<PAGE>
As filed with the Securities and Exchange Commission on September 27, 1996
- --------------------------------------------------------------------------
Registration No. 333-
- -----------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------------------
ADVANCE FINANCIAL BANCORP
---------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 6035 Requested
- --------------------- ------------------ -----------------------
(State or Other Jurisdiction (Primary Standard Industry (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
1015 Commerce Street, Wellsburg, West Virginia 26070
(304) 737-3531
- --------------------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant"s Principal Executive Offices)
Mr. Stephen M. Gagliardi
President
Advance Financial Bancorp
1015 Commerce Street, Wellsburg, West Virginia 26070
(304) 737-3531
- --------------------------------------------------------------------------------
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Please send copies of all communications to:
Samuel J. Malizia, Esq.
Gregory J. Rubis, Esq.
Felicia C. Battista, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [X]
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 the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.[_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
Title of Each Class of Amount to be Proposed Proposed Maximum Aggregate Offering Amount of
Securities Being Registered Registered Offering Price Price(1) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock,
$0.10 Par Value 1,084,450 $10.00 $10,844,500 $3,739.48
Interests of participants in the
401(k) Plan 57,274 $10.00 $ 572,740 $ 0.00 (2)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 57,274 shares that may be acquired by the 401(k) Plan of the
registrant, based on the assumption that the assets of the 401(k) Plan are
used to purchase such shares. The $572,740 of participations to be
registered are based on the assets of the 401(k) Plan. Pursuant to Rule
475(h)(2) under the Securities Act of 1933, no additional fee is required
with respect to the interests of participants of the 401(k) Plan.
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>
PROSPECTUS ADVANCE FINANCIAL BANCORP
(PROPOSED HOLDING COMPANY FOR ADVANCE FINANCIAL SAVINGS BANK)
ANTICIPATED MAXIMUM OF 943,000 SHARES OF COMMON STOCK
$10.00 PURCHASE PRICE PER SHARE
Advance Financial Bancorp, a Delaware corporation (the "Company"), is
offering between 697,000 and 943,000 shares (subject to adjustment up to
1,084,450 shares) of its common stock, par value $0.10 per share (the "Common
Stock"), in a subscription offering in connection with the conversion of Advance
Financial Savings Bank, f.s.b. (the "Bank") from a federally chartered mutual
savings bank to a federally chartered stock savings bank to be known as Advance
Financial Savings Bank and the issuance of all of the Bank's outstanding capital
stock to the Company pursuant to the Bank's Plan of Conversion (the "Plan").
The Company may offer shares not subscribed for in the subscription offering in
a public offering, as described below. The simultaneous conversion of the Bank
to stock form, the issuance of the Bank's outstanding common stock to the
Company, and the Company's offer and sale of Common Stock are referred to herein
as the "Conversion." References herein to the Bank refer to the Bank in mutual
form and in stock form as the context may indicate.
Non-transferable rights to subscribe for the Common Stock have been
granted, in order of priority, to the Bank's deposit account holders with
deposits of at least $50 as of August 31, 1995 ("Eligible Account Holders"),
tax-qualified employee plans of the Bank, other deposit account holders with
deposits of at least $50 as of September 30, 1996 ("Supplemental Eligible
Account Holders"), and certain other depositors and certain borrowers of the
Bank as of the voting record date, __________ ___, 1996, for a special meeting
of members called to vote on the Conversion ("Other Members") in a subscription
offering (the "Subscription Offering"). PURSUANT TO OFFICE OF THRIFT
SUPERVISION ("OTS") REGULATIONS, THESE SUBSCRIPTION RIGHTS ARE NON-TRANSFERABLE.
PERSONS VIOLATING THIS PROHIBITION AGAINST TRANSFER MAY LOSE THEIR RIGHT TO
PURCHASE STOCK IN THE CONVERSION AND BE SUBJECT TO OTHER POSSIBLE SANCTIONS.
Subject to the prior rights of holders of subscription rights and market
conditions at or near the completion of the Subscription Offering, the Company
may also offer the shares of Common Stock for sale through Charles Webb &
Company ("Webb"), a division of Keefe, Bruyette & Woods, Inc. ("KBW") in a
public offering to selected persons to whom this Prospectus is delivered (the
"Public Offering" and when referred to together with the Subscription Offering,
the "Offerings"). Depending on market conditions and availability of shares,
the shares of Common Stock may be offered for sale in the Public Offering on a
best-efforts basis by Webb. THE BANK AND THE COMPANY RESERVE THE RIGHT, IN
THEIR ABSOLUTE DISCRETION, TO ACCEPT OR REJECT, IN WHOLE OR IN PART, ANY OR ALL
ORDERS IN THE PUBLIC OFFERING AT THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS
PRACTICABLE FOLLOWING COMPLETION OF THE PUBLIC OFFERING. See "The Conversion -
Marketing Arrangements."
(Continued on next page)
____________________________
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS," BEGINNING ON PAGE 1 OF THIS
PROSPECTUS. THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, OR ANY OTHER FEDERAL
AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH COMMISSION, OFFICE, OR
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.
<TABLE>
<CAPTION>
FOR INFORMATION ABOUT SUBSCRIBING, PLEASE CALL THE CONVERSION INFORMATION CENTER AT (304)_________,__________.
====================================================================================================================================
Purchase Estimated Underwriting Commissions and Estimated
Price(1) Expenses(2) Net Proceeds(2)
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<S> <C> <C> <C>
Per Share $ 10.00 $ 0.55(3) $ 9.45(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Minimum (1) $ 6,970,000 $ 433,000 $ 6,537,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Midpoint (1) $ 8,200,000 $ 450,000 $ 7,750,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Maximum(1) $ 9,430,000 $ 467,000 $ 8,963,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Maximum, as adjusted (4) $10,844,500 $ 486,500 $10,358,000
====================================================================================================================================
</TABLE>
(1) Determined in accordance with an independent appraisal, dated as of
September 6, 1996 by Keller & Company, Inc. ("Keller"). The estimated pro
forma market value of the Common Stock ranges from $6,970,000 to $9,430,000
("Estimated Valuation Range" or "EVR") or between 697,000 and 943,000
shares of Common Stock at the purchase price of $10.00 per share in the
Offerings. See "The Conversion - Stock Pricing."
(2) Includes financial advisory and marketing fees to be paid to Webb that are
estimated to be $76,000, $93,000, $110,000, and $129,500, at the minimum,
midpoint, maximum, and maximum as adjusted, respectively, of the EVR. A
portion of such fees and expenses may be deemed to be underwriting fees and
Webb may be deemed to be an underwriter. Also includes printing, postage,
legal, appraisal, accounting, and filing fees. Actual net proceeds and
expenses may vary from estimated amounts.
(3) Assumes the sale of the midpoint number of shares. If the minimum, maximum,
or 15% above the maximum number of shares are sold, estimated expenses per
share would be $0.62, $0.50, or $0.45, respectively, resulting in estimated
net proceeds per share of $9.38, $9.50, or $9.55, respectively.
(4) Gives effect to an increase in the number of shares which could occur
without a resolicitation of subscribers or any right of cancellation due to
an increase in the Estimated Valuation Range of up to 15% above the maximum
of the Estimated Valuation Range (for an issuance of up to 1,084,450
shares) to reflect changes in market and financial conditions following
commencement of the Offerings or to fill in part or in whole the order of
the ESOP. See "The Conversion - Stock Pricing."
CHARLES WEBB & COMPANY
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
THE DATE OF THIS PROSPECTUS IS __________ ____, 1996
<PAGE>
The Bank's Employee Stock Ownership Plan ("ESOP") intends to subscribe for
up to 8% of the total number of shares of Common Stock issued in the Conversion.
However, the ESOP may acquire some or all of its shares in the open market after
the Conversion. Shares sold above the maximum of the Estimated Valuation Range
may be sold to the ESOP to fill its subscription. With the exception of the
ESOP, no person may purchase more than 10,000 shares ($100,000) of Common Stock
and no person, together with associates and persons acting in concert with such
person, may purchase in the aggregate more than 15,000 shares ($150,000) of
Common Stock sold in the Conversion. The minimum purchase is 25 shares. However,
the Bank and the Company in their sole discretion may increase or decrease the
purchase limitation without notice to members or subscribers. See "The
Conversion - Limitations on Purchases of Shares."
Webb has been engaged to consult with and advise the Bank and the Company
in connection with the Conversion and with the sale of shares of the Common
Stock in the Offerings. Webb has agreed to use its best efforts to assist the
Company and the Bank in the sale of the Common Stock in the Subscription
Offering. In addition, Webb has agreed to manage the Public Offering, if any.
Webb will not have any obligation to purchase or accept any shares of Common
Stock in the Conversion. Webb will be indemnified against certain liabilities,
including liabilities that may arise under the Securities Act of 1933, as
amended. See "Pro Forma Data," "The Conversion - Plan of Distribution" and "-
Marketing Arrangements."
To subscribe for shares of Common Stock in the Subscription Offering, the
Company must receive an executed order form and certification form (the order
form and certification form are referred to together as the "Order Form"),
together with full payment of $10.00 per share (or appropriate instructions
authorizing a withdrawal from a deposit account at the Bank) for all shares for
which subscription is made, at the Bank's office, by 4:00 p.m., Eastern Standard
Time, on __________ ___, 1996, unless the Subscription Offering is extended, at
the discretion of the Board of Directors, up to an additional 45 days with the
approval of the OTS, if necessary, but without additional notice to subscribers
(the "Expiration Date"). Subscriptions paid by cash, check, bank draft, or money
order will be placed in a segregated account at the Bank and will earn interest
at the Bank's passbook rate from the date of receipt until completion or
termination of the Conversion. Payments authorized by withdrawal from deposit
accounts at the Bank will continue to earn interest at the contractual rate
until the Conversion is completed or terminated; these funds will be otherwise
unavailable to the depositor until such time. Authorized withdrawals from
certificate accounts at the Bank for the purchase of Common Stock will be
permitted without the imposition of early withdrawal penalties or loss of
interest.
To order Common Stock in the Public Offering, if any, an executed stock
order and account withdrawal authorization (if applicable) and certification
must be received by Webb prior to the termination of the Public Offering. The
date by which orders must be received in the Public Offering, if any, will be
set by the Company at the time of such offering provided that, if the
Subscription Offering or Public Offering is extended beyond __________ ___,
1997, each person who has submitted an order will have the right to modify or
rescind his or her order. In the event of such an extension, funds submitted by
persons to order shares will be returned promptly with interest to each person
unless he or she affirmatively indicates otherwise. See "The Conversion - Public
Offering."
The Company has received preliminary approval to have the Common Stock
listed on the Nasdaq SmallCap Market under the symbol "_______." Prior to the
Offerings there has not been a public market for the Common Stock, and there can
be no assurance that an active and liquid trading market for the Common Stock
will develop or that resales of the Common Stock can be made at or above $10.00
per share (the "Purchase Price"). See "Market for the Common Stock."
<PAGE>
ADVANCE FINANCIAL SAVINGS BANK, F.S.B.
============================================================================
[MAP]
============================================================================
THE CONVERSION IS CONTINGENT UPON THE RECEIPT OF ALL REQUIRED REGULATORY
APPROVALS, APPROVAL OF THE PLAN BY THE MEMBERS OF THE BANK, AND THE SALE OF AT
LEAST THE MINIMUM NUMBER OF SHARES OFFERED PURSUANT TO THE PLAN.
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
The following summary does not purport to be complete, and is qualified in
its entirety by more detailed information and the Consolidated Financial
Statements of the Bank and the Notes thereto appearing elsewhere in this
prospectus.
Advance Financial Bancorp: The Company was organized under Delaware law in
September 1996 at the direction of the Board of
Directors of the Bank to acquire all of the capital
stock that the Bank will issue upon its conversion
from the mutual to stock form of ownership. The
Company has not engaged in any significant business
to date.
Management believes that the holding company
structure will provide flexibility for possible
diversification or expansion of business
activities, although there are no current
arrangements, understandings, or agreements
regarding any such opportunities. Subject to
limitations on repurchases, the holding company
structure will also enable the Company to
repurchase its own stock without adverse tax
consequences. See "Advance Financial Bancorp" and
"Business of the Company."
Advance Financial Savings
Bank, f.s.b.: The Bank, a federally chartered mutual savings
bank, operates a traditional savings association
business, attracting deposit accounts from the
general public and using those deposits, together
with other funds, primarily to originate and invest
in loans secured by single-family residential real
estate. At June 30, 1996, the Bank had total assets
of $91.9 million, total deposits of $80.8 million,
and equity of $6.2 million. See "Advance Financial
Savings Bank, f.s.b." and "Business of the Bank."
The Plan and Approval
by Members: The Board of Directors of the Bank unanimously
adopted the Plan on September 3, 1996. Pursuant to
the Plan, the Bank will convert from a federal
mutual savings bank into a federal stock savings
bank and will become a wholly owned subsidiary of
the Company which will issue Common Stock in the
Offerings. The Plan must be approved by the
affirmative vote of the majority of total votes
eligible to be cast by the Bank's members. See "The
Conversion."
The Offerings and the
Purchase Price: Between 697,000 and 943,000 shares of Common Stock
are being offered at $10.00 per share in the
Offerings. The maximum number of shares sold in the
Offerings may be increased to up to 1,084,450
shares without a resolicitation of subscribers in
the event of an increase in the pro forma market
value of the Bank to an amount not more than 15%
above the maximum of the EVR. See "The Conversion -
Stock Pricing" and "-Number of Shares to be Issued
in the Conversion."
Distribution of Common
Stock and Purchase
Priorities: The shares of Common Stock will first be offered in
the Subscription Offering according to the
following priorities: (i) Eligible Account Holders;
(ii) the ESOP; (iii) Supplemental Eligible Account
Holders; and (iv) Other Members. The Company may
offer shares of Common Stock for sale through Webb
in a Public Offering. See
- --------------------------------------------------------------------------------
(i)
<PAGE>
- --------------------------------------------------------------------------------
"The Conversion - Public Offering." Any shares of
Common Stock sold in excess of the maximum of the
EVR may be first sold to the ESOP prior to
satisfying unfilled orders from Eligible Account
Holders. See "The Conversion -Subscription Rights
and the Subscription Offering" and "- Public
Offering."
Transferability of Right
to Purchase in the
Offerings: DEPOSITORS AND CERTAIN BORROWERS MAY NOT TRANSFER
OR ENTER INTO AN AGREEMENT TO TRANSFER THE RIGHT TO
SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE
SUBSCRIPTION OFFERING. Persons violating this
prohibition against transfer may lose their right
to purchase stock in the Conversion and may be
subject to other possible sanctions. See "The
Conversion- Subscription Rights and the
Subscription Offering -Restrictions on Transfer of
Subscription Rights and Shares."
Purchase Limitations: The purchase limit for a person with subscription
rights is the greater of (i) 10,000 shares
($100,000), (ii) one-tenth of one percent of the
total offering, or (iii) 15 times the product
(rounded down to the next whole number) obtained by
multiplying the total number of shares of Common
Stock to be issued by a fraction of which the
numerator is the amount of the qualifying deposit
of such person and the denominator is the total
amount of qualifying deposits of all such persons
in that same subscription right category, but in no
event shall this number be greater than the 10,000
share maximum purchase limit. The maximum number of
shares of Common Stock that may be subscribed for
or purchased in the Offerings by any person (or
persons through a single account) together with any
associate or group of persons acting in concert may
not exceed 15,000 shares ($150,000), except for the
ESOP, which intends to subscribe for up to 8% of
the Common Stock issued. No assurances may be given
that the number of shares purchased by the ESOP
will not change. The Bank may, in its sole
discretion, without further notice to or
solicitation of prospective purchasers, increase
such maximum purchase limitation to up to 5.0% of
the total number of shares offered or decrease the
maximum purchase limitation to as low as 1.0% of
the maximum number of shares offered. No person may
purchase fewer than 25 shares in the Offering. See
"The Conversion -Limitations on Purchases of
Shares."
The Common Stock: Each share of Common Stock will have the same
relative rights as, and will be identical in all
respects with, each other share of Common Stock in
the Offerings. All of the issued and outstanding
voting stock of the Bank will be held by the
Company. THE COMMON STOCK OF THE COMPANY REPRESENTS
NONWITHDRAWABLE CAPITAL, IS NOT AN ACCOUNT OF AN
INSURABLE TYPE, AND IS NOT INSURED BY THE OTS, THE
FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE
SAVINGS ASSOCIATION INSURANCE FUND ("SAIF"), OR ANY
OTHER GOVERNMENT AGENCY OR FUND. Upon payment of
the Purchase Price for the Common Stock, all such
shares will be fully paid and nonassessable. See
"Description of Capital Stock."
- --------------------------------------------------------------------------------
(ii)
<PAGE>
- --------------------------------------------------------------------------------
Dividends: The Board of Directors of the Company currently
intends to establish a cash dividend policy
following the Conversion at a rate to be
determined. Dividends will be subject to
determination and declaration by the Board of
Directors, which will take into account a number of
factors, including the financial condition of the
Company and regulatory restrictions on the payment
of dividends by the Bank to the Company, on which
dividends the Company eventually may be primarily
dependent. There can be no assurance that dividends
will be paid on the Common Stock or that, if paid,
such dividends will not be reduced or eliminated in
future periods. See "Dividends."
Expiration Date of
Subscription Offering: The Subscription Offering will terminate at 4:00
p.m., Eastern Time, on __________ ____, 1996 unless
the Subscription Offering is extended, at the
discretion of the Board of Directors, up to an
additional 45 days with the approval of the OTS, if
necessary, but without additional notice to
subscribers. See "The Conversion -Subscription
Rights and the Subscription Offering."
Conditions to Closing of
the Offerings: Consummation of the Offerings is subject to (i)
consummation of the Conversion, which is
conditioned on, among other things, approval of the
Plan by the members of the Bank and the OTS, (ii)
the receipt by the OTS of an update to the Bank's
appraisal of its pro forma market value and
authorization by the OTS to sell Common Stock
within the range set forth in the update to that
appraisal, and (iii) the sale of a minimum of
697,000 shares of Common Stock. See "The
Conversion - Conditions and Termination." There can
be no assurances that all of these conditions will
be met.
Use of Proceeds: Net proceeds from the sale of the Common Stock are
estimated to be between approximately $6.54 million
and $8.96 million depending on the number of shares
of Common Stock sold and the estimated expenses of
the Offerings. The Company intends to use
approximately 50% of the net proceeds from the
Offerings to purchase 100% of the to be outstanding
common stock of the Bank and retain the remainder
as its initial capitalization. The portion of the
net proceeds retained by the Company will initially
be invested in U.S. government and federal agency
securities, high-grade, short term marketable
securities, deposits of, or loans to, the Bank, or
a combination thereof and ultimately may be used to
support the future expansion of operations.
Additionally, the Company intends to fund the ESOP
purchases through a loan to the ESOP from net
proceeds retained by the Company. The portion of
the net proceeds from the Offerings exchanged by
the Company for all of the outstanding capital
stock of the Bank will be used for general
corporate purposes and will increase the Bank's
total capital to support expanded lending, internal
growth and possible external growth through
acquisitions of branch offices, expansion into new
lending markets, and other acquisitions. Net
proceeds received by the Bank may also be used to
make contributions to repay the ESOP
- --------------------------------------------------------------------------------
(iii)
<PAGE>
- --------------------------------------------------------------------------------
loans and will initially be invested in high-grade,
short term investment securities. See "Use of
Proceeds."
Management Purchases: Directors, officers, and their associates,
collectively intend to subscribe for approximately
70,000 shares of Common Stock at the Purchase
Price. See "The Conversion - Shares to be Purchased
by Management Pursuant to Subscription Rights."
Potential Management
Benefits: ESOP. The ESOP is expected to purchase up to 8% of
----
the shares of Common Stock sold in the Conversion,
which will be awarded to employees without payment
by such persons of cash consideration. See
"Management of the Bank - Other Benefits -Employee
Stock Ownership Plan."
Restricted Stock Plan. Within one year following
---------------------
the completion of the Conversion, subject to
stockholder and Board of Director approvals and OTS
review, the Bank intends to adopt a restricted
stock plan (the "RSP") which would acquire an
amount of Common Stock equal to 4.0% of the shares
sold in the Conversion. Assuming a $10.00 per share
grant price and the issuance of Common Stock at the
midpoint of the EVR, the value to participants
could total approximately $328,000 in the
aggregate. No officer may receive more than 25%,
and directors who are not employees may not receive
more than 5% individually or 30% in the aggregate,
of shares purchased by the RSP. See "Pro Forma
Data" and "Management of the Bank - Proposed Future
Stock Benefit Plans - Restricted Stock Plan" and "-
Restrictions on Benefit Plans."
Stock Option Plan. Within one year following the
-----------------
completion of the Conversion, subject to
stockholder and Board of Director approval and OTS
review, the Bank intends to establish a Stock
Option Plan (the "Option Plan"), whereby options
may be granted to purchase additional authorized
but unissued shares of Common Stock that equal in
the aggregate up to 10% of the stock sold in the
Conversion. Alternatively, such Common Stock may be
purchased in the open market by the Company. See
"Pro Forma Data" and "Management of the Bank -
Proposed Future Stock Benefit Plans - Stock Option
Plan."
Independent Valuation: Keller & Company, Inc. ("Keller"), an independent
appraisal firm, has determined that the estimated
pro forma market value of the Bank was within an
EVR from $6,970,000 to $9,430,000 with a midpoint
of $8,200,000 as of September 6, 1996. The
independent valuation will be updated immediately
prior to the consummation of the Offerings. See
"The Conversion -Stock Pricing" and "- Number of
Shares to be Issued in the Conversion."
Risk Factors: See "Risk Factors" for a discussion of the
following factors which should be considered by
prospective investors: potential impact of changes
in interest rates; disparity in insurance premiums
and special assessment; lack of growth in the
Bank"s market areas; expansion of loan portfolio;
adjustable-rate mortgage loans; anti-
- --------------------------------------------------------------------------------
(iv)
<PAGE>
- --------------------------------------------------------------------------------
takeover provisions; voting control; possible
dilutive effect of RSP and stock options and effect
of purchases by the RSP and ESOP; regulatory
oversight; possible adverse income tax consequences
of the distribution of subscription rights; return
on equity after Conversion; and lack of liquidity
for the Common Stock.
Market for Common Stock: Neither the Company nor the Bank has ever issued
capital stock. Consequently, there is no
established market for the Common Stock at this
time. The Company has received conditional approval
from Nasdaq for approval to have Common Stock
quoted on the Nasdaq SmallCap Market under the
symbol ("____"). However, no assurances can be
given that such approval will be forthcoming or
that an active and liquid market for the Common
Stock will develop or be maintained. Accordingly,
prospective purchasers of the Common Stock should
consider the potentially illiquid nature of an
investment in the Common Stock and recognize that
the absence of an established market might make it
difficult to buy or sell the Common Stock. Given
the relatively small size of the offering, it is
not expected that an active and liquid trading
market for the Common Stock will develop or that,
if developed, it will continue, nor is there any
assurance that persons purchasing shares will be
able to sell at a price equal to or above the
Purchase Price. KBW has indicated that, upon
completion of the Conversion, it intends to act as
a market maker for the Common Stock, subject to
compliance with applicable laws and regulations,
although it is not obligated to do so. See "Risk
Factors --Lack of Liquidity for the Common Stock"
and "Market for the Common Stock."
- --------------------------------------------------------------------------------
(v)
<PAGE>
- --------------------------------------------------------------------------------
SELECTED FINANCIAL AND OTHER DATA
Set forth below are summaries of historical financial and other data
regarding the Bank. This information is derived in part from, and should be
read in conjunction with, the Consolidated Financial Statements and Notes to the
Consolidated Financial Statements of the Bank presented elsewhere in this
Prospectus.
SELECTED FINANCIAL DATA
The following table sets forth certain information concerning the financial
position of the Bank at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
---------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Total assets................... $91,852 $83,746 $78,924 $66,261 $64,358
Loans receivable, net(1)....... 78,941 73,057 65,891 54,654 50,002
Mortgage-backed securities..... 537 908 1,129 2,321 3,052
Investments(2)................. 5,428 4,323 2,842 4,621 7,581
Cash and cash equivalents...... 4,017 3,139 7,117 2,749 1,700
Savings deposits............... 80,771 74,698 67,230 59,292 59,145
Retained Earnings.............. 6,200 5,783 5,259 4,221 3,412
Number of:
Full service offices(3)........ 2 2 2 2 2
Real estate loans outstanding.. 1,732 1,673 1,640 1,504 1,450
Deposit accounts............... 11,656 10,832 9,994 9,525 9,657
</TABLE>
____________________________________
(1) Includes loans held for sale.
(2) Includes FHLB stock.
(3) In September 1996, the Bank received regulatory approval to open a branch
in Wintersville, Ohio.
SUMMARY OF OPERATIONS
The following table summarizes the Bank's results of operations for each of
the periods indicated:
<TABLE>
<CAPTION> Year Ended June 30,
------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Interest income............. $ 6,610 $ 5,927 $ 5,382 $ 5,284 $ 5,340
Interest expense............ 3,801 3,144 2,459 2,696 3,437
Net interest income......... 2,809 2,783 2,923 2,588 1,903
Provision for loan losses... 263 48 57 23 37
Net income.................. 417 715 856 729 436
</TABLE>
- --------------------------------------------------------------------------------
(vi)
<PAGE>
- --------------------------------------------------------------------------------
KEY OPERATING RATIOS
The table below sets forth certain performance and financial ratios of the
Bank for the periods indicated.
<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)................................ 0.48% 0.89% 1.22% 1.09% 0.69%
Return on average equity (net income
divided by average equity)...................................... 6.77 12.84 18.05 19.48 13.81
Net interest rate spread.......................................... 3.13 3.38 4.18 3.74 2.95
Net yield on average interest earning
assets.......................................................... 3.36 3.59 4.33 3.96 3.15
Average interest-earning assets to
average interest-bearing liabilities............................ 104.95 105.09 104.12 105.39 103.56
Net interest income after provision for
possible loan losses, to total other expenses................... 1.19 1.44 1.63 1.54 1.23
Efficiency Ratio(1)............................................... 69.18 62.71 55.94 59.13 68.25
ASSET QUALITY RATIOS:
Non-performing loans to total loans............................... 0.55 0.33 0.65 0.30 0.61
Allowance for loan losses to
non-performing assets........................................... 73.53 32.14 34.87 35.10 28.81
Allowance for loan losses to total
loans........................................................... 0.40 0.26 0.25 0.21 0.23
Non-performing assets to total
assets.......................................................... 0.48 0.69 0.63 0.41 0.64
CAPITAL RATIOS:
Equity to assets at period end.................................... 6.75 6.90 6.66 6.37 5.30
Average equity to average assets ratio............................ 7.10 6.96 6.76 5.58 4.96
</TABLE>
____________________
(1) Operating expenses as a percent of net interest income plus non interest
income.
- --------------------------------------------------------------------------------
(vii)
<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
those discussed elsewhere in this prospectus.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The Bank's profitability, like that of most financial institutions, is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest earning assets, such as loans
and securities, and its interest expense on interest bearing liabilities, such
as deposits and other borrowings. Generally, during periods of increasing
interest rates, the Bank's interest rate sensitive liabilities would reprice
faster than its interest rate sensitive assets, causing a decline in the Bank's
interest rate spread and margin. This would result in an increase in the Bank's
cost of funds that would not be immediately offset by an increase in its yield
on earning assets. An increase in the cost of funds without an equivalent
increase in the yield on interest earning assets would tend to reduce net
interest income. As a result of the increase in interest rates during these
periods, the Bank's net interest rate spread decreased between the fiscal years
ended June 30, 1994 and June 30, 1996 from 4.18% to 3.13%. For additional
discussion of this interest rate risk, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Net Portfolio Value." For
additional information on the Bank's management of its interest bearing
liabilities and interest earning assets, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Asset/Liability
Management."
DISPARITY IN INSURANCE PREMIUMS AND SPECIAL ASSESSMENT
Deposits of the Bank are currently insured by the SAIF as administered by
the FDIC. As a member of the SAIF, the Bank pays an insurance premium to the
FDIC equal to a minimum of 0.23% of its total deposits. The FDIC also maintains
another insurance fund, the Bank Insurance Fund ("BIF"), which primarily insures
commercial bank deposits. Effective September 30, 1995, the FDIC lowered the
insurance premium for members of the BIF to a range of between 0.04% and 0.31%
of deposits, with the result that most commercial banks would pay the lowest
rate of 0.04%. However, effective January 1, 1996, the annual insurance premium
for most BIF members was lowered to $2,000. These reductions in insurance
premiums for BIF members have placed SAIF members at a competitive disadvantage
to BIF members and, for the reasons set forth below, have had an adverse effect
on the results of operations and financial condition of the Bank.
The disparity in insurance premiums between those required for the Bank and
BIF members could allow BIF members to attract and retain deposits at higher
interest rates and at a lower effective cost than the Bank. This could put
competitive pressure on the Bank to raise its interest rates paid on deposits,
thus increasing its cost of funds and possibly reducing net interest income.
Although the Bank has other sources of funds, these other sources may have
higher costs than those of deposits. See "Regulation -Insurance of Deposit
Accounts."
Several alternatives to mitigate the effect of the BIF/SAIF insurance
premium disparity have been proposed by the U.S. Congress, federal regulators,
industry lobbyists, and the executive branch of the government. One such
proposal would require all SAIF-member institutions, including the Bank, to pay
a one-time fee of approximately 85 basis points (100 basis points equals 1%) on
the amount of deposits held by the member institution to recapitalize the SAIF.
If this proposal is enacted into law, the effect would be to immediately reduce
the capital of the SAIF-member institutions by the amount of the fee, net of any
tax deduction that may be available, and such amount would be immediately
charged to earnings. Based on $72.3 million in deposits outstanding at the Bank
at March 31, 1995 (the date most recently considered in the SAIF
recapitalization legislation), this fee would be approximately $600,000.
1
<PAGE>
Management of the Bank is unable to predict whether this proposal or any similar
proposal will be enacted or whether ongoing SAIF premiums will be reduced to a
level equal to that of BIF premiums.
LACK OF GROWTH IN THE BANK"S MARKET AREAS
Economic growth in the Bank's market areas remains dependent upon the local
economy. The deposit and loan activity of the Bank is affected by economic
conditions in its market areas. During the early to mid 1980"s this area
experienced an economic recession due to significant downsizing in the steel
industry. The economies of the Bank's market areas have remained stable for
several years, however, the population has experienced modest declines during
recent years. Although the Bank has been able to increase its market share in
originating first mortgage loans on residential property within its primary
market areas, total first mortgage loan originations in the Bank's market areas
have been declining. See "Business of the Bank -Competition" and "- Market
Areas."
EXPANSION OF LOAN PORTFOLIO
The Bank currently originates consumer, including automobile, loans and
commercial loans and intends to further diversify its loan portfolio by
moderately increasing the amount of consumer and commercial lending in its
primary market area. Consumer and commercial loans are generally considered to
involve a higher degree of credit risk than one- to four-family residential
mortgage loans. This higher degree of credit risk may result in the Bank
experiencing an increased provision for possible loan losses over that
experienced in the Bank's most recent fiscal year. See "Business of the Bank--
Lending Activities."
ADJUSTABLE-RATE MORTGAGE LOANS
The Bank primarily originates longer term, adjustable-rate, one- to four-
family mortgage loans within its market areas. The interest rates on these
loans typically adjust every one, three or five years. The Bank requires
borrowers for these loans to qualify at the initial rate. The Bank also offers
these loans with initial rates below the fully indexed rate. In the event
interest rates on these loans increase, related monthly mortgage payments for
borrowers will increase. Should this occur, the Bank may experience higher
default rates from borrowers unable to meet higher payments. See "Business of
the Bank -- One- to Four-Family Residential Loans" and "-- Loan Underwriting
Risks."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and
Bylaws, particularly a provision limiting voting rights, as well as the Delaware
General Corporation Law and certain federal regulations, assist the Company in
maintaining its status as an independent, publicly owned corporation and serve
to render a hostile takeover more difficult. These provisions provide for, among
other things, supermajority voting, staggered terms for the Board of Directors,
noncumulative voting for directors, limits on the calling of special meetings,
and restrictions on certain business combinations. In particular, the Company"s
Certificate of Incorporation provides that beneficial owners of more than 10% of
the Company's outstanding Common Stock may not vote the shares owned in excess
of the 10% limit for a period of five years from the completion of the
Conversion of the Bank, and no person may, directly or indirectly, offer to
acquire or acquire the beneficial ownership of more than 10% of any class of any
equity security of the Company. The impact of these provisions on a beneficial
holder of more than 10% of the Common Stock is to (1) require divestiture of the
amount of stock held in excess of 10% (if within five years of the Conversion
more than 10% of the Common Stock is beneficially owned by a person) and (2) at
any time, limit the vote on the Common Stock held by the beneficial owner to 10%
or possibly reduce the amount that may be voted below the 10% level. Unless the
grantor of a revocable proxy is
2
<PAGE>
an affiliate or an associate of a 10% holder or there is an arrangement,
agreement, or understanding with such 10% holder, these provisions would not
restrict (1) the ability of a 10% holder of revocable proxies to exercise
revocable proxies for which the 10% holder is neither a beneficial nor record
owner, or (2) the ability of a beneficial owner of less than 10% of the Common
Stock to solicit revocable proxies during a public proxy solicitation for a
particular meeting of stockholders and vote such proxies. However, these
provisions may discourage potential proxy contests. Additional restrictions
apply after five years from the completion of the Conversion.
The Bank and the Company believe these provisions will benefit
stockholders. Nonetheless, these provisions, although they do not preclude a
takeover, may have the effect of discouraging a future takeover attempt not
approved by the Company's Board of Directors, but pursuant to which stockholders
might 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 might not have the opportunity to do so. Such provisions will also
render the removal of the Company's Board of Directors and of management more
difficult and, therefore, may serve to perpetuate current management. The
Boards of Directors of the Bank and the Company, however, have concluded that
the potential benefits outweigh the possible disadvantages because they believe
that such provisions encourage potential acquirors to negotiate directly with
the Boards of Directors. The Boards of Directors believe that they are in the
best position to act on behalf of all stockholders. Further, the Board of
Directors of the Company has the ability to waive certain restrictions on
acquisition, provided that the acquisition is approved by a majority of the
disinterested Board of Directors in advance. The Bank has also entered into
employment agreements with the chief executive officer and other executive
officers and severance agreements with certain key employees. These agreements
could result in higher expenses for an acquiror, thereby making an acquisition
less attractive to potential acquirors. See "Certain Restrictions on
Acquisition of the Company."
VOTING CONTROL
The directors and executive officers of the Bank intend to purchase, at the
same price per share as the shares sold to other investors in the Conversion,
approximately 70,000 shares or 8.5% of the shares to be sold in the Conversion
(based upon an offering at the midpoint of the EVR). Assuming that stockholders
approve the Option Plan and RSP, that the stock options to be granted are
exercised by recipients, and that the RSP purchases and awards 4% of the shares
sold in the Conversion, the aggregate beneficial ownership of such directors and
officers would increase after the Conversion to 184,800 shares, or 20.5% (based
on an offering at the midpoint of the EVR). In addition, such officers may
acquire beneficial ownership of additional shares of Common Stock through future
ESOP allocations, which amounts cannot be determined at this time. It is
expected that certain directors of the Bank will serve as the trustees to the
ESOP ("ESOP Trustees") and as members of an ESOP Committee. The ESOP Trustees
must vote all allocated shares held in the ESOP as directed by participating
employees. Unallocated shares (approximately 65,600 shares at the midpoint of
the EVR immediately after Conversion and until allocated) and allocated shares
for which no timely direction is received will be voted by the ESOP Trustees as
directed by the Board of Directors or the ESOP Committee, subject to the ESOP
Trustees' fiduciary duties. In addition, shares sold above the maximum of the
EVR may be sold to the ESOP to fill its subscription (the ESOP currently intends
to purchase up to 8% of the Common Stock) prior to satisfying unfilled orders of
Eligible Account Holders, or the ESOP may purchase shares in the open market.
3
<PAGE>
The proposed purchases of the Common Stock by the Board of Directors,
management, and the ESOP, as well as the potential acquisition of the Common
Stock through the Option Plan and RSP, could render it difficult to obtain
majority support for stockholder proposals opposed by the Company's Board of
Directors and management. Moreover, such voting control could enable the Board
of Directors of the Company and management to block the approval of transactions
requiring the approval of 80% of the stockholders under the Company's
Certificate of Incorporation. See "Management of the Bank - Other Benefits" and
"- Proposed Future Stock Benefit Plans," "Description of Capital Stock," and
"Certain Restrictions on Acquisition of the Company."
POSSIBLE DILUTIVE EFFECT OF RSP AND STOCK OPTIONS AND EFFECT OF PURCHASES BY THE
RSP AND ESOP
Within one year following the completion of the Conversion, subject to the
approval of (1) the Boards of Directors of the Company and the Bank and (2)
stockholders of the Company, the RSP expects to acquire 4% of the total number
of shares sold in the Offerings through the issuance of authorized but unissued
shares or by open market purchases. The issuance of authorized but unissued
shares to the RSP in an amount equal to 4% of the outstanding shares of Common
Stock of the Company would dilute existing stockholder interests by
approximately 3.9%. The RSP and the ESOP may acquire shares of Common Stock in
the open market. In the event the RSP acquires additional shares of Common
Stock in the open market, the funds available for investment by the Company and
the Bank will be reduced by the amount used to acquire such shares. In the
event the ESOP acquires shares of Common Stock in the open market and the
purchase price is different than $10 per share, the funds available for
investment will be affected by the difference between $10 and the purchase
price. See "Pro Forma Data" and "Management of the Bank - Proposed Future Stock
Benefit Plans - Restricted Stock Plan." In addition, the Bank intends to
establish a stock option plan after the Conversion, whereby options may be
granted to purchase additional authorized but unissued shares of Common Stock
that equal in the aggregate up to 10% of the Common Stock sold in the
Conversion. Assuming that options for 10% of the shares sold are granted and
exercised and funded through previously authorized but unissued stock, existing
stockholders' interests would be diluted by approximately 9.1%. See "Management
of the Bank - Proposed Future Stock Benefit Plans - Stock Option Plan." Benefit
plans such as the RSP and the Option Plan that are implemented within the first
year after the Conversion are subject to OTS regulation.
Accounting practices require an employer such as the Company to record
compensation expense in an amount equal to the fair value of shares committed to
be released from plans such as the ESOP. If shares of Common Stock appreciate
in price over time, compensation expense related to the ESOP may be materially
increased as a result, although the extent of such an increase in expense cannot
be accurately quantified at this time. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Recent Accounting
Pronouncements."
REGULATORY OVERSIGHT
The Bank is subject to extensive regulation, supervision, and examination
by the OTS as its chartering authority and primary federal regulator, and by the
FDIC, which insures its deposits up to applicable limits. The Bank is a member
of the FHLB of Pittsburgh and is subject to certain limited regulation by the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board").
As the savings and loan holding company of the Bank, the Company is also subject
to regulation and oversight by the OTS. Such regulation and supervision governs
the activities in which an institution may engage and is intended primarily for
the protection of the FDIC insurance funds and depositors and not for the
protection of stockholders. Regulatory authorities have been granted extensive
discretion in connection with their supervisory and enforcement activities. Any
change in the regulatory structure or the applicable statutes or regulations
could have a material impact on the Company and the Bank, their operations and
the Conversion. See "Regulation."
4
<PAGE>
A bill has been introduced to the House Banking Committee that would
consolidate the OTS with the Office of the Comptroller of the Currency ("OCC").
The resulting agency would regulate all federally chartered commercial banks and
thrift institutions. In the event that the OTS is consolidated with the OCC, it
is possible that the thrift charter could be eliminated, requiring thrifts to
convert to commercial bank charters.
Bank holding companies are more limited in their investment authority than
are savings and loan holding companies. Under current law and regulation, a
unitary savings and loan holding company, such as the Company, which has only
one thrift subsidiary that meets the qualified thrift lender ("QTL") test, such
as the Bank, has essentially unlimited investment authority. See "Regulation -
Company Regulation." Legislation has also been proposed which, if enacted,
would limit the non-banking related activities of savings and loan holding
companies to those activities permitted for bank holding companies.
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS
The Bank has received an opinion from Keller that subscription rights
granted to Eligible Account Holders, Supplemental Eligible Account Holders, and
Other Members have no value. However, this opinion is not binding on the
Internal Revenue Service ("IRS"). If the subscription rights are deemed to have
an ascertainable value, receipt of such rights would be taxable (either as
capital gain or ordinary income) probably only to those who exercise the
subscription rights in an amount equal to such value. Additionally, the Bank
could recognize a gain for tax purposes on such distribution. Whether
subscription rights are considered to have ascertainable value is an inherently
factual determination. See "The Conversion - Effects of Conversion to Stock
Form on Depositors and Borrowers of the Bank - Tax Effects."
RETURN ON EQUITY AFTER CONVERSION
As a result of the Conversion, the Company, on a consolidated basis with
the Bank, will have equity that is substantially more than the equity of the
Bank prior to the Conversion. Accordingly, the increase in equity coupled with
the limited loan opportunities in the Bank's market areas is likely to adversely
affect the Company's ability to attain a return on average equity (net income
divided by average equity) at historical levels, absent a corresponding increase
in net income. The Company and the Bank initially intend to invest the net
proceeds in short to medium term investments which generally have lower yields
then residential mortgage loans. There can be no assurance that the Company
will be able to increase net income in future periods in amounts commensurate
with the increase in equity resulting from the Conversion. See, also, "Pro
Forma Data."
LACK OF LIQUIDITY FOR THE COMMON STOCK
Neither the Bank nor the Company has ever issued capital stock.
Consequently, there is not, at this time, any market for the Common Stock. The
Company has received conditional approval to have the Common Stock quoted on the
Nasdaq SmallCap Market under the symbol "_____." The Company will seek to
encourage and assist at least two market makers to make a market in the Common
Stock. KBW has indicated its intent to make a market in the Common Stock upon
the completion of the Conversion, subject to compliance with applicable laws and
regulations, but is under no obligation to do so. While the Company anticipates
that prior to the completion of the Conversion it will obtain a commitment from
at least one other broker-dealer to make a market in the Common Stock, there can
be no assurance that there will be two or more market makers for the Common
Stock. One of the conditions for Nasdaq quotation is that at least two market
makers make, or agree to make, a market in the stock.
5
<PAGE>
Due to the relatively small size of the Offerings, an active and liquid
market for the Common Stock may not develop or be maintained. Accordingly,
prospective purchasers should consider the potentially illiquid nature of an
investment in the Common Stock and recognize that the absence of an established
market might make it difficult to buy or sell the Common Stock. See "Market for
the Common Stock."
ADVANCE FINANCIAL BANCORP
The Company is a Delaware corporation organized in September 1996 at the
direction of the Bank to acquire all of the capital stock that the Bank will
issue upon its conversion from the mutual to stock form of ownership. The
Company has not engaged in any significant business to date. The OTS has
approved the Company's application to become a savings and loan holding company
and the Company will retain approximately 50% of the net proceeds from the
issuance of Common Stock as its initial capitalization (ranging from
approximately $6.54 million assuming the sale of 697,000 shares at the minimum
of the EVR to $8.96 million assuming the sale of 943,000 shares at the maximum
of the EVR). The Company will use the balance of the net proceeds to purchase
all of the common stock of the Bank to be issued upon Conversion. Part of the
proceeds retained by the Company will be used to fund the loan to the ESOP.
Prior to the Conversion, the Company will not transact any material business.
Upon consummation of the Conversion, the Company will have no significant assets
other than that portion of the net proceeds of the Offerings retained by the
Company (less the loan to the ESOP) and the shares of the Bank's capital stock
acquired in the Conversion, and will have no significant liabilities. Cash flow
to the Company will be dependent upon earnings from the investment of the
portion of net proceeds retained by it in the Conversion and any dividends
received from the Bank. See "Use of Proceeds."
Management believes that the holding company structure will provide
flexibility for possible diversification of business activities through existing
or newly-formed subsidiaries, or through acquisitions of or mergers with both
savings institutions and commercial banks, as well as other financial services
related companies. Although there are no current arrangements, understandings,
or agreements regarding any such opportunities, the Company will be in a
position after the Conversion, subject to regulatory limitations and the
Company"s financial condition, to take advantage of any such acquisition and
expansion opportunities that may arise. However, some of these activities could
be deemed to entail a greater risk than the activities permissible for federally
chartered savings associations such as the Bank. The initial activities of the
Company are anticipated to be funded by the portion of the net proceeds retained
by the Company and earnings thereon.
The office of the Company is located at 1015 Commerce Street, Wellsburg,
West Virginia 26070 and its telephone number is (304) 737-3531.
ADVANCE FINANCIAL SAVINGS BANK, F.S.B.
The Bank is a federally chartered mutual savings bank headquartered in
Wellsburg, West Virginia. The Bank was chartered in 1935 under the name Advance
Federal Savings and Loan Association of West Virginia. The Bank obtained its
current name in 1989. The Bank's deposits have been federally insured since
1935 under the SAIF as administered by the FDIC and its predecessor, the Federal
Savings and Loan Insurance Corporation, and the Bank became a member of the FHLB
System in 1935. At June 30, 1996, the Bank had total assets of $91.9 million,
deposits of $80.8 million, and equity of $6.2 million or 6.7% of total assets.
6
<PAGE>
The Bank is a community oriented savings institution offering financial
services to meet the needs of the communities it serves. The Bank conducts its
business from its main office located in Wellsburg, West Virginia, and one
branch office located in Follansbee, West Virginia. In addition, in September
1996, the Bank received approval from the OTS to open a new branch office in
Wintersville, Ohio.
The principal sources of funds for the Bank's lending activities are
deposits and the amortization and repayment of loans and sales, maturities, and
calls of securities. The principal source of income is interest on loans and
the principal expense is interest paid on deposits.
The main office of the Bank is located at 1015 Commerce Street, Wellsburg,
West Virginia 26070 and the telephone number of that office is (304) 737-3531.
USE OF PROCEEDS
The Company will purchase all of the capital stock of the Bank to be issued
upon Conversion in exchange for 50% of the net proceeds of the Offerings, with
the remaining net proceeds to be retained by the Company as initial capital.
The Company has received the approval of the OTS to retain 50% of the net
proceeds. The net proceeds retained by the Company will be initially invested
in loans to the Bank, U.S. Government and federal agency securities, interest
earning deposits, high-grade short term marketable securities, or a combination
thereof. The portion of the net proceeds retained by the Company may ultimately
be used to support the future expansion of operations through acquisitions of
other financial service institutions, such as other savings institutions and
commercial banks, acquisitions of branches of financial service institutions,
although no such transactions are currently contemplated, diversification into
other related businesses, or for other business and investment purposes
including the payment of regular and special dividends on, and repurchase of,
the Common Stock. The Company also intends to make a loan directly to the ESOP
to enable the ESOP to purchase Common Stock in the Conversion. If the Company
is not permitted to make the ESOP loan, the ESOP may borrow funds from an
unaffiliated lender with such loan being guaranteed by the Company. Based upon
the issuance of 697,000 shares or 943,000 shares at the minimum and maximum of
the EVR, respectively, the Company would retain $6.54 million or $8.96 million,
respectively, of the net proceeds from the Offerings, out of which the loan to
the ESOP to purchase 8% of the Common Stock would be $558,000 or $754,000,
respectively, and the Bank would receive additional capital of $5.70 million or
$7.83 million, respectively. The amount of the ESOP loan would be reflected as
a reduction to the capital of both the Company and the Bank, whether such loan
is obtained from the Company or instead from a third party and guaranteed by the
Company. See "Pro Forma Data."
In the event the ESOP does not purchase Common Stock in the Conversion, the
ESOP may purchase shares of Common Stock in the open market after the
Conversion. In the event the purchase price of the Common Stock is different
than $10.00 per share, the amount of proceeds required for the purchase by the
ESOP and the resulting effect on capital will be affected.
The portion of the net proceeds not retained by the Company will be added
to the Bank's general funds to be used for general corporate purposes,
including, but not limited to, investment in mortgage and other loans, U.S.
Government and federal agency securities, state and municipal obligations,
federal funds, certificates of deposit, mortgage-backed securities, and other
investments. The amount of proceeds added to the Bank's capital will further
strengthen the Bank's capital position. This capital provides an additional
source of funding for longer term assets. Following the Conversion, the amount
of proceeds will be evaluated as part of the Bank's ongoing review of its
asset/liability mix and may impact the structure of the assets and liabilities
of the Bank and the Company. Neither the Bank nor the Company has any specific
plans, arrangements, or understandings regarding any acquisitions or
diversification of activities at this time, nor have criteria been established
to identify potential candidates for acquisition.
7
<PAGE>
Should the Company subsequently adopt a restricted stock plan, a portion of
the proceeds may be used to fund the purchase by the plan of Common Stock in an
amount up to 4% of the shares sold in the Conversion. The actual cost of such
purchase will depend on the number of shares sold in the Conversion and the
market price at the time of purchase. Based upon the midpoint of the EVR and on
a $10.00 per share purchase price, the cost would be approximately $328,000. It
is expected that a restricted stock plan will be adopted by the Board of
Directors within one year of the Conversion.
THE NET PROCEEDS MAY VARY BECAUSE TOTAL EXPENSES OF THE CONVERSION MAY BE
MORE OR LESS THAN THOSE ESTIMATED. The net proceeds will also vary if the
number of shares to be issued in the Conversion are adjusted to reflect a change
in the estimated pro forma market value of the Bank. Payments for shares made
through withdrawals from existing Bank deposit accounts will not result in the
receipt of new funds for investment by the Bank but will result in a reduction
of the Bank's deposits and interest expense as funds are transferred from
interest bearing certificates or other deposit accounts.
DIVIDENDS
Upon Conversion, the Board of Directors of the Company will have the
authority to declare dividends on the Common Stock, subject to statutory and
regulatory requirements. The Board of Directors of the Company currently
intends to establish a cash dividend policy following Conversion at a rate to be
determined. Dividends will be subject to determination and declaration by the
Board of Directors, which will take into account a number of factors, including
the financial condition of the Company and the Bank, and regulatory restrictions
on the payment of dividends by the Bank to the Company, on which dividends the
Company eventually may be primarily dependent for its source of income. There
can be no assurance that dividends will in fact be paid on the Common Stock or
that, if paid, such dividends will not be reduced or eliminated in future
periods. In addition to or in lieu of recurring or regular dividends, the
Company may pay nonrecurring or special dividends. The Company may pay stock
dividends in lieu of, or in addition to, cash dividends.
It is anticipated that the principal source of income to the Company will
initially consist of the earnings on the capital retained by the Company in the
Conversion. Future declarations of cash dividends by the Company will depend in
part upon dividend payments by the Bank to the Company, which payments are
subject to various restrictions. See "Historical and Pro Forma Capital
Compliance," "The Conversion -Effects of Conversion to Stock Form on Depositors
and Borrowers of the Bank - Liquidation Account," and "Regulation - Dividend and
Other Capital Distribution Limitations."
Unlike the Bank, the Company is not subject to OTS regulatory restrictions
on the payment of dividends to its stockholders although the source of such
dividends will be, in part, dependent upon dividends from the Bank. The Company
is subject, however, to the requirements of Delaware law, which generally limit
dividends to amounts that will not affect the ability of the Company, after the
dividend has been distributed, to pay its debts in the ordinary course of
business.
In addition to the foregoing, earnings of the Bank appropriated for bad
debt reserves and deducted for federal income tax purposes cannot be used by the
Bank to pay cash dividends to the Company without the payment of federal income
taxes by the Bank 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 11
to the Consolidated Financial Statements included elsewhere herein. The Company
does not contemplate any voluntary distribution by the Bank that would result in
a recapture of the Bank's bad debt reserve or create the above-mentioned federal
tax liabilities.
8
<PAGE>
MARKET FOR THE COMMON STOCK
Neither the Company nor the Bank has ever issued capital stock.
Consequently, there is no established market for the Common Stock at this time.
The Company has received conditional approval to have the Common Stock quoted on
the Nasdaq SmallCap Market under the symbol "_____." One of the conditions for
quotation on the Nasdaq SmallCap Market is that at least two market makers make,
or agree to make, a market in the Common Stock. 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. KBW has indicated that, upon
completion of the Conversion, it intends to act as a market maker for the Common
Stock, but is under no obligation to do so, and will seek to obtain at least one
additional market maker. The Company will seek to encourage and assist two
market makers to make a market in the Common Stock. While the Company
anticipates that prior to the completion of the Conversion it will obtain a
commitment from at least one other broker-dealer to make a market in the Common
Stock, there can be no assurance that there will be two or more market makers.
In the event the Common Stock is not listed on the Nasdaq SmallCap Market, for
example, because a second market maker cannot be secured or retained, the Common
Stock is expected to be quoted and traded on the OTC Bulletin Board or the
National Quotation Bureau, Inc. "Pink Sheets." The development of a liquid
public market depends on the existence of willing buyers and sellers, the
presence of whom are not within the control of the Company, the Bank, Webb, or
any other market maker. Due to the size of the Offerings, it is unlikely that a
stockholder base sufficient to create an active trading market will develop and
be maintained. Therefore, purchasers of the Common Stock should have a long term
investment intent and should recognize that the absence of an active trading
market may make it difficult to sell the Common Stock. There can be no assurance
that persons purchasing shares will be able to sell them promptly or at a price
equal to or above the Purchase Price.
The Company will register its Common Stock under the Securities Exchange
Act of 1934, as amended ("Exchange Act") at the completion of the Conversion and
will be subject to the reporting requirements of the Exchange Act for at least
three years following the Conversion. See "Registration Requirements."
9
<PAGE>
CAPITALIZATION
The following table presents, as of June 30, 1996, the historical
capitalization of the Bank and the pro forma consolidated capitalization of the
Company after giving effect to the Conversion and other assumptions set forth
below and under "Pro Forma Data," based upon the sale of shares at the minimum,
midpoint, maximum, and 15% above the maximum of the EVR at a price of $10.00 per
share:
<TABLE>
<CAPTION>
Pro Forma Consolidated Capitalization
Based on the Sale of
----------------------------------------------
Historical 697,000 820,000 943,000 1,084,450
Capitalization Shares at Shares at Shares at Shares At
at June 30, $10.00 $10.00 $10.00 $10.00
1996 Per Share Per Share Per Share Per Share
-------------- --------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(1).................................. $ 80,771 $ 80,771 $ 80,771 $ 80,771 $ 80,771
Other Borrowings............................. 4,376 4,376 4,376 4,376 4,376
------- ------- ------- ------- --------
Total deposits and other borrowed funds.... $ 85,147 $ 85,147 $ 85,147 $ 85,147 $ 85,147
======= ======= ======= ======= ========
Shareholders' Equity:
Preferred Stock, 500,000 shares authorized;. -- -- -- -- --
none to be issued.........................
Common Stock, $.10 par value, 2,000,000
shares authorized; total shares to be..... $ -- $ 70 $ 82 $ 94 $ 108
issued as reflected.......................
Additional paid in capital................... -- 6,467 7,668 8,869 10,249
Retained earnings, substantially
restricted.................................. 6,200 6,200 6,200 6,200 6,200
Less:
Common stock acquired by ESOP................ -- (558) (656) (754) (868)
Common stock acquired by RSP................. -- (279) (328) (377) (434)
------- ------- ------- ------- --------
Total stockholders" equity................... $ 6,200 $ 11,900 $ 12,966 $ 14,031 $ 15,256
======= ======= ======= ======= ========
</TABLE>
__________________________
(1) Excludes accrued interest payable on deposits. Withdrawals from savings
accounts for the purchase of stock have not been reflected in these
adjustments. Any withdrawals will reduce pro forma capitalization by the
amount of such withdrawals.
(2) Does not reflect the increase in the number of shares of Common Stock after
the Conversion in the event of implementation of the Option Plan or RSP.
See "Management of the Bank - Proposed Future Stock Benefit Plans - Stock
Option Plan" and "- Restricted Stock Plan."
(3) Assumes that 8% and 4% of the shares issued in the Conversion will be
purchased by the ESOP and RSP, respectively. No shares will be purchased by
the RSP in the Conversion. It is assumed on a pro forma basis that the RSP
will be adopted by the Board of Directors, approved by stockholders of the
Company, and reviewed by the OTS. It is assumed that the RSP will purchase
Common Stock in the open market within one year of the Conversion in order
to give an indication of its effect on capitalization. The pro forma
presentation does not show the impact of (a) results of operations after
the Conversion, (b) changing market prices of shares of Common Stock after
the Conversion, or (c) a smaller than 4% purchase by the RSP. Assumes that
the funds used to acquire the ESOP shares will be borrowed from the Company
for a ten year term at the prime rate as published in The Wall Street
Journal. For an estimate of the impact of the ESOP on earnings, see "Pro
Forma Data." The Bank intends to make contributions to the ESOP sufficient
to service and ultimately retire its debt. The amount to be acquired by the
ESOP and RSP is reflected as a reduction of stockholders' equity. The
issuance of authorized but unissued shares for the RSP in an amount equal
to 4% of the outstanding shares of Common Stock will have the effect of
diluting existing stockholders' interests by 3.9%. There can be no
assurance that stockholder approval of the RSP will be obtained. See
"Management of the Bank - Proposed Future Stock Benefit Plans - Restricted
Stock Plan."
(4) The equity of the Bank will be substantially restricted after the
Conversion. See "Dividends," "Regulation - Dividends and Other Capital
Distribution Limitations," "The Conversion - Effects of Conversion to Stock
Form on Depositors and Borrowers of the Bank -Liquidation Account" and Note
12 and 17 to the Consolidated Financial Statements.
10
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $6.5 million and $10.4 million at the minimum
and maximum, as adjusted, of the EVR, based upon the following assumptions: (i)
8% of the stock issued in the Conversion will be sold to the ESOP and $1.4
million will be sold to officers, directors, employees and members of their
immediate families; (ii) Webb will receive a commission of 1.5% of the Common
Stock sold in the Conversion, excluding the sale of shares to the ESOP, and to
officers, directors and employees and members of their immediate families; (iii)
other Conversion expenses, excluding the commission paid to Webb, will be
approximately $357,000; and (iv) 4% of the shares issued in the Conversion will
be sold to the RSP. Because management of the Bank presently intends to adopt
the RSP within the first year following the Conversion, a purchase by the RSP in
the Conversion has been included with the pro forma data to give an indication
of the effect of a 4% purchase by the RSP, at a $10.00 per share purchase price
in the market, even though the RSP does not currently exist and is prohibited by
OTS regulation from purchasing in the Conversion. The pro forma presentation
does not show the effect of (a) results of operations after the Conversion, (b)
changing market prices of shares of Common Stock after the Conversion, or (c)
less than a 4% purchase by the RSP.
