As filed with the Securities and Exchange Commission on November 8, 1996
Registration No. 333-12653
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
EMPIRE FEDERAL BANCORP, INC.
(Exact name of small business issuer in its charter)
Delaware 6035 81-0512374
(State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
123 South Main Street
Livingston, Montana 59047
(406) 222-1981
(Address and telephone number of principal executive offices and place of
business)
John F. Breyer, Jr., Esquire
Victor L. Cangelosi, Esquire
BREYER & AGUGGIA
1300 I Street, N.W.
Suite 470 East
Washington, D.C. 20005
(202) 737-7900
(Name, address and telephone number of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes
effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]_____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]__________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
Calculation of Registration Fee
<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Proposed Proposed Maximum Amount of
Securities Being Amount Being Offering Aggregate Offering Registration
Registered Registered(1) Price(1) Price(1) Fee
<S> <C> <C> <C> <C>
Common Stock, $0.01 Par 2,592,100 $10.00 $25,921,000 $8,939(2)
Value
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Previously paid.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Cross Reference Sheet showing the location in the Prospectus
of the Items of Form SB-2
<TABLE>
<CAPTION>
<S> <C>
1. Front of Registration Front of Registration Statement;
Statement and Outside Front Outside Front Cover Page
Cover of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page; Outside Back
Cover Pages of Prospectus Cover Page
3. Summary Information and Risk
Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds; Capitalization
5. Determination of Offering Price Market for Common Stock; The
Conversion -- Stock Pricing
and Number of Shares to be Issued
6. Dilution *
7. Selling Security-Holders *
8. Plan of Distribution The Conversion
9. Legal Proceedings Business of the Association -- Legal
Proceedings
10. Directors, Executive Officers, Management of the Holding Company;
Promoters and Control Persons Management of the Association
11. Security Ownership of Certain
Beneficial *
Owners and Management
12. Description of Securities Description of Capital Stock
13. Interest of Named Experts and Legal and Tax Opinions; Experts
Counsel
14. Disclosure of Commission Position Part II - Item 17
on Indemnification for Securities
Act Liabilities
15. Organization Within Last Business of the Association
Five Years
16. Description of Business Business of the Holding Company;
Business of the Association
17. Management's Discussion and Management's Discussion and Analysis of
Analysis or Plan of Operation Financial Condition and Results of
Operations
18. Description of Property Business of the Association - Properties
<PAGE>
19. Certain Relationships and Management of the Association --Transactions
Related Transactions with the Association
20. Market Price for Common Equity Outside Front Cover Page; Market for
and Related Stockholder Matters Common Stock; Dividend Policy
21. Executive Compensation Management of the Association --Executive
Compensation; and -- Benefits
22. Financial Statements Financial Statements; Pro Forma Data
23. Changes in and Disagreements *
with Accountants on Accounting
and Financial Disclosure
</TABLE>
*Item is omitted because answer is negative or item inapplicable.
<PAGE>
PROSPECTUS
Empire Federal Bancorp, Inc.
(Proposed Holding Company for Empire Federal Savings and Loan Association,
to be known as "Empire Federal Savings Bank")
Up to 2,254,000 Shares of Common Stock (Anticipated Maximum)
Empire Federal Bancorp, Inc. ("Holding Company"), a Delaware corporation,
is offering between 1,666,000 and 2,254,000 shares of its common stock, $.01 par
value per share ("Common Stock"), in connection with the conversion of Empire
Federal Savings and Loan Association ("Association") from a federally chartered
mutual savings and loan association to a federally chartered capital stock
savings bank, the simultaneous issuance of the Association's capital stock to
the Holding Company. The simultaneous conversion of the Association to stock
form, the issuance of the Association's capital stock to the Holding Company and
the offer and sale of the Common Stock by the Holding Company are undertaken
pursuant to a plan of conversion ("Plan" or "Plan of Conversion"), and are
referred to herein as the "Conversion." References herein to the Association
include Empire Federal Savings and Loan Association and Empire Federal Savings
Bank, as indicated by the context.
Pursuant to the Plan, nontransferable rights to subscribe for the Common
Stock ("Subscription Rights") have been granted, in order of priority, to (i)
depositors with $50.00 or more on deposit at the Association as of March 31,
1995 ("Eligible Account Holders"), (ii) the Association's employee stock
ownership plan ("ESOP"), a tax-qualified employee benefit plan, (iii) depositors
with $50.00 or more on deposit at the Association as of September 30, 1996
("Supplemental Eligible Account Holders"), and (iv) depositors of the
Association as of October 31, 1996 ("Voting Record Date") and borrowers of the
Association with loans outstanding as of ____________, 1996 which continue to be
outstanding as of the Voting Record Date ("Other Members"), subject to the
priorities and purchase limitations set forth in the Plan of Conversion
("Subscription Offering"). Subscription Rights are nontransferable. Persons
selling or otherwise transferring their Subscription Rights to subscribe for
Common Stock in the Subscription Offering or subscribing for 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 ("OTS") or another agency of the U.S. Government. See "THE
CONVERSION -- The Subscription, Direct Community and Syndicated Community
Offerings" and "-- Limitations on Purchases of Shares." Concurrently, but
subject to the prior rights of holders of Subscription Rights, the Holding
Company is offering the Common Stock for sale to members of the general public
through a direct community offering ("Direct Community Offering") with
preference given to natural persons who are permanent residents of Park,
Gallatin and Sweet Grass Counties of Montana ("Local Community"). The
Subscription Offering and the Direct Community Offering are referred to herein
as the "Subscription and Direct Community Offering." It is anticipated that
shares of Common Stock not subscribed for or purchased in the Subscription and
Direct Community Offering will be offered to eligible members of the general
public on a best efforts basis by a selling group of broker-dealers managed by
Charles Webb & Company ("Webb"), a division of Keefe, Bruyette & Woods, Inc.
("Keefe, Bruyette"), in a syndicated offering ("Syndicated Community Offering").
The Subscription and Direct Community Offering and the Syndicated Community
Offering are referred to collectively as the "Offerings." The Holding Company
and the Association reserve the right, in their absolute discretion, to accept
or reject, in whole or in part, any or all orders in the Direct Community
Offering or Syndicated Community Offering either at the time of receipt of an
order or as soon as practicable following the termination of the Offerings. If
an order is rejected in part, the purchaser does not have the right to cancel
the remainder of the order.
FOR INFORMATION ON HOW TO SUBSCRIBE FOR SHARES OF COMMON STOCK, CALL THE STOCK
INFORMATION CENTER AT (406) ________ AND ASK FOR A WEBB REPRESENTATIVE.
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY EACH PROSPECTIVE
INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE 1.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS AND WILL NOT BE
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE
SAVINGS ASSOCIATION INSURANCE FUND ("SAIF") OR ANY OTHER
GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), THE OTS, THE FDIC OR ANY OTHER FEDERAL
AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC, THE
OTS, THE FDIC OR ANY OTHER AGENCY OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Charles Webb & Company,
a Division of Keefe, Bruyette & Woods, Inc.
The date of this Prospectus is _____ __, 1996.
<PAGE>
<TABLE>
<CAPTION>
Estimated Underwriting
Purchase and Other Fees and Estimated Net
Price(1) Expenses(2) Proceeds
<S> <C> <C> <C>
Minimum Price Per Share $10.00 $0.33 $9.67
Midpoint Price Per Share $10.00 $0.30 $9.70
Maximum Price Per Share $10.00 $0.27 $9.73
Maximum Price Per Share, as adjusted(3) $10.00 $0.24 $9.76
Minimum Total(4) $16,660,000 $545,000 $16,115,000
Midpoint Total(5) $19,600,000 $585,000 $19,015,000
Maximum Total(6) $22,540,000 $619,000 $21,921,000
Maximum Total, as
adjusted(3)(7) $25,921,000 $619,000 $25,302,000
</TABLE>
(1)Determined in accordance with an independent appraisal prepared
by Keller & Company, Inc. ("Keller") as of September 6, 1996, which
states that the estimated aggregate pro forma market value of the
Holding Company and the Association, as converted, ranged from
$16,660,000 to $22,540,000 with a midpoint of $19,600,000
("Estimated Valuation Range"). See "THE CONVERSION -- Stock Pricing
and Number of Shares to be Issued." (2)Includes estimated costs to
the Holding Company and the Association arising from the Conversion,
including fees to be paid to Webb in connection with the Offerings.
Such fees may be deemed to be underwriting fees and Webb may be
deemed to be an underwriter. Actual expenses, and thus net proceeds,
may be more or less than estimated amounts. The Holding Company and
the Association have agreed to indemnify Webb against certain
liabilities, including liabilities that may arise under the
Securities Act of 1933, as amended ("Securities Act"). See "USE OF
PROCEEDS" and "THE CONVERSION -- Plan of Distribution for the
Subscription, Direct Community and Syndicated Community Offerings."
(3)Gives effect to an increase in the number of shares sold in the
Offerings due to an increase in the pro forma market value of the
Holding Company and the Association, as converted, up to 15% above
the maximum of the Estimated Valuation Range. Such shares may be
issued without the resolicitation of subscribers or any right of
cancellation. The ESOP shall have a first priority right to
subscribe for such additional shares up to an aggregate of 8% of the
Common Stock issued in the Conversion. See "THE CONVERSION -- Stock
Pricing and Number of Shares to be Issued."
(4) Assumes the issuance of 1,666,000 shares at $10.00 per share.
(5) Assumes the issuance of 1,960,000 shares at $10.00 per share.
(6) Assumes the issuance of 2,254,000 shares at $10.00 per share.
(7) Assumes the issuance of 2,592,100 shares at $10.00 per share.
Except for the ESOP, which is expected to purchase 8% of the
Common Stock issued in the Conversion, subject to the approval of
the OTS, no Eligible Account Holder, Supplemental Eligible Account
Holder or Other Member may subscribe in their capacity as such in
the Subscription Offering for shares of Common Stock having an
aggregate purchase price of more than $225,000 (22,500 shares based
on the Purchase Price); no person may purchase in the Direct
Community Offering shares of Common Stock having an aggregate
purchase price of more than $225,000 (22,500 shares based on the
Purchase Price); no person, together with associates of and persons
acting in concert with such person, may purchase in the Subscription
Offering, Direct Community Offering and the Syndicated Community
Offering shares of Common Stock having an aggregate purchase price
of more than $350,000 (35,000 shares based on the Purchase Price);
and no person, together with associates of and persons acting in
concert with such person, may purchase shares of Common Stock in the
Conversion having an aggregate purchase price of more than $350,000
(35,000 shares based on the Purchase Price). Under certain
circumstances, the maximum purchase limitation may be increased or
decreased at the sole discretion of the Association and the Holding
Company. See "THE CONVERSION -- The Subscription, Direct Community
and Syndicated Community Offerings," "-- Limitations on Purchases of
Shares" and "-- Procedure for Purchasing Shares in the Subscription
and Direct Community Offering" for other purchase and sale
limitations. The minimum purchase is 25 shares.
The Subscription Offering will expire at Noon, Mountain Time,
on _____ __, 1996 ("Expiration Date"), unless extended by the
Association and the Holding Company for up to __ days to ____ __,
1996.
<PAGE>
Such extension may be granted without additional notice to
subscribers. The Direct Community Offering is also expected to
terminate at Noon, Mountain Time, on _____ __, 1996 or at a date
thereafter, however, in no event later than ____ __, 1997. The
Holding Company must receive at the Association's office the
accompanying original Stock Order Form (facsimile copies and
photocopies will not be accepted) and a fully executed separate
Certification Form ("Certification Form") along with full payment
(or appropriate instructions authorizing a withdrawal from a deposit
account at the Association) of $10.00 per share ("Purchase Price")
for all shares subscribed for or ordered by the Expiration Date.
Funds so received will be placed in segregated accounts created for
this purpose at the Association, and interest will be paid at the
passbook rate (___% per annum as of the date hereof) from the date
payment is received until the Conversion is consummated or
terminated. These funds will be otherwise unavailable to the
depositor until such time. Payments authorized by withdrawals from
deposit accounts will continue to earn interest at the contractual
rate until the Conversion is consummated or terminated, although
such funds will be unavailable for withdrawal until the Conversion
is consummated or terminated. Shares of Common Stock issued in the
Conversion are not deposit liabilities, will not earn interest, and
will not be insured by the FDIC, the SAIF or any other government
agency. Payment for shares of Common Stock by wire transfer will not
be accepted. Orders submitted are irrevocable until the consummation
of the Conversion. If the Conversion is not consummated within 45
days after the last day of the Subscription and Direct Community
Offering (which date will be no later than ____ __, 1997) and the
OTS consents to an extension of time to consummate the Conversion,
subscribers will be notified in writing of the time period within
which the subscriber must notify the Association of his or her
intention to increase, decrease or rescind his or her subscription.
If an affirmative response to any such resolicitation is not
received by the Holding Company or the Association from subscribers,
such orders will be rescinded and all funds will be returned
promptly with interest. If such period is not extended or, in any
event, if the Conversion is not consummated by _______ __, 1997, all
subscription funds will be promptly returned, together with accrued
interest, and all withdrawal authorizations terminated.
The Association and the Holding Company have engaged Webb as
their financial advisor and to assist the Holding Company in the
sale of the Common Stock in the Offerings. Neither Webb nor any
other registered broker-dealer is obligated to take or purchase any
shares of Common Stock in the Offerings. See "THE CONVERSION -- Plan
of Distribution for the Subscription, Direct Community and
Syndicated Community Offerings."
Prior to the Offerings, the Holding Company has not issued any
capital stock and accordingly there has been no market for the
shares offered hereby. There can be no assurance that an active and
liquid trading market for the Common Stock will develop or, if
developed, will be maintained. See "RISK FACTORS -- Absence of Prior
Market for the Common Stock." The Holding Company has received
conditional approval to list the Common Stock on the National Market
under the symbol "EFBC." Keefe, Bruyette has advised the Holding
Company that it intends to act as a market maker for the Common
Stock following the Conversion. See "MARKET FOR COMMON STOCK."
<PAGE>
Empire Federal Savings and Loan Association
123 South Main Street
Livingston, Montana 59047
(406) 222-1981
[Map of the State of Montana with the location of
the counties of Park, Gallatin and Sweet Grass illustrated]
THE CONVERSION IS CONTINGENT UPON APPROVAL OF THE PLAN OF CONVERSION BY AT LEAST
A MAJORITY OF THE ELIGIBLE VOTING MEMBERS OF THE ASSOCIATION, THE SALE OF AT
LEAST 1,666,000 SHARES OF COMMON STOCK PURSUANT TO THE PLAN OF CONVERSION, AND
RECEIPT OF ALL APPLICABLE REGULATORY APPROVALS.
<PAGE>
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS AND WILL NOT BE
INSURED OR GUARANTEED BY THE FDIC, THE SAIF OR ANY OTHER GOVERNMENT AGENCY.
PROSPECTUS SUMMARY
The information set forth below should be read in conjunction with and is
qualified in its entirety by the more detailed information and Consolidated
Financial Statements (including the Notes thereto) presented elsewhere in this
Prospectus. The purchase of Common Stock is subject to certain risks. See "RISK
FACTORS."
Empire Federal Bancorp, Inc.
The Holding Company is a Delaware corporation organized in September 1996
at the direction of the Association to acquire all of the capital stock that the
Association will issue upon its conversion from the mutual to stock form of
ownership. The Holding Company has not engaged in any significant business to
date. The Holding Company has received OTS approval to become a savings and loan
holding company and to acquire 100% of the capital stock of the Association.
Immediately following the Conversion, the only significant assets of the Holding
Company will be the outstanding capital stock of the Association, that portion
of the net proceeds of the Offerings permitted by the OTS to be retained by the
Holding Company and a note receivable from the ESOP evidencing a loan from the
Holding Company to fund the Association's ESOP. The Holding Company has received
approval from the OTS to retain 50% of the net proceeds of the Offerings, which
will be used for general business activities, including a loan by the Holding
Company directly to the ESOP to enable the ESOP to purchase 8% of the Common
Stock issued in the Conversion. See "USE OF PROCEEDS." Upon consummation of the
Conversion, the Holding Company initially will be a unitary savings and loan
holding company which, under existing laws, generally would not be restricted in
the types of business activities in which it may engage as long as the
Association retains a specified amount of its loans in housing-related
investments. See "REGULATION -- Savings and Loan Holding Company Regulations."
Management believes that the holding company structure and retention of proceeds
would facilitate the expansion and diversification of its operations, should it
decide to do so. There are no present plans, arrangements, agreements, or
understandings, written or oral, however, regarding any such activities or
repurchases. The principal executive office of the Holding Company is located at
123 South Main Street, Livingston, Montana 59047, and its telephone number is
(406) 222-1981.
Empire Federal Savings and Loan Association
The Association is a federally chartered mutual savings and loan
association located in Livingston, Montana, which is approximately 26 miles east
of Bozeman, Montana. Chartered in 1923 as a Montana-chartered mutual building
and loan association under the name "Empire Building and Loan Association," the
Association converted to a federal charter and adopted its current name in 1970.
In connection with the Conversion, the Association will convert to a federal
stock savings bank and change its name to "Empire Federal Savings Bank." The
Association is regulated by the OTS, its primary federal regulator, and the
FDIC, the insurer of its deposits. The Association's deposits are federally
insured by the FDIC under the SAIF. The Association is a member of the Federal
Home Loan Bank ("FHLB") System. At June 30, 1996, the Association had total
assets of $86.8 million, total deposits of $68.6 million and total equity of
$15.9 million, or 18.3% of total assets, on a consolidated basis.
The Association is a community oriented financial institution which has
traditionally offered a variety of savings products to its retail customers
while concentrating its lending activities on real estate mortgage loans.
Lending activities have been focused primarily on the origination of loans
secured by one- to four-family residential
(i)
<PAGE>
dwellings, including an emphasis on loans for construction of residential
dwellings. To a lesser extent, lending activities also have included the
origination of multi-family, commercial real estate and home equity loans. The
Association's primary business has been that of a traditional thrift
institution, originating loans in its primary market area for its portfolio. At
June 30, 1996, the Association's gross loan portfolio totaled $43.1 million, of
which 81.7% were one- to four-family residential mortgage loans, 3.2% were
construction loans (most of which related to one- to four-family residences),
5.4% were multi-family loans, and 2.7% were commercial real estate loans. In
addition the Association has maintained a significant portion of its assets in
investment and mortgage-backed securities. Similar to its lending activities,
the Association's investment portfolio has been weighted toward mortgage-backed
securities secured by one- to four-family residential properties. The portfolio
also includes U.S. Government agency securities. Investment securities,
including mortgage-backed securities, totaled $39.1 million, or 45.0% of total
assets, at June 30, 1996. In addition to interest and dividend income on loans
and investments, the Association receives other income from the sale of
insurance products through its wholly-owned subsidiary, Dime Service
Corporation.
The Association's market area is comprised of Park, Gallatin and Sweet
Grass Counties of South Central Montana. The Association faces strong
competition in its market area. See "RISK FACTORS -- Dependence on Local Economy
and Competition Within Market Area." The Association's principal executive
office is located at 123 South Main Street, Livingston, Montana 59047, and its
telephone number is (406) 222-1981.
The Conversion
The Association is converting from a federally chartered mutual savings
and loan association to a federally chartered capital stock savings bank and, in
connection therewith, will issue all of its outstanding capital stock to the
Holding Company in exchange for 50% of the net Conversion proceeds.
Simultaneously, the Holding Company will sell its Common Stock in the Offerings.
The Conversion is subject to the approval of the OTS, as well as the
Association's members at a special meeting to be held on December 19, 1996.
After the Conversion, depositors and borrowers of the Association will have no
voting rights in the Holding Company, unless they become stockholders.
The Plan of Conversion requires that the aggregate purchase price of the
Common Stock to be issued in the Conversion be based upon an independent
appraisal of the estimated pro forma market value of the Holding Company and the
Association, as converted. Keller has advised the Association that in its
opinion, at September 6, 1996, the aggregate estimated pro forma market value of
the Holding Company and the Association, as converted, ranged from $16,660,000
to $22,540,000, with a midpoint of $19,600,000, or from 1,666,000 shares to
2,254,000 shares, with a midpoint of 1,960,000 shares, assuming a $10.00 per
share Purchase Price. The appraisal of the pro forma market value of the Holding
Company and the Association as converted is based on a number of factors and
should not be considered a recommendation to buy shares of the Common Stock or
any assurance that after the Conversion the shares of Common Stock will be able
to be resold at or above the Purchase Price. The appraisal will be updated or
confirmed prior to the consummation of the Conversion.
The Board of Directors and management of the Association believe that the
stock form of ownership is preferable to the mutual form of organization,
especially in light of the competitive and heavily regulated environment within
which the Association operates and recently enacted Federal legislation,
discussed under "RISK FACTORS--Regulatory Oversight and Legislation," that calls
for the elimination of the Federal savings association charter. The Board of
Directors and management believe that the Conversion is in the best interests of
the Association's members and its communities. The Conversion is intended to (i)
improve the competitive position of the Association in its market area and
support possible future expansion and diversification of operations (currently,
there are no specific plans, arrangements or understandings, written or oral,
regarding any such activities); (ii) afford members of the Association and
others the opportunity to become stockholders of the Holding Company and thereby
participate more directly in, and contribute to, any future growth of the
Holding Company and the Association; and (iii) provide future access to capital
markets. See "THE CONVERSION -- Purposes of Conversion."
(ii)
<PAGE>
Tax Consequences of the Conversion
The Association has received an opinion of counsel that the Conversion
will constitute a nontaxable reorganization under the Internal Revenue Code of
1986, as amended ("Code"), and will not result in any federal income tax
liability to the Association, its account holders, or the Holding Company. The
Association has also received an opinion from Huppert and Swindlehurst, P.C.
that, assuming the Conversion does not result in any federal income tax
liability to such persons and entities, the Conversion will not result in any
Montana income tax liability to such persons or entities. Prospective
investors are urged to consult with their own tax advisors regarding the tax
consequences of the Conversion particular to them. See "RISK FACTORS --
Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights" and "THE CONVERSION -- Effects of Conversion to Stock Form on
Depositors and Borrowers of the Association -- Tax Effects."
The Subscription, Direct Community and Syndicated Community Offerings
The Holding Company is offering up to 2,254,000 shares of Common Stock at
$10.00 per share to holders of Subscription Rights in the following order of
priority: (i) Eligible Account Holders; (ii) the Association's ESOP; (iii)
Supplemental Eligible Account Holders; and (iv) Other Members. In the event the
number of shares offered in the Conversion is increased above the maximum of the
Estimated Valuation Range, the Association's ESOP shall have a first priority
right to purchase any such shares exceeding the maximum of the Estimated
Valuation Range up to an aggregate of 8% of the Common Stock issued in the
Conversion. Concurrently, and subject to the prior rights of holders of
Subscription Rights, any shares of Common Stock not subscribed for in the
Subscription Offering are being offered in the Direct Community Offering to the
general public with preference being given to natural persons who are permanent
residents of the Local Community. The Holding Company and the Association have
engaged Webb to consult with and advise the Holding Company and the Association
in the Offerings, and Webb has agreed to use its best efforts to assist the
Holding Company with the solicitation of subscriptions and purchase orders for
shares of Common Stock in the Offerings. Webb is not obligated to take or
purchase any shares of Common Stock in the Offerings. If all shares of Common
Stock to be issued in the Conversion are not sold through the Subscription and
Direct Community Offering, then the Holding Company expects to offer the
remaining shares in the Syndicated Community Offering managed by Webb, which
would occur as soon as practicable following the close of the Subscription and
Direct Community Offering but may commence during the Subscription and Direct
Community Offering, subject to the prior rights of subscribers in the
Subscription Offering and to the right of the Holding Company to accept or
reject orders in the Direct Community Offering and the Syndicated Community
Offering in whole or in part. All shares of Common Stock will be sold at the
same price per share in the Syndicated Community Offering as in the Subscription
and Direct Community Offering. Orders submitted are irrevocable until the
consummation of the Conversion. See "USE OF PROCEEDS," "PRO FORMA DATA" and "THE
CONVERSION -- Stock Pricing and Number of Shares to be Issued." The Subscription
Offering will expire at Noon, Mountain Time, on _____ __, 1996, unless extended
by the Association and the Holding Company for up to __ days. The Direct
Community Offering and Syndicated Community Offering, if any, are also expected
to terminate at Noon, Mountain Time, on _____ __, 1996, and may terminate on a
date thereafter, however, in no event later than ____ __, 1997.
Restrictions on Transfer of Subscription Rights
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 the exercise of
Subscription Rights. Each person exercising Subscription Rights will be required
to certify that a purchase of Common Stock is solely for the purchaser's own
account and there is no agreement or understanding regarding the sale or
transfer of such shares. The Holding Company and the Association 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 or purported transfer of Subscription Rights.
(iii)
<PAGE>
Prospectus Delivery and Procedure for Purchasing Common Stock
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
Securities Exchange Act of 1934, as amended ("Exchange Act"), no Prospectus will
be mailed later than five days or hand delivered later than two days prior to
the Expiration Date. Execution of the Stock Order Form will confirm receipt or
delivery of a Prospectus in accordance with Rule 15c2-8. Stock Order Forms will
be distributed only with a Prospectus.
To ensure that Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members are properly identified as to their stock purchase
priorities, such parties must list all deposit accounts, or in the case of Other
Members who are only borrowers, loans held at the Association, on the Stock
Order Form giving all names on each deposit account and/or loan and the account
and/or loan numbers at the applicable eligibility date.
Full payment by check, cash (only if delivered in person at the
Association), money order, bank draft or withdrawal authorization (payment by
wire transfer will not be accepted) must accompany an original Stock Order Form
(facsimile copies and photocopies will not be accepted) and a fully executed
separate Certification Form. Orders cannot and will not be accepted without a
fully executed separate Certification Form. See "THE CONVERSION -- Procedure for
Purchasing Shares in the Subscription and Direct Community Offering."
Purchase Limitations
Except for the ESOP, which is expected to subscribe for 8% of the shares
of Common Stock issued in the Conversion, no Eligible Account Holder,
Supplemental Eligible Account Holder or Other Member may purchase in their
capacity as such in the Subscription Offering shares of Common Stock having an
aggregate purchase price of more than $225,000 (22,500 shares based on the
Purchase Price); no person may purchase in the Direct Community Offering shares
of Common Stock having an aggregate purchase price of more than $225,000 (22,500
shares based on the Purchase Price); no person, together with associates of and
persons acting in concert with such person, may purchase in the Direct Community
Offering and the Syndicated Community Offering shares of Common Stock having an
aggregate purchase price of more than $350,000 (35,000 shares based on the
Purchase Price); and no person, together with associates of and persons acting
in concert with such person, may purchase shares of Common Stock in the
Conversion having an aggregate purchase price of more than $350,000 (35,000
shares based on the Purchase Price). This maximum purchase limitation may be
increased or decreased as consistent with OTS regulations in the sole discretion
of the Holding Company and the Association, subject to any required regulatory
approval. The minimum purchase is 25 shares. In addition, stock orders received
either through the Direct Community Offering or the Syndicated Community
Offering may be accepted or rejected, in whole or in part, at the discretion of
the Holding Company and the Association. See "THE CONVERSION -- Limitations on
Purchases of Shares." If an order is rejected in part, the purchaser does not
have the right to cancel the remainder of the order. In the event of an
oversubscription, shares will be allocated in accordance with the Plan of
Conversion. See "THE CONVERSION -- The Subscription, Direct Community and
Syndicated Community Offerings."
Stock Pricing and Number of Shares to be Issued in the Conversion
The Purchase Price in the Offerings is a uniform price for all
subscribers, including members of the Holding Company's and the Association's
Boards of Directors and their managements and the Association's ESOP, and was
set by the Boards of Directors of the Holding Company and the Association. The
number of shares to be offered at the Purchase Price is based upon an
independent appraisal of the aggregate pro forma market value of the Holding
Company and the Association, as converted, which was estimated by Keller to
range from $16,666,000 to $22,540,000 as of September 6, 1996, or from 1,660,000
to 2,254,000 shares based on the Purchase Price. See "THE CONVERSION -- Stock
Pricing and Number of Shares to be Issued." The appraisal of the pro forma value
of the Holding Company and the Association as converted will be updated or
confirmed at the completion of the Offerings. The maximum of the Estimated
Valuation Range may be increased by up to 15% and the number of shares of Common
Stock to be issued in the Conversion may be increased to 2,592,100 shares due to
material
(iv)
<PAGE>
changes in the financial condition or operations of the Association or changes
in market conditions or general financial and economic conditions. Subscribers
will be resolicited and will be permitted to modify or cancel their
subscriptions if the gross proceeds from the sale of the Common Stock are less
than the minimum of the Estimated Valuation Range or more than 15% above the
maximum of the Estimated Valuation Range. The appraisal is not intended and
should not be construed as a recommendation of any kind as to the advisability
of purchasing such stock nor can assurance be given that purchasers of the
Common Stock in the Conversion will be able to sell such shares after the
Conversion at a price that is equal to or above the Purchase Price.
Furthermore, the pro forma stockholders' equity is not intended to represent
the fair market value of the Common Stock and may be greater than amounts that
would be available for distribution to stockholders in the event of liquidation.
Benefits of the Conversion to Management
ESOP. In connection with the Conversion, the Association will adopt the
ESOP, a tax-qualified employee benefit plan, for the benefit of officers and
employees of the Association. The ESOP intends to purchase 8% of the shares of
Common Stock issued in the Offerings (180,320 shares of Common Stock, based on
the issuance of the maximum of the Estimated Valuation Range). In the event that
the ESOP's subscription is not filled in its entirety, the ESOP may purchase
additional shares in the open market or may purchase additional authorized but
unissued shares with cash contributed to it by the Association. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Impact of New Accounting Pronouncements and Regulatory Policies --
Accounting for Employee Stock Ownership Plans" and "MANAGEMENT OF THE
ASSOCIATION -- Benefits -- Employee Stock Ownership Plan."
Management Recognition Plan. The Holding Company expects to seek
stockholder approval of the Management Recognition Plan and Trust ("MRP") at a
meeting of stockholders occurring no earlier than six months following
consummation of the Conversion. The MRP, which will be funded with a number of
shares equal to 4% of the number of shares issued in the Conversion, is a
non-tax-qualified restricted stock plan intended for the benefit of key
employees and directors of the Holding Company and the Association. If
stockholder approval of the MRP is obtained, it is expected that shares of
Common Stock of the Holding Company will be awarded pursuant to such plan to key
employees and directors of the Holding Company and the Association (which shares
will be awarded at no cost to such recipients). Although no specific award
determinations have been made, the Association anticipates that if stockholder
approval is obtained it would provide awards to its directors, officers and
employees to the extent permitted by applicable regulations. OTS regulations
currently provide that no individual officer or employee may receive more than
25% of the shares reserved for issuance under any stock compensation plan and
that non-employee directors may not receive more than 5% of such shares
individually or 30% in the aggregate for all non-employee directors.See
"MANAGEMENT OF THE ASSOCIATION -- Benefits -- Management Recognition Plan."
Stock Option Plan. The Holding Company expects to seek stockholder
approval of the 1996 Stock Option Plan ("Stock Option Plan"), which will reserve
a number of shares equal to 10% of the number of shares issued in the
Conversion, at a meeting of stockholders occurring no earlier than six months
following consummation of the Conversion. If stockholder approval of the Stock
Option Plan is obtained, it is expected that options to acquire up to 259,210
shares of Common Stock of the Holding Company will be available for award to
key employees and directors of the Holding Company and the Association (based
on the issuance of the maximum of the Estimated Valuation Range). The exercise
price of such options will be 100% of the fair market value of the Common Stock
on the date the option is granted. Although no specific award determinations
have been made, the Association anticipates that if stockholder approval is
obtained it would provide awards to its directors, officers and employees to
the extent permitted by applicable regulations. OTS regulations currently
provide that no individual officer or employee may receive more than 25% of the
shares reserved for issuance under any stock compensation plan and that
non-employee directors may not receive more than 5% of such shares
individually or 30% in the aggregate for all non-employee directors. Options
granted to officers and directors are valuable only to the extent that such
options are exercisable and the market price for the underlying share of
common stock is in excess of the exercise price.
(v)
<PAGE>
An option effectively eliminates the market risk of holding the underlying
security since no consideration is paid for the option until it is exercised
and, therefore, the recipient may, within the limits of the term of the option,
wait to exercise the option until the market price exceeds the exercise price.
See "MANAGEMENT OF THE ASSOCIATION -- Benefits -- 1996 Stock Option Plan."
Employment Agreements. The Holding Company and the Association have agreed
to enter into employment agreements with Mrs. Harris and Mr. Ernest A. Sandberg,
Treasurer, Secretary and Chief Financial Officer of the Holding Company and
Executive Vice President and Secretary of the Association, which provide certain
benefits in the event of their termination following a change in control of the
Holding Company and the Association. In the event of a change in control of the
Holding Company or the Association, as defined in the agreements, Mrs. Harris
and Mr. Sandberg will be entitled to a cash severance amount equal to 2.99 times
her or his average annual compensation during the five-year period preceding the
change in control. Assuming a change of control occurred as of June 30, 1996,
the aggregate amounts payable to Mrs. Harris and Mr. Sandberg under these
agreements would have been approximately $309,000 and $284,000, respectively.
See "MANAGEMENT OF THE ASSOCIATION -- Executive Compensation -- Employment
Agreements."
For information concerning the possible voting control of officers,
directors and employees following the Conversion, see "RISK FACTORS -- Anti-
takeover Considerations -- Voting Control by Insiders."
Use of Proceeds
The net proceeds from the sale of the Common Stock are estimated to range
from $16.2 million to $22.0 million, or to $25.3 million if the Estimated
Valuation Range is increased by 15%, depending upon the number of shares sold
and the expenses of the Conversion. The Holding Company has received the
approval of the OTS to purchase all of the capital stock of the Association to
be issued in the Conversion in exchange for 50% of the net proceeds. This will
result in the Holding Company retaining approximately $8.1 million to $11.0
million of the net proceeds, or up to $12.7 million if the Estimated Valuation
Range is increased by 15%, and the Association receiving an equal amount.
Receipt of 50% of the net proceeds of the sale of the Common Stock will
increase the Association's capital and will support the expansion of the
Association's existing business activities. The Association will use the funds
contributed to it for general corporate purposes, including, initially, local
lending and securities of the type currently held by the Association. Shares of
Common Stock may be purchased with funds on deposit at the Association, which
will reduce deposits by the amounts of such purchases. The net amount of funds
available to the Association for investment following receipt of the Conversion
proceeds will be reduced to the extent shares are purchased with funds on
deposit.
A portion of the net proceeds retained by the Holding Company will be used
for a loan by the Holding Company to the Association's ESOP to enable it to
purchase 8% of the shares of Common Stock issued in the Conversion. Such loan
would fund the entire purchase price of the ESOP shares ($1.8 million at the
maximum of the Estimated Valuation Range) and would be repaid principally from
the Association's contributions to the ESOP and from dividends payable on the
Common Stock held by the ESOP. The remaining proceeds retained by the Holding
Company initially will be invested primarily in certificates of deposit and
securities of the type currently held by the Association. Such proceeds will be
available for additional contributions to the Association in the form of debt or
equity, to support future growth and diversification activities, as a source of
dividends to the stockholders of the Holding Company and for future repurchases
of Common Stock (including possible repurchases to fund the MRP or to provide
shares to be issued upon exercise of stock options) to the extent permitted
under Delaware law and OTS regulations. Currently, as discussed below under "USE
OF PROCEEDS," there are no specific plans, arrangements, agreements or
understandings, written or oral, regarding any of such activities.
(vi)
<PAGE>
Market for Common Stock
The Holding Company has never issued capital stock to the public and,
consequently, there is no existing market for the Common Stock. The Holding
Company has received conditional approval to have the Common Stock listed on the
Nasdaq National Market under the symbol "EFBC." Keefe, Bruyette has
indicated its intention to act as a market maker in the Common Stock following
the consummation of the Conversion, depending on trading volume and subject to
compliance with applicable laws and regulatory requirements. Furthermore, Webb
has agreed to use its best efforts to assist the Holding Company in obtaining
additional market makers for the Common Stock. No assurance can be given that an
active and liquid trading market for the Common Stock will develop. Further, no
assurance can be given that purchasers will be able to sell their shares at or
above the Purchase Price after the Conversion. See "RISK FACTORS -- Absence of
Prior Market for the Common Stock" and "MARKET FOR COMMON STOCK."
Dividends
The Board of Directors of the Holding Company will consider a dividend
policy following the consummation of the Conversion. Declarations and payments
of dividends by the Board of Directors will depend upon a number of factors,
including the amount of the net proceeds retained by the Holding Company,
capital requirements, regulatory limitations, the Association's and the Holding
Company's financial condition and results of operations, tax considerations and
general economic conditions. In order to pay such cash dividends, however, the
Holding Company must have available cash either from the net proceeds raised in
the Offerings and retained by the Holding Company, dividends received from the
Association or earnings on Holding Company assets. There are certain limitations
on the payment of dividends from the Association to the Holding Company. See
"REGULATION -- Federal Regulation of Savings Associations -- Limitations on
Capital Distributions." No assurances can be given that any dividends will be
declared or, if declared, what the amount of dividends will be or whether such
dividends, once declared, will continue. See "DIVIDEND POLICY."
Officers' and Directors' Common Stock Purchases and Beneficial Ownership
Officers and directors of the Association (seven persons) are expected to
subscribe for an aggregate of approximately $690,000 of Common Stock, or 3.1%
of the shares based on the maximum of the Estimated Valuation Range. See "THE
CONVERSION -- Shares to be Purchased by Management Pursuant to Subscription
Rights." In addition, purchases by the ESOP and allocations under the MRP, and
the exercise of stock options issued under the Stock Option Plan, will increase
the number of shares beneficially owned by officers, directors and employees.
See "RISK FACTORS -- Anti-takeover Considerations -- Voting Control by
Insiders." The MRP and Stock Option Plan are subject to approval by the
stockholders of the Holding Company at a meeting to be held no earlier than six
months following consummation of the Conversion.
Risk Factors
See "RISK FACTORS" for a discussion of certain risks related to the
Offerings that should be considered by all prospective investors, including,
interest rate risk; declining interest rate spread and return on equity after
Conversion; management succession; regulatory oversight and possible
legislation; certain lending considerations; dependence on local economy and
competition within market area; anti-takeover considerations; absence of prior
market for the Common Stock; dilutive effect of benefit programs; possible
increase in the number of shares issued in the Conversion and possible adverse
income tax consequences of the distribution of Subscription Rights.
(vii)
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain information concerning the
consolidated financial position and results of operation of the Association at
the dates and for the periods indicated. This information is qualified in its
entirety by reference to the detailed information and Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
At June 30,
1996 1995 1994 1993 1992
(In Thousands)
SELECTED FINANCIAL
CONDITION DATA:
Total assets $86,810 $85,495 $86,143 $83,107 $78,586
Cash and interest-bearing
deposits 2,499 2,196 2,098 1,892 2,857
Investment and
mortgage-backed securities
available for sale 13,877 1,192 1,081 -- --
Investment and
mortgage-backed securities
held-to-maturity 25,196 39,441 38,805 38,010 36,222
Loans receivable, net 41,882 39,432 41,387 40,347 37,038
Deposits 68,548 67,064 68,336 65,234 62,835
Advances from FHLB 1,500 1,751 2,189 4,106 3,513
Total equity 15,876 15,500 14,475 12,792 11,534
Year Ended June 30,
1996 1995 1994 1993 1992
(In Thousands)
SELECTED OPERATING DATA:
Interest income $6,304 $6,305 $6,272 $6,664 $6,627
Interest expense 3,310 2,938 2,641 2,955 3,562
Net interest income 2,994 3,367 3,631 3,709 3,065
Provision for loan losses 55 -- -- 82 31
Net interest income after
provision for loan losses 2,939 3,367 3,631 3,627 3,034
Non-interest income:
Insurance commission income 688 691 589 461 326
Customer service charges 145 130 149 141 145
Other income 45 36 37 25 57
Total non-interest income 878 857 775 627 528
Non-interest expense:
Compensation and
benefits 1,615 1,542 1,385 1,134 955
Occupancy and equipment 340 264 268 262 244
Deposit insurance premiums 185 226 177 139 152
Other general and
administrative 646 651 674 542 477
Provision for losses on real
estate owned -- -- -- 61 406
Total non-interest expense 2,786 2,683 2,504 2,138 2,234
Income before income taxes 1,031 1,541 1,902 2,116 1,328
Income tax expense 399 589 713 857 498
Income before cumulative effect of
change in accounting principle 632 952 1,189 1,259 830
Cumulative effect of change in
accounting for income taxes -- -- 56 -- --
Net income $ 632 $ 952 $ 1,245 $ 1,259 $ 830
(viii)
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended June 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (net income
divided by average total assets) 0.72% 1.12% 1.47% 1.55% 1.10%
Return on average equity (net income
divided by average equity) 3.99 6.33 9.13 10.25 7.42
Average interest-earning assets
to average interest-bearing
liabilities 119.33 118.48 117.34 118.34 116.99
Net interest income after provision
for loan losses to total
other expenses 105.49 125.49 145.02 169.63 135.84
Interest rate spread 2.80 3.33 3.87 3.96 3.31
Net yield on average interest-earning
assets 3.57 3.97 4.43 4.63 4.12
Efficiency ratio (non-interest
expense divided by the sum of net
interest income and non-interest
income) 71.95 63.52 56.83 49.32 62.17
Equity Ratios:
Average equity to average assets
ratio (average equity divided
by average total assets) 18.11 17.07 16.08 15.16 14.80
Equity to assets at year end 18.29 18.13 16.80 15.39 14.68
Asset quality ratios:
Non-performing assets to total
assets -- -- 0.02 0.62 0.65
Non-performing loans to
total assets -- -- 0.02 0.06 0.06
Non-performing loans to
net loans -- -- 0.04 0.13 0.12
Allowance for loan losses, REO and
other repossessed assets to
non-performing assets * * 966.67 117.57 91.36
Allowance for loan losses to total
loans outstanding 0.46 0.36 0.34 0.35 0.17
At June 30,
1996 1995 1994 1993 1992
OTHER DATA:
Number of:
Real estate loans outstanding 744 765 824 853 864
Deposit accounts 10,632 10,623 10,692 10,540 10,613
Full-service offices 3 3 3 3 3
</TABLE>
---------
* Not meaningful.
(ix)
<PAGE>
RECENT DEVELOPMENTS
THE FOLLOWING TABLES SET FORTH CERTAIN INFORMATION CONCERNING THE
CONSOLIDATED FINANCIAL POSITION AND RESULTS OF OPERATION OF THE ASSOCIATION AT
THE DATES AND FOR THE PERIODS INDICATED. INFORMATION AT SEPTEMBER 30, 1996 AND
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 ARE UNAUDITED, BUT, IN
THE OPINION OF MANAGEMENT, CONTAIN ALL ADJUSTMENTS (NONE OF WHICH WERE OTHER
THAN NORMAL RECURRING ENTRIES) NECESSARY FOR A FAIR PRESENTATION OF THE RESULTS
OF SUCH PERIODS. THE SELECTED OPERATIONS DATA FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS OF OPERATION
FOR THE ENTIRE FISCAL YEAR. THIS INFORMATION SHOULD BE READ IN CONJUNCTION WITH
THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO PRESENTED ELSEWHERE IN
THIS PROSPECTUS.
At September 30, At June 30,
1996 1996
(Unaudited)
(In Thousands)
SELECTED FINANCIAL CONDITION DATA:
Total assets................................ $ 87,467 86,810
Cash and interest-bearing deposits.......... 1,261 2,499
Investment and mortgage-backed securities
available for-sale ........................ 14,028 13,877
Investment and mortgage-backed securities
held-to-maturity .......................... 25,883 25,196
Loans receivable, net ...................... 41,650 41,882
Deposits.................................... 69,784 68,548
Advances from FHLB ......................... -- 1,500
Total equity................................ 16,061 15,876
Three Months
Ended September 30,
1996 1995
(Unaudited)
(In Thousands)
SELECTED OPERATING DATA:
Interest income.................................. $ 1,576 1,530
Interest expense on deposits..................... 811 809
----- -----
Net interest income.............................. 765 721
Provision for loan losses........................ -- --
------- -------
Net interest income after provision for loan
losses...................................... 765 721
Non-interest income:
Insurance commission income.................... 178 186
Customer service charges....................... 44 34
Other income .................................. 32 33
----- -----
Total non-interest income................... 254 253
Non-interest expense:
Compensation and benefits...................... 421 386
Occupancy and equipment........................ 112 95
SAIF special assessment........................ 451 --
Deposit insurance premiums .................... 53 53
Other general and administrative .............. 135 117
------ ------
Total non-interest expense ................. 1,172 651
------ ------
Income (loss) before income taxes............. (153) 323
Income tax (benefit) expense ................... (58) 114
------- ------
Net income (loss) .............................. $ (95) $ 209
======= ======
(x)
<PAGE>
At or For the
Three Months
Ended September 30,
1996 1995
SELECTED FINANCIAL RATIOS(1):
PERFORMANCE RATIOS:
Return on average assets (net income (loss)
divided by average total assets)........................ (0.44)% 0.97%
Return on average equity (net income (loss)
divided by average equity).............................. (2.39) 5.36
Average interest-earning assets to average interest-
bearing liabilities .................................... 119.40 119.35
Net interest income after provision for loan losses to
total other expenses ................................... 65.27 124.10
Interest rate spread .................................... 2.91 2.72
Net yield on average interest-earning assets............. 3.67 3.48
Efficiency ratio (non-interest expense divided
by the sum of net interest income and
non-interest income)................................... 115.01 66.84
EQUITY RATIOS:
Average equity to average assets (average equity
divided by average total assets) ....................... 18.27 18.10
Equity to assets at period end .......................... 18.36 18.07
ASSET QUALITY RATIOS:
Non-performing assets to total assets.................... -- --
Non-performing loans to total assets..................... -- --
Non-performing loans to net loans........................ -- --
Allowance for loan losses, REO and other
repossessed assets to non-performing assets............. * *
Allowance for loan losses to total loans
outstanding............................................. 0.47 0.36
(1) Annualized where appropriate.
* Not meaningful.
(xi)
<PAGE>
Regulatory Capital
The table below sets forth the Association's capital position relative to
its OTS capital requirements at the date indicated.
<TABLE>
<CAPTION>
At September 30, 1996
Percent of Adjusted Total
Amount or Risk-Weighted Assets(1)
(In Thousands)
<S> <C> <C>
Tangible capital level...................... $14,994 17.4%
Tangible capital requirement................ 1,293 1.5
------- -----
Excess...................................... $13,701 15.9%
====== ====
Core capital level.......................... $14,994 17.4%
Core capital requirement.................... 2,585 3.0
------- -----
Excess...................................... $12,409 14.4%
====== ====
Risk-based capital level.................... $15,175 46.4%
Risk-based capital requirement.............. 2,617 8.0
------- -----
Excess...................................... $12,558 38.4%
====== ====
</TABLE>
- ------------
(1) Based upon adjusted total assets for purposes of the tangible and core
capital requirements, and risk- weighted assets for purposes of the
risk-based capital requirement.
Non-Performing Assets and Delinquencies
There were no loans accounted for on a non-accrual basis at either
September 30, 1996 or June 30, 1996. At September 30, 1996, the Association had
no repossessed assets. There were no charge-offs for either the three months
ended September 30, 1996 or 1995. The allowance for loan losses was $200,000 at
September 30, 1996.
The following table sets forth the breakdown of the allowance for loan
losses by category at September 30, 1996.
Percent of
Loans in Each
Category to
Amount Total Loans
(in thousands)
Real estate mortgage:
One- to four-family................ $120 82.74%
Commercial and multifamily......... 40 2.70
Land................................. 25 5.36
Construction......................... -- 2.34
Consumer............................. 15 6.86
----- -------
Total allowance for loan losses.... $200 100.00%
==== ======
(xii)
<PAGE>
Comparison of Financial Condition at September 30, 1996 and June 30, 1996
Total assets increased by $657,000, or 0.76%, from June 30, 1996 to
September 30, 1996 primarily as a result of an increase of $838,000 in
investment securities and mortgage-backed securities which was partially offset
by a decrease of $237,000, or 0.56%, in loans receivable. A decrease of $1.2
million in cash and interest-bearing deposits was offset by various net
increases in other assets.
Deposits increased $1.2 million from June 30, 1996 to September 30,
1996 due primarily to a $763,000 increase in certificate of deposit accounts and
a $497,000 increase in NOW, regular savings and money market accounts. Advances
from the FHLB decreased by $1.5 million as a result of maturing advances during
the quarter.
Total equity increased $185,000 primarily as the result of an increase
in unrealized gains on securities available-for-sale. Unrealized gains on
securities available-for-sale (net of deferred taxes) increased by $280,000 from
$256,000 at June 30, 1996 to $536,000 at September 30, 1996 as a result of a
decline in market interest rates.
This increase in equity was offset by a $95,000 net loss for the quarter.
Comparison of Results of Operations for the Three Months Ended September 30,
1996 AND 1995
Net Income (Loss). Net income declined by $304,000 from $209,000 for
the three months ended September 30, 1995 to a net loss of $95,000 for the three
months ended September 30, 1996. This significant decline was the result of the
signing into law the DIF Act on September 30, 1996, which authorized the FDIC to
impose a special assessment on certain deposits held by thrift institutions.
This special assessment, which is based on outstanding deposits at March 31,
1995, is intended to recapitalize the SAIF. The Association's assessment was
$451,000 and this amount, with an off-setting $183,000 tax benefit, was accrued
as of September 30, 1996.
Net Interest Income. Net interest income increased by $44,000, or
6.10%, to $765,000 for the three months ended September 30, 1996 from $721,000
for the three months ended September 30, 1995. The increase was primarily due to
the net increase in the net interest spread from 2.72% for the three months
ended September 30, 1995 to 2.91% for the three months ended September 30, 1996.
Interest Income. Interest income increased $46,000 for the three months
ended September 30, 1996 compared to the same three months of 1995, primarily as
a result of an increase in the average yield on interest-earning assets to 7.55%
for the three months ended September 30, 1996, as compared to the average yield
of 7.38% for the three months ended September 30, 1995.
Interest Expense. Interest expense increased slightly from $809,000 for
the three months ended September 30, 1995 to $811,000 for the three months ended
September 30, 1996, primarily as a result of an increase in the cost of deposits
offset by the maturity of FHLB advances. The average cost of interest bearing
deposits increased by $20,000 for the comparative periods. The average balance
of FHLB advances decrease from $1.8 million for the three months ended September
30, 1995 to zero at September 30, 1996, which contributed to a decrease of
$18,000 in interest expense.
Provision for Loan Losses. No provision for loan losses was recorded
for either the three months ended September 30, 1996 or 1995. At the end of both
periods, the level of loan loss reserves was deemed to be adequate by
management. Loan loss reserves as a percentage of net loans increased from 0.46%
at June 30, 1996 to 0.47% at September 30, 1996. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Comparison of
Results of Operations for the Years Ended June 30, 1996 and 1995 - Provision for
Loan Losses."
Non-Interest Income. Non-interest income increased $1,000 for the three
months ended September 30, 1996 as compared to September 30, 1995 primarily as
the result of a $10,000 increase in customer service charges.
This increase was offset by a decrease in insurance commissions of $8,000.
(xiii)
<PAGE>
Insurance commissions that the Association receives from Dime Insurance
Agency, its wholly-owned subsidiary are the largest component of its
non-interest income. The Association received income from insurance commissions
of $176,000 and $186,000 for the three months ended September 30, 1996 and 1995,
respectively.
Non-Interest Expense. Total non-interest expense increased $521,000, or
80.0%, for the three months ended September 30, 1996 compared to the three
months ended September 30, 1995. This increase was primarily the result of the
$451,000 special FDIC insurance assessment and a $35,000 increase in
compensation and benefits.
Other non-interest expense items remained relatively stable.
Included in non-interest expense are direct costs (compensation and
benefits, occupancy and equipment, and other expense) attributable to the
operations of Dime Insurance Agency. Such direct costs totaled $127,000 and
$128,000 for the three months ended September 30, 1996 and 1995, respectively.
The Association expects to incur increased expenses following the
Conversion as a result of the costs associated with being a public company and
the ESOP and other stock benefit plans, if adopted.
Income Taxes. Income taxes declined $199,000 from September 30, 1995 to
September 30, 1996 as a result of the decline in income before income taxes. The
effective combined federal and state tax rate was 37.91% (benefit) for the three
months ended September 30, 1996 and 35.29% for the three months ended September
30, 1995.
(xiv)
<PAGE> RISK FACTORS
Before investing in shares of the Common Stock offered hereby, prospective
investors should carefully consider the matters presented below, in addition to
the matters discussed elsewhere in this Prospectus.
Above Average Interest Rate Risk Associated With Fixed-Rate Loan and Mortgage-
Backed Securities Portfolio
General. The mismatch between maturities and interest rate sensitivities
of balance sheet items results in interest rate risk. The Association is subject
to above average interest rate risk because of its practice of originating
primarily fixed-rate loans, which, unlike adjustable rate loans, do not reprice
in response to changes in interest rates. Like most of the savings industry, the
interest-earning assets of the Association have longer effective maturities than
its deposits, which largely mature or are subject to repricing within a shorter
period of time. Unlike many savings institutions, however, the Association holds
a significant amount of its assets in fixed-rate loans that do not reprice in
response to changes in interest rates. The majority of the Association's
residential mortgage loans are fixed-rate with maturities up to 20 years and are
retained in the Association's loan portfolio. In addition, the Association has
$31.2 million or 35.9% of its total assets in fixed rate mortgaged-backed
securities that do not reprice in response to changes in interest rate.
Accordingly, a material and prolonged increase in interest rates could be
expected to have a greater adverse effect on the net interest income of the
Association relative to that of other savings institutions that hold a
materially larger portion of their assets in adjustable rate loans or in
fixed-rate one- to four-family mortgage loans that are originated for committed
sale in the secondary market, or in a combination thereof. Because of its
capital position, the Association has accepted the above average interest rate
risk associated with fixed-rate loans and fixed-rate mortgage-backed securities
in an effort to maximize yield. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources."
Potential Adverse Impact on Results of Operations. The Association's
profitability is substantially dependent on its net interest income, which is
the difference between the interest income received from its interest-earning
assets and the interest expense incurred in connection with its interest-bearing
liabilities. When an institution's interest-bearing liabilities exceed its
interest-earning assets which mature within a given period of time, material and
prolonged increases in interest rates generally would adversely affect net
interest income, while material and prolonged decreases in interest rates
generally would have a favorable effect on net interest income.
The extent of interest rate risk to which the Association is subject is
monitored by management by modeling the change in net portfolio value ("NPV")
over a variety of interest rate scenarios. NPV is the present value of expected
cash flows from assets, liabilities and off-balance sheet contracts. The
calculation is intended to illustrate the change in NPV that will occur in the
event of an immediate and sustained change in interest rates of at least 200
basis points with no effect given to any steps which management might take to
counter the effect of that interest rate movement. At June 30, 1996, the
Association's NPV as a percent of present value of assets was 20.49%. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Asset and Liability Management and Interest Rate Risk" for a
discussion of the NPV method of analyzing interest rate risk and for an
illustration of the effect of an increase in interest rates on the Association's
earnings.
Changes in interest rates can affect the amount of loans originated by an
institution, as well as the value of its loans and other interest-earning assets
and the resultant ability to realize gains on the sale of such assets. Changes
in interest rates also can result in disintermediation, which is the flow of
funds away from savings associations 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 can pay higher rates of return than financial intermediaries such as
commercial banks and thrift institutions.
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Changes in the level of interest rates also affect the Association's
portfolio of mortgage-backed securities. Payments in the Association's
mortgage-backed securities may be affected by declining and rising interest rate
environments. In a low and falling interest rate environment, prepayments could
be expected to increase. The Association's adjustable-rate instruments would be
expected to generate lower yields as a result of the effect of falling interest
rates on the indices for determining payment of interest. Additionally, the
increased principal payments received may be subject to reinvestment at lower
rates. Conversely, in a period of rising interest rates, prepayments would be
expected to decrease, which would make less principal available for reinvestment
at higher rates. In a rising interest rate environment, adjustable-rate
instruments generally would generate higher yields to the extent that the
indices for determining payment of interest did not exceed the lifetime interest
rate caps. Such changing interest rate environment may subject the Association's
fixed and variable rate mortgage-backed securities to yield and price
volatility.
Declining Interest Rate Spread and Return on Equity After Conversion
Return on equity (net income for a given period divided by average equity
during that period) is a ratio used by many investors to compare the performance
of a particular financial institution to its peers. The Holding Company's
post-Conversion pro forma return on equity will be less than the Association's
pre-Conversion return on equity because of the increase in consolidated equity
of the Holding Company that will result from the net proceeds of the Offerings.
See "SELECTED CONSOLIDATED FINANCIAL INFORMATION" for numerical information
regarding the Association's historical returns on equity and "CAPITALIZATION"
for a discussion of the Holding Company's estimated pro forma consolidated
capitalization as a result of the Conversion.
For the three years ended June 30, 1996, 1995 and 1994 the Association's
return on average equity was 3.99%, 6.33%, and 9.13%, respectively. In order for
the Holding Company to achieve a return on equity comparable to the historical
levels achieved by the Association prior to the Conversion, the Holding Company
would have to either increase net income or reduce stockholders' equity, or
both, commensurate with the increase in equity as a result of the Conversion.
Reductions in equity could be achieved by, among other things, the payment of
regular cash dividends or periodic special dividends (although no assurances can
be given as to whether any dividends will be paid or, if paid, their amount and
frequency), the repurchase of shares of Common Stock subject to regulatory
restrictions, the acquisition of other financial institutions (neither the
Holding Company nor the Association has any present plans, arrangements, or
understandings, written or oral, regarding any repurchase or acquisitions), or
distributions to stockholders in the form of returns of capital (neither the
Holding Company nor the Association has any current plans regarding
such distributions). See "DIVIDEND POLICY" and "USE OF PROCEEDS."
Achievement of increased net income levels will depend on several
important factors outside the control of management, such as general economic
conditions, including the level of market interest rates, competition and
related factors, among others. See "-- Dependence on Local Economy and
Competition Within Market Area" and "-- Potential Adverse Impact of Changes in
Interest Rates." The Association has experienced a decrease in its interest rate
spread as the weighted average yield on its loan portfolio has decreased while
the weighted average rate paid on its interest-bearing liabilities has
increased. In addition to the contraction in net interest rate spread that the
Association has experienced in recent periods, and which can be expected to
continue, the expenses associated with the ESOP and the MRP (see "PRO FORMA
DATA") along with other post-Conversion expenses, are expected to contribute
initially to reduced earnings levels. The Association intends to deploy the net
proceeds of the Offerings to increase earnings per share and book value per
share without assuming undue risk, with the goal of maximizing its return on
equity. This goal will likely take a number of years to achieve and no
assurances can be given that this goal can or will be attained.
Management Succession
The Association believes that its success in serving the needs of its
community has been due largely to the local ties established by its directors
and management over the Association's 73-year history. The current members of
the Board of Directors and management of the Association have been affiliated
with the institution for an average
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of 25 years. There can be no assurance that adequate replacements for Mrs.
Harris and Mr. Sandberg could be found if the Association were to lose their
services. See "MANAGEMENT OF THE HOLDING COMPANY" and "MANAGEMENT OF THE
ASSOCIATION -- Directors and Executive Officers."
Regulatory Oversight and Legislation
The Association 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 Association is a member of the FHLB System and is subject to certain limited
regulations promulgated by the Board of Governors of the Federal Reserve System
("Federal Reserve"). As the holding company of the Association, the Holding
Company also will be subject to regulation and oversight by the OTS. Such
regulation and supervision govern the activities in which an institution can
engage and are intended primarily for the protection of the insurance fund and
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 and thrift industries,
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. Any change in such regulation and oversight, whether
by the OTS, the FDIC or Congress, could have a material impact on the Holding
Company, the Association and their respective operations. See "REGULATION."
On September 30, 1996, the Deposit Insurance Funds Act of 1996 ("DIF
Act") was enacted into law. Among other things, the DIF Act authorizes the FDIC
to impose a special one-time assessment on each depository institution with
SAIF-assessable deposits so that the SAIF may achieve its designated reserve
ratio. The Association's assessment was $451,000 on a pre-tax basis, and was
accrued during the quarter ended September 30, 1996. See "RECENT DEVELOPMENTS."
In addition, the DIF Act provides for the merger of the BIF and the SAIF into
the Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF contemplates the
development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter may
take and what effect, if any, the adoption of a new charter would have on the
financial condition or results of operations of the Association. See "REGULATION
- -- Federal Regulation of Savings Associations -- Federal Deposit Insurance
Corporation."
Legislation is proposed periodically providing for a comprehensive
reform of the banking and thrift industries, and has included provisions that
would (i) require federal savings associations to convert to a national bank or
a state-chartered bank or thrift, (ii) require all savings and loan holding
companies to become bank holding companies and (iii) abolish the OTS. Included
in such proposed legislation may be provisions imposing material limitations on
the non-banking activities of federal savings associations, particularly
insurance activities. Such provisions, if included, may impose material
limitations on the operations of the Association's wholly-owned subsidiary, Dime
Service Corporation, and may have a material adverse effect on the Association's
financial condition and results of operations. See "BUSINESS OF THE ASSOCIATION
- -- Subsidiary Activities." It is uncertain when or if any of this type of
legislation will be passed, and, if passed, in what form the legislation would
be passed. As a result, management cannot accurately predict the possible impact
of such legislation on the Association.
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<PAGE>
Certain Lending Considerations
Historically, the Association has been a portfolio lender, maintaining the
residential mortgage loans it originates in its portfolio rather than selling
them in the secondary market to the Federal Home Loan Mortgage Corporation
("FHLMC") or the Federal National Mortgage Association ("FNMA"). The Association
currently intends to continue this practice after the consummation of the
Conversion. A significant portion of the Association's residential mortgage
loans are not readily saleable in the secondary market because they are not
originated in conformity with the purchase requirements of the FHLMC or the FNMA
(i.e. "non-agency-conforming"). Although such loans satisfy the Association's
underwriting requirements, they are non-agency- conforming because they often
have irregular monthly payment dates and do not satisfy various other
requirements imposed by the FHLMC and FNMA. Accordingly, the Association's
non-conforming loans could be sold only after incurring certain costs and/or
discounting the purchase price.
Dependence on Local Economy and Competition Within Market Area
The Association has been and intends to continue to operate as an
independent community-oriented financial institution with a focus on servicing
customers in Park, Gallatin and Sweet Grass Counties. At June 30, 1996, the
Association's loan portfolio consisted of loans made to borrowers and
collateralized by properties located principally in this market area.
Principally all of the Association's depositors reside in this market area as
well.
A downturn in the economy of the Association's market area could have an
adverse effect on the quality of the Association's loan portfolio. In addition,
because the Association operates in a market area with a small population, the
Association's ability to achieve loan and deposit growth is limited. Future
growth opportunities for the Association depend largely on market area growth
and the Association's ability to compete effectively within and outside its
market area.
The Association faces strong competition both in originating loans and
attracting deposits. This competition arises from savings institutions,
commercial banks, credit unions, mortgage banks and securities brokerage firms,
which operate within the Association's market area. This competition could
adversely affect the Association's future growth and earnings prospects.
Anti-takeover Considerations
Provisions in the Holding Company's Governing Instruments and Delaware
Law. Certain provisions included in the Holding Company's Certificate of
Incorporation and in the Delaware General Corporation Law ("DGCL") might
discourage potential takeover attempts, particularly those that have not been
negotiated with the
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<PAGE>
Board of Directors. As a result, these provisions might
preclude takeover attempts that certain stockholders may deem to be in their
best interest and might tend to perpetuate existing management. These provisions
include, among other things, a provision limiting voting rights of beneficial
owners of more than 10% of the Common Stock, supermajority voting requirements
for certain business combinations, staggered terms for directors, non-cumulative
voting for directors, limits on the calling of special meetings, and specific
notice requirements for stockholder nominations and proposals. In addition, the
Certificate of Incorporation provides for the election of directors to staggered
terms of three years and for their removal without cause only upon the vote of
holders of 80% of the outstanding voting shares. Certain provisions of the
Certificate of Incorporation of the Holding Company cannot be amended by
stockholders unless an 80% stockholder vote is obtained. The Bylaws of the
Holding Company also contain provisions regarding the timing and content of
stockholder proposals and nominations. The existence of these anti-takeover
provisions could result in the Holding Company being less attractive to a
potential acquiror and in stockholders receiving less for their shares than
otherwise might be available in the event of a takeover attempt. Furthermore,
federal regulations prohibit for three years after consummation of the
Conversion the ownership of more than 10% of the Savings Bank or the 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. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY."
Voting Control by Insiders. Directors and officers of the Association and
the Holding Company expect to purchase 69,000 shares of Common Stock, or 3.1%
of the shares issued in the Offerings at the maximum of the Estimated Valuation
Range. Directors and officers are also expected to control indirectly the voting
of approximately 8% of the shares of Common Stock issued in the Conversion
through the ESOP (assuming shares have been allocated under the ESOP). Under the
terms of the ESOP, the unallocated shares will be voted by the independent ESOP
trustee in the same proportion as the votes cast by participants with respect to
the allocated shares.
At a meeting of stockholders to be held no earlier than six months
following the consummation of the Conversion, the Holding Company expects to
seek approval of the Holding Company's MRP, which is a non-tax-qualified
restricted stock plan for the benefit of key employees and directors of the
Holding Company and the Association. Assuming the receipt of stockholder
approval, the Holding Company expects to reserve for issuance common stock of
the Holding Company on behalf of the MRP in an amount equal to 4% of the Common
Stock issued in the Conversion, or 90,160 shares at the maximum of the Estimated
Valuation Range. Under the terms of the MRP, the MRP committee or the MRP
trustees will have the power to vote unallocated and unvested shares. In
addition, the Holding Company intends to reserve for future issuance pursuant to
the Stock Option Plan a number of authorized shares of Common Stock equal to 10%
of the Common Stock issued in the Conversion (225,400 shares at the maximum of
the Estimated Valuation Range). The Holding Company also intends to seek
approval of the Stock Option Plan at a meeting of stockholders to be held no
earlier than six months following the consummation of the Conversion.
Assuming (i) the receipt of stockholder approval for the MRP and the Stock
Option Plan, (ii) the open market purchase of shares on behalf of the MRP, (iii)
the purchase by the ESOP of 8% of the Common Stock sold in the Offerings, and
(iv) the exercise of stock options equal to 10% of the number of shares of
Common Stock issued in the Conversion, directors, officers and employees of the
Holding Company and the Association would have voting control, on a fully
diluted basis, of 9.1% of the Common Stock, based on the issuance of the maximum
of the Estimated Valuation Range. Management's potential voting control alone,
as well as together with additional stockholder support, may preclude or impede
takeover attempts that certain stockholders deem to be in their best interest,
and may tend to perpetuate existing management.
Provisions of Employment Agreements. The employment agreements with Mrs.
Harris and Mr. Sandberg provide for cash severance payments in the event of a
change in control of the Holding Company or the Association in an amount equal
to 2.99 times the executive's average annual compensation during the five-year
period preceding the change in control. Such agreements also provide for the
continuation of certain employee benefits for a three-year period following the
change in control. These provisions may have the effect of increasing the cost
of acquiring the Holding Company, thereby discouraging future attempts to take
over the Holding Company or the Association.
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<PAGE>
See "MANAGEMENT OF THE ASSOCIATION -- Benefits," "DESCRIPTION OF CAPITAL
STOCK OF THE HOLDING COMPANY" and "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY."
Regulatory and Statutory Provisions. Federal regulations prohibit for a
period of three years after consummation of the Conversion, the ownership of
more than 10% of the Association or the 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.
Absence of Prior Market for the Common Stock
The Holding Company has never issued capital stock and, consequently,
there is no existing market for the Common Stock. Although the Holding Company
has received conditional approval to list the Common Stock on the Nasdaq
National Market, there can be no assurance that the Holding Company will meet
Nasdaq National Market listing requirements upon the consummation of the
Conversion, which include a minimum market capitalization, at least two market
makers and a minimum number of record holders. Keefe, Bruyette has advised the
Holding Company that it intends to act as a market maker for the Common Stock
following the Conversion. Making a market in securities involves maintaining bid
and ask quotations and being able, as principal, to effect transactions in
reasonable quantities at those quoted prices, subject to various securities laws
and other regulatory requirements. The development of a public trading market
depends upon the existence of willing buyers and sellers, the presence of which
is not within the control of the Holding Company, the Association or any market
maker. There can be no assurance that purchasers will be able to sell their
shares at or above the Purchase Price. See "MARKET FOR COMMON STOCK."
Dilutive Effect of Benefit Programs
At a meeting held no earlier than six months following consummation of the
Conversion, the Holding Company expects to seek stockholder approval of the MRP.
If approved, the Holding Company intends to reserve for issuance under the MRP
an amount of Common Stock of the Holding Company equal to 4% of the shares
issued in the Conversion. Such shares of Common Stock of the Holding Company may
be acquired by the Holding Company in the open market or from authorized but
unissued shares of Common Stock of the Holding Company. In the event that the
MRP utilizes authorized but unissued shares of Common Stock from the Holding
Company, the voting interests of existing stockholders will be diluted and net
income per share and stockholders' equity per share will be decreased. See "PRO
FORMA DATA" and "MANAGEMENT OF THE ASSOCIATION - - Benefits -- Management
Recognition Plan."
At a meeting held no earlier than six months following consummation of the
Conversion, the Holding Company expects to seek stockholder approval of the
Stock Option Plan. If approved, the Stock Option Plan will provide for options
for up to a number of shares of Common Stock of the Holding Company equal to 10%
of the shares issued in the Conversion. Such shares may be authorized but
unissued shares of Common Stock of the Holding Company and, upon exercise of the
options, will result in the dilution of the voting interests of existing
stockholders and will decrease net income per share and stockholders' equity per
share. See "MANAGEMENT OF THE ASSOCIATION -- Benefits -- 1996 Stock Option
Plan."
Possible Increase in the Number of Shares Issued in the Conversion
The number of shares to be issued in the Conversion may be increased as a
result of an increase in the Estimated Valuation Range of up to 15% to reflect
material changes in the financial condition or performance of the Association or
changes in market conditions or general financial and economic conditions prior
to the consummation of the Conversion. In the event that the Estimated Valuation
Range is so increased, the Holding Company expects to issue up to 2,592,100
shares of Common Stock at the Purchase Price for an aggregate price of up to
$25.9 million. An increase in the number of shares issued will decrease the
Holding Company's net income per share and stockholders' equity per share on a
pro forma basis and will increase the Holding Company's consolidated
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<PAGE>
stockholders' equity and net income. Such an increase will also increase the
Purchase Price as a percentage of pro forma stockholders' equity per share and
net income per share.
The ESOP intends to purchase 8% of the Common Stock issued in the
Conversion. In the event the number of shares issued in the Conversion is
increased as a result of an increase in the Estimated Valuation Range, the ESOP
shall have a first priority right to subscribe for all the shares sold in excess
of 2,254,000 shares, up to an aggregate of 8% of the Common Stock issued in the
Conversion. See "PRO FORMA DATA" and "THE CONVERSION -- Stock Pricing and the
Number of Shares to be Issued."
Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights
If the Subscription Rights granted to Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members of the Association are
deemed to have an ascertainable value, receipt of such rights may be a taxable
event (either as capital gain or ordinary income), which may be recognizable by
all members or only by those Eligible Account Holders, Supplemental Eligible
Account Holders or Other Members who exercise the Subscription Rights in an
amount equal to such value. Additionally, the Association could be required to
recognize a gain for tax purposes on such distribution. Whether Subscription
Rights are considered to have ascertainable value is an inherently factual
determination. The Association has been advised by Keller that such rights have
no value; however, Keller's conclusion is not binding on the Internal Revenue
Service ("IRS"). See "THE CONVERSION -- Effects of Conversion to Stock Form on
Depositors and Borrowers of the Association -- Tax Effects."
EMPIRE FEDERAL BANCORP, INC.
The Holding Company was organized as a Delaware corporation at the
direction of the Association on September 20, 1996 to acquire all of the
outstanding capital stock of the Association to be issued upon its Conversion.
The Holding Company has received OTS approval to become a savings and loan
holding company and to acquire all of the outstanding capital stock of the
Association. Prior to the Conversion, the Holding Company will
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<PAGE>
not engage in any material operations. After the Conversion, the Holding Company
will be classified as a unitary savings and loan holding company subject to
regulation by the OTS, and its principal business will be the ownership of the
Association. Immediately following the Conversion, the only significant assets
of the Holding Company will be the capital stock of the Association, that
portion of the net proceeds of the Offerings to be retained by the Holding
Company and a note receivable from the ESOP evidencing a loan from the Holding
Company to fund the Association's ESOP. See "BUSINESS OF THE HOLDING COMPANY."
The management of the Holding Company is set forth under "MANAGEMENT OF
THE HOLDING COMPANY." Initially, the Holding Company will neither own nor lease
any property, but will instead use the premises, equipment and furniture of the
Association in accordance with applicable law and regulations. Presently, the
Holding Company does not intend to employ any persons other than officers who
are also officers of the Association, but will utilize the support staff of the
Association from time to time in accordance with applicable laws and
regulations. Additional employees will be hired as appropriate to the extent the
Holding Company expands or changes its business in the future.
The holding company structure will permit the Holding Company to expand
the financial services currently offered through the Association. Management
believes that the holding company structure and retention of a portion of the
proceeds of the Offerings would facilitate the expansion and diversification of
its operations, should it decide to do so. The holding company structure will
also enable the Holding Company to repurchase its stock without adverse income
tax consequences. There are no present plans, arrangements, agreements, or
understandings, written or oral, regarding any such activities or repurchases.
See "REGULATION -- Savings and Loan Holding Company Regulations."
The Holding Company's principal executive office is located at 123 South
Main Street, Livingston, Montana 59047, and its telephone number is (406) 222-
1981.
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
The Association is a federally chartered mutual savings and loan
association located in Livingston, Montana. Originally chartered in 1923 as a
Montana mutual building and loan association under the name "Empire Building and
Loan Association," the Association converted to a federal charter and adopted
its current name in 1970. In connection with the Conversion, the Association
will convert to a federally chartered capital stock savings bank under the name
"Empire Federal Savings Bank," and become a wholly-owned subsidiary of the
Holding Company. The Association is regulated by the OTS. The Association's
deposits are federally insured by the FDIC under the SAIF. The Association is a
member of the FHLB System. At June 30, 1996, the Association had total assets of
$86.8 million, total deposits of $68.6 million, and total equity of $15.9
million on a consolidated basis.
The Association is a community oriented financial institution which has
traditionally offered a variety of savings products to its retail customers
while concentrating its lending activities on real estate mortgage loans.
Lending activities have been focused primarily on the origination of loans
secured by one- to four-family residential dwellings, including an emphasis on
loans for construction of residential dwellings. To a lesser extent, lending
activities also have included the origination of multi-family, commercial real
estate and consumer loans. The Association's primary business has been that of
a traditional thrift institution, originating loans in its primary market area
for its portfolio. At June 30, 1996, the Association's gross loan portfolio
totaled $43.1 million, of which 81.7% were one- to four-family residential
mortgage loans, 3.2% were construction loans (most of which related to one- to
four-family residences), 5.4% were multi-family loans, and 2.7% were commercial
real estate loans. In addition the Association has maintained a significant
portion of its assets in investments and mortgage-backed securities. Similar to
its lending activities, the Association's investment portfolio has been weighted
toward mortgage-backed securities secured by one- to four-family residential
properties. The balance of the portfolio includes U.S. agency securities.
Investment securities, including mortgage-backed securities, totaled $39.1
million at June 30, 1996. In addition to interest and dividend income on loans
and investments, the Association receives other income from the sale of
insurance products through its wholly owned subsidiary, Dime Service
Corporation.
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The Association's principal executive office is located at 123 South Main
Street, Livingston, Montana 59047, and its telephone number is (406) 222- 1981.
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby are
estimated to range from $16.1 million to $22.0 million, or up to $25.3 million
if the Estimated Valuation Range is increased by 15%. See "PRO FORMA DATA" for
the assumptions used to arrive at such amounts. The Holding Company has received
OTS approval to purchase all of the capital stock of the Association to be
issued in the Conversion in exchange for 50% of the net proceeds of the
Offerings. This will result in the Holding Company retaining approximately
$8.1 million to $11.0 million of net proceeds, or up to $12.7 million if the
Estimated Valuation Range is increased by 15%, and the Association receiving
an equal amount.
Receipt of 50% of the net proceeds of the sale of the Common Stock will
increase the Association's capital and will support the expansion of the
Association's existing business activities. The Association will use the funds
contributed to it for general corporate purposes, including, initially, local
lending or investment in securities of the type currently held by the
Association.
In connection with the Conversion and the establishment of the ESOP, the
Holding Company intends to loan the ESOP the amount necessary to purchase 8% of
the shares of Common Stock sold in the Conversion. The Holding Company's loan to
fund the ESOP may range from $1.3 million to $1.8 million based on the sale of
133,280 shares to the ESOP (at the minimum of the Estimated Valuation Range) and
180,320 shares (at the maximum of the Estimated Valuation Range), respectively,
at $10.00 per share. If 15% above the maximum of the Estimated Valuation Range,
or 2,592,100 shares, are sold in the Conversion, the Holding Company's loan to
the ESOP would be approximately $2.1 million. It is anticipated that the ESOP
loan will have a 10-year term with interest payable at the prime rate as
published in The Wall Street Journal on the closing date of the Conversion. The
loan will be repaid principally from the Association's contributions to the ESOP
and from any dividends paid on the Common Stock.
The remaining net proceeds retained by the Holding Company initially will
be invested primarily in securities of the type currently held by the
Association. Such proceeds will be available for additional contributions to the
Association in the form of debt or equity, to support future diversification or
acquisition activities, as a source of dividends to the stockholders of the
Holding Company and for future repurchases of Common Stock to the extent
permitted under Delaware law and federal regulations. Currently, there are no
specific plans, arrangements, agreements or understandings, written or oral,
regarding any diversification or acquisition activities.
Upon consummation of the Conversion, the Board of Directors will have the
authority to adopt stock repurchase plans, subject to statutory and regulatory
requirements. Since the Holding Company has not yet issued stock, there is
currently insufficient information upon which an intention to repurchase stock
could be based. The facts and circumstances upon which the Board of Directors
may determine to repurchase stock in the future may include but are not limited
(i) to market and economic factors such as the price at which the stock is
trading in the market, the volume of trading, the attractiveness of other
investment alternatives in terms of the rate of return and risk involved in the
investment, the ability to increase the book value and/or earnings per share of
the remaining outstanding shares, and the ability to improve the Holding
Company's return on equity; (ii) to the avoidance of dilution to stockholders by
not having to issue additional shares to cover the exercise of stock options or
to fund employee stock benefit plans; and (iii) to any other circumstances in
which repurchases would be in the best interests of the Holding Company and its
stockholders. Any stock repurchases will be subject to a determination by the
Board of Directors that both the Holding Company and the Association will be
capitalized in excess of all applicable regulatory requirements after any such
repurchases and that capital will be adequate, taking into account, among other
things, the level of non-performing and other risk assets, the Holding Company's
and the Association's current and projected results of operations and
asset/liability structure, the economic environment and tax and other regulatory
considerations. See "THE CONVERSION -- Restrictions on Repurchase of Stock."
9
<PAGE>
The Holding Company has committed to the OTS not to make any tax-free
distributions to stockholders in the form of a return of capital, or take any
action in contemplation of any such distributions, within the first year
following the consummation of the Conversion.
DIVIDEND POLICY
General
The Board of Directors of the Holding Company will consider a dividend
policy following the consummation of the Conversion. Declarations or payments of
dividends will be subject to determination by the Holding Company's Board of
Directors, which will take into account the amount of the net proceeds retained
by the Holding Company, the Holding Company's financial condition, results of
operations, tax considerations, capital requirements, industry standards,
economic conditions and other factors, including regulatory restrictions that
affect the payment of dividends by the Association to the Holding Company as
discussed below. Under Delaware law, dividends may be paid either out of
surplus, or, if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or preceding fiscal year. In order to pay
cash dividends, however, the Holding Company must have available cash either
from the net proceeds raised in the Offerings and retained by the Holding
Company, dividends received from the Association or earnings on Holding Company
assets. No assurances can be given that any dividends will be declared or, if
declared, what the amount of dividends will be or whether such dividends, once
declared, will continue.
Regulatory Restrictions
Dividends from the Holding Company will depend, in part, upon receipt of
dividends from the Association because the Holding Company will have no initial
sources of income other than dividends from the Association and earnings from
the investment of the net proceeds from the Offerings retained by the Holding
Company. OTS regulations require the Association to give the OTS 30 days'
advance notice of any proposed declaration of dividends to the Holding Company,
and the OTS has the authority under its supervisory powers to prohibit the
payment of dividends to the Holding Company. The OTS imposes certain limitations
on the payment of dividends from the Association to the Holding Company which
utilizes a three-tiered approach that permits various levels of distributions
based primarily upon a savings association's capital level. In addition, the
Association may not declare or pay a cash dividend on its capital stock if the
effect thereof would be to reduce the regulatory capital of the Association
below the amount required for the liquidation account to be established pursuant
to the Plan of Conversion. See "REGULATION -- Dividend Limitations," "THE
CONVERSION -- Effects of Conversion to Stock Form on Depositors and Borrowers of
the Association -- Liquidation Account" and Note 17 of Notes to the Consolidated
Financial Statements included elsewhere herein.
The Association currently meets the criteria to be designated a Tier 1
association, as hereinafter defined, and consequently could at its option (after
prior notice to and no objection made by the OTS) distribute up to the higher
of: (i) 100% of its net income during the calendar year plus 50% of its surplus
capital ratio at the beginning of the calendar year less any distributions
previously paid during the year or (ii) 75% of its net income over the most
recent four-quarter period less any distributions previously paid during such
period.
Tax Considerations
In addition to the foregoing, retained earnings of the Association
appropriated to bad debt reserves and deducted for federal income tax purposes
cannot be used by the Association to pay cash dividends to the Holding Company
without the payment of federal income taxes by the Association at the then
current income tax rate on the amount deemed distributed, which would include
the amount of any federal income taxes attributable to the distribution. See
"TAXATION -- Federal Taxation" and Note 9 of Notes to the Consolidated Financial
Statements included elsewhere herein. The Holding Company does not contemplate
any distribution by the Association that would result in a recapture of the
Association's bad debt reserve or create the above-mentioned federal tax
liabilities.
10
<PAGE>
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock and, consequently,
there is no existing market for the Common Stock. Although the Holding Company
has received conditional approval to list the Common Stock on the Nasdaq
National Market, there can be no assurance that the Holding Company will meet
Nasdaq National Market listing requirements, which include a minimum market
capitalization, at least two market makers and a minimum number of record
holders. Making a market involves maintaining bid and ask quotations and being
able, as principal, to effect transactions in reasonable quantities at those
quoted prices, subject to various securities laws and other regulatory
requirements. Keefe, Bruyette has indicated its intention to act as a market
maker in the Common Stock following the consummation of the Conversion,
depending on trading volume and subject to compliance with applicable laws and
regulatory requirements. Furthermore, Webb has agreed to use its best efforts to
assist the Holding Company in obtaining at least one additional market maker for
the Common Stock. There can be no assurance there will be two or more market
makers for the Common Stock. There can be no assurance that purchasers will be
able to sell their shares at or above the Purchase Price.
11
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the
Association at June 30, 1996, and the pro forma consolidated capitalization of
the Holding Company after giving effect to the assumptions set forth under "PRO
FORMA DATA," based on the sale of the number of shares of Common Stock set forth
below in the Conversion at the minimum, midpoint and maximum of the Estimated
Valuation Range, and based on the sale of 2,592,100 shares (representing the
shares that would be issued in the Conversion after giving effect to an
additional 15% increase in the maximum valuation in the Estimated Valuation
Range, subject to receipt of an updated appraisal confirming such valuation and
OTS approval). A change in the number of shares to be issued in the Conversion
may materially affect pro forma consolidated capitalization.
<TABLE>
<CAPTION>
Holding Company
Pro Forma Consolidated Capitalization
Based Upon the Sale of
1,666,000 1,960,000 2,254,000 2,592,100
Shares at Shares at Shares at Shares at
Association $10.00 $10.00 $10.00 $10.00
Historical Per Share(1) Per Share(1) Per Share(1) Per Share(2)
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(3) $68,548 $68,548 $68,548 $68,548 $68,548
FHLB advances 1,500 1,500 1,500 1,500 1,500
ESOP borrowings(4) -- -- -- -- --
Total deposits and
borrowed funds $70,048 $70,048 $70,048 $70,048 $70,048
Stockholders' equity:
Preferred stock:
250,000 shares, $0.01
par value per share,
authorized; none to be issued
or outstanding $ -- $ -- $ -- $ -- $ --
Common Stock:
4,000,000 shares, $0.01 par
value per share, authorized;
specified number of shares
assumed to be issued and
outstanding as
reflected(5) -- 17 20 23 26
Additional paid-in capital -- 16,098 18,995 21,898 25,276
Retained earinings(7) 15,620 15,620 15,620 15,620 15,620
Unrealized gain 256 256 256 256 256
Less:
Common Stock acquired
by ESOP(4) -- 1,333 1,568 1,803 2,074
Common Stock to be acquired
by MRP(6) -- 666 784 902 1,037
Total stockholders' equity 15,876 29,992 32,539 35,092 38,067
</TABLE>
(footnotes on following page)
12
<PAGE>
---------------
(1) Does not reflect the possible increase in the Estimated Valuation Range to
reflect material changes in the financial condition or performance of the
Association or changes in market conditions or general financial and
economic conditions, or the issuance of shares under the Stock Option Plan.
(2) Represents the pro forma capitalization of the Holding Company in the
event the aggregate number of shares of Common Stock issued in the
Conversion is 15% above the maximum of the Estimated Valuation Range. See
"PRO FORMA DATA" and Footnote 1 thereto.
(3) Withdrawals from deposit accounts for the purchase of Common Stock are not
reflected. Such withdrawals will reduce pro forma deposits by the amounts
thereof.
(4) Assumes that 8% of the Common Stock issued in the Conversion will be
acquired by the ESOP in the Conversion with funds borrowed from the Holding
Company. In accordance with generally accepted accounting principles
("GAAP"), the amount of Common Stock purchased by the ESOP represents
unearned compensation and is, accordingly, reflected as a reduction of
capital. Since the funds are borrowed from the Holding Company, the
borrowing will be eliminated in consolidation and no liability will be
reflected in the consolidated financial statements of the Holding Company.
See "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Employee Stock Ownership
Plan."
(5) The Association's authorized capital will consist solely of 1,000 shares of
common stock, par value $1.00 per share, 1,000 shares of which will be
issued to the Holding Company, and 9,000 shares of preferred stock, no par
value per share, none of which will be issued in connection with the
Conversion.
(6) Assumes the purchase in the open market at the Purchase Price, pursuant to
the proposed MRP, of a number of shares equal to 4% of the shares of Common
Stock issued in the Conversion at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range. The shares assumed to
be purchased in the open market are reflected as a reduction of
stockholders' equity. The issuance of an additional 4% of the shares of
Common Stock for the MRP from authorized but unissued shares of Holding
Company Common Stock would dilute the ownership interest of stockholders
by 3.85%. See "RISK FACTORS -- Dilutive Effect of Benefit Programs,"
"PRO FORMA DATA" and "MANAGEMENT OF THE ASSOCIATION -- Benefits --
Management Recognition Plan." The MRP is subject to stockholder approval
and is expected to be presented to stockholders at a meeting to be held
no earlier than six months following consummation of the Conversion.
(7) Retained earnings are substantially restricted by applicable regulatory
capital requirements and includes unrealized gain on securities available-
for-sale, net of taxes. Additionally, the Association will be prohibited
from paying any dividend that would reduce its regulatory capital below the
amount in the liquidation account, which will be established for the
benefit of the Association's Eligible Account Holders and Supplemental
Eligible Account Holders at the time of the Conversion and adjusted
downward thereafter as such account holders reduce their balances or cease
to be depositors. See "THE CONVERSION -- Effects of Conversion to Stock
Form on Depositors and Borrowers of the Association -- Liquidation
Account."
13
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The following table presents the Association's historical and pro forma
capital position relative to its capital requirements at June 30, 1996. The
amount of capital infused into the Association for purposes of the following
table is 50% of the net proceeds. For a discussion of the assumptions underlying
the pro forma capital calculations presented below, see "USE OF PROCEEDS,"
"CAPITALIZATION" and "PRO FORMA DATA." The definitions of the terms used in the
table are those provided in the capital regulations issued by the OTS. For a
discussion of the capital standards applicable to the Association, see
"REGULATION -- Federal Regulation of Savings Associations -- Capital
Requirements."
<TABLE>
<CAPTION>
15% above
Minimum of Estimated Midpoint of Estimated Maximum of Estimated Maximum of Estimated
Valuation Range Valuation Range Valuation Range Valuation Range
1,666,000 Shares 1,960,000 Shares 2,254,000 Shares 2,592,100 Shares
June 30, 1996 at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
Percent of Percent of Percent of Percent of Percent of
Adjusted Adjusted Adjusted Adjusted Adjusted
Total Total Total Total Total
Amount Assets (1) Amount Assets (1) Amount Assets (1) Amount Assets (1) Amount Assets (1)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP capital $15,876 18.5% $21,934 23.5% $23,032 24.3% $24,132 25.2% $25,416 26.1%
Tangible capital(2) $15,125 17.6% $21,183 22.7% $22,281 23.6% $23,381 24.4% $24,665 25.3%
Tangible capital
requirement 1,288 1.5 1,399 1.5 1,419 1.5 1,439 1.5 1,462 1.5
Excess $13,837 16.1% $19,784 21.2% $20,862 22.1% $21,942 22.9% $23,203 23.8%
Core capital(2) $15,125 17.6% $21,183 22.7% $22,281 23.6% $23,381 24.4% $24,665 25.3%
Core capital
requirement(3) 2,576 3.0 2,798 3.0 2,839 3.0 2,879 3.0 2,925 3.0
Excess $12,549 14.6% $18,385 19.7% $19,442 20.6% $20,502 21.4% $21,740 22.3%
Risk-based capital(4)(5) $15,305 46.7% $21,364 62.3% $22,461 65.0% $23,561 67.7% $24,845 70.8%
Risk-based
capital requirement 2,624 8.0 2,742 8.0 2,763 8.0 2,784 8.0 2,809 8.0
Excess $12,681 38.7% $18,622 54.3% $19,698 57.0% $20,777 59.7% $22,036 62.8%
</TABLE>
-------------------
(1) Based upon adjusted total assets for purposes of the tangible capital and
core capital requirements, and risk-weighted assets for purposes of the
risk-based capital requirement.
(2) In accordance with OTS policy, tangible capital and core capital are both
less than GAAP capital at June 30, 1996 as a result of the exclusion of
unrealized gain on securities available-for-sale, net of taxes, of
$256,000 and the investment in Dime Service Corporation of $495,000. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Impact of New Accounting Pronouncements and Regulatory
Policies -- Accounting for Certain Investments in Debt and Equity
Securities."
(3) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements which
would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and
soundness and a core capital ratio of 4% to 5% for all other thrifts.
(4) Percentage represents total core and supplementary capital divided by total
risk-weighted assets.
(5) Assumes reinvestment of net proceeds into assets with a risk weighting
equal to 20%.
(6) The pro forma data has been adjusted to reflect reductions in capital that
would result from an assumed 8% purchase of Common Stock by the ESOP and a
4% purchase of Common Stock by the Association for the MRP at June 30,
1996.
14
<PAGE>
PRO FORMA DATA
Under the Plan of Conversion, the Common Stock must be sold at a price
equal to the estimated pro forma market value of the Holding Company and the
Association, as converted, based upon an independent valuation. The Estimated
Valuation Range as of September 6, 1996 is from a minimum of $16.7 million to a
maximum of $22.5 million with a midpoint of $19.6 million or, at a price per
share of $10.00, a minimum number of shares of 1,666,000, a maximum number of
shares of 2,254,000 and a midpoint number of shares of 1,960,000. The actual net
proceeds from the sale of the Common Stock cannot be determined until the
Conversion is consummated. However, net proceeds set forth on the following
table are based upon the following assumptions: (i) Webb will receive a
management fee of $25,000, and a success fee of 1.5% of the aggregate Actual
Purchase Price of the shares of Common Stock sold in the Offerings excluding
shares purchased by the ESOP and officers and directors of the Association (such
success fee not to exceed 1.5% of the gross offering proceeds at the midpoint of
the Estimated Valuation Range, or $294,000); (ii) none of the shares will be
sold in the Syndicated Community Offering; and (iii) Conversion expenses will
total approximately $545,000, $585,000, $619,000 and $619,000 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation Range,
respectively. Actual expenses may vary from this estimate, and the fees paid
will depend upon the percentages and total number of shares sold in the
Offerings and other factors.
The pro forma consolidated net income of the Association for the year
ended June 30, 1996 has been calculated as if the Conversion had been
consummated at the beginning of such period and the estimated net proceeds
received by the Holding Company and the Association had been invested at 5.78%
at the beginning of the period, which represents the one-year U.S. Treasury Bill
yield as of June 30, 1996. While OTS regulations provide for the use of a yield
representing the arithmetic average of the weighted average yield earned by the
Association on its interest-earning assets and the rates paid on its deposits,
the Holding Company believes the U.S. Treasury Bill yield represents a more
realistic yield on the Association's investments. As discussed under "USE OF
PROCEEDS," the Holding Company expects to retain 50% of the net proceeds of the
Offerings from which it will fund the ESOP loan. Pro forma after-tax yields of
3.81% are used for both the Holding Company and the Association for the year
ended June 30, 1996, after giving effect to an incremental rate of 34%.
Historical and pro forma income per share amounts have been calculated by
dividing historical and pro forma amounts by the number of shares of Common
Stock indicated in the table. Pro forma stockholders' equity at June 30, 1996
has been calculated as if the Common Stock had been sold at June 30, 1996.
Historical and pro forma stockholders' equity per share amounts have been
calculated by dividing historical and pro forma amounts by the individual number
of shares of Common Stock issued. No effect has been given in the pro forma
stockholders' equity calculations for the assumed earnings on net proceeds.
The following tables summarize the historical net income and total equity
of the Association and the pro forma consolidated net income and stockholders'
equity of the Holding Company for the periods and at the dates indicated, based
on the minimum, midpoint and maximum of the Estimated Valuation Range and based
on a 15% increase in the maximum of the Estimated Valuation Range. No effect has
been given (i) to the shares to be reserved for issuance under the Holding
Company's Stock Option Plan, which is expected to be presented to stockholders
for approval at a meeting to be held no earlier than six months following
consummation of the Conversion; (ii) to withdrawals from deposit accounts for
the purpose of purchasing Common Stock in the Conversion; (iii) to the issuance
of shares from authorized but unissued shares to the MRP, which is expected to
be presented to stockholders for approval at a meeting to be held no earlier
than six months following consummation of the Conversion; or (iv) to the
establishment of a liquidation account for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders. See "MANAGEMENT OF THE
ASSOCIATION -- Benefits -- 1996 Stock Option Plan" and "THE CONVERSION -- Stock
Pricing and Number of Shares Issued." Shares of Common Stock may be purchased
with funds on deposit at the Association, which will reduce deposits by the
amounts of such purchases. Accordingly, the net amount of funds available for
investment will be reduced to the extent shares are purchased with funds on
deposit.
The following pro forma information may not be representative of the
financial effects of the Conversion at the date on which the Conversion actually
occurs and should not be taken as indicative of future results of operations.
Stockholders' equity represents the difference between the stated amounts of
consolidated assets and liabilities of the Holding Company computed in
accordance with GAAP. Stockholders' equity has not been increased or decreased
to reflect the difference between the carrying value of assets and liabilities
and market value. Stockholders' equity is not intended to represent fair market
value nor does it represent amounts that would be available for distribution to
stockholders in the event of liquidation.
15
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended June 30, 1996
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range
1,666,000 1,960,000 2,254,000 2,592,100
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share (1)
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds $16,660 $19,600 $22,540 $25,921
Less:
Estimated offering expenses (545) (585) (619) (619)
Estimated net proceeds 16,115 19,015 21,921 25,302
Less:
Common Stock acquired by the ESOP (1,333) (1,568) (1,803) (2,074)
Common Stock to be acquired by MRP (666) (784) (902) (1,037)
Estimated net cash proceeds $14,116 $16,663 $19,216 $22,191
Consolidated net income:
Historical $ 632 $ 632 $ 632 $ 632
Pro forma net income on proceeds(2) 538 636 733 847
Pro forma ESOP adjustments(3) (88) (103) (119) (137)
Pro forma MRP adjustments(4) (88) (103) (119) (137)
Pro forma net income(10) $ 994 $1,062 $ 1,127 $ 1,205
Consolidated net income per share(5)(6):
Historical $ 0.41 $ 0.35 $ 0.30 $ 0.26
Pro forma net income on proceeds 0.35 0.35 0.35 0.35
Pro forma ESOP adjustments(3) (0.06) (0.06) (0.06) (0.06)
Pro forma MRP adjustments(4) (0.06) (0.06) (0.06) (0.06)
Pro forma net income per share(10) $ 0.64 $ 0.58 $ 0.53 $ 0.49
Consolidated stockholders' equity(7):
Historical $ 15,876 $15,876 $15,876 $ 15,876
Estimated net Conversion proceeds 16,115 19,015 21,921 25,302
Less:
Common Stock acquired by ESOP (1,333) (1,568) (1,803) (2,074)
Common Stock to be acquired by MRP(4) (666) (784) (902) (1,037)
Pro forma(7) $29,992 $32,539 $35,092 $ 38,067
Consolidated stockholders' equity per
share(6)(8):
Historical(6) $ 9.53 $ 8.10 $ 7.04 $ 6.12
Estimated net Conversion proceeds 9.67 9.70 9.73 9.76
Common Stock acquired by ESOP (0.80) (0.80) (0.80) (0.80)
Common Stock to be acquired by MRP(4) (0.40) (0.40) (0.40) (0.40)
Pro forma stockholders' equity
per share(9)(11) $ 18.00 $16.60 $ 15.57 $ 14.68
Purchase Price as a percentage of pro forma
stockholders' equity per share 55.56% 60.24% 64.23% 68.12%
Purchase price to pro forma income per share
(P/E ratio) 15.63 x 17.24 x 18.87 x 20.41 x
Shares used in calculating income
per share 1,539,384 1,811,040 2,082,696 2,395,100
</TABLE>
16
<PAGE>
-------------------
(1) Gives effect to the sale of an additional 338,100 shares in
the Conversion, which may be issued as a result of an increase
in the pro forma market value of the Holding Company and the
Association as converted, without the resolicitation of
subscribers or any right of cancellation. The issuance of such
additional shares will be conditioned on a determination of
the independent appraiser that such issuance is compatible
with its determination of the estimated pro forma market value
of the Holding Company and the Association as converted. See
"THE CONVERSION -- Stock Pricing and Number of Shares to be
Issued."
(2) No effect has been given to withdrawals from accounts for the
purpose of purchasing Common Stock in the Conversion.
(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 (at an
interest rate equal to the prime rate as published in The Wall
Street Journal on the closing date of the Conversion, which
rate is currently 8.25%), from the net proceeds from the
Conversion retained by the Holding Company. The amount of this
borrowing has been reflected as a reduction from gross
proceeds to determine estimated net proceeds. The Association
intends to make contributions to the ESOP in amounts at least
equal to the principal and interest requirement of the debt.
The Association's payment of the ESOP debt is based upon
equal installments of principal over a 10-year period,
assuming a combined federal and state tax rate of 34%.
Interest income earned by the Holding Company on the ESOP debt
offsets the interest paid by the Association on the ESOP loan.
No reinvestment is assumed on proceeds contributed to fund the
ESOP. The ESOP expense reflects recognition of compensation
expense based upon shares committed to be released and the
exclusion of unallocated shares from income per share
computations. The valuation of shares committed to be released
would be based upon the average market value of the shares
during the year, which, for purposes of this calculation,
was assumed to be equal to the $10.00 per share Purchase
Price. See "MANAGEMENT OF THE ASSOCIATION -- Benefits --
Employee Stock Ownership Plan."
(4) In calculating the pro forma effect of the MRP, it is assumed
that the required stockholder approval has been received and
that the shares were acquired by the MRP at the beginning of
the period presented in open market purchases at the Purchase
Price. The issuance of authorized but unissued shares of the
Common Stock at the date of the consummation of the Conversion
instead of open market purchases would dilute the voting
interests of existing stockholders by approximately 3.9% and
pro forma net income per share would be $0.62, $0.56, $0.52
and $0.48 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range for the year ended
June 30, 1996, respectively, and pro forma stockholders'
equity per share would be $17.31, $15.96, $14.97 and $14.12
at the minimum, midpoint, maximum and 15% above the maximum
of the Estimated Valuation Range at June 30, 1996,
respectively. Shares issued under the MRP vest 20% per year
and, for purposes of this table, compensation expense is
recognized on a straight-line basis over each vesting period.
In the event the fair market value per share is greater than
$10.00 per share on the date of stockholder approval of the
MRP, total MRP expense would increase. The total estimated
MRP expense was multiplied by 20% (the total percent of
shares for which expense is recognized in the first year)
resulting in pre-tax MRP expense of $133,280, $156,800,
$180,320 and $207,368 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range for
the year ended June 30, 1996, respectively. No effect has
been given to the shares reserved for issuance under the
proposed Stock Option Plan. If stockholders approve the Stock
Option Plan following the Conversion, the Holding Company
will have reserved for issuance under the Stock Option Plan
authorized but unissued shares of Common Stock representing
an amount of shares equal to 10% of the shares sold in the
Conversion. If all of the options were to be exercised
utilizing these authorized but unissued shares rather than
treasury shares (which could be acquired), the voting
interests of existing stockholders would be diluted by
approximately 9.1%. See "MANAGEMENT OF THE ASSOCIATION --
Benefits -- 1996 Stock Option Plan" and "-- Management
Recognition Plan" and "RISK FACTORS -- Dilutive Effect of
Benefit Programs."
(5) Net income per share amounts are based upon
the shares of Common Stock sold in the Conversion less the
average number of shares assumed to be held by the ESOP not
committed to be released during the first year following the
Conversion.
17
<PAGE>
(6) Historical per share amounts have been computed as if the
shares of Common Stock expected to be issued in the Conversion
had been outstanding at the beginning of the period or on the
date shown, but without any adjustment of historical net
income or historical retained earnings to reflect the
investment of the estimated net proceeds of the sale of shares
in the Conversion, the additional ESOP expense or the proposed
MRP expense, as described above.
(7) "Consolidated stockholders' equity" represents the difference
between the stated amounts of the Association's assets and
liabilities. The amounts shown do not reflect the liquidation
account that will be established for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in
the Conversion, or the federal income tax consequences of the
restoration to income of the Association'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 Association" and "TAXATION." The amounts
shown for consolidated stockholders' equity do not represent
fair market values or amounts distributable to stockholders
in the unlikely event of liquidation.
(8) Consolidated stockholders' equity per share amounts are based
upon shares outstanding of 1,666,000, 1,960,000, 2,254,000
and 2,592,000 at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Valuation Range, respectively.
(9) Neither represents, nor is intended to represent, possible
future price appreciation or depreciation of the Common Stock.
(10) Assuming the accrual of the one-time SAIF assessment occurred
at June 30, 1996 rather than at September 30, 1996, pro forma
consolidated net income per share would be $0.41, $0.39, $0.37
and $0.35 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range for the year ended
June 30, 1996, respectively.
(11) Assuming the accrual of the one-time SAIF assessment occurred
at June 30, 1996 rather than at September 30, 1996, pro forma
consolidated stockholders' equity per share would be
$17.79, $16.42, $15.41 and $14.55 at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation
Range at June 30, 1996, respectively.
18
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of Empire Federal Savings
and Loan Association and Subsidiary for the fiscal years ended June 30, 1996 and
1995 have been audited by KPMG Peat Marwick LLP, independent auditors, whose
report thereon appears elsewhere in this Prospectus. These statements should be
read in conjunction with the Consolidated Financial Statements and related Notes
included elsewhere herein.
Year Ended June 30,
1996 1995
Interest income:
Loans receivable $3,440,793 $3,408,170
Mortgage-backed securities 2,516,854 2,530,329
Investment securities 214,363 142,388
Other 131,543 223,905
Total interest income 6,303,553 6,304,792
Interest expense:
Deposits 3,214,259 2,793,293
Advances from Federal
Home Loan Bank 95,444 144,768
Total interest expense 3,309,703 2,938,061
Net interest income 2,993,850 3,366,731
Provision for loan losses 55,000 --
Net interest income after
provision for loan losses 2,938,850 3,366,731
Non-interest income:
Insurance commission
income 688,166 691,196
Customer service charges 145,456 129,425
Other 45,100 36,247
Total non-interest income 878,722 856,868
Non-interest expense:
Compensation and benefits 1,614,601 1,542,123
Occupancy and equipment 340,114 264,333
Deposit insurance premiums 185,287 225,663
Data processing services 105,986 86,125
Other 540,427 564,794
Total non-interest expense 2,786,415 2,683,038
Income before income taxes 1,031,157 1,540,561
Income taxes 399,480 588,623
Net income $ 631,677 $ 951,938
See accompanying Notes to Consolidated Financial Statements.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Association. The information contained in this
section should be read in conjunction with the Consolidated Financial Statements
and accompanying Notes thereto and the other sections contained in this
Prospectus.
Operating Strategy
The business of the Association consists principally of attracting
deposits from the general public and using such deposits to originate mortgage
loans secured primarily by one- to four-family residences. The Association also
invests in interest bearing deposits, investment grade federal agency securities
and mortgage-backed securities. The Association plans to continue to fund its
assets primarily with deposits, although FHLB advances have been used as a
supplemental source of funds.
The Association's profitability depends primarily on its net interest
income, which is the difference between the income it receives on its loan and
investment portfolio and its cost of funds, which consists of interest paid on
deposits. Net interest income is also affected by the relative amounts of
interest-earning assets and interest-bearing liabilities. When interest-earning
assets equal or exceed interest-bearing liabilities, any positive interest rate
spread will generate net interest income. The Association's profitability is
also affected by the level of other income and expenses. Other income consists
of service charges on negotiable order of withdrawal ("NOW") accounts, late
charges on loans and other fees, proceeds from the sale of available-for-sale
securities, insurance commissions, and net real estate owned income (expense).
Other expenses include compensation and employee benefits, occupancy expenses,
deposit insurance premiums, equipment and data servicing expenses, professional
fees and other operating costs. The Association's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government legislation and
policies concerning monetary and fiscal affairs, housing and financial
institutions and the attendant actions of the regulatory authorities.
The Association's strategy is to operate as a conservative,
well-capitalized, profitable institution dedicated to financing home ownership
and other consumer needs and to provide quality service to all customers. The
Association believes that it has successfully implemented its strategy by (i)
maintaining strong capital levels, (ii) maintaining effective control over
operating expenses to attempt to achieve profitability under differing interest
rate scenarios, (iii) emphasizing local loan originations, and (iv) emphasizing
high-quality customer service with a competitive fee structure.
Financial Condition
Total assets increased by approximately $1.3 million, or 1.5%, from $85.5
million at June 30, 1995 to $86.8 million at June 30, 1996. This increase was
primarily attributable to an increase in net loans receivable.
The composition of the consolidated statements of financial condition was
not materially affected by market conditions between June 30, 1996 and June 30,
1995. Net loans increased $2.5 million, or 6.2%, as a result of increased
originations of one- to four-family and construction loans. Mortgage-backed
securities decreased by $1.7 million during this period primarily as the result
of maturities of mortgage-backed securities of $7.4 million that were partially
offset by purchases of $5.7 million. Premises and equipment increased $177,000
primarily as a result of the remodeling of the Bozeman branch office during
fiscal 1996.
Deposits increased $1.5 million, or 2.2%, to $68.6 million at June 30,
1996 from $67.1 million at June 30, 1995. NOW, regular savings and money market
accounts increased only slightly while time deposits increased by
20
<PAGE>
approximately $1.4 million. The weighted average rate on deposits increased from
4.05% during fiscal year 1995 to 4.68% for fiscal year 1996.
Results of Operations
The operating results of the Association depend primarily on its net
interest income. The Association's net interest income is determined by its
interest rate spread, which is the difference between the yields earned on its
interest-earning assets and the rates paid on its interest-bearing liabilities
and the degree of mismatch in the maturity and repricing characteristics of its
interest-earning assets and interest-bearing liabilities. The Association's net
earnings are also affected by the establishment of provisions for loan losses
and the level of its other non-interest income, including insurance commission
income and deposit service charges, as well as its other expenses and income tax
provisions.
Comparison of Results of Operations for the Years Ended June 30, 1996 and 1995
General. Market interest rates are generally measured by the yields on
U.S. Treasury obligations. The yields on the one-year U.S. Treasury Bill and the
30-year U.S. Treasury Bond are the respective benchmarks for short-term and
long-term market interest rates. During the fiscal year ended June 30, 1995, the
yield curve flattened (i.e. short-term and long-term rates converged) as the
yield on the one-year U.S. Treasury Bill increased from 4.22% at June 30, 1994
to 5.57% at June 30, 1995, while the yield on the 30-year U.S. Treasury Bond
decreased from 7.61% at June 30, 1994 to 6.63% at June 30, 1995. During the
fiscal year ended June 30, 1996, the yield curve steepened (i.e. short-term and
long-term rates diverged) as the yield on the one-year U.S. Treasury Bill
decreased to 5.16% at June 30, 1996, while the yield on the 30-year U.S.
Treasury Bond increased to 6.87% at June 30, 1996.
Net Income. Net income decreased $320,000, or 33.6%, to $632,000 for
fiscal 1996 from $952,000 for fiscal 1995. The decline in income was primarily
attributable to an increase in the Association's cost of funds from 4.10% during
the year ended June 30, 1995 to 4.71% for the year ended June 30, 1996. The
average balance of interest-bearing liabilities decreased slightly during this
period from $71.6 million during fiscal 1995 to $70.3 million during fiscal
1996.
Net Interest Income. Net interest income decreased $373,000, or 11.7%, to
$2.9 million for 1996 from $3.4 million for 1995. The decrease in net interest
income primarily reflected a 53 basis point decrease in the interest rate spread
to 2.80% for fiscal 1996 from 3.33% for fiscal 1995.
Interest Income. Total interest income was $6.3 million for both fiscal
1996 and 1995. Interest income from loans receivable increased $33,000, or 9.6%.
The increase was primarily attributable to the increase in the average balance
of loans receivable from $40.1 million during fiscal 1995 to $40.8 million
during fiscal 1996 as loan originations increased to $12.4 million during fiscal
1996 compared to loan originations of $4.5 million during fiscal 1995. The
increase in the average balance of loans receivable in fiscal 1996 resulted
primarily from an increase in construction loans and consumer loans,
particularly home improvement loans, as the economy of the Association's
primary market area improved from fiscal 1995. See "BUSINESS OF THE
ASSOCIATION -- Lending Activities -- Loan Originations, Sales and Purchases."
The increase in the average balance of loans receivable was partially offset
by the decline in the average yield on loans receivable from 8.51% during
fiscal 1995 to 8.44% during fiscal 1996.
Interest income from mortgage-backed securities was $2.5 million during
both periods. The average balance of mortgage-backed securities declined from
$38.1 million during fiscal 1995 to $37.1 million during fiscal 1996 as
principal repayments exceeded purchases. This was offset, however, by an
increase in the yield on mortgage-backed securities from 6.65% during fiscal
1995 to 6.78% during fiscal 1996.
21
<PAGE>
Interest Expense. Interest expense on deposits increased $421,000 to $3.2
million for 1996 from $2.8 million for 1995. The increase is primarily
attributable to an increase in the average cost of deposits which increased from
4.05% during fiscal 1995 to 4.68% during fiscal 1996 which more than offset the
decline in the average balance of deposits. The increase in the cost of deposits
was primarily attributable to an increase in rates paid on certificates of
deposit to meet local competition.
The Association utilized FHLB advances to purchase mortgage-backed
securities and to provide an additional source of funds for its lending
activities. During this period the average balance of short term borrowings
decreased $1.1 million from $2.7 million during fiscal 1995 to $1.6 million
during 1996 as traditional deposits were utilized to fund lending activities and
mortgage-backed securities purchases. As a result, the cost of FHLB advances
decreased 34.1% from $145,000 during fiscal 1995 to $95,000 during fiscal 1996.
Provision for Loan Losses. The provision for loan losses for 1996 was
$55,000 compared to no provision for 1995. The increase in the provision for
loan losses resulted primarily from the increased size of the loan portfolio,
particularly with respect to construction and consumer loans which involve
greater risk than residential mortgage loans, and management's desire to
increase its allowance for loan losses as a percentage of loans receivable to
levels comparable with its peers in the Pacific Northwest. Management's periodic
evaluation of the adequacy of the allowance is based on factors such as the
Association's 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, current and prospective economic
conditions, peer group comparisons, and independent appraisals. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Association's allowance for loan losses. Such agencies
may require the Association to provide additions to the allowance based upon
judgments different from management. Assessment of the adequacy of the allowance
for credit losses involves subjective judgements regarding future events, and
thus, there can be no assurance that additional provisions for credit losses
will not be required in future periods. 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
Association's control. Any increase or decrease in the provision for loan losses
has a corresponding negative or positive effect on net income. At June 30, 1996,
the allowance represented 0.46% of loans receivable as compared to 0.36% of
loans receivable at June 30, 1995.
Non-Interest Income. Non-interest income increased $21,000, or 2.6%, in
fiscal 1996 as compared to fiscal 1995 primarily as the result of a $15,000, or
12.4%, increase in customer service charges.
Insurance commissions that the Association receives from its wholly-owned
subsidiary are the largest component of its non-interest income. The Association
received income from insurance commissions of $688,000 and $691,000 during
fiscal 1996 and 1995, respectively.
Non-Interest Expense. Total non-interest expense increased $103,000, or
3.8%, for 1996 compared to 1995. This increase was primarily the result of a
$72,000, or 4.7%, increase in compensation and benefits and a $76,000, or 28.7%,
increase in occupancy and equipment expense caused primarily by additional
depreciation expense on new equipment and furniture related to the remodeling of
the Bozeman branch, repairs to an elevator and other maintenance costs. Data
processing expenses increased $20,000, or 23.1%. Other non-interest expense
items remained relatively stable.
Included in non-interest expense are direct costs (compensation and
benefits, occupancy and equipment, and other expenses) attributable to the
operations of the Association's wholly-owned subsidiary, Dime Insurance Agency.
Such direct costs totalled $638,000 and $617,000 for the fiscal years ended June
30, 1996 and 1995, respectively.
22
<PAGE>
The Association expects to incur increased expenses following the
Conversion as a result of the costs associated with being a public company and
the ESOP and other stock benefit plans, if adopted.
Income Taxes. Income taxes declined $189,000 from 1995 to 1996 as a result
of the decline in income before income taxes. The effective combined Federal and
state tax rate was 38.74% during 1996 and 38.21% during 1995.
23
<PAGE>
Average Balances, Interest and Average Yields/Cost
The following table sets forth certain information for the periods
indicated regarding average balances of assets and liabilities as well as the
total dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and average yields and
costs. Such yields and costs for the periods indicated are derived by dividing
income or expense by the average monthly balance of assets or liabilities,
respectively, for the periods presented. Average balances are derived from
month-end balances. Management does not believe that the use of month-end
balances instead of daily balances has caused any material difference in the
information presented.
<TABLE>
<CAPTION>
Year Ended June 30,
At June 30, --------------------------------------------------------------------
1996 1996 1995
---------- ------------------------------------------ -------------------------
Yield/ Average Yield/ Average Yield/
Cost Balance Interest Cost Balance Interest Cost
----- ------- -------- ---- ------- -------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) 8.16% $40,766 $3,441 8.44% $40,069 $3,408 8.51%
Mortgage-backed securities 6.86 37,097 2,517 6.78 38,064 2,531 6.65
Investment securities 5.28 4,020 214 5.32 3,705 142 3.83
Other interest-earning assets(2) 6.18 2,044 132 6.46 3,044 224 7.36
----- ------- ------ ------- ------
Total interest-earning assets 7.42 83,927 6,304 7.51 84,882 6,305 7.43
Non-interest-earning assets 3,567 3,196
------- -------
Total assets $87,494 $88,078
======= =======
Interest-bearing liabilities:
NOW accounts 2.59 8,874 228 2.57 8,944 226 2.53
Money market accounts 3.50 5,228 184 3.52 5,388 180 3.34
Regular savings 3.25 14,799 476 3.22 17,772 596 3.35
Certificates of deposit 5.76 39,838 2,326 5.84 36,870 1,791 4.86
----- ------- ------ ---- ------- ------ ----
Total deposits 4.64 68,739 3,214 4.68 68,974 2,793 4.05
Other liabilities 5.98 1,595 96 6.02 2,668 145 5.43
------- ------- ------- ------
Total interest-bearing liabilities 4.67 70,334 3,310 4.71 71,642 2,938 4.10
------ ------
Non-interest-bearing liabilities 1,318 1,400
------- -------
Total liabilities 71,652 73,042
Retained earnings 15,842 15,036
------- -------
Total liabilities and retained earnings $87,494 $88,078
======= =======
Net interest income $2,994 $3,367
====== ======
Interest rate spread(3) 2.75 2.80% 3.33%
==== ====
Net yield on interest earning assets(4) 3.57% 3.97%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 119.33% 118.48%
====== ======
</TABLE>
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions and
dividends on FHLB stock.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
24
<PAGE>
Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes
on net interest income of the Association. Information is provided with respect
to (i) effects on net interest income attributable to changes in volume (changes
in volume multiplied by prior rate); (ii) effects on net interest income
attributable to changes in rate (changes in rate multiplied by prior volume);
and (iii) the net change. The changes attributed to the combined impact of rate
and volume have been allocated proportionately to the changes due to volume and
the changes due to rate.
