<PAGE>
As filed with the Securities and Exchange Commission on October 8, 1996
Registration No. 333-11211
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
PRE-EFFECTIVE AMENDMENT NO. ONE TO FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
PS FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 6035 36-4101473
(State or other jurisdiction of incorporation (Primary Standard Industrial (I.R.S. Employer Identification No.)
or organization) Classification Code Number)
</TABLE>
4800 South Pulaski Road, Chicago, Illinois 60632 (312)376-3800
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
--------------------
Kimberly P. Rooney, President and Chief Executive Officer
PS Financial, Inc.
4800 South Pulaski Road
Chicago, Illinois 60632
(312)376-3800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
Please send copies of all communications to:
Kip A. Weissman, P.C.
SILVER, FREEDMAN & TAFF, L.L.P.
(A limited liability partnership including professional corporations)
1100 New York Avenue, N.W.
Seventh Floor, East Tower
Washington, DC 20005
(202) 414-6100
--------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
^
^
^
<PAGE>
Prospectus
[LOGO]
PS FINANCIAL, INC.
(Proposed Holding Company for Preferred Savings Bank)
$10.00 Per Share
1,897,500 Shares of Common Stock
(Anticipated Maximum)
PS Financial, Inc. (the "Holding Company") is offering up to 1,897,500
shares of common stock, par value $0.01 per share (the "Common Stock"), in
connection with the conversion of Preferred Savings Bank ("Preferred Savings" or
the "Bank") from a federally chartered mutual savings bank to a federally
chartered stock savings bank and the issuance of all of Preferred Savings
outstanding stock to the Holding Company (the "Conversion"). Pursuant to the
Bank's plan of conversion (the "Plan of Conversion" or the "Plan"),
non-transferable rights to subscribe for the Common Stock ("Subscription
Rights") have been given to (i) Preferred Savings' depositors with account
balances of $50 or more as of March 31, 1995 ("Eligible Account Holders"), (ii)
tax-qualified employee plans of Preferred Savings and the Holding Company
("Tax-Qualified Employee Plans"), provided, however, that the Tax-Qualified
Employee Plans shall have first priority Subscription Rights to the extent that
the total number of shares of Common Stock sold in the Conversion exceeds the
maximum of the Estimated Valuation Range as defined below, (iii) Preferred
Savings' depositors with account balances of $50 or more as of September 30,
1996 ("Supplemental Eligible Account Holders"), (iv) certain of its other
members ("Other Members"), and (v) its employees, officers and directors (the
"Subscription Offering").(continued on next page)
FOR INFORMATION ON HOW TO SUBSCRIBE, CALL THE STOCK
INFORMATION CENTER AT (312) ___-____.
FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED,
SEE "RISK FACTORS" AT PAGE __.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION OR THE FEDERAL DEPOSIT
INSURANCE CORPORATION, NOR HAS SUCH COMMISSION, OFFICE OR CORPORATION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON
STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY.
<TABLE>
<CAPTION>
===================================================================================================================================
Estimated Underwriting Fees Estimated Net
Purchase Price(1) Commissions and Other Expenses(2) Conversion Proceeds(3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share(4).................................... $10.00 $.32 $9.68
- -----------------------------------------------------------------------------------------------------------------------------------
Minimum Total................................... $14,025,000 $489,000 $13,536,000
- -----------------------------------------------------------------------------------------------------------------------------------
Midpoint Total.................................. $16,500,000 $520,000 $15,980,000
- -----------------------------------------------------------------------------------------------------------------------------------
Maximum Total................................... $18,975,000 $552,000 $18,423,000
- -----------------------------------------------------------------------------------------------------------------------------------
Maximum Total, As Adjusted(5)................... $21,821,250 $588,000 $21,233,000
===================================================================================================================================
</TABLE>
<PAGE>
- ----------------------
(1) Determined on the basis of an appraisal prepared by Keller & Company, Inc.
("Keller") dated August __, 1996, which states that the estimated pro forma
market value of the Common Stock ranged from $14,025,000 to $18,975,000 or
between 1,402,500 shares and 1,897,500 shares, of Common Stock at $10.00
per share. See "The Conversion - Stock Pricing and Number of Shares to be
Issued."
(2) Consists of the estimated costs to the Bank and the Holding Company arising
from the Conversion, including the payment to Charles Webb & Company, a
Division of Keefe, Bruyette & Woods, Inc. (" Webb") of estimated expenses
of $40,000 and estimated sales commissions ranging from $195,000 (at the
minimum) to $270,000 (at the maximum) in connection with the sale of shares
in the Offering. Such fees may be deemed to be underwriting fees. See "Use
of Proceeds" and "Pro Forma Data" for the assumptions used to arrive at
these estimates. The Holding Company has agreed to indemnify Webb against
certain liabilities, including liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"). See "The Conversion - Marketing
Arrangements" for a more detailed description of underwriting fees and
expenses.
(3) Net Conversion proceeds may vary from the estimated amounts, depending on
the Purchase Price, the number of shares issued and the number of shares
sold subject to commissions. The Purchase Price and the actual number of
shares of Common Stock to be issued in the Conversion will not be
determined until after the close of the Offering.
(4) Assumes the sale of the midpoint number of shares. If the minimum, maximum
or 15% above the maximum number of shares are sold, estimated expenses per
share would be $.35, $.28 or $.27, respectively, resulting in estimated net
Conversion proceeds per share of $9.65, ^ $9.71 or $9.73, respectively.
(5) As adjusted to give effect to the sale of up to an additional 284,625
shares (15% above the maximum of the Estimated Valuation Range) which may
be offered in the Conversion without the resolicitation of subscribers or
any right of cancellation, to reflect changes in market and financial
conditions following the commencement of the Offering. See "Pro Forma
Data," and "The Conversion - Stock Pricing and Number of Shares to be
Issued."
Charles Webb & Company
A Division of Keefe, Bruyette & Woods, Inc.
The date of this Prospectus is _______________, 1996
<PAGE>
(continued from prior page)
Subscription Rights are non-transferrable. Persons found to be selling or
otherwise transferring their right to purchase stock in the Subscription
Offering or purchasing Common Stock on behalf of another person will be subject
to forfeiture of such rights and possible further sanctions and penalties
imposed by the Office of Thrift Supervision (the "OTS"), an agency of the United
States Government. Subject to the prior rights of holders of Subscription Rights
and to market conditions, the Holding Company may also offer the Common Stock
for sale through Webb in a public offering to selected persons to whom this
prospectus is delivered (the "Public Offering" and when referred to together
with the Subscription Offering, the "Offering"). Depending on market conditions
and availability of shares, the shares of Common Stock may be offered for sale
in the Public Offering on a best-efforts basis by a selling group of selected
broker-dealers to be managed by Webb. The Bank and the Holding Company reserve
the right, in their absolute discretion, to accept or reject, in whole or in
part, any or all orders in the Public Offering.
The total number of shares to be issued in the Conversion will be based
upon an appraised valuation of the estimated aggregate pro forma market value of
the Holding Company and the Bank as converted. The purchase price per share
("Purchase Price") has been fixed at $10.00. Based on the current aggregate
valuation range of $14,025,000 to $18,975,000 (the "Estimated Valuation Range"),
the Holding Company is offering up to 1,897,500 shares. Depending upon the
market and financial conditions at the time of the completion of the Public
Offering, if any, the total number of shares to be issued in the Conversion may
be increased or decreased from the _________ shares offered hereby, provided
that the product of the total number of shares multiplied by the price per share
remains within, or does not exceed by more than 15% the maximum of the Estimated
Valuation Range. If the aggregate Purchase Price of the Common Stock sold in the
Conversion is below $14,025,000 or above $21,821,250, or if the Offering is
extended beyond __________________, subscribers will be permitted to modify or
cancel their subscriptions and to have their subscription funds returned
promptly with interest. Under such circumstances, if subscribers take no action,
their subscription funds will be promptly returned to them with interest. In all
other circumstances, subscriptions are irrevocable by subscribers. See "The
Conversion - Offering of Holding Company Common Stock."
With the exception of the Tax-Qualified Employee Plans, no Eligible Account
Holder, Supplemental Eligible Account Holder or Other Member may purchase in
their capacity as such in the Subscription Offering more than $150,000 of Common
Stock; no person, together with associates of and persons acting in concert with
such person, may purchase more than $150,000 of Common Stock in the Public
Offering and no person, together with associates of and persons acting in
concert with such person, may purchase more than $900,000 of Common Stock
offered in the Conversion based on the Estimated Valuation Range (as calculated
without giving effect to any increase in the Estimated Valuation Range
subsequent to the date hereof). Under certain circumstances, the maximum
purchase limitations may be increased or decreased at the sole discretion of the
Bank and the Holding Company up to 9.99% of the total number of shares of Common
Stock sold in the Conversion or to one percent of shares of Common Stock offered
in the Conversion. The minimum purchase is 25 shares. See "The Conversion -
Additional Purchase Restrictions." The Bank and the Holding Company have engaged
Webb as financial advisor and agent to consult, advise and assist in the
distribution of shares of Common Stock, on a best-efforts basis in the Offering
including, if necessary, managing selected broker-dealers to assist in selling
stock in the Public Offering. For such services, Webb will receive a marketing
fee of 1.5% of the total dollar amount of Common Stock sold in the Conversion,
excluding purchases by directors, officers, employees and their immediate family
members, and the employee stock ownership and benefit plans of the Bank and the
Holding Company. If selected dealers are used, the selected dealers will receive
a fee estimated to be up to ^ 4.5% of the aggregate Purchase Price for all
shares of Common Stock sold in the Offering through such selected dealers. Such
fees may be deemed to be underwriting commissions. Webb and the selected dealers
may be deemed to be underwriters. See "The Conversion - Marketing Arrangements"
and "The Conversion - Offering of Holding Company Common Stock."
To subscribe for shares of Common Stock in the Subscription Offering, the
Holding Company must receive an order form and certification form, together with
full payment at $10.00 per share (or appropriate instructions authorizing a
withdrawal from a deposit account at the Bank) for all shares for which
subscription is made, at any office of the Bank, by noon, Chicago, Illinois
time, on _____________, 1996, unless the Subscription Offering is extended, at
the discretion of the Board of Directors, up to an additional 45 days with the
approval of the OTS, if necessary, but without additional notice to subscribers
(the "Expiration Date"). The date by which orders must be received in the Public
Offering, if any, will be set by the Holding Company at the time of such
offering provided that, if the Offering is extended beyond __________________,
each subscriber will have the right to modify or rescind his or her
subscription. Subscription funds will be returned promptly with interest to each
subscriber unless he or she affirmatively indicates otherwise. See "The
Conversion - Offering of Holding Company Common Stock." Subscriptions paid by
check, bank draft or money order will be placed in a segregated account at the
Bank and will earn interest at the Bank's passbook rate from the date of receipt
until completion or termination of the Conversion. Payments authorized by
withdrawal from deposit accounts at the Bank will continue to earn interest at
the contractual rate until the Conversion is completed or terminated; these
funds will be otherwise unavailable to the depositor until such time. 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.
The Holding Company has received preliminary approval to have the Common
Stock listed on the Nasdaq National Market under the symbol "____." Prior to
this offering there has not been a public market for the Common Stock, and there
can be no assurance that an active and liquid trading market for the Common
Stock will develop or that resales of the Common Stock can be made at or above
the Purchase Price. See "Market for Common Stock" and "The Conversion - Stock
Pricing and Number of Shares to be Issued."
2
<PAGE>
[MAP TO COME]
3
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by the de tailed information and Consolidated Financial
Statements appearing elsewhere herein.
PS Financial, Inc.
The Holding Company, PS Financial, Inc. was recently formed by
Preferred Savings under the laws of Delaware for the purpose of becoming a
savings and loan holding company which will own all of the outstanding capital
stock that Preferred Savings will issue in connection with the Conversion.
Immediately following the Conversion, the only significant assets of the Holding
Company will be the capital stock of Preferred Savings, a note evidencing the
Holding Company's loan to the ESOP and up to approximately 50% of the net
proceeds from the Conversion. See "Use of Proceeds." Upon completion of the
Conversion, the Holding Company's business initially will consist only of the
business of Preferred Savings. See "PS Financial, Inc."
Preferred Savings
General. Preferred Savings is a federally chartered mutual savings bank
headquartered in Chicago, Illinois. Preferred Savings was originally chartered
in 1891 as New City Savings and Loan Association. In 1969, the Bank changed its
name to Preferred Savings and Loan Association. In 1993 the Bank converted to a
state savings bank and changed its name to Preferred Savings Bank. And in August
1996, Preferred Savings converted to a federal charter. Preferred Savings
currently serves the financial needs of communities in its market area through
its office located at 4800 South Pulaski Road, Chicago, Illinois 60632-4195. Its
deposits are insured up to applicable limits by the Federal Deposit Insurance
Corporation ("FDIC"). At May 31, 1996, Preferred Savings had total assets of
$54.9 million, deposits of $41.9 million and total retained earnings of $12.0
million (or 21.9% of total assets).
Preferred Savings' business involves attracting deposits from the
general public and using such deposits, together with other funds, to originate
primarily one- to four-family residential mortgage and, to a much lesser extent,
multi-family, commercial real estate and consumer loans primarily in its market
area. At May 31, 1996, $26.2 million, or 71.8%, of the Bank's total loan
portfolio consisted of one-to four-family residential mortgage loans. The Bank
also invests in mortgage-backed and other securities and other permissible
investments. See "Business - Investment Activities - Securities" and "-
Mortgage-Backed and Related Securities."
Financial and operational highlights of the Bank include the following:
o Capital Strength. At May 31, 1996, the Bank had total equity of $12.0
million (21.9% of total assets) and substantially exceeded all of the
applicable regulatory capital requirements with tangible, core and
risk-based capital ratios of 22.1%, 22.1% and 57.1%, respectively.
Assuming on a pro forma basis that $16.5 million, the midpoint of the
Estimated Valuation Range, of shares were sold in the Conversion and
approximately 50% of the net proceeds were retained by the Holding
Company, as of May 31, 1996, the Bank's capital would have been $18.1
million (29.8% of assets). See "Pro Forma Regulatory Capital Analysis."
o Profitability. Preferred Savings recorded net income of $883,000 and
$1.0 million, respectively, and a return on assets of 1.74% and 1.96%,
respectively, for the years ended February 29, 1992 and February 28,
1993. The Bank recorded net income of $942,000 and a return on assets
of 1.83% for the ten months ended December 31, 1993, and net income of
$758,000 and $1.1 million, respectively, and a return on assets of
1.46% and 1.99%, respectively, for the years
4
<PAGE>
ended December 31, 1994 and 1995. For the five months ended May 31,
1996, the Bank had a net income of $440,000 which represents a return
on assets (annualized) of 1.94%. The Bank's net interest margin has
consistently exceeded its ratio of operating expense to average total
assets. During the five months ended May 31, 1996, the Bank's net
interest margin was 5.09% while its ratio of operating expense to
average total assets (annualized) was 1.56%, respectively.
In view of the Holding Company's very high post conversion capital
levels as well as its modest historical growth, the Holding Company's
ability to quickly leverage the conversion proceeds is likely to be
quite limited. Accordingly, for the near term, return on equity is
likely to decline from current levels.
o Interest Rate Sensitivity. The Bank's profitability, like that of most
financial institutions, is dependent to a large extent upon its net
interest income, which is the difference between its interest income
and interest expense. In managing its asset/liability mix, Preferred
Savings often, depending on the relationship between long and
short-term interest rates, market conditions and consumer preference,
places greater emphasis on maximizing its net interest margin than on
matching the interest rate sensitivity of its assets and liabilities.
At May 31, 1996, the Bank's liabilities anticipated to reprice within
one year exceeded its assets anticipated to similarly reprice by $25.8
million or 47.1% of assets. At May 31, 1996, the net value of the
Bank's portfolio equity was projected to decline by 14% and 32% if
there were instantaneous increases in interest rates of 200 and 400
basis points, respectively. See "Risk Factors - Interest Rate Risk
Exposure" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Asset/Liability Management."
o Core Deposits. Management believes that the "core" portions of the
Bank's regular savings and money market accounts can have a lower cost
and be more resistant to interest rate changes than certificate
accounts. Accordingly, the Bank uses customer service initiatives in an
attempt to maintain and expand these accounts. However, the Bank's
regular savings and money market accounts decreased $1.7 million from
fiscal 1994 to fiscal 1995. Management believes that most of this
outflow represents the most interest rate sensitive portion of such
accounts (indeed, a substantial portion of the outflow is believed to
have been reinvested into certificates of deposit at the Bank) and that
a majority of the remaining balance represents the less interest rate
sensitive portion thereof. At May 31, 1996, $21.6 million, or 51.6%, of
the Bank's total deposits^ consisted of regular savings and money
market accounts.
o Limited Recent Growth. The Bank's net loans have grown from $31.7
million at February 29, 1992 to $35.7 million at May 31, 1996. Over the
same period, the Bank's deposit growth has been limited. While the Bank
intends to increase its marketing efforts somewhat in order to
stimulate loan and deposit growth, in view of the high level of
competition in the Bank's market area and the absence of a branch
office network as well as an adjustable rate residential mortgage loan
product and secondary market activities, the Board believes that future
internal growth can be effectively sustained only at modest levels. See
"Pro Forma Income and Equity Data" and "Use of Proceeds."
The Conversion
The Offering is being made in connection with the conversion of Preferred
Savings from a federally chartered mutual savings bank to a federally chartered
stock savings bank and the formation of PS Financial, Inc. as the holding
company of Preferred Savings. The Conversion is subject to certain conditions,
including the prior approval of the Plan by the Bank's members at a Special
Meeting to be held on ____________, 1996. After the Conversion, the Bank's
current voting members (who
5
<PAGE>
include certain deposit account holders and borrowers) will have no voting
rights in Preferred Savings and will have no voting rights in the Holding
Company unless they become Holding Company stockholders. Eligible Account
Holders and Supplemental Eligible Account Holders, however, will have certain
liquidation rights in the Bank. See "The Conversion - Effects of Conversion to
Stock Form on Depositors and Borrowers of the Bank - Liquidation Rights."
The Offering. The shares of Common Stock to be issued in the Conversion
are being offered at a Purchase Price of $10.00 per share in the Subscription
Offering pursuant to nontransferable Subscription Rights in the following order
of priority: (i) Eligible Account Holders (i.e., depositors whose accounts in
the Bank totaled $50.00 or more on March 31, 1995); (ii) Tax-Qualified Employee
Plans; provided, however, that the Tax Qualified Employee Plans shall have first
priority Subscription Rights to the extent that the total number of shares of
Common Stock sold in the Conversion exceeds the maximum of the Estimated
Valuation Range; (iii) Supplemental Eligible Account Holders (i.e., depositors
whose accounts in the Bank totaled $50.00 or more on September 30, 1996); (iv)
Other Members (i.e., depositors of the Bank as of ___________, 1996); and (v)
employees, officers and directors of the Bank. Subscription Rights received in
any of the foregoing categories will be subordinated to the Subscription Rights
received by those in a prior category. Subscription Rights will expire if not
exercised by noon, Chicago, Illinois time, on _______________, 1996, unless
extended (the "Expiration Date").
Subject to the prior rights of holders of Subscription Rights and market
conditions at or near the completion of the Subscription Offering, any shares of
Common Stock not subscribed for in the Subscription Offering may be offered at
the same price in the Public Offering through Webb to selected persons to whom
this prospectus is delivered. To order Common Stock in connection with the
Public Offering, if any, an executed stock order and account withdrawal
authorization and certification must be received by Webb prior to the
termination of the Public Offering. The date by which orders must be received in
the Public Offering, if any, will be set by the Holding Company at the time of
such offering provided that if the Offering is extended beyond _______________,
1996, each subscriber will have the right to modify or rescind his or her
subscription. The Holding Company and the Bank reserve the absolute right to
accept or reject any orders in the Public Offering, in whole or in part.
If necessary, shares of Common Stock may also be offered in connection
with the Public Offering for sale on a best-efforts basis by selected dealers
managed by Webb. See "The Conversion - Public Offering."
The Bank and the Holding Company have engaged Webb to consult with and
advise the Holding Company and the Bank with respect to the Offering, and Webb
has agreed to solicit subscriptions and purchase orders for shares of Common
Stock in the Offering. Neither Webb nor any selected broker-dealers will have
any obligation to purchase shares of Common Stock in the Offering. Webb will
receive for its services a marketing fee of 1.5% of the total dollar amount of
Common Stock sold in the Conversion (excluding purchases by directors, officers,
employees and members of their immediate families and the employee benefit plans
of the Holding Company and for the Bank, and shares sold by selected
broker-dealers). To the extent selected broker-dealers are utilized in
connection with the sale of shares in the Public Offering, the selected dealers
will receive a fee of up to 4.5% and Webb will receive a fee of 1.0% of the
aggregate Purchase Price for all shares of Common Stock sold through such
broker-dealers. Webb will also receive certain expense reimbursements in
connection with the Offering. The Holding Company has agreed to indemnify Webb
against certain liabilities, including certain liabilities under the Securities
Act of 1933, as amended ("Securities Act"). See "The Conversion Marketing
Arrangements."
The Bank has established a Stock Information Center, which will be
managed by Webb, to coordinate the Offering, including tabulating orders and
answering questions about the Offering received
6
<PAGE>
by telephone. All subscribers will be instructed to mail payment to the Stock
Information Center or deliver payment directly to the Bank's office. Payment for
shares of Common Stock may be made by cash (if delivered in person), check or
money order or by authorization of withdrawal from deposit accounts maintained
with the Bank. Such funds will not be available for withdrawal and will not be
released until the Conversion is completed or terminated. See "The Conversion -
Method of Payment for Subscriptions."
Purchase Limitations. The Plan of Conversion places limitations on the
number of shares which may be purchased in the Conversion by various categories
of persons. With the exception of the Tax-Qualified Employee Plans, no Eligible
Account Holder, Supplemental Eligible Account Holder, Other Member or director,
officer or employee may purchase in their capacity as such in the Subscription
Offering more than $150,000 of Common Stock; no person, together with associates
of and persons acting in concert with such person, may purchase more than
$150,000 of Common Stock in the Public Offering; and no person or group of
persons acting in concert (other than the Tax-Qualified Employee Plans) may
purchase more than $900,000 of Common Stock in the Conversion. The minimum
purchase limitation is 25 shares of Common Stock. These purchase limits may be
increased or decreased consistent with the Office of Thrift Supervision ("OTS")
regulations at the sole discretion of the Holding Company and the Bank. See "The
Conversion - Offering of Holding Company Common Stock."
Restrictions on Transfer of Subscription Rights. Prior to the completion
of the Conversion, no person may transfer or enter 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. Persons found to be selling or otherwise transferring their
right to purchase stock in the Subscription Offering or purchasing Common Stock
on behalf of another person will be subject to forfeiture of such rights and
possible federal penalties and sanctions. See "The Conversion - Restrictions on
Transfer of Subscription Rights and Shares."
Stock Pricing and Number of Shares of Common Stock to be Issued in the
Conversion. The Purchase Price of the Common Stock is $10.00 per share and is
the same for all purchasers. The aggregate pro forma market value of the Holding
Company and Preferred Savings, as converted, was estimated by Keller, which is
experienced in appraising converting thrift institutions, to be the Estimated
Valuation Range. The Board of Directors has reviewed the Estimated Valuation
Range as stated in the appraisal and compared it with recent stock trading
prices as well as other recent pro forma market value estimates. The Board of
Directors has also reviewed the appraisal report, including the assumptions and
methodology utilized therein, and determined that it was not unreasonable.
Depending on market and financial conditions at the time of the
completion of the Offering, the total number of shares of Common Stock to be
issued in the Conversion may be increased or decreased significantly from the
1,897,500 shares offered hereby and the Purchase Price may be decreased.
However, subscribers will be permitted to modify or rescind their subscriptions
if the product of the total number of shares to be issued multiplied by the
price per share is less than $14,025,000 or more than $21,821,250. The appraisal
is not intended to be, and must not be interpreted as, a recommendation of any
kind as to the advisability of voting to approve the Conversion or of purchasing
shares of Common Stock. The appraisal considers Preferred Savings and the
Holding Company only as going concerns and should not be considered as any
indication of the liquidation value of Preferred Savings or the Holding Company.
Moreover, the appraisal is necessarily based on many factors which change from
time to time. There can be no assurance that persons who purchase shares in the
Conversion will be able to sell such shares at prices at or above the Purchase
Price. See "Pro Forma Data" and "The Conversion - Stock Pricing and Number of
Shares to be Issued" for a description of the manner in which such valuation was
made and the limitations on its use.
7
<PAGE>
Purchases by Directors and Executive Officers
The directors and executive officers of Preferred Savings intend to
purchase, for investment purposes and at the same price as the shares are sold
to other investors in the Conversion, approximately $950,000 of Common Stock, or
6.8%, 5.8% or 5.0% of the shares to be sold in the Conversion at the minimum,
midpoint and maximum of the Estimated Valuation Range, respectively. In
addition, an amount of shares equal to an aggregate of 8% of the shares to be
issued in the Conversion is anticipated to be purchased by the ESOP. See "The
Conversion - Participation by the Board and Executive Officers."
Potential Benefits of Conversion to Directors and Executive Officers
Employee Stock Ownership Plan. The Board of Directors of the Bank has
adopted an ESOP, a tax-qualified employee benefit plan for officers and
employees of the Holding Company and the Bank. The ESOP intends to buy up to 8%
of the Common Stock issued in the Conversion (approximately $1.1 million to $1.5
million of the Common Stock based on the issuance of the minimum and the maximum
of the Estimated Valuation Range and the $10.00 per share Purchase Price). The
ESOP will purchase the shares with funds borrowed from the Holding Company, and
it is anticipated that the ESOP will repay the loans through periodic
tax-deductible contributions from the Bank over a twelve-year period. These
contributions will increase the compensation expense of the Bank. See
"Management - Benefit Plans Employee Stock Ownership Plan" for a description of
this plan.
Stock Option and Incentive Plan and Recognition and Retention Plan. The
Board of Directors of the Holding Company intends to adopt a Stock Option and
Incentive Plan (the "Stock Option Plan") and a Recognition and Retention Plan
("RRP") to become effective upon ratification by stockholders following the
Conversion. Certain of the directors and executive officers of the Holding
Company and the Bank will receive awards under these plans. It is currently
anticipated that an amount of shares equal to 10% and 4% of the shares sold in
the Conversion will be reserved for issuance under the Stock Option Plan and
RRP, respectively. Depending upon market conditions in the future, the Holding
Company may purchase shares in the open market to fund these plans. See
"Management - Benefit Plans" for a description of these plans.
Under the proposed Stock Option Plan, it is presently intended that the
directors and executive officers be granted options to purchase, in addition to
the shares to be issued in the Conversion, an amount of shares equal to 8.3% of
the shares sold in the Conversion (or 116,407 and 157,492 shares, respectively,
of Common Stock based on the minimum and maximum of the Estimated Valuation
Range) at an exercise price equal to the market value per share of the Common
Stock on the date of grant. Such options will be awarded at no expense to the
recipients and pose no financial risk to the recipients until exercised. It is
presently anticipated that Kimberly P. Rooney, President and Chief Executive
Officer, will each receive an option to purchase an amount of shares equal to
2.5% of the shares sold in the Conversion (or 35,063 and 47,438 shares, assuming
the minimum and maximum of the Estimated Valuation Range). See "Management -
Benefit Plans - Stock Option and Incentive Plan."
The award and exercise of options pursuant to the Stock Option Plan will
not result in any expense to the Holding Company; however, when the options are
exercised, the per share earnings and book value of existing stockholders will
likely be diluted.
It is also intended that directors and executive officers be granted
(without any requirement of payment by the grantee) an amount of shares of
restricted stock awards equal to 3.35% of the shares sold in the Conversion (or
46,984 and 63,566 shares, respectively, based on the minimum and maximum of the
Estimated Valuation Range) which will vest over five years commencing one year
from stockholder
8
<PAGE>
ratification and which will have a total value of $518,930 and $702,080 based on
the Purchase Price of $10.00 per share at the minimum and maximum of the
Estimated Valuation Range, respectively. It is presently anticipated that
President Rooney and Chairman Ptak each will receive a restricted stock award
equal to 1.0% of the shares sold in the Conversion (or 14,025 and 18,975 shares,
assuming the minimum and maximum of the Estimated Valuation Range). The
restricted stock award to President Rooney and Chairman Ptak each would have an
aggregate value ranging from $140,250 to $189,750 (at the minimum and maximum of
the Estimated Valuation Range) based upon the original Purchase Price of $10.00
per share. See "Risk Factors - Takeover Defensive Provisions" and "Management -
Benefit Plans Recognition and Retention Plan."
Following stockholder ratification of the RRP, the RRP will be funded
either with shares purchased in the open market or with authorized but unissued
shares. Based upon the Purchase Price of $10.00 per share, the amount required
to fund the RRP through open-market purchases would range from approximately
$561,000 (based upon the sale of shares at the minimum of the Estimated
Valuation Range) to approximately $759,000 (based upon the sale of shares at the
maximum of the Estimated Valuation Range). In the event that the per share price
of the Common Stock increases above the $10.00 per share Purchase Price
following completion of the Offering, the amount necessary to fund the RRP would
also increase. The expense related to the cost of the RRP will be recognized
over the five-year vesting period of the awards made pursuant to such plan. The
use of authorized but unissued shares to fund the RRP would dilute the holdings
of stockholders who purchase Common Stock in the Conversion. See "Management -
Benefit Plans - Recognition and Retention Plan."
The Holding Company intends to submit the RRP and the Stock Option Plan
to stockholders for ratification following completion of the Offering, but in no
event prior to six months following the completion of the Conversion. These
plans will only be effective if ratified by the stockholders. In the event the
Stock Option Plan and the RRP are not ratified by stockholders, management may
consider the adoption of alternate incentive plans, although no such plans are
currently contemplated. While the Bank believes that the RRP and the Stock
Option Plan will provide important incentives for the performance and retention
of management, the Bank has no reason to believe that the failure to obtain
shareholder ratification of such plans would result in the departure of any
members of senior management.
Employment and Severance Agreements. The Bank intends to enter into
employment agreements with Chairman Ptak and President Rooney. It is anticipated
that the agreements will provide for a salary equal to the employee's current
salary, will have an initial term of three years, subject to annual extension
for an additional year following the Bank's annual performance review and will
become effective upon the completion of the Conversion. Under certain
circumstances including a change in control, as defined in the employment
agreements, the employee will be entitled to a severance payment in lieu of
salary equal to a percentage of his base amount of compensation, as defined. See
"Management - Executive Compensation."
The Bank also intends to enter into change in control severance
agreements with three other executive officers. Such agreements have initial
terms of 18 months and become effective upon completion of the Conversion. In
the event the officer is terminated following a "change in control" (as defined
in the agreements) such officer will be entitled to a severance payment equal to
$40,000. See "Management - Executive Compensation - Employment Agreements and
Severance Agreements" for the definition of "change in control" and a more
detailed description of these agreements.
Use of Proceeds
The net proceeds from the sale of Common Stock in the Conversion
(estimated at $13.5 million, $16.0 million, $18.4 million and $21.2 million
based on sales at the minimum, midpoint, maximum and
9
<PAGE>
15% above the maximum of the Estimated Valuation Range, respectively) will
substantially increase the capital of Preferred Savings. See "Pro Forma Data."
The Holding Company will utilize approximately 50% of the net proceeds from the
issuance of the Common Stock to purchase all of the common stock of Preferred
Savings to be issued upon Conversion and will retain approximately 50% of the
net proceeds. The proceeds retained by the Holding Company will be invested
initially in short-term investments similar to those currently in the Bank's
portfolio. Such proceeds will subsequently be invested in mortgage-backed
securities and investment securities and will be available for general corporate
purposes, including the possible repurchase of shares of the Common Stock, as
permitted by the OTS. The Holding Company currently has no specific plan to make
any such repurchases of any of its Common Stock. In addition, the Holding
Company intends to provide the funding for the ESOP loan. Based upon the initial
Purchase Price of $10.00 per share, the dollar amount of the ESOP loan would
range from $1.1 million (based upon the sale of shares at the minimum of the
Estimated Valuation Range) to $1.5 million (based upon the sale of shares at the
maximum of the Estimated Valuation Range). The interest rate to be charged by
the Holding Company on the ESOP loan will be based upon the Internal Revenue
Service ("IRS") prescribed applicable federal rate at the time of origination.
Finally, the Holding Company currently intends to use a portion of the
proceeds to fund a Recognition and Retention Plan ("RRP"), subject to
stockholder ratification although the ultimate payment for the RRP will be made
by the Bank through compensation expense. Following stockholder ratification of
the RRP, the RRP will be funded either with shares purchased in the open market
or with authorized but unissued shares. Based upon the Purchase Price of $10.00
per share, the amount required to fund the RRP through open-market purchases
would range from approximately $561,000 (based upon the sale of shares at the
minimum of the Estimated Valuation Range) to approximately $759,000 (based upon
the sale of shares at the maximum of the Estimated Valuation Range). In the
event that the per share price of the Common Stock increases above the $10.00
per share Purchase Price following completion of the Offering, the amount
necessary to fund the RRP would also increase. The use of authorized but
unissued shares to fund the RRP could dilute the holdings of stockholders who
purchase Common Stock in the Conversion. See "Management - Benefit Plans -
Recognition and Retention Plan."
The net proceeds received by Preferred Savings will become part of
Preferred Savings' general funds for use in its business and will be used to
support the Bank's existing operations, subject to applicable regulatory
restrictions. Immediately upon the completion of the Conversion, it is
anticipated that the Bank will invest such proceeds into short-term assets.
Subsequently, the Bank intends to redirect the net proceeds to the origination
of residential loans and, to a lesser extent, commercial real estate and
consumer loans, subject to market conditions. In addition, such proceeds will be
available for the acquisition of deposits or assets or both from other
institutions, although no such acquisitions are contemplated at this time.
See "Use of Proceeds" for additional information on the utilization of
the offering proceeds as well as OTS restrictions on repurchases of the Holding
Company's stock.
Dividends
After completion of the Conversion, the Board may consider a policy of
paying quarterly cash dividends on the Common Stock, although there can be no
assurance as to whether or when the Holding Company will pay a dividend. The
declaration and payment of dividends are subject to, among other things, the
Holding Company's financial condition and results of operations, Preferred
Savings' compliance with its regulatory capital requirements, including the
fully phased-in capital requirements, tax considerations, industry standards,
economic conditions, regulatory restrictions, general business practices and
other factors. See "Dividends."
10
<PAGE>
Market for Common Stock
The Holding Company has received preliminary approval to have the Common
Stock traded on the Nasdaq National Market System under the symbol "____." In
order to be traded on the Nasdaq National Market System, there must be at least
two market makers for the Common Stock. Keefe, Bruyette & Woods has indicated
its intention to make a market in the Holding Company's Common Stock following
completion of the Conversion, depending upon the volume of trading activity in
the Common Stock and subject to compliance with applicable laws and other
regulatory requirements. A second market marker has not yet been secured by the
Holding Company. The Holding Company anticipates that it will be able to secure
the two market makers necessary to enable the Common Stock to be traded on the
Nasdaq National Market System. A public market having the desirable
characteristics of depth, liquidity and orderliness, however, depends upon the
presence in the marketplace of both willing buyers and sellers of the Common
Stock at any given time, which is not within the control of the Holding Company,
Preferred Savings or any market maker. Further, no assurance can be given that
an investor will be able to resell the Common Stock at or above the Purchase
Price after the Conversion. See "Market for Common Stock" and "The Conversion -
Stock Pricing and Number of Shares to be Issued."
Risk Factors
See "Risk Factors" for information regarding certain factors which should
be considered by prospective investors, including the Bank's limited growth
potential, difficulty in fully leveraging capital, interest rate risk exposure,
loan concentration, competition, the competitive disadvantage resulting from the
insurance premium disparity, takeover defensive provisions contained in the
Holding Company's certificate of incorporation and bylaws, post-conversion
overhead expenses, regulatory oversight, the risk of a delayed offering, the
absence of an active market for the Common Stock and the possible consequences
of amendment of the Plan of Conversion.
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Set forth below are selected consolidated financial and other data of the
Bank. Operating results for the interim periods are not necessarily indicative
of results of any other interim periods. The financial data is derived in part
from, and should be read in conjunction with, the Consolidated Financial
Statements and Notes of the Bank presented elsewhere in this Prospectus.
In the opinion of management, the unaudited condensed consolidated
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial condition of
Preferred Savings Bank as of May 31, 1996 and for the five month period ended
May 31, 1996 and 1995.
<TABLE>
<CAPTION>
December 31,
May 31, --------------------------------------- February 28, February 29,
1996(1) 1995 1994 1993 1993 1992
------------- ------------ ------------- ------------ ------------- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets................................ $54,853 $53,520 $51,619 $53,854 $49,974 $46,483
Cash and cash equivalents................... 2,871 3,754 1,429 5,874 2,445 5,697
Loans receivable, net(2).................... 35,702 34,525 32,890 30,821 32,716 31,706
Mortgage-backed securities(3):
Held to maturity......................... --- --- 1,792 2,026 --- ---
Available for sale....................... 3,884 4,220 1,694 --- --- ---
Securities(3):
Held to maturity......................... --- --- 201 403 855 607
Available for sale....................... 11,058 9,739 7,326 9,044 8,652 3,398
Deposits.................................... 41,945 41,047 40,057 41,139 40,363 37,950
Total equity................................ 12,029 11,724 10,512 9,645 8,833 7,898
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Five Months Year Ended 10 Months Year Ended
Ended May 31, December 31, Ended -------------------------
-------------------- --------------------- December 31, February 28, February 29,
1996 1995 1995 1994 1993 1993 1992
-------------------- --------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(In Thousands)
Selected Operations Data:
Total interest income................... $1,853 $1,758 $4,268 $3,854 $3,401 $4,183 $4,265
Total interest expense.................. 725 632 1,632 1,310 1,169 1,734 2,154
------- ------- ------ ------ ------ ------ ------
Net interest income.................. 1,128 1,126 2,636 2,544 2,232 2,449 2,111
Provision for loan losses............... 50 --- --- 42 27 24 24
------- -------- -------- ------- ------- ------- -------
Net interest income after provision
for loan losses....................... 1,078 1,126 2,636 2,502 2,205 2,425 2,087
Fees and service charges................ 27 24 58 76 40 39 46
Gain (loss) on sales of securities...... --- --- --- (365) (28) --- 89
Other non-interest income............... --- --- --- --- --- --- ---
-------- -------- -------- -------- -------- -------- --------
Total non-interest income............... 27 24 58 (289) 12 39 135
Total non-interest expense.............. 353 344 1,009 838 647 820 777
------- ------- ------ ------- ------- ------- -------
Income before taxes..................... 752 806 1,685 1,375 1,570 1,644 1,445
Income tax provision.................... 312 317 630 617 628 643 562
------- ------- ------- ------- ------- ------- -------
Net income.............................. $ 440 $ 489 $1,055 $ 758 $ 942 $1,001 $ 883
======= ======= ====== ====== ====== ====== ======
</TABLE>
(1) Financial information at May 31, 1996 and for the five month periods
ended May 31, 1996 is derived from unaudited financial data, but in the
opinion of management, reflects all adjustments (consisting only of
normal recurring adjustments) which are necessary to present fairly the
results for such interim periods. Interim results at and for the five
months ended May 31, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996.
(2) The allowance for loan losses at May 31, 1996, December 31, 1995, 1994
and 1993, February 28, 1993 and February 29, 1992 was $186,000,
$136,000, $136,000, $94,000, $67,000 and $43,000, respectively.
(3) The Bank adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
effective as of December 31, 1993. Prior to the adoption of SFAS No. 115,
investment securities and mortgage-backed securities held for sale were
carried at the lower of amortized cost or market value, as adjusted for
amortization of premiums and accretion of discounts over the remaining
terms of the securities from the dates of purchase.
13
<PAGE>
<TABLE>
<CAPTION>
Five Months Year Ended
Ended May 31, December 31,
------------------------ ------------------------
1996 1995 1995 1994
------------- --------- ------------ --------
Selected Financial Ratios and Other Data:
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on assets (ratio of net income to average total
assets)(1)........................................ 1.94% 2.25% 1.99% 1.46%
Return on equity (ratio of net income to average total
equity)(1)........................................ 8.88 10.84 9.42 7.53
Interest rate spread information:
Average during period(1)............................. 4.20 4.54 4.26 4.38
End of period........................................ 3.70 4.03 3.71 4.26
Net interest margin(2)(1).............................. 5.09 5.33 5.13 5.03
Efficiency Ratio(3).................................... 30.56 29.91 37.45 37.16
Ratio of operating expense to average total assets(1).. 1.56 1.58 1.91 1.61
Ratio of average interest-earning assets to average
interest-bearing liabilities...................... 127.58 127.06 127.21 125.08
Quality Ratios:
Non-performing assets to total assets at end of period. 1.09 0.43 1.45 0.65
Allowance for loan losses to non-performing loans...... 31.00 60.44 17.55 40.72
Allowance for loan losses to total loans............... 0.51 0.38 0.39 0.41
Capital Ratios:
Equity to total assets at end of period................ 21.93 21.07 21.91 20.36
Average equity to average assets....................... 21.86 20.75 21.18 19.32
Regulatory Capital Ratios:(4)
Total capital.......................................... 56.91 51.80 59.05 54.32
Tier 1 capital......................................... 56.28 51.19 58.37 52.79
Leverage ratio......................................... 22.34 21.90 22.19 20.29
Tangible capital....................................... --- --- --- ---
Core capital........................................... --- --- --- ---
Risk-based capital..................................... --- --- --- ---
</TABLE>
<TABLE>
<CAPTION>
10 Months Year Ended
Ended --------------------------
December 31, February 28, February 29,
1993 1993 1992
------------ ------------ ------------
Selected Financial Ratios and Other Data:
<S> <C> <C> <C>
Performance Ratios:
Return on assets (ratio of net income to average total
assets)(1)........................................ 1.83% 1.96% 1.74%
Return on equity (ratio of net income to average total
equity)(1)........................................ 10.21 11.82 11.22
Interest rate spread information:
Average during period(1)............................. 4.78 3.96 2.58
End of period........................................ 3.92 3.79 3.17
Net interest margin(2)(1).............................. 5.39 4.88 4.25
Efficiency Ratio(3).................................... 28.83 32.96 34.59
Ratio of operating expense to average total assets(1).. 1.26 1.60 1.53
Ratio of average interest-earning assets to average
interest-bearing liabilities...................... 121.78 126.60 138.71
Quality Ratios:
Non-performing assets to total assets at end of period. 0.33 0.21 0.45
Allowance for loan losses to non-performing loans...... 53.41 63.21 20.77
Allowance for loan losses to total loans............... 0.30 0.20 0.13
Capital Ratios:
Equity to total assets at end of period................ 17.91 17.68 16.99
Average equity to average assets....................... 17.93 16.56 15.51
Regulatory Capital Ratios:(4)
Total capital.......................................... 38.93 31.37 ---
Tier 1 capital......................................... 37.74 30.85 ---
Leverage ratio......................................... 18.08 18.01 ---
Tangible capital....................................... --- --- 17.00
Core capital........................................... --- --- 17.00
Risk-based capital..................................... --- --- 35.90
</TABLE>
- -------------------
(1) Ratios for the five-month and ten month periods have been annualized.
(2) Net interest income divided by average interest earning assets.
14
<PAGE>
(3) The efficiency ratio represents noninterest expense as a percent of net
interest income and noninterest income before provision for loan losses.
(4) OTS regulatory capital ratios are shown for the years that the Bank was
under OTS regulation. Bank Capital ratios are shown for the years the
Bank was a state-chartered savings bank.
15
<PAGE>
RECENT FINANCIAL DATA
The selected financial and other data of the Bank set forth below at
and for the three months ended August 31, 1996 and 1995 were derived from
unaudited financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the financial condition and results of operations for the unaudited periods
presented have been included. The results of operations and other data presented
for the three months ended August 31, 1996 are not necessarily indicative of the
results of operations which may be expected for the fiscal year ending December
31, 1996. The information presented below is qualified in its entirety by the
detailed information and financial statements included elsewhere in this
Prospectus and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and the
audited Financial Statements of the Bank and Notes thereto included elsewhere in
this Prospectus.
At At
August 31, May 31,
1996 1996
----------- -------
Selected Balance Sheet Data:
Total assets...................................... $ 54,856 $ 54,853
Cash and cash equivalents......................... 1,381 2,871
Securities available-for-sale..................... 15,309 14,942
Loans receivable, net............................. 36,177 35,702
Deposits.......................................... 41,899 41,945
Equity............................................ 12,332 12,029
Three Months Ended
--------------------------
August 31, May 31,
1996 1996
----------- -------
(In Thousands)
Selected Operating Data:
Interest income................................... $1,131 $1,046
Interest expense.................................. 434 422
------ -----
Net interest income before provision for loan
losses....................................... 697 624
Provision for loan losses......................... --- ---
------- -------
Net interest income after provision for loan
losses........................................ 697 624
Gain (loss) on sale of securities................. --- (11)
Other noninterest income.......................... 16 11
Noninterest expense............................... 228 208
------ -----
Income before income taxes........................ 485 416
Income taxes...................................... 194 168
------ -----
Net income...................................... $ 291 $ 248
====== =====
16
<PAGE>
At or For the
Three Months Ended
August 31, August 31,
1996 1995
---------- ----------
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on average assets(1)....................... 2.77% 1.87%
Return on average equity(1)....................... 9.58 8.76
Average equity to average assets.................. 28.90 21.32
Equity to total assets at end of period........... 22.48 21.93
Average interest rate spread(1)................... 4.28 3.96
Net interest margin(1)(2)......................... 5.19 4.87
Average interest-earning assets to average
interest-bearing liabilities.................... 127.91 127.32
Efficiency ratio(3)............................... 31.97 33.33
Noninterest expense to average assets(1).......... 1.66 1.57
Regulatory Capital Ratios:
Total capital..................................... 56.91 59.05
Tier 1 capital.................................... 56.28 58.37
Leverage ratio.................................... 22.34 22.19
Asset Quality Ratios:
Allowance for loan losses as a percent of
gross loans receivable.......................... 0.50 0.39
Allowance for loan losses as a percent of non-
performing loans................................ 32.12% 35.98%
- -----------
(1) Ratios for the three month periods have been annualized.
(2) Net interest income divided by average interest earning assets.
(3) The efficiency ratio represents noninterest expense as a percent of
net interest income and noninterest income before provision for
loan losses.
<TABLE>
<CAPTION>
At August 31, At May 31, At August 31,
1996 1996 1995
------------- ---------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Non-accruing loans over 90 days delinquent:
One- to four-family................................. $ 563 $ 584 $ 378
Multi-family........................................ --- --- ---
Commercial real estate.............................. --- --- ---
Commercial business................................. --- --- ---
----- ----- -----
Total............................................. 563 584 378
Accruing loans more than 90 days delinquent.......... 16 16 ---
Foreclosed assets.................................... --- --- ---
----- ----- -----
Total non-performing assets.......................... $ 579 $ 600 $ 378
===== ===== =====
Total as a percentage of total assets................ 1.06% 1.09% 0.72%
===== ===== =====
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT RESULTS
Comparison of Financial Condition at August 31, 1996 and May 31, 1996
Total assets at August 31, 1996 remained virtually unchanged compared to
May 31, 1996. The Bank increased the amount of net loans receivable by $300,000
from $35.7 million at May 31, 1996 to $36.0 million at August 31, 1996. In
addition, mortgage-backed securities available-for-sale increased by $700,000
from $3.9 million at May 31, 1996 to $4.6 million at August 31, 1996. These
increases were offset by a decrease in cash and cash equivalents of $1.5 million
from $2.9 million at May 31, 1996 to $1.4 million at August 31, 1996.
Total liabilities at August 31, 1996 were $42.5 million compared to $42.8
million at May 31, 1996, a decrease of $300,000. The decrease in other
liabilities was primarily due to a $300,000 decrease in advance payments by
borrowers for taxes and insurance as a result of the payment of real estate
taxes in August.
Equity at August 31, 1996 was $12.3 million compared to $12.0 million at
May 31, 1996, an increase of $300,000, or 2.5%, due primarily to net earnings of
$291,000 and a decrease in the unrealized loss on securities available-for-sale
of $12,000.
Comparison of Operating Results for the Three Months Ended August 31, 1996 and
August 31, 1995
General. Net earnings for the three months ended August 31, 1996 were
$291,000, an increase of $43,000, or 17.3%, from net earnings of $248,000 for
the three months ended August 31, 1995. The increase in net earnings resulted
primarily from an increase in the Bank's net interest margin.
Interest Income. Interest income for the three months ended August 31,
1996 was $1.1 million compared to $1.0 million for the three months ended August
31, 1995, an increase of $85,000, or 8.5%. The increase in interest income was
the result of an increase in the average balance of interest-earning assets from
$51.2 million for the three months ended August 31, 1995 to $53.8 million for
the three months ended August 31, 1996 primarily due to an increase in the
average balance of net loans receivable. In addition, the yield on
interest-earning assets increased 24 basis points from 8.16% for the three
months ended August 31, 1995 to 8.40% for the three months ended August 31,
1996. This increase was primarily due to an increase in the yield on loans of 41
basis points and an increase in mortgage-backed securities of 58 basis points
offset by a decrease in securities of 30 basis points. The increase in the
yields on loans and mortgage-backed securities is reflective of the current rate
environment.
Interest Expense. Interest expense for the three months ended August 31,
1996 was $434,000 compared to $422,000 for the three months ended August 31,
1995, an increase of $22,000, or 5.2%. The increase of interest expense was
primarily due to the increase of $1.8 million in the average balance of
interest-bearing deposits from $40.2 million for the three months ended August
31, 1995 to $42.0 million for the three months ended August 31, 1996. The
increase in the average balance was offset by a decrease in the average cost of
funds for
18
<PAGE>
deposits from 4.20% for the three months ended August 31, 1995 to 4.12% for the
three months ended August 31, 1996. This 8 basis point decrease in the cost of
funds was primarily due to the higher rate certificates of deposit maturing and
repricing at slightly lower rates.
Provision for Loan Losses. The Bank's provision for loan losses was zero
for the three months ended August 31, 1996 and 1995. At August 31, 1996, the
Bank's allowance for loan losses totaled $186,000, or .51% of total loans and
32.12% of total non-performing loans. The amount of the provision and allowance
for estimated losses on loans is influenced by current economic conditions,
actual loss experience, industry trends and other factors, such as adverse
economic conditions, including declining real estate values, in the Bank's
market area. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to provide additions to the allowance
based upon judgments which differ from those of management. The absence of a
loan loss provision for the three months ended August 31, 1996 and 1995 is
indicative of management's assessment of the adequacy of the allowance for loan
losses, given the positive trends in historical loss experience of the portfolio
and strength of the local economy as well as the fact that the majority of loans
are single-family residential loans and the loan-to-values are generally less
than 80%. Although management uses the best information available, future
adjustments to the allowance may be necessary due to economic, operating,
regulatory and other conditions that may be beyond the Bank's control.
Noninterest Income. Noninterest income for the three months ended August
31, 1996 was $16,000 compared to zero for the three months ended August 31,
1995. This increase is primarily due to security losses of $11,000 for the three
months ended August 31, 1995 compared to zero for the three months ended August
31, 1996.
Noninterest Expense. Noninterest expense was $228,000 for the three months
ended August 31, 1996 compared to $208,000 for the three months ended August 31,
1995, an increase of $20,000, or 9.6%. The increase was primarily a result of
$8,000 increase in occupancy expense due to increased taxes and repairs and
maintenance and an increase of $4,000 in compensation expense due to normal
salary adjustments.
Income taxes. Income taxes were $194,000 for the three months ended August
31, 1996 compared to $168,000 for the three months ended August 31, 1995, an
increase of $26,000, or 15.5%. The increase was primarily a result of an
increase in pretax earnings of $69,000.
19
<PAGE>
RISK FACTORS
The following factors, in addition to those discussed elsewhere in this
Prospectus, should be considered by investors before deciding whether to
purchase the Common Stock offered in the Offering.
Limited Growth Potential; Difficulty in Fully Leveraging Capital; Possible
Unfavorable Impact on Post Conversion Stock Price
The Bank experiences strong competition in its local market area in both
originating loans and attracting depositor accounts. This competition arises
principally from savings institutions and commercial banks as well as other
types of financial service companies such as mortgage bankers, securities firms
and credit unions. See "Business - Lending Activities" and "Competition."
In view of the increasing cost and complexity of operating a financial
institution, the Board of Directors believes that moderate growth of the Bank's
assets and liabilities is important for maintaining profitability. In addition,
the Board of Directors believes that growth will be needed in the future to
leverage the new capital raised by the Conversion. See "Use of Proceeds."
The Bank's net loans have grown from $31.7 million at February 29, 1992 to
$35.7 million at May 31, 1996. Over the same period, the Bank's deposit growth
has been limited. While the Bank intends to increase its marketing efforts
somewhat in order to stimulate loan and deposit growth, in view of the high
level of competition in the Bank's market area and the absence of a branch
office network as well as an adjustable rate residential mortgage loan product
and secondary market activities, the Board believes that future internal growth
can be effectively sustained only at modest levels. As a result, the ^ Holding
Company's ability to quickly leverage the net proceeds from the Conversion is
likely to be limited. Accordingly, for the near term, return on equity will
decline from current levels. Since return on equity is generally an important
factor in determining an institution's stock price, an unfavorable return on
equity could adversely affect the Holding Company's stock price. See "Pro Forma
Income and Equity Data" and "Use of Proceeds."
Interest Rate Risk Exposure
The Bank'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 borrowings. When interest
rates rise, the Bank's net interest income tends to be adversely impacted since
its liabilities tend to reprice more quickly than its assets. Conversely, in a
declining rate environment the Bank's net interest income is generally
positively impacted since its assets tend to reprice more slowly than its
liabilities. Changes in the level of interest rates also affect the amount of
loans originated by the Bank and, thus, the amount of loan and commitment fees,
as well as the market value of the Bank's interest-earning assets. Moreover,
increases in interest rates also can result in disintermediation, which is the
flow of funds away from savings institutions into direct investments, such as
corporate securities and other investment vehicles, which generally pay higher
rates of return than savings institutions.
20
<PAGE>
Finally, a flattening of the "yield curve" (i.e., a decline in the difference
between long and short term interest rates), as has occurred over the last
several months, could adversely impact net interest income to the extent that
the Bank's assets have a longer average term than its liabilities.
In managing its asset/liability mix, the Bank may, depending on the
relationship between long- and short-term interest rates, market conditions and
consumer preference and in view of its substantial capital position, place more
emphasis on managing net interest margin than on better matching the interest
rate sensitivity of its assets and liabilities in an effort to enhance net
interest income. In particular, virtually all of the Bank's loans carry fixed
interest rates. Although the Board recently determined to reduce somewhat the
level of tolerated interest rate risk, it continues to believe that the
increased net interest income resulting from a mismatch in the maturity of its
asset and liability portfolios can, during periods of declining or stable
interest rates and periods in which there is a substantial positive difference
between long and short term interest rates (i.e., a "positively sloped yield
curve"), provide high enough returns to justify the increased exposure to sudden
and unexpected increases in interest rates. As a result, the Bank will continue
to be significantly vulnerable to changes in interest rates and to decreases in
the difference between long and short term interest rates.
At May 31, 1996, the total amount of interest-bearing liabilities
anticipated by the Bank, based on certain assumptions, to mature or reprice
within one year exceeded the total amount of interest-earning assets to mature
or reprice in the same period resulting in a negative cumulative one-year gap
equal to 47.1% of total assets. Because of various shortcomings inherent in
using repricing assumptions in calculating the Bank's gap position, the Banks's
negative gap ratio at May 31, 1996 may not fully reflect the Bank's
vulnerability to increases in interest rates as certain assets and liabilities
may react in different degrees to, or lag behind, changes in market interest
rates even though they have similar maturities or periods to repricing. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -Asset/Liability Management."
Loan Concentration in Single Market Area
At May 31, 1996, substantially all of the aggregate principal amount of
the Bank's real estate mortgage loans were secured by properties located in Cook
County, Illinois with a substantial majority of such loans located in the
southwest side of the City of Chicago. While the Bank currently believes that
its loans are sufficiently secured or adequately reserved, in the event that
real estate prices in Cook County substantially weaken or economic conditions in
Cook County decline, it is possible that the value of the real estate may be
insufficient to collateralize the Bank's loans, thus exposing the Bank to risk
of loss. See "Business - Market Area."
Competition
Preferred Savings experiences significant competition in its local market
area in both originating real estate and other loans and attracting deposits.
This competition arises from other savings institutions as well as commercial
banks, mortgage banks, credit unions and national and local securities firms.
The Bank's competitors include many significantly larger banks, including
several large regional banks with offices in the city of Chicago. Due to their
size, these large
21
<PAGE>
banks can achieve certain economies of scale and as a result offer a broader
range of products and services than are currently available at the Bank. The
Bank attempts to mitigate its lack of such an extensive product line by
emphasizing customer service. Such competition may limit Preferred Savings'
growth in the future. See "Business - Competition."
Competitive Disadvantage Caused by the Disparity Between BIF and SAIF Insurance
Premiums
Federal law requires that the FDIC maintain reserves at both the Savings
Association Insurance Fund ("SAIF") and the Bank Insurance Fund ("BIF") of at
least 1.25% of insured deposits. The reserves are funded through the payment of
insurance premiums by the insured institution members of each fund. The BIF
reached this level during 1995. Upon attainment of the required reserve level,
the FDIC may reduce insurance premiums applicable to BIF-insured institutions
while retaining the premiums applicable to SAIF members, such as the Bank, at
their current levels until the SAIF reaches its required reserve level.
In November 1995, the FDIC revised the premium schedule for BIF-insured
banks to provide for a range of 0% to .27% of deposits (as compared to the
current range of .23% to .31% of deposits for SAIF-insured institutions) with an
annual statutory minimum payment of $2,000. As a result of the BIF reaching the
required reserve ratio, the revised premium schedule took effect in January
1996. The FDIC action does not affect the premium rates currently applicable to
SAIF members, such as the Bank, which, as noted above, range from .23% to .31%
of deposits depending on the institution's capital level and other factors. As a
result, BIF members would generally pay lower premiums than SAIF members.
In order to help eliminate this disparity and any competitive disadvantage
due to disparate deposit insurance premium schedules, legislation to
recapitalize the SAIF was enacted in September 1996. The legislation provides
for a one-time assessment to be imposed on all deposits assessed at the SAIF
rates, as of March 31, 1995, in order to recapitalize the SAIF. It also provides
for the merger of the BIF and the SAIF on January 1, 1999 provided no savings
associations then exist. The special assessment rate is currently anticipated to
range between .65% and .70% and will be payable by November 29, 1996.
Accordingly, this special assessment will increase noninterest expense and
adversely affect the Bank's results of operations. Following the special
assessment, and depending upon the Bank's capital level and supervisory rating,
the Bank's deposit insurance premiums could decrease significantly for future
periods.
Prior to the enactment of the legislation a portion of the SAIF assessment
imposed on savings associations was used to repay obligations issued by a
federally chartered corporation to provide financing for resolving the thrift
crisis in the 1980s. Although the SAIF rates are expected to be reduced
significantly, in the near future the minimum assessment paid by SAIF-insured
institutions is not anticipated to be equalized with the minimum BIF rate as a
result of this continuing obligation. Although the legislation also now requires
assessments to be made on BIF-assessable deposits for this purpose, the
assessment will be limited to 20% of the rate imposed on SAIF assessable
deposits until the earlier of December 31, 1999 or when no savings association
continues to exist, thereby imposing a greater burden on SAIF member
institutions such as the Bank. Thereafter, however, assessments on BIF-member
institutions will be made on the same basis as SAIF-member institutions. The
rates to be established by the FDIC to implement this requirement for all
FDIC-insured institutions are uncertain at this time. See "Regulation --
Insurance of Accounts and Regulation by the FDIC."
Takeover Defensive Provisions
Holding Company and Bank Governing Instruments. Certain provisions of the
Holding Company's Certificate of Incorporation and Bylaws assist the Holding
Company in maintaining its status as an independent publicly owned corporation.
These provisions provide for, among other things, limiting voting rights of
beneficial owners of more than 10% of the Common Stock, staggered terms for
directors, noncumulative voting for directors, limits on the calling of special
meetings, a fair price/supermajority vote requirement for certain business
combinations and certain notice requirements. The 10% vote limitation would not
affect the ability of an individual who is not the beneficial owner of more than
10% of the Common Stock to solicit revocable proxies in a public solicitation
for proxies for a particular meeting of
22
<PAGE>
stockholders and to vote such proxies. In addition, provisions in the Bank's
federal stock Charter that have an anti-takeover effect could also be applicable
to changes in control of the Holding Company as the sole shareholder of the
Bank. The Bank's Charter includes a provision applicable for five years which
prohibits acquisitions and offers to acquire, directly or indirectly, the
beneficial ownership of more than 10% of the Bank's securities. Any person
violating this restriction may not vote the Bank's securities in excess of 10%.
Any or all of these provisions may discourage potential proxy contests and other
takeover attempts, particularly those which have not been negotiated with the
Board of Directors. In addition, the Holding Company's certificate of
incorporation also authorize preferred stock with terms to be established by the
Board of Directors which may rank prior to the Common Stock as to dividend
rights, liquidation preferences, or both, may have full or limited voting rights
and may have a dilutive effect on the ownership interests of holders of the
Common Stock. See "Restrictions on Acquisitions of Stock and Related Takeover
Defensive Provisions."
Regulatory and Statutory Provisions. Federal regulations prohibit, for a
period of three years following the completion of the Conversion, any person
from offering to acquire or acquiring the beneficial ownership of more than 10%
of the stock of a converted savings institution or its holding company without
prior OTS approval. Federal law also requires OTS approval prior to the
acquisition of "control" (as defined in OTS regulations) of an insured
institution, including a holding company thereof. See "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions."
Employment Agreements, Severance Agreements and Other Benefit Plans. The
employment agreements, severance agreements, the proposed Stock Option Plan and
the proposed RRP also contain provisions that could have the effect of
discouraging takeover attempts of the Holding Company.
The Bank intends to enter into employment agreements with Chairman Ptak
and President Rooney and severance agreements with three other executive
officers. The employment agreements provide for an annual base salary in an
amount not less than the employee's current salary and an initial term of three
years. The agreements may be extended for an additional year on each annual
anniversary date, but only if such extensions are approved by the Board of
Directors. The employment agreements also provide for payment of the employee's
salary to the employee for the remainder of the term of the agreement, plus an
additional amount, the sum of which will not exceed a percentage of the
employee's base compensation, in the event there is a "change in control" of the
Bank (as defined in the agreement) where employment terminates involuntarily in
connection with such change in control or within 12 months thereafter.
The Bank also intends to enter into change in control severance agreements
with three other executive officers. Such agreements become effective upon
completion of the Conversion and have initial terms of 12 months. In the event
the officer is terminated following a change in control (as defined in the
agreements), such officer will be entitled to a severance payment of $40,000.
Currently, no officers have employment or severance agreements. For more
information regarding these agreements, see "Management - Executive Compensation
Employment Agreements and Severance Agreements."
23
<PAGE>
Possible Dilutive Effects. The issuance of additional shares pursuant to
the proposed Stock Option Plan and RRP will result in a dilution in the
percentage of ownership of the Holding Company of those persons purchasing
Common Stock in the Conversion, assuming that the shares utilized to fund the
proposed Stock Option Plan and RRP awards come from authorized but unissued
shares. Assuming the exercise of all options available under the Stock Option
Plan and the award of all shares available under the RRP, and assuming the use
of authorized but unissued shares, the interest of stockholders will be diluted
by approximately 9.1% and 3.8%, respectively. See "Pro Forma Data," "Management
- - Benefit Plans - Stock Option and Incentive Plan," and "- Recognition and
Retention Plan" and "Restrictions on Acquisitions of Stock and Related Takeover
Defensive Provisions." For financial accounting purposes, certain incentive
grants under the proposed RRP will result in the recording of compensation
expense over the vesting period. See "Pro Forma Data."
Voting Control of Directors and Executive Officers. The directors and
executive officers of the Bank are anticipated to purchase an aggregate of
approximately $950,000 or approximately 6.8% of the shares offered in the
Conversion at the minimum of the Estimated Valuation Range, or 5.0% of the
shares offered in the Conversion at the maximum of the Estimated Valuation
Range. Directors and executive officers will also receive awards under the
proposed Stock Option Plan and the proposed RRP. Assuming the sale of shares at
the maximum of the Estimated Valuation Range and a market value of $10.00 per
share at the time of stockholder ratification of the RRP, the market value of
the stock to be awarded under the proposed RRP to President Rooney, Chairman
Ptak and to all directors and executive officers as a group (8 persons) would be
$189,750, $189,750 and $629,970. Assuming the purchase of $950,000 of Common
Stock in the Conversion by directors and executive officers in the aggregate (8
persons), the full vesting of the restricted stock to be awarded under the
proposed RRP and the issuance of shares from authorized but unissued shares in
connection with the exercise of all options intended to be awarded under the
proposed Stock Option Plan the Conversion and approval of the Stock Option Plan
and the RRP by the stockholders, the shares owned by the directors and executive
officers in the aggregate would be between 18.4% (at the maximum of the
Estimated Valuation Range) and 16.4% (at the minimum of the Estimated Valuation
Range) of the outstanding shares. In addition, the ESOP is expected to purchase
8% of the shares sold in the Conversion. This stock ownership, if voted as a
block, could defeat takeover attempts favored by other stockholders.
Post Conversion Overhead Expense
After completion of the Conversion, the Holding Company's noninterest
expense is likely to increase as a result of the financial accounting, legal and
tax expenses usually associated with operating as a public company. See
"Regulation - Federal and State Taxation" and "Additional Information." In
addition, it is currently anticipated that the Holding Company will record
additional expense based on the proposed RRP. See "Pro Forma Data" and
"Management - Benefit Plans - Recognition and Retention Plan." Finally, the
Holding Company will also record additional expense as a result of the adoption
of the ESOP. See "Management - Benefit Plans - Employee Stock Ownership Plan."
In November 1993, the American Institute of Certified Public Accountants
("AICPA") Accounting Standards Division issued Statement of Position 93-6
"Employers' Accounting for
24
<PAGE>
Employee Stock Ownership Plans" ("SOP 93-6"). 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.
Assuming 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Impact of New
Accounting Standards" and "Pro Forma Data."
Regulatory Oversight
The Bank is subject to extensive regulation, supervision and examination
by the OTS as its chartering authority and primary federal regulator, and by the
FDIC, which insures its deposits up to applicable limits. The Bank is a member
of the Federal Home Loan Bank (the "FHLB") of Chicago and is subject to certain
limited regulation by the Board of Governors of the Federal Reserve System
("Federal Reserve Board"). As the savings and loan holding company of the Bank,
the Holding Company will be subject to regulation and oversight by the OTS. See
"Regulation." Such regulation and supervision governs the activities in which an
institution can engage and is intended primarily for the protection of the
insurance fund and depositors. Regulatory authorities have been granted
extensive discretion in connection with their supervisory and enforcement
activities which are intended to strengthen the financial condition of the
Banking industry, including the imposition of restrictions on the operation of
an institution, the classification of assets by the institution and the adequacy
of an institution's allowance for loan losses. See "Regulation - Federal
Regulation of Savings Associations" and "- Regulatory Capital Requirements." Any
change in such regulation and oversight, whether by the OTS, the Federal Reserve
Board, the FDIC or Congress, could have a material impact on the Holding
Company, the Bank and their respective operations.
Risk of Delayed Offering
The Subscription Offering will expire at noon, Chicago, Illinois time, on
_______________, 1996 unless extended by the Bank and the Holding Company.
Depending on the availability of shares and market conditions at or near the
completion of the Subscription Offering, the Holding Company may conduct a
Public Offering through Webb. If the Offering is extended beyond
_______________, 1996, all subscribers will have the right to modify or rescind
their subscriptions and to have their subscription funds returned with interest.
There can be no assurance that the Offering will not be extended as set forth
above.
A material delay in the completion of the sale of all unsubscribed shares
in the Public Offering or otherwise may result in a significant increase in the
costs in completing the Conversion. Significant changes in the Bank's operations
and financial condition, the aggregate market value of the shares to be issued
in the Conversion and general market conditions may occur during such material
delay. In the event the Conversion is not consummated within 24 months after the
date of the Special Meeting, OTS regulations would require the Bank to charge
accrued Conversion costs to then-current period operations. See "The Conversion
- - Risk of Delayed Offering."
25
<PAGE>
Absence of Active Market for the Common Stock
The Holding Company, as a newly organized company, has never issued
capital stock. Consequently, there is not at this time any market for the Common
Stock. The Common Stock has received preliminary approval for listing on the
Nasdaq National Market under the symbol "____." Webb has agreed to act as a
market maker and to assist the Holding Company in securing a second market maker
to make a market in the Common Stock. However, there can be no assurance that at
least two market makers will be obtained, that the Bank will receive final
approval for listing on the Nasdaq National Market, that an active and liquid
market for the Common Stock will develop or be maintained or that resales of the
Common Stock can be made at or above the Purchase Price. See "Market for Common
Stock."
Possible Consequences of Amendment to Plan of Conversion
The Plan of Conversion provides that, if deemed necessary or desirable by
the Boards of Directors of the Bank and the Holding Company, the Plan of
Conversion may be substantively amended by a two-thirds vote of the respective
Boards of Directors of the Bank and the Holding Company, as a result of comments
from regulatory authorities or otherwise, at any time with the concurrence of
the Securities and Exchange Commission ("SEC") and the OTS. Moreover, if the
Plan of Conversion is amended, subscriptions which have been received prior to
such amendment will not be refunded unless otherwise required by the SEC or the
OTS. If the Plan of Conversion is amended in a manner that is deemed to be
material to the subscribers by the Holding Company, subscription funds will be
returned to subscribers with interest unless they affirmatively elect to
increase, decrease or maintain their subscriptions. No such amendments are
currently contemplated, although the Bank reserves the right to increase or
decrease purchase limitations without a subscriber resolicitation. See "The
Conversion - Approval, Interpretation, Amendment and Termination."
PS FINANCIAL, INC.
The Holding Company was formed at the direction of Preferred Savings in
July 1996 for the purpose of becoming a savings and loan holding company and
owning all of the outstanding stock of the Bank issued in the Conversion. The
Holding Company is incorporated under the laws of the State of Delaware. The
Holding Company is authorized to do business in the State of Illinois, and
generally is authorized to engage in any activity that is permitted by the
Delaware General Corporation Law. The business of the Holding Company initially
will consist only of the business of Preferred Savings. The holding company
structure will, however, provide the Holding Company with greater flexibility
than the Bank has to diversify its business activities, through existing or
newly formed subsidiaries, or through acquisitions or mergers of stock financial
institutions, as well as, other companies. Although there are no current
arrangements, understandings or agreements regarding any such activity or
acquisition, the Holding Company will be in a position after the Conversion,
subject to regulatory restrictions, to take advantage of any favorable
acquisition opportunities that may arise.
The assets of the Holding Company will consist initially of the stock of
Preferred Savings, a note evidencing the Holding Company's loan to the ESOP and
up to 50% of the net proceeds from the Conversion (less the amount used to fund
the ESOP loan). See "Use of Proceeds."
26
<PAGE>
Initially, any activities of the Holding Company are anticipated to be funded by
such retained proceeds and the income thereon and dividends from Preferred
Savings, if any. See "Dividends" and "Regulation - Holding Company Regulation."
Thereafter, activities of the Holding Company may also be funded through sales
of additional securities, through borrowings and through income generated by
other activities of the Holding Company. At this time, there are no plans
regarding such other activities other than the intended loan to the ESOP to
facilitate its purchase of Common Stock in the Conversion. See "Management -
Benefit Plans - Employee Stock Ownership Plan."
The executive office of the Holding Company is located at 4800 South
Pulaski Road, Chicago, Illinois 60632-4195. Its telephone number at that address
is (312) 376-3800.
PREFERRED SAVINGS
Preferred Savings serves the financial needs of communities in its market
area through its office located at 4800 South Pulaski Road, Chicago, Illinois.
Its deposits are insured up to applicable limits by the Federal Deposit
Insurance Corporation ("FDIC"). At May 31, 1996, Preferred Savings had total
assets of $54.9 million, deposits of $41.9 million and retained earnings of
$12.0 million (or 21.9% of total assets).
Preferred Savings' business involves attracting deposits from the general
public and using such deposits, together with other funds, to originate one- to
four-family residential mortgage loans and, to a much lesser extent,
multi-family, commercial real estate, and consumer loans primarily in its market
area. At May 31, 1996, $26.2 million, or 71.8%, of the Bank's total loan
portfolio consisted of residential one- to four-family mortgage loans. See
"Business - Lending Activities."
The Bank also invests in mortgage-backed and other securities and other
permissible investments. See "Business - Investment Activities - Securities" and
"- Mortgage-Backed and Related Securities."
The executive office of the Bank is located at 4800 South Pulaski Road,
Chicago, Illinois 60632-4195. Its telephone number at that address is (312)
376-3800.
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Conversion is completed, it is presently anticipated
that such net proceeds will be between $13.5 million and $18.4 million (or up to
$21.2 million in the event of an increase in the aggregate pro forma market
value of the Common Stock of up to 15% above the maximum of the Estimated
Valuation Range). See "Pro Forma Data" and "The Conversion - Stock Pricing and
Number of Shares to be Issued" as to the assumptions used to arrive at such
amounts.
In exchange for all of the common stock of Preferred Savings issued upon
conversion, the Holding Company will contribute approximately 50% of the net
proceeds from the sale of the Holding Company's Common Stock to Preferred
Savings. On an interim basis, the proceeds will be invested by the Holding
Company and Preferred Savings in short-term investments
27
<PAGE>
similar to those currently in the Bank's portfolio. The specific types and
amounts of short-term assets will be determined based on market conditions at
the time of the completion of the Conversion. In addition, the Holding Company
intends to provide the funding for the ESOP loan. Based upon the initial
Purchase Price of $10.00 per share, the dollar amount of the ESOP loan would
range from $1.1 million (based upon the sale of shares at the minimum of the
Estimated Valuation Range) to $1.5 million (based upon the sale of shares at the
maximum of the Estimated Valuation Range). The interest rate to be charged by
the Holding Company on the ESOP loan will be based upon the IRS prescribed
applicable federal rate at the time of origination.
The net proceeds received by Preferred Savings will become part of
Preferred Savings' general funds for use in its business and will be used to
support the Bank's existing operations, subject to applicable regulatory
restrictions. Immediately upon the completion of the Conversion, it is
anticipated that the Bank will invest such proceeds into short-term assets.
Subsequently, the Bank will redirect the net proceeds to the origination of
residential loans and, to a lesser extent, commercial real estate and consumer
loans, subject to market conditions.
After the completion of the Conversion, the Holding Company will redirect
the net proceeds invested by it in short-term assets into a variety of
mortgage-backed securities and other securities similar to those already held by
the Bank. Also, the Holding Company may use a portion of the proceeds to fund
the RRP, subject to shareholder approval of such plan. Following stockholder
ratification of the RRP, the RRP will be funded either with shares purchased in
the open market or with authorized but unissued shares. Based upon the initial
Purchase Price of $10.00 per share, the amount required to fund the RRP through
open-market purchases would range from approximately $561,000 (based upon the
sale of shares at the minimum of the Estimated Valuation Range) to approximately
$759,000 (based upon the sale of shares at the maximum of the Estimated
Valuation Range). In the event that the per share price of the Common Stock
increases above the $10.00 per share Purchase Price following completion of the
Offering, the amount necessary to fund the RRP would also increase. The use of
authorized but unissued shares to fund the RRP could dilute the holdings of
stockholders who purchase Common Stock in the Conversion. See "Business -
Lending Activities" and " - Investment Activities" and "Management - Benefit
Plans - Employee Stock Ownership Plan" and "- Recognition and Retention Plan."
The proceeds may also be utilized by the Holding Company to repurchase (at
prices which may be above or below the initial offering price) shares of the
Common Stock through an open market repurchase program subject to limitations
contained in OTS regulations, although the Holding Company currently has no
specific plan to repurchase any of its stock. In the future, the Board of
Directors of the Holding Company will make decisions on the repurchase of the
Common Stock based on its view of the appropriateness of the price of the Common
Stock as well as the Holding Company's and the Bank's investment opportunities
and capital needs. Under current OTS regulations, no repurchases may be made
within the first year following Conversion except with OTS approval under
"exceptional circumstances." During the second and third years following
Conversion, OTS regulations permit, subject to certain limitations, the
repurchase of up to five percent of the outstanding shares of stock during each
twelve-month period with a greater amount permitted with OTS approval. In
general, the OTS regulations do not restrict repurchases thereafter, other than
limits on the Bank's ability to pay dividends to the
28
<PAGE>
Holding Company to fund the repurchase. For a description of the restrictions on
the Bank's ability to provide the Holding Company with funds through dividends
or other distributions, see "Dividends" and "The Conversion - Restrictions on
Repurchase of Stock."
The Holding Company or Preferred Savings might consider expansion through
the acquisition of other financial services providers (or branches, deposits or
assets thereof), although there are no specific plans, negotiations or written
or oral agreements regarding any acquisitions at this time.
DIVIDENDS
The Board of Directors may consider a policy of paying cash dividends on
the Common Stock. Dividends, when and if paid, will be subject to determination
and declaration by the Board of Directors at its discretion. They will take into
account the Holding Company's consolidated financial condition, the Bank's
regulatory capital requirements, including the fully phased-in capital
requirements, tax considerations, industry standards, economic conditions,
regulatory restrictions, general business practices and other factors.
It is not presently anticipated that the Holding Company will conduct
significant operations independent of those of Preferred Savings for some time
following the Conversion. As such, the Holding Company does not expect to have
any significant source of income other than earnings on the net proceeds from
the Conversion retained by the Holding Company (which proceeds are currently
estimated to range from $13.5 million to $18.4 million based on the minimum and
the maximum of the Estimated Valuation Range, respectively) and dividends from
Preferred Savings, if any. Consequently, the ability of the Holding Company to
pay cash dividends to its stockholders will be dependent upon such retained
proceeds and earnings thereon, and upon the ability of Preferred Savings to pay
dividends to the Holding Company. See "Description of Capital Stock - Holding
Company Capital Stock - Dividends." Preferred Savings, like all savings
associations regulated by the OTS, is subject to certain restrictions on the
payment of dividends based on its net income, its capital in excess of the
regulatory capital requirements and the amount of regulatory capital required
for the liquidation account to be established in connection with the Conversion.
See "The Conversion - Effects of Conversion to Stock Form on Depositors and
Borrowers of the Bank - Liquidation Rights in Proposed Converted Institution"
and "Regulation - Regulatory Capital Requirements" and "- Limitations on
Dividends and Other Capital Distributions." Earnings allocated to Preferred
Savings' "excess" bad debt reserves and deducted for federal income tax purposes
cannot be used by Preferred Savings to pay cash dividends to the Holding Company
without adverse tax consequences. See "Regulation - Federal and State Taxation."
MARKET FOR COMMON STOCK
Preferred Savings, as a mutual thrift institution, and the Holding
Company, as a newly organized company, have never issued capital stock.
Consequently, there is not at this time an existing market for the Common Stock.
The Common Stock has been preliminarily approved for trading on the NASDAQ
National Market System under the symbol "____" upon completion of the
Conversion. In order to be quoted on the Nasdaq National Market, among other
criteria, there must be at least two market makers for the Common Stock. Keefe,
Bruyette & Woods has
29
<PAGE>
agreed, subject to certain conditions, to act as a market maker for the Holding
Company's Common Stock following the Conversion, and assist in securing a second
market maker to do the same. A public trading market having the desirable
characteristics of depth, liquidity and orderliness depends upon the presence in
the marketplace of both willing buyers and sellers of the Common Stock at any
given time. Accordingly, there can be no assurance that an active and liquid
market for the Common Stock will develop or be maintained or that resales of the
Common Stock can be made at or above the Purchase Price. See "The Conversion -
Stock Pricing and Number of Shares to be Issued."
PRO FORMA DATA
The following table sets forth the historical net income, retained
earnings and per share data of Preferred Savings at and for the five months
ended May 31, 1996 and the fiscal year ended December 31, 1995, and after giving
effect to the Conversion, the pro forma net income, capital stock and
stockholders' equity and per share data of the Holding Company at and for the
five months ended May 31, 1996 and the fiscal year ended December 31, 1995. The
pro forma data has been computed on the assumptions that (i) the specified
number of shares of Common Stock was sold at the beginning of the specified
periods and yielded net proceeds to the Holding Company as indicated, (ii) 50%
of such net proceeds were retained by the Holding Company and the remainder were
used to purchase all of the stock of Preferred Savings, and (iii) such net
proceeds, less the amount of the ESOP and RRP funding, were invested by the Bank
and Holding Company at the beginning of the periods to yield a pre-tax return of
5.91% for the five months ended May 31, 1996 and 5.45% for the fiscal year ended
December 31, 1995. The assumed return is based upon the market yield rate of
one-year U.S. Government Treasury Securities as of August 15, 1996. The use of
this current rate is viewed to be more relevant in the current interest rate
environment than the use of an arithmetic average of the weighted average yield
earned by the Bank on its interest-earning assets and the weighted average rate
paid on its deposits during such periods. In calculating the underwriting fees,
the table assumes that (i) no commission was paid on $950,000 of shares sold to
directors, officers and employees, (ii) 8% of the total shares sold in the
Conversion were sold to the ESOP at no commission, and (iii) the remaining
shares were sold at a 1.5% commission. (These assumptions represent management's
estimate as to the distribution of stock orders in the Conversion. However,
there can be no assurance that such estimate will be accurate and that a greater
proportion of shares will not be sold at a higher commission, thus increasing
offering expenses.) Fixed expenses are estimated to be $310,000. Actual
Conversion expenses may be more or less than those estimated because the fees
paid to Webb and other brokers will depend upon the categories of purchasers,
the Purchase Price and market conditions and other factors. The pro forma net
income amounts derived from the assumptions set forth herein 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 period, and the assumptions regarding
investment yields should not be considered indicative of the actual yields
expected to be achieved during any future period.
The total number of shares to be issued in the Conversion may be increased
or decreased significantly, or the price per share decreased, to reflect changes
in market and financial conditions prior to the close of the Offering. However,
if the aggregate Purchase Price of the Common Stock sold in the Conversion is
below $14,025,000 (the minimum of the Estimated
30
<PAGE>
Valuation Range) or more than $21,821,250 (15% above the maximum of the
Estimated Valuation Range), subscribers will be offered the opportunity to
modify or cancel their subscriptions. See "The Conversion - Stock Pricing and
Number of Shares to be Issued."
31
<PAGE>
<TABLE>
<CAPTION>
At or For the Five Months Ended May 31, 1996
--------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
1,402,500 1,650,000 1,897,500 2,182,125
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
---------- ---------- ---------- ----------
(Dollars in Thousands, Except Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds................................................ $ 14,025 $ 16,500 $ 18,975 $ 21,821
Less offering expenses and commissions........................ (489) (520) (552) (588)
--------- --------- --------- ----------
Estimated net conversion proceeds ........................... 13,536 15,980 18,423 21,233
Less ESOP shares.............................................. (1,122) (1,320) (1,518) (1,746)
Less RRP shares............................................... (561) (660) (759) (873)
--------- --------- --------- ----------
Estimated proceeds available for investment(1)............... $ 11,853 $ 14,000 $ 16,146 $ 18,614
========= ========= ========= ========
Net Income:
Historical.................................................. $ 440 $ 440 $ 440 $ 440
Pro Forma Adjustments:
Net earnings from proceeds(2).............................. 184 217 251 289
ESOP(3).................................................... (52) (61) (70) (81)
RRP(4)..................................................... (29) (35) (40) (45)
--------- --------- --------- ---------
Pro forma net income(5).................................. $ 543 $ 561 $ 581 $ 602
========= ========= ========= =========
Net Income Per Share:
Historical(6)............................................. $ 0.34 $ 0.29 $ 0.25 $ 0.22
Pro forma Adjustments:
Net earnings from proceeds............................... 0.14 0.14 0.14 0.14
ESOP(3).................................................. (0.04) (0.04) (0.04) (0.04)
RRP(4)................................................... (0.02) (0.02) (0.02) (0.02)
--------- --------- --------- ---------
Pro forma net income per share(4).................... $ 0.42 $ 0.37 $ 0.33 $ 0.30
========= ========= ========= =========
Ratio of offering price to pro forma net income per share
(annualized)........................................... 9.92x 11.26x 12.63x 13.89x
==== ===== ===== =====
Number of shares using 93-6............................... 1,294,198 1,522,584 1,750,972 2,013,618
Stockholders' Equity (Book Value)(7):
Historical.................................................. $ 12,029 $ 12,029 $ 12,029 $ 12,029
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds........................... 13,536 15,980 18,423 21,233
Less common stock acquired by:
ESOP(3).................................................... (1,122) (1,320) (1,518) (1,746)
RRP(4)..................................................... (561) (660) (759) (873)
--------- --------- --------- ---------
Pro forma stockholder's equity(4)...................... $ 23,882 $ 26,029 $ 28,175 $ 30,643
========= ========= ========= =========
Stockholders' Equity (Book Value)(7):
Per Share(6):
Historical.................................................. $ 8.58 7.29 6.34 $ 5.51
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds........................... 9.65 9.68 9.71 9.73
Less common stock acquired by:
ESOP(3).................................................... (0.80) (0.80) (0.80) (0.80)
RRP(4)..................................................... (0.40) (0.40) (0.40) (0.40)
--------- --------- --------- ---------
Pro forma book value per share(5)...................... $ 17.03 $ 15.77 $ 14.85 $ 14.04
========= ========= ========= =========
Pro forma price to book value................................. 58.72% 63.41% 67.34% 71.23%
===== ===== ===== =====
Number of shares.............................................. 1,402,500 1,650,000 1,897,500 2,182,125
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
At or For the Five Months Ended May 31, 1996
--------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
1,402,500 1,650,000 1,897,500 2,182,125
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
---------- ---------- ---------- ----------
(Dollars in Thousands, Except Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds................................................ $ 14,025 $ 16,500 $ 18,975 $ 21,821
Less offering expenses and commissions........................ (489) (520) (552) (588)
--------- --------- --------- ---------
Estimated net conversion proceeds........................... 13,536 15,980 18,423 21,233
Less ESOP shares.............................................. (1,122) (1,320) (1,518) (1,746)
Less RRP shares............................................... (561) (660) (759) (873)
--------- -------- --------- ---------
Estimated proceeds available for investment(1)............... $ 11,853 $14,000 $ 16,146 $ 18,614
========= ======= ========= =========
Net Income:
Historical.................................................. $ 1,055 $ 1,055 $ 1,055 $ 1,055
Pro Forma Adjustments:
Net earnings from proceeds(2).............................. 407 481 554 639
ESOP(3).................................................... (124) (146) (168) (193)
RRP(4)..................................................... (71) (83) (96) (110)
--------- ---------- ---------
Pro forma net income(5).................................. $ 1,267 $ 1,307 $ 1,345 $ 1,391
========= ======== ========= =========
Net Income Per Share:
Historical(6)............................................. $ 0.81 $ 0.69 $ 0.60 $ 0.52
Pro forma Adjustments:
Net earnings from proceeds............................... 0.31 0.31 0.32 0.32
ESOP(3).................................................. (0.10) (0.10) (0.10) (0.10)
RRP(4)................................................... (0.05) (0.05) (0.05) (0.05)
--------- --------- --------- ---------
Pro forma net income per share(4).................... $ 0.97 $ 0.85 $ 0.77 $ 0.69
========= ======== ========= =========
Ratio of offering price to pro forma net income per share. 10.31x 11.76x 12.99x 14.49x
===== ===== ===== =====
Number of shares using 93-6(3)..................... 1,299,650 1,529,000 1,758,350 2,022,103
Stockholders' Equity (Book Value)(7):
Historical.................................................. $ 11,724 $ 11,724 $ 11,724 $ 11,724
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds........................... 13,536 15,980 18,423 21,233
Less common stock acquired by:
ESOP(3).................................................... (1,122) (1,320) (1,518) (1,746)
RRP(4)..................................................... (561) (660) (759) (873)
--------- --------- --------- ---------
Pro forma book value(4)................................ $ 23,577 $ 25,724 $ 27,870 $ 30,338
========= ======== ========= =========
Stockholders' Equity (Book Value)(7):
Per Share(6):
Historical.................................................. $ 8.36 $ 7.11 $ 6.18 $ 5.37
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds........................... 9.65 9.68 9.71 9.73
Less common stock acquired by:
ESOP(3).................................................... (0.80) (0.80) (0.80) (0.80)
RRP(4)..................................................... (0.40) (0.40) (0.40) (0.40)
--------- -------- --------- ---------
Pro forma book value per share(5)...................... $ 16.81 $ 15.59 $ 14.69 $ 13.90
========= ======= ========= =========
Offering Price Per Share as a Percentage of Pro Forma
Stockholders' Equity Per Share............................. 59.49x 64.14x 68.07x 71.94x
===== ===== ===== =====
Number of shares.............................................. 1,402,500 1,650,000 1,597,500 2,182,125
</TABLE>
- --------------
(1) Reflects a reduction to net proceeds for the cost of the ESOP and the
RRP (which is subject to shareholder ratification) which it is assumed
will be funded from the net proceeds retained by the Holding Company.
33
<PAGE>
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Conversion. For purposes of
calculating pro forma net income, proceeds attributable to purchases by
the ESOP and RRP, which purchases are to be funded by the Holding
Company and the Bank, have been deducted from net proceeds.
(3) It is assumed that 8% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. The funds used to acquire
such shares will be borrowed by the ESOP from the net proceeds from the
Conversion retained by the Holding Company. The Bank intends to make
contributions to the ESOP in amounts at least equal to the principal
and interest requirement of the debt. The Bank's payment of the ESOP
debt is based upon equal installments of principal and interest over a
12-year period. However, assuming the Holding Company makes the ESOP
loan, interest income earned by the Holding Company on the ESOP debt
will offset the interest paid by the Bank. Accordingly, only the
principal payments on the ESOP debt are recorded as an expense
(tax-effected) to the Holding Company on a consolidated basis. The
amount of ESOP debt is reflected as a reduction of stockholders'
equity. In the event that the ESOP were to receive a loan from an
independent third party, both ESOP expense and earnings on the proceeds
retained by the Holding Company would be expected to increase.
(4) Adjustments to both book value and net earnings have been made to give
effect to the proposed open market purchase (based upon an assumed
purchase price of $10.00 per share) following Conversion by the RRP
(subject to stockholder ratification of such plan) of an amount of
shares equal to 4% of the shares of Common Stock sold in the Conversion
for the benefit of certain directors, officers and employees. Funds
used by the RRP to purchase the shares will be contributed to the RRP
by the Holding Company if the RRP is ratified by stockholders following
the Conversion. Therefore, this funding is assumed to reduce the
proceeds available for reinvestment. For financial accounting purposes,
the amount of the contribution will be recorded as a compensation
expense (although not an actual expenditure of funds) over the period
of vesting. These grants are scheduled to vest in equal annual
installments over the five years following stockholder ratification of
the RRP. However, all unvested grants will be forfeited in the case of
recipients who fail to maintain continuous service with the Holding
Company or its subsidiaries. In the event the RRP is unable to purchase
a sufficient number of shares of Common Stock to fund the RRP, the RRP
may issue authorized but unissued shares of Common Stock from the
Holding Company to fund the remaining balance. In the event the RRP is
funded by the issuance of authorized but unissued shares in an amount
equal to 4% of the shares sold in the Conversion, the interests of
existing stockholders would be diluted by approximately 3.8%.
In the event that the RRP is funded through authorized but unissued
shares, for the five months ended May 31, 1996 and year ended December
31, 1995, pro forma net income per share would be $0.38, $0.33, $0.30,
and $0.27 and $0.95, $0.83, $0.74 and $0.67, respectively, and pro
forma stockholders' equity per share would be $16.76, $15.56, $14.66
and $13.89 and $15.78, $14.61, $13.74 and $12.98, respectively, in each
case at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range.
(5) No effect has been given to the shares to be reserved for issuance
under the proposed Stock Option Plan which is expected to be adopted by
the Holding Company following the Conversion, subject to stockholder
approval. In the event the Stock Option Plan is funded by the issuance
of authorized but unissued shares in an amount equal to 10% of the
shares sold in the Conversion, at $10.00 per share, the interests of
existing stockholders would be diluted as follows: pro forma net income
per share for the five months ended May 31, 1996 and the year ended
December 31, 1995 would be $0.38, $0.33, $0.30, and $0.27, and $0.88,
$0.77, $0.69 and $0.62, respectively, and pro forma stockholders'
equity per share would be $16.39, $15.13, $14.41 and $13.68 and $16.19,
$15.08, $14.26 and $13.55, respectively, in each case at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range. In the alternative, the Holding Company may purchase shares in
the open market to fund the Stock Option Plan following stockholder
approval of such plan. To the extent, the entire 10% of the shares to
be reserved for issuance under the Stock Option Plan were funded
through open market purchases at the Purchase Price of $10.00 per
share, proceeds available for reinvestment would be reduced by
$1,402,500, $1,650,000, $1,897,500 and $2,182,125 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range. See "Management - Benefit Plans - Stock Option and Incentive
Plan."
(6) Historical pro forma per share amounts have been computed as if the
shares of Common Stock indicated had been outstanding at the beginning
of the periods or on the dates shown, but without any adjustment of
historical net income or historical equity to reflect the investment of
the estimated net proceeds of the sale of shares in the Conversion as
described above. All ESOP shares have been considered outstanding for
purposes of computing book value per share. Pro forma share amounts
have been computed by dividing the pro forma net income or
stockholders' equity (book value) by the number of shares indicated.
(7) "Book value" represents the difference between the stated amounts of
the Bank's assets (based on historical cost) and liabilities computed
in accordance with generally accepted accounting principles. The
amounts shown do not reflect the effect of the Liquidation Account
which will be established for the benefit of Eligible and Supplemental
Eligible Account Holders in the Conversion, or the federal income tax
consequences of the restoration to income of the Bank's special bad
debt reserves for income tax purposes which would be required in the
unlikely event of liquidation. See "The Conversion - Effects of
Conversion to Stock Form on Depositors and Borrowers of the Bank" and
"Regulation - Federal and State Taxation." The amounts shown for book
value do not represent fair market values or amounts, if any,
distributable to stockholders in the unlikely event of liquidation.
34
<PAGE>
PRO FORMA REGULATORY CAPITAL ANALYSIS
At May 31, 1996, the Bank would have exceeded each of the OTS capital
requirements on both a current and a fully phased-in basis. Set forth below is a
summary of the Bank's compliance with the OTS capital standards as of May 31,
1996 based on historical capital and also assuming that the indicated number of
shares were sold as of such date using the assumptions contained under the
caption "Pro Forma Data."
<TABLE>
<CAPTION>
Pro Forma at May 31, 1996
---------------------------------------------------
1,402,500 Shares 1,650,000 Shares
Historical Minimum Midpoint
---------------------- ---------------------- ----------------------
Amount Percent Amount Percent(1) Amount Percent(1)
-------- ------- ------ ---------- ------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
GAAP Capital(2)............ $12,029 21.9% $17,114 28.6% $18,039 29.6%
Tangible Capital(3):
Capital level............ $12,107 22.1.% $17,192 28.7% $18,117 29.8%
Requirement.............. 823 1.5 899 1.5 913 1.5
-------- ----- -------- ----- -------- -----
Excess................... $11,284 20.6% $16,293 27.2% $17,204 28.3%
======= ==== ======= ===== ======= =====
Core Capital(3):
Capital level............ $12,107 22.1% $17,192 28.7% $18,117 29.8%
Requirement(4)........... 1,646 3.0 1,798 3.0 1,826 3.0
-------- ----- -------- ----- -------- -----
Excess................... $10,461 19.1% $15,394 25.7% $16,291 26.8%
======= ===== ======= ===== ======= =====
Risk-Based Capital(3):
Capital level(5)......... $12,293 57.1% $17,378 77.1% $18,303 80.6%
Requirement(6)........... 1,721 8.0 1,802 8.0 1,817 8.0
-------- ----- -------- ----- -------- -----
Excess................... $10,572 49.1% $15,576 69.1% $16,486 72.6%
======= ===== ======= ==== ======= ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma at May 31, 1996
----------------------------------------------------
2,182,125 Shares
1,897,500 Shares 15% above
Maximum Maximum
----------------------- ----------------------
Amount Percent(1) Amount Percent(1)
------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
GAAP Capital(2)............ $18,964 30.7% $20,027 31.9%
Tangible Capital(3):
Capital level............ $19,042 30.8% $20,105 32.0%
Requirement.............. 927 1.5 943 1.5
-------- ----- -------- -----
Excess................... $18,115 29.3% $19,162 30.5%
======= ==== ======= ====
Core Capital(3):
Capital level............ $19,042 30.8% $20,105 32.0%
Requirement(4)........... 1,854 3.0 1,886 3.0
-------- ----- -------- -----
Excess................... $17,188 27.8% $18,219 29.0%
======= ===== ======= =====
Risk-Based Capital(3):
Capital level(5)......... $19,228 84.0% $20,291 87.8%
Requirement(6)........... 1,832 8.0 1,849 8.0
------- ----- ------- -----
Excess................... 17,396 76.0% $18,442 79.8%
====== ==== ======= ====
</TABLE>
- -----------
(1) Pro forma amounts and percentages assume net proceeds are invested in
assets that carry a 20% risk-weight, such as short-term
interest-bearing deposits.
(2) Total retained earnings as calculated under generally accepted
accounting principles ("GAAP"). Assumes that the Bank receives 50% of
the net proceeds, offset in part, by the aggregate Purchase Price of
Common Stock acquired at a price of $10.00 per share by the ESOP in the
Conversion and the RRP (assuming stockholder ratification of such plan
following completion of the Conversion).
(3) Tangible and core capital figures are determined as a percentage of
adjusted total assets; risk-based capital figures are determined as a
percentage of risk-weighted assets. Unrealized gains and losses on debt
securities available for sale are excluded from tangible, core and
risk-based capital.
(4) In April 1991, the OTS proposed a core capital requirement for savings
associations comparable to the requirement for national banks that
became effective on November 30, 1990. This proposed core capital ratio
is 3% of total adjusted assets for thrifts that receive the highest
supervisory rating for safety and soundness ("CAMEL" rating), with a 4%
to 5% core capital requirement for all other thrifts. See "Regulation -
Regulatory Capital Requirements."
(5) Includes $186,000 of general valuation allowances, all of which
qualify as supplementary capital. See "Regulation - Regulatory Capital
Requirements."
35
<PAGE>
CAPITALIZATION
Set forth below is the capitalization, including deposits, of
Preferred Savings as of May 31, 1996, and the pro forma capitalization of the
Holding Company at the minimum, the midpoint, the maximum and 15% above the
maximum of the Estimated Valuation Range, after giving effect to the Conversion
and based on other assumptions set forth in the table and under the caption "Pro
Forma Data."
<TABLE>
<CAPTION>
Holding Company - Pro Forma Based
Upon Sale at $10.00 per share
---------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
Existing 1,402,500 1,650,000 1,897,500 2,182,125
Capitalization Shares Shares Shares Shares
-------------- --------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(1)................................. $41,945 $41,945 $41,945 $41,945 $41,945
======= ======= ======= ======= =======
Stockholders' Equity:
Serial Preferred Stock ($0.01 par value)
authorized - 100,000 shares; none to be
outstanding............................... $ --- $ --- $ --- $ --- $ ---
Common Stock ($0.01 par value authorized
- 2,500,000 shares to be outstanding (as
shown)(2)................................. --- 14 17 19 22
Additional paid-in capital................ --- 13,522 15,963 18,404 21,211
Retained earnings, substantially
restricted(3)............................. 12,107 12,107 12,107 12,107 12,107
Less:
Net unrealized loss on securities
available for sale...................... 78 78 78 78 78
Common Stock acquired by ESOP(4).......... --- 1,122 1,320 1,518 1,746
Common Stock acquired by RRP(4)........... --- 561 660 759 873
------- ------- ------- ------- -------
Total Stockholders' Equity.................. $12,029 $23,882 $26,029 $28,175 $30,643
======= ======= ======= ======= =======
</TABLE>
(1) No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing Common Stock in the Conversion. Any such
withdrawals will reduce pro forma deposits by the amount of such
withdrawals.
(2) Does not reflect the shares of Common Stock that may be reserved for
issuance pursuant to the Stock Option Plan.
(3) See "Dividends" and "Regulation - Limitations on Dividends and Other
Capital Distributions" regarding restrictions on future dividend
payments and "The Conversion - Effects of Conversion to Stock Form on
Depositors and Borrowers of the Bank" regarding the liquidation account
to be established upon Conversion.
(4) Assumes that 8% of the shares sold in the Conversion will be purchased
by the ESOP. The funds used to acquire the ESOP shares will be borrowed
from the Holding Company. The Bank intends to make contributions to the
ESOP sufficient to service and ultimately retire the ESOP's debt. Also
assumes that an amount of shares equal to 4% of the amount of shares
sold in the Conversion will be acquired by the RRP, following
shareholder ratification of such plan after completion of the
Conversion. In the event that the RRP is funded by the issuance of
authorized but unissued shares in an amount equal to 4% of the shares
sold in the Conversion, the interest of existing stockholders would be
diluted by approximately 3.8%. The amount to be borrowed by the ESOP
and the Common Stock acquired by the RRP is reflected as a reduction of
stockholders' equity. See "Management - Benefit Plans - Employee Stock
Ownership Plan" and "- Recognition and Retention Plan."
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Bank is a financial intermediary engaged primarily in attracting
deposits from the general public and using such deposits to originate one- to
four-family residential mortgage and, to a significantly lesser extent,
multi-family, commercial real estate, construction and consumer loans primarily
in its market area. The Bank's revenues are derived principally from interest
earned on loans and, to a lesser extent, from interest earned on investments and
mortgage-backed and related securities. The operations of the Bank are
influenced significantly by general economic conditions and by policies of
financial institution regulatory agencies, including the OTS and the FDIC. See
"Risk Factors - Regulatory Oversight" and "- Competitive Disadvantage Caused by
the Disparity Between BIF and SAIF Insurance Premiums." The Bank's cost of funds
is influenced by interest rates on competing investments and general market
interest rates. Lending activities are affected by the demand for financing of
real estate and other types of loans, which in turn is affected by the interest
rates at which such financings may be offered.
The Bank's net interest income is dependent primarily upon the
difference or spread between the average yield earned on loans receivable, net
and investments and the average rate paid on deposits, as well as the relative
amounts of such assets and liabilities. The Bank, like other thrift
institutions, is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or reprice at different times, or on a
different basis, than its interest-earning assets.
Financial Condition
Comparison of Financial Condition at May 31, 1996 and December 31, 1995
Total assets at May 31, 1996 were $54.9 million compared to $53.5
million at December 31, 1995, an increase of $1.4 million, or 2.6%. The increase
in total assets was due primarily to increases in loans receivable and
securities available for sale, partially offset by decreases in cash and cash
equivalents and mortgage-backed securities available for sale. The increase in
loans receivable and securities available for sale was largely the result of an
increase in deposits as discussed below.
Total liabilities at May 31, 1996 were $42.8 million compared to $41.8
million at December 31, 1995, an increase of $1.0 million, or 2.4%. Total
deposits increased by $900,000 from $41.0 million at December 31, 1995 to $41.9
million at May 31, 1996 due to an increase in certificates of deposit of
$300,000 and an increase in passbook savings and money markets of $600,000 as a
result of local economic and competitive factors. In addition, other liabilities
increased by $128,000 as a result of an increase in accrued federal and state
income taxes of $83,000 and accrued interest payable on deposit accounts, which
is paid at quarter end, of $173,000.
Total equity at May 31, 1996 was $12.0 million compared to $11.7
million at December 31, 1995, an increase of $300,000, or 2.6% as a result of
$440,000 in net income
37
<PAGE>
for the period, offset by a change in unrealized gain (loss) on securities
available for sale from $57,000 at December 31, 1995 to ($78,000) at May 31,
1996.
Comparison of Financial Condition at December 31, 1995 and December 31, 1994
Total assets at December 31, 1995 were $53.5 million compared to $51.6
million at December 31, 1994, an increase of $1.9 million, or 3.7%. The Bank
increased the amount of net loans receivable by $1.6 million, from $32.9 million
at December 31, 1994 to $34.5 million at December 31, 1995, primarily due to
lower levels of mortgage interest rates in 1995, which spurred increased
customer demand. Securities available-for-sale increased by $5.0 million from
$9.0 million to $14.0 million as a result of the investment of funds from the
maturity of interest-bearing term deposits in other financial institutions and
securities held-to-maturity. The Bank also increased the amount of cash and cash
equivalents from $1.4 million at December 31, 1994 to $3.8 million at December
31, 1995 as a result of these maturities.
Total liabilities were $41.8 million at December 31, 1995 compared to
$41.1 million at December 31, 1994, an increase of $700,000, or 1.7%. Total
deposit accounts increased by $1.0 million from $40.0 million at December 31,
1994 to $41.0 million at December 31, 1995 largely as a result of higher
interest rates offered by the Bank in 1995. This increase was partially offset
by a decrease in advances from borrowers for taxes and insurance of $396,000 as
a result of changes in federal regulations which became effective during 1995
reducing the amount of escrowed funds required to be maintained by the Bank for
borrowers.
Equity at December 31, 1995 was $11.7 million compared to $10.5 million
at December 31, 1994, an increase of $1.1 million or 11.4%, reflecting income of
$1.1 million for the year and a change in unrealized gains (loss) on securities
available for sale from ($101,000) at December 31, 1994 to $57,000 at December
31, 1995.
Results of Operations
The Bank's results of operations depend primarily upon the level of net
interest income, which is the difference between the interest income earned on
its interest-earning assets such as loans and securities, and the costs of the
Bank's interest-bearing liabilities, primarily deposits and borrowings. Results
of operations are also dependent upon the level of the Bank's noninterest
income, including fee income and service charges, and affected by the level of
its noninterest expenses, including its general and administrative expenses. Net
interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them,
respectively.
Comparison of Operating Results for the Five Months Ended May 31, 1996 and May
31, 1995
General. Net earnings for the five months ended May 31, 1996 were
$440,000, a decrease of $49,000 or 10.0%, from net earnings of $489,000 for the
five months ended May 31, 1995. The decrease was primarily a result of an
increase in the provision for loan losses.
38
<PAGE>
Interest Income. Interest income for the five months ended May 31, 1996
was $1.9 million compared to $1.8 million for the five months ended May 31,
1995, an increase of $100,000, or 5.6%. The increase in interest income was the
result of an increase in the average balance of interest-earning assets from
$50.7 million for the five months ended May 31, 1995 to $53.1 million for the
five months ended May 31, 1996. The increase in average balance of
interest-earning assets was largely the result of a $1.5 million increase in the
average balance of loans receivable. In addition, the average balance of other
interest-earning assets decreased by $2.8 million which was reinvested in
mortgage-backed securities and US government and federal agency obligations. The
average yield on interest-earning assets increased slightly to 8.38% for the
five months ending May 31, 1996 from 8.33% for the five months ending May 31,
1995. The average yield on mortgage-backed securities increased from 5.20% for
the five months ended May 31, 1995 to 5.95% for the five months ended May 31,
1996 as a result of the purchase of higher yielding mortgage-backed securities,
and the upward repricing of adjustable-rate mortgage-backed securities which
more than offset a decrease in the yield on securities from 6.95% to 6.73% for
the same period due to the redemption of higher yielding securities. In
addition, the yield on other interest-earning assets decreased from 6.13% to
6.00% due primarily to increased average balances of cash at the Federal Home
Loan Bank with lower yields combined with decreases in other interest-earning
assets with higher yields.
Interest Expense. Interest expense for the five months ended May 31,
1996 was $725,000 compared to $632,000 for the five months ended May 31, 1995,
an increase of $93,000, or 14.7%. The increase in interest expense was due in
part to an increase in the average balance of interest-bearing liabilities from
$39.9 million for the five months ended May 31,1995 to $41.6 million for the
five months ended May 31, 1996. The increase in interest expense also reflects
the higher interest rate environment, as the average cost of interest-bearing
liabilities increased 39 basis points from 3.79% for the five months ended May
31, 1995 to 4.18% for the five months ended May 31, 1996. This increase reflects
the increase in the cost of certificates of deposit from 4.74% for the five
months ended May 31, 1995 to 5.43% for the five months ended May 31, 1996. The
average balance of certificates of deposit increased from $18.0 million for the
five months ended May 31, 1995 to $20.3 million for the five months ended May
31, 1996. The increase in the average balance of certificate of deposit accounts
resulted from the increased customer demand arising from higher interest rates
paid by the Bank on these accounts, in response to higher market rates.
Net Interest Income. Net interest income remained stable at $1.1
million for the five months ended May 31, 1996 compared to the five months ended
May 31, 1995. The average net interest spread narrowed from 4.54% for the five
months ended May 31, 1995 to 4.20% for the five months ended May 31, 1996, due
to a higher average cost of interest-bearing liabilities.
Provision for Loan Losses. The Bank recorded a $50,000 provision for
loan losses for the five months ended May 31, 1996 compared to no provision for
the five months ended May 31, 1995. The increase was primarily a result of
increased delinquencies of multi-family and commercial real estate loans.
Management does not anticipate increased delinquencies to become a trend. At May
31, 1996, the Bank's allowance for loan losses totaled $186,000, or .51% of
total loans and 10.81% of total non-performing loans. The amount of the
provision and allowance for estimated losses on loans is influenced by current
economic conditions, actual loss experience, industry trends and other factors,
such as adverse economic conditions, including
39
<PAGE>
declining real estate values, in the Bank's market area. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for estimated losses on loans. Such
agencies may require the Bank to provide additions to the allowance based upon
judgments which differ from those of management. The absence of a loan loss
provision for the five months ended May 31, 1995 is indicative of management's
assessment of the adequacy of the allowance for loan losses, given the trends in
historical loss experience of the portfolio and current economic conditions, as
well as the fact that the majority of loans are single-family residential loans
and the loan-to-values are generally less than 80%. Although management uses the
best information available and maintains the Bank's allowance for loan losses at
a level it believes adequate to provide for losses, future adjustments to the
allowance may be necessary due to economic, operating, regulatory and other
conditions that may be beyond the Bank's control. In view of the Bank's focus on
one- to four-family lending, management does not expect the Bank's provision to
increase in the future at the rate it did for the most recent period, although
there can be no assurance that management's expectation will be accurate.
Noninterest Income. Noninterest income for the five months ended May
31, 1996 was $27,000 compared to $24,000 for the five months ended May 31, 1995,
an increase of $3,000, or 12.5%. The increase was primarily a result of an
increase in service fees collected.
Noninterest Expense. Noninterest expense was $353,000 for the five
months ended May 31, 1996 compared to $344,000 for the five months ended May 31,
1995, an increase of $9,000, or 2.6%. The increase was primarily a result of
increased loan expense of $10,000 due to the increase in the volume of loan
applications. Occupancy and equipment expense increase by $4,000 as a result of
increased property tax assessment and repairs and maintenance expenses. These
increases were partially offset by a decrease in compensation and benefits of
$10,000 as a result of an increase in the deferral of loan costs in accordance
with Statement of Financial Accounting Standards No. 91.