The following table sets forth for the periods and as of the dates
indicated, the historical net earnings and equity of the Bank prior to the
Conversion and the pro forma consolidated net earnings and stockholders' equity
of the Company following the Conversion. Unaudited pro forma consolidated net
earnings and stockholders' equity have been calculated for the fiscal year ended
June 30, 1996, as if the Common Stock to be issued in the Conversion had been
sold at July 1, 1995, and the estimated net proceeds had been invested by the
Company and the Bank at 5.78% for the fiscal year ended June 30, 1996, which
rate is equal to the one year U.S. Treasury bill rate in effect during the first
two weeks of September 1996. The one year U.S. Treasury bill rate, rather than
an arithmetic average of the average yield on interest earning assets and
average rate paid on deposits, has been used to estimate income on net proceeds
because it is believed that the one year U.S. Treasury bill rate is a more
accurate estimate of the rate that would be obtained on an initial investment of
net proceeds from the Offerings. In calculating pro forma income, an effective
state and federal income tax rate of 34.00% for both the Bank and the Company
has been assumed for the respective periods, resulting in an after tax yield of
3.81% for the fiscal year ended June 30, 1996. Withdrawals from deposit accounts
for the purchase of the Common Stock are not reflected in the pro forma
adjustments. The computations are based upon the assumptions that 697,000 shares
(minimum of EVR), 820,000 shares (midpoint of EVR), 943,000 shares (maximum of
EVR) or 1,084,450 shares (maximum, as adjusted, of the EVR) are sold at a price
of $10.00 per share.
As discussed under "Use of Proceeds," the Company expects to retain
50% of the net Conversion proceeds, part of which will be used to lend money to
the ESOP to purchase the Common Stock issued in the Conversion. The ESOP
presently plans to purchase up to 8% of the Common Stock issued in the
Conversion. The following table assumes that the yield on the net proceeds of
the Conversion retained by the Company will be the same as the yield on the net
proceeds of the Conversion transferred to the Bank.
Historical and pro forma per share amounts have been calculated by dividing
historical and pro forma amounts by the indicated number of shares of Common
Stock. Per share amounts have been computed as if the Common Stock had been
outstanding at the beginning of the periods or at the dates shown. Pro forma
stockholders' equity and pro forma stockholders' equity per share have not been
adjusted to reflect the earnings on the estimated net proceeds.
11
<PAGE>
The stockholders' equity information is not intended to represent the fair
market value of the common stock, or the current value of the Bank's assets or
liabilities, or the amounts, if any, that would be available for distribution to
stockholders in the event of liquidation. For additional information regarding
the liquidation account, see "The Conversion - Effects of the Conversion to
Stock Form on Depositors and Borrowers of the Bank - Liquidation Account" and
Note 17 to the Consolidated Financial Statements. The pro forma income derived
from the assumptions set forth above should not be considered indicative of the
actual results of operations of the Bank or the Company for any period. Such pro
forma data may be materially affected by a change in the price per share or
number of shares to be issued in the Conversion and by other factors. For
information regarding investment of the proceeds see "Use of Proceeds" and "The
Conversion - Stock Pricing" and "-Number of Shares to be Issued in the
Conversion."
12
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended June 30, 1996
----------------------------------------------------------
697,000 820,000 943,000 1,084,450
Shares at Shares at Shares at Shares at
$ 10.00 $ 10.00 $ 10.00 $ 10.00
per share per share per share per share
--------- --------- --------- ----------
(Dollars in Thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds....................................................... 6,970 8,200 9,430 10,845
Less:
Offering expenses.................................................. 357 357 357 357
Marketing fees..................................................... 76 93 110 130
--------- --------- ---------- ---------
Estimated net proceeds............................................. 6,537 7,750 8,963 10,358
========= ========= ========== =========
Net income:
Historical......................................................... 417 417 417 417
Pro forma net income on net proceeds............................... 217 258 298 345
Pro forma ESOP adjustment(1)....................................... (37) (43) (50) (57)
Pro forma RSP adjustment (1)....................................... (37) (43) (50) (57)
Pro forma net income............................................... 561 588 616 648
--------- --------- ---------- ---------
Net income per share (3):
Historical......................................................... 0.64 0.55 0.48 0.41
Pro forma net income on net proceeds............................... 0.33 0.34 0.34 0.34
Pro forma ESOP adjustment (1)...................................... (0.06) (0.06) (0.06) (0.06)
Pro forma RSP adjustment (1)....................................... (0.06) (0.06) (0.06) (0.06)
Pro forma net income............................................... 0.87 0.77 0.70 0.64
--------- --------- ---------- ---------
Weighted average shares used in the calculation...................... 646,816 760,960 875,104 1,006,370
Stockholders' equity/retained earnings:
Historical(2)...................................................... 6,200 6,200 6,200 6,200
Estimated net proceeds............................................. 6,537 7,750 8,963 10,358
Less Common Stock acquired by ESOP(1).............................. (558) (656) (754) (868)
Less Common Stock acquired by RSP (1).............................. (279) (328) (377) (434)
----- ----- ----- -----
Pro forma stockholders' equity..................................... 11,900 12,966 14,031 15,256
========= ========= ========== =========
Stockholders' equity per share: (3)
Historical(2)...................................................... 8.90 7.56 6.57 5.72
Estimated net proceeds............................................. 9.38 9.45 9.50 9.55
Less Common Stock acquired by ESOP (1)............................. (0.80) (0.80) (0.80) (0.80)
Less Common Stock acquired by RSP(1)............................... (0.40) (0.40) (0.40) (0.40)
----- ------ ------ ------
Pro forma stockholders' equity..................................... 17.07 15.81 14.88 14.07
----- ----- ----- -----
Offering price as a percentage of pro forma stockholders'
equity per share................................................... 58.57% 63.24% 67.21% 71.08%
Offering price as a multiple of pro forma earnings
per share.......................................................... 11.54 12.94 14.21 15.54
</TABLE>
_________________
(1) Assumes 8% of the shares sold in the Conversion are purchased by the
ESOP under all circumstances, and that the funds used to purchase such
shares are borrowed from the Company. The approximate amount expected
to be borrowed by the ESOP is not reflected as a liability but is
reflected as a reduction of capital. Although repayment of such debt
will be secured solely by the shares purchased by the ESOP, the Bank
expects to make discretionary contributions to the ESOP in an amount
at least equal to the principal and interest payments on the ESOP
debt. Pro forma net earnings have been adjusted to give effect to such
contributions based upon a fully amortizing debt with a ten year term.
Because the Company will be providing the ESOP loan, only principal
payments on the ESOP loan are reflected as employee compensation and
benefits expense. For purposes of this table, the Purchase Price of
$10.00 was utilized to calculate the
13
<PAGE>
ESOP expense. The Bank intends to record compensation expense related
to the ESOP in accordance with Statement of Position ("SOP") 93-6. As
a result, to the extent the value of the Common Stock appreciates over
time, compensation expense related to the ESOP will increase. SOP 93-6
also changes the earnings per share computations for leveraged ESOPs
to include as outstanding only shares that have been committed to be
released to participants. For purposes of the preceding tables, it was
assumed that a ratable portion of the ESOP shares purchased in the
Conversion were committed to be released during the period ended June
30, 1996. If it is assumed that all of the ESOP shares were included
in the calculation of earnings per share for the period ended at June
30, 1996, earnings per share would have been $0.80, $0.72, $0.65 and
$0.60 at June 30, 1996, respectively, based on the sale of shares at
the minimum, midpoint, maximum and the maximum, as adjusted, of the
EVR. See "Management of the Bank -Other Benefits - Employee Stock
Ownership Plan."
(2) Assumes a number of shares of Common Stock equal to 4% of the Common
Stock sold in the Conversion will be purchased by the RSP in the open
market in the year following the Conversion. The dollar amount of the
Common Stock to be purchased by the RSP is based on the Purchase Price
and represents unearned compensation and is reflected as a reduction
of capital. Such amount does not reflect possible increases or
decreases in the value of such stock relative to the Purchase Price.
As the Bank accrues compensation expense to reflect the five year
vesting period of such shares pursuant to the RSP, the charge against
capital will be reduced accordingly. Implementation of the RSP within
one year of Conversion would require regulatory and stockholder
approval at a meeting of the Company's stockholders to be held no
earlier than six months after the Conversion. For purposes of this
table, it is assumed that the RSP will be adopted by the Boards of
Directors of the Company and the Bank, reviewed by the OTS, and
approved the Company's stockholders, and that the RSP will purchase
the shares of Common Stock in the open market within the year
following the Conversion. If the shares to be purchased by the RSP are
assumed at July 1, 1995, to be newly issued shares purchased from the
Company by the RSP at the Purchase Price, at the minimum, midpoint,
maximum and maximum, as adjusted, of the EVR, pro forma stockholders'
equity per share would have been $16.42, $15.20, $14.31, and $13.53 at
June 30, 1996, respectively, and pro forma earnings per share would
have been $0.83, $0.74, $0.68, and $0.62 for the year ended June 30,
1996, respectively. As a result of the RSP, stockholders' interests
will be diluted by approximately 3.9%. See "Management of the Bank -
Proposed Future Stock Benefit Plans -Restricted Stock Plan" and "Risk
Factors -Possible Dilutive Effect of RSP and Stock Options and Effect
of Purchases by the RSP and ESOP."
(3) Assumes that following the consummation of the Conversion, the Company
will adopt the Option Plan, which if implemented within one year of
Conversion would be subject to regulatory review and Board of Director
and stockholder approval, and that such plan would be considered and
voted upon at a meeting of the Company's stockholders to be held no
earlier than six months after the Conversion. Under the Option Plan,
employees and directors could be granted options to purchase an
aggregate amount of Common Stock equal to 10% of the shares issued in
the Conversion at an exercise price equal to the market price of the
Common Stock on the date of grant. In the event the shares issued
under the Option Plan were awarded, the interests of existing
stockholders would be diluted. At the minimum, midpoint, maximum and
the maximum, as adjusted, of the EVR, if all shares under the Option
Plan were newly issued at the beginning of the respective periods and
the exercise price for the option shares were equal to the Purchase
Price, the number of outstanding shares of Common Stock would increase
to 711,498, 837,056, 962,614, and 1,107,007, respectively, pro forma
stockholders' equity per share would have been $15.52, $14.37, $13.53,
and $12.79 at June 30, 1996, respectively, and pro forma earnings per
share would have been $0.79, $0.70, $0.64, and $0.58 at June 30, 1996,
respectively.
14
<PAGE>
(4) Consolidated stockholders' equity represents the excess of the
carrying value of the assets of the Company over its liabilities. The
calculations are based upon the number of shares issued in the
Conversion, without giving effect to SOP 93-6. The amounts shown do
not reflect the federal income tax consequences of the potential
restoration to income of the tax bad debt reserves for income tax
purposes, which would be required in the event of liquidation. The
amounts shown also do not reflect the amounts required to be
distributed in the event of liquidation to eligible depositors from
the liquidation account which will be established upon the
consummation of the Conversion. Pro forma stockholders' equity
information is not intended to represent the fair market value of the
Common Stock, the current value of the Bank's assets or liabilities or
the amounts, if any, that would be available for distribution to
stockholders in the event of liquidation. Such pro forma data may be
materially affected by a change in the number of shares to be sold in
the Conversion and by other factors.
15
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The following table presents the Bank's historical and pro forma capital
position relative to its capital requirements as of June 30, 1996. 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 Bank, see "Regulation - Regulatory Capital Requirements."
<TABLE>
<CAPTION>
Pro Forma as of June 30, 1996(1)
---------------------------------------------------------
Historical at $6,970,000 $8,200,000
June 30, 1996 Offering Offering
--------------------------- --------------------------- ---------------------------
Percent Percent Percent
Amount of Assets(2) Amount of Assets(2) Amount of Assets(2)
------ --------- ------ --------- ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
GAAP Capital............... 6,200 6.75% 8,632 9.16% 9,091 9.60%
TANGIBLE CAPITAL:
Actual or Pro Forma........ 6,209 6.75% 8,641 9.15% 9,100 9.59%
Required................... 1,380 1.50% 1,417 1.50% 1,424 1.50%
----- ----- ----- ----- ----- -----
Excess................... 4,829 5.25% 7,224 7.65% 7,676 8.09%
===== ===== ===== ===== ===== =====
CORE CAPITAL:(3)
Actual or Pro Forma........ 6,209 6.75% 8,641 9.15% 9,100 9.59%
Required................... 2,761 3.00% 2,834 3.00% 2,847 3.00%
----- ----- ----- ----- ----- -----
Excess................... 3,448 3.75% 5,807 6.15% 6,253 6.59%
===== ===== ===== ===== ===== =====
TOTAL RISK-BASED CAPITAL:(4)
Actual or Pro Forma........ 6,534 11.72% 8,966 15.94% 9,425 16.73%
Required................... 4,461 8.00% 4,500 8.00% 4,508 8.00%
----- ----- ----- ----- ----- -----
Excess................... 2,073 3.72% 4,465 7.94% 4,917 8.73%
===== ===== ===== ===== ===== =====
<CAPTION>
$9,430,000 $10,844,500
Offering Offering
--------------------------- ---------------------------
Percent Percent
Amount of Assets(2) Amount of Assets(2)
------ --------- ------ ---------
<S> <C> <C> <C> <C>
GAAP Capital............... 9,550 10.03% 10,077 10.53%
TANGIBLE CAPITAL:
Actual or Pro Forma........ 9,559 10.02% 10,086 10.52%
Required................... 1,431 1.50% 1,439 1.50%
----- ----- ----- -----
Excess................... 8,128 8.52% 8,648 9.02%
===== ===== ===== =====
CORE CAPITAL:(3)
Actual or Pro Forma........ 9,559 10.02% 10,086 10.52%
Required................... 2,861 3.00% 2,877 3.00%
----- ----- ----- -----
Excess................... 6,698 7.02% 7,209 7.52%
===== ===== ===== =====
TOTAL RISK-BASED CAPITAL:(4)
Actual or Pro Forma........ 9,884 17.51% 10,411 18.41%
Required................... 4,515 8.00% 4,523 8.00%
----- ----- ----- ------
Excess................... 5,369 9.51% 5,888 10.41%
===== ===== ===== ======
</TABLE>
_____________
(1) Institutions must value available for sale debt securities at amortized
cost rather than at fair value, for purposes of calculating regulatory
capital. Institutions are still required to comply with SFAS No. 115 for
financial reporting purposes. The pro forma data has been adjusted to
reflect reductions in capital that would result from an assumed 8% purchase
by the ESOP and 4% purchase by the RSP as of June 30, 1996. It is assumed
that the Company will retain 50% of net conversion proceeds. See "Use of
Proceeds."
(2) GAAP, adjusted, or risk-weighted assets as appropriate.
(3) The unrealized loss on securities available for sale of $9,000, has been
added to GAAP Capital to arrive at Tangible and Core Capital.
(4) Proposed regulations of the OTS could increase the core capital requirement
to a ratio between 4% and 5%, based upon an association's regulatory
examination rating. See "Regulation - Regulatory Capital Requirements."
Risk-Based Capital includes Tangible Capital plus $325,000 of the Bank's
allowance for loan losses. Risk-weighted assets as of June 30, 1996
totaled approximately $55.8 million. Net proceeds available for investment
by the Bank are assumed to be invested in interest earning assets that have
a 20% risk-weighting.
16
<PAGE>
ADVANCE FINANCIAL SAVINGS BANK, F.S.B.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
Restated
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $6,152,898 $5,449,416 $4,895,699
Investment securities 216,783 187,916 231,011
Interest-bearing deposits with other institutions 137,850 170,660 98,060
Mortgage-backed securities 68,875 89,733 129,257
Dividends on Federal Home Loan Bank Stock 33,883 29,013 28,273
---------- ---------- ----------
Total interest and dividend income 6,610,289 5,926,738 5,382,300
---------- ---------- ----------
INTEREST EXPENSE
Deposits 3,627,782 2,978,698 2,248,137
Advances from Federal Home Loan Bank 173,624 165,233 211,302
---------- ---------- ----------
Total interest expense 3,801,406 3,143,931 2,459,439
---------- ---------- ----------
NET INTEREST INCOME 2,808,883 2,782,807 2,922,861
Provision for loan losses 262,942 48,208 56,511
---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,545,941 2,734,599 2,866,350
---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 194,080 178,297 169,383
Gain on sale of loans 20,364 -- --
Other income 79,490 57,915 60,753
---------- ---------- ----------
Total noninterest income 293,934 236,212 230,136
---------- ---------- ----------
NONINTEREST EXPENSE
Compensation and employee benefits 885,522 779,285 670,479
Occupancy and equipment 263,986 225,117 222,805
Deposit insurance premiums 170,525 153,784 136,360
Professional fees 95,177 92,938 96,951
Advertising 74,812 65,140 89,275
Data processing charges 144,390 129,975 113,606
Other expenses 512,121 446,963 434,398
---------- ---------- ----------
Total noninterest expense 2,146,533 1,893,202 1,763,874
---------- ---------- ----------
Income before income taxes and cumulative effect of 693,342 1,077,609 1,332,612
accounting change
Income taxes 275,976 362,901 420,421
---------- ---------- ----------
Income before cumulative effect of accounting change
417,366 714,708 912,191
Cumulative effect of accounting change for
income taxes -- -- (56,476)
---------- ---------- ----------
NET INCOME $ 417,366 $ 714,708 $ 855,715
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company has only recently been formed and, accordingly, has no results
of operations at this time. As a result, the following discussion principally
reflects the operations of the Bank. The Bank's results of operations are
primarily dependent on its net interest income, which is the difference between
the interest income earned on its assets, primarily loans and investments, and
the interest expense on its liabilities, primarily deposits and borrowings. Net
interest income may be affected significantly by general economic and
competitive conditions and policies of regulatory agencies, particularly those
with respect to market interest rates. The results of operations are also
significantly influenced by the level of non-interest expenses, such as employee
salaries and benefits, non-interest income, such as fees on deposit-related
services, and the Bank's provision for loan losses.
The Bank has been, and intends to continue to be, a community-oriented
financial institution offering a variety of financial services. Management's
strategy has been to clarify its corporate focus, make certain that resources
are in place to achieve goals and objectives, and review progress toward these
goals and objectives. Management has sought to originate adjustable-rate
mortgage loans and has, more recently, sought to sell most of the fixed-rate
mortgage loans it originates into the secondary market. The Bank has also sought
to increase its origination of shorter term loans.
CURRENT OPERATING STRATEGY
The Bank operates in accordance with the following strategy that is also
discussed under "-- General" and "-- Asset/Liability Management:"
. Originate Adjustable-rate Mortgage Loans. The Bank believes that it has
----------------------------------------
thus far been successful in originating adjustable-rate mortgage loans
during periods when fixed-rate loans are preferred by many consumers. The
vast majority of the Bank's one- to four-family mortgage loans are
adjustable rate loans and the Bank's one- to four-family mortgage loan
portfolio has increased from $38.1 million at June 30, 1992 to $56.0
million at June 30, 1996. Adjustable-rate mortgage loans enable the Bank to
better manage its interest rate risk.
. Sell Fixed-rate Mortgage Loans. Although the Bank has been successful in
-------------------------------
originating adjustable-rate, rather than fixed rate mortgage loans, it has
continued to originate fixed-rate mortgage loans for those consumers who
desire these loans. The Bank has recently begun selling into the secondary
market the vast majority of the fixed-rate loans that it originates as a
means of reducing its sensitivity to changes in interest rates.
. Originate Shorter Term Loans and Obtain Longer Term Deposits. During the
------------------------------------------------------------
past several years, the Bank has increased its origination of shorter term
loans such as consumer loans, non-residential real estate loans, and
commercial loans and has also increased its portfolio of longer term
certificates of deposit. Increases in these types of loans and deposits
have reduced the Bank's sensitivity to changes in interest rates. Further,
the increase in these types of loans has enhanced the yield on a portion of
the Bank's loan portfolio.
. Emphasize Personal Service. For more than 60 years, the Bank has met the
---------------------------
financial needs of the communities it serves. Management believes that the
Bank has been able to grow during the past five years in a competitive
market because it continues to provide highly personalized service
18
<PAGE>
to its customers. In addition, the Bank intends to continue serving its
market areas as a community bank and believes that doing so will continue
to differentiate it from many of its competitors.
. Maintain Asset Quality. Management believes that asset quality is a key to
-----------------------
long-term financial success. During the past five fiscal years, total non-
performing assets as a percentage of total assets has remained between
0.41% and 0.69%. These percentages have remained within this range despite
increases in the Bank's portfolio of non-residential real estate loans,
automobile loans and commercial loans as well as growth in the overall loan
portfolio.
ASSET/LIABILITY MANAGEMENT
The Bank's net interest income is sensitive to changes in interest rates,
as the rates paid on its interest-bearing liabilities generally change faster
than the rates earned on its interest-earning assets. As a result, net interest
income will frequently decline in periods of rising interest rates and increase
in periods of decreasing interest rates.
To mitigate the impact of changing interest rates on its net interest
income, the Bank manages its interest rate sensitivity and asset/liability
products through its asset/liability management committee. The asset/liability
management committee meets as necessary to determine the rates of interest for
loans and deposits. Rates on deposits are primarily based on the Bank's need for
funds and on a review of rates offered by other financial institutions in the
Bank's market areas. Interest rates on loans are primarily based on the interest
rates offered by other financial institutions in the Bank's primary market areas
as well as the Bank's cost of funds.
In an effort to reduce interest rate risk and protect itself from the
negative effects of rapid or prolonged changes in interest rates, the Bank has
instituted certain asset and liability management measures, including
underwriting long-term fixed rate loans that are saleable in the secondary
market, offering longer term deposit products and diversifying the loan
portfolio into shorter term consumer and commercial business loans. In addition,
since the mid-1980s, the Bank has primarily originated one year, three year and
five year adjustable-rate mortgage loans for its portfolio.
The Committee manages the interest rate sensitivity of the Bank through the
determination and adjustment of asset/liability composition and pricing
strategies. The Committee then monitors the impact of the interest rate risk and
earnings consequences of such strategies for consistency with the Bank's
liquidity needs, growth, and capital adequacy. The Bank's principal strategy is
to reduce the interest rate sensitivity of its interest earning assets and
attempt to match the maturities of interest earning assets with interest bearing
liabilities, while allowing for a mismatch in an attempt to increase net
interest income.
NET PORTFOLIO VALUE
In order to encourage savings associations to reduce their interest rate
risk, the OTS adopted a rule incorporating an interest rate risk ("IRR")
component into the risk-based capital rules. However, this rule is not yet in
effect. The IRR component is a dollar amount that will be deducted from total
capital for the purpose of calculating an institution's risk-based capital
requirement and is measured in terms of the sensitivity of its net portfolio
value ("NPV") to changes in interest rates. NPV is the difference between
incoming and outgoing discounted cash flows from assets, liabilities, and off-
balance sheet contracts. An institution's IRR is measured as the change to its
NPV as a result of a hypothetical 200 basis point ("bp") change in market
interest rates. A resulting change in NPV of more than 2% of the estimated
present value of total assets ("PV") will require the institution to deduct from
its capital
19
<PAGE>
50% of that excess change. The rules provide that the OTS will calculate the IRR
component quarterly for each institution. The following table presents the
Bank's NPV at June 30, 1996, as calculated by the OTS, based on quarterly
information voluntarily provided to the OTS by the Bank.
<TABLE>
<CAPTION>
NPV as % of PV
Net Portfolio Value of Assets
------------------------------------------- ------------------------
Change NPV
in Rates $ Amount $Change(1) %Change(2) Ratio(3) Change(4)
-------- --------- ---------- ---------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
+400 bp 3,504 (5,021) (59)% 4.01% (505) bp
+300 bp 4,912 (3,613) (42) 5.50 (355) bp
+200 bp 6,292 (2,232) (26) 6.91 (215) bp
+100 bp 7,559 (966) (11) 8.15 (91) bp
0 bp 8,525 -- -- 9.06 --
-100 bp 9,076 551 6 9.54 48 bp
-200 bp 9,382 857 10 9.78 72 bp
-300 bp 9,990 1,465 17 10.30 124 bp
-400 bp 10,830 2,305 27 11.00 195 bp
</TABLE>
_________________
(1) Represents the excess (deficiency) of the estimated NPV assuming the
indicated change in interest rates minus the estimated NPV assuming no
change in interest rates.
(2) Calculated as the amount of change in the estimated NPV divided by the
estimated NPV assuming no change in interest rates.
(3) Calculated as the estimated NPV divided by present value of total assets.
(4) Calculated as the excess (deficiency) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming no
change in interest rates.
At June 30, 1996, a change in interest rates of a positive 200 basis points
would have resulted in a 215 basis point decrease in NPV as a percentage of the
present value of the Bank's total assets. Utilizing the OTS IRR measurement
described above, the Bank, at June 30, 1996, would have been considered by the
OTS to have been subject to "above normal" IRR and an additional $175,000 would
have been required to be deducted from risk-based capital.
Certain assumptions utilized by the OTS in assessing the interest rate risk
of savings associations were employed in preparing the previous table. These
assumptions related to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under the various interest rate
scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Bank's assets and liabilities would perform as set
forth above.
Certain shortcomings are inherent in the preceding NPV tables because the
data reflect hypothetical changes in NPV based upon assumptions used by the OTS
to evaluate the Bank as well as other institutions. Based on the above, net
interest income should decline with instantaneous increases in interest rates
while net interest income should increase with instantaneous declines in
interest rates. Generally, during periods of increasing interest rates, the
Bank's interest rate sensitive liabilities would reprice faster than its
interest rate sensitive assets causing a decline in the Bank's interest rate
spread and
20
<PAGE>
margin. This would result from an increase in the Bank's cost of funds that
would not be immediately offset by an increase in its yield on earning assets.
An increase in the cost of funds without an equivalent increase in the yield on
earning assets would tend to reduce net interest income. The Bank's net interest
rate spread decreased between the fiscal years ended June 30, 1994 and June 30,
1996 from 4.18% to 3.13%.
In times of decreasing interest rates, fixed rate assets could increase in
value and the lag in repricing of interest rate sensitive assets could be
expected to have a positive effect on the Bank's net interest income.
21
<PAGE>
AVERAGE BALANCE SHEET, INTEREST RATES, AND YIELD
The following table sets forth certain information relating to the Bank's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for or as of the periods indicated. Such yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods presented. Average balances are
derived from monthly balances, however, management does not believe the use of
month-end balances has caused any material difference in the information
presented. There have been no tax equivalent adjustments made to the yields.
<TABLE>
<CAPTION>
At June 30, Year Ended June 30,
------------- ---------------------------------------------------------------------
1996 1996 1995
------------- --------------------------------- ---------------------------------
Average Average Average Average
Balance Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- ---------- ------- -------- ---------- ------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:......
Loans receivable(1).......... $79,266 7.95% $76,096 $6,153 8.09% $69,378 5,449 7.85%
Investment securities (2).... 8,496 5.51% 6,826 388 5.68% 7,257 388 5.35%
Mortgage-backed
securities.................. 537 8.94% 770 69 8.96% 971 90 9.27%
------- ------- ------ ------- ------
Total interest-earning
assets....................... 88,299 7.72% 83,692 6,610 7.90% 77,606 5,927 7.64%
------ ------
Non-interest-earning assets... 3,553 3,042 2,456
------- ------- -------
Total assets.................. $91,852 $86,734 $80,062
======= ======= =======
Interest-bearing liabilities:
Interest-bearing demand
deposits................... $10,930 2.96% $ 9,975 298 2.99% $ 9,204 279 3.03%
Certificates of Deposit...... 50,855 5.33% 50,093 2,787 5.56% 44,695 2,142 4.79%
Savings deposits............. 17,378 3.18% 16,572 543 3.28% 16,933 558 3.30%
Short-term borrowings........ 4,376 5.49% 3,105 173 5.57% 3,012 165 5.48%
------- ----- ------- ------ ------- -----
Total interest-bearing
liabilities................. 83,539 4.58% 79,745 3,801 4.77% 73,844 3,144 4.26%
------ -----
Non-interest bearing
liabilities.................. 2,113 833 648
------- ------- -------
Total Liabilities............. 85,652 80,578 74,492
------- ------- -------
Retained Earnings............. 6,200 6,156 5,570
------- ------- -------
Total liabilities and retained
earnings..................... $91,852 $86,734 $80,062
======= ======= =======
Net interest income........... $2,809 $2,783
====== ======
Interest rate spread (3)...... 3.14% 3.13% 3.38%
Net yield on interest-earning
assets(4).................... 3.38% 3.36% 3.59%
Ratio average interest earning
assets to average interest-
bearing liabilities......... 105.70% 104.95% 105.09%
<CAPTION>
1994
---------------------------------
Average Average
Balance Interest Yield/Cost
------- -------- ----------
<S> <C> <C> <C>
Interest-earning assets:......
Loans receivable(1).......... $60,046 $ 4,896 8.15%
Investment securities (2).... 5,817 357 6.14%
Mortgage-backed
securities.................. 1,591 129 8.11%
------- -------
Total interest-earning
assets....................... 67,454 5,382 7.98%
-------
Non-interest-earning assets 2,694
-------
Total assets.................. $70,148
=======
Interest-bearing liabilities:
Interest-bearing demand
deposits................... $ 9,745 300 3.08%
Certificates of Deposit...... 31,578 1,317 4.17%
Savings deposits............. 19,102 631 3.30%
Short-term borrowings........ 4,362 211 4.84%
------- ------
Total interest-bearing
liabilities................. 64,787 2,459 3.80%
------
Non-interest bearing
liabilities.................. 618
-------
Total Liabilities............. 65,405
-------
Retained Earnings............. 4,743
-------
Total liabilities and retained
earnings..................... $70,148
=======
Net interest income........... $2,923
======
Interest rate spread (3)...... 4.18%
Net yield on interest-earning
assets(4).................... 4.33%
Ratio average interest earning
assets to average interest-
bearing liabilities......... 104.12%
</TABLE>
___________________
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions and 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.
22
<PAGE>
RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated. For
each category of interest earning assets and interest bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in volume multiplied by old rate) and (ii) changes in rates (changes in
rate multiplied by old volume). Increases and decreases due to both rate and
volume, which cannot be segregated, have been allocated proportionately to the
change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------------------------------------
1996 vs 1995 1995 vs 1994
------------------------------- --------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
-------------------------- --------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans receivable............... $ 528 $ 176 $ 704 $ 761 $ (208) $ 553
Investment securities.......... (23) 23 -- 88 (57) 31
Mortgage-backed securities..... (19) (2) (21) (50) 11 (39)
------ ------ ------ ------ ------ ------
Total interest-earning assets $ 486 $ 197 $ 683 $ 799 $ (254) $ 545
====== ====== ====== ====== ====== ======
Interest expense:
Interest-bearing demand
deposits................... $ 23 $ (4) $ 19 $ (17) $ (4) $ (21)
Certificates of Deposit...... 259 386 645 547 278 825
Savings deposits............. (12) (3) (15) (72) (1) (73)
Short-term borrowings........ 5 3 8 (65) 19 (46)
------ ------ ------ ------ ------ ------
Total interest-bearing
liabilities.................. $ 275 $ 382 $ 657 $ 393 $ 292 $ 685
====== ====== ====== ====== ====== ======
Net change in interest income.. $ 211 $ (185) $ 26 $ 406 $ (546) $ (140)
====== ====== ====== ====== ====== ======
</TABLE>
FINANCIAL CONDITION
Total assets increased by $8.1 million or 9.7% to $91.9 million at June 30,
1996 from $83.7 million at June 30, 1995 and by $4.8 million at June 30, 1995
from $78.9 million at June 30, 1994, primarily due to increases in loans
receivable of $4.5 million and $7.2 million, respectively, as well as increases
of $1.1 million and $1.4 million in securities held to maturity, respectively,
and offset, in 1995, by a decrease in interest-bearing deposits with other
institutions of $3.6 million. The increases in the dollar amount of loans
receivable primarily resulted from increases in the dollar amount of one- to
four-family mortgage loan portfolio and to a lesser extent in the non-
residential real estate, automobile, and commercial loan portfolios.
The Bank's deposits increased by $6.1 million or 8.1% to $80.8 million at
June 30, 1996 and by $7.5 million or 11.1% to $74.7 million at June 30, 1995
from $67.2 million at June 30, 1994. Between 1994 and 1995, the Bank increased
the size of its certificates of deposit portfolio through extensive advertising
of a "yes we can!" slogan in conjunction with providing above-market interest
rates for certificates of deposit with nine month terms. Between 1995 and 1996,
the Bank increased the size of its certificates of deposit and number of deposit
accounts as a result of the opening of a new branch office in Follonsbee, West
Virginia. During the past several years, the Bank believes its deposits have
23
<PAGE>
increased due to funds deposited by customers of other local institutions who
experienced higher fees and less personalized service following mergers and
acquisitions of financial institutions located in the Bank's market areas.
The Bank's equity increased by $417,000 or 7.2% to $6.2 million at June 30,
1996 from $5.8 million at June 30, 1995. The Bank's equity increased $713,000 or
14.1% at June 30, 1995 from $5.1 million at June 30, 1994. The increases were
primarily the result of earnings for the fiscal years ended June 30, 1996 and
1995.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
Net Income. Net income decreased by $297,000 or 41.6% for fiscal 1996 to
$417,000 from $715,000 for fiscal 1995. Net income for fiscal 1996 was reduced
primarily as a result of an increase of $253,000 in noninterest expense and an
increase in the provision for loan losses of $215,000 partially offset by an
increase of $58,000 in noninterest income and a decrease of $87,000 in income
taxes.
Net Interest Income. Net interest income increased by approximately
$26,000 or 0.9% to $2.81 million for fiscal 1996 from $2.78 million for fiscal
1995. The interest rate spread decreased to 3.13% for fiscal 1996 from 3.38% for
fiscal 1995. The decline in interest rate spread was primarily the result of an
increase in the cost of funds due to higher market interest rates for time
deposits and an increase in the average balance of time deposits. Net interest
income increased between the periods despite this decrease in interest rate
spread due to increases in the average balances of both interest-earning assets
and interest-bearing liabilities.
Interest and Dividend Income. Interest income on loans increased by
approximately $703,000 to $6.2 million for fiscal 1996 from $5.4 million for
fiscal 1995. The increase for fiscal 1996 was largely the result of an increase
of $6.7 million in the average balance of loans outstanding during fiscal 1996,
to $76.1 million, as compared to fiscal 1995 as well as an increase in the
average yield from 7.85% for fiscal 1995 to 8.09% for fiscal 1996.
Interest Expense. Interest expense on deposits increased by approximately
$649,000 or 21.8% to $3.6 million for fiscal 1996 from $3.0 million for fiscal
1995. The increase for fiscal 1996 was substantially due to an increase in the
average cost of time deposits to 5.56% in fiscal 1996 from 4.79% in fiscal 1995
as well as an increase in the average balance of time deposits to $50.1 million
from $44.7 million during this same period. These average costs and balances on
time deposits increased as market interest rates increased in fiscal 1996 and
the Bank offered higher interest rates to attract and retain time deposits.
Interest expense on FHLB advances increased by $8,000 to $173,000 for fiscal
1996 compared to $165,000 for fiscal 1995, as the amount of, and rate paid on,
borrowed funds increased.
Provision for Loan Losses. The provision for loan losses increased
$215,000 or 445.4% to $263,000 for fiscal 1996 from $48,000 for fiscal 1995. The
Bank's ratio of non-performing loans to total loans was 0.55% and 0.33% at June
30, 1996 and 1995, respectively. The increase in the amount of the provision for
fiscal 1996 was based on management's decision to increase the allowance from
$198,000 at June 30, 1995 to $325,000 at June 30, 1996, as well as take a
$145,000 charge-off during fiscal 1996. The increase in the provision for loan
losses was in part the result of a larger loan portfolio and a significant
increase from 1995 to 1996 in automobile loans ($1.6 million), non-residential
real estate loans ($2.1 million) and commercial loans ($1.0 million). The
$145,000 charge-off during 1996 was related primarily to one loan. See "Business
of the Bank -- Analysis of Allowance for Loan Losses."
24
<PAGE>
Noninterest Income. Noninterest income increased by $58,000 to $294,000
during fiscal 1996 from $236,000 for fiscal 1995. This increase was primarily
due to a $16,000 increase in service charges on deposit accounts and a $20,000
gain on the sale of education loans during the year ended June 30, 1996. The
increase in service charges on deposit accounts was primarily the result of an
increase in the number of deposit accounts.
Noninterest Expense. Noninterest expense increased to $2.1 million or
13.4% for fiscal 1996 from $1.9 million during fiscal 1995. Compensation and
benefits expenses increased by $106,000 or 13.7% to $886,000 for fiscal 1996
from $779,000 for fiscal 1995. The increase in compensation and benefits
expenses in fiscal 1996 was primarily the result of cost of living increases,
the hiring of additional personnel and increased benefit plan expense. Occupancy
and equipment expenses increased by $39,000 or 17.3% to $264,000 for fiscal 1996
due to purchases of data processing equipment and renovation of the branch
office. Deposit insurance premiums, professional fees, advertising, data
processing charges, and other noninterest expense also experienced an aggregate
increase of $108,000 or 12.2% over fiscal 1995 due primarily to increases
related to the growth in the certificate of deposit portfolio and increased
deposit related services.
Income Taxes. Income taxes decreased by approximately $87,000 or 24.0% to
$276,000 for fiscal 1996 from $363,000 for fiscal 1995. The decrease in fiscal
1996 compared to fiscal 1995 was primarily the result of the decrease in net
income before taxes.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
Net Income. Net income decreased by $141,000 or 16.5% for fiscal 1995 to
$715,000 from $856,000 for fiscal 1994 primarily as a result of a decrease in
net interest income of $140,000 and an increase in noninterest expense of
$129,000 or 7.3% partially offset by a decrease in income taxes of $58,000 and a
$56,000 addition to net income in fiscal 1994 due to an accounting change that
was not repeated in fiscal 1995.
Net Interest Income. Net interest income decreased to $2.8 million for
fiscal 1995 from $2.9 million for fiscal 1994, a decrease of 4.8%. The decrease
in net interest income for fiscal 1995 was due to an increase of $684,000 in
interest expense that was only partially offset by a $544,000 increase in
interest and dividend income.
Despite an increase in average balances of interest-earning assets and
interest-bearing liabilities in fiscal 1994, the interest rate spread decreased
in fiscal 1995 to 3.38% from 4.18% for fiscal 1994, resulting in reduced net
interest income. The decrease in the interest rate spread was primarily due to
an increase in the cost of interest-bearing liabilities and a decrease in the
yield on interest earning assets.
Interest and Dividend Income. Interest income on loans increased by
approximately $554,000 or 11.3% to $5.4 million for fiscal 1995. This increase
was due to a $9.3 million or 15.5% increase in the average balance of loans in
fiscal 1995 as compared to fiscal 1994 offset by a 30 basis point or 3.7%
decline in the yield earned on loans between these two periods due to a decrease
in market interest rates. Interest on deposits with other institutions increased
by $73,000 or 74.0% to $171,000 for fiscal 1995, interest income on mortgage-
backed securities decreased by $40,000 for fiscal 1995 and interest income on
investment securities decreased by $43,000 or 18.7% to $188,000 for fiscal 1995.
These changes
25
<PAGE>
reflect, in part, the decision of management to increase liquidity by shifting
assets from less liquid but higher yielding mortgage-backed and investment
securities to more liquid but lower yielding deposits with other institutions.
The yield on the average balance of interest earning assets was 7.64% and
7.98%, respectively, for fiscal 1995 and 1994.
Interest Expense. Interest expense on deposits increased by approximately
$731,000 or 32.5% for fiscal 1995 from $2.2 million for fiscal 1994. The
increase for fiscal 1995 was substantially due to an increase of $13.1 million
or 41.5% in the average balance of time deposits from $31.6 million in fiscal
1994 to $44.7 million in fiscal 1995 as well as an increase in the cost of time
deposits of 62 basis points or 14.9% from 4.17% in fiscal 1994 to 4.79% in
fiscal 1995 due to rising market interest rates. Interest on FHLB of Pittsburgh
advances decreased $46,000 or 21.8% during fiscal 1995 to $165,000 from $211,000
for fiscal 1994 resulting from a reduction in average borrowings.
Provision for Loan Losses. The provision for loan losses decreased $8,000
or 14.7% to $48,000 for fiscal 1995 from $57,000 for fiscal 1994. The Bank's
ratio of non-performing loans to total loans was 0.33% and 0.65% at June 30,
1995 and 1994, respectively.
Noninterest Income. Noninterest income increased $6,000 during fiscal 1995
from $230,000 for fiscal 1994. Service charges on deposit accounts increased
$9,000 and other income decreased $3,000.
Noninterest Expense. Noninterest expense increased $129,000 or 7.3% for
fiscal 1995 from $1.8 million during fiscal 1994. Compensation and benefits
expense increased $109,000 or 16.2% from fiscal 1994 primarily due to cost of
living increases and additional personnel. Data processing charges increased
$16,000 or 14.4% for fiscal 1995 from $114,000 for fiscal 1994 due to an
increased number of accounts and new services being provided. FDIC deposit
insurance premium expense increased $17,000 or 12.8% in fiscal 1995 as the
average balance of deposits increased in fiscal 1995.
Income Taxes. Income taxes decreased by approximately $58,000 or 13.7% to
$363,000 for fiscal 1995 from $420,000 for fiscal 1994. The decrease in fiscal
1995 compared to fiscal 1994 was primarily the result of a decrease in net
income before taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required by OTS regulations to maintain, for each calendar
month, a daily average balance of cash and eligible liquid investments of not
less than 5% of the average daily balance of its net withdrawable savings and
borrowings (due in one year or less) during the preceding calendar month. This
liquidity requirement may be changed from time to time by the OTS to any amount
within the range of 4% to 10%. The Bank's average liquidity ratio was 10.79%,
9.39%, and 13.97% at June 30, 1996, 1995, and 1994, respectively.
The Bank's sources of liquidity include cash flows from operations,
principal and interest payments and prepayments on loans, maturities and
prepayments of securities, deposit inflows, and borrowing from the FHLB of
Pittsburg. During fiscal 1996, 1995, and 1994, the primary source source of
funds was cash flows from deposit growth. Cash flow from net deposit growth was
$6.1 million,
26
<PAGE>
$7.5 million, and $7.9 million, for fiscal years ending June 30, 1996, 1995, and
1994, respectively. Cash flows used to fund loan growth during these same
periods totalled $6.2 million, $5.9 million and $12.6 million, respectively.
In addition, from time-to-time the Bank borrows funds from the FHLB of
Pittsburgh to supplement its cash flows. At June 30, 1996, the Bank had
outstanding borrowings from the FHLB of $4.4 million. See Note 10 to the
Consolidated Financial Statements.
As of June 30, 1996, the Bank had $69,000 of securities classified as
available for sale and $4.8 million of investment securities classified as held
to maturity. The equity of the Bank at June 30, 1996 was reduced by $9,450 which
represents the net unrealized loss on securities classified as available for
sale. See Notes 1 and 2 to the Consolidated Financial Statements.
The Bank has received regulatory approval to open a branch office during
1997 in Wintersville, Ohio. Refurbishing and related expenses for the proposed
branch (estimated at approximately $500,000) are not expected to have a material
impact on the capital or liquidity of the Bank. However, the opening and
operation of the branch will result in additional noninterest expense relating
to hiring additional staff and other related expenses.
The Bank is subject to federal regulations that impose certain minimum
capital requirements. At June 30, 1996, the Bank exceeded these capital
requirements. See "Historical and Pro Forma Capital Compliance."
Liquidity may be adversely affected by unexpected deposit outflows,
excessive interest rates paid by competitors, adverse publicity relating to the
savings and loan industry, and similar matters. Further, the disparity in
insurance premiums described herein could result in the Bank losing deposits to
BIF members that have lower costs of funds and therefore are able to pay higher
rates of interest on deposits. Management monitors projected liquidity needs and
determines the level desirable, based in part on the Bank's commitments to make
loans and management's assessment of the Bank's ability to generate funds.
RECENT ACCOUNTING PRONOUNCEMENTS
FASB Statement on Disclosures About Fair Value of Financial Instruments. In
December 1991, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 107. The Statement requires the
disclosure of the fair value of financial instruments in the footnotes to the
financial statements. The Statement is effective for the Bank for fiscal years
ending after December 15, 1995.
FASB Statement on Accounting by Creditors for Impairment of a Loan. In May
1993, FASB issued SFAS No. 114. SFAS No. 114 addresses the accounting by
creditors for impairment of a loan by specifying how allowances for credit
losses related to certain loans should be determined. A loan is considered
impaired when, based on current information and events, it is probable that a
creditor will be unable to collect all amounts due according to the contractual
terms of the loan agreement. SFAS No. 114 generally requires creditors to
account for impaired loans, except those loans that are accounted for at fair
value or at the lower of cost or fair value, at the present value of the
expected future cash flows discounted at the loan's effective interest rate. The
Statement also addresses the accounting by creditors for loans that are
restructured in a troubled debt restructuring involving a modification of terms
of a receivable including those involving a receipt of assets in partial
satisfaction of a receivable. This
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Statement is effective for fiscal years beginning after December 15, 1994. In
October 1994, FASB amended certain provisions of SFAS No. 114 by the issuance of
SFAS No. 118 "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures." SFAS No. 118 amends SFAS No. 114 by eliminating
provisions describing how a creditor should report income on an impaired loan
and increasing disclosure requirements as to information on recorded investments
in certain impaired loans and how a creditor recognizes related interest income.
The effective date of SFAS No. 118 is the same as for SFAS No. 114. The adoption
of SFAS No. 114 and the amendment by SFAS No. 118 did not have a material effect
on the Bank's financial statements.
FASB Statement on Accounting for the Impairment of Long-Lived Asset and for
Long-Lived Assets to be Disposed of. In March 1995, FASB issued SFAS No. 121,
which will become effective for fiscal years beginning after December 15, 1995.
This Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability is evaluated based upon the estimated
future cash flows expected to result from the use of the asset and its eventual
disposition. If expected cash flows are less than the carrying amount of the
asset, an impairment loss is recognized. Additionally, this Statement requires
that long-lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell.
However, based on existing conditions, and a preliminary review, management
believes that the impact of adopting this Statement will not be material to the
Bank's financial statements.
FASB Statement on Accounting for Mortgage Servicing Rights. In May 1995,
FASB issued SFAS No. 122, which will become effective, on a prospective basis,
for fiscal years beginning after December 31, 1995. This Statement requires
mortgage banking enterprises to recognize as separate assets rights to service
mortgage loans, however those servicing rights are acquired. When mortgage
loans, acquired either through a purchase transaction or by origination, are
sold or securitized with servicing rights retained, an allocation of the total
cost of the mortgage loans should be made between the mortgage servicing rights
and the loans based on their relative fair values. In subsequent periods, all
mortgage servicing rights capitalized must be periodically evaluated for
impairment based on the fair value of those rights, and any impairments
recognized through a valuation allowance. However, based on existing conditions,
and a preliminary review, management believes that the impact of adopting this
Statement will not be material to the Bank's financial statements. Effective
January 1, 1997, this Statement will be superseded by SFAS No. 125, which is
discussed below.
FASB Statement on Accounting for Stock-Based Compensation. In October
1995, the FASB issued SFAS No. 123. SFAS No. 123 defines a "fair value based
method" of accounting for an employee stock option whereby compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period. FASB encouraged all entities to adopt the fair value
based method, however, it will allow entities to continue the use of the
"intrinsic value based method" prescribed by Accounting Principles Board ("APB")
Opinion No. 25. Under the intrinsic value based method, compensation cost is the
excess of the market price of the stock at the grant date over the amount an
employee must pay to acquire the stock. However, most stock option plans have no
intrinsic value at the grant date and, as such, no compensation cost is
recognized under APB Opinion No. 25. Entities electing to continue use of the
accounting treatment of APB Opinion No. 25 must make certain pro forma
disclosures as if the fair value based method had been applied. The accounting
requirements of SFAS No. 123 are effective for transactions entered into in
fiscal years beginning after December 15, 1995. Pro forma disclosures must
include the effects of all awards granted in fiscal years beginning after
December 15, 1994. The Bank expects to continue to use the "intrinsic value
based method" as
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<PAGE>
prescribed by APB Opinion No. 25. Accordingly, the impact of adopting this
Statement will not be material to the Bank's financial statements.
FASB Statement on Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities. In June 1996, FASB issued SFAS No.
125, which will be effective, on a prospective basis, for fiscal years beginning
after December 31, 1996. SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities based on consistent application of a financial-components approach
that focuses on control. SFAS No. 125 extends the "available for sale" and
"trading" approach of SFAS No. 115 to non-security financial assets that can be
contractually prepaid or otherwise settled in such a way that the holder of the
asset would not recover substantially all of its recorded investment. In
addition, SFAS No. 125 amends SFAS No. 115 to prevent a security from being
classified as held to maturity if the security can be prepaid or settled in such
a manner that the holder of the security would not recover substantially all of
its recorded investment. The extension of the SFAS No. 115 approach to certain
non-security financial assets and the amendment to SFAS No. 115 are effective
for financial assets held on or acquired after January 1, 1997. Effective
January 1, 1997, SFAS No. 125 will supersede SFAS No. 122, which is discussed
above. Management has not yet determined the effect, if any, SFAS No. 125 will
have on the Company's financial statements.
In December 1994, the Accounting Standards Division of the American
Institute of Certified Public Accountants ("AICPA") approved SOP 94-6,
Disclosure of Certain Significant Risks and Uncertainties. SOP 94-6 requires
additional disclosure in financial statements about the risk and uncertainties
existing as of the date of those financial statements in the following areas:
nature of operations, use of estimates in the preparation of financial
statements, certain significant estimates and current vulnerability due to
certain concentrations. The standard is effective for financial statements
issued for fiscal years ending after December 15, 1995. Management does not
believe that the adoption of SOP 94-6 will have a material impact on the
financial position of the Bank.
In November 1993, the AICPA issued SOP 93-6 Employers' Accounting for
Employee Stock Ownership Plan. SOP 93-6 addresses accounting for shares of stock
issued to employees by an employee stock ownership plan. SOP 93-6 requires that
the employer record compensation expense in an amount equal to the fair value of
shares committed to be released from the ESOP to employees. SOP 93-6 is
effective for fiscal years beginning after December 15, 1993 and relates to
shares purchased by an ESOP after December 31, 1992. Management has determined
that, assuming the Common Stock appreciates over time, the adoption of SOP 93-6
will likely increase compensation expense relative to the ESOP, as compared with
prior guidance that required recognition of compensation expense based on the
cost of the shares acquired by the ESOP. The amount of any such increase,
however, cannot be determined at this time because the expense will be based on
the fair value of the shares committed to be released to employees, which amount
is not determinable.
EFFECT OF INFLATION AND CHANGING PRICES
The Bank's financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation. Unlike industrial companies, virtually all
of the assets and liabilities of a financial institution are monetary in nature.
As a result, interest rates have a
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<PAGE>
more significant impact on a financial institution's performance than the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or with the same magnitude as the prices of goods and
services.
BUSINESS OF THE COMPANY
The Company is a Delaware corporation organized in September 1996 at the
direction of the Bank to acquire all of the capital stock that the Bank will
issue upon the Bank's conversion from the mutual to stock form of ownership. The
Company is not an operating company and has not engaged in any significant
business to date. Management believes that the holding company structure and
retention of proceeds from the Offerings will, should it decide to do so,
facilitate diversification into other non-banking activities and possible future
acquisitions of other financial institutions such as savings institutions and
commercial banks, and thereby further its expansion into existing and new market
areas and also enable the Company to repurchase its own stock. However, there
are no present plans, arrangements, agreements, or understandings, regarding any
such activities.
Upon consummation of the Conversion, the Company 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, provided
that the Bank retains a specified amount of its assets in housing-related
investments. The Company will not initially conduct any active business. The
Company does not intend to employ any persons other than officers, but will
utilize the support staff of the Bank from time to time.
BUSINESS OF THE BANK
GENERAL
The Bank attracts deposits from the general public and uses such deposits
primarily to originate loans secured by first mortgages on one- to four-family
residences in its market areas. One-to four-family loans secured by first
mortgages totalled $56.0 million, or 69.1%, of the Bank's total loan portfolio
at June 30, 1996. To a lesser extent, the Bank originates consumer loans and
non-residential real estate loans which totalled $10.1 million, or 12.4%, and
$8.3 million, or 10.3%, respectively, of the total loan portfolio at June 30,
1996. The Bank also originates construction loans and other commercial loans.
The principal sources of funds for the Bank's lending activities are
deposits, the repayment and maturity of loans and sale, maturity, and call of
securities, and FHLB advances. The principal source of income is interest on
loans and the principal expense is interest paid on deposits.
MARKET AREAS
The Bank operates two offices. The main office is located in Wellsburg,
West Virginia, and the branch office is located in Follansbee, West Virginia,
both of which are in Brooke County. Wellsburg is located approximately 37 miles
west of Pittsburgh, Pennsylvania and 16 miles north of Wheeling, West Virginia
on U.S. Route 22. The Pittsburgh International Airport is located approximately
45 minutes from Wellsburg. The Bank's primary market area for lending and
deposits consists of Brooke and Hancock Counties of West Virginia and portions
of Jefferson County, Ohio and Washington County, Pennsylvania. Regulatory
approval to open a new branch office in Wintersville, Ohio, located in Jefferson
County, has been received by the Bank.
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Economic growth in the Bank's market areas remains dependent upon the local
economy. The deposit and loan activity of the Bank is significantly affected by
economic conditions in its market areas. However, the economies of the Bank's
market areas have been relatively stable. Major area employers include Weirton
Steel Corporation, Wheeling Pittsburgh Steel Corporation, American Electric
Power and Koppers Industries.
LENDING ACTIVITIES
GENERAL. The Bank's loan portfolio predominantly consists of mortgage
loans secured by one- to four-family residences. At June 30, 1996, the Bank's
loan portfolio totalled $81.1 million. Loans secured by first mortgages on one-
to four-family residences totalled $56.0 million, or 69.1%, of the Bank's total
loan portfolio at June 30, 1996. The Bank has not purchased loans in several
years and is primarily a portfolio lender. Recently, the Bank has adopted a
strategy to sell fixed-rate, one- to four-family mortgage loans in the secondary
market. At June 30, 1996, such loans held for sale totalled $1.4 million. For
its mortgage loan portfolio, the Bank originates fixed-rate and adjustable-rate
mortgage loans. At June 30, 1996, adjustable-rate residential one- to four-
family mortgage loans totalled approximately 66.8% of the Bank's residential
mortgage loans.
Loan originations are generally obtained from existing customers, members
of the local community, and referrals from real estate brokers, lawyers,
accountants, and current and past customers within the Bank's lending area. The
Bank also advertises on an extensive basis in the local print media and
periodically advertises on radio and television. Mortgage loans originated by
the Bank in its portfolio generally include due-on-sale clauses that provide the
Bank with the contractual right to deem the loan immediately due and payable in
the event that the borrower transfers ownership of the property without the
Bank's consent.
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ANALYSIS OF LOAN PORTFOLIO. The following table sets forth information
concerning the composition of the Bank's loan portfolio in dollar amounts and in
percentages of the total loan portfolio as of the dates indicated.
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------------- ---------------- ---------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
TYPE OF LOANS:
- -------------
REAL ESTATE LOANS:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Construction............. $ 1,901 2.35% $ 2,402 3.21% $ 4,038 5.86% $ 1,929 3.42% $ 1,962 3.79%
1-4 Family(1)............ 55,975 69.05 52,711 70.40 48,051 69.67 41,315 73.25 38,079 73.54
Multi-family............. 1,697 2.09 1,737 2.32 1,367 1.98 849 1.51 885 1.71
Non-residential.......... 8,327 10.27 6,232 8.32 5,519 8.00 3,381 5.99 3,079 5.95
Consumer Loans:
Home improvement......... 1,119 1.38 1,313 1.75 899 1.30 690 1.22 538 1.04
Automobile............... 6,178 7.62 4,598 6.14 3,750 5.44 3,935 6.98 3,377 6.52
Share.................... 1,125 1.39 1,026 1.37 809 1.17 818 1.45 734 1.42
Education................ 128 0.16 1,571 2.10 1,608 2.33 1,538 2.73 1,600 3.09
Other.................... 1,512 1.87 1,230 1.64 957 1.39 1,008 1.79 796 1.54
Commercial loans........... 3,100 3.82 2,058 2.75 1,967 2.86 942 1.66 732 1.40
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans........... 81,062 100.00% 74,878 100.00% 68,965 100.00% 56,405 100.00% 51,782 100.00%
====== ====== ====== ====== ======
Less:
Loans in process......... (1,549) (1,327) (2,598) (1,344) (1,466)
Deferred loan
origination fees
and costs............... (247) (296) (302) (288) (195)
Allowance for possible loan
losses.................. (325) (198) (174) (119) (119)
------- ------- ------- ------- -------
Total loans, net...... $78,941 $73,057 $65,891 $54,654 $50,002
======= ======= ======= ======= =======
</TABLE>
- ------------------------
(1) Includes $1,375,000 of one- to four-family mortgages held for sale at June
30, 1996 and home equity and second mortgage loans.
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<PAGE>
LOAN MATURITY TABLES
The following table sets forth the estimated maturity of the Bank's loan
portfolio, including loans held for sale, at June 30, 1996. The table does not
include the effects of possible prepayments or scheduled repayments. All
mortgage loans are shown as maturing based on contractual maturities.
<TABLE>
<CAPTION>
1-4 Family
Residential Multi-family Non-residential
Real Estate Real Estate Real Estate Construction Consumer Commercial Total
----------- ----------- ----------- ------------ -------- ---------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Non-performing............. $ 214 $ 55 $ 77 $ -- $ 87 $ 9 $ 442
AMOUNTS DUE:
Within 1 year.............. 2,959 -- 1 -- 471 1,354 4,785
Over 1 to 2 years.......... 58 -- 370 -- 1,185 227 1,840
Over 2 to 3 years.......... 243 -- 22 -- 2,050 230 2,545
Over 3 to 5 years.......... 534 28 319 50 5,008 869 6,808
Over 5 to 10 years......... 8,466 402 1,738 -- 1,121 290 12,017
Over 10 to 15 years........ 18,333 612 3,404 -- 103 85 22,537
Over 15 years.............. 25,168 600 2,396 1,851 37 36 30,088
------- ------ ------ -------- ------ ------ -------
Total amount due........... 55,975 1,697 8,327 1,901 10,062 3,100 81,062
------- ------ ------ -------- ------- ------ -------
Less:
Allowance for loan losses.. (75) (8) (41) -- (85) (116) (325)
Loans in process........... (162) -- (30) (1,217) (55) (85) (1,549)
Net deferred loan fees..... (247) -- -- -- -- -- (247)
------- ------ ------ -------- ------- ------ -------
Loans receivable, net...... $55,491 $1,689 $8,256 $ 684 $ 9,922 $2,899 $78,941
======= ====== ====== ======= ======= ====== =======
</TABLE>
The following table sets forth the dollar amount of all loans, including
loans held for sale, contractually due after June 30, 1997, and shows the amount
of such loans which have pre-determined interest rates and which have floating
or adjustable interest rates.