<TABLE>
<CAPTION>
Year Ended June 30, Year Ended June 30,
1996 Compared to Year 1995 Compared to Year
Ended June 30, 1995 Ended June 30, 1994
Increase (Decrease) Increase (Decrease)
Due to Due to
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------ ---- ------ --- ------ ---- ------ ---
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable...................... $ 59 $ (28) $ 2 $ 33 $ (148) $ (54) $ (2) $ (204)
Mortgage-backed securities............ (64) 49 1 (14) 181 (18) -- 163
Investment securities................. 12 55 5 72 98 (60) (41) (3)
Other interest-earning assets......... (74) (27) 9 (92) 23 46 8 77
------- ------- ----- ------- ----- ----- ----- -----
Total interest-earning assets...... (67) 49 17 (1) 154 (86) (35) 33
------- ------- ------ ------ ----- ------ ------ -----
Interest expense:
Savings accounts...................... (10) 435 (4) 421 74 228 5 307
Other liabilities..................... (58) 15 (6) (49) (13) 3 -- (10)
------- ------ ------- ------- ------ ----- ------ ------
Total interest-bearing liabilities. (68) 450 (10) 372 61 231 5 297
------- ------ ------- ------ ----- ----- ----- -----
Net change in net interest income...... $ 1 $(401) $ 27 $(373) $ 87 $(317) $(34) $264
===== ====== ==== ====== ==== ====== ===== ====
</TABLE>
25
<PAGE>
Asset and Liability Management and Interest Rate Risk
General. The ability to maximize net interest income depends largely upon
achieving a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time. The difference, or the interest rate repricing "gap," provides
an indication of the extent to which an institution's interest rate spread will
be affected by changes in interest rates. A gap is considered positive when the
amount of interest-rate sensitive assets exceeds the amount of interest-rate
sensitive liabilities, and is considered negative when the amount of
interest-rate sensitive liabilities exceeds the amount of interest-rate
sensitive assets. Generally, during a period of rising interest rates, a
negative gap within shorter maturities would result in a decrease in net
interest income. Conversely, during a period of falling interest rates, a
negative gap within shorter maturities would result in an increase in net
interest income.
The Association has perceived its market niche to be that of a traditional
thrift lender that originates fixed rate residential loans for its portfolio and
purchases fixed rate United States agency investment securities and
mortgage-backed securities to supplement its lending activities. The Association
uses its capital position to absorb the adverse consequences of the increased
interest rate risk associated with this strategy. As an integral part of this
strategy, the Association has historically concentrated its lending activity on
the origination of long-term, fixed-rate, residential one- to four-family
mortgage loans and commercial real estate and multi-family loans. As of June 30,
1996, 83.1% of the Association's total loans, were fixed rate loans and 86.2% of
its investments and mortgage-backed securities had fixed interest rates.
The mismatch between maturities and interest rate sensitivities of balance
sheet items results in interest rate risk. The Association has a high level of
interest rate risk, compared to many similar sized thrift institutions, as a
result of its policies to make fixed-rate, residential one- to four-family real
estate loans and to purchase fixed rate investment and mortgage-backed
securities, which are longer term in nature than the short-term characteristics
of its liabilities for customer deposit accounts. See "RISK FACTORS -- Above
Average Interest Rate Risk Associated With Fixed-Rate Loan and Mortgage-Backed
Securities Portfolio"; Because of its capital position, the Association has
accepted the above average interest rate risk associated with fixed-rate loans
and fixed-rate investment and mortgage-backed securities in an effort to
maximize yield. See "-- Liquidity and Capital Resources."
Interest Rate Sensitivity of Net Portfolio Value
The following table is provided to the Association by the OTS and
illustrates the change in NPV, at June 30, 1996 based on OTS assumptions. No
effect has been given to any steps that management of the Association may take
to counter the effect of the interest rate movements presented in the table.
<TABLE>
<CAPTION>
Net Portfolio as %
Basis of Portfolio Value
Point ("bp") Net Portfolio Value of Assets
Change
in Rates $ Amount $ Change % Change NPV Ratio Change
- -------- -------- -------- -------- --------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
+400 bp 11,766 (6,495) -36% 14.51% -598 bp
+300 bp 13,403 (4,857) -27 16.13 -436 bp
+200 bp 15,095 (3,165) -17 17.72 -277 bp
+100 bp 16,762 (1,498) -8 19.22 -127 bp
0 bp 18,260 20.49
-100 bp 19,346 1,085 +6 21.35 +86 bp
-200 bp 19,744 1,484 +8 21.59 +110 bp
-300 bp 19,937 1,677 +9 21.64 +115 bp
-400 bp 20,417 2,157 +12 21.93 +144 bp
</TABLE>
26
<PAGE>
Under the OTS interest rate risk capital rule (implementation of which has
been postponed), those institutions with greater than "normal" levels of
interest rate risk will be subject to an interest rate risk component in
calculating their risk-based capital ratio. An institution with a "normal" level
of interest rate risk is defined as one whose "Measured Interest Rate Risk" is
less than 2.0%.
The following table is provided by the OTS and is based on the
calculations in the previous table. It sets forth the IRR capital component that
will be deducted from risk-based capital in determining the level of risk-based
capital. At June 30, 1996, the change in NPV as a percentage of portfolio value
of total assets in negative 3.55%, which is greater than negative 2.0%,
indicating that the Association has a greater than "normal" level of interest
rate risk. The Association is exempt from any additional capital requirements;
however, had the Association been subject to the IRR capital component, its IRR
capital component at June 30, 1996 would be approximately $670,000.
<TABLE>
<CAPTION>
June 30, March 31, June 30,
1996 1996 1995
<S> <C> <C> <C>
RISK MEASURES: 200 BP RATE SHOCK
Pre-Shock NPV Ratio: NPV as % of PV of Assets 20.49% 20.73% 20.06%
Exposure Measure: Post-Shock NPV Ratio 17.72 18.02 17.86
Sensitivity Measure: Change in NPV Ratio (277) bp (270) bp (220) bp
CALCULATION OF CAPITAL COMPONENT
Change in NPV as % of PV of Assets (3.55)% (3.49)% (2.88)%
Interest Rate Risk Capital Component ($000) -- -- --
</TABLE>
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as substantially all of the Association's ARM
loans, have features that restrict changes in interest rates on a short-term
basis (1.5% to 2.0% per adjustment period) and over the life of the asset
(generally 5% over the life). Furthermore, in the event of a change in interest
rates, expected rates of prepayments on loans and early withdrawals from
certificates could likely deviate significantly from those assumed in
calculating the table. Therefore, the data presented in the table should not be
relied upon as indicative of actual results.
Liquidity and Capital Resources
The Association's primary sources of funds are proceeds from principal and
interest payments on loans, maturing securities and certificates of deposit. The
proceeds from the sale of available-for-sale securities and FHLB advances are
additional sources of liquidity. While maturities and scheduled amortization of
loans are a predictable source of funds, deposit flows and mortgage prepayments
are greatly influenced by general interest rates, economic conditions and
competition.
The primary investing activity of the Association is the origination of
one- to four-family mortgage loans. During the years ended June 30, 1996 and
1995, the Association originated mortgage loans in the amounts of $12.4 million
and $4.5 million, respectively. During these periods, the Association purchased
mortgage backed securities of $5.7 million and $4.9 million. Other investing
activities include activity in investment grade federal agency and
mortgage-backed securities.
The Association must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
to satisfy financial commitments and to take advantage of investment
27
<PAGE>
opportunities. During fiscal years 1996 and 1995, the Association used its
sources of funds primarily to fund loan commitments and to pay deposit
withdrawals.
The Association uses cash flows generated from operating, investing and
financing activities to meet its liquidity requirements. See Consolidated
Statements of Cash Flows included as part of the Consolidated Financial
Statements appearing elsewhere herein.
Like most thrift institutions, deposits, particularly certificates of
deposit, have been the primary source of external funds for the Association. By
offering interest rates that are competitive with or at a slight premium to the
average rate paid by local competitors, the Association has had limited success
in lengthening the maturity of its certificate of deposit portfolio. At June 30,
1996, certificates of deposit amounted to $40.0 million, or 58.3% of total
deposits, including $12.5 million which were scheduled to mature in more than
one year after June 30, 1996. At June 30, 1996, $27.4 million of certificates of
deposit were scheduled to mature within one year. Historically, the Association
has been able to retain a significant amount of maturing deposits. Management of
the Association believes it has adequate resources to fund all loan commitments
by deposits and, if necessary, FHLB-Seattle advances and that it can adjust the
offering rates of savings certificates to retain deposits in changing interest
rate environments.
The OTS requires a savings institution to maintain an average daily
balance of liquid assets (cash and eligible investments) equal to at least 5.0%
of the average daily balance of its net withdrawable deposits and short-term
borrowings. In addition, short-term liquid assets currently must constitute 1.0%
of the sum of net withdrawable deposit accounts plus short-term borrowings. The
Association's actual short- and long-term liquidity ratios at June 30, 1996 were
23.9% and 3.3%, respectively. The Association consistently maintains liquidity
levels in excess of regulatory requirements, and believes this is an appropriate
strategy for proper asset and liability management.
The Association is required to maintain specific amounts of capital
pursuant to OTS requirements. As of June 30, 1996, the Association was in
compliance with all regulatory capital requirements which were effective as of
such date with tangible, core and risk-based capital ratios of 17.6%, 17.6% and
46.7%, respectively. For a detailed discussion of regulatory capital
requirements, see "REGULATION -- Federal Regulation of Savings Associations --
Capital Requirements." See "HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE" for a
numerical presentation of the Association's historical and pro forma capital
levels at June 30, 1996 relative to regulatory requirements.
Impact of New Accounting Pronouncements and Regulatory Policies
Accounting for Derivative Financial Instruments. SFAS No. 119 requires
disclosures of information such as credit and market risks, cash requirements
and accounting policies about derivative financial instruments. The Association
holds structured notes which have contractual step-up interest rates and call
features. The Association's investment policy does not authorize investments in
interest rate swaps, options and futures contracts.
Accounting by Creditors for Impairment of a Loan. See Note 1 of Notes to
the Consolidated Financial Statements for a discussion of SFAS No. 114, as
amended by SFAS No. 118. The Association's adoption of SFAS No. 114, as amended
by SFAS No. 118, did not have a material impact on the Association's financial
position or results of operations.
Disclosure of Fair Value of Financial Instruments. See Note 16 of Notes to
the Consolidated Financial Statements for a discussion of SFAS No. 107.
Accounting for Impairment of Long-Lived Assets. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An
impairment loss is recognized if the sum of the expected future cash flows is
less than the carrying amount of the asset. The
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<PAGE>
Association does not expect the implementation of SFAS No. 121 to have an
material impact on the Association's consolidated financial position or results
of operations. SFAS No. 121 is effective for financial statements issued with
fiscal years beginning after December 15, 1995.
Accounting for Stock-Based Compensation. In October 1995, the FASB issued
SFAS No. 123, establishing financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 encourages all entities to
adopt a new method of accounting to measure compensation cost of all employee
stock compensation plans based on the estimated fair value of the award at the
date it is granted. Companies are, however, allowed to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting, which generally does not result in compensation expense recognition
for most plans. Companies that elect to remain with the existing accounting are
required to disclose in a footnote to the financial statements pro forma net
income and, if presented, earnings per share, as if SFAS No. 123 had been
adopted. The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after December 15, 1995;
however, companies are required to disclose information for awards granted in
their first fiscal year beginning after December 15, 1994.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities. SFAS No. 125 provides guidance on accounting for
transfers and servicing of financial assets, recognition and measurement of
servicing assets and liabilities, financial assets subject to prepayment,
secured borrowings and collateral, and extinguishment of liabilities.
SFAS No. 125 generally requires that the Association recognize as separate
assets the rights to service mortgage loans for others, whether the servicing
rights are acquired through purchases or loan originations. Servicing rights are
initially recorded at fair value based upon the present value of estimated
future cash flows. Subsequently, the servicing rights are assessed for
impairment, which is recognized in the statement of income in the period the
impairment occurs. For purposes of performing the impairment evaluation, the
related portfolio must be stratified on the basis of certain risk
characteristics including loan type and note rate. SFAS No. 125 also specifies
that financial assets subject to prepayment, including loans that can be
contractually prepaid or otherwise settled in such a way that the holder would
not recover substantially all of its recorded investment, be measured like debt
securities available-for-sale or trading securities under SFAS No. 115, as
amended by SFAS No. 125. The provisions of SFAS No. 125 apply to transactions
occurring after December 31, 1996.
Accounting for Employee Stock Ownership Plans. In November 1993, the
American Institute of Certified Public Accountants issued SOP 93-6, which
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 will increase compensation expense relating to
the ESOP to be established in connection with the Conversion. This effect on net
income and book value per share in fiscal 1996 and future periods cannot be
predicted due to the uncertainty of the fair value of the shares of Common Stock
subsequent to their issuance.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with GAAP, which generally require the
measurement of financial position and operating results in terms of historical
dollars, without considering the change in the relative purchasing power of
money over time due to inflation. The primary impact of inflation is reflected
in the increased cost of the Association's operations. Unlike most industrial
companies, virtually all 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 do general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
29
<PAGE>
BUSINESS OF THE HOLDING COMPANY
General
The Holding Company was organized as a Delaware business corporation at
the direction of the Association in September 1996 for the purpose of becoming a
holding company for the Association upon consummation of the Conversion. Upon
consummation of the Conversion, the Association will be a wholly-owned
subsidiary of the Holding Company.
Business
Prior to the Conversion, the Holding Company will not engage in any
significant operations. Upon consummation of the Conversion, the Holding
Company's sole business activity will be the ownership of all of the capital
stock of the Association. In the future, the Holding Company may acquire or
organize other operating subsidiaries, although there are no current plans,
arrangements, agreements or understandings, written or oral, to do so.
Initially, the Holding Company will neither own nor lease any property but
will instead use the premises, equipment and furniture of the Association with
the payment of appropriate rental fees, as required by applicable law.
Since the Holding Company will only hold the capital stock of the
Association, the competitive conditions applicable to the Holding Company will
be the same as those confronting the Association. See "BUSINESS OF THE
ASSOCIATION -- Competition."
BUSINESS OF THE ASSOCIATION
General
The Association operates as a community oriented financial institution
devoted to serving the needs of its customers in its market area. The
Association's business consists primarily of attracting deposits from the
general public and using those funds to originate residential real estate loans.
In addition, the Association has maintained a significant portion of its assets
in investments and mortgage-backed securities.
Market Area
The Association's primary market area includes the Counties of Park,
Gallatin and Sweet Grass in South Central Montana. This area has similar
economic characteristics, however, there is diversity in some unique industries.
All three counties are located near Yellowstone National Park and offer a number
of recreational activities, which are popular tourist attractions.
The Association's main office is located in Livingston (population
approximately 7,000), which is the county seat of Park County (population
approximately 16,000). The primary economic sources in Park County are
agriculture, tourism, mining and forestry. Park County has experienced an
increase in population during the last few years as individuals and businesses
have relocated to Montana. According to information provided by Livingston Job
Service the largest employers in Park County are the State and local
governments, the local hospital, Livingston Rebuild Center, Livingston
Convalescent Center and Industrial Towel. The Park County unemployment rate for
July 1996 was 3.3%.
Bozeman (population approximately 28,000) is the county seat of Gallatin
County (population approximately 59,500). The primary economic sources in
Gallatin County are agriculture, tourism, services, recreational manufacturing
and natural resource-based industries such as mining and forestry. Gallatin
County has also
30
<PAGE>
experienced an increase in population during the last three years. In connection
with this increase in population, Gallatin County has also experienced some
growth in its technology-based companies. Montana State University, which is
located in Bozeman and is the largest single employer, also has a significant
impact on the Gallatin County economy. Other large employers in Gallatin County
include Gibson Guitar, Louisiana Pacific Corp. and Video Lottery Technologies,
Inc. The Gallatin County unemployment rate for July 1996 was 1.9%.
Big Timber (population approximately 1,600) is the county seat of Sweet
Grass County (population approximately 3,300). The primary economic sources in
Sweet Grass County are agriculture, tourism, mining and forestry. Sweet Grass
County has experienced a minimal increase in population during the last few
years. The Sweet Grass County unemployment rate for July 1996 was 1.9%.
Lending Activities
General. As a federally chartered savings and loan association, the
Association has general authority to originate and purchase loans secured by
real estate located throughout the United States. Notwithstanding this
nationwide lending authority, substantially all of the mortgage loans in
the Association's portfolio are secured by properties located in its primary
market area of Park, Gallatin, and Sweet Grass Counties in South Central
Montana.
Permanent residential one- to four-family mortgage loans amounted to $35.2
million, or 81.7%, of the Association's total loan portfolio, before net items,
at June 30, 1996. The Association originates other loans secured by multi-family
residential and commercial real estate, and construction loans. Those loans
amounted to $4.9 million, or 11.4%, of the total loan portfolio, before net
items, (i.e., loans in process, deferred loan origination fees and costs, and
allowance for loan losses), at June 30, 1996. Approximately 2.2%, or $965,000,
of the Association's total loan portfolio, before net items, as of June 30, 1996
consisted of non-real estate loans.
Permissible loans-to-one borrower by the Association are generally limited
to 15% of unimpaired capital and surplus. The Association's loan-to-one borrower
limitation was $2.4 million at June 30, 1996 and would be $5.3 million assuming
gross proceeds from the Offering of $22.5 million at the maximum of the
Estimated Valuation Range, less the adjustment to capital for the ESOP and MRP.
At June 30, 1996, the Association had four borrowing relationships with
outstanding balances in excess of $300,000, the largest of which was $1.3
million and all of which were secured by multiple single family properties,
multi-family or commercial real estate. All of those loans have performed in
accordance with their terms since origination.
Loan Portfolio Analysis. The following table sets forth the composition of
the Association's loan portfolio by type of loan as of the dates indicated. The
Association had no concentration of loans of a given category exceeding 10% of
total gross loans other than as set forth below.
<TABLE>
<CAPTION>
At June 30,
1996 1995
Amount Percent Amount Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C>
One- to four-family $35,202 81.66% $33,974 84.67%
Multi-family 2,333 5.41 2,557 6.37
Commercial real estate 1,182 2.74 1,425 3.55
Consumer 2,112 4.90 1,456 3.63
Share loans 901 2.09 455 1.13
Construction 1,380 3.20 257 0.65
-------- ------- ------- -------
Total 43,110 100.00% 40,124 100.00%
====== ======
Less:
Loans in process 770 315
Deferred loan origination
fees and costs 258 232
Allowance for loan losses 200 145
-------- --------
Total loans, net $41,882 $39,432
======= =======
</TABLE>
31
<PAGE>
Permanent Residential One- to Four-Family Mortgage Loans. The primary
lending activity of the Association is the origination for portfolio of
permanent residential one- to four-family first mortgage loans. Management
believes that this policy of focusing on single-family residential mortgage
loans has been successful in contributing to interest income while keeping
delinquencies and losses to a minimum. At June 30, 1996, $35.2 million, or
81.7%, of the Association's total loan portfolio, before net items, consisted of
permanent residential one- to four-family mortgage loans, with an average
balance of $49,000.
The Association presently originates for portfolio fixed-rate mortgage
loans secured by one- to four- family properties with terms of up to 20 years.
At June 30, 1996, $29.6 million, or 68.6% of the total loans before net items
were fixed rate one- to four-family loans and $5.6 million, or 13.0%, were ARM
loans. The Association has offered two ARM products for portfolio which adjust
annually subject to a limitation on the annual increase of 1.5% to 2.0% and an
overall limitation of 5.0% or to a specific ceiling rate. These ARM products
utilize either the OTS Monthly Median Cost of Funds Index or the Semi-Annual
Cost of Funds Index ("COFI"). Loans based on COFI constitute a majority of the
Association's adjustable rate loans. The COFI is a lagging model index which,
together with the periodic and overall interest rate caps, may cause the yield
on such loans to adjust more slowly than the cost of interest-bearing
liabilities especially in a rapidly rising rate environment. The Association's
ARM loans do not permit negative amortization of principal and carry no
prepayment restrictions. Borrower demand for ARM loans versus fixed-rate
mortgage loans is a function of the level of interest rates, the expectations of
changes in the level of interest rates and the difference between the initial
interest rates and fees charged for each type of loan. The relative amount of
fixed-rate mortgage loans and ARM loans that can be originated at any time is
largely determined by the demand for each in a competitive environment.
ARM loans help reduce the Association's exposure to changes in interest
rates. There are, however, unquantifiable credit risks resulting from the
potential of increased costs due to changed rates to be paid by the customer. It
is possible that, during periods of rising interest rates, the risk of default
on ARM loans may increase as a result of repricing with increased costs to the
borrower. Another consideration is that although ARM loans allow the Association
to increase the sensitivity of its asset base to changes in the interest rates,
the extent of this interest sensitivity is limited by the periodic and lifetime
interest rate adjustment limits. Because of these considerations, the
Association has no assurance that yields on ARM loans will be sufficient to
offset increases in the Association's cost of funds.
The Association's lending policies generally limit the maximum
loan-to-value ratio on mortgage loans secured by owner-occupied properties to
80% of the lesser of the appraised value or the purchase price, however, most
loans have loan-to-value ratios of 75% or less. Appraisals are obtained on all
properties and are made by independent fee appraisers approved by the Board of
Directors.
The Association offers fixed-rate, permanent residential one- to
four-family mortgage loans with terms of up to 30 years. Substantially all
permanent one- to four-family loans have original contractual terms to maturity
of 20 to 25 years and are primarily made for loan amounts of less than $250,000.
Such loans generally are amortized on a monthly basis with principal and
interest due each month and customarily include "due-on-sale" clauses. The
Association enforces due-on-sale clauses to the extent permitted under
applicable laws. Substantially all of the Association's mortgage loan portfolio
consists of conventional loans. The Association has not originated significant
amounts of mortgage loans on second residences.
The Association also originates residential mortgage loans secured by
non-owner occupied rental properties within its primary market area. Generally,
such loans are made at higher interest rates than owner occupied residential
mortgage loans, with a loan-to-value ratio of 70%, and with a debt coverage
ratio of 1.25x.
The Association requires title insurance on all real estate secured loans.
The Association also requires that fire and extended coverage casualty insurance
or homeowners insurance (and, if appropriate, flood insurance) be maintained in
an amount at least equal to the outstanding loan balance.
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<PAGE>
Construction Loans. The Association makes construction loans primarily to
prospective home owners for the construction of their single-family residences,
which generally convert to a permanent loan upon the completion of construction.
Construction loans generally begin to amortize as permanent residential one- to
four-family mortgage loans after the construction period (typically six months)
is completed, unless extended. At June 30, 1996, construction loans amounted to
$1.4 million, or 3.2% of the Association's total loan portfolio, before net
items. In connection with the recent population growth experienced in Bozeman,
Montana, the Association experienced an increase in the origination of
construction loans during fiscal 1996. The balance of the Association's
construction loan portfolio increased from $257,000 at June 30, 1995 to $1.4
million at June 30, 1996. Construction loans have rates and terms which
generally match the non-construction loans then offered by the Association,
except that during the construction phase, the borrower pays only interest on
the loan. The borrower is qualified at the interest rate for the permanent loan.
The Association's construction loan agreements generally provide that loan
proceeds are disbursed in increments as construction progresses. The Association
periodically reviews the progress of the underlying construction project.
Construction lending is generally limited to the Association's primary lending
areas and is underwritten pursuant to the same general guidelines used for
originating permanent one- to four-family loans.
Construction financing is generally considered to involve a higher degree
of risk of loss than financing on improved, owner-occupied real estate because
of the uncertainties of construction and the possibility of costs exceeding the
initial estimates. The Association has sought to minimize the risks associated
with permanent construction lending by limiting construction loans to qualified
owner-occupied borrowers with construction performed by qualified builders
located primarily in the Association's market area.
Multi-Family and Commercial Real Estate Lending. The Association also
originates loans secured by multi-family and commercial real estate. At June 30,
1996, the Association's loan portfolio included $2.3 million in multi-family and
$1.2 million in commercial real estate loans.
Multi-family and commercial real estate lending affords the Association an
opportunity to receive interest at rates higher than those generally available
from one- to four-family residential lending. However, loans secured by such
properties are generally greater in amount, more difficult to evaluate and
monitor and, therefore, involve a greater degree of risk than one- to
four-family residential mortgage loans. Because payments on loans secured by
commercial real estate and multi-family properties are often dependent on the
successful operation and management of the properties, repayment of such loans
may be influenced by adverse conditions in the real estate market or the
economy.
Multi-family and commercial real estate loans originated by the
Association are predominately fixed rate loans with terms to maturity of 15 to
20 years. The Association's commercial real estate portfolio consists of loans
on a variety of properties including office buildings and churches. Multi-family
loans generally are secured by small to medium sized apartment buildings.
Appraisals on properties which secure multi-family and commercial real estate
loans are performed by an independent appraiser engaged by the Association
before the loan is made. Underwriting of commercial and multi-family loans
includes a thorough analysis of the cash flows generated by the real estate to
support the debt service and the financial resources, experience, and income
level of the borrowers. The Association imposes a debt coverage ratio of 1.25x
to ensure that the property securing the loans will generate sufficient cash
flow to adequately cover operating expenses and debt service payments plus
provide an acceptable return to the investor. Operating statements on each
multi-family and commercial real estate loan are required and reviewed by
management on an annual basis.
At June 30, 1996, the average loan balance of the Association's
multi-family loans was $167,000. At June 30, 1996, the Association had four
multi-family loans with one borrower with an aggregate balance of $1.3 million.
All of the properties securing the loans are located in the Association's
primary market area with the exception of one participation loan on a property
located in California with a balance at June 30, 1996 of $324,000. At June 30,
1996, all multi-family and commercial real estate loans were current.
33
<PAGE>
Consumer Lending. The Association's consumer loan portfolio consist
primarily of home equity, home improvement, share loans (loans secured by
deposits) and, to a substantially lesser extent, mobile home and automobile
loans. At June 30, 1996, the Association's consumer loans totalled approximately
$3.0 million, or 7.0% of the Association's gross loans of which $2.0 million, or
4.8%, consisted of home equity and home improvement loans.
Consumer loans are made at fixed interest rates and for varying terms.
Home equity and home improvement loans are made for terms up to 15 years for
owner occupied residences. In the case of the majority of home equity loans, the
Association holds a second mortgage behind another financial institution that
holds the first mortgage. When originating a home equity loan, the Association
accounts for both the first and second mortgage liens and generally limits the
loan-to-value ratio to 80%.
34
<PAGE>
Maturity of Loan Portfolio. The following table sets forth the maturity of
Association's loan portfolio at June 30, 1996. The table does not include
prepayments or scheduled principal repayments. Prepayments and scheduled
principal repayments on loans totaled $9.4 million and $7.0 million, for the two
years ended June 30, 1996, respectively. Adjustable-rate mortgage loans are
shown as maturing based on contractual maturities.
<TABLE>
<CAPTION>
1-4 Family Multi-family Commercial Construction Consumer Total
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Amounts Due:
Within 3 months $ 5 $ -- $ -- $ 210 $ 361 $ 576
3 months to 1 year 7 -- -- 1,170 421 1,598
After 1 year:
1 to 3 years 244 190 42 -- 136 612
3 to 5 years 455 40 28 -- 260 783
5 to 10 years 2,392 822 207 -- 571 3,992
10 to 20 years 23,833 1,078 905 -- 1,241 27,057
Over 20 years 8,266 203 -- -- 23 8,492
-------- ------- -------- -------- ------- --------
Total due after one year 35,190 2,333 1,182 -- 2,231 40,936
-------- ------- ------- -------- ------- --------
Total amount due $35,202 $2,333 $1,182 $1,380 $ 3,013 43,110
======= ====== ====== ====== =======
Less:
Allowance for loan loss 200
Loans in process 770
Deferred loan fees 258
--------
Loans receivable, net $41,882
=======
</TABLE>
The following table sets forth the dollar amount of all loans due after
June 30, 1996, which have fixed interest rates and have floating or adjustable
interest rates.
<TABLE>
<CAPTION>
Fixed- Floating- or
Rates Adjustable-Rates Total
(In Thousands)
<S> <C> <C> <C>
One- to four-family $29,586 $5,616 $35,202
Multi-family 646 1,687 2,333
Non-residential 1,182 -- 1,182
Construction 1,380 -- 1,380
Consumer and share 3,013 -- 3,013
------- -------- --------
Total $35,807 $7,303 $43,110
======= ====== =======
</TABLE>
35
<PAGE>
Scheduled contractual principal repayments of loans as presented in the
preceding table do not reflect the actual life of such assets. The average life
of loans ordinarily is substantially less than their contractual terms because
of prepayments. In addition, due-on-sale clauses on loans generally give the
Association the right to declare loans immediately due and payable in the event,
(among other things), that the borrower sells the real property subject to the
mortgage and the loan is not repaid. The average life of mortgage loans tends to
increase, however, when current mortgage loan market rates are higher than rates
on existing mortgage loans and, conversely, decrease when rates on existing
mortgage loans are higher than current mortgage loan market rates.
Loan Solicitation and Processing. Loan customers are solicited through
advertising media and contacts with local real estate brokers. Upon receipt of a
loan application from a prospective borrower, a credit report and other data are
obtained to verify specific information relating to the loan applicant's
employment, income and credit standing. All of the Association's lending is
subject to its written nondiscriminatory underwriting standards, loan
origination procedures and lending policies prescribed by the Association's
Board of Directors.
All loans must be approved by the Association's Loan Committee, which
consists of any three members of the Board of Directors. Interest rates are
subject to change if the approved loan is not closed within the time of the
commitment. Because the Association originates loans for its own portfolio, many
of the loans do not comply with all secondary market documentation criteria.
This has enabled the Association to develop an expedited loan application and
approval process which management believes provides it with a competitive
advantage in its primary market area while continuing to maintain its
underwriting standards. Management of the Association also believes its local
decision-making capabilities is an attractive quality to customers within its
market area. The Association's loan approval process allows loans to be approved
and closed in approximately four weeks.
Loan Commitments. Loan commitments typically contain a termination date of
30 days from the date of the commitment letter that is issued at the time the
loan is approved. The Association had outstanding loan commitments of
approximately $304,000 at June 30, 1996 all of which were for fixed rate loans.
See Note 14 of Notes to the Consolidated Financial Statements.
Loan Originations, Sales and Purchases. During the year ended June 30,
1996, the Association's total gross mortgage loan originations were $12.4
million.
The Association has occasionally originated or participated in loans
secured by properties outside the State of Montana. These properties are
primarily located in Northern California but also include loans secured by one-
to four- family properties in the Commonwealth of Massachusetts and the States
of New Mexico, Arizona and Colorado. At June 30, 1996, these loans amounted to
$1.8 million and consisted of (i) $934,826 million in permanent residential
one- to four-family mortgage loans, (ii) $429,000 in multi-family loans, (iii)
a participation interest in a commercial real estate loan for $324,000, and (iv)
two whole loan purchases for $145,000. The Association has purchased loan
participation interests primarily during periods of reduced loan demand in its
market area. At June 30, 1996, the Association had three participations in its
primary market area with a balance of $127,000. Any such purchases are made in
conformance with the Association's underwriting standards. The Association may
decide to purchase additional loans outside its market area in the future
depending upon the demand for mortgage credit in its market area, however, it
has not purchased any participation interests outside of its primary market area
during the past five years.
Historically, the Association has been a portfolio lender, maintaining the
residential mortgage loans its originates in its portfolio rather than selling
them in the secondary market. The Association currently intends to continue this
practice after the consummation of the Conversion. See "RISK FACTORS -- Certain
Lending Considerations."
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<PAGE>
The following table sets forth the Association's originations and loan
sales and principal repayments during the periods indicated. Predominately all
mortgage loan originations during the periods indicated were fixed rate loans.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Total gross loans receivable at
beginning of period $40,124 $42,637 $41,344 $38,120
------- ------- ------- -------
Loans originated:
One- to four-family 7,411 2,857 13,223 13,115
Multi-family 225 57 -- 311
Construction 2,631 641 1,937 1,592
Commercial 47 -- -- 18
Consumer 2,069 899 413 1,200
------- ------ ------- -------
Total loans originated 12,383 4,454 15,578 16,236
Loans sold:
Whole loans -- -- -- --
Participations sold -- -- -- --
Total loans sold -- -- -- --
Loan principal repayments (9,397) (6,967) (14,280) (13,012)
------- ------- -------- --------
Net loan activity 2,986 (2,513) 1,293 3,224
------- ------- -------- --------
Total gross loans receivable
at end of period $43,110 $40,124 $42,637 $41,344
======= ======= ======= =======
</TABLE>
Management of the Association attributes the reduced loan originations
during fiscal 1995 relative to fiscal 1996 to a general decline in the economy
of the Association's market area at that time. The relatively low interest rate
environment that prevailed during fiscal years 1994 and 1993 contributed to high
levels of mortgage loan refinancings during those periods.
Loan Origination and Other Fees. The Association charges loan origination
fees, which are a percentage of the principal amount of the mortgage loan. The
amount of fees charged by the Association is generally up to 1% for mortgage
loans and 2% for construction loans. The Association generally does not charge
fees for home equity loans. Current accounting standards require that
origination fees received (net of certain loan origination costs) be deferred
and amortized into interest income over the contractual life of the loan. Net
deferred fees or costs associated with loans that are prepaid are recognized as
income at the time of prepayment. The Association had $252,000 in net deferred
loan fees at June 30, 1996.
Non-Performing Assets and Delinquencies. When a mortgage loan borrower
fails to make a required loan payment when due, the Association institutes
collection procedures. All loan payments are due on the contractual due date of
the loan, however, a loan is not considered delinquent and collection procedures
are not instituted until after the 30th day of the contractual due date. The
Association does not charge its borrowers late penalty fees on payments made
after the contractual due date. The first notice is mailed to the borrower 30
days after the contractual due date and, if necessary, a second written notice
follows within 30 days thereafter giving the borrower 15 days to respond and
correct the delinquency. Attempts to contact the borrower by telephone generally
begin soon after the first notice is mailed to the borrower. If a satisfactory
response is not obtained, continuous follow-up contacts are attempted until the
loan has been brought current or foreclosure is initiated. Attempts to interview
the borrower,
37
<PAGE>
preferably in person, are made to establish (i) the cause of the
delinquency, (ii) whether the cause is temporary, (iii) the attitude of the
borrower toward the debt, and (iv) a mutually satisfactory arrangement for
curing the default.
After such attempts have been made by the Association, or sooner if the
borrower is chronically delinquent and all reasonable means of obtaining payment
on time have been exhausted, foreclosure is initiated according to
the terms of the security instrument and applicable law. Interest income on
loans is then reduced by the full amount of accrued and uncollected interest.
When a consumer loan borrower fails to make a required payment on a
consumer loan by the payment due date, the Association institutes the same
collection procedures as for its mortgage loan borrowers.
The Association's Board of Directors is informed monthly as to the status
of all mortgage and consumer loans that are delinquent more than 30 days, the
status on all loans currently in foreclosure, and the status of all foreclosed
and repossessed property owned by the Association.
At June 30, 1996 and 1995, the Association did not have any nonaccrual
loans, accruing loans contractually past due 90 days or more as to principal or
interest payments, or troubled debt restructurings within the meaning of SFAS
No. 15. Loans amounting to $290,000 and $25,000 were past due (30-89 days) but
still accruing at June 30, 1996 and 1995, respectively.
Real Estate Owned. The Association had no real estate acquired through
foreclosure or in satisfaction of loans at June 30, 1996. See Note 1 of Notes to
the Consolidated Financial Statements for a discussion of the Association's
procedures for accounting for real estate owned.
Asset Classification. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS 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 insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses may 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 as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset . All or a portion of general loan loss allowances
established to cover possible losses related to assets classified substandard or
doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital. Assets that do not currently expose the insured institution
to sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are designated "special mention" and are
monitored by the Association.
At June 30, 1996 the Association had two substandard loans totaling
$75,000 and at June 30, 1995 had three substandard loans totaling $81,000.
Allowance for Loan Losses. The Association has established a systematic
methodology for determining provisions for loan losses. The methodology is set
forth in a formal policy and considers the need for an overall general valuation
allowance as well as specific allowances for individual loans.
In originating loans, the Association recognizes that losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan, general economic conditions and, in the case of a secured loan, the
quality of the security for the loan.
38
<PAGE>
The Association may increase its allowance for loan losses by charging
provisions for loan losses against the Association's income.
The general valuation allowance is maintained to cover losses inherent in
the portfolio of performing loans. Management reviews the adequacy of the
allowance at least quarterly based on management's assessment of current
economic conditions, past loss and collection experience, and risk
characteristics of the loan portfolio. The amount of the allowance is based on
management's evaluation of the collectibility of the loan portfolio, credit
concentrations, trends in historical loss experience, specific impaired
loans, peer group comparisons and economic conditions. Allowances for
impaired loans are generally determined based on collateral values or
the present value of estimated cash flow. Specific valuation allowances
may be established to absorb losses on loans for which full collectibility
may not be reasonably assured. The amount of the allowance is based on
the estimated value of the collateral securing the loan and other analyses
pertinent to each situation.
At June 30, 1996, the Association had an allowance for loan losses of
$200,000, which management believed to be adequate to absorb losses inherent in
the portfolio at that date. Although management believes that it uses the best
information available to make such determinations in accordance with GAAP,
future adjustments to the allowance for loan losses may be necessary and results
of operations could be significantly and adversely affected if circumstances
differ substantially from the assumptions used in making the determinations.
Furthermore, there can be no assurance that regulators, in reviewing the
Association's loan portfolio, will not request the Association to increase
significantly its allowance for loan losses. In addition, because future events
affecting borrowers and collateral cannot be predicted with certainty, there can
be no assurance that the existing allowance for loan losses is adequate or that
substantial increases will not be necessary should the quality of any loans
deteriorate as a result of the factors discussed above. Any material increase in
the allowance for loan losses may adversely affect the Association's financial
condition and results of operations.
The following table sets forth an analysis of the Association's allowance
for loan losses for the periods indicated. As indicated by the table, there has
not been any fluctuations in the allowance for loan losses.
Year Ended June 30,
1996 1995
---- ----
(Dollars in Thousands)
Total loans outstanding before net items $43,110 $40,124
------- -------
Allowance balance at beginning of
year 145 145
------- -------
Provision 55 --
Net charge-offs -- --
-------- --------
Allowance balance at end of year $ 200 $ 145
======= =======
Allowance for loan losses as a percent
of total loans outstanding 0.46% 0.36%
39
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. The portion of the allowance
to each loan category does not necessarily represent the total available for
losses within that category since the total allowance applies to the entire loan
portfolio. The allocation of the allowance to each category is not necessarily
indicative of future losses and does not restrict the use of the allowance to
absorb losses in any other category.
<TABLE>
<CAPTION>
At June 30,
1996 1995
% of % of
Loans Loans
in Each in Each
Category Category
to Total to Total
Amount Loans Amount Loans
(Dollars in Thousands)
<S> <C> <C> <C> <C>
One- to four-family $120 81.66% $105 84.67%
Commercial real estate 40 2.74 15 3.55
Multi-family 25 5.41 10 6.37
Construction -- 3.20 -- 0.65
Consumer and share 15 6.99 15 4.76
----- ------- ----- -------
Total allowance $200 100.00% $145 100.00%
==== ====== ==== ======
</TABLE>
Investment Activities
The Association is permitted under federal law to invest in various types
of liquid assets, including U.S. Treasury obligations, securities of various
federal agencies and of state and municipal governments, deposits at the
FHLB-Seattle, certificates of deposit of federally insured institutions, certain
bankers' acceptances and federal funds. Subject to various restrictions, the
Association may also invest a portion of its assets in commercial paper and
corporate debt securities. The Association is also required to maintain an
investment in FHLB stock.
The Association is required under federal regulations to maintain a
minimum amount of liquid assets. At June 30, 1996, the Association's regulatory
liquidity of 23.9% was significantly in excess of the 5% required by OTS
regulations. The securities in the Association's investment portfolio provide it
with liquidity for funding loan originations and enables the Association to
improve the match between the maturities and repricing of its interest-rate
sensitive assets and liabilities. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources" and "REGULATION."
The President of the Association determines appropriate investments in
accordance with the Board of Directors' approved investment policies and
procedures. The Association's policies generally limit investments to U.S.
Government and agency securities and mortgage-backed securities issued and
guaranteed by FHLMC, FNMA and Government National Mortgage Association ("GNMA").
The Association's policies provide that investment purchases be ratified at
monthly Board of Directors meetings. Investments are made based on certain
considerations, which include the interest rate, yield, settlement date and
maturity of the investment, the Association's liquidity position, and
anticipated cash needs and sources (which in turn include outstanding
commitments, upcoming maturities, estimated deposits and anticipated loan
amortization and repayments). The effect that the proposed investment would have
on the Association's credit and interest rate risk, and risk-based capital is
also given consideration during the evaluation.
At June 30, 1996, the Association's investment and mortgage-backed
securities portfolio totaled $39.1 million and consisted principally of U.S.
Government and agency obligations and mortgage-backed securities. At June 30,
1996, the Association had investment securities available for sale with an
estimated market value of $1.4
40
<PAGE>
million which includes stock in the FHLMC and two mutual funds, the assets of
which consisted of adjustable rate mortgages and U.S. Government and agency
securities. The FHLMC common and preferred stock at June 30, 1996 had an
amortized cost of $68,000 and an estimated market value of $1.0 million. The
market value of the FHLMC common and preferred stock had increased significantly
since their purchase in the mid-80's. From time to time, investment levels may
be increased or decreased depending upon the yields on investment alternatives
and upon management's judgment as to the attractiveness of the yields then
available in relation to other opportunities and its expectation of the level of
yield that will be available in the future, as well as management's projections
as to the short-term demand for funds to be used in the Association's loan
origination and other activities.
U.S. Government and Agency Obligations. The Association's portfolio of
U.S. Government and agency obligations had a fair value of $2.4 million ($2.5
million at amortized cost) at June 30, 1996. The portfolio consisted of FHLB
bonds that mature between 1998 and 2011, all of which were held in the
Association's held to maturity portfolio. At June 30, 1996, the interest rates
on these obligations ranged from 5.2% to 8.0%.
The Association's investment securities include structured notes in the
form of step-up bonds and bonds that are subject to call. The form of structured
notes in which the Association has invested provides for periodic adjustments in
coupon rates on specified dates or call prior to maturity. The Association
purchases these bonds as part of its investment strategy and will only consider
bonds issued by a governmental agency with maturities of no longer than 15
years. Management of the Association acknowledges the uncertainty that these
instruments may be called before maturity with the initial higher coupon offered
by these bonds. Management of the Association realizes that step-up bonds, or
bonds subject to call, are not as liquid an investment as traditional agency
bonds and thus involve more risk than other investments in the Association's
portfolio. However, as the Association intends to hold the instruments until
their maturity or call, management does not consider this as an obstacle to
purchasing these instruments. At June 30, 1996, the Association had $750,000 in
step-up bonds and all of such FHLB bonds were subject to call prior to maturity.
Mortgage-Backed Securities. The Association purchases mortgage-backed
securities in order to: (i) generate positive interest rate spreads on large
principal balances with minimal administrative expense; (ii) lower the credit
risk of the Association as a result of the guarantees provided by FHLMC, FMNA,
and GNMA; (iii) enable the Association to use mortgage-backed securities as
collateral for financing; and (iv) invest excess funds during periods of reduced
loan demand. Included in the Association's mortgage-backed securities portfolio
are real estate mortgage investment conduits ("REMICs"), which mature in 2023
and have adjusting interest rates based primarily on the rate paid on United
States Treasury Securities and the COFI. At June 30, 1996, net mortgage-backed
securities totaled $35.2 million, or 40.5% of total assets. At June 30, 1996,
$4.0 million of the mortgage-backed securities had adjustable-rates of interest
and $31.2 million had fixed-rates. The mortgage-backed securities portfolio had
coupon rates ranging from 4.50% to 17.00% and had a weighted average yield of
6.78% during the year ended June 30, 1996. At June 30, 1996, the amortized cost
of the Association's mortgage-backed securities held to maturity was $22.6
million.
On November 15, 1995, the FASB issued a FASB Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." The Special Report allows for a "one-time
reclassification" of securities as of a single date between November 15, 1995
and December 31, 1995. In December 1995, the Association reclassified
approximately $14.2 million of mortgage-backed securities from the held to
maturity classification to the available for sale classification. The estimated
fair value of the Association's mortgage-backed securities available for sale at
June 30, 1996, was $12.5 million, which is $600,000 less than the amortized cost
of $13.1 million.
Mortgage-backed securities (which also are known as mortgage participation
certificates or pass-through certificates) typically represent a participation
interest in a pool of single-family or multi-family mortgages. The principal and
interest payments on these mortgages are passed from the mortgage originators,
through intermediaries (generally U.S. Government agencies and government
sponsored enterprises) that pool and resell the participation interests in the
form of securities, to investors such as the Association. Such U.S. Government
agencies and
41
<PAGE>
government sponsored enterprises, which guarantee the payment of principal and
interest to investors, primarily include the FHLMC, FNMA and the GNMA.
Mortgage-backed securities typically are issued with stated principal amounts,
and the securities are backed by pools of mortgages that have loans with
interest rates that fall within a specific range and have varying maturities.
Mortgage-backed securities generally yield less than the loans that underlie
such securities because of the cost of payment guarantees and credit
enhancements. In addition, mortgage-backed securities are usually more liquid
than individual mortgage loans and may be used to collateralize certain
liabilities and obligations of the Association. These types of securities also
permit the Association to optimize its regulatory capital because they have low
risk weighting.
REMICs are generally classified as derivative financial instruments
because they are created by redirecting the cash flows from the pool of
mortgages or mortgage-backed securities underlying these securities to create
two or more classes (or tranches) with different maturity or risk
characteristics designed to meet a variety of investor needs and preferences.
Management believes these securities may represent attractive alternatives
relative to other investments due to the wide variety of maturity, repayment and
interest rate options available. Investment practices of the Association
prohibit the purchase of high risk REMICs. The Association held REMICs with a
net carrying value of $1.9 million at June 30, 1996. REMICs may be sponsored by
private issuers, such as mortgage bankers or money center banks, or by U.S.
Government agencies and government sponsored entities. At June 30, 1996, the
Association did not own any privately issued REMICs.
Thrift Bulletin Number 52 ("TB-52"), the OTS Policy Statement on
securities portfolio policies and unsuitable investment practices, requires that
institutions classify mortgage derivative products acquired, including REMICs
and certain tranches of CMOs, as "high-risk mortgage securities" if such
products exhibit greater price volatility than a benchmark fixed-rate 30-year
mortgage-backed pass-through security. Institutions may only hold high-risk
mortgage securities to reduce interest-rate risk in accordance with safe and
sound practices and must also follow certain prudent safeguards in the purchase
and retention of such securities. At June 30, 1996, the Association did not have
any securities that would be identified under TB-52 as "high-risk mortgage
securities." The Association also evaluates its mortgage-backed securities
portfolio annually for compliance with applicable regulatory requirements,
including testing for identification of high risk investments pursuant to
Federal Financial Institutions Examination Council standards.
Derivatives also include "off balance sheet" financial products whose
value is dependent on the value of an underlying financial asset, such as a
stock, bond, foreign currency, or a reference rate or index. Such derivatives
include "forwards," "futures," "options" or "swaps." The Association's
investment policy does not permit investment in such "off balance sheet"
derivative instruments.
Of the Association's $35.2 million mortgage-backed securities portfolio at
June 30, 1996, $17.1 million had contractual maturities within six years and
$18.1 million with a weighted had contractual maturities over six years. The
actual maturity of a mortgage-backed security may be less than its stated
maturity due to prepayments of the underlying mortgages. Prepayments that are
faster than anticipated may shorten the life of the security and may result in a
loss of any premiums paid and thereby reduce the net yield on such securities.
Although prepayments of underlying mortgages depend on many factors, including
the type of mortgages, the coupon rate, the age of mortgages, the geographical
location of the underlying real estate collateralizing the mortgages and general
levels of market interest rates, the difference between the interest rates on
the underlying mortgages and the prevailing mortgage interest rates generally is
the most significant determinant of the rate of prepayments. During periods of
declining mortgage interest rates, if the coupon rate of the underlying
mortgages exceeds the prevailing market interest rates offered for mortgage
loans, refinancing generally increases and accelerates the prepayment of the
underlying mortgages and the related security. Under such circumstances, the
Association may be subject to reinvestment risk because, to the extent that the
Association's mortgage-backed securities amortize or prepay faster than
anticipated, the Association may not be able to reinvest the proceeds of such
repayments and prepayments at a comparable rate. In contrast to mortgage-backed
securities in which cash flow is received (and hence, prepayment risk is shared)
pro rata by all securities holders, the cash flow from the mortgages or
mortgage-backed securities underlying REMICs are segmented and paid in
accordance with a predetermined priority to investors holding various
42
<PAGE>
tranches of such securities or obligations. A particular tranche of REMICs may
therefore carry prepayment risk that differs from that of both the underlying
collateral and other tranches.
The following table sets forth information regarding the Association's
mortgage-backed securities (including REMICs) activity for the periods
indicated.
Year Ended June 30,
1996 1995
(In Thousands)
Beginning balance $36,943 $37,605
Mortgage-backed securities purchased 5,704 4,870
Amortization of premiums and discounts (31) (42)
Principal repayments (7,428) (5,490)
-------- --------
Ending balance $35,188 $36,943
======= =======
The following table sets forth the composition of the Association's
mortgage-backed securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
---------------------------------------------------------------
1996 1995
---------------------------------- ----------------------------
Percent Percent
Amount of Total Amount of Total
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Mortgage-backed securities:
REMIC $ 1,865 5.32% $ 1,865 5.07%
GNMA 996 2.84 1,262 3.43
FNMA 9,042 25.78 11,998 32.61
FHLMC 23,167 66.06 21,670 58.89
-------- ------- -------- -------
Total 35,070 100.00% 36,795 100.00%
====== =======
Net premiums 118 148
------- -------
Net mortgage-backed securities $35,188 $36,943
======= =======
</TABLE>
The following table sets forth the contractual maturities of the
Association's mortgage-backed securities portfolio as of June 30, 1996:
<TABLE>
<CAPTION>
Contractual Maturities Due in Year(s) Ended June 30,
2000 2003 2013
to to and
1997 1998 1999 2002 2012 Thereafter
---- ---- ---- ---- ---- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed
securities $1,645 $1,958 $3,204 $10,191 $11,312 $6,760
====== ====== ====== ======= ======= ======
</TABLE>
43
<PAGE>
The following table sets forth the carrying value of the Association's
investment securities portfolio, securities available for sale portfolio,
short-term investments and FHLB stock at the dates indicated. At June 30, 1996,
the market value of the Association's investment securities portfolio was $2.4
million and securities available for sale portfolio was $1.4 million.
At June 30,
1996 1995
(In Thousands)
Investment securities held to maturity:
U.S. Government securities $ -- $ --
U.S. Agency securities 2,499 2,498
------ ------
Total investment securities 2,499 2,498
Securities available-for-sale(1) 1,385 1,192
Interest-bearing deposits 1,338 1,235
FHLB stock 1,123 1,044
------- -------
Total $6,345 $5,969
====== ======
(1) Excludes mortgage-backed securities.
44
<PAGE>
The following table sets forth certain information regarding the carrying
values, weighted average yields and maturities of the Association's investment
securities and securities available for sale portfolios as of June 30, 1996.
<TABLE>
<CAPTION>
More Than More Than
One Year or Less One to Five Years Five to Ten Years More Than Ten Years
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
-------- --------- -------- --------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Agency
obligations $ -- --% $ 1,000 6.28% $ 500 6.00% $ 999 7.31%
Securities
available-for-sale 1,385 -- -- -- -- -- -- --
--------- --------- ------- --------
Total $ 1,385 $ 1,000 $ 500 $ 999
======= ======= ===== =====
<CAPTION>
Total Investment Securities
Carrying Average Market
Value Yield Value
-------- -------- ------
<S> <C> <C> <C>
U.S. Agency
obligations $ 2,499 6.64 $ 2,405
Securities
available-for-sale 1,385 -- 1,385
------- -------
$ 3,884 $ 3,790
Total ======= =======
</TABLE>
45
<PAGE>
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major sources of the
Association's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. Borrowings through the FHLB-Seattle may be
used on a short-term basis to compensate for reductions in the availability of
funds from other sources. At June 30, 1996, the Association had no other
borrowing arrangements.
Deposit Accounts. Substantially all of the Association's depositors are
residents of South Central Montana. Deposits are attracted from within the
Association's market area through the offering of a broad selection of deposit
instruments, including NOW accounts, money market accounts, regular savings
accounts, certificates of deposit and retirement savings plans. Deposit account
terms vary, according to the minimum balance required, the time periods the
funds must remain on deposit and the interest rate, among other factors. In
determining the terms of its deposit accounts, the Association considers current
market interest rates, profitability to the Association, matching deposit and
loan products and its customer preferences and concerns. The Association reviews
its deposit mix and pricing weekly.
In the unlikely event the Association is liquidated after the Conversion,
depositors will be entitled to full payment of their deposit accounts prior to
any payment being made to the Holding Company, which will own all the
outstanding capital stock that is issued by the Association.
The following table sets forth certain information concerning the
Association's time deposits and other interest-bearing deposits at June 30,
1996.
<TABLE>
<CAPTION>
Weighted Percentage
Average Original Minimum of Total
Interest Rate Term Checking and Savings Deposits Amount Balance Deposits
(In Thousands)
<S> <C> <C> <C> <C> <C>
2.59% None NOW accounts $200 $8,862 12.91%
3.25 None Regular savings 5 14,949 21.77
3.50 None Money market accounts 1,000 4,761 6.93
Certificates of deposit:
4.79 1-3 months Fixed term, fixed rate 500 967 1.41
5.18 4-6 months Fixed term, fixed rate 500 7,030 10.24
5.50 7-12 months Fixed term, fixed rate 500 9,812 14.29
6.12 13-24 months Fixed term, fixed rate 500 7,909 11.52
5.83 25-36 months Fixed term, fixed rate 500 7,271 10.59
6.08 36-48 months Fixed term, fixed rate 500 957 1.39
6.52 49-120 months Fixed term, fixed rate 500 4,597 6.70
6.01 -- Jumbo certificates 100,000 1,432 2.09
-------- -------
68,547 --
Accrued interest on deposits 107 0.16
-------- -------
4.64 Total $68,654 100.00%
======= ======
</TABLE>
46
<PAGE>
The following table indicates the amount of the Association's
certificates of deposit of $100,000 or more by time remaining until maturity as
of June 30, 1996.
Maturity Period Amount
(In Thousands)
Three months or less................... $1,183
Over three through six months.......... 514
Over six through 12 months............. 1,014
Over 12 months......................... 623
-------
Total.......................$3,334
Time Deposits by Rates
The following table sets forth the time deposits in the Association
classified by rates at June 30, 1996.
<TABLE>
<CAPTION>
At June 30,
1996
(In Thousands)
<S> <C>
4.00 - 5.99%.................... $28,717
6.00 - 7.99%.................... 10,862
8.00 - 8.99%.................... 396
---------
Total........................ $39,975
=======
</TABLE>
The following table sets forth the amount and maturities of time
deposits at June 30, 1996.
<TABLE>
<CAPTION>
Amount Due
After
June 30, June 30, June 30, June 30,
1997 1998 1999 1999 Total
-------- ------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C>
4.00 - 5.99%.................... $ 22,828 $ 3,918 $ 1,041 $ 930 $ 28,717
6.00 - 7.99%.................... 4,371 2,484 1,570 2,431 10,862
8.00 - 8.99%.................... 232 33 131 -- 396
--------- -------- ------- ------- --------
Totals..................... $ 27,431 $ 6,435 $ 2,742 $ 3,367 39,975
======== ======= ======= =======
Accrued interest on certificate
accounts....................... 107
--------
Total...................... $40,082
=======
</TABLE>
47
<PAGE>
Savings Activities
The following table sets forth the deposit activities of the
Association for the periods indicated.
Year Ended June 30,
1996 1995
(In Thousands)
Net decrease before interest
credited.................................. $(1,778) $(3,971)
Interest credited.......................... 3,262 2,699
------- -------
Net increase (decrease) in savings
deposits.................................. $1,484 $(1,272)
====== ========
Borrowings
Savings deposits are the primary source of funds for the Association's
lending and investment activities and for its general business purposes. The
Association also relies upon advances from the FHLB-Seattle to supplement its
supply of lendable funds, to meet deposit withdrawal requirements and to fund
the purchase of investment and mortgage-backed securities. At June 30, 1996, the
Association had $1.5 million of borrowings from the FHLB- Seattle at a weighted
average rate of 5.83%. Such amount represented three borrowings of $750,000,
$500,000 and $250,000 with interest rates of 6.02%, 5.82% and 5.27%,
respectively. These borrowings are secured by a blanket lien on $40.1 million of
one- to four- family residential real estate loans and by certain investment and
mortgage-backed securities having an aggregate carrying value of $38.1 million
at June 30, 1996. These borrowings mature between July and September 1996. See
Note 8 of Notes to Consolidated Financial Statements.
The FHLB-Seattle functions as a central reserve bank providing credit
for savings and loan associations and certain other member financial
institutions. As a member, the Association is required to own capital stock in
the FHLB-Seattle and is authorized to apply for advances on the security of such
stock and certain of its mortgage loans and other assets (principally securities
which are obligations of, or guaranteed by, the United States government)
provided certain creditworthiness standards have been met. Advances are made
pursuant to several different credit programs. Each credit program has its own
interest rate and range of maturities. Depending on the program, limitations on
the amount of advances are based on the financial condition of the member
institution and the adequacy of collateral pledged to secure the credit.
The following table sets forth information concerning only short-term
borrowings (those maturing within one year or less) the Association had during
the periods indicated.
Year Ended June 30,
1996 1995
(In Thousands)
Short-term FHLB advances:
Average balance outstanding................ $ 1,595 $ 2,668
Maximum amount outstanding at any
month-end during the period.............. $ 1,925 $ 4,210
Weighted average interest rate
during the period........................ 6.02% 5.43%
Total short-term borrowings at
end of period.............................. $ 1,500 $ 1,751
48
<PAGE>
Competition
The Association operates in a very competitive market for the
attraction of savings deposits (its primary source of lendable funds) and in the
origination of loans. Historically, its most direct competition for savings
deposits has come from commercial banks, thrift institutions and credit unions
operating in its market area. Some of these commercial banks are subsidiaries of
large regional holding companies having vastly greater resources than the
Association at their disposal. At June 30, 1996, there were 14 commercial banks,
two thrift institutions (in addition to the Association) and two credit unions
in Park, Gallatin and Sweet Grass Counties. Particularly in times of high market
interest rates, the Association has faced competition for investors' funds from
short-term money market securities and corporate and U.S. Government securities.
The Association competes for loan originations with mortgage bankers, thrift
institutions, credit unions and commercial banks. Such competition for deposits
and loans may limit the Association's future growth and earnings prospects.
Subsidiary Activities
Federal savings associations generally may invest up to 3% of their
assets in service corporations, provided that at least one-half of any amount in
excess of 1% is used primarily for community, inner-city and community
development projects. The Association's investment in its service corporation,
Dime Service Corporation ("Service Corporation"), did not exceed these limits at
June 30, 1996.
The Service Corporation is a wholly owned subsidiary of the
Association. The Service Corporation was established in 1985 to operate the
insurance agency business started by one of the Association's original founders
in 1886. In 1992 and 1993, the Service Corporation purchased the insurance
business of two local insurance agencies. The Service Corporation presently
engages in full service property and casualty insurance activities under the
name "Dime Insurance Agency." At June 30, 1996, the Association's investment in
the Service Corporation was $495,000. The Service Corporation had total assets
of approximately $714,000 at June 30, 1996 and net income of approximately
$50,000 and $74,000 for the years ended June 30, 1996 and 1995, respectively.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Comparison of Results of Operations for the Years
Ended June 30, 1996 and 1995."
Properties
The Association has three offices, two of which are owned by the
Association. The Association's main office is located at 123 South Main Street,
Livingston, Montana 59047. The main office was opened in 1923 and the square
footage is approximately 15,000 feet. Beginning in September 1995, the
Association subleased part of this building to the Human Resource Development
Counsel, District IX. This office is leased by the Association through March
1997. The Association's President, Beverly D. Harris, the wife of the
Association's Executive Vice President and Chief Financial Officer, Mrs. Jean E.
Sandberg, and the Association's general counsel, Joseph T. Swindlehurst, are the
owners of this building. Mrs. Harris, Mrs. Sandberg and Mr. Swindlehurst are
sister and brother. For information regarding this relationship, see "MANAGEMENT
OF THE ASSOCIATION -- Transactions with the Association." The Association has
negotiated with the owners to purchase the building, which has been approved by
the OTS. If the Association determines not to purchase the building, it will
negotiate and enter into a lease with the owners for the rental of the building
prior to the expiration of the current lease term. At June 30, 1996, the net
book value of the leasehold improvements was $48,000.
The Association has branch offices located at 101 McLeod Street, Big
Timber, Montana 59011 and at 5 West Mendenhall Street, Bozeman, Montana 59715.
The Big Timber branch office, which was opened in 1984, consists of
approximately 2,000 square feet. At June 30, 1996, the net book value of the
property and equipment was $138,000. The Bozeman branch office consists of
approximately 7,000 square feet, was opened in 1958 in connection with the
merger with Pioneer Building and Loan Association and relocated
49
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to its current facility in 1971. At June 30, 1996, the net book value of the
property and equipment was $827,000. The net book value of the Association's
premises and equipment at June 30, 1996 was $1.3 million.
The Association's subsidiary, Dime Service Corporation, leases offices
in Livingston and Big Timber, Montana. The Livingston office is 2,500 square
feet and the Big Timber office is 365 square feet. There are no written lease
agreements for these two offices.
Personnel
As of June 30, 1996, the Association had 36 full-time employees (ten of
which are employed by the Service Corporation) and four part-time employees,
none of whom were represented by a collective bargaining unit. The Association
believes its relationship with its employees is good.
Legal Proceedings
From time to time, the Association is involved in routine legal proceedings
occurring in the ordinary course of business. At June 30, 1996, the
Association was not a party to any legal proceedings that management of the
Association believed would be materially adverse to the financial condition,
results of operations, cash flows or capital ratios of the Association.
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MANAGEMENT OF THE HOLDING COMPANY
The Board of Directors of the Holding Company is divided into three
classes, each of which contains approximately one third of the Board. The
Directors shall be elected by the stockholders of the Holding Company for
staggered three-year terms, or until their successors are elected and qualified.
One class of Directors, consisting of Walter J. Peterson, Jr., Sanroe J.
Kaisler, Jr. and Walter R. Sales, has a term of office expiring at the first
annual meeting of stockholders, a second class, consisting of Beverly D. Harris
and Edwin H. Doig, has a term of office expiring at the second annual meeting of
stockholders, and a third class, consisting of Ernest A. Sandberg and John R.
Boe, has a term of office expiring at the third annual meeting of stockholders.
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 individuals are the executive officers of the Holding
Company:
Name Position with Holding Company
Beverly D. Harris President and Chief Executive Officer
Ernest A. Sandberg Treasurer, Chief Financial Officer and Secretary
Since the formation of the Holding Company, none of the executive
officers, directors or other personnel has received remuneration from the
Holding Company. Information concerning the principal occupations, employment
and compensation of the directors and officers of the Holding Company during the
past five years is set forth under "MANAGEMENT OF THE ASSOCIATION --
Biographical Information."
MANAGEMENT OF THE ASSOCIATION
Directors and Executive Officers
The Board of Directors of the Association is presently composed of
seven members who are elected for terms of three years, approximately one third
of whom are elected annually in accordance with the Bylaws of the Association.
The executive officers of the Association are elected annually by the Board of
Directors and serve at the Board's discretion. The following table sets forth
information with respect to the Directors and executive officers of the
Association.
<TABLE>
<CAPTION>
Current
Director Term
Name Age (1) Position with Association Since Expires
- ---- ------- ------------------------- ------- -------
<S> <C> <C> <C> <C>
Beverly D. Harris 62 President and Director 1971 1998
Walter J. Peterson, Jr. 73 Chairman of the Board and 1964 1997
Director
Ernest A. Sandberg 60 Executive Vice President, 1971 1999
Secretary and Director
John R. Boe 72 Director 1979 1999
</TABLE>
(table continued on following page)
51
<PAGE>
<TABLE>
<CAPTION>
Current
Director Term
Name Age (1) Position with Association Since Expires
- ---- ------- ------------------------- ------- -------
<S> <C> <C> <C> <C>
Edwin H. Doig 65 Director 1979 1998
Sanroe J. Kaisler, Jr. 71 Director 1964 1997
Walter R. Sales 68 Director 1977 1997
</TABLE>
(1) As of June 30, 1996.
Biographical Information
Set forth below is certain information regarding the Directors and
executive officers of the Association. Unless otherwise stated, each Director
and executive officer has held his or her current occupation for the last five
years. All Directors and executive officers reside in Livingston, Montana,
unless otherwise noted. There are no family relationships among or between the
Directors or executive officers, except for Mrs. Harris and Mr. Sandberg who are
sister- and brother-in-law.
Beverly D. Harris has been employed by the Association since 1956, and
has been President since 1972. She is a Director and Treasurer of the Park
County Chapter of American Red Cross, the Livingston Community Trust, the
Livingston Community Concert Association and the Park County Friends of the
Arts. She serves on the Thrift Advisory Council of the Federal Reserve Board.
Mrs. Harris also serves on the Board of Directors of the Association's
service corporation, Dime Service Corporation, the Montana Power Company, and
the Financial Institutions Retirement Fund ("FIRF").
Walter J. Peterson is Vice President and Manager of Dime Service
Corporation. He is a past president of the Montana Association of Insurance
Agents, and a past national director. He co-organized and served as trustee
of the Montana Insurance Education Foundation. Community endeavors have
included serving as president of the Livingston Community Hospital
Association, the Livingston Chamber of Commerce, and the Livingston Golf
and Country Club; as trustee of the Livingston Elks Lodge #245 B.P.O.E., as
alderman on the Livingston City Council, as chairman of the City Water
Board, and as a member of the City-County Planning Board. He is an active
member of the Livingston Rotary Club.
Ernest A. Sandberg has been employed by the Association since 1969 and
been Executive Vice President and Secretary since 1979. Mr. Sandberg is a member
of the Livingston Rotary Club, Chairman of two high school scholarship programs
and has served on the Advisory Committee for the Livingston Block Grant Program.
Mr. Sandberg also serves on the Board of Directors of the Association's service
corporation, Dime Service Corporation.
John R. Boe is retired after 39 years as a teacher and Vice Principal
of the local junior high school in Big Timber. He has been a director of the
Association for 17 years. Mr. Boe is a member of the Board of Directors of the
Pioneer Medical Center. Mr. Boe is also a member of the American Legion and the
Masonic Lodge/Scottish Rite. He resides in Big Timber, Montana.
Edwin H. Doig is a registered pharmacist, and has been employed by
Pamida Pharmacy, a retail drugstore, since 1995. From 1972 to 1995, Mr. Doig
was the owner and Manager of Livingston Drug. He is past president of the
Montana State Pharmacy Association, and a member of the American Legion, the
Masonic Lodge, the Elks Lodge, and the Livingston Golf and Country Club.
Sanroe J. Kaisler, Jr., a retired insurance broker, was the partner and
majority stockholder of Waite & Company, an insurance company. He is a volunteer
for the American Red Cross, the American Lung Association and the Diabetes
Association. Mr. Kaisler resides in Bozeman, Montana.
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<PAGE>
Walter R. Sales is a retired rancher who served 10 years in the Montana
legislature. He has been a director of the Association for 19 years. Mr. Sales
resides in Bozeman, Montana.
Meetings and Committees of the Board of Directors
The business of the Association is conducted through meetings and
activities of the Board of Directors and its committees. During the fiscal year
ended June 30, 1996, the Board of Directors held 12 meetings. No Director
attended fewer than 75% of the total meetings of the Board of Directors and of
committees on which such Director served.
The Association's Executive Committee, consisting of Directors Harris,
Peterson and Kaisler, meets as needed. This Committee generally has the power
and authority to act on behalf of the Board of Directors between scheduled Board
meetings, unless specific matters are delegated to it for action by the Board.
The Executive Committee did not meet during the fiscal year ended June 30, 1996.
The Association's Audit Committee, consisting of Directors Peterson,
Kaisler, Sales, Doig and Boe, meets as needed. This Committee is responsible for
reviewing the external auditors' reports and results of their examination. The
Audit Committee met one time during the fiscal year ended June 30, 1996.
The Loan Committee, consisting of any three Directors of the
Association's Board of Directors, meets as needed. This Committee is responsible
for reviewing all loan applications prior to their submission to the Board.
Directors' Compensation
Directors received a fee of $500 per month and a fee of $500 for
attendance at regular Board meetings during the year ended June 30, 1996.
Effective January 1, 1997, directors will receive a retainer of $500 per month
and a fee of $250 for attendance at regular Board meetings of the Association
and a fee of $250 per month, payable quarterly, by the Holding Company. In
addition, Directors residing in Bozeman and Big Timber received $20 per meeting
for travel expenses. No additional fees are paid to Directors for committee
meetings. Directors' fees totalled $84,000 for the year ended June 30, 1996.
Executive Compensation
Summary Compensation Table. The following information is furnished for
the President and Chief Executive Officer, and the Executive Vice President
and Secretary of the Association for the year ended June 30, 1996. No other
executive officer of the Association received salary and bonus in excess of
$100,000 during the year ended June 30, 1996.
53
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
SUMMARY COMPENSATION TABLE(1)
- -------------------------------------------------------------------------------------------------------------------------------
Annual Compensation
- -------------------------------------------------------------------------------------------------------------------------------
Other
Annual
Name and Position Year Salary Bonus Compensation
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beverly D. Harris 1996 $102,090 $18,724 $11,750
President and Chief Executive
Officer
Ernest A. Sandberg 1996 $93,480 $17,137 $12,250
Executive Vice President and
Secretary
===============================================================================================================================
</TABLE>
(1) Compensation information for fiscal years ended June 30, 1995 and 1994
has been omitted because the Association was neither a public company
nor a subsidiary thereof at such times. Excludes certain additional
benefits, the aggregate amounts of which do not exceed 10% of total
salary and bonus.
Employment Agreements. In connection with the Conversion, the Holding
Company and the Association (collectively, the "Employers") will enter into
three-year employment agreements with Mrs. Harris and Mr. Sandberg. Under the
agreements, the initial salary level for Mrs. Harris and Mr. Sandberg will be
$105,000 and $96,000, respectively, which amounts will be paid by the
Association and may be increased at the discretion of the Board of Directors or
an authorized committee of the Board. In determining salary levels for Mrs.
Harris and Mr. Sandberg, the Board will consider compensation levels for
similarly situated executives at comparable institutions, the financial
performance of the Association, as well as their individual performance. On
each anniversary of the commencement date of the agreements, the term of the
agreements may be extended for an additional year. The agreements are terminable
by the Employers at any time or upon the occurrence of certain events specified
by federal regulations.
The employment agreement provides for severance payments and other
benefits in the event of involuntary termination of employment in connection
with any change in control of the Employers. Severance payments also will be
provided on a similar basis in connection with a voluntary termination of
employment where, subsequent to a change in control, Mrs. Harris and Mr.
Sandberg are assigned duties inconsistent with their positions, duties,
responsibilities and status immediately prior to such change in control. The
term "change in control" is defined in the agreements as having occurred when,
among other things, (a) a person other than the Holding Company purchases shares
of Common Stock pursuant to a tender or exchange offer for such shares, (b) any
person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act)
is or becomes the beneficial owner, directly or indirectly, of securities of the
Holding Company representing 25% or more of the combined voting power of the
Holding Company's then outstanding securities, (c) the membership of the Board
of Directors changes as the result of a contested election, or (d) shareholders
of the Holding Company approve a merger, consolidation, sale or disposition of
all or substantially all of the Holding Company's assets, or a plan of partial
or complete liquidation.
The severance payments from the Employers will equal 2.99 times each
executive's average annual compensation during the five-year period preceding
the change in control. Such amount will be paid in a lump sum within 10 business
days following the termination of employment. Assuming that a change in control
had occurred at June 30, 1996, Mrs. Harris and Mr. Sandberg would be entitled to
severance payments of approximately $309,000 and $284,000, respectively. Section
280G of the Code states that severance payments that equal or exceed three times
the base compensation of the individual are deemed to be "excess parachute
payments" if they are contingent upon a change in control. Individuals receiving
excess parachute payments are subject to a 20% excise tax on the amount of such
excess payments, and the Employers would not be entitled to deduct the amount of
such excess payments.
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<PAGE>
The agreements restrict each executive's right to compete against the
Employers for a period of one year from the date of termination of the agreement
if Mrs. Harris and Mr. Sandberg involuntarily terminate employment, except in
the event of a change in control.
The Board of Directors of the Holding Company or the Association may,
from time to time, also extend employment agreements to other senior executive
officers.
Benefits
General. The Association currently provides health insurance benefits
for full-time employees, subject to certain deductibles.
Defined Benefit Plan. The Association is a participant in the FIRF, a
multi-employer, non-contributory defined benefit retirement plan. The FIRF plan
covers all employees who have completed one year of service and have attained
the age of 21 years and provides for monthly retirement benefits determined
based on the employee's base salary and years of service. The normal retirement
age is 65 and the early retirement age is before age 65, but at least 45. Normal
retirement benefits are equal to 2.0% multiplied by the years of service to the
Association and the employee's average salary for the five highest consecutive
years preceding retirement. Benefits under the plan are not subject to offset
for social security benefits. If an employee elects early retirement, but
defers the receipt of benefits until age 65, the formula for computation of
early retirement benefits is the same as if the employee had
retired at the normal retirement age. However, if the employee elects early
retirement and receives benefits prior to age 65, benefits are reduced by
applying an early retirement factor based on the number of years the early
retirement date precedes age 65. If a participant terminates employment prior to
the normal retirement date or early retirement date as a result of disability,
the participant would receive the vested percentage of benefits at the
participant's normal retirement date. Separate actuarial valuations are not made
for individual members of the plan. The Association contributed $108,000 to the
plan for the fiscal year ended June 30, 1996. As of June 30, 1996, Mrs. Harris
and Mr. Sandberg had 40 and 26 years of credited service under the FIRF,
respectively.
The following table illustrates annual pension benefits payable at
normal retirement age, based on various levels of compensation and years of
service.
<TABLE>
<CAPTION>
Highest Five-Year Years of Service
Average Annual ------------------------------------------------------------------------
Compensation 5 10 15 25 35 40 45
- ----------------- ----- ------ ------ ------ ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 10,000 ..................1,000 2,000 3,000 5,000 7,000 8,000 9,000
20,000 ..................2,000 4,000 6,000 10,000 14,000 16,000 18,000
30,000 ..................3,000 6,000 9,000 15,000 21,000 24,000 27,000
40,000 ..................4,000 8,000 12,000 20,000 28,000 32,000 36,000
60,000 ..................6,000 12,000 18,000 30,000 42,000 48,000 54,000
80,000 ..................8,000 16,000 24,000 40,000 56,000 64,000 72,000
100,000 .................10,000 20,000 30,000 50,000 70,000 80,000 90,000
120,000 .................12,000 24,000 36,000 60,000 84,000 96,000 99,000
</TABLE>
Deferred Compensation. The Association has entered into deferred
compensation arrangements with Mrs. Harris and Mr. Sandberg to provide those
individuals $500 per month for at least 132 months beginning at age 65. The
Association has purchased life insurance as an informal funding vehicle for its
obligation under these deferred compensation arrangements.
Employee Stock Ownership Plan. The Board of Directors has authorized
the adoption by the Association of an ESOP for employees of the Association to
become effective upon the consummation of the Conversion. The ESOP is intended
to satisfy the requirements for an employee stock ownership plan under the Code
and the
55
<PAGE>
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Full-time employees of the Holding Company and the Association who have been
credited with at least 1,000 hours of service during a 12-month period and who
have attained age 21 will be eligible to participate in the ESOP.
In order to fund the purchase of up to 8% of the Common Stock to be
issued in the Conversion, it is anticipated that the ESOP will borrow funds from
the Holding Company. Such loan will equal 100% of the aggregate purchase price
of the Common Stock. The loan to the ESOP will be repaid principally from the
Association's contributions to the ESOP and any dividends paid on Common Stock
held by the ESOP over the anticipated 10-year term of the loan. The interest
rate for the ESOP loan is expected to be the prime rate as published in The Wall
Street Journal on the closing date of the Conversion. See "PRO FORMA DATA." In
any plan year, the Association may make additional discretionary contributions
to the ESOP for the benefit of plan participants in either cash or shares of
Common Stock, which may be acquired through the purchase of outstanding shares
in the market or from individual stockholders or which constitute authorized but
unissued shares or shares held in treasury by the Holding Company. The timing,
amount, and manner of such discretionary contributions will be affected by
several factors, including applicable regulatory policies, the requirements of
applicable laws and regulations, and market conditions.
Shares purchased by the ESOP with the proceeds of the loan will be
held in a suspense account and released on a pro rata basis as the loan is
repaid. Discretionary contributions to the ESOP and shares released from the
suspense account will be allocated among participants on the basis of each
participant's proportional share of total compensation. Forfeitures will be
reallocated among the remaining plan participants.
Participants will vest in their accrued benefits under the ESOP upon
the completion of five years of service. Benefits may be payable upon a
participant's retirement, early retirement, death, disability, or termination of
employment. The Association's contributions to the ESOP are not fixed, so
benefits payable under the ESOP cannot be estimated.
Officers and/or directors of the Association will be appointed by the
Board of Directors of the Association to serve as trustees of the ESOP. Under
the ESOP, the trustees must vote all allocated shares held in the ESOP in
accordance with the instructions of plan participants and allocated shares for
which no instructions are received must be voted in the same ratio on any matter
as those shares for which instructions are given.
Compensation expense for a leveraged employee stock ownership plan,
such as the ESOP, is recorded at the fair market value of the ESOP shares
committed to be released to participants' accounts. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Impact of New
Accounting Pronouncements and Regulatory Policies -- Accounting for Employee
Stock Ownership Plans."
The ESOP will be subject to the requirements of ERISA and the
regulations of the IRS and the Department of Labor issued thereunder. The
Association intends to request a determination letter from the IRS regarding the
tax-qualified status of the ESOP. Although no assurance can be given that a
favorable determination letter will be issued, the Association expects that a
favorable determination letter will be received by the ESOP.
1996 Stock Option Plan. The Board of Directors of the Holding Company
intends to adopt the Stock Option Plan and to submit the Stock Option Plan to
the stockholders for approval at a meeting held no earlier than six months
following consummation of the Conversion. The approval of a majority vote of the
Holding Company's outstanding shares is required prior to the implementation of
the Stock Option Plan within one year of the consummation of the Conversion. The
Stock Option Plan will comply with all applicable regulatory requirements.
However, the Stock Option Plan will not be approved or endorsed by the OTS.
56
<PAGE>
The Stock Option Plan will be designed to attract and retain qualified
management personnel and nonemployee directors, to provide such officers, key
employees and nonemployee directors with a proprietary interest in the Holding
Company as a incentive to contribute to the success of the Holding Company and
the Association, and to reward officers and key employees for outstanding
performance. The Stock Option Plan will provide for the grant of incentive stock
options ("ISOs") intended to comply with the requirements of Section 422 of the
Code and for nonqualified stock options ("NQOs"). Upon receipt of stockholder
approval of the Stock Option Plan, stock options may be granted to key employees
of the Holding Company and its subsidiaries, including the Association. Unless
sooner terminated, the Stock Option Plan will continue in effect for a period of
ten years from the date the Stock Option Plan is approved by stockholders.
A number of authorized shares of Common Stock equal to 10% of the
number of shares of Common Stock issued in connection with the Conversion will
be reserved for future issuance under the Stock Option Plan (225,400 shares
based on the issuance of 2,254,000 shares at the maximum of the Estimated
Valuation Range). Shares acquired upon exercise of options will be authorized
but unissued shares or treasury shares. In the event of a stock split, reverse
stock split, stock dividend, or similar event, the number of shares of Common
Stock under the Stock Option Plan, the number of shares to which any award
relates and the exercise price per share under any option may be adjusted by the
Committee to reflect the increase or decrease in the total number of shares of
Common Stock outstanding.
The Stock Option Plan will be administered and interpreted by a
committee of the Board of Directors ("Committee"). Under the Stock Option Plan,
the Committee will determine which nonemployee directors, officers and key
employees will be granted options, whether, in the case of officers and
employees, such options will be ISOs or NQOs, the number of shares subject to
each option, and the exercisability of such options. The per share exercise
price of an option granted to an officer or employee will equal at least 100% of
the fair market value of a share of Common Stock on the date the option is
granted. All options granted to nonemployee directors will be NQOs and such
options will be granted at an exercise price equal to 100% of the fair market
value of the Common Stock on the date the option is granted. Options granted
upon the effective date of the Stock Option Plan will become exercisable ratably
over a five-year period following the date of grant. However, unvested options
will be immediately exercisable in the event of the recipient's death or
disability. Unvested options will also be exercisable following a change in
control (as defined in the Stock Option Plan) of the Holding Company or the
Association, to the extent authorized or not prohibited by applicable law or
regulations. Current OTS regulations, however, do not permit accelerated vesting
of options in the event of a change in control.
Each stock option that is awarded to an officer or key employee will
remain exercisable at any time on or after the date it vests through the earlier
to occur of the tenth anniversary of the date of grant or three months after the
date on which the optionee terminates employment (one year in the event of the
optionee's termination by reason of death or disability), unless such period is
extended by the Committee. Each stock option that is awarded to a nonemployee
director will remain exercisable through the earlier to occur of the tenth
anniversary of the date of grant or one year (two years in the event of a
nonemployee director's death or disability) following the termination of a
nonemployee director's service on the Board. All stock options are generally
nontransferable except by will or the laws of descent or distribution.
The Stock Option Plan will also provide that upon the payment of an
"extraordinary dividend" by the Holding Company, each optionee will receive a
cash payment equivalent to the dividends that would have been payable to such
optionee had the options been exercised on or before the record date of such
dividend. For purposes of the Stock Option Plan, an "extraordinary dividend" is
a dividend payable at a rate in excess of the Association's weighted average
cost of funds on interest-bearing liabilities for the 12-month period preceding
the record date of the dividend.
Under current provisions of the Code, the federal tax treatment of
ISOs and NQOs is different. With respect to ISOs, an optionee who satisfies
certain holding period requirements will not recognize income at the time the
option is granted or at the time the option is exercised. If the holding period
requirements are satisfied, the
57
<PAGE>
optionee will generally recognize capital gain or loss upon a subsequent
disposition of the shares of Common Stock received upon the exercise of a
stock option. If the holding period requirements are not satisfied, the
difference between the fair market value of the Common Stock on the date of
grant and the option exercise price, if any, will be taxable to the optionee
at ordinary income tax rates. A federal income tax deduction generally will
not be available to the Holding Company as a result of the grant or exercise
of an ISO, unless the optionee fails to satisfy the holding period requirements.
With respect to NQOs, the grant of an NQO generally is not a taxable event for
the optionee and no tax deduction will be available to the Holding Company.
However, upon the exercise of an NQO, the difference between the fair market
value of the Common Stock on the date of exercise and the option exercise price
generally will be treated as compensation to the optionee upon exercise, and
the Holding Company will be entitled to a compensation expense deduction in the
amount of income realized by the optionee.
Although no specific award determinations have been made, the
Association anticipates that if stockholder approval is obtained it would
provide awards to its directors, officers and employees to the extent permitted
by applicable regulations. OTS regulations currently provide that no individual
officer or employee may receive more than 25% of the shares reserved for
issuance under any stock compensation plan and that non-employee directors may
not receive more than 5% of such shares individually or 30% in the aggregate for
all non-employee directors.
Management Recognition Plan. Following the Conversion, the Board of
Directors of the Holding Company intends to adopt an MRP for officers,
employees, and nonemployee directors of the Holding Company and the Association.
The MRP will enable the Holding Company and the Association to provide
participants with a proprietary interest in the Holding Company as an incentive
to contribute to the success of the Holding Company and the Association.
The MRP will be submitted to stockholders for approval at a meeting to
be held no earlier than six months following consummation of the Conversion. The
approval of a majority vote of the Holding Company's stockholders is required
prior to implementation of the MRP within one year of the consummation of the
Conversion. The MRP will comply with all applicable regulatory requirements.
However, the OTS will not approve or endorse the MRP.
The MRP expects to acquire a number of shares of Common Stock equal to
4% of the Common Stock issued in connection with the Conversion (90,160 shares
based on the issuance of 2,254,000 shares in the Conversion at the maximum of
the Estimated Valuation Range). Such shares will be acquired on the open market,
if available, with funds contributed by the Holding Company to a trust which the
Holding Company may establish in conjunction with the MRP ("MRP Trust") or from
authorized but unissued shares or treasury shares of the Holding Company.
A committee of the Board of Directors of the Holding Company will
administer the MRP, the members of which will also serve as trustees of the MRP
Trust, if formed. The trustees will be responsible for the investment of all
funds contributed by the Holding Company to the MRP Trust. Upon recommendation
of the Board of Directors, the Committee will allocate awards under the MRP to
nonemployee directors, officers and employees of the Association.
Shares of Common Stock granted pursuant to the MRP will be in the form
of restricted stock vesting ratably over a five-year period following the date
of grant. During the period of restriction, all shares will be held in escrow by
the Holding Company or by the MRP Trust. If a recipient terminates employment
for reasons other than death or disability, the recipient will forfeit all
rights to allocated shares that are then subject to restriction. In the event of
the recipient's death or disability, all restrictions will expire and all
allocated shares will become unrestricted. In addition, all allocated shares
will become unrestricted in the event of a change in control (as defined in the
MRP) of the Holding Company or the Association to the extent authorized or not
prohibited by applicable law or regulations. Current OTS regulations, however,
do not permit accelerated vesting of MRP awards in the event of a change in
control. Compensation expense in the amount of the fair market value of the
Common Stock at the date of the grant to the recipient will be recognized during
the years in which the shares vest.
58
<PAGE>
The Board of Directors of the Holding Company may terminate the MRP at
any time and, upon termination, all unallocated shares of Common Stock will
revert to the Holding Company.
A recipient of an MRP award in the form of restricted stock generally
will not recognize income upon an award of shares of Common Stock, and the
Holding Company will not be entitled to a federal income tax deduction, until
the termination of the restrictions. Upon such termination, the recipient will
recognize ordinary income in an amount equal to the fair market value of the
Common Stock at the time and the Holding Company will be entitled to a deduction
in the same amount after satisfying federal income tax withholding requirements.
However, the recipient may elect to recognize ordinary income in the year the
restricted stock is granted in an amount equal to the fair market value of the
shares at that time, determined without regard to the restrictions. In that
event, the Holding Company will be entitled to a deduction in such year and in
the same amount. Any gain or loss recognized by the recipient upon subsequent
disposition of the stock will be either a capital gain or capital loss.
Although no specific award determinations have been made, the
Association anticipates that if stockholder approval is obtained it would
provide awards to its directors, officers and employees to the extent permitted
by applicable regulations. OTS regulations currently provide that no individual
officer or employee may receive more than 25% of the shares reserved for
issuance under any stock compensation plan.
Transactions with the Association
Applicable law and regulations require that all loans or extensions of
credit to executive officers and directors must be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and does not involve more
than the normal risk of repayment or present other unfavorable features, and the
Association has adopted a policy to this effect. In addition, loans made to a
director or executive officer in an amount that, when aggregated with the amount
of all other loans to such director or executive officer and his or her related
interests are in excess of the greater of $25,000, or 5% of the Association's
capital and surplus (up to a maximum of $500,000), must be approved in advance
by a majority of the disinterested members of the Board of Directors. See
"REGULATION -- Federal Regulation of Savings Associations -- Transactions with
Affiliates." The aggregate amount of loans by the Association to its executive
officers and directors was $134,589 at June 30, 1996, or approximately 0.44% and
0.38%, respectively, of the Holding Company's pro forma stockholders' equity
based on the minimum and maximum of the Estimated Valuation Range.
Mr. Joseph T. Swindlehurst, General Counsel to the Association, is a
partner with the law firm of Huppert & Swindlehurst, P.C. Mr. Swindlehurst also
is the brother of Beverly D. Harris, President of the Association, and the
brother-in-law of Ernest A. Sandberg, Executive Vice President and Secretary of
the Association. As counsel to the Association during the fiscal year ended June
30, 1996, Huppert & Swindlehurst, P.C. was paid $11,734 in fees and expense
reimbursement, which amount did not exceed 5% of the law firm's annual gross
revenues. The fees proposed or estimated to be paid to Huppert & Swindlehurst,
P.C. for the ending June 30, 1997 are $12,000, which amount is not expected to
exceed 5% of the law firm's annual gross revenues.
The Association's main office is owned by Mr. Swindlehurst, Mrs.
Harris and their sister, Mrs. Jean E. Sandberg, who is the wife of Mr. Sandberg,
and is leased by the Association from the owners through March 1997. The
Association has negotiated the purchase of the building, which has been approved
by the OTS. See "BUSINESS OF THE ASSOCIATION -- Properties. During the fiscal
year ended June 30, 1996, the owners received $10,000 in rental income from the
Association.
REGULATION
General
The Association is subject to extensive regulation, examination and
supervision by the OTS as its chartering agency, and the FDIC, as the insurer of
its deposits. The activities of federal savings institutions are governed by
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the Home Owners' Loan Act, as amended ("HOLA") and, in certain respects, the
Federal Deposit Insurance Act ("FDIA") and the regulations issued by the OTS
and the FDIC to implement these statutes. These laws and regulations delineate
the nature and extent of the activities in which federal savings associations
may engage. Lending activities and other investments must comply with various
statutory and regulatory capital requirements. In addition, the Association's
relationship with its depositors and borrowers is also regulated to a great
extent, especially in such matters as the ownership of deposit accounts and the
form and content of the Association's mortgage documents. The Association must
file reports with the OTS and the FDIC concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other financial
institutions. There are periodic examinations by the OTS and the FDIC to review
the Association's compliance with various regulatory requirements. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the OTS, the FDIC or Congress, could have a
material adverse impact on the Holding Company, the Association and their
operations. The Holding Company, as a savings and loan holding company, will
also be required to file certain reports with, and otherwise comply with the
rules and regulations of, the OTS.
Federal Regulation of Savings Associations
Office of Thrift Supervision. The OTS is an office in the Department of
the Treasury subject to the general oversight of the Secretary of the Treasury.
The OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.
Federal Home Loan Bank System. The FHLB System, consisting of 12 FHLBs,
is under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The
designated duties of the FHFB are to: supervise the FHLBs; ensure that the FHLBs
carry out their housing finance mission; ensure that the FHLBs remain adequately
capitalized and able to raise funds in the capital markets; and ensure that the
FHLBs operate in a safe and sound manner.
The Association, as a member of the FHLB-Seattle, is required to
acquire and hold shares of capital stock in the FHLB-Seattle in an amount equal
to the greater of (i) 1.0% of the aggregate outstanding principal amount of
residential mortgage loans, home purchase contracts and similar obligations at
the beginning of each year, or (ii) 1/20 of its advances (borrowings) from the
FHLB-Seattle. The Association is in compliance with this requirement with an
investment in FHLB-Seattle stock of $1.1 million at June 30, 1996.
Among other benefits, the FHLB provides a central credit facility
primarily for member institutions. It is funded primarily from proceeds derived
from the sale of consolidated obligations of the FHLB System. It makes advances
to members in accordance with policies and procedures established by the FHFB
and the Board of Directors of the FHLB-Seattle.
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Federal Deposit Insurance Corporation. The FDIC is an independent
federal agency that insures the deposits, up to prescribed statutory limits, of
depository institutions. The FDIC currently maintains two separate insurance
funds: the BIF and the SAIF. As insurer of deposits, the FDIC has examination,
supervisory and enforcement authority over all savings associations.
The Association's accounts are insured by the SAIF. The FDIC insures
deposits at the Association to the maximum extent permitted by law. The
Association pays deposit insurance premiums to the FDIC based on a risk- based
assessment system established by the FDIC for all SAIF-member institutions.
Under applicable regulations, institutions are assigned to one of three capital
groups that are based solely on the level of an institution's capital - - "well
capitalized," "adequately capitalized," and "undercapitalized" -- which are
defined in the same manner as the regulations establishing the prompt corrective
action system, as discussed below. These three groups are then divided into
three subgroups which reflect varying levels of supervisory concern, from those
which are considered to be healthy to those which are considered to be of
substantial supervisory concern. The matrix so created results in nine
assessment risk classifications, with rates that until September 30, 1996 ranged
from 0.23% for well capitalized, financially sound institutions with only a few
minor weaknesses to 0.31% for undercapitalized institutions that pose a
substantial risk of loss to the SAIF unless effective corrective action is
taken. The Association's assessments expensed for the year ended June 30, 1996
were $185,000.
Until the second half of 1995, the same matrix applied to BIF-member
institutions. As a result of the BIF having reached its designated reserve
ratio, effective January 1, 1996, the FDIC substantially reduced deposit
insurance premiums for well-capitalized, well-managed financial institutions
that are members of the BIF. Under the new assessment schedule, rates were
reduced to a range of 0 to 27 basis points, with approximately 92% of BIF
members paying the statutory minimum annual assessment rate of $2,000. Pursuant
to the DIF Act, which was enacted on September 30, 1996, the FDIC imposed a
special one-time assessment on each depository institution with SAIF-assessable
deposits so that the SAIF may achieve its designated reserve ratio. Beginning
January 1, 1997, the assessment schedule for SAIF members will be the same as
that for BIF members. In addition, beginning January 1, 1997, SAIF members will
be charged an assessment of 0.064% of SAIF-assessable deposits for the purpose
of paying interest on the obligations issued by the Financing Corporation
("FICO") in the 1980s to help fund the thrift industry cleanup. BIF-assessable
deposits will be charged an assessment to help pay interest on the FICO bonds at
a rate of approximately 0.013% until the earlier of December 31, 1999 or the
date upon which the last savings association ceases to exist, after which time
the assessment will be the same for all insured deposits. See "RISK FACTORS --
Regulatory Oversight and Legislation."
The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF contemplates
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the development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter may
take and what effect, if any, the adoption of a new charter would have on the
operation of the Association. See "RISK FACTORS -- Regulatory Oversight and
Legislation."
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend deposit
insurance temporarily during the hearing process for the permanent termination
of insurance, if the institution has no tangible capital. If insurance of
accounts is terminated, the accounts at the institution at the time of
termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of the Association.
Liquidity Requirements. Under OTS regulations, each savings institution
is required to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and specified U.S.
Government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage (currently
5.0%) of its net withdrawable accounts plus short-term borrowings. OTS
regulations also require each savings institution to maintain an average daily
balance of short-term liquid assets at a specified percentage (currently 1.0%)
of the total of its net withdrawable savings accounts and borrowings payable in
one year or less. Monetary penalties may be imposed for failure to meet
liquidity requirements. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
Prompt Corrective Action. Under Section 38 of the FDIA, as added by the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), each
federal banking agency is required to implement a system of prompt corrective
action for institutions that it regulates. The federal banking agencies have
promulgated substantially similar regulations to implement this system of prompt
corrective action. Under the regulations, an institution shall be deemed to be
(i) "well capitalized" if it has a total risk-based capital ratio of 10.0% or
more, has a Tier I risk-based capital ratio of 6.0% or more, has a leverage
ratio of 5.0% or more and is not subject to specified requirements to meet and
maintain a specific capital level for any capital measure; (ii) "adequately
capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier
I risk-based capital ratio of 4.0% or more and a leverage ratio of 4.0% or more
(3.0% under certain circumstances) and does not meet the definition of "well
capitalized;" (iii) "undercapitalized" if it has a total risk-based capital
ratio that is less than 8.0%, a Tier I risk-based capital ratio that is less
than 4.0% or a leverage ratio that is less than 4.0% (3.0% under certain
circumstances); (iv) "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6.0%, a Tier I risk-based capital
ratio that is less than 3.0% or a leverage ratio that is less than 3.0%; and (v)
"critically undercapitalized" if it has a ratio of tangible equity to total
assets that is equal to or less than 2.0%.
Section 38 of the FDIA and the implementing regulations also provide
that a federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity. (The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.)
An institution generally must file a written capital restoration plan
that meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an
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institution shall become subject to the provisions of Section 38 of the FDIA,
which sets forth various mandatory and discretionary restrictions on its
operations.
At June 30, 1996, the Association was categorized as "well capitalized"
under the prompt corrective action regulations of the OTS.
Standards for Safety and Soundness. The FDIA requires the federal
banking regulatory agencies to prescribe, by regulation, standards for all
insured depository institutions relating to: (i) internal controls, information
systems and internal audit systems; (ii) loan documentation; (iii) credit
underwriting; (iv) interest rate risk exposure; (v) asset growth; and (vi)
compensation, fees and benefits. The federal banking agencies have adopted final
regulations and Interagency Guidelines Prescribing Standards for Safety and
Soundness ("Guidelines") to implement safety and soundness standards required by
the FDIA. The Guidelines set forth the safety and soundness standards that the
federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. The agencies also
proposed asset quality and earnings standards which, if adopted in final, would
be added to the Guidelines. Under the final regulations, if the OTS determines
that the Association fails to meet any standard prescribed by the Guidelines,
the agency may require the Association to submit to the agency an acceptable
plan to achieve compliance with the standard, as required by the FDIA. The final
regulations establish deadlines for the submission and review of such safety and
soundness compliance plans.
Qualified Thrift Lender Test. All savings associations are required to
meet a qualified thrift lender ("QTL") test set forth in the HOLA and
regulations of the OTS thereunder to avoid certain restrictions on their
operations. A savings institution that fails to become or remain a QTL shall
either become a national bank or be subject to the following restrictions on its
operations: (i) the association may not make any new investment or engage in
activities that would not be permissible for national banks; (ii) the
association may not establish any new branch office where a national bank
located in the savings institution's home state would not be able to establish a
branch office; (iii) the association shall be ineligible to obtain new advances
from any FHLB; and (iv) the payment of dividends by the association shall be
subject to the rules regarding the statutory and regulatory dividend
restrictions applicable to national banks. Also, beginning three years after the
date on which the savings institution ceases to be a QTL, the savings
institution would be prohibited from retaining any investment or engaging in any
activity not permissible for a national bank and would be required to repay any
outstanding advances to any FHLB. In addition, within one year of the date on
which a savings association controlled by a company ceases to be a QTL, the
company must register as a bank holding company and become subject to the rules
applicable to such companies. A savings institution may requalify as a QTL if it
thereafter complies with the QTL test.
Currently, the QTL test requires that 65% of an institution's
"portfolio assets" (as defined) consist of certain housing and consumer-related
assets on a monthly average basis in nine out of every 12 months. Assets that
qualify without limit for inclusion as part of the 65% requirement are loans
made to purchase, refinance, construct, improve or repair domestic residential
housing and manufactured housing; home equity loans; mortgage-backed securities
(where the mortgages are secured by domestic residential housing or manufactured
housing); FHLB stock; and direct or indirect obligations of the FDIC. In
addition, the following assets, among others, may be included in meeting
the test subject to an overall limit of 20% of the savings institution's
portfolio assets: 50% of residential mortgage loans originated and sold
within 90 days of origination; 100% of consumer and educational loans
(limited to 10% of total portfolio assets); and stock issued by the FHLMC
or the FNMA. Portfolio assets consist of total assets minus the sum of
(i) goodwill and other intangible assets, (ii) property used by the savings
institution to conduct its business, and (iii) liquid assets up to 20% of
the institution's total assets. At June 30, 1996, the Association's qualified
thrift investments significantly exceeded 65% of its portfolio assets as
required by regulation.
Capital Requirements. Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the standards in order
to comply with the capital requirements. The Holding Company is not subject to
any minimum capital requirements.
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OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital is
defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers,
or engaged solely in mortgage-banking activities. In calculating adjusted
total assets, adjustments are made to total assets to give effect to the
exclusion of certain assets from capital and to account appropriately for
the investments in and assets of both includable and nonincludable
subsidiaries. Institutions that fail to meet the core capital requirement
would be required to file with the OTS a capital plan that details the steps
they will take to reach compliance. In addition, the OTS' prompt corrective
action regulation provides that a savings institution that has a leverage
ratio of less than 4% (3% for institutions receiving the highest CAMEL
examination rating) will be deemed to be "undercapitalized" and may be subject
to certain restrictions. See "-- Federal Regulation of Savings
Associations -- Prompt Corrective Action."
As required by federal law, the OTS has proposed a rule revising its
minimum core capital requirement to be no less stringent than that imposed on
national banks. The OTS has proposed that only those savings associations rated
a composite one (the highest rating) under the CAMEL rating system for savings
associations will be permitted to operate at or near the regulatory minimum
leverage ratio of 3%. All other savings associations will be required to
maintain a minimum leverage ratio of 4% to 5%. The OTS will assess each
individual savings association through the supervisory process on a case-by-case
basis to determine the applicable requirement. No assurance can be given as to
the final form of any such regulation, the date of its effectiveness or the
requirement applicable to the Association.
Savings associations also must maintain "tangible capital" not less
than 1.5% of the Association's adjusted total assets. "Tangible capital" is
defined, generally, as core capital minus any "intangible assets" other than
purchased mortgage servicing rights.
Each savings institution must maintain total risk-based capital equal
to at least 8% of risk-weighted assets. Total risk-based capital consists of the
sum of core and supplementary capital, provided that supplementary capital
cannot exceed core capital, as previously defined. Supplementary capital
includes (i) permanent capital instruments such as cumulative perpetual
preferred stock, perpetual subordinated debt and mandatory convertible
subordinated debt, (ii) maturing capital instruments such as subordinated debt,
intermediate-term preferred stock and mandatory convertible subordinated debt,
and (iii) general valuation loan and lease loss allowances up to 1.25% of
risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held
by a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not included
for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities that
are backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying residential
mortgage loans (including multi-family mortgage loans) are assigned a 50% risk
weight. Consumer, commercial, home equity and residential construction loans are
assigned a 100% risk weight, as are nonqualifying residential mortgage loans and
that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio. The book value of assets in each category is
multiplied by the weighing factor (from 0% to 100%) assigned to that category.
These products are then totalled to arrive at total risk-weighted assets.
Off-balance sheet items are included in risk- weighted assets by converting them
to an approximate balance sheet "credit equivalent amount" based on a conversion
schedule. These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included as risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
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capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of the
association's assets, as calculated in accordance with guidelines set forth by
the OTS. A savings association whose measured interest rate risk exposure
exceeds 2% must deduct an interest rate risk component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
association's assets. That dollar amount is deducted from an association's total
capital in calculating compliance with its risk-based capital requirement. Under
the rule, there is a two quarter lag between the reporting date of an
institution's financial data and the effective date for the new capital
requirement based on that data. The rule also provides that the Director of the
OTS may waive or defer an association's interest rate risk component on a
case-by-case basis. Under certain circumstances, a savings association may
request an adjustment to its interest rate risk component if it believes that
the OTS-calculated interest rate risk component overstates its interest rate
risk exposure. In addition, certain "well-capitalized" institutions may obtain
authorization to use their own interest rate risk model to calculate their
interest rate risk component in lieu of the OTS-calculated amount. The OTS has
postponed the date that the component will first be deducted from an
institution's total capital until savings associations become familiar with the
process for requesting an adjustment to its interest rate risk component.
See "HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE" for a table that sets
forth in terms of dollars and percentages the OTS tangible, core and risk-based
capital requirements, the Association's historical amounts and percentages at
June 30, 1996, and pro forma amounts and percentages based upon the assumptions
stated therein.
Limitations On Capital Distributions. OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require the Association to give the OTS 30
days' advance notice of any proposed declaration of dividends, and the OTS has
the authority under its supervisory powers to prohibit the payment of dividends.
The regulation utilizes a three-tiered approach which permits various levels of
distributions based primarily upon a savings association's capital level.
A Tier 1 savings association has capital in excess of its fully
phased-in capital requirement (both before and after the proposed capital
distribution). A Tier 1 savings association may make (without application but
upon prior notice to, and no objection made by, the OTS) capital distributions
during a calendar year up to 100% of its net income to date during the calendar
year plus one-half its surplus capital ratio (i.e., the amount of capital in
excess of its fully phased-in requirement) at the beginning of the calendar year
or the amount authorized for a Tier 2 association. Capital distributions in
excess of such amount require advance notice to the OTS. A Tier 2 savings
association has capital equal to or in excess of its minimum capital requirement
but below its fully phased-in capital requirement (both before and after the
proposed capital distribution). Such an association may make (without
application) capital distributions up to an amount equal to 75% of its net
income during the previous four quarters
depending on how close the association is to meeting its fully phased-in
capital requirement. Capital distributions exceeding this amount require prior
OTS approval. Tier 3 associations are savings associations with capital below
the minimum capital requirement (either before or after the proposed capital
distribution). Tier 3 associations may not make any capital distributions
without prior approval from the OTS.
The Association is currently meeting the criteria to be designated a
Tier 1 association and, consequently, could at its option (after prior notice
to, and no objection made by, the OTS) distribute up to 100% of its net income
during the calendar year plus 50% of its surplus capital ratio at the beginning
of the calendar year less any distributions previously paid during the year.
Loans to One Borrower. Under the HOLA, savings institutions are
generally subject to the national bank limit on loans to one borrower.
Generally, this limit is 15% of the Association's unimpaired capital and
surplus, plus
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an additional 10% of unimpaired capital and surplus, if such loan
is secured by readily-marketable collateral, which is defined to include certain
financial instruments and bullion. The OTS by regulation has amended the loans
to one borrower rule to permit savings associations meeting certain
requirements, including capital requirements, to extend loans to one borrower in
additional amounts under circumstances limited essentially to loans to develop
or complete residential housing units. At June 30, 1996, the Association's limit
on loans to one borrower was $2.4 million. At June 30, 1996, the Association's
largest aggregate amount of loans to one borrower was $1.3 million, all of
which were performing according to their original terms.
Activities of Associations and Their Subsidiaries. When a savings
association establishes or acquires a subsidiary or elects to conduct any new
activity through a subsidiary that the association controls, the savings
association must notify the FDIC and the OTS 30 days in advance and provide the
information each agency may, by regulation, require. Savings associations also
must conduct the activities of subsidiaries in accordance with existing
regulations and orders.
The OTS may determine that the continuation by a savings association of
its ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The FDIC
also may determine by regulation or order that any specific activity poses a
serious threat to the SAIF. If so, it may require that no SAIF member engage in
that activity directly.
Transactions with Affiliates. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act ("Sections 23A and 23B")
relative to transactions with affiliates in the same manner and to the same
extent as if the savings association were a Federal Reserve member bank. A
savings and loan holding company, its subsidiaries and any other company under
common control are considered affiliates of the subsidiary savings association
under the HOLA. Generally, Sections 23A and 23B: (i) limit the extent to which
the insured association or its subsidiaries may engage in certain covered
transactions with an affiliate to an amount equal to 10% of such institution's
capital and surplus and place an aggregate limit on all such transactions with
affiliates to an amount equal to 20% of such capital and surplus, and (ii)
require that all such transactions be on terms substantially the same, or at
least as favorable to the institution or subsidiary, as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans, the
purchase of assets, the issuance of a guaranty and similar types of
transactions.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies; (ii) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (iii) the
OTS may, for reasons of safety and soundness, impose more stringent restrictions
on savings associations but may not exempt transactions from or otherwise
abridge Section 23A or 23B. Exemptions from Section 23A or 23B may be granted
only by the Federal Reserve Board, as is currently the case
with respect to all FDIC-insured banks. The Association has not been
significantly affected by the rules regarding transactions with affiliates.
The Association's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by such persons,
is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and Regulation O thereunder. Among other things, these regulations require that
such loans be made on terms and conditions substantially the same as those
offered to unaffiliated individuals and not involve more than the normal risk of
repayment. Regulation O also places individual and aggregate limits on the
amount of loans the Association may make to such persons based, in part, on the
Association's capital position, and requires certain board approval procedures
to be followed. The OTS regulations, with certain minor variances, apply
Regulation O to savings institutions.
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Community Reinvestment Act. Under the Community Reinvestment Act
("CRA"), a federal statute, all federally-insured financial institutions have a
continuing and affirmative obligation consistent with safe and sound operations
to help meet all the credit needs of its delineated community. The CRA does not
establish specific lending requirements or programs nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to meet all the credit needs of its delineated
community. The CRA requires the federal banking agencies, in connection with
regulatory examinations, to assess an institution's record of meeting
the credit needs of its delineated community and to take such record into
account in evaluating certain regulatory applications filed by an institution.
The CRA requires public disclosure of an institution's CRA rating. The
Association received a "satisfactory" rating as a result of its latest
evaluation.
Regulatory and Criminal Enforcement Provisions. Under the FDIA, the OTS
has primary enforcement responsibility over savings institutions and has the
authority to bring action against all "institution-affiliated parties,"
including stockholders, and any attorneys, appraisers and accountants who
knowingly or recklessly participate in wrongful action likely to have an adverse
effect on an insured institution. Formal enforcement action may range from the
issuance of a capital directive or cease and desist order to removal of officers
or directors, receivership, conservatorship or termination of deposit insurance.
Civil penalties cover a wide range of violations and can amount to $25,000 per
day, or $1 million per day in especially egregious cases. Under the FDIA, the
FDIC has the authority to recommend to the Director of the OTS that enforcement
action be taken with respect to a particular savings institution. If action is
not taken by the Director, the FDIC has authority to take such action under
certain circumstances. Federal law also establishes criminal penalties for
certain violations.
Savings and Loan Holding Company Regulations
Holding Company Acquisitions. The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without prior
OTS approval, from acquiring more than 5% of the voting stock of any other
savings association or savings and loan holding company or controlling the
assets thereof. They also prohibit, among other things, any director or officer
of a savings and loan holding company, or any individual who owns or controls
more than 25% of the voting shares of such holding company, from acquiring
control of any savings association not a subsidiary of such savings and loan
holding company, unless the acquisition is approved by the OTS.
Holding Company Activities. 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 other than in a supervisory acquisition, it would become a
multiple savings and loan holding company. There generally are more restrictions
on the activities of a multiple savings and loan holding company than on a
unitary savings and loan holding company. The HOLA provides that, among other
things, no multiple savings and loan holding company or subsidiary thereof which
is not an insured association shall commence or continue for more than two years
after becoming a multiple savings and loan association holding company or
subsidiary thereof, any business activity other than: (i) furnishing or
performing management services for a subsidiary insured institution, (ii)
conducting an insurance agency or escrow business, (iii) holding, managing, or
liquidating assets owned by or acquired from a subsidiary insured institution,
(iv) holding or managing properties used or occupied by a subsidiary insured
institution, (v) acting as trustee under deeds of trust, (vi) those activities
previously directly authorized by regulation as of March 5, 1987 to be engaged
in by multiple holding companies or (vii) those activities authorized by the
Federal Reserve Board as permissible for bank holding companies, unless the OTS
by regulation, prohibits or limits such activities for savings and loan holding
companies. Those activities described in (vii) above also must be approved by
the OTS prior to being engaged in by a multiple holding company.
Qualified Thrift Lender Test. The HOLA requires any savings and loan
holding company that controls a savings association that fails the QTL test, as
explained under "-- Federal Regulation of Savings Associations -- Qualified
Thrift Lender Test," must, within one year after the date on which the
association ceases to be a QTL, register as and be deemed a bank holding company
subject to all applicable laws and regulations.
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TAXATION
Federal Taxation
General. The Holding Company and the Association will report their
income on a calendar year basis using the accrual method of accounting and will
be subject to federal income taxation in the same manner as other
corporations with some exceptions, including particularly the Association's
reserve for bad debts discussed below. See "CHANGE IN FISCAL YEAR." The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Association or the Holding Company.
Tax Bad Debt Reserves. For taxable years beginning prior to January 1,
1996, savings institutions such as the Association which met certain
definitional tests primarily relating to their assets and the nature of their
business ("qualifying thrifts") were permitted to establish a reserve for bad
debts and to make annual additions thereto, which additions may, within
specified formula limits, have been deducted in arriving at their taxable
income. The Association's deduction with respect to "qualifying loans," which
are generally loans secured by certain interests in real property, may have been
computed using an amount based on the Association's actual loss experience, or a
percentage equal to 8% of the Association's taxable income, computed with
certain modifications and reduced by the amount of any permitted additions to
the nonqualifying reserve. The Association's deduction with respect to
nonqualifying loans was computed under the experience method, which essentially
allows a deduction based on the Association's actual loss experience over a
period of several years. Each year the Association selected the most favorable
way to calculate the deduction attributable to an addition to the tax bad debt
reserve.
Recently enacted federal legislation repeals the reserve method of
accounting for bad debt reserves for tax years beginning after December 31,
1995. As result, savings associations are no longer able to calculate their
deduction for bad debts using the percentage-of-taxable-income method. Instead,
savings associations are required to compute their deduction based on specific
charge-offs during the taxable year or, if the savings association or its
controlled group had assets of less than $500 million, based on actual loss
experience over a period of years. This legislation also requires savings
associations to recapture into income over a six-year period their post-1987
additions to their bad debt tax reserves, thereby generating additional tax
liability. At June 30, 1996, the Association's post- 1987 reserves were a
negligible amount of approximately $1,000. The recapture may be suspended for up
to two years if, during those years, the institution satisfies a residential
loan requirement. The Association anticipates that it will meet the residential
loan requirement for the taxable year ending December 31, 1996.
Under prior law, if the Association failed to satisfy the qualifying
thrift definitional tests in any taxable year, it would be unable to make
additions to its bad debt reserve. Instead, the Association would be required to
deduct bad debts as they occur and would additionally be required to recapture
its bad debt reserve deductions ratably over a multi-year period. At June 30,
1996, the Association's total bad debt reserve for tax purposes was
approximately $3.3 million. Among other things, the qualifying thrift
definitional tests required the Association to hold at least 60% of its assets
as "qualifying assets." Qualifying assets generally include cash, obligations of
the United States or any agency or instrumentality thereof, certain
obligationsof a state or political subdivision thereof, loans secured by
interests in improved residential real property or by savings accounts, student
loans and property used by the Association in the conduct of its banking
business. Under current law, a savings association will not be required to
recapture its pre-1988 bad debt reserves if it ceases to meet the qualifying
thrift definitional tests.
Distributions. To the extent that the Association makes "nondividend
distributions" to the Holding Company that are considered as made: (i) from the
reserve for losses on qualifying real property loans, to the extent the reserve
for such losses exceeds the amount that would have been allowed under the
experience method; or (ii) from the supplemental reserve for losses on loans
("Excess Distributions"), then an amount based on the amount distributed will be
included in the Association's taxable income. Nondividend distributions include
distributions in excess of the Association's current and accumulated earnings
and profits, distributions in redemption of stock, and distributions in partial
or complete liquidation. However, dividends paid out of the Association's
current or
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accumulated earnings and profits, as calculated for federal income
tax purposes, will not be considered to result in a distribution from the
Association's bad debt reserve. Thus, any dividends to the Holding Company that
would reduce amounts appropriated to the Association's bad debt reserve and
deducted for federal income tax purposes would create a tax liability for the
Association. The amount of additional taxable income attributable to an Excess
Distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, after the
Conversion, the Association makes a "nondividend distribution," then
approximately one and one-half times the amount so used would be includable
in gross income for federal income tax purposes, assuming a 35% corporate
income tax rate (exclusive of state and local taxes). See "REGULATION" and
"DIVIDEND POLICY" for limits on the payment of dividends by the Association.
The Association does not intend to pay dividends that would result in a
recapture of any portion of its tax bad debt reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on
alternative minimum taxable income ("AMTI") at a rate of 20%. The excess of the
tax bad debt reserve deduction using the percentage of taxable income method
over the deduction that would have been allowable under the experience method is
treated as a preference item for purposes of computing the AMTI. In addition,
only 90% of AMTI can be offset by net operating loss carryovers. AMTI is
increased by an amount equal to 75% of the amount by which the Association's
adjusted current earnings exceeds its AMTI (determined without regard to this
preference and prior to reduction for net operating losses). For taxable years
beginning after December 31, 1986, and before January 1, 1996, an environmental
tax of .12% of the excess of AMTI (with certain modification) over $2.0 million
is imposed on corporations, including the Association, whether or not an
Alternative Minimum Tax ("AMT") is paid.
Dividends-Received Deduction and Other Matters. The Holding Company may
exclude from its income 100% of dividends received from the Association as a
member of the same affiliated group of corporations. The corporate
dividends-received deduction is generally 70% in the case of dividends received
from unaffiliated corporations with which the Holding Company and the
Association will not file a consolidated tax return, except that if the Holding
Company or the Association owns more than 20% of the stock of a corporation
distributing a dividend, then 80% of any dividends received may be deducted.
There have not been any IRS audits of the Association's federal income
tax returns during the past five years.
State Taxation
Empire Federal is subject to the Montana Corporation License Tax, which
is imposed at the rate of 6.75% of Montana taxable income. There have not been
any audits of the Association's state tax returns during the past five years.
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THE CONVERSION
The OTS has approved the Plan subject to the Plan's approval by the
members of the Association entitled to vote on the matter and subject to the
satisfaction of certain other conditions imposed by the OTS in its approval. OTS
approval, however, does not constitute a recommendation or endorsement of the
Plan.
General
On August 29, 1996, the Association's Board of Directors adopted, and
on October 8, 1996 subsequently amended, the Plan of Conversion, pursuant to
which the Association will convert from a federally chartered mutual savings and
loan association to a federally chartered stock savings bank under the name
"Empire Federal Savings Bank," to be held as a wholly-owned subsidiary of the
Holding Company, a newly formed Delaware corporation. The Holding Company and
the Association intend to pursue the business strategy described in this
Prospectus with the goal of enhancing long-term shareholder value. Neither the
Holding Company nor the Association has any existing plan to pursue any possible
business combination, and neither has any agreement or understanding, written or
oral, with respect to any possible business combination.