Management anticipates that non-interest expense will increase in the
future due to increased costs associated with operations as a public company,
including certain of the stock-based compensation plans proposed to be adopted
in connection with the Conversion and the hiring of additional support staff. In
addition, the deposits of savings associations such as the Bank are presently
insured by the SAIF, which, along with the BIF, is one of the two insurance
funds administered by the FDIC. Financial institutions which are members of the
BIF are experiencing substantially lower deposit insurance premiums because the
BIF has achieved its required level of reserves while the SAIF has not yet
achieved its required reserves. A recapitalization plan for the SAIF under
consideration by Congress reportedly provides for a special assessment of 0.85%
to 0.90% of deposits to be imposed on all SAIF-insured institutions to enable
the SAIF to achieve its required level of reserves. If the proposed assessment
of 0.90% was effected based on deposits as of March 31, 1995 (as proposed), the
Bank's special assessment would amount to approximately $238,000, after taxes.
Accordingly, this special assessment would significantly increase non-interest
expense and adversely affect the Holding Company's results of operations.
Conversely, depending upon the Bank's capital level and supervisory rating, and
assuming the insurance premium levels for BIF and SAIF members are again
equalized, future deposit insurance premiums are expected to decrease
significantly, to as low as $2,000 per year from the 0.23% of deposits currently
paid by the Bank, which would
40
<PAGE>
significantly reduce non-interest expense for future periods if enacted as
proposed. See "Risk Factors - Proposed Special Assessment on SAIF-Insured
Deposits."
Income Tax Expense. The provision for income taxes totalled $312,000
for the five months ended May 31, 1996 compared to $317,000, a decrease of
$5,000, or 1.6%. The decrease was due largely to a decrease in income before
income taxes of $54,000 and an increase interest income from U.S. Treasury
securities which is exempt from Illinois taxation.
Comparison of Operating Results for the Years Ended December 31, 1995 and
December 31, 1994
General. Net income for the year ended December 31, 1995 was $1.1
million compared to $758,000 for the year ended December 31, 1994, an increase
of $342,000, or 45.1%. The operating results were primarily affected by the
decrease in security losses and the provision for loan losses in 1995, partially
offset by an increase in noninterest expense.
Interest Income. Interest income for the year ended December 31, 1995
was $4.3 million compared to $3.9 million for the year ended December 31, 1994,
an increase of $400,000, or 10.3%. A contributing factor in the increase in
interest income was a $733,000 increase in the average balance of
interest-earning assets coupled with a 69 basis point increase in the yield on
average interest-earning assets from 7.62% for the year ended December 31, 1994
to 8.31% for the year ended December 31, 1995. The increase in the average
balance of interest-earning assets was due to increases in the average balance
of loans receivable of $2.4 million and securities of $1.9 million due to the
investment of proceeds from the repayment of maturing investment certificates of
deposit and excess cash at the FHLB. The average yield on loans decreased from
9.56% at December 31, 1994 to 9.25% at December 31, 1995 due to the general
decline in mortgage rates in 1995 as compared to 1994. The average yield on
investment securities increased from 4.46% to 7.05% during the same periods due
to the purchase of higher yielding securities and the maturity of lower yielding
securities. The average balance of other interest earning assets decreased $3.6
million due to the maturity of investment certificates of deposit while the
average yield on such assets increased from 4.28% to 6.22% due to the maturity
of lower yielding investment certificates of deposit.
Interest Expense. Interest expense for the year ended December 31, 1995
was $1.6 million compared to $1.3 million for the year ended December 31, 1994,
an increase of $300,000, or 23.1%. The increase in interest expense reflects a
higher interest rate environment, as the average cost of interest-bearing
liabilities increased by 81 basis points from 3.24% for the year ended December
31, 1994 to 4.05% for the year ended December 31, 1995. Although total average
interest-bearing liabilities remained relatively stable, customers shifted their
deposits from savings accounts to higher yielding certificates of deposit. The
average cost of savings accounts increased from 2.85% for the year ended
December 31, 1994 to 3.02% for the year ended December 31, 1995. The average
cost of certificates of deposit increased from 3.80% to 5.22% for the same
period.
Net Interest Income. Net interest income of $2.6 million for the year
ended December 31, 1995 represented a $100,000 increase from the $2.5 million
reported for the year ended December 31, 1994. This increase in net interest
income was a result of the increase in average interest-earning assets to
average interest-bearing liabilities from 125.08% for the year
41
<PAGE>
ended December 31, 1994 to 127.21% for the year ended December 31, 1995. This
increase was partially offset by a narrowing of the average net interest spread
from 4.38% for the year ended December 31, 1994 to 4.26% for the year ended
December 31, 1995. The narrowing of the net interest spread was a result of the
average cost of interest-bearing liabilities increasing more rapidly than the
average yield on interest-earning assets.
Provision for Loan Losses. The Bank's provision for loan losses on
loans for the year ended December 31, 1995 was zero compared to $42,000 for the
year December 31, 1994. The amount of the provision and allowance for estimated
losses on loans is influenced by current economic conditions, actual loss
experience, industry trends and other factors, such as adverse economic
conditions, including declining real estate values, in the Bank's market area.
The decrease in the provision for loan losses is indicative of management's
assessment of the adequacy of the allowance for loan losses, given the positive
trends in historical loss experience of the portfolio and the strength of the
local economy and current economic conditions, as well as the fact that the
majority of loans are single-family residential loans and the loan-to-values are
generally less than 80%. At December 31, 1995, the Bank's allowance for loan
losses totaled $136,000 or .39% of total loans and 6.49% of total non-performing
loans.
Noninterest Income. Noninterest income for the year ended December 31,
1995 was $58,000 compared to $(289,000) for the year ended December 31, 1994, an
increase of $347,000. The increase was primarily a result of a $365,000 decrease
in security losses in 1995 from 1994, partially offset by an $18,000 decrease in
other income in 1995.
Noninterest Expense. Noninterest expense for the year ended December
31, 1995 was $1.0 million compared to $838,000 for the year ended December 31,
1994, an increase of $162,000, or 19.3%. The increase was primarily a result of
a $199,000 increase in compensation and benefits, partially offset by a $9,000
decrease in occupancy and equipment expense and a $19,000 decrease in other
operating expenses. The primary increase in compensation and benefits was due to
the termination of the Bank's pension plan during 1995 which resulted in an
increase in pension expense of $132,000.
Income Taxes. Income tax expense was $630,000 for the year ended
December 31, 1995 compared to $617,000 for the year ended December 31, 1994, an
increase of $13,000. The increase was largely a result of an increase in income
before income taxes from $1.4 million for the year ended December 31, 1994 to
$1.7 million for the year ended December 31, 1995, partially offset by an
increase in the deferred tax valuation allowance of $89,000 in 1994. See Note 9
of the Notes to the Consolidated Financial Statements for additional information
on the Bank's income taxes.
42
<PAGE>
Comparison of Operating Results for the Year Ended December 31, 1994 and the Ten
Months Ended December 31, 1993
General. The Bank reported net income for the year ended December 31,
1994 of $758,000 compared to net income of $942,000 for the ten months ended
December 31, 1993, a decrease of $184,000, or 19.5%. The operating results were
primarily affected by losses on securities sales of $365,000 in 1994 compared to
$28,000 in 1993 and an increase in compensation and benefits of $110,000 of
which $63,000 was due to two additional months of expense in 1994. In addition,
net interest income increased by $311,000 of which $446,000 was due to two
additional months of operations in 1994 offset by a decrease of $134,000 as a
result of the decreasing rate environment.
Interest Income. Interest income for the year ended December 31, 1994
was $3.9 million compared to $3.4 million for the ten months ended December 31,
1993, an increase of $500,000, or 14.7%. This increase in interest income was
primarily the result of two additional months of operations during 1994 as
compared to 1993. Interest income for the year ended December 31, 1994 compared
to the annualized interest income for the ten months ended December 31, 1993
decreased by $200,000. A contributing factor in the decrease in interest income
on an annualized basis was the 59 basis point decline in the average yield on
interest-earning assets from 8.21% (annualized) for the ten months ended
December 31, 1993 to 7.62% for the year ended December 31, 1994. The decrease in
interest income due to lower interest rates was partially mitigated by an
increase in average interest-earning assets from $49.7 million for the ten
months ended December 31, 1993 to $50.6 million for the year ended December 31,
1994. The average yield on loans decreased by 65 basis points, from 10.21%
(annualized) for the ten months ended December 31, 1993 to 9.56% for the year
ended December 31, 1994, primarily as a result of higher yielding loans being
repaid and replaced by loans originated at lower prevailing rates.
Interest Expense. Interest expense for the year ended December 31, 1994
was $1.3 million compared to $1.2 million for the ten months ended December 31,
1993, an increase of $100,000, or 8.3%. This increase in interest expense was
due largely to the two additional months of operations during 1994 as compared
to 1993. Interest expense for the year ended December 31, 1994 compared to the
annualized interest expense for the ten months ended December 31, 1993 decreased
by $100,000. The decrease in interest expense on an annualized basis was due in
part to the 19 basis point decline in the average cost of interest-bearing
liabilities from 3.43% (annualized) for the ten months ended December 31, 1993
to 3.24% for the year ended December 31, 1994, as a result of the Bank's
decision to reduce the rates paid on its deposits in light of the lower rate
environment experienced during fiscal 1994.
Net Interest Income. Net interest income was $2.5 million for the year
ended December 31, 1994 compared to $2.2 million on an annualized basis for the
ten months ended December 31, 1993. The decrease in annualized net interest
income resulted primarily from the narrowing of the net interest spread from
4.78% (annualized) for the ten months ended December 31, 1993 to 4.38% for the
year ended December 31, 1994. The narrowing of the net interest spread was a
result of interest-earning assets repricing more rapidly than interest-bearing
liabilities in a declining rate environment during 1994.
43
<PAGE>
Provision for Loan Losses. The Bank's provision for loan losses on
loans was $42,000 for the year ended December 31, 1994 compared to $27,000 for
the ten months ended December 31, 1993. The amount of the provision and
allowance for estimated losses on loans is influenced by current economic
conditions, actual loss experience, industry trends and other factors, such as
adverse economic conditions, including declining real estate values, in the
Bank's market area. The increase in the provision for loan losses in 1994 is
indicative of management's assessment of the adequacy of the allowance for loan
losses, and specific delinquency situations.
Noninterest Income. Noninterest income was $(289,000) for the year
ended December 31, 1994 compared to $12,000 for the ten months ended December
31, 1993, a decrease of $301,000. The decrease in noninterest income was due to
a $365,000 loss on security sales for the year ended December 31, 1994 compared
to a $28,000 loss for the ten months ended December 31, 1993. The $365,000 loss
on securities in 1994 was the result of the sale of mutual funds in an effort to
restructure the portfolio. This decrease was partially offset by an increase in
other income of $36,000 due primarily to the increased service charges and
$8,000 due to two additional months of income in 1994.
Noninterest Expense. Noninterest expense was $838,000 for the year
ended December 31, 1994 compared to $647,000 for the ten months ended December
31, 1993, an increase of $191,000, or 29.5%. Compensation and benefits increased
by $110,000 of which $63,000 was due to two additional months of expense during
1994. The remaining increase of $47,000 was due to increased pension plan
expense and the addition of a Bank officer during 1994. In addition, occupancy
and equipment expense increased by $27,000 of which $18,000 was due to two
additional months of expense in 1994 and $9,000 was due to increased
expenditures on repairs and maintenance during 1994.
Income Taxes. The provision for income taxes was $617,000 for the year
ended December 31, 1994 compared to $628,000 for the ten months ended December
31, 1993, a decrease of $11,000, or 1.8%. The decrease in the provision for
income taxes was due to a decrease in pretax income of $195,000 partially offset
by an increase in the deferred tax valuation allowance in 1994.
Analysis of Net Interest Income
Net interest income represents the difference between interest earned
on interest-earning assets and interest paid on interest-bearing liabilities.
Net interest income depends on the volumes of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.
44
<PAGE>
The following table presents for the periods indicated the total dollar
amount of interest income from average interest earning assets and the resultant
yields, as well as the interest expense on average interest bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made.
All average balances are monthly average balances. Non-accruing loans have been
included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
Five Months Ended May 31, Year Ended December 31,
----------------------------------------------------------- -----------------------------
1996(3) 1995(3) 1995
----------------------------- ---------------------------- ----------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
----------- -------- ------ ----------- -------- ------ ----------- ------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable(1)............ $35,294 $1,377 9.36% $33,783 $1,313 9.32% $34,131 $3,156 9.25%
Securities(2).................. 10,807 303 6.73 7,735 224 6.95 9,250 652 7.05
Mortgage-backed securities..... 4,074 101 5.95 3,511 76 5.20 3,549 186 5.24
Other.......................... 2,879 72 6.00 5,674 145 6.13 4,407 274 6.22
------- ------ ------- ------ ------- ------
Total interest-earning
assets(1)(2) $53,054 1,853 8.38% $50,703 1,758 8.33% $51,337 4,268 8.31
======= ------ ======= ------ ======= ------
Interest-Earning Liabilities:
Passbook savings............... $21,334 267 3.00% $21,922 277 3.02% $21,512 649 3.02
Certificate accounts........... 20,250 458 5.43 17,982 355 4.74 18,843 983 5.22
------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities $41,584 725 4.18 $39,904 632 3.79 $40,355 1,632 4.05
======= ------ ======= ------ ======= ------
Net interest income............. $1,128 $1,126 $2,636
====== ====== ======
Net interest rate spread........ 4.20% 4.54% 4.26%
==== ==== ====
Net earning assets.............. $11,470 $10,799 $10,982
======= ======= =======
Net yield on average interest-
earning assets................. 5.09% 5.33% 5.13%
==== ==== ====
Average interest-earning assets
to average interest-bearing
liabilities 127.58% 127.06% 127.21%
====== ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------- Ten Months Ended December 31,
1994 1993(3)
--------------------------- -----------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
----------- ------- ------ ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable(1)............ $31,685 $3,014 9.56% $32,708 $2,783 10.21%
Securities(2).................. 7,357 327 4.46 9,919 391 4.74
Mortgage-backed securities..... 3,600 172 4.78 184 2 1.30
Other.......................... 7,962 341 4.28 6,909 225 3.91
------- ------ ------- ------
Total interest-earning
assets(1)(2) $50,604 3,854 7.62 $49,720 3,401 8.21
======= ------ ======= ------
Interest-Earning Liabilities:
Passbook savings............... $23,882 680 2.85 $24,508 575 2.82
Certificate accounts........... 16,576 630 3.80 16,320 594 4.37
------- ------ ------- ------
Total interest-bearing
liabilities $40,458 1,310 3.24 $40,828 1,169 3.43
======= ------ ---- ======= ------
Net interest income............. $2,544 $2,232
====== ======
Net interest rate spread........ 4.38% 4.78%
==== ====
Net earning assets.............. $10,146 $8,892
======= ======
Net yield on average interest-
earning assets................. 5.03% 5.39%
==== ====
Average interest-earning assets
to average interest-bearing
liabilities 125.08% 121.78%
====== ======
</TABLE>
- -------------
(1) Calculated net of deferred loan fees, loan discounts, loans in process
and loss reserves.
(2) Calculated based on amortized cost.
(3) Annualized yield/rate.
45
<PAGE>
The following table presents the weighted average yields earned on
loans, securities and other interest-earning assets, and the weighted average
rates paid on savings deposits and the resultant interest rate spreads at the
date indicated. Weighted average balances are based on monthly balances.
<TABLE>
<CAPTION>
At December 31,
At May 31, -----------------------------------
1996 1995 1994 1993
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average yield on:
Loans receivable............................................... 8.64% 8.75% 8.81% 9.15%
Mortgage-backed securities..................................... 6.08 6.08 5.51 6.00
Securities..................................................... 6.67 6.98 6.95 4.46
Other interest-earning assets.................................. 5.49 5.22 5.18 3.25
Combined weighted average yield on interest-earning
assets................................................... 7.84 7.98 7.87 7.07
Weighted average rate paid on:
Passbook savings deposits...................................... 3.02 3.02 3.05 2.81
Certificate accounts........................................... 5.33 5.58 4.33 3.67
Combined weighted average rate paid on interest-bearing
liabilities............................................... 4.14 4.27 3.61 3.15
Spread.......................................................... 3.70 3.71 4.26 3.92
</TABLE>
- ----------
(1) Excluding amortization of deferred loan fees.
46
<PAGE>
The following schedule presents the dollar amount of changes in
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. It distinguishes between the changes
related to outstanding balances and that due to the changes in interest rates.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Five Months Ended
May 31, Year Ended December 31,
1995 vs. 1996 1994 vs. 1995
----------------------------------- -----------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Total Due to Total
------------------ Increase ------------------ Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable.................................... $ 59 $ 5 $ 64 $228 $(86) $142
Mortgage-backed securities.......................... 13 12 25 (2) 16 14
Securities.......................................... 86 (7) 79 99 226 325
Other............................................... (70) (3) (73) (186) 119 (67)
----- ---- ---- ---- ---- ----
Total interest-earning assets..................... $ 88 $ 7 95 $139 $275 414
===== ==== ---- ==== ==== ----
Interest-bearing liabilities:
Passbook savings deposits........................... $ (8) $ (2) (10) $(70) $(39) (31)
Certificate accounts................................ 49 54 103 95 258 353
----- ---- ---- ---- ---- ----
Total interest-bearing liabilities................ $ 41 $ 52 93 $ 25 $297 322
===== ==== ---- ==== ==== ----
Net interest income.................................. $ 2 $ 92
==== ====
</TABLE>
<TABLE>
<CAPTION>
Ten Months Ended
December 31, 1993(1) vs.
Year Ended December 31, 1994
-----------------------------
Increase
(Decrease)
Due to Total
----------------- Increase
Volume Rate (Decrease)
------ ---- ----------
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable.................................... $ (102) $(225) $(327)
Mortgage-backed securities.......................... 144 26 170
Securities.......................................... (116) (26) (142)
Other............................................... 44 27 71
------ ----- -----
Total interest-earning assets..................... $ (30) $(198) (228)
====== ===== -----
Interest-bearing liabilities:
Passbook savings deposits........................... $ (18) $ 8 (10)
Certificate accounts................................ 11 (94) (83)
------ ----- -----
Total interest-bearing liabilities................ $ (7) $ (86) (93)
====== ===== -----
Net interest income.................................. $(135)
=====
</TABLE>
- --------------
(1) Ten months ended December 31, 1993 is annualized.
47
<PAGE>
Asset/Liability Management
The measurement and analysis of the exposure of the Bank to changes in
the interest rate environment is referred to as asset/liability management. One
method used to analyze the Bank's sensitivity to changes in interest rates is to
measure the difference between the amount of interest-earning assets which are
anticipated to mature or reprice within a given period of time as compared to
the amount of interest-bearing liabilities which are expected to mature or
reprice within the same period. This difference is known as the interest rate
sensitivity "gap". A gap is considered positive when the amount of interest rate
sensitive assets exceed the amount of interest rate sensitive liabilities in a
given period. A gap is considered negative when the amount of interest rate
sensitive liabilities exceed the amount of interest rate sensitive assets in a
given period.
In a period of declining interest rates, a negative gap would
theoretically be expected to enhance net interest income as maturing and/or
repricing liabilities can be replaced with lower rate liabilities more quickly
than the rate would decline on maturing assets. Conversely, a positive gap would
theoretically tend to adversely affect net interest income in a period of
declining rates. In a period of rising interest rates, a positive gap would
theoretically be expected to enhance net interest income as maturing and/or
repricing assets can be reinvested or repriced at higher rates more quickly than
maturing liabilities would increase in rate. A negative gap would tend to
adversely affect net interest income in a period of rising rates.
Historically, management of the Bank has pursued a strategy of
maintaining its net interest margin by investing in long-term fixed rate
mortgage loans which generally are higher yielding than adjustable-rate mortgage
loans. The Bank's yield on interest-earning assets has adjusted, and, management
believes will in the future continue to adjust, to changes in interest rates at
a slower rate than the cost of its interest-bearing liabilities. As a
consequence, any significant increase in interest rates will have an adverse
effect on the Bank's results of operations. Moreover, increases in interest
rates also can result in disintermediation, which is the flow of funds away from
savings institutions into direct investments, such as U.S. government and
corporate securities, and other investment vehicles which, because of the
absence of federal insurance premiums and reserve requirements, generally pay
higher rates of return than savings institutions. Although in periods of falling
interest rates the opposite effect on net interest income is expected, the Bank
has experienced prepayments of its fixed-rate mortgage loans, which has resulted
in the reinvestment of such proceeds at lower market rates. At May 31, 1996,
total interest-bearing liabilities maturing or repricing within one year
exceeded total interest-earning assets maturing or repricing in the same period
by $25.8 million, representing a negative cumulative one-year gap ratio of 47.1%
of total assets. Management believes that net interest income will be adversely
affected in the event of an increase in interest rates. See "Risk
Factors-Interest Rate Risk Exposure."
In an attempt to manage its exposure to changes in interest rates,
management monitors the Bank's interest rate risk. The Board of Directors meets
at least quarterly to review the Bank's interest rate risk position and
profitability. The Board of Directors also reviews the Bank's portfolio,
formulates investment strategies and oversees the timing and implementation of
transactions to assure attainment of the Bank's objectives in the most effective
manner. In addition, the Board anticipates reviewing on a quarterly basis the
Bank's asset/liability position, including simulations of the effect on the
Bank's capital of various interest rate scenarios.
48
<PAGE>
In managing its asset/liability mix, Preferred Savings, depending on
the relationship between long- and short-term interest rates, market conditions
and consumer preference, often places more emphasis on managing net interest
margin than on better matching the interest rate sensitivity of its assets and
liabilities in an effort to enhance net interest income. Management believes
that the increased net interest income resulting from a mismatch in the maturity
of its asset and liability portfolios can, during periods of declining or stable
interest rates, provide high enough returns to justify the increased exposure to
sudden and unexpected increases in interest rates.
Management has taken a number of steps to limit to some extent its
interest rate risk. First, the bank focuses its fixed rate loan originations on
loans with maturities of 15 years or less. At May 31, 1996, $23.0 million or
88.7% of the Bank's one- to four family residential loan portfolio consisted of
fixed rate loans having original terms to maturity of 15 years or less. Second,
the Bank offers balloon loans of 10 years or less in an attempt to decrease its
asset/liability mismatch. Third, the Bank maintains a portfolio of securities
and liquid assets with weighted average lives of three years or less. At May 31,
1996, the Bank had $14.8 million of securities and cash items with a remaining
average life of 2.66 years. Fourth, the Bank has maintained a mortgage-backed
securities portfolio with adjustable-rates. At May 31, 1996, adjustable rate
mortgage-backed securities totaled $1.7 million which represented 3.1% of
interest-earning assets. Finally, a substantial proportion of the Bank's
liabilities consists of passbook savings accounts which are believed by
management to be somewhat less sensitive to interest rate changes than
certificate accounts.
The primary objective of Preferred Savings' investment strategy is to
provide liquidity necessary to meet funding needs as well as to address daily,
cyclical and long-term changes in the asset/liability mix, while contributing to
profitability by providing a stable flow of dependable earnings. Investments
generally include interest-bearing deposits in other federally insured financial
institutions, FHLB stock and U.S. Government securities.
Generally, the investment policy of the Bank is to invest funds among
various categories of investments and maturities based upon the Bank's need for
liquidity, to achieve the proper balance between its desire to minimize risk and
maximize yield, to provide collateral for borrowings, and to fulfill the Bank's
asset/liability management policies.
Preferred Savings' cost of funds responds to changes in interest rates
due to the relatively short-term nature of its deposit portfolio. Consequently,
the results of operations are heavily influenced by the levels of short-term
interest rates. Preferred Savings offers a range of maturities on its deposit
products at competitive rates and monitors the maturities on an ongoing basis.
49
<PAGE>
The following table sets forth the interest rate sensitivity of the
Bank's assets and liabilities and certain associated weighted average yields and
costs at May 31, 1996 on the basis of the assumptions described below.
<TABLE>
<CAPTION>
Maturing or Repricing
--------------------------------------------------------------------------
Over 6
6 Months Months to Over 1 to Over 3 to Over No Stated
or less 1 Year 3 Years 5 Years 5 Years Maturity Total
-------- -------- -------- -------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest -Earning Assets
Loans receivable, gross:
Fixed-rate mortgages........... $ 1,200 $ 1,235 $ 5,163 $ 5,216 $23,348 $ --- $36,162
Adjustable-rate construction... 243 --- --- --- --- --- 243
Consumer....................... 14 1 2 --- --- --- 17
Securities available for sale:
Treasury and agency securities. 2,012 3,758 996 3,404 888 --- 11,058
Mortgage-backed securities..... 1,060 825 534 602 863 --- 3,884
Interest bearing term deposits in other
financial institutions............. --- 99 50 --- 99 --- 248
Interest earning accounts............... 2,871 --- --- --- --- --- 2,871
FHLB Stock.............................. --- --- --- --- --- 362 362
-------- -------- -------- -------- ------- ------- -------
Total interest-earning assets.. 7,400 5,918 6,745 9,222 25,198 362 54,845
Interest-Bearing Liabilities
Passbooks............................... 19,604 --- --- --- --- --- 19,604
Money Market accounts................... 1,998 --- --- --- --- --- 1,998
Certificates of Deposit................. 13,559 4,000 2,336 448 --- --- 20,343
-------- -------- -------- -------- ------- ------- -------
Total interest-bearing
liabilities................ 35,161 4,000 2,336 448 --- --- 41,945
-------- -------- -------- -------- ------- ------- -------
Interest-earning assets less interest-
bearing liabilities.................. $(27,761) $ 1,918 $ 4,409 $ 8,774 $25,198 $ 362 $12,900
======== ======== ======== ======== ======= ======= =======
Cumulative interest rate gap............ $(27,761) $(25,843) $(21,434) $(12,660) $12,538 $12,900 $12,900
======== ======== ======== ======== ======= ======= =======
Cumulative interest rate gap as a
percentage of total assets at
May 31, 1996......................... (50.56)% (47.07)% (39.04)% (23.06)% 22.84% 23.50% 23.50%
======== ======== ======== ======== ======= ======= =======
</TABLE>
The preceding table was prepared utilizing the following assumptions
regarding prepayment and decay ratios which were determined by management of the
Bank based upon its review of historical prepayment speeds and future prepayment
projections produced from industry data reflecting expected future prepayments
embedded in quarter end prices of mortgage-backed instruments actively traded in
financial markets. Fixed-rate loans were assumed to prepay monthly at annual
rates of between 8% and 55%, depending on the coupon and period to maturity.
Consumer loans were assumed to prepay monthly at an annual rate of 5% in each of
the periods. Savings accounts were assumed to decay in 6 months or less.
Finally, certificate accounts are assumed not to be withdrawn prior to maturity.
The effect of these assumptions is to quantify the dollar amount of
items that are interest-sensitive and that can be repriced within each of the
periods specified. Such repricing can occur in one of three ways: (1) the rate
of interest to be paid on an asset or liability may adjust periodically on the
basis of an interest rate index; (2) an asset or liability, such as a mortgage
loan, may amortize, permitting reinvestment of cash flows at the then-prevailing
interest rates; or (3) an asset or liability may mature, at which time the
proceeds can be reinvested at the current market rates. Management believes
these prepayment and erosion rates represent reasonable estimates based on
Preferred Savings' experience except that based upon historical
50
<PAGE>
experience management believes that its savings accounts are a relatively stable
source of funds.
Certain shortcomings are inherent in the method of analysis presented
in the foregoing table. Although certain assets and liabilities may have similar
maturities or periods of repricing, they may react in different degrees to
changes in market interest rate. 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 of assets and liabilities may lag behind
changes in market interest rates. 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. In the event of a change in
interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in calculating the foregoing table. The ability
of many borrowers to service their debt may decrease in the event of an interest
rate increase.
Because of various shortcomings inherent in using repricing assumptions
in calculating the Bank's gap position, the Banks's negative gap ratio at May
31, 1996 may not fully reflect the Bank's vulnerability to increases in interest
rates as certain assets and liabilities may react in different degrees to, or
lag behind, changes in market interest rates even though they have similar
maturities or periods to repricing. See "Risk Factors - Interest Rate Risk
Exposure."
Another approach used by management to quantify interest rate risk is
the net portfolio value ("NPV") analysis. In essence, this approach calculates
the difference between the present value of liabilities, expected cash flows
from assets and cash flows from off balance sheet contracts. Under OTS
regulations, an institution's "normal" level of interest rate risk in the event
of an immediate and sustained 200 basis point 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. Pursuant to this regulation, thrift institutions with
greater than "normal" interest rate exposure must take a deduction from their
total capital available to meet their risk-based capital requirement. The amount
of that deduction is one-half of the difference between (a) the institution's
actual calculated exposure to the 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.
Savings institutions, however, with less than $300 million in assets and a total
capital ratio in excess of 12%, will be exempt from this requirement unless the
OTS determines otherwise. The OTS has postponed the implementation of the rule
until further notice. Since the Bank was a state-chartered savings bank at May
31, 1996, information on its NPV was not computed by the OTS. Based upon its
asset size and capital level at May 31, 1996, the Bank would qualify for an
exemption from this rule; however, management believes that the Bank would be
required to make a deduction from capital if it were subject to this rule.
The Bank's asset/liability committee has established acceptable limits
in response to changes in interest rates.
51
<PAGE>
The following table sets forth, at May 31, 1996, an analysis of the
Bank's interest rate risk as measured by the estimated changes in NPV resulting
from instantaneous and sustained parallel shifts in the yield curve (+/-400
basis points, measured in 100 basis point increments).
<TABLE>
<CAPTION>
Ratio of Target Limit Under
Change in Interest Estimated NPV to Estimated Increase Asset Liability
Rates NPV Total (Decrease) in NPV Management
(Basis Points) Amount Assets Amount Percent Policy
- ------------------ --------- ------ ------ ------- ------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
+400 $ 9,172 16.72% $(4,329) (32)% (65)%
+300 10,327 18.83 (3,174) (24) (50)
+200 11,551 21.06 (1,950) (14) (35)
+100 12,746 23.24 (755) (6) (15)
--- 13,501 24.61 --- --- ---
-100 13,610 24.81 109 1 13
-200 13,671 24.92 170 1 26
-300 13,747 25.06 246 2 40
-400 14,214 25.91 713 5 50
</TABLE>
Certain assumptions utilized in assessing the interest rate risk of
thrift institutions were employed in preparing the preceding table. These
assumptions relate to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under the various interest rate
scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Bank's assets and liabilities would perform as set
forth above. In addition, a change in U.S. Treasury rates in the designated
amounts accompanied by a change in the shape of the Treasury yield curve would
cause significantly different changes to the NPV than indicated above.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits, proceeds from
principal and interest payments on loans and mortgage-backed and related
securities. While maturities and scheduled amortization of loans and securities
are predictable sources of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions and
competition. Preferred Savings generally manages the pricing of its deposits to
be competitive and increase core deposit relationships.
Federal regulations require Preferred Savings to maintain minimum
levels of liquid assets. The required percentage has varied from time to time
based upon economic conditions and savings flows and is currently 5% of net
withdrawable savings deposits and borrowings payable on demand or in one year or
less during the preceding calendar month. Liquid assets for purposes of this
ratio include cash, certain time deposits, U.S. Government, government agency
and corporate securities and other obligations generally having remaining
maturities of less than five years. Preferred Savings has historically
maintained its liquidity ratio for regulatory purposes at levels in excess of
those required. At May 31, 1996, Preferred Savings' liquidity ratio for
regulatory purposes was 30.5%.
52
<PAGE>
The Bank's cash flows are comprised of three primary classifications:
cash flows from operating activities, investing activities and financing
activities. Cash flows provided by operating activities were $718,000 and
$759,000 for the five months ended May 31, 1996 and May 31, 1995 respectively,
$1,218,000 and $1,143,000 for the years ended December 31, 1995 and December 31,
1994, respectively, and $937,000 for the ten months ended December 31, 1993. Net
cash from investing activities consisted primarily of disbursements for loan
originations and the purchase of investments and mortgage-backed securities,
offset by principal collections on loans, proceeds from maturation and sales of
securities and paydowns on mortgage-backed securities. Net cash from financing
activities consisted primarily of activity in deposit and escrow accounts. The
net increase (decrease) in deposits was $898,000, and $(269,000) for the five
months ended May 31, 1996 and May 31, 1995, respectively, $990,000 and
$(1,082,000) for the years ended December 31, 1995 and December 31, 1994,
respectively, and $776,000 for the ten months ended December 31, 1993.
The Bank's most liquid assets are cash and short-term investments. The
levels of these assets are dependent on the Bank's operating, financing, lending
and investing activities during any given period. At May 31, 1996, cash and
short-term investments totaled $2.9 million. The Bank has other sources of
liquidity if a need for additional funds arises, including securities maturing
within one year and the repayment of loans. The Bank may also utilize the sale
of securities available-for-sale and Federal Home Loan Bank advances as a source
of funds.
At May 31, 1996, the Bank had outstanding commitments to originate
loans of $537,000, all of which had fixed interest rates. These loans are to be
secured by properties located in its market area. The Bank anticipates that it
will have sufficient funds available to meet its current loan commitments.
Certificates of deposit which are scheduled to mature in one year or less from
May 31, 1996 totaled $17.6 million. Management believes that a significant
portion of such deposits will remain with the Bank.
Liquidity management is both a daily and long-term responsibility of
management. Preferred Savings adjusts its investments in liquid assets based
upon management's assessment of (i) expected loan demand, (ii) expected deposit
flows, (iii) yields available on interest-earning deposits and investment
securities, and (iv) the objectives of its asset/liability management program.
Excess liquidity is invested generally in interest-earning overnight deposits
and short-and intermediate-term U.S. Government and agency obligations and
mortgage-backed securities of short duration. If Preferred Savings requires
funds beyond its ability to generate them internally, it has additional
borrowing capacity with the FHLB of Chicago.
Preferred Savings is subject to various regulatory capital requirements
imposed by the OTS. At May 31, 1996, Preferred Savings was in compliance with
all applicable capital requirements on a fully phased-in basis. See "Regulation
- - Regulatory Capital Requirements" and "Pro Forma Regulatory Capital Analysis
and Note 8 of the Notes to the Consolidated Financial Statements.
Preferred Savings' principal sources of funds are deposits,
amortization and prepayment of loan principal and mortgage-backed securities,
maturities of investment securities and operations. While scheduled loan
repayments and maturing investments are relatively predictable, deposit flows
and early loan repayments are more influenced by interest rates, floors and caps
on loan rates, general economic conditions and competition. Preferred Savings
53
<PAGE>
generally manages the pricing of its deposits to be competitive and increase
core deposit relationships, but has from time to time decided not to pay deposit
rates that are as high as those of its competitors.
Federal regulations require Preferred Savings to maintain minimum
levels of liquid assets. The required percentage has varied from time to time
based upon economic conditions and savings flows and is currently 5% of net
withdrawable savings deposits and borrowings payable on demand or in one year or
less during the preceding calendar month. Liquid assets for purposes of this
ratio include cash, certain time deposits, U.S. Government, government agency
and corporate securities and other obligations generally having remaining
maturities of less than five years. Preferred Savings has historically
maintained its liquidity ratio for regulatory purposes at levels in excess of
those required. At May 31, 1996, Preferred Savings' liquidity ratio for
regulatory purposes was 30.5%. See "Regulation - Liquidity."
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented herein
have been prepared in accordance with generally accepted accounting principles
which require the measurement of financial position and operating results in
terms of historical dollars without considering changes in the relative
purchasing power of money over time due to inflation. The primary impact of
inflation on the operations of the Bank is reflected in increased operating
costs. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates, generally, have a more significant impact on a financial
institution's performance than does inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the prices of goods and
services.
Impact of New Accounting Standards
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long Lived
Assets and for Long Lived Assets to be Disposed Of." SFAS No. 121 requires that
long lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or circumstances indicate that the carrying amount of
an asset may not be recoverable. However, SFAS No. 121 does not apply to
financial instruments, core deposit intangibles, mortgage and other servicing
rights or deferred tax assets. The adoption of SFAS No. 121 in 1996 did not have
a material impact on the results of operations or financial condition of the
Bank.
In May 1995, the FASB issued Statement of Financial Accounting
Standards No. 122 ("SFAS No. 122"), "Accounting for Mortgage Servicing Rights."
SFAS No. 122 requires an institution that purchases or originates mortgage loans
and sells or securitizes those loans with servicing rights retained to allocate
the cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values. In
addition, institutions are required to assess impairment of the capitalized
mortgage servicing portfolio based on the fair value of those rights. SFAS No.
122 is effective for fiscal years beginning after December 15, 1995. The Bank is
currently not originating mortgage loans for sale and therefore, the adoption of
this statement did not have a material impact on the results
54
<PAGE>
of operations or financial condition of the Bank. SFAS No. 122 will be
superseded by Statement of Financial Accounting Standards No. 125 after December
31, 1996.
In November 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123"), "Accounting for Stock Based Compensation,"
("SFAS No. 123"). This statement establishes financial accounting standard for
stock-based employee compensation plans. SFAS No. 123 permits the Bank to choose
either a new fair value based method or the current APB Opinion 25 intrinsic
value based method or accounting for its stock-based compensation arrangements.
SFAS No. 123 requires pro forma disclosures of net earnings and earnings per
share computed as if the fair value based method had been applied in financial
statements of companies that continue to follow current practice in accounting
for such arrangements under Opinion 25. The disclosure provisions of SFAS No.
123 are effective for fiscal years beginning after December 15, 1995. Any effect
that this statement will have on the Bank will be applicable upon the
consummation of the Conversion.
In June 1996, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 125 ("SFAS No. 125"),
"Accounting for Transfers and Extinguishments of Liabilities." SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. SFAS No. 125 requires a
consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, and derecognizes liabilities when extinguished. SFAS No. 125 also
supersedes SFAS No. 122 and requires that servicing assets and liabilities be
subsequently measured by amortization in proportion to and over the period of
estimated net servicing income or loss and requires assessment for asset
impairment or increases obligation based on their fair values. SFAS No. 125
applies to transfers and extinguishments occurring after December 31, 1996 and
early or retroactive application is not permitted. Management anticipates that
the adoption of SFAS No. 125 will not have a material impact on the financial
condition or operations of the Bank.
BUSINESS
General
As a community-oriented financial institution, Preferred Savings seeks
to serve the financial needs of communities in its market area. Preferred
Savings' business involves attracting deposits from the general public and using
such deposits, together with other funds, to originate primarily one- to
four-family residential mortgage loans and, to a lesser extent, multi-family,
commercial real estate and consumer loans in its market area. See "Risk
Factors." The Bank also invests in mortgage-backed and other securities and
other permissible investments.
The Bank offers a variety of accounts having a range of interest rates
and terms. The Bank's deposits include passbook accounts, money market accounts
and certificate accounts with terms of six months to five years. The Bank
solicits deposits only in its primary market area and does not accept brokered
deposits.
Market Area
55
<PAGE>
Preferred Savings serves primarily the southwest side of Chicago and
Cook County, Illinois through its office located at 4800 South Pulaski Road in
Chicago, Illinois. Preferred Savings' market area for loans includes primarily
Cook County, Illinois and, to a lesser extent, portions of DuPage and Will
Counties, Illinois. The market area for deposits includes primarily the
southwest side of the City of Chicago including the Garfield Ridge, Archer
Heights and Brighton Park areas of Chicago. The southwest side of Chicago
includes a diverse population of low- and moderate-income neighborhoods. The
housing in these neighborhoods consists primarily of two- to six-unit apartments
and single family residences.
The Bank's market area also includes small strip shopping centers,
small retail and medical offices, and small- to medium-size manufacturing
facilities as well as the Chicago Metropolitan area's second largest airport,
Midway Airport. Management believes the economic and demographic characteristics
of its market area to be generally stable.
Lending Activities
General. The principal lending activity of the Bank is originating for
its portfolio fixed rate mortgage loans secured by one- to four-family
residences located primarily in the Bank's market area. To a much lesser extent,
Preferred Savings also originates commercial real estate, multi-family and
consumer loans in its market area. At May 31, 1996, the Bank's total loans
receivable, net totaled $35.7 million. See "- Originations, Purchases and Sales
of Loans and Mortgage-Backed Securities" and "Use of Proceeds."
56
<PAGE>
Loan Portfolio Composition. The following table sets forth the
composition of the Bank's loan portfolio in dollar amounts and in percentages as
of the dates indicated.
<TABLE>
<CAPTION>
December 31,
May 31, -----------------------------------------------------------------
1996 1995 1994 1993
---------------- ------------------ ------------------ -------------------
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family............ $26,150 71.80% $25,858 73.44% $24,711 73.62% $23,403 74.45%
Multi-family................... 6,604 18.13 6,094 17.31 5,929 17.66 5,452 17.34
Commercial..................... 3,408 9.36 2,953 8.39 2,904 8.65 2,331 7.42
Construction................... 243 0.67 286 0.81 --- --- 215 0.68
------- ------- ------- ------- ------- ------- ------- -------
Total real estate loans..... 36,405 99.96 35,191 99.95 33,544 99.93 31,401 99.89
------- ------- ------- ------- ------- ------- ------- -------
Consumer Loans:
Deposit account................. 17 0.04 18 0.05 24 0.07 35 0.11
------- ------- ------- ------- ------- ------- ------- -------
Total loans................. 36,422 100.00% 35,209 100.00% 33,568 100.00% 31,436 100.00%
====== ====== ====== ======
Less:
Loans in process................ --- --- --- ---
Deferred fees and discounts..... 534 548 542 521
Allowance for loan losses....... 186 136 136 94
------- ------- ------- -------
Total loans receivable, net.. $35,702 $34,525 $32,890 $30,821
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
February 28, February 29,
1993 1992
------------------- ------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family............ $25,411 76.32% $24,670 76.51%
Multi-family................... 6,157 18.49 6,046 18.75
Commercial..................... 1,681 5.05 1,424 4.42
Construction................... --- --- --- ---
------- ------- ------- -----
Total real estate loans..... 33,249 99.86 32,140 99.68
------- ------- ------- -----
Consumer Loans:
Deposit account................. 45 0.14 105 0.32
------- ------- ------- -----
Total loans................. 33,294 100.00% 32,245 100.00%
====== ======
Less:
Loans in process................ --- ---
Deferred fees and discounts..... 511 496
Allowance for loan losses....... 67 43
------- -------
Total loans receivable, net.. $32,716 $31,706
======= =======
</TABLE>
57
<PAGE>
The following table shows the composition of the Bank's loan portfolio
by fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
December 31,
May 31, -----------------------------------------------------------------
1996 1995 1994 1993
---------------- ------------------ ------------------ -------------------
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate
One- to four-family............ $26,150 71.80% $25,858 73.44% $24,711 73.62% $23,403 74.45%
Multi-family................... 6,604 18.13 6,094 17.31 5,929 17.66 5,452 17.34
Commercial..................... 3,408 9.36 2,953 8.39 2,904 8.65 2,331 7.42
Construction................... --- --- --- --- --- --- 215 0.68
------- ------- ------- ------- ------- ------ ------- -------
Total real estate loans..... 36,162 99.29 34,905 99.14 33,544 99.93 31,401 99.89
Consumer loans.................. 15 0.04 16 0.04 15 0.05 19 0.06
------- ------- ------- ------- ------- ------ ------- -------
Total fixed-rate loans...... 36,177 99.33 34,921 99.18 33,559 99.98 31,420 99.95
------- ------- ------- -------
Adjustable-Rate Loans:
Real estate - construction...... 243 0.67 286 0.81 --- --- --- ---
Consumer loans.................. 2 --- 2 0.01 9 0.02 16 0.05
------- ------- ------- ------- ------- ------ ------- -------
Total adjustable-rate loans. 245 0.67 288 0.82 9 0.02 16 0.05
------- ------- ------- ------- ------- ------ ------- -------
Total loans................. 36,422 100.00% 35,209 100.00% 33,568 100.00% 31,436 100.00%
====== ====== ====== ======
Less
Loans in process................ --- --- --- ---
Deferred fees and discounts..... 534 548 542 521
Allowance for loan losses....... 186 136 136 94
------- ------- ------- -------
Total loans receivable, net.. $35,702 $34,525 $32,890 $30,821
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
February 28, February 29,
1993 1992
------------------- ------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate
One- to four-family............ $25,411 76.32% $24,670 76.51%
Multi-family................... 6,157 18.49 6,046 18.75
Commercial..................... 1,681 5.05 1,424 4.42
Construction................... --- --- --- ---
------- ------- ------- -----
Total real estate loans..... 33,249 99.86 32,140 99.68
Consumer loans.................. 23 0.07 32 0.10
------- ------- ------- -----
Total fixed-rate loans...... 33,272 99.93 32,172 99.78
------- -------
Adjustable-Rate Loans:
Real estate - construction...... --- --- --- ---
Consumer loans.................. 22 0.07 73 0.22
------- ------- ------- -----
Total adjustable-rate loans. 22 0.07 73 0.22
------- ------- ------- -----
Total loans................. 33,294 100.00% 32,245 100.00%
====== ======
Less
Loans in process................ --- ---
Deferred fees and discounts..... 511 496
Allowance for loan losses....... 67 43
------- -------
Total loans receivable, net.. $32,716 $31,706
======= =======
</TABLE>
58
<PAGE>
The following schedule illustrates the interest rate sensitivity of the
Bank's loan portfolio at May 31, 1996. Mortgages which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract is due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
-----------------------------------------------------------------------
One- to Four-Family Multi-family Commercial
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
-------- -------- ------ -------- ------ --------
(Dollars in Thousands)
Due During
Period Ending
May 31,
-------------
<C> <C> <C> <C> <C> <C> <C>
1997................... $ 31 7.43% $ 14 9.50% $ --- ---%
1998................... 323 8.37 --- --- --- ---
1999 and 2000.......... 281 9.50 269 9.91 164 10.60
2001 to 2005........... 3,676 8.78 2,981 8.85 1,857 9.47
2006 to 2020........... 21,839 8.32 3,340 9.27 1,387 9.37
2021 and following..... --- --- --- --- --- ---
-------- -------- --------
Total: $26,150 8.52% $ 6,604 9.11% $3,408 9.48%
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Real Estate
---------------------------------------------
Construction Consumer Total
-------------------- ------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
------ -------- ------ -------- ------- --------
(Dollars in Thousands)
Due During
Period Ending
May 31,
-------------
<C> <C> <C> <C> <C> <C> <C>
1997................... $ 243 9.25% $ 14 7.83% $ 302 9.01%
1998................... --- --- --- --- 323 8.37
1999 and 2000.......... --- --- 3 4.00 717 9.88
2001 to 2005........... --- --- --- --- 8,514 8.84
2006 to 2020........... --- --- --- --- 26,566 8.53
2021 and following..... --- --- --- --- --- ---
------- -------- -------
Total: $ 243 9.25% $ 17 7.18% $36,422 8.64%
======= ======== =======
</TABLE>
The total amount of loans due after May 31, 1997 which have
predetermined interest rates is $36.1 million, while the total amount of loans
due after such dates which have floating or adjustable interest rates is $0.
59
<PAGE>
Under federal law, the aggregate amount of loans that the Bank is
permitted to make to any one borrower is generally limited to 15% of unimpaired
capital and surplus (25% if the security for such loan has a "readily
ascertainable" value or 30% for certain residential development loans). At May
31, 1996, based on the above, the Bank's regulatory loans-to-one borrower limit
was approximately $1.8 million. On the same date, the Bank had no borrowers with
outstanding balances in excess of this amount. As of May 31, 1996, the largest
dollar amount outstanding or committed to be lent to one borrower or, group of
related borrowers, was 13 loans totaling $1.3 million secured by multi-family
and one- to four-family real estate. The second largest group of loans
outstanding to a group of related borrowers was 5 loans totaling $1.2 million
secured by multi-family real estate. At May 31, 1996, these loans were
performing in accordance with their terms.
All of the Bank's lending is subject to its written underwriting
standards and to loan origination procedures. Decisions on loan applications are
made on the basis of detailed applications and property valuations (consistent
with the Bank's appraisal policy). The loan applications are designed primarily
to determine the borrower's ability to repay and the more significant items on
the application are verified through use of credit reports, financial
statements, tax returns or confirmations. All loans originated by Preferred
Savings are approved by the full board.
The Bank requires title insurance or other evidence of title on its
mortgage loans, as well as fire and extended coverage casualty insurance in
amounts at least equal to the principal amount of the loan or the value of
improvements on the property, depending on the type of loan. The Bank also
requires flood insurance to protect the property securing its interest when the
property is located in a flood plain.
One- to Four-Family Residential Real Estate Lending. The cornerstone of
the Bank's lending program is the origination of loans secured by mortgages on
owner-occupied one- to four-family residences. Historically, the Bank focused on
fixed rate loans with 15 year terms with 25 year amortization maturities.
Substantially all of the Bank's one- to four-family residential mortgage
originations are secured by properties located in its market area. All mortgage
loans originated by the Bank are retained and serviced by it.
As of May 31, 1996, $14.4 million or 54.9% the Bank's one- to
four-family residential loan portfolio was secured by properties with two or
more units. At that date, the average outstanding residential loan balance was
approximately $61,000.
The Bank currently offers fixed-rate mortgage loans with maturities
from 15 to 25 years and balloon loans with terms of up to 15 years with 25 year
amortization schedules. Interest rates and fees charged on these fixed-rate
loans are established on a regular basis according to market conditions.
See "- Originations, Purchases and Sales of Loans and Mortgage-Backed
Securities."
The Bank also originates a limited number of loans secured by
condominiums located in its market area. Condominium loans are made on
substantially the same terms as one- to four-family loans. At May 31, 1996, the
Bank had $1.3 million of condominium loans.
60
<PAGE>
Preferred Savings will generally lend up to 80% (or up to 85% on a
case-by-case basis) of the lesser of the sales price or appraised value of the
security property on owner occupied one- to four-family loans. The loan-to-value
ratio on non-owner occupied, one- to four-family loans is generally 80% of the
lesser of the sales price or appraised value of the security property. Non-owner
occupied one- to four-family loans may pose a greater risk to the Bank than
traditional owner occupied one- to four-family loans. In underwriting one- to
four-family residential real estate loans, the Bank currently evaluates both the
borrower's ability to make principal, interest and escrow payments, the value of
the property that will secure the loan and debt to income ratios.
Residential loans do not currently include prepayment penalties, are
non-assumable and do not produce negative amortization. Properties securing one-
to four-family residential real estate loans made by Preferred Savings are
appraised by independent appraisers.
Since under its current policy, the Bank originates all mortgage loans
for its portfolio, the Bank's loans are not underwritten to permit their sale in
the secondary market.
The Bank's residential mortgage loans customarily include due-on-sale
clauses giving the Bank the right to declare the loan immediately due and
payable in the event that, among other things, the borrower sells or otherwise
disposes of the property subject to the mortgage and the loan is not repaid.
Multi-family and Commercial Real Estate Lending. In recognition of the
many small apartment buildings and businesses in the Bank's market area and in
order to increase the interest rate sensitivity and yield of its loan portfolio
and to complement residential lending opportunities, the Bank has originated
permanent multi-family and commercial real estate loans. At May 31, 1996, the
Bank had $3.4 million in commercial real estate loans, representing 9.4% of the
total loan portfolio, and $6.6 million in multi-family loans, or 18.1% of the
Bank's total loan portfolio.
The Bank's multi-family and commercial real estate loan portfolio
includes loans secured by small apartment buildings, office buildings and other
income producing properties located in its market area.
The Bank's permanent multi-family and commercial real estate loans
generally carry a maximum term of 15 years and have fixed rates. These loans are
generally made in amounts of up to 80% of the lesser of the appraised value or
the purchase price of the property. Appraisals on properties securing
multi-family and commercial real estate loans are performed by an independent
appraiser designated by the Bank at the time the loan is made. All appraisals on
multi-family or commercial real estate loans are reviewed by the Bank's board.
In addition, the Bank's underwriting procedures require verification of the
borrower's credit history, income and financial statements, banking
relationships, references and income projections for the property. The Bank
obtains personal guarantees on these loans.
The table below sets forth, by type of security property, the number
and amount of Preferred Savings' multi-family and commercial real estate loans
at May 31, 1996. Substantially all of the loans referred to in the table below
are secured by properties located in the Bank's market area.
61
<PAGE>
<TABLE>
<CAPTION>
Outstanding Amount
Number of Principal Non-Performing
Loans Balance or of Concern
--------- ----------- --------------
(Dollars in Thousands)
<S> <C> <C> <C>
Commercial real estate:
Small business facilities....................................... 18 $2,156 $211
Office buildings................................................ 5 659 ---
Apartment buildings............................................. 4 281 ---
Three flats..................................................... 3 312 ---
Multi-family........................................................ 44 6,604 299
----- ----- ------
Total multi-family and commercial real estate loans............. 74 $10,012 $ 510
===== ======= ======
</TABLE>
At May 31, 1996, the Bank's largest commercial real estate or
multi-family loan outstanding totaled $321,000 and was secured by a 15 unit
apartment complex located in Berwyn, Illinois.
Multi-family and commercial real estate loans may present a higher
level of risk than loans secured by one- to four-family residences. This greater
risk is due to several factors, including the concentration of principal in a
limited number of loans and borrowers, the effects of general economic
conditions on income producing properties and the increased difficulty of
evaluating and monitoring these types of loans. At May 31, 1996, one
multi-family loan totaling $299,000 was delinquent 90 days or more. On the same
date, there were no commercial real estate loans delinquent 90 days or more.
Construction Lending. The Bank occasionally purchases participation
interests in construction loans to builders or developers for the construction
of small residential or commercial properties. Such properties are generally
located in Illinois. At May 31, 1996, the Bank's construction lending portfolio
consisted of a participation interest in a construction loan of $243,000 or .67%
of the Bank's real estate loan portfolio.
Consumer Lending. Federally chartered savings institutions may invest
up to 35% of assets in consumer loans (including any investment in investment
grade and commercial paper and corporate debt securities). The Bank originates
consumer loans secured by deposit accounts. At May 31, 1996, consumer loans
totaled $17,000, or 0.04% of the Bank's total loan portfolio. In order to
increase the yield and interest rate sensitivity of its loan portfolio,
management is also considering offering various types of home equity loans.
Originations and Purchases of Loans
Real estate loans are originated by Preferred Savings' staff through
referrals from existing customers or real estate agents.
The Bank's ability to originate loans is dependent upon customer demand
for loans in its market and to a limited extent, various marketing efforts.
Demand is affected by both the local economy and the interest rate environment.
See "- Market Area." Under current policy, all loans originated by Preferred
Savings are retained in the Bank's portfolio. See "Management's
62
<PAGE>
Discussion and Analysis of Financial Condition and Results of Operations -
Asset/Liability Management."
In the past, the Bank has purchased participation interests in
construction loans originated by a local financial institution. All such loans
are secured. At May 31, 1996, the Bank had $243,000 of participation interests
in construction loans. The Bank intends to continue to purchase such loans in
the future, subject to market conditions.
From time to time, in order to supplement loan originations, the Bank
has acquired mortgage-backed and other securities which are held, depending on
the investment intent, in the "held-to-maturity" or "available-for-sale"
portfolios. See "- Investment Activities - Mortgage-Backed Securities" and Note
2 to the Notes to Consolidated Financial Statements.
The following table shows the loan origination, purchase, sale and
repayment activities of the Bank for the periods indicated.
<TABLE>
<CAPTION>
Five Months Ended Year Ended 10 Months
May 31, December 31, Ended
------------------------ ----------------------- December 31,
1996 1995 1995 1994 1993
------------------------ ----------------------- -------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Originations by type:
Real estate - one- to four-family........... $ 2,499 $ 2,255 $ 5,162 $ 6,951 $ 6,050
- multi-family.................. 1,250 421 821 1,180 ---
- commercial.................... 1,031 445 1,270 1,315 1,080
Passbook.................................... 9 2 9 12 40
-------- -------- -------- -------- --------
Total loans originated................. 4,789 3,123 7,262 9,458 7,170
-------- -------- -------- -------- --------
Purchases:
Real estate - construction.................. --- --- 551 --- ---
Sales and Repayments:
Principal repayments........................ 3,576 1,784 6,172 7,327 9,028
Increase (decrease) in other items, net(1).. (36) 20 (6) (62) (37)
-------- -------- -------- -------- --------
Net increase (decrease)................ $ 1,177 $ 1,359 $ 1,635 $ 2,069 $(1,895)
======== ======== ======== ======== ========
</TABLE>
(1) Other items consist primarily of deferred fees and the allowance for loan
losses.
Delinquencies and Non-Performing Assets
Delinquency Procedures. When a borrower fails to make a required
payment on a loan, the Bank attempts to cure the delinquency by contacting the
borrower. Generally, Bank personnel work with the delinquent borrower on a case
by case basis to solve the delinquency. Generally, a late notice is sent on all
delinquent loans over 20 days delinquent. Additional written and verbal contacts
may be made with the borrower between 30 and 60 days after the due date. If the
loan is contractually delinquent for 90 days, the Bank may institute appropriate
action to foreclose on the property. If a borrower agrees to a payment plan to
bring a delinquent loan current, a designated lending officer monitors the loan
for compliance with the payment agreement. If foreclosed, the property is sold
at public sale and may be purchased by the Bank.
63
<PAGE>
Real estate acquired by Preferred Savings as a result of foreclosure or
by deed in lieu of foreclosure is classified as real estate owned until it is
sold. When property is acquired by foreclosure or deed in lieu of foreclosure,
it is recorded at the lower of cost or estimated fair value less estimated
selling costs. After acquisition, all costs incurred in maintaining the property
are expensed. Costs relating to the development and improvement of the property,
however, are capitalized. The Bank had no real estate acquired as a result of
foreclosure during the last five years.
64
<PAGE>
The following table sets forth the Bank's loan delinquencies by type,
by amount and by percentage of type at May 31, 1996.
<TABLE>
<CAPTION>
Loans Delinquent For:
----------------------------------------------------------------------------------------------
30-59 Days 60-89 Days 90 Days and Over
----------------------------- ---------------------------- -----------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family........... 9 $ 707 2.70% 3 $ 217 0.83% 7 $ 600 2.29%
Multi-family.................. --- --- --- 1 299 4.53 --- --- ---
Commercial real estate........ 1 211 6.19 --- --- --- --- --- ---
Construction or development... --- --- --- --- --- --- --- --- ---
Consumer...................... --- --- --- --- --- --- --- --- ---
Commercial business........... --- --- --- --- --- --- --- --- ---
Consumer........................ --- --- --- --- --- --- --- --- ---
Commercial business............. --- --- --- --- --- --- --- --- ---
Total...................... 10 $ 918 2.27% 4 $ 516 1.42% 7 $ 600 1.65%
==== ====== ==== ====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
Total Delinquent Loans
--------------------------------
Percent
of Loan
Number Amount Category
------ ------ --------
<S> <C> <C> <C>
Real Estate:
One- to four-family........... 19 $ 1,524 5.83%
Multi-family.................. 1 299 4.53
Commercial real estate........ 1 211 6.19
Construction or development... --- --- ---
Consumer...................... --- --- ---
Commercial business........... --- --- ---
Consumer........................ --- --- ---
Commercial business............. --- --- ---
Total...................... 21 $2,034 7.78%
==== ======
</TABLE>
65
<PAGE>
Classification of Assets. Federal regulations require that each savings
institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, OTS and FDIC examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: Substandard,
Doubtful and Loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the Bank will sustain some
loss if the deficiencies are not corrected. Doubtful assets have the weaknesses
of Substandard assets, with the additional characteristics that the weaknesses
make collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified Loss is considered uncollectible and of such little value that
continuance as an asset on the balance sheet of the institution is not
warranted. Assets classified as Substandard or Doubtful require the institution
to establish prudent general allowances for loan losses. If an asset or portion
thereof is classified as a loss, the institution charges off such amount against
the loan loss allowance. If an institution does not agree with an examiner's
classification of an asset, it may appeal this determination to the District
Director of the OTS.
On the basis of management's review of its assets, at May 31, 1996, the
Bank had classified a total of $600,000 of its loans consisting of one- to
four-family residential real estate as follows:
May 31, 1996
(In Thousands)
------------
Substandard..................................... $600
Doubtful........................................ ---
Loss............................................ ---
----
Total...................................... $600
====
At May 31, 1996, Preferred Savings' classified assets consist of the
non-performing loans. As of the date hereof, these asset classifications are
materially consistent with those of the OTS and FDIC. When loans are classified
as a "loss," they are charged off against the loan loss allowance.
66
<PAGE>
Non-Performing Assets. The table below sets forth the amounts and
categories of non-performing assets in the Bank's loan portfolio. For all years
presented, the Bank has had no troubled debt restructurings (which involve
forgiving a portion of interest or principal on any loans or making loans at a
rate materially less than that of market rates). Foreclosed assets include
assets acquired in settlement of loans.
<TABLE>
<CAPTION>
December 31,
May 31, --------------------------------- February 28, February 29,
1996 1995 1994 1993 1993 1992
---------- ---------- ----------- ---------- ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accruing loans over 90 days delinquent:
One- to four-family....................... $ 584 $ 775 $ 334 $ 170 $ 106 $ 207
Multi-family.............................. --- --- --- --- --- ---
Commercial real estate.................... --- --- --- --- --- ---
Commercial business....................... --- --- --- --- --- ---
--------- --------- --------- --------- --------- ---------
Total.................................. 584 775 334 170 106 207
--------- --------- --------- --------- --------- ---------
Accruing loans delinquent more than 90 days. 16 --- --- 6 --- ---
Foreclosed assets........................... --- --- --- --- --- ---
Total non-performing assets................. $ 600 $ 775 $ 334 $ 176 $ 106 $ 207
======== ======== ========= ========= ========= =========
Total as a percentage of total assets....... 1.09% 1.45% 0.65% 0.33% 0.21% 0.45%
======= ======= ======== ======== ======== ========
</TABLE>
For the year ended December 31, 1995 and for the five months ended May
31, 1996, gross interest income which would have been recorded had the
non-accruing loans been current in accordance with their original terms amounted
to $69,000 and $22,000, respectively. The amounts that were included in interest
income on such loans were $58,000 and $14,000 for the year ended December 31,
1995, and for the five months ended May 31, 1996, respectively.
At May 31, 1996, the Bank's non-accruing loans greater than 90 days
included 7 loans secured by single-family real estate totaling $600,000.
Other Assets of Concern. In addition to the non-performing assets set
forth in the table above, as of May 31, 1996, there were $510,000 in loans or
other assets with respect to which known information about the possible credit
problems of the borrowers or the cash flows of the security properties have
caused management to have concerns as to the ability of the borrowers to comply
with present loan repayment terms and which may result in the future inclusion
of such items in the non-performing asset categories.
The following is a description of all other assets of concern over
$250,000.
In October 1992, the Bank originated a $322,000 loan secured by a 16
unit apartment building located in Cicero, Illinois. Due to financial
difficulties of the borrower, the loan became delinquent in December 1995. At
May 31, 1996, the loan was 75 days delinquent and had an outstanding balance of
$299,000. The Bank is continuing to closely monitor this loan.
Management considers the Bank's non-performing and "of concern" assets
in establishing its allowance for loan losses.
67
<PAGE>
The following table sets forth an analysis of the Bank's allowance for
loan losses.
<TABLE>
<CAPTION>
Five Months Year Ended
Ended May 31, December 31,
---------------------- ---------------------
1996 1995 1995 1994
-------- -------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period....................... $136 $136 $136 $ 94
Charge-offs.......................................... --- --- --- ---
Recoveries........................................... --- --- --- ---
Net charge-offs...................................... --- --- --- ---
Additions charged to operations...................... 50 --- --- 42
------ ----- ----- -----
Balance at end of period............................. $186 $136 $136 $136
====== ===== ===== =====
Ratio of net charge-offs during the period to
average loans outstanding during the period......... ---% ---% ---% ---%
===== ==== ==== ====
Ratio of net charge-offs during the period to
average non-performing assets....................... ---% ---% ---% ---%
===== ==== ==== ====
Ratio of allowance for loan losses to total loans.... 0.51% 0.38% 0.39% 0.41%
===== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
10 Months Year Ended
Ended ----------------------------
December 31, February 28, February 29,
1993 1993 1992
-------------- ------------ -------------
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at beginning of period....................... $ 67 $ 43 $ 19
Charge-offs.......................................... --- --- ---
Recoveries........................................... --- --- ---
Net charge-offs...................................... --- --- ---
Additions charged to operations...................... 27 24 24
----- ----- -----
Balance at end of period............................. $ 94 $ 67 $ 43
===== ===== =====
Ratio of net charge-offs during the period to
average loans outstanding during the period......... ---% ---% ---%
==== ==== ====
Ratio of net charge-offs during the period to
average non-performing assets....................... ---% ---% ---%
==== ==== ====
Ratio of allowance for loan losses to total loans.... 0.30% 0.20% 0.13%
==== ==== ====
</TABLE>
68
<PAGE>
The distribution of the Bank's allowance for losses on loans at the
dates indicated is summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------
May 31, 1996 1995
------------------------------------ ----------------------------------
Percent of Percent of
of Loans of Loans
Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans
--------- -------- --------- --------- -------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family... $ 26 $26,150 71.80% $ 26 $25,858 73.44%
Multi-family.......... 17 6,604 18.13 15 6,094 17.31
Commercial real estate 8 3,408 9.36 7 2,953 8.39
Construction.......... 1 243 .67 1 286 .81
Consumer.............. --- 17 .04 --- 18 .05
Unallocated........... 134 --- --- 87 --- ---
----- ------- ------ ---- ------- ------
Total............ $186 $36,422 100.00% $136 $35,209 100.00%
==== ======= ====== ==== ======= ======
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
1994 1993
----------------------------------- ----------------------------------
Percent of Percent of
of Loans of Loans
Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans
--------- -------- -------- --------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family... $ 25 $24,711 73.62% $23 $23,403 74.45%
Multi-family.......... 15 5,929 17.66 14 5,452 17.34
Commercial real estate 7 2,904 8.65 6 2,546 8.10
Construction.......... --- --- --- --- --- ---
Consumer.............. --- 24 .07 --- 35 .11
Unallocated........... 89 --- --- 51 --- ---
---- ------- ------ --- ------- ------
Total............ $136 $33,568 100.00% $94 $31,436 100.00%
==== ======= ====== === ======= ======
</TABLE>
<TABLE>
<CAPTION>
February 28, 1993 February 29, 1992
----------------------------------- ----------------------------------
Percent of Percent of
of Loans of Loans
Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans
--------- -------- -------- --------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family... $25 $25,411 76.32% $25 $24,670 76.51%
Multi-family.......... 15 6,157 18.49 15 6,046 18.75
Commercial real estate 4 1,681 5.05 3 1,424 4.42
Construction.......... --- --- --- --- --- ---
Consumer.............. --- 45 .14 --- 105 .32
Unallocated........... 23 --- --- --- --- ---
--- ------- ------ --- ------- ------
Total............ $67 $33,294 100.00% $43 $32,245 100.00%
=== ======= ====== === ======= ======
</TABLE>
69
<PAGE>
The allowance for loan losses is established through a provision for
loan losses charged to earnings based on management's evaluation of the risk
inherent in its entire loan portfolio. Such evaluation, which includes a review
of all loans of which full collectibility may not be reasonably assured,
considers the market value of the underlying collateral, growth and composition
of the loan portfolio, delinquency trends, adverse situations that may affect
the borrower's ability to repay, prevailing and projected economic conditions
and other factors that warrant recognition in providing for an adequate
allowance for loan losses. In determining the general reserves under these
policies, historical charge-offs and recoveries, changes in the mix and levels
of the various types of loans, net realizable values, the current and
prospective loan portfolio and current economic conditions are considered.
While management believes that it uses the best information available
to determine the allowance for loan losses, unforeseen economic and market
conditions could result in adjustments to the allowance for loan losses, and net
earnings could be significantly affected, if circumstances differ substantially
from the assumptions used in making the final determination.
Investment Activities
General. Preferred Savings must maintain minimum levels of investments
and other assets that qualify as liquid assets under OTS regulations. Liquidity
may increase or decrease depending upon the availability of funds and
comparative yields on investments in relation to the return on loans.
Historically, Preferred Savings has maintained liquid assets at levels
significantly above the minimum requirements imposed by the OTS regulations and
above levels believed adequate to meet the requirements of normal operations,
including potential deposit outflows. At May 31, 1996, Preferred Savings'
liquidity ratio for regulatory purposes was 30.5%. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Asset/Liability
Management" and "- Liquidity and Capital Resources."
Generally, the investment policy of Preferred Savings is to invest
funds among categories of investments and maturities based upon the Bank's
asset/liability management policies, investment quality, loan and deposit
volume, liquidity needs and performance objectives. Prior to December 31, 1993,
the Bank recorded its investments in its investment securities portfolio at the
lower of cost or current market value if held for sale or at amortized cost if
held for investment. Unrealized declines in the market value of securities held
to maturity were not reflected in the financial statements; however, unrealized
losses in the market value of securities held for sale were recorded as a charge
to current earnings. Effective December 31, 1993, Preferred Savings adopted SFAS
115. As required by SFAS 115, securities are classified into three categories:
trading, held-to-maturity and available-for-sale. Securities that are bought and
held principally for the purpose of selling them in the near term are classified
as trading securities and are reported at fair value with unrealized gains and
losses included in trading account activities in the statement of operations.
Securities that Preferred Savings has the positive intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost. All
other securities not classified as trading or held-to-maturity are classified as
available-for-sale. At May 31, 1996, Preferred Savings had no securities which
were classified as trading and no securities classified as held-to-maturity.
Available-for-sale securities are reported at fair value with unrealized gains
and losses included, on an after-tax basis, in a separate component of retained
earnings. At May 31, 1996, $11.1 million of securities and $3.9 million of
mortgage-backed securities were classified as available-for-sale.
70
<PAGE>
Securities. Federally chartered savings institutions have the authority
to invest in various types of liquid assets, including United States Treasury
obligations, securities of various federal agencies, certain certificates of
deposit of insured banks and savings institutions, certain bankers' acceptances,
repurchase agreements and federal funds. Subject to various restrictions,
federally chartered savings institutions may also invest their assets in
commercial paper, investment grade corporate debt securities and mutual funds
whose assets conform to the investments that a federally chartered savings
institution is otherwise authorized to make directly.
In order to supplement loan volume and to increase holding of its short
and medium term assets, the Bank invests in liquidity investments and in
high-quality investments, such as U.S. Treasury and agency obligations. At May
31, 1996 and December 31, 1995, the Bank's securities portfolio totaled $11.1
million and $9.7 million, respectively. At May 31, 1996, the Bank did not own
any investment securities of a single issuer which exceeded 10% of the Bank's
retained earnings, other than U.S. government securities and federal agency
obligations. See Note 2 of the Notes to the Consolidated Financial Statements
for additional information regarding the Bank's securities portfolio.
71
<PAGE>
The following table sets forth the composition of the Bank's securities
and other interest-earning assets at the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------
May 31, 1996 1995
-------------------------- ----------------------------
Carrying % of Carrying % of
Value Total Value Total
--------- ------- --------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Securities held-to-maturity:
U.S. government securities......................... $ --- ---% $ --- ---%
Securities available-for-sale:
U.S. government securities......................... 2,511 22.71 3,527 36.22
Federal agency obligations......................... 8,547 77.29 6,212 63.78
Marketable equity securities....................... --- --- --- ---
------- ------ ------- ------
Total securities................................ $11,058 100.00% $9,739 100.00%
======= ====== ====== ======
Average remaining life of securities................. 2.66 yrs. 3.97 yrs.
Other interest-earning assets:
Interest-bearing deposits with other banks......... $ 2,758 88.40% $ 3,086 90.05%
Repurchase agreements.............................. --- --- --- ---
Money market mutual finds.......................... --- --- --- ---
Federal funds sold................................. --- --- --- ---
Federal Home Loan Bank Stock....................... 362 11.60 341 9.95
------- ------ ------- ------
Total........................................... $ 3,120 100.00% $ 3,427 100.00%
======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1994 1993
------------------------ -----------------------
Carrying % of Carrying % of
Value Total Value Total
-------- ----- --------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Securities held-to-maturity:
U.S. government securities......................... $ 201 2.67% $ 403 4.27%
Securities available-for-sale:
U.S. government securities......................... 4,880 64.84 2,999 31.74
Federal agency obligations......................... 2,445 32.49 --- ---
Marketable equity securities....................... --- --- 6,045 63.99
------ ------ ------- ------
Total securities................................ $7,526 100.00% $ 9,447 100.00%
====== ====== ======= ======
Average remaining life of securities................. 2.00 yrs. 1.41 yrs.(1)
Other interest-earning assets:
Interest-bearing deposits with other banks......... $ 6,060 95.15% $ 7,151 72.13%
Repurchase agreements.............................. --- --- 750 7.57
Money market mutual finds.......................... --- --- 165 1.66
Federal funds sold................................. --- --- 1,500 15.13
Federal Home Loan Bank Stock....................... 309 4.85 348 3.51
------- ------ ------- ------
Total........................................... $ 6,369 100.00% $ 9,914 100.00%
======= ====== ======= ======
</TABLE>
72
<PAGE>
The composition and maturities of the securities portfolio, excluding
FHLB stock, are indicated in the following table.
<TABLE>
<CAPTION>
May 31, 1996
-----------------------------------------------------------------------------------------------
Less Than 1 to 5 5 to 10 Over
1 Year Years Years 10 Years Total Securities
-------------- -------------- -------------- -------------- --------------------------
Carrying Value Carrying Value Carrying Value Carrying Value Carrying Value Fair Value
-------------- -------------- -------------- -------------- -------------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. government securities.... $ 1,515 $ 996 $ --- $ --- $ 2,511 $ 2,511
Federal agency obligations.... 4,255 3,405 887 --- 8,547 8,547
------- ------- ------- ------- -------- --------
Total investment securities... $ 5,770 $ 4,401 $ 887 $ --- $11,058 $11,058
======= ======= ====== ======= ======= =======
Weighted average yield........ 5.76% 5.61% 18.72% ---% 6.74%
</TABLE>
See Note 2 of the Notes to the Consolidated Financial Statements for a
discussion of the Bank's securities portfolio.
Mortgage-Backed Securities. In order to supplement loan and investment
activities, the Bank invests in mortgage-backed and related securities.
Consistent with its asset/liability management strategy, at May 31,
1996, $1.7 million, or 42.7% of Preferred Savings' mortgage-backed securities
have adjustable interest rates. For information regarding the Bank's
mortgage-backed securities portfolio, see Note 2 of the Notes to the
Consolidated Financial Statements.
As of May 31, 1996, all of the mortgage-backed securities owned by the
Bank were issued, insured or guaranteed either directly or indirectly by a
federal agency. As a result, the Bank did not have any mortgage-backed or
related securities in excess of 10% of retained earnings except for federal
agency obligations.
To assess price volatility, the Federal Financial Institutions
Examination Council ("FFIEC") adopted a policy in 1992 which requires an annual
"stress" test of mortgage derivative securities. This policy, which has been
adopted by the OTS, requires the Bank to annually test its CMOs and other
mortgage-related securities to determine whether they are high-risk or
nonhigh-risk securities. Mortgage derivative products with an average life or
price volatility in excess of a benchmark 30-year, mortgage-backed, pass-through
security are considered high-risk mortgage securities. Under the policy, savings
institutions may generally only invest in high-risk mortgage securities in order
to reduce interest rate risk. In addition, all high-risk mortgage securities
acquired after February 9, 1992 which are classified as high risk at the time of
purchase must be carried in the institution's trading account or as assets held
for sale. At May 31, 1996, none of the Bank's mortgage-backed securities were
classified as "high-risk."
73
<PAGE>
The following table sets forth the composition of the Bank's
mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
May 31, 1996
--------------------------
Carrying % of
Value Total
-------- -----
<S> <C> <C>
Mortgage-backed securities held to maturity:
FNMA............................................. $ --- ---%
Mortgage-backed securities available for sale:
GNMA............................................. 706 18.18
FNMA............................................. 2,223 57.23
FHLMC............................................ 955 24.59
------ ------
Total mortgage-backed securities.............. $3,884 100.00%
====== ======
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
1995 1994 1993
------------------------- -------------------------- ----------------------
Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total
-------- ----- -------- ----- -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities held to maturity:
FNMA............................................. $ --- ---% $1,792 51.41% $2,026 100.00%
Mortgage-backed securities available for sale:
GNMA............................................. 766 18.15 773 22.17 --- ---
FNMA............................................. 2,426 57.49 --- --- --- ---
FHLMC............................................ 1,028 24.36 921 26.42 --- ---
------ ------ ------ ------ ------ ------
Total mortgage-backed securities.............. $4,220 100.00% $3,486 100.00% $2,026 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
74
<PAGE>
The following table sets forth the contractual maturities of the Bank's
mortgage-backed securities at May 31, 1996.
<TABLE>
<CAPTION>
Due In May 31,
----------------------------------------------------- 1996
Less than 1 to 5 to 10 Over Balance
1 Year 5 Years Years 10 Years Outstanding
------------- --------------------------------------- ------------
<S> <C> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation........... $ --- $ --- $ --- $ 955 $ 955
Federal National Mortgage Association............ --- 1,397 826 --- 2,223
Government National Mortgage Association......... --- 706 --- --- 706
------- ------- -------- -------- -------
Total....................................... $ --- $2,103 $ 826 $ 955 $3,884
======= ====== ====== ====== ======
</TABLE>
At May 31, 1996, the dollar amount of all mortgage-backed securities
due after May 31, 1997, which had fixed interest rates and floating or
adjustable rates totaled $2.2 million and $1.7 million, respectively.
The market values of a portion of the Bank's mortgage-backed securities
held-to-maturity have been from time to time lower than their carrying values.
However, for financial reporting purposes, such declines in value are considered
to be temporary in nature since they have been due to changes in interest rates
rather than credit concerns. See Note 2 of the Notes to the Consolidated
Financial Statements.
The following table shows mortgage-backed securities purchase, sale and
repayment activities of the Bank for the periods indicated.
<TABLE>
<CAPTION>
Five Months Ended Year Ended 10 Months
May 31, December 31, Ended
------------------------- ---------------------- December 31,
1996 1995 1995 1994 1993
----------- ------------ --------- ---------- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Purchases:
Adjustable-rate(1)..................... $ --- $ --- $ 1,023 $ 2,047 $ ---
Fixed-rate(1).......................... --- --- 917 --- 2,026
----- ----- ------- ------- -------
Total purchases................. --- --- 1,940 2,047 2,026
Sales:
Adjustable-rate(1)..................... --- --- 814 --- ---
Repayments:
Principal repayments................... 295 200 476 437 ---
Other increase (decrease).............. (41) 95 84 (150) ---
----- ----- ------- ------- -------
Net increase (decrease)......... $(336) $(105) $ 734 $ 1,460 $ 2,026
===== ===== ======= ======= =======
</TABLE>
- ----------
(1) Consists of pass-through securities.
75
<PAGE>
Sources of Funds
General. The Bank's primary sources of funds are deposits, payments
(including prepayments) of loan principal, interest earned on loans and
securities, repayments of securities, borrowings and funds provided from
operations.
Deposits. Preferred Savings offers deposit accounts having a wide range
of interest rates and terms. The Bank's deposits consist of passbook, money
market and various certificate accounts. The Bank does not currently offer
transaction accounts but may consider offering such accounts in the future
depending on the level of consumer demand for such accounts in its market area.
The Bank only solicits deposits in its market area and does not currently use
brokers to obtain deposits.
The variety of deposit accounts offered by the Bank has allowed it to
be competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. As a result, as customers have become more interest rate
conscious, the Bank has become more susceptible to short-term fluctuations in
deposit flows. In the future, the Bank may offer transaction accounts to meet
the needs of changing customers as well as increase its deposit promotion and
advertising.
Management believes that the "core" portion of the Bank's regular
savings and money market accounts can have a lower cost and be more resistant to
interest rate changes than certificate accounts. These accounts decreased $1.7
million during fiscal 1995. Although a majority of such funds were believed by
management to have been reinvested in certificate accounts. However, management
believes that this outflow represents the most interest rate sensitive portion
of such accounts and that the majority of the remaining portion of the Bank's
regular savings and money market accounts are relatively stable sources of
deposits. The Bank continues to utilize customer service and marketing
initiatives in an effort to maintain and increase the volume of such deposits.
However, the ability of the Bank to attract and maintain these accounts (as well
as certificate accounts) has been and will be affected by market conditions.
76
<PAGE>
The following table sets forth the savings flows at the Bank during the
periods indicated.
<TABLE>
<CAPTION>
Five Months Ended Year Ended 10 Months
May 31, December 31, Ended
----------------------- ------------------------- December 31,
1996 1995 1995 1994 1993
---------- ----------- ----------- ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Opening balance............................. $ 41,047 $ 40,057 $ 40,057 $ 41,139 $ 40,363
Deposits.................................... 11,721 9,566 24,295 24,604 15,841
Withdrawals................................. (11,322) (10,238) (24,759) (26,856) (16,193)
Interest credited........................... 499 403 1,454 1,170 1,128
-------- -------- -------- -------- --------
Ending balance.............................. $ 41,945 $ 39,788 $ 41,047 $ 40,057 $ 41,139
======== ======== ======== ======== ========
Net increase (decrease)..................... $ 898 $ (269) $ 990 $ (1,082) $ 776
======== ======== ======== ======== ========
Percent increase (decrease)................. 2.19% (0.67)% 2.47% (2.63)% 1.92%
-------- -------- -------- -------- --------
</TABLE>
77
<PAGE>
The following table sets forth the dollar amount of savings deposits in
the various types of deposit programs offered by the Bank as of the dates
indicated.
<TABLE>
<CAPTION>
May 31, December 31,
-------------------------- --------------------------
1996 1995
----------------------------------------------------------
Percent Percent
Amount of Total Amount of Total
-------- --------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Transactions and Savings Deposits:
Passbook Accounts - 3.00%(1)................ $19,604 46.74% $19,409 47.29%
Money Market Accounts - 3.25%(1)............ 1,998 4.76 1,601 3.90
------- ------ ------- ------
Total Non-Certificates...................... 21,602 51.50 21,010 51.19
------- ------ ------- ------
Certificates:
0.00 - 3.99%.............................. 4 0.01 49 0.12
4.00 - 5.99%.............................. 18,570 44.27 16,222 39.52
6.00 - 7.99%.............................. 1,769 4.22 3,766 9.17
8.00 and over.............................. --- --- --- ---
------- ------ ------- ------
Total Certificates.......................... 20,343 48.50 20,037 48.81
------- ------ ------- ------
Total Deposits.............................. $41,945 100.00% $41,047 100.00%
======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1994 1993
-------------------------------------------------
Percent Percent
Amount of Total Amount of Total
------ -------- ------ --------
<S> <C> <C> <C> <C>
Transactions and Savings Deposits:
Passbook Accounts - 3.00%(1)................ $20,750 51.80% $22,989 55.88%
Money Market Accounts - 3.25%(1)............ 1,924 4.80 2,029 4.93
------- ------ ------- ------
Total Non-Certificates...................... 22,674 56.60 25,018 60.81
------- ------ ------- ------
Certificates:
0.00 - 3.99%.............................. 5,130 12.81 12,935 31.44
4.00 - 5.99%.............................. 11,669 29.13 2,343 5.70
6.00 - 7.99%.............................. 494 1.23 668 1.62
8.00 and over.............................. 90 .23 175 .43
------- ------ ------- ------
Total Certificates.......................... 17,383 43.40 16,121 39.19
------- ------ ------- ------
Total Deposits.............................. $40,057 100.00% $41,139 100.00%
======= ====== ======= ======
</TABLE>
- ----------
(1) At May 31, 1996.
78
<PAGE>
The following table shows rate and maturity information for the Bank's
certificates of deposit as of May 31, 1996.
<TABLE>
<CAPTION>
Less Than 1 to 2 2 to 3 3 to 4 4 to 5
1 Year Years Years Years Years Total
---------- ------- --------- --------- -------- ---------
(Dollars in Thousands)
<C> <C> <C> <C> <C> <C> <C>
3.00 - 3.99%.......... $ 4 $ --- $ --- $ --- $ --- $ 4
4.00 - 4.99%.......... 743 --- --- --- --- 743
5.00 - 5.99%.......... 15,752 1,079 847 11 138 17,827
6.00 - 6.99%.......... 900 410 --- 90 111 1,511
7.00 - 7.99%.......... 160 --- --- 98 --- 258
------- ------- -------- -------- -------- -------
$17,559 $ 1,489 $ 847 $ 199 $ 249 $20,343
======= ======= ======== ======== ======== =======
</TABLE>
The following table indicates the amount of the Bank's certificates of
deposit and other deposits by time remaining until maturity as of May 31, 1996.
<TABLE>
<CAPTION>
Maturity
-------------------------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 months Total
-------- -------- --------- --------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit of less than $100,000.... $ 6,266 $ 6,481 $ 3,899 $ 2,684 $19,330
Certificates of deposit of $100,000 or more...... 610 203 100 100 1,013
------- ------- ------- ------- -------
Total certificates of deposit.................... $ 6,876 $ 6,684 $ 3,999 $ 2,784 $20,343
======= ======= ======= ======= =======
</TABLE>
For additional information regarding the composition of the Bank's
deposits, see Note 6 of the Notes to the Consolidated Financial Statements.
Borrowings. In the past, the Bank has not utilized borrowings to fund
its operations. Preferred Savings' available sources of funds include advances
from the FHLB of Chicago and other borrowings. As a member of the FHLB of
Chicago, the Bank is required to own capital stock in the FHLB of Chicago and is
authorized to apply for advances from the FHLB of Chicago. Each FHLB credit
program has its own interest rate, which may be fixed or variable, and range of
maturities. The FHLB of Chicago may prescribe the acceptable uses for these
advances, as well as limitations on the size of the advances and repayment
provisions.
Subsidiary Activities
As a federally chartered savings bank, Preferred Savings is permitted
by OTS regulations to invest up to 2% of its assets in the stock of, or loans
to, service corporation subsidiaries, and may invest an additional 1% of its
assets in service corporations where such additional funds are used for
inner-city or community development purposes. In addition to investments in
service corporations, federal institutions are permitted to invest an unlimited
amount in operating
79
<PAGE>
subsidiaries engaged solely in activities which a federal savings association
may engage in directly.
At May 31, 1996, Preferred Savings had one wholly owned service
corporation, Preferred Service Corporation (the "Subsidiary"). The Subsidiary,
an Illinois corporation, was incorporated in 1969 and sells casualty, disability
and credit life insurance on an agency basis.
The Subsidiary had nominal net income for the five months ended May 31,
1996 and the year ended December 31, 1995, respectively. At May 31, 1996,
Preferred Savings' investment in the Subsidiary totaled $4,300.
Competition
Preferred Savings faces strong competition both in originating real
estate loans and in attracting deposits. Competition in originating loans comes
primarily from commercial banks, credit unions mortgage bankers and other
savings institutions, which also make loans secured by real estate located in
Cook County, Illinois. At May 31, 1996, there were 344 savings institutions, 551
commercial bank offices, 40 savings bank offices and 265 credit unions located
in Cook County, Illinois. Preferred Savings competes for loans principally on
the basis of the interest rates and loan fees it charges, the types of loans it
originates and the quality of services it provides to borrowers.
Competition for those deposits is principally from commercial banks,
credit unions, mutual funds, securities firms and other savings institutions
located in the same communities. The ability of the Bank to attract and retain
deposits depends on its ability to provide an investment opportunity that
satisfies the requirements of investors as to rate of return, liquidity, risk,
convenient locations and other factors. The Bank competes for these deposits by
offering competitive rates, convenient business hours and a customer oriented
staff. At May 31, 1996, Preferred Savings' share of deposits in its market area
was approximately .04%.
Employees
At May 31, 1996, the Bank had a total of 15 full-time employees. None
of the Bank's employees are represented by any collective bargaining agreement.
Management considers its employee relations to be good.
Properties
Preferred Savings conducts its business at its stand-alone office
located at 4800 South Pulaski Road, Chicago, Illinois. The Bank's 5,000 square
foot office was acquired in 1980 and had a net book value of $314,000 at May 31,
1996. At May 31, 1996, the total net book value of Preferred Savings' premises
and equipment (including land, building and leasehold improvements, and
furniture, fixtures and equipment) was approximately $457,000.
The Bank's depositor and borrower customer files are maintained by an
independent data processing company. The net book value of the data processing
and computer equipment utilized by the Bank at May 31, 1996 was approximately
$5,000.
80
<PAGE>
Legal Proceedings
From time to time, Preferred Savings is involved as plaintiff or
defendant in various legal proceedings arising in the normal course of its
business. While the ultimate outcome of these various legal proceedings cannot
be predicted with certainty, it is the opinion of management that the resolution
of these legal actions should not have a material effect on the Holding
Company's and Preferred Savings' financial position or results of operations.
REGULATION
General
Preferred Savings is a federally chartered savings bank, the deposits
of which are federally insured and backed by the full faith and credit of the
United States Government. Accordingly, Preferred Savings is subject to broad
federal regulation and oversight extending to all its operations. Preferred
Savings is a member of the FHLB of Chicago and is subject to certain limited
regulation by the Board of Governors of the Federal Reserve System ("Federal
Reserve Board"). Prior to August, 1996, the Bank was a state chartered savings
bank and was subject to the regulation of the State of Illinois Office of Banks
and Real Estate (the "Illinois Office of Banks"). As the savings and loan
holding company of Preferred Savings, the Holding Company also is subject to
federal regulation and oversight. The purpose of the regulation of the Holding
Company and other holding companies is to protect subsidiary savings
associations. Preferred Savings is a member of the Savings Association Insurance
Fund ("SAIF") and the deposits of Preferred Savings are insured by the FDIC. As
a result, the FDIC has certain regulatory and examination authority over
Preferred Savings.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings
associations. As part of this authority, Preferred Savings is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. Prior to its conversion to a federal charter in August 1996, the
Bank was examined and filed periodic reports with the Illinois Office of Banks.
The last regular Illinois Office of Banks, OTS and FDIC examinations of
Preferred Savings were as of May 1994, March 1992 and August 1995,
respectively. Under agency scheduling guidelines, it is likely that another
examination will be initiated in the near future. When these examinations are
conducted by the OTS and the FDIC, the examiners may require Preferred Savings
to provide for higher general or specific loan loss reserves. All savings
associations are subject to a semi-annual assessment, based upon the savings
association's total assets, to fund the operations of the OTS.
The OTS also has extensive enforcement authority over all
savings institutions and their holding companies, including Preferred Savings
and the Holding Company. This enforcement authority includes, among other
things, the ability to assess civil money penalties, to issue cease-and-desist
or removal orders and to initiate injunctive actions. In general, these
enforcement actions may be initiated for violations of laws and regulations and
unsafe or
81
<PAGE>
unsound practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with the OTS.
Except under certain circumstances, public disclosure of final enforcement
actions by the OTS is required.
In addition, the investment, lending and branching authority of
Preferred Savings is prescribed by federal laws and it is prohibited from
engaging in any activities not permitted by such laws. For instance, no savings
institution may invest in non-investment grade corporate debt securities. In
addition, the permissible level of investment by federal associations in loans
secured by non-residential real property may not exceed 400% of total capital,
except with approval of the OTS. Federal savings associations are also generally
authorized to branch nationwide. Preferred Savings is in compliance with the
noted restrictions.
Preferred Savings' general permissible lending limit for
loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired
capital and surplus (except for loans fully secured by certain readily
marketable collateral, in which case this limit is increased to 25% of
unimpaired capital and surplus). At May 31, 1996, Preferred Savings' lending
limit under this restriction was $1.8 million. Assuming the sale of the minimum
number of shares in the Conversion at May 31, 1996, that limit would be
increased to $2.9 million. Preferred Savings is in compliance with the
loans-to-one-borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits. Any institution
which fails to comply with these standards must submit a compliance plan. A
failure to submit a plan or to comply with an approved plan will subject the
institution to further enforcement action. The OTS and the other federal banking
agencies have also proposed additional guidelines on asset quality and earnings
standards. No assurance can be given as to whether or in what form the proposed
regulations will be adopted.
Insurance of Accounts and Regulation by the FDIC
Preferred Savings is a member of the SAIF, which is administered by the
FDIC. Deposits are insured up to applicable limits by the FDIC and such
insurance is backed by the full faith and credit of the United States
Government. As insurer, the FDIC imposes deposit insurance premiums and is
authorized to conduct examinations of and to require reporting by FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC determines by regulation or order to pose a serious risk
to the FDIC. The FDIC also has the authority to initiate enforcement actions
against savings associations, after giving the OTS an opportunity to take such
action, and may terminate the deposit insurance if it determines that the
institution has engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while
82
<PAGE>
institutions that are less than adequately capitalized (i.e., core or Tier 1
risk-based capital ratios of less than 4% or a risk-based capital ratio of less
than 8%) and considered of substantial supervisory concern pay the highest
premium. Risk classification of all insured institutions will be made by the
FDIC for each semi-annual assessment period. For the first six months of 1995,
the assessment schedule for Bank Insurance Fund ("BIF") members and SAIF members
ranged from .23% to .31% of deposits.
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF-insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.
As is the case with the SAIF, the FDIC is authorized to adjust the
insurance premium rates for banks that are insured by the BIF of the FDIC in
order to maintain the reserve ratio of the BIF at 1.25% of BIF-insured deposits.
As a result of the BIF reaching its statutory reserve ratio the FDIC revised the
premium schedule for BIF-insured institutions to provide a range of .04% to .31%
of deposits. The revisions became effective in the third quarter of 1995. In
addition, the BIF rates were further revised, effective January 1996, to provide
a range of 0% to .27% with a minimum annual assessment of $2,000. The SAIF
rates, however, were not adjusted. As a result of these revisions, BIF members
will generally pay lower premiums.
The SAIF is not expected to attain the designated reserve ratio until
the year 2002 due to the shrinking deposit base for SAIF assessments and the
requirement that SAIF premiums be used to make the interest payments on bonds
issued by the Financing Corporation ("FICO") in order to finance the costs of
resolving thrift failures in the 1980s. As a result, SAIF members will generally
be subject to higher deposit insurance premiums than BIF members until, all
things being equal, the SAIF attains the required reserve ratio.
In order to help eliminate this disparity and any competitive disadvantage
due to disparate deposit insurance premium schedules, legislation to
recapitalize the SAIF was enacted in September 1996. The legislation provides
for a one-time assessment to be imposed on all deposits assessed at the SAIF
rates, as of March 31, 1995, in order to recapitalize the SAIF. It also provides
for the merger of the BIF and the SAIF on January 1, 1999 provided no savings
associations then exist. The special assessment rate is currently anticipated to
range between .65% and .70% and will be payable by November 29, 1996.
Accordingly, this special assessment will increase noninterest expense and
adversely affect the Bank's results of operations. Following the special
assessment, and depending upon the Bank's capital level and supervisory rating,
the Bank's deposit insurance premiums could decrease significantly for future
periods.
83
<PAGE>
Regulatory Capital Requirements
Federally insured savings associations, such as Preferred Savings, are
required to maintain a minimum level of regulatory capital. The OTS has
established capital standards, including a tangible capital requirement, a
leverage ratio (or core capital) requirement and a risk-based capital
requirement applicable to such savings associations. These capital requirements
must be generally as stringent as the comparable capital requirements for
national banks. The OTS is also authorized to impose capital requirements in
excess of these standards on individual associations on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual Preferred Savings stock and related income. In addition,
all intangible assets, other than a limited amount of purchased mortgage
servicing rights, must be deducted from tangible capital for calculating
compliance with the requirement. At May 31, 1996, Preferred Savings did not have
any intangible assets recorded as assets on its financial statements.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital.
Assuming the Bank would have been subject to the OTS capital
requirements, at May 31, 1996, Preferred Savings had tangible capital of $12.1
million, or 22.1% of adjusted total assets, which is approximately $11.3 million
above the minimum requirement of 1.5% of adjusted total assets in effect on that
date. On a pro forma basis, after giving effect to the sale of the minimum,
midpoint and maximum number of shares of Common Stock offered in the Conversion
and investment of 50% of the net proceeds in assets not excluded for tangible
capital purposes, Preferred Savings would have had tangible capital equal to
28.7%, 29.8% and 30.8%, respectively, of adjusted total assets at May 31, 1996,
which is $16.3 million, $17.2 million and $18.1 million, respectively, above the
requirement.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings association must maintain a core capital ratio of at
least 4% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3% ratio. At May 31, 1996, Preferred
Savings had no intangibles which were subject to these tests.
At May 31, 1996, Preferred Savings had core capital equal to $12.1
million, or 22.1% of adjusted total assets, which is $10.5 million above the
minimum leverage ratio requirement of 3% as in effect on that date. On a pro
forma basis, after giving effect to the sale of the minimum, midpoint and
maximum number of shares of Common Stock offered in the Conversion and
investment of 50% of the net proceeds in assets not excluded from core capital,
84
<PAGE>
Preferred Savings would have had core capital equal to 28.7%, 29.8% and 30.8%,
respectively, of adjusted total assets at May 31, 1996, which is $15.4 million,
$16.3 million and $17.2 million, respectively, above the requirement.
The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At May 31, 1996, Preferred Savings
had $186,000 of general loss reserves that qualify as supplementary capital,
which was less than 1.25% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. Preferred Savings had no
such exclusions from capital and assets at May 31, 1996.
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 50% for prudently underwritten
permanent one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan to value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by the FNMA or FHLMC.
The OTS has adopted a final rule that requires every savings
association with more than normal interest rate risk exposure to deduct from its
total capital, for purposes of determining compliance with such requirement, an
amount equal to 50% of its interest-rate risk exposure multiplied by the present
value of its assets. This exposure is a measure of the potential decline in the
net portfolio value of a savings association, greater than 2% of the present
value of its assets, based upon a hypothetical 200 basis point increase or
decrease in interest rates (whichever results in a greater decline). Net
portfolio value is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The rule provides for a two quarter
lag between calculating interest rate risk and recognizing any deduction from
capital. The rule will not become effective until the OTS evaluates the process
by which savings associations may appeal an interest rate risk deduction
determination. It is uncertain as to when this evaluation may be completed. Any
savings association with less than $300 million in assets and a total capital
ratio in excess of 12% is exempt from this requirement unless the OTS determines
otherwise. Based upon its capital level and assets size at May 31, 1996,
Preferred Savings would qualify for an exemption from the requirement.
On May 31, 1996, Preferred Savings had total capital of $12.3 million
(including $12.1 million in core capital and $186,000 in qualifying
supplementary capital) and risk-weighted assets of $21.5 million; or total
capital of 57.2% of risk-weighted assets. This amount was $10.6 million above
the 8% requirement in effect on that date. On a pro forma basis, after
85
<PAGE>
giving effect to the sale of the minimum, midpoint and maximum number of shares
of Common Stock offered in the Conversion, the infusion to Preferred Savings of
50% of the net Conversion proceeds and the investment of those proceeds to
Preferred Savings in 20% risk-weighted government securities, Preferred Savings
would have had total capital of 77.1%, 80.6% and 84.0%, respectively, of
risk-weighted assets, which is above the current 8% requirement by $15.6
million, $16.5 million and $17.4 million, respectively.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1 risked-
based capital ratio or an 8% risk-based capital ratio). Any such association
must submit a capital restoration plan and until such plan is approved by the
OTS may not increase its assets, acquire another institution, establish a branch
or engage in any new activities, and generally may not make capital
distributions. The OTS is authorized to impose the additional restrictions that
are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or
is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk-based capital ratio of less than 6%) must be
made subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association into
a lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on
Preferred Savings may have a substantial adverse effect on Preferred Savings'
operations and profitability and the value of the Common Stock purchased in the
Conversion. Holding Company stockholders do not have preemptive rights, and
therefore, if the Holding Company is directed by the OTS or the FDIC to issue
additional shares of Common Stock, such issuance may result in the dilution in
the percentage of ownership of the Holding Company of those persons purchasing
shares in the Conversion.
86
<PAGE>
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions on savings associations
with respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a
savings association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the regulatory capital of the association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion. See "The
Conversion--Effects of Conversion to Stock Form on Depositors and Borrowers of
the Bank" and "-Restrictions on Repurchase of Stock."
Generally, savings associations, such as Preferred Savings, that before
and after the proposed distribution meet their capital requirements, may make
capital distributions during any calendar year equal to the greater of 100% of
net income for the year-to-date plus 50% of the amount by which the lesser of
the association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of its net income for the most recent four quarter period.
However, an association deemed to be in need of more than normal supervision by
the OTS may have its dividend authority restricted by the OTS. Preferred Savings
may pay dividends in accordance with this general authority.
Savings associations proposing to make any capital distribution need
only submit written notice to the OTS 30 days prior to such distribution.
Savings associations that do not, or would not meet their current minimum
capital requirements following a proposed capital distribution, however, must
obtain OTS approval prior to making such distribution. The OTS may object to the
distribution during that 30-day period notice based on safety and soundness
concerns. See "- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a savings association that is a
subsidiary of a holding company may make a capital distribution with notice to
the OTS provided that it has a CAMEL 1 or 2 rating, is not of supervisory
concern, and would remain adequately capitalized (as defined in the OTS prompt
corrective action regulations) following the proposed distribution. Savings
associations that would remain adequately capitalized following the proposed
distribution but do not meet the other noted requirements must notify the OTS 30
days prior to declaring a capital distribution. The OTS stated it will generally
regard as permissible that amount of capital distributions that do not exceed
50% of the institution's excess regulatory capital plus net income to date
during the calendar year. A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. As under the
current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice. No assurance may be given as to
whether or in what form the regulations may be adopted.
Liquidity
All savings associations, including Preferred Savings, are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily
87
<PAGE>
balance of net withdrawable deposit accounts and borrowings payable in one year
or less. For a discussion of what Preferred Savings includes in liquid assets,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." This liquid asset ratio
requirement may vary from time to time (between 4% and 10%) depending upon
economic conditions and savings flows of all savings associations. At the
present time, the minimum liquid asset ratio is 5%.
In addition, short-term liquid assets (e.g., cash, certain time
deposits, certain bankers acceptances and short-term United States Treasury
obligations) currently must constitute at least 1% of the association's average
daily balance of net withdrawable deposit accounts and current borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio requirement. At May 31, 1996, Preferred Savings was in compliance with
both requirements, with an overall liquid asset ratio of 30.5% and a short-term
liquid assets ratio of 18.7%.
Accounting
An OTS policy statement applicable to all savings associations
clarifies and re-emphasizes that the investment activities of a savings
association must be in compliance with approved and documented investment
policies and strategies, and must be accounted for in accordance with GAAP.
Under the policy statement, management must support its classification of and
accounting for loans and securities (i.e., whether held-to-maturity,
available-for-sale or trading) with appropriate documentation. Preferred Savings
is in compliance with these amended rules.
The OTS has adopted an amendment to its accounting regulations, which
may be made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying economic substance and
inherent risk and that financial reports must incorporate any other accounting
regulations or orders prescribed by the OTS.
Qualified Thrift Lender Test
All savings associations, including Preferred Savings, are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. This test requires a savings association to have at least 65%
of its portfolio assets (as defined by regulation) in qualified thrift
investments on a monthly average for nine out of every 12 months on a rolling
basis. Such assets primarily consist of residential housing related loans and
investments. At May 31, 1996, Preferred Savings met the test with 91.12% of its
portfolio assets in qualified thrift investments and has always met the test
since its effectiveness.
Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
88
<PAGE>
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with the examination of
Preferred Savings, to assess the institution's record of meeting the credit
needs of its community and to take such record into account in its evaluation of
certain applications, such as a merger or the establishment of a branch, by
Preferred Savings. An unsatisfactory rating may be used as the basis for the
denial of an application by the OTS.
The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, Preferred Savings may be required to devote additional
funds for investment and lending in its local community. Preferred Savings was
examined for CRA compliance in March 1995 and received a rating of satisfactory.
Transactions with Affiliates
Generally, transactions between a savings association or its
subsidiaries and its affiliates are required to be on terms as favorable to the
association as transactions with non-affiliates. In addition, certain of these
transactions, such as loans to an affiliate, are restricted to a percentage of
the association's capital. Affiliates of Preferred Savings include the Holding
Company and any company which is under common control with Preferred Savings. In
addition, a savings association may not lend to any affiliate engaged in
activities not permissible for a bank holding company or acquire the securities
of most affiliates. Preferred Savings' subsidiary is not deemed an affiliate,
however; the OTS has the discretion to treat a subsidiary of savings
associations as an affiliate on a case-by-case basis.
Certain transactions with directors, officers or controlling persons
are also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
89
<PAGE>
Holding Company Regulation
The Holding Company will be a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Holding Company is
required to register and file reports with the OTS and is subject to regulation
and examination by the OTS. In addition, the OTS has enforcement authority over
the Holding Company and its non-savings association subsidiaries which also
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings association.
As a unitary savings and loan holding company, the Holding Company
generally is not subject to activity restrictions. If the Holding Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Holding Company and any of its subsidiaries (other than Preferred Savings or
any other SAIF-insured savings association) would become subject to such
restrictions unless such other associations each qualify as a QTL and were
acquired in a supervisory acquisition.
If Preferred Savings fails the QTL test, the Holding Company must
obtain the approval of the OTS prior to continuing after such failure, directly
or through its other subsidiaries, any business activity other than those
approved for multiple savings and loan holding companies or their subsidiaries.
In addition, within one year of such failure the Holding Company must register
as, and will become subject to, the restrictions applicable to bank holding
companies. The activities authorized for a bank holding company are more limited
than are the activities authorized for a unitary or multiple savings and loan
holding company. See "- Qualified Thrift Lender Test."
The Holding Company must obtain approval from the OTS before acquiring
control of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law
The stock of the Holding Company is registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Holding
Company is subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act.
Holding Company stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Holding Company may not
be resold without registration or unless sold in accordance with certain resale
restrictions. If the Holding Company meets specified current public information
requirements, each affiliate of the Holding Company is able to sell in the
public market, without registration, a limited number of shares in any
three-month period.
90
<PAGE>
Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking accounts).
At May 31, 1996, Preferred Savings was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements that
may be imposed by the OTS. See "-Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System
Preferred Savings is a member of the FHLB of Chicago, which is one of
12 regional FHLBs, that administers the home financing credit function of
savings associations. Each FHLB serves as a reserve or central bank for its
members within its assigned region. It is funded primarily from proceeds derived
from the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures, established
by the board of directors of the FHLB, which are subject to the oversight of the
Federal Housing Finance Board. All advances from the FHLB are required to be
fully secured by sufficient collateral as determined by the FHLB. In addition,
all long-term advances are required to provide funds for residential home
financing. The aggregate amount of advances cannot exceed 20 times the amount of
FHLB stock held by the institutions.
As a member, Preferred Savings is required to purchase and maintain
stock in the FHLB of Chicago. At May 31, 1996, Preferred Savings had $362,000 in
FHLB stock, which was in compliance with this requirement. In past years,
Preferred Savings has received substantial dividends on its FHLB stock. Over the
past five calendar years such dividends have averaged 6.1% and were 6.2% for
calendar year 1995. As a result of their holdings, the Bank could borrow up to
$7.2 million from the FHLB.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of Preferred Savings' FHLB stock may result in a
corresponding reduction in Preferred Savings' capital.
For the year ended December 31, 1995, dividends paid by the FHLB of
Chicago to Preferred Savings totaled $22,000, which constitute a $3,000 increase
from the amount of dividends received in calendar year 1994. The $10,000
dividend received for the five months ended May 31, 1996 reflects an annualized
rate of 6.6%, or 0.4% below the rate for calendar 1995.
91
<PAGE>
Federal and State Taxation
Savings associations such as Preferred Savings that meet certain
definitional tests relating to the composition of assets and other conditions
prescribed by the Internal Revenue Code of 1986, as amended (the "Code"), are
permitted to establish reserves for bad debts and to make annual additions
thereto which may, within specified formula limits, be taken as a deduction in
computing taxable income for federal income tax purposes. The amount of the bad
debt reserve deduction for "non-qualifying loans" is computed under the
experience method. The amount of the bad debt reserve deduction for "qualifying
real property loans" (generally loans secured by improved real estate) may be
computed under either the experience method or the percentage of taxable income
method (based on an annual election).
Under the experience method, the bad debt reserve deduction is an
amount determined under a formula based generally upon the bad debts actually
sustained by the savings association over a period of years.
The percentage of specially computed taxable income that is used to
compute a savings association's bad debt reserve deduction under the percentage
of taxable income method (the "percentage bad debt deduction") is 8%. The
percentage bad debt deduction thus computed is reduced by the amount permitted
as a deduction for non-qualifying loans under the experience method. The
availability of the percentage of taxable income method permits qualifying
savings associations to be taxed at a lower effective federal income tax rate
than that applicable to corporations generally (approximately 31.3% assuming the
maximum percentage bad debt deduction).
If an association's specified assets (generally, loans secured by
residential real estate or deposits, educational loans, cash and certain
government obligations) constitute less than 60% of its total assets, the
association may not deduct any addition to a bad debt reserve and generally must
include existing reserves in income over a four year period. No representation
can be made as to whether Preferred Savings will meet the 60% test for
subsequent taxable years.
Under the percentage of taxable income method, the percentage bad debt
deduction cannot exceed the amount necessary to increase the balance in the
reserve for "qualifying real property loans" to an amount equal to 6% of such
loans outstanding at the end of the taxable year or the greater of (i) the
amount deductible under the experience method or (ii) the amount which when
added to the bad debt deduction for "non-qualifying loans" equals the amount by
which 12% of the amount comprising savings accounts at year-end exceeds the sum
of surplus, undivided profits and reserves at the beginning of the year. At May
31, 1996, the 6% limitation did not restrict the percentage bad debt deduction
available to Preferred Savings, however, the 12% limitation restricted the bad
debt deduction.
In August 1996, legislation was enacted that repeals the reserve method
of accounting used by many thrifts to calculate their bad debt reserve for
federal income tax purposes. As a result, small thrifts such as the Bank must
recapture that portion of the reserve that exceeds the amount that could have
been taken under the experience method for post-1987 tax years. The legislation
also requires thrifts to account for bad debts for federal income tax purposes
on the same basis as commercial banks for tax years beginning after December 31,
1995. The
92
<PAGE>
recapture will occur over a six-year period, the commencement of which will be
delayed until the first taxable year beginning after December 31, 1997, provided
the institution meets certain residential lending requirements. The management
of the Company does not believe that the legislation will have a material impact
on the Company or the Bank.
In addition to the regular income tax, corporations, including savings
associations such as Preferred Savings, generally are subject to a minimum tax.