<TABLE>
<CAPTION>
At June 30, 1996
-----------------------------------------
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In Thousands)
<S> <C> <C> <C>
One- to four-family.......... $19,494 $33,520 $53,014
Multi-family................. 699 998 1,697
Non-residential real estate.. 4,220 4,106 8,326
Construction................. 195 1,706 1,901
Consumer..................... 9,589 -- 9,589
Commercial................... 1,456 281 1,737
------- ------- -------
Total...................... $35,653 $40,611 $76,264
======= ======= =======
</TABLE>
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<PAGE>
The following table shows the total loan originations, repayments, and
sales activity by the Bank for the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Total gross loans receivable
at beginning of period....... $74,878 $68,965 $56,405
Loans originated:
1 to 4 family residential.... 6,306 7,194 10,494
Construction................. 2,962 3,212 4,778
Multi-family................. 408 50 837
Non-residential real estate.. 2,013 1,320 2,287
Consumer..................... 8,083 6,008 3,619
Commercial................... 7,789 6,114 4,666
------- ------- -------
Total loans originated......... 27,561 23,898 26,681
Total loans sold............... 1,488 -- --
Loan principal repayments...... 19,889 17,985 14,121
------- ------- -------
Net loan activity.............. 6,184 5,913 12,560
------- ------- -------
Total gross loans receivable
at end of period............. $81,062 $74,878 $68,965
======= ======= =======
</TABLE>
ONE- TO FOUR-FAMILY RESIDENTIAL LOANS. The Bank's primary lending activity
consists of the origination of one- to four-family residential mortgage loans
secured by property located in the Bank's primary market areas. The Bank
generally originates owner-occupied one- to four-family residential mortgage
loans in amounts up to 80% of the lesser of the appraised value or selling price
of the mortgaged property without requiring mortgage insurance. The Bank will
originate a mortgage loan in an amount up to 95% of the lesser of the appraised
value or selling price of a mortgaged property, however, mortgage insurance is
required for the amount in excess of 80% of such value. Non-owner-occupied
residential mortgage loans are originated up to 80% of the lesser of the
appraised value or selling price of the property on a fixed-rate basis only. The
Bank also originates construction permanent loans on one- to four-family
residences. The Bank retains most of the mortgage loans that it originates.
Adjustable-rate mortgage loans, which can adjust annually or every three or five
years over the life of the loan depending on the terms of the loan, can have
maturities of up to 30 years. Fixed-rate loans can have maturities of up to 30
years depending on the terms of the loan.
For all adjustable-rate mortgage loans, the Bank requires the borrower to
qualify at the initial rate. The Bank's adjustable-rate mortgage loans provide
for periodic interest rate adjustments of plus or minus 1% to 2% with a maximum
adjustment over the term of the loan as set forth in the loan agreement and
usually ranges from 6% to 7% above the initial interest rate depending on the
terms of the loan.
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<PAGE>
Adjustable-rate mortgage loans reprice every year, every three years or every
five years, and provide for terms of up to 30 years with most loans having terms
of between 15 and 30 years. The Bank offers adjustable-rate loans with initial
interest rates set below the fully indexed rate.
The Bank offers adjustable-rate mortgage loans indexed to the weekly
average of the one year U.S. Treasury bill. Interest rates charged on mortgage
loans are competitively priced based on market conditions and the Bank's cost of
funds. Generally, the Bank's standard underwriting guidelines for mortgage loans
conform to the Federal Home Loan Mortgage Corporation ("FHLMC") guidelines and
most of the Bank's loans are salable in the secondary market. However, it is the
current policy of the Bank to remain a portfolio lender for its adjustable rate
loans.
The Bank's one- to four-family residential loan portfolio also includes
second mortgage loans and home equity loans secured by second mortgages.
NON-RESIDENTIAL REAL ESTATE LOANS. Non-residential real estate loans
consist of loans made for the purpose of purchasing the non-residential real
estate used as collateral and includes loans secured by mixed residential and
commercial use property, professional office buildings, churches and
restaurants. At June 30, 1996, non-residential real estate loans totalled $8.3
million, or 10.3% of total loans. Loans secured by non-residential property may
be originated in amounts up to 80% of the appraised value for a maximum term of
15 years.
CONSUMER LOANS. The Bank offers consumer loans in order to provide a wider
range of financial services to its customers. Federal savings associations are
permitted to make secured and unsecured consumer loans up to 35% of their
assets. In addition, savings associations have lending authority above the 35%
limitation for certain consumer loans, such as home improvement, automobile and
savings account or passbook loans. Consumer or other loans totalled $10.1
million, or 12.4% of the Bank's total loans, of which loans secured by
automobiles totalled $6.2 million, or 7.6% of the Bank's total loans at June 30,
1996. The Bank originates automobile loans with terms of up to six years for
both new and used automobiles. Most of these automobile loans are originated
directly by the Bank. During the past two years, the Bank has begun to originate
automobile loans indirectly by purchasing such loans from automobile dealers
with whom the Bank provides floor plan financing. Indirect automobile loans are
underwritten by the Bank and a fee is remitted to the automobile dealer upon the
successful underwriting and closing of the loan. The fee is rebated to the Bank,
on a pro rata basis, if the loan is repaid within the first six months. The Bank
does not have recourse against the automobile dealer in the event of a default
by the borrower. The Bank originates each indirect auto loan in accordance with
its underwriting standards and procedures, which are intended to assess the
applicant's ability to repay the amounts due on the loan and the adequacy of the
financed vehicle as collateral.
COMMERCIAL LOANS. Commercial loans, other than commercial real estate
loans, consist of, among other things, commercial lines of credit (which include
automobile floor plan lines of credit), commercial vehicle loans, and working
capital loans and are typically secured by residential or commercial property,
receivables or inventory, vehicles comprising the automobile floor plan, or some
other form of collateral. Floor plan financing involves continuing financing for
an automobile dealer that is secured by automobiles physically located on the
dealer's lot. The Bank holds the title to the automobiles during the pendency of
the loan. Floor plan financing typically involves high loan origination volume
and repayment within 30 days of origination.
CONSTRUCTION LENDING. The Bank makes construction loans primarily for the
construction of single-family dwellings. The aggregate outstanding balance of
such loans on June 30, 1996 was $1.9 million, representing 2.35% of the Bank's
net loan portfolio. Approximately half of these loans were
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<PAGE>
made to persons who are constructing properties for the purpose of occupying
them. Such loans may also be made to builders to construct properties for sale.
Loans made to builders are generally "pure construction" loans which require the
payment of interest at fixed rates during the construction period and the
payment of the principal in full at the end of the construction period. Loans
made to individual property owners are either pure construction loans or
"construction-permanent" loans which generally provide for the payment of
interest only during a construction period, after which the loans convert to a
permanent loan at fixed or adjustable interest rates having terms similar to
other one- to four-family residential loans.
Construction loans made to builders who are building to resell have a
maximum loan-to-value ratio of 80% of the appraised value of the property.
Construction loans to individuals who intend to occupy the finished premises
generally have a maximum loan-to-value ratio of 80%.
LOAN UNDERWRITING RISKS. Adjustable-rate mortgage loans decrease the risks
associated with changes in interest rates by periodically repricing, but involve
other risks because as interest rates increase, the underlying payments by the
borrower increase, thus increasing the potential for default. At the same time,
the marketability of the underlying collateral may be adversely affected by
higher interest rates. Upward adjustment of the contractual interest rate is
also limited by the maximum periodic interest rate adjustment permitted by the
adjustable-rate mortgage loan documents, and, therefore is potentially limited
in effectiveness during periods of rapidly rising interest rates. These risks
have not had an adverse effect on the Bank.
While non-residential real estate and consumer or other loans provide
benefits to the Bank's asset/liability management program by reducing the Bank's
exposure to interest rate changes, due to their generally shorter terms, and
producing higher yields, such loans may entail significant additional credit
risks compared to owner-occupied residential mortgage lending. However, the Bank
believes that the higher yields and shorter terms compensate the Bank for the
increased credit risk associated with such loans.
Commercial lending entails significant additional risks when compared with
one- to four-family residential lending. For example, commercial loans typically
involve larger loan balances to single borrowers or groups of related borrowers,
the payment experience on such loans typically is dependent on the successful
operation of the project and these risks can be significantly impacted by the
cash flow of the borrowers and supply and demand conditions in the market for
commercial office, retail, and warehouse space. In periods of decreasing cash
flows, the commercial borrower may permit a lapse in general maintenance of the
property causing the value of the underlying collateral to deteriorate.
In addition, due to the type and nature of the collateral, and, in some
cases the absence of collateral, consumer lending generally involves more credit
risk when compared with one- to four-family residential lending. Consumer
lending collections are typically dependent on the borrower's continuing
financial stability, and thus, are more likely to be adversely effected by job
loss, divorce, illness, and personal bankruptcy. In most cases, any repossessed
collateral for a defaulted consumer loan will not provide an adequate source of
repayment of the outstanding loan balance. The remaining deficiency often does
not warrant further substantial collection efforts against the borrower and is
usually turned over to a collection agency.
Construction lending is generally considered to involve a higher level of
credit risk than one- to four-family residential lending since the risk of loss
on construction loans is dependent largely upon the accuracy of the initial
estimate of the individual property's value upon completion of the project and
the
36
<PAGE>
estimated cost (including interest) of the project. If the cost estimate proves
to be inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the project.
LOAN APPROVAL AUTHORITY AND UNDERWRITING. The Bank has established various
lending limits for its officers and maintains a Loan Committee. A report of all
mortgage loans originated is presented to the Board of Directors monthly. The
President and Vice President of the Bank each have the authority to approve all
applications for consumer loans up to $35,000 for secured loans and up to $2,500
for unsecured loans, on an aggregate basis, exclusive of mortgage balances on
owner-occupied residential property. Five other officers have authority to
approve secured consumer credit applications in varying amounts up to $35,000,
on an aggregate basis, respectively, exclusive of mortgage balances on owner-
occupied residential property.
The Loan Committee considers all applications for commercial loans up to
$100,000, whether secured or unsecured, and all consumer loans in amounts above
the lending limit established above, up to $100,000. All loans in excess of
those limits set for the Loan Committee require the consideration and approval
of the entire Board of Directors.
Upon receipt of a completed loan application from a prospective borrower, a
credit report is generally ordered, income and certain other information is
verified and, if necessary, additional financial information is requested. An
appraisal from a licensed fee appraiser of the real estate intended to be used
as security for the proposed loan is obtained. For construction/permanent loans,
funds advanced during the construction phase are held in a loan-in-process
account and disbursed based upon various stages of completion in accordance with
the results of inspection reports that are based upon physical inspection of the
construction by a loan officer. For real estate loans, each title is reviewed by
the attorney for the Bank to determine the necessity for title insurance.
Historically, the Bank has not required title insurance except in those
instances where the attorney has seen a need for title insurance. Borrowers must
also obtain fire and casualty insurance (for loans on property located in a
flood zone, flood insurance is required) prior to the closing of the loan. The
Bank is named as mortgagee/loss payee of this insurance.
LOAN COMMITMENTS. The Bank issues written commitments to prospective
borrowers on all approved mortgage loans which generally expire within 30 days
of the date of issuance. The Bank charges no commitment fees or points to lock
in rates or to secure commitments. In some instances, after a review of the
rate, terms, and circumstances, commitments may be renewed or extended beyond
the 30 day limit. At June 30, 1996, the Bank had $1.5 million of outstanding
commitments to originate loans and $1.6 million in undisbursed funds related to
construction loans. Management believes that less than 2% of loan commitments
expire. Furthermore, at June 30, 1996, the Bank had $2.0 million in unused
equity lines of credit.
LOANS TO ONE BORROWER. Regulations limit loans-to-one borrower or
affiliated group of borrowers in an amount equal to 15% of unimpaired capital
and unimpaired surplus of the Bank. The Bank is authorized to lend up to an
additional 10% of unimpaired capital and unimpaired surplus if the loan is fully
secured by readily marketable collateral. At June 30, 1996, the Bank's lending
limit for loans to one borrower was approximately $1.0 million.
At June 30, 1996, the largest loan of the Bank was a commercial real estate
loan that was secured by a strip mall shopping center and totalled $919,000. At
that date, the Bank held a residential mortgage loan with a balance of $181,000
that was secured by the single family residence of one of the guarantors to that
$919,000 loan. At June 30, 1996, a customer of the Bank had loans totalling
$759,000 that were secured by commercial property such as trucks and commercial
real estate of which the largest loan
37
<PAGE>
totalled $300,000 and was secured by a golf course. At June 30, 1996, the Bank
also had outstanding two loans aggregating $660,000 to an automobile dealer
consisting of a $450,000 commercial loan secured by automobiles covered under a
floor plan and a $210,000 home mortgage loan. At June 30, 1996, all of the loans
discussed above were secured by property located within the Bank's lending
market areas, were performing in accordance with their contractual terms, and
were within the Bank's lending limit.
NON-PERFORMING AND PROBLEM ASSETS
LOAN DELINQUENCIES. The Bank's collection procedures provide that when a
mortgage loan is 30 days past due, a delinquent notice is sent to the borrower
and a late charge is imposed in accordance with the mortgage or Deed of Trust
agreement. If payment is still delinquent after 90 days, the borrower will
receive a notice of default establishing a date by which the borrower must bring
the account current or foreclosure proceedings will be instituted. Late charges
are also imposed in accordance with the mortgage or Deed of Trust agreement. If
the delinquency continues, similar subsequent efforts are made to eliminate the
delinquency. If the loan continues in a delinquent status for 90 days past due
and no repayment plan is in effect, the account is turned over to an attorney
for foreclosure. Management meets regularly to determine when foreclosure
proceedings should be initiated and the borrower is notified when foreclosure
has been commenced. At June 30, 1996, nonaccrual loans and loans past due
greater than 90 days totalled $442,000 or 0.48% of total assets.
Loans are reviewed on a monthly basis and are placed on non-accrual status
when considered doubtful of collection by management. Generally, loans past due
90 days or more as to principal or interest and, in the opinion of management,
are not adequately secured to insure the collection of the entire outstanding
balance of the loan including accrued interest are placed on non-accrual status.
Interest accrued and unpaid at the time a loan is placed on non-accrual status
is charged against interest income. Subsequent cash payments, if any, are
generally applied to reduce the outstanding principal balance.
NON-PERFORMING ASSETS. The following table sets forth information
regarding non-accrual loans, accruing loans which are past due more than 90 days
as to principal or interest payments, and foreclosed assets. As of the dates
indicated, the Bank had no loans categorized as troubled debt restructuring.
38
<PAGE>
<TABLE>
<CAPTION>
At June 30,
-------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
One-to four-family........................... $ 82 $ 86 $ 7 $ 73 $ 170
Multi-family................................. 55 -- -- -- --
Non-residential.............................. -- -- -- -- --
Construction................................. -- -- -- -- --
Consumer....................................... 2 2 2 2 91
Commercial..................................... -- -- 6 -- --
----- ----- ----- ----- -----
Total non-accrual loans.................... 139 88 15 75 261
----- ----- ----- ----- -----
Accruing loans greater than 90 days past due:
Mortgage loans:
One-to four-family......................... 132 136 132 21 48
Multi-family............................... -- -- -- -- --
Commercial................................. 77 -- 177 -- --
Construction............................... -- -- -- -- --
Consumer....................................... 85 24 122 57 --
Commercial..................................... 9 -- -- 15 5
----- ----- ----- ----- -----
Total accruing loans greater than 90 days 303 160 431 93 53
past due..................................... ----- ----- ----- ----- -----
Total non-performing loans..................... 442 248 446 168 314
Real estate acquired in settlement of loans.... -- 334 53 102 99
Other non-performing assets.................... -- -- -- -- --
----- ----- ----- ----- -----
Total non-performing assets.................... $ 442 $ 582 $ 499 $ 270 $ 413
===== ===== ===== ===== =====
Total non-performing loans to total loans...... 0.55% 0.33% 0.65% 0.30% 0.61%
===== ===== ===== ===== =====
Total non-performing loans to total assets..... 0.48% 0.30% 0.57% 0.25% 0.49%
===== ===== ===== ===== =====
Total non-performing assets to total assets.... 0.48% 0.69% 0.63% 0.41% 0.64%
===== ===== ===== ===== =====
</TABLE>
Interest income that would have been recorded on loans accounted for on a
non-accrual basis under the original terms of such loans was $35,000 for the
year ended June 30, 1996 and $31,000 was collected and included in the Bank's
interest income from non-accrual loans for the year ended June 30, 1996.
CLASSIFIED ASSETS. OTS regulations provide for a classification system for
problem assets of insured institutions. Under this classification system,
problem assets of insured institutions are classified as "substandard,"
"doubtful," or "loss." An asset is considered substandard if it is inadequately
protected by the current equity and paying capacity of the obligor or of the
collateral pledged, if any. Substandard assets include those characterized by
the "distinct possibility" that the insured institution will sustain "some loss"
if the deficiencies are not corrected. Assets classified as doubtful have all of
the weaknesses inherent in those classified as substandard, with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as loss are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
may be designated "special mention" because of potential weakness that does not
currently warrant classification in one of the aforementioned categories.
39
<PAGE>
When an insured institution classifies problem assets as either substandard
or doubtful, it may establish general allowances for loan losses in an amount
deemed prudent by management. General allowances represent loss allowances
which have been established to recognize the inherent risk associated with
lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. An institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS, which may order the establishment of additional general or specific loss
allowances. A portion of general loss allowances established to cover possible
losses related to assets classified as 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.
In accordance with its classification of assets policy, the Bank regularly
reviews the problem assets in its portfolio to determine whether any assets
require classification in accordance with applicable regulations. On the basis
of management's review of its assets, at June 30, 1996, the Bank had classified
$19,415 of assets as substandard, $1,000 of assets as doubtful, $0 as loss, and
$172,000 of assets as special mention.
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS. Real estate acquired in
settlement of loans is classified separately on the balance sheet at the lower
of the recorded investment in the property or its fair value minus estimated
costs of sale. Prior to foreclosure, the value of the underlying collateral is
written down by a charge to the allowance for possible loan losses, if
necessary. Any subsequent write-downs are charged against operating expenses.
Operating expenses of such properties, net of related income and losses on their
disposition are included in other expenses. At June 30, 1995, foreclosed real
estate consisted of a former bank building owned by the Bank that was
transferred to property, plant and equipment for the purpose of loan file
storage during fiscal 1996 and one residential property that was sold at a loss
of $23,000 in fiscal 1996. The bank had no real estate acquired in settlement
of loans at June 30, 1996.
ALLOWANCES FOR LOAN LOSSES. Management regularly performs an analysis to
identify the inherent risk of loss in its loan portfolio. This analysis
includes evaluation of concentrations of credit, past loss experience, current
economic conditions, amount and composition of the loan portfolio (including
loans being specifically monitored by management), estimated fair value of
underlying collateral, loan commitments outstanding, delinquencies, and other
factors.
The Bank will continue to monitor its allowance for loan losses and make
future additions to the allowance through the provision for loan losses as
economic conditions dictate. Although the Bank maintains its allowance for loan
losses at a level that it considers to be adequate to provide for the inherent
risk of loss in its loan portfolio, there can be no assurance that future losses
will not exceed estimated amounts or that additional provisions for loan losses
will not be required in future periods. In addition, the Bank's determination
as to the amount of its allowance for loan losses is subject to review by the
OTS, as part of its examination process, which may result in the establishment
of an additional allowance based upon the judgment of the OTS after a review of
the information available at the time of the OTS examination.
40
<PAGE>
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
The following table sets forth information with respect to the Bank's
allowance for loan losses at the dates indicated:
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding(1).............. $81,062 $74,878 $68,965 $56,405 $51,782
======= ======= ======= ======= =======
Average loans outstanding............... $76,096 $69,378 $60,046 $56,533 $50,163
======= ======= ======= ======= =======
Allowance balance (at beginning
of period)............................. $ 198 $ 174 $ 119 $ 119 $ 89
Provision:
Mortgages............................. -- 37 36 14 3
Consumer.............................. 33 11 7 8 28
Commercial............................ 230 -- 14 1 6
Charge-offs:
Mortgages............................. -- (22) -- -- (3)
Consumer(2)........................... (4) (16) (1) (25) (9)
Commercial(2)......................... (141) -- (8) -- --
Recoveries:
Mortgages............................. -- -- -- -- 3
Consumer.............................. 9 6 7 2 2
Commercial............................ -- 8 -- -- --
------- ------- ------- ------- -------
Allowance balance (at end of period).... $ 325 $ 198 $ 174 $ 119 $ 119
======= ======= ======= ======= =======
Allowance for loan losses as a percent
of total loans outstanding............ 0.40% 0.26% 0.25% 0.21% 0.23%
Net loans charged off as a percent of
average loans outstanding............. (0.19)% (0.05)% (0.01)% (0.04)% (0.02)%
</TABLE>
- ------------------
(1) Includes $1,375,000 in loans held for sale.
(2) The charge-offs constitute two secured loans aggregating $145,000 from one
borrower who declared bankruptcy in 1996. The Bank filed an objection to
the bankruptcy, though there is no assurance that the Bank will receive any
recovery on either loan.
41
<PAGE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following table sets forth the allocation of the allowance for
loan losses by category as prepared by the Bank. In management's opinion, the
allocation has, at best, a limited utility. It is based on management's
assessment as of a given point in time of the risk characteristics of each of
the component parts of the total loan portfolio and is subject to changes as and
when the risk factors of each such component part change. The allocation is not
indicative of either the specific amounts or the loan categories in which future
charge-offs may be taken, nor should it be taken as an indicator of future loss
trends. In addition, by presenting the allocation, management does not mean to
imply that the allocation is exact or that the allowance has been precisely
determined from the allocation. The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
June 30,
--------------------------------------------------------------------------
1996 1995 1994
---------------------- ---------------------- ----------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Each Each Each
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ ------ ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgages:
One- to four-family.. $ 75 69.05% $ 88 70.40% $ 65 69.67%
Multi-family......... 8 2.09 8 2.32 6 1.98
Non-residential...... 41 10.27 34 8.32 45 8.00
Construction......... -- 2.35 -- 3.21 -- 5.86
Consumer............... 85 12.42 47 13.00 45 11.63
Commercial............. 116 3.82 21 2.75 13 2.86
---- ------ ---- ------ --- ------
Total.............. $ 325 100.00% $ 198 100.00% $174 100.00%
==== ====== ==== ====== === ======
</TABLE>
42
<PAGE>
INVESTMENT ACTIVITIES
GENERAL. The Bank is required under federal regulations to maintain a
minimum amount of liquid assets which may be invested in specified short term
securities and certain other investments. See "Regulation - Federal Home Loan
Bank System" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources." The Bank has
maintained a liquidity portfolio in excess of regulatory requirements.
Liquidity 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 future yield levels, as well as management's projections as to
the short term demand for funds to be used in the Bank"s loan origination and
other activities. The Bank classifies its investments as securities available
for sale or investments securities held to maturity in accordance with SFAS No.
115. At June 30, 1996, the Bank's investment portfolio policy allowed
investments in instruments such as U.S. Treasury obligations, U.S. federal
agency or federally sponsored agency obligations, municipal obligations,
mortgage-backed securities, banker's acceptances, certificates of deposit,
federal funds, including FHLB overnight and term deposits (up to six months), as
well as investment grade corporate bonds, commercial paper and the mortgage
derivative products described below. The Board of Directors may authorize
additional investments.
The Bank's securities available for sale and investment securities
held to maturity portfolios at June 30, 1996 did not contain securities of any
issuer with an aggregate book value in excess of 10% of the Bank"s equity,
excluding those issued by the United States Government or its agencies.
MORTGAGE-BACKED SECURITIES. To supplement lending activities, the
Bank has invested in residential mortgage-backed securities. Mortgage-backed
securities can serve as collateral for borrowings and, through repayments, as a
source of liquidity. Mortgage-backed securities represent a participation
interest in a pool of single-family or other type of mortgages, the principal
and interest payments on which are passed from the mortgage originators, through
intermediaries (generally quasi-governmental agencies) that pool and repackage
the participation interests in the form of securities, to investors such as the
Bank. Such quasi-governmental agencies, which guarantee the payment of
principal and interest to investors, primarily include FHLMC, Government
National Mortgage Association ("GNMA"), and FNMA.
The Bank's mortgage-backed securities were classified as held to
maturity at June 30, 1996 and were all issued by GNMA or FHLMC, representing
participating interests in direct pass-through pools of long-term mortgage loans
originated and serviced by the issuers of the securities. Expected maturities
will differ from contractual maturities due to scheduled repayments and because
borrowers may have the right to call or prepay obligations with or without
prepayment penalties.
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 are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or adjustable-
rate mortgage loans. Mortgage-backed securities are generally referred to as
mortgage participation certificates or pass-through certificates. As a result,
the interest rate risk characteristics of the underlying pool of mortgages
(i.e., fixed-rate or adjustable-rate), as well as prepayment risk, are passed on
to the certificate holder. The life of a mortgage-backed pass-through security
is equal to the life of the underlying mortgages. Mortgage-backed securities
issued by FHLMC and GNMA make up a majority of the pass-through certificates
market.
43
<PAGE>
The Bank has also invested in collateralized mortgage obligations
("CMOs"), a type of mortgage-backed security, and as of June 30, 1996 did not
hold any CMOs. CMOs have been developed in response to investor concerns
regarding the uncertainty of cash flows associated with the prepayment option of
the underlying mortgagor and are typically issued by government agencies,
government sponsored enterprises, and special purpose entities established by
financial institutions and other similar institutions. Some CMO instruments are
most like traditional debt instruments because they have stated principal
amounts and traditionally defined interest rate terms. Purchasers of certain
other CMO instruments are entitled to the excess, if any, of the issuer's cash
inflows, including reinvestment earnings, over the cash outflows for debt
servicing and administrative expenses. CMOs may include instruments designated
as residual interests, which represent an equity ownership interest in the
underlying collateral, subject to the first lien of the investors in the other
classes of the CMO and may be riskier than many regular CMO interests.
At June 30, 1996, the Bank held mortgage-backed securities in its
investment securities held to maturity portfolio with an amortized cost of
$537,000. The average yield on mortgage-backed securities at June 30, 1996 was
8.94%.
SECURITIES PORTFOLIO. The following table sets forth the carrying
value of the Bank's securities at the dates indicated. At June 30, 1996, the
approximate fair value of the Bank's securities available for sale was $68,000
resulting in a net unrealized loss of $9,000.
<TABLE>
<CAPTION>
At June 30,
--------------------------------
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
U.S. Government and agency securities......... $4,800 $3,737 $2,299
Securities available for sale................. 68 84 106
Interest-bearing deposits in other financial
institutions................................ 3,068 2,334 5,976
FHLB Stock.................................... 560 502 436
------ ------ ------
Total....................................... $8,496 $6,657 $8,817
====== ====== ======
</TABLE>
44
<PAGE>
The following table sets forth information regarding the scheduled
maturities, carrying values, approximate fair values, and weighted average
yields for the Bank's securities portfolio at June 30, 1996 by contractual
maturity. The following table does not take into consideration the effects of
scheduled repayments or the effects of possible prepayments.
<TABLE>
<CAPTION>
At June 30, 1996
-------------------------------------------------------------------------------------------------
Less than 1 to 5 to Over 10
1 year 5 years 10 years years
---------------------- ---------------------- ---------------------- ----------------------
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
agencies securities........... $ 1,000 5.93% $2,500 6.47% $ 300 7.27% $1,000 7.95%
Securities available for sale... -- -- 45 11.50 23 9.92 -- --
Interest-bearing deposits in
other financial
institutions.................. 3,068 5.37 -- -- -- -- -- --
FHLB stock (1)................. 560 6.38 -- -- -- -- -- --
------- ------ ------ ------ ------ ---- ------ ----
Total........................... $ 4,628 5.61% $2,545 6.57% $323 7.48% $1,000 7.95%
======= ====== ====== ====== ====== ==== ====== ----
<CAPTION>
-------------------------------
Total
Securities
-------------------------------
Carrying Market
Value Yield Value
----- ------ -----
<S> <C> <C> <C>
U.S. Government and
agencies securities........... $4,800 6.71% $4,762
Securities available for sale... 68 10.97 68
Interest-bearing deposits in
other financial
institutions.................. 3,068 5.37 3,068
FHLB stock (1)................. 560 6.38 560
------ ----- ------
Total........................... $8,496 6.25% $8,458
====== ====== ======
</TABLE>
_________________________________
(1) Recorded at cost.
45
<PAGE>
SOURCES OF FUNDS
GENERAL. Deposits are the major source of the Bank's funds for
lending and other investment purposes. The Bank also derives funds from the (1)
amortization and prepayment of loans, (2) sales, maturities, and calls of
securities, and (3) operations. Scheduled loan principal repayments are a
relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are significantly influenced by general interest rates and market
conditions. The Bank may also borrow funds from the FHLB as a source of funds.
DEPOSITS. Consumer and commercial deposits are attracted principally
from within the Bank's primary market areas through the offering of a selection
of deposit instruments including savings accounts, NOW accounts, money market
accounts, and time deposits or certificate of deposit accounts. Deposit account
terms vary according to the minimum balance required, the time period the funds
must remain on deposit, and the interest rate, among other factors.
The interest rates paid by the Bank on deposits are set by the
President and at the direction of the asset/liability management committee. The
Bank determines the interest rate to offer the public on new and maturing
accounts by reviewing the market interest rates offered by competitors, the
Bank"s need for funds, and the current cost of money. The Bank reviews, weekly,
the interest rates being offered by other financial institutions within its
market areas.
Savings, money market, and NOW accounts constituted $28.3 million, or
35.0%, of the Bank's deposit portfolio at June 30, 1996. Non-interest bearing
deposits constituted $1.6 million or 2.0% of the Bank's deposit portfolio at
June 30, 1996. Certificates of deposit constituted $50.9 million or 63.0% of
the deposit portfolio of which $7.8 million or 15.3% of the deposit portfolio
were certificates of deposit with balances of $100,000 or more. As of June 30,
1996, the Bank had no brokered deposits.
The following table sets forth the savings activity of the Bank during
the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Net increase before interest credited.. $3,150 $5,014 $6,058
Interest credited...................... 2,923 2,454 1,880
----- ----- -----
Net increase in deposits............... $6,073 $7,468 $7,938
===== ===== =====
</TABLE>
46
<PAGE>
DEPOSIT PORTFOLIO. Deposits in the Bank as of June 30, 1996, were
represented by various types of deposit programs described below.
<TABLE>
<CAPTION>
Balance as of
Interest June 30, Percent of
Category Term Rate (1) 1996 Deposits
-------- ---- -------- ---- --------
(In thousands)
<S> <C> <C> <C> <C>
Transaction Accounts(2):
- -----------------------
NOW accounts.................... (3) $ 6,373 7.90%
Super NOW accounts.............. 3.30% 1,665 2.06
Regular savings................. 3.25% 13,806 17.09
Passbook plus................... (4) 3,572 4.42
Money Market accounts........... 2.75% 2,893 3.58
Non interest-bearing accounts... 1,607 1.99
------- -----
Total transaction accounts.. 29,916 37.04
------- -----
Certificates of Deposit:
- -----------------------
Fixed Term, Fixed Rate........ 31-32 days 3.30% 3,054 3.78
Fixed Term, Fixed Rate........ 01-03 months 4.50% 235 0.29
Fixed Term, Fixed Rate........ 04-06 months 4.75% 2,842 3.52
Fixed Term, Fixed Rate........ 07-09 months 5.10% 12,435 15.40
Fixed Term, Fixed Rate........ 11-12 months 5.20% 5,722 7.08
Fixed Term, Fixed Rate........ 15 months 5.30% 2,762 3.42
Fixed Term, Fixed Rate........ 18 months 5.35% 1,136 1.41
Fixed Term, Fixed Rate........ 21 months 5.35% 2,120 2.62
Fixed Term, Fixed Rate........ 24 months 5.45% 2,819 3.49
Fixed Term, Fixed Rate........ 30 months 5.65% 3,368 4.17
Fixed Term, Fixed Rate........ 31-48 months 5.75% 2,164 2.68
Fixed Term, Fixed Rate........ 49-96 months 5.90% 4,438 5.49
Jumbo certificates............ 7,760 9.61
----- ----
Total certificate accounts.. 50,855 62.96
------ -----
Total deposits................................................. $80,771 100.00%
====== ======
</TABLE>
_____________________________
(1) Rates are effective as of June 30, 1996.
(2) No minimum term is specified for transaction accounts.
(3) NOW accounts with balances less than $200 earn 2.75%, over $200 earn
3.00%
(4) Passbook Plus rates are tiered: Tier 1: $5,000-10,000, 3.35%, Tier 2:
$10,001 - 25,000, 3.40%, Tier 3: $25,001 -75,000, 3.45%, Tier 4:
$75,001 -100,000, 3.50%, Tier 5: 100,001 and over, 3.55%.
47
<PAGE>
TIME DEPOSITS MATURITY. The following table sets forth the amount and
maturities of time deposits at June 30, 1996.
<TABLE>
<CAPTION>
Amount Due
------------------------------------------------------------------------
12 month 12 month 12 month
period ended period ended period ended After
June 30, June 30, June 30, June 30,
Interest Rate 1997 1998 1999 2000 Total
- ------------- ------ ------ ------ ------ -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
4.00% or less.. $ 2,393 $ 127 $ 13 $ 521 $ 3,054
4.01 - 6.00%... 31,102 3,870 1,454 832 37,258
6.01 - 8.00%... 3,600 2,431 1,327 3,155 10,513
8.01 - 10.00%.. 30 -- -- -- 30
------- ------ ------ ------ -------
Total $37,125 $6,428 $2,794 $4,508 $50,855
======= ====== ====== ====== =======
</TABLE>
TIME DEPOSITS. The following table indicates the amount of the Bank's
time deposits of $100,000 or more by time remaining until maturity as of June
30, 1996.
<TABLE>
<CAPTION>
Maturity Period Time Deposits
--------------- -------------
(In Thousands)
<S> <C>
Within three months................. $2,496
More than three through six months.. 1,445
More than six through nine months... 853
Over nine months.................... 2,966
------
Total.......................... $7,760
======
</TABLE>
BORROWINGS
The Bank may obtain advances from the FHLB of Pittsburgh to supplement
its supply of lendable funds. Advances from the FHLB of Pittsburgh are
typically secured by a pledge of the Bank's stock in the FHLB of Pittsburgh and
a portion of the Bank's first mortgage loans. Each FHLB borrowing has its own
interest rate, which may be fixed or variable, and range of maturities. The
Bank, if the need arises, may also access the Federal Reserve Bank discount
window to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. At June 30, 1996, the Bank had $4.4 million in borrowings
outstanding from the FHLB of Pittsburgh. See Note 10 to the Notes to
Consolidated Financial Statements. At June 30, 1996, the Bank had no other
borrowings outstanding.
COMPETITION
The Bank has been able to maintain its position in mortgage loan
originations, market share, and deposit accounts throughout its market areas by
virtue of its local presence, competitive pricing, and referrals from existing
customers. The Bank is one of many financial institutions serving its market
areas. The deposit base of the Bank"s market areas is sought by many of these
financial institutions.
48
<PAGE>
The competition for deposits comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions, and
multi-state regional banks in the Bank's market areas. Competition for funds
also includes a number of insurance products sold by local agents and investment
products such as mutual funds and other securities sold by local and regional
brokers. Loan competition varies depending upon market conditions and comes
from other insured financial institutions such as commercial banks, thrift
institutions, credit unions, multi-state regional banks, and mortgage bankers,
many of whom have far greater resources then the Bank.
SUBSIDIARY ACTIVITY
The Bank is permitted to invest up to 2% of its assets in the capital
stock of, or secured or unsecured loans to, subsidiary corporations, with an
additional investment of 1% of assets when such additional investment is
utilized primarily for community development purposes. At June 30, 1996, the
Bank had one wholly-owned subsidiary, Advance Financial Service Corporation of
West Virginia ("Service Corporation"). The Service Corporation was formed in
1989 to hold stock in the Bank's outside data processing servicer. The Bank's
investment in its subsidiary totalled $15,000 at June 30, 1996. As of June 30,
1996, the Service Corporation had not conducted any operations other than to
hold the stock of that servicer.
49
<PAGE>
PROPERTIES
The Bank operates from its main office and one branch office. The
Bank's total investment in office property and equipment was $3.2 million with a
net book value of $2.1 million at June 30, 1996.
<TABLE>
<CAPTION>
Net Book Value
Of Real Property
or Leasehold
Year Leased Improvements
Location Leased or Owned or Acquired and Equipment
- ----------------------------- ---------------- ----------- ----------------
<S> <C> <C> <C>
MAIN OFFICE:
1015 Commerce Street Owned 1984 $1,231,762
Wellsburg, West Virginia
27060
BRANCH OFFICE:
1409 Main Street Leased (1) 1996 $ 649,207
Follansbee, West Virginia
26037
</TABLE>
_______________________
(1) The Bank holds a 40 year lease on the land upon which its branch
office is located. The Bank owns the branch building.
The Bank owns property in Wintersville, Ohio upon which it expects to
construct and open a branch office during 1997. The branch is expected to have
a net book value of approximately $500,000 when it is opened.
In addition, the Bank owns property at 901 Main Street, Follansbee,
West Virginia, which was formerly a branch office, and property at 727 Charles
Street, Wellsburg, West Virginia, which was formerly the location of the main
office. At June 30, 1996, the net book value of the properties was $182,678 and
$35,821, respectively.
PERSONNEL
At June 30, 1996, the Bank had 33 full-time and three part-time
employees. None of the Bank's employees are represented by a collective
bargaining group. The Bank believes that its relationship with its employees is
good.
LEGAL PROCEEDINGS
The Bank, from time to time, is a party to routine litigation, which
arises in the normal course of business, such as claims to enforce liens,
condemnation proceedings on properties in which the Bank holds security
interests, claims involving the making and servicing of real property loans, and
other issues incident to the business of the Bank. There were no lawsuits
pending or known to be contemplated against the Bank or the Company at June 30,
1996 that would have a material effect on the operations or income of the Bank
or the Company.
50
<PAGE>
REGULATION
Set forth below is a brief description of certain laws which relate to
the regulation of the Bank and the Company. The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.
COMPANY REGULATION
GENERAL. After the Conversion, the Company will be a unitary savings
and loan holding company subject to regulatory oversight by the OTS. As such,
the Company is required to register and file reports with the OTS and is subject
to regulation and examination by the OTS. In addition, the OTS will have
enforcement authority over the Company and its non-savings association
subsidiaries, should such subsidiaries be formed, which also permits the OTS to
restrict or prohibit activities that are determined to be a serious risk to the
subsidiary savings association. This regulation and oversight is intended
primarily for the protection of the depositors of the Bank and not for the
benefit of stockholders of the Company. The Company will also be required to
file certain reports with, and otherwise comply with, the rules and regulations
of the OTS and the Securities and Exchange Commission ("SEC").
QTL TEST. As a unitary savings and loan holding company, the Company
generally will not be subject to activity restrictions, provided the Bank
satisfies the QTL test. If the Company acquires control of another savings
association as a separate subsidiary, it would become a multiple savings and
loan holding company and the activities of the Company and any of its
subsidiaries (other than the Bank or any other SAIF-insured savings association)
would become subject to restrictions applicable to bank holding companies and
those activities specified by the OTS as permissible for a multiple savings and
loan holding company, unless such other associations each also qualify as a QTL
or were acquired in a supervised acquisition. See "- Qualified Thrift Lender
Test."
RESTRICTIONS ON ACQUISITIONS. The Company must obtain approval from
the OTS before acquiring control of any other SAIF-insured association. Such
acquisitions are generally prohibited if they result in a multiple savings and
loan holding company controlling savings associations in more than one state.
However, such interstate acquisitions are permitted based on specific state
authorization or in a supervisory acquisition of a failing savings association.
Federal law generally provides that no "person," acting directly or
indirectly or through or in concert with one or more other persons, may acquire
"control," as that term is defined in OTS regulations, of a federally insured
savings institution without giving at least 60 days written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition. In
addition, no company may acquire control of such an institution without prior
OTS approval.
FEDERAL SECURITIES LAW. The 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. Upon completion of the
Conversion, the Company's Common Stock will be registered with the SEC under the
Exchange Act. The Company will then be subject to the information, proxy
solicitation, insider trading restriction, and other requirements under the
Exchange Act.
BANK REGULATION
GENERAL. As a federally chartered, SAIF-insured savings association,
the Bank is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with various federal and state
statutory and regulatory requirements. The Bank is also subject to certain
reserve requirements promulgated by the Board of Governors of the Federal
Reserve System ("Federal Reserve System").
51
<PAGE>
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law, especially in such matters as the ownership of savings accounts
and the form and content of the Bank's mortgage documents.
The Bank 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. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
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 regulations, whether by the OTS, the FDIC or the
United States Congress could have a material adverse impact on the Company and
the Bank and their operations.
INSURANCE OF DEPOSIT ACCOUNTS. The Bank's deposit accounts are
insured by the SAIF to a maximum of $100,000 for each insured member (as defined
by law and regulation). If an institution has no tangible capital, the FDIC has
the authority, should it initiate proceedings to terminate an institution"s
deposit insurance, to suspend the insurance of any such institution. However,
if a savings association has positive capital when it includes qualifying
intangible assets, the FDIC cannot suspend deposit insurance unless capital
declines materially, the institution fails to enter into and remain in
compliance with an approved capital plan, or the institution is operating in an
unsafe or unsound manner.
Regardless of an institution's capital level, insurance of deposits
may be terminated by the FDIC upon a finding that the institution has engaged in
unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the institution's primary regulator. The FDIC
may also prohibit an insured depository institution from engaging in any
activity the FDIC determines to pose a serious threat to the SAIF. The
management of the Bank is unaware of any practice, condition, or violation that
might lead to termination of its deposit insurance.
The FDIC charges an annual assessment for the insurance of deposits
based on the risk a particular institution poses to its deposit insurance fund.
Under this system, a savings association pays within a range of 23 cents to 31
cents per $100 of domestic deposits, depending upon the institution's risk
classification. This risk classification is based on an institution's capital
group and supervisory subgroup assignment. In addition, the FDIC is authorized
to increase such deposit insurance rates on a semi-annual basis if it determines
that such action is necessary to cause the balance in the SAIF to reach the
designated reserve ratio of 1.25% of SAIF-insured deposits within a reasonable
period of time. The SAIF was substantially underfunded at June 30, 1996. In
addition, the FDIC may impose special assessments on SAIF members to repay
amounts borrowed from the U.S. Treasury or for any other reason deemed necessary
by the FDIC. The Bank's federal deposit insurance premium expense for the year
ended June 30, 1996 amounted to approximately $171,000. By comparison, at June
30, 1996, members of the BIF were required to pay substantially lower, or
virtually no, federal deposit insurance premiums.
REGULATORY CAPITAL REQUIREMENTS. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted
assets. The Bank's capital ratios are set forth under "Historical and Pro Forma
Capital Compliance."
52
<PAGE>
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), less certain mortgage servicing rights and
less certain investments. Core capital is defined as common stockholders'
equity (including retained earnings), noncumulative perpetual preferred stock
and minority interests in the equity accounts of consolidated subsidiaries,
certain nonwithdrawable accounts and pledged deposits of mutual savings
associations and qualifying supervisory goodwill, less nonqualifying intangible
assets, certain mortgage servicing rights and certain investments.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock, and the portion of the allowance for loan
losses not designated for specific loan losses. The portion of the allowance
for loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A savings association must calculate its risk-
weighted assets by multiplying each asset and off-balance sheet item by various
risk factors as determined by the OTS, which range from 0% for cash to 100% for
delinquent loans, property acquired through foreclosure, commercial loans, and
other assets.
The OTS has adopted a rule requiring a deduction from capital for
institutions with certain levels of interest rate risk. This rule is not yet in
effect.
DIVIDEND AND OTHER CAPITAL DISTRIBUTION LIMITATIONS. OTS regulations
require the Bank to give the OTS 30 days advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Company. In
addition, the Bank 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 Bank
below the amount required for the liquidation account to be established pursuant
to the Bank's Plan. See "The Conversion - Effects of Conversion to Stock Form
on Depositors and Borrowers of the Bank -Liquidation Account."
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to stockholders of another institution in
a cash-out merger, and other distributions charged against capital. The rule
establishes three tiers of institutions based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory notice. As of
June 30, 1996, the Bank was a Tier 1 institution.
In the event the Bank's capital fell below its fully phased-in requirement
or the OTS notified it that it was in need of more than normal supervision, the
Bank would become a Tier 2 or Tier 3 institution and as a result, its ability to
make capital distributions could be restricted. Tier 2 institutions, which are
institutions that before and after the proposed distribution meet their current
minimum capital requirements, may only make capital distributions of up to 75%
of net income over the most recent four quarter period. Tier 3 institutions,
which are institutions that do not meet current minimum capital requirements and
propose to make any capital distribution, and Tier 2 institutions that propose
to make a capital distribution in excess of the noted safe harbor level, must
obtain OTS approval prior to making such distribution. In addition, the
OTS could prohibit a proposed capital distribution by any institution,
53
<PAGE>
which would otherwise be permitted by the regulation, if the OTS determines that
such distribution would constitute an unsafe or unsound practice. The OTS has
proposed rules relaxing certain approval and notice requirements for well-
capitalized institutions.
A savings association is prohibited from making a capital distribution if,
after making the distribution, the savings association would be undercapitalized
(i.e., not meet any one of its minimum regulatory capital requirements).
Further, a savings association cannot distribute regulatory capital that is
needed for the liquidation account.
QUALIFIED THRIFT LENDER TEST. Savings institutions must meet a qualified
thrift lender ("QTL") test. If the Bank maintains an appropriate level of
qualified thrift investments ("QTIs") (primarily residential mortgages and
related investments, including certain mortgage-related securities) and
otherwise qualifies as a QTL, it will continue to enjoy full borrowing
privileges from the FHLB of Pittsburgh. The required percentage of QTIs is 65%
of portfolio assets (defined as all assets minus intangible assets, property
used by the institution in conducting its business and liquid assets equal to
10% of total assets). Certain assets are subject to a percentage limitation of
20% of portfolio assets. In addition, savings associations may include shares
of stock of the FHLBs, FNMA, and FHLMC as QTIs. Compliance with the QTL test is
determined on a monthly basis in nine out of every 12 months. As of June 30,
1996, the Bank was in compliance with its QTL requirement with approximately 75%
of its assets invested in QTIs.
TRANSACTIONS WITH AFFILIATES. Generally, restrictions on transactions with
affiliates require that transactions between a savings association or its
subsidiaries and its affiliates be on terms as favorable to the Bank as
comparable transactions with non-affiliates. In addition, certain of these
transactions are restricted to an aggregate percentage of the Bank's capital and
collateral in specified amounts must usually be provided by affiliates in order
to receive loans from the Bank. Affiliates of the Bank include the Company and
any company which would be under common control with the Bank. In addition, a
savings association may not extend credit to any affiliate engaged in activities
not permissible for a bank holding company or acquire the securities of any
affiliate that is not a subsidiary. The OTS has the discretion to treat
subsidiaries of savings associations as affiliates on a case-by-case basis.
LIQUIDITY REQUIREMENTS. All savings associations are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. At June 30, 1996, the Bank's required liquid
asset ratio was 5%. Monetary penalties may be imposed upon associations for
violations of liquidity requirements.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB of
Pittsburgh, which is one of 12 regional FHLBs that administer the home financing
credit function of savings associations. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Pittsburgh in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At June 30, 1996, the Bank had $560,000 in FHLB
stock, at cost, which was in compliance with this requirement. The FHLB imposes
various limitations on advances such as limiting the amount of certain types of
real estate related collateral to 30% of a member's capital and limiting total
advances to a member.
54
<PAGE>
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. For the fiscal year ended June 30, 1996, dividends paid by the
FHLB of Pittsburgh to the Bank totalled $34,000.
FEDERAL RESERVE SYSTEM. The Federal Reserve System requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve System may be used
to satisfy the liquidity requirements that are imposed by the OTS. At June 30,
1996, the Bank's reserve met the minimum level required by the Federal Reserve
System.
Savings associations have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings associations to exhaust all other sources before borrowing from the
Federal Reserve System. The Bank had no borrowings from the Federal Reserve
System at June 30, 1996.
TAXATION
FEDERAL TAXATION
Savings associations are subject to the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), in the same general manner as other
corporations. However, prior to August 1996, savings associations such as the
Bank, which met certain definitional tests and other conditions prescribed by
the Code could benefit from certain favorable provisions regarding their
deductions from taxable income for annual additions to their bad debt reserve.
The amount of the bad debt deduction that a qualifying savings institution could
claim with respect to additions to its reserve for bad debts was subject to
certain limitations. The Bank reviewed the most favorable way to calculate the
deduction attributable to an addition to its bad debt reserve on an annual
basis.
In August 1996, the Code was revised to equalize the taxation of thrifts
and banks. Thrifts, such as the Bank, no longer have a choice between the
percentage of taxable income method and the experience method in determining
additions to bad debt reserves. Thrifts with $500 million of assets or less may
still use the experience method, which is generally available to small banks
currently. Larger thrifts must use the specific charge off method regarding bad
debts. Any reserve amounts added after 1987 will be taxed over a six year
period beginning in 1996; however, bad debt reserves set aside through 1987 are
generally not taxed. An institution may delay recapturing into income its post-
1987 bad debt reserves for an additional two years if it meets a residential-
lending test. This law is not expected to have a material impact on the Bank.
At June 30, 1996, the Bank had $347,000 of post 1987 bad-debt reserves.
Under the percentage of taxable income method, the bad debt deduction
attributable to "qualifying real property loans" could not exceed the greater of
(i) the amount deductible under the experience method, or (ii) the amount which,
when added to the bad debt deduction for non-qualifying loans, equaled the
amount by which 12% of the sum of the total deposits and the advance payments by
borrowers for taxes and insurance at the end of the taxable year exceeded the
sum of the surplus, undivided profits and reserves at the beginning of the
taxable year. The amount of the bad debt deduction attributable to qualifying
real property loans computed using the percentage of taxable income method was
permitted only to the extent that the institution's reserve for losses on
qualifying real property loans at the close of
55
<PAGE>
the taxable year did not exceed 6% of such loans outstanding at such time. The
Bank used the percentage of taxable income method for the tax years ended
December 31, 1994 and 1993.
Under the experience method, the bad debt deduction may be based on (i) a
six-year moving average of actual losses on qualifying and non-qualifying loans,
or (ii) a fill-up to the institution's base year reserve amount, which is the
tax bad debt reserve determined as of December 31, 1987. The Bank used the
experience method for the tax year ended December 31, 1995. See Notes 11 and
12 to the Consolidated Financial Statements.
The percentage of specially computed taxable income that was used to
compute a savings association's bad debt reserve deduction under the percentage
of taxable income method (the "percentage bad debt deduction") was 8%. The
percentage of taxable income bad debt deduction thus computed was reduced by the
amount permitted as a deduction for non-qualifying loans under the experience
method. The availability of the percentage of taxable income method permitted
qualifying savings associations to be taxed at a lower effective federal income
tax rate than that applicable to corporations generally (approximately 31.3%
assuming the maximum percentage bad debt deduction).
If an association's qualifying assets (generally, loans secured by
residential real estate or deposits, educational loans, cash and certain
government obligations) constitute less than 60% of its total assets, the
association may not deduct any addition to a bad debt reserve and generally must
include existing reserves in income over a four year period, which is
immediately accruable for financial reporting purposes. As of June 30, 1996, at
least 60% of the Bank's assets were qualifying assets as defined in the Code.
No assurance can be given that the Bank will meet the 60% test for subsequent
taxable years.
Earnings appropriated to the Bank's bad debt reserve and claimed as a tax
deduction including the Bank's supplemental reserves for losses will not be
available for the payment of cash dividends or for distribution to stockholders
(including distributions made on dissolution or liquidation), unless the Bank
includes the amount in income, along with the amount deemed necessary to pay the
resulting federal income tax. As of June 30, 1996, the Bank had approximately
$1.0 million of accumulated earnings, representing its base year tax reserve,
for which federal income taxes have not been provided. If such amount is used
for any purpose other than bad debt losses, including a dividend distribution or
a distribution in liquidation, it will be subject to federal income tax at the
then current rate.
Generally, for taxable years beginning after 1986, the Code also requires
most corporations, including savings associations, to utilize the accrual method
of accounting for tax purposes. Further, for taxable years ending after 1986,
the Code disallows 100% of a savings association's interest expense deemed
allocated to certain tax-exempt obligations acquired after August 7, 1986.
Interest expense allocable to (i) tax-exempt obligations acquired after August
7, 1986 which are not subject to this rule, and (ii) tax-exempt obligations
issued after 1982 but before August 8, 1986, are subject to the rule which
applied prior to the Code disallowing the deductibility of 20% of the interest
expense.
The Code imposes a tax ("AMT") on alternative minimum taxable income
("AMTI") at a rate of 20%. AMTI is increased by certain preference items,
including 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. Only 90% of AMTI can be offset by net operating loss
carryovers of which the Bank currently has none. AMTI is also adjusted by
determining the tax treatment of certain items in a manner that negates the
deferral of income resulting from the regular tax treatment of those items.
Thus, the Bank's AMTI is increased by an amount equal to 75% of the amount by
which the Bank's adjusted current earnings exceeds its AMTI (determined without
regard to this adjustment and prior to reduction for net operating losses). In
addition, for taxable years beginning after December 31, 1986 and before January
1, 1996, an environmental tax of 0.12% of the excess of AMTI (with certain
modifications) over $2 million is imposed on corporations, including the Bank,
whether or not an AMT
56
<PAGE>
is paid. Under pending legislation, the AMT rate would be reduced to zero for
taxable years beginning after December 31, 1994, but this rate reduction would
be suspended for taxable years beginning in 1995 and 1996 and the suspended
amounts would be refunded as tax credits in subsequent years.
The Company may exclude from its income 100% of dividends received from the
Bank as a member of the same affiliated group of corporations. A 70% dividends
received deduction generally applies with respect to dividends received from
corporations that are not members of such affiliated group, except that an 80%
dividends received deduction applies if the Company and the Bank own more than
20% of the stock of a corporation paying a dividend. The above exclusion
amounts, with the exception of the affiliated group figure, were reduced in
years in which the Bank availed itself of the percentage of taxable income bad
debt deduction method.
The Bank's federal income tax return was last examined by the IRS for the
year ended December 31, 1991.
STATE TAXATION
West Virginia Taxation. The State of West Virginia has a corporate income
tax which subjects the Bank's West Virginia taxable income to tax at a 9.00%
rate. West Virginia taxable income is computed by applying certain
modifications to federal taxable income. The primary modification consists of
an allowance factor calculated by dividing the average amount of Federal
obligations and securities, West Virginia obligations, and loans secured by
residential real property located within the State of West Virginia by the
Bank"s average total assets for the year.
The State of West Virginia also has a business franchise tax payable on the
average amount of unappropriated retained earnings of the Bank reduced by an
allowance factor, as discussed above. The adjusted retained earnings amount is
subject to tax at a 0.75% rate. Due to allowable credits for property taxes
paid on the Bank's capital, the Bank has not incurred a business franchise tax
liability.
The City of Wellsburg and the City of Follansbee, West Virginia have a
business and occupation ("B & O") tax which subjected the Bank's taxable B & O
income to tax at a $0.426 per $100 in value and $0.489 per $100 in value,
respectively. Taxable B & O income is calculated by applying certain
modifications, consisting primarily of deductions of income derived from
Federal, state and local obligations and from loans secured by real estate, to
the Bank's gross income.
The Bank also files personal and real property tax returns with the County
Assessor's Office in Brooke County, West Virginia.
Delaware Taxation. As a Delaware corporation with no operations in the
State of Delaware, the Company is exempt from Delaware corporate income tax but
is required to file an annual report with and pay an annual fee to the State of
Delaware. The Company is also subject to an annual franchise tax imposed by the
State of Delaware.
MANAGEMENT OF THE COMPANY
The Board of Directors of the Company consists of those persons who
currently serve as Directors of the Bank. The Board of Directors is divided
into three classes, each of which contains approximately one-third of the Board.
The directors are elected by the stockholders of the Company for staggered
three-year terms, or until their successors are elected and qualified. One
class of directors, consisting of Stephen M. Gagliardi and James R. Murphy has a
term of office expiring at the first annual meeting following the Conversion. A
second class, consisting of George H. Johnson, William E. Watson
57
<PAGE>
and Gary Young has a term of office expiring at the annual meeting to be held
one year thereafter. A third class, consisting of John R. Sperlazza and Noreen
Mechling has a term of office expiring at the annual meeting to be held two
years thereafter.
The following individuals hold the executive offices in the Company set
forth below opposite their names.
<TABLE>
<CAPTION>
Name Age (1) Positions Held With the Company
- ---- ------- -------------------------------
<S> <C> <C>
Stephen M. Gagliardi 48 President, Chief Executive Officer, and Director
Noreen Mechling 62 Treasurer and Chief Financial Officer
Steve D. Martino 41 Vice President
</TABLE>
___________________________
(1) At June 30, 1996.
The executive officers of the 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. Additional
information concerning the business experience and compensation of the directors
and executive officers of the Company is set forth under "Management of the Bank
- - Biographical Information."
MANAGEMENT OF THE BANK
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Bank is composed of seven members each of
whom serves for a term of three years. The Bank's proposed Charter and Bylaws
require that directors be divided into three classes, as nearly equal in number
as possible, each class to serve for a three-year period, with approximately
one-third of the directors elected each year. Executive officers 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 Bank, all of whom will continue to serve in the
same capacities after the Conversion.