The following discussion of the Plan of Conversion is qualified in its
entirety by reference to the Plan of Conversion, which is attached as Exhibit A
to the Association's Proxy Statement and is available from the Association upon
written request to Ernest A. Sandberg, Executive Vice President and Secretary,
123 South Main Street, Livingston, Montana 59047. The OTS has approved the Plan
of Conversion subject to the Plan's approval by the members of the Association
entitled to vote on the matter at a Special Meeting called for that purpose to
be held on December 19, 1996, and subject to the satisfaction of certain other
conditions imposed by the OTS in its approval.
If the Board of Directors of the Association decides for any reason,
such as possible delays resulting from overlapping regulatory processing or
policies or conditions that could adversely affect the Association's or the
Holding Company's ability to consummate the Conversion and transact its business
as contemplated herein and in accordance with the Association's operating
policies, at any time prior to the issuance of the Common Stock, not to use the
holding company form of organization in implementing the Conversion, the Plan of
Conversion will be amended to not use the holding company form of organization
in the Conversion. In the event that such a decision is made, the Association
will promptly refund all subscriptions or orders received together with accrued
interest, withdraw the Holding Company's registration statement from the SEC and
will take all steps necessary to consummate the Conversion and proceed with a
new offering without the Holding Company, including filing any necessary
documents with the OTS. In such event, and provided there is no regulatory
action, directive or other consideration upon which basis the Association
determines not to consummate the Conversion, the Association will issue and sell
the common stock of the Association. There can be no assurance that the OTS
would approve the Conversion if the Association decided to proceed without the
Holding Company. The following description of the Plan assumes that a holding
company form of organization will be utilized in the Conversion. In the event
that a holding company form of organization is not utilized, all other pertinent
terms of the Plan as described below will apply to the Conversion of the
Association from mutual to stock form of organization and the sale of the
Association's common stock.
The Conversion will be accomplished through adoption of a Federal Stock
Charter and Bylaws to authorize the issuance of capital stock by the
Association. Under the Plan, 1,666,000 to 2,254,000 shares of Common Stock are
being offered for sale by the Holding Company at the Purchase Price of $10.00
per share. As part of the Conversion, the Association will issue all of its
newly issued common stock (1,000 shares) to the Holding Company in exchange for
50% of the net proceeds from the sale of Common Stock by the Holding Company.
The Plan of Conversion provides generally that (i) the Association will
convert from a federally chartered mutual savings and loan association to a
federally chartered stock savings bank; (ii) the Common Stock will be
offered by the Holding Company in the Subscription Offering to persons having
Subscription Rights and in a Direct
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Community Offering to certain members of the general public with preference
given to natural persons residing in the Local Community; (iii) if necessary,
shares of Common Stock not subscribed for in the Subscription and Direct
Community Offering will be offered to certain members of the general public in a
Syndicated Community Offering through a syndicate of registered
broker-dealerspursuant to selected dealers agreements; and (iv) the Holding
Company will purchase all of the capital stock of the Association to be issued
in connection with the Conversion. The Conversion will be effected only upon
completion of the sale of at least 1,666,000 shares of Common Stock to be issued
pursuant to the Plan of Conversion.
As part of the Conversion, the Holding Company is making a Subscription
Offering of its Common Stock to holders of Subscription Rights in the following
order of priority: (i) Eligible Account Holders (depositors with $50.00 or more
on deposit as of March 31, 1995); (ii) the Association's ESOP; (iii)
Supplemental Eligible Account Holders (depositors with $50.00 or more on deposit
as of September 30, 1996); and (iv) Other Members (depositors of the Association
as of October 31, 1996, and borrowers of the Association with loans
outstanding as of ________ __, 1996, which continue to be outstanding as of
October 31, 1996). Concurrent with the Subscription Offering and subject to
the prior rights of holders of Subscription Rights, the Holding Company is
offering the Common Stock for sale to certain members of the general public
through a Direct Community Offering.
Shares of Common Stock not sold in the Subscription and Direct
Community Offering may be offered in the Syndicated Community Offering.
Regulations require that the Syndicated Community Offering be completed within
45 days after completion of the Subscription Offering unless extended by the
Association or the Holding Company with the approval of the regulatory
authorities. If the Syndicated Community Offering is determined not to be
feasible, the Board of Directors of the Association will consult with the
regulatory authorities to determine an appropriate alternative method for
selling the unsubscribed shares of Common Stock. The Plan of Conversion provides
that the Conversion must be completed within 24 months after the date of the
approval of the Plan of Conversion by the members of the Association.
No sales of Common Stock may be completed, either in the Subscription,
Direct Community or Syndicated Community Offerings, unless the Plan of
Conversion is approved by the members of the Association.
The completion of the Offerings, however, is subject to market
conditions and other factors beyond the Association's control. No assurance can
be given as to the length of time after approval of the Plan of Conversion at
the Special Meeting that will be required to complete the Syndicated Community
Offering or other sale of the Common Stock. If delays are experienced,
significant changes may occur in the estimated pro forma market value of the
Holding Company and the Association as converted, together with corresponding
changes in the net proceeds realized by the Holding Company from the sale of the
Common Stock. In the event the Conversion is terminated, the Association would
be required to charge all Conversion expenses against current income.
Orders for shares of Common Stock will not be filled until at least
1,666,000 shares of Common Stock have been subscribed for or sold and the OTS
approves the final valuation and the Conversion closes. If the Conversion is not
consummated by ___________ __, 1997 (45 days after the last day of the fully
extended Subscription Offering) and the OTS consents to an extension of time to
consummate the Conversion, subscribers will be given the right to increase,
decrease or rescind their subscriptions. Unless an affirmative indication is
received from subscribers that they wish to continue to subscribe for shares,
the funds will be returned promptly, together with accrued interest at the
Association's passbook rate (____% per annum as of the date hereof) from the
date payment is received until the funds are returned to the subscriber. If such
period is not extended, or, in any event, if the Conversion is not consummated
by ____________ __, 1997, all withdrawal authorizations will be terminated and
all funds held will be promptly returned together with accrued interest at the
Association's passbook rate from the date payment is received until the
Conversion is terminated.
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Purposes of Conversion
Management of the Association believes that the Conversion offers a
number of advantages that will be important to the future growth and performance
of the Association in that it is intended to (i) improve the competitive
position of the Association in its market area and to support possible future
expansion (currently there are no specific plans, arrangements or
understandings, written or oral, regarding any such activities); (ii) afford
members of the Association and others the opportunity to become stockholders of
the Holding Company and thereby participate more directly in, and contribute to,
any future growth of the Association; and (iii) provide future access to capital
markets.
The Association's Board of Directors has formed the Holding Company to
serve upon consummation of the Conversion as a holding company with the
Association as its subsidiary. The Association, as a mutual savings association,
does not have stockholders and has no authority to issue capital stock. By
converting to the stock form of organization, the Holding Company and the
Association will be structured in the form used by holding companies of
commercial banks and by a growing number of savings institutions.
As discussed under "RISK FACTORS -- Regulatory Oversight and Legislation,"
recently enacted federal legislation calls for the elimination of the federal
thrift charter through the creation of a common charter for all federally
chartered depository institutions (i.e., national banks and federal savings
associations). The Association believes that the Conversion is in the best
interests of the Association and its members given this uncertainty surrounding
the federal mutual savings association charter, notwithstanding the expected
consequences, as discussed under "RISK FACTORS -- Declining Interest Rate Spread
and Return on Equity After Conversion," of the Association's high capital levels
subsequent to the consummation of the Conversion.
Effects of Conversion to Stock Form on Depositors and Borrowers of the
Association
Voting Rights. Savings members and borrowers will have no voting rights
in the converted Association or the Holding Company and therefore will not be
able to elect directors of the Association or the Holding Company or to control
their affairs. Currently, these rights are accorded to savings and borrower
members of the Association. Subsequent to the Conversion, voting rights will
be vested exclusively in the Holding Company with respect to the Association
and the holders of the Common Stock as to matters pertaining to the Holding
Company. Each holder of Common Stock shall be entitled to vote on any matter
to be considered by the stockholders of the Holding Company. A stockholder
will be entitled to one vote for each share of Common Stock owned.
Savings Accounts and Loans. The Association's savings accounts, account
balances and existing FDIC insurance coverage of savings accounts will not be
affected by the Conversion. Furthermore, the Conversion will not affect the loan
accounts, loan balances or obligations of borrowers under their individual
contractual arrangements with the Association.
Tax Effects. The Association has received an opinion from Breyer &
Aguggia, Washington, D.C., that the Conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Code. Among other things, the
opinion states that: (i) no gain or loss will be recognized to the Association
in its mutual or stock form by reason of its Conversion; (ii) no gain or loss
will be recognized to its account holders upon the issuance to them of accounts
in the Association immediately after the Conversion, in the same dollar amounts
and on the same terms and conditions as their accounts at the Association in its
mutual form plus interest in the liquidation account; (iii) the tax basis of
account holders' accounts in the Association immediately after the Conversion
will be the same as the tax basis of their accounts immediately prior to
Conversion; (iv) the tax basis of each account holder's interest in the
liquidation account will be zero; (v) the tax basis of the Common Stock
purchased in the Conversion will be the amount paid and the holding period for
such stock will commence at the date of purchase; and (vi) no gain or loss will
be recognized to account holders upon the receipt or exercise of Subscription
Rights in the Conversion, except to the extent Subscription Rights are deemed to
have value as discussed below. Unlike a private letter ruling issued by the IRS,
an opinion of counsel is not binding on the IRS and the IRS could disagree with
the conclusions reached
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therein. In the event of such disagreement, no assurance can be given that the
conclusions reached in an opinion of counsel would be sustained by a court if
contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that
the receipt of Subscription Rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan will be taxable to the
extent, if any, that the Subscription Rights are deemed to have a fair market
value. Keller, a financial consulting firm retained by the Association, whose
findings are not binding on the IRS, has indicated that the Subscription Rights
do not have any value, based on the fact that such rights are acquired by the
recipients without cost, are nontransferable and of short duration and afford
the recipients the right only to purchase shares of the Common Stock at a
price equal to its estimated fair market value, which will be the same price
paid by purchasers in the Direct Community Offering for unsubscribed shares of
Common Stock. If the Subscription Rights are deemed to have a fair market value,
the receipt of such rights may only be taxable to those Eligible Account
Holders, Supplemental Eligible Account Holders (if any) and Other Members who
exercise their Subscription Rights. The Association could also recognize a gain
on the distribution of such Subscription Rights. Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members are encouraged to
consult with their own tax advisors as to the tax consequences in the event
the Subscription Rights are deemed to have a fair market value.
The Association has also received an opinion from Huppert and
Swindlehurst, P.C., Livingston, Montana, that, assuming the Conversion does
not result in any federal income tax liability to the Association, its account
holders, or the Holding Company, implementation of the Plan of Conversion will
not result in any Montana income tax liability to such entities or persons.
The opinions of Breyer & Aguggia and Huppert and Swindlehurst, P.C.
and the opinion from Keller are filed as exhibits to the Registration
Statement. See "ADDITIONAL INFORMATION."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.
Liquidation Account. In the unlikely event of a complete liquidation of
the Association in its present mutual form, each depositor in the Association
would receive a pro rata share of any assets of the Association remaining after
payment of claims of all creditors (including the claims of all depositors up to
the withdrawal value of their accounts). Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his or her
deposit account to the total value of all deposit accounts in the Association at
the time of liquidation.
After the Conversion, holders of withdrawable deposit(s) in the
Association, including certificates of deposit ("Savings Account(s)"), shall not
be entitled to share in any residual assets in the event of liquidation of the
Association. However, pursuant to OTS regulations, the Association shall, at the
time of the Conversion, establish a liquidation account in an amount equal to
its total equity as of the date of the latest statement of financial condition
contained herein.
The liquidation account shall be maintained by the Association
subsequent to the Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who retain their Savings Accounts in the
Association. Each Eligible Account Holder and Supplemental Eligible Account
Holder shall, with respect to each Savings Account held, have a related inchoate
interest in a portion of the liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an
Eligible Account Holder or a Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of such holder's "qualifying
deposit" in the Savings Account and the denominator is the total amount of the
"qualifying deposits" of all such holders. Such initial subaccount balance shall
not be increased, and it shall be subject to downward adjustment as provided
below.
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If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing day of the Association subsequent to March 31, 1995 is less than
the lesser of (i) the deposit balance in such Savings Account at the close of
business on any other annual closing date subsequent to March 31, 1995 or
September 30, 1996 or (ii) the amount of the "qualifying deposit" in such
Savings Account on March 31, 1995 or September 30, 1996, then the subaccount
balance for such Savings Account shall be adjusted by reducing such subaccount
balance in an amount proportionate to the reduction in such deposit balance. In
the event of a downward adjustment, such subaccount balance shall not be
subsequently increased, notwithstanding any increase in the deposit balance of
the related Savings Account. If any such Savings Account is closed, the related
subaccount balance shall be reduced to zero. In the event of a complete
liquidation of the Association (and only in such event) each Eligible Account
Holder and Supplemental Eligible Account Holder shall be entitled to receive a
liquidation distribution from the liquidation account in the amount of the then
current adjusted subaccount balance(s) for Savings Account(s) then held by such
holder before any liquidation distribution may be made to stockholders. No
merger, consolidation, bulk purchase of assets with assumptions of Savings
Accounts and other liabilities or similar transactions with another federally
insured institution in which the Association is not the surviving institution
shall be considered to be a complete liquidation. In any such transaction the
liquidation account shall be assumed by the surviving institution.
The Subscription, Direct Community and Syndicated Community Offerings
The Offerings (including the Syndicated Community Offering) are
expected to expire at Noon, Mountain Time, on the Expiration Date, unless
extended or continued as described on the cover page of this Prospectus.
Subscription Offering. In accordance with the Plan, nontransferable
Subscription Rights to purchase the Common Stock have been issued to all persons
and entities entitled to purchase the Common Stock in the Subscription Offering.
The amount of the Common Stock which these parties may purchase will be subject
to the availability of the Common Stock for purchase under the categories set
forth in the Plan. Subscription priorities have been established for the
allocation of stock to the extent that the Common Stock is available. These
priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with $50.00 or
more on deposit at the Association as of March 31, 1995 will receive
nontransferable Subscription Rights to subscribe for up to the greater of 22,500
shares of Common Stock, one-tenth of 1% of the total offering of Common Stock 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 qualifying deposit of the
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders. If the exercise of Subscription Rights
in this category results in an oversubscription, shares of Common Stock will be
allocated among subscribing Eligible Account Holders so as to permit each
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation equal 100 shares or the number of
shares actually subscribed for, whichever is less. Thereafter, unallocated
shares will be allocated among subscribing Eligible Account Holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all Eligible Account Holders.
Subscription Rights received by officers and directors in this category based on
their increased deposits in the Association in the one-year period preceding
March 31, 1995 are subordinated to the Subscription Rights of other Eligible
Account Holders.
Category 2: ESOP. The Plan provides that the ESOP shall receive
nontransferable Subscription Rights to purchase up to 8% of the shares of Common
Stock issued in the Conversion. The ESOP intends to purchase 8% of the shares of
Common Stock issued in the Conversion. In the event the number of shares offered
in the Conversion is increased above the maximum of the Estimated Valuation
Range, the ESOP shall have a priority right to purchase any such shares
exceeding the maximum of the Estimated Valuation Range up to an aggregate of 8%
of the Common Stock.
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Category 3: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit at the Association as of September 30, 1996 will
receive nontransferable Subscription Rights to subscribe for up to the greater
of 22,500 shares of Common Stock, one-tenth of 1% of the total offering of
Common Stock 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 qualifying deposit of the
Supplemental Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Supplemental Eligible Account Holders. If the
exercise of Subscription Rights in this category results in an oversubscription,
shares of Common Stock will be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each Supplemental Eligible Account Holder, to
the extent possible, to purchase a number of shares sufficient to make his or
her total allocation equal 100 shares or the number of shares actually
subscribed for, whichever is less. Thereafter, unallocated shares will be
allocated among subscribing Supplemental Eligible Account Holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all Supplemental Eligible Account
Holders.
Category 4: Other Members. Each depositor of the Association as of
the Voting Record Date and each borrower with a loan outstanding on __________,
1996 which continues to be outstanding as of the Voting Record Date will
receive nontransferable Subscription Rights to purchase the greater of 22,500
shares of Common Stock in the Conversion or one-tenth of 1% of the total
offering of shares in the Conversion to the extent available following
subscriptions by Eligible Account Holders and Supplemental Eligible Account
Holders. In the event of an oversubscription, the available shares will be
allocated proportionately based on the amount of their respective subscriptions.
Subscription Rights are nontransferable. Persons selling or otherwise
transferring their Subscription Rights to subscribe for Common Stock in the
Subscription Offering or subscribing for Common Stock on behalf of another
person will be subject to forfeiture of such right and possible further
sanctions and penalties imposed by the OTS or another agency of the U.S.
Government. Each person exercising Subscription Rights will be required to
certify that he or she is purchasing such shares solely for his or her own
account and that he or she has no agreement or understanding with any other
person for the sale or transfer of such shares. Once tendered, subscription
orders cannot be revoked without the consent of the Association and the Holding
Company.
The Subscription Offering and all Subscription Rights under the Plan
will expire at Noon, Mountain Time, on _____________ __, 1996, whether or not
the Association has been able to locate each person entitled to such
Subscription Rights. OTS regulations require that the Holding Company complete
the sale of Common Stock within 45 days after the close of the Subscription
Offering. The Subscription Offering may be extended by the Holding Company and
the Association up to _____________ __, 1997 without the OTS's approval. If the
Direct Community Offering and the Syndicated Community Offerings are not
completed by ______________ __, 1996 (or __________ __, 1997, if the
Subscription Offering is fully extended), all funds received will be promptly
returned with interest at the passbook rate and all withdrawal authorizations
will be canceled or, if regulatory approval of an extension of the time period
has been granted, all subscribers and purchasers will be given the right to
increase, decrease or rescind their orders. If an extension of time is obtained,
all subscribers will be notified of such extension and of the duration of any
extension that has been granted, and will be given the right to increase,
decrease or rescind their orders. If an affirmative response to any
resolicitation is not received by the Holding Company from a subscriber, the
subscriber's order will be rescinded and all funds received will be promptly
returned with interest (or withdrawal authorizations will be canceled). No
single extension can exceed 90 days.
Direct Community Offering. Concurrently with the Subscription Offering,
the Holding Company is offering shares of the Common Stock to certain members of
the general public in a Direct Community Offering with preference given to
natural persons residing in the Local Community. Purchasers in the Direct
Community Offering, together with their associates and groups acting in concert,
are eligible to purchase up to 22,500 shares of Common Stock in the Conversion.
In the event an insufficient number of shares are available to fill orders in
the Direct Community Offering, the available shares will be allocated on a pro
rata basis determined by the amount of the respective orders. Orders for the
Common Stock in the Direct Community Offering will be filled to the extent such
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shares remain available after satisfaction of all orders received in the
Subscription Offering. The Direct Community Offering may terminate as early as
Noon, Mountain Time, on _____________ __, 1996 or any date thereafter; however,
in no case later than ___________ __, 1997, unless extended. Any extensions
beyond ___________ __, 1997 would require a resolicitation of orders, wherein
subscribers would be given the opportunity to continue their orders, in which
case they will need to reconfirm affirmatively their subscriptions prior to the
expiration of the resolicitation offering or their subscription funds will be
promptly refunded with interest at the passbook rate, or be
permitted to modify or cancel their orders. The right of any person to purchase
shares in the Direct Community Offering is subject to the absolute right of the
Holding Company and the Association to accept or reject such purchases in whole
or in part. If an order is rejected in part, the purchaser does not have the
right to cancel the remainder of the order. The Holding Company presently
intends to terminate the Direct Community Offering as soon as it has received
orders for all shares available for purchase in the Conversion.
If all of the Common Stock offered in the Subscription Offering is
subscribed for, no Common Stock will be available for purchase in the Direct
Community Offering and all funds submitted pursuant to the Direct Community
Offering will be refunded promptly with interest.
Syndicated Community Offering. The Plan provides that shares of Common
Stock not purchased in the Subscription and Direct Community Offering, if any,
may be offered for sale to certain members of the general public in a Syndicated
Community Offering through a syndicate of registered broker-dealers to be
managed by Webb acting as agent of the Holding Company. The Holding Company and
the Association have the right to reject orders, in whole or part, in their sole
discretion in the Syndicated Community Offering. If an order is rejected in
part, the purchaser does not have the right to cancel the remainder of the
order. Neither Webb nor any registered broker-dealer shall have any obligation
to take or purchase any shares of the Common Stock in the Syndicated Community
Offering; however, Webb has agreed to use its best efforts in the sale of shares
in the Syndicated Community Offering.
Stock sold in the Syndicated Community Offering will be sold at the
$10.00 Purchase Price, the same price as all other shares in the Offerings. See
"-- Stock Pricing and Number of Shares to be Issued." No person, together with
any associate or group of persons acting in concert, will be permitted to
subscribe in the Syndicated Community Offering for shares of Common Stock with
an aggregate purchase price of more than $250,000. See "-- Plan of Distribution
for the Subscription, Community and Syndicated Community Offerings" for a
description of the commission to be paid to the selected dealers and to Webb.
Webb may enter into agreements with selected dealers to assist in the
sale of shares in the Syndicated Community Offering. During the Syndicated
Community 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. When and if
Webb and the Holding Company believe that enough indications of interest and
orders have been received in the Subscription Offering, the Direct Community
Offering and the Syndicated Community Offering 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 confirmations to such customers on the
next business day after the Order Date. Selected dealers may debit the accounts
of their customers on a date which will be three business days from the Order
Date ("Settlement 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 Settlement Date. On the Settlement 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 by the
FDIC up to the applicable $100,000 legal limit. After payment has been received
by the Holding Company from selected dealers, funds will earn interest at the
Association's passbook rate (_____% per annum as of the date hereof) until the
completion of the Offerings. At the consummation of the Conversion the funds
received in the Offerings will be used to purchase the shares of Common Stock
ordered. The shares of Common Stock issued in the Conversion cannot and will not
be insured by the FDIC or any other government
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agency. 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 accounts.
The Syndicated Community Offering may close as early as Noon, Mountain
Time on _____________ __, 1996, the Expiration Date, or any date thereafter at
the discretion of the Holding Company. The Syndicated Community Offering will
terminate no more than 45 days following the Expiration Date, unless extended by
the Holding Company with any required regulatory approval, but in no case later
than ____________ __, 1997. The Syndicated Community Offering may run concurrent
to the Subscription and Direct Community Offering or subsequent thereto.
In the event the Association is unable to find purchasers from the
general public for all unsubscribed shares, other purchase arrangements will be
made by the Board of Directors of the Association, if feasible. Such other
arrangements will be subject to the approval of the OTS. The OTS may grant one
or more extensions of the offering period, provided that (i) no single extension
exceeds 90 days, (ii) subscribers are given the right to increase, decrease or
rescind their subscriptions during the extension period, and (iii) the
extensions do not go more than two years beyond the date on which the members
approved the Plan. If the Conversion is not consummated by ______________ __,
1996 (or, if the Offerings are fully extended, by ____________ __, 1997), either
all funds received will be returned with interest (and withdrawal authorizations
canceled) or, if the OTS has granted an extension of such period, all
subscribers will be given the right to increase, decrease or rescind their
subscriptions at any time prior to 20 days before the end of the extension
period. If an extension of time is obtained, all subscribers will be notified of
such extension and of their rights to modify their orders. If an affirmative
response to any resolicitation is not received by the Holding Company from a
subscriber, the subscriber's order will be rescinded and all funds received will
be promptly returned with interest (or withdrawal authorizations will be
canceled). No single extension can exceed 90 days.
Persons in Non-Qualified States. The Holding Company and the
Association will make reasonable efforts to comply with the securities laws of
all states in the United States in which persons entitled to subscribe for stock
pursuant to the Plan reside. However, the Holding Company and the Association
are not required to offer stock in the Subscription Offering to any person who
resides in a foreign country or resides in a state of the United States with
respect to which (i) a small number of persons otherwise eligible to subscribe
for shares of Common Stock reside in such state; or (ii) the Holding Company or
the Association determines that compliance with the securities laws of such
state would be impracticable for reasons of cost or otherwise, including but not
limited to a request or requirement that the Holding Company and the Association
or their officers, directors or trustees register as a broker, dealer, salesman
or selling agent, under the securities laws of such state, or a request or
requirement to register or otherwise qualify the Subscription Rights or Common
Stock for sale or submit any filing with respect thereto in such state. Where
the number of persons eligible to subscribe for shares in one state is small,
the Holding Company and the Association will base their decision as to whether
or not to offer the Common Stock in such state on a number of factors, including
the size of accounts held by account holders in the state, the cost of reviewing
the registration and qualification requirements of the state (and of actually
registering or qualifying the shares) or the need to register the Holding
Company, its officers, directors or employees as brokers, dealers or salesmen.
Limitations on Purchases of Shares
The Plan of Conversion provides for certain additional limitations to
be placed upon the purchase of Common Stock by eligible subscribers and others
in the Conversion. Each subscriber must subscribe for a minimum of 25 shares. No
person by himself shall purchase shares of Common Stock with an aggregate
Purchase Price that exceeds $225,000 (22,500 shares based on the $10.00 Purchase
Price) in the Conversion. Additionally, no person, together with any associates
or groups of persons acting in concert, shall purchase shares of Common Stock
with an aggregate Purchase Price that exceeds $350,000 (35,000 shares based on
the $10.00 Purchase Price) in the Conversion. Officers, directors and their
associates may not purchase, in the aggregate, more than 34% of the shares of
Common Stock offered in the Conversion. For purposes of the Plan, the directors
are not deemed to be acting
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in concert solely by reason of their Board membership. Pro rata reductions
within each Subscription Rights category will be made in allocating shares to
the extent that the maximum purchase limitations are exceeded.
</R.
The Association's and the Holding Company's Boards of Directors may, in
their sole discretion, increase the maximum purchase limitation set forth above
up to 9.99% of the shares of Common Stock sold in the Conversion, provided that
orders for shares which exceed 5% of the shares of Common Stock sold in the
Conversion may not exceed, in the aggregate, 10% of the shares sold in the
Conversion. The Association and the Holding Company do not intend to increase
the maximum purchase limitation unless market conditions are such that an
increase in the maximum purchase limitation is necessary to sell a number of
shares in excess of the minimum of the Estimated Valuation Range. If the Boards
of Directors decide to increase the purchase limitation above 22,500 shares of
Common Stock, all persons who subscribed for the maximum number of shares will
be given the opportunity to increase their orders accordingly, subject to the
rights and preferences of any person who has priority Subscription Rights.
The term "acting in concert" is defined in the Plan to mean (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. In
general, a person who acts in concert with another person ("other party") shall
also be deemed to be acting in concert with any person who is also acting in
concert with that other party. The Holding Company and the Association may
presume that certain persons are acting in concert based upon, among other
things, joint account relationships and the fact that such persons have filed
joint Schedules 13D with the SEC with respect to other companies.
The term "associate" of a person is defined in the Plan to mean (i) any
corporation or organization (other than the Association or a majority-owned
subsidiary of the Association) of which such person is an officer or partner or
is, directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities; (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 (excluding tax-qualified employee plans); and
(iii) any relative or spouse of such person, or any relative of such spouse, who
either has the same home as such person or who is a director or officer of the
Association or any of its parents or subsidiaries. For example, a corporation of
which a person serves as an officer would be an associate of such person, and,
therefore, all shares purchased by such corporation would be included with the
number of shares which such person could purchase individually under the above
limitations.
The term "officer" is defined in the Plan to mean an executive officer
of the Association, including its President, Executive Vice Presidents, Senior
Vice Presidents, Vice Presidents in charge of principal business functions,
Secretary and Treasurer.
Common Stock purchased pursuant to the Conversion will be freely
transferable, except for shares purchased by directors and officers of the
Association and the Holding Company and for shares purchased by National
Association of Securities Dealers, Inc. ("NASD") members. See "-- Restrictions
on Transferability by Directors and Officers and NASD Members."
Plan of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings
The Holding Company and the Association have retained Webb to consult
with and to advise the Association and the Holding Company, and to assist the
Holding Company, on a best efforts basis, in the distribution of the shares of
Common Stock in the Subscription and Community Offering. The services that Webb
will provide include, but are not limited to (i) training the employees of the
Association who will perform certain ministerial functions in the Subscription
and Community Offering regarding the mechanics and regulatory requirements of
the stock offering process, (ii) managing the Stock Information Center by
assisting interested stock subscribers and by keeping records of all stock
orders, (iii) preparing marketing materials, and (iv) assisting in the
solicitation of proxies
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from the Association's members for use at the Special Meeting. For its
services, Webb will receive a management fee of $25,000 and a
success fee of 1.5% of the aggregate Actual Purchase Price of the shares of
Common Stock sold in the Offerings excluding shares purchased by the ESOP and
officers and directors of the Association (such success fee not to exceed 1.5%
of the gross offering proceeds at the midpoint of the Estimated Valuation Range,
or $294,000). In the event that selected dealers are used to assist in the sale
of shares of Common Stock in the Community Offering, such dealers will be paid a
fee of up to 5.5% of the aggregate Purchase Price of the shares sold by such
dealers. The Holding Company and the Association have agreed to reimburse Webb
for its out-of-pocket expenses, and its legal fees up to a total of $35,000, and
to indemnify Webb against certain claims or liabilities, including certain
liabilities under the Securities Act, and will contribute to payments Webb may
be required to make in connection with any such claims or liabilities.
Sales of shares of Common Stock will be made primarily by registered
representatives affiliated with Webb or by the broker-dealers managed by Webb. A
Stock Information Center will be established at the office of the Association.
The Holding Company will rely on Rule 3a4-1 of the Exchange Act and sales of
Common Stock will be conducted within the requirements of such Rule, so as to
permit officers, directors and employees to participate in the sale of the
Common Stock in those states where the law so permits. No officer, director or
employee of the Holding Company or the Association will be compensated directly
or indirectly by the payment of commissions or other remuneration in connection
with his or her participation in the sale of Common Stock.
Procedure for Purchasing Shares in the Subscription and Direct Community
Offering
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
Stock Order Form will confirm receipt or delivery in accordance with Rule
15c2-8. Stock Order Forms will only be distributed with a Prospectus. The
Association will accept for processing only orders submitted on original Stock
Order Forms.
To purchase shares in the Subscription and Direct Community Offering,
the accompanying original Stock Order Form (facsimile copies and photocopies
will not be accepted) and a fully executed separate original Certification Form,
along with the required full payment for each share subscribed, or with
appropriate authorization for withdrawal of full payment from the subscriber's
deposit account with the Association (which may be given by completing the
appropriate blanks in the Stock Order Form), must be received by the Association
by Noon, Mountain Time, on the Expiration Date. Stock Order Forms and
Certification Forms that are not received by such time or are executed
defectively or are received without full payment (or appropriate withdrawal
instructions for full payment) are not required to be accepted. The Holding
Company and the Association have the right to waive or permit the correction of
incomplete or improperly executed Stock Order Forms, but do not represent that
they will do so. Pursuant to the Plan of Conversion, the interpretation by the
Holding Company and the Association of the terms and conditions of the Plan of
Conversion and of the Stock Order Form will be final. Once received, an executed
Stock Order Form or Certification Form may not be modified, amended or rescinded
without the consent of the Association, unless the Conversion has not been
consummated within 45 days after the end of the Subscription Offering, unless
such period has been extended.
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) and/or the Supplemental Eligibility Record Date (September 30, 1996)
and/or the Voting Record Date (October 31, 1996) must list all accounts on
the Stock Order Form giving all names in each account, the account number and
the approximate account balance as of such date.
Full payment for subscriptions may be made (i) in cash only if
delivered in person at the Association, (ii) by check, bank draft, or money
order, or (iii) by authorization of withdrawal from deposit accounts maintained
with the Association. Appropriate means by which such withdrawals may be
authorized are provided on the Stock Order Form. No wire transfers will be
accepted and full payment is required. Interest will be paid on payments made by
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cash, check, bank draft or money order at the Association's passbook rate (___%
per annum as of the date hereof) from the date payment is received until the
consummation or termination of the Conversion. If payment is made by
authorization of withdrawal from deposit accounts, the funds authorized to be
withdrawn from a deposit account will continue to accrue interest at the
contractual rates until consummation or termination of the Conversion (unless
the certificate matures after the date of receipt of the Stock Order Form but
prior to closing, in which case funds will earn interest at the passbook rate
from the date of maturity until consummation of the Conversion), but a hold will
be placed on such funds, thereby making them unavailable to the depositor until
consummation or termination of the Conversion. At the consummation of the
Conversion the funds received in the Offerings will be used to
purchase the shares of Common Stock ordered. The shares issued in the Conversion
cannot and will not be insured by the FDIC or any other government agency. In
the event that the Conversion is not consummated for any reason, all funds
submitted will be promptly refunded with interest as described above.
If a subscriber authorizes the Association to withdraw the amount of
the Purchase Price from his or her deposit account, the Association will do so
as of the effective date of Conversion. The Association will waive any
applicable penalties for early withdrawal from certificate accounts. If the
remaining balance in a certificate account is reduced below the applicable
minimum balance requirement at the time that the funds actually are transferred
under the authorization the certificate will be canceled at the time of the
withdrawal, without penalty, and the remaining balance will earn interest at the
Association's passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP 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 at
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
from an unrelated financial institution or the Holding Company to lend to the
ESOP, at such time, the aggregate Purchase Price of the shares for which it
subscribed.
IRAs maintained in the Association do not permit investment in the
Common Stock. A depositor interested in using his or her IRA funds to purchase
Common Stock must do so through a self-directed IRA. Since the Association does
not offer such accounts, it will allow such a depositor to make a
trustee-to-trustee transfer of the IRA funds to a trustee offering a
self-directed IRA program with the agreement that such funds will be used to
purchase the Holding Company's Common Stock in the Offerings. There will be no
early withdrawal or IRS interest penalties for such transfers. The new trustee
would hold the Common Stock in a self-directed account in the same manner as the
Association now holds the depositor's IRA funds. An annual administrative fee
may be payable to the new trustee. Depositors interested in using funds in an
Association IRA to purchase Common Stock should contact the Stock Information
Center at the Association as soon as possible so that the necessary forms may be
forwarded for execution and returned prior to the Expiration Date. In addition,
the provisions of ERISA and IRS regulations require that officers, directors and
10% shareholders who use self-directed IRA funds to purchase shares of Common
Stock in the Subscription and Direct Community Offering make such purchases for
the exclusive benefit of IRAs.
Certificates representing shares of Common Stock purchased, and any
refund due, will be mailed to purchasers at such address as may be specified in
a properly completed Stock Order Form or to the last address of such person(s)
appearing on the records of the Association as soon as practicable following
completion of the sale of all shares of Common Stock. Any certificates returned
as undeliverable will be disposed of in accordance with applicable law. Until
certificates for the Common Stock are available and delivered to subscribers and
purchasers, subscribers and purchasers may not be able to sell the shares of
Common Stock for which they subscribed or purchased.
Stock Pricing and Number of Shares to be Issued
OTS regulations require that the aggregate purchase price of the
securities sold in connection with the conversion of a thrift institution be
based upon an estimated pro forma value of the association and its holding
company (if any) as converted (i.e., taking into account the expected receipt of
proceeds from the sale of securities
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in the Conversion), as determined by an independent appraisal. The Association
and the Holding Company have retained Keller to prepare an appraisal of the
pro forma market value of the Holding Company and the Association as converted,
as well as a business plan. Keller will receive a fee of $22,000 for its
appraisal services and preparation of a business plan, plus reasonable
out-of-pocket expenses incurred in connection with the appraisal not to exceed
$1,000. The Association 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 Holding Company and the Association as converted taking into
account the formation of the Holding Company as the holding company for the
Association. For its analysis, Keller undertook substantial investigations to
learn about the Association's business and operations. Management supplied
financial information, including annual financial statements, information on the
composition of assets and liabilities, and other financial schedules. In
addition to this information, Keller reviewed the Association's Form AC
Application for Approval of Conversion and the Holding Company's Form SB-2
Registration Statement. Furthermore, Keller visited the Association's facilities
and had discussions with the Association's management and its special conversion
legal counsel, Breyer & Aguggia. No detailed individual analysis of the separate
components of the Holding Company's or the Association's assets and liabilities
was performed in connection with the evaluation.
In estimating the pro forma market value of the Holding Company and the
Association, as required by applicable regulatory guidelines, Keller's analysis
utilized three selected valuation procedures, the Price/Book ("P/B") method, the
Price/Earnings ("P/E") method, and Price/Assets ("P/A") method, all of which are
described in its report. Keller placed the greatest emphasis on the P/E and P/B
methods in estimating pro forma market value. In applying these procedures,
Keller reviewed, among other factors, the economic make-up of the Association's
primary market area, the Association's financial performance and condition in
relation to publicly-traded institutions that Keller deemed comparable to the
Association, the specific terms of the offering of the Holding Company's Common
Stock, the pro forma impact of the additional capital raised in the Conversion,
conditions of securities markets in general, and the market for thrift
institution common stock in particular. Keller's analysis provides an
approximation of the pro forma market value of the Holding Company and the
Association as converted based on the valuation methods applied and the
assumptions outlined in its report. Included in its report were certain
assumptions as to the pro forma earnings of the Holding Company after the
Conversion that were utilized in determining the appraised value. These
assumptions included expenses of $545,000, $585,000, $619,000 and $619,000 at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, an assumed after-tax rate of return on the net Conversion
proceeds of 3.81%, purchases by the ESOP of 8% of the stock sold in the
Conversion and purchases in the open market by the MRP of a number of shares
equal to 4% of the stock sold in the Conversion at the Purchase
Price. See "PRO FORMA DATA" for additional information concerning these
assumptions. The use of different assumptions may yield somewhat different
results.
On the basis of the foregoing, Keller has advised the Holding Company
and the Association that, in its opinion, as of September 6, 1996, the aggregate
estimated pro forma market value of the Holding Company and the Association, as
converted, and, therefore, the Common Stock was within the valuation range of
$16.7 million to $22.5 million with a midpoint of $19.6 million. After reviewing
the methodology and the assumptions used by Keller in the preparation of the
appraisal, the Board of Directors established the Estimated Valuation Range
which is equal to the valuation range of $16.7 million to $22.5 million with a
midpoint of $19.6 million. Assuming that the shares are sold at $10.00 per share
in the Conversion, the estimated number of shares would be between 1,666,000 and
2,254,000 with a midpoint of 1,960,000. The Purchase Price of $10.00 was
determined by discussion among the Boards of Directors of the Association and
the Holding Company and Webb, taking into account, among other factors (i) the
requirement under OTS regulations that the Common Stock be offered in a manner
that will achieve the widest distribution of the stock and (ii) desired
liquidity in the Common Stock subsequent to the Conversion. Since the outcome of
the Offerings relate in large measure to market conditions at the time of sale,
it is not possible to determine the exact number of shares that will be issued
by the Holding Company at this time. The Estimated Valuation Range may be
amended, with the approval of the OTS, if necessitated by developments
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following the date of such appraisal in, among other things, market conditions,
the financial condition or operating results of the Association, regulatory
guidelines or national or local economic conditions.
Keller's appraisal report is filed as an exhibit to the Registration
Statement. See "ADDITIONAL INFORMATION."
If, upon completion of the Subscription and Direct Community 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 Association and the
Holding Company as converted, as of the close of the Subscription and Direct
Community Offering.
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 that would cause it to conclude that
the actual total purchase price on an aggregate basis was incompatible with its
estimate of the total pro forma market value of the Holding Company and the
Association as converted at the time of the sale. If, however, the facts do not
justify such a statement, the Offerings or other sale may be canceled, a new
Estimated Valuation Range and price per share set and new Subscription, Direct
Community and Syndicated Community Offerings held. Under such circumstances,
subscribers would have the right to modify or rescind their subscriptions and to
have their subscription funds returned promptly with interest and holds on funds
authorized for withdrawal from deposit accounts would be released or reduced.
Depending upon market and financial conditions, the number of shares
issued may be more or less than the range in number of shares shown above. In
the event the total amount of shares issued is less than 1,666,000 or more than
2,592,100 (15% above the maximum of the Estimated Valuation Range), for
aggregate gross proceeds of less than $16.7 million or more than $25.9 million,
subscription funds will be returned promptly with interest to each subscriber
unless he indicates otherwise. In the event a new valuation range is established
by Keller, such new range will be subject to approval by the OTS.
If purchasers cannot be found for an insignificant residue of
unsubscribed shares from the general public, other purchase arrangements will be
made by the Boards of Directors of the Association and the Holding Company, if
possible. Such other purchase arrangements will be subject to the approval of
the OTS and may provide for purchases for investment purposes by directors,
officers, their associates and other persons in excess of the limitations
provided in the Plan of Conversion and in excess of the proposed director
purchases set forth herein, although no such purchases are currently intended.
If such other purchase arrangements cannot be made, the Plan will terminate.
In formulating its appraisal, Keller relied upon the truthfulness,
accuracy and completeness of all documents the Association furnished it. Keller
also considered financial and other information from regulatory agencies, other
financial institutions, and other public sources, as appropriate. While Keller
believes this information to be reliable, Keller does not guarantee the accuracy
or completeness of such information and did not independently verify the
financial statements and other data provided by the Association and the Holding
Company or independently value the assets or liabilities of the Holding Company
and the Association. The appraisal by Keller 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. Moreover,
because the appraisal is necessarily based on many factors which change from
time to time, there is no assurance that persons who purchase such shares in the
Conversion will later be able to sell shares thereafter at prices at or above
the Purchase Price.
Restrictions on Repurchase of Stock
Pursuant to OTS regulations, OTS-regulated savings associations (and
their holding companies) may not for a period of three years from the date of an
institution's mutual-to-stock conversion repurchase any of its common stock from
any person, except in the event of (i) an offer made to all of its stockholders
to repurchase the common stock on a pro rata basis, approved by the OTS; (ii)
the repurchase of qualifying shares of a director; or (iii) a
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purchase in the open market by a tax-qualified or non-tax-qualified employee
stock benefit plan in an amount reasonable and appropriate to fund the plan.
Furthermore, repurchases any of its common stock are prohibited if the effect
thereof would cause the association's regulatory capital to be reduced below
(a) the amount required for the liquidation account or (b) the regulatory
capital requirements imposed by the OTS. Repurchases are generally prohibited
during the first year following conversion. However, recent OTS policy has
relaxed this restriction, particularly during the second six months after
conversion. While an applicant needs to demonstrate the existence of
"exceptional circumstances" during the first six months after conversion, the
OTS has indicated that it would analyze repurchases during months seven
through 12 after conversion on a case-by-case basis. Upon 10 days' written
notice to the OTS, and if the OTS does not object, an institution may make open
market repurchases of its outstanding common stock during years two and three
following the conversion, provided that (x) no more than 5% of the outstanding
common stock is to be purchased during any 12-month period, (y) the repurchases
do not cause the association to become undercapitalized as defined under the OTS
prompt corrective action regulations and (z) the repurchase would not adversely
affect the financial condition of the association. No assurances, however, can
be given that the OTS will approve a repurchase program under current policy or
that such policy will not change or become more restrictive.
Shares to be Purchased by Management Pursuant to Subscription Rights
The following table sets forth certain information as to the
approximate purchases of Common Stock by each director and executive officer of
the Association, including their associates, as defined by applicable
regulations, assuming that sufficient shares will be available to satisfy
subscriptions in all categories. No individual has entered into a binding
agreement with respect to such intended purchases and, therefore, actual
purchases could be more or less than indicated below. Directors and officers of
the Association and their associates may not purchase in excess of 34% of the
shares sold in the Conversion. Directors, officers and staff members will pay
the same price for the shares for which they subscribe as the price that will be
paid by all other subscribers.
<TABLE>
<CAPTION>
Percent of
Shares at
Name and Maximum of
Position with Anticipated Number of Anticipated Dollar Estimated
the Association Shares Purchased(1) Amount Purchased(1) Valuation Range(1)
<S> <C> <C> <C>
Beverly D. Harris 22,500 $225,000 1.1%
President
Walter J. Peterson, Jr. 10,000 100,000 0.4
Chairman of the Board
and Director
Ernest A. Sandberg 12,500 125,000 0.6
Executive Vice President
Secretary and Director
John R. Boe 4,000 40,000 0.2
Director
Edwin H. Doig 10,000 100,000 0.4
Director
Sanroe J. Kaisler, Jr. 5,000 50,000 0.2
Director
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Walter R. Sales 5,000 50,000 0.2
Director
69,000 $690,000 3.1%
</TABLE>
(1) Excludes any shares awarded pursuant to the ESOP and MRP and options to
acquire shares pursuant to the Stock Option Plan. For a description of
the number of shares to be purchased by the ESOP and expected awards
under the MRP and Stock Option Plan, see "MANAGEMENT OF THE ASSOCIATION
-- Benefits -- Employee Stock Ownership Plan," "-- Benefits -- 1996
Stock Option Plan" and "-- Benefits -- Management Recognition Plan."
Restrictions on Transferability by Directors and Officers and NASD Members
Shares of Common Stock purchased in the Offerings by directors and
officers of the Holding Company may not be sold for a period of one year
following consummation of the Conversion, except in the event of the death of
the stockholder or in any exchange of the Common Stock in connection with a
merger or acquisition of the Holding Company. Shares of Common Stock received by
directors or officers through the ESOP, the MRP or upon exercise of options
issued pursuant to the Stock Option Plan or purchases subsequent to the
Conversion are not subject to this restriction. Accordingly, shares of Common
Stock issued by the Holding Company to directors and officers shall bear a
legend giving appropriate notice of the restriction, and, in addition, the
Holding Company will give appropriate instructions to the transfer agent for the
Holding Company's Common Stock with respect to the restriction on transfers. Any
shares issued to directors and officers as a stock dividend, stock split or
otherwise with respect to restricted Common Stock shall be subject to the same
restrictions.
Purchases of outstanding shares of Common Stock of the Holding Company
by directors, executive officers (or any person who was an executive officer or
director of the Association after adoption of the Plan of Conversion) and their
associates during the three-year period following Conversion may be made only
through a broker or dealer registered with the SEC, except with the prior
written approval of the OTS. This restriction does not apply, however, to
negotiated transactions involving more than 1% of the Holding Company's
outstanding Common Stock or to the purchase of stock pursuant to the Stock
Option Plan.
The Holding Company has filed with the SEC a registration statement
under the Securities Act for the registration of the Common Stock to be issued
pursuant to the Conversion. The registration under the Securities Act of shares
of the Common Stock to be issued in the Conversion does not cover the resale of
such shares. Shares of Common Stock purchased by persons who are not affiliates
of the Holding Company may be resold without registration. Shares purchased by
an affiliate of the Holding Company will be subject to the resale restrictions
of Rule 144 under the Securities Act. If the Holding Company meets the current
public information requirements of Rule 144 under the Securities Act, each
affiliate of the Holding Company who complies with the other conditions of Rule
144 (including those that require the affiliate's sale to be aggregated with
those of certain other persons) would be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of (i) 1% of the outstanding shares of the Holding Company
or (ii) the average weekly volume of trading in such shares during the preceding
four calendar weeks. Provision may be made in the future by the Holding Company
to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
In addition, under guidelines of the NASD, members of the NASD and
their associates are subject to certain restrictions on the transfer of
securities purchased in accordance with Subscription Rights and to certain
reporting requirements upon purchase of such securities.
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
The following discussion is a summary of certain provisions of federal
law and regulations and Delaware corporate law, as well as the Certificate of
Incorporation and Bylaws of the Holding Company, relating to stock
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ownership and transfers, the Board of Directors and business combinations, all
of which may be deemed to have "anti-takeover" effects. The description of
these provisions is necessarily general and reference should be made to the
actual law and regulations and to the Certificate of Incorporation and Bylaws
of the Holding Company. See "ADDITIONAL INFORMATION" as to how to obtain a
copy of these documents.
Conversion Regulations
OTS regulations prohibit any person from making an offer, announcing an
intent to make an offer or participating in any other arrangement to purchase
stock or acquiring stock or subscription rights in a converting institution (or
its holding company) from another person prior to completion of its conversion.
Further, without the prior written approval of the OTS, no person may make such
an offer or announcement of an offer to purchase shares or actually acquire
shares in the converting institution (or its holding company) for a period of
three years from the date of the completion of the conversion if, upon the
completion of such offer, announcement or acquisition, that person would become
the beneficial owner of more than 10% of the outstanding stock of the
institution (or its holding company). The OTS has defined "person" to include
any individual, group acting in concert, corporation, partnership, association,
joint stock company, trust, unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution. However, offers made
exclusively to an association (or its holding company) or an underwriter or
member of a selling group acting on the converting institution's (or its holding
company's) behalf for resale to the general public are excepted. The regulation
also provides civil penalties for willful violation or assistance in any such
violation of the regulation by any person connected with the management of the
converting institution (or its holding company) or who controls more than 10% of
the outstanding shares or voting rights of a converting or converted institution
(or its holding company).
Change of Control Regulations
FIRREA extended the scope of the Change in Bank Control Act to savings
associations and savings and loan holding companies and concurrently repealed
the Change in Savings and Loan Control Act of 1978. The Change in Bank Control
Act requires persons who at any time intend to acquire control of an insured
savings association or its parent holding company to give 60 days' prior written
notice to the "appropriate federal banking agency." The OTS is the "appropriate
federal banking agency" for savings associations and savings and loan holding
companies. Any company that acquires such control becomes a "savings and loan
holding company" subject to registration, examination and regulation by the OTS.
Control for these purposes exists when the acquiring party has voting control of
at least 25% of the institution's voting stock or the power to direct the
management or policies of an institution.
Under existing OTS regulations, "control" is presumed to exist where
the acquiring party (which includes a group "acting in concert") has voting
control of at least 10% of the institution's voting stock and any of the
following factors exist: (i) the acquiror would be one of the two largest
holders of any class of voting stock; (ii) the acquiror would hold more than 25%
of the total stockholders' equity; (iii) the acquiror would hold more than 35%
of the combined debt securities and stockholders' equity; (iv) the acquiror is
party to any agreement (A) pursuant to which the acquiror possesses a material
economic stake resulting from a profit-sharing arrangement, use of common names,
facilities or personnel or the provision of essential services; or (B) that
enables the acquiror to influence a material aspect of the management or
policies, other than agreements to which the insured institution is a party
containing restrictions customary under the circumstances and, in the case of an
acquisition agreement, applicable only during the period the acquiror is seeking
OTS approval to acquire the institution, prohibiting transactions between the
acquiror and the insured institution and their respective affiliates without OTS
approval during the pendency of the application process and containing no
material forfeiture provisions applicable in the event the acquisition is not
approved or not approved by a specified date; (v) the acquiror would have the
ability, other than through the holding of revocable proxies, to direct the
votes of more than 25% of a class of the voting stock or to vote more than 25%
of a class of voting stock upon the occurrence of a future event; (vi) the
acquiror would have the power to direct the disposition of more than 25% of the
voting stock other than by means of a widely
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dispersed or public offering; (vii) the acquiror and/or the acquiror's
representatives or nominees would constitute more than one member of the board
of directors; and (viii) the acquiror or a nominee or management official of
the acquiror would serve as the chairman of the board of directors, chairman
of the executive committee, chief executive officer, chief financial officer
or in any position with similar policy making authority. There are also
rebuttable presumptions in the regulations concerning whether a group
"acting in concert" exists, including presumed action in concert among
members of an "immediate family." In the event a person or entity acquires
10% or more of any class of an institution's voting stock but does not also
have one of the other eight factors to constitute a presumption of control,
he is required to file an informational report with the OTS disclosing the
ownership.
OTS regulations provide that no company may acquire "control" of a
savings association without the prior approval of the OTS. Any company that
acquires such control becomes a "savings and loan holding company" subject to
registration, examination and regulation by the OTS. Pursuant to OTS
regulations, control of an insured institution is conclusively deemed to have
been acquired by, among other things, the acquisition of more than 25% of any
class of voting stock of an insured institution or the ability to control the
election of a majority of the directors of an institution. Moreover, control is
presumed to have been acquired, subject to rebuttal, upon the acquisition of
more than 10% of any class of voting stock, of an insured institution where
certain enumerated "control factors" are also present in the acquisition. The
OTS may prohibit an acquisition of control if it finds, among other things, that
(i) the acquisition would result in a monopoly or substantially lessen
competition, (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the institution, or (iii) the competence,
experience or integrity of the acquiring person indicates that it would not be
in the interest of the depositors or the public to permit the acquisition of
control by such person.
Anti-takeover Provisions in the Holding Company's Certificate of Incorporation
and Bylaws and Delaware Law
A number of provisions of the Holding Company's Certificate of
Incorporation and Bylaws deal with matters of corporate governance and certain
rights of stockholders. The following discussion is a general summary of certain
provisions of the Holding Company's Certificate of Incorporation and Bylaws and
regulatory provisions relating to stock ownership and transfers, the Board of
Directors and business combinations, which might be deemed to have a potential
"anti-takeover" effect. These provisions may have the effect of discouraging a
future takeover attempt which is not approved by the Board of Directors but
which individual Holding Company stockholders may deem to be in their best
interests or in 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 an opportunity to do
so. Such provisions will also render the removal of incumbent Board of Directors
or management of the Holding Company more difficult. The following description
of certain of the provisions of the Certificate of Incorporation and Bylaws of
the Holding Company is necessarily general, and reference should be made in each
case to such Certificate of Incorporation and Bylaws, which are incorporated
herein by reference. See "ADDITIONAL INFORMATION" as to how to obtain a copy of
these documents.
Restrictions on Acquisitions of Securities. The Certificate of
Incorporation provides that for a period of five years from the effective date
of the Conversion, no person may acquire directly or indirectly the beneficial
ownership of more than 10% of any class of equity security of the Holding
Company, unless such offer or acquisition shall have been approved in advance by
a two-thirds vote of the Holding Company's Continuing Directors (as defined in
the Certificate of Incorporation). This provision does not apply to any employee
stock benefit plan of the Holding Company. In addition, during such five-year
period, no shares beneficially owned in violation of the foregoing percentage
limitation, as determined by the Holding Company's Board of Directors, shall be
entitled to vote in connection with any matter submitted to stockholders for a
vote. Additionally, the Certificate of Incorporation provides for further
restrictions on voting rights of shares owned in excess of 10% of any class of
equity security of the Holding Company beyond five years after the Conversion.
Specifically, the Certificate of Incorporation provides that if, at any time
after five years from the Conversion, any person acquires the beneficial
ownership of more than 10% of any class of equity security of the Holding
Company, then, with respect to each vote in excess of 10%, the record holders of
voting stock of the Holding Company beneficially owned by such person
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shall be entitled to cast only one-hundredth of one vote with respect to each
vote in excess of 10% of the voting power of the outstanding shares of voting
stock of the Holding Company which such record holders would otherwise be
entitled to cast without giving effect to the provision, and the aggregate
voting power of such record holders shall be allocated proportionately among
such record holders. An exception from the restriction is provided if the
acquisition of more than 10% of the securities received the prior approval by a
two-thirds vote of the Holding Company's "Continuing Directors." Under the
Holding Company's Certificate of Incorporation, the restriction on voting shares
beneficially owned in violation of the foregoing limitations is imposed
automatically. In order to prevent the imposition of such restrictions, the
Board of Directors must take affirmative action approving in advance a
particular offer to acquire or acquisition. Unless the Board took such
affirmative action, the provision would operate to restrict the voting by
beneficial owners of more than 10% of the Holding Company's Common Stock in a
proxy contest.
Board of Directors. The Board of Directors of the Holding Company is
divided into three classes, each of which shall contain approximately one-third
of the whole number of the members of the Board. The members of each class shall
be elected for a term of three years, with the terms of office of all members of
one class expiring each year so that approximately one-third of the total number
of directors are elected each year. The Holding Company's Certificate of
Incorporation provides that the size of the Board shall be as set forth in the
Bylaws. The Bylaws currently set the number of directors at seven. The
Certificate of Incorporation provides that any vacancy occurring in the Board,
including a vacancy created by an increase in the number of directors, shall be
filled by a vote of two-thirds of the directors then in office and any director
so chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of the class to which the director has been
chosen expires. The classified Board is intended to provide for continuity of
the Board of Directors and to make it more difficult and time consuming for a
stockholder group to fully use its voting power to gain control of the Board of
Directors without the consent of the incumbent Board of Directors of the Holding
Company. The Certificate of Incorporation of the Holding Company provides that a
director may be removed from the Board of Directors prior to the expiration of
his or her term only for cause and only upon the vote of 80% of the outstanding
shares of voting stock. In the absence of this provision, the vote of the
holders of a majority of the shares could remove the entire Board, but only with
cause, and replace it with persons of such holders' choice.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, the Certificate of Incorporation provides that special
meetings of stockholders of the Holding Company may be called only by the Board
of Directors of the Holding Company and that stockholders may take action only
at a meeting and not by written consent.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of 4,000,000 shares of Common Stock and 250,000 shares of preferred
stock. The shares of Common Stock and preferred stock were authorized in an
amount greater than that to be issued in the Conversion to provide the Holding
Company's Board of Directors with as much flexibility as possible to effect,
among other transactions, financings, acquisitions, stock dividends, stock
splits, restricted stock grants and the exercise of stock options. However,
these additional authorized shares may also be used by the Board of Directors
consistent with its fiduciary duty to deter future attempts to gain control of
the Holding Company. The Board of Directors also has sole authority to determine
the terms of any one or more series of preferred stock, including voting rights,
conversion rates, and liquidation preferences. As a result of the ability to fix
voting rights for a series of preferred stock, the Board has the power to the
extent consistent with its fiduciary duty to issue a series of preferred stock
to persons friendly to management in order to attempt to block a tender offer,
merger or other transaction by which a third party seeks control of the Holding
Company, and thereby assist members of management to retain their positions. The
Holding Company's Board currently has no plans for the issuance of additional
shares, other than the issuance of shares of Common Stock upon exercise of stock
options.
Stockholder Vote Required to Approve Business Combinations with
Principal Stockholders. The Certificate of Incorporation requires the approval
of the holders of at least 80% of the Holding Company's outstanding shares of
voting stock to approve certain "Business Combinations" (as defined therein)
involving a "Related Person" (as defined therein) except in cases where the
proposed transaction has been approved in advance by a majority of those members
of the Holding Company's Board of Directors who are unaffiliated with the
Related
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Person and were directors prior to the time when the Related Person became an
Related Person. The term "Related Person" is defined to include any individual,
corporation, partnership or other entity (other than the Holding Company or its
subsidiary) which owns beneficially or controls, directly or indirectly, 10% or
more of the outstanding shares of voting stock of the Holding Company or an
affiliate of such person or entity. This provision of the Certificate of
Incorporation applies to any "Business Combination," which is defined to
include: (i) any merger or consolidation of the Holding Company with or into any
Related Person; (ii) any sale, lease, exchange, mortgage, transfer, or other
disposition of 25% or more of the assets of the Holding Company or combined
assets of the Holding Company and its subsidiaries to a Related Person; (iii)
any merger or consolidation of a Related Person with or into the Holding Company
or a subsidiary of the Holding Company; (iv) any sale, lease, exchange,
transfer, or other disposition of 25% or more of the assets of a Related Person
to the Holding Company or a subsidiary of the Holding Company; (v) the issuance
of any securities of the Holding Company or a subsidiary of the Holding Company
to a Related Person; (vi) the acquisition by the Holding Company or a subsidiary
of the Holding Company of any securities of a Related Person; (vii) any
reclassification of common stock of the Holding Company or any recapitalization
involving the common stock of the Holding Company; or (viii) any agreement or
other arrangement providing for any of the foregoing.
Under Delaware law, absent this provision, business combinations,
including mergers, consolidations and sales of substantially all of the assets
of a corporation must, subject to certain exceptions, be approved by the vote of
the holders of a majority of the outstanding shares of common stock of the
Holding Company and any other affected class of stock. One exception under
Delaware law to the majority approval requirement applies to stockholders owning
15% or more of the common stock of a corporation for a period of less than three
years. Such 15% stockholder, in order to obtain approval of a business
combination, must obtain the approval of two-thirds of the outstanding stock,
excluding the stock owned by such 15% stockholder, or satisfy other requirements
under Delaware law relating to board of director approval of his or her
acquisition of the shares of the Holding Company. The increased stockholder vote
required to approve a business combination may have the effect of foreclosing
mergers and other business combinations which a majority of stockholders deem
desirable and place the power to prevent such a merger or combination in the
hands of a minority of stockholders.
Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Holding Company's Certificate of Incorporation must be approved by a majority
vote of its Board of Directors and also by a majority of the outstanding shares
of its voting stock, provided, however, that an affirmative vote of at least 80%
of the outstanding voting stock entitled to vote (after giving effect to the
provision limiting voting rights) is required to amend or repeal certain
provisions of the Certificate of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
directors, director and officer indemnification by the Holding Company and
amendment of the Holding Company's Bylaws and Certificate of Incorporation. The
Holding Company's Bylaws may be amended by its Board of Directors, or by a vote
of 80% of the total votes eligible to be voted at a duly constituted meeting of
stockholders.
Stockholder Nominations and Proposals. The Certificate of Incorporation
of the Holding Company requires a stockholder who intends to nominate a
candidate for election to the Board of Directors or to raise new business at a
stockholder meeting to give not less than 30 nor more than 60 days' advance
notice to the Secretary of the Holding Company. The notice provision requires a
stockholder who desires to raise new business to provide certain information to
the Holding Company concerning the nature of the new business, the stockholder
and the stockholder's interest in the business matter. Similarly, a stockholder
wishing to nominate any person for election as a director must provide the
Holding Company with certain information concerning the nominee and the
proposing stockholder.
Purpose and Takeover Defensive Effects of the Holding Company's
Certificate of Incorporation and Bylaws. The Board of Directors of the
Association 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 Association in the
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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 Association and 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 Company 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 interest 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 a price reflective of the true value
of the Holding Company and which is in the best interest of all stockholders.
Attempts to acquire control of 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 of 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 current
market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
which is under different management and whose objective may not be similar to
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 benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners became less
than 300, thereby allowing for Exchange Act deregistration.
Despite the belief of the Association and the Holding Company as to the
benefits to stockholders 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 of Directors of the Association 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 acquisition of its equity securities that would
be permitted for a Delaware business corporation. The Holding Company and the
Association do not presently intend to propose the adoption of further
restrictions on the acquisition of the Holding Company's equity securities.
The cumulative effect of the restrictions on acquisition of the Holding
Company contained in the Certificate of Incorporation and Bylaws and Holding
Company, federal law and Delaware law may be to discourage potential takeover
attempts and perpetuate incumbent management, even though certain stockholders
of the Holding Company may deem a potential acquisition to be in their best
interests, or deem existing management not to be acting in their best interests.
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DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY
General
The Holding Company is authorized to issue 4,000,000 shares of Common
Stock, par value of $0.01 per share, and 250,000 shares of preferred stock, par
value of $0.01 per share. The Holding Company currently expects to issue up to
2,254,000 shares of Common Stock and no shares of preferred stock in the
Conversion. Each share of the Holding Company's Common Stock will have the same
relative rights as, and will be identical in all respects
to, each other share of Common Stock. Upon payment of the Purchase Price for the
Common Stock, in accordance with the Plan of Conversion, all such stock will be
duly authorized, fully paid and nonassessable.
The Common Stock of the Holding Company will represent nonwithdrawable
capital, will not be an account of an insurable type, and will not be insured by
the FDIC or any other government agency.
Common Stock
Dividends. The Holding Company can pay dividends out of statutory
surplus or from certain net profits if, as and when declared by its Board of
Directors. The payment of dividends by the Holding Company is subject to
limitations which are imposed by law and applicable regulation. See "DIVIDEND
POLICY" and "REGULATION." The holders of Common Stock of the Holding Company
will be entitled to receive and share equally in such dividends as may be
declared by the Board of Directors of the Holding Company out of funds legally
available therefor. If the Holding Company issues preferred stock, the holders
thereof may have a priority over the holders of the Common Stock with respect to
dividends.
Stock Repurchases. The Plan and OTS regulations place certain
limitations on the repurchase of the Holding Company's capital stock. See "THE
CONVERSION -- Restrictions on Repurchase of Stock" and "USE OF PROCEEDS."
Voting Rights. Upon Conversion, the holders of Common Stock of the
Holding Company will possess exclusive voting rights in the Holding Company.
They will elect the Holding Company's Board of Directors and act on such other
matters as are required to be presented to them under Delaware law or as are
otherwise presented to them by the Board of Directors. Except as discussed in
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY," each holder of Common
Stock will be entitled to one vote per share and will not have any right to
cumulate votes in the election of directors. If the Holding Company issues
preferred stock, holders of the Holding Company preferred stock may also possess
voting rights. Certain matters require a vote of 80% of the outstanding shares
entitled to vote thereon. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY."
As a federal mutual savings and loan association, corporate powers and
control of the Association are vested in its Board of Directors, who elect the
officers of the Association and who fill any vacancies on the Board of Directors
as it exists upon Conversion. Subsequent to Conversion, voting rights will be
vested exclusively in the owners of the shares of capital stock of the
Association, all of which will be owned by the Holding Company, and voted at the
direction of the Holding Company's Board of Directors. Consequently, the holders
of the Common Stock will not have direct control of the Association.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Association, the Holding Company, as holder of the Association's capital
stock, would be entitled to receive, after payment or provision for payment of
all debts and liabilities of the Association (including all deposit accounts and
accrued interest thereon) and after distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders (see "THE CONVERSION -- Effects of Conversion to Stock Form on
Depositors and Borrowers of the Association -- Liquidation Account"), all assets
of the Association available for distribution. In the event of liquidation,
dissolution or winding up of the Holding Company, the holders of its common
stock would
90
<PAGE>
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. If Holding Company preferred stock is issued, the
holders thereof may have a priority over the holders of the Common Stock in the
event of liquidation or dissolution.
Preemptive Rights; Redemption. Holders of the Common Stock of the
Holding Company will not be entitled to preemptive rights with respect to any
shares that may be issued. The Common Stock is not subject to redemption.
Preferred Stock
None of the shares of the authorized Holding Company preferred stock
will be issued in the Conversion and there are no plans to issue the preferred
stock. Such stock may be issued with such designations, powers, preferences and
rights as the Board of Directors may from time to time determine. The Board of
Directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the Common Stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
Restrictions on Acquisition
Acquisitions of the Holding Company are restricted by provisions in its
Certificate of Incorporation and Bylaws and by the rules and regulations of
various regulatory agencies. See "REGULATION" and "RESTRICTIONS ON ACQUISITION
OF THE HOLDING COMPANY."
REGISTRATION REQUIREMENTS
The Holding Company will register the Common Stock with the SEC
pursuant to Section 12(g) of the Exchange Act upon the completion of the
Conversion and will not deregister its Common Stock for a period of at least
three years following the completion of the Conversion. Upon such registration,
the proxy solicitation and tender offer rules, insider trading reporting and
restrictions, annual and periodic reporting and other requirements of the
Exchange Act will be applicable.
LEGAL AND TAX OPINIONS
The legality of the Common Stock has been passed upon for the Holding
Company by Breyer & Aguggia, Washington, D.C. The federal tax consequences of
the Conversion have been opined upon by Breyer & Aguggia and the Montana income
tax consequences of the Conversion have been opined upon by Huppert and
Swindlehurst, P.C., Livingston, Montana. Breyer & Aguggia and Huppert and
Swindlehurst, P.C. have consented to the references herein to their opinions.
Certain legal matters will be passed upon for Webb by Elias, Matz, Tiernan &
Herrick LLP, Washington, D.C.
EXPERTS
The consolidated financial statements of the Association as of June 30,
1996 and 1995 and for the years then ended June 30, 1996 included in this
Prospectus and in the Registration Statement have been so included in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing.
Keller has consented to the publication herein of the summary of its
letter to the Association setting forth its opinion as to the estimated pro
forma market value of the Holding Company and the Association as converted and
its opinion as to the value of Subscription Rights, and to the use of its name
and statements with respect to it appearing herein.
91
<PAGE>
CHANGE IN FISCAL YEAR
The Holding Company's Bylaws provide for a fiscal year end of December
31. The Federal Stock Charter to be adopted by the Association in connection
with the Conversion also provides for a change of the Association's fiscal
year end from June 30 to December 31.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on
Form SB-2 (File No. 333-12653) under the Securities Act with respect to the
Common Stock offered in the Conversion. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. Such
information may be inspected at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 500 West
Madison Street, Suite 1400, Room 1100, Chicago, Illinois 60661; and 75 Park
Place, New York, New York 10007. Copies may be obtained at prescribed rates from
the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549.
The Association has filed with the OTS an Application for Approval of
Conversion, which includes proxy solicitation materials for the Association's
Special Meeting and certain other information. This Prospectus omits certain
information contained in such Application. The Application, including the proxy
solicitation materials, exhibits and certain other information that are a part
thereof, may be inspected, without charge, at the offices of the OTS, 1700 G
Street, N.W., Washington, D.C. 20552 and at the office of the Regional Director
of the OTS at the West Regional Office of the OTS, 1 Montgomery Street, Suite
400, San Francisco, California 94104.
92
<PAGE>
Index To Consolidated Financial Statements
Empire Federal Savings and Loan Association and Subsidiary
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report ............................................................................. F-1
Consolidated Statements of Financial Condition as of
June 30, 1996 and 1995 .................................................................................. F-2
Consolidated Statements of Income for the Years
Ended June 30, 1996 and 1995 ............................................................................ 19
Consolidated Statements of Equity for
the Years Ended June 30, 1996 and 1995 .................................................................. F-4
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1996 and 1995 ............................................................................ F-5
Notes to Consolidated Financial Statements................................................................ F-6
</TABLE>
* * *
All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or related
Notes.
Separate financial statements for the Holding Company have not been
included since it will not engage in material transactions, if any, until after
the Conversion. The Holding Company, which has engaged only in organizational
activities to date, has no significant assets, liabilities, revenues, expenses
or contingent liabilities.
93
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN
ASSOCIATION AND SUBSIDIARY
Consolidated Financial Statements
June 30, 1996 and 1995
(With Independent Auditors' Report Thereon)
<PAGE>
(KPMG PEAT MARWICK LLP logo here)
1000 First Interstate Center
401 N. 31st Street
P.O. Box 7108
Billings, MT 59103
Independent Auditors' Report
The Board of Directors
Empire Federal Savings and Loan Association:
We have audited the accompanying consolidated statements of financial condition
of Empire Federal Savings and Loan Association and subsidiary as of June 30,
1996 and 1995, and the related consolidated statements of income, equity and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Association's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Empire Federal
Savings and Loan Association and subsidiary as of June 30, 1996 and 1995, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
(Signature of KPMG Peat Marwick LLP)
August 9, 1996, except as to note 17
which is as of August 29, 1996 and
note 13 which is as of September 30, 1996
F-1
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Consolidated Statements of Financial Condition
June 30, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 1,160,760 961,050
Interest-bearing deposits 1,337,948 1,234,856
Investment and mortgage-backed securities available-for-sale 13,876,659 1,191,934
Investment and mortgage-backed securities held-to-maturity 25,195,531 39,441,193
Loans receivable, net 41,882,298 39,432,375
Stock in Federal Home Loan Bank of Seattle, at cost 1,123,300 1,044,100
Accrued interest receivable 327,994 362,727
Income tax receivable 65,817 -
Premises and equipment, net 1,337,731 1,160,990
Prepaid expenses and other assets 502,333 665,979
-------------- ---------------
$ 86,810,371 85,495,204
Total assets ============== ===============
Liabilities and Equity
Liabilities:
Deposits 68,547,802 67,063,722
Advances from Federal Home Loan Bank 1,500,000 1,750,926
Advances from borrowers for taxes and insurance 205,876 239,013
Accrued expenses and other liabilities 449,060 580,694
Income taxes payable - 46,177
Deferred income taxes 231,234 314,713
-------------- ---------------
Total liabilities 70,933,972 69,995,245
Equity:
Retained earnings, substantially restricted 15,620,702 14,989,025
Unrealized gain on securities available-for-sale, net of deferred taxes 255,697 510,934
-------------- ---------------
Total equity 15,876,399 15,499,959
-------------- ---------------
Commitments and contingencies
Total liabilities and equity $ 86,810,371 85,495,204
============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Consolidated Statements of Equity
Years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Retained gain on
earnings, securities
substantially available- Total
restricted for-sale equity
<S> <C> <C> <C>
Balances at June 30, 1994 $ 14,037,087 437,589 14,474,676
Net income 951,938 - 951,938
Change in unrealized gain on securities
available-for-sale - 73,345 73,345
-------------- ------------ ---------------
Balances at June 30, 1995 14,989,025 510,934 15,499,959
Net income 631,677 - 631,677
Change in unrealized gain on securities
available-for-sale - (255,237) (255,237)
-------------- ------------ ---------------
Balances at June 30, 1996 $ 15,620,702 255,697 15,876,399
============== ============ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 631,677 951,938
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 55,000 -
Depreciation 199,309 139,899
Loss on retirement of premises and equipment, net 17,430 3,462
Amortization of premiums and discounts on loans and
mortgage-backed securities, net 30,239 40,798
Stock dividends reinvested in Federal Home Loan Bank (79,200) (61,000)
Decrease (increase) in accrued interest receivable 34,733 (53,913)
Increase in income tax receivable (65,817) -
Decrease (increase) in prepaid expenses and other assets 163,646 (51,503)
Increase (decrease) in accrued expenses and other liabilities (131,634) 156,686
Decrease in income taxes payable (46,177) (89,561)
Decrease in deferred income taxes 48,007 (482)
--------------- ----------------
Net cash provided by operating activities 857,213 1,036,324
--------------- ----------------
Cash flows from investing activities:
Net change in interest-bearing deposits (103,092) 24,457
Net change in loans receivable (2,504,609) 1,955,888
Purchases of investment securities held-to-maturity (3,998,800) (1,497,500)
Proceeds from matured or called investment securities held-to-maturity 3,997,500 200,000
Purchases of mortgage-backed securities held-to-maturity (5,704,272) (4,869,975)
Principal payments on mortgage-backed securities held-to-maturity 4,535,653 5,489,487
Principal payments on mortgage-backed securities available-for-sale 2,313,580 -
Purchases of premises and equipment (393,480) (438,600)
--------------- ----------------
Net cash provided by (used in) investing activities (1,857,520) 863,757
--------------- ----------------
Cash flows from financing activities:
Net change in deposits 1,484,080 (1,272,116)
Proceeds from advances from Federal Home Loan Bank 1,500,000 1,000,000
Repayment of advances from Federal Home Loan Bank (1,750,926) (1,438,172)
Repayment of note payable - (70,000)
Net change in advances from borrowers for taxes and insurance (33,137) 2,739
--------------- ----------------
Net cash provided by (used in) financing activities 1,200,017 (1,777,549)
--------------- ----------------
Net increase in cash and cash equivalents 199,710 122,532
Cash and cash equivalents, beginning of year 961,050 838,518
--------------- ----------------
Cash and cash equivalents, end of year $ 1,160,760 961,050
=============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) General
Empire Federal Savings and Loan Association (Empire) operates with
a main office and two branches and provides services to customers
in south central Montana. Empire offers a variety of savings
products to its retail customers while concentrating its lending
activities on real estate mortgage loans. Lending activities focus
primarily on the origination of loans secured by one- to
four-family residential real estate. Lending activities also
include the origination of multi-family, commercial real estate
and home equity loans. Empire is subject to competition from other
financial service providers and is also subject to the regulations
of certain federal and state agencies and undergoes periodic
examinations by those regulatory authorities. Empire has a
wholly-owned subsidiary, Dime Service Corporation, which was
formed in December 1985 to conduct business as an insurance
agency. Empire and Dime Service Corporation are herein referred to
collectively as "the Association."
The accounting and consolidated financial statement reporting
policies conform with generally accepted accounting principles and
prevailing practices within the banking industry. In preparing the
consolidated financial statements, management is required to make
estimates and assumptions that affect the reported and disclosed
amounts of assets and liabilities as of the date of the balance
sheet and income and expenses for the period. Actual results could
differ significantly from those estimates.
Material estimates that are particularly susceptible to
significant change in the near-term relate to the determination of
the allowance for possible loan losses and the valuation of real
estate acquired in connection with foreclosures or in satisfaction
of loans. In connection with the determination of the allowances
for losses on loans and real estate owned, management obtains
independent appraisals for significant properties.
Management believes that the allowances for losses on loans and
real estate owned are adequate. While management uses available
information to recognize losses on loans and real estate owned,
future additions to the allowances may be necessary based on
changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Association's allowances for losses on
loans and real estate owned. Such agencies may require the
Association to recognize additions to the allowances based on
their judgments about information available to them at the time of
their examination.
(b) Basis of Presentation
The accompanying consolidated financial statements include the
accounts of Empire Federal Savings and Loan Association and Dime
Service Corporation. All significant intercompany transactions
have been eliminated in consolidation.
(c) Cash Equivalents
For purposes of the statements of cash flows, the Association
considers all cash and non-interest-bearing deposits with banks
to be cash equivalents.
F-5 (Continued)
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(d) Investment Securities
The Association's investment securities are classified and
accounted for as follows:
Trading Securities - Securities 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 net gains and losses included in earnings.
Securities Held-to-Maturity - Debt securities for which the
Association has the positive intent and ability to hold are
classified as held-to-maturity. Held-to-maturity securities
are stated at amortized cost.
Securities Available-for-Sale - Debt securities not classified
as held-to-maturity and debt or equity securities not
classified as trading are classified as available-for-sale.
Available-for-sale securities are stated at fair value, with
any unrealized gains and losses net of deferred taxes,
reported as a separate component of equity.
The Association did not hold any trading securities during the
years ended June 30, 1996 and 1995.
Declines in the fair value of available-for-sale or
held-to-maturity securities below carrying value that are other
than temporary are charged to expense as realized losses and the
related carrying value reduced to fair value.
The amortized cost of debt securities is adjusted for amortization
of premium and accretion of discount using the interest method
over the term of each security. The cost of investments sold is
determined by specific identification.
(e) Mortgage-Backed Securities
Mortgage-backed securities represent participating interests in
pools of long-term first mortgage loans originated and serviced by
issuers of the securities. These securities are carried at unpaid
principal balances, adjusted for unamortized premiums and unearned
discounts. Premiums and discounts are amortized using
the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments. The
cost of mortgage-backed securities sold is determined by specific
identification. The Association has classified its portfolio of
mortgage-backed securities as held-to-maturity or
available-for-sale as defined in "Investment Securities" above.
(f) Loans Receivable
Loans receivable are stated at unpaid principal balances less
unearned discounts and net deferred loan origination fees.
Interest on loans is credited to income as earned. Interest
receivable is accrued only if deemed collectible. Discounts on
purchased loans are amortized using the level-yield method over
the remaining period to contractual maturity, adjusted for
anticipated prepayments.
F-6 (Continued)
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The allowance for loan losses is increased by charges to income
and decreased by charge-offs (net of recoveries). Management's
periodic evaluation of the adequacy of the allowance is based on
factors such as the Association's past loan loss experience, known
and inherent risks in the portfolio, adverse situations that may
affect the borrower's ability to repay, the estimated value of any
underlying collateral, current and prospective economic
conditions, and independent appraisals.
Accrued interest on loans that are contractually ninety days or
more past due is generally charged off against income. Interest is
subsequently recognized only to the extent cash payments are
received until, in management's judgment, the borrower's ability
to make periodic interest and principal payments is reasonably
assured, in which case the loan is returned to accrual status.
During the year ended June 30, 1996, the Association adopted the
provisions of Statement of Financial Accounting Standards (SFAS)
No. 114, "Accounting by Creditors for Impairment of a Loan," and
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures," (collectively, the
Statements). The Statements provide guidance for establishing an
allowance for losses on specific loans which are deemed to be
impaired. Groups of small-balance homogeneous loans (generally
residential real estate and consumer loans) are evaluated for
impairment collectively. A loan is considered impaired when, based
upon current information and events, it is probable that the
Company will be unable to collect, on a timely basis, all
principal and interest according to the contractual terms of the
loan's original agreement. When a specific loan is determined to
be impaired the allowance for loan losses is increased through a
charge to expense for the amount of the impairment. The amount of
the impairment is measured using cash flows discounted at the
loan's effective interest rate, except when it is determined that
the sole source of repayment for the loan is the operations or
liquidation of the underlying collateral. In such cases, the
current value of the collateral, reduced by anticipated selling
costs, will be used in place of discounted cash flows. The
Association uses the cash basis of income recognition on impaired
loans.
The Association's adoption of the Statements did not have a
material impact on the Association's financial position or results
of operations. During the year ended June 30, 1996 and 1995, the
Association had no impaired loans.
(g) Loan Origination Fees and Related Costs
Loan origination fees and certain direct loan origination costs
are deferred and the net fee or cost is recognized in interest
income using the level-yield method over the contractual life of
the loans. The amortization of deferred loan fees and costs and
the accretion of unearned discounts on non-performing loans is
discontinued during periods of non-performance.
(h) Stock in Federal Home Loan Bank
Federal law requires a member institution of the Federal Home Loan
Bank (FHLB) System to hold common stock of its district FHLB
according to predetermined formulas.
F-7 (Continued)
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(i) Real Estate Owned
Real estate owned represents real estate acquired through
foreclosure or in satisfaction of loans and is initially recorded
at the lower of fair market value less estimated costs to sell or
"cost" (defined as the fair market value at initial foreclosure).
Valuations are periodically performed by management and an
allowance for losses is established by a charge to operations if
the fair market value less estimated costs to sell is less than
"cost" or carrying value.
(j) Premises and Equipment
Premises and equipment are carried at cost less accumulated
depreciation. Depreciation is provided over the estimated useful
lives, which range from 3 to 50 years, of the respective assets on
straight-line and accelerated methods. Leasehold improvements are
amortized on the straight-line method over their estimated useful
life or lease term, whichever is less.
(k) Income Taxes
Deferred tax assets and liabilities are recognized for the
estimated future consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
(l) Reclassifications
Certain reclassifications have been made to the 1995 financial
statements to conform with the 1996 presentation.
(m) Future Accounting Changes
The Financial Accounting Standards Board has issued two Statements
of Financial Accounting Standards which the Association will be
required to adopt. SFAS No. 121 pertains to the accounting for
impairment of long-lived assets and long-lived assets to be
disposed of. SFAS No. 125 pertains to the accounting for mortgage
servicing rights and assets subject to prepayment. Adoption of the
Statements is not expected to have a material impact on the
Association's financial position and results of operations.
F-8 (Continued)
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(2) Investment and Mortgage-Backed Securities Available-For-Sale
The amortized cost, unrealized gains and losses, and estimated market
values of investment and mortgage-backed securities available-for-sale at
June 30 are summarized as follows:
<TABLE>
<CAPTION>
1996
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
<S> <C> <C> <C> <C>
FHLMC common and preferred stock $ 67,791 970,709 - 1,038,500
Mutual funds 350,000 - (3,463) 346,537
---------------- ----------- ------------ ---------------
417,791 970,709 (3,463) 1,385,037
Mortgage-backed securities:
FHLMC certificates 10,680,009 - (451,433) 10,228,576
FNMA certificates 2,391,439 - (128,393) 2,263,046
---------------- ----------- ------------ ---------------
13,071,448 - (579,826) 12,491,622
---------------- ----------- ------------ ---------------
$ 13,489,239 970,709 (583,289) 13,876,659
================ =========== ============ ===============
1995
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
FHLMC common and preferred stock $ 67,791 770,334 - 838,125
Mutual funds 350,000 5,558 (1,749) 353,809
------------ ----------- --------- -------------
$ 417,791 775,892 (1,749) 1,191,934
============ =========== ========= =============
</TABLE>
There were no sales of investment securities available-for-sale during
the years ended June 30, 1996 and 1995.
On November 15, 1995, the Financial Accounting Standards Board issued a
special report which provided for a "one-time reclassification" of
securities prior to December 31, 1995. On November 30, 1995, the
Association reclassified approximately $14,200,000 of mortgage-backed
securities from the held-to-maturity classification to the
available-for-sale classification. Unrealized losses at the date of
transfer were $158,214.
F-9 (Continued)
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) Investment and Mortgage-Backed Securities Held-to-Maturity
The amortized cost, unrealized gains and losses, and estimated market
values of investment and mortgage-backed securities held-to-maturity at
June 30 are summarized as follows:
<TABLE>
<CAPTION>
1996
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
<S> <C> <C> <C> <C>
United States Government and agency
obligations $ 2,498,800 - (94,050) 2,404,750
Other 200 - - 200
--------------- ----------- ------------ ---------------
2,499,000 - (94,050) 2,404,950
Mortgage-backed securities:
FHLMC certificates 13,029,147 77,388 (148,094) 12,958,441
FNMA certificates 6,821,387 16,623 (66,395) 6,771,615
GNMA certificates 980,504 34,996 - 1,015,500
REMIC certificates 1,865,493 15,319 (26,200) 1,854,612
--------------- ----------- ------------ ---------------
22,696,531 144,326 (240,689) 22,600,168
--------------- ----------- ------------ ---------------
$ 25,195,531 144,326 (334,739) 25,005,118
=============== =========== ============ ===============
1995
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
United States Government and agency
obligations $ 2,497,500 9,990 (9,925) 2,497,565
Other 200 - - 200
---------------- ----------- ------------ ---------------
2,497,700 9,990 (9,925) 2,497,765
Mortgage-backed securities:
FHLMC certificates 21,819,394 217,134 (225,103) 21,811,425
FNMA certificates 12,011,648 130,593 (107,062) 12,035,179
GNMA certificates 1,246,958 58,875 - 1,305,833
REMIC certificates 1,865,493 15,414 (6,550) 1,874,357
---------------- ----------- ------------ ---------------
36,943,493 422,016 (338,715) 37,026,794
---------------- ----------- ------------ ---------------
$ 39,441,193 432,006 (348,640) 39,524,559
================ =========== ============ ===============
</TABLE>
The REMICs consist of two certificates which are backed by the FNMA and
the FHLMC.
Maturities of securities held-to-maturity by contractual maturity at June
30, 1996 are shown below. Maturities of securities do not reflect
repricing opportunities present in many adjustable rate securities, nor do
they reflect expected shorter maturities based upon early prepayments of
principal.
<TABLE>
<CAPTION>
Estimated
Amortized market
cost value
<S> <C> <C>
Due after one year through five years $ 1,000,000 978,600
Due after five years through ten years 500,000 469,650
Due after ten years 998,800 956,500
-------------- --------------
2,498,800 2,404,750
Mortgage-backed securities and other 22,696,731 22,600,368
-------------- --------------
$ 25,195,531 25,005,118
============== ==============
</TABLE>
F-10 (Continued)
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
There were no sales of investment securities held-to-maturity during the
years ended June 30, 1996 or 1995.
The Association has not entered into any interest rate swaps, options and
future contracts. Included in U.S. Government agency obligations are
investments in structured notes which have contractual step-up interest
rates which have an amortized cost of $250,000 and $997,500 and a
market value of $228,200 and $997,000 at June 30, 1996 and 1995,
respectively. All of the U.S. Government and agency obligations at
June 30, 1996 and 1995 have call features.
(4) Loans Receivable
Loans receivable at June 30 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First mortgage loans, including multi-family and
commercial real estate $ 38,716,819 37,956,488
Construction loans 1,380,000 257,000
Loans to depositors, secured by savings 900,771 454,749
Other consumer loans 2,112,269 1,456,005
---------------- ----------------
43,109,859 40,124,242
Less:
Unearned discounts (5,174) (5,488)
Undisbursed portion of mortgage loans (770,190) (314,951)
Allowance for loan losses (200,000) (145,000)
Net deferred loan origination fees (252,197) (226,428)
---------------- ----------------
$ 41,882,298 39,432,375
================ ================
</TABLE>
One- to four-family first mortgage loans approximated $35,202,000 and
$33,974,000 at June 30, 1996 and 1995, respectively.
The weighted average stated interest rate on loans receivable at June 30,
1996 and 1995 was approximately 7.59% and 7.64%, respectively. The
average yield on loans receivable, including amortization of unearned
discount and loan origination fees, was approximately 7.69% and 7.61% for
the years ended June 30, 1996 and 1995, respectively.
Loans receivable include approximately $4,440,000 and $5,510,000 in
adjustable rate mortgages at June 30, 1996 and 1995, respectively.
Real estate loans serviced for others totaled approximately $110,000 and
$140,000 at June 30, 1996 and 1995, respectively.
A summary of activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 145,000 145,000
Provision charged to expense 55,000 -
----------- ----------
Balance at end of year $ 200,000 145,000
=========== ===========
</TABLE>
F-11 (Continued)
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(5) Accrued Interest Receivable
Accrued interest receivable at June 30 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loans receivable $ 211,440 191,421
Mortgage-backed securities 83,685 90,741
Investment securities and interest-bearing deposits 32,869 80,565
----------- -----------
$ 327,994 362,727
=========== ===========
</TABLE>
(6) Premises and Equipment
Premises and equipment at June 30 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Buildings and leasehold improvements $ 2,160,134 1,782,741
Land and improvements 424,182 367,838
Furniture, fixtures and equipment 891,884 728,485
Construction in progress - 382,866
-------------- ---------------
3,476,200 3,261,930
Accumulated depreciation (2,138,469) (2,100,940)
-------------- ---------------
$ 1,337,731 1,160,990
============== ===============
</TABLE>
The Association is party to a long-term lease agreement with an officer
and relatives (lessor) for land on which the Livingston, Montana main
office is built. The lease expires in March 1997 at which time all
improvements made by the Association revert to the lessor. At June 30,
1996, these improvements had an amortized cost basis of $48,123. The
Association has negotiated with the lessor to purchase the building. If
the Association determines not to purchase the building, it will
negotiate and enter into a lease with the lessor for rental of the
building prior to the expiration of the current lease term. Total lease
expense under this agreement was $10,056 for the years ended June 30,
1996 and 1995.
(7) Deposits
Deposits at June 30 are summarized as follows:
<TABLE>
<CAPTION>
Weighted
average rate at 1996 1995
--------------------------- -------------------------
June 30, 1996 Amount % Amount %
<S> <C> <C> <C> <C> <C>
Balance by interest rate:
Passbook accounts 3.25% $ 14,948,530 21.8% $ 15,224,817 22.7%
NOW accounts 2.71% 13,624,016 19.9 13,300,943 19.8
-------------- ------- -------------- -------
Total passbook
and NOW accounts 28,572,546 41.7 28,525,760 42.5
--------------- ------- -------------- ---------
</TABLE>
F-12 (Continued)
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Weighted
average rate at 1996 1995
--------------------------- ---------------------------
June 30, 1996 Amount % Amount %
<S> <C> <C> <C> <C> <C>
Certificates of
deposit: 3.01 to 4.00 $ - - % $ 1,595,271 2.4%
4.01 to 5.00 4,626,075 6.8 10,469,108 15.6
5.01 to 6.00 26,196,709 38.2 13,306,507 19.8
6.01 to 7.00 6,764,071 9.9 10,035,367 15.0
7.01 to 8.00 2,156,573 3.1 2,682,412 4.0
8.01 to 9.00 231,828 .3 449,297 0.7
-------------- ------- -------------- -------
Total certificates
of deposit 39,975,256 58.3 38,537,962 57.5
-------------- ------- -------------- -------
$ 68,547,802 100.0% $ 67,063,722 100.0%
============== ======= ============== =======
</TABLE>
Scheduled maturities of certificates of deposit at June 30, 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Due within one year $ 27,431,057
Due within two to three years 9,176,808
Due within four to five years 2,300,630
Thereafter 1,066,761
--------------
$ 39,975,256
==============
</TABLE>
Certificates of deposit of $100,000 or more are approximately
$3,334,000 and $3,757,000 at June 30, 1996 and 1995, respectively.
Amounts in excess of $100,000 are not insured by a federal agency.
The weighted average cost of deposits was approximately 4.7% and 4.6% at
June 30, 1996 and 1995, respectively. The average cost of deposits
approximated 4.7% and 4.1% for the years ending June 30, 1996 and 1995,
respectively.
Accrued interest payable on deposits (included in accrued expenses and
other liabilities) totaled approximately $107,000 and $154,000 at June
30, 1996 and 1995, respectively.
Cash payments for interest on deposits in 1996 and 1995 totaled
approximately $2,900,000 and $2,700,000, respectively.
Interest-bearing deposits with a carrying value of $100,000 were pledged
to secure public deposits at June 30, 1996.
Interest expense on deposits is summarized as follows:
1996 1995
--------- ---------
Passbook accounts $ 476,408 596,155
NOW accounts 412,096 406,074
Certificates of deposit 2,325,755 1,791,063
---------- ---------
$3,214,259 2,793,292
========== =========
F-13 (Continued)
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) Advances from Federal Home Loan Bank
Advances from Federal Home Loan Bank at June 30 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
5.27% advance, principal due September 1996, interest
payable monthly $ 250,000 -
6.02% advance, principal due July 1996, interest payable
monthly 750,000 -
5.82% advance, principal due July 1996, interest payable
monthly 500,000 -
5.80% advance, paid July 1995 - 1,000,000
5.8011% advance, paid June 1996 - 241,667
4.091% advance, paid April 1996 - 509,259
--------------- ----------------
$ 1,500,000 1,750,926
============== ==============
</TABLE>
The advances are collateralized by Federal Home Loan Bank stock,
securities issued by the U.S. government or agency thereof,
mortgage-backed securities, and first mortgage loans not otherwise
pledged.
Cash payments for interest on advances in 1996 and 1995 totaled
approximately $95,000 and $145,000, respectively.
(9) Income Taxes
Income tax expense for the years ended June 30, 1996 and 1995 is
summarized as follows:
<TABLE>
<CAPTION>
Federal State Total
1996:
<S> <C> <C> <C>
Current $ 290,714 60,759 351,473
Deferred 41,212 6,795 48,007
----------- ----------- -----------
$ 331,926 67,554 399,480
=========== =========== ===========
1995:
Current $ 485,284 103,821 589,105
Deferred (400) (82) (482)
----------- ----------- -----------
$ 484,884 103,739 588,623
=========== =========== ===========
</TABLE>
Actual income tax expense for the years ended June 30 differs from
"expected" income tax expense (computed by applying the United States
Federal corporate income tax rate of 34% to income before income taxes)
as follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computed "expected" tax expense $ 350,593 523,791
Increase (decrease) resulting from:
State taxes, net of Federal income tax effects 48,887 68,632
Other - (3,800)
------------- ------------
$ 399,480 588,623
============= ============
Effective tax rate $ 38.7% 38.2%
============= ============
</TABLE>
F-14 (Continued)
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Deferred income taxes are recognized for the future tax consequences of
temporary differences between the financial statement carrying amounts
and the tax bases of assets and liabilities. The types of temporary
differences that give rise to significant portions of the deferred tax
assets and liabilities at June 30 are as follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Loans:
Allowance for loan losses $ 76,910 55,760
Loan origination fees deferred for financial reporting
purposes 96,982 87,084
Premises and equipment, principally due to differences in
depreciation 7,691 26,922
Deferred compensation accrual 34,998 31,203
------------ ------------
Gross deferred tax assets 216,581 200,969
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Stock in Federal Home Loan Bank of Seattle, principally due to
dividends not recognized for tax purposes $ (276,453) (246,026)
Prepaid insurance premium (30,379) -
Unrealized gains on securities available-for-sale (131,723) (263,209)
Other, net (9,260) (6,447)
------------ ------------
Gross deferred tax liabilities (447,815) (515,682)
------------ ------------
Net deferred tax liability $ (231,234) (314,713)
============ ============
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the existence of, or generation of,
taxable income in the periods which those temporary differences are
deductible. Management considers the scheduled reversal of deferred tax
liabilities, taxes paid in carryback years, projected future taxable
income, and tax planning strategies in making this assessment. Based upon
the level of historical taxable income and projection for future taxable
income over the periods which the deferred tax assets are deductible, at
June 30, 1996 and 1995, management believes it is more likely than not
that the Association will realize the benefits of these deductible
differences.
Retained earnings at June 30, 1996 includes approximately $3,320,000 for
which no provision for Federal income tax has been made. This amount
represents the base year tax bad debt reserve which is essentially an
allocation of earnings to pre-1988 bad debt deductions for income tax
purposes only. This amount is treated as a permanent difference and
deferred taxes are not recognized unless it appears that this reserve
will be reduced and thereby result in taxable income in the foreseeable
future. The Association is not currently contemplating any changes in its
business or operations which would result in a recapture of this federal
bad debt reserve into taxable income.
Cash paid for income taxes for the years ended June 30, 1996 and 1995
totaled approximately $461,820 and $511,000, respectively.
F-15 (Continued)
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(10) Pension Plan
The Association participates in a noncontributory multi-employer
trusteed defined benefit pension plan. To be eligible to participate,
employees must be at least 21 years of age and have completed one year of
service. Actuarially determined pension costs are funded as required by
the trustee. Information related to the Association's portion of the
actuarial present value of benefits is not avaiable. Contributions were
$108,000 and $101,000 for the plan years ended June 30, 1996 and 1995,
respectively.
(11) Regulatory Capital
The Association is required to meet three FIRREA-enacted capital
requirements: a tangible capital requirement equal to not less than 1.5%
of tangible assets (as defined in the regulations); a core capital
requirement, comprised of tangible capital adjusted for supervisory
goodwill and other defined factors equal to not less than 3.0% of
tangible assets; and a risk-based capital requirement equal to at least
8.0% of all risk-weighted assets. For risk-weighting, selected assets are
given a risk assignment of 0% to 100%. The Association's total
risk-weighted assets at June 30, 1996 were $32,794,000.
Generally accepted accounting principles (GAAP) capital differs from
tangible, core, and risk-based capital as a result of the following:
<TABLE>
<CAPTION>
<S>
<C>
Capital measured by GAAP(rounded) $ 15,876,000
Net effect of audit adjustments 54,000
----------------
Capital as reported in Thrift Financial Report 15,930,000
Non-includable assets of subsidiary (495,000)
Unrealized gains on certain available-for-sale securities (254,000)
----------------
Tangible and core capital 15,181,000
General valuation allowance 145,000
Assets required to be deducted (21,000)
----------------
Risk-based capital $ 15,305,000
================
</TABLE>
The following table demonstrates, in dollars and percents, the extent to
which the Association exceeds the minimum capital requirements as of June
30, 1996:
<TABLE>
<CAPTION>
Regulatory Capital
Actual Requirement Excess
<S> <C> <C> <C>
Tangible capital:
Dollar amount $ 15,181,000 1,292,000 13,889,000
Percent of tangible assets 17.6% 1.5% 16.1%
Core capital:
Dollar amount $ 15,181,000 2,583,000 12,598,000
Percent of adjusted tangible
assets 17.6% 3.0% 14.6%
Risk-based capital:
Dollar amount $ 15,305,000 2,624,000 12,681,000
Percent of risk-weighted assets 46.7% 8.0% 38.7%
</TABLE>
F-16 (Continued)
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Failure to comply with applicable regulatory capital requirements can
result in capital directives from the director of the Office of Thrift
Supervision, restrictions on growth and other limitations on a savings
association's operations.
(12) Noncash Investing Activities
The Association recorded a decrease in unrealized gain on investment
securities available-for-sale of $386,723, net of deferred taxes of
$131,486, at June 30, 1996.
The Association recorded an increase in unrealized gain on investment
securities available-for-sale of $111,129, net of deferred taxes of
$37,784, at June 30, 1995.
(13) Commitments and Contingencies
The deposits of the Association are insured by the Savings Association
Insurance Fund (SAIF), one of two funds administered by the Federal
Deposit Insurance Corporation (FDIC). The Association currently pays
premiums of approximately $.23 per $100 of deposits. On September 30,
1996, the Deposit Insurance Funds Act of 1996 was signed, which
authorizes the FDIC to impose a special assessment on certain deposits
held by thrift institutions. This special assessment, which is based
on $.657 per $100 of outstanding deposits at March 31, 1995, is intended
to recapitalize the SAIF. The assessment of $451,000 and a related tax
benefit of $183,000 were recorded by the Association on September 30,
1996. The assessment is payable no later than November 29, 1996.
(14) Financial Instruments With Off-Balance-Sheet Risk
The Association is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include
commitments to extend credit and involve, to varying degrees, elements of
credit risk.
The Association's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend
credit is represented by the contractual amount of those instruments. The
Association uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Financial instruments outstanding at June 30, 1996 whose contract amounts
represent credit risk are fixed-rate commitments to extend credit
totaling approximately $304,000 with interest rates of 7.875% to 9.75%.
These commitments generally contain a termination date of 30 days
from date the commitment is approved.
F-17 (Continued)
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
Association evaluates each customer's creditworthiness on a case by case
basis. The amount of collateral obtained by the Association upon
extension of credit, if deemed necessary, is based on management's
evaluation of the counter-party. Collateral held varies but may include
personal property, residential real property and income-producing
commercial properties.
(15) Financial Instruments With Concentration of Credit Risk
At June 30, 1996, approximately $2,000,000 of the Association's loans
receivable are secured by real property located outside of the
Association's trade area of south central Montana of this amount,
approximately $1,100,000 are secured by properties located in Southern
California.
(16) Fair Value of Financial Instruments
The Association is required to disclose the fair value for financial
instruments, whether recognized or not recognized on the statement of
financial condition. A financial instrument is defined as cash, evidence
of an ownership interest in an entity, or a contract that both imposes a
contractual obligation on one entity to deliver cash or another financial
instrument to a second entity.
Quoted market prices are used for fair value when available, but do not
exist for some of the Bank's financial instruments, primarily loans and
time deposits. The fair value of these instruments has been derived from
the OTS Net Portfolio Value Model (OTS Model). This OTS Model primarily
employs the static discounted cash flow method which determines the
economic value of loans and time deposits by calculating the present
value of expected cash flows. The present value is determined by
discounting the cash flows the instruments are expected to generate by
the yields currently available to investors on instruments of comparable
risk and duration. Therefore, to calculate present value, the OTS makes
assumptions about the size and timing of expected cash flows and
appropriate discount rates. Different assumptions could materially change
these instruments' estimated values.
These disclosures exclude certain financial instruments and all
nonfinancial instruments. Therefore, the aggregate fair values presented
do not represent the Bank's underlying value.
The following assumptions and methods were used by the Bank in estimating
fair value:
FINANCIAL ASSETS. Due to the liquid nature of the instruments, the
carrying value of cash and cash equivalents and interest-bearing
deposits approximates market value. For all investment and
mortgage-backed securities, the fair value is based upon quoted
market prices. The fair value of loans receivable was obtained from
the OTS Model. The fair value of accrued interest receivable
approximates book value as the Association expects contractual
receipt in the short-term. The fair value of FHLB stock approximates
redemption value.
FINANCIAL LIABILITIES. The fair value of NOW and demand accounts and
non-term savings deposits approximates book values as these deposits
are payable on demand. The fair value of time deposits was obtained
from the OTS Model. The imputed interest rate on the borrowed funds
approximates the Company's current long-term borrowing rate.
Accordingly, the fair value of borrowed funds approximates the
carrying value.
F-18 (Continued)
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
OFF-BALANCE SHEET. Commitments made to extend credit represent
commitments for loan originations, the majority of which are
contracted for immediate sale and therefore no fair value adjustment
is necessary.
LIMITATIONS. Fair value estimates are made at a specific point in
time, based on relevant market information and information about the
financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the
Association's entire holdings of a particular instrument. Because no
market exists for a significant portion of the Association's
financial instruments, fair value estimates are based on judgments
regarding comparable market interest rates, future expected loss
experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates
are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on-and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments. In addition, the tax
effect of the difference between the fair value and carrying value
of financial instruments can have a significant effect on fair value
estimates and have not been considered in the estimates presented
herein.
<TABLE>
<CAPTION>
June 30, 1996
Book Value Fair Value
Financial Assets:
<S> <C> <C>
Cash and cash equivalents $ 1,160,760 1,160,760
Interest-bearing deposits 1,337,948 1,337,948
Investment and mortgage-backed securities
available-for-sale 13,876,659 13,876,659
Investment and mortgage-backed securities
held-to-maturity 25,195,531 25,005,118
Loans receivable, net 41,937,298 42,318,000
Stock in Federal Home Loan Bank of Seattle 1,123,300 1,123,300
Accrued interest receivable 327,994 327,994
Financial Liabilities:
Deposits 68,547,802 68,463,000
Borrowed funds 1,500,000 1,500,000
Off-Balance Sheet:
Commitments to extend credit 304,000 304,000
</TABLE>
(17) Subsequent Event
On August 29, 1996, the Board of Directors approved a plan under which
the Association would convert from a federally chartered mutual savings
and loan association to a federally chartered capital stock savings bank.
The conversion to a stock institution is subject to approval of the
Office of Thrift Supervision and members of the Association and includes
the filing of a registration statement with the Securities and Exchange
Commission. If such approvals are obtained, a holding company (of which
the Association will become a wholly-owned subsidiary) will issue and
sell shares of capital stock to eligible members of the Association and
the public.
F-19 (Continued)
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The cost of issuing the Association's capital stock will be deferred and
deducted from the sales proceeds of the conversion. At June 30, 1996, the
Association had not incurred any conversion costs. In the event that the
conversion is not completed, any deferred conversion costs will be
charged to operations.
In accordance with OTS Regulations, at the time that the Association
converts from a mutual savings and loan association to a stock savings
bank, the Association will restrict a portion of retained earnings by
establishing a liquidation account. The liquidation account will be
maintained for the benefit of eligible holders who continue to maintain
their accounts at the Association after the conversion. The liquidation
account will be reduced annually to the extent that eligible account
holders 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 of the Association, and
only in such event, each account holder will be entitled to receive a
distribution from the liquidation account in an amount proportionate to
the adjusted qualifying account balances then held. The Association may
not pay dividends if those dividends would reduce equity capital below
the required liquidation account amount.
F-20
<PAGE>
No dealer, salesman or any other 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 Association. 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 or 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 Association since any of the dates as of which
information is furnished herein or since the date hereof.
Table of Contents Page
Prospectus Summary............................................
Selected Consolidated Financial Information...................
Recent Developments...........................................
Risk Factors..................................................
Empire Federal Bancorp, Inc...................................
Empire Federal Savings and Loan Association. .................
Use of Proceeds...............................................
Dividend Policy...............................................
Market for Common Stock.......................................
Capitalization................................................
Historical and Pro Forma Capital Compliance...................
Pro Forma Data................................................
Empire Federal Savings and Loan Association and Subsidiary
Consolidated Statements of Income............................
Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................
Business of the Holding Company...............................
Business of the Association...................................
Management of the Holding Company.............................
Management of the Association.................................
Regulation....................................................
Taxation......................................................
The Conversion................................................
Restrictions on Acquisition of the Holding Company............
Description of Capital Stock of the Holding Company ..........
Registration Requirements.....................................
Legal and Tax Opinions........................................
Experts.......................................................
Change in Fiscal Year.........................................
Additional Information........................................
Index to Consolidated Financial Statements....................
Until the later of _____ __, 1996, or 25 days after commencement of the
Syndicated Community Offering of Common Stock, if any, 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.
EMPIRE FEDERAL BANCORP, INC.
[Logo]
(Proposed Holding Company for Empire Federal
Savings and Loan Association, to
be known as Empire Federal Savings Bank)
1,666,000 to 2,254,000 Shares of
Common Stock
Prospectus
Charles Webb & Company,
a Division of Keefe, Bruyette & Woods, Inc.
______________ ___, 1996
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors
Article XVII of the Certificate of Incorporation of Empire
Federal Bancorp, Inc. requires indemnification of directors,
officers and employees to the fullest extent permitted by
Delaware law.
Section 145 of the Delaware General Corporation Law sets forth
circumstances under which directors, officers, employees and
agents may be insured or indemnified against liability which
they may incur in their capacities:
145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.--(a) A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
II-1
<PAGE>
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
incurred by him any such capacity, or arising out of his status as such, whether
or not the corporation would have the power to indemnify him against such
liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agents, so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
II-2
<PAGE>
Item 25. Other Expenses of Issuance and Distribution(1)
Legal.................................................. $ 95,000
Securities marketing legal fees........................ 35,000
Printing, postage and mailing.......................... 65,000
Appraisal and business plan preparation................ 22,000
Accounting fees........................................ 30,000
Accounting advisor fee................................. 7,000
Securities marketing fees(1)........................... 285,130
Data processing fees................................... 7,500
SEC registration fee................................... 9,000
Blue Sky filing fees and expenses...................... 10,000
OTS filing fees........................................ 8,400
Other expenses......................................... 10,970
--------
Total............................................ $585,000
========
(1) Assumes a total offering of $22.5 million (midpoint of the
Estimated Valuation Range), a management fee payable to Webb equal to $25,000
and a success fee of 1.5% of the aggregate Purchase Price of the shares of
Common Stock sold in the Subscription and Direct Community Offering and the
Syndicated Community Offering, excluding shares purchased by the ESOP and
officers and directors of the Association (such success fee not to exceed 1.5%
of the gross offering proceeds at the midpoint of the Estimated Valuation Range,
or $294,000). See "THE CONVERSION -- Plan of Distribution for the Subscription,
Direct Community and Syndicated Community Offerings."
Item 26. Recent Sales of Unregistered Securities.
Not Applicable
Item 27. Exhibits
The exhibits filed as part of this Registration Statement are as
follows:
(a) List of Exhibits
1.1 -- Form of proposed Agency Agreement among Empire Federal Bancorp,
Inc., Empire Federal Savings and Loan Association of Livingston and
Charles Webb & Company
1.2 -- Engagement Letter with Empire Federal Savings and Loan Association
of Livingston and Charles Webb & Company (a)
2 -- Amended Plan of Conversion of Empire Federal Savings and Loan
Association of Livingston (attached as an exhibit to the Proxy
Statement included herein as Exhibit 99.5)
3.1 -- Certificate of Incorporation of Empire Federal Bancorp, Inc. (a)
3.2 -- Bylaws of Empire Federal Bancorp, Inc. (a)
4 -- Form of Certificate for Common Stock (a)
5 -- Opinion of Breyer & Aguggia regarding legality of securities
registered (a)
8.1 -- Federal Tax Opinion of Breyer & Aguggia
II-3
<PAGE>
8.2 -- State Tax Opinion of Huppert & Swindlehurst, P.C.
8.3 -- Opinion of Keller & Company, Inc. as to the value of subscription
rights (a)
10.1 -- Proposed Form of Employment Agreement for Certain Executive
Officers (a)
10.2 -- Proposed Form of Stock Option Plan (a)
10.3 -- Proposed Form of Management Recognition and Development Plan (a)
10.4 -- Proposed Form of Employee Stock Ownership Plan (a)
21 -- Subsidiaries of Empire Federal Bancorp, Inc. (a)
23.1 -- Consent of KPMG Peat Marwick, LLP
23.2 -- Consent of Breyer & Aguggia (contained in opinion included as
Exhibit 8.1)
23.3 -- Consent of Keller & Company, Inc. (a)
23.4 -- Consent of Huppert & Swindlehurst, P.C. (contained in opinion
included as Exhibit 8.2)
24 -- Power of Attorney (a)
99.1 -- Order and Acknowledgement Form (contained in the marketing
materials included herein as Exhibit 99.2)
99.2 -- Solicitation and Marketing Materials
99.3 -- Appraisal Agreement with Keller & Company, Inc. (a)
99.4 -- Appraisal Report of Keller & Company, Inc.
99.5 -- Proxy Statement for Special Meeting of Members of Empire Federal
Savings and Loan Association
- ---------------------
(a) Previously filed.
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act of 1933, as amended ("Securities Act");
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the
II-4
<PAGE>
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time shall be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) The undersigned registrant hereby undertakes to provide the
underwriter at the closing specified in the underwriting agreement, certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is therefore, unenforceable. In the event
that a claim for indemnification against liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Amended Registration Statement to be signed
on its behalf by the undersigned, in Livingston, Montana on November 8, 1996.
EMPIRE FEDERAL BANCORP, INC.
By: /s/Beverly D. Harris
Beverly D. Harris
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/Beverly D. Harris President, Chief Executive November 8, 1996
- ------------------------------------------
Beverly D. Harris and Director
(Principal Executive Officer)
/s/Ernest A. Sandberg* Treasurer, Chief Financial November 8, 1996
- -----------------------------------------
Ernest A. Sandberg Officer, Secretary and Director
(Principal Financial and
Accounting Officer)
/s/W. J. Peterson, Jr.* Chairman of the Board November 8, 1996
- ---------------------------------------
W. J. Peterson, Jr.
/s/John R. Boe* Director November 8, 1996
- ----------------------------------------
John R. Boe
/s/Sanroe J. Kaisler, Jr.* Director November 8, 1996
- ----------------------------------------
Sanroe J. Kaisler, Jr.
/s/Walter R. Sales* Director November 8, 1996
- ----------------------------------------
Walter R. Sales
/s/Edwin H. Doig* Director November 8, 1996
- -----------------------------------------
Edwin H. Doig
</TABLE>
By power of attorney dated September 25, 1996.
II-6
<PAGE>
As filed with the Securities and Exchange Commission on November 8, 1996
Registration No. 333-12653
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
EMPIRE FEDERAL BANCORP, INC.
(Exact name of registrant as specified in charter)
Delaware 6035 81-0512374
(State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
123 South Main Street
Livingston, Montana 59047
(406) 222-1981
(Address and telephone number of principal executive offices)
John F. Breyer, Jr., Esquire
Victor L. Cangelosi, Esquire
BREYER & AGUGGIA
Suite 470 East 1300 I Street, N.W.
Washington, D.C. 20005
(Name and address of agent for service)
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
1.1 -- Form of proposed Agency Agreement among Empire Federal Bancorp, Inc., Empire Federal Savings
and Loan Association of Livingston and Charles Webb & Company
1.2 -- Engagement Letter with Empire Federal Savings and Loan Association of Livingston and Charles
Webb & Company (a)
2 -- Amended Plan of Conversion of Empire Federal Savings and Loan Association of Livingston
(attached as an exhibit to the Proxy Statement included herein as Exhibit 99.5)
3.1 -- Certificate of Incorporation of Empire Federal Bancorp, Inc. (a)
3.2 -- Bylaws of Empire Federal Bancorp, Inc. (a)
4 -- Form of Certificate for Common Stock (a)
5 -- Opinion of Breyer & Aguggia regarding legality of securities registered (a)
8.1 -- Federal Tax Opinion of Breyer & Aguggia
8.2 -- State Tax Opinion of Huppert & Swindlehurst, P.C.
8.3 -- Opinion of Keller & Company, Inc. as to the value of subscription rights (a)
10.1 -- Proposed Form of Employment Agreement for Certain Executive Officers (a)
10.2 -- Proposed Form of Stock Option Plan (a)
10.3 -- Proposed Form of Management Recognition and Development Plan (a)
10.4 -- Proposed Form of Employee Stock Ownership Plan (a)
21 -- Subsidiaries of Empire Federal Bancorp, Inc. (a)
23.1 -- Consent of KPMG Peat Marwick, LLP
23.2 -- Consent of Breyer & Aguggia (contained in opinion included as Exhibit 8.1)
23.3 -- Consent of Keller & Company, Inc. (a)
23.4 -- Consent of Huppert & Swindlehurst, P.C. (contained in opinion
included as Exhibit 8.2)
24 -- Power of Attorney (a)
99.1 -- Order and Acknowledgement Form (contained in the marketing
materials included herein as Exhibit 99.2)
99.2 -- Solicitation and Marketing Materials
99.3 -- Appraisal Agreement with Keller & Company, Inc. (a)
99.4 -- Appraisal Report of Keller & Company, Inc.
99.5 -- Proxy Statement for Special Meeting of Members of Empire Federal Savings and Loan Association
- ---------------------
(a) Previously filed.
</R.
</TABLE>
<PAGE>
EXHIBIT 1.1
Form of Proposed Agency Agreement among Empire Federal Bancorp,
Inc., Empire Federal Savings and Loan
Association of Livingston and Charles Webb & Company
<PAGE>
EMPIRE FEDERAL BANCORP, INC.
Up to 2,254,000 Shares
COMMON STOCK
($0.01 Par Value)
Subscription Price $10.00 Per Share
AGENCY AGREEMENT
November __, 1996
Charles Webb & Company
211 Bradenton Drive
Dublin, Ohio 43017-5034
Ladies and Gentlemen:
Empire Federal Bancorp, Inc., a Delaware corporation (the "Company") and
Empire Federal Savings and Loan Association, Livingston Montana, a federally
chartered mutual savings association (references to the "Association" include
the Association in the mutual or stock form, as indicated by the context), with
its deposit accounts insured by the Savings Association Insurance Fund ("SAIF")
administered by the Federal Deposit Insurance Corporation ("FDIC"), hereby
confirm their agreement with Charles Webb & Company, a division of Keefe,
Bruyette & Woods, Inc. ("Webb") as follows:
SECTION 1. THE OFFERING. The Association, in accordance with its plan of
conversion adopted by its Board of Directors (the "Plan"), intends to convert
from a federally chartered mutual savings bank to a federally chartered stock
savings association, and to issue all of its issued and outstanding capital
stock to the Company. In addition, pursuant to the Plan, the Company will offer
and sell up to 2,254,000 shares of its common stock, par value $0.01 per share
(the "Shares" or "Common Stock"), in a subscription offering (the "Subscription
Offering") to (1) depositors of the Association with savings accounts as of
March 31, 1995 ("Eligible Account Holders"), (2) the Association's Employee
Stock Ownership Plan ("ESOP"), (3) depositors of the Association with savings
accounts as of September 30, 1996 ("Supplemental Eligible Account Holders") and
(4) depositors of the Association (other than Eligible Account Holders and
Supplemental Eligible Account Holders) [AND CERTAIN BORROWERS OF THE BANK] as of
_______, 1996 ("Other Members"). Subject to the prior subscription rights of the
above-listed parties, the Company is offering for sale in a community offering
(the "Community Offering" and, when referred to together with the
<PAGE>
Subscription Offering, the "Subscription and Community Offering") conducted
concurrently with the Subscription Offering, the Shares not so subscribed for or
ordered in the Subscription Offering to certain members of the general public to
whom a copy of the Prospectus (as hereinafter defined) is delivered, with a
preference given to natural persons who are permanent residents of Park,
Gallatin and Sweet Grass Counties of Montana (the "Local Community") ("Other
Subscribers") (all such offerees being referred to in the aggregate as "Eligible
Offerees"). It is anticipated that shares not subscribed for in the Subscription
and Community Offering will be offered to members of the general public on a
best efforts basis through a selected dealers arrangement (the "Syndicated
Community Offering") (the Subscription Offering, Community Offering and
Syndicated Community Offering are collectively referred to as the "Offering").
