her
Associates (as defined in the Plan, and including relatives living in the same
household) and persons acting in concert, more than 20,000 shares of Common
Stock. Such subscription rights will be applicable only to such shares as remain
available after the subscriptions of the Eligible Account Holders and the ESOP
have been satisfied. Any subscription rights received by a person as a result of
his or her status as an Eligible Account Holder will reduce to the extent
thereof the subscription rights granted to such person as a result of his or her
status as a Supplemental Eligible Account Holder.
If sufficient shares are not available in this Category III, shares will be
allocated in a manner that will allow each Supplemental Eligible Account Holder,
to the extent possible, to purchase a number of shares sufficient to make his or
her allocation consist of the lesser of 100 shares or the amount subscribed for.
Thereafter, unallocated shares will be allocated to subscribing Supplemental
Eligible Account Holders in the proportion that the amounts of their respective
qualifying deposits bear to the total amount of qualifying deposits of all
subscribing Supplemental Eligible Account Holders.
The "qualifying deposits" of a Supplemental Eligible Account Holder is the
amount of the deposit balances (provided such aggregate balance is not less than
$50) in his or her deposit accounts as of the close of business on September 30,
1996.
Category IV: Other Members. The Other Members of Madison First will receive,
without payment therefor, nontransferable subscription rights to subscribe for
up to 10,000 shares of the Common Stock for each deposit account held and each
loan owed as of November 1, 1996; provided, however, that no Other Member may
purchase alone or with his or her Associates (as defined in the Plan, and
including relatives living in the same household) and persons acting in concert,
more than 20,000 shares of Common Stock. Such subscription rights will be
applicable only to such shares as remain available after the subscriptions of
Eligible Account Holders, the ESOP and Supplemental Eligible Account Holders
have been satisfied.
<PAGE>
If sufficient shares are not available in this Category IV, shares will be
allocated pro rata among subscribing Other Members in the same proportion that
the number of shares subscribed for by each Other Member bears to the total
number of shares subscribed for by all Other Members.
Timing of Offering and Method of Payment. The Subscription Offering will
expire at 4:00 p.m., Madison time, on December 11, 1996 (the "Expiration Date").
The Expiration Date may be extended by Madison First and the Holding Company for
successive 90-day periods, subject to OTS approval, to December 18, 1998.
Subscribers must, before the Expiration Date, or such date to which the
Expiration Date may be extended, return Order Forms to Madison First, properly
completed, together with checks or money orders in an amount equal to the
Purchase Price ($10.00 per share) multiplied by the number of shares for which
subscription is made. Payment for stock purchases can also be accomplished
through authorization on the order form of withdrawals from accounts (including
a certificate of deposit but excluding IRA accounts). Madison First has the
right to reject any orders transmitted by facsimile and any payments made by
wire transfer. The beneficiaries of IRA accounts are deemed to have the same
subscription rights as other depositors. However, the IRA accounts maintained in
Madison First do not permit investment in the Common Stock. A depositor
interested in using his IRA funds to purchase Common Stock must do so through a
self-directed IRA account. Since Madison First does not offer such accounts, it
will allow such a depositor to make a trustee-to-trustee transfer of the IRA
funds on deposit at Madison First that he wishes to invest. There will be no
early withdrawal or IRS interest penalties for such transfers. The new trustee
would hold the Common Stock in a self-directed account in the same manner as
Madison First now holds the depositor's IRA funds. An annual administrative fee
would be payable to the new trustee.
Depositors interested in using funds in a Madison First IRA to purchase
Common Stock should contact Madison First at (812) 273-2471, or (800) 273-7804
(out-of-area calls) as soon as possible so that the necessary forms may be
forwarded for execution and returned prior to the Expiration Date of the
Subscription Offering.
Until completion or termination of the Conversion, subscribers who elect to
make payment through authorization of withdrawal from accounts with Madison
First will not be permitted to reduce the deposit balance in any such accounts
below the amount required to purchase the shares for which they subscribed. In
such cases interest will continue to be credited on deposits authorized for
withdrawal until the completion of the Conversion. Interest at the passbook
rate, which is currently 3.00% per annum, for an APY of 3.04%, will be paid on
amounts submitted by check. Authorized withdrawals from certificate accounts for
the purchase of Common Stock will be permitted without the imposition of early
withdrawal penalties or loss of interest. However, withdrawals from certificate
accounts that reduce the balance of such accounts below the required minimum for
specific interest rate qualification will cause the cancellation of the
certificate accounts at the effective date of the Conversion, and the remaining
balance will earn interest at the passbook savings rate. Stock subscriptions
received by Madison First may not be withdrawn by the subscriber before January
25, 1997, and, if accepted by Madison First, are final until that date.
Members in Non-Qualified States or Foreign Countries. Madison First and the
Holding Company will make reasonable efforts to comply with the securities laws
of all states in the United States in which persons entitled to subscribe for
stock pursuant to the Plan reside. However, no person will be offered or sold or
receive any stock pursuant to the Subscription Offering if such person resides
in a foreign country or resides in a state in the United States with respect to
which all of the following apply: (i) a small number of persons otherwise
eligible to subscribe for shares of Common Stock reside in such state; (ii) the
granting of subscription rights or the offer or sale of Common Stock to such
persons would require Madison First or the Holding Company or their respective
officers and directors, under the securities laws of such state, to register as
a broker, dealer, salesman or selling agent, or to register or otherwise qualify
the Common Stock for sale in such state; and (iii) such registration,
qualification or filing in the judgment of the Holding Company and Madison First
would be impracticable or unduly burdensome for reasons of cost or otherwise.
To assist in the Subscription and Direct Community Offerings, the Holding
Company has established a Stock Information Center ((812) 273-2471, or (800)
273-7804, for out-of-area calls). Callers to the Stock Information Center will
be able to request a Subscription and Direct Community Offering Prospectus and
other information relating to the offering.
Direct Community Offering
Commencing concurrently with the Subscription Offering, Madison First is
offering shares of Holding Company Common Stock in the Direct Community Offering
to the general public, with preference given to residents of Jefferson County,
to the extent such shares remain available after satisfaction of all orders
received in the Subscription Offering. The right of any person to purchase
shares in the Direct Community Offering is subject to the right of Madison First
<PAGE>
to accept or reject such purchase in whole or in part. Madison First has the
right to terminate the Direct Community Offering as soon as it has received
orders for at least the minimum number of shares available for purchase in the
Conversion.
The Direct Community Offering may expire as early as December 11, 1996, or
at any time thereafter (until January 25, 1997, unless extended by Madison First
and the Holding Company) when orders for at least 765,000 shares have been
received in the Subscription Offering and Direct Community Offering.
Accordingly, persons wishing to purchase stock in the Direct Community Offering
directly from the Holding Company should return the Order Form on or before
December 11, 1996, to Madison First, properly completed, together with check or
money order in the amount equal to the Purchase Price ($10.00 per share)
multiplied by the number of shares which that person desires to purchase. Order
Forms will be accepted in the Direct Community Offering until its completion,
which is expected to occur on or after December 11, 1996, and before January 25,
1997. However, as mentioned above, the Holding Company and Madison First may
terminate the Direct Community Offering as soon as it has received orders for at
least the minimum number of shares available for purchase in the Conversion.
Therefore, persons who submit a Order Form after December 11, 1996, may be
precluded from purchasing stock in the Direct Community Offering because the
Direct Community Offering may have been terminated before the Order Form is
submitted.
Order Forms received during the Direct Community Offering will be filled up
to a maximum of 10,000 shares of Common Stock offered in the Conversion, with
any remaining unfilled purchase orders to be allocated on an equal number of
shares basis. The maximum number of shares of Common Stock which may be
purchased in the Direct Community Offering by any person (including such
person's Associates) or persons acting in concert is 10,000 in the aggregate. A
member who, together with his Associates and persons acting in concert, has
subscribed for shares in the Subscription Offering may subscribe for a number of
additional shares in the Direct Community Offering that does not exceed the
lesser of (i) 10,000 shares or (ii) the number of shares which, when added to
the number of shares subscribed for by the member (and his Associates and
persons acting in concert) in the Subscription Offering, would not exceed
20,000. Madison First reserves the right to reject any orders received in the
Direct Community Offering in whole or in part.
If all the Holding Company Common Stock offered in the Subscription
Offering is subscribed for, no Holding Company Common Stock will be available
for purchase in the Direct Community Offering and all funds submitted pursuant
to the Direct Community Offering will be promptly refunded, with interest, as
hereafter described. Purchase orders received during the Direct Community
Offering will be filled up to a maximum of 2% of the total number of shares of
Common Stock issued in the Conversion, with any remaining unfilled purchase
orders to be allocated on an equal number of shares basis. If the Direct
Community Offering extends beyond 45 days following the expiration of the
Subscription Offering, subscribers will have the right to increase, decrease or
rescind subscriptions for stock previously submitted. All sales of Holding
Company Common Stock in the Direct Community Offering will be at the same price
per share as the sales of Holding Company Common Stock in the Subscription
Offering.
Cash and checks received in the Direct Community Offering will be placed in
a special savings account at Madison First, and will earn interest at the
passbook rate, which is currently 3.00% per annum, for an APY of 3.04%, from the
date of deposit until completion or termination of the Conversion. In the event
that the Conversion is not consummated for any reason, all funds submitted
pursuant to the Direct Community Offering will be promptly refunded with
interest as described above.
Delivery of Certificates
Certificates representing shares issued in the Subscription Offering and in
the Direct Community Offering pursuant to Order Forms will be mailed to the
persons entitled to them at the last addresses of such persons appearing on the
books of Madison First or to such other addresses as may be specified in
properly completed Order Forms as soon as practicable following consummation of
the Conversion. Any certificates returned as undeliverable will be held by the
Holding Company until claimed by the person legally entitled to them or
otherwise disposed of in accordance with applicable law.
Agent
To assist Madison First and the Holding Company in marketing the Holding
Company Common Stock offered hereby, the Holding Company and Madison First have
retained the services of Trident Securities, Inc. as its exclusive agent (the
"Agent"). The Agent is a broker-dealer registered with the SEC and a member of
the National Association of Securities Dealers, Inc. (the "NASD"). The Agent
will assist the Holding Company and Madison First in the Conversion as follows:
(1) in training and educating Madison First's employees regarding the mechanics
and regulatory requirements of the conversion process; (2) in conducting
informational meetings for subscribers and other potential purchasers; (3) in
keeping records of all stock subscriptions; and (4) in obtaining proxies from
Madison First's members with respect to the Special Meeting. The Agent will also
serve as an advisor to the Holding Company and Madison First in connection with
<PAGE>
the Acquisition. For providing these services, the Holding Company and Madison
First have agreed to pay the Agent a management fee equal to 0.5% of the
aggregate dollar amount of shares of Common Stock sold in the Conversion and
commissions in an amount equal to 2.0% of the aggregate dollar amount of shares
of Common Stock sold in the Conversion other than shares sold to the ESOP,
officers and directors of the Institutions and their Associates. The Agent will
also be reimbursed for out-of-pocket expenses which are not to exceed $12,000
without the Holding Company's and Madison First's consent and for legal fees and
expenses which are not to exceed $35,000 without the Holding Company's and
Madison First's consent. Offers and sales in the Direct Community Offering will
be on a best efforts basis and, as a result, the Agent is not obligated to
purchase any shares of the Common Stock. The Agent intends to make a market in
the Common Stock, although it is under no obligation to do so.
Madison First and the Holding Company have also agreed to indemnify the
Agent, under certain circumstances, against liabilities and expenses (including
legal fees) arising out of the Agent's engagement by the Holding Company and
Madison First, including liabilities under the 1933 Act.
The Holding Company and Madison First also engaged Trident Financial
Corporation ("Trident Financial"), an affiliate of the Agent, to serve as
financial advisor in connection with the Acquisition. The Holding Company and
Madison First have agreed to pay Trident Financial fees based on Trident
Financial's standard hourly rates and to reimburse Trident Financial for
reasonable out-of-pocket expenses.
Selected Dealers
Upon a determination by the Holding Company, Madison First and the Agent,
the Agent may enter into an agreement with certain dealers chosen by the Holding
Company, Madison First and the Agent (together, the "Selected Dealers") to
assist in the sale of shares in the Direct Community Offering. Selected Dealers
will receive commissions at an agreed upon rate, not to exceed 4.5%, for all
shares sold by such Selected Dealers. During the Direct Community Offering,
Selected Dealers may only solicit indications of interest from their customers
to place orders with Madison First as of a certain date (the "Order Date") for
the purchase of shares of Common Stock. When and if the Holding Company, Madison
First and the Agent believe that enough indications of interest and orders have
been received in the Subscription Offering and Direct Community Offering to
consummate the Conversion, the Agent will request, as of the Order Date,
Selected Dealers to submit orders to purchase shares for which they have
previously received indications of interest from the customers. Selected Dealers
will send confirmations of the orders to such customers on the next business day
after the Order Date. Selected Dealers will debit the accounts of their
customers on the date which will be three business days from the Order Date (the
"Settlement Date"). On the Settlement Date, funds received by Selected Dealers
will be remitted to Madison First. It is anticipated that the Conversion will be
consummated on the Settlement Date. However, if consummation is delayed after
payment has been received by Madison First from Selected Dealers, funds will
earn interest at the passbook rate, which is currently 3.00% per annum, for an
APY of 3.04%, until the completion of the offering. Funds will be returned
promptly in the event the Conversion is not consummated.
Limitations on Common Stock Purchases
The Plan includes a number of limitations on the number of shares of Common
Stock which may be purchased during the Conversion. These are summarized below:
(1) No fewer than 25 shares may be purchased by any person purchasing shares
of Common Stock in the Conversion (provided that sufficient shares are
available).
(2) No subscribing member may purchase more than 10,000 shares of Common
Stock with respect to each deposit account held as of December 31, 1994,
September 30, 1996 or November 1, 1996, as applicable, and each loaned owed
as of November 1, 1996. For this purpose, joint account holders or borrowers
collectively may not exceed the 10,000 share limit. Notwithstanding the
foregoing sentences, no Eligible Account Holder, Supplemental Eligible
Account Holder or Other Member, by himself or herself, or with an Associate
or group of persons acting in concert, may purchase more than 20,000 shares
of Common Stock in the Conversion (except for the ESOP which may purchase up
to 10% of the total number of shares of Common Stock offered in the
Conversion). The maximum number of shares of Common Stock which may be
purchased in the Direct Community Offering by any person (including such
person's Associates) or persons acting in concert is 10,000 in the aggregate.
A member who, together with his Associates and persons acting in concert, has
subscribed for shares in the Subscription Offering may subscribe for a number
of additional shares in the Direct Community Offering that does not exceed
the lesser of (i) 10,000 shares or (ii) the number of shares which, when
<PAGE>
added to the number of shares subscribed for by the member (and his
Associates and persons acting in concert) in the Subscription Offering, would
not exceed 20,000. Madison First's and the Holding Company's Boards of
Directors may, however, in their sole discretion, increase the maximum
purchase limitation set forth above up to 9.99% of the shares of Common Stock
sold in the Conversion, provided that orders for shares exceeding 5% of the
shares of Common Stock sold in the Conversion may not exceed, in the
aggregate, 10% of the shares sold in the Conversion, except that the ESOP may
purchase in the aggregate up to 10% of the shares of Common Stock sold in the
Conversion and not be included in the order limit. If the Boards of Directors
decide to increase the purchase limitation, all persons who subscribe for the
maximum number of shares of Common Stock offered in the Conversion will be,
and certain other large subscribers in the sole discretion of the Holding
Company and Madison First may be, given the opportunity to increase their
subscriptions accordingly, subject to the rights and preferences of any
person who has priority subscription rights. The overall purchase limitation
may be reduced in the sole discretion of the Boards of Directors of the
Holding Company and Madison First.
(3) No more than 34% of the shares of Common Stock may be purchased in the
Conversion by directors and officers of Madison First and the Holding Company
and their Associates (excluding shares allocable to such persons under the
ESOP).
OTS regulations define "acting in concert" as (i) knowing participation in
a joint activity or interdependent conscious parallel action towards a common
goal whether or not pursuant to an express agreement, or (ii) a combination or
pooling of voting or other interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise.
The term "Associate" of a person is defined to mean (i) any corporation or
organization (other than Madison First or its subsidiaries or the Holding
Company) of which such person is a director, officer, partner or 10%
stockholder; (ii) any trust or other estate in which such person has a
substantial beneficial interest or serves as trustee or in a similar fiduciary
capacity; provided, however that such term shall not include any employee stock
benefit plan of the Holding Company or Madison First in which such a person has
a substantial beneficial interest or serves as a trustee or in a similar
fiduciary capacity, and (iii) any relative or spouse of such person, or relative
of such spouse, who either has the same home as such person or who is a director
or officer of Madison First or its subsidiaries or the Holding Company.
Directors are not treated as Associates of one another solely because of their
board membership. Compliance with the foregoing limitations does not necessarily
constitute compliance with other regulatory restrictions on acquisitions of the
Common Stock. For a further discussion of limitations on purchases of the
Holding Company Common Stock during and subsequent to Conversion, see "--
Restrictions on Sale of Stock by Directors and Officers," "-- Restrictions on
Purchase of Stock by Directors and Officers Following Conversion," and
"Restrictions on Acquisition of the Holding Company."
Restrictions on Repurchase of Stock by Holding Company
Repurchases of its shares by the Holding Company will be restricted for a
period of three years from the date of the Conversion. OTS regulations currently
provide that the Holding Company is prohibited from repurchasing any of its
shares within one (1) year following the Conversion except in exceptional
circumstances. So long as Madison First continues to meet certain capitalization
requirements, the Holding Company may repurchase shares in an open-market
repurchase program (which cannot exceed 5% of its outstanding shares in a
twelve-month period except in exceptional circumstances) during the second and
third year following the Conversion by giving appropriate prior notice to the
OTS. The OTS has authority to waive these restrictions under certain
circumstances. Unless repurchases are permitted under the foregoing regulations,
the Holding Company may not, for a period of three years from the date of the
Conversion, repurchase any of its capital stock from any person, except in the
event of an offer to purchase by the Holding Company on a pro rata basis from
all of its shareholders which is approved in advance by the OTS, except in
exceptional circumstances established to the satisfaction of the OTS, or except
for purchases of shares required to fund the ESOP or the RRP.
Further, the Holding Company may not repurchase any of its capital stock if
the effect of such purchase would be to cause Madison First's net worth to be
reduced below the amount required for the liquidation account. The Holding
Company may use some of the net proceeds received from the sale of the Common
Stock offered by this Prospectus to repurchase such Common Stock, subject to OTS
requirements.
Regulations promulgated by the FRB provide that a bank holding company must
file written notice with the FRB prior to any repurchase of its equity
securities if the gross consideration for the purchase, when aggregated with the
net consideration paid by the bank holding company for all repurchases during
the preceding 12 months, is equal to 10% or more of the bank holding company's
consolidated net worth. This notice requirement is not applicable, however, to a
bank holding company that exceeds the thresholds established for a well
capitalized bank and that satisfies certain other regulatory requirements.
<PAGE>
Under Indiana law, the Holding Company will be precluded from repurchasing
its equity securities if, after giving effect to such repurchase, the Holding
Company would be unable to pay its debts as they become due or the Holding
Company's assets would be less than its liabilities and obligations to
preferential shareholders.
Restrictions on Sale of Stock by Directors and Officers
All shares of the Common Stock purchased by directors and officers of
Madison First or the Holding Company in the Conversion will be subject to the
restriction that such shares may not be sold or otherwise disposed of for value
for a period of one year following the date of purchase, except for any
disposition of such shares (i) following the death of the original purchaser or
(ii) by reason of an exchange of securities in connection with a merger or
acquisition approved by the applicable regulatory authorities. Sales of shares
of the Common Stock by the Holding Company's directors and officers will also be
subject to certain insider trading and other transfer restrictions under the
federal securities laws. See "Regulation -- Federal Securities Laws" and
"Description of Capital Stock."
Each certificate for such restricted shares will bear a legend prominently
stamped on its face giving notice of the restrictions on transfer, and
instructions will be issued to the Holding Company's transfer agent to the
effect that any transfer within such time period of any certificate or record
ownership of such shares other than as provided above is a violation of the
restriction. Any shares of Common Stock issued pursuant to a stock dividend,
stock split or otherwise with respect to restricted shares will be subject to
the same restrictions on sale.
Restrictions on Purchase of Stock by Directors and Officers Following Conversion
OTS regulations provide that for a period of three years following the
Conversion, without prior written approval of the OTS, neither directors nor
officers of Madison First or the Holding Company nor their Associates may
purchase shares of the Common Stock of the Holding Company, except from a dealer
registered with the SEC. This restriction does not, however, apply to negotiated
transactions involving more than one percent of the Holding Company's
outstanding Common Stock, to shares purchased pursuant to stock option or other
incentive stock plans approved by the Holding Company's shareholders, or to
shares purchased by employee benefit plans maintained by the Holding Company
which may be attributable to individual officers or directors.
Restrictions on Transfer of Subscription Rights and Common Stock
Prior to the completion of the Conversion, OTS regulations and the Plan of
Conversion prohibit any person with subscription rights, including Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members of
Madison First, from transferring or entering into any agreement or understanding
to transfer the legal or beneficial ownership of the subscription rights issued
under the Plan or the shares of Common Stock to be issued upon their exercise.
Such rights may be exercised only by the person to whom they are guaranteed and
only for his/her account. Each person exercising such subscription rights will
be required to certify that he/she is purchasing shares solely for his/her own
account and that he/she has no agreement or understanding regarding the sale or
transfer of such shares. The regulations also prohibit any person from offering
or making an announcement of an offer or intent to make an offer to purchase
such subscription rights or shares of Common Stock prior to the completion of
the Conversion. Madison First and the Holding Company will pursue any and all
legal and equitable remedies in the event they become aware of the transfer of
subscription rights and will not honor orders known by them to involve the
transfer of such rights. In addition, persons who violate the purchase
limitations may be subject to sanctions and penalties imposed by the OTS.
Stock Pricing
The aggregate purchase price of the Holding Company Common Stock being sold
in the Conversion will be based on the appraised aggregate pro forma market
value of the Common Stock, as determined by an independent valuation. Keller &
Company, Inc. ("Keller"), which is experienced in the valuation and appraisal of
financial institutions, including savings institutions involved in the
conversion process, was retained by Madison First to prepare an appraisal.
Keller will receive a fee of $17,000 for its appraisal, plus expenses not to
exceed $500. Keller has also prepared a business plan for Madison First for a
fee of $5,000. Madison First has agreed to indemnify Keller, under certain
circumstances, against liabilities and expenses (including legal fees) arising
out of Keller's engagement by Madison First.
Keller has prepared an appraisal of the estimated pro forma market value of
the Common Stock. Keller's appraisal concluded that as of May 3, 1996, as
updated as of October 22, 1996, the appropriate valuation range (the "Estimated
Valuation Range") for the estimated pro forma market value of the Common Stock
was from a minimum of $7,650,000 to a maximum of $10,350,000, with a midpoint of
$9,000,000. A copy of the appraisal is on file and available for inspection at
<PAGE>
the offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552 and the
Central Regional Office of the OTS, 111 East Wacker Drive, Suite 800, Chicago,
Illinois 60601. The appraisal has also been filed as an exhibit to the Holding
Company's Registration Statement with the SEC, and may be reviewed at the SEC's
public reference facilities. See "Additional Information." The appraisal
involved a comparative evaluation of the operating and financial statistics of
the Institutions with those of other financial institutions. The appraisal also
took into account such other factors as the market for savings institutions
generally, prevailing economic conditions, both nationally and in Indiana, which
affect the operations of savings institutions, the competitive environment
within which the Institutions operate, and the effect of the Institutions
becoming subsidiaries of the Holding Company. No detailed individual analysis of
the separate components of the Institutions' and the Holding Company's assets
and liabilities was performed in connection with the evaluation. The Board of
Directors reviewed with management Keller's methods and assumptions and accepted
Keller's appraisal as reasonable and adequate. The Holding Company, in
consultation with the Agent, has determined to offer the Common Stock in the
Conversion at a price of $10.00 per share. The Holding Company's decision
regarding the Purchase Price was based solely on its determination that $10.00
per share is a customary purchase price in conversion transactions. The
Estimated Valuation Range may be increased or decreased to reflect market and
financial conditions prior to the completion of the Conversion.
Promptly after the completion of the Subscription Offering and the Direct
Community Offering, if any, Keller will confirm to Madison First that, to the
best of Keller's knowledge and judgment, nothing of a material nature has
occurred which would cause Keller to conclude that the amount of the aggregate
proceeds received from the sale of the Common Stock in the Conversion was
incompatible with its estimate of the total pro forma market value of Madison
First at the time of the sale. If, however, the facts do not justify such a
statement, a new Estimated Valuation Range and price per share may be set. Under
such circumstances, the Holding Company will be required to resolicit
subscriptions. In that event, subscribers would have the right to modify or
rescind their subscriptions and to have their subscription funds returned
promptly with interest and holds on funds authorized for withdrawal from deposit
accounts would be released or reduced; provided that if the pro forma market
value of Madison First upon Conversion has increased to an amount which does not
exceed $11,902,500 (15% above the maximum of the Estimated Valuation Range), the
Holding Company and Madison First do not intend to resolicit subscriptions
unless it is determined after consolation with the OTS that a resolicitation is
required.
Depending upon market and financial conditions, the number of shares issued
may be more or less than the range in number of shares shown above. A change in
the number of shares to be issued in the Conversion will not affect subscription
rights, which are based on the1,035,000 shares being offered in the Subscription
Offering. In the event of an increase in the maximum number of shares being
offered, persons who exercise their maximum subscription rights will be notified
of such increase and of their right to purchase additional shares. Conversely,
in the event of a decrease in the maximum number of shares being offered,
persons who exercise their maximum subscription rights will be notified of such
decrease and of the concomitant reduction in the number of shares for which
subscriptions may be made. In the event of a resolicitation, subscribers will be
afforded the opportunity to increase, decrease or maintain their previously
submitted order. The Holding Company will be required to resolicit if the price
per share is changed such that the total aggregate purchase price is not within
the minimum and 15% above the maximum of the Estimated Valuation Range.
THE INDEPENDENT VALUATION IS NOT INTENDED AND MUST NOT BE CONSTRUED AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF VOTING TO APPROVE THE
CONVERSION OR OF PURCHASING THE SHARES OF THE COMMON STOCK. MOREOVER, BECAUSE
SUCH VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER
OF MATTERS (INCLUDING CERTAIN ASSUMPTIONS AS TO THE AMOUNT OF NET PROCEEDS AND
THE EARNINGS THEREON), ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO
ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING SHARES IN THE CONVERSION WILL
THEREAFTER BE ABLE TO SELL THE SHARES AT PRICES RELATED TO THE FOREGOING
VALUATION OF THE PRO FORMA MARKET VALUE.
Number of Shares to be Issued
It is anticipated that the total offering of Common Stock (the number of
shares of Common Stock issued in the Conversion multiplied by the Purchase Price
of $10.00 per share) will be within the current minimum and 15% above the
maximum of the Estimated Valuation Range. Unless otherwise required by the OTS,
no resolicitation of subscribers will be made and subscribers will not be
<PAGE>
permitted to modify or cancel their subscriptions so long as the change in the
number of shares to be issued in the Conversion, in combination with the
Purchase Price, results in an offering within the minimum and 15% above the
maximum of the Estimated Valuation Range.
An increase in the total number of shares of Common Stock to be issued in
the Conversion would decrease both a subscriber's ownership interest and the
Holding Company's pro forma net worth and net income on a per share basis while
increasing (assuming no change in the per share price) pro forma net income and
net worth on an aggregate basis. A decrease in the number of shares to be issued
in the Conversion would increase both a subscriber's ownership interest and the
Holding Company's pro forma net worth and net income on a per share basis while
decreasing (assuming no change in the per share price) pro forma net income and
net worth on an aggregate basis. For a presentation of the effects of such
changes, see "Pro Forma Data."
Interpretation and Amendment of the Plan
To the extent permitted by law, all interpretations of the Plan by Madison
First and the Holding Company will be final. The Plan provides that, if deemed
necessary or desirable by the Boards of Directors of the Holding Company and
Madison First, the Plan may be substantively amended by the Boards of Directors,
as a result of comments from regulatory authorities or otherwise, with the
concurrence of the OTS. Moreover, if the Plan of Conversion is so amended,
subscriptions which have been received prior to such amendment will not be
refunded unless otherwise required by the OTS.
Conditions and Termination
Completion of the Conversion requires the approval of the Plan by the
affirmative vote of not less than a majority of the total number of votes of the
members of Madison First eligible to be cast at the Special Meeting and the sale
of all shares of the Common Stock within 24 months following approval of the
Plan by the members. If these conditions are not satisfied, the Plan will be
terminated and Madison First will continue its business in the mutual form of
organization. The Plan may be terminated by the Boards of Directors of Madison
First and the Holding Company at any time prior to the Special Meeting and, with
the approval of the OTS, by such Boards of Directors at any time thereafter.
Furthermore, OTS regulations and the Plan of Conversion require that the Holding
Company complete the sale of Common Stock within 45 days after the close of the
Subscription Offering. The OTS may grant an extension of this time period if
necessary, but no assurance can be given that an extension would be granted. See
"-- Offering of Holding Company Common Stock."
Completion of the Conversion is also conditioned upon the Acquisition. The
Conversion will not become effective until such time as all conditions precedent
to the Acquisition are satisfied, including the divestiture of Madison First's
Hanover, Indiana branch as required pursuant to the Holding Company's
commitments to the FRB in connection with the FRB's approval of the Acquisition.
See "Risk Factors -- Divestiture of Hanover Branch." If at any time it becomes
clear that any condition precedent to the Acquisition will not be satisfied, the
Conversion and the Plan of Conversion will terminate. See "The Acquisition."
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
General
Although the Boards of Directors of Madison First and the Holding Company
are not aware of any effort that might be made to obtain control of the Holding
Company after the Conversion, the Boards of Directors believe that it is
appropriate to include certain provisions in the Holding Company's Articles of
Incorporation (the "Articles") to protect the interests of the Holding Company
and its shareholders from unsolicited changes in the control of the Holding
Company in circumstances under which the Board of Directors of the Holding
Company concludes will not be in the best interests of Madison First, the
Holding Company or the Holding Company's shareholders.
Although the Holding Company's Board of Directors believes that the
restrictions on acquisition described below are beneficial to shareholders, the
provisions may have the effect of rendering the Holding Company less attractive
to potential acquirors thereby discouraging future takeover attempts which would
not be approved by the Board of Directors but which certain shareholders might
deem to be in their best interest or pursuant to which shareholders might
receive a substantial premium for their shares over then current market prices.
These provisions will also render the removal of the incumbent Board of
Directors and of management more difficult. The Board of Directors has, however,
concluded that the potential benefits of these restrictive provisions outweigh
the possible disadvantages.
<PAGE>
The following general discussion contains a summary of the material
provisions of the Articles, the Holding Company's Code of By-Laws (the
"By-Laws"), and certain other regulatory provisions, that may be deemed to have
an effect of delaying, deferring or preventing a change in the control of the
Holding Company. The following description of certain of these provisions is
general and not necessarily complete, and with respect to provisions contained
in the Articles and By-Laws, reference should be made in each case to the
document in question, each of which is part of Madison First's application for
approval of the Conversion or the Holding Company's Registration Statement filed
with the SEC. See "Additional Information."
Provisions of the Holding Company's Articles and By-Laws
Directors. Certain provisions in the Articles and By-Laws will impede
changes in majority control of the Board of Directors of the Holding Company.
The Articles provide that the Board of Directors of the Holding Company will be
divided into three classes, with directors in each class elected for three-year
staggered terms. Therefore, it would take two annual elections to replace a
majority of the Holding Company's Board. Moreover, the Holding Company's
articles provide that directors of the Holding Company must be residents of
Jefferson County, Indiana or Trimble County, Kentucky must have had a loan or
deposit relationship with Madison First which they have maintained for twelve
(12) months prior to their nomination to the Board, and, if nonemployee
directors, must have served as a member of a civic or community organization
based in Jefferson County, Indiana or Trimble County, Kentucky for at least
twelve (12) months during the five years prior to their nomination to the Board.
Therefore, the ability of a shareholder to attract qualified nominees to oppose
persons nominated by the Board of Directors may be limited.
The Articles also provide that the size of the Board of Directors shall
range between five and fifteen directors, with the exact number of directors to
be fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors of the Holding
Company.
The Articles provide that any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, shall be
filled for the remainder of the unexpired term only by a majority vote of the
directors then in office. Finally, the By-Laws impose certain notice and
information requirements in connection with the nomination by shareholders of
candidates for election to the Board of Directors or the proposal by
shareholders of business to be acted upon at an annual meeting of shareholders.
The Articles provide that a director or the entire Board of Directors may
be removed only for cause and only by the affirmative vote of at least 80% of
the shares eligible to vote generally in the election of directors. Removal for
"cause" is limited to the grounds for termination in the OTS regulation relating
to employment contracts of federally-insured savings associations.
Restrictions on Call of Special Meetings. The Articles provide that a
special meeting of shareholders may be called only by the Chairman of the Board
of the Holding Company or pursuant to a resolution adopted by a majority of the
total number of directors of the Holding Company. Shareholders are not
authorized to call a special meeting.
No Cumulative Voting. The Articles provide that there shall be no
cumulative voting rights in the election of directors.
Authorization of Preferred Stock. The Articles authorize 2,000,000 shares
of preferred stock, without par value. The Holding Company 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 designations, powers, preferences and relative participating, optional and
other special rights of such shares, including voting rights (if any and which
could be as a separate class) and conversion rights. In the event of a proposed
merger, tender offer or other attempt to gain control of the Holding Company not
approved by the Board of Directors, it might 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 such a transaction. An
effect of the possible issuance of preferred stock, therefore, may be to deter a
future takeover attempt. The Board of Directors has no present plans or
understandings for the issuance of any preferred stock and does not intend to
issue any preferred stock except on terms which the Board of Directors deems to
be in the best interests of the Holding Company and its shareholders.
Limitations on 10% Shareholders. The Articles provide that: (i) no person
shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of any class of equity security of the Holding
Company (provided that such limitation shall not apply to the acquisition of
equity securities by any one or more tax-qualified employee stock benefit plans
maintained by the Holding Company, if the plan or plans beneficially own no more
than 25% of any class of such equity security of the Holding Company); and that
<PAGE>
(ii) shares beneficially owned in violation of the stock ownership restriction
described above shall not be entitled to vote and shall not be voted by any
person or counted as voting stock in connection with any matter submitted to a
vote of shareholders. For these purposes, a person (including management) who
has obtained the right to vote shares of the Common Stock pursuant to revocable
proxies shall not be deemed to be the "beneficial owner" of those shares if that
person is not otherwise deemed to be a beneficial owner of those shares.
Evaluation of Offers. The Articles of the Holding Company provide that the
Board of Directors of the Holding Company, when determining to take or refrain
from taking corporate action on any matter, including making or declining to
make any recommendation to the Holding Company's shareholders, may, in
connection with the exercise of its judgment in determining what is in the best
interest of the Holding Company, the Institutions and the shareholders of the
Holding Company, give due consideration to all relevant factors, including,
without limitation, the social and economic effects of acceptance of such offer
on the Holding Company's customers and the Institutions' present and future
account holders, borrowers, employees and suppliers; the effect on the
communities in which the Holding Company and the Institution operate or are
located; and the effect on the ability of the Holding Company to fulfill the
objectives of a holding company and of the Institutions or future financial
institution subsidiaries to fulfill the objectives of a stock savings
association under applicable statutes and regulations. The Articles of the
Holding Company also authorize the Board of Directors to take certain actions to
encourage a person to negotiate for a change of control of the Holding Company
or to oppose such a transaction deemed undesirable by the Board of Directors
including the adoption of so-called shareholder rights plans. By having these
standards and provisions in the Articles of the Holding Company, the Board of
Directors may be in a stronger position to oppose such a transaction if the
Board concludes that the transaction would not be in the best interest of the
Holding Company, even if the price offered is significantly greater than the
then market price of any equity security of the Holding Company.
Procedures for Certain Business Combinations. The Articles require that
certain business combinations between the Holding Company (or any majority-owned
subsidiary thereof) and a 10% or greater shareholder either be approved (i) by
at least 80% of the total number of outstanding voting shares of the Holding
Company or (ii) by a majority of certain directors unaffiliated with such 10% or
greater shareholder or involve consideration per share generally equal to the
higher of (A) the highest amount paid by such 10% shareholder or its affiliates
in acquiring any shares of the Common Stock or (B) the "Fair Market Value"
(generally, the highest closing bid paid for the Common Stock during the thirty
days preceding the date of the announcement of the proposed business combination
or on the date the 10% or greater shareholder became such, whichever is higher).
Amendments to Articles and Bylaws. Amendments to the Articles must be
approved by a majority vote of the Holding Company's Board of Directors and also
by a majority of the outstanding shares of the Holding Company's voting shares;
provided, however, that approval by at least 80% of the outstanding voting
shares is required for certain provisions (i.e., provisions relating to number,
classification, and removal of directors; amendment of the By-Laws; call of
special shareholder meetings; criteria for evaluating certain offers; certain
business combinations; and amendments to provisions relating to the foregoing).
The provisions concerning limitations on the acquisition of shares may be
amended only by an 80% vote of the Holding Company's outstanding shares unless
at least two-thirds of the Holding Company's Continuing Directors (directors of
the Holding Company on May 24, 1996, or directors recommended for appointment or
election by a majority of such directors) approve such amendments in advance of
their submission to a vote of shareholders (in which case only a majority vote
of shareholders is required).
The By-Laws may be amended only by a majority vote of the total number of
directors of the Holding Company.
Purpose and Effects of the Anti-Takeover Provisions of the Holding Company
Articles and By-Laws. The Holding Company's Board of Directors believes that the
provisions described above are prudent and will reduce the Holding Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by its Board of Directors. These provisions
will also assist in the orderly deployment of the Conversion proceeds into
productive assets during the initial period after the Conversion. The Board of
Directors believes these provisions are in the best interest of the Institutions
and the Holding Company and its shareholders. In the judgment of the Board of
Directors, the Holding Company's Board of Directors will be in the best position
to determine the true value of the Holding Company and to negotiate more
<PAGE>
effectively for what may be in the best interests of the Holding Company and its
shareholders. The Board of Directors believes that these provisions will
encourage potential acquirors to negotiate directly with the Board of Directors
of the Holding Company and discourage hostile takeover attempts. It is also the
view of the Board of Directors that these provisions should not discourage
persons from proposing a merger or other transaction at prices reflecting the
true value of the Holding Company and which is in the best interests of all
shareholders.
Attempts to take over financial institutions and their holding companies
have recently increased. Takeover attempts that have not been negotiated with
and approved by the Board of Directors present to shareholders the risk of a
takeover on terms that may be less favorable than might otherwise be available.
A transaction that is negotiated and approved by the Board of Directors, on the
other hand, can be carefully planned and undertaken at an opportune time to
obtain maximum value for the Holding Company and its shareholders, with due
consideration given to matters such as the management and business of the
acquiring corporation and maximum strategic development of the Holding Company's
assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it to undertake defensive measures at a
great expense. Although a tender offer or other takeover attempt may be made at
a price substantially above then current market prices, such offers are
sometimes made for less than all of the outstanding shares of a target company.
As a result, shareholders may be presented with the alternative of partially
liquidating their investment at a time that may be disadvantageous, or retaining
their investment in an enterprise which is under different management and whose
objective may not be similar to that of the remaining shareholders. The
concentration of control, which could result from a tender offer or other
takeover attempt, could also deprive the Holding Company's remaining
shareholders of the benefits of certain protective provisions of the 1934 Act,
if the number of beneficial owners becomes less than the 300 required for
continued registration under the 1934 Act.
Despite the belief of the Holding Company's Board of Directors in the
benefits to shareholders of the foregoing provisions, the provisions may also
have the effect of discouraging future takeover attempts which would not be
approved by the Board of Directors, but which certain shareholders might deem to
be in their best interest or pursuant to which shareholders might receive a
substantial premium for their shares over then current market prices. As a
result, shareholders who might desire to participate in such a transaction may
not have an opportunity to do so. These provisions will also render the removal
of the incumbent Board of Directors and of management more difficult. The Board
of Directors has, however, concluded that the potential benefits of these
restrictive provisions outweigh the possible disadvantages.
Other Restrictions on Acquisition of the Holding Company and the Institutions
State Law. Several provisions of the Indiana Business Corporation Law, as
amended (the "IBCL"), could affect the acquisition of shares of the Common Stock
or otherwise affect the control of the Holding Company. Chapter 43 of the IBCL
prohibits certain business combinations, including mergers, sales of assets,
recapitalizations, and reverse stock splits, between corporations such as the
Holding Company (assuming that it has over 100 shareholders) and an interested
shareholder, defined as the beneficial owner of 10% or more of the voting power
of the outstanding voting shares, for five years following the date on which the
shareholder obtained 10% ownership unless the acquisition was approved in
advance of that date by the board of directors. If prior approval is not
obtained, several price and procedural requirements must be met before the
business combination can be completed. These requirements are similar to those
contained in the Holding Company Articles and described in " -- Provisions of
the Holding Company's Articles and By-Laws -- Procedures for Certain Business
Combinations". In general, the price requirements contained in the IBCL may be
more stringent than those imposed in the Holding Company Articles. However, the
procedural restraints imposed by the Holding Company Articles are somewhat
broader than those imposed by the IBCL. Also, the provisions of the IBCL may
change at some future date, but the relevant provisions of the Holding Company
Articles may only be amended by an 80% vote of the shareholders of the Holding
Company.
In addition, the IBCL contains provisions designed to assure that minority
shareholders have some say in their future relationship with Indiana
corporations in the event that a person made a tender offer for, or otherwise
acquired, shares giving that person more than 20%, 33 1/3%, and 50% of the
outstanding voting securities of corporations having 100 or more shareholders
(the "Control Share Acquisitions Statute"). Under the Control Share Acquisitions
Statute, if an acquiror purchases those shares at a time that the corporation is
subject to the Control Share Acquisitions Statute, then until each class or
series of shares entitled to vote separately on the proposal, by a majority of
all votes entitled to be cast by that group (excluding shares held by officers
of the corporation, by employees of the corporation who are directors thereof
and by the acquiror), approves in a special or annual meeting the rights of the
acquiror to vote the shares which take the acquiror over each level of ownership
as stated in the statute, the acquiror cannot vote these shares. An Indiana
corporation otherwise subject to the Control Share Acquisitions Statute may
elect not to be covered by the statute by so providing in its Articles of
Incorporation or By-Laws. The Holding Company, however, will be subject to this
statute following the Conversion because of its desire to discourage
non-negotiated hostile takeovers by third parties.
The IBCL specifically authorizes Indiana corporations to issue options,
warrants or rights for the purchase of shares or other securities of the
corporation or any successor in interest of the corporation. These options,
warrants or rights may, but need not be, issued to shareholders on a pro rata
basis.
<PAGE>
The IBCL specifically authorizes directors, in considering the best
interest of a corporation, to consider the effects of any action on
shareholders, employees, suppliers, and customers of the corporation, and
communities in which offices or other facilities of the corporation are located,
and any other factors the directors consider pertinent. As described above, the
Holding Company Articles contain a provision having a similar effect. Under the
IBCL, directors are not required to approve a proposed business combination or
other corporate action if the directors determine in good faith that such
approval is not in the best interest of the corporation. In addition, the IBCL
states that directors are not required to redeem any rights under or render
inapplicable a shareholder rights plan or to take or decline to take any other
action solely because of the effect such action might have on a proposed change
of control of the corporation or the amounts to be paid to shareholders upon
such a change of control. The IBCL explicitly provides that the different or
higher degree of scrutiny imposed in Delaware and certain other jurisdictions
upon director actions taken in response to potential changes in control will not
apply. The Delaware Supreme Court has held that defensive measures in response
to a potential takeover must be "reasonable in relation to the threat posed".
In taking or declining to take any action or in making any recommendation
to a corporation's shareholders with respect to any matter, directors are
authorized under the IBCL to consider both the short-term and long-term
interests of the corporation as well as interests of other constituencies and
other relevant factors. Any determination made with respect to the foregoing by
a majority of the disinterested directors shall conclusively be presumed to be
valid unless it can be demonstrated that such determination was not made in good
faith.
Because of the foregoing provisions of the IBCL, the Board will have
flexibility in responding to unsolicited proposals to acquire the Holding
Company, and accordingly it may be more difficult for an acquiror to gain
control of the Holding Company in a transaction not approved by the Board.
Federal Limitations. For three years following the Conversion, OTS
regulations prohibit any person (including entities), without the prior approval
of the OTS, from offering to acquire or acquiring more than 10% of any class of
equity security, directly or indirectly, of a converted savings association or
its holding company. This restriction does not apply to the acquisition by any
one or more tax-qualified employee stock benefit plans maintained by Madison
First or the Holding Company, provided that the plan or plans do not have
beneficial ownership in the aggregate of more than 25% of any class of equity
security of the Holding Company. For these purposes, a person (including
management) who has obtained the right to vote shares of the Common Stock
pursuant to revocable proxies shall not be deemed to be the "beneficial owner"
of those shares if that person is not otherwise deemed to be a beneficial owner
of those shares.
The Change in Bank Control Act provides that no "person," acting directly
or indirectly, or through or in concert with one or more persons, other than a
company, may acquire control of a savings association, a savings and loan
holding company or a bank holding company unless at least 60 days prior written
notice is given to the OTS or FRB (as appropriate) and the OTS or FRB (as
appropriate) has not objected to the proposed acquisition.
The Savings and Loan Holding Company Act also prohibits any "company,"
directly or indirectly or acting in concert with one or more other persons, or
through one or more subsidiaries or transactions, from acquiring control of an
insured savings institution without the prior approval of, the OTS. In addition,
any company that acquires such control becomes a "savings and loan holding
company" subject to registration, examination and regulation as a savings and
loan holding company by the OTS.
The Bank Holding Company Act also prohibits any "company," directly or
indirectly or acting in concert with one or more other persons, or through one
or more subsidiaries or transactions, from acquiring control of an insured bank
without the prior approval of the FRB. In addition, any company that acquires
such control becomes a "bank holding company" subject to registration,
examination and regulation as a bank holding company by the FRB.
The term "control" for purposes of the Change in Bank Control Act, Bank
Holding Company Act and the Savings and Loan Holding Company Act includes the
power, directly or indirectly, to vote more than 25% of any class of voting
stock of the savings association or to control, in any manner, the election of a
majority of the directors of the savings association. It also includes a
determination by the FRB or the OTS, as appropriate, that such company or person
has the power, directly or indirectly, to exercise a controlling influence over
or to direct the management or policies of the savings association.
OTS regulations also set forth certain "rebuttable control determinations"
which arise (i) upon an acquisition of more than 10% of any class of voting
stock of a savings association; or (ii) upon an acquisition of more than 25% of
any class of voting or nonvoting stock of a savings association; provided that,
in either case, the acquiror is subject to any of eight enumerated "control
factors," which are: (1) the acquiror would be one of the two largest holders of
any class of voting stock of the association; (2) the acquiror would hold more
than 25% of the association's total stockholders' equity of the association; (3)
<PAGE>
the acquiror would hold more than 35% of the combined debt securities and
stockholders' equity of the savings association; (4) the acquiror is a party to
any agreement pursuant to which the acquiror possesses a material economic stake
in the savings association or which enables the acquiror to influence a material
aspect of the management or policies of the association; or (5) the acquiror
would have the ability, other than through the holding of revocable proxies, to
direct the votes of more than 25% of a class of the voting stock or to vote in
the future more than 25% of such voting stock upon the occurrence of a future
event; (6) the acquiror would have the power to direct the disposition of more
than 25% of the association's voting stock in a manner other than a widely
dispersed or public offering; (7) the acquiror and/or his representative would
constitute more than one member of the association's board of directors; or (8)
the acquiror would serve as an executive officer or in a similar policy-making
position with the association. For purposes of determining percentage share
ownership, a person is presumed to be acting in concert with certain specified
persons and entities, including members of the person's immediate family,
whether or not those family members share the same household with the person.
The regulations also specify the criteria which the OTS uses to evaluate
control applications. The OTS is empowered to disapprove an acquisition of
control if it finds, among other things, that (i) the acquisition would
substantially lessen competition, (ii) the financial condition of the acquiring
person might jeopardize the institution or its depositors, or (iii) the
competency, experience, or integrity of the acquiring person indicates that it
would not be in the interest of the depositors, the institution, or the public
to permit the acquisition of control by such person.
FRB regulations also set forth certain "rebuttable control determinations"
which arise upon (a) the acquisition of any voting securities of a state member
bank or bank holding company if, after the transaction, the acquiring person (or
persons acting in concert) owns, controls, or holds with power to vote 25
percent or more of any class of voting securities of the institution; or (b) the
acquisition of any voting securities of a state member bank or bank holding
company if, after the transaction, the acquiring person (or persons acting in
concert) owns, controls, or holds with power to vote 10 percent or more (but
less than 25 percent) of any class of voting securities of the institution, and
if (i) the institution has registered securities under Section 12 of the 1934
Act or (ii) no other person will own a greater percentage of that class of
voting securities immediately after the transaction.
The regulations also specify the criteria which the FRB uses to evaluate
control applications. The FRB is empowered to disapprove an acquisition of
control if it finds, among other things, that (i) the acquisition would
substantially lessen competition, (ii) the financial condition of the acquiring
person might jeopardize the institution or its depositors, or (iii) the
competency, experience, or integrity of the acquiring person indicates that it
would not be in the interest of the depositors, the institution, or the public
to permit the acquisition of control by such person.
DESCRIPTION OF CAPITAL STOCK
The Holding Company is authorized to issue 5,000,000 shares of Holding
Company Common Stock, without par value, all of which have identical rights and
preferences, and 2,000,000 shares of preferred stock, without par value. The
Holding Company expects to issue up to 1,190,250 shares of Common Stock and no
shares of preferred stock in the Conversion. The Holding Company has received an
opinion of its counsel that the shares of Common Stock issued in the Conversion
will be validly issued, fully paid, and not liable for further call or
assessment. This opinion was filed with the SEC as an exhibit to the Holding
Company's Registration Statement under the 1933 Act.
Shareholders of the Holding Company will have no preemptive rights to
acquire additional shares of Holding Company Common Stock which may be
subsequently issued. The Common Stock will represent nonwithdrawable capital,
will not be of an insurable type and will not be federally insured by the FDIC
or any government entity.
Under Indiana law, the holders of the Common Stock will possess exclusive
voting power in the Holding Company, unless preferred stock is issued and voting
rights are granted to the holders thereof. Each shareholder will be entitled to
one vote for each share held on all matters voted upon by shareholders, subject
to the limitations discussed under the caption "Restrictions on Acquisition of
the Holding Company."
In the unlikely event of the liquidation or dissolution of the Holding
Company, the holders of the Common Stock will be entitled to receive after
payment or provision for payment of all debts and liabilities of the Holding
Company, all assets of the Holding Company available for distribution, in cash
or in kind. See "The Conversion -- Principal Effects of Conversion -- Effect on
Liquidation Rights." If preferred stock is issued subsequent to the Conversion,
the holders thereof may have a priority over the holders of Common Stock in the
event of liquidation or dissolution.
<PAGE>
The Board of Directors of the Holding Company will be authorized to issue
preferred stock in series and to fix and state the voting powers, designations,
preferences and relative, participating, optional or other special rights of the
shares of each such series and the qualifications, limitations and restrictions
thereof. Preferred stock may rank prior to the Common Stock as to dividend
rights, liquidation preferences, or both, and may have full or limited voting
rights. The holders of preferred stock will be entitled to vote as a separate
class or series under certain circumstances, regardless of any other voting
rights which such holders may have.
Except as discussed elsewhere herein, the Holding Company has no specific
plans for the issuance of the additional authorized shares of Common Stock or
for the issuance of any shares of preferred stock. In the future, the authorized
but unissued and unreserved shares of Common Stock will be available for general
corporate purposes including, but not limited to, possible issuance as stock
dividends or stock splits, in future mergers or acquisitions, under a cash
dividend reinvestment and stock purchase plan, or in future underwritten or
other public or private offerings. The authorized but unissued shares of
preferred stock will similarly be available for issuance in future mergers or
acquisitions, in future underwritten public offerings or private placements or
for other general corporate purposes. Except as described above or as otherwise
required to approve the transaction in which the additional authorized shares of
Common Stock or authorized shares of preferred stock would be issued, no
shareholder approval will be required for the issuance of these shares.
Accordingly, the Holding Company's Board of Directors without shareholder
approval can issue preferred stock with voting and conversion rights which could
adversely affect the voting power of the holders of Common Stock.
The offering and sale of Common Stock in the Conversion will be registered
under the 1933 Act. The subsequent sale or transfer of Common Stock is governed
by the 1933 Act, which requires that sales or exchanges of subject securities be
made pursuant to an effective registration statement or qualified for an
exemption from registration requirements of the 1933 Act. Similarly, the
securities laws of the various states also require generally the registration of
shares offered for sale unless there is an applicable exemption from
registration.
The Holding Company, as a newly organized corporation, has never issued
capital stock, and, accordingly, there is no market for the Common Stock. See
"Market for the Common Stock." See "Restrictions on Acquisition of the Holding
Company -- Provisions of the Holding Company's Articles and By-Laws" for a
description of certain provisions of the Holding Company's Articles and By-Laws
which may affect the ability of the Holding Company's shareholders to
participate in certain transactions relating to acquisitions of control of the
Holding Company. Also, see "Dividend Policy" for a description of certain
matters relating to the possible future payment of dividends on the Common
Stock.
TRANSFER AGENT
Firth Third Bank will act as transfer agent and registrar for the Common
Stock. Fifth Third Bank's phone number is (513) 579-5320 or (800) 837-2755.
REGISTRATION REQUIREMENTS
Upon the Conversion, the Holding Company's Common Stock will be registered
pursuant to Section 12(g) of the 1934 Act and will not be deregistered for a
period of at least three years following the Conversion. As a result of the
registration under the 1934 Act, certain holders of Common Stock will be subject
to certain reporting and other requirements imposed by the 1934 Act. For
example, beneficial owners of more than 5% of the outstanding Common Stock will
be required to file reports pursuant to Section 13(d) or Section 13(g) of the
1934 Act, and officers, directors and 10% shareholders of the Holding Company
will generally be subject to reporting requirements of Section 16(a) and to the
liability provisions for profits derived from purchases and sales of Holding
Company Common Stock occurring within a six-month period pursuant to Section
16(b) of the 1934 Act. In addition, certain transactions in Common Stock, such
as proxy solicitations and tender offers, will be subject to the disclosure and
filing requirements imposed by Section 14 of the 1934 Act and the regulations
promulgated thereunder.
<PAGE>
LEGAL AND TAX MATTERS
Barnes & Thornburg, 1313 Merchants Bank Building, 11 South Meridian Street,
Indianapolis, Indiana 46204, special counsel to Madison First, will pass upon
the legality and validity of the shares of Common Stock being issued in the
Conversion. Barnes & Thornburg has issued an opinion concerning certain federal
and state income tax aspects of the Conversion and that the Conversion, as
proposed, constitutes a tax-free reorganization under federal and Indiana law.
Barnes & Thornburg have consented to the references herein to their opinions.
Certain legal matters related to this offering will be passed upon for the Agent
by Thacher Proffitt & Wood, 1500 K Street, N.W., Washington, D.C. 20005.
EXPERTS
The consolidated financial statements of Madison First as of and for the
years ended December 31, 1995, 1994, and 1993, included herein and elsewhere in
the registration statement, have been audited by Grant Thornton LLP, independent
certified public accountants, and included herein and in the registration
statement in reliance upon the report of Grant Thornton LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of such firm as experts in accounting and auditing.
The financial statements of Citizens as of and for the years ended December
31, 1995 and 1994, included herein and elsewhere in the registration statement,
have been audited by Sherman, Barber & Mullikin, independent certified public
accountants, and included herein and in the registration statement in reliance
upon the report of Sherman, Barber & Mullikin, independent certified public
accountants, appearing elsewhere herein, and upon the authority of such firm as
experts in accounting and auditing.
The financial statements of Citizens as of and for the year ended December
31, 1993, included herein and elsewhere in the registration statement, have been
audited by Alexander H. Kuhn & Co., independent certified public accountants,
and included herein and in the registration statement in reliance upon the
report of Alexander H. Kuhn & Co., independent certified public accountants,
appearing elsewhere herein, and upon the authority of such firm as experts in
accounting and auditing.
Keller has consented to the publication of the summary herein of its
appraisal report as to the estimated pro forma market value of the Common Stock
of the Holding Company to be issued in the Conversion, to the reference to its
opinion relating to the value of the subscription rights, and to the filing of
the appraisal report as an exhibit to the registration statement filed by the
Holding Company under the 1933 Act.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a registration statement under
the 1933 Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information can be
inspected and copied at the Commission's public reference facilities located at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's Regional
Offices in New York (Seven World Trade Center, 13th Floor, New York, New York
00048) and Chicago (Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511) and copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.
Madison First has filed with the OTS an Application for Conversion from a
federal mutual savings and loan association to a federal stock savings and loan
association, and the Holding Company has filed with the OTS an Application to
become a savings and loan holding company. This Prospectus omits certain
information contained in such Applications. The Applications may be inspected at
the offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552 and at the
Central Regional Office of the OTS, 111 East Wacker Drive, Suite 800, Chicago,
Illinois 60601.
The Holding Company has also filed with the FRB of Chicago an Application
to Form a Holding Company on Form FR Y-3 in connection with its aquisition of
the Citizens Shares in the Acquisition. This Prospectus omits certain
information contained in such Application. The Application may be inspected at
the offices at the FRB of Chicago, 230 South LaSalle Street, Chicago, Illinois
60604-1413.
<PAGE>
CONTENTS
MADISON FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(As of June 30, 1996 (unaudited) and
December 31, 1995 and 1994) F-3
CONSOLIDATED STATEMENTS OF INCOME
(For the six months ended June 30, 1996 and 1995 (unaudited)
and the years ended December 31, 1995, 1994 and 1993) F-4
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(For the six months ended June
30, 1996 (unaudited)
and the years ended December 31, 1995, 1994 and 1993) F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(For the six months ended June 30, 1996 and 1995 (unaudited)
and the years ended December 31, 1995, 1994 and 1993) F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(For the six months ended June
30, 1996 and 1995 (unaudited)
and the years ended December 31, 1995, 1994 and 1993) F-8
Financial statements of River Valley Bancorp are not presented as the
Corporation was inactive during all of the periods presented.
SCHEDULES: All schedules are omitted as the required information is either
inapplicable or is included in the consolidated financial statements.
CITIZENS NATIONAL BANK OF MADISON
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-32
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-33
FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL CONDITION
(As of June 30, 1996 (unaudited) and December 31, 1995 and 1994) F-34
STATEMENTS OF INCOME
(For the six months ended June 30, 1996 and 1995
(unaudited) and the
years ended December 31, 1995, 1994 and 1993) F-36
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(For the six months ended June 30, 1996 and 1995
(unaudited) and the
years ended December 31, 1995, 1994 and 1993) F-38
STATEMENTS OF CASH FLOWS
(For the six months ended June 30, 1996 and 1995
(unaudited) and the
years ended December 31, 1995, 1994 and 1993) F-39
NOTES TO FINANCIAL STATEMENTS
(For the six months ended June 30, 1996 and 1995
(unaudited) and the
years ended December 31, 1995, 1994 and 1993) F-41
SCHEDULES: All schedules are omitted as the required information is not
applicable or is included in the financial statements.
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Madison First Federal Savings and Loan Association
We have audited the accompanying consolidated statements of financial condition
of Madison First Federal Savings and Loan Association and Subsidiary as of
December 31, 1995 and 1994, and the related consolidated statements of income,
retained earnings, and cash flows for each of the three years in the period
ended December 31, 1995. These consolidated financial statements are the
responsibility of the Association's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Madison First
Federal Savings and Loan Association and Subsidiary as of December 31, 1995 and
1994, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
As discussed in Notes A-2 and B to the consolidated financial statements, the
Association changed its method of accounting for investments in certain debt and
equity securities in 1994. Additionally, as more fully explained in Notes A-9
and H to the consolidated financial statements, the Association changed its
method of accounting for Federal income taxes in 1993.
/s/ Grant Thornton LLP
Cincinnati, Ohio
January 19, 1996 (except for Note K as to which the date is September 30, 1996)
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1995 1994
- ------ ---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash and due from banks $ 2,242 $ 2,389 $ 2,066
Certificates of deposit in other financial institutions 200 300 350
Investment securities designated as available for sale - at market value 3,940 5,018 101
Investment securities - at amortized cost,
approximate market value of $5,886, $7,930 and
$13,120 as of June 30, 1996, and December 31, 1995 and 1994 6,000 8,000 13,996
Mortgage-backed and related securities - at amortized cost,
approximate market value of $8,607, $9,941 and
$10,715 as of June 30, 1996, and December 31, 1995 and 1994 8,690 9,917 11,328
Loans receivable - net 57,449 57,945 56,287
Office premises and equipment - at
depreciated cost 939 966 988
Federal Home Loan Bank stock - at cost 610 610 610
Accrued interest receivable on loans 306 313 246
Accrued interest receivable on mortgage-backed and related securities 46 51 58
Accrued interest receivable on investments
and interest-bearing deposits 173 241 237
Goodwill, net of accumulated amortization
of $143, $139 and $132 as of June 30, 1996, and
December 31, 1995 and 1994 144 148 156
Cash surrender value of life insurance 735 535 510
Prepaid expenses and other assets 343 124 118
Prepaid income taxes --- 26 21
Deferred tax asset 87 21 ---
------- ------- -------
TOTAL ASSETS $81,904 $86,604 $87,072
======= ======= =======
LIABILITIES AND RETAINED EARNINGS
Deposits $74,727 $75,233 $75,458
Advances from the Federal Home Loan Bank - 4,471 4,986
Advances by borrowers for taxes and insurance 72 63 63
Accrued interest payable 69 68 62
Other liabilities 270 195 169
Accrued income taxes 63 - -
Deferred income taxes - - 30
------- ------- -------
TOTAL LIABILITIES 75,201 80,030 80,768
COMMITMENTS AND CONTINGENCIES - - -
Retained earnings - substantially restricted 6,743 6,562 6,304
Unrealized gain (loss) on securities designated as available for sale,
net of related tax effects (40) 12 -
------- ------- -------
Total retained earnings 6,703 6,574 6,304
------- ------- -------
TOTAL LIABILITIES AND RETAINED EARNINGS $81,904 $86,604 $87,072
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
<TABLE>
<CAPTION>
Six months ended
June 30, Year ended December 31,
----------------- ---------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
Interest income
<S> <C> <C> <C> <C> <C>
Loans $2,251 $2,100 $4,240 $3,851 $4,149
Mortgage-backed and related securities 291 342 670 743 866
Investment securities 291 403 777 713 494
Interest-bearing deposits and other 109 24 107 112 175
------- ------- ------- ------- -------
Total interest income 2,942 2,869 5,794 5,419 5,684
Interest expense
Deposits 1,691 1,595 3,419 2,842 3,041
Borrowings 44 96 175 12 1
------- ------- ------- ------- -------
Total interest expense 1,735 1,691 3,594 2,854 3,042
------- ------- ------- ------- -------
Net interest income 1,207 1,178 2,200 2,565 2,642
Provision for loan losses 12 3 150 29 55
------- ------- ------- ------- -------
Net interest income after provision for
loan losses 1,195 1,175 2,050 2,536 2,587
Other income
Insurance commissions 104 92 175 181 182
Service fees, charges and other operating 97 94 187 189 182
------- ------- ------- ------- -------
Total other income 201 186 362 370 364
Other expenses
Employee compensation and benefits 592 484 998 888 869
Occupancy and equipment 98 100 212 193 212
Federal deposit insurance premiums 88 88 177 178 117
Data processing 141 118 237 243 234
Other operating 188 184 342 336 340
Provision for valuation decline on
mortgage-related securities - - - 20 30
------- ------- ------- ------- -------
Total other expenses 1,107 974 1,966 1,858 1,802
------- ------- ------- ------- -------
Income before income taxes and cumulative
effect of change in accounting method 289 387 446 1,048 1,149
Income taxes
Current 148 154 245 411 468
Deferred (40) (3) (57) 1 (12)
------- ------- ------- ------- -------
108 151 188 412 456
------- ------- ------- ------- -------
Income before cumulative effect of change
in accounting method 181 236 258 636 693
Cumulative effect of change in method of accounting
for income taxes - - - - 25
------- ------- ------- ------- -------
NET INCOME $ 181 $ 236 $ 258 $ 636 $ 718
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In thousands)
<TABLE>
<CAPTION>
Six months ended
June 30, Year ended December 31,
---------------- ----------------------------------
1996 1995 1994 1993
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Balance at beginning of period $6,574 $6,304 $5,668 $4,950
Net earnings for the period 181 258 636 718
Unrealized gain (loss) on securities designated as
available for sale - net of related tax effects (52) 12 --- ---
------ ------ ------ ------
Balance at end of period $6,703 $6,574 $6,304 $5,668
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six months ended
June 30, Year ended December 31,
------------------- ---------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income $ 181 $ 236 $ 258 $ 636 $ 718
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Amortization (accretion) of premiums and discounts on
investments and mortgage-backed securities - net (1) (6) (9) (14) 28
Provision for valuation decline on mortgage-related securities - - - 20 30
Amortization of deferred loan origination costs 9 1 85 86 150
Provision for losses on loans 12 3 150 29 55
Depreciation and amortization 27 8 68 67 79
Amortization of goodwill 4 4 7 7 7
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 7 (43) (67) (4) 45
Accrued interest receivable on mortgage-backed securities 5 3 7 14 8
Accrued interest receivable on investments and interest-
bearing deposits 68 (14) (4) (54) (70)
Prepaid expenses and other assets (219) (77) (6) 19 (6)
Accrued interest payable 1 (3) 6 1 (2)
Other liabilities 75 41 26 17 (44)
Income taxes
Current 89 12 (5) (51) (99)
Deferred (40) (3) (57) 1 (37)
------- ------- --------- --------- ----------
Net cash provided by operating activities 218 162 459 774 862
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 3,000 - 1,000 - 4,500
Purchase of investment securities - - - (4,592) (8,499)
Sale of investment securities designated as available for sale - 101 101 - -
Purchase of mortgage-backed and related securities - - - - (3,918)
Principal repayments on mortgage-backed and related securities 1,228 533 1,417 2,576 3,399
Loan principal repayments 7,735 7,069 13,708 14,973 25,670
Loan disbursements (7,254) (7,814) (15,600) (19,419) (24,108)
Proceeds from sale of real estate acquired through foreclosure - - - 17 48
Capital expenditures on real estate acquired through foreclosure - - - - (9)
Purchase of real estate held for investment - - - (10) (4)
Purchase of office equipment - - (46) (40) (74)
Purchase of Federal Home Loan Bank stock - - - - (44)
(Increase) decrease in certificates of deposit in other financial
institutions - net 100 50 50 (50) 168
Purchase of single premium life insurance policies (188) - - - (480)
Increase in cash surrender value of life insurance policies (12) (14) (26) (25) (5)
------- ------- --------- --------- ----------
Net cash provided by (used in) investing activities 4,609 (75) 604 (6,570) (3,356)
------- ------- --------- --------- ----------
Net cash provided by (used in) operating and investing
activities (subtotal carried forward) 4,821 87 1,063 (5,796) (2,494)
------- ------- --------- --------- ----------
</TABLE>
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
Six months ended
June 30, Year ended December 31,
----------------- ------------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------- -------
(Unaudited)
Net cash provided by (used in) operating and investing
<S> <C> <C> <C> <C> <C>
activities (subtotal brought forward) $4,821 $ 87 $1,063 $(5,796) $(2,494)
Cash flows provided by (used in) financing activities:
Increase (decrease) in deposit accounts (506) 4,053 (224) (2,624) 1,393
Proceeds from Federal Home Loan Bank advances - 2,000 2,000 4,986 -
Repayment of Federal Home Loan Bank advances (4,471) (4,986) (2,515) - -
Advances by borrowers for taxes and insurance 9 3 (1) (3) 2
------ ------ ------ ------- -------
Net cash provided by (used in) financing activities (4,968) 1,070 (740) 2,359 1,395
------ ------ ------ ------- -------
Net increase (decrease) in cash and cash equivalents (147) 1,157 323 (3,437) (1,099)
Cash and cash equivalents at beginning of period 2,389 2,066 2,066 5,503 6,602
------ ------ ------ ------- -------
Cash and cash equivalents at end of period $2,242 $3,223 $2,389 $ 2,066 $ 5,503
====== ====== ====== ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 84 $ 149 $ 191 $ 377 $ 468
====== ====== ====== ======= =======
Interest on deposits and borrowings $1,734 $1,694 $3,588 $ 2,853 $ 3,045
====== ====== ====== ======= =======
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired through foreclosure $ - $ - $ - $ 15 $ 35
====== ====== ====== ======= =======
Transfer of investment securities to an available for sale
classification in accordance with SFAS No. 115 $ - $ - $5,000 $ - $ -
====== ====== ====== ======= =======
Unrealized gain (loss) on securities designated as available
for sale, net of related tax effects $ (52) $ - $ 12 $ - $ -
====== ====== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Madison First Federal Savings and Loan Association (the Association) is a
federally-chartered mutual financial institution with four offices located in
Jefferson County, Indiana. The Association owns 100% of the outstanding capital
stock of Madison First Service Corporation which owns 100% of the outstanding
capital stock of McCauley Insurance Agency, Inc. (McCauley), which operates a
consumer insurance agency. Condensed consolidated financial statements of
Madison First Service Corporation (First Service) as of and for the periods
ended December 31, 1995, 1994 and 1993 are presented in Note J. Future
references are made to either the Association, First Service or McCauley, as
applicable.
The Association conducts a general banking business in southeastern Indiana
which consists of attracting deposits from the general public and applying those
funds to the origination of loans for consumer, commercial, and residential
purposes. The Association's profitability is significantly dependent on net
interest income which is the difference between interest income generated from
interest-earning assets (i.e. loans and investments) and the interest expense
paid on interest-bearing liabilities (i.e. customer deposits and borrowed
funds). Net interest income is affected by the relative amount of
interest-earning assets and interest-bearing liabilities and the interest
received or paid on these balances. The level of interest rates paid or received
by the Association can be significantly influenced by a number of environmental
factors, such as governmental monetary policy, that are outside of management's
control.
The consolidated financial information presented herein has been prepared in
accordance with generally accepted accounting principles (GAAP) and general
accounting practices within the financial services industry. In preparing
financial statements in accordance with GAAP, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from such estimates.
The accompanying unaudited consolidated financial statements as of June 30,
1996, and for the six months ended June 30, 1996 and 1995, were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include
information or footnotes necessary for a complete presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles. However, all adjustments (consisting of only
normal recurring accruals) which in the opinion of management are necessary for
a fair presentation of the consolidated financial statements have been included.
The following is a summary of significant accounting policies which, with the
exception of the policy described in Note A-2 and A-9, have been consistently
applied in the preparation of the accompanying consolidated financial
statements.
1. Principles of Consolidation
The statements include the accounts of Madison First Federal Savings and Loan
Association and its subsidiary, Madison First Service Corporation and its
wholly-owned subsidiary, McCauley Insurance Agency, Inc. All significant
intercompany balances and transactions have been eliminated in the accompanying
consolidated financial statements.
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2. Investments and Mortgage-Backed and Related Securities
Prior to January 1, 1994, investments and mortgage-backed and related securities
were stated at the unpaid principal balance (cost), adjusted for unamortized
premiums and discounts. Premiums and discounts on investments and
mortgage-backed and related securities are amortized and accreted to operations
using the interest method over the estimated life of the investment security or
of the underlying loans collateralizing the securities, respectively.
Investments and mortgage-backed and related securities held for portfolio
investments were carried at cost, rather than the lower of cost or market, as it
was management's intent, and the Association had the ability to hold the
securities until maturity. Investments and mortgage-backed and related
securities which would be held for indefinite periods of time, or used as part
of the Association's asset/liability management strategy, or that may be sold in
response to changes in interest rates, prepayment risk or the perceived need to
increase regulatory capital were classified as held for sale and were carried at
the lower of aggregate cost or market.
In May 1993, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (the Statement). SFAS No. 115
requires that investments be categorized as held-to-maturity, trading, or
available for sale. Securities classified as held-to-maturity are carried at
cost only if the Association has the positive intent and ability to hold these
securities to maturity. Trading securities and securities designated as
available for sale are carried at market value with resulting unrealized gains
or losses recorded to operations or retained earnings, respectively. The
Association adopted the Statement as of January 1, 1994, without material effect
on consolidated financial condition or results of operations. In November 1995,
the FASB issued a "Special Report on the Implementation of SFAS No. 115", which
permitted the reclassification of securities between held-to-maturity and
available-for-sale without calling into question management's prior intent with
respect to such securities. The Association transferred approximately $5.0
million of investment securities previously identified as held-to-maturity to an
available for sale classification. At June 30, 1996, retained earnings included
$40,000 of unrealized losses on securities designated as available for sale, net
of related tax effects.
Realized gains and losses on the sale of investment and mortgage-backed
securities are recognized using the specific identification method.
3. Loans Receivable
Loans held in portfolio are stated at the principal amount outstanding, adjusted
for deferred loan origination costs and the allowance for loan losses. Interest
is accrued as earned unless the collectibility of the loan is in doubt.