<TABLE>
<CAPTION>
Current
Director Term
Name Age (1) Position Since Expires
- ---- ------- -------- -------- -------
<S> <C> <C> <C> <C>
Stephen M. Gagliardi 48 President, Chief Executive 1983 1997
Officer, and Director
James R. Murphy 73 Director 1962 1997
George H. Johnson 74 Director 1977 1998
William E. Watson 59 Director 1991 1998
Gary Young 58 Director 1975 1998
Noreen Mechling 62 Director, Senior Vice 1994 1999
President, and Chief
Financial Officer
John R. Sperlazza 58 Director 1973 1999
Steve D. Martino 41 Senior Vice President and
Chief Operating Officer
</TABLE>
__________
(1) At June 30, 1996.
58
<PAGE>
BIOGRAPHICAL INFORMATION
The business experience of each director and executive officer of the Bank
is set forth below. All directors and executive officers have held their
present positions for a minimum of five years unless otherwise stated.
STEPHEN M. GAGLIARDI is the President and Chief Executive Officer of the
Bank and has served in these capacities with the Company since its formation.
Mr. Gagliardi is the past Director of the West Virginia Appraiser Licensing and
Certification Board and past President of the Brooke County Rotary and the
Brooke County United Way. Mr. Gagliardi is Trustee and Treasurer of the Christ
Episcopal Church of Wellsburg.
JAMES R. MURPHY has been a director of the Bank since 1962 and a director
of the Company since its formation. Mr. Murphy is a majority stockholder of
Murphy Consolidated Industries. Mr. Murphy has been employed with this building
contractor for 50 years.
GEORGE H. JOHNSON has been a director of the Bank since 1977 and a director
of the Company since its formation. Mr. Johnson is a retired employee of
Koppers Co., Inc., a coal, tar and chemicals company. Mr. Johnson is also a
director of Municipal Mutual of West Virginia.
WILLIAM E. WATSON has been a director of the Bank since 1991 and a director
of the Company since its formation. Mr. Watson is an attorney in Wellsburg,
West Virginia and has practiced law since 1961. Mr. Watson serves as counsel
for the Bank. Mr. Watson is the Chancellor (General Counsel) of the West
Virginia Conference United Methodist Church, Chairman of the Board of Trustees
of West Virginia Wesleyan College and Chairman of the Administrative Board of
Wellsburg United Methodist Church.
GARY YOUNG has been a director of the Bank since 1975 and a director of the
Company since its formation. Mr. Young is the Park Director of the Brooke
Hills Park in Wellsburg, West Virginia. Mr. Young is a member of the Royal
Order of Moose, Brooke County Sportsman Club and Colliers Sportsman Club.
NOREEN MECHLING has been a director of the Bank since 1994 and a director
of the Company since its formation. Ms. Mechling has been an employee of the
Bank since 1975 and currently serves as Senior Vice President and Chief
Financial Officer.
JOHN R. SPERLAZZA has been a director of the Bank since 1973 and a director
of the Company since its formation. For the past four years, Mr. Sperlazza has
been a co-owner of J&J Properties, a real estate rental company, and has been
employed with JJ&R Enterprises, a real estate rental company, and Mark's Carry
Out. Prior to that time Mr. Sperlazza retired as a co-owner of trucking, mining
and coal companies.
STEVEN D. MARTINO has been with the Bank since 1982. Mr. Martino has been
a Vice President since 1986 and obtained his current titles in July 1996. Mr.
Martino is the current President of the Wellsburg Chamber of Commerce and is the
current Campaign Chairman of the Brooke County United Way. He is also a real
estate appraiser licensed by the State of West Virginia.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Bank's Board of Directors conducts its business through meetings of the
Board and through activities of its committees. During the fiscal year ended
June 30, 1996, the Board of Directors held 24 regular meetings and one special
meeting. No director attended fewer than 75% of the total meetings
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of the Board of Directors of the Bank and committees on which such director
served during the fiscal year ended June 30, 1996.
The Audit Committee of the Bank is comprised of Directors Watson, Johnson
and Murphy. The President also attends these meetings but is excused during
certain portions. The Audit Committee is responsible for developing and
maintaining the Bank's audit program. The committee also meets with the Bank's
outside auditors to discuss the results of the annual audit and any related
matters. The Audit Committee met one time during the 1996 fiscal year.
The Nominating Committee consists of the entire board of directors and
meets annually to select nominees to the Bank"s Board of Directors.
DIRECTOR COMPENSATION
Members of the Board of Directors received fees of $400 per meeting
attended during the 1996 calendar year with up to four, regardless of
attendance. Board members receive $35 for attendance at each committee meeting.
The Bank paid a total of $71,000 in director fees for the year ended June 30,
1996.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the cash and
non-cash compensation awarded to or earned by the President and Chief Executive
Officer of the Bank. No other executive officer of the Bank had a salary and
bonus during the year ended June 30, 1996 that exceeded $100,000 for services
rendered in all capacities to the Bank.
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------------
Other Annual All Other
Name and Principal Position Salary Bonus Compensation(1) Compensation(2)
- --------------------------- ------ ------- --------------- ---------------
<S> <C> <C> <C> <C>
Stephen M. Gagliardi $81,111 $10,000 $9,450 $8,305
President and Chief Executive
Officer
</TABLE>
__________
(1) Consists of Board of Directors' fees.
(2) Consists of a contribution of $241 for term life insurance, a matching
contribution of $2,526 to the 401(k) Plan, and a profit sharing
contribution of $5,538.
EMPLOYMENT AGREEMENTS. The Bank intends to enter into employment
agreements with Stephen M. Gagliardi, President and Chief Executive Officer and
two other officers of the Bank. Mr. Gagliardi's salary under the employment
agreement will be based on his then current salary. Mr. Gagliardi's employment
agreement will be for a term of three years. The agreements will be terminable
by the Bank for "just cause" as defined in the agreements. If the Bank
terminates the employee without just cause, the employee will be entitled to a
continuation of the employee's salary from the date of termination through the
remaining term of the agreement. Mr. Gagliardi's employment agreement will
contain a provision stating that in the event of the termination of employment
in connection with any future change in control of the Bank, as defined in the
agreement, Mr. Gagliardi will be paid in a lump sum an amount equal to 2.99
times Mr. Gagliardi's five year average annual cash compensation. In addition,
the Bank intends to enter into severance agreements with two key employees,
which will provide a severance payment upon termination without just cause in
the event of a change in control, as defined in the agreements. The agreements
may be renewed annually by the Board of Directors upon a determination of
satisfactory performance within the Board's sole discretion.
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OTHER BENEFITS
EMPLOYEE STOCK OWNERSHIP PLAN. The Bank has established an employee stock
ownership plan, the ESOP, for the exclusive benefit of participating employees,
to be implemented upon the completion of the Conversion. Participating
employees are employees who have completed one year of service with the Bank and
have attained the age 21. The Bank will submit to the IRS an application for a
letter of determination as to the tax-qualified status of the ESOP. Although no
assurances can be given, the Bank expects that the ESOP will receive a favorable
letter of determination from the IRS.
The ESOP is to be funded by tax-deductible contributions made by the Bank
in cash or the Common Stock. Benefits may be paid either in shares of the
Common Stock or in cash. In accordance with the Plan, the ESOP may borrow funds
with which to acquire up to 10% of the Common Stock to be issued in the
Conversion (8% if the Bank adopts the RSP within one year after the consummation
of the Conversion and the RSP purchases 4% of the Common Stock sold in the
conversion), and intends to borrow funds from the Company. See "Proposed Future
Stock Benefit Plans - Restrictions on Benefit Plans." The loan is expected to
be for a term of ten years at an annual interest rate equal to the prime rate as
published in The Wall Street Journal. Presently it is anticipated that the ESOP
will purchase up to 8% of the Common Stock to be issued in the Offerings (i.e.,
approximately $656,000, based on the midpoint of the EVR), however, no assurance
may be given that ESOP purchases, if any, will not change. This loan will be
secured by the shares purchased and earnings thereon. Shares of Common Stock
purchased with such loan proceeds will be held in a suspense account for
allocation among participants as the loan is repaid. The Bank anticipates
contributing approximately $66,000 annually (based on a 65,600 share purchase)
to the ESOP to meet principal obligations under the ESOP loan, as proposed. It
is anticipated that all such contributions will be limited to an amount that is
tax-deductible.
Shares sold above the maximum of the EVR (i.e., more than 943,000 shares)
may be sold to the ESOP before satisfying remaining unfilled orders of Eligible
Account Holders to fill the ESOP's subscription or the ESOP may purchase some or
all of the shares covered by its subscription after the Conversion in the open
market.
Contributions to the ESOP and shares released from the suspense account
will be allocated among participants on the basis of total compensation. All
participants must be employed at least 1,000 hours in a plan year or terminate
service as a result of retirement, death or disability in order to receive an
allocation for such plan year. Participant benefits become 100% vested after
five years of service. Employment prior to the adoption of the ESOP shall be
credited for the purposes of vesting. Vesting will be accelerated upon
retirement, death, disability, change in control of the Company, or termination
of the ESOP. Forfeitures will be reallocated to participants on the same basis
as other contributions in the plan year. Benefits may be payable in the form of
a lump sum upon retirement, death, disability, or separation from service. The
Bank"s contributions to the ESOP are discretionary and may cause a reduction in
other forms of compensation. Therefore, benefits payable under the ESOP cannot
be estimated.
The Board of Directors has appointed non-employee directors to the ESOP
Committee to administer the ESOP and to serve as the initial ESOP Trustees.
The Board of Directors or the ESOP Committee may instruct the ESOP Trustees
regarding investments of funds contributed to the ESOP. The ESOP Trustees must
vote all allocated shares held in the ESOP in accordance with the instructions
of the participating employees. Unallocated shares and allocated shares for
which no timely direction is received will be voted by the ESOP Trustees as
directed by the Board of Directors or the ESOP Committee, subject to the
Trustees' fiduciary duties.
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401(K) SAVINGS PLAN. The Bank sponsors a tax-qualified defined
contribution savings plan ("401(k) Plan") for the benefit of its employees.
Employees become eligible to participate under the 401(k) Plan after reaching
age 20 1/2 and completing one year (including 1,000 hours) of service. Under
the 401(k) Plan, employees may voluntarily elect to defer compensation, not to
exceed applicable limits under the Code (i.e., $9,500 in calendar 1995). The
Bank matches 50% of the first 6% of employee contributions. The Bank does not
match more than 6% of the employee"s base salary. Matching contributions vest
over a 6 year period beginning after the first year at a rate of 20% per year,
or become 100% vested upon termination of employment due to death, disability,
or retirement. The Bank may make additional contributions. Employee
contributions are immediately vested. The Bank intends to amend the 401(k) Plan
to permit voluntary investments of plan assets by participants in the Common
Stock in the Conversion and thereafter.
Benefits are payable upon termination of employment, retirement, death,
disability, or plan termination. Normal retirement age under the 401(k) Plan is
age 65. Additionally, funds under the 401(k) Plan may be distributed upon
application to the plan administrator upon severe financial hardship in
accordance with uniform guidelines which comply with those specified by the
Code. It is intended that the 401(k) Plan operate in compliance with the
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the requirements of Section 401(a) of the Code.
Costs associated with the 401(k) Plan were $56,000 for the year ended June
30, 1996. Contributions to the 401(k) Plan by the Bank for employees may be
reduced in the future or eliminated as a result of contributions made to the
Employee Stock Ownership Plan. See "- Employee Stock Ownership Plan."
PROPOSED FUTURE STOCK BENEFIT PLANS
STOCK OPTION PLAN. The Boards of Directors of the Company intend to adopt
a stock option plan (the "Option Plan") within one year of the Conversion,
subject to approval by the Company's stockholders at a stockholders meeting to
be held no sooner than six months after the Conversion. The Option Plan would
be in compliance with the OTS regulations then in effect. See "- Restrictions
on Benefit Plans." In accordance with OTS regulations, a number of shares equal
to 10% of the aggregate shares of Common Stock to be issued in the Offerings
(i.e., 82,000 shares based upon the sale of 820,000 shares at the midpoint of
the EVR) would be reserved for issuance by the Company upon exercise of stock
options to be granted to officers, directors, and employees of the Company and
the Bank from time to time under the Option Plan. The purpose of the Option
Plan would be to provide additional performance and retention incentives to
certain officers, directors, and employees by facilitating their purchase of a
stock interest in the Company. The Option Plan, which would become effective
upon stockholder approval of the Option Plan, would provide for a term of 10
years, after which no awards could be made, unless earlier terminated by the
Board of Directors pursuant to the Option Plan. The options would vest over a
five year period (i.e., 20% per year), beginning one year after the date of
grant of the option. Options would be granted based upon several factors,
including seniority, job duties and responsibilities, job performance, the
Bank"s performance, and a comparison of awards given by other institutions
converting from mutual to stock form.
The Company would receive no monetary consideration for the granting of
stock options under the Option Plan, however, the Company would receive the
option price for each share issued to optionees upon the exercise of such
options. Shares issued as a result of the exercise of options will be either
authorized but unissued shares or shares purchased in the open market by the
Company, however, no purchases in the open market will be made that would
violate applicable regulations restricting purchases by the Company. The
exercise of options and payment for the shares received would contribute to the
equity of the Company.
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If the Option Plan is implemented more than one year after the Conversion,
the Option Plan will comply with such OTS regulations and policies that are
applicable at such time.
RESTRICTED STOCK PLAN. The Board of Directors of the Bank and the Company
intend to adopt a restricted stock plan (the "RSP") within one year of the
Conversion, the objective of which is to enable the Bank to retain personnel and
directors of experience and ability in key positions of responsibility. The
Company expects to hold a stockholders' meeting no sooner than six months after
the Conversion in order for stockholders to vote to approve the RSP. The RSP
will be implemented in accordance with applicable OTS regulations. See "-
Restrictions on Benefit Plans." Awards would be granted based upon a number of
factors, including seniority, job duties and responsibilities, job performance,
the Bank's performance, and a comparison of awards given by other institutions
converting from mutual to stock form. The RSP would be managed by a committee
of non-employee directors (the "RSP Trustees"). The RSP Trustees would have the
responsibility to invest all funds contributed by the Bank to the trust created
for the RSP (the "RSP Trust").
The Bank will contribute sufficient funds to the RSP so that the RSP Trust
can purchase, in the aggregate, up to 4% of the amount of Common Stock that is
sold in the Conversion. The shares purchased by the RSP would be authorized but
unissued shares or would be purchased in the open market. In the event the
market price of the Common Stock is greater than $10.00 per share, the Bank's
contribution of funds will be increased. Likewise, in the event the market price
is lower than $10.00 per share, the Bank's contribution will be decreased. In
recognition of their prior and expected services to the Bank and the Company, as
the case may be, the officers, employees, and directors responsible for
implementation of the policies adopted by the Board of Directors and the
profitable operation of the Bank will, without cost to them, be awarded stock
under the RSP. Based upon the sale of 820,000 shares of Common Stock in the
Offerings at the midpoint of the EVR, the RSP Trust is expected to purchase up
to 32,800 shares of Common Stock.
In accordance with applicable OTS regulations, the shares granted under the
RSP will be in the form of restricted stock vesting over a five year period
(i.e., 20% per year) beginning one year after the date of grant of the award.
Compensation expense in the amount of the market value of the Common Stock on
the date an award is granted will be recognized pro rata over the years during
which the shares are payable. Until they have vested, such shares may not be
sold, pledged, or otherwise disposed of and are required to be held in escrow.
The RSP Trustees shall vote all shares held by the RSP trust prior to vesting
and delivery of shares to participants.
If the RSP is implemented more than one year after the Conversion, the RSP
will comply with such OTS regulations and policies that are applicable at such
time.
RESTRICTIONS ON BENEFIT PLANS. OTS regulations provide that in the event
the Bank implements or adopts stock option or management and/or employee stock
benefit plans within one year from the date of Conversion, such plans must
comply with the following restrictions: (1) the plans must be fully disclosed
in the prospectus, (2) for stock option plans, the total number of shares for
which options may be granted may not exceed 10% of the shares issued in the
Conversion, (3) for restricted stock plans, the shares may not exceed 3% of the
shares issued in the Conversion (4% for institutions with 10% or greater
tangible capital), (4) the aggregate amount of stock purchased by the ESOP in
the Conversion may not exceed 10% (8% for well-capitalized institutions
utilizing a 4% restricted stock plan), (5) no individual employee may receive
more than 25% of the available awards under any plan, (6) directors who are not
employees may not receive more than 5% individually or 30% in the aggregate of
the awards under any plan, (7) all plans must be approved by a majority of the
total votes eligible to be cast at any duly called meeting of the Company's
stockholders held no earlier than six months following the Conversion, (8) for
stock option plans, the exercise price must be at least equal to the market
price of the stock at the time of grant, (9) for restricted stock plans, no
stock issued in a conversion may be used
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to fund the plan, (10) neither stock option awards nor restricted stock awards
may vest earlier than 20% as of one year after the date of stockholder approval
and 20% per year thereafter, and vesting may be accelerated only in the case of
disability or death (or if not inconsistent with applicable OTS regulations in
effect at such time, in the event of a change in control), (11) the proxy
material must clearly state that the OTS in no way endorses or approves of the
plans, and (12) prior to implementing the plans, all plans must be submitted to
the Regional Director of the OTS within five days after stockholder approval
with a certification that the plans approved by the stockholders are the same
plans that were filed with and disclosed in the proxy materials relating to the
meeting at which stockholder approval was received. Plans adopted and
implemented more than one year after the Conversion would not necessarily be
subject to these limitations. In addition, should the rules and regulations of
the OTS be liberalized, the Bank and the Company reserve the right to adopt
plans qualifying under the more liberal rules.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee consists of the entire Board of Directors. Mr.
Gagliardi and Ms. Mechling do not participate in matters concerning their own
compensation.
CERTAIN RELATED TRANSACTIONS
The Bank, like many financial institutions, has followed a policy of
granting various types of loans to officers and directors. Such loans a) have
been made in the ordinary course of business, b) were made on substantially the
same terms and conditions, including interest rates and collateral, as those
prevailing at the time for comparable transactions with the Bank's other
customers, and c) do not involve more than the normal risk of collectibility or
present other unfavorable features. All loans by the Bank to its directors and
executive officers are subject to OTS regulations restricting loans and other
transactions with affiliated persons of the Bank. Loans to officers and
directors of the Bank and their affiliates, amounted to approximately $615,000
or 9.9% of the Bank's equity at June 30, 1996. Assuming the Conversion had
occurred as of June 30, 1996, and assuming the sale of 820,000 shares at the
midpoint of the EVR, loans to officers and directors of the Bank at that date
would have totalled approximately 4.7% of pro forma stockholders' equity of the
Company.
THE CONVERSION
THE BOARDS OF DIRECTORS OF THE BANK AND THE COMPANY AND THE OTS HAVE
APPROVED THE PLAN SUBJECT TO THE PLAN'S APPROVAL BY THE MEMBERS OF THE BANK
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 BY THE OTS.
GENERAL
On September 3, 1996, the Board of Directors of the Bank adopted the Plan,
pursuant to which the Bank would be converted from a federally chartered mutual
savings and loan association to a federally chartered stock savings bank, with
the concurrent formation of the Company. It is currently intended that all of
the capital stock of the Bank will be held by the Company. The OTS has approved
the Plan subject to its approval by the members of the Bank entitled to vote on
the matter at a special meeting (the "Special Meeting") called for that purpose
and subject to the satisfaction of certain other conditions imposed by the OTS
in its approval.
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The OTS has approved the Company's application to become a savings and loan
holding company and to acquire all of the Common Stock of the Bank to be issued
in the Conversion. Pursuant to such OTS approval, the Company plans to retain
50% of the net proceeds from the sale of the Common Stock and to use the
remaining 50% to purchase all of the to be issued and outstanding capital stock
of the Bank.
The Conversion will be accomplished through adoption of the proposed
Federal Stock Charter and Bylaws to authorize the issuance of capital stock by
the Bank, at which time the Bank will change its name to Advance Financial
Savings Bank and will become a wholly owned subsidiary of the Company. The
Conversion will be accounted for at historical cost in a manner similar to a
pooling of interests. Under the Plan, the Common Stock is being offered for
sale by the Company. As part of the Conversion, the Company is conducting a
Subscription Offering of the Common Stock for holders of subscription rights
and, depending upon market conditions at or near the completion of the
Subscription Offering, may also, or in lieu thereof, conduct a Public Offering.
The Plan provides that the Conversion must be completed within 24 months after
the date of the approval of the Plan by the members of the Bank.
In the event that the Bank is unable to complete the sale of Common Stock
and effect the Conversion within 45 days after the end of the Subscription
Offering, the Bank may request an extension of the period by the OTS. No
assurance can be given that the extension would be granted if requested. Due to
the volatile nature of market conditions, no assurances can be given that the
Bank's valuation would not substantially change during any such extension. If
the EVR of the Common Stock must be amended, no assurance can be given that such
amended EVR would be approved by the OTS. Therefore, it is possible that if the
Conversion cannot be completed within the requisite period, the Bank may not be
permitted to complete the Conversion. A substantial delay caused by an
extension of the period may also significantly increase the expense of the
Conversion. No sales of the Common Stock may be completed in the Offerings
unless the Plan is approved by the members of the Bank.
Completion of the Offerings is subject to market conditions and other
factors beyond the Bank's control. No assurance can be given as to the length
of time following approval of the Plan at the Special Meeting that will be
required to complete the Offerings. If delays are experienced, significant
changes may occur in the estimated pro forma market value of the Bank upon
Conversion together with corresponding changes in the offering price and the net
proceeds realized by the Bank from the sale of the Common Stock. In the event
the Conversion is terminated, the Bank would be required to charge all
Conversion expenses against current income and any funds collected by the Bank
in the Offerings would be promptly returned to each potential investor, plus
interest at the prescribed rate.
REASONS FOR THE CONVERSION
The principal factors considered by the Bank's Board of Directors in
reaching the decision to pursue a mutual-to-stock conversion are the future of
mutual institutions generally and the numerous competitive disadvantages which
the Bank faces if it continues in mutual form. These disadvantages relate to a
variety of factors, including growth opportunities, employee retention, and
regulatory uncertainty.
In the opinion of management, if the Bank is to continue to grow and
prosper, the mutual form of organization is the least desirable form from a
competitive standpoint. The only realistic growth opportunity available to the
Bank as a mutual is branching. The opportunities for a mutual to expand through
mergers are extremely scarce. The only realistic merger possibilities are
mutual to mutual mergers. As the number of mutual companies dwindles, so do the
opportunities for such mergers. Although the Bank does not have any specific
acquisitions planned at this time, the Conversion will position the Bank to take
advantage of any acquisition opportunities that may present themselves.
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Because a conversion to stock form is a time-consuming and complex process, the
Bank cannot wait until an acquisition is imminent to begin the conversion
process.
As an increasing number of the Bank's competitors convert to stock form and
can use stock based compensation programs, the Bank, as a mutual, is at a
disadvantage in attracting and retaining qualified management. The Bank
believes that the ESOP for all employees and the Stock Option Plan and the RSP
for directors, officers, and certain employees are important tools in achieving
such goals, even though the Bank will be required to wait until after the
Conversion to implement the Stock Option Plan and the RSP. See "Management of
the Bank - Proposed Future Stock Benefit Plans."
Another benefit of the conversion will be an increase in capital.
Notwithstanding the Bank's current capital position, the importance of higher
levels of capital cannot be ignored in the current interest rate environment.
For the last few years, thrift institutions have enjoyed very favorable net
interest margins as interest rates dropped to very low levels. In more recent
months, interest rates generally have been rising. As has been amply
demonstrated in the past, changing accounting principles, interest rate shifts,
and changing regulations can threaten even well-capitalized institutions. As a
mutual institution, the Bank can only increase capital through retained earnings
or the issuance of subordinated debentures, which do not count as Tier I capital
for regulatory capital purposes. Capital that may seem unnecessary now may help
the Bank withstand future threats to its capital.
In view of the competitive disadvantage and the ongoing debate about the
future of mutual institutions in the wake of regulatory consolidation and other
forces, the Bank is choosing to reject the uncertainty inherent in the mutual
structure in favor of the more widely used, recognized, and understood stock
form of ownership.
EFFECTS OF CONVERSION TO STOCK FORM ON DEPOSITORS AND BORROWERS OF THE BANK
VOTING RIGHTS. Depositor and borrower members will have no voting rights
in the converted Bank and will therefore not be able to elect directors of the
Bank or to otherwise participate in the conduct of the affairs of the Bank or
the Company unless they hold Common Stock. Currently, these rights are accorded
to depositor and certain borrower members of the Bank. Although the Bank holds
annual meetings of members for the election of directors and for other purposes,
very few members exercise their voting rights. Accordingly, voting control of
the Bank has been effectively exercised by the Board of Directors through their
individual votes and through proxies given by a limited number of members.
Following the Conversion, the Bank will become a wholly owned subsidiary of the
Company, which will hold all voting rights in the Bank. Voting rights in the
Company will be vested exclusively in the Company"s stockholders. Stockholders
will be entitled to vote on any matter to be considered by the stockholders of
the Company and will be entitled to one vote for each share of the Common Stock
owned. See "Certain Restrictions on Acquisition of the Company" with respect to
limitations applicable to the rights of stockholders to exercise cumulative
voting.
SAVINGS ACCOUNTS AND LOANS. The Bank's savings accounts, balances of the
individual accounts, and the existing FDIC insurance coverage will not be
affected by the Conversion. Furthermore, the Conversion will not affect the
loan accounts, the balances of these accounts, or the obligations of the
borrowers under their individual contractual arrangements with the Bank.
TAX EFFECTS. A discussion of the material taxes applicable to the Bank is
included above under "Taxation." A summary of the material tax effects of the
Conversion on the Bank and its members is set forth below. The Bank has
received an opinion from its counsel, Malizia, Spidi, Sloane & Fisch, P.C.,
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, filed as an exhibit to the registration statement of which this
prospectus is a part, provides that: (i) the Conversion will qualify as a
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reorganization under Section 368(a)(1)(F) of the Code, and no gain or loss will
be recognized by the Bank in either its mutual form or its stock form, or by the
Company, by reason of the proposed Conversion; (ii) no gain or loss will be
recognized by the Bank upon the receipt of money from the Company for stock of
the Bank, and no gain or loss will be recognized by the Company upon the receipt
of money for the Common Stock; (iii) the assets of the Bank in either its mutual
or its stock form will have the same basis before and after the Conversion; (iv)
the holding period of the assets of the Bank will include the period during
which the assets were held by the Bank in its mutual form prior to conversion;
(v) no gain or loss will be recognized by the Eligible Account Holders,
Supplemental Eligible Account Holders, and Other Members of the Bank upon the
issuance to them of withdrawable savings accounts in the stock association in
the same dollar amount as their savings accounts in the Bank plus an interest in
the liquidation account of the stock association in exchange for their savings
accounts in the Bank; (vi) the receipt by Eligible Account Holders, Supplemental
Eligible Account Holders, and Other Members of non-transferable subscription
rights to purchase shares of the Common Stock under the Plan is taxable to
Eligible Account Holders, Supplemental Eligible Account Holders, and Other
Members to the extent the subscription rights have value; (vii) the basis of
each account holder's savings accounts in the Bank after the Conversion will be
the same as the basis of his or her savings accounts in the Bank prior to the
Conversion, decreased by the fair market value of the non-transferable
subscription rights received and increased by the amount, if any, of gain
recognized on the exchange; (viii) the basis of each account holder's interest
in the liquidation account will be zero; (ix) the holding period of the Common
Stock acquired through the exercise of subscription rights shall begin on the
date on which the subscription rights are exercised; (x) the Bank will succeed
to and take into account the earnings and profits or deficit in earnings and
profits of the Bank, in its mutual form, as of the date of Conversion; (xi) the
Bank, immediately after Conversion, will succeed to the bad debt reserve
accounts of the Bank, in its mutual form, and the bad debt reserves will have
the same character in the hands of the Bank after Conversion as if no
distribution or transfer had occurred; and (xii) the creation of the liquidation
account will have no effect on the Bank's taxable income, deductions, or
addition to reserve for bad debts either in its mutual or stock form.
The opinion from Malizia, Spidi, Sloane & Fisch, P.C. is based in part on
the assumption that the exercise price of the subscription rights to purchase
Common Stock will be approximately equal to the fair market value of that stock
at the time of the completion of the proposed Conversion. With respect to the
subscription rights, the Bank has received an opinion of Keller which, based on
certain assumptions, concludes that the subscription rights to be received by
Eligible Account Holders, Supplemental Eligible Account Holders, and Other
Members do not have any economic value at the time of distribution or at the
time the subscription rights are exercised, whether or not a public offering
takes place. Such opinion is based on the fact that such rights are: (i)
acquired by the recipients without payment therefor, (ii) non-transferable,
(iii) of short duration, and (iv) afford the recipients the right only to
purchase Common Stock at a price equal to its estimated fair market value, which
will be the same price at which shares of Common Stock for which no subscription
right is received in the Subscription Offering may be offered in the Public
Offering. If the subscription rights granted to Eligible Account Holders,
Supplemental Eligible Account Holders, or Other Members are deemed to have an
ascertainable value, receipt of such rights would be taxable probably only to
those Eligible Account Holders, Supplemental Eligible Account Holders, or Other
Members who exercise the subscription rights in an amount equal to such value
(either as a capital gain or ordinary income), and the Bank could recognize gain
on such distribution.
The Bank is subject to West Virginia taxation and has received the opinion
of S.R. Snodgrass, A.C. that the Conversion will be treated for West Virginia
state tax purposes similar to the Conversion's treatment for federal tax
purposes.
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Unlike a private letter ruling, the opinions of Malizia, Spidi, Sloane &
Fisch, P.C., Keller, and S.R. Snodgrass, A.C. have no binding effect or official
status, and no assurance can be given that the conclusions reached in any of
those opinions would be sustained by a court if contested by the IRS or the West
Virginia tax authorities. ELIGIBLE ACCOUNT HOLDERS, SUPPLEMENTAL ELIGIBLE
ACCOUNT HOLDERS, AND OTHER MEMBERS ARE ENCOURAGED TO CONSULT WITH THEIR OWN TAX
ADVISERS AS TO THE TAX CONSEQUENCES IN THE EVENT THE SUBSCRIPTION RIGHTS ARE
DEEMED TO HAVE AN ASCERTAINABLE VALUE.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
the Bank in its present mutual form, each eligible Account Holder and
Supplemental Eligible Account Holder of the Bank is entitled to a liquidating
distribution from the liquidation account, pro rata to the value of his or her
accounts, of the Bank remaining after liquidation payment of claims of all
creditors (including the claims of all account holders to the withdrawal value
of their accounts). Each account holder's pro rata share of such liquidating
distribution would be in the same proportion as the value of his or her deposit
accounts was to the total value of all deposit accounts in the Bank at the time
of liquidation.
Upon a complete liquidation after the Conversion, each depositor would have
a claim, as a creditor, of the same general priority as the claims of all other
general creditors of the Bank. Therefore, except as described below, a
depositor's claim would be solely in the amount of the balance in his or her
deposit account plus accrued interest. A depositor would not have an interest
in the residual value of the assets of the Bank above that amount, if any.
The Plan and OTS rules provide for the establishment, upon the completion
of the Conversion, of a special "liquidation account" for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders in an amount
equal to the equity of the Bank as of the date of its latest statement of
financial condition contained in the final prospectus. Each Eligible Account
Holder and Supplemental Eligible Account Holder, if he or she continues to
maintain his or her deposit account at the Bank, would be entitled pursuant to a
complete liquidation of the Bank after Conversion, to an interest in the
liquidation account prior to any payment to stockholders of the Bank. Each
Eligible Account Holder would have an initial interest in such liquidation
account for each deposit account held in the Bank on the qualifying date, August
31, 1995. Each Supplemental Eligible Account Holder would have a similar
interest as of the qualifying date, September 30, 1996. The interest as to each
deposit account would be in the same proportion of the total liquidation account
as the balance of the deposit account on the qualifying dates was to the
aggregate balance in all the deposit accounts of Eligible Account Holders and
Supplemental Eligible Account Holders on such qualifying dates. However, if the
amount in the deposit account on any annual closing date of the Bank (June 30)
is less than the amount in such account on the respective qualifying dates, then
the interest in this special liquidation account would be reduced from time to
time by an amount proportionate to any such reduction, and the interest would
cease to exist if such deposit account were closed. The interest in the special
liquidation account will never be increased despite any increase in the related
deposit account after the respective qualifying dates.
No merger, consolidation, purchase of bulk assets with assumptions of
savings accounts and other liabilities, or similar transactions with another
insured institution in which transaction the Bank is not the surviving
institution shall be considered a complete liquidation. In such transactions,
the liquidation account shall be assumed by the surviving institution.
SUBSCRIPTION RIGHTS AND THE SUBSCRIPTION OFFERING
In accordance with OTS regulations, non-transferable subscription rights to
purchase shares of the Common Stock have been granted to all persons and
entities entitled to purchase the Common Stock in the Subscription Offering
under the Plan. The amount of the Common Stock which these parties may purchase
will be determined, in part, by the total amount of Common Stock to be issued
and by the availability of the Common Stock for purchase under the categories
set forth in the Plan. If the
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Subscription Offering extends beyond ___________, 1997 (45 days following the
Expiration Date of the Subscription Offering), subscribers will be resolicited.
Subscription priorities have been established for the allocation of stock to the
extent that the Common Stock is available after satisfaction of all
subscriptions of all persons having prior rights and subject to the maximum and
minimum purchase limitations set forth in the Plan and as described below under
"-Limitations on Purchase of Shares." The following priorities have been
established:
ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder (depositors of the
Bank with account balances of at least $50 on August 31, 1995) will receive non-
transferable subscription rights on a priority basis to purchase that number of
shares of Common Stock which is equal to the greater of 10,000 shares ($100,000)
sold in the Conversion, one-tenth of one percent (0.10%) 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 Common 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, but in no event shall this number be
greater that the maximum purchase limitation specified in the Plan. If the
allocation made in this paragraph results in an oversubscription, shares of
Common 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 Common Stock sufficient to make his or her total allocation equal
to 100 shares of Common Stock or the total amount of his or her subscription,
whichever is less. Any shares of Common Stock not so allocated shall be
allocated among the subscribing Eligible Account Holders on an equitable basis,
in the proportion that the amounts of their respective qualifying deposits bear
to the qualifying deposits of all subscribing Eligible Account Holders. If the
amount so allocated exceeds the amount subscribed for by any one or more
Eligible Account Holders, the excess shall be reallocated (one or more times as
necessary) among those Eligible Account Holders whose subscriptions are still
not fully satisfied on the same principle until all available shares have been
allocated or all subscriptions satisfied. Subscription rights received by
officers and directors in this category based on their increased deposits in the
Bank in the one-year period preceding August 31, 1995, are subordinated to the
subscription rights of other Eligible Account Holders.
TAX-QUALIFIED EMPLOYEE BENEFIT PLANS. Tax-qualified employee benefit plans
of the Bank ("Employee Plans") have been granted subscription rights to purchase
up to 10% of the total shares issued in the Conversion. The ESOP is an Employee
Plan and intends to purchase up to 8% of the Common Stock issued in the
Conversion.
The right of Employee Plans to subscribe for the Common Stock is
subordinate to the right of the Eligible Account Holders to subscribe for the
Common Stock. However, in the event the Offerings result in the issuance of
shares above the maximum of the EVR (i.e., more than 943,000 shares), the
Employee Plans have a priority right to fill their subscription (the ESOP, the
only Employee Plan, currently intends to purchase up to 8% of the Common Stock
issued in the Conversion). The Employee Plans may, however, determine to
purchase some or all of the shares covered by their subscriptions after the
Conversion in the open market or, if approved by the OTS, out of authorized but
unissued shares in the event of an oversubscription.
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. Each Supplemental Eligible Account
Holder (depositors who are not Eligible Account Holders of the Bank with account
balances of at least $50 on September 30, 1996) will receive non-transferable
subscription rights to purchase that number of shares of Conversion Stock which
is equal to the greater of 10,000 shares ($100,000) sold in the Conversion, one-
tenth of one percent (0.10%) 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 Common Stock to be issued by a fraction of which the numerator is
the amount of the qualifying deposit of the Supplemental Eligible Account Holder
and the denominator is the total amount of qualifying deposits of all
Supplemental Eligible Account Holders. These non-transferable subscription
rights shall be granted only in the event
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that the Eligibility Record Date is more than 15 months prior to the date of the
latest amendment to the Application filed prior to OTS approval. If the
allocation made pursuant to this paragraph results in an oversubscription,
shares of Common Stock shall be allocated among subscribing Supplemental
Eligible Account Holders so as to permit each such account holder, to the extent
possible, to purchase a number of shares of Common Stock sufficient to make his
or her total allocation (including the number of shares of Common Stock, if any,
allocated in accordance with the subscription rights of Eligible Account
Holders) equal to 100 shares of Common Stock or the total amount of his or her
subscription, whichever is less. Any shares of Common Stock not so allocated
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 subscribing
Supplemental Eligible Account Holders.
The rights of Supplemental Eligible Account Holders to subscribe for the
Common Stock is subordinate to the rights of the Eligible Account Holders and
Employee Plans to subscribe for the Common Stock.
OTHER MEMBERS. Other Members (depositors and borrowers who are entitled to
vote at a special meeting of members called to vote on the Conversion) who are
not Eligible Account Holders or Supplemental Eligible Account Holders, will
receive non-transferable subscription rights to purchase up to the greater of
10,000 shares ($100,000), or one tenth of one percent (0.10%) of the total
offering, subject to maximum and minimum purchase limitations and exclusive of
an increase in the total number of shares issued due to an increase in the
maximum EVR of up to 15%, to the extent such stock is available following
subscriptions by Eligible Account Holders, Employee Plans, and Supplemental
Eligible Account Holders. If the allocation made pursuant to this paragraph
results in an oversubscription when added to the shares of Common Stock
subscribed for by the Eligible Account Holders, the Employee Plans, and the
Supplemental Account Holders, the subscriptions of such Other Members will be
allocated among the subscribing Other Members so as to permit each subscribing
Other Member, to the extent possible, to purchase a number of shares of Common
Stock sufficient to make his or her total allocation equal to 100 shares of
Common Stock or the total number of shares covered by the subscription of the
Other Member. Any remaining shares will be allocated among the subscribing Other
Members whose subscriptions remain unsatisfied on a 100 shares (or whatever
lesser amount is available) per order basis until all orders have been filled or
the remaining shares have been allocated.
MEMBERS IN NON-QUALIFIED STATES. The Company will make reasonable efforts
to comply with the securities laws of all states in the United States in which
persons entitled to subscribe for the Common Stock pursuant to the Plan reside.
However, no person will be offered or allowed to purchase any Common Stock under
the Plan if he or she resides in a foreign country or in a state of the United
States with respect to which any of the following apply: (i) a small number of
persons otherwise eligible to subscribe for shares under the Plan reside in such
state or foreign country; (ii) the granting of subscription rights or offer or
sale of shares of Common Stock to such persons would require the Bank, the
Company, or its employees to register, under the securities laws of such state
or foreign country, as a broker or dealer or to register or otherwise qualify
its securities for sale in such state or foreign country; or (iii) such
registration or qualification would be impracticable for reasons of cost or
otherwise. No payments will be made in lieu of the granting of subscription
rights to any such person.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES. The OTS
conversion regulations prohibit any person with subscription rights, including
Eligible Account Holders, Supplemental Eligible Account Holders, and Other
Members of the Bank, from transferring or entering into any agreement or
understanding to transfer the legal or beneficial ownership of the subscription
rights issued under the Plan or the shares of Common Stock to be issued upon
their exercise. Such rights may be exercised only by the person to whom they are
granted and only for his or her account. Each person subscribing for shares will
be required to certify that such person is purchasing shares solely for his or
her own account and that
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such person has no agreement or understanding regarding the sale or transfer of
such shares. The regulations also prohibit any person from offering or making an
announcement of an offer or intent to make an offer to purchase such
subscription rights or shares of Common Stock prior to the completion of the
Conversion.
The Bank and the Company will pursue any and all legal and equitable
remedies in the event they become aware of the transfer of subscription rights
and will not honor orders known by them to involve the transfer of such rights.
EXPIRATION DATE. THE SUBSCRIPTION OFFERING WILL EXPIRE AT 4:00 P.M.,
EASTERN TIME, ON ____________, 1996, UNLESS THE SUBSCRIPTION OFFERING IS
EXTENDED, AT THE DISCRETION OF THE BOARD OF DIRECTORS, UP TO AN ADDITIONAL 45
DAYS WITH THE APPROVAL OF THE OTS, IF NECESSARY, BUT WITHOUT ADDITIONAL NOTICE
TO SUBSCRIBERS (THE "EXPIRATION DATE"). Subscription rights will become void if
not exercised prior to the Expiration Date.
PUBLIC OFFERING
To the extent that shares remain available and subject to market conditions
at or near the completion of the Subscription Offering, the Company may offer
shares pursuant to the Plan, to selected persons in a Public Offering on a best-
efforts basis through Webb in such a manner as to promote a wide distribution of
the Common Stock. Any orders received in connection with the Public Offering, if
any, will receive a lower priority than orders properly made in the Subscription
Offering by persons exercising Subscription Rights. Common Stock sold in the
Public Offering will be sold at $10.00 per share and hence will be sold at the
same price as all other shares in the Conversion. THE COMPANY AND THE BANK HAVE
THE RIGHT TO REJECT ORDERS, IN WHOLE OR IN PART, IN THEIR SOLE DISCRETION IN THE
PUBLIC OFFERING.
No person (or persons acting through a single account) will be permitted to
purchase more than 10,000 shares or $100,000 of Common Stock in the Public
Offering. No person, together with any associate or group of persons acting in
concert, will be permitted to purchase more than 15,000 shares or $150,000 of
Common Stock in the Public Offering. To order Common Stock in connection with
the Public Offering, if any, an executed stock order and account withdrawal
authorization (if applicable) must be received by Webb prior to the termination
of the Public Offering. The date by which orders must be received in the Public
Offering ("Public Offering Expiration Date") will be set by the Company at the
time of commencement of the Public Offering; provided however, if the Offerings
are extended beyond __________, 1997, each purchaser will have the opportunity
to maintain, modify, or rescind his or her order. In such event, all funds
received in the Public Offering will be promptly returned with interest to each
purchaser unless he or she affirmatively indicates otherwise.
In the event the Company determines to conduct a Public Offering, persons
to whom a Prospectus is delivered may order shares of Common Stock by submitting
a completed stock order and account withdrawal authorization (provided by Webb,
if applicable) and an executed certification along with immediately available
funds (which may be obtained by debiting a Webb account) to Webb by not later
than the Public Offering Expiration Date (as established by the Company).
Promptly upon receipt of available funds, together with a properly executed
stock order and account withdrawal authorization, if applicable, and
certification, Webb will forward such funds to the Bank to be deposited in a
subscription escrow account.
If an order in the Public Offering is accepted, promptly after the
completion of the Conversion, a certificate for the appropriate amount of shares
will be forwarded to Webb as nominee for the beneficial owner. In the event that
an order is not accepted or the Conversion is not consummated, the Bank will
promptly refund with interest the funds received to Webb which will then return
the funds to purchasers'
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accounts. If the aggregate pro forma market value of the Company and the Bank,
as converted, is less than $6,970,000 or more than $10,844,500, each purchaser
will have the right to modify or rescind his or her order.
IF A PUBLIC OFFERING IS HELD, THE OPPORTUNITY TO ORDER SHARES OF COMMON
STOCK IN THE PUBLIC OFFERING IS SUBJECT TO THE RIGHT OF THE BANK AND THE
COMPANY, IN THEIR SOLE DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS IN WHOLE
OR IN PART.
ORDERING AND RECEIVING COMMON STOCK
USE OF ORDER FORMS. Rights to subscribe may only be exercised by
completion of an Order Form or stock order and account withdrawal authorization
("Stock Order"), if applicable, in the case of the Public Offering. Any person
receiving an Order Form or Stock Order who desires to subscribe for shares of
Common Stock must do so prior to the Expiration Date or, if applicable, the
Public Offering Expiration Date, by delivering (by mail or in person ) to the
Bank a properly executed and completed Order Form or Stock Order, together with
full payment of the Purchase Price for all shares for which subscription is
made; provided, however, that if the Employee Plans subscribe for shares during
the Subscription Offering, the Employee Plans will not be required to pay for
the shares at the time they subscribe but rather may pay for the shares upon
consummation of the Conversion. Except for institutional investors, all
subscription rights under the Plan will expire on the Expiration Date, whether
or not the Bank has been able to locate each person entitled to such
subscription rights. The Bank and Company shall have the right, in their sole
discretion, to permit institutional investors to submit contractually
irrevocable orders in the Public Offering at any time prior to the completion of
the Conversion. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED WITHOUT THE
CONSENT OF THE BANK AND THE COMPANY UNLESS THE CONVERSION IS NOT COMPLETED
WITHIN 45 DAYS OF THE EXPIRATION DATE.
In the event an Order Form or Stock Order (i) is not delivered and is
returned to the Bank by the United States Postal Service or the Bank is unable
to locate the addressee; (ii) is not received or is received after the
Expiration Date or the Public Offering Expiration Date; (iii) is defectively
completed or executed; (iv) is not accompanied by the full required payment for
the shares subscribed for (including instances where a savings account or
certificate balance from which withdrawal is authorized is insufficient to fund
the amount of such required payment, but excluding subscriptions by the Employee
Plans) or, in the case of an institutional investor in the Public Offering, by
delivering irrevocable orders together with a legally binding commitment to pay
the full purchase price prior to 48 hours before the completion of the
Conversion; or (v) is not mailed pursuant to a "no mail" order placed in effect
by the account holder, the subscription rights for the person to whom such
rights have been granted will lapse as though such person failed to return the
completed Order Form or Stock Order within the time period specified. However,
the Company may, but will not be required to, waive any irregularity on any
Order Form or Stock Order or require the submission of corrected Order Forms or
Stock Orders or the remittance of full payment for subscribed shares by such
date as the Company may otherwise specify. The waiver of an irregularity on an
Order Form or Stock Order in no way obligates the Company to waive any other
irregularity on any other Order Form or Stock Order. Waivers will be considered
on a case by case basis. The Bank and the Company reserve the right in their
sole discretion to accept or reject orders received on photocopies or facsimile
Order Forms or Stock Orders, or whose payment is to be made by wire transfer or
payment from private third parties. The interpretation by the Bank or Company of
the terms and conditions of the Plan and of the acceptability of the Order Forms
or Stock Orders will be final, subject to the authority of the OTS.
To ensure that each purchaser receives a Prospectus at least 48 hours
before the Expiration Date or, if applicable, the Public Offering Expiration
Date, in accordance with Rule 15c2-8 of the Exchange Act, no Prospectus will be
mailed any later than five days prior to such date or hand delivered any later
than two days prior to such date . Execution of the Order Form or Stock Order
will confirm receipt or
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delivery in accordance with Rule 15c2-8. Order Forms or Stock Orders will only
be distributed with a Prospectus.
PAYMENT FOR SHARES. For subscriptions to be valid, payment for all
subscribed shares, computed on the basis of the Purchase Price, will be required
to accompany all properly completed Order Forms, on or prior to the expiration
date specified on the Order Form unless such date is extended by the Bank or the
Company. Employee Plans subscribing for shares during the Subscription Offering
may pay for such shares upon consummation of the Conversion. Payment for shares
of Common Stock may be made (i) in cash, if delivered in person, (ii) by check
or money order, or (iii) for shares of Common Stock subscribed for in the
Subscription Offering, by authorization of withdrawal from savings accounts
(including certificates of deposit) maintained with the Bank. Appropriate means
by which such withdrawals may be authorized are provided in the Order Form. Once
such a withdrawal has been authorized, none of the designated withdrawal amount
may be used by a subscriber for any purpose other than to purchase the Common
Stock for which a subscription has been made until the Conversion has been
completed or terminated. In the case of payments authorized to be made through
withdrawal from savings accounts, all sums authorized for withdrawal will
continue to earn interest at the contract rate until the Conversion has been
completed or terminated. Interest penalties for early withdrawal applicable to
certificate accounts will not apply to withdrawals authorized for the purchase
of shares, however, if a partial withdrawal results in a certificate account
with a balance less than the applicable minimum balance requirement, the
certificate shall be canceled at the time of withdrawal, without penalty, and
the remaining balance will earn interest at the passbook savings account rate
subsequent to the withdrawal. In the case of payments made in cash or by check
or money order, such funds will be placed in a segregated account and interest
will be paid by the Bank at the passbook savings account rate from the date
payment is received until the Conversion is completed or terminated. An executed
Order Form, once received by the Company, may not be modified, amended, or
rescinded without the consent of the Bank, unless the Conversion is not
completed within 45 days after the conclusion of the Subscription Offering, in
which event subscribers may be given the opportunity to increase, decrease, or
rescind their subscription for a specified period of time. In the event that the
Conversion is not consummated for any reason, all funds submitted pursuant to
the Offerings will be promptly refunded with interest as described above.
Owners of self-directed IRAs may use the assets of such IRAs to purchase
shares of Common Stock in the Offerings, provided that such IRAs are not
maintained on deposit at the Bank. Persons with IRAs maintained at the Bank must
have their accounts transferred to an unaffiliated institution or broker to
purchase shares of Common Stock in the Offerings. Instructions on how to
transfer self-directed IRAs maintained at the Bank can be obtained from the
Conversion Information Center ((304) ______-_______) located at the Bank's main
office.
FEDERAL REGULATIONS PROHIBIT THE BANK FROM LENDING FUNDS OR EXTENDING
CREDIT TO ANY PERSON TO PURCHASE THE COMMON STOCK IN THE CONVERSION.
DELIVERY OF STOCK CERTIFICATES. Certificates representing Common Stock
issued in the Conversion will be mailed to the persons entitled thereto at the
address noted on the Order Form, as soon as practicable following consummation
of the Conversion. Any certificates returned as undeliverable will be held until
claimed by persons legally entitled thereto or otherwise disposed of in
accordance with applicable law. Until certificates for the Common Stock are
available and delivered to subscribers, subscribers may not be able to sell the
shares of stock for which they subscribed.
RESTRICTION ON SALES ACTIVITIES
The Common Stock will be offered in the Offerings principally by the
distribution of this prospectus and through activities conducted at a Conversion
Information Center located at the Bank. The
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Conversion Information Center is expected to operate during normal business
hours throughout the Offerings. It is expected that a registered representative
employed by Webb will be working at, and supervising the operation of, the
Conversion Information Center. Webb will be responsible for overseeing the
mailing of materials relating to the Offerings, responding to questions
regarding the Conversion and the Offerings and processing Order Forms and Stock
Orders. It is expected that Bank and Company personnel will be present in the
Conversion Information Center to assist Webb with clerical matters and to answer
questions related solely to the business of the Bank.
Directors and executive officers of the Company may participate in the
solicitation of offers to purchase Common Stock in jurisdictions where such
participation is not prohibited. Other employees of the Company and the Bank may
participate in the Offerings in ministerial capacities or providing clerical
work in effecting a sales transaction. Such other employees have been instructed
not to solicit offers to purchase Common Stock or provide advice regarding the
purchase of Common Stock. Questions of prospective purchasers will be directed
to executive officers of the Company or registered representatives of Webb. The
Company will rely on Rule 3a4-1 promulgated under the Exchange Act, and sales of
Common Stock will be conducted in accordance with Rule 3a4-1, so as to permit
officers, directors, and employees to participate in the sale of Common Stock.
No officer, director, or employee of the Company or the Bank will be compensated
in connection with such person's solicitations or other participation in the
Offerings by the payment of commissions or other remuneration based either
directly or indirectly on transactions in the Common Stock.
LIMITATIONS ON PURCHASES OF SHARES
The Plan provides for certain additional limitations to be placed upon the
purchase of the Common Stock by eligible subscribers and others in the
Conversion. Each purchaser must purchase a minimum of 25 shares; provided,
however, that the minimum number of shares requirement shall not apply if the
number of shares of Conversion Stock purchased times the price per share exceeds
$500. No person (or persons through a single account) may subscribe for or
purchase more than 10,000 shares of Common Stock ($100,000) and no person (or
persons through a single account), together with any associate or group of
persons acting in concert, may subscribe for or purchase more than 15,000 shares
of Common Stock ($150,000), except for the Employee Plans which may purchase up
to 10% of the Common Stock issued in the Conversion, but currently intend to
purchase 8% of the Common Stock issued in the Conversion. Depending on market
conditions and the results of the Offerings, the Board of Directors, in its sole
discretion, may increase or decrease the purchase limitation without the
approval of the members of the Bank and without resoliciting subscribers,
provided that the maximum purchase limitation may not be increased to a
percentage in excess of 5%. The OTS regulations governing the Conversion limit
the number of shares that officers and directors and their associates may
purchase. In the aggregate, the officers and directors or their associates may
not purchase more than 34% of the shares of the Common Stock issued pursuant to
the Conversion. For purposes of the Plan, the directors are not deemed to be
acting in concert solely by reason of their Board membership.
Requests to purchase additional shares of Common Stock under the Plan will
be allocated by the Board of Directors on a pro rata basis giving priority in
accordance with the priority rights set forth above and in the Plan. Pro rata
reduction within each subscription rights category will be made in allocating
shares to the extent that the maximum purchase limitation is exceeded.
In the event of an increase in the total number of shares offered in the
Conversion due to an increase in the EVR of up to 15% (the "Adjusted Maximum"),
the additional shares will be allocated in the following order of priority: (i)
to fill the Employee Plans' subscription of up to 8% of the Adjusted Maximum
number of shares; (ii) in the event that there is an oversubscription by
Eligible Account Holders, to fill
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unfulfilled subscriptions of Eligible Account Holders exclusive of the Adjusted
Maximum; (iii) in the event that there is an oversubscription by Supplemental
Eligible Account Holders, to fill unfulfilled subscriptions to Supplemental
Eligible Account Holders exclusive of the Adjusted Maximum; and (iv) in the
event that there is an oversubscription by Other Members, to fill unfulfilled
subscriptions of Other Members exclusive of the Adjusted Maximum.
The term "associate" of a person is defined in the Plan to mean (i) any
corporation or organization (other than the Bank or a majority-owned subsidiary
of the Bank) 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 stock benefit
plans or tax-qualified employee stock benefit plans in which a person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity and except that, for purposes of aggregating total shares that may be
held by officers and directors, the term "Associate" does not include any tax-
qualified employee stock benefit plan), and (iii) any relative or spouse of such
person or any relative of such spouse, who has the same home as such person or
who is a director or officer of the Bank, 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
individually could purchase under the above limitations.
The term "officer" is defined in the Plan to mean an executive officer of
the Bank and may include the Bank"s Chairman of the Board, Chief Executive
Officer, President, Senior Vice Presidents, Vice Presidents in charge of
principal business functions, Secretary and Treasurer and any other person
performing similar functions. All references herein to an officer shall have the
same meaning as used for an officer in the Plan.
Each person purchasing shares of the Common Stock in the Conversion will be
deemed to confirm that such purchase does not conflict with the maximum purchase
limitation. In the event that such purchase limitation is violated by any person
(including any associate or group of persons affiliated or otherwise acting in
concert with such persons), the Bank will have the right to purchase from such
person at the Purchase Price per share all shares acquired by such person in
excess of such purchase limitation or, if such excess shares have been sold by
such person, to receive the difference between the Purchase Price per share paid
for such excess shares and the price at which such excess shares were sold by
such person. This right of the Bank to purchase such excess shares will be
assignable by the Bank.
Common Stock purchased pursuant to the Conversion will be freely
transferable, except for shares purchased by directors and officers of the Bank.
For certain restrictions on the Common Stock purchased by directors and
officers, see "- Restrictions on Transferability by Directors and Officers." 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.
PLAN OF DISTRIBUTION
The Company and the Bank have entered into an Agency Agreement with Webb
under which Webb will assist, on a best efforts basis, in the distribution of
the Common Stock in the Conversion. Webb is a broker-dealer registered with the
NASD. Specifically, Webb will assist in the Subscription Offering in the
following manner: (i) training and educating the Company"s and the Bank"s
employees regarding the mechanics and regulatory requirements of the stock
conversion process; (ii) conducting information meetings for potential
subscribers, if necessary; (iii) managing the sales efforts in the Subscription
and Public Offerings; and (iv) keeping records of all stock subscriptions.
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Materials for the Offerings have been initially distributed to eligible
subscribers by mail, with additional copies available at the Conversion
Information Center. In the Subscription Offering, officers of the Company may be
available to answer questions about the Conversion. Such officers will not be
permitted to make statements about the Bank or the Company unless such
information is also set forth in this Prospectus, and they will not be
authorized to render investment advice. All subscribers for the shares to be
offered will be instructed to send payment directly to the Bank, where such
funds will be held in a segregated special escrow account and not released until
the closing of the Conversion or its termination.
MARKETING ARRANGEMENTS
The Bank and the Company have engaged Webb as a financial and marketing
advisor in connection with the Offerings and Webb has agreed to act as an
underwriter on a best efforts basis to solicit subscriptions and purchase orders
for shares of Common Stock in the Offerings. Webb will receive, as compensation,
a fee of 1.5% of the total dollar amount of Common Stock sold in the Offerings,
excluding subscriptions by directors, officers and employees of the Bank and the
Company and their immediate family members, and the ESOP. Webb will also be
reimbursed for its legal fees and expenses up to $30,000. The Bank and the
Company have agreed to indemnify Webb, to the extent allowed by law, for
reasonable costs and expenses in connection with certain claims or liabilities,
including certain liabilities under the Securities Act. Webb has received fees
totalling $25,000 for consulting and advisory services relating to the
Conversion, which fees will be in addition to marketing fees payable to Webb.
See "Pro Forma Data" for further information regarding expenses of the
Conversion.
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 Bank and
by all directors and officers as a group, including their "associates." All such
shares will be purchased for investment purposes and not for purposes of resale.
For purposes of the following table, it has been assumed that 820,000 shares
(the midpoint of the EVR) of the Common Stock will be sold at $10.00 per share
and that sufficient shares will be available to satisfy subscriptions in all
categories.
<TABLE>
<CAPTION>
Aggregate
Total Price of Percent
Shares Shares of Shares
Name Position Purchased(1) Purchased(1) Purchased(1)
- ---------------- --------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Stephen M. Gagliardi President, Chief 10,000 $100,000 1.3%
Executive Officer
and Director
James R. Murphy Director 15,000 150,000 1.8
John R. Sperlazza Director 15,000 150,000 1.8
William E. Watson Director 15,000 150,000 1.8
George H. Johnson Director 5,000 50,000 0.6
Gary Young Director 2,500 25,000 0.3
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Aggregate
Total Price of Percent
Shares Shares of Shares
Name Position Purchased(1) Purchased(1) Purchased(1)
- ---------------- --------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Noreen Mechling Director, Senior 5,000 50,000 0.6
Vice President and
Chief Financial
Officer
Steve D. Martino Senior Vice 2,500 25,000 0.3
President and Chief ----- ------ ---
Operating Officer
Total executive officers
and directors (8 persons) 70,000 $700,000 8.5%
====== ======== =====
</TABLE>
_______________________
(1) Does not include shares to be purchased by the ESOP.