It is acknowledged that the purchase of Shares in the Offering is subject to the
maximum and minimum purchase limitations as described in the Plan and that the
Company and the Association may reject, in whole or in part, any orders received
in the Community Offering or Syndicated Community Offering. Collectively, these
transactions are referred to herein as the "Conversion."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 33-_______) (the
"Registration Statement") containing a prospectus relating to the Offering for
the registration of the Shares under the Securities Act of 1933 (the "1933
Act"), and has filed such amendments thereof, if any, and such amended
prospectuses as may have been required to the date hereof. The prospectus, as
amended, on file with the Commission at the time the Registration Statement
initially became effective is hereinafter called the "Prospectus," except that
if any prospectus is filed by the Company pursuant to Rule 424(b) or (c) of the
rules and regulations of the Commission under the 1933 Act (the "1933 Act
Regulations") differing from the prospectus on file at the time the Registration
Statement 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.
In accordance with 12 C.F.R. Part 563b (the "Conversion Regulations"),
the Bank has filed with the Office of Thrift Supervision (the "OTS") an
Application for Conversion (the "Conversion Application"), including the
prospectus, and has filed such amendments thereto, if any, as may have been
required by the OTS. The Conversion Application has been [APPROVED] by the OTS
and the related Prospectus has been authorized for use by the OTS. In addition,
the Company has filed with the OTS an Application H- (e)1-S (the "Holding
Company Application") to become a registered savings and loan holding company
under Section 10 of the Home Owners' Loan Act, as amended ("SLHCA"), which has
been [APPROVED].
SECTION 2. RETENTION OF WEBB; COMPENSATION; SALE AND DELIVERY OF THE
SHARES. Subject to the terms and conditions herein set forth, the Company and
the Bank hereby appoint Webb (i) as their exclusive financial advisory and
marketing agent to utilize its best efforts to solicit subscriptions for Shares
of the Common Stock and to advise and assist the Company and the Association
with respect to the Company's sale of the Shares in the
-2-
<PAGE>
Offering and (ii) to participate in the Offering in the areas of market making,
research coverage and syndicate formation (if necessary).
On the basis of the representations, warranties, and agreements herein
contained, but subject to the terms and conditions herein set forth, Webb
accepts such appointment and agree to consult with and advise the Company and
the Bank as to the matters set forth in the letter agreement ("Letter
Agreement"), dated July 19, 1996, between the Association and Webb (a copy of
which is attached hereto as Exhibit A). It is acknowledged by the Company and
the Association that Webb shall not be required to purchase any Shares and shall
not be obligated to take any action which is inconsistent with all applicable
laws, regulations, decisions or orders. In the event of a Syndicated Community
Offering, Webb will assemble and manage a selling group of broker-dealers which
are members of the National Association of Securities Dealers, Inc. (the "NASD")
to participate in the solicitation of purchase orders for shares under a
selected dealers' agreement ("Selected Dealers' Agreement"), the form of which
is set forth as Exhibit B to this Agreement.
The obligations of Webb pursuant to this Agreement shall terminate upon
the completion or termination or abandonment of the Plan by the Company or upon
termination of the Offering, but in no event later than 60 days after the
completion of the Subscription Offering (the "End Date"). All fees or expenses
due to Webb but unpaid will be payable to Webb in next day funds at the earlier
of the Closing Date (as hereinafter defined) or the End Date. In the even the
Offering is extended beyond the End Date, the Company, the Association and Webb
may agree to renew this Agreement under mutually acceptable terms.
In the event the Company is unable to sell a minimum of 1,666,000 Shares
within the period herein provided, this Agreement shall terminate and the
Company shall refund to any persons who have subscribed for any of the Shares,
the full amount which it may have received from them plus accrued interest as
set forth in the Prospectus; and none of the parties to this Agreement shall
have any obligation to the other parties hereunder, except as otherwise set
forth in this Section 2 and in Sections 6, 8 and 9 hereof.
In the event the Offering is terminated for any reason not attributable
to the action or inaction of Webb, Webb shall be paid the fees and expenses due
to the date of such termination pursuant to subparagraphs (a) and (d) below.
If all conditions precedent to the consummation of the Conversion,
including, without limitation, the sale of all Shares required by the Plan to be
sold, are satisfied, the Company agrees to issue, or have issued, the Shares
sold in the Offering and to release for delivery certificates for such Shares on
the Closing Date (as hereinafter defined) against payment to the Company by any
means authorized by the Plan, provided however, that no funds shall be
released to the Company until the conditions specified in Section 7 hereof shall
have been complied with to the reasonable satisfaction of Webb and their
counsel. The release of Shares against payment therefor shall be made at 10:00
a.m., Pacific Time, on a date and
-3-
<PAGE>
at a place acceptable to the Company, the Association and Webb (it being
understood that such date shall not be more than ten business days after
termination of the Offering) or such other time or place as shall be agreed upon
by the Company, the Association and Webb. Certificates for shares shall be
delivered directly to the purchasers in accordance with their directions.
The date upon which the Company shall release or deliver the Shares sold in the
Offering, in accordance with the terms herein, is called the "Closing Date."
Webb shall receive the following compensation for their services hereunder:
(a) A management fee to Webb in the amount of $25,000, of which
$______ has been paid as of the date of this 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 Webb, Webb shall have earned and be entitled to be
paid fees accruing through the stage at which point the
termination occurred.
(b) A success fee of 1.5% of the dollar amount of Common Stock sold
in the Subscription and Community Offering, excluding Common
Stock purchased by directors, officers and employees (and members
of their immediate families) of Empire Federal and by the ESOP
and any tax-qualified or stock-based compensation plan (excluding
individual retirement plans ("IRAs")) and any similar plan
created by the Association for some or all of its directors or
employees payable on the Closing Date.
(c) If any shares of the Company's stock remain available after the
Subscription and Community Offering, at the request of the
Association, Webb will seek to form a syndicate of registered
broker-dealers to assist in the sale of such common stock on a
best efforts basis, subject to the terms and conditions set forth
in the selected dealers agreement. Webb will endeavor to
distribute the common stock among dealers in a fashion which best
meets the distribution objectives of the Association and the Plan
of Conversion. Webb will be paid a fee not to exceed 5.5% of the
aggregate Purchase Price of the shares of common stock sold
pursuant to the selected dealers agreement and then will pass
onto selected broker-dealers who assist in the syndicated
community 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 affected with the assistance
of a broker/dealer shall be transmitted by Webb to such
broker/dealer. The decision to utilize selected broker-dealers
will be made by the Association upon consultation with Webb. In
the event, with respect to any stock purchases, fees are paid
pursuant to this subparagraph 2(c), such fees shall be in lieu
of, and not in addition to, payment pursuant to subparagraphs
2(a) and 2(b).
-4-
<PAGE>
(d) The Bank and the Company hereby agree to reimburse Webb, from
time to time upon Webb's request, for its reasonable
out-of-pocket expenses and the reasonable fees and expenses of
its counsel. Such reimbursement of legal fees shall not exceed
$35,000. The Bank will bear the expenses of the Offering
customarily borne by issuers including, without limitation, OTS,
SEC, "Blue Sky," and NASD filing and registration fees; the fees
of the Bank's accountants, conversion agent, attorneys,
appraiser, transfer agent and registrar, printing, mailing and
marketing expenses associated with the Conversion; and the fees
set forth under this Section 2.
Full payment of Webb's actual and accountable expenses, advisory fees
and compensation shall be made in next day funds on the earlier of the Closing
Date or a determination by the Association to terminate or abandon the Plan.
Webb will provide financial advisory assistance for a period of one year
following completion of the Conversion as set forth in the Letter Agreement.
Following this initial one-year term, if Webb and the Company wish to continue
the relationship, a fee will be negotiated and an agreement entered into at that
time.
In the event of an oversubscription or other event which causes the
Offering to continue beyond the original expiration date, or a resolicitation of
subscribers, the parties agree to renegotiate the expense cap applicable to
Webb.
SECTION 3. PROSPECTUS; OFFERING. The Shares are to be initially offered
in the Offering at the Purchase Price as defined and set forth on the cover
page of the Prospectus.
SECTION 4.REPRESENTATIONS AND WARRANTIES. The Company and the
Association jointly and severally represent and warrant to Webb on the date
hereof as follows:
(a) The Registration Statement was declared effective by the Commission
on _________ __, 1996. At the time the Registration Statement, including the
Prospectus contained therein (including any amendment or supplement thereto),
became effective, the Registration Statement complied in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations and the
Registration Statement, including the Prospectus contained therein (including
any amendment or supplement thereto), and any information regarding the Company
or the Association contained in Sales Information (as such term is defined in
Section 8 hereof) authorized by the Company or the Association 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 the Commission; provided, however, that the representations and
warranties in this Section 4(a) shall not apply to statements or omissions made
in reliance upon and in conformity with written information furnished to the
Company or the Association by Webb expressly regarding Webb for use in
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the Prospectus under the caption "The Conversion-Marketing Arrangements" or
statements in or omissions from any Sales Information or information filed
pursuant to state securities or blue sky laws or regulations regarding Webb.
(b) The Conversion Application was approved by the OTS on _______ __,
1996 and the related Prospectus has been authorized for use by the OTS on
_______ __, 1996. At the time of the approval of the Conversion Application,
including the Prospectus (including any amendment or supplement thereto), by the
OTS and at all times subsequent thereto until the Closing Date, the Conversion
Application, including the Prospectus (including any amendment or supplement
thereto), will comply in all material respects with the Conversion Regulations
except to the extent waived by the OTS. The Conversion Application, including
the Prospectus (including any amendment or supplement thereto), does not include
any untrue statement of a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the
representations and warranties in this Section 4(b) shall not apply to
statements or omissions made in reliance upon and in conformity with written
information furnished to the Company or the Association by Webb expressly
regarding Webb for use in the Prospectus contained in the Conversion Application
under the caption "The Conversion-Plan of Distribution for the Subscription,
Direct Community and Syndicated Community Offerings" or statements in or
omissions from any sales information or information filed pursuant to state
securities or blue sky laws or regulations regarding Webb.
(c) The Company filed with the OTS the Holding Company Application which
was approved on ______ __, 1996.
(d) No order has been issued by the OTS or the Commission 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 Company
or the Association, pending or threatened.
(e) To the best knowledge of the Company, no person has sought to obtain
review of the final action of the OTS in approving or taking no objection to the
Plan or in approving or taking no objection to the Conversion or the Holding
Company Application pursuant to the Conversion Regulations, the SLHCA, or any
other statute or regulation.
(f) The Association has been organized and is a validly existing
federally chartered savings association in mutual form of organization and upon
the Conversion will become a duly organized and validly existing federally
chartered savings bank in capital stock form of organization, in both instances
duly authorized to conduct its business and own its property as described in the
Registration Statement and the Prospectus; the Association has obtained all
material licenses, permits and other governmental authorizations
currently required for the conduct of its business; all such licenses, permits
and governmental authorizations are in full force and effect, and the
Association is in all material respects complying with all
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laws, rules, regulations and orders applicable to the operation of its business;
the Association is existing under federal laws and is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which its ownership of property or leasing of property or
the conduct of its business requires such qualification, unless the failure to
be so qualified in one or more of such jurisdictions would not have a material
adverse effect on the condition, financial or otherwise, or the business,
operations or income of the Association. The Association does not own equity
securities or any equity interest in any other business enterprise except as
described in the Prospectus or as would not be material to the operations of the
Association.
(g) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus, and the Company is qualified to do business as a foreign corporation
in each jurisdiction in which the conduct of its business requires such
qualification, except where the failure to so qualify would not have a material
adverse effect on the condition, financial or otherwise, or the business,
operations or income of the Company. The Company has obtained all material
licenses, permits and other governmental authorizations currently required for
the conduct of its business; all such licenses, permits and governmental
authorizations are in full force and effect, and the Company is in all material
respects complying with all laws, rules, regulations and orders applicable to
the operation of its business.
(h) The Association's wholly owned subsidiary, Dime Service Corporation
of ("Dime"), is duly incorporated and validly existing as a corporation in good
standing under the laws of the State of Montana, and is duly licensed and
possessed of full corporate power and authority to own its properties and
conduct its business as described in the Prospectus.
(i) The Association is a member of the Federal Home Loan Bank of Seattle
("FHLB-Seattle"). The deposit accounts of the Association are insured by the
FDIC up to the applicable limits; and no proceedings for the termination or
revocation of such insurance are pending or, to the best knowledge of the
Company or the Association, threatened. Upon consummation of 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
requirements of the Conversion Regulations.
(j) The Company and the Association have good and marketable title to
all real property and other assets material to the business of the Company and
the Association and to those properties and assets described in the Registration
Statement and Prospectus as owned by them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the Registration
Statement and Prospectus or are not material to the business of the Company and
the Association taken as a whole; and all of the leases and subleases material
to the business of the Company and the Association under which the
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<PAGE>
Company or the Association hold properties, including those described in the
Registration Statement and Prospectus, are in full force and effect.
(k) The Company and the Association have received an opinion from
Huppert & Swindlehurst, P.C., Livingston, Montana with respect to the Montana
state income tax consequences of the proposed transaction; all material aspects
of the opinion of Huppert & Swindlehurst, P.C., Livingston, Montana are
accurately summarized in the Prospectus; and the facts and representations upon
which such opinion are based are truthful, accurate and complete.
(l) The Company and the Association have all such power, authority,
authorizations, approvals and orders as may be required to enter into this
Agreement, to carry out the provisions and conditions hereof and to issue and
sell (i) the capital stock of the Association to the Company and (ii) the Shares
to be sold by the Company as provided herein and as described in the Prospectus.
(m) The Company and the Association are not in violation of any
directive received from the OTS or any other agency to make any material change
in the method of conducting their 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, and,
except as set forth in the Registration Statement and the Prospectus, there is
no suit or proceeding or charge or action before or by any court, regulatory
authority or governmental agency or body, pending or, to the knowledge of the
Company and the Association, threatened, which would materially and adversely
affect the Conversion, the performance of this Agreement or the consummation of
the transactions contemplated in the Plan and as described in the Registration
Statement and the Prospectus or which would result in any material adverse
change in the condition (financial or otherwise), earnings, capital or
properties of the Company, or the Association.
(n) The financial statements which are included in the Prospectus fairly
present the financial condition, results of operations, retained earnings and
cash flows of the Association at the respective dates thereof and for the
respective periods covered thereby and comply as to form in all material
respects with the applicable accounting requirements of the Regulations of the
Commission, Title 12 of the Code of Federal Regulations and generally accepted
accounting principles (including those requiring the recording of certain assets
at their current market value). Such financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
through the periods involved, 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 Association with the
OTS, except that accounting principles employed in such regulatory filings
conform to the requirements of such authorities and not necessarily to generally
accepted accounting principles. The other financial, statistical and pro forma
information and related notes included in the Prospectus present fairly the
information shown therein on a basis consistent with the audited and unaudited
financial statements of the Association
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<PAGE>
included in the Prospectus, and as to the pro forma adjustments, the
adjustments made therein have been properly applied on the basis described
therein.
(o) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus: (i) there has not been any material
adverse change, financial or otherwise, in the condition of the Company, the
Association or Dime considered as one enterprise, or in the earnings, capital or
properties of the Company or the Association, whether or not arising in the
ordinary course of business; (ii) there has not been any material increase in
the long term debt of the Association or in loans past due 90 days or more or
real estate acquired by foreclosure, by deed-in-lieu of foreclosure or deemed
in-substance foreclosure or any material decrease in surplus and reserves or
total assets of the Association nor has the Company or the Association issued
any securities or incurred any liability or obligation for borrowing other than
in the ordinary course of business and (iii) there have not been any material
transactions entered into by the Company or the Association, except with respect
to those transactions entered into in the ordinary course of business.
(p) The capitalization, liabilities, assets, properties and business of
the Company and the Association conform in all material respects to the
descriptions thereof contained in the Prospectus.
(q) Neither the Company nor the Association has any material contingent
liabilities, except as set forth in the Prospectus.
(r) As of the date hereof, neither the Company, the Association nor Dime
is in violation of its articles of incorporation or bylaws or charter or bylaws,
as applicable (and the Association will not be in violation of its charter or
bylaws in capital stock form at the time of consummation of the Conversion), or
in default in the performance or observance of any material obligation,
agreement, covenant, or condition contained in any material contract, lease,
loan agreement, indenture or other instrument to which it is a party or by which
it or any other instrument to which it is a party or by which it or any of its
property may be bound; 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 Company and the Association and
this Agreement has been validly executed and delivered by the Company and the
Association and is the valid, legal and binding Agreement of the Company and the
Association enforceable in accordance with its terms, except as the
enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium, conservatorship, receivership or other similar laws
now or hereafter in effect relating to or affecting the enforcement of
creditors' rights generally or the rights of creditors of Federal savings
associations and their holding companies, (ii) general equitable principles,
(iii) laws relating to the safety and soundness of insured depository
institutions, and (iv) applicable law or public policy with respect to the
indemnification and/or contribution provisions contained herein, and
except that no representation or warranty need
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<PAGE>
be made as to the effect or availability of equitable remedies or injunctive
relief (regardless of whether such enforceability is considered in a
proceeding in equity or at law). The consummation of the transaction herein
contemplated will not: (i) conflict with or constitute a breach of, or default
under, the articles of incorporation and bylaws of the Company or the charter
and bylaws of the Association (in either mutual or capital stock form), or
any material contract, lease or other instrument to which the Company or the
Association is a party, or any applicable law, rule, regulation or order;
(ii) violate any authorization, approval, judgement, decree, order, statute,
rule or regulation applicable to the Company or the Association, except for
such violation which would not have a material adverse effect on the financial
condition and results of operations of the Company and the Association 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 Company or the Association.
(s) No default exists, and no event has occurred which with notice or
lapse of time, or both, would constitute a default on the part of the Company,
the Association or Dime, 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 instrument of agreement to which the Company,
the Association or Dime is a party or by which any of them or any of their
property is bound or affected except such defaults which would not have a
material adverse effect on the financial condition or results of operations of
the Company, the Association and Dime on a consolidated basis; such agreements
are in full force and effect; and no other party to any such agreements has
instituted or, to the best knowledge of the Company, the Association and Dime,
threatened any action or proceeding wherein the Company, the Association or Dime
would be alleged to be in default thereunder under circumstances where such
action or proceeding, if determined adversely to the Company, the Association or
Dime would have a material adverse effect on the Company, the Association and
Dime, taken as a whole.
(t) Upon consummation of the Conversion, the authorized, issued and
outstanding equity capital of the Company will be within the range set forth in
the Prospectus under the caption "Capitalization," and no shares of Common Stock
have been or will be issued and outstanding prior to the Closing Date referred
to in Section 2; the Shares will have been duly and validly authorized for
issuance and, when issued and delivered by the Company pursuant to the Plan
against payment of the consideration calculated as set forth in the Plan and in
the Prospectus, will be duly and validly issued, fully paid and non-assessable;
no preemptive rights exist with respect to the Shares; and the terms and
provisions of the Shares will conform in all material respects to the
description thereof contained in the Registration Statement and the Prospectus.
To the best knowledge of the Company and the Association, upon the issuance of
the Shares, good title to the Shares will be transferred from the Company to the
purchasers thereof against payment therefor, subject to such claims as may be
asserted against the purchasers thereof by third-party claimants.
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<PAGE>
(u) No approval of any regulatory or supervisory or other public
authority is required in connection with the execution and delivery of this
Agreement or the issuance of the Shares, except for the approval of the
Commission, the OTS and any necessary qualification, notification, 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 National Market.
(v) KPMG Peat Marwick, LLP, which has certified the financial statements
of the Association included in the Prospectus as of June 30, 1996 and 1995 and
for each of the years in the three-year period ended June 30, 1996, has advised
the Company and the Association in writing that they are, with respect to the
Company and the Association, independent public accountants within the meaning
of the Code of Professional Ethics of the American Institute of Certified Public
Accountants and Title 12 of the Code of Federal Regulations and Section
571.2(c)(3).
(v) Keller & Company, Inc. which has prepared the Association's
Conversion Valuation Appraisal Report as of September 6, 1996 (as amended or
supplemented, if so amended or supplemented) (the "Appraisal"), has advised the
Company in writing that it is independent of the Company and the Association
within the meaning of the Conversion Regulations.
(w) The Company and the Association have timely filed all required
federal, state and local tax returns; the Company and the Association have paid
all taxes that have become due and payable in respect of such returns, except
where permitted to be extended; to the best knowledge of the Association
adequate reserves have been made for similar future tax liabilities and no
deficiency has been asserted with respect thereto by any taxing authority.
(x) The Company and the Association are in compliance in all material
respects with the applicable financial record-keeping and reporting requirements
of the Currency and Foreign Transactions Reporting Act of 1970, as amended, and
the regulations and rules thereunder.
(y) To the knowledge of the Company and the Association, neither the
Company, the Association nor employees of the Company or the Association have
made any payment of funds of the Company or the Association as a loan for the
purchase of the Shares.
(z) Prior to the Conversion, the Association was not authorized to issue
shares of capital stock and neither the Company nor the Association 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 in the
ordinary course of business or as described in the Prospectus); (ii) had any
material dealings 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 the
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offering related to a proposed mutual holding company reorganization which was
terminated prior to consummation) and routine purchases and sales of United
States government and agency securities; (iii) entered into a financial or
management consulting agreement except as contemplated hereunder and except for
the Letter Agreement set forth in Exhibit A; and (iv) engaged any intermediary
between Webb and the Company and the Association in connection with the offering
of the Shares, and no person is being compensated in any manner for such
service.
(aa) The Company and the Association have not relied upon Webb or Webb's
counsel for any legal, tax or accounting advice in connection with the
Conversion.
(bb) The Company is not required to be registered under the Investment
Company Act of 1940, as amended.
Any certificates signed by an officer of the Company or the Association
pursuant to the conditions of this Agreement and delivered to Webb or its
counsel that refers to this Agreement shall be deemed to be a representation and
warranty by the Company or the Association to Webb as to the matters covered
thereby with the same effect as if such representation and warranty were set
forth herein.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF WEBB.
(a) Webb represents and warrants to the Company and the Association
that:
(i) Webb 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 Association and the Company
hereunder.
(ii) 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 Webb, and this Agreement has
been duly and validly executed and delivered by Webb and is the legal, valid and
binding agreement of Webb, enforceable in accordance with its terms.
(iii) Each of Webb 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.
(iv) The execution and delivery of this Agreement by Webb, 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 articles of incorporation of Webb or any agreement,
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<PAGE>
indenture or other instrument to which Webb is a party or by which it or its
property is bound.
(v) No approval of any regulatory or supervisory or other public
authority is required in connection with Webb's execution and delivery of this
Agreement, except as may have been received.
(vi) There is no suit or proceeding or charge or action before or
by any court, regulatory authority or government agency or body or, to the
knowledge of Webb, pending or threatened, which might materially adversely
affect Webb's performance under this Agreement.
SECTION 5.1 COVENANTS OF THE COMPANY AND THE ASSOCIATION. The Company
and the Association hereby jointly and severally covenant with Webb as follows:
(a) The Company has filed the Registration Statement with the
Commission. The 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 Webb and its counsel an opportunity to
review such amendment or supplement or file any amendment or supplement to which
amendment or supplement Webb or its counsel shall reasonably object.
(b) The Association has filed the Conversion Application with the OTS.
The Association will not, at any time after the Conversion Application is
approved by the OTS, file any amendment or supplement to such Conversion
Application without providing Webb and its counsel an opportunity to review such
amendment or supplement or file any amendment or supplement to which amendment
or supplement Webb or its counsel shall reasonably object.
(c) The Company will not, at any time before the Holding Company
Application is approved by the OTS, file any amendment or supplement to such
Holding Company Application without providing Webb and its counsel an
opportunity to review the nonconfidential portions of such amendment or
supplement or file any amendment or supplement to which amendment or supplement
Webb or its counsel shall reasonably object.
(d) The Company and the Association 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 Conversion
Application to be approved by the OTS and will immediately upon receipt of any
information concerning the events listed below notify Webb: (i) when the
Registration Statement, as amended, has become effective; (ii) when the
Conversion Application, as amended, has been approved by the OTS; (iii) when the
Holding Company Application, as amended, has been approved by he OTS; (iv) of
any comments from the Commission, the OTS or any other governmental entity with
respect to the Conversion or the transactions contemplated by this Agreement;
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<PAGE>
(v) of the request by the Commission, the OTS or any other governmental entity
for any amendment or supplement to the Registration Statement, the Conversion
Application or the Holding Company Application or for additional information;
(vi) of the issuance by the commission, the OTS or any other governmental entity
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 Company or
the Association under the Conversion Regulations, or other applicable law, or
the threat of any such action; (vii) the issuance by the Commission, the OTS or
any state authority of any stop order suspending the effectiveness of the
Registration Statement or the approval of the Conversion Application or Holding
Company Application, or of the initiation or threat of initiation or threat of
any proceedings for any such purpose; or (viii) of the occurrence of any event
mentioned in paragraph (h) below. The Company and the Association will make
every reasonable effort (i) to prevent the issuance by the Commission, the OTS
or any state authority of any such order and, if any such order shall at any
time be issued, (ii) to obtain the lifting thereof at the earliest possible
time.
(e) The Company and the Association will deliver to Webb and to its
counsel two conformed copies of the Registration Statement, the Conversion
Application and the Holding Company Application, as originally filed and of each
amendment or supplement thereto, including all exhibits. Further, the Company
and the Association will deliver such additional copies of the foregoing
documents to counsel to Webb as may be required for any NASD and blue sky
filings.
(f) The Company and the Association will furnish to Webb, from time to
time during the period when the Prospectus (or any later prospectus related to
this offering) is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934, (the "1934 Act"), such number of copies of such Prospectus
(as amended or supplemented) as Webb may reasonably request for the purposes
contemplated by the 1933 Act, the 1933 Act Regulations, the 1934 Act or the
rules and regulations promulgated under the 1934 Act (the "1934 Act
Regulations"). The Company authorizes Webb to use the Prospectus (as amended or
supplemented, if amended or supplemented) in any lawful manner contemplated by
the Plan in connection with the sale of the Shares by Webb.
(g) The Company and the Association will comply with any and all
material terms, conditions, requirements and provisions with respect to the
Conversion and the transactions contemplated thereby imposed by the Commission,
the OTS, the Conversion Regulations or the SLHCA, and by the 1933 Act, the 1933
Act Regulations, the 1934 Act and the 1934 Act Regulations to be complied with
prior to or subsequent to the Closing Date and when the Prospectus is required
to be delivered, the Company and the Association will comply, at their own
expense, with all material requirements imposed upon them by the Commission, the
OTS, the Conversion Regulations or the SLHCA, and by the 1993 Act, the 1933 Act
Regulations, the 1934 Act and the 1934 Act Regulations, including, without
limitation, Rule 10b-5 under the 1934 Act, 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.
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<PAGE>
(h) If, at any time during the period when the Prospectus relating to
the Shares is required to be delivered, any event relating to or affecting the
Company, the Association or Dime shall occur, as a result of which it is
necessary or appropriate, in the opinion of counsel for the Company and the
Association to amend or supplement the Registration Statement or Prospectus in
order to make the Registration Statement or Prospectus not misleading in light
of the circumstances existing at the time the Prospectus is delivered to a
purchaser, the Company and the Association will, at their expense, prepare and
file with the Commission and the OTS and furnish to Webb a reasonable number of
copies of an amendment or amendments of, or a supplement or supplements to, the
Registration Statement and Prospectus (in form and substance satisfactory to
Webb and its counsel after a reasonable time for review) which will amend or
supplement the Registration Statement and 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 the Prospectus is delivered to a
purchaser, not misleading. For the purpose of this Agreement, the Company and
the Association each will timely furnish to Webb such information with respect
to itself as Webb may from time to time reasonably request.
(i) At the Closing Date referred to in Section 2, the Plan will have
been adopted by the Boards of Directors of both the Company and the Association
and the offer and sale of the Shares will have been conducted in all material
respects in accordance with the Plan, the Conversion Regulations, and all other
applicable laws, regulations, decisions and orders, including all terms,
conditions, requirements and provisions precedent to the Conversion imposed upon
the Company or the Association by the OTS, the Commission or any other
regulatory authority and in the manner described in the Prospectus.
(j) Upon completion of the sale by the Company of the Shares
contemplated by the Prospectus, (i) the Association will be converted pursuant
to the Plan to a federally chartered stock savings association, (ii) all of the
authorized and outstanding capital stock of the Association will be owned by the
Company, and (iii) the Company will have no direct subsidiaries other than the
Association. The Conversion will have been effected in all material respects in
accordance with all applicable statutes, regulations, decisions and orders; and,
except with respect to the filing of certain post-sale, post-Conversion reports,
and documents in compliance with the 1933 Act Regulations or the OTS's letters
of approval, all terms, conditions, requirements and provisions with respect to
the Conversion (except those that are conditions subsequent) imposed by the
Commission and the OTS, if any, will have been complied with by the Company and
the Association in all material respects or appropriate waivers will have been
obtained and all material notice and waiting periods will have been satisfied,
waived or elapsed.
(k) The Company and the Association will take all necessary actions, in
cooperation with Webb, and furnish to whomever Webb may direct, such information
as may be required to qualify or register the Shares for offering and sale by
the Company or to exempt such Shares from registration, or to exempt the Company
as a broker-dealer and its officers,
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<PAGE>
directors and employees as broker-dealers or agents under the applicable
securities or blue sky laws of such jurisdictions in which the Shares are to be
offered and sold as Webb and the Company and the Association may reasonably
agree upon; provided, however, that the 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 qualified or registered as above provided, the
Company will make and file such statements and reports in each fiscal period as
are or may be required by the laws of such jurisdiction.
(l) The liquidation account for the benefit of Eligible Account Holders
and Supplemental Eligible Account Holders 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 accounts in the Association will have an inchoate
interest in their pro rata portion of the liquidation account which shall have a
priority superior to that of the holders of shares of Common Stock in the event
of a complete liquidation of the Association.
(m) The Company and the Association will not sell or issue, contract to
sell or otherwise dispose of, for a period of 90 days after the Closing Date,
without Webb's prior written consent, any shares of Common Stock other than the
Shares or other than in connection with any plan or arrangement described in the
Prospectus.
(n) The Company shall register its Common Stock under Section 12(g) of
the 1934 Act concurrent with the Offering pursuant to the Plan and shall request
that such registration be effective upon completion of the Conversion. The
Company shall maintain the effectiveness of such registration for not less than
three (3) years or such shorter period as may be required by the OTS.
(o) During the period during which the Company's Common Stock is
registered under the 1934 Act or for three years from the date hereof, whichever
period is greater, the Company will furnish to its stockholders as soon as
practicable after the end of each fiscal year an annual report of the Company
(including a consolidated balance sheet and statements of consolidated income,
stockholders' equity and cash flows of the Company and its subsidiaries as at
the end of and for such year, certified by independent public accountants in
accordance with Regulation S-X under the 1933 Act and the 1934 Act).
(p) During the period of three years from the date hereof, the Company
will furnish to Webb: (i) as soon as practicable after such information is
publicly available, a copy of each report of the 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 Company is listed or quoted
(including, but not limited to, reports on Forms 10-K, 10-Q and 8-K and all
proxy statements and annual reports to stockholders), (ii) a copy of each other
non-confidential report of the Company mailed to its stockholders or filed with
the Commission, the OTS or any other supervisory or regulatory authority or any
national
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securities exchange or system on which any class of securities of the Company is
listed or quoted, each press release and material news items and additional
documents and information with respect to the Company or the Association as Webb
may reasonably request; and (iii) from time to time, such other nonconfidential
information concerning the Company or the Association as Webb may reasonably
request.
(q) The Company and the Association will use the net proceeds from the
sale of the Shares in the manner set forth in the Prospectus under the caption
"Use of Proceeds."
(r) Other than as permitted by the Conversion Regulations, the SLHCA,
the 1933 Act, the 1933 Act Regulations, and the laws of any state in which the
Shares are registered or qualified for sale or exempt from registration, neither
the Company nor the Association will distribute any prospectus, offering
circular or other offering material in connection with the offer and sale of the
Shares.
(s) The Company will use its best efforts to (i) encourage and assist
two market makers to establish and maintain a market for the Shares and (ii)
list the Shares on a national or regional securities exchange or on the Nasdaq
National Market effective on or prior to the Closing Date.
(t) The Association 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 Association's obligation to refund
payments received from persons subscribing for or ordering Shares in the
Offering in accordance with the Plan and as described in the Prospectus or until
refunds of such funds have been made to the persons entitled thereto or
withdrawal authorizations cancelled in accordance with the Plan and as described
in the Prospectus. The Association 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 Association 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 Company will promptly take all necessary action to register as a
savings and loan holding company under the SLHCA within 90 days of the Closing
Date.
(v) The Company and the Association will take such actions and furnish
such information as are reasonably requested by Webb in order for Webb to ensure
compliance with the NASD's "Interpretation Relating to Free Riding and
Withholding."
(w) The Association will not amend the Plan of Conversion without
notifying Webb prior thereto.
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(x) The Company shall assist Webb, if necessary, in connection with the
allocation of the Shares in the event of an oversubscription and shall provide
Webb with any information necessary in allocating the Shares in such event and
such information shall be accurate and reliable.
(y) Prior to the Closing Date, the Company and the Association will
inform Webb of any event or circumstances of which it is aware as a result of
which the Registration Statement, the Conversion Application and/or Prospectus,
as then amended or supplemented, would contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein not misleading.
SECTION 5.2 COVENANTS OF WEBB. Webb hereby covenants with the Company
and the Association as follows:
(a) During the period when the Prospectus is used, Webb will comply, in
all material respects and at its own expense, with all requirements imposed upon
it by the OTS and the NASD and, to the extent applicable, by the 1933 Act and
the 1934 Act and the rules and regulations promulgated thereunder.
(b) Webb shall return unused copies of the Prospectus, if any, to the
Company promptly upon the completion of the Conversion.
(c) Webb will distribute copies of the Prospectus and Sales Information
in connection with the sales of the common stock only in accordance with NASD
and OTS regulations, the 1933 Act and the rules and regulations promulgated
thereunder.
(d) Webb shall assist the Association in maintaining arrangements for
the deposit of funds and the making of refunds, as appropriate (as described in
Section 5.1(r)), and shall perform the allocation of shares in the event of an
oversubscription, in conformance with the Plan and applicable regulations and
based upon information furnished to Webb by the Association (as described in
Section 5.1(x)).
SECTION 6. PAYMENT OF EXPENSES. Whether or not the Conversion is
completed or the sale of the Shares by the Company is consummated, the Company
and the Association jointly and severally agree to pay or reimburse Webb for:
(a) all filing fees in connection with all filings with the NASD; (b) any stock
issue or transfer taxes which may be payable with respect to the sale of the
Shares; (c) all reasonable expenses of the Conversion, including but not limited
to, the Company's and the Association's attorneys' fees, transfer agent,
registrar and other agent charges, fees relating to auditing and accounting or
other advisors and costs of printing all documents necessary in connection with
the Conversion; and (d) all reasonable out-of-pocket expenses incurred by Webb.
Such out-of-pocket expenses include, but are not limited to, travel,
communications and postage. However, such out-of-pocket expenses do not include
expenses incurred with respect to the matters set forth in (a) and (b) above. In
the event the Company is unable to sell a minimum of
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1,666,000 Shares or the Conversion is terminated or otherwise abandoned, the
Company and the Association shall reimburse Webb in accordance with Section 2
hereof.
SECTION 7. CONDITIONS TO WEBB'S OBLIGATIONS. Webb's obligations
hereunder, as to the Shares to be issued at the Closing Date, are subject, to
the extent not waived by Webb, to the condition that all representations and
warranties of the Company and the Association herein 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 condition that the Company and the Association
shall have performed all of their obligations hereunder to be performed on or
before such dates, and to the following further conditions:
(a) At the Closing Date, the Company and the Association shall have
conducted the Conversion in all material respects in accordance with the Plan,
the Conversion Regulations, and all other applicable
laws, regulations, decisions and orders, including all terms, conditions,
requirements and provisions precedent to the Conversion imposed upon them by the
OTS.
(b) The Registration Statement shall have been declared effective by the
Commission, the Conversion Application approved by the OTS, and the Holding
Company Application approved by the OTS not later than 5:30 p.m. on the date of
this Agreement, or with Webb's consent at a later time and date; and at the
Closing Date, no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefore
initiated or threatened by the Commission, or any state authority and no order
or other action suspending the authorization of the Prospectus or the
consummation of the Conversion shall have been issued or proceedings therefore
initiated or, to the Company's or the Association's knowledge threatened by the
Commission, the OTS or any state authority.
(c) At the Closing Date, Webb shall have received:
(1) The favorable opinion, dated as of the Closing Date and
addressed to Webb and for its benefit, of Breyer & Aguggia, special counsel for
the Company and the Association, in form and substance to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware and has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement and the Prospectus.
(ii) The Association is organized and is validly existing
as a federally chartered savings association in mutual form of organization and
upon the Conversion will become a duly organized and validly existing federally
chartered savings association in capital stock form of organization, in both
instances duly authorized to conduct its business and own its property as
described in the Registration Statement and Prospectus. All of the
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outstanding capital stock of the Association will be duly authorized and, upon
payment therefor, will be validly issued, fully paid and non-assessable and will
be owned by the Company, free and clear of any liens, encumbrances, claims or
other restrictions.
(iii) The Association is a member of the FHLB-Seattle.
The Association is an insured depository institution under the provisions of
Section 4(a) of the Federal Deposit Insurance Act, as amended, and no
proceedings for the termination or revocation of such insurance are pending or,
to such counsel's Actual Knowledge, threatened; the description of the
liquidation account as set forth in the Prospectus under the caption "The
Conversion-Liquidation Rights" to the extent that such information constitutes
matters of law and legal conclusions has been reviewed by such counsel and is
accurate in all material respects.
(iv) Upon consummation of the Conversion, the authorized,
issued and outstanding capital stock of the Company will be within the range set
forth in the Prospectus under the caption "Capitalization," and except for
shares issued upon incorporation of the Company, no shares of Common Stock have
been issued prior to the Closing Date; at the time of the Conversion, the Shares
subscribed for pursuant to the Offering will have been duly and validly
authorized for issuance, and when issued and delivered by the 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
non-assessable; except for subscription rights granted pursuant to the Plan the
issuance of the Shares is not subject to preemptive rights and the terms and
provisions of the Shares conform in all material respects to the description
thereof contained in the Prospectus. To such counsel's Actual Knowledge, upon
the issuance of the Shares, good title to the Shares will be transferred from
the Company to the purchasers thereof against payment therefor, subject to such
claims as may be asserted against the purchasers thereof by third-party
claimants.
(v) 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 Company and the
Association; and this Agreement is a valid and binding obligation of the Company
and the Association, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization, conservatorship, receivership or other similar laws now or
hereafter in effect relating to or affecting the enforcement of creditors'
rights generally or the rights of creditors of savings associations and their
holding companies, (ii) general equitable principles, (iii) laws relating to the
safety and soundness of insured depository institutions, and (iv) applicable law
or public policy with respect to the indemnification and/or contribution
provisions contained herein, and except that no opinion need to be expressed as
to the effect or availability of equitable remedies or injunctive relief
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(vi) The Conversion Application has been approved by the
OTS and the Prospectus has been authorized for use by the OTS. The OTS has
approved the Holding
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Company Application and issued its letter of approval under the SLHCA, and the
purchase by the Company of all of the issued and outstanding capital stock of
the Association has been authorized by the OTS and no action has been taken, and
to such counsel's Actual Knowledge, none is pending or threatened, to revoke any
such authorization or approval.
(vii) The Plan has been duly adopted by the required vote
of the directors of the Company and the Association and, based upon the
certificate of the inspector of election, by the members of the Association.
(viii) Subject to the satisfaction of the conditions to
the OTS approval of the Conversion, no further approval, registration,
authorization, consent or other order of or notice to any federal agency is
required in connection with the execution and delivery of this Agreement, the
issuance of the Shares and the consummation of the Conversion, except as may be
required under the securities or blue sky laws of various jurisdictions (as to
which no opinion need be rendered) and except as may be required under the rules
and regulations of the NASD and/or the Nasdaq National Market (as to which no
opinion need be
rendered).
(ix) The Registration Statement is effective under the
1933 Act and no stop order suspending the effectiveness has been issued under
the 1933 Act or proceedings therefor initiated or, to such counsel's Actual
Knowledge, threatened by the Commission.
(x) At the time the Conversion Application, including the
Prospectus contained therein, was approved by the OTS, the Conversion
Application, including the Prospectus contained therein, complied as to form in
all material respects with the requirements of the Home Owners' Loan Act, as
amended ("HOLA") and all applicable rules and regulations promulgated
thereunder, including the Conversion Regulations (other than the financial
statements, the notes thereto, and other tabular, financial, statistical and
appraisal data included therein, as to which no opinion need be rendered).
(xi) At the time that the Registration Statement became
effective, (i) the Registration Statement (as amended or supplemented, if so
amended or supplemented) (other than the financial statements, the notes thereto
and other tabular, financial, statistical and appraisal data included therein,
as to which no opinion need be rendered) complied as to form in all material
respects with the requirements of the 1933 Act and the 1933 Act Regulations, and
(ii) the Prospectus (other than the financial statements, the notes thereto and
other tabular, financial, statistical and appraisal data included therein, as to
which no opinion need be rendered) complied as to form in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations.
(xii) The terms and provisions of the Shares of the
Company conform, in all material respects, to the description thereof contained
in the Registration Statement and Prospectus, and the form of certificate used
to evidence the Shares is in due and proper form.
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<PAGE>
(xiii) There are no legal or governmental proceedings
pending or to such counsel's Actual Knowledge, threatened which are required to
be disclosed in the Registration Statement and Prospectus, other than those
disclosed therein, and to such counsel's Actual Knowledge, all pending legal and
governmental proceedings to which the Company, the Association or Dime is a
party or of which any of their property is the subject, which are not described
in the Registration Statement and the Prospectus, including ordinary routine
litigation incidental to the Company's, the Association's or Dime's business,
are, considered in the aggregate, not material.
(xiv) To such counsel's Actual Knowledge, there are no
material contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments required to be described or referred to in the Conversion
Application, the Registration Statement or the Prospectus or required to be
filed as exhibits thereto other than those described or referred to therein or
filed as exhibits thereto. The description in the Conversion Application, the
Registration Statement and the Prospectus of such documents and exhibits is
accurate in all material respects and fairly presents the information required
to be shown.
(xv) To such counsel's Actual Knowledge, the Company and
the Association have conducted the Conversion, in all material respects, in
accordance with all applicable requirements of the Plan the Conversion
Regulations and the HOLA and the Plan complies in all material respects with,
the Conversion Regulations and the HOLA, and all decisions and orders issued
thereunder (except where a written waiver has been received); no order has been
issued by the OTS, the Commission or any state authority to suspend the Offering
or the use of the Prospectus, and no action for such purposes has been
instituted or, to such counsel's Actual Knowledge, threatened by the OTS or the
Commission or any state authority and, to such counsel's Actual Knowledge, no
person has sought to obtain regulatory or judicial review of the final action of
the OTS approving the Plan, the Conversion Application, the Holding Company
Application or the Prospectus.
(xvi) To such counsel's Actual Knowledge, the Company,
the Association and Dime have obtained all material federal licenses, permits
and other governmental authorizations currently required under the HOLA and the
Federal Deposit Insurance Act and all applicable rules and regulations
promulgated thereunder for the conduct of their businesses and to such counsel's
Actual Knowledge all such licenses, permits and other governmental
authorizations are in full force and effect, and the Company, the Association
and Dime are in all material respects complying therewith, except whether the
failure to have such licenses, permits and other governmental authorizations or
the failure to be in compliance therewith would not have a material adverse
affect on the business or operations of the Association, the Company and Dime,
taken as a whole.
(xvii) To such counsel's Actual Knowledge, neither the
Company, nor the Association is in violation of its articles of incorporation,
bylaws, or charter, as applicable, or, to such counsel's Actual Knowledge, in
default or violation of any obligation, agreement, covenant or condition
contained in any material contract, indenture, mortgage,
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loan agreement, note, lease or other instrument to which it is a party or by
which it or its property may be bound except for such defaults or violations
which would not have a material adverse impact on the financial condition or
results of operations of the Company, the Association and Dime on a consolidated
basis; to such counsel's Actual Knowledge, the execution and delivery of this
Agreement, the occurrence of the obligations herein set forth and the
consummation of the transactions contemplated herein will not conflict with or
constitute a breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or the Association pursuant to any material contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which the Company
or the Association is a party or by which any of them may be bound, or to which
any of the property or assets of the Company or the Association is subject
(other than the establishment of a liquidation account), and such action will
not result in any violation of the provisions of the articles of incorporation,
bylaws or charter, as applicable, of the Company or the Association or any
applicable federal law, act, regulation (except that no opinion need be
rendered with respect to the securities or blue sky laws of various
jurisdictions or the rules and regulations of the NASD and/or the Nasdaq
National Market) or order or court order, writ, injunction or decree naming
the Company or the Association.
(xviii) The Company' articles of incorporation and bylaws
comply in all material respects with the General Corporation Law of the State of
Delaware ("Delaware Law"). The Association's charter and bylaws in mutual form
and, upon the completion of the Conversion, in stock form, comply in all
material respects with the Home Owners' Loan Act and the rules and regulations
of the OTS.
(xix) To such counsel's Actual Knowledge, neither the
Company nor the Association is in violation of any directive from the OTS to
make any material change in the method of conducting its respective business.
(xx) The information in the Prospectus under the captions
"Regulation," "The Conversion," "Restrictions on Acquisition of the Holding
Company" and "Description of Capital Stock of the Holding Company," to the
extent that such information constitutes matters of law, summaries of legal
matters, documents or proceedings, or legal conclusions, has been reviewed by
such counsel and is correct in all material respects. The description of the
Conversion process under the caption "The Conversion" in the Prospectus has been
reviewed by such counsel and is in all material respects correct. The discussion
of statutes or regulations described or referred to in the Prospectus are
accurate summaries and fairly present the information required to be shown. The
information regarding the federal tax opinion under the caption "The
Conversion-Tax Effects" has been reviewed by such counsel and constitutes a
correct summary of the opinion rendered by such counsel to the Company and the
Association with respect to such matters.
In giving such opinion, such counsel may rely as to all
matters of fact on certificates of officers or directors of the Company and the
Association and certificates
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of public officials. Such counsel's opinion shall be limited to matters governed
by federal laws and by Delaware Law. With respect to matters involving the
application of Montana law, such counsel may rely, to the extent it deems proper
and as specified in its opinion, upon the opinion of local counsel (providing
that such counsel states that it believes Webb are justified in relying upon
such specified opinion or opinions. The opinion of Breyer & Aguggia shall be
governed by and subject to the qualifications contained in the Legal Opinion
Accord ("Accord") of the American Bar Association Section of Business Law
(1991). The term "Actual Knowledge" as used herein shall have the meaning set
forth in the Accord. For purposes of such opinion, no proceedings shall be
deemed to be pending, no order or stop order shall be deemed to be issued, and
no action shall be deemed to be instituted unless, in each case, a director or
executive officer of the Company or the Association shall have received a copy
of such proceedings, order, stop order or action. In addition, such opinion may
be limited to present statutes, regulations and judicial interpretations and to
facts as they presently exist; in rendering such opinion, such counsel need
assume no obligation to revise or supplement it should the present laws be
changed by legislative or regulatory action, judicial decision or otherwise; and
such counsel need express no view, opinion or belief with respect to whether any
proposed or pending legislation, if enacted, or any proposed or pending
regulations or policy statements issued by any regulatory agency, whether or not
promulgated pursuant to any such legislation, would affect the validity of the
Conversion or any aspect thereof. Such counsel may assume that any agreement is
the valid and binding obligation of any parties to such agreement other than the
Company, the Association or Dime.
In addition, such counsel shall provide a letter stating that during the
preparation of the Conversion Application, the Registration Statement and the
Prospectus, they participated in conferences with certain officers of, the
independent public and internal accountants for, and other representatives of
the Company and the Association, at which conferences the contents of the
Conversion Application, the Registration Statement and the Prospectus and
related matters were discussed and, while such counsel has not confirmed the
accuracy or completeness of or otherwise verified the information contained in
the Conversion Application, the Registration Statement or the Prospectus, and
does not assume any responsibility for such information, based upon such
conferences and a review of documents deemed relevant for the purpose of
rendering their opinion (relying as to materiality as to factual matters on
certificates of officers and other factual representations by the Company and
the Association), nothing has come to their attention that would lead them to
believe that the Conversion Application, the Registration Statement, the
Prospectus, or any amendment or supplement thereto (other than the financial
statements, the notes thereto, and other tabular, financial, statistical and
appraisal data included therein as to which no statement need be made)
contained, as of the date of approval or effectiveness, as the case may be,
and as of the Closing Date, an untrue statement of a material fact or omitted 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.
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(2) The favorable opinion, dated as of the Closing Date
and addressed to Webb and for their benefit, of Huppert & Swindlehurst P.C., the
Association's local counsel, in form and substance to the effect that, to the
best of such counsel's knowledge, (i) the Company and the Association have good
and marketable title to all properties and assets which are material to the
business of the Company and the Association and to those properties and assets
described in the Registration Statement and Prospectus, as owned by them, free
and clear of all liens, charges, encumbrances or restrictions, except such as
are described in the Registration Statement and Prospectus, or are not material
in relation to the business of the Company and the Association considered as one
enterprise; (ii) all of the leases and subleases material to the business of the
Company and the Association under which the Company and the Association hold
properties, as described in the Registration Statement and Prospectus, ar in
full force and effect; (iii) the Association is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction in
which its ownership of property or leasing of property or the conduct of its
business requires such qualification, unless the failure to be so qualified in
one or more of such jurisdictions would not have a material adverse effect on
the condition, financial or otherwise, or the business, operations or income of
the Association; (iv) Dime's articles of incorporation and bylaws comply in all
material respects with Montana; (v) the information regarding the Oregon tax
opinion under the caption "The Conversion Effects of Conversion to Stock Form on
Deposits and Borrowers of the Association-Tax Effects" has been reviewed by such
counsel and constitutes a correct summary of the opinion rendered by Huppert &
Swindlehurst, P.C. to the Company and the Association with respect to such
matters; (vi) Dime has been duly incorporated and is validly existing as a
corporation under the laws of the State of Montana and has corporate power and
authority to own, lease and operate its properties and conduct its business as
described in the Registration Statement and the Prospectus; (vii) subject to the
satisfaction of the conditions to the OTS approval of the Conversion, no further
approval, registration, authorization, consent or other order of or notice to
any Montana regulatory agency is required in connection with the execution and
delivery of this Agreement, the issuance of the Shares and the consummation of
the Conversion, except as may be required under the securities or blue sky laws
of various jurisdictions (as to which no opinion need be rendered) and except as
may be required under the rules and regulations of the NASD and/or the Nasdaq
National Market (as to which no opinion need be rendered); (viii) to such
counsel's Actual Knowledge, the Company, the Association and Dime have obtained
all material Montana licenses, permits and other governmental authorizations
currently required for the conduct of their businesses and to such counsel's
Actual Knowledge all such licenses, permits and other governmental
authorizations are in full force and effect, and the Company, the Association
and Dime are in all material respects complying therewith, except whether the
failure to have such licenses, permits and other governmental authorizations or
the failure to be in compliance therewith would not have a material adverse
affect on the business or operations of the Association, the Company and Dime,
taken as a whole; and (ix) to such counsel's Actual Knowledge, Dime is not in
violation of its articles of incorporation or bylaws, or, to such counsel's
Actual Knowledge, in default or violation of any obligation, agreement, covenant
or condition contained in any material contract, indenture, mortgage, loan
agreement, note,
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lease or other instrument to which it is a party or by which it or its property
may be bound except for such defaults or violations which would not have a
material adverse impact on the financial condition or results of operations of
the Company, the Association and Dime on a consolidated basis.
(3) The favorable opinion, dated as of the Closing Date, of
Elias, Matz, Tiernan & Herrick L.L.P., Webb's counsel, with respect to such
matters as Webb may reasonably require. Such opinion may rely upon the opinions
of counsel to the Company and the Association, and as to matters of fact, upon
certificates of officers and directors of the Company and the Association
delivered pursuant hereto or as such counsel shall reasonably request.
(d) At the Closing Date, Webb shall receive a certificate of the Chief
Executive Officer and the Chief Financial Officer of the Company and a
certificate of the Chief Executive Officer and the Chief Financial Officer of
the Association, both dated as of such Closing Date, to the effect that: (i)
they have reviewed the Prospectus and, in their opinion, at the time the
Prospectus became authorized for final use, the Prospectus did not contain any
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 under
which they were made, not misleading; (ii) since the date the Prospectus became
authorized for final use, no material adverse change in the condition, financial
or otherwise, or in the earnings, capital, properties or business of the
Company, the Association and Dime has occurred and, to their knowledge, no other
event has occurred, which should have been set forth in an amendment or
supplement to the Prospectus which has not been so set forth, and the conditions
set forth in this Section 7 have been satisfied; (iii) since the respective
dates as of which information is given in the Registration Statement and
Prospectus, there has been no material adverse change in the condition,
financial or otherwise, or in the earnings, capital or properties of the
Company, the Association or Dime, independently, or of the Company, the
Association and Dime considered as one enterprise, whether or not arising in the
ordinary course of business; (iv) the representations and warranties in Section
4 are true and correct with the same force and effect a though expressly made at
and as of the Closing Date; (v) the Company and the Association have complied in
all material respects with all agreements and satisfied all conditions on their
part to be performed or satisfied at or prior to the Closing Date and will
comply in all material respects with all obligations to be satisfied by them
after Conversion; (vi) no stop order suspending the effectiveness of the
Registration Statement has been initiated or, to the best knowledge of the
Company or the Association, threatened by the Commission or any state authority;
(vii) no order suspending the Offering, the Conversion, the acquisition of all
of the shares of the Association by the Company or the effectiveness of the
Prospectus has been issued and no proceedings for that purpose are pending or,
to the best knowledge of the Company or the Association, threatened by the OTS,
the Commission or any state authority; and (viii) to the best knowledge of the
Company or the Association, no person has sought to obtain review of the final
action of the OTS approving the Plan.
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(e) Prior to and at the Closing Date: (i) in the
reasonable opinion of Webb, there shall have been no material adverse change in
the condition, financial or otherwise, or in the earnings or business of the
Association independently, or of the Company, the Association and Dime
considered as one enterprise, from that as of the latest dates as of which such
condition is set forth in the Prospectus other than transactions referred to or
contemplated therein; (iii) the Company or the Association shall not have
received from the OTS any direction (oral or written) to make any material
change in the method of conducting their business with which it has not complied
(which direction, if any, shall have been disclosed to Webb) or which materially
and adversely would affect the business, operations or financial condition or
income of the Company and the Association considered as one enterprise; (iv) the
Company, the Association and Dime shall not have been in material default (nor
shall an event have occurred which, with notice or lapse of time or both, would
constitute a default) under any material provision of any agreement or
instrument relating to any 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 Company, the Association or Dime, threatened against the
Company, the Association or Dime or affecting any of their properties wherein an
unfavorable decision, ruling or finding would materially and adversely affect
the business operations, financially condition or income of the Company, the
Association and Dime considered as one enterprise; and (vi) the Shares have been
qualified or registered for offering and sale or exempted therefore under the
securities or blue sky laws of the jurisdictions as Webb shall have requested
and as agreed to by the Company and the Association.
(f) Concurrently with the execution of this Agreement, Webb shall
receive a letter from KPMG Peat Marwick LLP. dated as of the date of the
Prospectus and addressed to Webb: (i) confirming that KPMG Peat Marwick LLP is a
firm of independent public accountants within the meaning of Rule 101 of the
Code of Professional Ethics of the American Institute of Certified Public
Accountants and applicable regulations of the OTS and stating in effect that in
KPMG Peat Marwick LLP's opinion the financial statements of the Association as
of June 30, 1995 and 1996 and for each of the three years in the period ended
June 30, 1996, as are included in the Prospectus and covered by its opinion
included therein, comply as to form in all material respects with the applicable
accounting requirements and related published rules and regulations of the OTS
and the 1933 Act; (ii) a statement from KPMG Peat Marwick LLP in effect that, on
the basis of certain agreed upon procedures (but not an audit in accordance with
generally accepted auditing standards) consisting of a reading of the latest
available unaudited interim consolidated financial statements of the Association
prepared by the Association, a reading of the minutes of the meetings of the
Board of Directors and members of the Association and consultations with
officers of the Association responsible for financial and accounting matters,
nothing came to their attention which caused them to believe that: (A) the
unaudited financial statements included in the Prospectus, are not in conformity
with the 1933 Act, applicable accounting requirements of the OTS and generally
accepted accounting principles applied on a basis substantially consistent with
that of the audited financial statements included in the
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Prospectus; or (B) during the period from the date of the latest unaudited
consolidated financial statements included in the Prospectus to a specified date
not more than three business days prior to the date of the Prospectus, except as
has been described in the Prospectus, there was any material increase in
borrowings, other than normal deposit fluctuations, by the Association; or (C)
there was any decrease in consolidated net assets of the Association at the
date of such letter as compared with amounts shown in the latest unaudited
consolidated statement of condition included in the Prospectus; and (iii) a
statement from KPMG Peat Marwick LLP that, in addition to the audit referred
to in their 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 Association, which are
subject to the internal controls of the Association, the accounting system and
other data prepared by the Association, directly from such accounting records,
to the extent specified in such letter, such amounts and/or percentages set
forth in the Prospectus as Webb may reasonably request; and they have reported
on the results of such comparisons.
(g) At the Closing Date, Webb shall receive a letter from KPMG
Peat Marwick LLP dated the Closing Date, addressed to Webb, confirming the
statements made by them in the letter delivered by it pursuant to subsection (f)
of this Section 7, the "specified date" referred to in clause (ii) of subsection
(f) thereof to be a date specified in such letter, which shall not be more than
three business days prior to the Closing Date.
(h) At the Closing Date, Webb shall receive a letter from Keller
& Company, Inc., dated the date thereof and addressed to counsel for Webb, (i)
confirming that said firm is independent of the Company and the Association and
is experienced and expert in the area of corporate appraisals within the meaning
of Title 12 of the Code of Federal Regulations, Part 563b, (ii) stating in
effect that the Appraisal prepared by such firm complies in all material
respects with the applicable requirements of Title 12 of the Code of Federal
Regulations, and (iii) further stating that its opinion of the aggregate pro
forma market value of the Company and the Association expressed in its Appraisal
dated as of September 6, 1996, and most recently updated, remains in effect.
(i) The Company and the Association shall not have sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with their businesses 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 or contemplated in the Registration Statement and Prospectus.
(j) At or prior to the Closing Date, Webb shall receive: (i) a
copy of the letter from the OTS approving the Conversion Application and
authorizing the use of the Prospectus; (ii) a copy of the order from the
Commission declaring the Registration Statement effective; (iii) a certificate
from the OTS evidencing the existence of the Association; (iv) certificates of
good standing from the State of Delaware evidencing the
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good standing of the Company; (v) a certificate of good standing from the State
of Montana evidencing the good standing of Dime; (vi) a certificate from the
FDIC evidencing the Association's insurance of accounts; and (vii) a certificate
of the FHLB-Seattle evidencing the Association's membership thereof; (viii) a
copy of the letter from the OTS approving the Company's Holding Company
Application.
(k) As soon as available after the Closing Date, Webb shall
receive, upon request, a copy of the Association's federal 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 in the over-the-counter market, or
quotations halted generally on the Nasdaq National 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 federal savings associations or a general
moratorium on the withdrawal of deposits from commercial banks or federal
savings associations declared by 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 or war; or
(iv) a material decline in the price of equity or debt securities if the effect
of such a declaration or decline, in Webb'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 Prospectus.
SECTION 8. INDEMNIFICATION.
(a) The Company and the Association jointly and severally agree to
indemnify and hold harmless Webb, its officers, directors, agents, servants and
employees and each person, if any, who controls Webb 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, that Webb or any of them may suffer
or to which Webb and any such persons may become subject
under all applicable federal or state laws or otherwise, and to promptly
reimburse Webb and any such persons upon written demand for any expense
(including fees and disbursements of counsel) incurred by Webb 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 Conversion
Application (or any amendment or supplement thereto), the Holding Company
Application or any blue sky application or other instrument or document executed
by the Company or the Association or based upon written information supplied by
the Company or the Association filed in any state or jurisdiction to
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register or qualify any or all of the Shares or to claim an exemption therefrom,
or provided to any state or jurisdiction to exempt the Company as a
broker-dealer or its officers, directors and employees as broker-dealers or
agents, under the securities laws thereof (collectively, the "Blue Sky
Application"), or any application or other document, advertisement, oral
statement or communication ("Sales Information") prepared, made or executed by
or on behalf of the Company or the Association with their consent or based upon
written or oral information furnished by or on behalf of the Company or the
Association, whether or not filed in any jurisdiction, in order to qualify or
register the Shares or to claim an exemption therefrom 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; or (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
Conversion Application (or any amendment or supplement thereto), 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
statement or alleged untrue material statements in, or material omission or
alleged material omission from, the Registration Statement (or any amendment or
supplement thereto), preliminary or final Prospectus (or any amendment or
supplement thereto), the Conversion Application, any Blue Sky Application or
Sales Information made in reliance upon and in conformity with information
furnished in writing to the Company or the Association by Webb regarding Webb or
statistical information regarding national averages provided by Webb for the
Sales Information and provided further that such indemnification shall be to the
extent permitted by the OTS.
(b) Webb agrees to indemnify and hold harmless the
Company and the Association, their directors and officers and each person, if
any, who controls the Company or the Association 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 it, or any of them, may suffer or
to which it, or any of them may become subject under all applicable federal and
state laws or otherwise, and to promptly reimburse the Company, the Association,
and any such persons upon written demand for any expenses (including reasonable
fees and disbursements of counsel) incurred by it, 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 or supplement thereto), the Conversion Application
(or any amendment or supplement thereto) or the preliminary or final Prospectus
(or any amendment or supplement thereto), or are based upon the omission or
alleged omission to state in any of the foregoing documents a material fact
required to be
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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 Webb's obligations under this Section 8(b) shall exist only if and only to
the extent (i) 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), the preliminary
or final Prospectus (or any amendment or supplement thereto) or the Conversion
Application (or any amendment or supplement thereto), any Blue Sky Application
or Sales Information in reliance upon and in conformity with information
furnished in writing to the Company or the Association by Webb regarding Webb
or statistical information regarding national averages provided by Webb for
the Sales Information.
(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 8 or
otherwise. An indemnifying party may participate at its own expense in the
defense of such action. In addition, if it so elects within a reasonable time
after receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assumed 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 each indemnified party in connection with any one action, proceeding
or claim or separate but similar or related actions, 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 8 and in Section 9 hereof
and the representations and warranties of the Company and the Association 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 Webb or its
officers, directors or controlling persons, agents or employees or by or on
behalf of the Company or the Association or any officers, directors or
controlling persons, agents or employees of the Company or the Association; (ii)
delivery of and payment hereunder for the Shares; or (iii) any termination of
this Agreement.
SECTION 9. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 8 is due in accordance
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with its terms but is for any reason held by a court to be unavailable from the
Company, the Association or Webb, the Company, the Association and Webb shall
contribute to the aggregate losses, claims, damages and liabilities (including
any investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding of any claims
asserted, but after deducting any contribution received by the Company, the
Association or Webb from persons other than the other party thereto, who may
also be liable for contribution) in such proportion so that Webb are responsible
for that portion represented by the percentage that the fees paid to Webb
pursuant to Section 2 of this Agreement (not including expenses) bears to the
gross proceeds received by the Company from the sale of the Shares in the
Offering and the Company and the Association 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 8 above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative fault of the Company and the
Association on the one hand and Webb 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 thereto), but also the
relative benefits received by the Company and the Association on the one hand
and Webb on the other from the Offering (before deducting expenses). 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
Company and/or the Association on the one hand or Webb 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 Company, the
Association and Webb agree that it would not be just and equitable if
contribution pursuant to this Section 9 were determined by pro-rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to above in this Section 9. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions, proceedings or claims in respect thereof) referred to
above in this Section 9 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
Webb shall not be required to contribute any amount which in the aggregate
exceeds the amount paid (excluding reimbursable expenses) to Webb under this
Agreement. It is understood that the above stated limitation on Webb's liability
for contribution is essential to Webb and that Webb 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 Company and the Association under this Section 9 and
under Section 8 shall be in addition to any liability which the Company and the
Association may otherwise have. For purposes of this Section 9, each of Webb's,
the Company's or the Association's officers and directors and each person, if
any, who controls Webb or the Company or the Association within the meaning of
the 1933 Act and the 1934
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<PAGE>
Act shall have the same rights to contribution as Webb, the Company or the
Association. 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 9, 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 9.
SECTION 10. SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND INDEMNITIES. The
respective indemnities of the Company, the Association and Webb and the
representations and warranties and other statements of the Company and the
Association set forth in or made pursuant to this Agreement shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of Webb, the Company, the
Association or any controlling person referred to in Section 8 hereof, and shall
survive the issuance of the Shares, and any legal representative, successor or
assign of Webb, the Company, the Association, and any such controlling person
shall be entitled to the benefit of the respective agreements, indemnities,
warranties and representations.
SECTION 11. TERMINATION. Webb may terminate its obligations under this
Agreement by giving the notice indicated below in this Section 11 at any time
after this Agreement becomes effective as follows:
(a) In the event the Company fails to sell all of the Shares by
June 30, 1997, and 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 Association 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 as
provided in the Prospectus, and no party to this Agreement shall have
any obligation to the other hereunder, except for payment by the Company
and/or the Association as set forth in Sections 2(a) and (d), 6, 8 and 9
hereof.
(b) If any of the conditions specified in Section 7 shall not
have been fulfilled when and as required by this Agreement unless waived
in writing, or by the Closing Date, this Agreement and all of Webb's
obligations hereunder may be cancelled by Webb by notifying the Company
and the Association of such cancellation in writing at any time at or
prior to the Closing Date, and any such cancellation shall be without
liability of any party to any other party except as otherwise provided
in Sections 2, 6, 8 and 9 hereof.
(c) If Webb elects to terminate this Agreement with respect to it
as provided in this Section, the Company and the Association shall be
notified promptly by such Agent by telephone or telegram, confirmed by
letter.
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<PAGE>
The Company and the Association may terminate this Agreement with
respect to Webb in the event Webb is in material breach of the representations
and warranties or covenants contained in Section 5 and such breach has not been
cured after the Company and the Association have provided Webb with notice of
such breach.
This Agreement may also be terminated by mutual written consent of the
parties hereto.
SECTION 12. NOTICES. All communications hereunder, except as herein
otherwise specifically provided, shall be mailed in writing and if sent to Webb
shall be mailed, delivered or telegraphed and confirmed to Charles Webb &
Company, 211 Bradenton, Dublin, Ohio 43017-5034, Attention: Patricia A. McJoynt
(with a copy to Elias, Matz, Tiernan & Herrick L.L.P., Attention: John P.
Soukenik) and, if sent to the Company and the Association, shall be mailed,
delivered or telegraphed and confirmed to the Company and the Association at
Empire Federal Bancorp, Inc., 123 South Main Street, Livingston, Montana 59047,
Attention: Beverly D. Harris, President (with a copy to Breyer & Aguggia, 601
13th Street, N.W., Suite 1120 South, Washington, D.C. 20005, Attention: John
Breyer, Esq.).
SECTION 13. PARTIES. The Company and the Association shall be entitled
to act and rely on any request, notice, consent, waiver or agreement purportedly
given on behalf of Webb when the same shall have been given by the undersigned.
Webb shall be entitled to act and rely on any request, notice, consent, waiver
or agreement purportedly given on behalf of the Company or the Association, when
the same shall have been given by the undersigned or any other officer of the
Company or the Association. This Agreement shall inure solely to the benefit of,
and shall be binding upon, Webb, the Company, the Association, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provision herein
contained. It is understood and agreed that this Agreement, including Exhibit A
thereto, is the exclusive agreement among the parties hereto, and supersedes any
prior agreement among the parties and may not be varied except in writing signed
by all the parties.
SECTION 14. CLOSING. The closing for the sale of the Shares shall take
place on the Closing Date at such location as mutually agreed upon by Webb and
the Company and the Association. At the closing, the Company and the Association
shall deliver to Webb in next day funds the commissions, fees and expenses due
and owing to Webb as set forth in Sections 2 and 6 hereof and the opinions and
certificates required hereby and other documents deemed reasonably necessary by
Webb shall be executed and delivered to effect the sale of the Shares as
contemplated hereby and pursuant to the terms of the Prospectus.
SECTION 15. PARTIAL INVALIDITY. In the event that any term, provision or
covenant herein or the application thereof to any circumstance or situation
shall be invalid or unenforceable, in whole or in part, the remainder hereof and
the application of said term,
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<PAGE>
provision or covenant to any other circumstances 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 16. CONSTRUCTION. This Agreement shall be construed in
accordance with the laws of the State of Ohio.
SECTION 17. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which so executed and delivered shall be an original, but
all of which together shall constitute but one and the same instrument.
If the foregoing correctly sets forth the arrangement among the Company,
the Association and Webb, please indicate acceptance thereof in the space
provided below for that purpose, whereupon this letter and Webb's acceptance
shall constitute a binding agreement.
Very truly yours,
EMPIRE FEDERAL BANCORP, INC. EMPIRE FEDERAL SAVINGS AND LOAN
ASSOCIATION
By: By:
Beverly D. Harris Beverly D. Harris
President and Chief President and Chief
Executive Officer Executive Officer
Accepted as of the date first above written
CHARLES WEBB & COMPANY
By:
Patricia A. McJoynt
Executive Vice President
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<PAGE>
<PAGE>
EXHIBIT 8.1
Federal Tax Opinion of Breyer & Aguggia
<PAGE>
1300 I Street, N.W.
Suite 470 East
Washington, D.C. 20005
Breyer & Aguggia Telephone (202) 737-7900
Attorneys at Law Facsimile (202) 737-7979
October 31, 1996
Boards of Directors
Empire Federal Savings
and Loan Association
Empire Federal Bancorp, Inc.
123 S. Main Street
Livingston, Montana 59047-1099
Re: Certain Federal Income Tax Consequences Relating to
Proposed Holding Company Conversion of Empire Federal
Savings and Loan Association
Gentlemen and Ladies:
In accordance with your request, set forth herein is the opinion of
this firm relating to certain federal income tax consequences of (i) the
proposed conversion of Empire Federal Savings and Loan Association (the
"Association") from a federally-chartered mutual savings and loan association to
a federally-chartered stock savings bank (the "Converted Savings Bank") (the
"Stock Conversion") and (ii) the concurrent acquisition of 100% of the
outstanding capital stock of the Converted Savings Bank by a parent holding
company formed at the direction of the Board of Directors of the Association and
to be known as Empire Federal Bancorp, Inc. (the "Holding Company").
For purposes of this opinion, we have examined such documents and
questions of law as we have considered necessary or appropriate, including but
not limited to, the Plan of Conversion as adopted by the Association's Board of
Directors on August 29, 1996 (the "Plan"); the federal mutual charter and bylaws
of the Association; the certificate of incorporation and bylaws of Holding
Company; the Affidavit of Representations dated October 31, 1996 provided to us
by the Association and the Holding Company (the "Affidavit"), and the Prospectus
(the "Prospectus") included in the Registration Statement on Form SB-2 filed
with the Securities and Exchange Commission ("SEC") on September 25, 1996 (the
"Registration Statement"). In such examination, we have assumed, and have not
independently verified, the genuineness of all signatures on original documents
where due execution and delivery are requirements to the
<PAGE>
Boards of Directors
Empire Federal Savings and
Loan Association
Empire Federal Bancorp, Inc.
October 31, 1996
Page 2
effectiveness thereof. Terms used but not defined herein, whether capitalized
or not, shall have the same meaning as defined in the Plan.
BACKGROUND
Based solely upon our review of such documents, and upon such
information as the Association has provided to us (which we have not attempted
to verify in any respect), and in reliance upon such documents and information,
we set forth herein a general summary of the relevant facts and proposed
transactions, qualified in its entirety by reference to the documents cited
above.
The Association is a federally-chartered mutual savings and loan
association which is in the process of converting to a federally-chartered stock
savings bank. The Association was initially organized in 1923. The Association
is also a member of the Federal Home Loan Bank System and its deposits are
federally insured under the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation. The Association operates out of its
main office in Livingston, Montana and two branch offices in neighboring
communities.
The Association is primarily engaged in the business of attracting
deposits from the general public and originating permanent loans secured by
first mortgages on one- to four-family residential properties. At June 30, 1996,
the Association had total assets of $86.9 million, deposits of $68.6 million,
and total equity of $15.9 million.
As a federally-chartered mutual savings and loan association, the
Association has no authorized capital stock. Instead, the Association, in mutual
form, has a unique equity structure. A savings depositor of the Association is
entitled to payment of interest on his account balance as declared and paid by
the Association, but has no right to a distribution of any earnings of the
Association except for interest paid on his deposit. Rather, such earnings
become retained earnings of the Association.
However, a savings depositor does have a right to share pro rata, with
respect to the withdrawal value of his respective savings account, in any
liquidation proceeds distributed if the Association is ever liquidated. Savings
depositors and certain borrowers are members of the Association and thereby have
voting rights in the Association. Each savings depositor is entitled to cast
votes in proportion to the size of their account balances or fraction thereof
held in a withdrawable deposit account of the Association, and each borrower
member (hereinafter "borrower") is entitled to one vote in addition to the votes
(if any) to which such person is entitled in such borrower's capacity as a
savings depositor of the Association. All of the interests
<PAGE>
Boards of Directors
Empire Federal Savings and
Loan Association
Empire Federal Bancorp, Inc.
October 31, 1996
Page 3
held by a savings depositor in the Association cease when such depositor closes
his accounts with the Association.
The Holding Company was incorporated in September 1996 under the laws
of the State of Delaware as a general business corporation in order to act as a
savings institution holding company. The Holding Company has an authorized
capital structure of four million shares of common stock and 250,000 shares of
preferred stock.
PROPOSED TRANSACTION
Management of the Association believes that the Stock Conversion offers
a number of advantages which will be important to the future growth and
performance of the Converted Savings Bank in that it is intended to (i) provide
substantially increased capital for investment in its business to expand the
operations of the Converted Savings Bank; (ii) provide future access to capital
markets; (iii) enhance the ability to diversify its operations into new business
activities; and (iv) afford depositors and others the opportunity to become
stockholders of the Converted Savings Bank and thereby participate more directly
in any future growth of the Converted Savings Bank.
Accordingly, pursuant to the Plan, the Association will undergo the
Stock Conversion whereby it will be converted from a federally-chartered mutual
savings and loan association to a federally-chartered stock savings bank. As
part of the Stock Conversion, the Association will amend its existing mutual
savings bank charter and bylaws to read in the form of a Federal Stock Charter
and Bylaws. The Converted Savings Bank will then issue to the Holding Company
shares of the Converted Savings Bank's common stock, representing all of the
shares of capital stock to be issued by the Converted Savings Bank in the
Conversion, in exchange for payment by the Holding Company of 50% of the net
proceeds realized by the Holding Company from such sale of its Common Stock,
less amounts necessary to fund the Employee Stock Ownership Plan of the
Association, or such other percentage as the Office of Thrift Supervision
("OTS") may authorize or require.
Also pursuant to the Plan, the Holding Company will offer its shares of
Common Stock for sale in a Subscription Offering and, if necessary, a Direct
Community Offering. The aggregate purchase price at which all shares of Common
Stock will be offered and sold pursuant to the Plan and the total number of
shares of Common Stock to be offered in the Conversion will be determined by the
Boards of Directors of the Association and the Holding Company on the basis of
the estimated pro forma market value of the Converted Savings Bank as a
subsidiary of the Holding Company. The estimated pro forma market value will be
determined by an
<PAGE>
Boards of Directors
Empire Federal Savings and
Loan Association
Empire Federal Bancorp, Inc.
October 31, 1996
Page 4
independent appraiser. Pursuant to the Plan, all such shares will be issued and
sold at a uniform price per share. The Stock Conversion, including the sale of
newly issued shares of the stock of the Converted Savings Bank to the Holding
Company, will be deemed effective concurrently with the closing of the sale of
the Common Stock.
Under the Plan and in accordance with regulations of the OTS, the
shares of Common Stock will first be offered through the Subscription Offering
pursuant to nontransferable subscription rights on the basis of preference
categories in the following order of priority:
(1) Eligible Account Holders;
(2) Tax-Qualified Employee Stock Benefit Plans of the Association;
(3) Supplemental Eligible Account Holders; and
(4) Other Members.
Any shares of Common Stock not subscribed for in the Subscription
Offering may be offered in the Direct Community Offering in the following order
of priority:
(a) Natural persons who are permanent residents of Park, Gallatin or
Sweet Grass Counties, Montana; and
(b) The general public.
Any shares of Common Stock not subscribed for in the Direct Community
Offering may be offered to certain members of the general public on a best
efforts basis by a selling group of broker dealers in a Syndicated Community
Offering.
The Plan also provides for the establishment of a Liquidation Account
by the Converted Savings Bank for the benefit of all Eligible Account Holders
and any Supplemental Eligible Account Holders in an amount equal to the net
worth of the Association as of the date of the latest statement of financial
condition contained in the final prospectus issued in connection with the
Conversion. The establishment of the Liquidation Account will not operate to
restrict the use or application of any of the net worth accounts of the
Converted Savings Bank. The account holders will have an inchoate interest in a
proportionate amount of the Liquidation Account with respect to each savings
account held and will be paid by the Converted Savings Bank in event of
liquidation prior to any liquidation distribution being made with respect to
capital stock.
<PAGE>
Boards of Directors
Empire Federal Savings and
Loan Association
Empire Federal Bancorp, Inc.
October 31, 1996
Page 5
Following the Stock Conversion, voting rights in the Converted Savings
Bank shall be vested in the sole holder of stock in the Converted Savings Bank,
which will be the Holding Company. Voting rights in the Holding Company after
the Stock Conversion will be vested in the holders of the Common Stock.
The Stock Conversion will not interrupt the business of the
Association. The Converted Savings Bank will continue to engage in the same
business as the Association immediately prior to the Stock Conversion, and the
Converted Savings Bank will continue to have its savings accounts insured by the
SAIF. Each depositor will retain a withdrawable savings account or accounts
equal in dollar amount to, and on the same terms and conditions as, the
withdrawable account or accounts at the time of Stock Conversion except to the
extent funds on deposit are used to pay for Common Stock purchased in the Stock
Conversion. All loans of the Association will remain unchanged and retain their
same characteristics in the Converted Savings Bank.
The Plan must be approved by the OTS and by an affirmative vote of at
least a majority of the total votes eligible to be cast at a meeting of the
Association's members called to vote on the Plan.
Immediately prior to the Conversion, the Association will have a
positive net worth determined in accordance with generally accepted accounting
principles.
OPINION
Based on the foregoing and in reliance thereon, and subject to the
conditions stated herein, it is our opinion that the following federal income
tax consequences will result from the proposed transaction.
1. The Stock Conversion will constitute a reorganization within
the meaning of Section 368(a)(1)(F) of the Internal Revenue
Code of 1986, as amended (the "Code"), and no gain or loss
will be recognized to either the Association or the
Converted Savings Bank as a result of the Stock Conversion
(see Rev. Rul. 80-105, 1980-1 C.B. 78).
2. The assets of the Association will have the same basis in
the hands of the Converted Savings Bank as in the hands of
the Association immediately prior to the Stock Conversion
(Section 362(b) of the Code).
<PAGE>
Boards of Directors
Empire Federal Savings and
Loan Association
Empire Federal Bancorp, Inc.
October 31, 1996
Page 6
3. The holding period of the assets of the Association to be
received by the Converted Savings Bank will include the
period during which the assets were held by the Association
prior to the Stock Conversion (Section 1223(2) of the Code).
4. No gain or loss will be recognized by the Converted Savings
Bank on the receipt of money from the Holding Company in
exchange for shares of common stock of the Converted Savings
Bank (Section 1032(a) of the Code). The Holding Company will
be transferring solely cash to the Converted Savings Bank in
exchange for all the outstanding capital stock of the
Converted Savings Bank and therefore will not recognize any
gain or loss upon such transfer. (Section 351(a) of the
Code; see Rev. Rul. 69-357, 1969-1 C.B. 101).
5. No gain or loss will be recognized by the Holding Company
upon receipt of money from stockholders in exchange for
shares of Common Stock (Section 1032(a) of the Code).
6. No gain or loss will be recognized by the Eligible Account
Holders and Supplemental Eligible Account Holders of the
Association upon the issuance of them of deposit accounts in
the Converted Savings Bank in the same dollar amount and on
the same terms and conditions in exchange for
their deposit accounts in the Association held immediately
prior to the Stock Conversion (Section 1001(a) of the Code;
Treas. Reg. ss.1.1001-1(a)).
7. The tax basis of the Eligible Account Holders' and
Supplemental Eligible Account Holders' savings accounts in
the Converted Savings Bank received as part of the Stock
Conversion will equal the tax basis of such account holders'
corresponding deposit accounts in the Association
surrendered in exchange therefor (Section 1012 of the Code).
8. Gain or loss, if any, will be realized by the deposit
account holders of the Association upon the constructive
receipt of their interest in the liquidation account of the
Converted Savings Bank and on the nontransferable
subscription rights to purchase stock of the Holding Company
in exchange for their proprietary rights in the Association.
Any such gain will be recognized by the Association deposit
account holders, but only in an amount not in excess of the
fair market value of the liquidation account and
subscription rights received. (Section 1001 of the Code;
Paulsen v. Commissioner, 469 U.S. 131 (1985); Rev. Rul.
69-646, 1969-2 C.B. 54.)
<PAGE>
Boards of Directors
Empire Federal Savings and
Loan Association
Empire Federal Bancorp, Inc.
October 31, 1996
Page 7
9. The basis of each account holder's interest in the
Liquidation Account received in the Stock Conversion and to
be established by the Converted Savings Bank pursuant to the
Stock Conversion will be equal to the value, if any, of that
interest.
10. No gain or loss will be recognized upon the exercise of a
subscription right in the Stock Conversion. (Rev. Rul.
56-572, 1956-2 C.B. 182).
11. The basis of the Common Stock acquired in the Stock
Conversion will be equal to the purchase price of such
stock, increased, in the case of such stock acquired
pursuant to the exercise of subscription rights, by the fair
market value, if any, of the subscription rights exercised
(Section 1012 of the Code).
12. The holding period of the Common Stock acquired in the Stock
Conversion pursuant to the exercise of subscription rights
will commence on the date on which the subscription rights
are exercised (Section 1223(6) of the Code). The holding
period of the Common Stock acquired in the Community
Offering will commence on the date following the date on
which such stock is purchased (Rev. Rul. 70-598, 1970-2 C.B.
168; Rev. Rul. 66-97, 1966-1 C.B. 190).
SCOPE OF OPINION
Our opinion is limited to the federal income tax matters described
above and does not address any other federal income tax considerations or any
federal, state, local, foreign or other tax considerations. If any of the
information upon which we have relied is incorrect, or if changes in the
relevant facts occur after the date hereof, our opinion could be affected
thereby. Moreover, our opinion is based on the case law, Code, Treasury
Regulations thereunder and Internal Revenue Service rulings as they now exist.
These authorities are all subject to change, and such change may be made with
retroactive effect. We can give no assurance that, after such change, our
opinion would not be different. We undertake no responsibility to update or
supplement our opinion. This opinion is not binding on the Internal Revenue
Service and there can be no assurance, and none is hereby given, that the
Internal Revenue Service will not take a position contrary to one or more of the
positions reflected in the foregoing opinion, or that our opinion will be upheld
by the courts if challenged by the Internal Revenue Service.
Regarding the valuation of subscription rights, we understand that the
Association has received the opinion of Keller & Company dated September
19, 1996 to the effect that the
<PAGE>
Boards of Directors
Empire Federal Savings and
Loan Association
Empire Federal Bancorp, Inc.
October 31, 1996
Page 8
subscription rights have no ascertainable market value. We express no opinion
regarding the valuation of the subscription rights.
CONSENTS
We hereby consent to the filing of this opinion with the OTS as an
exhibit to the Application H-(e)1-S filed by the Holding Company with the OTS in
connection with the Conversion and the reference to our firm in the Application
H-(e)1-S under Item 110.55 therein.
We also hereby consent to the filing of this opinion with the SEC and
the OTS as exhibits to the Registration Statement and the Association's
Application for Conversion on Form AC ("Form AC"), respectively, and the
reference on our firm in the Prospectus, which is a part of both the
Registration Statement and the Form AC, under the headings "THE CONVERSION --
Effect of Conversion to Stock Form on Depositors and Borrowers of the
Association -- Tax Effects" and "LEGAL AND TAX OPINIONS."
Very truly yours,
(Signature of Breyer & Aguggia)
/s/ BREYER & AGUGGIA
BREYER & AGUGGIA
<PAGE>
ARNOLD HUPPERT, JR., RETIRED P. O. Box 523
JOSEPH T. SWINDLEHURST 406-222-2023
JEFFREY N. PENCE FAX 406-222-7944
Law Offices
Huppert and Swindlehurst, P.C.
420 South Second Street
Livingston, Montana 59047
November 1, 1996
Boards of Directors
Empire Federal Savings and
Loan Association
Empire Federal Bancorp, Inc.
123 South Main Street
Livingston, Montana 59047-1099
Re: Certain Montana Tax Consequences Relating to Proposed Holding
Company Conversion
Gentlemen:
In accordance with your request, set forth herein is the opinion of
this firm relating to certain Montana tax consequences of (i) the proposed
conversion of Empire Federal Savings and Loan Association (the "Association")
from a federally-chartered mutual savings and loan association to a
federally-chartered stock savings bank (the "Converted Savings Bank") (the
"Stock Conversion") and (ii) the concurrent acquisition of 100% of the
outstanding capital stock of the Converted Savings Bank by a parent holding
company formed at the direction of the Board of Directors of the Association and
to be known as Empire Federal Bancorp, Inc. (the "Holding Company").
You have previously received the opinion of Breyer & Aguggia regarding
the federal income tax consequences of the Stock Conversion and Holding Company
formation to the Association, the Converted Savings Bank, the Holding Company
and the deposit account holders of the Association under the Internal Revenue
Code of 1986, as amended (the "Code"). The federal tax opinion concludes, inter
alia, that the proposed transactions qualify as a tax-free reorganization under
Section 368(a)(1)(F) of the Code.
The State of Montana will, for corporation license tax purposes, treat
the proposed transactions in an identical manner as they are treated by the
Internal Revenue Service for federal income tax purposes. Based upon the facts
and circumstances attendant to the Stock Conversion and the opinion of Breyer &
Aguggia relative to applicable provisions of the Internal Revenue Code, it is
our opinion that under the laws of the State of Montana, no adverse Montana tax
consequences will be incurred by the parties to the proposed transactions,
including deposit account holders, as a result of the Stock Conversion and
Holding Company formation.
<PAGE>
Board of Directors
Empire Federal Savings and
Loan Association
November 1, 1996
Page 2
No opinion is expressed on any matter other than Montana license tax
which might result from the implementation of the proposed transactions.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form SB-2 of the Holding Company filed under the
Securities Act of 1933, as amended, the Association's Application for Approval
of Conversion (Form AC) filed with the Office of Thrift Supervision ("OTS"), and
to the reference to us in the prospectus and proxy statement included therein.
We also consent to the filing of this opinion as an exhibit to the Holding
Company Application H-(e)1-S filed on behalf of the Holding Company with the
OTS.
This opinion is rendered only for the purposes expressed herein and is
not to be relied upon by anyone other than you, without our express written
consent.
Very truly yours,
HUPPERT & SWINDLEHURST, P.C.
(signature of Joseph T. Swindlehurst)
BY: /s/Joseph T. Swindlehurst
Joseph T. Swindlehurst
JTS/bb
EXHIBIT 23.1
Consent of KPMG Peat Marwick & Company, LLP
<PAGE>
(logo of KPMG Peat Marwick LLP)
KPMG PEAT MARWICK LLP
1000 First Interstate Center
401 N. 31st Street
P.O. Box 7108
Billings, MT 59103
The Board of Directors
Empire Federal Bancorp, Inc.
Empire Federal Savings and Loan Association:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in Amendment No. 1 to Form SB-2.
(Signature of KPMG Peat Marwick LLP)
/s/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Billings, Montana
November 8, 1996
EXHIBIT 99.2
Solicitation and Marketing Materials
(KBW logo appears here) (white box within black circle logo appears here)
Charles Webb & Company
A Division of
KEEFE, BRUYETTE & WOODS, INC.
To Members and Friends of
Empire Federal Savings and Loan Association
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Charles Webb & Company, a member of the National Association of Securities
Dealers, Inc. ("NASD"), is assisting Empire Federal Savings and Loan Association
("Association") in its conversion from a federally chartered mutual savings and
loan association to a federally chartered capital stock savings bank and the
concurrent offering of shares of common stock by Empire Federal Bancorp, Inc.,
(the "Holding Company"), the newly formed corporation that will serve as holding
company for the Association following the conversion.
At the request of the Holding Company, we are enclosing materials explaining
this process and your options, including an opportunity to invest in shares of
the Holding Company's common stock being offered to customers and the community
through XXXXX X, 1996. Please read the enclosed offering materials carefully.
The Holding Company has asked us to forward these documents to you in view of
certain requirements of the securities laws in your state.
If you have any questions, please visit our Stock Information Center at 123
South Main Street, Livingston, Montana or feel free to call the Stock
Information Center at (406) XXX-XXXX.
Very truly yours,
Charles Webb & Company
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL
AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY STOCK.
THE OFFER IS MADE ONLY BY THE PROSPECTUS.
Investment Bankers and Financial Advisors
<PAGE>
November XX, 1996
Dear Friend:
We are pleased to announce that Empire Federal Savings and Loan
Association, ("Association") is converting from a federally chartered mutual
savings and loan association to a federally chartered capital stock savings bank
(the "Conversion"). In conjunction with the Conversion, Empire Federal Bancorp,
Inc. the newly-formed corporation that will serve as holding company for the
Association, is offering shares of common stock in a subscription offering and
community offering. The sale of stock in connection with the Conversion will
enable the Association to raise additional capital to support and enhance its
current operations.
Because we believe you may be interested in learning more about the
Conversion, we are sending you the following materials which describe the stock
offering.
PROSPECTUS: This document provides detailed information about the
operations of the Company and the Association and the proposed stock
offering.
QUESTIONS AND ANSWERS BROCHURE: Key questions and answers about the
stock offering are found in this brochure.
STOCK ORDER FORM: This form is used to purchase stock by returning it
with your payment in the enclosed business reply envelope. The deadline
for ordering stock is Noon, Mountain Time., December X, 1996.
CERTIFICATION FORM: This form must be completed and returned with the
stock order form in the enclosed business reply envelope if you wish to
order stock.
As a friend of the Association, you will have the opportunity to buy
stock directly from Empire Federal Bancorp, Inc., in the Conversion without
commission or fee. If you have additional questions regarding the Conversion and
stock offering, please call us at (406) XXX-XXXX, Monday through Friday from
X:00 a.m. to X:00 p.m. or stop by the Stock Information Center at 123 South Main
Street, Livingston, Montana.
We are pleased to offer you this opportunity to become a charter
shareholder of Empire Federal Bancorp, Inc.
Sincerely,
Beverly D. Harris
President and Chief Executive Officer
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL
AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY STOCK.
THE OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
XXXX XX, 1996
Dear Member:
We are pleased to announce that Empire Federal Savings and Loan
Association ("Association") is converting from a federally chartered mutual
savings and loan association to a federally chartered capital stock savings bank
(the "Conversion"). In conjunction with the Conversion, Empire Federal Bancorp,
Inc., the newly-formed corporation that will serve as holding company for the
Association, is offering shares of common stock in a subscription offering and
community offering.
Unfortunately, Empire Federal Bancorp, Inc., is unable to either offer
or sell its common stock to you because the small number of eligible subscribers
in your jurisdiction makes registration or qualification of the common stock
under the securities laws of your jurisdiction impractical, for reasons of cost
or otherwise. Accordingly, this letter should not be considered an offer to sell
or a solicitation of an offer to buy the common stock of Empire Federal Bancorp,
Inc.
However, as a member of the Association, you have the right to vote on
the Plan of Conversion at the Special Meeting of Members to be held on XXXXX XX,
1996. Therefore, enclosed is a proxy card, a Proxy Statement (which includes the
Notice of the Special Meeting), Prospectus (which contains information
incorporated into the Proxy Statement) and a return envelope for your proxy
card.
I invite you to attend the Special Meeting on XXXXX XX, 1996. However,
whether or not you are able to attend, please complete the enclosed proxy card
and return it in the enclosed envelope.
Sincerely,
Beverly D. Harris
President and Chief Executive Officer
<PAGE>
November XX, 1996
Dear Member:
We are pleased to announce that Empire Federal Savings and Loan
Association ("Association") is converting from a federally chartered mutual
savings and loan association to a federally chartered capital stock savings bank
(the "Conversion"). In conjunction with the Conversion, Empire Federal Bancorp,
Inc., ("Holding Company") the newly-formed corporation that will serve as
holding company for the Association, is offering shares of common stock in a
subscription offering and community offering to certain of our depositors, to
our Employee Stock Ownership Plan and some members of the general public
pursuant to a Plan of Conversion.
To accomplish this Conversion, we need your participation in an
important vote. Enclosed is a proxy statement describing the Plan of Conversion
and your voting and subscription rights. The Plan of Conversion has been
approved by the Office of Thrift Supervision and now must be approved by you.
YOUR VOTE IS VERY IMPORTANT.
Enclosed, as part of the proxy material, is your proxy card located
behind the window of your mailing envelope. This proxy should be signed and
returned to us prior to the Special Meeting scheduled for December 19, 1996.
Please take a moment to sign the enclosed proxy card and return it to us in the
postage-paid envelope provided. FAILURE TO VOTE HAS THE SAME EFFECT AS VOTING
AGAINST THE CONVERSION.
The Board of Directors of the Association believes that the Conversion
will offer a number of advantages, such as an opportunity for depositors and
customers of the Association to become shareholders of the Holding Company.
Please remember:
(arrow) Your accounts at the Association will continue to be insured up to the
maximum legal limit by the Federal Deposit Insurance Corporation
("FDIC").
(arrow) There will be no change in the balance, interest rate, or maturity of
any deposit accounts or loans because of the Conversion.
(arrow) Members have a right, but no obligation, to buy stock before it is
offered to the public.
(arrow) Like all stock, stock issued in this offering will not be insured by
the FDIC.
Enclosed are materials describing the stock offering. We urge you to
read these materials carefully. If you are interested in purchasing the common
stock of the Holding Company. you must submit your Stock Order Form,
Certification Form, and payment prior to Noon, Mountain Time, December XX, 1996.
If you have additional questions regarding the stock offering, please
call us at (406) XXX-XXXX, Monday, Wednesday and Friday from 8:00 a.m. to
5:00 p.m., Tuesday and Thursday from 8:00 a.m. to 4:30 p.m., or stop by the
Stock Information Center located at 123 South Main Street in Livingston,
Montana.
Sincerely,
Beverly D. Harris
President and Chief Executive Officer
THE SHARES OF COMMON STOCK BEING OFFERED IN THIS OFFERING ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION INSURANCE FUND
OR ANY OTHER GOVERNMENT AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
<PAGE>
November XX 1996
Dear Prospective Investor:
We are pleased to announce that Empire Federal Savings and Loan
Association ("Association"), is converting from a federally chartered mutual
savings and loan association to a federally chartered capital stock savings bank
(the "Conversion"). In conjunction with the Conversion, Empire Federal Bancorp,
Inc., the newly-formed corporation that will serve as holding company for the
Association, is offering shares of common stock in a subscription offering and
community offering. The sale of stock in connection with the Conversion will
enable the Association to raise additional capital to support and enhance its
current operations.
We have enclosed the following materials which will help you learn more
about the Conversion. Please read and review the materials carefully.
PROSPECTUS: This document provides detailed information about the
operations of the Association and the proposed stock offering.
QUESTIONS AND ANSWERS BROCHURE: Key questions and answers about the
stock offering are found in this brochure.
STOCK ORDER FORM: This form is used to purchase stock by returning it
with your payment in the enclosed business reply envelope. The deadline
for ordering stock is Noon., Mountain Time, XXXX XX, 1996.
CERTIFICATION FORM: This form must be completed and returned with the
stock order form in the enclosed business reply envelope if you wish to
order stock.
We invite our loyal customers and local community members to become
charter shareholders of Empire Federal Bancorp, Inc. Through this offering you
have the opportunity to buy stock directly from Empire Federal Bancorp, Inc.,
without commission or fee. The Board of Directors and management of the
Association fully support the stock offering.
If you have additional questions regarding the Conversion and stock
offering, please call us at (406) XXX-XXXX, Monday, Wednesday and Friday from
8:00 a.m. to 5:00 p.m., Tuesday and Thursday from 8:00 a.m. to 4:30 p.m., or
stop by the Stock Information Center located at 123 South Main Street in
Livingston, Montana.
Sincerely,
Beverly D. Harris
President and Chief Executive Officer
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL
AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY STOCK.
THE OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
- --------------------------------------------------------------------------------
STOCK OFFERING QUESTIONS
AND ANSWERS
- -------------------------------------------------------------------------------
EMPIRE FEDERAL
BANCORP, INC.
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL
AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY STOCK.
THE OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
FACTS ABOUT CONVERSION
The Board of Directors of Empire Federal Savings and Loan Association
("Association") unanimously adopted a Plan of Conversion (the "Conversion") to
convert from a federally chartered mutual savings and loan association to a
federally chartered capital stock savings bank.
This brochure answers some of the most frequently asked questions about the
Conversion and about your opportunity to invest in Empire Federal Bancorp, Inc.,
(the "Holding Company"), the newly formed corporation that will serve as holding
company for the Association following the conversion. As part of the Conversion
the Association will change its name to "Empire Federal Savings Bank."
Investment in the stock of Empire Federal Bancorp, Inc., involves certain risks.
For a discussion of these risks and other factors, investors are urged to read
the accompanying Prospectus, especially the discussion under the heading "Risk
Factors".
WHY IS THE ASSOCIATION CONVERTING TO STOCK FORM?
- --------------------------------------------------------------------------------
The stock form of ownership is used by most business corporations and an
increasing number of savings institutions. Through the sale of stock, the
Association will raise additional capital enabling it to:
o support and expand its current financial and other services.
<PAGE>
o allow customers and friends to purchase stock and share in the Holding
Company's and the Association's future.
WILL THE CONVERSION AFFECT ANY OF MY DEPOSIT ACCOUNTS OR LOANS?
- --------------------------------------------------------------------------------
No. The Conversion will have no effect on the balance or terms of any savings
account or loan, and your deposits will continue to be federally insured by the
Federal Deposit Insurance Corporation ("FDIC") to the maximum legal limit. YOUR
SAVINGS ACCOUNT IS NOT BEING CONVERTED TO STOCK.
WHO IS ELIGIBLE TO PURCHASE STOCK IN THE SUBSCRIPTION AND COMMUNITY OFFERINGS?
- --------------------------------------------------------------------------------
Certain past and present depositors of the Association, the Holding Company's
Employee Stock Ownership Plan and members of the general public.
HOW MANY SHARES OF STOCK ARE BEING OFFERED AND AT WHAT PRICE?
- --------------------------------------------------------------------------------
Empire Federal Bancorp, Inc., is offering up to 2,254,000 shares of common
stock, subject to adjustment as described in the Prospectus, at a price of
$10.00 per share through the Prospectus.
HOW MUCH STOCK MAY I BUY?
- --------------------------------------------------------------------------------
The minimum order is 25 shares. No person alone may purchase more than $225,000
of the common stock issued in the Conversion. No person together with associates
of and persons acting in concert with such person, may purchase more than
$350,000 of the common stock issued in the Conversion.
<PAGE>
DO MEMBERS HAVE TO BUY STOCK?
- --------------------------------------------------------------------------------
No. However, the Conversion will allow the Association's depositors an
opportunity to buy stock and become charter shareholders of the holding company
for the local financial institution with which they do business.
HOW DO I ORDER STOCK?
- --------------------------------------------------------------------------------
You must complete the enclosed Stock Order Form and the Certification Form.
Instructions for completing your Stock Order Form and Certification Form are
contained in this packet. Your order must be received by Noon, Mountain Time, on
December X, 1996.
HOW MAY I PAY FOR MY SHARES OF STOCK?
- --------------------------------------------------------------------------------
First, you may pay for stock by check, cash or money order. Interest will be
paid by the Association on these funds at the passbook rate, which is currently
___% per annum, from the day the funds are received until the completion or
termination of the Conversion. Second, you may authorize us to withdrawal funds
from your Association savings account or certificate of deposit for the amount
of funds you specify for payment. You will not have access to these funds from
the day we receive your order until completion or termination of the Conversion.
CAN I PURCHASE SHARES USING FUNDS IN MY ASSOCIATION IRA ACCOUNT?
- --------------------------------------------------------------------------------
Federal regulations do not permit the purchase of conversion stock from your
existing Association IRA account. To
<PAGE>
accommodate our depositors however, we have made arrangements with an outside
trustee to allow such purchases. Please call our Stock Information Center for
additional information.
WILL THE STOCK BE INSURED?
- --------------------------------------------------------------------------------
No. Like any other common stock, the Holding Company's stock will not be
insured.
WILL DIVIDENDS BE PAID ON THE STOCK?
- --------------------------------------------------------------------------------
The Board of Directors of the Holding Company will consider whether to pay a
cash dividend in the future, subject to regulatory limits and requirements. No
decision has been made as to the amount or timing of such dividends, if any.
HOW WILL THE STOCK BE TRADED?
- --------------------------------------------------------------------------------
The Holding Company's stock will trade on the Nasdaq National Market under the
symbol "EFBC". However, no assurance can be given that an active and liquid
market will develop.
ARE OFFICERS AND DIRECTORS OF THE ASSOCIATION PLANNING TO PURCHASE STOCK?
- --------------------------------------------------------------------------------
Yes! The Association's officers and directors plan to purchase, in the
aggregate, $690,000 worth of stock or approximately 3.1% of the stock offered at
the midpoint of the offering range.
MUST I PAY A COMMISSION?
- --------------------------------------------------------------------------------
No. You will not be charged a commission or fee on the purchase of shares in the
Conversion.
<PAGE>
SHOULD I VOTE?
- --------------------------------------------------------------------------------
Yes. Your "YES" vote is very important!
PLEASE VOTE, SIGN AND RETURN ALL PROXY CARDS!
WHY DID I GET SEVERAL PROXY CARDS?
- --------------------------------------------------------------------------------
If you have more than one account, you could receive more than one proxy card,
depending on the ownership structure of your accounts.
HOW MANY VOTES DO I HAVE?
- --------------------------------------------------------------------------------
Your proxy card(s) show(s) the number of votes you have. Every depositor
entitled to vote may cast one vote for each $100, or fraction thereof, on
deposit as of the voting record date. Each borrower is entitled to one vote
in addition to any votes he or she is also entitled to as a depositor.
MAY I VOTE IN PERSON AT THE SPECIAL MEETING?
- --------------------------------------------------------------------------------
Yes, but we would still like you to sign and mail your proxy today. If you
decide to revoke your proxy you may do so by executing and delivering a
subsequently dated proxy or by giving notice at the special meeting.
FOR ADDITIONAL INFORMATION YOU MAY CALL OUR STOCK INFORMATION CENTER BETWEEN
X:00 A.M. AND X:00 P.M. MONDAY THROUGH FRIDAY.
- --------------------------------------------------------------------------------
STOCK INFORMATION CENTER (406) XXX-XXXX
- --------------------------------------------------------------------------------
Empire Federal Bancorp, Inc.
123 South Main Street
Livingston, Montana 59047-1099
Phone (406) XXX-XXXX
Fax (406) 222-1987
<PAGE>
PROXY GRAM
We recently forwarded to you a proxy statement and related materials regarding
a proposal to convert Empire Federal Savings and Loan Association from a
federally chartered mutual savings and loan association to a federally
chartered capital stock savings bank.
YOUR VOTE ON OUR PLAN OF CONVERSION HAS NOT YET BEEN RECEIVED. FAILURE TO VOTE
HAS THE SAME EFFECT AS VOTING AGAINST THE CONVERSION.
Your vote is important to us, and we, therefore, are requesting that you
sign the enclosed proxy card and return it promptly in the enclosed postage-
paid envelope.
Voting for the Conversion does not obligate you to purchase stock or affect
the terms or insurance on your accounts.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMEND YOU VOTE "FOR" THE CONVERSION.
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
Livingston, Montana
Beverly D. Harris
President and Chief Executive Officer
If you mailed the proxy, please accept our thanks and disregard this request.
For further information call (406) XXX-XXXX.
- ----------------------------------------------------------------------------
The shares of common stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund or any other governmental agency. This is not an offer to sell
or a solicitation of an offer to buy stock. The offer is made only by the
Prospectus.
<PAGE>
STOCK GRAM
We are pleased to announce that Empire Federal Savings and Loan Association
("Association") is offering shares of common stock in a subscription and
community Offering. The sale of stock in connection with the offering will
enable the Association to raise additional capital to support and enhance
its current franchise.
We previously mailed to you a PROSPECTUS providing detailed information about
the association's operations and the proposed stock offering. We urge you
to read this carefully.
We invite our loyal customers and community members to become shareholders of
EMPIRE FEDERAL BANCORP, INC., (THE PROPOSED HOLDING COMPANY FOR EMPIRE FEDERAL
SAVINGS AND LOAN ASSOCIATION). If you are interested in purchasing the
common stock of Empire Federal Bancorp, Inc., you must submit your Stock
Order Form, Certification Form and payment prior to NOON, MOUNTAIN TIME,
LIVINGSTON, MONTANA, ON XXXXX XX, 1996.
Should you have additional questions regarding the stock offering or need
additional materials, please call the Stock Information Center at (406)
XXX-XXXX or stop by the Stock Information Center at 123 South Main Street
in Livingston.
The shares of common stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund or any other governmental agency. This is not an offer to sell
or a solicitation of an offer to buy stock. The offer is made only by the
Prospectus.
<PAGE>
STOCK ORDER FORM & Empire Federal Savings
CERTIFICATION FORM and Loan Association
Note: Please read the Stock Order Form Guide and Instructions on the back
of this form before completion.
- ------------------------------------------------------------------------------
DEADLINE
The Subscription and Community Offering ends at Noon, Mountain Time, XXXX xx,
1996. Your Stock Order Form and Certification Form, properly executed and with
the correct payment, must be received at the address on the bottom of this
form by this deadline, or it will be considered void.
NUMBER OF SHARES
(1) Number of Shares Price Per Share (2) Total Amount Due
x $10.00 =
THE MINIMUM NUMBER OF SHARES THAT MAY BE SUBSCRIBED FOR IS 25, and the
maximum purchase is 22,500 shares in the Subscription Offering and Community
Offering, respectively. No person alone may purchase more than $225,000 of
the shares issued in the Conversion. No person, together with associates of
and persons acting in concert with such person, may purchase more than $250,000
of the shares of the Common Stock in the Conversion. The price per share is
based upon a valuation that is subject to review prior to filling individual
stock orders.
- ------------------------------------------------------------------------------
METHOD OF PAYMENT
(3) [ ] Enclosed is a check, bank draft or money order payable to Empire
Bancorp, Inc. for $ (or cash if presented in person).
(4) [ ] I authorize Empire Federal Savings and Loan Association to make
withdrawals from my account(s) at Empire Federal Savings and
Loan Association shown below, and understand that the amounts
will not otherwise be available for withdrawal:
ACCOUNT NUMBER(S) AMOUNT(S)
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TOTAL WITHDRAWAL
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PURCHASE INFORMATION
(5) [ ] Check here if you are a director, officer or employee of Empire
Federal Savings and Loan Association or a member of such person's
immediate family.
[ ] Check here if you are a depositor or a borrower and enter below
information for all accounts you had at the Eligibility Record Date
(March 31, 1995), Supplemental Eligibility Record Date (September 30,
1996) or the Voting Record Date (October 31, 1996). If additional
space is needed, please utilize the back of this form. Please
confirm account(s) by initializing here. ___________
ACCOUNT TITLE (NAMES ON ACCOUNTS) ACCOUNT NUMBER
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----------------------------------------------------------------
----------------------------------------------------------------
- ------------------------------------------------------------------------------
(6) STOCK REGISTRATION
<TABLE>
<CAPTION>
<S> <C> <C>
[ ] Individual [ ] Uniform Transfer to Minors [ ] Partnership
[ ] Joint Tenants [ ] Uniform Gift to Minors [ ] Individual Retirement Account
[ ] Tenants in Common [ ] Corporation [ ] Fiduciary/Trust (Under Agreement Dated _______)
</TABLE>
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Name Social Security or Tax I.D.
---------------------------------------------------------------------------
Name Daytime Telephone
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Street Address Evening Telephone
---------------------------------------------------------------------------
City State Zip Code County of Residence
---------------------------------------------------------------------------
NASD AFFILIATION (This section only applies to those individuals who meet
the delineated criteria)
[ ] Check here if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of the
immediate family of any such person to whose support such person contributes,
directly or indirectly, or the holder of an account in which an NASD member or
person associated with an NASD member has a beneficial interest. To comply
with conditions under which an exemption from the NASD's Interpretation With
Respect to Free-Riding and Withholding is available, you agree, if you
have checked the NASD affiliation box: (1)not to sell, transfer or hypothecate
the stock for a period of three months following the issuance, and (2)to
report this subscription in writing to the applicable NASD member within one
day of the payment therefor.
- -------------------------------------------------------------------------------
ACKNOWLEDGMENT By signing below, I acknowledge receipt of the Prospectus
dated November xx, 1996 and that I have reviewed all provisions therein and
understand I may not change or revoke my order once it is received by
Empire Federal Savings and Loan Association. I also certify that this stock
order is for my account and there is no agreement or understanding regarding
any further sale or transfer of these shares. Federal regulations prohibit
any persons from transferring, or entering into any agreement directly
or indirectly to transfer, the legal or beneficial ownership of conversion
subscription rights or the underlying securities to the account of another
person. Empire Federal Savings and Loan Association will pursue any and all
legal and equitable remedies in the event it becomes aware of the transfer of
subscription rights and will not honor orders known by it to involve such
transfer. Under penalties of perjury, I further certify that: (1)the social
security number or taxpayer identification number given above is correct;
and (2)I am not subject to backup withholding. You must cross out this item,
(2)above, if you have been notified by the Internal Revenue Service that you
are subject to backup withholding because of underreporting interest or
dividends on your tax return.
- -------------------------------------------------------------------------------
SIGNATURE Sign and date this form. When purchasing as a custodian,
corporate officer, etc., include your full title. An additional signature is
required only if payment is by withdrawal from an account that requires
more than one signature to withdraw funds. YOUR ORDER WILL BE FILLED IN
ACCORDANCE WITH THE PROVISIONS OF THE PROSPECTUS. THIS ORDER IS NOT VALID
IF THE STOCK ORDER FORM AND CERTIFICATION FORM ARE NOT BOTH SIGNED. If you
need help completing this Form, you may call the Stock Information Center
at (406) xxx-xxxx.
------------------------------------------------------------------
Signature Title (if applicable) Date
------------------------------------------------------------------
Signature Title (if applicable) Date
------------------------------------------------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS AND ARE
NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
Date Rec'd ______/_______/________ Order #_______ Batch#____
OFFICE USE Check # __________________________ Category _____
Amount $ _________________________ Initials _____
STOCK INFORMATION CENTER
123 South Main Street
Livingston, Montana
(406) XXX-XXXX
<PAGE>
Empire Federal
Bancorp, Inc.
Stock Ownership Guide
______________________________________________________________________________
Individual- The Stock is to be registered in an individual's name only. You
may not list beneficiaries for this ownership.
Joint Tenants- Joint tenants with right of survivorship identifies two or more
owners. When stock is held by joint tenants with rights of survivorship,
ownership automatically passes to the surviving joint tenant(s) upon the
death of any joint tenant. You may not list beneficiaries for this ownership.
Tenants in Common- Tenants in common may also identify two or more owners.
When stock is to be held by tenants in common, upon the death of one co-tenant,
ownership of the stock will be held by the surviving co-tenant(s) and by the
heirs of the deceased co-tenant. All parties must agree to the transfer or
sale of shares held by tenants in common. You may not list beneficiaries for
this ownership.
Individual Retirement Account- Individual Retirement Account ("IRA") holders
may make stock purchases from their deposits through a pre-arranged "trustee-
to-trustee" transfer. Stock may only be held in a self-directed IRA. The
Empire Federal Savings and Loan Association does not offer a self-directed
IRA. Please contact the Stock Information Center if you have any questions
about your IRA account or to obtain a list of local brokers who will open a
self-directed IRA, or check with your broker. There will be no early
withdrawal or IRS penalties incurred by these transactions.
Uniform Gift to Minors- For residents of many states, stock may be held in
the name of a custodian for the benefit of a minor under the Uniform Transfer
to Minors Act. For residents in other states, stock may be held in a similar
type of ownership under the Uniform Gift to Minors Act of the individual
states. For either ownership, the minor is the actual owner of the stock with
the adult custodian being responsible for the investment until the child
reaches legal age.
Instructions: See your legal advisor if you are unsure about the correct
registration of your stock.
On the first line, print the first name, middle initial and last name of the
custodian, with the abbreviation "CUST" after the name. Print the first name,
middle initial and last name of the minor on the second "NAME" line. Only
one custodian and one minor may be designated.
Corporation/Partnership- Corporations/Partnerships may purchase stock. Please
provide the Corporation/Partnership's legal name and Tax I.D. To have
depositor rights, the Corporation/Partnership must have an account in the
legal name. Please contact the Stock Information Center to verify depositor
rights and purchase limitations.
Fiduciary/Trust- Generally, fiduciary relationships (such as Trusts, Estates,
Guardianships, etc.) are established under a form of trust agreement or are
pursuant to a court order. Without a legal document establishing a fiduciary
relationship, your stock may not be registered in a fiduciary capacity.
Instructions: On the first "NAME" line, print the first name, middle initial
and last name of the fiduciary if the fiduciary is an individual. If the
fiduciary is a corporation, list the corporate title on the first "NAME" line.
Following the name, print the fiduciary "title" such as trustee, executor,
personal representative, etc.
On the second "NAME" line, print either the name of the maker, donor or
testator OR the name of the beneficiary. Following the name, indicate the
type of legal document establishing the fiduciary relationship (agreement,
court order, etc.). In the blank after "Under Agreement Dated", fill in the
date of the document governing the relationship. The date of the document
need not be provided for a trust created by a will.
An example of fiduciary ownership of stock in the case of a trust is:
John D. Smith, Trustee for Thomas A. Smith Under Agreement Dated 06/09/87
Definition of Associate
______________________________________________________________________________
The term "associate" of a person is defined to mean (i) any corporation or
other organization (other than Empire Federal Savings and Loan Association
or a majority owned subsidiary thereof) of which such person is a director,
officer or partner or is directly or indirectly the beneficial owner of
10% or more of any class of equity securities: (ii) any trust or other
estate in which such person has a substantial beneficial interest or as
to which such person serves a trustee or in a similar fiduciary capacity,
provided, however, that such term shall not include any tax-qualified employee
stock benefit plan of Empire Federal Savings and Loan Association in which
such person has a substantial beneficial interest or serves as a trustee or in
a similar fiduciary capacity; and (iii) any relative or spouse of such person,
or any relative of such person, who either has the same home as such person or
who is a director or officer of Empire Federal Savings and Loan Association or
any of its parents or subsidiaries.
<PAGE>
CERTIFICATION FORM
(This Form Must Accompany A Signed Stock Order Form)
I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, $0.01 PAR VALUE PER SHARE
("COMMON STOCK"), OF EMPIRE FEDERAL BANCORP, INC., ("HOLDING COMPANY") ARE
NOT FEDERALLY INSURED AND ARE NOT GUARANTEED BY, EMPIRE FEDERAL SAVINGS AND
LOAN ASSOCIATION OR THE FEDERAL GOVERNMENT.
If anyone asserts that the shares of Common Stock are federally insured or
guaranteed, or are as safe as an insured deposit, I should call the Office
of Thrift Supervision Western Regional Director, John F. Robinson, at (415)
616-1500.
I further certify that, before purchasing the shares of Common Stock of the
Holding Company, I received a copy of the Prospectus dated, November xx, 1996
which discloses the nature of the shares of Common Stock being offered thereby
and describes the following risks involved in an investment in the Common
Stock under the heading "Risk Factors" beginning on page 1 of the Prospectus.
1. Above Average Interest Rate Risk Associated With Fixed-Rate Loan
and Mortage-Backed Securities Portfolio
2. Declining Interest Rate Spread and Return on Equity After Conversion
3. Management Succession
4. Regulatory Oversight and Legislation
5. Certain Lending Considerations
6. Dependence on Local Economy and Competition Within Market Area
7. Anti-takeover Considerations
8. Absence of Prior Market for the Common Stock
9. Dilutive Effect of Benefit Programs
10. Possible increase in the Number of Shares Issued in the Conversion
11. Possible Adverse Income Tax Consequences of the Distribution of
Subscription Rights
Signature Signature
(Note: If stock is to be held jointly, both parties must sign)
Date:
____________________
<PAGE>
Empire Federal Bancorp, Inc.