An alternative minimum tax is imposed at a minimum tax rate of 20% on
alternative minimum taxable income, which is the sum of a corporation's regular
taxable income (with certain adjustments) and tax preference items, less any
available exemption. The alternative minimum tax is imposed to the extent it
exceeds the corporation's regular income tax and net operating losses can offset
no more than 90% of alternative minimum taxable income. For taxable years
beginning after 1986 and before 1996, corporations, including savings
associations such as Preferred Savings, are also subject to an environmental tax
equal to 0.12% of the excess of alternative minimum taxable income for the
taxable year (determined without regard to net operating losses and the
deduction for the environmental tax) over $2 million.
To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the association's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of December 31, 1995, Preferred Savings' Excess for tax purposes
totaled approximately $1.6 million.
Preferred Savings and its subsidiary file consolidated federal income
tax returns on a fiscal year basis using the cash method of accounting. The
Holding Company intends to file consolidated federal income tax returns with
Preferred Savings and its subsidiary. Savings associations, such as Preferred
Savings, that file federal income tax returns as part of a consolidated group
are required by applicable Treasury regulations to reduce their taxable income
for purposes of computing the percentage bad debt deduction for losses
attributable to activities of the non-savings association members of the
consolidated group that are functionally related to the activities of the
savings association member.
Preferred Savings and its consolidated subsidiary have not been audited
by the IRS with respect to consolidated federal income tax returns in the past
five years. With respect to years examined by the IRS, either all deficiencies
have been satisfied or sufficient reserves have been established to satisfy
asserted deficiencies. In the opinion of management, any examination of still
open returns (including returns of subsidiary and predecessors of, or entities
merged into, Preferred Savings) would not result in a deficiency which could
have a material adverse effect on the financial condition of Preferred Savings
and its consolidated subsidiary.
Illinois Taxation. For Illinois income tax purposes, the Bank is taxed
at an effective rate equal to 7.18% of Illinois taxable income. For these
purposes, "Illinois Taxable Income" generally means federal taxable income,
subject to certain adjustments (including the addition of interest income on
state and municipal obligations and the exclusion of interest income on United
States Treasury obligations).
93
<PAGE>
Delaware Taxation. As a Delaware holding company, the Holding Company
is exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Holding Company
is also subject to an annual franchise tax imposed by the State of Delaware.
MANAGEMENT
Directors and Executive Officers of the Holding Company and the Bank
Directors and Executive Officers of the Holding Company. The Board of
Directors of the Holding Company currently consists of six members. The
directors of the Holding Company are currently comprised of the directors of the
Bank and Lorraine G. Ptak. See "- Directors of the Bank." Each Director of the
Holding Company has served as such since August 1996. Directors of the Holding
Company will serve three-year staggered terms so that one-third of the directors
will be elected at each annual meeting of stockholders. The terms of the current
directors of the Holding Company are the same as that of the Bank's board. The
term of Ms. Ptak expires in 1999. The Holding Company intends to pay directors a
fee for attendance at Board meetings of $250. See also "- Directors and
Executive Officers of the Bank." For information regarding stock options and
restricted stock proposed to be awarded to directors following stockholder
ratification of such plans, see "- Benefit Plans."
The business experience of L.G. Ptak, a director of the Holding Company
and an executive officer of the Bank, is set forth below.
L. G. Ptak, age 71. Ms. Ptak is currently serving as
Secretary-Treasurer of the Bank, a position she has held since 1975. Mrs. Ptak
is also a director of the Holding Company. Ms. Ptak is the wife of Chairman S.
J. Ptak and the mother of President Rooney.
The executive officers of the Holding Company are elected annually and
hold office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The following
table sets forth information regarding executive officers of the Holding
Company. Each executive officer of the Holding Company has held his or her
position since the incorporation of the Holding Company in July 1996.
Name Title
- ------------------------ -----------------------------------------------
S. J. Ptak Chairman of the Board
Kimberly P. Rooney President, Chief Executive Officer and Director
Jeffrey Przybyl Treasurer and Chief Financial Officer
L. G. Ptak Director and Secretary
The Holding Company does not initially intend to pay executive officers any fees
in addition to fees payable to such persons as executive officers of the Bank.
For information regarding compensation of directors and executive officers of
the Bank, see "Management - Director Compensation" and "- Executive
Compensation." For information regarding stock options and
94
<PAGE>
restricted stock proposed to be awarded to directors and executive officers
following stockholder ratification of the Holding Company's stock-based plans,
see "- Benefit Plans."
Board of Directors of the Bank. Prior to the Conversion, the direction
and control of the Bank, as a mutual savings institution, was vested in its
Board of Directors. Upon conversion of the Bank to stock form, each of the
directors of the Bank will continue to serve as a director of the converted
Bank. The Board of Directors of the Bank currently consists of five members. The
directors serve three-year staggered terms so that approximately one-third of
the directors are elected at each annual meeting of members. Because the Holding
Company will own all of the issued and outstanding shares of capital stock of
the Bank after the Conversion, directors of the Holding Company will elect the
directors of the Bank.
The following table sets forth certain information regarding the
directors of the Bank.
<TABLE>
<CAPTION>
Director Term
Name Position(s) Held With the Bank Age(1) Since Expires
- ---------------------- ------------------------------------------------ ------ -------- -------
<S> <C> <C> <C> <C>
S. J. Ptak Chairman of the Board 71 1969 1999
Kimberly P. Rooney President, Chief Executive Officer and Director 39 1989 1999
Edward Wolak Director 72 1969 1998
Jeanine M. McInerney Director 38 1996 1997
Rocco Di Iorio Director 64 1990 1997
</TABLE>
- ----------
(1) At May 31, 1996.
The business experience of each director of the Holding Company or the
Bank for at least the past five years is set forth below.
Sylvester J. Ptak. Mr. Ptak is the Chairman of the Board and Vice
President of the Bank, a position he has held since 1995. Mr. Ptak has been a
member of the Board of Directors of the Bank since 1969. He also served as
Secretary of the Bank from 1969 to 1975 and President and Chief Executive
Officer of the Bank from 1975 to 1995. Mr. Ptak is the father of President
Rooney and husband of Secretary-Treasurer Lorraine Ptak. As Chairman of the
Board and Vice President of the Bank, Mr. Ptak supervises the lending
department.
Kimberly P. Rooney. Ms. Rooney is currently serving as President and
Chief Executive Officer of the Bank, a position she has held since 1995. Prior
to joining the Bank as President, Ms. Rooney served as an attorney for the Bank.
From time to time, Ms. Rooney performs legal work for long-time clients. Ms.
Rooney is the daughter of Chairman Ptak and Secretary-Treasurer Lorraine Ptak.
Edward Wolak. Mr. Wolak is a retired plant engineer with Crown Stove,
Inc., a position he held for approximately 40 years. Mr. Wolak is the spouse of
Lorraine Ptak's sister.
Jeanine McInerny. Ms. McInerny is a clinical nurse consultant with
Healthpoint Medical. She has been employed as a nurse for approximately 15
years.
Rocco Di Iorio. Mr. Di Iorio is a retired sewer contractor.
95
<PAGE>
Executive Officers Who Are Not Directors. Each of the executive
officers of the Bank will retain his or her office in the converted Bank.
Officers are elected annually by the Board of Directors of the Bank. The
business experience of the executive officers who are not also directors is set
forth below. L. G. Ptak is also an executive officer of the Bank. Her business
experience is set forth on the preceding page.
Jeffrey Przybyl, age 30. Mr. Przybyl is currently serving as Chief
Financial Officer of the Bank, a position he has held since 1993. As Chief
Financial Officer, Mr. Przybyl is responsible for overseeing the accounting and
financial reporting functions of the Bank.
Marianne I. Maciejewski, age 58. Ms. Maciejewski is currently serving
as Vice President of the Bank, a position she has held since 1995. As Vice
President of the Bank, Ms. Maciejewski is responsible for overseeing the
compliance function of the Bank. Prior to serving as Vice President, Ms.
Maciejewski served in various capacities with the Bank since 1985. Marianne I.
Maciejewski is the mother of Linda Peterson.
Linda M. Peterson, age 38. Ms. Peterson is currently serving as Vice
President of the Bank. In that capacity, Ms. Peterson is responsible for
overseeing the mortgage lending functions of the Bank. Ms. Peterson joined the
Bank in 1987 as a loan officer. Linda Peterson is the daughter of executive
officer Maciejewski.
Indemnification
The Certificate of Incorporation of the Holding Company provides that a
director or officer of the Holding Company shall be indemnified by the Holding
Company to the fullest extent authorized by the General Corporation Law of the
State of Delaware against all expenses, liability and loss reasonably incurred
or suffered by such person in connection with his activities as a director or
officer or as a director or officer of another company, if the director or
officer held such position at the request of the Holding Company. Delaware law
requires that such director, officer, employee or agent, in order to be
indemnified, must have acted in good faith and in a manner reasonably believed
to be not opposed to the best interests of the Holding Company, and, with
respect to any criminal action or proceeding, did not have reasonable cause to
believe his or her conduct was unlawful.
The Certificate of Incorporation and Delaware law also provide that the
indemnification provisions of such Certificate and the statute are not exclusive
of any other right which a person seeking indemnification may have or later
acquire under any statute, provision of the Certificate of Incorporation, Bylaws
of the Holding Company, agreement, vote of stockholders or disinterested
directors or otherwise.
These provisions may have the effect of deterring shareholder
derivative actions, since the Holding Company may ultimately be responsible for
expenses for both parties to the action. A similar effect would not be expected
for third-party claims.
In addition, the Certificate of Incorporation and Delaware law also
provide that the Holding Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Holding
Company or another corporation, partnership, joint
96
<PAGE>
venture, trust or other enterprise against any expense, liability or loss,
whether or not the Holding Company has the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation
Law. The Holding Company may obtain such insurance.
Meetings and Committees of Board of Directors
The Bank. The Bank's Board of Directors meets on a monthly basis. The
Board of Directors met 12 times during the fiscal year ended December 31, 1995.
During fiscal 1995, no director of the Bank attended fewer than 75% of the
aggregate of the total number of Board meetings and the total number of meetings
held by the committees of the Board of Directors on which he served.
The Bank has standing Loan, Proxy, Investment, Audit, CRA and Interest
Rate Risk Committees.
The Loan Committee meets to approve all loans originated by the Bank
and sets interest rates for all loan types. The entire Board of Directors
comprises the loan committee. This committee met approximately 12 times during
calendar year 1995.
The Proxy Committee is comprised of Chairman Ptak, President Rooney and
Secretary-Treasurer Ptak. This Committee meets to vote proxies at a special or
annual meeting of the Bank. This committee met one time during calendar year
1995.
The Investment Committee develops investment objectives and performance
standards consistent with the Bank's financial needs and reviews the Bank's
investment policies and recommends changes to the full Board. This committee is
comprised of Chairman Ptak, President Rooney and Chief Financial Officer Przybyl
and met 12 times during calendar year 1995.
The Audit Committee meets at least annually to review and recommend the
Bank's engagement of external auditors. Such committee reviews audit reports and
related matters and acts as the liaison between Preferred Savings' internal and
external auditors and the Board. Directors Di Iorio and Wolak currently comprise
the committee. This committee met one time in 1995.
The CRA Committee meets on a monthly basis to review compliance with
the Community Reinvestment Act. The CRA Committee is composed of the entire
Board of Directors and Executive Officer Maciejewski. This committee met 12
times during calendar year 1995.
The Interest Rate Risk Committee is comprised of Chairman Ptak,
Director Rooney and officer Przybyl. This committee meets quarterly to review
the Bank's interest rate risk position and product mix and make recommendations
for adjustments to the full Board. This committee met four times in fiscal 1995.
The Holding Company. In August 1996, the Board of Directors of the
Holding Company established standing Executive, Audit, Compensation and
Nominating Committees. These committees did not meet during fiscal 1995.
97
<PAGE>
Director Compensation
Directors of the Bank are paid a monthly fee of $300 for service on the
Board of Directors. Directors do not receive any additional compensation for
committee meetings attended.
Executive Compensation
The following table sets forth information concerning the compensation
for services in all capacities to Preferred Savings for the fiscal year ended
December 31, 1995 of the Bank's Chairman and its Chief Executive Officer. No
executive officer's aggregate annual compensation (salary plus bonus) exceeded
$100,000 in fiscal 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
Annual Compensation(1) Awards
------------------------------------ ----------------------------
Other Annual Restricted Stock Options/ All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Award ($)(2) SARs (#)(2) Compensation($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kimberly P. Rooney, President and
Chief Executive Officer 1995 $55,200 $24,000 $--- $ N/A N/A $---
S.J. Ptak, Chairman of the Board 1995 $36,000 $20,000 $--- $ N/A N/A $---
===================================================================================================================================
</TABLE>
- ----------
(1) In accordance with the transitional provisions applicable to the
revised rules on executive officer and director compensation disclosure
adopted by the SEC, as informally interpreted by the SEC's Staff,
Summary Compensation information is excluded for the fiscal years ended
December 31, 1994 and 1993.
(2) Pursuant to the proposed Stock Option Plan, the Holding Company intends
to grant Ms. Rooney and Mr. Ptak an option to purchase a number of
shares equal to 2.5% and 2.5%, respectively (35,063 and 35,063 shares
at the minimum and 47,438 and 47,438 shares at the maximum of the
Estimated Valuation Range) of the total number of shares of Common
Stock issued in the Conversion at an exercise price equal to the market
value per share of the Common Stock on the date of grant. See "- Stock
Option and Incentive Plan." In addition, pursuant to the proposed RRP,
the Holding Company intends to grant to Ms. Rooney and Mr. Ptak a
number of shares of restricted stock equal to 1% and 1%, respectively
(14,025 shares and 14,025 shares at the minimum and 18,975 and 18,975
shares at the maximum of the Estimated Valuation Range) of the total
number of shares of Common Stock sold in the Conversion. See "-
Management Recognition Plan."
Employment Agreements and Severance Agreements. The Bank intends to
enter into employment agreements with Chairman Ptak and President Rooney
providing for an initial term of three years. The agreements have been filed
with the OTS as part of the application of the Holding Company for approval to
become a savings and loan holding company. The employment agreements become
effective upon completion of the Conversion and provides for an annual base
salary in an amount not less than each individual's respective current salary
and provide for an annual extension subject to the performance of an annual
formal evaluation by disinterested members of the Board of Directors of the
Bank. The agreements also provide for termination upon the employee's death, for
cause or in certain events specified by OTS regulations. The employment
agreements are also terminable by the employee upon 90 days' notice to the Bank.
In addition, in the event of an "involuntary termination" in which the
employment of the employee is terminated without the written consent of the
employee and includes a material diminution of or interference with the
employees duties, responsibilities and benefits as specified in the agreements,
the employee will be entitled to the benefits under the agreement for the
remaining term of the agreement.
The employment agreements provide for payment to Chairman Ptak and
President Rooney of an amount equal to 299% of their five-year annual average
base compensation, respectively, in the event there is a "change in control" of
the Bank where employment involuntarily terminates in connection with such
change in control or within twelve months thereafter. For the purposes of the
employment agreements, a "change in control" is defined as any event which would
require the filing of an application for acquisition of control
98
<PAGE>
or notice of change in control pursuant to 12 C.F.R. ss. 574.3 or 4. Such events
are generally triggered prior to the acquisition or control of 25% of the
Holding Company's common stock. See "Restrictions on Acquisitions of Stock and
Related Takeover Defensive Provisions." If the employment of Chairman Ptak or
President Rooney had been terminated as of May 31, 1996 under circumstances
entitling them to severance pay as described above, they would have been
entitled to receive a lump sum cash payment of approximately $135,000 and
$225,000, respectively. The agreements also provide for the continued payment to
Chairman Ptak and President Rooney of health benefits for the remainder of the
term of their contract in the event such individual is involuntarily terminated
in the event of change in control.
The Bank intends to enter into change in control severance agreements
with Officers Jeffrey Przybyl, Marianne Maciejewski and Linda Peterson. The
agreements become effective upon completion of the Conversion and provide for an
initial term of 18 months. The agreements provide for extensions of one year,
on each anniversary of the effective date of the agreement, subject to a formal
performance evaluation performed by disinterested members of the Board of
Directors of the Bank. The agreement provides for termination for cause or in
certain events specified by OTS regulations.
The agreements provide for a lump sum payment to the employee of
$40,000 and the continued payment for the remaining term of the contract of life
and health insurance coverage maintained by the Bank in the event there is a
"change in control" of the Bank where employment terminates involuntarily in
connection with such change in control. This termination payment is subject to
reduction by the amount of all other compensation to the employee deemed for
purposes of the Code to be contingent on a "change in control," and may not
exceed one time the employee's average annual compensation over the most recent
five-year period or be non-deductible by the Bank for federal income tax
purposes. For the purposes of the agreements, a "change in control" is defined
as any event which would require the filing of an application for acquisition of
control or notice of change in control pursuant to 12 C.F.R. ss. 574.3 or 4 or
any successor regulation. Such events are generally triggered prior to the
acquisition of control of 10% of the Company's Common Stock. See "Restrictions
on Acquisitions of Stock and Related Takeover Defensive Provisions."
Benefit Plans
General. Preferred Savings currently provides insurance benefits to its
employees, including health and life insurance, subject to certain deductibles
and copayments.
Pension Plan. Prior to June 30, 1995, the Bank maintained a defined
benefit pension plan for the benefit of its employees. The Pension Plan was
terminated as of June 30, 1995. The noncontributory defined benefit pension plan
covered all employees who met certain minimum service requirements. See Note 7
to the Notes to Consolidated Financial Statements.
The benefits were distributed during the year.
Employee Stock Ownership Plan. The Boards of Directors of Preferred
Savings and the Holding Company have approved the adoption of an ESOP for the
benefit of employees of Preferred Savings. The ESOP is also designed to meet the
requirements of an employee stock ownership plan as described at Section
4975(e)(7) of the Code and Section 407(d)(6) of the
99
<PAGE>
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and, as
such, the ESOP is empowered to borrow in order to finance purchases of the
Common Stock.
It is anticipated that the ESOP will be funded with a loan from the
Holding Company (not to exceed an amount equal to 8% of the gross Conversion
proceeds). The interest rate of the ESOP loan will be equal to the applicable
federal interest rate as determined by the Internal Revenue Service for the
month in which the loan is made, as calculated pursuant to Section 1274(d) of
the Code.
GAAP generally requires that any borrowing by the ESOP from an
unaffiliated lender be reflected as a liability in the Holding Company's
Consolidated Financial Statements, whether or not such borrowing is guaranteed
by, or constitutes a legally binding contribution commitment of, the Holding
Company or the Bank. The funds used to acquire the ESOP shares will be borrowed
from the Holding Company. Since the Holding Company will finance the ESOP debt,
the ESOP debt will be eliminated through consolidation and no liability will be
reflected on the Holding Company's consolidated financial statements. In
addition, shares purchased with borrowed funds will, to the extent of the
borrowings, be excluded from stockholders' equity, representing unearned
compensation to employees for future services not yet performed. Consequently,
if the ESOP purchases already-issued shares in the open market, the Holding
Company's consolidated liabilities will increase to the extent of the ESOP's
borrowings, and total and per share stockholders' equity will be reduced to
reflect such borrowings. If the ESOP purchases newly issued shares from the
Holding Company, total stockholders' equity would neither increase nor decrease,
but per share stockholders' equity and per share net income would decrease
because of the increase in the number of outstanding shares. In either case, as
the borrowings used to fund ESOP purchases are repaid, total stockholders'
equity will correspondingly increase.
All employees of the Bank are eligible to participate in the ESOP after
they attain age 21 and complete one year of service. The Bank's contribution to
the ESOP is allocated among participants on the basis of their relative
compensation. Each participant's account will be credited with cash and shares
of Holding Company Common Stock based upon compensation earned during the year
with respect to which the contribution is made. Contributions credited to a
participant's account become fully vested upon such participant's completing six
years of service. Credit will be given for prior years of service for vesting
purposes. ESOP participants are entitled to receive distributions from their
ESOP accounts only upon termination of service. Distributions will be made in
cash and in whole shares of the Holding Company's Common Stock. Fractional
shares will be paid in cash. Participants will not incur a tax liability until a
distribution is made.
Each participating employee is entitled to instruct the trustee of the
ESOP as to how to vote the shares allocated to his or her account. The trustee
will not be affiliated with the Holding Company or Preferred Savings.
The ESOP may be amended by the Board of Directors, except that no
amendment may be made which would reduce the interest of any participant in the
ESOP trust fund or divert any of the assets of the ESOP trust fund for purposes
other than the benefit of participants or their beneficiaries.
100
<PAGE>
Stock Option and Incentive Plan. Among the benefits to the Bank
anticipated from the Conversion is the ability to attract and retain personnel
through the prudent use of stock options and other stock-related incentive
programs. The Board of Directors of the Holding Company intends to adopt the
Stock Option Plan, subject to ratification by stockholders of the Holding
Company at a meeting to be held not earlier than six months after completion of
the Conversion. Under the terms of the proposed Stock Option Plan, stock options
covering shares representing an aggregate of up to 10% of the shares of Common
Stock issued in the Conversion may be granted to directors, officers and
employees of the Holding Company or its subsidiaries under the Stock Option
Plan.
Options granted under the Stock Option Plan may be either options that
qualify under the Code as "incentive stock options" (options that afford
preferable tax treatment to recipients upon compliance with certain restrictions
and that do not normally result in tax deductions to the employer) or options
that do not so qualify. The exercise price of stock options granted under the
Stock Option Plan is required to be at least equal to the fair market value per
share of the stock on the date of grant. All grants are made in consideration of
past and future services rendered to the Bank, and in an amount deemed necessary
to encourage the continued retention of the officers and directors who are
considered necessary for the continued success of the Bank. In this regard, all
options are intended to vest in five equal annual installments commencing one
year from the date of grant, subject to the continued service of the holder of
such option.
The proposed Stock Option Plan provides for the grant of stock
appreciation rights ("SARs") at any time, whether or not the participant then
holds stock options, granting the right to receive the excess of the market
value of the shares represented by the SARs on the date exercised over the
exercise price. SARs generally will be subject to the same terms and conditions
and exercisable to the same extent as stock options.
Limited SARs may be granted at the time of, and must be related to, the
grant of a stock option or SAR. The exercise of one will reduce to that extent
the number of shares represented by the other. Limited SARs will be exercisable
only for the 45 days following the expiration of the tender or exchange offer,
during which period the related stock option or SAR will be exercisable.
However, no SAR or Limited SAR will be exercisable by a 10% beneficial owner,
director or senior officer within six months of the date of its grant. The
Holding Company has no present intention to grant any SARs or Limited SARs.
The proposed Stock Option Plan will be administered by the Holding
Company's Compensation Committee which will consist of at least two
disinterested directors. The Compensation Committee will select the recipients
and terms of awards made pursuant to the Stock Option Plan. OTS regulations
limit the amount of shares that may be awarded pursuant to stock-based plans to
each individual officer, each non-employee director and all non-employee
directors of a group to 25%, 5% and 30%, respectively, of the total shares
reserved for issuance under each such stock-based plan.
The Compensation Committee, presently consisting of non-employee
Directors Wolak, McInerney and Di Iorio, intends to grant options in amounts
expressed as a percentage of the shares issued in the Conversion, as follows:
President Rooney - 2.5%, S.J. Ptak - 2.5%, and to all executive officers as a
group (6 persons) - 6.8%. In addition, under the terms of the Stock Option Plan,
each non-employee director of the Holding Company at the time of stockholder
101
<PAGE>
ratification of the Stock Option Plan will be granted an option to purchase
shares of Common Stock equal to .5% of the shares sold in the Conversion. The
remaining balance of the available awards is unallocated and reserved for future
use. All options will expire 10 years after the date such option was granted,
which, for the option grants listed above, is expected to be the date of
stockholder ratification of the Stock Option Plan. All proposed option grants to
officers are subject to modification by the Compensation Committee based upon
its performance evaluation of the option recipients at the time of stockholder
ratification of the Stock Option Plan following completion of the Conversion.
After stockholder ratification, the Stock Option Plan will be funded
either with shares purchased in the open market or with authorized but unissued
shares of Common Stock. The use of authorized but unissued shares to fund the
Stock Option Plan could dilute the holdings of stockholders who purchased Common
Stock in the Conversion. See "Pro Forma Data." In no event will the Stock Option
Plan acquire an amount of shares, which, in the aggregate, represent more than
10% of the shares issued in the Conversion.
Under SEC regulations, so long as certain criteria are met, an optionee
may be able to exercise the option at the Purchase Price and immediately sell
the underlying shares at the then-current market price without incurring
short-swing profit liability. This ability to exercise and immediately resell,
which under the SEC regulations applies to stock option plans in general, allows
the optionee to realize the benefit of an increase in the market price for the
stock without the market risk which would be associated with a required holding
period for the stock after payment of the exercise price. Under SEC regulations,
the short-swing liability period now runs for six months before and after the
option grant. All grants are subject to ratification of the Stock Option Plan by
stockholders of the Holding Company following completion of the Conversion.
Recognition and Retention Plan. The Holding Company intends to
establish the RRP in order to provide employees with a proprietary interest in
the Holding Company in a manner designed to encourage such persons to remain
with the Holding Company and the Bank. The RRP will be subject to ratification
by stockholders at a meeting to be held not earlier than six months after the
completion of the Conversion. The Holding Company will contribute funds to the
RRP to enable it to acquire in the open market or from authorized but unissued
shares (with the decision between open market or authorized but unissued shares
based on the Holding Company's future stock price, alternate investment
opportunities and capital needs), following stockholder ratification of such
plan, an amount of stock equal to 4% of the shares of Common Stock issued in the
Conversion.
The Compensation Committee of the Board of Directors of the Holding
Company will administer the proposed RRP. Under the terms of the proposed RRP,
awards ("Awards") can be granted to key employees in the form of shares of
Common Stock held by the RRP. Awards are non-transferable and non-assignable.
OTS regulations limit the amount of shares that may be awarded pursuant to
stock-based plans to each individual officer, each non-employee director and all
non-employee directors of a group to 25%, 5% and 30%, respectively, of the total
shares reserved for issuance under each such stock-based plan.
Recipients will earn (i.e., become vested in), over a period of time,
the shares of Common Stock covered by the Award. Awards made pursuant to the RRP
will vest in five
102
<PAGE>
equal annual installments commencing one year from the date of grant. Awards
will be 100% vested upon termination of employment due to death or disability.
In addition, no awards under the RRP to directors and executive officers shall
vest in any year in which the Bank is not meeting all of its fully phased-in
capital requirements. When shares become vested and are actually distributed in
accordance with the RRP, but in no event prior to such time, the participants
will also receive amounts equal to any accrued dividends with respect thereto.
Earned shares are distributed to recipients as soon as practicable following the
date on which they are earned.
The Compensation Committee presently intends to grant restricted stock
awards at the Purchase Price, in amounts expressed as a percentage of the shares
sold in the Conversion, as follows: to President Rooney - 1.0%, S.J. Ptak -1.0%,
and to all executive officers as a group (6 persons) - 2.75%. Pursuant to the
terms of the proposed RRP, each non-employee director of the Holding Company at
the time of stockholder ratification of the RRP will be awarded an amount of
shares equal to .2% of the shares sold in the Conversion. All proposed RRP
awards to officers of the Bank are subject to modification by the Compensation
Committee based upon its performance evaluation of the award recipients at the
time of stockholder ratification of the RRP following completion of the
Conversion.
After stockholder ratification, the RRP will be funded either with
shares purchased in the open market or with authorized but unissued shares of
Common Stock issued to the RRP by the Holding Company. The use of authorized but
unissued shares to fund the RRP could dilute the holdings of stockholders who
had purchased Common Stock in the Conversion. In the event the RRP purchases
stock in the open market at prices above the initial Purchase Price, the total
RRP expense may be above that disclosed under the caption "Pro Forma Data." In
no event will the RRP acquire an amount of shares which, in the aggregate,
represent more than 4% of the shares issued in the Conversion.
Certain Transactions
The Bank follows a policy of granting loans to the Bank's directors,
officers and employees. The loans to executive officers and directors are made
in the ordinary course of business and on the same terms and conditions as those
of comparable transactions prevailing at the time, in accordance with the Bank's
underwriting guidelines and do not involve more than the normal risk of
collectibility or present other unfavorable features. All loans to directors and
executive officers cannot exceed $25,000 or 5% of the Bank's capital and
unimpaired surplus, whichever is greater, unless a majority of the Board of
Directors approves the credit in advance and the individual requesting the
credit abstains from voting. Under the Bank's policy the Bank may make loans to
executive officers to finance a child's education or to finance the purchase,
construction, maintenance or improvement of the borrower's residence. Loans to
executive officers for other purposes are permitted as long as they qualify as
low or minimal risk loans and do not exceed 2.5% of the Bank's capital and
unimpaired surplus, or $25,000, whichever is greater up to a maximum of
$100,000. All loans by the Bank to its directors and executive officers are
subject to OTS regulations restricting loans and other transactions with
affiliated persons of the Bank. Federal law currently requires that all loans to
directors and executive officers be made on terms and conditions comparable to
those for similar transactions with non-affiliates. Loans to all directors and
executive officers and their associates, including outstanding balances and
commitments totaled $193,000 at May 31, 1996, which was 1.6% of
103
<PAGE>
the Bank's retained earnings at that date. At May 31, 1996, there were no loans
to any single director, executive officer or their affiliates made at
preferential rates or terms and there were no loans made to any single director,
executive officer or their affiliates, which in the aggregate exceeded $60,000
during the three years ended December 31, 1995.
THE CONVERSION
The Board of Directors of the Bank and the OTS have approved the Plan
of Conversion. OTS approval does not constitute a recommendation or endorsement
of the Plan of Conversion. Certain terms used in the following summary of the
material terms of the Conversion are defined in the Plan of Conversion, a copy
of which may be obtained by contacting Preferred Savings.
General
The Board of Directors of the Bank unanimously adopted the Plan,
subject to approval by the OTS and the members of the Bank. Pursuant to the
Plan, the Bank will convert from a federally chartered mutual savings bank to a
federally chartered stock savings bank, with the concurrent formation of a
holding company.
The Conversion will be accomplished through amendment of the Bank's
federal charter to authorize capital stock, at which time the Bank will become a
wholly owned subsidiary of the Holding Company. The Conversion will be accounted
for as a pooling of interests.
Subscription Rights have been granted to the Eligible Account Holders
as of March 31, 1995, Tax-Qualified Employee Plans of the Bank and Holding
Company, Supplemental Eligible Account Holders as of September 30, 1996, Other
Members, and officers, directors and employees of the Bank. Additionally,
subject to the availability of shares and market conditions at or near the
completion of the Subscription Offering, the Common Stock may be offered for
sale in a Public Offering to selected persons on a best-efforts basis through
Webb. See "- Offering of Holding Company Common Stock." Subscriptions for shares
will be subject to the maximum and minimum purchase limitations set forth in the
Plan of Conversion.
Business Purposes
Preferred Savings has several business purposes for the Conversion. The
sale of Holding Company Common Stock will have the immediate result of providing
the Bank with additional equity capital in order to support the expansion of its
existing operations, subject to market conditions. See "Business." The sale of
the Common Stock is the most effective means of increasing the Bank's permanent
capital and does not involve the high interest cost and repayment obligation of
subordinated debt. In addition, investment of that part of the net Conversion
proceeds paid by the Holding Company to the Bank is expected to provide
additional operating income to further increase the Bank's capital on a
continuing basis.
The Board of Directors of the Bank believes that a holding company
structure could facilitate the acquisition of both mutual and stock savings
institutions in the future as well as other companies. If a multiple holding
company structure is utilized in a future acquisition, the acquired savings
institution would be able to operate on a more autonomous basis as a wholly
owned subsidiary of the Holding Company rather than as a division of the Bank.
For example, the acquired savings institution could retain its own directors,
officers and corporate name as
104
<PAGE>
well as having representation on the Board of Directors of the Holding Company.
As of the date hereof, there are no plans or understandings regarding the
acquisition of any other institutions.
The Board of Directors of the Bank also believes that a holding company
structure can facilitate the diversification of the Bank's business activities.
While diversification will be maximized if a unitary holding company structure
is utilized because the types of business activities permitted to a unitary
holding company are broader than those of a multiple holding company, either
type of holding company may engage in a broader range of activities than may a
thrift institution directly. Currently, there are no plans that the Holding
Company engage in any material activities apart from holding the shares of the
Bank and investing the remaining net proceeds from the sale of Common Stock in
the Conversion.
The preferred stock and additional common stock of the Holding Company
being authorized in the Conversion will be available for future acquisitions and
for issuance and sale to raise additional equity capital, generally without
stockholder approval or ratification, but subject to market conditions. Although
the Holding Company currently has no plans with respect to future issuances of
equity securities, the more flexible operating structure provided by the Holding
Company and the stock form of ownership is expected to assist the Bank in
competing more aggressively with other financial institutions in its principal
market area.
The Conversion will structure the Bank in the stock form used in the
United States by all commercial banks, most major business corporations and an
increasing number of savings institutions. The Conversion will permit the Bank's
members to become stockholders of the Holding Company, thereby allowing members
to own stock in the financial organization in which they maintain deposit
accounts or with which they have a borrowing relationship. Such ownership should
encourage members to promote the Bank to others, thereby further contributing to
the Bank's earnings potential.
The Bank is also expected to benefit from its management and employees
owning stock, because stock ownership is viewed as an effective performance
incentive and a means of attracting, retaining and compensating personnel.
Effects of Conversion to Stock Form on Depositors and Borrowers of the Bank
Voting Rights. Deposit account holders will have no voting rights in
the converted Bank or the Holding Company and will therefore not be able to
elect directors of either entity or to control their affairs. These rights are
currently accorded to deposit account holders with regard to the Bank.
Subsequent to Conversion, voting rights will be vested exclusively in the
Holding Company as the sole stockholder of the Bank. Voting rights as to the
Holding Company will be held exclusively by its stockholders. Each purchaser of
Holding Company Common Stock shall be entitled to vote on any matters to be
considered by the Holding Company stockholders. A stockholder will be entitled
to one vote for each share of Common Stock owned, subject to certain limitations
applicable to holders of 10% or more of the shares of the Common Stock.
See "Description of Capital Stock."
Deposit Accounts and Loans. The general terms of the Bank's deposit
accounts, the balances of the individual accounts and the existing FDIC
insurance coverage will not be affected by the Conversion. Furthermore, the
Conversion will not affect the loan accounts,
105
<PAGE>
the balances of these accounts, or the obligations of the borrowers under their
individual contractual arrangements with the Bank.
Tax Effects. The Bank has received an opinion from Silver, Freedman &
Taff, L.L.P. with regard to federal income taxation, and an opinion from
Crowe, Chizek and Company LLP with regard to Illinois taxation, to the effect
that the adoption and implementation of the Plan of Conversion set forth herein
will not be taxable for federal or Illinois tax purposes to the Bank or the
Holding Company. See "- Income Tax Consequences."
Liquidation Rights. The Bank has no plans to liquidate, either before
or subsequent to the completion of the Conversion. However, if there should ever
be a complete liquidation, either before or after Conversion, deposit account
holders would receive the protection of insurance by the FDIC up to applicable
limits. Subject thereto, liquidation rights before and after Conversion would be
as follows:
Liquidation Rights in Present Mutual Institution. In addition to the
protection of FDIC insurance up to applicable limits, in the event of a
complete liquidation of the Bank, each holder of a deposit account in
the Bank in its present mutual form would receive his or her pro rata
share of any assets of the Bank remaining after payment of claims of
all creditors (including the claims of all depositors in the amount of
the withdrawal value of their accounts). Such holder's pro rata share
of such remaining assets, if any, would be in the same proportion of
such assets as the balance in his or her deposit account was to the
aggregate balance in all deposit accounts in the Bank at the time of
liquidation.
Liquidation Rights in Proposed Converted Institution. After Conversion,
each deposit account holder, in the event of a complete liquidation of
the Bank, would have a claim of the same general priority as the claims
of all other general creditors of the Bank in addition to the
protection of FDIC insurance up to applicable limits. Therefore, except
as described below, the deposit account holder's claim would be solely
in the amount of the balance in his or her deposit account plus accrued
interest. The holder would have no interest in the assets of the Bank
above that amount.
The Plan of Conversion provides that there shall be established, upon
the completion of the Conversion, a special "liquidation account" for
the benefit of Eligible Account Holders (i.e., eligible depositors at
March 31, 1995) and Supplemental Account Holders (eligible depositors
at September 30, 1996) in an amount equal to the net worth of the Bank
as of the date of its latest consolidated statement of financial
condition contained in the final prospectus relating to the sale of
shares of Holding Company Common Stock in the Conversion. Each Eligible
Account Holder and Supplemental Eligible Account Holder would have an
initial interest in such liquidation account for each deposit account
held in the Bank on the qualifying date. An Eligible Account Holder and
Supplemental Eligible Account Holder's interest as to each deposit
account would be in the same proportion of the total liquidation
account as the balance in his or her account on March 31, 1995 and
September 30, 1996, respectively, was to the aggregate balance in all
deposit accounts of Eligible Account Holders and
106
<PAGE>
Supplemental Eligible Account Holders on such dates. However, if the
amount in the deposit account of an Eligible Account Holder or
Supplemental Eligible Account Holder on any annual closing date of the
Bank is less than the lowest amount in such account on March 31, 1995
or September 30, 1996 and on any subsequent closing date, then the
account holder's interest in this special liquidation account would be
reduced by an amount proportionate to any such reduction, and the
account holder's interest would cease to exist if such deposit account
were closed.
In addition, the interest in the special liquidation account would
never be increased despite any increase in the balance of the account
holders' related accounts after Conversion, and would only decrease.
Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders were
satisfied would be distributed to the Holding Company as the sole
stockholder of the Bank.
No merger, consolidation, purchase of bulk assets with assumption of
deposit accounts and other liabilities, or similar transaction, whether
the Bank, as converted, or another SAIF-insured institution is the
surviving institution, is deemed to be a complete liquidation for
purposes of distribution of the liquidation account and, in any such
transaction, the liquidation account would be assumed to the full
extent authorized by regulations of the OTS as then in effect. 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 a
SAIF-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. While the Bank believes that such a
transaction should not constitute a complete liquidation, there can be
no assurance that the OTS will not adopt a contrary position.
Common Stock. For information as to the characteristics of the Common
Stock to be issued under the Plan of Conversion, see "Dividends" and
"Description of Capital Stock." Common Stock issued under the Plan of Conversion
cannot, and will not, be insured by the FDIC or any other governmental agency.
The Bank will continue, immediately after completion of the Conversion,
to provide its services to depositors and borrowers pursuant to its existing
policies and will maintain the existing management and employees of the Bank.
Other than for payment of certain expenses incident to the Conversion, no assets
of the Bank will be distributed in the Conversion. Preferred Savings will
continue to be a member of the FHLB System, and its deposit accounts will
continue to be insured by the FDIC. The affairs of Preferred Savings will
continue to be directed by the existing Board of Directors and management.
Offering of Holding Company Common Stock
Under the Plan of Conversion, 1,897,500 shares of Holding Company
Common Stock will be offered for sale, subject to certain restrictions described
below, initially through the
107
<PAGE>
Offering. Federal conversion regulations require, with certain exceptions,
that all shares offered in a conversion be sold in order for the conversion to
become effective.
The Subscription Offering will expire at noon, Chicago, Illinois time,
on _______________, 1996 (the "Subscription Expiration Date") unless extended by
the Bank and the Holding Company. Depending on the availability of shares and
market conditions at or near the completion of the Subscription Offering, the
Holding Company may effect a Public Offering of shares to selected persons
through Webb. To order Common Stock in connection with the Public Offering, if
any, an executed stock order and account withdrawal authorization and
certification must be received by Webb prior to the termination of the Public
Offering. The date by which orders must be received in the Public Offering, if
any, will be set by the Holding Company at the time of such offering. OTS
regulations require that all shares to be offered in the Conversion be sold
within a period ending not more than 45 days after the Subscription Expiration
Date (or such longer period as may be approved by the OTS) or, despite approval
of the Plan of Conversion by members, the Conversion will not be effected and
Preferred Savings will remain in mutual form. This period expires on
_______________, 1996, unless extended with the approval of the OTS. In
addition, if the Offering is extended beyond _______________, 1996, all
subscribers will have the right to modify or rescind their subscriptions and to
have their subscription funds returned promptly with interest. In the event that
the Conversion is not effected, all funds submitted and not previously refunded
pursuant to the Offering will be promptly refunded to subscribers with interest
at the Bank's current passbook rate and all withdrawal authorizations will be
terminated.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities of a thrift institution sold in connection with its conversion must
be based on an appraised aggregate market value of the institution as converted
(i.e., taking into account the expected receipt of proceeds from the sale of the
securities in the conversion), as determined by an independent valuation.
Keller, which is experienced in the valuation and appraisal of business
entities, including thrift institutions involved in the conversion process, was
retained by the Bank to prepare an appraisal of the estimated pro forma market
value of the Bank and the Holding Company upon Conversion.
Keller will receive a fee of approximately $15,000 for its appraisal in
addition to its reasonable out-of-pocket expenses incurred in connection with
the appraisal. Keller has also agreed to assist in the preparation of the Bank's
business plan and to perform certain records management services for the Bank
for a separate fee of $5,000. The Bank has agreed to indemnify Keller under
certain circumstances against liabilities and expenses (including legal fees)
arising out of, related to, or based upon the Conversion.
Keller has prepared an appraisal of the estimated pro forma market
value of the Bank as converted. The Keller appraisal concluded that, at
September 29, 1996, an appropriate range for the estimated pro forma market
value of the Bank and the Holding Company was from a minimum of $14,025,000 to a
maximum of $18,975,000 with a midpoint of $16,500,000 million. Assuming that the
shares are sold at $10.00 per share in the Conversion, the estimated number of
shares to be issued in the Conversion is expected to be between 1,402,500 and
1,897,500. The Purchase Price of $18,975,000 was determined by discussion among
the Boards
108
<PAGE>
of Directors of the Bank, the Holding Company and Keller, taking into account,
among other factors, (i) the requirement under OTS regulations that the Common
Stock be offered on a manner that would achieve the widest distribution of
shares and (ii) liquidity in the Common Stock subsequent to the Conversion.
The appraisal involved a comparative evaluation of the operating and
financial statistics of the Bank with those of other thrift institutions. The
appraisal also took into account such other factors as the market for thrift
institution stocks generally, prevailing economic conditions, both nationally
and in Illinois, which affect the operations of thrift institutions, the
competitive environment within which the Bank operates and the effect of the
Bank becoming a subsidiary of the Holding Company. No detailed individual
analysis of the separate components of the Holding Company's and the Bank's
assets and liabilities was performed in connection with the evaluation. The Plan
of Conversion requires that all of the shares subscribed for in the Offering be
sold at the same price per share. The Board of Directors reviewed the appraisal,
including the methodology and the appropriateness of the assumptions utilized by
Keller and determined that in its opinion the appraisal was not unreasonable.
The Estimated Valuation Range may be amended with the approval of the OTS in
connection with changes in the financial condition or operating results of the
Bank or market conditions generally. As described below, an amendment to the
Estimated Valuation Range above $21,821,250 would not be made without a
resolicitation of subscriptions and/or proxies except in limited circumstances.
If, upon completion of the Offering, at least the minimum number of
shares are subscribed for, Keller, after taking into account factors similar to
those involved in its prior appraisal, will determine its estimate of the pro
forma market value of the Bank and the Holding Company upon Conversion, as of
the close of the Offering.
If, based on the estimate of Keller, the aggregate pro forma market
value is not within the Estimated Valuation Range, Keller, upon the consent of
the OTS, will determine a new Estimated Valuation Range ("Amended Valuation
Range"). If the aggregate pro forma market value of the Bank as converted and
the Holding Company has increased in the Amended Valuation Range to an amount
that does not exceed $21,821,250 (i.e., 15% above the maximum of the Estimated
Valuation Range), then the number of shares to be issued may be increased to
accommodate such increase in value without a resolicitation of subscriptions
and/or proxies. In such event the Bank and the Holding Company do not intend to
resolicit subscriptions and/or proxies unless the Bank and the Holding Company
then determine, after consultation with the OTS, that circumstances otherwise
require such a resolicitation. If, however, the aggregate pro forma market value
of the Holding Company and the Bank, as converted, at that time is less than
$14,025,000 or more than $21,821,250, a resolicitation of subscribers and/or
proxies may be made, the Plan of Conversion may be terminated or such other
actions as the OTS may permit may be taken. In the event that upon completion of
the Offering, the pro forma market value of the Holding Company and Bank, as
converted, is below $14,025,000 or above $21,821,250 (15% above the maximum of
the Estimated Valuation Range), the Holding Company intends to file the revised
appraisal with the SEC by post-effective amendment to its Registration Statement
on Form S-1. See "Additional Information." If the Plan of Conversion is
terminated, all funds would be returned promptly with interest at the rate of
the Bank's current passbook rate, and holds on funds authorized for withdrawal
from deposit accounts would be released. If there is a resolicitation of
subscriptions, subscribers will be given the opportunity to cancel or change
their subscriptions and to the extent subscriptions are so canceled or
109
<PAGE>
reduced, funds will be returned with interest at the Bank's current passbook
rate and holds on funds authorized for withdrawal from deposit accounts will be
released or reduced. Stock subscriptions received by the Holding Company and the
Bank may not be withdrawn by the subscriber and, if accepted by the Holding
Company and the Bank, are final. If the Conversion is not completed prior to
_______, 1998 (two years after the date of the Special Meeting), the Plan of
Conversion will automatically terminate.
Any increase in the total number of shares of Common Stock to be
offered in the Conversion will dilute a subscriber's percentage ownership
interest and will reduce the pro forma net income and net worth on a per share
basis. A decrease in the number of shares to be issued in the Conversion will
increase a subscriber's proportionate ownership interest and will increase both
pro forma net income and net worth on a per share basis while decreasing that
amount on an aggregate basis.
No sale of the shares will take place unless, prior thereto, Keller
confirms to the OTS 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 actual Purchase Price on an aggregate basis is incompatible with its
estimate of the aggregate pro forma market value of the Holding Company and the
Bank as converted at the time of the sale. If, however, the facts do not justify
such a statement, the Offering or other sale may be canceled, a new Estimated
Valuation Range set and new offering held.
In preparing its valuation of the pro forma market value of the Bank
and the Holding Company upon Conversion, Keller relied upon and assumed the
accuracy and completeness of all financial and statistical information provided
by the Bank and the Holding Company. Keller also considered information based
upon other publicly available sources which it believes are reliable. However,
Keller does not guarantee the accuracy and completeness of such information and
did not independently verify the financial statements and other data provided by
the Bank and the Holding Company or independently value the assets or
liabilities of the Bank and the Holding Company. The appraisal is not intended
to be, and must not be interpreted as, a recommendation of any kind as to the
advisability of voting to approve the Conversion or of purchasing shares of
Common Stock. The appraisal considers Preferred Savings and the Holding Company
only as going concerns and should not be considered as any indication of the
liquidation value of Preferred Savings or the Holding Company. Moreover, the
appraisal is necessarily based on many factors which change from time to time.
There can be no assurance that persons who purchase shares in the Conversion
will be able to sell such shares at prices at or above the Purchase Price.
Subscription Offering
In accordance with OTS regulations, non-transferable Subscription
Rights have been granted under the Plan of Conversion to the following persons
in the following order of priority: (1) Eligible Account Holders (deposit
account holders of the Bank maintaining an aggregate balance of $50 or more as
of March 31, 1995), (2) Tax-Qualified Employee Plans; provided, however, that
the Tax-Qualified Employee Plans shall have first priority Subscription Rights
to the extent that the total number of shares of Common Stock sold in the
Conversion exceeds the maximum of the Estimated Valuation Range; (3)
Supplemental Eligible Accounts Holders (deposit account holders of the Bank
maintaining a balance of $50 or more as of September 30,
110
<PAGE>
1996), (4) Other Members (depositors and certain borrowers of the Bank at the
close of business on ___________, 1996, the voting record date for the Special
Meeting) and (5) officers, directors and employees of the Bank. All
subscriptions received will be subject to the availability of Holding Company
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 Conversion.
Category No. 1 is reserved for the Bank's Eligible Account Holders.
Subscription Rights to purchase shares under this category will be allocated
among Eligible Account Holders to permit each such depositor to purchase shares
in this Category in an amount equal to the greater of $150,000 of Common Stock,
one-tenth of one percent (.10%) of the total shares offered in the Conversion,
or 15 times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the qualifying deposits of the
Eligible Account Holder and the denominator is the total amount of the
qualifying deposit of the Eligible Account Holders in the Bank, in each case on
the Eligibility Record Date. To the extent shares are oversubscribed in this
category, shares shall be allocated first to permit each subscribing Eligible
Account Holder to purchase, to the extent possible, 100 shares and thereafter
among each subscribing Eligible Account Holder pro rata in the same proportion
that his Qualifying Deposit bears to the total Qualifying Deposits of all
subscribing Eligible Account Holders whose subscriptions remain unsatisfied.
Category No. 2 provides for the issuance of Subscription Rights to
Tax-Qualified Employee Plans to purchase up to 10% of the total amount of shares
of Common Stock issued in the Subscription Offering on a second priority basis.
However, such plans shall not, in the aggregate, purchase more than 10% of the
Holding Company Common Stock issued. The ESOP intends to purchase a total of 8%
of the Common Stock issued in the Conversion under this category. Subscription
Rights received pursuant to this category shall be subordinated to all rights
received by Eligible Account Holders to purchase shares pursuant to Category No.
1; provided, however, that notwithstanding any provision of the Plan of
Conversion to the contrary, the Tax-Qualified Employee Plans shall have first
priority Subscription Rights to the extent that the total number of shares of
Common Stock sold in the Conversion exceeds the maximum of the Estimated
Valuation Range.
Category No. 3 is reserved for the Bank's Supplemental Eligible Account
Holders. Subscription Rights to purchase shares under this category will be
allocated among Supplemental Eligible Account Holders to permit each such
depositor to purchase shares in this Category in an amount equal to the greater
of $150,000 of Common Stock, one-tenth of one percent (.10%) of the total shares
of Common Stock offered in the Conversion, or 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Common Stock to be issued by a fraction of which the numerator is the amount of
the qualifying deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of the qualifying deposit of the Supplemental
Eligible Account Holders in the converting Bank in each case on September 30,
1996 (the "Supplemental Eligibility Record Date"), subject to the overall
purchase limitation after satisfying the subscriptions of Eligible Account
Holders and Tax Qualified Employee Plans. Any non-transferable Subscription
Rights received by an Eligible Account Holder shall reduce, to the extent
thereof, the subscription rights to be distributed to such person as a
Supplemental Eligible Account Holder. In the event of an
111
<PAGE>
oversubscription for shares, the shares available shall be allocated first to
permit each subscribing Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares sufficient to make his total allocation
(including the number of shares, if any, allocated in accordance with Category
No. 1) equal to 100 shares, and thereafter among each subscribing Supplemental
Eligible Account Holder pro rata in the same proportion that his Qualifying
Deposit bears to the total Qualifying Deposits of all subscribing Supplemental
Eligible Account Holders whose subscriptions remain unsatisfied.
Category No. 4 provides, to the extent that shares are then available
after satisfying the subscriptions of Eligible Account Holders, Tax-Qualified
Employee Plans and Supplemental Eligible Account Holders, for the issuance of
Subscription Rights to Other Members to purchase in this Category up to the
greater of $150,000 of Common Stock, or one-tenth of one percent (.10%) of the
Common Stock offered in the Conversion. In the event of an oversubscription, the
shares available shall be allocated among the subscribing Other Members pro rata
in the same proportion that his number of votes on the Voting Record Date bears
to the total number of votes on the Voting Record Date of all subscribing Other
Members on such date. Such number of votes shall be determined based on the
Bank's mutual charter and bylaws in effect on the date of approval by members of
this Plan of Conversion.
Each depositor (including individual retirement accounts ("IRAs") and
Keogh account beneficiaries) as of ___________, 1996 and the date of the Special
Meeting is entitled at the Special Meeting to cast one vote for each $100 or
fraction thereof, of the aggregate withdrawal value of all of such depositor's
savings accounts in the Bank as of the applicable voting record date, up to a
maximum of 1,000 votes. However, no member may vote more than 1,000 votes. In
general, accounts held in different ownership capacities will be treated as
separate memberships for purposes of applying the 1,000 vote limitation. For
example, if two persons hold a $100,000 account in their joint names and each of
the persons also holds a separate account for $100,000 in his own name, each
person would be entitled to 1,000 votes for each separate account and they would
together be entitled to cast 1,000 votes on the basis of the joint account for a
total of 3,000 votes.
Category No. 5 provides for the issuance of Subscription Rights to
officers, directors and employees of the Bank, to purchase in this Category up
to $150,000 of the Common Stock to the extent that shares are available after
satisfying the subscriptions of eligible subscribers in preference Categories 1,
2, 3 and 4. In the event of an oversubscription, the available shares will be
allocated pro rata among all subscribers in this category based on the number of
shares ordered by each subscriber.
Public Offering
To the extent that shares remain available and subject to market
conditions at or near the completion of the Subscription Offering, the Holding
Company may offer shares pursuant to the Plan to selected persons in a Public
Offering on a best-efforts basis through Webb in such a manner as to promote a
wide distribution of the Common Stock. Any orders received in connection with
the Public Offering, if any, will receive a lower priority than orders properly
made in the Subscription Offering by persons properly exercising Subscription
Rights. In addition depending on market conditions, Webb may utilize selected
broker-dealers ("Selected Dealers") in connection with the sale of shares in the
Public Offering. Common Stock sold in
112
<PAGE>
the Public Offering will be sold at $10.00 per share and hence will be sold at
the same price as all other shares in the Conversion. The Holding Company and
the Bank have the right to reject orders, in whole or in part, in their sole
discretion in the Public Offering.
No person, together with any associate or group of persons acting in
concert, will be permitted to purchase more than $150,000 of Common Stock in the
Public Offering. To order Common Stock in connection with the Public Offering,
if any, an executed stock order and account withdrawal authorization and
certification must be received by Webb prior to the termination of the Public
Offering. The date by which orders must be received in the Public Offering will
be set by the Holding Company at the time of commencement of the Public
Offering; provided however, if the Offering is extended beyond _______________,
199_, each subscriber will have the opportunity to maintain, modify or rescind
his or her subscription. In such event, all subscription funds will be promptly
returned with interest to each subscriber unless he or she affirmatively
indicates otherwise.
It is estimated that the Selected Dealers will receive a negotiated
commission of up to 4.5% of the Common Stock sold by the Selected Dealers,
payable by the Holding Company, and Webb will also receive a fee of 1.0% of
Common Stock sold by such firms. Such fees in the aggregate will not exceed
5.5%. See "- Marketing Arrangements.
Webb may enter into agreements with Selected Dealers to assist in the
sale of shares in the Public Offering. Selected Dealers may only solicit
indications of interest from their customers to place orders with the Holding
Company as of a certain date ("Order Date") for the purchase of shares of
Conversion Stock with the authorization of Webb. When and if Webb and the
Holding Company believe that enough indications of interest and orders have been
received to consummate the Conversion, Webb will request, as of the Order Date,
Selected Dealers to submit orders to purchase shares for which they have
received indications of interest from their customers. Selected Dealers will
send confirmation of the orders to such customers on the next business day after
the Order Date. Customers who authorize Selected Dealers to debit their
brokerage accounts are required to have the funds for payment in their account
on but not before the closing date of the Conversion. On the closing date,
Selected Dealers will remit funds to the account that the Holding Company
established for each Selected Dealer. Each customer's funds so forwarded to the
Holding Company, along with all other accounts held in the same title, will be
insured up to the applicable legal limit. After payment has been received by the
Holding Company from Selected Dealers, funds will earn interest at the Bank's
passbook rate until the completion of the Offering. In the event the Conversion
is not consummated as described above, funds with interest will be returned
promptly to the Selected Dealers, who, in turn, will promptly credit their
customers' brokerage account.
In the event the Holding Company determines to conduct a Public
Offering, persons to whom a prospectus is delivered may subscribe for shares of
Common Stock by submitting a completed stock order and account withdrawal
authorization (provided by Webb) and an executed certification along with
immediately available funds (which may be obtained by debiting a Webb account)
to Webb by not later than the public offering expiration date (as established by
the Holding Company). Promptly upon receipt of available funds, together with a
properly executed stock order and account withdrawal authorization and
certification, Webb will forward such funds to Preferred Savings to be deposited
in a subscription escrow account.
113
<PAGE>
If a subscription in the Public Offering is accepted, promptly after
the completion of the Conversion, a certificate for the appropriate amount of
shares will be forwarded to Webb as nominee for the beneficial owner. In the
event that a subscription is not accepted or the Conversion is not consummated,
the Bank will promptly refund with interest the subscription funds to Webb which
will then return the funds to subscribers' accounts. If the aggregate pro forma
market value of the Company and the Bank, as converted, is less than $14.0
million or more than $21.8 million, each subscriber will have the right to
modify or rescind his or her subscription.
If a Public Offering is held, the opportunity to subscribe for shares
of Common Stock in the Public Offering is subject to the right of the Bank and
the Holding Company, in their sole discretion, to accept or reject any such
orders in whole or in part.
Additional Purchase Restrictions
The Plan also provides for certain additional limitations to be placed
upon the purchase of shares in the Conversion. Specifically, no person (other
than a Tax-Qualified Employee Plan) by himself or herself or with an associate,
and no group of persons acting in concert, may subscribe for or purchase more
than $900,000 of Common Stock. For purposes of this limitation, an associate of
a person does not include a Tax-Qualified Employee Plan or Non-Tax Qualified
Employee Plan in which the person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity. Moreover, for purposes
of this paragraph, shares held by one or more Tax Qualified or Non-Tax Qualified
Employee Plans attributed to a person shall not be aggregated with shares
purchased directly by or otherwise attributable to that person except for that
portion of a plan which is self-directed by a person. See "- Stock Pricing and
Number of Shares to be Issued" regarding potential changes in Subscription
Rights in the event of a decrease in the number of shares to be issued in the
Conversion. Officers and directors and their associates may not purchase, in the
aggregate, more than 35% of the shares to be sold in the Conversion. For
purposes of the Plan, the members of the Board of Directors are not deemed to be
acting in concert solely by reason of their Board membership. For purposes of
this limitation, an associate of an officer or director does not include a
Tax-Qualified Employee Plan. Moreover, any shares attributable to the officers
and directors and their associates, but held by a Tax-Qualified Employee Plan
(other than that portion of a plan which is self-directed) shall not be included
in calculating the number of shares which may be purchased under the limitations
in this paragraph. Shares purchased by employees who are not officers or
directors of the Bank, or their associates, are not subject to this limitation.
The term "associate" is used above to indicate any of the following
relationships with a person: (i) any corporation or organization (other than the
Holding Company or the Bank or a majority-owned subsidiary of the Holding
Company or the Bank) of which a person is an officer or partner or is, directly
or indirectly, the beneficial owner of 10% or more of any class of equity
security; (ii) any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in a similar
fiduciary capacity; and (iii) any relative or spouse of such person or any
relative of such spouse who has the same home as such person or who is a
director or officer of the Holding Company or the Bank or any subsidiary of the
Holding Company or the Bank.
The Boards of Directors of the Holding Company and the Bank, in their
sole discretion, may increase the maximum purchase limitations referred to above
up to 9.99% of the total
114
<PAGE>
shares to be offered in the Offering, provided that orders for shares exceeding
5.0% of the shares being offered in the Offering shall not exceed, in the
aggregate, 10% of the shares being offered in the Offering or decrease the
maximum purchase limitation to one percent of the Common Stock offered in the
Conversion. Requests to purchase additional shares of Common Stock under this
provision will be allocated by the Boards of Directors on a pro rata basis
giving priority in accordance with the priority rights set forth above.
Depending on market and financial conditions, the Boards of Directors of the
Holding Company and the Bank, with the approval of the OTS and without further
approval of the members, may increase or decrease any of the above purchase
limitations.
To the extent that shares are available, each subscriber must subscribe
for a minimum of 25 shares. In computing the number of shares to be allocated,
all numbers will be rounded down to the next whole number.
Common Stock purchased in the Conversion will be freely transferable
except for shares purchased by executive officers and directors of the Bank or
the Holding Company. See "- Restrictions on Transfer of Subscription Rights and
Shares."
Marketing Arrangements
Preferred Savings has retained Webb, a broker-dealer registered with
the Securities and Exchange Commission (the "SEC") and a member of the National
Association of Securities Dealers, Inc. (the "NASD"), to consult with and advise
the Bank and to assist in the distribution of shares in the Offering on a
best-efforts basis. Webb is headquartered in Dublin, Ohio and its phone number
is (614) 766-8400. Among the services Webb will perform are (i) training and
educating Preferred Savings employees, who will be performing certain
ministerial functions in the Offering, regarding the mechanics and regulatory
requirements of the stock sale process, (ii) keeping records of orders for
shares of Common Stock, (iii) targeting Preferred Savings' sales efforts
including preparation of marketing materials, (iv) assisting in the collection
of proxies from Members for use at the Special Meeting, and (v) providing its
registered stock representatives to staff the Stock Information Center and
meeting with and assisting potential subscribers. For its services, Webb will
receive a success fee of 1.5% of the aggregate Purchase Price of Common Stock
sold in the Subscription Offering, excluding Common Stock purchased by
directors, officers and employees of the Association, or members of their
immediate families and purchases by tax-qualified plans. A management fee of
$25,000, payable in four monthly installments of $6,250, is being applied
against this fee. If the Subscription and Community Offering is terminated
before completion, Webb will be entitled to retain such monthly payments already
accrued or received and shall be entitled to reimbursement for all reasonable
expenses (not to exceed $5,000).
To the extent registered broker-dealers are utilized, the Holding
Company will pay a fee (to be negotiated, but not to exceed 4.5% of the
aggregate Purchase Price of shares of Common Stock sold in the Public Offering)
to such Selected Dealers, including any sponsoring dealer fees. The Holding
Company will also pay Webb a fee of 1.0% of the aggregate Purchase Price of
shares of Common Stock sold in the Offering by Selected Dealers, which together
with the fee to be paid to Selected Dealers will result in an aggregate fee not
to exceed 5.5% of the Common Stock sold in the Offering. Fees paid to Webb and
to any other broker-dealer may be deemed to be underwriting fees, and Webb and
such other broker-dealers may be deemed to be
115
<PAGE>
underwriters. The Holding Company has agreed to reimburse Webb for its
reasonable out-of-pocket expenses (not to exceed $5,000), and its legal fees and
expenses (not to exceed $35,000) and to indemnify Webb against certain claims or
liabilities, including certain liabilities under the Securities Act.
In the event there is a Public Offering, procedures may be implemented
to permit a purchaser to pay for his or her shares with funds held by or
deposited with Webb or a "Selected Dealer." See "- Public Offering."
Directors and executive officers of the Holding Company and the Bank
may, to a limited extent, participate in the solicitation of offers to purchase
Common Stock. Sales will be made from a Stock Information Center located away
from the publicly accessible areas (including teller windows) of the Bank's
office. Other employees of the Bank may participate in the Offering in
administrative capacities, providing clerical work in effecting a sales
transaction or answering questions of a potential purchaser provided that the
content of the employee's responses is limited to information contained in this
Prospectus or other offering document. Other questions of prospective purchasers
will be directed to executive officers or registered representatives of Webb
Such other employees have been instructed not to solicit offers to purchase
Common Stock or provide advice regarding the purchase of Common Stock. To the
extent permitted under applicable law, directors and executive officers of the
Holding Company and the Bank may participate in the solicitation of offers to
purchase Common Stock, except in the State of Texas where only a representative
of Webb will be able to offer and sell securities to Texas residents. The
Holding Company will rely on Rule 3a4-1 under the Exchange Act and sales of
Common Stock will be conducted within the requirements of Rule 3a4-1, so as to
permit officers, directors and employees to participate in the sale of Common
Stock. No officer, director or employee of the Holding Company or the Bank will
be compensated in connection with his participation by the payment of
commissions or other remuneration based either directly or indirectly on the
transactions in the Common Stock.
The Bank 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 shares pursuant to the Plan of Conversion reside.
However, no shares will be offered or sold under the Plan of Conversion to any
such person who (1) resides in a foreign country or (2) resides in a state of
the United States in which a small number of persons otherwise eligible to
subscribe for shares under the Plan of Conversion reside or as to which the Bank
and the Holding Company determine that compliance with the securities law of
such state would be impracticable for reasons of cost or otherwise, including,
but not limited to, a requirement that the Bank or the Holding Company or any of
their officers, directors or employees register, under the securities laws of
such state, as a broker, dealer, salesmen or agent. No payments will be made in
lieu of the granting of Subscription Rights to any such person.
Method of Payment for Subscriptions
To purchase shares in the Subscription Offering, an executed order form
and certification form with the required payment for each share subscribed for,
or with appropriate authorization for withdrawal from the Bank's deposit account
(which may be given by completing the appropriate blanks in the order form),
must be received by the Bank by noon, Chicago, Illinois time, on
_______________, 1996. Order forms which are not received by such time or are
116
<PAGE>
executed defectively or are received without full payment (or appropriate
withdrawal instructions) are not required to be accepted.
To order Common Stock in connection with the Public Offering, if any,
an executed stock order and account withdrawal authorization and certification
must be received by Webb prior to the termination of the Public Offering. The
date by which orders must be received in the Public Offering will be set by the
Holding Company at the time of commencement of the Public Offering; provided
however, if the Offering is extended beyond _______________, 1996, each
subscriber will have the opportunity to maintain, modify or rescind his or her
subscription. In such event, all subscription funds will be promptly returned
with interest to each subscriber unless he or she affirmatively indicates
otherwise. In addition, the Holding Company and the Bank are not obligated to
accept orders submitted on photocopies or facsimile order forms.
The Holding Company and the Bank have the right to waive or permit the
correction of incomplete or improperly executed forms, but do not represent that
they will do so. Once received, an executed order form or stock order and
account withdrawal authorization may not be modified, amended or rescinded
without the consent of the Holding Company and the Bank unless the Conversion
has not been completed by _________, 1996.
Payment for subscriptions in the Subscription Offering, may be made (i)
in cash if delivered in person at the office of the Bank, (ii) by check, bank
draft or money order or (iii) by authorization of withdrawal from deposit
accounts maintained with the Bank. Interest will be paid on payments made by
cash, check, bank draft or money order, whether or not the Conversion is
complete or terminated, at the Bank's current passbook rate from the date
payment is received until the completion or termination of the Conversion. If
payment is made by authorization of withdrawal from deposit or certificate
accounts, the funds authorized to be withdrawn from such account will continue
to accrue interest at the contractual rates until completion or termination of
the Conversion. Such funds will be unavailable to the depositor until completion
or termination of the Conversion.
If a subscriber authorizes the Bank to withdraw the amount of the
Purchase Price from his certificate account, the Bank will do so as of the
effective date of Conversion. The Bank will waive any applicable penalties for
early withdrawal from certificate accounts at Preferred Savings for the purpose
of purchasing Common Stock. If the remaining balance in a certificate account is
reduced below the applicable minimum balance requirement at the time that the
funds actually are transferred under the authorization, the rate paid on the
remaining balance of the certificate will earn interest the then-current
passbook rate.
Owners of self-directed IRAs may under certain circumstances use the
assets of such IRAs to purchase shares of Common Stock in the Offering, provided
that such IRAs are self- directed and are not maintained at the Bank. Persons
with IRAs maintained at the Bank must have their accounts transferred to an
unaffiliated institution or broker to purchase shares of Common Stock in the
Offering. In addition, the provisions of the ERISA and Internal Revenue Service
regulations require that officers, directors and 10% stockholders who use
self-directed IRA funds to purchase shares of Common Stock in the Offering make
such purchases for the exclusive benefit of the IRAs.
117
<PAGE>
If the ESOP subscribes for shares during the Subscription Offering,
such plan will not be required to pay for the shares subscribed for at the time
it subscribes, but rather, may pay for such shares of Common Stock subscribed
for the Purchase Price upon consummation of the Conversion, provided that there
is in force from the time of its subscription until such time, a loan commitment
to lend to the ESOP, at such time, the aggregate Purchase Price of the shares
for which it subscribed.
For information regarding the submission of orders in connection with
the Public Offering, see "- Public Offering."
All refunds and any interest due will be paid after completion of the
Conversion. Certificates representing shares of Common Stock purchased will be
mailed to purchasers at the last address of such persons appearing on the
records of the Bank, or to such other address as may be specified in properly
completed order forms, as soon as practicable following consummation of the sale
of all shares of Common Stock. Any certificates returned as undeliverable will
be disposed of in accordance with applicable law.
To ensure that each purchaser receives a prospectus at least 48 hours
prior to the Expiration Date in accordance with Rule 15c2-8 under the Exchange
Act, no prospectus will be mailed any later than five days prior to such date or
hand delivered any later than two days prior to such date. Execution of the
order form will confirm receipt or delivery in accordance with Rule 15c2-8.
Order forms will only be distributed with a prospectus. The Bank will accept for
processing only orders submitted on original order forms with the form of
certification. Photocopies or facsimile copies of order forms or certifications
will not be accepted. Payment by cash, check, money order, bank draft or debit
authorization to an existing account at the Bank must accompany the order form.
No wire transfers will be accepted.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (March 31,
1995), Supplemental Eligibility Record Date (September 30, 1996) and/or the
Voting Record Date (___________, 1996) and borrowers as of the Voting Record
Date must list all accounts on the stock order form giving all names on each
account and the account number as of the applicable record date.
In addition to the foregoing, if shares are offered through Selected
Dealers, a purchaser may pay for his shares with funds held by or deposited with
a Selected Dealer. If an order form is executed and forwarded to the Selected
Dealer or if the Selected Dealer is authorized to execute the order form on
behalf of a purchaser, the Selected Dealer is required to forward the order form
and funds to the Bank for deposit in a segregated account on or before noon of
the business day following receipt of the order form or execution of the order
form by the Selected Dealer. Alternatively, Selected Dealers may solicit
indications of interest from their customers who indicated an interest and seek
their confirmation as to their intent to purchase. Those indicating an intent to
purchase shall forward executed order forms and certifications to their Selected
Dealer or authorize the Selected Dealer to execute such forms. The Selected
Dealer will acknowledge receipt of the order to its customer in writing on the
following business day and will debit such customer's account on the third
business day after the customer has confirmed his intent to purchase (the "debit
date") and on or before noon of the next business day following the debit date
will send order forms and funds to the Bank for deposit in a
118
<PAGE>
segregated account. If such alternative procedure is employed, purchasers' funds
are not required to be in their accounts with Selected Dealers until the debit
date.
Restrictions on Transfer of Subscription Rights and Shares
Prior to the completion of the Conversion, the OTS conversion
regulations prohibit any person with subscription rights, including the Eligible
Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account
Holders, Other Members and employees, officers and directors, 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
executed only by the person to whom they are granted and only for his account.
Each person exercising such subscription rights will be required to certify that
he is purchasing shares solely for his own account and that he has no agreement
or understanding regarding the sale or transfer of such shares. The OTS
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.
The Bank and the Holding Company may 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.
Except as to directors and executive officers of the Bank and the
Holding Company, the shares of Common Stock sold in the Conversion will be
freely transferable. Shares purchased by directors, executive officers or their
associates in the Conversion shall be subject to the restrictions that said
shares shall not be sold during the period of one year following the date of
purchase, except in the event of the death of the stockholder. Accordingly,
stock certificates issued by the Holding Company to directors, executive
officers and their associates shall bear a legend giving appropriate notice of
such restriction and, in addition, the Bank and the Holding Company will give
appropriate instructions to the transfer agent for the Common Stock with respect
to the applicable restriction upon transfer of any restricted shares. Any shares
issued at a later date as a stock dividend, stock split or otherwise, to holders
of restricted stock, shall be subject to the same restrictions that may apply to
such restricted stock. Holding Company stock (like the stock of most companies)
is subject to the requirements of the Securities Act. Accordingly, Holding
Company stock may be offered and sold only in compliance with registration
requirements or pursuant to an applicable exemption from registration.
Holding Company stock received in the Conversion by persons who are not
"affiliates" of the Holding Company may be resold without registration. Shares
received by affiliates of the Holding Company (primarily the directors, officers
and principal stockholders of the Holding Company) will be subject to the resale
restrictions of Rule 144 under the Securities Act, which are discussed below.
Rule 144 generally requires that there be publicly available certain
information concerning the Holding Company, and that sales thereunder be made in
routine brokerage transactions or through a market maker. If the conditions of
Rule 144 are satisfied, each affiliate (or group of persons acting in concert
with one or more affiliates) is entitled to sell in the public market, without
registration, in any three-month period, a number of shares which
119
<PAGE>
does not exceed the greater of (i) 1% of the number of outstanding shares of
Holding Company stock, or (ii) if the stock is admitted to trading on a national
securities exchange or reported through the automated quotation system of a
registered securities bank, the average weekly reported volume of trading during
the four weeks preceding the sale.
Participation by the Board and Executive Officers
The directors and executive officers of Preferred Savings have
indicated their intention to purchase in the Conversion an aggregate of $950,000
of Common Stock, equal to 6.8%, 5.8%, 5.0% or 4.4% of the number of shares to be
issued in the Offering, at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively. The following table sets
forth information regarding Subscription Rights to Common Stock intended to be
exercised by each of the directors of the Bank, including members of their
immediate family and their IRAs, and by all directors and executive officers as
a group. The following table assumes that 1,650,000 shares, the midpoint of the
Estimated Valuation Range, of Common Stock are issued at the Purchase Price of
$10.00 per share and that sufficient shares will be available to satisfy the
subscriptions indicated. The table does not include shares to be purchased
through the ESOP (8% of shares issued in the Conversion) or awarded under the
proposed RRP (an amount of shares which may be acquired after stockholder
ratification of such plan equal to 4% of the shares sold in the Conversion) or
proposed Stock Option Plan (an amount of shares which may be issued after
stockholder ratification of such plan equal to 10% of the shares sold in the
Conversion).
<TABLE>
<CAPTION>
Number of
Aggregate Shares at Percent of
Purchase $10.00 Shares at
Name Title Price per Share(1) Midpoint
- --------------------------- ------------------------------------------------ --------- ------------ ----------
<S> <C> <C> <C> <C>
Sylvester J. Ptak Chairman of the Board $350,000 35,000 2.1%
Kimberly P. Rooney President, Chief Executive Officer and Director $200,000 20,000 1.2
Edward Wolak Director $100,000 10,000 0.6
Jeanine M. McInerney Director $100,000 10,000 0.6
Rocco Di Iorio Director $100,000 10,000 0.6
All other executive $100,000 10,000 0.6
officers as a group
All directors and $950,000 95,000 5.8%
executive officers as a
group (8 persons)
</TABLE>
(1)Does not include subscriptions by the ESOP, or options which are intended to
be granted under the proposed Stock Option Plan or restricted stock awards
which are intended to be granted under the proposed RRP, subject to
stockholder ratification of such plans.
Risk of Delayed Offering
The completion of the sale of all unsubscribed shares in the Offering
will be dependent, in part, upon the Bank's operating results and market
conditions at the time of the Offering. Under the Plan of Conversion, all shares
offered in the Conversion must be sold within a period ending 24 months from the
date of the Special Meeting. While the Bank and the Holding
120
<PAGE>
Company anticipate completing the sale of shares offered in the Conversion
within this period, if the Board of Directors of the Bank and the Holding
Company are of the opinion that economic conditions generally or the market for
publicly traded thrift institution stocks make undesirable a sale of the Common
Stock, then the Offering may be delayed until such conditions improve.
A material delay in the completion of the sale of all unsubscribed
shares in the Public Offering or otherwise may result in a significant increase
in the costs of completing the Conversion. Significant changes in the Bank's
operations and financial condition, the aggregate market value of the shares to
be issued in the Conversion and general market conditions may occur during such
material delay. In the event the Conversion is not consummated within 24 months
after the date of the Special Meeting of Members, the Bank would charge accrued
Conversion costs to then current period operations.
Approval, Interpretation, Amendment and Termination
All interpretations of the Plan of Conversion, as well as the
completeness and validity of order forms and stock order and account withdrawal
authorizations, will be made by the Bank and the Holding Company and will be
final, subject to the authority of the OTS and the requirements of applicable
law. The Plan of Conversion provides that, if deemed necessary or desirable by
the Boards of Directors of the Bank and the Holding Company, the Plan of
Conversion may be substantively amended by the Boards of Directors of the Bank
and the Holding Company, as a result of comments from regulatory authorities or
otherwise, at any time with the concurrence of the OTS and the SEC. In the event
the Plan of Conversion is substantially amended, other than a change in the
maximum purchase limits set forth herein, the Holding Company intends to notify
subscribers of the change and to refund subscription funds with interest unless
subscribers affirmatively elect to increase, decrease or maintain their
subscriptions. The Plan of Conversion will terminate if the sale of all shares
is not completed within 24 months after the date of the Special Meeting of
Members. The Plan of Conversion may be terminated by the Boards of Directors of
the Holding Company and the Bank with the concurrence of the OTS, at any time. A
specific resolution approved by a two-thirds vote of the Boards of Directors of
the Holding Company and the Bank would be required to terminate the Plan of
Conversion prior to the end of such 24-month period.
Restrictions on Repurchase of Stock
For a period of three years following Conversion, the Holding Company
may not repurchase any shares of its capital stock, except in the case of an
offer to repurchase on a pro rata basis made to all holders of capital stock of
the Holding Company. Any such offer shall be subject to the prior approval of
the OTS. Furthermore, the Holding Company may not repurchase any of its stock
(i) if the result thereof would be to reduce the regulatory capital of the Bank
below the amount required for the liquidation account to be established pursuant
to OTS regulations and (ii) except in compliance with the requirements of the
OTS' capital distribution rule.
The above limitations are subject to the OTS conversion rules which
generally provide that the Holding Company may repurchase its capital stock
provided (i) no repurchases occur within one year following the Conversion
(subject to certain exceptions), (ii) repurchases during the second and third
year after conversion are part of an open market stock repurchase program
121
<PAGE>
that does not allow for a repurchase of more than 5% of the Holding Company's
outstanding capital stock during a 12-month period, (iii) the repurchases do not
cause the Bank to become undercapitalized, and (iv) the Holding Company provides
notice to the OTS at lease 10 days prior to the commencement of a repurchase
program and the OTS does not object to such regulations. In addition, the above
limitations do not preclude repurchases of capital stock by the Holding Company
in the event applicable federal regulatory limitations are subsequently
liberalized.
Income Tax Consequences
Consummation of the Conversion is expressly conditioned upon prior
receipt by the Bank of either a ruling from the IRS or an opinion of Silver,
Freedman & Taff, L.L.P. with respect to federal taxation, and an opinion of
Crowe, Chizek and Company LLP with respect to Illinois taxation, to the effect
that consummation of the Conversion will not be taxable to the converted Bank or
the Holding Company. The full text of the Silver, Freedman & Taff, L.L.P.
opinion, the Keller Letter (hereinafter defined) and the Crowe, Chizek and
Company LLP opinion, which opinions are summarized herein, were filed with the
SEC as exhibits to the Holding Company's Registration Statement on Form S-1. See
"Additional Information."
An opinion which is summarized below has been received from Silver,
Freedman & Taff, L.L.P. with respect to the proposed Conversion of the Bank to
the stock form. The Silver, Freedman Taff, L.L.P. opinion states that (i) the
Conversion will qualify as a reorganization under Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended, and no gain or loss will be
recognized to the Bank in either its mutual form or its stock form by reason of
the proposed Conversion, (ii) no gain or loss will be recognized to the Bank in
its stock form upon the receipt of money and other property, if any, from the
Holding Company for the stock of the Bank; and no gain or loss will be
recognized to the Holding Company upon the receipt of money for Common Stock of
the Holding Company; (iii) the assets of the Bank in either its mutual or its
stock form will have the same basis before and after the Conversion; (iv) the
holding period of the assets of the Bank in its stock form will include the
period during which the assets were held by the Bank in its mutual form prior to
Conversion; (v) gain, if any, will be realized by the depositors of the Bank
upon the constructive issuance to them of withdrawable deposit accounts of the
Bank in its stock form, nontransferable subscription rights to purchase Holding
Company Common Stock and/or interests in the Liquidation Account (any such gain
will be recognized by such depositors, but only in an amount not in excess of
the fair market value of the subscription rights and Liquidation Account
interests received); (vi) the basis of the account holder's savings accounts in
the Bank after the Conversion will be the same as the basis of his or her
savings accounts in the Bank prior to the Conversion; (vii) the basis of each
account holder's interest in the Liquidation Account is assumed to be zero;
(viii) based on the Keller Letter, as hereinafter defined, the basis of the
subscription rights will be zero; (ix) the basis of the Holding Company Common
Stock to its stockholders will be the purchase price thereof; (x) a
stockholder's holding period for Holding Company Common Stock acquired through
the exercise of subscription rights shall begin on the date on which the
subscription rights are exercised and the holding period for the Conversion
Stock purchased in the Offering will commence on the date following the date on
which such stock is purchased; (xi) the Bank in its stock form will succeed to
and take into account the earnings and profits or deficit in earnings and
profits, of the Bank, in its mutual form, as of the date of Conversion; (xii)
the Bank, immediately after Conversion, will succeed to and take into account
the bad debt reserve
122
<PAGE>
accounts of the Bank, in mutual form, and the bad debt reserves will have the
same character in the hands of the Bank after Conversion as if no Conversion had
occurred; and (xiii) the creation of the Liquidation Account will have no effect
on the Bank's taxable income, deductions or addition to reserve for bad debts
either in its mutual or stock form.
The opinion from Silver, Freedman & Taff, L.L.P. is based, among other
things, on certain assumptions, including the assumptions that the exercise
price of the Subscription Rights to purchase Holding Company Common Stock will
be approximately equal to the fair market value of that stock at the time of the
completion of the proposed Conversion. With respect to the Subscription Rights,
the Bank will receive a letter from Keller (the "Keller Letter") which, based on
certain assumptions, will conclude that the Subscription Rights to be received
by Eligible Account Holders, Supplemental Eligible Account Holders and other
eligible subscribers do not have any economic value at the time of distribution
or at the time the Subscription Rights are exercised, whether or not a Public
Offering takes place.
The Bank has also received an opinion of Silver, Freedman & Taff,
L.L.P. to the effect that, based in part on the Keller Letter: (i) no taxable
income will be realized by depositors as a result of the exercise of
non-transferable Subscription Rights to purchase shares of Holding Company
Common Stock at fair market value; (ii) no taxable income will be recognized by
borrowers, directors, officers and employees of the Bank on the receipt or
exercise of Subscription Rights to purchase shares of Holding Company Common
Stock at fair market value; and (iii) no taxable income will be realized by the
Bank or Holding Company on the issuance of Subscription Rights to eligible
subscribers to purchase shares of Holding Company Common Stock at fair market
value.
Notwithstanding the Keller Letter, if the Subscription Rights are
subsequently found to have a fair market value and are deemed a distribution of
property, it is Silver, Freedman & Taff, L.L.P.'s opinion that gain or income
will be recognized by various recipients of the Subscription Rights (in certain
cases, whether or not the rights are exercised) and the Bank and/or the Holding
Company may be taxable on the distribution of the Subscription Rights. In any
event, all recipients are encouraged to consult with their own tax advisors as
to the tax consequences which may result.
With respect to Illinois taxation, the Bank has received an opinion
from Crowe, Chizek and Company LLP to the effect that the Illinois tax
consequences to the Bank, in its mutual or stock form, the Holding Company,
eligible account holders, parties receiving Subscription Rights, parties
purchasing conversion stock, and other parties participating in the Conversion
will be the same as the federal income tax consequences described above.
Unlike a private letter ruling, the opinions of Silver, Freedman &
Taff, L.L.P. and Crowe, Chizek and Company LLP, as well as the Keller Letter,
have no binding effect or official status, and no assurance can be given that
the conclusions reached in any of those opinions would be sustained by a court
if contested by the IRS or the Delaware or Illinois tax authorities.
123
<PAGE>
RESTRICTIONS ON ACQUISITIONS OF STOCK AND
RELATED TAKEOVER DEFENSIVE PROVISIONS
Although the Boards of Directors of the Bank and the Holding Company
are not aware of any effort that might be made to obtain control of the Holding
Company after Conversion, the Board of Directors, as discussed below, believe
that it is appropriate to include certain provisions as part of the Holding
Company's certificate of incorporation to protect the interests of the Holding
Company and its stockholders from takeovers which the Board of Directors of the
Holding Company might conclude are not in the best interests of the Bank, the
Holding Company or the Holding Company's stockholders.
The following discussion is a general summary of material provisions of
the Holding Company's certificate of incorporation and bylaws and certain other
regulatory provisions which may be deemed to have an "anti-takeover" effect. The
following description of certain of these provisions is necessarily general and,
with respect to provisions contained in the Holding Company's certificate of
incorporation and bylaws and the Bank's proposed stock charter and bylaws,
reference should be made in each case to the document in question, each of which
is part of the Bank's Conversion Application filed with the OTS and the Holding
Company's Registration Statement filed with the SEC. See "Additional
Information."
Provisions of the Holding Company's Certificate of Incorporation and Bylaws
Directors. Certain provisions of the Holding Company's certificate of
incorporation and bylaws will impede changes in majority control of the Board of
Directors. The Holding Company's certificate of incorporation provides 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 except for
the initial directors. Thus, assuming a Board of eight directors, it would take
two annual elections to replace a majority of the Holding Company's Board. The
Holding Company's certificate of incorporation also provides that the size of
the Board of Directors may be increased or decreased only by a majority vote of
the whole Board or by a vote of 80% of the shares eligible to be voted at a duly
constituted meeting of stockholders called for such purpose. The bylaws also
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 by a majority vote of the directors then in
office. Final ly, the bylaws impose certain notice and information requirements
in connection with the nomi nation by stockholders of candidates for election to
the Board of Directors or the proposal by stockholders of business to be acted
upon at an annual meeting of stockholders.
The certificate of incorporation provides that a director may only be
removed for cause by the affirmative vote of 80% of the shares eligible to vote.
Restrictions on Call of Special Meetings. The certificate of
incorporation of the Holding Company provides that a special meeting of
stockholders may be called only pursuant to a resolution of the Board of
Directors and for only such business as directed by the Board.
Stockholders are not authorized to call a special meeting.
Absence of Cumulative Voting. The Holding Company's certificate of
incorporation does not provide for cumulative voting rights in the election of
directors.
124
<PAGE>
Authorization of Preferred Stock. The certificate of incorporation of
the Holding Company authorizes 100,000 shares of serial preferred stock, $.01
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 (which could be multiple or 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 that the Board of Directors does
not approve, 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. If the Holding Company issued any
preferred stock which disparately reduced the voting rights of the Common Stock
within the meaning of Rule 19c-4 under the Exchange Act, the Common Stock could
be required to be delisted from the Nasdaq System. 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 deems to be in the best interests of the Holding
Company and its stockholders.
Limitation on Voting Rights. The certificate of incorporation of the
Holding Company provides that in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of Common Stock (the "Limit"), be entitled or permitted to any vote in respect
of the shares held in excess of the Limit. This limitation would not inhibit any
person from soliciting (or voting) proxies from other beneficial owners for more
than 10% of the Common Stock or from voting such proxies. Beneficial ownership
is to be determined pursuant to Rule 13d-3 of the General Rules and Regulations
of the Exchange Act, and in any event includes shares beneficially owned by any
affiliate of such person, shares which such person or his affiliates (as defined
in the certificate of incorporation) have the right to acquire upon the exercise
of conversion rights or options and shares as to which such person and his
affiliates have or share investment or voting power but shall not include shares
beneficially owned by directors, officers and employees of the Bank or the
Holding Company. This provision will be enforced by the Board of Directors to
limit the voting rights of persons beneficially owning more than 10% of the
stock and thus could be utilized in a proxy contest or other solicitation to
defeat a proposal that is desired by a majority of the stockholders.
Procedures for Certain Business Combinations. The Holding Company's
certificate of incorporation requires that certain business combinations
(including transactions initiated by management) between the Holding Company (or
any majority-owned subsidiary thereof) and a 10% or more stockholder either (i)
be approved by at least 80% of the total number of outstanding voting shares,
voting as a single class, of the Holding Company, (ii) be approved by two-thirds
of the continuing Board of Directors (i.e., persons serving prior to the 10%
stockholder becoming such) or (iii) involve consideration per share generally
equal to that paid by such 10% stockholder when it acquired its block of stock.
It should be noted that, since the Board and management intend to
purchase approximately $950,000 of the shares offered in the Conversion and may
control the voting of additional shares through the ESOP and proposed RRP and
Stock Option Plan, the Board and
125
<PAGE>
management may be able to block the approval of combinations requiring an 80%
vote even where a majority of the stockholders vote to approve such
combinations.
Amendment to Certificate of Incorporation and Bylaws. Amendments to the
Holding Company's certificate of incorporation must be approved by the Holding
Company's Board of Directors and also by a majority of the outstanding shares of
the Holding Company's voting stock, provided, however, that approval by at least
80% of the outstanding voting stock is generally required for certain provisions
(i.e., provisions relating to number, classification, election and removal of
directors; amendment of bylaws; call of special stockholder meetings; offers to
acquire and acquisitions of control; director liability; certain business
combinations; power of indemnification; and amendments to provisions relating to
the foregoing in the certificate of incorporation).
The bylaws may be amended by a majority vote of the Board of Directors
or the affirmative vote of at least 80% of the total votes eligible to be voted
at a duly constituted meeting of stockholders.
Purpose and Takeover Defensive Effects of the Holding Company's
Certificate of Incorporation and Bylaws. The Board of Directors of the Bank
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 the Bank 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 Bank and of the Holding Company and its stockholders.
In the judgment of the Board of Directors, the Holding Company's Board will be
in the best position to determine the true value of the Holding Com pany and to
negotiate more effectively for what may be in the best interests of its
stockholders. Accordingly, the Board of Directors believes that it is in the
best interests of the Holding Company and its stockholders to encourage
potential acquirors to negotiate directly with the Board of Directors of the
Holding Company and that these provisions will encourage such negotiations 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 reflective of the true value of the
Holding Company and which is in the best interests of all stockholders.
Attempts to take over financial institutions and their holding
companies have recently become increasingly common. Takeover attempts which have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms which may be less favorable than
might otherwise be available. A transaction which is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value for the Holding
Company and its stockholders, 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 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, stockholders
126
<PAGE>
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 objectives may not be
similar to those of the remaining stockholders. The concentration of control,
which could result from a tender offer or other takeover attempt, could also
deprive the Holding Company's remaining stockholders of the benefits of certain
protective provisions of the Exchange Act, if the number of beneficial owners
becomes less than the 300 required for Exchange Act registration.
Despite the belief of the Bank and the Holding Company as to the
benefits to stock holders of these provisions of the Holding Company's
certificate of incorporation and bylaws, these provisions may also have the
effect of discouraging a future takeover attempt which would not be approved by
the Holding Company's Board, but pursuant to which stockholders may receive a
substantial premium for their shares over then current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have any opportunity to do so. Such provisions will also render the removal
of the Holding Company's Board of Directors and of management more difficult.
The Board will enforce the voting limitation provisions of the charter in proxy
solicitations and accordingly could utilize these provisions to defeat proposals
that are favored by a majority of the stockholders. The Boards of Directors of
the Bank and the Holding Company, however, have concluded that the potential
benefits outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the Conversion, the Holding Company may adopt additional
charter provisions regarding the ac quisition of its equity securities that
would be permitted to a Delaware corporation. The Holding Company and the Bank
do not presently intend to propose the adoption of further restrictions on the
acquisition of the Holding Company's equity securities.
Other Restrictions on Acquisitions of Stock
Delaware Anti-Takeover Statute. The Delaware General Corporation Law
(the "DGCL") provides that buyers who acquire more than 15% of the outstanding
stock of a Delaware corporation, such as the Holding Company, are prohibited
from completing a hostile takeover of such corporation for three years. However,
the takeover can be completed if (i) the buyer, while acquiring the 15%
interest, acquires at least 85% of the corporation's outstanding stock (the 85%
requirement excludes shares held by directors who are also officers and certain
shares held under employee stock plans), or (ii) the takeover is approved by the
target corporation's board of directors and two-thirds of the shares of
outstanding stock of the corporation (excluding shares held by the bidder).
However, these provisions of the DGCL do not apply to Delaware
corporations with less than 2,000 stockholders or which do not have voting stock
listed on a national exchange or listed for quotation with a registered national
securities association. No prediction can be made as to whether the Holding
Company will be listed on Nasdaq National Market or have 2,000 stockholders.
Preferred Savings may exempt itself from the requirements of the statute by
adopting an amendment to its Certificate of Incorporation or Bylaws electing not
to be governed by this provision. At the present time, the Board of Directors
does not intend to propose any such amendment.
127
<PAGE>
Federal Regulation. A federal regulation prohibits any person prior to
the completion of a conversion from transferring, or entering into any agreement
or understanding to transfer, the legal or beneficial ownership of the
subscription rights issued under a plan of conversion or the stock to be issued
upon their exercise. This regulation also prohibits any person prior to the
completion of a conversion from offering, or making an announcement of an offer
or intent to make an offer, to purchase such subscription rights or stock. For
three years following conversion, this regulation prohibits any person, without
the prior approval of the OTS, from acquiring or making an offer to acquire (if
the offer is opposed by the savings association) more than 10% of the stock of
any converted savings institution if such person is, or after consummation of
such acquisition would be, the beneficial owner of more than 10% of such stock.
In the event that any person, directly or indirectly, violates this regulation,
the securities beneficially owned by such person in excess of 10% may not be
counted as shares entitled to vote and may not be voted by any person or counted
as voting shares in connection with any matter submitted to a vote of
stockholders. Like the charter provisions outlined above, these federal
regulations can make a change in control more difficult, even if desired by the
holders of the majority of the shares of the stock. The Board of Directors
reserves the right to ask the OTS or other federal regulators to enforce these
restrictions against persons seeking to obtain control of the Holding Company,
whether in a proxy solicitation or otherwise. The policy of the Board is that
these legal restrictions must be observed in every case, including instances in
which an acquisition of control of the Holding Company is favored by a majority
of the stockholders.
Federal law provides that no company, "directly or indirectly or acting
in concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions," may acquire "control" of a savings
association at any time without the prior approval of the OTS. In addition,
federal regulations require that, prior to obtaining control of a savings
association, a person, other than a company, must give 60 days' prior notice to
the OTS and have received no OTS objection to such acquisition of control. 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. Under federal law (as well as the regulations referred to
below) the term "savings association" includes state and federally chartered
SAIF- insured institutions and federally chartered savings banks whose accounts
are insured by the FDIC's BIF and holding companies thereof.
Control, as defined under federal law, in general means ownership,
control of or holding irrevocable proxies representing more than 25% of any
class of voting stock, control in any manner of the election of a majority of a
savings association's directors, or a determination by the OTS that the acquiror
has the power to direct, or directly or indirectly to exercise a controlling
influence over, the management or policies of the institution. Acquisition of
more than 10% of any class of a savings association's voting stock, if the
acquiror also is subject to any one of eight "control factors," constitutes a
rebuttable determination of control under the OTS regulations. Such control
factors include the acquiror being one of the two largest stockholders. The
determination of control may be rebutted by submission to the OTS, prior to the
acquisition of stock or the occurrence of any other circumstances giving rise to
such determination, of a statement setting forth facts and circumstances which
would support a finding that no control relationship will exist and containing
certain undertakings. The OTS regulations provide that persons or companies
which acquire beneficial ownership exceeding 10% or more of any class of a
savings association's stock must file with the OTS a certification that the
holder
128
<PAGE>
is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable.
DESCRIPTION OF CAPITAL STOCK
Holding Company Capital Stock
The 2,600,000 shares of capital stock authorized by the Holding Company
certificate of incorporation are divided into two classes, consisting of
2,500,000 shares of Common Stock (par value $.01 per share) and 100,000 shares
of serial preferred stock (par value $.01 per share). The Holding Company
currently expects to issue between 1,402,500 and 1,897,500 shares (subject to
increase to 2,182,125) of Common Stock in the Conversion and no shares of serial
preferred stock. The aggregate par value of the issued shares will constitute
the capital account of the Holding Company on a consolidated basis. Upon payment
of the Purchase Price, all shares issued in the Conversion will be duly
authorized, fully paid and nonassessable. The balance of the purchase price of
Common Stock, less expenses of Conversion, will be reflected as paid-in capital
on a consolidated basis. See "Capitalization."
Each share of the Common Stock will have the same relative rights and
will be identical in all respects with each other share of the Common Stock. The
Common Stock of the Holding Company will represent non-withdrawable capital,
will not be of an insurable type and will not
be insured by the FDIC.
Under Delaware law, the holders of the Common Stock will possess
exclusive voting power in the Holding Company. Each stockholder will be entitled
to one vote for each share held on all matters voted upon by stockholders,
subject to the limitation discussed under "Restrictions on Acquisitions of Stock
and Related Takeover Defensive Provisions - Provisions of the Holding Company's
Certificate of Incorporation and Bylaws - Limitation on Voting Rights." If the
Holding Company issues preferred stock subsequent to the Conversion, holders of
the preferred stock may also possess voting powers.
Liquidation or Dissolution. In the event of any liquidation,
dissolution or winding up of the Bank, the Holding Company, as the sole holder
of the Bank's capital stock would be entitled to receive, after payment or
provision for payment of all debts and liabilities of the Bank (including all
deposit accounts and accrued interest thereon) and after distribution of the
balance in the special liquidation account to Eligible and Supplemental Account
Holders, all assets of the Bank available for distribution. In the event of
liquidation, dissolution or winding up of the Holding Company, the holders of
its Common Stock would be entitled to receive, after payment or provision for
payment of all its debts and liabilities, all of the assets of the Holding
Company available for distribution. See "The Conversion - Effects of Conversion
to Stock Form on Depositors and Borrowers of the Bank." 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.
No Preemptive Rights. Holders of the Common Stock will not be entitled
to preemptive rights with respect to any shares which may be issued. The Common
Stock will not be subject
129
<PAGE>
to call for redemption, and, upon receipt by the Holding Company of the full
purchase price therefor, each share of the Common Stock will be fully paid and
nonassessable.
Preferred Stock. After Conversion, 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 above, the Holding Company has no present 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, in a future underwritten or other
public offering, or under a stock based employee plan. The authorized but
unissued shares of preferred stock will similarly be available for issuance in
future mergers or acquisitions, in a future underwritten public offering or
private placement or for other general corporate purposes. Except as described
herein 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 stockholder approval will be required for the issuance
of these shares. Accordingly, the Board of Directors of the Holding Company,
without stockholder approval, can issue preferred stock with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock.
Restrictions on Acquisitions. See "Restrictions on Acquisitions of
Stock and Related Takeover Defensive Provisions" for a description of certain
provisions of the Holding Company's certificate of incorporation and bylaws
which may affect the ability of the Holding Company's stockholders to
participate in certain transactions relating to acquisitions of control of the
Holding Company.
Dividends. The Holding Company's Board of Directors may consider a
policy of paying cash dividends on the Common Stock in the future. No decision
has been made, however, as to the amount or timing of such dividends, if any.
The declaration and payment of dividends are subject to, among other things, the
Holding Company's then current and projected consolidated operating results,
financial condition, regulatory restrictions, future growth plans and other
factors the Board deems relevant. Therefore, no assurance can be given that any
dividends will be declared.
The ability of the Holding Company to pay cash dividends to its
stockholders will be dependent, in part, upon the ability of the Bank to pay
dividends to the Holding Company. OTS regulations do not permit the Bank to
declare or pay a cash dividend on its stock or repurchase shares of its stock if
the effect thereof would be to cause its regulatory capital to be reduced below
the amount required for the liquidation account or to meet applicable regulatory
capital requirements. See "Regulation - Limitations on Dividends and Other
Capital Distributions" for
130
<PAGE>
information regarding OTS regulations governing the Bank's ability to pay
dividends to the Holding Company.
Delaware law generally limits dividends of the Holding Company to an
amount equal to the excess of its net assets over its paid-in capital or, if
there is no such excess, to its net earnings for the current and immediately
preceding fiscal year. In addition, as the Holding Company does not anticipate,
for the immediate future, engaging in activities other than (i) investing in
cash, short-term securities and investment and mortgage-backed securities
similar to those invested in by the Bank and (ii) holding the stock of Preferred
Savings, the Holding Company's ability to pay dividends will be limited, in
part, by the Bank's ability to pay dividends, as set forth above.
Earnings appropriated to the Bank's "Excess" bad debt reserves and
deducted for federal income tax purposes cannot be used by the Bank to pay cash
dividends to the Holding Company without adverse tax consequences. See
"Regulation - Federal and State Taxation."
LEGAL AND TAX MATTERS
The legality of the Common Stock and the federal income tax
consequences of the Conversion will be passed upon for Preferred Savings by the
firm of Silver, Freedman & Taff, L.L.P. (a limited liability partnership
including professional corporations), 7th Floor, East Tower, 1100 New York
Avenue, NW, Washington, DC 20005. Silver, Freedman & Taff, L.L.P. has consented
to the references herein to its opinions. The Illinois income tax consequences
of the Conversion will be passed upon by Crowe, Chizek and Company LLP. Crowe,
Chizek and Company LLP has consented to references herein to its opinion. Webb
has been represented in the Conversion by McDermott, Will & Emery, 227 West
Monroe Street, Chicago, IL 60606-5096.
EXPERTS
The consolidated financial statements of Preferred Savings and its
subsidiary as of December 31, 1995, 1994 and 1993 included in this Prospectus
have been audited by Crowe, Chizek and Company LLP, independent auditors, as
indicated in their report which is included herein and has been so included in
reliance upon such report, given the authority of that firm as experts in
accounting and auditing.
Keller has consented to the inclusion herein of the summary of its
letter to the Bank setting forth its opinion as to the estimated pro forma
market value of the Holding Company and the Bank as converted and to the
reference to its opinion that subscription rights received by Eligible Account
Holders, Supplemental Eligible Account Holders and other eligible subscribers do
not have any economic value.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement
under the Securities 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 examined without charge at the public
131
<PAGE>
reference facilities of the SEC located at 450 Fifth Street, NW, Washington, DC
20549, and copies of such material can be obtained from the SEC at prescribed
rates. The statements contained herein as to the contents of any contract or
other document filed as an exhibit to the Registration Statement are, of
necessity, brief descriptions thereof which describe only the material
provisions of such documents; each such statement is qualified by reference to
such contract or document.
The Bank has filed an Application for Conversion with the OTS with
respect to the Conversion. Pursuant to the rules and regulations of the OTS,
this Prospectus omits certain information contained in that Application. The
Application may be examined at the principal offices of the OTS, 1700 G Street,
NW, Washington, DC 20552 and at the Chicago District Office of the OTS, Suite
1300, 200 West Madison Street, Chicago, Illinois 60606, without charge.
In connection with the Conversion, the Holding Company will register
the Common Stock with the SEC under Section 12(g) of the Exchange Act, and, upon
such registration, the Holding Company and the holders of its Common Stock will
become subject to the proxy solicitation rules, reporting requirements and
restrictions on stock purchases and sales by directors, officers and greater
than 10% stockholders, the annual and periodic reporting and certain other
requirements of the Exchange Act. Under the Plan, the Holding Company has
undertaken that it will not terminate such registration for a period of at least
three years following the Conversion.
A copy of the Certificate of Incorporation and Bylaws of the Holding
Company are available without charge from the Bank.
132
<PAGE>
PREFERRED SAVINGS BANK
Chicago, Illinois
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PREFERRED SAVINGS BANK
Chicago, Illinois
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
CONTENTS
REPORT OF INDEPENDENT AUDITORS...................................... F-1
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION................. F-2
CONSOLIDATED STATEMENTS OF INCOME.............................. F-3
CONSOLIDATED STATEMENTS OF EQUITY.............................. F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS.......................... F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................... F-7
All schedules are omitted because the required information
is not applicable or is included in the Consolidated
Financial Statements and related notes.
Financial Statements of the Holding Company have not
been provided because PS Financial, Inc. has
not conducted any operations to date and
has not been capitalized.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Preferred Savings Bank
Chicago, Illinois
We have audited the accompanying consolidated statements of financial condition
of Preferred Savings Bank, and its wholly-owned subsidiary as of December 31,
1995 and 1994, and the related consolidated statements of income, equity and
cash flows for the years ended December 31, 1995 and 1994 and the ten months
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Preferred Savings
Bank and its wholly-owned subsidiary at December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years ended December
31, 1995 and 1994 and the ten months ended December 31, 1993, in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Bank changed its method
of accounting for debt securities as of December 31, 1993 to adopt the
provisions of Statement of Financial Accounting Standards No. 115.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
March 1, 1996
<PAGE>
PREFERRED SAVINGS BANK
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1995 and 1994
May 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
May 31, -----December 31,-----
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
ASSETS
Cash on hand and in banks $ 361,740 $ 916,175 $ 619,979
Interest-bearing deposit accounts in other
financial institutions 2,509,564 2,837,617 808,702
-------------- -------------- --------------
Total cash and cash equivalents 2,871,304 3,753,792 1,428,681
Interest-bearing term deposits in other financial
institutions 248,000 248,000 5,250,818
Securities available-for-sale (Note 2) 11,058,390 9,738,928 7,325,698
Mortgage-backed securities
available-for-sale (Note 2) 3,883,734 4,220,095 1,694,349
Securities held-to-maturity (fair value:
1994 - $201,500) (Note 2) - - 200,899
Mortgage-backed securities
held-to-maturity (fair value: 1994 - $1,618,528)
(Note 2) - - 1,791,511
Loans receivable, net (Notes 3 and 4) 35,701,500 34,525,038 32,890,017
Federal Home Loan Bank stock 362,100 341,400 308,600
Premises and equipment, net (Note 5) 456,678 466,647 457,129
Accrued interest receivable 246,721 180,960 104,645
Other assets 24,324 45,456 166,424
-------------- -------------- --------------
Total assets $ 54,852,751 $ 53,520,316 $ 51,618,771
============== ============== ==============
LIABILITIES AND EQUITY
Liabilities
Deposits (Note 6) $ 41,944,953 $ 41,046,705 $ 40,057,209
Advances from borrowers for taxes and
insurance 409,356 459,105 854,801
Accrued interest payable 244,765 71,874 44,332
Deferred income taxes 5,794 126,974 68,206
Other liabilities 218,948 91,258 82,720
-------------- -------------- --------------
Total liabilities 42,823,816 41,795,916 41,107,268
Commitments and contingencies (Note 10)
Equity
Retained earnings, substantially restricted
(Notes 8 and 9) 12,106,999 11,666,976 10,612,445
Net unrealized gain (loss) on securities
available-for-sale, net of tax (Note 2) (78,064) 57,424 (100,942)
-------------- -------------- --------------
Total equity 12,028,935 11,724,400 10,511,503
-------------- -------------- --------------
Total liabilities and equity $ 54,852,751 $ 53,520,316 $ 51,618,771
============== ============== ==============
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
PREFERRED SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1995, 1994 and
Ten months ended December 31, 1993
Five months ended May 31, 1996 and 1995 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----(Unaudited)-----
-----May 31,----- -----December 31,-----
------- ------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income
Loans $ 1,377,206 $ 1,312,450 $ 3,156,211 $ 3,013,874 $ 2,782,592
Securities 302,747 224,079 651,687 327,052 391,551
Mortgage-backed securities 101,722 76,386 186,495 171,514 2,317
Other interest-earning assets 71,914 144,959 274,084 341,281 225,094
------------ ------------ ------------ ------------ ------------
1,853,589 1,757,874 4,268,477 3,853,721 3,401,554
Interest expense on deposits (Note 6) 725,297 631,544 1,632,593 1,310,243 1,169,110
------------ ------------ ------------ ------------ ------------
Net interest income 1,128,292 1,126,330 2,635,884 2,543,478 2,232,444
Provision for loan losses (Note 4) 50,000 - - 41,722 27,278
------------ ------------ ------------ ------------ ------------
Net interest income after provision for
loan losses 1,078,292 1,126,330 2,635,884 2,501,756 2,205,166
Noninterest income
Net loss on sale of securities - - (218) (365,331) (27,650)
Other 26,555 23,847 58,343 75,922 39,899
------------ ------------ ------------ ------------ ------------
26,555 23,847 58,125 (289,409) 12,249
Noninterest expense
Compensation and benefits 181,847 191,613 627,651 428,803 318,550
Occupancy and equipment expense 43,889 40,178 106,927 116,493 89,413
Data processing 19,462 18,130 42,800 39,730 33,887
Federal deposit insurance premiums 39,519 38,642 92,921 94,366 78,000
Other operating expenses 68,203 55,323 139,069 158,369 127,526
------------ ------------ ------------ ------------ ------------
352,920 343,886 1,009,368 837,761 647,376
------------ ------------ ------------ ------------ ------------
Income before income tax provision 751,927 806,291 1,684,641 1,374,586 1,570,039
Provision for income taxes (Note 9) 311,904 317,467 630,110 616,799 627,903
------------ ------------ ------------ ------------ ------------
Net income $ 440,023 $ 488,824 $ 1,054,531 $ 757,787 $ 942,136
============ ============ ============ ============ ============
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PREFERRED SAVINGS BANK
CONSOLIDATED STATEMENTS OF EQUITY
Years ended December 31, 1995 and 1994
Ten months ended December 31, 1993 Five
months ended May 31, 1996 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Securities
Retained Available-
Earnings for-Sale Total
-------- ------------- -----
<S> <C> <C> <C>
Balance at February 28, 1993 $ 8,912,522 $ (79,736) $ 8,832,786
Effect of adopting Statement of
Financial Accounting Standards
No. 115, as of December 31, 1993 (Note 2) - (1,262) (1,262)
Change in unrealized gain (loss) on
securities available-for-sale, net of tax - (128,934) (128,934)
Net income 942,136 - 942,136
--------------- ----------- --------------
Balance at December 31, 1993 9,854,658 (209,932) 9,644,726
Change in unrealized gain (loss) on
securities available-for-sale, net of tax - 108,990 108,990
Net income 757,787 - 757,787
--------------- ----------- --------------
Balance at December 31, 1994 10,612,445 (100,942) 10,511,503
Reclassification of securities from
held-to-maturity to available-for-
sale, net of tax of $12,626 (Note 2) - (19,966) (19,966)
Change in unrealized gain (loss) on
securities available-for-sale, net of tax - 178,332 178,332
Net income 1,054,531 - 1,054,531
--------------- ----------- --------------
Balance at December 31, 1995 11,666,976 57,424 11,724,400
Change in unrealized gain (loss) on
securities available-for-sale, net of tax - (135,488) (135,488)
Net income 440,023 - 440,023
--------------- ----------- --------------
Balance at May 31, 1996 (unaudited) $ 12,106,999 $ (78,064) $ 12,028,935
=============== =========== ==============
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PREFERRED SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995 and 1994
Ten months ended December 31, 1993 Five
months ended May 31, 1996 and 1995 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----(Unaudited)-----
-----May 31,----- -----December 31,-----
------- ------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income $ 440,023 $ 488,824 $ 1,054,531 $ 757,787 $ 942,136
Adjustments to reconcile net
income to net cash from
operating activities
Depreciation 12,787 13,979 34,570 34,188 27,625
Amortization of discounts and
premiums on securities 11,263 (13,180) 89,163 (29,971) 1,738
Provision for loan losses 50,000 - - 41,722 27,278
Net loss on sale of securities
available-for-sale - - 218 365,331 27,650
Stock dividends received on
Federal Home Loan Bank stock - (4,700) (4,700) - -
Change in
Deferred loan origination fees (13,999) 12,676 6,292 20,556 9,747
Accrued interest receivable
and other assets (44,629) (591,126) 44,653 (69,294) (895)
Other liabilities and deferred
income taxes 262,442 852,432 (6,251) 22,233 (98,011)
------------ ------------ ------------ ------------ ------------
Net cash provided by
operating activities 717,887 758,905 1,218,476 1,142,552 937,268
Cash flows from investing activities
Proceeds from sales of securities
available-for-sale - - 1,018,903 10,889,706 3,292,713
Proceeds from sale of mortgage-
backed securities available-for-sale - - 814,194 - -
Purchase of Federal Home Loan
Bank stock (20,700) (28,100) (28,100) - -
Proceeds from sale of Federal
Home Loan Bank stock - - - 39,000 -
Proceeds from repayments of
securities held-to-maturity - 95,053 238,070 226,271 -
Proceeds from repayment of
securities available-for-sale 295,388 105,265 238,257 210,905 -
Proceeds from maturities of
securities available-for-sale 3,000,000 2,300,000 4,900,000 3,000,000 200,000
Proceeds from maturity of
securities held-to-maturity - - - 200,000 -
Purchase of securities available-
for-sale (4,508,281) (3,770,156) (8,046,167) (12,312,033) (3,592,875)
Purchase of mortgage-backed
securities available-for-sale - - (1,939,739) (4,072,879) -
Net (increase) decrease in interest-
bearing term deposits in other
financial institutions - 2,329,460 5,002,818 (579,818) (374,000)
Net change in loans (1,212,463) (1,371,564) (1,641,313) (2,131,081) 1,858,072
Capital expenditures, net (2,818) (11,598) (44,088) (25,377) (32,787)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities (2,448,874) (351,640) 512,835 (4,555,306) 1,351,123
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-5
<PAGE>
PREFERRED SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995 and 1994
Ten months ended December 31, 1993
Five months ended May 31, 1996 and 1995 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----(Unaudited)-----
-----May 31,----- -----December 31,-----
------- ------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities
Net increase (decrease) in
deposits $ 898,248 $ (269,496) $ 989,496 $ (1,082,199) $ 776,010
Net increase (decrease) in
advances from borrowers for
taxes and insurance (49,749) (42,100) (395,696) 49,422 364,543
------------ ------------ ------------ ------------ ------------
Net cash provided by (used
in) financing activities 848,499 (311,596) 593,800 (1,032,777) 1,140,553
------------ ------------ ------------ ------------ ------------
Net change in cash and cash
equivalents (882,488) 95,669 2,325,111 (4,445,531) 3,428,944
Cash and cash equivalents,
beginning of period 3,753,792 1,428,681 1,428,681 5,874,212 2,445,268
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents,
end of period $ 2,871,304 $ 1,524,350 $ 3,753,792 $ 1,428,681 $ 5,874,212
============ ============ ============ ============ ============
Supplemental disclosures of cash
flow information
Cash paid during the year for
Interest $ 552,406 $ 445,449 $ 1,605,763 $ 1,301,692 $ 1,187,074
Income taxes 229,000 146,214 640,734 612,000 717,140
Supplemental schedule of noncash
investing activities
Amounts due to broker for
purchase of mortgage-
backed securities - - - - 2,025,625
Transfer of securities from
held-to-maturity to available-
for-sale on December 1, 1995 - - 1,571,423 - -
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Preferred Savings Bank (the "Bank") is a
federally-chartered mutual savings bank. Through its main office, the Bank
offers a variety of financial services to customers on the southwestern side of
the city of Chicago, Illinois. Financial services consist primarily of consumer
loans secured by residential real estate and savings and certificate of deposit
accounts.