STOCK PRICING
Keller, a financial consulting and appraisal firm that is experienced in
the evaluation and appraisal of business entities, including thrift institutions
involved in the conversion process, has been retained by the Bank to prepare an
appraisal of the estimated pro forma market value of the Common Stock to be sold
pursuant to the Conversion. For its appraisal, Keller will receive a fee of
$17,000, including out-of-pocket expenses. Keller will receive a fee of $1,000
for certain appraisal updates. The Bank has agreed to indemnify Keller under
certain circumstances against liabilities and expenses (including certain legal
fees) arising out of or based on any misstatement or untrue statement of a
material fact contained in the information supplied by the Bank to Keller,
except where Keller is determined to have been negligent or failed to exercise
due diligence in the preparation of the appraisal.
The appraisal was prepared by Keller in reliance upon the information
contained herein, including the financial statements. The appraisal contains an
analysis of a number of factors including, but not limited to, the Bank's
financial condition and operating trends, the competitive environment within
which the Bank operates, operating trends of certain thrift institutions and
savings and loan holding companies, relevant economic conditions, both
nationally and in the State of West Virginia which affect the operations of
thrift institutions, and stock market values of certain institutions. In
addition, Keller has advised the Bank that it has considered and will consider
the effect of the additional capital raised by the sale of the Common Stock on
the estimated aggregate pro forma market value of such shares. The appraisal has
been filed as an exhibit to the registration statement of which this prospectus
is a part. See "Additional Information."
On the basis of the above, Keller has determined, in its opinion, that as
of September 6, 1996, the estimated aggregate pro forma market value of the
Common Stock to be issued in the Conversion was $8,200,000. The Company has
determined to offer the shares in the Conversion at a price of $10.00 per share.
By dividing the price per share into the estimated aggregate value, the Company
initially plans to issue 820,000 shares. OTS regulations require, however, that
the appraiser establish a range of value for the stock to allow for fluctuations
in the aggregate value of the stock due to changing market conditions and other
factors. Accordingly, Keller has established a range of value from $6,970,000 to
$9,430,000 for this offering (the Estimated Valuation Range) that will be
updated prior to consummation
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<PAGE>
of the Conversion. If the final value is outside the Estimated Valuation Range,
the total number of shares being offered will be further adjusted and a new
Estimated Valuation Range may be established without resolicitation of
subscriptions and without the approval of the Bank's members, unless required by
the OTS or unless the final valuation is less than $6,970,000 or more than
$10,844,500 (15% above the maximum of the Estimated Valuation Range).
The Board of Directors has reviewed the independent appraisal, including
the stated methodology of the independent appraiser and the assumptions used in
the preparation of the independent appraisal. The Board of Directors is relying
upon the expertise, experience and independence of the appraiser and is not
qualified to determine the appropriateness of the assumptions or the
methodology.
No sale of the shares will take place unless prior thereto Keller confirms
to the OTS that, to the best of Keller's knowledge and judgment, nothing of a
material nature has occurred which would cause it to conclude that the Purchase
Price on an aggregate basis was incompatible with its estimate of the aggregate
pro forma market value of the Common Stock at the time of the sale thereof. If,
however, the facts do not justify such a statement, an amended Estimated
Valuation Range may be set and subscribers may be resolicited. Subscribers will
not be resolicited in the event the final valuation is not less than the minimum
of the Estimated Valuation Range and is not more than 15% above the Estimated
Valuation Range.
THE APPRAISAL IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING THE COMMON
STOCK. IN PREPARING THE APPRAISAL, KELLER HAS RELIED UPON AND ASSUMED THE
ACCURACY AND COMPLETENESS OF FINANCIAL AND STATISTICAL INFORMATION PROVIDED BY
THE BANK. KELLER DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS AND OTHER
INFORMATION PROVIDED BY THE BANK, NOR DID KELLER VALUE INDEPENDENTLY THE ASSETS
AND LIABILITIES OF THE BANK. THE APPRAISAL CONSIDERS THE BANK ONLY AS A GOING
CONCERN AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE LIQUIDATION VALUE
OF THE BANK. MOREOVER, BECAUSE SUCH APPRAISAL IS NECESSARILY BASED UPON
ESTIMATES AND PROJECTIONS OF A NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO
CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING THE
COMMON STOCK WILL THEREAFTER BE ABLE TO SELL SUCH SHARES AT PRICES WITHIN THE
ESTIMATED RANGE AT THE TIME OF THE OFFERINGS.
NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION
Depending on market and financial conditions at the time of the completion
of the Offerings, the Company may significantly increase or decrease the number
of shares to be issued in the Conversion. No resolicitation of subscribers will
be made and subscribers will not be permitted to modify or cancel their
subscriptions unless the change in the number of shares to be issued in the
Conversion results in an offering which is either below the minimum of the EVR
or materially above the maximum of the EVR, provided that up to a 15% increase
in the maximum of the EVR will not be deemed to be material. Any adjustments to
the EVR as a result of market and financial conditions would be subject to OTS
review.
In the event of a material increase in the valuation, the Company may
increase the total number of shares to be issued in the Conversion. An increase
in the total number of shares to be issued in the Conversion would decrease both
a subscriber's ownership interest and the pro forma equity and income on a per
share basis while increasing the pro forma net income and equity and income on
an aggregate basis. If the number of shares to be offered is to be increased,
any person who subscribed in the Subscription Offering for the maximum number of
shares permitted may be given the opportunity to purchase an additional number
of shares sufficient to make the total number of shares of the Common Stock
purchased by such subscriber equal to the same percentage of the increased
number of shares of Common Stock to be issued in the Conversion. Purchase
limitations will be based on the actual number of shares issued in the
Conversion.
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<PAGE>
In the event of a material reduction in the valuation, the Bank may
decrease the number of shares to reflect fully the reduced valuation. A decrease
in the number of shares to be issued in the Conversion would increase both a
subscriber's ownership interest and the pro forma equity on a per share basis
while decreasing equity on an aggregate basis. A decrease in the total number of
shares to be issued in the Conversion would not affect subscription rights by
reducing the maximum number of shares that may be purchased under various
purchase limitations and would not change the number of shares that a subscriber
may purchase unless the purchase limitation was also changed. However, such a
decrease could reduce the amount of shares allocated in the event of an
oversubscription.
RESTRICTIONS ON REPURCHASE OF STOCK
Generally, within one year following the Conversion, the Company may not
repurchase Common Stock and in the second and third year following the
Conversion, the Company may only repurchase Common Stock as part of an open-
market stock repurchase program in an amount up to 5% of the outstanding stock
during each of those two years, provided the repurchase does not cause the Bank
to become undercapitalized and at least 10 days prior notice of the repurchase
is provided to the OTS. The OTS may disapprove the repurchase program upon a
determination that (1) the repurchase program would adversely affect the
financial condition of the Bank, (2) the information submitted is insufficient
upon which to base a conclusion as to whether the financial condition would be
adversely affected, or (3) a valid business purpose was not demonstrated.
However, the Regional Director of the OTS may permit repurchases after six
months following the Conversion and may permit additional repurchases during the
second and third year. In addition, SEC rules also restrict the method, time,
price, and number of shares of Common Stock that may be repurchased by the
Company and affiliated purchasers. If, in the future, the rules and regulations
regarding the repurchase of stock are liberalized, the Company may utilize the
rules and regulations then in effect.
RESTRICTIONS ON TRANSFERABILITY BY DIRECTORS AND OFFICERS
Shares of the Common Stock purchased by directors and officers of the
Company shall be subject to the restriction that said shares shall not be sold
for a period of one year following completion of the Conversion, except for a
disposition of shares 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
Company approved by the regulatory authorities. Accordingly, shares of the
Common Stock issued by the Company to directors and officers shall bear a legend
giving appropriate notice of the foregoing restriction, and, in addition, the
Company will give appropriate instructions to the transfer agent for the Common
Stock with respect to the applicable restriction relating to the transfer of any
restricted stock. Any shares issued to directors and officers as a stock
dividend, stock split, or otherwise with respect to restricted stock shall be
subject to the same restrictions.
For a period of three years following the Conversion, no director or
officer of the Bank, the Company or their associates may, without the prior
approval of the OTS, purchase any shares of Common Stock other than from or
through a broker or dealer registered with the SEC unless the purchase involves
more than 1% of the outstanding shares of Common Stock through an arm's length
transaction.
INTERPRETATION AND AMENDMENT OF THE PLAN
To the extent permitted by law, all interpretations of the Plan by the
Board of Directors of the Bank will be final, however, such interpretations
shall have no binding effect on the OTS. The Plan provides that, if deemed
necessary or desirable by the Board of Directors, the Plan may be substantively
amended by the Board of Directors as a result of comments from the OTS or
otherwise, prior to the solicitation of proxies from the members and at any time
thereafter with the concurrence of the OTS, except that in the event that the
regulations under which the Plan was adopted are liberalized subsequent
79
<PAGE>
to the approval of the Plan by the OTS and the members at the Special Meeting,
the Board of Directors may amend the Plan to conform to the regulations without
further approval of the OTS or the members of the Bank to the extent permitted
by law. An amendment to the Plan that would result in a material adverse change
in the terms of the Conversion would require a resolicitation. In the event of a
resolicitation, subscriptions for which a confirmation or modification was not
received would be rescinded.
CONDITIONS AND TERMINATION
Completion of the Conversion requires the approval of the Plan and the
affirmative vote of not less than a majority of the total number of votes of the
members of the Bank eligible to be cast at the Special Meeting and the sale of
all shares of Common Stock within 24 months following approval of the Plan by
members. If these conditions are not satisfied, the Plan will be terminated and
the Bank will continue its business in the mutual form of organization. The Plan
may be terminated by the Board of Directors at any time prior to the Special
Meeting and, with the approval of the OTS, by the Board of Directors at any time
thereafter.
OTHER
ALL STATEMENTS MADE IN THIS PROSPECTUS ARE HEREBY QUALIFIED BY THE CONTENTS
OF THE PLAN, THE MATERIAL TERMS OF WHICH ARE SET FORTH HEREIN. THE PLAN IS
ATTACHED TO THE PROXY STATEMENT. COPIES OF THE PLAN ARE AVAILABLE FROM THE BANK
AND IT SHOULD BE CONSULTED FOR FURTHER INFORMATION. ADOPTION OF THE PLAN BY THE
BANK'S MEMBERS AUTHORIZES THE BOARD OF DIRECTORS TO AMEND OR TERMINATE THE PLAN.
CERTAIN RESTRICTIONS ON ACQUISITION OF THE COMPANY
Although the Boards of Directors of the Bank and the Company are not aware
of any effort that might be made to obtain control of the Company after
Conversion, the Boards of Directors, as discussed below, believe it is
appropriate to include certain provisions in the Company's Certificate of
Incorporation to protect the interests of the Company and its stockholders from
takeovers which the Board of Directors of the Company might conclude are not in
the best interests of the Bank, the Company or the Company's stockholders.
The following discussion is a general summary of certain material
provisions of the Company's Certificate of Incorporation and Bylaws and certain
other regulatory provisions, which may be deemed to have an "anti-takeover"
effect. The following description of certain of these provisions is necessarily
general and, with respect to provisions contained in the Company's Certificate
of Incorporation and Bylaws and the Bank's proposed stock charter and bylaws,
reference should be made in each case to the document in question, each of which
is part of the Bank's application to the OTS and the Company's Registration
Statement filed with the SEC. See "Additional Information."
PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
LIMITATIONS ON VOTING RIGHTS. The Certificate of Incorporation of the
Company provides that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. In addition, for a period of five years from
the completion of the Conversion of the Bank, no person may directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10%
of any class of an equity security of the Company. After five years from the
date of the Conversion, a beneficial holder submitting a proxy or proxies
totalling more than 10% of the then
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<PAGE>
outstanding shares of Common Stock will be able to vote in the following manner:
the number of votes which may be cast by such a beneficial owner shall be a
number equal to the total number of votes that a single record owner of all
Common Stock owned by such person would be entitled to cast, multiplied by a
fraction, the numerator of which is the number of shares of such class or series
which are both beneficially owned and owned of record by such beneficial owner
and the denominator of which is the total number of shares of Common Stock
beneficially owned by such beneficial owner. The impact of these provisions on
the submission of a proxy on behalf of a beneficial holder of more than 10% of
the Common Stock is (1) to disregard for voting purposes and require divestiture
of the amount of stock held in excess of 10% (if within five years of the
Conversion more than 10% of the Common Stock is beneficially owned by a person)
and (2) limit the vote on Common Stock held by the beneficial owner to 10% or
possibly reduce the amount that may be voted below the 10% level (if more than
10% of the Common Stock is beneficially owned by a person more than five years
after the Conversion). Unless the grantor of a revocable proxy is an affiliate
or an associate of such a 10% holder or there is an arrangement, agreement or
understanding with such a 10% holder, these provisions would not restrict the
ability of such a 10% holder of revocable proxies to exercise revocable proxies
for which the 10% holder is neither a beneficial nor record owner. A person is a
beneficial owner of a security if he has the power to vote or direct the voting
of all or part of the voting rights of the security, or has the power to dispose
of or direct the disposition of the security. The Certificate of Incorporation
of the Company further provide that this provision limiting voting rights may
only be amended upon the vote of 80% of the outstanding shares of voting stock.
ELECTION OF DIRECTORS. Certain provisions of the Company's Certificate of
Incorporation and Bylaws will impede changes in majority control of the Board of
Directors. The Company's Certificate of Incorporation provides that the Board of
Directors of the Company will be divided into three classes, with directors in
each class elected for three-year staggered terms except for the initial
directors. Thus, it would take two annual elections to replace a majority of the
Company's Board. The Company's Certificate of Incorporation provides that the
size of the Board of Directors may be increased or decreased only if two-thirds
of the directors then in office concur in such action. The Certificate of
Incorporation also provides that any vacancy occurring in the Board of
Directors, including a vacancy created by an increase in the number of
directors, shall be filled for the remainder of the unexpired term by a majority
vote of the directors then in office. Finally, the Certificate of Incorporation
and the bylaws impose certain notice and information requirements in connection
with the nomination by stockholders of candidates for election to the Board of
Directors or the proposal by stockholders of business to be acted upon at an
annual meeting of stockholders.
The Certificate of Incorporation provides that a director may only be
removed for cause by the affirmative vote of at least 80% of the shares of the
Company entitled to vote generally in an election of directors cast at a meeting
of stockholders called for that purpose.
RESTRICTIONS ON CALL OF SPECIAL MEETINGS. The Certificate of Incorporation
of the Company provides that a special meeting of stockholders may be called
only pursuant to a resolution adopted by a majority of the Board of Directors,
or a Committee of the Board or other person so empowered by the Bylaws. The
Certificate of Incorporation also provides that any action required or permitted
to be taken by the stockholders of the Company may be taken only at an annual or
special meeting and prohibits stockholder action by written consent in lieu of a
meeting.
ABSENCE OF CUMULATIVE VOTING. The Company's Certificate of Incorporation
provides that there shall be no cumulative voting rights in the election of
directors.
AUTHORIZED SHARES. The Certificate of Incorporation authorizes the
issuance of 2,000,000 shares of Common Stock and 500,000 shares of preferred
stock ("Preferred Stock"). The shares of Common Stock and Preferred Stock were
authorized in an amount greater than that to be issued in the Conversion
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<PAGE>
to provide the Company's Board of Directors with as much flexibility as possible
to effect, among other transactions, financings, acquisitions, stock dividends,
stock splits and employee 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 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 post-tender offer merger
or other transaction by which a third party seeks control, and thereby assist
management to retain its position. The Company's Board currently has no plans
for the issuance of additional shares, other than the issuance of additional
shares upon exercise of stock options.
PROCEDURES FOR CERTAIN BUSINESS COMBINATIONS. The Certificate of
Incorporation requires the affirmative vote of at least 80% of the outstanding
shares of the Company entitled to vote in the election of director in order for
the Company to engage in or enter into certain "Business Combinations," as
defined therein, with any Principal Stockholder (as defined below) or any
affiliates of the Principal Stockholder, unless the proposed transaction has
been approved in advance by the Company's Board of Directors, excluding those
who were not directors prior to the time the Principal Stockholder became the
Principal Stockholder. The term "Principal Stockholder" is defined to include
any person and the affiliates and associates of the person (other than the
Company or its subsidiary) who beneficially owns, directly or indirectly, 10% or
more of the outstanding shares of voting stock of the Company. Any amendment to
this provision requires the affirmative vote of at least 80% of the shares of
the Company entitled to vote generally in an election of directors.
AMENDMENT TO CERTIFICATE OF INCORPORATION AND BYLAWS. Amendments to the
Company's Certificate of Incorporation must be approved by the Company's Board
of Directors and also by a majority of the outstanding shares of the Company's
voting stock, provided, however, that approval by at least 80% of the
outstanding voting stock is generally required for certain provisions (i.e.,
provisions relating to restrictions on the acquisition and voting of greater
than 10% of the Common Stock; number, classification, election and removal of
directors; amendment of Bylaws; call of special stockholder meetings; director
liability; certain business combinations; power of indemnification; and
amendments to provisions relating to the foregoing in the Certificate of
Incorporation).
The Bylaws may be amended by a majority vote of the Board of Directors or
the affirmative vote of the holders of at least 80% of the outstanding shares of
the Company entitled to vote in the election of Directors cast at a meeting
called for that purpose.
PURPOSE AND TAKEOVER DEFENSIVE EFFECTS OF THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BYLAWS. The Board of Directors of the Bank believes that the
provisions described above are prudent and will reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by its Board of Directors. These provisions
will also assist the Bank and the Company in the orderly deployment of the
Conversion proceeds into productive assets during the initial period after the
Conversion. The Board of Directors believe these provisions are in the best
interests of the Bank and of the Company and its stockholders. In the judgment
of the Board of Directors, the Company's Board will be in the best position to
determine the true value of the 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 interests of the Company and its
stockholders to encourage potential acquirors to negotiate directly with the
Board of Directors of the Company and that these provisions will encourage such
negotiations and discourage hostile takeover attempts. It is also the view of
the Board of Directors that these provisions should not discourage persons from
proposing a merger or other transaction at prices reflective of the true value
of the Company and which is in the best interests of all stockholders.
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Attempts to take over financial institutions and their holding companies
have become increasingly common. Takeover attempts which have not been
negotiated with and approved by the Board of Directors present to stockholders
the risk of a takeover on terms which may be less favorable than might otherwise
be available. A transaction which is negotiated and approved by the Board of
Directors, on the other hand, can be carefully planned and undertaken at an
opportune time in order to obtain maximum value for the 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
Company's assets.
EFFECT OF TAKEOVER DEFENSES ON STOCKHOLDER INTERESTS. 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 the 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 that is under
different management and whose objectives may not be similar to those of the
remaining stockholders.
POTENTIAL NEGATIVE IMPACT OF TAKEOVER DEFENSES ON STOCKHOLDER INTERESTS.
Despite the belief of the Bank and the Company as to the benefits to
stockholders of these provisions of the 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 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 Company's Board of
Directors and of management more difficult. The Boards of Directors of the Bank
and the 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 Company may adopt additional charter
provisions regarding the acquisition of its equity securities that would be
permitted to a Delaware corporation. The Company and the Bank do not presently
intend to propose the adoption of further restrictions on the acquisition of the
Company's equity securities.
EFFECT OF EMPLOYMENT AND SEVERANCE AGREEMENTS. The Bank intends to enter
into an employment agreement with President Stephen M. Gagliardi that provides
for payments in the event of termination of employment following a change in
control, as defined in the agreement, of 2.99 times the five year average
compensation paid to Mr. Gagliardi. In addition, the Bank intends to enter into
employment agreements with two other executive officers that provide for
payments in the event of termination of employment following a change in
control, as defined in the agreements. At June 30, 1996, such payments, in the
aggregate, would have totalled approximately $512,000, rendering an acquisition,
followed by termination of their employment, more expensive to a possible
acquiror as a result of these agreements. See "Management of the Bank -Executive
Compensation - Employment Agreements."
FEDERAL REGULATION. A federal regulation prohibits any person prior to the
completion of a conversion from transferring, or entering into any agreement or
understanding to transfer, the legal or beneficial ownership of the subscription
rights issued under a plan of conversion or the stock to be issued upon their
exercise. This regulation also prohibits any person prior to the completion of a
conversion from offering, or making an announcement of an offer or intent to
make an offer, to purchase such subscription rights or stock. For three years
following conversion, OTS regulations prohibit any person, without the prior
approval of the OTS, from acquiring or making an offer to acquire more than 10%
of the stock of any converted savings institution if such person is, or after
consummation of such acquisition
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would be, the beneficial owner of more than 10% of such stock. In the event that
any person, directly or indirectly, violates this regulation, the securities
beneficially owned by such person in excess of 10% 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 a vote of stockholders.
Federal law provides that no company, "directly or indirectly or acting in
concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions," may acquire "control" of a savings
association at any time without the prior approval of the OTS. In addition, any
company that acquires such control becomes a "savings and loan holding company"
subject to registration, examination and regulation as a savings and loan
holding company. Control in this context means ownership of, control of, or
holding proxies representing more than 25% of the voting shares of a savings
association or the power to control in any manner the election of a majority of
the directors of such institution.
Federal law also provides that no "person," acting directly or indirectly
or through or in concert with one or more other persons, may acquire control of
a savings association unless at least 60 days prior written notice has been
given to the OTS and the OTS has not objected to the proposed acquisition.
Control is defined for this purpose as the power, directly or indirectly, to
direct the management or policies of a savings association or to vote more than
25% of any class of voting securities of a savings association. Under federal
law (as well as the regulations referred to below) the term "savings
association" includes state chartered and federally chartered SAIF-insured
institutions, federally chartered savings and loans and savings banks whose
accounts are insured by the FDIC and holding companies thereof.
Federal regulations require that, prior to obtaining control of an insured
institution, a person, other than a company, must give 60 days notice to the OTS
and have received no OTS objection to such acquisition of control, and a company
must apply for and receive OTS approval of the acquisition. Control, as defined
under federal law, involves a 25% voting stock test, control in any manner of
the election of a majority of the institution's directors, or a determination by
the OTS that the acquiror has the power to direct, or directly or indirectly to
exercise a controlling influence over, the management or policies of the
institution. Acquisition of more than 10% of an institution's voting stock, if
the acquiror also is subject to any one of either "control factors," constitutes
a rebuttable determination of control under the regulations. The determination
of control may be rebutted by submission to the OTS, prior to the acquisition of
stock or the occurrence of any other circumstances giving rise to such
determination, of a statement setting forth facts and circumstances which would
support a finding that no control relationship will exist and containing certain
undertakings. The regulations provide that persons or companies which acquire
beneficial ownership exceeding 10% or more of any class of a savings
association"s stock after the effective date of the regulations must file with
the OTS a certification that the holder is not in control of such institution,
is not subject to a rebuttable determination of control, and will take no action
which would result in a determination or rebuttable determination of control
without prior notice to or approval of the OTS, as applicable.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 2,000,000 shares of the Common Stock,
$0.10 par value per share, and 500,000 shares of serial preferred stock, $0.10
par value per share. The Company currently expects to issue up to 943,000 shares
of Common Stock in the Conversion. The Company does not intend to issue any
shares of serial preferred stock in the Conversion, nor are there any present
plans to issue such preferred stock following the Conversion. The aggregate par
value of the issued shares will constitute the capital account of the Company.
The balance of the purchase price will be recorded for accounting purposes as
additional paid-in capital. See "Capitalization." THE CAPITAL STOCK OF THE
84
<PAGE>
COMPANY WILL REPRESENT NONWITHDRAWABLE CAPITAL AND WILL NOT BE INSURED BY THE
COMPANY, THE BANK, THE FDIC, OR ANY OTHER GOVERNMENT AGENCY.
COMMON STOCK
VOTING RIGHTS. Each share of the Common Stock will have the same relative
rights and will be identical in all respects with every other share of the
Common Stock. The holders of the Common Stock will possess exclusive voting
rights in the Company, except to the extent that shares of serial preferred
stock issued in the future may have voting rights, if any. Each holder of the
Common Stock will be entitled to only one vote for each share held of record on
all matters submitted to a vote of holders of the Common Stock and will not be
permitted to cumulate their votes in the election of the Company's directors.
LIQUIDATION. In the unlikely event of the complete liquidation or
dissolution of the Company, the holders of the Common Stock will be entitled to
receive all assets of the Company available for distribution in cash or in kind,
after payment or provision for payment of (i) all debts and liabilities of the
Company (including all deposits in the Bank and accrued interest thereon); (ii)
any accrued dividend claims; (iii) liquidation preferences of any serial
preferred stock which may be issued in the future; and (iv) any interests in the
liquidation account established upon the Conversion for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders who continue their
deposits at the Bank.
RESTRICTIONS ON ACQUISITION OF THE COMMON STOCK. See "Certain Restrictions
on Acquisition of the Company" for a discussion of the limitations on
acquisition of shares of the Common Stock.
OTHER CHARACTERISTICS. Holders of the Common Stock will not have
preemptive rights with respect to any additional shares of the Common Stock
which may be issued. Therefore, the Board of Directors may sell shares of
capital stock of the Company without first offering such shares to existing
stockholders of the Company. The Common Stock is not subject to call for
redemption, and the outstanding shares of Common Stock when issued and upon
receipt by the Company of the full purchase price therefor will be fully paid
and non-assessable.
TRANSFER AGENT AND REGISTRAR. _____________________________________ is
expected to act as the transfer agent and registrar for the Common Stock of the
Company.
ISSUANCE OF ADDITIONAL SHARES. Except in the Subscription and Community
Offerings and possibly pursuant to the RSP or Option Plan, the Company has no
present plans, proposals, arrangements or understandings to issue additional
authorized shares of the Common Stock. In the future, the authorized but
unissued and unreserved shares of the Common Stock will be available for general
corporate purposes, including, but not limited to, possible issuance as stock
dividends, in connection with mergers or acquisitions, under a cash dividend
reinvestment or stock purchase plan, in a public or private offering, or under
employee benefit plans. See "Risk Factors - Possible Dilutive Effect of RSP and
Stock Options and Effect of Purchases by the RSP and ESOP" and "Pro Forma Data."
Normally no stockholder approval would be required for the issuance of these
shares, except as described herein or as otherwise required to approve a
transaction in which additional authorized shares of the Common Stock are to be
issued.
For additional information, see "Dividends," "Regulation," and "Taxation"
with respect to restrictions on the payment of cash dividends; "- Restrictions
on Transferability by Directors and Officers" relating to certain restrictions
on the transferability of shares purchased by directors and officers; and
"Certain Restrictions on Acquisition of the Company" for information regarding
restrictions on acquiring Common Stock of the Company.
85
<PAGE>
SERIAL PREFERRED STOCK
None of the 500,000 authorized shares of serial preferred stock of the
Company will be issued in the Conversion. After the Conversion is completed, the
Board of Directors of the Company will be authorized to issue serial preferred
stock and to fix and state voting powers, designations, preferences, or other
special rights of such shares and the qualifications, limitations, and
restrictions thereof, subject to regulatory approval but without stockholder
approval. If and when issued, the serial preferred stock is likely to rank prior
to the Common Stock as to dividend rights, liquidation preferences, or both, and
may have full or limited voting rights. The Board of Directors, without
stockholder approval, can issue serial preferred stock with voting and
conversion rights which could adversely affect the voting power of the holders
of the Common Stock. The Board of Directors has no present intention to issue
any of the serial preferred stock.
LEGAL AND TAX MATTERS
The legality of the Common Stock has been passed upon for the Bank and the
Company by Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C. Certain legal
matters for Webb will be passed upon by Elias, Matz, Tiernan & Herrick, LLP,
Washington, D.C. The federal income tax consequences of the Conversion have been
passed upon for the Bank and the Company by Malizia, Spidi, Sloane & Fisch,
P.C., Washington, D.C. The West Virginia income tax consequences of the
Conversion have been passed upon for the Bank and the Company by S.R. Snodgrass,
A.C..
EXPERTS
The consolidated financial statements of the Bank as of June 30, 1996 and
for the three years ended June 30, 1996, appearing in this prospectus have been
audited by S.R. Snodgrass, A.C., independent certified public accountants, as
set forth in their report thereon appearing elsewhere herein, and is included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
Keller has consented to the inclusion herein of a summary of its appraisal
report setting forth its opinion as to the estimated pro forma market value of
the Common Stock to be issued in the Conversion and its opinion setting forth
the value of subscription rights and to the use of its name and statements with
respect to it appearing herein.
REGISTRATION REQUIREMENTS
The Common Stock of the Company will be registered pursuant to Section
12(g) of the Exchange Act prior to completion of the Conversion. The Company
will be subject to the information, proxy solicitation, insider trading
restriction, tender offer rules, periodic reporting and other requirements of
the SEC under the Exchange Act. The Company will not deregister the Common Stock
under the Exchange Act for a period of at least three years following the
Conversion.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act of 1933, as amended, with respect to the Common Stock offered
hereby. As permitted by the rules and regulations of the SEC, this prospectus
does not contain all the information set forth in the registration statement.
Such information can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at prescribed rates.
The SEC also maintains an internet address ("Web site") that contains reports,
proxy and information statements and other information regarding registrants,
including the
86
<PAGE>
Company, that file electronically with the SEC. The address for this Web site is
"http://www.sec.gov." The statements contained herein as to the contents of any
contract or other document filed as an exhibit to the registration statement
are, of necessity, brief descriptions thereof and are not necessarily complete;
each such statement is qualified by reference to such contract or document.
The Bank has filed an Application for Conversion with the OTS with respect
to the Conversion. Pursuant to the rules and regulations of the OTS, this
prospectus omits certain information contained in that Application. The
Application may be examined at the principal office of the OTS, 1700 G Street,
N.W., Washington, D.C. 20552 and at the Northeast Regional Office of the OTS,
10 Exchange Place, Jersey City, New Jersey 07302 without charge.
A copy of the Certificate of Incorporation and Bylaws of the Company are
available without charge from the Bank.
<PAGE>
ADVANCE FINANCIAL SAVINGS BANK, F.S.B.
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Independent Auditors' Report......................... F-1
Consolidated Balance Sheet as of June 30, 1996
and June 30, 1995.................................. F-2
Consolidated Statement of Income for the Years
Ended June 30, 1996, 1995 and 1994................. 17
Consolidated Statement of Retained Earnings for the
Years Ended June 30, 1996, 1995, and 1994.......... F-3
Consolidated Statement of Cash Flows for the
Years Ended June 30, 1996, 1995, and 1994.......... F-4
Notes to Consolidated Financial Statements........... F-6
</TABLE>
All schedules (other than financial data schedules) are omitted because the
required information is either not applicable or is included in the consolidated
financial statements or related notes.
Separate financial statements for the Company have not been included because the
Company will not engage in material transactions until after the Conversion.
The Company, which has been inactive to date, has no significant assets,
liabilities, revenues, expenses, or contingent liabilities.
<PAGE>
[LETTERHEAD OF S.R. SNODGRASS, A.C.]
REPORT OF INDEPENDENT AUDITORS
------------------------------
Board of Directors
Advance Financial Savings Bank, f.s.b.
We have audited the accompanying consolidated balance sheet of Advance Financial
Savings Bank, f.s.b. and Subsidiary as of June 30, 1996 and 1995, and the
related consolidated statements of income, retained earnings, and cash flows for
each of the three years in the period ended June 30, 1996. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as, evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Advance Financial
Savings Bank, f.s.b. and Subsidiary as of June 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1996 in conformity with generally accepted accounting
principles.
As explained in the notes to the financial statements, effective July 1, 1995,
the Bank changed its method of accounting for the impairment of loans and the
related allowance for loan losses, effective July 1, 1994, changed its method of
accounting for investment securities, and also effective July 1, 1993, changed
its method of accounting for income taxes.
/s/ S.R. SNODGRASS, A.C.
Steubenville, Ohio
August 19, 1996, except for the subsequent
events as described in Note 17, which is
as of September 3, 1996
F-1
<PAGE>
ADVANCE FINANCIAL SAVINGS BANK, F.S.B.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
1996 1995
----------- -----------
Restated
<S> <C> <C>
ASSETS
Cash and Cash Equivalents
Cash and amounts due from banks $ 948,671 $ 805,791
Interest-bearing deposits with other institutions 3,067,912 2,333,592
----------- -----------
Total cash and cash equivalents 4,016,583 3,139,383
Investment Securities
Securities held to maturity (fair value of $4,761,709
and $3,740,156) 4,799,596 3,736,914
Securities available for sale 68,549 83,787
----------- -----------
Total investment securities 4,868,145 3,820,701
Mortgage-backed securities (fair value of
$561,203 and $945,564) 536,808 907,707
Loans held for sale 1,375,143 -
Loans receivable, (net of allowance for loan
losses of $324,983 and $197,833) 77,565,831 73,057,262
Office properties and equipment, net 2,099,470 1,271,151
Federal Home Loan Bank Stock, at cost 559,500 501,800
Accrued interest receivable 521,187 545,343
Real estate acquired in settlement of loans - 334,121
Other assets 309,726 168,735
----------- -----------
Total assets $91,852,393 $83,746,203
=========== ===========
LIABILITIES AND RETAINED EARNINGS
Deposit accounts $80,770,646 $74,698,144
Advances from Federal Home Loan Bank 4,376,452 2,842,887
Advances from borrowers for taxes and insurance 182,977 168,229
Accrued interest payable and other liabilities 322,439 254,434
----------- -----------
Total liabilities 85,652,514 77,963,694
Retained Earnings - substantially restricted 6,209,329 5,791,963
Net unrealized loss on securities (9,450) (9,454)
----------- -----------
Total retained earnings 6,199,879 5,782,509
----------- -----------
Total liabilities and retained earnings $91,852,393 $83,746,203
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
ADVANCE FINANCIAL SAVINGS BANK, F.S.B
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
<TABLE>
<CAPTION>
Retained Net
Earnings - Unrealized Total
Substantially Loss on Retained
Restricted Securities Earnings
------------- ----------- -----------
<S> <C> <C> <C>
Balance, June 30, 1993 $ 4,221,540 $ - $ 4,221,540
Net income, as restated 855,715 - 855,715
Net unrealized loss on securities - (7,585) (7,585)
----------- --------- -----------
Balance, June 30, 1994, as restated 5,077,255 (7,585) 5,069,670
Net income 714,708 - 714,708
Net unrealized loss on securities - (1,869) (1,869)
----------- --------- -----------
Balance, June 30, 1995, as restated 5,791,963 (9,454) 5,782,509
Net income 417,366 - 417,366
Net unrealized gain on securities - 4 4
----------- --------- -----------
Balance, June 30, 1996 $ 6,209,329 $ (9,450) $ 6,199,879
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
ADVANCE FINANCIAL SAVINGS BANK, F.S.B.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995 1994
------------ ------------ ------------
Restated
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 417,366 $ 714,708 $ 855,715
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion, net 127,177 111,814 106,333
Provision for loan losses 262,942 48,208 56,511
Gain on sale of real estate owned (5,446) (5,945) (290)
Gain on sale of loans (20,364) - -
Origination of loans held for sale (1,485,034) - -
Proceeds from the sale of loans 110,088 - -
Increase in accrued interest receivable
and other assets (113,459) (211,259) (6,812)
Increase (decrease) in accrued interest payable
and other liabilities 65,826 3,094 (5,061)
Decrease in federal income tax payable (3,836) (3,444) (71,740)
Increase in deferred federal income taxes 2,183 26,553 7,504
----------- ----------- -----------
Net cash provided by (used for)
operating activities (642,557) 683,729 942,160
----------- ----------- -----------
INVESTING ACTIVITIES
Purchases of held to maturity securities (3,050,000) (1,737,800) (997,734)
Proceeds from maturities of held to maturity
securities 1,987,130 300,000 2,899,648
Proceeds from redemptions of available for sale
securities 14,310 19,345 -
Principle collected on mortgage-backed securities 369,643 219,580 1,075,089
Purchases of Federal Home Loan Bank Stock (57,700) (65,600) (18,100)
Proceeds from the sale of student loans 1,378,046 - -
Net increase in loans (6,259,933) (7,501,134) (11,244,593)
Purchases of office properties and equipment (786,000) (82,949) (69,169)
Proceeds from sales of real estate acquired in
settlement of loans, net 303,446 12,465 -
----------- ----------- -----------
Net cash used for investing activities (6,101,058) (8,836,093) (8,354,859)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
ADVANCE FINANCIAL SAVINGS BANK, F.S.B.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995 1994
------------ ------------ ------------
Restated
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net increase in deposits $ 6,072,502 $ 7,467,952 $ 7,937,939
Net increase (decrease) in advances
from Federal Home Loan Bank 1,533,565 (3,350,000) 3,842,887
Net change in advances for taxes and insurance 14,748 56,827 -
----------- ----------- -----------
Net cash provided by financing activities 7,620,815 4,174,779 11,780,826
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 877,200 (3,977,585) 4,368,127
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 3,139,383 7,116,968 2,748,841
----------- ----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 4,016,583 $ 3,139,383 $ 7,116,968
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
ADVANCE FINANCIAL SAVINGS BANK, F.S.B.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting and reporting policies applied in the
presentation of the accompanying consolidated financial statements follows:
NATURE OF OPERATIONS
--------------------
Advance Financial Savings Bank, f.s.b. (the "Bank"), a federally-chartered
Bank, and its wholly-owned service corporation subsidiary, Advance
Financial Service Corporation of West Virginia, are located in Wellsburg,
WV. The Bank's principal sources of revenue emanate from its portfolio of
residential real estate and consumer loans, as well as, interest earnings
on investment securities, interest-bearing deposits with other financial
institutions, and a variety of deposit services provided to its customers
through two locations. The Bank is subject to regulation and supervision by
the Office of Thrift Supervision and Federal Deposit Insurance Corporation.
BASIS OF PRESENTATION
---------------------
The consolidated financial statements include the accounts of Advance
Financial Savings Bank, f.s.b. and its wholly-owned subsidiary, Advance
Financial Service Corporation of West Virginia. All material intercompany
balances and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
statement of financial statements and the reported amounts of revenues and
expenses for the reporting period. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans 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 foreclosed real estate, management
obtains independent appraisals for significant properties.
While management uses available information to recognize losses on loans
and foreclosed real estate, future additions to the allowances may be
necessary based on changes in local economic conditions. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowances for losses on loans and
foreclosed real estate. Such agencies may require the Bank to recognize
additions to the allowances based on their judgments about information
available to them at the time of their examination. Because of these
factors, it is reasonably possible the allowance for loan losses and
foreclosed assets may change materially in the near term.
INVESTMENT SECURITIES
---------------------
Debt securities that management has the ability and intent to hold to
maturity are classified as held-to-maturity and carried at cost, adjusted
for amortization of premium and accretion of discounts using a method
approximating a level yield. Other marketable securities are classified as
available-for-sale and are carried at fair value. Unrealized gains and
losses on securities available-for-sale are recognized as direct increases
or decreases in retained earnings. The cost of securities sold is
recognized using the specific identification method.
F-6
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Mortgage-backed securities are carried at unpaid principal
balances, adjusted for unamortized premiums and unearned discounts.
Premiums and discounts are amortized using a method approximating a level
yield over the remaining period to contractual maturity, adjusted for
anticipated prepayments. Management intends and has the ability to hold
such securities to maturity. Should any be sold, the cost of the securities
sold is determined using the specific identification method.
LOANS HELD FOR SALE
-------------------
Mortgage loans originated and held for sale in the secondary market are
carried at the lower of cost or market value determined on an aggregate
basis. Net unrealized losses are recognized in a valuation allowance
through charges to income. Gains and losses on the sale of loans held for
sale are determined using the specific identification method. At June 30,
1996, the cost of loans held for sale was equal to market value.
LOANS
-----
Loans are stated at unpaid principal balances, less loans in process, net
deferred loan fees, and the allowance for loan losses.
Loan origination and commitment fees, as well as, certain direct
origination costs are deferred and amortized as a yield adjustment over the
lives of the related loans using the interest method. Amortization of
deferred loan fees is discontinued when a loan is placed on nonaccrual
status.
Loans are placed on nonaccrual status when principal or interest is
delinquent for 90 days or more. Any unpaid interest previously accrued on
those loans is reversed from income, and thereafter, interest is recognized
only to the extent of payments received.
ALLOWANCE FOR LOAN LOSSES
-------------------------
Effective July 1, 1995, the Bank adopted Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of a Loan, as
amended by Statement No. 118, Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures. These Statements prescribe
recognition criteria for loan impairment, generally related to commercial
loans, and measurement methods for certain impaired loans and all loans
whose terms are modified in trouble debt restructurings subsequent to the
adoption of these Statements. A loan is considered impaired when it is
probable that the borrower will not repay the loan according to the
original contractual terms of the loan agreement.
Management has determined that first mortgage loans on one-to-four family
properties and all consumer loans are large groups of smaller-balance
homogenous loans are to be collectively evaluated. Accordingly, such loans
are outside the scope of Statement Nos. 114 and 118.
Management considers an insignificant delay, which is defined as 90 days by
the Bank, will not cause a loan to be classified as impaired. A loan is not
impaired during a period of delay in payment if the Bank expects to collect
all amounts due including interest accrued at the contractual interest rate
for the period of delay. All loans identified as impaired are evaluated
independently by management.
F-7
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR LOAN LOSSES (Continued)
-------------------------
Under this Standard, the Bank estimates credit losses on impaired loans
based on the present value of expected cash flows or the fair value of the
underlying collateral if the loan repayment is expected to come from the
sale or operation of such collateral. Statement No. 118 amends Statement
No. 114 to permit a creditor to use existing methods for recognizing
interest income on impaired loans eliminating the income recognition
provisions of Statement No. 114. Prior to 1995, the credit losses related
to these loans were estimated based on undiscounted cash flows or the fair
value of the underlying collateral. The adoption of the statements did not
have a material effect on the Bank's financial position or results of
operations.
Impaired loans, or portions thereof, are charged-off when it is determined
that a realized loss has occurred. Until such time, an allowance for loan
losses is maintained for estimated losses.
Cash receipts on impaired loans are applied first to accrued interest
receivable, unless otherwise required by the loan terms, except when an
impaired loan is also a nonaccrual loan, in which case the portion of the
receipts related to interest is recognized as income.
The allowance for loan losses represents the amount which management
estimates is adequate to provide for potential losses in its loan
portfolio. The allowance method is used in providing for loan losses.
Accordingly, all loan losses are charged to the allowance and all
recoveries are credited to it. The allowance for loan losses is established
through a provision for loan losses charged to operations. The provision
for loan losses is based on management's periodic evaluation of individual
loans, economic factors, past loan loss experience, changes in the
composition and volume of the portfolio, and other relevant factors. The
estimates used in determining the adequacy of the allowance for loan
losses, including the amounts and timing of future cash flows expected on
impaired loans, are particularly susceptible to change in the near term.
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
-------------------------------------------
Real estate acquired in settlement of loans is classified separately on the
balance sheet at the lower of the recorded investment in the property or
its fair value minus estimated costs of sale. Prior to foreclosure, the
value of the underlying collateral is written down by a charge to the
allowance for possible loan losses, if necessary. Any subsequent write-
downs are charged against operating expenses. Operating expenses of such
properties, net of related income and losses on their disposition are
included in other expenses.
OFFICE PROPERTIES AND EQUIPMENT
-------------------------------
Land is carried at cost; buildings and equipment are stated at cost, less
accumulated depreciation. The provision for depreciation is computed
primarily by the straight-line method based upon the estimated useful lives
of the assets which range from five to forty years. Expenditures for
maintenance and repairs are charged against income as incurred. Costs of
major additions and improvements are capitalized.
INCOME TAXES
------------
Effective July 1, 1993, the Bank adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. Under this accounting
standard, deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in
tax laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes. Deferred income tax
expenses or benefits are based on the changes in the deferred tax asset or
liability from period to period.
F-8
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RETIREMENT PLAN
---------------
The Bank maintains a profit sharing plan for all employees meeting special
service requirements.
RECLASSIFICATION
----------------
Certain amounts in prior years' consolidated financial statements have been
reclassified to conform to the current year presentation. These
reclassification had no effect on net income.
PRIOR PERIOD ADJUSTMENT
-----------------------
Net income for the year ended June 30, 1994 decreased by $189,692 to
correct an error in the initial calculation of the cumulative effect
adjustment in connection with the adoption of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. The error had no
effect of net income for the years ended June 30, 1996 and 1995.
CASH FLOW INFORMATION
---------------------
The Bank has defined cash and cash equivalents as cash on hand, amounts due
from depository institutions, and overnight deposits with the Federal Home
Loan Bank.
Cash payments for interest for the fiscal years ended June 30, 1996, 1995,
and 1994 were $3,801,247, $3,146,659, and $2,463,460. Cash payments for
federal income taxes for the fiscal years ended June 30, 1996, 1995, and
1994 were $241,884, $300,840, and $479,807.
Non cash investing activity included mortgages originated and office
properties created from sales and transfers of real estate owned totaling
$172,110, $10,835, and $88,900, and real estate acquired in settlement of
loans of $130,543, $298,000, and $39,031 for the fiscal years ended June
30, 1996, 1995, and 1994 respectively.
During the period ended June 30, 1994, securities with an amortized cost of
$114,012 were transferred to investment securities available-for-sale. The
securities had an unrealized loss of $7,585. There were no securities
transferred between classifications during the period ended June 30, 1995
and 1996.
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
During the second quarter of 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, which becomes effective for the Bank in fiscal
year 1997. This Statement requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are
present. Impairment would be considered when the undiscounted cash flows
estimated to be generated by those assets are less than the assets'
carrying amount. Management does not anticipate that implementation of this
Statement will have a material, if any, effect on its consolidated
financial condition or results of operations.
Statement of Financial Accounting Standards Statement No. 122, Accounting
for Mortgage Servicing Rights, was issued in May, 1995 and becomes
effective for fiscal year 1997. This statement allows enterprises engaged
in mortgage banking activities to recognize as separate assets the rights
to service mortgage loans originated for sale. Additionally, the Bank must
periodically assess its capitalized mortgage servicing rights for
impairment based on the fair value of those rights. Presently, the Bank
does not anticipate that implementation will have a material, if any,
effect on its consolidated financial condition or results of operations.
F-9
<PAGE>
2. INVESTMENT SECURITIES
Securities held-to-maturity are as follows:
<TABLE>
<CAPTION>
1996
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U.S. Government and
Agency Obligations $4,799,596 $ 6,020 $(43,907) $4,761,709
========== ======= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. Government and
Agency Obligations $3,736,914 $26,417 $(23,175) $3,740,156
========== ======= ======== ==========
</TABLE>
Securities available-for-sale are as follows:
<TABLE>
<CAPTION>
1996
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Money Fund Securities $ 77,999 $ - $(9,450) $ 68,549
========== ======= ======= =========
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Money Fund Securities $ 93,241 $ - $(9,454) $ 83,787
========== ======= ======= =========
</TABLE>
The amortized cost and fair value of investment securities at June 30, 1996, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or repayment penalties.
F-10
<PAGE>
2. INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
Securities Securities
Held-to-Maturity Available-for-Sale
------------------------- -------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
One year or less $1,000,061 $1,002,136 $ - $ -
After one through five years 2,499,535 2,483,569 51,830 45,549
After five through ten years 300,000 297,094 26,169 23,000
After ten years 1,000,000 978,910 - -
---------- ---------- -------- --------
Total $4,799,596 $4,761,709 $ 77,999 $ 68,549
========== ========== ======== ========
</TABLE>
There were no securities sold during the three year period ended June 30,
1996.
3. MORTGAGE-BACKED SECURITIES
The amortized cost and fair value of mortgage-backed and related securities
are as follows:
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
GNMA Certificates $ 258,991 $ 11,347 $ - $ 270,338
Federal Home Loan Mortgage
Corporation Certificates 277,817 13,048 - 290,865
---------- -------- ------- ----------
Total $ 536,808 $ 24,395 $ - $ 561,203
========== ======== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------
Gros Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
GNMA Certificates $ 342,850 $ 18,459 $ - $ 361,309
Federal Home Loan Mortgage
Corporation Certificates 529,790 19,749 - 549,539
Collateralized Mortgage
Obligations 35,067 - (351) 34,716
---------- -------- ------- ----------
Total $ 907,707 $ 38,208 $ (351) $ 945,564
========== ======== ======= ==========
</TABLE>
Mortgage-backed securities provide for periodic, generally monthly payments of
principal and interest and have contractual maturities ranging from one to
twenty-five years. However, due to expected repayment terms being significantly
less than the underlying mortgage loan pool contractual maturities, the
estimated lives of these securities could be significantly shorter.
F-11
<PAGE>
4. LOANS RECEIVABLE
Loans receivable are comprised of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Mortgage loans:
1 - 4 family $ 54,599,854 $ 52,710,826
Multi-family 1,697,235 1,736,893
Non-residential 8,327,445 6,231,815
Construction 1,900,718 2,402,458
------------ ------------
66,525,252 63,081,992
------------ ------------
Consumer loans:
Home improvement 1,118,956 1,312,846
Automobile 6,178,615 4,598,045
Share loans 1,124,674 1,025,532
Education 128,045 1,571,745
Other 1,511,864 1,229,717
------------ ------------
10,062,154 9,737,885
------------ ------------
Commercial loans 3,099,876 2,058,129
------------ ------------
Less:
Loans in process 1,548,953 1,326,727
Net deferred loan fees 247,515 296,184
Allowance for loan losses 324,983 197,833
------------ ------------
2,121,451 1,820,744
------------ ------------
Total $ 77,565,831 $ 73,057,262
============ ============
</TABLE>
In the normal course of business, loans are extended to directors and executive
officers and their associates. In management's opinion, all of these loans are
on substantially the same terms and conditions as loans to other individuals and
businesses of comparable creditworthiness. A summary of loan activity for those
directors, executive officers, and their associates with loan balances in excess
of $60,000 for the year ended June 30, 1996 is as follows:
<TABLE>
<CAPTION>
Balance Amounts Balance
1995 Additions Collected 1996
--------- --------- --------- ---------
<S> <C> <C> <C>
$ 366,491 $ 348,848 $ 101,794 $ 613,545
</TABLE>
The Bank's loan portfolio is predominantly made up of one to four family unit
first mortgage loans in the Brook and Hancock counties of West Virginia and
Jefferson County, Ohio. These loans are typically secured by first lien
positions on the respective real estate properties and are subject to the Bank's
loan underwriting policies. In general, the Bank's loan portfolio performance is
dependent upon the local economic conditions.
F-12
<PAGE>
5. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses for the years ended June 30,
1996, 1995, and 1994 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of period $ 197,833 $ 174,090 $ 119,451
Add:
Provisions charged to operations 262,942 48,208 56,511
Loan recoveries 8,896 14,227 7,006
--------- --------- ---------
469,671 236,525 182,968
Less loans charged off 144,688 38,692 8,878
--------- --------- ---------
Balance, end of period $ 324,983 $ 197,833 $ 174,090
========= ========= =========
</TABLE>
6. OFFICE PROPERTIES AND EQUIPMENT, NET
Office properties and equipment are summarized by major classification as
follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land $ 311,877 $ 303,857
Office buildings and improvements 1,749,040 1,153,258
Furniture, fixtures, and equipment 1,117,455 847,341
----------- -----------
Sub-total 3,178,372 2,304,456
Less: accumulated depreciation 1,078,902 1,033,305
----------- -----------
Total $ 2,099,470 $ 1,271,151
=========== ===========
</TABLE>
Depreciation charged to operations amounted to $124,805, $109,010, and
$102,147 for the years ended June 30, 1996, 1995, and 1994 respectively.
7. FEDERAL HOME LOAN BANK STOCK
The Bank is a member of the Federal Home Loan Bank System. As a member, the
Bank maintains an investment in the capital stock of the Federal Home Loan
Bank of Pittsburgh, at cost, in an amount not less than the greater of 1%
of its mortgage related assets or 0.3% of its total assets as calculated at
December 31 of each year.
8. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Investment securities $ 65,540 $ 81,698
Mortgage-backed and related securities 7,769 11,868
Loans receivable 447,878 451,777
--------- ---------
Total $ 521,187 $ 545,343
========= =========
</TABLE>
F-13
<PAGE>
9. DEPOSIT ACCOUNTS
Deposit accounts are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------------------
Percent of Percent of
Amount Portfolio Amount Portfolio
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Non-interest-bearing $ 1,607,362 2.0 % $ 878,220 1.2 %
Savings accounts 17,378,294 21.4 16,255,305 21.7
NOW accounts 8,036,844 10.0 6,872,206 9.2
Money market accounts 2,893,026 3.6 2,164,697 2.9
------------ ----- ------------ -----
29,915,526 37.0 26,170,428 35.0
------------ ----- ------------ -----
Savings certificates:
2.00 - 4.00% 3,053,637 3.8 6,214,926 8.3
4.01 - 6.00% 37,258,267 46.1 30,979,224 41.5
6.01 - 8.00% 10,513,216 13.0 10,826,025 14.5
8.01 - 10.00% 30,000 .1 507,541 0.7
------------ ----- ------------ -----
50,855,120 63.0 48,527,716 65.0
------------ ----- ------------ -----
Total $ 80,770,646 100.0 % $ 74,698,144 100.0 %
============ ====== ============ =====
</TABLE>
The scheduled maturities of time certificates of deposit are as follows at
June 30, 1996:
<TABLE>
<CAPTION>
Amount
------------
<S> <C>
Within one year $ 37,124,543
Beyond one year but within two years 6,428,126
Beyond two years but within three years 2,794,384
Beyond three years 4,508,067
------------
Total $ 50,855,120
============
</TABLE>
The Bank had certificates of deposit with a minimum denomination of
$100,000 in the amount of approximately $7,760,079 and $6,819,693 at June
30, 1996 and 1995 respectively.
Interest expense by deposit category is as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Passbooks $ 543,002 $ 557,657 $ 631,461
NOW and Money Market Deposit accounts 297,880 278,749 300,105
Time certificates of deposit 2,786,900 2,142,292 1,316,571
----------- ----------- -----------
$ 3,627,782 $ 2,978,698 $ 2,248,137
=========== =========== ===========
</TABLE>
F-14
<PAGE>
10. ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank consists of the following:
<TABLE>
<CAPTION>
Principal Interest Interest
Due Due Rate 1996 1995
---------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Flexline Advance 6-20-1997 Monthly Variable $1,000,000 $1,000,000
Advance 7-31-1995 Monthly 4.21% - 247,700
Advance 10-29-1996 Monthly 4.23% 595,187 595,187
Advance 11-29-1996 Monthly 5.67% 1,000,000 -
Advance 5-21-1998 Monthly 5.43% 1,000,000 1,000,000
Advance 11-13-2002 Monthly 6.51% 781,265 -
---------- ----------
$4,376,452 $2,842,887
========== ==========
</TABLE>
These borrowings are subject to the terms and conditions of the Advances,
Collateral Pledge and Security Agreement between the Federal Home Loan Bank
of Pittsburgh and the Bank.
The variable interest rate on the Flexline Advance at June 30, 1996 was
5.91%.
The advance due 11-13-2002 has a monthly scheduled payment of principal and
interest of $6,973 with a balloon payment due at maturity of $524,863.
As of June 30, 1996 the Bank had a Flexline line of credit with the Federal
Home Loan Bank as follows:
<TABLE>
<CAPTION>
<S> <C>
Total Flexline $ 4,757,000
Flexline outstanding 1,000,000
-----------
Available Flexline $ 3,757,000
===========
</TABLE>
Interest paid on borrowings for the year ending June 30, 1996, 1995, and
1994 amounted to $173,624, $165,233, and $211,302 respectively.
11. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Currently payable:
Federal $ 238,049 $ 297,395 $ 408,067
State 35,744 38,953 61,326
--------- --------- ---------
273,793 336,348 469,393
Deferred 2,183 26,553 (48,972)
--------- --------- ---------
Total $ 275,976 $ 362,901 $ 420,421
========= ========= =========
</TABLE>
F-15
<PAGE>
The following temporary differences gave rise to deferred tax asset and
liabilities at June 30:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
Deferred tax assets
Allowance for loan losses $ 110,494 $ 67,263 $ 59,191
Loan origination fees, net 57,466 73,868 102,045
Other, net 8,050 8,792 8,191
--------- --------- ----------
Deferred tax assets 176,010 149,923 169,427
--------- --------- ----------
Deferred tax liabilities
Premise and equipment 181,629 147,001 94,846
Tax reserve for loan losses 117,879 124,237 169,343
--------- --------- ----------
Deferred tax liabilities 299,508 271,238 264,189
--------- --------- ----------
Net deferred tax liabilities $ 123,498 $ 121,315 $ 94,762
========= ========= =========
</TABLE>
The reconciliation between the actual provision for income taxes and the
amount of income taxes which would have been provided at statutory rates
for the years ended June 30 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- --------------------- --------------------
Amount Percent Amount Percent Amount Percent
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Provision at statutory rate $ 235,736 34.0 % $ 366,387 34.0 % $ 453,088 34.0 %
State income tax expense, net
of federal tax benefit 23,591 3.4 25,709 2.4 40,475 3.0
Tax exempt interest (9,349) (1.3 ) (7,072) (.7 ) (8,342) (.6 )
Other, net 25,998 3.7 (22,123) (2.0 ) (64,800) (4.9 )
--------- ----- --------- ----- --------- ----
Total $ 275,976 39.8 % $ 362,901 33.7 % $ 420,421 31.5 %
========= ===== ========= ===== ========= =====
</TABLE>
Savings institutions that meet certain definitional tests and other
conditions prescribed by the Internal Revenue Code of 1986, as amended, are
permitted to deduct, within limitations, a bad debt deduction computed as a
percentage of taxable income before such deduction. The maximum deduction
allowable was 8% of income subject to tax before such deduction.
12. RETAINED EARNINGS - SUBSTANTIALLY RESTRICTED
The Bank is subject to the risk-based capital rules. These guidelines
include a common framework for defining elements of capital and a system
for relating capital to risk. The minimum total risk-based capital
requirement is 8% which at least half must be Tier I capital. The Tier I
and total risk-based capital positions of the Bank as of June 30, 1996, as
calculated by management, amounted to 11.13% and 11.72% respectively.