Uncollectible interest on loans that are contractually past due is charged off,
or an allowance is established based on management's periodic evaluation. The
allowance is established by a charge to interest income equal to all interest
previously accrued, and income is subsequently recognized only to the extent
that cash payments are received until, in management's judgment, the borrower's
ability to make periodic interest and principal payments has returned to normal,
in which case the loan is returned to accrual status. If the ultimate
collectibility of the loan is in doubt, in whole or in part, all payments
received on nonaccrual loans are applied to reduce principal until such doubt is
eliminated.
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
4. Loan Origination Fees and Costs
The Association accounts for loan origination fees and costs in accordance with
the provisions of Statement of Financial Accounting Standards No. 91 (SFAS No.
91) "Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases". Pursuant to the provisions
of SFAS No. 91, origination fees received from loans, net of direct origination
costs, are deferred and amortized to interest income using the level-yield
method, giving effect to actual loan prepayments. Additionally, SFAS No. 91
generally limits the definition of loan origination costs to the direct costs
attributable to originating a loan, i.e., principally actual personnel costs.
Fees received for loan commitments that are expected to be drawn upon, based on
the Association's experience with similar commitments, are deferred and
amortized over the life of the related loan using the interest method. Fees for
other loan commitments are deferred and amortized over the loan commitment
period on a straight-line basis.
5. Allowance for Losses on Loans
It is the Association's policy to provide valuation allowances for estimated
losses on loans based on past loss experience, current trends in the level of
delinquent and specific problem loans, loan concentrations to single borrowers,
changes in the composition of the loan portfolio, adverse situations that may
affect the borrower's ability to repay, the estimated value of any underlying
collateral and current and anticipated economic conditions in its primary
lending areas. When the collection of a loan becomes doubtful, or otherwise
troubled, the Association records a loan loss provision equal to the difference
between the fair value of the property securing the loan and the loan's carrying
value. Major loans and major lending areas are reviewed periodically to
determine potential problems at an early date. The allowance for loan losses is
increased by charges to earnings and decreased by charge-offs (net of
recoveries).
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This Statement, which was
amended by SFAS No. 118 as to certain income recognition and financial statement
disclosure provisions, requires that impaired loans be measured based upon the
present value of expected future cash flows discounted at the loan's effective
interest rate or, as an alternative, at the loans observable market price or
fair value of the collateral if the loan is collateral dependent. The
Association adopted the Statement effective January 1, 1995, without material
effect on consolidated financial condition or results of operations.
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
5. Allowance for Losses on Loans (continued)
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan agreement. In
applying the provisions of SFAS No. 114, the Association considers its
investment in one-to-four family residential loans and consumer installment
loans to be homogeneous and, therefore, excluded from separate identification
for evaluation of impairment. With respect to the Association's investment in
impaired nonresidential and multifamily residential real estate loans, such
loans are generally collateral dependent and, as a result, are carried as a
practical expedient at the lower of cost or fair value.
It is the Association's policy to charge off unsecured credits that are more
than ninety days delinquent. Additionally, collateral dependent loans which are
more than ninety days delinquent are considered to constitute more than a
minimum delay in repayment and are evaluated for impairment under SFAS No. 114
at that time.
At June 30, 1996 and December 31, 1995, the Association had no loans that would
be defined as impaired under SFAS No. 114.
6. Office Premises and Equipment
Office premises and equipment are carried at cost and include expenditures which
extend the useful lives of existing assets. Maintenance, repairs and minor
renewals are expensed as incurred. For financial reporting, depreciation and
amortization are provided primarily using the straight-line method over the
useful lives of the assets, estimated to be thirty to forty-five years for
buildings, three to ten years for furniture and equipment, and three years for
automobiles. An accelerated depreciation method is used for tax reporting
purposes.
7. Real Estate Acquired through Foreclosure
Real estate acquired through foreclosure is carried at the lower of the loan's
unpaid principal balance (cost) or fair value less estimated selling expenses at
the date of acquisition. The loan loss allowance is charged for any writedown in
the loan's carrying value to fair value at the date of acquisition. Loss
provisions are recorded if the property's fair value subsequently declines below
the value determined at the recording date. In determining the lower of cost or
fair value at acquisition, costs relating to development and improvement of
property are considered. Costs relating to holding real estate acquired through
foreclosure, net of rental income, are charged against earnings as incurred.
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
8. Intangible Assets
The FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" in March 1995. This
Statement requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In performing the review for recoverability, the Association is
required to estimate the future cash flows expected to result from the use of
the asset and its eventual disposition. If the sum of the expected future cash
flows (undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is recognized. Measurement of an
impairment loss for long-lived assets and identifiable intangibles that an
entity expects to hold and use should be based on the fair value of the asset.
This Statement is effective for financial statements for fiscal years beginning
after December 31, 1995. Earlier application is encouraged. The Association
adopted SFAS No. 121 effective January 1, 1996, without material effect on
consolidated financial condition or results of operations.
Amortization of goodwill arising from First Service's acquisition of McCauley is
provided using the straight-line method over an estimated life of forty years.
9. Income Taxes
Effective January 1, 1993, the Association changed its method of accounting for
income taxes pursuant to Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109). The cumulative effect of prior
years of adopting SFAS No. 109, totaling $25,000, was reflected in the
Association's 1993 consolidated statement of income. There was no material
effect associated with adopting SFAS No. 109 in the 1993 consolidated statement
of income. SFAS No. 109 established financial accounting and reporting standards
for the effects of income taxes that result from the Association's activities
within the current and previous years. Pursuant to the provisions of SFAS No.
109, a deferred tax liability or deferred tax asset is computed by applying the
expected statutory tax rates to net taxable or deductible differences between
the tax basis of an asset or liability and its reported amount in the
consolidated financial statements that will result in taxable or deductible
amounts in future periods. Deferred tax assets are recorded only to the extent
that the amount of net deductible temporary differences or carryforward
attributes may be utilized against current period earnings, carried back against
prior years' earnings, offset against taxable temporary differences reversing in
future periods, or utilized to the extent of management's estimate of future
taxable income. A valuation allowance is provided for deferred tax assets to the
extent that the value of net deductible temporary differences and carryforward
attributes exceeds management's estimates of taxes payable on future taxable
income. Deferred tax liabilities are provided on the total amount of net
temporary differences taxable in the future.
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
9. Income Taxes (continued)
Deferral of income taxes results primarily from different methods of accounting
for deferred loan origination costs, the allowance for valuation decline on
mortgage-related securities, the general loan loss allowance, the percentage of
earnings bad debt deduction and certain components of retirement expense.
Additionally, a temporary difference is recognized for depreciation utilizing
accelerated methods for income tax purposes.
10. Retirement and Incentive Plans
Qualified employees of the Association and McCauley are covered by
noncontributory retirement plans. There were no unfunded past service
liabilities at June 30, 1996 and December 31, 1995 and 1994. First Service has
no qualified employees.
Employees of the Association are covered by the Pentgra Group, previously the
Financial Institutions Retirement Fund (the Fund), which is a defined benefit
pension plan to which contributions are made for the benefit of the employees.
Contributions are determined to cover the normal cost of pension benefits, the
one-year cost of the pre-retirement death and disability benefits and the
amortization of any unfunded accrued liabilities.
The Fund had previously advised the Association that the pension plan meets the
criteria of a multi-employer pension plan as defined in Financial Accounting
Standards Board Statement No. 87, "Employers' Accounting for Pensions". In
accordance with the Statement, net pension cost is recognized for any required
contribution for the period. A liability is recognized for any contributions due
and unpaid. During 1993, the Association acquired additional benefits for all
qualified employees under the plan which were paid for by reducing the
overfunded amount. Because of the overfunded status, no contributions were made
to the pension plan during the six months ended June 30, 1996, or the years
ended December 31, 1995, 1994 and 1993. The provision for pension expense was
computed by the Fund's actuaries utilizing the projected unit credit cost method
and assuming a 7.5% return on Fund assets.
McCauley Insurance Agency, Inc. contributes to IRA accounts for its full-time
employees on an annual basis. These employer contributions are discretionary and
totaled approximately $3,000 for each of the years ended December 31, 1995, 1994
and 1993. No contributions have been made for the six month periods ending June
30, 1996 and 1995.
In addition to providing employees with noncontributory retirement plans, the
Association undertook a supplemental retirement plan in 1993, which provides
retirement benefits to all directors. The Association's obligations under the
plan have been funded via the purchase of $1.1 million face value key man life
insurance policies, of which the Association is the beneficiary. Costs of the
purchase of the single premium life insurance policies amounted to $676,000.
Expense under the supplemental retirement plan totaled approximately $12,000,
$20,000, $41,000, $42,000 and $6,000 for the six months ended June 30, 1996 and
1995, and the years ended December 31, 1995, 1994 and 1993, respectively.
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
11. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents includes cash
and due from banks.
12. Reclassifications
Certain prior year amounts have been reclassified to conform to the 1995
consolidated financial statement presentation.
13. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", (SFAS No. 107), requires disclosure of the fair
value of financial instruments, both assets and liabilities whether or not
recognized in the consolidated statement of financial condition, for which it is
practicable to estimate that value. For financial instruments where quoted
market prices are not available, fair values are based on estimates using
present value and other valuation methods.
The present value methods utilized are greatly affected by the assumptions
applied, including the discount rate and estimates of future cash flows.
Therefore, the fair values presented may not represent amounts that could be
realized in an exchange for certain financial instruments.
The following methods and assumptions were used by the Association in estimating
its fair value disclosures for financial instruments at December 31, 1995:
Cash and due from banks and certificates of deposit in other
financial institutions: The carrying amounts presented in the
consolidated statement of financial condition for cash and due
from banks and certificates of deposit in other financial
institutions are deemed to approximate fair value.
Investments and mortgage-backed and related securities: For
investments and mortgage-backed and related securities, fair
value is deemed to equal the quoted market price.
Loans receivable: The loan portfolio has been segregated into
categories with similar characteristics for underlying
collateral, such as one-to-four family residential,
multi-family residential and nonresidential real estate. These
categories were further delineated into fixed-rate and
adjustable-rate loans. The fair values for the resultant
categories were computed via discounted cash flow analysis,
using current interest rates offered for loans with similar
terms to borrowers of similar credit quality. For loans on
deposit accounts, and consumer and other loans, fair values
were deemed to equal the historic carrying values. The
historical carrying amount of accrued interest on loans is
deemed to approximate fair value.
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
14. Fair Value of Financial Instruments (continued)
Federal Home Loan Bank stock: The carrying amount
presented in the consolidated statement of financial
condition is deemed to approximate fair value.
Deposits: The fair value of NOW and super NOW accounts,
passbook accounts, money market demand accounts and
advances by borrowers for taxes and insurance are deemed
to approximate the amount payable on demand at December
31, 1995. Fair values for fixed-rate certificates of
deposit have been estimated using a discounted cash flow
calculation using the interest rates currently offered for
deposits of similar remaining maturities.
Federal Home Loan Bank advances: The fair value of Federal
Home Loan Bank advances have been estimated using
discounted cash flow analysis, based on the interest rates
currently offered for advances of similar remaining
maturities.
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Association's financial instruments are as follows at December 31,
1995:
<PAGE>
<TABLE>
<CAPTION>
Carrying Fair
value value
-------- -----
(In thousands)
Financial assets
<S> <C> <C>
Cash and due from banks $ 2,389 $ 2,389
Certificates of deposit in other financial institutions 300 300
Investment securities designated
as available for sale 5,018 5,018
Investment securities held to maturity 8,000 7,930
Mortgage-backed securities 9,917 9,941
Loans receivable 58,398 58,756
Federal Home Loan Bank stock 610 610
------- -------
$84,632 $84,944
======= =======
Financial liabilities
Deposits $75,233 $72,375
Advances from Federal Home Loan Bank 4,471 4,483
Advances by borrowers for taxes and insurance 63 63
------- -------
$79,767 $76,921
======= =======
</TABLE>
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE B - INVESTMENTS AND MORTGAGE-BACKED AND RELATED SECURITIES
Amortized cost and approximate market values of investment securities are
summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
--------------------------------------------------
1996 1995 1994
------------------- ------------------ ---------------------
Amortized Market Amortized Market Amortized Market
cost value cost value cost value
---- ----- ---- ----- ---- -----
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Held to maturity:
U.S. Government
agency obligations $ 6,000 $5,886 $ 8,000 $ 7,930 $13,996 $13,120
Available for sale:
U.S. Government
agency obligations 4,000 3,940 5,000 5,018 - -
Asset management funds - - - - 101 101
------- ------ ------- ------- ------- -------
Total investments $10,000 $9,826 $13,000 $12,948 $14,097 $13,221
======= ====== ======= ======= ======= =======
</TABLE>
At June 30, 1996, the cost carrying value of the Association's investment
securities held to maturity exceeded fair value (market value) by $114,000,
consisting solely of gross unrealized losses.
At December 31, 1995 and 1994, the cost carrying value of the Association's
investment securities held to maturity exceeded fair value by $70,000 and
$876,000, respectively, comprised solely of gross unrealized losses.
The amortized cost and market value of U. S. Government and agency obligations
designated as held-to-maturity by term to maturity are shown below. Maturity
dates do not reflect the potential effects of call provisions in the bonds'
contractual terms.
<TABLE>
<CAPTION>
June 30, December 31,
--------------------------------------------------
1996 1995 1994
------------------- ------------------ ---------------------
Amortized Market Amortized Market Amortized Market
cost value cost value cost value
---- ----- ---- ----- ---- -----
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Due in less than one year $ 2,500 $2,486 $ 500 $ 497 $ 2,999 $ 2,829
Due in one to three years 2,500 2,454 4,500 4,468 7,997 7,530
Due in three to five years 1,000 946 3,000 2,965 3,000 2,761
------- ------ ------- ------- ------- -------
$ 6,000 $5,886 $ 8,000 $ 7,930 $13,996 $13,120
======= ====== ======= ======= ======= =======
</TABLE>
<PAGE>
The amortized cost and market value of U.S. Government and agency obligations
designated as available for sale at June 30, 1996, by term to maturity are shown
below.
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
--------------------- ---------------------
Amortized Market Amortized Market
cost value cost value
---- ----- ---- -----
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Due in one to three years $1,500 $1,495 $2,500 $2,517
Due in three to five years 2,500 2,445 2,500 2,501
------ ------ ------ ------
$4,000 $3,940 $5,000 $5,018
====== ====== ====== ======
</TABLE>
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE B - INVESTMENTS AND MORTGAGE-BACKED AND RELATED SECURITIES (continued)
The amortized cost, gross unrealized gains, gross unrealized losses and market
values of mortgage-backed and related securities designated as held to maturity
at June 30, 1996, and December 31, 1995 and 1994 are shown below.
<TABLE>
<CAPTION>
June 30, 1996
-----------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
---- ----- ------ -----
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation
participation certificates $ 5,483 $ --- $ (91) $ 5,392
Government National Mortgage Association
participation certificates 1,940 14 (1) 1,953
Federal National Mortgage Association
participation certificates 1,203 3 (4) 1,202
Interest-only certificates 64 --- (4) 60
------- ----- ------ -------
$ 8,690 $ 17 $(100) $ 8,607
======= ===== ====== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
---- ----- ------ -----
(In thousands)
Federal Home Loan Mortgage Corporation
<S> <C> <C> <C> <C>
Participation certificates $ 6,330 $ 44 $ (49) $ 6,325
Government National Mortgage Association
Participation certificates 2,121 43 (10) 2,154
Federal National Mortgage Association
Participation certificates 1,426 9 (13) 1,422
Interest-only certificates 40 --- --- 40
------- ----- ------ -------
$ 9,917 $ 96 $ (72) $ 9,941
======= ===== ====== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
-----------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
---- ----- ------ -----
(In thousands)
Federal Home Loan Mortgage Corporation
<S> <C> <C> <C> <C>
Participation certificates $ 7,330 $ --- $(484) $ 6,846
Government National Mortgage Association
Participation certificates 2,381 --- (104) 2,277
Federal National Mortgage Association
Participation certificates 1,567 2 (27) 1,542
Interest-only certificates 50 --- --- 50
------- ----- ------ -------
$11,328 $ 2 $(615) $10,715
======= ===== ====== =======
</TABLE>
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE B - INVESTMENTS AND MORTGAGE-BACKED AND RELATED SECURITIES (continued)
The amortized cost of mortgage-backed securities at June 30, 1996, and December
31, 1995, by contractual terms to maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may generally prepay
obligations without prepayment penalties.
June 30, 1996 December 31, 1995
Amortized cost Amortized cost
-------------- ------------------
(Unaudited)
(In thousands)
Due within one year $1,153 $ 139
Due after one to three years 1,901 3,906
Due after three to five years 2,226 2,924
Due after five to ten years 15 15
Due after ten to twenty years 382 50
Due after twenty years 3,013 2,883
------ ------
$8,690 $9,917
====== ======
The market value of the Association's investment in Federal National Mortgage
Association interest-only certificates is adversely affected by the level of
actual prepayments on the loans collateralizing such securities, as well as the
market's perception as to the future level of such prepayments. During 1994 and
1993, these prepayment factors resulted in market value declines which
management viewed as other than temporary. Accordingly, the Association charged
operations in 1994 and 1993 for $20,000 and $30,000, respectively, representing
management's estimate as to the amount of such declines deemed to be other than
temporary.
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio is as follows:
June 30, December 31,
1996 1995 1994
---- ---- ----
(Unaudited) (In thousands)
Residential real estate
One-to-four family residential $44,517 $44,417 $46,378
Multi-family residential 1,529 1,613 1,242
Construction 1,406 2,489 748
Nonresidential real estate and land 7,234 7,563 5,774
Consumer and other 3,025 2,816 2,269
Deposit accounts 532 590 527
------- ------- -------
58,243 59,488 56,938
Add (deduct):
Undisbursed portion of loans in process (604) (1,370) (642)
Deferred loan origination costs 226 234 243
Allowance for loan losses (416) (407) (252)
------- ------- -------
$57,449 $57,945 $56,287
======= ======= =======
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE C - LOANS RECEIVABLE (continued)
As depicted above, the Association's lending efforts have historically focused
on one-to-four family residential and multi-family residential real estate
loans, which comprise approximately $52.5 million, or 91.4%, of the total loan
portfolio at June 30, 1996, approximately $47.1 million, or 81%, of the total
loan portfolio at December 31, 1995 and approximately $47.7 million, or 85%, of
the total loan portfolio at December 31, 1994. Generally, such loans have been
underwritten on the basis of no more than an 80% loan-to-value ratio, which has
historically provided the Association with adequate collateral coverage in the
event of default. Nevertheless, the Association, as with any lending
institution, is subject to the risk that residential real estate values could
deteriorate in its primary lending areas of southeastern Indiana and
northwestern Kentucky, thereby impairing collateral values. However, management
is of the belief that residential real estate values in the Association's
primary lending areas are presently stable.
In the ordinary course of business, the Association has granted loans to some of
the officers, directors and their related business interests. Related party
loans are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated persons and do not involve more than the normal risk of
collectibility. The aggregate dollar amount of loans outstanding to related
parties was approximately $305,000, $571,000 and $365,000 at June 30, 1996,
December 31, 1995 and 1994.
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Six months ended
June 30, Year ended December 31,
------------------ -------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $407 $252 $252 $227 $262
Provision for loan losses 12 3 150 29 55
Charge-offs of loans (3) (4) --- (4) (100)
Recoveries of losses on loans --- --- 5 --- 10
---- ---- ---- ---- ----
Balance at end of period $416 $251 $407 $252 $227
==== ==== ==== ==== ====
</TABLE>
As of June 30, 1996, and December 31, 1995, the Association's allowance for loan
losses was comprised of a general loan loss allowance of approximately $412,000
and $399,000, which was includible as a component of regulatory risk-based
capital, and specific loan loss allowances of approximately $4,000 and $8,000,
respectively.
At June 30, 1996 and December 31, 1995, 1994 and 1993, nonperforming loans
totaled $223,000, $8,000, $13,000 and $7,000, respectively.
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment is comprised of the following:
June 30, December 31,
-------------------------
1996 1995 1994
---- ---- ----
(Unaudited)
(In thousands)
Land and improvements $ 377 $ 377 $ 377
Office buildings and improvements 1,242 1,242 1,225
Leasehold improvements 6 6 6
Furniture, fixtures and equipment 623 623 593
Automobiles 4 4 4
------- ------- -------
2,252 2,252 2,205
Less accumulated depreciation (1,313) (1,286) (1,217)
------- ------- -------
$ 939 $ 966 $ 988
======= ======= =======
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE F - DEPOSITS
Deposits consist of the following major classifications:
<TABLE>
<CAPTION>
December 31,
June 30, ------------------------------------------
1996 1995 1994
---- ---- ----
Amount % Amount % Amount %
------- --- ------ --- ------ ---
(Unaudited)
(In thousands)
Deposit type and
weighted-average interest rate
<S> <C> <C> <C> <C> <C> <C>
NOW accounts
1996 - 2.63% $ 8,525 11.4
1995 - 2.24% $ 7,941 10.6
1994 - 2.28% $ 7,412 9.8
Super NOW accounts
1996 - 2.67% 1,033 1.4
1995 - 2.65% 1,063 1.4
1994 - 2.67% 731 1.0
Money market demand accounts
1996 - 3.00% 6,794 9.1
1995 - 3.00% 7,141 9.5
1994 - 2.90% 7,652 10.1
Passbook accounts
1996 - 3.05% 17,011 22.7
1995 - 3.04% 17,911 23.8
1994 - 3.03% 19,430 25.8
------- ----- ------- ----- ------- -----
Total demand, transaction and
passbook deposits 33,363 44.6 34,056 45.3 35,225 46.7
Certificates of deposit
3.00 - 3.99%
3.35% in 1994 --- --- --- --- 443 .6
4.00 - 4.99%
4.78% in 1996 5,657 7.6
4.21% in 1995 98 .1
4.70% in 1994 30,882 40.9
5.00 - 5.99%
5.64% in 1996 25,564 34.2
5.65% in 1995 30,116 40.0
5.44% in 1994 5,276 7.0
6.00 - 6.99%
6.60% in 1996 9,728 13.0
6.38% in 1995 10,731 14.3
6.40% in 1994 3,365 4.5
7.00 - 7.99%
7.57% in 1996 415 .6
7.86% in 1995 232 .3
7.88% in 1994 267 .3
------- ----- ------- ----- ------- -----
Total certificates of deposit 41,364 55.4 41,177 54.7 40,233 53.3
------- ----- ------- ----- ------- -----
Total deposit accounts $74,727 100.0 $75,233 100.0 $75,458 100.0
======= ===== ======= ===== ======= =====
</TABLE>
The aggregate amount of short-term certificates of deposit with minimum
denominations of $100,000 totaled approximately $5.1 million, $4.8 million and
$5.3 million at June 30, 1996, December 31, 1995 and 1994, respectively.
Deposits with denominations greater than $100,000 are not federally insured.
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE F - DEPOSITS (continued)
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
------------------- --------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Passbook $ 251 $ 268 $ 524 $ 634 $ 754
NOW accounts 95 88 176 170 135
Money market deposit accounts 120 121 243 259 269
Certificates of deposit 1,225 1,118 2,476 1,779 1,883
------ ------ ------ ------ ------
$1,691 $1,595 $3,419 $2,842 $3,041
====== ====== ====== ====== ======
</TABLE>
Maturities of outstanding certificates of deposit are summarized as follows:
June 30, December 31,
----------- --------------------
1996 1995 1994
---- ---- ----
(Unaudited)
(In thousands)
Less than one year $30,737 $29,578 $31,625
One year to three years 9,457 10,425 5,921
More than three years 1,170 1,174 2,687
------- ------- -------
$41,364 $41,177 $40,233
======= ======= =======
NOTE G - ADVANCES FROM FEDERAL HOME LOAN BANK
At June 30, 1996, there were no Federal Home Loan Bank advances outstanding. At
December 31, 1995, Federal Home Loan Bank advances consisted of 6.02% daily
variable-rate cash management borrowing totaling approximately $2.5 million (of
an available $7.0 million line of credit), and a $2.0 million 5.63% advance
maturing on April 11, 1996. At December 31, 1995, the advances were
collateralized by certain residential mortgage loans totaling $3.4 million and
the Association's investment in Federal Home Loan Bank stock.
NOTE H - INCOME TAXES
The provision for income taxes on earnings differs from that computed at the
expected statutory corporate tax rate as follows:
<TABLE>
<CAPTION>
June 30, December 31,
------------------ -------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Income taxes computed at
the 34% expected statutory rate $98 $132 $152 $356 $391
State taxes, net of federal benefits 15 21 39 56 65
Increase (decrease) in taxes resulting from:
Amortization of goodwill 1 1 2 2 2
Other (6) (3) (5) (2) (2)
---- ---- ---- ---- ----
Income tax provision per consolidated
financial statements $108 $151 $188 $412 $456
==== ==== ==== ==== ====
Effective tax rate 37.4% 39.0% 42.2% 39.3% 39.7%
==== ==== ==== ==== ====
</TABLE>
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE H - INCOME TAXES (continued)
The composition of the Association's net deferred tax asset (liability) is as
follows:
<TABLE>
<CAPTION>
December 31,
June 30, ------------------------
1996 1995 1994
---- ---- ----
(Unaudited)
(In thousands)
Taxes (payable) refundable on temporary
differences at statutory rate:
<S> <C> <C> <C>
Deferred tax liabilities:
Deferred loan origination costs $ (77) $ (80) $ (83)
Difference between book and tax depreciation (33) (32) (31)
Percentage of earnings bad debt deduction (123) (116) (104)
Unrealized gain on securities designated
as available for sale - (6) -
----- ----- -----
Total deferred tax liabilities (233) (234) (218)
Deferred tax assets:
Deferred compensation 36 28 14
Allowance for valuation decline on
mortgage-related securities 90 90 90
General loan loss allowance 140 135 84
Unrealized loss on securities designated as
available for sale 20 - -
Other 34 2 -
----- ----- -----
Total deferred tax assets 320 255 188
----- ----- -----
Net deferred tax asset (liability) $ 87 $ 21 $ (30)
===== ===== =====
</TABLE>
The Association is allowed a special bad debt deduction based on a percentage of
earnings generally limited to 8% of otherwise taxable income, or the amount of
qualifying and nonqualifying loans outstanding and subject to certain
limitations based on aggregate loans and savings account balances at the end of
the year. Retained earnings at June 30, 1996 and December 31, 1995 includes
approximately $2.4 million for which Federal income taxes have not been
provided. If the amounts that qualify as deductions for Federal income tax
purposes are later used for purposes other than for bad debt losses, including
distributions in liquidation, such distributions will be subject to Federal
income taxes at the then current corporate income tax rate. The approximate
amount of unrecognized deferred tax liability relating to the cumulative bad
debt deduction was approximately $710,000 at June 30, 1996 and December 31,
1995. In August 1996, legislation was enacted that will require the Association
to recapture post-1987 percentage of earnings bad debt deductions to taxable
income over a six year period. The Association has previously provided $123,000
in deferred taxes relative to post-1987 percentage of earnings deductions. The
Association will no longer be able to utilize the percentage of earnings bad
debt deduction in computing taxable income and, instead, will utilize the
reserve method employed by commercial banks.
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE I - COMMITMENTS AND CONTINGENCIES
The Association is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers
including commitments to extend credit. Such commitments involve, to varying
degrees, elements of credit and interest-rate risk in excess of the amount
recognized in the consolidated statement of financial condition. The contract or
notional amounts of the commitments reflect the extent of the Association's
involvement in such financial instruments.
The Association's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The
Association uses the same credit policies in making commitments and conditional
obligations as those utilized for on-balance-sheet instruments.
At June 30, 1996, and December 31, 1995 and 1994, the Association had
outstanding commitments of approximately $1,000,000, $257,000 and $501,000 to
originate residential one-to-four family real estate loans, of which $532,000,
$185,000, and $211,000, respectively, were comprised of fixed-rate loans, and
$468,000, $72,000, and $290,000, respectively, were comprised of variable rate
loans. Additionally, the Association had unused lines of credit under home
equity loans of approximately $207,000, $181,000, and $148,000 at June 30, 1996,
December 31, 1995, and 1994, respectively. In the opinion of management, all
loan commitments equaled or exceeded prevalent market interest rates as of June
30, 1996 and December 31, 1995 and 1994, and such commitments have been
underwritten on the same basis as that of the existing loan portfolio.
Management believes that all loan commitments are able to be funded through cash
flow from operations and existing excess liquidity. Fees received in connection
with these commitments have not been recognized in earnings.
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 may expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Association evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained, if it is deemed
necessary by the Association, upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral on loans may vary but the
preponderance of loans granted generally include a mortgage interest in real
estate as security.
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE J - CONDENSED FINANCIAL STATEMENTS OF CONSOLIDATED SUBSIDIARY
The following condensed consolidated financial statements summarize the
financial position of Madison First Service Corporation and Subsidiary at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the six month periods ended June 30, 1996, and 1995, and the
years ended December 31, 1995, 1994 and 1993.
Madison First Service Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
June 30, ---------------
ASSETS 1996 1995 1994
---- ---- ----
(Unaudited) (In thousands)
Cash and interest-bearing deposits $403 $265 $156
Certificates of deposit 200 300 350
Office premises and equipment, net 19 21 26
Goodwill, net 144 148 156
Other assets 44 40 56
---- ---- ----
Total assets $810 $774 $744
==== ==== ====
LIABILITIES AND STOCKHOLDER'S EQUITY
Other liabilities $ 75 $ 68 $ 69
Accrued income taxes 27 22 21
---- ---- ----
102 90 90
Stockholder's equity
Common stock 350 350 350
Retained earnings 358 334 304
---- ---- ----
Total stockholder's equity 708 684 654
---- ---- ----
Total liabilities and
stockholder's equity $810 $774 $744
==== ==== ====
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE J - CONDENSED FINANCIAL STATEMENTS OF CONSOLIDATED
SUBSIDIARY (continued)
Madison First Service Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
Six months ended Year ended
June 30, December 31,
---------------- ----------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
(In thousands)
Income
Interest income $ 12 $ 13 $ 27 $ 16 $ 14
Insurance commissions 100 88 166 169 182
Other operating 29 19 3 4 3
----- ----- ----- ----- -----
Total income 141 120 196 189 199
Other expenses
Employee compensation
and benefits 48 53 104 102 107
Occupancy and equipment 9 10 14 17 21
Franchise taxes 4 3 5 4 4
General and administrative 10 10 18 18 17
Amortization of goodwill 4 4 7 7 7
----- ----- ----- ----- -----
Total other expenses 75 80 148 148 156
----- ----- ----- ----- -----
Income before income taxes 66 40 48 41 43
Income taxes 15 9 18 16 17
----- ----- ----- ----- -----
NET INCOME $ 51 $ 31 $ 30 $ 25 $ 26
===== ===== ===== ===== =====
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE J - CONDENSED FINANCIAL STATEMENTS OF CONSOLIDATED
SUBSIDIARY (continued)
Madison First Service Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, December 31,
----------------- --------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 51 $ 31 $ 30 $ 25 $ 26
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 3 3 5 5 6
Amortization of goodwill 4 4 7 7 7
Increases (decreases) in cash due to changes in:
Other assets (3) (11) 17 9 (5)
Other liabilities 7 3 - 3 -
Income taxes:
Current 5 (9) 1 17 1
Deferred (29) 49 - (1) (1)
---- ---- ---- ---- ----
Net cash provided by operating activities 38 70 60 65 34
Cash flows provided by (used in) investing activities:
Purchase of office equipment - - (1) (4) -
(Increase) decrease in certificates of deposits in
other financial institutions - net 100 - 50 (50) (125)
---- ---- ---- ---- ----
Net cash provided by (used in) investing activities 100 - 49 (54) (125)
---- ---- ---- ---- ----
Net increase (decrease) in cash and cash equivalents 138 70 109 11 (91)
Cash and interest-bearing deposits at beginning of period 265 156 156 145 236
---- ---- ---- ---- ----
Cash and interest-bearing deposits at end of period $403 $226 $265 $156 $145
==== ==== ==== ==== ====
</TABLE>
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE K - RETAINED EARNINGS AND REGULATORY CAPITAL
The Association is subject to minimum regulatory capital standards promulgated
by the Office of Thrift Supervision. Such minimum capital standards generally
require the maintenance of regulatory capital sufficient to meet each of three
tests, hereinafter described as the tangible capital requirement, the core
capital requirement and the risk-based capital requirement. The tangible capital
requirement provides for minimum tangible capital (defined as retained earnings
less all intangible assets) equal to 1.5% of adjusted total assets. The core
capital requirement provides for minimum core capital (tangible capital plus
certain forms of supervisory goodwill and other qualifying intangible assets)
equal to 3.0% of adjusted total assets. An OTS proposal, if adopted in present
form, would increase the core capital requirement to a range of 4.0% - 5.0% of
adjusted total assets for substantially all savings associations. Management
anticipates no material change to the Association's excess regulatory capital
position as a result of this proposed change in the regulatory capital
requirement. The risk-based capital requirement currently provides for the
maintenance of core capital plus general loss allowances equal to 8.0% of
risk-weighted assets. In computing risk-weighted assets, the Association
multiplies the value of each asset on its statement of financial condition by a
defined risk-weighting factor, e.g., one-to-four family residential loans carry
a risk-weighted factor of 50%.
As of June 30, 1996 and December 31, 1995, the Association's regulatory capital
exceeded all minimum capital requirements as shown in the following tables:
<TABLE>
<CAPTION>
June 30, 1996
Regulatory capital
----------------------------------------------------------------------
Tangible Core Risk-based
capital Percent capital Percent capital Percent
------- ------- ------- ------- ------- -------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Capital under generally accepted
accounting principles $6,703 $6,703 $6,703
Nonallowable assets:
Goodwill (144) (144) (144)
Unrealized losses on securities
designated as available for sale, net 40 40 40
Additional capital items:
General valuation allowances - limited --- --- 412
------ ------ ------
Regulatory capital - computed 6,599 8.1 6,599 8.1 7,011 16.9
Minimum capital requirement 1,229 1.5 2,457 3.0 3,322 8.0
------ --- ------ --- ------ ----
Regulatory capital - excess $5,370 6.6 $4,142 5.1 $3,689 8.9
====== === ====== === ====== ====
</TABLE>
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE K - RETAINED EARNINGS AND REGULATORY CAPITAL (continued)
<TABLE>
<CAPTION>
December 31, 1995
Regulatory capital
----------------------------------------------------------------------
Tangible Core Risk-based
capital Percent capital Percent capital Percent
------- ------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Capital under generally accepted
accounting principles $6,574 $6,574 $6,574
Nonallowable assets:
Goodwill (148) (148) (148)
Unrealized gains on securities
designated as available for sale, net (12) (12) (12)
Additional capital items:
General valuation allowances - limited --- --- 399
------ ------ ------
Regulatory capital - computed 6,414 7.4 6,414 7.4 6,813 16.0
Minimum capital requirement 1,299 1.5 2,598 3.0 3,402 8.0
------ --- ------ --- ------ ----
Regulatory capital - excess $5,115 5.9% $3,816 4.4% $3,424 8.1%
====== === ====== === ====== ====
</TABLE>
The deposit accounts of the Association and of other savings associations are
insured up to applicable limits by the FDIC in the Savings Association Insurance
Fund ("SAIF"). Prior to September 30, 1996, the reserves of the SAIF were below
the level required by law, because a significant portion of the assessments paid
into the fund are used to pay interest on bonds issued to pay the cost of prior
thrift failures. The deposit accounts of commercial banks are insured by the
FDIC in the Bank Insurance Fund ("BIF"), except to the extent such banks have
acquired SAIF deposits. The reserves of the BIF met the level required by law in
May 1995. As a result of the respective reserve levels of the funds, deposit
insurance assessments paid by healthy savings associations exceeded those paid
by healthy commercial banks during 1995 by approximately $.19 per $100 in
deposits. In 1996, no BIF assessments will be required for healthy commercial
banks except for a $2,000 minimum fee.
On September 30, 1996, the President enacted into law legislation to
recapitalize the SAIF and eliminate the significant premium disparity. The
recapitalization plan provides for a special assessment of approximately $.657
per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF
reserves to the level required by law. In addition, the cost of prior thrift
failures would be shared by both the SAIF and the BIF. This would likely
increase BIF assessments by $.02 to $.025 per $100 in deposits, while SAIF
assessments will decline to $.064 per $100 in deposits.
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE K - RETAINED EARNINGS AND REGULATORY CAPITAL (continued)
A component of the recapitalization plan provides for the merger of the SAIF and
BIF on January 1, 2000.
The Association had $77.2 million in deposits at March 31, 1995. If the special
assessment is finalized as projected at $.657 per $100 in assessable deposits,
the Association will pay an additional assessment of $503,000 in November, 1996.
This assessment is tax deductible, but it will reduce earnings and capital for
the three months ended September 30, 1996.
NOTE L - BUSINESS COMBINATION AND CONVERSION TO STOCK FORM
On March 5, 1996, the Association's Board of Directors adopted an overall plan
of conversion and reorganization (the Plan) whereby the Association would
convert to the stock form of ownership, followed by the issuance of all of the
Association's outstanding stock to a newly formed holding company, River Valley
Bancorp. Pursuant to the Plan, River Valley Bancorp will offer for sale common
shares to the Association's depositors and members of the community based on the
appraised value on the offering date. The costs of issuing the common stock will
be deferred and deducted from the sale proceeds of the offering. If the
conversion is unsuccessful, all deferred costs will be charged to operations. At
June 30, 1996, the Association had incurred approximately $2,000 in conversion
costs.
At the date of the conversion, the Association will establish a liquidation
account in an amount equal to retained earnings reflected in the statement of
financial condition used in the conversion offering circular. The liquidation
accounts will be maintained for the benefit of eligible savings account holders
who maintained deposit accounts in the Association after conversion.
In the event of a complete liquidation (and only in such event), each eligible
savings account holder will be entitled to receive a liquidation distribution
from the liquidation account in the amount of the then current adjusted balance
of deposit accounts held, before any liquidation distribution may be made with
respect to the common shares. Except for the repurchase of stock and payment of
dividends by the Association, the existence of the liquidation account will not
restrict the use or further application of such retained earnings.
<PAGE>
Madison First Federal Savings and Loan Association and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Six months ended June 30, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994 and 1993
NOTE L - BUSINESS COMBINATION AND CONVERSION TO STOCK FORM (continued)
The Association may not declare or pay a cash dividend on, or repurchase any of
its common shares if the effect thereof would cause the Association's
shareholders' equity to be reduced below either the amount required for the
liquidation account or the regulatory capital requirements for insured
institutions.
In December 1995, the Association had entered into a purchase agreement (the
Agreement) with the majority shareholder of Citizens National Bank of Madison.
The agreement, as subsequently amended, states that the Association's newly
formed holding company will purchase approximately 120,000 shares, representing
95% of Citizen's outstanding common stock, for total cash consideration of
approximately $3.0 million. The Association's performance under the Agreement
will be funded via net cash proceeds from the conversion. The business
combination will be accounted for as a purchase and is expected to be completed
in the latter part of 1996. The purchase agreement is subject to regulatory
approval.
<PAGE>
[SHERMAN, BARBER & MULLIKIN LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
of Citizens National Bank
of Madison, Indiana
We have audited the accompanying Statements of Financial Condition of Citizens
National Bank of Madison as of December 31, 1995 and December 31, 1994 and the
related Statements of Income, Stockholders' Equity and Cash Flows for the years
then ended. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Citizens National
Bank for the year ended December 31, 1993 were audited by other auditors whose
report dated January 28, 1994 epxressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Citizens National Bank of
Madison at December 31, 1995 and December 31, 1994 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As described in Notes 1 and 5, the Bank changed its methods of accounting for
investment securities and income taxes during 1994 and adopted new accounting
standards during 1995 in accordance with Statements of Financial Accounting
Standards Nos. 107 and 114.
/s/ SHERMAN, BARBER & MULLIKIN
SHERMAN, BARBER & MULLIKIN
Certified Public Accountants
March 1, 1996
<PAGE>
ALEXANDER X. KUHN & CO.
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Citizens National Bank of Madison
Madison, Indiana
We have audited the accompanying Statement of Income, Statement of Changes in
Stockholders' Equity and Statement of Cash Flows of Citizens National Bank of
Madison for the year ended December 31, 1993. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the 1993 financial statements referred to above present fairly,
in all material respects, the comparative financial statements of Citizens
National Bank of Madison as of December 31, 1993 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Respectfully submitted,
Alexander X. Kuhn & Co.
Certified Public Accountants
Dated: January 28, 1994
Oakbrook Terrace, Illinois
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,
June 30, -----------------------------
1996 1995 1994
----------- ----------- -----------
(Unaudited)
ASSETS
Cash and Cash Equivalents:
<S> <C> <C> <C>
Cash and Due from Banks $ 2,498,493 $ 2,349 $ 1,516,721
Federal Funds Sold 100,000 2,775 675,000
----------- ----------- -----------
Total Cash and Cash Equivalents 2,598,493 5,123,509 2,191,721
Interest-Bearing Time Deposits 0 1,702,862 0
Investment Securities:
Federal Agencies 3,512,090 150,891 1,465,002
Municipal Bonds 1,119,433 1,155,342 1,106,183
Mortgage-Backed Securities (primarily
government agency guaranteed) 3,136,345 3,562,364 5,048,907
Federal Reserve Stock 79,950 79,950 79,950
Federal Home Loan Bank Stock 270,800 270,800 118,400
----------- ----------- -----------
Total Investment Securities 8,118,621 5,219,347 7,818,442
Loans:
Loans, Net of Unearned Interest 43,501,628 40,779,738 30,169,863
Less: Allowance for Loan Losses ( 499,096) (347,793) (335,738)
----------- ----------- -----------
Net Loans 43,002,532 40,431,945 29,834,125
Premises and Equipment, Net 1,372,086 1,403,601 890,056
Accrued Interest Receivable 578,735 451,917 352,337
Deferred Income Tax Asset 192,681 75,829 119,856
Other Assets 322,263 94,157 45,654
----------- ----------- -----------
TOTAL ASSETS $56,185,411 $54,503,167 $41,252,191
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Statements of Financial Condition
(Continued)
<TABLE>
<CAPTION>
December 31,
June 30, -----------------------------
1996 1995 1994
----------- ----------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
<S> <C> <C> <C>
Demand Deposits $ 4,975,693 $ 5,345,925 $ 4,200,596
Savings & NOW Accounts 18,800,676 16,411,201 16,551,092
Certificates of Deposit over $100,000 5,740,656 5,698,897 5,317,053
Other Time Deposits 22,253,255 21,771,068 11,942,011
----------- ----------- -----------
Total Deposits 51,770,280 49,227,091 38,010,752
FHLB Advances 500,000 1,500,000 0
Accrued Interest Payable 198,274 204,645 109,610
Income Tax Payable 0 116,981 27,951
Other Liabilities 268,347 58,409 103,734
----------- ----------- -----------
Total Liabilities 52,736,901 51,107,126 38,252,047
----------- ----------- -----------
Commitments and Contingencies (See Notes 9 and 12)
Stockholders' Equity
Common Stock ($8 Par Value: 150,000
Shares Authorized; 126,037 Shares
Issued & Outstanding) 1,008,296 1,008,296 1,008,296
Additional Paid-in-Capital 1,656,567 1,656,567 1,656,567
Retained Earnings 883,647 749,563 407,936
Unrealized Losses on Investment
Securities Available-for-Sale, Net of Related Tax Effects (100,000) (18,385) (72,655)
----------- ----------- -----------
Total Stockholders' Equity 3,448,510 3,396,041 3,000,144
----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $56,185,411 $54,503,167 $41,252,191
=========== =========== ===========
- --------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Statements of Income
<TABLE>
<CAPTION>
Six months ended Years ended
June 30, December 31,
---------------------------- ----------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(Unaudited)
Interest Income
<S> <C> <C> <C> <C> <C>
Interest & Fees on Loans $1,824,067 $1,437,479 $3,194,437 $2,035,853 $1,679,455
Interest on Investment Securities:
Investment Securities-Taxable 67,379 16,129 132,509 132,319 301,593
Investment Securities-Nontaxable 28,510 30,606 59,306 60,460 38,412
---------- ---------- ---------- ---------- ----------
Total Interest on Investment Securities 95,889 46,735 191,815 192,779 340,005
Interest on Federal Funds Sold 70,500 16,268 78,190 30,319 77,445
Interest on Mortgage-Backed Securities 109,337 171,828 230,315 256,235 0
Interest on Deposits with Banks 56,043 7,766 0 9,387 2,640
---------- ---------- ---------- ---------- ----------
Total Interest Income 2,155,836 1,680,076 3,694,757 2,524,573 2,099,545
Interest Expense
Interest on Deposits 1,100,524 755,242 1,750,429 1,023,679 879,952
Interest on Federal Funds Purchased 0 0 2,680 542 0
Interest on Other Borrowed Funds 33,921 20,212 67,318 847 0
---------- ---------- ---------- ---------- ----------
Total Interest Expense 1,134,445 776,454 1,820,427 1,025,068 879,952
---------- ---------- ---------- ---------- ----------
Net Interest Income 1,021,391 903,622 1,874,330 1,499,505 1,219,593
Less: Provision for Loan Losses (180,000) (24,000) (104,000) (17,000) (50,000)
---------- ---------- ---------- ---------- ----------
Net Interest Income After Provision
for Loan Losses 841,391 879,622 1,770,330 1,482,505 1,169,593
Other Income
Service Charges on Deposit Accounts 107,604 79,117 292,990 218,835 214,524
Other Service Charges & Fees 175,978 126,614 157,076 143,420 309,107
Gain on Disposal of Assets 0 4,000 4,555 0 0
Realized Gains (Losses) on Investments (15,789) 3,946 3,946 (70,987) (396)
Intangible Tax Refund 0 34,001 34,001 0 0
Other Operating Income 26,955 30,662 70,541 52,890 24,738
---------- ---------- ---------- ---------- ----------
Total Other Income 294,748 278,340 563,109 344,158 547,973
Other Expenses
Salaries & Employee Benefits 452,036 379,592 830,792 677,333 612,154
Premises & Equipment Expenses 155,899 124,691 292,460 279,431 225,597
Advertising 37,378 43,153 82,653 58,791 73,301
Business Services 54,624 42,091 87,436 67,367 54,636
Office Supplies & Postage 47,875 41,366 93,111 59,449 65,685
FDIC & Comptroller Assessment 19,656 52,460 60,360 85,754 87,634
Amortization-Dealer Reserve Cost 30,931 25,750 58,523 23,872 0
Other Operating Expenses 136,402 144,869 263,016 207,889 236,620
---------- ---------- ---------- ---------- ----------
Total Other Expenses 934,801 853,972 1,768,351 1,459,886 1,355,627
</TABLE>
See Notes to Financial Statements.
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Statements of Income
(Continued)
<TABLE>
<CAPTION>
Six months ended Years ended
June 30, December 31,
---------------------------- ----------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net Income Before Income Tax 201,339 303,990 565,088 366,777 361,939
Income Tax
Franchise Tax 12,026 21,405 57,175 34,019 33,612
Federal Income Tax 55,228 86,880 166,286 94,384 58,586
---------- ---------- ---------- ---------- ----------
Total Income Tax 67,254 108,285 223,461 128,403 92,198
---------- ---------- ---------- ---------- ----------
Net Income Before Cumulative Effect
of Change in Accounting Principal 134,084 195,705 341,627 238,374 269,741
Cumulative Effect of Change in
Accounting Principle 0 0 0 85,761 0
---------- ---------- ---------- ---------- ----------
NET INCOME $134,084 $195,705 $ 341,627 $ 324,135 $ 269,741
========== ========== ========== ========== ==========
Earnings Per Share:
Before Cumulative Change in
Accounting Principle $ 1.06 $ 1.56 $ 2.71 $ 1.89 $ 2.14
========== ========== ========== ========== ==========
Net Income $ 1.06 $ 1.56 $ 2.71 $ 2.57 $ 2.14
========== ========== ========== ========== ==========
Average Shares Outstanding 126,037 126,037 126,037 126,037 126,037
========== ========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements.
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Statements of Changes in Stockholders' Equity
For the Six Months Ended June 30, 1996 and
For the Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
Unrealized
Losses on
Additional Invest. Secur. Total
Common Paid-in- Retained Available- Stockholders'
Stock Capital Earnings For-Sale Equity
----- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $1,008,296 $1,656,567 $(185,940) 0 $2,478,923
Net Income for 1993 0 0 269,741 0 269,741
---------- ---------- -------- --------- ----------
Balance, December 31, 1993 1,008,296 1,656,567 83,801 0 2,748,664
Net Income for 1994 0 0 324,135 0 324,135
Unrealized Losses on
Investments 0 0 0 $(72,655) (72,655)
---------- ---------- -------- --------- ----------
Balance, December 31, 1994 1,008,296 1,656,567 407,936 (72,655) 3,000,144
Net Income for 1995 0 0 341,627 0 341,627
Unrealized Gains on
Investments 0 0 0 54,270 54,270
---------- ---------- -------- --------- ----------
Balance, December 31, 1995 $1,008,296 $1,656,567 $ 749,563 $(18,385) $3,396,041
Net Income for
Six Months ended
June 30, 1996 (unaudited) 134,084 134,084
(81,615) (81,615)
Unrealized Loss
on Investments $1,008,296 $1,656,567 $883,647 $(100,000) $3,448,510
========== ========== ======== ========= ==========
</TABLE>
See Notes to Financial Statements.
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Statements of Cash Flows
<TABLE>
<CAPTION>
Six months ended Years ended
June 30, December 31,
--------------------------- ----------------------------------------
1996 1995 1995 1994 1993
--------- --------- ---------- --------- ---------
(Unaudited)
Cash Flows from Operating Activities
<S> <C> <C> <C> <C> <C>
Net Income $134,084 $ 195,705 $ 341,627 $ 324,135 $ 269,742
Adjustments to Reconcile Net Income to
Net Cash Provided by
Operating Activities:
Provision for Loan Losses 180,000 24,000 104,000 17,000 50,000
Depreciation 63,825 50,309 127,460 108,675 132,838
Amortization-Dealer Reserve (30,931) (25,750) 58,523 23,872 0
Premium Amortization
on Investments (Net of
Discount Accretion) 0 (26,372) 17,959 27,041 168,719
Gain (Loss) on Sale of Securities 15,789 (3,946) (3,946) 70,987 397
Gain on Sale of Fixed Assets 0 (4,000) (4,555) 0 0
Net Loans Charged Off 0 (4,000) 0 0 (7,116)
Changes in Assets & Liabilities
Affecting Operating Activities:
Interest Receivable (259,236) (62,106) (99,580) (92,924) 17,286
Interest Payable (6,371) 43,009 95,035 28,029 1,594
Other Assets & Liabilities 21,056 (118,165) (4,801) 159,008 6,371
Deferred Tax Assets (116,852) 53,298 7,496 (151,901) 0
--------- --------- ---------- --------- ---------
Net Cash Provided by
Operating Activities 1,364 121,982 639,218 513,922 639,831
--------- --------- ---------- --------- ---------
Cash Flow from Investing Activities
Net Change in Interest-
Bearing Deposits 1,702,862 0 (1,702,862) 600,000 (300,000)
Net Change in Loans (2,719,656) (6,587,926) (10,760,343) (9,977,419) (1,267,065)
Purchases of Premises & Equipment 0 (575,829) (641,004) (149,523) (137,576)
Proceeds from Sale of Fixed Assets 0 0 4,555 0 0
Proceeds from Sale/Maturity
of Securities Available-for-Sale 2,849,425 4,559,428 3,270,799 3,467,217 0
Proceeds from Maturity of Securities
Held-to-Maturity 0 0 1,476,924 500,000 0
Purchase of Securities and Mortgaged-
Backed Securities Available-for-Sale (5,902,200) (1,326,461) (1,919,438) (1,684,458) 0
Purchase of Securities Held-to-Maturity 0 0 0 (1,900,950) 0
Net Change in Security Investments-
Net of Premium Amortization 0 0 0 0 (1,562,462)
Purchase
of FHLB Stock and FRB Stock 0 (152,400) (152,400) (11,000) 0
--------- --------- ---------- --------- ---------
Net Cash Used in Investing Activities (4,069,569) (4,083,134) (10,423,769) (9,156,133) (3,267,103)
--------- --------- ---------- --------- ---------
Cash Flows from Financing Activities
Proceeds from FHLB Advances 500,000 1,500,000 1,500,000 0 0
Payments on FHLB Advances (1,500,000) 0 0 0 0
Net Change in Noninterest-
Bearing Deposits (370,232) (244,677) 1,145,329 558,801 17,953
Net Change in Interest-
Bearing Deposits 2,913,421 4,593,828 10,071,010 7,362,786 1,243,222
--------- --------- ---------- --------- ---------
Net Cash Provided by
Financing Activities 1,543,189 5,849,151 12,716,339 7,921,587 1,261,175
--------- --------- ---------- --------- ---------
</TABLE>
See Notes to Financial Statements.
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Statements of Cash Flows
(Continued)
<TABLE>
<CAPTION>
Six months ended Years ended
June 30, December 31,
---------------------------- ----------------------------------------
1996 1995 1995 1994 1993
--------- --------- ---------- --------- ---------
Net Increase (Decrease) in Cash
<S> <C> <C> <C> <C> <C>
& Cash Equivalents (2,525,016) 1,887,999 2,931,788 (720,624) (1,366,097)
Cash & Cash Equivalents,
Beginning of Period 5,123,509 2,191,721 2,191,721 2,912,345 4,278,442
--------- --------- --------- --------- ---------
Cash & Cash Equivalents,
End of Period $2,598,493 $4,079,720 $5,123,509 $ 2,191,721 $2,912,345
========== =========== ========== ========== ==========
Supplemental Information
Interest Paid $1,140,816 $ 733,445 $1,725,391 $1,001,618 $ 879,952
========== =========== ========== ========== ==========
Taxes Paid $ 200,172 $ 79,398 $ 26,934 $ 190,054 $ 58,586
========== =========== ========== ========== ==========
Loans Charged Off $ 146,944 $ 89,263
========== ==========
</TABLE>
For 1995:
Sale of Fixed Asset (fully depreciated) at original cost of $13,977
For 1994:
Retirement of Fixed Assets (fully depreciated) at original cost of $153,218
See Notes to Financial Statements.
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes To Financial Statements
Six months ended June 30, 1996 and 1995 (unaudited)
and years ended December 31, 1995, December 31, 1994 and December 31, 1993
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Citizens National Bank was organized under the laws of the
state of Indiana in 1982. The Bank provides various financial
services to both individual and corporate entities through its
main location and branches in the Madison and Hanover, Indiana
area. The Bank's primary deposits are interest-bearing time
deposits and the primary lending products are mortgage and
commercial loans.
Basis of Presentation
The accompanying unaudited financial statements were prepared
in accordance with the instructions for Form 10-Q and,
therefore, do not include information or footnotes necessary
for a complete presentation of financial position, results of
operations and cash flows in conformance with generally
accepted accounting principles. However, all adjustments
(consisting only of normal recurring accruals) which, in the
opinion of management, are necessary for a fair presentation
of the financial statements have been included. The results of
operations for the six-month periods ended June 30, 1996 and
1995 are not necessarily indicative of the results which may
be expected for the entire year.
Investment Securities
Effective January 1, 1994, the Bank adopted Statement of
Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities. As a result, the
Bank classifies its marketable debt and equity securities as
held-to-maturity if it has the positive intent and ability to
hold the securities to maturity. All other marketable debt and
equity securities are classified as available-for-sale.
Securities classified as available-for-sale are carried in the
financial statements at fair value. Unrealized holding gains
and losses, net of tax effect, are reported as a separate
component of stockholders' equity. Securities classified as
held-tomaturity are carried at amortized cost. The effect on
stockholders' equity of initially applying SFAS No. 115 has
been reported as the effect of a change in accounting
principle in the manner described in paragraph 20 of APB
Opinion No. 20, Accounting Changes.
The Financial Accounting Standards Board allowed a one-time
transfer of securities from held-to-maturity to
available-for-sale during 1995. On December 31, 1995,
substantially all securities classified as held-to-maturity
were reclassified as available-for-sale. These securities had
a book value of $2,995,082 at the time of transfer. The market
value of this group of securities was $2,964,225 at December
31, 1995.
Discounts and premiums are recognized as adjustments to
interest income over the lives of applicable securities using
primarily the effective interest method. Gains and losses on
disposition are based on the net proceeds and the adjusted
carrying value of the securities sold using the specific
identification method.
The Federal Reserve and Federal Home Loan Bank stocks are
nonmarketable equity securities, required to be held by the
Bank as a member of the Federal Reserve Bank System and as a
borrower of Federal Home Loan Bank advances, respectively.
These securities are carried at par (cost).
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes To Financial Statements
Six months ended June 30, 1996 and 1995 (unaudited)
and years ended December 31, 1995, December 31, 1994 and December 31, 1993
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premises and Equipment
Premises and equipment are carried at cost net of accumulated
depreciation. Depreciation is computed using the straight-line
method for premises based on estimated useful lives of 15-40
years or 200% declining balance for equipment based on the
estimated useful lives of 5-12 years. Maintenance and repairs
are expensed as incurred while major additions and
improvements are capitalized. Gains and losses on dispositions
are included in current operations. Note 4 details current
asset additions and depreciation provisions.
Other Real Estate
Other real estate is carried at the lower of cost (loan's
principal balance) or estimated fair market value, less
estimated selling expenses. When other real estate is
acquired, any excess of the loan amount over the estimated
fair market value of such property is charged to the allowance
for loan losses. Any subsequent write downs and/or gains and
losses on the sale of other real estate are included in
current operations.
Loans, Allowance for Loan Losses and Loan Fees
Loans are stated at the amount of unpaid principal, reduced by
unearned discount and a reserve for loan losses. Interest
income is accrued on the principal balances of loans by use of
the interest method. The reserve for loan losses is
established through a provision for loan losses charged to
expense. Loans are charged against the reserve for loan losses
when management believes that the collectibility of principal
is unlikely. The reserve is an amount that management believes
will be adequate to absorb losses on existing loans that may
become uncollectible, based on evaluations of the
collectibility of the loans and prior loan loss experience.
The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio,
overall portfolio quality, review of specific problem loans
and current economic conditions and trends that may affect
borrowers' ability to pay. Accrual of interest is discontinued
when various economic and business conditions indicate that
the collection of interest is not likely.
On January 1, 1995, the Bank adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan," (SFAS 114) as amended by SFAS 118 which
requires that impaired loans be measured at the present value
of expected cash flows discounted at the loan's effective
interest rate, the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent or
foreclosure is probable. It amends previously issued
statements to clarify that the collectibility of both
contractual principal and interest should be evaluated when
determining the need for a loss accrual. The Statement
provides that a loan is impaired when it is probable that all
amounts due under the loan agreement will not be collected. It
also specifies that a delinquent loan is not impaired if the
creditor expects to collect all amounts due including interest
accrued at the contractual rate during the period of
delinquency. Adoption of the Standard did not have a material
effect on the Bank's financial position or results of
operations.
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes To Financial Statements
Six months ended June 30, 1996 and 1995 (unaudited)
and years ended December 31, 1995, December 31, 1994 and December 31, 1993
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Tax
Income tax in the statement of income includes deferred income
tax provisions or credits for all significant timing
differences in recognizing income and expenses for financial
reporting and income tax purposes, as summarized in Note 5.
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, all cash on hand,
demand deposits and federal funds sold are included in cash
and cash equivalents.
Reclassifications
Certain amounts in 1993 and 1994 have been reclassified to
conform with the 1995 presentation.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to
significant change relate to the determination of the reserve
for loan losses. While management uses available information
to recognize losses on loans and foreclosed real estate,
future additions to the reserves may be necessary based on
changes in local economic conditions. Therefore, it is
reasonably possible that the reserve for losses on loans may
change materially in the near term.
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes To Financial Statements
Six months ended June 30, 1996 and 1995 (unaudited)
and years ended December 31, 1995, December 31, 1994 and December 31, 1993
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Values of Financial Instruments
Effective January 1, 1995, Statement of Financial Accounting
Standards No. 107, Disclosures about Fair Value of Financial
Instruments (SFAS 107), requires disclosure of fair value
information about financial instruments, whether or not
recognized in the statement of financial condition. In cases
where quoted market prices are not available, fair values are
based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate
settlement of the instruments. SFAS 107 excludes certain
financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value
of the Corporation.
The following methods and assumptions were used by the Bank in
estimating its fair value disclosures for financial
instruments:
Cash and Cash Equivalents and Interest-bearing Deposits: The
carrying amounts reported in the statements of financial
condition for cash and cash equivalents and interest-bearing
deposits approximate those assets' fair values.
Investment Securities (including mortgage-backed securities):
Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices
of comparable instruments. The fair value of Federal Reserve
stock and FHLB stock approximates the carrying value.
Loans: For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are
based on carrying amounts. The fair values for other loans
(for example, fixed rate commercial real estate and rental
property mortgage loans and commercial and industrial loans)
are estimated using discounted cash flow analysis, based on
interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Loan fair value
estimates include judgments regarding future expected loss
experience and risk characteristics. The carrying amount of
accrued interest receivable approximates it fair value.
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes To Financial Statements
Six months ended June 30, 1996 and 1995 (unaudited)
and years ended December 31, 1995, December 31, 1994 and December 31, 1993
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Values of Financial Instruments (Continued)
Deposits: The fair values disclosed for demand deposits (for
example, interest-bearing checking accounts and passbook
accounts) are, by definition, equal to the amount payable on
demand at the reporting date (that is, their carrying
amounts). The fair values for certificates of deposit are
estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates
to a schedule of aggregated contractual maturities on such
time deposits. The carrying amount of accrued interest payable
approximates fair value.
Federal Funds Purchased, FHLB Advances and Other Short-term
Borrowings: The carrying amounts of these borrowings
approximate their fair values.
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes To Financial Statements
Six months ended June 30, 1996 and 1995 (unaudited)
and years ended December 31, 1995, December 31, 1994 and December 31, 1993
NOTE 2. INVESTMENT SECURITIES
The amortized cost and approximate fair values of investment
securities as shown in the Statement of Financial Condition of
the Bank at June 30, 1996, December 31, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION>
June 30, 1996
--------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ------- ----------- ----------
(Unaudited)
Securities Available- for-Sale:
<S> <C> <C> <C> <C>
Federal Agencies $ 3,555,494 $ 0 $ 43,404 $3,512,090
Municipal Bonds 1,131,054 0 11,621 1,119,433
Mortgage-Backed Securities 3,232,838 0 $ 96,490 3,136,348
Total Available-for-Sale 7,919,386 0 151,515 7,767,871
Federal Reserve &
FHLB Stock 350,750 0 0 350,750
---------- ------- ----------- ----------
Total All Securities $8,270,136 $ 0 $ 151,515 $8,118,621
========== ======= =========== ==========
</TABLE>
<TABLE>
<CAPTION>
1995
--------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ------- ----------- ----------
<S> <C> <C> <C> <C>
Securities Available-
for-Sale:
Federal Agencies $ 150,560 $ 331 $ 150,891
Municipal Bonds 1,132,213 23,129 1,155,342
Mortgage-Backed Secur. 3,615,332 $ (52,968) 3,562,364
---------- ------- ----------- ----------
Total Available-for-Sale 4,898,105 23,460 (52,968) 4,868,597
Federal Reserve &
FHLB Stock 350,750 350,750
---------- ------- ----------- ----------
Total All Securities $5,248,855 $23,460 $ (52,968) $5,219,347
========== ======= =========== ==========
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Securities Held-to-
Maturity:
<S> <C> <C> <C> <C>
Federal Agencies $1,465,002 0 $ (12,297) $1,452,705
Municipal Bonds 673,587 0 (69,693) 603,894
Mortgage-Backed Secur. 2,718,696 0 (195,829) 2,522,867
Total Held-to-Maturity 4,857,285 0 (277,819) 4,579,466
---------- ------- ----------- ----------
Securities Available-
for-Sale:
Municipal Bonds 425,048 $7,548 432,596
Mortgage-Backed Secur. 2,458,068 (127,857) 2,330,211
---------- ------- ----------- ----------
Total Available-for-Sale 2,883,116 7,548 (127,857) 2,762,807
---------- ------- ----------- ----------
Federal Reserve &
FHLB Stock 198,350 0 0 198,350
---------- ------- ----------- ----------
Total All Securities $7,938,751 $7,548 $ (405,676) $7,540,623
========== ======= =========== ==========
</TABLE>
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes To Financial Statements
Six months ended June 30, 1996 and 1995 (unaudited)
and years ended December 31, 1995, December 31, 1994 and December 31, 1993
INVESTMENT SECURITIES (Continued)
The carrying amount of investment securities at June 30,
1996, December 31, 1995 and December 31, 1994 is:
<TABLE>
<CAPTION>
December 31,
---------------------------
June 30, 1996 1995 1994
------------- ---------- ----------
(Unaudited)
Securities Held-to-Maturity
<S> <C> <C> <C>
(at Amortized Cost) $ 0 $ 0 $4,857,285
Securities Available-for-Sale
(at Approximate Fair Value) 7,767,871 4,868,597 2,762,807
FRB & FHLB Stock (at cost) 350,750 350,750 198,350
---------- ---------- ----------
Total Carrying Value $8,118,621 $5,219,347 $7,818,442
========== ========== ==========
</TABLE>
Securities carried at $410,633 at June 30, 1996, $461,151 at
December 31, 1995 and $114,835 at December 31, 1994 were
pledged to secure Treasury Tax and Loan deposits. Securities
carried at $1,257,983 at June 30, 1996, $1,238,015 at December
31, 1995 and $370,000 at December 31, 1994 were pledged to
federal funds sold of $100,000 at June 30, 1996, $2,775,000 at
December 31, 1995 and $675,000 at December 31, 1994. In
addition, FHLB has a blanket collateral agreement pledging the
remaining mortgaged-backed securities, not pledged elsewhere,
against the advances outstanding of $1,500,000.
The maturities of investment debt securities (all
available-for-sale) at June 30, 1996 and December 31, 1995
were:
<TABLE>
<CAPTION>
June 30, December 31,
------------------------ -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Due from 1 to 5 Years $2,183,448 $2,183,448 $ 150,891 $ 150,891
Due from 5 to 10 Years 2,448,075 2,448,075 1,155,342 1,155,342
Mortgage-Backed Securities 3,136,348 3,136,348 3,562,364 3,562,364
---------- ---------- ---------- ----------
Total Investment Securities $7,767,871 $7,767,871 $4,868,597 $4,868,597
========== ========== ========== ==========
</TABLE>
During the six month period ended June 30, 1996, securities
available for sale were sold and/or called for proceeds of
$2,849,000 resulting in gross unrealized loss of $16,000.
During 1995, securities available-for-sale and
held-to-maturity were sold and/or called for proceeds of
$2,779,409 and $1,476,924, respectively, resulting in gross
realized gains of approximately $4,294 and gross realized
losses of approximately $348. Principal reduction was received
on mortgage-backed securities of $491,390 for the year ended
December 31, 1995 and $367,000 for the six months ended June
30, 1996.
During 1994, securities available-for-sale and
held-to-maturity were sold and/or called for proceeds of
$3,467,217 and $500,000, respectively, resulting in realized
gains of approximately $4,256 and gross realized losses of
approximately $75,243 on securities available-for-sale.
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes To Financial Statements
Six months ended June 30, 1996 and 1995 (unaudited)
and years ended December 31, 1995, December 31, 1994 and December 31, 1993
NOTE 3. LOANS AND LOSS ALLOWANCE
Types of loans at June 30, 1996 and December 31, 1995 and 1994
(in thousands) are as follows:
<TABLE>
<CAPTION>
December 31,
June 30, --------------------------
1996 1995 1994
-------- --------- ---------
(Unaudited) (Dollars in thousands)
<S> <C> <C> <C>
Commercial & Industrial Loans $3,876 $ 3,600 $ 3,841
Real Estate Loans (Includes $3,395, $3,165
& $2,028 Secured by Farm Land,
respectively) 28,650 26,449 17,366
Agricultural Production Financing
& Other Loans to Farmers 1,863 1,596 1,290
Individuals' Loans for Household
& Other Personal Expenditures 9,019 9,115 7,621
Other Loans 94 20 52
------- ------- -------
Total Loans $43,502 $40,780 $30,170
======= ======= =======
</TABLE>
Loan maturities and repricing information as of December 31,
1995 is presented below (in thousands):
<TABLE>
<CAPTION>
3 Months 3 Months Over
Or To 1 to Five
Less 12 Months 5 Years Years Total
------ ------- ------ ---- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Fixed Rate Maturities $5,350 $16,752 $1,431 $ 0 $23,533
Floating Rate Repricing 3,407 4,454 8,419 967 17,247
------ ------- ------ ---- -------
Totals $8,757 $21,206 $9,850 $967 $40,780
====== ======= ====== ==== =======
</TABLE>
An analysis of the Allowance for Loan Losses for the six month
period ended June 30, 1996 and each year follows (in thousands
for 1993):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995 1994 1993
-------- --------- -------- -----
(Unaudited)
<S> <C> <C> <C> <C>
Balances, January 1 $347,793 $ 335,738 $358,853 $ 316
Provision for Loan Losses 180,000 104,000 17,000 50
Recoveries on Loans 24,421 54,999 49,148 63
Loans Charged Off (53,118) (146,944) (89,263) (70)
-------- --------- -------- -----
Balances, at period end $499,096 $ 347,793 $335,738 $ 359
======== ========= ======== =====
</TABLE>
As of June 30, 1996 and December 31, 1995 there were no
impaired loans or loans upon which interest was not being
accrued. Loans of $10,298,816 at June 30, 1996 and $11,876,372
at December 31, 1995 serve as collateral for FHLB advances of
$500,000 and $1,500,000, respectively.
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes To Financial Statements
Six months ended June 30, 1996 and 1995 (unaudited)
and years ended December 31, 1995, December 31, 1994 and December 31, 1993
NOTE 4. PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995 1994
---------- ---------- -----------
(Unaudited)
Cost at December 31:
<S> <C> <C> <C>
Land $ 187,000 $ 187,000 $ 187,000
Buildings & Land Improvements 1,004,802 1,003,754 687,748
Furniture, Fixtures, Equipment
& Vehicles 1,039,203 1,007,940 811,849
Leasehold Improvements 114,931 114,931 0
Total Cost 2,345,936 2,313,625 1,686,597
Accumulated Depreciation (973,850) (910,024) (796,541)
---------- ---------- -----------
Net, Premises and Equipment $1,372,086 $1,403,601 $ 890,056
========== ========== ===========
</TABLE>
Total fixed asset purchases for the six months ended June 30,
1996, and the years ended December 31, 1995 and 1994,
respectively, were $34,750, $641,004 and $149,523. Total
depreciation expense for the six months ended June 30, 1996
and the years 1995, 1994, and 1993 was $63,825, $127,460,
$108,675, and $132,838, respectively.
NOTE 5. INCOME TAXES
The Bank adopted Statement of Financial Accounting Standards
No. 109 on January 1, 1994. Under this accounting standard,
future tax benefits, as well as expenses resulting from timing
differences between recognition for financial reporting and
tax reporting, are recorded as deferred tax assets and
liabilities. The cumulative effect of applying SFAS No. 109
was an increase in equity of $85,761, which was reported as
income in 1994.
The components of federal income tax expense for the six
months ended June 30, 1996 and 1995 and the years ended
December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
----------------------- ------------------------
1996 1995 1995 1994
------- ------- -------- -------
(Unaudited)
<S> <C> <C> <C> <C>
Current Tax Expense $39,228 $83,930 $160,399 $86,138
Deferred Tax Expense 16,000 2,950 5,887 8,246
------- ------- -------- -------
Federal Income Tax Expense $55,228 $86,880 $166,286 $94,384
======= ======= ======== =======
</TABLE>
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes To Financial Statements
Six months ended June 30, 1996 and 1995 (unaudited)
and years ended December 31, 1995, December 31, 1994 and December 31, 1993
INCOME TAXES (Continued)
The provision for federal income taxes differs from that
computed by applying federal statutory rates to income before
federal income tax expense, as indicated in the following
analysis for the six months ended June 30, 1995 and for the
years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
June 30, December 31,
---------------------- -------------------------
1996 1995 1995 1994
------- ------- -------- ---------
(Unaudited)
Expected Tax Provision at
<S> <C> <C> <C> <C>
Statutory Rates of 34% $68,340 $103,360 $182,735 $122,973
Tax Effect of Exempt Income
and Nondeductible Expenses (13,112) (16,480) (16,449) (28,589)
------- ------- -------- ---------
Federal Income Tax Expenses $55,228 $86,880 $166,286 $ 94,384
======= ======= ======== =========
Effective Tax Rate 27% 29% 31% 26%
</TABLE>
The components of state income tax expense for the six
months ended June 30, 1996 and 1995 and for the years ended
December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
---------------------- ----------------------------
1996 1995 1995 1994
------- ------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Current Tax Expense $35,732 $20,915 $ 55,566 $ 28,706
Deferred Tax Expense (23,706) 490 1,609 5,313
------- ------- --------- ---------
State Income Tax Expense $12,026 $21,405 $ 57,175 $ 34,019
======= ======= ========= =========
</TABLE>
<PAGE>
The provision for state income taxes differs from that
computed by applying state statutory rates to income before
federal and state income tax expense, as indicated in the
following analysis for the six months ended June 30, 1996 and
1995 and for the years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
June 30, December 31,
------------------------ ----------------------------
1996 1995 1995 1994
------- ------- --------- ---------
(Unaudited)
Income Tax at Statutory
<S> <C> <C> <C> <C>
Rates of 8.5% $17,085 $25,840 $ 50,725 $ 31,176
Refund of Prior Years Tax Effect
of Exempt Income and
Nondeductible Expenses (5,059) (4,435) 6,450 2,843
------- ------- --------- ---------
State Income Tax Expense $12,026 $21,405 $ 57,175 $ 34,019
======= ======= ======== ========
Effective Tax Rate 6.0% 8.5% 10% 9%
</TABLE>
The reconciliation of federal statutory to actual tax expense
for 1993, in thousands, is as follows:
Federal Statutory Income Tax $ 125
Net Operating Loss Carryforward (Benefit) (66)
------
Actual Tax Expense $ 59
======
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes To Financial Statements
Six months ended June 30, 1996 and 1995 (unaudited)
and years ended December 31, 1995, December 31, 1994 and December 31, 1993
INCOME TAXES (Continued)
In 1989, as a result of an ownership change of 91% of the
corporate stock, for income tax purposes only, certain
limitations were imposed on the net operating loss
carryforwards available to the Bank for future use. At
December 31, 1993, the Bank had no remaining net operating
loss carryforwards.