Principles of Consolidation: The accompanying financial statements include the
accounts of the Bank and its wholly-owned subsidiary, Preferred Service
Corporation, which engages in limited insurance activities. All significant
intercompany balances and transactions have been eliminated. The consolidated
financial statements for the five-month periods ended May 31, 1996 and 1995 are
unaudited but, in the opinion of management, reflect all necessary adjustments,
consisting only of normal recurring items necessary for fair presentation.
Use of Estimates in the Preparation of Financial Statements: 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.
Fiscal Year: During 1993, the Bank changed its fiscal year end from February 28
to December 31. Accordingly, the December 31, 1993 statements of income, equity,
and cash flows reflect operations from March 1, 1993 through December 31, 1993.
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is maintained. Increases to the allowance are recorded
by a provision for loan losses charged to expense. Estimating the risk of the
loss and the amount of loss on any loan is necessarily subjective. Accordingly,
the allowance is maintained by management at a level considered adequate to
cover possible losses that are currently anticipated based on past loss
experience, general economic conditions, information about specific borrower
situations including their financial position and collateral values, and other
factors and estimates which are subject to change over time. While management
may periodically allocate portions of the allowance for specific problem loan
situations, including impaired loans discussed below, the whole allowance is
available for any charge-offs that occur. Loans are charged off in whole or in
part when management's estimate of the undiscounted cash flows from the loan are
less than the recorded investment in the loan, although collection efforts
continue and future recoveries may occur.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In May 1993, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" (SFAS No. 114). SFAS No. 114 (as modified by No. 118, effective for
the Bank beginning January 1, 1995, requires the measurement of impaired loans,
based on the present value of expected cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's observable
market price or the fair value of collateral if the loan is collateral
dependent. Under this standard, loans considered to be impaired are reduced to
the present value of expected future cash flows or to the fair value of
collateral, by allocating a portion of the allowance for loan losses to such
loans. If these allocations cause the allowance for loan losses to require
increase, such increase is reported as a provision for loan losses. The effect
of adopting the Statement was not material to the Bank's consolidated financial
position or results of operations during 1995.
Smaller balance homogeneous loans are defined as residential first mortgage
loans secured by one-to-four family residences, residential construction loans,
and share loans and are evaluated collectively for impairment. Commercial real
estate loans are evaluated individually for impairment. Normal loan evaluation
procedures, as described in the second preceding paragraph, are used to identify
loans which must be evaluated for impairment. In general, loans classified as
doubtful or loss are considered impaired while loans classified as substandard
are individually evaluated for impairment. Depending on the relative size of the
credit relationship, late or insufficient payments of 30 to 90 days will cause
management to reevaluate the credit under its normal loan evaluation procedures.
While the factors which identify a credit for consideration for measurement of
impairment, or nonaccrual, are similar, the measurement considerations differ. A
loan is impaired when the economic value estimated to be received is less than
the value implied in the original credit agreement. A loan is placed in
nonaccrual when payments are more than 90 days past due unless the loan is
adequately collateralized and in the process of collection. Although impaired
loan and nonaccrual loan balances are measured differently, impaired loan
disclosures under SFAS Nos. 114 and 118 are not expected to differ significantly
from nonaccrual and renegotiated loan disclosures.
Interest Income: Interest on loans is accrued over the term of the loans based
upon the principal outstanding. Management reviews loans delinquent 90 days or
more to determine if the interest accrual should be discontinued. Under SFAS No.
114 as amended by SFAS No. 118, the carrying values of impaired loans are
periodically adjusted to reflect cash payments, revised estimates of future cash
flows, and increases in the present value of expected cash flows due to the
passage of time. Cash payments representing interest income are reported as
such. Other cash payments are reported as reductions in carrying value, while
increases or decreases due to changes in estimates of future payments and due to
the passage of time are reported as adjustments to the provision for loan
losses.
Loan Fees: Loan origination fees, net of certain direct loan origination costs,
are deferred and recognized over the contractual life of the loan as a yield
adjustment.
Securities: Securities are classified as held-to-maturity when the Bank has the
positive intent and ability to hold those securities to maturity. Accordingly,
they are stated at cost, adjusted for amortization of premiums and accretion of
discounts. All other securities are classified as available-for-sale since the
Bank may decide to sell those securities in response to changes in market
interest rates, liquidity needs, changes in yields or alternative investments
and for other reasons. These securities are carried at market value with
unrealized gains and losses charged or credited, net of income taxes, to a
valuation allowance included as a separate component of equity. Realized gains
and losses on disposition are based on the net proceeds and the adjusted
carrying amounts of the securities sold, using the specific identification
method.
- -------------------------------------------------------------------------------
(Continued)
F-7
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using principally the
straight-line method over the estimated useful lives of the assets. The cost and
accumulated depreciation of assets retired or sold are eliminated from the
financial statements, and the gain or loss on disposition is credited or charged
to operations when it is realized.
Income Taxes: The Bank and its subsidiary file a consolidated income tax return.
The provision for income taxes is based on an asset and liability approach in
accordance with Statement of Financial Accounting Standards No. 109. The asset
and liability approach requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities.
Allowance for Losses on Loans: The allowance for loan losses is increased by
charges to income and decreased by charge-offs (net of recoveries). Estimating
the risk of loss is necessarily subjective. Accordingly, management maintains
the allowance at levels considered adequate to cover losses based on past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, estimated value of any
underlying collateral, and current and prospective economic conditions.
Statement of Financial Accounting Standards No. 114 was adopted at January 1,
1995. Under this standard, loans considered to be impaired are reduced to the
present value of expected future cash flows or to the fair value of collateral
by allocating a portion of the allowance for loan losses to such loans. If these
allocations cause the allowance for loan losses to require increase, such
increase is reported as bad debt expense. Adoption of this statement did not
have a material effect on the Bank's earnings or financial condition.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand,
amounts due from banks, and federal funds sold. The Bank reports net cash flows
for customer loan transactions, deposit transactions, and time deposits in other
financial institutions.
Impact of New Accounting Standards: In March 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or circumstances indicate that the carrying amount of an asset may not be
recoverable. However, SFAS No. 121 does not apply to financial instruments, core
deposit intangibles, mortgage and other servicing rights, or deferred tax
assets. The adoption of SFAS No. 121 has no material effect on the Bank's income
or financial condition.
- -------------------------------------------------------------------------------
(Continued)
F-8
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In May 1995, the FASB issued Statement of Financial Accounting Standards No. 122
("SFAS No. 122"), "Accounting for Mortgage Servicing Rights." SFAS No. 122
requires an institution that purchases or originates mortgage loans and sells or
securitizes those loans with servicing rights retained to allocate the total
cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values. In
addition, institutions are required to assess impairment of the capitalized
mortgage servicing portfolio based on the fair value of those rights. SFAS No.
122 is effective for fiscal years beginning after December 31, 1995. The
adoption of this statement had no material impact on the Bank's earnings or
financial condition. As discussed below, SFAS No. 122 will be superseded by SFAS
No. 125 after December 31, 1996.
In November 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, ("SFAS No. 123"), "Accounting for Stock-Based Compensation." This
statement establishes financial accounting standards for stock-based employee
compensation plans. SFAS No. 123 permits the Bank to choose either a new fair
value-based method or the current APB Opinion 25 intrinsic value-based method of
accounting for its stock-based compensation arrangements. SFAS No. 123 requires
pro forma disclosures of net earnings and earnings per share computed as if the
fair value-based method has been applied in financial statements of companies
that continue to follow current practice in accounting for such arrangements
under APB Opinion 25. SFAS No. 123 applies to all stock-based employee
compensation plans in which an employer grants shares of its stock or other
equity instruments to employees except for employee stock ownership plans. Any
effect that this statement will have on the Bank will be applicable upon
consummation of the Conversion (See Note 12).
In June 1996, the FASB released Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Extinguishments of Liabilities". SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. SFAS No. 125 requires a
consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, and derecognizes liabilities when extinguished. SFAS No. 125 also
supersedes SFAS No. 122 and requires that servicing assets and liabilities be
subsequently measured by amortization in proportion to and over the period of
estimated net servicing income or loss and requires assessment for asset
impairment or increased obligation based on their fair values. SFAS No. 125
applies to transfers and extinguishments occurring after December 31, 1996 and
early or retroactive application is not permitted. Management anticipates that
the adoption of SFAS No. 125 will not have a material impact on the financial
condition or operations of the Bank.
- -------------------------------------------------------------------------------
(Continued)
F-9
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 2 - SECURITIES
Effective December 31, 1993, the Bank adopted the provisions of Statement of
Financial Accounting Standards No. 115 ("SFAS No. 115"), "Accounting for Certain
Investment in Debt and Equity Securities." SFAS No. 115 requires corporations to
classify debt securities as either held-to-maturity, trading, or
available-for-sale. The net unrealized loss on securities available-for-sale at
December 31, 1993, due to the adoption of SFAS No. 115, is included as a
separate component of equity in the statement of financial condition and
represents primarily the effect of adjusting securities available-for-sale to
fair value.
Securities are summarized as follows:
<TABLE>
<CAPTION>
(Unaudited)
-------------------------May 31, 1996------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury securities and
obligations of U.S. government agencies $ 11,138,455 $ 51,568 $ (131,633) $ 11,058,390
-------------- ----------- ----------- ---------------
Mortgage-backed securities available-for-sale
Federal Home Loan Mortgage Corporation 951,444 3,565 - 955,009
Federal National Mortgage Association 2,268,097 - (44,996) 2,223,101
Government National Mortgage Association 710,038 - (4,414) 705,624
-------------- ----------- ----------- ---------------
3,929,579 3,565 (49,410) 3,883,734
-------------- ----------- ----------- ---------------
$ 15,068,034 $ 55,133 $ (181,043) $ 14,942,124
============== =========== =========== ===============
-----------------------December 31, 1995---------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ----------- ---------- -------
Securities available-for-sale
U.S. Treasury securities and
obligations of U.S. government agencies $ 9,633,725 $ 111,766 $ (6,563) $ 9,738,928
-------------- ----------- ----------- ---------------
Mortgage-backed securities available-for-sale
Federal Home Loan Mortgage Corporation 1,023,209 4,548 - 1,027,757
Federal National Mortgage Association 2,445,030 4,935 (23,986) 2,425,979
Government National Mortgage Association 764,440 1,919 - 766,359
-------------- ----------- ----------- ---------------
4,232,679 11,402 (23,986) 4,220,095
-------------- ----------- ----------- ---------------
$ 13,866,404 $ 123,168 $ (30,549) $ 13,959,023
============== =========== =========== ===============
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-10
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
----------------------December 31, 1994----------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury securities and
obligations of U.S. government agencies $ 7,364,125 $ 11,441 $ (49,868) $ 7,325,698
-------------- ----------- ----------- ---------------
Mortgage-backed securities available-for-sale
Federal Home Loan Mortgage Corporation 982,757 - (61,773) 920,984
Government National Mortgage Association 840,011 - (66,646) 773,365
-------------- ----------- ----------- ---------------
1,822,768 - (128,419) 1,694,349
-------------- ----------- ----------- ---------------
$ 9,186,893 $ 11,441 $ (178,287) $ 9,020,047
============== =========== =========== ===============
----------------------December 31, 1994----------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ----------- ---------- -------
Securities held-to-maturity
U.S. Treasury securities $ 200,899 $ 601 $ - $ 201,500
-------------- ----------- ----------- ---------------
Mortgage-backed securities
held-to-maturity
Federal National
Mortgage Association 1,791,511 - (172,983) 1,618,528
-------------- ----------- ----------- ---------------
$ 1,992,410 $ 601 $ (172,983) $ 1,820,028
============== =========== =========== ===============
</TABLE>
The Bank holds $1,750,000, $1,000,000, and $499,274 of U.S. government agency
bonds which are structured notes issued by the Federal Home Loan Bank at May 31,
1996 (unaudited), December 31, 1995, and December 31, 1994, respectively.
Mortgage-backed securities included gross premiums of $35,307 at May 31, 1996
(unaudited). Mortgage-backed securities at December 31, 1995 and 1994 included
gross premiums of $43,019 and $46,171, respectively.
Sales of securities are summarized as follows:
<TABLE>
<CAPTION>
(Unaudited) For the ten
For the five months ended For the year ended months ended
-----May 31,----- ---December 31,--- December 31,
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Proceeds from sales $ - $ - $ 1,833,097 $ 10,889,706 $ 3,292,713
Gross realized gains - - 11,799 - 19,376
Gross realized losses - - 12,017 365,331 47,026
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-11
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
On December 1, 1995, the Bank reclassified its only held-to-maturity security as
available-for-sale in accordance with "A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity Securities." The
amortized cost and unrealized loss on the security transferred were $1,571,423
and $32,592, respectively.
The amortized cost and estimated market value of debt securities, by contractual
maturity, are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
(Unaudited)
May 31, 1996 December 31, 1995
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Securities available-for-sale
Due in less than one year $ 5,747,406 $ 5,769,922 $ 3,982,357 $ 4,030,449
Due after one year through five years 4,491,049 4,400,624 4,247,543 4,300,385
Due after five years 900,000 887,844 1,403,825 1,408,094
------------- -------------- ------------- --------------
11,138,455 11,058,390 9,633,725 9,738,928
Mortgage-backed securities 3,929,579 3,883,734 4,232,679 4,220,095
------------- -------------- ------------- --------------
$ 15,068,034 $ 14,942,124 $ 13,866,404 $ 13,959,023
============= ============== ============= ==============
</TABLE>
NOTE 3 - LOANS RECEIVABLE
Loans receivable consist of the following at:
<TABLE>
<CAPTION>
(Unaudited)
May 31, -----December 31,-----
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
First mortgage loans
Principal balances
Secured by one to four family residences $ 26,150,250 $ 25,858,435 $ 24,711,361
Secured by other properties 6,603,873 6,094,352 5,928,557
Secured by commercial real estate 3,407,374 2,951,752 2,903,347
Construction loans 243,361 286,076 -
-------------- -------------- --------------
36,404,858 35,190,615 33,543,265
Less net deferred loan origination fees (534,038) (548,037) (541,745)
------------- -------------- --------------
First mortgage loans, net 35,870,820 34,642,578 33,001,520
Share loans 16,680 18,460 24,497
Less allowance for loan losses (186,000) (136,000) (136,000)
-------------- -------------- --------------
$ 35,701,500 $ 34,525,038 $ 32,890,017
============== ============== ==============
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-12
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 3 - LOANS RECEIVABLE (Continued)
The principal balance of loans greater than 90 days delinquent on nonaccrual
status at May 31, 1996, December 31, 1995, and December 31, 1994 was
approximately $584,000 (unaudited), $775,000, and $334,000, respectively. The
interest income that would have been recorded under the original terms of such
loans approximated $22,000 (unaudited) for the five months ended May 31, 1996,
and $69,000 and $80,000 for the years ended December 31, 1995 and 1994,
respectively.
The Bank did not have any impaired loans for the five months ended May 31, 1996
(unaudited), or for the year ended December 31, 1995.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
(Unaudited) For the ten
For the five months ended For the year ended months ended
-----May 31,----- ---December 31,--- December 31,
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 136,000 $ 136,000 $ 136,000 $ 94,278 $ 67,000
Provision for loan losses 50,000 - - 41,722 27,278
----------- ----------- ----------- ----------- -----------
Balance, end of period $ 186,000 $ 136,000 $ 136,000 $ 136,000 $ 94,278
=========== =========== =========== =========== ===========
</TABLE>
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment consist of the following at:
<TABLE>
<CAPTION>
(Unaudited)
May 31, -----December 31,-----
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Land $ 95,052 $ 95,052 $ 95,052
Building and improvements 506,239 504,590 495,660
Furniture and equipment 287,732 286,563 289,992
------------- ------------ ------------
Total cost 889,023 886,205 880,704
Accumulated depreciation 432,345 419,558 423,575
------------- ------------ ------------
$ 456,678 $ 466,647 $ 457,129
============= ============ ============
</TABLE>
Depreciation expense was $12,787 and $13,977 for the five months ending May 31,
1996 and 1995, respectively (unaudited), $34,570, and $34,188, for the years
ending December 31, 1995 and 1994, respectively, and $27,625 for the ten months
ended December 31, 1993.
- -------------------------------------------------------------------------------
(Continued)
F-13
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 6 - DEPOSITS
Deposits are summarized as follows at:
<TABLE>
<CAPTION>
(Unaudited)
Weighted
Average
Rate at (Unaudited) -----------------December 31,-----------------
May 31, ---May 31, 1996--- ---------1995--------- ---------1994---------
1996 Amount Percent Amount Percent Amount Percent
---- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Money market 3.25% $ 1,998,331 4.8% $ 1,601,293 3.9% $ 1,923,676 4.8%
Passbook savings 3.00 19,603,599 46.7 19,408,484 47.3 20,750,087 51.8
--------------- ----- ------------- ------ ------------- -------
21,601,930 51.5 21,009,777 51.2 22,673,763 56.6
Certificate of deposit
3.00% to 3.99% 4,298 - 49,267 .1 5,129,652 12.8
4.00 to 4.99 743,303 1.8 949,999 2.3 9,785,657 24.5
5.00 to 5.99 17,827,011 42.5 15,271,374 37.2 1,883,633 4.7
6.00 to 6.99 1,510,760 3.6 3,383,343 8.2 200,460 .5
7.00 to 7.99 257,651 .6 382,945 1.0 293,644 .7
8.00 to 8.99 - - - 90,400 .2
--------------- ----- ------------- ------ ------------- -------
5.33 20,343,023 48.5 20,036,928 48.8 17,383,446 43.4
--------------- ----- ------------- ------ ------------- -------
$ 41,944,953 100.0% $ 41,046,705 100.0% $ 40,057,209 100.0%
=============== ===== ============= ====== ============= =====
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $1,013,000 at May 31, 1996
(unaudited) and $1,052,000 and $1,049,000 at December 31, 1995 and 1994,
respectively. Deposits greater than $100,000 are not insured.
At May 31, 1996 (unaudited), scheduled maturities of certificates of deposit are
as follows:
<TABLE>
<CAPTION>
Less than One to Two to Three to Four to
One year Two years Three years Four years Five years Total
--------- --------- ----------- ---------- ---------- -----
<C> <C> <C> <C> <C> <C> <C>
3.00 to 3.99% $ 4,298 $ - $ - $ - $ - $ 4,298
4.00 to 4.99 743,303 - - - - 743,303
5.00 to 5.99 15,752,009 1,078,951 846,873 10,996 138,182 17,827,011
6.00 to 6.99 899,594 410,539 - 90,063 110,564 1,510,760
7.00 to 7.99 159,721 - - 97,930 - 257,651
------------- ------------ ------------ ------------- ------------- ----------------
$ 17,558,925 $ 1,489,490 $ 846,873 $ 198,989 $ 248,746 $ 20,343,023
============= ============ ============ ============= ============= ================
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-14
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 6 - DEPOSITS (Continued)
At December 31, 1995, scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
Less than One to Two to Three to Four to
One year Two years Three years Four years Five years Total
--------- --------- ----------- ---------- ---------- -----
<C> <C> <C> <C> <C> <C> <C>
3.00 to 3.99% $ 49,267 $ - $ - $ - $ - $ 49,267
4.00 to 4.99 949,999 - - - - 949,999
5.00 to 5.99 13,012,057 1,286,300 716,336 219,374 37,307 15,271,374
6.00 to 6.99 2,665,465 520,126 - 83,810 113,942 3,383,343
7.00 to 7.99 276,538 - - - 106,407 382,945
------------- ------------ ------------ ------------- ------------- ----------------
$ 16,953,326 $ 1,806,426 $ 716,336 $ 303,184 $ 257,656 $ 20,036,928
============= ============ ============ ============= ============= ================
</TABLE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
(Unaudited) For the ten
For the five months ended For the year ended months ended
-----May 31,----- ---December 31,--- December 31,
1996 1995 1995 1994 1993
---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C>
Money market $ 23,321 $ 25,060 $ 57,075 $ 62,903 $ 49,016
Passbook savings 243,665 251,348 592,841 617,344 526,248
Certificate of deposit 458,311 355,136 982,677 629,996 593,846
------------- ------------- ------------- ------------- --------------
$ 725,297 $ 631,544 $ 1,632,593 $ 1,310,243 $ 1,169,110
============= ============= ============= ============= ==============
</TABLE>
NOTE 7 - RETIREMENT BENEFITS
During 1995, The Board of Directors authorized the termination of the Bank's
defined benefit pension plan which covered substantially all full time
employees. The termination was effective June 30, 1995, and participants in the
plan became fully vested on that date. Accordingly, the Bank recorded a pretax
curtailment loss of $62,715. The settlement of the vested accumulated benefit
obligation by the purchase of annuity contracts for, or lump-sum payments to,
each covered employee will be completed during 1996.
The following table sets forth the Plan's funded status and amounts recognized
in the Bank's consolidated statements of financial condition at December 31,
1995 and 1994.
- -------------------------------------------------------------------------------
(Continued)
F-15
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 7 - RETIREMENT BENEFITS (Continued)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation
Vested $ (463,184) $ (307,551)
Nonvested - (279)
------------ ------------
$ (463,184) $ (307,830)
============ ============
Projected benefit obligation $ (463,184) $ (391,223)
Plan assets at fair value, primarily certificates
of deposit at Preferred Savings Bank and
mutual funds 463,184 438,858
------------ ------------
Plan assets in excess of (less than) projected
benefit obligation - 47,635
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions - 19,603
Unrecognized net transition obligation at
February 18, 1989 being recognized over 23
years - 61,534
Unrecognized prior service cost at July 1, 1993 arising from plan
amendment being recognized
over 23 years - 3,365
------------ ------------
Prepaid pension cost $ - $ 132,137
============ ============
</TABLE>
Net pension cost consists of the following:
<TABLE>
<CAPTION>
Ten
Months
Year Ended Ended
-------December 31,------- December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service costs - benefits earned during the period $ 10,077 $ 17,104 $ 9,044
Interest cost on projected benefit obligation 33,118 29,929 30,371
Actual return on plan assets (17,930) (17,303) (20,558)
Net amortization and deferral (10,720) (7,178) (9,712)
Curtailment loss 62,715 - -
----------- ----------- -----------
$ 77,260 $ 22,552 $ 9,145
=========== =========== ===========
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-16
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 7 - RETIREMENT BENEFITS (Continued)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Assumptions used to develop the net periodic pension cost were:
Discount rate 7.00% 8.00% 7.25%
Expected long-term rate of return on assets 7.00 6.50 7.50
Rate of increase in compensation levels through
date of curtailment 4.00 4.00 4.00
</TABLE>
NOTE 8 - REGULATORY MATTERS
The Bank is required to maintain minimum amounts of capital to total "risk
weighted" assets, as defined by the banking regulators. At May 31, 1996 and
December 31, 1995, the Bank is required to have a minimum Tier 1 capital
(retained earnings, excluding valuation allowance on securities
available-for-sale) ratio to "risk weighted" assets of 4.00% and a total capital
ratio (retained earnings plus general loan loss allowance, excluding valuation
allowance on securities available-for-sale to "risk weighted" assets) of 8.00%,
respectively. The Bank's actual ratios on May 31, 1996 (unaudited) were 56.28%
and 56.91%, respectively. The Bank's actual ratios on December 31, 1995 were
58.37% and 59.05%, respectively. The Bank's leverage ratio (retained earnings,
excluding valuation allowance on securities available-for-sale, as a percent of
total average assets) at May 31, 1996 (unaudited) and December 31, 1995 was
22.34% and 22.19%, respectively, compared to minimum required amounts of 4.00%
to 5.00%.
NOTE 9 - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(Unaudited) For the ten
For the five months ended For the year ended months ended
-----May 31,----- ---December 31,--- December 31,
1996 1995 1995 1994 1993
---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C>
Current
Federal $ 313,623 $ 341,955 $ 582,286 $ 528,090 $ 513,793
State 36,420 42,502 90,155 95,347 117,960
------------ ------------ ----------- ----------- -----------
350,043 384,457 672,441 623,437 631,753
Deferred (38,139) (66,990) (42,331) (95,393) (3,850)
Change in valuation allowance - - - 88,755 -
------------ ------------ ----------- ----------- -----------
$ 311,904 $ 317,467 $ 630,110 $ 616,799 $ 627,903
============ ============ =========== =========== ===========
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-17
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (Continued)
The net deferred tax liability included in other liabilities in the accompanying
statements of financial condition consists of the following at:
<TABLE>
<CAPTION>
(Unaudited)
May 31, ----------December 31,-------
1996 1995 1994
---------- ---- ----
<S> <C> <C> <C>
Gross deferred tax liabilities
Deferred loan fees $ (33,153) $ (33,928) $ (42,812)
Accrual to cash (20,260) (40,098) (25,047)
Accumulated depreciation (58,493) (56,649) (55,778)
Accrued pension expense - - (51,190)
FHLB stock dividend (13,790) (13,790) (11,969)
Net unrealized gain on securities
available-for-sale - (35,195) -
------------- ------------ ------------
(125,696) (179,660) (186,796)
Gross deferred tax assets
Loan loss reserve 72,056 52,686 52,686
Capital loss carryforward 103,225 103,225 103,225
Net unrealized loss on
securities available-for-sale 47,846 - 65,904
Other - -
------------- ------------ ------------
223,127 155,911 221,815
Valuation allowance (103,225) (103,225) (103,225)
------------- ------------ ------------
Net deferred tax liability $ (5,794) $ (126,974) $ (68,206)
============= ============ ============
</TABLE>
The income tax provision differs from the amounts determined by applying the
statutory U.S. federal income tax rate as a result of the following items:
- -------------------------------------------------------------------------------
(Continued)
F-18
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (Continued)
<TABLE>
<CAPTION>
(Unaudited)
--------------------May 31,-------------------
1 9 9 6 1 9 9 5
------- -------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Income tax computed at the
statutory rate $ 272,655 34.0% $ 274,139 34.0%
Other 15,211 1.9 15,276 1.9
----------- ------ ----------- ------
Total federal income tax 287,866 35.9 289,415 35.9
State income tax, net of
federal tax benefit 24,038 3.0 28,052 3.5
----------- ------ ----------- ------
$ 311,904 38.9% $ 317,467 39.4%
=========== ====== =========== ======
</TABLE>
<TABLE>
<CAPTION>
Ten
Months
Year Ended Ended
---------------December 31,----------------- ------December 31,----
1 9 9 5 1 9 9 4 1 9 9 3
------- ------- -------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Income tax computed at the
statutory rate $ 572,778 34.0% $ 467,359 34.0% $ 533,813 34.0%
Deferred tax valuation allowance - - 88,755 6.5 - -
Other 1,522 0.1 (54) - 45,693 2.9
----------- ------ ----------- ----- ----------- ------
Total federal income tax 574,300 34.1 556,060 40.5 579,506 36.9
State income tax, net of
federal tax benefit 55,810 3.3 60,739 4.4 48,397 3.1
----------- ------ ----------- ------ ----------- ------
$ 630,110 37.4% $ 616,799 44.9% $ 627,903 40.0%
=========== ====== =========== ====== =========== ======
</TABLE>
Under the Internal Revenue Code, the Bank may, for tax purposes, deduct a
provision for bad debts in excess of such provisions recorded in the financial
statements. Accordingly, retained earnings at May 31, 1996 (unaudited) and
December 31, 1995 include approximately $1,591,000 on which no provision for
federal income taxes has been made. These amounts represent an allocation of
income to bad-debt deductions for tax purposes alone. Reduction of amounts so
allocated for purposes other than tax bad-debt losses or adjustments from
carryback of net operating losses would create income for tax purposes only,
which would be subject to current tax. The related amount of unrecognized
deferred tax liability was approximately $620,000.
- -------------------------------------------------------------------------------
(Continued)
F-19
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 10 - FINANCIAL INSTRUMENTS AND COMMITMENTS
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet financing needs of its customers. These
financial instruments include commitments to fund loans and previously approved
unused lines of credit. The Bank's exposure to credit loss in the event of
nonperformance by the parties to these financial instruments is represented by
the contractual amount of the instruments. The Bank uses the same credit policy
for commitments as it uses for on-balance-sheet items. At May 31, 1996
(unaudited), these financial instruments consist of commitments to extend credit
totaling $537,000. At December 31, 1995 and 1994, these financial instruments
consist of commitments to extend credit totaling $612,000 and $634,000,
respectively. All 1996 (unaudited) and 1995 commitments had fixed rates ranging
from 8.0% to 8.5% and terms up to 30 days.
Since many commitments expire without being used, the amount above does not
necessarily represent a future cash commitment. Collateral may be obtained upon
exercise of a commitment. The amount of collateral is determined by management
and may include residential real estate.
The primary financial instruments where concentrations of credit risk may exist
are securities and loans. Securities are discussed in Note 2. The Bank's
principal loan customers are located in Chicago and the southwest portion of
Cook County including Cicero and Berwyn. Most loans are secured by specific
collateral, including residential and commercial real estate.
The deposits of savings associations such as the Bank are presently insured by
the Savings Association Insurance Fund (SAIF), which, along with the Bank
Insurance Fund (BIF), is one of the two insurance funds administered by the
Federal Deposit Insurance Corporation (FDIC). It is anticipated that SAIF will
not be adequately capitalized until 2002, absent a substantial increase in
premium rates or the imposition of special assessments or other significant
developments, such as a merger of SAIF and the BIF. Accordingly, a
recapitalization plan was signed into law on September 30, 1996 which provides
for a special assessment of an estimated .65% to .70% of all SAIF-insured
deposit balances as of March 31, 1995. The Bank's liability for the special
assessment, estimated to total approximately $162,000, net of taxes, has been
recorded in the third quarter of 1996 (unaudited).
NOTE 11 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 defines the fair value of a
financial instrument as the amount at which the instrument could be exchanged in
a current transaction between willing parties, other than in a forced or
liquidation sale. The methods and assumptions used to determine fair values for
each class of financial instruments are presented below:
- -------------------------------------------------------------------------------
(Continued)
F-20
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 11 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
<TABLE>
<CAPTION>
(Unaudited)
---May 31, 1996--- ---December 31, 1995---
Approximate Estimated Approximate Estimated
Carrying Fair Carrying Fair
Value Value Value Value
----------- --------- ----------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Financial Assets
Cash on hand and in banks $ 362 $ 362 $ 916 $ 916
Interest-bearing deposits in other
financial institutions 2,510 2,510 2,838 2,838
Interest-bearing term deposits in other
financial institutions 248 248 248 248
Securities available-for-sale 14,942 14,942 13,959 13,959
Loans receivable, net 35,702 36,593 34,525 35,280
Federal Home Loan Bank stock 362 362 341 341
Accrued interest receivable 247 247 181 181
Financial Liabilities
Money market and passbook savings (21,602) (21,602) (21,010) (21,010)
Certificates of deposits (20,343) (20,806) (20,037) (20,076)
Accrued interest payable (245) (245) (72) (72)
</TABLE>
For purposes of the above, the following assumptions were used. The estimated
fair value for cash, interest bearing deposits with financial institutions,
Federal Home Loan Bank stock, accrued interest receivable, money market and
savings deposits, and accrued interest payable are considered to approximate
their carrying values. The estimated fair value for securities
available-for-sale is based on quoted market values for the individual
securities or for equivalent securities. The estimated fair value for loans is
based on estimates of the rate the Bank would charge for similar loans at May
31, 1996 and December 31, 1995, applied for the time period until estimated
payment. The estimated fair value of certificates of deposit is based on
estimates of the rate the Bank would pay on such deposits at May 31, 1996 and
December 31, 1995, applied for the time period until maturity. Loan commitments
are not included in the table above as their estimated fair value is immaterial.
Other assets and liabilities of the Bank that are not defined as financial
instruments, such as property and equipment, are not included in the above
disclosures. Also not included are nonfinancial instruments typically not
recognized in the financial statements, such as loan servicing rights, customer
goodwill, and similar items.
- -------------------------------------------------------------------------------
(Continued)
F-21
<PAGE>
PREFERRED SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
May 31, 1996 and 1995 (Unaudited)
- ------------------------------------------------------------------------------
NOTE 11 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
While the above estimates are based on management's judgment of the most
appropriate factors, there is no assurance that were the Bank to have disposed
of these items on May 31, 1996 and December 31, 1995, the fair values would have
been achieved, because the market value may differ depending on the
circumstances. The estimated fair values at May 31, 1996 and December 31, 1995
should not necessarily be considered to apply at subsequent dates.
NOTE 12 - ADOPTION OF PLAN OF CONVERSION (UNAUDITED)
On May 21, 1996, the Board of Directors of the Bank, subject to regulatory
approval and approval by the members of the Bank, adopted a Plan of Conversion
to convert from a state mutual savings bank to a federal stock savings bank with
the concurrent formation of a holding company and the adoption of a federal
thrift charter. The conversion is expected to be accomplished through the
amendment of the Bank's charter and the sale of the holding company's common
stock in an amount equal to the consolidated pro forma market value of the
holding company and the Bank after giving effect to the conversion. A
subscription offering of the shares of common stock will be offered initially to
the Bank's eligible deposit account holders, then to other members of the Bank.
Any shares of the holding company's common stock not sold in the subscription
offering will be offered for sale to the general public, giving preference to
the Bank's market area.
The Board of Directors of the Bank or the holding company intend to adopt an
Employee Stock Ownership Plan and various stock option and incentive plans,
subject to ratification by the stockholders of the holding company after
conversion, if such stockholder approval is required by any regulatory body
having jurisdiction to require such approval. In addition, the Board of
Directors is authorized to enter into employment contracts with key employees.
At the time of conversion, the Bank will establish a liquidation account in an
amount equal to its total net worth as of the latest statement of financial
condition appearing in the final prospectus. The liquidation account will be
maintained for the benefit of eligible depositors who continue to maintain their
accounts at the Bank after the conversion. The liquidation account will be
reduced annually to the extent that eligible depositors have reduced their
qualifying deposits. Subsequent increases will not restore an eligible account
holder's interest in the liquidation account. In the event of a complete
liquidation, each eligible depositor will be entitled to receive a distribution
from the liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held. The liquidation account balance is
not available for payment of dividends.
Conversion costs will be deferred and deducted from the proceeds of the shares
sold in the conversion. If the conversion is not completed, all costs will be
charged to expense. At May 31, 1996 , no costs have been deferred.
- -------------------------------------------------------------------------------
F-22
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representation other than as contained in this Prospectus in connection with the
offering made hereby, and, if given or made, such other information or
representation must not be relied upon as having been authorized by the Holding
Company or the Bank. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities 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
in such jurisdiction. Neither the delivery of this Prospectus nor any sale
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Holding Company or the Bank since any of
the dates as of which information is furnished herein or since the date hereof.
--------------
TABLE OF CONTENTS
Page
----
Prospectus Summary........................................ 4
Selected Consolidated Financial Information............... 12
Risk Factors.............................................. 14
PS Financial, Inc......................................... 19
Preferred Savings......................................... 20
Use of Proceeds........................................... 20
Dividends................................................. 22
Market for Common Stock................................... 22
Pro Forma Data............................................ 22
Pro Forma Regulatory Capital Analysis..................... 27
Capitalization............................................ 28
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 29
Business ................................................. 46
Regulation................................................ 71
Management ............................................... 81
The Conversion............................................ 90
Restrictions on Acquisitions of Stock and Related
Takeover Defensive Provisions.......................... 107
Description of Capital Stock.............................. 112
Legal and Tax Matters..................................... 113
Experts................................................... 114
Additional Information.................................... 114
Index to Consolidated Financial Statements................ F-1
Until the later of _______________, 1996 or 25 days after commencement of
the offering of Common Stock, 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>
================================================================================
1,897,500 Shares
PS FINANCIAL, INC.
(Proposed Holding Company for Preferred Savings)
COMMON STOCK
----------
PROSPECTUS
----------
CHARLES WEBB & COMPANY
A Division of Keefe, Bruyette & Woods, Inc.
_______, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Set forth below is an estimate of the amount of fees and expenses
(other than underwriting discounts and commissions) to be incurred in connection
with the issuance of the shares.
SEC registration fees............................................. $ 7,525
NASD fee.......................................................... 5,000
Nasdaq registration fee........................................... 15,000
OTS filing fees................................................... 8,400
Counsel fees and expenses......................................... 95,000
Accounting fees and expenses...................................... 60,000
Appraisal and business plan fees and expenses..................... 22,000
Conversion agent fees and expenses................................ 15,000
Marketing agent's expenses........................................ 5,000
Marketing agent's counsel fees and expenses....................... 35,000
Printing, postage and mailing..................................... 30,000
Blue sky fees and expenses........................................ 5,000
Other expenses.................................................... 7,075
TOTAL........................................................ $310,000
- -------------------
(1) Based on maximum of Estimated Valuation Range and assumptions set forth
under "Pro Forma Data" in the Prospectus.
Item 14. Indemnification of Directors and Officers
Article Eleventh of the Holding Company's Certificate of Incorporation
provides for indemnification of directors and officers of the Holding Company
against any and all liabilities, judgments, fines and reasonable settlements,
costs, expenses and attorneys' fees incurred in any actual, threatened or
potential proceeding, except to the extent that such indemnification is limited
by Delaware law and such law cannot be varied by contract or bylaw. Article
Eleventh also provides for the authority to purchase insurance with respect
thereto.
Section 145 of the General Corporation Law of the State of Delaware
authorizes a corporation's Board of Directors to grant indemnity under certain
circumstances to directors and officers, when made, or threatened to be made,
parties to certain proceedings by reason of such status with the corporation,
against judgments, fines, settlements and expenses, including
II-1
<PAGE>
attorneys' fees. In addition, under certain circumstances such persons may be
indemnified against expenses actually and reasonably incurred in defense of a
proceeding by or on behalf of the corporation. Similarly, the corporation, under
certain circumstances, is authorized to indemnify directors and officers of
other corporations or enterprises who are serving as such at the request of the
corporation, when such persons are made, or threatened to be made, parties to
certain proceedings by reason of such status, against judgments, fines,
settlements and expenses, including attorneys' fees; and under certain
circumstances, such persons may be indemnified against expenses actually and
reasonably incurred in connection with the defense or settlement of a proceeding
by or in the right of such other corporation or enterprise. Indemnification is
permitted where such person (i) was acting in good faith; (ii) was acting in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation or other corporation or enterprise, as appropriate; (iii) with
respect to a criminal proceeding, has no reasonable cause to believe his conduct
was unlawful; and (iv) was not adjudged to be liable to the corporation or other
corporation or enterprise (unless the court where the proceeding was brought
determines that such person is fairly and reasonably entitled to indemnity).
Unless ordered by a court, indemnification may be made only following a
determination that such indemnification is permissible because the person being
indemnified has met the requisite standard of conduct. Such determination may be
made (i) by the Board of Directors of the Holding Company by a majority vote of
a quorum consisting of directors not at the time parties to such proceeding; or
(ii) if such a quorum cannot be obtained or the quorum so directs, then by
independent legal counsel in a written opinion; or (iii) by the stockholders.
Section 145 also permits expenses incurred by directors and officers in
defending a proceeding to be paid by the corporation in advance of the final
disposition of such proceedings upon the receipt of an undertaking by the
director or officer to repay such amount if it is ultimately determined that he
is not entitled to be indemnified by the corporation against such expenses.
Item 15. Recent Sales of Unregistered Securities
The Registrant is newly incorporated, solely for the purpose of acting
as the holding company of Preferred Savings Bank pursuant to the Plan of
Conversion (filed as Exhibit 2 herein), and no sales of its securities have
occurred to date; except for the sale of one share to the incorporator which was
required in order to register the Registrant as a foreign corporation in
Illinois. The sale was made in a transaction not involving a public offering in
reliance upon Section 4(2) of the Securities Act of 1933. The sale was made to
Ms. Rooney who as an officer of the Registrant has access to the type of
information that could be obtained through the registration process and based
upon her background and position with the Registrant had the knowledge and the
experience in financial and business matters of the Registrant to enable her to
evaluate the merits and risks of the investment. Such share will be redeemed by
the Registrant upon completion of the initial public offering.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
1.1 Letter Agreement regarding marketing and consulting services*
1.2 Form of Agency Agreement
2 Plan of Conversion*
3.1 Certificate of Incorporation of the Holding Company*
3.2 Bylaws of the Holding Company*
3.3 Charter of Preferred Savings in stock form*
3.4 Bylaws of Preferred Savings in stock form*
4 Form of Stock Certificate of the Holding Company*
5 Opinion of Silver, Freedman & Taff, L.L.P. with respect to legality of
stock*
8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal
income tax consequences of the Conversion*
8.2 Opinion of Crowe, Chizek and Company LLP with respect to Illinois
income tax consequences of the Conversion*
8.3 Opinion of Keller & Company, Inc. with respect to Subscription Rights*
10.1 Form of Proposed Stock Option and Incentive Plan
10.2 Form of Proposed Recognition and Retention Plan
10.3 Employee Stock Ownership Plan*
10.4 Form of Employment Agreement with Kimberly P. Rooney
10.5 Form of Employment Agreement with Sylvester J. Ptak
10.6 Form of Change in Control Severance Agreement
22 Subsidiaries*
24.1 Consent of Silver, Freedman & Taff, L.L.P.*
24.2 Consent of Crowe, Chizek and Company, LLP
24.3 Consent of Keller & Company, Inc.*
25 Power of Attorney (set forth on signature page)
99.1 Appraisal
99.2 Proxy Statement and form of proxy to be furnished to Preferred Savings
account holders*
99.3 Stock Order Form, Order Form Instructions and Certification*
99.4 Question and Answer Brochure*
99.5 Advertising, Training and Community Informational Meeting Materials*
99.6 Letter Agreement regarding Appraisal Services and Business Plan
Preparation*
- ----------
* Previously filed.
II-3
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; 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.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
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 any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and it will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant
II-4
<PAGE>
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Chicago,
Illinois on August 29, 1996.
PS FINANCIAL, INC.
By: /s/ Kimberly P. Rooney
------------------------------------
Kimberly P. Rooney, President,
Chief Executive Officer and
Director
(Duly Authorized Representative)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kimberly P. Rooney or Sylvester J. Ptak
as his or her true and lawful attorney-in-fact and agent, with full power of
substitution and re-substitution, for her and in her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming said attorney-in-
fact and agent or her substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ Kimberly P. Rooney /s/ Sylvester J. Ptak
- ------------------------------------------- -----------------------------
Kimberly P. Rooney, President, Chief Sylvester J. Ptak
Executive Officer and Director Chairman
(Principal Executive and Operating Officer)
Date: October 7, 1996 Date: October 7, 1996
II-6
<PAGE>
/s/ Rocco Di Iorio /s/ Edward S. Wolak
- --------------------------------- ---------------------------------------
Rocco Di Iorio, Director Edward S. Wolak, Director
Date: October 7, 1996 Date: October 7, 1996
/s/ Jeanine M. McInerney /s/ Jeffrey Przybyl
- --------------------------------- ----------------------------------------
Jeanine M. McInerney, Director Jeffrey Przybyl, Treasurer and Chief
Financial Officer (Principal Financial and
Accounting Officer)
Date: October 7, 1996 Date: October 7, 1996
/s/ Lorraine G. Ptak
- ----------------------------------------
Lorraine G. Ptak, Director and Secretary
Date: October 7, 1996
II-7
<PAGE>
As filed with the Securities and Exchange Commission on October 8, 1996
Registration No. 333-11211
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
EXHIBITS TO
PRE-EFFECTIVE AMENDMENT NO. ONE
TO THE
FORM S-1
UNDER
THE SECURITIES ACT OF 1933
PS FINANCIAL, INC.
4800 South Pulaski Road
Chicago, Illinois 60632
================================================================================
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page Number in
Sequentially Numbered
Registration
Statement
Exhibits: ----------------------
<S> <C> <C>
1.1 Letter Agreement regarding marketing and consulting services*
1.2 Form of Agency Agreement
2 Plan of Conversion*
3.1 Certificate of Incorporation of the Holding Company*
3.2 Bylaws of the Holding Company*
3.3 Charter of Preferred Savings in stock form*
3.4 Bylaws of Preferred Savings in stock form*
4 Form of Stock Certificate of the Holding Company*
5 Opinion of Silver, Freedman & Taff, L.L.P. with Respect to Legality
of Stock*
8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal
income tax consequences of the Conversion*
8.2 Opinion of Crowe, Chizek and Company LLP with respect to Illinois
income tax consequences of the Conversion*
8.3 Opinion of Keller & Company, Inc. with respect to Subscription
Rights*
10.1 Amended Stock Option and Incentive Plan
10.2 Amended Recognition and Retention Plan
10.3 Employee Stock Ownership Plan*
10.4 Form of Employment Agreement with Kimberly P. Rooney
10.5 Form of Employment Agreement with Sylvester J. Ptak
10.6 Form of Change in Control Severance Agreement
22 Subsidiaries*
24.1 Consent of Silver, Freedman & Taff, L.L.P.*
24.2 Consent of Crowe, Chizek and Company LLP
24.3 Consent of Keller & Company, Inc.*
25 Power of Attorney (set forth on signature page)
99.1 Appraisal
99.2 Proxy Statement and form of proxy to be furnished to Preferred
Savings account holders*
99.3 Stock Order Form, Order Form Instructions and Certification*
99.4 Question and Answer Brochure*
99.5 Advertising, Training and Community Informational Meeting
Materials*
99.6 Letter Agreement regarding Appraisal Services and Business Plan
Preparation*
</TABLE>
* Previously filed.
<PAGE>
Exhibit 1.2
Form of Agency Agreement
<PAGE>
PS FINANCIAL, INC.
(a Delaware Corporation)
__________ Shares
COMMON STOCK ($.01 Par Value)
Purchase Price $10.00 Per Share
AGENCY AGREEMENT
_______________, 1996
Charles Webb & Company
A Division of Keefe, Bruyette
& Woods, Inc.
211 Bradenton Avenue
Dublin, Ohio 43017
Ladies and Gentlemen:
PS Financial, Inc. (the "Holding Company") and Preferred Savings Bank,
F.S.B. (the "Bank") hereby confirm their agreements with Charles Webb & Company,
A Division of Keefe, Bruyette & Woods, Inc. (the "Agent") as follows:
Section 1. The Offering. The Holding Company is offering up to
__________ shares of common stock, par value $.01 per share (the "Common
Stock"), in a concurrent subscription offering (the "Subscription Offering") and
public offering (the "Public Offering") (together the "Offering") in connection
with the conversion of the Bank from a federally chartered mutual savings bank
to a federally chartered stock savings bank and the issuance of all of the
Bank's outstanding common stock to the Holding Company (the "Conversion")
pursuant to the Bank's plan of conversion (the "Plan"). Non-transferable rights
to subscribe for the Common Stock ("Subscription Rights") will be granted, in
the following priority in the Subscription Offering: (1) the Bank's depositors
with account balances of $50.00 or more as of March 31, 1995 ("Eligible Account
Holders"); (2) tax-qualified employee benefit plans of the Bank and the Holding
Company ("Tax-Qualified Employee Plans"); provided, however, that the
Tax-Qualified Employee Plans shall have the first priority Subscription Rights
to the extent that the total number of shares of Common Stock sold in the
Conversion shall exceed __________; (3) the Bank's depositors with account
balances of $50.00 or more as of September 30, 1996 ("Supplemental Eligible
Account Holders"); (4) depositors and certain borrowers of the Bank as of the
voting record date for the Special Meeting, as defined in the Prospectus ("Other
Members"); and (5) employees, officers and directors of the Bank. The Holding
Company will issue such number of shares of its Common Stock upon the Conversion
as is subscribed for, up to __________ shares (the "Shares")
<PAGE>
at a purchase price of $10.00 per share (the "Purchase Price"). The Holding
Company is simultaneously offering all shares of Common Stock not subscribed for
in the Subscription Offering, if any, in a Public Offering to selected persons.
Depending on market conditions, shares may be offered in the Public Offering by
selected broker-dealer firms which are members of the National Association of
Securities Dealers, Inc. ("NASD") ("Selected Dealers"). If the number of Shares
is increased or decreased in accordance with the Plan, the term "Shares" shall
mean such greater or lesser number, where applicable.
The Holding Company has filed with the U.S. Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-1 (File No.
_________) containing a prospectus relating to the Offering for the registration
of the Shares under the Securities Act of 1933, as amended (the "1933 Act"), and
has filed such amendments thereto as have been required to the date hereof (the
"Registration Statement"). The prospectus, as amended, included in the
Registration Statement at the time it initially became effective is hereinafter
called the "Prospectus," except that if any prospectus is filed by the Holding
Company pursuant to Rule 424(b) or (c) of the regulations of the Commission
under the 1933 Act differing from the prospectus included in the Registration
Statement at the time it initially becomes effective, the term "Prospectus"
shall refer to the prospectus filed pursuant to Rule 424(b) or (c) from and
after the time said prospectus is filed with the Commission and shall include
any supplements and amendments thereto from and after their dates of
effectiveness or use, respectively.
The Bank has filed with the Office of Thrift Supervision, Department of
the Treasury (the "OTS") pursuant to Title 12, Part 563b of the Code of Federal
Regulations (the "Conversion Regulations") an Application for Conversion on Form
AC, including the Prospectus, and has filed amendments thereto as required by
the OTS (as so amended, the "Application"). The Application has been approved by
the OTS. The Holding Company has filed with the OTS its application on Form
H-(e)1-S (the "Holding Company Application") to acquire the Bank under the Home
Owners Loan Act, as amended, and the regulations promulgated thereunder
("HOLA").
Section 2. Appointment of the Agent. Subject to the terms and
conditions of this Agreement, the Holding Company and the Bank hereby appoint
the Agent as their exclusive financial advisor and marketing agent to utilize
its best efforts to solicit subscriptions for Shares of the Holding Company's
Common Stock and to advise and assist the Holding Company and the Bank with
respect to the Holding Company's sale of the Shares in the Offering and to
participate in the Offering in the areas of market making, research coverage and
syndicate formation (if necessary).
On the basis of the representations and warranties and subject to the
terms and conditions of this Agreement, the Agent accepts such appointment and
agrees to consult with and advise the Holding Company and the Bank as to the
matters set forth in the letter agreement ("Letter Agreement"), dated July 1,
1996, between the Bank and the
-2-
<PAGE>
Agent (a copy of which is attached hereto as Exhibit A). It is acknowledged by
the Holding Company and the Bank that the Agent shall not be obligated to
purchase any Shares and shall not be obligated to take any action which is
inconsistent with any applicable law, regulation, decision or order.
Subscriptions will be offered by means of order forms as described in the
Prospectus. The appointment of the Agent hereunder shall terminate upon
completion of the Offering, provided that, thereafter, if the parties wish to
continue the relationship, a fee will be negotiated and an agreement with
respect to specific advisory services will be entered into at that time.
Section 3. Refund of Purchase Price. In the event that the Conversion
is not consummated for any reason, including but not limited to the inability to
sell the Common Stock during the Offering (including any permitted extension
thereof), this Agreement shall terminate and any persons who have subscribed for
any of the shares of Common Stock shall have refunded to them the full amount
which has been received from such person, together with interest at the Bank's
current passbook rate, from the date payment is received as provided in the
Prospectus. Upon termination of this Agreement, neither the Agent nor the Bank
and the Holding Company shall have any obligation to the other except that (i)
the Holding Company and the Bank, as applicable, shall remain liable for any
amounts due pursuant to Sections 4(a), 8, 10 and 11 hereof, unless the
transaction is not consummated due to the breach by the Agent of a warranty,
representation or covenant; and (ii) the Agent shall remain liable for any
amount due pursuant to Sections 10 and 11 hereof, unless the transaction is not
consummated due to the breach by the Holding Company or Bank of a warranty,
representation or covenant.
Section 4. Fees. In addition to the expenses specified in Section 8
hereof, as compensation for the Agent's services as agents under this Agreement,
the Agent will receive the following fees from the Holding Company and the Bank.
(a) A management fee in the amount of $25,000 payable in four
consecutive monthly installments of $6,250, commencing with the signing of the
Letter Agreement. Such fees shall be deemed to be earned when due. Should the
Conversion be terminated for any reason not attributable to the action or
inaction of the Agent, the Agent shall have earned and be entitled to be paid
fees accruing through the stage at which point the termination occurred.
(b) A fee of 1.5% of the aggregate Purchase Price of Common Stock sold
in the Offering excluding shares purchased by the Bank's officers, directors, or
employees (or members of their immediate families) plus any ESOP, tax-qualified
or stock based compensation plan (except IRA's) or similar plan created by the
Bank for some or all of its directors or employees. The Management fee described
in subparagraph (a) will be deducted from this fee should the Prospectus be
based upon financial statements other than as of the end of a calendar quarter.
-3-
<PAGE>
(c) A fee not to exceed 5.5% of the aggregate Purchase Price of the
Shares sold by Selected Dealers. The Agent will pass onto Selected Dealers, who
assist in the syndicated Public Offering, an amount competitive with gross
underwriting discounts charged at such time for comparable amounts of stock sold
at a comparable price per share in a similar market environment. Fees with
respect to purchases effected with the assistance of a broker/dealer other than
the Agent shall be transmitted by the Agent to such broker/dealer. The decision
to utilize Selected Dealers will be made by the Agent. In the event, with
respect to any stock purchases, fees are paid pursuant to this subsection (c),
such fees shall be in lieu of, and not in addition to, payment to the Agent
pursuant to subsections (a) and (b).
The fees specified in subsections (b) and (c) shall be payable in
same-day funds on the Closing Date.
Section 5. Closing. If the minimum number of the shares of Common Stock
permitted to be sold in the Conversion on the basis of the most recent updated
Conversion appraisal are subscribed for at or before the termination of the
Offering and the other conditions to the completion of the Conversion are
satisfied, the Holding Company agrees to issue on the Closing Date the shares of
Common Stock which have been sold against payment therefor from the escrow or
other accounts maintained for the subscribers as set forth in the Plan and to
deliver certificates evidencing ownership of such shares of Common Stock in such
authorized denominations and registered in such names as may be indicated on the
subscription order forms directly to the purchasers thereof as promptly as
practicable after the Closing Date. The Closing shall be held at the offices of
counsel to the Agent, or at such other place as shall be agreed upon among the
Holding Company, the Bank and the Agent at 10:00 a.m. on a business day selected
by the Holding Company which business day shall be no less than two business
days following the giving of prior notice by the Holding Company to the Agent or
at such other time as shall be agreed upon by the Holding Company, the Bank and
the Agent. At the Closing, the Bank and the Holding Company shall deliver to the
Agent in same-day funds the commissions, fees and expenses owing to the Agent as
set forth in Sections 4 and 8 hereof and the opinions required hereby and other
documents deemed reasonably necessary by the Agent shall be executed and
delivered to effect the sale of the shares as contemplated hereby and pursuant
to the terms of the Prospectus. The Holding Company shall notify the Agent by
telephone, confirmed in writing, when funds shall have been received for the
minimum number of shares of the Common Stock. The date upon which the Holding
Company shall release the Shares for delivery in accordance with the terms
hereof is referred to herein as the "Closing Date."
Section 6A. Representations and Warranties of the Holding Company and
the Bank. The Holding Company and the Bank jointly and severally represent and
warrant to the Agent that:
(a) The Holding Company and the Bank have all such power, authority,
authorizations, approvals and orders as may be required to enter into this
Agreement, to
-4-
<PAGE>
carry out the provisions and conditions hereof and to issue and sell the capital
stock of the Bank to the Holding Company and the Shares to be sold by the
Holding Company as provided herein and as described in the Prospectus. The
consummation of the Conversion, the execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated have been
duly and validly authorized by all necessary corporate action on the part of the
Holding Company and the Bank and this Agreement has been validly executed and
delivered by the Holding Company and the Bank and is the valid, legal and
binding agreement of the Holding Company and the Bank enforceable in accordance
with its terms, except to the extent, if any, that the provisions of Sections 10
and 11 hereof may be unenforceable as against public policy, and except to the
extent that such enforceability may be limited by bankruptcy laws, insolvency
laws, or other laws affecting the enforcement of creditors' rights generally, or
the rights of creditors of savings institutions insured by the FDIC (including
the laws relating to the rights of the contracting parties to equitable
remedies).
(b) As of the Closing Date, the Bank shall have completed all
conditions precedent to the Conversion in accordance with the Plan and shall
have complied in all material respects with applicable laws, regulations (except
as modified or waived in writing by the OTS), decisions and orders, including
all terms, conditions, requirements and provisions precedent to the Conversion
imposed upon it by the OTS as set forth in correspondence received from the OTS.
The Plan has been approved by the OTS, and to the best knowledge of the Bank, no
person has challenged or sought to obtain judicial review of the actions of the
OTS in approving the Conversion pursuant to Section 5(i)(2)(B) of the HOLA or
any other statute or regulation.
(c) The Registration Statement was declared effective by the Commission
on _______________, 1996; and no stop order has been issued with respect thereto
and no proceedings therefor have been initiated or to the best knowledge of the
Bank threatened by the Commission. At the time the Registration Statement,
including the Prospectus contained therein (including any amendment or
supplement thereto), became effective, the Registration Statement complied as to
form in all material respects with the requirements of the 1933 Act and the
regulations promulgated thereunder and the Registration Statement including the
Prospectus contained therein (including any amendment or supplement thereto),
any Blue Sky Application or any Sales Information (as such terms are defined in
Section 10 hereof) authorized by the Holding Company or the Bank for use in
connection with the Offering did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, and at the time any Rule 424(b) or (c) Prospectus was
filed with or mailed to the Commission for filing and at the Closing Date
referred to in Section 5, the Registration Statement including the Prospectus
contained therein (including any amendment or supplement thereto) and any Blue
Sky Application or any Sales Information authorized by the Holding Company or
the Bank for use in connection with the Offering will not contain an untrue
statement of a material fact or omit to state a
-5-
<PAGE>
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this Section 6A shall not apply to
statements or omissions made in reliance upon and in conformity with written
information furnished to the Holding Company or the Bank by the Agent expressly
regarding the Agent for use under the caption "The Conversion - Marketing
Arrangements" or written statements or omissions from any sales information or
information filed pursuant to state securities or blue sky laws or regulations
regarding the Agent.
(d) The Application, including the Prospectus, was approved by the OTS
on _______________, 1996; and the Proxy Statement of the Bank and the Prospectus
have been approved for use by the OTS. At the time of the approval of the
Application, including the Prospectus, by the OTS (including any amendment or
supplement thereto) and at all times subsequent thereto until the Closing Date,
the Application, including the Prospectus, will comply as to form in all
material respects with the Conversion Regulations and any other applicable rules
and regulations of the OTS (except as modified or waived in writing by the OTS).
The Application, including the Prospectus (including any amendment or supplement
thereto), does not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that representations or warranties in this
subsection (d) shall not apply to statements or omissions made in reliance upon
and in conformity with written information furnished to the Bank by the Agent
expressly regarding the Agent for use in the Prospectus contained in the
Application under the caption "The Conversion - Marketing Arrangements" or
written statements or omissions from any sales information or information filed
pursuant to state securities or blue sky laws or regulations regarding the
Agent.
(e) No order has been issued by the OTS, the Commission or the FDIC
(and hereinafter reference to the FDIC shall include the SAIF), or any state
regulatory authority, preventing or suspending the use of the Prospectus and no
action by or before any such government entity to revoke any approval,
authorization or order of effectiveness related to the Conversion is, to the
best knowledge of the Bank or the Holding Company, pending or threatened.
(f) At the Closing Date, the Plan will have been adopted by the Board
of Directors of both the Holding Company and the Bank, the Holding Company and
the Bank will have completed all conditions precedent to the Conversion
specified in the Plan and the offer and sale of the Shares will have been
conducted in all material respects in accordance with the Plan, the Conversion
Regulations (except as modified or waived in writing by the OTS) and with all
other applicable laws, regulations, decisions and orders, including all terms,
conditions, requirements and provisions precedent to the Conversion imposed upon
the Holding Company or the Bank by the OTS, the Commission or any other
regulatory authority and in the manner described in the Prospectus. At the
Closing Date, to the best knowledge of the Holding Company and
-6-
<PAGE>
the Bank, no person will have sought to obtain review of the final action of the
OTS in approving the Plan or in approving the Conversion or the Holding Company
Application pursuant to the HOLA or any other statute or regulation.
(g) The Holding Company has filed with the OTS the Holding Company
Application and has received, as of the Closing Date, approval of its
acquisition of the Bank from the OTS.
(h) Keller & Company, Inc. which prepared the appraisal, has advised
the Holding Company and the Bank in writing that it is independent with respect
to each within the meaning of the Conversion Regulations.
(i) Crowe, Chizek and Company which certified the financial statements
filed as part of the Registration Statement and the Application, have advised
the Holding Company and the Bank in writing that they are, with respect to the
Holding Company and the Bank, independent certified public accountants within
the meaning of 12 C.F.R. Sections 563c.3 and 571.2(c)(3) and under the 1933 Act
and the regulations promulgated thereunder.
(j) The financial statements and the schedules and notes thereto which
are included in the Registration Statement and which are a part of the
Prospectus present fairly the financial position and retained earnings of the
Bank as of the dates indicated and the results of operations and cash flows for
the periods specified. The financial statements comply in all material respects
with the applicable accounting requirements of Title 12 of the Code of Federal
Regulations and generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods presented except as otherwise noted therein
and present fairly in all material respects the information required to be
stated therein and are consistent with the most recent financial statements and
other reports filed by the Bank with the OTS and the FDIC except that accounting
principles employed in such filings conform to requirements of such authorities
and not necessarily to GAAP. The other financial, statistical and pro forma
information and related notes included in the Prospectus fairly present the
information shown therein on a basis consistent with the audited and unaudited
financial statements included in the Prospectus, and as to the pro forma
adjustments, the adjustments made therein have been properly applied on the
basis described therein.
(k) Since the respective dates as of which information is given in the
Registration Statement, including the Prospectus: (i) there has not been any
material adverse change in the financial condition or in the earnings, capital,
properties or business affairs of the Holding Company or the Bank or of the
Holding Company and the Bank considered as one enterprise, whether or not
arising in the ordinary course of business, (ii) there has not been any material
increase in the aggregate amount of loans past due ninety (90) days or more,
real estate acquired by foreclosure or loans characterized as "in substance
foreclosure" or any change in total assets of the Bank in an amount greater than
$1.0 million; nor has the Bank issued any securities or incurred
-7-
<PAGE>
any liability or obligation for borrowings other than in the ordinary course of
business, (iii) there have not been any material transactions entered into by
the Holding Company or the Bank, other than those in the ordinary course of
business; and (iv) the capitalization, liabilities, assets, properties and
business of the Holding Company and the Bank conform in all material respects to
the descriptions thereof contained in the Prospectus and, neither the Bank nor
the Holding Company has any material liabilities of any kind, contingent or
otherwise, except as set forth in or contemplated by the Registration Statement
and the Prospectus.
(l) The Holding Company is a corporation duly organized and in good
standing under the laws of the State of Delaware, with corporate power and
authority to own its properties and to conduct its business as described in the
Prospectus, and is duly qualified to transact business and is in good standing
in each jurisdiction in which the conduct of its business requires such
qualification unless the failure to qualify in one or more of such jurisdictions
would not have a material adverse effect on the financial condition, earnings,
capital, properties or business affairs of the Holding Company and the Bank
considered as a whole.
(m) The Bank is a duly organized and validly existing federally
chartered savings bank in mutual form and upon the Conversion will become a duly
organized and validly existing federally chartered savings bank in stock form,
in both instances duly authorized to conduct its business as described in the
Prospectus; the activities of the Bank are permitted by the rules, regulations
and practices of the OTS; the Bank has obtained all licenses, permits and other
governmental authorizations currently required for the conduct of its business
except those that individually or in the aggregate would not materially
adversely affect the financial condition of the Holding Company and the Bank
taken as a whole; all such licenses, permits and other governmental
authorizations are in full force and effect and the Bank is in good standing
under the laws of the United States and is duly qualified as a foreign
corporation to transact business in each jurisdiction in which failure to so
qualify would have a material adverse effect upon the financial condition,
earnings, capital, properties or business affairs of the Bank; all of the issued
and outstanding capital stock of the Bank after the Conversion will be duly and
validly issued and fully paid and nonassessable; and the Holding Company will
directly own all of such capital stock free and clear of any mortgage, pledge,
lien, encumbrance, claim or restriction. The Bank does not own equity securities
or any equity interest in any other business enterprise except as described in
the Prospectus.
(n) The Bank is a member of the Federal Home Loan Bank of Chicago
("FHLB of Chicago"); the deposit accounts of the Bank are insured by the FDIC up
to applicable limits; and upon the Conversion, the liquidation account for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders
will be duly established in accordance with the Conversion Regulations.
(o) Upon Conversion, the authorized, issued and outstanding equity
capital of the Holding Company will be as described in the Prospectus under the
caption
-8-
<PAGE>
"Capitalization," and no shares of Common Stock have been or will be issued and
outstanding prior to the Closing Date; the shares of Common Stock to be
subscribed for in the Offering have been duly and validly authorized for
issuance, and when issued and delivered by the Holding Company pursuant to the
Plan against payment of the consideration calculated as set forth in the Plan
and the Prospectus, will be duly and validly issued and fully paid and
nonassessable; the issuance of the shares of Common Stock is not subject to
preemptive rights; and the terms and provisions of the shares of Common Stock
will conform in all material respects to the description thereof contained in
the Prospectus. Upon issuance of the Shares, good title to the Shares will be
transferred from the Holding Company to the purchaser thereof against payment
therefor, subject to such claims as may be asserted against the purchasers
thereof by third party claimants.
(p) As of the date hereof and as of the Closing Date, neither the
Holding Company nor the Bank is in violation of its certificate of incorporation
or charter, respectively, or its bylaws (and the Bank will not be in violation
of its charter or bylaws in capital stock form as of the Closing Date) or in
material default in the performance or observance of any obligation, agreement,
covenant, or condition contained in any contract, lease, loan agreement,
indenture or other instrument to which it is a party or by which it, or any of
its property, may be bound which would result in a material adverse change in
the condition (financial or otherwise), earnings, capital, properties or
business affairs of the Holding Company or Bank considered as one enterprise or
which would materially affect their properties or assets. The consummation of
the transactions herein contemplated will not (i) conflict with or constitute a
breach of, or default under, the certificate of incorporation and bylaws of the
Holding Company, the charter and bylaws of the Bank (in either mutual or capital
stock form), or materially conflict with or constitute a material breach of, or
default under any material contract, lease or other instrument to which the
Holding Company or the Bank has a beneficial interest, or any applicable law,
rule, regulation or order that is material to the financial condition of the
Holding Company and the Bank on a consolidated basis; (ii) violate any
authorization, approval, judgment, decree, order, statute, rule or regulation
applicable to the Holding Company or the Bank except for such violations which
would not have a material adverse effect on the financial condition and results
of operations of the Holding Company and the Bank on a consolidated basis; or
(iii) with the exception of the liquidation account established in the
Conversion, result in the creation of any material lien, charge or encumbrance
upon any property of the Holding Company or the Bank.
(q) No material default exists, and no event has occurred which with
notice or lapse of time, or both, would constitute a material default on the
part of the Holding Company or the Bank, in the due performance and observance
of any term, covenant or condition of any indenture, mortgage, deed of trust,
note, bank loan or credit agreement or any other material instrument or
agreement to which the Holding Company or the Bank is a party or by which any of
them or any of their property is bound or affected in any respect which, in any
such case, is material to the Holding Company or the Bank considered as one
enterprise, and such agreements are in full force and effect; and no
-9-
<PAGE>
other party to any such agreements has instituted or, to the best knowledge of
the Holding Company or the Bank, threatened any action or proceeding wherein the
Holding Company or the Bank is alleged to be in default thereunder under
circumstances where such action or proceeding, if determined adversely to the
Holding Company or the Bank, as the case may be, would have a material adverse
effect upon the Holding Company and the Bank considered as one enterprise.
(r) The Holding Company and the Bank have good and marketable title to
all assets which are material to the business of the Holding Company and the
Bank and to those assets described in the Prospectus as owned by them free and
clear of all material liens, charges, encumbrances, restrictions or other
claims, except such as are described in the Prospectus or which do not have a
material adverse effect on the business of the Holding Company and the Bank
taken as a whole; and all of the leases and subleases which are material to the
business of the Holding Company and the Bank, as described in the Registration
Statement or Prospectus, are in full force and effect.
(s) Except as described in the Prospectus, the Holding Company and the
Bank are not in material violation of any directive from the OTS, the FDIC, the
Commission or any other agency to make any material change in the method of
conducting their respective businesses; the Holding Company and the Bank have
conducted and are conducting their respective businesses so as to comply in all
material respects with all applicable statutes and regulations (including,
without limitation, regulations, decisions, directives and orders of the OTS,
the Commission and the FDIC) and except as set forth in the Prospectus, there is
no charge, investigation, action, suit or proceeding before or by any court,
regulatory authority or governmental agency or body pending or, to the best
knowledge of either the Holding Company or the Bank, threatened, which would
reasonably be expected to materially and adversely affect the Conversion, the
performance of this Agreement, or the consummation of the transactions
contemplated in the Plan as described in the Registration Statement, or which
would reasonably be expected to result in any material adverse change in the
financial condition or in the earnings, capital, properties or business affairs
of the Holding Company and the Bank considered as one enterprise.
(t) The Bank has received an opinion of its special counsel, Silver,
Freedman & Taff, L.L.P. with respect to the federal income tax consequences of
the Conversion, as described in the Registration Statement and the Prospectus,
and an opinion from Crowe, Chizek and Company with respect to the Illinois
income tax consequences of the Conversion; and the facts and representations
upon which such opinions are based are truthful, accurate and complete, and
neither the Bank nor the Holding Company will take any action inconsistent
therewith.
(u) The Holding Company and the Bank have timely filed all required
federal and state tax returns, have paid all taxes that have become due and
payable in respect of such returns, except where permitted to be extended, have
made adequate reserves
-10-
<PAGE>
for similar future tax liabilities and no deficiency has been asserted with
respect thereto by any taxing authority.
(v) No approval, authorization, consent or other order of any
regulatory or supervisory or other public authority is required for the
execution and delivery by the Holding Company and the Bank of this Agreement, or
the issuance of the Shares, except for the approval of the OTS and the
Commission (which have been received) and any necessary qualification,
notification, or registration or exemption under the securities or blue sky laws
of the various states in which the shares are to be offered and except as may be
required under the rules and regulations of the NASD and/or the Nasdaq.
(w) The Holding Company and the Bank have made appropriate arrangements
for placing the funds received from subscriptions for Shares in special interest
bearing accounts with the Bank until all Shares are sold and paid for, with
provision for refund to the purchasers in the event that the Conversion is not
completed for whatever reason or for delivery to the Holding Company if all
Shares are sold.
(x) Prior to the Conversion, the Bank was not authorized to issue
shares of capital stock and neither the Holding Company nor the Bank has: (i)
issued any securities within the last 18 months (except for notes to evidence
other bank loans and reverse repurchase agreements or other liabilities); (ii)
had any material dealings with respect to sales of securities within the 12
months prior to the date hereof with any member of the NASD, or any person
related to or associated with such member, other than discussions and meetings
relating to the proposed Offering and routine purchases and sales of U.S.
government and agency and other securities; (iii) entered into a financial or
management consulting agreement except as contemplated hereunder; or (iv)
engaged any intermediary between the Agent and the Holding Company and the Bank
in connection with the offering of Shares, and no person is being compensated in
any manner for such service.
(y) To the best knowledge of the Holding Company and the Bank, neither
the Holding Company, the Bank nor the employees of the Holding Company or the
Bank have made any payment of funds of the Holding Company or the Bank as a loan
to any person for the purchase of the Shares.
Any certificates signed by an officer of the Holding Company or the
Bank and delivered to the Agent or its counsel that refer to this Agreement
shall be deemed to be a representation and warranty by the Holding Company or
the Bank to the Agent as to the matters covered thereby with the same effect as
if such representation and warranty were set forth herein.
Section 6B. Representations and Warranties of the Agent. The Agent
represents and warrants to the Holding Company and the Bank that:
-11-
<PAGE>
(a) The Agent is a corporation and is validly existing in good standing
under the laws of the State of Ohio with full power and authority to provide the
services to be furnished to the Bank and the Holding Company hereunder.
(b) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary action on the part of the Agent, and this Agreement has been duly
and validly executed and delivered by the Agent and is the legal, valid and
binding agreement of the Agent, enforceable in accordance with its terms.
(c) Each of the Agent and its employees, agents and representatives who
shall perform any of the services hereunder shall be duly authorized and
empowered, and shall have all licenses, approvals and permits necessary to
perform such services.
(d) The execution and delivery of this Agreement by the Agent, the
consummation of the transactions contemplated hereby and compliance with the
terms and provisions hereof will not conflict with, or result in a breach of,
any of the terms, provisions or conditions of, or constitute a default (or event
which with notice or lapse of time or both would constitute a default) under,
the certificate of incorporation of the Agent or any agreement, indenture or
other instrument to which the Agent is a party or by which it or its property is
bound.
(e) No action, suit, charge or proceeding is pending, or to the
knowledge of the Agent threatened, against the Agent which, if determined
adversely to the Agent, would have a material adverse effect upon the ability of
the Agent to perform obligations under this Agreement.
(f) No approval, authorization, consent or other order of any
regulatory or supervisory or other public authority is required for the
execution and delivery by the Agent of this Agreement, except as may have been
received.
Section 7A. Covenants of the Holding Company and the Bank. The Holding
Company and the Bank hereby jointly and severally covenant with the Agent as
follows:
(a) The Holding Company has filed the Registration Statement with the
Commission. The Holding Company will not, at any time after the date the
Registration Statement is declared effective, file any amendment or supplement
to the Registration Statement without providing the Agent and its counsel an
opportunity to review such amendment or file any amendment or supplement to
which amendment the Agent or its counsel shall reasonably object.
(b) The Bank has filed the Application with the OTS. The Bank will not,
at any time after the date the Application is approved, file any amendment or
supplement to the Application without providing the Agent and its counsel an
opportunity to review
-12-
<PAGE>
such amendment or supplement or file any amendment or supplement to which
amendment or supplement the Agent or its counsel shall reasonably object.
(c) The Holding Company and the Bank will use their best efforts to
cause any post-effective amendment to the Registration Statement to be declared
effective by the Commission and any post-effective amendment to the Application
to be approved by the OTS, and will immediately upon receipt of any information
concerning the events listed below notify the Agent (i) when the Registration
Statement, as amended, has become effective; (ii) when the Application, as
amended, has been approved by the OTS; (iii) of the receipt of any comments from
the Commission, the OTS, the FDIC or any other governmental entity with respect
to the Conversion or the transactions contemplated by this Agreement; (iv) of
any request by the Commission, the OTS, the FDIC or any other governmental
entity for any amendment or supplement to the Registration Statement or the
Application or for additional information; (v) of the issuance by the
Commission, the OTS, the FDIC or any other governmental agency of any order or
other action suspending the Offering or the use of the Registration Statement or
the Prospectus or any other filing of the Holding Company and the Bank under the
Conversion Regulations or other applicable law, or the threat of any such
action; (vi) of the issuance by the Commission, the OTS, the FDIC or any state
authority of any stop order suspending the effectiveness of the Registration
Statement or of the initiation or threat of initiation or threat of any
proceedings for that purpose; or (vii) of the occurrence of any event mentioned
in paragraph (g) below. The Holding Company and the Bank will make every
reasonable effort to prevent the issuance by the Commission, the OTS, the FDIC
or any state authority of any such order and, if any such order shall at any
time be issued, to obtain the lifting thereof at the earliest possible time.
(d) The Holding Company and the Bank will provide the Agent and its
counsel notice of its intention to file, and reasonable time to review prior to
filing any amendment or supplement to the Holding Company Application and will
not file any such amendment or supplement to which the Agent shall reasonably
object or which shall be reasonably disapproved by its counsel.
(e) The Holding Company and the Bank will deliver to the Agent and to
its counsel conformed copies of each of the following documents, with all
exhibits: the Application and the Holding Company Application, as originally
filed and of each amendment or supplement thereto, and the Registration
Statement, as originally filed and each amendment thereto. Further, the Holding
Company and the Bank will deliver such additional copies of the foregoing
documents to counsel to the Agent as may be required for any NASD filings. In
addition, the Holding Company and the Bank will also deliver to the Agent such
number of copies of the Prospectus, as amended or supplemented, as the Agent may
reasonably request.
(f) The Holding Company and the Bank will comply in all material
respects with any and all terms, conditions, requirements and provisions with
respect to the Conversion and the transactions contemplated thereby imposed by
the Commission, by
-13-
<PAGE>
applicable state law and regulations, and by the 1933 Act, the Securities
Exchange Act of 1934 (the "1934 Act") and the rules and regulations of the
Commission promulgated under such statutes, to be complied with prior to or
subsequent to the Closing Date; and when the Prospectus is required to be
delivered, the Holding Company and the Bank will comply in all material
respects, at their own expense, with all material requirements imposed upon them
by the OTS, the Conversion Regulations (except as modified or waived in writing
by the OTS), the FDIC, the Commission, by applicable state law and regulations
and by the 1933 Act, the 1934 Act and the rules and regulations of the
Commission promulgated under such statutes, in each case as from time to time in
force, so far as necessary to permit the continuance of sales or dealing in
shares of Common Stock during such period in accordance with the provisions
hereof and the Prospectus.
(g) If any event relating to or affecting the Holding Company or the
Bank shall occur, as a result of which it is necessary, in the reasonable
opinion of counsel for the Holding Company or the Bank or for the Agent, to
amend or supplement the Registration Statement or the Prospectus in order to
make them not misleading in light of the circumstances existing at the time of
its use, the Holding Company and the Bank will, at their expense, forthwith
prepare, file with the Commission and the OTS, and furnish to the Agent, a
reasonable number of copies of an amendment or amendments of, or a supplement or
supplements to, the Registration Statement and the Prospectus (in form and
substance satisfactory to counsel for the Agent after a reasonable time for
review) which will amend or supplement the Registration Statement and/or the
Prospectus so that as amended or supplemented it will not contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in light of the circumstances existing at the
time, not misleading. For the purpose of this subsection, the Holding Company
and the Bank each will furnish such information with respect to itself as the
Agent may from time to time reasonably request.
(h) Pursuant to the terms of the Plan, the Holding Company will
endeavor in good faith, in cooperation with the Agent, to register or to qualify
the Shares for offering and sale under the applicable securities laws of the
jurisdictions in which the Offering will be conducted; provided, however, that
the Holding Company shall not be obligated to file any general consent to
service of process or to qualify to do business in any jurisdiction in which it
is not so qualified. In each jurisdiction where any of the Shares shall have
been registered or qualified as above provided, the Holding Company will make
and file such statements and reports in each year as are or may be required by
the laws of such jurisdictions.
(i) The liquidation account for the benefit of account holders as of
March 31, 1995 and September 30, 1996 will be duly established and maintained in
accordance with the requirements of the OTS, and such Eligible Account Holders
and Supplemental Eligible Account Holders who continue to maintain their savings
account in the Bank will have an inchoate interest in their pro rata portion of
the liquidation account which
-14-
<PAGE>
shall have a priority superior to that of the holders of shares of Common Stock
in the event of a complete liquidation of the Bank.
(j) The Holding Company and the Bank will not sell or issue, contract
to sell or otherwise dispose of, for a period of 90 days after the date hereof,
without the Agent's prior written consent, which consent shall not be
unreasonably withheld, any shares of Common Stock other than in connection with
any plan or arrangement described in the Prospectus.
(k) For the period of three years from the date of this Agreement, the
Holding Company will furnish to the Agent upon request (i) a copy of each report
of the Holding Company furnished to or filed with the Commission under the 1934
Act or any national securities exchange or system on which any class of
securities of the Holding Company is listed or quoted, (ii) a copy of each
report of the Holding Company mailed to holders of Common Stock or
non-confidential report filed with the Commission or the OTS or any other
supervisory or regulatory authority or any national securities exchange or
system on which any class of the securities of the Holding Company is listed or
quoted, and (iii) from time to time, such other publicly available information
concerning the Holding Company and the Bank as the Agent may reasonably request.
(l) The Holding Company and the Bank will use the net proceeds from the
sale of the Common Stock in the manner set forth in the Prospectus under the
caption "Use of Proceeds."
(m) Prior to the Closing Date, the Holding Company and the Bank will
inform the Agent of any event or circumstances of which it is aware as a result
of which the Registration Statement and/or Prospectus, as then supplemented or
amended, would include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading.
(n) The Holding Company and the Bank will distribute the Prospectus or
other offering materials in connection with the offering and sale of the Common
Stock only in accordance with the Conversion Regulations, the 1933 Act and the
1934 Act and the rules and regulations promulgated under such statutes, and the
laws of any state in which the shares are qualified for sale.
(o) The Holding Company shall register its Common Stock under Section
12(g) of the 1934 Act, concurrent with the effective date of the Registration
Statement. The Holding Company shall maintain the effectiveness of such
registration for not less than three years or such shorter period as permitted
by the OTS.
(p) For so long as the Holding Company's Common Stock is registered
under the 1934 Act, the Holding Company will furnish to its stockholders as soon
as practicable after the end of each fiscal year such reports and other
information as are required to be furnished to its stockholders under the 1934
Act (including consolidated
-15-
<PAGE>
financial statements of the Holding Company and its subsidiaries, certified by
independent public accountants).
(q) The Holding Company will comply with the provisions of Section
11(a) of the 33 Act and Rule 158 thereunder.
(r) The Holding Company will file with the Commission such reports on
Form SR as may be required pursuant to Rule 463 under the 1933 Act.
(s) The Holding Company will use its best efforts to obtain approval
for and maintain quotation of the Common Stock on the Nasdaq National Market
effective on or prior to the Closing Date.
(t) The Bank will maintain appropriate arrangements for depositing all
funds received from persons mailing subscriptions for or orders to purchase
Shares in the Offering on an interest bearing basis at the rate described in the
Prospectus until the Closing Date and satisfaction of all conditions precedent
to the release of the Bank's obligation to refund payments received from persons
subscribing for or ordering Shares in the Offering in accordance with the Plan
as described in the Prospectus or until refunds of such funds have been made to
the persons entitled thereto or withdrawal authorizations canceled in accordance
with the Plan and as described in the Prospectus. The Bank will maintain such
records of all funds received to permit the funds of each subscriber to be
separately insured by the FDIC (to the maximum extent allowable) and to enable
the Bank to make the appropriate refunds of such funds in the event that such
refunds are required to be made in accordance with the Plan and as described in
the Prospectus.
(u) The Holding Company will promptly register as a savings and loan
holding company under the HOLA.
(v) The Holding Company and the Bank will take such actions and furnish
such information as are reasonably requested by the Agent in order for the Agent
to ensure compliance with the "Interpretation of the Board of Governors of the
NASD on Free Riding and Withholding."
(w) The Holding Company and the Bank will conduct their businesses in
compliance in all material respects with all applicable federal and state laws,
rules, regulations, decisions, directives and orders including, all decisions,
directives and orders of the Commission, the OTS and the FDIC.
(x) The Bank will not amend the Plan without notifying the Agent prior
thereto.
(y) The Holding Company shall provide the Agent with any information
necessary to carry out the allocation of the Shares in the event of an
oversubscription and such information shall be accurate and reliable.
-16-
<PAGE>
(z) The Holding Company will not deliver the Shares until the Holding
Company and the Bank have satisfied or caused to be satisfied each condition set
forth in Section 9A hereof, unless such condition is waived in writing by the
Agent.
Section 7B. Covenant of the Agent. The Agent hereby covenants with the
Company and the Bank as follows:
(a) During the period when the Prospectus is used, the Agent will
comply, in all material respects and at its own expense, with all requirements
imposed upon it by the OTS and, to the extent applicable, by the 1933 Act and
the rules and regulations promulgated thereunder.
(b) The Agent will distribute any Prospectus or offering materials in
connection with the offering and sale of the Common Stock only in accordance
with the Conversion Regulations and the requirements of the 1933 Act and 1934
Act and the rules and regulations promulgated thereunder; and
(c) The Agent shall perform the calculations process in connection with
the allocation of shares in the event of an over-subscription.
Section 8. Payment of Expenses. Whether or not the Conversion is
completed or the sale of the Shares by the Holding Company is consummated, the
Holding Company and the Bank will pay for all expenses incident to the
performance of this Agreement, including without limitation: (a) the preparation
and filing of the Application; (b) the preparation, printing, filing, delivery
and shipment of the Registration Statement, including the Prospectus, and all
amendments and supplements thereto; (c) all filing fees and expenses in
connection with the qualification or registration of the Shares for offer and
sale by the Holding Company under the securities or "blue sky" laws, including
without limitation filing fees, reasonable legal fees and disbursements of
counsel in connection therewith, and in connection with the preparation of a
blue sky law survey; (d) the filing fees of the NASD; and (e) the reasonable
expenses of the Agent, including without limitation, accounting, communications,
legal and travel expenses. Any such expense incurred by the Agent shall be
reimbursed by the Holding Company and the Bank. If this Agreement is terminated
in accordance with the provisions of Sections 3, 9, or 13, the Bank will pay the
Agent the fees earned pursuant to Section 4 and will reimburse the Agent for the
reasonable expenses of the Agent, including without limitation accounting,
communication, legal and travel expenses. Non-legal expenses shall not exceed
$5,000 without the prior approval of the Holding Company or the Bank. Legal fees
(including expenses and disbursements) shall not exceed $35,000.
Section 9A. Conditions to the Agent's Obligations. The obligations of
the Agent hereunder and the occurrence of the Closing and the Conversion are
subject to the condition that all representations and warranties and other
statements of the Holding Company and the Bank herein contained are at and as of
the commencement of the Offering and at and as of the Closing Date, true and
correct in all material respects, the
-17-
<PAGE>
condition that the Holding Company and the Bank shall have performed in all
material respects all of their obligations hereunder to be performed on or
before such dates and to the following further conditions:
(a) The Registration Statement shall have been declared effective by
the Commission and the Application approved by the OTS not later than 5:30 p.m.
on the date of this Agreement, and no stop order or other action suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act or proceedings therefor initiated or, to the Holding Company's or
Bank's best knowledge, threatened by the Commission or any state authority and
no order or other action suspending the authorization for use of the Prospectus
or the consummation of the Conversion shall have been issued or proceedings
therefor initiated or, to the Holding Company's or Bank's best knowledge,
threatened by the OTS, the Commission, or any other governmental body.
(b) At the Closing Date, the Agent shall have received:
(1) The favorable opinion, dated as of the Closing Date, of
Silver, Freedman & Taff, LLP, special counsel for the Holding Company and the
Bank, in form and substance satisfactory to counsel for the Agent to the effect
that:
(i) The Holding Company is a corporation duly organized
and validly existing and in good standing under the laws of the State of
Delaware, with corporate power and authority to own its properties and to
conduct its business as described in the Prospectus, and to our knowledge is
duly qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business requires such qualification and in which
the failure to qualify would have a material adverse effect on the financial
condition, earnings, capital, properties or business affairs of the Holding
Company.
(ii) The Bank is a duly organized and validly existing
federally chartered mutual savings bank and, at the Closing Date, upon
satisfaction of the conditions set forth in the Plan, will become a duly
organized and validly existing federally chartered stock savings bank with full
power and authority to own its properties and to conduct its business as
described in the Prospectus and to enter into this Agreement and perform its
obligations hereunder; the activities of the Bank as described in the Prospectus
are permitted by the rules, regulations and practices of the OTS; the issuance
and sale of the capital stock of the Bank to the Holding Company has been duly
and validly authorized by all necessary corporate action on the part of the
Holding Company and the Bank and, upon payment therefor in accordance with the
terms of the Plan, will be validly issued, fully paid and nonassessable; and
will be owned of record and beneficially by the Holding Company, free and clear
of any mortgage, pledge, lien, encumbrance, claim or restriction.
-18-
<PAGE>
(iii) The Bank is a member of the FHLB of Chicago and
the savings accounts of the Bank are insured by the FDIC up to the maximum
amount allowed by law and to such counsel's knowledge no proceedings for the
termination or revocation of such insurance are pending or threatened; and the
description of the liquidation account as set forth in the Prospectus under the
caption "The Conversion Effects of Conversion to Stock Form on Depositors and
Borrowers of the Bank Liquidation Rights" has been reviewed by such counsel and,
to the extent that such information constitutes matters of law or legal
conclusions, is accurate in all material respects.
(iv) Upon Conversion, the authorized, issued and
outstanding capital stock of the Holding Company and the Bank will be as set
forth in the Prospectus under the caption "Capitalization," and no shares of
Common Stock have been or will be issued and outstanding prior to the Closing
Date; the shares of Common Stock of the Holding Company to be subscribed for in
the Offering have been duly and validly authorized for issuance, and when issued
and delivered by the Holding Company pursuant to the Plan against payment of the
consideration calculated as set forth in the Plan, will be fully paid and
nonassessable; and the issuance of the shares of Common Stock is not subject to
preemptive rights, except for the subscription rights under the Plan.
(v) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action on the part of the Holding Company and the Bank; and
this Agreement constitutes a valid, legal and binding obligation of each of the
Holding Company and the Bank, enforceable in accordance with its terms, except
to the extent that the provisions of Sections 10 and 11 hereof may be
unenforceable as against public policy, and except to the extent that such
enforceability may be limited by bankruptcy laws, insolvency laws, or other laws
affecting the enforcement of creditors' rights generally, or the rights of
creditors of savings institutions insured by the FDIC (including the laws
relating to the rights of the contracting parties to equitable remedies).
(vi) The Plan has been duly adopted as required by the
directors of the Holding Company and the Bank and members of the Bank.
(vii) Subject to the satisfaction of the conditions to
the OTS's approval of the Conversion and the Holding Company Application to
acquire the Bank, no further approval, registration, authorization, consent or
other order of any federal regulatory agency, public board or body is required
in connection with the execution and delivery of this Agreement, the offer, sale
and issuance of the Shares and the consummation of the Conversion (other than
compliance with state securities or Blue Sky laws as to which such counsel need
express no opinion and other than as may be required under the rules and
regulations of the NASD or the Nasdaq System).
-19-
<PAGE>
(viii) The Application, including the Prospectus as
filed with the OTS, has been approved by the OTS. The OTS has issued its order
of approval under the savings and loan holding company provisions of the HOLA,
and the purchase by the Holding Company of all of the issued and outstanding
capital stock of the Bank has been authorized by the OTS and no action has been
taken, or to such counsel's knowledge is pending or threatened, to revoke any
such authorization or approval.
(ix) The Registration Statement has become effective
under the 1933 Act, no stop order suspending the effectiveness of the
Registration Statement has been issued, and to the best of such counsel's
knowledge no proceedings for that purpose have been instituted or threatened.
(x) The material tax consequences of the Conversion are
set forth in the Prospectus under the caption "the Conversion - Income Tax
Consequences". The information in the Prospectus under the caption "The
Conversion - Income Tax Consequences" has been reviewed by such counsel and
fairly describes such opinions rendered by Silver Freedman & Taff, L.L.P. and
Crowe, Chizek and Company to the Holding Company and the Bank with respect to
such matters.
(xi) The terms and provisions of the shares of Common
Stock conform to the description thereof contained in the Registration Statement
and the Prospectus and such description describes in all material respects the
rights of the holders thereof; the information in the Prospectus under the
captions "Restrictions on Acquisitions of Stock and Related Takeover Defensive
Provisions" and "Description of Capital Stock" to the extent that they
constitute matters of law or legal conclusions has been prepared by such counsel
and is accurate in all material respects; and the forms of certificates proposed
to be used to evidence the shares of Common Stock are in due and proper form.
(xii) At the time the Application, including the
Prospectus contained therein, was approved, the Application (as amended or
supplemented) complied as to form in all material respects with the requirements
of the Conversion Regulation and all applicable laws, rules and regulations and
decisions and orders of the OTS, except as modified or waived in writing by the
OTS, (other than the financial statements, notes to financial statements,
financial tables and other financial and statistical data included therein and
the appraisal valuation as to which counsel need express no opinion and other
than compliance with state securities or Blue Sky laws as to which such counsel
need express no opinion). To such counsel's knowledge, no person has sought to
obtain regulatory or judicial review of the final action of the OTS approving
the Application or in approving the Holding Company Application.
(xiii) At the time that the Registration Statement
became effective (i) the Registration Statement (as amended or supplemented)
(other than the financial statements, notes to financial statements, financial
tables or other financial and statistical data included therein and the
appraisal valuation as to which counsel need
-20-
<PAGE>
express no opinion), complied as to form in all material respects with the
requirements of the 1933 Act and the rules and regulations promulgated
thereunder; and (ii) the Prospectus (other than the financial statements, notes
to financial statements, financial tables and other financial and statistical
data included therein and the appraisal valuation, as to which counsel need
express no opinion) complied as to form in all material respects with the
requirements of the 1933 Act and the rules and regulations promulgated
thereunder, the Conversion Regulations, the rules, regulations and decisions and
orders of the OTS, except as modified or waived in writing by the OTS.
(xiv) To the best of such counsel's knowledge, there are
no legal or governmental proceedings pending, or threatened (i) asserting the
invalidity of this Agreement or, (ii) seeking to prevent the Conversion or the
offer, sale or issuance of the Shares.
(xv) The information in the Prospectus under the
captions "Regulation," "The Conversion" and "Legal Matters," to the extent that
it constitutes matters of law, summaries of legal matters, documents or
proceedings, or legal conclusions, has been prepared by such counsel and is
accurate in all material respects (except as to the financial statements and
other financial data included therein as to which such counsel need express no
opinion).
(xvi) To the best of counsel's knowledge, the Holding
Company and the Bank have obtained all material licenses, permits and other
governmental authorizations required for the conduct of their respective
businesses as described in the Registration Statement and the Prospectus, except
where the failure to obtain such licenses, permits and other governmental
authorizations would not have a material adverse effect on the financial
condition of the Holding Company or the Bank considered as one enterprise, or on
the earnings, capital, properties or business affairs of the Holding Company or
the Bank considered as one enterprise, and all such licenses, permits and other
governmental authorizations are in full force and effect and the Holding Company
and the Bank are in all material respects complying therewith.
(xvii) Neither the Holding Company nor the Bank is in
violation of its certificate of incorporation or its charter, respectively, or
its bylaws (and the Bank will not be in violation of its charter or bylaws in
stock form upon consummation of the Conversion) or to the best of such counsel's
knowledge, in violation of any material obligation, agreement, covenant or
condition contained in any material contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which it is a party or by which it
or its property may be bound, which violation would have a material adverse
effect on the financial condition of the Holding Company or the Bank considered
as one enterprise, or on the earnings, capital, properties or business affairs
of the Holding Company and the Bank considered as one enterprise; the execution
and delivery of this Agreement by the Holding Company and the Bank, the
incurrence of the obligations herein set forth and the consummation of the
transactions contemplated herein, will not materially conflict with, constitute
a material breach of, or default under,
-21-
<PAGE>
or result in the creation or imposition of any material lien, charge or
encumbrance upon any property or assets of the Holding Company or the Bank which
are material to their business considered as one enterprise, pursuant to any
contract, indenture, mortgage, loan agreement, note, lease or other instrument
to which the Holding Company or the Bank is a party or by which any of them may
be bound, or to which any of the property or assets of the Holding Company or
the Bank is subject. In addition, such action will not result in any material
violation of the provisions of the certificate of incorporation or bylaws of the
Holding Company or the Bank or any material violation of any applicable law,
act, regulation or to such counsel's knowledge, order or court order, writ,
injunction or decree.
(xviii) To the best of counsel's knowledge, the Holding
Company and the Bank are not in violation in any material respect of any
directive from the OTS or the FDIC to make any material change in the method of
conducting their business.
(2) The letter of Silver, Freedman & Taff, L.L.P., special
counsel for the Holding Company and the Bank, in form and substance to the
effect that:
In addition, during the preparation of the Registration Statement and
the Prospectus, Silver, Freedman & Taff participated in conferences with certain
officers of and other representatives of the Bank and the Holding Company,
counsel to the Agent, representatives of the independent public accountants for
the Bank and the Holding Company and representatives of the Agent at which the
contents of the Registration Statement and the Prospectus and related matters
were discussed and, although Silver, Freedman & Taff is not passing upon and
does not assume the accuracy of the statements contained in the Registration
Statement and Prospectus, on the basis of the foregoing without independent
verification (relying as to materiality as to factual matters on certificates of
officers and other factual representations by the Bank and the Holding Company),
nothing has come to Silver, Freedman & Taff's attention that caused Silver,
Freedman & Taff to believe that the Registration Statement at the time it was
declared effective by the Commission or the Prospectus as of its date, contained
or contains any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that counsel need express no comment or opinion
with respect to the financial statements, schedules and other financial and
statistical data included, or statistical or appraisal methodology employed, in
the Registration Statement or Prospectus).
The opinion shall be limited to matters governed by the laws of the
United States or the State of Delaware. In rendering such opinion, such counsel
may rely (A) as to matters involving the application of laws of any jurisdiction
other than the United States or Delaware, to the extent such counsel deems
proper and specified in such opinion, upon the opinion of other counsel of good
standing, as long as such other opinion indicates that the Agent may rely on the
opinion, and (B) as to matters of fact, to the extent such counsel deems proper,
on certificates of responsible officers of the Company
-22-
<PAGE>
and the Bank and public officials; provided copies of any such opinion(s) or
certificates of public officials are delivered to you together with the opinion
to be rendered hereunder by special counsel to the Company and the Bank. The
opinion of such counsel for the Company shall state that it has no reason to
believe that you are not justified in relying thereon.
(3) The favorable opinion, dated as of the Closing Date, of
McDermott, Will & Emery, counsel for the Agent, with respect to such matters as
the Agent may reasonably require, such opinion may rely as to matters of fact,
upon certificates of officers and directors of the Holding Company and the Bank
delivered pursuant hereto or as such counsel may reasonably request.
(c) Concurrently with the execution of this Agreement, the Agent shall
receive a letter from Crowe, Chizek and Company, dated the date hereof and
addressed to the Agent, (i) such letter confirming that Crowe, Chizek and
Company is a firm of independent public accountants within the meaning of the
Code of Professional Ethics of the American Institute of Certified Public
Accountants, the 1933 Act and the regulations promulgated thereunder and 12
C.F.R. Sections 571.2(c)(3), and no information concerning its relationship with
or interests in the Holding Company or the Bank is required by the Application
or Item 10 of the Registration Statement, and stating in effect that in Crowe,
Chizek and Company's opinion the financial statements of the Bank included in
the Prospectus comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act, the 1934 Act and the related published
rules and regulations of the Commission thereunder and the Conversion
Regulations and generally accepted accounting principles; (ii) stating in effect
that, on the basis of certain agreed upon procedures (but not an audit
examination in accordance with generally accepted auditing standards) consisting
of a reading of the latest available unaudited interim financial statements of
the Bank prepared by the Bank, a reading of the minutes of the meetings of the
Board of Directors and members of the Bank, a review of interim financial
information in accordance with Statement on Auditing Standards No. 71, and
consultations with officers of the Bank responsible for financial and accounting
matters, nothing came to their attention which caused them to believe that: (A)
such unaudited financial statements, including Recent Developments, if any, are
not in conformity with generally accepted accounting principles applied on a
basis substantially consistent with that of the audited financial statements
included in the Prospectus; or (B) during the period from the date of the latest
unaudited consolidated financial statements included in the Prospectus to a
specified date not more than five business days prior to the date hereof, there
was any material increase in borrowings (defined as advances from the FHLB of
Chicago, securities sold under agreements to repurchase and any other form of
debt other than deposits) of the Holding Company or the Bank (other than as
disclosed in the Prospectus or in the ordinary course of business); or (C) there
was any decrease in retained earnings of the Bank at the date of such letter as
compared with amounts shown in the latest unaudited statement of condition
included in the Prospectus or there was any decrease in net income or net
interest income of the Bank for the number of full months commencing immediately
-23-
<PAGE>
after the period covered by the latest unaudited income statement included in
the Prospectus and ended on the latest month end prior to the date of the
Prospectus or in such letter as compared to the corresponding period in the
preceding year; and (iii) stating that, in addition to the audit examination
referred to in its opinion included in the Prospectus and the performance of the
procedures referred to in clause (ii) of this subsection (f), they have compared
with the general accounting records of the Holding Company and/or the Bank, as
applicable, which are subject to the internal controls of the Holding Company
and/or the Bank, as applicable, accounting system and other data prepared by the
Holding Company and/or the Bank, as applicable, directly from such accounting
records, to the extent specified in such letter, such amounts and/or percentages
set forth in the Prospectus as the Agent may reasonably request, and they have
found such amounts and percentages to be in agreement therewith (subject to
rounding).
(d) At the Closing Date, the Agent shall receive letters from Crowe,
Chizek and Company dated the Closing Date, addressed to the Agent, confirming
the statements made by its letter delivered by it pursuant to subsection (f) of
this Section 9A, the "specified date" referred to in clause (ii)(B) thereof to
be a date specified in such letter, which shall not be more than five business
days prior to the Closing Date.
(e) At the Closing Date, counsel to the Agent shall have been furnished
with such documents and opinions as counsel for the Agent may require for the
purpose of enabling it to advise the Agent with respect to the issuance and sale
of the Common Stock as herein contemplated and related proceedings, or in order
to evidence the accuracy of any of the representations and warranties, or the
fulfillment of any of the conditions herein contained.
(f) At the Closing Date, the Agent shall receive a certificate of the
Chief Executive Officer and Chief Financial Officer of each of the Holding
Company and the Bank, dated the Closing Date, to the effect that (i) they have
carefully examined the Prospectus and at the time the Prospectus became
authorized for final use, the Prospectus did not contain an untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; (ii) there has not been, since the respective dates as of
which information is given in the Prospectus, any material adverse change in the
financial condition or in the earnings, capital, properties, business prospects
or business affairs of the Holding Company or the Bank, considered as one
enterprise, whether or not arising in the ordinary course of business; (iii) the
representations and warranties contained in Section 6A of this Agreement are
true and correct with the same force and effect as though made at and as of the
Closing Date; (iv) the Holding Company and the Bank have complied in all
material respects with all material agreements and satisfied all conditions on
its part to be performed or satisfied at or prior to the Closing Date including
the conditions contained in this Section 9A; (v) no stop order has been issued
or, to the best of their knowledge, is threatened, by the Commission or any
other governmental body; (vi) no order suspending the Offering, the
-24-
<PAGE>
Conversion, the acquisition of all of the shares of the Bank by the Holding
Company or the effectiveness of the Prospectus has been issued and to the best
of their knowledge, no proceedings for any such purpose have been initiated or
threatened by the OTS, the Commission, the FDIC, or any other federal or state
authority; (vii) to the best of their knowledge, no person has sought to obtain
regulatory or judicial review of the action of the OTS in approving the Plan or
to enjoin the Conversion.
(g) At the Closing Date, the Agent shall receive a letter from Keller &
Company, Inc. dated as of the Closing Date, confirming its appraisal.
(h) The Holding Company or the Bank shall not have sustained since the
date of the latest audited financial statements included in the Registration
Statement and Prospectus, any material loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth in the Registration Statement and the
Prospectus, and since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there shall not have been any
material change in the long-term debt of the Holding Company or the Bank other
than debt incurred in relation to the purchase of Shares by the Holding
Company's or the Bank's tax-qualified employee plans, or any material change, or
any development involving a prospective material change in or affecting the
general affairs of, management, financial position, stockholders' equity or
results of operations of the Holding Company or the Bank, otherwise than as set
forth or contemplated in the Registration Statement and the Prospectus, the
effect of which, in any such case described above, is in the Agent's reasonable
judgment sufficiently material and adverse as to make it impracticable or
inadvisable to proceed with the Offering or the delivery of the Shares on the
terms and in the manner contemplated in the Prospectus.
(i) Prior to and at the Closing Date: (i) in the reasonable opinion of
the Agent, there shall have been no material adverse change in the financial
condition or in the earnings, capital, properties or business affairs of the
Holding Company or the Bank independently, or of the Holding Company and the
Bank, considered as one enterprise, from that as of the latest dates as of which
such condition is set forth in the Prospectus, except as referred to therein;
(ii) there shall have been no material transaction entered into by the Holding
Company and the Bank, considered as one enterprise, from the latest date as of
which the financial condition of the Holding Company or the Bank is set forth in
the Prospectus other than transactions referred to or contemplated therein;
(iii) the Holding Company or the Bank shall not have received from the OTS or
the FDIC any direction (oral or written) to make any material change in the
method of conducting their business with which it has not complied in all
material respects (which direction, if any, shall have been disclosed to the
Agent) and which would reasonably be expected to have a material and adverse
effect on the condition (financial or otherwise) or on the earnings, capital,
properties or business affairs of the Holding Company or the Bank considered as
one enterprise; (iv) neither the Holding Company nor the Bank shall have been in
default (nor shall an event have occurred which, with notice or lapse
-25-
<PAGE>
of time or both, would constitute a default) under any provision of any
agreement or instrument relating to any material outstanding indebtedness; (v)
no action, suit or proceedings, at law or in equity or before or by any federal
or state commission, board or other administrative agency, shall be pending or,
to the knowledge of the Holding Company or the Bank, threatened against the
Holding Company or the Bank or affecting any of their properties wherein an
unfavorable decision, ruling or finding would reasonably be expected to have a
material and adverse effect on the financial condition or on the earnings,
capital, properties or business affairs of the Holding Company or the Bank,
considered as one enterprise; and (vi) the Shares have been qualified or
registered for offering and sale under the securities or blue sky laws of the
jurisdictions as to which the Holding Company and the Agent shall have agreed.
(j) At or prior to the Closing Date, the Agent shall receive (i) a copy
of the letter from the OTS authorizing the use of the Prospectus and approving
the Application, (ii) a copy of the order from the Commission declaring the
Registration Statement effective, (iii) a copy of certificate of existence for
the Bank from the OTS, (iv) a certificate of good standing from the State of
Delaware evidencing the good standing of the Holding Company and (v) a copy of
the letter from the OTS approving the Holding Company Application.
(k) As soon as available after the Closing Date, the Agent shall
receive a certified copy of the Bank's stock charter.
(l) Subsequent to the date hereof, there shall not have occurred any of
the following: (i) a suspension or limitation in trading in securities generally
on the New York Stock Exchange or American Stock Exchange or in the
over-the-counter market, or quotations halted generally on the Nasdaq Stock
Market, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices for securities have been required by either of such exchanges
or the NASD or by order of the Commission or any other governmental authority;
(ii) a general moratorium on the operations of commercial banks or other
federally-insured financial institutions or general moratorium on the withdrawal
of deposits from commercial banks or other federally-insured financial
institutions declared by either federal or state authorities; (iii) the
engagement by the United States in hostilities which have resulted in the
declaration, on or after the date hereof, of a national emergency of war; or
(iv) a material decline in the price of equity or debt securities if the effect
of any of (i) through (iv) herein, in the Agent's reasonable judgment, makes it
impracticable or inadvisable to proceed with the Offering or the delivery of the
Shares on the terms and in the manner contemplated in the Registration Statement
and the Prospectus.
Section 9B. Conditions to the Holding Company and the Bank's
Obligations.
The obligations of the Holding Company and the Bank hereunder are
subject to the accuracy of the representations, warranties and covenants of the
Agent, to the
-26-
<PAGE>
performance by the Agent of its obligations hereunder and to the satisfaction of
the conditions contained in Paragraph (a) of Section 9A hereunder.
Section 10. Indemnification.