Additionally, the general regulatory guidelines establish a minimum ratio
of leverage capital to adjusted total assets of 3.00% for top rated
financial institutions with less highly rated institutions or those with
higher levels of risk required to maintain ratios of 100 to 200 basis
points above the minimum level. The Bank's ratios under these guidelines,
as calculated by management, as of June 30, 1996 is 6.75%.
As a result of the special treatment accorded the Bank under income tax
regulations, approximately $1,352,000 of retained earnings at June 30,
1996, represents allocations of income to bad debt deductions for tax
purposes only. Should amounts previously claimed as a bad debt deduction be
used for any other purpose than to absorb bad debts (which is not
anticipated), tax liabilities will be incurred at the rate then in effect.
F-16
<PAGE>
13. RETIREMENT PLAN
The Bank has a profit-sharing plan with a 401(k) feature. The 401(k) allows
employees to make contributions to the plan up to 12% of their annual
compensation. The Bank will match 50% of the employees voluntary
contributions of up to 3% of the employees' compensation. Additional
employer contributions are made at the discretion of the Board of
Directors. The plan covers substantially all employees with more than one
year's service. The Bank's contributions for the benefit of covered
employees amounted to $56,190, $52,060, and $48,101 for the years ended
June 30, 1996, 1995, and 1994 respectively.
14. COMMITMENTS AND CONTINGENT LIABILITIES
LOAN COMMITMENTS
----------------
The Bank 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. These
instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized in the statement of financial condition. The
contract amounts of these instruments reflect the extent of involvement the
bank has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses
the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments. No losses are anticipated by
management as a result of these commitments.
The following represents financial instruments whose contract amounts
represent credit risk at June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Commitments to originate loans $1,469,700 $ 1,574,360
Loans in process $1,548,953 $ 1,326,727
Unused equity lines of credit $2,046,746 $ 1,224,585
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Bank evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the counter party.
Collateral held consists primarily of single-family residences and income-
producing commercial properties.
F-17
<PAGE>
14. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
LEASE COMMITMENTS
-----------------
The future lease commitments as of June 30, 1996 for all noncancellable
equipment and land leases follows:
<TABLE>
<CAPTION>
Fiscal Year
Ending June 30, Amount
------------------ ---------------
<S> <C>
1997 $ 53,638
1998 54,015
1999 53,956
2000 36,000
2001 37,800
2002 and thereafter 1,858,500
-----------
$ 2,093,909
===========
</TABLE>
The Bank entered into a forty year land lease with two five year option
periods for their Follansbee branch. The terms of this lease commenced as
of than January 1, 1996.
The Bank also signed a new five year contract with the Savings and Loan
Data Corporation, Inc., commencing May 1, 1995 which requires the Bank to
pay monthly processing fees for services provided by the service center.
The amount of the monthly payment varies each month based upon the type and
amount of service provided. Processing fees charged to operations amounted
to $144,390, $129,975, and $113,606 for the years ended June 30, 1996,
1995, and 1994 respectively.
SAVINGS ASSOCIATION INSURANCE FUND RACAPITALIZATION
---------------------------------------------------
In November, 1995, the U.S. Senate and the U.S. House of Representatives
included provisions in the Balanced Budget Act of 1995 (the "Act") which
would, among other things, recapitalize the Savings Association Insurance
Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC") by a
one-time charge of SAIF - insured institutions of approximately 85 cents
for every one hundred dollars of accessible deposits, and an eventual
merger of the SAIF with the Bank Insurance Fund administered by the FDIC.
The Act was vetoed by the President in December, 1995 for reasons unrelated
to the recapitalization of the SAIF. The Bank currently is unable to
predict the likelihood of legislation effecting these changes. If an
assessment of 85 cents per one hundred dollars of accessible deposits was
effected based on deposits as of March 15, 1995, as proposed, the Bank's
pro rata share would amount to approximately $600,000.
LITIGATION
----------
Also, the Bank is involved in litigation arising in the normal course of
business. Management believes that liabilities, if any, arising from these
proceedings will not have a material adverse effect on the consolidated
financial position, operating results, or liquidity.
15. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statements No. 107, Disclosure About
Fair Value of Financial Instruments, requires disclosure of the estimated
fair value of the financial instruments. Financial instruments are defined
as cash, evidence of ownership interest in an entity, or a contract which
creates an obligation or right to receive or deliver cash or another
financial instrument from/to a second entity on potentially favorable or
unfavorable terms.
F-18
<PAGE>
15. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS (CONTINUED)
Fair value is defined as the amount at which a financial instrument could
be exchanged in a current transaction between willing parties other than in
a forced or liquidation sale. If a quoted market price is available for a
financial instrument, the estimated fair value would be calculated based
upon the market price per trading unit of the instrument.
If no readily available market exists, the fair value estimates for
financial instruments should be based upon management's judgment regarding
current economic conditions, interest rate risk, expected cash flows,
future estimated losses, and other factors as determined through various
option pricing formulas or simulation modeling. As many of these
assumptions result from judgments made by management based upon estimates
which are inherently uncertain, the resulting estimated fair values may not
be indicative of the amount realizable in the sale of a particular
financial instrument. In addition, changes in assumptions on which the
estimated fair values are based may have a significant impact on the
resulting estimated fair values.
As certain assets such as deferred tax assets and premises and equipment
are not considered financial instruments, the estimated fair value of
financial instruments would not represent the full value of the Bank.
The Bank employed simulation modeling in determining the estimated fair
value of financial instruments for which quoted market prices were not
available based upon the following assumptions:
CASH AND DUE FROM BANKS, INTEREST-BEARING DEPOSITS WITH OTHER INSTITUTIONS,
---------------------------------------------------------------------------
ACCRUED INTEREST RECEIVABLE, AND ACCRUED INTEREST PAYABLE
---------------------------------------------------------
The fair value is equal to the current carrying value.
INVESTMENT SECURITIES, MORTGAGE-BACKED SECURITIES, AND LOANS HELD FOR SALE
--------------------------------------------------------------------------
The fair value of securities held to maturity and loans held for sale is
equal to the available quoted market price. If no quoted market price is
available, fair value is estimated using the quoted market price for
similar securities.
The fair value of securities available for sale is equal to the current
carrying value.
LOANS, DEPOSITS. AND ADVANCES FROM FEDERAL HOME LOAN BANK
---------------------------------------------------------
The fair value of loans, certificates of deposit, and advances from Federal
Home Loan Bank is estimated by discounting the future cash flows using a
simulation model which estimates future cash flows and constructs discount
rates that consider reinvestment opportunities, operating expenses, non-
interest income, credit quality, and prepayment risk. Demand, savings, and
money-market deposit accounts are valued at the amount payable on demand as
of the year end.
F-19
<PAGE>
15. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS (CONTINUED)
COMMITMENTS TO EXTEND CREDIT
----------------------------
These financial instruments are generally not subject to sale and estimated
fair values are not readily available. The contractual amounts of unfunded
commitments and letters of credit are presented previously in this report.
The estimated fair value of the Bank's financial instruments at June 30,
1996 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
------------ ------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 4,016,583 $ 4,016,583
Securities available-for-sale 68,549 68,549
Securities held to maturity 4,799,596 4,761,709
Mortgage-backed securities 536,808 561,203
Loans held-for sale 1,375,143 1,375,143
Loans receivable 77,565,831 77,828,000
Accrued interest receivable 521,187 521,187
------------ ------------
$ 88,883,697 $ 89,132,374
============ ============
Financial liabilities:
Deposits $ 80,770,646 $ 80,741,000
Advances from Federal Home Loan Bank 4,376,452 4,314,000
Accrued interest payable 25,887 25,887
Advances from borrowers for taxes and insurance 182,977 182,977
------------ ------------
$ 85,355,962 $ 85,263,864
============ ============
</TABLE>
16. CONSOLIDATED SUBSIDIARY
The following condensed statements summarize the financial position of the
Bank's wholly-owned subsidiary.
ADVANCE FINANCIAL SERVICE CORPORATION OF WEST VIRGINIA
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30,
1996 1995
-------- ---------
<S> <C> <C>
ASSETS
Investment in Savings and Loan Data Corporation $ 15,000 $ 15,000
-------- --------
Total assets $ 15,000 $ 15,000
-------- --------
STOCKHOLDERS' EQUITY
Capital stock $ 15,000 $ 15,000
======== ========
Total stockholders' equity $ 15,000 $ 15,000
======== ========
</TABLE>
Advance Financial Service Corporation had no operating activity during the
years ended June 30, 1996, 1995, and 1994.
F-20
<PAGE>
17. SUBSEQUENT EVENTS
CONVERSION AND REORGANIZATION
-----------------------------
On September 3, 1996, the Board of Directors of the Bank, subject to
regulatory approval, adopted the Plan of Conversion pursuant to which the
Bank proposed to convert from a federally-chartered mutual savings bank to
a federally-chartered stock savings bank and concurrently form a Bank
Holding Company. The conversion is expected to be accomplished through
amendment of the Bank's federal charter and the sale of the holding
company's common stock in an amount equal to the pro forma market value of
the Bank after giving effect of the conversion. A subscription offering of
the sale of the Bank's common stock will be offered initially to the Bank's
depositors, then to other members and directors, officers, and employees of
the Bank. Any shares of the Bank's common stock not sold in the
subscription offering will be offered for sale to the general public in the
Bank's market area.
Conversion costs will be deferred and deducted from the proceeds of the
shares sold in the conversion. At June 30, 1996, the Bank 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 regulations, at the time that the Bank converts from a
mutual savings bank to a stock savings bank, a portion of retained earnings
will be restricted by establishing a liquidation account. The liquidation
account will be maintained for the benefit of eligible account holders who
continue to maintain their accounts at the Bank after the conversion. The
liquidation account will be reduced annually to the extent that eligible
account holders have reduced their qualifying deposits. Subsequent
increases will not restore an eligible account holder's interest in the
liquidation account. In the event of a complete liquidation of the Bank,
each account holder will be entitled to receive a distribution from the
liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held. The Bank may not pay dividends
if those dividends would reduce equity capital below the required
liquidation account amount.
F-21
<PAGE>
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE BANK OR
THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS BY THE BANK OR THE COMPANY NOR
ANY SALE MADE HEREUNDER SHALL IN ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE BANK OR THE COMPANY SINCE ANY OF
THE DATES AS OF WHICH INFORMATION IS FURNISHED HEREIN OR SINCE THE DATE HEREOF.
_________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... (i)
Selected Financial and Other Data...........................
Recent Selected Financial and Other Data....................
Risk Factors................................................ 1
Advance Financial Bancorp...................................
Advance Financial Savings Bank, f.s.b.......................
Use of Proceeds.............................................
Dividends...................................................
Market for the Common Stock.................................
Capitalization..............................................
Pro Forma Data..............................................
Historical and Pro Forma Capital Compliance.................
Statements of Income........................................
Management"s Discussion and Analysis of Financial...........
Condition and Results of Operations........................
Business of the Company.....................................
Business of the Bank........................................
Regulation..................................................
Taxation....................................................
Management of the Company...................................
Management of the Bank......................................
The Conversion..............................................
Certain Restrictions on Acquisition of
the Company................................................
Description of Capital Stock................................
Legal and Tax Matters.......................................
Experts.....................................................
Registration Requirements...................................
Additional Information......................................
Index to Financial Statements...............................
</TABLE>
UNTIL THE LATER OF ____________, 1996, OR 25 DAYS AFTER COMMENCEMENT OF THE
OFFERING OF COMMON STOCK, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
UP TO 943,000 SHARES
(ANTICIPATED MAXIMUM)
COMMON STOCK
ADVANCE FINANCIAL BANCORP
(Proposed Holding Company for
Advance Financial Savings Bank)
__________
PROSPECTUS
__________
CHARLES WEBB & COMPANY
A Division of Keefe,
Bruyette & Woods, Inc.
Dated _________, 1996
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED
================================================================================
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C> <C>
* Local counsel legal fees...................... $ 5,000
* Business plan................................. 15,000
* Special counsel legal fees.................... 70,000
* Printing...................................... 40,000
* Postage and mailing........................... 8,000
* Appraisal..................................... 15,000
* Accounting fees............................... 40,000
* Data processing/Conversion agent/Edgarizing... 40,000
* SEC registration fee.......................... 4,000
* OTS filing fees............................... 8,400
* Nasdaq Small Cap Market listing fees.......... 6,100
* NASD fairness filing fee...................... 1,600
* Blue sky legal and filing fees................ 6,000
** Underwriting fees and commissions............ 122,000
* Underwriter"s expenses, including legal fees.. 35,000
* Stock certificates............................ 4,000
* Transfer agent................................ 6,000
* Reimbursable and other expenses............... 23,900
--------
* TOTAL......................................... $450,000
========
</TABLE>
_________________
* Estimated
** Variable underwriting expenses estimated based on a midpoint of the
Estimated Valuation Range of $8.0 million; insider purchases of $1,000,000;
an 8.0% ESOP ($640,000 at midpoint); and a fee of 1.5% of the price of
shares sold to Charles Webb of all shares sold, less shares bought by
insiders and the ESOP (i.e. $6,460,000), plus a $25,000 management fee.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
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 as such.
The Certificate of Incorporation of Advance Financial Bancorp attached as
Exhibit 3(i) hereto, requires indemnification of directors, officers, and
employees to the fullest extent permitted by Delaware law.
The Corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee, or agent of the Company or is or
was serving at the request of the Company as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, or other
enterprise against any liability asserted against the person and incurred by the
person in any such capacity or arising out of his status as such, whether or not
the Company would have the power to indemnify the person against such liability
under the provisions of the Certificate of Incorporation.
<PAGE>
The registrant believes that these provisions assist the registrant in,
among other things, attracting and retaining qualified persons to serve the
registrant and its subsidiary. However, a result of such provisions could be to
increase the expenses of the registrant and effectively reduce the ability of
stockholders to sue on behalf of the registrant since certain suits could be
barred or amounts that might otherwise be obtained on behalf of the registrant
could be required to be repaid by the registrant to an indemnified party.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not Applicable
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:
The financial statements and exhibits filed as part of this
Registration Statement are as follows:
(a) List of Exhibits:
1.1 Agency Agreement with Charles Webb & Company*
1.2 Selected Dealers Agreement*
2 Plan of Conversion of Advance Financial Savings Bank, f.s.b.
3(i) Certificate of Incorporation of Advance Financial Bancorp
3(ii) Bylaws of Advance Financial Bancorp
4 Specimen Stock Certificate of Advance Financial Bancorp
5.1 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding
legality of securities registered
5.2 Opinion of Keller & Company, Inc. as to the value of
subscription rights
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 State Tax Opinion of S.R. Snodgrass, A.C.*
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (contained in
its opinions filed as Exhibits 5.1 and 8.1)
23.2 Consent of S.R. Snodgrass, A.C.
23.3 Consent of Keller & Company, Inc.
________________________
* To be filed by amendment
<PAGE>
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule
99.1 Stock Order Form*
99.2 Appraisal Report of Keller & Company, Inc.*
99.3 Marketing Materials
(b) Financial Statements Schedules**
_____________________
* To be filed by amendment
** All schedules are omitted because they are not required or applicable or
the required information is shown in the financial statements or the notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933 ("Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
<PAGE>
(4) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
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 registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act, and is therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the questions 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Wellsburg, West Virginia, as of
September 25, 1996.
ADVANCE FINANCIAL BANCORP
By: /s/ Stephen M. Gagliardi
------------------------------------------
Stephen M. Gagliardi
President
(Duly Authorized Representative)
We the undersigned directors and officers of Advance Financial Bancorp do
hereby severally constitute and appoint Stephen M. Gagliardi our true and lawful
attorney and agent, to do any and all things and acts in our names in the
capacities indicated below and to execute all instruments for us and in our
names in the capacities indicated below which said Stephen M. Gagliardi may deem
necessary or advisable to enable Advance Financial Bancorp to comply with the
Securities Act of 1933, as amended, and any rules, regulations, and requirements
of the Securities and Exchange Commission, in connection with the registration
statement on Form S-1 relating to the offering of Advance Financial Bancorp"s
common stock, including specifically but not limited to, power and authority to
sign for us or any of us in our names in the capacities indicated below the
registration statement and any and all amendments (including post-effective
amendments) thereto; and we hereby ratify and confirm all that Stephen M.
Gagliardi shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated as of September 25, 1996.
/s/ Stephen M. Gagliardi /s/ George H. Johnson
- -------------------------------------- -----------------------------------
Stephen M. Gagliardi George H. Johnson
President Director
(Chief Executive Officer and Chairman
of the Board)
/s/ Noreen Mechling /s/ John R. Sperlazza
- -------------------------------------- ----------------------------------
Noreen Mechling John R. Sperlazza
Chief Financial Officer and Director Director
/s/ James R. Murphy /s/ William E. Watson
- -------------------------------------- --------------------------------
James R. Murphy William E. Watson
Director Director
/s/ Gary Young
- --------------------------------------
Gary Young
Director
<PAGE>
As filed with the Securities and Exchange Commission on September 27, 1996
Registration No. 333-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
EXHIBITS TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------------
ADVANCE FINANCIAL BANCORP
--------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 6035 Requested
- ------------------------------- -------------------------- ---------------------------
(State or Other Jurisdiction of Primary Standard Industry (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
1015 Commerce Street, Wellsburg, West Virginia 26070
(304) 737-3531
----------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Mr. Stephen M. Gagliardi
President
Advance Financial Bancorp
1015 Commerce Street, Wellsburg, West Virginia 26070
(304) 737-3531
----------------------------------------------------------------------
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Please send copies of all communications to:
Samuel J. Malizia, Esq.
Gregory J. Rubis, Esq.
Felicia C. Battista, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W. Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
<PAGE>
INDEX TO EXHIBITS TO FORM S-1
1.1 Agency Agreement with Capital Resources, Inc.*
1.2 Selected Dealers Agreement*
2 Plan of Conversion of Advance Financial Savings Bank, f.s.b.
3(i) Certificate of Incorporation of Advance Financial Bancorp
3(ii) Bylaws of Advance Financial Bancorp
4 Specimen Stock Certificate of Advance Financial Bancorp
5.1 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding legality of
securities registered
5.2 Opinion of Keller & Company, Inc. as to the value of subscription rights
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 State Tax Opinion of S.R. Snodgrass, A.C.*
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (contained in its
opinions filed as Exhibits 5.1 and 8.1)
23.2 Consent of S.R. Snodgrass, A.C.
23.3 Consent of Keller & Company, Inc.
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule
99.1 Stock Order Form*
99.2 Appraisal Report of Keller & Company, Inc.*
99.3 Marketing Materials
____________________
* To be filed by amendment
<PAGE>
EXHIBIT.2
EXHIBIT A
PLAN OF CONVERSION
FOR
ADVANCE FINANCIAL SAVINGS BANK, F.S.B.
WELLSBURG, WEST VIRGINIA
1. INTRODUCTION
This Plan of Conversion ("Plan") provides for the conversion of Advance
Financial Savings Bank, F.S.B. ("INSTITUTION") into a federal capital stock
savings institution, to be known as "Advance Financial Savings Bank." The Board
of Directors of the INSTITUTION currently contemplates that all of the stock of
the INSTITUTION shall be held by another corporation (the "Holding Company").
The purpose of this conversion is to enable the INSTITUTION to be in the stock
form of organization, like commercial banks and most other corporations. The
conversion will result in an increase in the INSTITUTION's capital available to
support growth and for expansion of its facilities, possible diversification
into other related financial services activities and further enhance the
INSTITUTION's ability to render services to the public and compete with other
financial institutions. The use of the Holding Company would also provide
greater organizational flexibility. Shares of capital stock of the INSTITUTION
will be sold to the Holding Company and the Holding Company will offer the
Conversion Stock upon the terms and conditions set forth herein to Eligible
Account Holders, the tax-qualified employee stock benefit plans (the "Employee
Plans") established by the INSTITUTION or the Holding Company, which may be
funded by the Holding Company, Supplemental Eligible Account Holders, and Other
Members in the respective priorities set forth in this Plan. Any shares of
Conversion Stock not subscribed for by the foregoing classes of persons may be
offered for sale to certain members of the public either directly by the
INSTITUTION and the Holding Company through a Community Offering or through a
Public Offering or Syndicated Public Offering. In the event that the INSTITUTION
decides not to utilize the Holding Company in the conversion, Conversion Stock
of the INSTITUTION, in lieu of the Holding Company, will be sold as set forth
above and in the respective priorities set forth in this Plan. In addition to
the foregoing, the INSTITUTION and the Holding Company intend to implement stock
option plans and other stock benefit plans at the time of or subsequent to the
conversion and may provide employment or severance agreements to certain
management employees and certain other benefits to the directors, officers and
employees of the INSTITUTION as described in the prospectus for the Conversion
Stock.
This Plan, which has been unanimously approved by the Board of Directors of
the INSTITUTION, must also be approved by the affirmative vote of a majority of
the total number of votes entitled to be cast by Voting Members of the
INSTITUTION at a special meeting to be called for that purpose. Prior to the
submission of this Plan to the Voting Members for consideration, the Plan must
be approved by the Office of Thrift Supervision (the "OTS").
Upon conversion, each Account Holder having a Savings Account at the
INSTITUTION prior to conversion will continue to have a Savings Account, without
payment therefor, in the same amount and subject to the same terms and
conditions (except for voting and liquidation rights) as in effect prior to the
conversion. After conversion, the INSTITUTION will succeed to all the rights,
interests, duties
A-1
<PAGE>
and obligations of the INSTITUTION before conversion, including but not limited
to all rights and interests of the INSTITUTION in and to its assets and
properties, whether real, personal or mixed. The INSTITUTION will continue to be
a member of the Federal Home Loan Bank System and all its insured savings
deposits will continue to be insured by the Federal Deposit Insurance
Corporation (the "FDIC") to the extent provided by applicable law.
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
Account Holder - The term Account Holder means any Person holding a Savings
--------------
Account in the INSTITUTION.
Acting in Concert - The Term "Acting in Concert" means (i) knowing
-----------------
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; (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; or
(iii) a person or company which acts in concert with another person or company
("other party") shall also be deemed to be acting in concert with any person or
company 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 plan will be aggregated.
Associate - The term Associate when used to indicate a relationship with
---------
any person, means (i) any corporation or organization (other than the
INSTITUTION or a majority-owned subsidiary of the INSTITUTION) of which such
person is an officer or partner or is, directly or indirectly, the beneficial
owner of 10 percent 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 except
that for the purposes of Sections 8 and 14 hereof, the term "Associate" does not
include any Tax-Qualified Employee Stock Benefit Plan or any Tax-Qualified
Employee Stock Benefit Plan in which a person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary capacity, and except
that, for purposes of aggregating total shares that may be held by Officers and
Directors the term "Associate" does not include any Tax-Qualified Employee Stock
Benefit Plan, and (iii) any relative or spouse of such person, or any relative
of such spouse, who has the same home as such person or who is a Director or
Officer of the INSTITUTION or the Holding Company, or any of its parents or
subsidiaries.
Community Offering - The term Community Offering means the offering for
------------------
sale to certain members of the general public directly by the Holding Company,
of shares not subscribed for in the Subscription Offering.
Conversion Stock - The term Conversion Stock means the $.10 par value
----------------
common stock offered and issued by the Holding Company upon conversion.
Director - The term Director means a member of the Board of Directors of
--------
the INSTITUTION and, where applicable, a member of the Board of Directors of the
Holding Company.
A-2
<PAGE>
Eligible Account Holder - The term Eligible Account Holder means any person
-----------------------
holding a Qualifying Deposit in a Savings Account at the INSTITUTION on the
Eligibility Record Date.
Eligibility Record Date - The term Eligibility Record Date means the date
-----------------------
for determining Eligible Account Holders in the INSTITUTION and is the close of
business on August 31, 1995.
Employees - The term Employees means all Persons who are employed by the
---------
INSTITUTION.
Employee Plans - The term Employee Plans means the Tax-Qualified Employee
--------------
Stock Benefit Plans, including the Employee Stock Ownership Plan, approved by
the Board of Directors of the INSTITUTION.
Estimated Valuation Range. The term Estimated Valuation Range means the
-------------------------
range of the estimated pro forma market value of the Conversion Stock as
determined by the Independent Appraiser prior to the Subscription Offering and
as it may be amended from time to time thereafter.
FDIC - The term FDIC means the Federal Deposit Insurance Corporation.
----
Holding Company - The term Holding Company means the corporation formed for
---------------
the purpose of acquiring all of the shares of capital stock of the INSTITUTION
to be issued upon its conversion to stock form unless the Holding Company form
of organization is not utilized. Shares of common stock of the Holding Company
will be issued in the Conversion to Participants and others in a Subscription,
Community, Public or Syndicated Public Offering, or through a combination
thereof.
Independent Appraiser - The term Independent Appraiser means an appraiser
---------------------
retained by the INSTITUTION to prepare an appraisal of the pro forma market
value of the Conversion Stock.
Institution - The term INSTITUTION means Advance Financial Savings Bank,
-----------
F.S.B., Wellsburg, West Virginia.
Local Community - The term local community means the incorporated cities
---------------
and counties in which the INSTITUTION has offices.
Member - The term Member means any Person or entity who qualifies as a
------
member of the INSTITUTION pursuant to its charter and bylaws.
OTS - The term OTS means Office of Thrift Supervision of the Department of
---
the Treasury.
Officer - The term Officer means an executive officer of the INSTITUTION
-------
and may include the Chairman of the Board, Chief Executive Officer, Vice
Presidents in charge of principal business functions, Secretary and Treasurer
and any individual performing functions similar to those performed by the
foregoing persons.
Order Form - The term Order Form means any form together with attached
----------
cover letter, sent by the INSTITUTION to any Person containing among other
things a description of the alternatives available to such Person under the Plan
and by which any such Person may make elections regarding subscriptions for
Conversion Stock in the Subscription and Community Offerings.
A-3
<PAGE>
Other Member - The term Other Member means any person, who is a Member of
------------
the INSTITUTION (other than Eligible Account Holders or Supplemental Eligible
Account Holders) at the close of business on the voting record date.
Participants - The term Participants means the Eligible Account Holders,
------------
Employee Plans, Supplemental Eligible Account Holders and Other Members.
Person - The term Person means an individual, a corporation, a partnership,
------
an association, a joint-stock company, a trust (including Individual Retirement
Accounts and KEOGH Accounts), any unincorporated organization, a government or
political subdivision thereof or any other entity.
Plan - The term Plan means this Plan of Conversion of the INSTITUTION as it
----
exists on the date hereof and as it may hereafter be amended in accordance with
its terms.
Public Offering - The term Public Offering means the offering for sale
---------------
through the Underwriter to the general public of any shares of Conversion Stock
not subscribed for in the Subscription Offering.
Purchase Order - The term Purchase Order means any form together with
--------------
attached cover letter, sent by the Underwriter to any Person containing among
other things a description of the alternatives available to such Person under
the Plan and by which any such Person may make elections regarding subscriptions
for Conversion Stock in the Public Offering.
Purchase Price - The term Purchase Price means the per share price at which
--------------
the Conversion Stock will be sold in accordance with the terms hereof.
Qualifying Deposit - The term Qualifying Deposit means the balance of each
------------------
Savings Account of $50 or more in the INSTITUTION at the close of business on
the Eligibility Record Date or Supplemental Eligibility Record Date. Savings
Accounts with total deposit balances of less than $50 shall not constitute a
Qualifying Deposit.
SEC - The term SEC refers to the Securities and Exchange Commission.
---
Savings Account - The term Savings Account includes savings accounts as
---------------
defined in Section 561.42 of the Rules and Regulations of the OTS and includes
certificates of deposit.
Special Meeting of Members - The term Special Meeting of Members means the
--------------------------
special meeting and any adjournments thereof held to consider and vote upon this
Plan.
Subscription Offering - The term Subscription Offering means the offering
---------------------
of Conversion Stock for purchase through Order Forms to Participants.
Supplemental Eligibility Record Date - The term Supplemental Eligibility
------------------------------------
Record Date means the close of business on the last day of the calendar quarter
preceding the approval of the Plan by the OTS.
Supplemental Eligible Account Holder - The term Supplemental Eligible
------------------------------------
Account Holder means a holder of a Qualifying Deposit in the INSTITUTION (other
than an officer or trustee or their Associates) at the close of business on the
Supplemental Eligibility Record Date.
A-4
<PAGE>
Tax-Qualified Employee Stock Benefit Plan - The term Tax-Qualified Employee
-----------------------------------------
Stock Benefit Plan means any defined benefit plan or defined contribution plan,
such as an employee stock ownership plan, stock 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.
Syndicated Public Offering - The term Syndicated Public Offering means the
--------------------------
offering of Conversion Stock following the Subscription, Community (if
applicable) or Public Offerings through a syndicate of broker-dealers.
Underwriter - The term Underwriter means the investment banking firm or
-----------
firms through which the Conversion Stock will be offered and sold in the Public
Offering.
Voting Members - The term Voting Members means those Persons qualifying as
--------------
voting members of the INSTITUTION pursuant to its charter and bylaws.
Voting Record Date - The term Voting Record Date means the date fixed by
------------------
the Directors in accordance with OTS regulations for determining eligibility to
vote at the Special Meeting of Members.
3. PROCEDURE FOR CONVERSION
After approval of the Plan by the Board of Directors of the INSTITUTION,
the Plan shall be submitted together with all other requisite material to the
OTS for its approval. Notice of the adoption of the Plan by the Board of
Directors of the INSTITUTION will be published in a newspaper having general
circulation in each community in which an office of the INSTITUTION is located
and copies of the Plan will be made available at each office of the INSTITUTION
for inspection by the Members. Upon filing the application with the OTS, the
INSTITUTION also will cause to be published a notice of the filing with the OTS
of an application to convert in accordance with the provisions of the Plan.
Following approval by the OTS, the Plan will be submitted to a vote of the
Voting Members at a Special Meeting of Members called for that purpose. Upon
approval of the Plan by a majority of the total votes eligible to be cast by the
Voting Members, the INSTITUTION will take all other necessary steps pursuant to
applicable laws and regulations to convert the INSTITUTION to stock form. The
conversion must be completed within 24 months of the approval of the Plan by the
Voting Members, unless a longer time period is permitted by governing laws and
regulations.
The Board of Directors of the INSTITUTION intends to take all necessary
steps to form the Holding Company including the filing of an Application on Form
H-(e)1 or H-(e)1-S, if available to the Holding Company, with the OTS. Upon
conversion, the INSTITUTION will issue its capital stock to the Holding Company
and the Holding Company will issue and sell the Conversion Stock in accordance
with this Plan.
The Board of Directors of the INSTITUTION may determine for any reason at
any time prior to the issuance of the Conversion Stock not to utilize a holding
company form of organization in the Conversion, in which case, the Holding
Company's registration statement on Form S-1 or Form SB-2 will be withdrawn from
the SEC, the INSTITUTION will take all steps necessary to complete the
conversion from the mutual to the stock form of organization, including filing
any necessary documents with the OTS and will issue and sell the Conversion
Stock in accordance with this Plan. In such event, any subscriptions or orders
received for Conversion Stock of the Holding Company shall be deemed to be
subscriptions or orders for Conversion Stock of the INSTITUTION without any
further action by the
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INSTITUTION or the subscribers for the Conversion Stock. Any references to the
Holding Company in this Plan shall mean the INSTITUTION in the event the Holding
Company is eliminated in the Conversion.
The Conversion Stock will not be insured by the FDIC. The INSTITUTION will
not knowingly lend funds or otherwise extend credit to any Person to purchase
shares of the Conversion Stock.
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Holding Company shall make timely applications for any requisite
regulatory approvals, including an Application on Form H-(e)1 or an H-(e)1-S, if
available to the Holding Company, to be filed with the OTS and a Registration
Statement on Form S-1 or Form SB-2 to be filed with the SEC. The INSTITUTION
shall be a wholly owned subsidiary of the Holding Company.
5. SALE OF CONVERSION STOCK
The Conversion Stock will be offered simultaneously in the Subscription
Offering to the Eligible Account Holders, Employee Plans, Supplemental Eligible
Account Holders and Other Members in the respective priorities set forth in
Sections 8 through 11 of this Plan. The Subscription Offering may be commenced
as early as the mailing of the Proxy Statement for the Special Meeting of
Members and must be commenced in time to complete the conversion within the time
period specified in Section 3.
Any shares of Conversion Stock not subscribed for in the Subscription
Offering may be offered for sale in the Community Offering, if any, as provided
in Section 12 of this Plan or offered in a Public Offering or Syndicated Public
Offering, as provided in Section 13, if necessary and feasible. The
Subscription Offering may be commenced prior to the Special Meeting of Members
and, in that event, the Community Offering or Public Offering may also be
commenced prior to the Special Meeting of Members. The offer and sale of
Conversion Stock, prior to the Special Meeting of Members shall, however, be
conditioned upon approval of the Plan by the Voting Members.
Shares of Conversion Stock may be sold in a Syndicated Public Offering or
in a Public Offering, as provided in Section 13 of this Plan in a manner that
will achieve a wide distribution of the Conversion Stock as determined by the
INSTITUTION. In the event of a Syndicated Public Offering or Public Offering,
the sale of all Conversion Stock subscribed for in the Subscription Offering
will be consummated simultaneously on the date the sale of Conversion Stock in
the Syndicated Public Offering or Public Offering is consummated and only if all
unsubscribed for Conversion Stock is sold.
The INSTITUTION may elect to pay fees on either a fixed fee or commission
basis or combination thereof to an investment banking firm which assists it in
the sale of the Conversion Stock in the offerings.
The INSTITUTION may also elect to offer to pay fees on a per share basis to
brokers who assist Persons in determining to purchase shares in the Offerings
and whose name appears on the purchaser's Order Form.
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6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The total number of shares (or a range thereof) of Conversion Stock to be
issued and offered for sale will be determined by the Boards of Directors of the
INSTITUTION and the Holding Company, immediately prior to the commencement of
the Offerings, subject to adjustment thereafter if necessitated by a change in
the appraisal due to changes in market or financial conditions, with the
approval of the OTS, if necessary.
All shares sold in the Conversion will be sold at a uniform price per share
referred to in this Plan as the Purchase Price. The aggregate Purchase Price for
all shares of Conversion Stock will not be inconsistent with the estimated
consolidated pro forma market value of the INSTITUTION. The estimated
consolidated pro forma market value of the INSTITUTION will be determined for
such purpose by the Independent Appraiser. Prior to the commencement of the
Subscription and Community Offerings, an Estimated Valuation Range will be
established, which range will vary within 15% above to 15% below the midpoint of
such range. The number of shares of Conversion Stock to be issued and/or the
Purchase Price may be increased or decreased by the INSTITUTION. In the event
that the aggregate Purchase Price of the Conversion Stock is below the minimum
of the Estimated Valuation Range, or materially above the maximum of the
Estimated Valuation Range, resolicitation of purchasers may be required,
provided that up to a 15% increase above the maximum of the Estimated Valuation
Range will not be deemed material so as to require a resolicitation. Any such
resolicitation shall be effected in such manner and within such time as the
INSTITUTION shall establish, with the approval of the OTS, if required. Up to a
15% increase in the number of shares to be issued which is supported by an
appropriate change in the estimated pro forma market value of the INSTITUTION or
in order to fill the order by the Employee Plans will not be deemed to be
material so as to require a resolicitation of subscriptions.
Based upon the independent valuation, as updated prior to the consummation
of the Subscription and Community Offerings, the Boards of Directors of the
INSTITUTION and the Holding Company will fix the Purchase Price.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the INSTITUTION and Holding Company and to the OTS that, to the best
knowledge of the Independent Appraiser, nothing of a material nature has
occurred which, taking into account all relevant factors, would cause the
Independent Appraiser to conclude that the aggregate value of the Conversion
Stock sold at the Purchase Price is incompatible with its estimate of the
aggregate consolidated pro forma market value of the INSTITUTION. If such
confirmation is not received, the INSTITUTION may cancel the Subscription
Offering, Community Offering and/or the Public Offering and Syndicated Public
Offering, reopen or hold new Offerings to take such other action as the OTS may
permit.
The Conversion Stock to be issued in the Conversion shall be fully paid and
nonassessable.
7. PURCHASE BY THE HOLDING COMPANY OF THE STOCK OF THE INSTITUTION
Upon the consummation of the sale of all of the Conversion Stock, the
Holding Company will purchase from the INSTITUTION all of the capital stock of
the INSTITUTION to be issued by the INSTITUTION in the conversion in exchange
for the Conversion proceeds that are not permitted to be retained by the Holding
Company.
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<PAGE>
The Holding Company will apply to the OTS to retain up to 50% of the
proceeds of the Conversion. Assuming the Holding Company is not eliminated, a
lesser percentage may be acceptable.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment,
nontransferable subscription rights to subscribe for shares of Conversion Stock
equal to the greater of: (i) the maximum established for the Community Offering;
(ii) one-tenth of one percent of the Conversion Stock offered; or (iii) 15 times
the product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Conversion Stock offered by a fraction of which the
numerator is the amount of the Qualifying Deposit of such Eligible Account
Holder and the denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders but in no event greater than the maximum purchase
limitation specified in Section 14 hereof. All such purchases are subject to the
maximum and minimum purchase limitations specified in Section 14 and are
exclusive of an increase in the total number of shares issued due to an increase
in the maximum of the Estimated Valuation Range of up to 15%.
B. In the event that Eligible Account Holders exercise Subscription
Rights for a number of shares of Conversion Stock in excess of the total number
of such shares eligible for subscription, the shares of Conversion Stock shall
be allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Conversion
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by the Eligible Account Holder. Any shares remaining after that allocation will
be allocated among the subscribing Eligible Account Holders whose subscriptions
remain unsatisfied in the proportion that the amount of the Qualifying Deposit
of each Eligible Account Holder whose subscription remains unsatisfied bears to
the total amount of the Qualifying Deposits of all Eligible Account Holders
whose subscriptions remain unsatisfied. If the amount so allocated exceeds the
amount subscribed for by any one or more Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary) among those Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
C. Subscription rights as Eligible Account Holders received by Directors
and Officers and their Associates which are based on deposits made by such
persons during the twelve (12) months preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
9. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY)
Subject to the availability of sufficient shares after filling subscription
orders of Eligible Account Holders under Section 8, the Employee Plans shall
receive without payment nontransferable subscription rights to purchase in the
Subscription Offering the number of shares of Conversion Stock requested by such
Plans, subject to the purchase limitations set forth in Section 14.
The Employee Plans shall not be deemed to be associates or affiliates of or
Persons Acting in Concert with any Director or Officer of the Holding Company or
the INSTITUTION.
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<PAGE>
10. SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY)
A. In the event that the Eligibility Record Date is more than 15 months
prior to the date of the latest amendment to the Application filed prior to OTS
approval, then, and only in that event, each Supplemental Eligible Account
Holder shall receive, without payment, nontransferable subscription rights
entitling such Supplemental Eligible Account Holder to purchase that number of
shares of Conversion Stock which is equal to the greater of: (i) the maximum
purchase limitation established for the Community Offering; (ii) one-tenth of 1%
of the Conversion Stock Offered; and (iii) 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. All such purchases are subject to the maximum and
minimum purchase limitations in Section 14 and are exclusive of an increase in
the total number of shares issued due to an increase in the maximum of the
Estimated Valuation Range of up to 15%.
B. Subscription rights received pursuant to this Category shall be
subordinated to the subscription rights received by Eligible Account Holders and
by the Employee Plans.
C. Any subscription rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Section 8 shall reduce
to the extent thereof the subscription rights to be distributed pursuant to this
Section.
D. In the event of an oversubscription for shares of Conversion Stock
pursuant to this Section, shares of Conversion Stock shall be allocated among
the subscribing Supplemental Eligible Account Holders as follows:
(1) 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 Section 8) 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 (1) 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 subscribing Supplemental Eligible Account Holders.
11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, nontransferable
subscription rights to subscribe for shares of Conversion Stock in an amount
equal to the greater of the maximum purchase limitation established for the
Community Offering or one-tenth of one percent of the Conversion Stock offered,
subject to the maximum and minimum purchase limitations specified in Section 14
and exclusive of an increase in the total number of shares issued due to an
increase in the maximum of the Estimated Valuation Range of up to 15%, which
will be allocated only after first allocating to Eligible Account
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<PAGE>
Holders, the Employee Plans and Supplemental Eligible Account Holders all shares
of Conversion Stock subscribed for pursuant to Sections 8, 9 and 10 above.
B. In the event that such Other Members subscribe for a number of shares
of Conversion Stock which, when added to the shares of Conversion Stock
subscribed for by the Eligible Account Holders, the Employee Plans and the
Supplemental Eligible Account Holders is in excess of the total number of shares
of Conversion Stock being issued, the subscriptions of such Other Members will
be allocated among the subscribing Other Members so as to permit each
subscribing Other Member, to the extent possible, to purchase a number of shares
sufficient to make his total allocation of Conversion Stock equal to the lesser
of 100 shares or the number of shares subscribed for by the Other Member. Any
shares remaining will be allocated among the subscribing Other Members whose
subscriptions remain unsatisfied on a 100 shares (or whatever lesser amount is
available) per order basis until all orders have been filled or the remaining
shares have been allocated.
12. COMMUNITY OFFERING
If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold in the Subscription Offering, shares
remaining unsubscribed may be made available for purchase in the Community
Offering to certain members of the general public, which may subscribe together
with any Associate or group of persons Acting in Concert for up to that number
of shares of Conversion Stock as shall equal $100,000 divided by the Purchase
Price, subject to the maximum and minimum purchase limitations specified in
Section 14 and exclusive of an increase in the total number of shares issued due
to an increase in the maximum of the Estimated Valuation Range of up to 15%. The
shares may be made available in the Community Offering through a direct
community marketing program which may provide for utilization of a broker,
dealer, consultant or investment banking firm, experienced and expert in the
sale of savings institution securities. In the Community Offering, if any,
shares will be available for purchase by the general public with preference
given first to natural persons residing in the Local Community and second, to
natural persons residing in the State of West Virginia. The INSTITUTION shall
make distribution of the Conversion Stock to be sold in the Community Offering
in such a manner as to promote a wide distribution of Conversion Stock.
If the Community Purchasers in the Community Offering, whose orders would
otherwise be accepted, subscribe for more shares than are available for
purchase, the shares available to them will be allocated among persons
submitting orders in the Community Offering in an equitable manner as determined
by the Board of Directors. The INSTITUTION may establish all terms and
conditions of such offer.
The Community Offering, if any, may commence simultaneously with, during or
subsequent to the completion of the Subscription Offering and if commenced
simultaneously with or during the Subscription Offering the Community Offering
may be limited to Community Purchases. The Community Offering must be completed
within 45 days after the completion of the Subscription Offering unless
otherwise extended by the OTS.
The INSTITUTION and the Holding Company, in their absolute discretion,
reserve the right to reject any or all orders in whole or in part which are
received in the Community Offering, at the time of receipt or as soon as
practicable following the completion of the Community Offering.
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<PAGE>
13. PUBLIC OFFERING AND SYNDICATED PUBLIC OFFERING
Any shares of Conversion Stock not sold in the Subscription Offering or in
the Community Offering, if any, may then be sold through the Underwriter to the
general public at the Purchase Price in the Public Offering, subject to such
terms, conditions and procedures as may be determined by the Boards of Directors
of the INSTITUTION and the Holding Company, in a manner that will achieve a wide
distribution of the Conversion Stock and subject to the right of the INSTITUTION
and the Holding Company, in their absolute discretion, to accept or reject in
whole or in part all subscriptions in the Public Offering. In the Public
Offering, if any, any person together with any Associate or group of persons
Acting in Concert may purchase up to the maximum purchase limitation established
for the Community Offering, subject to the maximum and minimum purchase
limitations specified in Section 14 and exclusive of an increase in the total
number of shares issued due to an increase in the maximum of the Estimated
Valuation Range of up to 15%. Shares purchased by any Person together with any
Associate or group of persons Acting in Concert pursuant to Section 12 shall be
counted toward meeting the maximum purchase limitation specified for this
Section. Provided that the Subscription Offering has commenced, the INSTITUTION
may commence the Public Offering at any time after the mailing to the Members of
the Proxy Statement to be used in connection with the Special Meeting of
Members, provided that the completion of the offer and sale of the Conversion
Stock shall be conditioned upon the approval of this Plan by the Voting Members.
It is expected that the Public Offering, if any, will commence just prior to, or
as soon as practicable after, the termination of the Subscription Offering. The
Public Offering shall be completed within 45 days after the termination of the
Subscription Offering, unless such period is extended as provided in Section 3,
above.
Shares of Conversion Stock not subscribed for in the Subscription Offering,
Community Offering, if any, and Public Offering may be sold in a Syndicated
Public Offering, subject to such terms, conditions and procedures as may be
determined by the Boards of Directors of the INSTITUTION and the Holding
Company, in a manner that will achieve a wide distribution of the Conversion
Stock subject to the right of the INSTITUTION and the Holding Company, in their
absolute discretion, to accept or reject in whole or in part all subscriptions
in the Syndicated Public Offering. In the Syndicated Public Offering, any person
together with any Associate or group of persons Acting in Concert may purchase
up to the maximum purchase limitation established for the Public Offering,
subject to the maximum and minimum purchase limitations specified in Section 14
and exclusive of an increase in the total number of shares issued due to an
increase in the maximum of the Estimated Valuation Range of up to 15%. Shares
purchased by any Person together with any Associate or group of persons Acting
in Concert pursuant to Section 12 shall be counted toward meeting the maximum
purchase limitation specified for this Section. Provided that the Subscription
Offering has commenced, the INSTITUTION may commence the Syndicated Public
Offering at any time after the mailing to the Members of the Proxy Statement to
be used in connection with the Special Meeting of Members, provided that the
completion of the offer and sale of the Conversion Stock shall be conditioned
upon the approval of this Plan by the Voting Members. If the Syndicated Public
Offering is not sooner commenced pursuant to the provisions of the preceding
sentence, the Syndicated Public Offering will be commenced as soon as
practicable following the date upon which the Subscription Offering and
Community Offering, if any, terminate.
If for any reason a Public Offering or Syndicated Public Offering of shares
of Conversion Stock not sold in the Subscription and Community Offerings can not
be effected, other purchase arrangements will be made for the sale of
unsubscribed shares by the INSTITUTION, if possible. Such other purchase
arrangements will be subject to the approval of the OTS.
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<PAGE>
14. LIMITATION ON PURCHASES
The following limitations shall apply to all purchases of shares of
Conversion Stock:
A. The maximum number of shares of Conversion Stock which may be
purchased in the Subscription Offering by any person in the First Priority,
Third Priority and Fourth Priority shall not exceed such number of shares as
shall equal $100,000 divided by the Purchase Price.
B. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the Conversion by any Person
(or persons through a single account) or Participant together with any Associate
or group of persons Acting in Concert shall not exceed such number of shares as
shall equal $150,000 divided by the Purchase Price, except for Employee Plans,
which in the aggregate may subscribe for up to 10% of the Conversion Stock
issued.
C. The maximum number of shares of Conversion Stock which may be
purchased in all categories in the conversion by Officers and Directors of the
INSTITUTION and their Associates in the aggregate shall not exceed 34% of the
total number of shares of Conversion Stock issued.
D. A minimum of 25 shares of Conversion Stock must be purchased by each
Person purchasing shares in the conversion to the extent those shares are
available; provided, however, that the minimum number of shares requirement will
not apply if the number of shares of Conversion Stock purchased times the price
per share exceeds $500.
If the number of shares of Conversion Stock otherwise allocable pursuant to
Sections 8 through 13, inclusive, to any Person or that Person's Associates
would be in excess of the maximum number of shares permitted as set forth above,
the number of shares of Conversion Stock allocated to each such person shall be
reduced to the lowest limitation applicable to that Person, and then the number
of shares allocated to each group consisting of a Person and that Person's
Associates shall be reduced so that the aggregate allocation to that Person and
his Associates complies with the above maximums, and such maximum number of
shares shall be reallocated among that Person and his Associates as they may
agree, or in the absence of an agreement, in proportion to the shares subscribed
by each (after first applying the maximums applicable to each Person,
separately).
Depending upon market or financial conditions, the Board of Directors of
the INSTITUTION and the Holding Company, without further approval of the
Members, may decrease or increase the purchase limitations in this Plan,
provided that the maximum purchase limitations may not be increased to a
percentage in excess of 5%. Notwithstanding the foregoing, the maximum purchase
limitation may be increased up to 9.99% provided that orders for Conversion
Stock exceeding 5% of the shares being offered shall not exceed, in the
aggregate, 10% of the total offering. If the INSTITUTION and the Holding Company
increase the maximum purchase limitations, the INSTITUTION and the Holding
Company are only required to resolicit Persons who subscribed for the maximum
purchase amount and may, in the sole discretion of the INSTITUTION and the
Holding Company, resolicit certain other large subscribers. For purposes of this
Section 14, the Directors of the INSTITUTION and the Holding Company shall not
be deemed to be Associates or a group affiliated with each other or otherwise
Acting in Concert solely as a result of their being Directors of the INSTITUTION
or the Holding Company.
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In the event of an increase in the total number of shares offered in the
conversion due to an increase in the maximum of the Estimated Valuation Range of
up to 15% (the "Adjusted Maximum") the additional shares will be used in the
following order of priority: (i) to fill the Employees Plan's subscription to up
to 10% of the Adjusted Maximum; (ii) in the event that there is an
oversubscription at the Eligible Account Holder level, to fill unfilled
subscriptions of Eligible Account Holders exclusive of the Adjusted Maximum
according to Section 8, with preference given to Community Purchasers; (iii) in
the event that there is an oversubscription at the Supplemental Eligible Account
Holder level, to fill unfilled subscriptions of Supplemental Eligible Account
Holders exclusive of the Adjusted Maximum according to Section 10, with
preference given to Community Purchasers; (iv) in the event that there is an
oversubscription at the Other Member level, to fill unfilled subscriptions of
Other Members exclusive of the Adjusted Maximum in accordance with Section 11,
with preference given to Community Purchasers; and (v) to fill unfilled
Subscriptions in the Community Offering exclusive of the Adjusted Maximum, with
preference given to Community Purchasers.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
For a period of three years following the conversion, no Officer, Director
or their Associates shall purchase, without the prior written approval of the
OTS, any outstanding shares of common stock of the Holding Company, except from
a broker-dealer registered with the SEC. This provision shall not apply to
negotiated transactions involving more than one percent of the outstanding
shares of common stock of the Holding Company, the exercise of any options
pursuant to a stock option plan or purchases of common stock of the Holding
Company, made by or held by any Tax-Qualified Employee Stock Benefit Plan or
Non-Tax Qualified Employee Stock Benefit Plan of the INSTITUTION or the Holding
Company (including the Employee Plans) which may be attributable to any Officer
or Director. As used herein, the term "negotiated transaction" means a
transaction in which the securities are offered and the terms and arrangements
relating to any sale are arrived at through direct communications between the
seller or any person acting on its behalf and the purchaser or his investment
representative. The term "investment representative" shall mean a professional
investment advisor acting as agent for the purchaser and independent of the
seller and not acting on behalf of the seller in connection with the
transaction.
15. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community, Public and Syndicated Public Offerings must be delivered in full to
the INSTITUTION, together with a properly completed and executed Order Form, or
Purchase Order in the case of the Public or Syndicated Public Offering, on or
prior to the expiration date specified on the Order Form or Purchase Order, as
the case may be, unless such date is extended by the INSTITUTION; provided,
however, that if the Employee Plans subscribes for shares during the
Subscription Offering, the Employee Plan will not be required to pay for the
shares at the time they subscribe but rather may pay for such shares of
Conversion Stock upon consummation of the Conversion. The INSTITUTION may make
scheduled discretionary contributions to an Employee Plan provided such
contributions do not cause the INSTITUTION to fail to meet its regulatory
capital requirement.
Notwithstanding the foregoing, the INSTITUTION and the Holding Company
shall have the right, in their sole discretion, to permit institutional
investors to submit contractually irrevocable orders in the Community Offering,
Public Offering or Syndicated Public Offering and to thereafter submit payment
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for the Conversion Stock for which they are subscribing in the Community
Offering, Public Offering or Syndicated Public Offering at any time prior to the
completion of the Conversion.
Payment for Conversion Stock subscribed for shall be made either in cash
(if delivered in person), check or money order. Alternatively, subscribers in
the Offerings may pay for the shares subscribed for by authorizing the
INSTITUTION on the Order Form or Purchase Order to make a withdrawal from the
subscriber's Savings Account at the INSTITUTION in an amount equal to the
purchase price of such shares. Such authorized withdrawal, whether from a
savings passbook or certificate account, shall be without penalty as to
premature withdrawal. If the authorized withdrawal is from a certificate
account, and the remaining balance does not meet the applicable minimum balance
requirement, the certificate shall be canceled at the time of withdrawal,
without penalty, and the remaining balance will earn interest at the passbook
rate. Funds for which a withdrawal is authorized will remain in the subscriber's
Savings Account but may not be used by the subscriber until the Conversion Stock
has been sold or the 45-day period (or such longer period as may be approved by
the OTS) following the Subscription Offering has expired, whichever occurs
first. Thereafter, the withdrawal will be given effect only to the extent
necessary to satisfy the subscription (to the extent it can be filled) at the
Purchase Price per share. Interest will continue to be earned on any amounts
authorized for withdrawal until such withdrawal is given effect. Interest will
be paid by the INSTITUTION at not less than the passbook annual rate on payments
for Conversion Stock received in cash or by money order or check. Such interest
will be paid from the date payment is received by the INSTITUTION until
consummation or termination of the conversion. If for any reason the Conversion
is not consummated, all payments made by subscribers in the Offerings will be
refunded to them with interest. In case of amounts authorized for withdrawal
from Savings Accounts, refunds will be made by canceling the authorization for
withdrawal.
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Prospectus prepared by the Holding Company
and INSTITUTION has been declared effective by the OTS and the SEC, Order Forms
will be distributed to the Participants at their last known addresses appearing
on the records of the INSTITUTION for the purpose of subscribing to shares of
Conversion Stock in the Subscription Offering and will be made available for use
in the Community Offering. Notwithstanding the foregoing, the INSTITUTION may
elect to send Order Forms only to those Persons who request them after such
notice as is approved by the OTS and is adequate to apprise the Participants of
the pendency of the Subscription Offering has been given. Such notice may be
included with the proxy statement for the Special Meeting of Members and may
also be included in a notice of the pendency of the conversion and the Special
Meeting of Members sent to all Eligible Account Holders in accordance with
regulations of the OTS.
Each Order Form or Purchase Order will be preceded or accompanied by the
Prospectus (if a holding company form of organization is utilized) or the
Offering Circular (if the holding company form of organization is not utilized)
describing the Holding Company (if utilized), the INSTITUTION, the Conversion
Stock and the Offerings. Each Order Form or Purchase Order will contain, among
other things, the following:
A. A specified date by which all Order Forms and Purchase Orders must be
received by the INSTITUTION, which date shall be not less than twenty (20), nor
more than forty-five (45) days, following the date on which the Order Forms are
mailed by the INSTITUTION, and which date will constitute the termination of the
Subscription Offering;
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B. The purchase price per share for shares of Conversion Stock to be sold
in the Offerings;
C. A description of the minimum and maximum number of shares of
Conversion Stock which may be subscribed for pursuant to the exercise of
Subscription Rights or otherwise purchased in the Community Offering, Public
Offering or Syndicated Public Offering;
D. Instructions as to how the recipient of the Order Form or Purchase
Order is to indicate thereon the number of shares of Conversion Stock for which
such person elects to subscribe and the available alternative methods of payment
therefor;
E. An acknowledgment that the recipient of the Order Form or Purchase
Order has received a final copy of the Prospectus or Offering Circular, as the
case may be, prior to execution of the Order Form or Purchase Order.
F. A statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering within the subscription period such properly
completed and executed Order Form, together with cash (if delivered in person),
check or money order in the full amount of the purchase price as specified in
the Order Form for the shares of Conversion Stock for which the recipient elects
to subscribe in the Subscription Offering (or by authorizing on the Order Form
that the INSTITUTION withdraw said amount from the subscriber's Savings Account
at the INSTITUTION) to the INSTITUTION; and
G. A statement to the effect that the executed Order Form or Purchase
Order, once received by the INSTITUTION, may not be modified or amended by the
subscriber without the consent of the INSTITUTION.
Notwithstanding the above, the INSTITUTION and the Holding Company reserve
the right in their sole discretion to accept or reject orders received on
photocopied or facsimiled order forms or whose payment is to be made by wire
transfer.
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
INSTITUTION by the United States Postal Service or the INSTITUTION is unable to
locate the addressee, (b) are not received back by the INSTITUTION or are
received by the INSTITUTION after the expiration date specified thereon, (c) are
defectively filled out or executed, (d) are not accompanied by the full required
payment, or, in the case of institutional investors in the Community Offering,
Public Offering or Syndicated Public Offering, by delivering irrevocable orders
together with a legally binding commitment to pay in cash, check, money order or
wire transfer the full amount of the purchase price prior to 48 hours before the
completion of the conversion for the shares of Conversion Stock subscribed for
(including cases in which savings accounts from which withdrawals are authorized
are insufficient to cover the amount of the required payment), or (e) are not
mailed pursuant to a "no mail" order placed in effect by the account holder, the
subscription rights of the person to whom such rights have been granted will
lapse as though such person failed to return the completed Order Form within the
time period specified thereon; provided, however, that the INSTITUTION may, but
will not be required to, waive any immaterial irregularity on any Order Form or
Purchase Order or require the submission of corrected Order Forms or Purchase
Orders or the remittance of full payment for subscribed shares by such date as
the INSTITUTION may
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specify. The interpretation of the INSTITUTION of terms and conditions of the
Plan and of the Order Forms or Purchase Orders will be final, subject to the
authority of the OTS.
18. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased by Directors or Officers of
the INSTITUTION or the Holding Company in the conversion shall be subject to the
restriction that, except as provided in Section 18B, below, or as may be
approved by the OTS, no interest in such shares may be sold or otherwise
disposed of for value for a period of one (1) year following the date of
purchase.
B. The restriction on disposition of shares of Conversion Stock set forth
in Section 18A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the INSTITUTION or the Holding Company, which has been
approved by the OTS; and
(ii) Any disposition of such shares following the death of the
person to whom such shares were initially sold under the terms of the Plan.