Deferred income tax assets and liabilities at June 30, 1996,
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995 1994
---------- ------- ---------
(Unaudited)
Federal
Deferred Tax Assets:
<S> <C> <C> <C>
Provision for Loan Loss $131,847 $80,404 $ 76,309
Unrealized Losses on Available-
for-Sale Securities 56,301 8,617 37,428
------- ------- ---------
Total Federal Deferred Tax Assets 188,148 89,021 113,737
------- ------- ---------
Deferred Tax Liabilities:
Depreciation of Fixed Assets 33,114 30,224 19,693
Franchise Tax Deferred 10,573 7,482 8,029
------- ------- ---------
Total Federal Deferred Tax Liability 43,687 37,706 27,722
------- ------- ---------
Net Federal Deferred Tax Assets $144,461 $51,315 $ 86,015
State
Deferred Tax Assets:
Provision for Loan Loss $42,423 $29,562 $ 28,538
Unrealized Losses on Available-
for-Sale Securities 14,075 2,508 10,226
------- ------- ---------
Total State Deferred Tax Assets 56,498 32,070 38,764
Deferred Tax Liabilities:
Depreciation of Fixed Assets 8,278 7,556 4,923
------- ------- ---------
Net State Deferred Tax Liabilities $48,220 $24,514 $ 33,841
======= ======= =========
</TABLE>
NOTE 6. FEDERAL HOME LOAN BANK ADVANCES
The Bank entered into an agreement with the Federal Home Loan
Bank of Indianapolis on November 18, 1993 to borrow funds
against eligible collateral consisting of 1-4 family whole
mortgage loans, government and agency securities, private
mortgage-backed securities and Federal Home Loan Bank
Deposits. The Board of Directors has authorized the borrowing
of up to $5,000,000 under this agreement. There were
$1,500,000 of FHLB advances outstanding at December 31, 1995
at 6.62% interest rate, due April 9, 1996. There were $500,000
of FHLB advances outstanding at June 30, 1996 at 5.49%
interest rate, due July 25, 1996.
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes To Financial Statements
Six months ended June 30, 1996 and 1995 (unaudited)
and years ended December 31, 1995, December 31, 1994 and December 31, 1993
NOTE 7. STOCKHOLDERS' EQUITY
The Bank has 150,000 shares of common stock authorized and
126,037 shares issued and outstanding at June 30, 1996 and
December 31, 1995. The par value of the stock is $8/share.
Without prior approval of the Comptroller of the Currency, the
Bank is restricted by national banking laws as to the maximum
amount of dividends it can pay in any calendar year from the
Bank's retained net profits (as defined) for that year plus
the two preceding years. As a practical matter, the Bank
restricts dividends to a lesser amount because of the need to
maintain an adequate capital structure. There were no
dividends paid in 1996, 1995 or 1994.
The Bank is required to maintain minimum amounts of capital to
total "risk weighted" assets, as defined by banking
regulation. At June 30, 1996 and December 31, 1995, the Bank
is required to have minimum Tier I and total capital ratios of
4.0% and 8.0%, respectively. The Bank's actual ratios at June
30, 1996 were 8.7% and 10.0% and at December 31, 1995 were
6.2% and 9.9%, respectively. The Bank's leverage ratio at June
30, 1996 and December 31, 1995 were 6.1% and 6.2%,
respectively.
NOTE 8. RELATED PARTIES
The Bank has entered into transactions with its directors and
officers. Such transactions were made in the ordinary course
of business on substantially the same terms and conditions,
including interest rates and collateral, as those prevailing
at the same time for comparable transactions with other
customers and did not, in the opinion of management, involve
more than normal credit risk or present other unfavorable
features. The aggregate amount of loans to such related
parties at June 30, 1996 and December 31, 1995 and 1994 was
$228,000, $285,972 and $441,062, respectively. During the six
months ended June 30, 1996, new loans to such related parties
amounted to $154,034 and repayments amounted to $212,006.
During 1995, new loans to such related parties amounted to
$80,990 and repayments amounted to $236,080. Related parties
had $333,913 and $4,347,086 on deposit with the Bank at
December 31, 1995 and 1994, respectively. In addition, during
1994, the Bank purchased land from its majority stockholder
for its expansion project in Hanover at a price of $25,000.
NOTE 9. FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK
In order to effectively service its customers, the Bank
exposes itself to risk beyond the amount recorded on the
Statement of Financial Condition through issuance of loan
commitments. The Bank was exposed to additional credit loss to
the extent of the notional principal amount of commitments
outstanding at June 30, 1996 and December 31, 1995. The Bank
evaluates the recipients of
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes To Financial Statements
Six months ended June 30, 1996 and 1995 (unaudited)
and years ended December 31, 1995, December 31, 1994 and December 31, 1993
FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK (Continued)
commitments using the same criteria used to evaluate
recipients of loans recorded on the Statement of Financial
Condition. Commitments outstanding, including letters of
credit and unused lines of credit, totalled $3,516,000,
$2,955,725 and $2,493,636 at June 30, 1996, December 31, 1995
and 1994, respectively, and at both dates such commitments
included a mix of unsecured amounts as well as amounts secured
by real estate, equipment, inventory and accounts receivable.
The Bank is a Freddie Mac Approved Seller/Servicer and was
servicing 552 loans and 478 loans at June 30, 1996 and
December 31, 1995, respectively, with an outstanding balance
of $26,158,038 and $22,053,867, respectively. These loans have
previously been sold to FHLMC. The Bank receives 1/4% interest
on all outstanding balances as a servicing fee. The Bank
originated and sold $5,636,592 of loans during 1995 and
received an average of 1% loan origination fees for these
loans. FHLMC has recourse against Citizens National Bank for
any losses it incurs in collection of a problem loan if the
Bank has not complied with all loan origination requirements.
NOTE 10. CONCENTRATIONS OF CREDIT RISK
Citizens National Bank grants various types of loans to
individuals and businesses located, primarily, in Madison and
surrounding counties in both Indiana and Kentucky. Although
the Bank's customers have a somewhat diversified background,
they are dependent, to some extent, on local industrial
manufacturing companies and the agricultural sector of the
local economy for the ability to repay their loans.
NOTE 11. EMPLOYEE DEFINED CONTRIBUTION PLANS
The Bank employees are allowed to participate in the Citizens
National Bank of Madison 401K Plan if certain criteria are met
regarding length of service and full-time employment status.
The Bank has full discretion over contributions made by the
Bank. The employees may elect to participate in a deferred or
"CODA" arrangement. Under this arrangement, employees dedicate
part of their wages as pre-tax contributions to their
individual accounts. The Bank has elected to participate by
matching part of the employee contribution. Total
contributions made by the Bank for the six months ended June
30, 1996 and 1995 and the years ended December 31, 1995, 1994
and 1993 were $14,594, $11,832, $25,829, $25,833 and $12,133,
respectively.
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes To Financial Statements
Six months ended June 30, 1996 and 1995 (unaudited)
and years ended December 31, 1995, December 31, 1994 and December 31, 1993
NOTE 12. LEASE COMMITMENTS
The Bank occupies a branch location in downtown Madison under
a lease which has a term of twelve months from January 1, 1995
to December 31, 1995 with an option to renew the lease for an
additional year. The monthly lease obligation was $475 for
1995 and $500 if renewed for 1996. The minimum lease
commitment under this lease is $6,000 for 1996. Total lease
payments in 1995, 1994 and 1993 amounted to $5,700, $5,280 and
$5,280, respectively.
The Bank also leases an automobile. The lease was executed in
December 1995 for 24 months. Monthly lease payments are $690.
The minimum lease commitment for the next two years is $8,275
per year.
The Bank entered into a lease agreement on September 23, 1994
with Wal-Mart to operate a banking facility in the Wal-Mart
Supercenter located in Madison. The bank opened the facility
in January of 1995. The lease term is for five years and
provides for an option to renew the lease for two consecutive
five-year terms. The minimum lease payments are $2,111.25 per
month. A nonrefundable fee of $40,000 was paid upon execution
of this lease for the right to operate the facility. The fee
is being amortized over 15 years.
NOTE 13. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments
are as follows at December 31, 1995:
<TABLE>
<CAPTION>
Net Carrying Value Fair Market Value
------------------ -----------------
Financial Assets
<S> <C> <C>
Cash & Due from Banks $ 2,348,509 $ 2,348,509
Federal Funds Sold 2,775,000 2,775,000
Interest-bearing Deposits 1,702,862 1,702,862
Investment Securities 5,219,347 5,219,347
Loans 40,431,945 40,453,945
Accrued Interest Receivable 451,917 451,917
----------- -----------
Total Financial Assets $52,929,580 $52,951,580
=========== ===========
Financial Liabilities
Deposits $49,227,091 $49,264,091
FHLB Advances 1,500,000 1,500,000
Accrued Interest Payable 204,645 204,645
----------- -----------
Total Financial Liabilities $50,931,736 $50,968,736
=========== ===========
</TABLE>
The carrying amounts in the preceding table are included in
the Statement of Financial Condition under the applicable
captions.
<PAGE>
CITIZENS NATIONAL BANK OF MADISON
Notes To Financial Statements
Six months ended June 30, 1996 and 1995 (unaudited)
and years ended December 31, 1995, December 31, 1994 and December 31, 1993
NOTE 14. OWNERSHIP CHANGE
On December 29, 1995, management was informed that Madison
First Federal Savings & Loan Association, a mutual savings
thrift located in Madison, had reached an agreement to
purchase 95.6% of the Bank's stock from its major shareholder.
<PAGE>
[LEFT COLUMN BACK COVER]
No person has been authorized to give any information or to make any
representation other than as contained in this Prospectus and, if given or made,
such information or representation must not be relied upon as having been
authorized by the Holding Company or Madison First. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any security
other than the shares Common Stock offered hereby to any person in any
jurisdiction in which such offer or solicitation is not authorized, or in which
the person making such offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus nor any sale hereunder shall, under any
circumstances, create any implication that information herein is correct as of
any time subsequent to the date hereof.
TABLE OF CONTENTS
Page
----
Prospectus Summary................................... 5
Selected Consolidated Financial Data of
Madison First Federal Savings and Loan
Association and Subsidiaries...................... 17
Selected Financial Data of Citizens National
Bank of Madison................................... 18
Risk Factors......................................... 25
River Valley Bancorp................................. 31
Madison First Federal Savings and Loan Association... 32
Citizens National Bank of Madison.................... 33
The Acquisition...................................... 34
Unaudited Pro Forma Condensed Combined
Financial Statements.............................. 36
Market Area.......................................... 41
Use of Proceeds...................................... 41
Dividend Policy...................................... 42
Market for the Common Stock.......................... 43
Competition.......................................... 44
Anticipated Management Purchases..................... 45
Capitalization....................................... 46
Pro Forma Data....................................... 47
Management's Discussion and Analyis of
Financial Condition and Results of Operations of
Madison First Federal Savings and Loan Association 51
Business of Madison First............................ 63
Management's Discussion and Analyis of
Financial Condition and Results of Operations of
Citizens National Bank of Madison................. 81
Business of Citizens................................. 91
Management of the Holding Company.................... 105
Management of Madison First.......................... 106
Executive Compensation and Related Transactions
of Madison First.................................. 107
Management of Citizens............................... 113
Executive Compensation and Related
Transactions of Citizens.......................... 114
Regulation........................................... 117
Taxation............................................. 127
The Conversion....................................... 128
Restrictions on Acquisition of the Holding Company... 140
Description of Capital Stock......................... 145
Transfer Agent....................................... 146
Registration Requirements............................ 146
Legal and Tax Matters................................ 147
Experts.............................................. 147
Additional Information............................... 147
Index to Financial Statements........................ F-1
Until ________, 1997, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
<PAGE>
[RIGHT COLUMN BACK COVER]
Up to 1,035,000 Shares
River Valley
Bancorp
(Proposed Holding Company for
Madison First Federal Savings
and Loan Association and
Citizens National Bank of Madison)
Common Stock
(without par value)
SUBSCRIPTION AND DIRECT
COMMUNITY OFFERING
PROSPECTUS
Trident Securities, Inc.
November ___, 1996
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution(1).
Blue Sky Legal Services and Registration Fees $ 20,000
OTS Filing Fees $ 8,400
NASD Filing Fee $ 1,691
Securities and Exchange Commission Registration Fee $ 4,104
NASDAQ Small Cap Market Listing Fee $ 6,191
Legal Services and Disbursements - Issuer's counsel $170,000
Accounting Fees $ 90,000
Appraisal fees and expenses $ 17,500
Business plan fees and expenses $ 5,000
Conversion agent fees and expenses $ 8,250
Printing costs (including desktop publishing of $25,000) $ 65,000
Postage and mailing $ 20,000
Commissions and other offering fees (2) $185,640
Expenses of Sales Agents
(Including Counsel Fees and Disbursements) $ 47,000
Advertising $ 10,000
Transfer agent fees $ 2,000
Other expenses $ 6,224
TOTAL (3) $667,000
=========
(1) Costs represented by salaries and wages of regular employees and
officers of the Registrant are excluded.
(2) Assumes that the Common Stock is sold for $9,000,000, the midpoint of
the Estimated Valuation Range, that no shares of stock will be sold
through brokers, that all shares are sold in the Subscription
Offering, and that executive officers and directors of the Registrant
and of Citizens National Bank of Madison and their Associates and the
River Valley Bancorp Employee Stock Ownership Plan acquire 196,800
shares.
(3) All the above items, except the Registration, OTS and NASD Filing
Fees, are estimated.
Item 14. Indemnification of Directors and Officers.
Section 21 of the Indiana Business Corporation Law, as amended (the "BCL"),
grants to each corporation broad powers to indemnify directors, officers,
employees or agents against expenses incurred in certain proceedings if the
conduct in question was found to be in good faith and was reasonably believed to
be in the corporation's best interests. This statute provides, however, that
this indemnification should not be deemed exclusive of any other indemnification
rights provided by the articles of incorporation, by-laws, resolution or other
authorization adopted by a majority vote of the voting shares then issued and
outstanding. Section 10.05 and Article 13 of the Articles of Incorporation of
the Registrant state as follows:
Section 10.05. Limitation of Liability and Reliance on Corporate Records
and Other Information.
Clause 10.051. General Limitation. No Director, member of any
committee of the Board of Directors, or of another committee appointed by
the Board, Officer, employee or agent of the Corporation ("Corporate
Person") shall be liable for any loss or damage if, in taking or omitting
to take any action causing such loss or damage, either (1) such Corporate
Person acted (A) in good faith, (B) with the care an ordinarily prudent
person in a like position would have exercised under similar circumstances,
and (C) in a manner
<PAGE>
such Corporate Person reasonably believed was in the best interests of
the Corporation, or (2) such Corporate Person's breach of or failure to
act in accordance with the standards of conduct set forth in Clause
10.051(1) above (the "Standards of Conduct") did not constitute willful
misconduct or recklessness.
Clause 10.052. Reliance on Corporate Records and Other Information.
Any "Corporate Person" shall be fully protected, and shall be deemed to
have complied with the Standards of Conduct, in relying in good faith, with
respect to any information contained therein, upon (1) the Corporate
Records, or (2) information, opinions, reports or statements (including
financial statements and other financial data) prepared or presented by (A)
one or more other Corporate Persons whom such Corporate Person reasonably
believes to be competent in the matters presented, (B) legal counsel,
public accountants or other persons as to matters that such Corporate
Person reasonably believes are within such person's professional or expert
competence, (C) a committee of the Board of Directors or other committee
appointed by the Board of Directors, of which such Corporate Person is not
a member, if such Corporate Person reasonably believes such committee of
the Board of Directors or such appointed committee merits confidence, or
(D) the Board of Directors, if such Corporate Person is not a Director and
reasonably believes that the Board merits confidence.
ARTICLE 13
Indemnification
Section 13.01. General. The Corporation shall, to the fullest extent to
which it is empowered to do so by the Act, or any other applicable laws, as from
time to time in effect, indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal, by reason of the fact that he is or was a Director,
Officer, employee or agent of the Corporation, or who, while serving as such
Director, Officer, employee or agent of the Corporation, is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, whether for profit or not, against
expenses (including counsel fees), judgments, settlements, penalties and fines
(including excise taxes assessed with respect to employee benefit plans)
actually or reasonably incurred by him in accordance with such action, suit or
proceeding, if he acted in good faith and in a manner he reasonably believed, in
the case of conduct in his official capacity, was in the best interest of the
Corporation, and in all other cases, was not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, he
either had reasonable cause to believe his conduct was lawful or no reasonable
cause to believe his conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not meet the prescribed standard of conduct.
Section 13.02. Authorization of Indemnification. To the extent that a
Director, Officer, employee or agent of the Corporation has been successful, on
the merits or otherwise, in the defense of any action, suit or proceeding
referred to in Section 13.01 of this Article, or in the defense of any claim,
issue or matter therein, the Corporation shall indemnify such person against
expenses (including counsel fees) actually and reasonably incurred by such
person in connection therewith. Any other indemnification under Section 13.01 of
this Article (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case, upon a determination that indemnification of
the Director, Officer, employee or agent is permissible in the circumstances
because he has met the applicable standard of conduct. Such determination shall
be made (1) by the Board of Directors by a majority vote of a quorum consisting
of Directors who were not at the time parties to such action, suit or
proceeding; or (2) if a quorum cannot be obtained under subdivision (1), by a
majority vote of a committee duly designated by the Board of Directors (in which
<PAGE>
designation Directors who are parties may participate), consisting solely of two
or more Directors not at the time parties to such action, suit or proceeding; or
(3) by special legal counsel: (A) selected by the Board of Directors or its
committee in the manner prescribed in subdivision (1) or (2), or (B) if a quorum
of the Board of Directors cannot be obtained under subdivision (1) and a
committee cannot be designated under subdivision (2), selected by a majority
vote of the full Board of Directors (in which selection Directors who are
parties may participate); or (4) by the Shareholders, but shares owned by or
voted under the control of Directors who are at the time parties to such action,
suit or proceeding may not be voted on the determination.
Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection (3)
to select counsel.
Section 13.03. Good Faith Defined. For purposes of any determination under
Section 13.01 of this Article 13, a person shall be deemed to have acted in good
faith and to have otherwise met the applicable standard of conduct set forth in
Section 13.01 if his action is based on information, opinions, reports, or
statements, including financial statements and other financial data, if prepared
or presented by (1) one or more Officers or employees of the Corporation or
another enterprise whom he reasonably believes to be reliable and competent in
the matters presented; (2) legal counsel, public accountants, appraisers or
other persons as to matters he reasonably believes are within the person's
professional or expert competence; or (3) a committee of the Board of Directors
of the Corporation or another enterprise of which the person is not a member if
he reasonably believes the committee merits confidence. The term "another
enterprise" as used in this Section 13.03 shall mean any other corporation or
any partnership, joint venture, trust, employee benefit plan or other enterprise
of which such person is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent. The provisions of this
Section 13.03 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standards of conduct set forth in Section 13.01 of this Article 13.
Section 13.04. Payment of Expenses in Advance. Expenses incurred in
connection with any civil or criminal action, suit or proceeding may be paid for
or reimbursed by the Corporation in advance of the final disposition of such
action, suit or proceeding, as authorized in the specific case in the same
manner described in Section 13.02 of this Article, upon receipt of a written
affirmation of the Director, Officer, employee or agent's good faith belief that
he has met the standard of conduct described in Section 13.01 of this Article
and upon receipt of a written undertaking by or on behalf of the Director,
Officer, employee or agent to repay such amount if it shall ultimately be
determined that he did not meet the standard of conduct set forth in this
Article 13, and a determination is made that the facts then known to those
making the determination would not preclude indemnification under this
Article13.
Section 13.05. Provisions Not Exclusive. The indemnification provided by
this Article shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled under these Articles of Incorporation,
the Corporation's Code of By-Laws, any resolution of the Board of Directors or
Shareholders, any other authorization, whenever adopted, after notice, by a
majority vote of all Voting Stock then outstanding, or any contract, both as to
action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
Director, Officer, employee or agent, and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 13.06. Vested Right to Indemnification. The right of any individual
to indemnification under this Article shall vest at the time of occurrence or
performance of any event, act or omission giving rise to any action, suit or
proceeding of the nature referred to in Section 13.01 of this Article 13 and,
once vested, shall not later be impaired as a result of any amendment, repeal,
alteration or other modification of any or
<PAGE>
all of these provisions. Notwithstanding the foregoing, the indemnification
afforded under this Article shall be applicable to all alleged prior acts or
omissions of any individual seeking indemnification hereunder, regardless of the
fact that such alleged acts or omissions may have occurred prior to the adoption
of this Article. To the extent such prior acts or omissions cannot be deemed to
be covered by this Article 13, the right of any individual to indemnification
shall be governed by the indemnification provisions in effect at the time of
such prior acts or omissions.
Section 13.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, Officer, employee or
agent of the Corporation, or who is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against any liability asserted against or incurred by the
individual in that capacity or arising from the individual's status as a
Director, Officer, employee or agent, whether or not the Corporation would have
power to indemnify the individual against the same liability under this Article.
Section 13.08. Additional Definitions. For purposes of this Article,
references to "the Corporation" shall include any domestic or foreign
predecessor entity of the Corporation in a merger or other transaction in which
the predecessor's existence ceased upon consummation of the transaction.
For purposes of this Article, serving an employee benefit plan at the
request of the Corporation shall include any service as a Director, Officer,
employee or agent of the Corporation which imposes duties on, or involves
services by such Director, Officer, employee, or agent with respect to an
employee benefit plan, its participants, or beneficiaries. A person who acted in
good faith and in a manner he reasonably believed to be in the best interests of
the participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interest of the Corporation"
referred to in this Article.
For purposes of this Article, "party" includes any individual who is or was
a plaintiff, defendant or respondent in any action, suit or proceeding, or who
is threatened to be made a named defendant or respondent in any action, suit or
proceeding.
For purposes of this Article, "official capacity," when used with respect
to a Director, shall mean the office of director of the Corporation; and when
used with respect to an individual other than a Director, shall mean the office
in the Corporation held by the Officer or the employment or agency relationship
undertaken by the employee or agent on behalf of the Corporation. "Official
capacity" does not include service for any other foreign or domestic corporation
or any partnership, joint venture, trust, employee benefit plan, or other
enterprise, whether for profit or not.
Section 13.09. Payments a Business Expense. Any payments made to any
indemnified party under this Article under any other right to indemnification
shall be deemed to be an ordinary and necessary business expense of the
Corporation, and payment thereof shall not subject any person responsible for
the payment, or the Board of Directors, to any action for corporate waste or to
any similar action.
Under the Act, an Indiana corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another enterprise, against any
liability asserted against him or incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under the provisions of the Act.
The Registrant has purchased insurance designed to protect and indemnify the
Registrant and its officers and directors in case they are required to pay any
amounts arising from certain claims, including claims under the Securities Act
of 1933, which might be made against the officers and directors by reason of any
actual or alleged act, error, omission, misstatement, misleading statement,
neglect, or breach of duty while acting in their respective capacities as
officers or directors of the Registrant.
<PAGE>
tem 15. Recent Sales of Unregistered Securities.
Because the Registrant was only recently incorporated to act as a holding
company upon the completion of the offering registered by means of this
Registration Statement, the Registrant has not yet issued any shares of its
capital stock or other securities.
Item 16. Exhibits and Financial Statement Schedules.
(a) The exhibits furnished with this Registration Statement are listed
beginning on page E-l.
(b) No financial statement schedules are required.
Item 17. Undertakings.
(1) The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii)To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table on 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.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) 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.
(2) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery to each purchaser.
(3) 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 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of an 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 Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Madison,
State of Indiana, on November 7, 1996.
RIVER VALLEY BANCORP
By /s/ James E. Fritz
James E. Fritz
President and Chief Executive Officer
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
- --------------------------------- ----------------------- -----------------
(1) Principal Executive Officer:
/s/ James E. Fritz )
James E. Fritz President and )
Chief Executive Officer )
)
(2) Principal Financial and )
Accounting Officer: )
)
)
/s/ John Wayne Deveary Treasurer )
John Wayne Deveary )
) November 7, 1996
)
(3) The Board of Directors: )
)
//s/ Robert W. Anger )
ROBERT W. ANGER Director )
)
CECIL L. DORTEN Director )
)
JAMES E. FRITZ Director )
)
MICHAEL J. HENSLEY Director )
)
EARL W. JOHANN Director )
)
FRED W. KOEHLER Director )
)
)
)
By: /s/ James E. Fritz
James E. Fritz
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- ------------- ------------------------------------------------- -----
1 Form of Agency Agreement to be entered into among
Registrant, Madison First Federal Savings and
Loan Association, and Trident Securities, Inc. *
2 Plan of Conversion *
3(1) Registrant's Articles of Incorporation *
(2) Registrant's Code of By-Laws *
4 Form of Stock Certificate *
5 Opinion of Barnes & Thornburg re legality of
securities being registered *
8(1) Opinion of Barnes & Thornburg re tax matters
(2) Opinion of Keller & Company, Inc. re economic
value of Subscription Rights *
10(1) Letter Agreements entered into between Registrant
and Keller & Company, Inc. relating to appraisal
and business plan *
(2) River Valley Bancorp Stock Option Plan
(3) River Valley Bancorp Recognition and Retention *
Plan and Trust
(4) River Valley Bancorp Employee Stock Ownership *
Plan and Trust Agreement
(5) Employment Agreement between Madison First *
Federal Savings and Loan Association and James E.
Fritz
(6) Proposed Employment Agreement between Citizens *
National Bank of Madison and Robert D. Hoban
(7) Existing Employment Agreement between Citizens
National Bank of Madison and Robert D. Hoban *
(8) Director Deferred Compensation Master Agreement *
(9) Director Deferred Compensation Joinder Agreement
-- Jerry D. Allen *
(10) Director Deferred Compensation Joinder Agreement
-- Robert W. Anger *
(11) Director Deferred Compensation Joinder Agreement
-- Cecil L. Dorten *
(12) Director Deferred Compensation Joinder Agreement
-- Earl W. Johann *
(13) Director Deferred Compensation Joinder Agreement
-- Frederick W. Koehler *
(14) Director Deferred Compensation Joinder Agreement
-- James E. Fritz *
(15) Director Deferred Compensation Joinder Agreement
-- Michael Hensley *
(16) Special Termination Agreement between Madison
First Federal Savings and Loan Association and *
Traci A. Bridgford
(17) Special Termination Agreement between Madison
First Federal Savings and Loan Association and *
John Wayne Deveary
(18) Special Termination Agreement between Madison
First Federal Savings and Loan Association and *
Robert W. Anger.
(19) Special Termination Agreement between Citizens
National Bank of Madison and Carolyn Flowers *
(20) Special Termination Agreement between Citizens
National Bank of Madison and Larry Fouse *
(21) Special Termination Agreement between Citizens *
National Bank of Madison and Mark Goley
(22) Exempt Loan and Share Purchase Agreement between *
Trust under River Valley Bancorp Employee Stock
Ownership Plan and Trust Agreement and River
Valley Bancorp
(23) Amended and Restated Stock Purchase Agreement *
between Eloise A. Durocher and Madison First
Federal Savings and Loan Association dated as of
March 4, 1996
21 Subsidiaries of the Registrant *
- -------------------
* Previously filed
<PAGE>
23(1) Consent of Keller & Company, Inc. *
(2) Consent of Grant Thornton LLP
(3) Consent of Sherman, Barber & Mullikan
(4) Consent of Alexander X. Kuhn & Co.
(5) Consent of Barnes & Thornburg (included in
Exhibit 5) *
24 Power of Attorney included on page S-6 of the
Registration Statement *
99(1) Appraisal Report of Keller & Company, Inc.
(2) Stock Order Form *
- -------------------
* Previously filed
Exhibit 23(2)
ACCOUNTANT'S CONSENT
We have issued our report dated January 19, 1996 (except for note K, as
to which the date is September 30, 1996), accompanying the consolidated
financial statements of Madison First Federal Savings and Loan Association
contained in Amendment No. Two to Forms S-1, AC and OC of River Valley Bancorp
to be filed with the Securities and Exchange Commission and the Office of Thrift
Supervision on or about November 8, 1996. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "experts."
Grant Thornton LLP
Cincinnati, Ohio
November 7, 1996
Exhibit 23(3)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report dated March 1, 1996 on the
financial statements of Citizens National Bank of Madison and to reference made
to us under the caption "Experts" in the Registration Statement on Form S-1
filed by River Valley Bancorp with the United States Securities and Exchange
Commission and in the Form AC filed with the Office of Thrift Supervision.
Sherman, Barber & Mullikin
Madison, Indiana
November 7, 1996
Exhibit 23(4)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use in the Form AC of Madison First Federal Savings
and Loan Association and in the Form S-1 filed by River Valley Bancorp with the
SEC, of our report dated January 28, 1994, on the Financial Statements of
Citizens National Bank of Madison.
.
Alexander X. Kuhn & Co.
Oakbrook Terrace, Illinois
November 7, 1996
CONVERSION VALUATION APPRAISAL REPORT
Prepared for:
Madison First Federal Savings and Loan Association
and
River Valley Bancorp
Madison, Indiana
As of:
May 3, 1996
Prepared by:
Keller & Company, Inc.
555 Metro Place North
Suite 524
Dublin, Ohio 43017
(614) 766-1426
KELLER & COMPANY
<PAGE>
TABLE OF CONTENTS
PAGE
INTRODUCTION 1
I Description of Madison First Federal
Savings and Loan Association
General 4
Performance Overview 9
Income and Expense 11
Yields and Costs 17
Interest Rate Sensitivity 18
Lending Activities 21
Non-Performing Assets 25
Investments 27
Deposit Activities 28
Borrowings 29
Subsidiaries 29
Office Properties 29
Management 30
Financial Overview of Citizens National Bank 30
II Description of Primary Market Area
III Comparable Group Selection
Introduction 38
General Parameters
Merger/Acquisition 39
Mutual Holding Companies 40
Trading Exchange 40
IPO Date 41
Geographic Location 41
Asset Size 42
Balance Sheet Parameters
Introduction 43
Equity to Assets 43
One- to Four Family Loans to Assets 44
Cash and Investments to Assets 44
Mortgage-Backed Securities to Assets 45
Total Net Loans to Assets 45
Loans and Mortgage-Backed Securities to Assets 45
Advances to Assets 46
Performance Parameters
Introduction 46
<PAGE>
TABLE OF CONTENTS (cont.)
PAGE
III Comparable Group Selection (cont.)
Performance Parameters (cont.)
Return on Average Assets 47
Return on Average Equity 47
Net Interest Spread 48
Operating Expenses to Assets 48
Noninterest Income to Assets 49
Asset Quality Parameters
Introduction 50
Nonperforming Assets to Asset Ratio 50
Repossessed Assets to Assets 51
Loans Loss Reserves to Assets 51
The Comparable Group 51
Summary of Comparable Group Institutions 53
IV Analysis 55 Financial Performance
V Market Value Adjustments
Earnings Performance 59
Market Area 63
Financial Condition 64
Dividend Payments 65
Subscription Interest 66
Liquidity of Stock 67
Management 68
Marketing of the Issue 68
VI Valuation methods 70
Price to Book Value Ratio Method 71
Price to Earnings Ratio Method 72
Price to Net Assets Ratio Method 73
Valuation Conclusion 74
<PAGE>
LIST OF EXHIBITS
NUMERICAL PAGE
EXHIBITS
1 Balance Sheet - March 31, 1996, and December 31, 1995 76
2 Balance Sheet - December 31, 1991 through 1994 77
3 Income Statement - Three Months ended March 31, 1996,
and Year Ended December 31, 1995 78
4 Income Statement - December 31, 1991 through 1994 79
5 Selected Consolidated Financial Data 80
6 Income and Expense Trends 81
7 Normalized Earnings Trend 82
8 Performance Indicators 83
9 Volume/Rate Analysis 84
10 Yield and Cost Trends 85
11 Market Value of Portfolio Equity 86
12 Loan Portfolio Composition 87
13 Loan Maturity Schedule 88
14 Loan Portfolio Originations 89
15 Delinquent Loans 90
16 Nonperforming Assets 91
17 Classified Assets 92
18 Allowance for Loan Losses 93
19 Investment Portfolio Composition 94
20 Mix of Deposits 95
21 Deposit Activity 96
22 Borrowed Funds 97
23 Offices of Madison First Federal Savings and Loan Association 98
24 List of Key Officers and Directors 99
25 Balance Sheet - Citizens National Bank - March 31, 1996,
and December 31, 1995 100
26 Income Statement - Citizens National Bank - Three Months
Ended march 31, 1996 and Year Ended December 31, 1995 101
27 Selected Financial Data - Citizens National Bank 102
28 Key Demographic Data and Trends 103
29 Major Sources of Personal Income 104
30 Key Housing Data 105
31 New Housing Permits and Growth Rates 106
32 Unemployment Rates 107
33 Market Share of Deposits 108
34 National Interest Rates 109
35 Thrift Stock Prices and Pricing Ratios 110
36 Key Financial Data and Ratios 121
37 Recently Converted Thrift Institutions 133
<PAGE>
LIST OF EXHIBITS (cont.)
NUMERICAL PAGE
EXHIBITS
38 Acquisitions and Pending Acquisitions 135
39 Thrift Stock Prices and Pricing Ratios -
Mutual Holding Companies 136
40 Key Financial Data and Ratios -
Mutual Holding Companies 137
41 Balance Sheets Parameters -
Comparable Group Selection 138
42 Operating Performance and Asset Quality Parameters -
Comparable Group Selection 141
43 Balance Sheet Ratios -
Final Comparable Group 144
44 Operation Performance and Asset Quality Ratios
Final Comparable Group 145
45 Balance Sheet Totals - Final Comparable Group 146
46 Market Area Comparison - Final Comparable Group 147
47 Balance Sheet - Asset Composition
Most Recent Quarter 148
48 Balance Sheet - Liability and Equity
Most Recent Quarter 149
49 Income and Expense Comparison
Trailing Four Quarters 150
50 Income and Expense Comparison as a Percent of
Average Assets - Trailing Four Quarters 151
51 Yields, Costs & Earnings Ratios
Trailing Four Quarters 152
52 Dividends, Reserves and Supplemental Data 153
53 Market Pricings and Financial Ratios - Stock Prices
Comparable Group 154
54 Valuation Analysis and Conclusions 155
55 Pro Forma Minimum Valuation 156
56 Pro Forma Mid-Point Valuation 157
57 Pro Forma Maximum Valuation 158
58 Pro Forma Superrange Valuation 159
59 Summary of Valuation Premium or Discount 160
60 Pro Forma Balance Sheet based on Mid-Point Valuation
and reflecting the purchase of Citizens National Bank 161
61 Pro Forma Income Statements based on Mid-Point Valuation
and reflecting the purchase of Citizens National Bank 163
<PAGE>
ALPHABETICAL EXHIBITS
PAGE
A Background and Qualifications 165
B RB 20 Certification 169
C Affidavit of Independence 170
<PAGE>
INTRODUCTION
Keller & Company, Inc., an independent appraisal firm for financial
institutions, has prepared this Conversion Appraisal Report ("Report") which
provides the pro forma market value of the to-be-issued common stock of River
Valley Bancorp. (the "Corporation"), an Indiana corporation, formed as a holding
company to own all of the to-be-issued shares of common stock of Madison First
Federal Savings and Loan Association, Madison, Indiana, ("Madison First Federal"
or the "Association"). The stock is to be issued in connection with the
Association's Application for Approval of Conversion from a federally chartered
mutual savings association to a federally chartered stock savings and loan
association and the Corporation's acquisition of 120,429 shares of common stock
from a single stockholder, or 95.6 percent of the issued and outstanding shares
of common stock of Citizens National Bank of Madison ("Citizens" or the "Bank")
as set forth in the Plan of Conversion. In accordance with the Plan of
Conversion, the Corporation must also attain approval to acquire the stock of
Citizens, a national bank, regulated by the Office of Comptroller of the
Currency ("OCC").
The acquisition impact of the purchase of 95.6 percent of the stock of
Citizens is highlighted in Exhibits 60 and 61, which also provide the
consolidated financials and the accounting adjustments related to the proposed
acquisition. The purchase price for the 95.6 percent share of Citizens is $3.0
million plus acquisition costs of $65,000 and reflects a price to book value
ratio of 92.0 percent. In addition, a financial overview of Citizens is provided
on pages 30 and 31 along with key financial exhibits (Exhibits 25 to 27)
summarizing the Bank's current financial condition and recent operations.
The application is being filed with the Office of Thrift Supervision
("OTS") of the Department of the Treasury and the Securities and Exchange
Commission ("SEC"). In accordance with Association's conversion, there will be a
simultaneous issuance of all the Association's stock to the Corporation, which
will be formed by the Association. Such Application for Conversion has been
reviewed by us, including the Prospectus and related documents, and discussed
with the Association's management and the Association's conversion counsel,
Barnes & Thornburg, Indianapolis, Indiana.
1
<PAGE>
Introduction (cont.)
This conversion appraisal was prepared based on the guidelines provided
by OTS entitled "Guidelines for Appraisal Reports for the Valuation of Savings
Institutions Converting from the Mutual to Stock Form of Organization", in
accordance with the OTS application requirements of Regulation ss.563b and the
OTS's Revised Guidelines for Appraisal Reports, and represents a full appraisal
report. The Report provides detailed exhibits based on the Revised Guidelines
and a discussion on each of the fourteen factors that need to be considered. Our
valuation will be updated in accordance with the Revised Guidelines and will
consider any changes in market conditions for thrift institutions.
The pro forma market value is defined as the price at which the stock
of the Corporation after conversion would change hands between a typical willing
buyer and a typical willing seller when the former is not under any compulsion
to buy and the latter is not under any compulsion to sell, and with both parties
having reasonable knowledge of relevant facts in an arms-length transaction. The
appraisal assumes the Association is a going concern and that the shares issued
by the Corporation in the conversion are sold in non-control blocks.
In preparing this conversion appraisal, we have reviewed the audited
financial statements for the five fiscal years ended December 31, 1991 through
1995, as well as the unaudited financial statements for the three months ended
March 31, 1996, and discussed them with Madison First Federal's management and
with Madison First Federal's independent auditors, Grant Thornton, LLP,
Cincinnati, Ohio. We have also discussed and reviewed with management other
financial matters including audited financial statements of Citizens for the
three years ended December 31, 1995, and prepared by Sherman, Barber & Mulliken,
Madison, Indiana, independent certified public accountants in 1994 and 1995, and
by Alexander Kuhn & Company in 1993. We have reviewed the Corporation's
preliminary Form S-1 and the Association's preliminary Form AC and discussed
them with management and with the Association's conversion counsel.
2
<PAGE>
Introduction (cont.)
We have visited Madison First Federal's home office and two branches
and have traveled the surrounding area. We have studied the economic and
demographic characteristics of the market area, where the Association's offices
are located, and the Association's primary market area relative to Indiana and
the United States. We have also examined the competitive environment within
which Madison First Federal operates, giving consideration to the area's key
characteristics, both positive and negative.
We have given consideration to the market conditions for securities in
general and for publicly-traded thrift stocks in particular. We have examined
the performance of selected publicly-traded thrift institutions and compared the
performance of Madison First Federal to those selected institutions. We have
also considered the impact of the acquisition of 95.6 percent of Citizens stock
by the Corporation.
Our valuation is not intended to represent and must not be interpreted
to be a recommendation of any kind as to the desirability of purchasing the
to-be-outstanding shares of common stock of the Corporation. Giving
consideration to the fact that this appraisal is based on numerous factors that
can change over time, we can provide no assurance that any person who purchases
the stock of the Corporation in this mutual-to-stock conversion will
subsequently be able to sell such shares at prices similar to the pro forma
market value of the Corporation as determined in this conversion appraisal.
3
<PAGE>
I. DESCRIPTION OF MADISON FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
GENERAL
Madison First Federal Savings and Loan Association, Madison, Indiana,
was incorporated in 1875 as a federally chartered savings and loan association.
Madison First Federal conducts its business from its home office in Madison,
Indiana, and its two branches, one in Madison and one in Hanover. Madison First
Federal also has a drive- through facility in Madison. The Association's market
area consists of Jefferson County Indiana.
Madison First Federal's deposits are insured up to applicable limits by
the Federal Deposit Insurance Corporation ("FDIC") in the Savings Association
Insurance Fund ("SAIF"). The Association is also subject to certain reserve
requirements of the Board of Governors of the Federal Reserve Bank (the "FRB").
Madison First Federal is a member of the Federal Home Loan Bank (the "FHLB") of
Indianapolis and is regulated by the OTS, and by the FDIC. As of March 31, 1996,
Madison First Federal had assets of $88,307,000, deposits of $79,254,000, and
retained earnings of 6,599,000.
In the past five years, legislation has had an impact on the operations
in the financial institution industry. In 1989, the Financial Institution
Reform, Recovery, and Enforcement Act ("FIRREA") became effective and put into
place more stringent supervisory standards and higher capital requirements for
the thrift industry. FIRREA established new capital requirements and
strengthened OTS' enforcement powers. These capital requirements continue today
under the FDIC and the FRB and include a tier one capital requirement of 4.0
percent of total assets, and a risk-based capital requirement of 8.0 percent of
risk-weighted assets. OTS now has the power to assess civil money penalties and
issue cease and desist orders for violations of regulations deemed unsafe and
unsound practices.
4
<PAGE>
General (cont.)
FIRREA also resulted in an increase in deposit insurance premiums which
thrifts must pay to the FDIC. A plan for a one-time premium of 0.85 percent to
0.90 percent of deposits as of March 31, 1995, to capitalize the SAIF does
exist, and such an increase would have an adverse effect on Madison First
Federal's equity and net income. Further, there has been a recent significant
decrease in premiums on Bank Insurance Fund ("BIF") deposits, which has an
adverse competitive impact on Madison First Federal and could affect its ability
to compete effectively with BIF-insured banks for deposits. Such impact could
result in a downward impact on prices of publicly traded thrift institutions.
FIRREA's objective was strengthened in December, 1991, when the Federal
Deposit Insurance Association Improvement Act of 1991 ("FDICIA") was passed,
resulting in additional provisions relating to thrift institutions. FDICIA
provided for the recapitalization of BIF. FDICIA requires federally-insured
financial institutions to be examined at least annually and submit independently
audited financial reports based on the size of the institution. Madison First
Federal meets the standards for a well capitalized institution.
Madison First Federal is a community-oriented institution which has
been principally engaged in the business of serving the financial needs of the
public in its local community and throughout its market area. Madison First
Federal has been actively and consistently involved in the origination of
residential mortgage loans for the purchase and construction of one- to
four-family dwellings, comprising 69.5 percent of its loan originations during
the three months ended March 31, 1996, and 70.8 percent of its loan originations
during the fiscal year ended December 31, 1995. At March 31, 1996, 76.2 percent
of its gross loans consisted of residential real estate loans on one- to
four-family dwellings, not including residential construction loans, compared to
a smaller 74.7 percent at December 31, 1995, with the primary source of its
funds being retail deposits from residents in its local communities. The
Association is also an originator of multifamily
5
<PAGE>
General (cont.)
loans, nonresidential real estate loans, construction and land loans and also
offers consumer loans on a less active basis. Consumer loans include automobile
loans, loans on savings accounts, home improvement loans, and secured and
unsecured consumer loans. Consumer loans represented a modest 5.9 percent share
of the Association's total loans at March 31, 1996.
The Association had a moderate $10.6 million, or 11.3 percent of its
assets in U.S. government and federal agency securities and FHLB stock. The
Association had an additional $9.1 million, or 10.4 percent of its assets, in
mortgage-backed securities, and $8.8 million in cash and cash equivalents with
the combined total of investment securities, mortgage-backed securities and cash
and cash equivalents being $28.5 million or 32.3 percent of assets. Deposits and
retained earnings have been the primary sources of funds for the Association's
lending and investment activities.
The management of Madison First Federal is aware of the emphasis on
matching the maturities of assets and liabilities and monitoring the
Association's interest rate sensitivity position and net portfolio value. The
Association understands the nature of interest rate risk and the potential
earnings impact during times of rapidly changing rates, either rising or
falling. Madison First Federal also recognizes the need and importance of
attaining a competitive net interest margin due to its dependence on net
interest income as its primary source of income.
The Association's gross amount of stock to be sold in the conversion
will be $9,000,000 or 900,000 shares at $10 per share based on the midpoint of
the appraised value, with net conversion proceeds of $8,408,000 reflecting
conversion expenses of $592,000. The actual cash proceeds to the Association of
$2.4 million represents forty percent of the net conversion proceeds, net of
both conversion expenses and the ESOP of $720,000, and will be invested in
adjustable-rate mortgage loans and consumer loans over time, and initially
invested in short term investments. The Association may also use the
6
<PAGE>
General (cont.)
proceeds to expand services, expand operations or other financial services,
diversification into other businesses, or for any other purposes authorized by
law. The Holding Company will use its sixty percent of the net proceeds to fund
the ESOP, to invest in short- and intermediate-term government securities, and
to purchase 95.6 percent of the stock of Citizens National Bank.
Madison First Federal has seen modest overall deposit growth over the
past five fiscal years with deposits increasing 6.2 percent from December 31,
1991, to December 31, 1995, or an average of 1.56 percent per year. From
December 31, 1995, to March 31, 1996, deposits increased a strong 5.3 percent
compared to a 0.3 percent decrease in 1995. The Association anticipates a
moderate rate of growth in the future. The Association has focused on
maintaining a strong residential real estate loan portfolio during the past five
years, increasing its level of investments and mortgage-backed securities,
monitoring its earnings and increasing its historically lower capital to assets
ratio. Equity to assets increased from 5.52 percent of assets at December 31,
1991, to 7.59 percent at December 31, 1995, and then down to 7.47 percent at
March 31, 1996.
Madison First Federal's primary lending strategy has been to originate
and retain both adjustable-rate and fixed-rate residential mortgage loans with
emphasis on adjustable-rate mortgage loans with a higher than average level of
nonresidential real estate loans in its portfolio at March 31, 1996.
Madison First Federal's share of one- to four-family mortgage loans has
decreased, declining from 86.3 percent of gross loans at December 31, 1993, to
76.2 percent as of March 31, 1996. Construction loans increased from 1.5 percent
of gross loans at December 31, 1993, to 3.7 percent at March 31, 1996.
Multi-family and nonresidential real estate loans increased from 7.3 percent of
gross loans at December 31, 1993, to 12.9 percent at March 31, 1996. The
increase in construction, multi-family and nonresidential loans was offset by
the Association's decrease in one- to four-family residential loans.
7
<PAGE>
General (cont.)
The Association's share of consumer loans witnessed an increase from 4.7 percent
at December 31, 1993, to 5.9 percent at March 31, 1996, representing a dollar
increase of $1,002,000.
Management's internal strategy has also included continued emphasis on
maintaining an adequate and appropriate allowance for loan losses relative to
loans and nonperforming assets in recognition of the more stringent requirements
within the industry to establish and maintain a higher level of valuation
allowances and also in recognition of the Association's planned increase in
lending. At December 31, 1993, Madison First Federal had $227,000 in its loan
loss allowance or 0.44 percent of total loans, which increased to $413,000 and
represented a higher 0.72 percent of total loans at March 31, 1996.
Interest income from loans and investments has been the basis of
earnings with the net interest margin being the key determinant of net earnings.
The Association has also been subject to some higher levels of non-interest
income due to income from an insurance subsidiary during the past five fiscal
years. With a dependence on net interest margin for earnings, current management
will focus on strengthening the Association's net interest margin without
undertaking excessive credit risk and will pursue several changes in its
operations to reduce interest rate risk, including the sale of fixed rate loans,
stronger consumer loan originations and promotion of ARMs.
8
<PAGE>
PERFORMANCE OVERVIEW
Madison First Federal's financial position over the past five fiscal
years of December 31, 1991, through December 31, 1995, and for the three months
ended March 31, 1996, is highlighted through the use of selected financial data
in Exhibit 5. Madison First Federal has focused on strengthening its equity
position, controlling its overhead expense ratio, strengthening its general
valuation allowance, and maintaining its net interest margin. Madison First
Federal has experienced a moderate rise in assets from 1991 to 1995 and a
smaller rate of increase in deposits with an average increase in equity over the
past five fiscal years. The resultant impact has been a moderate increase in the
Association's equity to assets ratio.
Madison First Federal witnessed a total increase in assets of $11.2
million or 14.9 percent for the period of December 31, 1991, to December 31,
1995, representing an average annual increase in assets of 3.7 percent. For the
year ended December 31, 1995, assets decreased $468,000 or 0.5 percent. For the
three months ended March 31, 1996, the Association's assets increased $1.7
million or 2.0 percent. Of the past five fiscal periods, the Association
experienced its largest dollar rise in assets of $6.8 million in fiscal year
1992, which represented a 9.0 percent increase in assets funded by a rise in
deposits. This increase was succeeded by a $1.9 million or 2.3 percent increase
in assets in fiscal year 1993, a $3.0 million increase in 1994 and a $468,000
decrease, or .5 percent, in 1995.
The Association's net loan portfolio, including mortgage loans and
non-mortgage loans, increased from $57.7 million at December 31, 1991, to $57.9
million at December 31, 1995, and represented a total increase of only $210,000,
or 0.4 percent. The average annual increase during that period was 0.1 percent.
The minimal change in loans was the result of moderate decrease in loans in 1992
of $4.1 million or 7.0 percent followed by an
9
<PAGE>
Performance Overview (cont.)
increase of $4.3 million from 1992 to 1995 or 7.9 percent. For the year ended
December 31, 1995, loans increased $1.7 million or 2.9 percent and for the three
months ended March 31, 1996, net loans then decreased $552,000 million or 1.0
percent. The minimal change in loans at Madison First Federal was offset by the
Association's growth in investment securities.
Madison First Federal has pursued obtaining funds through deposit
growth in accordance with the demand for loans, and has made limited use of FHLB
advances, with advances totaling $4,471,000 at December 31, 1995, and $2,000,000
at March 31, 1996. The Association's competitive rates for savings in its local
market have been the source of retail deposits. Deposits increased strongly from
1991 to 1992, followed by a modest increase in fiscal year 1993, and decreases
in 1994 and 1995, with an average annual rate of increase of 1.6 percent from
December 31, 1991, to December 31, 1995. For the three months ended March 31,
1996, deposits increased by $4.0 million or 5.3 percent. The Association's
strongest fiscal year deposit growth was in fiscal year 1992, when deposits
increased $5.9 million or 8.3 percent.
Madison First Federal has been able to increase its retained earnings
each fiscal year from 1991 through 1995. At December 31, 1991, the Association
had retained earnings (GAAP basis) of $4.2 million representing a 5.52 percent
equity to assets ratio, increasing to $6.57 million at December 31, 1995, and
representing a 7.59 percent equity to assets ratio. At March 31, 1996, equity
was a slightly higher $6.6 million, reflecting a lower 7.47 percent of assets.
The overall rise in the equity to assets ratio from 1991 to 1995 is primarily
the result of the Association's steady earnings performance in 1991 through
1995. Equity increased 57.8 percent from December 31, 1991, to December 31,
1995, representing an average annual increase of 14.4 percent but increased only
0.4 percent for the three months ended March 31, 1996, or 1.6 percent, annually.
10
<PAGE>
INCOME AND EXPENSE
Exhibit 6 presents selected operating data for Madison First Federal,
reflecting the Association's income and expense trends. This table provides
selected audited income and expense figures in dollars for the fiscal years of
1991 through 1995 and unaudited income and expense figures for the three months
ended March 31, 1996.
Madison First Federal has witnessed a decrease in its dollar level of
interest income from December 31, 1991, through December 31, 1995, ranging from
a high of $6.8 million in 1991 to a low of $5.4 million in 1994, then increasing
to $5.8 million in fiscal year 1995, representing a five year decrease of 14.6
percent, or an average decrease of 3.7 percent per year. In fiscal year 1995
interest income increased $375,000, or 6.9 percent to $5.8 million. For the
three months ended March 31, 1996, interest income was $1.5 million, compared to
$1.4 million for the three months ended March 31, 1995, suggesting a
continuation of the fiscal 1995 rising trend. The overall decrease in interest
income was due to the Association's decrease in rate, and was reduced by an
offsetting increase due to volume.
The Association's interest expense experienced a similar declining
trend from fiscal year 1991 to 1994, followed by a strong increase in 1995.
Interest expense decreased $1.8 million, or 39.0 percent, from 1991 to 1994,
compared to a decrease in interest income of $1.4 million, or 20.1 percent, for
the same time period. Interest expense then increased $740,000 or 25.9 percent
from 1994 to 1995, compared to an increase in interest income of only $375,000
or 6.9 percent. Such high increase in interest expense, notwithstanding the
increase in interest income, resulted in a considerable decrease in annual net
interest income of $365,000 to $2,200,000 for the fiscal year ended December 31,
1995. Net interest income increased from $2,107,000 in 1991 to its highest level
of $2,642,000 in 1993, followed by decreases to $2,565,000 and $2,200,000 in
fiscal years 1994 and 1995, respectively. For the three months ended March 31,
1996, Madison First Federal's interest expense was $890,000 compared to $825,000
for the three months ended March 31, 1995,
11
<PAGE>
Income and Expense (cont.)
suggesting a rising trend for interest expense. Net interest income was $569,000
for this three month period which was less than the $617,000 for the three
months ended March 31, 1995, indicating a moderate reduction.
The Association has made provisions for loan losses in each of the past
five fiscal years of 1991 through 1995 and for the three months ended March 31,
1996. The amounts of those provisions were determined in recognition of the
Association's level of nonperforming assets, charge-offs and repossessed assets,
and also relative to the increase in provisions in the industry to strengthen
the level of general valuation allowance and planned increase in loan
originations. The loan loss provisions were $143,000 in 1991, $37,000 in 1992,
$55,000 in 1993, $29,000 in 1994 and $150,000 in 1995; and $6,000 for the three
months ended March 31, 1996. The impact of these loan loss provisions has been
to provide Madison First Federal with a valuation allowance of 413,000 at March
31, 1996, or 0.71 percent of net loans and 1,376.67 percent of nonperforming
assets.
Total other income or noninterest income indicated competitive levels
in fiscal years 1991 to 1995. The highest level of noninterest income was in
fiscal year 1994 at $370,000 or 0.43 percent of average assets and the lowest
level at $275,000 was in 1991, representing 0.37 percent of average assets. The
higher levels of noninterest income were due to the income from insurance
commissions generated by the Association's insurance agency which averaged
$175,200 in income a year. Excluding income from insurance commissions during
1991 to 1995, noninterest income would have averaged $145,000 or 0.17 percent of
average assets. The average noninterest income level for the past five fiscal
years was $336,000 or 0.40 percent of average assets using actual noninterest
income, and $145,000 or 0.17 percent of average assets excluding income from
insurance commissions. With the exception of the income from insurance
commissions, noninterest income consisted primarily of service charges and other
fees.
12
<PAGE>
Income and Expense (cont.)
The Association's general and administrative expenses or noninterest
expenses increased from $1,699,000 for the fiscal year of 1991 to $1,966,000 for
the fiscal year ended December 31, 1995. The dollar increase in noninterest
expenses was $267,000 from 1991 to 1995, representing an average annual increase
of $66,750 or a modest 3.9 percent. The average annual increase in other
expenses was due to the Association's normal rise in overhead expenses. On a
percent of assets basis, operating expenses increased from 2.09 percent of
average assets for the fiscal year ended December 31, 1991, to 2.26 percent for
the fiscal year ended December 31, 1995, which was the Association's second
highest ratio during the past five years but lower than current industry
averages of approximately 2.35 percent. The highest ratio was 2.36 percent in
1992. For the three months ended March 31, 1996, Madison First Federal's ratio
of operating expenses to average assets was a higher 2.72 percent with the
increase due to a higher employee compensation expense.
The net earnings position of Madison First Federal has indicated
profitable performance in each of the past five fiscal years ended December 31,
1991 through 1995, and for the three months ended March 31, 1996. The annual net
income figures for the past five fiscal years of 1991, 1992, 1993, 1994 and 1995
have been $290,000, $631,000, $718,000, $636,000, and $258,000, representing
returns on average assets of 0.40 percent, 0.80 percent, 0.86 percent, 0.75
percent, and 0.30 percent, respectively. The average return on assets for the
past five fiscal years was 0.62 percent. For the three months ended March 31,
1996, net earnings were $64,000, representing an annualized return on assets of
0.29 percent.
Exhibit 7 provides the Association's normalized earnings or core
earnings for fiscal years 1993 to 1995 and for the twelve months ended March 31,
1996. The Association's normalized earnings eliminate any nonrecurring income
and expense items. In fiscal years 1993 and 1994, there were no adjustments. For
fiscal year 1995, there was a $67,000 reduction in expenses based on the
Association's higher provision for loan losses of
13
<PAGE>
Income and Expense (cont.)
$150,000. The result of this adjustment was a core earnings level of $308,000
compared to actual net income of $258,000. For the twelve months ended March 31,
1996, there was a similar adjustment of $73,000 to also adjust for the higher
provision for loan losses of $156,000 for the twelve month period. Net income
increased from $176,000 to a core earnings base of $233,000.
The key performance indicators comprised of selected operating ratios,
asset quality ratios and capital ratios are shown in Exhibit 8 to reflect the
results of performance. The Association's return on assets increased from 0.40
percent in fiscal year 1991 to its highest level of 0.86 percent in fiscal year
1993, decreasing to 0.75 percent in fiscal year 1994, then decreasing to 0.30
percent in fiscal year 1995 and to 0.29 percent for the three months ended March
31, 1996. The decrease in 1995 and 1996 was the result of the Bank's decrease in
net interest income and in 1995, was also the result of a larger loan loss
provision.
The Association's average net interest rate spread strengthened from
2.66 percent in fiscal year 1991 to 3.23 percent in fiscal year 1992, then to
3.24 percent in 1993 and then declined during the next two fiscal years
decreasing to 2.36 percent in 1995. For the three months ended March 31, 1996,
net interest spread was a higher 2.50 percent. The Association's net interest
margin indicated a similar trend, increasing from 2.89 percent in fiscal year
1991 to 3.35 percent in fiscal year 1992 then decreasing thereafter to its
lowest level of 2.61 percent in 1995, and then rising to 2.71 percent for the
three months ended March 31, 1996. Madison First Federal's net interest rate
spread increased 57 basis points in 1992 to 3.23 percent from 2.66 percent in
1991 and then increased one basis point in 1993 to 3.24 percent. Net interest
rate spread then decreased 24 basis points to 3.00 percent for fiscal year 1994
and decreased another 64 basis points to 2.36 percent for the fiscal year ended
December 31, 1995. The Association's net interest margin followed a similar
trend, increasing 46 basis points to 3.35 percent in 1992 and then decreasing 3
basis points to 3.32 percent in 1993. Net interest margin decreased 17 basis
points to 3.15
14
<PAGE>
Income and Expense (cont.)
percent in 1994 and continued to decrease to 2.61 percent in 1995. For the three
months ended March 31, 1996, Madison First Federal's net interest spread was a
higher 2.50 percent, and its net interest margin was a higher 2.71 percent.
The Association's return on average equity increased from 1991 to 1992,
but decreased in 1993 through 1995. The return on average equity increased from
7.47 percent in 1991 to 13.62 percent in fiscal year 1992, and then down to
13.52 percent in fiscal year 1993. The return on equity then decreased to 10.62
percent in fiscal year 1994, and decreased further to 4.01 percent for the
fiscal year ended December 31, 1995. For the three months ended March 31, 1996,
annualized, return on average equity was a slightly lower 3.89 percent.
Madison First Federal's ratio of interest-earning assets to
interest-bearing liabilities decreased from 103.83 percent at December 31, 1991,
to 101.96 percent at December 31, 1993, and then increased to 105.62 percent at
December 31, 1995. At March 31, 1996, the ratio had decreased to 104.96 percent
indicating modest change since 1991.
The Association's ratio of non-interest expenses to average assets
increased modestly from 2.09 percent in fiscal year 1991 to 2.26 percent in
fiscal year 1995. For the three months ended March 31, 1996, the ratio of
noninterest expenses to assets increased to 2.72 percent with the increase
reflecting the impact of compensation increases. Another key noninterest expense
ratio reflecting efficiency of operation is the ratio of noninterest expenses to
net interest income plus other income referred to as the "efficiency ratio". The
industry norm is 60.0 percent with ratios above this level indicating less
efficiency. The Association has been characterized with a lower efficiency
ratio, which increased from 71.33 percent in 1991 to 76.74 percent in 1995. The
ratio then weakened to 81.68 percent for the three months ended March 31, 1996.
15
<PAGE>
Income and Expense (cont.)
Earnings performance can be affected by an institution's asset quality
position. The ratio of nonperforming assets to total assets is a key indicator
of asset quality. Madison First Federal witnessed a decrease in its
nonperforming asset ratio from 1991 to 1995. Nonperforming assets consist of
loans ninety days or more past due, nonaccruing loans and repossessed assets.
The ratio of nonperforming assets to total assets was only 0.17 percent at
December 31, 1991, and decreased to 0.01 percent at December 31, 1995. At March
31, 1996, Madison First Federal's ratio of nonperforming assets to total assets
increased to 0.03 percent. The Association's allowance for loan losses was 150.3
percent of nonperforming assets at December 31, 1991, and increased
significantly during the next four fiscal years, resulting primarily from the
sharp decrease in nonperforming assets combined with an increase in provision
for loan losses. As a percentage of nonperforming assets, Madison First
Federal's allowance for loan losses increased to 166.9 percent in 1992, and then
to 5,087.5 percent in 1995. At March 31, 1996, the ratio decreased to 1,376.67
percent reflective of an increase in nonperforming assets with the extremely
high ratios due to the Association's unusually low level of nonperforming
assets.
Exhibit 9 provides the changes in net interest income due to rate and
volume changes for the past two fiscal years of 1994 and 1995 and for the three
months ended March 31, 1996. In fiscal year 1994, net interest income decreased
$77,000, due to a decrease in interest expense of $188,000 offset by a larger
$265,000 decrease in interest income. The decrease in interest expense was due
to a decrease due to a change in rate of $186,000 increased by a decrease due to
volume of $2,000. The decrease in interest income was due to a decrease due to
rate of $323,000 reduced by an increase due to a change in volume of $58,000.
In fiscal year 1995, net interest income decreased $365,000, due to a
$740,000 increase in interest expense reduced by an $375,000 increase in
interest income. The increase in interest expense was due to a $630,000 increase
due to rate accented by a $110,000 increase due to volume. The increase in
interest income was due to a $145,000 increase due to rate accented by a
$230,000 increase due to volume.
16
<PAGE>
Income and Expense (cont.)
For the three months ended March 31, 1996, compared to the three months
ended March 31, 1995, net interest income decreased $48,000 due to a $17,000
increase in interest income more than offset by a $65,000 increase in interest
expense. The rise in interest income was due to a $17,000 increase due to
volume. The rise in interest expense was due to a rise in rate of $78,000
reduced by a $13,000 decrease due to volume.
YIELDS AND COSTS
The overview of yield and cost trends for the years ended December 31,
1993 to 1995, for the three months ended March 31, 1996, can be seen in Exhibit
10, which offers a summary of key yields on interest-earning assets and costs of
interest-bearing liabilities.
Madison First Federal's weighted average yield on its loan portfolio
decreased 42 basis points from fiscal year 1993 to 1995, from 7.87 percent to
7.45 percent, and then increased 33 basis points to 7.78 percent for the three
months ended March 31, 1996. The yield on mortgage-backed securities increased
20 basis points from fiscal year 1993 to 1995 from 5.90 percent to 6.10 percent
and then decreased 3 basis points to 6.07 percent for the three months ended
March 31, 1996. The yield on investment securities decreased 15 basis points
from 5.73 percent in 1993 to 5.58 percent in 1995 and decreased to 4.77 percent
for the three months ended March 31, 1996. Other investments and interest
bearing deposits indicated a decrease in their yield of 78 basis points from
4.88 percent in 1993 to 4.10 percent in 1995 and then decreased to 4.01 percent
for the three months ended March 31, 1996. The combined weighted average yield
on all interest-earning assets decreased 28 basis points to 6.86 percent from
1993 to 1995. The yield on interest-earning assets for the three months ended
March 31, 1996, was a higher 6.94 percent, while the yield at March 31, 1996,
was a higher 7.02 percent.
17
<PAGE>
Yields and Costs (cont.)
Madison First Federal's weighted average cost of interest-bearing
liabilities decreased 24 basis points to 3.66 percent from fiscal year 1993 to
1994, which was less than the Association's 48 basis point decrease in yield,
resulting in the decline in the Association's interest rate spread of 24 basis
points from 3.24 percent to 3.00 percent from 1993 to 1994. The Association's
average cost of interest-bearing liabilities then increased from 1994 to 1995 by
84 basis points to 4.50 percent compared to a 20 basis point increase in yield
on interest-earning assets. The result was a continued decrease in the
Association's interest rate spread of 64 basis points to 2.36 percent for fiscal
year 1995. For the three months ended March 31, 1996, the Association's cost of
funds decreased 6 basis points to 4.44 percent, compared to an 8 basis point
increase in yield on interest-earning assets, resulting in a higher net interest
rate spread of 2.50 percent compared to 2.36 percent for the fiscal year ended
December 31, 1995. The Association's net interest margin decreased from 3.32
percent in fiscal year 1993 to 3.15 percent in fiscal year 1994, decreasing
further to 2.61 percent for the year ended December 31, 1995. The Association's
net interest margin for the three months ended March 31, 1996, actually
increased 10 basis points to 2.71 percent, the first such increase since 1993.
INTEREST RATE SENSITIVITY
Madison First Federal is striving to control its interest rate
sensitivity position due to a focus on the origination of ARMs, the purchase of
adjustable-rate mortgage-backed securities and maintaining a high level of
liquid assets, which was 33.5 percent at March 31, 1996. Madison First Federal
responded to the thrift industry's significant interest rate risk exposure in
the 1980's, which caused a negative impact on earnings and net portfolio value
as a result of significant fluctuations in interest rates, specifically rising
rates. Such exposure was due to the disparate rate of maturity and/or repricing
of assets relative liabilities commonly referred to as an institution's "gap".
The larger an institution's gap, the greater the risk (interest rate risk) of
earnings loss due to a decrease in net interest
18
<PAGE>
Interest Rate Sensitivity (cont.)
margin and a decrease in market value of equity or portfolio loss. In response
to the potential impact of interest rate volatility and negative earnings
impact, many institutions have taken steps in the 1990's to minimize their gap
position. This frequently results in a decline in the institution's net interest
margin and overall earnings performance.
The Association measures its interest rate risk through the use of its
net portfolio value ("NPV") of the expected cash flows from interest-earning
assets and interest-bearing liabilities and any off-balance sheet contracts. The
NPV for the Association is calculated on a quarterly basis by the OTS as well as
the change in the NPV for the Association under rising and falling interest
rates. Such changes in NPV under changing rates is reflective of the
Association's interest rate risk exposure.
There are other factors which have a measurable influence on interest
rate sensitivity. Such key factors to consider when analyzing interest rate
sensitivity include the loan payoff schedule, accelerated principal payments,
deposit maturities, interest rate caps on adjustable-rate mortgage loans, and
deposit withdrawals.
Exhibit 11 provides the Association's NPV as of December 31, 1995, and
the change in the Association's NPV under rising and declining interest rates.
Such calculations are provided by OTS, and the focus of this exposure table is a
200 basis points change in interest rates either up or down.
The Association's change in its NPV at December 31, 1995, based on a
rise in interest rates of 200 basis points was an 11.0 percent decrease,
representing a dollar decrease in equity value of $839,000. In contrast, based
on a decline in interest rates of 200 basis points, the Association's NPV was
estimated to increase 6.0 percent or $445,000 at December 31, 1995. The
Association's exposure at December 31, 1995, increases to a 32.0 percent
decrease under a 400 basis point rise in rates, and the NPV is estimated to
increase 19.0 percent based on a 400 basis point decrease in rates.
19
<PAGE>
Interest Rate Sensitivity (cont.)
The Association is aware of its moderate interest rate risk exposure
under strongly rising or falling rates and slightly positive exposure under
moderately rising or falling falling rates. Due to Madison First Federal's
recognition of the need to control its interest rate exposure, the Association
has been more active in the purchase of short-term government securities and
adjustable-rate mortgage-backed securities and the origination of primarily
adjustable rate mortgage loans, which has resulted in its moderate exposure
levels under rising or falling rates.
20
<PAGE>
LENDING ACTIVITIES
Madison First Federal has focused its lending activity on the
origination of conventional mortgage loans secured by one- to four-family
dwellings. Exhibit 12 provides a summary of Madison First Federal's loan
portfolio, by loan type, at December 31, 1993 through 1995, and at March 31,
1996.
Residential loans secured by one- to four-family dwellings excluding
residential construction loans was the primary loan type representing 76.2
percent of the Association's gross loans as of March 31, 1996. This share has
seen a noticeable decrease from 86.3 percent at December 31, 1993. The second
largest real estate loan type as of March 31, 1996, was nonresidential mortgage
loans which comprised 10.2 percent of gross loans compared to a smaller 5.6
percent as of December 31, 1993. The nonresidential loan category was also the
second largest real estate loan type in 1993. The third key mortgage loan type
was construction loans, which represented 3.7 percent of gross loans as of March
31, 1996, compared to a smaller 1.5 percent at December 31, 1993. The
Association's construction loans are both single-family residential and
non-residential loans. Multifamily real estate loans was the fourth largest
mortgage loan type with 2.7 percent of gross loans at March 31, 1996. These four
mortgage loan categories represented 92.8 percent of gross loans at March 31,
1996, compared to a larger 95.1 percent of gross loans at December 31, 1993.
The consumer loan category was the other primary loan type at March 31,
1996, and represented 5.9 percent of gross loans compared to 4.7 percent at
December 31, 1993. Consumer loans were the third largest overall loan type at
March 31, 1996, and also the third largest loan type in 1993. The Association
originates savings account loans, automobile loans, home improvement loans, and
other secured and unsecured consumer loans. The overall mix of loans has
witnessed moderate change from fiscal year-end 1993 to March 31, 1996, with the
Association having decreased its level of one- to four-family real estate loans
with increases in all other categories, the largest increase in nonresidential
loans.
21
<PAGE>
Lending Activities (cont.)
The emphasis of Madison First Federal's lending activity is the
origination of conventional mortgage loans secured by one- to four-family
residences. Such residences are primarily located in Madison First Federal's
primary market area of Jefferson County. The Association also originates interim
construction loans on single-family residences to individual owners and
occasionally to developers and also originates residential land loans. At March
31, 1996, 76.2 percent of Madison First Federal's gross loans consisted of loans
secured by one- to four-family residential properties.
The Association originates adjustable-rate mortgage loans, ("ARMs")
with adjustment/maturity periods of one year. The interest rates on ARMs are
currently indexed to the one-year Treasury Securities adjusted to a constant
maturity. Until late 1995, the Association's ARMs were indexed to the 11th
District Cost of Funds. The ARMs have a current margin of 2.50 percent for
owner-occupied residences, 3.75 percent for non-owner-occupied residences and
4.25 percent for non-residential properties. The ARMs have a normal maximum rate
adjustment of 1.0 percent at each adjustment period and a 5.0 percent maximum
adjustment over the life of the loan with payments based on up to a 30 year loan
term. The Association has begun to originate ARMs with maximum rate adjustments
of 1.5 percent and 6.0 percent. Historically, the major share of the
Association's loans have adjustable rates which represented 72.2 percent of
loans due after December 31, 1996.
The ARMs have terms of up to 30 years, and fixed rate loans have normal
terms of 10, 15 and 20 years. The Association has retained its fixed rate loans.
Madison First Federal plans to begin originating fixed-rate mortgage loans with
most of them to be sold in the secondary market to Federal Home Loan Mortgage
Corporation ("FHLMC") with servicing retained.
22
<PAGE>
Lending Activities (cont.)
The original loan to value ratio for conventional mortgage loans to
purchase or refinance single-family dwellings generally does not exceed 80
percent at Madison First Federal, even though the Association will grant loans
with up to a 95 percent loan to value ratio, but private mortgage insurance is
generally required for loans in excess of 80 percent.