(a) The Holding Company and the Bank agree to indemnify and hold
harmless the Agent, its officers, directors, agents, servants and employees and
each person, if any, who controls the Agent within the meaning of Section 15 of
the 1933 Act of Section 20(a) of the 1934 Act, against any and all loss,
liability, claim, damage or expense whatsoever (including but not limited to
settlement expenses and expenses and costs related to pursuing and enforcing the
indemnification provisions of Sections 10 and 11 of the Agreement), joint or
several, that the Agent or any of them may suffer or to which the Agent and any
such persons may become subject under all applicable federal and state laws or
otherwise, and to promptly reimburse the Agent and any such persons upon written
demand for any reasonable expenses (including fees and disbursements of counsel)
incurred by the Agent or any of them in connection with investigating, preparing
or defending any actions, proceedings or claims (whether commenced or
threatened) to the extent such losses, claims, damages, liabilities or actions
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment or supplement thereto), preliminary or final Prospectus (or any
amendment or supplement thereto), the Application, or any blue sky application
or other instrument or document of the Holding Company or the Bank or based upon
written information supplied by the Holding Company or the Bank filed in any
state or jurisdiction to register or qualify any or all of the Shares under the
securities laws thereof (collectively, the "Blue Sky Application"), or any
application or other document, advertisement, or communication ("Sales
Information") prepared, made or executed by or on behalf of the Holding Company
or the Bank with its consent or based upon written information furnished by or
on behalf of the Holding Company or the Bank, whether or not filed in any
jurisdiction in order to qualify or register the Shares under the securities
laws thereof; (ii) arise out of or based upon the omission or alleged omission
to state in any of the foregoing documents or information, a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; (iii)
arise from any theory of liability whatsoever relating to or arising from or
based upon the Registration Statement (or any amendment or supplement thereto),
preliminary or final Prospectus (or any amendment or supplement thereto), the
Application, any Blue Sky Application or Sales Information or other
documentation distributed in connection with the Conversion; provided, however,
that no indemnification is required under this paragraph (a) to the extent such
losses, claims, damages, liabilities or actions arise out of or are based upon
any untrue material statements or alleged untrue material statements in, or
material omission or alleged material omission from, the Registration Statement
(or any amendment or supplement thereto) or the preliminary or final Prospectus
(or amendment or supplement thereto), the Application, the Blue Sky Application
or Sales Information or other documentation distributed in connection with the
Conversion made in reliance upon and in conformity
-27-
<PAGE>
with written information furnished to the Holding Company or the Bank by the
Agent with respect to the Agent expressly for use in the Registration Statement
(or any amendment or supplement thereto) or Prospectus (or any amendment or
supplement thereto) under the caption "The Conversion - Marketing Arrangements"
therein or statistical information regarding the Holding Company prepared by the
Agent for use in the Sales information except for information derived from the
Prospectus. Provided further, that the Holding Company and the Bank will not be
responsible for any loss, liability, claim, damage or expense to the extent they
result primarily from actions taken or omitted to be taken by the Agent in bad
faith or from the Agent's negligence, and the Agent agrees to repay to the
Holding Company any amounts advanced by it to the Agent in connection with
matters as to which the Agent is found not to be entitled to indemnification
hereunder. Notwithstanding the foregoing, the indemnification provided for in
this paragraph (a) shall not apply to the Bank to the extent that such
indemnification by the Bank would constitute a covered transaction under Section
23A of the Federal Reserve Act.
(b) The Agent agrees to indemnify and hold harmless the Holding
Company, its directors and officers, agents, servants and employees and each
person, if any, who controls the Holding Company within the meaning of Section
15 of the 1933 Act or Section 20(a) of the 1934 Act against any and all loss,
liability, claim, damage or expense whatsoever (including but not limited to
settlement expenses), joint or several which they, or any of them, in connection
with investigating, preparing or defending any actions, proceedings or claims
(whether commenced or threatened) to the extent such losses, claims, damages,
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment of supplement thereto), the Application, the Holding
Company Application or any Blue Sky Application or Sales Information or are
based upon the omission or alleged omission to state in any of the foregoing
documents a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Agent's obligations under this
Section 10(b) shall exist only if and only to the extent that such untrue
statement or alleged untrue statement was made in, or such material fact or
alleged material fact was omitted from, the Registration Statement (or any
amendment or supplement thereto) or the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to the Holding Company by the Agent expressly for use under the
caption "The Conversion - Marketing Arrangements" therein or statistical
information regarding the Holding Company prepared by the Agent for use in the
Sales Information except for information derived from the Prospectus.
(c) Each indemnified party shall give prompt written notice to each
indemnifying party of any action, proceeding, claim (whether commenced or
threatened), or suit instituted against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve it from any liability which it may have on account of this Section 10 or
otherwise. An indemnifying party may participate
-28-
<PAGE>
at its own expense in the defense of such action. In addition, if it so elects
within a reasonable time after receipt of such notice, an indemnifying party,
jointly with any other indemnifying parties receiving such notice, may assume
defense of such action with counsel chosen by it and approved by the indemnified
parties that are defendants in such action, unless such indemnified parties
reasonably object to such assumption on the ground that there may be legal
defenses available to them that are different from or in addition to those
available to such indemnifying party. If an indemnifying party assumes the
defense of such action, the indemnifying parties shall not be liable for any
fees and expenses of counsel for the indemnified parties incurred thereafter in
connection with such action, proceeding or claim, other than reasonable costs of
investigation. In no event shall the indemnifying parties be liable for the fees
and expenses of more than one separate firm of attorneys (and any special
counsel that said firm may retain) for all indemnified parties in connection
with any one action, proceeding or claim or separate but similar or related
actions, proceedings or claims in the same jurisdiction arising out of the same
general allegations or circumstances.
(d) The agreements contained in this Section 10 and in Section 11
hereof and the representations and warranties of the Holding Company and the
Bank set forth in this Agreement shall remain operative and in full force and
effect regardless of: (i) any investigation made by or on behalf of the Agent or
their officers, directors or controlling persons, agents or employees or by or
on behalf of the Holding Company or the Bank or any officers, directors or
controlling persons, agents or employees of the Holding Company or the Bank or
any controlling person, director or officer of the Holding Company or the Bank;
(ii) delivery of and payment hereunder for the Shares; or (iii) any termination
of this Agreement.
Section 11. Contribution.
(a) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Section 10 is due in
accordance with its terms but is for any reason held by a court to be
unavailable from the Holding Company and the Bank, or the Agent, as the case may
be, the Holding Company and the Bank, or the Agent, as the case may be, shall
contribute to the aggregate losses, claims, damages and liabilities (including
any investigation, legal and other expenses incurred in connection therewith and
any amount paid in settlement of any action, suit or proceeding of any claims
asserted, but after deducting any contribution received by the Holding Company
and the Bank or the Agent, as the case may be, from persons other than the other
party thereto, who may also be liable for contribution) in such proportion so
that the Agent is responsible for that portion represented by the percentage
that the fees paid to the Agent pursuant to Section 4 of this Agreement (not
including expenses) bears to the gross proceeds received by the Holding Company
from the sale of the Shares in the Offering and the Holding Company and the Bank
shall be responsible for the balance. If, however, the allocation provided above
is not permitted by applicable law or if the indemnified party failed to give
the notice required under Section 10 above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified
-29-
<PAGE>
party in such proportion as is appropriate to reflect not only such relative
fault of the Holding Company and the Bank on the one hand and the Agent on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions, proceedings or claims in
respect thereof), but also the relative benefits received by the Holding Company
and Bank on the one hand and the Agent on the other from the offering, as well
as any other relevant equitable considerations. The relative benefits received
by the Holding Company and the Bank on the one hand and the Agent on the other
shall be deemed to be in the same proportion as the total gross proceeds from
the Offering (before deducting expenses) received by the Holding Company bear to
the total fees (not including expenses) received by the Agent. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Holding
Company and/or the Bank on the one hand or the Agent on the other and the
parties relative intent, good faith, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Holding
Company and the Agent agrees that it would not be just and equitable if
contribution pursuant to this Section 11 were determined by pro-rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 11. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or action, proceedings or claims in respect thereof) referred to
above in this Section 11 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action, proceeding or claim. It is expressly agreed that
the Agent shall not be liable for any loss, liability, claim, damage or expense
or be required to contribute any amount which in the aggregate exceeds the
amount paid (excluding reimbursable expenses) to the Agent under this Agreement.
It is understood that the above-stated limitation on the Agent's liability is
essential to the Agent and that the Agent would not have entered into this
Agreement if such limitation had not been agreed to by the parties to this
Agreement. No person found guilty of any fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not found guilty of such fraudulent misrepresentation.
The obligations of the Holding Company, the Bank, and the Agent under this
Section 11 and under Section 10 shall be in addition to any liability which the
Holding Company, the Bank, and the Agent may otherwise have. For purposes of
this Section 11, each of the Agent's, the Holding Company's and the Bank's
officers and directors and each person, if any, who controls the Agent or the
Holding Company and the Bank within the meaning of the 1933 Act and the 1934 Act
shall have the same rights to contribution as the Holding Company, the Bank and
the Agent. Any party entitled to contribution, promptly after receipt of notice
of commencement of any action, suit, claim or proceeding against such party in
respect of which a claim for contribution may be made against another party
under this Section 11, will notify such party from whom contribution may be
sought, but the omission to so notify such party shall not relieve the party
from whom contribution may be sought from any other obligation it may have
hereunder or otherwise than under this Section 11.
-30-
<PAGE>
Section 12. Representations, Warranties and Indemnities to Survive
Delivery. All representations, warranties and indemnities and other statements
contained in this Agreement, or contained in certificates of officers of the
Holding Company and the Bank or the Agent submitted pursuant hereto, shall
remain operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of the
Agent or controlling person, or by or on behalf of the Holding Company and the
Bank and shall survive the issuance of the Shares, and any legal representative,
successor or assign of the Agent, the Bank and the Holding Company, and any
indemnified person shall be entitled to the benefit of the respective
agreements, indemnities, warranties and representations.
Section 13. Termination. The Agent may terminate this Agreement by
giving the notice indicated below in this Section at any time after this
Agreement becomes effective as follows:
(a) In the event the Holding Company fails to sell the minimum number
of the Shares within the period specified in accordance with the provisions of
the Plan or as required by the Conversion Regulations and applicable law, this
Agreement shall terminate upon refund by the Bank to each person who has
subscribed for or ordered any of the Shares the full amount which it may have
received from such person, together with interest in accordance with Section 3,
and no party to this Agreement shall have any obligation to the other hereunder,
except as set forth in Sections 3, 4, 8, 10 and 11 hereof.
(b) If any of the conditions specified in Section 9A shall not have
been fulfilled when and as required by this Agreement, or by the Closing Date,
or waived in writing by the Agent, this Agreement and all of the Agent's
obligations hereunder may be canceled by the Agent by notifying the Bank of such
cancellation in writing or by telegram at any time at or prior to the Closing
Date, and, any such cancellation shall be without liability of any party to any
other party except as otherwise provided in Sections 3, 4, 8, 10 and 11 hereof.
(c) If the Agent elects to terminate this Agreement as provided in this
section, the Holding Company and the Bank shall be notified by the Agent as
provided in Section 14 hereof.
Section 14. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Agent
shall be directed to Charles Webb & Company, A Division of Keefe, Bruyette &
Woods, Inc. at 211 Bradenton Avenue, Dublin, Ohio 43017, Attention: Mr. Charles
R. Webb (with a copy to Stephen A. Tsoris, P.C., McDermott, Will & Emery, 227
West Monroe Street, Chicago, Illinois 60606-5096), and notices to the Holding
Company and the Bank shall be directed to 4800 South Pulaski Road, Chicago,
Illinois 60632-4195, Attention: Kimberly P. Rooney,
-31-
<PAGE>
President and Chief Executive Officer (with a copy to Kip A. Weissman, P.C.,
Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., Washington, D.C.
20005).
Section 15. Parties. This Agreement shall inure to the benefit of and
be binding upon the Agent and the Holding Company and the Bank and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the parties hereto and their respective successors and the controlling
persons and officers and directors referred to in Sections 10 and 11 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provisions herein contained. It is
understood and agreed that this Agreement is the exclusive agreement among the
parties, supersedes any prior Agreement among the parties and may not be varied
except by a writing signed by all parties.
Section 16. Partial Invalidity. In the event that any term, provision
or covenant herein or the application thereof to any circumstances or situation
shall be invalid or unenforceable, in whole or in part, the remainder hereof and
the application of said term, provision or covenant to any other circumstance or
situation shall not be affected thereby, and each term, provision or covenant
herein shall be valid and enforceable to the full extent permitted by law.
Section 17. Construction. This Agreement shall be construed in
accordance with the laws of the State of Illinois.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument along with
-32-
<PAGE>
all counterparts will become a binding agreement between you and us in
accordance with its terms.
Very truly yours,
PREFERRED SAVINGS BANK PS FINANCIAL, INC.
By:_________________________ By:______________________________
Kimberly P. Rooney, President Kimberly P. Rooney, President
and Chief Executive Officer and Chief Executive Officer
The foregoing Agency Agreement is
hereby confirmed and accepted as of
the date first set and above
written.
CHARLES WEBB & COMPANY,
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
By: ___________________________
Its: ___________________________
-33-
<PAGE>
PS FINANCIAL, INC.
(A Delaware Corporation)
Up to __________ Shares
(Par Value $.01 Per Share)
SELECTED DEALERS' AGREEMENT
____________, 1996
Ladies and Gentlemen:
We have agreed to assist PSB Financial Company (the "Company"), a
Delaware corporation, in connection with the offer and sale of up to _________
shares of the Company's common stock, $0.01 par value (the "Common Stock"), to
be issued in connection with the conversion of Preferred Savings Bank
("Preferred" or the "Bank"), a federally chartered mutual savings bank in
accordance with the Plan of Conversion of the Bank (the "Plan") and the sale of
all the Bank's issued and outstanding common stock to the Company (the
"Conversion"). The price per share of the Common Stock has been fixed at $10.00.
The Common Stock and certain of the terms on which it is being offered, are more
fully described in the enclosed prospectus dated ____________, 1996 (the
"Prospectus").
In connection with the Conversion, the Company is offering the Common
Stock in a Subscription Offering (to the Eligible Account Holders, Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders, Other Members of the
Bank, and to directors, officers and employees of the Bank) and in a Public
Offering to selected persons. The Common Stock is also being offered in
accordance with the Plan by a selected group of broker-dealers.
We are offering the selected dealers (of which you are one) the
opportunity to participate in the solicitation of offers to buy the Common Stock
and we will pay you a fee in the amount of ______ percent (_____%) of the dollar
amount of the Common Stock sold on behalf of the Company by you, as evidenced by
the authorized designation of your firm on the order form or forms for such
Common Stock accompanying the funds transmitted for payment therefor to the
special account established by the Bank for the purpose of holding such funds.
Any purchase of Common Stock made pursuant to this Agreement is subject to a
maximum purchase limitation of $150,000 of the Common Stock offered in the
Conversion. It is understood, of course, that payment of your fee will be made
to you directly by the Company for the Common Stock sold on behalf of the
Company by you, as evidenced in accordance with the preceding sentence.
<PAGE>
As soon as practicable after the closing date of the offering, the Company will
remit to you the fees to which you are entitled hereunder.
Each order form for the purchase of Common Stock must set forth the
identity and address of each person to whom the certificates for such Common
Stock should be issued and delivered. Such order form should clearly identify
your firm. You shall instruct any subscriber who elects to send his order form
to you to make any accompanying check payable to the Bank.
This offer is made subject to the terms and conditions herein set forth
and contained in the Plan and is made only to selected dealers who are (i)
members in good standing of the National Association of Securities Dealers, Inc.
(the "NASD") who are to comply with all applicable rules of the NASD, including,
without limitation, the NASD's Interpretation With Respect to Free-Riding and
Withholding and Section 24 of Article III of the NASD's Rules of Fair Practice,
or (ii) foreign dealers not eligible for membership in the NASD who agree (A)
not to sell any Common Stock within the United States, its territories or
possessions or to persons who are citizens thereof or resident therein and (B)
in making other sales to comply with the above-mentioned NASD Interpretation,
Sections 8, 24 and 36 of the above-mentioned Article III as if they were NASD
members and Section 25 of such Article III as it applies to non-member brokers
or dealers in a foreign country.
Orders for Common Stock will be strictly subject to confirmation and
we, acting on behalf of the Company, reserve the right in our uncontrolled
discretion to reject any order in whole or in part, to accept or reject orders
in the order of their receipt or otherwise, and to allot. Neither you nor any
other person is authorized by the Company or by us to give any information or
make any representations other than those contained in the Prospectus in
connection with the sale of any of the Common Stock. No selected dealer is
authorized to act as agent for us when soliciting offers to buy the Common Stock
from the public or otherwise. No selected dealer shall engage in any stabilizing
(as defined in Rule 10b-7 promulgated under the Securities Exchange Act of 1934)
with respect to the Company's Common Stock during the offering.
We and each selected dealer assisting in selling Common Stock pursuant
hereto agree to comply with the applicable requirements of the Securities
Exchange Act of 1934 and applicable state rules and regulations. In addition, we
and each selected dealer confirm that the Securities and Exchange Commission
interprets Rule 15c2-8 promulgated under the Securities Exchange Act of 1934 as
requiring that a Prospectus be supplied to each person who is expected to
receive a confirmation of sale 48 hours prior to delivery of such person's order
form.
We and each selected dealer within the meaning of Rule 15c3-1(a)(1)
further agree to the extent that our customers desire to pay for shares with
funds held by or to be deposited with us, in accordance with the interpretation
of the Securities and Exchange Commission of Rule 15c2-4 promulgated under the
Securities Exchange Act
-2-
<PAGE>
of 1934, either (a) upon receipt of an executed order form or direction to
execute an order form on behalf of a customer to forward the offering price for
the Common Stock ordered on or before twelve noon of the business day following
receipt or execution of an order form by us to the Bank for deposit in a
segregated account or (b) to solicit indications of interest in which event (i)
we will subsequently contact any customer indicating interest to confirm the
interest and give instructions to execute and return an order form or to receive
authorization to execute the order form on the customer's behalf, (ii) we will
mail acknowledgements of receipt of orders to each customer confirming interest
on the business day following such confirmation, (iii) we will debit accounts of
such customers on the fifth business day (the "debit date") following receipt of
the confirmation referred to in (i) and (iv) we will forward completed order
forms together with such funds to the Bank on or before twelve noon on the next
business day following the debit date for deposit in a segregated account. We
and each selected dealer acknowledge that if the procedure in (b) is adopted,
our customers' funds are not required to be in their accounts until the debit
date.
Unless earlier terminated by us, this Agreement shall terminate upon
the closing date of this offering. We may terminate this Agreement or any
provisions hereof at any time by written or telegraphic notice to you. Of
course, our obligations hereunder are subject to the successful completion of
the offering.
You agree that at any time or times prior to the termination of this
Agreement you will, upon our request, report to us the number of shares of
Common Stock sold on behalf of the Company by you under this Agreement.
We shall have full authority to take such actions as we may deem
advisable in respect of all matters pertaining to the offering. We shall be
under no liability to you except for lack of good faith and for obligations
expressly assumed by us in this Agreement.
Upon application to us, we will inform you as to the states in which we
believe the Common Stock has been qualified for sale under, or are exempt from
the requirements of, the respective blue sky laws of such states, but we assume
no responsibility or obligation as to your rights to sell Common Stock in any
state.
Additional copies of the Prospectus and any supplements thereto will be
supplied in reasonable quantities upon request.
Any notice from us to you shall be deemed to have been duly given if
mailed, telephoned, or telegraphed to you at the address to which this Agreement
is mailed.
This Agreement shall be construed in accordance with the laws of the
State of Ohio.
-3-
<PAGE>
Please confirm your agreement hereto by signing and returning the
confirmation accompanying this letter at once to us at Charles Webb & Company, A
Division of Keefe, Bruyette & Woods, Inc., 211 Bradenton, Dublin, Ohio
43017-3514. The enclosed duplicate copy will evidence the agreement between us.
CHARLES WEBB & COMPANY,
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
By: ___________________________
Patricia A. McJoynt
Executive Vice President
and Chief Operating Officer
Agreed and accepted as of ____________, 1996
___________________________________
By: ___________________________
-4-
<PAGE>
Exhibit 10. 1
Amended Stock Option and Incentive Plan
<PAGE>
PS FINANCIAL, INC.
1996 STOCK OPTION AND INCENTIVE PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, advisory directors, directors emeriti,
officers and employees of the Corporation and its Affiliates. It is intended
that designated Options granted pursuant to the provisions of this Plan to
persons employed by the Corporation or its Affiliates will qualify as Incentive
Stock Options. Options granted to persons who are not employees will be
Non-Qualified Stock Options.
2. Definitions. The following definitions are applicable to the Plan:
"Affiliate" - means any "parent corporation" or "subsidiary
corporation" of the Corporation, as such terms are defined in Section 424(e) and
(f), respectively, of the Code.
"Bank" - means Preferred Savings Bank and any successor entity.
"Award" - means the grant of an Incentive Stock Option, a Non-Qualified
Stock Option, a Stock Appreciation Right, a Limited Stock Appreciation Right or
any combination thereof, as provided in the Plan.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee referred to in Section 3 hereof.
"Continuous Service" - means the absence of any interruption or
termination of service as a director, advisory director, director emeritus,
officer or employee of the Corporation or an Affiliate, except that when used
with respect to any Options or Rights which at the time of exercise are intended
to be Incentive Stock Options, continuous service means the absence of any
interruption or termination of service as an employee of the Corporation or an
Affiliate. Service shall not be considered interrupted in the case of sick
leave, military leave or any other leave of absence approved by the Corporation
or in the case of transfers between payroll locations of the Corporation or
between the Corporation, its parent, its subsidiaries or its successor. With
respect to any advisory director or director emeritus, continuous service shall
mean availability to perform such functions as may be required of such persons.
"Corporation" - means PS Financial, Inc., a Delaware corporation.
"Employee" - means any person, including an officer or director, who is
employed by the Corporation or any Affiliate.
"ERISA" - means the Employee Retirement Income Security Act of 1974, as
amended.
"Exercise Price" - means (i) in the case of an Option, the price per
Share at which the Shares subject to such Option may be purchased upon exercise
of such Option and (ii) in the case of a Right, the price per Share (other than
the Market Value per Share on the date of exercise and the Offer Price per Share
as defined in Section 10 hereof) which, upon grant, the Committee determines
shall be utilized in calculating the aggregate value which a Participant shall
be entitled to receive pursuant to Sections 9, 10 or 12 hereof upon exercise of
such Right.
"Incentive Stock Option" - means an option to purchase Shares granted
by the Committee pursuant to Section 6 hereof which is subject to the
limitations and restrictions of Section 8 hereof and is intended to qualify
under Section 422(b) of the Code.
"Limited Stock Appreciation Right" - means a stock appreciation right
with respect to Shares granted by the Committee pursuant to Sections 6 and 10
hereof.
<PAGE>
"Market Value" - means the average of the high and low quoted sales
price on the date in question (or, if there is no reported sale on such date, on
the last preceding date on which any reported sale occurred) of a Share on the
Composite Tape for the New York Stock Exchange-Listed Stocks, or, if on such
date the Shares are not quoted on the Composite Tape, on the New York Stock
Exchange, or, if the Shares are not listed or admitted to trading on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which the Shares are listed or admitted
to trading, or, if the Shares are not listed or admitted to trading on any such
exchange, the mean between the closing high bid and low asked quotations with
respect to a Share on such date on the NASDAQ System, or any similar system then
in use, or, if no such quotations are available, the fair market value on such
date of a Share as the Committee shall determine.
"Non-Employee Director" - means a director who a) is not currently an
officer or employee of the Corporation; b) is not a former employee of the
Corporation who receives compensation for prior services (other than from a
tax-qualified retirement plan); c) has not been an officer of the Corporation;
d) does not receive remuneration from the Corporation in any capacity other than
as a director; and e) does not possess an interest in any other transactions or
is not engaged in a business relationship for which disclosure would be required
under Item 404(a) or (b) of Regulation S-K.
"Non-Qualified Stock Option" - means an option to purchase Shares
granted by the Committee pursuant to Section 6 hereof which is not intended to
qualify under Section 422(b) of the Code.
"Option" - means an Incentive Stock Option or a Non-Qualified Stock
Option.
"Participant" - means any director, advisory director, director
emeritus, officer or employee of the Corporation or any Affiliate who is
selected by the Committee to receive an Award or who is granted an Award
pursuant to Section 19 hereof.
"Plan" - means the 1996 Stock Option and Incentive Plan of the
Corporation.
"Related" - means (i) in the case of a Right, a Right which is granted
in connection with, and to the extent exercisable, in whole or in part, in lieu
of, an Option or another Right and (ii) in the case of an Option, an Option with
respect to which and to the extent a Right is exercisable, in whole or in part,
in lieu thereof has been granted.
"Right" - means a Limited Stock Appreciation Right or a Stock
Appreciation Right.
"Shares" - means the shares of common stock of the Corporation.
"Stock Appreciation Right" - means a stock appreciation right with
respect to Shares granted by the Committee pursuant to Sections 6 and 9 hereof.
"Ten Percent Beneficial Owner" - means the beneficial owner of more
than ten percent of any class of the Corporation's equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
3. Administration. The Plan shall be administered by a Committee
consisting of two or more members, each of whom shall be a Non-Employee
Director. The members of the Committee shall be appointed by the Board of
Directors of the Corporation. Except as limited by the express provisions of the
Plan, the Committee shall have sole and complete authority and discretion,
subject to Office of Thrift Supervision Regulations, to (i) select Participants
and grant Awards; (ii) determine the number of Shares to be subject to types of
Awards generally, as well as to individual Awards granted under the Plan; (iii)
determine the terms and conditions upon which Awards shall be granted under the
Plan; (iv) prescribe the form and terms of instruments evidencing such grants;
and (v) establish from time to time regulations for the administration of the
Plan, interpret the Plan, and make all determinations deemed necessary or
advisable for the administration of the Plan.
3
<PAGE>
A majority of the Committee shall constitute a quorum, and the acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee without a meeting,
shall be acts of the Committee.
4. Participation in Committee Awards. The Committee may select from
time to time Participants in the Plan from those directors (including advisory
directors and directors emeriti), officers and employees of the Corporation or
its Affiliates who, in the opinion of the Committee, have the capacity for
contributing to the successful performance of the Corporation or its Affiliates.
5. Shares Subject to Plan. Subject to adjustment by the operation of
Section 11 hereof, the maximum number of Shares with respect to which Awards
may be made under the Plan is 10% of the total Shares issued in the Bank's
conversion to the capital stock form. The Shares with respect to which Awards
may be made under the Plan may be either authorized and unissued shares or
issued shares heretofore or hereafter reacquired and held as treasury shares.
Shares which are subject to Related Rights and Related Options shall be counted
only once in determining whether the maximum number of Shares with respect to
which Awards may be granted under the Plan has been exceeded. An Award shall not
be considered to have been made under the Plan with respect to any Option or
Right which terminates and new Awards may be granted under the Plan with respect
to the number of Shares as to which such termination has occurred.
6. General Terms and Conditions of Options and Rights. The Committee
shall have full and complete authority and discretion, subject to Office of
Thrift Supervision Regulations and except as expressly limited by the Plan, to
grant Options and/or Rights and to provide the terms and conditions (which need
not be identical among Participants) thereof. In particular, the Committee shall
prescribe the following terms and conditions: (i) the Exercise Price of any
Option or Right, which shall not be less than the Market Value per Share at the
date of grant of such Option or Right, (ii) the number of Shares subject to, and
the expiration date of, any Option or Right, which expiration date shall not
exceed ten years from the date of grant, (iii) the manner, time and rate
(cumulative or otherwise) of exercise of such Option or Right, and (iv) the
restrictions, if any, to be placed upon such Option or Right or upon Shares
which may be issued upon exercise of such Option or Right. The Committee may, as
a condition of granting any Option or Right, require that a Participant agree
not to thereafter exercise one or more Options or Rights previously granted to
such Participant. As required by Office of Thrift Supervision Regulations, each
non-employee director of the Corporation may not be granted Awards with
respect to more than 5% of the total shares subject to the Plan and all
non-emp1oyee directors of the Corporation. in the aggregate, may not be granted
Awards with respect to more than 30% of the total shares subject to the Plan.
Notwithstanding the foregoing and subject to compliance with applicable Office
of Thrift Supervision Regulations, no individual shall be granted Awards in any
calendar year with respect to more than 25% of the total shares subject to the
Plan in any calendar year or during the entire term of the Plan.
Any Award made pursuant to this Plan, which Award is subject to the
requirements of Office of Thrift Supervision Regulations, shall vest in five
equal annual installments with the first installment vesting on the one-year
anniversary of the date of grant. except in the event of death or disability. In
the event Office of Thrift Supervision Regulations are amended (the "Amended
Regulations") to permit shorter vesting periods, any Award made pursuant to this
Plan, which Award is subject to the requirements of such Amended Regulations,
may vest, at the sole discretion of the Committee, in accordance with such
Amended Regulations.
Furthermore, at the time of any Award, the Participant shall enter into
an agreement with the Corporation in a form specified by the Committee, agreeing
to the terms and conditions of the Award and such other matters as the
Committee, in its sole discretion, shall determine (the "Option Agreement").
7. Exercise of Options or Rights.
(a) Except as provided herein, an Option or Right granted under the Plan
shall be exercisable during the lifetime of the Participant to whom
such Option or Right was granted only by such Participant and, except
as provided
4
<PAGE>
in paragraphs (c) and (d) of this Section 7, no such Option or Right
may be exercised unless at the time such Participant exercises such
Option or Right, such Participant has maintained Continuous Service
since the date of grant of such Option or Right.
(b) To exercise an Option or Right under the Plan, the Participant to whom
such Option or Right was granted shall give written notice to the
Corporation in form satisfactory to the Committee (and, if partial
exercises have been permitted by the Committee, by specifying the
number of Shares with respect to which such Participant elects to
exercise such Option or Right) together with full payment of the
Exercise Price, if any and to the extent required. The date of exercise
shall be the date on which such notice is received by the Corporation.
Payment, if any is required, shall be made either (i) in cash
(including check, bank draft or money order) or (ii) by delivering (A)
Shares already owned by the Participant and having a fair market value
equal to the applicable exercise price, such fair market value to be
determined in such appropriate manner as may be provided by the
Committee or as may be required in order to comply with or to conform
to requirements of any applicable laws or regulations, or (B) a
combination of cash and such Shares.
(c) If a Participant to whom an Option or Right was granted shall cease to
maintain Continuous Service for any reason (excluding death, disability
and termination of employment by the Corporation or any Affiliate for
cause), such Participant may, but only within the period of three
months immediately succeeding such cessation of Continuous Service and
in no event after the expiration date of such Option or Right, exercise
such Option or Right to the extent that such Participant was entitled
to exercise such Option or Right at the date of such cessation,
provided, however, that such right of exercise after cessation of
Continuous Service shall not be available to a Participant if the
Committee otherwise determines and so provides in the applicable
instrument or instruments evidencing the grant of such Option or Right.
If a Participant to whom an Option or Right was granted shall cease to
maintain Continuous Service by reason of death or disability then,
unless the Committee shall have otherwise provided in the instrument
evidencing the grant of an Option or Right, all Options and Rights
granted and not fully exercisable shall become exercisable in full upon
the happening of such event and shall remain so exercisable (i) in the
event of death for the period described in paragraph (d) of this
Section 7 and (ii) in the event of disability for a period of three
months following such date. If the Continuous Service of a Participant
to whom an Option or Right was granted by the Corporation is terminated
for cause, all rights under any Option or Right of such Participant
shall expire immediately upon the effective date of such termination.
(d) In the event of the death of a Participant while in the Continuous
Service of the Corporation or an Affiliate or within the three-month
period referred to in paragraph (c) of this Section 7, the person to
whom any Option or Right held by the Participant at the time of his
death is transferred by will or the laws of descent and distribution,
or in the case of an Award other than an Incentive Stock Option,
pursuant to a qualified domestic relations order, as defined in the
Code or Title 1 of ERISA or the rules thereunder may, but only to the
extent such Participant was entitled to exercise such Option or Right
upon his death as provided in paragraph (c) above, exercise such Option
or Right at any time within a period of one year succeeding the date of
death of such Participant, but in no event later than ten years from
the date of grant of such Option or Right. Following the death of any
Participant to whom an Option was granted under the Plan, irrespective
of whether any Related Right shall have theretofore been granted to the
Participant or whether the person entitled to exercise such Related
Right desires to do so, the Committee may, as an alternative means of
settlement of such Option, elect to pay to the person to whom such
Option is transferred by will or by the laws of descent and
distribution, or in the case of an Option other than an Incentive Stock
Option, pursuant to a qualified domestic relations order, as defined in
the Code or Title I of ERISA or the rules thereunder, the amount by
which the Market Value per Share on the date of exercise of such Option
shall exceed the Exercise Price of such Option, multiplied by the
number of Shares with respect to which such Option is properly
exercised. Any such settlement of an Option shall be considered an
exercise of such Option for all purposes of the Plan.
(e) Notwithstanding the provisions of subparagraphs (c) and (d) above, the
Committee may, in its sole discretion, establish different terms and
conditions pertaining to the effect of termination to the extent
permitted by applicable federal and state law and regulations
(including those of the OTS).
5
<PAGE>
8. Incentive Stock Options. Incentive Stock Options may be granted only
to Participants who are Employees. Any provision of the Plan to the contrary
notwithstanding, (i) no Incentive Stock Option shall be granted more than ten
years from the date the Plan is adopted by the Board of Directors of the
Corporation and no Incentive Stock Option shall be exercisable more than ten
years from the date such Incentive Stock Option is granted, (ii) the Exercise
Price of any Incentive Stock Option shall not be less than the Market Value per
Share on the date such Incentive Stock Option is granted, (iii) any Incentive
Stock Option shall not be transferable by the Participant to whom such Incentive
Stock Option is granted other than by will or the laws of descent and
distribution, and shall be exercisable during such Participant's lifetime only
by such Participant, (iv) no Incentive Stock Option shall be granted to any
individual who, at the time such Incentive Stock Option is granted, owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Corporation or any Affiliate unless the Exercise Price
of such Incentive Stock Option is at least 110 percent of the Market Value per
Share at the date of grant and such Incentive Stock Option is not exercisable
after the expiration of five years from the date such Incentive Stock Option is
granted, and (v) the aggregate Market Value (determined as of the time any
Incentive Stock Option is granted) of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by a Participant in any
calendar year shall not exceed $100,000.
9. Stock Appreciation Rights. A Stock Appreciation Right shall, upon
its exercise, entitle the Participant to whom such Stock Appreciation Right was
granted to receive a number of Shares or cash or combination thereof, as the
Committee in its discretion shall determine, the aggregate value of which (i.e.,
the sum of the amount of cash and/or Market Value of such Shares on date of
exercise) shall equal (as nearly as possible, it being understood that the
Corporation shall not issue any fractional shares) the amount by which the
Market Value per Share on the date of such exercise shall exceed the Exercise
Price of such Stock Appreciation Right, multiplied by the number of Shares with
respect of which such Stock Appreciation Right shall have been exercised. A
Stock Appreciation Right may be Related to an Option or may be granted
independently of any Option as the Committee shall from time to time in each
case determine. At the time of grant of an Option the Committee shall determine
whether and to what extent a Related Stock Appreciation Right shall be granted
with respect thereto, provided, however, and notwithstanding any other provision
of the Plan, that if the Related Option is an Incentive Stock Option, the
Related Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Stock Appreciation Right were
an Incentive Stock Option and as if other rights which are Related to Incentive
Stock Options were Incentive Stock Options. In the case of a Related Option,
such Related Option shall cease to be exercisable to the extent of the Shares
with respect to which the Related Stock Appreciation Right was exercised. Upon
the exercise or termination of a Related Option, any Related Stock Appreciation
Right shall terminate to the extent of the Shares with respect to which the
Related Option was exercised or terminated.
10. Limited Stock Appreciation Rights. At the time of grant of an
Option or Stock Appreciation Right to any Participant, the Committee shall have
full and complete authority and discretion to also grant to such Participant a
Limited Stock Appreciation Right which is Related to such Option or Stock
Appreciation Right, provided, however and notwithstanding any other provision of
the Plan, that if the Related Option is an Incentive Stock Option, the Related
Limited Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Limited Stock Appreciation
Right were an Incentive Stock Option and as if all other Rights which are
Related to Incentive Stock Options were Incentive Stock Options. Subject to
vesting requirements contained in 12 C.F.R. Section 563b.3(g)(4) or any
successor regulation, a Limited Stock Appreciation Right shall be exercisable
only during the period beginning on the first day following the date of
expiration of any "offer" (as such term is hereinafter defined) and ending on
the forty-fifth day following such date.
A Limited Stock Appreciation Right shall, upon its exercise, entitle
the Participant to whom such Limited Stock Appreciation Right was granted to
receive an amount of cash equal to the amount by which the "Offer Price per
Share" (as such term is hereinafter defined) or the Market Value on the date of
such exercise, as shall have been provided by the Committee in its discretion at
the time of grant, shall exceed the Exercise Price of such Limited Stock
Appreciation Right, multiplied by the number of Shares with respect to which
such Limited Stock Appreciation Right shall have been exercised. Upon the
exercise of a Limited Stock Appreciation Right, any Related Option and/or
Related Stock Appreciation Right shall cease to be exercisable to the extent of
the Shares with respect to which such Limited Stock Appreciation Right was
exercised. Upon the exercise or termination of a Related Option or Related Stock
Appreciation Right, any Related Limited Stock Appreciation Right shall terminate
to
6
<PAGE>
the extent of the Shares with respect to which such Related Option or Related
Stock Appreciation Right was exercised or terminated.
For the purposes of this Section 10, the term "Offer" shall mean any
tender offer or exchange offer for Shares other than one made by the
Corporation, provided that the corporation, person or other entity making the
offer acquires pursuant to such offer either (i) 25% of the Shares outstanding
immediately prior to the commencement of such offer or (ii) a number of Shares
which, together with all other Shares acquired in any tender offer or exchange
offer (other than one made by the Corporation) which expired within sixty days
of the expiration date of the offer in question, equals 25% of the Shares
outstanding immediately prior to the commencement of the offer in question. The
term "Offer Price per Share" as used in this Section 10 shall mean the highest
price per Share paid in any Offer which Offer is in effect any time during the
period beginning on the sixtieth day prior to the date on which a Limited Stock
Appreciation Right is exercised and ending on the date on which such Limited
Stock Appreciation Right is exercised. Any securities or property which are part
or all of the consideration paid for Shares in the Offer shall be valued in
determining the Offer Price per Share at the higher of (A) the valuation placed
on such securities or property by the corporation, person or other entity making
such Offer or (B) the valuation placed on such securities or property by the
Committee.
11. Adjustments Upon Changes in Capitalization. In the event of any
change in the outstanding Shares subsequent to the effective date of the Plan by
reason of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number, class and exercise price of shares with respect to which Awards
theretofore have been granted under the Plan shall be appropriately adjusted by
the Committee, whose determination shall be conclusive.
12. Effect of Merger. In the event of any merger, consolidation or
combination of the Corporation (other than a merger, consolidation or
combination in which the Corporation is the continuing entity and which does not
result in the outstanding Shares being converted into or exchanged for different
securities, cash or other property, or any combination thereof) pursuant to a
plan or agreement the terms of which are binding upon all stockholders of the
Corporation (except to the extent that dissenting stockholders may be entitled,
under statutory provisions or provisions contained in the certificate or
articles of incorporation, to receive the appraised or fair value of their
holdings), any Participant to whom an Option or Right has been granted at least
six months prior to such event shall have the right (subject to the provisions
of the Plan and any limitation or vesting period applicable to such Option or
Right), thereafter and during the term of each such Option or Right, to receive
upon exercise of any such Option or Right an amount equal to the excess of the
fair market value on the date of such exercise of the securities, cash or other
property, or combination thereof, receivable upon such merger, consolidation or
combination in respect of a Share over the Exercise Price of such Right or
Option, multiplied by the number of Shares with respect to which such Option or
Right shall have been exercised. Such amount may be payable fully in cash, fully
in one or more of the kind or kinds of property payable in such merger,
consolidation or combination, or partly in cash and partly in one or more of
such kind or kinds of property, all in the discretion of the Committee.
13. Assignments and Transfers. No Award nor any right or interest of a
Participant under the Plan in any instrument evidencing any Award under the Plan
may be assigned, encumbered or transferred except, in the event of the death of
a Participant, by will or the laws of descent and distribution or in the case of
Awards other than Incentive Stock Options pursuant to a qualified domestic
relations order, as defined in the Code or Title I of ERISA or the rules
thereunder.
14. Employee Rights Under the Plan. No director, officer or employee
shall have a right to be selected as a Participant nor, having been so selected,
to be selected again as a Participant and no director, officer, employee or
other person shall have any claim or right to be granted an Award under the Plan
or under any other incentive or similar plan of the Corporation or any
Affiliate. Neither the Plan nor any action taken thereunder shall be construed
as giving any employee any right to be retained in the employ of the Corporation
or any Affiliate.
7
<PAGE>
15. Delivery and Registration of Stock. The Corporation's obligation
to deliver Shares with respect to an Award shall, if the Committee so requests,
be conditioned upon the receipt of a representation as to the investment
intention of the Participant to whom such Shares are to be delivered, in such
form as the Committee shall determine to be necessary or advisable to comply
with the provisions of the Securities Act of 1933 or any other Federal, state or
local securities legislation or regulation. It may be provided that any
representation requirement shall become inoperative upon a registration of the
Shares or other action eliminating the necessity of such representation under
such Securities Act or other securities legislation. The Corporation shall not
be required to deliver any Shares under the Plan prior to (i) the admission of
such shares to listing on any stock exchange or other system on which Shares may
then be listed, and (ii) the completion of such registration or other
qualification of such Shares under any state or Federal law, rule or regulation,
as the Committee shall determine to be necessary or advisable.
16. Withholding Tax. The Corporation shall have the right to deduct
from all amounts paid in cash with respect to the exercise of a Right under the
Plan any taxes required by law to be withheld with respect to such cash
payments. Where a Participant or other person is entitled to receive Shares
pursuant to the exercise of an Option or Right pursuant to the Plan, the
Corporation shall have the right to require the Participant or such other person
to pay the Corporation the amount of any taxes which the Corporation is required
to withhold with respect to such Shares, and may, in its sole discretion,
withhold sufficient Shares to cover the amount of taxes which the Corporation is
required to withhold.
17. Amendment or Termination. The Board of Directors of the Corporation
may amend, suspend or terminate the Plan or any portion thereof at any time,
subject to Office of Thrift Supervision Regulations, but (except as provided in
Section 11 hereof) no amendment shall be made without approval of the
stockholders of the Corporation which shall (i) increase the aggregate number of
Shares with respect to which Awards may be made under the Plan, (ii) materially
increase the benefits accruing to Participants, (iii) materially change the
requirements as to eligibility for participation in the Plan or (iv) change the
class of persons eligible to participate in the Plan; provided, however, that no
such amendment, suspension or termination shall impair the rights of any
Participant, without his consent, in any Award theretofore made pursuant to the
Plan.
18. Effective Date and Term of Plan. The Plan shall become effective
upon its ratification by stockholders of the Corporation. It shall continue in
effect for a term of ten years unless sooner terminated under Section 17 hereof.
19. Initial Grant. By, and simultaneously with, the ratification of
this Plan by the stockholders of the Corporation, each member of the Board of
Directors of the Corporation at the time of stockholder ratification of this
Plan who is not a full-time Employee, is hereby granted a ten-year,
Non-Qualified Stock Option to purchase .5% of the shares sold in the Conversion
at an Exercise Price per share equal to the Market Value per share of the Shares
on the date of grant. Each such Option shall be evidenced by a Non-Qualified
Stock Option Agreement in a form approved by the Board of Directors and shall be
subject in all respects to the terms and conditions of this Plan, which are
controlling. All Options granted pursuant to this section shall vest in five
equal annual installments with the first installment vesting on the first
anniversary of the date of grant, subject to the Director maintaining Continuous
Service with the Corporation or its Affiliates since the date of grant. All
Options granted pursuant to this Section 19 shall be rounded down to the nearest
whole share to the extent necessary to ensure that no Options to purchase stock
representing fractional shares are granted.
8
<PAGE>
Exhibit 10.2
PS FINANCIAL, INC.
1996 RECOGNITION AND RETENTION PLAN
1 Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, executive officers and employees of the
Corporation and its Affiliates.
2. Definitions. The following definitions are applicable to the Plan:
"Award" - means the grant of Restricted Stock pursuant to the terms of
Section 12 of the Plan or by the Committee, as provided in the Plan.
"Affiliate" - means any "parent corporation" or "subsidiary
corporation" of the Corporation, as such terms are defined in Section 424(e) and
(f), respectively, of the Code.
"Bank" - means Preferred Savings Bank, a savings institution and its
successors.
"Beneficiary" - means the person or persons designated by a Participant
to receive any benefits payable under the Plan in the event of such
Participant's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Participant's surviving spouse, if
any, or if none, his estate.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee of the Board of Directors of the
Corporation referred to in Section 6 hereof.
"Continuous Service" - means the absence of any interruption or
termination of service as a director, director emeritus, advisory director,
executive officer or employee of the Corporation or any Affiliate. Service shall
not be considered interrupted in the case of sick leave, military leave or any
other leave of absence approved by the Corporation or any Affiliate or in the
case of transfers between payroll locations of the Corporation or its Affiliates
or between the Corporation, its Affiliates or its successor. With respect to any
director emeritus or advisory director, continuous service shall mean
availability to perform such functions as may be required of such individuals.
"Conversion" means the conversion of the Bank from the mutual to the
stock form of organization.
"Corporation" means PS Financial, Inc., a Delaware corporation.
"Disability" - means any physical or mental impairment which qualifies
an employee, director, director emeritus or advisor director for disability
benefits under any applicable long-term disability plan maintained by the Bank
or an Affiliate, or, if no such plan applies to such individual, which renders
such employee or director, in the judgment of the Committee, unable to perform
his customary duties and responsibilities.
"ERISA" - means the Employee Retirement Income Security Act of 1974, as
amended.
"Non-Employee Director" - means a director who a) is not currently an
officer or employee of the Corporation; b) is not a former employee of the
Corporation who receives compensation for prior services (other than from a
tax-qualified retirement plan); c) has not been an officer of the Corporation;
d) does not
<PAGE>
receive remuneration from the Corporation in any capacity other than as a
director; and e) does not possess an interest in any other transactions or is
not engaged in a business relationship for which disclosure would be required
under Item 404(a) or (b) of Regulation S-K.
"Participant" - means any director, director emeritus, advisory
director, executive officer or employee of the Corporation or any Affiliate who
is selected by the Committee to receive an Award or a director who is granted an
award pursuant to Section 12.
"Plan" - means the 1996 Recognition and Retention Plan of the
Corporation.
"Restricted Period" - means the period of time selected by the
Committee for the purpose of determining when restrictions are in effect under
Section 3 hereof with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" - means Shares which have been contingently awarded
to a Participant by the Committee subject to the restrictions referred to in
Section 3 hereof, so long as such restrictions are in effect.
"Shares" - means the common stock, par value $0.01 per share, of the
Corporation.
3. Terms and Conditions of Restricted Stock. The Committee shall have
full and complete authority, subject to the limitations of the Plan, to grant
Awards and, in addition to the terms and conditions contained in paragraphs (a)
through (f) of this Section 3, to provide such other terms and conditions (which
need not be identical among Participants) in respect of such Awards, and the
vesting thereof, as the Committee shall determine, subject to Office of Thrift
Supervision Regulations.
(a) At the time of an award of Restricted Stock, the Committee shall establish
for each Participant a Restricted Period, during which or at the expiration
of which, as the Committee shall determine and provide in the agreement
referred to in paragraph (d) of this Section 3, the Shares awarded as
Restricted Stock shall vest, and subject to any such other terms and
conditions as the Committee shall provide, shares of Restricted Stock may
not be sold, assigned, transferred, pledged, voted or otherwise encumbered
by the Participant, except as hereinafter provided, during the Restricted
Period. Except for such restrictions, and subject to paragraphs (c) and (e)
of this Section 3 and Section 4 hereof, the Participant as owner of such
shares shall have all the rights of a stockholder.
No director who is not an employee of the Corporation shall be granted
Awards with respect to more than 5% of the total shares subject to the Plan.
All non-employee directors of the Corporation, in the aggregate, may not be
granted Awards with respect to more than 30% of the total shares subject to
the Plan and no individual shall be granted Awards with respect to more than
25% of the total shares subject to the Plan. No Awards shall begin vesting
earlier than one year from the date the Plan is approved by stockholders of
the Corporation and no Award shall vest at a rate in excess of 20% per year,
except in the event of death or disability. In the event Office of Thrift
Supervision Regulations are amended (the "Amended Regulations") to permit
shorter vesting periods, any Award made pursuant to this Plan, which Award
is subject to the requirements of such Amended Regulations, may vest, at the
sole discretion of the Committee, in accordance with such Amended
Regulations.
Subject to compliance with Office of Thrift Supervision Regulations, the
Committee shall have the authority, in its discretion, to accelerate the
time at which any or all of the restrictions shall lapse with respect to an
Award, or to remove any or all of such restrictions, whenever it may
determine that such action is appropriate by reason of changes in applicable
tax or other laws or other changes in circumstances occurring after the
commencement of such Restricted Period.
(b) Except as provided in Section 5 hereof, if a Participant ceases to maintain
Continuous Service for any reason (other than death or disability), unless
the Committee shall otherwise determine, all Shares of
3
<PAGE>
Restricted Stock theretofore awarded to such Participant and which at the
time of such termination of Continuous Service are subject to the
restrictions imposed by paragraph (a) of this Section 3 shall upon such
termination of Continuous Service be forfeited and returned to the
Corporation. If a Participant ceases to maintain Continuous Service by
reason of death or disability, Restricted Stock then still subject to
restrictions imposed by paragraph (a) of this Section 3 will be free of
those restrictions.
(c) Each certificate in respect of Shares of Restricted Stock awarded under the
Plan shall be registered in the name of the Participant and deposited by the
Participant, together with a stock power endorsed in blank, with the
Corporation and shall bear the following (or a similar) legend:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) contained in the 1996 Recognition and Retention Plan of PS
Financial, Inc. Copies of such Plan are on file in the offices of the
Secretary of PS Financial, Inc., 4800 South Pulaski Road, Chicago,
Illinois 60632.
(d) At the time of any Award, the Participant shall enter into an Agreement with
the Corporation in a form specified by the Committee, agreeing to the terms
and conditions of the Award and such other matters as the Committee, in its
sole discretion, shall determine (the "Restricted Stock Agreement").
(e) The payment to the Participant of dividends or other distributions declared
or paid on such shares by the Corporation shall be deferred until the
lapsing of the restrictions imposed under paragraph (a) of this Section 3,
and such dividends or other distributions shall be held by the Corporation
for the account of the Participant until such time. There shall be credited
at the end of each year (or portion thereof) interest on the amount of the
deferred dividends or other distributions at a rate per annum as the
Committee, in its discretion, may determine. Payment of deferred dividends
or other distributions, together with interest accrued thereon, shall be
made upon the earlier to occur of the lapsing of the restrictions imposed
under paragraph (a) of this Section 3 or upon death or disability of the
Participant.
(f) At the lapsing of the restrictions imposed by paragraph (a) of this
Section 3, the Corporation shall deliver to the Participant (or where the
relevant provision of paragraph (b) of this Section 3 applies in the case of
a deceased Participant, to his legal representative, beneficiary or heir)
the certificate(s) and stock power deposited with it pursuant to paragraph
(c) of this Section 3 and the Shares represented by such certificate(s)
shall be free of the restrictions referred to in paragraph (a) of this
Section 3.
4. Adjustments Upon Changes in Capitalization. In the event of any
change in the outstanding Shares subsequent to the effective date of the Plan by
reason of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number and class of shares with respect to which Awards theretofore have been
granted under the Plan shall be appropriately adjusted by the Committee, whose
determination shall be conclusive. Any shares of stock or other securities
received as a result of any of the foregoing by a Participant with respect to
Restricted Stock shall be subject to the same restrictions and the
certificate(s) or other instruments representing or evidencing such shares or
securities shall be legended and deposited with the Corporation in the manner
provided in Section 3 hereof.
5. Assignments and Transfers. During the Restricted Period, no Award
nor any right or interest of a Participant under the Plan in any instrument
evidencing any Award under the Plan may be assigned, encumbered or transferred
except (i) in the event of the death of a Participant, by will or the laws of
descent and distribution, or (ii) pursuant to a qualified domestic relations
order as defined in the Code or Title I of ERISA or the rules thereunder.
4
<PAGE>
6. Administration. The Plan shall be administered by a Committee
consisting of two or more members, each of whom shall be a Non-Employee
Director. The members of the Committee shall be appointed by the Board of
Directors of the Corporation. Except as limited by the express provisions of the
Plan, the Committee shall have sole and complete authority and discretion,
subject to Office of Thrift Supervision Regulations, to (i) select Participants
and grant Awards; (ii) determine the number of Shares to be subject to types of
Awards generally, as well as individual Awards granted under the Plan; (iii)
determine the terms and conditions upon which Awards shall be granted under the
Plan; (iv) prescribe the form and terms of instruments evidencing such grants;
and (v) establish from time to time regulations for the administration of the
Plan, interpret the Plan, and make all determinations deemed necessary or
advisable for the administration of the Plan. The Committee may maintain, and
update from time to time as appropriate, a list designating selected directors
as Disinterested Persons. The purpose of such list shall be to evidence the
status of such individuals as Disinterested Persons, and the Board of Directors
may appoint to the Committee any individual actually qualifying as a
Disinterested Person, regardless of whether identified as such on said list.
A majority of the Committee shall constitute a quorum, and the acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee without a meeting,
shall be acts of the Committee.
7. Shares Subject to Plan. Subject to adjustment by the operation of
Section 4 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan is 4% of the total Shares issued in the Association's
Conversion. The Shares with respect to which Awards may be made under the Plan
may be either authorized and unissued Shares or issued Shares heretofore or
hereafter reacquired and held as treasury Shares. An Award shall not be
considered to have been made under the Plan with respect to Restricted Stock
which is forfeited and new Awards may be granted under the Plan with respect to
the number of Shares as to which such forfeiture has occurred.
The Corporation's obligation to deliver Shares with respect to an Award
shall, if the Committee so requests, be conditioned upon the receipt of a
representation as to the investment intention of the Participant to whom such
Shares are to be delivered, in such form as the Committee shall determine to be
necessary or advisable to comply with the provisions of the Securities Act of
1933 or any other Federal, state or local securities legislation or regulation.
It may be provided that any representation requirement shall become inoperative
upon a registration of the Shares or other action eliminating the necessity of
such representation under such Securities Act or other securities legislation.
The Corporation shall not be required to deliver any Shares under the Plan prior
to (i) the admission of such shares to listing on any stock exchange on which
Shares may then be listed, and (ii) the completion of such registration or other
qualification of such Shares under any state or Federal law, rule or regulation,
as the Committee shall determine to be necessary or advisable.
8. Employee Rights Under the Plan. No director, director emeritus,
advisory director, officer or employee shall have a right to be selected as a
Participant nor, having been so selected, to be selected again as a Participant
and no director, officer, employee or other person shall have any claim or right
to be granted an Award under the Plan or under any other incentive or similar
plan of the Corporation or any Affiliate. Neither the Plan nor any action taken
thereunder shall be construed as giving any officer or employee any right to be
retained in the employ of the Corporation, the Bank or any Affiliate.
9. Withholding Tax. Upon the termination of the Restricted Period with
respect to any shares of Restricted Stock (or at such earlier time, if any, that
an election is made by the Participant under Section 83(b) of the Code, or any
successor provision thereto, to include the value of such shares in taxable
income), the Corporation may, in its sole discretion, withhold from any payment
or distribution made under this Plan sufficient Shares or withhold sufficient
cash to cover any applicable withholding and employment taxes. The Corporation
shall have the right to deduct from all dividends paid with respect to shares of
Restricted Stock
5
<PAGE>
the amount of any taxes which the Corporation is required to withhold with
respect to such dividend payments. No discretion or choice shall be conferred
upon any Participant with respect to the form, timing or method of any such tax
withholding.
10. Amendment or Termination. The Board of Directors of the Corporation
may amend, suspend or terminate the Plan or any portion thereof at any time,
subject to Office of Thrift Supervision Regulations, but (except as provided in
Section 4 hereof) no amendment shall be made without approval of the
stockholders of the Corporation which shall (i) increase the aggregate number of
Shares with respect to which Awards may be made under the Plan, (ii) materially
increase the benefits accruing to Participants, (iii) materially change the
requirements as to eligibility for participation in the Plan or (iv) change the
class of persons eligible to participate in the Plan; provided, however, that no
such amendment, suspension or termination shall impair the rights of any
Participant, without his consent, in any Award theretofore made pursuant to the
Plan.
11. Term of Plan. The Plan shall become effective upon its ratification
by the stockholders of the Corporation. It shall continue in effect for a term
of ten years unless sooner terminated under Section 11 hereof.
12. Director Awards. By, and simultaneously with, the ratification of
this Plan by the stockholders of the Corporation, each member of the Board of
Directors of the Corporation who is not a full-time employee of the Corporation,
is hereby granted an Award equal to .2% of the shares sold in the Conversion.
Each of the Awards granted in this Section 12 shall be earned in five equal
annual installments, with the first installment vesting on the first anniversary
of the date of grant, as long as the director maintains Continuous Service with
the Corporation or its affiliates, provided, however, that no Award shall be
earned in any fiscal year in which the Bank fails to meet all of its fully
phased-in capital requirements.
6
<PAGE>
Exhibit 10.4
Form of Employment Agreement with Kimberly P. Rooney
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this ________ day of ______________________, 1996, by and between Preferred
Savings Bank (hereinafter referred to as the "Association" whether in mutual or
stock form), and Kimberly P. Rooney (the "Employee").
WHEREAS, the Employee is currently serving as the President and Chief
Executive Officer of the Association; and
WHEREAS, the Association has adopted a plan of conversion whereby the
Association will convert to capital stock form as the subsidiary of PS
Financial, Inc. (the "Holding Company"), subject to the approval of the
Association's members and the Office of Thrift Supervision (the "Conversion");
and
WHEREAS, the board of directors of the Association ("Board of
Directors") recognizes that, as is the case with publicly held corporations
generally, the possibility of a change in control of the Holding Company and/or
the Association may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of key management personnel to the detriment of the Association, the
Holding Company and their respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Association to enter into this Agreement with the Employee in order to
assure continuity of management of the Association and to reinforce and
encourage the continued attention and dedication of the Employee to her assigned
duties without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Holding Company or
the Association, although no such change is now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
(i) results in a change in control of the Association or the Holding Company
within the meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574
as in effect on the date hereof; or (ii) would be required to be reported in
response to Item 1 of the current report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act"); (2) any person (as the term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly of securities of the
Association or the Holding Company representing 25% or more of the Association's
or the Holding Company's outstanding securities; (3) individuals who are members
of the board of directors of the Association or the Holding Company on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any
<PAGE>
person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the nominating committee serving under an Incumbent
Board, shall be considered a member of the Incumbent Board; or (4) a
reorganization, merger, consolidation, sale of all or substantially all of the
assets of the Association or the Holding Company or a similar transaction in
which the Association or the Holding Company is not the resulting entity. The
term "change in control" shall not include an acquisition of securities by an
employee benefit plan of the Association or the Holding Company or the
acquisition of securities of the Association by the Holding Company in
connection with the Conversion. In the application of 12 C.F.R. Part 574 to a
determination of a Change in Control, determinations to be made by the OTS or
its Director under such regulations shall be made by the Board of Directors.
(b) The term "Commencement Date" means the date of completion of the
Conversion.
(c) The term "Date of Termination" means the earlier of (1) the date
upon which the Association gives notice to the Employee of the termination of
her employment with the Association or (2) the date upon which the Employee
ceases to serve as an Employee of the Association.
(d) The term "Involuntarily Termination" means termination of the
employment of Employee without her express written consent, and shall include a
material diminution of or interference with the Employee's duties,
responsibilities and benefits as President of the Association, including
(without limitation) any of the following actions unless consented to in writing
by the Employee: (1) a change in the principal workplace of the Employee to a
location outside of a 30 mile radius from the Association's headquarters office
as of the date hereof; (2) a material reduction in the number or seniority of
other Association personnel reporting to the Employee or a material reduction in
the frequency with which, or in the nature of the matters with respect to which
such personnel are to report to the Employee, other than as part of a
Association- or Holding Company-wide reduction in staff; (3) a material adverse
change in the Employee's salary, perquisites, benefits, contingent benefits or
vacation, other than as part of an overall program applied uniformly and with
equitable effect to all members of the senior management of the Association or
the Holding Company; (4) a material permanent increase in the required hours of
work or the workload of the Employee; and (5) a material demotion of the
Employee. The term "Involuntary Termination" does not include Termination for
Cause or termination of employment due to retirement, death, disability or
suspension or temporary or permanent prohibition from participation in the
conduct of the Association's affairs under Section 8 of the Federal Deposit
Insurance Act ("FDIA").
(e) The terms "Termination for Cause" and "Terminated for Cause" mean
termination of the employment of the Employee because of the Employee's personal
dishonesty, incompetence, willful misconduct, breach of a fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. The Employee shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors of the
Association at a meeting of the Board called and held for such purpose (after
reasonable notice to the Employee and an opportunity for the Employee, together
with the Employee's counsel, to be heard before the
2
<PAGE>
Board), stating that in the good faith opinion of the Board the
Employee has engaged in the conduct described in the preceding sentence and
specifying the particulars thereof in detail.
2. Term. The term of this Agreement shall be a period of three years
commencing on the Commencement Date, subject to earlier termination as provided
herein. Beginning on the first annual anniversary date following the
Commencement Date, and on each annual anniversary date thereafter, the term of
this Agreement shall be extended for a period of one year in addition to the
then-remaining term, provided that (1) the Association has not given notice to
the Employee in writing at least 90 days prior to such renewal date that the
term of this Agreement shall not be extended further; and (2) prior to such
renewal date, the Board of Directors of the Association has explicitly reviewed
and approved the extension. Reference herein to the term of this Agreement shall
refer to both such initial term and such extended terms.
3. Employment. The Employee is employed as the President and Chief
Executive Officer of the Association. As President and Chief Executive Officer,
Employee shall render such administrative and management services as are
customarily performed by persons situated in similar executive capacities, and
shall have such other powers and duties of an officer of the Association as the
Board of Directors may prescribe from time to time.
4. Compensation.
(a) Salary. The Association agrees to pay the Employee during the term
of this Agreement the salary established by the Board of Directors, which shall
be at least the Employee's salary in effect as of the Commencement Date. The
amount of the Employee's salary shall be reviewed by the Board of Directors,
beginning not later than the first anniversary of the Commencement Date.
Adjustments in salary or other compensation shall not limit or reduce any other
obligation of the Association under this Agreement. The Employee's salary in
effect from time to time during the term of this Agreement shall not thereafter
be reduced.
(b) Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other executive officers of the
Association in discretionary bonuses as authorized and declared by the Board of
Directors to its executive employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Employee's right to participate
in such bonuses when and as declared by the Board of Directors.
(c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Association, provided that the
Employee accounts for such expenses as required under such policies and
procedures.
5. Benefits.
(a) Participation in Retirement and Employee Benefit Plans. The
Employee shall be entitled to participate in all plans relating to pension,
thrift, profit-sharing, group life insurance, medical and dental coverage,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof, in which the Association's executive officers participate.
In addition, the Employee shall
3
<PAGE>
be entitled to be considered for benefits under all of the stock and stock
option related plans adopted for the benefit of the Association's executive or
other employees.
(b) Fringe Benefits. The Employee shall be eligible to participate in,
and receive benefits under, any other fringe benefit plans which are or may
become applicable to the Association's executive officers.
6. Vacations; Leave. The Employee shall be entitled to annual paid
vacation in accordance with the policies established by the Association's Board
of Directors for executive employees and to voluntary leave of absence, with or
without pay, from time to time at such times and upon such conditions as the
Board of Directors of the Association may determine in its discretion.
7. Termination of Employment.
(a) Involuntary Termination. The Board of Directors may terminate the
Employee's employment at any time, but, except in the case of Termination for
Cause, termination of employment shall not prejudice the Employee's right to
compensation or other benefits under this Agreement. In the event of Involuntary
Termination other than in connection with or within twelve (12) months after a
Change in Control, (1) the Association shall pay to the Employee during the
remaining term of this Agreement, her salary at the rate in effect immediately
prior to the Date of Termination, payable in such manner and at such times as
such salary would have been payable to the Employee under Section 2 if the
Employee had continued to be employed by the Association, and (2) the
Association shall provide to the Employee during the remaining term of this
Agreement health benefits as maintained by the Association for the benefit of
its executive officers from time to time during the remaining term of the
Agreement.
(b) Termination for Cause. In the event of termination for cause, the
Association shall pay the Employee her salary through the date of termination,
and the Association shall have no further obligation to the Employee under this
Agreement.
(c) Voluntary Termination. The Employee's employment may be voluntarily
terminated by the Employee at any time upon 90 days written notice to the
Association or upon such shorter period as may be agreed upon between the
Employee and the Board of Directors of the Association. In the event of such
voluntary termination, the Association shall be obligated to continue to pay the
Employee her salary and benefits only through the date of termination, at the
time such payments are due, and the Association shall have no further obligation
to the Employee under this Agreement.
(d) Change in Control. In the event of Involuntary Termination in
connection with or within 12 months after a change in control which occurs at
any time while the Employee is employed under this Agreement, the Association
shall, subject to Section 8 of this Agreement, (1) pay to the Employee in a lump
sum in cash within 25 business days after the Date of Termination an amount
equal to 299% of the Employee's "base amount" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"); and (2) provide to the
Employee during the remaining term of this Agreement such health benefits as are
maintained for executive officers of the Association from time to time during
the remaining term of this Agreement. Upon payment of such amounts, the
Association shall have no further obligations under this Agreement.
4
<PAGE>
(e) Death; Disability. In the event of the death of the Employee while
employed under this Agreement and prior to any termination of employment, the
Employee's estate, or such person as the Employee may have previously designated
in writing, shall be entitled to receive from the Association the salary of the
Employee through the last day of the calendar month in which the Employee died.
If the Employee becomes disabled as defined in the Association's then current
disability plan or if the Employee is otherwise unable to serve in her present
capacity, the Employee shall be entitled to receive group and other disability
income benefits of the type then provided by the Association for executive
officers. In the event of such disability, this Agreement shall not be
suspended. However, the Association shall be obligated to pay the Employee
compensation pursuant to Sections 4(a) and (b) hereof only to the extent the
Employee's salary, in the absence of such disability, would exceed (on an after
tax basis) the disability income benefits received pursuant to this paragraph.
In addition, the Association shall have the right, upon resolution of its Board,
to discontinue paying cash compensation pursuant to Sections 4(a) and (b)
beginning six months following a determination that Employee qualifies for the
foregoing disability income benefits.
(f) Temporary Suspension or Prohibition. If the Employee is suspended
and/or temporarily prohibited from participating in the conduct of the
Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the Association's obligations under
this Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (1) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations which were
suspended.
(g) Permanent Suspension or Prohibition. If the Employee is removed
and/or permanently prohibited from participating in the conduct of the
Association's affairs by an order issued under Section 8(e)(4) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the Association
under this Agreement shall terminate as of the effective date of the order, but
vested rights of the contracting parties shall not be affected.
(h) Default of the Association. If the Association is in default (as
defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement
shall terminate as of the date of default, but this provision shall not affect
any vested rights of the contracting parties.
(i) Termination by Regulators. All obligations under this Agreement
shall be terminated, except to the extent determined that continuation of this
Agreement is necessary for the continued operation of the Association: (1) by
the Director of the Office of Thrift Supervision (the "Director") or his or her
designee, at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Association under the authority contained in Section 13(c)
of the FDIA; or (2) by the Director or his or her designee, at the time the
Director or his or her designee approves a supervisory merger to resolve
problems related to operation of the Association or when the Association is
determined by the Director to be in an unsafe or unsound condition. Any rights
of the parties that have already vested, however, shall not be affected by any
such action.
5
<PAGE>
8. Certain Reduction of Payments by the Association.
(a) Notwithstanding any other provisions of this Agreement, if payments
under this Agreement, together with any other payments received or to be
received by the Employee in connection with a Change in Control would cause any
amount to be nondeductible by the Association or the Holding Company for federal
income tax purposes pursuant to Section 280G of the Code, then benefits under
this Agreement shall be reduced (not less than zero) to the extent necessary so
as to maximize payments to the Employee without causing any amount to become
nondeductible by the Association or the Holding Company. The Employee shall
determine the allocation of such reduction among payments to the Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
1828(k) and any regulations promulgated thereunder.
(c) Notwithstanding any other provisions of this Agreement, payments
under Section 7 of this Agreement shall not exceed three times the Employee's
average annual compensation based on the most recent five taxable years.
9. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation earned by
the Employee as the result of employment by another employer, by retirement
benefits after the date of termination or otherwise.
10. Attorneys Fees. In the event the Association exercises its right of
Termination for Cause, but it is determined by a court of competent jurisdiction
or by an arbitrator pursuant to Section 17 that cause did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Association has failed to make timely payment of any amounts owed to
the Employee under this Agreement, the Employee shall be entitled to
reimbursement for all reasonable costs, including attorneys' fees, incurred in
challenging such termination or collecting such amounts. Such reimbursement
shall be in addition to all rights to which the Employee is otherwise entitled
under this Agreement.
11. No Assignments.
(a) his Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Association shall require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Association, by an
assumption agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Association would be required to perform it if no such
succession or assignment had taken place. Failure of the Association to obtain
such an assumption agreement prior to the effectiveness of any such succession
or assignment shall be a breach of this Agreement and shall entitle the Employee
to compensation from the Association in the same amount
6
<PAGE>
and on the same terms as the compensation pursuant to Section 7(d) hereof. For
purposes of implementing the provisions of this Section 12(a), the date on which
any such succession becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall inure
to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Association at its home
office the attention of the Board of Directors with a copy to the Secretary of
the Association, or, if the Employee, to such home or other address as the
Employee has most recently provided in writing to the Association.
13. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. Paragraph Headings. The paragraph headings used in this Agreement
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Illinois.
17. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
7
<PAGE>
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: PREFERRED SAVINGS BANK
By:
- ------------------------------- ---------------------------
Lorraine G. Ptak, Secretary Sylvester J. Ptak
Its: Chairman
EMPLOYEE
---------------------------
Kimberly P. Rooney
8
<PAGE>
Exhibit 10.5
Form of Employment Agreement with Sylvester J. Ptak
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this ________ day of ______________________, 1996, by and between Preferred
Savings Bank (hereinafter referred to as the "Association" whether in mutual or
stock form), and S.J. Ptak (the "Employee").
WHEREAS, the Employee is currently serving as the Chairman of the Board
of the Association; and
WHEREAS, the Association has adopted a plan of conversion whereby the
Association will convert to capital stock form as the subsidiary of PS
Financial, Inc. (the "Holding Company"), subject to the approval of the
Association's members and the Office of Thrift Supervision (the "Conversion");
and
WHEREAS, the board of directors of the Association ("Board of
Directors") recognizes that, as is the case with publicly held corporations
generally, the possibility of a change in control of the Holding Company and/or
the Association may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of key management personnel to the detriment of the Association, the
Holding Company and their respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Association to enter into this Agreement with the Employee in order to
assure continuity of management of the Association and to reinforce and
encourage the continued attention and dedication of the Employee to his assigned
duties without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Holding Company or
the Association, although no such change is now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
(i) results in a change in control of the Association or the Holding Company
within the meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574
as in effect on the date hereof; or (ii) would be required to be reported in
response to Item 1 of the current report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act"); (2) any person (as the term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly of securities of the
Association or the Holding Company representing 25% or more of the Association's
or the Holding Company's outstanding securities; (3) individuals who are members
of the board of directors of the Association or the Holding Company on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any
<PAGE>
person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the nominating committee serving under an Incumbent
Board, shall be considered a member of the Incumbent Board; or (4) a ^
reorganization, merger, consolidation, sale of all or substantially all of the
assets of the Association or the Holding Company or a similar transaction in
which the Association or the Holding Company is not the resulting entity. The
term "change in control" shall not include an acquisition of securities by an
employee benefit plan of the Association or the Holding Company or the
acquisition of securities of the Association by the Holding Company in
connection with the Conversion. In the application of 12 C.F.R. Part 574 to a
determination of a Change in Control, determinations to be made by the OTS or
its Director under such regulations shall be made by the Board of Directors.
(b) The term "Commencement Date" means the date of completion of the
Conversion.
(c) The term "Date of Termination" means the earlier of (1) the date
upon which the Association gives notice to the Employee of the termination of
his employment with the Association or (2) the date upon which the Employee
ceases to serve as an Employee of the Association.
(d) The term "Involuntarily Termination" means termination of the
employment of Employee without his express written consent, and shall include a
material diminution of or interference with the Employee's duties,
responsibilities and benefits as Chairman of the Board of the Association,
including (without limitation) any of the following actions unless consented to
in writing by the Employee: (1) a change in the principal workplace of the
Employee to a location outside of a 30 mile radius from the Association's
headquarters office as of the date hereof; (2) a material reduction in the
number or seniority of other Association personnel reporting to the Employee or
a material reduction in the frequency with which, or in the nature of the
matters with respect to which such personnel are to report to the Employee,
other than as part of a Association- or Holding Company-wide reduction in staff;
(3) a material adverse change in the Employee's salary, perquisites, benefits,
contingent benefits or vacation, other than as part of an overall program
applied uniformly and with equitable effect to all members of the senior
management of the Association or the Holding Company; (4) a material permanent
increase in the required hours of work or the workload of the Employee; and (5)
a material demotion of the Employee. The term "Involuntary Termination" does not
include Termination for Cause or termination of employment due to retirement,
death, disability or suspension or temporary or permanent prohibition from
participation in the conduct of the Association's affairs under Section 8 of the
Federal Deposit Insurance Act ("FDIA").
(e) The terms "Termination for Cause" and "Terminated for Cause" mean
termination of the employment of the Employee because of the Employee's personal
dishonesty, incompetence, willful misconduct, breach of a fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. The Employee shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors of the
Association at a meeting of the Board called and held for such purpose (after
reasonable notice to the Employee and an opportunity for the Employee, together
with the Employee's counsel, to be heard before the
2
<PAGE>
Board), stating that in the good faith opinion of the Board the Employee has
engaged in the conduct described in the preceding sentence and specifying the
particulars thereof in detail.
2. Term. The term of this Agreement shall be a period of three years
commencing on the Commencement Date, subject to earlier termination as provided
herein. Beginning on the first annual anniversary date following the
Commencement Date, and on each annual anniversary date thereafter, the term of
this Agreement shall be extended for a period of one year in addition to the
then-remaining term, provided that (1) the Association has not given notice to
the Employee in writing at least 90 days prior to such renewal date that the
term of this Agreement shall not be extended further; and (2) prior to such
renewal date, the Board of Directors of the Association has explicitly reviewed
and approved the extension. Reference herein to the term of this Agreement shall
refer to both such initial term and such extended terms.
3. Employment. The Employee is employed as the Chairman of the Board of
the Association. As Chairman of the Board, Employee shall render such
administrative and management services as are customarily performed by persons
situated in similar executive capacities, and shall have such other powers and
duties of an officer of the Association as the Board of Directors may prescribe
from time to time.
4. Compensation.
(a) Salary. The Association agrees to pay the Employee during the term
of this Agreement the salary established by the Board of Directors, which shall
be at least the Employee's salary in effect as of the Commencement Date. The
amount of the Employee's salary shall be reviewed by the Board of Directors,
beginning not later than the first anniversary of the Commencement Date.
Adjustments in salary or other compensation shall not limit or reduce any other
obligation of the Association under this Agreement. The Employee's salary in
effect from time to time during the term of this Agreement shall not thereafter
be reduced.
(b) Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other executive officers of the
Association in discretionary bonuses as authorized and declared by the Board of
Directors to its executive employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Employee's right to participate
in such bonuses when and as declared by the Board of Directors.
(c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Association, provided that the
Employee accounts for such expenses as required under such policies and
procedures.
5. Benefits.
(a) Participation in Retirement and Employee Benefit Plans. The
Employee shall be entitled to participate in all plans relating to pension,
thrift, profit-sharing, group life insurance, medical and dental coverage,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof, in which the Association's executive officers participate.
In addition, the Employee shall
3
<PAGE>
be entitled to be considered for benefits under all of the stock and stock
option related plans adopted for the benefit of the Association's executive or
other employees.
(b) Fringe Benefits. The Employee shall be eligible to participate in,
and receive benefits under, any other fringe benefit plans which are or may
become applicable to the Association's executive officers.
6. Vacations; Leave. The Employee shall be entitled to annual paid
vacation in accordance with the policies established by the Association's Board
of Directors for executive employees and to voluntary leave of absence, with or
without pay, from time to time at such times and upon such conditions as the
Board of Directors of the Association may determine in its discretion.
7. Termination of Employment.
(a) Involuntary Termination. The Board of Directors may terminate the
Employee's employment at any time, but, except in the case of Termination for
Cause, termination of employment shall not prejudice the Employee's right to
compensation or other benefits under this Agreement. In the event of Involuntary
Termination other than in connection with or within twelve (12) months after a
Change in Control, (1) the Association shall pay to the Employee during the
remaining term of this Agreement, his salary at the rate in effect immediately
prior to the Date of Termination, payable in such manner and at such times as
such salary would have been payable to the Employee under Section 2 if the
Employee had continued to be employed by the Association, and (2) the
Association shall provide to the Employee during the remaining term of this
Agreement health benefits as maintained by the Association for the benefit of
its executive officers from time to time during the remaining term of the
Agreement.
(b) Termination for Cause. In the event of termination for cause, the
Association shall pay the Employee his salary through the date of termination,
and the Association shall have no further obligation to the Employee under this
Agreement.
(c) Voluntary Termination. The Employee's employment may be voluntarily
terminated by the Employee at any time upon 90 days written notice to the
Association or upon such shorter period as may be agreed upon between the
Employee and the Board of Directors of the Association. In the event of such
voluntary termination, the Association shall be obligated to continue to pay the
Employee his salary and benefits only through the date of termination, at the
time such payments are due, and the Association shall have no further obligation
to the Employee under this Agreement.
(d) Change in Control. In the event of Involuntary Termination in
connection with or within 12 months after a change in control which occurs at
any time while the Employee is employed under this Agreement, the Association
shall, subject to Section 8 of this Agreement, (1) pay to the Employee in a lump
sum in cash within 25 business days after the Date of Termination an amount
equal to 299% of the Employee's "base amount" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"); and (2) provide to the
Employee during the remaining term of this Agreement such health benefits as are
maintained for executive officers of the Association from time to time during
the remaining term of this Agreement. Upon payment of such amounts, the
Association shall have no further obligations under this Agreement.
4
<PAGE>
(e) Death; Disability. In the event of the death of the Employee while
employed under this Agreement and prior to any termination of employment, the
Employee's estate, or such person as the Employee may have previously designated
in writing, shall be entitled to receive from the Association the salary of the
Employee through the last day of the calendar month in which the Employee died.
If the Employee becomes disabled as defined in the Association's then current
disability plan or if the Employee is otherwise unable to serve in his present
capacity, the Employee shall be entitled to receive group and other disability
income benefits of the type then provided by the Association for executive
officers. In the event of such disability, this Agreement shall not be
suspended. However, the Association shall be obligated to pay the Employee
compensation pursuant to Sections 4(a) and (b) hereof only to the extent the
Employee's salary, in the absence of such disability, would exceed (on an after
tax basis) the disability income benefits received pursuant to this paragraph.
In addition, the Association shall have the right, upon resolution of its Board,
to discontinue paying cash compensation pursuant to Sections 4(a) and (b)
beginning six months following a determination that Employee qualifies for the
foregoing disability income benefits.
(f) Temporary Suspension or Prohibition. If the Employee is suspended
and/or temporarily prohibited from participating in the conduct of the
Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the Association's obligations under
this Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (1) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations which were
suspended.
(g) Permanent Suspension or Prohibition. If the Employee is removed
and/or permanently prohibited from participating in the conduct of the
Association's affairs by an order issued under Section 8(e)(4) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the Association
under this Agreement shall terminate as of the effective date of the order, but
vested rights of the contracting parties shall not be affected.
(h) Default of the Association. If the Association is in default (as
defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement
shall terminate as of the date of default, but this provision shall not affect
any vested rights of the contracting parties.
(i) Termination by Regulators. All obligations under this Agreement
shall be terminated, except to the extent determined that continuation of this
Agreement is necessary for the continued operation of the Association: (1) by
the Director of the Office of Thrift Supervision (the "Director") or his or her
designee, at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Association under the authority contained in Section 13(c)
of the FDIA; or (2) by the Director or his or her designee, at the time the
Director or his or her designee approves a supervisory merger to resolve
problems related to operation of the Association or when the Association is
determined by the Director to be in an unsafe or unsound condition. Any rights
of the parties that have already vested, however, shall not be affected by any
such action.
5
<PAGE>
8. Certain Reduction of Payments by the Association.
(a) Notwithstanding any other provisions of this Agreement, if payments
under this Agreement, together with any other payments received or to be
received by the Employee in connection with a Change in Control would cause any
amount to be nondeductible by the Association or the Holding Company for federal
income tax purposes pursuant to Section 280G of the Code, then benefits under
this Agreement shall be reduced (not less than zero) to the extent necessary so
as to maximize payments to the Employee without causing any amount to become
nondeductible by the Association or the Holding Company. The Employee shall
determine the allocation of such reduction among payments to the Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
1828(k) and any regulations promulgated thereunder.
(c) Notwithstanding any other provisions of this Agreement, payments
under Section 7 of this Agreement shall not exceed three times the Employee's
average annual compensation based on the most recent five taxable years.
9. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation earned by
the Employee as the result of employment by another employer, by retirement
benefits after the date of termination or otherwise.
10. Attorneys Fees. In the event the Association exercises its right of
Termination for Cause, but it is determined by a court of competent jurisdiction
or by an arbitrator pursuant to Section 17 that cause did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Association has failed to make timely payment of any amounts owed to
the Employee under this Agreement, the Employee shall be entitled to
reimbursement for all reasonable costs, including attorneys' fees, incurred in
challenging such termination or collecting such amounts. Such reimbursement
shall be in addition to all rights to which the Employee is otherwise entitled
under this Agreement.
11. No Assignments.
(a) his Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Association shall require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Association, by an
assumption agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Association would be required to perform it if no such
succession or assignment had taken place. Failure of the Association to obtain
such an assumption agreement prior to the effectiveness of any such succession
or assignment shall be a breach of this Agreement and shall entitle the Employee
to compensation from the Association in the same amount and on the same terms as
the compensation pursuant to Section 7(d) hereof. For purposes of
6
<PAGE>
implementing the provisions of this Section 12(a), the date on which any such
succession becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall inure
to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Association at its home
office the attention of the Board of Directors with a copy to the Secretary of
the Association, or, if the Employee, to such home or other address as the
Employee has most recently provided in writing to the Association.
13. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. Paragraph Headings. The paragraph headings used in this Agreement
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Illinois.
17. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
7
<PAGE>
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: PREFERRED SAVINGS BANK
By:
- ----------------------------------------- --------------------------
Lorraine G. Ptak, Secretary Kimberly Rooney
Its: President
EMPLOYEE
--------------------------
S.J. Ptak
8
<PAGE>
Exhibit 10.6
Form of Change in Control Severance Agreement
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") is made and
entered into as of this _________ day of ____________________, 1996, by and
between PREFERRED SAVINGS BANK, a federally chartered savings institution
(which, together with any successor thereto which executes and delivers the
assumption agreement provided for in Section 11(a) hereof or which otherwise
becomes bound by the terms and provisions of this Agreement by operation of law,
is hereinafter referred to as the "Association"), and __________________ (the
"Employee") whose residence address is _____________________.
WHEREAS, the Employee is currently serving as the ____________________
of the Association; and
WHEREAS, the Association has adopted a plan of conversion whereby the
Association will convert (the "Conversion") to capital stock form and become the
wholly owned subsidiary of PSB Holding Company (the "Holding Company"); and
WHEREAS, the Board of Directors of the Association recognizes that, as
is the case with publicly held corporations generally, the possibility of a
change in control of the Holding Company may exist and that such possibility,
and the uncertainty and questions which it may raise among management, may
result in the departure or distraction of key management personnel to the
detriment of the Association and its stockholder; and
WHEREAS, the Board of Directors of the Association believes it is in
the best interests of the Association to enter into this Agreement with the
Employee in order to assure continuity of management of the Association and to
reinforce and encourage the continued attention and dedication of the Employee
to his assigned duties without distraction in the face of potentially disruptive
circumstances arising from the possibility of a change in control of the Holding
Company, although no such change is now contemplated; and
<PAGE>
WHEREAS, the Board of Directors of the Association has approved and
authorized the execution of this Agreement with the Employee to take effect as
stated in Section 1 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, it is AGREED as
follows:
1. TERM OF AGREEMENT.
The term of this Agreement shall be deemed to have commenced as of the
date of the completion of the Association's conversion to stock form and shall
continue for a period of eighteen full calendar months thereafter. Commencing on
the first annual anniversary date of this Agreement and continuing at each
annual anniversary date thereafter, this Agreement shall be extended for a
period of one year in addition to the then-remaining term of employment under
this Agreement, unless either the Association or the Employee gives contrary
written notice to the other not less than 90 days in advance of the date on
which the term of employment under this Agreement would otherwise be extended.
Notwithstanding any other statement or provision in this Agreement to
the contrary, beginning on the first annual anniversary date of the conversion,
this Agreement will not be automatically extended unless, prior thereto, the
Board of Directors of the Association reviews and approves such extension.
2. PAYMENTS TO THE EMPLOYEE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a change in control (as herein defined) of
the Association or the Holding Company followed at any time during the term of
this Agreement by the involuntary termination of the Employee's employment,
other than for cause, as defined in Section 2(d) hereof, the provisions of
Section 3 shall apply.
2
<PAGE>
(b) A "change in control" of the Association or the Holding Company is
defined solely as any acquisition of control (other than by a trustee or other
fiduciary holding securities under an employee benefit plan of the Holding
Company or a subsidiary of the Holding Company), as defined in 12 C.F.R. ss.
574.4, or any successor regulation, of the Association or Holding Company which
would require the filing of an application for acquisition of control or notice
of change in control in a manner as set forth in 12 C.F.R. ss. 574.3, or any
successor regulation.
(c) The Employee's employment under this Agreement may be terminated at
any time by the Board of Directors of the Association. The terms "involuntary
termination" or "involuntarily terminated" in this Agreement shall refer to the
termination of the employment of Employee without his express written consent.
In addition, a material diminution of the Employee's benefits or a material
adverse change in the quality of the work environment which would hamper the
Employee's ability to perform his job effectively shall be deemed and shall
constitute an involuntary termination of employment to the same extent as
express notice of such involuntary termination. By way of example and not by way
of limitation, any of the following actions, if unreasonable or materially
adverse to the Employee, shall constitute such diminution or interference unless
consented to in writing by the Employee: (1) change in the principal workplace
of the Employee to a location outside of a 30 mile radius from the Association's
headquarters office as of the date hereof; (2) a material reduction or adverse
change in the scope or nature of the secretarial or other administrative support
of the Employee which would hamper his ability to perform his job effectively;
(3) a reduction or adverse change in the salary, perquisites, benefits,
contingent benefits or vacation time which had theretofore been provided to the
Employee, other than as part of an overall program applied uniformly and with
equitable effect to all members of the senior management of the Association or
the Holding Company; and
3
<PAGE>
(4) a material permanent increase in the required hours of work or the workload
of the Employee.
(d) The Employee shall not have the right to receive termination
benefits pursuant to Section 3 hereof upon termination for cause. For purposes
of this Agreement, termination for "cause" shall include termination for
personal dishonesty, incompetence, willful misconduct, breach of a fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any material law, rule, or regulation (other than a law,
rule or regulation relating to a traffic violation or similar offense) or final
cease-and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors of the
Association at a meeting of the Board called and held for such purpose (after
reasonable notice to the Employee and an opportunity for the Employee, together
with the Employee's counsel, to be heard before the Board), stating that in the
good faith opinion of the Board the Employee was guilty of conduct constituting
"cause" as set forth above and specifying the particulars thereof in detail.
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a change in control, followed by the
involuntary termination of the Employee's employment, other than for cause, the
Association shall pay to the Employee in a lump sum in cash within 25 business
days after the date of severance of employment an amount equal to $40,000. At
the election of the Employee, such payment may be made, on a pro rata basis,
semi-monthly during the twelve (12) months following the Employee's termination.
4
<PAGE>
(b) Upon the occurrence of a change in control of the Association or
the Holding Company followed by the involuntary termination of the Employee's
employment, other than for cause, the Association shall cause life and health
insurance coverage (substantially similar to the coverage maintained by the
Association for the Employee prior to his severance) to be maintained for a
period of 12 months or for the remaining term of the agreement, whichever is
greater.
4. CERTAIN REDUCTION OF PAYMENTS BY THE ASSOCIATION.
(a) Notwithstanding any other provisions of this Agreement, if payments
and benefits under this Agreement, together with any other payments and benefits
received or to be received by the Employee in connection with a change in
control, would cause any amount to be nondeductible by the Association or the
Holding Company for federal income tax purposes pursuant to Section 280G of the
Code, then payments and benefits under this Agreement shall be reduced (not less
than zero) to the extent necessary so as to maximize payments and benefits to
the Employee without causing any amount to become nondeductible by the
Association or the Holding Company by reason of Section 280G of the Internal
Revenue Code of 1986 as amended. The Employee shall determine the allocation
of such reduction among payments and benefits to the Employee.
(b) Notwithstanding any other provisions of this Agreement, payments
under Section 3 of this Agreement shall not exceed three times the Employee's
average annual compensation based on the most recent five taxable years.
5
<PAGE>
(c) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
1828(k) and any regulations promulgated thereunder.
(d) So long as 12 C.F.R. ss. 563.39(b) (1995) remains in effect and
applicable to the Association, in the event that any of the termination
provisions of this Agreement conflict with 12 C.F.R. ss. 563.39(b) (1995), the
latter shall prevail.
5. REQUIRED REGULATORY PROVISIONS.
(a) The Association may terminate the Employee's employment at any
time, but any termination by the Association, other than a termination for
cause, shall not prejudice the Employee's right to compensation or other
benefits under this Agreement. The Employee shall not have the right to receive
compensation or other benefits for any period after a termination for cause as
defined in Section 2(d) hereinabove.
(b) If the Employee is suspended from office and/or temporarily
prohibited from participating in the conduct of the Association's affairs by a
notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance
Act ("FDIA"), 12 U.S.C. ss. 1818(e)(3) and (g)(1), the Association's obligations
under this Agreement shall be suspended as of the date of service, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (i) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of the obligations which were
suspended.
(c) If the Employee is removed from office and/or permanently
prohibited from participating in the conduct of the Association's affairs by an
order issued under Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C.
ss. 1818(e)(4) or (g)(1), all obligations of the Association under
6
<PAGE>
this Agreement shall terminate, as of the effective date of the order, but
vested rights of the parties shall not be affected.
(d) If the Association becomes in default (as defined in Section
3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of
the date of default, but this provision shall not affect any vested rights of
the parties.
(e) All obligations under this Agreement may be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Association: (i) by the Director or his or her
designee, at the time the Federal Deposit Insurance Corporation ("FDIC") or the
Resolution Trust Corporation ("RTC") at the time the FDIC or the RTC enters into
an agreement to provide assistance to or on behalf of the Association under the
authority contained in Section 13(c) of the FDIA, or (ii) by the Director of the
Office of Thrift Supervision ("OTS") or his or her designee at the time the
Director or his or her designee approves a supervisory merger to resolve
problems related to operation of the Association or when the Association is
determined by the Director to be in an unsafe or unsound condition. Any rights
of the parties that have already vested, however, shall not be affected by any
such action.
6. REINSTATEMENT OF BENEFITS UNDER Section 5(b).
In the event the Employee is suspended and/or temporarily prohibited
from participating in the conduct of the Association's affairs by a notice
described in Section 5(b) hereof (the "Notice") during the term of this
Agreement and a change in control occurs, the Association will assume its
obligation to pay and the Employee will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Association's receipt of a dismissal of charges in the Notice.
7
<PAGE>
7. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Association and the
Employee, except that this Agreement shall not affect or operate to reduce any
benefit or compensation inuring to the Employee of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that the Employee is
subject to receiving fewer benefits than those available to him without
reference to this Agreement.
8. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
the Employee, the Association and their respective successors and assigns.
9. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a
8
<PAGE>
waiver of such term or condition for the future or as to any act other than
that specifically waived.
10. NO MITIGATION.
The amount of any payment or benefit provided for in this Agreement
shall not be reduced by any compensation earned by the Employee as the result of
employment by another employer, by retirement benefits after the date of
termination or otherwise.
11. NO ASSIGNMENTS.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Association will require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Association, by an
assumption agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Association would be required to perform it if no such
succession or assignment had taken place. Failure of the Association to obtain
such an assumption agreement prior to the effectiveness of any such suc cession
or assignment shall be a breach of this Agreement and shall entitle the Employee
to com pensation from the Association in the same amount and on the same terms
as the compensation pursuant to Section 3 hereof. For purposes of implementing
the provisions of this Section 11(a), the date on which any such succession
becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall inure
to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, admin-
9
<PAGE>
istrators, successors, heirs, distributees, devisees and legatees. If the
Employee should die while any amounts would still be payable to the Employee
hereunder if the Employee had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Employee's devisee, legatee or other designee or if there is no
such designee, to the Employee's estate.
12. NOTICE.
For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement (provided that all
notices to the Association shall be directed to the attention of the Board of
Directors of the Association with a copy to the Secretary of the Association),
or to such other address as either party may have furnished to the other in
writing in accordance herewith.
13. AMENDMENTS.
No amendments or additions to this Agreement shall be binding unless in
writing and signed by both parties, except as herein otherwise provided.
14. PARAGRAPH HEADINGS.
The paragraph headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
15. SEVERABILITY.
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof.
10
<PAGE>
16. GOVERNING LAW.
This Agreement shall be governed by the laws of the United States to
the extent applicable and otherwise by the laws of the State of Illinois.
17. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction.
18. REIMBURSEMENT.
In the event the Association purports to terminate the Employee for
cause, but it is determined by a court of competent jurisdiction or by an
arbitrator pursuant to Section 17 that cause did not exist for such termination,
or if in any event it is determined by any such court or arbitrator that the
Association has failed to make timely payment of any amounts owed to the
Employee under this Agreement, the Employee shall be entitled to reimbursement
for all reason able costs, including attorneys' fees, incurred in challenging
such termination or collecting such amounts. Such reimbursement shall be in
addition to all rights to which the Employee is otherwise entitled under this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
11
<PAGE>
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: PREFERRED SAVINGS BANK
By:
- -------------------------------- ---------------------------------------
Lorraine G. Ptak, Secretary Kimberly P. Rooney, President and Chief
Executive Officer
WITNESS: EMPLOYEE
By:
- -------------------------------- ---------------------------------------
12
<PAGE>
Exhibit 24.2
Consent of Crowe, Chizek and Company LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Preferred Savings Bank
Chicago, Illinois
We consent to the use in this Registration Statement on Form S-1 filed with the
Securities and Exchange Commission and Form AC filed with the Office of Thrift
Supervision on PS Financial, Inc., 1996 of our report dated March 1, 1996 on the
financial statements of Preferred Savings Bank for the year ended December 31,
1995. We also consent to the reference to us under the headings "The Conversion
- - Tax Effects", "The Conversion - Income Tax Consequences", "Experts", and
"Legal and Tax Matters" in this Registration Statement on Forms S-1 and AC.
Crowe, Chizek and Company LLP
October 7, 1996
Oak Brook, Illinois
<PAGE>
Exhibit 99.1
CONVERSION VALUATION APPRAISAL REPORT
Prepared For:
Preferred Savings Bank
and
PS Financial, Inc.
Chicago, Illinois
As Of:
August 9, 1996
Prepared By:
Keller & Company, Inc.
555 Metro Place North
Suite 524
Dublin, Ohio 43017
(614) 766-1426
KELLER & COMPANY
<PAGE>
CONVERSION VALUATION APPRAISAL REPORT
Prepared for:
Preferred Savings Bank
and
PS Financial Inc.
Chicago, Illinois
As Of:
August 9, 1996
Prepared By:
Michael R. Keller
President
<PAGE>
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
August 30, 1996
Board of Directors
Preferred Savings Bank
4800 South Pulaski Road
Chicago, IL 60632
Gentlemen:
We hereby submit an independent appraisal of the pro forma market value of the
to-be-issued stock of PS Financial, Inc. (the "Corporation"), which is the newly
formed holding company of Preferred Savings Bank, Chicago, Illinois ("Preferred"
or the "Bank"). The Corporation will hold all of the shares of the common stock
of the Bank. Such stock is to be issued in connection with the Bank's conversion
from a federally chartered mutual savings bank to a federally chartered stock
savings bank in accordance with the Bank's Plan of Conversion. This appraisal
was prepared and provided to the Bank in accordance with the conversion
requirements and regulations of the Office of Thrift Supervision of the United
States Department of the Treasury.
Keller & Company, Inc. is an independent financial institution consulting firm
that serves both banks and thrift institutions. The firm is a full-service
consulting organization, as described in more detail in Exhibit A, specializing
in market studies, business and strategic plans, stock valuations, conversion
appraisals, and fairness opinions for thrift institutions and banks. The firm
has affirmed its independence in this transaction with the preparation of its
Affidavit of Independence, a copy of which is included as Exhibit C.
Our appraisal is based on the assumption that the data provided to us by
Preferred and the material provided by the independent auditor, Crowe Chizek and
Company, L.L.P., Oakbrook Terrace, Illinois, are both accurate and complete. We
did not verify the financial statements provided to us, nor did we conduct
independent valuations of the Bank's assets and liabilities. We have also used
information from other public sources, but we cannot assure the accuracy of such
material.
<PAGE>
Board of Directors
Preferred Savings Bank
August 30, 1996
Page 2
In the completion of this appraisal, we held discussions with the management of
Preferred, with the law firm of Silver, Freedman & Taff, L.L.P., Washington, DC,
the Bank's conversion counsel, and with Crowe Chizek and Company, L.L.P.
Further, we viewed the Bank's local economy and primary market area.
This valuation must not be considered as a recommendation as to the purchase of
stock in the Corporation, and we can provide no guarantee or assurance that
any person who purchases shares of the Corporation's stock in this conversion
will be able to later sell such shares at a price equivalent to the price
designated in this appraisal.
Our valuation will be updated as required and will give consideration to any new
developments in the Bank's operation that have an impact on operations or
financial condition. Further, we will give consideration to any changes in
general market conditions and to specific changes in the market for
publicly-traded thrift institutions. Based on the material impact of any such
changes on the pro forma market value of the Bank as determined by this firm,
we will proceed to make necessary adjustments to the Bank's appraised value in
such appraisal update.
It is our opinion that as of August 9, 1996, the pro forma market value or
appraised value of the Corporation is $16,500,000. Further, a range for this
valuation is from a minimum of $14,025,000 to a maximum of $19,975,000, with a
super-maximum of $21,821,250.
Very truly yours,
KELLER & COMPANY, INC.
/s/ Michael R. Keller
Michael R. Keller
President
<PAGE>
TABLE OF CONTENTS
PAGE
INTRODUCTION 1
I. Description of Preferred Savings Bank
General 4
Performance Overview 9
Income and Expense 11
Yields and Costs 17
Interest Rate Sensitivity 19
Lending Activities 21
Non-Performing Assets 24
Investments 26
Deposit Activities 26
Borrowings 27
Subsidiaries 28
Office Properties 28
Management 28
II. Description of Primary Market Area 29
III. Comparable Group Selection
Introduction 34
General Parameters
Merger/Acquisition 35
Mutual Holding Companies 36
Trading Exchange 36
IPO Date 37
Geographic Location 37
Asset Size 38
Balance Sheet Parameters
Introduction 39
Cash and Investments to Assets 39
Mortgage-Backed Securities to Assets 40
One- to Four Family Loans to Assets 40
Total Net Loans to Assets 41
Total Net Loans and Mortgage-Backed Securities to Assets 41
Advances to Assets 41
Equity to Assets 42
Performance Parameters
Introduction 42
<PAGE>
TABLE OF CONTENTS (cont.)
PAGE
III. Comparable Group Selection (cont.)
Performance Parameters (cont.)
Return on Average Assets 43
Return on Average Equity 43
Net Interest Margin 44
Operating Expenses to Assets 44
Noninterest Income to Assets 45
Asset Quality Parameters
Introduction 45
Nonperforming Assets to Asset Ratio 46
Repossessed Assets to Assets 46
Loans Loss Reserves to Assets 46
The Comparable Group 47
Summary of Comparable Group Institutions 48
IV. Analysis of Financial Performance 51
V. Market Value Adjustments
Earnings Performance 54
Market Area 57
Financial Condition 58
Dividend Payments 60
Subscription Interest 60
Liquidity of Stock 61
Management 62
Marketing of the Issue 62
VI. Valuation Methods 64
Price to Book Value Method 65
Price to Earnings Method 66
Price to Net Assets Method 67
Valuation Conclusion 68
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
NUMERICAL PAGE
EXHIBITS
<S> <C> <C>
1 Balance Sheet - May 31, 1996, and December 31, 1995 69
2 Balance Sheet - December 31, 1993 and 1994,
February 29, 1992, and February 29, 1993 70
3 Income Statement - Five Months ended May 31, 1995
and 1996, and Year Ended December 31, 1995 71
4 Income Statement - December 31, 1994, Ten months ended
December 31, 1993, Years ended February 29, 1992
and February 28, 1993 72
5 Selected Consolidated Financial Data 73
6 Income and Expense Trends 74
7 Normalized Earnings Trend 75
8 Performance Indicators 76
9 Volume/Rate Analysis 77
10 Yield and Cost Trends 78
11 Interest Rate Sensitivity Gap 79
12 Interest Rate Sensitivity of Net Portfolio Value (NPV) 80
13 Loan Portfolio Composition 81
14 Loan Maturity Schedule 82
15 Loan Portfolio Originations 83
16 Delinquent Loans 84
17 Nonperforming Assets 85
18 Classified Assets 86
19 Allowance for Loan Losses 87
20 Investment Portfolio Composition 88
21 Mix of Deposits 89
22 Deposit Activity 90
23 List of Key Officers and Directors 91
24 Key Demographic Data and Trends 92
25 Key Housing Data 93
26 Major Sources of Personal Income 94
27 Unemployment Rates 95
28 Market Share of Deposits 96
29 National Interest Rates 97
30 Thrift Stock Prices and Pricing Ratios 98
31 Key Financial Data and Ratios 109
32 Recently Converted Thrift Institutions 121
</TABLE>
<PAGE>
LIST OF EXHIBITS (cont.)
<TABLE>
<CAPTION>
NUMERICAL PAGE
EXHIBITS
<S> <C> <C>
33 Acquisitions and Pending Acquisitions 122
34 Thrift Stock Prices and Pricing Ratios -
Mutual Holding Companies 124
35 Key Financial Data and Ratios -
Mutual Holding Companies 125
36 Balance Sheets Parameters -
Comparable Group Selection 126
37 Operating Performance and Asset Quality Parameters -
Comparable Group Selection 129
38 Balance Sheet Ratios -
Final Comparable Group 133
39 Operation Performance and Asset Quality Ratios
Final Comparable Group 134
40 Balance Sheet Totals - Final Comparable Group 135
41 Market Area Comparison - Final Comparable Group 136
42 Balance Sheet - Asset Composition
Most Recent Quarter 137
43 Balance Sheet - Liability and Equity
Most Recent Quarter 138
44 Income and Expense Comparison
Trailing Four Quarters 139
45 Income and Expense Comparison as a Percent of
Average Assets - Trailing Four Quarters 140
46 Yields, Costs & Earnings Ratios
Trailing Four Quarters 141
47 Dividends, Reserves and Supplemental Data 142
48 Market Pricings and Financial Ratios - Stock Prices
Comparable Group 143
49 Valuation Analysis and Conclusions 144
50 Pro Forma Minimum Valuation 145
51 Pro Forma Mid-Point Valuation 146
52 Pro Forma Maximum Valuation 147
53 Pro Forma Superrange Valuation 148
54 Summary of Valuation Premium or Discount 149
</TABLE>
<PAGE>
ALPHABETICAL EXHIBITS
PAGE
A Background and Qualifications 150
B RB 20 Certification 154
C Affidavit of Independence 155
<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 PS
Financial, Inc. (the "Corporation"), a Delaware corporation, formed as a holding
company to own all of the to-be-issued shares of common stock of Preferred
Savings Bank, Chicago, Illinois, ("Preferred" or the "Bank"). The stock is to be
issued in connection with the Bank's Application for Approval of Conversion from
a federally chartered mutual savings bank to a federally chartered stock savings
bank. 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 the Bank's conversion, there will be a
simultaneous issuance of all the Bank's stock to the Corporation, which will be
formed by the Bank. Such Application for Conversion has been reviewed by us,
including the Prospectus and related documents, and discussed with the Bank's
management and the Bank's conversion counsel, Silver, Freedman & Taff,
Washington, D.C.
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
1
<PAGE>
Introduction (cont.)
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 Bank 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 periods ended February 29, 1992,
February 28, 1993, and December 31, 1993 through 1995, as well as the unaudited
financial statements for the five months ended May 31, 1996, and discussed them
with Preferred's management and with Preferred's independent auditors, Crowe,
Chizek and Company, LLP. We have also discussed and reviewed with management
other financial matters. We have reviewed the Corporation's preliminary Form S-1
and the Bank's preliminary Form AC and discussed them with management and with
the Bank's conversion counsel.
We have visited Preferred'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 Bank's offices are located, and
the Bank's primary market area relative to Illinois and the United States. We
have also examined the competitive environment within which Preferred 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 Preferred to those selected institutions.
2
<PAGE>
Introduction (cont.)
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 PREFERRED SAVINGS BANK
GENERAL
Preferred Savings Bank, Chicago, Illinois, was organized in 1891 as an
Illinois savings and loan association with the name of New City Savings and Loan
Association, later changing its name to Preferred Savings and Loan Association.
The Bank converted to a state savings bank in 1993, changing its name to
Preferred Savings Bank and changed to a federally chartered savings bank in
August, 1996, keeping its name.
Preferred conducts its business from its home office in Chicago,
Illinois, located to the southwest of downtown Chicago, near Midway Airport. The
Bank's market area extends into Cook County, with its savings market located in
the vicinity of the home office. Preferred's deposits are insured up to
applicable limits by the Federal Deposit Insurance Corporation ("FDIC") in the
Savings Association Insurance Fund ("SAIF"). The Bank is also subject to certain
reserve requirements of the Board of Governors of the Federal Reserve Bank (the
"FRB"). Preferred is a member of the Federal Home Loan Bank (the "FHLB") of
Chicago and is regulated by the OTS, and by the FDIC. As of May 31, 1996,
Preferred had assets of $54,853,000, deposits of $41,945,000, and equity of
$12,029,000.
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 0.70 percent to
0.75 percent of deposits as of June 30, 1996, to capitalize the SAIF does exist,
and such an increase would have an adverse effect on Preferred'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
Preferred 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 when the Federal Deposit Insurance
Bank 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. Preferred meets the
standards for a well capitalized institution.
Preferred is a community-oriented institution which has been
principally engaged in the business of serving the financial needs of the public
in its local communities and throughout its market area. Preferred has been
actively and consistently involved in the origination of residential mortgage
loans for the purchase of one- to four-family dwellings, comprising 52.2 percent
of its loan originations during the five months ended May 31, 1996, and 71.1
percent of its loan originations during the fiscal year ended December 31, 1995.
At May 31, 1996, 71.8 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 higher 73.4 percent at December 31, 1995, with
the primary source of its funds being retail deposits from residents in its
local communities. The Bank is also an originator of multifamily loans,
commercial real estate loans, construction and land loans and also offers
consumer loans on a less active basis. Multifamily loans represented
5
<PAGE>
General (cont.)
a strong 18.1 percent of gross loans at May 31, 1996. Commercial real estate
loans represented 9.4 percent of gross loans. Consumer loans include only loans
on savings accounts and represented a very modest 0.04 percent share of the
Bank's total loans at May 31, 1996.
The Bank had a strong $11.4 million, or 20.6 percent of its assets in
U.S. government and federal agency securities and FHLB stock. The Bank had an
additional $3.9 million, or 7.0 percent of its assets, in mortgage-backed
securities, and $3.4 million in interest-bearing deposits with the combined
total of investment securities, mortgage-backed securities and interest-bearing
deposits being $18.7 million or 33.7 percent of assets. Deposits and retained
earnings have been the sources of funds for the Bank's lending and investment
activities.
The management of Preferred is aware of the emphasis on matching the
maturities of assets and liabilities and monitoring the Bank's interest rate
sensitivity position and market value of portfolio equity. The Bank understands
the nature of interest rate risk and the potential earnings impact during times
of rapidly changing rates, either rising or falling. Preferred also recognizes
the need and importance of attaining a competitive net interest margin due to
its more moderate levels of fee and other income, and has focused on
strengthening its earnings with less emphasis on matching maturities of assets
and liabilities.
The Bank's gross amount of stock to be sold in the conversion will be
$16,500,000 or 1,650,000 shares at $10 per share based on the midpoint of the
appraised value, with net conversion proceeds of $15,980,000 reflecting
conversion expenses of $520,000. The actual cash proceeds to the Bank of $8.0
million will represent fifty percent of the net conversion proceeds, less the
ESOP of $1,320,000, and will be invested in fixed-rate mortgage loans,
construction loans and multifamily loans over time, and initially invested in
short term investments. The Bank may also use the proceeds to expand services,
6
<PAGE>
General (cont.)
expand operations or other financial service organizations, diversification into
other businesses, or for any other purposes authorized by law. The Holding
Company will use its proceeds to fund the ESOP and to invest in short- and
intermediate-term government securities.
Preferred has seen modest overall deposit growth over the past five
fiscal years with deposits increasing 8.2 percent from February 29, 1992, to
December 31, 1995, or an average of 2.0 percent per year. From December 31,
1995, to May 31, 1996, deposits increased a stronger 2.2 percent or 5.3 percent,
annualized, compared to a 2.5 percent growth rate in 1995. The Bank anticipates
a similar 2.0 to 3.0 percent annual rate of growth in the future. The Bank has
focused on maintaining a moderate 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 capital to assets ratio.
Equity to assets increased from 17.01 percent of assets at February 29, 1992, to
21.80 percent at December 31, 1995, and to 21.75 percent at May 31, 1996.
Preferred's primary lending strategy has been to originate and retain
fixed-rate residential mortgage loans with emphasis on one- to four-family
fixed-rate mortgage loans with a higher level of multifamily loans and
commercial real estate loans.