C. With respect to all shares of Conversion Stock subject to restrictions
on resale or subsequent disposition, each of the following provisions shall
apply;
(i) Each certificate representing shares restricted within the
meaning of Section 18A, above, shall bear a legend prominently stamped on its
face giving notice of the restriction;
(ii) Instructions shall be issued to the stock transfer agent for
the Holding Company not to recognize or effect any transfer of any certificate
or record of ownership of any such shares in violation of the restriction on
transfer; and
(iii) Any shares of capital stock of the Holding Company issued with
respect to a stock dividend, stock split, or otherwise with respect to ownership
of outstanding shares of Conversion Stock subject to the restriction on transfer
hereunder shall be subject to the same restriction as is applicable to such
Conversion Stock.
19. VOTING RIGHTS OF STOCKHOLDERS
Upon conversion, the holders of the capital stock of the INSTITUTION shall
have the exclusive voting rights with respect to the INSTITUTION as specified in
its charter. The holders of the common stock of the Holding Company shall have
the exclusive voting rights with respect to the Holding Company.
20. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The INSTITUTION shall establish at the time of conversion a liquidation
account in an amount equal to its net worth as of the latest practicable date
prior to conversion. The liquidation account will be maintained by the
INSTITUTION for the benefit of the Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain their Savings Accounts at the
INSTITUTION. Each Eligible Account Holder and Supplemental Eligible Account
Holder shall, with respect to his Savings
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Account, hold a related inchoate interest in a portion of the liquidation
account balance, in relation to his Savings Account balance at the Eligibility
Record Date and Supplemental Eligibility Record Date or to such balance as it
may be subsequently reduced, as hereinafter provided.
In the unlikely event of a complete liquidation of the INSTITUTION (and
only in such event), following all liquidation payments to creditors (including
those to Account Holders to the extent of their Savings Accounts) each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidating distribution from the liquidation account, in the amount
of the then adjusted subaccount balance for his Savings Account then held,
before any liquidation distribution may be made to any holders of the
INSTITUTION's capital stock. No merger, consolidation, purchase of bulk assets
with assumption of Savings Accounts and other liabilities, or similar
transactions with an FDIC institution, in which the INSTITUTION is not the
surviving institution, shall be deemed to be a complete liquidation for this
purpose. In such transactions, the liquidation account shall be assumed by the
surviving institution.
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction, the
numerator of which is the amount of such Eligible Account Holder's and
Supplemental Eligible Account Holder's Qualifying Deposit and the denominator of
which is the total amount of all Qualifying Deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders in the INSTITUTION. Such
initial subaccount balance shall not be increased, but shall be subject to
downward adjustment as described below.
If, at the close of business on any annual closing date, commencing on or
after the effective date of conversion, the deposit balance in the Savings
Account of an Eligible Account Holder or Supplemental Eligible Account Holder is
less than the lesser of (i) the balance in the Savings Account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, as applicable, or (ii) the amount
of the Qualifying Deposit in such Savings Account, the subaccount balance of
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
such downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any subsequent increase in the deposit balance of the
related Savings Account. If any such Savings Account is closed, the related
subaccount shall be reduced to zero.
The creation and maintenance of the liquidation account shall not operate
to restrict the use or application of any of the net worth accounts of the
INSTITUTION.
21. TRANSFER OF SAVINGS ACCOUNTS
Each person holding a Savings Account at the INSTITUTION at the time of
conversion shall retain an identical Savings Account at the INSTITUTION
following conversion in the same amount and subject to the same terms and
conditions (except as to voting and liquidation rights).
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22. RESTRICTIONS ON ACQUISITION OF THE INSTITUTION AND HOLDING COMPANY
A. In accordance with OTS regulations, for a period of three years from
the date of consummation of conversion, no Person, other than the Holding
Company, shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of any class of an equity security of the INSTITUTION
without the prior written consent of the OTS.
B.1. The charter of the INSTITUTION contains a provision stipulating that
no person, except the Holding Company, for a period of five years following the
date of conversion shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of an equity security of the
INSTITUTION, without the prior written approval of the OTS. In addition, such
charter may also provide that for a period of five years following the
conversion, shares beneficially owned in violation of the above-described
charter provision shall not be entitled to vote and shall not be voted by any
person or counted as voting stock in connection with any matter submitted to
stockholders for a vote. In addition, special meetings of the stockholders
relating to changes in control or amendment of the charter may only be called by
the Board of Directors, and shareholders shall not be permitted to cumulate
their votes for the election of directors.
B.2. The Certificate of Incorporation of the Holding Company will contain a
provision stipulating that in no event shall any record owner of any outstanding
shares of the Holding Company's common stock who beneficially owns in excess of
10% of such outstanding shares be entitled or permitted to any vote in respect
to any shares held in excess of 10%. In addition, the Certificate of
Incorporation and Bylaws of the Holding Company provide for staggered terms of
the directors, noncumulative voting for directors, limitations on the calling of
special meetings, a fair price provision for certain business combinations and
certain notice requirements.
C. For the purposes of this Section 22, B.1.:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, an 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;
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value;
(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise; and
(iv) The term "security" includes non-transferable subscription
rights issued pursuant to a plan of conversion as well as a "security" as
defined in 15 U.S.C. (S)78c(a)(10).
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23. PAYMENT OF DIVIDENDS AND REPURCHASES OF STOCK
The INSTITUTION shall not declare or pay a cash dividend on, or repurchase
any of, its capital stock if the effect thereof would cause its regulatory
capital to be reduced below (i) the amount required for the Liquidation Account
or (ii) the federal regulatory capital requirement in Section 567.2 of the Rules
and Regulations of the OTS. Otherwise, the INSTITUTION may declare dividends or
make capital distributions in accordance with applicable law and regulations.
24. AMENDMENT OF PLAN
If deemed necessary or desirable, the Plan may be substantively amended at
any time prior to solicitation of proxies from Members to vote on the Plan by a
two-thirds vote of the INSTITUTION's Board of Directors, and at any time
thereafter by such vote of such Board of Directors with the concurrence of the
OTS. Any amendment to the Plan made after approval by the Members with the
approval of the OTS shall not necessitate further approval by the Members unless
otherwise required by the OTS. The Plan may be terminated by majority vote of
the INSTITUTION's Board of Directors at any time prior to the Special Meeting of
Members to vote on the Plan, and at any time thereafter with the concurrence of
the OTS.
By adoption of the Plan, the Members of the INSTITUTION authorize the Board
of Directors to amend or terminate the Plan under the circumstances set forth in
this Section.
25. CHARTER AND BYLAWS
By voting to adopt the Plan, members of the INSTITUTION will be voting to
adopt a charter and bylaws to read in the form of charter and bylaws for a
federally chartered stock institution. The effective date of the INSTITUTION's
amended charter and bylaws shall be the date of issuance and sale of the
Conversion Stock as specified by the OTS.
26. CONSUMMATION OF CONVERSION
The conversion of the INSTITUTION shall be deemed to take place and be
effective upon the completion of all requisite organizational procedures for
obtaining the federal stock charter for the INSTITUTION and sale of all
Conversion Stock.
27. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
Holding Company will register the securities issued in connection with the
conversion pursuant to the Securities Exchange Act of 1934 and will not
deregister such securities for a period of at least three years thereafter,
except that the maintenance of registration for three years requirement may be
fulfilled by any successor to the Holding Company. In addition, the Holding
Company will use its best efforts to encourage and assist a market-maker to
establish and maintain a market for the Conversion Stock and to list those
securities on a national or regional securities exchange or the NASDAQ System.
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28. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The INSTITUTION will make reasonable efforts to comply with the securities
laws of all States in the United States in which Persons entitled to subscribe
for shares of Conversion Stock pursuant to the Plan reside. However, no such
Person will be issued subscription rights or be permitted to purchase shares of
Conversion Stock in the Subscription Offering if such Person resides in a
foreign country or in a state of the United States with respect to which any of
the following apply: (i) a small number of Persons otherwise eligible to
subscribe for shares under the Plan reside in such state; (ii) the issuance of
subscription rights or the offer or sale of shares of Conversion Stock to such
Persons would require the INSTITUTION or the Holding Company, as the case may
be, under the securities laws of such state, to register as a broker, dealer,
salesman or agent or to register or otherwise qualify its securities for sale in
such state; or (iii) such registration or qualification would be impracticable
for reasons of cost or otherwise.
29. EXPENSES OF CONVERSION
The INSTITUTION shall use its best efforts to assure that expenses incurred
by it in connection with the conversion shall be reasonable.
30. CONDITIONS TO CONVERSION
The conversion of the INSTITUTION pursuant to this Plan is expressly
conditioned upon the following:
(a) Prior receipt by the INSTITUTION of rulings of the United States
Internal Revenue Service and the State of West Virginia taxing authorities, or
opinions of counsel, substantially to the effect that the conversion will not
result in any adverse federal or state tax consequences to Eligible Account
Holders or the INSTITUTION and the Holding Company before or after the
conversion;
(b) The sale of all of the Conversion Stock offered in the conversion; and
(c) The completion of the conversion within the time period specified in
Section 3 of this Plan.
31. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the
INSTITUTION shall be final, subject to the authority of the OTS.
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<PAGE>
CERTIFICATE OF INCORPORATION
OF
ADVANCE FINANCIAL BANCORP
ARTICLE I
NAME
The name of the corporation is Advance Financial Bancorp (herein the
"Corporation").
ARTICLE II
REGISTERED OFFICE
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Corporation Trust Center, in the City of Wilmington,
County of New Castle. The name of the Corporation's registered agent at such
address is The Corporation Trust Company.
ARTICLE III
POWERS
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the Delaware General Corporation
Law.
ARTICLE IV
TERM
The Corporation is to have perpetual existence.
ARTICLE V
INCORPORATOR
The name and mailing address of the incorporator is as follows:
Name Mailing Address
---- ---------------
Stephen Gagliardi 1015 Commerce Street
Wellsburg, West Virginia 26070
ARTICLE VI
CAPITAL STOCK
The aggregate number of shares of all classes of capital stock which the
Corporation has authority to issue is 2,500,000 of which 2,000,000 are to be
shares of common stock, $0.10 par value per share, and of which 500,000 are to
be shares of serial preferred stock, $0.10 par value per share. The shares may
be issued by the Corporation without the approval of stockholders except as
otherwise provided in this Article VI or the rules of a national securities
exchange, if applicable. The consideration for the issuance of the shares shall
be paid to or received by the Corporation in full before their issuance and
<PAGE>
shall not be less than the par value per share. The consideration for the
issuance of the shares shall be cash, services rendered, personal property
(tangible or intangible), real property, leases of real property or any
combination of the foregoing. In the absence of actual fraud in the
transaction, the judgment of the board of directors as to the value of such
consideration 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, the part of the surplus of the Corporation which is transferred
to stated capital upon the issuance of shares as a stock dividend shall be
deemed to be the consideration for their issuance.
A description of the different classes and series (if any) of the
Corporation's capital stock, and a statement of the relative powers,
designations, preferences and rights of the shares of each class and series (if
any) of capital stock, and the qualifications, limitations or restrictions
thereof, are as follows:
A. Common Stock. Except as provided in this Certificate, the holders of
-------------
the 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
holders.
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 sinking fund or 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, but only when as declared
by the board of directors of the Corporation.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class having preference
over the common stock in any event, the full preferential amounts to which they
are respectively entitled, the holders of the common stock and of any class or
series of stock entitled to participate therewith, in whole or in part, as to
distribution of assets shall be entitled, after payment or provision for payment
of all debts and liabilities of the Corporation, to receive the remaining assets
of the Corporation available for distribution, in cash or in kind.
Each share of common stock shall have the same relative powers, preferences
and rights as, and shall be identical in all respects with, all the other shares
of common stock of the Corporation.
B. Serial Preferred Stock. Except as provided in this Certificate, the
-----------------------
board of directors of the Corporation is authorized, by resolution or
resolutions from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the powers, designations,
preferences, and relative, participating, optional, or other special rights of
the shares of such series, and the qualifications, limitations, or restrictions
thereof, including, but not limited to determination of any of the following:
1. the distinctive serial designation and the number of shares
constituting such series; and
2. the dividend rates 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 or dates, the payment date or dates for dividends, and the
participating or other special rights, if any, with respect to dividends;
and
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<PAGE>
3. the voting powers, full or limited, if any, of the shares of such
series; and
4. whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions upon which such
shares may be redeemed; and
5. the amount or amounts payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution, or winding up
of the Corporation; and
6. whether the shares of such series shall be entitled to the benefits
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 or prices at which such shares may
be redeemed or purchased through the application of such funds; and
7. whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or any other series
of the same or any other class or classes of stock of the Corporation and,
if so convertible or exchangeable, the conversion price or prices, or the
rate or rates 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; and
8. the subscription or purchase price and form of consideration for
which the shares of such series shall be issued; and
9. 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 powers, preferences and rights as, and shall be identical in all
respects with, all the other shares of the Corporation of the same series.
ARTICLE VII
PREEMPTIVE RIGHTS
No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series, or any
unissued bonds, certificates of indebtedness, debentures, or other securities
convertible into or exchangeable for stock of any class or series or carrying
any right to purchase stock of any class or series; but any such unissued stock,
bonds, certificates of indebtedness, debentures, or other securities convertible
into or exchangeable for stock or carrying any right to purchase stock may be
issued pursuant to resolution of the board of directors of the Corporation to
such persons, firms, corporations, or associations, whether or not holders
thereof, and upon such terms as may be deemed advisable by the board of
directors in the exercise of its sole discretion.
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<PAGE>
ARTICLE VIII
REPURCHASE OF SHARES
The Corporation may from time to time, pursuant to authorization by the
board of directors of the Corporation and without action by the stockholders,
purchase or otherwise acquire shares of any class, bonds, debentures, notes,
scrip, warrants, obligations, evidences of indebtedness, or other securities of
the Corporation in such manner, upon such terms, and in such amounts as the
board of directors shall determine; subject, however, to such limitations or
restrictions, if any, as are contained in the express terms of any class of
shares of the Corporation outstanding at the time of the purchase or acquisition
in question or as are imposed by law or regulation.
ARTICLE IX
MEETINGS OF STOCKHOLDERS; CUMULATIVE VOTING; PROXIES
A. Notwithstanding any other provision of this Certificate or the Bylaws of
the Corporation, no action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
B. Special meetings of the stockholders of the Corporation for any purpose
or purposes may be called at any time by a majority of the board of directors of
the Corporation, or by a committee of the board of directors which has been duly
designated by the board of directors and whose powers and authorities, as
provided in a resolution of the board of directors or in the Bylaws of the
Corporation, include the power and authority to call such meetings, but such
special meetings may not be called by any other person or persons.
C. Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by proxy, but no such proxy
shall be voted or acted upon after 11 months from its date, unless the proxy
provides for a longer period. Without limiting the manner in which a
stockholder may authorize another person or persons to act for him as proxy, the
following shall constitute a valid means by which a stockholder may grant such
authority.
1. A stockholder may execute a writing authorizing another person or
persons to act for him as proxy. Execution may be accomplished by the
stockholder or his authorized officer, director, employee or agent signing
such writing or causing his or her signature to be affixed to such writing
by any reasonable means including, but not limited to, facsimile signature.
2. A stockholder may authorize another person or persons to act for
him as proxy by transmitting or authorizing the transmission of a facsimile
telecommunication, telegram, cablegram, or other means of electronic
transmission to the person who will be the holder of the proxy or to a
proxy solicitation firm, proxy support service organization or like agent
duly authorized by the person who will be the holder of the proxy to
receive such transmission, provided that any such facsimile
telecommunication, telegram, cablegram or other means of electronic
transmission, must either set forth or be submitted with information from
which it can be determined that the facsimile telecommunication, telegram,
cablegram, or other electronic transmission was authorized by the
stockholder. If it is determined that such facsimile telecommunications,
telegrams, cablegrams, or other electronic transmission are valid, the
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<PAGE>
inspectors or, if there are no inspectors, such other persons making that
determination shall specify the information upon which they relied.
3. Any copy, facsimile telecommunication, or other reliable
reproduction of the writing or transmission created pursuant to this
section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile
telecommunication, or other reproduction shall be a complete reproduction
of the entire original writing or transmission.
D. There shall be no cumulative voting by stockholders of any class or
series in the election of directors of the Corporation.
E. Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws of the Corporation may provide.
ARTICLE X
NOTICE FOR NOMINATIONS AND PROPOSALS
Advance notice of stockholder nominations for the election of directors and
of business to be brought by stockholders before any meeting of the stockholders
of the Corporation shall be given in the manner provided in the Bylaws of the
Corporation.
ARTICLE XI
DIRECTORS
A. Number; Vacancies. The number of directors of the Corporation shall be
------------------
such number, not less than three nor more than 15 (exclusive of directors, if
any, to be elected by holders of preferred stock of the Corporation, voting
separately as a class), as shall be provided from time to time in or in
accordance with the Bylaws of the Corporation, provided that no decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director, and provided further that no action shall be taken to
decrease or increase the number of directors from time to time unless at least
two-thirds of the directors then in office shall concur in said action.
Vacancies in the board of directors of the Corporation, however caused, and
newly created directorships shall be filled by a vote of two-thirds of the
directors then in office, whether or not a quorum, 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 and
when the director's successor is elected and qualified.
B. Classified Board. The board of directors of the Corporation shall be
-----------------
divided into three classes of directors which shall be designated Class I, Class
II, and Class III. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. Such classes
shall be as nearly equal in number as the then total number of directors
constituting the entire board of directors shall permit, with the terms of
office of all members of one class expiring each year. At the first annual
meeting of stockholders, directors in Class I shall be elected to hold office
for a term expiring at the third succeeding annual meeting thereafter. At the
second annual meeting of stockholders, directors of Class II shall be elected to
hold office for a term expiring at the third succeeding meeting thereafter. At
the third annual meeting of stockholders, directors of Class III shall be
elected to hold office for a term expiring at the third succeeding annual
meeting thereafter. Thereafter, at each succeeding annual
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<PAGE>
meeting, a director whose term shall expire at any annual meeting shall continue
to serve until such time as his successor shall have been duly elected and shall
have qualified unless his position on the board of directors shall have been
abolished by action taken to reduce the size of the board of directors prior to
said meeting.
Should the number of directors of the Corporation be reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as specified in the immediately
preceding paragraph. The board of directors shall designate, by the name of the
incumbent(s), the position(s) to be abolished. Notwithstanding the foregoing,
no decrease in the number of directors shall have the effect of shortening the
term of any incumbent director. Should the number of directors of the
Corporation be increased, the additional directorships shall be allocated among
classes as appropriate so that the number of directors in each class is as
specified in the immediately preceding paragraph.
C. Initial Board of Directors. The initial board of directors shall
---------------------------
consist of the following individuals divided into the following classes pursuant
to Subsection B. of this Article XI.
<TABLE>
<CAPTION>
Class I Class II Class III
- ------- -------- ---------
<S> <C> <C>
Stephen M. Gagliardi George H. Johnson John R. Sperlazza
James R. Murphy William E. Watson Noreen Mechling
Gary Young
</TABLE>
D. Voting as a Class in the Election of Directors. Whenever the holders of
-----------------------------------------------
any one or more series of preferred stock of the Corporation shall have the
right, voting separately as a class, to elect one or more directors of the
Corporation, the board of directors shall consist of said directors so elected
in addition to the number of directors fixed as provided above in this Article
XI. Notwithstanding the foregoing, and except as otherwise may be required by
law, whenever the holders of any one or more series of preferred stock of the
Corporation shall have the right, voting separately as a class, to elect one or
more directors of the Corporation, the terms of the director or directors
elected by such holders shall expire at the next succeeding annual meeting of
stockholders.
ARTICLE XII
REMOVAL OF DIRECTORS
Notwithstanding any other provision of this Certificate or the Bylaws of
the Corporation, no member of the board of directors of the Corporation may be
removed except for cause, and then only by the affirmative vote of at least 80%
of the outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the stockholders called for that purpose.
Notwithstanding the foregoing, whenever the holders of any one or more series of
preferred stock of the Corporation shall have the right, voting separately as a
class, to elect one or more directors of the Corporation, the preceding
provisions of this Article XII shall not apply with respect to the director or
directors elected by such holders of preferred stock.
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<PAGE>
ARTICLE XIII
CERTAIN LIMITATIONS ON VOTING RIGHTS
A. Notwithstanding any other provision of this Certificate, in no event
shall any record owner of any outstanding Common Stock which is beneficially
owned, directly or indirectly, by a person who, as of any record date for the
determination of stockholders entitled to vote on any matter, beneficially owns
in excess of 10% of the then-outstanding shares of Common Stock (the "Limit"),
be entitled, or permitted to any vote in respect of the shares held in excess of
the Limit. The number of votes which may be cast by any record owner by virtue
of the provisions hereof in respect of Common Stock beneficially owned by such
person owning shares in excess of the Limit shall be a number equal to the total
number of votes which a single record owner of all Common Stock owned by such
person would be entitled to cast, multiplied by a fraction, the numerator of
which is the number of shares of such class or series which are both
beneficially owned by such person and owned of record by such record owner and
the denominator of which is the total number of shares of Common Stock
beneficially owned by such Person owning shares in excess of the Limit.
Further, for a period of five years from the completion of the conversion
of Advance Financial Savings Bank, F.S.B. from mutual to stock form, no Person
shall directly or indirectly Offer to acquire or acquire the beneficial
ownership of more than 10% of any class of any equity security of the
Corporation.
B. The following definitions shall apply to this Article XIII.
1. "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of
1934, as in effect on the date of filing of this Certificate.
2. "Beneficial Ownership" (including "Beneficially Owned") shall be
determined pursuant to Rule 13d-3 of the General Rules and Regulations
under the Securities Exchange Act of 1934 (or any successor rule or
statutory provision), or, if said Rule 13d-3 shall be rescinded and there
shall be no successor rule or provision thereto, pursuant to said Rule 13d-
3 as in effect on the date of filing of this Certificate; provided,
however, that a Person shall, in any event, also be deemed the "beneficial
owner" of any Common Stock:
(a) which such Person or any of its Affiliates owns, directly or
indirectly; or
(b) which such Person or any of its Affiliates has (i) the right
to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or
understanding (but shall not be deemed to be the Beneficial Owner of
any voting shares solely by reason of an agreement, contract, or other
arrangement with this Corporation to effect any transaction which is
described in any one or more of Sections 1 through 5 of Section A of
Article XIV) or upon the exercise of conversion rights, exchange
rights, warrants, or options or otherwise, or (ii) sole or shared
voting or investment power with respect thereto pursuant to any
agreement, arrangement, understanding, relationship or otherwise (but
shall not be deemed to be the Beneficial Owner of any voting shares
solely by reason of a revocable proxy granted for a particular meeting
of stockholders, pursuant to a public solicitation
7
<PAGE>
of proxies for such meeting, with respect to shares of which neither
such Person nor any such Affiliate is otherwise deemed the Beneficial
Owner); or
(c) which are owned directly or indirectly, by any other Person
with which such first mentioned Person or any of its Affiliates acts
as a partnership, limited partnership, syndicate or other group
pursuant to any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
capital stock of this Corporation;
and provided further, however, that (1) no director or officer of this
Corporation (or any Affiliate of any such director or officer) shall, solely by
reason of any or all of such directors or officers acting in their capacities as
such, be deemed, for any purposes hereof, to Beneficially Own any Common Stock
Beneficially Owned by any other such director or officer (or any Affiliate
thereof), and (2) neither any employee stock ownership or similar plan of this
Corporation or any subsidiary of this Corporation, nor any trustee with respect
thereto or any Affiliate of such trustee (solely by reason of such capacity of
such trustee), shall be deemed, for any purposes hereof, to Beneficially Own any
Common Stock held under any such plan. For purposes of computing the percentage
Beneficial Ownership of Common Stock of a Person, the outstanding Common Stock
shall include shares deemed owned by such Person through application of this
subsection but shall not include any other Common Stock which may be issuable by
this Corporation pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise. For all other purposes, the
outstanding Common Stock shall include only Common Stock then outstanding and
shall not include any Common Stock which may be issuable by this Corporation
pursuant to any agreement, or upon the exercise of conversion rights, warrants
or options, or otherwise.
3. The term "Offer" shall mean every written offer to buy or
acquire, solicitation of an offer to sell, tender offer or request or invitation
for tender of, a security or interest in a security for value; provided that the
term "Offer" shall not include (i) inquiries directed solely to the management
of the Corporation and not intended to be communicated to stockholders which are
designed to elicit an indication of management's receptivity to the basic
structure of a potential acquisition with respect to the amount of cash and or
securities, manner of acquisition and formula for determining price, or (ii)
binding expressions of understanding or letters of intent with the management of
the Corporation regarding the basic structure of a potential acquisition with
respect to the amount of cash and/or securities, manner of acquisition and
formula for determining price.
4. A "Person" shall mean any individual, firm, corporation, or other
entity.
C. The board of directors shall have the power to construe and apply the
provisions of this Article XIII and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to (i) the number of shares of Common Stock Beneficially Owned by
any Person, (ii) whether a Person is an Affiliate of another, (iii) whether a
Person has an agreement, arrangement, or understanding with another as to the
matters referred to in the definition of Beneficial Ownership, (iv) the
application of any other definition or operative provision of the section to the
given facts, or (v) any other matter relating to the applicability or effect of
this Article XIII.
D. The board of directors shall have the right to demand that any Person
who is reasonably believed to Beneficially Own Common Stock in excess of the
Limit (or holders of record of Common Stock Beneficially Owned by any Person in
excess of the Limit) supply the Corporation with complete
8
<PAGE>
information as to (i) the record owner(s) of all shares Beneficially Owned by
such Person who is reasonably believed to own shares in excess of the Limit and
(ii) any other factual matter relating to the applicability or effect of this
Article XIII as may reasonably be requested of such Person.
E. Except as otherwise provided by law or expressly provided in this
Article XIII, the presence in person or by proxy of the holders of record of
shares of capital stock of the Corporation entitling the holders thereof to cast
a majority of the votes (after giving effect, if required, to the provisions of
this Article XIII) entitled to be cast by the holders of shares of capital stock
of the Corporation entitled to vote shall constitute a quorum at all meetings of
the stockholders, and every reference in this Certificate of Incorporation to a
majority or other proportion of capital stock (or the holders thereof) for
purposes of determining any quorum requirement or any requirement for
stockholder consent or approval shall be deemed to refer to such majority or
other proportion of the votes (or the holders thereof) then entitled to be cast
in respect of such capital stock.
F. The provisions of this Article XIII shall not be applicable to any tax-
qualified defined benefit plan or defined contribution plan of the Corporation
or its subsidiaries or to the acquisition of more than 10% of any class of
equity security of the Corporation if such acquisition has been approved by a
majority of the Continuing Directors, as defined in Article XIV of this
Certificate; provided, however, that such approval shall only be effective if
such Continuing Directors shall have the power to construe and apply the
provisions of this Article XIII and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to (a) the number of shares Beneficially Owned by any Person, (b)
whether a Person has an agreement, arrangement, or understanding with another as
to the matters referred to in the definition of Beneficial Ownership, (c) the
application of any other material fact relating to the applicability or effect
of this Article XIII. Any constructions, applications, or determinations made
by the Continuing Directors pursuant to this Article XIII in good faith and on
the basis of such information and assistance as was then reasonably available
for such purpose shall be conclusive and binding upon the Corporation and its
stockholders.
G. In the event any provision (or portion thereof) of this Article XIII
shall be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this Article XIII shall remain in
full force and effect, and shall be construed as if such invalid, prohibited or
unenforceable provision had been stricken herefrom or otherwise rendered
inapplicable, it being the intent of this Corporation and its stockholders that
each such remaining provision (or portion thereof) of this Article XIII remain,
to the fullest extent permitted by law, applicable and enforceable as to all
stockholders, including stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
ARTICLE XIV
APPROVAL OF BUSINESS COMBINATIONS
A. General Requirement. The affirmative vote of the holders of not less than
-------------------
eighty percent (80%) of the outstanding shares of "Voting Stock" (as hereinafter
defined) shall be required for the approval or authorization of any "Business
Combination," as defined and set forth below:
1. Any merger, reorganization, or consolidation of the Corporation
or any of its "Affiliates" (as defined in Subsection B of Article XIII of
this Certificate) with or into any Principal Shareholder (as hereinafter
defined);
9
<PAGE>
2. Any sale, lease, exchange, mortgage, pledge, transfer, or other
disposition (in one transaction or in a series of related transactions) of
all or a "Substantial Part" (as hereinafter defined) of the assets of the
Corporation or any of its Affiliates to any Principal Shareholder;
3. Any sale, lease, exchange, or other transfer (in one transaction
or in a series of related transactions) by any Principal Shareholder to the
Corporation or any of the Corporation's Affiliates of any assets, cash, or
securities in exchange for shares of Voting Stock (or of shares of stock of
any of the Corporation's Affiliates entitled to vote in the election of
directors of such Affiliate or securities convertible into or exchangeable
for shares of Voting Stock or such stock of an Affiliate, or options,
warrants, or rights to purchase shares of Voting Stock or such stock of an
Affiliate);
4. The adoption at any time when there exists any Principal
Shareholder of any plan or proposal for the liquidation or dissolution of
the Corporation; and
5. Any reclassification of securities (including any reverse stock
split), recapitalization, or other transaction at any time when there
exists any Principal Shareholder if such reclassification,
recapitalization, or other transaction would result in a decrease in the
number of holders of the outstanding shares of Voting Stock.
The affirmative vote required by this Article XIV shall be in addition to
the vote of the holders of any class or series of stock of the Corporation
otherwise required by law, by any other Article of this Certificate, as amended,
by any resolution of the board of directors providing for the issuance of a
class or series of stock, or by any agreement between the Corporation and any
national securities exchange.
B. Certain Definitions. For the purposes of this Article XIV:
-------------------
1. The term "Principal Shareholder" shall mean and include any
individual, corporation, partnership, or other person or entity which,
together with its "Affiliates" and "Associates" (as defined at Rule 12b-2
under the Securities Exchange Act of 1934), "beneficially owns" (as
hereinafter defined) in the aggregate ten percent (10%) or more of the
outstanding shares of Voting Stock, and any Affiliate or Associate of any
such individual, corporation, partnership, or other person or entity.
2. The term "Substantial Part" shall mean more than twenty-five
percent (25%) of the fair market value of the total assets of the
Corporation, as of the end of its most recent fiscal quarter ending prior
to the time the determination is being made.
3. The term "Voting Stock" shall mean the stock of the Corporation
entitled to vote in the election of directors.
4. Any corporation, partnership, person, or entity will be deemed to
be a "Beneficial Owner" of or to own beneficially any share or shares of
stock of the Corporation: (a) which it owns directly, whether or not of
record; or (b) which it has the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to any
agreement or arrangement or understanding or upon exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or which it has
the right to vote pursuant to any agreement, arrangement, or understanding;
or (c) which are owned directly or indirectly (including shares
10
<PAGE>
deemed to be owned through application of clause (b) above) by any
Affiliate or Associate; or (d) which are owned directly or indirectly
(including shares deemed to be owned through application of clause (b)
above) by any other corporation, person, or entity with which it or any of
its Affiliates or Associates have any agreement or arrangement or
understanding for the purpose of acquiring, holding, voting, or disposing
of Voting Stock.
For the purpose only of determining the percentage of the outstanding
shares of Voting Stock which any corporation, partnership, person, or other
entity beneficially owns, directly or indirectly, the outstanding shares of
Voting Stock will be deemed to include any shares of Voting Stock which
such corporation, partnership, person or other entity beneficially owns
pursuant to the foregoing provisions of this subsection (whether or not
such shares of Voting Stock are in fact issued or outstanding), but shall
not include any other shares of Voting Stock which may be issuable either
immediately or at some future date pursuant to any agreement, arrangement,
or understanding or upon exercise of conversion rights, exchange rights,
warrants, options, or otherwise.
C. Exceptions. The provisions of this Article XIV shall not apply to a
----------
Business Combination that is approved by two-thirds of those members of the
board of directors who were directors prior to the time when the Principal
Shareholder became a Principal Shareholder (the "Continuing Directors"). The
provisions of this Article XIV also shall not apply to a Business Combination
which (a) does not change any shareholder's percentage ownership in the shares
of stock entitled to vote in the election of directors of any successor of the
Corporation from the percentage of the shares of Voting Stock owned by such
shareholder; (b) provides for the provisions of this Article XIV, without any
amendment, change, alteration, or deletion, to apply to any successor to the
Corporation; and (c) does not transfer all or a Substantial Part of the
Corporation's assets other than to a wholly-owned subsidiary of the Corporation.
D. Additional Provisions. Nothing contained in this Article XIV, shall be
---------------------
construed to relieve a Principal Shareholder from any fiduciary obligation
imposed by law. In addition, nothing contained in this Article XIV shall prevent
any shareholders of the Corporation from objecting to any Business Combination
and from demanding any appraisal rights which may be available to such Principal
Shareholder.
E. Notwithstanding Article XX or any provisions of this Certificate or the
Bylaws of the Corporation (and notwithstanding the fact that a lesser percentage
may be specified by law, this Certificate or the Bylaws of the Corporation), the
affirmative vote of the holders of at least 80% of the outstanding shares
entitled to vote thereon (and, if any class or series is entitled to vote
thereon separately, the affirmative vote of the holders of at least 80% of the
outstanding shares of each such class or series) shall be required to amend or
repeal this Article XIV or adopt any provisions inconsistent with this Article
XIV.
ARTICLE XV
FAIR PRICE REQUIREMENTS
A. General Requirement. No "Business Combination" (as defined in Article
-------------------
XIV) shall be effected unless all of the following conditions, to the extent
applicable, are fulfilled.
11
<PAGE>
1. The ratio of (a) the aggregate amount of the cash and the fair
market value of the other consideration to be received per share by the
holders of the common stock of the Corporation in the Business Combination
to (b) the "Market Price" (as hereinafter defined) of the common stock of
the Corporation immediately prior to the announcement of the Business
Combination or the solicitation of the holders of the common stock of the
Corporation regarding the Business Combination, whichever is first, shall
be at least as great as the ratio of (x) the highest price per share
previously paid by the "Principal Shareholder" (as hereinafter defined)
(whether before or after it became a Principal Shareholder) for any of the
shares of common stock of the Corporation at any time Beneficially Owned,
directly, or indirectly, by the Principal Shareholder to (y) the Market
Price of the common stock of the Corporation on the trading date
immediately prior to the earliest date on which the Principal Shareholder
(whether before or after it became a Principal Shareholder) purchased any
shares of common stock of the Corporation during the two year period prior
to the date on which the Principal Shareholder acquired the shares of
common stock of the Corporation at any time owned by it for which it paid
the highest price per share (or, if the Principal Shareholder did not
purchase any shares of common stock of the Corporation during the two year
period, the Market Price of the common stock of the Corporation on the date
of two years prior to the date on which the Principal Shareholder acquired
the shares of common stock of the Corporation at any time owned by it for
which it paid the highest price per share).
2. The aggregate amount of the cash and the fair market value of the
other consideration to be received per share by the holders of the common
stock of the Corporation in the Business Combination shall be not less than
the highest price per share previously paid by the Principal Shareholder
(whether before or after it became a Principal Shareholder) for any of the
shares of common stock of the Corporation at any time Beneficially Owned,
directly or indirectly, by the Principal Shareholder.
3. The consideration to be received by the holders of the common
stock of the Corporation in the Business Combination shall be in the same
form and of the same kind as the consideration paid by the Principal
Shareholder in acquiring the majority of the shares of common stock of the
Corporation already Beneficially Owned, directly or indirectly, by the
Principal Shareholder.
The conditions imposed by this Article XV shall be in addition to all other
conditions (including, without limitation, the vote of the holders of any class
or series of stock of the Corporation) otherwise imposed by law, by any other
Article of this Certificate, by any resolution of the board of directors
providing for the issuance of a class or series of stock, or by any agreement
between the Corporation and any national securities exchange.
B. Certain Definitions. For the purpose of this Article XV, the
-------------------
definitions of "Business Combination," "Principal Shareholder," "Substantial
Part," "Voting Stock," and "Beneficial Owner" set forth in Article XIV will
apply to this Article XV.
The "Market Price" of the common stock of the Corporation shall be the mean
between the high "bid" and the low "asked" prices of the common stock in the
over-the-counter market on the day on which such value is to be determined or,
if no shares were traded on such date, on the next preceding day on which such
shares were traded, as reported by the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") or other national quotation
service. If the common stock of the
12
<PAGE>
Corporation is not regularly traded in the over-the-counter market but is
registered on a national securities exchange or traded in the national over-the-
counter market, the market value of the common stock shall mean the closing
price of the common stock on such national securities exchange or market on the
day on which such value is to be determined or, if no shares were traded on such
day, on the next preceding day on which shares were traded, as reported by
National Quotation Bureau, Incorporated or other national quotation service. If
no such quotations are available, the fair market value of the date in question
of a share of such stock as determined by the board of directors in good faith;
and in the case of property other than cash or stock, the fair market value of
such property other than cash or stock, the fair market value of such property
on the date in question as determined by the board of directors in good faith.
C. Exceptions. The provisions of this Article XV shall not apply to a
----------
Business Combination which was approved by two-thirds of those members of the
board of directors of the Corporation who were directors prior to the time when
the Principal Shareholder became a Principal Shareholder. The provisions of
which this Article XV also shall not apply to a Business Combination which (a)
does not change any shareholder's percentage ownership in the shares of stock
entitled to vote in the election of directors of any successor of the
Corporation from the percentage of the shares of Voting Stock Beneficially Owned
by such shareholder; (b) provides for the provisions of this Article XV, without
any amendment, change alteration, or deletion, to apply to any successor to the
Corporation; and (c) does not transfer all or a Substantial Part of the
Corporation's assets other than to a wholly-owned subsidiary of the Corporation;
provided, however, that nothing contained in this Article XV shall permit the
Corporation to issue any of its shares of Voting Stock or to transfer any of its
assets to a wholly-owned subsidiary of the Corporation if such issuance of
shares of Voting Stock or transfer of assets is part of a plan to transfer such
shares of Voting Stock or assets to a Principal Shareholder.
D. Additional Provisions. Nothing contained in this Article XV shall be
---------------------
construed to relieve a Principal Shareholder from any fiduciary obligation
imposed by law. In addition, nothing contained in this Article XV shall prevent
any shareholders of the Corporation from objecting to any Business Combination
and from demanding any appraisal rights which may be available to such
shareholders.
E. Notwithstanding Article XX or any other provisions of this Certificate
or the Bylaws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate or the Bylaws of the
Corporation), the affirmative vote of the holders of at least 80% of the
outstanding shares entitled to vote thereon (and, if any class or series is
entitled to vote thereon separately, the affirmative vote of the holders of at
least 80% of the outstanding shares of each such class or series) shall be
required to amend or repeal or adopt any provisions inconsistent with this
Article XV.
ARTICLE XVI
EVALUATION OF OFFERS
The board of directors of the Corporation, when evaluating any offer to (A)
make a tender or exchange offer for any equity security of the Corporation, (B)
merge or consolidate the Corporation with another corporation or entity, or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, the social and economic effect of acceptance of such offer: on the
Corporation's present and future customers and employees and those of its
subsidiaries; on the communities in which the Corporation and its subsidiaries
operate or are located; on the ability of the
13
<PAGE>
Corporation to fulfill its corporate objectives as a financial institution
holding company; and on the ability of its subsidiary financial institution(s)
to fulfill the objectives of a federally insured financial institution under
applicable statutes and regulations.
ARTICLE XVII
ELIMINATION OF DIRECTORS' LIABILITY
Directors of the Corporation shall have no liability to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this Article XVIII shall not eliminate liability of a
director (i) for any breach of the director's duty of loyalty to the Corporation
or its stockholders, (ii) for acts or omissions not made in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which a director derived an improper personal benefit. If the Delaware
General Corporation Law is amended after the effective date of this Certificate
to further eliminate or limit the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
ARTICLE XVIII
INDEMNIFICATION
A. Persons. The Corporation shall indemnify, to the extent provided in
--------
Subsection B, D, or F of this Article XVIII:
1. any person who is or was a director, officer, or employee of the
Corporation; and
2. any person who serves or served at the Corporation's request as a
director, officer, employee, partner, or trustee of another corporation,
partnership, joint venture, trust, or other enterprise.
B. Extent -- Derivative Suits. In case of a threatened, pending or
---------------------------
completed action or suit by or in the right of the Corporation against a person
named in Subsection A of this Article XVIII by reason of the person holding a
position named in Subsection A of this Article XVIII, the Corporation shall
indemnify the person if the person satisfies the standard in Subsection C of
this Article XVIII, for expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of the action or suit.
C. Standard -- Derivative Suits. In case of a threatened, pending, or
-----------------------------
completed action or suit by or in the right of the Corporation, a person named
in Subsection A of this Article XVIII shall be indemnified only if:
1. the person is successful on the merits or otherwise; or
2. the person acted in good faith in the transaction which is the
subject of the suit or action, and in a manner the person reasonably
believed to be in, or not opposed to, the best
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<PAGE>
interest of the Corporation, including, but not limited to, the taking of
any and all actions in connection with the Corporation's response to any
tender offer or any offer or proposal of another party to engage in a
Business Combination (as defined in Article XIV of this Certificate) not
approved by the board of directors. However, the person shall not be
indemnified in respect of any claim, issue, or matter as to which the
person has been adjudged liable to the Corporation unless (and only to the
extent that) the Court of Chancery or the court in which the suit was
brought shall determine, upon application, that despite the adjudication
but in view of all the circumstances, the person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper.
D. Extent -- Nonderivative Suits. In case of a threatened, pending, or
------------------------------
completed suit, action, or proceeding (whether civil, criminal, administrative,
or investigative), other than a suit by or in the right of the Corporation,
together hereafter referred to as a nonderivative suit, against a person named
in Subsection A of this Article XVIII by reason of the person holding a position
named in Subsection A of this Article XVIII, the Corporation shall indemnify the
person if the person satisfies the standard in Subsection E of this Article
XVIII, for amounts actually and reasonably incurred by the person in connection
with the defense or settlement of the nonderivative suit, including, but not
limited to (i) expenses (including attorneys' fees), (ii) amounts paid in
settlement, (iii) judgments, and (iv) fines.
E. Standard -- Nonderivative Suits. In case of a nonderivative suit, a
--------------------------------
person named in Subsection A of this Article XVIII shall be indemnified only if:
1. the person is successful on the merits or otherwise; or
2. the person acted in good faith in the transaction which is the
subject of the nonderivative suit and in a manner the person reasonably
believed to be in, or not opposed to, the best interests of the
Corporation, including, but not limited to, the taking of any and all
actions in connection with the Corporation's response to any tender offer
or any offer or proposal of another party to engage in a Business
Combination (as defined in Article XIV of this Certificate) not approved by
the board of directors and, with respect to any criminal action or
proceeding, the person had no reasonable cause to believe the person's
conduct was unlawful. The termination of a nonderivative suit by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent shall not, in itself, create a presumption that the person
failed to satisfy the standard of this Subsection E.2.
F. Determination That Standard Has Been Met. A determination that the
-----------------------------------------
standard of Subsection C or E of this Article XVIII has been satisfied may be
made by a court, or, except as stated in Subsection C.2 of this Article XVIII
(second sentence), the determination may be made by:
1. the board of directors by a majority vote of directors of the
Corporation who were not parties to the action, suit, or proceeding, even
though less than a quorum; or
2. independent legal counsel (appointed by a majority of the
disinterested directors of the Corporation, whether or not a quorum) in a
written opinion; or
3. the stockholders of the Corporation.
15
<PAGE>
G. Proration. Anyone making a determination under Subsection F of this
---------
Article XVIII may determine that a person has met the standard as to some
matters but not as to others, and may reasonably prorate amounts to be
indemnified.
H. Advance Payment. The Corporation may pay in advance any expenses
----------------
(including attorneys' fees) which may become subject to indemnification under
Subsections A through G of this Article XVIII if the person receiving the
payment undertakes in writing to repay the same if it is ultimately determined
that the person is not entitled to indemnification by the Corporation under
Subsections A through G of this Article XVIII.
I. Nonexclusive. The indemnification and advancement of expenses provided
-------------
by Subsections A through H of this Article XVIII or otherwise granted pursuant
to Delaware law shall not be exclusive of any other rights to which a person may
be entitled by law, bylaw, agreement, vote of stockholders, or disinterested
directors, or otherwise.
J. Continuation. The indemnification and advance payment provided by
-------------
Subsections A through H of this Article XVIII shall continue as to a person who
has ceased to hold a position named in Subsection A of this Article XVIII and
shall inure to the person's heirs, executors, and administrators.
K. Insurance. The Corporation may purchase and maintain insurance on
----------
behalf of any person who holds or who has held any position named in Subsection
A of this Article XVIII, against any liability asserted against the person and
incurred by the person in any such position, or arising out of the person's
status as such, whether or not the Corporation would have power to indemnify the
person against such liability under Subsections A through H of this Article
XVIII.
L. Savings Clause. If this Article XVIII or any portion hereof shall be
---------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, officer, employee, and
agent of the Corporation as to costs, charges, and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, including an action by or in the right of the Corporation to the
full extent permitted by any applicable portion of this Article XVIII that shall
not have been invalidated and to the full extent permitted by applicable law.
If Delaware law is amended to permit further indemnification of the
directors, officers, employees, and agents of the Corporation, then the
Corporation shall indemnify such persons to the fullest extent permitted by
Delaware law, as so amended. Any repeal or modification of this Article XVIII
by the stockholders of the Corporation shall not adversely affect any right or
protection of a director, officer, employee or agent existing at the time of
such repeal or modification.
ARTICLE XIX
AMENDMENT OF BYLAWS OF THE CORPORATION
In furtherance and not in limitation of the powers conferred by statute, a
majority of the board of directors of the Corporation is expressly authorized to
make, repeal, alter, amend, and rescind the Bylaws of the Corporation.
Notwithstanding any other provision of this Certificate or the Bylaws of the
Corporation (and notwithstanding the fact that some lesser percentage may be
specified by law), the Bylaws of the Corporation shall not be made, repealed,
altered, amended, or rescinded by the stockholders of the Corporation except by
the vote of the holders of not less than 80% of the outstanding
16
<PAGE>
shares of capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class) cast at a
meeting of the stockholders called for that purpose (provided that notice of
such proposed adoption, repeal, alteration, amendment, or rescission is included
in the notice of such meeting), or, as set forth above, by the board of
directors.
ARTICLE XX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to repeal, alter, amend, or rescind any
provision contained in this Certificate in the manner now or hereafter
prescribed by law, and all rights conferred on stockholders herein are granted
subject to this reservation. Notwithstanding the foregoing, the provisions set
forth in Articles IX, X, XI, XII, XIII, XIV, XV, XVI, XVII, XVIII, XIX, and this
Article XX of this Certificate may not be repealed, altered, amended, or
rescinded in any respect unless the same is approved by the affirmative vote of
the holders of not less than 80% of the outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors
(considered for this purpose as a single class) cast at a meeting of the
stockholders called for that purpose (provided that notice of such proposed
adoption, repeal, alteration, amendment, or rescission is included in the notice
of such meeting).
ARTICLE XXI
Section 203 of the Delaware General Corporation Law, "Business Combinations
with Interested Shareholders," shall not apply to the Corporation.
17
<PAGE>
Exhibit 3(ii)
BYLAWS
OF
ADVANCE FINANCIAL BANCORP
ARTICLE I
PRINCIPAL OFFICE
The home office of Advance Financial Bancorp (the "Company") shall be at
1015 Commerce Street in the City of Wellsburg, County of Brooke, in the State of
West Virginia or at such other place within or without the State of West
Virginia as the board of directors shall from time to time determine. The
Company may also have offices at such other places within or without the State
of West Virginia as the board of directors shall from time to time determine.
ARTICLE II
STOCKHOLDERS
SECTION 1. Place of Meetings. All annual and special meetings of
-----------------
stockholders shall be held at the principal office of the Company or at such
other place within or without the State of West Virginia as the board of
directors may determine and as designated in the notice of such meeting.
SECTION 2. Annual Meeting. A meeting of the stockholders of the Company
--------------
for the election of directors and for the transaction of any other business of
the Company shall be held annually at such date and time as the board of
directors may determine.
SECTION 3. Special Meetings. Special meetings of the stockholders for
----------------
any purpose or purposes may be called at any time by the president or by a
majority of the board of directors or by a committee of the board of directors,
whose members will be designated from time to time by the board of directors,
and which committee will have been delegated the power and authority to call
such meetings.
SECTION 4. Conduct of Meetings. Annual and special meetings shall be
-------------------
conducted in accordance with the rules and procedures established by the board
of directors. The board of directors shall designate, when present, any
director or the 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 or purposes for which the meeting is
called shall be mailed by the secretary or the officer performing such duties,
not less than ten days nor more than sixty days before the meeting to each
stockholder of record entitled to vote at such meeting. If mailed, notice shall
be deemed to be delivered when deposited in the United States mail, addressed to
the stockholder at the address as it appears on the stock transfer books or
records of the Company as of the record date prescribed in Section 6 of this
Article II, with postage thereon prepaid. If a stockholder is present at a
meeting, or in writing waives notice thereof before or after the meeting, notice
of the meeting to such stockholder shall be unnecessary. When any stockholders'
meeting, either annual or special, is adjourned for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting,
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 thirty days or less or of the business to be
transacted at such adjourned meeting, other than an announcement at the meeting
at which such adjournment is taken.
<PAGE>
SECTION 6. Fixing of Record Date. For the purpose of determining
---------------------
stockholders entitled to notice of or to vote at any meeting of stockholders, or
any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the board of directors shall fix in advance a date as the record
date for any such determination of stockholders. Such date in any case shall be
not more than sixty days, and in case of a meeting of stockholders, not less
than ten days prior to the date on which the particular action, requiring such
determination of stockholders, is to be taken. When a determination of
stockholders entitled to vote at any meeting of stockholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
SECTION 7. Voting Lists. The officer or agent having charge of the stock
------------
transfer books for shares of the Company shall make, at least ten days before
each meeting of stockholders, a complete record of the stockholders entitled to
vote at such meeting or any adjournment thereof, arranged in alphabetical order,
with the address of and the number of shares held by each. The record, for a
period of ten days before such meeting, shall be kept on file at the principal
office of the Company, and shall be subject to inspection by any stockholder for
any purpose germane to the meeting at any time during usual business hours.
Such record shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any stockholder for any
purpose germane to the meeting during the whole time of the meeting. The
original stock transfer books shall be the only evidence as to who are the
stockholders entitled to examine such record or transfer books or to vote at any
meeting of stockholders.
SECTION 8. Quorum. A majority of the outstanding shares of the Company
------
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding shares
are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time, subject to the notice requirements of
Section 5 of this Article II. 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 stockholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
SECTION 9. Proxies. At all meetings of stockholders, a stockholder may
-------
vote by proxy executed by the stockholder in the manner provided by the
Certificate of Incorporation. Proxies solicited on behalf of the management
shall be voted as directed by the stockholder or, in the absence of such
direction, as determined by a majority of the board of directors or by a
majority of a committee of the board of directors, whose members will be
designated from time to time by the board of directors, and which committee will
have been delegated the power and authority to act on behalf of the board of
directors. No proxy shall be valid after eleven months from the date of its
execution unless otherwise provided in the proxy.
SECTION 10. Voting. At each election for directors every stockholder
------
entitled to vote at such election shall be entitled to one vote for each share
of stock held by him. Directors shall be elected by a plurality of votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Unless otherwise provided in the Certificate
of Incorporation, by statute, or by these Bylaws, in matters other than the
election of directors, a majority of the shares present in person or represented
by proxy at a lawful meeting and entitled to vote on the subject matter, shall
be sufficient to pass on a transaction or matter.
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<PAGE>
SECTION 11. Voting of Shares in the Name of Two or More Persons. When
---------------------------------------------------
ownership of stock stands in the name of two or more persons, in the absence of
written directions to the Company to the contrary, at any meeting of the
stockholders of the Company, any one or more of such stockholders 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
these persons are entitled shall be cast as directed by a majority of those
holding such stock 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 12. 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, trustee, or conservator may be voted by such
person, either in person or by proxy, without a transfer of such shares into
such person's 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 thereof into such receiver's 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.
A stockholder 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 Company, 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 Company,
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 13. Inspectors of Election. In advance of any meeting of
----------------------
stockholders, 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 thereof. The number of inspectors shall be either one or three. If
the board of directors so appoints either one or three inspectors, that
appointment shall not be altered at the meeting. If inspectors of election are
not so appointed, the chairman of the board of directors or the president may
make such appointment at the meeting. 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 meeting or the president.
Unless otherwise prescribed by applicable law, the duties of such
inspectors shall include: determining the number of shares of stock and the
voting power of each share, the shares of stock represented at the meeting, the
existence of a quorum, 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 right 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 stockholders.
SECTION 14. Nominating Committee. The board of directors, or a committee
--------------------
of the board of directors delegated such power and authority by 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
twenty days prior to the date of the annual meeting. Provided such committee
makes such nominations, no nominations for directors except
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<PAGE>
those made by the nominating committee shall be voted upon at the annual meeting
unless other nominations by stockholders are made in writing and delivered to
the secretary of the Company in accordance with the provisions of Article II,
Section 15 of these Bylaws.
SECTION 15. Notice for Nominations and Proposals. Nominations of
------------------------------------
candidates for election as directors at any annual meeting of stockholders may
be made (a) by, or at the direction of, a majority of the board of directors or
a committee thereof in accordance with Section 14 of these Bylaws or (b) by any
stockholder entitled to vote at such annual meeting. Only persons nominated in
accordance with the procedures set forth in this Section 15 shall be eligible
for election as directors at an annual meeting. Ballots bearing the names of
all the persons who have been nominated for election as directors at an annual
meeting in accordance with the procedures set forth in this Section 15 shall be
provided for use at the annual meeting.
Nominations, other than those made in accordance with Section 14 of these
Bylaws, shall be made pursuant to timely notice in writing to the Secretary of
the Company as set forth in this Section 15. To be timely, a stockholder's
notice shall be delivered to, or mailed and received at, the principal office of
the Company not less than 60 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders of the Company; provided,
however, that with respect to the first scheduled annual meeting, notice by the
stockholder must be so delivered or received no later than the close of business
on the tenth day following the day on which notice of the date of the scheduled
meeting must be delivered or received no later than the close of business on the
fifth day preceding the date of the meeting. Such stockholder's notice shall
set forth (a) as to each person whom the stockholder proposes to nominate for
election or re-election as a director and as to the stockholder giving the
notice (i) the name, age, business address and residence address of such person,
(ii) the principal occupation or employment of such person, (iii) the class and
number of shares of Company stock which are Beneficially Owned (as defined in
Article XIII of the Certificate of Incorporation) by such person on the date of
such stockholder notice, and (iv) any other information relating to such person
that is required to be disclosed in solicitations of proxies with respect to
nominees for election as directors, pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), including, but
not limited to, information required to be disclosed by Items 4, 5, 6 and 7 of
Schedule 14A to be filed with the Securities and Exchange Commission (or any
successors of such items or schedule or, if no successor to such items exists,
then in accordance with these items as they existed upon the date of the
adoption of these Bylaws); and (b) as to the stockholder giving the notice (i)
the name and address, as they appear on the Company's books, of such stockholder
and any other stockholders known by such stockholder to be supporting such
nominees and (ii) the class and number of shares of Company stock which are
Beneficially Owned by such stockholder on the date of such stockholder notice
and, to the extent known, by any other stockholders known by such stockholder to
be supporting such nominees on the date of such stockholder notice. At the
request of the board of directors, any person nominated by, or at the direction
of, the Board for election as a director at an annual meeting shall furnish to
the Secretary of the Company that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee.
Proposals, other than those made by or at the direction of the board of
directors, shall be made pursuant to timely notice in writing to the Secretary
of the Company as set forth in this Section 15. For stockholder proposals to be
included in the Company's proxy materials, the stockholder must comply with all
the timing and informational requirements of Rule 14a-8 of the Exchange Act (or
any successor regulation or, if no successor regulation exists, then in
accordance with the regulation as it existed upon the date of the adoption of
these Bylaws). With respect to stockholder proposals to be considered at the
annual meeting of stockholders but not included in the Company's proxy
materials, the stockholder's notice shall be delivered to, or mailed and
received at, the principal office of the Company not less than
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<PAGE>
60 days prior to the anniversary date of the immediately preceding annual
meeting of stockholders of the Company. Such stockholder's notice shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the proposal desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the Company's books, of the
stockholder proposing such business and, to the extent known, any other
stockholders known by such stockholder to be supporting such proposal, (c) the
class and number of shares of the Company stock which are Beneficially Owned by
the stockholder on the date of such stockholder notice and, to the extent known,
by any other stockholders known by such stockholder to be supporting such
proposal on the date of such stockholder notice, and (d) any financial interest
of the stockholder in such proposal (other than interests which all stockholders
would have).
The board of directors may reject any nomination by a stockholder or
stockholder proposal not timely made in accordance with the requirements of this
Section 15. If the board of directors, or a designated committee thereof,
determines that the information provided in a stockholder's notice does not
satisfy the informational requirements of this Section 15 in any respect, the
Secretary of the Company shall notify such stockholder of the deficiency in the
notice. The stockholder shall have an opportunity to cure the deficiency by
providing additional information to the Secretary within such period of time,
not to exceed five days from the date such deficiency notice is given to the
stockholder, as the board of directors or such committee shall reasonably
determine. If the deficiency is not cured within such period, or if the board
of directors or such committee reasonably determines that the additional
information provided by the stockholder, together with information previously
provided, does not satisfy the requirements of this Section 15 in any respect,
then the board of directors may reject such stockholder's nomination or
proposal. The Secretary of the Company shall notify a stockholder in writing
whether such stockholder's nomination or proposal has been made in accordance
with the time and informational requirements of this Section 15.
Notwithstanding the procedures set forth in this paragraph, if neither the board
of directors nor such committee makes a determination as to the validity of any
nominations or proposals by a stockholder, the presiding officer of the annual
meeting shall determine and declare at the annual meeting whether the nomination
or proposal was made in accordance with the terms of this Section 15. If the
presiding officer determines that a nomination or proposal was made in
accordance with the terms of this Section 15, the presiding officer shall so
declare at the annual meeting and ballots shall be provided for use at the
meeting with respect to such nominee or proposal. If the presiding officer
determines that a nomination or proposal was not made in accordance with the
terms of this Section 15, the presiding shall so declare at the annual meeting
and the defective nomination or proposal shall be disregarded.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the Company shall
--------------
be under the direction of its board of directors. The board of directors shall
annually elect a president from among its members and may also elect a chairman
of the board from among its members. The board of directors shall designate,
when present, any director or the president to preside at its meetings.