Madison First Federal has also been an originator of nonresidential
real estate loans, and has been less active in multifamily loans in the past.
The Association will continue to make multifamily and nonresidential real estate
loans. The Association had a total of $1.6 million in multifamily loans at March
31, 1996, or 2.7 percent of gross loans, compared to $912,000 or 1.7 percent of
gross loans at December 31, 1993. Nonresidential real estate loans have
increased from $2.9 million or 5.6 percent of gross loans at December 31, 1993,
to $6.0 million or 10.2 percent of gross loans at March 31, 1996. The major
portion of nonresidential real estate loans are secured by churches and other
commercial properties.
Madison First Federal has not been aggressive in consumer lending.
Consumer loans consist primarily of automobile loans, savings account loans,
home improvement loans, and secured and unsecured personal loans, which
represented a combined total of 5.9 percent of gross loans at March 31, 1996, up
from 4.7 percent in 1993. At March 31, 1996, consumer loans totaled $5.9
million.
Exhibit 13 provides a breakdown and summary of Madison First Federal's
fixed-rate and adjustable-rate loans, indicating a strong predominance of
adjustable-rate loans. At March 31, 1996, 72.2 percent of the Association's
total loans due after December 31, 1996, were adjustable-rate and 17.8 percent
were fixed-rate. While most loans are
23
<PAGE>
Lending Activities (cont.)
adjustable-rate, it is evident that a strong 41.7 percent of one- to four-family
residential mortgage loans and 39.4 percent of total loans have shorter terms
with maturities of less than 15 years.
As indicated in Exhibit 14, Madison First Federal experienced a decrease in
both its single-family loan originations and total loan originations from fiscal
years 1993 to 1995. Total loan originations in fiscal year 1995 were $15.6
million compared to $24.1 million in fiscal year 1993, with fiscal year 1994
indicating a lower $19.4 million. The decrease in one- to four-family
residential loan originations from 1993 to 1995 constituted 144.1 percent of the
$8.5 million aggregate decrease in total loan originations from 1993 to 1995
with that overall decrease offset by increases in construction, nonresidential,
consumer, and land loans. Loan originations for the three months ended March 31,
1996, were $2.5 million, down from $2.8 million for the three months ended March
31, 1995. Loan originations for the purchase of one- to four-family residences,
excluding construction loans, represented 84.1 percent of total loan
originations in fiscal year 1993, compared to a lower 62.3 percent in fiscal
year 1994 and a lower 51.4 percent in fiscal year 1995. One- to four family loan
originations increased to 59.1 percent of total loan originations for the three
months ended March 31, 1996. The Association had no loan purchases during that
period. Overall, loan originations fell short of repayments and other reductions
in fiscal 1993 by $1.7 million, exceeded reductions in fiscal year 1994 by $4.3
million, and then exceeded reductions in fiscal 1995 by $1.7 million. For the
three months ended March 31, 1996, originations fell short of reductions by
$552,000.
24
<PAGE>
NONPERFORMING ASSETS
Madison First Federal understands asset quality risk and the direct
relationship of such risk to delinquent loans and nonperforming assets including
real estate owned. The quality of assets has been a key concern to financial
institutions throughout many regions of the country. A number of financial
institutions have been confronted with rapid increases in their levels of
nonperforming assets and have been forced to recognize significant losses,
setting aside major valuation allowances. A sharp increase in nonperforming
assets has often been related to specific regions of the country and has
frequently been associated with higher risk loans, including purchased
nonresidential real estate loans. Madison First Federal has not been faced with
such problems and has made a concerted effort to control its nonperforming
assets during the past five years as evidenced by its extremely low level of
nonperforming assets.
Exhibit 15 provides a summary of Madison First Federal's delinquent
loans at December 31, 1993 through 1995, and at March 31, 1996, indicating a
minimum level of delinquent loans. Loans delinquent 60 days or more totaled
$122,000 at December 31, 1993, and increased to $136,000 or 0.23 percent of
total loans at December 31, 1995. At March 31, 1996, delinquent loans of sixty
days or more decreased to $30,000 or .05 percent of total loans.
Madison First Federal reviews each loan when it becomes delinquent 30
days or more to assess its collectibility and to initiate direct contact with
the borrower. The Association sends the borrower a late payment notice when
loans are past due 15 days. The Association then initiates both written and oral
communication with the borrower if the loan remains delinquent. When the loan
becomes delinquent at least 45 days, the Association will send a second
delinquency notice, and at 60 days delinquency, contact is made again to work
out a repayment schedule. The Association closely monitors its nonperforming
loans, as previously discussed. Madison First Federal had no real estate owned
as of December 31, 1993, 1994 and 1995, and at March 31, 1996.
25
<PAGE>
Nonperforming Assets (cont.)
Exhibit 16 provides a summary of Madison First Federal's nonperforming
assets at March 31, 1996, and at December 31, 1991 through 1995. Nonperforming
assets consist of non-accrual loans, loans delinquent 90 days or more, real
estate acquired by foreclosure or by deed in lieu, troubled debt restructurings
and repossessed assets. The Association has historically carried a lower than
average level of nonperforming assets when compared to its peer group and the
thrift industry in general. Madison First Federal's level of nonperforming
assets ranged from a high of $30,000 or 0.03 percent of total assets at March
31, 1996, to a low of $7,000 or 0.01 percent of assets at December 31, 1993. At
December 31, 1995, Madison First Federal's nonperforming assets totaled $8,000
or 0.01 percent of assets. Nonperforming assets consist of loans delinquent 90
days or more.
Madison First Federal's level of nonperforming assets is less than its
level of classified assets. The Association's level of classified assets was
$105,000 or 0.10 percent of assets at March 31, 1996 (reference Exhibit 17). The
Association's classified assets consisted of $97,000 in substandard assets, with
no assets classified as doubtful and $8,000 classified as loss.
Exhibit 18 shows Madison First Federal's allowance for loan losses at
March 31, 1996, and for fiscal years 1993 through 1995, indicating the activity
and the resultant balances. Madison First Federal has witnessed a significant
increase in its balance of allowance for loan losses from $227,000 in 1993 to
$413,000 at March 31, 1996, with provisions of $55,000 in 1993, $29,000 in 1994
and $150,000 in fiscal 1995. During the first three months of 1996, the
Association applied an additional provision of $6,000. The Association had net
charge-offs of $90,000 in 1993, $4,000 in 1994, a $5,000 recovery in 1995 and no
charge-offs or recoveries in the first three months of 1996. The Association's
ratio of allowance for loan losses to total loans increased from 0.44 percent at
December 31, 1993, to 0.70 percent at December 31, 1995, due to an increase in
26
<PAGE>
Nonperforming Assets (cont.)
allowances with no meaningful increase in loans. The allowance for loan losses
to gross loans was a higher 0.72 percent at March 31, 1996. Allowance for loan
losses to nonperforming assets were 3,242.86 percent at December 31, 1993, and a
lesser 1376.67 percent at March 31, 1996.
INVESTMENTS
The investment and securities portfolio of Madison First Federal has
been comprised of U.S. government and federal agency securities, mortgage-backed
securities, asset management funds, and FHLB stock and a small amount of
derivatives. Exhibit 19 provides a summary of Madison First Federal's investment
portfolio at December 31, 1993 through 1995, and at March 31, 1996. Investments
were $10.6 million at March 31, 1996, compared to $13.6 million at December 31,
1995, and $10.1 million at December 31, 1993. The primary component of
investments and securities at March 31, 1996, was U.S. government and federal
agency securities, representing 50.6 percent of investments and securities,
followed by mortgage-backed securities, representing 46.3 percent, for a
combined total of 96.9 percent. The securities portfolio had a weighted average
yield of 5.25 percent, and the mortgage-backed securities had a weighted average
yield of 6.13 percent. The Association's liquid assets are comprised of cash and
cash equivalents and short-term government securities and totaled $28.0 million
or 31.71 percent of assets at March 31, 1996, including $8.8 million in cash and
cash equivalents.
The Association had mortgage-backed securities with a book value of
$9.1 million at March 31, 1996, which decreased from $9.9 million at December
31, 1995, and decreased from $13.9 million at December 31, 1993. Mortgage-backed
securities are included in total investments and securities and shown in Exhibit
19. Mortgage-backed securities represented a strong 46.3 percent of total
investments and securities at March 31, 1996, and a greater 59.5 percent at
December 31, 1993.
DEPOSIT ACTIVITIES
The change in the mix of deposits from December 31, 1993, to March 31,
1996, is provided in Exhibit 20. There has been a moderate change in both total
deposits and in the deposit mix during this period. Certificates of deposit
witnessed a moderate increase in their share of deposits, rising from a more
modest 50.2 percent of deposits at December 31, 1993, to a stronger 56.7 percent
at March 31, 1996, but still moderate level. The major component of certificates
had rates between 5.0 percent and 5.99 percent and consisted of 58.5 percent of
certificates at March 31, 1996. At December 31, 1993, however, the major
component of certificates was the 3.00 percent to 3.99 percent category with
64.8 percent of deposits. Passbook accounts decreased in dollar amount from
$23.1 million to $17.2 million, and their share of deposits decreased from 29.6
percent to 21.7 percent from December 31, 1993, to March 31, 1996, with modest
decreases in rates during that period. NOW and money market accounts indicated a
modest increase in their share from 20.2 percent in 1993 to 21.6 percent at
March 31, 1996.
Exhibit 21 shows the Association's deposit activity for the three years
ended December 31, 1993 to 1995. With interest credited, Madison First Federal
experienced net decreases in deposits in fiscal years 1994 and 1995, and an
increase in fiscal year 1993. In fiscal year 1993 there was a net increase in
deposits of $1.4 million or 1.8 percent. In fiscal year 1994, there was a net
decrease in deposits of $2.6 million or 3.4 percent and in 1995, a net decrease
of $225,000 or 0.3 percent as net withdrawals exceeded interest credited.
BORROWINGS
Madison First Federal has relied on retail deposits as its primary
source of funds, making minimal use of FHLB advances during the past three
fiscal years ended December 31, 1995. Exhibit 22 shows the Association's balance
of FHLB advances at December 31,
27
<PAGE>
Borrowings (cont.)
1993 through December 31, 1995, and at March 31, 1996. The Association's
advances were zero at December 31, 1993, increasing to $5.0 million at December
31, 1994, and decreasing to $4.5 million at December 31, 1995, then down to $2.0
million at March 31, 1996. The average interest rate on those advances was 5.26
percent in 1994, 5.90 percent in 1995 and 5.94 percent for the three months
ended March 31, 1996.
SUBSIDIARIES
Madison First Federal has two wholly-owned subsidiaries, Madison First
Service Corporation ("First Service") and McCauley Insurance Agency, Inc.
("McCauley"). First Service was organized in 1973 and simply owns all of the
outstanding stock of McCauley. The Association's investment in First Service was
$701,000, and First Service's investment in McCauley was $487,000 as of March
31, 1996. The Association's other subsidiary, McCauley, is engaged in the sale
of retail insurance products, including general fire and accident, car, home,
and life to Madison First Federal's customers and to the public. In fiscal year
1995, McCauley received $175,000 in insurance commissions.
OFFICE PROPERTIES
Madison First Federal has three offices, a home office and branch
located in Madison and a branch in Hanover. The Association also has a drive-up
window facility in Madison. Madison First Federal owns its three offices and
drive-up facility, and Exhibit 23 provides a breakdown of the Association's
investment in its office premises, excluding furniture, fixtures and equipment,
which totaled $784,000 or 0.89 percent of assets at March 31, 1996.
28
<PAGE>
MANAGEMENT
The president, chief executive officer, and managing officer of Madison
First Federal is James E. Fritz. Mr. Fritz joined the Association in 1995, as
President and Chief Executive Officer. Prior to that, Mr. Fritz was Chief
Financial Officer of First Federal Savings Bank of Kokomo, Indiana. Mr. Robert
W. Anger serves the Association as Vice President - Lending and previously
served the Association as President and Chief Executive Officer. Mr. Anger also
serves as a director, having held this position since 1981 (reference Exhibit
24).
FINANCIAL OVERVIEW OF CITIZENS NATIONAL BANK
Exhibit 25 through 27 provide key financial data for Citizens. Citizens
was organized in 1981 as a national bank and currently has four offices.
Citizens will continue to operate as an independent bank continuing to provide
its same services with no initial plan to consolidate offices or reduce staff.
Citizens had assets of $58.1 million at March 31, 1996, and deposits of
$52.7 million (reference Exhibit 25). The Bank had equity of $3.4 million or 5.9
percent of assets at March 31, 1996, compared to 6.2 percent at December 31,
1995. The Bank is a member of the Federal Home Loan Bank of Indianapolis and had
advances of $1.5 million at March 31, 1996.
The Bank had earnings of $342,000 in its most recent fiscal year ended
December 31, 1995, representing a 0.71 percent return on assets (reference
Exhibit 26). For the three months ended March 31, 1996, the Bank had net income
of $22,000, representing an annualized return on average assets of 0.16 percent.
The lower earnings are due to the Bank's higher quarterly loan loss provision.
29
<PAGE>
Financial Overview of Citizens National Bank (cont.)
Exhibit 27 provides a summary of key performance indicators for
Citizens for the past five fiscal years of 1991 through 1995, and for the three
months ended March 31, 1996. The Bank indicated profitable performance for each
period with a return on assets of 0.40 percent in 1991, increasing to 0.87
percent in 1994, decreasing to 0.71 percent in 1995, and decreasing further to
0.16 percent for the three months ended March 31, 1996, annualized, due to the
Bank's higher quarterly loan loss provision. The Bank's return on equity
followed a similar trend increasing from 5.40 percent in 1991 to 11.27 percent
in 1994, decreasing to 10.69 percent in 1995, and decreasing further to 2.57
percent. The Bank's equity to assets has decreased from 7.55 percent in 1991 to
6.23 percent in 1995 to 5.93 percent at March 31, 1996. The Bank's interest rate
spread decreased from 3.90 percent in 1991 to 3.78 percent in 1995, and to 3.10
percent for the three months ended March 31, 1996, compared to an increase in
the Bank's net interest margin from 3.41 percent in 1991 to 4.25 percent in
1995, with a decline to 3.69 percent for the three months ended March 31, 1996.
That recent decrease is reflective of the Bank's combined decrease in yield and
increase in cost of funds.
The Bank's ratio of nonperforming assets to total assets was a modest
0.45 percent of assets at March 31, 1996, compared to a lower 0.05 percent at
December 31, 1991, while the Bank's ratio of allowance for loan losses to total
loans decreased from 1.85 percent in 1991 to 1.15 percent at March 31, 1996,
which represented 182.4 percent of nonperforming loans.
The Bank's operating expenses to assets increased from 3.64 percent in
1991 to 3.89 percent in 1995, and then decreased to 3.26 percent for the three
months ended March 31, 1996.
30
<PAGE>
II. DESCRIPTION OF PRIMARY MARKET AREA
Madison First Federal Savings and Loan Association's primary market
area is Jefferson County, Indiana, including the city and community of Madison,
which is located in Jefferson County. The Association's home office and one of
its two branches are located in the City of Madison with its second branch in
Hanover.
The Association's economic performance has been very dependent on the
overall market and economic trends in Jefferson County. Jefferson County is a
small, rural county with no major cities within its boundaries. The county is
characterized by a few moderately sized employers and industries with a very low
level of residents employed in agriculture or construction. Madison lies on a
large northward bend of the Ohio River. Madison also sits in the middle of an
imaginary triangle formed by the major markets of Louisville, Kentucky;
Indianapolis, Indiana; and Cincinnati, Ohio. Most of the schools in Jefferson
County are located in the city of Madison, which is also the county seat of
Jefferson County. The two largest major industrial employers of Jefferson County
are involved in the manufacturing industry, specifically products related to the
automotive industry.
Exhibit 28 provides a summary of key demographic data and trends for
the United States, Ohio, Jefferson County and Madison City for the periods of
1990, 1995, and 2000. Madison indicated a lower increase in population in the
early 1990s than the other three geographic regions. Overall, the period of 1990
to 1995 was characterized by a rise in the national population of 5.7 percent
compared to an increase in population of 4.6 percent in Indiana and of 3.1
percent in Jefferson County which rose from 29,747 to 30,679 residents. During
the same time, population increased in Madison from 20,561 residents to 20,858,
or by 1.4 percent. From 1995 through 2000, population is projected to continue
to rise in the United States by 5.4 percent, in Indiana by 4.2 percent and in
Jefferson County by 2.7 percent to 31,520. Madison is expected to continue
growing at a somewhat higher rate of 2.0 percent to 21,271 by 2000.
31
<PAGE>
II. Description of Primary Market Area (cont.)
Consistent with the population growth trends, Jefferson County
witnessed an increase in households from 10,897 to 11,250 or 3.2 percent from
1990 to 1995, and households in Madison rose from 7,880 to 7,996 or by 1.5
percent. From 1995 to 2000, it is projected that Jefferson County will
experience a 2.9 percent increase in its level of households, rising to 11,572,
while the number of households in Madison is projected to grow by 2.0 percent to
8,153 households during that five year period. These increases are lower than
Indiana's increases in households of 4.6 percent and 4.2 percent, and also
comparable to the United States' increases of 5.7 percent and 5.4 percent from
1990 to 1995 and from 1995 to 2000, respectively.
Both Madison City and Jefferson County had lower per capita income
levels than Indiana or the United States in 1990 and 1995. Madison's per capita
income level was a low $9,737 in 1990, compared to a higher $11,631 for
Jefferson County, $11,822 for Indiana, and $12,313 for the United States. By
1995, Madison had experienced a significant 68.0 percent increase in its per
capita income, reaching $16,359, similar to Indiana's and the United States 1995
per capita income levels of $16,405 and $16,671, respectively. Jefferson County
also experienced a large increase in its per capita income, growing to $15,558
by 1995.
Madison exhibited higher median household income growth levels from
1990 to 1995 than Jefferson County, Indiana, or the United States, increasing by
a large 62.7 percent, as Jefferson County also rose by a similar 62.6 percent.
In 1990, the United States had a median household income of $28,255 compared to
$28,380 in Indiana, a lower $21,280 in Jefferson County, and a lower $21,177 in
Madison. By 1995, Madison and Jefferson County had eclipsed the national median
household income level, reaching $34,456 for Madison and $34,597 for Jefferson
County but continued to be well below Indiana's median household income of
$36,137. Through 1995, Indiana's median household income also rose faster than
the national average, to $36,137, well above Madison and Jefferson County. By
the year 2000, Madison is projected to experience the
32
<PAGE>
II. Description of Primary Market Area (cont.)
largest increase of 4.6 percent, rising to a $36,036 median household income.
Jefferson County and Indiana will also elevate their respective median household
income levels to $36,092 for Jefferson County and $36,848 for Indiana.
The major business source of personal income by industry group in
Jefferson County, based on total wages, was the manufacturing industry,
contributing 33.8 percent of the wages in 1993, which was somewhat lower than
Indiana at 39.3 percent but higher than the United States at 24.8 percent
(reference Exhibit 29). The County's strong manufacturing industry includes
seven of the top nine employers. The major employers in Jefferson County are:
Employer Product/Service Number of Employees
- -------- --------------- --------------------
Grote Industries Manufacturing 1,144
King's Daughters' Hospital Services 630
Rotary Lift Manufacturing 500
Reliance Electric Manufacturing 420
Indiana-Kentucky Electric Services 406
Arvin Sango, Inc. Manufacturing 349
Holset Engineering Manufacturing 336
Nine West Group, Inc. Manufacturing 330
Madison Precision Products Manufacturing 292
The major provider of income in the United States was the services
industry with a 31.0 percent share in 1992, while manufacturing was the major
provider in Indiana at 39.3 percent. The leading provider of income in Jefferson
County was also manufacturing at 33.8 percent. The services sector was a close
second in Jefferson County with 29.9 percent of personal income, and the
wholesale/retail trade was the third major contributor in Jefferson County at
24.0 percent, compared to 17.0 percent in Indiana. The
33
<PAGE>
II. Description of Primary Market Area (cont.)
manufacturing industry was the second major source of personal income in the
United States at 24.8 percent of personal income, while the services group was
second in Indiana at 23.5 percent. The construction, finance, insurance and real
estate, transportation/utilities, and the agriculture/mining groups combined to
contribute 12.3 percent of the wages earned in Jefferson County, 20.2 percent of
wages earned in Indiana, and 24.4 percent in the United States. The mix of
income sources by industry groups for Jefferson County was similar to Indiana's
mix, in the sense that the top three categories in Jefferson County are also the
top categories, in order, in Indiana.
Exhibit 30 provides a summary of key housing data for Madison,
Jefferson County, Indiana, and the United States. Madison is characterized by a
similar share of owner-occupied housing at 70.9 percent to Indiana at 70.2
percent, which are lower than Jefferson County at 73.2 percent, but higher than
the United States at 64.2 percent. Madison supports a rate of renter-occupied
housing of 29.1 percent compared to 26.8 percent for Jefferson County, which is
lower than Indiana at 29.8 percent, and the United States at 35.8 percent.
Madison had a median housing value of $46,432 which is 3.4 percent higher than
Jefferson County's value of $44,899, 13.9 percent lower than Indiana's value of
$53,909, and considerably lower than the United States' median housing value of
$79,098 by 41.3 percent. Madison had a median rent of $215, equaling the $215
median rent for Jefferson County, but lower than Indiana's figure of $291, and
considerably lower than the United States at $374.
An economic indicator that pertains more directly to the banking and
thrift industries is the issuance of new housing permits (reference Exhibit 31).
In 1991, 31 new housing permits were issued in Madison, as Jefferson County
issued 75 new housing permits. Indiana issued 20,460 new housing permits, and
there were 796,647 issued in the United States. In 1992, Madison issued 104 new
housing permits, a substantial 235.5 percent increase from 1991. A significant
increase was also experienced in Jefferson County, which increased its issuance
of new housing permits by 168, or an increase of
34
<PAGE>
II. Description of Primary Market Area (cont.)
124.0 percent from 1991. Indiana and the United States witnessed growth rates of
25.6 percent and 20.1 percent, respectively, with 25,698 and 956,494 new housing
permits authorized. In 1993, however, Indiana and the United States witnessed
less significant growth, as this year saw both Jefferson County and Madison
decrease in new housing permits. The City of Madison issued 63 new housing
permits, decreasing by 39.4 percent from 1993, as Jefferson County decreased by
a smaller 26.8 percent to 123 new housing permits. In 1994, Jefferson County and
Madison rebounded somewhat by issuing 134 new housing permits and 68 new housing
permits, respectively. These figures represent increases of 8.9 percent for
Jefferson County and 7.9 percent for Madison.
The unemployment rate is another key economic indicator. Exhibit 32
shows the average unemployment rates in Jefferson County, Indiana, and the
United States in 1990, 1993 and February, 1996. Jefferson County has
historically had rates similar to Indiana and the United States. The County has
experienced a steady decline in its unemployment rate from 1990 to the beginning
of 1996. Jefferson County's unemployment level was above Indiana's and the
United States' levels in 1990, but fell below the national figure of 6.8 percent
in 1993, to 5.6 percent, which was similar to the unemployment rate of Indiana
of 5.3 percent. Unemployment declined in Jefferson County and the United States
through February of 1996. In February of 1996, Jefferson County had an
unemployment rate of 5.4 percent, compared to rates of 5.0 percent in Indiana
and 6.0 percent for the United States.
Exhibit 33 provides deposit data for financial institutions in the
Association's market area, Jefferson County and Madison. Madison First Federal's
market penetration in Jefferson County was 66.8 percent of thrift deposits and
21.4 percent of all financial institution and credit union deposits which
totaled $323 million. In the City of Madison, Madison First Federal's market
penetration increases slightly to 74.3 percent of thrift deposits and 23.9
percent of all financial institution deposits. This indicates that much of the
financial competition in Jefferson County lies within the City of Madison.
35
<PAGE>
II. Description of Primary Market Area (cont.)
Exhibit 34 provides interest rate data for each quarter for the years
1992 through 1995. The rates tracked are the prime rate, as well as 90-day,
one-year and thirty-year treasury bills. Rates experienced a declining trend in
the first two quarters of 1992, but then began to rise in the second half of the
year. In 1993 rates experienced slight volatility until the last two quarters,
which indicated the beginning of a rising trend. This rising trend continued
throughout all of 1994 and into the first quarter of 1995 with prime at 9.00
percent. However, throughout 1995, interest rates saw dramatic decreases, as the
prime rate fell to its 1994 year end level of 8.50 percent. Such decrease in the
prime rate continued through the first quarter of 1996 as it fell to 8.25
percent. Rates on T-bills, however, witnessed an increase with 30-year treasury
bills experiencing the largest increase.
SUMMARY
To summarize, the Jefferson County market in general, and specifically
Madison, represents an industrial community that is growing slowly in terms of
population and households, but rapidly in regard to per capita income and median
household income even though the County's income levels are well below state and
national averages. The market is dominated by the manufacturing industry, which
provides a third of all personal income in Jefferson County. The Jefferson
County market area also has a much lower median rent level typical of rural
markets, and a much lower median housing value than the rest of the state and
country. The level of new housing has increased considerably since 1991,
although it has seen some instability. Further, Jefferson County has a financial
institution market that is somewhat dominated by banks with a deposit base that
exceeds $323 million in deposits for the entire county as of June 30, 1995.
36
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III. COMPARABLE GROUP SELECTION
Introduction
Integral to the valuation of Madison First Federal is the selection of
an appropriate group of publicly-traded thrift institutions, hereinafter
referred to as the "comparable group". This section identifies the comparable
group and describes each parameter used in the selection of each institution in
the group, resulting in a comparable group based on such specific and detailed
parameters, current financials and recent trading prices. The various
characteristics of the selected comparable group provide the primary basis for
making the necessary adjustments to the Association's pro forma value relative
to the comparable group. There is also a recognition and consideration of
financial comparisons with all publicly-traded, SAIF- insured thrifts in the
United States and all publicly-traded, SAIF-insured thrifts in the Midwest and
in Indiana.
Exhibits 35 and 36 present Thrift Stock Prices and Pricing Ratios and
Key Financial Data and Ratios, respectively, both individually and in aggregate,
for the universe of 327 publicly-traded, SAIF-insured thrifts in the United
States ("all thrifts"), excluding mutual holding companies, used in the
selection of the comparable group and other financial comparisons. Exhibits 35
and 36 also subclassify all thrifts by region, including the 150 Midwest thrifts
("Midwest thrifts") and the 22 thrifts in Indiana ("Indiana thrifts"), and by
trading exchange. Exhibit 37 presents prices, pricing ratios and price trends
for all SAIF- insured thrifts completing their conversions between July 1, 1995,
and May 3, 1996.
The selection of the comparable group was based on the establishment of
both general and specific parameters using financial, operating and asset
quality characteristics of Madison First Federal as determinants for defining
those parameters. The determination of parameters was also based on the
uniqueness of each parameter as a normal indicator
37
<PAGE>
Introduction (cont.)
of a thrift institution's operating philosophy and perspective. The parameters
established and defined are considered to be both reasonable and reflective of
Madison First Federal's basic operation. Inasmuch as the comparable group must
consist of at least ten institutions, the parameters relating to asset size and
geographic location have been expanded as necessary in order to fulfill this
requirement.
GENERAL PARAMETERS
Merger/Acquisition
The comparable group will not include any institution that is in the
process of a merger or acquisition due to the price impact of such a pending
transaction. The thrift institutions that were potential comparable group
candidates but were not considered due to their involvement in a
merger/acquisition or a potential merger/acquisition include the following:
Institution State
----------- -----
Barrington Bancorp, Inc. Illinois
Financial Security Corp. Illinois
Workingmens Capital Holdings Indiana
Marshalltown Financial Corp. Iowa
LFS Bancorp, Inc. Kentucky
Circle Financial Corporation Ohio
Third Financial Corp. Ohio
No thrift institutions in Madison First Federal's city, county or
market area are currently involved in merger/acquisition activity or have been
recently so involved, as indicated in Exhibit 38.
38
<PAGE>
Mutual Holding Companies
The comparable group will not include any mutual holding companies.
Mutual holding companies typically demonstrate higher price to book valuation
ratios that are the result of their minority ownership structure that are
inconsistent with those of conventional, publicly-traded institutions. Exhibit
39 presents pricing ratios and Exhibit 40 presents key financial data and ratios
for all publicly-traded, SAIF-insured mutual holding companies in the United
States. The following thrift institutions were potential comparable group
candidates, but were not considered due to their mutual holding company form:
Institution State
Wayne Savings & Loan Co., MHC Indiana
Webster City Federal SB, MHC Iowa
Pulaski Association, Savings Association, MHC Missouri
Trading Exchange
It is necessary that each institution in the comparable group be listed
on one of the two major stock exchanges, the New York Stock Exchange or the
American Stock Exchange, or traded over-the-counter ("OTC") and listed on the
National Company of Securities Dealers Automated Quotation System ("NASDAQ").
Such a listing indicates that an institution's stock has demonstrated trading
activity and is responsive to normal market conditions, which are requirements
for listing. Of the 346 publicly-traded, SAIF- insured institutions, including
19 mutual holding companies, 14 are traded on the New York Stock Exchange, 17
are traded on the American Stock Exchange and 315 are listed on NASDAQ.
39
<PAGE>
IPO Date
Another general parameter for the selection of the comparable group is
the initial public offering ("IPO") date, which must be at least four quarterly
periods prior to the trading date of May 3, 1996, used in this report, in order
to insure at least four consecutive quarters of reported data as a
publicly-traded institution. The resulting parameter is a required IPO date
prior to December 31, 1994.
Geographic Location
The geographic location of an institution is a key parameter due to the
impact of various economic and thrift industry conditions on the performance and
trading prices of thrift institution stocks. Although geographic location and
asset size are the two parameters that have been developed incrementally to
fulfill the comparable group requirements, the geographic location parameter has
definitely eliminated regions of the United States distant to Madison First
Federal, including the western states, the Southeastern states and the New
England states.
The geographic location parameter consists of Indiana, its surrounding
states of Michigan, Ohio, Illinois, and Kentucky, as well as the states of Iowa,
Missouri and Wisconsin for a total of eight states. To extend the geographic
parameter beyond those states could result in the selection of similar thrift
institutions with regard to financial conditions and operating characteristics,
but with different pricing ratios due to their geographic regions. The result
could then be an unrepresentative comparable group with regard to price relative
to the parameters and, therefore, an inaccurate value.
40
<PAGE>
Asset Size
Asset size was another key parameter used in the selection of the
comparable group. The maximum total assets for any comparable group institution
considered was $350 million, due to the typically different operating
strategies, expansion capabilities, liquidity of stock and acquisition appeal of
larger institutions when compared to Madison First Federal, with assets of
approximately $88 million. Such an asset size parameter was necessary to obtain
a comparable group of at least ten institutions.
In connection with asset size, we did not consider the number of
offices or branches in selecting or eliminating candidates since this
characteristic is directly related to operating expenses, which are recognized
as an operating performance parameter.
SUMMARY
Exhibits 41 and 42 show the 44 institutions considered as comparable
group candidates after applying the general parameters, with the shaded lines
denoting the institutions ultimately selected for the comparable group using the
balance sheet, performance and asset quality parameters established in this
section.
41
<PAGE>
BALANCE SHEET PARAMETERS
Introduction
The balance sheet parameters focused on seven balance sheet ratios as
determinants for selecting a comparable group, as presented in Exhibit 41. The
balance sheet ratios consist of the following:
1. Cash and Investments/Assets
2. Mortgage-Backed Securities/Assets
3. One- to Four-Family Loans/Assets
4. Total Net Loans/Assets
5. Total Net Loans and Mortgage-Backed Securities/Assets
6. Borrowed Funds/Assets
7. Equity/Assets
The parameters enable the identification and elimination of thrift
institutions that are distinctly different from Madison First Federal with
regard to asset mix. The balance sheet parameters also distinguish institutions
with a significantly different capital position from Madison First Federal. The
ratio of deposits to assets was not used as a parameter as it is directly
related to and affected by an institution's equity and borrowed funds ratios,
which are separate parameters.
Equity to Assets
Madison First Federal's equity to assets ratio as of March 31, 1996,
was 7.47 percent. The equity to assets ratio for Madison First Federal after
conversion, based on the midpoint value of $9,000,000 and net proceeds to the
Association of approximately $3.4 million, is projected to stabilize in the area
of 11.0 percent. Based on those equity ratios, we have defined the equity ratio
parameter to be 7.0 percent to 20.0 percent with a midpoint ratio of 13.5
percent.
42
<PAGE>
One- to Four-Family Loans to Assets
Madison First Federal's lending activity is focused on the origination
of residential mortgage loans secured by one- to four-family dwellings. One- to
four-family loans, including construction loans, represented 50.4 percent of the
Association's assets at March 31, 1996, which is below industry averages and
related to the Association's higher than average level of cash and investments.
The parameter for this characteristic requires any comparable group institution
to have from 40.0 percent to 70.0 percent of its assets in one- to four-family
loans with a midpoint of 55.0 percent.
Cash and Investments to Assets
Madison First Federal's level of cash and investments to assets was
21.2 percent at March 31, 1996, and reflects the Association's level of
investments higher than national and regional averages. The Association's
investments consist primarily of federal agency securities and FHLB time
deposits. It should be noted that for the purposes of comparable group selection
and comparison, Federal Home Loan Bank stock is included in other assets rather
than in investments. During the past five fiscal years, Madison First Federal's
level of cash and investments to assets has averaged 16.0 percent, from a high
of 19.0 percent at December 31, 1994, to a low of 9.6 percent in 1991.
The parameter range for cash and investments is broad due to the
volatility of this parameter and to prevent the elimination of otherwise good
potential comparable group candidates. The range has been defined as 5.0 percent
of assets to 40.0 of assets, with a midpoint of 22.5 percent.
43
<PAGE>
Mortgage-Backed Securities to Assets
At March 31, 1996, Madison First Federal's ratio of mortgage-backed
securities to assets was 10.4 percent, similar to the regional average of 10.7
percent and below the national average of 14.2 percent. Inasmuch as many
institutions purchase mortgage-backed securities as an alternative to lending
relative to cyclical loan demand and prevailing interest rates, this parameter
is moderately broad at 25.0 percent or less of assets and a midpoint of 12.5
percent.
Total Net Loans to Assets
At March 31, 1996, Madison First Federal had a ratio of total net loans
to assets of 65.0 percent and a five fiscal year average of 67.0 percent. The
parameter for the selection of the comparable group is from 45.0 percent to 85.0
percent with a midpoint of 67.5 percent. The wider range is simply due to the
fact, as stated above, that many institutions purchase a greater or smaller
volume of mortgage-backed securities as an alternative to lending, but may
otherwise be similar to Madison First Federal.
Total Net Loans and Mortgage-Backed Securities to Assets
As discussed previously, Madison First Federal's shares of
mortgage-backed securities to assets and total net loans to assets were 10.4
percent and 65.0 percent, respectively, for a combined share of 75.4 percent.
Recognizing the industry and regional ratios of 14.2 percent and 10.7 percent,
respectively, of mortgage-backed securities to assets, the parameter range for
the comparable group in this category is 55.0 percent to 95.0 percent, with a
midpoint of 75.0 percent.
44
<PAGE>
Advances to Assets
Madison First Federal had FHLB advances of $2.0 million at March 31,
1996, less than its advances of $4.5 million at December 31, 1995, and $5.0
million at December 31, 1994. The use of borrowed funds by some thrift
institutions indicates an alternative to retail deposits and may provide a
source of term funds for lending. The federal insurance premium on deposits has
also increased the attractiveness of borrowed funds.
The public demand for longer term funds increased in 1994 and the first
half of 1995 due to the rise in interest rates. The result was competitive rates
on longer term Federal Home Loan Bank advances, and an increase in borrowed
funds by many institutions as an alternative to higher cost, long term
certificates. The ratio of borrowed funds to assets, therefore, does not
typically indicate higher risk or more aggressive lending, but primarily an
alternative to retail deposits.
The required range of borrowed funds to assets is 30.0 percent or less
with a midpoint of 15.0 percent, similar to the national average of 12.0
percent.
PERFORMANCE PARAMETERS
Introduction
Exhibit 42 presents five parameters identified as key indicators of
Madison First Federal's earnings performance and the basis for such performance.
The primary performance indicator is the Association's return on average assets
("ROAA"). The second performance indicator is the Association's return on
average equity ("ROAE"). To measure the Association's ability to generate net
interest income, we have used net interest margin. The supplemental source of
income for the Association is noninterest income, and the parameter used to
measure this factor is noninterest income to assets. The final performance
indicator that has been identified is the Association's ratio of operating
45
<PAGE>
Introduction (cont.)
expenses to assets (noninterest expenses to assets), a key factor in
distinguishing different types of operations, particularly institutions that are
aggressive in secondary market activities which results in much higher operating
costs and overhead ratios.
Return on Average Assets
The key performance parameter is the ROAA. Madison First Federal's most
recent ROAA was 0.20 percent for the twelve months ended March 31, 1996, based
on net earnings after taxes and 0.26 percent based on core or normalized
earnings after taxes as detailed in Item I of this report and presented in
Exhibit 7. The Association's ROAA over the past five calendar years, based on
net earnings, has ranged from a low of 0.30 percent in 1995 to a high of 0.86
percent in 1993 with an average ROAA of 0.62 percent. For the four quarters
following conversion in early 1996, Madison First Federal's ROAA is projected to
range between 0.50 percent and 0.60 percent, with modest additional increases
projected through the end of 1998.
Considering primarily the historical, current and projected earnings
performance of Madison First Federal, the range for the ROAA parameter based on
net income has been defined as 0.15 percent to a high of 0.90 percent with a
midpoint of 0.53 percent.
Return on Average Equity
The ROAE has been used as a secondary parameter to eliminate any
institutions with an unusually high or low ROAE that is inconsistent with the
Association's position. This parameter does not provide as much meaning for a
newly converted thrift institution
46
<PAGE>
Return on Average Equity (cont.)
as it does for established stock institutions, due to the newness of the capital
structure of the newly converted thrift and the inability to accurately reflect
a mature ROAE for the newly converted thrift relative to other stock
institutions.
The consolidated ROAE for the Association and the Corporation on a pro
forma basis at the time of conversion is 2.00 percent based on the midpoint
valuation. Prior to conversion, the Association's ROAE was 2.70 percent for the
twelve months ended March 31, 1996, based on net income, with a much higher five
year average ROAE of 9.85 percent. The parameter range for the comparable group,
based on net income, is from 2.0 percent to 9.0 percent with a midpoint of 5.5
percent.
Net Interest Margin
Madison First Federal had a net interest margin of 2.54 percent for the
twelve month period ended March 31, 1996, based on average interest-earning
assets. The Association's range of net interest margin for the past five fiscal
years has been from a low of 2.61 percent in 1995 to a high of 3.35 percent in
1992 with an average of 3.06 percent.
The parameter range for the selection of the comparable group is from a
low of 1.75 percent to a high of 3.50 percent with a midpoint of 2.63 percent.
Operating Expenses to Assets
Madison First Federal had a generally average operating expense to
average assets ratio of 2.36 percent for the twelve months ended March 31, 1996.
The Association's ratio of operating expenses to average assets for the last
five years has ranged from a low
47
<PAGE>
Operating Expenses to Assets (cont.)
of 2.09 percent in 1991 to a high of 2.36 percent in 1992 with an average of
2.21 percent, similar to the current industry average of approximately 2.28
percent.
The operating expense to assets parameter for the selection of the
comparable group is from a low of 1.50 percent to a high of 3.25 percent with a
midpoint of 2.38 percent.
Noninterest Income to Assets
Madison First Federal has experienced an average dependence on
noninterest income as a source of additional income, at least half of which has
historically consisted of insurance commissions generated by its subsidiary,
McCauley Insurance Agency. During the twelve months ended March 31, 1996, such
commissions constituted 49.7 percent of the Association's noninterest income.
The Association's noninterest income to average assets was 0.43 percent for the
twelve months ended March 31, 1996, which is identical to the industry average
for that period. Madison First Federal's noninterest income for the past five
fiscal years, including insurance commissions, has been stable, ranging from a
high of 0.44 percent of assets in 1993 to a low of 0.38 percent in 1991 with an
average ratio of 0.41 percent.
The range for this parameter for the selection of the comparable group
is 0.80 percent of assets or less, with a midpoint of 0.40 percent.
48
<PAGE>
ASSET QUALITY PARAMETERS
Introduction
The final set of financial parameters used in the selection of the
comparable group are asset quality parameters, also shown in Exhibit 42. The
purpose of these parameters is to insure that any thrift institution in the
comparable group has an asset quality position similar to that of Madison First
Federal. The three defined asset quality parameters are the ratios of
nonperforming assets to total assets, repossessed assets to total assets and
loan loss reserves to total assets at the end of the most recent period.
Nonperforming Assets to Assets Ratio
Madison First Federal's ratio of nonperforming assets to assets was a
very low 0.03 percent at March 31, 1996, which is considerably lower than both
the national average of 1.48 percent and the Midwest regional average of 0.54
percent and similar to the Association's ratio of 0.01 percent at December 31,
1995, 1994 and 1993. For the five fiscal years ended December 31, 1991 to 1995,
the Association's ratio decreased significantly from a high of 0.18 percent at
December 31, 1992, to a low of 0.01 percent at December 31, 1995, 1994, and
1993, with a five year average of 0.08 percent.
The parameter range for nonperforming assets to assets has been defined
as 0.60 percent of assets or less with a midpoint of 0.30 percent, significantly
below the industry average.
49
<PAGE>
Repossessed Assets to Assets
Madison First Federal had no repossessed assets at March 31, 1996, or
at December 31, 1995, 1994 and 1993. At December 31, 1992 and 1991, the
Association's ratio of repossessed assets to total assets was 0.02 percent and
0.05 percent, respectively, for a nominal five year average of 0.01 percent. The
industry average was 0.67 percent at March 31, 1996, and the regional average
was 0.48 percent.
The range for the repossessed assets to total assets parameter is 0.20
percent of assets or less with a midpoint of 0.10 percent.
Loans Loss Reserves to Assets
Madison First Federal had a loan loss reserve or allowance for loan
losses of $413,000, representing a loan loss allowance to total assets ratio of
0.47 percent at March 31, 1996, which is equal to its ratio of 0.47 percent at
December 31, 1995, but higher than its ratio of 0.29 percent at December 31,
1994.
The loan loss allowance to assets parameter range used for the
selection of the comparable group focused on a minimum required ratio of 0.15
percent of assets.
THE COMPARABLE GROUP
With the application of the parameters previously identified and
applied, the final comparable group represents ten institutions identified in
Exhibits 43, 44 and 45. The comparable group institutions range in size from
$70.3 million to $313.7 million with an average asset size of $180.0 million and
have an average of 4.2 offices per institution compared to Madison First Federal
with assets of $88.3 million and 3 offices. One of the comparable group
institutions was converted in 1990, five in 1993 and four in 1994.
50
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THE COMPARABLE GROUP (cont.)
Exhibit 46 presents a comparison of Madison First Federal's market area
demographic data with that of each of the institutions in the comparable group.
51
<PAGE>
SUMMARY OF COMPARABLE GROUP INSTITUTIONS
First Bancshares, Inc., Mountain Grove, Missouri, is a unitary savings
and loan holding company for the First Home Savings Bank, with three full
service branches in Marshfield, Ava and Gainesville, Missouri. The Bank has
assets of $140.4 million, equity of $23.7 million and had an ROAA of 0.79
percent for its most recent four quarters.
FFW Corporation, Wabash, Indiana, is the holding company of First
Federal Savings Bank of Wabash, and operates three offices, two of which are in
Wabash County, Indiana. The third office is located in nearby Kosciusko County,
giving the Bank a combined market area population of 102,500. The Company has an
asset size of $146.0 million with equity of $16.5 million and indicated a recent
ROAA of 0.87 percent.
First Financial Bancorp, Inc., Belvidere, Illinois, is the holding
company for First Federal Savings Bank of Belvidere. The Bank serves Boone and
Winnebago Counties in Illinois with two full service offices in Belvidere and a
loan origination office in Rockford, Illinois. The Bank has assets of $72.1
million and reported an ROAA of 0.88 percent.
Glenway Financial Corp., Cincinnati, Ohio, is the holding company for
Centennial Savings Bank. The Bank serves the Hamilton County market area from
its six full service offices. The Bank has total assets of $278.6 million, total
equity of $26.2 million, and ROAA of 0.56 percent.
Hallmark Capital Corp., West Allis, Wisconsin, is the unitary holding
company for West Allis Savings Bank, serving the metropolitan Milwaukee area
from its three offices. The Bank had total assets of $313.7 million and equity
$26.4 million at the end of its most recent quarter and had an ROAA of 0.56
percent for its four most recent quarters.
52
<PAGE>
Summary of Comparable Group Institutions (cont.)
Harvest Home Financial Corporation, Cincinnati, Ohio, is the holding
company for Harvest Home Savings Bank, which operates three offices serving the
Greater Cincinnati area. The Bank had assets of 70.3 million and equity of 13.1
million at the end of its most recent quarter, and reported an ROAA of 0.88
percent for its trailing four quarters.
MFB Corp., Mishawaka, Indiana, is the holding company for Mishawaka
Federal Savings. Mishawaka Federal operates four offices in Mishawaka and
surrounding St. Joseph County. As of the most recent quarter, Mishawaka Federal
had total assets of $200.9 million, and total equity of $38.8 million. For the
most recent four quarters, Mishawaka Federal reported an ROAA of 0.69 percent.
North Bancshares, Inc., Chicago, Illinois, is the holding company for
North Federal Savings Bank, a community oriented thrift operating 2 offices in
the Chicago area. As of the most recent quarter, the Bank had assets of $114.3
million and equity of $19.8 million, and reported an ROAA of 0.57 percent for
its most recent four quarters.
Sho-Me Financial Corp., Mt. Vernon, Missouri, is the holding company
for 1st Savings Bank, fsb, which operates 7 banking offices and 2 loan
production offices in southwest Missouri. The Bank's primary lending focus is on
owner-occupied one- to four-family residences and also originates construction,
multi-family and commercial real estate loans. For its last four quarters, the
Bank had net income of $1.6 million, total assets of $263.8 million, equity of
$31.6 million and an ROAA of 0.83 percent.
Suburban Bancorporation, Inc., Cincinnati, Ohio, is the holding company
for Suburban Federal Savings Bank. The Bank's headquarters is located in
northeastern Cincinnati near the border of Hamilton and Warren Counties. The
Bank operates seven other branches throughout the Cincinnati area. The Bank has
total assets of $197.6 million, and total equity of $25.6 million and reported
an ROAA for its most recent four quarters of 0.39 percent.
53
<PAGE>
IV. ANALYSIS OF FINANCIAL PERFORMANCE
This section reviews and compares the financial performance of Madison
First Federal to all thrifts, regional thrifts, Indiana thrifts and the ten
institutions constituting Madison First Federal's comparable group, as selected
and described in the previous section. The comparative analysis focuses on
financial condition, earning performance and pertinent ratios as presented in
Exhibits 47 through 52.
As presented in Exhibits 47 and 48, at March 31, 1996, Madison First
Federal's total equity of 7.47 percent of assets was lower than the 13.68
percent for the comparable group, and also lower than the 12.78 percent ratio of
all thrifts, and was more noticeably below the 14.61 percent ratio for Midwest
thrifts, and the 13.52 percent ratio for Indiana thrifts. The Association had a
64.99 percent share of net loans in its asset mix, minimally lower than the
comparable group at 67.73 percent, all thrifts at 65.98 percent and Midwest
thrifts at more significantly 67.20 percent, but more significantly lower than
Indiana thrifts at 71.96 percent. Madison First Federal's lower share of net
loans, is reflected in its somewhat higher levels of cash and investments of
21.19 percent. The Association also had a 10.36 percent share of mortgage-backed
securities, lower than the national average, but very similar to the regional
average. The comparable group had a similar 9.66 percent share of
mortgage-backed securities, and a slightly lower 19.87 percent share of cash and
investments. All thrifts had 16.70 percent of assets in mortgage-backed
securities and 12.77 percent in cash and investments. Madison First Federal's
share of deposits of 89.75 percent was significantly higher than the comparable
group and the three geographic categories, reflecting the Association's low
level of FHLB advances. The comparable group had deposits of 71.13 percent and
borrowings of 13.89 percent. All thrifts averaged a 73.77 percent share of
deposits and 11.96 percent of borrowed funds, while Midwest thrifts had a 72.67
percent share of deposits and an 11.47 percent share of borrowed funds. Indiana
thrifts averaged a 73.03 percent share of deposits and a 12.38 percent share of
borrowed funds. Madison First Federal had goodwill equal to 0.20 percent of
assets compared to 0.03 percent for the comparable group, 0.29 percent for all
thrifts, 0.12 percent for Midwest thrifts and 0.14 percent for Indiana thrifts.
54
<PAGE>
Analysis of Financial Performance (cont.)
Operating performance indicators are summarized in Exhibits 49 and 50
and provide a synopsis of key sources of income and key expense items for
Madison First Federal in comparison to the comparable group, all thrifts, and
regional thrifts for the trailing four quarters.
As shown in Exhibit 51, for the twelve months ended March 31, 1996,
Madison First Federal had a yield on average interest-earning assets lower than
the comparable group and all geographical categories. The Association's yield on
interest-earning assets was 6.85 percent compared to the comparable group at
7.45 percent, all thrifts at 7.70 percent, Midwest thrifts at 7.65 percent and
Indiana thrifts at 7.79 percent.
The Association's cost of funds for the twelve months ended March 31,
1996, was also lower than the comparable group and all geographical categories
for their most recent four quarters. Madison First Federal had an average cost
of interest-bearing liabilities of 4.56 percent compared to 5.06 percent for the
comparable group, 4.88 percent for all thrifts, 4.95 percent for Midwest thrifts
and 4.96 for Indiana thrifts. The Association's interest income and interest
expense ratios resulted in an interest rate spread of 2.29 percent, which was
lower than the comparable group at 2.40 percent, and significantly lower than
all thrifts at 2.82 percent, Midwest thrifts at 2.70 percent, and Indiana
thrifts at 2.83 percent. Madison First Federal demonstrated a net interest
margin of 2.54 percent for the twelve months ended March 31, 1996, based on
average interest-earning assets, which was lower than the comparable group ratio
of 3.11 percent. All thrifts averaged a higher 3.33 percent net interest margin
for the trailing four quarters, as did Midwest thrifts at 3.31 percent and
Indiana thrifts at 3.41 percent.
55
<PAGE>
Analysis of Financial Performance (cont.)
Madison First Federal's major source of income is interest earnings, as
is evidenced by the operations ratios presented in Exhibit 50. The Association
made a $156,000 provision for loan losses during the twelve months ended March
31, 1996, representing a 0.18 percent ratio to average assets, compared to the
comparable group at 0.04 percent, all thrifts at 0.11 percent, Midwest thrifts
at 0.06 percent and Indiana thrifts at 0.10 percent. Although the Associations
most recent provision is higher in its ratio to assets than the comparable group
and the three geographical categories, Madison First Federal's loan loss reserve
of 0.47 percent of assets is very similar to the comparable group, Midwest and
Indiana averages and remains modestly lower than the national average of 0.68
percent. The Association's loan loss reserve ratio below the national average
reflects Madison First Federal's levels of nonperforming assets, classified
assets and repossessed real estate very significantly lower than the average for
all thrifts. The Association's non-interest income was $376,000 or 0.43 percent
of average assets for the twelve months ended March 31, 1996, and includes
$187,000 or 0.21 percent of assets in the form of insurance commissions from its
subsidiary. Such total non-interest income was significantly higher than the
comparable group at 0.27 percent of assets, identical to all thrifts at 0.43
percent, similar to Midwest thrifts at 0.40 percent and modestly lower than
Indiana thrifts at 0.53 percent. For the twelve months ended March 31, 1996,
Madison First Federal's operating expense ratio was 2.36 percent, higher than
the comparable group and the three geographical averages. The comparable group's
operating expense ratio was 2.21 percent, while all thrifts averaged 2.28
percent, Midwest thrifts averaged 2.19 percent and Indiana thrifts averaged 2.28
percent.
The overall impact of Madison First Federal's income and expense ratios
is reflected in the Association's income and return on assets. The Association
had an ROAA, based on net income, of 0.20 percent for the twelve months ended
March 31, 1996
56
<PAGE>
Analysis of Financial Performance (cont.)
and an ROAA based on core income of a slightly higher 0.27 percent. For its most
recent four quarters, the comparable group had a much higher ROAA of 0.70
percent based on net income, and an identical ROAA of 0.70 percent based on core
income. All thrifts averaged a higher net ROAA of 0.87 percent, while Midwest
thrifts averaged 0.93 percent and Indiana thrifts averaged a higher 1.02
percent. The core ROAA was 0.80 percent for all thrifts, 0.87 percent for
Midwest thrifts and 0.90 percent for Indiana thrifts, all significantly higher
than Madison First Federal.
57
<PAGE>
V. MARKET VALUE ADJUSTMENTS
This is a conclusive section where adjustments are made to determine
the pro forma market value or appraised value of the Corporation based on a
comparison of Madison First Federal with the comparable group. These adjustments
will take into consideration such key items as earnings performance, market
area, financial condition, dividend payments, subscription interest, liquidity
of the stock to be issued, management, and market conditions or marketing of the
issue. It must be remembered that all of the institutions in the comparable
group have their differences, and as a result, such adjustments become
necessary.
EARNINGS PERFORMANCE
In analyzing earnings performance, consideration was given to the level
of net interest income, the level and volatility of interest income and interest
expense relative to changes in market area conditions and to changes in overall
interest rates, the quality of assets as it relates to the presence of problem
assets which may result in adjustments to earnings, the level of current and
historical classified assets and real estate owned, the level of valuation
allowances to support any problem assets or nonperforming assets, the level and
volatility of non-interest income, and the level of non-interest expenses.
As discussed earlier, the Association's historical business philosophy
has focused on strengthening its net interest income, maintaining its current
low level of nonperforming assets, striving to maintain a reasonable level of
interest sensitive assets relative to interest sensitive liabilities,
maintaining a stable net earnings level, maintaining an adequate level of
general valuation allowances to reduce the impact of any unforeseen losses on
real estate owned and closely scrutinizing and attaining a reasonable level of
overhead expenses. The Association's current philosophy will continue to focus
on striving to increase its net
58
<PAGE>
Earnings Performance (cont.)
interest spread and net interest margin through more active and diverse lending,
increase its net income and return on assets and increase its level of interest
sensitive assets relative to interest sensitive liabilities.
Earnings are often related to an institution's ability to generate
loans. The Association was an active originator of mortgage loans in calendar
years 1991 to 1995, although the Association's volume of total loans originated
decreased in each of calendar years 1994 and 1995 from the previous year. A
predominance of that decrease occurred in the category of 1-4 family residential
mortgage loans, while the origination of construction loans, nonresidential
mortgage loans and consumer loans indicated an increasing trend. During the
three months ended March 31, 1996, total originations indicated annualized
levels approximately 2.0 percent lower than calendar 1995, but a greater 10.7
percent lower than the first quarter of 1995. A sharp decrease in principal
repayments in 1994 compared to 1993, with an additional modest decrease in 1995,
increased the Association's net loans by $6.0 million or 11.5 percent from 1993
to 1995. Moderating interest rates in late 1995, however, indicate modestly
increased repayment levels in the first three months of 1996, contributing to a
decrease of $552,000 in the Association's net loans from December 31, 1995, to
March 31, 1996. The Association's focus from 1993, 1994 and 1995 was on the
origination of residential real estate loans, with that loan category
constituting decreasing shares of 84.1 percent, 62.3 percent and 51.4 percent of
total originations in those three years, respectively, and 59.1 percent in the
first quarter of 1996. The second largest category of real estate loan
originations was construction loans, which increased its share from 4.3 percent
in 1993 to 19.4 percent of total originations in 1995. Nonresidential real
estate loans also experienced a modestly increasing share of total originations
from 5.0 percent in 1993 to 11.6 percent in 1995. Consumer loans also indicated
an increase in both volume and share of loans originated from $1.4 million or
5.9 percent in 1993 to $2.4 million or 15.5 percent in 1995 and $608,000 or 24.3
percent for the quarter ended March 31, 1996. The impact of these
59
<PAGE>
Earnings Performance (cont.)
primary lending efforts has been to generate a yield on average interest-earning
assets of 6.85 percent for Madison First Federal for the twelve months ended
March 31, 1996, compared to 7.45 percent for the comparable group, 7.70 percent
for all thrifts and 7.65 for Midwest thrifts. The Association's level of
interest income to average assets was 6.66 percent for the twelve months ended
March 31, 1996, which was lower than the comparable group at 7.25 percent,
Midwest thrifts at 7.38 percent and all thrifts at 7.40 percent for their most
recent four quarters.
The Association's net interest margin of 2.54 percent, based on average
interest-earning assets for the twelve months ended March 31, 1996, was lower
than the comparable group at 3.11 percent and more significantly lower than all
thrifts at 3.33 percent. Madison First Federal's cost of interest-bearing
liabilities of 4.56 percent for the twelve months ended March 31, 1996, was
lower than the comparable group at 5.06 percent, and also lower than all thrifts
at 4.88 percent and Midwest thrifts at 4.95 percent. Madison First Federal's net
interest spread of 2.29 percent for the twelve months ended March 31, 1996, was
also lower than the comparable group at 2.40 percent and considerably lower than
Midwest thrifts at 2.70 percent and all thrifts at 2.82 percent.
The Association's ratio of noninterest income to assets was 0.43
percent for the twelve months ended March 31, 1996, much higher than the
comparable group at 0.27 percent, but identical to all thrifts at 0.43 percent
and similar to Midwest thrifts at 0.40 percent. It should be noted that
approximately half of the Association's noninterest income was in the form of
insurance commissions from its subsidiary insurance agency. The Association has
indicated higher noninterest income relative to the comparable group, but its
operating expenses have also been higher than the comparable group, as well as
Midwest thrifts and all thrifts. For the twelve months ended March 31, 1996,
Madison First Federal had an operating expenses to assets ratio of 2.36 percent
compared to a lower 2.21 percent for the comparable group, 2.28 percent for all
thrifts and 2.19 percent for Midwest thrifts.
60
<PAGE>
Earnings Performance (cont.)
For the twelve months ended March 31, 1996, Madison First Federal
generated higher levels of noninterest income and noninterest expenses, and a
lower net interest margin relative to its comparable group. As a result, the
Association's net income level was much lower than its comparable group for the
twelve months ended March 31, 1996. Based on net earnings, the Association had a
return on average assets of 0.40 percent in 1991, 0.80 percent in 1992, 0.86
percent in 1993, 0.75 percent in 1994, 0.30 percent in 1995, and 0.20 percent
for the twelve months ended March 31, 1996. For its most recent four quarters,
the comparable group had a much higher ROAA of 0.70 percent, while all thrifts
indicated an even higher 0.87 percent. The Association's core or normalized
earnings as shown in Exhibit 7 were modestly higher than its net earnings,
indicating a higher 0.27 percent core return on assets for the most recent
twelve months ended March 31, 1996. That core ROAA was also lower than the
comparable group at 0.70 percent, all thrifts at 0.80 percent and lower than
Midwest thrifts at 0.87 percent.
Madison First Federal's earnings stream will continue to be dependent
to a certain degree on the overall trends in interest rates and also on the
consistency and reliability of its noninterest income, particularly its
insurance commissions. The Association's cost of interest-bearing liabilities
will continue to adjust upward as deposits reprice at higher rates and continue
their gradual movement toward longer term instruments. This upward pressure on
savings costs is likely to continue based on current rates, although the rate of
increase may subside somewhat during the next few years. It should be noted that
Madison First Federal's planned acquisition of Citizens National Bank of Madison
is projected to result in modestly enhanced net earnings and ROAA for the
consolidated entities. It is anticipated, however, that such enhanced earnings
and ROAA will remain significantly below comparable group, national and regional
averages in the near to medium term. In recognition of the foregoing earnings
related factors, as well as the Association's downward trend in net and core
ROAA, net interest spread and net interest margin since 1992, a moderate
downward adjustment has been made to Madison First Federal's pro forma market
value for earnings performance.
61
<PAGE>
MARKET AREA
Madison First Federal's primary market area consists of Jefferson
County, Indiana, including the City of Madison, the location of the
Association's home office and the county seat of Jefferson County. The
Association also has a full-service branch and a drive- through branch in
Madison, as well as a full-service branch in Hanover, Indiana, also in Jefferson
County. As discussed in Section II, this market area has evidenced average
population growth and unemployment levels compared to the comparable group
markets. Per capita and household income levels are similar to state and
national averages and also similar to the comparable group average. The
unemployment rate in Jefferson County averaged 5.4 percent in February, 1996,
compared to 5.0 percent for Indiana and 6.0 percent for the United States. The
Association's market area is, however, characterized by much lower median
housing values than Indiana, the United States and the comparable group.
Jefferson County is small and rural, with manufacturing as the major industrial
group, followed by the services sector with the wholesale/retail sector third.
The level of financial competition is strong and dominated by the banking
industry. Madison First Federal had net decreases in deposits in 1994 and 1995
as deposits, including interest, fell short of withdrawals. Although in the
first three months of 1996, deposits increased by $4.0 million from their
December 31, 1995, level, that increase related almost entirely to the
Association's acquisition of short term public funds deposits and does not
indicate a rising trend in retail deposits. In recognition of all these factors,
we believe that a minimum downward adjustment is warranted for the Association's
market area.
62
<PAGE>
FINANCIAL CONDITION
The financial condition of Madison First Federal is discussed in
Section I and shown in Exhibits 1, 2, 5, 15, 16 and 17, and is compared to the
comparable group in Exhibits 45, 47 and 48. The Association's total equity ratio
before conversion was 7.47 percent at March 31, 1996, which is considerably
lower than the comparable group at 13.68 percent, Midwest thrifts at 14.61
percent and all thrifts at 12.78 percent. With a conversion at the midpoint, the
Corporation's pro forma equity to assets ratio will increase to 14.38 percent,
and the Association's pro forma equity to assets ratio will increase to 12.12
percent.
The Association's mix of assets indicates few areas of significant
variation from its comparable group. Madison First Federal had a modestly lower
share of net loans at 64.99 percent of total assets at March 31, 1996, compared
to the comparable group at 67.73 percent, and a similar share to all thrifts at
65.98 percent. The Association's 21.19 percent share of cash and investments was
similar to the comparable group at 19.87 percent and Midwest thrifts at 18.44
percent, and moderately higher than the 12.77 percent for all thrifts. Madison
First Federal's ratio of mortgage-backed securities to total assets was 10.36
percent, generally in line with the comparable group at 9.66 percent and Midwest
thrifts at 10.99 percent, but lower than all thrifts at 16.70 percent. The
Association had a higher share of deposits at 89.75 percent with a low 2.26
percent share of FHLB advances, compared to the comparable group's 71.13 percent
in deposits and 13.89 percent in borrowed funds.
The Association had goodwill of 0.20 percent and was absent repossessed
real estate compared to a lower 0.03 percent goodwill and a nominal 0.03 percent
of repossessed real estate for the comparable group. All thrifts indicated
higher levels of both goodwill and repossessed real estate of 0.29 percent and
0.68 percent, respectively. The financial condition of Madison First Federal is
further affected by its low level of nonperforming assets at 0.03 percent of
assets at March 31, 1996, compared to a higher
63
<PAGE>
Financial Condition (cont.)
0.21 percent for the comparable group. The Association's ratio of nonperforming
assets to total assets has, moreover, been historically much lower than average
during the past five years, indicating 0.01 percent of assets at December 31,
1995, 1994 and 1993; and the Association was absent repossessed real estate in
those three years.
The Association had a share of high risk real estate loans at 10.32
percent compared to a similar 9.83 percent for the comparable group and 11.53
percent for Midwest thrifts, and a higher 15.33 percent for all thrifts. Madison
First Federal had $413,000 in valuation allowances or 1,375.67 percent of
nonperforming assets at March 31, 1996, compared to the comparable group's lower
253.40 percent, with Midwest thrifts at 155.44 percent and all thrifts at a
lower 89.87 percent. The Association's ratio is reflective of its current
absence of real estate owned and very low level of nonperforming assets in
conjunction with its average share of high risk real estate loans. Overall, we
believe that a minimum upward adjustment is warranted for Madison First
Federal's current financial condition.
DIVIDEND PAYMENTS
Madison First Federal has not indicated its intention to pay an initial
cash dividend. The future payment of cash dividends will be dependent upon such
factors as earnings performance, capital position, growth level, and regulatory
limitations. Six of the ten institutions in the comparable group pay cash
dividends for an average dividend yield of 2.75 percent for those nine
institutions, and an average dividend yield of 1.65 percent for all ten
institutions.
64
<PAGE>
Dividend Payments (cont.)
Currently, many thrifts are committing to initial cash dividends in
comparison to the more common absence of such a dividend commitment in 1994
conversions. As a result, we believe that a minimum downward adjustment to the
pro forma market value is warranted at this time related to dividend payments.
SUBSCRIPTION INTEREST
The general interest in thrift conversion offerings has often been
difficult to gauge since the beginning of 1995. Based upon recent offerings,
subscription and community interest weakened significantly in early 1995,
regained some strength by the second half of the year and remained relatively
flat in the first quarter of 1996. Such interest has frequently been directly
related to the financial performance and condition of the thrift institution
converting, the strength of the local economy, general market conditions and
aftermarket price trends.
Madison First Federal will focus its offering to depositors and
residents in the market area. The board of directors and officers of both
Madison First Federal and Citizens National Bank of Madison anticipate
purchasing approximately $1,048,000 or 11.6 percent of the conversion stock
based on the appraised midpoint valuation. Madison First Federal will form an
8.0 percent ESOP, which plans to purchase stock in the initial offering.
Additionally, the Prospectus restricts to 20,000 shares the amount of conversion
stock that may be purchased by a single account holder, or by persons and
associates acting in concert.
65
<PAGE>
Subscription Interest (cont.)
The Association has secured the services of Trident Securities, Inc.
("Trident") to assist the Association in the marketing and sale of the
conversion stock. Based on the size of the offering, current market conditions,
local market interest, the terms of the offering and, most significantly, the
Association's concurrent acquisition of Citizens National Bank of Madison, we
believe that a moderate upward adjustment is warranted for the Association's
anticipated subscription interest.
LIQUIDITY OF THE STOCK
Madison First Federal will offer its shares through concurrent
subscription and community offerings with the assistance of Trident. If
necessary, Trident will conduct a syndicated community offering upon the
completion of the subscription and community offering. Madison First Federal
will pursue two market makers for the stock. The Association's offering is less
than half the size of the comparable group, more than 90.0 percent below the
national average and, more significantly, approximately 76.0 percent below the
Indiana average. It is likely, therefore, that the stock of Madison First
Federal will be considerably less liquid than thrift stocks nationally and those
in its Indiana market area, notwithstanding the ongoing market-related effect of
the Association's acquisition of Citizens National Bank of Madison.
Consequently, we believe that a minimum downward adjustment to the pro forma
market value is warranted at this time relative to the liquidity of the stock.
66
<PAGE>
MANAGEMENT
The president and chief executive officer of Madison First Federal is
James E. Fritz. Mr. Fritz was employed by the Association in August, 1995, holds
the additional position of director and also serves on the Loan Committee. He
formerly served as chief financial officer of First Federal Savings Bank of
Kokomo, Kokomo, Indiana. Mr. Fritz has made a concerted effort to decrease the
Association's cost of liabilities to increase its market share, to strengthen
and broaden local lending activity and to position the Association to
participate in the secondary market.
Madison First Federal has been able to strengthen its equity position
over the past few years and to maintain its very high asset quality and low
delinquency rate, although earnings, net interest spread and net interest margin
have declined since 1992 and remain below comparable group and industry
averages. It is our opinion that no adjustment to the pro forma market value is
warranted for management.
MARKETING OF THE ISSUE
The response to a newly issued thrift institution stock is more
difficult to predict, due to the volatility of new thrift stocks. Further, with
each conversion, there is a high level of uncertainty with regard to the stock
market particularly thrift institution stocks and interest rate trends. The
impact of recent increases in interest rates has made it more difficult for more
thrift institutions to strengthen their earnings and resulted in downward market
prices. Recent conflicts of opinion on interest rate trends and the recent rise
in interest rates have resulted in some significant stock volatility. Further,
the impact of the difference in a thrift's premium level on deposits compared to
BIF-insured institutions is another key concern, along with the one time
assessment of SAIF-insured thrifts to increase the capitalization of the SAIF
insurance fund.
67
<PAGE>
Marketing of the Issue (cont.)
The necessity to build a new issue discount into the stock price of a
converting thrift has prevailed in the thrift industry in recognition of higher
uncertainty among investors as a result of the thrift industry's dependence on
interest rate trends. We believe that a new issue discount applied to the price
to book valuation approach continues and is considered to be reasonable and
necessary in the pricing of the Corporation, and we have made a maximum downward
adjustment to the Corporation's pro forma market value in recognition of the new
issue discount.
68
<PAGE>
VI. VALUATION METHODS
Under normal stock market conditions, the most frequently used method
for determining the pro forma market value of common stock for thrift
institutions by this firm is the price to book value ratio method. The focus on
the price to book value method is due to the volatility of earnings in the
thrift industry. As earnings in the thrift industry improved in late 1993, 1994
and 1995, there has been more emphasis placed on the price to earnings method,
but the price to book value method continues to be the primary valuation method.
These two pricing methods have both been used in determining the pro forma
market value of the Corporation.
In recognition of the volatility and variance in earnings due to
fluctuations in interest rates, the continued differences in asset and liability
repricing and the frequent disparity in value between the price to book approach
and the price to earnings approach, a third valuation method has been used, the
price to net assets method. The price to net assets method is used less often
for valuing ongoing institutions; however, this method becomes more useful in
valuing converting institutions when the equity position and earnings
performance of the institutions under consideration are different.
In addition to the pro forma market value, we have defined a valuation
range with the minimum of the range being 85.0 percent of the pro forma market
value, the maximum of the range being 115.0 percent of the pro forma market
value, and a super maximum being 115.0 percent of the maximum. The pro forma
market value or appraised value will also be referred to as the "midpoint
value".
Exhibits 53 and 54 indicate the pricing and financial ratios for
Madison First Federal and its comparable group, as well as the Association's
value at each position in the valuation range. Exhibits 55 to 58 illustrate the
projected effect of the conversion proceeds at each position in the valuation
range.
69
<PAGE>
PRICE TO BOOK VALUE METHOD
The price to book value method focuses on a thrift institution's
financial condition, and does not give as much consideration to the
institution's performance as measured by net earnings. Therefore, this method is
sometimes considered less meaningful for institutions that do provide a
consistent earnings trend. Due to the earnings volatility of many thrift stocks,
the price to book value method is frequently used by investors who rely on an
institution's financial condition rather than earnings performance.
Consideration was given to the adjustments to the Association's pro
forma market value discussed in Section V. A minimum upward adjustment was made
for financial condition and a moderate upward adjustment was made for
subscription interest. Minimum downward adjustments were made for the
Association's market area, dividend payments and the liquidity of the stock. A
moderate downward adjustment was made for earnings performance and a maximum
downward adjustments was made for the marketing of the issue. No adjustment was
made for management.
Exhibit 53 shows the average and median price to book value ratios for
the comparable group which were 86.90 percent and 88.09 percent, respectively.
The total comparable group indicated a moderately wide range, from a low of
76.65 percent (MFB Corp.) to a high of 93.88 percent (North Bancshares, Inc.).
This variance cannot be attributed to any one factor such as the institution's
equity ratio or earnings performance. Excluding the low and the high in this
group, the price to book value range narrowed considerably from a low of 80.78
percent to a high of 92.93 percent.
Taking into consideration all of the previously mentioned items in
conjunction with the adjustments made in Section V, we have determined a pro
forma price to book value ratio of 64.63 percent at the midpoint and ranging
from a low of 59.91 percent at the minimum to a high of 72.52 percent at the
super maximum for the Corporation, which is strongly influenced by the
Association's financial condition, local market and subscription interest in
thrift stocks. Further, the Association's equity to assets after conversion will
be 12.12 percent compared to 13.68 percent for the comparable group. Based on
this
70
<PAGE>
Price to Book Value Method (cont.)
price to book value ratio and the Association's equity of $6,599,000 at March
31, 1996, the indicated pro forma market value for the Association using this
approach is $9,002,091 (reference Exhibit 54).
PRICE TO EARNINGS METHOD
The focal point of this method is the determination of the earnings
base to be used and secondly, the determination of an appropriate price to
earnings multiple. The recent earnings position of Madison First Federal is
displayed in Exhibit 3, indicating after tax net earnings for the twelve months
ended March 31, 1996, of $176,000. Exhibit 7 indicates the derivation of the
Association's core or normalized earnings of $233,000 for the twelve months
ended March 31, 1996. To arrive at the pro forma market value of the Association
by means of the price to earnings method, we used the core earnings base of
$233,000.
In determining the price to earnings multiple, we reviewed the range of
price to core earnings multiples for the comparable group and all
publicly-traded thrifts. The average price to net earnings multiple for the
comparable group was 18.55, while the median was 17.00. The average price to
core earnings multiple was 18.42, and the median multiple was 17.35. The
comparable group's price to net earnings multiple was higher than the average
for all publicly-traded thrifts of 15.48, and higher than their median of 13.14.