Preferred's share of one- to four-family mortgage loans has decreased,
declining from 76.5 percent of gross loans at February 29, 1992, to 71.8 percent
as of May 31, 1996. Commercial real loans increased from 4.4 percent of gross
loans at February 29, 1992, to 9.4 percent at May 31, 1996. Multifamily loans
decreased from 18.8 percent of gross loans at February 29, 1992, to 18.1 percent
at May 31, 1996. The decrease in multifamily and one- to four family loans was
offset by the Bank's increase in commercial real estate loans. The Bank's share
of consumer loans also witnessed a decrease from 0.3 percent at February 29,
1992, to 0.04 percent at May 31, 1996.
7
<PAGE>
General (cont.)
Management's internal strategy has also included continued emphasis on
maintaining an adequate relative to problem loans and losses. At February 29,
1992, Preferred had $43,000 in its loan loss allowance or 0.14 percent of total
loans, which increased to $136,000 and represented a higher 0.38 percent of
total loans at May 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.
With a dependence on net interest margin for earnings, current management will
continue to focus on maintaining the Bank's net interest margin without
undertaking excessive credit risk and will not pursue any significant change in
its interest rate risk position.
8
<PAGE>
PERFORMANCE OVERVIEW
Preferred's financial position over the past five fiscal periods of
February 29, 1992, through December 31, 1995, and for the five months ended May
31, 1996, is highlighted through the use of selected financial data in Exhibit
5. Preferred has focused on strengthening its equity position, controlling its
overhead ratio, increasing its general valuation allowance, and maintaining its
net interest margin. Preferred has experienced a moderate but overall steady
rise in assets from 1991 to 1995 and a smaller rate of increase in deposits with
a greater than average increase in equity over the past five fiscal years. The
resultant impact has been an increase in the Bank's equity to assets ratio.
Preferred witnessed a total increase in assets of $7.0 million or 15.1
percent for the period of February 29, 1992, to December 31, 1995, representing
an average annual increase in assets of 3.8 percent. For the year ended December
31, 1995, assets increased $1.9 million or 3.7 percent. For the five months
ended May 31, 1996, the Bank's assets increased $1.3 million or 2.5 percent, or
6.0 percent, annualized. Over the past five fiscal periods, the Bank experienced
its largest dollar rise in assets of $3.9 million in fiscal year 1993, which
represented a 7.8 percent increase in assets due to a rise in deposits and
strong earnings. This increase was preceded by a $3.5 million or 7.5 percent
increase in assets in fiscal year 1992, a decrease in 1994 and a $1.9 million
increase, or 3.7 percent, in 1995.
The Bank's net loan portfolio, including mortgage loans and
non-mortgage loans, increased from $31.7 million at February 29, 1992, to $34.5
million at December 31, 1995, and represented a total increase of $2.8 million,
or 8.8 percent. The average annual increase during that period was 2.2 percent.
That increase was the result of high levels of loan originations in fiscal years
1994 and 1995, combined with lower levels of principal repayments. The increase
in loans at Preferred was accented by the Bank's growth in investment securities
and mortgage-backed securities. For the year ended December 31, 1995, loans
increased $1.6 million or 5.0 percent. For the five months ended May 31, 1996,
net loans then increased $1.2 million or 3.6 percent.
9
<PAGE>
Performance Overview (cont.)
Preferred has pursued obtaining funds through deposit growth in
accordance with the demand for loans, and has made no use of FHLB advances. The
Bank's rates for savings and emphasis on personal service in its local market
have been the source of retail deposits. Deposits increased moderately from 1991
to 1992, followed by a modest increase in fiscal 1993 and a decrease in 1994,
and then a modest increase in 1995, with an average annual rate of increase of
2.0 percent from February 29, 1992, to December 31, 1995. For the five months
ended May 31, 1996, deposits increased by $898,000 or 2.2 percent, annualized,
to 5.3 percent. The Bank's strongest fiscal year deposit growth was in fiscal
year 1992, when deposits increased $2.4 million or 6.4 percent.
Preferred has been able to increase its equity each fiscal year from
1991 through 1995. At February 29, 1992, the Bank had equity (GAAP basis) of
$7.9 million representing a 16.99 percent equity to assets ratio, increasing to
$11.7 million at December 31, 1995, and representing a 21.91 percent equity to
assets ratio. At May 31, 1996, equity was a higher $12.0 million or 21.93
percent. The rise in the equity to assets ratio is primarily the result of the
Bank's strong earnings performance in 1991 through 1995. Equity increased 48.4
percent from February 29, 1992, to December 31, 1995, representing an average
annual increase of 12.1 percent, which is below industry average due to the
Bank's higher equity position, and increased 2.6 percent for the five months
ended May 31, 1996, or 6.2 percent, annually.
10
<PAGE>
INCOME AND EXPENSE
Exhibit 6 presents selected operating data for Preferred, reflecting
the Bank's income and expense trends. This table provides selected audited
income and expense figures in dollars for the fiscal periods of 1991 through
1995 and unaudited income and expense figures for the five months ended May 31,
1996.
Preferred has witnessed a slight increase in its dollar level of
interest income from fiscal 1991 to fiscal 1995, ranging from a high of $4.3
million in 1995 to a low of $3.4 million in the ten month period ended December
31, 1993. The five year trend indicated almost no change, increasing from
$4,265,000 in 1991 to $4,268,000 in 1995. In fiscal year 1995, interest income
increased $414,000, or 10.7 percent, to $4.3 million. For the five months ended
May 31, 1996, interest income was $1.9 million, compared to $1.8 million for the
five months ended May 31, 1995, suggesting a continuation of the fiscal 1995
rising trend but at a reduced pace. The overall increase in interest income was
due primarily to the Bank's increase in rate, further accented by an increase
due to volume.
The Bank's interest expense experienced a declining trend from fiscal
year 1991 to 1994, followed by an increase in 1995. Interest expense decreased
$844,000, or 39.2 percent, from 1991 to 1994, compared to a decrease in interest
income of $411,000, or 9.6 percent, for the same time period. Interest expense
then increased $322,000 or 24.5 percent from 1994 to 1995, compared to an
increase in interest income of $414,000 or 10.7 percent as discussed above. Such
high increase in interest expense, more than offset by the increase in interest
income, resulted in a modest increase in annual net interest income to
$2,636,000 for the fiscal year ended December 31, 1995. Net interest income
increased from $2,111,000 in 1991 to $2,449,000 in 1992, followed by a decrease
to $2,232,000 in the ten month fiscal 1993 period, and then increases in 1994
and 1995. For the five months ended May 31, 1996, Preferred's actual net
interest income was $1,128,000, which was almost identical to the $1,126,000 for
the five months ended May 31, 1995.
11
<PAGE>
Income and Expense (cont.)
The Bank has made provisions for loan losses in four of the past five
fiscal periods of 1991 through 1995 in the five months ended May 31, 1996. The
amounts of those provisions were determined in recognition of the Bank'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. The loan loss provisions were $24,000 in fiscal 1991,
$24,000 in fiscal 1992, $27,000 in fiscal 1993, $42,000 in fiscal 1994, and
$50,000 in the five months ended May 31, 1996. The impact of these loan loss
provisions has been to provide Preferred with a general valuation allowance of
$186,000 at May 31, 1996, or 0.51 percent of net loans and 31.0 percent of
nonperforming assets.
Total other income or noninterest income, excluding gains and losses,
indicated modest levels in fiscal years 1991 to 1995. The highest level of
noninterest income was in fiscal year 1994 at $76,000 or 0.14 percent of average
assets and the lowest level at $39,000 was in fiscal 1992, representing 0.08
percent of average assets. The low levels of noninterest income were due to the
Bank's absence of checking accounts and thus service charges on these accounts.
The average noninterest income level for the past five fiscal years was $52,000
or 0.10 percent of average assets. Noninterest income consisted primarily of
loan related fees and other charges.
The Bank did have a significant loss on the sale of securities in 1994
of $365,000, preceded by a loss of $28,000 in fiscal 1993 and a gain of $89,000
in fiscal 1991. The Bank had no gains or losses in fiscal 1992, 1995 or during
the five months ended May 31, 1996.
The Bank's general and administrative expenses or noninterest expenses
increased from $777,000 for the fiscal year of 1991 to $1,009,000 for the fiscal
year ended December 31, 1995. The dollar increase in noninterest expenses was
$232,000 from 1991 to 1995, representing an average annual increase of $58,000
or 7.1 percent. The average
12
<PAGE>
Income and Expense (cont.)
annual increase in other expenses was due to the Bank's normal rise in overhead
expenses and in 1995, the increase was primarily the result of the termination
of the Bank's pension plan which increased compensation and benefits expense by
$132,000. On a percent of assets basis, operating expenses increased from 1.53
percent of average assets for the fiscal year ended February 29, 1992, to 1.91
percent for the fiscal year ended December 31, 1995, which was the Bank's
highest ratio during the past five years but lower than current industry
averages of approximately 2.35 percent. Excluding the one-time pension expense,
this ratio would have been a lower 1.67 percent. For the five months ended May
31, 1996, Preferred's ratio of operating expenses to average assets was a lower
1.55 percent.
The net earnings position of Preferred has indicated profitable
performance in each of the past five fiscal periods of 1991 through 1995, and
for the five months ended May 31, 1996. The annual net income figures for the
past five fiscal periods of 1991, 1992, 1993, 1994 and 1995 have been $883,000,
$1,001,000, $942,000, $758,000, and $1,055,000, representing returns on average
assets of 1.74 percent, 1.96 percent, 1.83 percent, 1.46 percent, and 1.99
percent, respectively. The average return on assets for the past five fiscal
periods was 1.80 percent. For the five months ended May 31, 1996, net earnings
were $440,000, representing an annualized return on assets of 1.94 percent.
Exhibit 7 provides the Bank's normalized earnings or core earnings for
fiscal years 1993 to 1995 and for the twelve months ended May 31, 1996. The
Bank's normalized earnings eliminate any nonrecurring income and expense items.
In fiscal years 1993 and 1994, there were income adjustments to eliminate the
Bank's losses on sale of securities. The result of these adjustments was a core
income of $975,000 in 1993, compared to actual net income of $942,000, and core
income of $1,061,000 in 1994 compared to actual net income of $758,000. For the
fiscal year 1995 and for the twelve months ended May 31, 1996, there were no
adjustments to income or expense.
13
<PAGE>
Income and Expense (cont.)
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 Bank's return on assets increased from 1.74 percent
in fiscal year 1991 to 1.96 percent in fiscal year 1992, decreasing to 1.83
percent in fiscal period 1993, then a lower 1.46 percent in 1994 and 1.99
percent in fiscal year 1995.
The Bank's net interest rate spread strengthened from 2.58 percent in
fiscal year 1991 to 3.96 percent in fiscal year 1992, then increased in 1993 to
4.78 percent before decreasing to 4.38 percent in 1994 and 4.26 percent in 1995.
For the five months ended May 31, 1996, annualized, net interest spread was a
lower 4.20 percent. The Bank's net interest margin indicated a similar trend,
increasing from 4.25 percent in fiscal year 1991 to 4.88 percent in fiscal year
1992, increasing to 5.39 percent in 1993, and then decreasing to 5.13 percent in
1995 and decreasing further to 5.09 percent for the five months ended May 31,
1996. Preferred's net interest rate spread increased 138 basis points in 1992 to
3.96 percent from 2.58 percent in 1991 and then increased 82 basis points in
1993 to 4.78 percent as the result of a decrease in interest expense. Net
interest rate spread then decreased 40 basis points to 4.38 percent for fiscal
year 1994 and decreased another 12 basis points to 4.26 percent for the fiscal
year ended December 31, 1995. The Bank's net interest margin followed a similar
trend, increasing a strong 63 basis points to 4.88 percent in 1992 and then
increased 51 basis points to 5.39 percent in 1993. Net interest margin decreased
36 basis points to 5.03 percent in 1994 and then increased to 5.13 percent in
1995. For the five months ended May 31, 1996, Preferred's annualized net
interest spread was a lower 4.20 percent, and its net interest margin was a
lower 5.09 percent.
The Bank's return on average equity increased from 1991 to 1992, but
decreased in 1993 through 1995. The return on average equity increased from
11.22 percent in 1991 to 11.82 percent in fiscal year 1992, and then down to
10.21 percent in fiscal year 1993. The return on equity then decreased to 7.53
percent in fiscal year 1994, and then
14
<PAGE>
Income and Expense (cont.)
increased to 9.42 percent for the fiscal year ended December 31, 1995. For the
five months ended May 31, 1996, annualized, return on average equity was a lower
8.88 percent.
Preferred's ratio of interest-earning assets to interest-bearing
liabilities decreased moderately from 138.71 percent at February 29, 1992, to
127.21 percent at December 31, 1995, and then up to 127.58 percent at May 31,
1996.
The Bank's ratio of non-interest expenses to average assets increased
from 1.53 percent in fiscal year 1991 to 1.91 percent in fiscal year 1995, which
was its highest ratio during the past five years and was due to an increase in
compensation and benefits due to the cost of terminating the Bank's pension
plan. The Bank's 1995 operating expense to average assets ratio would have been
a lower 1.67 percent excluding this one-time expense. For the five months ended
May 31, 1996, noninterest expenses to assets decreased to 1.56 percent. Another
key noninterest expense ratio reflecting efficiency of operation is the ratio of
noninterest expenses to net interest income and noninterest income referred to
as the "efficiency ratio". The industry norm is 60.0 percent. The Bank has been
characterized with a better efficiency ratio, which increased from 34.59 percent
in 1991 to 37.45 percent in 1995. The ratio then improved to 30.56 percent for
the five months ended May 31, 1996.
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. Preferred witnessed a modest increase in its nonperforming
asset ratio from 1991 to 1995. Nonperforming assets consist of nonaccruing loans
and repossessed assets. The ratio of nonperforming assets to total assets was
1.45 percent at February 29, 1992, and decreased to 0.21 percent at February 28,
1993. The ratio then increased sharply during the next three fiscal years to
0.33 percent in 1993, 0.65 percent in 1994 and 1.45 percent in 1995. At May 31,
1996, Preferred's ratio of nonperforming assets to total assets decreased to
15
<PAGE>
Income and Expense (cont.)
1.09 percent. The Bank's allowance for loan losses was 5.1 percent of
nonperforming assets at February 29, 1992, and increased moderately during the
next four fiscal years, resulting primarily from the increase in allowance for
loan losses. As a percentage of nonperforming assets, Preferred's allowance for
loan losses increased to 8.0 percent in 1992, 9.6 percent in 1993, 10.2 percent
in 1994 and 6.5 percent in 1995. During the five months ended May 31, 1996, the
ratio increased to 10.8 percent reflective of the increase in allowance for loan
losses.
Exhibit 9 provides the changes in net interest income due to rate and
volume changes for the past two fiscal periods of 1994 and 1995 and for the five
months ended May 31, 1996. In fiscal period 1994, net interest income decreased
$135,000, due to a decrease in interest income of $228,000 reduced by a $93,000
decrease in interest expense. The decrease in interest income was due to a
decrease due to a change in rate of $198,000 accented by a decrease due to
volume of $30,000. The decrease in interest expense was due to a decrease due to
volume of $7,000 accented by a decrease due to a change in rate of $86,000.
In fiscal year 1995, net interest income increased $92,000, due to a
$414,000 increase in interest income reduced by a $322,000 increase in interest
expense. The increase in interest income was due to a $275,000 increase due to
rate accented by a $139,000 increase due to volume. The increase in interest
expense was due to a $297,000 increase due to rate accented by a $25,000
increase due to volume.
For the five months ended May 31, 1996, compared to the five months
ended May 31, 1995, net interest income increased a minimal $2,000 due to a
$95,000 increase in interest income reduced by a $93,000 increase in interest
expense. The rise in interest income was due to a $91,000 increase due to volume
accented by a $4,000 increase due to rate. The rise in interest expense was
basically split with $52,000 due to a rise in rate and $41,000 due to a rise in
volume.
16
<PAGE>
YIELDS AND COSTS
The overview of yield and cost trends for the years ended December 31,
1993 to 1995, for the five months ended May 31, 1995 and 1996, can be seen in
Exhibit 10, which offers a summary of key yields on interest-earning assets and
costs of interest-bearing liabilities.
Preferred's weighted average yield on its loan portfolio decreased 96
basis points from fiscal year 1993 to 1995, from 10.21 percent to 9.25 percent,
and then increased 11 basis points to 9.36 percent for the fine months ended May
31, 1996. The yield on mortgage-backed securities increased 394 basis points
from fiscal year 1993 to 1995 from 1.30 percent to 5.24 percent and then
increased 77 basis points to 6.01 percent for the five months ended May 31,
1996. The yield on investment securities increased 231 basis points from 4.74
percent in 1993 to 7.05 percent in 1995 and then decreased to 6.73 percent for
the five months ended May 31, 1996. Other investments and interest bearing
deposits indicated an increase in their yield of 231 basis points from 3.91
percent in 1993 to 6.22 percent in 1995 and then decreased to 6.00 percent for
the five months ended May 31, 1996. The combined weighted average yield on all
interest-earning assets increased 10 basis points to 8.31 percent from 1993 to
1995. The yield on interest-earning assets for the five months ended May 31,
1996, was a higher 8.38 percent, while the yield at May 31, 1996, was a lower
7.84 percent.
Preferred's weighted average cost of interest-bearing liabilities
decreased 19 basis points to 3.24 percent from fiscal year 1993 to 1994, which
was less than the Bank's 59 basis point decrease in yield, resulting in the
decline in the Bank's interest rate spread of 40 basis points from 4.78 percent
to 4.38 percent from 1993 to 1994. The Bank's average cost of interest-bearing
liabilities then increased from 1994 to 1995 by 81 basis points to 4.05 percent
compared to a 69 basis point increase in yield on interest-earning assets. The
result was a continued decrease in the Bank's interest rate spread of 12 basis
points to 4.26 percent for fiscal year 1995. For the five months ended May 31,
1996, the Bank's cost of funds increased 13 basis points to 4.18 percent,
compared to a smaller 7 basis point
17
<PAGE>
Yields and Costs (cont.)
increase in yield on interest-earning assets, resulting in a lower net interest
rate spread of 4.20 percent compared to 4.26 percent for the fiscal year ended
December 31, 1995. The Bank's net interest margin decreased from 5.39 percent in
fiscal year 1993 to 5.03 percent in fiscal year 1994, then increased to 5.13
percent for the year ended December 31, 1995. The Bank's net interest margin for
the five months ended May 31, 1996, decreased 4 basis points to 5.09 percent.
18
<PAGE>
INTEREST RATE SENSITIVITY
Preferred is aware of the emphasis on controlling one's interest rate
sensitivity position but has focused more on strong earnings and strengthening
its equity position as an alternative to focusing on interest rate risk.
Preferred has responded to the thrift industry's significant interest rate risk
exposure in the 1980's, which caused a negative impact on earnings and market
value of portfolio equity as a result of significant fluctuations in interest
rates, specifically rising rates, by increasing its level of short term
investments and purchasing mortgage-backed securities. 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 Bank had a negative
cumulative one-year maturity gap of 47.07 percent at May 31, 1996, reflective of
the Bank's predominance of fixed-rate mortgage loans and its higher level of
short-term passbook savings accounts (reference Exhibit 11). The larger an
institution's gap, the greater the risk (interest rate risk) of earnings loss
due to a decrease in net interest 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 Bank also 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 Bank will be calculated on a quarterly basis by the OTS as well as
the change in the NPV for the Bank under rising and falling interest rates and
was calculated by Performance Analysis at May 31, 1996. Such changes in NPV
under changing rates is reflective of the Bank's interest rate risk exposure.
19
<PAGE>
Interest Rate Sensitivity (cont.)
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 12 provides the Bank's NPV as of May 31, 1996, and the change
in the Bank's NPV under rising and declining interest rates. Such calculations
are provided by Performance Analysis, and the focus of this exposure table is a
200 basis points change in interest rates either up or down.
The Bank's change in its NPV at May 31, 1996, based on a rise in
interest rates of 200 basis points was a 14.44 percent decrease, representing a
dollar decrease in NPV of $1,950,000. In contrast, based on a decline in
interest rates of 200 basis points, the Bank's NPV was estimated to increase
1.26 percent or $170,000 at May 31, 1996. The Bank's NPV exposure increases to a
32.06 percent decrease under a 400 basis point rise in rates, and the NPV is
estimated to increase 5.28 percent based on a 400 basis point decrease in rates
at May 31, 1996.
The Bank is aware of its higher than average interest rate risk
exposure under strongly rising rates and slightly positive exposure under
falling rates. Due to Preferred's recognition of the need to control its
interest rate exposure, the Bank has been more active in the purchase of
short-term government securities and adjustable-rate mortgage-backed securities.
The Bank will continue to focus on the origination of fixed-rate mortgage loans
combined with the purchase of short-term investments and adjustable-rate
mortgage-backed securities.
20
<PAGE>
LENDING ACTIVITIES
Preferred has focused its lending activity on the origination of
conventional mortgage loans secured by one- to four-family dwellings. Exhibit 13
provides a summary of Preferred's loan portfolio, by loan type, at fiscal year
end 1991 through 1995, and at May 31, 1996.
Residential loans secured by one- to four-family dwellings excluding
residential construction loans was the primary loan type representing 71.8
percent of the Bank's gross loans as of May 31, 1996. This share has seen a
moderate decrease from 76.5 percent at February 29, 1992. The second largest
real estate loan type as of May 31, 1996, was multifamily loans which comprised
18.1 percent of gross loans compared to a larger 18.8 percent as of February 29,
1992. The multifamily loan category was also the second largest real estate loan
type at fiscal year ended 1991. The third key real estate loan type was
commercial real estate loans, which represented 9.4 percent of gross loans as of
May 31, 1996, compared to a smaller 4.4 percent at February 29, 1992.
Construction loans was the fourth real estate loan type with only 0.7 percent of
gross loans at May 31, 1996. These four real estate loan categories represented
99.96 percent of gross loans at May 31, 1996, compared to a similar 99.68
percent of gross loans at February 29, 1992.
The consumer loan category was the only other loan type at May 31,
1996, and represented only 0.04 percent of gross loans compared to 0.3 percent
at February 29, 1992. Consumer loans were the fifth largest overall loan type at
May 31, 1996, and February 29, 1992. The overall mix of loans has witnessed
minimal change from fiscal year-end 1991 to May 31, 1996, with the Bank having
increased its level of commercial real estate loans, to offset its decrease in
one- to four-family loans.
21
<PAGE>
Lending Activities (cont.)
The emphasis of Preferred's lending activity is the origination of
conventional mortgage loans secured by one- to four-family residences. Such
residences are located in Preferred's primary lending market area of Cook County
and to a lesser extent in DuPage and Will Counties. The Bank also originates
multifamily loans and commercial real estate loans. At May 31, 1996, 71.8
percent of Preferred's gross loans consisted of loans secured by one- to
four-family residential properties, including construction loans.
The Bank originates fixed-rate mortgage loans for its portfolio.
Fixed-rate mortgage loans have normal terms of 15 to 25 years, with an
amortization period of up 25 years. The Bank retains its fixed rate loans.
Historically, almost all of Preferred's mortgage loans are fixed-rate mortgage
loans, which represented 99.3 percent of loans at May 31, 1996.
The original loan to value ratio for conventional mortgage loans to
purchase or refinance single-family dwellings generally does not exceed 80
percent at Preferred, even though the Bank will grant loans with up to an 85
percent loan to value ratio, on a case-by-case basis.
Preferred has also been an active originator of multifamily loans, and
has been less active in commercial real estate loans. The Bank will continue to
make multifamily and commercial real estate loans. The Bank had a total of $6.6
million in multifamily loans at May 31, 1996, or 18.1 percent of gross loans,
compared to $6.0 million or 18.8 percent of gross loans at February 29, 1992.
Multifamily loans consist primarily of six-unit apartment or condominium
buildings. Commercial real estate loans have increased from $1.4 million or 4.4
percent of gross loans at February 29, 1992, to $3.4 million or 9.4 percent of
gross loans at May 31, 1996. The major portion of commercial real estate loans
are secured by office buildings, retail stores and other commercial properties.
Multifamily and commercial real estate loans have terms of 15 years and are
normally made with an 80 percent loan-to-value ratio.
22
<PAGE>
Lending Activities (cont.)
Preferred has not been active in consumer lending. Consumer loans
originated consist of savings account loans which represented a total of 0.4
percent of gross loans at May 31, 1996, down from 0.32 percent at February 29,
1992. At May 31, 1996, consumer loans totaled only $17,000.
Exhibit 14 provides a breakdown and summary of Preferred's fixed- and
adjustable-rate loans, indicating almost all fixed-rate loans. At May 31, 1996,
99.3 percent of the Bank's total loans were fixed-rate and 0.7 percent were
adjustable-rate. While most loans are fixed-rate, it is evident that a moderate
16.5 percent of one- to four-family residential mortgage loans and 27.1 percent
of total loans have maturities of less than 10 years.
As indicated in Exhibit 15, Preferred experienced a decrease in its
single-family loan originations but a small increase in total loan originations
from fiscal periods 1993 to 1995, recognizing that 1993 was a shorter ten-month
period. Total loan originations in fiscal year 1995 were $7.3 million compared
to $7.2 million in fiscal period 1993, with fiscal year 1994 indicating a higher
$9.5 million, reflective of higher levels of refinancings. There was a decrease
in one- to four-family residential loan originations from 1993 to 1995 of
$888,000, offset by an $821,000 increase in multifamily loans and a $190,000
increase in commercial real estate loan originations from 1993 to 1995. Loan
originations for the five months ended May 31, 1996, were $4.8 million, up from
$3.1 million for the five months ended May 31, 1995. Loan originations for the
purchase of one- to four-family residences, excluding construction loans,
represented 84.4 percent of total loan originations in fiscal period 1993,
compared to a lower 73.5 percent in fiscal year 1994 and a lower 7.1 percent in
fiscal year 1995. One- to four family loan originations decreased to 52.2
percent of total loan originations for the five months ended May 31, 1996.
Overall, loan originations fell short of repayments and other reductions in
fiscal 1993 by $1.9 million, exceeded reductions in fiscal year 1994 by $2.1
million, reflective of the high level of refinancings, and then exceeded
reductions in fiscal 1995 by $1.6 million. For the five months ended May 31,
1996, originations continued to exceed reductions by $1.2 million.
23
<PAGE>
NONPERFORMING ASSETS
Preferred 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. Preferred has
not been faced with such problems and has made a concerted effort to control its
nonperforming assets during the past five years.
Exhibit 16 provides a summary of Preferred's delinquent loans at May
31, 1996, indicating a higher level of delinquent loans. Total delinquent loans
were $2.0 million or 7.78 percent of total loans. Delinquent loans of ninety
days or more were $600,000 or 1.6 percent of loans with all of these loans being
secured by one- to four-family dwellings.
Preferred reviews each loan when it becomes delinquent 30 days or more,
to assess its collectibility and to initiate direct contact with the borrower.
The Bank sends the borrower a late payment notice when the loan becomes 20 days
delinquent. The Bank then initiates both written and oral communication with the
borrower if the loan remains delinquent. When the loan becomes delinquent at
least 90 days, the Bank may commence foreclosure proceedings on a case-by-case
basis. The Bank does not normally accrue interest on loans past due 90 days or
more. Most loans delinquent 90 days or more are placed on a non-accrual status,
and at that point in time the Bank pursues foreclosure procedures. Preferred had
no real estate owned at May 31, 1996, and had no real estate owned for the last
five years.
Exhibit 17 provides a summary of Preferred's nonperforming assets at
May 31, 1996, and for fiscal year ends 1991 through 1995. Nonperforming assets
consist of non-
24
<PAGE>
Nonperforming Assets (cont.)
accrual loans, which includes loans delinquent 90 days or more, real estate
acquired by foreclosure or by deed in lieu, and repossessed assets. The Bank has
historically carried a moderate level of nonperforming assets when compared to
its peer group and the thrift industry in general. Preferred's level of
nonperforming assets ranged from a high of $775,000 or 1.45 percent of total
assets at December 31, 1995, to a low of $106,000 or 0.21 percent of assets at
February 28, 1993. At May 31, 1996, Preferred's nonperforming assets consisted
entirely of $600,000 in nonperforming loans with no repossessed assets and
represented 1.09 percent of assets.
Preferred's level of nonperforming assets is equivalent to its level of
classified assets. The Bank's level of classified assets was $600,000 or 1.09
percent of assets at May 31, 1996 (reference Exhibit 18). The Bank's classified
assets consisted of $600,000 in substandard assets, with no assets classified as
doubtful or loss.
Exhibit 19 shows Preferred's allowance for loan losses at May 31, 1996,
and for fiscal years 1991 through 1995, indicating the activity and the
resultant balances. Preferred has witnessed a significant increase in its
balance of allowance for loan losses from $43,000 at year-end 1991 to $186,000
at May 31, 1996, with provisions of $24,000 in 1991, $24,000 in 1992, $27,000 in
1993, $42,000 in 1994 and $50,000 during the first five months of 1996. The Bank
had no net charge-offs during the past five fiscal periods or during the first
five months of 1996. The Bank's ratio of allowance for loan losses to total
loans increased from 0.13 percent at February 29, 1992, to 0.39 percent at
December 31, 1995, due to an increase in allowances with no meaningful increase
in loans. The allowance for loan losses to gross loans was a higher 0.51 percent
at May 31, 1996. Allowance for loan losses to nonperforming assets were 17.5
percent at December 31, 1995, and a much higher 31.0 percent at May 31, 1996,
reflecting the increase in allowance for loan losses.
25
<PAGE>
INVESTMENTS
The investment and securities portfolio of Preferred has been comprised
of U.S. government and federal agency securities, mortgage-backed securities,
interest-bearing deposits with other banks, and FHLB stock. Exhibit 20 provides
a summary of Preferred's investment portfolio at December 31, 1993 through 1995,
and at May 31, 1996. Investments were $14.2 million at May 31, 1996, compared to
$13.2 million at December 31, 1995, and $19.4 million at December 31, 1993. The
primary component of securities at May 31, 1996, was federal agency securities,
representing 47.3 percent, followed by mortgage-backed securities, representing
21.5 percent, and then interest-bearing, deposits representing 15.3 percent, for
a combined total of 84.1 percent of investments including mortgage-backed
securities. The securities portfolio had a weighted average yield of 6.73
percent, and the mortgage-backed securities had a weighted average yield of 6.01
percent for the five months ended May 31, 1996. The Bank's liquid assets are
comprised of cash and cash equivalents and short-term government securities and
represented a strong 30.5 percent of assets at May 31, 1996.
The Bank had mortgage-backed securities with a book value of $3.9
million at May 31, 1996, which decreased from $4.2 million at December 31, 1995,
and increased from $2.0 million at December 31, 1993. Mortgage-backed securities
are included in total investments and shown in Exhibit 20. Mortgage-backed
securities represented a moderate 21.5 percent of total investments at May 31,
1996, and a lesser 9.5 percent at December 31, 1993.
DEPOSIT ACTIVITIES
The change in the mix of deposits from December 31, 1993, to May 31,
1996, is provided in Exhibit 21. There has been a minimal change in total
deposits and a moderate change in the deposit mix during this period.
Certificates of deposit witnessed a moderate
26
<PAGE>
Deposit Activities (cont.)
increase in their share of deposits, rising from a modest 39.2 percent of
deposits at December 31, 1993, to a moderate 48.5 percent at May 31, 1996. The
major component of certificates had rates between 4.0 percent and 5.99 percent
and consisted of 91.3 percent of certificates at May 31, 1996. At December 31,
1993, however, the major component of certificates was the zero to 3.99 percent
category with 80.2 percent of certificates. Passbook accounts decreased in
dollar amount from $23.0 million to $19.6 million, and their share of total
deposits decreased from 55.9 percent to 46.7 percent from December 31, 1993, to
May 31, 1996, with modest decreases in rates during that period. The share of
passbook savings continues to be very strong. Money market accounts indicated a
modest decrease in their share from 4.9 percent in 1993 to 4.8 percent at May
31, 1996. The Bank had no NOW accounts or noninterest-bearing checking accounts
during these periods.
Exhibit 22 shows the Bank's deposit activity for the three years ended
December 31, 1993 to 1995, and at May 31, 1996. With interest credited,
Preferred experienced net increases in deposits in fiscal years 1993 and 1995,
for the five months ended May 31, 1996, and decreases in fiscal year 1994 and
for the five months ended May 31, 1995. In fiscal years 1993 and 1995, there
were net increases in deposits of $776,000 or 1.9 percent, and $990,000 or 2.5
percent, respectively, however withdrawals exceeded deposits when one excluded
interest credited. In fiscal year 1994, a decrease in deposits of $1.1 million
resulted in a 2.6 percent decrease. For the five months ended May 31, 1996, a
net increase in deposit balances of $399,000 and $499,000 of interest credited,
produced a net increase in deposits of $898,000 or 2.2 percent.
BORROWINGS
Preferred has relied on retail deposits as its primary source of funds,
making no use of FHLB advances during the past five fiscal years ended December
31, 1995, or during the five months ended May 31, 1996.
27
<PAGE>
SUBSIDIARIES
Preferred has one wholly-owned subsidiary, Preferred Service
Corporation ("Service Corporation"). The Service Corporation was organized in
1969 as an Illinois corporation to sell casualty, disability and credit life
insurance on an agency basis to the Bank's customers. The Bank's equity
investment in the Service Corporation at May 31, 1996, was $4,300, and the
Service Corporation has indicated minimal net income in recent periods.
OFFICE PROPERTIES
Preferred has only one office, a home office located in southwest
Chicago, near Midway Airport. Preferred owns its facility which has
approximately 5,000 square feet of space and provides off-street parking and
drive-in access. The Bank's investment in its office premises, including
furniture, fixtures and equipment, totaled $457,000 or 0.83 percent of assets at
May 31, 1996.
MANAGEMENT
The president, chief executive officer, and managing officer of
Preferred is Kim P. Rooney. Ms. Rooney joined the Bank in 1995 as president and
chief executive officer, and served as a member of the board of directors since
1989. Prior to becoming president of Preferred, Ms. Rooney served as an outside
attorney for the Bank. Mr. Jeffrey Przybyl is the chief financial officer of the
Bank and is responsible for accounting and financial reporting functions of the
Bank. Ms. Marianne Maciejewski is vice president of the Bank and is in charge of
compliance and has been with the Bank since 1985. Ms. Linda Peterson is vice
president in charge of lending functions and joined the Bank in 1987 as a loan
officer (reference Exhibit 23).
28
<PAGE>
II. DESCRIPTION OF PRIMARY MARKET AREA
Preferred Savings' primary market area is Cook County, Illinois,
including the city of Chicago. The Bank's only office is located to the
southwest of downtown Chicago near Midway Airport.
The Bank's market area trends and economic performance have been only
somewhat dependent on the overall economic trends in the market area county. The
market area is characterized by dense population and similar levels of per
capita income and median household income to those of Illinois, and significant
deposit levels. The market area county's employment base is strongest in the
areas of wholesale/retail and the services category of employment, with these
two categories totaling 60.0 percent of employment for the county market area.
The Bank's immediately surrounding area represents the core of the Bank's
deposit customers, while the Bank's lending activity extends farther into Cook
County. The market area has been characterized by a stronger presence of
residents with Polish ancestry, however the outlying area is rapidly witnessing
an increase in Hispanic residents.
Exhibit 24 provides a summary of key demographic data and trends for
the United States, Illinois, and Cook County for the periods of 1990, 1995, and
2000. The market area showed almost no increase in population compared to a
higher increase in Illinois, while the United States showed an even higher
increase. Overall, the period of 1990 to 1995 was characterized by a rise in the
national population level by 5.7 percent compared to an increase in population
of 3.4 percent in Illinois and a smaller increase of 0.8 percent in Cook County,
which increased from 5,105,067 to 5,144,275 residents. During the period of 1995
through 2000, population is projected to continue to rise in the United States
by 5.4 percent, in Illinois by 3.2 percent and in Cook County by 0.7 percent,
increasing to 5,181,677 residents or 42.5 percent of the total population for
Illinois. This is a decrease from 43.5 percent of the Illinois total population
in 1990.
29
<PAGE>
Description of Primary Market Area (cont.)
In conformance with the United States' stronger growth trend in
population, Illinois witnessed increases in households (families) of 3.4 percent
and 3.1 percent from 1990 to 1995 and from 1995 to 2000, respectively. These
increases exceed Cook County's increases in households for the same periods.
From 1990 to 1995, the market area increased its households from 1,879,488 to
1,895,588, or by 0.9 percent. By the year 2000, the market area is projected to
increase by 0.8 percent to 1,910,191 households.
Cook County had a lower per capita income level than Illinois, but a
higher income level than the United States in 1990. In 1995, Cook County had a
higher per capita income level than both Illinois and the United States. Cook
County's per capita income level was $17,825 in 1995 compared to a lower $17,047
for Illinois, and $16,405 for the United States. In, 1995 the per capita income
level for Cook County was 4.7 percent higher than Illinois and 8.7 percent
higher than the United States. Cook County exhibited higher median household
income growth levels from 1990 to 1995 than both Illinois and the United States.
In 1990, the United States had a median household income of $28,255 compared to
$31,424 in Illinois, and $30,060 in Cook County. In 1995, Cook County had the
highest median household income level at $36,543 when compared to a lower
$35,865 for Illinois and $33,610 for the United States. By the year 2000 Cook
County, Illinois, and the United States' median household income levels are
projected to decrease by 2.0 percent, 1.0 percent, and 1.9 percent,
respectively.
Exhibit 25 provides a summary of key housing data for Cook County,
Illinois, and the United States. Approximately 43.4 percent of all occupied
housing units in Illinois are located in Cook County. Cook County is
characterized by a lower share of owner-occupied housing at 55.5 percent
compared to Illinois at 64.2 percent and the United States also at 64.2 percent.
Cook County supports a rate of renter-occupied housing of 44.5 percent compared
to a lower 35.8 percent for both Illinois and the United States. The
30
<PAGE>
Description of Primary Market Area (cont.)
median housing value for Cook County is $102,118 which is higher than Illinois'
value of $80,873 by 26.3 percent, and higher than the United States median
housing value of $79,098 by 29.1 percent. Cook County had a median rent of $411
which is higher than $369 for Illinois and $374 for the United States.
The major business source of personal income by industry group in Cook
County, Illinois, and the United States, based on number of employees, was the
services industry contributing 35.2 percent, 32.8 percent, 34.1 percent,
respectively (reference Exhibit 26). The wholesale/retail trade group was the
second major source of employment in Cook County at 24.8 percent compared to
26.9 percent in Illinois, and 27.5 percent in the United States. The
manufacturing industry was the third major source of employment in Cook County,
Illinois, and the United States. In Cook County manufacturing contributed 19.0
percent which was lower than Illinois at 20.8 percent and the United States at
19.2 percent. The construction group, finance, insurance and real estate group,
transportation/utilities group, and agriculture/mining group combined to
contribute 21.0 percent of employment in Cook County, 19.5 percent in Illinois,
and 19.3 percent in the United States. The mix of income sources by industry
groups for Cook County was similar to Illinois' mix, in that both were dominated
by the services industry. Cook County had a higher portion of employment from
the finance, insurance and real estate sector and a lower portion in the
agriculture/mining sector than did Illinois or the United States.
The unemployment rate is another key economic indicator. Exhibit 27
shows the average unemployment rates for Cook County, Illinois, and the United
States in 1994, 1995, and March, 1996. Cook County had higher unemployment rates
than Illinois in 1994, 1995, and March, 1996. The County has seen a decrease in
its unemployment rate to 5.4 percent in March, 1996, which is lower than the
United States' 5.8 percent, but higher than Illinois' 5.2 percent unemployment
rate. Unemployment in Cook County has
31
<PAGE>
Description of Primary Market Area (cont.)
declined 11.5 percent from 6.1 percent in 1994 to 5.4 percent in March, 1996,
compared to a decrease in unemployment of 8.8 percent in Illinois since 1994
from 5.7 percent to 5.2 percent in 1995 and remaining at 5.2 percent in March,
1996. The United States unemployment rate decreased 14.8 percent from 6.1
percent in 1994 to 5.2 percent in 1995 and then increased by 11.5 percent to 5.8
percent in March, 1996.
Exhibit 28 provides deposit data for banks, thrifts and credit unions
in the Bank's market area. The Bank's market penetration in the market area
county was $41.3 million or 0.14 percent of thrift deposits and 0.04 percent of
all financial institution and credit union deposits which totaled $109.1
billion. Given the size of the market area and the high level of population,
such low market share of deposits is not necessarily an accurate depiction of
the Bank's strength in its immediate area.
Exhibit 29 provides interest rate data for each quarter for the years
1992 through 1995 and for the first quarter of 1996. The interest rates tracked
are the Prime Rate, as well as 90-Day, One-Year and Thirty-Year Treasury Bills.
Interest 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 the
remainder of 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.
32
<PAGE>
SUMMARY
To summarize, the market area county represents a large and basically
stable market in all areas, population, income levels, unemployment, housing
values, etc. The population, the number of households, the per capita income
level, and the median household income level in the market area have displayed a
trend of modest growth in the mid 1990's. The market area county also had much
higher median rent and median housing values, which generally correspond to high
mortgage loan levels. Further, the market area county has a strongly competitive
financial institution market dominated by banks with a large deposit base that
exceeds $109.1 billion in deposits for the market area.
33
<PAGE>
III. COMPARABLE GROUP SELECTION
Introduction
Integral to the valuation of Preferred 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 Bank'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 Illinois.
Exhibits 30 and 31 present Thrift Stock Prices and Pricing Ratios and
Key Financial Data and Ratios, respectively, both individually and in aggregate,
for the universe of 334 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 30
and 31 also subclassify all thrifts by region, including the 152 Midwest thrifts
("Midwest thrifts") and the 24 thrifts in Illinois ("Illinois thrifts"), and by
trading exchange. Exhibit 32 presents prices, pricing ratios and price trends
for all SAIF-insured thrifts completing their conversions between July 1, 1995,
and August 9, 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 Preferred as determinants for defining those
parameters. The determination of parameters was also based on the uniqueness of
each parameter as a normal indicator of a thrift institution's operating
philosophy and perspective. The parameters established and
34
<PAGE>
Introduction (cont.)
defined are considered to be both reasonable and reflective of Preferred'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
----------- -----
Financial Security Corp. Illinois
Workingmens Capital Holdings Indiana
Marshalltown Financial Corp. Iowa
Mutual Bancompany Missouri
Circle Financial Corp. Ohio
Seven Hills Financial Corp. Ohio
Third Financial Corp. Ohio
Four thrift institutions in Preferred's city, county or market area are
currently involved in merger/acquisition activity or have been recently so
involved, as indicated in Exhibit 33.
35
<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
34 presents pricing ratios and Exhibit 35 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
----------- -----
Webster City Federal Savings Bank, MHC Iowa
Pulaski Bank, Savings Bank, MHC Missouri
Wayne Savings & Loan Co., MHC Ohio
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 353 publicly-traded, SAIF-insured institutions, including 18
mutual holding companies, 14 are traded on the New York Stock Exchange, 17 are
traded on the American Stock Exchange and 322 are listed on NASDAQ.
36
<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 August 9, 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 March 31, 1995.
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 Preferred,
including the western states, the Southeastern states and the New England
states.
The geographic location parameter consists of Illinois, its surrounding
states of Wisconsin, Iowa, Missouri, Kentucky and Indiana, as well as the state
of Ohio, for a total of seven 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.
37
<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 Preferred, with assets of approximately $55
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 36 and 37 show the 55 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.
38
<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 36. 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 Preferred with regard to asset
mix. The balance sheet parameters also distinguish institutions with a
significantly different capital position from Preferred. 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.
Cash and Investments to Assets
Preferred's level of cash and investments to assets was 25.8 percent at
May 31, 1996, and reflects the Bank's level of investments moderately higher
than national and regional averages. The Bank's investments consist primarily of
government and federal agency securities, FHLB stock and certificates in other
institutions. During the past five fiscal years, Preferred's level of cash and
investments to assets has averaged 30.5 percent, from a high of 37.1 percent at
December 31, 1993, to a low of 25.7 percent in 1995.
39
<PAGE>
Cash and Investments to Assets (cont.)
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 50.0 of assets, with a midpoint of 27.5 percent.
Mortgage-Backed Securities to Assets
At May 31, 1996, Preferred's ratio of mortgage-backed securities to
assets was 7.1 percent, lower than both the regional average of 9.5 percent and
the national average of 14.0 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
20.0 percent or less of assets and a midpoint of 10.0 percent.
One- to Four-Family Loans to Assets
Preferred'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 47.1 percent of the
Bank's assets at May 31, 1996, which is similar to industry averages. The
parameter for this characteristic requires any comparable group institution to
have from 35.0 percent to 75.0 percent of its assets in one-to four-family loans
with a midpoint of 55.0 percent.
40
<PAGE>
Total Net Loans to Assets
At May 31, 1996, Preferred had a ratio of total net loans to assets of
65.1 percent and a similar five fiscal year average of 63.8 percent. The
parameter for the selection of the comparable group is from 40.0 percent to 85.0
percent with a midpoint of 62.5 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 Preferred.
Total Net Loans and Mortgage-Backed Securities to Assets
As discussed previously, Preferred's shares of mortgage-backed
securities to assets and total net loans to assets were 7.1 percent and 65.1
percent, respectively, for a combined share of 72.2 percent. Recognizing the
industry and regional ratios of 14.0 percent and 9.5 percent, respectively, of
mortgage-backed securities to assets, the parameter range for the comparable
group in this category is 45.0 percent to 95.0 percent, with a midpoint of 70.0
percent.
Advances to Assets
Preferred had no FHLB advances at May 31, 1996, and at the end of its
most recent five fiscal years. 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
41
<PAGE>
Advances to Assets (cont.)
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 25.0 percent or less
with a midpoint of 12.5 percent, similar to the national average of 12.7
percent.
Equity to Assets
Preferred's equity to assets ratio as of May 31, 1996, was 21.93
percent. The equity to assets ratio for Preferred after conversion, based on the
midpoint value of $16,500,000 and net proceeds to the Bank of approximately $8.0
million, is projected to stabilize in the area of 34.0 percent. Based on those
equity ratios, we have defined the equity ratio parameter to be 8.0 percent to
30.0 percent with a midpoint ratio of 19.0 percent.
PERFORMANCE PARAMETERS
Introduction
Exhibit 37 presents five parameters identified as key indicators of
Preferred's earnings performance and the basis for such performance. The primary
performance indicator is the Bank's return on average assets ("ROAA"). The
second performance indicator is the Bank's return on average equity ("ROAE"). To
measure the Bank's ability to generate net interest income, we have used net
interest margin. The supplemental source of income for the Bank 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 Bank's
ratio of operating expenses to assets (noninterest expenses to
42
<PAGE>
Introduction (cont.)
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. Preferred's most recent ROAA
was 1.87 percent for the twelve months ended May 31, 1996, based on both net and
core earnings after taxes, as detailed in Item I of this report and presented in
Exhibit 7. The Bank's ROAA over the past five calendar years, based on net
earnings, has ranged from a low of 1.46 percent in 1994 to a high of 1.99
percent in 1995 with an average ROAA of 1.80 percent. For the four quarters
following conversion in late 1996, Preferred's ROAA is projected to range
between 2.00 percent and 2.25 percent, remaining within that range through the
end of 1998.
Considering primarily the historical, current and projected earnings
performance of Preferred, the range for the ROAA parameter based on net income
has been defined as 1.00 percent to a high of 2.00 percent with a midpoint of
1.50 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
Bank's position. This parameter does not provide as much meaning for a newly
converted thrift institution 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.
43
<PAGE>
Return on Average Equity (cont.)
The consolidated ROAE for the Bank and the Corporation on a pro forma
basis at the time of conversion is 5.32 percent based on the midpoint valuation.
Prior to conversion, the Bank's ROAE was 8.64 percent for the twelve months
ended May 31, 1996, based on net and core income, with a five year average ROAE
of 10.04 percent. The parameter range for the comparable group, based on net
income, is from 4.0 percent to 15.0 percent with a midpoint of 9.5 percent.
Net Interest Margin
Preferred had a net interest margin of 5.10 percent based on the twelve
month period ended May 31, 1996. The Bank's range of net interest margin for the
past five fiscal years has been from a low of 4.25 percent in 1991 to a high of
5.13 percent in 1995 with an average of 4.94 percent.
The parameter range for the selection of the comparable group is from a
low of 2.75 percent to a high of 5.25 percent with a midpoint of 4.00 percent.
Operating Expenses to Assets
Preferred had a lower than average operating expense to average assets
ratio of 1.89 percent for the twelve months ended May 31, 1996. The Bank's ratio
of operating expenses to average assets for the last five years has ranged from
a low of 1.26 percent in 1993 to a high of 1.91 percent in 1995 with an average
of 1.58 percent, considerably lower than the industry average of approximately
2.29 percent.
44
<PAGE>
Operating Expenses to Assets (cont.)
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 2.75 percent with a
midpoint of 2.13 percent.
Noninterest Income to Assets
Preferred has experienced a lower than average dependence on
noninterest income as a source of additional income. The Bank's noninterest
income to average assets was 0.11 percent for the twelve months ended May 31,
1996, which is below the industry average of 0.44 percent for that period.
Preferred's noninterest income for the past five fiscal years, including gains
and losses, as fluctuated from a high of 0.29 percent of assets in 1992 to a low
of (0.56) percent in 1994.
The range for this parameter for the selection of the comparable group
is 0.7 percent of assets or less, with a midpoint of 0.35 percent.
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 37. 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 Preferred. 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.
45
<PAGE>
Nonperforming Assets to Assets Ratio
Preferred's ratio of nonperforming assets to assets was 1.09 percent at
May 31, 1996, which is lower than the national average of 1.28 percent, but
higher than the Midwest regional average of 0.56 percent and an improvement from
its ratio of 3.92 percent at December 31, 1995. For its most recent five fiscal
years, the Bank's ratio increased significantly from a low of 0.21 percent at
February 28, 1993, to a high of 1.45 percent at December 31, 1995, with a five
year average of 0.62 percent.
The parameter range for nonperforming assets to assets has been defined
as 1.25 percent of assets or less with a midpoint of 0.63 percent.
Repossessed Assets to Assets
Preferred was absent repossessed assets at May 31, 1996, and at the end
of its most recent five fiscal years. National and regional averages were 0.63
percent and 0.48 percent, respectively, at May 31, 1996.
The range for the repossessed assets to total assets parameter is 0.20
percent of assets or less with a midpoint of 0.1 percent.
Loans Loss Reserves to Assets
Preferred had a loan loss reserve or allowance for loan losses of
$186,000, representing a loan loss allowance to total assets ratio of 0.34
percent at May 31, 1996, which is higher than its ratios of 0.25 percent 0.26
percent at December 31, 1995 and 1994, respectively, due to a provision of
$50,000 applied during the second quarter of 1996.
46
<PAGE>
Loan Loss Reserves to Assets (cont.)
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 38, 39 and 40. The comparable group institutions range in size from
$76.7 million to $319.6 million with an average asset size of $186.3 million and
have an average of 3.8 offices per institution compared to Preferred with assets
of $55.9 million and 1 office. One of the comparable group institutions was
converted in 1987, one in 1992, two in 1993, five in 1994 and one in 1995.
Exhibit 41 presents a comparison of Preferred's market area demographic
data with that of each of the institutions in the comparable group.
47
<PAGE>
SUMMARY OF COMPARABLE GROUP INSTITUTIONS
CB Bancorp, Inc., Michigan City, Indiana, is a holding company for
Community Bank, FSB. The Bank serves the Northwestern corner of Indiana with two
offices in Michigan City and one in LaPorte, Indiana. The Bank also owns a
subsidiary that specializes in tax preparation and management services for the
general public. At the end of it most recent quarter, the Bank reported total
assets of $195.7 million, and equity of $19.3 million or 9.86 percent of assets.
For its most recent four quarters, the Bank's ROA was 1.38 percent and its
return on equity was 14.64 percent.
Community Investors Bancorp, Inc., Bucyrus, Ohio, is the holding
company for First Federal Savings and Loan Association of Bucyrus. The
Association serves its Crawford County, Ohio, market with three offices, two in
Bucyrus and one in New Washington. As of its most recent quarter, the
Association had assets of $85.8 million and equity of $11.9 million, and
reported an ROAA of 1.01 percent and an ROAE of 6.98 percent.
Enterprise Federal Bancorp, Lockland, Ohio, is the holding company for
Enterprise Federal Savings Bank, which operates five offices in the Cincinnati,
Ohio, area. With assets of $203.4 million and equity of $31.5 million,
Enterprise reported an ROAA of 1.03 percent and an ROAE of 5.52 percent for its
most recent four quarters.
FCB Financial Corporation, Neenah, Wisconsin, is the holding company
for Fox Cities Bank, F.S.B., a federally chartered savings bank. The Bank
originates one- to four-family residential mortgage loans, construction loans,
commercial real estate loans and consumer loans, operating six offices serving
East Central Wisconsin. As of the most recent quarter, the Bank had assets of
$255.7 million, equity of $47.2 million and an ROAA of 1.03 percent
48
<PAGE>
Summary of Comparable Group Institutions (cont.)
Marion Capital Holdings, Inc., Marion, Indiana, is the holding company
for First Federal Savings Bank of Marion, with two full service offices serving
the City of Marion and Marion County. At the end of its most recent quarter, the
Bank had assets of $177.8 million and equity of $41.5 million and indicated an
ROAA of 1.41 percent and an ROAE of 5.86 percent for its trailing four quarters.
Milton Federal Financial Corporation, West Milton, Ohio, is the holding
company for Milton Federal Savings and Loan Association. The Association
operates two full service offices, one in West Milton, Ohio, in Miami County and
the other in Englewood, Ohio, in Montgomery County. Milton Federal has assets of
$178.3 million, equity of $33.8 million and an ROAA of 1.04 percent for its most
recent four quarters.
Northwest Equity Corporation, Amery, Wisconsin, is the unitary thrift
holding company for Northwest Savings Bank, a community oriented institution
with three offices serving Polk County. The Bank had assets of $91.8 million and
equity of $11.7 million at the close of its most recent quarter and reported an
ROAA of 1.00 percent and an ROAE of 6.91 percent for its trailing four quarters.
Peoples Bancorp, Auburn, Indiana, is the savings and loan holding
company for Peoples Federal Savings Bank of Dekalb County. The Bank operates
four branches in Columbia City, Garrett, Kendalville and LaGrange, Indiana. For
the last four quarters, the Bank had an ROAA of 1.45 percent and an ROAE of 9.51
percent, based on assets of $278.0 million and equity of $43.3 million at the
end of its most recent quarter.
Statefed Financial Corp., Des Moines, Iowa, is the holding company for
State Federal Savings and Loan Association of Des Moines, operating two offices
in Polk County, Iowa. The Association has total assets of $76.7 million and
equity of $14.9 million and reported an ROAA of 1.19 percent for its most recent
four quarters.
49
<PAGE>
Summary of Comparable Group Institutions (cont.)
Western Ohio Financial Corporation, Springfield, Ohio, is the holding
company for Springfield Federal Savings and Loan Association. The Association
operates six full-service offices serving Clark and Hamilton Counties. The
Association had assets of $319.6 million and equity of $58.2 million at the end
of its most recent quarter and reported an ROAA of 1.12 percent and an ROAE of
4.19 percent for its trailing four quarters.
50
<PAGE>
IV. ANALYSIS OF FINANCIAL PERFORMANCE
This section reviews and compares the financial performance of
Preferred to all thrifts, regional thrifts, Illinois thrifts and the ten
institutions constituting Preferred'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 42
through 47.
As presented in Exhibits 42 and 43, at May 31, 1996, Preferred's total
equity of 21.93 percent of assets was considerably higher than the 16.59 percent
for the comparable group, and also higher than the 12.85 percent ratio of all
thrifts, the 14.13 percent ratio for Midwest thrifts, and the 13.45 percent
ratio for Illinois thrifts. The Bank had a 65.09 percent share of net loans in
its asset mix, lower than the comparable group at 71.23 percent, but similar to
all thrifts at 66.68 percent, Midwest thrifts at 68.26 percent and Illinois
thrifts at 65.98 percent. Preferred's share of net loans, similar to industry
averages, is the result of its higher level of cash and investments of 25.84
percent and its lower level of mortgage-backed securities of 7.08 percent. The
comparable group had a similar 6.00 percent share of mortgage-backed securities,
and a lower 20.70 percent share of cash and investments. All thrifts had 14.02
percent of assets in mortgage-backed securities and 14.97 percent in cash and
investments. Preferred's share of deposits of 76.47 percent was higher than the
comparable group and the three geographic categories, reflecting the Bank's
absence of FHLB advances and higher equity level. The comparable group had
deposits of 68.49 percent and borrowings of 13.46 percent. All thrifts averaged
a 72.92 percent share of deposits and 12.77 percent of borrowed funds, while
Midwest thrifts had a 71.94 percent share of deposits and an 12.71 percent share
of borrowed funds. Illinois thrifts averaged a 73.52 percent share of deposits
and a 11.56 percent share of borrowed funds. Preferred was absent goodwill and
other intangibles, compared to 0.11 percent for the comparable group, 0.32
percent for all thrifts, 0.15 percent for Midwest thrifts and 0.13 percent for
Illinois thrifts.
51
<PAGE>
Analysis of Financial Performance (cont.)
Operating performance indicators are summarized in Exhibits 44 and 45
and provide a synopsis of key sources of income and key expense items for
Preferred in comparison to the comparable group, all thrifts, and regional
thrifts for the trailing four quarters.
As shown in Exhibit 46, for the twelve months ended May 31, 1996,
Preferred had a yield on average interest-earning assets higher than the
comparable group and all geographical categories. The Bank's yield on
interest-earning assets was 8.44 percent compared to the comparable group at
8.05 percent, all thrifts at 7.73 percent, Midwest thrifts at 7.71 percent and
Illinois thrifts at 7.49 percent.
The Bank's cost of funds for the twelve months ended May 31, 1996, was
lower than the comparable group and all geographical categories for their most
recent four quarters. Preferred had an average cost of interest-bearing
liabilities of 4.14 percent compared to 5.10 percent for the comparable group,
4.91 percent for all thrifts, 5.01 percent for Midwest thrifts and 4.87 for
Illinois thrifts. The Bank's interest income and interest expense ratios
resulted in an interest rate spread of 4.30 percent, which was higher than the
comparable group at 2.95 percent, all thrifts at 2.82 percent, Midwest thrifts
at 2.70 percent, and Illinois thrifts at 2.63 percent. Preferred demonstrated a
strong net interest margin of 5.10 percent for the twelve months ended May 31,
1996, based on average interest-earning assets, which was considerably higher
than the comparable group ratio of 3.78 percent. All thrifts averaged a lower
3.34 percent net interest margin for the trailing four quarters, as did Midwest
thrifts at 3.32 percent and Illinois thrifts at 3.18 percent.
Preferred's major source of income is interest earnings, as is
evidenced by the operations ratios presented in Exhibit 45. The Bank made a
$50,000 provision for loan losses during the twelve months ended May 31, 1996,
which reflects the Bank's moderate
52
<PAGE>
Analysis of Financial Performance (cont.)
level of nonperforming assets and classified assets. The comparable group
indicated a provision representing 0.10 percent of assets, with all thrifts at
0.11 percent, Midwest thrifts at 0.08 percent and Illinois thrifts at 0.08
percent.
The Bank's non-interest income was $61,000 or 0.11 percent of average
assets for the twelve months ended May 31, 1996. Such non-interest income was
significantly lower than the comparable group at 0.23 percent of assets, all
thrifts at 0.44 percent, Midwest thrifts at 0.40 percent and Illinois thrifts at
0.40 percent. For the twelve months ended May 31, 1996, Preferred's operating
expense ratio was 1.89 percent, lower than the comparable group and the three
geographical averages. The comparable group's operating expense ratio was 2.05
percent, while all thrifts averaged 2.29 percent, Midwest thrifts averaged 2.20
percent and Illinois thrifts averaged 2.33 percent.
The overall impact of Preferred's income and expense ratios is
reflected in the Bank's income and return on assets. The Bank had a strong ROAA,
based on both net and core income, of 1.87 percent for the twelve months ended
May 31, 1996. For its most recent four quarters, the comparable group had a
lower ROAA of 1.17 percent based on net income and an even lower ROAA of 1.06
percent based on core income. All thrifts averaged a lower net ROAA of 0.87
percent, while Midwest thrifts and Illinois thrifts averaged a higher 0.92
percent and 0.74 percent, respectively. All thrifts indicated a core ROAA of
0.80 percent, while Midwest thrifts and Illinois thrifts averaged a core ROAA of
0.86 percent and 0.69 percent, respectively, considerably lower than the Bank.
53
<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 Preferred 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 Bank's historical business philosophy has
focused on maintaining its strong level of net interest income, reducing its
current level of nonperforming assets, establishing a reasonable level of
interest sensitive assets relative to interest sensitive liabilities,
maintaining its stable and strong 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 maintaining its lower
level of overhead expenses. The Bank's current philosophy will continue to focus
on striving to further increase its strong net interest spread and net interest
margin through
54
<PAGE>
Earnings Performance (cont.)
more active 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 Bank was an active originator of mortgage loans in fiscal years 1993
to 1995. During the twelve months ended May 31, 1996, originations were similar
to those in fiscal year 1993, lower than in fiscal year 1994 and higher than in
fiscal year 1995. Originations during the twelve months ended May 31, 1996, were
approximately 6.0 percent lower than in fiscal year 1994, but approximately 23.0
percent higher than in fiscal year 1995, with a the majority of such increase in
the categories of commercial and multi-family real estate loans. Preferred
experienced a significant decreasing trend in principal repayment levels from
fiscal year 1993 to fiscal year 1995. Notwithstanding a modest increase in
principal repayments during the twelve months ended May 31, 1996, related to
moderating interest rates in late 1995, which was more than offset by the
previously mentioned increase in originations during that period, the Bank's net
loans increased steadily by $4.9 million or 15.9 percent from December 31, 1993
to May 31, 1996. The Bank's focus in fiscal years 1993, 1994 and 1995, and for
the twelve months ended May 31, 1996, was on the origination of one- to
four-family mortgage loans, with that loan category constituting 84.4 percent,
73.5 percent, 71.1 percent and 62.8 percent of total origination in those four
periods, respectively. In those four periods, the second largest category of
originations was commercial real estate loans, followed by multi-family real
estate loans and deposit loans. The impact of these primary lending efforts has
been to generate a yield on average interest-earning assets of 8.44 percent for
Preferred for the twelve months ended May 31, 1996, compared to 8.05 percent for
the comparable group, 7.73 percent for all thrifts and 7.71 for Midwest thrifts.
The Bank's level of interest income to average assets was 8.10 percent for the
twelve months ended May 31, 1996, which was higher than the comparable group at
7.65 percent, Midwest thrifts at 7.41 percent and all thrifts at 7.42 percent
for their most recent four quarters.
55
<PAGE>
Earnings Performance (cont.)
The Bank's net interest margin of 5.10 percent, based on average
interest-earning assets for the twelve months ended May 31, 1996, was
considerably higher than the comparable group at 3.78 percent and more
significantly higher than all thrifts at 3.32 percent. Preferred's cost of
interest-bearing liabilities of 4.14 percent for the twelve months ended May 31,
1996, was lower than the comparable group at 5.10 percent, and also lower than
all thrifts at 4.91 percent and Midwest thrifts at 5.01 percent. Preferred's net
interest spread of 4.30 percent for the twelve months ended May 31, 1996, was
much higher than the comparable group at 2.95 percent, Midwest thrifts at 2.70
percent and all thrifts at 2.82 percent.
The Bank's ratio of noninterest income to assets was 0.11 percent for
the twelve months ended May 31, 1996, lower than the comparable group at 0.23
percent, all thrifts at 0.44 percent and Midwest thrifts at 0.40 percent. The
Bank has indicated lower noninterest income relative to the comparable group,
but its operating expenses have also been lower than the comparable group, as
well as Midwest thrifts and all thrifts. For the twelve months ended May 31,
1996, Preferred had an operating expenses to assets ratio of 1.89 percent
compared to a higher 2.05 percent for the comparable group, 2.29 percent for all
thrifts and 2.20 percent for Midwest thrifts.
For the twelve months ended May 31, 1996, Preferred generated lower
levels of noninterest income, modestly lower levels of noninterest expenses, and
a much higher net interest margin relative to its comparable group. As a result,
the Bank's net income level was considerably higher than its comparable group
for the twelve months ended May 31, 1996. Based on net earnings, the Bank had a
return on average assets of 1.74 percent in fiscal year 1992, 1.96 percent in
fiscal year 1993, 1.83 percent in the ten-month fiscal year ended December 31,
1993, 1.46 percent in fiscal year 1994, 1.99 percent in fiscal year 1995, and
1.87 percent for the twelve months ended May 31, 1996. For its most recent four
quarters, the comparable group had a lower ROAA of 1.17 percent, while all
thrifts indicated a lower 0.80 percent. The Bank's core or normalized earnings
as shown in
56
<PAGE>
Earnings Performance (cont.)
Exhibit 7 were identical to net earnings, indicating a 1.87 percent core return
on assets for the most recent twelve months ended May 31, 1996. That core ROAA
was higher than the comparable group at 1.06 percent, all thrifts at 0.80
percent and lower than Midwest thrifts at 0.86 percent.
Preferred's earnings stream will continue to be largely dependent on
the overall trends in interest rates, with the consistency and reliability of
its non-interest income constituting a modest factor. The Bank'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. In recognition of the foregoing earnings related factors, a
moderate upward adjustment has been made to Preferred's pro forma market value
for earnings performance.
MARKET AREA
Preferred's primary market area consists of Cook County, Illinois,
including the City of Chicago, the location of the Bank's home office. As
discussed in Section II, this market area has evidenced lower population growth
in relation to the comparable group markets. Per capita and household income
levels are similar to state averages but above both the national and the
comparable group averages. The unemployment rate in Preferred's market area
county averaged 5.4 percent in March, 1996, compared to 5.2 percent for Illinois
and 5.8 percent for the United States. The market area county is also
characterized by a higher median housing value than Illinois, the United States
and the comparable group. The market area is largely urban, with the
manufacturing industry 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.
57
<PAGE>
Market Area (cont.)
Preferred's deposits showed very modest growth in fiscal years 1993, 1994 and
1995 as deposits, including interest, were similar to withdrawals. In fiscal
year 1995, deposits exceeded withdrawals by 2.5 percent, and in the first five
months of 1996, deposits increased 2.2 percent or 5.3 percent, annualized. In
recognition of all these factors, we believe that a minimum downward adjustment
is warranted for the Bank's market area.
FINANCIAL CONDITION
The financial condition of Preferred 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 40, 42 and 43. The Bank's total equity ratio before conversion
was 21.93 percent at May 31, 1996, which was moderately higher than the
comparable group at 16.59 percent and more significantly higher than Midwest
thrifts at 14.13 percent and all thrifts at 12.85 percent. With a conversion at
the midpoint, the Corporation's pro forma equity to assets ratio will increase
to 36.75 percent, and the Bank's pro forma equity to assets ratio will increase
to 34.11 percent.
The Bank's mix of assets indicates some area of significant variation
from its comparable group. Preferred had a lower share of net loans at 65.09
percent of total assets at May 31, 1996, compared to the comparable group at
71.23 percent, but a similar share to all thrifts at 66.68 percent. The Bank's
25.84 percent share of cash and investments was modestly higher than the
comparable group at 20.70 percent and more significantly higher than all thrifts
at 14.97 percent and Midwest thrifts at 18.00 percent. Preferred's ratio of
mortgage-backed securities to total assets was 7.08 percent, generally in line
with the comparable group at 6.00 percent, but lower than all thrifts at 14.02
percent. The Bank had a higher share of deposits at 76.47 percent with no FHLB
advances, compared to the comparable group's 68.49 percent in deposits and 13.46
percent in borrowed funds.
58
<PAGE>
Financial Condition (cont.)
At May 31, 1996, the Bank was absent both goodwill and repossessed real
estate compared to 0.04 percent and 0.63 percent of repossessed real estate for
the comparable group and all thrifts, respectively. Preferred was also absent
goodwill and repossessed assets at the close of fiscal years 1992 through 1995.
The financial condition of Preferred is further affected by its level of
nonperforming assets at 1.09 percent of assets at May 31, 1996, compared to a
lower 0.53 percent for the comparable group. The Bank's ratio of nonperforming
assets to total assets increased from 0.45 percent in fiscal year 1992 to 1.45
percent at December 31, 1995, before decreasing to its May 31, 1996, level of
1.09 percent.
Due to the Bank's origination of only fixed-rate mortgage loans, its
interest rate risk and sensitivity measure are less favorable than industry
averages and it currently is reporting a negative one year gap of 46.02 percent.
The Bank had a higher share of high risk real estate loans at 18.70
percent compared to 13.79 percent for the comparable group and 14.77 percent for
all thrifts. Preferred had $186,000 in general valuation allowances or 10.81
percent of nonperforming assets at May 31, 1996, compared to the comparable
group's higher 117.26 percent, with Midwest thrifts at 147.40 percent and all
thrifts at a lower 87.73 percent. The Bank's ratio is reflective of its current
and historical absence of repossessed real estate.
Overall, we believe that a minimum upward adjustment is warranted for
Preferred's current financial condition.
59
<PAGE>
DIVIDEND PAYMENTS
Preferred 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. Eight of the ten institutions in the comparable group pay cash
dividends for an average dividend yield of 3.66 percent for those nine
institutions, and an average dividend yield of 2.93 percent for all ten
institutions.
Currently, many thrifts are committing to initial cash dividends in
comparison to the more common absence of such a dividend commitment in 1994 and
1995 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 was often difficult
to gauge in 1995. Based upon recent offerings, subscription and community
interest weakened significantly in early 1995 but regained some strength by the
second half of the year. 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.
Preferred will focus its offering to depositors and residents in the
market area. The board of directors and officers anticipate purchasing
approximately $950,000 or 5.76 percent of the conversion stock based on the
appraised midpoint valuation. Preferred will form an 8.0 percent ESOP, which
plans to purchase stock in the initial offering. Additionally, the Prospectus
specifies that in the subscription offering, no person or single account holder
may purchase more than $150,000 of the Corporation's common stock, or one-tenth
of one percent of the total shares offered in the conversion, whichever is
greater.
60
<PAGE>
Subscription Interest (cont.)
The Bank has secured the services of Charles Webb & Company ("Webb") to
assist the Bank in the marketing and sale of the conversion stock. Based on the
size of the offering, current market conditions, local market interest and the
terms of the offering, we believe that a minimum downward adjustment is
warranted for the Bank's anticipated subscription interest.
LIQUIDITY OF THE STOCK
Preferred will offer its shares through concurrent subscription and
community offerings with the assistance of Webb. If necessary, Webb will conduct
a syndicated community offering upon the completion of the subscription and
community offering. Preferred will pursue two market makers for the stock. The
Bank's offering is smaller in size to that of the comparable group, considerably
below the national average and, more significantly, approximately 77.5 percent
below the Illinois average. It is likely, therefore, that the stock of Preferred
will be somewhat less liquid than thrift stocks nationally and in its Illinois
market area. Therefore, we believe that a moderate downward adjustment to the
pro forma market value is warranted at this time relative to the liquidity of
the stock.
61
<PAGE>
MANAGEMENT
The president and chief executive officer of Preferred is Kimberly P.
Rooney, who has held that position and that of director since 1995. Prior to
joining the Bank as president, Ms. Rooney was in private law practice in Cicero,
Illinois, and also served as attorney for the Bank. Ms. Rooney continues the
concerted efforts of management to increase deposits and market share and to
strengthen local lending activity.
Preferred has been able to strengthen its equity position over the past
several years and its earnings, net interest spread and net interest margin have
been both strong and stable since 1992 and are significantly higher than
comparable group and industry averages. It is our opinion that a minimum upward
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.
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
62
<PAGE>
Marketing of the Issue (cont.)
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.
63
<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".
64
<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 Bank's pro forma
market value discussed in Section V. Minimum upward adjustments were made for
financial condition and management. A moderate upward adjustment was made for
earnings performance. Minimum downward adjustments were made for market area,
dividend payments and subscription interest. A moderate downward adjustment was
made for the liquidity of the stock. A maximum downward adjustment was made for
the marketing of the issue.
Exhibit 48 shows the average and median price to book value ratios for
the comparable group which were 89.48 percent and 88.18 percent, respectively.
The total comparable group indicated a moderately wide range, from a low of
76.21 percent (Northwest Equity Corp.) to a high of 104.93 percent (CB Bancorp,
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 only slightly from a
low of 82.37 percent to a high of 104.28 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 63.39 percent at the midpoint and ranging
from a low of 58.73 percent at the minimum to a high of 71.21 percent at the
super maximum for the Corporation, which is strongly influenced by the Bank's
local market and subscription interest in thrift stocks. Further, the Bank's
equity to assets after conversion will be 36.75 percent compared to
65
<PAGE>
Price to Book Value Method (cont.)
16.59 percent for the comparable group. Based on this price to book value ratio
and the Bank's equity of $12,029,000 at May 31, 1996, the indicated pro forma
market value for the Bank using this approach is $16,498,581 (reference Exhibit
49).
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 Preferred is displayed in
Exhibit 3, indicating after tax net earnings for the twelve months ended May 31,
1996, of $1,006,000. Exhibit 7 indicates the derivation of the Bank's identical
core or normalized earnings of $1,006,000 for the twelve months ended May 31,
1996. To arrive at the pro forma market value of the Bank by means of the price
to earnings method, we used the net and core earnings base of $1,006,000.
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 13.97, while the median was 13.47. The average price to
core earnings multiple was 16.35, and the median multiple was 15.29. The
comparable group's price to net earnings multiple was lower than the average for
all publicly-traded thrifts of 16.28, but higher than their median of 13.48. The
price to core earnings multiple for all publicly-traded thrifts was also higher
than the comparable group with an average at 17.66 times core earnings and a
median at 14.52 times core earnings. The range in the price to net earnings
multiple for the comparable group was from a low of 8.21 (CB Bancorp, Inc.) to a
high of 19.95 (Western Ohio Financial Corp.). The primary range in the price to
net earnings multiple for the comparable group excluding the high and low ranges
was from a low price to earnings multiple of 11.14 to a high of 16.83 times
earnings for eight of the ten institutions in the group.
66
<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 earnings multiple of 12.80 based on Preferred's
net and core earnings of $1,006,000 for twelve months ended May 31, 1996. Based
on such an earnings base of $1,006,000 and a price to earnings multiple of 12.80
(reference Exhibits 48 and 49), the pro forma market value of the Corporation
using the price to core earnings ratio method is $16,501,667 at the midpoint.
The range in the price to core earnings multiple is from a low of 11.26 at the
minimum of the range to a high of 15.77 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 48
indicates that the average price to net assets ratio for the comparable group
was 14.85 percent and the median was 15.27 percent. The range in the price to
net assets ratios for the comparable group varied from a low of 10.36 percent
(CB Bancorp, Inc.) to a high of 21.75 percent (Marion Capital Holdings). It
narrows modestly with the elimination of the two extremes in the group to a low
of 10.56 percent and a high of 16.71 percent.
Based on the adjustments made previously for Preferred, it is our
opinion that an appropriate price to net assets ratio for the Corporation is
23.29 percent which is higher than the comparable group at 14.85 and ranges from
a low of 20.51 percent at the minimum to 28.68 percent at the super maximum.
Based on the Bank's May 31, 1996, asset base of $54,853,000, the indicated pro
forma market value of the Corporation using the price to net assets method is
$16,498,249 (reference Exhibit 49).
67
<PAGE>
VALUATION CONCLUSION
Exhibit 54 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 63.39 percent for the Corporation represents a discount of 29.15
percent relative to the comparable group and decreases to 20.71 percent at the
super maximum. The identical price to net earnings and core earnings multiple of
12.80 for the Corporation at the midpoint value indicates a discount of 8.38
percent, changing to a premium of 12.86 percent at the super maximum. The price
to assets ratio at the midpoint represents a premium of 56.86 percent,
increasing to a premium of 93.13 percent at the super maximum.
It is our opinion that as of August 9, 1996, the pro forma market value
of the common stock to be issued of the Corporation is $16,500,000 representing
1,650,000 shares at $10.00 per share. The valuation range for this stock is from
a minimum of $14,025,000 or 1,402,500 shares at $10.00 per share to a maximum of
$18,975,000 or 1,897,500 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 $21,821,250 or 2,182,175 shares at $10.00
per share (reference Exhibits 50 to 53). The appraised value of PS Financial,
Inc. as of August 9, 1996, is $16,500,000.
68
<PAGE>
NUMERICAL
EXHIBITS
<PAGE>
EXHIBIT 1
PREFERRED SAVINGS BANK
CHICAGO, ILLINOIS
BALANCE SHEET
At May 31, 1996, and At December 31, 1995
<TABLE>
<CAPTION>
May 31, December 31,
1996 1995
------------- -------------
ASSETS (Unaudited)
(In thousands)
<S> <C> <C>
Cash on hand and in banks $ 362 $ 916
Interest-bearing term deposit accounts in other
financial institutions 2,510 2,838
-------- --------
Total cash and cash equivalents 2,872 3,754
Interest-bearing term deposits in other financial
institutions 248 248
Securities available-for-sale 11,058 9,739
Mortgage-backed securities available-for-sale 3,884 4,220
Securities held-to-maturity -- --
Loans receivable, net 35,701 34,525
Federal Home Loan Bank stock 362 341
Premises and equipment, net 457 467
Accrued interest receivable 247 181
Other assets 24 45
-------- --------
TOTAL ASSETS $ 54,853 $ 53,520
======== ========
LIABILITIES AND EQUITY
LIABILITIES
Deposits $ 41,945 $ 41,047
Advances from borrowers for taxes and insurance 409 459
Other liabilities and deferred income taxes 470 290
-------- --------
TOTAL LIABILITIES 42,824 41,796
EQUITY
Retained earnings, substantially restricted 12,107 11,667
Net unrealized gain (loss) on securities
available-for-sale (78) 57
-------- --------
12,029 11,724
-------- --------
TOTAL LIABILITIES AND EQUITY $ 54,853 $ 53,520
======== ========
</TABLE>
Source: Preferred Savings Bank's audited and unaudited financial statements
69
<PAGE>
EXHIBIT 2
PREFERRED SAVINGS BANK
CHICAGO, ILLINOIS
BALANCE SHEET
At December 31, 1993 and 1994,
At February 29, 1992, and February 28, 1993
<TABLE>
<CAPTION>
December 31, February 28, February 29,
---------------------- --------------------------
ASSETS 1994 1993 1993 1992
---------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Cash on hand and in banks $ 620 $ 981 $ 193 $ 379
Short-term investments
Interest-bearing deposit accounts in other
financial institutions 809 2,479 167 169
Federal funds sold, repurchase agreements
and other short-term investments -- 2,414 2,085 5,149
-------- -------- -------- --------
Total cash and cash equivalents 1,429 5,874 2,445 5,697
Interest-bearing term deposits in other financial
institutions 5,251 4,671 4,297 4,196
Securities available-for-sale 7,326 9,044 -- --
Mortgage-backed securities available-for-sale 1,694 -- -- --
Securities held-to-maturity (fair value: December 31,
1994 - $1,820, 1993 - $414, February 28, 1993 -
$887, February 29, 1992 - $626, February 28,
1991 - $626, February 29, 1990 - $603 201 403 855 607
Marketable equity securities -- -- 8,651 3,398
Mortgage-backed securities held to maturity 1,792 2,026 -- --
Loans receivable, net 32,890 30,821 32,716 31,706
Federal Home Loan Bank stock 309 348 348 329
Premises and equipment, net 457 466 461 472
Accrued interest receivable 105 44 31 40
Other assets 166 157 170 38
-------- -------- -------- --------
TOTAL ASSETS $ 51,620 $ 53,854 $ 49,974 $ 46,483
======== ======== ======== ========
LIABILITIES AND EQUITY
LIABILITIES
Deposits $ 40,057 $ 41,139 $ 40,363 $ 37,950
Advances from borrowers for taxes and insurance 855 805 441 422
Other liabilities and deferred income taxes 195 2,265 337 213
-------- -------- -------- --------
TOTAL LIABILITIES $ 41,107 $ 44,209 $ 41,141 $ 38,585
-------- -------- -------- --------
EQUITY
Retained earnings, substantially restricted 10,613 9,855 8,913 7,911
Net unrealized gain (loss) on securities available-for-sale (101) (210) (80) (13)
-------- -------- -------- --------
10,512 9,645 8,833 7,898
-------- -------- -------- --------
TOTAL LIABILITIES AND EQUITY $ 51,619 $ 53,854 $ 49,974 $ 46,483
======== ======== ======== ========
</TABLE>
Source: Preferred Savings Bank's audited financial statements
70
<PAGE>
EXHIBIT 3
PREFERRED SAVINGS BANK
CHICAGO, ILLINOIS
Consolidated Statements of Income
For the five months ended May 31, 1995 and 1996,
And the year ended December 31, 1995
Five months ended
May 31, Year ended
-------------------- December 31,
1996 1995 1995
-------- ------- --------
(Unaudited)
(In thousands)
Interest income:
Loans receivable $1,377 $1,313 $3,156
Securities 477 445 1,113
------ ------ ------
1,854 1,758 4,269
Interest expense on deposit accounts 725 632 1,633
------ ------ ------
Net interest income 1,129 1,126 2,636
Provision for loan losses 50 -- --
------ ------ ------
Net interest income after provision for
loan losses 1,079 1,126 2,636
Noninterest income
Other 27 24 58
------ ------ ------
27 24 58
Noninterest expense:
Compensation and benefits 182 192 627
Occupancy and equipment expense 63 58 150
Federal deposit insurance premiums 40 39 93
Other operating expenses 68 55 139
------ ------ ------
Total noninterest expense 353 344 1,009
------ ------ ------
Income before income tax provision 752 806 1,685
Provision for income taxes 312 317 630
------ ------ ------
Net income $ 440 $ 489 $1,055
====== ====== ======
Source: Preferred Savings Bank's audited and unaudited financial statements
71
<PAGE>
EXHIBIT 4
PREFERRED SAVINGS BANK
CHICAGO, ILLINOIS
Consolidated Statements of Income
Fiscal Year Ended December 31, 1994, the Ten Months Ended December 31, 1993,and
Fiscal Years Ended February 29, 1992, and February 28,1993
<TABLE>
<CAPTION>
Ten months
Year ended ended Year ended Year ended
December 31, December 31, February 28, February 29,
1994 1993 1993 1992
------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
Interest income:
Loans $ 3,014 $ 2,782 $ 3,459 $ 3,541
Securities 840 619 725 724
------- ------- ------- -------
3,854 3,401 4,184 4,265
Interest expense on deposits 1,310 1,169 1,735 2,154
------- ------- ------- -------
Net interest income 2,544 2,232 2,449 2,111
Provision for loan losses 42 27 24 24
------- ------- ------- -------
Net interest income after provision for
loan losses 2,502 2,205 2,425 2,087
Noninterest income:
Net loss on sale of securities (365) (28) -- 89
Other 76 40 39 46
------- ------- ------- -------
(289) 12 39 135
Noninterest expense:
Compensation and benefits 429 319 381 371
Occupancy and equipment expense 157 123 139 142
Federal deposit insurance premiums 94 78 101 95
Other operating expenses 158 127 199 169
------- ------- ------- -------
Total noninterest expense 838 647 820 777
------- ------- ------- -------
Income before income tax provision 1,375 1,570 1,644 1,445
Provision for income taxes 617 628 643 562
------- ------- ------- -------
Net income $ 758 $ 942 $ 1,001 $ 883
======= ======= ======= =======
</TABLE>
72
<PAGE>
Source: Preferred Savings Bank's audited financial statements
EXHIBIT 5
Selected Consolidated Financial Information and Other Data
At May 31, 1996, at December 31, 1993 through 1995, at
February 28, 1993, and at February 29, 1992
<TABLE>
<CAPTION>
December 31,
May 31, ----------------------------------- February 28, February 29,
1996 1995 1994 1993 1993 1992
---------- ---------- ---------- ---------- ----------- ----------
(In thousands)
Selected Financial
Condition Data:
<S> <C> <C> <C> <C> <C> <C>
Total assets $ 54,853 $ 53,520 $ 51,619 $ 53,854 $ 49,974 $ 46,483
Cash and cash equivalents 2,871 3,754 1,429 5,874 2,445 5,697
Loans receivable, net 35,702 34,525 32,890 30,821 32,716 31,706
Mortgage-backed securities
Held-to-maturity - - 1,792 2,026 - -
Available-for-sale 3,884 4,220 1,694 - - -
Securities
Held-to-maturity - - 201 403 855 607
Available-for-sale 11,058 9,739 7,326 9,044 8,652 3,398
Deposits 41,945 41,047 40,057 41,139 40,363 37,950
Total equity 12,029 11,724 10,512 9,645 8,833 7,898
</TABLE>
Source: PS Financial's Prospectus
73
<PAGE>
EXHIBIT 6
Income and Expense Trends
For the Five Months Ended May 31, 1995 and 1996,
For the Fiscal Years Ended December 31, 1994 and 1995,
The Ten Months Ended December 31, 1993, and
The Years Ended February 29, 1992, and February 28, 1993
<TABLE>
<CAPTION>
Five months ended Year ended Ten months Year ended
May 31, December 31, Ended ------------------------
----------------------- ----------------------- December 31, February 28 February 29,
1996 1995 1995 1994 1993 1993 1992
----------- ---------- ---------- ----------- ---------- ---------- -----------
(In thousands)
Selected Operating Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income $ 1,853 $ 1,758 $ 4,268 $ 3,854 $ 3,401 $ 4,183 $ 4,265
Total interest expense 725 632 1,632 1,310 1,169 1,734 2,154
----------- ---------- ---------- ----------- ---------- ---------- -----------
Net interest income 1,128 1,126 2,636 2,544 2,232 2,449 2,111
Provision for loan losses 50 - - 42 27 24 24
----------- ---------- ---------- ----------- ---------- ---------- -----------
Net interest income after
provision for estimated
loan losses 1,078 1,126 2,636 2,502 2,205 2,425 2,087
Fees and service charges 27 24 58 76 40 39 46
Gain (loss) on sales of loans
and securities - - - (365) (28) - 89
Other non-interest income - - - - - - -
----------- ---------- ---------- ----------- ---------- ---------- -----------
Total non-interest income 27 24 58 (289) 12 39 135
Total non-interest expense 353 344 1,009 838 647 820 777
----------- ---------- ---------- ----------- ---------- ---------- -----------
Income before taxes 752 806 1,685 1,375 1,570 1,644 1,445
Income tax provision 312 317 630 617 628 643 562
----------- ---------- ---------- ----------- ---------- ---------- -----------
Net income $ 440 $ 489 $ 1,055 $ 758 $ 942 $ 1,001 $ 883
=========== ========== ========== =========== ========== ========== ===========
</TABLE>
Source: PS Financial's Prospectus
74
<PAGE>
EXHIBIT 7
Normalized Earnings Trend
For the Twelve Months Ended May 31, 1996, and
For the Fiscal Years Ended December 31, 1994 and 1995, and for the
Ten Months Ended December 31, 1993
<TABLE>
<CAPTION>
Twelve months Fiscal years ended Ten Months
ended December 31, Ended
May 31, ------------------------ December 31,
1996 1995 1994 1993
------------ ----------- ----------- ----------------
(Dollars In thousands)
<S> <C> <C> <C> <C>
Net income after taxes $ 1,006 $ 1,055 $ 758 $ 942
Net income before taxes and effect
of accounting adjustments 1,631 1,685 1,375 1,570
Income adjustments --- --- --- ---
Expense adjustments --- --- (365) (28)
Normalized earnings before taxes 1,631 1,685 1,740 1,598
Taxes 625 630 679(1) 623(1)
------------ ----------- ----------- ----------------
Normalized earnings after taxes $ 1,006 $ 1,055 $ 1,061 $ 975
============ =========== =========== ================
</TABLE>
(1) Based on tax rate of 39.0 percent
Source: PS Financial's audited and unaudited financials.
75
<PAGE>
EXHIBIT 8
Performance Indicators
For The Five Months Ended May 31, 1995 and 1996,
For The Fiscal Years Ended December 31, 1994 and 1995,
For the Ten Months Ended December 31,1993, and
For the Fiscal Years Ended February 29, 1992, and February 28, 1993
<TABLE>
<CAPTION>
10 Months Year ended
Five Months Years ended Ended -------------------------
Ended May 31, December 31, December 31, February 28, February 29,
---------------------- --------------- ------------- -------------------------
1996 1995 1995 1994 1993 1993 1992
---------- ---------- ------------------ ------------ ----------- ----------
Selected Financial Ratios and Other Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (1) 1.94% 2.25% 1.99% 1.46% 1.83% 1.96% 1.74%
Return on average equity (1) 8.88% 10.84% 9.42% 7.53% 10.21% 11.82% 11.22%
Interest rate spread information:
Average during period (1) 4.20% 4.54% 4.26% 4.38% 4.78% 3.96% 2.58%
End of period 3.70% 4.03% 3.71% 4.26% 3.97% 3.79% 3.17%
Net interest margin (1) (2) 5.09% 5.33% 5.13% 5.03% 5.39% 4.88% 4.25%
Efficiency ratio (3) 30.54% 29.91% 37.45% 37.16% 28.82% 32.96% 34.59%
Ratio of operating expense to
average total assets 1.56% 1.58% 1.91% 1.61% 1.26% 1.60% 1.53%
Ratio of average interest-earning assets
to average interest-bearing liabilities 127.58% 127.06% 127.21% 125.08% 121.78% 126.60% 138.71%
Quality Ratios:
Non performing assets to total
assets at end of period 1.09% 0.43% 1.45% 0.65% 0.33% 0.21% 0.45%
Allowance for loan losses to
non-performing loans 10.81% 12.49% 6.49% 10.19% 9.64% 8.01% 5.11%
Allowance for loan losses to loans
receivable, net 0.51% 0.38% 0.39% 0.41% 0.30% 0.20% 0.13%
Capital Ratios:
Equity to total assets at end of period 21.93% 21.07% 21.91% 20.36% 17.91% 17.68% 16.99%
Average equity to average assets 21.86% 20.75% 21.18% 19.32% 17.93% 16.56% 15.51%
</TABLE>
(1) Ratios for the five and ten month periods have been annualized.
(2) Net interest income divided by average interest earning assets.
(3) The efficiency ratio represents noninterest expense as a percent of net
interest income and noninterest income.
Source: PS Financial's Prospectus
76
<PAGE>
EXHIBIT 9
Volume/Rate Analysis
For the Five Months Ended May 31, 1996, and
For the Fiscal Years Ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
Five Months Ended
May 31, Year ended December 31,
1995 vs. 1996 1994 vs. 1995
-------------------------------- ---------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Total Due to Total
--------------------- Increase -------------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
--------- --------- ---------- -------- --------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 59 $ 5 $ 64 $ 228 $ (86) $ 142
Mortgage-backed securities 13 12 25 (2) 16 14
Investment securities 86 (7) 79 99 226 325
Other (70) (3) (73) (186) 119 (67)
--------- --------- --------- --------- --------- ---------
Total interest-earning assets $ 88 $ 7 $ 95 $ 139 $ 275 $ 414
========= ========= ========= ========= ========= =========
Interest-bearing liabilities:
Savings deposits $ (7) $ (2) $ (9) $ (70) $ 40 $ (30)
Certificate accounts 48 54 102 95 257 352
--------- --------- --------- --------- --------- ---------
Total interest-bearing liabilities $ 41 $ 52 $ 93 $ 25 $ 297 $ 322
========= ========= --------- ========= ========= ---------
Net interest income $ 2 $ 92
========= =========
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
10 Months Ended
December 31, 1993,
Annualized vs. Year Ended
December 31,1994
----------------------------------
Increase
(Decrease)
Due to Total
-------------------- Increase
Volume Rate (Decrease)
----------- --------- -----------
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable $ (102) $ (225) $ (327)
Mortgage-backed securities 144 26 170
Investment securities (116) (26) (142)
Other 44 27 71
--------- --------- ---------
Total interest-earning assets $ (30) $ (198) $ (228)
========= ========= =========
Interest-bearing liabilities:
Savings deposits $ (18) $ 8 $ (10)
Certificate accounts 11 (94) (83)
--------- --------- ---------
Total interest-bearing liabilities $ (7) $ (86) $ (93)
========= ========= ---------
Net interest income $ (135)
=========
</TABLE>
Source: PS Financial's Prospectus
77
<PAGE>
EXHIBIT 10
Yield and Cost Trends
For the Five Months Ended May 31, 1995, and 1996,
For the Fiscal Years Ended December 31, 1994, and 1995, and
For the Ten Months Ended December 31, 1993
<TABLE>
<CAPTION>
Five Months Ended Ended
--------------------- Year ended December 31, Ten Months
May 31, May 31, ----------------------- December 31,
1996(3) 1995(3) 1995 1994 1993(3)
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) 9.36% 9.32% 9.25% 9.56% 10.21%
Mortgage-backed securities 6.01% 5.20% 5.24% 4.78% 1.30%
Investment securities(2) 6.73% 6.95% 7.05% 4.46% 4.74%
Other 6.00% 6.13% 6.22% 4.28% 3.91%
------ ------ ------ ------ ------
Total interest-earning assets(1)(2) 8.38% 8.33% 8.31% 7.62% 8.21%
Interest-bearing liabilities:
Savings deposits 3.00% 3.02% 3.02% 2.85% 2.82%
Certificate accounts 5.43% 4.74% 5.22% 3.80% 4.37%
------ ------ ------ ------ ------
Total interest-bearing liabilities 4.18% 3.79% 4.05% 3.24% 3.43%
Net interest rate spread 4.20% 4.54% 4.26% 4.38% 4.78%
Net yield on average interest-earning assets 5.09% 5.33% 5.13% 5.03% 5.39%
Ratio of interest-earning assets to
interest-bearing liabilities 127.58% 127.06% 127.21% 125.08% 121.78%
</TABLE>
(1) Calculated net of deferred loan fees, loan discounts, loans in process
and loss reserves.
(2) Calculated based on amortized cost.
(3) Annualized yield/rate.
S
78ource: PS Financial's Prospectus
<PAGE>
EXHIBIT 11
Interest Rate Sensitivity Gap
At may 31, 1996
<TABLE>
<CAPTION>
Maturing or Repricing
---------------------------------------------------------------------------------
Over 6
6 Months Months to Over 1 to Over 3 to Over No Stated
or less 1 Year 3 Years 5 Years 5 Years Maturity Total
---------- --------- --------- ---------- ------- ---------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans receivable, net:
Fixed-rate mortgages $ 1,200 $ 1,235 $ 5,163 $ 5,216 $ 23,348 --- $ 36,162
Adjustable-rate construction 243 --- --- --- --- --- 243
Consumer 14 1 2 --- --- --- 17
Securities available for sale:
Treasury and agency securities 2,012 3,758 996 3,404 888 --- 11,058
Mortgage-backed securities 1,060 825 534 602 863 3,884
Interest bearing term deposits in other
financial institutions --- 99 50 --- 99 --- 248
Cash Equivalents 3,154 --- --- --- --- --- 2,871
FHLB Stock --- --- --- --- --- 362 362
---------- ---------- ---------- ---------- --------- ---------- ----------
Total interest-bearing assets 7,683 5,918 6,745 9,222 25,198 362 54,845
Interest-Bearing Liabilities
Passbooks 19,604 --- --- --- --- --- 19,604
Money Market accounts 1,998 --- --- --- --- --- 1,998
Certificates of Deposit 13,559 4,000 2,336 448 --- --- 20,343
---------- ---------- ---------- ---------- --------- ---------- ----------
Total interest-bearing liabilities 35,161 4,000 2,336 448 --- --- 41,945
Interest-earning assets less interest-bearing
liabilities $ (27,761) $ 1,918 $ 4,409 $ 8,774 $ 25,198 $ 362 $ 12,900
========== ========== ========== ========== ========= ========== ==========
Cumulative interest rate gap $ (27,761) $ (25,483) $ (21,074) $ (12,300) $ 12,898 $ 13,260 $ 12,900
========== ========== ========== ========== ========= ========== ==========
Cumulative interest rate gap as a percentage
of total assets at May 31, 1996 50.56% (47.07)% (39.04)% (23.06)% 22.84% 23.50% 23.50%
========== ========== ========== ========== ========= ========== ==========
</TABLE>
Source: PS Financial's Prospectus
79
<PAGE>
EXHIBIT 12
Interest Rate Sensitivity of Net Portfolio Value (NPV)
At May 31, 1996
<TABLE>
<CAPTION>
Net Interest Income Net Portfolio Value (NPV)
Projected ---------------------------------------- -------------------------------------------
Interest Rate Estimated $ Change % Change Estimated $ Change % Change
Scenario Value from Base from Base Value from Base from Base
- --------------- ----------- ------------ ----------- ------------ ------------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
+400 bp $ 2,363 $ (201) (7.82)% $ 9,172 $ (4,329) (32.06)%
+300 bp 2,424 (140) (5.47)% 10,327 (3,174) (23.51)%
+200 bp 2,483 (81) (3.15)% 11,551 (1,950) (14.44)%
+100 bp 2,538 (26) (1.03)% 12,746 (755) (5.59)%
BASE 2,564 0 0.00% 13,501 0 0.00%
-100 bp 2,521 (43) (1.68)% 13,610 109 0.81%
-200 bp 2,443 (121) (4.72)% 13,671 170 1.26%
-300 bp 2,345 (219) (8.56)% 13,747 246 1.82%
-400 bp 2,291 (273) (10.65)% 14,214 713 5.28%
</TABLE>
Source: PS Financial's Prospectus
80
<PAGE>
EXHIBIT 13
Loan Portfolio Composition
At May 31, 1996, at December 31, 1993 through 1995,
at February 28, 1993, and at February 29, 1992
<TABLE>
<CAPTION>
At May 31, At December 31,
-------------------- ----------------------------------------------------------------
1996 1995 1994 1993
-------------------- -------------------- -------------------- --------------------
Amount Percent Amount Percent Amount Percent Amount Percent
---------- --------- ---------- --------- ---------- --------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family $ 26,150 71.80% $ 25,858 73.44% $ 24,711 73.62% $ 23,403 74.45%
Multifamily 6,604 18.13% 6,094 17.31% 5,929 17.66% 5,452 17.34%
Commercial 3,408 9.36% 2,953 8.39% 2,904 8.65% 2,331 7.42%
Construction or
development 243 0.67% 286 0.81% 0 0.00% 215 0.68%
-------- ----- -------- ----- -------- ----- -------- -----
Total real estate
loans 36,405 99.96% 35,191 99.95% 33,544 99.93% 31,401 99.89%
-------- ----- -------- ----- -------- ----- -------- -----
Other loans:
Consumer Loans:
Deposit account 17 0.04% 18 0.05% 24 0.07% 35 0.11%
-------- ----- -------- ----- -------- ----- -------- -----
Total loans 36,422 100.00% 35,209 100.00% 33,568 100.00% 31,436 100.00%
-------- ----- -------- ----- -------- ----- -------- -----
Less:
Loans in process 0 0 0 0
Deferred fees and
discounts 534 548 542 521
Allowance for losses 186 136 136 94
-------- -------- -------- --------
Total loans
receivable, net $ 35,702 $ 34,525 $ 32,890 $ 30,821
======== ======== ======== ========
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
February, 28 February, 29
-------------------- -------------------
1993 1992
-------------------- -------------------
Amount Percent Amount Percent
---------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family $ 25,411 76.32% $ 24,670 76.51%
Multifamily 6,157 18.49% 6,046 18.75%
Commercial 1,681 5.05% 1,424 4.42%
Construction or
development 0 0.00% 0 0.00%
-------- ----- -------- -----
Total real estate
loans 33,249 99.86% 32,140 99.68%
-------- ----- -------- -----
Other loans:
Consumer Loans:
Deposit account 45 0.14% 105 0.32%
-------- ----- -------- -----
Total loans 33,294 100.00% 32,245 100.00%
-------- ----- -------- -----
Less:
Loans in process 0 0
Deferred fees and
discounts 511 496
Allowance for losses 67 43
-------- -------- -----
Total loans
receivable, net $ 32,716 $ 31,706
======== ========
</TABLE>
Source: PS Financial's Prospectus
81
<PAGE>
EXHIBIT 14
Loan Maturity Schedule
At May 31, 1996
<TABLE>
<CAPTION>
At May 31, 1996
------------------------------------------------------------------------------------
One- to
Four- Commercial
Family Multi-family Construction Consumer Business Total
----------- ------------- ------------- ------------- ------------ -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Amounts due:
1997 $ 31 $ 14 $ 243 $ 14 $ 0 $ 302
1998 323 0 0 0 0 323
1999 and 2000 281 269 0 3 164 717
2001 to 2005 3,676 2,981 0 0 1,857 8,514
2006 to 2020 21,839 3,340 0 0 1,387 26,566
2021 and following 0 0 0 0 0 0
---------- ---------- ---------- ---------- ---------- ----------
Total $ 26,150 $ 6,604 $ 243 $ 17 $ 3,408 $ 36,422
========== ========== ========== ========== ========== ==========
Fixed rate loans $ 36,177
Adjustable rate loans 245
----------
Total $ 36,422
==========
</TABLE>
Source: PS Financial's Prospectus
82
<PAGE>
EXHIBIT 15
Loan Originations
For the Five Months Ended May 31, 1995, and 1996, and
For the Years Ended December 31, 1994 and 1995 and
for The Ten Months Ended December 31, 1993
<TABLE>
<CAPTION>
Ten Months
Five months ended Ended
-------------------------- Years ended December 31, December 31,
May 31, May 31, ------------------------- ------------
1996 1995 1995 1994 1993
------------ ------------ ----------- ----------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Originations by type:
Real estate:
One- to four-family $2,499 $2,255 $5,162 $6,951 $6,050
Multi-family 1,250 421 821 1,180 0
Commercial 1,031 445 1,270 1,315 1,080
Non-real estate:
Consumer 9 2 9 12 40
------ ------ ------ ------ -------
Total loans originated 4,789 3,123 7,262 9,458 7,170
Purchases:
Real estate:
Construction 0 0 551 0 0
------ ------ ------ ------ -------
Total loans purchased 0 0 551 0 0
Sales and Repayments:
Principal repayments 3,151 1,820 5,533 7,596 9,935
Increase (decrease) in other
items, net (461) 56 (645) 207 870
------ ------ ------ ------ -------
Net increase (decrease) $1,177 $1,359 $1,635 $2,069 $(1,895)
====== ====== ====== ====== =======
</TABLE>
Source: PS Financial's Prospectus
83
<PAGE>
EXHIBIT 16
Delinquent Loans
At May 31, 1996
<TABLE>
<CAPTION>
Loans Delinquent For:
-----------------------------------------------------------------------------------
30-59 Days 60-89 Days
---------------------------------------- ---------------------------------------
Percent Percent
of Loan of Loan
Number Amount Category Number Amount Category
------------ ------------ ------------ ----------- ----------- -----------
(000) (000)
<S> <C> <C> <C> <C> <C> <C>
Real Estate:
One-to four-family 9 $ 707 2.70% 3 $ 217 0.83%
Multi-family --- --- --- 1 299 4.53%
Commercial real estate 1 211 6.19% --- --- ---
Consumer --- --- --- --- --- ---
------------ ------------ ------------ ----------- ----------- -----------
Total 10 $ 918 2.27% 4 $ 518 1.42%
</TABLE>
<TABLE>
<CAPTION>
Loans Delinquent For:
----------------------------------------
90 Days and Over Total Delinquent Loans
---------------------------------------- ---------------------------------------
Percent Percent
of Loan of Loan
Number Amount Category Number Amount Category
------------ ------------ ------------ ----------- ----------- -----------
(000) (000)
<S> <C> <C> <C> <C> <C> <C>
Real Estate:
One-to four-family 7 $ 600 2.29% 19 $ 1,524 5.83%
Multi-family --- --- --- 1 299 4.53%
Commercial real estate --- --- --- 1 211 6.19%
Consumer --- --- --- --- --- ---
------------ ------------ ------------ ----------- ----------- -----------
Total 7 $ 600 1.65% 21 $ 2,034 7.78%
</TABLE>
Source: PS Financial's Prospectus
84
<PAGE>
EXHIBIT 17
Nonperforming Assets
At May 31, 1996, at December 31, 1993 through 1995,
At February 29, 1992, and at February 28, 1993
<TABLE>
<CAPTION>
May 31, At December 31, February 28, February 29,
-----------------------------------
1996 1995 1994 1993 1993 1992
---------- ---------- ----------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accruing loans over ninety
days delinquent:
One-to four-family $ 584 $ 775 $ 334 $ 170 $ 106 $ 207
Multi-family --- --- --- --- --- ---
Commercial real estate --- --- --- --- --- ---
Commercial business --- --- --- --- --- ---
---------- ---------- ----------- ---------- ---------- ----------
Total 584 775 334 170 106 207
---------- ---------- ----------- ---------- ---------- ----------
Accruing loans delinquent
more than 90 days 16 --- --- 6 --- ---
Foreclosed assets --- --- --- --- --- ---
Total non-performing assets $ 600 $ 775 $ 334 $ 176 $ 106 $ 207
========== ========== =========== ========== ========== ==========
Total as a percentage of total assets 1.09% 1.45% 0.65% 0.33% 0.21% 0.45%
========== ========== =========== ========== ========== ==========
</TABLE>
Source: PS Financial's Prospectus
85
<PAGE>
EXHIBIT 18
Classified Assets
At May 31, 1996
(Dollars in thousands)
Classified Assets:
Substandard $ 600
Doubtful 0
Loss 0
--------------
Total classified assets $ 600
==============
Source: PS Financial's Prospectus
86
<PAGE>
EXHIBIT 19
Allowance for Loan Losses
For the Five Months Ended May 31, 1995 and
1996, for the Fiscal Years Ended December
31, 1994 and 1995, for the Ten Months Ended
December 31, 1993, and
For the Fiscal Years Ended February 28, 1993, and February 29, 1992
<TABLE>
<CAPTION>
Five months ended Year Ended
May 31, December 31,
-------------------------- --------------------------
1996 1995 1995 1994
------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $ 136 $ 136 $ 136 $ 94
Charge-offs --- --- --- ---
Recoveries --- --- --- ---
Net Charge-offs --- --- --- ---
Additions charged to operation 50 --- --- 42
------------ ------------ ------------ ------------
Balance at end of period $ 186 $ 136 $ 136 $ 136
============ ============ ============ ============
Ratio of net charge-offs during the
period to average loans outstanding
during the period --- % --- % --- % --- %
============ ============ ============ ============
Ratio of net charge-offs during the
period to average non-performing
assets --- % --- % --- % --- %
============ ============ ============ ============
Ratio of allowance for loan losses to
total loans 0.51% 0.38% 0.39% 0.41%
============ ============ ============ ============
</TABLE>
[TABLE RESTUBBED FROM ABOVE TABLE]
<TABLE>
<CAPTION>
Ten months ended Year Ended
December 31, February 28, February 29,
---------------- --------------------------
1993 1993 1992
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period $ 67 $ 43 $ 19
Charge-offs --- --- ---
Recoveries --- --- ---
Net Charge-offs --- --- ---
Additions charged to operation 27 24 24
------------ ------------ ------------
Balance at end of period $ 94 $ 67 $ 43
============ ============ ============
Ratio of net charge-offs during the
period to average loans outstanding
during the period --- % --- % --- %
============ ============ ============
Ratio of net charge-offs during the
period to average non-performing
assets --- % --- % --- %
============ ============ ============
Ratio of allowance for loan losses to
total loans 0.30% 0.20% 0.13%
============ ============ ============
</TABLE>
Source: PS Financial's Prospectus
87
<PAGE>
EXHIBIT 20
Investment Portfolio Composition
At May 31, 1996, and
At December 31, 1993 through 1995
<TABLE>
<CAPTION>
At December 31,
-----------------------
At May 31, 1996 1995
----------------------- -----------------------
Book % of Book % of
Value Total Value Total
----------- ---------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. government securities -- ---% -- ---%
Securities available for sale:
U.S. government securities 2,511 22.71% 3,527 36.22%
Federal agency obligations 8,547 77.29% 6,212 63.78%
Marketable equity securities -- ---% -- ---%
------- ------ ------- ------
Total securities 11,058 100.00% 9,739 100.00%
======= ====== ======= ======
Other interest-earning assets:
Interest-bearing deposits with other banks $ 2,758 88.40% $ 3,086 90.05%
Repurchase agreements -- ---% -- ---%
Money market mutual funds -- ---% -- ---%
Federal funds sold -- ---% -- ---%
Federal Home Loan Bank Stock 362 11.60% 341 9.95%
------- ------ ------- ------
Total $ 3,120 100.00% $ 3,427 100.00%
======= ====== ======= ======
Mortgage-backed securities held to maturity:
FNMA -- ---% -- ---%
Mortgage-backed securities available for sale:
GNMA 706 18.18% 766 18.15%
FNMA 2,223 57.23% 2,426 57.49%
FHLMC 955 24.59% 1,028 24.36%
------- ------ ------- ------
Total mortgage-backed securities $ 3,884 100.00% $ 4,220 100.00%
======= ====== ======= ======
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------
1994 1993
----------------------- -----------------------
Book % of Book % of
Value Total Value Total
----------- ---------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. government securities $ 201 2.67% $ 403 4.27%
Securities available for sale:
U.S. government securities 4,880 64.84% 2,999 31.74%
Federal agency obligations 2,445 32.49% -- ---%
Marketable equity securities -- ---% 6,045 63.99%
------- ------ ------- ------
Total securities 7,526 100.00% 9,447 100.00%
======= ====== ======= ======
Other interest-earning assets:
Interest-bearing deposits with other banks $ 6,060 95.15% $ 7,151 72.13%
Repurchase agreements -- ---% 750 7.57%
Money market mutual funds -- ---% 165 1.66%
Federal funds sold -- ---% 1,500 15.13%
Federal Home Loan Bank Stock 309 4.85% 348 3.51%
------- ------ ------- ------
Total $ 6,369 100.00% $ 9,914 100.00%
======= ====== ======= ======
Mortgage-backed securities held to maturity:
FNMA $ 1,792 51.41% $ 2,026 100.00%
Mortgage-backed securities available for sale:
GNMA 773 22.17% -- ---%
FNMA -- ---% -- ---%
FHLMC 921 26.42% -- ---%
------- ------ ------- ------
Total mortgage-backed securities $ 3,486 100.00% $ 2,026 100.00%
======= ====== ======= ======
</TABLE>
Source: PS Financial's Prospectus
88
<PAGE>
EXHIBIT 21
Mix of Deposits
At May 31, 1996, and at December 31, 1993 through 1995
<TABLE>
<CAPTION>
At May 31, At December 31,
----------------------- --------------------------------------------------------------------------
1996 1995 1994 1993
----------------------- --------------------- --------------------- ----------------------
Percent Percent Percent Percent
Amount of total Amount of total Amount of Total Amount of Total
----------- ---------- --------- --------- -------- ----------- --------- ----------
(Dollars in Thousands)
Transactions and Savings
Deposits
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook accounts $19,604 46.74% $19,409 47.29% $20,750 51.80% $22,989 55.88%
Money Market Accounts 1,998 4.76% 1,601 3.90% 1,924 4.80% 2,029 4.93%
--------- --------- --------- --------- --------- --------- --------- ---------
Total Non-Certificates 21,602 51.50% 21,010 51.19% 22,674 56.60% 25,018 60.81%
Certificates:
0.00-3.99% 4 0.01% 49 0.12% 5,130 12.81% 12,935 31.44%
4.00-5.99% 18,570 44.27% 16,222 39.52% 11,669 29.13% 2,343 5.70%
6.00-7.99% 1,769 4.22% 3,766 9.17% 494 1.23% 668 1.62%
8.00% and over --- ---% --- ---% 90 0.23% 175 0.43%
--------- --------- --------- --------- --------- --------- --------- ---------
Total Certificates 20,343 48.50% 20,037 48.81% 17,383 43.40% 16,121 39.19%
--------- --------- --------- --------- --------- --------- --------- ---------
Total Deposits $41,945 100.00% $41,047 100.00% $40,057 100.00% $41,139 100.00%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
Source: PS Financial's Prospectus
89
<PAGE>
EXHIBIT 22
Deposit Activity
For the Five Months Ended May 31, 1995, and 1996,
For the Years Ended December 31, 1994 and 1995,
and For the Ten Months Ended December 31, 1993
<TABLE>
<CAPTION>
Ten Months
Five Months Ended Year Ended Ended
May 31, December 31, December 31,
----------------------- ------------------------- ------------
1996 1995 1995 1994 1993
-------- -------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Opening balance $ 41,047 $ 40,057 $ 40,057 $ 41,139 $ 40,363
Deposits 11,721 9,566 24,295 24,604 15,841
Withdrawals (11,322) (10,238) (24,759) (26,856) (16,193)
Interest credited 499 403 1,454 1,170 1,128
-------- -------- -------- -------- --------
Ending balance $ 41,945 $ 39,788 $ 41,047 $ 40,057 $ 41,139
======== ======== ======== ======== ========
Net increase (decrease) $ 898 $ (269) $ 990 $ (1,082) $ 776
======== ======== ======== ======== ========
Percent increase (decrease) 2.19% (0.67)% 2.47% (2.63)% 1.92%
-------- -------- -------- -------- --------
</TABLE>
Source: PS Financial's Prospectus
90
<PAGE>
EXHIBIT 23
LIST OF KEY OFFICERS AND DIRECTORS
At May 31, 1996
<TABLE>
<CAPTION>
Year of
Term Commencement
Name Expires Age(1) Position(s) Held with the Bank of Directorship
- --------------------------- ------------ ----------- ------------------------------------- --------------------
<S> <C> <C> <C> <C>
S.J. Ptak 1999 71 Chairman of the Board 1969
Kimberly P. Rooney 1999 39 President, Chief Executive 1989
Officer and Director
Edward Wolak 1998 72 Director 1969
Jeanine M. McInerney 1997 38 Director 1996
Rocco Di Iorio 1997 64 Director 1990
</TABLE>
(1) At May 31, 1996.