SECTION 2. Number, Term, and Election. The board of directors shall
--------------------------
initially consist of seven (7) 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 or
qualified. The board of directors shall be classified in accordance with the
provisions of the Company's Certificate of Incorporation. The board of
directors may increase the number of members of the board of directors but in no
event shall the number of directors be increased in excess of fifteen.
-5-
<PAGE>
SECTION 3. Place of Meetings. All annual and special meetings of the
-----------------
board of directors shall be held at the principal office of the Company or at
such other place within or without the State of West Virginia as the board of
directors may determine and as designated in the notice of such meeting, if
necessary.
SECTION 4. Regular Meetings. A regular meeting of the board of directors
----------------
shall be held without other notice than this Bylaw at such time and date as the
board of directors may determine.
SECTION 5. Special Meetings. Special meetings of the board of directors
----------------
may be called by or at the request of the president, the chairman of the board
of directors, or by one-third of the directors. The persons authorized to call
special meetings of the board of directors may fix any place within or without
the State of West Virginia 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.
SECTION 6. Notice. Written notice of any special meeting shall be given
------
to each director at least two days previous thereto delivered personally or by
telegram or at least five days previous thereto 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 United States mail so addressed, with
postage thereon 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 before, during, or after the meeting. 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 or waiver of
notice of such meeting.
SECTION 7. Quorum. A majority of the number of directors fixed by
------
Section 2 of 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 Article III.
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 entire
board of directors, unless a greater number is prescribed by these Bylaws, the
Certificate of Incorporation, or the laws of Delaware.
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 principal office of the Company
addressed to the president. Unless otherwise specified herein such resignation
shall take effect upon receipt thereof by the president.
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<PAGE>
SECTION 11. Vacancies. Any vacancy occurring in the board of directors
---------
shall be filled in accordance with the provisions of the Company's Certificate
of Incorporation. Any directorship to be filled by reason of an increase in the
number of directors may be filled by the affirmative vote of two-thirds of the
directors then in office. The term of such director shall be in accordance with
the provisions of the Company's Certificate of Incorporation.
SECTION 12. Removal of Directors. Any director or the entire board of
--------------------
directors may be removed for cause and then only in accordance with the
provisions of the Company's Certificate of Incorporation.
SECTION 13. Compensation. Directors, as such, may receive a stated fee
------------
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. Nothing herein shall be construed to preclude any
director from serving the Company in any other capacity and receiving
remuneration therefor.
SECTION 14. Presumption of Assent. A director of the Company who is
---------------------
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
the director's dissent or abstention shall be entered in the minutes of the
meeting or unless the director 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 Company
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who votes in favor of such action.
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors may, by resolution passed by a simple majority of a
quorum, designate one or more committees, as they may determine to be necessary
or appropriate for the conduct of the business of the Company, and may prescribe
the duties, constitution, and procedures thereof. Each committee shall consist
of one or more directors of the Company. The board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee.
The board of directors shall have power, by the affirmative vote of a
majority of the authorized number of directors, at any time to change the
members of, to fill vacancies in, and to discharge any committee of the board.
Any member of any such committee may resign at any time by giving notice to the
Company provided, however, that notice to the board of directors, the chief
executive officer, the chairman of such committee, or the secretary shall be
deemed to constitute notice to the Company. Such resignation shall take effect
upon receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective. Any member of any such committee may be removed
at any time, either with or without cause, by the affirmative vote of a majority
of the authorized number of directors at any meeting of the board called for
that purpose.
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<PAGE>
ARTICLE V
OFFICERS
SECTION 1. Positions. The officers of the Company shall include a chief
---------
executive officer, president, one or more vice presidents, a secretary, and a
treasurer, each of whom shall be elected by the board of directors. 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 Company 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 Company
---------------------------
shall be elected annually by the board of directors 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
shall have been duly elected and qualified, until death or resignation, or until
removal in the manner hereinafter provided. Election or appointment of an
officer, employee, or agent shall not of itself create contract rights. The
board of directors may authorize the Company to enter into an employment
contract with any officer in accordance with state law; 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 vote of the
-------
majority of the board of directors whenever, in its judgment, the best interests
of the Company will be served thereby, but such removal, other than for cause,
shall be without prejudice to the contract 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 and no officer shall be prevented
from receiving such salary by reason of the fact that the officer is also a
director of the Company.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. Contracts. To the extent permitted by applicable law, and
---------
except as otherwise prescribed by the Company's Certificate of Incorporation or
these Bylaws with respect to certificates for shares, the board of directors may
authorize any officer, employee, or agent of the Company to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the Company. Such authority may be general or confined to specific instances.
-8-
<PAGE>
SECTION 2. Loans. No loans shall be contracted on behalf of the Company
-----
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 Company shall be signed by one or more officers, employees, or
agents of the Company in such manner as shall from time to time be determined by
resolution of the board of directors.
SECTION 4. Deposits. All funds of the Company not otherwise employed
--------
shall be deposited from time to time to the credit of the Company in any of its
duly authorized depositories as the board of directors may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. The shares of the Company shall be
-----------------------
represented by certificates signed by the president or a vice president and by
the treasurer or by the secretary of the Company, and may be sealed with the
seal of the Company or a facsimile thereof. Any or all of the signatures upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent, or registered by a registrar, other than the Company itself or an
employee of the Company. If any officer who has signed or whose facsimile
signature has been placed upon such certificate shall have ceased to be such
officer before the certificate is issued, it may be issued by the Company with
the same effect as if the person were such officer at the date of its issue.
SECTION 2. Form of Share Certificates. All certificates representing
--------------------------
shares issued by the Company shall set forth upon the face or back that the
Company will furnish to any stockholder upon request and without charge a full
statement of the designations, preferences, limitations, and relative rights of
the shares of each class authorized to be issued, the variations in the relative
rights and preferences between the shares of each such series so far as the same
have been fixed and determined, and the authority of the board of directors to
fix and determine the relative rights and preferences of subsequent series.
Each certificate representing shares shall state upon the face thereof:
that the Company is organized under the laws of the State of Delaware; the name
of the person to whom issued; the number and class of shares; the date of issue;
the designation of the series, if any, which such certificate represents; and
the par value of each share represented by such certificate, or a statement that
the shares are without par value. Other matters in regard to the form of the
certificates shall be determined by the board of directors.
SECTION 3. Payment for Shares. No certificate shall be issued for any
------------------
share until such share is fully paid.
SECTION 4. Form of Payment for Shares. The consideration for the
--------------------------
issuance of shares shall be paid in accordance with the provisions of Delaware
law.
-9-
<PAGE>
SECTION 5. Transfer of Shares. Transfer of shares of capital stock of
------------------
the Company shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record thereof or by such person's
legal representative, who shall furnish proper evidence of such authority, or by
the person's attorney thereunto authorized by power of attorney duly executed
and filed with the Company. 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 Company shall be deemed by the
Company to be the owner thereof for all purposes.
SECTION 6. Stock Ledger. The stock ledger of the Company shall be the
------------
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of Article II, or the books of the
Company, or to vote in person or by proxy at any meeting of stockholders.
SECTION 7. Lost Certificates. The board of directors may direct a new
-----------------
certificate to be issued in place of any certificate theretofore issued by the
Company alleged to have been lost, stolen, or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or the owner's legal representative, to give the Company a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Company with respect to the certificate alleged to have been lost,
stolen, or destroyed.
SECTION 8. Beneficial Owners. The Company shall be entitled to recognize
-----------------
the exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person, whether or not the Company shall have express or other
notice thereof, except as otherwise provided by law.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Company shall end on the last day of June of each
year. The Company 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.
ARTICLE IX
DIVIDENDS
Subject to the provisions of the Certificate of Incorporation and
applicable law, the board of directors may, at any regular or special meeting,
declare dividends on the Company's outstanding capital stock. Dividends may be
paid in cash, in property, or in the Company's own stock.
ARTICLE X
CORPORATE SEAL
The corporate seal of the Company shall be in such form as the board of
directors shall prescribe.
-10-
<PAGE>
ARTICLE XI
AMENDMENTS
The Bylaws may be altered, amended, or repealed or new Bylaws may be
adopted in the manner set forth in the Certificate of Incorporation.
-11-
<PAGE>
Exhibit.4
================================================================================
COMMON STOCK ADVANCE FINANCIAL BANCORP CUSIP
CERTIFICATE NO.
INCORPORATED UNDER THE
LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT:
IS THE OWNER OF:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
$0.10 PAR VALUE PER SHARE OF
Advance Financial Bancorp
The shares represented by this certificate are transferable only on the
stock transfer books of the corporation by the holder of record hereof in
person, or by his duly authorized attorney or legal representative, upon the
surrender of this certificate properly endorsed. This certificate and the shares
represented hereby are issued and shall be held subject to all the provisions
contained in the corporation's official corporate papers filed with the
Secretary of the State of Delaware (copies of which are on file with the
Transfer Agent), to all of the provisions the holder by acceptance hereof,
assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
HIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT
FEDERALLY INSURED OR GUARANTEED.
In Witness Whereof, Advance Financial Bancorp has caused this certificate
to be executed by the facsimile signatures of its duly authorized officers and
has caused a facsimile of its corporate seal to be hereunto affixed.
DATED:
____________________________________ _____________________________
PRESIDENT SECRETARY
SEAL
Incorporated 1996
================================================================================
<PAGE>
ADVANCE FINANCIAL BANCORP
The shares represented by this certificate are subject to a limitation
contained in the certificate of incorporation of the corporation (the
"Certificate") to the effect that in no event shall any record owner of any
outstanding common stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the outstanding shares of
common stock ( the "Limit") be entitled or permitted to any vote in respect of
shares held in excess of the Limit and may have their voting rights reduced
below the Limit. In addition, for five years from the initial sale of the
corporation's common stock, no person or entity may offer to acquire or acquire
over 10% of the then outstanding shares of any class of equity securities of the
corporation.
The Board of Directors of the corporation is authorized by
resolution(s), from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the voting powers, designations,
preferences, and relative, participating, optional, or other special rights of
the shares of each such series and the qualifications, limitations, and
restrictions thereof. The corporation will furnish to any shareholder upon
request and without charge a full description of each class of stock and any
series thereof.
The shares represented by this certificate may not be cumulatively
voted in the election of directors of the corporation. The Certificate also
includes a provision the effect of which is to require the approval of not less
than 80% of the corporation's voting stock prior to the corporation engaging in
certain business combinations (as defined in the Certificate) with a person who
is the beneficial owner of 10% or more of the corporation's outstanding voting
stock, or with an affiliate or associate of the corporation (a "Principal
Stockholder"). This restriction does not apply if certain approvals are
obtained from the Board of Directors. The affirmative vote of holders of 80% of
the outstanding shares of capital stock of the corporation entitled to vote
generally in the election of directors (considered for this purpose as a single
class) is required to amend this and certain other provisions of the
Certificate.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _______________Custodian_______________
(Cus) (Minor)
under Uniform Gifts to Minors Act
_______________________
(State)
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
Additional abbreviations may also be used though not in the above list.
</TABLE>
FOR VALUE RECEIVED ________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
shares of the common stock represented by the within certificate and do hereby
irrevocably constitute and appoint
________________________________________________________________________________
Attorney to transfer the said shares on the books of the within named
corporation with full power of substitution in the premises.
Dated _____________________ X_________________________________________
X_________________________________________
NOTICE: The signatures to this assignment must correspond with the
name(s) as written upon the face of the certificate in every particular, without
alteration or enlargement or any change whatever.
SIGNATURE(S) GUARANTEED: _______________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS, AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM)
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Countersigned and Registered:
Transfer Agent and Registrar
______________________________
Authorized Signature
<PAGE>
Exhibit 5.1
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
One Franlin Square
1301 K Street, N.W.
Washington, D.C. 20005
(202) 434-4660
Facsimile: (202) 434-4661
September 25, 1996
Board of Directors
Advance Financial Bancorp
Advance Financial Savings Bank, f.s.b.
1015 Commerce Street
Wellsburg, West Virginia 26070
Re: Registration Statement Under the Securities Act of 1933
-------------------------------------------------------
Ladies and Gentlemen:
This opinion is rendered in connection with the Registration Statement on
Form S-1 to be filed with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the offer and sale of up to 1,084,450 shares
of common stock, par value $0.10 per share (the "Common Stock"), of Advance
Financial Bancorp (the "Company"), including shares to be issued to certain
employee benefit plans of the Company and its subsidiary. The Common Stock is
proposed to be issued pursuant to the Plan of Conversion (the "Plan") of Advance
Financial Savings Bank, f.s.b. (the "Savings Bank") in connection with the
Savings Bank's conversion from a mutual savings bank form of organization to a
stock savings bank form of organization and reorganization into a wholly-owned
subsidiary of the Company (the "Conversion"). As special counsel to the Savings
Bank and the Company, we have reviewed the corporate proceedings relating to the
Plan and the Conversion and such other legal matters as we have deemed
appropriate for the purpose of rendering this opinion.
Based on the foregoing, we are of the opinion that the shares of Common
Stock of the Company covered by the aforesaid Registration Statement will, when
issued in accordance with the terms of the Plan against full payment therefor,
be validly issued, fully paid, and non-assessable shares of Common Stock of the
Company.
This opinion is given as of the date hereof and we assume no obligation to
advise you of changes that may hereafter be brought to our attention.
<PAGE>
Board of Directors
September 25, 1996
Page 2
We hereby consent to the use of this opinion and to the reference to our
firm appearing in the Company's Prospectus under the headings "The Conversion -
Effects of Conversion to Stock Form on Depositors and Borrowers of the Bank -
Tax Effects" and "Legal and Tax Matters." We also consent to any references to
our legal opinion referred to under the aforementioned headings in the
Prospectus.
Very truly yours,
/S/ MALIZIA, SPIDI, SLOANE & FISCH, P.C.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
<PAGE>
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
September 25, 1996
Board of Directors
Advance Financial Savings Bank, f.s.b.
1015 Commerce Street
Wellsburg, WV 02720
Re: Subscription Rights -- Conversion of Advance Financial Savings Bank, f.s.b.
Wellsburg, West Virginia
Gentlemen:
The purpose of this letter is to provide an opinion of the value of the
subscription rights of the "to be issued" common stock of Advance Financial
Bancorp (the "Corporation"), Wellsburg, West Virginia, in regard to the
conversion of Advance Financial Savings Bank, f.s.b. ("Advance") from a
federally-chartered mutual savings bank to a federally-chartered stock savings
bank.
Because the Subscription Rights to purchase shares of Common Stock in the
Corporation, which are to be issued to the depositors of Advance and the other
members of Advance and will be acquired by such recipients without cost, will be
nontransferable and of short duration and will afford the recipients the right
only to purchase shares of Common Stock at the same price as will be paid by
members of the general public in a Direct Community or Public Offering we are of
the opinion that:
(1) The Subscription Rights will have no ascertainable fair market value,
and;
(2) The price at which the Subscription Rights are exercisable will not be
more or less than the fair market value of the shares on the date of
the exercise.
Further, it is our opinion that the Subscription Rights will have no economic
value on the date of distribution or at the time of exercise, whether or not a
community or public offering takes place.
Sincerely,
KELLER & COMPANY, INC.
/s/Michael R. Keller
- ------------------------------------
Michael R. Keller
President
<PAGE>
Exhibit 8.1
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
One Franlin Square
1301 K Street, N.W.
Washington, D.C. 20005
(202) 434-4660
Facsimile: (202) 434-4661
September 25, 1996
Board of Directors
Advance Financial Savings Bank, f.s.b.
1015 Commerce Street
Wellsburg, West Virginia 26070
Re: Federal Income Tax Opinion Relating to the Proposed Conversion of
Advance Financial Savings Bank, f.s.b. from a Federally-Chartered
Mutual Savings Bank to a Federally-Chartered Stock Savings Bank
Pursuant to Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended
----------------------------------------------------------------------
Members of the Board:
In accordance with your request, set forth hereinbelow is the opinion of
this firm relating to certain federal income tax consequences of the proposed
conversion (the "Conversion") of Advance Financial Savings Bank, f.s.b. (the
"Bank") from a federally-chartered mutual savings bank to a federally-chartered
capital stock savings bank (the "Stock Bank"), and formation of a parent holding
company (the "Holding Company") which will simultaneously acquire all of the
outstanding stock of Stock Bank. As proposed, the Conversion will be
implemented pursuant to Section 368(a)(1)(F) of the Internal Revenue Code of
1986, as amended (the "Code").
We have examined such corporate records, certificates and other documents
as we have considered necessary or appropriate for this opinion. In such
examination, we have accepted, and have not independently verified, the
authenticity of all original documents, the accuracy of all copies, and the
genuineness of all signatures. Further, the capitalized terms which are used in
this opinion and are not expressly defined herein shall have the meaning
ascribed to them in the Bank's Plan of Conversion adopted on September 3, 1996
(the "Plan of Conversion").
STATEMENT OF FACTS
------------------
Based solely upon our review of such documents, and upon such information
as the Bank has provided to us (which we have not attempted to verify in any
respect), and in reliance upon such documents and information, we understand the
relevant facts with respect to the Conversion to be as follows:
<PAGE>
Board of Directors
Advance Financial Savings Bank, f.s.b.
September 25, 1996
Page 2
The Bank is a federally-chartered mutual savings bank. As a mutual savings
bank, the Bank has no authorized capital stock. Instead, the Bank, in mutual
form, has a unique equity structure. A savings depositor of the Bank is
entitled to interest income on his or her account balance as declared and paid
by the Bank. A savings depositor has no right to a distribution of any earnings
of the Bank, but rather these amounts become retained earnings of the Bank.
However, a savings depositor has a right to share pro rata, with respect to the
--- ----
withdrawal value of his or her respective savings account, in any liquidation
proceeds distributed in the event the Bank is ever liquidated. Voting rights in
the Bank are held by its members. Each member is entitled to cast one vote for
each $100 or a fraction thereof of the withdrawal value of the member's account
and each borrower member is entitled to one vote. Each member shall have a
maximum of 1,000 votes. All of the interests held by a savings depositor in the
Bank cease when such depositor closes his or her account(s) with the Bank.
The Board of Directors of the Bank has decided that in order to promote the
growth and expansion of the Bank through the raising of additional capital, it
would be advantageous for the Bank to: (i) convert from a federally-chartered
mutual savings bank to a federally-chartered capital stock savings bank, and
(ii) arrange for the Holding Company to simultaneously acquire all of the Stock
Bank's stock. The Bank's Board of Directors has determined that in order to
provide greater flexibility in future operations of the Bank, including
diversification of business opportunities and acquisition, it is advantageous to
have the Stock Bank's stock held by the Holding Company. Pursuant to the Plan
of Conversion, the Bank's certificate of incorporation to operate as a mutual
savings bank be amended and a new certificate of incorporation be acquired to
allow it to continue its operations in the form of a federally-chartered capital
stock savings bank. The Plan of Conversion provides for the conversion of the
Bank from mutual-to-stock form, and an appraisal of the pro forma market value
--- -----
of the stock of the Stock Bank, which will be owned solely by the Holding
Company. The Plan of Conversion must be approved by the Office of Thrift
Supervision ("OTS"), and by an affirmative vote of at least a majority of the
total votes eligible to be cast at a special meeting of the Bank's members
called to vote on the Plan of Conversion.
The Holding Company is being formed under the laws of the State of Delaware
for the purpose of the proposed transaction described herein, to engage in
business as a savings and loan holding company and to hold all of the stock of
the Stock Bank. The Holding Company will issue shares of its voting common
stock ("Holding Company Stock") upon completion of the Conversion, as described
below, to persons purchasing such shares through a Subscription Offering and to
the general public in a Public Offering.
Following appropriate regulatory approval, the Plan of Conversion provides
for the issuance of shares of Holding Company Stock to eligible depositors and
borrowers of the Bank and others as described below and set forth in the Plan of
Conversion. The aggregate purchase price at which all shares of Holding Company
Stock will be offered and sold pursuant to the
<PAGE>
Board of Directors
Advance Financial Savings Bank, f.s.b.
September 25, 1996
Page 3
Plan of Conversion will be equal to the estimated pro forma market value of the
--- -----
Bank at the time of the Conversion as held as a subsidiary of the Holding
Company. The estimated pro forma market value will be determined by an
--- -----
independent appraiser. Pursuant to the Plan of Conversion, all such shares of
Holding Company Stock will be issued and sold at a uniform price per share. The
Conversion and the sale of newly issued shares of the Stock Bank's stock to the
Holding Company will be deemed effective concurrently with the closing of the
sale of Holding Company Stock.
As required by OTS regulations, shares of Holding Company Stock will be
offered pursuant to non-transferable subscription rights on the basis of
preference categories. All shares must be sold and to the extent that Holding
Company Stock is available, no subscriber will be allowed to purchase less than
25 shares of Holding Company Stock, provided that the aggregate purchase price
does not exceed $500. The Bank has established various preference categories
under which shares of Holding Company Stock may be purchased and a public
offering category for the sale of shares not purchased under the preference
categories. If the third preference category is determined to be inappropriate
to the Conversion, then there will only be three preference categories
consisting of the first, second, and fourth preference categories set forth
below, and all references herein to Supplemental Eligible Account Holder and the
Supplemental Eligibility Record Date shall not be applicable to the subject
transaction.
The first preference category is reserved for the Bank's Eligible Account
Holders. The Plan of Conversion defines "Eligible Account Holder" as any person
holding a Qualifying Deposit. The Plan of Conversion defines "Qualifying
Deposit" as the aggregate balance of all savings accounts of an Eligible Account
Holder in the Bank at the close of business on August 31, 1995, which is at
least equal to $50.00. If a savings account holder of the Bank qualifies as an
Eligible Account Holder, he or she will receive, without payment, non-
transferable subscription rights to purchase Holding Company Stock. The number
of shares that each Eligible Account Holder may subscribe to is equal to the
greater of (a) the maximum purchase limitation established for the Public
Offering; (b) one tenth of one percent of the total offering of shares; or (c)
fifteen times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Holding Company 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 the
Qualifying Deposits of all Eligible Account Holders. If there is an
oversubscription, shares will be allocated among subscribing Eligible Account
Holders so as to permit each account holder, to the extent possible, to purchase
a number of shares sufficient to make his or her total allocation equal to 100
shares. Any shares not then allocated shall be allocated among the subscribing
Eligible Account Holders on an equitable basis, related to the amounts of their
respective deposits as compared to the total deposits of Eligible Account
Holders on the Eligibility Record Date. Non-transferable subscription rights to
purchase Holding Company Stock received by officers and directors of the Bank
and their associates based on their increased deposits in the Bank in the one
year period
<PAGE>
Board of Directors
Advance Financial Savings Bank, f.s.b.
September 25, 1996
Page 4
preceding the Eligibility Record Date shall be subordinated to all other
subscriptions involving the exercise of nontransferable subscription rights to
purchase shares of Holding Company Stock under the first preference category.
The second preference category is reserved for tax-qualified employee stock
benefit plans of the Stock Bank. The Plan of Conversion defines "tax qualified
employee stock benefit plans" as any defined benefit plan or defined
contribution plan, such as an employee stock ownership plan, stock bonus plan,
profit-sharing plan or other plan, which, with its related trust meets the
requirements to be "qualified" under Section 401 of the Code. Under the Plan of
Conversion, the Stock Bank's tax-qualified employee stock benefit plans may
subscribe for up to 10% of the shares of Holding Company Stock to be offered in
the Conversion.
The third preference category is reserved for the Bank's Supplemental
Eligible Account Holders. The Plan of Conversion defines "Supplemental Eligible
Account Holder" as any person (other than officers or directors of the Bank and
their associates) holding a deposit in the Bank on the last day of the calendar
quarter preceding the approval of the Plan of Conversion by the OTS
("Supplemental Eligibility Record Date"). This third preference category will
only be used in the event that the Eligibility Record Date is more than 15
months prior to the date of the latest amendment to the Application for Approval
of Conversion on Form AC filed prior to approval by the OTS. The third
preference category provides that each Supplemental Eligible Account Holder will
receive, without payment, nontransferable subscription rights to purchase
Holding Company Stock to the extent that such shares of Holding Company Stock
are available after satisfying subscriptions for shares in the first and second
preference categories above. The number of shares to which a Supplemental
Eligible Account Holder may subscribe to is the greater of (a) the maximum
purchase limitation established for the Public Offering; (b) one-tenth of one
percent of the total offering of shares; or (c) fifteen times the product
(rounded down to the next whole number) obtained by multiplying the total number
of the shares of Holding Company Stock to be issued by a fraction of which the
numerator is the amount of the deposit of the Supplemental Eligible Account
Holder and the denominator is the total amount of the deposits of all
Supplemental Eligible Account Holders on the Supplemental Eligibility Record
Date. Subscription rights received pursuant to the third preference category
shall be subordinated to all rights under the first and second preference
categories. Non-transferable subscription rights to be received by a
Supplemental Eligible Account Holder in the third preference category shall be
reduced by the subscription rights received by such account holder as an
Eligible Account Holder under the first and second preference categories. In
the event of an oversubscription, shares will be allocated so as to enable each
Supplemental Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his total allocation, including shares
previously allocated in the first and second preference categories, equal to 100
shares or the total amount of his subscription, whichever is less. Any shares
not then allocated shall be allocated among the subscribing Supplemental
Eligible Account Holders
<PAGE>
Board of Directors
Advance Financial Savings Bank, f.s.b.
September 25, 1996
Page 5
on an equitable basis related to the amount of their respective deposits as
compared to the total deposits of Supplemental Eligible Account Holders on the
Supplemental Eligibility Record Date.
If there is no oversubscription of the Holding Company Stock in the first,
second, and third preference categories, the fourth preference category becomes
operable. In the fourth preference category, members of the Bank entitled to
vote at the special meeting of members to approve the Plan of Conversion who are
not Eligible Account Holders or Supplemental Eligible Account Holders ("Other
Members") will receive, without payment, non-transferable subscription rights
entitling them to purchase Holding Company Stock. Other Members shall each
receive subscription rights to purchase up to the maximum purchase limitation
established for the Public Offering or one-tenth of one percent of the total
offering of shares, to the extent that Holding Company Stock is available. In
the event of an oversubscription by Other Members, Holding Company Stock will be
allocated pro rata according to the number of shares subscribed for by each
--------
Other Member.
The Plan of Conversion further provides for limitations upon purchases of
Holding Company Stock. Specifically, any person by himself or herself or with
an associate or a group of persons acting in concert may subscribe for not more
than $100,000 of Holding Company Stock offered pursuant to the Plan of
Conversion, except that Tax-Qualified Employee Stock Benefit Plans may purchase
up to 10% of the total shares of Holding Company Stock issued. Subject to any
required regulatory approval and the requirements of applicable laws and
regulations, the Bank may increase or decrease any of the purchase limitations
set forth herein at any time. The Board of Directors of the Bank may, in its
sole discretion, increase the maximum purchase limitation up to 5.0%. Requests
to purchase additional shares of Holding Company Stock under this provision will
be allocated by the Board of Directors on a pro rata basis giving priority in
--------
accordance with the priority rights set forth in the Plan of Conversion.
Officers and directors of the Bank and their associates may not purchase in the
aggregate more than 34% of the Holding Company Stock issued pursuant to the
Conversion. Directors of the Bank will not be deemed associates or a group
acting in concert solely as a result of their membership on the board of
directors of the Bank. All of the shares of Holding Company Stock purchased by
officers and directors will be subject to certain restrictions on sale for a
period of one year.
The Plan of Conversion provides that no person will be issued any
subscription rights or be permitted to purchase any Holding Company Stock if
such person resides in a foreign country or in a state of the United States with
respect to which all of the following apply: (a) a small number of persons
otherwise eligible to subscribe for shares under the Plan of Conversion reside
in such state; (b) the issuance of subscription rights or the offer or sale of
the Holding Company Stock in such state, would require the Bank or the Holding
Company under the securities law of such state to register as a broker or dealer
or to register or otherwise qualify its securities for
<PAGE>
Board of Directors
Advance Financial Savings Bank, f.s.b.
September 25, 1996
Page 6
sale in such state; and (c) such registration or qualification would be
impracticable for reasons of cost or otherwise.
The Plan of Conversion also provides for the establishment of a Liquidation
Account by Stock Bank for the benefit of all Eligible Account Holders and
Supplemental Eligible Account Holders (if applicable). The Liquidation Account
will be equal in amount to the net worth of Bank as of the time of 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 Stock
Bank, except that the Stock Bank will not declare or pay cash dividends on or
repurchase any of its stock if the result thereof would be to reduce its net
worth below the amount required to maintain the Liquidation Account. The
Liquidation Account will be for the benefit of the Bank's Eligible Account
Holders and Supplemental Eligible Account Holders who maintain accounts in the
Bank at the time of the Conversion. All such account holders, including those
not entitled to subscription rights for reasons of foreign or out-of-state
residency (as described above), will have an interest in the Liquidation
Account. The interest an Eligible Account Holder and Supplemental Eligible
Account Holder will have a right to receive, in the event of a complete
liquidation of the Stock Bank, is a distribution from the Liquidation Account in
the amount of the then current adjusted subaccount balances for savings accounts
then held, which will be made prior to any liquidation distribution with respect
to the capital stock of the Stock Bank.
The initial subaccount balance for a savings account held by an Eligible
Account Holder and/or 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 the qualifying deposit in the savings
account, and the denominator is the total amount of qualifying deposits of all
Eligible Account Holders and Supplemental Eligible Account Holders in the Stock
Bank. The initial subaccount balance will never be increased, but may be
decreased if the deposit balance in any qualifying savings account of any
Eligible Account Holder or any savings account of any Supplemental Eligible
Account Holder on any annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, whichever is applicable, is less
than the lesser of (1) the deposit balance in the 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 (2) the amount of
the qualifying deposit in such savings account. In such event, the subaccount
balance for the savings account will be adjusted by reducing each subaccount
balance in an amount proportionate to the reduction in the savings account
balance. Once decreased, the Plan of Conversion provides that the subaccount
balance will never be subsequently increased, and if the savings account of an
Eligible Account Holder or Supplemental Eligible Account Holder is closed, the
related subaccount balance in the Liquidation Account will be reduced to zero.
The net proceeds from the sale of the shares of Holding Company Stock will
become the permanent capital of Holding Company, and the Holding Company will in
turn purchase 100%
<PAGE>
Board of Directors
Advance Financial Savings Bank, f.s.b.
September 25, 1996
Page 7
of the stock issued by Stock Bank, in exchange for up to 50% of the Holding
Company's stock offering net proceeds or such other percentage as is approved by
the Board of Directors with the concurrence of the OTS.
Following the Conversion, voting rights in Stock Bank will rest exclusively
in the Holding Company. Voting rights in the Holding Company will rest
exclusively in the stockholders of the Holding Company. The Conversion will not
interrupt the business of the Bank, and its business will continue as usual
under the Stock Bank. Each depositor will retain a withdrawable savings account
or accounts equal in amount to the withdrawable account or accounts at the time
of the Conversion. Mortgage loans of the Bank will remain unchanged and retain
their same characteristics in the Stock Bank after the Conversion. The Stock
Bank will continue membership in the Federal Home Loan Bank System, and will
remain subject to the regulatory authority of the OTS. Deposits in Stock Bank
will continue to be insured by the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation up to applicable
limits of insurance coverage.
Immediately prior to the Conversion, the Bank will have a positive net
worth in accordance with generally accepted accounting principles. The savings
account holders of the Bank will pay expenses of the Conversion solely
attributable to them, if any. Further, the Bank will pay its own expenses of
the Conversion and will not pay any expenses solely attributable to the Bank's
savings account holders or to the purchasers of Holding Company Stock.
REPRESENTATIONS BY MANAGEMENT
-----------------------------
In connection with the Conversion, the following statements,
representations and declarations have been made to us by management of the Bank:
1. The Conversion will be implemented in accordance with the terms of the
Plan of Conversion and all conditions precedent contained in the Plan of
Conversion shall be performed prior to the consummation of the Conversion.
2. The fair market value of the withdrawable savings accounts plus
interests in the Liquidation Account to be constructively received under the
Plan of Conversion will in each instance be equal to the fair market value of
each savings account of the Bank plus the interest in the residual equity of the
Bank surrendered in exchange therefor. All proprietary rights in the Bank form
an integral part of the withdrawable savings accounts being surrendered in the
Conversion.
<PAGE>
Board of Directors
Advance Financial Savings Bank, f.s.b.
September 25, 1996
Page 8
3. The Holding Company and the Stock Bank each have no plan or intention
to redeem or otherwise acquire any of the Holding Company Stock issued in the
proposed transaction.
4. To the best of the knowledge of the management of the Bank, there is
not now nor will there be at the time of the Conversion, any plan or intention,
on the part of the depositors in the Bank to withdraw their deposits following
the Conversion. Deposits withdrawn immediately prior to or immediately
subsequent to the Conversion (other than maturing deposits) are considered in
making these assumptions.
5. Immediately following the consummation of the proposed transaction, the
Stock Bank will possess the same assets and liabilities as the Bank held
immediately prior to the proposed transaction, plus substantially all of the net
proceeds from the sale of its stock to the Holding Company (except for assets
used to pay expenses in the Conversion). Assets used to pay expenses of the
Conversion (without reference to the expenses of the Subscription Offering and
the Public Offering) and all distributions (except for regular normal interest
payments made by the Bank immediately preceding the transaction) will in the
aggregate constitute less than one percent (1%) of the assets of the Bank, net
of liabilities associated with such assets, and will be paid by the Bank and the
Holding Company from the proceeds of the Subscription Offering and Public
Offering.
6. Following the Conversion, Stock Bank will continue to engage in its
business in substantially the same manner as engaged in by the Bank prior to the
Conversion. The Stock Bank has no plan or intention to sell or otherwise
dispose of any of its assets, except in the ordinary course of business.
7. No cash or property will be given to any member of the Bank in lieu of
subscription rights or an interest in the Liquidation Account of the Stock Bank.
8. None of the compensation to be received by any deposit account holder-
employees of the Bank or the Holding Company will be separate consideration for,
or allocable to, any of their deposits in the Bank. No interest in the
Liquidation Account of the Stock Bank will be received by any deposit account
holder-employees as separate consideration for, or will otherwise be allocable
to, any employment agreement, and the compensation paid to each deposit account
holder-employee, during the twelve month period preceding or subsequent to the
Conversion, will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services.
No shares of Holding Company Stock will be issued to or purchased by any deposit
account holder-employee of the Bank or the Holding Company at a discount or as
compensation in the Conversion.
<PAGE>
Board of Directors
Advance Financial Savings Bank, f.s.b.
September 25, 1996
Page 9
9. The aggregate fair market value of the Qualifying Deposits held by
Eligible Account Holders or Supplemental Eligible Account Holders (if
applicable) as of the close of business on the Eligibility Record Date or
Supplemental Eligibility Record Date (if applicable) entitled to interests in
the Liquidation Account to be established by Stock Bank equalled or exceeded 99%
of the aggregate fair market value of all savings accounts (including those
accounts of less than $50.00) in the Bank as of the close of business on such
date.
10. There is no plan or intention for the Stock Bank to be liquidated or
merged with another corporation following the consummation of the Conversion.
11. For taxable years prior to January 1, 1996, the Bank utilized the
reserve method of accounting for bad debts in accordance with Section 593 of the
Code. Pursuant to the Small Business Job Protection Act of 1996, which was
signed by the President on August 20, 1996, the Stock Bank shall utilize a
reserve for bad debts in accordance with Section 585 of the Code (following the
Conversion).
12. The Bank and the Stock Bank are corporations within the meaning of
Section 7701(a)(3) of the Code.
13. The Holding Company has no plan or intention to sell or otherwise
dispose of the stock of the Stock Bank received by it in the proposed
transaction.
14. Both the Stock Bank and the Holding Company have no plan or intention,
either currently or at the time of the Conversion, to issue additional shares of
common stock following the proposed transaction, other than shares that may be
issued to employees or directors pursuant to certain stock option and stock
incentive plans or that may be issued to employee benefit plans.
15. If all of the net proceeds from the sale of Holding Company Stock had
been contributed by the Holding Company to the Stock Bank in exchange for common
stock of the Stock Bank in the Conversion, as opposed to the Holding Company
retaining a portion of such net proceeds ("retained proceeds"), the Stock Bank
immediately thereafter made a distribution of the retained proceeds to the
Holding Company, the Stock Bank would have sufficient current and accumulated
earnings and profits for tax purposes such that the distribution would not
result in the recapture of any portion of the bad debt reserves of the Stock
Bank under Section 593(e) of the Code.
16. At the time of the proposed transaction, the fair market value of the
assets of the Bank on a going concern basis (including intangibles) will equal
or exceed the amount of its liabilities plus the amount of liability to which
such assets are subject. The Bank will have a positive regulatory net worth at
the time of the Conversion.
<PAGE>
Board of Directors
Advance Financial Savings Bank, f.s.b.
September 25, 1996
Page 10
17. The Bank is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code. The
proposed transaction does not involve a receivership, foreclosure, or similar
proceeding before a federal or state agency involving a financial institution to
which Section 585 or 593 of the Code applies.
18. The Bank's savings depositors will pay expenses of the Conversion
solely attributable to them, if any. The Holding Company, the Stock Bank, and
the Bank will pay their own expenses of the Conversion and will not pay any
expenses solely attributable to the savings depositors or to the Holding Company
stockholders.
19. The liabilities of the Bank assumed by the Stock Bank plus the
liabilities, if any, to which the transferred assets are subject were incurred
by the Bank in the ordinary course of its business and are associated with the
assets transferred.
20. There will be no purchase price advantage for the Bank's deposit
account holders who purchase Holding Company Stock in the Conversion.
21. Neither the Bank nor the Stock Bank is an investment company as
defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
22. No creditors of the Bank have taken any steps to enforce their claims
against the Bank by instituting bankruptcy or other legal proceedings, in either
a court or appropriate regulatory agency, that would eliminate the proprietary
interests of the members of the Bank prior to the Conversion.
23. The proposed transaction does not involve the payment to the Stock
Bank or the Bank of financial assistance from federal agencies within the
meaning of Notice 89-102, 1989-40 C.B. 1.
24. The Eligible Account Holders' and Supplemental Eligible Account
Holders' proprietary interest in the Bank arise solely by virtue of the fact
that they are account holders in the Bank.
25. At the time of the Conversion, the Bank will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire an equity interest in the Holding Company or
the Stock Bank.
26. The Stock Bank has no plan or intention to sell or otherwise dispose
of any of the assets of the Bank acquired in the transaction (except for
dispositions, including deposit withdrawals, made in the ordinary course of
business).
<PAGE>
Board of Directors
Advance Financial Savings Bank, f.s.b.
September 25, 1996
Page 11
27. On a per share basis, the purchase price of the Holding Company Stock
in the Conversion will be equal to the fair market value of such stock at the
time of the completion of the proposed transaction.
28. The Bank has received or will receive an opinion from Keller &
Company, Inc. ("Appraiser"s Opinion"), which concludes that subscription rights
to be received by Eligible Account Holders, Supplemental Eligible Account
Holders, and other eligible subscribers do not have any ascertainable fair
market value, because they are acquired by the recipients without cost, are non-
transferable, exist for such a short duration, and merely afford the recipients
a right only to purchase Holding Company Stock at a price equal to its estimated
fair market value, which will be the same price used in the Public Offering for
unsubscribed shares of Holding Company Stock.
29. The Bank will not have any net operating losses, capital loss
carryovers, or built-in losses at the time of the Conversion.
OPINION OF COUNSEL
------------------
Based solely upon the foregoing information and our analysis and
examination of current applicable federal income tax laws, rulings, regulations,
judicial precedents, and the Appraiser's Opinion, and provided the Conversion is
undertaken in accordance with the above assumptions, we render the following
opinion of counsel:
1. The change in the form of operation of the Bank from a federally
chartered mutual savings bank to a federally chartered capital stock savings
bank, as described above, will constitute a reorganization within the meaning of
Section 368(a)(1)(F) of the Code, and no gain or loss will be recognized to
either the Bank or to the Stock Bank as a result of such Conversion. (See Rev.
Rul. 80-105, 1980-1 C.B. 78). The Bank and the Stock Bank will each be a party
to a reorganization within the meaning of Section 368(b) of the Code. (Rev. Rul.
72-206, 1972-1 C.B. 104).
2. No gain or loss will be recognized by the Stock Bank on the receipt of
money in exchange for shares of Stock Bank stock. (Section 1032(a) of the Code).
3. The Holding Company will recognize no gain or loss upon its receipt of
money in exchange for shares of Holding Company Stock. (Section 1032(a) of the
Code).
4. The assets of the Bank will have the same basis in the hands of the
Stock Bank as in the hands of the Bank immediately prior to the Conversion.
(Section 362(b) of the Code).
<PAGE>
Board of Directors
Advance Financial Savings Bank, f.s.b.
September 25, 1996
Page 12
5. The holding period of the assets of the Bank to be received by the
Stock Bank will include the period during which the assets were held by the Bank
prior to the Conversion. (Section 1223(2) of the Code).
6. Depositors will realize gain, if any, upon the issuance to them of (i)
withdrawable deposit accounts of the Stock Bank, (ii) subscription rights in
connection with the Conversion, and/or (iii) interests in the Liquidation
Account of the Stock Bank. Any gain resulting therefrom will be recognized, but
only in an amount not in excess of the fair market value of the Liquidation
Accounts and/or subscription rights received. The Liquidation Accounts will
have nominal, if any, fair market value. Based solely on the accuracy of the
conclusion reached in the Appraiser's Opinion, and our reliance on such opinion,
that the subscription rights have no value at the time of distribution or
exercise, no gain or loss will be required to be recognized by depositors upon
receipt or distribution of subscription rights. (Section 1001 of the Code).
See Paulsen v. Commissioner, 469 U.S. 131, 139 (1985).
Likewise, based solely on the accuracy of the aforesaid conclusion reached
in the Appraiser's Opinion, and our reliance thereon, we give the following
opinions: (a) no taxable income will be recognized by the borrowers, directors,
officers, and employees of the Bank upon distribution to them of subscription
rights or upon the exercise or lapse of the subscription rights to acquire
Holding Company Stock at fair market value; (b) no taxable income will be
realized by the depositors of the Bank as a result of the exercise or lapse of
the subscription rights to purchase Holding Company Stock at fair market value
(Rev. Rul. 56-572, 1956-2 C.B. 182); and (c) no taxable income will be realized
by the Bank, the Stock Bank, or the Holding Company on the issuance or
distribution of subscription rights to depositors of the Bank to purchase shares
of Holding Company Stock at fair market value (Section 311 of the Code).
Notwithstanding the Appraiser's Opinion, if the subscription rights are
subsequently found to have a fair market value greater than zero, income may be
recognized by various recipients of the subscription rights (in certain cases,
whether or not the rights are exercised) and the Holding Company and/or the
Stock Bank may be taxable on the distribution of the subscription rights.
(Section 311 of the Code). In this regard, the subscription rights may be taxed
partially or entirely at ordinary income tax rates.
7. The basis of the savings accounts in the Stock Bank received by the
account holders of the Bank will be the same as the basis of their savings
accounts in the Bank surrendered in exchange therefor (Section 358(a)(1)). The
basis of the interests in the Liquidation Account of the Stock Bank received by
the Eligible Account Holders and Supplemental Eligible Account Holders will be
zero, that being the cost of such property. (Paulsen v. Commissioner, 469 U.S.
-----------------------
131, 139 (1985)). The basis of the non-transferable subscription rights will be
zero, provided that such subscription rights are not deemed to have a fair
market value and that the subscription price of such stock issuable upon
exercise of such
<PAGE>
Board of Directors
Advance Financial Savings Bank, f.s.b.
September 25, 1996
Page 13
rights is equal to the fair market value of such stock. The basis of the Holding
Company Stock to its stockholders will be purchase price thereof, increased by
the basis, if any, of the subscription rights exercised (Section 1012 of the
Code). The holding period of Holding Company Stock will commence upon the
effective date of exercise of the subscription rights (Section 1223(6) of the
Code). The holding period for the Holding Company Stock purchased pursuant to
the direct community offering, public offering or under other purchase
arrangements will commence on the date following the date on which such stock is
purchased. (Rev. Rul. 70-598, 1970-2 C.B. 168).
8. The part of the taxable year of the Bank before the Conversion and the
part of the taxable year of the Stock Bank after the Conversion will constitute
a single taxable year of the Stock Bank. (See Rev. Rul. 57-276, 1957-1 C.B.
126). Consequently, the Bank will not be required to file a federal income tax
return for any portion of such taxable year (Section 1.381(b)-1(a)(2) of the
Treasury Regulations).
9. As provided by Section 381(c)(2) of the Code and Section 1.381(c)(2)-1
of the Treasury Regulations, the Stock Bank will succeed to and take into
account the earnings and profits or deficit in earnings and profits of the Bank
as of the date or dates of transfer.
10. Pursuant to the provisions of Section 381(c)(4) of the Code and
Section 1.381(c)(4)-1(a)(1)(ii) of the Treasury Regulations, the Stock Bank will
succeed to and take into account, immediately after the reorganization, those
accounts of the Bank which represent bad debt reserves in respect of which the
Bank has taken a bad debt deduction for taxable years ending on or before the
date of the reorganization. The bad debt reserves will not be required to be
restored to the gross income of either the Bank or the Stock Bank for the
taxable year of the reorganization, and such bad debt reserves will have the
same character in the hands of the Stock Bank as they would have had in the
hands of the Bank if no distribution or transfer had occurred. No opinion is
being expressed as to whether the bad debt reserves will be required to be
restored to the gross income of either the Bank or the Stock Bank for the
taxable year of the reorganization.
11. Regardless of book entries made for the creation of the Liquidation
Account, the Conversion, as described above, will not diminish the accumulated
earnings and profits of the Stock Bank available for the subsequent distribution
of dividends within the meaning of Section 316 of the Code. (Section 1.312-
11(b) and (c) of the Treasury Regulations).
12. The creation of the Liquidation Account on the records of the Stock
Bank will have no effect on the taxable income of the Bank or the Stock Bank,
deductions or additions to reserves for bad debts under Section 593 of the Code,
or distributions to shareholders under Section 593(e). (Rev. Rul. 68-475, 1968-
2 C.B. 259).
<PAGE>
Board of Directors
Advance Financial Savings Bank, f.s.b.
September 25, 1996
Page 14
13. For purposes of Section 381 of the Code, the Stock Bank will be
treated the same as the Bank would have been had there been no reorganization.
Accordingly, the taxable year of the Bank will not end on the effective date of
the proposed transaction merely because of the transfer of assets of the Bank to
the Stock Bank and the tax attributes of the Bank enumerated in Section 381(c)
will be taken into account by the Stock Bank as if there had been no
reorganization (Section 1.381(b)-1(a)(2)) of the Treasury Regulations).
No opinion is expressed as to the tax treatment of the Conversion under the
provisions of any of the other sections of the Code and Treasury Regulations
which may also be applicable thereto, or under federal law, or to the tax
treatment of any conditions existing at the time of, or effects resulting from,
the transactions which are not specifically covered by the items set forth
above. Notwithstanding any reference to Section 381 above, no opinion is
expressed or intended to be expressed herein as to the effect, if any, of this
transaction on the continued existence of, the carryover or carryback of, or the
limitation on, any net operating losses of the Bank or its successor, the Stock
Bank, under the Code.
We hereby consent to the filing of this opinion as an exhibit to the
Application for Conversion on Form AC of the Bank filed with the OTS, the
Application H-(e)(1)-S of the Holding Company filed with the OTS, and the
Registration Statement on Form S-1 of the Holding Company filed under the
Securities Act of 1933, as amended, and to the reference of our firm in the
prospectus related to this opinion.
Very truly yours,
/s/ MALIZIA, SPIDI, SLOANE & FISCH, P.C.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF S.R. SNODGRASS, A.C.]
INDEPENDENT AUDITOR'S CONSENT
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated August 19, 1996, except for the subsequent events as
described in Note 17, which is as of September 3, 1996 on the consolidated
financial statements of Advance Financial Savings Bank, f.s.b., to the
Registration Statement (Form S-1), Application for Conversion (Form AC), and
related Prospectus for Advance Financial Bancorp.
/s/ S.R. Snodgrass, A.C.
Steubenville, Ohio
September 24, 1996
<PAGE>
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
September 25, 1996
Re: Valuation Appraisal of Advance Financial Bancorp
Advance Financial Savings Bank, f.s.b.
Wellsburg, West Virginia
We hereby consent to the use of our firm's name, Keller & Company, Inc.,
and the reference to our firm as experts in the Application for Conversion on
Form AC to be filed by Advance Financial Savings Bank, f.s.b. with the Office of
Thrift Supervision and the Registration Statement on Form S-1 to be filed by
Advance Financial Bancorp with the Securities and Exchange Commission and any
amendments thereto, and to the statements with respect to us and the references
to our Valuation Appraisal Report in the Prospectus, in the subscription rights
letter, in the said Form AC and in the said Form S-1 and any amendments thereto.
Very truly yours,
KELLER & COMPANY, INC.
by: /s/Michael R. Keller
----------------------------
Michael R. Keller
President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 949
<INT-BEARING-DEPOSITS> 3,068
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 68
<INVESTMENTS-CARRYING> 5,336
<INVESTMENTS-MARKET> 5,323
<LOANS> 81,062
<ALLOWANCE> 325
<TOTAL-ASSETS> 91,852
<DEPOSITS> 80,771
<SHORT-TERM> 0
<LIABILITIES-OTHER> 505
<LONG-TERM> 4,376
0
0
<COMMON> 0
<OTHER-SE> 6,200
<TOTAL-LIABILITIES-AND-EQUITY> 91,852
<INTEREST-LOAN> 6,153
<INTEREST-INVEST> 319
<INTEREST-OTHER> 138
<INTEREST-TOTAL> 6,610
<INTEREST-DEPOSIT> 3,628
<INTEREST-EXPENSE> 3,801
<INTEREST-INCOME-NET> 3,809
<LOAN-LOSSES> 263
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,147
<INCOME-PRETAX> 693
<INCOME-PRE-EXTRAORDINARY> 417
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 417
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 790
<LOANS-NON> 139
<LOANS-PAST> 303
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 198
<CHARGE-OFFS> 145
<RECOVERIES> 9
<ALLOWANCE-CLOSE> 325
<ALLOWANCE-DOMESTIC> 325
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99.3
[LETTERHEAD OF CHARLES WEBB & COMPANY]
TO MEMBERS AND FRIENDS OF
ADVANCE FINANCIAL SAVINGS BANK
- --------------------------------------------------------------------------------
Charles Webb & Company, a member of the National Association of Securities
Dealers, Inc. ("NASD"), is assisting Advance Financial Savings Bank, FSB (the
"Bank") in its conversion from a federally chartered mutual savings bank to a
federally chartered stock savings bank and the concurrent offering of shares of
common stock by Advance Financial Bancorp (the "Company"), the newly formed
corporation that will serve as holding company for the Bank following the
conversion.
At the request of the Company, we are enclosing materials explaining this
process and your options, including an opportunity to invest in shares of the
Company's common stock being offered to customers and the community through XXXX
XX, 1996. Please read the enclosed offering materials carefully. The 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 1015
Commerce Street, Wellsburg, West Virginia or feel free to call the Stock
Information Center at (304) xxx-xxxx.
Very truly yours,
Charles Webb & Company
<PAGE>
XXXXX XX, 1996
Dear Friend:
We are pleased to announce that Advance Financial Savings Bank, FSB
(the "Bank") is converting from a federally chartered mutual savings bank to a
federally chartered stock savings bank (the "Conversion"). In conjunction with
the Conversion, Advance Financial Bancorp, the newly-formed corporation that
will serve as holding company for the Bank, 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 Bank to raise additional capital
to support and enhance its current operations.
Because we believe you may be interested in learning more about the
merits of Advance Financial Bancorp's stock as an investment, we are sending you
the following materials which describe the stock offering.
PROSPECTUS: This document provides detailed information about
operations at the Bank and the proposed stock offering.
QUESTIONS AND ANSWERS: Key questions and answers about the stock
offering are found in this pamphlet.
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 X:00 p.m., 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 purchase stock.
As a friend of the Bank, you will have the opportunity to buy stock
directly from Advance Financial Bancorp in the Conversion without commission or
fee. If you have additional questions regarding the Conversion and stock
offering, please call us at (304) XXX-XXXX, Monday through Friday from X:00 a.m.
to X:00 p.m. or stop by the Stock Information Center at 1015 Commerce Street,
Wellsburg, West Virginia.
We are pleased to offer you this opportunity to become a charter
shareholder of Advance Financial Bancorp.
Sincerely,
Stephen M. Gagliardi
Chairman, 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>
XXXXX XX, 1996
Dear Member:
We are pleased to announce that Advance Financial Savings Bank, FSB
(the "Bank") is converting from a federally chartered mutual savings bank to a
federally chartered stock savings bank (the "Conversion"). In conjunction with
the Conversion, Advance Financial Bancorp, the newly-formed corporation that
will serve as holding company for the Bank, 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. Advance Financial Savings Bank's Plan
of Conversion has been approved by the Federal Deposit Insurance Corporation 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 XXXXX XX, 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 Bank feels that the Conversion will
offer a number of advantages, such as an opportunity for depositors and
customers of the Bank to become shareholders. Please remember:
. Your accounts at the Bank will continue to be insured up to the
maximum legal limit by the Federal Deposit Insurance Corporation
("FDIC").
. There will be no change in the balance, interest rate, or maturity of
any deposit accounts because of the Conversion.
. Members have a right, but no obligation, to buy stock before it is
offered to the public.
. 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 Advance Financial Bancorp, you must submit your Stock Order Form,
Certification Form, and payment prior to X:00 p.m. XXXX XX, 1996.
If you have additional questions regarding the stock offering, please
call us at (304) XXX-XXXX, Monday through Friday from X:00 a.m. to X:00 p.m., or
stop by the Stock Information Center located at 1015 Commerce Street in
Wellsburg, West Virginia.
Sincerely,
Stephen M. Gagliardi
Chairman, 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>
XXXXX XX, 1996
Dear Member:
We are pleased to announce that Advance Financial Savings Bank, FSB
(the "Bank") is converting from a federally mutual savings bank to a federally
chartered stock savings bank (the "Conversion"). In conjunction with the
Conversion, Advance Financial Bancorp, the newly-formed corporation that will
serve as holding company for the Bank, is offering shares of common stock in a
subscription offering and community offering.
Unfortunately, Advance Financial Bancorp 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 Advance Financial Bancorp.
However, as a member of the Bank, you have the right to vote on the
Plan of Conversion at the Special Meeting of Members to be held on XXXX 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,
Stephen M. Gagliardi
Chairman, President and Chief Executive Officer
<PAGE>
XXXX XX, 1996
Dear Prospective Investor:
We are pleased to announce that Advance Financial Savings Bank, FSB
(the "Bank") is converting from a federally chartered mutual savings bank to a
federally chartered stock savings bank (the "Conversion"). In conjunction with
the Conversion, Advance Financial Bancorp, the newly-formed corporation that
will serve as holding company for the Bank, 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 Bank 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 merits of Advance Financial Bancorp's common stock as an
investment. Please read and review the materials carefully.
PROSPECTUS: This document provides detailed information about
operations at the Bank and the proposed stock offering.
QUESTIONS AND ANSWERS: Key questions and answers about the stock
offering are found in this pamphlet.
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 x:00 p.m., 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 purchase stock.
We invite our loyal customers and local community members to become
charter shareholders of Advance Financial Bancorp. Through this offering you
have the opportunity to buy stock directly from Advance Financial Bancorp,
without commission or fee. The board of directors and senior management of the
Bank fully support the stock offering.
If you have additional questions regarding the Conversion and stock
offering, please call us at (304) XXX-XXXX, Monday through Friday from x:00 a.m.
to x:00 p.m. or stop by the Stock Information Center located at 1015 Commerce
Street in Wellsburg, West Virginia.
Sincerely,
Stephen M. Gagliardi
Chairman, 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
- --------------------------------------------------------------------------------
Advance Financial Bancorp
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 Advance Financial Savings Bank, FSB (the "Bank")
unanimously adopted a Plan of Conversion (the "Plan") to convert from a
federally chartered mutual savings bank to a federally chartered stock savings
bank.
This brochure answers some of the most frequently asked questions about the Plan
and about your opportunity to invest in Advance Financial Bancorp, (the
"Company"), the newly formed corporation that will serve as holding company for
the Bank following the conversion.
Investment in the stock of Advance Financial Bancorp 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 BANK 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 Bank
will raise additional capital enabling it to:
. support and expand its current financial and other services.
. allow customers and friends to purchase stock and share in the
Company's and the Bank's future.
WILL THE PLAN AFFECT ANY OF MY DEPOSIT ACCOUNTS OR LOANS?
- --------------------------------------------------------------------------------
No. The Plan 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 Bank, the Company's Employee Stock
Ownership Plan and members of the general public.
HOW MANY SHARES OF STOCK ARE BEING OFFERED AND AT WHAT PRICE?
- --------------------------------------------------------------------------------
Advance Financial Bancorp is offering up to X,XXX,X00 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, together with associates of and
persons acting in concert with such person, may purchase more than $XXX,000 of
the common stock sold.
DO MEMBERS HAVE TO BUY STOCK?
- --------------------------------------------------------------------------------
No. However, the Plan will allow the Bank'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.
<PAGE>
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 X:00 p.m. on XXXXX XX,
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 Bank on these funds at the passbook rate, which is currently X.0%
per annum, from the day the funds are received until the completion or
termination of the Plan. Second, you may authorize us to withdrawal funds from
your Bank 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 Plan.
CAN I PURCHASE SHARES USING FUNDS IN MY BANK IRA ACCOUNT?
- --------------------------------------------------------------------------------
Federal regulations do not permit the purchase of conversion stock from your
existing Bank IRA account. To 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 Company's stock will not be insured.
WILL DIVIDENDS BE PAID ON THE STOCK?
- --------------------------------------------------------------------------------
The Board of Directors of the 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 Company's stock will trade on the Nasdaq Stock Market Small Caps under the
symbol "XXXX". However, no assurance can be given that an active and liquid
market will develop.
ARE OFFICERS AND DIRECTORS OF THE BANK PLANNING TO PURCHASE STOCK?
- --------------------------------------------------------------------------------
Yes! the Bank's officers and directors plan to purchase, in the aggregate,
$XXX,000 worth of stock or approximately X.X% 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 Plan.
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.
<PAGE>
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 $X00, or fraction thereof, on
deposit as of the voting record date.
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 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 (304) XXX-XXXX
Advance Financial Bancorp
1015 Commerce Street
Wellsburg, WV 26070
Phone (304) 737-3531
Fax (304) 737-3154