The price to core earnings multiple for all publicly-traded thrifts was also
lower than the comparable group with an average at 17.01 times core earnings and
a median at 14.50 times core earnings. The range in the price to core earnings
multiple for the comparable group was from a low of 11.10 (FFW Corp.) to a high
of 33.07 (North Bancshares, Inc.). The primary range in the price to core
earnings multiple for the comparable group excluding the high and low ranges was
from a low price to earnings multiple of 13.84 to a high of 22.36 times earnings
for eight of the ten institutions in the group.
71
<PAGE>
Price to Earnings Method (cont.)
Consideration was given to the adjustments to the Corporation's pro
forma market value discussed in Section V. In recognition of these adjustments,
we have determined a price to core earnings multiple of 26.83 based on Madison
First Federal's core earnings of $233,000 for twelve months ended March 31,
1996, and a higher price to net earnings multiple of 32.32 based on net earnings
of $176,000 for the same period. Based on such a core earnings base of $233,000
and a price to core earnings multiple of 26.83 (reference Exhibits 53 and 54),
the pro forma market value of the Corporation using the price to core earnings
ratio method is $9,001,125 at the midpoint. The range in the price to core
earnings multiple is from a low of 24.04 at the minimum of the range to a high
of 31.95 at the super maximum of the range.
PRICE TO NET ASSETS METHOD
The final valuation method is the price to net assets method. This
method is not as frequently used due to the fact that it does not focus as much
on an institution's equity position or earnings performance. Exhibit 53
indicates that the average price to net assets ratio for the comparable group
was 11.86 percent and the median was 10.77 percent. The range in the price to
net assets ratios for the comparable group varied from a low of 6.79 percent
(Hallmark Capital Corp.) to a high of 16.28 percent (North Bancshares, Inc.). It
narrows modestly with the elimination of the two extremes in the group to a low
of 8.58 percent and a high of 15.60 percent.
Based on the adjustments made previously for Madison First Federal, it
is our opinion that an appropriate price to net assets ratio for the Corporation
is 9.30 percent which is somewhat lower than the comparable group at 11.86 and
ranges from a low of 8.02 percent at the minimum to 11.96 percent at the super
maximum. Based on the Association's March 31, 1996, asset base of $88,307,000,
the indicated pro forma market value of the Corporation using the price to net
assets method is $8,998,428 (reference Exhibit 54).
72
<PAGE>
VALUATION CONCLUSION
Exhibit 59 provides a summary of the valuation premium or discount for
each of the valuation ranges when compared to the comparable group based on each
of the valuation approaches. At the midpoint value, the price to book value
ratio of 64.73 percent for the Corporation represents a discount of 25.63
percent relative to the comparable group and decreases to 16.55 percent at the
super maximum. The price to core earnings multiple for the Corporation at the
midpoint value indicates a premium of 45.63 percent, increasing to a premium of
73.43 percent at the super maximum. The price to assets ratio at the midpoint
represents a discount of 21.52 percent, changing to a premium of 0.86 percent at
the super maximum.
In developing a valuation conclusion for the Corporation, consideration
was given to the effect of Madison First Federal's acquisition of Citizens. As
previously discussed, the Corporation will purchase 95.6 percent of the
outstanding shares of Citizens for a total cash price of $3,010,725,
representing a price to book value ratio of 91.4 percent. We have reviewed the
projected impact of that purchase related to both the pro forma, consolidated,
combined, post-conversion balance sheets and statements of operations for
Madison First Federal and Citizens, including the conversion and acquisition
adjustments thereto, as presented in Exhibits 60 and 61. In our opinion, the
proposed purchase transaction will likely have a positive long term effect on
the financial condition and operations of the Association and the Corporation,
as would a stand-alone conversion. The pending transaction did not, however,
consequentially affect our final valuation of the Corporation, inasmuch as the
overall financial condition, earnings performance and management of Citizens
were, in our view, similar to those of Madison First Federal and the two
institutions' market area is identical. It has been stated, moreover, that
following the conversion of Madison First Federal and the acquisition of
Citizens, the two institutions will continue to be operated independently as
subsidiaries of the Corporation, with no physical or operational consolidation
anticipated in the short term. At the time of
73
<PAGE>
Valuation Conclusion (cont.)
conversion and acquisition, therefore, it is our opinion that Madison First
Federal's acquisition of Citizens will constitute neither a substantial
enhancement to nor a detraction from the value of the Association and the
Corporation relative to its continuation as an independent institution.
It is our opinion that as of May 3, 1996, the pro forma market value of
the common stock to be issued of the Corporation is $9,000,000 representing
900,000 shares at $10.00 per share. The valuation range for this stock is from a
minimum of $7,650,000 or 765,000 shares at $10.00 per share to a maximum of
$10,350,000 or 1,035,000 shares at $10.00 per share, with such range being
defined as 15 percent below the appraised value to 15 percent above the
appraised value. The super maximum is $11,902,500 or 1,190,250 shares at $10.00
per share (reference Exhibits 54 to 58). The appraised value of River Valley
Bancorp as of May 3, 1996, is $9,000,000.
74
<PAGE>
EXHIBIT 1
MADISON FIRST FEDERAL SAVINGS & LOAN ASSOCIATION
MADISON, INDIANA
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION At March 31, 1996, and at
December 31, 1995
<TABLE>
<CAPTION>
At At
March 31, December 31,
ASSETS 1996 1995
------ ---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
Cash and due from banks $8,757 $2,389
Certificates of deposit in other financial institutions -- 300
Investment securities:
Available for sale, at market value 3,959 5,018
At amortized cost, approximate market value of $5,909
at March 31, 1996, and $7,930 at December 31, 1995 6,000 8,000
Mortgage-backed and related securities - at cost,
approximate market value of $9,068 at
March 31, 1996, and $9,941 at December 31, 1995 9,146 9,917
Loans receivable, net 57,393 57,945
Office premises and equipment at depreciated cost 953 966
Federal Home Loan Bank stock - at cost 610 610
Accrued interest receivable on loans 293 313
Accrued interest receivable on mortgage-backed
securities 46 51
Accrued interest receivable on investments and
interest-bearing deposits 95 241
Goodwill, net of accumulated amortization of $140 at
March 31, 1996, and $139 as of December 31, 1995 147 148
Cash surrender value of life insurance 729 535
Prepaid expenses and other assets 110 124
Prepaid federal income taxes -- 26
Deferred tax asset 69 21
------- -------
TOTAL ASSETS $88,307 $86,604
======= =======
LIABILITIES AND RETAINED EARNINGS
Deposits$ 79,254 $75,233
Advances from the Federal Home Loan Bank 2,000 4,471
Advances by borrowers for taxes and insurance 93 63
Accrued interest payable 73 68
Other liabilities 242 195
Accrued Federal income taxes 46 --
Deferred Federal income taxes -- --
------- -------
TOTAL LIABILITIES $81,708 $80,030
Retained earnings - substantially restricted 6,626 6,562
Unrealized gain (loss) on securities available for sale,
net of related tax effects (27) 12
------- -------
TOTAL RETAINED EARNINGS $6,599 $6,574
TOTAL LIABILITIES AND RETAINED EARNINGS $88,307 $86,604
======= =======
</TABLE>
EXHIBIT 2
MADISON FIRST FEDERAL SAVINGS & LOAN ASSOCIATION
MADISON, INDIANA
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
At December 31, 1991 through 1994
<TABLE>
<CAPTION>
ASSETS 1994 1993 1992 1991
(In thousands)
<S> <C> <C> <C> <C>
Cash and due from banks $2,066 $1,091 $1,092 $521
Interest-bearing deposits in other financial institutions -- 4,413 5,510 2,417
Certificates of deposit in other financial institutions 350 300 468 870
Investment securities
at amortized cost, approximate market value of
$13,221 in 1994, $9,574 in 1993, $5,498 in 1992,
and $3,496 in 1991 14,097 9,491 5,485 3,459
Mortgage-backed and related securities
at cost, approximate market value of
$10,715 in 1994, $14,195 in 1993,
$13,592 in 1992 and $8,063 in 1991 11,329 13,925 13,548 7,968
Loans receivable, net 56,287 51,970 53,685 57,733
Office premises and equipment - at depreciated cost 885 909 909 959
Real estate held for investment 103 96 96 98
Real estate acquired through foreclosure -- -- 19 38
Federal Home Loan Bank stock, at cost 610 610 566 558
Accrued interest receivable on loans 246 241 286 395
Accrued interest receivable on mortgage-backed securities 58 72 80 59
Accrued interest receivable on investments and
interest-bearing deposits 237 183 112 48
Goodwill, net of accumulated amortization of $132
at December 31, 1994, $124 at December 31,
1993, $117 at December 31, 1992, and $110 at
December 31, 1991 155 163 170 177
Cash surrender value of life insurance 510 485 -- --
Prepaid expenses and other assets 118 137 131 97
Prepaid federal income taxes 21 -- -- --
------- ------- ------- -------
TOTAL ASSETS $87,072 $84,086 $82,157 $75,397
======= ======= ======= =======
LIABILITIES AND RETAINED EARNINGS
Deposits $75,458 $78,081 $76,688 $70,813
Advances from the Federal Home Loan Bank 4,986 -- -- --
Advances by borrowers for taxes and insurance 63 67 65 44
Accrued interest payable 62 61 63 93
Other liabilities 169 150 196 158
Accrued Federal income taxes -- 30 129 22
Deferred Federal income taxes 30 29 67 102
------- ------- ------- -------
TOTAL LIABILITIES $80,768 $78,418 $77,208 $71,232
Retained earnings - substantially restricted 6,304 5,668 4,949 4,165
------- ------- ------- -------
TOTAL LIABILITIES AND RETAINED EARNINGS $87,072 $84,086 $82,157 $75,397
======= ======= ======= =======
</TABLE>
Source: Madison First Federal Savings & Loan Association's audited financial
statements
<PAGE>
EXHIBIT 3
MADISON FIRST FEDERAL SAVINGS & LOAN ASSOCIATION
MADISON, INDIANA
CONSOLIDATED STATEMENTS OF EARNINGS For three months ended March 31, 1995
and 1996, And the year ended December 31, 1995
<TABLE>
<CAPTION>
Three months ended Year ended
March 31, December 31,
-------------------- ------------
1996 1995 1995
------ ------ ------
(Unaudited)
Interest income (In thousands)
<S> <C> <C> <C>
Loans $1,117 $1,046 $4,240
Mortgage-backed and related securities 149 172 670
Investment securities 150 206 777
Interest-bearing deposits and other income 43 18 107
------ ------ ------
Total interest income 1,459 1,442 5,794
Interest expense
Deposits 854 778 3,419
Borrowings 36 47 175
------ ------ ------
Total interest expense 890 825 3,594
------ ------ ------
Net interest income 569 617 2,200
Provision for loan losses 6 -- 150
------ ------ ------
Net interest income after
provision for loan losses 563 617 2,050
Other income
Insurance commissions 60 48 175
Service fees, charges and other operating income 48 46 187
------ ------ ------
Total other income 108 94 362
General, administrative and other expense
Employee compensaiton and benefits 294 241 998
Occupancy and equipment 44 33 212
Federal deposit insurance premiums 45 44 177
Amortization of goodwill 1 2 7
Data processing 70 60 237
Other operating 99 83 335
Provision for valuation decline on
mortgage-related securities -- -- --
------ ------ ------
Total general, administrative and other expense 553 463 1,966
Earnings before income taxes and cumulative
effect of change in accounting method 118 248 446
Income taxes
Current 82 99 245
Deferred (28) 3 (57)
------ ------ ------
54 102 188
------ ------ ------
Earnings before cumulative effect of change in
accounting method 64 146 258
Cumulative effect of change in method of accounting
for income taxes -- -- --
------ ------ ------
NET EARNINGS $64 $146 $258
====== ====== ======
</TABLE>
Source: Madison First Federal Savings & Loan Association's audited and unaudited
financial statements
<PAGE>
EXHIBIT 4
MADISON FIRST FEDERAL SAVINGS & LOAN ASSOCIATION
MADISON, INDIANA
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31, 1991 through 1994
<TABLE>
<CAPTION>
1994 1993 1992 1991
-------- -------- -------- --------
(In thousands)
Interest income
<S> <C> <C> <C> <C>
Loans $3,851 $4,149 44,974 $5,703
Mortgage-backed and related securities 743 866 700 606
Investment securities 713 494 278 250
Interest-bearing deposits and other income 111 175 221 226
----- ----- ----- -----
Total interest income 5,419 5,684 6,174 6,785
Interest expense
Deposits 2,842 3,042 3,644 4,677
Borrowings 12 1 1 1
----- ----- ----- -----
Total interest expense 2,854 3,043 3,645 4,678
Net interest income 2,565 2,641 2,529 2,107
Provision for loan losses 29 55 37 143
----- ----- ----- -----
Net interest income after provision for loan losses 2,536 2,586 2,492 1,964
Other income
Insurance commissions 181 182 185 158
Gain on sale of mortgage-backed securities -- -- 1 11
Gain (loss) on sale of real estate acquired
through foreclosure 2 (1) 10 3
Service fees, charges and other operating 187 183 113 103
----- ----- ----- -----
Total other income 370 364 308 275
General, administrative and other expense
Employee compensation and benefits 887 869 811 821
Occupancy and equipment 193 212 373 346
Federal deposit insurance premium 178 117 149 141
Franchise taxes 85 99 84 50
Amortization of goodwill 7 7 7 7
Data processing 243 234 -- --
Other operating 329 320 302 331
Provision for losses on real estate acquired
through foreclosure -- 13 -- --
Loss on disposition of office equipment -- -- 0 3
Provision for valuation decline on mortgage-related securities 20 30 140 --
----- ----- ----- -----
Total general, administrative and other expense 1,943 1,900 1,865 1,699
Earnings before income taxes and cumulative
effect of change in accounting method 963 1,049 935 540
Federal income taxes
Current 326 369 340 238
Deferred 1 (12) (36) 12
----- ----- ----- -----
327 357 304 250
Earnings before cumulative effect of change in
accounting method 636 692 631 290
Cumulative effect of change in accounting for
income taxes -- 26 -- --
----- ----- ----- -----
NET EARNINGS $636 $718 $631 $290
===== ===== ===== =====
</TABLE>
Source: Madison First Federal Savings & Loan Association's audited financial
statements
<PAGE>
EXHIBIT 5
Selected Consolidated Financial Information and Other Data At March 31, 1996,
and at December 31, 1991 through 1995
<TABLE>
<CAPTION>
At March 31, At December 31,
-------------- -------------------------------------------------------
1996 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- -------
(Unaudited) (In thousands)
Summary of Financial Condition
Data:
<S> <C> <C> <C> <C> <C> <C>
Total assets $88,307 $86,604 $87,072 $84,086 $82,157 $75,397
Loans receivable, net 57,393 57,945 56,287 51,970 53,685 51,735
Mortgage-backed and related securities 9,146 9,917 11,328 13,925 13,548 7,968
8,757 2,389 2,066 5,503 6,602 1,370
9,959 13,018 14,097 9,491 5,485 4,329
FHLB advances 2,000 4,471 4,986 - - -
Deposits 79,254 75,233 75,458 78,081 76,688 70,813
Retained earnings, net, substantially
restricted 6,599 6,574 6,304 5,668 4,950 4,165
</TABLE>
(1) Includes certificates of deposit in other financial institutions.
(2) Includes investment securities designated as available for sale.
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 6
Income and Expense Trends
For the Three Months Ended March 31, 1995 and 1996, and For the Years Ended
December 31, 1991 through 1995
<TABLE>
<CAPTION>
Three months ended
March 31, For the years ended December 31,
----------------- -----------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
(Unaudited) (In thousands)
Summary of earnings:
<S> <C> <C> <C> <C> <C> <C> <C>
Total Interest income $1,459 $1,442 $5,794 $5,419 $5,684 $6,174 $6,785
Total Interest expense 890 825 3,594 2,854 3,042 3,645 4,678
------ ------ ------ ------ ------ ------ ------
Net interest income 569 617 2,200 2,565 2,642 2,529 2,107
Provision for losses on loans 6 -- 150 29 55 37 143
------ ------ ------ ------ ------ ------ ------
Net interest income after
provision for losses on loans 563 617 2,050 2,536 2,587 2,492 1,964
Other income:
Insurance commissions 60 48 175 181 182 180 158
Service fees, charges and
and other operating 48 46 187 189 182 129 117
------ ------ ------ ------ ------ ------ ------
Total other income 108 94 362 370 364 309 275
General, Administrative and
other expenses
Employee compensation
and benefits 294 241 998 888 869 811 821
Data processing 70 60 237 243 234 157 126
Federal deposit insurance
premiums 45 44 177 178 117 149 141
Other expenses 144 118 554 549 582 748 611
------ ------ ------ ------ ------ ------ ------
Total general, administrative
and other expenses $553 $463 $1,966 $1,858 $1,802 $1,865 $1,699
------ ------ ------ ------ ------ ------ ------
Earnings before income taxes
and cumulative effect of
change in accounting method 118 248 446 1,048 1,149 936 540
------ ------ ------ ------ ------ ------ ------
Income taxes 54 102 188 412 456 305 250
Cumulative effect of change in
accounting for income taxes -- -- -- -- 25 --
------ ------ ------ ------ ------ ------ ------
NET EARNINGS $64 $146 $258 $636 $718 $631 $290
====== ====== ====== ====== ====== ====== ======
</TABLE>
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 7
Normalized Earnings Trend
For the Twelve Months Ended March 31, 1996, and
For the Fiscal Years Ended December 31, 1993 through 1995
<TABLE>
<CAPTION>
Twelve months ended
March 31, Fiscal years ended December 31,
------------------- ----------------------------------
1996 1995 1994 1993
---- ---- ---- ----
(Dollars In thousands)
<S> <C> <C> <C> <C>
Net income after taxes $176 $258 $636 $718
Net income before taxes and effect
of accounting adjustments 316 446 1,048 1,149
Income adjustments 0 0 0 0
Expense adjustments (73) (67) 0 0
Normalized earnings before taxes 389 513 1,048 1,149
156 205 412 431
---- ---- ---- ----
Normalized earnings after taxes $233 $308 $636 $718
==== ==== ==== ====
</TABLE>
(1) Assumed a tax rate of 40.0 percent for income adjustment.
(2) Includes a change in accounting for tax adjustment of $25,000.
Income taxes were actually $456,000.
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 8
Performance Indicators
At March 31, 1995 and 1996, and
At December 31, 1991 Through 1995
<TABLE>
<CAPTION>
At or for the three
months ended
March 31, At December 31,
--------------- -------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
Selected Financial Ratios and Other Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest rate spread during period 2.50% 2.85% 2.36% 3.00% 3.24% 3.23% 2.66%
Net yeild on interest-earning assets (1)(2) 2.71% 2.99% 2.61% 3.15% 3.32% 3.35% 2.89%
Return on assets (2)(3) 0.31% 0.71% 0.30% 0.75% 0.86% 0.80% 0.40%
Return on equity (2)(4) 3.89% 9.16% 4.01% 10.62% 13.52% 13.62% 7.47%
Equity to assets 7.47% 7.50% 7.59% 7.24% 6.74% 6.03% 5.52%
Average interest earning assets to average
interests-bearing liabilities 104.96% 103.36% 105.62% 104.43% 101.96% 102.39% 103.83%
Non-performing assets to total assets 0.03% 0.01% 0.01% 0.01% 0.01% 0.18% 0.17%
Allowance for loan losses to
total loans outstanding 0.72% 0.45% 0.70% 0.45% 0.44% 0.49% 0.39%
Allowance for loan losses
to nonperforming loans 1376.67% 2520.00% 5087.50% 1938.46% 3242.86% 166.88% 150.33%
Net charge-offs to average
total loans outstanding -- -- 0.01% 0.01% 0.17% - 0.02%
2.72% 2.24% 2.26% 2.20% 2.15% 2.36% 2.09%
</TABLE>
(1) Net interest income divided by average interest-earning assets.
(2) Information for three months ended March 31, 1996 and 1995, has been
annualized and is not necessarily indicative of results for an entire
year.
(3) Net earnings divided by average total assets.
(4) Net earnings divided by average total equity.
(5) At end of period.
(6) General, administrative, and other expense less state taxes divided by
average total assets.
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 9
Volume/Rate Analysis
For the Years Ended December 31, 1994 and 1995, and For the Three Months Ended
March 31, 1996
<TABLE>
<CAPTION>
Three months ended
March 31, For the years ended December 31,
-------------------------------------- --------------------------------------
1996 vs. 1995 1995 vs. 1994
-------------------------------------- --------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Total Increase Due to Total Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
(In thousands)
Interest earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans $29 $42 $71 $312 $77 $389
Mortgage-backed securities (25) 2 (23) (105) 32 (73)
Investment securities (20) (36) (56) 12 52 64
Interest-bearing deposits and other 33 (8) 25 11 (16) (5)
--- ---- ---- ---- ----- -----
Total interest-earning assets $17 $0 $17 $230 $145 $375
=== ==== ==== ==== ===== =====
Interest bearing liabilities:
Deposits $18 $58 $76 ($37) $614 $577
FHLB advances (31) 20 (11) 147 16 163
--- ---- ---- ---- ----- -----
Total interest bearing liabilities ($13) $78 $65 $110 $630 $740
--- ---- ---- ---- ----- -----
Net change in net interest income $30 ($78) ($48) $120 ($485) ($365)
=== ==== ==== ==== ===== =====
</TABLE>
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------
1994 vs. 1993
---------------------------------
Increase (Decrease)
Due to Total Increase
Volume Rate (Decrease
------ ---- ---------
Interest earning assets:
<S> <C> <C> <C>
Loans ($1) ($297) ($298)
Mortgage-backed securities (116) (7) (123)
Investment securities 239 (20) 219
Interest-bearing deposits and other (64) 1 (63)
---- ----- -----
Total interest-earning assets $58 ($323) ($265)
==== ===== =====
Interest bearing liabilities:
Deposits ($13) ($186) ($199)
FHLB advances 11 0 11
---- ----- -----
Total interest bearing liabilities ($2) ($186) ($188)
---- ----- -----
Net change in net interest income $60 ($137) ($77)
==== ===== =====
</TABLE>
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 10
Yield and Cost Trends
At March 31, 1996, and
For The Three Months Ended March 31, 1995 and 1996 and
The Fiscal Years Ended December 31, 1993 through 1995
<TABLE>
<CAPTION>
Three months ended
At ------------------
March 31, March 31, March 31, Year ended December 31,
--------- --------- --------- -----------------------
1996 1996 1995 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Average yield on loans 7.71% 7.78% 7.49% 7.45% 7.31% 7.87%
Average yield on mortgage-backed securities 6.13% 6.07% 6.02% 6.10% 5.85% 5.90%
Average yield on investment securities 5.25% 4.77% 5.88% 5.58% 5.21% 5.73%
Average yield on interest-bearing deposits 5.16% 4.01% 5.76% 4.10% 4.90% 4.88%
Average yield on all interest-earning assets 7.02% 6.94% 6.98% 6.86% 6.66% 7.14%
Average interest cost of deposits 4.32% 4.37% 4.07% 4.44% 3.66% 3.90%
Average cost of FHLB advances 5.63% 7.20% 5.34% 5.90% 5.26% 4.55%
Average cost of all interest-bearing liabilities 4.35% 4.44% 4.13% 4.50% 3.66% 3.90%
Interest rate spread (1) 2.67% 2.50% 2.85% 2.36% 3.00% 3.24%
==== ==== ==== ==== ==== ====
Net yield on weighted average interest-
earning assets (2) ---% 2.71% 2.99% 2.61% 3.15% 3.32%
</TABLE>
(1) Interest rate spread is calculated by subtracting combined weighted average
interest rate cost from combined weighted average interest rate earned for
the period indicated. Interest rate spread figures must be considered in
light of the relationship between the amounts of interest-earnings assets
and interest-bearing liabilities.
(2) The net yield on weighted average interest-earning assets is calculated by
dividing net interest income by weighted average interest-earning assets
for the period indicated. No net yield figure is presented at March 31,
1996, because the computation of net yield is applicable only over a period
rather than a specific date.
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 11
Market Value of Portfolio Equity
At March 31, 1996
<TABLE>
<CAPTION>
Change in Net Portfolio
Interest Rates Value NPV as % of PV of Assets
(basis points) $ Amount $ Change % Change NPV Ratio Change
-------------- -------- -------- -------- --------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
+400 bp * $5,888 ($2,755) (32.0%) 6.81% (274) bp
+300 bp 6,745 (1,898) (22.0%) 7.70% (185) bp
+200 bp 7,537 (1,106) (13.0%) 8.50% (106) bp
+100 bp 8,214 (429) (5.0%) 9.16% (40) bp
0 bp 8,643 --- 0.0% 9.55% 0 bp
-100 bp 8,791 148 2.0% 9.66% 11 bp
-200 bp 8,817 175 2.0% 9.65% 10 bp
-300 bp 9,048 106 5.0% 9.84% 29 bp
-400 bp 9,533 891 10.0% 10.28% 72 bp
</TABLE>
* Basis points.
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 12
Loan Portfolio Composition
At March 31, 1996, and at December 31, 1993 through 1995
<TABLE>
<CAPTION>
At March 31, At December 31,
-------------------- --------------------------------------------------------------
1996 1995 1994 1993
-------------------- -------------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ -------
(In thousands)
Real Estate Loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family $44,492 76.2% $44,417 74.7% $46,378 81.5% $45,206 86.3%
Multifamily 1,597 2.7% 1,613 2.7% 1,242 2.2% 912 1.7%
Construction 2,132 3.7% 2,489 4.2% 748 1.3% 809 1.5%
Nonresidential real estate 5,983 10.2% 6,005 10.1% 4,740 8.3% 2,945 5.6%
Land loans 735 1.3% 1,558 2.6% 1,034 1.8% 91 0.2%
------- ---- ------- ---- ------- ---- ------- ----
Total real estate loans 54,939 94.1% 56,082 94.3% 54,142 95.1% 49,963 95.3%
====== ==== ====== ==== ====== ==== ====== ====
Consumer loans:
Automobile loans 1,351 2.3% 1,392 2.3% 1,022 1.8% 978 1.9%
Secured by deposits 668 1.1% 590 1.0% 527 0.9% 591 1.1%
Home improvement loans 267 0.5% 295 0.5% 270 0.5% 171 0.3
Other 1,173 2.0% 1,129 1.9% 977 1.7% 717 1.4%
------- ---- ------- ---- ------- ---- ------- ----
Total loans $58,398 100.0% $59,488 100.0% $56,938 100.0% $52,420 100.0%
======= ===== ======= ===== ======= ===== ======= =====
Add/(Deduct):
Deferred loan
origination costs $226 0.4% $234 0.4% $243 0.4% $236 0.4%
Undisbursed portions of
loans in process (818) (1.4%) (1,370) (2.3%) (642) (1.1%) (459) (0.9%)
Allowance for loan losses (413) (0.7%) (407) (0.7%) (252) (0.4%) (227) (0.4%)
------- ---- ------- ---- ------- ---- ------- ----
Net loans receivable $57,393 98.3% $57,945 97.4% $56,287 98.9% $51,970 99.1%
======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 13
Loan Maturity Schedule
At December 31, 1995
<TABLE>
<CAPTION>
Balance Due During Years Ended December 31,
Outstanding -----------------------------------------------------------------------
at December 31,
-------------- 1999 to 2001 to 2006 to 2011 and
1995 1996 1997 1998 2000 2005 2010 following
---- ---- ---- ---- ---- ---- ---- ---------
(In thousands)
Residential real estate loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to four-family $44,417 $526 $144 $339 $725 $710 $18,536 $23,437
Multi-family 1,613 0 0 3 11 146 668 785
Construction 2,489 800 -- -- -- -- 919 770
Non-residential real estate loans6,005 34 37 85 1,663 3,203 1,010
Land loans 1,558 800 7 9 546 98 98 0
Consumer loans:
Loans secured by deposits590 482 25 29 20 32 2 0
Other loans 2,816 267 336 501 1,670 42 0 0
------- ------ ---- ---- ------ ------ ------- -------
Total $59,488 $2,878 $516 $918 $3,057 $2,691 $23,426 $26,002
======= ====== ==== ==== ====== ====== ======= =======
</TABLE>
Due after December 31, 1996
---------------------------------
Fixed Viariable
Rates Rates Total
------- ------- -------
Residential real estate loans:
One-to four-family $14,298 $29,593 $43,891
Multi-family 0 1,613 1,613
Construction 680 1,009 1,689
Non-residential real estate loans 41 5,961 6,002
Land loans 14 745 759
Consumer loans:
Loans secured by deposits 0 108 108
Other loans 2,549 0 2,549
------- ------- -------
Total $17,582 $39,029 $56,611
======= ======= =======
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 14
Loan Originations
For The Three Months Ended March 31, 1995 and 1996 and For the years ended
December 31, 1993 through 1995
<TABLE>
<CAPTION>
Three months ended
March 31, For the fiscal years ended December 31,
------------------- ---------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
Loans originated:
<S> <C> <C> <C> <C> <C>
Residential real estate loans $1,476 $1,758 $8,023 $12,097 $20,284
Multifamily loans -- -- -- 758 57
Construction loans 260 395 3,027 2,415 1,046
Non-residential real estate loans 55 124 1,805 11,031 1,211
Land loans 98 -- 333 981 91
Consumer loans 608 469 2,412 2,137 1,419
------ ------ ------- ------- -------
Total originations $2,497 $2,746 $15,600 $19,419 $24,108
Reductions:
Principal loan repayments 3,036 2,594 13,708 14,973 25,670
Transfers from loans to real
estate owned -- -- -- 15 35
------ ------ ------- ------- -------
Total reductions $3,036 $2,594 $13,708 $14,988 $25,705
Decrease in other items (1) (13) (2) (234) (114) (118)
------ ------ ------- ------- -------
Net increase (decrease) ($552) $150 $1,658 $4,317 $1,715
====== ====== ======= ======= =======
</TABLE>
1) Other items consist of amortization of deferred loan origination costs and
the provision for loan losses.
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 15
Delinquent Loans at March 31, 1996, and at December 31, 1993 through 1995
<TABLE>
<CAPTION>
At March 31, 1996 At December 31, 1995
------------------------------------------------- ------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------- ------------------------- ----------------------- -----------------------
Principal Principal Principal Principal
Number Balance of Number Balance of Number Balance of Number Balance of
of Loans Loans of Loans Loans of Loans Loans of Loans Loans of
-------- ----- -------- ----- -------- ----- -------- ----- --
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real
estate loans............ --- $--- 2 $23 5 $102 1 $ 1
Multi-family loans......... --- --- --- --- --- --- --- ---
Construction loans......... --- --- --- --- --- --- --- ---
Land loans................. --- --- --- --- --- --- --- ---
Nonresidential
real estate loans....... --- --- --- --- 1 23 --- ---
Consumer loans............. --- --- 4 7 1 3 4 7
---- ---- ---- ---- ---- ---- ---- ----
Total................... --- $--- 6 $30 7 $128 5 $ 8
==== ==== ==== ==== ==== ==== ==== ====
Delinquent loans to
total loans............. 0.05% 0.23%
==== ====
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1994 At December 31, 1993
------------------------------------------------- ------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------- ------------------------- ----------------------- -----------------------
Principal Principal Principal Principal
Number Balance of Number Balance of Number Balance of Number Balance of
of Loans Loans of Loans Loans of Loans Loans of Loans Loans of
-------- ----- -------- ----- -------- ----- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real
estate loans............ 1 $ 4 2 $13 4 $ 94 --- $---
Multi-family loans......... --- --- --- --- 1 10 --- ---
Construction loans......... --- --- --- --- --- --- --- ---
Land loans................. --- --- --- --- --- --- --- ---
Nonresidential
real estate loans....... -- --- --- --- --- --- --- ---
Consumer loans............. 6 13 --- --- 1 1 3 7
---- ---- ---- ---- ---- ----- ---- -----
Total................... 7 $17 2 $13 6 $105 3 $7
=== ==== ==== ==== ==== ===== ==== =====
Delinquent loans to
total loans............. 0.05% 0.22%
==== ====
</TABLE>
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 16
Nonperforming Assets
At March 31, 1996, and at December 31, 1993 through 1995
<TABLE>
<CAPTION>
March 31, At December 31,
------------ --------------------------------------------
1996 1995 1994 1993
----------- -------- ---------- ---------
(Unaudited) (Dollars in thousands)
Non-performing assets:
<S> <C> <C> <C> <C>
Loans greater than 90 day delinquent................ $ 30 $ 8 $ 13 $ 7
Troubled debt restructurings........................ --- --- --- ---
---- ---- ---- ----
Total non-performing loans........................ 30 8 13 7
Foreclosed real estate.............................. --- --- --- ---
---- ---- ---- ----
Total non-performing assets....................... $ 30 $ 8 $ 13 $ 7
==== ==== ==== ====
Non-performing loans to total loans.................... 0.05% 0.01% 0.02% 0.01%
==== ==== ==== ====
Non-performing assets to total assets.................. 0.03% 0.01% 0.01% 0.01%
==== ==== ==== ====
</TABLE>
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 17
Classified Assets
At March 31, 1996, and at December 31, 1994 and 1995
At March 31, At December 31,
------------ ------------------
1996 1995 1994
---- ---- ----
(In thousands)
Classified Assets:
Substandard $97 $80 $145
Doubtful 0 0 0
Loss 8 8 2
---- --- ----
Total classified assets $105 $88 $147
==== === ====
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 18
Allowance for Loan Losses
For the Three Months Ended March 31, 1995 and 1996, and For the Fiscal Years
Ended December 31, 1993 through 1995
<TABLE>
<CAPTION>
Three Months Year Ended
Ended March 31, December 31,
------------------------ -------------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited) (Dollars in thousands)
Balance of allowance at beginning
<S> <C> <C> <C> <C> <C>
of period................................ $407 $252 $252 $227 $262
Add:
Provision for losses on loans.......... 6 --- 150 29 55
Recoveries of loans previously
charged off:
Consumer loans......................... --- --- 5 --- 10
Total recoveries..................... --- --- 5 --- 10
Less charge-offs:
Residential real estate loans.......... --- --- --- --- 75
Consumer loans......................... --- --- --- 4 25
---- ---- ---- ---- ----
Total charge-offs.................... --- --- --- 4 100
---- ---- ---- ---- ----
Net charge-offs (recoveries)................ --- --- (5) 4 90
---- ---- ---- ---- ----
Balance of allowance at end of
period................................... $413 $252 $407 $252 $227
==== ==== ==== ==== ====
Net charge-offs (recoveries) to total
average loans outstanding................ ---% ---% (0.01)% 0.01% 0.17%
Allowance at end of period to loans
outstanding.............................. 0.72% 0.45% 0.70% 0.45% 0.44%
Allowance at end of period to
non-performing loans..................... 1,376.67% 2,520.00% 5,087.50 % 1,938.46% 3,242.86%
</TABLE>
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 19
Investment Portfolio Composition
At March 31, 1995, and
At December 31, 1993 through 1995
<TABLE>
<CAPTION>
At March 31, At December 31,
------------------ -----------------------------------------------------------------
1996 1995 1994 1993
------------------ ------------------ ------------------- ------------------
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
--------- ------ --------- ------ --------- ------ --------- ------
(Unaudited) (In thousands)
Held to Maturity:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
agency obligations............... $ 6,000 $ 5,909 $ 8,000 $ 7,930 $13,996 $13,120 $ 9,491 $ 9,574
Available for Sale:
U.S. Government and
agency obligations............... 4,000 3,959 5,000 5,018 --- --- --- ---
Asset management funds............. --- --- 101 101 --- ---
FHLB stock............................ 610 610 610 610 610 610 610 610
------- ------- ------- ------- ------- ------- ------- -------
Total investments................ $10,610 $10,478 $13,610 $13,558 $14,707 $13,831 $10,101 $10,101
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
At March 31, At December 31,
------------------ --------------------------------------------------------------
1996 1995 1994 1993
------------------ ------------------- ------------------ -------------------
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
--------- ------ --------- ------ --------- ------ --------- ------
(Unaudited) (In thousands)
Mortgage-backed
<S> <C> <C> <C> <C> <C> <C> <C> <C>
securities............................... $9,146 $9,068 $9,917 $9,941 $11,328 $10,715 $13,925 $14,195
====== ====== ====== ====== ======= ======= ======= =======
</TABLE>
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 20
Mix of Deposits
At March 31, 1996, and at December 31, 1993 through 1995
<TABLE>
<CAPTION>
At March 31, At December 31,
---------------------- ----------------------------------------------------------------
1996 1995 1994 1993
---------------------- ---------------------- ------------------ ------------------
Percent Percent Percent Percent
of total of total of total of total
Amount deposits Amount deposits Amount deposits Amount deposits
------ -------- ------ -------- ------ -------- ------ --------
(In thousands)
Transaction Accounts:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NOW and Super NOW accounts $9,904 12.5% $9,004 12.0% $8,143 10.8% $7,450 9.6%
Money market demand accounts 7,238 9.1% 7,141 9.5% 7,652 10.1% 8,287 10.6%
Passbook accounts 17,189 21.7% 17,911 23.8% 19,430 25.7% 23,143 29.6%
------ ---- ------ ---- ------ ---- ------ ----
Total transaction accounts 34,331 43.3% 34,056 45.3% 35,225 46.7% 38,880 49.8%
------ ---- ------ ---- ------ ---- ------ ----
Certificates of deposit:
3.00 - 3.99% --- 0.0% --- 0.0% 443 0.6% 25,420 32.5%
4.00 - 4.99% 4,381 5.5% 98 0.1% 30,882 40.9% 9,900 12.7%
5.00 - 5.99% 26,279 33.2% 30,116 40.0% 5,276 7.0% 3,578 4.6%
6.00 - 6.99% 13,682 17.3% 10,731 14.3% 3,365 4.5% 303 0.4%
7.00 - 7.99% 581 0.7% 232 0.3% 267 0.3% --- 0.0%
------ ---- ------ ---- ------ ---- ------ ----
Total certificate accounts 44,923 56.7% 41,177 54.7% 40,233 53.3% 39,201 50.2%
------ ---- ------ ---- ------ ---- ------ ----
Total deposits $79,254 $75,233 $75,458 $78,081
======= ======= ======= =======
100.00% 100.0% 100.0% 100.0%
====== ===== ===== =====
</TABLE>
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 21
Deposit Activity
For the Years Ended December 31, 1993 through 1995
Year ended December 31,
------------------------------------
1995 1994 1993
------- ------- -------
Deposits $176,308 $155,294 $129,392
Withdrawals 177,780 159,211 129,400
------- ------- -------
Net deposits before
interest credited (1,472) (3,917) (8)
------- ------- -------
Interest credited 1,247 1,294 1,401
------- ------- -------
Net increase (decrease) ($225) ($2,623) $1,393
===== ======= ======
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 22
Borrowed Funds
At March 31, 1995 and 1996, and
At December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
At or for the
Three Months At or for the Year
Ended March 31, Ended December 31,
------------------------ -------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
FHLB Advances:
<S> <C> <C> <C> <C> <C>
Outstanding at end of period.................... $2,000 $2,054 $4,471 $4,986 $ ---
Average balance outstanding for period.......... 2,000 3,520 2,967 228 22
Maximum amount outstanding at any
month-end during the period................... 3,404 3,283 4,471 4,986 ---
Weighted average interest rate
during the period............................. 6.00 % 5.34% 5.90 % 5.26% 4.55%
Weighted average interest rate
at end of period.............................. 5.63 6.81 5.76 6.26 ---
</TABLE>
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 23
OFFICES OF MADISON FIRST FEDERAL SAVINGS & LOAN ASSOCIATION
AT MARCH 31, 1996
Approximate Net Book
Date Square Value of
Description/Address Acquired Footage Property
------------------- -------- ------- --------
Locations in Madison, Indiana
Downtown Office:
233 East Main Street 1952 9,110 $171,000
Drive-Through Branch:
401 East Main Street 1984 375 $117,000
Hilltop Location:
303 Clifty Drive 1973 3,250 $242,000
Location in Hanover, Indiana
136 Thornton Road 1980 2,584 $254,000
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 24
LIST OF KEY OFFICERS AND DIRECTORS
At March 31, 1996
<TABLE>
<CAPTION>
Year of
Commencement Term
Name Age Position of Directorship Expires
---- --- -------- --------------- -------
<S> <C> <C> <C> <C>
Robert W. Anger 58 Director, 1981 1997
Vice President - Lending
Cecil L. Dorton 51 Vice Chairman 1990 1998
James E. Fritz 33 Director, President and 1995 1997
Chief Executive Officer
Michael J. Hensley 40 Director 1995 1999
Earl W. Johann 64 Director 1987 1998
Fred W. Koehler 55 Chairman 1988 1999
Traci A. Bridgford 27 Vice President -
Compliance/Operations - -
48 Secretary - -
John Wayne Deveary 42 Vice President and
Treasurer - -
</TABLE>
(1) Mr. Collins also serves the Association as outside counsel.
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 25
CITIZENS NATIONAL BANK OF MADISON
MADISON, INDIANA
STATEMENTS OF FINANCIAL CONDITION
At March 31, 1996, and at December 31, 1995
<TABLE>
<CAPTION>
At At
March 31, December 31,
--------- ------------
ASSETS 1996 1995
------ --------- ------------
(Unaudited)
(In thousands)
<S> <C> <C>
Cash and due from banks $1,698 $2,348
Federal funds sold 1,775 2,775
------- -------
Total cash and cash equivalents 3,473 5,123
Certificates of deposit in other financial institutions 2,362 1,703
Investment securities:
Available for sale, at market value 4,619 1,306
At amortized cost -- --
Mortgage-backed and related securities - designated
as available for sale at market value 3,429 3,561
Mortgage-backed and related securities - at amortized cost -- --
Loans receivable, net 41,588 40,432
Office premises and equipment at depreciated cost 1,373 1,404
Federal Home Loan Bank stock - at cost 271 271
Federal Reserve Bank stock - at cost 80 80
Accrued interest receivable 473 452
Prepaid expenses and other assets 277 95
Prepaid federal income taxes 10 --
Deferred tax asset 100 76
------- -------
TOTAL ASSETS $58,055 $54,503
======= =======
LIABILITIES AND RETAINED EARNINGS
Deposits $52,747 $49,227
Advances from the Federal Home Loan Bank 1,500 1,500
Accrued interest payable 184 205
Other liabilities 179 93
Accrued Federal income taxes -- 82
------- -------
TOTAL LIABILITIES $54,610 $51,107
Retained earnings - substantially restricted 3,496 3,414
Unrealized gain (loss) on securities available for sale,
net of related tax effects (51) (18)
------- -------
TOTAL RETAINED EARNINGS$ 3,445 3,396
TOTAL LIABILITIES AND RETAINED EARNINGS $58,055 $54,503
======= =======
</TABLE>
Source: Citizen National's audited and unaudited financial statements
<PAGE>
EXHIBIT 26
CITIZENS NATIONAL BANK OF MADISON
MADISON, INDIANA
STATEMENTS OF EARNINGS For three months ended March 31, 1996, And the year
ended December 31, 1995
<TABLE>
<CAPTION>
Three months ended Year ended
March 31, December 31,
------------ ------------
1996 1995
------------ ------------
(Unaudited)
Interest income (In thousands)
<S> <C> <C>
Loans $899 $3,195
Mortgage-backed and related securities 57 230
Investment securities 21 192
Interest-bearing deposits and other income 93 78
------- -------
Total interest income 1,070 3,695
Interest expense
Deposits 548 1,750
Borrowings 25 70
Total interest expense 573 1,820
------- -------
Net interest income 497 1,875
Provision for loan losses 150 104
------- -------
Net interest income after
provision for loan losses 347 1,771
Other income
Service charges and other fees on deposits 81 293
Service fees, charges and other operating income 71 266
Gains (losses) on sale of investment securities -- 4
------- -------
Total other income 152 563
General, administrative and other expense
Employee compensation and benefits 226 831
Occupancy and equipment 76 292
Other operating 159 646
------- -------
Total general, administrative and other expense 461 1,769
Earnings before income taxes and cumulative
effect of change in accounting method 38 565
Income taxes
Current 16 223
Deferred -- --
------- -------
16 223
------- -------
Earnings before cumulative effect of change in
accounting method 22 342
Cumulative effect of change in method of accounting
for income taxes -- --
------- -------
NET EARNINGS $22 $342
======= =======
Earnings per share $0.17 $2.71
======= =======
Average shares outstanding 126,037 126,037
======= =======
</TABLE>
Source: Citizen National's audited and unaudited financial statements
<PAGE>
EXHIBIT 27
Performance Indicators
Citizens National Bank of Madison
At March 31, 1995 and 1996, and
At December 31, 1991 Through 1995
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- ------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
Selected Financial Ratios and Other Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest rate spread during period.......... 3.10% 4.09% 3.78% 4.04% 3.53% 3.60% 3.90%
Net yield on interest-earning assets (1) (2) 3.69 4.51 4.25 4.49 4.19 3.99 3.41
Return on assets (2) (3).................... 0.16 1.12 0.71 0.87 0.84 0.68 0.40
Return on equity (2) (4).................... 2.57 15.23 10.69 11.27 10.33 8.80 5.40
Equity to assets (5)........................ 5.93 7.27 6.23 7.27 8.30 7.87 7.55
Average interest-earning assets to average
interest-bearing liabilities............. 113.79 112.08 111.50 114.79 121.74 109.92 109.78
Non-performing assets to total assets (5)... 0.45 0.90 0.54 0.23 0.11 0.05 0.05
Allowance for loan losses to total loans
outstanding (5).......................... 1.15 1.03 0.86 1.13 1.80 1.69 1.85
Allowance for loan losses to
non-performing loans (5)................. 182.44 85.68 117.17 361.29 997.22 1,504.76 1,436.36
Net charge-offs to average
total loans outstanding ................. 0.05 0.03 0.25 0.17 0.04 0.30 ---
Other expenses to
average assets(5) (6)...................... 3.26 3.92 3.89 4.24 4.56 3.69 3.64
</TABLE>
- -----------
(1) Net interest income divided by average interest-earning assets.
(2) Information for three months ended March 31, 1996 and 1995, has been
annualized.
(3) Net income divided by average total assets.
(4) Net income divided by average total equity.
(5) At end of period.
(6) Other expenses less state taxes divided by average total assets.
Source: River Valley Bancorp's Prospectus
<PAGE>
EXHIBIT 28
Key Demographic Data and Trends
United States, Indiana, Jefferson County and Madison
1990, 1995, 2000
<TABLE>
<CAPTION>
Population (000) 1990 1995 % Chg. 2000 % Chg.
- ---------------- ---- ---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
United States 248,709,873 263,006,245 5.7% 277,083,635 5.4%
Indiana 5,544,159 5,800,169 4.6% 6,046,259 4.2%
Jefferson County 29,747 30,679 3.1% 31,520 2.7%
Madison 20,561 20,858 1.4% 21,271 2.0%
Households (000)
United States 91,947,410 97,069,804 5.6% 102,201,641 5.3%
Indiana 2,065,355 2,160,726 4.6% 2,252,401 4.2%
Jefferson County 10,897 11,250 3.2% 11,572 2.9%
Madison 7,880 7,996 1.5% 8,153 2.0%
Per Capita Income ($)
United States $12,313 $16,405 33.2% -- --
Indiana 11,822 16,671 41.0% -- --
Jefferson County 11,631 15,558 33.8% -- --
Madison 9,737 16,359 68.0% -- --
Median Household Income ($)
United States $28,255 $33,610 19.0% $32,972 -1.9%
Indiana 28,380 36,137 27.3% 36,848 2.0%
Jefferson County 21,280 34,597 62.6% 36,092 4.3%
Madison 21,177 34,456 62.7% 36,036 4.6%
Source: Data Users Center and CACI.
</TABLE>
<PAGE>
EXHIBIT 29
Major Sources of Personal Income by Industry Group
United States, Indiana and Jefferson County
1993
Jefferson
Industry Group United States Indiana County
- -------------- ------------- ------- ------
Agriculture/Mining 1.6% 0.8% 0.5%
Construction 5.4% 6.0% 3.1%
Manufacturing 24.8% 39.3% 33.8%
Transportation/Utilities 7.7% 6.8% 6.2%
Wholesale/Retail 19.8% 17.0% 24.0%
Finance, Insurance, &
Real Estate 9.7% 6.6% 2.5%
Services 31.0% 23.5% 29.9%
Source: Bureau of the Census County Business Patterns
<PAGE>
EXHIBIT 30
Key Housing Data
United States, Indiana, Jefferson County and Madison
1990
Occupied Housing Units 1990
- ---------------------- ----
United States 91,947,410
4,506,275
Jefferson County 10,897
Madison 7,869
Occupancy
- ---------
United States
Owner-Occupied 64.2%
Renter-Occupied 35.8%
Owner-Occupied 70.2%
Renter-Occupied 29.8%
Owner-Occupied 73.2%
Renter-Occupied 26.8%
Owner-Occupied 70.9%
Renter-Occupied 29.1%
Median Housing Values
- ---------------------
United States $79,098
53,909
44,899
46,432
Median Rent
- -----------
United States $374
291
215
215
Source: U.S. Department of Commerce and CACI Sourcebook.
<PAGE>
EXHIBIT 31
New Housing Permits and Growth Rates
United States, Indiana, Jefferson County and Madison
1991-1994
New Housing Permits
1-4 Family Dwellings
<TABLE>
<CAPTION>
% % %
Chg. Chg. Chg.
1991 1992 '91-'92 1993 '92-'93 1994 '93-'94
---- ---- ------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
United States 796,647 956,494 20.1% 1,038,907 8.6% 1,130,657 8.8%
Indiana 20,460 25,698 25.6% 27,203 5.9% 29,984 10.2%
Jefferson County 75 168 124.0% 123 -26.8% 134 8.9%
Madison 31 104 235.5% 63 -39.4% 68 7.9%
</TABLE>
Source: Bureau of the Census
<PAGE>
EXHIBIT 32
Unemployment Rates
United States, Indiana and Jefferson County
1990, 1993, 1996
Location 1990 1993 1996*
- -------- ---- ---- -----
United States 5.5% 6.8% 6.0%
Indiana 5.3% 5.3% 5.0%
Jefferson County 6.2% 5.6% 5.4%
*February, 1996
Source: Indiana Department of Workforce Development
<PAGE>
EXHIBIT 33
Market Share of Deposits
Madison First Federal
<TABLE>
<CAPTION>
Jefferson Madison First Madison First Madison Madison First Madison First
County Federal's Federal's City Federal's Federal's
Deposits Share Share Deposits Share Share
(000) (000) (%) (000) (000) (%)
--------- ------------- ------------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Banks $205,253 --- --- $182,722 --- ---
Thrifts 103,778 $69,363 66.8% 93,414 69,363 74.3%
Credit Unions 14,418 --- --- 14,418 --- ---
-------- ------- ---- -------- ------- ----
Total Deposits $323,449 $69,363 21.4% $290,554 $69,363 23.9%
</TABLE>
Source: Sheshunoff
<PAGE>
EXHIBIT 34
National Interest Rates by Quarter
1992-1996
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
1992 1992 1992 1992
-------- -------- -------- --------
Prime Rate 6.50% 6.50% 6.00% 6.00%
90-Day Treasury Bills 4.14% 3.63% 2.73% 3.13%
1-Year Treasury Bills 4.49% 4.03% 3.04% 3.57%
30-Year Treasury Bills 7.98% 7.78% 7.67% 7.39%
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
1993 1993 1993 1993
-------- -------- -------- --------
Prime Rate 6.00% 6.00% 6.00% 6.00%
90-Day Treasury Bills 2.93% 3.07% 2.96% 3.05%
1-Year Treasury Bills 3.27% 3.43% 3.35% 3.58%
30-Year Treasury Bills 6.92% 6.67% 6.03% 6.35%
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
1994 1994 1994 1994
-------- -------- -------- --------
Prime Rate 6.25% 7.25% 7.75% 8.50%
90-Day Treasury Bills 3.54% 4.23% 5.14% 5.66%
1-Year Treasury Bills 4.40% 5.49% 6.13% 7.15%
30-Year Treasury Bills 7.11% 7.43% 7.82% 7.88%
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
1995 1995 1995 1995
-------- -------- -------- --------
Prime Rate 9.00% 9.00% 8.75% 8.50%
90-Day Treasury Bills 5.66% 5.58% 5.40% 5.06%
1-Year Treasury Bills 6.51% 5.62% 5.45% 5.14%
30-Year Treasury Bills 7.43% 6.71% 5.69% 5.97%
1st Qtr.
