As filed with the Securities and Exchange Commission on February __, 1997
Registration No. 333-18895
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________________
PRE-EFFECTIVE AMENDMENT NO. ONE TO THE
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
HEMLOCK FEDERAL FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 6035 Applied For
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
5700 West 159th Street, Oak Forest, Illinois 60452-3198 (708) 687-9400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Maureen G. Partynski
Chairman of the Board and Chief Executive Officer
Hemlock Federal Financial Corporation
5700 West 159th Street
Oak Forest, Illinois 60452-3198
(708) 687-9400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Please send copies of all communications to:
Kip A. Weissman, P.C.
Beth A. Freedman, Esq.
SILVER, FREEDMAN & TAFF, L.L.P.
(A limited liability
partnership including
professional corporations)
1100 New York Avenue, N.W.
Seventh Floor, East Tower
Washington, DC 20005
(202) 414-6100
Approximate date of commencement of proposed
sale to the public: As soon as practicable after
this Registration Statement becomes effective.
If any of the securities being registered on this Form are being 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 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 Amount Proposed Maximum Proposed Maximum
Class of Securities to be Offering Price Aggregate Offering Amount of
to be Registered Registered(1) Per Share(1) Price(1) Registration Fee
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value 2,076,625 shares $10.00 $20,763,250(1) $6,292(2)
====================================================================================================================================
- ------------------------------
<FN>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Registration fee paid with initial filing.
</FN>
</TABLE>
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
[LOGO]
HEMLOCK FEDERAL FINANCIAL CORPORATION
(Proposed Holding Company for Hemlock Federal Bank for Savings)
$10.00 Per Share
1,805,500 Shares of Common Stock
(Anticipated Maximum)
Hemlock Federal Financial Corporation (the "Holding Company") is offering up to
1,805,500 shares of common stock, par value $0.01 per share (the "Common
Stock"), in connection with the conversion of Hemlock Federal Bank for Savings
("Hemlock Federal" or the "Bank") from a federally chartered mutual savings bank
to a federally chartered stock savings bank and the issuance of all of Hemlock
Federal outstanding stock to the Holding Company (the "Conversion"). Pursuant to
the Bank's plan of conversion (the "Plan of Conversion" or the "Plan"),
non-transferable rights to subscribe for the Common Stock ("Subscription
Rights") have been given to (i) Hemlock Federal's depositors with account
balances of $50 or more as of June 30, 1995 ("Eligible Account Holders"), (ii)
tax-qualified employee plans of Hemlock Federal and the Holding Company ("Tax-
Qualified Employee Plans"), provided, however, that the Tax-Qualified Employee
Plans shall have first priority Subscription Rights to the extent that the total
number of shares of Common Stock sold in the Conversion exceeds the maximum of
the Estimated Valuation Range as defined below, (iii) Hemlock Federal's
depositors with account balances of $50 or more as of December 31, 1996
("Supplemental Eligible Account Holders"), (iv) certain of its other members
("Other Members"), and (v) its employees, officers and directors (the
"Subscription Offering.)
(continued on next page)
------------------
FOR ADDITONAL INFORMATION ON HOW TO SUBSCRIBE, PLEASE CALL THE STOCK
INFORMATION CENTER AT (708) ___-____.
------------------
FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED,
SEE "RISK FACTORS" AT PAGE __.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION OR THE FEDERAL DEPOSIT
INSURANCE CORPORATION, NOR HAS SUCH COMMISSION, OFFICE OR CORPORATION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON
STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY.
<TABLE>
<CAPTION>
====================================================================================================================================
Estimated Underwriting Fees Estimated Net
Purchase Price(1) Commissions and Other Expenses(2) Conversion Proceeds(3)
----------------- --------------------------------- ----------------------
<S> <C> <C> <C>
Per Share(4).................................... $10.00 $.36 $9.64
Minimum Total................................... $13,345,000 $540,471 $12,804,529
Midpoint Total.................................. $15,700,000 $572,970 $15,127,030
Maximum Total................................... $18,055,000 $605,469 $17,449,531
Maximum Total, As Adjusted(5)................... $20,763,250 $642,843 $20,120,407
====================================================================================================================================
<FN>
----------------------
(1) Determined on the basis of an appraisal prepared by Keller & Company,
Inc. ("Keller") dated December 6, 1996, which states that the estimated
pro forma market value of the Common Stock ranged from $13,345,000 to
$18,055,000 or between 1,334,500 shares and 1,805,500 shares, of Common
Stock at $10.00 per share. See "The Conversion - Stock Pricing and
Number of Shares to be Issued."
(2) Consists of the estimated costs to the Bank and the Holding Company
arising from the Conversion, including the payment to Charles Webb &
Company, a Division of Keefe, Bruyette & Woods, Inc. ("KBW") of
estimated expenses of $40,000 and estimated sales commissions ranging
from $165,471 (at the minimum) to $230,469 (at the maximum) in
connection with the sale of shares in the Offering. Such fees may be
deemed to be underwriting fees. See "Use of Proceeds" and "Pro Forma
Data" for the assumptions used to arrive at these estimates. The
Holding Company has agreed to indemnify KBW against certain
liabilities, including liabilities arising under the Securities Act of
1933, as amended (the "Securities Act"). See "The Conversion -
Marketing Arrangements" for a more detailed description of underwriting
fees and expenses.
(3) Net Conversion proceeds may vary from the estimated amounts, depending
on the Purchase Price, the number of shares issued and the number of
shares sold subject to commissions. The Purchase Price and the actual
number of shares of Common Stock to be issued in the Conversion will
not be determined until after the close of the Offering.
(4) Assumes the sale of the midpoint number of shares. If the minimum,
maximum or 15% above the maximum number of shares are sold, estimated
expenses per share would be $.40, $.33 or $.31, respectively, resulting
in estimated net Conversion proceeds per share of $9.60, $9.67 or
$9.69, respectively.
(5) As adjusted to give effect to the sale of up to an additional 270,825
shares (15% above the maximum of the Estimated Valuation Range) which
may be offered in the Conversion without the resolicitation of
subscribers or any right of cancellation, to reflect changes in market
and financial conditions following the commencement of the Offering.
See "Pro Forma Data," and "The Conversion - Stock Pricing and Number of
Shares to be Issued."
</FN>
</TABLE>
Charles Webb & Company
A Division of Keefe, Bruyette & Woods, Inc.
The date of this Prospectus is February __, 1997
<PAGE>
(continued from prior page)
Subscription Rights are non-transferrable. Persons found to be selling or
otherwise transferring their right to purchase stock in the Subscription
Offering or purchasing Common Stock on behalf of another person will be subject
to forfeiture of such rights and possible further sanctions and penalties
imposed by the Office of Thrift Supervision (the "OTS"), an agency of the United
States Government. Subject to the prior rights of holders of Subscription Rights
and to market conditions, the Holding Company may also offer the Common Stock
for sale through 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 "Offering"). Depending on market conditions
and availability of shares, the shares of Common Stock may be offered for sale
in the Public Offering on a best-efforts basis by a selling group of selected
broker-dealers to be managed by KBW. The Bank and the Holding Company reserve
the right, in their absolute discretion, to accept or reject, in whole or in
part, any or all orders in the Public Offering.
The total number of shares to be issued in the Conversion will be based
upon an appraised valuation of the estimated aggregate pro forma market value of
the Holding Company and the Bank as converted. The purchase price per share
("Purchase Price") has been fixed at $10.00. Based on the current aggregate
valuation range of $13,345,000 to $18,055,000 (the "Estimated Valuation Range"),
the Holding Company is offering up to 1,805,500 shares. Depending upon the
market and financial conditions at the time of the completion of the Public
Offering, if any, the total number of shares to be issued in the Conversion may
be increased or decreased from the 1,805,500 shares offered hereby, provided
that the product of the total number of shares multiplied by the price per share
remains within, or does not exceed by more than 15% the maximum of the Estimated
Valuation Range. If the aggregate Purchase Price of the Common Stock sold in the
Conversion is below $13,345,000 or above $20,763,250, or if the Offering is
extended beyond ______ ___, 1997, subscribers will be permitted to modify or
cancel their subscriptions and to have their subscription funds returned
promptly with interest. Under such circumstances, if subscribers take no action,
their subscription funds will be promptly returned to them with interest. In all
other circumstances, subscriptions are irrevocable by subscribers. See "The
Conversion - Offering of Holding Company Common Stock."
With the exception of the Tax-Qualified Employee Plans, no Eligible Account
Holder, Supplemental Eligible Account Holder or Other Member may purchase in
their capacity as such in the Subscription Offering more than $200,000 of Common
Stock; no person, together with associates of and persons acting in concert with
such person, may purchase more than $200,000 of Common Stock in the Public
Offering and no person, together with associates of and persons acting in
concert with such person, may purchase more than $700,000 of Common Stock
offered in the Conversion based on the Estimated Valuation Range (as calculated
without giving effect to any increase in the Estimated Valuation Range
subsequent to the date hereof). Under certain circumstances, the maximum
purchase limitations may be increased or decreased at the sole discretion of the
Bank and the Holding Company up to 9.99% of the total number of shares of Common
Stock sold in the Conversion or to one percent of shares of Common Stock offered
in the Conversion. The minimum purchase is 25 shares. See "The Conversion -
Additional Purchase Restrictions." The Bank and the Holding Company have engaged
KBW as financial advisor and agent to consult, advise and assist in the
distribution of shares of Common Stock, on a best-efforts basis in the Offering
including, if necessary, managing selected broker-dealers to assist in selling
stock in the Public Offering. For such services, KBW will receive a marketing
fee of 1.5% of the total dollar amount of Common Stock sold in the Conversion,
excluding purchases by directors, officers, employees and their immediate family
members, and the employee stock ownership and benefit plans of the Bank and the
Holding Company. If selected dealers are used, the selected dealers will receive
a fee estimated to be up to 4.5% of the aggregate Purchase Price for all shares
of Common Stock sold in the Offering through such selected dealers. Such fees
may be deemed to be underwriting commissions. KBW and the selected dealers may
be deemed to be underwriters. See "The Conversion - Marketing Arrangements" and
"The Conversion - Offering of Holding Company Common Stock."
To subscribe for shares of Common Stock in the Subscription Offering, the
Holding Company must receive a stock order form ("Order Form") and certification
form, together with full payment at $10.00 per share (or appropriate
instructions authorizing a withdrawal from a deposit account at the Bank) for
all shares for which subscription is made, at any office of the Bank, by noon,
Oak Forest, Illinois time, on March ___, 1997, unless the Subscription Offering
is extended, at the discretion of the Board of Directors, up to an additional 45
days with the approval of the OTS, if necessary, but without additional notice
to subscribers (the "Expiration Date"). The date by which orders must be
received in the Public Offering, if any, will be set by the Holding Company at
the time of such offering provided that, if the Offering is extended beyond
______, 1997, each subscriber will have the right to modify or rescind his or
her subscription. Subscription funds will be returned promptly with interest to
each subscriber unless he or she affirmatively indicates otherwise. See "The
Conversion - Offering of Holding Company Common Stock." Subscriptions paid by
check, bank draft or money order will be placed in a segregated account at the
Bank and will earn interest at the Bank's passbook rate from the date of receipt
until completion or termination of the Conversion. Payments authorized by
withdrawal from deposit accounts at the Bank will continue to earn interest at
the contractual rate until the Conversion is completed or terminated; these
funds will be otherwise unavailable to the depositor until such time. Authorized
withdrawals from certificate accounts for the purchase of Common Stock will be
permitted without the imposition of early withdrawal penalties or loss of
interest.
The Holding Company has received preliminary approval to have the Common
Stock listed on the Nasdaq National Market under the symbol "____." Prior to
this offering there has not been a public market for the Common Stock, and there
can be no assurance that an active and liquid trading market for the Common
Stock will develop or that resales of the Common Stock can be made at or above
the Purchase Price. See "Market for Common Stock" and "The Conversion - Stock
Pricing and Number of Shares to be Issued."
2
<PAGE>
[CHART/MAP HERE]
3
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PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by the detailed information and financial statements appearing
elsewhere herein.
Hemlock Federal Financial Corporation
The Holding Company, Hemlock Federal Financial Corporation was recently
formed by Hemlock Federal under the laws of Delaware for the purpose of becoming
a savings and loan holding company which will own all of the outstanding capital
stock that Hemlock Federal will issue in connection with the Conversion.
Immediately following the Conversion, the only significant assets of the Holding
Company will be the capital stock of Hemlock Federal, a note evidencing the
Holding Company's loan to the ESOP and up to approximately 50% of the net
proceeds from the Conversion. See "Use of Proceeds." Upon completion of the
Conversion, the Holding Company's business initially will consist only of the
business of Hemlock Federal. See "Hemlock Federal Financial Corporation."
Hemlock Federal
General. Hemlock Federal is a federally chartered mutual savings bank
headquartered in Oak Forest, Illinois. Hemlock Federal was originally chartered
in 1904. In 1959, Hemlock Federal converted to a federal charter. Hemlock
Federal currently serves the financial needs of communities in its market area
through its main office located at 5700 West 159th Street, Oak Forest, Illinois
60452-3198 and its two branch offices located in the village of Oak Lawn and
Chicago. Its deposits are insured up to applicable limits by the Federal Deposit
Insurance Corporation ("FDIC"). At September 30, 1996, Hemlock Federal had total
assets of $147.0 million, deposits of $129.2 million and equity of $11.4 million
(or 7.7% of total assets).
Hemlock Federal has been, and intends to continue to be, an
independent, community oriented, financial institution. Hemlock Federal's
business involves attracting deposits from the general public and using such
deposits, together with other funds, to originate primarily one- to four-family
residential mortgages and, to a much lesser extent, multi-family, consumer and
other loans primarily in its market area. At September 30, 1996, $47.7 million,
or 88.7%, of the Bank's total loan portfolio consisted of one- to four-family
residential mortgage loans. The Bank also invests in mortgage-backed and other
securities and other permissible investments. See "Business - Investment
Activities - Securities" and "- Mortgage-Backed and Related Securities."
Financial and operational highlights of the Bank include the following:
o Asset Quality. Reflecting its emphasis on residential mortgage lending
in its market area and on government-backed or investment grade
mortgage-backed and investment securities, the Bank's ratio of
non-performing assets to total assets was .05% at September 30, 1996.
On such date, Hemlock Federal had no foreclosed real estate.
At September 30, 1996, the Bank's ratio of allowance for loan losses to
total loans receivable was 1.24%. See "Business - Delinquencies and
Non-Performing Assets."
4
<PAGE>
o Recent Increased Emphasis on Lending Activities. During much of the
1980s, as a result of fierce competition as well as volatility in
interest rates and real estate values, the Bank deemphasized
residential lending. However, in the early 1990s, the Bank determined
to increase its lending staff and its loan marketing efforts in order
to increase its residential loans. As a result of these efforts, the
Bank's residential loans increased from $37.0 million at December 31,
1993 to $53.1 million at September 30, 1996. See "Business - Lending
Activities."
o Capital Strength. At September 30, 1996, the Bank had total equity of
$11.4 million (7.7% of total assets) and substantially exceeded all of
the applicable regulatory capital requirements with tangible, core and
risk-based capital ratios of 7.4%, 7.4% and 23.8%, respectively.
Assuming on a pro forma basis that $15.7 million, the midpoint of the
Estimated Valuation Range, of shares were sold in the Conversion and
approximately 50% of the net proceeds were retained by the Holding
Company, as of September 30, 1996, the Bank's capital would have been
$17.1 million (11.2% of assets). See "Pro Forma Regulatory Capital
Analysis."
o Profitability. Hemlock Federal recorded net income of $952,000 and
$539,000, respectively, and a return on average assets of .66% and
.37%, respectively, for the years ended December 31, 1995 and December
31, 1994. For the nine months ended September 30, 1996, the Bank had a
net loss of $504,000 due to a $1.0 million contribution to establish a
foundation and a $840,000 one time special assessment to recapitalize
the Savings Association Insurance Fund ("SAIF"). See "Hemlock Federal
Charitable Foundation." During the 1990's the Bank's net interest
margin has exceeded its ratio of operating expense (excluding the
special SAIF assessment) to average total assets.
o Interest Rate Sensitivity. The Bank's profitability, like that of most
financial institutions, is dependent to a large extent upon its net
interest income, which is the difference between its interest income
and interest expense. In managing its asset/liability mix, Hemlock
Federal at times, depending on the relationship between long and
short-term interest rates, market conditions and consumer preference,
places greater emphasis on maximizing its net interest margin than on
matching the interest rate sensitivity of its assets and liabilities.
At September 30, 1996, the net value of the Bank's portfolio equity was
projected to decline by 14% and 36% if there were instantaneous
increases in interest rates of 200 and 400 basis points, respectively.
See "Risk Factors - Interest Rate Risk Exposure" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Asset/Liability Management."
o Mortgage-backed and related securities portfolio. In order to
supplement its lending portfolio and to increase the proportion of
short and medium term and/or adjustable-rate assets in its portfolio,
the Bank has maintained a very significant portfolio of mortgage-backed
securities. At September 30, 1996, $65.9 million or 44.9% of the Bank's
assets consisted of mortgage-backed securities. Since such securities
generally carry a lower yield than residential loans, to the extent
that the proportion of the Bank's assets consisting of securities
increases, its asset yield and hence its interest rate spread could
5
<PAGE>
be adversely affected. See "Risk Factors - Mortgage-Backed Securities
Portfolios; Effect on Asset Yield." See also, "Business -
Mortgage-Backed and Related Securities."
o Core Deposits. Management believes that the "core" portions of the
Bank's regular savings and money market accounts can have a lower cost
and be more resistant to interest rate changes than certificate
accounts. Accordingly, the Bank uses customer service initiatives in an
attempt to maintain and expand these accounts. However, the Bank's
passbook, NOW and money market accounts decreased $3.2 million from
fiscal 1994 to fiscal 1995 and $2.1 million during the first nine
months of fiscal 1996. Management believes that most of this outflow
represents the most interest rate sensitive portion of such accounts
(indeed, a substantial portion of the outflow is believed to have been
reinvested into certificates of deposit at the Bank) and that a
majority of the remaining balance represents the less interest rate
sensitive portion thereof. At September 30, 1996, $63.9 million, or
49.5%, of the Bank's total deposits consisted of passbook, NOW and
money market accounts. At December 31, 1996, $_______, or ___% of the
Bank's total deposits consisted of such deposits.
o Young Management Team. The Bank's two top executive officers are each
37 years old, with combined experience at the Bank of 26 years. The
Board believes the Bank's senior officers will chart a successful,
independent course into the twenty-first century.
See "Management."
Hemlock Federal Charitable Foundation
As a part of its long-standing commitment to the local community, Hemlock
Federal has established the Hemlock Federal Bank For Savings Charitable
Foundation, Inc. (the "Foundation"). The Foundation was incorporated in the
State of Illinois under the General Not For Profit Corporation Act of 1986
during the quarter ended September 30, 1996. During the same quarter, $1.0
million was accrued by the Bank to provide initial funding for the Foundation.
The Foundation was established as a means of supporting the needs of the local
community while simultaneously increasing the visibility and reputation of the
Bank. The Board believes that the Foundation will enhance the long term value of
the Bank's franchise by increasing customer loyalty as well as the size of its
customer base.
The Foundation will be dedicated to the promotion of charitable purposes
within the communities in which the Bank operates, including, but not limited
to, providing grants or donations to support housing assistance, not-for-profit
medical facilities, community groups and other types of organizations or
projects. While the Foundation is authorized to engage directly in charitable
activities, in order to limt overhead costs, it is currently anticipated that
the Foundation's primary activity will consist of making grants to other
charitable organizations. The Foundation will be a private foundation under the
Internal Revenue Code of 1986, as amended (the "Code"). The authority for the
affairs of the Foundation is vested in the Board of Trustees of the Foundation
which is comprised of the current directors of the Bank. The Articles of
Incorporation currently provide that the earnings of the Foundation shall not
result in any private benefit for its members, directors or officers. In
addition, it is anticipated that the
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Foundation will adopt a conflict of interest policy. While these provisions
would not prohibit the payment of reasonable compensation for services rendered,
it is not currently contemplated that the members of the Board of Trustees will
receive fees for service on the Board.
The Directors of the Foundation are responsible for establishing and
carrying out the policies of the Foundation with respect to grants or donations
by the Foundation, consistent with the purposes for which the Foundation was
established. The Directors of the Foundation are also responsible for directing
the activities of the Foundation, including the management of any shares of the
Common Stock held by the Foundation; provided, however, that the voting of any
such shares will be subject to applicable OTS policy regarding foundations.
Under current OTS policy, when matters are presented for a stockholder vote, any
share of Common Stock held by the Foundation must be voted in the same ratio as
all other shares of the Common Stock. Under such circumstances, the Board and
management would derive no additional voting control from such shares. However,
in the event that the OTS were to waive this voting restriction, the
Foundation's Board of Trustees would exercise voting control over such shares.
Since the Foundation's Board of Trustees currently consists of the Holding
Company directors, in the event that the OTS were to waive this restriction, the
number of shares over which the Board of Directors of the Holding Company
exercises voting control could increase.
The Company currently intends to make additional contributions to the
Foundation of up to 10% of its net income on an annual basis. Such future
contributions to the Foundation may be made either in cash or Holding Company
Common Stock. The amount of such future contributions, if any, will be
determined based on, among other factors, an assessment of the Company's then
current financial condition, operations and prospects and of the need for
charitable donations in the Company's market area.