Item Instruction
Items 1 and 2- Fill in the number of shares that you wish to purchase and the
total payment due. The amount due is determined by multiplying the number of
shares by the subscription price of $10.00 per share. The minumum purchase is
25 shares. The maximum purchase amount in the Conversion by any person is
$225,000 of the shares in the Conversion. No person, together with associates of
and persons acting in concert with such person, may purchase more than $350,000
of the shares of the Common Stock in the Conversion.
Empire Federal Savings and Loan Association has reserved the right to reject
the subscription of any order received in the Community Offering, in whole or
in part.
Item 3- Payment for shares may be made in cash (only if delivered by you in
person) or by check, bank draft or money order made payable to Empire Federal
Bancorp, Inc. DO NOT MAIL CASH. If you choose to make a cash
payment, take your Stock Order Form, signed Certification Form and payment
in person to Empire Federal Savings and Loan Association. Your funds will earn
interest at Empire Federal Savings and Loan Association's passbook rate,
currently xxx% per annum.
Item 4- To pay by withdrawal from a savings account or certificate at Empire
Federal Savings and Loan Association, insert the account number(s) and the
Amount(s) you wish to withdraw from each account. If more than one
signature is required to withdraw, each must sign in the Signature box on the
front of this form. To withdraw from an account with checking privileges,
please write a check. No early withdrawal penalty will be charged on funds used
to purchase our stock. A hold will be placed on the account(s) for the
amount(s) you show. Payments will remain in certificate account(s) until the
stock offering closes. However, if a partial withdrawal reduces the balance
of a certificate account to less than the applicable minimum, the remaining
balance will thereafter earn interest at the passbook rate.
Item 5- Please check this box if you were a depositor on the Eligibility
Record Date (March 31, 1995), and/or a depositor on the Supplemental
Eligibility Record Date (September 30, 1996) or a depositor on the Voting
Record Date (October 31, 1996) and list all names on the account(s) and all
account number(s) of those accounts you had at these dates to ensure proper
identification of your purchase rights.
Item 6 and 7- The stock transfer industry has developed a uniform system of
shareholder registrations that we will use in the issuance of Empire Federal
Bancorp, Inc. common stock. Print the name(s) in which you want
the stock registered and the mailing address of the registration. Include the
first name, middle initial and last name of the shareholder. Avoid the use
of two initials. Please omit words that do not affect ownership rights,
such as "Mrs.", "Mr.", "Dr.", "special account", etc.
Subscription rights are not transferable. If you are a qualified member, to
protect your priority over other purchasers as described in the Prospectus
dated November XX, 1996, you must take ownership in at least one of the
account holder's names.
Enter the Social Security or Tax I.D. number of one registered owner. This
registered owner must be listed on the first "NAME" line. Be sure to include
your telephone number because we will need to contact you if we cannot
execute your order as given. Review the Stock Ownership Guide on this page
and refer to the instructions for Uniform Gift to Minors/Uniform Transfer to
Minors and Fiduciaries.
Account Title (Names on Accounts) Account Number
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<PAGE>
Empire Federal
Bancorp, Inc.
the holding company for
Empire Federal Savings and
Loan Association
Become a Charter Shareholder!
<PAGE>
PRO FORMA DATA*
At or For the Year Ended June 30, 1996
<TABLE>
<CAPTION>
Minimum Midpoint Maximum Maximum
of Range of Range of Range of Range (adj.)
<S> <C> <C> <C> <C>
Shares Outstanding 1,666,000 1,960,000 2,254,000 2,592,100
Sale Price Per Share $ 10.00 $ 10.00 $ 10.00 $ 10.00
Gross Proceeds $ 16,660,000 $ 19,600,000 $ 22,540,000 $25,921,000
Pro Forma
Stockholders' Equity $ 29,992,000 $ 32,539,000 $ 35,092,000 $38,067,000
Stockholders' Equity
per Share $ 18.00 $ 16.60 $ 15.57
$ 14.68
Price/Book Ratio (a) 55.56% 60.24% 64.23% 68.12%
Earnings Per Common
Share(b) $ 0.41 $ 0.39 $ 0.37
$ 0.35
Price/Earnings Ratio(a) 15.63x 17.24x 18.87x 20.41x
</TABLE>
*Information based upon assumptions in the Prospectus dated November xx, 1996
under "Pro Forma Data."
(a) This is not intended to represent potential price appreciation. There are no
assurances that the market price will be at or above the offering price once the
shares are issued. (b) Assumes the accrual of the one-time SAIF assessment at
June 30, 1996 rather than at September 30, 1996 based on the assumptions
discussed in the Prospectus dated November xx, 1996.
SELECTED FINANCIAL RATIOS
At or For the Year Ended June 30,
1996 1995 1994 1993 1992
Return on average assets 0.72% 1.12% 1.47% 1.55% 1.10%
Return on average equity 3.99% 6.33% 9.13% 10.25% 7.42%
Interest rate spread 2.80% 3.33% 3.87% 3.96% 3.31%
Equity to assets at year end 18.29% 18.13% 16.80% 15.39% 14.68%
Nonperforming assets to
total assets -- -- 0.02% 0.62% 0.65%
Allowance for loan losses to
total loans outstanding 0.46% 0.36% 0.34% 0.35% 0.17%
The shares of common stock offered in the Conversion are not savings accounts or
deposits and are not insured by the Federal Deposit Insurance Corporation, the
Bank Insurance Fund, the Savings Association Insurance Fund or any other
government agency. This is not an offer to sell or a solicitation of an offer to
buy stock. The offer is made only by the Prospectus.
<PAGE>
Capital Requirements
Bar graph illustrating the required capital level for Empire Federal Savings and
Loan Association ("Association") ("Required"), the Association's capital levels
at June 30, 1996 ("At June 30, 1996") and the Association's pro forma capital
level (assuming the sale of 1,960,000 shares and retention of 50% of the net
conversion proceeds by the Holding Company) ("Pro Forma"). Tangible capital:
Required - 1.5%, At June 30, 1996 - 17.6% and Pro Forma - 23.6%. Core capital:
Required - 3.0%, At June 30, 1996 - 17.6% and Pro Forma - 23.6%. Risk-based
capital: Required - 8.0%, At June 30, 1996 - 46.7% and Pro Forma - 65.0%.
At June 30, 1996 Empire Federal Savings and Loan Association exceeded each of
the three regulatory capital requirements.
Nonperforming Assets to Total Assets
Although no assurances can be given as to future performance, Empire Federal
Savings and Loan Association has been successful in maintaining a high level of
asset quality through relatively conservative underwriting criteria in
originating mortgage and other loans.
Bar graph illustrating the Association's ratios of nonperforming assets to total
assets, which were 0%, 0%, 0.02%, 0.62% and 0.65% for the periods ending
December 31, 1996, 1995, 1994, 1993 and 1992, respectively.
Loan Portfolio Composition
Pie graph showing the composition of Empire Federal Savings and Loan
Association's loan portfolio at June 30, 1996: One- to four-family: 81.66%;
multi-family: 5.41%; commercial real estate: 2.74%; consumer: 4.90%; share
loans: 2.09% and construction: 3.20%.
The primary emphasis of Empire Federal Savings and Loan Association's lending
activity is the origination of permanent residential one- to four-family first
mortgage loans. Management believes that this policy of focusing in
single-family residential mortgage loans has been successful in contributing to
interest income while keeping historical delinquencies and losses to a minimum.
<PAGE>
EMPIRE FEDERAL BANCORP, INC.
Stock Information Center
123 South Main Street
Livingston, Montana 59047
(406) XXX-XXXX
<PAGE>
You are Cordially Invited....
to a Community Investor Meeting and Reception to learn about the stock
conversion of Empire Federal Savings and Loan Association and the related
offering of common stock by Empire Federal Bancorp, Inc.
Monday, December 9, 1996 Tuesday, December 10, 1996 Wednesday, December 11, 1996
Address Address 123 South main Street
Livingston, Montana 59047
Community Meetings will begin at 7:00 p.m.
Please call the Stock Information Center at
(406) XXX-XXXX for additional information
<PAGE>
Exhibit 99.4
Appraisal Report of Keller & Company, Inc.
<PAGE>
CONVERSION VALUATION APPRAISAL REPORT
Prepared For:
Empire Federal Savings and Loan Association
and
Empire Federal Bancorp, Inc.
Livingston, Montana
As Of:
September 6, 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:
Empire Federal Bancorp, Inc.
and
Empire Federal
Savings and Loan Association
Livingston, Montana
As Of:
September 6, 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
September 26, 1996
Board of Directors
Empire Federal Savings
and Loan Association
123 South Main Street
Livingston, MT 59047
Gentlemen:
We hereby submit an independent appraisal of the pro forma market value of the
to-be-issued stock of Empire Federal Bancorp, Inc. (the "Corporation"), which
is the newly formed holding company of Empire Federal Savings and Loan
Association, Livingston, Montana ("Empire Federal" or the "Association"). The
Corporation will hold all of the shares of the common stock of the Association.
Such stock is to be issued in connection with the Association's conversion from
a federally chartered mutual savings and loan association to a federally
chartered capital stock savings bank in accordance with the Association's Plan
of Conversion. This appraisal was prepared and provided to the Association 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 Empire
Federal and the material provided by the independent auditor, KPMG Peat Marwick
LLP, Billings, Montana, are both accurate and complete. We did not proceed to
verify the financial statements provided to us, nor did we conduct independent
valuations of the Association'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
Empire Federal
Savings and Loan Association
September 26, 1996
Page 2
In the completion of this appraisal, we held discussions with the management of
Empire Federal, with the law firm of Breyer & Aguggia, Washington, D.C., the
Association's conversion counsel, and with KPMG Peat Marwick LLP. Further, we
viewed the Association'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
subsequently be able to 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 Association'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 Association as determined by this
firm, we will proceed to make necessary adjustments to the Association's
appraised value in such appraisal update.
It is our opinion that as of September 6, 1996, the pro forma market value or
appraised value of the Corporation is $19,600,000. Further, the range for this
valuation is from a minimum of $16,600,000 to a maximum of $22,540,000, with
a super-maximum of $25,921,000.
Very truly yours,
KELLER & COMPANY, INC.
(Signature of Michael R. Keller)
Michael R. Keller
President
<PAGE>
TABLE OF CONTENTS
PAGE
INTRODUCTION 1
I. Description of Empire Federal Savings and Loan Association
General 4
Performance Overview 8
Income and Expense 10
Yields and Costs 16
Interest Rate Sensitivity 17
Lending Activities 19
Non-Performing Assets 23
Investments 25
Deposit Activities 25
Borrowings 26
Subsidiaries 26
Office Properties 27
Management 27
II. Description of Primary Market Area 28
III. Comparable Group Selection
Introduction 35
General Parameters
Merger/Acquisition 36
Mutual Holding Companies 37
Trading Exchange 37
IPO Date 38
Geographic Location 38
Asset Size 39
Balance Sheet Parameters
Introduction 40
Cash and Investments to Assets 40
Mortgage-Backed Securities to Assets 41
One- to Four-Family Loans to Assets 42
Total Net Loans to Assets 42
Total Net Loans and Mortgage-Backed Securities to Assets 42
Advances to Assets 43
Equity to Assets 43
Performance Parameters
Introduction 44
<PAGE>
TABLE OF CONTENTS (cont.)
PAGE
III. Comparable Group Selection (cont.)
Performance Parameters (cont.)
Return on Average Assets 44
Return on Average Equity 45
Net Interest Margin 45
Operating Expenses to Assets 46
Noninterest Income to Assets 46
Asset Quality Parameters
Introduction 47
Nonperforming Assets to Asset Ratio 47
Repossessed Assets to Assets 47
Loans Loss Reserves to Assets 48
The Comparable Group 48
Summary of Comparable Group Institutions 49
IV. Analysis of Financial Performance 52
V. Market Value Adjustments
Earnings Performance 55
Market Area 59
Financial Condition 60
Dividend Payments 61
Subscription Interest 62
Liquidity of Stock 63
Management 63
Marketing of the Issue 64
VI. Valuation Methods 65
Price to Book Value Ratio Method 66
Price to Earnings Method 67
Price to Net Assets Method 68
Valuation Conclusion 70
<PAGE>
LIST OF EXHIBITS
NUMERICAL PAGE
EXHIBITS
1 Balance Sheet - June 30, 1996 71
2 Balance Sheet - June 30, 1992 through 1995 72
3 Income Statement - Year Ended June 30, 1996 73
4 Income Statement - June 30, 1992 through 1995 74
5 Selected Consolidated Financial Data 75
6 Income and Expense Trends 76
7 Normalized Earnings Trend 77
8 Performance Indicators 78
9 Volume/Rate Analysis 79
10 Yield and Cost Trends 80
11 Market Value of Portfolio Equity 81
12 Loan Portfolio Composition 82
13 Loan Maturity Schedule 83
14 Loan Portfolio Originations 84
15 Classified Assets 85
16 Allowance for Loan Losses 86
17 Investment Portfolio Composition 87
18 Mix of Deposits 88
19 Deposit Activity 89
20 Borrowed Funds 90
21 Office and Subsidiary Information 91
22 List of Key Officers and Directors 92
23 Key Demographic Data and Trends 93
24 Key Housing Data 94
25 Major Sources of Employment 95
26 New Housing Permits and Growth Rates 96
27 Unemployment Rates 97
28 Market Share of Deposits 98
29 National Interest Rates by Quarter 99
30 Thrift Stock Prices and Pricing Ratios 100
31 Key Financial Data and Ratios 111
32 Recently Converted Thrift Institutions 123
33 Acquisitions and Pending Acquisitions 125
34 Thrift Stock Prices and Pricing Ratios -
Mutual Holding Companies 126
<PAGE>
LIST OF EXHIBITS (cont.)
NUMERICAL PAGE
EXHIBITS
35 Key Financial Data and Ratios -
Mutual Holding Companies 127
36 Balance Sheets Parameters -
Comparable Group Selection 128
37 Operating Performance and Asset Quality Parameters -
Comparable Group Selection 130
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
<PAGE>
ALPHABETICAL EXHIBITS PAGE
A Background and Qualifications 151
B RB 20 Certification 155
C Affidavit of Independence 156
<PAGE>
INTRODUCTION
Keller & Company, Inc., is an independent appraisal firm for financial
institutions, and prepared this Conversion Appraisal Report ("Report") to
provide the pro forma market value of the to-be-issued common stock of Empire
Federal Bancorp, Inc. (the "Corporation"), a Delaware corporation, formed as a
holding company to own all of the to-be-issued shares of common stock of Empire
Federal Savings and Loan Association, Livingston, Montana, ("Empire Federal" or
the "Association"). The stock is to be issued in connection with the
Association's Application for Approval of Conversion from a federally chartered
mutual savings and loan association to a federally chartered stock savings and
loan association. 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 Association's conversion,
there will be a simultaneous issuance of all the Association's stock to the
Corporation, which will be formed by the Association. Such Application for
Conversion has been reviewed by us, including the Prospectus and related
documents, and discussed with the Association's management and the Association's
conversion counsel, Breyer & Aguggia, 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
1
<PAGE>
Introduction (cont.)
typical willing seller when the former is not under any compulsion to buy and
the latter is not under any compulsion to sell, and with both parties having
reasonable knowledge of relevant facts in an arms-length transaction. The
appraisal assumes the Association is a going concern and that the shares issued
by the Corporation in the conversion are sold in non-control blocks.
In preparing this conversion appraisal, we have reviewed the audited
financial statements for the five fiscal years ended June 30, 1992 through 1996,
and discussed them with Empire Federal's management, with Empire Federal's
independent auditors, KMPG Peat Marwick, Billings, Montana. We have also
discussed and reviewed with management other financial matters. We have reviewed
the Corporation's preliminary Form S-1 and the Association's preliminary Form AC
and discussed them with management and with the Association's conversion
counsel.
We have visited Empire Federal's home office and two branch offices and
have traveled the surrounding area. We have studied the economic and demographic
characteristics of the primary market area and analyzed the Association's
primary market area relative to Montana and the United States. We have also
examined the competitive savings and loan environment within which Empire
Federal operates, giving consideration to the area's key characteristics, both
positive and negative.
We have given consideration to the market conditions for securities in
general and for publicly-traded thrift stocks in particular. We have examined
the performance of selected publicly-traded thrift institutions and compared the
performance of Empire Federal 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 EMPIRE FEDERAL SAVINGS AND LOAN
ASSOCIATION
GENERAL
Empire Federal Savings and Loan Association, Livingston, Montana, was
organized in 1923 as a Montana savings and loan association with the name of
Empire Savings and Loan Association. The Association converted to a federal
mutual savings and loan association in 1970, changing its name to Empire Federal
Savings and Loan Association.
Empire Federal conducts its business from its home office in
Livingston, Montana, and its two branch offices in Bozeman and Big Timber. The
Association's primary market area includes Gallatin, Park, and Sweet Grass
Counties with the Association's three offices located in the county seats of
these three counties. Empire Federal's deposits are insured up to applicable
limits by the Federal Deposit Insurance Corporation ("FDIC") in the Savings
Association Insurance Fund ("SAIF"). The Association is also subject to certain
reserve requirements of the Board of Governors of the Federal Reserve Bank (the
"FRB"). Empire Federal is a member of the Federal Home Loan Bank (the "FHLB") of
Seattle and is regulated by the OTS, and by the FDIC. As of June 30, 1996,
Empire Federal had assets of $86,810,000, deposits of $68,548,000 and equity of
$15,876,000.
Empire Federal is a community-oriented institution which has been
principally engaged in the business of serving the financial needs of the public
in its local communities and throughout its market area. Empire Federal has been
actively and consistently involved in the origination of residential mortgage
loans for the purchase of one- to four-family dwellings, comprising 59.8 percent
of its loan originations during the fiscal year ended June 30, 1996, excluding
construction loans, and 64.1 percent of its loan originations during the fiscal
year ended June 30, 1995. At June 30, 1996, 81.7 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 larger 84.7 percent at
June 30,
4
<PAGE>
General (cont.)
1995, with the primary source of its funds being retail deposits from residents
in its local communities. The Association is also an originator of multifamily
loans, commercial real estate loans, construction and land loans and also offers
consumer loans. Consumer loans include automobile loans, mobile home loans,
loans on savings accounts, home equity loans, and home improvement loans.
Consumer and share loans represented a moderate 7.0 percent share of the
Association's total loans at June 30, 1996.
The Association had $6.4 million, or 7.4 percent of its assets in cash
and investments including FHLB stock. The Association had an additional $35.2
million, or 40.6 percent of its assets, in mortgage-backed securities, with the
combined total of investment securities, mortgage-backed securities and
interest-bearing deposits being $41.6 million or 47.9 percent of assets.
Deposits, FHLB advances and retained earnings have been the sources of funds for
the Association's lending and investment activities.
The management of Empire Federal is aware of the emphasis being placed
on matching the maturities of assets and liabilities and monitoring the
Association's interest rate sensitivity position and market value of portfolio
equity. The Association understands the nature of interest rate risk and the
potential earnings impact during times of rapidly changing rates, either rising
or falling. Empire Federal also recognizes the need and importance of attaining
a competitive net interest margin.
The Association's gross amount of stock to be sold in the conversion
will be $19,600,000 or 1,960,000 shares at $10 per share based on the midpoint
of the appraised value, with net conversion proceeds of $18,980,000 reflecting
conversion expenses of $620,000. The actual cash proceeds to the Association of
$9.5 million will represent fifty percent of the net conversion proceeds,
including the ESOP of $1,568,000, and will be invested in fixed-rate mortgage
loans, construction loans, and mortgage-backed securities over time, and
initially invested in short term investments. The Association may also use
5
<PAGE>
General (cont.)
the proceeds to expand services, 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 initially invest in short-and intermediate-term government securities.
Empire Federal has seen modest deposit growth over the past five fiscal
years with deposits increasing 9.1 percent from June 30, 1992, to June 30, 1996,
or an average of 2.3 percent per year. The Association anticipates very modest
growth in the future with an actual decrease in deposits as a result of the
conversion due to depositors withdrawing savings to purchase stock. The
Association has focused on increasing its loan portfolio during the past five
years, modestly increasing its level of investments and mortgage-backed
securities, monitoring its earnings and increasing its capital to assets ratio.
Equity to assets increased from 14.68 percent of assets at June 30, 1992, to
18.29 percent at June 30, 1996.
Empire Federal's primary lending strategy has been to originate and
retain both adjustable-rate and fixed-rate residential mortgage loans with a
stronger emphasis on fixed-rate mortgage loans with a moderate level of
multifamily loans, commercial real estate loans and consumer loans.
Empire Federal's share of one- to four-family mortgage loans has
decreased moderately, from 84.7 percent of gross loans at June 30, 1995, to 81.7
percent as of June 30, 1996. Construction loans increased from 0.7 percent of
gross loans at June 30, 1995, to 3.2 percent at June 30, 1996. Multifamily and
commercial real estate loans combined decreased from 9.9 percent of gross loans
at June 30, 1995, to 8.2 percent at June 30, 1996. The decrease in multifamily
and commercial real estate loans was offset by the Association's small increase
in consumer loans and construction loans. The Association's share of consumer
loans, including share loans, witnessed an increase from 4.8 percent at June 30,
1995, to 7.0 percent at June 30, 1996.
6
<PAGE>
General (cont.)
Management's internal strategy has also included continued emphasis on
maintaining an adequate and appropriate allowance for loan losses relative to
loans and nonperforming assets in recognition of the more stringent requirements
within the industry to establish and maintain a higher level of general
valuation allowances and the resultant higher levels of allowances currently
maintained in the industry. At June 30, 1995, Empire Federal had $145,000 in its
loan loss allowance or 0.36 percent of loans, which increased to $200,000 and
represented a higher but still moderate 0.46 percent of loans outstanding at
June 30, 1996.
Interest income from loans and investments has been the basis of
earnings with the net interest income being the key determinant of net earnings.
With a dependence on net interest margin for earnings, current management will
focus on strengthening the Association's net interest margin without undertaking
excessive credit risk and will not pursue any significant change in its interest
rate risk position.
7
<PAGE>
PERFORMANCE OVERVIEW
Empire Federal's financial position over the past five fiscal years of
June 30, 1992, through June 30, 1996, is highlighted through the use of selected
financial data in Exhibit 5. Empire Federal has focused on strengthening its
equity position, controlling its overhead ratio, increasing its savings and loan
levels, and maintaining its net interest margin. Empire Federal has experienced
a modest rise in assets from 1992 to 1996 and a smaller but similar rate of
increase in deposits with an average increase in equity over the past five
fiscal years. Due to the Association's modest growth, the resultant impact has
been a moderate increase in the Association's equity to assets ratio from 1992
to 1996.
Empire Federal witnessed a total increase in assets of $8.2 million or
10.5 percent for the period of June 30, 1992, to June 30, 1996, representing an
average annual increase in assets of 2.6 percent. For the year ended June 30,
1996, assets increased $1.3 million or 1.5 percent. Of those fiscal periods, the
Association experienced its largest dollar rise in assets of $4.5 million in
fiscal year 1993, which represented a 5.8 percent increase in assets funded
primarily by a rise in deposits. This increase was succeeded by a $3.0 million
or 3.7 percent increase in assets in fiscal year 1994, a decrease in 1995 of
$648,000 or 0.8 percent and an increase of $1.3 million or 1.5 percent in 1996.
The Association's net loan portfolio, including mortgage loans and
consumer loans, increased from $37.0 million at June 30, 1992, to $41.9 million
at June 30, 1996, and represented a total increase of $4.9 million, or 47.2
percent. The average annual increase during that period was 13.08 percent. That
increase was primarily the result of higher levels of loan originations of one-
to four-family loans. For the year ended June 30, 1996, loans increased $2.5
million or 6.2 percent.
Empire Federal has pursued obtaining funds through deposit growth in
accordance with the demand for loans and has also made use of FHLB advances
during the past five years. The Association's competitive rates for savings in
its local market in conjunction
8
<PAGE>
Performance Overview (cont.)
with its focus on services have been the sources of retail deposits. Deposits
increased a modest 3.8 percent from 1992 to 1993, followed by a stronger
increase of 4.8 percent in fiscal year 1994 and then a minimal decrease in 1994
and a modest increase of 2.2 percent in fiscal 1996, with an average annual rate
of increase of 2.3 percent from June 30, 1992, to June 30, 1996. The
Association's strongest fiscal year deposit growth was in fiscal year 1994, when
deposits increased $3.1 million or 4.8 percent.
Empire Federal has been able to increase its equity each fiscal year
from 1992 through 1996. At June 30, 1992, the Association had equity (GAAP
basis) of $11.5 million representing a 14.68 percent equity to assets ratio,
increasing to $15.9 million at June 30, 1996, and representing an 18.29 percent
equity to assets ratio. The moderate rise in the equity to assets ratio is the
result of the Association's steady earnings performance in 1992 through 1996
combined with a modest rise in assets. Equity increased 37.6 percent from June
30, 1992, to June 30, 1996, representing an average annual increase of 9.4
percent.
9
<PAGE>
INCOME AND EXPENSE
Exhibit 6 presents selected operating data for Empire Federal,
reflecting the Association's income and expense trends. This table provides
selected audited income and expense figures in dollars for the fiscal years
ended June 30, 1992 through 1996.
Empire Federal has witnessed a decrease in its dollar level of interest
income from June 30, 1992, through June 30, 1996, ranging from a high of $6.7
million in 1993 to a low of $6.27 million in 1994, and with a four year decrease
from 1992 to 1996 of 4.8 percent, or an average decrease of 1.2 percent per
year. This overall trend was a combination of a moderate increase from 1992 to
1993 followed by a moderate decrease in 1994 and then a minimal increase in 1995
and basically no change in 1996. In fiscal year 1996, interest income decreased
only $1,000 to $6.3 million. The overall decrease in interest income was due
primarily to the Association's decrease in yield on loans.
The Association's interest expense experienced a similar declining
trend from fiscal year 1992 to 1996. Interest expense decreased $921,000, or
25.9 percent, from 1992 to 1994, compared to a decrease in interest income of
$355,000, or 5.4 percent, for the same time period. Interest expense then
increased $297,000 or 11.2 percent from 1994 to 1995, compared to an increase in
interest income of $33,000 or 0.5 percent. Such increase in interest income,
more than offset by the increase in interest expense, resulted in a moderate
decrease in annual net interest income to $3,367,000 for the fiscal year ended
June 30, 1995, and a decrease in net interest margin. Interest expense continued
to increase in fiscal 1996 by $372,000, or 12.7 percent, compared to a $1,000
decrease in interest income and again resulting in a decrease in net interest
income. Net interest income increased from $3,065,000 in 1992 to its highest
level of $3,709,000 in 1993, and then decreased to its lowest level of
$2,994,000 in 1996.
The Association has made provisions for loan losses in three of the
past five fiscal years of 1992 through 1996. The amounts of those provisions
were determined in recognition of the Association's level of nonperforming
assets, charge-offs and repossessed
10
<PAGE>
Income and Expense (cont.)
assets and current industry norms. The loan loss provisions were $31,000 in
1992, $82,000 in 1993, and $55,000 in 1996. The impact of these loan loss
provisions has been to provide Empire Federal with a general valuation allowance
of $200,000 at June 30, 1996, or 0.46 percent of gross loans.
Total other income or noninterest income indicated only moderate
volatility in fiscal years 1992 to 1996, with an overall rising trend from 1992
to 1996. The Association has indicated a consistently higher level of
noninterest income due to its subsidiary income from its insurance agency. The
highest level of noninterest income was in fiscal year 1996 at $878,000 or 1.01
percent of assets, and the lowest level at $528,000 was in 1992, representing
0.67 percent of assets. The Bank's higher levels of noninterest income are the
result of insurance commission income from its subsidiary, Dime Service
Corporation. Insurance commissions represented 78.4 percent of noninterest
income in 1996 and a lesser but still strong 61.7 percent in 1992. The rise in
noninterest income from 1992 to 1996 was due entirely to the rise in insurance
commissions with other income actually decreasing. The average noninterest
income level for the past five fiscal years was $733,000 or 0.87 percent of
average assets using actual noninterest income and a lower $182,000 or 0.22
percent excluding insurance commissions. Noninterest income excluding insurance
commissions consists primarily of service charges and loan origination fees.
The Association's general and administrative expenses or noninterest
expenses, which include subsidiary expenses, increased from $2,234,000 for the
fiscal year of 1992 to $2,786,000 for the fiscal year ended June 30, 1996. The
dollar increase in noninterest expenses was $552,000 from 1992 to 1996,
representing an average annual increase of $138,000 or 5.6 percent. The average
annual increase in other expenses was due to the Association's normal rise in
overhead expenses and the normal rise in overhead expenses for the subsidiary.
On a percent of assets basis, operating expenses increased from a low 2.57
percent of assets for the fiscal year ended June 30, 1993, to a high of 3.21
percent
11
<PAGE>
Income and Expense (cont.)
for the fiscal year ended June 30, 1996, which was similar to the Association's
ratio in fiscal 1995 of 3.14 percent which are both higher than current industry
averages of approximately 2.29 percent due to the overhead cost of the
subsidiary.
The net earnings position of Empire Federal has indicated profitable
performance in each of the past five fiscal years ended June 30, 1992 through
1996. The annual net income figures for the past five fiscal years of 1992,
1993, 1994, 1995 and 1996 have been $830,000, $1,259,000, $1,245,000, $952,000,
and $632,000, representing returns on average assets of 1.10 percent, 1.55
percent, 1.47 percent, 1.12 percent and 0.72 percent, respectively. The average
return on assets for the past five fiscal years was 1.19 percent.
Exhibit 7 provides the Association's normalized earnings or core
earnings for fiscal years 1994 to 1996. The Association's normalized earnings
eliminate any nonrecurring income and expense items. There were no adjustments
for 1995 and 1996 and a modest $56,000 downward adjustment in 1994 to eliminate
a positive adjustment for change in accounting for income taxes.
The key performance indicators comprised of selected operating ratios,
asset quality ratios and equity ratios are shown in Exhibit 8 to reflect the
results of performance. The Association's return on assets increased from 1.10
percent in fiscal year 1992 to its highest level of 1.55 percent in fiscal year
1993, decreasing to 1.47 percent in fiscal year 1994, then down to 1.12 percent
in 1995 and to its lowest level of 0.72 percent in fiscal year 1996.
The Association's average net interest rate spread strengthened from
3.31 percent in fiscal year 1992 to 3.96 percent in fiscal year 1993, then
declined during the next three fiscal years to 2.80 percent in 1996, its lowest
level over the past five years. The Association's net interest margin indicated
a similar trend, increasing from 4.12 percent in fiscal year 1992 to 4.63
percent in fiscal year 1993 then decreasing to 3.97 percent in
12
<PAGE>
Income and Expense (cont.)
fiscal 1995, and then decreasing to 3.57 percent for the fiscal year 1996.
Empire Federal's net interest rate spread increased 65 basis points in 1993 to
3.96 percent from 3.31 percent in 1992 and then decreased 9 basis points in 1994
to 3.87 percent as the result of a decrease in yield. Net interest rate spread
then decreased 54 basis points to 3.33 percent for fiscal year 1995 and
decreased another 53 basis points to 2.80 percent for the fiscal year ended June
30, 1996. The Association's net interest margin followed a similar trend,
increasing 51 basis points to 4.63 percent in 1993 and then decreasing 20 basis
points to 4.43 percent in 1994. Net interest margin decreased 46 basis points to
3.97 percent in 1995 and continued to decrease another 40 basis points to 3.57
percent in 1996.
The Association's return on average equity increased from 1992 to 1993,
but decreased in 1994 through 1996. The return on average equity increased from
7.42 percent in 1992 to 10.25 percent in fiscal year 1993, and then went down to
9.13 percent in fiscal year 1994. The return on equity then decreased to 6.33
percent in fiscal year 1995, and decreased further to 3.99 percent for the
fiscal year ended June 30, 1996.
Empire Federal's ratio of interest-earning assets to interest-bearing
liabilities increased gradually from 116.99 percent at June 30, 1992, to 119.33
percent at June 30, 1996.
The Association's ratio of net interest income after provision for loan
losses to total other expenses decreased from 135.84 percent in fiscal year 1992
to 105.49 percent in fiscal year 1996. Such ratio reflects an institution's
ability to maintain its net interest income after provision for loans losses
relative to noninterest expenses. A decreasing ratio indicates a more rapid rise
in noninterest expenses relative to net interest income after provision for loan
losses, which is what occurred at Empire Federal. Another key noninterest
expense ratio reflecting efficiency of operation is the ratio of noninterest
expenses to net interest income referred to as the "efficiency ratio". The
industry norm
13
<PAGE>
Income and Expense (cont.)
is 60.0 percent. The Association has been characterized with a reduced level of
efficiency over the past five years reflected in its rise in its efficiency
ratio, which increased from a low 49.32 percent in 1993 to 71.95 percent in
1996, going from more efficient than the industry to less efficient than the
industry and reflective of the impact of the subsidiary's overhead.
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. Empire Federal witnessed a decrease in its nonperforming asset
ratio from 1992 to 1996. Nonperforming assets consist of loans delinquent 90
days or more, nonaccruing loans and repossessed assets. The ratio of
nonperforming assets to total assets was 0.65 percent at June 30, 1992, and
decreased to 0.62 percent at June 30, 1993. The ratio then decreased to 0.02
percent in 1994, to zero in 1995 and remained at zero in 1996. The Association's
allowance for loan losses was 91.36 percent of nonperforming assets at June 30,
1992, and increased significantly during the next two fiscal years, resulting
primarily from the decrease in nonperforming assets. As a percentage of loans
outstanding, Empire Federal's allowance for loan losses was 0.35 percent in
1993, 0.34 percent in 1994, 0.36 percent in 1995 and 0.46 percent in 1996.
Exhibit 9 provides the changes in net interest income due to rate and
volume changes for the past two fiscal years of 1995 and 1996. In fiscal year
1995, net interest income decreased $264,000, due to an increase in interest
expense of $297,000 reduced by a $73,000 increase in interest income. The
increase in interest income was due to an increase due to a change in volume of
$148,000 reduced by a decrease due to rate of $86,000 and a decrease due to a
combination of rate/volume of $29,000. The increase in interest expense was due
to an increase due to rate of $231,000 accented by an increase due to a change
in volume of $861,000 and an increase due to a combination of rate/volume of
$5,000.
14
<PAGE>
Income and Expense (cont.)
In fiscal year 1996, net interest income decreased $373,000, due to a
$1,000 decrease in interest income accented by a $372,000 increase in interest
expense. The decrease in interest income was due to a $67,000 increase due to
volume offset by a $49,000 increase due to rate and a $17,000 increase due to a
combination of rate/volume. The increase in interest expense was due to a
$429,000 increase due to volume accented by a $220,000 increase due to rate.
15
<PAGE>
YIELDS AND COSTS
The overview of yield and cost trends for the years ended June 30, 1995
and 1996, and at June 30, 1996, can be seen in Exhibit 10, which offers a
summary of key yields on interest-earning assets and costs of interest-bearing
liabilities.
Empire Federal's weighted average yield on its loan portfolio decreased
7 basis points from fiscal year 1995 to 1996, from 8.51 percent to 8.44 percent,
and then decreased 28 basis points to 8.16 percent at June 30, 1996. The yield
on mortgage-backed securities increased 13 basis points from fiscal year 1995 to
1996 from 6.65 percent to 6.78 percent and then increased 8 basis points to 6.86
percent at June 30, 1996. The yield on investment securities increased 149 basis
points from 3.83 percent in 1995 to 5.32 percent in 1996 and then decreased to
5.28 percent at June 30, 1996. Other interest-earning assets indicated a
decrease in their yield of 90 basis points from 7.36 percent in 1995 to 6.46
percent in 1996 and then decreased to 6.18 percent at June 30, 1996. The
combined weighted average yield on all interest-earning assets increased 8 basis
points to 7.51 percent from 1995 to 1996. The yield on interest-earning assets
then decreased 9 basis points to 7.42 percent at June 30, 1996.
Empire Federal's weighted average cost of interest-bearing liabilities
increased 61 basis points to 4.71 percent from fiscal year 1995 to 1996, which
was greater than the Association's 8 basis point increase in yield, resulting in
the decline in the Association's interest rate spread of 53 basis points from
3.33 percent to 2.80 percent from 1995 to 1996. The Association's average cost
of interest-bearing liabilities then decreased for the period of fiscal year
1996 to June 30, 1996 by 4 basis points to 4.67 percent compared to a 9 basis
point decrease in yield on interest-earning assets. The result was a continued
decrease in the Association's interest rate spread of 5 basis points to 2.75
percent at June 30, 1996. The Association's net interest margin decreased 40
basis points from 3.97 percent in fiscal year 1995 to 3.57 percent in fiscal
year 1996.
16
<PAGE>
INTEREST RATE SENSITIVITY
Empire Federal has monitored its interest rate sensitivity position due
to its focus on the origination of fixed rate mortgage loans by maintaining a
higher level of liquid assets, which were 23.9 percent of assets at June 30,
1996. Empire Federal recognized 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. Such exposure was due to the
disparate rate of maturity and/or repricing of assets relative liabilities
commonly referred to as an institution's "gap". The larger an institution's gap,
the greater the risk (interest rate risk) of earnings loss due to a decrease in
net interest margin and a decrease in market value of equity or portfolio loss.
In response to the potential impact of interest rate volatility and negative
earnings impact, many institutions have taken steps in the 1990's to minimize
their gap position. This frequently results in a decline in the institution's
net interest margin and overall earnings performance.
The Association measures its interest rate risk through the use of its
net portfolio value ("NPV") of the expected cash flows from interest-earning
assets and interest-bearing liabilities and any off-balance sheet contracts. The
NPV for the Association is calculated on a quarterly basis by the OTS as well as
the change in the NPV for the Association under rising and falling interest
rates. Such changes in NPV under changing rates is one indicator of the
Association's interest rate risk exposure. The Association also uses its
sensitivity measure as calculated by OTS each quarter.
There are other factors which have a measurable influence on interest
rate sensitivity. Such key factors to consider when analyzing interest rate
sensitivity include level of liquidity, the loan payoff schedule, accelerated
principal payments, deposit maturities, interest rate caps on adjustable-rate
mortgage loans, and deposit withdrawals.
17
<PAGE>
Interest Rate Sensitivity (cont.)
Exhibit 11 provides the Association's NPV as of June 30, 1996, and the
change in the Association's NPV under rising and declining interest rates. Such
calculations are provided by OTS, and the focus of this exposure table is a 200
basis points change in interest rates either up or down.
The Association's change in its NPV at June 30, 1996, based on a rise
in interest rates of 200 basis points was a 17.0 percent decrease, representing
a dollar decrease in equity value of $3,165,000. In contrast, based on a decline
in interest rates of 200 basis points, the Association's NPV was estimated to
increase 8.0 percent or $1,484,000 at June 30, 1996. The Association's exposure
at June 30, 1996, increases to a 36.0 percent decrease under a 400 basis point
rise in rates, and the NPV is estimated to increase 12.0 percent based on a 400
basis point decrease in rates. The Association's sensitivity measure was a
negative 277 basis points at June 30, 1996, compared to a lesser negative 220
basis points at June 30, 1995.
The Association is aware of its higher interest rate risk exposure
under rapidly rising rates and moderately positive exposure under falling rates.
Due to Empire Federal's recognition of the need to control its interest rate
exposure, the Association has accumulated a higher level of liquid assets and
plans to be more active in purchasing adjustable-rate mortgage-backed
securities.
18
<PAGE>
LENDING ACTIVITIES
Empire Federal has focused its lending activity on the origination of
conventional mortgage loans secured by one- to four-family dwellings. Exhibit 12
provides a summary of Empire Federal's loan portfolio, by loan type, at June 30,
1995 and 1996.
Residential loans secured by one- to four-family dwellings excluding
residential construction loans was the primary loan type representing a
significant 81.7 percent of the Association's gross loans as of June 30, 1996.
This share has seen a moderate increase from 84.7 percent at June 30, 1995. The
second largest real estate loan type as of June 30, 1996, was multifamily loans
which comprised 5.4 percent of gross loans compared to a larger 6.4 percent as
of June 30, 1995. The multifamily loan category was also the second largest real
estate loan type in 1995. The third key real estate loan type was construction
loans, which represented 3.2 percent of gross loans as of June 30, 1996,
compared to a much smaller 0.7 percent at June 30, 1995. The Association's
construction loans are single-family residential loans. Construction loans were
the fourth largest real estate loan type at June 30, 1995. These three real
estate loan categories represented 90.3 percent of gross loans at June 30, 1996,
compared to a slightly larger 91.7 percent of gross loans at June 30, 1995.
Commercial real estate loans were the fourth real estate loan category and
represented 2.7 percent of gross loans at June 30, 1996, compared to a larger
3.6 percent at June 30, 1995, when they were the third largest real estate loan
category.
The consumer loan category including share loans was the only other
loan type at June 30, 1996, and represented 7.0 percent of gross loans compared
to 4.8 percent at June 30, 1995. Consumer loans were the second largest overall
loan type at June 30, 1996, and the third largest loan type in 1995, surpassing
all but one- to four-family and multifamily loans. The Association originates
savings account loans, mobile home loans, automobile loans, home equity loans
and home improvement loans. The overall mix of loans has witnessed only modest
change from fiscal year-end 1995 to fiscal year-end 1996, with the
19
<PAGE>
Lending Activities (cont.)
Association having increased its share of consumer loans, including share loans,
and construction loans to offset its decreases in one- to four-family loans,
multifamily loans and commercial real estate loans.
The emphasis of Empire Federal's lending activity is the origination of
conventional mortgage loans secured by one- to four-family residences. Such
residences are located in Empire Federal's market area, which includes Gallatin,
Park, and Sweet Grass Counties. The Association also originates interim
construction loans on single-family residences primarily to individual owners
with such loans converting to permanent loans. At June 30, 1996, 81.7 percent of
Empire Federal's gross loans consisted of loans secured by one- to four-family
residential properties, excluding construction loans. Construction loans
represented another 3.2 percent of gross loans.
The Association originates two types of adjustable-rate mortgage loans,
("ARMs") with an adjustment/maturity period of one year. ARMs are originated for
the Association's portfolio. The interest rates on ARMs are indexed either to
the OTS Median Cost of Funds Index or the Semi-Annual Cost of Funds Index
("COFI"). The majority of ARMs are tied to COFI, which is a lagging model index
w hich may cause the yield on such loans to adjust more slowly than the cost of
funds in a rapidly rising interest rate environment. The Association's ARMs have
a maximum rate adjustment of 1.5 to 2.0 percent and a 5.0 percent maximum
adjustment over the life of the loan or to a specific ceiling rate.
The majority of ARMs have terms of 15 to 20 years, and fixed rate loans
have terms of up to 30 years. Substantially all one- to four-family mortgage
loans are for amounts of less than $250,000 and have terms of 20 to 25 years.
The Association retains its fixed rate loans. Historically, the large majority
of Empire Federal's mortgage loans are fixed-rate mortgage loans, which
represented 83.1 percent of loans due after June 30, 1996. All of Empire
Federal's consumer loans were fixed rate, excluding its home equity loans.
20
<PAGE>
Lending Activities (cont.)
The original loan to value ratio for conventional mortgage loans to
purchase or refinance one-to four-family dwellings is generally limited to 80
percent at Empire Federal, with most loans having loan-to-value ratios of 75
percent or less.
Empire Federal has also been an originator of commercial real estate
loans, and has been more active in multifamily loans in the past. The
Association will continue to make multifamily and commercial real estate loans.
The Association had a total of $1.2 million in commercial real estate loans at
June 30, 1996, or 2.7 percent of gross loans, compared to $1.4 million or 3.6
percent of gross loans at June 30, 1995. Multifamily loans have decreased from
$2.6 million or 6.4 percent of gross loans at June 30, 1995, to $2.3 million or
5.4 percent of gross loans at June 30, 1996. The major portion of commercial
real estate loans are secured by office buildings, churches, farms, retail
stores and other commercial properties.
Empire Federal has been moderately active in consumer lending. Consumer
loans originated consist primarily of automobile loans, home equity loans,
mobile home loans, savings account loans, and home improvement loans, which
represented a combined total of $3.0 million or 7.0 percent of gross loans at
June 30, 1996, up from $1.9 million or 4.8 percent in 1995.
Exhibit 13 provides a breakdown and summary of Empire Federal's fixed-
and adjustable-rate loans, indicating a strong predominance of fixed-rate loans.
At June 30, 1996, 83.1 percent of the Association's total loans due after June
30, 1996, were fixed-rate and 16.9 percent were adjustable-rate. While most
loans are fixed-rate, it is evident that a strong 76.5 percent of one- to
four-family residential mortgage loans and 79.3 percent of total loans have
maturities of less than 20 years.
21
<PAGE>
Lending Activities (cont.)
As indicated in Exhibit 14, Empire Federal experienced a significant
decrease in both its one-to four-family loan originations and total loan
originations from fiscal years 1993 to 1995 and then an increase in 1996. Total
loan originations in fiscal year 1996 were $12.4 million compared to $16.2
million in fiscal year 1993, with fiscal year 1994 indicating a lower $15.6
million and 1995 indicating a much lower $4.5 million. The decrease in one-to
four-family residential loan originations from 1993 to 1996 constituted 148.0
percent of the $3.9 million aggregate decrease in total loan originations from
1993 to 1996 with that overall decrease partially offset by increases in
construction and consumer loans. Loan originations for the purchase of one- to
four-family residences, excluding construction loans, represented 80.8 percent
of total loan originations in fiscal year 1993, compared to a higher 84.9
percent in fiscal year 1994, a much lower 64.1 percent in fiscal year 1995, and
a still lower 59.8 percent in 1996. Overall, loan originations exceeded
principal payments and repayments in fiscal 1993 by $3.2 million, exceeded
reductions in fiscal year 1994 by $1.3 million, fell short of reductions in 1995
by $2.5 million reflective of the decline in originations, and then exceeded
reductions in fiscal 1996 by $3.0 million.
22
<PAGE>
NONPERFORMING ASSETS
Empire Federal understands asset quality risk and the direct
relationship of such risk to delinquent loans and nonperforming assets including
real estate owned. The quality of assets has been a key concern to financial
institutions throughout many regions of the country. A number of financial
institutions have been confronted with rapid increases in their levels of
nonperforming assets and have been forced to recognize significant losses,
setting aside major valuation allowances. A sharp increase in nonperforming
assets has often been related to specific regions of the country and has
frequently been associated with higher risk loans, including purchased
nonresidential real estate loans. Empire Federal has not been faced with such
problems and has made a concerted effort to control its nonperforming assets.
Empire Federal's delinquent loans at June 30, 1996 indicated a very
modest level. Loans delinquent 30 to 89 days totaled $290,000 or 0.67 percent of
gross loans. Loans delinquent 90 days or more were zero June 30, 1996, as were
nonaccrual loans.
Empire Federal reviews each loan when it becomes delinquent 30 days or
more, to assess its collectibility and to initiate direct contact with the
borrower. The Association does not send the borrower a late payment notice until
30 days after the payment is due. A second notice is mailed 30 days thereafter,
if necessary. The Association does not charge the borrower late penalty fees on
payments due after the contractual due date. The Association initiates both
written and oral communication with the borrower if the loan remains delinquent.
When the loan becomes delinquent at least 90 days, the Association will consider
foreclosure proceedings. The Association does not normally accrue interest on
loans past due 90 days or more. Any loans delinquent 90 days or more are placed
on a non-accrual status, and at that point in time, the Association considers
the possibility of pursuing foreclosure. Empire Federal had no real estate owned
as of June 30, 1995 or 1996, and no nonaccrual loans or loans delinquent 90 days
or more at June 30, 1995 or 1996.
23
<PAGE>
Nonperforming Assets (cont.)
Empire Federal's zero level of nonperforming assets is lower than its
level of classified assets. The Association's level of classified assets was
$75,000 or 0.09 percent of assets at June 30, 1996 (reference Exhibit 15). The
Association's classified assets consisted of $75,000 in substandard assets, with
no assets classified as doubtful or loss.
Exhibit 16 shows Empire Federal's allowance for loan losses at June 30,
1995 and 1996, indicating the activity and the resultant balances. Empire
Federal has witnessed an increase in its balance of allowance for loan losses
from $145,000 in 1995 to $200,000 at June 30, 1996, with no provisions in 1995
and $55,000 in fiscal 1996. The Association had no net charge-offs in 1995 or
1996. The Association's ratio of allowance for loan losses to loans outstanding
increased from 0.36 percent at June 30, 1995, to 0.46 percent at June 30, 1996,
due to an increase in allowances. Allowance for loan losses to nonperforming
assets was not meaningful due to the absence of nonperforming assets.
24
<PAGE>
INVESTMENTS
The investment and securities portfolio of Empire Federal has been
comprised of U.S. government and federal agency securities, mortgage-backed
securities, interest-bearing deposits, FHLMC stock, mutual funds and FHLB stock.
Exhibit 17 provides a summary of Empire Federal's investment portfolio at June
30, 1995 and 1996. Investment securities were $6.3 million at June 30, 1996,
compared to $6.0 million at June 30, 1995. The primary component of investment
securities, excluding mortgage-backed securities, was U. S. government and
federal agency securities representing 39.4 percent of investments, followed by
securities available-for-sale, comprised of FHLMC stock and mutual funds,
representing 21.8 percent, interest-bearing deposits representing 21.1 percent
and FHLB stock representing 17.7 percent. The securities portfolio had a
weighted average yield of 5.71 percent, and the mortgage-backed securities had a
weighted average yield of 6.78 percent in fiscal 1996.
The Association had mortgage-backed securities totaling $35.1 million
at June 30, 1996, which decreased from $36.8 million at June 30, 1995. The
Association's mortgage-backed securities consisted of 5.3 percent in REMIC
securities, 2.8 percent in GNMA securities, 25.8 percent in FNMA securities, and
a strong 66.1 percent in FHLMC securities. Mortgage-backed securities are
included in total investments and shown in Exhibit 17. Mortgage-backed
securities represented a strong 84.7 percent of total investments and
mortgage-backed securities at June 30, 1996, and 40.4 percent of assets.
DEPOSIT ACTIVITIES
The mix of deposits at June 30, 1996, is provided in Exhibit 18. NOW
accounts, passbook savings and money market accounts represented 41.61 percent
of deposits at June 30, 1996, with passbook savings comprising 52.3 percent of
this group. Passbook savings, NOW accounts and money market accounts totaled
$28.6 million and certificates including accrued interest totaled $68.7 million.
The largest category of certificates based on term were the 7 to 12 month
certificates which represented 13.36 percent of total deposits,
25
<PAGE>
Deposit Activities (cont.)
followed by certificates with terms of 13 to 24 months which represented 10.73
percent of deposits, followed closely by longer term 25 to 36 month certificates
which represented 10.43 percent of deposits.
Exhibit 19 shows the Association's deposit activity for the three years
ended June 30, 1995 and 1996. Including interest credited, Empire Federal
experienced a net decrease in deposits in fiscal years 1995 and a net increase
in 1996. In fiscal year 1995, there was a net decrease in deposits of $1.3
million or 1.9 percent of deposits, followed by a $1.5 million net increase or
2.2 percent in 1996.
BORROWINGS
Empire Federal has relied on retail deposits as its primary source of
funds but has also used FHLB advances during the past five fiscal years ended
June 30, 1996. The Bank had advances totaling $1.5 million at June 30, 1996,
with an average cost of 5.98 percent and a larger $1.8 million at June 30, 1995,
at a cost of 5.43 percent (reference Exhibit 20).
SUBSIDIARIES
Empire Federal has one wholly-owned subsidiary, Dime Service
Corporation ("Dime"). Dime was established in 1985 to operate in the insurance
agency business. In 1992 and 1993, Dime purchased the insurance business of two
local insurance agencies and operates under the name Dime Insurance Agency
("Agency"). The Agency provides full service property and casualty insurance.
The Association's investment in Dime was $495,000 at June 30, 1996, and Dime had
net income of $50,000 in fiscal 1996 and $74,000 in fiscal 1995.
26
<PAGE>
OFFICE PROPERTIES
Empire Federal has three offices, its home office located in downtown
Livingston and branches in Big Timber and Bozeman, Montana. The Big Timber
branch was established in 1980 in connection with the Association's merger with
Big Timber Building and Loan Association. The office of Big Timber was relocated
to the current branch location. The branch in Bozeman was opened in 1958 in
connection with a merger with Pioneer Building and Loan Association and
relocated to its current facility in 1971. The Association's home office is
leased, with the owners being the Association's president, its executive vice
president and its general counsel. While the lease expires in March, 1997, the
Association has negotiated with the three owners to purchase the building, and
this has been approved by the OTS. The Association also leases office space for
its two Dime Insurance offices located in Livingston and Big Timber. The
Association's investment in its office premises and equipment totaled $1.3
million or 1.5 percent of assets at June 30, 1996 (reference Exhibit 21).
MANAGEMENT
The president, chief executive officer, and managing officer of Empire
Federal is Beverly D. Harris. Mrs. Harris joined the Association in 1956, and
served the Association in various capacities before becoming president in 1972.
Mrs. Harris became a director in 1971. Mrs. Harris is also a board member of
Dime, of the Financial Institution's Retirement Fund and of the Montana Power
Company. Mrs. Harris is a member of the Thrift Advisory Council of the Federal
Reserve Board. The executive vice president of the Association is Ernest A.
Sandberg who has been with the Association since 1969 and served as executive
vice president and secretary since 1979. Mr. Sandberg has been a director since
1971 and is also a director of Dime (reference Exhibit 22).
27
<PAGE>
II. DESCRIPTION OF PRIMARY MARKET AREA
Empire Federal's market area encompasses those regions surrounding its
offices in Gallatin County, Park County and Sweet Grass County, Montana, ("the
market area"). The Association's home office is located in Livingston, Montana
with branches in Bozeman and Big Timber. Its primary market area is comprised of
the market area counties mentioned above.
Empire Federal's market area trends and economic performance have been
very dependent on the overall economic trends in its market area. The market
area is primarily agricultural with the services and tourism industries also
contributing to the economy. The major employers are Montana State University,
Livingston School District, Livingston Rebuild Center, Livingston Memorial
Hospital, R-Y Lumber, Industrial Towel and state and local government.
Unemployment rates in the market area are lower than both state and national
unemployment rates and have declined consistently over the past few years. The
market area is characterized as having higher than average growth rates in
population and household levels, while having average levels of income and
housing with the cost of living being close to the national average but
remaining significantly less than in major metropolitan areas.
Exhibit 23 provides a summary of key demographic data and trends for
the market area, Gallatin County, Park County, Sweet Grass County, Montana and
the United States for the periods of 1990, 1995, and 2000. Overall, the period
of 1990 to 1995 was characterized by a rise in the market area population level
by 15.7 percent from 68,179 residents to 78,883 residents. Of the market area
counties, Gallatin County witnessed the highest population growth, increasing
its population by 18.0 percent, compared to an increase in population of 10.1
percent in Park County and a smaller increase of 4.9 percent in Sweet Grass
County. Population in Montana increased by 8.9 percent, while the national
population level increased by 5.7 percent. During the period of 1995 through
2000, population is projected to continue to rise in the market area by 13.0
percent to 89,155 residents. Population in Gallatin County is expected to grow
at a faster rate than Park County and Sweet Grass County. Population in Gallatin
County is projected to
28
<PAGE>
Description of Primary Market Area (cont.)
increase by 14.5 percent to 68,193 residents, in Park County by 9.2 percent to
17,509 residents and Sweet Grass County by 4.4 percent to 3,453 residents.
Montana's population is expected to rise by 8.1 percent, while the national
population is expected to increase by a lower 5.4 percent.
In conformance with its increasing trend in population, the market area
witnessed increases in households (families) of 15.1 percent from 1990 to 1995,
from 25,915 households to 29,830 households. By the year 2000, the market area's
households are projected to increase by 13.3 percent to 33,799. Gallatin County
had higher increases in households than Park County and Sweet Grass County. From
1990 to 1995, Gallatin County's households increased by 17.3 percent, compared
to a 10.2 percent household increase in Park County and a 4.4 percent household
increase in Sweet Grass County. From 1995 to 2000, Gallatin County is expected
to increase its households by 14.9 percent, while Park County households are
projected to grow by 9.5 percent and Sweet Grass County by a smaller 4.3
percent. Households in Montana and in the United States increased by 8.5 percent
and 5.6 percent, respectively, from 1990 to 1995. By the year 2000, Montana's
households are expected to increase by 8.1 percent, while the United States'
number of households are projected to grow by 5.3 percent.
The market area had higher per capita income levels than Montana but
lower per capita income levels than the United States in 1990 and 1995. In 1990,
the market area had a per capita income level of $11,078, while Montana had a
per capita income level of $10,969, and the United States had a per capita
income level of $16,405. From 1990 to 1995, the United States had the largest
increase in per capita income, followed by the market area and then by Montana.
The market area had a per capita income level of $14,536 in 1995, 8.8 percent
higher than the per capita income level in Montana by of $13,366, and 12.9
percent lower than the national per capita income of $16,405. The market area
per capita income had a high in Gallatin County of $14,750, and a low in
29
<PAGE>
Description of Primary Market Area (cont.)
Sweet Grass County of $13,749, with both market area counties having a higher
per capita income levels than Montana, but lower per capita income levels than
the United States for 1995.
In 1990, the median household income level in the market area was
similar to Montana's median household income, but lower than the United States'
median household income. The market area's median household income of $24,460
was slightly higher than Montana's median household income of $24,363, but 15.5
percent lower than the United States' median household income level of $28,255.
From 1990 to 1995, median household income in the market area grew by 11.4
percent, increasing to $27,259, compared to Montana's median household income
growth of 12.1 percent to $27,174 and the United States' increase in median
household income by 19.0 percent to $33,610. Of the market area counties,
Gallatin County had the lowest percent increase in median housing income, while
Sweet Grass County had the highest percent increase in median household income.
By the year 2000, Montana and the United States are projected to decline in
median household income to $27,174 and $32,972, respectively, as Empire
Federal's market area will have a moderate increase to $27,653, with a high of
$29,531 in Park County and a low of $$27,081 in Gallatin County.
Exhibit 24 provides a summary of key housing data for the market area,
Gallatin County, Park County, Sweet Grass County, Montana, and the United
States. Empire Federal's market area had a 60.9 percent rate of owner-occupancy
in 1990, which is lower than the 67.3 percent owner-occupancy rates for Montana
and the 64.2 percent owner-occupancy for the United States. Gallatin County had
a 58.5 percent rate of owner-occupancy compared to a higher 66.3 percent for
Park County and an even higher 72.1 percent for Sweet Grass County. As a result,
the market area supports a higher rate of renter-occupied housing of 39.1
percent, compared to 32.7 percent for Montana and a higher 35.8 percent for the
United States. Gallatin County had a rate of renter-occupied housing of 41.5
percent, Park County has a lower rate of 33.7 percent, while Sweet Grass County
had the lowest rate with 27.9 percent.
30
<PAGE>
Description of Primary Market Area (cont.)
The market area median housing value of $64,453 is higher than
Montana's median housing value of $56,600 and lower than the United States'
median housing value of $79,098. Gallatin County's median housing value of
$70,200 was highest of the market area counties. Park County and Sweet Grass
County had similar median housing values with $48,100 and $48,000, respectively.
The average median rent of the market area is $273, which is higher than the
$251 median rent for Montana, but lower than the United States which has a
median rent value of $374. Of the market area counties, Gallatin County had the
highest median rent with $292, followed by Park County with $224 and Sweet Grass
County with $195.
The major business source of employment by industry group, based on
number of employees for the market area was the wholesale/retail industry
responsible for 37.1 percent of the jobs in 1993 which was higher than Montana
at 35.1 percent and also higher than the United States at 27.5 percent.
(Reference, Exhibit 25). The services industry was the second major employer in
the market area and in Montana with 34.6 percent for both areas. The services
industry was the largest employer in the United States with 34.0 percent. The
manufacturing group was the third major source of employment in the market area
at 10.7 percent, in Montana at 9.2 percent and in the United States at 19.2
percent. The construction group, finance, insurance and real estate group,
transportation/utilities group, and the agriculture/mining group combined to
provide 17.6 percent of the jobs in the market area, 21.0 percent of jobs in
Montana, and 19.3 percent in the United States. The wholesale/retail group was
the major provider of employment in Gallatin and Sweet Grass Counties, while the
services industry was the major contributor in Park County. Some of the major
employers in the market area are:
31
<PAGE>
Description of Primary Market Area (cont.)
<TABLE>
<CAPTION>
Employer Product/Service Number of Employees
<S> <C> <C>
Montana State University Services 2,000
Livingston School District Services 230
Livingston Memorial Hospital Services 205
Livingston Rebuild Center Manufacturing 200
</TABLE>
An economic indicator that pertains more directly to the banking and
thrift industries is the issuance of new housing permits and permits for
commercial buildings because of its direct relationship to lending activity
(reference Exhibit 26). In 1991, 248 new housing permits were authorized in the
market area, 1,263 in Montana, and 796,647 in the United States. In 1992, the
issuance of new housing permits authorized increased in the market area by 46.8
percent as 364 new housing permits were issued. Montana and the United States
witnessed positive growth rates of 56.1 percent and 20.1 percent, respectively,
with 1,972 and 956,494 new housing permits authorized. In 1993, the market area,
Montana and the United States witnessed increases in the number of new housing
permits authorized. The market area counties authorized 475 new permits, an
increase of 30.5 percent, Montana authorized 2,451 new permits, a growth of 24.3
percent, while the United States exhibited a growth of 8.6 percent with
1,038,907 new permits. Gallatin County was the major contributor to the number
of new housing permits authorized in the market area by authorizing 244 new
permits in 1991, 354 new permits in 1992, and 453 new permits in 1993.
Commercial building permit information was not available for the market
area, Gallatin County, Park County and Sweet Grass County. Commercial building
permits in Montana followed a similar pattern for the years 1991 through 1993,
with a large increase in 1992 followed by a smaller increase in 1993. Montana
decreased its permit activity by 1.9 percent from 1991 to 1992 issuing
commercial building permits with a value of $121.0 million in 1992 compared to
$125.0 million in 1991. In 1993, Montana experienced an
32
<PAGE>
Description of Primary Market Area (cont.)
increase of 12.4 percent in commercial building permit valuations to $136.0
million. In 1992, the United States witnessed a slight decline in commercial
building permit valuations of 0.1 percent, from $56.9 billion in 1991 to $56.8
billion in 1992. The United States rebounded in 1993 with growth of 8.1 percent,
rising to $61.43 billion in the value of new commercial building permits.
The unemployment rate is another key economic indicator. Exhibit 27
shows the average unemployment rates in the market area, Gallatin County, Park
County, Sweet Grass County, Montana, and the United States in 1994, 1995 and
July, 1996. Unemployment rates in the market area have historically been
characterized as being lower than both the state and national unemployment
rates. The market area showed a small increase in its unemployment rate from 2.9
percent in 1994 to 3.1 percent in 1995. Montana's unemployment rate increased
from 5.1 percent to 5.9 percent and the United States' unemployment rate
decreased from 6.1 percent to 5.2 percent in that same time period. In July
1996, unemployment decreased to 2.9 percent in the market area and to 5.2
percent in Montana and increased in the United States. Individually, Gallatin
County, Park County and Sweet Grass County have been characterized as having
lower unemployment rates than both Montana and the United States. In July 1996,
Gallatin County and Sweet Grass County had identical unemployment rates of 1.9
percent, while Park County had an unemployment rate of 3.3 percent.
Exhibit 28 provides deposit data for banks, thrifts and credit unions
in Gallatin, Park and Sweet Grass Counties. Empire Federal's deposit base in the
market area was $67.1 million or 57.2 percent of the $117.3 million total thrift
deposits but a much smaller 9.1 percent share of total market area deposits
which totaled $736.6 million. The market area is clearly dominated by the
banking industry. Total bank deposits were $591.8 million representing 80.4
percent of total deposits, compared to a lower $117.3 million or 15.9 percent of
deposits for thrifts, and a moderate $27.4 million or 3.7 percent of total
deposits held by credit unions. It is evident from the size of both thrift
deposits and bank
33
<PAGE>
Description of Primary Market Area (cont.)
deposits that the market area has a moderate deposit base with the Association
having a major share of market penetration of all thrift deposits, but a much
smaller level of market penetration of total deposits.
Exhibit 29 provides interest rate data for each quarter for the years
1992 through 1995 and for the first two quarters 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 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 and then
remained at 8.25 percent through the second quarter in 1996. Rates on T-bills,
however, witnessed an increase with 30-Year Treasury Bills experiencing the
largest increase.
SUMMARY
To summarize, the market area represents an area with growing
population and number of households during the mid 1990s. The market area
displayed a higher per capita income than Montana in 1995 but well below the
United States, and the market area's median household income in 1995 was below
Montana's median household income and well below the United States. The market
area had a median housing value and average median rent level that was higher
than Montana but lower than the United States. Further, the market area has a
competitive financial institution market dominated by banks with a deposit base
that exceeds $736.6 million in deposits for all of the market area and a higher
share of credit union deposits than most small community markets.
34
<PAGE>
III. COMPARABLE GROUP SELECTION
Introduction
Integral to the valuation of Empire Federal Bancorp, Inc. 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 Corporation'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 West and
Montana.
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 338 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 40 publicly-traded
thrifts in the western United States ("Western thrifts") and the 4
publicly-traded thrifts in Montana ("Montana thrifts"), and by trading exchange.
Exhibit 32 presents prices, pricing ratios and price trends for all SAIF-insured
thrifts completing their conversions between January 1, 1996, and September 6,
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 Empire Federal as determinants for defining those
parameters. The determination of parameters was also based on the uniqueness of
each parameter as a normal indicator
35
<PAGE>
Introduction (cont.)
of a thrift institution's operating philosophy and perspective. The parameters
established and defined are considered to be both reasonable and reflective of
Empire Federal's basic operation. In as much 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
Marshalltown Financial Corp. Iowa
WFS Bancorp Kansas
Mutual Bancompany Missouri
No thrift institution in Empire Federal's city, county or market area
is currently involved in merger/acquisition activity or have been recently so
involved, as indicated in Exhibit 33.
36
<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
35 presents pricing ratios and Exhibit 36 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
Pocahontas Federal S & L Assn. Arkansas
Webster City Federal Savings Bank, MHC Iowa
Pulaski Bank, Savings Bank, MHC Missouri
Riverview Savings Bank, MHC Washington
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 Association 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 356 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 325 are
listed on NASDAQ.
37
<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 September 6, 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 Empire Federal,
including the Mid-Atlantic states, the Southeastern states and the New England
states.
The geographic location parameter consists of Montana, its surrounding
states of Washington, North Dakota, South Dakota, Wyoming and Idaho, as well as
the states of California, Colorado, Iowa, Kansas, Minnesota, Missouri, New
Mexico, Texas, Washington and Wisconsin, for a total of sixteen states. In the
case of Empire Federal, the geographic parameter was extended moderately due to
the small universe potential comparable group candidates in Montana and its
contiguous states. We are confident that the states surveyed for comparable
group candidates constitute demographic and economic regions and markets
sufficiently similar to Empire Federal market area. The selection process will
be further refined by the definition and application of the specific parameters
established in this section.
38
<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 $400 million, due to the typically different operating
strategies, expansion capabilities, liquidity of stock and acquisition appeal of
larger institutions when compared to Empire Federal, with assets of
approximately $87 million. Such an asset size parameter was necessary to obtain
a comparable group of at least ten institutions within the geographic regions
designated above.
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 33 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.
39
<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 and functionally different from Empire Federal
with regard to asset mix. The balance sheet parameters also distinguish
institutions with a significantly different capital position from Empire
Federal. The ratio of deposits to assets was not used as a parameter as it is
directly related to and affected by an institution's equity and borrowed funds
ratios, which are separate parameters.
Cash and Investments to Assets
Empire Federal's level of cash and investments to assets was 7.4
percent at June 30, 1996, and reflects the Association's level of investments
lower than national and regional averages. The Association's investments consist
primarily of federal agency securities, deposits in other institutions, FHLMC
stock and mutual funds. It should be noted that Federal Home Loan Bank stock is
not included in cash and investments, but rather is part of other assets in
order to be consistent with reporting requirements and sources of
40
<PAGE>
Cash and Investments to Assets (cont.)
statistical and comparative analysis. During its last five fiscal years, Empire
Federal's ratioof cash and investments to assets has averaged 5.5 percent, from
a high of 6.0 percent at June 30, 1993, to a low of 4.0 percent in fiscal year
1995.
In order to prevent the elimination of otherwise good potential
comparable group candidates, the parameter range for cash and investments is
broad due to the volatility of this parameter and recognizing that
mortgage-backed securities, often eligible for regulatory liquidity, afford
additional investment choices for many institutions. The range has been defined
as 45.0 percent or less of total assets, with additional reference to the
mortgage-backed securities parameter.
Mortgage-Backed Securities to Assets
At June 30, 1996, Empire Federal's ratio of mortgage-backed securities
to assets was 40.54 percent, much higher than both the regional average of 14.7
percent and the national average of 13.7 percent. The Association's five year
average ratio is 43.4 percent of total assets, similar to its current ratio.
Many institutions purchase mortgage-backed securities as an alternative to
lending relative to cyclical loan demand and prevailing interest rates,
supplementing its loan portfolio. This parameter is, therefore, moderately broad
at 45.0 percent or less of assets and a midpoint of 22.5 percent, but does not
extend significantly beyond Empire Federal's current and historical ratios of
mortgage-backed securities to assets in order to provide relativity between this
parameter and the previous cash and investments parameter.
41
<PAGE>
One- to Four-Family Loans to Assets
Empire Federal's lending activity is focused on the origination of
residential mortgage loans secured by one- to four-family dwellings. One- to
four-family loans, not including construction loans, represented 40.55 percent
of the Association's assets at June 30, 1996, which is somewhat below industry
averages. The parameter for this characteristic requires any comparable group
institution to have from 20.0 percent to 70.0 percent of its assets in one- to
four-family loans with a midpoint of 45.0 percent.
Total Net Loans to Assets
At June 30, 1996, Empire Federal had a ratio of total net loans to
assets of 48.2 percent and a very similar five fiscal year average of 47.6
percent, which is significantly lower than the national and regional averages of
67.3 percent and 68.4 percent, respectively. The parameter for the selection of
the comparable group is from 30.0 percent to 85.0 percent with a midpoint of
57.5 percent. The wider range is simply due to the fact that, as the referenced
national and regional averages indicate, many larger institutions purchase a
greater volume of investment securities and/or mortgage-backed securities as a
cyclical alternative to lending.
Total Net Loans and Mortgage-Backed Securities to Assets
As discussed previously, Empire Federal's shares of mortgage-backed
securities to assets and total net loans to assets were 40.5 percent and 48.3
percent, respectively, for a combined share of 88.8 percent. Recognizing the
industry and regional ratios of 13.7 percent and 14.7 percent, respectively, of
mortgage-backed securities to assets, as well as the Association's lower level
of investment securities, the parameter range for the comparable group in this
category is 55.0 percent to 97.0 percent, with a midpoint of 78.5 percent.
42
<PAGE>
Borrowed Funds to Assets
Empire Federal had FHLB advances of $1.5 million or 1.7 percent of
total assets at June 30, 1996, which was lower than its balance of $1.8 million
or 2.0 percent of total assets at June 30, 1995, and also lower than its five
fiscal year average of $2.6 million or 3.14 percent. 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 1995 due to the
higher cost of deposits. The result was competitive rates on longer term Federal
Home Loan Bank advances, and an increase in borrowed funds by many institutions
as an alternative to higher cost, long term certificates. The ratio of borrowed
funds to assets, therefore, does not typically indicate higher risk or more
aggressive lending, but primarily an alternative to retail deposits.
The range of borrowed funds to assets is 30.0 percent or less with a
midpoint of 15.0 percent, similar to the national average of 13.2 percent.
Equity to Assets
Empire Federal's equity to assets ratio as of June 30, 1996, was 18.29
percent. After conversion, based on the midpoint value of $19,600,000 and net
proceeds to the Association of approximately $9.5 million, Empire Federal's
equity is projected to stabilize in the area of 29.0 percent. Based on those
equity ratios, we have defined the equity ratio parameter to be 7.0 percent to
25.0 percent with a midpoint ratio of 16.0 percent.
43
<PAGE>
PERFORMANCE PARAMETERS
Introduction
Exhibit 37 presents five parameters identified as key indicators of
Empire Federal's earnings performance and the basis for such performance. The
primary performance indicator is the Association's return on average assets
("ROAA"). The second performance indicator is the Association's return on
average equity ("ROAE"). To measure the Association's ability to generate net
interest income, we have used net interest margin. The supplemental source of
income for the Association is noninterest income, and the parameter used to
measure this factor is noninterest income to assets. The final performance
indicator that has been identified is the Association's ratio of operating
expenses, also referred to as noninterest expenses, to assets, a key factor in
distinguishing different types of operations, particularly institutions that are
aggressive in secondary market activities, which often results in much higher
operating costs and overhead ratios.
Return on Average Assets
The key performance parameter is the ROAA. Empire Federal's most recent
ROAA was 0.72 percent for the twelve months ended June 30, 1996, based on net
earnings after taxes and 0.78 percent based on core earnings after taxes, as
detailed in Item I of this report and presented in Exhibit 7. The Association's
ROAA over the past five fiscal years, based on net earnings, has ranged from a
low of 0.72 percent in 1996 to a high of 1.55 percent in 1993 with an average
ROAA of 1.19 percent. ROAA has declined steadily since June 30, 1993. For the
four quarters following conversion in early 1997, Empire Federal's ROAA is
projected to range between 1.04 percent and 1.11 percent.
Considering the historical, current and projected earnings performance
of Empire Federal, the range for the ROAA parameter based on net income has been
defined as 0.55 percent to a high of 1.35 percent with a midpoint of 0.95
percent.
44
<PAGE>
Return on Average Equity
The ROAE has been used as a secondary parameter to eliminate any
institutions with an unusually high or low ROAE that is inconsistent with the
Association's position. This parameter does not provide as much meaning for a
newly converted thrift institution as it does for established stock
institutions, due to the newness of the capital structure of the newly converted
thrift and the inability to accurately reflect a mature ROAE for the newly
converted thrift relative to other stock institutions.
The consolidated ROAE for the Association and the Corporation on a pro
forma basis at the time of conversion will be 2.99 percent based on the midpoint
valuation. Prior to conversion, the Association's ROAE was 3.99 percent for the
twelve months ended June 30, 1996, based on net income and 4.33 percent based on
core income, with a five year average net ROAE of 7.42 percent. The parameter
range for the comparable group, based on net income, is from 3.0 percent to 10.0
percent with a midpoint of 6.5 percent.
Net Interest Margin
Empire Federal had a net interest margin of 3.57 percent based on the
twelve months ended June 30, 1996, indicating a declining trend since June 30,
1993. The Association's range of net interest margin for the past five fiscal
years has been from a low of 3.57 percent in 1996 to a high of 4.63 percent in
1993 with an average of 4.14 percent.
The parameter range for the selection of the comparable group is from a
low of 2.75 percent to a high of 4.25 percent with a midpoint of 3.50 percent.
45
<PAGE>
Operating Expenses to Assets
Empire Federal had an average operating expense to average assets ratio
of 3.18 percent for the twelve months ended June 30, 1996. The Association's
operating expenses have been reasonably stable in recent years, ranging from a
low of 2.64 percent in fiscal year 1993 to a high of 3.18 percent in its most
recent fiscal year of 1996, with an average of 2.96 percent, higher than the
current industry average of 2.29 percent due to the additional expenses related
to the Associaton's subsidiary insurance agency.
The operating expense to assets parameter for the selection of the
comparable group is from a low of 2.00 percent to a high of 3.90 percent with a
midpoint of 2.95 percent, similar to Empire Federal's five year average.
Noninterest Income to Assets
Empire Federal has experienced a higher than average dependence on
noninterest income as a source of additional income, with a strong majority of
that income consisting of insurance commissions earned by its subsidiary, Dime.
The Association's noninterest income to average assets was 1.00 percent for the
twelve months ended June 30, 1996, which is considerably above the industry
average of 0.44 percent for that period. Empire Federal's noninterest income for
the past five fiscal years has fluctuated from a high of 1.00 percent of average
assets in both fiscal years 1996 and 1995 to a low of 0.69 percent in fiscal
year 1992 with an average ratio of 0.88 percent.
The range for this parameter for the selection of the comparable group
is 1.25 percent or less of average assets with a midpoint of 0.63 percent,
considerably higher than the national average of 0.44 percent.
46
<PAGE>
ASSET QUALITY PARAMETERS
Introduction
The final set of financial parameters used in the selection of the
comparable group are asset quality parameters, also shown in Exhibit 39. The
purpose of these parameters is to insure that any thrift institution in the
comparable group has an asset quality position reasonably similar to that of
Empire Federal. The three defined asset quality parameters are the ratios of
nonperforming assets to total assets, repossessed assets to total assets and
loan loss reserves to total assets at the end of the most recent period.
Nonperforming Assets to Assets Ratio
Empire Federal was absent nonperforming assets at June 30, 1996,
compared to the national average of 1.20 percent, the Western regional average
of 1.82 percent and the Montana average of 0.36 percent. The Association's most
recent five fiscal year average ratio of nonperforming assets to total assets is
0.26 percent, from zero in fiscal years 1996 and 1995 to a high of 0.65 percent
at June 30, 1992.
The parameter range for nonperforming assets to assets has been defined
as 1.00 percent of assets or less with a midpoint of 0.50 percent.
Repossessed Assets to Assets
Empire Federal was absent repossessed assets at June 30, 1996, and had
a like zero balance at June 30, 1993, 1994 and 1995, with a small $62,000
balance or 0.08 percent of total assets at June 30, 1992, resulting in a five
year average of 0.016 percent of total assets. National and regional averages
were 0.65 percent and 0.83 percent, respectively, at June 30, 1996.
47
<PAGE>
Repossessed Assets to Assets (cont.)
The range for the repossessed assets to total assets parameter is 0.20
percent of assets or less with a midpoint of 0.10 percent.
Loans Loss Reserves to Assets
Empire Federal had a loan loss reserve or allowance for loan losses of
$200,000, representing a loan loss allowance to total assets ratio of 0.23
percent at June 30, 1996, which is higher than its ratio of 0.17 percent at June
30, 1995.
The loan loss allowance to assets parameter range used for the
selection of the comparable group focused on a minimum required ratio of 0.20
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
$69.3 million to $372.2 million with an average asset size of $177.3 million and
have an average of 5.9 offices per institution compared to Empire Federal with
assets of $86.8 million and three offices. One of the comparable group
institutions was converted in 1986, one in 1992, four in 1993, two in 1994, and
two in 1995.
Exhibit 41 presents a comparison of Empire Federal's market area
demographic data with that of each of the institutions in the comparable group.
48
<PAGE>
SUMMARY OF COMPARABLE GROUP INSTITUTIONS
Capital Savings Bancorp, Inc., Jefferson City, Missouri, is a holding
company for Capital Savings Bank, FSB. The Bank operates two full service
offices in Jefferson City and five additonal full service offices in California,
Eldon, Fulton, Rolla and Owensville, Missouri, and a loan origination office in
Lake Ozark, Missouri. The Bank has total assets of $202.6 million, total equity
of $21.1 million, and a reported ROAA of 0.95 percent for its most recent four
quarters.
East Texas Financial Services, Inc., Tyler, Texas, is the holding
company for First Federal Savings and Loan Association, operating two offices in
the east Texas community of Tyler. The Association currently has total assets of
$115.3 million and equity of $21.8 million, and reported an ROAA of 0.81 percent
for its most recent four quarters.
First Bancshares, Inc., Mountain Grove, Missouri, is a unitary savings
and loan holding company for the First Home Savings Bank, with three full
service branches in Marshfield, Ava and Gainesville, Missouri. The Bank has
assets of $143.7 million, equity of $23.7 million and had an ROAA of 0.85
percent for its most recent four quarters.
Fort Bend Holding Corporation, Rosenberg, Texas, is a unitary saving
and loan holding company which owns Fort Bend Federal Savings and Loan
Association of Rosenberg. The Association's four offices serve the market area
of Fort Bend County, which is a western suburb of Houston. The Association has
assets of $254.7 million, equity of $18.0 million and reported an ROAA of 0.70
percent for its most recent four quarters.
49
<PAGE>
Summary of Comparable Group Institutions (cont.)
FSF Financoal Corp., Hutchinson, Minnesota, is the holding company for
First State Federal Savings and Loan Association. The Association conducts
business from 11 offices located in McLeod, Dakota, Meeker, Sibley, Carver,
Stearns and Wright Counties, Minnesota. At the end of its most recent quarter,
the Association has assets of $331.3 million, equity of $47.6 million and
reported an ROAA of 0.64 percent for its trailing four quarters.
Mid-Iowa Financial Corp., Newton, Iowa, is the holding company for
Mid-Iowa Savings Bank, FSB. The Bank operates 6 offices in the central Iowa area
and focuses its lending activity on one-to-four family mortgage loans. The Bank
has total assets of $115.2 million and total equity of $10.8 million, with an
ROAA of 0.93 percent.
Mississippi View Holding Company, Little Falls, Minnesota, is the
holding company for Community Federal Savings and Loan Association of Little
Falls, which serves Morrison, Todd, Cass and Stearns Counties, Minnesota, from
its single office. The Association had total assets of $69.3 million and equity
of $12.8 million at the end of its most recent quarter, and reported an ROAA of
1.31 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.
Security Bancorp, Billings, Montana, is the holding company for
Security Bank, FSB, which operates 15 full service offices in Montana. With
total assets of $372.2 million and equity of $30.7 million, the Bank reported an
ROAA of 0.71 percent and an ROAE of 8.22 percent for its most recent four
quarters.
50
<PAGE>
Summary of Comparable Group Institutions (cont.)
Tri-County Bancorp, Torrington, Wyoming, is the holding company for
Tri-County Federal Savings and Loan Association, with 2 offices serving Goshen,
Niobrara and Platte Counties, Wyoming. At the end of its most recent quarter,
the Association has assets of $76.7 million, equity of $12.4 million and had an
ROAA of 0.95 percent for its most recent four quarters.
51
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IV. ANALYSIS OF FINANCIAL PERFORMANCE
This section reviews and compares the financial performance of Empire
Federal to all thrifts, regional thrifts, Montana thrifts and the ten
institutions constituting Empire Federal's comparable group, as selected and
described in the previous section. The comparative analysis focuses on financial
condition, earning performance and pertinent ratios as presented in Exhibits 42
through 47.
As presented in Exhibits 42 and 43, at June 30, 1996, Empire Federal's
total equity of 18.29 percent of assets was higher than the 13.23 percent for
the comparable group, the 13.10 for all thrifts, the 9.73 percent ratio for
Western thrifts, and the 13.78 percent ratio for Montana thrifts. The
Association had a 48.25 percent share of net loans in its asset mix,
considerably lower than the comparable group at 58.61 percent, and also lower
than all thrifts at 67.29 percent, Western thrifts at 68.39 percent and Montana
thrifts at 54.32 percent. Empire Federal's share of net loans, lower than
industry averages, is primarily the result of its higher level mortgage-backed
securities of 40.54 percent. The comparable group had a lower 14.29 percent
share of mortgage-backed securities and a higher 24.33 percent share of cash and
investments. All thrifts had 13.73 percent of assets in mortgage-backed
securities and 15.09 percent in cash and investments. Empire Federal's share of
deposits of 78.96 percent was higher than the comparable group, and also higher
than the three geographic categories, reflecting the Association's lower 1.73
percent share of FHLB advances and higher than average ratio of equity to
assets. The comparable group had deposits of 71.68 percent and borrowings of
13.88 percent. All thrifts averaged a 72.25 percent share of deposits and 13.16
percent of borrowed funds, while Western thrifts had a 69.82 percent share of
deposits and a higher 18.81 percent share of borrowed funds. Montana thrifts
averaged a 66.53 percent share of deposits and a 17.95 percent share of borrowed
funds. Empire Federal had a minimal 0.01 percent share of goodwill, compared to
0.12 percent for the comparable group, 0.32 percent for all thrifts, 0.18
percent for Western thrifts and 0.30 percent for Montana thrifts.
52
<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 Empire
Federal 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 June 30, 1996,
Empire Federal had a yield on average interest-earning assets similar to the
comparable group but lower than the three geographical categories. The
Association's yield on interest-earning assets was 7.51 percent compared to the
comparable group at 7.59 percent, all thrifts at 7.73 percent, Western thrifts
at 7.72 percent and Montana thrifts at 7.70 percent.
The Association's cost of funds for the twelve months ended June 30,
1996, was lower than the comparable group and the three geographical categories.
Empire Federal had an average cost of interest-bearing liabilities of 4.71
percent compared to 4.89 percent for the comparable group, 4.92 percent for all
thrifts, 5.09 percent for Western thrifts and 4.73 for Montana thrifts. The
Association's interest income and interest expense ratios resulted in an
interest rate spread of 2.80 percent, which was higher than the comparable group
at 2.70 percent and Western thrifts at 2.63 percent, identical to all thrifts at
2.70 percent and lower than Montana thrifts at 2.96 percent. Empire Federal
demonstrated a net interest margin of 3.57 percent for the twelve months ended
June 30, 1996, based on average interest-earning assets, which was higher than
the comparable group ratio of 3.34 percent. All thrifts also averaged a lower
3.35 percent net interest margin for the trailing four quarters, as did Western
thrifts at 3.00 percent. Montana thrifts, however, indicated a slightly higher
net interest margin of at 3.61 percent.
Empire Federal's major source of income is interest earnings, as is
evidenced by the operations ratios presented in Exhibit 45. The Association made
a $55,000 provision for loan losses during the twelve months ended June 30,
1996, representing 0.06 percent of average assets and reflecting the
Association's objective to strengthen its reserves for
53
<PAGE>
Analysis of Financial Performance (cont.)
loan losses in accordance with general industry norms. The comparable group
indicated a provision representing 0.03 percent of assets, with all thrifts at
0.12 percent, Western thrifts at 0.33 percent and Montana thrifts at 0.02
percent.
The Association's non-interest income was $879,000 or 1.00 percent of
average assets for the twelve months ended June 30, 1996, of which 78.4 percent
or 0.79 percent of average assets constituted insurance commissions from its
subsidiary. Such non-interest income was significantly higher than the
comparable group at 0.46 percent, all thrifts at 0.44 percent, Western thrifts
at 0.51 percent and Montana thrifts at 0.85. For the twelve months ended June
30, 1996, Empire Federal's operating expense ratio was 3.18 percent, higher than
the comparable group and the three geographical averages. The comparable group's
operating expense ratio was 2.34 percent, while all thrifts averaged 2.29
percent, Western thrifts averaged 2.31 percent and Montana thrifts averaged 2.59
percent.
The overall impact of Empire Federal's income and expense ratios is
reflected in the Association's net income and return on assets. For the twelve
months ended June 30, 1996, the Association had an ROAA of 0.72 percent based on
net income and a higher ROAA of 0.78 percent based core income. For its most
recent four quarters, the comparable group had a higher net ROAA of 0.89
percent, and also a higher ROAA of 0.78 percent based on core income. All
thrifts averaged an ROAA of 0.88 percent, similar to the comparable group, while
Western thrifts averaged a lower ROAA of 0.55 percent and Montana thrifts
averaged a higher 1.15 percent. All thrifts indicated a core ROAA of 0.81
percent, while Western thrifts and Montana thrifts averaged a core ROAA of 0.46
percent and 1.08 percent, respectively, compared to Empire Federal's core ROAA
of 0.78 percent.
54
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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 Empire Federal with the comparable group. These adjustments will
take into consideration such key items as earnings performance, market area,
financial condition, dividend payments, subscription interest, liquidity of the
stock to be issued, management, and market conditions or marketing of the issue.
It must be noted, however, that all of the institutions in the comparable group
have their differences, and as a result, such adjustments become necessary.
EARNINGS PERFORMANCE
In analyzing earnings performance, consideration was given to the level
of net interest income, the level and volatility of interest income and interest
expense relative to changes in market area conditions and to changes in overall
interest rates, the quality of assets as it relates to the presence of problem
assets which may result in adjustments to earnings, the level of current and
historical classified assets and real estate owned, the level of valuation
allowances to support any problem assets or nonperforming assets, the level and
volatility of non-interest income, and the level of non-interest expenses.
As discussed earlier, the Association's historical business philosophy
has focused on maintaining its net interest income, further reducing its current
ratio of nonperforming assets, increasing its level of interest sensitive assets
relative to interest sensitive liabilities and thereby improving its sensitivity
measure and its overall interest rate risk, maintaining an adequate level of
general valuation allowances to reduce the impact of any unforeseen losses, and
closely monitoring and improving its reasonable level of overhead expenses. The
Association's current philosophy will continue to focus on maintaining its net
interest spread, net interest margin, net income and return on assets,
generating additional non-
55
<PAGE>
Earnings Performance (cont.)
interest income, and increasing its level of interest sensitive assets relative
to interest sensitive liabilities.
Earnings are often related to an institution's ability to generate
loans. The Association was an active originator of mortgage loans in fiscal
years 1993 to 1996, although originations were significantly lower in fiscal
year 1995 than in the other three years. During the twelve months ended June 30,
1996, originations of $12.4 million exceeded the originations of $4.5 million in
fiscal year 1995 by $8.0 million, with increases in the categories of one- to
four family residential mortgage loans, construction loans and consumer loans.
Originations during the twelve months ended June 30, 1994 and 1993 were $15.6
million and $16.2 million, respectively.
Empire Federal experienced a significant decrease in principal
repayment levels from fiscal year 1994 to fiscal year 1995, although such
repayments exceeded loan originations in fiscal year 1995, resulting in a net
decrease of $2.5 million in its outstanding loans. Loans receivable increased by
$3.0 million in fiscal year 1996, $3.2 million in fiscal year 1993 and $1.3
million in fiscal year 1994. The Association's focus has historically been on
the origination of one- to four-family mortgage loans, with that loan category
constituting 80.8 percent, 84.9 percent, 64.1 percent and 59.8 percent of total
origination in fiscal years 1993, 1994, 1995 and 1996, respectively. In those
four periods, the second largest category of originations was construction
loans, with consumer loans being the third largest. In Empire Federal's most
recent fiscal year of 1996, however, the origination of construction loans only
slightly exceeded consumer loans and that trend is expected to continue. The
impact of these primary lending efforts has been to generate a yield on average
interest-earning assets of 7.51 percent for Empire Federal for the twelve months
ended June 30, 1996, compared to 7.59 percent for the comparable group, 7.73
percent for all thrifts and 7.72 for Western thrifts. The Association's level
56
<PAGE>
Earnings Performance (cont.)
of interest income to average assets was 7.21 percent for the twelve months
ended June 30, 1996, which was lower than the comparable group at 7.31 percent,
all thrifts at 7.42 percent and Western thrifts at 7.39 percent for their most
recent four quarters.
Offsetting its lower yield, Empire Federal's cost of interest-bearing
liabilities of 4.71 percent for the twelve months ended June 30, 1996, was lower
than the comparable group at 4.89 percent and also lower than all thrifts at
4.92 percent and Western thrifts at 5.09 percent. As a result, the Association's
net interest margin of 3.57 percent, based on average interest-earning assets
for the twelve months ended June 30, 1996, was higher than the comparable group
at 3.34 percent and also higher than all thrifts at 3.35 percent. Empire
Federal's net interest spread of 2.80 percent for the twelve months ended June
30, 1996, was higher than the comparable group at 2.61 percent, identical to all
thrifts at 2.80 percent and higher than Western thrifts at 2.96 percent.
The Association's ratio of noninterest income to assets was 1.00
percent for the twelve months ended June 30, 1996, considerably higher than the
comparable group at 0.46 percent, all thrifts at 0.44 percent and Western
thrifts at 0.51 percent. As previously noted, a recurring major component of
Empire Federal's non-interest income is insurance commissions earned by its
subsidiary, which has constituted between 65.0 percent and 80.0 percent of
noninterest income in recent years. The Association has indicated noninterest
income higher than the comparable group, but its operating expenses have also
been higher than the comparable group and Western thrifts and similar to all
thrifts. For the twelve months ended June 30, 1996, Empire Federal had an
operating expenses to assets ratio of 3.18 percent compared to a lower 2.34
percent for the comparable group, 2.29 percent for all thrifts and 2.31 percent
for Western thrifts.
For the twelve months ended June 30, 1996, Empire Federal generated
much higher noninterest income, a higher ratio of noninterest expenses, and a
higher net interest margin
57
<PAGE>
Earnings Performance (cont.)
relative to its comparable group. Notwithstanding that higher net interest
margin, however, the Association's net income was lower than its comparable
group for the twelve months ended June 30, 1996. Based on net earnings, the
Association had a return on average assets of 1.10 percent in fiscal year 1992,
1.55 percent in fiscal year 1993, 1.47 percent in fiscal year 1994, 1.12 percent
in fiscal year 1995, and 0.72 percent in fiscal year 1996. For its most recent
four quarters, the comparable group had a higher net ROAA of 0.89 percent, while
all thrifts indicated a similar 0.88 percent. The Association's core or
normalized earnings, as shown in Exhibit 7, were $632,000, indicating an
identical 0.72 percent core return on assets for the most recent twelve months
ended June 30, 1996. That core ROAA was also lower than the comparable group at
0.83 percent and all thrifts at 0.81 percent.
Empire Federal's earnings stream will continue to be dependent on the
overall trends in interest rates, with considerable additional reliance on its
non-interest income, with net interest income indicating a steady and moderate
downward trend since June 30, 1993. The Association's cost of interest-bearing
liabilities will continue its modest upward trend as deposits reprice at higher
rates, with the overall cost increases partially offset by a growth in lower
cost transaction accounts. 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. As previously stated, has also been
recognized that although Empire Federal's current net interest margin is higher
than that of its comparable group for the most recent four quarters, the
Association has also experienced a consistent downward trend in its net interest
margin, ROAA, and net interest spread since June 30, 1993. In recognition of the
foregoing earnings related factors, a moderate downward adjustment has been made
to Empire Federal's pro forma market value for earnings performance.
58
<PAGE>
MARKET AREA
Empire Federal's primary market area consists of Gallatin, Park and
Sweet Grass Counties, Montana, including the cities of Bozeman, Big Timber and
Livingston, the latter city being the location of the Association's home office.
As discussed in Section II, this market area has evidenced active growth in both
population and households since 1990, and has experienced lower unemployment
levels compared to the comparable group markets, Montana and the United States.
The unemployment rate in Empire Federal's market area counties averaged 2.9
percent in July, 1996, compared to 4.8 percent for Montana and 5.6 percent for
the United States. Per capita and household income levels in the Association's
market area are lower than the comparable group, but higher than state averages.
The market area is also characterized by higher median housing values than the
comparable group and Montana, but lower than the United States. The market area
is generally rural and agricultural, with the wholesale/retail and services
sectors indicating similar shares of market area employment, followed distantly
by the manufacturing sector. The level of financial competition in the
Association's market area is strong, including a considerable presence of credit
unions, and dominated by the banking industry. Empire Federal had net decreases
in deposits in its most recent three fiscal years of 1994 through 1996, as
deposits, not including interest credited, were exceeded by withdrawals. In
recognition of all these factors, we believe that a minimum downward adjustment
is warranted for the Association's market area.
59
<PAGE>
FINANCIAL CONDITION
The financial condition of Empire Federal is discussed in Section I and
shown in Exhibits 1, 2, 5, 15, 16 and 17, and is compared to the comparable
group in Exhibits 40, 42 and 43. The Association's total equity ratio before
conversion was 18.29 percent at June 30, 1996, which was higher than the
comparable group at 13.23 percent, Western thrifts at 9.73 percent and all
thrifts at 13.10 percent. With a conversion at the midpoint, the Corporation's
pro forma equity to assets ratio will increase to 30.75 percent, and the
Association's pro forma equity to assets ratio will increase to approximately
29.0 percent.
The Association's mix of assets indicates some areas of significant
variation from its comparable group. Empire Federal had a lower share of net
loans at 48.25 percent of total assets at June 30, 1996, compared to the
comparable group at 58.61 percent and all thrifts at 67.29 percent. The
Association's share of cash and investments was a significantly lower 7.35
percent compared to 24.33 percent for the comparable group and 15.09 percent for
all thrifts. Empire Federal's ratio of mortgage-backed securities to total
assets was 40.54 percent, significantly higher than both the comparable group at
14.24 percent and all thrifts at 13.73 percent. The Association had a 78.96
percent share of deposits and a 1.73 percent share of FHLB advances, compared to
the comparable group's 71.68 percent of deposits and 13.88 percent of borrowed
funds.
The Association had nominal goodwill of 0.01 percent and was absent
repossessed real estate compared to percentages of 0.12 and 0.05 of goodwill and
repossessed real estate, respectively, for the comparable group. All thrifts
indicated goodwill of 0.32 percent and repossessed real estate of 0.65 percent.
The financial condition of Empire Federal is further affected by its absence of
nonperforming assets at June 30, 1996, compared to 0.37 percent for the
comparable group. The Association was also absent nonperforming assets at June
30, 1995, and indicated ratios of nonperforming assets to total assets of 0.02
percent, 0.62 percent and 0.65 percent in fiscal years 1994, 1993 and 1992,
respectively, evidencing a downward trend and the elimination of nonperforming
assets since 1992.
60
<PAGE>
Financial Condition (cont.)
The Association had a lower share of high risk real estate loans at
5.63 percent compared to 7.41 percent for the comparable group and 14.49 percent
for all thrifts. Empire Federal had $200,000 in general valuation allowances in
spite of its absence of nonperforming assets at the end of its two most recent
fiscal years. The comparable group had a ratio of reserves to nonperforming
assets of 190.28 percent, with all thrifts at 91.98 percent and Western thrifts
at 78.61 percent. Empire Federal has experienced moderate levels of interest
rate risk, as reflected by its exposure under conditions of rising interest
rates. Overall, we believe that a moderate upward adjustment is warranted for
Empire Federal's current financial condition.
DIVIDEND PAYMENTS
Empire Federal has not indicated its intention to pay an initial cash
dividend. The future payment of cash dividends will be dependent upon such
factors as earnings performance, capital position, growth level, and regulatory
limitations. All ten institutions in the comparable group pay cash dividends for
an average dividend yield of 2.25 percent for those 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
some 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.
61
<PAGE>
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. In the first half of 1996, interest in new issues was
mixed, with the number of conversions decreasing from the same period in 1995.
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.
Empire Federal will focus its offering to depositors and residents in
its market area. The board of directors and officers anticipate purchasing
approximately $690,000 or 3.5 percent of the conversion stock based on the
appraised midpoint valuation. Empire Federal will form an 8.0 percent ESOP,
which plans to purchase stock in the initial offering. Additionally, the
Prospectus restricts to 25,000 shares, based on the $10.00 per share purchase
price, the total number of shares in the conversion that may be purchased by a
single person, or by persons and associates acting in concert as part of either
the subscription offering or the direct community offering.
The Association has secured the services of Charles Webb & Company
("Webb") to assist the Association in the marketing and sale of the conversion
stock. Based on the size of the offering, current market conditions, local
market interest and the terms of the offering, we believe that a moderate
downward adjustment is warranted for the Association's anticipated subscription
interest.
62
<PAGE>
LIQUIDITY OF THE STOCK
Empire Federal 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. Empire Federal will pursue two market makers for the
stock. The size of Association's offering is considerably below the national
average and approximately 61.2 percent below the Montana average, but similar in
size to that of the comparable group. It is likely that the stock of Empire
Federal will be somewhat less liquid than thrift stocks nationally and in its
Western market area. Nevertheless, we believe that no adjustment to the pro
forma market value is warranted at this time relative to the liquidity of the
stock.
MANAGEMENT
The president of Empire Federal is Beverly D. Harris. Mrs. Harris has
been employed by the Association since 1956, has been president since 1972 and
has been a director since 1971. The executive vice president of Empire Federal
is Ernest A. Sandberg, who has been with the Association since 1969 and
executive vice president since 1979. Mr. Sandberg has also been a director of
the Association since 1971. Both Mrs. Harris and Mr. Sandberg serve on the board
of directors of the Association's service corporation, Dime Service Corporation.
Mrs. Harris and the management of Empire Federal have made a concerted
effort to maintain the Association's deposits and market share, and to
strengthen lending activity and asset quality.
Empire Federal has been able to strengthen its equity level and
increase its equity ratio over the past few years and its asset quality has
improved significantly since 1992. Net interest spread and net interest margin
are currently above comparable group, although they have declined modestly since
1994, while net income is modestly lower than both the
63
<PAGE>
Management (cont.)
comparable group and industry averages. The Association's non-interest expenses
are currently higher than the comparable group, and also higher than all thrifts
and Western thrifts. 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 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.
64
<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".
65
<PAGE>
PRICE TO BOOK VALUE METHOD
The price to book value method focuses on a thrift institution's
financial condition, and does not give as much consideration to the
institution's performance as measured by net earnings. Therefore, this method is
sometimes considered less meaningful for institutions that do provide a
consistent earnings trend. Due to the earnings volatility of many thrift stocks,
the price to book value method is frequently used by investors who rely on an
institution's financial condition rather than earnings performance.
Consideration was given to the adjustments to the Association's pro
forma market value discussed in Section V. A moderate upward adjustment was made
for financial condition and a minimum upward adjustment was made for management.
Minimum downward adjustments were made for market area and dividend payments.
Moderate downward adjustments were made for earnings performance and
subscription interest and a maximum downward adjustment was made for the
marketing of the issue. No adjustment was made for the liquidity of the
Association's stock.
Exhibit 48 shows the average and median price to book value ratios for
the comparable group which were 86.84 percent and 86.69 percent, respectively.
The total comparable group indicated a moderately wide range, from a low of
75.36 percent (East Texas Financial Services) to a high of 103.57 percent
(Security Bancorp). 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 minimally from a
low of 76.21 percent to a high of 101.25 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 60.24 percent at the midpoint, and ranging
from a low of 55.55 percent at the minimum to a high of 68.09 percent at the
super maximum for the Corporation.
66
<PAGE>
Price to Book Value Method (cont.)
The Corporation's price to book value ratio of 60.24 is influenced by
the Association's financial condition, as well as local and regional market and
subscription interest in thrift stocks. The Association's equity to assets after
conversion will be approximately 29.00 percent compared to a similar 13.23
percent for the comparable group. Based on this price to book value ratio and
the Association's equity of $15,876,000 at June 30, 1996, the indicated pro
forma market value for the Association using this approach is $19,601,009 at the
midpoint (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 Empire Federal is displayed
in Exhibit 3, indicating after tax net earnings for the twelve months ended June
30, 1996, of $632,000. Exhibit 7 indicates the derivation of the Association's
identical core or normalized earnings of $632,000 for the twelve months ended
June 30, 1996. To arrive at the pro forma market value of the Association by
means of the price to earnings method, we used the net and core earnings base of
$632,000.
In determining the appropriate price to earnings multiple for the
Association, we reviewed the range of price to net earnings and core earnings
multiples for the comparable group and all publicly-traded thrifts. The average
price to net earnings multiple for the comparable group was 14.03, while the
median was 12.24. The average price to core earnings multiple was 15.05 and the
median multiple was 15.09. The comparable group's price to net earnings multiple
was lower than the average for all publicly-traded, SAIF-insured thrifts of
16.25, but higher than their median of 13.71. The price to core earnings
multiple for all thrifts was also higher than the comparable group with an
average at 17.46 times core earnings and a median at 14.84 times core earnings.
The range in the price to net earnings multiple for the comparable group was
from a low of 9.48 (Fort Bend
67
<PAGE>
Price to Earnings Method (cont.)
Holding Corp.) to a high of 21.05 (FSF 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 10.64 to a high of
17.84 times earnings for eight of the ten institutions in the group.
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 an identical price to net earnings multiple and price to core
earnings multiple of 20.12 at the midpoint, based on Empire Federal's net and
core earnings of $632,000 for twelve months ended June 30, 1996. The price to
earnings multiple is from 18.09 times earnings at the minimum of the valuation
range to 23.78 times earnings at the supermaximum.
Based on such the Association's core earnings base of $632,000
(reference Exhibits 48 and 49), the pro forma market value of the Corporation
using the price to earnings method is $19,601,372 at the midpoint.
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 11.55 percent and the median was 11.58 percent. The range in the price to
net assets ratios for the comparable group varied from a low of 5.43 percent
(Fort Bend Holding Corp.) to a high of 15.42 percent (Mississippi View Holding
Co.). It narrows only slightly with the elimination of the two extremes in the
group to a low of 8.54 percent and a high of 14.79 percent.
68
<PAGE>
Price to Assets Method (cont.)
Based on the adjustments made previously for Empire Federal, it is our
opinion that an appropriate price to net assets ratio for the Corporation is
18.52 percent at the midpoint, which is higher than the comparable group at
11.55 and ranges from a low of 16.19 percent at the minimum to 23.12 percent at
the super maximum.
Based on the Association's June 30, 1996, asset base of $86,810,000,
the indicated pro forma market value of the Corporation using the price to net
assets method is $19,599,435 at the midpoint (reference Exhibit 49).
69
<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 60.24 percent for the Corporation represents a discount of 30.63
percent relative to the comparable group and decreases to 21.59 percent at the
super maximum. The price to earnings multiple of 20.12 for the Corporation at
the midpoint value indicates a premium of 43.40 percent, increasing to a premium
of 94.39 percent at the super maximum. The price to assets ratio at the midpoint
represents a premium of 60.32 percent, increasing to a premium of 100.14 percent
at the super maximum.
It is our opinion that as of September 6, 1996, the pro forma market
value of the Corporation is $19,600,000 at the midpoint, representing 1,960,000
shares at $10.00 per share. The valuation range for this stock is from a minimum
of $16,660,000 or 1,666,000 shares at $10.00 per share to a maximum of
$22,540,000 or 2,254,000 shares at $10.00 per share, with such range being
defined as 15 percent below the appraised value to 15 percent above the
appraised value. The super maximum is $25,921,000 or 2,592,100 shares at $10.00
per share (reference Exhibits 48 to 53). The appraised value of Empire Federal
Bancorp, Inc. as of September 6, 1996, is $19,600,000.
70
<PAGE>
NUMERICAL
EXHIBITS
<PAGE>
EXHIBIT 1
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
LIVINGSTON, MONTANA
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
AT JUNE 30, 1996
(In thousands)
June 30,
1996
------------
ASSETS
Cash and cash equivalents $ 1,161
Interest-bearing deposits 1,338
Investment and mortgage-backed securities
available for sale 13,877
Investment and mortgage-backed securities held-
to-maturity (estimated market value of $25,008
in 1996 and $39,525 in 1995) 25,196
Loans receivable, net 41,882
Stock in Federal Home Loan Bank of Seattle, at cost 1,123
Accrued interest receivable 328
Income tax receivable 65
Premises and equipment, net 1,338
Prepaid expenses and other assets 502
------------
Total assets $ 86,810
LIABILITIES AND EQUITY
Liabilities:
Deposits 68,548
Advances from Federal Home Loan Bank 1,500
Advances from borrowers for taxes and insurance 206
Accrued expenses and other liabilities 449
Income taxes payable -
Deferred income taxes 231
------------
Total Liabilities $ 70,934
Equity:
Retained earnings, substantially restricted 15,621
Unrealized gain on securities available for sale,
net of deferred taxes 255
------------
Total equity 15,876
------------
Total liabilities and equity $ 86,810
============
Source: Empire Federal's audited financial statements
71
<PAGE>
EXHIBIT 2
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
LIVINGSTON, MONTANA
BALANCE SHEET
AT JUNE 30, 1992 THROUGH 1995
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------------------------------
1995 1994 1993 1992
----------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 961 $ 1,787 $ 1,792 $ 1,864
Interest-bearing deposits 1,235 311 100 992
Securities available for sale - 1,081 - -
Investment securities (estimated market value of
$1,165 in 1994, $3,726 in 1993, and
$1,444 in 1992 1,192 1,200 3,067 1,017
Mortgage-backed securities (estimated market value
of $39,525 in 1995, $36,729 in 1994, $36,385
in 1993 and $36,296 in 1992 39,441 37,605 34,943 35,205
Loans receivable, net 39,432 41,387 40,347 37,038
Stock in Federal Home Loan Bank of Seattle, at cost 1,044 983 886 770
Accrued interest receivable 363 309 354 356
Premises and equipment 1,161 866 925 1,024
Other real estate owned - - - 62
Prepaid expenses and other assets 666 614 694 258
----------- ------------ ------------ ------------
Total Assets $ 85,495 $ 86,143 $ 83,107 $ 78,586
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Deposits 67,064 68,336 65,234 62,835
Advances from Federal Home Loan Bank 1,751 2,189 4,106 3,513
Advances from borrowers for taxes and insurance 239 236 237 224
Accrued expenses and other liabilities 590 494 632 282
Income taxes payable 37 136 5 121
Deferred income taxes 315 277 101 77
----------- ------------ ------------ ------------
Total Liabilities 69,995 71,668 70,315 67,052
Equity:
Retained earnings, substantially restricted 14,989 14,037 12,792 11,534
Net unrealized gain on securities available for sale,
net of deferred taxes 511 438 - -
Total equity 15,500 14,475 12,792 11,534
----------- ------------ ------------ ------------
Total liabilities and equity $ 85,495 $ 86,143 $ 83,107 $ 78,586
=========== ============ ============ ============
</TABLE>
Source: Empire Federal's audited financial statements
72
<PAGE>
EXHIBIT 3
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
LIVINGSTON, MONTANA
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED JUNE 30, 1996
Year ended
June 30,
1996
-------------
(In thousands)
Interest income:
Loans receivable $ 3,441
Mortgage-backed securities 2,517
Investment securities 214
Other 132
-------------
Total interest income 6,304
-------------
Interest expense:
Deposits 3,214
Advances from Federal Home Loan Bank 96
-------------
Total interest expense 3,310
-------------
Net interest income 2,994
Provision for loan losses 55
-------------
Net interest income after provision for loan losses 2,939
Noninterest income:
Insurance commission income 688
Loan origination fees and services charges 145
Other 45
-------------
Total nonintererst income 878
-------------
Noninterest expense:
Compensation and benefits 1,615
Occupancy and equipment 340
Deposit insurance premiums 185
Data processing services 106
Other 540
-------------
Total noninterest expense 2,786
-------------
Income before income taxes 1,031
Income taxes 399
-------------
Net income $ 632
=============
Source: Empire Federal's audited financial statements
73
<PAGE>
EXHIBIT 4
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
LIVINGSTON, MONTANA
INCOME STATEMENTS
YEARS ENDED JUNE 30, 1992 THROUGH 1995
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------------------------------------------
1995 1994 1993 1992
-------------------- -------------- -------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 3,408 $ 3,612 $ 3,738 $ 3,626
Mortgage-backed securities 2,530 2,368 2,615 2,703
Investment securities 143 145 83 66
Other 224 147 228 233
-------------------- -------------- -------------- -------------
6,305 6,272 6,664 6,627
Interest expense:
Deposits 2,793 2,486 2,777 3,491
Advances from Federal Home Loan Bank 145 155 177 71
-------------------- -------------- -------------- -------------
2,938 2,641 2,955 3,562
Net interest income 3,367 3,631 3,709 3,065
Provision for loan losses - - 82 31
-------------------- -------------- -------------- -------------
Net interest income after provision
for loan losses 3,367 3,631 3,627 3,034
-------------------- -------------- -------------- -------------
Noninterest income:
Insurance commission income 691 589 461 326
Loan origination fees and service charges 130 149 141 145
Other 36 37 25 57
-------------------- -------------- -------------- -------------
Total noninterest income 857 775 627 528
Noninterest expense:
Compensation and benefits 1,542 1,385 1,134 955
Occupancy and equipment 264 267 262 244
Deposit insurance premiums 226 177 139 152
Data processing services 86 102 98 100
Other 565 572 444 376
-------------------- ------------ -------------- -------------
Total general and administrative 2,683 2,504 2,077 1,827
Provision for losses on real estate owned - - 62 406
-------------------- -------------- -------------- -------------
Total noninterest expense 2,683 2,504 2,138 2,234
-------------------- -------------- -------------- -------------
Income before taxes 1,541 1,902 2,115 1,328
Income taxes 589 713 857 498
-------------------- -------------- -------------- -------------
Income before cumulative effect of change -
in accounting principle - 1,189 1,259 830
Cumulative effect of a change in accounting
for income taxes - 56 - -
-------------------- -------------- -------------- -------------
Net income $ 952 $ 1,245 $ 1,259 $ 830
==================== ============== ============== =============
</TABLE>
Source: Empire Federal's audited financial statements
74
<PAGE>
EXHIBIT 5
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
AT JUNE 30, 1992 THROUGH 1996
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ------------ ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET
DATA:
Total assets $ 86,810 $ 85,495 $ 86,143 $ 83,107 $ 78,586
Cash and interest-bearing deposits 2,499 2,196 2,098 1,892 2,857
Loans receivable, net 41,882 39,432 41,387 40,347 37,038
Investment and mortgage-backed
securities available-for-sale 13,877 1,192 1,081 - -
Investment and mortgage-backed
securities held-to-maturity 25,196 39,441 38,805 38,010 36,222
Savings Deposits 68,548 67,064 68,336 65,234 62,835
Other borrowings 1,500 1,751 2,189 4,106 3,513
Total equity 15,876 15,500 14,475 12,792 11,534
</TABLE>
Source: Empire Federal Bancorp, Inc.'s Prospectus
75
<PAGE>
EXHIBIT 6
INCOME AND EXPENSE TRENDS
FOR THE FISCAL YEARS ENDED JUNE 30, 1992 THROUGH 1996
<TABLE>
<CAPTION>
For the years ended June 30,
--------------------------------------------------------
1996 1995 1994 1993 1992
--------- ---------- --------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATIONS DATA:
Interest income $ 6,304 $ 6,305 $ 6,272 $ 6,664 $ 6,627
Interest expense 3,310 2,938 2,641 2,955 3,562
--------- ---------- --------- ---------- ----------
Net interest income 2,994 3,367 3,631 3,709 3,065
Provision for loan losses, net - - - 82 31
--------- ---------- --------- ---------- ----------
Net interest income after
provision for loan losses 2,994 3,367 3,631 3,627 3,034
--------- ---------- --------- ---------- ----------
Non-interest income:
Loan origination fees and
service charges 145 130 149 141 145
Insurance commission income 688 691 589 461 326
Other income 45 36 37 25 57
--------- ---------- --------- ---------- ----------
Total other income 878 857 775 627 528
Non-interest expense:
Compensation and employee
benefits 1,615 1,542 1,385 1,134 955
Occupancy and equipment 340 264 268 262 244
Deposit insurance premiums 185 226 177 139 152
Other general and administrative 646 651 674 542 476
Provision for losses on real
estate owned - - - 61 407
--------- ---------- --------- ---------- ----------
Total non-interest expense 2,786 2,683 2,504 2,138 2,234
--------- ---------- --------- ---------- ----------
Income before income taxes 1,031 1,541 1,902 2,116 1,328
Income tax expense 399 589 713 857 498
--------- ---------- --------- ---------- ----------
Income before cumulative effect of
change in accounting principle 632 952 1,189 1,259 830
Cumulative effect of change in
accounting for income taxes - - 56 - -
--------- ---------- --------- ---------- ----------
Net income $ 632 $ 952 $ 1,245 $ 1,259 $ 830
========= ========== ========= ========== ==========
</TABLE>
Source: Empire Federal Bancorp, Inc.'s Prospectus
76
<PAGE>
EXHIBIT 7
NORMALIZED EARNINGS TREND
FOR THE FISCAL YEARS ENDED JUNE 30, 1994 THROUGH 1996
Fiscal years ended
June 30,
----------------------------------
1996 1995 1994
--------- --------- ----------
(In thousands)
Net income after taxes $ 632 $ 952 $ 1,245
Net income before taxes and effect
of accounting adjustments 1,031 1,541 1,902
Income adjustments 0 0 56
Expense adjustments 0 0 0
Normalized earnings before taxes 1,031 1,541 1,846
Taxes 399 589 702
--------- --------- ----------
Normalized earnings after taxes $ 632 $ 952 $ 1,144
========= ========= ==========
(1) Based on tax rate of 38.0 percent
Source: Empire Federal Bancorp, Inc.