1996
--------
Prime Rate 8.25%
90-Day Treasury Bills 5.18%
1-Year Treasury Bills 5.43%
30-Year Treasury Bills 6.73%
Source: The Wall Street Journal
<PAGE>
Exhibit 35
KELLER & COMPANY
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF MAY 3, 1996
<TABLE>
<CAPTION>
PER SHARE
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PLE Pinnacle Bank AL AMSE 16.12 19.25 4.00 -3.01 -10.42 16.84 218.37 0.72
SRN Southern Banc Company, Inc AL AMSE 13.12 13.25 11.37 7.14 9.38 15.32 75.45 NA
SZB SouthFirst Bancshares, Inc. AL AMSE 12.12 16.00 10.62 1.04 0.00 17.44 99.37 NA
VAFD Valley Federal Savings Bank AL NASDAQ 30.500 35.25 8.500 -7.58 -12.86 27.49 335.25 0.60 24.80
FFBH First Federal Bancshares of AR AR NASDAQ 14.000 14.00 13.000 NA NA NA NA NA NA
FTF Texarkana First Financial Corp AR AMSE 15.62 15.87 10.00 0.81 11.61 16.98 82.36 NA
AHM Ahmanson & Company (H.F.) CA NYSE 25.87 28.62 2.68 9.52 10.11 20.40 442.46 0.88
AFFFZ America First Financial Fund CA NASDAQ 27.000 29.75 14.500 -1.82 -6.09 25.52 388.17 1.60 9.34
BPLS Bank Plus Corp. CA NASDAQ 9.19 14.00 5.00 -1.97 5.03 9.59 179.78 0.00
BVFS Bay View Capital Corp. CA NASDAQ 33.625 35.25 11.25 0.37 6.75 29.46 421.76 0.60 NM
BYFC Broadway Financial Corp. CA NASDAQ 10.000 11.00 10.000 -9.09 -6.98 14.73 129.07 NA NA
CAL Cal Fed Bancorp, Inc. CA NYSE 18.250 200.000 6.25 3.55 17.74 13.08 289.58 0.00
CFHC California Financial Holding CA NASDAQ 21.000 21.87 5.909 -4.00 4.35 18.44 273.71 0.44 27.63
CENF CENFED Financial Corp. CA NASDAQ 21.500 23.40 5.000 -4.97 -2.47 21.02 420.07 0.33 11.14
CSA Coast Savings Financial CA NYSE 33.75 34.62 1.62 8.87 18.42 22.89 443.40 0.00
DSL Downey Financial Corp. CA NYSE 22.00 26.19 2.08 -3.83 -0.56 22.83 274.12 0.46
FSSB First FS&LA of San Bernardino CA NASDAQ 10.000 14.50 6.875 -3.61 -13.04 17.75 314.62 0.00 NM
FED FirstFed Financial Corp. CA NYSE 16.62 26.60 1.12 5.56 14.66 18.38 392.10 0.00
GLN Glendale Federal Bank, FSB CA NYSE 18.125 589.500 5.25 -2.68 10.69 14.80 325.92 0.00
GDW Golden West Financial CA NYSE 55.37 56.25 3.87 4.98 6.24 39.79 597.27 0.36
GWF Great Western Financial CA NYSE 23.37 27.12 3.95 1.63 -1.06 18.42 318.96 0.92
HTHR Hawthorne Financial Corp. CA NASDAQ 6.25 35.50 2.25 28.21 38.89 11.26 297.43 0.00
HEMT HF Bancorp, Inc. CA NASDAQ 10.000 10.25 8.18 2.56 1.27 13.45 117.61 NA NA
HBNK Highland Federal Bank FSB CA NASDAQ 16.375 17.00 11.00 0.77 0.77 15.08 192.47 0.00 25.59
HFSF Home Federal Financial Corp. CA NASDAQ 18.125 19.00 4.38 0.69 0.69 14.84 195.51 0.24 27.05
MBBC Monterey Bay Bancorp, Inc. CA NASDAQ 12.060 13.06 8.750 -0.54 -0.54 15.11 93.40 0.00 60.30
NHSL NHS Financial, Inc. CA NASDAQ 11.000 11.08 3.69 18.92 15.79 9.78 115.99 0.16 55.00
PSSB Palm Springs Savings Bank CA NASDAQ 13.750 14.00 4.50 61.76 48.65 10.34 169.85 0.12 13.10
PFFB PFF Bancorp, Inc. CA NASDAQ 10.875 11.75 10.810 -5.43 NA 14.57 101.23 NA NA
QCBC Quaker City Bancorp, Inc. CA NASDAQ 14.375 14.75 7.50 3.60 10.58 17.43 176.44 0.00 17.11
REDF RedFed Bancorp Inc. CA NASDAQ 9.62 14.50 7.75 10.00 0.00 11.90 211.32 0.00
SGVB SGV Bancorp, Inc. CA NASDAQ 9.00 10.12 8.00 0.00 -4.00 11.94 122.11 NA
WES Westcorp CA NYSE 18.75 21.90 3.70 -1.56 2.94 11.78 119.08 0.35
FFBA First Colorado Bancorp, Inc. CO NASDAQ 13.250 13.62 3.18 6.00 12.77 12.02 73.52 NA NA
MORG Morgan Financial Corp. CO NASDAQ 12.250 12.50 6.75 11.36 -2.00 12.61 86.05 0.77 15.31
</TABLE>
PRICING RATIOS
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- -------- -------- --------
PLE Pinnacle Bank 9.71 95.75 7.38 10.54
SRN Southern Banc Company, Inc NA 85.67 17.40 NA
SZB SouthFirst Bancshares, Inc. NA 69.52 12.20 NA
VAFD Valley Federal Savings Bank 110.95 9.10 24.60 22.58
FFBH First Federal Bancshares of AR NA NA NA 34.58
FTF Texarkana First Financial Corp NA 92.0 18.97 NA
AHM Ahmanson & Company (H.F.) 7.82 126.84 5.85 38.62
AFFFZ America First Financial Fund 105.80 6.96 9.41 10.26
BPLS Bank Plus Corp. NM 95.83 5.11 NM
BVFS Bay View Capital Corp. 114.14 7.97 31.13 29.63
BYFC Broadway Financial Corp. 67.89 7.75 NA NA
CAL Cal Fed Bancorp, Inc. 11.06 139.53 6.30 11.85
CFHC California Financial Holding 113.88 7.67 31.82
CENF CENFED Financial Corp. 102.28 5.12 15.93
CSA Coast Savings Financial 16.54 147.44 7.61 19.07
DSL Downey Financial Corp. 13.02 96.36 8.03 14.67
FSSB First FS&LA of San Bernardino 56.34 3.18 NM
FED FirstFed Financial Corp. 23.09 90.45 4.24 25.19
GLN Glendale Federal Bank, FSB 72.50 122.47 5.56 20.14
GDW Golden West Financial 12.56 139.17 9.27 12.70
GWF Great Western Financial 12.30 126.90 7.33 13.43
HTHR Hawthorne Financial Corp. NM 55.51 2.10 NM
HEMT HF Bancorp, Inc. 74.35 8.50 NA
HBNK Highland Federal Bank FSB 108.59 8.51 25.59
HFSF Home Federal Financial Corp. 122.14 9.27 47.70
MBBC Monterey Bay Bancorp, Inc. 79.81 12.91 50.25
NHSL NHS Financial, Inc. 112.47 9.48 55.00
PSSB Palm Springs Savings Bank 132.98 8.10 24.55
PFFB PFF Bancorp, Inc. 74.64 10.74 NA
QCBC Quaker City Bancorp, Inc. 82.47 8.15 17.97
REDF RedFed Bancorp Inc. NM 80.88 4.55 NM
SGVB SGV Bancorp, Inc. NA 75.38 7.37 NA
WES Westcorp 13.39 159.17 15.75 29.30
FFBA First Colorado Bancorp, Inc. 110.23 18.02 NA
MORG Morgan Financial Corp. 97.15 14.24 15.91
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EGFC Eagle Financial Corp. CT NASDAQ 23.750 27.75 6.19 0.00 2.15 22.69 318.06 0.88
FFES First Federal of East Hartford CT NASDAQ 17.375 21.50 4.000 -2.11 -13.13 22.30 359.89 0.57
NTMG Nutmeg Federal S&LA CT NASDAQ 7.50 7.75 4.64 3.45 7.14 6.99 121.08 0.00
WBST Webster Financial Corporation CT NASDAQ 28.875 30.50 3.86 5.00 -2.12 24.27 470.54 0.64
IFSB Independence Federal Savings DC NASDAQ 7.50 10.25 0.25 1.69 -7.69 13.37 206.46 0.20
BANC BankAtlantic Bancorp, Inc. FL NASDAQ 15.125 16.00 0.278 -5.47 2.54 11.65 139.90 0.17
BKUNA BankUnited Financial Corp. FL NASDAQ 8.00 12.75 2.32 -1.54 1.59 7.93 129.72 0.00
FFFG F.F.O. Financial Group, Inc. FL NASDAQ 2.62 10.00 0.56 0.00 -4.55 2.18 36.26 0.00
FFLC FFLC Bancorp, Inc. FL NASDAQ 17.875 20.25 12.750 -0.69 0.70 21.26 125.27 0.32
FFML First Family Financial Corp. FL NASDAQ 21.000 23.00 5.000 -1.18 0.00 15.77 281.19 0.16
FPRY First Financial Bancorp FL NASDAQ 20.625 21.12 4.132 -1.20 0.61 17.07 268.91 0.58
FFPB First Palm Beach Bancorp, Inc. FL NASDAQ 21.500 24.87 14.000 -1.15 1.78 21.60 282.86 0.30
FFPC Florida First Bancorp, Inc. FL NASDAQ 9.75 10.00 0.75 14.71 18.18 6.24 90.11 0.18
HOFL Home Financial Corp. FL NASDAQ 13.375 16.25 5.803 -4.46 -8.55 13.32 49.55 0.68
SCSL Suncoast Savings and Loan FL NASDAQ 6.19 10.68 1.25 -1.90 -6.57 6.59 234.43 0.00
CCFH CCF Holding Company GA NASDAQ 11.500 12.75 10.75 0.00 -5.15 15.36 71.12 NA
EBSI Eagle Bancshares GA NASDAQ 17.000 19.00 1.87 7.94 6.25 11.91 179.11 0.51
FGHC First Georgia Holding, Inc. GA NASDAQ 7.25 7.83 1.22 3.57 -3.33 5.86 70.23 0.07
FLFC First Liberty Financial Corp. GA NASDAQ 21.750 25.00 4.00 0.58 -3.33 16.84 246.56 0.49
FLAG FLAG Financial Corp. GA NASDAQ 13.125 15.00 3.20 1.94 -2.78 10.75 112.50 0.30
NFSL Newnan Savings Bank, FSB GA NASDAQ 17.500 19.00 2.95 2.94 6.06 12.86 111.04 0.31
CASH First Midwest Financial, Inc. IA NASDAQ 24.250 24.25 13.25 7.78 10.23 21.72 173.07 0.37
GFSB GFS Bancorp, Inc. IA NASDAQ 20.250 20.75 11.000 -2.41 0.62 18.92 157.23 0.30
HZFS Horizon Financial Svcs Corp. IA NASDAQ 15.750 16.37 10.37 0.00 3.28 18.66 161.24 0.32
MFCX Marshalltown Financial Corp. IA NASDAQ 16.125 16.75 8.50 0.78 2.38 13.71 89.43 0.00
MIFC Mid-Iowa Financial Corp. IA NASDAQ 6.25 7.87 2.47 -7.41 -10.71 6.23 69.02 0.08
MWBI Midwest Bancshares, Inc. IA NASDAQ 26.000 27.12 11.750 -2.80 0.00 26.58 383.24 0.51
FFFD North Central Bancshares, Inc. IA NASDAQ 10.375 12.68 8.071 -2.35 -7.23 13.71 47.52 NA
PMFI Perpetual Midwest Financial IA NASDAQ 17.125 17.75 10.00 0.00 0.74 17.86 185.44 0.15
SFFC StateFed Financial Corporation IA NASDAQ 16.500 19.75 10.500 -1.49 -4.35 18.12 90.08 0.40
AVND Avondale Financial Corp. IL NASDAQ 13.000 15.25 11.500 -7.96 -11.11 16.21 144.41 NA
BABC Barrington Bancorp, Inc. IL NASDAQ 24.000 25.50 12.37 0.00 4.35 17.57 105.44 0.28
BELL Bell Bancorp IL NASDAQ 37.440 37.50 14.12 1.19 1.88 33.38 210.48 0.41
CBCI Calumet Bancorp, Inc. IL NASDAQ 27.500 28.50 10.333 -0.90 -0.90 31.99 188.32 0.00
</TABLE>
EGFC Eagle Financial Corp. 6.77 104.67 7.47 13.57
FFES First Federal of East Hartford 8.91 77.91 4.83 9.05
NTMG Nutmeg Federal S&LA 13.64 107.30 6.19 21.43
WBST Webster Financial Corporation 12.34 118.97 6.14 11.74
IFSB Independence Federal Savings 6.76 56.10 3.63 13.89
BANC BankAtlantic Bancorp, Inc. 9.95 129.83 10.81 12.71
BKUNA BankUnited Financial Corp. 6.61 100.88 6.17 NM
FFFG F.F.O. Financial Group, Inc. 17.50 120.41 7.24 16.41
FFLC FFLC Bancorp, Inc. 15.68 84.08 14.27 15.54
FFML First Family Financial Corp. 8.94 133.16 7.47 15.11
FPRY First Financial Bancorp 14.22 120.83 7.67 18.92
FFPB First Palm Beach Bancorp, Inc. 12.57 99.54 7.60 12.72
FFPC Florida First Bancorp, Inc. 12.83 156.25 10.82 14.13
HOFL Home Financial Corp. 15.03 100.41 26.99 15.74
SCSL Suncoast Savings and Loan NA 93.93 2.64 NA
CCFH CCF Holding Company NA 74.87 16.17 NA
EBSI Eagle Bancshares 11.11 142.74 9.49 11.49
FGHC First Georgia Holding, Inc. 12.95 123.72 10.32 13.94
FLFC First Liberty Financial Corp. 10.26 129.16 8.82 12.95
FLAG FLAG Financial Corp. 13.39 122.09 11.67 15.09
NFSL Newnan Savings Bank, FSB 8.33 136.08 15.76 9.51
CASH First Midwest Financial, Inc. 12.31 111.65 14.01 15.45
GFSB GFS Bancorp, Inc. 12.98 107.03 12.88 13.24
HZFS Horizon Financial Svcs Corp. 22.50 84.41 9.77 26.25
MFCX Marshalltown Financial Corp. 59.72 117.61 18.03 59.72
MIFC Mid-Iowa Financial Corp. 11.79 100.32 9.06 11.79
MWBI Midwest Bancshares, Inc. 7.67 97.82 6.78 11.02
FFFD North Central Bancshares, Inc. NA 75.67 21.83 NA
PMFI Perpetual Midwest Financial 23.14 95.88 9.23 23.14
SFFC StateFed Financial Corporation 15.87 91.06 18.32 15.87
AVND Avondale Financial Corp. NA 80.20 9.00 NA
BABC Barrington Bancorp, Inc. 55.81 136.60 22.76 57.14
BELL Bell Bancorp 29.71 112.16 17.79 31.20
CBCI Calumet Bancorp, Inc. 13.03 85.96 14.60 13.10
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CBSB Charter Financial, Inc. IL NASDAQ 11.750 12.250 6.361 2.17 1.08 12.95 60.47 NA
CBK Citizens First Financial Corp. IL AMSE 10.250 10.500 10.000 NA NA NA NA NA
CSBF CSB Financial Group, Inc. IL NASDAQ 9.250 9.625 8.810 1.37 0.00 12.30 39.82 NA
DFIN Damen Financial Corp. IL NASDAQ 11.750 11.940 11.000 2.17 2.17 14.34 59.31 NA
FBCI Fidelity Bancorp, Inc. IL NASDAQ 16.375 16.375 9.500 7.38 3.97 16.91 140.37 0.20
FNSC Financial Security Corp. IL NASDAQ 25.250 26.500 11.875 -3.11 14.77 25.85 179.87 0.00
FFBI First Financial Bancorp, Inc. IL NASDAQ 15.500 16.250 9.000 0.00 -3.13 16.67 187.79 0.00
FMBD First Mutual Bancorp, Inc. IL NASDAQ 12.500 14.750 11.125 3.65 -3.85 16.55 65.55 NA
FFDP FirstFed Bancshares IL NASDAQ 15.375 15.750 8.000 2.50 8.53 16.61 184.21 0.27
GTPS Great American Bancorp IL NASDAQ 13.750 15.125 11.875 0.00 -7.16 17.96 65.17 NA
HNFC Hinsdale Financial Corp. IL NASDAQ 21.000 23.000 9.000 0.00 -5.62 20.20 253.53 0.00
HMCI HomeCorp, Inc. IL NASDAQ 17.500 18.500 5.000 -0.71 1.45 18.40 303.40 0.00
KNK Kankakee Bancorp, Inc. IL AMSE 19.125 21.000 13.625 -7.27 -4.38 24.72 252.33 0.40
LBCI Liberty Bancorp, Inc. IL NASDAQ 23.250 30.625 12.750 -2.11 -7.46 25.66 269.38 0.60
MAFB MAF Bancorp, Inc. IL NASDAQ 25.750 26.810 2.727 -3.29 3.52 20.91 377.58 0.31
NSBI N.S. Bancorp, Inc. IL NASDAQ 41.375 41.750 7.875 0.61 6.77 38.31 187.84 0.32
NBSI North Bancshares, Inc. IL NASDAQ 15.875 16.250 11.000 2.42 11.40 16.91 97.54 0.10
SWBI Southwest Bancshares IL NASDAQ 27.125 28.250 11.750 0.46 1.40 22.42 186.79 1.04
SPBC St. Paul Bancorp, Inc. IL NASDAQ 23.550 26.625 3.833 -3.38 -5.33 20.64 223.34 0.33
STND Standard Financial, Inc. IL NASDAQ 15.250 15.375 9.125 1.67 4.27 16.05 130.43 0.08
SFSB SuburbFed Financial Corp. IL NASDAQ 17.375 18.167 6.667 2.21 5.30 20.53 287.34 0.32
WCBI Westco Bancorp IL NASDAQ 20.500 20.750 7.667 5.58 10.81 18.07 115.48 0.43
FBCV 1ST Bancorp IN NASDAQ 27.750 34.286 4.190 -5.93 -4.31 32.33 410.07 0.34
AMFC AMB Financial Corp. IN NASDAQ 10.500 11.000 9.750 2.44 NA NA NA NA
ASBI Ameriana Bancorp IN NASDAQ 13.000 14.438 2.750 -3.70 -3.70 13.41 115.20 0.51
ATSB AmTrust Capital Corp. IN NASDAQ 10.250 11.250 7.750 2.50 -2.38 13.32 128.88 0.00
CBCO CB Bancorp, Inc. IN NASDAQ 17.000 19.250 7.125 3.03 -9.33 15.79 172.38 0.00
CBIN Community Bank Shares IN NASDAQ 13.750 14.750 12.000 0.00 -6.78 12.85 113.08 NA
FFWC FFW Corp. IN NASDAQ 19.250 19.750 12.500 6.94 2.67 21.76 201.43 0.48
FFED Fidelity Federal Bancorp IN NASDAQ 12.375 14.773 1.534 0.83 -6.12 5.70 112.36 0.70
FISB First Indiana Corporation IN NASDAQ 24.500 25.190 1.797 -2.49 8.29 15.97 178.41 0.49
HBFW Home Bancorp IN NASDAQ 14.750 16.000 12.500 0.00 2.61 16.60 101.07 0.00
HBBI Home Building Bancorp IN NASDAQ 17.000 17.500 10.000 4.62 3.03 20.04 131.70 0.23
HOMF Home Federal Bancorp IN NASDAQ 25.250 27.750 3.222 0.00 -3.81 22.59 272.66 0.43
INCB Indiana Community Bank, SB IN NASDAQ 16.000 16.750 11.000 6.67 4.92 15.35 102.46 0.33
IFSL Indiana Federal Corporation IN NASDAQ 18.250 21.250 4.000 1.39 -10.98 14.88 151.50 0.78
LOGN Logansport Financial Corp. IN NASDAQ 12.750 13.250 11.250 -2.86 3.03 15.48 57.84 NA
MARN Marion Capital Holdings IN NASDAQ 20.500 20.750 14.250 0.00 3.80 21.48 89.52 0.72
MFBC MFB Corp. IN NASDAQ 14.000 16.250 10.500 -1.75 -5.08 18.67 96.68 0.00
NEIB Northeast Indiana Bancorp IN NASDAQ 11.750 13.500 11.250 -7.84 -9.62 13.92 68.44 NA
PFDC Peoples Bancorp IN NASDAQ 21.000 22.500 5.375 6.33 5.00 18.19 119.18 0.51
PERM Permanent Bancorp, Inc. IN NASDAQ 15.750 18.500 9.750 8.62 0.00 19.26 172.85 0.15
SOBI Sobieski Bancorp, Inc. IN NASDAQ 12.250 13.250 10.000 -2.00 -1.01 16.87 91.25 0.00
WCHI Workingmens Capital Holdings IN NASDAQ 19.875 20.250 4.313 0.63 8.90 14.55 118.84 0.34
FFSL First Independence Corp. KS NASDAQ 17.750 19.250 10.875 -2.07 -7.79 22.02 174.19 0.33
LARK Landmark Bancshares, Inc. KS NASDAQ 15.000 15.250 9.750 0.00 1.69 17.06 99.15 0.35
MCBS Mid Continent Bancshares Inc. KS NASDAQ 18.250 19.000 9.750 1.39 0.00 18.61 141.13 0.40
WBCI WFS Bancorp, Inc. KS NASDAQ 22.750 22.750 11.000 1.11 0.55 21.69 176.65 0.40
CKFB CKF Bancorp, Inc. KY NASDAQ 19.500 20.250 11.375 -0.64 2.63 17.21 63.06 0.40
CLAS Classic Bancshares, Inc. KY NASDAQ 11.000 11.750 10.500 -1.12 2.33 14.76 51.26 NA
FSBS First Ashland Financial Corp KY NASDAQ 18.000 18.375 12.500 -0.33 22.03 16.15 59.37 NA
FFKY First Federal Financial Corp. KY NASDAQ 41.500 42.750 6.125 20.29 22.06 23.39 166.54 0.90
FTSB Fort Thomas Financial Corp KY NASDAQ 15.875 17.000 11.250 9.48 19.81 13.58 55.89 NA
FKKY Frankfort First Bancorp, Inc. KY NASDAQ 11.500 15.875 11.500 -24.59 -22.03 13.87 40.18 NA
GWBC Gateway Bancorp, Inc. KY NASDAQ 14.375 16.250 11.000 -4.17 -0.86 15.52 62.10 1.50
GTFN Great Financial Corporation KY NASDAQ 26.875 27.375 13.875 4.88 14.97 19.19 169.06 0.42
HFFB Harrodsburg First Fin Bancorp KY NASDAQ 15.500 15.625 12.375 11.71 10.71 15.49 49.82 NA
KYF Kentucky First Bancorp, Inc KY AMSE 13.500 13.625 11.375 11.34 11.34 14.29 60.48 NA
LFSB LFS Bancorp Inc. KY NASDAQ 19.250 20.875 12.750 1.99 2.67 19.60 68.98 0.20
CZF CitiSave Financial Corp LA AMSE 16.375 16.500 12.750 11.97 11.97 16.26 82.63 NA
ISBF ISB Financial Corporation LA NASDAQ 15.875 17.000 12.938 0.00 -0.78 16.37 84.51 NA
JEBC Jefferson Bancorp, Inc. LA NASDAQ 21.970 22.125 12.750 -0.14 14.13 16.14 120.71 0.30
MERI Meritrust Federal SB LA NASDAQ 31.500 34.000 13.500 -4.55 1.61 21.82 293.37 0.55
TSH Teche Holding Co. LA AMSE 13.500 14.500 11.375 0.93 0.00 14.59 77.61 NA
AFCB Affiliated Community Bancorp MA NASDAQ 17.000 18.000 16.060 -1.45 -3.19 19.21 185.01 NA
BFD BostonFed Bancorp, Inc. MA AMSE 12.000 12.625 10.000 -2.04 0.00 14.92 102.85 NA
FMLY Family Bancorp MA NASDAQ 24.000 24.000 1.167 14.29 6.08 16.84 217.12 0.40
ANBK American National Bancorp MD NASDAQ 10.000 10.250 4.639 1.27 5.26 12.89 110.29 NA
EQSB Equitable Federal Savings Bank MD NASDAQ 22.500 24.500 11.250 0.00 0.00 22.75 433.56 0.00
FCIT First Citizens Financial Corp. MD NASDAQ 17.500 19.091 0.375 0.00 5.48 13.45 214.17 0.00
FFWM First Financial-W. Maryland MD NASDAQ 19.750 27.250 7.167 5.33 1.28 18.70 149.25 0.48
HRBF Harbor Federal Bancorp, Inc. MD NASDAQ 13.125 15.500 9.750 0.00 -4.55 15.79 83.00 0.20
HFMD Home Federal Corp. MD NASDAQ 10.810 15.873 0.750 -0.60 27.18 7.41 86.02 0.12
MFSL Maryland Federal Bancorp MD NASDAQ 29.625 34.125 4.545 -1.25 -6.69 29.84 363.00 0.58
WSB Washington Savings Bank, FSB MD AMSE 5.500 6.917 0.281 7.32 4.76 5.03 62.23 0.08
WHGB WHG Bancshares Corp. MD NASDAQ 11.375 11.750 10.875 3.98 NA NA NA NA
MCBN Mid-Coast Bancorp, Inc. ME NASDAQ 19.375 20.250 8.095 0.00 1.97 21.51 237.36 0.47
BWFC Bank West Financial Corp. MI NASDAQ 9.750 10.875 8.500 5.41 -2.50 11.99 60.63 0.21
CFSB CFSB Bancorp, Inc. MI NASDAQ 20.500 24.000 3.486 0.00 -5.75 14.30 172.40 0.43
DNFC D & N Financial Corp. MI NASDAQ 12.500 18.875 2.500 -2.91 -6.54 10.16 180.39 0.00
MSBF MSB Financial, Inc. MI NASDAQ 17.000 19.500 10.750 4.62 -8.11 18.86 83.33 0.30
MSBK Mutual Savings Bank, FSB MI NASDAQ 5.625 25.500 3.000 2.27 -6.25 9.19 168.44 0.00
OFCP Ottawa Financial Corp. MI NASDAQ 16.310 16.750 10.250 -0.40 -1.15 14.92 136.66 0.32
SJSB SJS Bancorp MI NASDAQ 20.250 20.250 10.810 5.19 3.85 18.50 151.08 NA
SFB Standard Federal Bancorp MI NYSE 39.750 43.125 4.750 -1.24 -3.64 30.02 431.63 0.72
THR Three Rivers Financial Corp. MI AMSE 13.250 13.500 11.375 2.91 0.95 15.17 99.04 NA
BDJI First Federal Bancorporation MN NASDAQ 13.500 14.750 10.625 -2.70 0.00 17.64 122.69 NA
FFHH FSF Financial Corp. MN NASDAQ 12.250 13.500 7.750 -1.01 -2.97 15.24 84.61 0.50
HMNF HMN Financial, Inc. MN NASDAQ 15.500 16.125 9.313 3.33 0.81 17.54 104.63 0.00
MIVI Mississippi View Holding Co. MN NASDAQ 11.375 12.250 8.500 -1.09 -7.14 13.78 73.08 0.08
QCFB QCF Bancorp, Inc. MN NASDAQ 14.250 15.125 11.000 -0.87 -3.39 17.65 90.44 NA
TCB TCF Financial Corp. MN NYSE 34.250 37.625 2.813 -0.36 -5.52 15.10 196.44 0.63
WEFC Wells Financial Corp. MN NASDAQ 10.250 11.375 9.000 -2.38 -5.75 13.41 89.68 NA
CMRN Cameron Financial Corp MO NASDAQ 13.750 15.500 10.688 -2.65 -6.78 17.29 60.52 NA
CAPS Capital Savings Bancorp, Inc. MO NASDAQ 18.500 19.500 12.250 0.00 -2.63 20.34 194.94 0.33
FBSI First Bancshares, Inc. MO NASDAQ 16.000 17.000 10.250 0.00 -2.29 18.26 107.92 0.20
GSBC Great Southern Bancorp, Inc. MO NASDAQ 27.000 27.375 2.292 -0.92 14.89 15.04 148.61 0.68
HFSA Hardin Bancorp, Inc. MO NASDAQ 11.750 13.000 11.250 0.00 1.08 15.15 78.81 NA
JSBA Jefferson Savings Bancorp MO NASDAQ 29.000 30.750 13.250 3.11 6.42 21.59 266.99 0.08
JOAC Joachim Bancorp, Inc. MO NASDAQ 12.750 13.500 11.500 2.00 0.99 14.08 47.91 NA
MBLF MBLA Financial Corp. MO NASDAQ 24.500 26.000 12.750 3.16 18.07 20.68 142.21 0.40
MFSB Mutual Bancompany MO NASDAQ 21.000 21.750 10.000 0.00 23.53 18.63 164.66 NA
NASB North American Savings Bank MO NASDAQ 29.500 32.375 2.500 -0.84 0.85 21.44 291.83 0.53
NSLB NS&L Bancorp, Inc. MO NASDAQ 12.500 13.750 11.750 -3.85 -7.41 16.17 66.03 NA
PCBC Perry County Financial Corp. MO NASDAQ 17.250 21.500 12.375 1.47 -6.12 18.37 91.63 0.30
RFED Roosevelt Financial Group MO NASDAQ 18.250 19.750 2.167 -6.41 -3.95 10.83 216.88 0.58
SMFC Sho-Me Financial Corp. MO NASDAQ 16.750 16.750 9.375 5.51 13.56 19.18 144.95 0.00
SMBC Southern Missouri Bancorp, Inc MO NASDAQ 14.500 17.500 8.875 3.57 -1.69 15.41 92.54 0.50
CFTP Community Federal Bancorp MS NASDAQ 13.000 13.500 12.500 4.00 NA NA NA NA
FFBS FFBS BanCorp, Inc. MS NASDAQ 23.500 23.500 12.000 20.51 34.29 16.43 78.55 1.40
MGNL Magna Bancorp, Inc. MS NASDAQ 36.000 36.250 1.688 7.46 24.14 18.12 185.48 0.45
GBCI Glacier Bancorp, Inc. MT NASDAQ 22.000 22.273 1.495 7.55 15.24 11.41 118.53 0.56
SFBM Security Bancorp MT NASDAQ 20.250 23.250 4.250 -4.71 0.00 21.97 246.22 0.65
</TABLE>
CBSB Charter Financial, Inc. NA 90.73 19.43 NA
CBK Citizens First Financial Corp. NA NA NA NA
CSBF CSB Financial Group, Inc. NA 75.20 23.23 NA
DFIN Damen Financial Corp. NA 81.94 19.81 NA
FBCI Fidelity Bancorp, Inc. 17.24 96.84 11.67 18.61
FNSC Financial Security Corp. 18.43 97.68 14.04 20.04
FFBI First Financial Bancorp, Inc. 13.72 92.98 8.25 16.67
FMBD First Mutual Bancorp, Inc. NA 75.53 19.07 NA
FFDP FirstFed Bancshares 16.02 92.56 8.35 26.97
GTPS Great American Bancorp NA 76.56 21.10 NA
HNFC Hinsdale Financial Corp. 13.73 103.96 8.28 15.44
HMCI HomeCorp, Inc. 16.51 95.11 5.77 23.65
KNK Kankakee Bancorp, Inc. 17.87 77.37 7.58 18.21
LBCI Liberty Bancorp, Inc. 18.02 90.61 8.63 17.88
MAFB MAF Bancorp, Inc. 9.16 123.15 6.82 8.97
NSBI N.S. Bancorp, Inc. 12.54 108.00 22.03 15.05
NBSI North Bancshares, Inc. 30.53 93.88 16.28 33.07
SWBI Southwest Bancshares 14.13 120.99 14.52 14.20
SPBC St. Paul Bancorp, Inc. 12.80 114.10 10.54 13.08
STND Standard Financial, Inc. 14.66 95.02 11.69 16.40
SFSB SuburbFed Financial Corp. 13.06 84.63 6.05 15.38
WCBI Westco Bancorp 14.86 113.45 17.75 14.86
FBCV 1ST Bancorp 2.83 85.83 6.77 NM
AMFC AMB Financial Corp. NA NA NA NA
ASBI Ameriana Bancorp 13.54 96.94 11.28 14.13
ATSB AmTrust Capital Corp. 28.47 76.95 7.95 113.89
CBCO CB Bancorp, Inc. 8.76 107.66 9.86 8.76
CBIN Community Bank Shares NA 107.00 12.16 NA
FFWC FFW Corp. 11.32 88.47 9.56 10.19
FFED Fidelity Federal Bancorp 9.82 217.11 11.01 10.49
FISB First Indiana Corporation 12.01 153.41 13.73 14.16
HBFW Home Bancorp 17.56 88.86 14.59 17.56
HBBI Home Building Bancorp 26.15 84.83 12.91 26.56
HOMF Home Federal Bancorp 8.15 111.78 9.26 9.35
INCB Indiana Community Bank, SB 22.86 104.23 15.62 22.86
IFSL Indiana Federal Corporation 11.85 122.65 12.05 12.67
LOGN Logansport Financial Corp. NA 82.36 22.04 NA
MARN Marion Capital Holdings 17.52 95.44 22.90 17.52
MFBC MFB Corp. 21.54 74.99 14.48 21.88
NEIB Northeast Indiana Bancorp NA 84.41 17.17 NA
PFDC Peoples Bancorp 12.43 115.45 17.62 12.43
PERM Permanent Bancorp, Inc. 32.14 81.78 9.11 32.14
SOBI Sobieski Bancorp, Inc. 33.11 72.61 13.42 33.11
WCHI Workingmens Capital Holdings 18.23 136.60 16.72 18.40
FFSL First Independence Corp. 9.70 80.61 10.19 11.31
LARK Landmark Bancshares, Inc. 16.48 87.92 15.13 18.99
MCBS Mid Continent Bancshares Inc. 9.92 98.07 12.93 13.13
WBCI WFS Bancorp, Inc. 27.08 104.89 12.88 19.12
CKFB CKF Bancorp, Inc. 25.66 113.31 30.92 25.66
CLAS Classic Bancshares, Inc. NA 74.53 21.46 NA
FSBS First Ashland Financial Corp NA 111.46 30.32 NA
FFKY First Federal Financial Corp. 15.84 177.43 24.92 18.20
FTSB Fort Thomas Financial Corp NA 116.90 28.40 NA
FKKY Frankfort First Bancorp, Inc. NA 82.91 28.62 NA
GWBC Gateway Bancorp, Inc. 22.12 92.62 23.15 22.12
GTFN Great Financial Corporation 17.34 140.05 15.90 21.16
HFFB Harrodsburg First Fin Bancorp NA 100.06 31.11 NA
KYF Kentucky First Bancorp, Inc NA 94.47 22.32 NA
LFSB LFS Bancorp Inc. 37.02 98.21 27.91 37.02
CZF CitiSave Financial Corp NA 100.71 19.82 NA
ISBF ISB Financial Corporation NA 96.98 18.78 NA
JEBC Jefferson Bancorp, Inc. 17.30 136.12 18.20 17.30
MERI Meritrust Federal SB 11.33 144.36 10.74 11.62
TSH Teche Holding Co. NA 92.53 17.39 NA
AFCB Affiliated Community Bancorp NA 88.50 9.19 NA
BFD BostonFed Bancorp, Inc. NA 80.43 11.67 NA
FMLY Family Bancorp 12.31 142.52 11.05 13.79
ANBK American National Bancorp NA 77.58 9.07 NA
EQSB Equitable Federal Savings Bank 6.90 98.90 5.19 6.92
FCIT First Citizens Financial Corp. 13.16 130.11 8.17 16.51
FFWM First Financial-W. Maryland 30.38 105.61 13.23 32.92
HRBF Harbor Federal Bancorp, Inc. 21.52 83.12 15.81 21.52
HFMD Home Federal Corp. 10.70 145.88 12.57 10.92
MFSL Maryland Federal Bancorp 10.73 99.28 8.16 15.04
WSB Washington Savings Bank, FSB 10.38 109.34 8.84 13.75
WHGB WHG Bancshares Corp. NA NA NA NA
MCBN Mid-Coast Bancorp, Inc. 14.57 90.07 8.16 15.88
BWFC Bank West Financial Corp. 21.67 81.32 16.08 37.50
CFSB CFSB Bancorp, Inc. 13.40 143.36 11.89 14.24
DNFC D & N Financial Corp. 7.40 123.03 6.93 8.33
MSBF MSB Financial, Inc. 10.97 90.14 20.40 12.06
MSBK Mutual Savings Bank, FSB NM 61.21 3.34 NM
OFCP Ottawa Financial Corp. 21.75 109.32 11.93 22.04
SJSB SJS Bancorp NA 109.46 13.40 NA
SFB Standard Federal Bancorp 10.46 132.41 9.21 11.56
THR Three Rivers Financial Corp. NA 87.34 13.38 NA
BDJI First Federal Bancorporation NA 76.53 11.00 NA
FFHH FSF Financial Corp. 24.50 80.38 14.48 24.50
HMNF HMN Financial, Inc. 13.14 88.37 14.81 14.76
MIVI Mississippi View Holding Co. 11.38 82.55 15.57 12.78
QCFB QCF Bancorp, Inc. NA 80.74 15.76 NA
TCB TCF Financial Corp. 12.41 226.82 17.44 13.12
WEFC Wells Financial Corp. NA 76.44 11.43 NA
CMRN Cameron Financial Corp NA 79.53 22.72 NA
CAPS Capital Savings Bancorp, Inc. 10.22 90.95 9.49 10.22
FBSI First Bancshares, Inc. 17.78 87.62 14.83 17.98
GSBC Great Southern Bancorp, Inc. 11.34 179.52 18.17 12.05
HFSA Hardin Bancorp, Inc. NA 77.56 14.91 NA
JSBA Jefferson Savings Bancorp 16.38 134.32 10.86 17.90
JOAC Joachim Bancorp, Inc. NA 90.55 26.61 NA
MBLF MBLA Financial Corp. 25.52 118.47 17.23 25.52
MFSB Mutual Bancompany NA 112.72 12.75 NA
NASB North American Savings Bank 7.97 137.59 10.11 8.70
NSLB NS&L Bancorp, Inc. NA 77.30 18.93 NA
PCBC Perry County Financial Corp. 18.16 93.90 18.83 18.55
RFED Roosevelt Financial Group 14.04 168.51 8.41 10.31
SMFC Sho-Me Financial Corp. 15.09 87.33 11.56 16.11
SMBC Southern Missouri Bancorp, Inc 21.97 94.09 15.67 22.66
CFTP Community Federal Bancorp NA NA NA NA
FFBS FFBS BanCorp, Inc. 21.96 143.03 29.92 21.96
MGNL Magna Bancorp, Inc. 11.88 198.68 19.41 12.86
GBCI Glacier Bancorp, Inc. 12.50 192.81 18.56 12.50
SFBM Security Bancorp 12.50 92.17 8.22 16.74
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UBMT United Savings Bank, F.A. MT NASDAQ 18.750 22.500 5.625 0.00 4.17 20.12 85.48 0.83
WSTR WesterFed Financial Corp. MT NASDAQ 14.500 17.125 11.375 -0.85 -9.03 17.77 133.82 0.30
COOP Cooperative Bankshares, Inc. NC NASDAQ 17.500 22.500 3.467 0.00 -9.09 19.64 210.37 0.00
SOPN First Savings Bancorp, Inc. NC NASDAQ 18.625 21.000 13.500 -0.67 -1.97 17.94 68.45 0.68
GSFC Green Street Financial Corp. NC NASDAQ 13.000 13.125 12.125 5.05 NA NA NA NA
HFNC HFNC Financial Corp. NC NASDAQ 14.875 15.000 13.125 5.31 11.21 14.16 53.88 NA
KSAV KS Bancorp, Inc. NC NASDAQ 18.000 22.000 11.625 -5.26 -0.69 20.55 135.50 1.05
PDB Piedmont Bancorp, Inc. NC AMSE 13.125 13.625 12.000 -1.87 2.94 14.05 47.20 NA
SSB Scotland Bancorp, Inc NC AMSE 12.000 12.625 11.625 2.13 NA NA NA NA
SSM Stone Street Bancorp, Inc. NC AMSE 17.375 18.500 16.750 2.21 NA NA NA NA
UFRM United Federal Savings Bank NC NASDAQ 8.125 8.750 1.750 4.84 3.17 6.81 82.27 0.17
CFB Commercial Federal Corporation NE NYSE 38.750 38.875 1.625 4.73 3.68 26.57 439.20 0.30
EBCP Eastern Bancorp NH NASDAQ 23.810 27.500 4.500 -0.79 -3.80 26.48 344.02 0.57
NHTB New Hampshire Thrift Bncshrs NH NASDAQ 9.750 13.000 1.750 -2.50 -4.88 11.49 149.44 0.50
FBER 1st Bergen Bancorp NJ NASDAQ 9.625 10.000 9.310 -2.53 NA NA NA NA
CJFC Central Jersey Financial NJ NASDAQ 31.000 31.310 2.645 8.77 8.77 20.58 174.72 0.44
COFD Collective Bancorp, Inc. NJ NASDAQ 24.375 28.250 1.351 -2.01 -8.02 17.47 247.88 0.80
FSPG First Home Savings Bank, FSB NJ NASDAQ 18.250 19.000 2.531 2.82 4.29 14.97 229.73 0.48
FSFI First State Financial Services NJ NASDAQ 10.750 14.125 1.625 -6.52 -10.42 10.69 156.21 0.22
FMCO FMS Financial Corporation NJ NASDAQ 16.500 17.500 1.500 11.41 -2.94 13.50 205.02 0.20
IBSF IBS Financial Corp NJ NASDAQ 13.875 15.455 8.409 -0.47 -4.70 13.53 66.34 0.20
LVSB Lakeview Financial NJ NASDAQ 18.375 19.750 8.068 -5.48 3.52 19.99 200.89 0.23
LFBI Little Falls Bancorp, Inc. NJ NASDAQ 10.000 11.500 9.500 -4.76 -9.09 14.26 93.85 NA
PBCI Pamrapo Bancorp, Inc. NJ NASDAQ 19.375 26.125 2.563 -3.13 -10.92 17.21 111.05 0.85
PFSB PennFed Financial Services,Inc NJ NASDAQ 16.000 16.000 9.063 5.79 4.07 19.69 201.44 0.00
PULS Pulse Bancorp NJ NASDAQ 16.750 17.750 4.000 9.84 4.69 13.84 116.42 0.75
SFIN Statewide Financial Corp. NJ NASDAQ 12.500 13.750 11.750 2.04 -1.96 13.36 120.40 NA
FSBC First Savings Bank, FSB NM NASDAQ 6.000 10.417 1.750 -11.11 -7.69 7.86 166.01 0.00
GUPB GFSB Bancorp, Inc. NM NASDAQ 14.250 15.000 12.875 5.09 4.59 17.09 74.23 NA
ALBK ALBANK Financial Corp NY NASDAQ 27.875 30.625 9.167 4.21 16.35 23.58 244.99 0.42
ALBC Albion Banc Corp. NY NASDAQ 17.500 18.750 10.500 1.45 2.94 23.36 218.97 0.31
ASFC Astoria Financial Corporation NY NASDAQ 55.625 55.625 25.375 3.97 12.09 52.31 612.14 0.60
BFSI BFS Bankorp, Inc. NY NASDAQ 38.000 39.500 2.500 -1.94 4.11 28.19 346.35 0.00
CARV Carver Federal Savings Bank NY NASDAQ 8.000 10.750 6.250 -5.88 -6.54 15.12 156.94 0.00
CONE Conestoga Bancorp, Inc. NY NASDAQ 20.875 21.125 10.000 0.00 1.21 17.58 104.25 0.20
FIBC Financial Bancorp, Inc. NY NASDAQ 13.000 14.875 8.500 0.00 1.96 14.32 134.45 0.23
HAVN Haven Bancorp, Inc. NY NASDAQ 26.625 27.625 10.000 9.23 9.79 21.82 346.38 0.30
LISB Long Island Bancorp, Inc. NY NASDAQ 27.940 28.875 12.090 -1.96 5.93 20.79 194.48 0.40
NYB New York Bancorp Inc. NY NYSE 25.375 26.125 2.425 5.18 14.04 13.58 234.93 0.80
PEEK Peekskill Financial Corp. NY NASDAQ 11.750 12.125 11.125 0.00 2.17 15.73 47.24 NA
PKPS Poughkeepsie Savings Bank, FSB NY NASDAQ 4.940 26.750 0.875 -3.61 -10.18 5.69 66.95 0.09
RELY Reliance Bancorp, Inc. NY NASDAQ 15.125 16.500 8.875 0.00 0.83 16.75 189.08 0.45
SFED SFS Bancorp, Inc. NY NASDAQ 12.000 13.500 11.000 -2.04 -0.50 16.68 118.69 NA
TPNZ Tappan Zee Financial, Inc. NY NASDAQ 11.875 13.000 11.250 -4.04 0.55 13.80 70.86 NA
YFCB Yonkers Financial Corporation NY NASDAQ 9.875 10.125 9.690 -2.47 NA NA NA NA
ASBP ASB Financial Corp. OH NASDAQ 14.250 16.500 11.375 -5.00 -12.31 15.04 65.18 NA
CAFI Camco Financial Corporation OH NASDAQ 19.500 19.500 12.857 9.86 4.00 14.52 174.34 0.41
COFI Charter One Financial OH NASDAQ 36.625 38.000 3.445 4.27 3.90 20.16 292.01 0.78
CRCL Circle Financial Corp. OH NASDAQ 35.125 35.125 10.500 27.73 30.09 34.51 323.98 0.62
CTZN CitFed Bancorp, Inc. OH NASDAQ 35.250 38.875 9.250 1.44 -0.70 30.76 438.42 0.26
CIBI Community Investors Bancorp OH NASDAQ 15.250 17.500 10.750 3.39 7.02 16.93 122.33 0.12
EFBI Enterprise Federal Bancorp OH NASDAQ 14.250 18.000 11.250 0.00 -5.00 14.86 95.34 3.00
FFDF FFD Financial Corp. OH NASDAQ 10.125 10.750 10.125 -3.57 NA NA NA NA
FFYF FFY Financial Corp. OH NASDAQ 23.250 23.375 12.250 1.09 6.29 20.25 110.37 0.55
FFOH Fidelity Financial of Ohio OH NASDAQ 10.250 10.890 3.112 0.00 -5.88 12.47 61.22 NA
FDEF First Defiance Financial OH NASDAQ 10.875 11.000 5.790 0.00 1.73 12.22 48.12 NA
FFBZ First Federal Bancorp, Inc. OH NASDAQ 24.500 24.500 6.250 10.11 6.52 16.04 220.75 0.38
FFHS First Franklin Corporation OH NASDAQ 15.125 17.500 3.500 4.31 0.83 17.31 182.15 0.28
FFSW FirstFederal Financial Svcs OH NASDAQ 24.750 24.750 2.232 2.74 13.44 14.71 303.31 0.44
GFCO Glenway Financial Corp. OH NASDAQ 22.000 24.500 16.190 -4.35 0.00 24.28 251.07 0.51
HHFC Harvest Home Financial Corp. OH NASDAQ 12.500 13.000 8.750 -1.96 4.17 14.44 81.55 0.29
HVFD Haverfield Corporation OH NASDAQ 17.750 18.977 5.165 2.90 26.79 14.81 178.37 0.52
INBI Industrial Bancorp OH NASDAQ 11.750 16.000 11.750 -21.67 -16.07 11.26 58.88 NA
LONF London Financial Corporation OH NASDAQ 10.310 11.250 9.750 0.59 NA NA NA NA
MFFC Milton Federal Financial Corp. OH NASDAQ 14.250 17.125 10.000 -8.06 -6.56 14.91 74.61 1.31
OHSL OHSL Financial Corp. OH NASDAQ 21.250 22.000 11.500 2.41 2.41 20.84 167.80 0.70
PTRS Potters Financial Corp. OH NASDAQ 16.125 18.500 9.000 -2.27 -7.86 20.80 213.70 0.21
PVFC PVF Capital Corp. OH NASDAQ 20.250 20.750 6.474 6.58 3.18 13.77 205.36 0.00
SFSL Security First Corp. OH NASDAQ 11.875 17.250 1.625 -2.82 -8.65 11.58 132.99 0.40
SHFC Seven Hills Financial Corp. OH NASDAQ 14.500 17.500 11.000 0.00 0.00 17.99 84.83 0.86
SSBK Strongsville Savings Bank OH NASDAQ 20.250 21.750 15.500 0.00 5.19 16.50 199.40 0.42
SBCN Suburban Bancorporation, Inc. OH NASDAQ 15.500 18.500 10.500 -3.13 -8.82 17.48 133.13 0.55
THIR Third Financial Corp. OH NASDAQ 32.000 32.000 14.500 6.67 13.27 24.88 137.05 0.60
WOFC Western Ohio Financial Corp. OH NASDAQ 22.500 24.375 14.750 -2.17 -4.26 24.74 95.97 1.00
WFCO Winton Financial Corp. OH NASDAQ 13.250 15.000 3.750 -1.85 -11.67 10.42 132.08 0.41
FFWD Wood Bancorp, Inc. OH NASDAQ 18.875 19.500 12.000 0.67 3.42 19.71 135.10 0.33
KFBI Klamath First Bancorp OR NASDAQ 14.000 14.000 12.500 2.75 5.66 14.90 53.73 NA
BRFC Bridgeville Savings Bank PA NASDAQ 14.750 15.250 11.750 9.26 5.36 14.13 49.56 0.38
CVAL Chester Valley Bancorp Inc. PA NASDAQ 19.000 20.476 4.073 2.01 2.01 15.91 173.80 0.35
FSBI Fidelity Bancorp, Inc. PA NASDAQ 16.000 18.182 3.756 3.53 -2.22 16.06 220.59 0.29
FBBC First Bell Bancorp, Inc. PA NASDAQ 13.375 14.250 10.000 -0.93 -3.60 13.99 66.44 NA
FKFS First Keystone Financial PA NASDAQ 17.750 20.875 10.250 -1.39 -8.97 17.83 215.24 0.00
SHEN First Shenango Bancorp, Inc. PA NASDAQ 21.250 22.250 12.750 2.41 1.19 20.40 154.13 0.39
GAF GA Financial, Inc. PA AMSE 11.000 11.500 10.750 1.15 NA 14.34 63.90 NA
HARL Harleysville Savings Bank PA NASDAQ 18.250 19.750 3.535 -1.35 7.35 15.01 212.82 0.36
LARL Laurel Capital Group, Inc. PA NASDAQ 15.500 16.500 3.627 -3.13 -3.88 13.66 127.95 0.27
MLFB MLF Bancorp, Inc. PA NASDAQ 25.000 25.000 12.438 5.82 3.09 24.47 282.67 0.52
PVSA Parkvale Financial Corporation PA NASDAQ 27.125 28.500 2.688 -3.98 0.46 20.99 282.75 0.49
PBIX Patriot Bank Corp. PA NASDAQ 13.000 13.125 12.310 1.48 1.96 15.47 89.48 NA
PWBC PennFirst Bancorp, Inc. PA NASDAQ 13.500 15.915 4.019 8.00 5.88 13.37 170.26 0.36
PHFC Pittsburgh Home Financial Corp PA NASDAQ 10.000 11.125 10.000 -5.88 NA NA NA NA
PSAB Prime Bancorp, Inc. PA NASDAQ 17.875 20.682 3.194 -2.05 -2.05 15.44 163.55 0.65
PFNC Progress Financial Corporation PA NASDAQ 7.000 18.750 0.750 0.00 21.74 5.15 93.30 0.00
SVRN Sovereign Bancorp, Inc. PA NASDAQ 10.750 11.250 1.005 -0.56 2.38 7.58 175.83 0.08
THRD TF Financial Corporation PA NASDAQ 14.750 16.000 9.750 3.95 2.61 17.80 114.78 0.26
THBC Troy Hill Bancorp, Inc. PA NASDAQ 12.875 14.000 10.250 -3.74 -3.74 16.73 75.37 0.32
WVFC WVS Financial Corporation PA NASDAQ 20.500 22.250 13.000 -3.53 -3.53 20.92 138.38 0.52
YFED York Financial Corp. PA NASDAQ 17.500 18.864 4.731 -1.41 -3.45 15.22 173.33 0.55
AMFB American Federal Bank SC NASDAQ 15.750 16.500 0.625 1.61 4.13 9.88 122.62 0.31
CFCP Coastal Financial Corp. SC NASDAQ 21.000 21.500 2.397 0.00 12.00 9.79 160.93 0.50
FFCH First Financial Holdings Inc. SC NASDAQ 19.250 22.250 4.000 -10.47 -3.75 15.04 227.64 0.60
FSFC First Southeast Financial Corp SC NASDAQ 18.500 20.250 11.750 -1.33 3.50 17.20 87.67 0.43
PALM Palfed, Inc. SC NASDAQ 12.000 18.500 3.500 -5.88 -4.95 10.09 119.41 0.02
SCCB S. Carolina Community Bancshrs SC NASDAQ 16.500 20.500 12.625 0.00 -4.35 16.80 59.01 0.55
HFFC HF Financial Corp. SD NASDAQ 14.875 16.750 5.500 -0.83 -5.56 16.86 187.92 0.32
LFCT Leader Financial Corp. TN NASDAQ 45.250 45.250 14.500 2.26 18.69 25.71 320.22 0.63
TWIN Twin City Bancorp TN NASDAQ 16.000 18.250 10.500 -5.88 -4.48 15.69 114.01 0.55
CBSA Coastal Bancorp, Inc. TX NASDAQ 18.750 18.875 9.875 2.74 0.67 18.50 566.12 0.34
ETFS East Texas Financial Services TX NASDAQ 14.750 16.750 11.000 -6.35 -6.35 18.91 96.32 0.05
FBHC Fort Bend Holding Corp. TX NASDAQ 17.750 20.250 10.375 -2.74 -2.74 21.50 298.71 0.28
LOAN Horizon Bancorp TX NASDAQ 10.750 11.500 7.250 -4.44 0.00 7.53 91.50 0.10
JXVL Jacksonville Bancorp, Inc. TX NASDAQ 10.625 11.990 7.141 8.97 -2.81 NA NA NA
WFSB 1st Washington Bancorp Inc. VA NASDAQ 7.875 10.375 0.125 0.83 1.61 4.79 80.47 0.12
BFSB Bedford Bancshares, Inc. VA NASDAQ 16.125 18.750 10.250 -7.19 -9.15 16.86 98.42 0.33
CNIT CENIT Bancorp, Inc. VA NASDAQ 34.250 40.250 10.875 -1.44 -0.72 28.99 415.52 0.40
CFFC Community Financial Corp. VA NASDAQ 21.000 21.000 4.250 0.00 9.09 16.99 124.25 0.41
ESX Essex Bancorp, Inc. VA AMSE 2.500 19.250 0.750 -16.67 -13.04 7.72 300.38 0.00
FFFC FFVA Financial Corp. VA NASDAQ 30.690 32.250 16.500 2.73 -4.84 33.58 190.85 0.65
FFRV Fidelity Financial Bankshares VA NASDAQ 12.500 14.750 2.381 -3.85 -5.66 12.01 141.09 0.16
GSLC Guaranty Financial Corp. VA NASDAQ 7.750 8.500 6.313 -4.62 -6.06 6.88 105.07 0.00
LIFB Life Bancorp, Inc. VA NASDAQ 14.310 16.625 8.313 0.42 -2.15 14.74 115.79 0.44
VABF Virginia Beach Fed. Financial VA NASDAQ 7.750 9.938 1.625 -0.77 -1.59 8.28 125.95 0.16
VFFC Virginia First Financial VA NASDAQ 12.000 12.125 1.250 6.67 0.00 9.81 127.14 0.06
CASB Cascade Financial Corp. WA NASDAQ 20.000 20.000 3.328 25.00 25.00 12.42 199.87 0.00
FWWB First SB of Washington Bancorp WA NASDAQ 15.190 15.250 12.375 3.86 19.70 15.25 59.11 NA
IWBK InterWest Bancorp, Inc. WA NASDAQ 24.000 25.125 8.478 -3.52 18.52 14.63 212.71 0.39
MSEA Metropolitan Bancorp WA NASDAQ 14.000 15.000 3.636 -5.88 0.90 13.71 209.74 0.00
STSA Sterling Financial Corp. WA NASDAQ 13.500 14.500 1.878 -3.57 -1.82 11.30 276.03 0.00
WFSL Washington Federal, Inc. WA NASDAQ 21.375 23.967 1.723 2.40 -2.84 14.04 115.72 0.86
AADV Advantage Bancorp, Inc. WI NASDAQ 33.875 34.500 10.600 -1.81 3.28 26.04 284.07 0.26
ABCW Anchor BanCorp Wisconsin WI NASDAQ 33.625 36.250 9.800 0.75 0.37 24.00 355.58 0.32
FCBF FCB Financial Corp. WI NASDAQ 17.750 18.500 10.000 1.43 -2.74 18.65 95.25 0.57
FFEC First Fed Bncshrs Eau Claire WI NASDAQ 14.625 15.375 8.375 2.63 5.41 14.04 98.07 0.10
FTFC First Federal Capital Corp. WI NASDAQ 21.875 22.875 1.449 1.74 9.38 15.03 219.45 0.56
FFHC First Financial Corp. WI NASDAQ 23.125 24.000 1.392 6.32 10.12 13.30 181.33 0.51
FNGB First Northern Capital Corp. WI NASDAQ 15.875 16.500 3.063 -0.78 0.79 15.98 125.56 0.57
HALL Hallmark Capital Corp. WI NASDAQ 15.500 16.250 9.875 3.33 0.00 18.38 235.13 0.00
MWFD Midwest Federal Financial WI NASDAQ 29.500 31.000 8.333 14.56 37.21 20.41 218.32 0.27
NWEQ Northwest Equity Corp. WI NASDAQ 10.500 11.375 6.875 6.33 0.00 12.74 88.04 0.33
OSBF OSB Financial Corp. WI NASDAQ 23.000 24.875 14.500 -3.16 -2.13 28.01 222.41 0.56
RELI Reliance Bancshares, Inc. WI NASDAQ 8.250 8.500 7.875 -2.94 NA NA NA NA
SECP Security Capital Corporation WI NASDAQ 61.500 62.250 25.000 5.58 4.24 55.94 350.75 0.30
STFR St. Francis Capital Corp. WI NASDAQ 25.250 28.000 12.625 -1.46 -8.18 23.35 221.21 0.20
FOBC Fed One Bancorp WV NASDAQ 14.750 16.250 5.358 -2.48 -6.35 16.53 136.40 0.53
CRZY Crazy Woman Creek Bancorp WY NASDAQ 10.750 11.000 10.375 2.38 NA NA NA NA
TRIC Tri-County Bancorp, Inc. WY NASDAQ 18.000 18.500 11.375 2.86 -1.37 20.76 116.42 0.45
</TABLE>
UBMT United Savings Bank, F.A. 14.20 93.19 21.93 14.20
WSTR WesterFed Financial Corp. 15.10 81.60 10.84 16.29
COOP Cooperative Bankshares, Inc. 31.82 89.10 8.32 37.23
SOPN First Savings Bancorp, Inc. 19.61 103.82 27.21 19.20
GSFC Green Street Financial Corp. NA NA NA NA
HFNC HFNC Financial Corp. NA 105.05 27.61 NA
KSAV KS Bancorp, Inc. 13.04 87.59 13.28 12.86
PDB Piedmont Bancorp, Inc. NA 93.42 27.81 NA
SSB Scotland Bancorp, Inc NA NA NA NA
SSM Stone Street Bancorp, Inc. NA NA NA NA
UFRM United Federal Savings Bank 11.13 119.31 9.88 12.50
CFB Commercial Federal Corporation 10.33 145.84 8.82 10.39
EBCP Eastern Bancorp 11.85 89.92 6.92 14.52
NHTB New Hampshire Thrift Bncshrs 11.75 84.86 6.52 11.34
FBER 1st Bergen Bancorp NA NA NA NA
CJFC Central Jersey Financial 15.98 150.63 17.74 16.85
COFD Collective Bancorp, Inc. 9.34 139.52 9.83 9.56
FSPG First Home Savings Bank, FSB 8.41 121.91 7.94 8.82
FSFI First State Financial Services 11.20 100.56 6.88 14.53
FMCO FMS Financial Corporation 10.12 122.22 8.05 10.12
IBSF IBS Financial Corp 18.50 102.55 20.91 18.02
LVSB Lakeview Financial 8.75 91.92 9.15 14.36
LFBI Little Falls Bancorp, Inc. NA 70.13 10.66 NA
PBCI Pamrapo Bancorp, Inc. 12.58 112.58 17.45 12.58
PFSB PennFed Financial Services,Inc 12.40 81.26 7.94 11.51
PULS Pulse Bancorp 12.59 121.03 14.39 12.50
SFIN Statewide Financial Corp. NA 93.56 10.38 NA
FSBC First Savings Bank, FSB NA 76.34 3.61 NA
GUPB GFSB Bancorp, Inc. NA 83.38 19.20 NA
ALBK ALBANK Financial Corp 13.80 118.21 11.38 13.80
ALBC Albion Banc Corp. 24.65 74.91 7.99 28.69
ASFC Astoria Financial Corporation 12.53 106.34 9.09 13.63
BFSI BFS Bankorp, Inc. 6.53 134.80 10.97 6.77
CARV Carver Federal Savings Bank 23.53 52.91 5.10 18.60
CONE Conestoga Bancorp, Inc. 29.40 118.74 20.02 35.99
FIBC Financial Bancorp, Inc. 16.46 90.78 9.67 16.67
HAVN Haven Bancorp, Inc. 12.56 122.02 7.69 12.74
LISB Long Island Bancorp, Inc. 15.10 134.39 14.37 16.24
NYB New York Bancorp Inc. 9.99 186.86 10.80 10.57
PEEK Peekskill Financial Corp. NA 74.70 24.87 NA
PKPS Poughkeepsie Savings Bank, FSB 4.12 86.82 7.38 3.13
RELY Reliance Bancorp, Inc. 12.93 90.30 8.00 13.50
SFED SFS Bancorp, Inc. NA 71.94 10.11 NA
TPNZ Tappan Zee Financial, Inc. NA 86.05 16.76 NA
YFCB Yonkers Financial Corporation NA NA NA NA
ASBP ASB Financial Corp. NA 94.75 21.86 NA
CAFI Camco Financial Corporation 9.20 134.30 11.19 11.96
COFI Charter One Financial 35.56 181.67 12.54 12.29
CRCL Circle Financial Corp. 24.39 101.78 10.84 28.56
CTZN CitFed Bancorp, Inc. 20.38 114.60 8.04 19.16
CIBI Community Investors Bancorp 12.10 90.08 12.47 12.82
EFBI Enterprise Federal Bancorp 14.39 95.90 14.95 20.65
FFDF FFD Financial Corp. NA NA NA NA
FFYF FFY Financial Corp. 17.22 114.81 21.07 16.61
FFOH Fidelity Financial of Ohio NA 82.20 16.74 NA
FDEF First Defiance Financial NA 88.99 22.60 NA
FFBZ First Federal Bancorp, Inc. 10.99 152.74 11.10 11.24
FFHS First Franklin Corporation 14.27 87.38 8.30 14.54
FFSW FirstFederal Financial Svcs 13.67 168.25 8.16 16.84
GFCO Glenway Financial Corp. 15.60 90.61 8.76 15.83
HHFC Harvest Home Financial Corp. 19.53 86.57 15.33 19.53
HVFD Haverfield Corporation 14.79 119.85 9.95 15.71
INBI Industrial Bancorp NA 104.35 19.96 NA
LONF London Financial Corporation NA NA NA NA
MFFC Milton Federal Financial Corp. 19.00 95.57 19.10 20.36
OHSL OHSL Financial Corp. 14.26 101.97 12.66 14.96
PTRS Potters Financial Corp. 14.02 77.52 7.55 14.27
PVFC PVF Capital Corp. 9.46 147.06 9.86 10.77
SFSL Security First Corp. 9.13 102.55 8.93 8.67
SHFC Seven Hills Financial Corp. 48.33 80.60 17.09 50.00
SSBK Strongsville Savings Bank 10.71 122.73 10.16 12.58
SBCN Suburban Bancorporation, Inc. 29.25 88.67 11.64 20.13
THIR Third Financial Corp. 17.78 128.62 23.35 19.75
WOFC Western Ohio Financial Corp. 19.07 90.95 23.44 26.16
WFCO Winton Financial Corp. 10.86 127.16 10.03 13.38
FFWD Wood Bancorp, Inc. 12.10 95.76 13.97 12.50
KFBI Klamath First Bancorp NA 93.96 26.06 NA
BRFC Bridgeville Savings Bank 24.58 104.39 29.76 24.58
CVAL Chester Valley Bancorp Inc. 12.34 119.42 10.93 12.75
FSBI Fidelity Bancorp, Inc. 13.22 99.63 7.25 13.22
FBBC First Bell Bancorp, Inc. NA 95.60 20.13 NA
FKFS First Keystone Financial 16.75 99.55 8.25 15.43
SHEN First Shenango Bancorp, Inc. 14.66 104.17 13.79 15.51
GAF GA Financial, Inc. NA 76.71 17.21 NA
HARL Harleysville Savings Bank 10.86 121.59 8.58 10.67
LARL Laurel Capital Group, Inc. 9.34 113.47 12.11 9.69
MLFB MLF Bancorp, Inc. 13.74 102.17 8.84 15.43
PVSA Parkvale Financial Corporation 9.76 129.23 9.59 10.47
PBIX Patriot Bank Corp. NA 84.03 14.53 NA
PWBC PennFirst Bancorp, Inc. 13.78 100.97 7.93 13.92
PHFC Pittsburgh Home Financial Corp NA NA NA NA
PSAB Prime Bancorp, Inc. 11.24 115.77 10.93 12.59
PFNC Progress Financial Corporation 8.14 135.92 7.50 10.14
SVRN Sovereign Bancorp, Inc. 10.34 141.82 6.11 11.20
THRD TF Financial Corporation 15.36 82.87 12.85 16.21
THBC Troy Hill Bancorp, Inc. 12.03 76.96 17.08 13.14
WVFC WVS Financial Corporation 12.42 97.99 14.81 11.71
YFED York Financial Corp. 10.94 114.98 10.10 12.87
AMFB American Federal Bank 10.64 159.41 12.84 9.84
CFCP Coastal Financial Corp. 14.38 214.50 13.05 15.79
FFCH First Financial Holdings Inc. 11.74 127.99 8.46 11.53
FSFC First Southeast Financial Corp 23.13 107.56 21.10 23.13
PALM Palfed, Inc. 14.46 118.93 10.05 17.14
SCCB S. Carolina Community Bancshrs 20.37 98.21 27.96 20.37
HFFC HF Financial Corp. 10.86 88.23 7.92 13.90
LFCT Leader Financial Corp. 11.51 176.00 14.13 11.75
TWIN Twin City Bancorp 12.60 101.98 14.03 14.55
CBSA Coastal Bancorp, Inc. 9.82 101.35 3.31 9.87
ETFS East Texas Financial Services 16.03 78.00 15.31 17.35
FBHC Fort Bend Holding Corp. 9.81 82.56 5.94 11.16
LOAN Horizon Bancorp 9.60 142.76 11.75 12.08
JXVL Jacksonville Bancorp, Inc. NA NA NA NA
WFSB 1st Washington Bancorp Inc. 15.14 164.41 9.79 35.80
BFSB Bedford Bancshares, Inc. 12.90 95.64 16.38 12.90
CNIT CENIT Bancorp, Inc. 20.63 118.14 8.24 17.93
CFFC Community Financial Corp. 12.80 123.60 16.90 12.80
ESX Essex Bancorp, Inc. NM 32.38 0.83 NM
FFFC FFVA Financial Corp. 13.29 91.39 16.08 13.58
FFRV Fidelity Financial Bankshares 9.12 104.08 8.86 9.33
GSLC Guaranty Financial Corp. 10.33 112.65 7.38 13.14
LIFB Life Bancorp, Inc. 15.90 97.08 12.36 15.06
VABF Virginia Beach Fed. Financial 23.48 93.60 6.15 NM
VFFC Virginia First Financial 8.28 122.32 9.44 10.17
CASB Cascade Financial Corp. 20.62 161.03 10.01 44.44
FWWB First SB of Washington Bancorp NA 99.61 25.70 NA
IWBK InterWest Bancorp, Inc. 11.71 164.05 11.28 12.70
MSEA Metropolitan Bancorp 10.07 102.12 6.67 9.33
STSA Sterling Financial Corp. 15.00 119.47 4.89 15.34
WFSL Washington Federal, Inc. 11.49 152.24 18.47 12.01
AADV Advantage Bancorp, Inc. 14.48 130.09 11.92 16.05
ABCW Anchor BanCorp Wisconsin 12.45 140.10 9.46 12.93
FCBF FCB Financial Corp. 18.49 95.17 18.64 19.09
FFEC First Fed Bncshrs Eau Claire 16.81 104.17 14.91 17.41
FTFC First Federal Capital Corp. 11.82 145.54 9.97 16.08
FFHC First Financial Corp. 10.01 173.87 12.75 10.32
FNGB First Northern Capital Corp. 15.72 99.34 12.64 18.46
HALL Hallmark Capital Corp. 13.14 84.33 6.59 14.76
MWFD Midwest Federal Financial 13.00 144.54 13.51 16.21
NWEQ Northwest Equity Corp. 11.67 82.42 11.93 12.21
OSBF OSB Financial Corp. 58.97 82.11 10.34 35.38
RELI Reliance Bancshares, Inc. NA NA NA NA
SECP Security Capital Corporation 20.78 109.94 17.53 19.77
STFR St. Francis Capital Corp. 9.56 108.14 11.41 13.87
FOBC Fed One Bancorp 12.19 89.23 10.81 12.19
CRZY Crazy Woman Creek Bancorp NA NA NA NA
TRIC Tri-County Bancorp, Inc. 18.56 86.71 15.46 18.95
<TABLE>
<CAPTION>
PER SHARE PRICING RATIOS
--------------------------------------------------------------------------- --------------------------------------
Latest All Time All Time Monthly Quarterly Book 12 Month Price/ Price/ Price/ Price/Core
Price High Low Change Change Value Assets Div. Earnings Bk. Value Assets Earnings
($) ($) ($) (%) (%) ($) ($) ($) (X) (%) (%) (X)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
ALL THRIFTS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE 17.870 22.051 7.976 1.10 1.85 17.15 170.27 0.37 16.19 106.74 12.92 17.83
MEDIAN 16.125 18.216 9.000 0.00 0.70 16.47 140.73 0.33 13.29 100.19 11.42 15.04
HIGH 61.500 589.500 25.375 61.76 48.65 55.94 612.14 3.00 72.50 226.82 31.11 113.89
LOW 2.500 6.917 0.125 -24.59 -22.03 2.18 36.26 0.00 2.83 32.38 0.83 3.13
AVERAGE FOR STATE
IN 16.705 18.281 8.037 0.79 -0.99 17.10 143.13 0.33 17.127 104.255 13.343 23.300
AVERAGE BY REGION
MIDWEST 18.889 20.424 9.087 0.82 1.26 18.29 155.31 0.39 17.52 105.11 14.48 19.17
NEW ENGLAND 18.344 20.288 6.028 1.39 -0.98 18.67 250.54 0.50 11.52 98.52 7.81 13.92
MID ATLANTIC 17.137 19.273 7.107 0.75 1.45 16.82 174.33 0.33 13.44 105.01 11.58 14.47
SOUTHEAST 16.233 18.529 7.007 0.19 0.96 14.62 148.45 0.37 14.30 114.51 13.21 15.72
SOUTHWEST 15.543 16.788 9.537 1.27 1.67 15.48 162.41 0.30 12.74 103.27 13.56 13.61
WEST 18.055 39.353 6.358 3.74 6.66 16.74 229.51 0.32 20.37 108.79 9.78 22.99
AVERAGE BY EXCHANGE
NYSE 28.481 88.967 3.243 2.64 6.75 20.59 346.54 0.42 17.34 141.56 8.94 17.74
AMEX 12.735 14.650 9.921 1.13 1.93 14.83 116.02 0.30 12.65 84.83 14.49 14.17
OTC/NASDAQ 17.700 19.554 8.071 1.03 1.63 17.11 164.89 0.37 16.17 106.23 13.02 17.88
</TABLE>
<PAGE>
Exhibit 36
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF MAY 3, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY
-------------------------------------- ---------------------------------
Total Total Total Core Core
Assets Equity Tang. Equity ROAA ROAA ROAE ROAE
State 0.00 0.00 0.00 (%) (%) (%) (%)
----- ---------------------------------------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PLE Pinnacle Bank AL 194,311 14,983 14,431 0.77 0.71 10.29 9.48
SRN Southern Banc Company, Inc AL 109,768 22,293 NA 0.54 0.54 3.96 3.96
SZB SouthFirst Bancshares, Inc. AL 85,775 15,056 15,056 0.74 0.58 4.52 3.52
VAFD Valley Federal Savings Bank AL 122,083 10,010 10,010 0.36 0.36 4.63 4.69
FFBH First Federal Bancshares of AR AR 466,101 36,255 36,255 NA NA NA NA
FTF Texarkana First Financial Corp AR 163,391 33,683 33,683 1.77 1.77 10.80 10.80
AHM Ahmanson & Company (H.F.) CA 49,781,986 2,952,702 2,808,721 0.88 0.24 15.41 4.15
AFFFZ America First Financial Fund CA 2,333,113 174,821 171,086 0.81 0.81 12.57 12.50
BPLS Bank Plus Corp. CA 3,279,564 227,539 227,180 -1.97 -2.05 -37.90 -39.40
BVFS Bay View Capital Corp. CA 2,910,295 203,268 198,159 -0.10 0.26 -1.43 3.57
BYFC Broadway Financial Corp. CA 115,222 14,062 14,062 0.41 0.41 6.78 6.83
CAL Cal Fed Bancorp, Inc. CA 14,280,100 911,200 911,200 0.76 0.72 12.51 11.84
CFHC California Financial Holding CA 1,277,568 86,268 85,500 0.29 0.25 4.26 3.71
CENF CENFED Financial Corp. CA 2,113,582 105,775 105,526 0.48 0.33 9.92 6.91
CSA Coast Savings Financial CA 8,239,880 425,360 418,305 0.46 0.40 9.62 8.38
DSL Downey Financial Corp. CA 4,652,584 387,470 380,740 0.61 0.53 7.58 6.67
FSSB First FS&LA of San Bernardino CA 103,288 5,827 5,566 -0.17 -0.34 -2.90 -6.03
FED FirstFed Financial Corp. CA 4,165,825 195,311 191,942 0.18 0.17 3.94 3.66
GLN Glendale Federal Bank, FSB CA 14,367,978 941,398 880,896 0.23 0.40 3.80 6.55
GDW Golden West Financial CA 35,013,718 2,332,592 2,194,398 0.75 0.74 11.76 11.64
GWF Great Western Financial CA 43,762,730 2,822,132 2,507,848 0.65 0.60 10.77 9.89
HTHR Hawthorne Financial Corp. CA 773,090 40,852 40,685 -0.21 -0.31 -4.82 -7.16
HEMT HF Bancorp, Inc. CA 754,365 86,273 NA 0.19 0.16 1.50 1.23
HBNK Highland Federal Bank FSB CA 441,911 34,626 34,626 0.22 0.21 3.92 3.87
HFSF Home Federal Financial Corp. CA 716,755 54,404 54,213 0.34 0.19 4.71 2.67
MBBC Monterey Bay Bancorp, Inc. CA 318,879 47,771 47,196 0.19 0.23 1.28 1.53
NHSL NHS Financial, Inc. CA 292,618 24,671 24,618 0.16 0.16 1.93 1.93
PSSB Palm Springs Savings Bank CA 192,093 11,693 11,693 0.62 0.34 10.80 5.85
PFFB PFF Bancorp, Inc. CA 2,008,139 289,071 285,659 0.11 0.11 1.86 1.80
QCBC Quaker City Bancorp, Inc. CA 692,974 68,461 68,087 0.50 0.48 4.90 4.71
REDF RedFed Bancorp Inc. CA 857,959 48,329 48,329 -0.56 -0.90 -9.99 -16.03
SGVB SGV Bancorp, Inc. CA 333,064 32,581 32,581 0.12 0.11 1.11 1.08
WES Westcorp CA 3,076,518 304,287 303,293 1.21 0.55 13.63 6.19
FFBA First Colorado Bancorp, Inc. CO 1,492,600 241,623 238,670 0.98 0.99 8.64 8.67
MORG Morgan Financial Corp. CO 71,654 10,501 10,501 0.97 0.93 6.38 6.12
EGFC Eagle Financial Corp. CT 1,428,558 101,928 73,743 1.29 0.64 17.83 8.86
FFES First Federal of East Hartford CT 933,433 57,831 57,633 0.60 0.59 8.81 8.69
NTMG Nutmeg Federal S&LA CT 85,724 5,399 5,399 0.62 0.41 10.20 6.71
WBST Webster Financial Corporation CT 3,813,173 213,846 166,674 0.56 0.60 10.14 10.76
IFSB Independence Federal Savings DC 263,740 17,082 14,678 0.54 0.26 8.99 4.36
BANC BankAtlantic Bancorp, Inc. FL 1,642,825 136,819 125,676 1.08 0.86 16.11 12.86
BKUNA BankUnited Financial Corp. FL 738,491 69,468 66,955 1.12 0.13 14.68 1.64
FFFG F.F.O. Financial Group, Inc. FL 305,683 18,408 18,408 0.45 0.45 6.83 6.75
FFLC FFLC Bancorp, Inc. FL 330,514 56,096 56,096 0.94 0.95 5.43 5.49
FFML First Family Financial Corp. FL 153,250 8,596 8,596 0.82 0.49 16.16 9.60
FPRY First Financial Bancorp FL 240,379 15,263 15,263 0.57 0.43 8.95 6.71
FFPB First Palm Beach Bancorp, Inc. FL 1,465,395 111,898 108,976 0.69 0.69 8.21 8.14
FFPC Florida First Bancorp, Inc. FL 304,040 21,069 21,069 0.86 0.78 12.90 11.82
HOFL Home Financial Corp. FL 1,227,371 313,193 313,193 1.70 1.61 6.58 6.24
SCSL Suncoast Savings and Loan FL 466,504 25,338 25,283 0.51 -0.16 8.77 -2.73
CCFH CCF Holding Company GA 79,578 17,187 17,187 0.86 0.79 6.13 5.62
EBSI Eagle Bancshares GA 558,315 37,131 37,131 0.97 0.94 13.77 13.33
FGHC First Georgia Holding, Inc. GA 142,133 11,605 10,263 0.87 0.81 10.61 9.91
FLFC First Liberty Financial Corp. GA 981,694 74,634 63,866 1.03 0.83 13.14 10.60
FLAG FLAG Financial Corp. GA 225,960 21,599 21,599 0.92 0.81 9.91 8.77
NFSL Newnan Savings Bank, FSB GA 160,656 18,605 18,483 1.89 1.65 17.69 15.47
CASH First Midwest Financial, Inc. IA 309,706 38,874 36,247 1.24 0.99 9.27 7.41
GFSB GFS Bancorp, Inc. IA 80,913 9,738 9,738 1.08 1.06 8.47 8.29
HZFS Horizon Financial Svcs Corp. IA 72,225 8,358 8,358 0.46 0.39 3.71 3.14
MFCX Marshalltown Financial Corp. IA 126,226 19,349 19,349 0.32 0.32 2.10 2.10
MIFC Mid-Iowa Financial Corp. IA 119,395 10,770 10,754 0.84 0.83 8.90 8.87
MWBI Midwest Bancshares, Inc. IA 136,809 9,490 9,490 0.99 0.69 14.16 9.87
FFFD North Central Bancshares, Inc. IA 190,613 55,029 55,029 1.48 1.41 8.70 8.27
PMFI Perpetual Midwest Financial IA 374,039 36,053 36,053 0.41 0.41 4.09 4.09
SFFC StateFed Financial Corporation IA 74,182 14,925 14,925 1.18 1.18 5.80 5.80
AVND Avondale Financial Corp. IL 579,731 61,628 61,628 NA NA NA NA
BABC Barrington Bancorp, Inc. IL 69,721 11,620 11,620 0.40 0.39 2.39 2.34
BELL Bell Bancorp IL 1,938,454 307,385 307,385 0.63 0.60 4.03 3.85
CBCI Calumet Bancorp, Inc. IL 502,419 85,350 85,350 1.21 1.20 7.24 7.20
CBSB Charter Financial, Inc. IL 300,812 64,393 62,739 1.11 1.11 7.88 7.87
CBK Citizens First Financial Corp. IL 232,196 15,765 15,765 0.43 0.35 6.49 5.34
CSBF CSB Financial Group, Inc. IL 41,211 12,730 12,730 0.84 0.84 4.03 4.03
DFIN Damen Financial Corp. IL 235,320 56,903 56,903 NA NA NA NA
FBCI Fidelity Bancorp, Inc. IL 433,027 52,162 51,975 0.77 0.71 5.56 5.13
FNSC Financial Security Corp. IL 274,090 39,372 39,372 0.78 0.72 5.71 5.26
FFBI First Financial Bancorp, Inc. IL 88,615 7,865 7,865 0.70 0.57 6.53 5.33
FMBD First Mutual Bancorp, Inc. IL 285,296 72,050 72,050 0.99 0.95 4.14 3.99
FFDP FirstFed Bancshares IL 623,996 56,285 53,765 0.64 0.40 6.65 4.20
GTPS Great American Bancorp IL 120,540 33,212 33,212 0.68 0.67 2.46 2.43
HNFC Hinsdale Financial Corp. IL 682,029 54,341 52,679 0.62 0.55 8.24 7.35
HMCI HomeCorp, Inc. IL 341,742 20,731 20,731 0.37 0.26 6.28 4.31
KNK Kankakee Bancorp, Inc. IL 363,182 35,581 33,014 0.50 0.49 4.53 4.46
LBCI Liberty Bancorp, Inc. IL 669,949 63,818 63,649 0.56 0.56 5.49 5.51
MAFB MAF Bancorp, Inc. IL 1,980,184 109,654 109,654 0.88 0.90 15.13 15.48
NSBI N.S. Bancorp, Inc. IL 1,153,392 235,232 235,232 1.86 1.55 9.57 7.97
NBSI North Bancshares, Inc. IL 114,337 19,827 19,827 0.57 0.53 2.98 2.74
SWBI Southwest Bancshares IL 349,543 41,951 41,951 1.19 1.18 8.83 8.77
SPBC St. Paul Bancorp, Inc. IL 4,142,858 382,851 381,512 0.89 0.87 9.59 9.35
STND Standard Financial, Inc. IL 2,186,603 269,004 268,914 0.88 0.79 6.23 5.59
SFSB SuburbFed Financial Corp. IL 362,272 25,879 25,719 0.51 0.44 6.97 6.01
WCBI Westco Bancorp IL 309,265 48,383 48,383 1.32 1.32 8.46 8.43