Any such additional contributions will reduce earnings and may have a
material impact on the Company's earnings for such quarter and for the year. The
Company does not anticipate making any contributions to the Foundation that are
not tax deductible. See "Risk Factors Future Contributions to the Bank's
Charitable Foundation," and "Pro Forma Data."
It is currently anticipated that the Foundation will adopt a policy that
any transactions between the Foundation and the Company or the Bank, other than
donations, will be on an arm's length basis and will comply with any applicable
restrictions set forth in Sections 23A and 23B of the Federal Reserve Act, as
amended. However, the Company (but not the Bank) may provide office space and
administrative support to the Foundation without charge.
The Conversion
The Offering is being made in connection with the conversion of Hemlock
Federal from a federally chartered mutual savings bank to a federally chartered
stock savings bank and the formation of Hemlock Federal Financial Corporation as
the holding company of Hemlock Federal. The Conversion is subject to certain
conditions, including the prior approval of the Plan by the Bank's members at a
Special Meeting to be held on March ___, 1997. After the Conversion, the Bank's
current voting members (who include certain deposit account
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holders and borrowers) will have no voting rights in Hemlock Federal and will
have no voting rights in the Holding Company unless they become Holding Company
stockholders. Eligible Account Holders and Supplemental Eligible Account
Holders, however, will have certain liquidation rights in the Bank. See "The
Conversion - Effects of Conversion to Stock Form on Depositors and Borrowers of
the Bank - Liquidation Rights."
The Offering. The shares of Common Stock to be issued in the Conversion
are being offered at a Purchase Price of $10.00 per share in the Subscription
Offering pursuant to nontransferable Subscription Rights in the following order
of priority: (i) Eligible Account Holders (i.e., depositors whose accounts in
the Bank totaled $50.00 or more on June 30, 1995); (ii) Tax-Qualified Employee
Plans; provided, however, that the Tax Qualified Employee Plans shall have first
priority Subscription Rights to the extent that the total number of shares of
Common Stock sold in the Conversion exceeds the maximum of the Estimated
Valuation Range; (iii) Supplemental Eligible Account Holders (i.e., depositors
whose accounts in the Bank totaled $50.00 or more on December 31, 1996); (iv)
Other Members (i.e., depositors and certain borrowers of the Bank as of _______,
1996); and (v) employees, officers and directors of the Bank. Subscription
Rights received in any of the foregoing categories will be subordinated to the
Subscription Rights received by those in a prior category. Subscription Rights
will expire if not exercised by noon, Oak Forest, Illinois time, on March __,
1997, unless extended (the "Expiration Date").
Subject to the prior rights of holders of Subscription Rights and market
conditions at or near the completion of the Subscription Offering, any shares of
Common Stock not subscribed for in the Subscription Offering may be offered at
the same price in the Public Offering through KBW to selected persons to whom
this prospectus is delivered. To order Common Stock in connection with the
Public Offering, if any, an executed stock order form and account withdrawal
authorization and certification must be received by KBW prior to the termination
of the Public Offering. The date by which orders must be received in the Public
Offering, if any, will be set by the Holding Company at the time of such
offering provided that if the Offering is extended beyond ________, 1997, each
subscriber will have the right to modify or rescind his or her subscription. The
Holding Company and the Bank reserve the absolute right to accept or reject any
orders in the Public Offering, in whole or in part.
If necessary, shares of Common Stock may also be offered in connection
with the Public Offering for sale on a best-efforts basis by selected dealers
managed by KBW. See "The Conversion - Public Offering and Direct Community
Offering."
The Bank and the Holding Company have engaged KBW to consult with and
advise the Holding Company and the Bank with respect to the Offering, and KBW
has agreed to solicit subscriptions and purchase orders for shares of Common
Stock in the Offering. Neither KBW nor any selected broker-dealers will have any
obligation to purchase shares of Common Stock in the Offering. KBW will receive
for its services a marketing fee of 1.5% of the total dollar amount of Common
Stock sold in the Conversion (excluding purchases by directors, officers,
employees and members of their immediate families and the employee benefit plans
of the Holding Company and for the Bank, and shares sold by selected
broker-dealers). To the extent selected broker-dealers are utilized in
connection with the sale of shares in the Public Offering,
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<PAGE>
the selected dealers will receive a fee of up to 4.5% and KBW will receive a fee
of 1.0% of the aggregate Purchase Price for all shares of Common Stock sold
through such broker-dealers. KBW will also receive reimbursement for certain
expenses incurred in connection with the Offering. The Holding Company has
agreed to indemnify KBW against certain liabilities, including certain
liabilities under the Securities Act of 1933, as amended ("Securities Act"). See
"The Conversion - Marketing Arrangements."
The Bank has established a Stock Information Center, which will be
managed by KBW, to coordinate the Offering, and answer questions about the
Offering received by telephone. All subscribers will be instructed to mail
payment to the Stock Information Center or deliver payment directly to the
Bank's office. Payment for shares of Common Stock may be made by cash (if
delivered in person), check or money order or by authorization of withdrawal
from deposit accounts maintained with the Bank. Such funds will not be available
for withdrawal and will not be released until the Conversion is completed or
terminated. See "The Conversion - Method of Payment for Subscriptions."
Purchase Limitations. The Plan of Conversion places limitations on the
number of shares which may be purchased in the Conversion by various categories
of persons. With the exception of the Tax-Qualified Employee Plans, no Eligible
Account Holder, Supplemental Eligible Account Holder, Other Member or director,
officer or employee may purchase in their capacity as such in the Subscription
Offering more than $200,000 of Common Stock; no person, together with associates
of and persons acting in concert with such person, may purchase more than
$200,000 of Common Stock in the Public Offering; and no person or group of
persons acting in concert (other than the Tax-Qualified Employee Plans) may
purchase more than $900,000 of Common Stock in the Conversion. The minimum
purchase limitation is 25 shares of Common Stock. These purchase limits may be
increased or decreased consistent with the Office of Thrift Supervision ("OTS")
regulations at the sole discretion of the Holding Company and the Bank. See "The
Conversion - Offering of Holding Company Common Stock."
Restrictions on Transfer of Subscription Rights. Prior to the completion
of the Conversion, no person may transfer or enter into any agreement or
understanding to transfer the legal or beneficial ownership of the subscription
rights issued under the Plan or the shares of Common Stock to be issued upon
their exercise. Persons found to be selling or otherwise transferring their
right to purchase stock in the Subscription Offering or purchasing Common Stock
on behalf of another person will be subject to forfeiture of such rights and
possible federal penalties and sanctions. See "The Conversion - Restrictions on
Transfer of Subscription Rights and Shares."
Stock Pricing and Number of Shares of Common Stock to be Issued in the
Conversion. The Purchase Price of the Common Stock is $10.00 per share and is
the same for all purchasers. The aggregate pro forma market value of the Holding
Company and Hemlock Federal, as converted, was estimated by Keller, which is
experienced in appraising converting thrift institutions, to be the Estimated
Valuation Range. The Board of Directors has reviewed the Estimated Valuation
Range as stated in the appraisal and compared it with recent stock trading
prices as well as other recent pro forma market value estimates. The Board of
Directors has
9
<PAGE>
also reviewed the appraisal report, including the assumptions and methodology
utilized therein, and determined that it was not unreasonable.
Depending on market and financial conditions at the time of the
completion of the Offering, the total number of shares of Common Stock to be
issued in the Conversion may be increased or decreased significantly from the
1,805,500 shares offered hereby and the Purchase Price may be decreased.
However, subscribers will be permitted to modify or rescind their subscriptions
if the product of the total number of shares to be issued multiplied by the
price per share is less than $13,345,000 or more than $20,763,250. The appraisal
is not intended to be, and must not be interpreted as, a recommendation of any
kind as to the advisability of voting to approve the Conversion or of purchasing
shares of Common Stock. The appraisal considers Hemlock Federal and the Holding
Company only as going concerns and should not be considered as any indication of
the liquidation value of Hemlock Federal or the Holding Company. Moreover, the
appraisal is necessarily based on many factors which change from time to time.
There can be no assurance that persons who purchase shares in the Conversion
will be able to sell such shares at prices at or above the Purchase Price. See
"Pro Forma Data" and "The Conversion - Stock Pricing and Number of Shares to be
Issued" for a description of the manner in which such valuation was made and the
limitations on its use.
Purchases by Directors and Executive Officers
The directors and executive officers of Hemlock Federal intend to
purchase, for investment purposes and at the same price as the shares are sold
to other investors in the Conversion, approximately $1,246,000 of Common Stock,
or 9.3%, 7.9% or 6.9% of the shares to be sold in the Conversion at the minimum,
midpoint and maximum of the Estimated Valuation Range, respectively. In
addition, an amount of shares equal to an aggregate of 8% of the shares to be
issued in the Conversion is anticipated to be purchased by the ESOP. See "The
Conversion - Participation by the Board and Executive Officers."
Potential Benefits of Conversion to Directors and Executive Officers
Employee Stock Ownership Plan. The Board of Directors of the Bank has
adopted an ESOP, a tax-qualified employee benefit plan for officers and
employees of the Holding Company and the Bank. All employees of the Bank are
eligible to participate in the ESOP after they attain age 21 and complete one
year of service. The Bank's contribution to the ESOP is allocated among
participants on the basis of their relative compensation. Each participant's
account will be credited with cash and shares of Holding Company Common Stock
based upon compensation earned during the year with respect to which the
contribution is made. The ESOP intends to buy up to 8% of the Common Stock
issued in the Conversion (approximately $1.1 million to $1.4 million of the
Common Stock based on the issuance of the minimum and the maximum of the
Estimated Valuation Range and the $10.00 per share Purchase Price). The ESOP
will purchase the shares with funds borrowed from the Holding Company, and it is
anticipated that the ESOP will repay the loans through periodic tax-deductible
contributions from the Bank over a ten-year period. These contributions will
increase the compensation expense of the Bank. See "Management - Benefit Plans -
Employee Stock Ownership Plan" for a description of this plan.
10
<PAGE>
Stock Option and Incentive Plan and Recognition and Retention Plan. The
Board of Directors of the Holding Company intends to adopt a Stock Option and
Incentive Plan (the "Stock Option Plan") and a Recognition and Retention Plan
("RRP") to become effective upon ratification by stockholders following the
Conversion. Certain of the directors and executive officers of the Holding
Company and the Bank will receive awards under these plans. It is currently
anticipated that an amount of shares equal to 10% and 4% of the shares sold in
the Conversion will be reserved for issuance under the Stock Option Plan and
RRP, respectively. Depending upon market conditions in the future, the Holding
Company may purchase shares in the open market to fund these plans. See
"Management - Benefit Plans" for a description of these plans.
Under the proposed Stock Option Plan, it is presently intended that the
directors and executive officers be granted options to purchase, in addition to
the shares to be issued in the Conversion, an amount of shares equal to 8.2% of
the shares sold in the Conversion (or 109,429 and 148,051 shares, respectively,
of Common Stock based on the minimum and maximum of the Estimated Valuation
Range) at an exercise price equal to the market value per share of the Common
Stock on the date of grant. Such options will be awarded at no expense to the
recipients and pose no financial risk to the recipients until exercised. It is
presently anticipated that Maureen Partynski, Chairman of the Board and Michael
Stevens, President will each receive an option to purchase an amount of shares
equal to 2.5% of the shares sold in the Conversion (or 33,363 and 45,138 shares,
assuming the minimum and maximum of the Estimated Valuation Range). See
"Management - Benefit Plans - Stock Option and Incentive Plan."
The award and exercise of options pursuant to the Stock Option Plan will
not result in any expense to the Holding Company; however, when the options are
exercised, the per share earnings and book value of existing stockholders will
likely be diluted.
It is also intended that directors and executive officers be granted
(without any requirement of payment by the grantee) an amount of shares of
restricted stock awards equal to 2.8% of the shares sold in the Conversion (or
37,366 and 50,554 shares, respectively, based on the minimum and maximum of the
Estimated Valuation Range) which will vest over five years commencing one year
from stockholder ratification and which will have a total value of $373,660 and
$505,540 based on the Purchase Price of $10.00 per share at the minimum and
maximum of the Estimated Valuation Range, respectively. It is presently
anticipated that Chairman Partynski and President Stevens each will receive a
restricted stock award equal to 1.0% of the shares sold in the Conversion (or
13,345 and 18,055 shares, assuming the minimum and maximum of the Estimated
Valuation Range). The restricted stock award to Chairman Partynski and President
Stevens each would have an aggregate value ranging from $133,450 to $180,550 (at
the minimum and maximum of the Estimated Valuation Range) based upon the
original Purchase Price of $10.00 per share. See "Risk Factors - Takeover
Defensive Provisions" and "Management - Benefit Plans - Recognition and
Retention Plan."
Following stockholder ratification of the RRP, the RRP will be funded
either with shares purchased in the open market or with authorized but unissued
shares. Based upon the Purchase Price of $10.00 per share, the amount required
to fund the RRP through open-market purchases would range from approximately
$533,800 (based upon the sale of shares at the minimum of the
11
<PAGE>
Estimated Valuation Range) to approximately $722,200 (based upon the sale of
shares at the maximum of the Estimated Valuation Range). In the event that the
per share price of the Common Stock increases above the $10.00 per share
Purchase Price following completion of the Offering, the amount necessary to
fund the RRP would also increase. The expense related to the cost of the RRP
will be recognized over the five-year vesting period of the awards made pursuant
to such plan. The use of authorized but unissued shares to fund the RRP would
dilute the holdings of stockholders who purchase Common Stock in the Conversion.
See "Management - Benefit Plans - Recognition and Retention Plan."
The Holding Company intends to submit the RRP and the Stock Option Plan
to stockholders for ratification following completion of the Offering, but in no
event prior to six months following the completion of the Conversion. These
plans will only be effective if ratified by the stockholders. In the event the
Stock Option Plan and the RRP are not ratified by stockholders, management may
consider the adoption of alternate incentive plans, although no such plans are
currently contemplated. While the Bank believes that the RRP and the Stock
Option Plan will provide important incentives for the performance and retention
of management, the Bank has no reason to believe that the failure to obtain
shareholder ratification of such plans would result in the departure of any
members of senior management.
Employment and Severance Agreements. The Bank intends to enter into
employment agreements with Chairman Partynski and President Stevens. It is
anticipated that the agreements will provide for a salary equal to the
employee's current salary, will have an initial term of three years, subject to
annual extension for an additional year following the Bank's annual performance
review and will become effective upon the completion of the Conversion. Under
certain circumstances including a change in control, as defined in the
employment agreements, the employee will be entitled to a severance payment in
lieu of salary equal to a percentage of his or her base amount of compensation,
as defined. See "Management - Executive Compensation."
The Bank also intends to enter into change in control severance
agreements with three other executive officers. Such agreements have initial
terms of 12 months and become effective upon completion of the Conversion. In
the event the officer is terminated following a "change in control" (as defined
in the agreements) such officer will be entitled to a severance payment of 100%
of their current compensation. See "Management - Executive Compensation
Employment Agreements and Severance Agreements" for the definition of "change in
control" and a more detailed description of these agreements.
Use of Proceeds
The net proceeds from the sale of Common Stock in the Conversion
(estimated at $12.8 million, $15.2 million, $17.5 million and $20.2 million
based on sales at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range, respectively) will substantially increase the
capital of Hemlock Federal. See "Pro Forma Data." The Holding Company will
utilize approximately 50% of the net proceeds from the issuance of the Common
Stock to purchase all of the common stock of Hemlock Federal to be issued upon
Conversion and will retain approximately 50% of the net proceeds. The proceeds
retained by
12
<PAGE>
the Holding Company will be invested initially in short-term investments similar
to those currently in the Bank's portfolio. Such proceeds will subsequently be
invested in mortgage-backed securities and investment securities and will be
available for general corporate purposes, including the possible repurchase of
shares of the Common Stock, as permitted by the OTS. The Holding Company
currently has no specific plan to make any such repurchases of any of its Common
Stock. In addition, the Holding Company intends to provide the funding for the
ESOP loan. Based upon the initial Purchase Price of $10.00 per share, the dollar
amount of the ESOP loan would range from $1.1 million (based upon the sale of
shares at the minimum of the Estimated Valuation Range) to $1.4 million (based
upon the sale of shares at the maximum of the Estimated Valuation Range). It is
anticipated that the ESOP will repay the loan through periodic tax-deductible
contributions from the Bank over a ten-year period. The interest rate to be
charged by the Holding Company on the ESOP loan will be based upon the Internal
Revenue Service ("IRS") prescribed applicable federal rate at the time of
origination.
Finally, the Holding Company currently intends to use a portion of the
proceeds to fund a Recognition and Retention Plan ("RRP"), subject to
stockholder ratification. Compensation expense related to the RRP will be
recognized as share awards vest. See "Pro Forma Data." Following stockholder
ratification of the RRP, the RRP will be funded either with shares purchased in
the open market or with authorized but unissued shares. Based upon the Purchase
Price of $10.00 per share, the amount required to fund the RRP through
open-market purchases would range from approximately $533,800 (based upon the
sale of shares at the minimum of the Estimated Valuation Range) to approximately
$722,200 (based upon the sale of shares at the maximum of the Estimated
Valuation Range). In the event that the per share price of the Common Stock
increases above the $10.00 per share Purchase Price following completion of the
Offering, the amount necessary to fund the RRP would also increase. The use of
authorized but unissued shares to fund the RRP could dilute the holdings of
stockholders who purchase Common Stock in the Conversion. See "Management -
Benefit Plans - Recognition and Retention Plan."
The net proceeds received by Hemlock Federal will become part of Hemlock
Federal's general funds for use in its business and will be used to support the
Bank's existing operations, subject to applicable regulatory restrictions.
Immediately upon the completion of the Conversion, it is anticipated that the
Bank will invest such proceeds into short-term assets. Subsequently, the Bank
intends to redirect the net proceeds to the origination of residential loans
and, to a lesser extent, multi-family real estate and consumer loans, subject to
market conditions. In addition, the Bank may direct a portion of the proceeds
towards the establishment of a new branch office in the southwestern suburbs of
Chicago, although the Bank had no specific plans regarding any such new office
as of the date hereof. Finally, such proceeds will be available for the
acquisition of deposits or assets or both from other institutions, although no
such acquisitions are contemplated at this time.
See "Use of Proceeds" for additional information on the utilization of
the offering proceeds as well as OTS restrictions on repurchases of the Holding
Company's stock.
13
<PAGE>
Dividends
The declaration and payment of dividends are subject to, among other
things, the Holding Company's financial condition and results of operations,
Hemlock Federal's compliance with its regulatory capital requirements, including
the fully phased-in capital requirements, tax considerations, industry
standards, economic conditions, regulatory restrictions, general business
practices and other factors. There can be no assurance as to whether or when the
Holding Company will pay a dividend. See "Dividends."
Market for Common Stock
The Holding Company has received preliminary approval to have the Common
Stock traded on the Nasdaq National Market System under the symbol "____." In
order to be traded on the Nasdaq National Market System, there must be at least
two market makers for the Common Stock. Keefe, Bruyette & Woods has indicated
its intention to make a market in the Holding Company's Common Stock following
completion of the Conversion, depending upon the volume of trading activity in
the Common Stock and subject to compliance with applicable laws and other
regulatory requirements. A second market marker has not yet been secured by the
Holding Company. The Holding Company anticipates that it will be able to secure
the two market makers necessary to enable the Common Stock to be traded on the
Nasdaq National Market System. A public market having the desirable
characteristics of depth, liquidity and orderliness, however, depends upon the
presence in the marketplace of both willing buyers and sellers of the Common
Stock at any given time, which is not within the control of the Holding Company,
Hemlock Federal or any market maker. Further, no assurance can be given that an
investor will be able to resell the Common Stock at or above the Purchase Price
after the Conversion. See "Market for Common Stock" and "The Conversion - Stock
Pricing and Number of Shares to be Issued."
Risk Factors
See "Risk Factors" for information regarding certain factors which should
be considered by prospective investors, including the Bank's limited growth
potential, difficulty in fully leveraging capital, mortgage-backed securities
portfolio; effect on asset yield, interest rate risk exposure, future funding of
the Bank's charitable foundation, competition, takeover defensive provisions
contained in the Holding Company's certificate of incorporation and bylaws,
post- conversion overhead expenses, regulatory oversight, the risk of a delayed
offering, the absence of an active market for the Common Stock and the possible
consequences of amendment of the Plan of Conversion.
14
<PAGE>
SELECTED FINANCIAL INFORMATION
Set forth below are selected financial and other data of the Bank.
Operating results for the interim periods are not necessarily indicative of
results of any other interim periods. The financial data is derived in part
from, and should be read in conjunction with, the Financial Statements and Notes
of the Bank presented elsewhere in this Prospectus.