77
<PAGE>
EXHIBIT 8
PERFORMANCE INDICATORS
FOR THE FISCAL YEARS ENDED JUNE 30, 1992 THROUGH 1996
<TABLE>
<CAPTION>
Years ended June 30,
----------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on average assets 0.72% 1.12% 1.47% 1.55% 1.10%
Return on average equity 3.99% 6.33% 9.13% 10.25% 7.42%
Average interest-earning assets to
average interest-bearing liabilities 119.33% 118.48% 117.34% 118.34% 116.99%
Net interest income after provision for
loan losses to total other expenses 105.49% 125.49% 145.02% 169.63% 135.84%
Non-interest rate spread 2.80% 3.33% 3.87% 3.96% 3.31%
Net yield on average interest-earning
assets 3.57% 3.97% 4.43% 4.63% 4.12%
Efficiency ratio 71.95% 63.52% 56.83% 49.32% 62.17%
EQUITY RATIOS:
Average equity to average assets ratio 18.11% 17.07% 16.08% 15.52% 14.80%
Equity to assets at period end 18.29% 18.13% 16.80% 15.39% 14.68%
ASSET QUALITY RATIOS:
Nonperforming assets to total assets - - 0.02% 0.62% 0.65%
Nonperforming loans to total assets - - 0.02% 0.06% 0.06%
Non-performing loans to net loans - - 0.04% 0.13% 0.12%
Allowance for loan losses, REO and other
repossessed assets to nonperforming
assets N/M N/M 966.67% 117.51% 91.36%
Allowance for loan losses to total
loans, outstanding 0.46% 0.36% 0.34% 0.35% 0.17%
</TABLE>
Source: Empire Federal Bancorp, Inc.'s Prospectus
78
<PAGE>
EXHIBIT 9
VOLUME/RATE ANALYSIS
FOR THE FISCAL YEARS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
Year ended June 30, 1996 Year ended June 30, 1995
compared to compared to
Year ended June 30, 1995 Year ended June 30,1994
Increase (Decrease) Increase (Decrease)
Due to Due to
-------------------------------------- ---------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
-------- -------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 59 $ (28) $ 2 $ 33 $ (148) $ (54) $ (2) $ (204)
Mortgage-backed securities (64) 49 1 (14) 181 (18) - 163
Investment securities 12 55 5 72 98 (60) (41) (3)
Other interest-earning assets (74) (27) 9 (92) 17 46 14 77
-------- -------- -------- --------- --------- --------- --------- ---------
Total interest-earning assets (67) 49 17 (1) 148 (86) (29) 33
-------- -------- -------- --------- --------- --------- --------- ---------
Interest expense:
Savings accounts (6) 428 (1) 421 74 228 5 307
Other liabilities (58) 15 (6) (49) (13) 3 - (10)
-------- -------- -------- --------- --------- --------- --------- ---------
Total interest-bearing liabilities (64) 443 (7) 372 61 231 5 297
-------- -------- -------- --------- --------- --------- --------- ---------
Net change in interest income $ (3) $ 394 $ 24 $ (373) $ 87 $ (317) $ (34) $ 264
======== ======== ======== ========= ========= ========= ========= =========
</TABLE>
Source: Empire Federal Bancorp, Inc.'s Prospectus
79
<PAGE>
EXHIBIT 10
YIELD AND COST TRENDS
FOR FISCAL YEARS JUNE 30, 1995 AND 1996, AND
AT JUNE 30, 1996
At Year ended June 30,
June 30, -----------------------
1996 1996 1995
--------- ---------- ----------
INTEREST-EARNING ASSETS:
Loans receivable (1) 8.16% 8.44% 8.51%
Mortgage-backed securities 6.86% 6.78% 6.65%
Investment securities 5.28% 5.32% 3.83%
Other interest-earning assets(2) 6.18% 6.46% 7.36%
--------- ---------- ----------
Total interest-earning assets 7.42% 7.51% 7.43%
INTEREST-BEARING LIABILITIES:
Savings accounts 4.64% 4.68% 4.05%
Other liabilities 5.98% 6.02% 5.43%
--------- ---------- ----------
Total interest-bearing liabilities 4.67% 4.71% 4.10%
Net interest rate spread (3) 2.75% 2.80% 3.33%
========= ========== ==========
Net yield on interest earning assets (4) - 3.57% 3.97%
========= ========== ==========
Ratio of interest-earning assets to average
interest-bearing liabilities 119.33% 118.48%
========== ==========
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Interest rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
(5) Includes investments in FHLB stock.
Source: Empire Federal Bancorp, Inc.'s Proospectus
80
<PAGE>
EXHIBIT 11
INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE (NPV)
AT JUNE 30, 1996
Net Portfolio as % of
Basis Net Portfolio Value Portfolio Value of Assets
------------------------------------ ----------------------------
Point ("bp")
Change in
Rates $ Amount $ Change % Change NPV Ratio Change
- ------------- ---------- ------------ ------------ ------------- ------------
(Dollars in thousands)
+400 bp $11,766 $(6,495) (36.00)% 14.51 % -598 bp
+300 bp 13,403 (4,957) (27.00)% 16.13 % -436 bp
+200 bp 15,095 (3,165) (17.00)% 17.72 % -277 bp
+100 bp 16,762 (1,498) (8.00)% 19.22 % -127 bp
0 bp 18,260 - - 20.49 % -
-100 bp 19,346 1,085 6.00 % 21.35 % + 86 bp
-200 bp 19,744 1,484 8.00 % 21.59 % +110 bp
-300 bp 19,937 1,677 9.00 % 21.64 % +115 bp
-400 bp 20,417 2,157 12.00 % 21.93 % +144 bp
Source: Empire Federal Bancorp, Inc.'s Prospectus
81
<PAGE>
EXHIBIT 12
LOAN PORTFOLIO COMPOSITION
AT JUNE 30, 1995 AND 1996
At June 30,
-------------------------------------------------
1996 1995
---------------------- ----------------------
Percent Percent
of of
Amount Total Amount Total
----------- ---------- ----------- ----------
(In thousands)
TYPE OF LOAN:
One- to four-family $ 35,202 81.66% $ 33,974 84.67%
Multifamily 2,333 5.41 2,557 6.37
Nonresidential 1,182 2.74 1,425 3.55
Construction 1,380 3.20 257 0.65
Consumer 2,112 4.90 1,456 3.63
Share loans 901 2.09 455 1.13
----------- ---------- ----------- ----------
Total $ 43,110 100.00% $ 40,124 100.00%
========== ==========
Less:
Loans in process 770 315
Deferred loan origination
fees and costs 252 232
Allowance for loan losses 145 145
----------- -----------
Total loans, net $ 41,943 $ 39,432
=========== ===========
Source: Empire Federal Bancorp, Inc.'s Prospectus
82
<PAGE>
EXHIBIT 13
LOAN MATURITY SCHEDULE
AT JUNE 30, 1996
<TABLE>
<CAPTION>
At June 30, 1996
-------------------------------------------------------------------------------
One- to
Four-
Family Multifamily Commercial Construction Consumer Total
----------- ----------- ------------ ----------- ------------ -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Amounts due:
Within 3 months $ 5 $ - $ - $ 210 $ 361 $ 576
3 months to 1 year 7 - - 1,170 421 1,598
After one year:
1 to 3 years 244 190 42 - 136 612
3 to 5 years 455 40 28 - 260 783
5 to 10 years 2,392 822 207 - 571 3,992
10 to 20 years 23,833 1,078 905 - 1,241 27,057
Over 20 years 8,266 203 - - 23 8,492
----------- ----------- ------------ ----------- ------------ -----------
Total due after one year 35,190 2,333 1,182 - 2,231 40,936
----------- ----------- ------------ ----------- ------------ -----------
Total amount due $ 35,202 $ 2,333 $ 1,182 $ 1,380 $ 3,013 $ 43,110
=========== =========== ============ =========== ============ ===========
Due After June 30, 1996
---------------------------------------
Floating- or
Fixed Adjustable-
Rates Rates Total
----------- ----------- ------------
(In thousands)
One- to four family $ 29,586 $ 5,616 $ 35,202
Multifamily 646 1,687 2,333
Commercial 1,182 - 1,182
Construction 1,380 - 1,380
Consumer and share 3,013 - 3,013
----------- ----------- ------------
Total $ 35,807 $ 7,303 $ 43,110
=========== =========== ============
</TABLE>
Source: Empire Federal Bancorp, Inc.'s Prospectus
83
<PAGE>
EXHIBIT 14
LOAN ORIGINATIONS
FOR THE YEARS ENDED JUNE 30, 1993 THROUGH 1996
<TABLE>
<CAPTION>
Year ended June 30,
-------------------------------------------------------
1996 1995 1994 1993
------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
Total gross loans receivable at
beginning of period $ 40,124 $ 42,637 $ 41,344 $ 38,120
------------ ------------ ------------ ------------
Loans originated:
One- to four-family 7,411 2,857 13,223 13,115
Multifamily 225 57 - 311
Construction 2,631 641 1,937 1,592
Commercial 47 - - 18
Consumer 2,069 899 413 1,200
------------ ------------ ------------ ------------
Total loans originated 12,383 4,454 15,573 16,236
Loans sold:
Whole loans - - - -
Participations sold - - - -
Total loans sold - - - -
Loan principal repayments (9,397) (6,967) (14,280) (13,012)
------------ ------------ ------------ ------------
Net loan activity 2,986 (2,513) 1,293 3,224
------------ ------------ ------------ ------------
Total gross loans receivable
at end of period $ 43,110 $ 40,124 42,637 41,344
============ ============ ============ ============
</TABLE>
Source: Empire Federal Bancorp, Inc.'s Prospectus
84
<PAGE>
EXHIBIT 15
CLASSIFIED ASSETS
AT JUNE 30, 1996
At June 30,
1996
------------
Classified Assets:
Substandard $ 75,000
Doubtful 0
Loss 0
------------
Total classified assets $ 75,000
============
Source: Empire Federal Bancorp, Inc.'s Prospectus
85
<PAGE>
EXHIBIT 16
ALLOWANCE FOR LOAN LOSSES
FOR THE FISCAL YEARS ENDED JUNE 30, 1995 AND 1996
Years ended June 30,
--------------------------
1996 1995
----------- -----------
(In thousands)
Total loans outstanding $ 43,110 $ 40,124
----------- -----------
Allowance balances (at beginning of period) 145 145
----------- -----------
Provision (credit) 55 -
Net charge-offs (recoveries) - -
----------- -----------
Allowance balance (at end of period) $ 200 $ 145
=========== ===========
Allowance for loan losses as a percent of
total loans outstanding 0.46% 0.36%
Source: Empire Federal Bancorp, Inc.'s Prospectus
86
<PAGE>
EXHIBIT 17
INVESTMENT PORTFOLIO COMPOSITION
AT JUNE 30, 1995 AND 1996
Carrying Value
At June 30,
-----------------------------
1996 1995
----------- --------------
(In thousands)
Investment securities:
U.S. Government securities $ - $ -
U.S. Agency securities 2,499 2,498
----------- --------------
Corporate notes and bonds - -
Other securities - -
----------- --------------
Total investment securities 2,499 2,498
----------- --------------
Securities available-for-sale 1,385 1,192
Interest-bearing deposits 1,338 1,235
FHLB stock 1,123 1,044
----------- --------------
Total $ 6,345 $ 5,969
=========== ==============
At June 30,
--------------------------------------------
1996 1995
---------------------- ---------------------
Percent Percent
Amount of total Amount of total
----------- ---------- -------- ---------
(Dollars in thousands)
Mortgage-backed securities:
REMIC $ 1,865 5.32% 1,865 5.07%
GNMA 996 2.84% 1,262 3.43%
FNMA 9,042 25.78% 11,998 32.61%
FHLMC 23,167 66.06% 21,670 58.89%
----------- --------- -------- ---------
Total 35,070 100.00% 36,795 100.00%
========= =========
Net premiums 118 148
----------- ---------
Net mortgage-backed securities $ 35,188 $ 36,943
=========== =========
Source: Empire Federal Bancorp, Inc.'s Prospectus
87
<PAGE>
EXHIBIT 18
MIX OF DEPOSITS
AT JUNE 30, 1996
At June 30, 1996
-------------------------------------------------------------------------------
Weighted Percentage
Average Original Check and Savings of Total
Interest Rate Term Deposits Balance Deposits
------------- ------------- ------------------------ ------------ ----------
(In thousands)
2.50% None NOW accounts $ 8,673 12.63%
3.25% None Regular savings 14,949 21.77%
3.50% None Money market accounts 4,950 7.21%
Certificates of deposit:
5.11% 1-3 months Fixed term, fixed rate 967 1.41%
5.18% 4-6 months Fixed term, fixed rate 6,716 9.78%
5.55% 7-12 months Fixed term, fixed rate 9,172 13.36%
6.12% 13-24 months Fixed term, fixed rate 7,369 10.73%
5.88% 25-36 months Fixed term, fixed rate 7,161 10.43%
5.87% 37-48 months Fixed term, fixed rate 957 1.39%
6.35% 49-120 months Fixed term, fixed rate 4,299 6.26%
6.01% - Jumbo certificates 3,334 4.87%
---------- ----------
68,547 -
Accrued interest on deposits 107 0.16%
---------- ----------
4.64% Total $ 68,654 100.00%
========== ==========
Source: Empire Federal Bancorp, Inc.'s Prospectus
88
<PAGE>
EXHIBIT 19
DEPOSIT ACTIVITY
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996
Year ended June 30,
---------------------------
1996 1995
----------- -----------
(In thousands)
Net increase (decrease) before
interest credited $ (1,778) $ (3,971)
Interest credited 3,262 2,699
----------- -----------
Net increase (decrease) in
savings deposits $ 1,484 $ (1,272)
=========== ===========
Source: Empire Federal Bancorp, Inc.'s Prospectus
89
<PAGE>
EXHIBIT 20
BORROWED FUNDS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996
Year ended
June 30,
----------------------
1995 1994
---------- ---------
(In thousands)
Short-term FHLB advances:
Average balance outstanding $ 1,595 $ 2,668
Maximum amount outstanding at any
month-end during the period 1,925 4,210
Weighted average interest rate at end
of period of FHLB advances 5.98% 5.43%
Total short-term borrowings at end of period $ 1,500 $ 1,751
Source: Empire Federal Bancorp, Inc.'s Prospectus
90
<PAGE>
EXHIBIT 21
OFFICE AND SUBSIDIARY INFORMATION FOR
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
AT JUNE 30, 1996
OFFICES
Net Book Value
Date Square of Property at
Description/Address Leased/Owned Acquired Footage At June 30, 1996
- -------------------------- -------------- ---------- --------- ----------------
Main Office:
123 South Main Street Leased 1923 15,000 $103,172
Livingston, MT 59047
Branch Offices:
101 McLeod Street Owned 1984 2,026 $137,538
Big Timber, MT 59011
5 West Mendenhall Street Owned 1971 7,000 $826,940
Bozeman, MT 59715
SUBSIDIARY
<TABLE>
<CAPTION>
Type of Investment
Subsidiary Name Business Amount Date Established
- ------------------- -------------- -------------------- ----------- ----------------
<S> <C> <C> <C> <C>
Service Corporation Dime Insurance Full service 495,000(1) 1985
Agency insurance activities
</TABLE>
(1) 3% of assets may be invested in service corporations, provided at
least one-half of any amount in excess of 1% is used primarily for
community, inner-city and and community development projects. The
Association did not exceed these limits.
Source: Empire Federal Bancorp, Inc.'s Prospectus
91
<PAGE>
EXHIBIT 22
LIST OF KEY OFFICERS AND DIRECTORS
AT JUNE 30, 1996
<TABLE>
<CAPTION>
Year of
Term Commencement
Name Expires Age(1) Position(s) Held with the Bank of Directorship
- ----------------------- -------- ------- ----------------------------------- --------------------
<S> <C> <C> <C> <C>
Beverly D. Harris 1998 62 President and Director 1971
Walter J. Peterson, Jr. 1997 73 Chairman of the Board and Director 1964
Ernest A. Sandberg 1999 60 Executive Vice President, 1971
Secretary and Director
John R. Boe 1999 72 Director 1979
Edwin H. Doig 1998 65 Director 1979
Sanroe J. Kaisler, Jr. 1997 71 Director 1964
Walter R. Sales 1997 68 Director 1977
</TABLE>
(1) As of June 30, 1996
92
<PAGE>
EXHIBIT 23
KEY DEMOGRAPHIC DATA AND TRENDS
MARKET AREA, GALLATIN COUNTY, PARK COUNTY, SWEET GRASS COUNTY,
MONTANA AND THE UNITED STATES
1990, 1995 AND 2000
1990 1995 % Chg. 2000 % Chg.
---- ---- ------ ---- ------
Population
Market Area 68,179 78,883 15.7% 89,155 13.0%
Gallatin County 50,463 59,543 18.0% 68,193 14.5%
Park County 14,562 16,033 10.1% 17,509 9.2%
Sweet Grass County 3,154 3,307 4.9% 3,453 4.4%
Montana 799,065 870,332 8.9% 940,684 8.1%
United States 248,709,873 263,006,245 5.7% 277,083,635 5.4%
Households
Market Area 25,915 29,830 15.1% 33,799 13.3%
Gallatin County 19,015 22,300 17.3% 25,623 14.9%
Park County 5,619 6,193 10.2% 6,782 9.5%
Sweet Grass County 1,281 1,337 4.4% 1,394 4.3%
Montana 306,163 332,142 8.5% 358,899 8.1%
United States 91,947,410 97,069,804 5.6% 102,201,641 5.3%
Per Capita Income
Market Area $ 11,165 $ 14,536 30.2% --- ---
Gallatin County 10,960 14,750 34.6% --- ---
Park County 11,945 13,905 16.4% --- ---
Sweet Grass County 10,838 13,749 26.9% --- ---
Montana 10,969 13,366 21.9% --- ---
United States 12,313 16,405 33.2% --- ---
Median Household Income
Market Area $ 24,460 $ 27,259 11.4% $ 27,653 1.4%
Gallatin County 24,825 27,258 9.8% 27,081 (0.6)%
Park County 24,691 27,371 10.9% 29,541 7.9%
Sweet Grass County 17,560 26,742 52.3% 29,368 9.8%
Montana 24,363 27,303 12.1% 27,174 (0.5)%
United States 28,255 33,610 19.0% 32,972 (1.9)%
Source: Data Users Center and CACI
93
<PAGE>
EXHIBIT 24
KEY HOUSING DATA
MARKET AREA, GALLATIN COUNTY, PARK COUNTY, SWEET GRASS COUNTY,
MONTANA AND THE UNITED STATES
1990
Occupied Housing Units
Market Area 25,915
Gallatin County 19,015
Park County 5,619
Sweet Grass County 1,281
Montana 306,163
United States 91,947,410
Occupancy Rate
Market Area
Owner-Occupied 60.9%
Renter-Occupied 39.1%
Gallatin County
Owner-Occupied 58.5%
Renter-Occupied 41.5%
Park County
Owner-Occupied 66.3%
Renter-Occupied 33.7%
Sweet Grass County
Owner-Occupied 72.1%
Renter-Occupied 27.9%
Montana
Owner-Occupied 67.3%
Renter-Occupied 32.7%
United States
Owner-Occupied 64.2%
Renter-Occupied 35.8%
Median Housing Values
Market Area $ 64,453
Gallatin County 70,200
Park County 48,100
Sweet Grass County 48,000
Montana 56,600
United States 79,098
Median Rent
Market Area $ 273
Gallatin County 292
Park County 224
Sweet Grass County 195
Montana 251
United States 374
Source: U.S. Department of Commerce and CACI Sourcebook
94
<PAGE>
EXHIBIT 25
MAJOR SOURCES OF EMPLOYMENT BY INDUSTRY GROUP
MARKET AREA, GALLATIN COUNTY, PARK COUNTY, SWEET GRASS COUNTY,
MONTANA AND THE UNITED STATES
1993
Sweet
Market Gallatin Park Grass United
Industry Group Area County County County Montana States
- -------------- ---- ------ ------ ------ ------- ------
Agriculture/Mining 1.6% 1.3% 3.0% 1.6% 2.8% 1.3%
Construction 6.6% 7.0% 3.9% 13.1% 5.2% 4.8%
Manufacturing 10.7% 10.4% 12.1% 8.8% 9.2% 19.2%
Transportation/Utilities 5.1% 5.6% 3.3% 1.1% 7.1% 5.9%
Wholesale/Retail 37.1% 38.1% 31.4% 43.7% 35.1% 27.5%
Finance, Insurance, &
Real Estate 4.3% 4.6% 2.4% 7.7% 5.9% 7.3%
Services 34.6% 32.9% 43.8% 23.9% 34.6% 34.0%
Source: Bureau of the Census County Business Patterns
95
<PAGE>
EXHIBIT 26
NEW HOUSING PERMITS
MARKET AREA, GALLATIN COUNTY, PARK COUNTY, SWEET GRASS COUNTY,
MONTANA AND THE UNITED STATES
1991-1993
New Housing Permits
1-4 Family Homes
% Chg. % Chg.
1991 1992 '91-'92 1993 '92-'93
---------- --------- ---------- ----------- -----------
Market Area 248 364 46.8% 475 30.5%
Gallatin County 244 354 45.1% 453 28.0%
Park County 4 7 75.0% 19 171.4%
Sweet Grass County - 3 N/M 3 0.0%
Montana 1,263 1,972 56.1% 2,451 24.3%
United States 796,647 956,494 20.1% 1,038,907 8.6%
N/M = Not Meaningful
Source: Bureau of the Census
Commercial Permit Valuations
(In millions of dollars)
% Chg. % Chg.
1991 1992 '91-'92 1993 '92-'93
----------- ----------- ---------- ---------- ---------
Market Area N/A N/A N/A N/A N/A
Gallatin County N/A N/A N/A N/A N/A
Park County N/A N/A N/A N/A N/A
Sweet Grass County N/A N/A N/A N/A N/A
Montana $ 125 $ 121 (3.2)% $ 136 12.4%
United States 56,862 56,798 (0.1)% 61,427 8.1%
N/A = Not Available
Source: Commerce Department Construction Review
96
<PAGE>
EXHIBIT 27
UNEMPLOYMENT RATES
MARKET AREA, GALLATIN COUNTY, SWEET GRASS COUNTY,
MONTANA AND THE UNITED STATES
1994, 1995 AND 1996
Location 1994 1995 1996(2)
- -------- ---- ---- ----
Market Area(1) 2.9% 3.1% 2.9%
Gallatin County 2.3% 2.7% 1.9%
Park County 4.0% 4.6% 3.3%
Sweet Grass County 2.8% 3.7% 1.9%
Montana 5.1% 5.9% 4.8%
United States 6.1% 5.2% 5.6%
(1) Based on a weighted average comprised of Gallatin County, Park County and
Sweet Grass County.
(2) July 1996
Source: Montana Employment and Labor Trends
97
<PAGE>
EXHIBIT 28
MARKET SHARE OF DEPOSITS
MARKET AREA, GALLATIN COUNTY, PARK COUNTY, SWEET GRASS COUNTY,
Gallatin, Park Empire Federal Empire Federal
& Sweet Grass Savings & Loan Savings & Loan
Counties' Deposits Bank's Share Bank's Share
($000) ($000) (%)
------------------- ---------------- ---------------------
Banks $ 591,803 --- ---
Thrifts 117,318 $ 67,124 57.2%
Credit Unions 27,431 --- ---
------------------- ---------------- ---------------------
Total $ 736,552 $ 67,124 9.1%
Source: Sheshunoff
98
<PAGE>
EXHIBIT 29
NATIONAL INTEREST RATES BY QUARTER
1992-1996
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
1992 1992 1992 1992
Prime Rate 6.50% 6.50% 6.00% 6.00%
90-Day Treasury Bills 4.14% 3.63% 2.73% 3.13%
1-Year Treasury Bills 4.49% 4.03% 3.04% 3.57%
30-Year Treasury Bills 7.98% 7.78% 7.67% 7.39%
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
1993 1993 1993 1993
Prime Rate 6.00% 6.00% 6.00% 6.00%
90-Day Treasury Bills 2.93% 3.07% 2.96% 3.05%
1-Year Treasury Bills 3.27% 3.43% 3.35% 3.58%
30-Year Treasury Bills 6.92% 6.67% 6.03% 6.35%
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
1994 1994 1994 1994
Prime Rate 6.25% 7.25% 7.75% 8.50%
90-Day Treasury Bills 3.54% 4.23% 5.14% 5.66%
1-Year Treasury Bills 4.40% 5.49% 6.13% 7.15%
30-Year Treasury Bills 7.11% 7.43% 7.82% 7.88%
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
1995 1995 1995 1995
Prime Rate 9.00% 9.00% 8.75% 8.50%
90-Day Treasury Bills 5.66% 5.58% 5.40% 5.06%
1-Year Treasury Bills 6.51% 5.62% 5.45% 5.14%
30-Year Treasury Bills 7.43% 6.71% 5.69% 5.97%
1st Qtr. 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%
Source: The Wall Street Journal
99
<PAGE>
EXHIBIT 30
KELLER & COMPANY Page 1
Columbus, Ohio614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
*********************************************************************
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ---------------- --------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PLE Pinnacle Bank AL AMSE 17.625 19.250 4.000 4.44 10.16 17.04 209.56 0.72
SRN Southern Banc Company, Inc AL AMSE 13.250 13.375 11.375 4.95 0.00 15.32 75.45 NA
SZB SouthFirst Bancshares, Inc. AL AMSE 12.750 16.000 10.625 2.00 6.25 15.12 104.89 2.48
VAFD Valley Federal Savings Bank AL NASDAQ 39.000 39.000 8.500 25.81 21.88 26.15 323.08 0.60
FFBH First Federal Bancshares of AR AR NASDAQ 15.000 15.000 12.750 11.11 9.09 16.19 97.98 NA
FTF Texarkana First Financial Corp AR AMSE 14.125 16.875 10.000 -8.87 -13.74 16.93 84.04 NA
AHM Ahmanson & Company (H.F.) CA NYSE 25.375 28.625 2.688 -2.40 -5.58 19.78 461.87 0.88
AFFFZ America First Financial Fund CA NASDAQ 30.250 30.750 14.500 6.14 16.35 25.86 378.34 1.60
BPLS Bank Plus Corp. CA NASDAQ 10.000 14.000 5.000 -3.61 8.11 9.55 180.71 0.00
BVFS Bay View Capital Corp. CA NASDAQ 37.625 38.250 11.250 5.61 12.73 29.94 492.19 0.60
BYFC Broadway Financial Corp. CA NASDAQ 9.750 11.000 9.750 -2.50 -2.50 14.61 125.31 NA
CAL Cal Fed Bancorp, Inc. CA NYSE 23.000 200.000 6.250 1.66 21.05 13.83 284.34 0.00
CFHC California Financial Holding CA NASDAQ 22.813 23.125 5.909 3.70 11.28 18.54 283.06 0.44
CENF CENFED Financial Corp. CA NASDAQ 24.250 24.250 5.000 5.43 15.48 21.27 426.22 0.33
CSA Coast Savings Financial CA NYSE 31.375 35.125 1.625 -5.64 -6.69 23.13 449.36 0.00
DSL Downey Financial Corp. CA NYSE 24.750 26.190 2.081 5.88 13.14 23.09 277.64 0.47
FSSB First FS&LA of San Bernardino CA NASDAQ 9.875 14.500 6.875 -1.25 -1.25 14.43 312.02 0.00
FED FirstFed Financial Corp. CA NYSE 18.375 26.600 1.125 3.52 5.76 17.96 390.61 0.00
GLN Glendale Federal Bank, FSB CA NYSE 17.500 589.500 5.250 -3.45 -6.67 14.97 309.37 0.00
GDW Golden West Financial CA NYSE 55.000 58.000 3.875 -4.14 0.00 40.78 617.63 0.37
GWF Great Western Financial CA NYSE 25.000 27.125 3.950 2.04 4.71 18.49 318.21 0.94
HTHR Hawthorne Financial Corp. CA NASDAQ 7.500 35.500 2.250 -14.29 0.00 13.29 292.87 0.00
HEMT HF Bancorp, Inc. CA NASDAQ 9.375 10.250 8.188 -1.97 -5.06 12.91 131.64 0.00
HBNK Highland Federal Bank FSB CA NASDAQ 14.250 17.000 11.000 -3.39 -12.98 15.20 192.18 0.00
MBBC Monterey Bay Bancorp, Inc. CA NASDAQ 13.250 13.500 8.750 7.61 11.58 15.28 95.96 0.00
NHSL NHS Financial, Inc. CA NASDAQ 11.125 11.250 3.696 1.14 2.30 9.92 112.65 0.16
PSSB Palm Springs Savings Bank CA NASDAQ 14.031 14.125 4.500 -0.67 2.04 10.60 165.64 0.12
PFFB PFF Bancorp, Inc. CA NASDAQ 11.625 11.750 10.375 3.33 5.11 14.64 108.19 NA
PROV Provident Financial Holdings CA NASDAQ 11.250 11.375 10.125 2.27 NA NA NA NA
QCBC Quaker City Bancorp, Inc. CA NASDAQ 14.313 15.000 7.500 -4.58 -0.43 17.81 190.13 0.00
REDF RedFed Bancorp Inc. CA NASDAQ 10.125 14.500 7.750 9.46 3.85 12.11 205.79 0.00
SGVB SGV Bancorp, Inc. CA NASDAQ 8.813 10.125 7.750 -3.42 3.68 11.94 122.11 NA
WES Westcorp CA NYSE 20.875 21.905 3.703 15.97 7.05 12.04 116.54 0.36
FFBA First Colorado Bancorp, Inc. CO NASDAQ 14.000 14.500 3.189 -1.75 4.17 12.17 74.57 NA
</TABLE>
PRICING RATIOS
*************************************
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- -------- -------- --------
PLE Pinnacle Bank 9.58 103.43 8.41 10.75
SRN Southern Banc Company, Inc NA 86.49 17.56 NA
SZB SouthFirst Bancshares, Inc. 21.61 84.33 12.16 37.50
VAFD Valley Federal Savings Bank 68.42 149.14 12.07 79.59
FFBH First Federal Bancshares of AR NA 92.65 15.31 NA
FTF Texarkana First Financial Corp NA 83.43 16.81 NA
AHM Ahmanson & Company (H.F.) 7.51 128.29 5.49 32.53
AFFFZ America First Financial Fund 9.63 116.98 8.00 9.70
BPLS Bank Plus Corp. NM 104.71 5.53 NM
BVFS Bay View Capital Corp. 129.74 125.67 7.64 24.27
BYFC Broadway Financial Corp. NA 66.74 7.78 NA
CAL Cal Fed Bancorp, Inc. 11.17 166.31 8.09 12.78
CFHC California Financial Holding 14.91 123.05 8.06 16.65
CENF CENFED Financial Corp. 10.78 114.01 5.69 14.88
CSA Coast Savings Financial 14.59 135.65 6.98 15.93
DSL Downey Financial Corp. 12.96 107.19 8.91 14.56
FSSB First FS&LA of San Bernardino NM 68.43 3.16 NM
FED FirstFed Financial Corp. 20.19 102.31 4.70 20.88
GLN Glendale Federal Bank, FSB 50.00 116.90 5.66 26.52
GDW Golden West Financial 11.41 134.87 8.91 11.63
GWF Great Western Financial 11.90 135.21 7.86 12.76
HTHR Hawthorne Financial Corp. NM 56.43 2.56 NM
HEMT HF Bancorp, Inc. 28.41 72.62 7.12 28.41
HBNK Highland Federal Bank FSB 19.52 93.75 7.41 19.79
MBBC Monterey Bay Bancorp, Inc. 40.15 86.71 13.81 41.41
NHSL NHS Financial, Inc. 21.39 112.15 9.88 21.39
PSSB Palm Springs Savings Bank 13.11 132.37 8.47 15.94
PFFB PFF Bancorp, Inc. NA 79.41 10.74 NA
PROV Provident Financial Holdings NA NA NA NA
QCBC Quaker City Bancorp, Inc. 15.56 80.36 7.53 16.08
REDF RedFed Bancorp Inc. NM 83.61 4.92 NM
SGVB SGV Bancorp, Inc. NA 73.81 7.22 NA
WES Westcorp 13.82 173.38 17.91 34.22
FFBA First Colorado Bancorp, Inc. NA 115.04 18.77 NA
100
<PAGE>
KELLER & COMPANY Page 2
Columbus, Ohio614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
********************************************************************
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ---------------- --------------- -------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MORG Morgan Financial Corp. CO NASDAQ 13.000 13.000 6.750 6.12 6.12 12.42 88.88 0.81
EGFC Eagle Financial Corp. CT NASDAQ 25.250 27.750 6.198 3.06 9.78 22.66 310.49 0.90
FFES First Federal of East Hartford CT NASDAQ 19.500 21.500 4.000 11.43 14.71 21.95 364.96 0.58
NTMG Nutmeg Federal S&LA CT NASDAQ 7.250 8.000 4.645 0.00 -3.33 7.35 128.36 0.04
WBST Webster Financial Corporation CT NASDAQ 32.000 32.750 3.864 9.87 14.29 24.42 473.65 0.64
IFSB Independence Federal Savings DC NASDAQ 7.125 10.250 0.250 -1.72 -3.39 13.44 197.80 0.22
BANC BankAtlantic Bancorp, Inc. FL NASDAQ 12.375 12.800 0.223 6.45 9.51 9.49 132.34 0.14
BKUNA BankUnited Financial Corp. FL NASDAQ 7.625 12.750 2.320 3.39 -1.61 7.95 140.56 0.00
FFFG F.F.O. Financial Group, Inc. FL NASDAQ 2.750 10.000 0.563 4.76 2.23 2.27 36.42 0.00
FFLC FFLC Bancorp, Inc. FL NASDAQ 18.250 20.250 12.750 0.00 -1.67 21.54 126.81 0.34
FFML First Family Financial Corp. FL NASDAQ 21.500 23.000 5.000 0.00 1.78 16.92 286.04 0.16
FFPB First Palm Beach Bancorp, Inc. FL NASDAQ 22.875 24.875 14.000 9.58 7.65 21.93 277.55 0.35
FFPC Florida First Bancorp, Inc. FL NASDAQ 11.125 11.250 0.750 0.00 1.14 6.31 89.43 0.24
HOFL Home Financial Corp. FL NASDAQ 13.875 16.250 5.803 -2.63 -0.89 12.86 49.19 0.75
SCSL Suncoast Savings and Loan FL NASDAQ 7.000 10.682 1.250 3.70 8.19 6.66 201.59 0.00
CCFH CCF Holding Company GA NASDAQ 12.375 12.750 10.750 0.00 7.61 14.86 70.15 NA
EBSI Eagle Bancshares GA NASDAQ 16.000 19.000 1.875 5.35 -3.03 12.57 136.52 0.54
FGHC First Georgia Holding, Inc. GA NASDAQ 7.000 7.833 1.222 16.67 3.70 5.92 71.17 0.07
FLFC First Liberty Financial Corp. GA NASDAQ 22.750 25.000 4.000 10.98 3.41 17.09 247.67 0.52
FLAG FLAG Financial Corp. GA NASDAQ 10.500 15.000 3.200 -14.29 -17.65 10.72 112.35 0.31
NFSL Newnan Savings Bank, FSB GA NASDAQ 22.500 23.000 2.955 15.38 13.92 14.22 111.14 0.38
CASH First Midwest Financial, Inc. IA NASDAQ 23.250 24.250 13.250 6.90 -1.06 21.94 192.34 0.41
GFSB GFS Bancorp, Inc. IA NASDAQ 21.000 21.000 11.000 2.44 2.44 19.52 163.47 0.33
HZFS Horizon Financial Svcs Corp. IA NASDAQ 14.500 16.375 10.375 3.57 -6.45 18.73 164.01 0.32
MFCX Marshalltown Financial Corp. IA NASDAQ 16.250 16.750 8.500 3.17 4.84 13.86 88.78 0.00
MIFC Mid-Iowa Financial Corp. IA NASDAQ 6.500 7.875 2.474 1.96 4.00 6.42 68.49 0.08
MWBI Midwest Bancshares, Inc. IA NASDAQ 24.500 27.125 11.750 0.00 -4.85 26.46 396.78 0.52
FFFD North Central Bancshares, Inc. IA NASDAQ 11.875 12.683 8.071 2.70 11.76 13.90 48.44 NA
PMFI Perpetual Midwest Financial IA NASDAQ 17.250 17.750 10.000 -2.82 1.47 17.90 192.79 0.23
SFFC StateFed Financial Corporation IA NASDAQ 16.000 19.750 10.500 1.59 0.00 18.35 94.29 0.40
AVND Avondale Financial Corp. IL NASDAQ 14.125 15.250 11.500 2.73 4.63 16.33 164.52 0.00
CBCI Calumet Bancorp, Inc. IL NASDAQ 28.000 28.500 10.333 0.90 0.00 33.23 206.72 0.00
CBSB Charter Financial, Inc. IL NASDAQ 11.625 12.250 6.361 1.09 -2.11 13.08 75.29 NA
CBK Citizens First Financial Corp. IL AMSE 10.875 11.000 9.500 6.10 8.75 14.43 87.98 NA
</TABLE>
PRICING RATIOS
***************************************
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- -------- -------- --------
MORG Morgan Financial Corp. 15.12 104.67 14.63 15.66
EGFC Eagle Financial Corp. 7.11 111.43 8.13 14.11
FFES First Federal of East Hartford 10.26 88.84 5.34 10.37
NTMG Nutmeg Federal S&LA 12.08 98.64 5.65 21.97
WBST Webster Financial Corporation 13.11 131.04 6.76 12.45
IFSB Independence Federal Savings 8.28 53.01 3.60 18.27
BANC BankAtlantic Bancorp, Inc. 10.06 130.40 9.35 13.03
BKUNA BankUnited Financial Corp. 5.45 95.91 5.42 NM
FFFG F.F.O. Financial Group, Inc. 16.18 121.15 7.55 13.10
FFLC FFLC Bancorp, Inc. 15.60 84.73 14.39 15.60
FFML First Family Financial Corp. 8.27 127.07 7.52 14.83
FFPB First Palm Beach Bancorp, Inc. 11.98 104.31 8.24 12.71
FFPC Florida First Bancorp, Inc. 13.73 176.31 12.44 14.83
HOFL Home Financial Corp. 21.35 107.89 28.21 17.13
SCSL Suncoast Savings and Loan 11.48 105.11 3.47 NM
CCFH CCF Holding Company NA 83.28 17.64 NA
EBSI Eagle Bancshares 10.88 127.29 11.72 11.03
FGHC First Georgia Holding, Inc. 12.07 118.24 9.84 12.96
FLFC First Liberty Financial Corp. 10.34 133.12 9.19 12.36
FLAG FLAG Financial Corp. 11.29 97.95 9.35 13.29
NFSL Newnan Savings Bank, FSB 9.18 158.23 20.24 10.51
CASH First Midwest Financial, Inc. 13.29 105.97 12.09 13.44
GFSB GFS Bancorp, Inc. 12.21 107.58 12.85 12.57
HZFS Horizon Financial Svcs Corp. 17.26 77.42 8.84 21.32
MFCX Marshalltown Financial Corp. 50.78 117.24 18.30 54.17
MIFC Mid-Iowa Financial Corp. 10.83 101.25 9.49 11.02
MWBI Midwest Bancshares, Inc. 6.84 92.59 6.17 9.84
FFFD North Central Bancshares, Inc. NA 85.43 24.51 NA
PMFI Perpetual Midwest Financial 23.31 96.37 8.95 26.14
SFFC StateFed Financial Corporation 14.41 87.19 16.97 14.41
AVND Avondale Financial Corp. 15.19 86.50 8.59 21.08
CBCI Calumet Bancorp, Inc. 11.97 84.26 13.54 11.97
CBSB Charter Financial, Inc. NA 88.88 15.44 NA
CBK Citizens First Financial Corp. NA 75.36 12.36 NA
101
<PAGE>
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 SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
********************************************************************
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ---------------- --------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CSBF CSB Financial Group, Inc. IL NASDAQ 9.125 9.625 8.810 1.39 1.39 12.40 40.12 NA
DFIN Damen Financial Corp. IL NASDAQ 11.375 11.940 11.000 -0.55 -1.09 13.85 59.81 NA
EGLB Eagle BancGroup, Inc. IL NASDAQ 11.875 11.875 10.500 2.15 NA NA NA NA
FBCI Fidelity Bancorp, Inc. IL NASDAQ 16.750 17.063 9.500 4.28 0.75 16.99 155.90 0.22
FNSC Financial Security Corp. IL NASDAQ 25.750 26.500 11.875 -0.96 1.48 25.69 166.65 0.00
FFBI First Financial Bancorp, Inc. IL NASDAQ 15.500 16.250 9.000 0.00 0.00 16.90 202.80 0.00
FMBD First Mutual Bancorp, Inc. IL NASDAQ 13.063 14.750 11.125 4.50 4.50 16.83 73.11 NA
FFDP FirstFed Bancshares IL NASDAQ 16.500 17.625 8.000 1.54 3.13 16.12 186.84 0.30
GTPS Great American Bancorp IL NASDAQ 13.500 15.125 11.875 0.00 -4.42 18.01 64.67 0.38
HNFC Hinsdale Financial Corp. IL NASDAQ 23.500 26.750 9.000 0.53 0.00 20.62 246.26 0.00
HMCI HomeCorp, Inc. IL NASDAQ 18.250 18.875 5.000 1.39 1.39 18.72 300.36 0.00
KNK Kankakee Bancorp, Inc. IL AMSE 20.250 21.000 13.625 6.58 4.52 24.76 250.52 0.40
LBCI Liberty Bancorp, Inc. IL NASDAQ 24.000 30.625 12.750 1.05 5.49 25.84 262.90 0.60
MAFB MAF Bancorp, Inc. IL NASDAQ 26.500 26.810 2.727 4.95 8.16 23.42 301.45 0.32
NBSI North Bancshares, Inc. IL NASDAQ 15.750 16.250 11.000 -3.08 -0.79 16.62 107.25 0.20
PFED Park Bancorp, Inc. IL NASDAQ 10.313 10.625 10.188 NA NA NA NA NA
SWBI Southwest Bancshares IL NASDAQ 26.875 28.250 11.750 -0.92 -0.92 22.30 198.77 1.06
SPBC St. Paul Bancorp, Inc. IL NASDAQ 26.250 27.000 3.833 9.95 9.38 20.88 241.13 0.35
STND Standard Financial, Inc. IL NASDAQ 16.250 16.500 9.125 0.00 6.56 16.29 139.15 0.16
SFSB SuburbFed Financial Corp. IL NASDAQ 17.250 18.167 6.667 5.34 -2.13 20.72 301.02 0.32
WCBI Westco Bancorp IL NASDAQ 21.500 22.000 7.667 0.00 -2.27 18.40 119.07 0.45
FBCV 1ST Bancorp IN NASDAQ 31.500 34.286 4.190 8.62 12.50 32.60 395.29 0.39
AMFC AMB Financial Corp. IN NASDAQ 10.438 11.000 9.750 -0.59 -0.59 14.42 70.64 NA
ASBI Ameriana Bancorp IN NASDAQ 13.250 14.438 2.750 0.00 1.92 13.51 121.72 0.54
ATSB AmTrust Capital Corp. IN NASDAQ 9.000 11.250 7.750 0.00 -10.00 13.32 128.88 0.00
CBCO CB Bancorp, Inc. IN NASDAQ 19.000 19.250 7.125 7.04 9.35 16.44 166.49 0.00
CBIN Community Bank Shares IN NASDAQ 12.875 14.750 12.000 -0.96 -5.50 13.00 117.63 0.32
FFWC FFW Corp. IN NASDAQ 19.500 20.000 12.500 -2.50 -1.27 21.74 211.61 0.51
FFED Fidelity Federal Bancorp IN NASDAQ 11.000 14.773 1.534 2.33 -8.33 5.73 105.09 0.79
FISB First Indiana Corporation IN NASDAQ 22.938 25.190 1.797 0.83 -6.38 16.40 177.60 0.51
HFGI Harrington Financial Group IN NASDAQ 10.500 11.000 9.875 5.00 1.20 7.10 128.41 0.00
HBFW Home Bancorp IN NASDAQ 16.375 16.375 12.500 3.97 11.02 16.96 109.43 0.05
HBBI Home Building Bancorp IN NASDAQ 18.250 21.250 10.000 2.82 3.17 20.13 130.06 0.30
HOMF Home Federal Bancorp IN NASDAQ 26.250 27.750 3.222 -0.94 2.94 23.14 282.99 0.45
</TABLE>
PRICING RATIOS
***************************************
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- -------- -------- --------
CSBF CSB Financial Group, Inc. NA 73.59 22.74 NA
DFIN Damen Financial Corp. NA 82.13 19.02 NA
EGLB Eagle BancGroup, Inc. NA NA NA NA
FBCI Fidelity Bancorp, Inc. 17.09 98.59 10.74 17.09
FNSC Financial Security Corp. 19.36 100.23 15.45 16.30
FFBI First Financial Bancorp, Inc. 13.14 91.72 7.64 14.90
FMBD First Mutual Bancorp, Inc. NA 77.62 17.87 NA
FFDP FirstFed Bancshares 17.74 102.36 8.83 33.67
GTPS Great American Bancorp 32.14 74.96 20.88 32.93
HNFC Hinsdale Financial Corp. 15.16 113.97 9.54 16.91
HMCI HomeCorp, Inc. 15.87 97.49 6.08 25.00
KNK Kankakee Bancorp, Inc. 15.94 81.79 8.08 15.94
LBCI Liberty Bancorp, Inc. 18.05 92.88 9.13 18.05
MAFB MAF Bancorp, Inc. 9.60 113.15 8.79 9.53
NBSI North Bancshares, Inc. 28.64 94.77 14.69 31.50
PFED Park Bancorp, Inc. NA NA NA NA
SWBI Southwest Bancshares 13.71 120.52 13.52 13.78
SPBC St. Paul Bancorp, Inc. 13.67 125.72 10.89 13.96
STND Standard Financial, Inc. 15.93 99.75 11.68 17.47
SFSB SuburbFed Financial Corp. 12.87 83.25 5.73 14.74
WCBI Westco Bancorp 15.58 116.85 18.06 15.36
FBCV 1ST Bancorp 3.65 96.63 7.97 NM
AMFC AMB Financial Corp. NA 72.39 14.78 NA
ASBI Ameriana Bancorp 13.52 98.08 10.89 13.80
ATSB AmTrust Capital Corp. 25.00 67.57 6.98 100.00
CBCO CB Bancorp, Inc. 9.05 115.57 11.41 9.13
CBIN Community Bank Shares 13.55 99.04 10.95 13.84
FFWC FFW Corp. 9.15 89.70 9.22 9.51
FFED Fidelity Federal Bancorp 9.40 191.97 10.47 11.00
FISB First Indiana Corporation 11.24 139.87 12.92 13.49
HFGI Harrington Financial Group 18.42 147.89 8.18 17.21
HBFW Home Bancorp 18.61 96.55 14.96 18.61
HBBI Home Building Bancorp 30.93 90.66 14.03 33.18
HOMF Home Federal Bancorp 8.15 113.44 9.28 9.62
102
<PAGE>
KELLER & COMPANY Page 4
Columbus, Ohio614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
*********************************************************************
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ---------------- --------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HWEN Home Financial Bancorp IN NASDAQ 12.750 13.750 9.875 8.51 NA NA NA NA
INCB Indiana Community Bank, SB IN NASDAQ 13.250 16.750 11.000 0.00 -5.36 15.35 102.46 0.33
IFSL Indiana Federal Corporation IN NASDAQ 20.000 21.500 4.000 8.11 3.90 14.84 156.92 0.79
LOGN Logansport Financial Corp. IN NASDAQ 14.000 14.000 11.250 12.00 6.67 14.99 58.37 0.40
MARN Marion Capital Holdings IN NASDAQ 20.250 21.000 14.250 1.25 1.25 21.47 91.94 0.74
MFBC MFB Corp. IN NASDAQ 15.500 16.250 10.500 3.33 10.71 19.09 106.67 0.00
NEIB Northeast Indiana Bancorp IN NASDAQ 12.250 13.500 11.250 0.00 4.26 14.13 74.76 0.23
PFDC Peoples Bancorp IN NASDAQ 19.875 22.500 5.375 -0.63 -3.64 18.46 118.51 0.54
PERM Permanent Bancorp, Inc. IN NASDAQ 16.500 18.500 9.750 4.76 3.13 18.82 192.10 0.20
SOBI Sobieski Bancorp, Inc. IN NASDAQ 12.000 13.250 10.000 -1.03 0.00 16.87 91.25 0.00
WCHI Workingmens Capital Holdings IN NASDAQ 21.156 21.250 4.313 1.35 6.45 14.63 115.12 0.35
FFSL First Independence Corp. KS NASDAQ 19.000 19.250 10.875 2.70 7.04 22.37 181.29 0.35
LARK Landmark Bancshares, Inc. KS NASDAQ 15.625 16.000 9.750 1.63 2.46 17.27 104.74 0.40
MCBS Mid Continent Bancshares Inc. KS NASDAQ 19.125 19.250 9.750 5.52 2.68 18.94 154.43 0.40
WBCI WFS Bancorp, Inc. KS NASDAQ 23.125 23.125 11.000 0.54 1.38 21.99 171.20 0.40
CKFB CKF Bancorp, Inc. KY NASDAQ 19.750 20.750 11.375 1.28 1.28 17.34 61.00 0.40
CLAS Classic Bancshares, Inc. KY NASDAQ 11.875 12.125 10.375 5.56 13.10 14.75 51.99 NA
FSBS First Ashland Financial Corp KY NASDAQ 18.250 18.750 12.500 0.00 0.00 16.35 59.75 0.30
FFKY First Federal Financial Corp. KY NASDAQ 21.000 22.000 3.063 -2.33 0.00 11.87 83.80 0.46
FLKY First Lancaster Bancshares KY NASDAQ 14.500 14.500 13.125 1.75 NA NA NA NA
FTSB Fort Thomas Financial Corp. KY NASDAQ 14.000 17.750 11.250 -21.13 -16.42 13.75 56.47 0.25
FKKY Frankfort First Bancorp, Inc. KY NASDAQ 10.750 15.875 10.750 -10.42 -7.53 13.87 40.18 NA
GWBC Gateway Bancorp, Inc. KY NASDAQ 13.250 16.250 11.000 1.92 -5.36 15.64 62.93 1.50
GTFN Great Financial Corporation KY NASDAQ 28.000 29.000 13.875 3.70 3.23 19.38 197.98 0.44
HFFB Harrodsburg First Fin Bancorp KY NASDAQ 16.250 16.750 12.375 0.00 7.44 15.47 50.75 NA
KYF Kentucky First Bancorp, Inc. KY AMSE 13.625 15.250 11.375 -8.40 0.93 13.84 63.59 NA
SFNB Security First Network Bank KY NASDAQ 27.750 41.500 24.250 0.91 -28.85 6.58 13.22 NA
ANA Acadiana Bancshares, Inc. LA AMSE 13.313 13.500 11.690 13.30 NA NA NA NA
CZF CitiSave Financial Corp LA AMSE 14.000 16.500 12.750 1.82 -11.11 14.26 78.91 NA
ISBF ISB Financial Corporation LA NASDAQ 14.875 17.000 12.938 -1.65 -5.56 16.50 96.40 0.31
JEBC Jefferson Bancorp, Inc. LA NASDAQ 22.500 22.500 12.750 1.12 1.69 16.42 120.96 0.30
MERI Meritrust Federal SB LA NASDAQ 30.750 34.000 13.500 -2.38 -9.56 22.40 295.05 0.58
TSH Teche Holding Co. LA AMSE 13.000 14.500 11.375 2.97 -2.80 14.72 95.77 0.50
AFCB Affiliated Community Bancorp MA NASDAQ 21.625 21.625 16.060 23.57 27.21 19.30 193.66 NA
</TABLE>
PRICING RATIOS
***************************************
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- -------- -------- --------
HWEN Home Financial Bancorp NA NA NA NA
INCB Indiana Community Bank, SB 18.93 86.32 12.93 18.93
IFSL Indiana Federal Corporation 14.71 134.77 12.75 13.89
LOGN Logansport Financial Corp. 16.47 93.40 23.98 17.50
MARN Marion Capital Holdings 16.60 94.32 22.03 16.60
MFBC MFB Corp. 21.83 81.19 14.53 22.46
NEIB Northeast Indiana Bancorp 15.31 86.69 16.39 15.31
PFDC Peoples Bancorp 11.62 107.67 16.77 11.62
PERM Permanent Bancorp, Inc. 25.38 87.67 8.59 25.38
SOBI Sobieski Bancorp, Inc. 32.43 71.13 13.15 32.43
WCHI Workingmens Capital Holdings 20.74 144.61 18.38 20.54
FFSL First Independence Corp. 10.33 84.94 10.48 12.03
LARK Landmark Bancshares, Inc. 16.62 90.47 14.92 18.60
MCBS Mid Continent Bancshares Inc. 10.87 100.98 12.38 10.87
WBCI WFS Bancorp, Inc. 18.65 105.16 13.51 17.26
CKFB CKF Bancorp, Inc. 26.69 113.90 32.38 26.69
CLAS Classic Bancshares, Inc. NA 80.51 22.84 NA
FSBS First Ashland Financial Corp 27.65 111.62 30.54 27.65
FFKY First Federal Financial Corp. 16.15 176.92 25.06 17.80
FLKY First Lancaster Bancshares NA NA NA NA
FTSB Fort Thomas Financial Corp. 17.07 101.82 24.79 17.07
FKKY Frankfort First Bancorp, Inc. NA 77.51 26.75 NA
GWBC Gateway Bancorp, Inc. 20.08 84.72 21.06 20.08
GTFN Great Financial Corporation 16.87 144.48 14.14 21.54
HFFB Harrodsburg First Fin Bancorp NA 105.04 32.02 NA
KYF Kentucky First Bancorp, Inc. NA 98.45 21.43 NA
SFNB Security First Network Bank NA 421.73 209.91 NA
ANA Acadiana Bancshares, Inc. NA NA NA NA
CZF CitiSave Financial Corp NA 98.18 17.74 NA
ISBF ISB Financial Corporation 14.03 90.15 15.43 14.17
JEBC Jefferson Bancorp, Inc. 18.75 137.03 18.60 18.75
MERI Meritrust Federal SB 11.06 137.28 10.42 11.35
TSH Teche Holding Co. 13.83 88.32 13.57 13.98
AFCB Affiliated Community Bancorp NA 112.05 11.17 NA
103
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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 SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
********************************************************************
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ---------------- --------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BFD BostonFed Bancorp, Inc. MA AMSE 13.000 13.125 10.000 9.47 7.22 14.55 118.06 NA
FMLY Family Bancorp MA NASDAQ 27.250 27.375 1.167 7.92 13.54 16.60 219.50 0.42
ANBK American National Bancorp MD NASDAQ 11.500 11.625 4.639 13.58 13.58 12.87 112.80 NA
EQSB Equitable Federal Savings Bank MD NASDAQ 24.750 26.250 11.250 2.06 2.06 23.64 446.29 0.00
FCIT First Citizens Financial Corp. MD NASDAQ 16.625 19.091 0.375 -2.21 -10.14 13.63 221.53 0.00
FFWM First Financial-W. Maryland MD NASDAQ 24.000 27.250 7.167 7.87 19.25 19.16 147.92 0.48
HRBF Harbor Federal Bancorp, Inc. MD NASDAQ 14.250 15.500 9.750 14.00 10.68 15.84 114.58 0.30
HFMD Home Federal Corp. MD NASDAQ 10.438 15.873 0.750 1.83 1.83 7.63 87.23 0.12
MFSL Maryland Federal Bancorp MD NASDAQ 29.500 34.125 4.545 1.72 -0.84 29.95 357.10 0.61
WSB Washington Savings Bank, FSB MD AMSE 5.125 6.917 0.281 2.50 -8.89 4.97 60.42 0.09
WHGB WHG Bancshares Corp. MD NASDAQ 11.500 11.750 10.875 3.37 2.22 NA NA NA
MCBN Mid-Coast Bancorp, Inc. ME NASDAQ 19.000 20.250 8.095 -6.17 -0.65 21.67 239.77 0.50
BWFC Bank West Financial Corp. MI NASDAQ 11.000 12.250 8.500 -8.33 7.32 11.99 60.63 0.21
CFSB CFSB Bancorp, Inc. MI NASDAQ 18.250 21.818 3.169 0.37 -0.86 13.25 161.11 0.41
DNFC D & N Financial Corp. MI NASDAQ 13.000 18.875 2.500 -0.95 4.00 10.30 180.31 0.00
MSBF MSB Financial, Inc. MI NASDAQ 18.000 19.500 10.750 5.88 7.46 19.21 91.72 0.43
MSBK Mutual Savings Bank, FSB MI NASDAQ 5.750 25.500 3.000 12.20 4.55 9.03 159.10 0.00
OFCP Ottawa Financial Corp. MI NASDAQ 16.250 16.750 10.250 0.78 -0.37 14.84 144.45 0.32
SJSB SJS Bancorp MI NASDAQ 19.875 20.750 10.810 -0.63 -1.85 17.90 153.42 0.30
SFB Standard Federal Bancorp MI NYSE 42.875 43.125 4.750 4.26 8.54 30.74 486.52 0.74
THR Three Rivers Financial Corp. MI AMSE 13.000 13.625 11.375 -0.95 -2.80 15.17 99.04 NA
BDJI First Federal Bancorporation MN NASDAQ 14.750 14.750 10.625 13.46 13.46 17.88 134.85 0.00
FFHH FSF Financial Corp. MN NASDAQ 12.000 13.500 7.750 2.67 2.39 15.58 95.29 0.50
HMNF HMN Financial, Inc. MN NASDAQ 15.938 16.500 9.313 4.51 1.58 17.73 112.77 0.00
MIVI Mississippi View Holding Co. MN NASDAQ 11.750 12.250 8.500 8.05 4.44 14.02 76.20 0.16
QCFB QCF Bancorp, Inc. MN NASDAQ 15.000 15.250 11.000 1.69 7.14 17.82 81.68 NA
TCB TCF Financial Corp. MN NYSE 38.000 38.500 2.813 -0.33 11.76 14.98 200.25 0.66
WEFC Wells Financial Corp. MN NASDAQ 12.250 12.500 9.000 3.70 11.36 13.36 92.29 0.00
CMRN Cameron Financial Corp MO NASDAQ 14.500 15.500 10.688 1.75 6.42 16.26 61.69 0.28
CAPS Capital Savings Bancorp, Inc. MO NASDAQ 19.250 19.750 12.250 2.67 6.94 20.34 194.94 0.33
CNSB CNS Bancorp, Inc. MO NASDAQ 12.750 12.750 11.000 12.09 NA 14.64 59.48 NA
FBSI First Bancshares, Inc. MO NASDAQ 16.750 17.000 10.250 3.08 6.35 18.70 113.24 0.20
GSBC Great Southern Bancorp, Inc. MO NASDAQ 28.500 29.500 2.292 3.64 6.54 15.39 151.63 0.70
HFSA Hardin Bancorp, Inc. MO NASDAQ 11.250 13.000 11.000 -6.25 -4.26 14.75 85.90 NA
</TABLE>
PRICING RATIOS
***************************************
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- -------- -------- --------
BFD BostonFed Bancorp, Inc. NA 89.35 11.01 NA
FMLY Family Bancorp 14.49 164.16 12.41 15.06
ANBK American National Bancorp NA 89.36 10.20 NA
EQSB Equitable Federal Savings Bank 7.88 104.70 5.55 7.91
FCIT First Citizens Financial Corp. 11.96 121.97 7.50 14.98
FFWM First Financial-W. Maryland 14.55 125.26 16.22 15.00
HRBF Harbor Federal Bancorp, Inc. 25.91 89.96 12.44 25.91
HFMD Home Federal Corp. 16.84 136.80 11.97 17.40
MFSL Maryland Federal Bancorp 10.65 98.50 8.26 15.05
WSB Washington Savings Bank, FSB 9.32 103.12 8.48 12.20
WHGB WHG Bancshares Corp. NA NA NA NA
MCBN Mid-Coast Bancorp, Inc. 13.67 87.68 7.92 14.84
BWFC Bank West Financial Corp. 24.44 91.74 18.14 42.31
CFSB CFSB Bancorp, Inc. 12.59 137.74 11.33 13.42
DNFC D & N Financial Corp. 7.43 126.21 7.21 8.13
MSBF MSB Financial, Inc. 11.76 93.70 19.62 12.00
MSBK Mutual Savings Bank, FSB NM 63.68 3.61 NM
OFCP Ottawa Financial Corp. 18.68 109.50 11.25 19.12
SJSB SJS Bancorp 21.60 111.03 12.95 22.08
SFB Standard Federal Bancorp 10.80 139.48 8.81 12.39
THR Three Rivers Financial Corp. NA 85.70 13.13 NA
BDJI First Federal Bancorporation 16.76 82.49 10.94 16.76
FFHH FSF Financial Corp. 21.05 77.02 12.59 21.05
HMNF HMN Financial, Inc. 12.75 89.89 14.13 14.76
MIVI Mississippi View Holding Co. 11.52 83.81 15.42 12.91
QCFB QCF Bancorp, Inc. NA 84.18 18.36 NA
TCB TCF Financial Corp. 13.33 253.67 18.98 13.97
WEFC Wells Financial Corp. 15.12 91.69 13.27 14.94
CMRN Cameron Financial Corp 14.50 89.18 23.50 14.80
CAPS Capital Savings Bancorp, Inc. 10.64 94.64 9.87 10.64
CNSB CNS Bancorp, Inc. NA 87.09 21.44 NA
FBSI First Bancshares, Inc. 17.63 89.57 14.79 17.82
GSBC Great Southern Bancorp, Inc. 11.63 185.19 18.80 12.50
HFSA Hardin Bancorp, Inc. NA 76.27 13.10 NA
104
<PAGE>
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 SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
********************************************************************
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ---------------- --------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JSBA Jefferson Savings Bancorp MO NASDAQ 23.500 30.750 13.250 -1.05 -12.15 21.82 269.13 0.16
JOAC Joachim Bancorp, Inc. MO NASDAQ 12.750 13.500 11.500 0.49 2.00 14.19 47.99 NA
LXMO Lexington B&L Financial Corp. MO NASDAQ 10.063 10.188 9.500 1.26 5.93 14.81 48.45 NA
MBLF MBLA Financial Corp. MO NASDAQ 21.750 26.000 12.750 2.35 -9.38 20.68 142.21 0.40
MFSB Mutual Bancompany MO NASDAQ 21.000 21.750 10.000 0.00 0.00 18.70 159.85 0.00
NASB North American Savings Bank MO NASDAQ 31.500 32.375 2.500 5.22 5.88 22.21 326.41 0.56
NSLB NS&L Bancorp, Inc. MO NASDAQ 12.000 13.750 11.750 -4.00 -6.80 16.71 71.70 0.45
PCBC Perry County Financial Corp. MO NASDAQ 17.500 21.500 12.375 12.90 1.45 17.62 93.87 0.30
RFED Roosevelt Financial Group MO NASDAQ 18.125 19.750 2.167 12.40 -2.68 10.98 221.32 0.59
SMFC Sho-Me Financial Corp. MO NASDAQ 20.000 20.000 9.375 17.65 29.03 19.59 161.62 0.00
SMBC Southern Missouri Bancorp, Inc MO NASDAQ 14.250 17.500 8.875 1.79 1.79 15.41 93.96 0.50
CFTP Community Federal Bancorp MS NASDAQ 13.375 13.750 12.250 2.88 0.94 14.37 43.56 NA
FFBS FFBS BanCorp, Inc. MS NASDAQ 21.500 24.250 12.000 4.88 -6.52 16.60 79.65 1.45
MGNL Magna Bancorp, Inc. MS NASDAQ 21.000 22.500 0.844 0.00 20.00 9.18 95.50 0.25
GBCI Glacier Bancorp, Inc. MT NASDAQ 24.000 24.000 1.495 17.07 11.63 11.45 121.53 0.59
SFBM Security Bancorp MT NASDAQ 21.750 23.250 4.250 7.41 6.10 21.00 254.58 0.67
UBMT United Financial Corp. MT NASDAQ 18.750 22.500 5.625 4.17 2.40 20.03 85.17 0.85
WSTR WesterFed Financial Corp. MT NASDAQ 15.125 17.125 11.375 7.08 5.22 17.88 128.31 0.36
COOP Cooperative Bankshares, Inc. NC NASDAQ 19.000 22.500 3.467 8.57 7.80 19.77 212.28 0.00
SOPN First Savings Bancorp, Inc. NC NASDAQ 17.000 21.000 13.500 -2.86 -9.33 17.84 68.64 0.54
GSFC Green Street Financial Corp. NC NASDAQ 14.000 14.625 12.125 9.80 9.29 14.60 41.64 NA
HFNC HFNC Financial Corp. NC NASDAQ 17.625 18.125 13.125 7.63 11.90 14.21 41.66 NA
KSAV KS Bancorp, Inc. NC NASDAQ 20.000 22.000 11.625 0.00 11.11 20.86 141.02 1.10
MBSP Mitchell Bancorp, Inc. NC NASDAQ 12.125 12.625 10.190 14.12 NA NA NA NA
PDB Piedmont Bancorp, Inc. NC AMSE 15.000 15.125 12.000 13.21 13.21 14.01 48.66 NA
SSB Scotland Bancorp, Inc NC AMSE 12.375 12.625 11.625 3.13 1.02 13.43 38.31 NA
SSM Stone Street Bancorp, Inc. NC AMSE 17.375 18.500 16.250 3.73 2.96 21.00 59.17 NA
UFRM United Federal Savings Bank NC NASDAQ 7.250 8.750 1.750 -3.33 -9.38 6.73 83.35 0.18
CFB Commercial Federal Corporation NE NYSE 39.500 39.500 1.625 2.93 2.93 27.39 437.89 0.40
EBCP Eastern Bancorp NH NASDAQ 19.250 19.250 3.000 8.45 17.86 17.77 230.19 0.43
NHTB New Hampshire Thrift Bncshrs NH NASDAQ 9.875 13.000 1.750 0.00 -2.47 11.51 152.81 0.50
FBER 1st Bergen Bancorp NJ NASDAQ 10.000 10.500 9.000 0.00 8.11 13.54 79.43 NA
CJFC Central Jersey Financial NJ NASDAQ 33.125 33.125 2.645 5.16 6.43 20.98 175.88 0.64
COFD Collective Bancorp, Inc. NJ NASDAQ 26.875 28.250 1.351 11.98 10.26 17.88 252.55 0.85
</TABLE>
PRICING RATIOS
***************************************
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- -------- -------- --------
JSBA Jefferson Savings Bancorp 12.77 107.70 8.73 14.07
JOAC Joachim Bancorp, Inc. NA 89.85 26.57 NA
LXMO Lexington B&L Financial Corp. NA 67.95 20.77 NA
MBLF MBLA Financial Corp. 22.66 105.17 15.29 22.66
MFSB Mutual Bancompany 61.76 112.30 13.14 53.85
NASB North American Savings Bank 8.63 141.83 9.65 9.13
NSLB NS&L Bancorp, Inc. 17.65 71.81 16.74 20.34
PCBC Perry County Financial Corp. 20.59 99.32 18.64 18.62
RFED Roosevelt Financial Group 14.38 165.07 8.19 10.48
SMFC Sho-Me Financial Corp. 15.87 102.09 12.37 16.39
SMBC Southern Missouri Bancorp, Inc 18.04 92.47 15.17 19.52
CFTP Community Federal Bancorp NA 93.08 30.70 NA
FFBS FFBS BanCorp, Inc. 19.72 129.52 26.99 19.72
MGNL Magna Bancorp, Inc. 14.00 228.76 21.99 14.09
GBCI Glacier Bancorp, Inc. 13.19 209.61 19.75 13.19
SFBM Security Bancorp 12.95 103.57 8.54 17.26
UBMT United Financial Corp. 13.99 93.61 22.01 14.76
WSTR WesterFed Financial Corp. 14.14 84.59 11.79 14.98
COOP Cooperative Bankshares, Inc. 33.33 96.11 8.95 33.93
SOPN First Savings Bancorp, Inc. 17.35 95.29 24.77 17.35
GSFC Green Street Financial Corp. NA 95.89 33.62 NA
HFNC HFNC Financial Corp. NA 124.03 42.31 NA
KSAV KS Bancorp, Inc. 14.39 95.88 14.18 14.18
MBSP Mitchell Bancorp, Inc. NA NA NA NA
PDB Piedmont Bancorp, Inc. NA 107.07 30.83 NA
SSB Scotland Bancorp, Inc NA 92.14 32.30 NA
SSM Stone Street Bancorp, Inc. NA 82.74 29.36 NA
UFRM United Federal Savings Bank 10.98 107.73 8.70 12.95
CFB Commercial Federal Corporation 10.59 144.21 9.02 10.70
EBCP Eastern Bancorp 12.18 108.33 8.36 16.89
NHTB New Hampshire Thrift Bncshrs 10.29 85.79 6.46 10.97
FBER 1st Bergen Bancorp NA 73.86 12.59 NA
CJFC Central Jersey Financial 17.53 157.89 18.83 18.00
COFD Collective Bancorp, Inc. 10.07 150.31 10.64 10.18
105
<PAGE>
KELLER & COMPANY Page 7
Columbus, Ohio614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
********************************************************************
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ---------------- --------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FSPG First Home Bancorp, Inc. NJ NASDAQ 18.000 19.000 2.531 1.41 1.41 15.19 236.11 0.48
FSFI First State Financial Services NJ NASDAQ 13.000 14.125 1.625 -0.95 26.83 10.17 169.47 0.22
FMCO FMS Financial Corporation NJ NASDAQ 15.500 17.500 1.500 -6.06 -4.62 13.91 209.90 0.20
IBSF IBS Financial Corp. NJ NASDAQ 14.375 15.455 8.409 2.68 1.77 13.55 68.05 0.21
LVSB Lakeview Financial NJ NASDAQ 22.750 22.875 8.068 7.06 16.67 19.99 200.89 0.23
LFBI Little Falls Bancorp, Inc. NJ NASDAQ 10.375 11.500 9.500 0.00 1.22 14.40 92.79 NA
OCFC Ocean Financial Corp. NJ NASDAQ 22.500 22.875 19.625 7.46 NA NA NA NA
PBCI Pamrapo Bancorp, Inc. NJ NASDAQ 19.625 26.125 2.563 3.29 1.95 17.23 111.42 0.90
PFSB PennFed Financial Services,Inc NJ NASDAQ 17.500 18.125 9.063 3.70 14.75 20.50 225.25 0.00
PULS Pulse Bancorp NJ NASDAQ 16.875 18.000 4.000 -5.59 -2.51 12.90 165.62 0.78
SFIN Statewide Financial Corp. NJ NASDAQ 12.500 13.750 11.250 5.26 0.00 13.28 134.12 NA
WYNE Wayne Bancorp, Inc. NJ NASDAQ 13.500 13.500 10.750 10.20 NA 16.44 94.88 NA
WWFC Westwood Financial Corporation NJ NASDAQ 10.875 11.000 10.250 5.45 NA NA NA NA
FSBC First Savings Bank, FSB NM NASDAQ 5.500 10.417 1.750 0.00 -9.09 7.98 161.62 0.00
GUPB GFSB Bancorp, Inc. NM NASDAQ 14.125 15.000 12.875 0.89 0.89 17.09 74.23 NA
ALBK ALBANK Financial Corporation NY NASDAQ 29.563 30.625 9.167 14.81 8.49 23.83 250.27 0.44
ALBC Albion Banc Corp. NY NASDAQ 17.000 18.750 10.500 -2.86 0.00 23.67 229.02 0.31
ASFC Astoria Financial Corporation NY NASDAQ 26.750 28.125 12.688 0.00 -2.28 26.11 329.08 0.41
BFSI BFS Bankorp, Inc. NY NASDAQ 52.000 52.000 2.500 28.00 35.06 29.73 379.90 0.00
CARV Carver Federal Savings Bank NY NASDAQ 7.938 10.750 6.250 -6.61 2.43 15.03 156.57 0.00
FIBC Financial Bancorp, Inc. NY NASDAQ 15.000 16.250 8.500 9.09 16.50 14.60 146.15 0.25
HAVN Haven Bancorp, Inc. NY NASDAQ 27.063 28.875 10.000 -1.59 -2.48 21.77 358.85 0.45
LISB Long Island Bancorp, Inc. NY NASDAQ 28.250 32.875 12.090 0.44 -4.24 21.03 210.48 0.40
NYB New York Bancorp Inc. NY NYSE 30.250 32.125 2.425 9.01 19.21 13.78 253.93 0.80
PEEK Peekskill Financial Corp. NY NASDAQ 12.750 13.000 11.125 5.70 5.72 14.58 46.67 NA
PKPS Poughkeepsie Savings Bank, FSB NY NASDAQ 4.938 26.750 0.875 1.29 -8.13 5.65 66.97 0.09
RELY Reliance Bancorp, Inc. NY NASDAQ 18.000 18.000 8.875 5.88 14.29 16.83 195.27 0.46
SFED SFS Bancorp, Inc. NY NASDAQ 13.000 13.500 11.000 2.97 10.64 17.24 127.17 0.00
TPNZ Tappan Zee Financial, Inc. NY NASDAQ 12.125 13.500 11.250 -4.90 0.54 13.84 76.73 NA
YFCB Yonkers Financial Corporation NY NASDAQ 11.625 11.625 9.310 13.41 19.23 13.73 68.00 NA
ASBP ASB Financial Corp. OH NASDAQ 14.500 16.500 11.375 -1.69 -3.33 15.93 65.92 0.33
CAFI Camco Financial Corporation OH NASDAQ 17.500 19.286 12.245 -2.78 -8.13 14.13 169.86 0.41
COFI Charter One Financial OH NASDAQ 38.625 38.875 3.445 4.04 5.82 20.76 309.97 0.82
CRCL Circle Financial Corp. OH NASDAQ 36.000 37.000 10.500 -2.70 6.38 34.60 338.11 0.64
</TABLE>
PRICING RATIOS
**************************************
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- -------- -------- --------
FSPG First Home Bancorp, Inc. 8.37 118.50 7.62 8.57
FSFI First State Financial Services NM 127.83 7.67 NM
FMCO FMS Financial Corporation 9.51 111.43 7.38 9.51
IBSF IBS Financial Corp. 19.69 106.09 21.12 19.17
LVSB Lakeview Financial 10.83 113.81 11.32 17.77
LFBI Little Falls Bancorp, Inc. NA 72.05 11.18 NA
OCFC Ocean Financial Corp. NA NA NA NA
PBCI Pamrapo Bancorp, Inc. 13.44 113.90 17.61 13.44
PFSB PennFed Financial Services,Inc 11.29 85.37 7.77 11.36
PULS Pulse Bancorp 12.23 130.81 10.19 12.23
SFIN Statewide Financial Corp. NA 94.13 9.32 NA
WYNE Wayne Bancorp, Inc. NA 82.12 14.23 NA
WWFC Westwood Financial Corporation NA NA NA NA
FSBC First Savings Bank, FSB 10.00 68.92 3.40 12.79
GUPB GFSB Bancorp, Inc. NA 82.65 19.03 NA
ALBK ALBANK Financial Corporation 14.21 124.06 11.81 14.21
ALBC Albion Banc Corp. 31.48 71.82 7.42 32.08
ASFC Astoria Financial Corporation 11.73 102.45 8.13 12.86
BFSI BFS Bankorp, Inc. 8.72 174.91 13.69 9.03
CARV Carver Federal Savings Bank 22.68 52.81 5.07 24.81
FIBC Financial Bancorp, Inc. 17.44 102.74 10.26 17.86
HAVN Haven Bancorp, Inc. 11.28 124.31 7.54 11.67
LISB Long Island Bancorp, Inc. 15.11 134.33 13.42 16.62
NYB New York Bancorp Inc. 10.65 219.52 11.91 11.33
PEEK Peekskill Financial Corp. NA 87.45 27.32 NA
PKPS Poughkeepsie Savings Bank, FSB 4.61 87.40 7.37 3.41
RELY Reliance Bancorp, Inc. 13.74 106.95 9.22 14.52
SFED SFS Bancorp, Inc. 15.48 75.41 10.22 15.29
TPNZ Tappan Zee Financial, Inc. NA 87.61 15.80 NA
YFCB Yonkers Financial Corporation NA 84.67 17.10 NA
ASBP ASB Financial Corp. 21.01 91.02 22.00 21.01
CAFI Camco Financial Corporation 8.62 123.85 10.30 11.01
COFI Charter One Financial 33.88 186.05 12.46 12.34
CRCL Circle Financial Corp. 23.08 104.05 10.65 23.08
106
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KELLER & COMPANY Page 8
Columbus, Ohio614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
*******************************************************************
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ---------------- --------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CTZN CitFed Bancorp, Inc. OH NASDAQ 37.500 39.500 9.250 -1.64 -1.96 30.80 467.55 0.28
CIBI Community Investors Bancorp OH NASDAQ 15.750 17.500 10.750 5.00 6.78 16.93 122.33 0.12
EFBI Enterprise Federal Bancorp OH NASDAQ 12.875 18.000 11.250 0.98 -11.21 15.23 103.11 3.00
FFDF FFD Financial Corp. OH NASDAQ 10.188 10.750 10.000 -0.60 0.62 NA NA NA
FFYF FFY Financial Corp. OH NASDAQ 24.063 24.250 12.250 0.79 2.94 20.06 113.28 0.58
FFOH Fidelity Financial of Ohio OH NASDAQ 9.750 10.890 3.112 -1.27 -3.70 12.54 61.66 NA
FDEF First Defiance Financial OH NASDAQ 10.750 11.000 5.790 7.50 0.56 12.14 49.91 NA
FFBZ First Federal Bancorp, Inc. OH NASDAQ 26.500 26.500 6.250 12.77 12.77 16.84 226.57 0.40
FFHS First Franklin Corporation OH NASDAQ 15.250 17.500 3.500 5.17 1.67 17.41 185.79 0.29
FFSW FirstFederal Financial Svcs OH NASDAQ 30.250 31.000 2.232 -0.41 8.52 15.09 291.48 0.45
GFCO Glenway Financial Corp. OH NASDAQ 20.250 23.333 15.419 1.25 0.06 23.12 239.12 0.49
HHFC Harvest Home Financial Corp. OH NASDAQ 9.875 13.750 8.750 -17.71 -24.04 13.66 81.72 0.40
HVFD Haverfield Corporation OH NASDAQ 17.125 19.250 5.165 -9.87 -8.05 14.90 175.30 0.53
INBI Industrial Bancorp OH NASDAQ 10.500 16.000 9.875 5.66 -12.94 10.95 56.45 NA
LONF London Financial Corporation OH NASDAQ 10.750 11.250 9.750 2.38 2.38 15.02 70.30 NA
MFFC Milton Federal Financial Corp. OH NASDAQ 13.750 17.125 10.000 12.24 0.92 14.91 78.76 1.37
OHSL OHSL Financial Corp. OH NASDAQ 20.250 22.000 11.500 -1.22 -2.41 20.94 171.71 0.72
PTRS Potters Financial Corp. OH NASDAQ 16.250 18.500 9.000 4.84 0.78 20.93 226.63 0.23
PVFC PVF Capital Corp. OH NASDAQ 13.500 14.000 4.316 6.58 6.58 9.18 136.91 0.00
SFSL Security First Corp. OH NASDAQ 13.250 17.250 1.625 -8.62 0.00 11.31 119.40 0.41
SHFC Seven Hills Financial Corp. OH NASDAQ 17.750 18.125 11.000 1.43 22.41 17.99 84.83 0.86
SSBK Strongsville Savings Bank OH NASDAQ 21.000 22.250 15.500 -5.62 -2.33 16.81 209.10 0.45
SBCN Suburban Bancorporation, Inc. OH NASDAQ 16.125 18.500 10.500 9.32 9.32 17.48 133.13 0.55
THIR Third Financial Corp. OH NASDAQ 32.250 33.000 14.500 0.00 3.20 25.23 137.25 0.64
WOFC Western Ohio Financial Corp. OH NASDAQ 20.625 24.375 14.750 -2.94 -8.33 24.09 143.99 1.00
WFCO Winton Financial Corp. OH NASDAQ 11.250 15.000 3.750 0.00 -8.16 10.61 142.40 0.41
FFWD Wood Bancorp, Inc. OH NASDAQ 14.500 14.500 8.000 9.43 16.00 13.44 97.65 0.23
KFBI Klamath First Bancorp OR NASDAQ 14.375 14.625 12.500 5.50 1.77 14.38 51.49 NA
BRFC Bridgeville Savings Bank PA NASDAQ 15.000 15.375 11.750 -1.64 5.26 14.24 49.91 0.41
CVAL Chester Valley Bancorp Inc. PA NASDAQ 18.000 19.501 3.879 2.16 1.48 15.51 165.60 0.35
CMSB Commonwealth Bancorp, Inc. PA NASDAQ 10.875 12.389 5.790 2.35 -1.32 12.67 114.14 NA
FSBI Fidelity Bancorp, Inc. PA NASDAQ 17.875 18.182 3.756 11.72 11.72 15.73 231.70 0.29
FBBC First Bell Bancorp, Inc. PA NASDAQ 13.875 14.250 10.000 1.83 2.78 14.24 69.88 0.10
FKFS First Keystone Financial PA NASDAQ 17.750 20.875 10.250 5.97 2.90 17.73 224.80 0.00
</TABLE>
PRICING RATIOS
***************************************
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- -------- -------- --------
CTZN CitFed Bancorp, Inc. 12.63 121.75 8.02 14.15
CIBI Community Investors Bancorp 12.50 93.03 12.88 13.24
EFBI Enterprise Federal Bancorp 13.70 84.54 12.49 19.81
FFDF FFD Financial Corp. NA NA NA NA
FFYF FFY Financial Corp. 17.56 119.96 21.24 17.07
FFOH Fidelity Financial of Ohio NA 77.75 15.81 NA
FDEF First Defiance Financial NA 88.55 21.54 NA
FFBZ First Federal Bancorp, Inc. 11.42 157.36 11.70 11.62
FFHS First Franklin Corporation 14.25 87.59 8.21 14.52
FFSW FirstFederal Financial Svcs 15.43 200.46 10.38 18.67
GFCO Glenway Financial Corp. 15.00 87.59 8.47 15.23
HHFC Harvest Home Financial Corp. 15.67 72.29 12.08 15.67
HVFD Haverfield Corporation 13.28 114.93 9.77 14.04
INBI Industrial Bancorp NA 95.89 18.60 NA
LONF London Financial Corporation NA 71.57 15.29 NA
MFFC Milton Federal Financial Corp. 18.84 92.22 17.46 20.52
OHSL OHSL Financial Corp. 13.32 96.70 11.79 13.59
PTRS Potters Financial Corp. 14.91 77.64 7.17 15.05
PVFC PVF Capital Corp. 9.44 147.06 9.86 10.71
SFSL Security First Corp. 10.11 117.15 11.10 9.60
SHFC Seven Hills Financial Corp. 59.17 98.67 20.92 61.21
SSBK Strongsville Savings Bank 10.94 124.93 10.04 12.28
SBCN Suburban Bancorporation, Inc. 30.42 92.25 12.11 20.94
THIR Third Financial Corp. 18.22 127.82 23.50 20.28
WOFC Western Ohio Financial Corp. 21.71 85.62 14.32 34.38
WFCO Winton Financial Corp. 9.07 106.03 7.90 10.82
FFWD Wood Bancorp, Inc. 13.55 107.89 14.85 14.08
KFBI Klamath First Bancorp NA 99.97 27.92 NA
BRFC Bridgeville Savings Bank 23.81 105.34 30.05 23.81
CVAL Chester Valley Bancorp Inc. 12.24 116.05 10.87 12.86
CMSB Commonwealth Bancorp, Inc. NA 85.83 9.53 NA
FSBI Fidelity Bancorp, Inc. 13.14 113.64 7.71 13.24
FBBC First Bell Bancorp, Inc. 12.61 97.44 19.86 12.73
FKFS First Keystone Financial 14.09 100.11 7.90 13.05
107
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KELLER & COMPANY Page 9
Columbus, Ohio614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
********************************************************************
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ---------------- --------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHEN First Shenango Bancorp, Inc. PA NASDAQ 20.750 22.250 12.750 0.00 1.22 20.53 161.88 0.42
GAF GA Financial, Inc. PA AMSE 12.375 12.375 10.250 6.45 15.12 14.43 63.19 NA
HARL Harleysville Savings Bank PA NASDAQ 17.750 19.750 3.535 -0.70 -2.74 15.38 231.24 0.38
LARL Laurel Capital Group, Inc. PA NASDAQ 15.500 16.500 3.627 3.33 0.00 13.94 130.20 0.29
MLBC ML Bancorp, Inc. PA NASDAQ 25.625 25.750 12.438 5.13 7.33 24.29 300.31 0.49
PVSA Parkvale Financial Corporation PA NASDAQ 28.250 28.500 2.688 8.65 0.89 21.56 284.10 0.52
PBIX Patriot Bank Corp. PA NASDAQ 15.000 15.000 12.310 14.29 14.29 14.33 110.83 NA
PWBC PennFirst Bancorp, Inc. PA NASDAQ 13.750 15.915 4.019 0.00 0.00 12.30 176.83 0.86
PWBK Pennwood Savings Bank PA NASDAQ 10.000 10.000 9.000 3.90 NA NA NA NA
PHFC Pittsburgh Home Financial Corp PA NASDAQ 10.500 11.125 9.500 2.44 5.00 13.93 84.32 NA
PRBC Prestige Bancorp, Inc. PA NASDAQ 10.750 10.750 9.750 4.88 NA 15.86 106.55 NA
PSAB Prime Bancorp, Inc. PA NASDAQ 19.250 20.682 3.194 1.32 6.94 15.58 173.03 0.66
PFNC Progress Financial Corporation PA NASDAQ 6.375 18.750 0.750 6.25 -1.92 5.23 93.26 0.00
SVRN Sovereign Bancorp, Inc. PA NASDAQ 10.813 11.250 1.005 8.13 4.22 7.75 185.25 0.08
THRD TF Financial Corporation PA NASDAQ 14.625 16.000 9.750 3.08 0.86 17.97 117.17 0.29
THBC Troy Hill Bancorp, Inc. PA NASDAQ 13.625 14.000 10.250 4.81 5.83 16.73 75.37 0.32
WVFC WVS Financial Corporation PA NASDAQ 21.750 22.250 13.000 7.41 6.10 19.60 149.49 2.06
YFED York Financial Corp. PA NASDAQ 16.000 18.864 4.731 -3.03 -3.76 15.37 182.30 0.56
AMFB American Federal Bank, FSB SC NASDAQ 16.875 17.125 0.625 6.72 5.47 9.82 126.43 0.31
CFCP Coastal Financial Corp. SC NASDAQ 19.500 21.000 1.918 -1.27 21.88 8.04 131.77 0.41
FFCH First Financial Holdings Inc. SC NASDAQ 18.750 22.250 4.000 0.00 -1.32 15.26 238.85 0.62
FSFC First Southeast Financial Corp SC NASDAQ 9.500 20.250 9.125 -1.30 -47.95 7.67 74.42 10.48
PALM Palfed, Inc. SC NASDAQ 14.000 18.500 3.500 8.74 10.89 10.27 122.09 0.04
SCCB S. Carolina Community Bancshrs SC NASDAQ 15.500 20.500 12.625 -3.13 -6.06 16.73 60.05 0.60
HFFC HF Financial Corp. SD NASDAQ 15.313 16.750 5.500 -1.21 0.41 16.97 181.93 0.33
LFCT Leader Financial Corp. TN NASDAQ 52.250 52.250 14.500 13.90 13.28 26.78 322.79 0.66
TWIN Twin City Bancorp TN NASDAQ 17.250 18.250 10.500 -1.43 7.81 15.74 115.22 0.61
BNKU Bank United Corp. TX NASDAQ 24.125 24.625 22.500 NA NA NA NA NA
CBSA Coastal Bancorp, Inc. TX NASDAQ 19.625 19.750 9.875 10.56 5.37 18.89 563.56 0.36
ETFS East Texas Financial Services TX NASDAQ 14.500 16.750 11.000 -4.53 -1.69 19.24 101.72 0.10
FBHC Fort Bend Holding Corp. TX NASDAQ 16.875 20.250 10.375 -0.74 -4.93 21.98 310.96 0.28
LOAN Horizon Bancorp TX NASDAQ 14.500 15.750 7.250 16.00 38.10 7.69 94.41 0.14
JXVL Jacksonville Bancorp, Inc. TX NASDAQ 11.500 11.990 7.141 9.52 10.84 13.37 81.72 NA
BFSB Bedford Bancshares, Inc. VA NASDAQ 16.500 18.750 10.250 -2.94 1.54 16.96 104.88 0.43
</TABLE>
PRICING RATIOS
***************************************
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- -------- -------- --------
SHEN First Shenango Bancorp, Inc. 13.65 101.07 12.82 14.31
GAF GA Financial, Inc. NA 85.76 19.58 NA
HARL Harleysville Savings Bank 10.44 115.41 7.68 9.92
LARL Laurel Capital Group, Inc. 9.01 111.19 11.90 9.23
MLBC ML Bancorp, Inc. 13.28 105.50 8.53 17.20
PVSA Parkvale Financial Corporation 9.88 131.03 9.94 10.58
PBIX Patriot Bank Corp. NA 104.68 13.53 NA
PWBC PennFirst Bancorp, Inc. 13.61 111.79 7.78 14.32
PWBK Pennwood Savings Bank NA NA NA NA
PHFC Pittsburgh Home Financial Corp NA 75.38 12.45 NA
PRBC Prestige Bancorp, Inc. NA 67.78 10.09 NA
PSAB Prime Bancorp, Inc. 11.88 123.56 11.13 12.75
PFNC Progress Financial Corporation 7.16 121.89 6.84 8.85
SVRN Sovereign Bancorp, Inc. 10.11 139.52 5.84 10.50
THRD TF Financial Corporation 14.48 81.39 12.48 14.92
THBC Troy Hill Bancorp, Inc. 12.73 81.44 18.08 13.90
WVFC WVS Financial Corporation 10.56 110.97 14.55 11.45
YFED York Financial Corp. 9.82 104.10 8.78 11.03
AMFB American Federal Bank, FSB 11.18 171.84 13.35 10.29
CFCP Coastal Financial Corp. 15.73 242.54 14.80 17.89
FFCH First Financial Holdings Inc. 10.71 122.87 7.85 10.53
FSFC First Southeast Financial Corp 31.67 123.86 12.77 12.03
PALM Palfed, Inc. 16.47 136.32 11.47 19.44
SCCB S. Carolina Community Bancshrs 23.13 92.65 25.81 23.13
HFFC HF Financial Corp. 10.28 90.24 8.42 12.55
LFCT Leader Financial Corp. 11.96 195.11 16.19 12.24
TWIN Twin City Bancorp 13.37 109.59 14.97 15.00
BNKU Bank United Corp. NM NA NA NM
CBSA Coastal Bancorp, Inc. 9.17 103.89 3.48 9.53
ETFS East Texas Financial Services 17.26 75.36 14.25 19.08
FBHC Fort Bend Holding Corp. 9.48 76.77 5.43 10.75
LOAN Horizon Bancorp 13.55 188.56 15.36 16.86
JXVL Jacksonville Bancorp, Inc. NA 86.01 14.07 NA
BFSB Bedford Bancshares, Inc. 12.50 97.29 15.73 12.50
108
<PAGE>
KELLER & COMPANY Page 10
Columbus, Ohio614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
********************************************************************
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ---------------- --------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CNIT CENIT Bancorp, Inc. VA NASDAQ 40.250 40.250 10.875 26.77 17.52 29.58 406.57 0.50
CFFC Community Financial Corp. VA NASDAQ 21.500 22.000 4.250 -2.27 2.38 17.53 124.87 0.45
ESX Essex Bancorp, Inc. VA AMSE 1.875 19.250 0.750 -16.67 -11.76 0.54 290.19 0.00
FFFC FFVA Financial Corp. VA NASDAQ 17.250 18.250 8.250 1.10 -1.43 16.88 100.91 0.35
FFRV Fidelity Financial Bankshares VA NASDAQ 22.750 23.125 2.381 78.43 89.58 12.22 142.17 0.17
GSLC Guaranty Financial Corp. VA NASDAQ 8.500 8.500 6.313 17.24 0.00 6.93 112.02 0.00
LIFB Life Bancorp, Inc. VA NASDAQ 15.938 16.625 8.313 9.44 11.85 14.73 122.86 0.44
VABF Virginia Beach Fed. Financial VA NASDAQ 8.000 9.938 1.625 4.92 3.23 8.30 122.62 0.16
VFFC Virginia First Financial Corp. VA NASDAQ 12.625 14.250 1.250 7.45 5.21 10.63 130.10 0.07
CASB Cascade Financial Corp. WA NASDAQ 17.000 17.500 2.662 6.25 7.59 10.17 163.46 0.00
FWWB First SB of Washington Bancorp WA NASDAQ 17.000 17.250 12.375 9.68 14.29 15.42 73.01 NA
IWBK InterWest Bancorp, Inc. WA NASDAQ 27.750 28.000 8.478 13.85 10.45 14.94 219.20 0.44
MSEA Metropolitan Bancorp WA NASDAQ 17.313 17.313 3.636 2.60 24.78 13.79 205.11 0.00
STSA Sterling Financial Corp. WA NASDAQ 14.250 15.000 1.878 1.79 1.79 11.01 272.32 0.00
WFSL Washington Federal, Inc. WA NASDAQ 22.250 23.967 1.723 1.14 2.89 14.14 119.31 0.88
AADV Advantage Bancorp, Inc. WI NASDAQ 33.000 34.500 10.600 -1.49 -2.94 25.97 293.64 0.27
ABCW Anchor BanCorp Wisconsin WI NASDAQ 35.625 36.250 9.800 2.15 4.59 24.36 376.54 0.34
FCBF FCB Financial Corp. WI NASDAQ 17.750 18.500 10.000 3.65 -1.39 18.97 107.81 0.63
FFEC First Fed Bncshrs Eau Claire WI NASDAQ 15.250 16.190 8.375 -1.61 -3.17 14.22 103.08 0.17
FTFC First Federal Capital Corp. WI NASDAQ 21.000 22.875 1.449 0.00 -3.45 15.29 222.94 0.58
FFHC First Financial Corp. WI NASDAQ 23.000 24.000 1.392 1.66 -1.08 13.64 186.56 0.54
FNGB First Northern Capital Corp. WI NASDAQ 15.750 16.500 3.063 0.00 0.80 16.10 132.01 0.58
HALL Hallmark Capital Corp. WI NASDAQ 15.000 16.250 9.875 -1.64 -0.83 18.72 266.87 0.00
MWFD Midwest Federal Financial WI NASDAQ 17.500 18.250 4.167 14.75 9.38 10.34 114.75 0.18
NWEQ Northwest Equity Corp. WI NASDAQ 10.250 11.375 6.875 0.00 0.00 13.45 97.11 0.35
OSBF OSB Financial Corp. WI NASDAQ 23.750 24.875 14.500 1.06 3.26 28.26 225.03 0.58
RELI Reliance Bancshares, Inc. WI NASDAQ 8.375 8.500 7.500 4.69 4.69 11.45 18.64 NA
SECP Security Capital Corporation WI NASDAQ 61.750 62.500 25.000 1.65 -1.20 56.63 369.03 0.45
STFR St. Francis Capital Corp. WI NASDAQ 25.750 28.000 12.625 0.00 0.98 23.39 238.04 0.30
FOBC Fed One Bancorp WV NASDAQ 15.500 16.250 5.358 8.77 5.08 16.73 134.09 0.54
CRZY Crazy Woman Creek Bancorp WY NASDAQ 10.875 11.000 10.000 7.41 4.17 14.61 47.57 NA
TRIC Tri-County Bancorp, Inc. WY NASDAQ 18.375 18.875 11.375 -2.65 -0.68 20.38 126.03 0.45
</TABLE>
PRICING RATIOS
***************************************
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- -------- -------- --------
CNIT CENIT Bancorp, Inc. 21.64 136.07 9.90 19.44
CFFC Community Financial Corp. 13.27 122.65 17.22 13.27
ESX Essex Bancorp, Inc. NM 347.22 0.65 NM
FFFC FFVA Financial Corp. 14.26 102.19 17.09 14.50
FFRV Fidelity Financial Bankshares 16.61 186.17 16.00 17.11
GSLC Guaranty Financial Corp. 10.37 122.66 7.59 16.67
LIFB Life Bancorp, Inc. 16.43 108.20 12.97 15.63
VABF Virginia Beach Fed. Financial 20.00 96.39 6.52 61.54
VFFC Virginia First Financial Corp. 6.04 118.77 9.70 12.63
CASB Cascade Financial Corp. 17.17 167.16 10.40 30.36
FWWB First SB of Washington Bancorp NA 110.25 23.28 NA
IWBK InterWest Bancorp, Inc. 12.50 185.74 12.66 13.28
MSEA Metropolitan Bancorp 11.17 125.55 8.44 10.43
STSA Sterling Financial Corp. 15.83 129.43 5.23 16.76
WFSL Washington Federal, Inc. 11.24 157.36 18.65 11.71
AADV Advantage Bancorp, Inc. 13.87 127.07 11.24 15.42
ABCW Anchor BanCorp Wisconsin 12.24 146.24 9.46 12.68
FCBF FCB Financial Corp. 16.14 93.57 16.46 16.28
FFEC First Fed Bncshrs Eau Claire 17.73 107.24 14.79 16.94
FTFC First Federal Capital Corp. 10.77 137.34 9.42 14.48
FFHC First Financial Corp. 9.79 168.62 12.33 10.13
FNGB First Northern Capital Corp. 16.58 97.83 11.93 17.31
HALL Hallmark Capital Corp. 11.28 80.13 5.62 11.90
MWFD Midwest Federal Financial 13.67 169.25 15.25 16.83
NWEQ Northwest Equity Corp. 11.14 76.21 10.56 11.78
OSBF OSB Financial Corp. 48.47 84.04 10.55 29.32
RELI Reliance Bancshares, Inc. NA 73.14 44.93 NA
SECP Security Capital Corporation 18.16 109.04 16.73 17.35
STFR St. Francis Capital Corp. 10.43 110.09 10.82 14.07
FOBC Fed One Bancorp 12.50 92.65 11.56 12.50
CRZY Crazy Woman Creek Bancorp NA 74.44 22.86 NA
TRIC Tri-County Bancorp, Inc. 17.84 90.16 14.58 18.19
109
<PAGE>
KELLER & COMPANY Page 11
Columbus, Ohio614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
********************************************************************
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
------ -------- ---------------- --------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL THRIFTS
AVERAGE 17.774 21.760 8.040 3.25 3.36 16.59 164.99 0.42
MEDIAN 16.063 17.875 9.146 2.15 2.27 15.73 132.34 0.35
HIGH 61.750 589.500 25.000 78.43 89.58 56.63 617.63 10.48
LOW 1.875 6.917 0.223 -21.13 -47.95 0.54 13.22 0.00
AVERAGE FOR STATE
MT 19.906 21.719 5.686 8.93 6.34 17.59 147.40 0.62
AVERAGE BY REGION
MIDWEST 18.314 19.918 9.060 1.87 1.47 17.63 152.91 0.39
NEW ENGLAND 19.400 20.463 5.878 6.76 9.82 17.78 243.15 0.50
MID ATLANTIC 17.146 18.944 7.178 4.11 5.10 16.19 169.48 0.38
SOUTHEAST 16.456 18.634 7.001 5.94 4.77 14.08 133.08 0.67
SOUTHWEST 16.012 17.502 10.482 3.42 1.60 15.37 159.91 0.34
WEST 18.757 39.593 6.452 2.59 5.01 16.70 228.40 0.32
AVERAGE BY EXCHANGE
NYSE 30.144 89.717 3.243 2.25 5.79 20.84 354.17 0.43
AMEX 12.941 14.933 9.936 2.54 1.12 14.38 107.51 0.70
OTC/NASDAQ 17.533 19.282 8.132 3.33 3.38 16.52 159.96 0.41
</TABLE>
PRICING RATIOS
***************************************
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- -------- -------- --------
ALL THRIFTS
AVERAGE 16.25 110.16 13.85 17.46
MEDIAN 13.71 102.19 11.93 14.84
HIGH 129.74 421.73 209.91 100.00
LOW 3.65 52.81 0.65 3.41
AVERAGE FOR STATE
MT 13.568 122.845 15.523 15.048
AVERAGE BY REGION
MIDWEST 17.04 106.83 15.56 18.50
NEW ENGLAND 11.65 107.73 8.32 14.58
MID ATLANTIC 13.15 106.36 11.57 14.16
SOUTHEAST 15.98 123.92 15.46 18.40
SOUTHWEST 13.23 103.77 13.16 14.29
WEST 20.58 113.39 10.41 19.01
AVERAGE BY EXCHANGE
NYSE 15.30 150.54 9.48 17.71
AMEX 14.06 105.46 16.09 18.07
OTC/NASDAQ 16.35 108.65 13.91 17.44
110
<PAGE>
EXHIBIT 31
KELLER & COMPANY Page 1
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
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> <C> <C>
PLE Pinnacle Bank AL 186,475 15,165 14,634 0.85 0.76 10.96 9.77
SRN Southern Banc Company, Inc AL 109,768 22,293 22,059 0.54 0.54 3.96 3.96
SZB SouthFirst Bancshares, Inc. AL 90,542 13,050 13,050 0.57 0.32 3.50 1.96
VAFD Valley Federal Savings Bank AL 118,525 9,593 9,593 0.17 0.15 2.13 1.93
FFBH First Federal Bancshares of AR AR 504,939 83,431 83,431 NA NA NA NA
FTF Texarkana First Financial Corp AR 164,064 33,043 33,043 1.83 1.83 9.59 9.59
AHM Ahmanson & Company (H.F.) CA 49,506,630 2,777,356 2,637,334 0.92 0.26 15.84 4.52
AFFFZ America First Financial Fund CA 2,274,053 161,228 157,795 0.89 0.88 13.53 13.45
BPLS Bank Plus Corp. CA 3,296,633 174,998 174,647 -1.74 -1.74 -31.62 -31.74
BVFS Bay View Capital Corp. CA 3,388,847 206,177 181,928 0.06 0.36 0.85 5.12
BYFC Broadway Financial Corp. CA 111,863 13,954 13,954 0.28 0.31 3.60 3.95
CAL Cal Fed Bancorp, Inc. CA 14,045,400 683,200 683,200 0.82 0.73 14.79 13.13
CFHC California Financial Holding CA 1,327,178 86,924 86,431 0.57 0.52 8.53 7.65
CENF CENFED Financial Corp. CA 2,148,344 107,221 106,989 0.55 0.40 11.33 8.16
CSA Coast Savings Financial CA 8,350,710 429,883 423,104 0.49 0.45 9.90 9.08
DSL Downey Financial Corp. CA 4,712,294 391,919 385,323 0.69 0.61 8.44 7.49
FSSB First FS&LA of San Bernardino CA 102,436 4,737 4,501 -1.10 -1.28 -19.76 -22.88
FED FirstFed Financial Corp. CA 4,104,854 188,766 185,646 0.23 0.22 4.98 4.82
GLN Glendale Federal Bank, FSB CA 14,456,564 957,451 898,235 0.28 0.43 4.45 6.85
GDW Golden West Financial CA 35,775,375 2,362,246 2,224,420 0.81 0.79 12.46 12.25
GWF Great Western Financial CA 43,719,958 2,834,725 2,529,871 0.72 0.67 11.60 10.83
HTHR Hawthorne Financial Corp. CA 761,162 46,137 45,982 0.61 -0.03 12.77 -0.66
HEMT HF Bancorp, Inc. CA 826,916 81,072 NA 0.26 0.26 2.31 2.31
HBNK Highland Federal Bank FSB CA 441,245 34,897 34,897 0.30 0.29 4.69 4.55
MBBC Monterey Bay Bancorp, Inc. CA 317,347 46,799 46,300 0.32 0.30 2.16 2.04
NHSL NHS Financial, Inc. CA 284,191 25,033 24,987 0.45 0.45 5.34 5.34
PSSB Palm Springs Savings Bank CA 187,327 11,992 11,992 0.64 0.53 10.87 8.98
PFFB PFF Bancorp, Inc. CA 2,146,293 290,480 287,172 0.22 0.22 2.74 2.77
PROV Provident Financial Holdings CA 567,186 37,323 37,323 -0.72 -0.80 -9.81 -10.93
QCBC Quaker City Bancorp, Inc. CA 725,085 67,926 67,628 0.53 0.51 5.25 5.08
REDF RedFed Bancorp Inc. CA 840,142 49,425 49,425 -0.22 -0.33 -3.88 -5.84
</TABLE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
Number of Mkt. Value
IPO Shares of Shares
Date Exchange Outstg. ($M)
------------------------------------------------
<S> <C> <C> <C> <C> <C>
PLE Pinnacle Bank 12/17/86 AMSE 889,824 14.57
SRN Southern Banc Company, Inc 10/05/95 AMSE 1,454,750 17.09
SZB SouthFirst Bancshares, Inc. 02/14/95 AMSE 863,200 11.01
VAFD Valley Federal Savings Bank 10/15/87 NASDAQ 366,860 11.74
FFBH First Federal Bancshares of AR 05/03/96 NASDAQ 5,153,751 71.51
FTF Texarkana First Financial Corp 07/07/95 AMSE 1,952,263 30.75
AHM Ahmanson & Company (H.F.) 10/25/72 NYSE 107,188,014 2894.08
AFFFZ America First Financial Fund NA NASDAQ 6,010,589 161.53
BPLS Bank Plus Corp. NA NASDAQ 18,242,465 159.62
BVFS Bay View Capital Corp. 05/09/86 NASDAQ 6,885,242 234.10
BYFC Broadway Financial Corp. 01/09/96 NASDAQ 892,688 8.93
CAL Cal Fed Bancorp, Inc. 03/01/83 NYSE 49,395,947 901.48
CFHC California Financial Holding 04/01/83 NASDAQ 4,688,652 101.98
CENF CENFED Financial Corp. 10/25/91 NASDAQ 5,040,437 112.15
CSA Coast Savings Financial 12/23/85 NYSE 18,583,617 608.61
DSL Downey Financial Corp. 01/01/71 NYSE 16,972,905 371.28
FSSB First FS&LA of San Bernardino 02/02/93 NASDAQ 328,296 3.28
FED FirstFed Financial Corp. 12/16/83 NYSE 10,508,897 182.59
GLN Glendale Federal Bank, FSB 10/01/83 NYSE 46,729,698 846.98
GDW Golden West Financial 05/29/59 NYSE 57,923,709 3243.73
GWF Great Western Financial NA NYSE 137,392,481 3280.25
HTHR Hawthorne Financial Corp. NA NASDAQ 2,599,000 22.74
HEMT HF Bancorp, Inc. 06/30/95 NASDAQ 6,281,875 61.25
HBNK Highland Federal Bank FSB NA NASDAQ 2,295,983 36.74
MBBC Monterey Bay Bancorp, Inc. 02/15/95 NASDAQ 3,307,063 39.27
NHSL NHS Financial, Inc. NA NASDAQ 2,522,827 27.44
PSSB Palm Springs Savings Bank NA NASDAQ 1,130,946 15.55
PFFB PFF Bancorp, Inc. 03/29/96 NASDAQ 19,837,500 220.69
PROV Provident Financial Holdings 06/28/96 NASDAQ NA NA
QCBC Quaker City Bancorp, Inc. 12/30/93 NASDAQ 3,813,600 52.21
REDF RedFed Bancorp Inc. 04/08/94 NASDAQ 4,082,511 35.21
</TABLE>
111
<PAGE>
KELLER & COMPANY Page 2
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
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> <C> <C>
SGVB SGV Bancorp, Inc. CA 333,064 32,581 32,581 0.12 0.11 1.10 1.08
WES Westcorp CA 3,027,248 312,836 311,864 1.28 0.51 13.55 5.37
FFBA First Colorado Bancorp, Inc. CO 1,501,330 245,056 242,168 1.09 1.09 8.16 8.13
MORG Morgan Financial Corp. CO 74,130 10,358 10,358 1.02 0.99 6.82 6.61
EGFC Eagle Financial Corp. CT 1,402,417 102,356 74,772 1.27 0.63 17.56 8.71
FFES First Federal of East Hartford CT 947,807 57,007 56,846 0.57 0.57 8.65 8.58
NTMG Nutmeg Federal S&LA CT 91,158 5,672 5,672 0.67 0.40 10.72 6.33
WBST Webster Financial Corporation CT 3,837,220 214,669 167,767 0.60 0.63 10.69 11.19
IFSB Independence Federal Savings DC 252,970 17,194 14,905 0.43 0.20 6.58 3.01
BANC BankAtlantic Bancorp, Inc. FL 1,975,287 141,651 130,883 1.12 0.88 15.74 12.46
BKUNA BankUnited Financial Corp. FL 801,531 69,660 67,159 1.16 0.25 14.30 3.07
FFFG F.F.O. Financial Group, Inc. FL 307,055 19,105 19,105 0.50 0.60 7.76 9.32
FFLC FFLC Bancorp, Inc. FL 332,087 56,404 56,404 0.94 0.94 5.51 5.51
FFML First Family Financial Corp. FL 155,890 9,222 9,222 0.90 0.50 16.56 9.23
FFPB First Palm Beach Bancorp, Inc. FL 1,438,024 113,606 110,733 0.74 0.70 8.92 8.44
FFPC Florida First Bancorp, Inc. FL 302,689 21,349 21,349 0.90 0.83 13.27 12.31
HOFL Home Financial Corp. FL 1,215,712 301,582 301,582 1.23 1.53 4.77 5.97
SCSL Suncoast Savings and Loan FL 402,569 25,538 25,490 0.56 -0.03 9.55 -0.47
CCFH CCF Holding Company GA 79,325 16,807 16,807 0.97 0.92 4.91 4.68
EBSI Eagle Bancshares GA 621,474 57,231 57,231 0.93 0.92 11.91 11.75
FGHC First Georgia Holding, Inc. GA 144,022 11,955 10,646 0.89 0.83 10.65 9.96
FLFC First Liberty Financial Corp. GA 991,226 75,953 65,464 1.03 0.87 13.29 11.17
FLAG FLAG Financial Corp. GA 228,710 21,840 21,840 0.87 0.74 9.35 7.93
NFSL Newnan Savings Bank, FSB GA 162,199 20,752 20,644 2.25 1.97 19.85 17.35
CASH First Midwest Financial, Inc. IA 342,095 39,029 36,450 1.06 1.05 8.14 8.05
GFSB GFS Bancorp, Inc. IA 83,305 9,945 9,945 1.16 1.13 9.19 8.93
HZFS Horizon Financial Svcs Corp. IA 73,464 8,390 8,390 0.53 0.43 4.38 3.55
MFCX Marshalltown Financial Corp. IA 125,308 19,563 19,563 0.38 0.36 2.43 2.31
MIFC Mid-Iowa Financial Corp. IA 115,260 10,807 10,791 0.93 0.92 10.00 9.79
MWBI Midwest Bancshares, Inc. IA 138,628 9,244 9,244 1.01 0.70 14.64 10.14
FFFD North Central Bancshares, Inc. IA 194,283 55,736 55,736 1.65 1.64 8.13 8.10
</TABLE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
Number of Mkt. Value
IPO Shares of Shares
Date Exchange Outstg. ($M)
------------------------------------------------
<S> <C> <C> <C> <C> <C>
SGVB SGV Bancorp, Inc. 06/29/95 NASDAQ 2,727,656 24.55
WES Westcorp 05/01/86 NYSE 25,977,094 461.09
FFBA First Colorado Bancorp, Inc. 01/02/96 NASDAQ 20,134,256 266.78
MORG Morgan Financial Corp. 01/11/93 NASDAQ 834,058 10.01
EGFC Eagle Financial Corp. 02/03/87 NASDAQ 4,516,744 114.05
FFES First Federal of East Hartford 06/23/87 NASDAQ 2,597,010 46.75
NTMG Nutmeg Federal S&LA NA NASDAQ 710,169 5.15
WBST Webster Financial Corporation 12/12/86 NASDAQ 8,101,382 226.84
IFSB Independence Federal Savings 06/06/85 NASDAQ 1,278,935 9.59
BANC BankAtlantic Bancorp, Inc. 11/29/83 NASDAQ 14,926,166 167.17
BKUNA BankUnited Financial Corp. 12/11/85 NASDAQ 5,702,523 41.34
FFFG F.F.O. Financial Group, Inc. 10/13/88 NASDAQ 8,430,000 22.13
FFLC FFLC Bancorp, Inc. 01/04/94 NASDAQ 2,618,763 47.14
FFML First Family Financial Corp. 10/22/92 NASDAQ 545,000 11.45
FFPB First Palm Beach Bancorp, Inc. 09/29/93 NASDAQ 5,181,187 110.75
FFPC Florida First Bancorp, Inc. 11/06/86 NASDAQ 3,384,645 37.65
HOFL Home Financial Corp. 10/25/94 NASDAQ 24,716,619 321.32
SCSL Suncoast Savings and Loan 07/30/85 NASDAQ 1,996,930 11.86
CCFH CCF Holding Company 07/12/95 NASDAQ 1,130,738 13.85
EBSI Eagle Bancshares 04/01/86 NASDAQ 4,552,200 72.27
FGHC First Georgia Holding, Inc. 02/11/87 NASDAQ 2,023,711 13.66
FLFC First Liberty Financial Corp. 12/06/83 NASDAQ 4,002,190 88.05
FLAG FLAG Financial Corp. 12/11/86 NASDAQ 2,035,740 24.43
NFSL Newnan Savings Bank, FSB 03/01/86 NASDAQ 1,459,407 28.82
CASH First Midwest Financial, Inc. 09/20/93 NASDAQ 1,778,577 39.13
GFSB GFS Bancorp, Inc. 01/06/94 NASDAQ 509,600 10.32
HZFS Horizon Financial Svcs Corp. 06/30/94 NASDAQ 447,937 6.72
MFCX Marshalltown Financial Corp. 03/31/94 NASDAQ 1,411,475 21.88
MIFC Mid-Iowa Financial Corp. 10/14/92 NASDAQ 1,682,880 10.10
MWBI Midwest Bancshares, Inc. 11/12/92 NASDAQ 349,379 9.00
FFFD North Central Bancshares, Inc. 03/21/96 NASDAQ 4,011,057 44.12
</TABLE>
112
<PAGE>
KELLER & COMPANY Page 3
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
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> <C> <C>
PMFI Perpetual Midwest Financial IA 383,273 35,588 35,588 0.41 0.36 4.16 3.70
SFFC StateFed Financial Corporation IA 76,705 14,928 14,928 1.19 1.19 5.99 5.99
AVND Avondale Financial Corp. IL 592,771 58,842 58,842 0.62 0.45 5.82 4.21
CBCI Calumet Bancorp, Inc. IL 500,814 80,507 80,507 1.31 1.31 7.85 7.84
CBSB Charter Financial, Inc. IL 366,983 63,777 59,323 1.18 1.17 7.39 7.36
CBK Citizens First Financial Corp. IL 247,882 40,669 40,669 0.53 0.44 6.58 5.52
CSBF CSB Financial Group, Inc. IL 41,524 12,837 12,837 0.89 0.89 3.67 3.67
DFIN Damen Financial Corp. IL 237,296 54,955 54,955 0.89 0.87 4.28 4.16
EGLB Eagle BancGroup, Inc. IL 162,519 22,345 22,345 NA NA NA NA
FBCI Fidelity Bancorp, Inc. IL 456,896 49,801 49,630 0.74 0.74 5.68 5.67