Source: PS Financial's Prospectus
91
<PAGE>
EXHIBIT 24
Key Demographic Data and Trends
Cook County, Illinois and the United States
1990,1995,2000
<TABLE>
<CAPTION>
Population 1990 1995 % Chg. 2000 % Chg.
- ---------- ---- ---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
Cook County 5,105,067 5,144,275 0.8% 5,181,677 0.7%
Illinois 11,430,602 11,820,796 3.4% 12,201,180 3.2%
United States 248,709,873 263,006,245 5.7% 277,083,635 5.4%
Households
- ----------
Cook County 1,879,488 1,895,588 0.9% 1,910,191 0.8%
Illinois 4,202,240 4,344,448 3.4% 4,481,231 3.1%
United States 91,947,410 97,069,804 5.6% 102,201,641 5.3%
Per Capita Income
- -----------------
Cook County $12,882 $17,825 38.4% -- --
Illinois 13,705 17,047 24.4% -- --
United States 12,313 16,405 33.2% -- --
Median Household Income
- -----------------------
Cook County $30,060 $36,543 21.6% $35,814 (2.0)%
Illinois 31,424 35,865 14.1% 35,492 (1.0)%
United States 28,255 33,610 19.0% 32,972 (1.9)%
</TABLE>
Source: Data Users Center and CACI.
92
<PAGE>
EXHIBIT 25
Key Housing Data
Cook County, Illinois and the United States
1990
Occupied Housing Units 1990
- ---------------------- ----
Cook County 1,825,715
Illinois 4,202,240
United States 91,947,410
Occupancy
- ---------
Cook County
Owner-Occupied 55.5%
Renter-Occupied 44.5%
Illinois
Owner-Occupied 64.2%
Renter-Occupied 35.8%
United States
Owner-Occupied 64.2%
Renter-Occupied 35.8%
Median Housing Values
- ---------------------
Cook County $102,118
Illinois 80,873
United States 79,098
Median Rent
- -----------
Cook County $411
Illinois 369
United States 374
Source: U.S. Department of Commerce and CACI Sourcebook.
93
<PAGE>
EXHIBIT 26
Major Sources of Employment by Industry Group
Cook County, Illinois and the United States
1993
Industry Group Cook County Illinois United States
- -------------- ----------- -------- -------------
Agriculture/Mining 0.4% 0.8% 1.3%
Construction 3.3% 4.0% 4.8%
Manufacturing 19.0% 20.8% 19.2%
Transportation/Utilities 6.9% 6.2% 5.9%
Wholesale/Retail 24.8% 26.9% 27.5%
Finance, Insurance, &
Real Estate 10.4% 8.5% 7.3%
Services 35.2% 32.8% 34.1%
Source: Bureau of the Census County Business Patterns
94
<PAGE>
EXHIBIT 27
Unemployment Rates
Cook County, Illinois and the United States
1991, 1994 and 1996
Location 1994 1995 1996*
- -------- ---- ---- -----
Cook County 6.1% 5.5% 5.4%
Illinois 5.7% 5.2% 5.2%
United States 6.1% 5.2% 5.8%
* March, 1996
Source: Illinois Department of Employment Security
95
<PAGE>
EXHIBIT 28
Market Share of Deposits
Cook County
June, 30 1995
Cook Preferred Preferred
County Savings Bank Savings Bank
Deposits Share Share
(000) (000) (%)
------------- ------------ ------------
Banks $ 75,485,527 --- ---
Thrifts 29,772,152 $ 41,353 0.14%
Credit Unions 3,886,310 --- ---
------------- ------------ ------------
Total Deposits $ 109,143,989 $ 41,353 0.04%
Source: Sheshunoff
96
<PAGE>
EXHIBIT 29
National Interest Rates by Quarter
1992-1996
<TABLE>
<CAPTION>
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
1992 1992 1992 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
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. 2nd Qtr.
1996 1996
---- ----
Prime Rate 8.25% 8.25%
90-Day Treasury Bills 5.18% 5.25%
1-Year Treasury Bills 5.43% 5.91%
30-Year Treasury Bills 6.73% 7.14%
</TABLE>
Source: The Wall Street Journal
97
<PAGE>
<TABLE>
<CAPTION>
KELLER & COMPANY Page 1
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
PER SHARE PRICING RATIOS
---------------------------------------------------- ------------------------------
All All 12 Price/
Latest Time Time Mon. Qtr. Book Mon. Price/ Price/ Price/ Core
Price High Low Change Change Value Assets Div. Earnings Value Assets Earnings
State Exchange ($) ($) ($) (%) (%) ($) ($) ($) (X) (%) (%) (X)
----- -------- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PLE Pinnacle Bank AL AMSE 17.000 19.250 4.000 0.74 7.94 17.11 208.80 0.72 10.00 99.36 8.14 11.18
SRN Southern Banc Company, Inc AL AMSE 12.625 13.375 11.375 0.00 0.00 15.32 75.45 NA NA 82.41 16.73 NA
SZB SouthFirst Bancshares, Inc. AL AMSE 12.750 16.000 10.625 2.00 9.68 15.48 103.99 2.45 22.37 82.36 12.26 32.69
VAFD Valley Federal Savings Bank AL NASDAQ 31.000 35.250 8.500 0.00 10.71 26.16 323.35 0.60 119.23 118.50 9.59 155.00
FFBH First Federal Bancshares of AR AR NASDAQ 13.250 14.000 12.750 -4.50 -0.93 NA NA NA NA NA NA NA
FTF Texarkana First Financial Corp AR AMSE 15.625 16.500 10.000 -2.34 1.63 16.98 82.36 NA NA 92.02 18.97 NA
AHM Ahmanson & Company (H.F.) CA NYSE 26.000 28.625 2.688 0.48 11.83 19.78 461.87 0.88 7.69 131.45 5.63 33.33
AFFFZ America First Financial Fund CA NASDAQ 30.250 30.750 14.500 12.04 16.35 25.86 378.34 1.60 9.63 116.98 8.00 9.70
BPLS Bank Plus Corp. CA NASDAQ 10.375 14.000 5.000 16.90 15.28 9.55 180.71 0.00 NM 108.64 5.74 NM
BVFS Bay View Capital Corp. CA NASDAQ 35.375 36.250 11.250 8.02 9.49 29.94 492.19 0.60 121.98 118.15 7.19 22.82
BYFC Broadway Financial Corp. CA NASDAQ 10.000 11.000 10.000 0.00 -3.61 14.73 129.07 NA NA 67.89 7.75 NA
CAL Cal Fed Bancorp, Inc. CA NYSE 22.625 200.000 6.250 26.57 38.17 13.83 284.34 0.00 10.98 163.59 7.96 12.57
CFHC California Financial Holding CA NASDAQ 22.000 22.750 5.909 0.00 2.92 18.54 283.06 0.44 14.38 118.66 7.77 16.06
CENF CENFED Financial Corp. CA NASDAQ 23.250 23.750 5.000 5.68 8.14 21.27 426.22 0.33 10.33 109.31 5.45 14.26
CSA Coast Savings Financial CA NYSE 33.125 35.125 1.625 3.92 11.34 23.13 449.36 0.00 15.41 143.21 7.37 16.81
DSL Downey Financial Corp. CA NYSE 23.125 26.190 2.081 6.94 5.11 23.09 277.64 0.47 12.11 100.15 8.33 13.60
FSSB First FS&LA of San Bernardino CA NASDAQ 10.000 14.500 6.875 -6.98 0.00 17.75 314.62 0.00 NM 56.34 3.18 NM
FED FirstFed Financial Corp. CA NYSE 17.750 26.600 1.125 5.19 11.81 17.96 390.61 0.00 19.51 98.83 4.54 20.17
GLN Glendale Federal Bank, FSB CA NYSE 18.250 589.500 5.250 2.10 9.77 14.97 309.37 0.00 52.14 121.91 5.90 27.65
GDW Golden West Financial CA NYSE 57.375 57.500 3.875 5.28 10.34 40.78 617.63 0.37 11.90 140.69 9.29 12.13
GWF Great Western Financial CA NYSE 24.500 27.125 3.950 7.69 12.00 18.49 318.21 0.94 11.67 132.50 7.70 12.50
HTHR Hawthorne Financial Corp. CA NASDAQ 8.750 35.500 2.250 -2.78 25.00 13.29 292.87 0.00 NM 65.84 2.99 NM
HEMT HF Bancorp, Inc. CA NASDAQ 9.563 10.250 8.188 0.66 -1.92 12.91 131.64 0.00 28.98 74.07 7.26 28.98
HBNK Highland Federal Bank FSB CA NASDAQ 14.750 17.000 11.000 -4.84 -10.28 15.08 192.47 0.00 23.05 97.81 7.66 23.05
MBBC Monterey Bay Bancorp, Inc. CA NASDAQ 12.500 13.063 8.750 5.26 4.17 15.11 93.40 0.00 62.50 82.73 13.38 52.08
NHSL NHS Financial, Inc. CA NASDAQ 11.250 11.250 3.696 2.27 20.00 9.92 112.65 0.16 21.63 113.41 9.99 21.63
PSSB Palm Springs Savings Bank CA NASDAQ 13.938 14.125 4.500 0.45 7.22 10.34 169.85 0.12 13.27 134.80 8.21 24.89
PFFB PFF Bancorp, Inc. CA NASDAQ 11.250 11.750 10.375 2.27 2.27 14.64 108.19 NA NA 76.84 10.40 NA
PROV Provident Financial Holdings CA NASDAQ 10.813 11.000 10.125 2.40 NA NA NA NA NA NA NA NA
QCBC Quaker City Bancorp, Inc. CA NASDAQ 14.750 15.000 7.500 10.28 2.61 17.81 190.13 0.00 16.03 82.82 7.76 16.57
REDF RedFed Bancorp Inc. CA NASDAQ 9.250 14.500 7.750 8.82 -5.13 11.90 211.32 0.00 NM 77.73 4.38 NM
SGVB SGV Bancorp, Inc. CA NASDAQ 8.750 10.125 7.750 1.45 -1.41 11.94 122.11 NA NA 73.28 7.17 NA
WES Westcorp CA NYSE 18.500 21.905 3.703 3.50 -2.27 12.04 116.54 0.36 12.25 153.65 15.87 30.33
FFBA First Colorado Bancorp, Inc. CO NASDAQ 14.188 14.500 3.189 7.08 13.50 12.17 74.57 NA NA 116.58 19.03 NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KELLER & COMPANY Page 2
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
PER SHARE PRICING RATIOS
---------------------------------------------------- ------------------------------
All All 12 Price/
Latest Time Time Mon. Qtr. Book Mon. Price/ Price/ Price/ Core
Price High Low Change Change Value Assets Div. Earnings Value Assets Earnings
State Exchange ($) ($) ($) (%) (%) ($) ($) ($) (X) (%) (%) (X)
----- -------- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MORG Morgan Financial Corp. CO NASDAQ 12.250 12.500 6.750 0.00 0.00 12.61 86.05 0.77 15.31 97.15 14.24 15.91
EGFC Eagle Financial Corp. CT NASDAQ 24.125 27.750 6.198 -1.53 3.76 22.69 318.06 0.88 6.87 106.32 7.59 13.79
FFES First Federal of East Hartford CT NASDAQ 17.625 21.500 4.000 -4.73 5.22 21.95 364.96 0.58 9.28 80.30 4.83 9.38
NTMG Nutmeg Federal S&LA CT NASDAQ 8.000 8.000 4.645 10.34 18.52 7.84 120.36 0.00 13.56 102.04 6.65 22.86
WBST Webster Financial Corporation CT NASDAQ 29.375 30.500 3.864 2.17 9.04 24.42 473.65 0.64 12.04 120.29 6.20 11.43
IFSB Independence Federal Savings DC NASDAQ 7.250 10.250 0.250 -6.45 -1.69 13.21 206.21 0.22 7.25 54.88 3.52 15.10
BANC BankAtlantic Bancorp, Inc. FL NASDAQ 11.750 12.800 0.223 7.80 -5.24 9.49 132.34 0.14 9.55 123.81 8.88 12.37
BKUNA BankUnited Financial Corp. FL NASDAQ 7.375 12.750 2.320 1.72 -3.28 7.93 129.72 0.00 6.10 93.00 5.69 NM
FFFG F.F.O. Financial Group, Inc. FL NASDAQ 2.625 10.000 0.563 -4.55 -4.55 2.18 36.26 0.00 17.50 120.41 7.24 16.41
FFLC FFLC Bancorp, Inc. FL NASDAQ 18.250 20.250 12.750 1.39 2.82 21.54 126.81 0.34 15.60 84.73 14.39 15.60
FFML First Family Financial Corp. FL NASDAQ 21.500 23.000 5.000 2.38 2.38 16.38 291.83 0.16 8.37 131.26 7.37 15.58
FFPB First Palm Beach Bancorp, Inc. FL NASDAQ 21.500 24.875 14.000 2.99 0.58 21.93 277.55 0.35 11.26 98.04 7.75 11.94
FFPC Florida First Bancorp, Inc. FL NASDAQ 11.125 11.250 0.750 0.00 17.11 6.31 89.43 0.24 13.73 176.31 12.44 14.83
HOFL Home Financial Corp. FL NASDAQ 13.875 16.250 5.803 5.59 2.78 12.86 49.19 0.75 21.35 107.89 28.21 17.13
SCSL Suncoast Savings and Loan FL NASDAQ 6.625 10.682 1.250 10.42 8.16 6.59 234.43 0.00 13.52 100.53 2.83 NM
CCFH CCF Holding Company GA NASDAQ 12.375 12.750 10.750 3.64 7.61 14.79 69.66 NA NA 83.67 17.76 NA
EBSI Eagle Bancshares GA NASDAQ 15.625 19.000 1.875 3.31 0.81 12.56 134.33 0.51 10.21 124.40 11.63 10.35
FGHC First Georgia Holding, Inc. GA NASDAQ 6.750 7.833 1.222 10.20 -6.90 5.86 70.23 0.07 12.05 115.19 9.61 12.98
FLFC First Liberty Financial Corp. GA NASDAQ 20.750 25.000 4.000 -2.35 -5.68 16.84 246.56 0.49 9.79 123.22 8.42 12.35
FLAG FLAG Financial Corp. GA NASDAQ 12.000 15.000 3.200 -5.88 -5.88 10.75 112.50 0.30 12.24 111.63 10.67 13.79
NFSL Newnan Savings Bank, FSB GA NASDAQ 21.000 21.000 2.955 9.09 10.53 12.86 111.04 0.31 10.00 163.30 18.91 11.41
CASH First Midwest Financial, Inc. IA NASDAQ 21.750 24.250 13.250 0.00 -10.31 21.94 192.34 0.41 12.43 99.13 11.31 12.57
GFSB GFS Bancorp, Inc. IA NASDAQ 20.500 20.750 11.000 0.94 -1.20 19.52 163.47 0.33 11.92 105.02 12.54 12.28
HZFS Horizon Financial Svcs Corp. IA NASDAQ 14.000 16.375 10.375 -6.67 -13.85 18.73 164.01 0.32 16.67 74.75 8.54 20.59
MFCX Marshalltown Financial Corp. IA NASDAQ 15.750 16.750 8.500 1.61 -4.55 13.86 88.78 0.00 49.22 113.64 17.74 52.50
MIFC Mid-Iowa Financial Corp. IA NASDAQ 6.375 7.875 2.474 0.00 -5.56 6.42 68.49 0.08 10.63 99.30 9.31 10.81
MWBI Midwest Bancshares, Inc. IA NASDAQ 25.000 27.125 11.750 -2.91 -5.66 26.46 396.78 0.52 6.98 94.48 6.30 10.04
FFFD North Central Bancshares, Inc. IA NASDAQ 11.625 12.683 8.071 6.90 10.71 13.90 48.44 NA NA 83.63 24.00 NA
PMFI Perpetual Midwest Financial IA NASDAQ 17.750 17.750 10.000 4.41 4.41 17.86 185.44 0.15 23.99 99.38 9.57 23.99
SFFC StateFed Financial Corporation IA NASDAQ 15.750 19.750 10.500 -2.33 -7.35 18.35 94.29 0.40 14.19 85.83 16.70 14.19
AVND Avondale Financial Corp. IL NASDAQ 14.000 15.250 11.500 8.74 7.69 16.33 164.65 0.00 15.05 85.73 8.50 20.90
CBCI Calumet Bancorp, Inc. IL NASDAQ 27.813 28.500 10.333 -0.67 0.92 33.23 206.72 0.00 11.89 83.70 13.45 11.89
CBSB Charter Financial, Inc. IL NASDAQ 11.500 12.250 6.361 4.55 1.10 12.95 60.48 NA NA 88.80 19.01 NA
CBK Citizens First Financial Corp. IL AMSE 10.250 10.500 9.500 2.50 2.50 NA NA NA NA NA NA NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KELLER & COMPANY Page 3
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
PER SHARE PRICING RATIOS
---------------------------------------------------- ------------------------------
All All 12 Price/
Latest Time Time Mon. Qtr. Book Mon. Price/ Price/ Price/ Core
Price High Low Change Change Value Assets Div. Earnings Value Assets Earnings
State Exchange ($) ($) ($) (%) (%) ($) ($) ($) (X) (%) (%) (X)
----- -------- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CSBF CSB Financial Group, Inc. IL NASDAQ 9.125 9.625 8.810 -1.35 1.39 12.30 39.82 NA NA 74.19 22.92 NA
DFIN Damen Financial Corp. IL NASDAQ 11.500 11.940 11.000 -1.61 -1.08 14.34 59.31 NA NA 80.20 19.39 NA
EGLB Eagle BancGroup, Inc. IL NASDAQ 11.625 11.750 10.500 3.33 NA NA NA NA NA NA NA NA
FBCI Fidelity Bancorp, Inc. IL NASDAQ 16.250 17.000 9.500 0.00 0.78 16.99 155.90 0.22 16.58 95.64 10.42 16.58
FNSC Financial Security Corp. IL NASDAQ 25.750 26.500 11.875 1.98 -0.48 25.69 166.65 0.00 19.36 100.23 15.45 16.30
FFBI First Financial Bancorp, Inc. IL NASDAQ 15.500 16.250 9.000 0.00 0.00 16.67 187.79 0.00 13.72 92.98 8.25 16.67
FMBD First Mutual Bancorp, Inc. IL NASDAQ 12.625 14.750 11.125 7.45 4.34 16.83 73.11 NA NA 75.01 17.27 NA
FFDP FirstFed Bancshares IL NASDAQ 16.250 17.625 8.000 -4.41 8.33 16.12 186.84 0.30 17.47 100.81 8.70 33.16
GTPS Great American Bancorp IL NASDAQ 13.250 15.125 11.875 -4.50 -3.64 17.96 65.17 NA NA 73.78 20.33 NA
HNFC Hinsdale Financial Corp. IL NASDAQ 24.000 26.750 9.000 -1.03 11.63 20.62 246.26 0.00 15.48 116.39 9.75 17.27
HMCI HomeCorp, Inc. IL NASDAQ 18.000 18.750 5.000 0.00 0.70 18.72 300.36 0.00 15.65 96.15 5.99 24.66
KNK Kankakee Bancorp, Inc. IL AMSE 19.375 21.000 13.625 2.65 1.31 24.76 250.52 0.40 15.26 78.25 7.73 15.26
LBCI Liberty Bancorp, Inc. IL NASDAQ 23.875 30.625 12.750 -1.04 4.95 25.84 262.90 0.60 17.95 92.40 9.08 17.95
MAFB MAF Bancorp, Inc. IL NASDAQ 25.250 26.810 2.727 12.22 -2.66 23.42 301.45 0.32 9.15 107.81 8.38 9.08
NBSI North Bancshares, Inc. IL NASDAQ 15.750 16.250 11.000 3.28 -2.33 16.62 107.25 0.20 28.64 94.77 14.69 31.50
SWBI Southwest Bancshares IL NASDAQ 26.750 28.250 11.750 -1.38 0.00 22.30 198.77 1.06 13.65 119.96 13.46 13.72
SPBC St. Paul Bancorp, Inc. IL NASDAQ 23.625 26.625 3.833 3.28 -1.05 20.88 241.13 0.35 12.30 113.15 9.80 12.57
STND Standard Financial, Inc. IL NASDAQ 16.250 16.500 9.125 1.56 7.44 16.29 139.15 0.16 15.93 99.75 11.68 17.47
SFSB SuburbFed Financial Corp. IL NASDAQ 17.500 18.167 6.667 1.45 0.72 20.72 301.02 0.32 13.06 84.46 5.81 14.96
WCBI Westco Bancorp IL NASDAQ 21.500 22.000 7.667 1.18 11.21 18.40 119.07 0.45 15.58 116.85 18.06 15.36
FBCV 1ST Bancorp IN NASDAQ 29.000 34.286 4.190 7.41 1.75 32.60 395.29 0.39 3.36 88.96 7.34 NM
AMFC AMB Financial Corp. IN NASDAQ 10.250 11.000 9.750 -4.65 2.50 NA NA NA NA NA NA NA
ASBI Ameriana Bancorp IN NASDAQ 13.250 14.438 2.750 0.00 1.45 13.51 121.72 0.54 13.52 98.08 10.89 13.80
ATSB AmTrust Capital Corp. IN NASDAQ 9.250 11.250 7.750 8.82 -7.50 13.32 128.88 0.00 25.69 69.44 7.18 102.78
CBCO CB Bancorp, Inc. IN NASDAQ 17.250 19.250 7.125 0.73 4.55 16.44 166.49 0.00 8.21 104.93 10.36 8.21
CBIN Community Bank Shares IN NASDAQ 13.250 14.750 12.000 4.95 -5.36 12.85 112.88 NA NA 103.11 11.74 NA
FFWC FFW Corp. IN NASDAQ 19.500 20.000 12.500 1.30 1.30 21.76 201.43 0.48 11.47 89.61 9.68 10.32
FFED Fidelity Federal Bancorp IN NASDAQ 10.250 14.773 1.534 -8.89 -21.15 5.70 112.36 0.70 8.13 179.82 9.12 8.69
FISB First Indiana Corporation IN NASDAQ 23.125 25.190 1.797 -2.12 -5.61 16.40 177.60 0.51 11.34 141.01 13.02 13.60
HFGI Harrington Financial Group IN NASDAQ 10.000 11.000 9.875 -4.76 -6.98 7.10 128.41 0.00 17.54 140.85 7.79 16.39
HBFW Home Bancorp IN NASDAQ 15.750 16.250 12.500 4.13 5.88 16.96 109.43 0.05 17.90 92.87 14.39 17.90
HBBI Home Building Bancorp IN NASDAQ 17.750 21.250 10.000 -13.41 5.97 20.13 130.06 0.30 30.08 88.18 13.65 32.27
HOMF Home Federal Bancorp IN NASDAQ 26.250 27.750 3.222 -1.87 5.00 23.14 282.99 0.45 8.15 113.44 9.28 9.62
HWEN Home Financial Bancorp IN NASDAQ 12.000 12.000 9.875 21.52 NA NA NA NA NA NA NA NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KELLER & COMPANY Page 4
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
PER SHARE PRICING RATIOS
---------------------------------------------------- ------------------------------
All All 12 Price/
Latest Time Time Mon. Qtr. Book Mon. Price/ Price/ Price/ Core
Price High Low Change Change Value Assets Div. Earnings Value Assets Earnings
State Exchange ($) ($) ($) (%) (%) ($) ($) ($) (X) (%) (%) (X)
----- -------- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCB Indiana Community Bank, SB IN NASDAQ 13.250 16.750 11.000 0.00 -15.87 15.35 102.46 0.33 18.93 86.32 12.93 18.93
IFSL Indiana Federal Corporation IN NASDAQ 18.500 21.500 4.000 -8.64 1.37 14.88 151.50 0.78 12.09 124.33 12.21 12.94
LOGN Logansport Financial Corp. IN NASDAQ 13.125 13.750 11.250 -2.78 2.94 14.99 58.37 0.40 15.44 87.56 22.49 16.41
MARN Marion Capital Holdings IN NASDAQ 20.000 21.000 14.250 -1.23 0.00 21.47 91.94 0.74 16.39 93.15 21.75 16.39
MFBC MFB Corp. IN NASDAQ 15.250 16.250 10.500 10.91 7.02 19.09 106.67 0.00 21.48 79.88 14.30 22.10
NEIB Northeast Indiana Bancorp IN NASDAQ 12.250 13.500 11.250 1.03 2.08 14.13 74.76 0.23 15.31 86.69 16.39 15.31
PFDC Peoples Bancorp IN NASDAQ 19.250 22.500 5.375 -4.94 -4.94 18.46 118.51 0.54 11.26 104.28 16.24 11.26
PERM Permanent Bancorp, Inc. IN NASDAQ 16.500 18.500 9.750 4.76 3.13 19.44 185.48 0.20 30.00 84.88 8.90 30.00
SOBI Sobieski Bancorp, Inc. IN NASDAQ 11.750 13.250 10.000 0.00 -5.05 16.87 91.25 0.00 31.76 69.65 12.88 31.76
WCHI Workingmens Capital Holdings IN NASDAQ 20.750 20.875 4.313 0.61 4.40 14.63 115.12 0.35 20.34 141.83 18.02 20.15
FFSL First Independence Corp. KS NASDAQ 18.500 19.250 10.875 4.23 4.96 22.37 181.29 0.35 10.05 82.70 10.20 11.71
LARK Landmark Bancshares, Inc. KS NASDAQ 15.250 15.875 9.750 0.00 2.52 17.27 104.74 0.40 16.22 88.30 14.56 18.15
MCBS Mid Continent Bancshares Inc. KS NASDAQ 17.875 19.250 9.750 -3.38 -1.38 18.61 141.13 0.40 9.71 96.05 12.67 9.99
WBCI WFS Bancorp, Inc. KS NASDAQ 22.875 23.090 11.000 -0.80 0.55 21.99 171.20 0.40 18.45 104.02 13.36 17.07
CKFB CKF Bancorp, Inc. KY NASDAQ 19.500 20.250 11.375 0.00 0.00 17.21 59.11 0.40 25.66 113.31 32.99 25.66
CLAS Classic Bancshares, Inc. KY NASDAQ 11.625 11.750 10.375 8.14 3.33 14.74 49.97 NA NA 78.87 23.26 NA
FSBS First Ashland Financial Corp KY NASDAQ 18.250 18.375 12.500 0.00 1.39 16.15 59.37 NA NA 113.00 30.74 NA
FFKY First Federal Financial Corp. KY NASDAQ 21.500 22.000 3.063 3.61 20.28 11.87 83.80 0.46 16.54 181.13 25.66 18.22
FLKY First Lancaster Bancshares KY NASDAQ 13.750 14.250 13.125 3.07 NA NA NA NA NA NA NA NA
FTSB Fort Thomas Financial Corp. KY NASDAQ 13.750 17.750 11.250 -20.29 -16.03 13.58 55.89 NA NA 101.25 24.60 NA
FKKY Frankfort First Bancorp, Inc. KY NASDAQ 11.250 15.875 11.000 -7.22 -28.00 13.87 40.18 NA NA 81.11 28.00 NA
GWBC Gateway Bancorp, Inc. KY NASDAQ 13.000 16.250 11.000 -7.14 -9.57 15.64 62.93 1.50 19.70 83.12 20.66 19.70
GTFN Great Financial Corporation KY NASDAQ 26.750 27.375 13.875 4.39 2.39 19.19 169.06 0.42 17.26 139.40 15.82 21.06
HFFB Harrodsburg First Fin Bancorp KY NASDAQ 16.250 16.750 12.375 -0.76 19.27 15.49 49.82 NA NA 104.91 32.62 NA
KYF Kentucky First Bancorp, Inc. KY AMSE 14.625 15.250 11.375 -2.50 15.84 14.29 60.48 NA NA 102.34 24.18 NA
ANA Acadiana Bancshares, Inc. LA AMSE 12.250 12.250 11.690 NA NA NA NA NA NA NA NA NA
CZF CitiSave Financial Corp LA AMSE 13.875 16.500 12.750 -2.63 -5.93 16.26 82.63 NA NA 85.33 16.79 NA
ISBF ISB Financial Corporation LA NASDAQ 14.750 17.000 12.938 2.61 -5.21 16.37 84.51 NA NA 90.10 17.45 NA
JEBC Jefferson Bancorp, Inc. LA NASDAQ 22.500 22.500 12.750 2.27 2.86 16.42 120.96 0.30 18.75 137.03 18.60 18.75
MERI Meritrust Federal SB LA NASDAQ 31.500 34.000 13.500 0.80 -1.56 22.40 295.05 0.58 11.33 140.63 10.68 11.62
TSH Teche Holding Co. LA AMSE 13.000 14.500 11.375 0.97 -1.89 14.51 84.56 NA NA 89.59 15.37 NA
AFCB Affiliated Community Bancorp MA NASDAQ 17.375 18.000 16.060 0.72 6.11 19.30 193.66 NA NA 90.03 8.97 NA
BFD BostonFed Bancorp, Inc. MA AMSE 12.375 12.625 10.000 3.13 6.45 14.55 118.06 NA NA 85.05 10.48 NA
FMLY Family Bancorp MA NASDAQ 25.250 25.500 1.167 3.59 26.25 16.60 219.50 0.42 13.43 152.11 11.50 13.95
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KELLER & COMPANY Page 5
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
PER SHARE PRICING RATIOS
---------------------------------------------------- ------------------------------
All All 12 Price/
Latest Time Time Mon. Qtr. Book Mon. Price/ Price/ Price/ Core
Price High Low Change Change Value Assets Div. Earnings Value Assets Earnings
State Exchange ($) ($) ($) (%) (%) ($) ($) ($) (X) (%) (%) (X)
----- -------- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANBK American National Bancorp MD NASDAQ 9.875 10.625 4.639 -7.06 1.28 12.87 112.80 NA NA 76.73 8.75 NA
EQSB Equitable Federal Savings Bank MD NASDAQ 25.250 26.250 11.250 2.02 0.00 23.64 446.29 0.00 8.04 106.81 5.66 8.07
FCIT First Citizens Financial Corp. MD NASDAQ 17.500 19.091 0.375 4.48 -1.41 13.45 214.17 0.00 13.16 130.11 8.17 16.51
FFWM First Financial-W. Maryland MD NASDAQ 22.250 27.250 7.167 5.95 17.11 18.70 149.25 0.48 34.23 118.98 14.91 37.08
HRBF Harbor Federal Bancorp, Inc. MD NASDAQ 12.875 15.500 9.750 3.00 -0.96 15.84 114.58 0.30 23.41 81.28 11.24 23.41
HFMD Home Federal Corp. MD NASDAQ 10.250 15.873 0.750 -4.65 -6.31 7.41 86.02 0.12 10.15 138.33 11.92 10.35
MFSL Maryland Federal Bancorp MD NASDAQ 28.875 34.125 4.545 -0.43 -1.70 29.95 357.10 0.61 10.42 96.41 8.09 14.73
WSB Washington Savings Bank, FSB MD AMSE 5.000 6.917 0.281 -9.09 0.00 4.97 60.42 0.09 9.09 100.60 8.28 11.90
WHGB WHG Bancshares Corp. MD NASDAQ 11.250 11.750 10.875 -2.17 0.00 NA NA NA NA NA NA NA
MCBN Mid-Coast Bancorp, Inc. ME NASDAQ 20.250 20.250 8.095 5.88 4.52 21.67 239.77 0.50 14.57 93.45 8.45 15.82
BWFC Bank West Financial Corp. MI NASDAQ 12.000 12.250 8.500 7.87 31.51 11.99 60.63 0.21 26.67 100.08 19.79 46.15
CFSB CFSB Bancorp, Inc. MI NASDAQ 19.875 24.000 3.486 -4.22 -0.63 14.57 177.22 0.45 12.50 136.41 11.21 13.25
DNFC D & N Financial Corp. MI NASDAQ 12.750 18.875 2.500 -3.77 2.00 10.30 180.31 0.00 7.29 123.79 7.07 7.97
MSBF MSB Financial, Inc. MI NASDAQ 16.750 19.500 10.750 -2.90 -1.47 18.86 83.33 0.30 10.81 88.81 20.10 11.88
MSBK Mutual Savings Bank, FSB MI NASDAQ 5.375 25.500 3.000 -8.51 0.00 9.03 159.10 0.00 NM 59.52 3.38 NM
OFCP Ottawa Financial Corp. MI NASDAQ 16.375 16.750 10.250 0.77 0.77 14.84 144.45 0.32 18.82 110.34 11.34 19.26
SJSB SJS Bancorp MI NASDAQ 20.000 20.750 10.810 -1.53 0.00 17.90 153.42 0.30 21.74 111.73 13.04 22.22
SFB Standard Federal Bancorp MI NYSE 41.625 43.125 4.750 7.42 8.12 30.74 486.52 0.74 10.48 135.41 8.56 12.03
THR Three Rivers Financial Corp. MI AMSE 12.625 13.625 11.375 -5.61 -1.94 15.17 99.04 NA NA 83.22 12.75 NA
BDJI First Federal Bancorporation MN NASDAQ 14.375 14.750 10.625 8.49 10.58 17.88 134.85 0.00 16.34 80.40 10.66 16.34
FFHH FSF Financial Corp. MN NASDAQ 11.875 13.500 7.750 -1.04 -6.86 15.58 95.29 0.50 20.83 76.22 12.46 20.83
HMNF HMN Financial, Inc. MN NASDAQ 15.250 16.500 9.313 -5.43 -0.81 17.54 104.63 0.00 12.92 86.94 14.58 14.52
MIVI Mississippi View Holding Co. MN NASDAQ 10.875 12.250 8.500 1.16 -3.85 13.78 73.08 0.08 10.88 78.92 14.88 12.22
QCFB QCF Bancorp, Inc. MN NASDAQ 14.750 15.250 11.000 -3.28 5.36 17.82 81.68 NA NA 82.77 18.06 NA
TCB TCF Financial Corp. MN NYSE 38.250 38.500 2.813 13.33 12.50 14.98 194.88 0.66 13.42 255.34 19.63 14.06
WEFC Wells Financial Corp. MN NASDAQ 11.813 12.250 9.000 1.62 13.86 13.41 89.68 NA NA 88.09 13.17 NA
CMRN Cameron Financial Corp MO NASDAQ 14.000 15.500 10.688 3.70 1.82 17.29 60.52 NA NA 80.97 23.13 NA
CAPS Capital Savings Bancorp, Inc. MO NASDAQ 19.500 19.500 12.250 8.33 2.63 20.34 194.94 0.33 10.77 95.87 10.00 10.77
CNSB CNS Bancorp, Inc. MO NASDAQ 11.625 12.000 11.000 1.09 NA NA NA NA NA NA NA NA
FBSI First Bancshares, Inc. MO NASDAQ 16.000 17.000 10.250 3.23 -4.48 18.26 107.92 0.20 17.78 87.62 14.83 17.98
GSBC Great Southern Bancorp, Inc. MO NASDAQ 27.500 28.500 2.292 2.08 6.80 15.04 148.61 0.68 11.55 182.85 18.50 12.28
HFSA Hardin Bancorp, Inc. MO NASDAQ 11.250 13.000 11.000 -2.17 -2.17 14.75 85.90 NA NA 76.27 13.10 NA
JSBA Jefferson Savings Bancorp MO NASDAQ 23.500 30.750 13.250 -5.05 -18.97 21.59 266.48 0.08 13.28 108.85 8.82 14.51
JOAC Joachim Bancorp, Inc. MO NASDAQ 13.250 13.500 11.500 8.16 3.92 14.14 48.37 NA NA 93.71 27.39 NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KELLER & COMPANY Page 6
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
PER SHARE PRICING RATIOS
---------------------------------------------------- ------------------------------
All All 12 Price/
Latest Time Time Mon. Qtr. Book Mon. Price/ Price/ Price/ Core
Price High Low Change Change Value Assets Div. Earnings Value Assets Earnings
State Exchange ($) ($) ($) (%) (%) ($) ($) ($) (X) (%) (%) (X)
----- -------- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LXMO Lexington B&L Financial Corp. MO NASDAQ 9.875 10.125 9.500 -2.47 NA NA NA NA NA NA NA NA
MBLF MBLA Financial Corp. MO NASDAQ 21.250 26.000 12.750 -5.56 -15.84 20.68 142.21 0.40 22.14 102.76 14.94 22.14
MFSB Mutual Bancompany MO NASDAQ 21.250 21.750 10.000 1.19 1.19 18.70 159.85 0.00 62.50 113.64 13.29 54.49
NASB North American Savings Bank MO NASDAQ 29.938 32.375 2.500 2.35 -2.64 21.44 291.83 0.53 8.09 139.64 10.26 8.83
NSLB NS&L Bancorp, Inc. MO NASDAQ 12.500 13.750 11.750 -0.99 -1.96 15.62 66.51 NA NA 80.03 18.79 NA
PCBC Perry County Financial Corp. MO NASDAQ 15.500 21.500 12.375 -12.68 -10.14 18.37 91.63 0.30 16.32 84.38 16.92 16.67
RFED Roosevelt Financial Group MO NASDAQ 16.500 19.750 2.167 -6.38 -10.20 10.98 221.32 0.59 13.10 150.27 7.46 9.54
SMFC Sho-Me Financial Corp. MO NASDAQ 17.000 17.000 9.375 6.25 5.52 19.59 161.62 0.00 13.49 86.78 10.52 13.93
SMBC Southern Missouri Bancorp, Inc MO NASDAQ 14.000 17.500 8.875 -1.75 -3.45 15.41 93.96 0.50 17.72 90.85 14.90 19.18
CFTP Community Federal Bancorp MS NASDAQ 13.000 13.750 12.250 -1.89 4.00 14.37 43.56 NA NA 90.47 29.84 NA
FFBS FFBS BanCorp, Inc. MS NASDAQ 19.750 24.250 12.000 -11.24 -8.14 16.43 78.55 1.40 18.46 120.21 25.14 18.46
MGNL Magna Bancorp, Inc. MS NASDAQ 41.000 42.000 1.688 17.14 17.14 18.36 191.00 0.50 13.67 223.31 21.47 13.76
GBCI Glacier Bancorp, Inc. MT NASDAQ 21.250 22.273 1.495 0.00 -3.41 11.45 121.53 0.59 11.68 185.59 17.49 11.68
SFBM Security Bancorp MT NASDAQ 20.250 23.250 4.250 0.00 -4.71 21.97 246.22 0.65 12.50 92.17 8.22 16.74
UBMT United Financial Corp. MT NASDAQ 18.000 22.500 5.625 -4.00 0.00 20.12 85.48 0.83 13.64 89.46 21.06 13.64
WSTR WesterFed Financial Corp. MT NASDAQ 14.188 17.125 11.375 -2.99 -1.30 17.88 128.31 0.36 13.26 79.35 11.06 14.48
COOP Cooperative Bankshares, Inc. NC NASDAQ 16.750 22.500 3.467 -1.47 -5.63 19.77 212.28 0.00 29.39 84.72 7.89 29.91
SOPN First Savings Bancorp, Inc. NC NASDAQ 17.750 21.000 13.500 -2.74 -6.58 17.94 68.45 0.68 18.68 98.94 25.93 18.30
GSFC Green Street Financial Corp. NC NASDAQ 12.750 13.125 12.125 -2.86 3.03 14.60 41.64 NA NA 87.33 30.62 NA
HFNC HFNC Financial Corp. NC NASDAQ 16.500 16.750 13.125 1.54 17.35 14.21 41.66 NA NA 116.12 39.61 NA
KSAV KS Bancorp, Inc. NC NASDAQ 20.000 22.000 11.625 0.00 11.11 20.86 141.02 1.10 14.39 95.88 14.18 14.18
MBSP Mitchell Bancorp, Inc. NC NASDAQ 10.875 11.000 10.190 NA NA NA NA NA NA NA NA NA
PDB Piedmont Bancorp, Inc. NC AMSE 13.250 13.625 12.000 0.95 0.95 14.01 48.66 NA NA 94.58 27.23 NA
SSB Scotland Bancorp, Inc NC AMSE 12.125 12.625 11.625 -1.02 3.19 13.43 38.31 NA NA 90.28 31.65 NA
SSM Stone Street Bancorp, Inc. NC AMSE 16.500 18.500 16.250 -2.22 -3.65 NA NA NA NA NA NA NA
UFRM United Federal Savings Bank NC NASDAQ 7.500 8.750 1.750 -9.75 -4.76 6.81 82.27 0.17 10.27 110.13 9.12 11.54
CFB Commercial Federal Corporation NE NYSE 38.500 39.125 1.625 5.48 4.05 27.39 437.89 0.40 10.32 140.56 8.79 10.43
EBCP Eastern Bancorp NH NASDAQ 18.000 18.333 3.000 7.46 17.39 17.77 230.19 0.43 11.39 101.29 7.82 15.79
NHTB New Hampshire Thrift Bncshrs NH NASDAQ 10.000 13.000 1.750 1.27 1.27 11.49 149.44 0.50 12.05 87.03 6.69 11.63
FBER 1st Bergen Bancorp NJ NASDAQ 9.875 10.000 9.000 6.76 5.33 13.67 79.45 NA NA 72.24 12.43 NA
CJFC Central Jersey Financial NJ NASDAQ 32.000 32.000 2.645 5.79 20.75 20.84 175.50 0.46 16.33 153.55 18.23 17.20
COFD Collective Bancorp, Inc. NJ NASDAQ 24.000 28.250 1.351 0.52 -0.52 17.88 252.55 0.85 8.99 134.23 9.50 9.09
FSPG First Home Bancorp, Inc. NJ NASDAQ 17.750 19.000 2.531 0.00 -2.74 14.97 229.73 0.48 8.18 118.57 7.73 8.57
FSFI First State Financial Services NJ NASDAQ 13.000 14.125 1.625 0.46 28.40 10.69 156.21 0.22 13.54 121.61 8.32 17.57
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KELLER & COMPANY Page 7
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
PER SHARE PRICING RATIOS
---------------------------------------------------- ------------------------------
All All 12 Price/
Latest Time Time Mon. Qtr. Book Mon. Price/ Price/ Price/ Core
Price High Low Change Change Value Assets Div. Earnings Value Assets Earnings
State Exchange ($) ($) ($) (%) (%) ($) ($) ($) (X) (%) (%) (X)
----- -------- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FMCO FMS Financial Corporation NJ NASDAQ 16.500 17.500 1.500 1.54 -2.94 13.91 209.90 0.20 10.12 118.62 7.86 10.12
IBSF IBS Financial Corp. NJ NASDAQ 13.875 15.455 8.409 7.77 1.83 13.55 68.05 0.21 19.01 102.40 20.39 18.50
LVSB Lakeview Financial NJ NASDAQ 21.125 21.625 8.068 5.63 17.36 19.99 200.89 0.23 10.06 105.68 10.52 16.50
LFBI Little Falls Bancorp, Inc. NJ NASDAQ 10.250 11.500 9.500 -3.53 6.49 14.40 92.79 NA NA 71.18 11.05 NA
OCFC Ocean Financial Corp. NJ NASDAQ 21.188 21.250 19.625 3.99 NA NA NA NA NA NA NA NA
PBCI Pamrapo Bancorp, Inc. NJ NASDAQ 18.500 26.125 2.563 -3.90 1.37 17.23 111.42 0.90 12.67 107.37 16.60 12.67
PFSB PennFed Financial Services,Inc NJ NASDAQ 16.750 17.000 9.063 11.22 10.27 20.50 225.25 0.00 10.81 81.71 7.44 10.88
PULS Pulse Bancorp NJ NASDAQ 17.375 18.000 4.000 -2.11 17.80 12.90 165.62 0.78 12.59 134.69 10.49 12.59
SFIN Statewide Financial Corp. NJ NASDAQ 12.125 13.750 11.250 1.04 3.19 13.36 120.40 NA NA 90.76 10.07 NA
WYNE Wayne Bancorp, Inc. NJ NASDAQ 12.750 12.750 10.750 15.91 NA NA NA NA NA NA NA NA
WWFC Westwood Financial Corporation NJ NASDAQ 10.500 11.000 10.250 0.00 NA NA NA NA NA NA NA NA
FSBC First Savings Bank, FSB NM NASDAQ 5.250 10.417 1.750 -4.55 -19.23 7.86 166.01 0.00 NA 66.79 3.16 NA
GUPB GFSB Bancorp, Inc. NM NASDAQ 14.000 15.000 12.875 2.75 0.90 17.09 74.23 NA NA 81.92 18.86 NA
ALBK ALBANK Financial Corporation NY NASDAQ 26.000 30.625 9.167 1.46 -7.96 23.83 250.27 0.44 12.50 109.11 10.39 12.50
ALBC Albion Banc Corp. NY NASDAQ 17.500 18.750 10.500 2.94 4.48 23.29 217.45 0.31 26.12 75.14 8.05 30.70
ASFC Astoria Financial Corporation NY NASDAQ 26.875 28.125 12.688 -1.16 3.12 26.11 329.08 0.41 11.79 102.93 8.17 12.92
BFSI BFS Bankorp, Inc. NY NASDAQ 42.500 42.500 2.500 10.39 11.29 29.73 379.90 0.00 7.13 142.95 11.19 7.38
CARV Carver Federal Savings Bank NY NASDAQ 8.000 10.750 6.250 0.00 -1.96 15.03 156.57 0.00 22.86 53.23 5.11 25.00
FIBC Financial Bancorp, Inc. NY NASDAQ 14.750 14.875 8.500 19.19 12.94 14.60 146.15 0.25 17.15 101.03 10.09 17.56
HAVN Haven Bancorp, Inc. NY NASDAQ 27.125 28.875 10.000 -1.81 5.85 21.77 358.85 0.45 11.30 124.60 7.56 11.69
LISB Long Island Bancorp, Inc. NY NASDAQ 28.000 32.875 12.090 -7.05 2.28 21.03 210.48 0.40 14.97 133.14 13.30 16.47
NYB New York Bancorp Inc. NY NYSE 28.250 28.250 2.425 10.24 15.90 13.78 253.93 0.80 9.95 205.01 11.13 10.58
PEEK Peekskill Financial Corp. NY NASDAQ 12.250 12.250 11.125 4.26 6.52 14.58 46.67 NA NA 84.02 26.25 NA
PKPS Poughkeepsie Savings Bank, FSB NY NASDAQ 5.000 26.750 0.875 -3.66 0.00 5.65 66.97 0.09 4.67 88.50 7.47 3.45
RELY Reliance Bancorp, Inc. NY NASDAQ 17.000 17.000 8.875 7.09 13.33 16.83 195.27 0.46 12.98 101.01 8.71 13.71
SFED SFS Bancorp, Inc. NY NASDAQ 12.750 13.500 11.000 2.00 4.08 17.24 127.17 0.00 15.18 73.96 10.03 15.00
TPNZ Tappan Zee Financial, Inc. NY NASDAQ 13.188 13.500 11.250 13.45 7.66 13.84 76.73 NA NA 95.29 17.19 NA
YFCB Yonkers Financial Corporation NY NASDAQ 10.438 10.438 9.310 4.38 5.70 13.73 68.00 NA NA 76.02 15.35 NA
ASBP ASB Financial Corp. OH NASDAQ 14.750 16.500 11.375 3.51 -1.67 15.93 65.92 0.33 21.38 92.59 22.38 21.38
CAFI Camco Financial Corporation OH NASDAQ 19.000 19.286 12.245 0.00 2.31 13.83 166.04 0.39 9.41 137.38 11.44 12.26
COFI Charter One Financial OH NASDAQ 36.500 38.000 3.445 2.82 4.29 20.76 309.97 0.82 32.02 175.82 11.78 11.66
CRCL Circle Financial Corp. OH NASDAQ 37.000 37.000 10.500 5.71 5.34 34.51 323.98 0.62 25.69 107.22 11.42 30.08
CTZN CitFed Bancorp, Inc. OH NASDAQ 37.875 39.500 9.250 3.06 9.78 30.80 467.55 0.28 12.75 122.97 8.10 14.29
CIBI Community Investors Bancorp OH NASDAQ 15.375 17.500 10.750 2.50 4.24 16.93 122.33 0.12 12.20 90.82 12.57 12.92
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KELLER & COMPANY Page 8
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
PER SHARE PRICING RATIOS
---------------------------------------------------- ------------------------------
All All 12 Price/
Latest Time Time Mon. Qtr. Book Mon. Price/ Price/ Price/ Core
Price High Low Change Change Value Assets Div. Earnings Value Assets Earnings
State Exchange ($) ($) ($) (%) (%) ($) ($) ($) (X) (%) (%) (X)
----- -------- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EFBI Enterprise Federal Bancorp OH NASDAQ 12.750 18.000 11.250 -8.93 -10.53 15.09 97.56 3.00 12.75 84.49 13.07 19.32
FFDF FFD Financial Corp. OH NASDAQ 10.500 10.750 10.000 -1.18 0.00 NA NA NA NA NA NA NA
FFYF FFY Financial Corp. OH NASDAQ 23.875 24.000 12.250 1.60 3.24 20.25 110.37 0.55 17.69 117.90 21.63 17.05
FFOH Fidelity Financial of Ohio OH NASDAQ 10.125 10.890 3.112 2.53 1.25 12.54 61.66 NA NA 80.74 16.42 NA
FDEF First Defiance Financial OH NASDAQ 10.375 11.000 5.790 -1.19 -1.19 12.14 49.91 NA NA 85.46 20.79 NA
FFBZ First Federal Bancorp, Inc. OH NASDAQ 23.500 24.500 6.250 -4.08 -3.59 16.84 226.57 0.40 10.13 139.55 10.37 10.31
FFHS First Franklin Corporation OH NASDAQ 14.500 17.500 3.500 -3.33 -1.69 17.41 185.79 0.29 13.55 83.29 7.80 13.81
FFSW FirstFederal Financial Svcs OH NASDAQ 30.375 31.000 2.232 6.58 23.98 15.09 291.48 0.45 15.50 201.29 10.42 18.75
GFCO Glenway Financial Corp. OH NASDAQ 20.000 23.333 15.419 2.44 -3.45 23.12 239.12 0.49 15.04 86.51 8.36 15.27
HHFC Harvest Home Financial Corp. OH NASDAQ 12.000 13.250 8.750 -4.00 -7.69 14.44 81.55 0.39 18.75 83.10 14.71 18.75
HVFD Haverfield Corporation OH NASDAQ 18.000 19.250 5.165 0.00 2.86 14.90 175.30 0.53 13.95 120.81 10.27 14.75
INBI Industrial Bancorp OH NASDAQ 10.250 16.000 9.875 -7.87 -32.70 10.95 56.45 NA NA 93.61 18.16 NA
LONF London Financial Corporation OH NASDAQ 10.500 11.250 9.750 2.44 0.00 NA NA NA NA NA NA NA
MFFC Milton Federal Financial Corp. OH NASDAQ 12.250 17.125 10.000 0.00 -18.33 14.91 78.76 1.37 16.78 82.16 15.55 18.28
OHSL OHSL Financial Corp. OH NASDAQ 20.500 22.000 11.500 -2.38 -1.20 20.94 171.71 0.72 13.49 97.90 11.94 13.76
PTRS Potters Financial Corp. OH NASDAQ 15.500 18.500 9.000 -3.88 -4.62 20.80 213.70 0.21 13.48 74.52 7.25 13.72
PVFC PVF Capital Corp. OH NASDAQ 19.000 21.000 6.474 5.56 -1.94 13.77 205.36 0.00 8.88 137.98 9.25 10.00
SFSL Security First Corp. OH NASDAQ 14.500 17.250 1.625 1.75 19.59 11.31 119.40 0.41 11.07 128.21 12.14 10.51
SHFC Seven Hills Financial Corp. OH NASDAQ 17.500 18.125 11.000 -3.45 6.06 17.99 84.83 0.86 58.33 97.28 20.63 60.34
SSBK Strongsville Savings Bank OH NASDAQ 21.875 22.250 15.500 4.17 0.57 16.81 209.10 0.45 11.39 130.13 10.46 12.79
SBCN Suburban Bancorporation, Inc. OH NASDAQ 15.500 18.500 10.500 3.33 5.08 17.48 133.13 0.55 29.25 88.67 11.64 20.13
THIR Third Financial Corp. OH NASDAQ 32.500 33.000 14.500 2.77 4.84 25.23 137.25 0.64 18.36 128.81 23.68 20.44
WOFC Western Ohio Financial Corp. OH NASDAQ 20.750 24.375 14.750 -6.74 -8.79 25.19 138.38 1.00 19.95 82.37 14.99 34.02
WFCO Winton Financial Corp. OH NASDAQ 11.250 15.000 3.750 -13.46 -9.09 10.61 142.40 0.41 9.07 106.03 7.90 10.82
FFWD Wood Bancorp, Inc. OH NASDAQ 13.250 13.500 8.000 1.92 6.00 13.14 90.07 0.22 12.62 100.84 14.71 12.99
KFBI Klamath First Bancorp OR NASDAQ 13.688 14.625 12.500 -1.35 3.31 14.90 53.73 NA NA 91.87 25.48 NA
BRFC Bridgeville Savings Bank PA NASDAQ 15.250 15.375 11.750 0.83 7.02 14.13 49.56 0.38 25.42 107.93 30.77 25.42
CVAL Chester Valley Bancorp Inc. PA NASDAQ 18.500 20.476 4.073 1.37 1.37 15.91 173.80 0.35 12.01 116.28 10.64 12.42
CMSB Commonwealth Bancorp, Inc. PA NASDAQ 10.625 12.389 5.790 2.41 -1.92 NA NA NA NA NA NA NA
FSBI Fidelity Bancorp, Inc. PA NASDAQ 16.000 18.182 3.756 0.00 -3.56 15.73 231.70 0.29 11.76 101.72 6.91 11.85
FBBC First Bell Bancorp, Inc. PA NASDAQ 13.563 14.250 10.000 0.47 0.92 14.24 69.88 0.10 12.33 95.25 19.41 12.44
FKFS First Keystone Financial PA NASDAQ 16.750 20.875 10.250 -1.47 -4.29 17.83 215.24 0.00 15.80 93.94 7.78 14.57
SHEN First Shenango Bancorp, Inc. PA NASDAQ 20.750 22.250 12.750 1.22 1.22 20.53 161.88 0.42 13.65 101.07 12.82 14.31
GAF GA Financial, Inc. PA AMSE 11.500 11.875 10.250 5.75 6.98 14.43 63.19 NA NA 79.70 18.20 NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KELLER & COMPANY Page 9
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
PER SHARE PRICING RATIOS
---------------------------------------------------- ------------------------------
All All 12 Price/
Latest Time Time Mon. Qtr. Book Mon. Price/ Price/ Price/ Core
Price High Low Change Change Value Assets Div. Earnings Value Assets Earnings
State Exchange ($) ($) ($) (%) (%) ($) ($) ($) (X) (%) (%) (X)
----- -------- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HARL Harleysville Savings Bank PA NASDAQ 17.875 19.750 3.535 2.14 -0.69 15.38 231.24 0.38 10.51 116.22 7.73 9.99
LARL Laurel Capital Group, Inc. PA NASDAQ 14.750 16.500 3.627 0.00 -4.84 13.66 127.95 0.27 8.89 107.98 11.53 9.22
MLFB MLF Bancorp, Inc. PA NASDAQ 25.000 25.000 12.438 1.01 3.35 24.47 282.67 0.52 13.74 102.17 8.84 15.43
PVSA Parkvale Financial Corporation PA NASDAQ 27.000 28.500 2.688 5.63 -1.82 21.56 284.10 0.52 9.44 125.23 9.50 10.11
PBIX Patriot Bank Corp. PA NASDAQ 13.375 13.375 12.310 4.90 4.90 14.33 107.03 NA NA 93.34 12.50 NA
PWBC PennFirst Bancorp, Inc. PA NASDAQ 13.875 15.915 4.019 6.73 8.82 13.37 170.26 0.36 14.16 103.78 8.15 15.08
PWBK Pennwood Savings Bank PA NASDAQ 9.625 9.750 9.000 NA NA NA NA NA NA NA NA NA
PHFC Pittsburgh Home Financial Corp PA NASDAQ 10.500 11.125 9.500 5.00 4.37 13.93 84.32 NA NA 75.38 12.45 NA
PRBC Prestige Bancorp, Inc. PA NASDAQ 10.500 10.500 9.750 6.33 NA 15.86 106.55 NA NA 66.20 9.85 NA
PSAB Prime Bancorp, Inc. PA NASDAQ 19.250 20.682 3.194 6.94 6.94 15.58 173.03 0.66 11.88 123.56 11.13 12.75
PFNC Progress Financial Corporation PA NASDAQ 6.125 18.750 0.750 -2.00 -12.50 5.23 93.26 0.00 6.88 117.11 6.57 8.51
SVRN Sovereign Bancorp, Inc. PA NASDAQ 10.125 11.250 1.005 0.00 -1.79 7.75 185.25 0.08 9.46 130.65 5.47 9.83
THRD TF Financial Corporation PA NASDAQ 14.125 16.000 9.750 -1.74 0.89 17.97 116.93 0.29 13.99 78.60 12.08 14.41
THBC Troy Hill Bancorp, Inc. PA NASDAQ 13.375 14.000 10.250 0.94 2.88 16.73 75.37 0.32 12.50 79.95 17.75 13.65
WVFC WVS Financial Corporation PA NASDAQ 21.000 22.250 13.000 2.44 3.70 19.60 149.49 2.06 10.19 107.14 14.05 11.05
YFED York Financial Corp. PA NASDAQ 16.000 18.864 4.731 -3.03 -5.88 15.22 173.33 0.55 10.00 105.12 9.23 11.76
AMFB American Federal Bank, FSB SC NASDAQ 16.250 16.750 0.625 0.00 1.56 9.88 122.62 0.31 10.98 164.47 13.25 10.16
CFCP Coastal Financial Corp. SC NASDAQ 20.250 21.000 1.918 15.06 24.23 8.04 131.77 0.41 16.33 251.87 15.37 18.58
FFCH First Financial Holdings Inc. SC NASDAQ 19.000 22.250 4.000 8.57 -3.80 15.26 238.85 0.62 10.86 124.51 7.95 10.67
FSFC First Southeast Financial Corp SC NASDAQ 9.500 20.250 9.125 0.00 -48.65 7.67 74.4210.48 31.67 123.86 12.77 12.03
PALM Palfed, Inc. SC NASDAQ 12.688 18.500 3.500 4.64 0.50 10.27 122.09 0.04 14.93 123.54 10.39 17.62
SCCB S. Carolina Community Bancshrs SC NASDAQ 16.000 20.500 12.625 0.00 -3.03 16.80 59.01 0.55 19.75 95.24 27.11 19.75
HFFC HF Financial Corp. SD NASDAQ 15.250 16.750 5.500 -1.61 3.39 16.86 187.92 0.32 11.13 90.45 8.12 14.25
LFCT Leader Financial Corp. TN NASDAQ 46.250 46.375 14.500 5.11 4.23 26.78 322.79 0.66 10.58 172.70 14.33 10.83
TWIN Twin City Bancorp TN NASDAQ 16.625 18.250 10.500 0.76 2.31 15.69 114.01 0.55 13.09 105.96 14.58 15.11
CBSA Coastal Bancorp, Inc. TX NASDAQ 17.625 18.875 9.875 -4.73 -2.08 18.89 563.56 0.36 8.24 93.30 3.13 8.56
ETFS East Texas Financial Services TX NASDAQ 15.000 16.750 11.000 2.56 0.84 18.91 96.32 0.05 16.30 79.32 15.57 17.65
FBHC Fort Bend Holding Corp. TX NASDAQ 17.000 20.250 10.375 -1.45 -5.56 21.98 310.96 0.28 9.55 77.34 5.47 10.83
LOAN Horizon Bancorp TX NASDAQ 14.750 14.750 7.250 55.26 40.48 7.69 94.41 0.14 13.79 191.81 15.62 17.15
JXVL Jacksonville Bancorp, Inc. TX NASDAQ 10.625 11.990 7.141 1.19 6.25 NA NA NA NA NA NA NA
BFSB Bedford Bancshares, Inc. VA NASDAQ 17.000 18.750 10.250 3.03 3.03 16.96 104.88 0.43 12.88 100.24 16.21 12.88
CNIT CENIT Bancorp, Inc. VA NASDAQ 32.375 40.250 10.875 -6.16 -5.82 29.58 406.57 0.50 17.41 109.45 7.96 15.64
CFFC Community Financial Corp. VA NASDAQ 21.500 22.000 4.250 2.38 2.38 17.25 125.85 0.43 13.44 124.64 17.08 13.44
ESX Essex Bancorp, Inc. VA AMSE 2.000 19.250 0.750 -21.88 -30.43 7.72 300.38 0.00 NM 25.91 0.67 NM
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KELLER & COMPANY Page 10
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
PER SHARE PRICING RATIOS
---------------------------------------------------- ------------------------------
All All 12 Price/
Latest Time Time Mon. Qtr. Book Mon. Price/ Price/ Price/ Core
Price High Low Change Change Value Assets Div. Earnings Value Assets Earnings
State Exchange ($) ($) ($) (%) (%) ($) ($) ($) (X) (%) (%) (X)
----- -------- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FFFC FFVA Financial Corp. VA NASDAQ 17.000 18.250 8.250 -1.45 11.48 16.88 100.91 0.35 14.05 100.71 16.85 14.29
FFRV Fidelity Financial Bankshares VA NASDAQ 13.000 14.750 2.381 -1.44 0.00 12.22 142.17 0.17 9.49 106.38 9.14 9.77
GSLC Guaranty Financial Corp. VA NASDAQ 7.250 8.500 6.313 -3.33 -9.38 6.93 112.02 0.00 8.84 104.62 6.47 14.22
LIFB Life Bancorp, Inc. VA NASDAQ 14.625 16.625 8.313 2.63 0.86 14.73 122.86 0.44 15.08 99.29 11.90 14.34
VABF Virginia Beach Fed. Financial VA NASDAQ 7.625 9.938 1.625 7.02 1.67 8.30 122.62 0.16 19.06 91.87 6.22 58.65
VFFC Virginia First Financial VA NASDAQ 11.750 14.250 1.250 -0.51 1.08 9.81 127.14 0.06 8.10 119.78 9.24 9.96
CASB Cascade Financial Corp. WA NASDAQ 17.000 17.250 2.662 3.03 14.86 9.94 159.90 0.00 22.08 171.03 10.63 45.95
FWWB First SB of Washington Bancorp WA NASDAQ 15.875 15.875 12.375 4.10 10.43 15.30 73.75 NA NA 103.76 21.53 NA
IWBK InterWest Bancorp, Inc. WA NASDAQ 24.750 25.125 8.478 1.54 7.33 14.94 219.20 0.44 11.15 165.66 11.29 11.84
MSEA Metropolitan Bancorp WA NASDAQ 16.875 17.000 3.636 25.00 20.54 13.79 205.11 0.00 10.89 122.37 8.23 10.17
STSA Sterling Financial Corp. WA NASDAQ 14.125 15.000 1.878 -4.24 4.63 11.01 272.67 0.00 15.69 128.29 5.18 16.62
WFSL Washington Federal, Inc. WA NASDAQ 22.125 23.967 1.723 11.32 5.99 14.14 119.31 0.88 11.17 156.47 18.54 11.64
AADV Advantage Bancorp, Inc. WI NASDAQ 33.500 34.500 10.600 0.75 -1.47 25.97 293.78 0.27 14.08 128.99 11.40 15.65
ABCW Anchor BanCorp Wisconsin WI NASDAQ 34.875 36.250 9.800 -0.36 4.89 24.00 355.58 0.32 12.92 145.31 9.81 13.41
FCBF FCB Financial Corp. WI NASDAQ 17.000 18.500 10.000 -4.23 -2.86 18.78 101.75 0.60 16.83 90.52 16.71 17.17
FFEC First Fed Bncshrs Eau Claire WI NASDAQ 15.375 16.190 8.375 1.65 10.29 14.22 103.08 0.17 17.88 108.12 14.92 17.08
FTFC First Federal Capital Corp. WI NASDAQ 21.000 22.875 1.449 6.33 -3.45 15.03 219.45 0.56 11.35 139.72 9.57 15.44
FFHC First Financial Corp. WI NASDAQ 22.625 24.000 1.392 -1.63 2.84 13.64 186.56 0.54 9.63 165.87 12.13 9.97
FNGB First Northern Capital Corp. WI NASDAQ 15.375 16.500 3.063 0.82 -2.38 16.10 132.01 0.58 16.18 95.50 11.65 16.90
HALL Hallmark Capital Corp. WI NASDAQ 15.250 16.250 9.875 0.00 3.39 18.72 266.87 0.00 11.47 81.46 5.71 12.10
MWFD Midwest Federal Financial WI NASDAQ 15.500 16.000 4.167 -1.59 6.90 10.21 109.16 0.14 13.48 151.81 14.20 16.67
NWEQ Northwest Equity Corp. WI NASDAQ 10.250 11.375 6.875 0.00 2.50 13.45 97.11 0.35 11.14 76.21 10.56 11.78
OSBF OSB Financial Corp. WI NASDAQ 23.000 24.875 14.500 0.00 -2.13 28.26 225.03 0.58 46.94 81.39 10.22 28.40
RELI Reliance Bancshares, Inc. WI NASDAQ 7.625 8.500 7.500 -6.90 -3.17 NA NA NA NA NA NA NA
SECP Security Capital Corporation WI NASDAQ 60.500 62.500 25.000 1.26 -1.63 56.63 369.03 0.45 17.79 106.83 16.39 16.99
STFR St. Francis Capital Corp. WI NASDAQ 25.875 28.000 12.625 4.55 1.47 23.39 238.04 0.30 10.48 110.62 10.87 14.14
FOBC Fed One Bancorp WV NASDAQ 14.000 16.250 5.358 -3.45 -5.88 16.73 134.09 0.54 11.29 83.68 10.44 11.29
CRZY Crazy Woman Creek Bancorp WY NASDAQ 10.125 11.000 10.000 -1.79 -4.71 14.61 47.57 NA NA 69.30 21.28 NA
TRIC Tri-County Bancorp, Inc. WY NASDAQ 18.875 18.875 11.375 4.86 4.86 20.76 116.42 0.45 19.46 90.92 16.21 19.87
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KELLER & COMPANY Page 11
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
PER SHARE PRICING RATIOS
------------------------------------------------------- -------------------------------------
All All 12 Price/
Latest Time Time Mon. Qtr. Book Mon. Price/ Price/ Price/ Core
Price High Low Change Change Value Assets Div. Earnings Value Assets Earnings
State Exchange ($) ($) ($) (%) (%) ($) ($) ($) (X) (%) (%) (X)
----- -------- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL THRIFTS
AVERAGE 17.305 21.517 7.954 1.41 2.07 16.75 168.10 0.42 16.28 106.28 12.83 17.66
MEDIAN 15.750 17.500 9.125 0.94 1.38 16.10 137.25 0.35 13.48 100.23 11.29 14.52
HIGH 60.500 589.500 25.000 55.26 40.48 56.63 617.63 10.48 121.98 255.34 39.61 155.00
LOW 2.000 6.917 0.223 -21.88 -48.65 2.18 36.26 0.00 3.36 25.91 0.67 3.45
AVERAGE FOR STATE
IL 17.805 19.116 9.272 1.59 2.34 19.45 174.29 0.26 15.689 94.137 12.642 17.959
AVERAGE BY REGION
MIDWEST 18.028 19.768 8.970 0.23 0.34 17.88 156.53 0.39 16.69 104.29 13.93 18.31
NEW ENGLAND 18.238 19.546 5.878 2.83 9.85 17.83 242.76 0.49 11.65 101.79 7.92 14.33
MID ATLANTIC 16.508 18.522 7.181 2.25 3.54 16.24 170.24 0.36 13.07 103.58 11.26 14.18
SOUTHEAST 15.808 18.479 7.017 0.75 0.47 14.16 137.57 0.67 16.72 113.45 14.56 19.46
SOUTHWEST 15.238 16.785 9.681 4.44 1.67 15.63 164.14 0.31 13.32 103.61 13.38 14.35
WEST 18.380 39.325 6.458 3.98 6.59 16.81 228.30 0.32 21.27 110.45 10.08 20.06
AVERAGE BY EXCHANGE
NYSE 29.837 89.352 3.243 7.55 11.44 20.84 353.75 0.43 15.22 147.87 9.28 17.40
AMEX 12.597 14.676 9.936 -1.68 0.74 14.60 111.79 0.73 14.18 84.73 15.30 17.76
OTC/NASDAQ 17.048 19.021 8.038 1.32 1.73 16.68 162.59 0.41 16.37 105.51 12.87 17.67
</TABLE>
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY CAPITAL ISSUES
-------------------------- ------------------------ -----------------------------------
Mkt.
Number Value
Total Total Total Core Core of of
Assets Equity Tang. Eq. ROAA ROAA ROAE ROAE IPO Shares Shares
St ($000) ($000) ($000) (%) (%) (%) (%) Date Exchg Outstg. ($M)
-- ------ ------ --------- ---- ---- ---- ---- ---- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PLE Pinnacle Bank AL 185,793 15,223 14,682 0.79 0.70 10.34 9.23 12/17/86 AMSE 889,824 15.91
SRN Southern Banc Company, Inc AL 109,768 22,293 NA 0.54 0.54 3.96 3.96 10/05/95 AMSE 1,454,750 17.09
SZB SouthFirst Bancshares, Inc. AL 88,899 13,235 13,235 0.55 0.37 3.24 2.19 02/14/95 AMSE 854,855 10.15
VAFD Valley Federal Savings Bank AL 118,625 9,595 9,595 0.08 0.07 0.96 0.85 10/15/87 NASDAQ 366,860 12.11
FFBH First Federal Bancshares of AR AR 466,101 36,255 36,255 NA NA NA NA 05/03/96 NASDAQ NA NA
FTF Texarkana First Financial Corp AR 163,391 33,683 33,683 1.77 1.77 10.80 10.80 07/07/95 AMSE 1,983,750 29.51
AHM Ahmanson & Company (H.F.) CA 49,506,630 2,777,356 2,637,334 0.92 0.26 15.79 4.50 10/01/72 NYSE 107,188,014 2894.08
AFFFZ America First Financial Fund CA 2,274,053 161,228 157,795 0.89 0.88 13.53 13.45 NA NASDAQ 6,010,589 161.53
BPLS Bank Plus Corp. CA 3,296,633 174,998 NA -1.74 -1.75 -30.56 -30.67 NA NASDAQ 18,242,465 159.62
BVFS Bay View Capital Corp. CA 3,388,847 206,177 181,928 0.06 0.36 0.85 5.12 05/09/86 NASDAQ 6,885,242 234.10
BYFC Broadway Financial Corp. CA 115,222 14,062 14,062 0.41 0.41 6.78 6.83 01/09/96 NASDAQ 892,688 9.26
CAL Cal Fed Bancorp, Inc. CA 14,045,400 683,200 683,200 0.82 0.73 14.79 13.13 03/01/83 NYSE 49,395,947 901.48
CFHC California Financial Holding CA 1,327,178 86,924 86,431 0.57 0.52 8.53 7.65 04/01/83 NASDAQ 4,688,652 101.98
CENF CENFED Financial Corp. CA 2,148,344 107,221 106,989 0.55 0.40 11.33 8.16 10/25/91 NASDAQ 5,040,437 112.15
CSA Coast Savings Financial CA 8,350,710 429,883 423,104 0.49 0.45 9.90 9.08 12/23/85 NYSE 18,583,617 608.61
DSL Downey Financial Corp. CA 4,712,294 391,919 385,323 0.69 0.61 8.44 7.49 01/01/71 NYSE 16,972,905 371.28
FSSB First FS&LA of San Bernardino CA 103,288 5,827 5,566 -0.17 -0.34 -2.90 -6.03 02/02/93 NASDAQ 328,296 3.78
FED FirstFed Financial Corp. CA 4,104,854 188,766 185,646 0.23 0.22 4.98 4.82 12/16/83 NYSE 10,508,897 182.59
GLN Glendale Federal Bank, FSB CA 14,456,564 957,451 898,235 0.28 0.42 4.43 6.82 10/01/83 NYSE 46,729,698 846.98
GDW Golden West Financial CA 35,775,375 2,362,246 2,224,420 0.81 0.79 12.46 12.25 05/29/59 NYSE 57,923,709 3243.73
GWF Great Western Financial CA 43,719,958 2,834,725 2,529,871 0.72 0.67 11.60 10.83 NA NYSE 137,392,481 3280.25
HTHR Hawthorne Financial Corp. CA 761,162 46,137 45,982 0.61 -0.02 12.77 -0.38 NA NASDAQ 2,599,000 22.74
HEMT HF Bancorp, Inc. CA 826,916 81,072 NA 0.26 0.26 2.31 2.31 06/30/95 NASDAQ 6,281,875 61.25
HBNK Highland Federal Bank FSB CA 441,911 34,626 34,626 0.22 0.21 3.92 3.87 NA NASDAQ 2,295,983 39.03
MBBC Monterey Bay Bancorp, Inc. CA 318,879 47,771 47,196 0.19 0.23 1.28 1.53 02/15/95 NASDAQ 3,414,063 42.68
NHSL NHS Financial, Inc. CA 284,191 25,033 24,987 0.45 0.45 5.34 5.34 NA NASDAQ 2,522,827 27.44
PSSB Palm Springs Savings Bank CA 192,093 11,693 11,693 0.62 0.34 10.80 5.85 NA NASDAQ 1,130,946 11.03
PFFB PFF Bancorp, Inc. CA 2,146,293 290,480 287,172 NA NA NA NA 03/29/96 NASDAQ 19,837,500 220.69
PROV Provident Financial Holdings CA 567,186 37,323 37,323 -0.72 -0.80 -9.81 -10.93 06/28/96 NASDAQ NA NA
QCBC Quaker City Bancorp, Inc. CA 725,085 67,926 67,628 0.53 0.51 5.25 5.08 12/30/93 NASDAQ 3,813,600 52.21
REDF RedFed Bancorp Inc. CA 857,959 48,329 48,329 -0.56 -0.90 -9.99 -16.03 04/08/94 NASDAQ 4,059,917 36.54
</TABLE>
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY CAPITAL ISSUES
-------------------------- ------------------------ -----------------------------------
Mkt.
Number Value
Total Total Total Core Core of of
Assets Equity Tang. Eq. ROAA ROAA ROAE ROAE IPO Shares Shares
St ($000) ($000) ($000) (%) (%) (%) (%) Date Exchg Outstg. ($M)
-- ------ ------ --------- ---- ---- ---- ---- ---- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SGVB SGV Bancorp, Inc. CA 333,064 32,581 32,581 0.12 0.11 1.10 1.08 06/29/95 NASDAQ 2,727,656 24.55
WES Westcorp CA 3,027,248 312,836 NA 1.28 0.51 13.55 5.37 05/01/86 NYSE 25,977,094 461.09
FFBA First Colorado Bancorp, Inc. CO 1,501,330 245,056 242,168 1.09 1.09 8.16 8.13 01/02/96 NASDAQ 20,134,256 266.78
MORG Morgan Financial Corp. CO 71,654 10,501 10,501 0.97 0.93 6.38 6.12 01/11/93 NASDAQ 832,700 9.78
EGFC Eagle Financial Corp. CT 1,428,558 101,928 73,743 1.29 0.64 17.83 8.86 02/03/87 NASDAQ 4,491,493 106.67
FFES First Federal of East Hartford CT 947,807 57,007 56,846 0.57 0.57 8.65 8.58 06/23/87 NASDAQ 2,597,010 46.75
NTMG Nutmeg Federal S&LA CT 85,194 5,548 5,548 0.66 0.42 10.75 6.78 NA NASDAQ 707,814 5.49
WBST Webster Financial Corporation CT 3,837,220 214,669 167,767 0.60 0.63 10.69 11.19 12/12/86 NASDAQ 8,101,382 226.84
IFSB Independence Federal Savings DC 263,735 16,891 14,544 0.49 0.24 7.71 3.69 06/06/85 NASDAQ 1,278,935 9.27
BANC BankAtlantic Bancorp, Inc. FL 1,975,287 141,651 130,883 1.12 0.88 15.74 12.46 11/29/83 NASDAQ 14,926,166 167.17
BKUNA BankUnited Financial Corp. FL 738,491 69,468 66,955 1.12 0.13 14.68 1.64 12/11/85 NASDAQ 5,693,125 46.97
FFFG F.F.O. Financial Group, Inc. FL 305,683 18,408 18,408 0.45 0.45 6.83 6.75 10/13/88 NASDAQ 8,430,000 22.93
FFLC FFLC Bancorp, Inc. FL 332,087 56,404 56,404 0.94 0.94 5.51 5.51 01/04/94 NASDAQ 2,618,763 47.14
FFML First Family Financial Corp. FL 159,049 8,929 8,929 0.90 0.48 17.04 9.16 10/22/92 NASDAQ 545,000 11.45
FFPB First Palm Beach Bancorp, Inc. FL 1,438,024 113,606 110,733 0.73 0.69 8.92 8.44 09/29/93 NASDAQ 5,181,187 110.75
FFPC Florida First Bancorp, Inc. FL 302,689 21,349 21,349 0.90 0.83 13.27 12.31 11/06/86 NASDAQ 3,384,645 37.65
HOFL Home Financial Corp. FL 1,215,712 301,582 301,582 1.23 1.54 4.78 5.99 10/25/94 NASDAQ 24,716,619 321.32
SCSL Suncoast Savings and Loan FL 466,504 25,338 25,283 0.51 -0.16 8.77 -2.73 07/30/85 NASDAQ 1,989,930 12.69
CCFH CCF Holding Company GA 78,772 16,725 16,725 0.85 0.81 5.07 4.80 07/12/95 NASDAQ 1,130,738 13.57
EBSI Eagle Bancshares GA 611,512 57,175 57,175 0.98 0.97 13.09 12.96 04/01/86 NASDAQ 4,552,200 70.56
FGHC First Georgia Holding, Inc. GA 142,133 11,605 10,263 0.87 0.81 10.61 9.91 02/11/87 NASDAQ 2,023,711 14.67
FLFC First Liberty Financial Corp. GA 981,694 74,634 63,866 1.03 0.83 13.14 10.60 12/06/83 NASDAQ 3,981,578 83.61
FLAG FLAG Financial Corp. GA 225,960 21,599 21,599 0.92 0.81 9.91 8.77 12/11/86 NASDAQ 2,008,457 25.11
NFSL Newnan Savings Bank, FSB GA 160,656 18,605 18,483 1.89 1.65 17.69 15.47 03/01/86 NASDAQ 1,446,856 24.96
CASH First Midwest Financial, Inc. IA 342,095 39,029 36,450 1.06 1.05 8.14 8.05 09/20/93 NASDAQ 1,778,577 39.13
GFSB GFS Bancorp, Inc. IA 83,305 9,945 9,945 1.16 1.13 9.19 8.93 01/06/94 NASDAQ 509,600 10.32
HZFS Horizon Financial Svcs Corp. IA 73,464 8,390 8,390 0.53 0.43 4.38 3.55 06/30/94 NASDAQ 447,937 6.72
MFCX Marshalltown Financial Corp. IA 125,308 19,563 19,563 0.38 0.36 2.43 2.31 03/31/94 NASDAQ 1,411,475 21.88
MIFC Mid-Iowa Financial Corp. IA 115,260 10,807 10,791 0.93 0.92 10.00 9.79 10/14/92 NASDAQ 1,682,880 10.10
MWBI Midwest Bancshares, Inc. IA 138,628 9,244 9,244 1.01 0.70 14.64 10.14 11/12/92 NASDAQ 349,379 9.00
FFFD North Central Bancshares, Inc. IA 194,283 55,736 55,736 1.64 1.64 8.13 8.11 03/21/96 NASDAQ 4,011,057 44.12
</TABLE>
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY CAPITAL ISSUES
-------------------------- ------------------------ -----------------------------------
Mkt.
Number Value
Total Total Total Core Core of of
Assets Equity Tang. Eq. ROAA ROAA ROAE ROAE IPO Shares Shares
St ($000) ($000) ($000) (%) (%) (%) (%) Date Exchg Outstg. ($M)
-- ------ ------ --------- ---- ---- ---- ---- ---- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PMFI Perpetual Midwest Financial IA 374,039 36,053 36,053 0.41 0.41 4.09 4.09 03/31/94 NASDAQ 2,017,082 34.29
SFFC StateFed Financial Corporation IA 76,705 14,928 14,928 1.19 1.19 5.99 5.99 01/05/94 NASDAQ 813,485 13.42
AVND Avondale Financial Corp. IL 592,727 58,798 58,798 0.62 0.45 5.81 4.20 04/07/95 NASDAQ 3,599,868 48.38
CBCI Calumet Bancorp, Inc. IL 500,814 80,507 80,507 1.31 1.31 7.85 7.84 02/20/92 NASDAQ 2,422,678 67.83
CBSB Charter Financial, Inc. IL 300,812 64,393 62,739 1.11 1.11 7.88 7.87 12/29/95 NASDAQ 4,974,016 59.07
CBK Citizens First Financial Corp. IL 232,196 15,765 15,765 0.43 0.35 6.49 5.34 05/01/96 AMSE NA NA
CSBF CSB Financial Group, Inc. IL 41,211 12,730 12,730 0.84 0.84 4.03 4.03 10/09/95 NASDAQ 1,035,000 9.44
DFIN Damen Financial Corp. IL 235,320 56,903 56,903 NA NA NA NA 10/02/95 NASDAQ 3,967,500 46.12
EGLB Eagle BancGroup, Inc. IL 150,974 11,515 11,515 -0.05 -0.11 -0.68 -1.59 07/01/96 NASDAQ NA NA
FBCI Fidelity Bancorp, Inc. IL 456,896 49,801 49,630 0.74 0.74 5.68 5.67 12/15/93 NASDAQ 2,930,608 47.99
FNSC Financial Security Corp. IL 258,452 39,841 39,841 0.77 0.91 5.46 6.46 12/29/92 NASDAQ 1,550,846 40.32
FFBI First Financial Bancorp, Inc. IL 88,615 7,865 7,865 0.70 0.57 6.53 5.33 10/04/93 NASDAQ 471,896 7.31
FMBD First Mutual Bancorp, Inc. IL 301,690 69,445 69,445 0.98 0.94 3.80 3.65 07/05/95 NASDAQ 4,126,600 51.07
FFDP FirstFed Bancshares IL 635,096 54,810 52,341 0.58 0.31 6.32 3.39 07/01/92 NASDAQ 3,399,116 59.91
GTPS Great American Bancorp IL 120,540 33,212 33,212 0.68 0.67 2.46 2.43 06/30/95 NASDAQ 1,849,562 26.36
HNFC Hinsdale Financial Corp. IL 662,482 55,463 53,831 0.63 0.57 8.18 7.37 07/07/92 NASDAQ 2,690,155 67.93
HMCI HomeCorp, Inc. IL 338,985 21,133 21,133 0.40 0.25 6.66 4.23 06/22/90 NASDAQ 1,128,579 20.31
KNK Kankakee Bancorp, Inc. IL 359,171 35,498 32,989 0.56 0.56 5.37 5.37 01/06/93 AMSE 1,433,718 27.78
LBCI Liberty Bancorp, Inc. IL 651,198 64,017 63,854 0.55 0.55 5.61 5.61 12/24/91 NASDAQ 2,477,022 61.93
MAFB MAF Bancorp, Inc. IL 3,117,149 242,226 206,596 0.85 0.86 14.21 14.30 01/12/90 NASDAQ 10,340,673 253.35
NBSI North Bancshares, Inc. IL 119,436 18,514 18,514 0.59 0.54 3.19 2.92 12/21/93 NASDAQ 1,113,631 16.98
SWBI Southwest Bancshares IL 356,692 40,010 40,010 1.15 1.14 8.95 8.89 06/24/92 NASDAQ 1,794,474 48.68
SPBC St. Paul Bancorp, Inc. IL 4,337,546 375,542 374,234 0.91 0.88 9.81 9.56 05/18/87 NASDAQ 17,988,321 413.73
STND Standard Financial, Inc. IL 2,274,536 266,294 265,772 0.81 0.73 6.06 5.53 08/01/94 NASDAQ 16,345,875 269.71
SFSB SuburbFed Financial Corp. IL 378,388 26,045 25,898 0.50 0.44 6.91 6.12 03/04/92 NASDAQ 1,257,019 21.68
WCBI Westco Bancorp IL 312,158 48,236 48,236 1.30 1.31 8.37 8.44 06/26/92 NASDAQ 2,621,643 56.04
FBCV 1ST Bancorp IN 263,483 21,729 21,729 2.05 -0.13 29.45 -1.87 04/07/87 NASDAQ 666,561 17.33
AMFC AMB Financial Corp. IN 80,533 16,147 16,147 0.50 0.50 4.75 4.75 04/01/96 NASDAQ NA NA
ASBI Ameriana Bancorp IN 402,051 44,609 44,547 0.92 0.91 7.38 7.28 03/02/87 NASDAQ 3,303,130 44.59
ATSB AmTrust Capital Corp. IN 73,072 7,553 7,472 0.31 0.07 2.75 0.60 03/28/95 NASDAQ 566,964 5.81
CBCO CB Bancorp, Inc. IN 195,658 19,319 19,319 1.38 1.38 14.64 14.64 12/28/92 NASDAQ 1,175,226 20.86
</TABLE>
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY CAPITAL ISSUES
-------------------------- ------------------------ -----------------------------------
Mkt.
Number Value
Total Total Total Core Core of of
Assets Equity Tang. Eq. ROAA ROAA ROAE ROAE IPO Shares Shares
St ($000) ($000) ($000) (%) (%) (%) (%) Date Exchg Outstg. ($M)
-- ------ ------ --------- ---- ---- ---- ---- ---- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CBIN Community Bank Shares IN 223,914 25,482 25,482 0.91 0.88 7.91 7.71 04/10/95 NASDAQ 1,983,720 27.03
FFWC FFW Corp. IN 148,892 16,083 16,083 0.90 1.00 8.07 8.96 04/05/93 NASDAQ 739,176 13.31
FFED Fidelity Federal Bancorp IN 280,138 14,221 14,221 1.29 1.22 25.83 24.30 08/31/87 NASDAQ 2,493,229 32.02
FISB First Indiana Corporation IN 1,473,094 136,048 134,184 1.19 0.99 13.57 11.33 08/02/83 NASDAQ 8,294,482 199.07
HFGI Harrington Financial Group IN 418,196 23,117 23,117 0.37 0.40 9.49 10.12 NA NASDAQ 3,256,738 34.20
HBFW Home Bancorp IN 315,901 48,974 48,974 0.84 0.84 4.99 4.99 03/30/95 NASDAQ 2,886,815 44.02
HBBI Home Building Bancorp IN 43,135 6,015 6,015 0.41 0.38 2.86 2.64 02/08/95 NASDAQ 331,660 6.47
HOMF Home Federal Bancorp IN 630,015 51,517 49,619 1.23 1.04 15.14 12.85 01/23/88 NASDAQ 2,226,282 57.88
HWEN Home Financial Bancorp IN 39,426 3,410 3,410 0.82 0.82 8.77 8.77 07/02/96 NASDAQ NA NA
INCB Indiana Community Bank, SB IN 94,476 14,156 14,156 0.67 0.67 4.39 4.39 12/15/94 NASDAQ 922,039 14.06
IFSL Indiana Federal Corporation IN 717,720 70,504 65,491 1.02 0.96 10.75 10.07 02/04/87 NASDAQ 4,737,329 87.64
LOGN Logansport Financial Corp. IN 77,195 19,821 19,821 1.50 1.42 5.55 5.25 06/14/95 NASDAQ 1,322,500 17.60
MARN Marion Capital Holdings IN 177,767 41,511 41,511 1.41 1.41 5.86 5.86 03/18/93 NASDAQ 1,933,613 40.12
MFBC MFB Corp. IN 210,559 37,691 37,691 0.73 0.71 3.69 3.59 03/25/94 NASDAQ 1,973,980 27.14
NEIB Northeast Indiana Bancorp IN 154,128 29,125 29,125 1.19 1.19 5.46 5.46 06/28/95 NASDAQ 2,061,670 24.22
PFDC Peoples Bancorp IN 277,958 43,298 43,298 1.45 1.44 9.51 9.49 07/07/87 NASDAQ 2,345,512 46.32
PERM Permanent Bancorp, Inc. IN 395,903 41,494 40,949 0.34 0.34 2.94 2.92 04/04/94 NASDAQ 2,134,515 30.42
SOBI Sobieski Bancorp, Inc. IN 76,362 14,120 14,120 0.42 0.42 2.24 2.24 03/31/95 NASDAQ 836,860 10.67
WCHI Workingmens Capital Holdings IN 208,203 26,459 26,459 0.86 0.87 7.04 7.09 06/07/90 NASDAQ 1,808,560 36.85
FFSL First Independence Corp. KS 105,771 13,050 13,050 1.10 0.94 8.51 7.28 10/08/93 NASDAQ 583,421 10.36
LARK Landmark Bancshares, Inc. KS 200,469 33,050 33,050 0.93 0.83 5.45 4.86 03/28/94 NASDAQ 1,914,022 29.19
MCBS Mid Continent Bancshares Inc. KS 290,903 36,434 36,384 1.40 1.36 10.14 9.85 06/27/94 NASDAQ 2,061,250 36.98
WBCI WFS Bancorp, Inc. KS 267,829 34,405 34,390 0.67 0.73 5.71 6.18 06/03/94 NASDAQ 1,564,387 36.07
CKFB CKF Bancorp, Inc. KY 58,763 16,036 16,036 1.24 1.24 4.39 4.39 01/04/95 NASDAQ 994,150 19.88
CLAS Classic Bancshares, Inc. KY 66,083 19,500 19,500 0.46 0.43 2.18 2.01 12/29/95 NASDAQ 1,322,500 14.71
FSBS First Ashland Financial Corp KY 86,860 23,631 23,631 0.96 0.95 3.61 3.58 04/07/95 NASDAQ 1,463,039 26.33
FFKY First Federal Financial Corp. KY 352,671 49,946 46,681 1.60 1.46 11.28 10.28 07/15/87 NASDAQ 4,208,490 88.38
FLKY First Lancaster Bancshares KY 33,812 4,643 4,643 1.50 1.50 11.24 11.24 07/01/96 NASDAQ NA NA
FTSB Fort Thomas Financial Corp. KY 87,960 21,368 21,368 1.29 1.29 5.55 5.55 06/28/95 NASDAQ 1,573,775 22.82
FKKY Frankfort First Bancorp, Inc. KY 138,616 47,836 47,836 1.06 1.12 3.82 4.04 07/10/95 NASDAQ 3,450,000 48.73
GWBC Gateway Bancorp, Inc. KY 71,260 17,714 17,714 1.05 1.05 4.05 4.05 01/18/95 NASDAQ 1,132,372 15.99
</TABLE>
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY CAPITAL ISSUES
-------------------------- ------------------------ -----------------------------------
Mkt.
Number Value
Total Total Total Core Core of of
Assets Equity Tang. Eq. ROAA ROAA ROAE ROAE IPO Shares Shares
St ($000) ($000) ($000) (%) (%) (%) (%) Date Exchg Outstg. ($M)
-- ------ ------ --------- ---- ---- ---- ---- ---- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GTFN Great Financial Corporation KY 2,477,204 281,206 276,685 1.00 0.81 8.18 6.68 03/31/94 NASDAQ 14,652,595 362.65
HFFB Harrodsburg First Fin Bancorp KY 108,710 31,161 31,161 NA NA NA NA 10/04/95 NASDAQ 2,182,185 31.10
KYF Kentucky First Bancorp, Inc. KY 83,981 19,841 19,841 1.12 1.12 5.27 5.27 08/29/95 AMSE 1,388,625 17.18
ANA Acadiana Bancshares, Inc. LA 225,248 17,697 17,697 -0.43 -0.11 -5.23 -1.34 07/16/96 AMSE NA NA
CZF CitiSave Financial Corp LA 79,717 14,497 14,484 1.15 1.08 7.47 6.98 07/14/95 AMSE 964,707 13.51
ISBF ISB Financial Corporation LA 623,720 120,802 120,752 1.24 1.23 6.22 6.18 04/07/95 NASDAQ 7,380,671 114.84
JEBC Jefferson Bancorp, Inc. LA 265,594 36,060 36,060 0.94 0.94 7.22 7.21 08/18/94 NASDAQ 2,195,635 48.30
MERI Meritrust Federal SB LA 228,419 17,338 17,338 1.01 0.98 13.70 13.38 NA NASDAQ 774,176 24.19
TSH Teche Holding Co. LA 346,115 59,404 59,404 1.17 1.15 6.66 6.55 04/19/95 AMSE 4,093,000 53.21
AFCB Affiliated Community Bancorp MA 983,904 96,871 96,159 0.74 0.88 6.71 7.98 10/19/95 NASDAQ 5,080,666 88.28
BFD BostonFed Bancorp, Inc. MA 777,997 88,947 88,947 0.49 0.45 4.66 4.28 10/24/95 AMSE 6,589,617 79.08
FMLY Family Bancorp MA 925,239 69,952 64,294 0.90 0.87 11.79 11.33 11/07/86 NASDAQ 4,215,211 104.85
ANBK American National Bancorp MD 449,019 49,011 49,011 0.34 0.33 3.88 3.80 10/31/95 NASDAQ 3,980,500 40.30
EQSB Equitable Federal Savings Bank MD 267,776 14,182 14,182 0.78 0.78 14.98 14.89 09/10/93 NASDAQ 600,000 14.85
FCIT First Citizens Financial Corp. MD 624,118 39,192 39,192 0.71 0.57 11.36 9.03 12/17/86 NASDAQ 2,914,100 48.35
FFWM First Financial-W. Maryland MD 326,489 40,919 40,919 0.43 0.39 3.56 3.27 02/11/92 NASDAQ 2,187,584 40.47
HRBF Harbor Federal Bancorp, Inc. MD 201,030 27,782 27,782 0.56 0.56 3.19 3.19 08/12/94 NASDAQ 1,754,420 21.93
HFMD Home Federal Corp. MD 216,684 18,673 18,417 1.19 1.17 14.29 14.01 02/10/84 NASDAQ 2,519,010 20.78
MFSL Maryland Federal Bancorp MD 1,128,449 94,654 93,158 0.79 0.56 9.60 6.77 06/02/87 NASDAQ 3,160,068 93.22
WSB Washington Savings Bank, FSB MD 254,968 20,959 20,959 0.94 0.71 12.56 9.48 NA AMSE 4,220,206 21.10
WHGB WHG Bancshares Corp. MD 111,704 23,008 23,008 NA NA NA NA 04/01/96 NASDAQ NA NA
MCBN Mid-Coast Bancorp, Inc. ME 55,048 4,976 4,976 0.60 0.55 6.65 6.10 11/02/89 NASDAQ 229,588 4.39
BWFC Bank West Financial Corp. MI 139,217 27,540 27,540 0.69 0.41 3.41 2.03 03/30/95 NASDAQ 2,296,040 22.52
CFSB CFSB Bancorp, Inc. MI 791,610 65,067 65,067 0.96 0.90 11.70 10.96 06/22/90 NASDAQ 4,466,741 92.68
DNFC D & N Financial Corp. MI 1,364,024 78,954 77,886 1.08 0.99 19.53 17.89 02/13/85 NASDAQ 7,564,730 105.91
MSBF MSB Financial, Inc. MI 56,317 12,747 12,747 1.92 1.76 7.79 7.13 02/06/95 NASDAQ 675,804 12.16
MSBK Mutual Savings Bank, FSB MI 680,033 38,616 38,616 0.01 -0.08 0.18 -1.55 07/17/92 NASDAQ 4,274,154 24.04
OFCP Ottawa Financial Corp. MI 782,145 80,338 64,443 0.91 0.90 5.72 5.65 08/19/94 NASDAQ 5,414,546 87.99
SJSB SJS Bancorp MI 150,752 17,587 17,587 0.63 0.61 5.00 4.87 02/16/95 NASDAQ 982,622 18.18
SFB Standard Federal Bancorp MI 15,239,983 962,935 754,005 0.95 0.82 14.09 12.27 01/21/87 NYSE 31,324,268 1205.98
THR Three Rivers Financial Corp. MI 85,138 13,044 12,986 NA NA NA NA 08/24/95 AMSE 859,625 11.39
</TABLE>
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY CAPITAL ISSUES
-------------------------- ------------------------ -----------------------------------
Mkt.
Number Value
Total Total Total Core Core of of
Assets Equity Tang. Eq. ROAA ROAA ROAE ROAE IPO Shares Shares
St ($000) ($000) ($000) (%) (%) (%) (%) Date Exchg Outstg. ($M)
-- ------ ------ --------- ---- ---- ---- ---- ---- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BDJI First Federal Bancorporation MN 104,969 13,918 13,918 0.70 0.69 4.74 4.72 04/04/95 NASDAQ 778,406 10.17
FFHH FSF Financial Corp. MN 331,395 47,624 47,624 0.64 0.64 3.79 3.76 10/07/94 NASDAQ 3,477,694 41.30
HMNF HMN Financial, Inc. MN 542,012 90,879 90,879 1.10 0.98 6.27 5.59 06/30/94 NASDAQ 5,180,210 75.76
MIVI Mississippi View Holding Co. MN 69,983 13,197 13,197 1.32 1.17 6.73 5.98 03/24/95 NASDAQ 957,593 10.89
QCFB QCF Bancorp, Inc. MN 145,608 31,760 31,760 1.51 1.51 7.61 7.61 04/03/95 NASDAQ 1,782,750 25.63
TCB TCF Financial Corp. MN 7,000,871 523,788 500,956 1.43 1.37 20.06 19.14 06/17/86 NYSE 35,924,268 1194.48
WEFC Wells Financial Corp. MN 196,184 29,327 29,327 0.81 0.79 5.96 5.77 04/11/95 NASDAQ 2,187,500 22.70
CMRN Cameron Financial Corp MO 172,484 45,775 45,775 1.60 1.58 5.72 5.64 04/03/95 NASDAQ 2,850,180 39.19
CAPS Capital Savings Bancorp, Inc. MO 202,554 21,136 21,136 0.95 0.95 8.96 8.96 12/29/93 NASDAQ 1,039,079 18.44
CNSB CNS Bancorp, Inc. MO 85,390 9,180 9,180 0.22 0.26 2.14 2.54 06/12/96 NASDAQ NA NA
FBSI First Bancshares, Inc. MO 140,471 23,771 23,725 0.79 0.78 4.42 4.34 12/22/93 NASDAQ 1,301,576 21.80
GSBC Great Southern Bancorp, Inc. MO 658,997 66,706 65,583 1.74 1.63 17.18 16.11 12/14/89 NASDAQ 4,434,331 109.20
HFSA Hardin Bancorp, Inc. MO 86,949 14,932 14,932 0.76 0.75 4.25 4.23 09/29/95 NASDAQ 1,012,180 11.51
JSBA Jefferson Savings Bancorp MO 1,114,294 81,088 66,842 0.62 0.57 8.90 8.19 04/08/93 NASDAQ 4,181,563 123.88
JOAC Joachim Bancorp, Inc. MO 36,779 10,751 10,751 0.63 0.63 2.82 2.82 12/28/95 NASDAQ 760,437 9.51
LXMO Lexington B&L Financial Corp. MO 49,981 7,195 7,195 1.17 1.23 8.36 8.82 06/06/96 NASDAQ NA NA
MBLF MBLA Financial Corp. MO 195,074 28,365 28,365 0.70 0.70 4.83 4.81 06/24/93 NASDAQ 1,371,738 28.81
MFSB Mutual Bancompany MO 53,311 6,236 6,236 0.20 0.23 1.84 2.10 02/02/95 NASDAQ 333,500 5.59
NASB North American Savings Bank MO 664,250 48,808 46,849 1.33 1.22 18.15 16.65 09/27/85 NASDAQ 2,276,148 73.69
NSLB NS&L Bancorp, Inc. MO 59,052 13,868 13,868 0.92 0.81 3.83 3.39 06/08/95 NASDAQ 887,814 10.88
PCBC Perry County Financial Corp. MO 78,480 15,733 15,733 1.00 0.97 4.86 4.76 02/13/95 NASDAQ 856,452 15.42
RFED Roosevelt Financial Group MO 9,327,772 516,317 NA 0.64 0.86 12.31 16.46 01/23/87 NASDAQ 42,145,561 811.30
SMFC Sho-Me Financial Corp. MO 280,027 30,787 30,787 0.85 0.83 6.89 6.66 07/01/94 NASDAQ 1,732,674 26.86
SMBC Southern Missouri Bancorp, Inc MO 161,992 26,572 26,572 0.87 0.82 4.98 4.67 04/13/94 NASDAQ 1,724,013 23.92
CFTP Community Federal Bancorp MS 201,650 66,523 66,523 1.29 1.27 6.12 5.99 03/26/96 NASDAQ 4,628,750 62.49
FFBS FFBS BanCorp, Inc. MS 123,553 24,170 24,170 1.32 1.32 6.50 6.50 07/01/93 NASDAQ 1,572,883 29.88
MGNL Magna Bancorp, Inc. MS 1,308,657 125,819 119,043 1.71 1.70 17.51 17.38 03/13/91 NASDAQ 6,851,434 255.22
GBCI Glacier Bancorp, Inc. MT 408,467 38,472 38,425 1.59 1.59 16.40 16.41 03/30/84 NASDAQ 3,361,133 71.42
SFBM Security Bancorp MT 360,021 32,128 27,666 0.69 0.52 8.01 6.01 11/20/86 NASDAQ 1,462,182 29.61
UBMT United Financial Corp. MT 104,574 24,609 24,609 1.50 1.50 6.64 6.63 09/23/86 NASDAQ 1,223,312 22.02
WSTR WesterFed Financial Corp. MT 563,931 78,607 78,607 0.81 0.74 5.93 5.44 01/10/94 NASDAQ 4,395,204 65.38
</TABLE>
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY CAPITAL ISSUES
-------------------------- ------------------------ -----------------------------------
Mkt.
Number Value
Total Total Total Core Core of of
Assets Equity Tang. Eq. ROAA ROAA ROAE ROAE IPO Shares Shares
St ($000) ($000) ($000) (%) (%) (%) (%) Date Exchg Outstg. ($M)
-- ------ ------ --------- ---- ---- ---- ---- ---- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COOP Cooperative Bankshares, Inc. NC 316,654 29,494 26,038 0.29 0.28 3.14 3.06 08/21/91 NASDAQ 1,491,698 25.36
SOPN First Savings Bancorp, Inc. NC 256,294 67,178 67,178 1.48 1.51 5.68 5.78 01/06/94 NASDAQ 3,744,000 68.33
GSFC Green Street Financial Corp. NC 178,965 62,755 62,755 NA NA NA NA 04/04/96 NASDAQ 4,298,125 55.88
HFNC HFNC Financial Corp. NC 716,277 244,362 244,362 NA NA NA NA 12/29/95 NASDAQ 17,192,500 255.74
KSAV KS Bancorp, Inc. NC 93,536 13,835 13,821 1.11 1.12 6.88 6.97 12/30/93 NASDAQ 663,263 11.94
MBSP Mitchell Bancorp, Inc. NC 27,596 6,078 6,078 0.92 0.92 4.24 4.24 07/12/96 NASDAQ NA NA
PDB Piedmont Bancorp, Inc. NC 128,711 37,050 37,050 1.46 1.48 6.69 6.79 12/08/95 AMSE 2,645,000 34.72
SSB Scotland Bancorp, Inc NC 70,488 24,706 24,706 NA NA NA NA 04/01/96 AMSE 1,840,000 22.54
SSM Stone Street Bancorp, Inc. NC 116,101 39,117 39,117 NA NA NA NA 04/01/96 AMSE NA NA
UFRM United Federal Savings Bank NC 252,170 20,859 20,859 0.87 0.77 11.31 10.05 07/01/80 NASDAQ 3,065,064 24.52
CFB Commercial Federal Corporation NE 6,607,670 413,277 372,543 0.84 0.83 14.74 14.59 12/31/84 NYSE 15,089,701 577.18
EBCP Eastern Bancorp NH 840,534 64,880 61,257 0.72 0.54 9.60 7.16 11/17/83 NASDAQ 3,651,534 59.34
NHTB New Hampshire Thrift Bncshrs NH 252,481 19,417 19,417 0.58 0.61 7.41 7.74 05/22/86 NASDAQ 1,689,503 16.47
FBER 1st Bergen Bancorp NJ 252,173 43,397 43,397 NA NA NA NA 04/01/96 NASDAQ 3,174,000 28.96
CJFC Central Jersey Financial NJ 468,272 55,612 51,821 1.13 1.07 10.41 9.88 09/01/84 NASDAQ 2,668,269 68.04
COFD Collective Bancorp, Inc. NJ 5,145,471 364,304 339,997 1.07 1.06 15.71 15.51 02/07/84 NASDAQ 20,374,141 481.34
FSPG First Home Bancorp, Inc. NJ 466,363 30,396 29,572 1.01 0.96 15.60 14.84 04/20/87 NASDAQ 2,030,009 38.06
FSFI First State Financial Services NJ 628,684 43,014 40,765 0.63 0.49 9.27 7.24 12/18/87 NASDAQ 4,024,658 49.30
FMCO FMS Financial Corporation NJ 517,943 34,327 33,491 0.83 0.83 12.68 12.66 12/14/88 NASDAQ 2,467,593 39.79
IBSF IBS Financial Corp. NJ 748,745 149,085 149,085 1.05 1.06 4.99 5.05 10/13/94 NASDAQ 11,002,393 143.03
LVSB Lakeview Financial NJ 455,155 45,287 34,781 1.15 0.70 10.25 6.23 12/22/93 NASDAQ 2,265,704 44.46
LFBI Little Falls Bancorp, Inc. NJ 282,232 43,813 40,416 NA NA NA NA 01/05/96 NASDAQ 3,041,750 31.56
OCFC Ocean Financial Corp. NJ 1,036,445 92,351 92,351 0.80 0.83 9.44 9.70 07/03/96 NASDAQ NA NA
PBCI Pamrapo Bancorp, Inc. NJ 365,553 56,543 56,058 1.34 1.34 8.52 8.52 11/14/89 NASDAQ 3,280,964 63.16
PFSB PennFed Financial Services,Inc NJ 1,086,524 90,564 72,134 0.82 0.81 8.36 8.29 07/15/94 NASDAQ 4,823,665 74.77
PULS Pulse Bancorp NJ 505,034 39,338 39,338 1.19 1.19 10.28 10.28 09/18/86 NASDAQ 3,049,378 53.36
SFIN Statewide Financial Corp. NJ 634,464 70,421 70,218 NA NA NA NA 10/02/95 NASDAQ 5,269,752 67.85
WYNE Wayne Bancorp, Inc. NJ 207,997 17,299 17,299 0.46 0.59 5.12 6.51 06/27/96 NASDAQ NA NA
WWFC Westwood Financial Corporation NJ 84,779 5,978 4,717 0.67 0.67 9.40 9.40 06/07/96 NASDAQ NA NA
FSBC First Savings Bank, FSB NM 115,492 5,471 5,471 0.31 0.24 6.81 5.26 08/08/86 NASDAQ 695,698 4.44
GUPB GFSB Bancorp, Inc. NM 70,422 16,216 16,216 1.25 1.25 4.87 4.87 06/30/95 NASDAQ 948,750 12.81
</TABLE>
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY CAPITAL ISSUES
-------------------------- ------------------------ -----------------------------------
Mkt.