In the opinion of management, the unaudited condensed financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial condition of Hemlock
Federal Bank as of September 30, 1996 and for the nine month periods ended
September 30, 1996 and 1995.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
September
30, 1996(1) 1995 1994 1993 1992 1991
------------- ------ ------ ------ ------ -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets....................................... $146,983 $145,626 $143,877 $146,679 $141,175 $133,239
Cash and cash equivalents.......................... 16,376 13,301 16,827 18,131 6,430 6,440
Loans receivable, net(2)........................... 53,121 45,232 37,659 37,041 31,739 33,750
Mortgage-backed securities(3):
Held-to-maturity................................. 31,860 43,106 66,040 81,439 89,757 86,980
Available for sale............................... 34,064 25,620 8,244 --- --- ---
Investment securities:(3)
Held-to-maturity................................. --- 1,500 3,500 6,003 9,291 1,717
Available for sale............................... 7,095 13,125 7,934 --- --- ---
FHLMC stock........................................ 667 549 332 26 49 106
Deposits........................................... 129,159 130,741 130,771 132,583 128,149 120,703
Total borrowings................................... 1,500 1,500 1,500 3,000 3,000 3,000
Retained earnings - substantially restricted....... 10,842 11,346 10,394 9,855 8,878 8,114
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Nine Months Year Ended
Ended September 30,(1) December 31,
---------------------- ------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operations Data:
Total interest income........................ $7,673 $7,365 $9,935 $8,501 $8,815 $10,060 $10,798
Total interest expense....................... 4,235 3,994 5,416 4,672 4,948 6,196 7,542
------ ------ ------ ------ ------ ------- -------
Net interest income........................ 3,438 3,371 4,519 3,829 3,867 3,864 3,256
Provision for loan losses.................... 75 122 134 150 149 357 33
------ ------ ------ ------ ------ ------- -------
Net interest income after provision for loan
losses..................................... 3,363 3,249 4,385 3,679 3,718 3,507 3,223
Fees and service charges..................... 297 252 352 308 345 326 226
Gain (loss) on sales of mortgage-backed
securities and investment securities....... (80) (161) (161) (89) 270 466 324
Other non-interest income.................... 104 107 146 164 112 104 259
------ ------- ------ ------ ------ ------- -------
Total non-interest income.................... 321 198 337 383 727 896 809
Total non-interest expense................... 4,529 2,281 3,211 3,180 3,313 3,033 3,100
----- ------- ------ ------ ------ ------ ------
Income (loss) before taxes and cumulative
effect..................................... (845) 1,166 1,511 882 1,132 1,370 932
Income tax provision (benefit)............... (341) 433 559 343 411 606 364
Cumulative effect............................ --- --- --- --- 256 --- ---
------- -------- ------- ------ ------ ------- -------
Net income (loss)............................ $(504) $733 $ 952 $ 539 $ 977 $ 764 $ 568
<FN>
- ----------------
(1) Financial information at September 30, 1996 and for the nine month
periods ended September 30, 1996 and 1995 is derived from unaudited
financial data, but in the opinion of management, reflects all adjustment
(consisting only of normal recurring adjustments) which are necessary to
present fairly the results for such interim periods. Interim results at
and for the nine months ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1996.
(2) The allowance for loan losses at September 30, 1996, December 31, 1995,
1994, 1993, 1992 and 1991 was $670,000, $600,000, $469,000, $234,000,
497,000 and $174,000, respectively.
(3) The Bank adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
effective as of January 1, 1994. Prior to the adoption of SFAS No. 115,
investment securities and mortgage-backed securities held for sale were
carried at the lower of amortized cost or market value, as adjusted for
amortization of premiums and accretion of discounts over the remaining
terms of the securities from the dates of purchase.
</FN>
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Nine Months Year Ended
Ended September 30,(1) December 31,
---------------------- -------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average
total assets)................................... (0.46)% 0.68% 0.66% 0.37% 0.68% 0.65% 0.45%
Return on equity (ratio of net income to average
equity)(3)...................................... (5.80) 9.05 8.72 5.27 10.40 8.95 7.20
Interest rate spread information:
Average during period........................... 2.96 3.00 3.01 2.49 2.54 2.68 2.38
End of period................................... 2.56 2.83 3.11 2.93 3.58 2.84 2.29
Net interest margin(2).......................... 3.24 3.24 3.25 2.69 2.74 2.90 2.65
Ratio of operating expense to average total
assets.......................................... 4.13 2.12 2.23 2.16 2.30 2.18 2.44
Ratio of average interest-earning assets to
average interest-bearing liabilities............ 107.16 106.24 106.31 106.27 105.58 104.84 104.53
Quality Ratios:
Non-performing assets to total assets at end of
period.......................................... 0.05 0.32 0.40 0.43 0.80 1.17 1.50
Allowance for loan losses to non-performing
loans........................................... 870.13 125.11 103.63 76.01 19.95 30.18 8.73
Allowance for loan losses to gross loans
receivable...................................... 1.24 1.32 1.31 1.23 0.62 1.53 0.51
Capital Ratios:(3)
Equity to total assets at end of period........... 7.38 7.65 7.79 7.22 6.72 6.29 6.09
Average equity to average assets.................. 7.94 7.53 7.59 7.01 6.51 6.14 6.21
Other data:
Number of full service offices.................... 3 3 3 3 3 3 3
<FN>
- --------------
(1) Ratios for the nine-month periods have been annualized.
(2) Net interest income divided by average interest-earning assets.
(3) Ratios are exclusive of SFAS 115 valuation.
</FN>
</TABLE>
17
<PAGE>
RECENT FINANCIAL DATA
The selected financial and other data of the Bank set forth below at
and for the three and twelve months ended December 31, 1996 and 1995 were
derived from unaudited financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the financial condition and results of operations for the
unaudited periods presented have been included. The information presented below
is qualified in its entirety by the detailed information and financial
statements included elsewhere in this Prospectus and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business" and the audited Financial Statements of
the Bank and Notes thereto included elsewhere in this Prospectus.
At December 31, At September 30,
1996 1995
--------------- ----------------
(In Thousands)
Selected Financial Condition Data:
Total assets............................. $146,793 $146,983
Cash and cash equivalents................ 17,410 16,376
Securities available-for-sale............ 42,619 41,826
Securities held-to-maturity.............. 29,537 31,860
Loans receivable, net.................... 53,536 53,121
Deposits................................. 131,243 129,159
Retained earnings........................ 10,896 10,842
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
December 31, December 31,
---------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- -------
(In Thousands)
<S> <C> <C> <C> <C>
Selected Operations Data:
Interest income............................. $ 2,464 $ 2,569 $ 10,137 $ 9,935
Interest expense............................ 1,408 1,422 5,643 5,416
------- ------- -------- ------
Net interest income before provision
for loan losses.......................... 1,056 1,147 4,494 4,519
Provision for loan losses................... 75 11 150 134
-------- -------- -------- ------
Net interest income after provision for
loan losses............................ 981 1,136 4,344 4,385
Loss on sale of securities.................. (44) --- (124) (161)
Other non-interest income................... 110 139 511 498
Non-interest expense........................ 958 930 5,487 3,211
------ -------- ------- -------
Income before income taxes.................. 89 345 (756) 1,511
Income taxes................................ 36 126 (305) 559
------- -------- ------- -------
Net income ............................... $ 53 $ 219 $ (451) $ 952
======= ======== ======= =======
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
At or for the At or for the
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------ -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on average assets(1)........................ 0.14% 0.59% (0.31)% 0.66%
Return on average equity(1)........................ 1.97 7.61 (4.02) 8.72
Average equity to average assets................... 7.36 7.76 7.68 7.59
Equity to total assets at end of period............ 7.42 7.78 7.42 7.79
Average interest rate spread(1).................... 2.72 2.96 2.93 3.01
Net interest margin(1)(2).......................... 3.01 3.25 3.20 3.25
Average interest-earning assets to average
interest-bearing liabilities..................... 106.71 107.40 106.67 106.31
Efficiency ratio(3)................................ 0.85 0.72 1.12 0.66
Non-interest expense to average assets(1).......... 2.62 2.58 3.76 2.23
Asset Quality Ratios:
Allowance for loan losses as a percent of
gross loans receivable............................ 1.37 1.31 1.37 1.37
Allowance for loan losses as a percent of non-
performing loans.................................. 116.51 103.63 116.51 103.63
<FN>
- ------------------
(1) Ratios for the three month periods have been annualized.
(2) Net interest income divided by average interest earning assets.
(3) The efficiency ratio represents noninterest expense as a percent of net
interest income and noninterest income before provision for loan losses.
</FN>
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT RESULTS
Comparison of Financial Condition at December 31, 1996 and September 30, 1996
Total assets at December 31, 1996 were $146.8 million compared to
$147.0 million at September 30, 1996, a decrease of $200,000, or 0.1%. The
decrease in total assets was due primarily to decreases in securities
held-to-maturity and other assets, partially offset by increases in securities
available-for-sale and cash and cash equivalents.
Total liabilities at December 31, 1996 were $135.3 million compared to
$135.6 million at September 30, 1996, a decrease of $300,000, or 0.2%. The
decrease is primarily due to the payment of a $2.1 million liability for the
purchase of a security at September 30, 1996 and the payment of the one-time
special SAIF assessment of $840,000. These decreases were partially offset by an
increase in deposits of $2.0 million from $129.2 million at September 30, 1996
to $131.2 million at December 31, 1996 due to market demand. In addition,
advance payments by borrowers for taxes and insurance increased by $394,000 due
to the receipt of payments after the second installment of real estate taxes in
September, and other liabilities increased due to an increase in deferred tax
liabilities of approximately $56,000.
Total equity at December 31, 1996 was $11.5 million compared to $11.4
million at September 30, 1996, an increase of $100,000, or 0.8% as a result of
$53,000 net income for the period combined with a change in unrealized gain on
securities available-for-sale from $519,000 at September 30, 1996 to $607,000 at
December 31, 1996.
Comparison of Operating Results for the Three Months Ended December 31, 1996 and
December 31, 1995
General. Net income for the three months ended December 31, 1996 was
$53,000, a decrease of $166,000, from net earnings of $219,000 for the three
months ended December 31, 1995. The decrease was primarily due to a $91,000
decrease in net interest income combined with a loss on sale of securities of
$44,000 in 1996. In addition, there was an increase in other expense of $28,000
and an increase in the provision for loan losses of $64,000. These items are
more fully discussed below.
Interest Income. Interest income for the three months ended December
31, 1996 was $2.5 million compared to $2.6 million for the three months ended
December 31, 1995, a decrease of $105,000, or 4.1%. The decrease resulted
primarily from a decrease in the average yield. The annualized average yield
decreased 28 basis points from 7.28% for the three months ended December 31,
1995 to 7.00% for the three months ended December 31, 1996 largely as a result
of a decrease in the yield on loans and mortgage-backed securities to higher
yielding loans receivable. The decrease in the annualized yield on loans from
8.35% for the three months ended December 31, 1995 to 8.23% for the three months
ended December 31, 1996 was a result of offering more competitive rates due to
management's concerted effort to increase loan growth.
Interest Expense. Interest expense was $1.4 million for the three
months ended December 31, 1996 and 1995. The average balance of interest-bearing
liabilities increased slightly by $240,000. However, this was offset by a slight
decrease in the average cost of funds
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from 4.32% for the three months ended December 31, 1995 to 4.28% for the three
months ended December 31, 1996.
Net Interest Income. Net interest income was $1.1 million for the three
months ended December 31, 1996 and 1995. The average net interest spread
narrowed from 2.96% for the three months ended December 31, 1995 to 2.72% for
the three months ended December 31, 1996 due to the decrease in the average
annualized yield of interest-earning assets.
Provision for Loan Losses. The Bank recorded a $75,000 provision for
loan losses for the three months ended December 31, 1996 compared to $11,000 for
the three months ended December 31, 1995. At December 31, 1996, the Bank's
allowance for loan losses totaled $745,000, or 1.4% of total loans and 116.5% of
total non-performing loans. The amount of the provision and allowance for
estimated losses on loans is influenced by current economic conditions, actual
loss experience, industry trends and other factors, such as adverse economic
conditions, including declining real estate values, in the Bank's market area.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for estimated
losses on loans. Such agencies may require the Bank to provide additions to the
allowance based upon judgments which differ from those of management. Although
management uses the best information available and maintains the Bank's
allowance for losses at a level it believes adequate to provide for losses,
future adjustments to the allowance may be necessary due to economic, operating,
regulatory and other conditions that may be beyond the Bank's control.
Noninterest Income. Noninterest income for the three months ended
December 31, 1996 was $66,000 compared to $139,000 for the three months ended
December 31, 1995, a decrease of $73,000, or 52.5%. The decrease was primarily a
result of losses on sale of securities of $44,000 for the three months ended
December 31, 1996 compared to no losses for the three months ended December 31,
1995. In addition, service fee income decreased $18,000 as a result of decreased
service charges on NOW accounts. Other income decreased $11,000 due to a
decrease in fee income resulting from a decrease in fees on FHA and VA loans on
which applications were taken for other lenders.
Noninterest Expense. Noninterest expense was $958,000 for the three
months ended December 31, 996 compared to $930,000 for the three months ended
December 31, 1995, an increase of $28,000, or 3.0%. The increase was primarily a
result of an increase in occupancy expense of $22,000 as a result of increased
assessment on real estate taxes combined with an increase in data processing
fees of $22,000 and an increase in other expense of $33,000. The increase in
other expense was largely due to increased supplies as a result of the growth in
loan originations and an increase in outside services. These increases in
expense were partially offset by a decrease in compensation and benefits of
$51,000 due primarily to the freezing of the money purchase pension plan in
October 1996, resulting in decreased contributions.
Income Tax Expense. The provision for income taxes totaled $36,000 for
the three months ended December 31, 1996 compared to $126,000 for the three
months ended December 31, 1995. The decrease was primarily due to a decrease in
income before income taxes of $256,000.
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Comparison of Operating Results for the Years Ended December 31, 1996 and
December 31, 1995
General. Net loss for the year ended December 31, 1996 was ($451,000)
compared to net income of $952,000 for the year ended December 31, 1995, a
decrease of $1.4 million, or 147.1%. The decrease was primarily a result of an
$840,000 FDIC special assessment on SAIF insured deposits effective September
30, 1996 and a $1.0 million accrued contribution to the Foundation in September
1996. In addition, the Bank realized a $223,000 gain on sale of real estate
owned in 1995 compared to $0 in 1996.
Interest Income. Interest income for the year ended December 31, 1996
was $10.1 million compared to $9.9 million for the year ended December 31, 1995,
an increase of $200,000, or 2.0%. The contributing factor in the increase in
interest income was the 6 basis point increase in the yield on average
interest-earning assets from 7.15% for the year ended December 31, 1995 to 7.21%
for the year ended December 31, 1996. The average yield on mortgage-backed
securities increased from 6.80% for the year ended December 31, 1995 to 7.02%
for the year ended December 31, 1996 due to the upward repricing of adjustable
rate securities coupled with the reduced amortization of premiums as a result of
a slowdown in prepayments from the prior year as anticipated by management.
Although the yield on average loans receivable decreased from 8.21% for the year
ended December 31, 1995 to 8.05% for the year ended December 31, 1996, the
average balance of loans receivable increased by $9.4 million due to the shift
from lower yielding securities and mortgage-backed securities to higher yielding
loans receivable. The increase in the average balance of loans receivable was
the result of management's concerted effort through the addition of lending
personnel and increased emphasis on loan marketing.
Interest Expense. Interest expense for the year ended December 31, 1996
was $5.6 million compared to $5.4 million for the year ended December 31, 1995,
an increase of $200,000, or 3.7%. The increase in interest expense reflects a
higher interest rate environment, as the average cost of interest-bearing
liabilities increased by 14 basis points from 4.14% for the year ended December
31, 1995 to 4.28% for the year ended December 31, 1996. The increase in the
average cost of funds was also attributable to a shift of deposits from money
market accounts to higher yielding certificates of deposit. The average cost of
certificates of deposit increased from 5.23% for the year ended December 31,
1995 to 5.45% for the year ended December 31, 1996. In addition, the average
balance of interest-bearing liabilities increased $1.1 million from $130.7
million for the year ended December 31, 1995 to $131.8 million for the year
ended December 31, 1996 as a result of market demand.
Net Interest Income. Net interest income of $4.5 million for the year
ended December 31, 1996 represented no increase from the $4.5 million reported
for the year ended December 31, 1995. There was a decrease in the net interest
spread from 3.01% for the year ended December 31, 1995 to 2.93% for the year
ended December 31, 1996. The decrease in the net interest rate spread was a
result of the average cost of interest-bearing deposits increasing at a more
rapid rate than the average yield on interest-earning assets.
Provision for Loan Losses. The Bank's provision for loan losses for the
year ended December 31, 1996 was $150,000 compared to $133,000 for the year
ended December 31, 1995. The allowance for loan losses represented 1.4% and 1.3%
of gross loans receivable at
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December 31, 1996 and 1995, respectively. The amount of the provision and
allowance for estimated losses on loans is influenced by current economic
conditions, actual loss experience, industry trends and other factors, such as
adverse economic conditions, including declining real estate values, in the
Bank's market area. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's allowance for
estimated losses on loans. Such agencies may require the Bank to provide
additions to the allowance based upon judgments which differ from those of
management. Although management uses the best information available and
maintains the Bank's allowance for losses at a level it believes adequate to
provide for losses, future adjustments to the allowance may be necessary due to
economic, operating, regulatory and other conditions that may be beyond the
Bank's control.
Noninterest Income. Noninterest income for the year ended December 31,
1996, was $387,000 compared to $337,000 for the year ended December 31, 1995, an
increase of $50,000, or 14.8%. The increase was the result of a decrease in the
loss on sale of securities of $38,000 combined with the $27,000 increase in
service fees related to NOW accounts. This was partially offset by a decrease of
$18,000 in other income on FHA and VA loans on which the applications were taken
for other lenders.
Noninterest Expense. Noninterest expense was $5.5 million for the year
ended December 31, 1996 compared to $3.2 million for the year ended December 31,
1995, an increase of $2.3 million, or 71.9%. The increase was primarily due to
an $840,000 one-time special assessment on SAIF insured deposits resulting from
federal legislation enacted on September 30, 1996. In addition, the Bank accrued
$1.0 million during 1995 for a contribution to the Foundation established by the
Bank in September 1996. In addition, the Bank recognized a gain on the sale of
other real estate owned of $223,000 in 1995 compared to zero in 1996 and also
experienced an increase in occupancy expense of $82,000 due primarily to
increased real estate tax assessments in 1996.
Income Taxes. The provision (benefit) for income taxes was ($305,000)
for the year ended December 31, 1996 compared to $559,000 for the year ended
December 31, 1995. The decrease was primarily due to a decrease in pretax income
of $2.3 million.
RISK FACTORS
The following factors, in addition to those discussed elsewhere in this
Prospectus, should be considered by investors before deciding whether to
purchase the Common Stock offered in the Offering.
Limited Growth Potential
The Bank experiences strong competition in its local market area in both
originating loans and attracting deposit accounts. This competition arises
principally from savings institutions and commercial banks as well as other
types of financial service companies such as mortgage bankers, securities firms
and credit unions. See "Business - Lending Activities" and "Competition."
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In view of the increasing cost and complexity of operating a financial
institution, the Board of Directors believes that moderate growth of the Bank's
assets and liabilities is important for maintaining profitability. In addition,
the Board of Directors believes that growth will be needed in the future to
leverage the new capital raised by the Conversion. See "Use of Proceeds."
Unfortunately, as a result of competition from both depository as well as
non-depository firms (such as mutual funds), the Bank has found it very
difficult to increase its deposits on a cost effective basis. Since December 31,
1993, the Bank's deposit volume has declined slightly. Based on the above, the
Board believes that future internal growth can be effectively sustained only at
modest levels. As a result, the Holding Company's ability to quickly leverage
the net proceeds from the Conversion is likely to be limited. Accordingly, for
the near term, return on equity will decline from recent levels. Since return on
equity is generally an important factor in determining an institution's stock
price, an unfavorable return on equity could adversely affect the Holding
Company's stock price. See "Pro Forma Data" and "Use of Proceeds."
Mortgage-Backed and Related Securities
During much of the 1980s, as a result of fierce competition as well as
volatility in interest rates and real estate values, the Bank deemphasized
residential lending. In order to offset the resulting decline in the proportion
of its assets consisting of loans as well as increase its holdings of assets
having a short or intermediate term to maturity on repricing, the Bank
accumulated a substantial portfolio of mortgage-backed and related securities.
Although the proportion of the Bank's assets consisting of loans has increased
significantly over the last several years as a result of a reemphasis on
residential lending, as of September 30, 1996, 44.9% of the Bank's assets
consisted of mortgage-backed securities. Since such securities generally carry a
lower yield than residential loans, if the proportion of the Bank's assets
consisting of these securities increases, its asset yield and hence its interest
rate spread would likely be adversely affected. In addition, since a significant
portion of the Bank's mortgage backed and related securities are classified for
accounting purposes as "available-for-sale," any reduction in the value of such
securities below their carrying value resulting from a change in economic
condition would result in a charge to equity. See "Business - Mortgage-Backed
and Related Securities." There can be no assurance that earnings will not be
adversely affected in the future if the proportion of the Bank's assets which
consists of mortgage-backed and other securities increases.
Interest Rate Risk Exposure
The Bank's profitability is dependent to a large extent upon its net
interest income, which is the difference between its interest income on
interest-earning assets, such as loans and investments, and its interest expense
on interest-bearing liabilities, such as deposits and borrowings. When interest
rates rise, the Bank's net interest income tends to be adversely impacted since
its liabilities tend to reprice more quickly than its assets. Conversely, in a
declining rate environment the Bank's net interest income is generally
positively impacted since its assets tend to reprice more slowly than its
liabilities. Changes in the level of interest rates also affect the amount of
loans originated by the Bank and, thus, the amount of loan and
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<PAGE>
commitment fees, as well as the market value of the Bank's interest-earning
assets. Moreover, increases in interest rates also can result in
disintermediation, which is the flow of funds away from savings institutions
into direct investments, such as corporate securities and other investment
vehicles, which generally pay higher rates of return than savings institutions.