FNSC Financial Security Corp. IL 258,452 39,841 39,841 0.76 0.90 5.47 6.48
FFBI First Financial Bancorp, Inc. IL 94,486 7,873 7,873 0.68 0.59 6.79 5.93
FMBD First Mutual Bancorp, Inc. IL 301,690 69,445 69,445 0.98 0.94 3.80 3.65
FFDP FirstFed Bancshares IL 635,096 54,810 52,341 0.58 0.31 6.32 3.39
GTPS Great American Bancorp IL 119,662 33,331 33,331 0.70 0.69 2.44 2.39
HNFC Hinsdale Financial Corp. IL 662,482 55,463 53,831 0.63 0.57 8.18 7.37
HMCI HomeCorp, Inc. IL 338,985 21,133 21,133 0.40 0.25 6.66 4.23
KNK Kankakee Bancorp, Inc. IL 359,171 35,498 32,989 0.56 0.56 5.37 5.37
LBCI Liberty Bancorp, Inc. IL 651,198 64,017 63,854 0.55 0.55 5.61 5.61
MAFB MAF Bancorp, Inc. IL 3,117,149 242,226 206,596 0.85 0.86 14.21 14.30
NBSI North Bancshares, Inc. IL 119,436 18,514 18,514 0.59 0.54 3.19 2.92
PFED Park Bancorp, Inc. IL 155,216 17,658 17,658 NA NA NA NA
SWBI Southwest Bancshares IL 356,692 40,010 40,010 1.15 1.14 8.95 8.89
SPBC St. Paul Bancorp, Inc. IL 4,337,546 375,542 374,234 0.91 0.88 9.81 9.56
STND Standard Financial, Inc. IL 2,274,536 266,294 265,772 0.81 0.73 6.06 5.53
SFSB SuburbFed Financial Corp. IL 378,388 26,045 25,898 0.50 0.44 6.91 6.12
WCBI Westco Bancorp IL 312,158 48,236 48,236 1.30 1.31 8.37 8.44
FBCV 1ST Bancorp IN 263,483 21,729 21,729 2.05 -0.13 29.45 -1.87
AMFC AMB Financial Corp. IN 79,408 16,209 16,209 0.63 0.63 4.65 4.65
ASBI Ameriana Bancorp IN 402,051 44,609 44,547 0.92 0.91 7.38 7.28
ATSB AmTrust Capital Corp. IN 73,072 7,553 7,472 0.31 0.07 2.75 0.60
</TABLE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
Number of Mkt. Value
IPO Shares of Shares
Date Exchange Outstg. ($M)
------------------------------------------------
<S> <C> <C> <C> <C> <C>
PMFI Perpetual Midwest Financial 03/31/94 NASDAQ 1,988,082 33.80
SFFC StateFed Financial Corporation 01/05/94 NASDAQ 813,485 13.42
AVND Avondale Financial Corp. 04/07/95 NASDAQ 3,602,968 48.42
CBCI Calumet Bancorp, Inc. 02/20/92 NASDAQ 2,422,678 67.83
CBSB Charter Financial, Inc. 12/29/95 NASDAQ 4,874,380 55.76
CBK Citizens First Financial Corp. 05/01/96 AMSE 2,817,500 28.53
CSBF CSB Financial Group, Inc. 10/09/95 NASDAQ 1,035,000 9.57
DFIN Damen Financial Corp. 10/02/95 NASDAQ 3,967,500 46.12
EGLB Eagle BancGroup, Inc. 07/01/96 NASDAQ NA NA
FBCI Fidelity Bancorp, Inc. 12/15/93 NASDAQ 2,930,608 47.99
FNSC Financial Security Corp. 12/29/92 NASDAQ 1,550,846 40.32
FFBI First Financial Bancorp, Inc. 10/04/93 NASDAQ 465,896 7.45
FMBD First Mutual Bancorp, Inc. 07/05/95 NASDAQ 4,126,600 51.07
FFDP FirstFed Bancshares 07/01/92 NASDAQ 3,399,116 59.91
GTPS Great American Bancorp 06/30/95 NASDAQ 1,850,247 26.37
HNFC Hinsdale Financial Corp. 07/07/92 NASDAQ 2,690,155 67.93
HMCI HomeCorp, Inc. 06/22/90 NASDAQ 1,128,579 20.31
KNK Kankakee Bancorp, Inc. 01/06/93 AMSE 1,433,718 27.78
LBCI Liberty Bancorp, Inc. 12/24/91 NASDAQ 2,477,022 61.93
MAFB MAF Bancorp, Inc. 01/12/90 NASDAQ 10,340,673 253.35
NBSI North Bancshares, Inc. 12/21/93 NASDAQ 1,113,631 16.98
PFED Park Bancorp, Inc. 08/12/96 NASDAQ NA NA
SWBI Southwest Bancshares 06/24/92 NASDAQ 1,794,474 48.68
SPBC St. Paul Bancorp, Inc. 05/18/87 NASDAQ 17,988,321 413.73
STND Standard Financial, Inc. 08/01/94 NASDAQ 16,345,875 269.71
SFSB SuburbFed Financial Corp. 03/04/92 NASDAQ 1,257,019 21.68
WCBI Westco Bancorp 06/26/92 NASDAQ 2,621,643 56.04
FBCV 1ST Bancorp 04/07/87 NASDAQ 666,561 17.33
AMFC AMB Financial Corp. 04/01/96 NASDAQ 1,124,125 11.80
ASBI Ameriana Bancorp 03/02/87 NASDAQ 3,303,130 44.59
ATSB AmTrust Capital Corp. 03/28/95 NASDAQ 566,964 5.81
</TABLE>
113
<PAGE>
KELLER & COMPANY Page 4
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
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> <C> <C>
CBCO CB Bancorp, Inc. IN 195,658 19,319 19,319 1.38 1.37 14.66 14.51
CBIN Community Bank Shares IN 233,347 25,792 25,792 0.88 0.86 7.36 7.19
FFWC FFW Corp. IN 150,467 15,458 15,458 1.09 1.05 9.89 9.51
FFED Fidelity Federal Bancorp IN 262,216 14,295 14,295 1.18 1.00 23.76 20.21
FISB First Indiana Corporation IN 1,473,094 136,048 134,184 1.19 0.99 13.57 11.33
HFGI Harrington Financial Group IN 418,196 23,117 23,117 0.37 0.40 9.49 10.12
HBFW Home Bancorp IN 315,901 48,974 48,974 0.84 0.84 4.99 4.99
HBBI Home Building Bancorp IN 43,135 6,015 6,015 0.41 0.38 2.86 2.64
HOMF Home Federal Bancorp IN 630,015 51,517 49,619 1.23 1.04 15.14 12.85
HWEN Home Financial Bancorp IN 39,426 3,410 3,410 0.82 0.82 8.77 8.77
INCB Indiana Community Bank, SB IN 94,476 14,156 14,156 0.67 0.67 4.39 4.39
IFSL Indiana Federal Corporation IN 742,269 70,283 65,437 0.91 0.96 9.37 9.98
LOGN Logansport Financial Corp. IN 77,195 19,821 19,821 1.50 1.42 5.55 5.25
MARN Marion Capital Holdings IN 177,767 41,511 41,511 1.41 1.41 5.86 5.86
MFBC MFB Corp. IN 210,559 37,691 37,691 0.73 0.71 3.69 3.59
NEIB Northeast Indiana Bancorp IN 154,128 29,125 29,125 1.19 1.19 5.46 5.46
PFDC Peoples Bancorp IN 277,958 43,298 43,298 1.45 1.44 9.51 9.49
PERM Permanent Bancorp, Inc. IN 411,213 40,231 39,728 0.38 0.38 3.47 3.46
SOBI Sobieski Bancorp, Inc. IN 76,362 14,120 14,120 0.42 0.42 2.24 2.24
WCHI Workingmens Capital Holdings IN 208,203 26,459 26,459 0.86 0.87 7.04 7.09
FFSL First Independence Corp. KS 105,771 13,050 13,050 1.10 0.94 8.51 7.28
LARK Landmark Bancshares, Inc. KS 200,469 33,050 33,050 0.93 0.83 5.45 4.86
MCBS Mid Continent Bancshares Inc. KS 313,759 36,704 36,668 1.27 1.27 9.59 9.59
WBCI WFS Bancorp, Inc. KS 267,829 34,405 34,390 0.67 0.73 5.71 6.18
CKFB CKF Bancorp, Inc. KY 58,734 15,636 15,636 1.19 1.19 4.26 4.26
CLAS Classic Bancshares, Inc. KY 68,754 19,505 19,505 0.72 0.62 3.14 2.71
FSBS First Ashland Financial Corp KY 87,422 23,921 23,921 0.99 0.99 3.70 3.68
FFKY First Federal Financial Corp. KY 352,671 49,946 46,681 1.60 1.46 11.28 10.28
</TABLE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
Number of Mkt. Value
IPO Shares of Shares
Date Exchange Outstg. ($M)
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
CBCO CB Bancorp, Inc. 12/28/92 NASDAQ 1,175,226 20.86
CBIN Community Bank Shares 04/10/95 NASDAQ 1,983,722 25.04
FFWC FFW Corp. 04/05/93 NASDAQ 711,060 13.69
FFED Fidelity Federal Bancorp 08/31/87 NASDAQ 2,495,040 29.32
FISB First Indiana Corporation 08/02/83 NASDAQ 8,294,482 199.07
HFGI Harrington Financial Group NA NASDAQ 3,256,738 34.20
HBFW Home Bancorp 03/30/95 NASDAQ 2,886,815 44.02
HBBI Home Building Bancorp 02/08/95 NASDAQ 331,660 6.47
HOMF Home Federal Bancorp 01/23/88 NASDAQ 2,226,282 57.88
HWEN Home Financial Bancorp 07/02/96 NASDAQ NA NA
INCB Indiana Community Bank, SB 12/15/94 NASDAQ 922,039 14.06
IFSL Indiana Federal Corporation 02/04/87 NASDAQ 4,730,329 95.20
LOGN Logansport Financial Corp. 06/14/95 NASDAQ 1,322,500 17.60
MARN Marion Capital Holdings 03/18/93 NASDAQ 1,933,613 40.12
MFBC MFB Corp. 03/25/94 NASDAQ 1,973,980 27.14
NEIB Northeast Indiana Bancorp 06/28/95 NASDAQ 2,061,670 24.22
PFDC Peoples Bancorp 07/07/87 NASDAQ 2,345,512 46.32
PERM Permanent Bancorp, Inc. 04/04/94 NASDAQ 2,140,672 33.72
SOBI Sobieski Bancorp, Inc. 03/31/95 NASDAQ 836,860 10.67
WCHI Workingmens Capital Holdings 06/07/90 NASDAQ 1,808,560 36.85
FFSL First Independence Corp. 10/08/93 NASDAQ 583,421 10.36
LARK Landmark Bancshares, Inc. 03/28/94 NASDAQ 1,914,022 29.19
MCBS Mid Continent Bancshares Inc.06/27/94 NASDAQ 2,031,750 37.59
WBCI WFS Bancorp, Inc. 06/03/94 NASDAQ 1,564,387 36.07
CKFB CKF Bancorp, Inc. 01/04/95 NASDAQ 962,899 18.90
CLAS Classic Bancshares, Inc. 12/29/95 NASDAQ 1,322,500 13.89
FSBS First Ashland Financial Corp 04/07/95 NASDAQ 1,463,039 26.70
FFKY First Federal Financial Corp.07/15/87 NASDAQ 4,208,490 88.38
</TABLE>
114
<PAGE>
KELLER & COMPANY Page 5
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
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> <C> <C>
FLKY First Lancaster Bancshares KY 33,812 4,643 4,643 1.50 1.50 11.24 11.24
FTSB Fort Thomas Financial Corp. KY 88,874 21,638 21,638 1.33 1.33 5.39 5.39
FKKY Frankfort First Bancorp, Inc. KY 138,616 47,836 47,836 1.06 1.12 3.82 4.04
GWBC Gateway Bancorp, Inc. KY 71,260 17,714 17,714 1.05 1.05 4.05 4.05
GTFN Great Financial Corporation KY 2,808,092 274,841 264,468 1.00 0.78 8.68 6.78
HFFB Harrodsburg First Fin Bancorp KY 109,578 30,828 30,828 1.17 1.17 4.52 4.52
KYF Kentucky First Bancorp, Inc. KY 88,296 19,225 19,225 1.12 1.12 6.44 6.44
SFNB Security First Network Bank KY 106,971 55,277 54,641 NA NA NA NA
ANA Acadiana Bancshares, Inc. LA 274,304 17,751 17,751 NA NA NA NA
CZF CitiSave Financial Corp LA 76,128 12,738 12,730 1.21 1.11 6.68 6.17
ISBF ISB Financial Corporation LA 686,549 117,545 114,141 1.17 1.16 6.04 5.98
JEBC Jefferson Bancorp, Inc. LA 265,594 36,060 36,060 0.94 0.94 7.22 7.21
MERI Meritrust Federal SB LA 228,419 17,338 17,338 1.01 0.98 13.70 13.38
TSH Teche Holding Co. LA 370,722 56,978 56,978 1.10 1.08 6.08 5.96
AFCB Affiliated Community Bancorp MA 983,904 96,871 96,159 0.74 0.88 6.71 7.98
BFD BostonFed Bancorp, Inc. MA 777,997 88,947 88,947 0.49 0.45 4.63 4.25
FMLY Family Bancorp MA 925,239 69,952 64,294 0.90 0.87 11.79 11.33
ANBK American National Bancorp MD 449,019 49,011 49,011 0.34 0.33 3.88 3.80
EQSB Equitable Federal Savings Bank MD 267,776 14,182 14,182 0.78 0.78 14.98 14.89
FCIT First Citizens Financial Corp. MD 645,824 39,728 39,728 0.71 0.57 11.59 9.27
FFWM First Financial-W. Maryland MD 321,994 41,707 41,707 1.11 1.07 8.98 8.69
HRBF Harbor Federal Bancorp, Inc. MD 201,030 27,782 27,782 0.56 0.56 3.19 3.19
HFMD Home Federal Corp. MD 219,737 19,224 18,997 0.73 0.71 8.56 8.29
MFSL Maryland Federal Bancorp MD 1,128,449 94,654 93,158 0.79 0.56 9.60 6.77
WSB Washington Savings Bank, FSB MD 254,968 20,959 20,959 0.94 0.71 12.56 9.48
WHGB WHG Bancshares Corp. MD 111,704 23,008 23,008 NA NA NA NA
MCBN Mid-Coast Bancorp, Inc. ME 55,048 4,976 4,976 0.60 0.55 6.65 6.10
BWFC Bank West Financial Corp. MI 139,217 27,540 27,540 0.69 0.41 3.41 2.03
CFSB CFSB Bancorp, Inc. MI 791,610 65,067 65,067 0.96 0.90 11.70 10.96
DNFC D & N Financial Corp. MI 1,364,024 78,954 77,886 1.08 0.99 19.53 17.89
MSBF MSB Financial, Inc. MI 60,130 12,594 12,594 1.83 1.79 7.66 7.51
MSBK Mutual Savings Bank, FSB MI 680,033 38,616 38,616 0.01 -0.08 0.18 -1.56
OFCP Ottawa Financial Corp. MI 782,145 80,338 64,443 0.91 0.90 5.72 5.66
SJSB SJS Bancorp MI 150,752 17,587 17,587 0.63 0.61 5.00 4.87
</TABLE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
Number of Mkt. Value
IPO Shares of Shares
Date Exchange Outstg. ($M)
------------------------------------------------
<S> <C> <C> <C> <C> <C>
FLKY First Lancaster Bancshares 07/01/96 NASDAQ NA NA
FTSB Fort Thomas Financial Corp. 06/28/95 NASDAQ 1,573,775 27.54
FKKY Frankfort First Bancorp, Inc. 07/10/95 NASDAQ 3,450,000 48.73
GWBC Gateway Bancorp, Inc. 01/18/95 NASDAQ 1,132,372 15.99
GTFN Great Financial Corporation 03/31/94 NASDAQ 14,183,732 367.00
HFFB Harrodsburg First Fin Bancorp 10/04/95 NASDAQ 2,159,085 33.20
KYF Kentucky First Bancorp, Inc. 08/29/95 AMSE 1,388,625 19.09
SFNB Security First Network Bank NA NASDAQ 8,092,792 267.06
ANA Acadiana Bancshares, Inc. 07/16/96 AMSE NA NA
CZF CitiSave Financial Corp 07/14/95 AMSE 964,707 13.51
ISBF ISB Financial Corporation 04/07/95 NASDAQ 7,122,183 105.05
JEBC Jefferson Bancorp, Inc. 08/18/94 NASDAQ 2,195,635 48.30
MERI Meritrust Federal SB NA NASDAQ 774,176 24.19
TSH Teche Holding Co. 04/19/95 AMSE 3,871,000 50.81
AFCB Affiliated Community Bancorp 10/19/95 NASDAQ 5,080,666 88.28
BFD BostonFed Bancorp, Inc. 10/24/95 AMSE 6,589,617 79.08
FMLY Family Bancorp 11/07/86 NASDAQ 4,215,211 104.85
ANBK American National Bancorp 10/31/95 NASDAQ 3,980,500 40.30
EQSB Equitable Federal Savings Bank 09/10/93 NASDAQ 600,000 14.85
FCIT First Citizens Financial Corp. 12/17/86 NASDAQ 2,915,238 51.02
FFWM First Financial-W. Maryland 02/11/92 NASDAQ 2,176,739 45.17
HRBF Harbor Federal Bancorp, Inc. 08/12/94 NASDAQ 1,754,420 21.93
HFMD Home Federal Corp. 02/10/84 NASDAQ 2,519,010 26.45
MFSL Maryland Federal Bancorp 06/02/87 NASDAQ 3,160,068 93.22
WSB Washington Savings Bank, FSB NA AMSE 4,220,206 21.10
WHGB WHG Bancshares Corp. 04/01/96 NASDAQ NA NA
MCBN Mid-Coast Bancorp, Inc. 11/02/89 NASDAQ 229,588 4.39
BWFC Bank West Financial Corp. 03/30/95 NASDAQ 2,296,040 22.52
CFSB CFSB Bancorp, Inc. 06/22/90 NASDAQ 4,913,415 92.69
DNFC D & N Financial Corp. 02/13/85 NASDAQ 7,564,730 105.91
MSBF MSB Financial, Inc. 02/06/95 NASDAQ 655,566 10.82
MSBK Mutual Savings Bank, FSB 07/17/92 NASDAQ 4,274,154 24.04
OFCP Ottawa Financial Corp. 08/19/94 NASDAQ 5,414,546 87.99
SJSB SJS Bancorp 02/16/95 NASDAQ 982,622 18.18
</TABLE>
115
<PAGE>
KELLER & COMPANY Page 6
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
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> <C> <C>
SFB Standard Federal Bancorp MI 15,239,983 962,935 754,005 0.95 0.82 14.09 12.27
THR Three Rivers Financial Corp. MI 85,138 13,044 12,986 NA NA NA NA
BDJI First Federal Bancorporation MN 104,969 13,918 13,918 0.70 0.69 4.74 4.72
FFHH FSF Financial Corp. MN 331,395 47,624 47,624 0.64 0.64 3.79 3.76
HMNF HMN Financial, Inc. MN 554,979 87,263 87,263 1.11 0.96 6.48 5.59
MIVI Mississippi View Holding Co. MN 69,322 12,752 12,752 1.31 1.16 6.73 5.96
QCFB QCF Bancorp, Inc. MN 145,608 31,760 31,760 1.51 1.51 7.61 7.61
TCB TCF Financial Corp. MN 7,000,871 523,788 500,956 1.43 1.37 20.06 19.14
WEFC Wells Financial Corp. MN 191,787 27,760 27,760 0.84 0.85 5.71 5.77
CMRN Cameron Financial Corp MO 175,841 46,337 46,337 1.60 1.56 5.77 5.64
CAPS Capital Savings Bancorp, Inc. MO 202,554 21,136 21,136 0.95 0.95 8.96 8.96
CNSB CNS Bancorp, Inc. MO 98,326 24,196 24,196 NA NA NA NA
FBSI First Bancshares, Inc. MO 143,671 23,729 23,686 0.85 0.83 4.90 4.82
GSBC Great Southern Bancorp, Inc. MO 668,105 67,808 66,706 1.75 1.63 17.28 16.07
HFSA Hardin Bancorp, Inc. MO 86,949 14,932 14,932 0.76 0.75 4.25 4.23
JSBA Jefferson Savings Bancorp MO 1,125,393 82,243 67,611 0.63 0.57 9.07 8.24
JOAC Joachim Bancorp, Inc. MO 36,492 10,792 10,792 0.74 0.72 3.07 2.97
LXMO Lexington B&L Financial Corp. MO 61,294 18,738 18,738 NA NA NA NA
MBLF MBLA Financial Corp. MO 195,074 28,365 28,365 0.70 0.70 4.83 4.81
MFSB Mutual Bancompany MO 53,311 6,236 6,236 0.20 0.23 1.84 2.10
NASB North American Savings Bank MO 740,298 50,380 48,478 1.26 1.19 17.33 16.38
NSLB NS&L Bancorp, Inc. MO 57,288 13,351 13,351 0.97 0.83 4.08 3.50
PCBC Perry County Financial Corp. MO 80,394 15,088 15,088 0.88 0.98 4.36 4.81
RFED Roosevelt Financial Group MO 9,327,772 516,317 492,923 0.64 0.86 12.31 16.46
SMFC Sho-Me Financial Corp. MO 280,027 30,787 30,787 0.85 0.83 6.89 6.66
SMBC Southern Missouri Bancorp, Inc MO 161,992 26,572 26,572 0.87 0.82 4.98 4.67
CFTP Community Federal Bancorp MS 201,650 66,523 66,523 1.29 1.27 6.12 5.99
FFBS FFBS BanCorp, Inc. MS 125,228 24,639 24,639 1.37 1.37 6.88 6.88
MGNL Magna Bancorp, Inc. MS 1,308,658 125,819 119,043 1.71 1.70 17.51 17.38
GBCI Glacier Bancorp, Inc. MT 408,467 38,472 38,425 1.59 1.59 16.40 16.41
SFBM Security Bancorp MT 372,239 30,704 26,327 0.71 0.53 8.22 6.18
</TABLE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
Number of Mkt. Value
IPO Shares of Shares
Date Exchange Outstg. ($M)
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
SFB Standard Federal Bancorp 01/21/87 NYSE 31,324,268 1205.98
THR Three Rivers Financial Corp. 08/24/95 AMSE 859,625 11.39
BDJI First Federal Bancorporation 04/04/95 NASDAQ 778,406 10.17
FFHH FSF Financial Corp. 10/07/94 NASDAQ 3,477,694 41.30
HMNF HMN Financial, Inc. 06/30/94 NASDAQ 4,921,200 81.20
MIVI Mississippi View Holding Co. 03/24/95 NASDAQ 909,714 10.58
QCFB QCF Bancorp, Inc. 04/03/95 NASDAQ 1,782,750 25.63
TCB TCF Financial Corp. 06/17/86 NYSE 34,960,450 1162.43
WEFC Wells Financial Corp. 04/11/95 NASDAQ 2,078,125 23.90
CMRN Cameron Financial Corp 04/03/95 NASDAQ 2,850,180 39.19
CAPS Capital Savings Bancorp, Inc. 12/29/93 NASDAQ 1,039,079 18.44
CNSB CNS Bancorp, Inc. 06/12/96 NASDAQ 1,653,125 19.42
FBSI First Bancshares, Inc. 12/22/93 NASDAQ 1,268,686 19.35
GSBC Great Southern Bancorp, Inc. 12/14/89 NASDAQ 4,406,048 121.17
HFSA Hardin Bancorp, Inc. 09/29/95 NASDAQ 1,012,180 11.51
JSBA Jefferson Savings Bancorp 04/08/93 NASDAQ 4,181,563 106.63
JOAC Joachim Bancorp, Inc. 12/28/95 NASDAQ 760,437 9.51
LXMO Lexington B&L Financial Corp. 06/06/96 NASDAQ 1,265,000 12.65
MBLF MBLA Financial Corp. 06/24/93 NASDAQ 1,371,738 28.81
MFSB Mutual Bancompany 02/02/95 NASDAQ 333,500 5.59
NASB North American Savings Bank 09/27/85 NASDAQ 2,267,984 66.91
NSLB NS&L Bancorp, Inc. 06/08/95 NASDAQ 799,034 9.99
PCBC Perry County Financial Corp. 02/13/95 NASDAQ 856,452 14.99
RFED Roosevelt Financial Group 01/23/87 NASDAQ 42,145,561 811.30
SMFC Sho-Me Financial Corp. 07/01/94 NASDAQ 1,732,674 26.86
SMBC Southern Missouri Bancorp, Inc 04/13/94 NASDAQ 1,724,013 23.92
CFTP Community Federal Bancorp 03/26/96 NASDAQ 4,628,750 62.49
FFBS FFBS BanCorp, Inc. 07/01/93 NASDAQ 1,572,183 36.55
MGNL Magna Bancorp, Inc. 03/13/91 NASDAQ 13,702,868 255.22
GBCI Glacier Bancorp, Inc. 03/30/84 NASDAQ 3,361,133 71.42
SFBM Security Bancorp 11/20/86 NASDAQ 1,462,182 30.89
</TABLE>
116
<PAGE>
KELLER & COMPANY Page 7
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
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> <C> <C>
UBMT United Financial Corp. MT 104,195 24,507 24,507 1.52 1.44 6.66 6.30
WSTR WesterFed Financial Corp. MT 563,931 78,607 78,607 0.79 0.75 5.90 5.57
COOP Cooperative Bankshares, Inc. NC 316,654 29,494 26,038 0.29 0.28 3.14 3.06
SOPN First Savings Bancorp, Inc. NC 256,986 66,811 66,811 1.53 1.53 5.86 5.86
GSFC Green Street Financial Corp. NC 178,965 62,755 62,755 NA NA NA NA
HFNC HFNC Financial Corp. NC 716,277 244,362 244,362 NA NA NA NA
KSAV KS Bancorp, Inc. NC 93,536 13,835 13,821 1.11 1.12 6.88 6.97
MBSP Mitchell Bancorp, Inc. NC 27,596 6,078 6,078 0.92 0.92 4.24 4.24
PDB Piedmont Bancorp, Inc. NC 128,711 37,050 37,050 1.46 1.48 6.69 6.79
SSB Scotland Bancorp, Inc NC 70,488 24,706 24,706 NA NA NA NA
SSM Stone Street Bancorp, Inc. NC 107,991 38,328 38,328 NA NA NA NA
UFRM United Federal Savings Bank NC 255,485 20,634 20,634 0.79 0.67 10.03 8.44
CFB Commercial Federal Corporation NE 6,607,670 413,277 372,543 0.84 0.83 14.74 14.59
EBCP Eastern Bancorp NH 840,534 64,880 61,257 0.72 0.54 9.60 7.16
NHTB New Hampshire Thrift Bncshrs NH 258,526 19,475 19,475 0.65 0.61 8.48 7.98
FBER 1st Bergen Bancorp NJ 252,095 42,986 42,986 NA NA NA NA
CJFC Central Jersey Financial NJ 469,289 55,989 52,288 1.11 1.09 9.69 9.45
COFD Collective Bancorp, Inc. NJ 5,145,471 364,304 339,997 1.07 1.06 15.71 15.51
FSPG First Home Bancorp, Inc. NJ 479,314 30,836 30,076 0.97 0.95 14.89 14.51
FSFI First State Financial Services NJ 665,937 39,955 37,756 0.02 -0.12 0.23 -1.74
FMCO FMS Financial Corporation NJ 517,943 34,327 33,491 0.83 0.83 12.68 12.66
IBSF IBS Financial Corp. NJ 748,745 149,085 149,085 1.05 1.06 4.99 5.05
LVSB Lakeview Financial NJ 455,155 45,287 34,781 1.15 0.70 10.25 6.23
LFBI Little Falls Bancorp, Inc. NJ 282,232 43,813 40,416 NA NA NA NA
OCFC Ocean Financial Corp. NJ 1,191,812 92,088 92,088 NA NA NA NA
PBCI Pamrapo Bancorp, Inc. NJ 365,553 56,543 56,058 1.34 1.34 8.52 8.52
PFSB PennFed Financial Services,Inc NJ 1,086,524 90,564 72,134 0.82 0.81 8.36 8.29
PULS Pulse Bancorp NJ 505,034 39,338 39,338 1.19 1.19 10.28 10.28
SFIN Statewide Financial Corp. NJ 678,406 67,168 66,979 NA NA NA NA
WYNE Wayne Bancorp, Inc. NJ 211,717 36,679 36,679 NA NA NA NA
WWFC Westwood Financial Corporation NJ 84,779 5,978 4,717 0.67 0.67 9.40 9.40
</TABLE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
Number of Mkt. Value
IPO Shares of Shares
Date Exchange Outstg. ($M)
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
UBMT United Financial Corp. 09/23/86 NASDAQ 1,223,312 22.33
WSTR WesterFed Financial Corp. 01/10/94 NASDAQ 4,395,204 65.38
COOP Cooperative Bankshares, Inc. 08/21/91 NASDAQ 1,491,698 25.36
SOPN First Savings Bancorp, Inc. 01/06/94 NASDAQ 3,744,000 69.04
GSFC Green Street Financial Corp. 04/04/96 NASDAQ 4,298,125 55.88
HFNC HFNC Financial Corp. 12/29/95 NASDAQ 17,192,500 255.74
KSAV KS Bancorp, Inc. 12/30/93 NASDAQ 663,263 11.94
MBSP Mitchell Bancorp, Inc. 07/12/96 NASDAQ NA NA
PDB Piedmont Bancorp, Inc. 12/08/95 AMSE 2,645,000 34.72
SSB Scotland Bancorp, Inc 04/01/96 AMSE 1,840,000 22.54
SSM Stone Street Bancorp, Inc. 04/01/96 AMSE 1,825,050 30.80
UFRM United Federal Savings Bank 07/01/80 NASDAQ 3,065,064 24.52
CFB Commercial Federal Corporation 12/31/84 NYSE 15,089,701 577.18
EBCP Eastern Bancorp 11/17/83 NASDAQ 3,651,534 59.34
NHTB New Hampshire Thrift Bncshrs 05/22/86 NASDAQ 1,691,803 16.50
FBER 1st Bergen Bancorp 04/01/96 NASDAQ 3,174,000 28.96
CJFC Central Jersey Financial 09/01/84 NASDAQ 2,668,269 80.72
COFD Collective Bancorp, Inc. 02/07/84 NASDAQ 20,374,141 481.34
FSPG First Home Bancorp, Inc. 04/20/87 NASDAQ 2,030,009 36.03
FSFI First State Financial Services 12/18/87 NASDAQ 3,929,455 51.08
FMCO FMS Financial Corporation 12/14/88 NASDAQ 2,467,593 39.79
IBSF IBS Financial Corp. 10/13/94 NASDAQ 11,002,393 143.03
LVSB Lakeview Financial 12/22/93 NASDAQ 2,265,704 44.46
LFBI Little Falls Bancorp, Inc. 01/05/96 NASDAQ 3,041,750 31.56
OCFC Ocean Financial Corp. 07/03/96 NASDAQ NA NA
PBCI Pamrapo Bancorp, Inc. 11/14/89 NASDAQ 3,280,964 63.16
PFSB PennFed Financial Services,Inc 07/15/94 NASDAQ 4,823,665 74.77
PULS Pulse Bancorp 09/18/86 NASDAQ 3,049,378 53.36
SFIN Statewide Financial Corp. 10/02/95 NASDAQ 5,058,152 62.59
WYNE Wayne Bancorp, Inc. 06/27/96 NASDAQ 2,231,383 24.82
WWFC Westwood Financial Corporation 06/07/96 NASDAQ NA NA
</TABLE>
117
<PAGE>
KELLER & COMPANY Page 8
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
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> <C> <C>
FSBC First Savings Bank, FSB NM 112,436 5,551 5,551 0.34 0.26 7.13 5.56
GUPB GFSB Bancorp, Inc. NM 70,422 16,216 16,216 1.25 1.25 4.87 4.87
ALBK ALBANK Financial Corporation NY 3,325,592 316,703 279,777 0.97 0.97 9.50 9.49
ALBC Albion Banc Corp. NY 57,784 5,973 5,973 0.24 0.24 2.33 2.28
ASFC Astoria Financial Corporation NY 7,078,383 561,667 456,987 0.74 0.67 8.56 7.82
BFSI BFS Bankorp, Inc. NY 621,324 48,620 48,620 1.84 1.78 24.09 23.30
CARV Carver Federal Savings Bank NY 362,369 34,875 33,259 0.21 0.18 2.15 1.94
FIBC Financial Bancorp, Inc. NY 262,497 26,224 26,076 0.66 0.65 5.75 5.64
HAVN Haven Bancorp, Inc. NY 1,550,275 94,068 93,515 0.74 0.71 11.42 11.05
LISB Long Island Bancorp, Inc. NY 5,221,019 521,711 521,711 0.93 0.85 8.78 7.99
NYB New York Bancorp Inc. NY 2,918,120 158,374 158,374 1.27 1.20 21.77 20.51
PEEK Peekskill Financial Corp. NY 191,323 59,774 59,774 1.23 1.27 4.96 5.09
PKPS Poughkeepsie Savings Bank, FSB NY 840,491 70,958 70,958 1.70 2.36 21.07 29.34
RELY Reliance Bancorp, Inc. NY 1,782,550 153,619 104,190 0.83 0.79 7.61 7.23
SFED SFS Bancorp, Inc. NY 164,366 22,287 22,287 0.69 0.70 4.88 4.95
TPNZ Tappan Zee Financial, Inc. NY 119,167 21,499 21,499 0.80 0.74 5.22 4.85
YFCB Yonkers Financial Corporation NY 242,826 49,021 49,021 NA NA NA NA
ASBP ASB Financial Corp. OH 112,988 25,643 25,643 1.01 1.01 4.30 4.30
CAFI Camco Financial Corporation OH 352,576 29,337 29,337 1.22 0.95 15.13 11.81
COFI Charter One Financial OH 13,951,846 934,478 863,715 0.42 1.12 6.39 17.06
CRCL Circle Financial Corp. OH 241,758 24,742 21,590 0.51 0.51 4.66 4.67
CTZN CitFed Bancorp, Inc. OH 2,661,006 175,271 152,777 0.71 0.64 10.20 9.11
CIBI Community Investors Bancorp OH 85,785 11,869 11,869 1.01 0.96 6.98 6.63
EFBI Enterprise Federal Bancorp OH 213,876 31,594 31,536 0.92 0.64 5.39 3.74
FFDF FFD Financial Corp. OH 76,159 8,302 8,302 0.87 0.82 6.92 6.51
FFYF FFY Financial Corp. OH 575,602 101,921 101,921 1.20 1.24 6.58 6.79
FFOH Fidelity Financial of Ohio OH 251,188 51,087 51,087 0.87 0.87 5.60 5.59
FDEF First Defiance Financial OH 520,666 126,605 126,605 1.21 1.19 5.29 5.21
FFBZ First Federal Bancorp, Inc. OH 177,778 14,022 14,003 1.14 1.12 15.12 14.89
FFHS First Franklin Corporation OH 216,508 20,287 20,080 0.62 0.61 6.56 6.47
FFSW FirstFederal Financial Svcs OH 1,044,608 82,838 71,588 1.12 0.95 13.85 11.82
</TABLE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
Number of Mkt. Value
IPO Shares of Shares
Date Exchange Outstg. ($M)
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
FSBC First Savings Bank, FSB 08/08/86 NASDAQ 695,698 3.83
GUPB GFSB Bancorp, Inc. 06/30/95 NASDAQ 948,750 12.81
ALBK ALBANK Financial Corporation 04/01/92 NASDAQ 13,287,933 350.47
ALBC Albion Banc Corp. 07/26/93 NASDAQ 252,314 4.23
ASFC Astoria Financial Corporation 11/18/93 NASDAQ 21,509,444 583.44
BFSI BFS Bankorp, Inc. 05/12/88 NASDAQ 1,635,488 61.74
CARV Carver Federal Savings Bank 10/25/94 NASDAQ 2,314,375 18.52
FIBC Financial Bancorp, Inc. 08/17/94 NASDAQ 1,796,122 22.45
HAVN Haven Bancorp, Inc. 09/23/93 NASDAQ 4,320,060 121.50
LISB Long Island Bancorp, Inc. 04/18/94 NASDAQ 24,805,349 758.05
NYB New York Bancorp Inc. 01/28/88 NYSE 11,491,858 293.04
PEEK Peekskill Financial Corp. 12/29/95 NASDAQ 4,099,750 48.17
PKPS Poughkeepsie Savings Bank, FSB 11/19/85 NASDAQ 12,549,325 62.75
RELY Reliance Bancorp, Inc. 03/31/94 NASDAQ 9,128,739 142.64
SFED SFS Bancorp, Inc. 06/30/95 NASDAQ 1,292,450 16.48
TPNZ Tappan Zee Financial, Inc. 10/05/95 NASDAQ 1,553,062 18.64
YFCB Yonkers Financial Corporation 04/18/96 NASDAQ 3,570,750 34.89
ASBP ASB Financial Corp. 05/11/95 NASDAQ 1,713,960 25.71
CAFI Camco Financial Corporation NA NASDAQ 2,075,641 40.03
COFI Charter One Financial 01/22/88 NASDAQ 45,009,764 1569.72
CRCL Circle Financial Corp. 08/06/91 NASDAQ 715,033 25.03
CTZN CitFed Bancorp, Inc. 01/23/92 NASDAQ 5,691,322 222.67
CIBI Community Investors Bancorp 02/07/95 NASDAQ 701,246 10.34
EFBI Enterprise Federal Bancorp 10/17/94 NASDAQ 2,074,328 29.04
FFDF FFD Financial Corp. 04/03/96 NASDAQ NA NA
FFYF FFY Financial Corp. 06/28/93 NASDAQ 5,081,198 120.68
FFOH Fidelity Financial of Ohio 03/04/96 NASDAQ 4,073,589 40.74
FDEF First Defiance Financial 10/02/95 NASDAQ 10,432,476 108.24
FFBZ First Federal Bancorp, Inc. 07/13/92 NASDAQ 784,658 18.44
FFHS First Franklin Corporation 01/26/88 NASDAQ 1,165,318 17.48
FFSW FirstFederal Financial Svcs 03/31/87 NASDAQ 3,583,829 104.83
</TABLE>
118
<PAGE>
KELLER & COMPANY Page 9
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
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> <C> <C>
GFCO Glenway Financial Corp. OH 273,890 26,485 25,854 0.56 0.55 5.82 5.75
HHFC Harvest Home Financial Corp. OH 76,399 12,769 12,769 0.75 0.75 4.14 4.14
HVFD Haverfield Corporation OH 334,226 28,414 28,352 0.71 0.67 8.57 8.10
INBI Industrial Bancorp OH 313,563 60,799 60,799 1.57 1.57 7.13 7.13
LONF London Financial Corporation OH 37,189 7,945 7,945 NA NA NA NA
MFFC Milton Federal Financial Corp. OH 178,289 33,756 33,756 1.04 0.96 4.80 4.41
OHSL OHSL Financial Corp. OH 209,037 25,494 25,494 0.95 0.93 7.55 7.41
PTRS Potters Financial Corp. OH 114,714 10,594 10,594 0.51 0.50 5.27 5.21
PVFC PVF Capital Corp. OH 318,100 21,325 21,325 1.13 1.00 17.86 15.90
SFSL Security First Corp. OH 588,592 55,732 54,624 1.21 1.27 13.36 13.98
SHFC Seven Hills Financial Corp. OH 45,511 9,651 9,651 0.36 0.34 1.69 1.61
SSBK Strongsville Savings Bank OH 529,187 42,554 41,701 0.99 0.88 11.83 10.53
SBCN Suburban Bancorporation, Inc. OH 197,137 25,639 25,639 0.39 0.57 2.95 4.30
THIR Third Financial Corp. OH 155,911 28,655 28,655 1.37 1.23 7.66 6.86
WOFC Western Ohio Financial Corp. OH 332,524 55,632 52,331 0.89 0.56 3.88 2.44
WFCO Winton Financial Corp. OH 282,833 21,083 20,544 0.94 0.80 12.39 10.50
FFWD Wood Bancorp, Inc. OH 146,249 20,122 20,122 1.19 1.14 8.40 8.05
KFBI Klamath First Bancorp OR 629,943 161,804 161,804 1.43 1.43 6.06 6.06
BRFC Bridgeville Savings Bank PA 56,109 16,004 16,004 1.27 1.27 4.34 4.34
CVAL Chester Valley Bancorp Inc. PA 272,932 25,564 25,564 0.91 0.87 9.88 9.44
CMSB Commonwealth Bancorp, Inc. PA 2,049,062 227,521 173,218 0.74 0.65 8.08 7.04
FSBI Fidelity Bancorp, Inc. PA 317,315 21,544 21,434 0.65 0.65 8.66 8.53
FBBC First Bell Bancorp, Inc. PA 570,649 116,265 116,265 1.62 1.61 7.34 7.30
FKFS First Keystone Financial PA 290,549 22,920 22,920 0.56 0.60 6.48 6.99
SHEN First Shenango Bancorp, Inc. PA 369,279 46,836 46,836 1.03 0.98 7.45 7.10
GAF GA Financial, Inc. PA 562,351 128,420 128,420 0.78 0.96 5.90 7.26
HARL Harleysville Savings Bank PA 298,172 19,826 19,826 0.81 0.85 11.83 12.43
LARL Laurel Capital Group, Inc. PA 196,947 21,086 21,086 1.39 1.35 13.29 12.99
MLBC ML Bancorp, Inc. PA 1,876,018 141,239 135,607 0.72 0.56 8.30 6.45
PVSA Parkvale Financial Corporation PA 919,242 69,765 69,489 1.06 0.99 15.13 14.14
PBIX Patriot Bank Corp. PA 417,746 54,003 54,003 0.63 0.65 4.91 5.08
</TABLE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
Number of Mkt. Value
IPO Shares of Shares
Date Exchange Outstg. ($M)
------------------------------------------------
<S> <C> <C> <C> <C> <C>
GFCO Glenway Financial Corp. 11/30/90 NASDAQ 1,145,431 23.45
HHFC Harvest Home Financial Corp. 10/10/94 NASDAQ 934,857 11.69
HVFD Haverfield Corporation 03/19/85 NASDAQ 1,906,591 36.23
INBI Industrial Bancorp 08/01/95 NASDAQ 5,554,500 62.49
LONF London Financial Corporation 04/01/96 NASDAQ 529,000 5.55
MFFC Milton Federal Financial Corp. 10/07/94 NASDAQ 2,263,797 27.73
OHSL OHSL Financial Corp. 02/10/93 NASDAQ 1,217,386 24.35
PTRS Potters Financial Corp. 12/31/93 NASDAQ 506,169 8.13
PVFC PVF Capital Corp. 12/30/92 NASDAQ 2,323,436 30.20
SFSL Security First Corp. 01/22/88 NASDAQ 4,929,612 70.25
SHFC Seven Hills Financial Corp. 12/31/93 NASDAQ 536,472 7.78
SSBK Strongsville Savings Bank NA NASDAQ 2,530,800 51.88
SBCN Suburban Bancorporation, Inc. 09/30/93 NASDAQ 1,480,732 23.88
THIR Third Financial Corp. 03/25/93 NASDAQ 1,135,954 36.35
WOFC Western Ohio Financial Corp. 07/29/94 NASDAQ 2,309,342 51.96
WFCO Winton Financial Corp. 08/04/88 NASDAQ 1,986,152 28.30
FFWD Wood Bancorp, Inc. 08/31/93 NASDAQ 1,497,705 18.97
KFBI Klamath First Bancorp 10/05/95 NASDAQ 12,233,125 178.91
BRFC Bridgeville Savings Bank 10/07/94 NASDAQ 1,124,125 16.86
CVAL Chester Valley Bancorp Inc. 03/27/87 NASDAQ 1,648,185 28.65
CMSB Commonwealth Bancorp, Inc. 06/17/96 NASDAQ 17,952,693 190.75
FSBI Fidelity Bancorp, Inc. 06/24/88 NASDAQ 1,369,511 22.60
FBBC First Bell Bancorp, Inc. 06/29/95 NASDAQ 8,166,450 112.29
FKFS First Keystone Financial 01/26/95 NASDAQ 1,292,500 22.30
SHEN First Shenango Bancorp, Inc. 04/06/93 NASDAQ 2,281,250 46.20
GAF GA Financial, Inc. 03/26/96 AMSE 8,900,000 97.90
HARL Harleysville Savings Bank 08/04/87 NASDAQ 1,289,442 22.89
LARL Laurel Capital Group, Inc. 02/20/87 NASDAQ 1,512,667 22.31
MLBC ML Bancorp, Inc. 08/11/94 NASDAQ 6,246,900 151.49
PVSA Parkvale Financial Corporation 07/16/87 NASDAQ 3,235,643 81.70
PBIX Patriot Bank Corp. 12/04/95 NASDAQ 3,769,125 48.06
</TABLE>
119
<PAGE>
KELLER & COMPANY Page 10
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
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> <C> <C>
PWBC PennFirst Bancorp, Inc. PA 696,467 48,456 43,798 0.62 0.59 7.68 7.36
PWBK Pennwood Savings Bank PA 42,366 4,081 4,081 NA NA NA NA
PHFC Pittsburgh Home Financial Corp PA 184,002 30,406 30,406 0.51 0.51 6.53 6.53
PRBC Prestige Bancorp, Inc. PA 102,609 15,273 15,273 NA NA NA NA
PSAB Prime Bancorp, Inc. PA 644,560 58,048 54,425 1.02 0.95 10.90 10.19
PFNC Progress Financial Corporation PA 347,858 19,508 19,374 0.91 0.71 18.78 14.73
SVRN Sovereign Bancorp, Inc. PA 9,183,447 461,466 344,022 0.79 0.76 14.64 14.24
THRD TF Financial Corporation PA 528,910 75,122 75,122 0.91 0.88 5.94 5.72
THBC Troy Hill Bancorp, Inc. PA 80,484 17,865 17,865 1.38 1.26 6.09 5.57
WVFC WVS Financial Corporation PA 259,622 34,038 34,038 1.51 1.39 10.19 9.38
YFED York Financial Corp. PA 1,109,804 93,540 93,540 0.99 0.88 11.57 10.31
AMFB American Federal Bank, FSB SC 1,382,171 107,260 98,902 1.30 1.41 16.02 17.49
CFCP Coastal Financial Corp. SC 452,809 27,641 27,641 1.04 0.92 17.09 15.04
FFCH First Financial Holdings Inc. SC 1,523,224 97,330 97,330 0.78 0.79 11.81 11.97
FSFC First Southeast Financial Corp SC 326,573 33,669 33,669 0.31 0.82 1.61 4.26
PALM Palfed, Inc. SC 638,002 53,666 51,136 0.69 0.58 8.53 7.16
SCCB S. Carolina Community Bancshrs SC 44,161 12,309 12,309 1.11 1.11 3.80 3.80
HFFC HF Financial Corp. SD 555,189 51,793 51,641 0.85 0.69 9.35 7.63
LFCT Leader Financial Corp. TN 3,211,064 266,390 266,390 1.48 1.45 18.45 18.01
TWIN Twin City Bancorp TN 103,300 14,113 14,113 1.09 0.96 7.94 7.02
BNKU Bank United Corp. TX 11,002,448 804,627 788,566 1.31 1.07 18.87 15.41
CBSA Coastal Bancorp, Inc. TX 2,796,568 95,091 78,680 0.40 0.38 11.70 11.27
ETFS East Texas Financial Services TX 115,339 21,815 21,815 0.81 0.74 4.17 3.82
FBHC Fort Bend Holding Corp. TX 254,739 18,008 18,008 0.70 0.62 9.62 8.50
LOAN Horizon Bancorp TX 130,930 11,195 10,830 1.47 1.18 16.04 12.84
JXVL Jacksonville Bancorp, Inc. TX 217,730 35,616 35,616 0.93 0.93 7.63 7.63
BFSB Bedford Bancshares, Inc. VA 121,783 18,530 18,530 1.29 1.28 7.96 7.94
CNIT CENIT Bancorp, Inc. VA 655,771 47,716 46,010 0.48 0.54 6.76 7.51
CFFC Community Financial Corp. VA 158,835 22,297 22,297 1.31 1.31 9.68 9.67
ESX Essex Bancorp, Inc. VA 305,223 15,573 13,395 -1.63 -1.52 -26.06 -24.35
FFFC FFVA Financial Corp. VA 522,811 81,442 79,774 1.24 1.22 7.51 7.37
</TABLE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
Number of Mkt. Value
IPO Shares of Shares
Date Exchange Outstg. ($M)
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
PWBC PennFirst Bancorp, Inc. 06/13/90 NASDAQ 3,938,712 51.20
PWBK Pennwood Savings Bank 07/15/96 NASDAQ NA NA
PHFC Pittsburgh Home Financial Corp 04/01/96 NASDAQ 2,182,125 21.95
PRBC Prestige Bancorp, Inc. 06/27/96 NASDAQ 963,023 10.11
PSAB Prime Bancorp, Inc. 11/21/88 NASDAQ 3,725,056 69.14
PFNC Progress Financial Corporation 07/18/83 NASDAQ 3,730,000 24.25
SVRN Sovereign Bancorp, Inc. 08/12/86 NASDAQ 49,573,278 495.73
THRD TF Financial Corporation 07/13/94 NASDAQ 4,514,057 68.12
THBC Troy Hill Bancorp, Inc. 06/27/94 NASDAQ 1,067,917 14.42
WVFC WVS Financial Corporation 11/29/93 NASDAQ 1,736,760 36.04
YFED York Financial Corp. 02/01/84 NASDAQ 6,087,722 101.97
AMFB American Federal Bank, FSB 01/19/89 NASDAQ 10,931,985 183.11
CFCP Coastal Financial Corp. 09/26/90 NASDAQ 3,436,403 61.17
FFCH First Financial Holdings Inc. 11/10/83 NASDAQ 6,377,369 114.79
FSFC First Southeast Financial Corp 10/08/93 NASDAQ 4,388,231 43.88
PALM Palfed, Inc. 12/15/85 NASDAQ 5,225,571 65.32
SCCB S. Carolina Community Bancshrs 07/07/94 NASDAQ 735,410 11.86
HFFC HF Financial Corp. 04/08/92 NASDAQ 3,051,739 45.78
LFCT Leader Financial Corp. 09/30/93 NASDAQ 9,947,794 445.16
TWIN Twin City Bancorp 01/04/95 NASDAQ 896,564 14.79
BNKU Bank United Corp. NA NASDAQ NA NA
CBSA Coastal Bancorp, Inc. NA NASDAQ 4,962,344 89.32
ETFS East Texas Financial Services 01/10/95 NASDAQ 1,133,890 16.58
FBHC Fort Bend Holding Corp. 06/30/93 NASDAQ 819,198 14.54
LOAN Horizon Bancorp NA NASDAQ 1,386,757 15.60
JXVL Jacksonville Bancorp, Inc. 04/01/96 NASDAQ 2,664,405 27.98
BFSB Bedford Bancshares, Inc. 08/22/94 NASDAQ 1,161,169 19.30
CNIT CENIT Bancorp, Inc. 08/06/92 NASDAQ 1,612,952 54.84
CFFC Community Financial Corp. 03/30/88 NASDAQ 1,272,048 26.39
ESX Essex Bancorp, Inc. NA AMSE 1,051,790 2.30
FFFC FFVA Financial Corp. 10/12/94 NASDAQ 5,180,952 94.55
</TABLE>
120
<PAGE>
KELLER & COMPANY Page 11
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
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> <C> <C>
FFRV Fidelity Financial Bankshares VA 325,814 28,010 27,993 1.00 0.97 12.03 11.71
GSLC Guaranty Financial Corp. VA 102,967 6,373 6,373 0.68 0.42 10.91 6.77
LIFB Life Bancorp, Inc. VA 1,240,520 148,718 143,199 0.87 0.91 6.25 6.56
VABF Virginia Beach Fed. Financial VA 608,832 41,206 41,206 0.29 0.10 4.81 1.56
VFFC Virginia First Financial Corp. VA 746,867 60,996 59,075 1.74 0.84 22.49 10.79
CASB Cascade Financial Corp. WA 334,431 20,815 20,815 0.71 0.40 11.28 6.39
FWWB First SB of Washington Bancorp WA 764,685 148,840 148,840 1.23 1.20 6.56 6.43
IWBK InterWest Bancorp, Inc. WA 1,413,926 96,338 93,662 1.11 1.05 15.69 14.79
MSEA Metropolitan Bancorp WA 761,014 51,166 46,402 0.78 0.83 11.41 12.23
STSA Sterling Financial Corp. WA 1,477,699 85,745 74,140 0.45 0.43 7.73 7.39
WFSL Washington Federal, Inc. WA 5,040,588 597,495 569,151 1.78 1.71 14.47 13.84
AADV Advantage Bancorp, Inc. WI 996,245 94,116 81,912 0.90 0.81 9.41 8.45
ABCW Anchor BanCorp Wisconsin WI 1,822,248 117,895 114,841 0.90 0.87 12.75 12.32
FCBF FCB Financial Corp. WI 265,172 46,655 46,655 1.09 1.07 5.71 5.62
FFEC First Fed Bncshrs Eau Claire WI 706,672 97,457 93,632 0.87 0.91 5.70 5.91
FTFC First Federal Capital Corp. WI 1,389,163 95,278 89,847 0.97 0.72 13.98 10.44
FFHC First Financial Corp. WI 5,579,294 407,905 388,953 1.31 1.26 18.55 17.93
FNGB First Northern Capital Corp. WI 580,128 70,754 70,754 0.78 0.75 6.12 5.85
HALL Hallmark Capital Corp. WI 377,157 27,011 27,011 0.60 0.57 7.17 6.80
MWFD Midwest Federal Financial WI 187,601 16,901 16,160 1.28 1.04 13.41 10.85
NWEQ Northwest Equity Corp. WI 91,804 11,720 11,720 1.00 0.95 6.91 6.54
OSBF OSB Financial Corp. WI 250,003 31,400 31,400 0.21 0.36 1.63 2.85
RELI Reliance Bancshares, Inc. WI 47,752 29,348 NA 1.28 1.29 2.64 2.65
SECP Security Capital Corporation WI 3,437,317 559,048 559,048 0.99 1.04 5.85 6.13
STFR St. Francis Capital Corp. WI 1,329,903 130,656 124,711 1.18 0.87 10.78 7.95
FOBC Fed One Bancorp WV 343,028 41,188 39,077 1.00 1.00 7.93 7.92
CRZY Crazy Woman Creek Bancorp WY 50,324 15,453 15,453 NA NA NA NA
TRIC Tri-County Bancorp, Inc. WY 76,718 12,408 12,408 0.95 0.92 5.13 4.99
</TABLE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
Number of Mkt. Value
IPO Shares of Shares
Date Exchange Outstg. ($M)
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
FFRV Fidelity Financial Bankshares 05/01/86 NASDAQ 2,291,681 31.51
GSLC Guaranty Financial Corp. NA NASDAQ 919,168 7.12
LIFB Life Bancorp, Inc. 10/11/94 NASDAQ 10,097,094 142.62
VABF Virginia Beach Fed. Financial 11/01/80 NASDAQ 4,965,094 34.14
VFFC Virginia First Financial Corp. 01/01/78 NASDAQ 5,740,503 78.93
CASB Cascade Financial Corp. 09/16/92 NASDAQ 2,045,894 32.22
FWWB First SB of Washington Bancorp 11/01/95 NASDAQ 10,474,200 163.66
IWBK InterWest Bancorp, Inc. NA NASDAQ 6,450,308 154.00
MSEA Metropolitan Bancorp 01/09/90 NASDAQ 3,710,205 50.09
STSA Sterling Financial Corp. NA NASDAQ 5,426,398 80.04
WFSL Washington Federal, Inc. 11/17/82 NASDAQ 42,246,383 866.05
AADV Advantage Bancorp, Inc. 03/23/92 NASDAQ 3,392,694 115.35
ABCW Anchor BanCorp Wisconsin 07/16/92 NASDAQ 4,839,392 168.17
FCBF FCB Financial Corp. 09/24/93 NASDAQ 2,459,614 43.04
FFEC First Fed Bncshrs Eau Claire 10/12/94 NASDAQ 6,855,379 105.40
FTFC First Federal Capital Corp. 11/02/89 NASDAQ 6,231,168 126.18
FFHC First Financial Corp. 12/24/80 NASDAQ 29,905,406 672.87
FNGB First Northern Capital Corp. 12/29/83 NASDAQ 4,394,725 67.02
HALL Hallmark Capital Corp. 01/03/94 NASDAQ 1,413,280 21.20
MWFD Midwest Federal Financial 07/08/92 NASDAQ 1,634,880 25.34
NWEQ Northwest Equity Corp. 10/11/94 NASDAQ 945,392 9.81
OSBF OSB Financial Corp. 07/01/92 NASDAQ 1,110,984 26.11
RELI Reliance Bancshares, Inc. 04/19/96 NASDAQ 2,562,344 20.50
SECP Security Capital Corporation 01/03/94 NASDAQ 9,314,365 554.20
STFR St. Francis Capital Corp. 06/21/93 NASDAQ 5,586,837 139.67
FOBC Fed One Bancorp 01/19/95 NASDAQ 2,558,191 38.37
CRZY Crazy Woman Creek Bancorp 03/29/96 NASDAQ 1,058,000 10.71
TRIC Tri-County Bancorp, Inc. 09/30/93 NASDAQ 608,749 10.96
</TABLE>
121
<PAGE>
KELLER & COMPANY Page 12
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY
Total Total Total Core Core
Assets Equity Tang. Equity ROAA ROAA ROAE ROAE
State ($000) ($000) ($000) (%) (%) (%) (%)
----- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ALL THRIFTS
AVERAGE 1,327,408 104,568 99,048 0.88 0.81 8.08 7.26
MEDIAN 313,759 37,050 36,668 0.89 0.83 7.37 6.80
HIGH 49,506,630 2,834,725 2,637,334 2.25 2.36 29.45 29.34
LOW 27,596 3,410 3,410 -1.74 -1.74 -31.62 -31.74
AVERAGE FOR STATE
MT 362,208 43,073 41,967 1.15 1.08 9.30 8.62
AVERAGE BY REGION
MIDWEST 902,529 78,650 73,760 0.90 0.84 7.85 7.14
NEW ENGLAND 940,345 77,329 75,365 0.69 0.58 6.48 5.23
MID ATLANTIC 587,865 61,477 59,018 0.97 0.92 8.49 8.05
SOUTHEAST 885,540 77,712 72,670 0.95 0.87 9.56 8.39
SOUTHWEST 890,833 90,274 88,070 0.57 0.51 5.36 4.69
WEST 5,289,469 331,057 318,052 0.60 0.53 6.44 5.33
AVERAGE BY EXCHANGE
NYSE 16,112,744 999,750 928,067 0.83 0.68 12.82 10.83
AMEX 236,679 35,191 34,884 0.74 0.70 4.49 4.16
OTC/NASDAQ 765,270 70,729 67,499 0.88 0.82 8.04 7.25
</TABLE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
Number of Mkt. Value
IPO Shares of Shares
Date Exchange Outstg. ($M)
----------------------------------------------
<S> <C> <C> <C> <C>
ALL THRIFTS
AVERAGE 5,860,310 124.09
MEDIAN 2,472,308 36.80
HIGH 137,392,481 3,280.25
LOW 229,588 2.30
AVERAGE FOR STATE
MT 2,610,458 47.51
AVERAGE BY REGION
MIDWEST 4,724,667 101.91
NEW ENGLAND 5,630,561 88.54
MID ATLANTIC 4,068,133 75.13
SOUTHEAST 4,969,255 76.19
SOUTHWEST 6,262,901 108.96
WEST 14,554,888 378.58
AVERAGE BY EXCHANGE
NYSE 43,349,126 1,232.98
AMEX 2,562,757 30.17
OTC/NASDAQ 4,398,289 80.63
</TABLE>
122
<PAGE>
EXHIBIT 32
KELLER & COMPANY Page 1
Columbus, Ohio
614-766-1426
<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> <C>
FFBA First Colorado Bancorp, Inc. CO 01/02/96 NA NA NA NA 14.42 123.25 124.69 20.12
LFBI Little Falls Bancorp, Inc. NJ 01/05/96 31.90 71.40 71.43 13.40 17.50 72.92 79.07 11.32
BYFC Broadway Financial Corp. CA 01/09/96 13.30 68.50 68.48 8.00 NM 68.45 68.45 7.98
FFOH Fidelity Financial of Ohio OH 03/04/96 NA NA NA NA 15.04 76.75 76.75 15.61
FFFD North Central Bancshares, Inc. IA 03/21/96 NA NA NA NA 11.66 87.23 87.23 25.03
GAF GA Financial, Inc. PA 03/26/96 13.80 70.50 70.52 15.70 12.02 86.63 86.63 19.78
CFTP Community Federal Bancorp MS 03/26/96 14.00 71.40 71.35 22.20 16.88 93.95 93.95 30.99
PFFB PFF Bancorp, Inc. CA 03/29/96 26.60 69.00 68.99 9.50 23.32 82.82 83.79 11.21
CRZY Crazy Woman Creek Bancorp WY 03/29/96 16.40 69.70 69.72 22.00 19.64 75.29 75.29 23.12
SSM Stone Street Bancorp, Inc. NC 04/01/96 19.70 74.90 74.92 24.40 NA 84.52 84.52 30.00
JXVL Jacksonville Bancorp, Inc. TX 04/01/96 NA NA NA NA NA 93.49 93.49 15.30
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 82.11 82.11 13.56
LONF London Financial Corporation OH 04/01/96 22.40 68.50 68.46 13.40 NA 74.07 74.07 15.83
SSB Scotland Bancorp, Inc NC 04/01/96 16.20 74.80 74.83 24.20 NA 94.01 94.01 32.95
AMFC AMB Financial Corp. IN 04/01/96 18.20 70.80 70.83 14.00 NA 73.68 73.68 15.04
FBER 1st Bergen Bancorp NJ 04/01/96 21.70 74.80 74.81 12.50 NA 76.62 76.62 13.06
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 96.75 96.75 33.92
YFCB Yonkers Financial Corporation NY 04/18/96 16.10 74.90 74.93 14.60 NA 89.22 89.22 18.01
RELI Reliance Bancshares, Inc. WI 04/19/96 22.50 72.50 72.47 38.90 NA 69.87 NA 42.92
CBK Citizens First Financial Corp. IL 05/01/96 15.30 73.10 73.10 11.00 NA 78.83 78.83 12.93
FFBH First Federal Bancshares of AR AR 05/03/96 9.80 63.40 63.39 10.20 NA 92.65 92.65 15.31
LXMO Lexington B&L Financial Corp. MO 06/06/96 14.40 69.10 69.10 20.20 NA 69.64 69.64 21.29
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 88.80 88.80 21.86
CMSB Commonwealth Bancorp, Inc. PA 06/17/96 NA NA NA NA NA 87.81 115.28 9.75
PRBC Prestige Bancorp, Inc. PA 06/27/96 24.60 61.90 61.90 9.50 NA 69.36 69.36 10.32
WYNE Wayne Bancorp, Inc. NJ 06/27/96 16.70 60.90 60.94 9.70 NA 83.64 83.64 14.49
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
</TABLE>
<TABLE>
<CAPTION>
PRICES AND TREND FROM IPO DATE
******************************************************
1 Day 1 Week 1 Mo.
IPO After After After
Price IPO % IPO % IPO %
($) ($) Change ($) Change ($) Change
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FFBA First Colorado Bancorp, Inc. CO NA 11.44 NA 11.63 NA 12.00 NA
LFBI Little Falls Bancorp, Inc. NJ 10.00 11.31 13.13 11.38 13.75 11.00 10.00
BYFC Broadway Financial Corp. CA 10.00 10.38 3.75 10.25 2.50 10.25 2.50
FFOH Fidelity Financial of Ohio OH NA 10.50 NA 10.00 NA 10.13 NA
FFFD North Central Bancshares, Inc. IA NA 10.88 NA 10.69 NA 10.44 NA
GAF GA Financial, Inc. PA 10.00 11.38 13.75 11.50 15.00 11.00 10.00
CFTP Community Federal Bancorp MS 10.00 12.63 26.25 12.88 28.75 12.63 26.25
PFFB PFF Bancorp, Inc. CA 10.00 11.38 13.75 11.63 16.25 11.63 16.25
CRZY Crazy Woman Creek Bancorp WY 10.00 NA NA 10.75 7.50 10.50 5.00
SSM Stone Street Bancorp, Inc. NC 15.00 17.50 16.67 18.00 20.00 17.75 18.33
JXVL Jacksonville Bancorp, Inc. TX NA 11.11 NA 9.63 NA 9.88 NA
WHGB WHG Bancshares Corp. MD 10.00 11.13 11.25 11.06 10.60 11.25 12.50
PHFC Pittsburgh Home Financial Corp PA 10.00 11.00 10.00 11.00 10.00 10.63 6.25
LONF London Financial Corporation OH 10.00 10.81 8.12 10.63 6.25 10.13 1.25
SSB Scotland Bancorp, Inc NC 10.00 12.25 22.50 12.50 25.00 11.75 17.50
AMFC AMB Financial Corp. IN 10.00 10.50 5.00 10.50 5.00 10.50 5.00
FBER 1st Bergen Bancorp NJ 10.00 10.00 0.00 9.50 (5.00) 9.63 (3.75)
FFDF FFD Financial Corp. OH 10.00 10.50 5.00 10.50 5.00 10.31 3.10
GSFC Green Street Financial Corp. NC 10.00 12.88 28.75 12.25 22.50 12.31 23.10
YFCB Yonkers Financial Corporation NY 10.00 9.75 (2.50) 10.13 1.25 9.94 (0.60)
RELI Reliance Bancshares, Inc. WI 8.00 8.38 4.69 8.25 3.13 7.94 (0.75)
CBK Citizens First Financial Corp. IL 10.00 10.50 5.00 10.00 0.00 10.13 1.25
FFBH First Federal Bancshares of AR AR 10.00 13.00 30.00 13.25 32.50 13.69 36.90
LXMO Lexington B&L Financial Corp. MO 10.00 9.50 (5.00) 9.75 (2.50) 10.13 1.25
WWFC Westwood Financial Corporation NJ NA 10.75 NA 10.38 NA 10.63 NA
CNSB CNS Bancorp, Inc. MO 10.00 11.00 10.00 11.63 16.25 11.50 15.00
CMSB Commonwealth Bancorp, Inc. PA NA 10.50 NA 10.75 NA 10.00 NA
PRBC Prestige Bancorp, Inc. PA 10.00 10.38 3.75 10.25 2.50 9.75 (2.50)
WYNE Wayne Bancorp, Inc. NJ 10.00 11.13 11.25 11.38 13.75 11.25 12.50
PROV Provident Financial Holdings CA 10.00 10.97 9.70 10.81 8.10 10.13 1.25
FLKY First Lancaster Bancshares KY 10.00 13.50 35.00 13.38 33.75 13.75 37.50
EGLB Eagle BancGroup, Inc. IL 10.00 11.25 12.50 11.25 12.50 11.13 11.25
HWEN Home Financial Bancorp IN 10.00 10.25 2.50 9.88 (1.25) 10.50 5.00
OCFC Ocean Financial Corp. NJ 20.00 21.25 6.25 20.13 0.63 21.00 5.00
</TABLE>
123
<PAGE>
KELLER & COMPANY Page 2
Columbus, Ohio
614-766-1426
<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> <C> <C>
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
PFED Park Bancorp, Inc. IL 08/12/96 17.80 64.90 64.93 14.50 NA NA NA NA
</TABLE>
<TABLE>
<CAPTION>
PRICES AND TREND FROM IPO DATE
*******************************************************
1 Day 1 Week 1 Mo.
IPO After After After
Price IPO % IPO % IPO %
($) ($) Change ($) Change ($) Change
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MBSP Mitchell Bancorp, Inc. NC 10.00 NA NA 10.63 6.25 11.00 10.00
PWBK Pennwood Savings Bank PA 10.00 9.50 (5.00) 9.13 (8.75) 9.63 (3.75)
ANA Acadiana Bancshares, Inc. LA 12.00 12.00 0.00 11.75 (2.08) 12.38 3.13
PFED Park Bancorp, Inc. IL 10.00 10.25 2.50 10.44 4.38 10.50 5.00
</TABLE>
124
<PAGE>
EXHIBIT 33
KELLER & COMPANY
Columbus, Ohio
614-766-1426
ACQUISITIONS AND PENDING ACQUISITIONS
COUNTY, CITY OR MARKET AREA OF EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
NONE
125
<PAGE>
EXHIBIT 34
KELLER & COMPANY
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED MUTUAL HOLDING COMPANIES
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ---------------- ---------------- -------- ---------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PFSL Pocahontas FS&LA, MHC AR NASDAQ 15.000 17.250 9.500 3.45 1.69 13.78 232.28 0.72
CMSV Community Savings, MHC FL NASDAQ 16.625 18.250 10.000 3.91 9.02 15.38 128.26 0.70
FFFL Fidelity FSB of Florida, MHC FL NASDAQ 15.000 17.000 9.091 17.65 7.14 12.10 121.55 0.59
HARB Harbor Federal Savings Bk, MHC FL NASDAQ 29.000 29.500 11.875 20.83 12.62 17.24 205.56 1.05
FFSX First Fed SB of Siouxland, MHC IA NASDAQ 25.500 28.625 9.063 -0.97 -2.86 21.59 259.86 0.72
WCFB Webster City Federal SB, MHC IA NASDAQ 13.250 13.500 8.813 6.00 -1.85 10.38 46.38 0.65
JXSB Jacksonville Savings Bank, MHC IL NASDAQ 12.063 14.250 10.000 -8.96 -7.21 13.31 112.43 0.40
LFED Leeds Federal Savings Bk, MHC MD NASDAQ 13.750 16.750 9.875 0.00 0.00 12.65 77.34 0.63
GFED Guaranty Federal SB, MHC MO NASDAQ 9.750 12.500 8.000 -4.88 -13.33 8.69 59.37 NA
PULB Pulaski Bank, Savings Bk, MHC MO NASDAQ 12.750 16.500 10.500 0.00 -8.93 10.93 85.70 0.80
FSLA First Savings Bank, MHC NJ NASDAQ 16.500 17.500 5.579 4.76 1.54 14.07 147.79 0.38
FSNJ First Savings Bk of NJ, MHC NJ NASDAQ 16.000 19.500 10.750 14.29 11.30 16.01 212.47 0.50
SBFL SB of the Finger Lakes, MHC NY NASDAQ 15.375 17.000 8.125 -5.38 -3.91 11.31 110.61 NA
WAYN Wayne Savings & Loan Co. MHC OH NASDAQ 19.250 22.000 11.255 -2.53 -7.23 15.50 167.32 0.83
GDVS Greater Delaware Valley SB,MHC PA NASDAQ 10.000 13.000 9.250 5.26 -2.44 8.62 70.88 0.27
HARS Harris Savings Bank, MHC PA NASDAQ 15.500 20.500 12.750 0.00 -1.59 13.32 137.45 0.55
NWSB Northwest Savings Bank, MHC PA NASDAQ 11.625 13.500 7.375 4.49 -3.13 8.28 80.32 0.30
RVSB Riverview Savings Bank, MHC WA NASDAQ 15.375 17.000 9.711 2.50 2.50 10.73 97.40 0.20
ALL MUTUAL HOLDING COMPANIES
AVERAGE 15.684 18.007 9.528 3.36 -0.37 12.99 130.72 0.58
MEDIAN 15.188 17.000 9.606 2.98 -1.72 12.98 116.99 0.61
HIGH 29.000 29.500 12.750 20.83 12.62 21.59 259.86 1.05
LOW 9.750 12.500 5.579 -8.96 -13.33 8.28 46.38 0.20
<CAPTION>
PRICING RATIOS
Price/ Price/ Price/ Price/Core Total
Earnings Bk. Value Assets Earnings Assets # Shares
(X) (%) (%) (X) ($000) Region Outstanding
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PFSL Pocahontas FS&LA, MHC 12.40 108.85 6.46 12.10 377,236 SE 1,624,088
CMSV Community Savings, MHC 15.39 108.09 12.96 15.11 626,045 SE 4,880,888
FFFL Fidelity FSB of Florida, MHC 18.99 123.97 12.34 20.27 816,869 SE 6,720,252
HARB Harbor Federal Savings Bk, MHC 13.18 168.21 14.11 13.18 1,014,013 SE 4,932,854
FFSX First Fed SB of Siouxland, MHC 14.25 118.11 9.81 15.27 443,632 MW 1,707,209
WCFB Webster City Federal SB, MHC 24.54 127.65 28.57 25.48 97,391 MW 2,100,000
JXSB Jacksonville Savings Bank, MHC 22.76 90.63 10.73 28.05 143,044 MW 1,272,300
LFED Leeds Federal Savings Bk, MHC 17.19 108.70 17.78 16.98 266,658 MA 3,448,000
GFED Guaranty Federal SB, MHC NA 112.20 16.42 NA 185,546 MW 3,125,000
PULB Pulaski Bank, Savings Bk, MHC 16.78 116.65 14.88 20.24 179,457 MW 2,094,000
FSLA First Savings Bank, MHC 13.75 117.27 11.16 13.41 962,343 MA 6,511,756
FSNJ First Savings Bk of NJ, MHC 43.24 99.94 7.53 18.60 650,650 MA 3,062,321
SBFL SB of the Finger Lakes, MHC NA 135.94 13.90 NA 197,438 MA 1,785,000
WAYN Wayne Savings & Loan Co. MHC 18.51 124.19 11.50 19.44 250,266 MW 1,495,707
GDVS Greater Delaware Valley SB,MHC 47.62 116.01 14.11 40.00 231,971 MA 3,272,500
HARS Harris Savings Bank, MHC 29.25 116.37 11.28 20.39 1,541,717 MA 11,216,400
NWSB Northwest Savings Bank, MHC 15.10 140.40 14.47 14.53 1,877,529 MA 23,376,000
RVSB Riverview Savings Bank, MHC 12.30 143.29 15.79 13.37 213,868 WE 2,195,781
ALL MUTUAL HOLDING COMPANIES
AVERAGE 20.95 120.92 13.54 19.15
MEDIAN 16.99 116.96 13.43 17.79
HIGH 47.62 168.21 28.57 40.00
LOW 12.30 90.63 6.46 12.10
</TABLE>
126
<PAGE>
EXHIBIT 35
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED MUTUAL HOLDING COMPANIES
AS OF SEPTEMBER 6, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY
Total Total Total Core
Assets Equity Tang. Equity ROAA ROAA ROAE
State ($000) ($000) ($000) (%) (%) (%)
----- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PFSL Pocahontas FS&LA, MHC AR 377,236 22,374 22,374 0.56 0.58 9.42
CMSV Community Savings, MHC FL 626,045 75,066 75,066 0.88 0.90 7.10
FFFL Fidelity FSB of Florida, MHC FL 816,869 80,577 79,672 0.67 0.63 6.57
HARB Harbor Federal Savings Bk, MHC FL 1,014,013 85,062 81,880 1.18 1.18 13.57
FFSX First Fed SB of Siouxland, MHC IA 443,632 36,857 36,502 0.70 0.65 8.44
WCFB Webster City Federal SB, MHC IA 97,391 21,805 21,805 1.16 1.12 5.24
JXSB Jacksonville Savings Bank, MHC IL 143,044 16,931 16,930 0.48 0.39 4.16
LFED Leeds Federal Savings Bk, MHC MD 266,658 43,610 43,610 1.03 1.04 6.32
GFED Guaranty Federal SB, MHC MO 185,546 27,165 27,165 1.02 0.56 7.11
PULB Pulaski Bank, Savings Bk, MHC MO 179,457 22,881 22,881 0.88 0.74 7.15
FSLA First Savings Bank, MHC NJ 962,343 91,613 79,849 0.85 0.87 9.06
FSNJ First Savings Bk of NJ, MHC NJ 650,650 49,020 49,020 0.19 0.43 2.24
SBFL SB of the Finger Lakes, MHC NY 197,438 20,189 20,189 NA NA NA
WAYN Wayne Savings & Loan Co. MHC OH 250,266 23,186 23,186 0.62 0.59 6.73
GDVS Greater Delaware Valley SB,MHC PA 231,971 28,202 28,202 0.31 0.35 2.50
HARS Harris Savings Bank, MHC PA 1,541,717 149,403 125,498 0.46 0.63 3.94
NWSB Northwest Savings Bank, MHC PA 1,877,529 190,651 181,003 1.05 1.08 9.48
RVSB Riverview Savings Bank, MHC WA 213,868 23,567 20,993 1.32 1.21 12.07
ALL MUTUAL HOLDING COMPANIES
AVERAGE 559,760 56,009 53,101 0.79 0.76 7.12
MEDIAN 321,947 32,530 32,352 0.85 0.65 7.10
HIGH 1,877,529 190,651 181,003 1.32 1.21 13.57
LOW 97,391 16,931 16,930 0.19 0.35 2.24
<CAPTION>
CAPITAL ISSUES
Core Number of Mkt. Value
ROAE IPO Shares of Shares
(%) Date Exchange Outstg. ($M)
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
PFSL Pocahontas FS&LA, MHC 9.65 04/05/94 NASDAQ 1,624,088 23.96
CMSV Community Savings, MHC 7.25 10/24/94 NASDAQ 4,880,888 78.09
FFFL Fidelity FSB of Florida, MHC 6.19 01/07/94 NASDAQ 6,720,252 89.04
HARB Harbor Federal Savings Bk, MHC 13.56 01/06/94 NASDAQ 4,932,854 124.55
FFSX First Fed SB of Siouxland, MHC 7.86 07/13/92 NASDAQ 1,707,209 42.25
WCFB Webster City Federal SB, MHC 5.05 08/15/94 NASDAQ 2,100,000 27.30
JXSB Jacksonville Savings Bank, MHC 3.41 04/21/95 NASDAQ 1,272,300 16.54
LFED Leeds Federal Savings Bk, MHC 6.37 05/02/94 NASDAQ 3,448,000 51.72
GFED Guaranty Federal SB, MHC 3.92 04/10/95 NASDAQ 3,125,000 36.72
PULB Pulaski Bank, Savings Bk, MHC 5.95 05/11/94 NASDAQ 2,094,000 29.32
FSLA First Savings Bank, MHC 9.32 07/10/92 NASDAQ 6,511,756 102.56
FSNJ First Savings Bk of NJ, MHC 5.05 01/09/95 NASDAQ 3,062,321 43.64
SBFL SB of the Finger Lakes, MHC NA 11/11/94 NASDAQ 1,785,000 28.56
WAYN Wayne Savings & Loan Co. MHC 6.36 06/25/93 NASDAQ 1,495,707 31.04
GDVS Greater Delaware Valley SB,MHC 2.89 03/03/95 NASDAQ 3,272,500 32.73
HARS Harris Savings Bank, MHC 5.35 01/25/94 NASDAQ 11,216,400 182.27
NWSB Northwest Savings Bank, MHC 9.84 11/07/94 NASDAQ 23,376,000 262.98
RVSB Riverview Savings Bank, MHC 11.05 10/26/93 NASDAQ 2,195,781 31.56
ALL MUTUAL HOLDING COMPANIES
AVERAGE 7.00 4,712,225 68.60
MEDIAN 6.36 3,093,661 39.49
HIGH 13.56 23,376,000 262.98
LOW 2.89 1,272,300 16.54
</TABLE>
127
<PAGE>
EXHIBIT 36
Page 1
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EMPIRE FEDERAL SAVINGS & LOAN ASSOCIATION
COMPARABLE GROUP SELECTION
BALANCE SHEET PARAMETERS
<TABLE>
<CAPTION>
General Parameters:
States: CA CO ID IA KS MN MO MT
NM SD TX WA WI WY
IPO Date: <= 03/31/95 Total
Asset size: <= $400,000,000 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> <C>
EMPIRE FEDERAL
SAVINGS & LOAN ASSOCIATION -- 86,810 7.35 40.54 40.55 48.25 88.79 1.73 18.29
DEFINED PARAMETERS FOR Prior to 20.00 - 30.00 - 55.00 - 7.00 -
INCLUSION IN COMPARABLE GROUP 03/31/95 <$400,000 <45.00 <45.00 70.00 85.00 97.00 <30.00 25.00
MIVI Mississippi View Holding Co. MN 03/24/95 69,322 28.70 7.72 47.41 60.79 68.50 0.00 18.40
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
MORG Morgan Financial Corp. CO 01/11/93 74,130 24.81 2.92 63.05 70.49 73.40 25.29 13.97
SFFC StateFed Financial Corporation IA 01/05/94 76,705 13.17 0.00 52.67 81.75 81.75 19.56 19.46
TRIC Tri-County Bancorp, Inc. WY 09/30/93 76,718 41.19 16.66 30.95 40.87 57.53 24.05 16.17
PCBC Perry County Financial Corp. MO 02/13/95 80,394 NA NA 10.93 13.81 NA 3.11 18.77
GFSB GFS Bancorp, Inc. IA 01/06/94 83,305 8.02 4.12 55.32 86.16 90.28 23.19 11.94
NWEQ Northwest Equity Corp. WI 10/11/94 91,804 7.52 8.66 53.69 80.09 88.75 21.52 12.77
FSSB First FS&LA of San Bernardino CA 02/02/93 102,436 17.85 10.20 39.60 66.20 76.40 0.00 4.62
UBMT United Financial Corp. MT 09/23/86 104,195 47.77 18.32 20.05 29.73 48.05 0.19 23.52
FFSL First Independence Corp. KS 10/08/93 105,771 17.42 19.72 49.38 61.24 80.96 21.46 12.34
FSBC First Savings Bank, FSB NM 08/08/86 112,436 10.36 52.38 19.69 34.03 86.41 0.00 4.94
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
ETFS East Texas Financial Services TX 01/10/95 115,339 34.34 23.20 33.04 40.18 63.38 0.00 18.91
MWBI Midwest Bancshares, Inc. IA 11/12/92 138,628 16.11 23.61 44.47 57.32 80.93 20.20 6.67
FBSI First Bancshares, Inc. MO 12/22/93 143,671 14.00 0.66 63.98 82.68 83.34 9.43 16.52
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
MWFD Midwest Federal Financial WI 07/08/92 187,601 15.70 8.14 31.70 72.07 80.22 9.20 9.01
</TABLE>
128
<PAGE>
Page 2
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EMPIRE FEDERAL SAVINGS & LOAN ASSOCIATION
COMPARABLE GROUP SELECTION
BALANCE SHEET PARAMETERS
<TABLE><CAPTION>
General Parameters:
States: CA CO ID IA KS MN MO MT
NM SD TX WA WI WY
IPO Date: <= 03/31/95 Total
Asset size: <= $400,000,000 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> <C>
EMPIRE FEDERAL
SAVINGS & LOAN ASSOCIATION -- 88,810 7.35 40.54 40.55 48.25 88.79 1.73 18.29
DEFINED PARAMETERS FOR Prior to 20.00- 30.00- 55.00- 7.00-
INCLUSION IN COMPARABLE GROUP 03/31/95 <$400,000 <45.00 <45.00 70.00 85.00 97.00 <30.00 25.00
MBLF MBLA Financial Corp. MO 06/24/93 195,074 10.77 34.89 48.90 53.50 88.38 40.06 14.54
LARK Landmark Bancshares, Inc. KS 03/28/94 200,469 27.20 12.61 44.89 58.49 71.10 8.68 16.49
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
OSBF OSB Financial Corp. WI 07/01/92 250,003 30.09 0.06 49.66 67.63 67.69 20.89 12.56
FBHC Fort Bend Holding Corp. TX 06/30/93 254,739 30.33 26.15 23.42 39.85 66.00 8.80 7.07
FCBF FCB Financial Corp. WI 09/24/93 265,172 NA NA 50.04 83.00 NA 21.59 17.59
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
MCBS Mid Continent Bancshares Inc. KS 06/27/94 313,759 30.20 11.47 42.98 50.62 62.09 18.01 11.70
MBBC Monterey Bay Bancorp, Inc. CA 02/15/95 317,347 13.72 11.37 62.07 72.05 83.42 15.63 14.75
FFHH FSF Financial Corp. MN 10/07/94 331,395 36.76 0.03 41.45 60.92 60.95 28.30 14.37
CASB Cascade Financial Corp. WA 09/16/92 334,431 14.18 12.92 49.13 69.85 82.77 26.61 6.22
CASH First Midwest Financial, Inc. IA 09/20/93 342,095 22.44 9.67 22.17 65.12 74.78 27.85 11.41
SFBM Security Bancorp MT 11/20/86 372,239 23.99 20.16 23.30 50.40 70.55 12.02 8.25
HALL Hallmark Capital Corp. WI 01/03/94 377,157 21.47 17.12 40.09 59.61 76.72 30.21 7.16
PMFI Perpetual Midwest Financial IA 03/31/94 383,273 10.59 8.44 35.05 77.74 86.18 21.06 9.29
</TABLE>
129
<PAGE>
EXHIBIT 37
Page 1
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EMPIRE FEDERAL SAVINGS & LOAN ASSOCIATION
COMPARABLE GROUP SELECTION
OPERATING PERFORMANCE AND ASSET QUALITY PARAMETERS
Most Recent Four Quarters
<TABLE>
<CAPTION>
General Parameters:
States: CA CO ID IA KS MN MO MT
NM SD TX WA WI WY
IPO Date: <= 03/31/95
Asset size: <= $400,000,000 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> <C> <C>
EMPIRE FEDERAL
SAVINGS & LOAN ASSOCIATION -- 86,810 0.72 3.99 3.57 3.18 1.00 0.00 0.00 0.23
DEFINED PARAMETERS FOR Prior to 0.55- 3.00- 2.75- 2.00-
INCLUSION IN COMPARABLE GROUP 03/31/95 <400,000 1.35 10.00 4.25 3.90 <1.25 <1.00 <0.20 >0.20
MIVI Mississippi View Holding Co. MN 03/24/95 69,322 1.31 6.73 4.02 2.33 0.27 0.51 0.00 1.27
HZFS Horizon Financial Svcs Corp. IA 06/30/94 73,464 0.53 4.38 3.50 2.64 0.50 NA NA NA
MORG Morgan Financial Corp. CO 01/11/93 74,130 1.02 6.82 3.04 1.51 0.03 0.35 0.19 0.16
SFFC StateFed Financial Corporation IA 01/05/94 76,705 1.19 5.99 3.69 1.71 0.07 NA NA 0.31
TRIC Tri-County Bancorp, Inc. WY 09/30/93 76,718 0.95 5.13 3.43 2.14 0.18 0.22 0.17 0.54
PCBC Perry County Financial Corp. MO 02/13/95 80,394 0.88 4.36 2.78 1.23 0.03 NA NA 0.01
GFSB GFS Bancorp, Inc. IA 01/06/94 83,305 1.16 9.19 3.46 1.73 0.12 1.15 0.27 0.77
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
FSSB First FS&LA of San Bernardino CA 02/02/93 102,436 -1.10 -19.76 3.13 4.13 0.86 3.31 1.01 1.06
UBMT United Financial Corp. MT 09/23/86 104,195 1.52 6.66 3.59 2.03 0.61 0.80 0.65 0.07
FFSL First Independence Corp. KS 10/08/93 105,771 1.10 8.51 3.14 1.72 0.22 0.37 0.01 0.65
FSBC First Savings Bank, FSB NM 08/08/86 112,436 0.34 7.13 2.57 2.88 0.59 1.49 0.06 0.35
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
ETFS East Texas Financial Services TX 01/10/95 115,339 0.81 4.17 3.19 2.17 0.23 0.23 0.00 0.25
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
</TABLE>
130
<PAGE>
Page 2
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EMPIRE FEDERAL SAVINGS & LOAN ASSOCIATION
COMPARABLE GROUP SELECTION
OPERATING PERFORMANCE AND ASSET QUALITY PARAMETERS
Most Recent Four Quarters
<TABLE>
<CAPTION>
General Parameters:
States: CA CO ID IA KS MN MO MT
NM SD TX WA WI WY
IPO Date: <= 03/31/95
Asset size: <= $400,000,000 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> <C> <C>
EMPIRE FEDERAL
SAVINGS & LOAN ASSOCIATION -- 86,810 0.72 3.99 3.57 3.18 1.00 0.00 0.00 0.23
DEFINED PARAMETERS FOR Prior to 0.55- 3.00- 2.75- 2.00-
INCLUSION IN COMPARABLE GROUP 03/31/95 <400,000 1.35 10.00 4.25 3.90 <1.25 <1.00 <0.20 >0.20
FBSI First Bancshares, Inc. MO 12/22/93 143,671 0.85 4.90 3.40 2.13 0.23 0.57 0.00 0.36
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
MWFD Midwest Federal Financial WI 07/08/92 187,601 1.28 13.41 4.15 3.01 0.86 0.19 0.00 0.75
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
LARK Landmark Bancshares, Inc. KS 03/28/94 200,469 0.93 5.45 2.85 1.69 0.24 0.06 0.00 0.36
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
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
FBHC Fort Bend Holding Corp. TX 06/30/93 254,739 0.70 9.62 2.78 2.38 0.68 0.72 0.05 0.54
FCBF FCB Financial Corp. WI 09/24/93 265,172 1.09 5.71 3.48 1.82 0.26 0.12 0.00 0.42
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
MCBS Mid Continent Bancshares Inc. KS 06/27/94 313,759 1.27 9.59 2.98 3.26 2.24 0.10 0.01 0.12
MBBC Monterey Bay Bancorp, Inc. CA 02/15/95 317,347 0.32 2.16 2.77 2.23 0.23 0.61 0.04 0.42
FFHH FSF Financial Corp. MN 10/07/94 331,395 0.64 3.79 3.06 2.31 0.40 0.07 0.04 0.23
CASB Cascade Financial Corp. WA 09/16/92 334,431 0.71 11.28 2.68 2.19 0.21 1.58 0.22 0.88
CASH First Midwest Financial, Inc. IA 09/20/93 342,095 1.06 8.14 3.50 2.07 0.39 0.20 0.03 0.53
</TABLE>
131
<PAGE>
KELLER & COMPANY Page 3
Columbus, Ohio
614-766-1426
EMPIRE FEDERAL SAVINGS & LOAN ASSOCIATION
COMPARABLE GROUP SELECTION
OPERATING PERFORMANCE AND ASSET QUALITY PARAMETERS
Most Recent Four Quarters
<TABLE>
<CAPTION>
General Parameters:
States: CA CO ID IA KS MN MO MT
NM SD TX WA WI WY
IPO Date: <= 03/31/95
Asset size: <= $400,000,000 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> <C> <C>
EMPIRE FEDERAL
SAVINGS & LOAN ASSOCIATION -- 86,810 0.72 3.99 3.57 3.18 1.00 0.00 0.00 0.23
DEFINED PARAMETERS FOR Prior to 0.55- 3.00- 2.75- 2.00-
INCLUSION IN COMPARABLE GROUP 03/31/95 <400,000 1.35 10.00 4.25 3.90 <1.25 <1.00 <0.20 >0.20
SFBM Security Bancorp MT 11/20/86 372,239 0.71 8.22 3.16 2.89 0.82 0.23 0.00 0.32
HALL Hallmark Capital Corp. WI 01/03/94 377,157 0.60 7.17 2.45 1.76 0.30 0.03 0.00 0.33
PMFI Perpetual Midwest Financial IA 03/31/94 383,273 0.41 4.16 2.58 2.11 0.29 0.39 0.00 0.70
</TABLE>
* Asset quality ratios reflect balance sheet totals at the end of the most
recent quarter.
** Based on average interest-earning assets.
132
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EMPIRE FEDERAL SAVINGS & LOAN ASSOCIATION
FINAL COMPARABLE GROUP
BALANCE SHEET RATIOS
<TABLE>
<CAPTION>
Total
Cash & 1-4 Fam. Total Net Net Loans Borrowed
Total Invest./ MBS/ Loans/ Loans/ & MBS/ Funds/ Equity/
Assets Assets Assets Assets Assets Assets Assets Assets
IPO Date ($000) (%) (%) (%) (%) (%) (%) (%)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EMPIRE FEDERAL
SAVINGS & LOAN ASSOCIATION -- 86,810 7.35 40.54 40.55 48.25 88.79 1.73 18.29
DEFINED PARAMETERS FOR Prior to 20.00- 30.00- 55.00- 7.00-
INCLUSION IN COMPARABLE GROUP 03/31/95 <$400,000 <45.00 <45.00 70.00 85.00 97.00 <30.00 25.00
MIVI Mississippi View Holding Co. MN 03/24/95 69,322 28.70 7.72 47.41 60.79 68.50 0.00 18.40
TRIC Tri-County Bancorp, Inc. WY 09/30/93 76,718 41.19 16.66 30.95 40.87 57.53 24.05 16.17
NWEQ Northwest Equity Corp. WI 10/11/94 91,804 7.52 8.66 53.69 80.09 88.75 21.52 12.77
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
ETFS East Texas Financial Services TX 01/10/95 115,339 34.34 23.20 33.04 40.18 63.38 0.00 18.91
FBSI First Bancshares, Inc. MO 12/22/93 143,671 14.00 0.66 63.98 82.68 83.34 9.43 16.52
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
FBHC Fort Bend Holding Corp. TX 06/30/93 254,739 30.33 26.15 23.42 39.85 66.00 8.80 7.07
FFHH FSF Financial Corp. MN 10/07/94 331,395 36.76 0.03 41.45 60.92 60.95 28.30 14.37
SFBM Security Bancorp MT 11/20/86 372,239 23.99 20.16 23.30 50.40 70.55 12.02 8.25
AVERAGE 177,304 24.33 14.29 42.53 58.61 72.90 13.88 13.23
MEDIAN 129,505 26.34 15.30 40.46 56.80 69.53 12.92 13.57
HIGH 372,239 41.19 26.15 68.57 82.68 91.47 28.30 18.91
LOW 69,322 6.76 0.03 23.30 39.85 57.53 0.00 7.07
</TABLE>
133
<PAGE>
EXHIBIT 39
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EMPIRE FEDERAL SAVINGS & LOAN ASSOCIATION
FINAL COMPARABLE GROUP
OPERATING PERFORMANCE AND ASSET QUALITY RATIOS
Most Recent Four Quarters
<TABLE>
<CAPTION>
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> <C> <C>
EMPIRE FEDERAL
SAVINGS & LOAN ASSOCIATION -- 86,810 0.72 3.99 3.57 3.18 1.00 0.00 0.00 0.23
DEFINED PARAMETERS FOR Prior to 0.55- 3.00- 2.75- 2.00-
INCLUSION IN COMPARABLE GROUP 03/31/95 <400,000 1.35 10.00 4.25 3.90 <1.25 <1.00 <0.20 >0.20
MIVI Mississippi View Holding Co. MN 03/24/95 69,322 1.31 6.73 4.02 2.33 0.27 0.51 0.00 1.27
TRIC Tri-County Bancorp, Inc. WY 09/30/93 76,718 0.95 5.13 3.43 2.14 0.18 0.22 0.17 0.54
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
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
ETFS East Texas Financial Services TX 01/10/95 115,339 0.81 4.17 3.19 2.17 0.23 0.23 0.00 0.25
FBSI First Bancshares, Inc. MO 12/22/93 143,671 0.85 4.90 3.40 2.13 0.23 0.57 0.00 0.36
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
FBHC Fort Bend Holding Corp. TX 06/30/93 254,739 0.70 9.62 2.78 2.38 0.68 0.72 0.05 0.54
FFHH FSF Financial Corp. MN 10/07/94 331,395 0.64 3.79 3.06 2.31 0.40 0.07 0.04 0.23
SFBM Security Bancorp MT 11/20/86 372,239 0.71 8.22 3.16 2.89 0.82 0.23 0.00 0.32
AVERAGE 177,304 0.89 6.84 3.34 2.33 0.44 0.37 0.05 0.45
MEDIAN 129,505 0.89 6.82 3.30 2.25 0.39 0.23 0.02 0.34
HIGH 372,239 1.31 10.00 4.11 2.89 0.82 0.92 0.17 1.27
LOW 69,322 0.64 3.79 2.78 2.13 0.18 0.05 0.00 0.23
</TABLE>
* Asset quality ratios reflect balance sheet totals at the end of the most
recent quarter.
** Based on average interest-earning assets.
134
<PAGE>
EXHIBIT 40
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EMPIRE FEDERAL SAVINGS & LOAN ASSOCIATION
COMPARABLE GROUP CHARACTERISTICS AND BALANCE SHEET TOTALS
<TABLE>
<CAPTION>
Most Recent Quarter
Total Goodwill
Number Conversion Total Int. Earning Net and
of (IPO) Assets Assets Loans Intang.
Offices Exchange Date ($000) ($000) ($000) ($000)
------------------------ -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
EMPIRE FEDERAL SAVINGS
AND LOAN ASSOCIATION Livingston MT 3 NA NA 86,810 84,311 41,882 4
COMPARABLE GROUP
CAPS Capital Savings Bancorp, Inc. Jefferson City MO 7 NASDAQ 12/29/93 202,554 194,109 157,027 0
ETFS East Texas Financial Services, Inc. Tyler TX 2 NASDAQ 01/10/95 115,339 112,615 46,344 0
FBSI First Bancshares, Inc. Mountain Grove MO 5 NASDAQ 12/22/93 143,671 136,312 118,780 43
FBHC Fort Bend Holding Corp. Rosenberg TX 6 NASDAQ 06/30/93 254,739 232,972 101,509 0
FFHH FSF Financial Corp. Hutchinson MN 11 NASDAQ 10/07/94 331,395 324,400 201,885 0
MIFC Mid-Iowa Financial Corp. Newton IA 6 NASDAQ 10/14/92 115,260 115,316 60,862 16
MIVI Mississippi View Holding Company Little Falls MN 1 NASDAQ 03/24/95 69,322 67,721 42,139 0
NWEQ Northwest Equity Corporation Amery WI 3 NASDAQ 10/11/94 91,804 85,004 73,529 0
SFBM Security Bancorp Billings MT 16 NASDAQ 11/20/86 372,239 337,414 187,591 4,377
TRIC Tri-County Bancorp, Inc. Torrington WY 2 NASDAQ 09/30/93 76,718 72,044 31,353 0
Average 5.9 177,304 167,791 102,102 444
Median 5.5 129,505 125,814 87,519 0
High 16.0 372,239 337,414 201,885 4,377
Low 1.0 69,322 67,721 31,353 0
<CAPTION>
Most Recent Quarter
Total Total
Deposits Equity
($000) ($000)
---------------------
<S> <C> <C> <C>
SUBJECT
EMPIRE FEDERAL SAVINGS
AND LOAN ASSOCIATION 68,548 15,876
COMPARABLE GROUP
CAPS Capital Savings Bancorp, Inc. 150,636 21,136
ETFS East Texas Financial Services, Inc. 92,457 21,815
FBSI First Bancshares, Inc. 105,960 23,729
FBHC Fort Bend Holding Corp. 204,875 18,008
FFHH FSF Financial Corp. 188,386 47,624
MIFC Mid-Iowa Financial Corp. 78,705 10,807
MIVI Mississippi View Holding Company 55,988 12,752
NWEQ Northwest Equity Corporation 59,835 11,720
SFBM Security Bancorp 289,628 30,704
TRIC Tri-County Bancorp, Inc. 45,454 12,408
Average 127,192 21,070
Median 99,209 19,572
High 289,628 47,624
Low 45,454 10,807
</TABLE>
135
<PAGE>
EXHIBIT 41
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EMPIRE FEDERAL SAVINGS & LOAN ASSOCIATION
COMPARABLE GROUP MARKET AREA COMPARISON
<TABLE>
<CAPTION>
1990-1995 Median Median
Population Per Capita Household Housing Median
1995 Growth Income Income Value Rent
Population (%) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
EMPIRE FEDERAL SAVINGS
AND LOAN ASSOCIATION 78,883 15.7 11,068 24,493 64,792 274
COMPARABLE GROUP
CAPS Capital Savings Bancorp, Inc. MO 67,858 6.7 15,908 34,005 60,214 256
ETFS East Texas Financial Services, Inc. TX 160,814 6.3 14,465 28,615 59,947 296
FBSI First Bancshares, Inc. MO 40,454 5.9 9,017 17,372 32,541 152
FBHC Fort Bend Holding Corp. TX 292,643 29.8 18,949 49,691 71,614 401
FFHH FSF Financial Corp. MN 647,520 12.1 21,449 50,202 82,225 416
MIFC Mid-Iowa Financial Corp. IA 35,197 1.2 13,732 29,685 46,037 240
MIVI Mississippi View Holding Company MN 27,292 4.9 20,083 42,761 64,435 392
NWEQ Northwest Equity Corporation WI 37,147 6.8 12,167 25,900 53,603 254
SFBM Security Bancorp MT 444,220 10.2 13,509 27,837 60,171 262
TRIC Tri-County Bancorp, Inc. WY 23,576 2.5 11,624 23,688 50,100 214
Average 177,672 8.6 15,090 32,976 58,089 288
Median 54,156 6.5 14,099 29,150 60,059 259
High 647,520 29.8 21,449 50,202 82,225 416
Low 23,576 1.2 9,017 17,372 32,541 152
<CAPTION>
High Below
School College Poverty
Graduates Graduates Level
(%) (%) (%)
<S> <C> <C> <C> <C>
SUBJECT
EMPIRE FEDERAL SAVINGS
AND LOAN ASSOCIATION 88.1 30.2 10.5
COMPARABLE GROUP
CAPS Capital Savings Bancorp, Inc. 77.3 22.3 5.8
ETFS East Texas Financial Services, Inc. 75.7 19.8 12.6
FBSI First Bancshares, Inc. 60.4 7.2 19.3
FBHC Fort Bend Holding Corp. 80.9 30.2 6.9
FFHH FSF Financial Corp. 84.6 21.4 4.8
MIFC Mid-Iowa Financial Corp. 77.6 12.7 5.2
MIVI Mississippi View Holding Company 77.9 15.7 4.5
NWEQ Northwest Equity Corporation 78.0 11.4 9.3
SFBM Security Bancorp 83.2 22.2 10.9
TRIC Tri-County Bancorp, Inc. 77.6 13.2 13.1
Average 77.3 17.6 9.2
Median 77.8 17.8 8.1
High 84.6 30.2 19.3
Low 60.4 7.2 4.5
</TABLE>
136
<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
Assets Invest. MBS Loans Reserves Owned
($000) (%) (%) (%) (%) (%)
------------ ------------- ---------- ----- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
EMPIRE FEDERAL SAVINGS
AND LOAN ASSOCIATION 86,810 7.35 40.54 48.25 0.23 0.00
COMPARABLE GROUP
CAPS Capital Savings Bancorp, Inc. 202,554 6.76 13.94 77.52 0.30 0.03
ETFS East Texas Financial Services 115,339 34.34 23.20 40.18 0.25 0.00
FBSI First Bancshares, Inc. 143,671 14.00 0.66 82.68 0.36 0.00
FBHC Fort Bend Holding Corp. 254,739 30.33 26.15 39.85 0.54 0.05
FFHH FSF Financial Corp. 331,395 36.76 0.03 60.92 0.23 0.04
MIFC Mid-Iowa Financial Corp. 115,260 19.74 25.74 52.80 0.24 0.00
MIVI Mississippi View Holding Co. 69,322 28.70 7.72 60.79 1.27 0.00
NWEQ Northwest Equity Corp. 91,804 7.52 8.66 80.09 0.47 0.16
SFBM Security Bancorp 372,239 23.99 20.16 50.40 0.32 0.00
TRIC Tri-County Bancorp, Inc. 76,718 41.19 16.66 40.87 0.54 0.17
Average 177,304 24.33 14.29 58.61 0.45 0.05
Median 129,505 26.34 15.30 56.80 0.34 0.02
High 372,239 41.19 26.15 82.68 1.27 0.17
Low 69,322 6.76 0.03 39.85 0.23 0.00
ALL THRIFTS (338)
Average 2,823,757 15.09 13.73 67.29 0.65 0.65
WESTERN THRIFTS (40)
Average 5,244,413 12.88 14.74 68.39 0.83 0.83
MONTANA THRIFTS (4)
Average 362,208 25.63 15.98 54.32 0.31 0.16
<CAPTION>
As a Percent of Total Assets
Interest Interest Capitalized
Goodwill Other High Risk Non-Perf. Earning Bearing Loan
& Intang. Assets R.E. Loans Assets Assets Liabilities Servicing
(%) (%) (%) (%) (%) (%) (%)
---------- ----------- ---------- ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
EMPIRE FEDERAL SAVINGS
AND LOAN ASSOCIATION 0.01 2.33 5.63 0.00 97.12 80.69 0.00
COMPARABLE GROUP
CAPS Capital Savings Bancorp, Inc. 0.00 1.73 4.35 0.20 95.83 85.84 0.00
ETFS East Texas Financial Services 0.00 2.19 5.18 0.23 97.64 79.82 0.09
FBSI First Bancshares, Inc. 0.03 2.63 11.58 0.57 94.88 80.51 0.00
FBHC Fort Bend Holding Corp. 0.00 2.86 8.35 0.72 91.46 86.07 0.75
FFHH FSF Financial Corp. 0.00 2.21 10.91 0.07 97.89 84.09 0.04
MIFC Mid-Iowa Financial Corp. 0.01 1.68 6.34 0.05 100.05 91.11 0.00
MIVI Mississippi View Holding Co. 0.00 2.80 3.41 0.51 97.69 80.82 0.00
NWEQ Northwest Equity Corp. 0.00 3.57 11.24 0.92 92.59 85.11 0.00
SFBM Security Bancorp 1.18 4.13 8.85 0.23 90.64 82.40 0.08
TRIC Tri-County Bancorp, Inc. 0.00 1.99 3.87 0.22 93.91 80.04 0.00
Average 0.12 2.58 7.41 0.37 95.26 83.58 0.10
Median 0.00 2.42 7.35 0.23 95.35 83.25 0.00
High 1.18 4.13 11.58 0.92 100.05 91.11 0.75
Low 0.00 1.68 3.41 0.05 90.64 79.82 0.00
ALL THRIFTS (338)
Average 0.32 2.94 14.49 1.20 93.85 86.34 0.34
WESTERN THRIFTS (40)
Average 0.18 2.88 21.33 1.82 94.83 86.78 0.07
MONTANA THRIFTS (4)
Average 0.30 3.54 8.96 0.36 94.57 82.52 0.04
</TABLE>
137
<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
Total Total Total Total Other Preferred
Liabilities Equity Deposits Borrowings Liabilities Equity
($000) ($000) (%) (%) (%) (%)
----------------------- ---------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
EMPIRE FEDERAL SAVINGS
AND LOAN ASSOCIATION 70,934 15,876 78.96 1.73 1.02 --
COMPARABLE GROUP
CAPS Capital Savings Bancorp, Inc. 181,418 21,136 74.37 13.82 1.37 0.00
ETFS East Texas Financial Services 93,524 21,815 80.16 0.00 0.93 0.00
FBSI First Bancshares, Inc. 119,942 23,729 73.75 9.43 0.30 0.00
FBHC Fort Bend Holding Corp. 236,731 18,008 80.43 8.80 3.71 0.00
FFHH FSF Financial Corp. 283,771 47,624 56.85 28.30 0.49 0.00
MIFC Mid-Iowa Financial Corp. 104,453 10,807 68.28 20.82 1.52 0.00
MIVI Mississippi View Holding Co. 56,570 12,752 80.77 0.00 0.84 0.00
NWEQ Northwest Equity Corp. 80,084 11,720 65.18 21.52 0.54 0.00
SFBM Security Bancorp 341,535 30,704 77.81 12.02 1.92 0.00
TRIC Tri-County Bancorp, Inc. 64,310 12,408 59.25 24.05 0.53 0.00
Average 156,234 21,070 71.68 13.88 1.21 0.00
Median 112,198 19,572 74.06 12.92 0.88 0.00
High 341,535 47,624 80.77 28.30 3.71 0.00
Low 56,570 10,807 56.85 0.00 0.30 0.00
ALL THRIFTS (338)
Average 1,222,840 104,568 72.25 13.16 1.49 0.08
WESTERN THRIFTS (40)
Average 4,899,922 344,491 69.82 18.81 1.64 0.18
MONTANA THRIFTS (4)
Average 319,136 43,073 66.53 17.95 1.74 0.00
<CAPTION>
As a Percent of Assets
FASB 115 Reg. Reg. Reg.
Common Unrealized Retained Total Tangible Core Tangible Risk-Based
Equity Gain (Loss) Earnings Equity Equity Capital Capital Capital
(%) (%) (%) (%) (%) (%) (%) (%)
--------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
EMPIRE FEDERAL SAVINGS
AND LOAN ASSOCIATION -- 0.29 17.99 18.29 17.99 17.61 17.61 46.67
COMPARABLE GROUP
CAPS Capital Savings Bancorp, Inc. 10.43 0.04 6.54 10.43 10.43 9.11 9.11 19.27
ETFS East Texas Financial Services 18.91 0.00 11.31 18.91 18.91 15.30 15.30 44.90
FBSI First Bancshares, Inc. 16.52 (0.02) 8.64 16.52 16.49 13.40 13.40 20.50
FBHC Fort Bend Holding Corp. 7.07 (0.01) 4.11 7.07 7.07 7.30 7.30 18.75
FFHH FSF Financial Corp. 14.37 (0.28) 6.67 14.37 14.37 14.37 14.37 27.58
MIFC Mid-Iowa Financial Corp. 9.38 0.02 5.98 9.38 9.36 7.94 7.94 21.11
MIVI Mississippi View Holding Co. 18.40 0.17 9.59 18.40 18.40 15.39 15.39 32.82
NWEQ Northwest Equity Corp. 12.77 (0.05) 6.78 12.77 12.77 8.21 NA NA
SFBM Security Bancorp 8.25 (0.43) 5.61 8.25 7.16 7.26 7.26 15.68
TRIC Tri-County Bancorp, Inc. 16.17 0.28 10.82 16.17 16.17 14.40 14.40 45.74
Average 13.23 (0.03) 7.61 13.23 13.11 11.27 11.61 27.37
Median 13.57 (0.00) 6.73 13.57 13.57 11.26 13.40 21.11
High 18.91 0.28 11.31 18.91 18.91 15.39 15.39 45.74
Low 7.07 (0.43) 4.11 7.07 7.07 7.26 7.26 15.68
ALL THRIFTS (338)
Average 13.02 (0.06) 6.32 13.10 12.79 10.85 10.74 23.23
WESTERN THRIFTS (40)
Average 9.55 (0.13) 4.73 9.73 9.56 8.58 8.45 19.06
MONTANA THRIFTS (4)
Average 13.78 (0.29) 8.73 13.78 13.51 10.86 10.86 38.02
</TABLE>
138
<PAGE>
EXHIBIT 44
KELLER & COMPANY
Columbus, Ohio
614-766-1426
INCOME AND EXPENSE COMPARISON
TRAILING FOUR QUARTERS
($000)
<TABLE>
<CAPTION>
Net Gain Total Goodwill
Interest Interest Interest Provision (Loss) Non-Int. & Intang.
Income Expense Income for Loss on Sale Income Amtz.
----------------------- ------------ -------------------------------------------- -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
EMPIRE FEDERAL SAVINGS
AND LOAN ASSOCIATION 6,304 3,310 2,994 55 0 879 4
COMPARABLE GROUP
CAPS Capital Savings Bancorp, Inc. 14,467 8,056 6,411 120 0 759 0
ETFS East Texas Financial Services 8,161 4,533 3,628 0 124 264 0
FBSI First Bancshares, Inc. 10,113 5,661 4,452 113 27 327 16
FBHC Fort Bend Holding Corp. 16,707 10,288 6,419 121 304 1,742 0
FFHH FSF Financial Corp. 22,158 12,808 9,350 33 19 1,326 0
MIFC Mid-Iowa Financial Corp. 8,025 4,916 3,109 33 33 920 1
MIVI Mississippi View Holding Co. 5,201 2,498 2,703 (1) 76 187 0
NWEQ Northwest Equity Corp. 6,806 3,576 3,230 24 68 386 0
SFBM Security Bancorp 25,345 14,912 10,433 120 972 3,039 340
TRIC Tri-County Bancorp, Inc. 4,916 2,628 2,288 0 30 136 0
Average 12,190 6,988 5,202 56 165 909 36
Median 9,137 5,289 4,040 33 51 573 0
High 25,345 14,912 10,433 121 972 3,039 340
Low 4,916 2,498 2,288 (1) 0 136 0
ALL THRIFTS (338)
Average 100,254 62,133 38,121 2,852 2,783 6,671 681
WESTERN THRIFTS (40)
Average 393,536 253,033 140,503 17,766 16,537 24,472 2,135
MONTANA THRIFTS (4)
Average 26,419 14,387 12,032 74 419 3,060 96
<CAPTION>
Net Net Inc.
Net Total Non- Income Before
Real Est. Non-Int. Recurring Before Income Extraord. Extraord. Net Core
Expense Expense Expense Taxes Taxes Items Items Income Income
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
EMPIRE FEDERAL SAVINGS
AND LOAN ASSOCIATION 0 2,786 0 1,031 399 632 0 632 632
COMPARABLE GROUP
CAPS Capital Savings Bancorp, Inc. (12) 4,067 0 2,983 1,163 1,820 0 1,820 1,820
ETFS East Texas Financial Services 13 2,532 0 1,484 541 943 0 943 864
FBSI First Bancshares, Inc. (112) 2,907 0 1,786 631 1,155 0 1,155 1,137
FBHC Fort Bend Holding Corp. (3) 5,755 0 2,589 899 1,690 0 1,690 1,494
FFHH FSF Financial Corp. 0 7,263 0 3,399 1,374 2,025 0 2,025 2,013
MIFC Mid-Iowa Financial Corp. 4 2,448 0 1,582 534 1,048 0 1,048 1,027
MIVI Mississippi View Holding Co. (5) 1,615 0 1,432 527 905 0 905 802
NWEQ Northwest Equity Corp. (34) 2,222 0 1,438 607 831 0 831 787
SFBM Security Bancorp 0 10,358 0 3,966 1,422 2,544 0 2,544 1,912
TRIC Tri-County Bancorp, Inc. 0 1,465 0 989 341 648 0 648 630
Average (15) 4,063 0 2,165 804 1,361 0 1,361 1,249
Median (2) 2,720 0 1,684 619 1,102 0 1,102 1,082
High 13 10,358 0 3,966 1,422 2,544 0 2,544 2,013
Low (112) 1,465 0 989 341 648 0 648 630
ALL THRIFTS (338)
Average 681 26,680 705 17,400 6,224 11,175 (28) 11,147 9,785
WESTERN THRIFTS (40)
Average 5,639 99,862 1,052 62,852 24,569 38,282 (85) 38,197 28,205
MONTANA THRIFTS (4)
Average (0.3) 9,555 68 5,836 2,125 3,712 0 3,712 3,469
</TABLE>
139
<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
Interest Interest Interest Provision (Loss) Non-Int. & Intang. Real Est.
Income Expense Income for Loss on Sale Income Amtz. Expense
(%) (%) (%) (%) (%) (%) (%) (%)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
EMPIRE FEDERAL SAVINGS
AND LOAN ASSOCIATION 7.21 3.78 3.42 0.06 0.00 1.00 0.01 0.00
COMPARABLE GROUP
CAPS Capital Savings Bancorp, Inc. 7.59 4.23 3.36 0.06 0.00 0.40 0.00 (0.01)
ETFS East Texas Financial Services 7.00 3.89 3.11 0.00 0.11 0.23 0.00 0.01
FBSI First Bancshares, Inc. 7.42 4.15 3.27 0.08 0.02 0.24 0.01 (0.08)
FBHC Fort Bend Holding Corp. 6.92 4.26 2.66 0.05 0.13 0.72 0.00 (0.00)
FFHH FSF Financial Corp. 7.04 4.07 2.97 0.01 0.01 0.42 0.00 0.00
MIFC Mid-Iowa Financial Corp. 7.15 4.38 2.77 0.03 0.03 0.82 0.00 0.00
MIVI Mississippi View Holding Co. 7.52 3.61 3.91 (0.00) 0.11 0.27 0.00 (0.01)
NWEQ Northwest Equity Corp. 8.22 4.32 3.90 0.03 0.08 0.47 0.00 (0.04)
SFBM Security Bancorp 7.08 4.17 2.92 0.03 0.27 0.85 0.10 0.00
TRIC Tri-County Bancorp, Inc. 7.19 3.84 3.34 0.00 0.04 0.20 0.00 0.00
Average 7.31 4.09 3.22 0.03 0.08 0.46 0.01 (0.01)
Median 7.17 4.16 3.19 0.03 0.06 0.41 0.00 (0.00)
High 8.22 4.38 3.91 0.08 0.27 0.85 0.10 0.01
Low 6.92 3.61 2.66 (0.00) 0.00 0.20 0.00 (0.08)
ALL THRIFTS (338)
Average 7.42 4.20 3.22 0.12 0.11 0.44 0.03 0.00
WESTERN THRIFTS (40)
Average 7.39 4.52 2.87 0.33 0.15 0.51 0.03 0.10
MONTANA THRIFTS (4)
Average 7.29 3.87 3.42 0.02 0.12 0.85 0.03 (0.00)
<CAPTION>
Net Net Inc.
Total Non- Income Before
Non-Int. Recurring Before Income Extraord. Extraord. Net Core
Expense Expense Taxes Taxes Items Items Income Income
(%) (%) (%) (%) (%) (%) (%) (%)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
EMPIRE FEDERAL SAVINGS
AND LOAN ASSOCIATION 3.18 0.00 1.18 0.45 0.72 0.00 0.72 0.72
COMPARABLE GROUP
CAPS Capital Savings Bancorp, Inc. 2.13 0.00 1.56 0.61 0.95 0.00 0.95 0.95
ETFS East Texas Financial Services 2.17 0.00 1.27 0.46 0.81 0.00 0.81 0.74
FBSI First Bancshares, Inc. 2.13 0.00 1.31 0.46 0.85 0.00 0.85 0.83
FBHC Fort Bend Holding Corp. 2.38 0.00 1.07 0.37 0.70 0.00 0.70 0.62
FFHH FSF Financial Corp. 2.31 0.00 1.08 0.44 0.64 0.00 0.64 0.64
MIFC Mid-Iowa Financial Corp. 2.18 0.00 1.41 0.48 0.93 0.00 0.93 0.92
MIVI Mississippi View Holding Co. 2.33 0.00 2.07 0.76 1.31 0.00 1.31 1.16
NWEQ Northwest Equity Corp. 2.68 0.00 1.74 0.73 1.00 0.00 1.00 0.95
SFBM Security Bancorp 2.89 0.00 1.11 0.40 0.71 0.00 0.71 0.53
TRIC Tri-County Bancorp, Inc. 2.14 0.00 1.45 0.50 0.95 0.00 0.95 0.92
Average 2.34 0.00 1.41 0.52 0.89 0.00 0.89 0.83
Median 2.25 0.00 1.36 0.47 0.89 0.00 0.89 0.87
High 2.89 0.00 2.07 0.76 1.31 0.00 1.31 1.16
Low 2.13 0.00 1.07 0.37 0.64 0.00 0.64 0.53
ALL THRIFTS (338)
Average 2.29 0.02 1.35 0.48 0.88 (0.00) 0.88 0.81
WESTERN THRIFTS (40)
Average 2.31 0.01 0.88 0.33 0.55 (0.00) 0.55 0.46
MONTANA THRIFTS (4)
Average 2.59 0.01 1.77 0.62 1.15 0.00 1.15 1.08
</TABLE>
140
<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> <C>
EMPIRE FEDERAL SAVINGS
AND LOAN ASSOCIATION 7.51 4.71 2.80 3.57 0.72 0.72 3.99 3.99
CAPS Capital Savings Bancorp, Inc. 7.72 4.81 2.91 3.42 0.95 0.95 8.96 8.96
ETFS East Texas Financial Services 7.17 4.88 2.29 3.19 0.81 0.74 4.17 3.82
FBSI First Bancshares, Inc. 7.73 5.13 2.60 3.40 0.85 0.83 4.90 4.82
FBHC Fort Bend Holding Corp. 7.23 4.82 2.41 2.78 0.70 0.62 9.62 8.50
FFHH FSF Financial Corp. 7.26 4.95 2.31 3.06 0.64 0.64 3.79 3.76
MIFC Mid-Iowa Financial Corp. 7.30 4.90 2.40 2.83 0.93 0.92 10.00 9.79
MIVI Mississippi View Holding Co. 7.74 4.53 3.21 4.02 1.31 1.16 6.73 5.96
NWEQ Northwest Equity Corp. 8.66 5.09 3.57 4.11 1.00 0.95 6.91 6.54
SFBM Security Bancorp 7.67 4.97 2.70 3.16 0.71 0.53 8.22 6.18
TRIC Tri-County Bancorp, Inc. 7.37 4.81 2.56 3.43 0.95 0.92 5.13 4.99
Average 7.59 4.89 2.70 3.34 0.89 0.83 6.84 6.33
Median 7.52 4.89 2.58 3.30 0.89 0.88 6.82 6.07
High 8.66 5.13 3.57 4.11 1.31 1.16 10.00 9.79
Low 7.17 4.53 2.29 2.78 0.64 0.53 3.79 3.76
Average 7.73 4.92 2.80 3.35 0.88 0.81 8.08 7.26
Average 7.72 5.09 2.63 3.00 0.55 0.46 5.94 4.60
Average 7.70 4.73 2.96 3.61 1.15 1.08 9.30 8.62
</TABLE>
* Based on average interest-earning assets.
141
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 47
<TABLE>
<CAPTION>
DIVIDENDS, RESERVES AND SUPPLEMENTAL DATA
DIVIDENDS RESERVES AND SUPPLEMENTAL DATA
- MOST RECENT PERIOD
12 Month 12 Month
12 Month Common Current Dividend Reserves/ Reserves/
Preferred Div./ Dividend Payout Gross Non-Perf.