Number Value
Total Total Total Core Core of of
Assets Equity Tang. Eq. ROAA ROAA ROAE ROAE IPO Shares Shares
St ($000) ($000) ($000) (%) (%) (%) (%) Date Exchg Outstg. ($M)
-- ------ ------ --------- ---- ---- ---- ---- ---- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALBK ALBANK Financial Corporation NY 3,325,592 316,703 279,777 0.97 0.97 9.50 9.49 04/01/92 NASDAQ 13,287,933 350.47
ALBC Albion Banc Corp. NY 56,692 6,072 6,072 0.30 0.25 2.87 2.46 07/26/93 NASDAQ 260,714 4.30
ASFC Astoria Financial Corporation NY 7,078,383 561,667 456,987 0.74 0.67 8.56 7.82 11/18/93 NASDAQ 21,509,444 583.44
BFSI BFS Bankorp, Inc. NY 621,324 48,620 48,620 1.84 1.78 24.09 23.30 05/12/88 NASDAQ 1,635,488 61.74
CARV Carver Federal Savings Bank NY 362,369 34,793 33,177 0.21 0.18 2.15 1.94 10/25/94 NASDAQ 2,314,375 18.52
FIBC Financial Bancorp, Inc. NY 262,497 26,224 NA 0.66 0.64 5.76 5.65 08/17/94 NASDAQ 1,796,122 22.45
HAVN Haven Bancorp, Inc. NY 1,550,275 94,068 93,515 0.74 0.71 11.42 11.05 09/23/93 NASDAQ 4,320,060 121.50
LISB Long Island Bancorp, Inc. NY 5,221,019 521,711 521,711 0.93 0.85 8.78 7.99 04/18/94 NASDAQ 24,805,349 758.05
NYB New York Bancorp Inc. NY 2,918,120 158,374 158,374 1.27 1.20 21.77 20.51 01/28/88 NYSE 11,491,858 293.04
PEEK Peekskill Financial Corp. NY 191,323 59,774 59,774 1.23 1.27 4.96 5.09 12/29/95 NASDAQ 4,099,750 48.17
PKPS Poughkeepsie Savings Bank, FSB NY 840,491 70,958 70,958 1.70 2.36 21.07 29.34 11/19/85 NASDAQ 12,549,325 62.75
RELY Reliance Bancorp, Inc. NY 1,782,550 153,619 104,190 0.83 0.79 7.61 7.23 03/31/94 NASDAQ 9,128,739 142.64
SFED SFS Bancorp, Inc. NY 164,366 22,287 22,287 0.69 0.70 4.88 4.95 06/30/95 NASDAQ 1,292,450 16.48
TPNZ Tappan Zee Financial, Inc. NY 119,167 21,499 21,499 0.80 0.74 5.22 4.85 10/05/95 NASDAQ 1,553,062 18.64
YFCB Yonkers Financial Corporation NY 242,826 49,021 49,021 NA NA NA NA 04/18/96 NASDAQ 3,570,750 34.89
ASBP ASB Financial Corp. OH 112,988 25,643 25,643 1.01 1.01 4.30 4.30 05/11/95 NASDAQ 1,713,960 25.71
CAFI Camco Financial Corporation OH 343,711 28,625 28,625 1.22 0.94 15.56 11.93 NA NASDAQ 2,070,051 35.73
COFI Charter One Financial OH 13,951,846 934,478 863,715 0.42 1.12 6.39 17.06 01/22/88 NASDAQ 45,009,764 1569.72
CRCL Circle Financial Corp. OH 229,406 24,436 21,196 0.49 0.42 4.32 3.71 08/06/91 NASDAQ 708,096 18.59
CTZN CitFed Bancorp, Inc. OH 2,661,006 175,271 152,777 0.71 0.64 10.20 9.11 01/23/92 NASDAQ 5,691,322 222.67
CIBI Community Investors Bancorp OH 85,785 11,869 11,869 1.01 0.96 6.98 6.63 02/07/95 NASDAQ 701,246 10.34
EFBI Enterprise Federal Bancorp OH 203,431 31,470 31,405 1.03 0.68 5.52 3.65 10/17/94 NASDAQ 2,085,215 31.02
FFDF FFD Financial Corp. OH 76,159 8,302 8,302 0.87 0.82 6.92 6.51 04/03/96 NASDAQ NA NA
FFYF FFY Financial Corp. OH 573,162 105,162 105,162 1.21 1.25 6.50 6.72 06/28/93 NASDAQ 5,192,895 117.49
FFOH Fidelity Financial of Ohio OH 251,188 51,087 51,087 0.87 0.87 5.60 5.59 03/04/96 NASDAQ 4,073,589 40.74
FDEF First Defiance Financial OH 520,666 126,605 126,605 1.21 1.19 5.29 5.21 10/02/95 NASDAQ 10,432,476 108.24
FFBZ First Federal Bancorp, Inc. OH 177,778 14,022 14,003 1.14 1.12 15.12 14.89 07/13/92 NASDAQ 784,658 18.44
FFHS First Franklin Corporation OH 216,508 20,287 20,080 0.62 0.61 6.56 6.47 01/26/88 NASDAQ 1,165,318 17.48
FFSW FirstFederal Financial Svcs OH 1,044,608 82,838 71,588 1.12 0.95 13.85 11.82 03/31/87 NASDAQ 3,583,829 104.83
GFCO Glenway Financial Corp. OH 273,890 26,485 25,854 0.56 0.55 5.82 5.75 11/30/90 NASDAQ 1,145,431 23.45
HHFC Harvest Home Financial Corp. OH 73,005 12,930 12,930 0.80 0.80 4.31 4.31 10/10/94 NASDAQ 895,182 10.74
</TABLE>
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY CAPITAL ISSUES
-------------------------- ------------------------ -----------------------------------
Mkt.
Number Value
Total Total Total Core Core of of
Assets Equity Tang. Eq. ROAA ROAA ROAE ROAE IPO Shares Shares
St ($000) ($000) ($000) (%) (%) (%) (%) Date Exchg Outstg. ($M)
-- ------ ------ --------- ---- ---- ---- ---- ---- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HVFD Haverfield Corporation OH 334,226 28,414 28,352 0.71 0.67 8.57 8.10 03/19/85 NASDAQ 1,906,591 36.23
INBI Industrial Bancorp OH 313,563 60,799 60,799 1.57 1.57 7.13 7.13 08/01/95 NASDAQ 5,554,500 62.49
LONF London Financial Corporation OH 37,552 7,834 7,834 NA NA NA NA 04/01/96 NASDAQ NA NA
MFFC Milton Federal Financial Corp. OH 178,289 33,756 33,756 1.04 0.96 4.80 4.41 10/07/94 NASDAQ 2,263,797 27.73
OHSL OHSL Financial Corp. OH 209,037 25,494 25,494 0.95 0.93 7.55 7.41 02/10/93 NASDAQ 1,217,386 24.35
PTRS Potters Financial Corp. OH 113,862 11,081 11,081 0.54 0.53 5.67 5.55 12/31/93 NASDAQ 532,809 9.32
PVFC PVF Capital Corp. OH 318,100 21,325 21,325 1.13 1.00 17.86 15.90 12/30/92 NASDAQ 1,548,957 30.20
SFSL Security First Corp. OH 588,592 55,732 54,624 1.21 1.27 13.36 13.98 01/22/88 NASDAQ 4,929,612 70.25
SHFC Seven Hills Financial Corp. OH 45,511 9,651 9,651 0.36 0.34 1.69 1.61 12/31/93 NASDAQ 536,472 7.78
SSBK Strongsville Savings Bank OH 529,187 42,554 41,701 0.99 0.88 11.84 10.54 NA NASDAQ 2,530,800 51.88
SBCN Suburban Bancorporation, Inc. OH 197,137 25,639 25,639 0.39 0.57 2.95 4.30 09/30/93 NASDAQ 1,480,732 23.88
THIR Third Financial Corp. OH 155,911 28,655 28,655 1.37 1.23 7.66 6.86 03/25/93 NASDAQ 1,135,954 36.35
WOFC Western Ohio Financial Corp. OH 319,558 58,161 54,774 1.12 0.66 4.19 2.46 07/29/94 NASDAQ 2,309,342 52.54
WFCO Winton Financial Corp. OH 282,833 21,083 20,544 0.94 0.80 12.39 10.50 08/04/88 NASDAQ 1,986,152 28.30
FFWD Wood Bancorp, Inc. OH 139,718 20,395 20,395 1.17 1.13 8.14 7.85 08/31/93 NASDAQ 1,551,255 19.13
KFBI Klamath First Bancorp OR 604,663 167,694 167,694 1.34 1.34 6.64 6.64 10/05/95 NASDAQ 11,254,475 150.53
BRFC Bridgeville Savings Bank PA 55,712 15,883 15,883 1.24 1.24 4.17 4.17 10/07/94 NASDAQ 1,124,125 15.18
CVAL Chester Valley Bancorp Inc. PA 274,575 25,123 25,123 0.91 0.88 10.03 9.63 03/27/87 NASDAQ 1,579,803 28.83
CMSB Commonwealth Bancorp, Inc. PA 1,657,690 137,683 120,977 0.78 0.70 8.41 7.52 06/17/96 NASDAQ NA NA
FSBI Fidelity Bancorp, Inc. PA 317,315 21,544 21,434 0.65 0.65 8.66 8.53 06/24/88 NASDAQ 1,369,511 22.60
FBBC First Bell Bancorp, Inc. PA 570,649 116,265 116,265 1.62 1.61 7.34 7.30 06/29/95 NASDAQ 8,166,450 112.29
FKFS First Keystone Financial PA 278,204 23,043 23,043 0.48 0.52 5.49 5.96 01/26/95 NASDAQ 1,292,500 24.56
SHEN First Shenango Bancorp, Inc. PA 369,279 46,836 46,836 1.03 0.98 7.45 7.10 04/06/93 NASDAQ 2,281,250 46.20
GAF GA Financial, Inc. PA 562,351 128,420 128,420 0.78 0.96 5.90 7.26 03/26/96 AMSE 8,900,000 97.90
HARL Harleysville Savings Bank PA 298,172 19,826 19,826 0.81 0.85 11.83 12.43 08/04/87 NASDAQ 1,289,442 22.89
LARL Laurel Capital Group, Inc. PA 193,008 20,609 20,609 1.35 1.31 13.23 12.79 02/20/87 NASDAQ 1,508,464 23.76
MLFB MLF Bancorp, Inc. PA 1,765,812 140,337 136,838 0.71 0.64 7.88 7.04 08/11/94 NASDAQ 6,246,900 149.14
PVSA Parkvale Financial Corporation PA 919,242 69,765 69,489 1.06 0.99 15.13 14.14 07/16/87 NASDAQ 3,235,643 81.70
PBIX Patriot Bank Corp. PA 417,746 54,003 54,003 0.63 0.65 4.91 5.08 12/04/95 NASDAQ 3,902,995 49.76
PWBC PennFirst Bancorp, Inc. PA 680,434 53,430 48,680 0.61 0.58 7.46 7.08 06/13/90 NASDAQ 3,996,494 47.96
PWBK Pennwood Savings Bank PA 42,366 4,081 4,081 NA NA NA NA 07/15/96 NASDAQ NA NA
</TABLE>
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY CAPITAL ISSUES
-------------------------- ------------------------ -----------------------------------
Mkt.
Number Value
Total Total Total Core Core of of
Assets Equity Tang. Eq. ROAA ROAA ROAE ROAE IPO Shares Shares
St ($000) ($000) ($000) (%) (%) (%) (%) Date Exchg Outstg. ($M)
-- ------ ------ --------- ---- ---- ---- ---- ---- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PHFC Pittsburgh Home Financial Corp PA 184,002 30,406 30,406 NA NA NA NA 04/01/96 NASDAQ 2,182,125 21.95
PRBC Prestige Bancorp, Inc. PA 102,609 15,273 15,273 NA NA NA NA 06/27/96 NASDAQ 963,023 10.11
PSAB Prime Bancorp, Inc. PA 644,560 58,048 54,425 1.02 0.95 10.90 10.19 11/21/88 NASDAQ 3,725,056 69.14
PFNC Progress Financial Corporation PA 347,858 19,508 19,374 0.91 0.71 18.78 14.73 07/18/83 NASDAQ 3,730,000 24.25
SVRN Sovereign Bancorp, Inc. PA 9,183,447 461,466 344,022 0.79 0.76 14.64 14.24 08/12/86 NASDAQ 49,573,278 495.73
THRD TF Financial Corporation PA 528,910 75,122 75,122 0.91 0.88 5.94 5.72 07/13/94 NASDAQ 4,523,386 68.26
THBC Troy Hill Bancorp, Inc. PA 80,484 17,865 17,865 1.38 1.26 6.09 5.57 06/27/94 NASDAQ 1,067,917 14.42
WVFC WVS Financial Corporation PA 259,622 34,038 34,038 1.51 1.39 10.19 9.38 11/29/93 NASDAQ 1,736,760 36.04
YFED York Financial Corp. PA 1,048,673 92,078 92,078 0.97 0.83 11.42 9.78 02/01/84 NASDAQ 6,049,983 108.90
AMFB American Federal Bank, FSB SC 1,339,147 109,941 101,420 1.29 1.41 15.99 17.42 01/19/89 NASDAQ 10,921,085 163.82
CFCP Coastal Financial Corp. SC 452,809 27,641 27,641 1.04 0.92 17.09 15.04 09/26/90 NASDAQ 3,436,403 61.17
FFCH First Financial Holdings Inc. SC 1,523,224 97,330 97,330 0.78 0.79 11.81 11.97 11/10/83 NASDAQ 6,377,369 114.79
FSFC First Southeast Financial Corp SC 326,573 33,669 33,669 0.31 0.82 1.61 4.26 10/08/93 NASDAQ 4,388,231 43.88
PALM Palfed, Inc. SC 638,002 53,666 51,136 0.69 0.58 8.53 7.16 12/15/85 NASDAQ 5,225,571 65.32
SCCB S. Carolina Community Bancshrs SC 44,088 12,553 12,553 1.35 1.35 4.50 4.50 07/07/94 NASDAQ 747,188 12.70
HFFC HF Financial Corp. SD 574,027 51,514 51,355 0.78 0.61 8.68 6.79 04/08/92 NASDAQ 3,054,572 43.53
LFCT Leader Financial Corp. TN 3,211,064 266,390 266,390 1.48 1.45 18.45 18.01 09/30/93 NASDAQ 9,947,794 445.16
TWIN Twin City Bancorp TN 102,423 14,095 14,095 1.08 0.93 7.84 6.79 01/04/95 NASDAQ 898,404 15.27
CBSA Coastal Bancorp, Inc. TX 2,796,568 95,091 78,680 0.40 0.38 11.69 11.27 NA NASDAQ 4,962,344 89.32
ETFS East Texas Financial Services TX 114,961 22,570 22,570 0.89 0.83 4.58 4.27 01/10/95 NASDAQ 1,193,568 17.68
FBHC Fort Bend Holding Corp. TX 254,739 18,008 18,008 0.70 0.62 9.62 8.50 06/30/93 NASDAQ 819,198 14.54
LOAN Horizon Bancorp TX 130,930 11,195 10,830 1.47 1.18 16.04 12.84 NA NASDAQ 1,386,757 15.60
JXVL Jacksonville Bancorp, Inc. TX 213,062 35,582 35,582 0.79 0.79 7.47 7.47 04/01/96 NASDAQ NA NA
BFSB Bedford Bancshares, Inc. VA 121,783 18,530 18,530 1.29 1.28 7.96 7.94 08/22/94 NASDAQ 1,161,169 19.30
CNIT CENIT Bancorp, Inc. VA 655,771 47,716 46,010 0.48 0.54 6.76 7.51 08/06/92 NASDAQ 1,612,952 54.84
CFFC Community Financial Corp. VA 159,793 21,900 21,900 1.30 1.30 9.71 9.70 03/30/88 NASDAQ 1,269,698 26.66
ESX Essex Bancorp, Inc. VA 315,568 23,114 14,739 0.32 -0.77 6.11 -14.69 NA AMSE 1,050,547 2.76
FFFC FFVA Financial Corp. VA 522,811 81,442 79,774 1.24 1.22 7.51 7.37 10/12/94 NASDAQ 5,180,952 94.55
FFRV Fidelity Financial Bankshares VA 325,814 28,010 27,993 1.00 0.97 12.03 11.71 05/01/86 NASDAQ 2,291,681 31.51
GSLC Guaranty Financial Corp. VA 102,967 6,373 6,373 0.68 0.42 10.91 6.77 NA NASDAQ 919,168 7.12
LIFB Life Bancorp, Inc. VA 1,240,520 148,718 143,199 0.87 0.91 6.25 6.56 10/11/94 NASDAQ 10,097,094 142.62
</TABLE>
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY CAPITAL ISSUES
-------------------------- ------------------------ -----------------------------------
Mkt.
Number Value
Total Total Total Core Core of of
Assets Equity Tang. Eq. ROAA ROAA ROAE ROAE IPO Shares Shares
St ($000) ($000) ($000) (%) (%) (%) (%) Date Exchg Outstg. ($M)
-- ------ ------ --------- ---- ---- ---- ---- ---- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VABF Virginia Beach Fed. Financial VA 608,832 41,206 41,206 0.29 0.10 4.81 1.56 11/01/80 NASDAQ 4,965,094 34.14
VFFC Virginia First Financial VA 713,931 55,114 53,131 1.21 0.98 16.02 13.01 01/01/78 NASDAQ 5,615,450 67.39
CASB Cascade Financial Corp. WA 326,266 20,269 20,269 0.56 0.27 8.90 4.22 09/16/92 NASDAQ 2,040,485 27.75
FWWB First SB of Washington Bancorp WA 743,176 154,142 154,142 1.11 1.06 6.62 6.35 11/01/95 NASDAQ 10,077,498 136.05
IWBK InterWest Bancorp, Inc. WA 1,413,926 96,338 93,662 1.11 1.05 15.69 14.79 NA NASDAQ 6,450,308 154.00
MSEA Metropolitan Bancorp WA 761,014 51,166 46,402 0.78 0.83 11.41 12.23 01/09/90 NASDAQ 3,710,205 50.09
STSA Sterling Financial Corp. WA 1,479,643 85,745 74,141 0.45 0.43 7.73 7.39 NA NASDAQ 5,426,398 80.04
WFSL Washington Federal, Inc. WA 5,040,588 597,495 569,151 1.78 1.71 14.47 13.84 11/17/82 NASDAQ 42,246,383 866.05
AADV Advantage Bancorp, Inc. WI 996,719 94,116 81,912 0.90 0.81 9.41 8.45 03/23/92 NASDAQ 3,392,694 115.35
ABCW Anchor BanCorp Wisconsin WI 1,754,556 118,402 115,297 0.88 0.85 12.13 11.69 07/16/92 NASDAQ 4,934,350 166.53
FCBF FCB Financial Corp. WI 255,660 47,192 47,192 1.03 1.01 5.37 5.26 09/24/93 NASDAQ 2,512,614 45.23
FFEC First Fed Bncshrs Eau Claire WI 706,672 97,457 93,632 0.87 0.91 5.70 5.91 10/12/94 NASDAQ 6,855,379 105.40
FTFC First Federal Capital Corp. WI 1,382,069 94,672 89,135 0.92 0.68 13.46 9.91 11/02/89 NASDAQ 6,297,735 125.95
FFHC First Financial Corp. WI 5,579,294 407,905 388,953 1.31 1.26 18.55 17.93 12/24/80 NASDAQ 29,905,406 672.87
FNGB First Northern Capital Corp. WI 580,128 70,754 70,754 0.78 0.75 6.12 5.85 12/29/83 NASDAQ 4,394,725 67.02
HALL Hallmark Capital Corp. WI 377,157 27,011 27,011 0.60 0.57 7.17 6.80 01/03/94 NASDAQ 1,413,280 21.20
MWFD Midwest Federal Financial WI 178,249 16,664 15,901 1.20 0.96 12.27 9.86 07/08/92 NASDAQ 1,632,880 18.78
NWEQ Northwest Equity Corp. WI 91,804 11,720 11,720 1.00 0.95 6.91 6.54 10/11/94 NASDAQ 945,392 9.81
OSBF OSB Financial Corp. WI 250,003 31,400 31,400 0.21 0.36 1.63 2.85 07/01/92 NASDAQ 1,110,984 26.11
RELI Reliance Bancshares, Inc. WI 32,260 9,616 NA 1.23 1.25 4.32 4.39 04/19/96 NASDAQ NA NA
SECP Security Capital Corporation WI 3,437,317 559,048 559,048 0.99 1.04 5.85 6.13 01/03/94 NASDAQ 9,314,365 554.20
STFR St. Francis Capital Corp. WI 1,329,903 130,656 124,711 1.18 0.87 10.78 7.95 06/21/93 NASDAQ 5,586,837 139.67
FOBC Fed One Bancorp WV 343,028 41,188 39,077 1.00 1.00 7.93 7.92 01/19/95 NASDAQ 2,558,191 38.37
CRZY Crazy Woman Creek Bancorp WY 50,324 15,453 15,453 NA NA NA NA 03/29/96 NASDAQ 1,058,000 10.71
TRIC Tri-County Bancorp, Inc. WY 73,436 13,094 13,094 0.94 0.91 4.69 4.53 09/30/93 NASDAQ 630,788 11.67
</TABLE>
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF AUGUST 9, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY CAPITAL ISSUES
-------------------------- ------------------------ -----------------------------------
Mkt.
Number Value
Total Total Total Core Core of of
Assets Equity Tang. Eq. ROAA ROAA ROAE ROAE IPO Shares Shares
St ($000) ($000) ($000) (%) (%) (%) (%) Date Exchg Outstg. ($M)
-- ------ ------ --------- ---- ---- ---- ---- ---- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL THRIFTS
AVERAGE 1,299,878 102,311 95,313 0.87 0.80 8.14 7.28 5,912,982 126.26
MEDIAN 314,566 36,158 36,053 0.89 0.83 7.45 6.79 2,485,126 38.22
HIGH 49,506,630 2,834,725 2,637,334 2.05 2.36 29.45 29.34 137,392,481 3,280.25
LOW 27,596 3,410 3,410 -1.74 -1.75 -30.56 -30.67 229,588 2.76
AVERAGE FOR STATE
IL 700,962 72,857 70,932 0.74 0.69 6.30 5.78 4,069,036 78.27
AVERAGE BY REGION
MIDWEST 869,172 79,117 74,423 0.92 0.86 8.05 7.38 4,725,962 102.76
NEW ENGLAND 768,552 75,957 45,418 0.82 0.66 6.53 4.53 5,551,728 103.64
MID ATLANTIC 481,728 56,887 55,239 0.93 0.90 8.13 7.79 3,886,661 63.23
SOUTHEAST 861,696 66,698 56,604 0.90 0.82 9.49 8.33 4,794,675 77.83
SOUTHWEST 693,025 79,661 78,188 0.57 0.49 5.49 4.69 6,056,337 93.10
WEST 5,454,475 340,239 330,696 0.58 0.51 6.68 5.14 16,113,094 423.95
AVERAGE BY EXCHANGE
NYSE 16,112,744 999,750 979,418 0.83 0.68 12.82 10.83 43,423,266 1,235.44
AMEX 232,533 34,583 34,630 0.78 0.69 6.02 4.50 2,611,215 30.26
OTC/NASDAQ 729,631 67,944 63,280 0.88 0.82 8.04 7.27 4,375,764 80.72
</TABLE>
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 32
<TABLE>
<CAPTION>
RECENTLY CONVERTED, SAIF-INSURED THRIFT INSTITUTIONS
PRICES AND PRICING RATIOS
PRO FORMA RATIOS CURRENT RATIOS
------------------------------- --------------------------------
Price/ Price/ Price/ Price/
Price/ Book Tang. Bk. Price/ Price/ Book Tang. Bk.Price/
IPO Earnings Value Value Assets Earnings Value Value Assets
Date (X) (%) (%) (%) (X) (%) (%) (%)
--------------------------------- -------- ------------------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FFBA First Colorado Bancorp, Inc. CO 01/02/96 NA NA NA NA 13.64 116.58 117.94 19.03
LFBI Little Falls Bancorp, Inc. NJ 01/05/96 31.90 71.40 71.43 13.40 17.08 71.18 77.18 11.05
BYFC Broadway Financial Corp. CA 01/09/96 13.30 68.50 68.48 8.00 NA 67.89 67.89 7.75
FFOH Fidelity Financial of Ohio OH 03/04/96 NA NA NA NA 15.82 80.74 80.74 16.42
FFFD North Central Bancshares, Inc. IA 03/21/96 NA NA NA NA 11.18 83.63 83.63 24.00
GAF GA Financial, Inc. PA 03/26/96 13.80 70.50 70.52 15.70 11.06 79.70 79.70 18.20
CFTP Community Federal Bancorp MS 03/26/96 14.00 71.40 71.35 22.20 16.25 90.47 90.47 29.84
PFFB PFF Bancorp, Inc. CA 03/29/96 26.60 69.00 68.99 9.50 21.63 76.84 77.75 10.40
CRZY Crazy Woman Creek Bancorp WY 03/29/96 16.40 69.70 69.72 22.00 18.08 69.30 69.30 21.28
SSM Stone Street Bancorp, Inc. NC 04/01/96 19.70 74.90 74.92 24.40 NA NA NA NA
JXVL Jacksonville Bancorp, Inc. TX 04/01/96 NA NA NA NA NA NA NA NA
WHGB WHG Bancshares Corp. MD 04/01/96 15.50 71.10 71.08 16.00 NA NA NA NA
PHFC Pittsburgh Home Financial Corp PA 04/01/96 17.50 72.80 72.83 12.20 NA 75.38 75.38 12.45
LONF London Financial Corporation OH 04/01/96 22.40 68.50 68.46 13.40 NA NA NA NA
SSB Scotland Bancorp, Inc NC 04/01/96 16.20 74.80 74.83 24.20 NA 90.28 90.28 31.65
AMFC AMB Financial Corp. IN 04/01/96 18.20 70.80 70.83 14.00 NA NA NA NA
FBER 1st Bergen Bancorp NJ 04/01/96 21.70 74.80 74.81 12.50 NA 72.24 72.24 12.43
FFDF FFD Financial Corp. OH 04/03/96 17.40 69.90 69.87 19.80 NA NA NA NA
GSFC Green Street Financial Corp. NC 04/04/96 14.80 71.00 71.03 22.20 NA 87.33 87.33 30.62
YFCB Yonkers Financial Corporation NY 04/18/96 16.10 74.90 74.93 14.60 NA 76.02 76.02 15.35
RELI Reliance Bancshares, Inc. WI 04/19/96 22.50 72.50 72.47 38.90 NA NA NA NA
CBK Citizens First Financial Corp. IL 05/01/96 15.30 73.10 73.10 11.00 NA NA NA NA
FFBH First Federal Bancshares of AR AR 05/03/96 9.80 63.40 63.39 10.20 NA NA NA NA
LXMO Lexington B&L Financial Corp. MO 06/06/96 14.40 69.10 69.10 20.20 NA NA NA NA
WWFC Westwood Financial Corporation NJ 06/07/96 NA NA NA NA NA NA NA NA
CNSB CNS Bancorp, Inc. MO 06/12/96 26.10 69.30 69.35 16.20 NA NA NA NA
CMSB Commonwealth Bancorp, Inc. PA 06/17/96 NA NA NA NA NA NA NA NA
WYNE Wayne Bancorp, Inc. NJ 06/27/96 16.70 60.90 60.94 9.70 NA NA NA NA
PRBC Prestige Bancorp, Inc. PA 06/27/96 24.60 61.90 61.90 9.50 NA 66.20 66.20 9.85
PROV Provident Financial Holdings CA 06/28/96 18.20 60.90 60.87 8.20 NA NA NA NA
FLKY First Lancaster Bancshares KY 07/01/96 19.00 72.50 72.51 21.30 NA NA NA NA
EGLB Eagle BancGroup, Inc. IL 07/01/96 58.10 57.10 57.11 7.90 NA NA NA NA
HWEN Home Financial Bancorp IN 07/02/96 12.40 66.20 66.23 13.10 NA NA NA NA
OCFC Ocean Financial Corp. NJ 07/03/96 13.80 69.20 69.21 13.90 NA NA NA NA
MBSP Mitchell Bancorp, Inc. NC 07/12/96 94.50 68.10 68.13 25.80 NA NA NA NA
PWBK Pennwood Savings Bank PA 07/15/96 13.30 65.80 65.76 12.80 NA NA NA NA
ANA Acadiana Bancshares, Inc. LA 07/16/96 NA 69.90 69.92 12.70 NA NA NA NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RECENTLY CONVERTED, SAIF-INSURED THRIFT INSTITUTIONS
PRICES AND PRICING RATIOS
PRICES AND TREND FROM IPO DATE
------------------------------------------------------
1 Day 1 Week 1 Mo.
IPO After After After
IPO Price IPO % IPO % IPO %
Date ($) ($) Change ($) Change ($) Change
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FFBA First Colorado Bancorp, Inc. CO 01/02/96 NA 11.44 NA 11.63 NA 12.00 NA
LFBI Little Falls Bancorp, Inc. NJ 01/05/96 10.00 11.31 13.13 11.38 13.75 11.00 10.00
BYFC Broadway Financial Corp. CA 01/09/96 10.00 10.38 3.75 10.25 2.50 10.25 2.50
FFOH Fidelity Financial of Ohio OH 03/04/96 NA 10.50 NA 10.00 NA 10.13 NA
FFFD North Central Bancshares, Inc. IA 03/21/96 NA 10.88 NA 10.69 NA 10.44 NA
GAF GA Financial, Inc. PA 03/26/96 10.00 11.38 13.75 11.50 15.00 11.00 10.00
CFTP Community Federal Bancorp MS 03/26/96 10.00 12.63 26.25 12.88 28.75 12.63 26.25
PFFB PFF Bancorp, Inc. CA 03/29/96 10.00 11.38 13.75 11.63 16.25 11.63 16.25
CRZY Crazy Woman Creek Bancorp WY 03/29/96 10.00 NA NA 10.75 7.50 10.50 5.00
SSM Stone Street Bancorp, Inc. NC 04/01/96 15.00 17.50 16.67 18.00 20.00 17.75 18.33
JXVL Jacksonville Bancorp, Inc. TX 04/01/96 NA 11.11 NA 9.63 NA 9.88 NA
WHGB WHG Bancshares Corp. MD 04/01/96 10.00 11.13 11.25 11.06 10.60 11.25 12.50
PHFC Pittsburgh Home Financial Corp PA 04/01/96 10.00 11.00 10.00 11.00 10.00 10.63 6.25
LONF London Financial Corporation OH 04/01/96 10.00 10.81 8.12 10.63 6.25 10.13 1.25
SSB Scotland Bancorp, Inc NC 04/01/96 10.00 12.25 22.50 12.50 25.00 11.75 17.50
AMFC AMB Financial Corp. IN 04/01/96 10.00 10.50 5.00 10.50 5.00 10.50 5.00
FBER 1st Bergen Bancorp NJ 04/01/96 10.00 10.00 0.00 9.50 (5.00) 9.63 (3.75)
FFDF FFD Financial Corp. OH 04/03/96 10.00 10.50 5.00 10.50 5.00 10.31 3.10
GSFC Green Street Financial Corp. NC 04/04/96 10.00 12.88 28.75 12.25 22.50 12.31 23.10
YFCB Yonkers Financial Corporation NY 04/18/96 10.00 9.75 (2.50) 10.13 1.25 9.94 (0.60)
RELI Reliance Bancshares, Inc. WI 04/19/96 8.00 8.38 4.69 8.25 3.13 7.94 (0.75)
CBK Citizens First Financial Corp. IL 05/01/96 10.00 10.50 5.00 10.00 0.00 10.13 1.25
FFBH First Federal Bancshares of AR AR 05/03/96 10.00 13.00 30.00 13.25 32.50 13.69 36.90
LXMO Lexington B&L Financial Corp. MO 06/06/96 10.00 9.50 (5.00) 9.75 (2.50) 10.13 1.25
WWFC Westwood Financial Corporation NJ 06/07/96 NA 10.75 NA 10.38 NA 10.63 NA
CNSB CNS Bancorp, Inc. MO 06/12/96 10.00 11.00 10.00 11.63 16.25 11.50 15.00
CMSB Commonwealth Bancorp, Inc. PA 06/17/96 NA 10.50 NA 10.75 NA 10.00 NA
WYNE Wayne Bancorp, Inc. NJ 06/27/96 10.00 11.13 11.25 11.38 13.75 11.25 12.50
PRBC Prestige Bancorp, Inc. PA 06/27/96 10.00 10.38 3.75 10.25 2.50 9.75 (2.50)
PROV Provident Financial Holdings CA 06/28/96 10.00 10.97 9.70 10.81 8.10 10.13 1.25
FLKY First Lancaster Bancshares KY 07/01/96 10.00 13.50 35.00 13.38 33.75 13.75 37.50
EGLB Eagle BancGroup, Inc. IL 07/01/96 10.00 11.25 12.50 11.25 12.50 11.13 11.25
HWEN Home Financial Bancorp IN 07/02/96 10.00 10.25 2.50 9.88 (1.25) 10.50 5.00
OCFC Ocean Financial Corp. NJ 07/03/96 20.00 21.25 6.25 20.13 0.63 21.00 5.00
MBSP Mitchell Bancorp, Inc. NC 07/12/96 10.00 NA NA 10.63 6.25 10.88 8.75
PWBK Pennwood Savings Bank PA 07/15/96 10.00 9.50 (5.00) 9.13 (8.75) NA NA
ANA Acadiana Bancshares, Inc. LA 07/16/96 12.00 12.00 0.00 11.75 (2.08) NA NA
</TABLE>
<PAGE>
Page 1
EXHIBIT 33
KELLER & COMPANY
Columbus, Ohio
614-766-1426
RECENT THRIFT ACQUISITIONS AND PENDING ACQUISITIONS
COUNTY, CITY OR MARKET AREA OF PREFERRED SAVINGS BANK
1. Target institution:
Name Barrington Bancorp
City and state Barrington, IL
Asset size $69,700,000
Acquiring institution:
Name First Chicago NBD
City and state Chicago, IL
Asset size $115,500,000,000
Transaction:
Purchase price $17,100,000
Price/earnings (x) 61.00
Price/book value (%) 148.6
Date completed 06/06/96
2. Target institution:
Name N.S. Bancorp
City and state Chicago, IL
Asset size $1,160,200,000
Acquiring institution:
Name MAF Bancorp
City and state Clarendon Hills, IL
Asset size $1,870,000,000
Transaction:
Purchase price $267,000,000
Price/earnings (x) 12.50
Price/book value (%) 107.00
Date completed 05/30/96
<PAGE>
Page 2
KELLER & COMPANY
Columbus, Ohio
614-766-1426
RECENT THRIFT ACQUISITIONS AND PENDING ACQUISITIONS
COUNTY, CITY OR MARKET AREA OF PREFERRED SAVINGS BANK
3. Target institution:
Name DeerBank Corp.
City and state Chicago, IL
Asset size $757,800,000
Acquiring institution:
Name NBD
City and state Detroit, MI
Asset size $48,500,000,000
Transaction:
Purchase price $106,000,000
Price/earnings (x) 14.20
Price/book value (%) 186.00
Date completed 07/01/95
4. Target institution:
Name Financial Security Corp
City and state Chicago, IL
Asset size $277,100,000
Acquiring institution:
Name Pinnacle Banc Group, Inc.
City and state Oak Brook, IL
Asset size $807,500,000
Transaction:
Purchase price $45,300,000
Price/earnings (x) 21.10
Price/book value (%) 110.00
Date announced 04/22/96
<PAGE>
EXHIBIT 34
KELLER & COMPANY
Columbus, Ohio
614-766-1426
<TABLE>
<CAPTION>
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED MUTUAL HOLDING COMPANIES
AS OF AUGUST 9, 1996
PER SHARE
---------------------------------------------------------------------
Latest All Time All TimeMonthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ---------------- ---------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PFSL Pocahontas FS&LA, MHC AR NASDAQ 14.250 17.250 9.500 -3.39 -5.00 13.64 229.43 0.67
CMSV Community Savings, MHC FL NASDAQ 16.000 18.250 10.000 0.00 7.56 15.35 129.91 0.65
FFFL Fidelity FSB of Florida, MHC FL NASDAQ 12.250 17.000 9.091 -6.67 -10.91 12.18 117.84 0.57
HARB Harbor Federal Savings Bk, MH FL NASDAQ 24.500 29.250 11.875 0.00 -12.50 17.24 205.56 1.05
FFSX First Fed SB of Siouxland, MH IA NASDAQ 24.500 28.625 9.063 1.03 -1.01 21.59 259.86 0.72
WCFB Webster City Federal SB, MHC IA NASDAQ 12.500 13.500 8.813 -1.96 -5.66 10.38 46.38 0.65
JXSB Jacksonville Savings Bank, MH IL NASDAQ 13.250 14.250 10.000 1.92 0.00 13.31 112.43 0.40
LFED Leeds Federal Savings Bk, MHC MD NASDAQ 13.000 16.750 9.875 -5.87 -3.70 12.65 77.34 0.63
GFED Guaranty Federal SB, MHC MO NASDAQ 10.500 12.500 8.000 -6.67 -8.70 8.69 59.37 NA
PULB Pulaski Bank, Savings Bk, MHC MO NASDAQ 13.000 16.500 10.500 -7.14 -16.13 10.82 85.68 0.80
FSLA First Savings Bank, MHC NJ NASDAQ 15.750 17.500 5.579 -0.79 1.61 13.98 147.33 0.37
FSNJ First Savings Bk of NJ, MHC NJ NASDAQ 14.063 19.500 10.750 -3.84 1.35 16.17 212.89 0.50
SBFL SB of the Finger Lakes, MHC NY NASDAQ 16.250 17.000 8.125 -1.52 -1.52 11.31 110.61 NA
WAYN Wayne Savings & Loan Co. MHC OH NASDAQ 19.750 22.000 11.255 -1.25 -1.25 15.31 166.54 1.05
GDVS Greater Delaware Valley SB,MH PA NASDAQ 9.500 13.000 9.250 -5.00 -10.59 8.86 72.08 0.27
HARS Harris Savings Bank, MHC PA NASDAQ 15.250 20.500 12.750 -6.15 -1.61 13.55 137.88 0.55
NWSB Northwest Savings Bank, MHC PA NASDAQ 11.125 13.500 7.375 -2.20 -8.25 8.28 80.32 0.30
RVSB Riverview Savings Bank, MHC WA NASDAQ 15.000 17.000 9.711 4.35 -11.76 10.71 97.21 0.19
ALL MUTUAL HOLDING COMPANIES
AVERAGE 15.024 17.993 9.528 -2.51 -4.89 13.00 130.48 0.59
MEDIAN 14.157 17.000 9.606 -2.08 -4.35 12.98 115.13 0.60
HIGH 24.500 29.250 12.750 4.35 7.56 21.59 259.86 1.05
LOW 9.500 12.500 5.579 -7.14 -16.13 8.28 46.38 0.19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED MUTUAL HOLDING COMPANIES
AS OF AUGUST 9, 1996
PRICING RATIOS
--------------------------------------
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
State Exchange (X) (%) (%) (X)
----- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PFSL Pocahontas FS&LA, MHC AR NASDAQ 11.78 104.47 6.21 11.49
CMSV Community Savings, MHC FL NASDAQ 16.00 104.23 12.32 18.60
FFFL Fidelity FSB of Florida, MHC FL NASDAQ 16.78 100.57 10.40 18.01
HARB Harbor Federal Savings Bk, MH FL NASDAQ 11.14 142.11 11.92 11.14
FFSX First Fed SB of Siouxland, MH IA NASDAQ 13.69 113.48 9.43 14.67
WCFB Webster City Federal SB, MHC IA NASDAQ 23.15 120.42 26.95 24.04
JXSB Jacksonville Savings Bank, MH IL NASDAQ 25.00 99.55 11.79 30.81
LFED Leeds Federal Savings Bk, MHC MD NASDAQ 16.25 102.77 16.81 16.05
GFED Guaranty Federal SB, MHC MO NASDAQ NA 120.83 17.69 NA
PULB Pulaski Bank, Savings Bk, MHC MO NASDAQ 17.81 120.15 15.17 20.97
FSLA First Savings Bank, MHC NJ NASDAQ 13.02 112.66 10.69 13.82
FSNJ First Savings Bk of NJ, MHC NJ NASDAQ 66.97 86.97 6.61 20.09
SBFL SB of the Finger Lakes, MHC NY NASDAQ NA 143.68 14.69 NA
WAYN Wayne Savings & Loan Co. MHC OH NASDAQ 20.57 129.00 11.86 21.94
GDVS Greater Delaware Valley SB,MH PA NASDAQ 27.14 107.22 13.18 27.14
HARS Harris Savings Bank, MHC PA NASDAQ 20.07 112.55 11.06 21.79
NWSB Northwest Savings Bank, MHC PA NASDAQ 14.45 134.36 13.85 13.91
RVSB Riverview Savings Bank, MHC WA NASDAQ 12.30 140.06 15.43 13.64
ALL MUTUAL HOLDING COMPANIES
AVERAGE 20.38 116.39 13.11 18.63
MEDIAN 16.52 113.07 12.12 18.31
HIGH 66.97 143.68 26.95 30.81
LOW 11.14 86.97 6.21 11.14
</TABLE>
<PAGE>
EXHIBIT 35
KELLER & COMPANY
Columbus, Ohio
614-766-1426
<TABLE>
<CAPTION>
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED MUTUAL HOLDING COMPANIES
AS OF AUGUST 9, 1996
ASSETS AND EQUITY PROFITABILITY
------------------------------------ -------------------------------
Total Total Total Core Core
Assets Equity Tang. Equity ROAA ROAA ROAE ROAE
State ($000) ($000) ($000) (%) (%) (%) (%)
----- --------------------------------------- -------------------------------
<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 5.83
HARB Harbor Federal Savings Bk, MH FL 1,014,013 85,062 81,880 1.18 1.18 13.57 13.56
FFSX First Fed SB of Siouxland, MH IA 443,632 36,857 36,502 0.70 0.65 8.44 7.86
WCFB Webster City Federal SB, MHC IA 97,391 21,805 21,805 1.16 1.12 5.24 5.05
JXSB Jacksonville Savings Bank, MH IL 143,044 16,931 16,930 0.48 0.39 4.16 3.41
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 179,406 22,651 22,651 0.84 0.71 6.94 5.89
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 651,945 49,519 49,519 0.11 0.36 1.20 4.01
SBFL SB of the Finger Lakes, MHC NY 197,438 20,189 20,189 NA NA NA NA
WAYN Wayne Savings & Loan Co. MHC OH 248,503 22,852 22,852 0.58 0.55 6.32 5.96
GDVS Greater Delaware Valley SB,MH PA 235,877 28,982 28,982 0.48 0.48 3.98 3.98
HARS Harris Savings Bank, MHC PA 1,546,469 151,930 128,025 0.66 0.61 5.64 5.22
NWSB Northwest Savings Bank, MHC PA 1,877,529 190,651 181,003 1.01 1.05 9.47 9.83
RVSB Riverview Savings Bank, MHC WA 209,506 23,086 20,430 1.31 1.18 12.02 10.85
ALL MUTUAL HOLDING COMPANIES
AVERAGE 558,339 56,119 53,188 0.79 0.74 7.19 6.83
MEDIAN 318,019 32,920 32,742 0.84 0.65 6.62 5.89
HIGH 1,877,529 190,651 181,003 1.31 1.18 13.57 13.56
LOW 97,391 16,931 16,930 0.11 0.36 1.20 3.41
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED MUTUAL HOLDING COMPANIES
AS OF AUGUST 9, 1996
CAPITAL ISSUES
---------------------------------------------
Number of Mkt. Value
IPO Shares of Shares
State 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, MH FL 01/06/94 NASDAQ 4,932,854 124.55
FFSX First Fed SB of Siouxland, MH IA 07/13/92 NASDAQ 1,707,209 42.25
WCFB Webster City Federal SB, MHC IA 08/15/94 NASDAQ 2,100,000 27.30
JXSB Jacksonville Savings Bank, MH IL 04/21/95 NASDAQ 1,272,300 16.54
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 31.67
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 3,062,321 46.70
SBFL SB of the Finger Lakes, MHC NY 11/11/94 NASDAQ 1,785,000 28.56
WAYN Wayne Savings & Loan Co. MHC OH 06/25/93 NASDAQ 1,492,149 30.55
GDVS Greater Delaware Valley SB,MH PA 03/03/95 NASDAQ 3,272,500 35.18
HARS Harris Savings Bank, MHC PA 01/25/94 NASDAQ 11,216,400 182.27
NWSB Northwest Savings Bank, MHC PA 11/07/94 NASDAQ 23,376,000 262.98
RVSB Riverview Savings Bank, MHC WA 10/26/93 NASDAQ 2,155,206 35.56
ALL MUTUAL HOLDING COMPANIES
AVERAGE 4,708,316 69.08
MEDIAN 3,093,661 39.49
HIGH 23,376,000 262.98
LOW 1,272,300 16.54
</TABLE>
<PAGE>
EXHIBIT 36
KELLER & COMPANY
Columbus, Ohio
614-766-1426
<TABLE>
<CAPTION>
PREFERRED SAVINGS BANK
COMPARABLE GROUP SELECTION
BALANCE SHEET PARAMETERS
General Parameters:
Less Than = #
States: IA IL IN KY MO OH WI
IPO Date: # = 03/31/95
Asset size: # = $350,000 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 ($000) (%) (%) (%) (%) (%) (%) (%)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PREFERRED SAVINGS BANK -- 54,853 25.84 7.08 47.08 65.09 72.17 0.00 21.93
DEFINED PARAMETERS FOR Prior to 5.00 - 35.00 - 40.00 - 45.00 - 8.00-
INCLUSION IN COMPARABLE GROUP 03/31/95 #350,000 50.00 #20.00 75.00 85.00 95.00 #25.00 30.00
HBBI Home Building Bancorp IN 02/08/95 43,135 20.88 10.94 50.17 65.42 76.35 9.95 13.94
CKFB CKF Bancorp, Inc. KY 01/04/95 58,763 11.76 0.02 68.59 86.58 86.59 0.47 27.29
GWBC Gateway Bancorp, Inc. KY 01/18/95 71,260 33.13 41.47 22.74 24.17 65.64 0.00 24.86
HHFC Harvest Home Financial Corp. OH 10/10/94 73,005 NA NA 48.14 54.74 NA 0.00 17.71
ATSB AmTrust Capital Corp. IN 03/28/95 73,072 19.57 6.38 40.49 68.35 74.73 19.16 10.34
HZFS Horizon Financial Svcs Corp. IA 06/30/94 73,464 30.05 0.00 43.29 66.84 66.84 13.15 11.42
SOBI Sobieski Bancorp, Inc. IN 03/31/95 76,362 11.72 20.72 56.33 64.03 84.75 0.00 18.49
SFFC StateFed Financial Corporation IA 01/05/94 76,705 13.17 0.00 52.67 81.75 81.75 19.56 19.46
PCBC Perry County Financial Corp. MO 02/13/95 78,480 NA NA 11.20 12.27 NA 0.00 20.05
GFSB GFS Bancorp, Inc. IA 01/06/94 83,305 8.02 4.12 55.32 86.16 90.28 23.19 11.94
CIBI Community Investors Bancorp OH 02/07/95 85,785 26.17 2.90 59.73 74.02 76.92 2.28 13.84
FFBI First Financial Bancorp, Inc. IL 10/04/93 88,615 16.80 8.87 59.14 72.00 80.87 11.28 8.88
NWEQ Northwest Equity Corp. WI 10/11/94 91,804 7.52 8.66 53.69 80.09 88.75 21.52 12.77
INCB Indiana Community Bank, SB IN 12/15/94 94,476 15.10 3.49 41.74 78.20 81.68 0.00 14.98
PTRS Potters Financial Corp. OH 12/31/93 113,862 28.33 24.74 32.79 43.98 68.71 1.28 9.73
MIFC Mid-Iowa Financial Corp. IA 10/14/92 115,260 19.74 25.74 39.47 52.80 78.54 20.82 9.38
NBSI North Bancshares, Inc. IL 12/21/93 119,436 34.86 6.94 45.48 55.50 62.43 18.21 15.50
MWBI Midwest Bancshares, Inc. IA 11/12/92 138,628 16.11 23.61 44.47 57.32 80.93 20.20 6.67
FFWD Wood Bancorp, Inc. OH 08/31/93 139,718 18.62 3.79 62.62 76.02 79.80 2.41 14.60
FBSI First Bancshares, Inc. MO 12/22/93 140,471 14.60 0.78 65.44 82.04 82.82 9.65 16.92
FFWC FFW Corp. IN 04/05/93 148,892 17.60 12.99 44.56 67.24 80.23 26.39 10.80
SMBC Southern Missouri Bancorp, Inc MO 04/13/94 161,992 21.97 19.23 40.31 56.48 75.71 7.13 16.40
LSBI LSB Financial Corp. IN 02/03/95 162,520 7.40 2.66 54.52 86.59 89.25 19.53 10.66
MARN Marion Capital Holdings IN 03/18/93 177,767 12.67 0.02 47.76 80.54 80.56 3.51 23.35
FFBZ First Federal Bancorp, Inc. OH 07/13/92 177,778 7.30 0.96 55.98 87.69 88.65 17.74 7.89
MWFD Midwest Federal Financial WI 07/08/92 178,249 18.42 6.19 33.37 70.95 77.13 7.29 9.35
MFFC Milton Federal Financial Corp. OH 10/07/94 178,289 23.80 10.57 53.84 63.08 73.65 9.00 18.93
MBLF MBLA Financial Corp. MO 06/24/93 195,074 10.77 34.89 48.90 53.50 88.38 40.06 14.54
CBCO CB Bancorp, Inc. IN 12/28/92 195,658 49.51 4.78 38.49 46.18 50.96 22.53 9.87
SBCN Suburban Bancorporation, Inc. OH 09/30/93 197,137 6.99 15.29 55.19 75.47 90.76 21.65 13.01
CAPS Capital Savings Bancorp, Inc. MO 12/29/93 202,554 6.76 13.94 68.57 77.52 91.47 13.82 10.43
EFBI Enterprise Federal Bancorp OH 10/17/94 203,431 20.61 15.71 47.06 64.07 79.77 14.75 15.47
OHSL OHSL Financial Corp. OH 02/10/93 209,037 20.05 6.91 48.56 71.45 78.36 8.12 12.20
MFBC MFB Corp. IN 03/25/94 210,559 NA NA 60.71 65.90 NA 8.31 17.90
FFHS First Franklin Corporation OH 01/26/88 216,508 11.23 19.40 53.54 67.30 86.69 3.34 9.37
OSBF OSB Financial Corp. WI 07/01/92 250,003 30.09 0.06 49.66 67.63 67.69 20.89 12.56
FCBF FCB Financial Corp. WI 09/24/93 255,660 11.26 4.05 51.90 82.16 86.21 20.30 18.46
FBCV 1ST Bancorp IN 04/07/87 263,483 30.87 1.04 66.22 64.27 65.31 38.29 8.25
GFCO Glenway Financial Corp. OH 11/30/90 273,890 NA NA 64.98 78.39 NA 7.14 9.67
PFDC Peoples Bancorp IN 07/07/87 277,958 18.83 0.24 71.47 79.56 79.80 0.00 15.58
SMFC Sho-Me Financial Corp. MO 07/01/94 280,027 7.43 3.03 62.52 86.68 89.71 27.79 10.99
FFED Fidelity Federal Bancorp IN 08/31/87 280,138 4.64 4.44 46.94 86.02 90.46 25.12 5.08
WFCO Winton Financial Corp. OH 08/04/88 282,833 NA NA 43.03 84.63 NA 15.69 7.45
WCBI Westco Bancorp IL 06/26/92 312,158 29.73 0.00 55.72 68.87 68.87 0.00 15.45
HBFW Home Bancorp IN 03/30/95 315,901 22.44 0.00 69.88 75.91 75.91 0.00 15.50
PVFC PVF Capital Corp. OH 12/30/92 318,100 6.13 2.67 30.75 89.68 92.35 6.38 6.70
WOFC Western Ohio Financial Corp. OH 07/29/94 319,558 23.45 13.06 44.68 60.80 73.86 21.19 18.20
HVFD Haverfield Corporation OH 03/19/85 334,226 11.16 0.65 68.76 85.49 86.15 2.39 8.50
HMCI HomeCorp, Inc. IL 06/22/90 338,985 9.14 6.48 44.15 78.12 84.60 0.00 6.23
CASH First Midwest Financial, Inc. IA 09/20/93 342,095 NA NA 22.17 65.12 NA 27.85 11.41
</TABLE>
<PAGE>
EXHIBIT 37
KELLER & COMPANY
Columbus, Ohio
614-766-1426
<TABLE>
<CAPTION>
PREFERRED SAVINGS BANK
COMPARABLE GROUP SELECTION
OPERATING PERFORMANCE AND ASSET QUALITY PARAMETERS
Most Recent Four Quarters
General Parameters:
Less Than = #
Greater Than = @
States: IA IL IN KY MO OH WI
IPO Date: #= 03/31/95
Asset size: #= $350,000
OPERATING PERFORMANCE ASSET QUALITY*
----------------------------------------------- --------------------
Net Operating Noninterest
Total Interest Expenses/ Income/ NPA/ REO/ Reserves/
Assets ROAA ROAE Margin** Assets Assets Assets Assets Assets
IPO Date ($000) (%) (%) (%) (%) (%) (%) (%) (%)
----------------------------------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PREFERRED SAVINGS BANK -- 54,853 1.95 8.64 5.10 1.87 0.11 1.09 0.00 0.34
DEFINED PARAMETERS FOR Prior to 1.00 - 4.00 - 2.75 - 1.50 -
INCLUSION IN COMPARABLE GROUP 03/31/95 #350,000 2.00 15.00 5.25 2.75 #0.70 #1.25 #0.20 @0.15
HBBI Home Building Bancorp IN 02/08/95 43,135 0.41 2.86 3.74 2.53 0.32 0.27 0.00 0.12
CKFB CKF Bancorp, Inc. KY 01/04/95 58,763 1.24 4.39 3.90 1.97 0.07 1.70 0.00 0.18
GWBC Gateway Bancorp, Inc. KY 01/18/95 71,260 1.05 4.05 2.83 1.23 0.04 0.31 0.00 0.11
HHFC Harvest Home Financial Corp. OH 10/10/94 73,005 0.80 4.31 3.20 2.00 0.07 0.20 0.00 0.15
ATSB AmTrust Capital Corp. IN 03/28/95 73,072 0.31 2.75 2.81 2.95 0.44 1.31 0.00 0.50
HZFS Horizon Financial Svcs Corp. IA 06/30/94 73,464 0.53 4.38 3.50 2.64 0.50 NA NA NA
SOBI Sobieski Bancorp, Inc. IN 03/31/95 76,362 0.42 2.24 3.28 2.69 0.21 0.00 NA 0.26
SFFC StateFed Financial Corporation IA 01/05/94 76,705 1.19 5.99 3.69 1.71 0.07 0.53 0.00 0.31
PCBC Perry County Financial Corp. MO 02/13/95 78,480 1.00 4.86 2.75 1.21 0.03 0.04 0.00 0.01
GFSB GFS Bancorp, Inc. IA 01/06/94 83,305 1.16 9.19 3.46 1.73 0.12 0.00 0.27 NA
CIBI Community Investors Bancorp OH 02/07/95 85,785 1.01 6.98 3.60 2.06 0.17 0.73 0.11 0.50
FFBI First Financial Bancorp, Inc. IL 10/04/93 88,615 0.70 6.53 3.28 3.18 0.46 0.53 0.00 0.40
NWEQ Northwest Equity Corp. WI 10/11/94 91,804 1.00 6.91 4.11 2.68 0.42 0.92 0.16 0.47
INCB Indiana Community Bank, SB IN 12/15/94 94,476 0.67 4.39 4.35 3.72 0.84 NA 0.00 0.48
PTRS Potters Financial Corp. OH 12/31/93 113,862 0.54 5.67 3.40 2.64 0.22 2.49 0.09 1.81
MIFC Mid-Iowa Financial Corp. IA 10/14/92 115,260 0.93 10.00 2.83 2.18 0.80 0.05 0.00 0.24
NBSI North Bancshares, Inc. IL 12/21/93 119,436 0.59 3.19 3.27 2.50 0.14 0.00 0.00 0.17
MWBI Midwest Bancshares, Inc. IA 11/12/92 138,628 1.01 14.64 2.95 1.91 0.16 0.28 0.14 0.48
FFWD Wood Bancorp, Inc. OH 08/31/93 139,718 1.17 8.14 4.29 2.52 0.26 0.18 0.02 0.35
FBSI First Bancshares, Inc. MO 12/22/93 140,471 0.79 4.42 3.38 2.13 0.20 0.43 0.00 0.36
FFWC FFW Corp. IN 04/05/93 148,892 0.90 8.07 3.01 1.72 0.31 0.06 0.01 0.35
SMBC Southern Missouri Bancorp, Inc MO 04/13/94 161,992 0.87 4.98 3.02 2.08 0.31 0.97 0.42 0.38
LSBI LSB Financial Corp. IN 02/03/95 162,520 0.83 6.94 3.59 2.48 0.27 0.19 0.00 0.57
MARN Marion Capital Holdings IN 03/18/93 177,767 1.41 5.86 4.18 2.14 0.18 1.07 0.10 1.13
FFBZ First Federal Bancorp, Inc. OH 07/13/92 177,778 1.14 15.12 3.91 2.43 0.47 0.56 0.01 0.87
MWFD Midwest Federal Financial WI 07/08/92 178,249 1.20 12.27 4.06 2.98 0.81 0.26 0.00 0.76
MFFC Milton Federal Financial Corp. OH 10/07/94 178,289 1.04 4.80 3.61 2.16 0.13 0.40 0.02 0.23
MBLF MBLA Financial Corp. MO 06/24/93 195,074 0.70 4.83 1.94 0.79 0.01 0.33 0.03 0.27
CBCO CB Bancorp, Inc. IN 12/28/92 195,658 1.38 14.64 4.81 2.02 0.68 0.84 0.00 0.69
SBCN Suburban Bancorporation, Inc. OH 09/30/93 197,137 0.39 2.95 3.01 2.29 0.24 0.20 0.16 1.59
CAPS Capital Savings Bancorp, Inc. MO 12/29/93 202,554 0.95 8.96 3.42 2.13 0.37 0.20 0.03 0.30
EFBI Enterprise Federal Bancorp OH 10/17/94 203,431 1.03 5.52 2.96 1.91 0.05 0.01 0.00 0.17
OHSL OHSL Financial Corp. OH 02/10/93 209,037 0.95 7.55 3.39 2.06 0.15 0.12 0.00 0.25
MFBC MFB Corp. IN 03/25/94 210,559 0.73 3.69 3.06 1.95 0.15 NA NA 0.16
FFHS First Franklin Corporation OH 01/26/88 216,508 0.62 6.56 2.74 1.91 0.18 0.50 0.09 0.43
OSBF OSB Financial Corp. WI 07/01/92 250,003 0.21 1.63 2.85 2.15 0.26 0.22 0.00 0.40
FCBF FCB Financial Corp. WI 09/24/93 255,660 1.03 5.37 3.38 1.85 0.27 0.09 0.01 0.42
FBCV 1ST Bancorp IN 04/07/87 263,483 2.05 29.45 2.39 2.66 0.35 0.35 0.07 0.34
GFCO Glenway Financial Corp. OH 11/30/90 273,890 0.56 5.82 3.56 2.23 0.22 NA 0.12 0.23
PFDC Peoples Bancorp IN 07/07/87 277,958 1.45 9.51 3.78 1.50 0.23 0.34 0.03 0.32
SMFC Sho-Me Financial Corp. MO 07/01/94 280,027 0.85 6.89 3.23 2.13 0.35 0.06 0.02 0.62
FFED Fidelity Federal Bancorp IN 08/31/87 280,138 1.29 25.83 2.25 2.87 0.22 0.07 0.01 0.30
WFCO Winton Financial Corp. OH 08/04/88 282,833 0.94 12.39 3.35 2.22 0.13 0.44 0.18 0.31
WCBI Westco Bancorp IL 06/26/92 312,158 1.30 8.37 3.63 1.74 0.23 0.30 0.00 0.28
HBFW Home Bancorp IN 03/30/95 315,901 0.84 4.99 2.91 1.51 0.07 0.04 0.00 0.44
PVFC PVF Capital Corp. OH 12/30/92 318,100 1.13 17.86 3.82 2.47 0.37 NA NA NA
WOFC Western Ohio Financial Corp. OH 07/29/94 319,558 1.12 4.19 3.64 2.47 0.03 0.34 0.00 0.27
HVFD Haverfield Corporation OH 03/19/85 334,226 0.71 8.57 3.53 3.00 0.61 0.00 0.14 0.83
HMCI HomeCorp, Inc. IL 06/22/90 338,985 0.40 6.66 2.97 2.72 0.51 3.12 2.88 0.40
CASH First Midwest Financial, Inc. IA 09/20/93 342,095 1.06 8.14 3.50 2.07 0.39 NA 0.03 0.53
</TABLE>
* Asset quality ratios reflect balance sheet totals at the end of the
most recent quarter for the comparable group and at May 31, 1996, for
Preferred.
** Based on average interest-earning assets.
<PAGE>
EXHIBIT 38
KELLER & COMPANY
Columbus, Ohio
614-766-1426
PREFERRED SAVINGS BANK
FINAL COMPARABLE GROUP
BALANCE SHEET RATIOS
<TABLE>
<CAPTION>
Less Than = #
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 ($000) (%) (%) (%) (%) (%) (%) (%)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PREFERRED SAVINGS BANK -- 54,853 25.84 7.08 47.08 65.09 72.17 0.00 21.93
DEFINED PARAMETERS FOR Prior to 5.00 - 35.00 - 40.00 - 45.00 - 8.00-
INCLUSION IN COMPARABLE GROUP 03/31/95 #350,000 50.00 #20.00 75.00 85.00 95.00 #25.00 30.00
SFFC StateFed Financial Corporation IA 01/05/94 76,705 13.17 0.00 52.67 81.75 81.75 19.56 19.46
CIBI Community Investors Bancorp OH 02/07/95 85,785 26.17 2.90 59.73 74.02 76.92 2.28 13.84
NWEQ Northwest Equity Corp. WI 10/11/94 91,804 7.52 8.66 53.69 80.09 88.75 21.52 12.77
MARN Marion Capital Holdings IN 03/18/93 177,767 12.67 0.02 47.76 80.54 80.56 3.51 23.35
MFFC Milton Federal Financial Corp. OH 10/07/94 178,289 23.80 10.57 53.84 63.08 73.65 9.00 18.93
CBCO CB Bancorp, Inc. IN 12/28/92 195,658 49.51 4.78 38.49 46.18 50.96 22.53 9.87
EFBI Enterprise Federal Bancorp OH 10/17/94 203,431 20.61 15.71 47.06 64.07 79.77 14.75 15.47
FCBF FCB Financial Corp. WI 09/24/93 255,660 11.26 4.05 51.90 82.16 86.21 20.30 18.46
PFDC Peoples Bancorp IN 07/07/87 277,958 18.83 0.24 71.47 79.56 79.80 0.00 15.58
WOFC Western Ohio Financial Corp. OH 07/29/94 319,558 23.45 13.06 44.68 60.80 73.86 21.19 18.20
AVERAGE 186,262 20.70 6.00 52.13 71.23 77.22 13.46 16.59
MEDIAN 186,974 19.72 4.42 52.28 76.79 79.79 17.15 16.89
HIGH 319,558 49.51 15.71 71.47 82.16 88.75 22.53 23.35
LOW 76,705 7.52 0.00 38.49 46.18 50.96 0.00 9.87
</TABLE>
<PAGE>
EXHIBIT 39
KELLER & COMPANY
Columbus, Ohio
614-766-1426
PREFERRED SAVINGS BANK
FINAL COMPARABLE GROUP
OPERATING PERFORMANCE AND ASSET QUALITY RATIOS
Most Recent Four Quarters
<TABLE>
<CAPTION>
Less Than = #
Greater Than = @
OPERATING PERFORMANCE ASSET QUALITY*
------------------------------------------------ ------------------
Net Operating Noninterest
Total Interest Expenses/ Income/ NPA/ REO/ Reserves/
Assets ROAA ROAE Margin** Assets Assets Assets Assets Assets
IPO Date ($000) (%) (%) (%) (%) (%) (%) (%) (%)
------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PREFERRED SAVINGS BANK -- 54,853 1.95 8.64 5.10 1.87 0.11 1.09 0.00 0.34
DEFINED PARAMETERS FOR Prior to 1.00- 4.00- 2.75- 1.50-
INCLUSION IN COMPARABLE GROUP 03/31/95 #350,000 2.00 15.00 5.25 2.75 #0.70 #1.25 #0.20 @0.15
SFFC StateFed Financial Corporation IA 01/05/94 76,705 1.19 5.99 3.69 1.71 0.07 0.53 0.00 0.31
CIBI Community Investors Bancorp OH 02/07/95 85,785 1.01 6.98 3.60 2.06 0.17 0.73 0.11 0.50
NWEQ Northwest Equity Corp. WI 10/11/94 91,804 1.00 6.91 4.11 2.68 0.42 0.92 0.16 0.47
MARN Marion Capital Holdings IN 03/18/93 177,767 1.41 5.86 4.18 2.14 0.18 1.07 0.10 1.13
MFFC Milton Federal Financial Corp. OH 10/07/94 178,289 1.04 4.80 3.61 2.16 0.13 0.40 0.02 0.23
CBCO CB Bancorp, Inc. IN 12/28/92 195,658 1.38 14.64 4.81 2.02 0.68 0.84 0.00 0.69
EFBI Enterprise Federal Bancorp OH 10/17/94 203,431 1.03 5.52 2.96 1.91 0.05 0.01 0.00 0.17
FCBF FCB Financial Corp. WI 09/24/93 255,660 1.03 5.37 3.38 1.85 0.27 0.09 0.01 0.42
PFDC Peoples Bancorp IN 07/07/87 277,958 1.45 9.51 3.78 1.50 0.23 0.34 0.03 0.32
WOFC Western Ohio Financial Corp. OH 07/29/94 319,558 1.12 4.19 3.64 2.47 0.03 0.34 0.00 0.27
AVERAGE 186,262 1.17 6.98 3.78 2.05 0.22 0.53 0.04 0.45
MEDIAN 186,974 1.08 5.93 3.67 2.04 0.18 0.47 0.01 0.37
HIGH 319,558 1.45 14.64 4.81 2.68 0.68 1.07 0.16 1.13
LOW 76,705 1.00 4.19 2.96 1.50 0.03 0.01 0.00 0.17
</TABLE>
* Asset quality ratios reflect balance sheet totals at the end of the most
recent quarter for the comparable group and at May 31, 1996, for
Preferred.
** Based on average interest-earning assets.
<PAGE>
EXHIBIT 40
KELLER & COMPANY
Columbus, Ohio
614-766-1426
PREFERRED SAVINGS BANK
COMPARABLE GROUP CHARACTERISTICS AND BALANCE SHEET TOTALS
<TABLE>
<CAPTION>
Number Conversion
of (IPO)
Offices Exchange Date
------- -------- ----------
SUBJECT
PREFERRED SAVINGS BANK Chicago IL 1 NA NA
COMPARABLE GROUP
<S> <C> <C> <C> <C>
CBCO CB Bancorp, Inc. Michigan City IN 3 NASDAQ 12/28/92
CIBI Community Investors Bancorp, Inc. Bucyrus OH 3 NASDAQ 02/07/95
EFBI Enterprise Federal Bancorp, Inc. Lockland OH 5 NASDAQ 10/17/94
FCBF FCB Financial Corp. Neenah WI 6 NASDAQ 09/24/93
MARN Marion Capital Holdings, Inc. Marion IN 2 NASDAQ 03/18/93
MFFC Milton Federal Financial Corporation West Milton OH 2 NASDAQ 10/07/94
NWEQ Northwest Equity Corporation Amery WI 3 NASDAQ 10/11/94
PFDC Peoples Bancorp Auburn IN 6 NASDAQ 07/07/87
SFFC StateFed Financial Corporation Des Moines IA 2 NASDAQ 01/05/94
WOFC Western Ohio Financial Corporation Springfield OH 6 NASDAQ 07/29/94
Average 3.8
Median 3.0
High 6.0
Low 2.0
</TABLE>
RESTUBBED TABLE
<TABLE>
<CAPTION>
Most Recent Quarter
------------------------------------------------------------------
Total Goodwill
Total Int. Earning Net and Total Total
Assets Assets Loans Intang. Deposits Equity
($000) ($000) ($000) ($000) ($000) ($000)
------------------------------------------------------------------
SUBJECT
PREFERRED SAVINGS BANK Chicago IL 54,853 52,314 35,702 0 41,945 12,029
COMPARABLE GROUP
<S> <C> <C> <C> <C> <C> <C> <C>
CBCO CB Bancorp, Inc. Michigan City IN 195,658 111,000 90,355 0 128,127 19,319
CIBI Community Investors Bancorp, Inc Bucyrus OH 85,785 83,103 63,498 0 71,548 11,869
EFBI Enterprise Federal Bancorp, Inc. Lockland OH 203,431 201,684 130,334 65 139,708 31,470
FCBF FCB Financial Corp. Neenah WI 255,660 246,789 210,058 0 151,115 47,192
MARN Marion Capital Holdings, Inc. Marion IN 177,767 166,046 143,165 0 126,260 41,511
MFFC Milton Federal Financial Corporation West Milton OH 178,289 170,995 112,468 0 127,456 33,756
NWEQ Northwest Equity Corporation Amery WI 91,804 85,004 73,529 0 59,835 11,720
PFDC Peoples Bancorp Auburn IN 277,958 278,398 221,140 0 233,416 43,298
SFFC StateFed Financial Corporation Des Moines IA 76,705 71,583 62,708 0 45,732 14,928
WOFC Western Ohio Financial Corporation Springfield OH 319,558 269,204 194,287 3,387 182,038 58,161
Average 186,262 168,381 130,154 345 126,524 31,322
Median 186,974 168,521 121,401 0 127,792 32,613
High 319,558 278,398 221,140 3,387 233,416 58,161
Low 76,705 71,583 62,708 0 45,732 11,720
</TABLE>
<PAGE>
EXHIBIT 41
KELLER & COMPANY
Columbus, Ohio
614-766-1426
PREFERRED SAVINGS BANK
COMPARABLE GROUP MARKET AREA COMPARISON
<TABLE>
<CAPTION>
1990-1995 Median Median
Population Per Capita Household Housing
1995 Growth Income Income Value
Population (%) ($) ($) ($)
---------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
SUBJECT
PREFERRED SAVINGS BANK 5,144,275 0.8 17,825 36,543 102,100
COMPARABLE GROUP
CBCO CB Bancorp, Inc. IN 110,741 3.4 14,838 31,806 52,748
CIBI Community Investors Bancorp OH 47,870 0.2 16,237 32,915 56,087
EFBI Enterprise Federal Bancorp, Inc. OH 866,222 1.2 18,004 34,401 72,243
FCBF FCB Financial Corp. WI 149,333 1.2 14,280 31,756 60,162
MARN Marion Capital Holdings, Inc. IN 73,620 (0.7) 15,747 33,268 40,400
MFFC Milton Federal Financial Corporation OH 677,496 1.5 17,691 33,144 67,088
NWEQ Northwest Equity Corporation WI 37,147 6.8 12,167 25,900 53,600
PFDC Peoples Bancorp IN 173,541 3.2 17,558 37,852 58,783
SFFC StateFed Financial Corporation IA 350,024 1.3 16,864 33,804 59,700
WOFC Western Ohio Financial Corporation OH 147,906 0.2 14,727 32,325 54,900
Average 263,390 1.8 15,811 32,717 57,571
Median 148,620 1.3 15,992 33,030 57,435
High 866,222 6.8 18,004 37,852 72,243
Low 37,147 -0.7 12,167 25,900 40,400
</TABLE>
RESTUBBED TABLE
<TABLE>
<CAPTION>
High Below
Median School College Poverty
Rent Graduates Graduates Level
($) (%) (%) (%)
------ --------- ---------- -------
<S> <C> <C> <C> <C>
SUBJECT
PREFERRED SAVINGS BANK 478 73.4 22.8 14.2
COMPARABLE GROUP
CBCO CB Bancorp, Inc. IN 266 73.9 11.7 10.1
CIBI Community Investors Bancorp OH 309 73.8 16.8 14.1
EFBI Enterprise Federal Bancorp, Inc. OH 304 75.6 23.7 13.3
FCBF FCB Financial Corp. WI 318 80.6 18.2 8.8
MARN Marion Capital Holdings, Inc. IN 231 71.8 11.2 13.1
MFFC Milton Federal Financial Corporation OH 317 74.9 10.8 13.8
NWEQ Northwest Equity Corporation WI 254 78.0 11.4 11.8
PFDC Peoples Bancorp IN 285 80.8 18.0 7.7
SFFC StateFed Financial Corporation IA 369 85.4 23.9 9.2
WOFC Western Ohio Financial Corporation OH 256 73.4 12.2 13.4
Average 291 76.8 15.8 11.5
Median 295 75.3 14.5 12.5
High 369 85.4 23.9 14.1
Low 231 71.8 10.8 7.7
</TABLE>
<PAGE>
EXHIBIT 42
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
Assets Invest. MBS Loans Reserves Owned & Intang.
($000) (%) (%) (%) (%) (%) (%)
------------ ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
PREFERRED SAVINGS BANK * 54,853 25.84 7.08 65.09 0.34 0.00 0.00
COMPARABLE GROUP
CBCO CB Bancorp, Inc. 195,658 49.51 4.78 46.18 0.69 0.00 0.00
CIBI Community Investors Bancorp 85,785 26.17 2.90 74.02 0.50 0.11 0.00
EFBI Enterprise Federal Bancorp 203,431 20.61 15.71 64.07 0.17 0.00 0.03
FCBF FCB Financial Corp. 255,660 11.26 4.05 82.16 0.42 0.01 0.00
MARN Marion Capital Holdings 177,767 12.67 0.02 80.54 1.13 0.10 0.00
MFFC Milton Federal Financial Corp. 178,289 23.80 10.57 63.08 0.23 0.02 0.00
NWEQ Northwest Equity Corp. 91,804 7.52 8.66 80.09 0.47 0.16 0.00
PFDC Peoples Bancorp 277,958 18.83 0.24 79.56 0.32 0.03 0.00
SFFC StateFed Financial Corporation 76,705 13.17 0.00 81.75 0.31 0.00 0.00
WOFC Western Ohio Financial Corp. 319,558 23.45 13.06 60.80 0.27 0.00 1.06
Average 186,262 20.70 6.00 71.23 0.45 0.04 0.11
Median 186,974 19.72 4.42 76.79 0.37 0.01 0.00
High 319,558 49.51 15.71 82.16 1.13 0.16 1.06
Low 76,705 7.52 0.00 46.18 0.17 0.00 0.00
ALL THRIFTS (335)
Average 2,722,386 14.97 14.02 66.68 0.63 0.63 0.32
MIDWEST THRIFTS (152)
Average 786,149 18.00 9.51 68.28 0.46 0.46 0.15
ILLINOIS THRIFTS (24)
Average 700,962 19.07 10.81 65.98 0.44 0.19 0.13
</TABLE>
RESTUBBED TABLE
<TABLE>
<CAPTION>
As a Percent of Total Assets
-----------------------------------------------------------------
Interest Interest Capitalized
Other High Risk Non-Perf. Earning Bearing Loan
Assets R.E. Loans Assets Assets Liabilities Servicing
(%) (%) (%) (%) (%) (%)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUBJECT
PREFERRED SAVINGS BANK * 1.99 18.70 1.09 95.37 76.47 0.00
COMPARABLE GROUP
CBCO CB Bancorp, Inc. 4.31 5.84 0.84 56.73 90.56 0.00
CIBI Community Investors Bancorp 1.37 6.33 0.73 96.87 84.55 0.00
EFBI Enterprise Federal Bancorp 2.10 16.98 0.01 99.14 84.33 0.00
FCBF FCB Financial Corp. 2.46 21.63 0.09 96.53 78.12 0.00
MARN Marion Capital Holdings 6.67 31.43 1.07 93.41 73.52 0.00
MFFC Milton Federal Financial Corp. 2.53 6.07 0.40 95.91 78.62 0.00
NWEQ Northwest Equity Corp. 3.57 11.24 0.92 92.59 85.11 0.00
PFDC Peoples Bancorp 1.34 4.23 0.34 100.16 84.57 0.00
SFFC StateFed Financial Corporation 3.08 27.52 0.53 93.32 77.83 0.00
WOFC Western Ohio Financial Corp. 1.61 6.67 0.34 84.24 65.78 0.00
Average 2.90 13.79 0.53 90.89 80.30 0.00
Median 2.49 8.95 0.47 94.66 81.48 0.00
High 6.67 31.43 1.07 100.16 90.56 0.00
Low 1.34 4.23 0.01 56.73 65.78 0.00
ALL THRIFTS (335)
Average 2.89 14.77 1.28 93.92 86.56 0.32
MIDWEST THRIFTS (152)
Average 2.51 12.01 0.56 94.28 82.77 0.10
ILLINOIS THRIFTS (24)
Average 2.57 11.04 0.54 94.17 81.94 0.16
</TABLE>
* At May 31, 1996.
<PAGE>
EXHIBIT 43
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
Liabilities Equity Deposits Borrowings Liabilities Equity Equity Gain (Loss)
($000) ($000) (%) (%) (%) (%) (%) (%)
----------------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
PREFERRED
SAVINGS BANK * 42,824 12,029 76.47 0.00 1.60 -- -- (0.14)
COMPARABLE GROUP
CBCO CB Bancorp, Inc. 176,339 19,319 65.49 22.53 2.11 0.00 9.87 0.01
CIBI Community Investors Bancorp 73,916 11,869 83.40 2.28 0.48 0.00 13.84 (0.00)
EFBI Enterprise Federal Bancorp 171,961 31,470 68.68 14.75 1.11 0.00 15.47 0.09
FCBF FCB Financial Corp. 208,468 47,192 59.11 20.30 2.13 0.00 18.46 (0.01)
MARN Marion Capital Holdings 136,256 41,511 71.03 3.51 2.11 0.00 23.35 0.00
MFFC Milton Federal Financial Corp. 144,533 33,756 71.49 9.00 0.58 0.00 18.93 (0.06)
NWEQ Northwest Equity Corp. 80,084 11,720 65.18 21.52 0.54 0.00 12.77 (0.05)
PFDC Peoples Bancorp 234,660 43,298 83.98 0.00 0.44 0.00 15.58 (0.05)
SFFC StateFed Financial Corporation 61,777 14,928 59.62 19.56 1.36 0.00 19.46 (0.03)
WOFC Western Ohio Financial Corp. 261,397 58,161 56.97 21.19 3.65 0.00 18.20 0.18
Average 154,939 31,322 68.49 13.46 1.45 0.00 16.59 0.01
Median 158,247 32,613 67.08 17.15 1.23 0.00 16.89 (0.01)
High 261,397 58,161 83.98 22.53 3.65 0.00 23.35 0.18
Low 61,777 11,720 56.97 0.00 0.44 0.00 9.87 (0.06)
ALL THRIFTS (335)
Average 1,197,567 102,311 72.92 12.77 1.46 0.07 12.78 (0.02)
MIDWEST THRIFTS (152)
Average 715,751 70,398 71.94 12.71 1.22 0.02 14.11 (0.04)
ILLINOIS THRIFTS (24)
Average 628,105 72,857 73.52 11.56 1.47 0.00 13.45 (0.13)
</TABLE>
RESTUBBED TABLE
<TABLE>
<CAPTION>
As a Percent of Assets
--------------------------------------------------------
Reg. Reg. Reg.
Retained Total Tangible Core Tangible Risk-Based
Earnings Equity Equity Capital Capital Capital
(%) (%) (%) (%) (%) (%)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUBJECT
PREFERRED
SAVINGS BANK * 22.07 21.93 22.07 22.07 22.07 45.68
COMPARABLE GROUP
CBCO CB Bancorp, Inc. 6.69 9.87 9.87 NA NA 15.35
CIBI Community Investors Bancorp 7.68 13.84 13.84 11.86 11.86 24.41
EFBI Enterprise Federal Bancorp 6.56 15.47 15.44 NA NA 26.64
FCBF FCB Financial Corp. 4.65 18.46 18.46 NA NA 25.40
MARN Marion Capital Holdings 13.41 23.35 23.35 19.66 19.66 36.23
MFFC Milton Federal Financial Corp. 8.56 18.93 18.93 14.69 14.69 33.82
NWEQ Northwest Equity Corp. 6.78 12.77 12.77 8.21 NA NA
PFDC Peoples Bancorp 8.84 15.58 15.58 13.50 13.50 28.37
SFFC StateFed Financial Corporation 8.43 19.46 19.46 13.86 13.86 24.35
WOFC Western Ohio Financial Corp. 7.63 18.20 17.32 17.70 17.70 42.08
Average 7.92 16.59 16.50 14.21 15.21 28.52
Median 7.66 16.89 16.45 13.86 14.28 26.64
High 13.41 23.35 23.35 19.66 19.66 42.08
Low 4.65 9.87 9.87 8.21 11.86 15.35
ALL THRIFTS (335)
Average 6.42 12.85 12.66 10.75 10.58 23.26
MIDWEST THRIFTS (152)
Average 7.23 14.13 13.95 11.43 11.38 24.40
ILLINOIS THRIFTS (24)
Average 7.02 13.45 13.33 10.63 9.69 21.22
</TABLE>
* At May 31, 1996.
<PAGE>
EXHIBIT 44
KELLER & COMPANY
Columbus, Ohio
614-766-1426
INCOME AND EXPENSE COMPARISON
TRAILING FOUR QUARTERS
($000)
<TABLE>
<CAPTION>
Net Gain Total Goodwill Net Total
Interest Interest Interest Provision (Loss) Non-Int. & Intang Real Est. Non-Int.
Income Expense Income for Loss on Sale Income Amtz. Expense Expense
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
PREFERRED
SAVINGS BANK * 4,364 1,726 2,638 50 0 61 0 0 1,018
COMPARABLE GROUP
CBCO CB Bancorp, Inc. 15,399 7,637 7,762 1,062 0 1,332 0 0 3,890
CIBI Community Investors Bancorp 6,651 3,668 2,983 149 65 148 0 54 1,749
EFBI Enterprise Federal Bancorp 14,103 8,410 5,693 30 1,052 108 30 (39) 3,740
FCBF FCB Financial Corp. 18,319 10,081 8,238 200 80 685 0 0 4,579
MARN Marion Capital Holdings 13,740 6,853 6,887 34 0 323 0 180 3,781
MFFC Milton Federal Financial Corp. 12,265 6,448 5,817 72 214 231 0 2 3,563
NWEQ Northwest Equity Corp. 6,806 3,576 3,230 24 68 386 0 (34) 2,222
PFDC Peoples Bancorp 21,680 11,264 10,416 199 14 653 0 (131) 4,180
SFFC StateFed Financial Corporation 5,785 3,194 2,591 24 0 57 0 (209) 1,266
WOFC Western Ohio Financial Corp. 15,891 8,012 7,879 86 929 96 0 0 5,568
Average 13,064 6,914 6,150 188 242 402 3 (18) 3,454
Median 13,922 7,245 6,352 79 67 277 0 0 3,761
High 21,680 11,264 10,416 1,062 1,052 1,332 30 180 5,568
Low 5,785 3,194 2,591 24 0 57 0 (209) 1,266
ALL THRIFTS (335)
Average 96,816 59,789 37,027 2,734 2,592 6,418 601 695 25,767
MIDWEST THRIFTS (152)
Average 56,678 34,371 22,307 577 548 4,418 332 (88) 15,364
ILLINOIS THRIFTS (24)
Average 46,093 27,375 18,718 454 428 3,324 44 (372) 13,849
</TABLE>
* For the twelve months ended May 31, 1996.
RESTUBBED TABLE
<TABLE>
<CAPTION>
Net Net Inc.
Non- Income Before
Recurring Before Income Extraord. Extraord. Net Core
Expense Taxes Taxes Items Items Income Income
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
PREFERRED
SAVINGS BANK * 0 1,631 625 1,006 0 1,006 1,006
COMPARABLE GROUP
CBCO CB Bancorp, Inc. 0 4,142 1,480 2,662 0 2,662 2,662
CIBI Community Investors Bancorp 0 1,298 443 855 0 855 813
EFBI Enterprise Federal Bancorp 0 3,083 1,069 2,014 0 2,014 1,331
FCBF FCB Financial Corp. 0 4,224 1,667 2,557 0 2,557 2,505
MARN Marion Capital Holdings 0 3,395 914 2,481 0 2,481 2,481
MFFC Milton Federal Financial Corp. 0 2,627 900 1,727 0 1,727 1,588
NWEQ Northwest Equity Corp. 0 1,438 607 831 0 831 787
PFDC Peoples Bancorp 0 6,703 2,671 4,032 0 4,032 4,023
SFFC StateFed Financial Corporation 0 1,358 475 883 0 883 883
WOFC Western Ohio Financial Corp. 0 3,931 1,398 2,533 0 2,533 1,487
Average 0 3,220 1,162 2,058 0 2,058 1,856
Median 0 3,239 992 2,248 0 2,248 1,538
High 0 6,703 2,671 4,032 0 4,032 4,023
Low 0 1,298 443 831 0 831 787
ALL THRIFTS (335)
Average 652 16,938 6,308 10,630 (28) 10,602 9,334
MIDWEST THRIFTS (152)
Average 996 10,367 3,626 6,742 (8) 6,733 7,013
ILLINOIS THRIFTS (24)
Average 18 8,188 2,934 5,255 (21) 5,234 4,962
</TABLE>
<PAGE>
EXHIBIT 45
KELLER & COMPANY
Columbus, Ohio
614-766-1426
INCOME AND EXPENSE COMPARISON
AS A PERCENTAGE OF AVERAGE ASSETS
TRAILING FOUR QUARTERS
<TABLE>
<CAPTION>
Net Gain Total Goodwill Net Total
Interest Interest Interest Provision (Loss) Non-Int. & Intang Real Est. Non-Int.
Income Expense Income for Loss on Sale Income Amtz. Expense Expense
(%) (%) (%) (%) (%) (%) (%) (%) (%)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
PREFERRED
SAVINGS BANK * 8.10 3.39 4.90 0.09 0.00 0.11 0.00 0.00 1.89
COMPARABLE GROUP
CBCO CB Bancorp, Inc. 7.99 3.96 4.03 0.55 0.00 0.69 0.00 0.00 2.02
CIBI Community Investors Bancorp 7.82 4.31 3.51 0.18 0.08 0.17 0.00 0.06 2.06
EFBI Enterprise Federal Bancorp 7.21 4.30 2.91 0.02 0.54 0.06 0.02 (0.02) 1.91
FCBF FCB Financial Corp. 7.40 4.07 3.33 0.08 0.03 0.28 0.00 0.00 1.85
MARN Marion Capital Holdings 7.78 3.88 3.90 0.02 0.00 0.18 0.00 0.10 2.14
MFFC Milton Federal Financial Corp. 7.42 3.90 3.52 0.04 0.13 0.14 0.00 0.00 2.16
NWEQ Northwest Equity Corp. 8.22 4.32 3.90 0.03 0.08 0.47 0.00 (0.04) 2.68
PFDC Peoples Bancorp 7.78 4.04 3.74 0.07 0.01 0.23 0.00 (0.05) 1.50
SFFC StateFed Financial Corporation 7.82 4.32 3.50 0.03 0.00 0.08 0.00 (0.28) 1.71
WOFC Western Ohio Financial Corp. 7.04 3.55 3.49 0.04 0.41 0.04 0.00 0.00 2.47
Average 7.65 4.07 3.58 0.11 0.13 0.23 0.00 (0.02) 2.05
Median 7.78 4.06 3.51 0.04 0.05 0.18 0.00 0.00 2.04
High 8.22 4.32 4.03 0.55 0.54 0.69 0.02 0.10 2.68
Low 7.04 3.55 2.91 0.02 0.00 0.04 0.00 (0.28) 1.50
ALL THRIFTS (335)
Average 7.42 4.21 3.20 0.11 0.11 0.44 0.02 0.01 2.29
MIDWEST THRIFTS (152)
Average 7.41 4.22 3.19 0.08 0.09 0.40 0.01 (0.01) 2.20
ILLINOIS THRIFTS (24)
Average 7.19 4.14 3.05 0.08 0.07 0.40 0.01 (0.04) 2.33
</TABLE>
RESTUBBED TABLE
<TABLE>
<CAPTION>
Net Net Inc.
Non- Income Before
Recurring Before Income Extraord. Extraord. Net Core
Expense Taxes Taxes Items Items Income Income
(%) (%) (%) (%) (%) (%) (%)
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
PREFERRED
SAVINGS BANK * 0.00 3.03 1.16 1.87 0.00 1.87 1.87
COMPARABLE GROUP
CBCO CB Bancorp, Inc. 0.00 2.15 0.77 1.38 0.00 1.38 1.38
CIBI Community Investors Bancorp 0.00 1.53 0.52 1.01 0.00 1.01 0.96
EFBI Enterprise Federal Bancorp 0.00 1.58 0.55 1.03 0.00 1.03 0.68
FCBF FCB Financial Corp. 0.00 1.71 0.67 1.03 0.00 1.03 1.01
MARN Marion Capital Holdings 0.00 1.92 0.52 1.41 0.00 1.41 1.41
MFFC Milton Federal Financial Corp. 0.00 1.59 0.54 1.04 0.00 1.04 0.96
NWEQ Northwest Equity Corp. 0.00 1.74 0.73 1.00 0.00 1.00 0.95
PFDC Peoples Bancorp 0.00 2.41 0.96 1.45 0.00 1.45 1.44
SFFC StateFed Financial Corporation 0.00 1.84 0.64 1.19 0.00 1.19 1.19
WOFC Western Ohio Financial Corp. 0.00 1.74 0.62 1.12 0.00 1.12 0.66
Average 0.00 1.82 0.65 1.17 0.00 1.17 1.06
Median 0.00 1.74 0.63 1.08 0.00 1.08 0.99
High 0.00 2.41 0.96 1.45 0.00 1.45 1.44
Low 0.00 1.53 0.52 1.00 0.00 1.00 0.66
ALL THRIFTS (335)
Average 0.02 1.34 0.47 0.87 (0.00) 0.87 0.80
MIDWEST THRIFTS (152)
Average 0.01 1.41 0.49 0.92 (0.00) 0.92 0.86
ILLINOIS THRIFTS (24)
Average 0.01 1.13 0.39 0.74 (0.00) 0.74 0.69
</TABLE>
* For the twelve months ended May 31, 1996.
<PAGE>
EXHIBIT 46
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
(%) (%) (%) (%) (%) (%) (%) (%)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
PREFERRED
SAVINGS BANK ** 8.44 4.14 4.30 5.10 1.87 1.87 8.64 8.64
COMPARABLE GROUP
CBCO CB Bancorp, Inc. 9.55 4.70 4.85 4.81 1.38 1.38 14.64 14.64
CIBI Community Investors Bancorp 8.02 5.08 2.94 3.60 1.01 0.96 6.98 6.63
EFBI Enterprise Federal Bancorp 7.34 5.35 1.99 2.96 1.03 0.68 5.52 3.65
FCBF FCB Financial Corp. 7.51 5.18 2.33 3.38 1.03 1.01 5.37 5.26
MARN Marion Capital Holdings 8.33 5.31 3.02 4.18 1.41 1.41 5.86 5.86
MFFC Milton Federal Financial Corp. 7.62 5.04 2.58 3.61 1.04 0.96 4.80 4.41
NWEQ Northwest Equity Corp. 8.66 5.09 3.57 4.11 1.00 0.95 6.91 6.54
PFDC Peoples Bancorp 7.86 4.82 3.04 3.78 1.45 1.44 9.51 9.49
SFFC StateFed Financial Corporation 8.24 5.49 2.75 3.69 1.19 1.19 5.99 5.99
WOFC Western Ohio Financial Corp. 7.35 4.92 2.43 3.64 1.12 0.66 4.19 2.46
Average 8.05 5.10 2.95 3.78 1.17 1.06 6.98 6.49
Median 7.94 5.09 2.85 3.67 1.08 0.99 5.93 5.93
High 9.55 5.49 4.85 4.81 1.45 1.44 14.64 14.64
Low 7.34 4.70 1.99 2.96 1.00 0.66 4.19 2.46
ALL THRIFTS (335)
Average 7.73 4.91 2.82 3.34 0.87 0.80 8.14 7.28
MIDWEST THRIFTS (152)
Average 7.71 5.01 2.70 3.32 0.92 0.86 7.69 7.07
ILLINOIS THRIFTS (24)
Average 7.49 4.87 2.63 3.18 0.74 0.69 6.30 5.78
</TABLE>
* Based on average interest-earning assets.
** For the twelve months ended May 31, 1996.
<PAGE>
EXHIBIT 47
KELLER & COMPANY
Columbus, Ohio
614-766-1426
DIVIDENDS, RESERVES AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
DIVIDENDS
-------------------------------------
12 Month 12 Month
12 Month Common Current Dividend
Preferred Div./ Dividend Payout
Dividends Share Yield Ratio
($000) ($) (%) (%)
--------------------------------------
<S> <C> <C> <C> <C>
SUBJECT
PREFERRED SAVINGS BANK NA NA NA NA
COMPARABLE GROUP
CBCO CB Bancorp, Inc. 0 0.00 0.00 0.00
CIBI Community Investors Bancorp 0 0.12 2.60 9.52
EFBI Enterprise Federal Bancorp 0 3.00 0.00 300.00
FCBF FCB Financial Corp. 0 0.60 4.24 59.41
MARN Marion Capital Holdings 0 0.74 4.00 60.66
MFFC Milton Federal Financial Corp. 0 1.37 4.25 187.67
NWEQ Northwest Equity Corp. 0 0.35 3.90 38.04
PFDC Peoples Bancorp 0 0.54 2.91 31.58
SFFC StateFed Financial Corporation 0 0.40 2.54 36.04
WOFC Western Ohio Financial Corp. 0 1.00 4.82 96.15
Average 0 0.81 2.93 81.91
Median 0 0.57 3.41 48.73
High 0 3.00 4.82 300.00
Low 0 0.00 0.00 0.00
ALL THRIFTS (335)
Average 326 0.29 1.42 22.88
MIDWEST THRIFTS (152)
Average 45 0.39 1.91 35.03
ILLINOIS THRIFTS (24)
Average 62 0.60 2.37 62.76
</TABLE>
RESTUBBED TABLE
<TABLE>
<CAPTION>
RESERVES AND SUPPLEMENTAL DATA - MOST RECENT PERIOD
--------------------------------------------------------------------------
Net
Reserves/ Reserves/ Chargeoffs/ Provisions/ 1 Year Total
Gross Non-Perf. Average Net Repricing Effective Assets/
Loans Assets Loans Chargeoffs Gap Tax Rate Employee
(%) (%) (%) (%) (%) (%) ($000)
------------------------------------------------------------------------------
<S> <C> <C> <C>
SUBJECT
PREFERRED SAVINGS BANK 0.52 10.81 0.00 0.00 (47.07) 38.32 3,657
COMPARABLE GROUP
CBCO CB Bancorp, Inc. 1.49 81.87 NA NA NA 36.82 NA
CIBI Community Investors Bancorp 0.68 69.06 0.27 102.33 NA 38.32 NA
EFBI Enterprise Federal Bancorp 0.27 NM 0.00 NM NA 34.13 NA
FCBF FCB Financial Corp. 0.51 459.40 0.00 NM NA 39.19 NA
MARN Marion Capital Holdings 1.38 105.74 0.03 100.00 16.21 26.17 6,349
MFFC Milton Federal Financial Corp. 0.36 56.05 0.00 NM NA 34.13 3,962
NWEQ Northwest Equity Corp. 0.59 51.54 0.02 150.00 (4.97) 42.38 2,782
PFDC Peoples Bancorp 0.40 94.20 0.02 128.57 NA 39.94 3,657
SFFC StateFed Financial Corporation 0.38 58.62 NA NA NA 35.39 NA
WOFC Western Ohio Financial Corp. 0.44 78.86 0.00 NM NA 41.67 4,438
Average 0.65 117.26 0.04 120.23 5.62 36.81 4,238
Median 0.48 78.86 0.01 115.45 5.62 37.57 3,962
High 1.49 459.40 0.27 150.00 16.21 42.38 6,349
Low 0.27 51.54 0.00 100.00 (4.97) 26.17 2,782
ALL THRIFTS (335)
Average 0.63 87.73 0.10 120.24 (1.27) 25.87 4,011
MIDWEST THRIFTS (152)
Average 0.67 147.40 0.12 205.75 (2.63) 33.81 3,891
ILLINOIS THRIFTS (24)
Average 0.73 145.46 0.15 199.70 (1.36) 34.61 3,786
</TABLE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
COMPARABLE GROUP MARKET, PRICING AND FINANCIAL RATIOS
Stock Prices as of August 9, 1996
<TABLE>
<CAPTION>
Market Data Pricing Ratios Dividends Financial Ratios
------------------------ -------------------------------- ------------------- ----------------
Book Price/ Price/ Price/
Mark Price 12 Mo Value/ Price Book Price/ Tang. Core Div./ Div./ Payout Equity/
Value Share EPS Share Earn Value Asset Bk. Val Earn Share Yield Ratio Assets ROA ROE
($M) ($) ($) ($) (X) (%) (%) (%) (%) ($) (%) (%) (%) (%) (%)
----- ----- ----- ------ ----- ----- ----- ------- ----- ----- ------- ------ ------ --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PREFERRED SAVINGS BANK
Appraised value - midpoint 16.50 10.00 0.78 15.77 12.80 63.39 23.29 63.39 12.80 0.00 0.00 0.00 36.75 1.82 4.95
Minimum of range 14.03 10.00 0.89 17.03 11.26 58.73 20.51 58.73 11.26 0.00 0.00 0.00 34.92 1.82 5.21
Maximum of range 18.98 10.00 0.70 14.85 14.23 67.35 25.90 67.35 14.23 0.00 0.00 0.00 38.45 1.82 4.73
Superrange maximum 21.82 10.00 0.63 14.04 15.77 71.21 28.68 71.21 15.77 0.00 0.00 0.00 40.27 1.82 4.52
ALL THRIFTS (335)
Average 123.1 17.30 1.40 16.75 16.28 106.2 12.83 109.8 17.66 0.42 1.88 32.71 12.85 0.87 8.14
Median 36.03 15.75 1.26 16.10 13.48 100.2 11.29 101.5 14.52 0.35 2.00 23.13 10.33 0.89 7.46
ILLINOIS THRIFTS (24)
Average 73.45 17.80 1.40 19.45 15.69 94.14 12.64 95.81 17.96 0.26 1.41 19.03 13.45 0.74 6.30
Median 47.81 16.25 1.33 18.18 15.48 93.88 11.05 93.88 16.58 0.22 1.90 18.23 10.41 0.70 6.32
COMPARABLE GROUP (10)
Average 28.24 16.06 1.21 17.91 13.97 89.48 14.85 90.00 16.35 0.81 2.93 81.91 16.59 1.17 6.98
Median 27.03 16.38 1.08 17.64 13.47 88.18 15.27 89.00 15.29 0.57 3.41 48.73 16.89 1.08 5.93
COMPARABLE GROUP
CBCO CB Bancorp, Inc. 20.27 17.25 2.10 16.44 8.21 104.9 10.36 104.9 8.21 0.00 0.00 0.00 9.87 1.38 14.64
CIBI Community Investors Bancorp 10.78 15.38 1.26 16.93 12.20 90.82 12.57 90.82 12.92 0.12 2.60 9.52 13.84 1.01 6.98
EFBI Enterprise Federal Bancorp 26.38 12.75 1.00 15.09 12.75 84.49 13.07 84.66 19.32 3.00 0.00 300.00 15.47 1.03 5.52
FCBF FCB Financial Corp. 41.81 17.00 1.01 18.78 16.83 90.52 16.71 90.52 17.17 0.60 4.24 59.41 18.46 1.03 5.37
MARN Marion Capital Holdings 38.67 20.00 1.22 21.47 16.39 93.15 21.75 93.15 16.39 0.74 4.00 60.66 23.35 1.41 5.86
MFFC Milton Federal Financial 27.67 12.25 0.73 14.91 16.78 82.16 15.55 82.16 18.28 1.37 4.25 187.67 18.93 1.04 4.80
NWEQ Northwest Equity Corp. 9.69 10.25 0.92 13.45 11.14 76.21 10.56 76.21 11.78 0.35 3.90 38.04 12.77 1.00 6.91
PFDC Peoples Bancorp 45.15 19.25 1.71 18.46 11.26 104.2 16.24 104.2 11.26 0.54 2.91 31.58 15.58 1.45 9.51
SFFC StateFed Financial Corporation 12.81 15.75 1.11 18.35 14.19 85.83 16.70 85.83 14.19 0.40 2.54 36.04 19.46 1.19 5.99
WOFC Western Ohio Financial Co 49.12 20.75 1.04 25.19 19.95 82.37 14.99 87.48 34.02 1.00 4.82 96.15 18.20 1.12 4.19
</TABLE>
<PAGE>
EXHIBIT 49
KELLER & COMPANY
Columbus, Ohio
614-766-1426
VALUATION ANALYSIS AND CONCLUSIONS
PS Financial, Inc./Preferred Savings Bank
Stock Prices as of August 9, 1996
<TABLE>
<CAPTION>
Valuation assumptions: Comparable Group All Thrifts
Symbol Value Average Median Average Median
---------- ---------------------------- ---------------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Post conv. price to earnings P/E 12.80 13.97 13.47 16.28 13.48
Post conv. price to book value P/B 63.39% 89.48% 88.18% 106.28% 100.23%
Post conv. price to assets P/A 23.29% 14.85% 15.27% 12.83% 11.29%
Post conv. price to core earnings P/E 12.80 16.35 15.29 17.66 14.52
Pre conversion earnings ($) Y $ 1,006,000 For the twelve months ended May 31, 1996.
Pre conversion book value ($) B $ 12,029,000 At May 31, 1996.
Pre conversion assets ($) A $ 54,853,000 At May 31, 1996.
Pre conversion core earnings ($) $ 1,006,000 For the twelve months ended May 31, 1996.
Conversion expense ($) X $ 520,375
Proceeds not reinvested ($) Z $ 1,320,000
ESOP borrowings ($) E $ 1,320,000
ESOP cost of borrowings, net (%) S 6.11%
ESOP term of borrowings (yrs.) T 12
RRP amount ($) M $ 660,000
RRP expense ($) N $ 132,000
Tax rate (%) TAX 37.00%
Investment rate of return, net (%) R 3.52%
Investment rate of return, pretax (%) 5.59%
Formulae to indicate value after conversion:
1. P/E method: Value = P/E(Y-R(X+Z)-ES-(1-TAX)E/T-(1-TAX)N)) $ 16,501,667
------------------------------------- =
1-(P/E)R
2. P/B method: Value = P/B(B-X-E-M) = $ 16,498,581
-----------
1-P/B
3. P/A method: Value = P/A(A-X)
------- = $ 16,498,249
1-P/A
</TABLE>
VALUATION CORRELATION AND CONCLUSIONS:
Number of Price TOTAL
Shares Per Share VALUE
------------- -------------- --------------
Appraised value - midrange 1,650,000 $10.00 $ 16,500,000
Minimum - 85% of midrange 1,402,500 $10.00 $ 14,025,000
Maximum - 115% of midrange 1,897,500 $10.00 $ 18,975,000
Superrange - 115% of maximum 2,182,125 $10.00 $ 21,821,250
144
<PAGE>
EXHIBIT 50
KELLER & COMPANY
Columbus, Ohio
614-766-1426
PROJECTED EFFECT OF CONVERSION PROCEEDS
PS Financial, Inc./Preferred Savings Bank
At the MINIMUM of the Range
1. Gross Conversion Proceeds
Minimum market value $14,025,000
Less: Estimated conversion expenses 488,819
Net conversion proceeds $13,536,181
2. Generation of Additional Income
Net conversion proceeds $13,536,181
Less: Proceeds not invested (1) 1,122,000
Total conversion proceeds invested $12,414,181
Investment rate 3.52%
Earnings increase - return on proceeds invested $ 437,190
Less: Estimated cost of ESOP borrowings 68,554
Less: Amortization of ESOP borrowings, net of taxes 58,905
Less: RRP expense, net of taxes 70,686
Net earnings increase $ 239,045
3. Comparative Earnings
Regular Core
-------------- -------------
Before conversion - 12 months ended 03/31/96 $ 1,006,000 1,006,000
Net earnings increase 239,045 239,045
After conversion $ 1,245,045 1,245,045
4. Comparative Net Worth (2)
Before conversion - 03/31/96 $12,029,000
Conversion proceeds 11,853,181
After conversion $23,882,181
5. Comparative Net Assets
Before conversion - 03/31/96 $54,853,000
Conversion proceeds 13,536,181
After conversion $68,389,181
(1) Represents ESOP borrowings.
(2) ESOP borrowings and RRP are omitted from net worth.
145
<PAGE>
EXHIBIT 51
KELLER & COMPANY
Columbus, Ohio
614-766-1426
PROJECTED EFFECT OF CONVERSION PROCEEDS
PS Financial, Inc./Preferred Savings Bank
At the MIDPOINT of the Range
1. Gross Conversion Proceeds
Midpoint market value $16,500,000
Less: Estimated conversion expenses 520,375
Net conversion proceeds $15,979,625
2. Generation of Additional Income
Net conversion proceeds $15,979,625
Less: Proceeds not invested (1) 1,320,000
Total conversion proceeds invested $14,659,625
Investment rate of return 3.52%
Earnings increase - return on proceeds invested $ 516,268
Less: Estimated cost of ESOP borrowings 80,652
Less: Amortization of ESOP borrowings, net of taxes 69,300
Less: RRP expense, net of taxes 83,160
Net earnings increase $ 283,156
3. Comparative Earnings
Regular Core
------------- ------------
Before conversion - 12 months ended 03/31/96 $1,006,000 1,006,000
Net earnings increase 283,156 283,156
After conversion $1,289,156 1,289,156
4. Comparative Net Worth (2)
Before conversion - 03/31/96 $12,029,000
Conversion proceeds 13,999,625
After conversion $26,028,625
5. Comparative Net Assets
Before conversion - 03/31/96 $54,853,000
Conversion proceeds 15,979,625
After conversion $70,832,625
(1) Represents ESOP borrowings.
(2) ESOP borrowings and RRP are omitted from net worth.
146
<PAGE>
EXHIBIT 52
KELLER & COMPANY
Columbus, Ohio
614-766-1426
PROJECTED EFFECT OF CONVERSION PROCEEDS
PS Financial, Inc./Preferred Savings Bank
At the MAXIMUM of the Range
1. Gross Conversion Proceeds
Maximum market value $18,975,000
Less: Estimated conversion expenses 551,931
Net conversion proceeds $18,423,069
2. Generation of Additional Income
Net conversion proceeds $18,423,069
Less: Proceeds not invested (1) 1,518,000
Total conversion proceeds invested $16,905,069
Investment rate 3.52%
Earnings increase - return on proceeds invested $ 595,346
Less: Estimated cost of ESOP borrowings 92,750
Less: Amortization of ESOP borrowings, net of taxes 79,695
Less: RRP expense, net of taxes 95,634
Net earnings increase $ 327,267
3. Comparative Earnings
Regular Core
------------- -----------
Before conversion - 12 months ended 03/31/96 $1,006,000 1,006,000
Net earnings increase 327,267 327,267
After conversion $1,333,267 1,333,267
4. Comparative Net Worth (2)
Before conversion - 03/31/96 $12,029,000
Conversion proceeds 16,146,069
After conversion $28,175,069
5. Comparative Net Assets
Before conversion - 03/31/96 $54,853,000
Conversion proceeds 18,423,069
After conversion $73,276,069
(1) Represents ESOP borrowings.
(2) ESOP borrowings and RRP are omitted from net worth.
147
<PAGE>
EXHIBIT 53
KELLER & COMPANY
Columbus, Ohio
614-766-1426
PROJECTED EFFECT OF CONVERSION PROCEEDS
PS Financial, Inc./Preferred Savings Bank
At the SUPERRANGE Maximum
1. Gross Conversion Proceeds
Superrange market value $21,821,250
Less: Estimated conversion expenses 588,221
Net conversion proceeds $21,233,029
2. Generation of Additional Income
Net conversion proceeds $21,233,029
Less: Proceeds not invested (1) 1,745,700
Total conversion proceeds invested $19,487,329
Investment rate 3.52%
Earnings increase - return on proceeds invested $ 686,285
Less: Estimated cost of ESOP borrowings 106,662
Less: Amortization of ESOP borrowings, net of taxes 91,649
Less: RRP expense, net of taxes 109,979
Net earnings increase $ 377,995
3. Comparative Earnings
Regular Core
------------ ----------
Before conversion - 12 months ended 03/31/96 $1,006,000 1,006,000
Net earnings increase 377,995 377,995
After conversion $1,383,995 1,383,995
4. Comparative Net Worth (2)
Before conversion - 03/31/96 $12,029,000
Conversion proceeds 18,614,479
After conversion $30,643,479
5. Comparative Net Assets
Before conversion - 03/31/96 $54,853,000
Conversion proceeds 21,233,029
After conversion $76,086,029
(1) Represents ESOP borrowings.
(2) ESOP borrowings and RRP are omitted from net worth.
148
<PAGE>
EXHIBIT 54
KELLER & COMPANY
Columbus, Ohio
614-766-1426
SUMMARY OF VALUATION PREMIUM OR DISCOUNT
Premium or (discount)
from comparable group.
--------------------------
Preferred Average Median
--------- ------- ------
Midpoint:
Price/earnings 12.80x (8.38)% (4.98)%
Price/book value 63.39% * (29.15)% (28.11)%
Price/assets 23.29% 56.85% 52.54%
Price/tangible book value 63.39% (29.57)% (28.77)%
Price/core earnings 12.80x (21.73)% (16.29)%
Minimum of range:
Price/earnings 11.26x (19.37)% (16.37)%
Price/book value 58.73% * (34.37)% (33.40)%
Price/assets 20.51% 38.10% 34.30%
Price/tangible book value 58.73% (34.75)% (34.02)%
Price/core earnings 11.26x (31.12)% (26.33)%
Maximum of range:
Price/earnings 14.23x 1.88% 5.66%
Price/book value 67.35% * (24.73)% (23.62)%
Price/assets 25.90% 74.38% 69.58%
Price/tangible book value 67.35% (25.17)% (24.33)%
Price/core earnings 14.23x (12.98)% (6.92)%
Super maximum of range:
Price/earnings 15.77x 12.86% 17.05%
Price/book value 71.21% * (20.41)% (19.24)%
Price/assets 28.68% 93.13% 87.82%
Price/tangible book value 71.21% (20.88)% (19.99)%
Price/core earnings 15.77x (3.59)% 3.12%
* Represents pricing ratio associated with primary valuation method.
149
<PAGE>
ALPHABETICAL
EXHIBITS
<PAGE>
EXHIBIT A
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
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 Community Bankers of America, the
Ohio League of Financial Institutions, and the Tri State League of Financial
Institutions.
Each of the firm's senior consultants has over fifteen 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.
150
<PAGE>
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 courses in corporate stock valuations.
151
<PAGE>
Consultants in the Firm (cont.)
JOHN A. SHAFFER has over twenty years experience in banking, finance, 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 Bank 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 in 1965 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.
152
<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 1iability 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, Office of Thrift Supervision 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.
153
<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
August 29, 1996 /s/ Michael R. Keller
- -------------------------------- -----------------------------
Date Michael R. Keller
154
<PAGE>
EXHIBIT C
AFFIDAVIT OF INDEPENDENCE
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, Preferred Savings
Bank, Chicago, Illinois, in the amount of $15,000 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 30th day of August,
1996.
Lori A. Kessen
----------------------
NOTARY PUBLIC
SEAL LORI A. KESSEN
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES AUG. 10, 2000