Finally, a flattening of the "yield curve" (i.e., a decline in the difference
between long and short term interest rates), could adversely impact net interest
income to the extent that the Bank's assets have a longer average term than its
liabilities.
In managing its asset/liability mix, the Bank at times, depending on the
relationship between long- and short-term interest rates, market conditions and
consumer preference, places more emphasis on managing net interest margin than
on better matching the interest rate sensitivity of its assets and liabilities
in an effort to enhance net interest income. As a result, the Bank will continue
to be significantly vulnerable to changes in interest rates and to decreases in
the difference between long and short term interest rates.
At September 30, 1996, the Bank's net portfolio value would have declined
by 14% and 36%, respectively, in the event of a 200 and a 400 basis point
increase in general interest rates. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Asset/Liability Management."
Future Contributions to the Bank's Charitable Foundation
In futherence of its long-standing commitment to the communities which it
serves, the Bank has established a charitable foundation. Effective as of
September 30, 1996, the Bank accrued a contribution of $1.0 million to fund the
Foundation. In addition, in the future, the Company currently intends to
contribute up to 10% of its net income, in the form of cash or stock, to the
Foundation on an annual basis. The amount of such future contributions, if any,
will be determined based upon, among other factors, an assessment of the
Company's then current financial position, operations and prospects and on the
need for charitable activities in the Bank's market area. Any such contribution,
regardless of form, will result in an increase in non-interest expense and thus
a reduction in net earnings. In addition, any contribution of authorized but
unissued shares would dilute the interests of outstanding shares. However, the
Board of Directors currently anticipates that any contribution of shares to the
Foundation will be funded through shares repurchased in the open market. The
Bank does not intend to make any contributions to the Foundation which are not
deductible for Federal Income Tax purposes.
Competition
Hemlock Federal experiences significant competition in its local market
area in both originating real estate and other loans and attracting deposits.
This competition arises from other savings institutions as well as commercial
banks, mortgage banks, credit unions and national and local securities firms.
The Bank's competitors include many significantly larger banks, including
several large regional banks with offices in Hemlock Federal's primary market
area. Due to their size, these large banks can achieve certain economies of
scale and as a result offer a broader range of products and services than are
currently available at the Bank. The Bank attempts to mitigate the effect of
such factors by emphasizing customer service. Such competition may limit Hemlock
Federal's growth in the future. See "Business - Competition."
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Takeover Defensive Provisions
Holding Company and Bank Governing Instruments. Certain provisions of the
Holding Company's Certificate of Incorporation and Bylaws assist the Holding
Company in maintaining its status as an independent publicly owned corporation.
However, such provisions may also block stockholders from approving a potential
takeover of the Holding Company which a majority of such stockholders believe to
be in their best interests. These provisions provide for, among other things,
limiting voting rights of beneficial owners of more than 10% of the Common
Stock, staggered terms for directors, noncumulative voting for directors, local
resident requirement for directors, limits on the calling of special meetings, a
fair price/supermajority vote requirement for certain business combinations and
certain notice requirements. The 10% vote limitation would not affect the
ability of an individual who is not the beneficial owner of more than 10% of the
Common Stock to solicit revocable proxies in a public solicitation for proxies
for a particular meeting of stockholders and to vote such proxies. In addition,
provisions in the Bank's federal stock Charter that have an anti-takeover effect
could also be applicable to changes in control of the Holding Company as the
sole shareholder of the Bank. The Bank's Charter includes a provision applicable
for five years which prohibits acquisitions and offers to acquire, directly or
indirectly, the beneficial ownership of more than 10% of the Bank's securities.
Any person violating this restriction may not vote the Bank's securities in
excess of 10%. Any or all of these provisions may discourage potential proxy
contests and other takeover attempts, particularly those which have not been
negotiated with the Board of Directors. In addition, the Holding Company's
certificate of incorporation also authorizes preferred stock with terms to be
established by the Board of Directors which may rank prior to the Common Stock
as to dividend rights, liquidation preferences, or both, may have full or
limited voting rights and may have a dilutive effect on the ownership interests
of holders of the Common Stock. See "Restrictions on Acquisitions of Stock and
Related Takeover Defensive Provisions."
Regulatory and Statutory Provisions. Federal regulations prohibit, for a
period of three years following the completion of the Conversion, any person
from offering to acquire or acquiring the beneficial ownership of more than 10%
of the stock of a converted savings institution or its holding company without
prior OTS approval. Federal law also requires OTS approval prior to the
acquisition of "control" (as defined in OTS regulations) of an insured
institution, including a holding company thereof. See "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions."
Employment Agreements, Severance Agreements and Other Benefit Plans. The
employment agreements, severance agreements, the proposed Stock Option Plan and
the proposed RRP also contain provisions that could have the effect of
discouraging takeover attempts of the Holding Company.
The Bank intends to enter into employment agreements with Chairman
Partynski and President Stevens and severance agreements with two other
executive officers. The employment agreements provide for an annual base salary
in an amount not less than the employee's current salary and an initial term of
three years. The agreements may be extended for an additional year on each
annual anniversary date, but only if such extensions are approved by the Board
of Directors. The employment agreements also provide for payment of the
employee's salary to the employee for the remainder of the term of the
agreement, plus an additional amount, the sum
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<PAGE>
of which will not exceed a percentage of the employee's base compensation, in
the event there is a "change in control" of the Bank (as defined in the
agreement) where employment terminates involuntarily in connection with such
change in control or within 12 months thereafter.
The Bank also intends to enter into change in control severance
agreements with three other executive officers. Such agreements become effective
upon completion of the Conversion and have initial terms of 12 months. In the
event the officer is terminated following a change in control (as defined in the
agreements), such officer will be entitled to a severance payment equal to 100%
of such employee's annual compensation. Currently, no officers have employment
or severance agreements. For more information regarding these agreements, see
"Management - Executive Compensation - Employment Agreements and Severance
Agreements."
Possible Dilutive Effects. The issuance of additional shares pursuant to
the proposed Stock Option Plan and RRP will result in a dilution in the
percentage of ownership of the Holding Company of those persons purchasing
Common Stock in the Conversion, assuming that the shares utilized to fund the
proposed Stock Option Plan and RRP awards come from authorized but unissued
shares. Assuming the exercise of all options available under the Stock Option
Plan and the award of all shares available under the RRP, and assuming the use
of authorized but unissued shares, the interest of stockholders will be diluted
by approximately 9.1% and 3.8%, respectively. See "Pro Forma Data," "Management
- - Benefit Plans - Stock Option and Incentive Plan," and "- Recognition and
Retention Plan" and "Restrictions on Acquisitions of Stock and Related Takeover
Defensive Provisions." For financial accounting purposes, certain incentive
grants under the proposed RRP will result in the recording of compensation
expense over the vesting period. See "Pro Forma Data."
Voting Control of Directors and Executive Officers. The directors and
executive officers (9 persons) of the Bank are anticipated to purchase an
aggregate of approximately $1,246,000 or approximately 9.3% of the shares
offered in the Conversion at the minimum of the Estimated Valuation Range, or
6.9% of the shares offered in the Conversion at the maximum of the Estimated
Valuation Range. Directors and executive officers will also receive awards under
the proposed Stock Option Plan and the proposed RRP. Assuming the purchase of
$1,246,000 of Common Stock in the Conversion by directors and executive officers
in the aggregate, the full vesting of the restricted stock to be awarded under
the proposed RRP and the issuance of shares from authorized but unissued shares
in connection with the exercise of all options intended to be awarded under the
proposed Stock Option Plan the Conversion and approval of the Stock Option Plan
and the RRP by the stockholders, the shares owned by the directors and executive
officers in the aggregate would be between 20.1% (at the maximum of the
Estimated Valuation Range) and 17.9% (at the minimum of the Estimated Valuation
Range) of the outstanding shares. In addition, the ESOP is expected to purchase
8% of the shares sold in the Conversion. This stock ownership, if voted as a
block, could defeat takeover attempts favored by other stockholders.
Post Conversion Overhead Expense
After completion of the Conversion, the Holding Company's noninterest
expense is likely to increase as a result of the financial accounting, legal and
tax expenses usually associated with
27
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operating as a public company. See "Regulation - Federal and State Taxation" and
"Additional Information." In addition, it is currently anticipated that the
Holding Company will record additional expense based on the proposed RRP. See
"Pro Forma Data" and "Management - Benefit Plans - Recognition and Retention
Plan." Finally, the Holding Company will also record additional expense as a
result of the adoption of the ESOP. See "Management - Benefit Plans - Employee
Stock Ownership Plan."
Statement of Position 93-6 "Employers' Accounting for Employee Stock
Ownership Plans" ("SOP 93-6") requires an employer to record compensation
expense in an amount equal to the fair value of shares committed to be released
to employees from an employee stock ownership plan. Assuming shares of Common
Stock appreciate in value over time, the adoption of SOP 93-6 may increase
compensation expense relating to the ESOP to be established in connection with
the Conversion as compared with prior guidance which required the recognition of
compensation expense based on the cost of shares acquired by the ESOP. It is
impossible to determine at this time the extent of such impact on future net
income. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Impact of New Accounting Standards" and "Pro Forma
Data."
Regulatory Oversight
The Bank is subject to extensive regulation, supervision and examination
by the OTS as its chartering authority and primary federal regulator, and by the
FDIC, which insures its deposits up to applicable limits. The Bank is a member
of the Federal Home Loan Bank (the "FHLB") of Chicago and is subject to certain
limited regulation by the Board of Governors of the Federal Reserve System
("Federal Reserve Board"). As the savings and loan holding company of the Bank,
the Holding Company will be subject to regulation and oversight by the OTS. See
"Regulation." Such regulation and supervision governs the activities in which an
institution can engage and is intended primarily for the protection of the
insurance fund and depositors. Regulatory authorities have been granted
extensive discretion in connection with their supervisory and enforcement
activities which are intended to strengthen the financial condition of the
Banking industry, including the imposition of restrictions on the operation of
an institution, the classification of assets by the institution and the adequacy
of an institution's allowance for loan losses. See "Regulation - Federal
Regulation of Savings Associations" and "- Regulatory Capital Requirements." Any
change in such regulation and oversight, whether by the OTS, the Federal Reserve
Board, the FDIC or Congress, could have a material impact on the Holding
Company, the Bank and their respective operations.
Risk of Delayed Offering
The Subscription Offering will expire at noon, Oak Forest, Illinois time,
on _______, 1997 unless extended by the Bank and the Holding Company. Depending
on the availability of shares and market conditions at or near the completion of
the Subscription Offering, the Holding Company may conduct a Public Offering
through KBW. If the Offering is extended beyond __________, 1997, all
subscribers will have the right to modify or rescind their subscriptions and to
have their subscription funds returned with interest. There can be no assurance
that the Offering will not be extended as set forth above.
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A material delay in the completion of the sale of all unsubscribed shares
in the Public Offering or otherwise may result in a significant increase in the
costs in completing the Conversion. Significant changes in the Bank's operations
and financial condition, the aggregate market value of the shares to be issued
in the Conversion and general market conditions may occur during such material
delay. In the event the Conversion is not consummated within 24 months after the
date of the Special Meeting, OTS regulations would require the Bank to charge
accrued Conversion costs to then-current period operations. See "The Conversion
- - Risk of Delayed Offering."
Absence of Active Market for the Common Stock
The Holding Company, as a newly organized company, has never issued
capital stock. Consequently, there is not at this time any market for the Common
Stock. The Common Stock has received preliminary approval for listing on the
Nasdaq National Market under the symbol "____." KBW has agreed to act as a
market maker and to assist the Holding Company in securing a second market maker
to make a market in the Common Stock. However, there can be no assurance that at
least two market makers will be obtained, that the Bank will receive final
approval for listing on the Nasdaq National Market, that an active and liquid
market for the Common Stock will develop or be maintained or that resales of the
Common Stock can be made at or above the Purchase Price. See "Market for Common
Stock."
Possible Consequences of Amendment to Plan of Conversion
The Plan of Conversion provides that, if deemed necessary or desirable by
the Boards of Directors of the Bank and the Holding Company, the Plan of
Conversion may be substantively amended by a two-thirds vote of the respective
Boards of Directors of the Bank and the Holding Company, as a result of comments
from regulatory authorities or otherwise, at any time with the concurrence of
the Securities and Exchange Commission ("SEC") and the OTS. Moreover, if the
Plan of Conversion is amended, subscriptions which have been received prior to
such amendment will not be refunded unless otherwise required by the SEC or the
OTS. If the Plan of Conversion is amended in a manner that is deemed to be
material to the subscribers by the Holding Company, subscription funds will be
returned to subscribers with interest unless they affirmatively elect to
increase, decrease or maintain their subscriptions. No such amendments are
currently contemplated, although the Bank reserves the right to increase or
decrease purchase limitations without a subscriber resolicitation. See "The
Conversion - Approval, Interpretation, Amendment and Termination."
HEMLOCK FEDERAL FINANCIAL CORPORATION
The Holding Company was formed at the direction of Hemlock Federal in
December 1996 for the purpose of becoming a savings and loan holding company and
owning all of the outstanding stock of the Bank issued in the Conversion. The
Holding Company is incorporated under the laws of the State of Delaware. The
Holding Company is authorized to do business in the State of Illinois, and
generally is authorized to engage in any activity that is permitted by the
Delaware General Corporation Law. The business of the Holding Company initially
will consist only of the business of Hemlock Federal. The holding company
structure will, however, provide the Holding Company with greater flexibility
than the Bank has to diversify its business
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activities, through existing or newly formed subsidiaries, or through
acquisitions or mergers of stock financial institutions, as well as, other
companies. Although there are no current arrangements, understandings or
agreements regarding any such activity or acquisition, the Holding Company will
be in a position after the Conversion, subject to regulatory restrictions, to
take advantage of any favorable acquisition opportunities that may arise.
The assets of the Holding Company will consist initially of the stock of
Hemlock Federal, a note evidencing the Holding Company's loan to the ESOP and up
to 50% of the net proceeds from the Conversion (less the amount used to fund the
ESOP loan). See "Use of Proceeds." Initially, any activities of the Holding
Company are anticipated to be funded by such retained proceeds and the income
thereon and dividends from Hemlock Federal, if any. See "Dividends" and
"Regulation - Holding Company Regulation." Thereafter, activities of the Holding
Company may also be funded through sales of additional securities, through
borrowings and through income generated by other activities of the Holding
Company. At this time, there are no plans regarding such other activities other
than the intended loan to the ESOP to facilitate its purchase of Common Stock in
the Conversion. See "Management - Benefit Plans - Employee Stock Ownership
Plan."
The executive office of the Holding Company is located at 5700 West 159th
Street, Oak Forest, Illinois 60452-3198. Its telephone number at that address is
(708) 687-9400.
HEMLOCK FEDERAL
Hemlock Federal serves the financial needs of communities in its market
area through its main office located at 5700 West 159th Street, Oak Forest,
Illinois and its two branch offices located at 8855 South Ridgeland Avenue, Oak
Lawn, Illinois 60453 and 4646 South Damen Avenue, Chicago, Illinois 60609. Its
deposits are insured up to applicable limits by the Federal Deposit Insurance
Corporation ("FDIC"). At September 30, 1996, Hemlock Federal had total assets of
$147.0 million, deposits of $129.2 million and equity of $11.4 million (or 7.7%
of total assets).
Hemlock Federal has been, and intends to continue to be, an independent,
community oriented, financial institution. Hemlock Federal's business involves
attracting deposits from the general public and using such deposits, together
with other funds, to originate one- to four-family residential mortgage loans
and, to a much lesser extent, multi-family, consumer and other loans primarily
in its market area. At September 30, 1996, $47.7 million, or 88.7%, of the
Bank's total loan portfolio consisted of residential one- to four-family
mortgage loans. See
"Business - Lending Activities." The Bank also invests in mortgage-backed and
other securities and other permissible investments. See "Business - Investment
Activities - Securities" and "- Mortgage-Backed and Related Securities."
The executive office of the Bank is located at 5700 West 159th Street,
Oak Forest, Illinois 60452-3198. Its telephone number at that address is (708)
687-9400.
30
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Conversion is completed, it is presently anticipated
that such net proceeds will be between $12.8 million and $17.5 million (or up to
$20.2 million in the event of an increase in the aggregate pro forma market
value of the Common Stock of up to 15% above the maximum of the Estimated
Valuation Range). See "Pro Forma Data" and "The Conversion Stock Pricing and
Number of Shares to be Issued" as to the assumptions used to arrive at such
amounts.
In exchange for all of the common stock of Hemlock Federal issued upon
conversion, the Holding Company will contribute approximately 50% of the net
proceeds from the sale of the Holding Company's Common Stock to Hemlock Federal.
On an interim basis, the proceeds will be invested by the Holding Company and
Hemlock Federal in short-term investments similar to those currently in the
Bank's portfolio. The specific types and amounts of short-term assets will be
determined based on market conditions at the time of the completion of the
Conversion. In addition, the Holding Company intends to provide the funding for
the ESOP loan. Based upon the initial Purchase Price of $10.00 per share, the
dollar amount of the ESOP loan would range from $1.1 million (based upon the
sale of shares at the minimum of the Estimated Valuation Range) to $1.4 million
(based upon the sale of shares at the maximum of the Estimated Valuation Range).
The interest rate to be charged by the Holding Company on the ESOP loan will be
based upon the IRS prescribed applicable federal rate at the time of
origination. It is anticipated that the ESOP will repay the loan through
periodic tax-deductible contributions from the Bank over a ten-year period.
The net proceeds received by Hemlock Federal will become part of Hemlock
Federal's general funds for use in its business and will be used to support the
Bank's existing operations, subject to applicable regulatory restrictions.
Immediately upon the completion of the Conversion, it is anticipated that the
Bank will invest such proceeds into short-term assets. Subsequently, the Bank
will redirect the net proceeds to the origination of loans, subject to market
conditions. In addition, the Bank may direct a portion of the proceeds towards
the establishment of a new branch office in the southwestern suburbs of Chicago,
although the Bank had no specific plans regarding any such new office as of the
date hereof.
After the completion of the Conversion, the Holding Company will redirect
the net proceeds invested by it in short-term assets into a variety of
mortgage-backed securities and other securities similar to those already held by
the Bank. Also, the Holding Company may use a portion of the proceeds to fund
the RRP, subject to shareholder approval of such plan. Compensation expense
related to the RRP will be recognized as share awards vest. See "Pro Forma
Data." Following stockholder ratification of the RRP, the RRP will be funded
either with shares purchased in the open market or with authorized but unissued
shares. Based upon the initial Purchase Price of $10.00 per share, the amount
required to fund the RRP through open-market purchases would range from
approximately $533,800 (based upon the sale of shares at the minimum of the
Estimated Valuation Range) to approximately $722,200 (based upon the sale of
shares at the maximum of the Estimated Valuation Range). In the event that the
per share price of the Common Stock increases above the $10.00 per share
Purchase Price following completion of the Offering, the amount necessary to
fund the RRP would also increase. The use
31
<PAGE>
of authorized but unissued shares to fund the RRP could dilute the holdings of
stockholders who purchase Common Stock in the Conversion. See "Business -
Lending Activities" and " - Investment Activities" and "Management - Benefit
Plans - Employee Stock Ownership Plan" and "- Recognition and Retention Plan."
The proceeds may also be utilized by the Holding Company to repurchase
(at prices which may be above or below the initial offering price) shares of the
Common Stock through an open market repurchase program subject to limitations
contained in OTS regulations, although the Holding Company currently has no
specific plan to repurchase any of its stock. In the future, the Board of
Directors of the Holding Company will make decisions on the repurchase of the
Common Stock based on its view of the appropriateness of the price of the Common
Stock as well as the Holding Company's and the Bank's investment opportunities
and capital needs. Under current OTS regulations, no repurchases may be made
within the first year following Conversion except with OTS approval under
"exceptional circumstances." During the second and third years following
Conversion, OTS regulations permit, subject to certain limitations, the
repurchase of up to five percent of the outstanding shares of stock during each
twelve-month period with a greater amount permitted with OTS approval. In
general, the OTS regulations do not restrict repurchases thereafter, other than
limits on the Bank's ability to pay dividends to the Holding Company to fund the
repurchase. For a description of the restrictions on the Bank's ability to
provide the Holding Company with funds through dividends or other distributions,
see "Dividends" and "The Conversion - Restrictions on Repurchase of Stock."
The Holding Company or Hemlock Federal might consider expansion through
the acquisition of other financial services providers (or branches, deposits or
assets thereof), although there are no specific plans, negotiations or written
or oral agreements regarding any acquisitions at this time.
DIVIDENDS
The Board of Directors may consider a policy of paying cash dividends on
the Common Stock. Dividends, when and if paid, will be subject to determination
and declaration by the Board of Directors at its discretion. They will take into
account the Holding Company's consolidated financial condition, the Bank's
regulatory capital requirements, including the fully phased-in capital
requirements, tax considerations, industry standards, economic conditions,
regulatory restrictions, general business practices and other factors. The
Holding Company may also consider making a one time only special dividend or
distribution (including a tax-free return of capital) provided that the Holding
Company will make no such distribution for at least one year following the
completion of the Conversion.