FBCV 1ST Bancorp IN 273,122 21,535 21,535 2.25 -0.13 35.92 -2.02
AMFC AMB Financial Corp. IN 80,533 16,147 16,147 0.50 0.50 4.75 4.75
ASBI Ameriana Bancorp IN 383,072 44,583 44,514 0.93 0.91 7.20 7.00
ATSB AmTrust Capital Corp. IN 73,072 7,553 7,472 0.31 0.07 2.75 0.60
CBCO CB Bancorp, Inc. IN 204,825 18,762 18,762 1.37 1.37 13.98 13.98
CBIN Community Bank Shares IN 224,311 25,482 25,482 0.91 0.88 7.91 7.71
FFWC FFW Corp. IN 148,892 16,083 16,083 0.90 1.00 8.07 8.96
FFED Fidelity Federal Bancorp IN 280,138 14,221 14,221 1.29 1.22 25.83 24.30
FISB First Indiana Corporation IN 1,476,879 132,245 130,363 1.18 1.00 13.88 11.80
HBFW Home Bancorp IN 312,758 51,355 51,355 0.86 0.86 4.97 4.96
HBBI Home Building Bancorp IN 42,407 5,992 5,992 0.46 0.45 3.16 3.09
HOMF Home Federal Bancorp IN 606,266 50,232 48,308 1.20 1.04 15.05 13.09
INCB Indiana Community Bank, SB IN 94,476 14,156 14,156 0.67 0.67 4.39 4.39
IFSL Indiana Federal Corporation IN 717,720 70,504 NA 1.02 0.96 10.75 10.06
LOGN Logansport Financial Corp. IN 76,493 20,473 20,473 1.40 1.33 5.41 5.13
MARN Marion Capital Holdings IN 179,329 43,031 43,031 1.41 1.41 5.79 5.79
MFBC MFB Corp. IN 200,895 38,799 38,799 0.69 0.69 3.40 3.36
NEIB Northeast Indiana Bancorp IN 141,098 28,697 28,697 1.09 1.09 5.62 5.62
PFDC Peoples Bancorp IN 280,778 42,857 42,857 1.45 1.44 9.58 9.55
PERM Permanent Bancorp, Inc. IN 377,905 42,101 41,500 0.33 0.33 2.75 2.74
SOBI Sobieski Bancorp, Inc. IN 76,362 14,120 14,120 0.42 0.42 2.24 2.24
WCHI Workingmens Capital Holdings IN 213,673 26,164 26,164 0.91 0.90 7.55 7.44
FFSL First Independence Corp. KS 101,628 12,845 12,845 1.13 0.97 8.56 7.34
LARK Landmark Bancshares, Inc. KS 193,403 33,272 33,272 0.91 0.79 5.30 4.60
MCBS Mid Continent Bancshares Inc. KS 290,903 36,434 36,384 1.40 1.06 10.14 7.69
WBCI WFS Bancorp, Inc. KS 275,758 33,854 33,837 0.45 0.65 3.90 5.67
CKFB CKF Bancorp, Inc. KY 58,763 16,036 16,036 1.24 1.24 4.39 4.39
CLAS Classic Bancshares, Inc. KY 67,786 19,517 19,517 NA NA NA NA
FSBS First Ashland Financial Corp KY 86,860 23,631 23,631 0.96 0.95 3.61 3.58
FFKY First Federal Financial Corp. KY 351,010 49,291 45,966 1.65 1.43 11.50 9.98
FTSB Fort Thomas Financial Corp KY 87,960 21,368 21,368 1.29 1.29 5.55 5.55
FKKY Frankfort First Bancorp, Inc. KY 138,616 47,836 47,836 1.05 1.11 3.80 4.02
GWBC Gateway Bancorp, Inc. KY 73,005 18,247 18,247 1.05 1.05 3.91 3.91
GTFN Great Financial Corporation KY 2,477,204 281,206 276,685 1.00 0.81 8.18 6.68
HFFB Harrodsburg First Fin Bancorp KY 108,710 31,161 31,161 NA NA NA NA
KYF Kentucky First Bancorp, Inc KY 83,981 19,841 19,841 1.12 1.12 5.27 5.27
LFSB LFS Bancorp Inc. KY 233,737 66,419 66,419 0.77 0.77 2.75 2.75
CZF CitiSave Financial Corp LA 79,717 14,497 14,484 1.15 1.08 7.47 6.98
ISBF ISB Financial Corporation LA 623,720 120,802 120,752 1.24 1.23 6.22 6.18
JEBC Jefferson Bancorp, Inc. LA 265,039 35,429 35,429 1.00 1.00 7.77 7.76
MERI Meritrust Federal SB LA 227,121 16,896 16,896 1.02 0.99 14.10 13.77
TSH Teche Holding Co. LA 328,426 61,730 61,730 1.18 1.16 7.91 7.78
AFCB Affiliated Community Bancorp MA 938,331 96,194 95,458 0.72 0.86 6.26 7.53
BFD BostonFed Bancorp, Inc. MA 677,762 91,574 91,574 0.22 0.17 2.49 1.91
FMLY Family Bancorp MA 887,387 68,843 62,978 0.96 0.85 12.56 11.20
ANBK American National Bancorp MD 439,005 49,089 49,089 0.18 0.17 2.33 2.20
EQSB Equitable Federal Savings Bank MD 260,134 13,648 13,648 0.84 0.83 16.13 16.03
FCIT First Citizens Financial Corp. MD 624,118 39,192 39,192 0.71 0.57 11.37 9.04
FFWM First Financial-W. Maryland MD 326,489 40,919 40,919 0.43 0.39 3.56 3.27
HRBF Harbor Federal Bancorp, Inc. MD 154,218 29,346 29,346 0.82 0.82 3.77 3.77
HFMD Home Federal Corp. MD 216,684 18,673 18,417 1.19 1.17 14.29 14.01
MFSL Maryland Federal Bancorp MD 1,143,338 93,982 92,414 0.79 0.57 9.72 6.95
WSB Washington Savings Bank, FSB MD 262,632 21,231 21,231 0.92 0.69 12.60 9.40
WHGB WHG Bancshares Corp. MD 111,704 23,008 23,008 NA NA NA NA
MCBN Mid-Coast Bancorp, Inc. ME 54,362 4,926 4,926 0.56 0.52 6.27 5.78
BWFC Bank West Financial Corp. MI 139,217 27,540 27,540 0.69 0.41 3.41 2.03
CFSB CFSB Bancorp, Inc. MI 771,672 64,012 64,012 0.94 0.88 11.56 10.77
DNFC D & N Financial Corp. MI 1,231,927 69,364 68,268 1.06 0.94 19.79 17.54
MSBF MSB Financial, Inc. MI 56,317 12,747 12,747 1.92 1.76 7.79 7.13
MSBK Mutual Savings Bank, FSB MI 719,490 39,244 39,244 0.01 -0.09 0.20 -1.65
OFCP Ottawa Financial Corp. MI 745,464 81,374 65,222 0.99 0.99 4.97 4.99
SJSB SJS Bancorp MI 143,857 17,619 17,619 0.68 0.67 5.67 5.56
SFB Standard Federal Bancorp MI 13,505,427 939,243 801,430 0.93 0.84 13.88 12.54
THR Three Rivers Financial Corp. MI 85,138 13,044 12,986 NA NA NA NA
BDJI First Federal Bancorporation MN 100,533 14,458 14,458 0.71 0.71 5.03 5.02
FFHH FSF Financial Corp. MN 326,689 52,167 52,167 0.63 0.62 3.37 3.35
HMNF HMN Financial, Inc. MN 542,012 90,879 90,879 1.10 0.98 6.27 5.59
MIVI Mississippi View Holding Co. MN 69,983 13,197 13,197 1.32 1.17 6.73 5.98
QCFB QCF Bancorp, Inc. MN 161,231 31,465 31,465 1.45 1.45 8.09 8.09
TCB TCF Financial Corp. MN 7,039,282 541,019 517,393 1.37 1.29 19.87 18.82
WEFC Wells Financial Corp. MN 196,184 29,327 29,327 0.81 0.79 5.96 5.77
CMRN Cameron Financial Corp MO 172,484 45,775 45,775 1.60 1.58 5.72 5.64
CAPS Capital Savings Bancorp, Inc. MO 202,554 21,136 21,136 0.95 0.95 8.96 8.96
FBSI First Bancshares, Inc. MO 140,471 23,771 23,725 0.79 0.78 4.42 4.34
GSBC Great Southern Bancorp, Inc. MO 658,997 66,706 65,583 1.74 1.63 17.18 16.11
HFSA Hardin Bancorp, Inc. MO 83,386 16,035 16,035 0.64 0.64 4.56 4.55
JSBA Jefferson Savings Bancorp MO 1,114,294 81,088 66,842 0.62 0.57 8.90 8.19
JOAC Joachim Bancorp, Inc. MO 36,431 10,706 10,706 0.68 0.68 4.25 4.25
MBLF MBLA Financial Corp. MO 195,074 28,365 28,365 0.70 0.70 4.83 4.81
MFSB Mutual Bancompany MO 54,913 6,213 6,213 0.22 0.24 2.18 2.34
NASB North American Savings Bank MO 664,250 48,808 46,849 1.33 1.22 18.15 16.65
NSLB NS&L Bancorp, Inc. MO 56,552 13,847 13,847 NA NA NA NA
PCBC Perry County Financial Corp. MO 78,480 15,733 15,733 1.00 0.97 4.86 4.76
RFED Roosevelt Financial Group MO 9,134,660 509,105 NA 0.66 0.88 13.04 17.29
SMFC Sho-Me Financial Corp. MO 263,890 31,605 31,605 0.83 0.78 6.26 5.86
SMBC Southern Missouri Bancorp, Inc MO 159,470 26,560 26,560 0.75 0.74 4.20 4.12
CFTP Community Federal Bancorp MS 162,042 23,427 23,427 1.28 1.28 9.37 9.37
FFBS FFBS BanCorp, Inc. MS 123,553 24,170 24,170 1.32 1.32 6.50 6.50
MGNL Magna Bancorp, Inc. MS 1,290,780 126,078 118,413 1.79 1.66 18.11 16.78
GBCI Glacier Bancorp, Inc. MT 398,220 38,335 38,278 1.59 1.59 16.25 16.26
SFBM Security Bancorp MT 360,021 32,128 27,666 0.69 0.52 8.01 6.01
UBMT United Savings Bank, F.A. MT 104,574 24,609 24,609 1.50 1.50 6.64 6.63
WSTR WesterFed Financial Corp. MT 588,255 78,102 78,102 0.76 0.70 5.68 5.27
COOP Cooperative Bankshares, Inc. NC 313,803 29,301 25,772 0.28 0.24 3.10 2.64
SOPN First Savings Bancorp, Inc. NC 256,294 67,178 67,178 1.48 1.51 5.68 5.78
GSFC Green Street Financial Corp. NC 213,285 23,158 23,158 NA NA NA NA
HFNC HFNC Financial Corp. NC 926,259 243,502 243,502 NA NA NA NA
KSAV KS Bancorp, Inc. NC 89,871 13,628 13,612 1.14 1.16 6.85 6.94
PDB Piedmont Bancorp, Inc. NC 124,847 37,164 37,164 1.35 1.38 7.23 7.43
SSB Scotland Bancorp, Inc NC 57,718 8,580 8,580 1.25 1.25 8.52 8.52
SSM Stone Street Bancorp, Inc. NC 81,560 11,729 11,729 1.40 1.40 9.78 9.78
UFRM United Federal Savings Bank NC 252,170 20,859 20,859 0.87 0.77 11.31 10.05
CFB Commercial Federal Corporation NE 6,617,488 400,399 359,682 0.84 0.84 15.33 15.24
EBCP Eastern Bancorp NH 824,899 63,505 59,786 0.61 0.49 8.21 6.65
NHTB New Hampshire Thrift Bncshrs NH 252,481 19,417 19,417 0.58 0.61 7.41 7.74
FBER 1st Bergen Bancorp NJ 258,566 42,712 42,712 NA NA NA NA
CJFC Central Jersey Financial NJ 466,208 54,909 51,027 1.11 1.06 10.78 10.26
COFD Collective Bancorp, Inc. NJ 5,058,597 356,448 331,049 1.05 1.03 15.87 15.51
FSPG First Home Savings Bank, FSB NJ 466,363 30,396 29,572 1.01 0.96 15.60 14.84
FSFI First State Financial Services NJ 628,684 43,014 40,765 0.63 0.49 9.27 7.24
FMCO FMS Financial Corporation NJ 505,700 33,288 32,372 0.84 0.84 13.04 13.01
IBSF IBS Financial Corp NJ 756,928 154,419 154,419 1.11 1.13 5.16 5.25
LVSB Lakeview Financial NJ 455,155 45,287 34,781 1.15 0.70 10.25 6.23
LFBI Little Falls Bancorp, Inc. NJ 285,478 43,373 39,885 NA NA NA NA
PBCI Pamrapo Bancorp, Inc. NJ 368,394 57,084 56,568 1.42 1.42 9.05 9.05
PFSB PennFed Financial Services,Inc NJ 1,022,777 91,782 72,708 0.74 0.80 7.04 7.59
PULS Pulse Bancorp NJ 452,455 53,777 53,777 1.17 1.18 10.04 10.11
SFIN Statewide Financial Corp. NJ 634,464 70,421 70,218 NA NA NA NA
FSBC First Savings Bank, FSB NM 115,492 5,471 5,471 0.31 0.24 6.81 5.26
GUPB GFSB Bancorp, Inc. NM 70,422 16,216 16,216 1.25 1.25 4.87 4.87
ALBK ALBANK Financial Corp NY 3,333,105 320,820 283,160 0.98 0.98 9.31 9.30
ALBC Albion Banc Corp. NY 57,089 6,089 6,089 0.31 0.27 3.03 2.61
ASFC Astoria Financial Corporation NY 6,708,166 573,262 466,411 0.75 0.69 8.44 7.76
BFSI BFS Bankorp, Inc. NY 566,452 46,102 46,102 1.84 1.78 24.94 24.08
CARV Carver Federal Savings Bank NY 363,225 34,986 33,264 0.20 0.25 2.06 2.61
CONE Conestoga Bancorp, Inc. NY 494,348 79,964 79,964 0.66 0.53 4.10 3.33
FIBC Financial Bancorp, Inc. NY 251,873 26,835 26,683 0.66 0.65 5.40 5.37
HAVN Haven Bancorp, Inc. NY 1,485,076 93,537 92,974 0.68 0.67 10.26 10.13
LISB Long Island Bancorp, Inc. NY 4,834,405 516,870 516,870 0.95 0.88 8.72 8.16
NYB New York Bancorp Inc. NY 2,754,437 159,177 159,177 1.19 1.13 19.84 18.84
PEEK Peekskill Financial Corp. NY 193,675 59,409 59,409 NA NA NA NA
PKPS Poughkeepsie Savings Bank, FSB NY 839,174 71,266 71,266 1.94 2.55 25.03 32.85
RELY Reliance Bancorp, Inc. NY 1,744,365 154,566 104,281 0.88 0.84 6.80 6.51
SFED SFS Bancorp, Inc. NY 165,569 23,274 23,274 0.63 0.63 5.06 5.06
TPNZ Tappan Zee Financial, Inc. NY 114,790 22,360 22,360 0.81 0.76 5.55 5.17
YFCB Yonkers Financial Corporation NY 208,283 15,765 15,765 0.72 0.77 9.61 10.21
ASBP ASB Financial Corp. OH 111,718 25,784 25,784 1.02 1.02 4.52 4.52
CAFI Camco Financial Corporation OH 343,711 28,625 28,625 1.22 0.94 15.56 11.93
COFI Charter One Financial OH 13,173,988 909,433 895,183 0.28 1.08 4.31 16.77
CRCL Circle Financial Corp. OH 229,406 24,436 21,196 0.49 0.42 4.32 3.71
CTZN CitFed Bancorp, Inc. OH 2,477,970 173,858 149,916 0.44 0.46 6.21 6.55
CIBI Community Investors Bancorp OH 85,785 11,869 11,869 1.01 0.96 7.21 6.86
EFBI Enterprise Federal Bancorp OH 207,680 32,363 32,290 1.12 0.78 5.38 3.76
FFDF FFD Financial Corp. OH 76,159 8,302 8,302 NA NA NA NA
FFYF FFY Financial Corp. OH 573,162 105,162 105,162 1.21 1.25 6.50 6.72
FFOH Fidelity Financial of Ohio OH 249,366 50,780 50,780 0.83 0.83 6.02 6.01
FDEF First Defiance Financial OH 528,222 134,187 134,187 1.15 1.13 5.61 5.52
FFBZ First Federal Bancorp, Inc. OH 173,191 13,527 13,508 1.10 1.07 14.88 14.56
FFHS First Franklin Corporation OH 216,124 20,542 20,542 0.63 0.62 6.61 6.51
FFSW FirstFederal Financial Svcs OH 993,459 76,772 71,976 1.06 0.89 12.90 10.88
GFCO Glenway Financial Corp. OH 273,890 26,485 25,854 0.56 0.55 5.82 5.75
HHFC Harvest Home Financial Corp. OH 73,005 12,930 12,930 0.80 0.80 4.31 4.31
HVFD Haverfield Corporation OH 339,630 28,194 28,112 0.65 0.61 7.98 7.51
INBI Industrial Bancorp OH 327,028 62,538 62,538 1.48 1.48 7.38 7.38
LONF London Financial Corporation OH 37,552 7,834 7,834 NA NA NA NA
MFFC Milton Federal Financial Corp. OH 171,708 34,308 34,308 1.13 1.06 4.88 4.55
OHSL OHSL Financial Corp. OH 205,462 25,521 25,521 0.95 0.92 7.51 7.22
PTRS Potters Financial Corp. OH 113,862 11,081 11,081 0.54 0.53 5.67 5.55
PVFC PVF Capital Corp. OH 318,100 21,325 21,325 1.13 0.99 17.86 15.75
SFSL Security First Corp. OH 469,656 40,901 39,766 1.18 1.24 13.51 14.20
SHFC Seven Hills Financial Corp. OH 45,511 9,651 9,651 0.36 0.34 1.69 1.61
SSBK Strongsville Savings Bank OH 504,631 41,761 40,875 1.00 0.85 11.88 10.07
SBCN Suburban Bancorporation, Inc. OH 197,137 25,639 25,639 0.39 0.57 2.95 4.30
THIR Third Financial Corp. OH 155,687 28,257 28,257 1.40 1.25 7.85 7.04
WOFC Western Ohio Financial Corp. OH 231,505 59,669 59,669 1.42 1.04 4.72 3.44
WFCO Winton Financial Corp. OH 262,329 20,698 20,144 0.94 0.77 12.54 10.23
FFWD Wood Bancorp, Inc. OH 139,718 20,395 20,395 1.17 1.13 8.14 7.85
KFBI Klamath First Bancorp OR 604,663 167,694 167,694 1.34 1.34 6.64 6.64
BRFC Bridgeville Savings Bank PA 55,712 15,883 15,883 1.24 1.24 4.17 4.17
CVAL Chester Valley Bancorp Inc. PA 274,575 25,123 25,123 0.91 0.88 10.03 9.63
FSBI Fidelity Bancorp, Inc. PA 301,442 21,951 21,775 0.60 0.59 7.73 7.61
FBBC First Bell Bancorp, Inc. PA 542,600 114,272 114,272 1.54 1.53 7.44 7.40
FKFS First Keystone Financial PA 278,204 23,043 23,043 0.48 0.52 5.49 5.96
SHEN First Shenango Bancorp, Inc. PA 355,710 47,090 47,090 1.01 0.96 7.19 6.78
GAF GA Financial, Inc. PA 568,725 127,659 127,659 0.60 0.81 6.38 8.61
HARL Harleysville Savings Bank PA 273,997 19,325 19,325 0.82 0.83 11.94 12.12
LARL Laurel Capital Group, Inc. PA 193,008 20,609 20,609 1.35 1.31 13.23 12.79
MLFB MLF Bancorp, Inc. PA 1,765,812 140,337 136,838 0.71 0.64 7.88 7.04
PVSA Parkvale Financial Corporation PA 914,016 67,862 67,546 1.04 0.97 15.22 14.20
PBIX Patriot Bank Corp. PA 312,990 54,126 54,126 NA NA NA NA
PWBC PennFirst Bancorp, Inc. PA 680,434 53,430 48,680 0.61 0.61 7.46 7.42
PHFC Pittsburgh Home Financial Corp PA 195,154 11,229 11,229 NA NA NA NA
PSAB Prime Bancorp, Inc. PA 608,967 57,484 53,764 1.02 0.91 10.89 9.72
PFNC Progress Financial Corporation PA 347,991 19,224 19,075 0.86 0.67 19.35 15.06
SVRN Sovereign Bancorp, Inc. PA 8,411,108 438,461 317,818 0.80 0.74 14.71 13.69
THRD TF Financial Corporation PA 519,196 74,298 74,298 0.92 0.87 5.60 5.29
THBC Troy Hill Bancorp, Inc. PA 80,484 17,865 17,865 1.38 1.26 6.09 5.57
WVFC WVS Financial Corporation PA 240,282 36,331 36,331 1.23 1.26 8.09 8.27
YFED York Financial Corp. PA 1,048,673 92,078 92,078 0.97 0.83 11.42 9.78
AMFB American Federal Bank SC 1,339,147 109,941 101,420 1.29 1.41 15.99 17.42
CFCP Coastal Financial Corp. SC 441,216 26,847 26,847 1.00 0.90 16.47 14.86
FFCH First Financial Holdings Inc. SC 1,449,162 95,758 95,758 0.75 0.76 11.29 11.45
FSFC First Southeast Financial Corp SC 359,481 70,513 70,513 0.90 0.90 4.59 4.57
PALM Palfed, Inc. SC 623,553 52,706 50,118 0.66 0.56 8.53 7.19
SCCB S. Carolina Community Bancshrs SC 44,088 12,553 12,553 1.35 1.35 4.50 4.50
HFFC HF Financial Corp. SD 574,027 51,514 51,355 0.78 0.61 8.68 6.79
LFCT Leader Financial Corp. TN 3,177,812 255,171 255,171 1.40 1.37 17.36 17.01
TWIN Twin City Bancorp TN 102,423 14,095 14,095 1.08 0.93 7.84 6.79
CBSA Coastal Bancorp, Inc. TX 2,806,740 93,006 75,483 0.37 0.37 10.64 10.58
ETFS East Texas Financial Services TX 114,961 22,570 22,570 0.89 0.83 4.58 4.27
FBHC Fort Bend Holding Corp. TX 244,169 17,572 17,572 0.71 0.63 9.84 8.65
LOAN Horizon Bancorp TX 126,884 10,966 10,593 1.53 1.21 17.40 13.67
JXVL Jacksonville Bancorp, Inc. TX 213,062 35,582 35,582 0.79 0.79 7.47 7.47
WFSB 1st Washington Bancorp Inc. VA 795,319 47,355 47,355 0.63 0.27 11.04 4.68
BFSB Bedford Bancshares, Inc. VA 117,596 18,938 18,938 1.26 1.25 7.56 7.54
CNIT CENIT Bancorp, Inc. VA 667,465 46,572 44,832 0.44 0.50 6.13 7.05
CFFC Community Financial Corp. VA 157,766 21,575 21,575 1.34 1.34 10.20 10.20
ESX Essex Bancorp, Inc. VA 315,568 23,114 14,739 0.32 -0.77 6.11 -14.69
FFFC FFVA Financial Corp. VA 517,754 84,487 82,789 1.25 1.21 7.22 7.04
FFRV Fidelity Financial Bankshares VA 321,558 27,360 27,337 0.99 0.97 12.15 11.93
GSLC Guaranty Financial Corp. VA 96,577 6,327 6,327 0.57 0.43 9.97 7.54
LIFB Life Bancorp, Inc. VA 1,204,577 153,350 147,680 0.85 0.89 5.91 6.19
VABF Virginia Beach Fed. Financial VA 624,964 41,100 41,100 0.23 0.01 3.99 0.20
VFFC Virginia First Financial VA 713,931 55,114 53,131 1.21 0.98 16.02 13.01
CASB Cascade Financial Corp. WA 326,266 20,269 20,269 0.56 0.27 8.90 4.22
FWWB First SB of Washington Bancorp WA 594,917 153,453 153,453 NA NA NA NA
IWBK InterWest Bancorp, Inc. WA 1,368,548 94,118 91,398 1.08 0.99 14.78 13.63
MSEA Metropolitan Bancorp WA 778,165 50,882 46,026 0.70 0.76 11.08 11.97
STSA Sterling Financial Corp. WA 1,497,617 87,314 74,879 0.45 0.44 7.70 7.54
WFSL Washington Federal, Inc. WA 4,928,989 598,099 568,869 1.75 1.68 13.78 13.19
AADV Advantage Bancorp, Inc. WI 979,891 95,793 82,999 0.90 0.81 9.43 8.49
ABCW Anchor BanCorp Wisconsin WI 1,754,556 118,402 115,297 0.88 0.85 12.13 11.69
FCBF FCB Financial Corp. WI 250,658 49,077 49,077 0.99 0.96 5.01 4.83
FFEC First Fed Bncshrs Eau Claire WI 672,300 96,278 92,366 0.97 0.92 5.85 5.57
FTFC First Federal Capital Corp. WI 1,382,069 94,672 89,135 0.92 0.68 13.46 9.92
FFHC First Financial Corp. WI 5,419,203 397,571 377,355 1.28 1.25 18.92 18.38
FNGB First Northern Capital Corp. WI 572,193 72,840 72,840 0.84 0.71 6.53 5.56
HALL Hallmark Capital Corp. WI 339,283 26,524 26,524 0.57 0.52 6.40 5.74
MWFD Midwest Federal Financial WI 178,249 16,664 15,901 1.20 0.96 12.27 9.86
NWEQ Northwest Equity Corp. WI 86,355 11,864 11,864 1.06 1.01 6.95 6.62
OSBF OSB Financial Corp. WI 253,714 31,952 31,952 0.17 0.30 1.34 2.30
RELI Reliance Bancshares, Inc. WI 32,260 9,616 NA 1.23 1.25 4.32 4.39
SECP Security Capital Corporation WI 3,344,642 564,530 564,530 0.89 0.94 5.09 5.34
STFR St. Francis Capital Corp. WI 1,295,580 135,162 129,106 1.31 0.90 11.70 8.04
FOBC Fed One Bancorp WV 339,562 41,140 38,958 1.00 1.00 7.74 7.74
CRZY Crazy Woman Creek Bancorp WY 37,510 5,856 5,856 0.96 0.96 6.10 6.10
TRIC Tri-County Bancorp, Inc. WY 73,436 13,094 13,094 0.94 0.91 4.69 4.53
</TABLE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
---------------------------------------------
Number of Mkt. Val
IPO Shares of Shar
Date Exchange Outstg. ($M)
---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PLE Pinnacle Bank AL 12/17/86 AMSE 889,824 16.02
SRN Southern Banc Company, Inc AL 10/05/95 AMSE 1,454,750 17.09
SZB SouthFirst Bancshares, Inc. AL 02/14/95 AMSE 863,200 13.38
VAFD Valley Federal Savings Bank AL 10/15/87 NASDAQ 364,160 12.75
FFBH First Federal Bancshares of AR AR 05/03/96 NASDAQ NA NA
FTF Texarkana First Financial Corp AR 07/07/95 AMSE 1,983,750 29.51
AHM Ahmanson & Company (H.F.) CA 4 10/01/72 NYSE 112,512,418 2728.43
AFFFZ America First Financial Fund CA NA NASDAQ 6,010,589 174.31
BPLS Bank Plus Corp. CA NA NASDAQ 18,242,465 173.30
BVFS Bay View Capital Corp. CA 05/09/86 NASDAQ 6,900,306 224.26
BYFC Broadway Financial Corp. CA 01/09/96 NASDAQ 892,688 9.26
CAL Cal Fed Bancorp, Inc. CA 1 03/01/83 NYSE 49,312,944 881.47
CFHC California Financial Holding CA 04/01/83 NASDAQ 4,667,615 95.10
CENF CENFED Financial Corp. CA 10/25/91 NASDAQ 5,031,500 114.35
CSA Coast Savings Financial CA 12/23/85 NYSE 18,583,317 580.73
DSL Downey Financial Corp. CA 01/01/71 NYSE 16,972,905 398.86
FSSB First FS&LA of San Bernardino CA 02/02/93 NASDAQ 328,296 3.78
FED FirstFed Financial Corp. CA 12/16/83 NYSE 10,624,296 168.66
GLN Glendale Federal Bank, FSB CA 1 10/01/83 NYSE 44,085,008 799.04
GDW Golden West Financial CA 3 05/29/59 NYSE 58,622,859 3143.65
GWF Great Western Financial CA 4 NA NYSE 137,204,953 3310.07
HTHR Hawthorne Financial Corp. CA NA NASDAQ 2,599,275 12.67
HEMT HF Bancorp, Inc. CA 06/30/95 NASDAQ 6,414,125 64.14
HBNK Highland Federal Bank FSB CA NA NASDAQ 2,295,983 39.03
HFSF Home Federal Financial Corp. CA 07/01/86 NASDAQ 3,666,090 64.16
MBBC Monterey Bay Bancorp, Inc. CA 02/15/95 NASDAQ 3,414,063 42.68
NHSL NHS Financial, Inc. CA NA NASDAQ 2,522,827 22.71
PSSB Palm Springs Savings Bank CA NA NASDAQ 1,130,946 11.03
PFFB PFF Bancorp, Inc. CA 03/29/96 NASDAQ 19,837,500 225.65
QCBC Quaker City Bancorp, Inc. CA 12/30/93 NASDAQ 3,927,600 54.50
REDF RedFed Bancorp Inc. CA 04/08/94 NASDAQ 4,059,917 36.54
SGVB SGV Bancorp, Inc. CA 06/29/95 NASDAQ 2,727,656 24.55
WES Westcorp CA 05/01/86 NYSE 25,836,258 455.21
FFBA First Colorado Bancorp, Inc. CO 01/02/96 NASDAQ 20,302,000 251.24
MORG Morgan Financial Corp. CO 01/11/93 NASDAQ 832,700 9.78
EGFC Eagle Financial Corp. CT 02/03/87 NASDAQ 4,491,493 106.67
FFES First Federal of East Hartford CT 06/23/87 NASDAQ 2,593,628 46.69
NTMG Nutmeg Federal S&LA CT NA NASDAQ 708,019 4.72
WBST Webster Financial Corporation CT 12/12/86 NASDAQ 8,103,746 226.90
IFSB Independence Federal Savings DC 06/06/85 NASDAQ 1,277,435 10.78
BANC BankAtlantic Bancorp, Inc. FL 11/29/83 NASDAQ 11,742,999 176.14
BKUNA BankUnited Financial Corp. FL 12/11/85 NASDAQ 5,693,125 46.97
FFFG F.F.O. Financial Group, Inc. FL 10/13/88 NASDAQ 8,430,000 22.93
FFLC FFLC Bancorp, Inc. FL 01/04/94 NASDAQ 2,638,356 46.17
FFML First Family Financial Corp. FL 10/22/92 NASDAQ 545,000 11.45
FPRY First Financial Bancorp FL 03/29/88 NASDAQ 893,902 18.55
FFPB First Palm Beach Bancorp, Inc. FL 09/29/93 NASDAQ 5,180,687 115.27
FFPC Florida First Bancorp, Inc. FL 11/06/86 NASDAQ 3,374,245 26.99
HOFL Home Financial Corp. FL 10/25/94 NASDAQ 24,770,607 365.37
SCSL Suncoast Savings and Loan FL 07/30/85 NASDAQ 1,989,930 12.69
CCFH CCF Holding Company GA 07/12/95 NASDAQ 1,118,850 14.27
EBSI Eagle Bancshares GA 04/01/86 NASDAQ 3,117,200 59.23
FGHC First Georgia Holding, Inc. GA 02/11/87 NASDAQ 2,023,711 14.67
FLFC First Liberty Financial Corp. GA 12/06/83 NASDAQ 3,981,578 83.61
FLAG FLAG Financial Corp. GA 12/11/86 NASDAQ 2,008,457 25.11
NFSL Newnan Savings Bank, FSB GA 03/01/86 NASDAQ 1,446,856 24.96
CASH First Midwest Financial, Inc. IA 09/20/93 NASDAQ 1,789,535 41.16
GFSB GFS Bancorp, Inc. IA 01/06/94 NASDAQ 514,600 10.68
HZFS Horizon Financial Svcs Corp. IA 06/30/94 NASDAQ 447,937 7.06
MFCX Marshalltown Financial Corp. IA 03/31/94 NASDAQ 1,411,475 22.94
MIFC Mid-Iowa Financial Corp. IA 10/14/92 NASDAQ 1,729,880 12.54
MWBI Midwest Bancshares, Inc. IA 11/12/92 NASDAQ 356,979 9.64
FFFD North Central Bancshares, Inc. IA 03/21/96 NASDAQ 4,011,057 43.12
PMFI Perpetual Midwest Financial IA 03/31/94 NASDAQ 2,017,082 34.29
SFFC StateFed Financial Corporation IA 01/05/94 NASDAQ 823,485 14.00
AVND Avondale Financial Corp. IL 04/07/95 NASDAQ 4,014,568 56.71
BABC Barrington Bancorp, Inc. IL 05/12/94 NASDAQ 661,250 16.12
BELL Bell Bancorp IL 12/23/91 NASDAQ 9,209,578 340.75
CBCI Calumet Bancorp, Inc. IL 02/20/92 NASDAQ 2,667,878 74.03
CBSB Charter Financial, Inc. IL 12/29/95 NASDAQ 4,974,380 59.07
CBK Citizens First Financial Corp. IL 05/01/96 AMSE NA NA
CSBF CSB Financial Group, Inc. IL 10/09/95 NASDAQ 1,035,000 9.44
DFIN Damen Financial Corp. IL 10/02/95 NASDAQ 3,967,500 46.12
FBCI Fidelity Bancorp, Inc. IL 12/15/93 NASDAQ 3,084,850 47.82
FNSC Financial Security Corp. IL 12/29/92 NASDAQ 1,523,808 39.62
FFBI First Financial Bancorp, Inc. IL 10/04/93 NASDAQ 471,896 7.31
FMBD First Mutual Bancorp, Inc. IL 07/05/95 NASDAQ 4,352,200 56.03
FFDP FirstFed Bancshares IL 07/01/92 NASDAQ 3,387,353 49.12
GTPS Great American Bancorp IL 06/30/95 NASDAQ 1,849,562 26.36
HNFC Hinsdale Financial Corp. IL 07/07/92 NASDAQ 2,690,155 56.49
HMCI HomeCorp, Inc. IL 06/22/90 NASDAQ 1,126,371 19.99
KNK Kankakee Bancorp, Inc. IL 01/06/93 AMSE 1,439,318 29.33
LBCI Liberty Bancorp, Inc. IL 12/24/91 NASDAQ 2,487,022 61.55
MAFB MAF Bancorp, Inc. IL 01/12/90 NASDAQ 5,244,463 130.46
NSBI N.S. Bancorp, Inc. IL 12/19/90 NASDAQ 6,140,240 242.54
NBSI North Bancshares, Inc. IL 12/21/93 NASDAQ 1,172,243 19.05
SWBI Southwest Bancshares IL 06/24/92 NASDAQ 1,871,294 50.29
SPBC St. Paul Bancorp, Inc. IL 05/18/87 NASDAQ 18,549,634 456.78
STND Standard Financial, Inc. IL 08/01/94 NASDAQ 16,764,989 247.28
SFSB SuburbFed Financial Corp. IL 03/04/92 NASDAQ 1,260,769 20.33
WCBI Westco Bancorp IL 06/26/92 NASDAQ 2,678,093 49.60
FBCV 1ST Bancorp IN 04/07/87 NASDAQ 666,042 19.81
AMFC AMB Financial Corp. IN 04/01/96 NASDAQ NA NA
ASBI Ameriana Bancorp IN 03/02/87 NASDAQ 3,325,277 46.14
ATSB AmTrust Capital Corp. IN 03/28/95 NASDAQ 566,964 5.81
CBCO CB Bancorp, Inc. IN 12/28/92 NASDAQ 1,188,226 21.39
CBIN Community Bank Shares IN 04/10/95 NASDAQ 1,983,720 27.03
FFWC FFW Corp. IN 04/05/93 NASDAQ 739,176 13.31
FFED Fidelity Federal Bancorp IN 08/31/87 NASDAQ 2,493,229 32.02
FISB First Indiana Corporation IN 08/02/83 NASDAQ 8,278,225 188.33
HBFW Home Bancorp IN 03/30/95 NASDAQ 3,094,489 44.87
HBBI Home Building Bancorp IN 02/08/95 NASDAQ 322,000 5.64
HOMF Home Federal Bancorp IN 01/23/88 NASDAQ 2,223,532 55.87
INCB Indiana Community Bank, SB IN 12/15/94 NASDAQ 922,039 14.06
IFSL Indiana Federal Corporation IN 02/04/87 NASDAQ 4,737,329 87.64
LOGN Logansport Financial Corp. IN 06/14/95 NASDAQ 1,322,500 16.37
MARN Marion Capital Holdings IN 03/18/93 NASDAQ 2,003,170 40.94
MFBC MFB Corp. IN 03/25/94 NASDAQ 2,077,873 29.61
NEIB Northeast Indiana Bancorp IN 06/28/95 NASDAQ 2,061,670 26.80
PFDC Peoples Bancorp IN 07/07/87 NASDAQ 2,355,883 45.94
PERM Permanent Bancorp, Inc. IN 04/04/94 NASDAQ 2,186,261 35.53
SOBI Sobieski Bancorp, Inc. IN 03/31/95 NASDAQ 836,860 10.67
WCHI Workingmens Capital Holdings IN 06/07/90 NASDAQ 1,797,920 30.12
FFSL First Independence Corp. KS 10/08/93 NASDAQ 583,421 10.79
LARK Landmark Bancshares, Inc. KS 03/28/94 NASDAQ 1,950,522 28.77
MCBS Mid Continent Bancshares Inc. KS 06/27/94 NASDAQ 2,061,250 36.98
WBCI WFS Bancorp, Inc. KS 06/03/94 NASDAQ 1,561,009 35.32
CKFB CKF Bancorp, Inc. KY 01/04/95 NASDAQ 931,911 18.64
CLAS Classic Bancshares, Inc. KY 12/29/95 NASDAQ 1,322,500 15.54
FSBS First Ashland Financial Corp KY 04/07/95 NASDAQ 1,463,039 26.33
FFKY First Federal Financial Corp. KY 07/15/87 NASDAQ 2,107,680 76.93
FTSB Fort Thomas Financial Corp KY 06/28/95 NASDAQ 1,573,775 22.82
FKKY Frankfort First Bancorp, Inc. KY 07/10/95 NASDAQ 3,450,000 48.73
GWBC Gateway Bancorp, Inc. KY 01/18/95 NASDAQ 1,175,670 17.64
GTFN Great Financial Corporation KY 03/31/94 NASDAQ 14,652,595 362.65
HFFB Harrodsburg First Fin Bancorp KY 10/04/95 NASDAQ 2,182,185 31.10
KYF Kentucky First Bancorp, Inc KY 08/29/95 AMSE 1,388,625 17.18
LFSB LFS Bancorp Inc. KY 04/04/94 NASDAQ 3,388,706 63.11
CZF CitiSave Financial Corp LA 07/14/95 AMSE 964,707 13.51
ISBF ISB Financial Corporation LA 04/07/95 NASDAQ 7,380,671 114.84
JEBC Jefferson Bancorp, Inc. LA 08/18/94 NASDAQ 2,195,634 42.81
MERI Meritrust Federal SB LA NA NASDAQ 774,176 22.64
TSH Teche Holding Co. LA 04/19/95 AMSE 4,232,000 58.19
AFCB Affiliated Community Bancorp MA 10/19/95 NASDAQ 5,071,666 89.39
BFD BostonFed Bancorp, Inc. MA 10/24/95 AMSE 6,589,617 80.72
FMLY Family Bancorp MA 11/07/86 NASDAQ 4,087,048 85.83
ANBK American National Bancorp MD 10/31/95 NASDAQ 3,980,500 39.31
EQSB Equitable Federal Savings Bank MD 09/10/93 NASDAQ 600,000 13.50
FCIT First Citizens Financial Corp. MD 12/17/86 NASDAQ 2,914,100 48.35
FFWM First Financial-W. Maryland MD 02/11/92 NASDAQ 2,187,584 40.47
HRBF Harbor Federal Bancorp, Inc. MD 08/12/94 NASDAQ 1,857,974 26.94
HFMD Home Federal Corp. MD 02/10/84 NASDAQ 2,519,010 20.78
MFSL Maryland Federal Bancorp MD 06/02/87 NASDAQ 3,149,705 95.28
WSB Washington Savings Bank, FSB MD NA AMSE 4,220,206 19.52
WHGB WHG Bancshares Corp. MD 04/01/96 NASDAQ NA NA
MCBN Mid-Coast Bancorp, Inc. ME 11/02/89 NASDAQ 229,031 4.35
BWFC Bank West Financial Corp. MI 03/30/95 NASDAQ 2,296,040 22.52
CFSB CFSB Bancorp, Inc. MI 06/22/90 NASDAQ 4,476,139 96.24
DNFC D & N Financial Corp. MI 02/13/85 NASDAQ 6,829,402 87.07
MSBF MSB Financial, Inc. MI 02/06/95 NASDAQ 675,804 12.16
MSBK Mutual Savings Bank, FSB MI 07/17/92 NASDAQ 4,271,394 23.49
OFCP Ottawa Financial Corp. MI 08/19/94 NASDAQ 5,454,838 88.64
SJSB SJS Bancorp MI 02/16/95 NASDAQ 952,200 18.81
SFB Standard Federal Bancorp MI 1 01/21/87 NYSE 31,289,495 1329.80
THR Three Rivers Financial Corp. MI 08/24/95 AMSE 859,625 11.39
BDJI First Federal Bancorporation MN 04/04/95 NASDAQ 819,375 11.68
FFHH FSF Financial Corp. MN 10/07/94 NASDAQ 3,860,913 48.74
HMNF HMN Financial, Inc. MN 06/30/94 NASDAQ 5,180,210 75.76
MIVI Mississippi View Holding Co. MN 03/24/95 NASDAQ 957,593 10.89
QCFB QCF Bancorp, Inc. MN 04/03/95 NASDAQ 1,782,750 26.30
TCB TCF Financial Corp. MN 06/17/86 NYSE 35,834,837 1299.01
WEFC Wells Financial Corp. MN 04/11/95 NASDAQ 2,187,500 22.70
CMRN Cameron Financial Corp MO 04/03/95 NASDAQ 2,850,180 39.19
CAPS Capital Savings Bancorp, Inc. MO 12/29/93 NASDAQ 1,039,079 18.44
FBSI First Bancshares, Inc. MO 12/22/93 NASDAQ 1,301,576 21.80
GSBC Great Southern Bancorp, Inc. MO 12/14/89 NASDAQ 4,434,331 109.20
HFSA Hardin Bancorp, Inc. MO 09/29/95 NASDAQ 1,058,000 12.17
JSBA Jefferson Savings Bancorp MO 04/08/93 NASDAQ 4,173,563 123.64
JOAC Joachim Bancorp, Inc. MO 12/28/95 NASDAQ 760,437 10.27
MBLF MBLA Financial Corp. MO 06/24/93 NASDAQ 1,371,738 28.81
MFSB Mutual Bancompany MO 02/02/95 NASDAQ 333,500 6.00
NASB North American Savings Bank MO 09/27/85 NASDAQ 2,276,148 73.69
NSLB NS&L Bancorp, Inc. MO 06/08/95 NASDAQ 856,449 11.35
PCBC Perry County Financial Corp. MO 02/13/95 NASDAQ 856,452 15.42
RFED Roosevelt Financial Group MO 01/23/87 NASDAQ 42,117,674 779.18
SMFC Sho-Me Financial Corp. MO 07/01/94 NASDAQ 1,820,550 27.08
SMBC Southern Missouri Bancorp, Inc MO 04/13/94 NASDAQ 1,723,201 25.85
CFTP Community Federal Bancorp MS 03/26/96 NASDAQ NA NA
FFBS FFBS BanCorp, Inc. MS 07/01/93 NASDAQ 1,572,883 29.88
MGNL Magna Bancorp, Inc. MS 03/13/91 NASDAQ 6,959,091 215.73
GBCI Glacier Bancorp, Inc. MT 03/30/84 NASDAQ 3,359,767 67.20
SFBM Security Bancorp MT 11/20/86 NASDAQ 1,462,182 29.61
UBMT United Savings Bank, F.A. MT 09/23/86 NASDAQ 1,223,312 22.02
WSTR WesterFed Financial Corp. MT 01/10/94 NASDAQ 4,395,804 65.39
COOP Cooperative Bankshares, Inc. NC 08/21/91 NASDAQ 1,491,698 26.85
SOPN First Savings Bancorp, Inc. NC 01/06/94 NASDAQ 3,744,000 68.33
GSFC Green Street Financial Corp. NC 04/04/96 NASDAQ NA NA
HFNC HFNC Financial Corp. NC 12/29/95 NASDAQ 17,192,500 225.65
KSAV KS Bancorp, Inc. NC 12/30/93 NASDAQ 663,263 12.27
PDB Piedmont Bancorp, Inc. NC 12/08/95 AMSE 2,645,000 35.05
SSB Scotland Bancorp, Inc NC 04/01/96 AMSE NA NA
SSM Stone Street Bancorp, Inc. NC 04/01/96 AMSE NA NA
UFRM United Federal Savings Bank NC 07/01/80 NASDAQ 3,065,064 24.52
CFB Commercial Federal Corporation NE 12/31/84 NYSE 15,067,179 585.74
EBCP Eastern Bancorp NH 11/17/83 NASDAQ 2,397,788 58.15
NHTB New Hampshire Thrift Bncshrs NH 05/22/86 NASDAQ 1,689,503 16.47
FBER 1st Bergen Bancorp NJ 04/01/96 NASDAQ NA NA
CJFC Central Jersey Financial NJ 09/01/84 NASDAQ 2,668,269 66.71
COFD Collective Bancorp, Inc. NJ 02/07/84 NASDAQ 20,407,332 515.29
FSPG First Home Savings Bank, FSB NJ 04/20/87 NASDAQ 2,030,009 38.06
FSFI First State Financial Services NJ 12/18/87 NASDAQ 4,024,658 49.30
FMCO FMS Financial Corporation NJ 12/14/88 NASDAQ 2,466,573 40.08
IBSF IBS Financial Corp NJ 10/13/94 NASDAQ 11,409,899 164.02
LVSB Lakeview Financial NJ 12/22/93 NASDAQ 2,265,704 44.46
LFBI Little Falls Bancorp, Inc. NJ 01/05/96 NASDAQ 3,041,750 33.46
PBCI Pamrapo Bancorp, Inc. NJ 11/14/89 NASDAQ 3,317,464 68.01
PFSB PennFed Financial Services,Inc NJ 07/15/94 NASDAQ 5,077,225 75.85
PULS Pulse Bancorp NJ 09/18/86 NASDAQ 3,886,458 60.24
SFIN Statewide Financial Corp. NJ 10/02/95 NASDAQ 5,269,752 67.85
FSBC First Savings Bank, FSB NM 08/08/86 NASDAQ 695,698 4.44
GUPB GFSB Bancorp, Inc. NM 06/30/95 NASDAQ 948,750 12.81
ALBK ALBANK Financial Corp NY 04/01/92 NASDAQ 13,605,308 392.85
ALBC Albion Banc Corp. NY 07/26/93 NASDAQ 260,714 4.30
ASFC Astoria Financial Corporation NY 11/18/93 NASDAQ 10,958,470 557.51
BFSI BFS Bankorp, Inc. NY 05/12/88 NASDAQ 1,635,488 58.88
CARV Carver Federal Savings Bank NY 10/25/94 NASDAQ 2,314,375 20.83
CONE Conestoga Bancorp, Inc. NY 03/30/94 NASDAQ 4,741,935 97.80
FIBC Financial Bancorp, Inc. NY 08/17/94 NASDAQ 1,873,365 23.53
HAVN Haven Bancorp, Inc. NY 09/23/93 NASDAQ 4,287,464 99.68
LISB Long Island Bancorp, Inc. NY 04/18/94 NASDAQ 24,858,699 699.15
NYB New York Bancorp Inc. NY 01/28/88 NYSE 11,724,647 275.53
PEEK Peekskill Financial Corp. NY 12/29/95 NASDAQ 4,099,750 47.66
PKPS Poughkeepsie Savings Bank, FSB NY 11/19/85 NASDAQ 12,534,825 67.37
RELY Reliance Bancorp, Inc. NY 03/31/94 NASDAQ 9,225,739 148.77
SFED SFS Bancorp, Inc. NY 06/30/95 NASDAQ 1,395,000 18.14
TPNZ Tappan Zee Financial, Inc. NY 10/05/95 NASDAQ 1,620,062 19.44
YFCB Yonkers Financial Corporation NY 04/18/96 NASDAQ NA NA
ASBP ASB Financial Corp. OH 05/11/95 NASDAQ 1,713,960 27.42
CAFI Camco Financial Corporation OH NA NASDAQ 1,971,477 35.73
COFI Charter One Financial OH 1 01/22/88 NASDAQ 45,114,703 1522.62
CRCL Circle Financial Corp. OH 08/06/91 NASDAQ 708,096 18.59
CTZN CitFed Bancorp, Inc. OH 01/23/92 NASDAQ 5,651,983 194.99
CIBI Community Investors Bancorp OH 02/07/95 NASDAQ 701,246 10.34
EFBI Enterprise Federal Bancorp OH 10/17/94 NASDAQ 2,178,240 32.13
FFDF FFD Financial Corp. OH 04/03/96 NASDAQ NA NA
FFYF FFY Financial Corp. OH 06/28/93 NASDAQ 5,192,895 117.49
FFOH Fidelity Financial of Ohio OH 03/04/96 NASDAQ 4,073,252 40.22
FDEF First Defiance Financial OH 10/02/95 NASDAQ 10,977,694 115.27
FFBZ First Federal Bancorp, Inc. OH 07/13/92 NASDAQ 784,558 18.63
FFHS First Franklin Corporation OH 01/26/88 NASDAQ 1,186,518 16.02
FFSW FirstFederal Financial Svcs OH 03/31/87 NASDAQ 3,275,415 74.44
GFCO Glenway Financial Corp. OH 11/30/90 NASDAQ 1,090,887 23.45
HHFC Harvest Home Financial Corp. OH 10/10/94 NASDAQ 895,182 10.74
HVFD Haverfield Corporation OH 03/19/85 NASDAQ 1,904,102 28.56
INBI Industrial Bancorp OH 08/01/95 NASDAQ 5,554,500 84.71
LONF London Financial Corporation OH 04/01/96 NASDAQ NA NA
MFFC Milton Federal Financial Corp. OH 10/07/94 NASDAQ 2,301,409 36.25
OHSL OHSL Financial Corp. OH 02/10/93 NASDAQ 1,224,468 25.10
PTRS Potters Financial Corp. OH 12/31/93 NASDAQ 532,809 9.32
PVFC PVF Capital Corp. OH 12/30/92 NASDAQ 1,548,957 30.20
SFSL Security First Corp. OH 01/22/88 NASDAQ 3,531,508 43.16
SHFC Seven Hills Financial Corp. OH 12/31/93 NASDAQ 536,472 7.78
SSBK Strongsville Savings Bank OH NA NASDAQ 2,530,800 50.62
SBCN Suburban Bancorporation, Inc. OH 09/30/93 NASDAQ 1,480,732 23.88
THIR Third Financial Corp. OH 03/25/93 NASDAQ 1,135,954 33.23
WOFC Western Ohio Financial Corp. OH 07/29/94 NASDAQ 2,412,240 56.08
WFCO Winton Financial Corp. OH 08/04/88 NASDAQ 1,986,152 23.83
FFWD Wood Bancorp, Inc. OH 08/31/93 NASDAQ 1,034,170 19.13
KFBI Klamath First Bancorp OR 10/05/95 NASDAQ 11,254,475 150.53
BRFC Bridgeville Savings Bank PA 10/07/94 NASDAQ 1,124,125 15.18
CVAL Chester Valley Bancorp Inc. PA 03/27/87 NASDAQ 1,579,803 28.83
FSBI Fidelity Bancorp, Inc. PA 06/24/88 NASDAQ 1,366,526 21.43
FBBC First Bell Bancorp, Inc. PA 06/29/95 NASDAQ 8,166,450 112.29
FKFS First Keystone Financial PA 01/26/95 NASDAQ 1,292,500 24.56
SHEN First Shenango Bancorp, Inc. PA 04/06/93 NASDAQ 2,307,808 47.45
GAF GA Financial, Inc. PA 03/26/96 AMSE 8,900,000 101.24
HARL Harleysville Savings Bank PA 08/04/87 NASDAQ 1,287,442 23.50
LARL Laurel Capital Group, Inc. PA 02/20/87 NASDAQ 1,508,464 23.76
MLFB MLF Bancorp, Inc. PA 08/11/94 NASDAQ 6,246,900 149.14
PVSA Parkvale Financial Corporation PA 07/16/87 NASDAQ 3,232,643 88.49
PBIX Patriot Bank Corp. PA 12/04/95 NASDAQ 3,497,748 44.60
PWBC PennFirst Bancorp, Inc. PA 06/13/90 NASDAQ 3,996,494 47.96
PHFC Pittsburgh Home Financial Corp PA 04/01/96 NASDAQ NA NA
PSAB Prime Bancorp, Inc. PA 11/21/88 NASDAQ 3,723,353 66.09
PFNC Progress Financial Corporation PA 07/18/83 NASDAQ 3,730,000 27.04
SVRN Sovereign Bancorp, Inc. PA 08/12/86 NASDAQ 47,837,843 532.20
THRD TF Financial Corporation PA 07/13/94 NASDAQ 4,523,374 65.02
THBC Troy Hill Bancorp, Inc. PA 06/27/94 NASDAQ 1,067,917 14.42
WVFC WVS Financial Corporation PA 11/29/93 NASDAQ 1,736,400 36.90
YFED York Financial Corp. PA 02/01/84 NASDAQ 6,049,983 108.90
AMFB American Federal Bank SC 01/19/89 NASDAQ 10,921,085 163.82
CFCP Coastal Financial Corp. SC 09/26/90 NASDAQ 2,741,712 55.52
FFCH First Financial Holdings Inc. SC 11/10/83 NASDAQ 6,365,941 132.09
FSFC First Southeast Financial Corp SC 10/08/93 NASDAQ 4,100,615 80.99
PALM Palfed, Inc. SC 12/15/85 NASDAQ 5,221,962 67.42
SCCB S. Carolina Community Bancshrs SC 07/07/94 NASDAQ 747,188 12.70
HFFC HF Financial Corp. SD 04/08/92 NASDAQ 3,054,572 43.53
LFCT Leader Financial Corp. TN 09/30/93 NASDAQ 9,923,812 436.65
TWIN Twin City Bancorp TN 01/04/95 NASDAQ 898,404 15.27
CBSA Coastal Bancorp, Inc. TX NA NASDAQ 4,957,870 85.23
ETFS East Texas Financial Services TX 01/10/95 NASDAQ 1,193,568 17.68
FBHC Fort Bend Holding Corp. TX 06/30/93 NASDAQ 817,398 14.92
LOAN Horizon Bancorp TX NA NASDAQ 1,386,757 13.87
JXVL Jacksonville Bancorp, Inc. TX 04/01/96 NASDAQ NA NA
WFSB 1st Washington Bancorp Inc. VA 05/14/87 NASDAQ 9,882,877 77.83
BFSB Bedford Bancshares, Inc. VA 08/22/94 NASDAQ 1,194,875 20.61
CNIT CENIT Bancorp, Inc. VA 08/06/92 NASDAQ 1,606,350 54.62
CFFC Community Financial Corp. VA 03/30/88 NASDAQ 1,269,698 22.85
ESX Essex Bancorp, Inc. VA NA AMSE 1,050,547 2.76
FFFC FFVA Financial Corp. VA 10/12/94 NASDAQ 2,712,832 79.51
FFRV Fidelity Financial Bankshares VA 05/01/86 NASDAQ 2,279,047 30.20
GSLC Guaranty Financial Corp. VA NA NASDAQ 919,168 7.12
LIFB Life Bancorp, Inc. VA 10/11/94 NASDAQ 10,403,125 150.85
VABF Virginia Beach Fed. Financial VA 11/01/80 NASDAQ 4,961,840 39.69
VFFC Virginia First Financial VA 01/01/78 NASDAQ 5,615,450 67.39
CASB Cascade Financial Corp. WA 09/16/92 NASDAQ 1,632,388 27.75
FWWB First SB of Washington Bancorp WA 11/01/95 NASDAQ 10,064,918 132.10
IWBK InterWest Bancorp, Inc. WA NA NASDAQ 6,433,934 140.74
MSEA Metropolitan Bancorp WA 01/09/90 NASDAQ 3,710,205 51.72
STSA Sterling Financial Corp. WA NA NASDAQ 5,425,648 70.53
WFSL Washington Federal, Inc. WA 11/17/82 NASDAQ 42,592,347 926.38
AADV Advantage Bancorp, Inc. WI 03/23/92 NASDAQ 3,449,426 112.11
ABCW Anchor BanCorp Wisconsin WI 07/16/92 NASDAQ 4,934,350 166.53
FCBF FCB Financial Corp. WI 09/24/93 NASDAQ 2,631,644 48.69
FFEC First Fed Bncshrs Eau Claire WI 10/12/94 NASDAQ 6,855,379 95.98
FTFC First Federal Capital Corp. WI 11/02/89 NASDAQ 6,297,735 125.95
FFHC First Financial Corp. WI 12/24/80 NASDAQ 29,885,122 638.79
FNGB First Northern Capital Corp. WI 12/29/83 NASDAQ 4,557,125 72.34
HALL Hallmark Capital Corp. WI 01/03/94 NASDAQ 1,442,950 22.00
MWFD Midwest Federal Financial WI 07/08/92 NASDAQ 816,440 18.78
NWEQ Northwest Equity Corp. WI 10/11/94 NASDAQ 980,892 10.18
OSBF OSB Financial Corp. WI 07/01/92 NASDAQ 1,140,772 26.81
RELI Reliance Bancshares, Inc. WI 04/19/96 NASDAQ NA NA
SECP Security Capital Corporation WI 01/03/94 NASDAQ 9,535,665 553.07
STFR St. Francis Capital Corp. WI 06/21/93 NASDAQ 5,856,699 159.60
FOBC Fed One Bancorp WV 01/19/95 NASDAQ 2,489,462 38.90
CRZY Crazy Woman Creek Bancorp WY 03/29/96 NASDAQ NA NA
TRIC Tri-County Bancorp, Inc. WY 09/30/93 NASDAQ 630,788 11.67
</TABLE>
<TABLE>
<CAPTION>
Nature of Market
Total Total Total Core Core Shares Value
Assets Equity Tang. Equity ROAA ROAA ROAE ROAE Outstanding of Shares
ALL THRIFTS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE 1,301,135 105,904 100,149 0.87 0.80 8.15 7.23 5,905,213 127.72
MEDIAN 313,803 37,164 36,358 0.88 0.83 7.43 6.74 2,489,462 39.69
HIGH 49,781,986 2,952,702 2,808,721 2.25 2.55 35.92 32.85 137,204,953 3,310.07
LOW 32,260 4,926 4,926 -1.97 -2.05 -37.90 -39.40 229,031 2.76
AVERAGE FOR STATE
IN 293,864 33,868 31,906 0.98 0.84 9.13 7.02 2,151,542 38.00
AVERAGE BY REGION
MIDWEST 834,493 79,928 76,959 0.94 0.88 8.24 7.55 4,685,630 106.22
NEW ENGLAND 716,754 68,027 67,370 0.68 0.54 6.10 4.30 5,247,626 83.94
MID ATLANTIC 701,260 73,902 69,585 0.95 0.91 8.29 7.86 4,305,895 84.77
SOUTHEAST 783,844 61,137 51,011 0.90 0.79 9.69 8.05 4,480,170 73.50
SOUTHWEST 791,602 89,992 88,496 0.91 0.84 9.19 8.33 6,048,473 99.23
WEST 5,332,146 348,082 335,627 0.42 0.36 5.05 4.03 16,030,379 395.83
AVERAGE BY EXCHANGE
NYSE 15,942,919 1,024,022 956,540 0.77 0.65 12.15 10.34 43,667,009 1,227.40
AMEX 224,394 33,384 33,354 0.89 0.80 7.15 5.53 2,677,226 31.78
OTC/NASDAQ 723,824 69,989 65,917 0.87 0.81 8.02 7.18 4,341,313 82.27
</TABLE>
Exhibit 37
KELLER & COMPANY
Columbus, Ohio
614-766-1426
RECENTLY CONVERTED, SAIF-INSURED THRIFT INSTITUTIONS
PRICES AND PRICING RATIOS
<TABLE>
<CAPTION>
PRO FORMA RATIOS CURRENT RATIOS
** ** **
Price/ Price/ Price/ Price/ 1 Day 1 Week
Price/ Book Tang. Bk. Price/ Price/ BookTang. Bk.Price/
IPO
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FFBA First Colorado Bancorp, Inc. CO 01/02/96 NA NA NA NA NM 129.35 131.01
LFBI Little Falls Bancorp, Inc. NJ 01/05/96 31.90 71.40 71.43 13.40 19.17 79.86 86.60
BYFC Broadway Financial Corp. CA 01/09/96 13.30 68.50 68.48 8.00 NM 65.88 65.88
FFOH Fidelity Financial of Ohio OH 03/04/96 NA NA NA NA 15.92 81.24 81.24
FFFD North Central Bancshares, Inc. IA 03/21/96 NA NA NA NA 12.32 92.18 92.18
CFTP Community Federal Bancorp MS 03/26/96 14.00 71.40 71.35 22.20 19.44 97.43 97.43
GAF GA Financial, Inc. PA 03/26/96 13.80 70.50 70.52 15.70 12.62 90.96 90.96
CRZY Crazy Woman Creek Bancorp WY 03/29/96 16.40 69.70 69.72 22.00 21.21 81.28 81.28
PFFB PFF Bancorp, Inc. CA 03/29/96 26.60 69.00 68.99 9.50 25.00 88.80 89.84
SSM Stone Street Bancorp, Inc. NC 04/01/96 19.70 74.90 74.92 24.40 NA 86.90 86.90
SSB Scotland Bancorp, Inc NC 04/01/96 16.20 74.80 74.83 24.20 NA 95.87 95.87
JXVL Jacksonville Bancorp, Inc. TX 04/01/96 NA NA NA NA NA 94.43 94.43
PHFC Pittsburgh Home Financial Corp PA 04/01/96 17.50 72.80 72.83 12.20 NA 84.35 84.35
LONF London Financial Corporation OH 04/01/96 22.40 68.50 68.46 13.40 NA 78.23 78.23
WHGB WHG Bancshares Corp. MD 04/01/96 15.50 71.10 71.08 16.00 NA 90.53 90.53
AMFC AMB Financial Corp. IN 04/01/96 18.20 70.80 70.83 14.00 NA 88.42 88.42
FBER 1st Bergen Bancorp NJ 04/01/96 21.70 74.80 74.81 12.50 NA 87.70 87.70
FFDF FFD Financial Corp. OH 04/03/96 17.40 69.90 69.87 19.80 NA 78.13 78.13
GSFC Green Street Financial Corp. NC 04/04/96 14.80 71.00 71.03 22.20 NA 103.60 103.60
YFCB Yonkers Financial Corporation NY 04/18/96 16.10 74.90 74.93 14.60 NA 91.04 91.04
RELI Reliance Bancshares, Inc. WI 04/19/96 22.50 72.50 72.47 38.90 NA 79.69 NA
CBK Citizens First Financial Corp. IL 05/01/96 15.30 73.10 73.10 11.00 NA 83.16 83.16
FFBH First Federal Bancshares of AR AR 05/03/96 9.80 63.40 63.39 10.20 NM 98.95 98.95
</TABLE>
<TABLE>
<CAPTION>
PRICES AND TREND FROM IPO DATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FFBA First Colorado Bancorp, Inc. CO 19.16 NA 11.44 NA 11.63 NA 12.00 NA
LFBI Little Falls Bancorp, Inc. NJ 12.39 10.00 11.31 13.13 11.38 13.75 11.00 10.00
BYFC Broadway Financial Corp. CA 7.68 10.00 10.38 3.75 10.25 2.50 10.25 2.50
FFOH Fidelity Financial of Ohio OH 16.52 NA 10.50 NA 10.00 NA 10.13 NA
FFFD North Central Bancshares, Inc. IA 26.45 NA 10.88 NA 10.69 NA 10.44 NA
CFTP Community Federal Bancorp MS 32.14 10.00 12.63 26.25 12.88 28.75 12.63 26.25
GAF GA Financial, Inc. PA 20.77 10.00 11.38 13.75 11.50 15.00 11.00 10.00
CRZY Crazy Woman Creek Bancorp WY 24.96 10.00 NA NA 10.75 7.50 10.50 5.00
PFFB PFF Bancorp, Inc. CA 12.02 10.00 11.38 13.75 11.63 16.25 11.63 16.25
SSM Stone Street Bancorp, Inc. NC 30.84 15.00 17.50 16.67 18.00 20.00 17.75 18.33
SSB Scotland Bancorp, Inc NC 33.61 10.00 12.25 22.50 12.50 25.00 11.75 17.50
JXVL Jacksonville Bancorp, Inc. TX 15.45 NA 11.11 NA 9.63 NA 9.88 NA
PHFC Pittsburgh Home Financial Corp PA 13.94 10.00 11.00 10.00 11.00 10.00 10.63 6.25
LONF London Financial Corporation OH 16.71 10.00 10.81 8.12 10.63 6.25 10.13 1.25
WHGB WHG Bancshares Corp. MD 21.58 10.00 11.13 11.25 11.06 10.60 11.25 12.50
AMFC AMB Financial Corp. IN 18.05 10.00 10.50 5.00 10.50 5.00 10.50 5.00
FBER 1st Bergen Bancorp NJ 14.95 10.00 10.00 0.00 9.50 (5.00) 9.63 (3.75)
FFDF FFD Financial Corp. OH 21.05 10.00 10.50 5.00 10.50 5.00 10.31 3.10
GSFC Green Street Financial Corp. NC 36.32 10.00 12.88 28.75 12.25 22.50 12.31 23.10
YFCB Yonkers Financial Corporation NY 18.38 10.00 9.75 (2.50) 10.13 1.25 9.94 (0.60)
RELI Reliance Bancshares, Inc. WI 48.95 8.00 8.38 4.69 8.25 3.13 7.94 (0.75)
CBK Citizens First Financial Corp. IL 13.64 10.00 10.50 5.00 10.00 0.00 10.13 1.25
FFBH First Federal Bancshares of AR AR 16.18 10.00 13.00 30.00 13.25 32.50 13.69 36.90
</TABLE>
<PAGE>
Exhibit 38
KELLER & COMPANY
Columbus, Ohio
614-766-1426
ACQUISITIONS AND PENDING ACQUISITIONS
COUNTY, CITY OR MARKET AREA OF MADISON FIRST FEDERAL SAVINGS & LOAN ASSOCIATION
NONE
<PAGE>
Exhibit 39
KELLER & COMPANY
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED MUTUAL HOLDING COMPANIES
AS OF MAY 3, 1996
<TABLE>
<CAPTION>
PER SHARE PRICING RATIOS
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PFSL Pocahontas FS&LA, MHC AR NASDAQ 15.750 17.250 9.500 7.69 -1.93 13.64 229.43 0.67
CMSV Community Savings, MHC FL NASDAQ 14.500 18.250 10.000 -2.95 -10.08 15.35 129.91 0.50
FFFL Fidelity FSB of Florida, MHC FL NASDAQ 13.500 17.000 9.091 3.85 -10.00 12.18 117.84 0.57
HARB Harbor Federal Savings Bk, MHC FL NASDAQ 27.000 29.250 11.875 -3.57 -1.82 16.78 189.40 0.98
FFSX First Fed SB of Siouxland, MHC IA NASDAQ 24.000 28.625 9.063 0.00 2.13 21.52 255.82 0.69
WCFB Webster City Federal SB, MHC IA NASDAQ 13.250 13.500 8.813 0.00 1.92 10.32 46.31 0.80
JXSB Jacksonville Savings Bank, MHC IL NASDAQ 13.250 14.250 10.000 -5.36 -1.85 13.41 113.76 NA
LFED Leeds Federal Savings Bk, MHC MD NASDAQ 13.750 16.750 9.875 -1.79 -1.79 12.65 77.34 0.63
GFED Guaranty Federal SB, MHC MO NASDAQ 12.000 12.500 8.000 2.13 -1.03 8.69 59.37 NA
PULB Pulaski Bank, Savings Bk, MHC MO NASDAQ 14.000 16.500 10.500 0.00 -6.67 10.67 85.00 0.80
FSLA First Savings Bank, MHC NJ NASDAQ 15.000 17.500 5.579 0.00 -5.51 13.98 147.33 0.37
FSNJ First Savings Bk of NJ, MHC NJ NASDAQ 14.500 19.500 10.750 3.57 -6.45 17.70 217.75 NA
SBFL SB of the Finger Lakes, MHC NY NASDAQ 16.000 16.750 8.125 -1.54 0.79 11.40 98.92 NA
WAYN Wayne Savings & Loan Co. MHC OH NASDAQ 20.750 22.000 11.255 1.34 -2.08 15.09 164.79 1.03
CMSB Commonwealth Savings Bank, MHC PA NASDAQ 22.000 24.875 11.625 1.15 -7.85 15.92 191.83 0.50
GDVS Greater Delaware Valley SB,MHC PA NASDAQ 10.625 13.000 9.375 -1.16 -9.57 8.86 72.08 0.36
HARS Harris Savings Bank, MHC PA NASDAQ 15.750 20.500 12.750 -10.00 -14.86 13.45 111.45 0.53
NWSB Northwest Savings Bank, MHC PA NASDAQ 12.500 13.500 7.375 6.38 9.89 16.38 151.22 0.60
RVSB Riverview Savings Bank, MHC WA NASDAQ 15.250 17.000 9.711 -10.29 0.15 10.71 97.21 0.19
</TABLE>
<TABLE>
<CAPTION>
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PFSL Pocahontas FS&LA, MHC AR 13.02 115.47 6.86 12.70
CMSV Community Savings, MHC FL 14.50 94.46 11.16 16.86
FFFL Fidelity FSB of Florida, MHC FL 18.49 110.84 11.46 19.85
HARB Harbor Federal Savings Bk, MHC FL 12.50 160.91 14.26 12.56
FFSX First Fed SB of Siouxland, MHC IA 14.72 111.52 9.38 16.00
WCFB Webster City Federal SB, MHC IA 25.48 128.39 28.61 25.98
JXSB Jacksonville Savings Bank, MHC IL NA 98.81 11.65 NA
LFED Leeds Federal Savings Bk, MHC MD 17.19 108.70 17.78 16.98
GFED Guaranty Federal SB, MHC MO NA 138.09 20.21 NA
PULB Pulaski Bank, Savings Bk, MHC MO 22.22 131.21 16.47 25.93
FSLA First Savings Bank, MHC NJ 12.40 107.30 10.18 13.16
FSNJ First Savings Bk of NJ, MHC NJ NA 81.92 6.66 NA
SBFL SB of the Finger Lakes, MHC NY NA 140.35 16.17 NA
WAYN Wayne Savings & Loan Co. MHC OH 22.55 137.51 12.59 23.58
CMSB Commonwealth Savings Bank, MHC PA 17.05 138.19 11.47 19.13
GDVS Greater Delaware Valley SB,MHC PA 30.36 119.92 14.74 30.36
HARS Harris Savings Bank, MHC PA 21.28 117.10 14.13 21.58
NWSB Northwest Savings Bank, MHC PA 8.39 76.31 8.27 8.28
RVSB Riverview Savings Bank, MHC WA 12.50 142.39 15.69 13.86
</TABLE>
<TABLE>
<CAPTION>
ALL MUTUAL HOLDING COMPANIES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE 15.967 18.342 9.645 -0.56 -3.51 13.62 134.57 0.61 17.51
MEDIAN 14.500 17.000 9.711 0.00 -1.93 13.45 117.84 0.60 17.05
HIGH 27.000 29.250 12.750 7.69 9.89 21.52 255.82 1.03 30.36
LOW 10.625 12.500 5.579 -10.29 -14.86 8.69 46.31 0.19 8.39
</TABLE>
ALL MUTUAL HOLDING COMPANIES
AVERAGE 118.92 13.57 18.45
MEDIAN 117.10 12.59 16.98
HIGH 160.91 28.61 30.36
LOW 76.31 6.66 8.28
<PAGE>
Exhibit 40
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED MUTUAL HOLDING COMPANIES
AS OF MAY 3, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY
Total Total Total Core Core
Assets Equity Tang. Equity ROAA ROAA ROAE ROAE
State 0.00 0.00 0.00 (%) (%) (%) (%)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PFSL Pocahontas FS&LA, MHC AR 369,379 21,964 21,964 0.56 0.58 9.45 9.70
CMSV Community Savings, MHC FL 632,507 74,750 74,750 0.84 0.72 6.62 5.67
FFFL Fidelity FSB of Florida, MHC FL 791,897 81,076 80,095 0.65 0.60 6.23 5.78
HARB Harbor Federal Savings Bk, MHC FL 932,858 82,640 82,640 1.19 1.18 13.70 13.63
FFSX First Fed SB of Siouxland, MHC IA 436,519 36,727 36,547 0.64 0.59 7.78 7.16
WCFB Webster City Federal SB, MHC IA 97,258 21,675 21,675 1.11 1.09 5.04 4.93
JXSB Jacksonville Savings Bank, MHC IL 142,200 16,761 16,759 0.43 0.36 3.96 3.30
LFED Leeds Federal Savings Bk, MHC MD 266,658 43,610 43,610 1.03 1.04 6.32 6.37
GFED Guaranty Federal SB, MHC MO 185,546 27,165 27,165 1.02 0.56 7.11 3.92
PULB Pulaski Bank, Savings Bk, MHC MO 177,984 22,339 22,339 0.72 0.62 6.09 5.18
FSLA First Savings Bank, MHC NJ 959,356 91,060 79,028 0.87 0.82 9.48 8.97
FSNJ First Savings Bk of NJ, MHC NJ 657,075 53,411 53,411 0.04 0.36 0.47 4.02
SBFL SB of the Finger Lakes, MHC NY 176,570 20,351 20,351 NA NA NA NA
WAYN Wayne Savings & Loan Co. MHC OH 245,892 22,516 22,516 0.56 0.53 6.13 5.85
CMSB Commonwealth Savings Bank, MHC PA 1,657,690 137,683 120,977 0.78 0.70 8.41 7.52
GDVS Greater Delaware Valley SB,MHC PA 235,877 28,982 28,982 0.48 0.48 3.98 3.98
HARS Harris Savings Bank, MHC PA 1,249,497 150,835 141,219 0.70 0.69 5.58 5.50
NWSB Northwest Savings Bank, MHC PA 1,767,455 188,638 186,334 1.06 1.07 9.34 9.47
RVSB Riverview Savings Bank, MHC WA 209,506 23,086 20,430 1.31 1.18 12.02 10.85
</TABLE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
Number of Mkt. Value
IPO Shares of Shares
Date Exchange Outstg. ($M)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PFSL Pocahontas FS&LA, MHC AR 04/05/94 NASDAQ 1,610,000 25.36
CMSV Community Savings, MHC FL 10/24/94 NASDAQ 4,868,732 75.47
FFFL Fidelity FSB of Florida, MHC FL 01/07/94 NASDAQ 6,720,252 89.04
HARB Harbor Federal Savings Bk, MHC FL 01/06/94 NASDAQ 4,925,233 135.44
FFSX First Fed SB of Siouxland, MHC IA 07/13/92 NASDAQ 1,706,345 41.81
WCFB Webster City Federal SB, MHC IA 08/15/94 NASDAQ 2,100,000 25.73
JXSB Jacksonville Savings Bank, MHC IL 04/21/95 NASDAQ 1,250,000 16.88
LFED Leeds Federal Savings Bk, MHC MD 05/02/94 NASDAQ 3,448,000 51.72
GFED Guaranty Federal SB, MHC MO 04/10/95 NASDAQ 3,125,000 36.72
PULB Pulaski Bank, Savings Bk, MHC MO 05/11/94 NASDAQ 2,094,000 31.41
FSLA First Savings Bank, MHC NJ 07/10/92 NASDAQ 6,511,756 100.93
FSNJ First Savings Bk of NJ, MHC NJ 01/09/95 NASDAQ 3,017,500 52.05
SBFL SB of the Finger Lakes, MHC NY 11/11/94 NASDAQ 1,785,000 28.34
WAYN Wayne Savings & Loan Co. MHC OH 06/25/93 NASDAQ 1,492,149 32.69
CMSB Commonwealth Savings Bank, MHC PA 01/24/94 NASDAQ 8,641,558 196.60
GDVS Greater Delaware Valley SB,MHC PA 03/03/95 NASDAQ 3,272,500 35.18
HARS Harris Savings Bank, MHC PA 01/25/94 NASDAQ 11,211,400 201.81
NWSB Northwest Savings Bank, MHC PA 11/07/94 NASDAQ 11,688,000 260.06
RVSB Riverview Savings Bank, MHC WA 10/26/93 NASDAQ 2,155,206 35.56
</TABLE>
<TABLE>
<CAPTION>
ALL MUTUAL HOLDING COMPANIES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE 589,038 60,277 57,936 0.78 0.73 7.10 6.77 4,295,928 77.52
MEDIAN 369,379 36,727 36,547 0.75 0.66 6.47 5.82 3,125,000 41.81
HIGH 1,767,455 188,638 186,334 1.31 1.18 13.70 13.63 11,688,000 260.06
LOW 97,258 16,761 16,759 0.04 0.36 0.47 3.30 1,250,000 16.88
</TABLE>
<PAGE>
Exhibit 41
Page 1
KELLER & COMPANY
Columbus, Ohio
614-766-1426
MADISON FIRST FEDERAL SAVINGS & LOAN ASSOCIATION
COMPARABLE GROUP SELECTION
BALANCE SHEET PARAMETERS
General Parameters:
States: IA IL IN KY MI MO OH WI
<TABLE>
<CAPTION>
Total
Cash & 1-4 Fam.Total Net Net Loans Borrowed
Total Invest./ MBS/ Loans/ Loans/ & MBS/ Funds/ Equity/
Assets Assets Assets Assets Assets Assets Assets Assets
IPO Date 0 (%) (%) (%) (%) (%) (%) (%)
MADISON FIRST FEDERAL
SAVINGS & LOAN ASSN. -- 88,307 21.19 10.36 50.38 64.99 75.35 2.26 7.47
DEFINED PARAMETERS FOR Prior to 5.00- 40.00- 45.00- 55.00- 7.00-
INCLUSION IN COMPARABLE GROUP 12/31/94 0.00 40.00 0.00 70.00 85.00 95.00 0.00 20.00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHFC Seven Hills Financial Corp. OH 12/31/93 45,401 9.07 15.08 60.58 74.37 89.45 0.00 21.20
HHFC Harvest Home Financial Corp. OH 10/10/94 70,314 35.24 8.00 48.45 54.70 62.70 0.00 18.65
HZFS Horizon Financial Svcs Corp. IA 06/30/94 73,105 30.63 0.00 42.61 66.37 66.37 13.25 12.12
SFFC StateFed Financial Corporation IA 01/05/94 74,182 12.61 0.00 55.45 82.23 82.23 17.52 20.12
FFBI First Financial Bancorp, Inc. IL 10/04/93 74,874 20.99 9.28 52.38 67.09 76.37 0.00 10.51
GFSB GFS Bancorp, Inc. IA 01/06/94 80,913 10.91 4.37 55.37 83.34 87.71 23.89 12.04
NWEQ Northwest Equity Corp. WI 10/11/94 82,976 7.30 6.65 57.48 82.92 89.56 17.48 14.06
INCB Indiana Community Bank, SB IN 12/15/94 90,614 12.67 3.78 41.46 80.01 83.79 0.00 15.60
PTRS Potters Financial Corp. OH 12/31/93 114,242 27.80 25.59 31.62 43.67 69.26 2.64 9.79
NBSI North Bancshares, Inc. IL 12/21/93 114,337 39.19 7.84 44.79 50.92 58.76 14.65 17.34
MIFC Mid-Iowa Financial Corp. IA 10/14/92 119,395 22.91 25.53 38.65 49.86 75.38 15.91 9.02
MWBI Midwest Bancshares, Inc. IA 11/12/92 136,809 19.40 22.17 45.33 55.51 77.68 17.40 6.94
FFWD Wood Bancorp, Inc. OH 08/31/93 140,383 16.58 4.02 64.26 77.91 81.93 4.93 14.37
FBSI First Bancshares, Inc. MO 12/22/93 140,471 14.60 0.78 63.46 82.04 82.82 9.65 16.92
FFWC FFW Corp. IN 04/05/93 146,028 17.40 13.65 45.09 66.80 80.44 27.26 11.28
SMBC Southern Missouri Bancorp, Inc MO 04/13/94 159,470 NA NA 39.16 55.24 NA 7.25 16.66
MFFC Milton Federal Financial Corp. OH 10/07/94 171,708 23.99 11.67 53.45 61.87 73.54 6.53 19.98
FFBZ First Federal Bancorp, Inc. OH 07/13/92 173,191 7.45 1.03 57.62 87.70 88.73 14.69 7.81
MWFD Midwest Federal Financial WI 07/08/92 177,164 20.07 5.93 33.85 69.86 75.80 9.03 9.34
MARN Marion Capital Holdings IN 03/18/93 179,329 15.42 0.02 47.46 77.86 77.89 3.76 24.00
CAPS Capital Savings Bancorp, Inc. MO 12/29/93 192,464 7.57 9.69 72.14 81.08 90.76 10.91 10.80
SBCN Suburban Bancorporation, Inc. OH 09/30/93 197,137 6.99 15.29 53.72 75.47 90.76 21.65 13.01
MBLF MBLA Financial Corp. MO 06/24/93 197,259 11.74 35.26 47.92 52.17 87.43 41.16 14.37
MFBC MFB Corp. IN 03/25/94 200,895 24.00 6.13 61.58 65.29 71.42 4.73 19.31
CBCO CB Bancorp, Inc. IN 12/28/92 204,825 NA NA 37.17 44.81 NA 22.03 9.16
OHSL OHSL Financial Corp. OH 02/10/93 205,462 13.53 13.54 49.05 70.03 83.57 7.35 12.42
EFBI Enterprise Federal Bancorp OH 10/17/94 207,680 24.37 15.38 44.24 58.61 73.99 19.26 15.58
FFHS First Franklin Corporation OH 01/26/88 216,124 13.85 18.31 51.63 65.87 84.18 3.38 9.50
WOFC Western Ohio Financial Corp. OH 07/29/94 231,505 20.42 12.83 56.70 65.00 77.83 13.62 25.77
FCBF FCB Financial Corp. WI 09/24/93 250,658 11.07 4.27 53.17 82.16 86.43 18.57 19.58