Dividends Share Yield Ratio Loans Assets
($000) ($) (%) (%) (%) (%)
--------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>SUBJECT
EMPIRE FEDERAL SAVINGS
AND LOAN ASSOCIATION NA NA NA NA 0.46 NM
COMPARABLE GROUP
CAPS Capital Savings Bancorp, Inc. 0 0.33 1.87 17.96 0.38 152.91
ETFS East Texas Financial Services 0 0.10 1.38 11.90 0.62 106.64
FBSI First Bancshares, Inc. 0 0.20 1.19 21.05 0.44 63.49
FBHC Fort Bend Holding Corp. 0 0.28 1.66 15.73 1.34 44.46
FFHH FSF Financial Corp. 0 0.50 4.17 87.72 0.38 332.75
MIFC Mid-Iowa Financial Corp. 0 0.08 1.23 13.33 0.44 513.21
MIVI Mississippi View Holding Co. 0 0.16 1.36 15.69 2.04 249.15
NWEQ Northwest Equity Corp. 0 0.35 3.90 38.04 0.59 51.54
SFBM Security Bancorp 0 0.67 3.03 39.73 0.63 135.90
TRIC Tri-County Bancorp, Inc. 0 0.45 2.72 43.69 1.31 252.73
Average 0 0.31 2.25 30.48 0.82 190.28
Median 0 0.30 1.76 19.51 0.61 144.41
High 0 0.67 4.17 87.72 2.04 513.21
Low 0 0.08 1.19 11.90 0.38 44.46
ALL THIFTS (338)
Average 370 0.30 1.41 25.35 0.66 91.98
WESTERN THRIFTS (40)
Average 3,079 0.32 1.32 22.65 1.17 78.61
MONTANA THRIFTS (4)
Average 0 0.62 3.19 42.34 0.53 155.47
</TABLE>
<TABLE>
<CAPTION>
DIVIDENDS, RESERVES AND SUPPLEMENTAL DATA - MOST RECENT PERIOD
Net
Chargeoffs/ Provisions/ 1 Year Total
Average Net Repricing Effective Assets/
Loans Chargeoffs Gap Tax Rate Employee
(%) (%) (%) (%) ($000)
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUBJECT EMPIRE FEDERAL SAVINGS
AND LOAN ASSOCIATION 0.00 NM NA 37.70 3,339
COMPARABLE GROUPS
CAPS Capital Savings Bancorp, 0.00 NM NA 38.93 3,116
ETFS East Texas Financial Serv 0.00 NM -10.77 36.53 4,436
FBSI First Bancshares, Inc. 0.00 NM NA 37.52 2,566
FBHC Fort Bend Holding Corp. 0.00 NM 7.62 33.98 3,352
FFHH FSF Financial Corp. 0.01 300.00 15.08 37.36 3,682
MIFC Mid-Iowa Financial Corp. 0.02 300.00 -3.02 34.73 3,202
MIVI Mississippi View Holding 0.05 20.00 NA 35.74 3,301
NWEQ Northwest Equity Corp. 0.02 150.00 -4.97 42.38 2,782
SFBM Security Bancorp 0.12 57.69 NA 39.66 2,229
TRIC Tri-County Bancorp, Inc. 0.00 NM NA 31.23 4,262
Average 0.02 165.54 0.79 36.81 3,293
Median 0.01 150.00 -3.02 36.95 3,251
High 0.12 300.00 15.08 42.38 4,436
Low 0.00 20.00 -10.77 31.23 2,229
ALL THRIFTS (338)
Average 0.13 112.12 -1.84 24.92 4,041
WESTERN THRIFTS (40)
Average 0.49 174.88 -0.57 32.74 4,554
MONTANA THRIFTS (4)
Average 0.05 52.56 -11.59 35.79 2,282
</TABLE>
142
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 48
<TABLE>
<CAPTION>
COMPARABLE GROUP MARKET, PRICING AND FINANCIAL RATIOS
Stock Prices as of September 6, 1996
Market Data Pricing Ratios Dividends
---------------------------- --------------------------------------- ------------------------
Book Price/ Price/ Price/
Market Price/ 12 Mo. Value/ Price/ Book Price/ Tang. Core Div./ Dividend Payout
Value Share EPS Share Earnings Value Assets Bk. Val. Earnings Share Yield Ratio
($M) ($) ($) ($) (X) (%) (%) (%) (%) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EMPIRE FEDERAL S & L ASSN.
Appraised value - midpoint 19.60 10.00 0.50 16.60 20.12 60.24 18.52 60.24 20.12 0.00 0.00 0.00
Minimum of range 16.66 10.00 0.55 18.00 18.09 55.55 16.19 55.55 18.09 0.00 0.00 0.00
Maximum of range 22.54 10.00 0.46 15.57 21.94 64.23 20.73 64.23 21.94 0.00 0.00 0.00
Superrange maximum 25.92 10.00 0.42 14.69 23.78 68.09 23.12 68.09 23.78 0.00 0.00 0.00
ALL THRIFTS (338)
Average 126.28 17.77 1.35 16.59 16.25 110.16 13.85 113.19 17.46 0.42 1.85 35.55
Median 37.37 16.06 1.24 15.73 13.71 102.19 11.93 104.23 14.84 0.35 1.95 24.77
MONTANA THRIFTS (4)
Average 50.47 19.91 1.48 17.59 13.57 122.85 15.52 127.19 15.05 0.62 3.19 42.34
Median 49.14 20.25 1.51 18.96 13.59 98.59 15.77 107.19 14.87 0.63 2.85 36.83
COMPARABLE GROUP (10)
Average 18.57 14.80 1.12 17.11 14.03 86.84 11.55 88.59 15.05 0.31 2.25 30.48
Median 14.72 15.63 0.99 18.97 12.24 86.69 11.58 86.77 15.09 0.30 1.76 19.51
COMPARABLE GROUP
CAPS Capital Savings
Bancorp, Inc. 19.00 19.25 1.81 20.34 10.64 94.64 9.87 94.64 10.64 0.33 1.87 17.96
ETFS East Texas
Financial Services 15.62 14.50 0.84 19.24 17.26 75.36 14.25 75.36 19.08 0.10 1.38 11.90
FBSI First Bancshares,
Inc. 21.25 16.75 0.95 18.70 17.63 89.57 14.79 89.72 17.82 0.20 1.19 21.05
FBHC Fort Bend Holding
Corp. 13.82 16.88 1.78 21.98 9.48 76.77 5.43 76.77 10.75 0.28 1.66 15.73
FFHH FSF Financial Corp. 41.73 12.00 0.57 15.58 21.05 77.02 12.59 77.02 21.05 0.50 4.17 87.72
MIFC Mid-Iowa Financial
Corp. 10.94 6.50 0.60 6.42 10.83 101.25 9.49 101.40 11.02 0.08 1.23 13.33
MIVI Mississippi View
Holding Co. 10.69 11.75 1.02 14.02 11.52 83.81 15.42 83.81 12.91 0.16 1.36 15.69
NWE 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
SFBM Security Bancorp 31.80 21.75 1.68 21.00 12.95 103.57 8.54 120.77 17.26 0.67 3.03 39.73
TRIC Tri-County
Bancorp, Inc. 11.19 18.38 1.03 20.38 17.84 90.16 14.58 90.16 18.19 0.45 2.72 43.69
</TABLE>
<TABLE>
<CAPTION>
COMPARABLE GROUP MARKET, PRICING AND FINANCIAL RATIOS
Stock Prices as of September 6, 1996
Financial Ratios
----------------------
Equity/
Assets ROA ROE
(%) (%) (%)
<S> <C> <C> <C>
EMPIRE FEDERAL S & L ASSN.
Appraised value - midpoint 30.75 0.92 2.99
Minimum of range 29.14 0.89 3.07
Maximum of range 32.27 0.94 2.93
Superrange maximum 33.95 0.97 2.86
ALL THRIFTS (338)
Average 13.10 0.88 8.08
Median 10.34 0.89 7.38
MONTANA THRIFTS (4)
Average 13.78 1.15 9.30
Median 11.68 1.16 7.44
COMPARABLE GROUP (10)
Average 13.23 0.89 6.84
Median 13.57 0.89 6.82
COMPARABLE GROUP
CAPS Capital Savings
Bancorp, Inc. 10.43 0.95 8.96
ETFS East Texas
Financial Services 18.91 0.81 4.17
FBSI First Bancshares,
Inc. 16.52 0.85 4.90
FBHC Fort Bend Holding
Corp. 7.07 0.70 9.62
FFHH FSF Financial Corp. 14.37 0.64 3.79
MIFC Mid-Iowa Financial
Corp. 9.38 0.93 10.00
MIVI Mississippi View
Holding Co. 18.40 1.31 6.73
NWE Northwest Equity Corp. 12.77 1.00 6.91
SFBM Security Bancorp 8.25 0.71 8.22
TRIC Tri-County
Bancorp, Inc. 16.17 0.95 5.13
</TABLE>
143
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 49
<TABLE>
<CAPTION>
VALUATION ANALYSIS AND CONCLUSIONS
Empire Federal Bancorp, Inc./Empire Federal Savings & Loan Assn.
Stock Prices as of September 6, 1996
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 20.12 14.03 12.24 16.25 13.71
Post conv. price to book value P/B 60.24% 86.84% 86.69% 110.16% 102.19%
Post conv. price to assets P/A 18.52% 11.55% 11.58% 13.85% 11.93%
Post conv. price to core earnings P/E 20.12 15.05 15.09 17.46 14.84
Pre conversion earnings ($) Y $ 632,000 For the twelve months ended June 30, 1996.
Pre conversion book value ($) B $ 15,876,000 At June 30, 1996.
Pre conversion assets ($) A $ 86,810,000 At June 30, 1996.
Pre conversion core earnings ($) $ 632,000 For the twelve months ended June 30, 1996.
Conversion expense ($) X $ 585,000
Proceeds not reinvested ($) Z $ 1,568,000
ESOP borrowings ($) E $ 1,568,000
ESOP cost of borrowings, net (%) S 6.11%
ESOP term of borrowings (yrs.) T 10
RRP amount ($) M $ 784,000
RRP expense ($) N $ 156,800
Tax rate (%) TAX 37.00%
Investment rate of return, net (%) R 3.64%
Investment rate of return, pretax (%) 5.78%
</TABLE>
Formulae to indicate value after conversion:
<TABLE>
<CAPTION>
<S> <C> <C>
1. P/E method: Value = P/E(Y-R(X+Z)-ES-(1-TAX)E/T-(1-TAX)N)) = $ 19,601,372
------------------------------------
1-(P/E)R
2. P/B method: Value = P/B(B-X-E-M) = $ 19,601,009
------------
1-P/B
3. P/A method: Value = P/A(A-X) = $ 19,599,435
--------
1-P/A
</TABLE>
<TABLE>
<CAPTION>
VALUATION CORRELATION AND CONCLUSIONS:
Number of Price TOTAL
Shares Per Share VALUE
------------- -------------- --------------
<S> <C> <C> <C>
Appraised value - midrange 1,960,000 $10.00 $ 19,600,000
Minimum - 85% of midrange 1,666,000 $10.00 $ 16,660,000
Maximum - 115% of midrange 2,254,000 $10.00 $ 22,540,000
Superrange - 115% of maximum 2,592,100 $10.00 $ 25,921,000
</TABLE>
144
<PAGE>
Exhibit 50
KELLER & COMPANY
Columbus, Ohio
614-766-1426
PROJECTED EFFECT OF CONVERSION PROCEEDS
Empire Federal Bancorp, Inc./Empire Federal Savings & Loan Assn.
At the MINIMUM of the Range
1. Gross Conversion Proceeds
<TABLE>
<CAPTION>
<S> <C>
Minimum market value $ 16,660,000
Less: Estimated conversion expenses 545,000
Net conversion proceeds $ 16,115,000
2. Generation of Additional Income
Net conversion proceeds $ 16,115,000
Less: Proceeds not invested (1) 1,332,800
Total conversion proceeds invested $ 14,782,200
Investment rate 3.64%
Earnings increase - return on proceeds invested $ 538,279
Less: Estimated cost of ESOP borrowings 81,434
Less: Amortization of ESOP borrowings, net of taxes 83,966
Less: RRP expense, net of taxes 83,966
Net earnings increase $ 288,912
</TABLE>
3. Comparative Earnings
<TABLE>
<CAPTION>
Regular Core
----------------- -----------------
<S> <C> <C>
Before conversion - 12 months ended 06/30/96 $ 632,000 632,000
Net earnings increase 288,912 288,912
After conversion $ 920,912 920,912
</TABLE>
4. Comparative Net Worth (2)
Before conversion - 06/30/96 $ 15,876,000
Conversion proceeds 14,115,800
After conversion $ 29,991,800
5. Comparative Net Assets
Before conversion - 06/30/96 $ 86,810,000
Conversion proceeds 16,115,000
After conversion $ 102,925,000
(1) Represents ESOP borrowings.
(2) ESOP borrowings and RRP are omitted from net worth.
145
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 51
PROJECTED EFFECT OF CONVERSION PROCEEDS
Empire Federal Bancorp, Inc./Empire Federal Savings & Loan Assn.
At the MIDPOINT of the Range
<TABLE>
<CAPTION>
1. Gross Conversion Proceeds
<S> <C>
Midpoint market value $ 19,600,000
Less: Estimated conversion expenses 585,000
Net conversion proceeds $ 19,015,000
2. Generation of Additional Income
Net conversion proceeds $ 19,015,000
Less: Proceeds not invested (1) 1,568,000
Total conversion proceeds invested $ 17,447,000
Investment rate of return 3.64%
Earnings increase - return on proceeds invested $ 635,315
Less: Estimated cost of ESOP borrowings 95,805
Less: Amortization of ESOP borrowings, net of taxes 98,784
Less: RRP expense, net of taxes 98,784
Net earnings increase $ 341,942
</TABLE>
3. Comparative Earnings
<TABLE>
<CAPTION>
Regular Core
----------------- -----------------
<S> <C> <C>
Before conversion - 12 months ended 06/30/96 $ 632,000 632,000
Net earnings increase 341,942 341,942
After conversion $ 973,942 973,942
</TABLE>
4. Comparative Net Worth (2)
Before conversion - 06/30/96 $ 15,876,000
Conversion proceeds 16,663,000
After conversion $ 32,539,000
5. Comparative Net Assets
Before conversion - 06/30/96 $ 86,810,000
Conversion proceeds 19,015,000
After conversion $ 105,825,000
(1) Represents ESOP borrowings.
(2) ESOP borrowings and RRP are omitted from net worth.
146
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 52
PROJECTED EFFECT OF CONVERSION PROCEEDS
Empire Federal Bancorp, Inc./Empire Federal Savings & Loan Assn.
At the MAXIMUM of the Range
1. Gross Conversion Proceeds
<TABLE>
<CAPTION>
<S> <C>
Maximum market value $ 22,540,000
Less: Estimated conversion expenses 619,000
Net conversion proceeds $ 21,921,000
2. Generation of Additional Income
Net conversion proceeds $ 21,921,000
Less: Proceeds not invested (1) 1,803,200
Total conversion proceeds invested $ 20,117,800
Investment rate 3.64%
Earnings increase - return on proceeds invested $ 732,570
Less: Estimated cost of ESOP borrowings 110,176
Less: Amortization of ESOP borrowings, net of taxes 113,602
Less: RRP expense, net of taxes 113,602
Net earnings increase $ 395,191
</TABLE>
3. Comparative Earnings
<TABLE>
<CAPTION>
Regular Core
----------------- -----------------
<S> <C> <C>
Before conversion - 12 months ended 06/30/96 $ 632,000 632,000
Net earnings increase 395,191 395,191
After conversion $ 1,027,191 1,027,191
</TABLE>
4. Comparative Net Worth (2)
Before conversion - 06/30/96 $ 15,876,000
Conversion proceeds 19,216,200
After conversion $ 35,092,200
5. Comparative Net Assets
Before conversion - 06/30/96 $ 86,810,000
Conversion proceeds 21,921,000
After conversion $ 108,731,000
(1) Represents ESOP borrowings.
(2) ESOP borrowings and RRP are omitted from net worth.
147
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 53
PROJECTED EFFECT OF CONVERSION PROCEEDS
Empire Federal Bancorp, Inc./Empire Federal Savings & Loan Assn.
At the SUPERRANGE Maximum
<TABLE>
<CAPTION>
1. Gross Conversion Proceeds
<S> <C>
Superrange market value $ 25,921,000
Less: Estimated conversion expenses 619,000
Net conversion proceeds $ 25,302,000
2. Generation of Additional Income
Net conversion proceeds $ 25,302,000
Less: Proceeds not invested (1) 2,073,680
Total conversion proceeds invested $ 23,228,320
Investment rate 3.64%
Earnings increase - return on proceeds invested $ 845,836
Less: Estimated cost of ESOP borrowings 126,702
Less: Amortization of ESOP borrowings, net of taxes 130,642
Less: RRP expense, net of taxes 130,642
Net earnings increase $ 457,851
</TABLE>
3. Comparative Earnings
<TABLE>
<CAPTION>
Regular Core
----------------- -----------------
<S> <C> <C>
Before conversion - 12 months ended 06/30/96 $ 632,000 632,000
Net earnings increase 457,851 457,851
After conversion $ 1,089,851 1,089,851
</TABLE>
4. Comparative Net Worth (2)
Before conversion - 06/30/96 $ 15,876,000
Conversion proceeds 22,191,480
After conversion $ 38,067,480
5. Comparative Net Assets
Before conversion - 06/30/96 $ 86,810,000
Conversion proceeds 25,302,000
After conversion $ 112,112,000
(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
<TABLE>
<CAPTION>
Premium
or
(discount)
from
comparable
group.
-----------------------------
Empire Federal Average Median
<S> <C> <C> <C>
Midpoint:
Price/earnings 20.x2 43.40% 64.49%
Price/book value 60.%4 * (30.63)% (30.51)%
Price/assets 18.%2 60.32% 60.01%
Price/tangible book value 60.%4 (32.00)% (30.58)%
Price/core earnings 20.x2 33.72% 33.41%
Minimum of range:
Price/earnings 18.x9 28.91% 47.86%
Price/book value 55.%5 * (36.03)% (35.92)%
Price/assets 16.%9 40.12% 39.84%
Price/tangible book value 55.%5 (37.29)% (35.98)%
Price/core earnings 18.x9 20.20% 19.93%
Maximum of range:
Price/earnings 21.x4 56.36% 79.35%
Price/book value 64.%3 * (26.03)% (25.91)%
Price/assets 20.%3 79.45% 79.09%
Price/tangible book value 64.%3 (27.49)% (25.97)%
Price/core earnings 21.x4 45.80% 45.46%
Super maximum of range:
Price/earnings 23.x8 69.47% 94.39%
Price/book value 68.%9 * (21.59)% (21.45)%
Price/assets 23.%2 100.14% 99.75%
Price/tangible book value 68.%9 (23.13)% (21.52)%
Price/core earnings 23.x8 58.03% 57.67%
</TABLE>
* Represents pricing ratio associated with primary valuation method.
149
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EMPIRE FEDERAL SAVINGS & LOAN ASSN.
Summary of Market Value Adjustments
Midpoint Price to Book Value Ratio
Percentage Adjustment from Comparable Group
---------------------------------------------
9/6/96
Original
Appraisal Update Update
------------ ----------- -------------
Earnings performance (7.00)% % %
Financial condition 6.00
Market area (3.00)
Dividend payments (5.00)
Subscription interest (7.00)
Marketing of the issue (16.00)
Liquidity 0.00
Management 5.00
Total (27.00)% 0.00% 0.00%
Midpoint price to book value ratio:
Subject 60.24% % %
Comparable group 86.84% % %
Discount 26.60 BP 0.00 BP 0.00 BP
Premium/(Discount) Range
Minimum = 5.0% or less
Moderate = 6.0% - 12.0%
Maximum = 13.0% - 20.0%
150
<PAGE>
ALPHABETICAL
EXHIBITS
<PAGE>
EXHIBIT A
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAC
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.
151
<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.
152
<PAGE>
Consultants in the Firm (cont.)
JOHN A. SHAFFER has over twenty years experience in banking, finance, real
estate lending, and development.
From 1971 to 1974, Mr. Shaffer was employed by a large real estate investment
trust as a lending officer, specializing in construction and development loans.
By 1974, having gained experience in loan underwriting, management and workout,
he joined Chemical 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.
153
<PAGE>
Consultants in the Firm (cont.)
JOHN S. KORTING has eighteen years experience in the financial institution
industry working in such areas as data processing, software design, strategic
planning, productivity improvement, cash management, incentive compensation
planning, asset and liability management and organizational planning.
Mr. Korting began his career with Huntington Bank, Columbus, Ohio, in 1976 as
manager of the accounting department in the Bank's operations area, focusing on
system analysis for automated teller machines and electronic funds transfer. Mr.
Korting then became a system engineer with Electronic Data Systems, Dallas,
Texas, providing computer programming and implementation support. He then served
as a senior consultant with two big eight accounting firms, Deloitte & Touche
and Price Waterhouse. He worked on a wide variety of financial institution
projects, including strategic planning, 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.
154
<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 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 depositary 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
9-25-96 (Signature of Michael R. Keller)
Date Michael R. Keller
155
<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, Empire Federal
Savings and Loan Association, Livingston, Montana, in the amount of $17,000 for
the performance of my appraisal was not related to the value determined in the
appraisal; that the undersigned appraiser is independent and has fully disclosed
to the Office of Thrift Supervision any relationships which may have a material
bearing upon the question of my independence; and that any indemnity agreement
with the applicant has been fully disclosed in a written statement to the Office
of Thrift Supervision.
Further, affiant sayeth naught.
/s/ Michael R. Keller
MICHAEL R. KELLER
Sworn to before me and subscribed in my presence this 25th day of
September, 1996.
/s/ Lori A. Kessen
NOTARY PUBLIC
(Seal)
156
<PAGE>
EXHIBIT 99.5
Proxy Statement for Special Meeting of Members of
Empire Federal Savings and Loan Association
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
123 South Main Street
Livingston, Montana 59047
(406) 222-1981
NOTICE OF SPECIAL MEETING OF MEMBERS
To be held on December 19, 1996
Notice is hereby given that a special meeting ("Special Meeting") of
members of Empire Federal Savings and Loan Association ("Association") will be
held at the Association's office at 123 South Main Street, Livingston, Montana,
on Thursday, December 19, 1996, at __:00 _.m., Mountain Time. Business to be
taken up at the Special Meeting shall be:
(1) To approve a Plan of Conversion adopted by the Board of Directors
on August 29, 1996 to convert the Association from a federally chartered mutual
savings and loan association to a federally chartered capital stock savings bank
to be known as "Empire Federal Savings Bank," to be held as a wholly-owned
subsidiary of a new holding company, Empire Federal Bancorp, Inc.
("Conversion"), including the adoption of a Federal Stock Charter and Bylaws for
the Association, pursuant to the laws of the United States and the rules and
regulations of the Office of Thrift Supervision ("OTS"); and
(2) To consider and vote upon any other matters that may lawfully come
before the Special Meeting.
Note: As of the date of mailing of this Notice, the Board of
Directors is not aware of any other matters that may come
before the Special Meeting.
The members entitled to vote at the Special Meeting shall be those
members of the Association, at the close of business on October 31, 1996, and
who continue as members until the Special Meeting, and should the Special
Meeting be, from time to time, adjourned to a later time, until the final
adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
ERNEST A. SANDBERG
SECRETARY
Livingston, Montana
__________ __, 1996
PLEASE SIGN AND RETURN PROMPTLY EACH PROXY CARD YOU RECEIVE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. THIS WILL ASSURE NECESSARY REPRESENTATION AT THE SPECIAL
MEETING, BUT WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU SO DESIRE. THE
PROXY IS SOLICITED ONLY FOR THIS SPECIAL MEETING (AND ANY ADJOURNMENTS THEREOF)
AND WILL NOT BE USED FOR ANY OTHER MEETING. YOU MAY REVOKE YOUR WRITTEN PROXY BY
WRITTEN INSTRUMENT DELIVERED TO ERNEST A. SANDBERG, SECRETARY, EMPIRE FEDERAL
SAVINGS AND LOAN ASSOCIATION, AT THE ABOVE ADDRESS AT ANY TIME PRIOR TO OR AT
THE SPECIAL MEETING.
<PAGE>
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
123 South Main Street
Livingston, Montana 59047
(406) 222-1981
PROXY STATEMENT
__________ __, 1996
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF DIRECTORS OF
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION FOR USE AT A SPECIAL MEETING OF
MEMBERS TO BE HELD ON THURSDAY, DECEMBER 19, 1996, AND ANY ADJOURNMENT OF THAT
MEETING, FOR THE PURPOSES SET FORTH IN THE FOREGOING NOTICE OF SPECIAL MEETING.
YOUR BOARD OF DIRECTORS AND MANAGEMENT URGE YOU TO VOTE FOR THE PLAN OF
CONVERSION.
PURPOSE OF MEETING -- SUMMARY
A special meeting of members ("Special Meeting") of Empire Federal
Savings and Loan Association ("Association") will be held at the Association's
office at 123 South Main Street, Livingston, Montana, on Thursday, December
19, 1996, at __:00 _.m., Mountain Time, for the purpose of considering and
voting upon a Plan of Conversion from Federal Mutual Savings and Loan
Association to Federal Stock Savings Bank and Formation of a Holding Company
("Plan of Conversion"), which, if approved by a majority of the total votes of
the members eligible to be cast, will permit the Association to convert from a
federally chartered mutual savings and loan association to a federally chartered
capital stock savings bank, to be known as "Empire Federal Savings Bank," to be
held as a subsidiary of Empire Federal Bancorp, Inc. ("Holding Company"), a
newly organized Delaware corporation formed by the Association. The conversion
of the Association and the acquisition of control of the Association by the
Holding Company are collectively referred to herein as the "Conversion."
Members entitled to vote on the Plan of Conversion are members of the
Association as of October 31, 1996, and who continue as members until the
Special Meeting, and should the Special Meeting be, from time to time, adjourned
to a later time, until the final adjournment thereof. The Conversion requires
the approval of not less than a majority of the total votes eligible to be cast
at the Special Meeting.
The Plan of Conversion provides in part that, after receiving final
authorization from the Office of Thrift Supervision ("OTS"), the Association
will offer for sale shares of common stock of the Holding Company ("Common
Stock"), through the issuance of nontransferable subscription rights
("Subscription Rights"), in order of priority, to (i) depositors with $50.00 or
more on deposit at the Association as of March 31, 1995 ("Eligible Account
Holders"), (ii) the Association's employee stock ownership plan ("ESOP"), a
tax-qualified employee benefit plan, (iii) depositors with $50.00 or more on
deposit at the Association as of September 30, 1996 ("Supplemental Eligible
Account Holders"), and (iv) depositors of the Association as of October 31,
1996 ("Voting Record Date") and borrowers of the Association with loans
outstanding as of _________ __, 1996 which continue to be outstanding as of the
Voting Record Date ("Other Members"), subject to the priorities and purchase
limitations set forth in the Plan of Conversion ("Subscription Offering").
Concurrently, but subject to the prior rights of holders of Subscription Rights,
the Holding Company is offering the Common Stock for sale to members of the
general public through a direct community offering ("Direct Community Offering")
with preference given to natural persons who are permanent residents of Park,
Gallatin and Sweet Grass Counties of Montana ("Local Community"). The
Subscription Offering and the Direct Community Offering are at times referred to
herein as the "Subscription and Direct Community Offering." It is anticipated
that shares of Common Stock not subscribed for or purchased in the Subscription
and Direct Community Offering will be offered to eligible members of the general
public on a best efforts basis by a selling
-1-
<PAGE>
group of broker-dealers managed by Charles Webb & Company, a division of
Keefe, Bruyette & Woods, Inc. in a syndicated offering ("Syndicated Community
Offering"). The Subscription and Direct Community Offering and the Syndicated
Community Offering are referred to collectively as the "Offerings." The Holding
Company and the Association reserve the right, in their absolute discretion, to
accept or reject, in whole or in part, any or all orders in the Direct Community
Offering or Syndicated Community Offering either at the time of receipt of an
order or as soon as practicable following the termination of the Offerings. If
an order is rejected in part, the purchaser does not have the right to cancel
the remainder of the order.
Adoption of a Federal Stock Charter ("Federal Stock Charter") and
Bylaws ("Bylaws") of the Association is an integral part of the Plan of
Conversion. Copies of the Plan of Conversion and the proposed Federal Stock
Charter and Bylaws for the Association are attached to this Proxy Statement as
exhibits. They provide, among other things, for the termination of voting rights
of members and their rights to receive any surplus remaining after liquidation
of the Association. These rights, except for the rights of Eligible Account
Holders and Supplemental Eligible Account Holders in the liquidation account,
will vest exclusively in the holders of the stock in the Holding Company and the
Association. For further information, see "THE CONVERSION -- Effects of
Conversion to Stock Form on Depositors and Borrowers of the Association" in the
Prospectus.
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
The Association is a federally chartered mutual savings and loan
association located in Livingston, Montana, which is approximately 26 miles east
of Bozeman, Montana. Chartered in 1923 as a Montana-chartered mutual savings and
loan association under the name "Empire Building and Loan Association," the
Association converted to a federal charter and adopted its current name in 1970.
In connection with the Conversion, the Association will convert to a federal
stock savings bank and change its name to "Empire Federal Savings Bank." The
Association is regulated by the OTS, its primary federal regulator, and the
Federal Deposit Insurance Corporation, the insurer of its deposits. The
Association's deposits are federally insured by the FDIC under the Savings
Association Insurance Fund. The Association is a member of the Federal Home Loan
Bank ("FHLB") System. At June 30, 1996, the Association had total assets of
$86.8 million, total deposits of $68.6 million and total equity of $15.9
million, or 18.3% of total assets, on a consolidated basis.
The Association is a community oriented financial institution which has
traditionally offered a variety of savings products to its retail customers
while concentrating its lending activities on real estate mortgage loans.
Lending activities have been focused primarily on the origination of loans
secured by one- to four-family residential dwellings, including an emphasis on
loans for construction of residential dwellings. To a lesser extent, lending
activities also have included the origination of multi-family, commercial real
estate and home equity loans. The Association's primary business has been that
of a traditional thrift institution, originating loans in its primary market
area for its portfolio. At June 30, 1996, the Association's gross loan portfolio
totaled $43.1 million, of which 81.7% were one- to four-family residential
mortgage loans, 3.2% were construction loans (most of which related to one- to
four-family residences), 5.4% were multi-family loans, and 2.7% were commercial
real estate loans. In addition the Association has maintained a significant
portion of its assets in investment and mortgage-backed securities. Similar to
its lending activities, the Association's investment portfolio has been weighted
toward mortgage-backed securities secured by one- to four-family residential
properties. The portfolio also includes U.S. Government agency securities.
Investment securities, including mortgage-backed securities, totaled $39.1
million, or 45.0% of total assets, at June 30, 1996. In addition to interest and
dividend income on loans and investments, the Association receives other income
from the sale of insurance products through its wholly-owned subsidiary, Dime
Service Corporation.
The Association's market area is comprised of Park, Gallatin and Sweet
Grass Counties of South Central Montana. The Association faces strong
competition in its market area. See "RISK FACTORS -- Dependence on Local Economy
and Competition Within Market Area" in the Prospectus. The Association's
principal executive office is located at 123 South Main Street, Livingston,
Montana 59047, and its telephone number is (406) 222-1981.
-2-
<PAGE>
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
The Board of Directors of the Association has fixed the close of
business on October 31, 1996 as the record date ("Voting Record Date") for the
determination of members entitled to notice of and to vote at the Special
Meeting. All holders of the Association's savings or other authorized accounts
are members of the Association under its current charter. Any member as of the
close of business on the Voting Record Date who ceases to be a member prior to
the Special Meeting or any adjournment thereof shall not be entitled to vote at
the Special Meeting or any adjournment thereof.
Each eligible depositor member will be entitled at the Special Meeting
to cast one vote for each $100, or fraction thereof, of the aggregate withdrawal
value of all of his savings accounts in the Association as of the Voting Record
Date. Borrowers with loans outstanding as of _________ __, 1996, which continue
to be outstanding as of the Voting Record Date, will be entitled to cast one
vote for the period of time such borrowings remain in existence, in addition to
any votes such borrower may also be entitled to in his or her capacity as a
depositor. No member is entitled to cast more than 1,000 votes. Any number of
members present and voting, represented in person or by proxy, at the Special
Meeting will constitute a quorum.
Approval of the Plan of Conversion will require the affirmative vote of
a majority of the total outstanding votes of the Association's members eligible
to be cast at the Special Meeting. As of the Voting Record Date for the Special
Meeting, there were approximately ______ votes eligible to be cast, of which
_______ votes constitutes a majority.
PROXIES
Members may vote at the Special Meeting or any adjournment thereof in
person or by proxy. Enclosed is a proxy which may be used by any eligible member
to vote on the Plan of Conversion. All properly executed proxies received by
management will be voted in accordance with the instructions indicated thereon
by the members giving such proxies. If no instructions are given, such proxies
will be voted in favor of the Plan of Conversion. If any other matters are
properly presented at the Special Meeting and may properly be voted on, all
proxies will be voted on such matters in accordance with the best judgment of
the proxy holders named therein. If the enclosed proxy is returned, it may be
revoked at any time before it is voted by written notice to the Secretary of the
Association, by submitting a later dated proxy, or by attending and voting in
person at the Special Meeting. The proxies being solicited are only for use at
the Special Meeting and at any and all adjournments thereof and will not be used
for any other meeting. Management is not aware of any other business to be
presented at the Special Meeting.
The Association, as trustee for individual retirement accounts at the
Association, will vote in favor of the Plan of Conversion, unless the beneficial
owner executes and returns the enclosed proxy for the Special Meeting or attends
the Special Meeting and votes in person.
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by officers, directors or regular employees of the
Association, in person, by telephone or through other forms of communication
and, if necessary, the Special Meeting may be adjourned to an alternative date.
Such persons will be reimbursed by the Association for their reasonable
out-of-pocket expenses incurred in connection with such solicitation.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Association unanimously recommends that
you vote "FOR" the Plan of Conversion. Voting in favor of the Plan of Conversion
will not obligate any voter to purchase any stock of the Holding Company.
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THE CONVERSION
The OTS and the Board of Directors of the Association have approved the
Plan of Conversion subject to approval by the members of the Association
entitled to vote on the matter and subject to the satisfaction of certain other
conditions imposed by the OTS in its approval. OTS approval, however, does not
constitute a recommendation or endorsement of the Plan of Conversion.
General
On August 29, 1996, the Association's Board of Directors adopted, and
on October 8, 1996, subsequently amended, the Plan of Conversion, pursuant to
which the Association will convert from a federally chartered mutual savings and
loan association to a federally chartered stock savings bank under the name
"Empire Federal Savings Bank," to be held as a wholly-owned subsidiary of the
Holding Company, a newly formed Delaware corporation. The Holding Company
and the Association intend to pursue the business strategy described in this
Prospectus with the goal of enhancing long-term shareholder value. Neither the
Holding Company nor the Association has any existing plan to pursue any possible
business combination, and neither has any agreement or understanding, written
or oral, with respect to any possible business combination.
The following discussion of the Plan of Conversion is qualified in its
entirety by reference to the Plan of Conversion, which is attached as Exhibit A
hereto. The OTS has approved the Plan of Conversion subject to the Plan's
approval by the members of the Association entitled to vote on the matter at the
Special Meeting and subject to the satisfaction of certain other conditions
imposed by the OTS in its approval.
If the Board of Directors of the Association decides for any reason,
such as possible delays resulting from overlapping regulatory processing or
policies or conditions that could adversely affect the Association's or the
Holding Company's ability to consummate the Conversion and transact its business
as contemplated herein and in accordance with the Association's operating
policies, at any time prior to the issuance of the Common Stock, not to use the
holding company form of organization in implementing the Conversion, the Plan of
Conversion will be amended to not use the holding company form of organization
in the Conversion. In the event that such a decision is made, the Association
will promptly refund all subscriptions or orders received together with accrued
interest, withdraw the Holding Company's registration statement from the SEC and
will take all steps necessary to consummate the Conversion and proceed with a
new offering without the Holding Company, including filing any necessary
documents with the OTS. In such event, and provided there is no regulatory
action, directive or other consideration upon which basis the Association
determines not to consummate the Conversion, the Association will issue and sell
the common stock of the Association. There can be no assurance that the OTS
would approve the Conversion if the Association decided to proceed without the
Holding Company. The following description of the Plan assumes that a holding
company form of organization will be utilized in the Conversion. In the event
that a holding company form of organization is not utilized, all other pertinent
terms of the Plan as described below will apply to the Conversion of the
Association from mutual to stock form of organization and the sale of the
Association's common stock.
The Conversion will be accomplished through adoption of a Federal Stock
Charter and Bylaws to authorize the issuance of capital stock by the
Association. Under the Plan, 1,666,000 to 2,254,000 shares of Common Stock are
being offered for sale by the Holding Company at the Purchase Price of $10.00
per share. As part of the Conversion, the Association will issue all of its
newly issued common stock (1,000 shares) to the Holding Company in exchange for
50% of the net proceeds from the sale of Common Stock by the Holding Company.
The Plan of Conversion provides generally that (i) the Association will
convert from a federally chartered mutual savings and loan association to a
federally chartered stock savings bank; (ii) the Common Stock will be offered
by the Holding Company in the Subscription Offering to persons having
Subscription Rights and in a Direct Community Offering to certain members
of the general public with preference given to natural persons residing in the
Local Community; (iii) if necessary, shares of Common Stock not subscribed for
in the
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Subscription and Direct Community Offering will be offered to certain members of
the general public in a Syndicated Community Offering through a syndicate of
registered broker-dealers pursuant to selected dealers agreements; and (iv) the
Holding Company will purchase all of the capital stock of the Association to be
issued in connection with the Conversion. The Conversion will be effected only
upon completion of the sale of at least 1,666,000 shares of Common Stock to be
issued pursuant to the Plan of Conversion.
As part of the Conversion, the Holding Company is making a Subscription
Offering of its Common Stock to holders of Subscription Rights in the following
order of priority: (i) Eligible Account Holders (depositors with $50.00 or more
on deposit as of March 31, 1995); (ii) the Association's ESOP; (iii)
Supplemental Eligible Account Holders (depositors with $50.00 or more on deposit
as of September 30, 1996); and (iv) Other Members (depositors of the Association
as of October 31, 1996, and borrowers of the Association with loans
outstanding as of __________ __, 199_, which continue to be outstanding as
of October 31, 1996). Concurrent with the Subscription Offering and subject to
the prior rights of holders of Subscription Rights, the Holding Company is
offering the Common Stock for sale to certain members of the general public
through a Direct Community Offering.
Shares of Common Stock not sold in the Subscription and Direct
Community Offering may be offered in the Syndicated Community Offering.
Regulations require that the Syndicated Community Offering be completed within
45 days after completion of the Subscription Offering unless extended by the
Association or the Holding Company with the approval of the regulatory
authorities. If the Syndicated Community Offering is determined not to be
feasible, the Board of Directors of the Association will consult with the
regulatory authorities to determine an appropriate alternative method for
selling the unsubscribed shares of Common Stock. The Plan of Conversion provides
that the Conversion must be completed within 24 months after the date of the
approval of the Plan of Conversion by the members of the Association.
No sales of Common Stock may be completed, either in the Subscription,
Direct Community or Syndicated Community Offerings, unless the Plan of
Conversion is approved by the members of the Association.
The completion of the Offerings, however, is subject to market
conditions and other factors beyond the Association's control. No assurance can
be given as to the length of time after approval of the Plan of Conversion at
the Special Meeting that will be required to complete the Syndicated Community
Offering or other sale of the Common Stock. If delays are experienced,
significant changes may occur in the estimated pro forma market value of the
Holding Company and the Association as converted, together with corresponding
changes in the net proceeds realized by the Holding Company from the sale of the
Common Stock. In the event the Conversion is terminated, the Association would
be required to charge all Conversion expenses against current income.
Orders for shares of Common Stock will not be filled until at least
1,666,000 shares of Common Stock have been subscribed for or sold and the OTS
approves the final valuation and the Conversion closes. If the Conversion is not
consummated by ___________ __, 1997 (45 days after the last day of the fully
extended Subscription Offering) and the OTS consents to an extension of time to
consummate the Conversion, subscribers will be given the right to increase,
decrease or rescind their subscriptions. Unless an affirmative indication is
received from subscribers that they wish to continue to subscribe for shares,
the funds will be returned promptly, together with accrued interest at the
Association's passbook rate (____% per annum as of the date hereof) from the
date payment is received until the funds are returned to the subscriber. If such
period is not extended, or, in any event, if the Conversion is not consummated
by ____________ __, 1997, all withdrawal authorizations will be terminated and
all funds held will be promptly returned together with accrued interest at the
Association's passbook rate from the date payment is received until the
Conversion is terminated.
Effects of Conversion to Stock Form on Depositors and Borrowers
of the Association
Voting Rights. Savings members and borrowers will have no voting rights
in the converted Association or the Holding Company and therefore will not be
able to elect directors of the Association or the Holding Company or to control
their affairs. Currently, these rights are accorded to savings and borrower
members of the Association. Subsequent
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to the Conversion, voting rights will be vested exclusively in the Holding
Company with respect to the Association and the holders of the Common Stock as
to matters pertaining to the Holding Company. Each holder of Common Stock shall
be entitled to vote on any matter to be considered by the stockholders of the
Holding Company. A stockholder will be entitled to one vote for each share of
Common Stock owned.
Savings Accounts and Loans. The Association's savings accounts, account
balances and existing FDIC insurance coverage of savings accounts will not be
affected by the Conversion. Furthermore, the Conversion will not affect the loan
accounts, loan balances or obligations of borrowers under their individual
contractual arrangements with the Association.
Tax Effects. The Association has received an opinion from Breyer &
Aguggia, Washington, D.C., that the Conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Code. Among other things, the
opinion states that: (i) no gain or loss will be recognized to the Association
in its mutual or stock form by reason of its Conversion; (ii) no gain or loss
will be recognized to its account holders upon the issuance to them of accounts
in the Association immediately after the Conversion, in the same dollar amounts
and on the same terms and conditions as their accounts at the Association in its
mutual form plus interest in the liquidation account; (iii) the tax basis of
account holders' accounts in the Association immediately after the Conversion
will be the same as the tax basis of their accounts immediately prior to
Conversion; (iv) the tax basis of each account holder's interest in the
liquidation account will be zero; (v) the tax basis of the Common Stock
purchased in the Conversion will be the amount paid and the holding period for
such stock will commence at the date of purchase; and (vi) no gain or loss will
be recognized to account holders upon the receipt or exercise of Subscription
Rights in the Conversion, except to the extent Subscription Rights are deemed to
have value as discussed below. Unlike a private letter ruling issued by the
Internal Revenue Service ("IRS"), an opinion of counsel is not binding on the
IRS and the IRS could disagree with the conclusions reached therein. In the
event of such disagreement, no assurance can be given that the conclusions
reached in an opinion of counsel would be sustained by a court if contested by
the IRS.
Based upon past rulings issued by the IRS, the opinion provides that
the receipt of Subscription Rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan will be taxable to the
extent, if any, that the Subscription Rights are deemed to have a fair market
value. Keller & Company, Inc. ("Keller"), a financial consulting firm retained
by the Association, whose findings are not binding on the IRS, has indicated
that the Subscription Rights do not have any value, based on the fact that such
rights are acquired by the recipients without cost, are nontransferable and of
short duration and afford the recipients the right only to purchase shares of
the Common Stock at a price equal to its estimated fair market value, which will
be the same price paid by purchasers in the Direct Community Offering for
unsubscribed shares of Common Stock. If the Subscription Rights are deemed to
have a fair market value, the receipt of such rights may only be taxable to
those Eligible Account Holders, Supplemental Eligible Account Holders (if any)
and Other Members who exercise their Subscription Rights. The Association could
also recognize a gain on the distribution of such Subscription Rights. Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members are
encouraged to consult with their own tax advisors as to the tax consequences in
the event the Subscription Rights are deemed to have a fair market value.
The Association has also received an opinion from
Huppert and Swindlehurst, P.C., Livingston, Montana, that, assuming the
Conversion does not result in any federal income tax liability to the
Association, its account holders, or the Holding Company, implementation of
the Plan of Conversion will not result in any Montana income tax liability to
such entities or persons.
The opinions of Breyer & Aguggia and Huppert and Swindlehurst, P.C.
and the opinion from Keller are filed as exhibits to the Registration Statement.
See "ADDITIONAL INFORMATION."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.
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Liquidation Account. In the unlikely event of a complete liquidation of
the Association in its present mutual form, each depositor in the Association
would receive a pro rata share of any assets of the Association remaining after
payment of claims of all creditors (including the claims of all depositors up to
the withdrawal value of their accounts). Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his or her
deposit account to the total value of all deposit accounts in the Association at
the time of liquidation.
After the Conversion, holders of withdrawable deposit(s) in the
Association, including certificates of deposit ("Savings Account(s)"), shall not
be entitled to share in any residual assets in the event of liquidation of the
Association. However, pursuant to OTS regulations, the Association shall, at the
time of the Conversion, establish a liquidation account in an amount equal to
its total equity as of the date of the latest statement of financial condition
contained herein.
The liquidation account shall be maintained by the Association
subsequent to the Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who retain their Savings Accounts in the
Association. Each Eligible Account Holder and Supplemental Eligible Account
Holder shall, with respect to each Savings Account held, have a related inchoate
interest in a portion of the liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an
Eligible Account Holder or a Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of such holder's "qualifying
deposit" in the Savings Account and the denominator is the total amount of the
"qualifying deposits" of all such holders. Such initial subaccount balance shall
not be increased, and it shall be subject to downward adjustment as provided
below.
If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing day of the Association subsequent to March 31, 1995 is less than
the lesser of (i) the deposit balance in such Savings Account at the close of
business on any other annual closing date subsequent to March 31, 1995 or
September 30, 1996 or (ii) the amount of the "qualifying deposit" in such
Savings Account on March 31, 1995 or September 30, 1996, then the subaccount
balance for such Savings Account shall be adjusted by reducing such subaccount
balance in an amount proportionate to the reduction in such deposit balance. In
the event of a downward adjustment, such subaccount balance shall not be
subsequently increased, notwithstanding any increase in the deposit balance of
the related Savings Account. If any such Savings Account is closed, the related
subaccount balance shall be reduced to zero.
In the event of a complete liquidation of the Association (and only in
such event) each Eligible Account Holder and Supplemental Eligible Account
Holder shall be entitled to receive a liquidation distribution from the
liquidation account in the amount of the then current adjusted subaccount
balance(s) for Savings Account(s) then held by such holder before any
liquidation distribution may be made to stockholders. No merger, consolidation,
bulk purchase of assets with assumptions of Savings Accounts and other
liabilities or similar transactions with another federally insured institution
in which the Association is not the surviving institution shall be considered to
be a complete liquidation. In any such transaction the liquidation account shall
be assumed by the surviving institution.
REVIEW OF OTS ACTION
Any person aggrieved by a final action of the OTS which approves, with
or without conditions, or disapproves a plan of conversion pursuant to this part
may obtain review of such action by filing in the court of appeals of the United
States for the circuit in which the principal office or residence of such person
is located, or in the United States Court of Appeals for the District of
Columbia, a written petition praying that the final action of the OTS be
modified, terminated or set aside. Such petition must be filed within 30 days
after the publication of notice of such final action in the Federal Register, or
30 days after the mailing by the applicant of the notice to members as provided
for in 12 C.F.R. ss.563b.6(c), whichever is later. The further procedure for
review is as follows: A copy of the petition is forthwith transmitted to the OTS
by the clerk of the court and thereupon the OTS files in
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<PAGE>
the court the record in the proceeding, as provided in Section 2112 of Title 28
of the United States Code. Upon the filing of the petition, the court has
jurisdiction, which upon the filing of the record is exclusive, to affirm,
modify, terminate, or set aside in whole or in part, the final action of the
OTS. Review of such proceedings is as provided in Chapter 7 of Title 5 of the
United States Code. The judgment and decree of the court is final, except that
they are subject to review by the United States Supreme Court upon certiorari as
provided in Section 1254 of Title 28 of the United States Code.
ADDITIONAL INFORMATION
The Holding Company has filed with the Securities and Exchange
Commission a Registration Statement on Form SB-2 (File No. 333-12653) under
the Securities Act of 1933, as amended, with respect to the Common Stock
offered in the Conversion. The accompanying Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the SEC. Such
information may be inspected at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 500 West
Madison Street, Suite 1400, Room 1100, Chicago, Illinois 60661; and 75 Park
Place, New York, New York 10007. Copies may be obtained at prescribed rates
from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
The Association has filed with the OTS an Application for Approval of
Conversion, which includes proxy materials for the Association's Special Meeting
and certain other information. The accompanying Prospectus omits certain
information contained in such Application. The Application, including exhibits
and certain other information that are a part thereof, may be inspected, without
charge, at the offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552
and at the office of the Regional Director of the OTS at the West Regional
Office of the OTS, Pacific Telesis Tower, 1 Montgomery Street, Suite 400, San
Francisco, California 94104.
Copies of the Holding Company's Certificate of Incorporation and Bylaws
may be obtained by written request to the Association.
All persons eligible to vote at the Special Meeting should review both
this Proxy Statement and the accompanying Prospectus carefully. However, no
person is obligated to purchase any Common Stock. For additional information,
you may call the Conversion Center at (406) ___-____.
BY ORDER OF THE BOARD OF DIRECTORS
ERNEST A. SANDBERG
SECRETARY
Livingston, Montana
__________ __, 1996
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT AND, WHETHER OR NOT YOU PLAN TO BE PRESENT IN
PERSON AT THE SPECIAL MEETING, TO FILL IN, DATE, SIGN AND RETURN THE ENCLOSED
PROXY CARD(S) AS SOON AS POSSIBLE TO ASSURE THAT YOUR VOTES WILL BE COUNTED.
THIS WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU ATTEND THE SPECIAL
MEETING. YOU MAY REVOKE YOUR PROXY BY WRITTEN INSTRUMENT DELIVERED TO THE
SECRETARY OF THE ASSOCIATION AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING OR
BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS IN THOSE JURISDICTIONS IN
WHICH IT IS LAWFUL TO MAKE SUCH OFFER.
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EXHIBIT A
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
LIVINGSTON, MONTANA
AMENDED PLAN OF CONVERSION
FROM FEDERAL MUTUAL SAVINGS AND LOAN ASSOCIATION
TO FEDERAL STOCK SAVINGS AND LOAN ASSOCIATION
AND FORMATION OF A HOLDING COMPANY
INTRODUCTION
I. General
It is the desire of the Board of Directors to attract new capital to
the Association to increase its net worth, to support future savings growth, to
increase the amount of funds available for other lending and investment, to
provide greater resources for the expansion of customer services and to
facilitate future expansion by the Association. In addition, the Board of
Directors intends to implement stock option plans and other stock benefit plans
as part of the Conversion in order to attract and retain qualified directors and
officers. It is the further desire of the Board of Directors to reorganize the
Association as the wholly owned subsidiary of a holding company to enhance
flexibility of operations, diversification of business opportunities and
financial capability for business and regulatory purposes and to enable the
Association to compete more effectively with other financial service
organizations. Accordingly, on August 29, 1996, the Board of Directors of Empire
Federal Savings and Loan Association ("Association"), after careful study and
consideration, adopted, and on October 8, 1996 subsequently amended, by
unanimous vote this Plan of Conversion ("Plan"), which provides for the
conversion of the Association from a federally chartered mutual savings and loan
association to a federally chartered stock savings bank and the concurrent
formation of a holding company for the Association ("Holding Company").
All capitalized terms contained in the Plan shall have the meanings
ascribed to them in Section II hereof.
Pursuant to the Plan, shares of Conversion Stock in the Holding Company
will be offered as part of the Conversion in a Subscription Offering pursuant to
nontransferable Subscription Rights at a predetermined and uniform price first
to the Association's Eligible Account Holders, second to the Tax-Qualified
Employee Stock Benefit Plans, third to Supplemental Eligible Account Holders of
record as of the last day of the calendar quarter preceding OTS approval of the
Association's application to convert to stock form, and fourth to Other Members
of the Association. Concurrently with the Subscription Offering, shares not
subscribed for in the Subscription Offering will be offered as part of the
Conversion to the general public in a Direct Community Offering. Shares
remaining may then be offered to the general public in an underwritten public
offering or otherwise. The aggregate Purchase Price of the Conversion Stock will
be based upon an independent appraisal of the Association and will reflect the
estimated pro forma market value of the Association, as a subsidiary of the
Holding Company.
The Conversion is subject to regulations of the Director of the OTS of
the United States Department of the Treasury pursuant to Section 5(i) of the
Home Owners' Loan Act; Part 563b of the Rules and Regulations Applicable to All
Savings Associations.
Consummation of the Conversion is subject to the approval of this Plan
and the Conversion by the OTS and by the affirmative vote of Members of the
Association holding not less than a majority of the total votes eligible to be
cast at a special meeting of the Members to be called to consider the
Conversion.
No change will be made in the Board of Directors or management of the
Association as a result of the Conversion.
<PAGE>
II. Definitions
As used in this Plan, the terms set forth below have the following
meanings:
A. Acting in Concert: (1) Knowing participation in a joint activity or
interdependent conscious parallel action towards a common goal whether or not
pursuant to an express agreement; or (2) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise. A Person (as defined by 12 C.F.R.
ss.563b.2(a)(26)) who acts in concert with another Person ("other party") shall
also be deemed to be acting in concert with any Person who is also acting in
concert with that other party, except that any Tax-Qualified Employee Stock
Benefit Plan will not be deemed to be acting in concert with its trustee or a
Person who serves in a similar capacity solely for the purpose of determining
whether stock held by the trustee and stock held by the Tax- Qualified Employee
Benefit Plan will be aggregated.
B. Associate: When used to indicate a relationship with any Person,
means (l) any corporation or organization (other than the Association or a
majority-owned subsidiary of the Association, or the Holding Company) of which
such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent or more of any class of equity securities, (2)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, except that it does not include a Tax- Qualified Employee Stock
Benefit Plan and (3) any relative or spouse of such Person or any relative of
such spouse, who has the same home as such Person or who is a director or
officer of the Association, any of its subsidiaries, or the Holding Company.
C. Association: Empire Federal Savings and Loan Association, in its
present form as a federally chartered mutual savings and loan association.
D. Capital Stock: Any and all authorized stock in the Converted
Association.
E. Common Stock: Any and all authorized common stock in the Holding
Company subsequent to the Conversion.
F. Conversion: (1) Amendment of the Association's Charter and Bylaws to
authorize issuance of shares of Capital Stock by the Converted Association and
to conform to the requirements of a Federal stock savings bank under the laws of
the United States and regulations of the OTS; (2) issuance and sale of
Conversion Stock by the Holding Company in the Subscription Offering and Direct
Community Offering; and (3) purchase by the Holding Company of the Capital Stock
of the Converted Association to be issued in the Conversion immediately
following or concurrently with the close of the sale of all Conversion Stock.
G. Conversion Stock: Holding Company stock to be issued and sold by the
Holding Company pursuant to the Plan.
H. Converted Association: The Association in its converted form of
organization as a Federally- chartered capital stock savings bank operating
under the title "Empire Federal Savings Bank," or such other appropriate title.
I. Direct Community Offering: The offering for sale of Conversion Stock
to the public.
J. Eligibility Record Date: March 31, 1995.
K. Eligible Account Holder: Holder of a Qualifying Deposit in the
Association on the Eligibility Record Date.
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L. FDIC: Federal Deposit Insurance Corporation.
M. Form AC Application: The application submitted to the OTS for
approval of the Conversion.
N. H-(e)1 Application: The application submitted to the OTS on OTS Form
H-(e)1 or Form H-(e)1-S, if applicable, for approval of the Holding Company's
acquisition of all of the Capital Stock.
O. Holding Company: A corporation to be formed by the Association under
state law for the purpose of becoming a holding company through the issuance and
sale of its stock under the Plan, and concurrent acquisition of 100% of the
Capital Stock of the Association to be issued pursuant to the Plan.
P. Holding Company Stock: Any and all authorized stock of the Holding
Company.
Q. Local Community: Park, Gallatin and Sweet Grass Counties, Montana.
R. Market Maker: A dealer (i.e., any Person who engages directly or
indirectly as agent, broker, or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (l) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system or furnishes bona fide competitive bid and offer quotations on request
and (2) is ready, willing and able to effect transactions in reasonable
quantities at his quoted prices with other brokers or dealers.
S. Members: All Persons or entities who qualify as members of the
Association pursuant to its Charter and Bylaws prior to the Conversion.
T. Officer: An executive officer of the Association, which includes the
Chairman of the Board, President, Executive Vice President, Senior Vice
Presidents, Vice Presidents in charge of principal business functions, the
Secretary and the Treasurer as well as any other person performing similar
functions.
U. Order Forms: Forms to be used for the purchase of Conversion Stock
sent to Eligible Account Holders and other parties eligible to purchase
Conversion Stock in the Subscription Offering pursuant to the Plan.
V. Other Member: Holder of a Savings Account (other than Eligible
Account Holders and Supplemental Eligible Account Holders) as of the Record Date
and borrowers from the Association as provided in the Association's Federal
Mutual Charter who continue to be borrowers from the Association as of the
Record Date.
W. OTS: Office of Thrift Supervision of the United States Department of
the Treasury.
X. Person: An individual, corporation, partnership, association, joint
stock company, trusts of natural Persons, unincorporated organization or a
government or any political subdivision thereof.
Y. Plan: This Plan of Conversion, which provides for the conversion of
the Association from a federally chartered mutual savings and loan association
to a federally chartered capital stock savings bank as a wholly owned subsidiary
of the Holding Company, as originally adopted by the Board of Directors or as
amended in accordance with the terms thereof.
Z. Qualifying Deposit: The deposit balance in any Savings Account as of
the Eligibility Record Date or the Supplemental Eligibility Record Date, as
applicable; provided, however, that no Savings Account with a deposit balance of
less than $50 shall constitute a Qualifying Deposit.
AA. Record Date: Date which determines which Members are entitled to
vote at the Special Meeting.
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BB. Registration Statement: The registration statement on Form SB-2 or
other applicable forms filed by the Holding Company with the SEC for the purpose
of registering the Conversion Stock under the Securities Act of 1933, as
amended.
CC. Savings Account(s): Withdrawable deposit(s) in the Association,
including certificates of deposit.
DD. SEC: Securities and Exchange Commission.
EE. Special Meeting: The special meeting of Members called for the
purpose of considering the Plan for approval.
FF. Subscription Offering: The offering of Conversion Stock to Eligible
Account Holders, Tax- Qualified Employee Stock Benefit Plans, Supplemental
Eligible Account Holders and Other Members under the Plan.
GG. Subscription Rights: Nontransferable, nonnegotiable, personal
rights of Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders and Other Members to purchase Conversion
Stock.
HH. Supplemental Eligibility Record Date: The last day of the calendar
quarter preceding the approval of the Plan by the OTS.
II. Supplemental Eligible Account Holder: Holder of a Qualifying
Deposit in the Association (other than an Officer or director or their
Associates) on the Supplemental Eligibility Record Date.
JJ. Tax Qualified Employee Stock Benefit Plan: Any defined benefit plan
or defined contribution plan of the Association or Holding Company, such as an
employee stock ownership plan, bonus plan, profit-sharing plan or other plan,
which, with its related trust meets the requirements to be "qualified" under
section 401 of the Internal Revenue Code. A "non-tax-qualified employee stock
benefit plan" is any defined benefit plan or defined contribution plan that is
not so qualified.
III. Steps Prior to Submission of the Plan to the Members for Approval
Prior to submission of the Plan to the Members for approval, the
Association must receive approval from the OTS of the Form AC Application. Prior
to such regulatory approval:
A. The Board of Directors shall adopt the Plan by a vote of not less
than two-thirds of its entire membership.
B. The Association shall notify the Members of the adoption of the Plan
by publishing a statement in a newspaper having a general circulation in each
community in which the Association maintains an office.
C. A press release relating to the proposed Conversion may be submitted
to the local media.
D. Copies of the Plan as adopted by the Board of Directors shall be
made available for inspection at each office of the Association.
E. The Association shall cause the Holding Company to be incorporated
under state law and the Board of Directors of the Holding Company shall concur
in the Plan by at least a two-thirds vote.
F. As soon as practicable following the adoption of this Plan, the
Association shall file the Form AC Application, and the Holding Company shall
file the Registration Statement and the H-(e)1 Application. Upon receipt of
notification from the OTS that the Form AC Application is properly executed and
not materially
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incomplete, the Association shall publish notice of the filing of the Form AC
Application in a newspaper having a general circulation in each community in
which the Association maintains an office and/or by mailing a letter to each of
its Members, and shall publish such other notices of the Conversion as may be
required in connection with the H-(e)1 Application and by the regulations and
policies of the OTS.
G. The Association shall obtain an opinion of its tax advisors or a
favorable ruling from the United States Internal Revenue Service which shall
state that the Conversion will not result in any gain or loss for Federal income
tax purposes to the Association or its Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members. Receipt of a favorable opinion or
ruling is a condition precedent to completion of the Conversion.
IV. Meeting of Members
Subsequent to the approval of the Plan by the OTS, the Special Meeting
shall be scheduled in accordance with the Association's Bylaws. Promptly after
receipt of approval and at least 20 days but not more than 45 days prior to the
Special Meeting, the Association shall distribute proxy solicitation materials
to all Members and beneficial owners of accounts held in fiduciary capacities
where the beneficial owners possess voting rights, as of the Record Date. The
proxy solicitation materials shall include a copy of the proxy statement to be
used in connection with such solicitation ("Proxy Statement") and other
documents authorized for use by the regulatory authorities and may also include
a copy of the Plan and/or a prospectus ("Prospectus") as provided in Paragraph V
below. The Association shall also advise each Eligible Account Holder and
Supplemental Eligible Account Holder not entitled to vote at the Special Meeting
of the proposed Conversion and the scheduled Special Meeting, and provide a
postage prepaid card on which to indicate whether he wishes to receive the
Prospectus, if the Subscription Offering is not held concurrently with the proxy
solicitation.
Pursuant to OTS regulations, an affirmative vote of not less than a
majority of the total outstanding votes of the Members is required for approval
of the Plan. Voting may be in person or by proxy. The OTS shall be notified
promptly of the actions of the Members.
V. Summary Proxy Statement
The Proxy Statement furnished to Members may be in summary form,
provided that a statement is made in bold-face type that a more detailed
description of the proposed transaction may be obtained by returning an enclosed
postage prepaid card or other written communication requesting supplemental
information. Without prior approval of the OTS, the Special Meeting shall not be
held less than 20 days after the last day on which the supplemental information
statement is mailed to requesting Members. The supplemental information
statement may be combined with the Prospectus if the Subscription Offering is
commenced concurrently with or during the proxy solicitation of Members for the
Special Meeting.
VI. Offering Documents
The Holding Company may commence the Subscription Offering and,
provided that the Subscription Offering has commenced, may commence the Direct
Community Offering concurrently with or during the proxy solicitation of
Members. The Holding Company may close the Subscription Offering before the
Special Meeting, provided that the offer and sale of the Conversion Stock shall
be conditioned upon approval of the Plan by the Members at the Special Meeting.
The Association's proxy solicitation materials may require Eligible Account
Holders, Supplemental Eligible Account Holders (if applicable) and Other Members
to return to the Association by a reasonable certain date a postage prepaid card
or other written communication requesting receipt of a Prospectus with respect
to the Subscription Offering, provided that if the Prospectus is not mailed
concurrently with the proxy solicitation materials, the Subscription Offering
shall not be closed until the expiration of 30 days after the mailing of the
proxy solicitation materials. If the Subscription Offering is not commenced
within 45 days after the Special Meeting, the Association may transmit, not more
than 30 days prior to the commencement of the Subscription Offering, to each
Eligible Account Holder, Supplemental Eligible Account Holder and other eligible
subscribers who
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had been furnished with proxy solicitation materials a notice which shall state
that the Association is not required to furnish a Prospectus to them unless they
return by a reasonable date certain a postage prepaid card or other written
communication requesting the receipt of the Prospectus.
Prior to commencement of the Subscription Offering and the Direct
Community Offering, the Holding Company shall file the Registration Statement.
The Holding Company shall not distribute the final Prospectus until the
Registration Statement containing same has been declared effective by the SEC
and the Prospectus has been declared effective by the OTS.
VII. Combined Subscription and Community Offering
Instead of a separate Subscription Offering, all Subscription Rights
may be exercised by delivery of properly completed and executed Order Forms to
the Association or selling group utilized in connection with the Direct
Community Offering. If a separate Subscription Offering is not held, orders for
Conversion Stock in the Direct Community Offering shall first be filled pursuant
to the priorities and limitations stated in Paragraph IX.C., below.
VIII. Consummation of the Conversion
After receipt of all orders for Conversion Stock, and concurrently with
the execution thereof, the amendment of the Association's Federal mutual Charter
and Bylaws to authorize the issuance of shares of Capital Stock and to conform
to the requirements of a Federal capital stock savings and loan association will
be declared effective by the OTS, the amended Charter and Bylaws approved by the
Members will become effective. At such time, the Conversion Stock will be issued
and sold by the Holding Company, the Capital Stock to be issued in the
Conversion will be issued and sold to the Holding Company, and the Converted
Association will become a wholly owned subsidiary of the Holding Company. The
Converted Association will issue to the Holding Company 1,000 shares of its
common stock, representing all of the shares of Capital Stock to be issued by
the Converted Association, and the Holding Company will make payment to the
Converted Association of that portion of the aggregate net proceeds realized by
the Holding Company from the sale of the Conversion Stock under the Plan as may
be authorized or required by the OTS.
IX. Stock Offering
A. Number of Shares
The number of shares of Conversion Stock to be offered pursuant to the
Plan shall be determined initially by the Board of Directors of the Association
and the Board of Directors of the Holding Company in conjunction with the
determination of the Purchase Price (as that term is defined in Paragraph IX.B.
below). The number of shares to be offered may be subsequently adjusted by the
Board of Directors prior to completion of the offering.
B. Independent Evaluation and Purchase Price of Shares
All shares of Conversion Stock sold in the Conversion, including shares
sold in any Direct Community Offering, shall be sold at a uniform price per
share, referred to herein as the "Purchase Price." The Purchase Price shall be
determined by the Board of Directors of the Association and the Board of
Directors of the Holding Company immediately prior to the simultaneous
completion of all such sales contemplated by this Plan on the basis of the
estimated pro forma market value of the Association, as converted, at such time.
The estimated pro forma market value of the Association shall be determined for
such purpose by an independent appraiser on the basis of such appropriate
factors not inconsistent with the regulations of the OTS. Immediately prior to
the Subscription Offering, a subscription price range shall be established which
shall vary from 15% above to 15% below the average of the minimum and maximum of
the estimated price range. The maximum subscription price (i.e., the per share
amount to be remitted when subscribing for shares of Conversion Stock) shall
then be determined within the subscription price range by the Board of Directors
of the Association. The subscription price range and the number of shares
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to be offered may be revised after the completion of the Subscription Offering
with OTS approval without a resolicitation of proxies or Order Forms or both.
C. Method of Offering Shares
Subscription Rights shall be issued at no cost to Eligible Account
Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible
Account Holders and Other Members pursuant to priorities established by this
Plan and the regulations of the OTS. In order to effect the Conversion, all
shares of Conversion Stock proposed to be issued in connection with the
Conversion must be sold and, to the extent that shares are available, no
subscriber shall be allowed to purchase less than 25 shares; provided, however,
that if the purchase price is greater than $20 per share, the minimum number of
shares which must be subscribed for shall be adjusted so that the aggregate
actual purchase price required to be paid for such minimum number of shares does
not exceed $500. The priorities established for the purchase of shares are as
follows:
1. Category 1: Eligible Account Holders
a. Each Eligible Account Holder shall receive, without
payment, Subscription Rights entitling such Eligible Account Holder to
purchase that number of shares of Conversion Stock which is equal to
the greater of the maximum purchase limitation established for the
Direct Community Offering, one-tenth of one percent of the total
offering or 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of
Conversion Stock to be issued by a fraction of which the numerator is
the amount of the Qualifying Deposit of the Eligible Account Holder and
the denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders. If the allocation made in this paragraph
results in an oversubscription, shares of Conversion Stock shall be
allocated among subscribing Eligible Account Holders so as to permit
each such account holder, to the extent possible, to purchase a number
of shares of Conversion Stock sufficient to make his total allocation
equal to 100 shares of Conversion Stock or the total amount of his
subscription, whichever is less. Any shares of Conversion Stock not so
allocated shall be allocated among the subscribing Eligible Account
Holders on an equitable basis, related to the amounts of their
respective Qualifying Deposits as compared to the total Qualifying
Deposits of all Eligible Account Holders.
b. Subscription Rights received by Officers and directors of
the Association and their Associates, as Eligible Account Holders,
based on their increased deposits in the Association in the one-year
period preceding the Eligibility Record Date shall be subordinated to
all other subscriptions involving the exercise of Subscription Rights
pursuant to this Category.
2. Category 2: Tax-Qualified Employee Stock Benefit Plans
a. Tax-Qualified Employee Stock Benefit Plans of the
Association shall receive, without payment, non-transferable
Subscription Rights to purchase in the aggregate up to 8% of the
Conversion Stock, including shares of Conversion Stock to be issued in
the Conversion as result of an increase in the estimated price range
after commencement of the Subscription Offering and prior to the
completion of the Conversion. The Subscription Rights granted to
Tax-Qualified Stock Benefit Plans of the Association shall be subject
to the availability of shares of Conversion Stock after taking into
account the shares of Conversion Stock purchased by Eligible Account
Holders; provided, however, that in the event the number of shares
offered in the Conversion is increased to an amount greater than the
maximum of the estimated price range as set forth in the Prospectus
("Maximum Shares"), the Tax-Qualified Employee Stock Benefit Plans
shall have a priority right to purchase any such shares exceeding the
Maximum Shares up to an aggregate of 8% of the Conversion Stock.
Tax-Qualified Employee Stock Benefit Plans may use funds contributed or
borrowed by the Holding Company or the Association and/or borrowed from
an independent financial institution to exercise such Subscription
Rights, and the Holding Company and the Association
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may make scheduled discretionary contributions thereto, provided that
such contributions do not cause the Holding Company or the Association
to fail to meet any applicable capital requirements.
3. Category 3: Supplemental Eligible Account Holders
a. In the event that the Eligibility Record Date is more than
15 months prior to the date of the latest amendment to the Form AC
Application filed prior to OTS approval, then, and only in that event,
each Supplemental Eligible Account Holder shall receive, without
payment, Subscription Rights entitling such Supplemental Eligible
Account Holder to purchase that number of shares of Conversion Stock
which is equal to the greater of the maximum purchase limitation
established for the Direct Community Offering, one-tenth of one percent
of the total offering or 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of
Conversion 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 Deposits of all Supplemental Eligible Account Holders.
b. Subscription Rights received pursuant to this category
shall be subordinated to Subscription Rights granted to Eligible
Account Holders and Tax-Qualified Employee Stock Benefit Plans.
c. Any Subscription Rights to purchase shares of Conversion
Stock received by an Eligible Account Holder in accordance with
Category Number 1 shall reduce to the extent thereof the Subscription
Rights to be distributed pursuant to this Category.
d. In the event of an oversubscription for shares of
Conversion Stock pursuant to this Category, shares of Conversion Stock
shall be allocated among the subscribing Supplemental Eligible Account
Holders as follows:
(l) Shares of Conversion Stock shall be allocated so
as to permit each such Supplemental Eligible Account Holder,
to the extent possible, to purchase a number of shares of
Conversion Stock sufficient to make his total allocation
(including the number of shares of Conversion Stock, if any,
allocated in accordance with Category Number 1) equal to 100
shares of Conversion Stock or the total amount of his
subscription, whichever is less.
(2) Any shares of Conversion Stock not allocated in
accordance with subparagraph (l) above shall be allocated
among the subscribing Supplemental Eligible Account Holders on
an equitable basis, related to the amounts of their respective
Qualifying Deposits as compared to the total Qualifying
Deposits of all Supplemental Eligible Account Holders.
4. Category 4: Other Members
a. Other Members shall receive Subscription Rights to purchase
shares of Conversion Stock, after satisfying the subscriptions of
Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans
and Supplemental Eligible Account Holders pursuant to Category Nos. l,
2 and 3 above, subject to the following conditions:
1. Each such Other Member shall be entitled to subscribe for
the greater of the maximum purchase limitation established for the
Direct Community Offering or one-tenth of one percent of the total
offering.
2. In the event of an oversubscription for shares of
Conversion Stock pursuant to Category No. 4, the shares of Conversion
Stock available shall be allocated among the subscribing Other Members
pro rata on the basis of the amounts of their respective subscriptions.
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D. Direct Community Offering
1. Any shares of Conversion Stock not purchased through the exercise of
Subscription Rights set forth in Category Nos. 1 through 4 above may be sold by
the Holding Company to Persons under such terms and conditions as may be
established by the Association's Board of Directors with the concurrence of the
OTS. The Direct Community Offering may commence concurrently with or as soon as
possible after the completion of the Subscription Offering and must be completed
within 45 days after completion of the Subscription Offering, unless extended
with the approval of the OTS. No Person may purchase shares of Conversion Stock
with an aggregate purchase price that exceeds $225,000. The right to purchase
shares of Conversion Stock under this Category is subject to the right of the
Association or the Holding Company to accept or reject such subscriptions in
whole or in part. In the event of an oversubscription for shares in this
Category, the shares available shall be allocated among prospective purchasers
in an amount equal to the lesser of 100 shares or the number of shares
subscribed for by each such prospective purchaser, if possible. Thereafter,
unallocated shares shall be allocated among the prospective purchasers whose
orders remain unsatisfied after the procedure described in the immediately
preceding sentence until such orders have been filled or the remaining shares
have been allocated. The offering price for which such shares are sold to the
general public in the Direct Community Offering shall be the Purchase Price.
2. Orders received in the Direct Community Offering first shall be
filled up to a maximum of 2% of the Conversion Stock and thereafter remaining
shares shall be allocated on an equal number of shares basis per order until all
orders have been filled.
3. The Conversion Stock offered in the Direct Community Offering shall
be offered and sold in a manner that will achieve the widest distribution
thereof. Preference shall be given in the Direct Community Offering to natural
Persons residing in the Local Community.
4. In the event a Direct Community Offering appears not feasible, the
Association will immediately consult with the OTS to determine the most viable
alternative available to effect the completion of the Conversion. Should no
viable alternative exist, the Association may terminate the Conversion with the
concurrence of the OTS.
E. Limitations Upon Purchases
The following additional limitations and exceptions shall be imposed
upon purchases of shares of Conversion Stock:
1. Purchases of shares of Conversion Stock in the Conversion, including
purchases in the Direct Community Offering by any Person, and Associates
thereof, or a group of Persons Acting in Concert, shall not exceed an aggregate
purchase price of $225,000 except that Tax-Qualified Employee Stock Benefit
Plans may purchase up to 8% of the total Conversion Stock issued in the
Conversion and shares to be held by the Tax-Qualified Employee Stock Benefit
Plans and attributable to a Person shall not be aggregated with other shares
purchased directly by or otherwise attributable to such Person.
2. Officers and directors and Associates thereof may not purchase in
the aggregate more than 34% of the shares issued in the Conversion.
3. The Association's and Holding Company's Boards of Directors will not
be deemed to be Associates or a group of Persons Acting in Concert with other
directors or trustees solely as a result of membership on the Board of
Directors.
4. Persons, Associates thereof, or group of Persons Acting in Concert,
may not purchase shares of Conversion Stock with an aggregate purchase price of
more than $350,000 except that Tax-Qualified Employee Stock Benefit Plans may
purchase up to 8% of the total Conversion Stock issued and shares held or to be
held by the Tax-Qualified Employee Stock Benefit Plans and attributable to a
Person shall not be aggregated with other shares purchased directly by or
otherwise attributable to such Person.
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5. The Association's Board of Directors, with the approval of the OTS
and without further approval of Members, may, as a result of market conditions
and other factors, increase or decrease the purchase limitation in paragraphs 1
and 4 above or the number of shares of Conversion Stock to be sold in the
Conversion. If the Association or the Holding Company, as the case may be,
increases the maximum purchase limitations or the number of shares of Conversion
Stock to be sold in the Conversion, the Association or the Holding Company, as
the case may be, is only required to resolicit Persons who subscribed for the
maximum purchase amount and may, in the sole discretion of the Association or
the Holding Company, as the case may be, resolicit certain other large
subscribers. If the Association or the Holding Company, as the case may be,
decreases the maximum purchase limitations or the number of shares of Conversion
Stock to be sold in the Conversion, the orders of any Person who subscribed for
the maximum purchase amount shall be decreased by the minimum amount necessary
so that such Person shall be in compliance with the then maximum number of
shares permitted to be subscribed for by such Person.
Each Person purchasing Conversion Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the purchase
limitations under the Plan or otherwise imposed by law, rule or regulation. In
the event that such purchase limitations are violated by any Person (including
any Associate or group of Persons affiliated or otherwise Acting in Concert with
such Person), the Holding Company shall have the right to purchase from such
Person at the actual Purchase Price per share all shares acquired by such Person
in excess of such purchase limitations or, if such excess shares have been sold
by such Person, to receive from such Person the difference between the actual
Purchase Price per share paid for such excess shares and the price at which such
excess shares were sold by such Persons. This right of the Holding Company to
purchase such excess shares shall be assignable by the Holding Company.
F. Restrictions On and Other Characteristics of the Conversion Stock
1. Transferability. Conversion Stock purchased by Officers and
directors of the Association and officers and directors of the Holding Company
shall not be sold or otherwise disposed of for value for a period of one year
from the date of Conversion, except for any disposition (i) following the death
of the original purchaser or (ii) resulting from an exchange of securities in a
merger or acquisition approved by the regulatory authorities having
jurisdiction.
The Conversion Stock issued by the Holding Company to such Officers and
directors shall bear a legend giving appropriate notice of the one-year holding
period restriction. Said legend shall state as follows:
"The shares evidenced by this certificate are restricted as to
transfer for a period of one year from the date of this
certificate pursuant to Part 563b of the Rules and Regulations
of the Office of Thrift Supervision. These shares may not be
transferred prior thereto without a legal opinion of counsel
that said transfer is permissible under the provisions of
applicable laws and regulations."
In addition, the Holding Company shall give appropriate instructions to
the transfer agent of the Holding Company's Stock with respect to the foregoing
restrictions. Any shares of Holding Company Stock subsequently issued as a stock
dividend, stock split or otherwise, with respect to any such restricted stock,
shall be subject to the same holding period restrictions for such Persons as may
be then applicable to such restricted stock.
2. Subsequent Purchases by Officers and Directors. Without prior
approval of the OTS, if applicable, Officers and directors of the Association
and officers and directors of the Holding Company, and their Associates, shall
be prohibited for a period of three years following completion of the Conversion
from purchasing outstanding shares of Holding Company Stock, except from a
broker or dealer registered with the SEC. Notwithstanding this restriction,
purchases involving more than 1% of the total outstanding shares of Holding
Company Stock and purchases made and shares held by a Tax-Qualified or
non-Tax-Qualified Employee Stock Benefit Plan which may be attributable to
such directors and officers may be made in negotiated transactions without OTS
permission or the use of a broker or dealer.
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3. Repurchase and Dividend Rights. Pursuant to present regulations,
for a period of three years from the date of Conversion, repurchases of Holding
Company Stock by the Holding Company from any Person are subject to certain
restrictions, with the exception of (i) a repurchase on a pro rata basis
pursuant to an offer approved by the OTS and made to all stockholders, (ii) the
repurchase of qualifying shares of a director or (iii) a purchase in the open
market by a Tax-Qualified Employee Stock Benefit Plan or a non-Tax-Qualified
Employee Stock Benefit Plan of the Association or the Holding Company in an
amount reasonable and appropriate to fund the plan. Repurchases during the first
year following the consummation of the Conversion are generally prohibited
unless "exceptional circumstances" are deemed to exist by the OTS. However, upon
10 days' written notification to the District Director and to the Chief Counsel,
Corporate and Securities Division of the OTS, if the District Director does not
object, the Holding Company may make open market repurchases of outstanding
Holding Company Stock during the second and third years following the
consummation of the Conversion, provided that (i) no more than 5% of the
outstanding Holding Company Stock is to be purchased during any twelve-month
period, (ii) the Association's ratio of regulatory capital to total liabilities
would not be reduced below 6%, and (iii) the repurchases would not adversely
affect the financial condition of the Association.
Present regulations also provide that the Association may not declare
or pay a cash dividend on or repurchase any of its Capital Stock if the result
thereof would be to reduce the regulatory capital of the Association below the
amount required for the liquidation account described in Paragraph XIII.
Further, any dividend declared or paid on, or repurchase of, the Capital Stock
shall be in compliance with the rules and regulations of the OTS, or other
applicable regulations. The above limitations shall not preclude payment of
dividends on, or repurchases of, Capital Stock in the event applicable Federal
regulatory limitations are liberalized subsequent to the Conversion.
4. Voting Rights. After the Conversion, holders of Savings Accounts in
and obligors on loans of the Association will not have voting rights in the
Association. Exclusive voting rights with respect to the Holding Company shall
be vested in the holders of Holding Company Stock; holders of Savings Accounts
in and obligors on loans of the Association will not have any voting rights in
the Holding Company except and to the extent that such Persons become
stockholders of the Holding Company, and the Holding Company will have exclusive
voting rights with respect to the Association's Capital Stock.
G. Mailing of Offering Materials and Collation of Subscriptions
The sale of all shares of Conversion Stock offered pursuant to the Plan
must be completed within 24 months after approval of the Plan at the Special
Meeting. After approval of the Plan by the OTS and the declaration of the
effectiveness of the Prospectus, the Holding Company shall distribute
Prospectuses and Order Forms for the purchase of shares of Conversion Stock in
accordance with the terms of the Plan.
The recipient of an Order Form shall be provided not less than 20 days
nor more than 45 days from the date of mailing, unless extended, properly to
complete, execute and return the Order Form to the Holding Company or the
Association. Self-addressed, postage prepaid, return envelopes shall accompany
all Order Forms when they are mailed. Failure of any eligible subscriber to
return a properly completed and executed Order Form within the prescribed time
limits shall be deemed a waiver and a release by such eligible subscriber of any
rights to purchase shares of Conversion Stock under the Plan.
The sale of all shares of Conversion Stock proposed to be issued in
connection with the Conversion must be completed within 45 days after the last
day of the Subscription Offering, unless extended by the Holding Company with
the approval of the OTS.
H. Method of Payment
Payment for all shares of Conversion Stock may be made in cash, by
check or by money order, or if a subscriber has a Savings Account in the
Association such subscriber may authorize the Association to charge the
subscriber's Savings Account. The Holding Company shall pay interest at not less
than the passbook rate on all
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amounts paid in cash or by check or money order to purchase shares of
Conversion Stock in the Subscription Offering from the date payment is
received until the Conversion is completed or terminated. The
Association is not permitted knowingly to loan funds or otherwise extend any
credit to any Person for the purpose of purchasing Conversion Stock.
If a subscriber authorizes the Association to charge the subscriber's
Savings Account, the funds shall remain in the subscriber's Savings Account and
shall continue to earn interest, but may not be used by such subscriber until
the Conversion is completed or terminated, whichever is earlier. The withdrawal
shall be given effect only concurrently with the sale of all shares of
Conversion Stock proposed to be sold in the Conversion and only to the extent
necessary to satisfy the subscription at a price equal to the Purchase Price.
The Association shall allow subscribers to purchase shares of Conversion Stock
by withdrawing funds from certificate accounts held with the Association without
the assessment of early withdrawal penalties, subject to the approval, if
necessary, of the applicable regulatory authorities. In the case of early
withdrawal of only a portion of such account, the certificate evidencing such
account shall be canceled if the remaining balance of the account is less than
the applicable minimum balance requirement. In that event, the remaining balance
shall earn interest at the passbook rate. This waiver of the early withdrawal
penalty is applicable only to withdrawals made in connection with the purchase
of Conversion Stock under the Plan.
Tax-Qualified Employee Stock Benefit Plans may subscribe for shares by
submitting an Order Form, along with evidence of a loan commitment from a
financial institution for the purchase of shares, if applicable, during the
Subscription Offering and by making payment for the shares on the date of the
closing of the Conversion.
I. Undelivered, Defective or Late Order Forms; Insufficient Payment
If an Order Form (i) is not delivered and is returned to the Holding
Company or the Association by the United States Postal Service (or the Holding
Company or Association is unable to locate the addressee); (ii) is not returned
to the Holding Company or Association, or is returned to the Holding Company or
Association after expiration of the date specified thereon; (iii) is defectively
completed or executed; or (iv) is not accompanied by the total required payment
for the shares of Conversion Stock subscribed for (including cases in which the
subscribers' Savings Accounts are insufficient to cover the authorized
withdrawal for the required payment), the Subscription Rights of the Person to
whom such rights have been granted shall not be honored and shall be treated as
though such Person failed to return the completed Order Form within the time
period specified therein. Alternatively, the Holding Company or Association may,
but shall not be required to, waive any irregularity relating to any Order Form
or require the submission of a corrected Order Form or the remittance of full
payment for the shares of Conversion Stock subscribed for by such date as the
Holding Company or Association may specify. Subscription orders, once tendered,
shall not be revocable. The Holding Company's and Association's interpretation
of the terms and conditions of the Plan and of the Order Forms shall be final.
J. Members in Non-Qualified States or in Foreign Countries
The Holding Company shall make reasonable efforts to comply with the
securities laws of all states of the United States in which Persons entitled to
subscribe for shares of Conversion Stock pursuant to the Plan reside. However,
no such Person shall be offered or receive any such shares under the Plan who
resides in a foreign country or who resides in a state of the United States with
respect to which any of the following apply: (a) a small number of Persons
otherwise eligible to subscribe for shares of Conversion Stock reside in such
state; (b) the granting of Subscription Rights or offer or sale of shares of
Conversion Stock to such Persons would require the Holding Company to register,
under the securities laws of such state, as a broker or dealer or to register or
otherwise qualify its securities for sale in such state; or (c) such
registration or qualification would be impractical for reasons of cost or
otherwise.
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X. Federal Stock Charter and Bylaws
As part of the Conversion, an amended Federal Stock Charter and Bylaws
will be adopted to authorize the Association to operate as a Federal capital
stock savings and loan association. By approving the Plan, the Members of the
Association will thereby approve the amended Federal Stock Charter and Bylaws.
Prior to completion of the Conversion, the proposed Federal Stock Charter and
Bylaws may be amended in accordance with the provisions and limitations for
amending the Plan under Paragraph XVII below. The effective date of the adoption
of the Federal Stock Charter and Bylaws shall be the date of the issuance of the
Conversion Stock, which shall be the date of consummation of the Conversion.
XI. Post Conversion Filing and Market Making
In connection with the Conversion, the Holding Company shall register
the Conversion Stock with the SEC pursuant to the Securities Exchange Act of
1934, as amended, and shall undertake not to deregister such Conversion Stock
for a period of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist
various Market Makers to establish and maintain a market for the shares of its
stock. The Holding Company shall also use its best efforts to list its stock
through Nasdaq or on a national or regional securities exchange.
XII. Status of Savings Accounts and Loans Subsequent to Conversion
All Savings Accounts shall retain the same status after Conversion as
these accounts had prior to Conversion. Each Savings Account holder shall
retain, without payment, a withdrawable Savings Account or accounts after the
Conversion, equal in amount to the withdrawable value of such holder's Savings
Account or accounts prior to Conversion. All Savings Accounts will continue to
be insured by the Savings Association Insurance Fund of the FDIC up to the
applicable limits of insurance coverage. All loans shall retain the same status
after the Conversion as they had prior to the Conversion. See Paragraph IX.F.4.
with respect to the termination of voting rights of Members.
XIII. Liquidation Account
After the Conversion, holders of Savings Accounts shall not be entitled
to share in any residual assets in the event of liquidation of the Association.
However, the Association shall, at the time of the Conversion, establish a
liquidation account in an amount equal to its total net worth as of the date of
the latest statement of financial condition contained in the final Prospectus.
The function of the liquidation account shall be to establish a priority on
liquidation and, except as provided in Paragraph IX.F.3 above, the existence of
the liquidation account shall not operate to restrict the use or application of
any of the net worth accounts of the Association.
The liquidation account shall be maintained by the Association
subsequent to the Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who retain their Savings Accounts in the
Association. Each Eligible Account Holder and Supplemental Eligible Account
Holder shall, with respect to each Savings Account held, have a related inchoate
interest in a portion of the liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an
Eligible Account Holder and/or a Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of such holder's Qualifying
Deposit in the Savings Account and the denominator is the total amount of the
Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible
Account Holders. Such initial subaccount balance shall not be increased, and it
shall be subject to downward adjustment as provided below.
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If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing date subsequent to the Eligibility Record Date is less than the
lesser of (i) the deposit balance in such Savings Account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or the Supplemental Eligibility Record Date or (ii) the amount of the
Qualifying Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, then the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of a
downward adjustment, such subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
In the event of a complete liquidation of the Association, each
Eligible Account Holder and Supplemental Eligible Account Holder shall be
entitled to receive a liquidation distribution from the liquidation account in
the amount of the then current adjusted subaccount balance(s) for Savings
Account(s) then held by such holder before any liquidation distribution may be
made to stockholders. No merger, consolidation, bulk purchase of assets with
assumptions of Savings Accounts and other liabilities or similar transactions
with another Federally-insured institution in which the Association is not the
surviving institution shall be considered to be a complete liquidation. In any
such transaction, the liquidation account shall be assumed by the surviving
institution.
XIV. Regulatory Restrictions on Acquisition of Holding Company
A. Present OTS regulations provide that for a period of three years
following completion of the Conversion, no Person (i.e, individual, a group
Acting in Concert, a corporation, a partnership, an association, a joint stock
company, a trust, or any unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution or its holding company) shall
directly, or indirectly, offer to purchase or actually acquire the beneficial
ownership of more than 10% of any class of equity security of the Holding
Company without the prior approval of the OTS. However, approval is not required
for purchases directly from the Holding Company or the underwriters or selling
group acting on its behalf with a view towards public resale, or for purchases
not exceeding 1% per annum of the shares outstanding. Civil penalties may be
imposed by the OTS for willful violation or assistance of any violation. Where
any Person, directly or indirectly, acquires beneficial ownership of more than
10% of any class of equity security of the Holding Company within such
three-year period, without the prior approval of the OTS, stock of the Holding
Company beneficially owned by such Person in excess of 10% shall not be counted
as shares entitled to vote and shall not be voted by any Person or counted as
voting shares in connection with any matter submitted to the stockholders for a
vote. The provisions of this regulation shall not apply to the acquisition of
securities by Tax-Qualified Employee Stock Benefit Plans provided that such
plans do not have beneficial ownership of more than 25% of any class of equity
security of the Holding Company.
B. The Holding Company may provide in its articles of incorporation a
provision that, for a specified period of up to five years following the date of
the completion of the Conversion, no Person shall directly or indirectly offer
to acquire or actually acquire the beneficial ownership of more than 10% of any
class of equity security of the Holding Company. Such provisions would not apply
to acquisition of securities by Tax-Qualified Employee Stock Benefit Plans
provided that such plans do not have beneficial ownership of more than 25% of
any class of equity security of the Holding Company. The Holding Company may
provide in its articles of incorporation for such other provisions affecting the
acquisition of its stock as shall be determined by its Board of Directors.
XV. Directors and Officers of the Converted Association
The Conversion is not intended to result in any change in the directors
or Officers. Each Person serving as a director of the Association at the time of
Conversion shall continue to serve as a member of the Association's Board of
Directors, subject to the Converted Association's charter and bylaws. The
Persons serving as Officers immediately prior to the Conversion will continue to
serve at the discretion of the Board of Directors in their
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respective capacities as Officers of the Association. In connection with
the Conversion, the Association and the Holding Company may enter into
employment agreements on such terms and with such officers as shall be
determined by the Boards of Directors of the Association and the Holding
Company.
XVI. Executive Compensation
The Association and the Holding Company may adopt, subject to any
required approvals, executive compensation or other benefit programs, including
but not limited to compensation plans involving stock options, stock
appreciation rights, restricted stock grants, employee recognition programs and
the like.
XVII. Amendment or Termination of Plan
If necessary or desirable, the Plan may be amended by a two-thirds vote
of the Association's Board of Directors, at any time prior to submission of the
Plan and proxy materials to the Members. At any time after submission of the
Plan and proxy materials to the Members, the Plan may be amended by a two-thirds
vote of the Board of Directors only with the concurrence of the OTS. The Plan
may be terminated by a two-thirds vote of the Board of Directors at any time
prior to the Special Meeting, and at any time following such Special Meeting
with the concurrence of the OTS. In its discretion, the Board of Directors may
modify or terminate the Plan upon the order of the regulatory authorities
without a resolicitation of proxies or another meeting of the Members.
In the event that mandatory new regulations pertaining to conversions
are adopted by the OTS prior to the completion of the Conversion, the Plan shall
be amended to conform to the new mandatory regulations without a resolicitation
of proxies or another meeting of Members. In the event that new conversion
regulations adopted by the OTS prior to completion of the Conversion contain
optional provisions, the Plan may be amended to utilize such optional provisions
at the discretion of the Board of Directors without a resolicitation of proxies
or another meeting of Members.
By adoption of the Plan, the Members authorize the Board of Directors
to amend and/or terminate the Plan under the circumstances set forth above.
XVIII. Expenses of the Conversion
The Holding Company and the Association shall use their best efforts to
assure that expenses incurred in connection with the Conversion shall be
reasonable.
XIX. Contributions to Tax-Qualified Plans
The Holding Company and/or the Association may make discretionary
contributions to the Tax-Qualified Employee Stock Benefit Plans, provided such
contributions do not cause the Association to fail to meet its regulatory
capital requirements.
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EXHIBIT B
FEDERAL STOCK CHARTER
EMPIRE FEDERAL SAVINGS BANK
Section 1. Corporate title. The full corporate title of the bank is
Empire Federal Savings Bank ("Savings Bank").
Section 2. Office. The home office shall be located in the City of
Livingston, the County of Park, in the State of Montana.
Section 3. Duration. The duration of the Savings Bank is perpetual.
Section 4. Purpose and powers. The purpose of the Savings Bank is to
pursue any or all of the lawful objectives of a Federal savings and loan
association chartered under section 5 of the Home Owners' Loan Act and to
exercise all of the express, implied, and incidental powers conferred thereby
and by all acts amendatory thereof and supplemental thereto, subject to the
Constitution and laws of the United States as they are now in effect, or as they
may hereafter be amended, and subject to all lawful and applicable rules,
regulations, and orders of the Office of Thrift Supervision ("Office").
Section 5. Capital stock. The total number of shares of all classes of
the capital stock which the Savings Bank has authority to issue is 10,000 of
which 1,000 shares shall be common stock, of par value of $1.00 per share and of
which 9,000 shares shall be serial preferred stock having no par value. The
shares may be issued from time to time as authorized by the board of directors
without the approval of its shareholders except as otherwise provided in this
Section 5 or to the extent that such approval is required by governing law,
rule, or regulation. The consideration for the issuance of the shares shall be
paid in full before their issuance and shall not be less than the par value.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the Savings Bank. The consideration for
the shares shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted to the Savings Bank), labor or
services actually performed for the Savings Bank, or any combination of the
foregoing. In the absence of actual fraud in the transaction, the value of such
property, labor, or services, as determined by the board of directors of the
Savings Bank, shall be conclusive. Upon payment of such consideration, such
shares shall be deemed to be fully paid and nonassessable. In the case of a
stock dividend, that part of the surplus of the Savings Bank which is
transferred to stated capital upon the issuance of shares as a share dividend
shall be deemed to be the consideration for their issuance.
Except for shares issuable in connection with the conversion of the
Savings Bank from the mutual to stock form of capitalization, no shares of
common stock (including shares issuable upon conversion, exchange or exercise of
other securities) shall be issued, directly or indirectly, to officers,
directors, or controlling persons of the Savings Bank other than as part of a
general public offering or as qualifying shares to a director, unless their
issuance or the plan under which they would be issued has been approved by a
majority of the total votes eligible to be cast at a legal meeting.
Nothing contained in this section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, except as
to the cumulation of votes for the election of directors: Provided, that this
restriction on voting separately by class or series shall not apply:
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(i) To any provision which would authorize the holders of
preferred stock, voting as a class or series, to elect some members of
the board of directors, less than a majority thereof, in the event of
default in the payment of dividends on any class or series of preferred
stock;
(ii) To any provision which would require the holders of
preferred stock, voting as a class or series, to approve the merger or
consolidation of the Savings Bank with another corporation or the sale,
lease, or conveyance (other than by mortgage or pledge) of properties
or business in exchange for securities of a corporation other than the
Savings Bank if the preferred stock is exchanged for securities of such
other corporation: Provided, that no provision may require such
approval for transactions undertaken with the assistance or pursuant to
the direction of the Office, Federal Deposit Insurance Corporation or
the Resolution Trust Corporation;
(iii) To any amendment which would adversely change the
specific terms of any class or series of capital stock as set forth in
this Section 5 (or in any supplementary sections hereto), including any
amendment which would create or enlarge any class or series ranking
prior thereto in rights and preferences. An amendment which increases
the number of authorized shares of any class or series of capital
stock, or substitutes the surviving Savings Bank in a merger or
consolidation for the Savings Bank, shall not be considered to be such
an adverse change.
A description of the different classes and series, if any, of the
Savings Bank's capital stock and a statement of the designations, and the
relative rights, preferences, and limitations of the shares of each class of and
series, if any, of capital stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of common stock shall exclusively
possess all voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by such holder, except as to the
cumulation of votes for the election of directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full amount
of dividends and of sinking fund, retirement fund, or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
common stock, then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out of any
assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
Savings Bank, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in kind, the
assets of the Savings Bank available for distribution remaining after: (i)
payment or provision for payment of the Savings Bank's debts and liabilities;
(ii) distributions or provision for distributions in settlement of its
liquidation account; and (iii) distributions or provision for distributions to
holders of any class or series of stock having preference over the common stock
in the liquidation, dissolution, or winding up of the Savings Bank. Each share
of common stock shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
B. Preferred Stock. The Savings Bank may provide in supplementary
sections to its charter for one or more classes of preferred stock, which shall
be separately identified. The shares of any class may be divided into and issued
in series, with each series separately designated so as to distinguish the
shares thereof from the shares of all other series and classes. The terms of
each series shall be set forth in a supplementary section to the charter. All
shares of the same class shall be identical except as to the following relative
rights and preferences, as to which there may be variations between different
series:
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(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so, from
which date(s) the payment date(s) for dividends, and the participating or other
special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which such shares may be
redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding up of the
Savings Bank;
(f) Whether the shares of such series shall be entitled to the benefit
of a sinking or retirement fund to be applied to the purchase or redemption of
such shares, and if so entitled, the amount of such fund and the manner of its
application, including the price(s) at which such shares may be redeemed or
purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of the Savings
Bank and, if so, the conversion price(s) or the rate(s) of exchange, and the
adjustments thereof, if any, at which such conversion or exchange may be made,
and any other terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the same or any other
series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption
of supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established
by a supplementary charter section adopted by the board of directors, the
Savings Bank shall file with the secretary to the board a dated copy of that
supplementary section of this charter establishing and designating the series
and fixing and determining the relative rights and preferences thereof.
Section 6. Preemptive rights. Holders of the capital stock of the
Savings Bank shall not be entitled to preemptive rights with respect to any
shares of the Savings Bank which may be issued.
Section 7. Liquidation account. Pursuant to the requirements of the
Office's Regulations (12 CFR Subchapter D), the Savings Bank shall establish and
maintain a liquidation account for the benefit of its savings account holders as
of March 31, 1995 and September 30, 1996. In the event of a complete liquidation
of the Savings Bank, it shall comply with such regulations with respect to the
amount and the priorities on liquidation of each of the Savings Bank's eligible
savers' inchoate interest in the liquidation account, to the extent it is still
in existence: Provided, that an eligible savers' inchoate interest in the
liquidation account shall not entitle such eligible saver to any voting rights
at meetings of the Savings Bank's stockholders.
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Section 8. Directors. The Savings Bank shall be under the direction of
a Board of Directors. The authorized number of directors, as stated in the
Savings Bank's bylaws, shall not be fewer than five nor more than fifteen except
when a greater number is approved by the Director of the Office.
Section 9. Amendment of charter. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is first proposed by the Board of Directors of the Savings
Bank, then preliminarily approved by the Office, which preliminary approval may
be granted by the Office pursuant to regulations specifying preapproved charter
amendments, and thereafter approved by the shareholders by a majority of the
total votes eligible to be cast at a legal meeting. Any amendment, addition,
alteration, change, or repeal so acted upon shall be effective upon filing with
the Office in accordance with regulatory procedures or on such other date as the
Office may specify in its preliminary approval.
<TABLE>
<CAPTION>
<S> <C> <C>
Attest: By:
Secretary President and Chief Executive Officer
Empire Federal Savings Bank Empire Federal Savings Bank
Declared effective this ___ day of _________________, 199_.
Office of Thrift Supervision
By: By:
---------------------------------------------
Secretary Director
Office of Thrift Supervision Office of Thrift Supervision
</TABLE>
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EXHIBIT C
BYLAWS
EMPIRE FEDERAL SAVINGS BANK
ARTICLE I - Home Office
The home office of Empire Federal Savings Bank ("Savings Bank"),
shall be located at 123 South Main Street, in the City of Livingston, the County
of Park, in the State of Montana.
ARTICLE II - Shareholders
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the Savings Bank or at such
other place in the State of Montana as the Board of Directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the
Savings Bank for the election of directors and for the transaction of any other
business of the Savings Bank shall be held annually within 120 days after the
end of the Savings Bank's fiscal year on the second Monday after the first
Tuesday of April, if not a legal holiday, and if a legal holiday, then on the
next day following which is not a legal holiday, at 10:00 a.m., Mountain Time,
or at such other date and time within such 120-day period as the Board of
Directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders
for any purpose or purposes, unless otherwise prescribed by the regulations of
the Office of Thrift Supervision ("Office"), may be called at any time by the
Chairman of the Board, the President, or a majority of the Board of Directors,
and shall be called by the Chairman of the Board, the President, or the
Secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the Savings Bank entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the Savings Bank addressed to the
Chairman of the Board, the President, or the Secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall
be conducted in accordance with rules and procedures adopted by the Board of
Directors. The Board of Directors shall designate, when present, either the
Chairman of the Board or President to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place,
day, and hour of the meeting and the purpose(s) for which the meeting is called
shall be delivered not fewer than 10 nor more than 50 days before the date of
the meeting, either personally or by mail, by or at the direction of the
Chairman of the Board, the President, or the Secretary, or the directors calling
the meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the Savings Bank as of the record date prescribed in Section
6 of this Article II with postage prepaid. When any shareholders' meeting,
either annual or special, is adjourned for 30 days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. It shall
not be necessary to give any notice of the time and place of any meeting
adjourned for less than 30 days or of the business to be transacted at the
meeting, other than an announcement at the meeting at which such adjournment is
taken.
Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the Board of Directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on
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which the particular action requiring such determination of shareholders is to
be taken. When a determination of shareholders entitled to vote at any meeting
of shareholders has been made as provided in this section, such determination
shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of
the shareholders, the officer or agent having charge of the stock transfer books
for shares of the Savings Bank shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the Savings Bank and
shall be subject to inspection by any shareholder at any time during usual
business hours for a period of 20 days prior to such meeting. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to inspection by any shareholder during the entire time of the meeting.
The original stock transfer book shall constitute prima facie evidence of the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the Board of Directors may
perform such acts as required by paragraphs (a) and (b) of Rule 14a-7 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as may
be duly requested in writing, with respect to any matter which may be properly
considered at a meeting of shareholders, by any shareholder who is entitled to
vote on such matter and who shall defray the reasonable expenses to be incurred
by the Savings Bank in performance of the act or acts required.
Section 8. Quorum. A majority of the outstanding shares of the
Savings Bank entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of the
outstanding shares is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to constitute less than a quorum.
Section 9. Proxies. At all meetings of shareholders, a shareholder
may vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies solicited on behalf of the management shall
be voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the Board of Directors. No proxy shall be valid more
than eleven months from the date of its execution except for a proxy coupled
with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons.
When ownership stands in the name of two or more persons, in the absence of
written directions to the Savings Bank to the contrary, at any meeting of the
shareholders of the Savings Bank any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such shares and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing
in the name of another corporation may be voted by any officer, agent, or proxy
as the bylaws of such corporation may prescribe, or, in the absence of such
provision, as the Board of Directors of such corporation may determine. Shares
held by an administrator, executor, guardian, or conservator may be voted by
him, either in person or by proxy, without a transfer of such shares into his
or her name. Shares standing in the name of a trustee may be voted by him or
her, either in person or by proxy, but no trustee shall be entitled to vote
shares held by him or her without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer into his name if authority to do so is contained in an
appropriate order of the court or other public authority by which such receiver
was appointed.
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A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Savings Bank
nor shares held by another corporation, if a majority of the shares entitled to
vote for the election of directors of such other corporation are held by the
Savings Bank, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Unless otherwise provided in the
Savings Bank's charter, every shareholder entitled to vote at an election for
directors shall have the right to vote, in person or by proxy, the number of
shares owned by the shareholder for as many persons as there are directors to be
elected and for whose election the shareholder has a right to vote, or to
cumulate the votes by giving one candidate as many votes as the number of such
directors to be elected multiplied by the number of shares shall equal or by
distributing such votes on the same principle among any number of candidates.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the Board of Directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the Chairman of the Board or the President may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the Board of
Directors in advance of the meeting or at the meeting by the Chairman of the
Board or the President.
Unless otherwise prescribed by regulations of the Office, the
duties of such inspectors shall include: determining the number of shares and
the voting power of each share, the shares represented at the meeting, the
existence of a quorum, and the authenticity, validity and effect of proxies;
receiving votes, ballots, or consents; hearing and determining all challenges
and questions in any way arising in connection with the rights to vote; counting
and tabulating all votes or consents; determining the result; and such acts as
may be proper to conduct the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The Board of Directors shall act
as a nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Savings Bank. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the Secretary of the Savings Bank at least five days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the Savings Bank. Ballots bearing the
names of all persons nominated by the nominating committee and by shareholders
shall be provided for use at the annual meeting. However, if the nominating
committee shall fail or refuse to act at least 20 days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
shareholder entitled to vote and shall be voted upon.
Section 15. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the Secretary of the Savings
Bank at least five days before the date of the annual meeting, and all business
so stated, proposed, and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the Secretary at least
five days before the meeting, such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the shareholders taking place 30 days
or more thereafter. This provision shall not prevent the consideration and
approval
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or disapproval at the annual meeting of reports of officers, directors, and
committees; but in connection with such reports, no new business shall be acted
upon at such annual meeting unless stated and filed as herein provided.
Section 16. Informal Action by Shareholders. Any action required
to be taken at a meeting of the shareholders, or any other action which may be
taken at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - Board of Directors
Section 1. General Powers. The business and affairs of the Savings
Bank shall be under the direction of its Board of Directors. The Board of
Directors shall annually elect a Chairman of the Board and a President from
among its members and shall designate, when present, either the Chairman of the
Board or the President to preside at its meetings.
Section 2. Number and Term. The Board of Directors shall consist
of seven members and shall be divided into three classes as nearly equal in
number as possible. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. One class
shall be elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The Board of
Directors may provide, by resolution, the time and place, within the Savings
Bank's normal lending territory, for the holding of additional regular meetings
without other notice than such resolution.
Section 4. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the Savings
Bank unless the Savings Bank is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board, the
President, or one-third of the directors. The persons authorized to call special
meetings of the Board of Directors may fix any place, within the Savings Bank's
normal lending territory, as the place for holding any special meeting of the
Board of Directors called by such persons.
Members of the Board of Directors may participate in special
meetings by means of conference telephone or similar communications equipment by
which all persons participating in the meeting can hear each other. Such
participations shall constitute presence in person but shall not constitute
attendance for the purpose of compensation pursuant to Section 12 of this
Article.
Section 6. Notice. Written notice of any special meeting shall be
given to each director at least two days prior thereto when delivered personally
or by telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the Secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
specified in the notice of waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 6 of this Article III.
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Section 8. Manner of Acting. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors, unless a greater number is prescribed by regulation of
the Office or by these bylaws.
Section 9. Action Without a Meeting. Any action required or
permitted to be taken by the Board of Directors at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors.
Section 10. Resignation. Any director may resign at any time by
sending a written notice of such resignation to the home office of the Savings
Bank addressed to the Chairman of the Board or the President. Unless otherwise
specified, such resignation shall take effect upon receipt by the Chairman of
the Board or the President. More than three consecutive absences from regular
meetings of the Board of Directors, unless excused by resolution of the Board of
Directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the Board of Directors.
Section 11. Vacancies. Any vacancy occurring on the Board of
Directors may be filled by the affirmative vote of a majority of the remaining
directors although less than a quorum of the Board of Directors. A director
elected to fill a vacancy shall be elected to serve until the next election of
directors by the shareholders. Any directorship to be filled by reason of an
increase in the number of directors may be filled by election by the Board of
Directors for a term of office continuing only until the next election of
directors by the shareholders.
Section 12. Compensation. Directors, as such, may receive a stated
salary for their services. By resolution of the Board of Directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
actual attendance at each regular or special meeting of the Board of Directors.
Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the Board of
Directors may determine.
Section 13. Presumption of Assent. A director of the Savings Bank
who is present at a meeting of the Board of Directors at which action on any
Association matter is taken shall be presumed to have assented to the action
taken unless his or her dissent or abstention shall be entered in the minutes of
the meeting or unless he or she shall file a written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the Secretary of the Savings
Bank within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in favor
of such action.
Section 14. Removal of Directors. At a meeting of shareholders
called expressly for that purpose, any director may be removed for cause by a
vote of the holders of a majority of the shares then entitled to vote at an
election of directors. If less than the entire board is to be removed, no one of
the directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of the
shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
ARTICLE IV - Executive And Other Committees
Section 1. Appointment. The Board of Directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the Board of Directors, or any director,
of any responsibility imposed by law or regulation.
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Section 2. Authority. The executive committee, when the Board of
Directors is not in session, shall have and may exercise all of the authority of
the Board of Directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the Board of
Directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the Savings Bank, or recommending to the shareholders a
plan of merger, consolidation, or conversion; the sale, lease, or other
disposition of all or substantially all of the property and assets of the
Savings Bank otherwise than in the usual and regular course of its business; a
voluntary dissolution of the Savings Bank; a revocation of any of the foregoing;
or the approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the Board of Directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee
may be held without notice at such times and places as the executive committee
may fix from time to time by resolution. Special meetings of the executive
committee may be called by any member thereof upon not less than one day's
notice stating the place, date, and hour of the meeting, which notice may be
written or oral. Any member of the executive committee may waive notice of any
meeting and no notice of any meeting need be given to any member thereof who
attends in person. The notice of a meeting of the executive committee need not
state the business proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive
committee shall constitute a quorum for the transaction of business at any
meeting thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or
permitted to be taken by the executive committee at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full Board of Directors.
Section 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full Board of Directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the President or Secretary of the Savings Bank. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a
presiding officer from its members and may fix its own rules of procedure which
shall not be inconsistent with these bylaws. It shall keep regular minutes of
its proceedings and report the same to the Board of Directors for its
information at the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The Board of Directors may by
resolution establish an audit, loan, or other committee composed of directors as
they may determine to be necessary or appropriate for the conduct of the
business of the Savings Bank and may prescribe the duties, constitution, and
procedures thereof.
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ARTICLE V - Officers
Section 1. Positions. The officers of the Savings Bank shall be a
President, one or more Vice Presidents, a Secretary, and a Treasurer, each of
whom shall be elected by the Board of Directors. The Board of Directors may also
designate the Chairman of the Board as an officer. The President shall be the
Chief Executive Officer unless the Board of Directors designates the Chairman of
the Board as Chief Executive Officer. The President shall be a Director of the
Savings Bank. The offices of the Secretary and Treasurer may be held by the same
person and a Vice President may also be either the Secretary or the Treasurer.
The Board of Directors may designate one or more vice presidents as Executive
Vice President or Senior Vice President. The Board of Directors may also elect
or authorize the appointment of such other officers as the business of the
Savings Bank may require. The officers shall have such authority and perform
such duties as the Board of Directors may from time to time authorize or
determine. In the absence of action by the Board of Directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
Section 2. Election and Term of Office. The officers of the
Savings Bank shall be elected annually at the first meeting of the Board of
Directors held after each annual meeting of the stockholders. If the election of
officers is not held at such meeting, such election shall be held as soon
thereafter as possible. Each officer shall hold office until a successor has
been duly elected and qualified or until the officer's death, resignation, or
removal in the manner hereinafter provided. Election or appointment of an
officer, employee, or agent shall not of itself create contractual rights. The
Board of Directors may authorize the Savings Bank to enter into an employment
contract with any officer in accordance with regulations of the Office; but no
such contract shall impair the right of the Board of Directors to remove any
officer at any time in accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the Board of
Directors whenever in its judgment the best interests of the Savings Bank will
be served thereby, but such removal, other than for cause, shall be without
prejudice to any contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the Board of Directors.
ARTICLE VI - Contracts, Loans, Checks, and Deposits
Section 1. Contracts. To the extent permitted by regulations of
the Board, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the Board of Directors may authorize any officer,
employee, or agent of the Savings Bank to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Savings Bank. Such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the Savings
Bank and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts, or other
orders for the payment of money, notes, or other evidences of indebtedness
issued in the name of the Savings Bank shall be signed by one or more officers,
employees, or agents of the Savings Bank in such manner as shall from time to
time be determined by the Board of Directors.
Section 4. Deposits. All funds of the Savings Bank not otherwise
employed shall be deposited from time to time to the credit of the Savings Bank
in any duly authorized depositories as the Board of Directors may select.
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ARTICLE VII - Certificates for Shares and Their Transfer
Section 1. Certificates for Shares. Certificates representing
shares of capital stock of the Savings Bank shall be in such form as shall be
determined by the Board of Directors and approved by the Office. Such
certificates shall be signed by the Chief Executive Officer or by any other
officer of the Savings Bank authorized by the Board of Directors, attested by
the Secretary or an Assistant Secretary, and sealed with the corporate seal or a
facsimile thereof. The signatures of such officers upon a certificate may be
facsimiles if the certificate is manually signed on behalf of a transfer agent
or a registrar other than the Savings Bank itself or one of its employees. Each
certificate for shares of capital stock shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the Savings Bank. All certificates surrendered to the
Savings Bank for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares has been
surrendered and canceled, except that in the case of a lost or destroyed
certificate, a new certificate may be issued upon such terms and indemnity to
the Savings Bank as the Board of Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock
of the Savings Bank shall be made only on its stock transfer books. Authority
for such transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
Savings Bank. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Savings Bank shall be deemed by the Savings Bank
to be the owner for all purposes.
ARTICLE VIII - Fiscal Year; Annual Audit
The fiscal year of the Savings Bank shall end on the 31st day of
December of each year. The Savings Bank shall be subject to an annual audit as
of the end of its fiscal year by independent public accountants appointed by and
responsible to the Board of Directors. The appointment of such accountants shall
be subject to annual ratification by the shareholders.
ARTICLE IX - Dividends
Subject to the terms of the Savings Bank's charter and the
regulations and orders of the Office, the Board of Directors may, from time to
time, declare, and the Savings Bank may pay, dividends on its outstanding
classes of capital stock.
ARTICLE X - Corporate Seal
The Board of Directors shall provide a Savings Bank seal which
shall be two concentric circles between which shall be the name of the Savings
Bank. The year of incorporation or an emblem may appear in the center.
ARTICLE XI - Amendments
These bylaws may be amended in a manner consistent with
regulations of the Office at any time by a majority vote of the full Board of
Directors or by a majority vote of the votes cast by the stockholders of the
Savings Bank at any legal meeting.
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REVOCABLE PROXY
SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
OF
EMPIRE FEDERAL SAVINGS AND LOAN ASSOCIATION
FOR THE SPECIAL MEETING OF MEMBERS
TO BE HELD ON DECEMBER 19, 1996
The undersigned member of Empire Federal Savings and Loan Association
("Association") hereby appoints the Board of Directors, with full powers of
substitution, as attorneys-in-fact and agents for and in the name of the
undersigned, to vote such shares as the undersigned may be entitled to cast at
the Special Meeting of Members ("Meeting") of the Association, to be held at the
Association's office at 123 South Main Street, Livingston, Montana, on the date
and time indicated on the Notice of Special Meeting of Members, and at any
adjournment thereof. They are authorized to cast all votes to which the
undersigned is entitled, as follows:
<TABLE>
<CAPTION>
FOR AGAINST
<S> <C> <C>
(1) To approve a Plan of Conversion adopted by the Board of Directors
on August 29, 1996, as subsequently amended on October 8, 1996, to
convert the Association from a federally chartered mutual savings and
loan association to a federally chartered capital stock savings bank,
to be known as "Empire Federal Savings Bank," to be held as a
wholly-owned subsidiary of a new holding company, Empire Federal
Bancorp, Inc., including the adoption of a Federal Stock Charter and
Bylaws for the Association, pursuant to the laws of the United States
and the rules and regulations of the Office of Thrift Supervision. [ ] [ ]
</TABLE>
NOTE: The Board of Directors is not aware of any other matter that may come
before the Meeting.
<PAGE>
THIS PROXY WILL BE VOTED FOR THE PROPOSITIONS
STATED IF NO CHOICE IS MADE HEREIN
Should the undersigned be present and elect to vote at said Meeting or
at any adjournment thereof and, after notification to the Secretary of the
Association at said Meeting of the member's decision to terminate this Proxy,
then the power of said attorney-in-fact or agents shall be deemed terminated and
of no further force and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting of
Members of the Association called on the date and time indicated on the Notice
of Special Meeting, and a Proxy Statement relating to said Meeting from the
Association, prior to the execution of this Proxy.
- -------------------------
Date
- -------------------------
Signature
Note: Only one signature is required in the case of a joint account.
<PAGE>