It is not presently anticipated that the Holding Company will conduct
significant operations independent of those of Hemlock Federal for some time
following the Conversion. As such, the Holding Company does not expect to have
any significant source of income other than earnings on the net proceeds from
the Conversion retained by the Holding Company (which proceeds are currently
estimated to range from $6.4 million to $8.7 million based on the minimum and
the maximum of the Estimated Valuation Range, respectively) and dividends from
Hemlock Federal, if any. Consequently, the ability of the Holding Company to pay
cash dividends to its stockholders will be dependent upon such retained proceeds
and earnings
32
<PAGE>
thereon, and upon the ability of Hemlock Federal to pay dividends to the Holding
Company. See "Description of Capital Stock - Holding Company Capital Stock -
Dividends." Hemlock Federal, like all savings associations regulated by the OTS,
is subject to certain restrictions on the payment of dividends based on its net
income, its capital in excess of the regulatory capital requirements and the
amount of regulatory capital required for the liquidation account to be
established in connection with the Conversion. See "The Conversion - Effects of
Conversion to Stock Form on Depositors and Borrowers of the Bank - Liquidation
Rights in Proposed Converted Institution" and "Regulation - Regulatory Capital
Requirements" and "- Limitations on Dividends and Other Capital Distributions."
Earnings allocated to Hemlock Federal's "excess" bad debt reserves and deducted
for federal income tax purposes cannot be used by Hemlock Federal to pay cash
dividends to the Holding Company without adverse tax consequences. See
"Regulation - Federal and State Taxation."
MARKET FOR COMMON STOCK
Hemlock Federal, as a mutual thrift institution, and the Holding Company,
as a newly organized company, have never issued capital stock. Consequently,
there is not at this time an existing market for the Common Stock. The Common
Stock has been preliminarily approved for trading on the NASDAQ National Market
System under the symbol "____" upon completion of the Conversion. In order to be
quoted on the Nasdaq National Market, among other criteria, there must be at
least two market makers for the Common Stock. Keefe, Bruyette & Woods has
agreed, subject to certain conditions, to act as a market maker for the Holding
Company's Common Stock following the Conversion, and assist in securing a second
market maker to do the same. A public trading market having the desirable
characteristics of depth, liquidity and orderliness depends upon the presence in
the marketplace of both willing buyers and sellers of the Common Stock at any
given time. Accordingly, there can be no assurance that an active and liquid
market for the Common Stock will develop or be maintained or that resales of the
Common Stock can be made at or above the Purchase Price. See "The Conversion -
Stock Pricing and Number of Shares to be Issued."
PRO FORMA DATA
The following table sets forth the historical net income, retained
earnings and per share data of Hemlock Federal at and for the nine months ended
September 30, 1996 and the fiscal year ended December 31, 1995, and after giving
effect to the Conversion, the pro forma net income, capital stock and
stockholders' equity and per share data of the Holding Company at and for the
nine months ended September 30, 1996 and the fiscal year ended December 31,
1995. The pro forma data has been computed on the assumptions that (i) the
specified number of shares of Common Stock was sold at the beginning of the
specified periods and yielded net proceeds to the Holding Company as indicated,
(ii) 50% of such net proceeds were retained by the Holding Company and the
remainder were used to purchase all of the stock of Hemlock Federal, and (iii)
such net proceeds, less the amount of the ESOP and RRP funding, were invested by
the Bank and Holding Company at the beginning of the periods to yield a pre-tax
return of 5.39% for the nine months ended September 30, 1996 and 5.39% for the
fiscal year ended December 31, 1995. The assumed return is based upon the market
yield rate of one-year U.S. Government Treasury Securities as of December 6,
1996. The use of this current rate is viewed to be more relevant in the current
interest rate environment than the use of an arithmetic
33
<PAGE>
average of the weighted average yield earned by the Bank on its interest-earning
assets and the weighted average rate paid on its deposits during such periods.
In calculating the underwriting fees, the table assumes that (i) no commission
was paid on $124,600 of shares sold to directors, officers and employees, (ii)
8% of the total shares sold in the Conversion were sold to the ESOP at no
commission, and (iii) the remaining shares were sold at a 1.5% commission.
(These assumptions represent management's estimate as to the distribution of
stock orders in the Conversion. However, there can be no assurance that such
estimate will be accurate and that a greater proportion of shares will not be
sold at a higher commission, thus increasing offering expenses.) Fixed expenses
are estimated to be $335,000. Actual Conversion expenses may be more or less
than those estimated because the fees paid to KBW and other brokers will depend
upon the categories of purchasers, the Purchase Price and market conditions and
other factors. The pro forma net income amounts derived from the assumptions set
forth herein should not be considered indicative of the actual results of
operations of the Holding Company that would have been attained for any period
if the Conversion had been actually consummated at the beginning of such period,
and the assumptions regarding investment yields should not be considered
indicative of the actual yields expected to be achieved during any future
period.
The total number of shares to be issued in the Conversion may be
increased or decreased significantly, or the price per share decreased, to
reflect changes in market and financial conditions prior to the close of the
Offering. However, if the aggregate Purchase Price of the Common Stock sold in
the Conversion is below $13,345,000 (the minimum of the Estimated Valuation
Range) or more than $20,763,250 (15% above the maximum of the Estimated
Valuation Range), subscribers will be offered the opportunity to modify or
cancel their subscriptions. See "The Conversion - Stock Pricing and Number of
Shares to be Issued."
34
<PAGE>
<TABLE>
<CAPTION>
At or For the Nine Months Ended September 30, 1996
--------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
1,334,500 1,570,000 1,805,500 2,076,325
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
----- ----- ----- -----
(Dollars in Thousands, Except Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds................................................ $ 13,345 $ 15,700 $ 18,055 $ 20,763
Less offering expenses and commissions........................ (541) (573) (605) (643)
--------- ---------- --------- ----------
Estimated net conversion proceeds............................ 12,804 15,127 17,450 20,120
Less ESOP shares.............................................. (1,068) (1,256) (1,444) (1,661)
Less RRP shares............................................... (534) (628) (722) (831)
--------- ---------- ---------- -----------
Estimated proceeds available for investment(1)............... $ 11,202 $ 13,243 $ 15,284 $ 17,628
======== ========= ======== =========
Net Income:
Historical.................................................. $ (504) $ (504) $ (504) $ (504)
Pro Forma Adjustments:
Net earnings from proceeds(2).............................. 277 328 378 437
ESOP(3).................................................... (49) (58) (66) (76)
RRP(4)..................................................... (49) (58) (66) (76)
Future Foundation contributions(4)......................... --- --- --- ---
-------- --------- --------- ----------
Pro forma net income(5).................................. $ (325) $ (292) $ (258) $ (219)
======= ======== ======== =========
Net Income Per Share:
Historical(6)............................................. $ (0.41) $ (0.35) $ (0.30) (0.26)
Pro forma Adjustments:
Net earnings from proceeds............................... 0.22 0.23 0.23 0.23
ESOP(3).................................................. (0.04) (0.04) (0.04) (0.04)
RRP(4)................................................... (0.04) (0.04) (0.04) (0.04)
Future Foundation contributions(4)....................... --- --- --- ---
-------- --------- -------- --------
Pro forma net income per share(4).................... $ (0.27) $ (0.20) $(0.15) $(0.11)
======= ======= ====== ======
Ratio of offering price to pro forma net income per share
(annualized)........................................... (27.78) x (37.50)x (50.00)x (68.18)x
========= ======== ======= =======
Number of shares using SOP 93-6........................... 1,235,747 1,453,820 1,671,893 1,922,677
Stockholders' Equity (Book Value)(7):
Historical.................................................. $ 11,361 $ 11,361 $ 11,361 $ 11,361
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds........................... 12,804 15,127 17,450 20,120
Less common stock acquired by:
ESOP(3).................................................... (1,068) (1,256) (1,444) (1,661)
RRP(4)..................................................... (534) (628) (722) (831)
--------- ---------- --------- ----------
Pro forma stockholder's equity(4)...................... $ 22,563 $ 24,604 $ 26,645 $ 28,989
======== ========= ======== =========
Stockholders' Equity (Book Value)(7):
Per Share(6):
Historical.................................................. $ 8.51 $ 7.24 $ 6.29 $ 5.47
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds........................... 9.59 9.64 9.66 9.69
Less common stock acquired by:
ESOP(3).................................................... (0.80) (0.80) (0.80) (0.80)
RRP(4)..................................................... (0.40) (0.40) (0.40) (0.40)
--------- --------- -------- --------
Pro forma book value per share(5)...................... $ 16.90 $ 15.68 $ 14.75 $ 13.96
======== ======== ======= ========
Pro forma price to book value................................. 59.17% 63.78% 67.80% 71.63%
Number of shares.............................................. 1,334,500 1,570,000 1,805,500 2,076,325
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1995
------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
1,334,500 1,570,000 1,805,500 2,076,325
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
----- ----- ----- -----
(Dollars in Thousands, Except Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds................................................ $ 13,345 $ 15,700 $ 18,055 $ 20,763
Less offering expenses and commissions........................ (541) (573) (605) (643)
---------- --------- --------- ---------
Estimated net conversion proceeds............................ 12,804 15,127 17,450 20,120
Less ESOP shares.............................................. (1,068) (1,256) (1,444) (1,661)
Less RRP shares............................................... (534) (628) (722) (831)
--------- --------- --------- ----------
Estimated proceeds available for investment(1)............... $ 11,202 $ 13,243 $ 15,284 $ 17,628
======== ======== ======== ========
Net Income:
Historical.................................................. $ 952 $ 952 952 $ 952
Pro Forma Adjustments:
Net earnings from proceeds(2).............................. 370 437 505 582
ESOP(3).................................................... (65) (77) (88) (102)
RRP(4)..................................................... (65) (77) (88) (102)
Future Foundation contributions(4)......................... (119) (124) (128) (133)
---------- -------- --------- ---------
Pro forma net income(5).................................. $ 1,073 $ 1,111 $ 1,153 $ 1,197
========= ======= ======== ========
Net Income Per Share:
Historical(6)............................................. $ 0.77 0.65 0.57 0.49
Pro forma Adjustments:
Net earnings from proceeds............................... 0.30 0.30 0.30 0.30
ESOP(3).................................................. (0.05) (0.05) (0.05) (0.05)
RRP(4)................................................... (0.05) (0.05) (0.05) (0.05)
Future Foundation contributions(4)....................... (0.10) (0.09) (0.08) (0.07)
---------- -------- -------- --------
Pro forma net income per share(4).................... $ 0.87 $ 0.76 $ 0.69 $ 0.62
========== ======== ======= =======
Ratio of offering price to pro forma net income per share. 11.49x 13.16x 14.49x 16.13x
===== ===== ===== =====
Number of shares using SOP 93-6(3)................. 1,238,416 1,456,960 1,675,504 1,926,830
Stockholders' Equity (Book Value)(7):
Historical.................................................. $ 11,877 $ 11,877 $ 11,877 $ 11,877
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds........................... 12,804 15,127 17,450 20,120
Less common stock acquired by:
ESOP(3).................................................... (1,068) (1,256) (1,444) (1,661)
RRP(4)..................................................... (534) (628) (722) (831)
---------- --------- ---------- ----------
Pro forma book value(4)................................ $ 23,079 $ 25,120 $ 27,161 $ 29,505
======== ======== ======== =========
Stockholders' Equity (Book Value)(7):
Per Share(6):
Historical.................................................. $ 8.90 $ 7.56 $ 6.58 $ 5.72
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds........................... 9.59 9.64 9.68 9.69
Less common stock acquired by:
ESOP(3).................................................... (0.80) (0.80) (0.80) (0.80)
RRP(4)..................................................... (0.40) (0.40) (0.40) (0.40)
--------- -------- -------- ---------
Pro forma book value per share(5)...................... $ 17.29 $ 16.00 $ 15.04 $ 14.21
======== ======= ======= ========
Offering Price Per Share as a Percentage of Pro Forma
Stockholders' Equity Per Share............................. 57.84% 62.50% 66.49% 70.37%
======== ======= ======= ========
Number of shares.............................................. 1,334,500 1,570,000 1,805,500 2,076,325
<FN>
- -------------
(1) Reflects a reduction to net proceeds for the cost of the ESOP and the RRP
(which is subject to shareholder ratification) which it is assumed will
be funded from the net proceeds retained by the Holding Company.
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Conversion. For purposes of
calculating pro forma net income, proceeds attributable to purchases by
the ESOP and RRP, which purchases are to be funded by the Holding Company
and the Bank, have been deducted from net proceeds.
</FN>
36
<PAGE>
<FN>
(3) It is assumed that 8% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. The funds used to acquire such
shares will be borrowed by the ESOP from the net proceeds from the
Conversion retained by the Holding Company. The Bank intends to make
contributions to the ESOP in amounts at least equal to the principal and
interest requirement of the debt. The Bank's payment of the ESOP debt is
based upon equal installments of principal and interest over a 10-year
period. [CONFIRM] However, assuming the Holding Company makes the ESOP
loan, interest income earned by the Holding Company on the ESOP debt will
offset the interest paid by the Bank. Accordingly, only the principal
payments on the ESOP debt are recorded as an expense (tax-effected) to
the Holding Company on a consolidated basis. The amount of ESOP debt is
reflected as a reduction of stockholders' equity. In the event that the
ESOP were to receive a loan from an independent third party, both ESOP
expense and earnings on the proceeds retained by the Holding Company
would be expected to increase.
(4) Adjustments to both book value and net earnings have been made to give
effect to the proposed open market purchase (based upon an assumed
purchase price of $10.00 per share) following Conversion by the RRP
(subject to stockholder ratification of such plan) of an amount of shares
equal to 4% of the shares of Common Stock sold in the Conversion for the
benefit of certain directors, officers and employees. Funds used by the
RRP to purchase the shares will be contributed to the RRP by the Holding
Company if the RRP is ratified by stockholders following the Conversion.
Therefore, this funding is assumed to reduce the proceeds available for
reinvestment. For financial accounting purposes, the amount of the
contribution will be recorded as a compensation expense (although not an
actual expenditure of funds) over the period of vesting. These grants are
scheduled to vest in equal annual installments over the five years
following stockholder ratification of the RRP. However, all unvested
grants will be forfeited in the case of recipients who fail to maintain
continuous service with the Holding Company or its subsidiaries. In the
event the RRP is unable to purchase a sufficient number of shares of
Common Stock to fund the RRP, the RRP may issue authorized but unissued
shares of Common Stock from the Holding Company to fund the remaining
balance. In the event the RRP is funded by the issuance of authorized but
unissued shares in an amount equal to 4% of the shares sold in the
Conversion, the interests of existing stockholders would be diluted by
approximately 3.8%.
In the event that the RRP is funded through authorized but unissued
shares, for the nine months ended September 30, 1996 and year ended
December 31, 1995, pro forma net income per share would be $(0.24),
$(0.18), $(0.14) and $(0.10) and $0.84, $0.74, $0.60 and $0.61,
respectively, and pro forma stockholders' equity per share would be
$16.66, $15.45, $14.57 and $13.80 and $17.01, $15.77, $14.85 and $14.04,
respectively, in each case at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range.
The Bank established the Hemlock Federal Charitable Foundation as of
September 30, 1996. In the future, the Bank intends to contribute up to
10% of net income annually to the Foundation. The amount of such future
contributions, if any, will be determined based upon, among other
factors, an assessment of the Company's then current financial position,
operations, and prospects and on the need for charitable activities in
the Bank's market area. Appropriate after-tax adjustments have therefore
been made to pro-forma income.
(5) No effect has been given to the shares to be reserved for issuance under
the proposed Stock Option Plan which is expected to be adopted by the
Holding Company following the Conversion, subject to stockholder
approval. In the event the Stock Option Plan is funded by the issuance of
authorized but unissued shares in an amount equal to 10% of the shares
sold in the Conversion, at $10.00 per share, the interests of existing
stockholders would be diluted as follows: pro forma net income per share
for the five months ended September 30, 1996 and the year ended December
31, 1995 would be $(0.21), $(0.16), $(0.12) and $(0.08) and $0.81, $0.72,
$0.59 and $0.59, respectively, and pro forma stockholders' equity per
share would be $16.28, $15.16, $14.33 and $13.59 and $16.63, $15.45,
$14.58 and $13.82, respectively, in each case at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range. In
the alternative, the Holding Company may purchase shares in the open
market to fund the Stock Option Plan following stockholder approval of
such plan. To the extent, the entire 10% of the shares to be reserved for
issuance under the Stock Option Plan were funded through open market
purchases at the Purchase Price of $10.00 per share, proceeds available
for reinvestment would be reduced by $1,334,500, $1,570,000, $1,805,500
and $2,078,325 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range. See "Management - Benefit Plans
- Stock Option and Incentive Plan."
(6) Historical pro forma per share amounts have been computed as if the
shares of Common Stock indicated had been outstanding at the beginning of
the periods or on the dates shown, but without any adjustment of
historical net income or historical equity to reflect the investment of
the estimated net proceeds of the sale of shares in the Conversion as
described above. All ESOP shares have been considered outstanding for
purposes of computing book value per share. Pro forma share amounts have
been computed by dividing the pro forma net income or stockholders'
equity (book value) by the number of shares indicated.
(7) "Book value" represents the difference between the stated amounts of the
Bank's assets (based on historical cost) and liabilities computed in
accordance with generally accepted accounting principles. The amounts
shown do not reflect the effect of the Liquidation Account which will be
established for the benefit of Eligible and Supplemental Eligible Account
Holders in the Conversion, or the federal income tax consequences of the
restoration to income of the Bank's special bad debt reserves for income
tax purposes which would be required in the unlikely event of
liquidation. See "The Conversion - Effects of Conversion to Stock Form on
Depositors and Borrowers of the Bank" and "Regulation - Federal and State
Taxation." The amounts shown for book value do not represent fair market
values or amounts, if any, distributable to stockholders in the unlikely
event of liquidation.
[/FN]
</TABLE>
37
<PAGE>
PRO FORMA REGULATORY CAPITAL ANALYSIS
At September 30, 1996, the Bank would have exceeded each of the OTS
capital requirements on both a current and a fully phased-in basis. Set forth
below is a summary of the Bank's compliance with the OTS capital standards as of
September 30, 1996 based on historical capital and also assuming that the
indicated number of shares were sold as of such date using the assumptions
contained under the caption "Pro Forma Data."
<TABLE>
<CAPTION>
Pro Forma at September 30, 1996
---------------------------------------------------------------------------
2,076,325 Shares
1,334,500 Shares 1,570,000 Shares 1,805,500 Shares 15% above
Historical Minimum Midpoint Maximum Maximum
--------------- --------------- --------------- --------------- ---------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital(2) .......... $11,361 7.7% $16,161 10.6% $17,041 11.1% $17,920 11.6% $18,929 12.2%
Tangible Capital(3):
Capital level .......... 10,842 7.4 15,642 10.3 16,522 10.8 17,401 11.3 18,410 11.9
Requirement ............ 2,213 1.5 2,277 1.5 2,291 1.5 2,304 1.5 2,319 1.5
Excess ................. 8,629 5.9 13,365 8.8 14,231 9.3 15,097 9.8 16,091 10.4
Core Capital(3):
Capital level .......... 10,842 7.4 15,642 10.3 16,522 10.8 17,401 11.3 18,410 11.9
Requirement(4) ......... 4,426 3.0 4,570 3.0 4,582 3.0 4,608 3.0 4,638 3.0
Excess ................. 6,416 4.4 11,088 7.8 11,940 7.8 12,793 8.3 13,772 8.9
Risk-Based Capital(3):
Capital level(5) ....... 11,461 23.1 16,280 32.2 17,141 33.9 18,020 35.5 19,029 37.3
Requirement(1) ......... 3,960 8.0 4,037 8.0 4,051 8.0 4,065 8.0 4,081 8.0
Excess ................. $ 7,501 15.1% $12,224 24.2% $13,090 25.9% $13,955 27.5% $14,948 29.3%
<FN>
- -----------------
(1) Pro forma amounts and percentages assume net proceeds are invested in
assets that carry a 20% risk-weight, such as short-term interest-bearing
deposits.
(2) Total retained earnings as calculated under generally accepted accounting
principles ("GAAP"). Assumes that the Bank receives 50% of the net
proceeds, offset in part, by the aggregate Purchase Price of Common Stock
acquired at a price of $10.00 per share by the ESOP in the Conversion and
the RRP (assuming stockholder ratification of such plan following
completion of the Conversion).
(3) Tangible and core capital figures are determined as a percentage of
adjusted total assets; risk-based capital figures are determined as a
percentage of risk-weighted assets. Unrealized gains and losses on debt
securities available for sale are excluded from tangible, core and
risk-based capital.
(4) In April 1991, the OTS proposed a core capital requirement for savings
associations comparable to the requirement for national banks that became
effective on November 30, 1990. This proposed core capital ratio is 3% of
total adjusted assets for thrifts that receive the highest supervisory
rating for safety and soundness ("CAMEL" rating), with a 4% to 5% core
capital requirement for all other thrifts. See "Regulation - Regulatory
Capital Requirements."
(5) Includes $670,000 of general valuation allowances, of which $619,000
qualifies as supplementary capital. See "Regulation - Regulatory Capital
Requirements."