OSBF OSB Financial Corp. WI 07/01/92 253,714 29.66 1.57 49.92 66.45 68.02 23.10 12.59
WFCO Winton Financial Corp. OH 08/04/88 262,329 NA NA 36.67 82.68 NA 11.59 7.89
SMFC Sho-Me Financial Corp. MO 07/01/94 263,890 7.07 4.25 61.94 84.73 88.98 26.54 11.98
FBCV 1ST Bancorp IN 04/07/87 273,122 24.80 1.06 59.62 70.53 71.60 39.48 7.88
FFED Fidelity Federal Bancorp IN 08/31/87 277,526 3.98 3.84 47.54 85.85 89.69 27.00 5.13
GFCO Glenway Financial Corp. OH 11/30/90 278,609 11.27 8.58 63.76 76.75 85.32 9.80 9.41
PFDC Peoples Bancorp IN 07/07/87 280,778 20.98 0.25 71.14 77.50 77.76 0.36 15.26
WCBI Westco Bancorp IL 06/26/92 309,265 30.04 0.00 55.37 68.55 68.55 0.00 15.64
PVFC PVF Capital Corp. OH 12/30/92 312,466 11.21 0.25 30.42 86.78 87.03 0.96 6.56
HALL Hallmark Capital Corp. WI 01/03/94 313,681 22.00 22.82 43.03 53.48 76.30 24.66 8.40
CASH First Midwest Financial, Inc. IA 09/20/93 314,812 23.23 9.97 23.94 64.06 74.03 22.69 12.31
HVFD Haverfield Corporation OH 03/19/85 339,630 12.58 0.66 67.42 84.15 84.81 0.00 8.30
HMCI HomeCorp, Inc. IL 06/22/90 341,742 NA NA 46.45 77.04 NA 0.00 6.07
SWBI Southwest Bancshares IL 06/24/92 349,543 19.53 6.02 45.02 69.53 75.55 14.21 12.00
</TABLE>
<PAGE>
Exhibit 42
Page 1
KELLER & COMPANY
Columbus, Ohio
614-766-1426
MADISON FIRST FEDERAL SAVINGS & LOAN ASSOCIATION
COMPARABLE GROUP SELECTION
OPERATING PERFORMANCE AND ASSET QUALITY PARAMETERS
Most Recent Four Quarters
General Parameters:
States: IA IL IN KY MI OH PA WI WV
<TABLE>
<CAPTION>
OPERATING PERFORMANCE
Net Operating Noninterest
Total Interest Expenses/ Income/
Assets ROAA ROAE Margin Assets Assets
IPO Date 0 (%) (%) (%) (%) (%)
------------------------------------------------------------------ -----------
MADISON FIRST FEDERAL
SAVINGS & LOAN ASSN. -- 88,307 0.20 2.70 2.54 2.36 0.43
DEFINED PARAMETERS FOR Prior to 0.15 - 2.00 - 1.75 - 1.50 -
INCLUSION IN COMPARABLE GROUP 12/31/94 0.00 0.90 9.00 3.50 3.25 0.00
<S> <C> <C> <C> <C> <C> <C> <C>
SHFC Seven Hills Financial Corp. OH 12/31/93 45,401 0.36 1.67 3.36 2.80 0.04
HHFC Harvest Home Financial Corp. OH 10/10/94 70,314 0.88 4.75 3.31 1.97 0.07
HZFS Horizon Financial Svcs Corp. IA 06/30/94 73,105 0.71 5.55 3.39 2.73 0.43
SFFC StateFed Financial Corporation IA 01/05/94 74,182 1.18 5.80 3.70 1.76 0.08
FFBI First Financial Bancorp, Inc. IL 10/04/93 74,874 0.88 8.05 3.44 3.19 0.57
GFSB GFS Bancorp, Inc. IA 01/06/94 80,913 1.08 8.47 3.21 1.71 0.11
NWEQ Northwest Equity Corp. WI 10/11/94 82,976 1.15 7.49 4.36 2.74 0.46
INCB Indiana Community Bank, SB IN 12/15/94 90,614 0.77 4.97 4.40 3.61 0.83
PTRS Potters Financial Corp. OH 12/31/93 114,242 0.74 7.88 3.55 2.65 0.22
NBSI North Bancshares, Inc. IL 12/21/93 114,337 0.57 2.98 3.20 2.49 0.14
MIFC Mid-Iowa Financial Corp. IA 10/14/92 119,395 0.84 8.90 2.70 2.20 0.76
MWBI Midwest Bancshares, Inc. IA 11/12/92 136,809 0.99 14.16 2.95 1.94 0.15
FFWD Wood Bancorp, Inc. OH 08/31/93 140,383 1.18 8.22 4.29 2.53 0.25
FBSI First Bancshares, Inc. MO 12/22/93 140,471 0.79 4.42 3.38 2.13 0.20
FFWC FFW Corp. IN 04/05/93 146,028 0.87 7.67 2.96 1.73 0.30
SMBC Southern Missouri Bancorp, Inc MO 04/13/94 159,470 0.75 4.20 2.97 2.16 0.31
MFFC Milton Federal Financial Corp. OH 10/07/94 171,708 1.13 4.88 3.76 2.17 0.14
FFBZ First Federal Bancorp, Inc. OH 07/13/92 173,191 1.10 14.88 3.83 2.40 0.46
MWFD Midwest Federal Financial WI 07/08/92 177,164 1.11 11.34 3.97 3.03 0.80
MARN Marion Capital Holdings IN 03/18/93 179,329 1.41 5.79 4.23 2.19 0.14
CAPS Capital Savings Bancorp, Inc. MO 12/29/93 192,464 0.99 9.23 3.45 2.15 0.44
SBCN Suburban Bancorporation, Inc. OH 09/30/93 197,137 0.39 2.95 3.01 2.29 0.24
MBLF MBLA Financial Corp. MO 06/24/93 197,259 0.72 4.95 1.98 0.78 0.01
MFBC MFB Corp. IN 03/25/94 200,895 0.69 3.40 3.04 1.99 0.17
CBCO CB Bancorp, Inc. IN 12/28/92 204,825 1.41 13.87 4.38 2.08 0.58
OHSL OHSL Financial Corp. OH 02/10/93 205,462 0.95 7.51 3.39 2.08 0.14
EFBI Enterprise Federal Bancorp OH 10/17/94 207,680 1.12 5.38 3.17 1.99 0.05
FFHS First Franklin Corporation OH 01/26/88 216,124 0.63 6.61 2.78 1.94 0.17
WOFC Western Ohio Financial Corp. OH 07/29/94 231,505 1.42 4.72 4.00 2.32 0.05
FCBF FCB Financial Corp. WI 09/24/93 250,658 0.99 5.01 3.29 1.84 0.27
OSBF OSB Financial Corp. WI 07/01/92 253,714 0.17 1.34 2.76 2.15 0.26
WFCO Winton Financial Corp. OH 08/04/88 262,329 0.94 12.54 3.41 2.29 0.13
SMFC Sho-Me Financial Corp. MO 07/01/94 263,890 0.83 6.26 3.13 2.11 0.33
FBCV 1ST Bancorp IN 04/07/87 273,122 2.25 35.92 2.27 2.75 0.60
FFED Fidelity Federal Bancorp IN 08/31/87 277,526 1.45 28.84 2.33 2.72 2.56
GFCO Glenway Financial Corp. OH 11/30/90 278,609 0.56 5.86 3.01 2.25 0.21
PFDC Peoples Bancorp IN 07/07/87 280,778 1.45 9.58 3.74 1.55 0.23
WCBI Westco Bancorp IL 06/26/92 309,265 1.32 8.46 3.68 1.75 0.22
PVFC PVF Capital Corp. OH 12/30/92 312,466 1.14 18.41 3.76 2.49 0.36
HALL Hallmark Capital Corp. WI 01/03/94 313,681 0.56 5.74 2.57 1.95 0.30
CASH First Midwest Financial, Inc. IA 09/20/93 314,812 1.29 9.64 3.51 2.04 0.38
HVFD Haverfield Corporation OH 03/19/85 339,630 0.65 7.98 3.40 2.95 0.22
HMCI HomeCorp, Inc. IL 06/22/90 341,742 0.37 6.28 2.91 2.66 0.48
SWBI Southwest Bancshares IL 06/24/92 349,543 1.19 8.83 3.59 1.85 0.19
</TABLE>
NPA/ REO/ Reserves/
Assets Assets Assets
(%) (%) (%)
-----------------------------
MADISON FIRST FEDERAL
SAVINGS & LOAN ASSN. 0.03 0.00 0.47
DEFINED PARAMETERS FOR
INCLUSION IN COMPARABLE GROUP 0.00 0.00 0.00
SHFC Seven Hills Financial Corp. OH 0.11 0.00 0.11
HHFC Harvest Home Financial Corp. OH 0.18 0.00 0.16
HZFS Horizon Financial Svcs Corp. IA 1.69 0.00 0.40
SFFC StateFed Financial Corporation IA NA NA 0.32
FFBI First Financial Bancorp, Inc. IL 0.56 0.00 0.44
GFSB GFS Bancorp, Inc. IA NA NA NA
NWEQ Northwest Equity Corp. WI 0.52 0.15 0.53
INCB Indiana Community Bank, SB IN NA NA 0.53
PTRS Potters Financial Corp. OH 2.21 0.07 1.96
NBSI North Bancshares, Inc. IL 0.00 0.00 0.18
MIFC Mid-Iowa Financial Corp. IA 0.15 0.00 0.22
MWBI Midwest Bancshares, Inc. IA 0.27 0.14 0.48
FFWD Wood Bancorp, Inc. OH 0.18 0.02 0.33
FBSI First Bancshares, Inc. MO 0.43 0.00 0.36
FFWC FFW Corp. IN 0.08 0.00 0.35
SMBC Southern Missouri Bancorp, Inc MO NA 0.43 0.38
MFFC Milton Federal Financial Corp. OH 0.40 0.02 0.22
FFBZ First Federal Bancorp, Inc. OH 0.62 0.02 0.89
MWFD Midwest Federal Financial WI 0.16 0.00 0.75
MARN Marion Capital Holdings IN 0.93 0.10 1.12
CAPS Capital Savings Bancorp, Inc. MO 0.12 0.04 0.30
SBCN Suburban Bancorporation, Inc. OH 0.20 0.16 1.59
MBLF MBLA Financial Corp. MO 0.38 0.00 0.27
MFBC MFB Corp. IN 0.18 0.01 0.16
CBCO CB Bancorp, Inc. IN NA 0.00 0.66
OHSL OHSL Financial Corp. OH 0.26 0.00 0.25
EFBI Enterprise Federal Bancorp OH 0.01 0.00 0.16
FFHS First Franklin Corporation OH 0.73 0.09 0.42
WOFC Western Ohio Financial Corp. OH 0.25 0.00 0.33
FCBF FCB Financial Corp. WI 0.09 0.00 0.41
OSBF OSB Financial Corp. WI 0.14 0.00 0.37
WFCO Winton Financial Corp. OH 0.53 0.20 0.34
SMFC Sho-Me Financial Corp. MO 0.00 0.00 0.65
FBCV 1ST Bancorp IN 0.38 0.05 0.33
FFED Fidelity Federal Bancorp IN 0.09 0.00 0.30
GFCO Glenway Financial Corp. OH 0.49 0.15 0.22
PFDC Peoples Bancorp IN 0.33 0.01 0.32
WCBI Westco Bancorp IL 0.58 0.00 0.29
PVFC PVF Capital Corp. OH 1.23 0.00 0.85
HALL Hallmark Capital Corp. WI 0.01 0.00 0.33
CASH First Midwest Financial, Inc. IA 0.28 0.03 0.57
HVFD Haverfield Corporation OH 0.78 0.19 0.81
HMCI HomeCorp, Inc. IL NA NA 0.50
SWBI Southwest Bancshares IL 0.25 0.03 0.22
<PAGE>
Exhibit 43
KELLER & COMPANY
Columbus, Ohio
614-766-1426
MADISON FIRST FEDERAL SAVINGS & LOAN ASSOCIATION
FINAL COMPARABLE GROUP
BALANCE SHEET RATIOS
<TABLE>
<CAPTION>
Total
Cash & 1-4 Fam.Total Net Net Loans Borrowed
Total Invest./ MBS/ Loans/ Loans/ & MBS/ Funds/ Equity/
Assets Assets Assets Assets Assets Assets Assets Assets
IPO Date 0 (%) (%) (%) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
MADISON FIRST FEDERAL
SAVINGS & LOAN ASSN. -- 88,307 21.19 10.36 50.38 64.99 75.35 2.26 7.47
DEFINED PARAMETERS FOR Prior to 5.00- 40.00- 45.00 - 55.00 - 7.00 -
INCLUSION IN COMPARABLE GROUP 12/31/94 0.00 40.00 0.00 70.00 85.00 95.00 0.00 20.00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HHFC Harvest Home Financial Corp. OH 10/10/94 70,314 35.24 8.00 48.45 54.70 62.70 0.00 18.65
FFBI First Financial Bancorp, Inc. IL 10/04/93 74,874 20.99 9.28 52.38 67.09 76.37 0.00 10.51
NBSI North Bancshares, Inc. IL 12/21/93 114,337 39.19 7.84 44.79 50.92 58.76 14.65 17.34
FBSI First Bancshares, Inc. MO 12/22/93 140,471 14.60 0.78 63.46 82.04 82.82 9.65 16.92
FFWC FFW Corp. IN 04/05/93 146,028 17.40 13.65 45.09 66.80 80.44 27.26 11.28
SBCN Suburban Bancorporation, Inc. OH 09/30/93 197,137 6.99 15.29 53.72 75.47 90.76 21.65 13.01
MFBC MFB Corp. IN 03/25/94 200,895 24.00 6.13 61.58 65.29 71.42 4.73 19.31
SMFC Sho-Me Financial Corp. MO 07/01/94 263,890 7.07 4.25 61.94 84.73 88.98 26.54 11.98
GFCO Glenway Financial Corp. OH 11/30/90 278,609 11.27 8.58 63.76 76.75 85.32 9.80 9.41
HALL Hallmark Capital Corp. WI 01/03/94 313,681 22.00 22.82 43.03 53.48 76.30 24.66 8.40
AVERAGE 180,024 19.87 9.66 53.82 67.73 77.39 13.89 13.68
MEDIAN 171,583 19.19 8.29 53.05 66.94 78.41 12.23 12.49
HIGH 313,681 39.19 22.82 63.76 84.73 90.76 27.26 19.31
LOW 70,314 6.99 0.78 43.03 50.92 58.76 0.00 8.40
</TABLE>
<PAGE>
Exhibit 44
KELLER & COMPANY
Columbus, Ohio
614-766-1426
MADISON FIRST FEDERAL SAVINGS & LOAN ASSOCIATION
FINAL COMPARABLE GROUP
OPERATING PERFORMANCE AND ASSET QUALITY RATIOS
Most Recent Four Quarters
<TABLE>
<CAPTION>
OPERATING PERFORMANCE
Net Operating Noninterest
Total Interest Expenses/ Income/
Assets ROAA ROAE Assets Assets
IPO Date 0 (%) (%) (%) (%) (%)
--------------------- -------------------------------------------- -----------
MADISON FIRST FEDERAL
SAVINGS & LOAN ASSN. -- 88,307 0.20 2.70 2.54 2.36 0.43
DEFINED PARAMETERS FOR Prior to 0.15 - 2.00 - 1.75 - 1.50 -
INCLUSION IN COMPARABLE GROUP 12/31/94 0.00 0.90 9.00 3.50 3.25 0.00
<S> <C> <C> <C> <C> <C> <C> <C>
HHFC Harvest Home Financial Corp. OH 10/10/94 70,314 0.88 4.75 3.31 1.97 0.07
FFBI First Financial Bancorp, Inc. IL 10/04/93 74,874 0.88 8.05 3.44 3.19 0.57
NBSI North Bancshares, Inc. IL 12/21/93 114,337 0.57 2.98 3.20 2.49 0.14
FBSI First Bancshares, Inc. MO 12/22/93 140,471 0.79 4.42 3.38 2.13 0.20
FFWC FFW Corp. IN 04/05/93 146,028 0.87 7.67 2.96 1.73 0.30
SBCN Suburban Bancorporation, Inc. OH 09/30/93 197,137 0.39 2.95 3.01 2.29 0.24
MFBC MFB Corp. IN 03/25/94 200,895 0.69 3.40 3.04 1.99 0.17
SMFC Sho-Me Financial Corp. MO 07/01/94 263,890 0.83 6.26 3.13 2.11 0.33
GFCO Glenway Financial Corp. OH 11/30/90 278,609 0.56 5.86 3.01 2.25 0.21
HALL Hallmark Capital Corp. WI 01/03/94 313,681 0.56 5.74 2.57 1.95 0.30
AVERAGE 180,024 0.70 5.21 3.11 2.21 0.25
MEDIAN 171,583 0.74 5.25 3.09 2.12 0.23
HIGH 313,681 0.88 8.05 3.44 3.19 0.57
LOW 70,314 0.39 2.95 2.57 1.73 0.07
</TABLE>
<TABLE>
<CAPTION>
ASSET QUALITY
NPA/ REO/ Reserves/
Assets Assets Assets
(%) (%) (%)
------------------------------
MADISON FIRST FEDERAL
SAVINGS & LOAN ASSN. 0.03 0.00 0.47
DEFINED PARAMETERS FOR
INCLUSION IN COMPARABLE GROUP 0.00 0.00 0.00
<S> <C> <C> <C>
HHFC Harvest Home Financial Corp. OH 0.18 0.00 0.16
FFBI First Financial Bancorp, Inc. IL 0.56 0.00 0.44
NBSI North Bancshares, Inc. IL 0.00 0.00 0.18
FBSI First Bancshares, Inc. MO 0.43 0.00 0.36
FFWC FFW Corp. IN 0.08 0.00 0.35
SBCN Suburban Bancorporation, Inc. OH 0.20 0.16 1.59
MFBC MFB Corp. IN 0.18 0.01 0.16
SMFC Sho-Me Financial Corp. MO 0.00 0.00 0.65
GFCO Glenway Financial Corp. OH 0.49 0.15 0.22
HALL Hallmark Capital Corp. WI 0.01 0.00 0.33
AVERAGE 0.21 0.03 0.44
MEDIAN 0.18 0.00 0.34
HIGH 0.56 0.16 1.59
LOW 0.00 0.00 0.16
</TABLE>
<PAGE>
Exhibit 45
KELLER & COMPANY
Columbus, Ohio
614-766-1426
MADISON FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
COMPARABLE GROUP CHARACTERISTICS AND BALANCE SHEET TOTALS
<TABLE>
<CAPTION>
Most Recent Quarter
Total
Number Conversion Total Int. Earning Net
of (IPO) Assets Assets Loans
Offices Exchange Date 0 0 0
SUBJECT
MADISON FIRST FEDERAL
SAVINGS & LOAN ASSN. Madison IN 4 NA NA 88,307 85,980 57,393
COMPARABLE GROUP
<S> <C> <C> <C> <C> <C>
FFWC FFW Corporation Wabash IN 3 NASDAQ 04/05/93 146,028 139,355 97,541
FBSI First Bancshares, Inc. Mountain Grove MO 5 NASDAQ 12/22/93 140,471 133,665 115,239
FFBI First Financial Bancorp, Inc. Belvidere IL 2 NASDAQ 10/04/93 74,874 72,080 50,233
GFCO Glenway Financial Corp. Cincinnati OH 6 NASDAQ 11/30/90 278,609 265,286 213,823
HALL Hallmark Capital Corp. West Allis WI 3 NASDAQ 01/03/94 313,681 296,111 167,769
HHFC Harvest Home Financial Corporation Cheviot OH 3 NASDAQ 10/10/94 70,314 68,506 38,465
MFBC MFB Corp. Mishawaka IN 4 NASDAQ 03/25/94 200,895 191,080 131,169
NBSI North Bancshares, Inc. Chicago IL 2 NASDAQ 12/21/93 114,337 110,908 58,220
SMFC Sho-Me Financial Corp. Mt. Vernon MO 6 NASDAQ 07/01/94 263,890 247,870 226,223
SBCN Suburban Bancorporation, Inc. Cincinnati OH 8 NASDAQ 09/30/93 197,137 194,550 148,781
Average 4.2 180,024 171,941 124,746
Median 3.5 171,583 165,218 123,204
High 8.0 313,681 296,111 226,223
Low 2.0 70,314 68,506 38,465
</TABLE>
<TABLE>
<CAPTION>
Goodwill
and Total Total
Intang. Deposits Equity
0 0 0
SUBJECT
MADISON FIRST FEDERAL
SAVINGS & LOAN ASSN. Madison IN 147 79,254 6,599
COMPARABLE GROUP
<S> <C> <C> <C>
FFWC FFW Corporation Wabash IN 0 88,702 16,479
FBSI First Bancshares, Inc. Mountain Grove MO 46 102,687 23,771
FFBI First Financial Bancorp, Inc. Belvidere IL 0 66,230 7,872
GFCO Glenway Financial Corp. Cincinnati OH 686 216,326 26,208
HALL Hallmark Capital Corp. West Allis WI 0 206,875 26,354
HHFC Harvest Home Financial Corporation Cheviot OH 0 56,619 13,114
MFBC MFB Corp. Mishawaka IN 0 149,981 38,799
NBSI North Bancshares, Inc. Chicago IL 0 74,955 19,827
SMFC Sho-Me Financial Corp. Mt. Vernon MO 0 160,038 31,605
SBCN Suburban Bancorporation, Inc. Cincinnati OH 0 126,210 25,639
Average 73 124,862 22,967
Median 0 114,449 24,705
High 686 216,326 38,799
Low 0 56,619 7,872
</TABLE>
<PAGE>
Exhibit 46
KELLER & COMPANY
Columbus, Ohio
614-766-1426
MADISON FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
COMPARABLE GROUP MARKET AREA COMPARISON
<TABLE>
<CAPTION>
1990-1995 Median Median
Population Per Capita Household Housing Median
1995 Growth Income Income Value Rent
Population (%) ($) ($) ($) ($)
SUBJECT
MADISON FIRST FEDERAL
SAVINGS & LOAN ASSN. IN 30,679 3.1 15,558 34,597 44,899 215
COMPARABLE GROUP
<S> <C> <C> <C> <C> <C> <C>
FFWC FFW Corporation IN 34,831 0.3 13,428 30,573 43,401 304
FBSI First Bancshares, Inc. MO 66,455 8.9 9,633 19,183 35,705 243
FFBI First Financial Bancorp, Inc. IL 300,946 6.1 15,145 34,234 62,832 275
GFCO Glenway Financial Corp. OH 866,222 1.2 18,004 34,401 72,243 304
HALL Hallmark Capital Corp. WI 931,864 -0.6 14,408 29,297 65,300 363
HHFC Harvest Home Financial Corporation OH 866,222 1.2 18,004 34,401 72,243 304
MFBC MFB Corp. IN 257,533 0.8 16,003 34,165 50,751 325
NBSI North Bancshares, Inc. IL 5,144,275 0.8 17,825 36,543 102,118 411
SMFC Sho-Me Financial Corp. MO 31,614 4.6 11,250 23,688 37,864 188
SBCN Suburban Bancorporation, Inc. OH 866,222 1.2 18,004 34,401 72,243 304
Average 1,033,303 1.7 15,786 32,411 64,333 309
Median 866,222 1.2 16,003 34,234 65,300 304
High 5,144,275 6.1 18,004 36,543 102,118 411
Low 31,614 -0.6 11,250 23,688 37,864 188
</TABLE>
<TABLE>
<CAPTION>
High Below
Unem- School College Poverty
ployment Graduates Graduates Level
(%) (%) (%) (%)
COMPARABLE GROUP
<S> <C> <C> <C> <C>
FFWC FFW Corporation IN 5.5 75.4 12.7 10.2
FBSI First Bancshares, Inc. MO 5.1 72.4 10.2 15.5
FFBI First Financial Bancorp, Inc. IL 5.9 75.9 14.4 8.7
GFCO Glenway Financial Corp. OH 5.5 75.6 23.7 13.3
HALL Hallmark Capital Corp. WI 6.8 76.3 19.3 15.9
HHFC Harvest Home Financial Corporation OH 5.5 75.6 23.7 13.3
MFBC MFB Corp. IN 5.7 76.1 19.2 9.7
NBSI North Bancshares, Inc. IL 5.4 73.4 22.8 14.2
SMFC Sho-Me Financial Corp. MO 4.3 68.9 9.7 16.1
SBCN Suburban Bancorporation, Inc. OH 5.5 75.6 23.7 13.3
Average 5.6 74.8 18.8 12.7
Median 5.5 75.6 19.3 13.3
High 6.8 76.3 23.7 16.1
Low 4.3 68.9 9.7 8.7
</TABLE>
<PAGE>
Exhibit 47
KELLER & COMPANY
Columbus, Ohio
614-766-1426
BALANCE SHEET
ASSET COMPOSITION - MOST RECENT QUARTER
<TABLE>
<CAPTION>
As a Percent of Total Assets
Real
Total Cash & Net Loan Loss Estate Goodwill Other
Assets Invest. MBS Loans Reserves Owned & Intang. Assets
0 (%) (%) (%) (%) (%) (%) (%)
SUBJECT
MADISON FIRST FEDERAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SAVINGS & LOAN ASSN. 88,307 21.19 10.36 64.99 0.47 0.00 0.20 3.29
COMPARABLE GROUP
FFWC FFW Corp. 146,028 17.40 13.65 66.80 0.35 0.00 0.00 2.14
FBSI First Bancshares, Inc. 140,471 14.60 0.78 82.04 0.36 0.00 0.03 2.55
FFBI First Financial Bancorp, Inc. 74,874 20.99 9.28 67.09 0.44 0.00 0.00 2.52
GFCO Glenway Financial Corp. 278,609 11.27 8.58 76.75 0.22 0.15 0.25 3.01
HALL Hallmark Capital Corp. 313,681 22.00 22.82 53.48 0.33 0.00 0.00 1.69
HHFC Harvest Home Financial Corp. 70,314 35.24 8.00 54.70 0.16 0.00 0.00 2.06
MFBC MFB Corp. 200,895 24.00 6.13 65.29 0.16 0.01 0.00 1.53
NBSI North Bancshares, Inc. 114,337 39.19 7.84 50.92 0.18 0.00 0.00 2.05
SMFC Sho-Me Financial Corp. 263,890 7.07 4.25 84.73 0.65 0.00 0.00 2.96
SBCN Suburban Bancorporation, Inc. 197,137 6.99 15.29 75.47 1.59 0.16 0.00 1.94
Average 180,024 19.87 9.66 67.73 0.44 0.03 0.03 2.25
Median 171,583 19.19 8.29 66.94 0.34 0.00 0.00 2.10
High 313,681 39.19 22.82 84.73 1.59 0.16 0.25 3.01
Low 70,314 6.99 0.78 50.92 0.16 0.00 0.00 1.53
ALL THRIFTS (327)
Average 2,919,892 12.77 16.70 65.98 0.68 0.68 0.29 2.91
MIDWEST THRIFTS (150)
Average 793,251 18.44 10.99 67.20 0.48 0.48 0.12 2.40
INDIANA THRIFTS (22)
Average 797,689 17.88 9.25 70.45 0.52 0.06 0.14 2.13
</TABLE>
<TABLE>
<CAPTION>
Interest Interest Capitalized
High Risk Non-Perf. Earning Bearing Loan
R.E. Loans Assets Assets Liabilities Servicing
(%) (%) (%) (%) (%)
SUBJECT
MADISON FIRST FEDERAL
<S> <C> <C> <C> <C> <C>
SAVINGS & LOAN ASSN. 10.32 0.03 97.36 92.01 0.00
COMPARABLE GROUP
FFWC FFW Corp. 5.59 0.08 95.43 84.52 0.01
FBSI First Bancshares, Inc. 11.22 0.43 95.15 80.36 0.00
FFBI First Financial Bancorp, Inc 7.04 0.56 96.27 88.43 0.12
GFCO Glenway Financial Corp. 12.90 0.49 95.22 86.71 0.00
HALL Hallmark Capital Corp. 7.87 0.01 94.40 85.46 0.00
HHFC Harvest Home Financial Corp. 6.51 0.18 97.43 80.39 0.00
MFBC MFB Corp. 1.24 0.18 95.11 76.15 0.00
NBSI North Bancshares, Inc. 4.38 0.00 97.00 77.92 0.00
SMFC Sho-Me Financial Corp. 18.96 0.00 93.93 84.57 0.00
SBCN Suburban Bancorporation, Inc 22.62 0.20 98.69 86.22 0.00
Average 9.83 0.21 95.86 83.07 0.01
Median 7.46 0.18 95.32 84.55 0.00
High 22.62 0.56 98.69 88.43 0.12
Low 1.24 0.00 93.93 76.15 0.00
ALL THRIFTS (327)
Average 15.33 1.30 94.55 88.46 0.35
MIDWEST THRIFTS (150)
Average 11.53 0.57 95.42 82.96 0.10
INDIANA THRIFTS (22)
Average 15.63 0.51 95.92 83.85 0.06
</TABLE>
<PAGE>
Exhibit 48
KELLER & COMPANY
Columbus, Ohio
614-766-1426
BALANCE SHEET COMPARISON
LIABILITIES AND EQUITY - MOST RECENT QUARTER
<TABLE>
<CAPTION>
As a Percent of Assets
FASB 115
Total Total Total Total Other Preferred Common Unrealized Retained
Liabilities Equity Deposits Borrowings Liabilities Equity Equity Gain(Loss) Earnings
0 0 (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
FOUNDATION SAVINGS BANK 28,966 2,772 87.53 2.65 1.08 NA NA 0.00 8.73
COMPARABLE GROUP
FSBI Fidelity Bancorp, Inc. 279,491 21,951 80.75 10.94 1.03 0.00 7.28 (0.26) 4.64
FFHS First Franklin Corporation 195,582 20,542 86.62 3.38 0.49 0.00 9.50 0.04 3.80
GFCO Glenway Financial Corp. 247,405 26,485 80.93 7.14 2.26 0.00 9.67 0.02 4.54
HALL Hallmark Capital Corp. 312,759 26,524 64.71 26.24 1.24 0.00 7.82 (0.12) 4.81
HHFC Harvest Home Financial Corp. 60,0751 2,930 81.65 0.00 0.64 0.00 17.71 0.17 5.91
MFBC MFB Corp. 162,096 38,799 74.66 4.73 1.30 0.00 19.31 (0.10) 10.02
MIFC Mid-Iowa Financial Corp. 108,625 10,770 73.98 15.91 1.09 0.00 9.02 0.03 5.58
NBSI North Bancshares, Inc. 94,5101 9,827 65.56 14.65 2.45 0.00 17.34 (0.33) 9.54
SHFC Seven Hills Financial Corp. 35,860 9,651 77.92 0.22 0.66 0.00 21.21 (0.01) 11.81
SBCN Suburban Bancorporation, Inc. 171,498 25,639 64.02 21.65 1.32 0.00 13.01 (0.00) 7.86
Average 166,790 21,312 75.08 10.49 1.25 0.00 13.19 (0.06) 6.85
Median 166,797 21,247 76.29 9.04 1.16 0.00 11.34 (0.01) 5.75
High 312,759 38,799 86.62 26.24 2.45 0.00 21.21 0.17 11.81
Low 35,860 9,651 64.02 0.00 0.49 0.00 7.28 (0.33) 3.80
ALL THRIFTS (328)
Average 1,193,602 105,708 73.73 12.00 1.49 0.07 12.71 0.04 6.25
MIDWEST THRIFTS (150)
Average 704,591 73,773 72.55 11.62 1.24 0.02 14.57 0.01 7.07
OHIO THRIFTS (31)
Average 683,611 67,347 77.19 8.02 1.26 0.08 13.45 0.07 6.66
</TABLE>
<TABLE>
<CAPTION>
Reg. Reg. Reg.
Total Tangible Core Tangible Risk-Based
Equity Equity Capital Capital Capital
(%) (%) (%) (%) (%)
SUBJECT
<S> <C> <C> <C> <C> <C>
FOUNDATION SAVINGS BANK 8.73 8.73 8.73 8.73 19.49
COMPARABLE GROUP
FSBI Fidelity Bancorp, Inc. 7.28 7.23 7.31 NA NA
FFHS First Franklin Corporation 9.50 9.50 6.48 6.48 15.13
GFCO Glenway Financial Corp. 9.67 9.46 8.60 NA NA
HALL Hallmark Capital Corp. 7.82 NA 6.11 NA NA
HHFC Harvest Home Financial Corp. 17.71 17.71 NA NA NA
MFBC MFB Corp. 19.31 19.31 15.40 15.40 39.60
MIFC Mid-Iowa Financial Corp. 9.02 9.01 7.39 7.39 21.82
NBSI North Bancshares, Inc. 17.34 17.34 15.38 15.38 47.95
SHFC Seven Hills Financial Corp. 21.21 21.21 18.06 18.06 38.77
SBCN Suburban Bancorporation, Inc 13.01 13.01 10.87 10.87 21.03
Average 13.19 13.75 10.62 12.26 30.72
Median 11.34 13.01 8.60 13.13 30.30
High 21.21 21.21 18.06 18.06 47.95
Low 7.28 7.23 6.11 6.48 15.13
ALL THRIFTS (328)
Average 12.78 12.62 10.55 10.43 23.14
MIDWEST THRIFTS (150)
Average 14.59 14.54 11.81 11.73 25.00
OHIO THRIFTS (31)
Average 13.53 13.41 11.16 11.34 22.54
</TABLE>
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
INCOME AND EXPENSE COMPARISON
TRAILING FOUR QUARTERS
0
<TABLE>
<CAPTION>
Net Gain Total Goodwill Net Total Non-Income
Interest Interest Interest Provision (Loss) Non-Int. & Intang . RealEst. Non-Int.
Income Expense Income for Loss on Sale Income Amtz. Expense Expense
SUBJECT
MADISON FIRST FEDERAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAVINGS & LOAN ASSN. 5,811 3,659 2,152 156 0.00 376 6 0 2,056
COMPARABLE GROUP
FFWC FFW Corp. 10,363 6,386 3,977 24 (196) 436 0 (2) 2,389
FBSI First Bancshares, Inc. 9,725 5,484 4,241 98 26 285 13 (109) 2,795
FFBI First Financial Bancorp, Inc. 5,258 2,797 2,461 39 157 425 0 0 2,345
GFCO Glenway Financial Corp. 19,310 11,550 7,760 66 95 598 222 (17) 6,004
HALL Hallmark Capital Corp. 18,579 12,174 6,405 209 215 956 0 0 5,011
HHFC Harvest Home Financial Corp. 4,917 2,658 2,259 90 51 0 0 1,370 0
MFBC MFB Corp. 12,885 7,328 5,557 29 21 344 0 0 3,730
NBSI North Bancshares, Inc. 7,717 4,253 3,464 34 76 157 0 0 2,730
SMFC Sho-Me Financial Corp. 17,561 10,361 7,200 110 30 877 0 (8) 4,991
SBCN Suburban Bancorporation, Inc. 15,071 9,215 5,856 2 (551) 479 0 134 4,550
Average 12,139 7,221 4,918 62 (13) 461 24 (0) 3,592
Median 11,624 6,857 4,899 37 28 431 0 0 3,263
High 19,310 12,174 7,760 209 215 956 222 134 6,004
Low 4,917 2,658 2,259 2 (551) 51 0 (109) 1,370
ALL THRIFTS (327)
Average 97,161 60,759 36,402 2,743 2,532 6,246 599 664 25,636
MIDWEST THRIFTS (150)
Average 57,516 34,922 22,594 554 585 4,394 333 (113) 15,520
INDIANA THRIFTS (22)
Average 22,089 12,493 9,596 532 744 1,805 (3) (144) 6,719
</TABLE>
<TABLE>
<CAPTION>
Net Net Inc.
Non- Income Before
Recurring Before Income Extraord. Extraord. Net Core
Expense Taxes Taxes Items Items Income Income
SUBJECT
MADISON FIRST FEDERAL
<S> <C> <C> <C> <C> <C> <C> <C>
SAVINGS & LOAN ASSN. 0 316 140 176 0 176 233
COMPARABLE GROUP
FFWC FFW Corp. 51 1,754 551 1,202 0 1,202 1,362
FBSI First Bancshares, Inc. 0 1,659 617 1,042 0 1,042 1,024
FFBI First Financial Bancorp, Inc. 175 684 36 648 0 648 530
GFCO Glenway Financial Corp. 0 2,383 892 1,491 0 1,491 1,429
HALL Hallmark Capital Corp. 0 2,356 913 1,443 0 1,443 1,303
HHFC Harvest Home Financial Corp. 931 315 616 0 0 616 616
MFBC MFB Corp. 0 2,163 863 1,300 0 1,300 1,286
NBSI North Bancshares, Inc. 0 933 304 629 0 629 579
SMFC Sho-Me Financial Corp. 0 3,166 1,199 1,966 0 1,966 1,842
SBCN Suburban Bancorporation, Inc. 0 1,232 453 779 0 779 1,137
Average 23 1,726 614 1,112 0 1,112 1,111
Median 0 1,707 584 1,122 0 1,122 1,212
High 175 3,166 1,199 1,966 0 1,966 1,842
Low 0 684 36 616 0 616 530
ALL THRIFTS (327)
Average 650 16,205 6,093 10,112 (10) 10,102 8,853
MIDWEST THRIFTS (150)
Average 1,039 10,486 3,705 6,781 (9) 6,772 7,058
INDIANA THRIFTS (22)
Average 17 4,879 1,757 3,122 0 3,122 2,648
</TABLE>
<PAGE>
Exhibit 50
KELLER & COMPANY
Columbus, Ohio
614-766-1426
INCOME AND EXPENSE COMPARISON
AS A PERCENTAGE OF AVERAGE ASSETS
TRAILING FOUR QUARTERS
<TABLE>
<CAPTION>
Net
Net Gain Total Goodwill Net Total Non-
Interest Interest InterestProvision (Loss) Non-Int.& Intang.Real Est.Non-Int.Recurring
Income Expense Income for Loss on Sale Income Amtz. Expense Expense Expense
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
SUBJECT
MADISON FIRST FEDERAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAVINGS & LOAN ASSN. 6.66 4.20 2.47 0.18 0.00 0.43 0.01 0.00 2.36 0.00
COMPARABLE GROUP
FFWC FFW Corp. 7.51 4.63 2.88 0.02 (0.14) 0.32 0.00 (0.00) 1.73 0.04
FBSI First Bancshares, Inc. 7.40 4.17 3.23 0.07 0.02 0.22 0.01 (0.08) 2.13 0.00
FFBI First Financial Bancorp, Inc. 7.15 3.80 3.35 0.05 0.21 0.58 0.00 0.00 3.19 0.24
GFCO Glenway Financial Corp. 7.24 4.33 2.91 0.02 0.04 0.22 0.08 (0.01) 2.25 0.00
HALL Hallmark Capital Corp. 7.21 4.73 2.49 0.08 0.08 0.37 0.00 0.00 1.95 0.00
HHFC Harvest Home Financial Corp. 7.05 3.81 3.24 0.01 0.00 0.07 0.00 0.00 1.97 0.00
MFBC MFB Corp. 6.88 3.91 2.97 0.02 0.01 0.18 0.00 0.00 1.99 0.00
NBSI North Bancshares, Inc. 7.05 3.89 3.17 0.03 0.07 0.14 0.00 0.00 2.49 0.00
SMFC Sho-Me Financial Corp. 7.41 4.37 3.04 0.05 0.01 0.37 0.00 (0.00) 2.11 0.00
SBCN Suburban Bancorporation, Inc. 7.59 4.64 2.95 0.00 (0.28) 0.24 0.00 0.07 2.29 0.00
Average 7.25 4.23 3.02 0.04 0.00 0.27 0.01 (0.00) 2.21 0.03
Median 7.23 4.25 3.00 0.03 0.02 0.23 0.00 0.00 2.12 0.00
High 7.59 4.73 3.35 0.08 0.21 0.58 0.08 0.07 3.19 0.24
Low 6.88 3.80 2.49 0.00 (0.28) 0.07 0.00 (0.08) 1.73 0.00
ALL THRIFTS (327)
Average 7.40 4.20 3.20 0.11 0.11 0.43 0.02 0.01 2.28 0.02
MIDWEST THRIFTS (150)
Average 7.38 4.18 3.19 0.06 0.11 0.40 0.01 (0.02) 2.19 0.02
INDIANA THRIFTS (22)
Average 7.49 4.22 3.28 0.10 0.21 0.53 0.00 (0.03) 2.28 0.02
</TABLE>
<TABLE>
<CAPTION>
Net Inc.
Income Before
Before Income Extraord. Extraord. Net Core
Taxes Taxes Items Items Income Income
(%) (%) (%) (%) (%) (%)
SUBJECT
MADISON FIRST FEDERAL
<S> <C> <C> <C> <C> <C> <C>
SAVINGS & LOAN ASSN. 0.36 0.16 0.20 0.00 0.20 0.27
COMPARABLE GROUP
FFWC FFW Corp. 1.27 0.40 0.87 0.00 0.87 0.99
FBSI First Bancshares, Inc. 1.26 0.47 0.79 0.00 0.79 0.78
FFBI First Financial Bancorp, Inc. 0.93 0.05 0.88 0.00 0.88 0.72
GFCO Glenway Financial Corp. 0.89 0.33 0.56 0.00 0.56 0.54
HALL Hallmark Capital Corp. 0.91 0.35 0.56 0.00 0.56 0.51
HHFC Harvest Home Financial Corp. 1.34 0.45 0.88 0.00 0.88 0.88
MFBC MFB Corp. 1.16 0.46 0.69 0.00 0.69 0.69
NBSI North Bancshares, Inc. 0.85 0.28 0.57 0.00 0.57 0.53
SMFC Sho-Me Financial Corp. 1.34 0.51 0.83 0.00 0.83 0.78
SBCN Suburban Bancorporation, Inc. 0.62 0.23 0.39 0.00 0.39 0.57
Average 1.06 0.35 0.70 0.00 0.70 0.70
Median 1.04 0.38 0.74 0.00 0.74 0.70
High 1.34 0.51 0.88 0.00 0.88 0.99
Low 0.62 0.05 0.39 0.00 0.39 0.51
ALL THRIFTS (327)
Average 1.34 0.47 0.87 0.00 0.87 0.80
MIDWEST THRIFTS (150)
Average 1.44 0.51 0.93 (0.00) 0.93 0.87
INDIANA THRIFTS (22)
Average 1.61 0.59 1.02 0.00 1.02 0.90
</TABLE>
Exhibit 51
KELLER & COMPANY
Columbus, Ohio
614-766-1426
YIELDS, COSTS AND EARNINGS RATIOS
TRAILING FOUR QUARTERS
<TABLE>
<CAPTION>
Yield on Cost of Net Net
Int. Earning Int. Bearing Interest Interest Core Core
Assets Liabilities Spread Margin ROAA ROAA ROAE ROAE
(%) (%) (%) (%) (%) (%) (%) (%)
- --------------------------------------------------------------------------------------------------------------------------------
SUBJECT
MADISON FIRST FEDERAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SAVINGS & LOAN ASSN. 6.85 4.56 2.29 2.54 0.20 0.27 2.70 3.57
FFWC FFW Corp. 7.71 5.38 2.33 2.96 0.87 0.99 7.67 8.69
FBSI First Bancshares, Inc. 7.75 5.19 2.56 3.38 0.79 0.78 4.42 4.34
FFBI First Financial Bancorp, Inc. 7.36 4.48 2.88 3.44 0.88 0.72 8.05 6.58
GFCO Glenway Financial Corp. 7.50 4.89 2.61 3.01 0.56 0.54 5.86 5.62
HALL Hallmark Capital Corp. 7.45 5.41 2.04 2.57 0.56 0.51 5.74 5.18
HHFC Harvest Home Financial Corp. 7.20 4.72 2.48 3.31 0.88 0.88 4.75 4.75
MFBC MFB Corp. 7.05 5.00 2.05 3.04 0.69 0.69 3.40 3.36
NBSI North Bancshares, Inc. 7.13 4.97 2.16 3.20 0.57 0.53 2.98 2.74
SMFC Sho-Me Financial Corp. 7.64 5.11 2.53 3.13 0.83 0.78 6.26 5.86
SBCN Suburban Bancorporation, Inc. 7.75 5.41 2.34 3.01 0.39 0.57 2.95 4.30
Average 7.45 5.06 2.40 3.11 0.70 0.70 5.21 5.14
Median 7.48 5.06 2.41 3.09 0.74 0.71 5.25 4.97
High 7.75 5.41 2.88 3.44 0.88 0.99 8.05 8.69
Low 7.05 4.48 2.04 2.57 0.39 0.51 2.95 2.74
ALL THRIFTS (327)
Average 7.70 4.88 2.82 3.33 0.87 0.80 8.21 7.34
MIDWEST THRIFTS (150)
Average 7.65 4.95 2.70 3.31 0.93 0.87 7.92 7.25
INDIANA THRIFTS (22)
Average 7.79 4.96 2.83 3.41 1.03 0.90 9.60 7.71
</TABLE>
<PAGE>
Exhibit 52
KELLER & COMPANY
Columbus, Ohio
614-766-1426
DIVIDENDS, RESERVES AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
DIVIDENDS RESERVES AND SUPPLEMENTAL DATA - MOST RECENT PERIOD
12 Month 12 Month
12 Month Common Current Dividend Reserves/ Reserves/ Chargeoffs/
Preferred Div./ Dividend Payout Gross Non-Perf. Average
Dividends Share Yield Ratio Loans Assets Loans
0 ($) (%) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
MADISON FIRST FEDERAL
SAVINGS & LOAN ASSN. - - - - 0.72 1,376.67 0
COMPARABLE GROUP
FFWC FFW Corp. 0 0.47 2.43 29.94 0.52 431.09 -0.17
FBSI First Bancshares, Inc. 0 0.20 1.21 22.22 0.44 83.74 0.16
FFBI First Financial Bancorp, Inc. 0 0.00 0.00 0.00 0.65 78.95 0.02
GFCO Glenway Financial Corp. 0 0.50 3.09 35.85 0.29 45.71 0.00
HALL Hallmark Capital Corp. 0 0.00 0.00 0.00 0.61 NM 0.06
HHFC Harvest Home Financial Corp. 0 0.26 3.27 38.81 0.29 86.72 NA
MFBC MFB Corp. 0 0.00 0.00 0.00 0.25 NA NA
NBSI North Bancshares, Inc. 0 0.10 2.52 19.23 0.36 NM 0.00
SMFC Sho-Me Financial Corp. 0 0.00 0.00 0.00 0.75 NM 0.00
SBCN Suburban Bancorporation, Inc. 0 0.55 4.00 103.77 2.06 794.18 0.00
Average 0 0.21 1.65 24.98 0.62 253.40 0.01
Median 0 0.15 1.82 20.73 0.48 85.23 0.00
High 0 0.55 4.00 103.77 2.06 794.18 0.16
Low 0 0.00 0.00 0.00 0.25 45.71 -0.17
ALL THRIFTS (327)
Average 358 0.25 1.33 19.98 0.65 89.87 0.08
MIDWEST THRIFTS (150)
Average 34 0.40 1.87 34.35 0.70 155.44 0.07
INDIANA THRIFTS (22)
Average 0 0.38 2.05 27.50 0.66 152.70 0.10
</TABLE>
<TABLE>
<CAPTION>
Net
Provisions/ 1 Year Total
Net Repricing Effective Assets/
Chargeoffs GapTax Rate Employee
(%) (%) (%) 0.00
<S> <C> <C> <C> <C>
SUBJECT
MADISON FIRST FEDERAL 0 NA 44.30 2,944
SAVINGS & LOAN ASSN.
COMPARABLE GROUP NM 9.07 33.44 4,172
FFWC FFW Corp. 193.48 NA 38.39 2,809
FBSI First Bancshares, Inc. 0.00 -2.83 -3.45 1,970
FFBI First Financial Bancorp, Inc. NM NA 37.38 4,097
GFCO Glenway Financial Corp. 380.77 -16.04 34.32 4,901
HALL Hallmark Capital Corp. NA NA 33.33 NA
HHFC Harvest Home Financial Corp. NA NA 39.82 NA
MFBC MFB Corp. NM 1.91 32.25 3,573
NBSI North Bancshares, Inc. NM NA 38.96 NA
SMFC Sho-Me Financial Corp. NM NA NM 3,341
SBCN Suburban Bancorporation, Inc.
191.42 -1.97 31.60 3,552
Average 193.48 -0.46 34.32 3,573
Median 380.77 9.07 39.82 4,901
High 0.00 -16.04 -3.45 1,970
Low
ALL THRIFTS (327) 99.11 -0.30 23.40 3,951
Average
MIDWEST THRIFTS (150) 224.21 -2.20 34.10 3,884
Average
INDIANA THRIFTS (22) 176.20 -1.41 35.16 3,532
</TABLE>
<PAGE>
Exhibit 53
KELLER & COMPANY
Columbus, Ohio
614-766-1426
COMPARABLE GROUP MARKET, PRICING AND FINANCIAL RATIOS
Stock Prices as of May 3, 1996
<TABLE>
<CAPTION>
Market Data Pricing Ratios
Price/ Price/ Price/
Market Price/ 12 Mo. Bk. Value Price/ Book Price/ Tang. Core
Value Share EPS /Share Earnings Value Assets Bk. Val.Earnings
($M) ($) ($) ($) (X) (%) (%) (%) (%)
-------------------------------------------------------------------------------
MADISON FIRST FEDERAL S & L ASSN.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Appraised value - midpoint 9.00 10.00 0.31 15.47 32.32 64.63 9.30 65.37 26.83
Minimum of range 7.65 10.00 0.34 16.69 29.28 59.91 8.02 60.66 24.04
Maximum of range 10.35 10.00 0.29 14.57 35.00 68.62 10.56 69.35 29.34
Superrange maximum 11.90 10.00 0.27 13.79 37.72 72.52 11.96 73.23 31.95
ALL THRIFTS (327)
Average 120.50 17.75 1.43 17.28 15.48 106.16 12.92 109.14 17.01
Median 37.05 16.13 1.35 16.55 13.14 99.60 11.35 101.63 14.50
INDIANA THRIFTS (22)
Average 37.12 16.76 1.90 17.09 15.17 104.78 13.53 107.19 22.22
Median 29.50 15.75 1.48 15.97 12.58 94.86 13.56 95.98 14.15
COMPARABLE GROUP (10)
Average 19.63 16.18 0.98 18.59 18.55 86.90 11.86 87.16 18.42
Median 21.38 15.69 0.97 18.26 17.00 88.09 10.77 88.19 17.35
COMPARABLE GROUP
FFWC FFW Corp. 14.60 19.75 1.57 21.72 12.58 90.93 10.26 90.93 11.10
FBSI First Bancshares, Inc. 21.48 16.50 0.90 18.26 18.33 90.36 15.29 90.56 18.54
FFBI First Financial Bancorp, Inc. 7.31 15.50 1.37 16.68 11.31 92.93 9.77 92.93 13.84
GFCO Glenway Financial Corp. 24.00 22.00 1.40 24.11 15.71 91.25 8.58 93.70 16.42
HALL Hallmark Capital Corp. 21.28 14.75 1.04 18.26 14.18 80.78 6.79 80.78 15.86
HHFC Harvest Home Financial Corp. 10.97 12.25 0.67 14.65 18.28 83.62 15.60 83.62 18.28
MFBC MFB Corp. 29.73 14.31 0.65 18.67 22.02 76.65 14.80 76.65 22.36
NBSI North Bancshares, Inc. 18.61 15.88 0.52 16.91 30.53 93.88 16.28 93.88 33.07
SMFC Sho-Me Financial Corp. 26.15 15.88 1.11 19.18 14.30 82.77 9.91 82.77 15.26
SBCN Suburban Bancorporation, Inc. 22.21 15.00 0.53 17.48 28.30 85.81 11.27 85.81 19.48
</TABLE>
<TABLE>
<CAPTION>
Dividends Financial Ratios
Div./ Dividend Payout Equity/
Share Yield Ratio Assets ROA ROE
($) (%) (%) (%) (%) (%)
- -----------------------------------------------------------------------------------------------
MADISON FIRST FEDERAL S & L ASSN.
<S> <C> <C> <C> <C> <C> <C>
Appraised value - midpoint 0.00 0.00 0.00 14.40 0.29 2.00
Minimum of range 0.00 0.00 0.00 13.39 0.27 2.05
Maximum of range 0.00 0.00 0.00 15.39 0.30 1.96
Superrange maximum 0.00 0.00 0.00 16.49 0.32 1.92
ALL THRIFTS (327)
Average 0.37 1.81 29.76 12.78 0.87 8.21
Median 0.34 1.95 23.08 10.69 0.88 7.70
INDIANA THRIFTS (22)
Average 0.38 2.05 27.50 13.52 1.03 9.60
Median 0.40 2.12 29.94 11.70 0.97 7.14
COMPARABLE GROUP (10)
Average 0.21 1.65 24.98 13.68 0.70 5.21
Median 0.15 1.82 20.73 12.50 0.74 5.25
COMPARABLE GROUP
FFWC FFW Corp. 0.47 2.43 29.94 11.28 0.87 7.67
FBSI First Bancshares, Inc. 0.20 1.21 22.22 16.92 0.79 4.42
FFBI First Financial Bancorp, Inc. 0.00 0.00 0.00 10.51 0.88 8.05
GFCO Glenway Financial Corp. 0.50 3.09 35.85 9.41 0.56 5.86
HALL Hallmark Capital Corp. 0.00 0.00 0.00 8.40 0.56 5.74
HHFC Harvest Home Financial Corp. 0.26 3.27 38.81 18.65 0.88 4.75
MFBC MFB Corp. 0.00 0.00 0.00 19.31 0.69 3.40
NBSI North Bancshares, Inc. 0.10 2.52 19.23 17.34 0.57 2.98
SMFC Sho-Me Financial Corp. 0.00 0.00 0.00 11.98 0.83 6.26
SBCN Suburban Bancorporation, Inc. 0.55 4.00 103.77 13.01 0.39 2.95
</TABLE>
<PAGE>
Exhibit 54
KELLER & COMPANY
Columbus, Ohio
614-766-1426
VALUATION ANALYSIS AND CONCLUSIONS
River Valley Bancorp/Madison First Federal S & L Assn.
Stock Prices as of May 3, 1996
<TABLE>
<CAPTION>
Valuation assumptions: Comparable Group All Thrifts
Symbol Value Average Median Average Median
---------- ---------------- -------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Post conv. price to earnings P/E 32.32 18.55 17.00 15.48 13.14
Post conv. price to book value P/B 64.63% 86.90% 88.09% 106.16% 99.60%
Post conv. price to assets P/A 9.30% 11.86% 10.77% 12.92% 11.35%
Post conv. price to core earnings P/E 26.83 18.42 17.35 17.01 14.50
Pre conversion earnings ($) Y$ 176,000
Pre conversion book value ($) B$ 6,599,000
Pre conversion assets ($) A$88,307,000
Pre conversion core earnings ($)$ 233,000
Conversion expense ($) X$592,000
Proceeds not reinvested ($) Z$720,000
ESOP borrowings ($) E$720,000
ESOP cost of borrowings, net (%) S 6.11%
ESOP term of borrowings (yrs.) T 7
RRP amount ($) M$360,000
RRP expense ($) N$72,000
Tax rate (%) TAX 40.00%
Investment rate of return, net (%) R 3.27%
Investment rate of return, pretax (%) 5.45%
Formulae to indicate value after conversion:
$ 9,001,125
1-(P/E)R
= $ 9,002,091
1-P/B
= $ 8,998,428
1-P/A
VALUATION CORRELATION AND CONCLUSIONS:
Number of Price TOTAL
Shares Per Share VALUE
Appraised value - midrange 900,000 $10.00 $ 9,000,000
Minimum - 85% of midrange 765,000 $10.00 $ 7,650,000
Maximum - 115% of midrange 1,035,000 $10.00 $ 10,350,000
Superrange - 115% of maximum 1,190,250 $10.00 $ 11,902,500
</TABLE>
<PAGE>
Exhibit 55
KELLER & COMPANY
Columbus, Ohio
614-766-1426
<TABLE>
<CAPTION>
PROJECTED EFFECT OF CONVERSION PROCEEDS
River Valley Bancorp/Madison First Federal S & L Assn.
At the MINIMUM of the Range
1 Gross Conversion Proceeds
<S> <C> <C>
Minimum market value $ 7,650,000
Less: Estimated conversion expenses 561,000
Net conversion proceeds $ 7,089,000
2 Generation of Additional Income
Net conversion proceeds $ 7,089,000
612,000
Total conversion proceeds invested $ 6,477,000
Investment rate 3.27%
Earnings increase - return on proceeds invested $ 211,798
Less: Estimated cost of ESOP borrowings 37,393
Less: Amortization of ESOP borrowings, net of taxes 52,457
Less: RRP expense, net of taxes 36,720
Net earnings increase $ 85,228
3 Comparative Earnings
Regular Core
Before conversion - 12 months ended 03/31/96 $ 176,000 233,000
Net earnings increase 85,228 85,228
After conversion $ 261,228 318,228
4
Before conversion - 03/31/96 $ 6,599,000
Conversion proceeds 6,171,000
After conversion $ 12,770,000
5 Comparative Net Assets
Before conversion - 03/31/96 $ 88,307,000
Conversion proceeds 7,089,000
After conversion $ 95,396,000
(1) Represents ESOP borrowings.
(2) ESOP borrowings and RRP are omitted from net worth.
</TABLE>
<PAGE>
Exhibit 56
KELLER & COMPANY
Columbus, Ohio
614-766-1426
PROJECTED EFFECT OF CONVERSION PROCEEDS
River Valley Bancorp/Madison First Federal S & L Assn.
At the MIDPOINT of the Range
<TABLE>
<CAPTION>
1 Gross Conversion Proceeds
<S> <C>
Midpoint market value $ 9,000,000
Less: Estimated conversion expenses 592,000
Net conversion proceeds $ 8,408,000
2 Generation of Additional Income
Net conversion proceeds $ 8,408,000
720,000
Total conversion proceeds invested $ 7,688,000
Investment rate of return 3.27%
Earnings increase - return on proceeds invested $ 251,398
Less: Estimated cost of ESOP borrowings 43,992
Less: Amortization of ESOP borrowings, net of taxes 61,714
Less: RRP expense, net of taxes 43,200
Net earnings increase $ 102,491
</TABLE>
<TABLE>
<CAPTION>
3 Comparative Earnings
Regular Core
<S> <C> <C> <C>
Before conversion - 12 months ended 03/31/96 $ 176,000 233,000
Net earnings increase 102,491 102,491
After conversion $ 278,491 335,491
4
Before conversion - 03/31/96 $ 6,599,000
Conversion proceeds 7,328,000
After conversion $ 13,927,000
5 Comparative Net Assets
Before conversion - 03/31/96 $ 88,307,000
Conversion proceeds 8,408,000
After conversion $ 96,715,000
</TABLE>
(1) Represents ESOP borrowings.
(2) ESOP borrowings and RRP are omitted from net worth.
<PAGE>
Exhibit 57
KELLER & COMPANY
Columbus, Ohio
614-766-1426
PROJECTED EFFECT OF CONVERSION PROCEEDS
River Valley Bancorp/Madison First Federal S & L Assn.
At the MAXIMUM of the Range
<TABLE>
<CAPTION>
1 Gross Conversion Proceeds
<S> <C>
Maximum market value $ 10,350,000
Less: Estimated conversion expenses 623,000
Net conversion proceeds $ 9,727,000
2 Generation of Additional Income
Net conversion proceeds $ 9,727,000
828,000
Total conversion proceeds invested $ 8,899,000
Investment rate 3.27%
Earnings increase - return on proceeds invested $ 290,997
Less: Estimated cost of ESOP borrowings 50,591
Less: Amortization of ESOP borrowings, net of taxes 70,971
Less: RRP expense, net of taxes 49,680
Net earnings increase $ 119,755
</TABLE>
<TABLE>
<CAPTION>
3 Comparative Earnings
Regular Core
<S> <C> <C> <C>
Before conversion - 12 months ended 03/31/96 $ 176,000 233,000
Net earnings increase 119,755 119,755
After conversion $ 295,755 352,755
4
Before conversion - 03/31/96 $ 6,599,000
Conversion proceeds 8,485,000
After conversion $ 15,084,000
5 Comparative Net Assets
Before conversion - 03/31/96 $ 88,307,000
Conversion proceeds 9,727,000
After conversion $ 98,034,000
</TABLE>
(1) Represents ESOP borrowings.
(2) ESOP borrowings and RRP are omitted from net worth.
<PAGE>
Exhibit 58
KELLER & COMPANY
Columbus, Ohio
614-766-1426
PROJECTED EFFECT OF CONVERSION PROCEEDS
River Valley Bancorp/Madison First Federal S & L Assn.
At the SUPERRANGE Maximum
<TABLE>
<CAPTION>
1 Gross Conversion Proceeds
<S> <C>
Superrange market value $ 11,902,500
Less: Estimated conversion expenses 660,000
Net conversion proceeds $ 11,242,500
2 Generation of Additional Income
Net conversion proceeds $ 11,242,500
952,200
Total conversion proceeds invested $ 10,290,300
Investment rate 3.27%
Earnings increase - return on proceeds invested $ 336,493
Less: Estimated cost of ESOP borrowings 58,179
Less: Amortization of ESOP borrowings, net of taxes 81,617
Less: RRP expense, net of taxes 57,132
Net earnings increase $ 139,564
</TABLE>
<TABLE>
<CAPTION>
3 Comparative Earnings
Regular Core
<S> <C> <C> <C>
Before conversion - 12 months ended 03/31/96 $ 176,000 233,000
Net earnings increase 139,564 139,564
After conversion $ 315,564 372,564
4
Before conversion - 03/31/96 $ 6,599,000
Conversion proceeds 9,814,200
After conversion $ 16,413,200
5 Comparative Net Assets
Before conversion - 03/31/96 $ 88,307,000
Conversion proceeds 11,242,500
After conversion $ 99,549,500
</TABLE>
(1) Represents ESOP borrowings.
(2) ESOP borrowings and RRP are omitted from net worth.
<PAGE>
Exhibit 59
KELLER & COMPANY
Columbus, Ohio
614-766-1426
SUMMARY OF VALUATION PREMIUM OR DISCOUNT
<TABLE>
<CAPTION>
Premium or (discount)
from comparable group.
Madison First Federal
Midpoint:
<S> <C> <C> <C>
Price/earnings 32.32 x 74.18% 90.15%
Price/book value 64.63 (25.63%) (26.63%)
Price/assets 9.30 % (21.52%) (13.57%)
Price/tangible book value 65.37 % (25.00%) (25.87%)
Price/core earnings 26.83 x 45.63% 54.62%
Minimum of range:
Price/earnings 29.28 x 57.84% 72.31%
Price/book value 59.91 (31.06%) (31.99%)
Price/assets 8.02 % (32.36%) (25.51%)
Price/tangible book value 60.66 % (30.40%) (31.21%)
Price/core earnings 24.04 x 30.50% 38.56%
Maximum of range:
Price/earnings 35.00 x 88.61% 105.91%
Price/book value 68.62 (21.04%) (22.10%)
Price/assets 10.56 % (10.94%) (1.93%)
Price/tangible book value 69.35 % (20.44%) (21.36%)
Price/core earnings 29.34 x 59.28% 69.11%
Super maximum of range:
Price/earnings 37.72 x 103.29% 121.94%
Price/book value 72.52 (16.55%) (17.67%)
Price/assets 11.96 % 0.86% 11.07%
Price/tangible book value 73.23 % (15.99%) (16.96%)
Price/core earnings 31.95 x 73.43% 84.14%
</TABLE>
* Represents pricing ratio associated with primary valuation method.
<PAGE>
Exhibit 60
KELLER & COMPANY
Columbus, Ohio
614-766-1426
MADISON FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION/
CITIZENS NATIONAL BANK OF MADISON
Unaudited Pro Forma Consolidated Condensed
Combined Statements of Financial Condition
<TABLE>
<CAPTION>
Pro Forma
Madison Conversion Acquisition Consolidated
First Adjustments Adjustments Condensed Applicable
Federal Citizens Dr. (Cr.) Dr. (Cr.) Combined Footnotes
(In thousands)
ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 8,757 $ 5,835 $ 4,328 $ (3,075) $ 15,845 0
Investment securities 9,959 4,619 14,578 (2)
Mortgage-backed securities 9,146 3,429 12,575 (2)
Loans receivable, net 57,393 41,588 98,981
Goodwill 147 575 722 0
Other Assets 2,905 2,584 (90) 5,399 0
Total Assets $ 88,307 $ 58,055 $ 4,328 $ (2,590) $ 148,100
LIABILITIES:
Total deposits $ 79,254 $ 52,748 $ 3,000 $ $ 129,002 0
FHLB advances 2,000 1,500 3,500
Other liabilities 454 362 (683) 1,499 (5)
Minority interest in consolidated 0
subsidiary (172) 172 (4)
Total Liabilities $ 81,708 $ 54,610 $ 3,000 $ (855) $ 134,173
STOCKHOLDERS' EQUITY:
Common stock $ $ 1,008 $ $ 1,008 $ 0 0
Paid in excess 1,657 (8,408) 1,657 8,408 0
ESOP 720 (720) 0
RRP 360 (360) 0
Retained earnings 6,626 831 831 6,626 0
Unrealized gains (losses) (27) (51) (51) (27) (2)
Total Stockholders' Equity $ 6,599 $ 3,445 $ (7,328) $ 3,445 $ 13,927
Total Liabilities and
Stockholders' Equity $ 88,307 $ 58,055 $ (4,328) $ 2,590 $ 148,100
</TABLE>
Exhibit 61
KELLER & COMPANY
Columbus, Ohio
614-766-1426
MADISON FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION/
CITIZENS NATIONAL BANK OF MADISON
Unaudited Pro Forma Consolidated Condensed Combined Statements of Operations
For the Three Months Ended March 31, 1996
<TABLE>
<CAPTION>
Pro Forma
Conversion Acquisition Combined After
Madison First Adjustments Adjustments Conversion and Applicable
Federal Citizens Dr. (Cr.) Dr. (Cr.) Acquisition Footnotes
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 1,459 $ 1,070 $ (18) $ 2,547 (1)
Interest expense 890 573 (39) 1,424 (1)
Net interest income 569 497 (57) 1,123
Provision for loan losses 6 150 156
Net interest income after 0
provision for loan losses 563 347 (57) 967
Non-interest income 108 152 260
Non-interest expense 553 461 45 (38) 1,021 (2)
Net income (loss) before taxes 118 38 (12) (38) 206
Income tax expense 54 16 5 15 90 (3)
Net income (loss) $ 64 $ 22 $ (7) (23) $ 116
</TABLE>
Unaudited Pro Forma Consolidated Condensed Combined Statements of Operations
For the Twelve Months Ended December 31, 1995
<TABLE>
<CAPTION>
Pro Forma
Conversion Acquisition Combined After
Madison First Adjustments Adjustments Conversion and Applicable
Federal Citizens Dr. (Cr.) Dr. (Cr.) Acquisition Footnotes
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 5,794 $ 3,695 $ (71) $ $ 9,560 (1)
Interest expense 3,594 1,820 (156) 5,258 (1)
Net interest income 2,200 1,875 (227) 0 4,302
Provision for loan losses 150 104 254
Net interest income after 0
provision for loan losses 2,050 1,771 (227) 0 4,048
Non-interest income 362 563 925
Non-interest expense 1,966 1,769 180 (150) 3,765 (2)
Net income (loss) before taxes 446 565 (47) (150) 1,208
Income tax expense 188 223 19 60 490 (3)
Net income (loss) $ 258 $ 342 $ (28) $ (90) $ 718
</TABLE>
<PAGE>
1
EXHIBIT 22
PROFILE OF THE FIRM
KELLER & COMPANY, INC. is a full service consulting firm to financial
institutions, serving clients throughout the United States from its
offices in Columbus, Ohio. The firm consults primarily in the areas of
regulatory and compliance matters, financial analysis and strategic
planning, stock valuation and appraisal, mergers and acquisitions, mutual
to stock conversions, conversion/mergers and branching. Since its
inception in 1985, KELLER & COMPANY has provided a wide range of
consulting services to over 80 financial institutions including thrifts,
banks, mortgage companies and holding companies. KELLER & COMPANY is an
affiliate member of the Savings & Community Bankers of America, the Ohio
Savings and Loan League, and the Tri State League of Financial
Institutions.
Each of the firm's senior consultants has over twenty years front line
experience and accomplishment in various areas of the thrift, banking, and
real estate industries. Each consultant provides to clients distinct and
diverse areas of expertise. Specific services and projects have included
charter and insurance applications, market studies, institutional mergers
and acquisitions, branch sales and acquisitions, operations and
performance analyses, business plans, strategic planning, financial
projection and modeling, stock valuation, fairness opinions, capital
plans, policy development and revision, lending, underwriting and
investment criteria, data processing and management information systems,
and incentive compensation programs.
It is the goal of KELLER & COMPANY to provide specific and ongoing
services that are pertinent and responsive to the needs of the individual
client institution within the changing industry environment, and to offer
those services at reasonable fees on a timely basis. In recent years,
KELLER & COMPANY has become one of the leading consulting firms in the
nation.
CONSULTANTS IN THE FIRM
MICHAEL R. KELLER has over eighteen years experience as a consultant to
the financial institution industry. Immediately following his graduation
from college, he was employed by the Ohio Division of Savings and Loan
Associations, working for two years in the northeastern Ohio district as
an examiner of thrift institutions before pursuing graduate studies at the
Ohio State University.
Mr. Keller later worked as an associate for a management consulting firm
specializing in services to thrift institutions. During his eight years
with the firm, he specialized in mergers and acquisitions, branch
acquisitions and sales, branch feasibility studies, stock valuations,
charter applications, and site selection analyses. By the time of his
departure, he had attained the position of vice president, with experience
in almost all facets of thrift operations.
Prior to forming Keller & Company, Mr. Keller also worked as a senior
consultant in a larger consulting firm. In that position, he broadened his
activities and experience, becoming more involved with institutional
operations, business and strategic planning, regulatory policies and
procedures, conversion appraisals, and fairness opinions. Mr. Keller
established the firm in November, 1985 to better serve the needs of the
financial institution industry.
Mr. Keller graduated from Wooster College with a B.A. in Economics in
1972, and later received an M.B.A. in Finance in 1976 from the Ohio State
University where he took two courses in corporate stock valuations.
<PAGE>
Consultants in the Firm (cont.)
JOHN A. SHAFFER has over twenty years experience in banking, finance, real
estate lending, and development.
From 1971 to 1974, Mr. Shaffer was employed by a large real estate
investment trust as a lending officer, specializing in construction and
development loans. By 1974, having gained experience in loan underwriting,
management and workout, he joined Chemical Association of New York and was
appointed Vice President for Loan Administration of Chemical Mortgage
Company in Columbus, Ohio. At Chemical, he managed all commercial and
residential loan servicing, administering a portfolio in excess of $1
billion. His responsibilities also included the analysis, management and
workout of problem commercial loans and properties, and the structuring,
negotiation, acquisition and sale of loan servicing and mortgage and
equity securities.
Mr. Shaffer later formed an independent real estate and financial
consulting firm, serving corporate and institutional clients, and also
investing in and developing real estate. His primary activities have
included the planning, analysis, financing, implementation, and
administration of real estate projects, as well as financial projection
and modeling, cost and profit analysis, loan management, budgeting, cash
flow management and project design.
Mr. Shaffer graduated from Syracuse University with a B.S. in Business
Administration, later receiving an M.B.A. in Finance and a Ph.D. in
Economics from New York University.
<PAGE>
Consultants in the Firm (cont.)
JOHN S. KORTING has eighteen years experience in the financial institution
industry working in such areas as data processing, software design,
strategic planning, productivity improvement, cash management, incentive
compensation planning, asset and liability management and organizational
planning.
Mr. Korting began his career with Huntington Bank, Columbus, Ohio, in 1976
as manager of the accounting department in the Bank's operations area,
focusing on system analysis for automated teller machines and electronic
funds transfer. Mr. Korting then became a system engineer with Electronic
Data Systems, Dallas, Texas, providing computer programming and
implementation support. He then served as a senior consultant with two big
eight accounting firms, Deloitte & Touche and Price Waterhouse. He worked
on a wide variety of financial institution projects, including strategic
planning, Federal Home Loan Bank business plans, financial analysis,
computer, installations, computerized financial modeling, and Bank
operations.
John Korting graduated from the Ohio State University with a B.S. in
Accounting and Computer Science in 1976.
<PAGE>
EXHIBIT B
RB 20
CERTIFICATION
I hereby certify that I have not been the subject of any criminal, civil or
administrative judgments, consents, undertakings or orders, or any past or
ongoing indictments, formal investigations, examinations, or administrative
proceedings (excluding routine or customary audits, inspections and
investigations) issued by any federal or state court, any department, agency, or
commission of the U.S. Government, any state or municipality, any
self-regulatory trade or professional organization, or any foreign government or
governmental entity, which involve:
(i) commission of a felony, fraud, moral turpitude, dishonesty or breach
of trust;
(ii) violation of securities or commodities laws or regulations;
(iii) violation of depository institution laws or regulations;
(iv) violation of housing authority laws or regulations;
(v) violation of the rules, regulations, codes of conduct or ethics of a
self-regulatory trade or professional organization;
(vi) adjudication of bankruptcy or insolvency or appointment of a receiver,
conservator, trustee, referee, or guardian.
I hereby certify that the statements I have made herein are true, complete, and
correct to the best of my knowledge and belief.
Conversion Appraiser
May 16, 1996 /s/ Michael R. Keller
- ----------------------------------------------- ---------------------
Date Michael R. Keller
<PAGE>
EXHBIT C
AFFIDAVIT OF INSURANCE
STATE OF OHIO,
COUNTY OF FRANKLIN, ss:
I, Michael R. Keller, being first duly sworn, hereby depose and say that:
The fee which I received directly from the applicant, Madison First Federal
Savings and Loan Association, Madison, Indiana, in the amount of $17,000 for the
performance of my appraisal was not related to the value determined in the
appraisal; that the undersigned appraiser is independent and has fully disclosed
to the Office of Thrift Supervision any relationships which may have a material
bearing upon the question of my independence; and that any indemnity agreement
with the applicant has been fully disclosed in a written statement to the Office
of Thrift Supervision.
Further, affiant sayeth naught.
/s/ Michael R. Keller
MICHAEL R. KELLER
Sworn to before me and subscribed in my presence this 17th day of May,
1996.
/s/ Molly A. Decker
NOTARY PUBLIC
[notary stamp]