</FN>
</TABLE>
38
<PAGE>
CAPITALIZATION
Set forth below is the capitalization, including deposits, of Hemlock
Federal as of September 30, 1996, and the pro forma capitalization of the
Holding Company at the minimum, the midpoint, the maximum and 15% above the
maximum of the Estimated Valuation Range, after giving effect to the Conversion
and based on other assumptions set forth in the table and under the caption "Pro
Forma Data."
<TABLE>
<CAPTION>
Holding Company - Pro Forma Based
Upon Sale at $10.00 per share
--------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
Existing 1,334,500 1,570,000 1,805,500 2,076,325
Capitalization Shares Shares Shares Shares
-------------- ------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(1)................................. $129,159 $129,159 $129,159 $129,159 $129,159
======== ======== ======== ======== ========
Stockholders' Equity:
Serial Preferred Stock ($0.01 par value)
authorized - 100,000 shares; none to be
outstanding............................... $ --- $ --- $ --- $ --- $ ---
Common Stock ($0.01 par value authorized
- 2,500,000 shares to be outstanding (as
shown)(2)................................. --- 13 15 17 20
Additional paid-in capital................ --- 12,791 15,112 17,433 20,100
Retained earnings, substantially
restricted(3)............................. 10,842 10,842 10,842 10,842 10,842
Net unrealized loss on securities available for
sale.................................... 519 519 519 519 519
Less:
Common Stock acquired by ESOP(4).......... --- 1,068 1,256 1,444 1,661
Common Stock acquired by RRP(4)........... --- 534 628 722 831
---------- --------- --------- --------- ---------
Total Stockholders' Equity.................. $11,361 $22,563 $24,604 $26,645 $28,989
======= ======= ======= ======= =======
<FN>
- --------------
(1) No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing Common Stock in the Conversion. Any such withdrawals
will reduce pro forma deposits by the amount of such withdrawals.
(2) Does not reflect the shares of Common Stock that may be reserved for
issuance pursuant to the Stock Option Plan.
(3) See "Dividends" and "Regulation - Limitations on Dividends and Other
Capital Distributions" regarding restrictions on future dividend payments
and "The Conversion - Effects of Conversion to Stock Form on Depositors and
Borrowers of the Bank" regarding the liquidation account to be established
upon Conversion.
(4) Assumes that 8% of the shares sold in the Conversion will be purchased by
the ESOP. The funds used to acquire the ESOP shares will be borrowed from
the Holding Company. The Bank intends to make contributions to the ESOP
sufficient to service and ultimately retire the ESOP's debt over a
twelve-year period. Also assumes that an amount of shares equal to 4% of
the amount of shares sold in the Conversion will be acquired by the RRP,
following shareholder ratification of such plan after completion of the
Conversion. In the event that the RRP is funded by the issuance of
authorized but unissued shares in an amount equal to 4% of the shares sold
in the Conversion, the interest of existing stockholders would be diluted
by approximately 3.8%. The amount to be borrowed by the ESOP and the Common
Stock acquired by the RRP is reflected as a reduction of stockholders'
equity. See "Management - Benefit Plans - Employee Stock Ownership Plan"
and "- Recognition and Retention Plan."
</FN>
</TABLE>
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Bank is a financial intermediary engaged primarily in attracting
deposits from the general public and using such deposits to acquire
mortgage-backed and other securities and to originate one-to-four family
residential mortgage and, to a significantly lesser extent, multi-family,
consumer and other loans primarily in its market area. The Bank's revenues are
derived principally from interest earned on mortgage-backed and other securities
and loans. The operations of the Bank are influenced significantly by general
economic conditions and by policies of financial institution regulatory
agencies, including the OTS and FDIC. The Bank's cost of funds is influenced by
interest rates on competing investments and general market interest rates.
Lending activities are affected by the demand for financing of real estate and
other types of loans, which in turn is affected by the interest rates at which
such financings may be offered.
The Bank's net interest income is dependent primarily upon the
difference or spread between the average yield earned on securities and loans
receivable, net and the average rate paid on deposits, as well as the relative
amounts of such assets and liabilities. The Bank, like other thrift
institutions, is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or reprice at different times, or on a
different basis, than its interest-earning assets.
Financial Condition
Comparison of Financial Condition at September 30, 1996 and December 31, 1995
Total assets at September 30, 1996 were $147.0 million compared to
$145.6 million at December 31, 1995, an increase of $1.4 million, or 1.0%. The
increase in total assets was due primarily to a $7.9 million increase of in
loans receivable resulting from an increased emphasis on loan originations as
well as a $3.1 million increase in cash equivalents and a $2.5 million increase
in securities available-for-sale, offset by a $12.7 million decrease in
securities held-to- maturity resulting from repayments on such securities.
Total liabilities at September 30, 1996 were $135.6 million compared to
$133.7 million at December 31, 1995, an increase of $1.9 million, or 1.4%. The
increase is primarily due to the accrual of a $1.0 million charitable
contribution at September 30, 1996, a $840,000 liability recorded on September
30, 1996 for the SAIF special assessment that was paid in November 1996, and a
$2.1 million liability related to the purchase of a security which had not
settled as of September 30, 1996. These increases were partially offset by a
decrease in deposits of $1.5 million from $130.7 million at December 31, 1995 to
$129.2 million at September 30, 1996 due to competition from non-depository
products such as mutual funds and securities. Advance payments by borrowers for
taxes and insurance decreased by $364,000 due to the payment of the second
installment of real estate taxes in September.
40
<PAGE>
Total equity at September 30, 1996 was $11.4 million compared to $11.9
million at December 31, 1995, a decrease of $516,000, or 4.3% as a result of
$504,000 net loss for the period combined with a reduction in unrealized gain on
securities available-for-sale from $531,000 at December 31, 1995 to $519,000 at
September 30, 1996.
Comparison of Financial Condition at December 31, 1995 and December 31, 1994
Total assets at December 31, 1995 were $145.6 million compared to
$143.9 million at December 31, 1994, an increase of $1.7 million, or 1.2%. The
Bank increased the amount of net loans receivable by $7.5 million from $37.7
million at December 31, 1994 to $45.2 million at December 31, 1995, primarily
due to lower levels of mortgage interest rates in 1995, which spurred increased
demand. During much of the 1980s, as a result of fierce competition as well as
volatility in interest rates and real estate values, the Bank deemphasized
residential lending. However, in the early 1990s, the Bank determined to
increase its lending staff and its loan marketing efforts in order to increase
its residential loans. The increase in net loans receivable was partially offset
by a $3.5 million decrease in cash and cash equivalents and a $2.1 million
decrease in securities from $86.0 million at December 31, 1994 to $83.9 million
at December 31, 1995. In December 1995, management transferred $9.3 million of
securities from held-to-maturity to available-for-sale as permitted by
regulation.
Total liabilities were $133.7 million at December 31, 1995 compared to
$133.5 million at December 31, 1994, an increase of $251,000, or 0.19%,
primarily due to an increase of $345,000 in other liabilities for the deferred
taxes related to the unrealized gains in securities available-for-sale,
partially offset by an $83,000 decrease in advance payments by borrowers for
taxes and insurance as a result of changes in federal regulations which became
effective during 1995 reducing the amount of escrowed funds required to be
maintained by the Bank for borrowers.
Equity at December 31, 1995 was $11.9 million compared to $10.4 million
at December 31, 1994, an increase of $1.5 million, or 14.4%, reflecting income
of $952,000 for the year and a change in unrealized gains (losses) on securities
available-for-sale from ($15,000) at December 31, 1994 to $531,000 at December
31, 1995.
Results of Operations
The Bank's results of operations depend primarily upon the level of net
interest income, which is the difference between the interest income earned on
its interest-earning assets such as securities and loans, and the costs of the
Bank's interest-bearing liabilities, primarily deposits and borrowings. Results
of operations are also dependent upon the level of the Bank's noninterest
income, including fee income and service charges, and affected by the level of
its noninterest expenses, including its general administrative expenses. Net
interest income depends upon the volume of interest-earnings assets and
interest-bearing liabilities and the interest rate earned or paid on them,
respectively.
41
<PAGE>
Comparison of Operating Results for the Nine Months Ended September 30, 1996 and
September 30, 1995
General. Net loss for the nine months ended September 30, 1996 was
$504,000, a decrease of $1,237,000, from net earnings of $733,000 for the nine
months ended September 30, 1995. The decrease was primarily due to the accrual
of a $840,000 FDIC special assessment on SAIF insured deposits effective
September 30, 1996 and a $1.0 million accrued contribution to the Foundation in
September 1996.
Interest Income. Interest income for the nine months ended September
30, 1996 was $7.7 million compared to $7.4 million for the nine months ended
September 30, 1995, an increase of $308,000, or 4.2%. The increase resulted from
a combination of an increase in the average yield and the average balance of
interest-earning assets. The annualized average yield increased 16 basis points
from 7.08% for the nine months ended September 30, 1995 to 7.24% for the nine
months ended September 30, 1996 largely as a result of an increase in the yield
on mortgage-backed securities and an increase in the proportion of the Bank's
assets consisting of loans receivable. The average annualized yield on
mortgage-backed securities increased due to the upward repricing of
adjustable-rate mortgage-backed securities and a decrease in premium
amortization due to slower paydowns of mortgage-backed securities. This increase
was partially offset by a decrease in the annualized yield on loans from 8.19%
for the nine months ended September 30, 1995 to 7.98% for the nine months ended
September 30, 1996. Average interest-earning assets increased primarily due to
the shift of funds from cash and due from banks into interest-bearing deposit
accounts throughout the year as well as a slight increase in funds from
deposits.
Interest Expense. Interest expense for the nine months ended September
30, 1996 was $4.2 million compared to $4.0 million for the nine months ended
September 30, 1995, an increase of $240,000, or 6.0%. The increase in interest
expense in part reflects the higher interest rate environment during the period,
as the average cost of funds increased 20 basis points from 4.08% for the nine
months ended September 30, 1995 to 4.28% for the nine months ended September 30,
1996. The increase in interest expense was also due to an increase in the
average balance of interest-bearing liabilities from $130.6 million for the nine
months ended September 30, 1995 to $131.8 million for the nine months ended
September 30, 1996. The average balance of certificates of deposit increased
from $62.9 million for the nine months ended September 30, 1995 to $65.3 million
for the nine months ended September 30, 1996. This increase was partially offset
by a decrease in the average balance of money market accounts from $6.5 million
to $5.6 million for the same periods. The increase in the average balance of
certificate of deposit accounts resulted from the increased customer demand
arising from higher interest rates paid by the Bank on these accounts, in
response to higher market rates.
Net Interest Income. Net interest income remained relatively stable at
$3.4 million for the nine months ended September 30, 1996 and 1995. The average
net interest spread narrowed slightly from 3.00% for the nine months ended
September 30, 1995 to 2.96% for the nine months ended September 30, 1996 due to
the increase in the average cost of interest-bearing liabilities exceeding the
increase in the average yield on interest-earning assets.
42
<PAGE>
Provision for Loan Losses. The Bank recorded a $75,000 provision for
loan losses for the nine months ended September 30, 1996 compared to $122,000
for the nine months ended September 30, 1995. The decrease resulted primarily
from a decrease in non-performing assets. At September 30, 1996, the Bank's
allowance for loan losses totaled $670,000, or 1.2% of total loans and 870% of
total non-performing loans. The amount of the provision and allowance for
estimated losses on loans is influenced by current economic conditions, actual
loss experience, industry trends and other factors, such as adverse economic
conditions, including declining real estate values, in the Bank's market area.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for estimated
losses on loans. Such agencies may require the Bank to provide additions to the
allowance based upon judgments which differ from those of management. Although
management uses the best information available and maintains the Bank's
allowance for losses at a level it believes adequate to provide for losses,
future adjustments to the allowance may be necessary due to economic, operating,
regulatory and other conditions that may be beyond the Bank's control.
Noninterest Income. Noninterest income for the nine months ended
September 30, 1996 was $321,000 compared to $198,000 for the nine months ended
September 30, 1995, an increase of $123,000, or 62.1%. The increase was
primarily a result of a decrease in losses on sale of securities of $80,000 for
the nine months ended September 30, 1996 from $161,000 for the nine months ended
September 30, 1995. In addition, service fee income increased $45,000 as a
result of increased fees on FHA and VA loans on which applications were taken
for other lenders.
Noninterest Expense. Noninterest expense was $4.5 million for the nine
months ended September 30, 1996 compared to $2.3 million for the nine months
ended September 30, 1996, an increase of $2.2 million, or 95.7%. The increase
was primarily due to a $840,000 one-time special assessment on SAIF insured
deposits resulting from federal legislation enacted on September 30, 1996. As a
result of the SAIF recapitalization, the FDIC amended its regulation concerning
the insurance premiums payable by SAIF-insured institutions. Effective January
1, 1997, the SAIF insurance premium will range from 0 to 27 basis points per
$100 of domestic deposits. Additionally, the FDIC has imposed a Financing
Corporation (FICO) assessment on SAIF-assessable deposits for the first
semi-annual period of 1997 equal to 6.48 basis points. In addition, the Bank
accrued $1.0 million during 1996 for a contribution to the Foundation
established by the Bank in September 1996. The Bank intends to make payments to
the Foundation at the full amount that is tax deductible until the $1,000,000
contribution has been paid. These payments will be funded from interest-bearing
deposits with financial institutions. The Bank also currently intends to make
additional contirbutions to the Foundation of up to 10% of net income on an
annual basis. Such future contributions to the Foundation may be made in either
cash or Holding Company Stock. The Bank also recognized a gain on sale of other
real estate of $223,000 during the nine months ended September 30, 1995 compared
to zero for the nine months ended September 30, 1996.
Income Tax Expense. The provision (benefit) for income taxes totaled
($341,000) for the nine months ended September 30, 1996 compared to $433,000 for
the nine months ended September 30, 1995. The decrease was primarily due to a
decrease in income before income taxes of $2.0 million.
43
<PAGE>
Comparison of Operating Results for the Years Ended December 31, 1995 and
December 31, 1994
General. Net income for the year ended December 31, 1995 was $952,000
compared to $539,000 for the year ended December 31, 1994, an increase of
$413,000, or 76.6%. The increase was primarily a result of an increase in the
Bank's net interest income as discussed more fully below.
Interest Income. Interest income for the year ended December 31, 1995
was $9.9 million compared to $8.5 million for the year ended December 31, 1994,
an increase of $1.4 million, or 16.5%. The contributing factor in the increase
in interest income was the 117 basis point increase in the yield on average
interest-earning assets from 5.98% for the year ended December 31, 1994 to 7.15%
for the year ended December 31, 1995. The average yield on mortgage-backed
securities increased from 5.41% for the year ended December 31, 1994 to 6.80%
for the year ended December 31, 1995 due to the upward repricing of
adjustable-rate mortgage-backed securities coupled with the reduced amortization
of premiums resulting from a slowdown in prepayments from the prior year. The
yield on average loans receivable decreased from 8.26% for the year ended
December 31, 1994 to 8.21% for the year ended December 31, 1995. However, the
average balance of loans receivable increased by $4.1 million due to
management's concerted effort to increase loan originations through the addition
of lending personnel and increased emphasis on loan originations.
Interest Expense. Interest expense for the year ended December 31, 1995
was $5.4 million compared to $4.7 million for the year ended December 31, 1994,
an increase of $744,000, or 15.9%. The increase in interest expense reflects a
higher interest rate environment, as the average cost of interest-bearing
liabilities increased by 65 basis points from 3.49% for the year ended December
31, 1994 to 4.14% for the year ended December 31, 1995. The increase in the
average cost of funds was also attributable to a shift of deposits from savings
accounts to higher yielding certificates of deposit as a result of the higher
prevailing level of interest rates. The average cost of certificates of deposit
increased from 4.17% for the year ended December 31, 1994 to 5.23% for the year
ended December 31, 1995. This increase was partially offset by a $3.0 million
decrease in the average balance of interest-bearing liabilities from $133.7
million for the year ended December 31, 1994 to $130.7 million for the year
ended December 31, 1995 caused primarily by competition from non depository
financial products and the repayment of FHLB advances.
Net Interest Income. Net interest income of $4.5 million for the year
ended December 31, 1995 represented a $690,000 increase from the $3.8 million
reported for the year ended December 31, 1994. The increase in net interest
income was a result of the increase in the net interest spread from 2.49% for
the year ended December 31, 1994 to 3.01% for the year ended December 31, 1995.
Provision for Loan Losses. The Bank's provision for loan losses for the
year ended December 31, 1995 was $134,000 compared to $150,000 for the year
ended December 31, 1994. The allowance for loan losses represented 1.3% and 1.2%
of gross loans receivable at December 31, 1995 and 1994, respectively. The
amount of the provision and allowance for estimated losses on loans is
influenced by current economic conditions, actual loss experience,
44
<PAGE>
industry trends and other factors, such as adverse economic conditions,
including declining real estate values, in the Bank's market area. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for estimated losses on loans. Such
agencies may require the Bank to provide additions to the allowance based upon
judgments which differ from those of management.
Noninterest Income. Noninterest income for the year ended December 31,
1995 was $337,000 compared to $383,000 for the year ended December 31, 1994, a
decrease of $46,000, or 12.0%. The decrease was the result of an increase in the
loss on sale of securities of $72,000 in 1995 combined with a $30,000 decrease
in rental income as a result of the sale of other real estate owned. These
decreases were partially offset by an increase in fees and service charges of
$44,000 and other income of $11,000. The increase in fees and service charges
was due to servicing fee income from the origination of FHA and VA loans sold
into the secondary market.
Noninterest ExpensNoninterest expense was $3.2 million for both years
ended December 31, 1995 and 1994. Although noninterest expense was relatively
stable, the Bank recognized a gain on the sale of other real estate owned of
$223,000 in 1995 compared to zero in 1994. This gain in 1995 was offset by a
$99,000 increase in compensation and employee benefits due to an increase in the
number of loan personnel, an increase in occupancy and equipment expense of
$122,000 due largely to increased real estate taxes, and a $30,000 increase in
advertising and increased emphasis on the promotion of loan activity.
Income Taxes. The provision for income taxes was $559,000 for the year
ended December 31, 1995 compared to $343,000 for the year ended December 31,
1994. The increase was primarily due to a $628,000 increase in pretax income.
Comparison of Operating Results for the Year Ended December 31, 1994 and
December 31, 1993
General. The Bank reported net income for the year ended December 31,
1994 of $539,000 compared to $977,000 for the year ended December 31, 1993, a
decrease of $438,000, or 44.8%. The decrease in net income was primarily the
result of gains on the sale of securities of $270,000 for the year ended
December 31, 1993 compared to losses of $89,000 for the year ended December 31,
1994, coupled with a $256,000 cumulative effect on prior years of a change in
accounting for income taxes in 1993.
Interest Income. Interest income was $8.5 million for the year ended
December 31, 1994 compared to $8.8 million for the year ended December 31, 1993,
a decrease of $314,000, or 3.6%. A contributing factor in the decrease in
interest income was the 27 basis point decrease in the yield on average
interest-earning assets from 6.25% for the year ended December 31, 1993 to 5.98%
for the year ended December 31, 1994. The decrease in interest income due to
lower interest rates was partially mitigated by the increase in average
interest-earning assets from $141.0 million for the year ended December 31, 1993
to $142.1 million for the year ended December 31, 1994. The average yield on
loans decreased by 59 basis points from 8.85% for the year ended December 31,
1993 to 8.26% for the year ended December 31, 1994, primarily as a result of
higher yielding loans being repaid and replaced by loans originated at lower
prevailing rates.
45
<PAGE>
Interest Expense. Interest expense for the year ended December 31, 1994
was $4.7 million compared to $4.9 million for the year ended December 31, 1993,
a decrease of $275,000, or 5.6%. The decrease in interest expense was due
primarily to a 22 basis point decrease in the average cost of interest-bearing
liabilities from 3.71% for the year ended December 31, 1993 to 3.49% for the
year ended December 31, 1994, as a result of the Bank's decision to reduce rates
paid on its deposits in light of the lower rate environment experienced during
1994.
Net Interest Income. Net interest income for the year ended December
31, 1994 was $3.8 million compared to $3.9 million for the year ended December
31, 1993, a decrease of $37,000, or 1.0%. The decrease resulted primarily from
the decrease in the net interest spread from 2.54% for the year ended December
31, 1993 to 2.49% for the year ended December 31, 1994. The decrease in the net
interest spread was a result of interest-earning assets repricing more rapidly
than interest-bearing liabilities in a declining rate environment during 1994.
Provision for Loan Losses. The Bank's provision for loan losses was
$150,000 for the year ended December 31, 1994 compared to $149,000 for the year
ended December 31, 1993. The allowance for loan losses represented 1.2% and
0.69% of gross loans at December 31, 1994 and 1993, respectively. The amount of
the provision and allowance for estimated losses on loans is influenced by
current economic conditions, actual loss experience, industry trends and other
factors, such as adverse economic conditions, including declining real estate
values, in the Bank's market area. In addition, various regulatory agencies, as
an integral part of their examination process, periodically review the Bank's
allowance for estimated losses on loans. Such agencies may require the Bank to
provide additions to the allowance based upon judgments which differ from those
of management.
Noninterest Income. Noninterest income was $383,000 for the year ended
December 31, 1994 compared to $727,000 for the year ended December 31, 1993, a
decrease of $344,000, or 47.3%. Noninterest income decreased primarily as a
result of losses on the sale of securities of $89,000 for the year ended
December 31, 1994 compared to gains on the sale of securities of $270,000 for
the year ended December 31, 1993. This was partially offset by an increase in
rental income of $21,000 as a result of increased net rental income from other
real estate owned.
Noninterest Expense. Noninterest expense was $3.2 million for the year
ended December 31, 1994 compared to $3.3 million for the year ended December 31,
1993, a decrease of $133,000, or 4.0%. The decrease in noninterest expense was
the result of a loss on the sale of other real estate owned of $121,000 for the
year ended December 31, 1993 compared to $0 in 1994.
Income Taxes. The provision for income taxes was $343,000 for the year
ended December 31, 1994 compared to $411,000 for the year ended December 31,
1993. The decrease was largely a result of a decrease in pretax income of
$250,000. In addition, in 1993, the Bank recorded the cumulative effect of
adopting a change in accounting for income taxes totaling $256,000.
46
<PAGE>
Analysis of Net Interest Income
Net interest income represents the difference between interest earned
on interest-earning assets and interest paid on interest-bearing liabilities.
Net interest income depends on the volumes of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.
The following table presents, for the periods indicated, the total
dollar amount of interest income from average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates. No tax equivalent adjustments
were made. All average balances are monthly average balances. Non-accruing loans
have been included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
Nine Months Ended September 30 Year Ended December 31,
-------------------------------------------------------- ----------------------------
1996(3) 1995(3) 1995
-------------------------- --------------------------- -----------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ---- ------- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable(1) ............ $ 50,232 $3,008 7.98% $ 39,972 $2,456 8.19% $ 41,185 $3,383 8.21%
Mortgage-backed securities ..... 66,404 3,556 7.14 73,153 3,658 6.67 72,126 4,904 6.80
Securities(2) .................. 10,750 490 6.08 15,059 698 6.18 14,780 898 6.08
Interest-bearing deposits ...... 12,974 566 5.82 9,736 507 6.94 10,028 687 6.85
Other earning assets(4) ........ 911 53 7.76 869 46 7.06 872 63 7.22
-------- ------ ----- -------- ------ ----- -------- ------ ----
Total earning assets(1) ....... $141,271 7,673 7.24 $138,789 7,365 7.08 $138,991 9,935 7.15
======== ======== ========
Interest-Earning Liabilities:
Savings deposits .............. $ 46,245 1,081 3.12 $ 46,579 1,082 3.10 $ 46,425 1,441 3.10
Demand and NOW ................ 13,238 241 2.43 13,168 238 2.41 13,237 321 2.43
MMDA .......................... 5,552 131 3.15 6,461 153 3.16 6,297 198 3.14
Certificates of Deposit ....... 65,296 2,670 5.45 62,933 2,410 5.11 63,283 3,308 5.23
Borrowings .................... 1,500 112 9.96 1,500 111 9.87 1,500 148 9.87
-------- ------ ----- -------- ------ ----- -------- ----- ----
Total interest-bearing
liabilities ................ $131,831 4,235 4.28 $130,641 3,994 4.08 $130,742 5,416 4.14
========= ------ ---- ======== ----- ---- ======== ------ ----
Net interest/spread ............ $3,438 2.96% $3,371 3.00% $4,519 3.01%
====== ==== ====== ==== ====== ====
Margin ......................... 3.24% 3.24% 3.25%
==== ==== ====
Assets to liabilities .......... 107.16% 106.24% 106.31%
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1994 1993
------------------------------- --------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans receivable(1) ......... $ 37,112 $3,064 8.26% $ 35,551 $3,147 8.85%
Mortgage-backed securities .. 83,392 4,508 5.41 93,988 5,138 5.47
Securities(2) ............... 8,881 400 4.50 5,049 327 6.48
Interest-bearing deposits ... 11,811 466 3.95 5,376 142 3.17
Other earning assets(4) ..... 898 63 7.02 1,038 61 5.88
------ ------ ----- -------- ------ -----
Total earning assets(1) .... $142,094 8,501 5.98 $141,002 8,815 6.25
====== ========
Interest-Earning Liabilities:
Savings deposits ........... $ 48,932 1,372 2.80 $ 46,600 1,381 2.96
Demand and NOW ............. 13,025 287 2.20 12,579 291 2.31
MMDA ....................... 7,753 210 2.71 8,882 247 2.78
Certificates of Deposit .... 61,572 2,566 4.17 62,024 2,724 4.39
Borrowings ................. 2,423 237 9.78 3,462 305 8.81
------ -------- -------- -----
Total interest-bearing
liabilities ............. $133,705 4,672 3.49 $133,547 4,948 3.71
======== ----- ---- ======== ----- ----
Net interest/spread ......... $3,829 2.49% $3,867 2.54%
====== ===== ====== =====
Margin ...................... 2.69% 2.74%
===== =====
Assets to liabilities ....... 106.27% 105.58%
====== ======
<FN>
- -------------
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loss reserves.
(2) Calculated based on amortized cost.
(3) Annualized yield/rate.
(4) Includes FHLMC and FHLB stock at cost.
</FN>
</TABLE>
47
<PAGE>
The following table presents the weighted average yields earned on loans,
securities and other interest-earning assets, and the weighted average rates
paid on savings deposits and the resultant interest rate spreads at the date
indicated. Weighted average balances are based on monthly balances.
<TABLE>
<CAPTION>
At September 30, At December 31,
---------------- ----------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted average yield on:
Loans receivable(1).................................... 7.83% 8.12% 8.06% 8.20% 8.30% 9.19% 9.78%
Mortgage-backed securities(2).......................... 6.50 7.38 8.22 6.42 7.62 6.16 7.77
Securities(2).......................................... 6.85 4.73 5.10 6.71 5.10 9.16 9.71
Other interest-earning assets.......................... 5.48 5.34 4.26 5.38 3.07 3.89 5.16
Combined weighted average yield on interest-earning
assets........................................... 6.88 7.17 7.45 6.78 7.08 6.95 8.21
Weighted average rate paid on:
Passbook Savings ...................................... 3.20 3.20 3.15 3.14 2.60 3.20 5.12
NOW.................................................... 3.14 3.14 3.14 3.14 2.79 3.30 5.13
MMDA................................................... 2.52 2.52 2.52 2.52 2.27 2.78 4.58
Certificate accounts................................... 5.47 5.55 5.57 4.65 4.14 4.82 6.49
Borrowings............................................. 9.72 9.72 9.72 9.72 9.59 9.59 9.59
Other interest-bearing liabilities..................... --- --- --- --- --- --- ---
Combined weighted average rate paid on interest-
bearing liabilities............................... 4.32 4.34 4.34 3.85 3.50 4.11 5.92
Spread.................................................. 2.56% 2.83% 3.11% 2.93% 3.58% 2.84% 2.29%
- ----------
<FN>
(1) Excluding amortization of deferred loan fees.
(2) Excluding premium amortization and discount accretion.
</FN>
</TABLE>
48
<PAGE>
The following schedule presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the changes related to
outstanding balances and that due to the changes in interest rates. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately to the change due to volume and the change due to
rate.
49
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31, Year Ended December 31,
1995 vs. 1996 1994 vs. 1995 1993 vs. 1994
---------------------------- ----------------------------- ----------------------------
Increase Increase Increase
(Decrease) (Decrease) (Decrease)
Due to Total Due to Total Due to Total
-------------- Increase --------------- Increase -------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ---------- ------ ---- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable...................... $(269) $ 821 $ 552 335 (16) 319 135 218 $ (83)
Mortgage-backed securities............ 366 (468) (102) (663) 1,059 396 (573) (57) (630)
Securities............................ 54 (262) (208) 326 172 498 194 (121) 73
----- ----- ----- ------ ----- ----- ----- ----- -----
Total interest-earning assets....... $ 14 $ 294 $ 308 $ (83) $1,517 $1,434 $ (25) $(289) $(314)
===== ===== ===== ====== ====== ====== ===== ===== =====
Interest-bearing liabilities:
Passbook savings...................... 9 (10) (1) (73) 142 69 67 (76) (9)
NOW................................... 1 2 3 5 29 34 10 (14) (4)
MMDA.................................. 7 (29) (22) (43) 31 (12) (31) (6) (37)
Certificate of Deposit................ 135 125 260 73 669 742 (20) (138) (158)
Borrowings............................ 1 --- 1 (91) 2 (89) (99) 31 (68)
----- ----- ----- ------ ----- ----- ----- ----- -----
Total interest-bearing liabilities.. 153 88 241 (129) 873 744 (73) (203) (276)
===== ===== ===== ====== ===== ===== ===== ===== =====
Net interest/spread.................... $(139) $ 206 $ 67 $ 46 $ 644 $ 690 $ 48 $ (86) $ (38)
===== ===== ===== ====== ===== ===== ===== ===== =====
Interest-bearing deposits ............. (141) 200 59 79 300 221 229 95 324
Other earning assets .................. 4 3 7 (2) 2 --- (10) 12 2
</TABLE>
50
<PAGE>
Asset/Liability Management
In an attempt to manage its exposure to changes in interest rates,
management monitors the Bank's interest rate risk. The Board of Directors
reviews at least quarterly the Bank's interest rate risk position and
profitability. The Board of Directors also reviews the Bank's portfolio,
formulates investment strategies and oversees the timing and implementation of
transactions to assure attainment of the Bank's objectives in the most effective
manner. In addition, the Board anticipates reviewing on a quarterly basis the
Bank's asset/liability position, including simulations of the effect on the
Bank's capital of various interest rate scenarios.
In managing its asset/liability mix, Hemlock Federal, depending on the
relationship between long- and short-term interest rates, market conditions and
consumer preference, at times places more emphasis on managing net interest
margin than on better matching the interest rate sensitivity of its assets and
liabilities in an effort to enhance net interest income. Management believes
that the increased net interest income resulting from a mismatch in the maturity
of its asset and liability portfolios can, during periods of declining or stable
interest rates, provide high enough returns to justify the increased exposure to
sudden and unexpected increases in interest rates.
The Bank has taken a variety of steps to manage its interest rate risk
level. First, the Bank maintains a significant portfolio of mortgage-backed
securities having adjustable rates and/or short or intermediate terms to
maturity. At September 30, 1996, $53.8 million or 36.6% of the Bank's assets
consisted of mortgage-backed and related securities having adjustable or
floating interest rates or anticipated average lives of five years or less.
Second, the Bank focuses its lending activities on the origination of adjustable
rate mortgage loans ("ARMs"), seven year balloon loans and fixed rate loans with
terms to maturity of 15 years or less. Third, the Bank maintains a portfolio of
securities and liquid assets with weighted average lives of three years or less.
At September 30, 1996, the Bank had $7.1 million of securities with a remaining
average life of one year. Finally, a substantial proportion of the Bank's
liabilities consists of NOW and passbook savings accounts which are believed by
management to be somewhat less sensitive to interest rate changes than
certificate accounts.
Management utilizes the net portfolio value ("NPV") analysis to quantify
interest rate risk. In essence, this approach calculates the difference between
the present value of liabilities, expected cash flows from assets and cash flows
from off balance sheet contracts. Under OTS regulations, an institution's
"normal" level of interest rate risk in the event of an immediate and sustained
200 basis point change in interest rates is a decrease in the institution's NPV
in an amount not exceeding 2% of the present value of its assets. Pursuant to
this regulation, thrift institutions with greater than "normal" interest rate
exposure must take a deduction from their total capital available to meet their
risk-based capital requirement. The amount of that deduction is one-half of the
difference between (a) the institution's actual calculated exposure to the 200
basis point interest rate increase or decrease (whichever results in the greater
pro forma decrease in NPV) and (b) its "normal" level of exposure which is 2% of
the present value of its assets. Savings institutions, however, with less than
$300 million in assets and a total capital ratio in excess of 12%, will be
exempt from this requirement unless the OTS determines otherwise. The OTS has
postponed the implementation of the rule until further notice. Based upon its
asset size and capital level at September 30, 1996, the Bank would qualify for
an exemption from this rule;
51
<PAGE>
however, management believes that the Bank would not be required to make a
deduction from capital if it were subject to this rule.
The following table sets forth, at September 30, 1996, an analysis of the
Bank's interest rate risk as measured by the estimated changes in NPV resulting
from instantaneous and sustained parallel shifts in the yield curve (+/-400
basis points, measured in 100 basis point increments) as compared to tolerance
limits under the Bank's current policy.
<TABLE>
<CAPTION>
Change in Interest Estimated Ratio of NPV Estimated Increase
Rates NPV to (Decrease) in NPV
(Basis Points) Amount Total Assets Amount Percent
- ------------------ --------- ------------ ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
+400 $10,725 7.40% $(5,980) (36)%
+300 12,548 8.52 (4,158) (25)
+200 14,310 9.57 (2,395) (14)
+100 15,794 10.43 (911) (5)
--- 16,705 10.93 --- ---
-100 16,969 11.04 263 2
-200 16,490 10.73 (215) (1)
-300 16,780 10.86 75 ---
-400 17,485 11.22 780 5
</TABLE>
Certain assumptions utilized in assessing the interest rate risk of thrift
institutions were employed in preparing the preceding table. These assumptions
relate to interest rates, loan prepayment rates, deposit decay rates, and the
market values of certain assets under the various interest rate scenarios. It
was also assumed that delinquency rates will not change as a result of changes
in interest rates although there can be no assurance that this will be the case.
Even if interest rates change in the designated amounts, there can be no
assurance that the Bank's assets and liabilities would perform as set forth
above. In addition, a change in U.S. Treasury rates in the designated amounts
accompanied by a change in the shape of the Treasury yield curve would cause
significantly different changes to the NPV than indicated above.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits and proceeds from
principal and interest payments on loans and mortgage-backed securities. While
maturities and scheduled amortization of loans and securities are predictable
sources of funds, deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions and competition. Hemlock Federal
generally manages the pricing of its deposits to be competitive and increase
core deposit relationships.
Federal regulations require Hemlock Federal to maintain minimum levels of
liquid assets. The required percentage has varied from time to time based upon
economic conditions and savings flows and is currently 5% of net withdrawable
savings deposits and borrowings payable on demand or in one year or less during
the preceding calendar month. Liquid assets for purposes of this ratio include
cash, certain time deposits, U.S. Government, government agency
52
<PAGE>
and corporate securities and other obligations generally having remaining
maturities of less than five years. Hemlock Federal has historically maintained
its liquidity ratio for regulatory purposes at levels in excess of those
required. At September 30, 1996, Hemlock Federal's liquidity ratio for
regulatory purposes was 19.4%.
The Bank's cash flows are comprised of three primary classifications: cash
flows from operating activities, investing activities and financing activities.
Cash flows provided by operating activities were $973,000 and $1,542,000 for the
nine months ended September 30, 1996 and September 30, 1995 respectively,
$1,965,000, $2,450,000 and $3,048,000 for the years ended December 31, 1995,
December 31, 1994, and 1993, respectively. Net cash from investing activities
consisted primarily of disbursements for loan originations and the purchase of
investments and mortgage-backed securities, offset by principal collections on
loans, proceeds from maturation and sales of securities and paydowns on
mortgage-backed securities. Net cash from financing activities consisted
primarily of activity in deposit and escrow accounts.
The Bank's most liquid assets are cash and short-term investments. The
levels of these assets are dependent on the Bank's operating, financing, lending
and investing activities during any given period. At September 30, 1996, cash
and short-term investments totaled $16.4 million. The Bank has other sources of
liquidity if a need for additional funds arises, including securities maturing
within one year and the repayment of loans. The Bank may also utilize the sale
of securities available-for-sale and Federal Home Loan Bank advances as a source
of funds.
At September 30, 1996, the Bank had outstanding commitments to originate
loans of $259,000, of which $154,000 had fixed interest rates. These loans are
to be secured by properties located in its market area. The Bank anticipates
that it will have sufficient funds available to meet its current loan
commitments. Certificates of deposit which are scheduled to mature in one year
or less from September 30, 1996 totaled $49.8 million. Management believes that
a significant portion of such deposits will remain with the Bank.
Liquidity management is both a daily and long-term responsibility of
management. Hemlock Federal adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) expected deposit
flows, (iii) yields available on interest-earning deposits and investment
securities, and (iv) the objectives of its asset/liability management program.
Excess liquidity is invested generally in interest-earning overnight deposits
and short-and intermediate-term U.S. Government and agency obligations and
mortgage-backed securities of short duration. If Hemlock Federal requires funds
beyond its ability to generate them internally, it has additional borrowing
capacity with the FHLB of Chicago.
Hemlock Federal is subject to various regulatory capital requirements
imposed by the OTS. At September 30, 1996, Hemlock Federal was in compliance
with all applicable capital requirements on a fully phased-in basis. See
"Regulation - Regulatory Capital Requirements" and "Pro Forma Regulatory Capital
Analysis" and Note 12 of the Notes to the Financial Statements.
53
<PAGE>
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The primary impact of inflation on the
operations of the Bank is reflected in increased operating costs. Unlike most
industrial companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates, generally, have
a more significant impact on a financial institution's performance than does
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services.
Impact of New Accounting Standards
In March 1995, the FASB issued Statement of Financial Accounting Standards
No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long Lived Assets
and for Long Lived Assets to be Disposed Of." SFAS No. 121 requires that long
lived assets and certain identifiable intangibles be reviewed for impairment
whenever events or circumstances indicate that the carrying amount of an asset
may not be recoverable. However, SFAS No. 121 does not apply to financial
instruments, core deposit intangibles, mortgage and other servicing rights or
deferred tax assets. The adoption of SFAS No. 121 in 1996 did not have a
material impact on the results of operations or financial condition of the Bank.
In May 1995, the FASB issued Statement of Financial Accounting Standards
No. 122 ("SFAS No. 122"), "Accounting for Mortgage Servicing Rights." SFAS No.
122 requires an institution that purchases or originates mortgage loans and
sells or securitizes those loans with servicing rights retained to allocate the
cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values. In
addition, institutions are required to assess impairment of the capitalized
mortgage servicing portfolio based on the fair value of those rights. SFAS No.
122 is effective for fiscal years beginning after December 15, 1995. SFAS No.
122 will be superseded by Statement of Financial Accounting Standards No. 125
after December 31, 1996. The adoption of SFAS No. 122 in 1996 did not have a
material impact on the results of operations or financial condition of the Bank.
In November 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123"), "Accounting for Stock Based Compensation,"
("SFAS No. 123"). This statement establishes financial accounting standard for
stock-based employee compensation plans. SFAS No. 123 permits the Bank to choose
either a new fair value based method or the current APB Opinion 25 intrinsic
value based method or accounting for its stock-based compensation arrangements.
SFAS No. 123 requires pro forma disclosures of net earnings and earnings per
share computed as if the fair value based method had been applied in financial
statements of companies that continue to follow current practice in accounting
for such arrangements under Opinion 25. The disclosure provisions of SFAS No.
123 are effective for fiscal years beginning after December 15, 1995. Any effect
that this statement will have on the Bank will be applicable upon the
consummation of the Conversion.
54
<PAGE>
In June 1996, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards No. 125 ("SFAS No. 125"), "Accounting for
Transfers and Extinguishments of Liabilities." SFAS No. 125 provides accounting
and reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. SFAS No. 125 requires a consistent application
of a financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, and
derecognizes liabilities when extinguished. SFAS No. 125 also supersedes SFAS
No. 122 and requires that servicing assets and liabilities be subsequently
measured by amortization in proportion to and over the period of estimated net
servicing income or loss and requires assessment for asset impairment or
increases obligation based on their fair values. SFAS No. 125 applies to
transfers and extinguishments occurring after December 31, 1996 and early or
retroactive application is not permitted. Management anticipates that the
adoption of SFAS No. 125 will not have a material impact on the financial
condition or operations of the Bank.
BUSINESS
General
As a community-oriented financial institution, Hemlock Federal seeks to
serve the financial needs of communities in its market area. Hemlock Federal's
business involves attracting deposits from the general public and using such
deposits, together with other funds, to originate primarily one- to four-family
residential mortgage loans and, to a lesser extent, multi-family, consumer and
other loans in its market area. The Bank also invests in mortgage-backed and
other securities and other permissible investments. See "Risk Factors."
The Bank offers a variety of accounts having a range of interest rates and
terms. The Bank's deposits include passbook and NOW accounts, money market
accounts and certificate accounts with terms of six months to five years. The
Bank solicits deposits only in its primary market area and does not accept
brokered deposits.
Market Area
The Bank's main office is located in Oak Forest, Illinois and its two
branch offices are located in Oak Lawn and Chicago, Illinois.
The Bank's Oak Forest and Oak Lawn offices are located in the southwest
suburbs of Chicago and generally serve the Bank's southwest suburban market.
This market area is located approximately 20-30 miles from downtown Chicago and
includes Oak Forest and Oak Lawn as well as the nearby communities of Tinley
Park, Orland Park and Burbank. While the Bank's southwestern suburban market
area consists primarily of middle income bedroom communities, it also has a
significant number of retail, commercial, office and light industrial
establishments.
Hemlock Federal's Chicago office is located on the South Side of Chicago in
the "Back of the Yards" community, a mature, low- to moderate-income inner-city
community where the Bank began its operations. The majority of the community's
many businesses are small local
55
<PAGE>
companies, although a few large corporations also have operations there.
Residences within the community consist primarily of single family and two- to
four-family flats, although there are some mid-size apartment buildings. Since
this is a well-established inner-city community, new housing starts are rare.
Lending Activities
General. The principal lending activity of the Bank is originating for its
portfolio fixed and to a lesser extent, adjustable rate ("ARM") mortgage loans
secured by one- to four-family residences located primarily in the Bank's market
area. To a much lesser extent, Hemlock Federal also originates multi-family real
estate, consumer and other loans in its market area. At September 30, 1996, the
Bank's loans receivable, net totaled $53.1 million. See "- Originations of
Loans" and "Use of Proceeds."
56
<PAGE>
Loan Portfolio Composition. The following table sets forth the composition
of the Bank's loan portfolio in dollar amounts and in percentages as of the
dates indicated.
<TABLE>
<CAPTION>
December 31,
September 30, -----------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------------- --------------- --------------- --------------- --------------- ---------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family........... $47,742 88.65% $39,089 85.08% $30,792 80.45% $28,378 75.59% $21,310 65.67% $20,100 58.61%
Multi-family.................. 2,860 5.31 3,386 7.37 3,742 9.78 4,035 10.75 4,787 14.75 6,066 17.69
Commercial.................... 586 1.09 1,101 2.40 1,566 4.09 2,020 5.38 2,440 7.52 2,559 7.46
Construction or development... --- --- --- --- --- --- 502 1.34 502 1.55 500 1.46
------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total real estate loans..... 51,188 95.05 43,576 94.85 36,100 94.32 34,935 93.06 29,039 89.49 29,225 85.22
Consumer loans:
Deposit account............... 175 0.32 158 0.34 150 0.39 172 0.46 187 0.58 145 0.42
Automobile.................... 289 0.54 229 0.50 120 0.31 223 0.59 360 1.11 529 1.54
Home equity................... 2,201 4.09 1,981 4.31 1,908 4.98 2,211 5.89 2,862 8.82 4,394 12.82
------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total consumer loans........ 2,665 4.95 2,368 5.15 2,178 5.68 2,606 6.94 3,409 10.51 5,068 14.78
------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans................. 53,853 100.00% 45,944 100.00% 38,278 100.00% 37,541 100.00% 32,448 100.00% 34,293 100.00%
====== ====== ====== ====== ====== ======
Less:
Loans in process.............. (53) (28) --- (82) --- (196)
Deferred fees and discounts... (9) (84) (150) (184) (212) (173)
Allowance for losses.......... (670) (600) (469) (234) (497) (174)
------- ------- ------- ------- ------- -------
Total loans receivable, net. $53,121 $45,232 $37,659 $37,041 $31,739 $33,750
======= ======= ======= ======= ======= =======
</TABLE>
57
<PAGE>
The following table shows the composition of the Bank's loan portfolio by
fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
December 31,
September 30, -------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------------- --------------- -------------- -------------- --------------- --------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family ......... $ 43,227 80.27% $36,358 79.14% $28,654 74.86% $25,480 67.87% $17,249 53.16%$ 15,223 44.39%
Multi-family ................ 2,860 5.31 3,386 7.37 3,742 9.78 4,035 10.75 4,787 14.75 6,066 17.69
Commercial .................. 586 1.09 1,101 2.40 1,566 4.09 2,020 5.38 2,440 7.52 2,559 7.46
Construction or development . -- -- -- -- -- -- 502 1.34 502 1.55 500 1.46
-------- ------ ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total real estate loans ... 46,673 86.67 40,845 88.91 33,962 88.73 32,037 85.34 24,978 76.98 24,348 71.00
Consumer .................... 2,665 4.95 2,368 5.15 2,178 5.68 2,606 6.94 3,409 10.51 5,068 14.78
-------- ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total fixed-rate loans .... 49,338 91.62 43,213 94.06 36,140 94.41 34,643 92.28 28,387 87.49 29,416 85.78
Adjustable-Rate Loans
Real estate:
One-to four-family .......... 4,515 8.38 2,731 5.94 2,138 5.59 2,898 7.72 4,061 12.51 4,877 14.22
-------- ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total loans ............... 53,853 100.00% 45,944 100.00% 38,278 100.00% 37,541 100.00% 32,448 100.00% 34,293 100.00%
====== ====== ====== ====== ====== ======
Less:
Loans in process ............ (53) (28) -- (82) -- (196)
Deferred fees and discounts . (9) (84) (150) (184) (212) (173)
Allowance for losses ........ (670) (600) (469) (234) (497) (174)
-------- ------ ------ ------ ------ ------
Total loans receivable, net $ 53,121 $45,232 $37,659 $37,041 $31,739 $33,750
====== ====== ====== ====== ====== ======
</TABLE>
58
<PAGE>
The following schedule illustrates the interest rate sensitivity of the
Bank's loan portfolio at September 30, 1996. Mortgages which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract is due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
-----------------------------------------------------------
Multi-family and
Commercial Real Residential
One- to four-family Estate Construction Consumer Total
------------------- ----------------- ----------------- ---------------- -----------------
Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
(Dollars in Thousands)
Due During
Years Ending
September 30,
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 ................. $ 5 6.76% $ -- --% $ -- --% $ 43 9.27% $ 48 9.01%
1998 ................. 16 8.53 52 8.51 50 9.00 202 8.81 320 8.78
1999 and 2000 ........ 88 9.68 87 12.50 444 10.00 569 8.69 1,188 9.53
2001 to 2005 ......... 7,952 7.65 922 8.83 -- -- 1,433 8.77 10,307 7.91
2006 to 2020 ......... 20,371 7.57 1,494 9.10 92 8.37 418 8.46 22,375 7.69
2021 and following ... 19,310 7.79 305 8.75 -- -- -- -- 19,615 7.81
------ ------ ------ ----- ---- ----- ----- ---- ------ ----
Total ............. $47,742 7.68% $2,860 9.07% $586 9.66% $2,665 8.72% $53,853 7.82%
====== ====== ====== ===== ==== ===== ===== ==== ====== ====
</TABLE>
The total amount of loans due after September 30, 1997 which have
predetermined interest rates is $49.3 million while the total amount of loans
due after such dates which have floating or adjustable interest rates is $4.5
million.
59
<PAGE>
Under federal law, the aggregate amount of loans that the Bank is
permitted to make to any one borrower is generally limited to 15% of unimpaired
capital and surplus (25% if the security for such loan has a "readily
ascertainable" value or 30% for certain residential development loans). At
September 30, 1996, based on the above, the Bank's regulatory loans-to-one
borrower limit was approximately $1.7 million. On the same date, the Bank had no
borrowers with outstanding balances in excess of this amount. As of September
30, 1996, the largest dollar amount outstanding or committed to be lent to one
borrower or, group of related borrowers, related to a commercial real estate
loan totaling $445,000 secured by a motel located in Downers Grove, Illinois. At
September 30, 1996, this loan was performing in accordance with its terms. As of
the same date, there were no other loans with carrying values in excess of
$250,000.
All of the Bank's lending is subject to its written underwriting
standards and to loan origination procedures. Decisions on loan applications are
made on the basis of detailed applications and property valuations (consistent
with the Bank's appraisal policy). The loan applications are designed primarily
to determine the borrower's ability to repay and the more significant items on
the application are verified through use of credit reports, financial
statements, tax returns or confirmations. All loans originated by Hemlock
Federal are approved by the loan committee currently comprised of Chairman
Partynski, President Stevens, Director Bucz and Chief Lending Officer Robert
Upton and ratified by the full Board of Directors.
The Bank requires title insurance or other evidence of title on its
mortgage loans, as well as fire and extended coverage casualty insurance in
amounts at least equal to the principal amount of the loan or the value of
improvements on the property, depending on the type of loan. The Bank also
requires flood insurance to protect the property securing its interest when the
property is located in a flood plain.
One- to Four-Family Residential Real Estate Lending. The cornerstone of
the Bank's lending program is the origination of loans secured by mortgages on
owner-occupied one- to four-family residences. Historically, the Bank focused
its residential lending activities on fixed rate loans with 30 year terms. In
the 1980s, in order to reduce the average term to repricing of its assets, the
Bank began to stress also the origination of 15 year fixed rate loans as well as
adjustable rate loans. Substantially all of the Bank's one- to four-family
residential mortgage originations are secured by properties located in its
market area. All mortgage loans currently originated by the Bank are retained
and serviced by it, although the Bank may consider selling a portion of its
residential loan originations in the future.
The Bank currently offers fixed-rate mortgage loans with maturities
from 10 to 30 years. The Bank also offers a fixed rate seven year balloon
product with a 30 year amortization schedule which is due in seven years but
which, under certain circumstances, may be converted into a fully amortizing
fixed rate loan for an additional term of up to 23 years. Interest rates and
fees charged on these fixed-rate loans are established on a regular basis
according to market conditions. As of September 30, 1996, the Bank had $6.6
million of fixed rate loans (most of which were seven year balloon loans) with
original terms of less than 10 years, $19.5 million of fixed rate loans with
original terms of 10-15 years and $20.6 million of fixed rate loans with
original terms of more than 15 years. See "- Originations of Loans."
60
<PAGE>
The Bank also offers ARMs which carry interest rates which adjust
annually at a margin (generally 250 basis points) over the yield on the One Year
Average Monthly U.S. Treasury Constant Maturity Index ("one year CMT"). Such
loans may carry terms to maturity of up to 30 years. The ARM loans currently
offered by the Bank provide for up to 200 basis point annual interest rate
change cap and a lifetime cap generally 600 basis points over the initial rate.
Initial interest rates offered on the Bank's ARMs may be approximately 100 basis
points below the fully indexed rate, although borrowers are qualified at the
fully indexed rate. As a result, the risk of default on these loans may increase
as interest rates increase. The Bank also originates ARMs which carry interest
rates which are fixed for an initial term of up to three years and subsequently
adjust annually to a margin over the year one-year CMT. The Bank's ARMs do not
permit negative amortization of principal, do not contain prepayment penalties
and may be convertible into fixed-rate loans. At September 30, 1996, one- to
four-family ARMs totaled $4.5 million or 8.4% of the Bank's total loan
portfolio.
Hemlock Federal will generally lend up to 90% of the lesser of the
sales price or appraised value of the security property on owner occupied one-
to four-family loans. The loan-to-value ratio on non-owner occupied, one- to
four-family loans is generally 80% of the lesser of the sales price or appraised
value of the security property. Non-owner occupied one- to four-family loans may
pose a greater risk to the Bank than traditional owner occupied one- to
four-family loans. In underwriting one- to four-family residential real estate
loans, the Bank currently evaluates both the borrower's ability to make
principal, interest and escrow payments, the value of the property that will
secure the loan and debt to income ratios.
Residential loans do not currently include prepayment penalties, are
non-assumable and do not produce negative amortization. Although the Bank
currently originates mortgage loans only for its portfolio, the Bank's loans are
generally underwritten to permit their sale in the secondary market, except for
loans with loan to value ratios below 75% which are underwritten for portfolio
with an in-house property evaluation rather than an independent appraisal.
While the Bank seeks to originate most of its one- to four-family
residential loans in amounts which are less than or equal to the applicable
Federal Home Loan Mortgage Corporation maximum (currently $207,000), the Bank
does, on an exception basis, make one- to four-family residential loans in
amounts in excess of such maximum. The Bank's delinquency experience on such
loans has been similar to its experience on its other residential loans.
The Bank's residential mortgage loans customarily include due-on-sale
clauses giving the Bank the right to declare the loan immediately due and
payable in the event that, among other things, the borrower sells or otherwise
disposes of the property subject to the mortgage and the loan is not repaid.
Multi-family and Commercial Real Estate Lending. In order to increase
the yield of its loan portfolio and to complement residential lending
opportunities, the Bank from time to time originates permanent multi-family real
estate loans secured by properties in its primary market area. The Bank made a
strategic decision in the early 1990s to eliminate its commercial real estate
lending program. At September 30, 1996, the Bank had multi-family loans totaling
$2.9 million, or 5.3% of the Bank's total loan portfolio, and $586,000 in
commercial real estate loans, representing 1.1% of the total loan portfolio.
61
<PAGE>
While the Bank will consider making multi-family loans as large as
$500,000, the Bank seeks loans secured by eight or fewer units.
The Bank's permanent multi-family real estate loans generally carry a
maximum term of 15 years and have fixed rates. These loans are generally made in
amounts of up to 80% of the lesser of the appraised value or the purchase price
of the property. Appraisals on properties securing multi-family and commercial
real estate loans are performed by an independent appraiser designated by the
Bank at the time the loan is made. All appraisals on multi-family real estate
loans are reviewed by the Bank's loan committee. In addition, the Bank's
underwriting procedures require verification of the borrower's credit history,
income and financial statements, banking relationships, references and income
projections for the property. The Bank obtains personal guarantees on these
loans.
At September 30, 1996, the Bank's largest commercial real estate or
multi-family loan outstanding totaled $445,000 and was secured by 25% interest
in a motel and a retail store located in Downers Grove, Illinois.
Multi-family and commercial real estate loans may present a higher
level of risk than loans secured by one- to four-family residences. This greater
risk is due to several factors, including the concentration of principal in a
limited number of loans and borrowers, the effects of general economic
conditions on income producing properties and the increased difficulty of
evaluating and monitoring these types of loans. While the Bank has experienced
losses on several multi-family and commercial real estate loans in the past, as
of September 30, 1996, there were no multi-family loans or commercial real
estate loans delinquent 90 days or more.
Consumer Lending. Management believes that offering consumer loan
products helps to expand the Bank's customer base and to create stronger ties to
its existing customer base. In addition, because consumer loans generally have
shorter terms to maturity and carry higher rates of interest than do residential
mortgage loans, they can be valuable asset/liability management tools. The Bank
originates a variety of different types of consumer loans, including home equity
loans, automobile and deposit account loans for household and personal purposes.
Due to the tax advantages to the borrower of home equity loans, the Bank has
focused its recent consumer lending activities on home equity lending. At
September 30, 1996 consumer loans totaled $2.7 million or 5.0% of total loans
outstanding.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. The Bank's consumer
loans are made at fixed interest rates, with terms of up to 10 years.
The Bank's home equity loans are written so that the total commitment
amount, when combined with the balance of the first mortgage lien, may not
exceed 85% of the appraised value of the property or $50,000. These loans are
written with fixed terms of up to 10 years and carry fixed interest rates. At
September 30, 1996, the Bank's home equity loans totaled $2.2 million
outstanding, or 4.1% of the Bank's total loan portfolio.
62
<PAGE>
The underwriting standards employed by the Bank for consumer loans
include a determination of the applicant's payment history on other debts and
ability to meet existing obligations and payments on the proposed loan. Although
creditworthiness of the applicant is of primary consideration, the underwriting
process also includes a comparison of the value of the security, if any, in
relation to the proposed loan amount. Consumer loans may entail greater credit
risk than do residential mortgage loans, particularly in the case of consumer
loans which are unsecured or are secured by rapidly depreciable assets, such as
automobiles. In such cases, any repossessed collateral for a defaulted consumer
loan may not provide an adequate source of repayment of the outstanding loan
balance as a result of the greater likelihood of damage, loss or depreciation.
In addition, consumer loan collections are dependent on the borrower's
continuing financial stability, and thus are more likely to be affected by
adverse personal circumstances. Furthermore, the application of various federal
and state laws, including bankruptcy and insolvency laws, my limit the amount
which can be recovered on such loans.
Originations of Loans
Real estate loans are originated by Hemlock Federal's staff through
referrals from existing customers or real estate agents. In the early 1990s, the
Bank determined to increase its one- to four-family residential loan marketing
activities and to hire several commissioned loan underwriters. As a result, the
Bank has experienced significant loan growth in recent years.
The Bank's ability to originate loans is dependent upon customer demand
for loans in its market and to a limited extent, various marketing efforts and
its ability to hire commissioned loan officers. Demand is affected by both the
local economy and the interest rate environment. See "- Market Area." Under
current policy, all loans originated by Hemlock Federal are retained in the
Bank's portfolio. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Asset/Liability Management."
In order to supplement loan originations, the Bank has acquired a
substantial amount of mortgage-backed and other securities which are held,
depending on the investment intent, in the "held-to-maturity" or
"available-for-sale" portfolios. See Mortgage-Backed and Related Securities -
Investment Activities" and Note 2 to the Notes to Financial Statements. In
addition, depending on market conditions, the Bank may also consider the
purchase of residential loans from other lenders, although it has not done so in
the 1990s.
As a result in large part of the Bank's relatively low loans to
deposits ratios since the early 1980s, the Bank has not sold any loans
in the secondary market for many years. In view of the apparent success of the
Bank's recent loan origination efforts and the related increases in its loans to
deposits ratio, the Bank may consider the sale of a portion of its residential
loan originations in the future.
63
<PAGE>
The following table shows the loan origination and repayment activities
of the Bank for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
---------------------- --------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Originations by type:
Adjustable rate:
Real estate - one- to four-family......... $ 2,277 $ 771 $ 1,042 $ 594 $ 347
------- ------- ------- ------- -------
Total adjustable-rate............... 2,277 771 1,042 594 347
------- -------- ------- -------- --------
Fixed rate:
Real estate - one- to four-family......... 9,997 8,203 10,670 5,856 14,691
- multi-family.............. 404 410 534 645 617
Non-real estate - consumer................ 1,104 1,015 1,363 733 1,428
------- ------- -------- -------- --------
Total fixed-rate.................... 11,505 9,628 12,567 7,234 16,736
------- ------- ------- ------- -------
Total loans originated............ 13,782 10,399 13,609 7,828 17,083
------- ------- ------- ------- -------
Principal repayments........................ (5,873) (4,237) (5,943) (7,091) (11,990)
------- ------- ------- ------- -------
Total reductions.................... (5,873) (4,237) (5,943) (7,091) (11,990)
Increase (decrease) in other
items, net................................. (20) (66) (93) (119) 209
-------- -------- -------- ------- --------
Net increase (decrease)............. $ 7,889 $ 6,096 $ 7,573 $ 618 $ 5,302
======= ======= ======= ======= =======
</TABLE>
Delinquencies and Non-Performing Assets
Delinquency Procedures. When a borrower fails to make a required
payment on a loan, the Bank attempts to cure the delinquency by contacting the
borrower. Generally, Bank personnel work with the delinquent borrower on a case
by case basis to solve the delinquency. Generally, a late notice is sent on all
delinquent loans followed by a phone call after the thirtieth day of
delinquency. Additional written and verbal contacts may be made with the
borrower between 30 and 60 days after the due date. If the loan is contractually
delinquent for 90 days, the Bank may institute appropriate action to foreclose
on the property. After 120 days, foreclosure procedures are initiated. If
foreclosed, the property is sold at public sale and may be purchased by the
Bank.
Real estate acquired by Hemlock Federal as a result of foreclosure or
by deed in lieu of foreclosure is classified as real estate owned until it is
sold. When property is acquired by foreclosure or deed in lieu of foreclosure,
it is recorded at the lower of cost or estimated fair value less estimated
selling costs. After acquisition, all costs incurred in maintaining the property
are expensed. Costs relating to the development and improvement of the property,
however, are capitalized.
64
<PAGE>
The following table sets forth the Bank's loan delinquencies by type,
by amount and by percentage of type at September 30, 1996.
<TABLE>
<CAPTION>
Loans Delinquent For:
----------------------------------------------------------
60-89 Days 90 Days and Over Total Delinquent Loans
-------------------------- --------------------------- -----------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-
family .............. 4 $208 0.44% 1 $77 0.16% 5 $285 0.60%
Multi-family ......... - -- -- - -- -- - -- --
Commercial ........... - -- -- - -- -- - -- --
Construction or
development ......... - -- -- - -- -- - -- --
Consumer ............... 2 1 0.04% - -- -- 2 1 0.04%
- --- ---- - ---- ---- - --- ----
Total .................. 6 $209 0.39% 1 $77 0.14% 7 $286 0.53%
= === ==== = ==== ==== = === ====
</TABLE>
65
<PAGE>
Classification of Assets. Federal regulations require that each savings
institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, OTS and FDIC examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: Substandard,
Doubtful and Loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the Bank will sustain some
loss if the deficiencies are not corrected. Doubtful assets have the weaknesses
of Substandard assets, with the additional characteristics that the weaknesses
make collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified Loss is considered uncollectible and of such little value that
continuance as an asset on the balance sheet of the institution is not
warranted. Assets classified as Substandard or Doubtful require the institution
to establish prudent general allowances for loan losses. If an asset or portion
thereof is classified as a loss, the institution charges off such amount against
the loan loss allowance. If an institution does not agree with an examiner's
classification of an asset, it may appeal this determination to the District
Director of the OTS.
On the basis of management's review of its assets, at September 30,
1996, the Bank had no classified assets.
66
<PAGE>
Non-Performing Assets. The table below sets forth the amounts and
categories of non-performing assets in the Bank's loan portfolio. Foreclosed
assets include assets acquired in settlement of loans.
<TABLE>
<CAPTION>
December 31,
September 30, -----------------------------------------------------
1996 1995 1994 1993 1992 1991
------------- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family....................... $77 $110 $ 30 $ 147 $ 86 $ 175
Multi-family.............................. --- --- 108 108 108 108
Commercial real estate.................... --- --- --- --- 694 791
Construction or development............... --- --- --- 502 502 500
Consumer.................................. --- --- --- --- 8 ---
---- ------ ------ --------- -------- --------
Total................................ 77 110 138 757 1,398 1,574
Accruing loans delinquent more than 90
days:
One- to four-family....................... --- --- --- --- --- ---
Multi-family.............................. --- --- --- --- --- ---
Commercial real estate.................... --- --- --- --- --- ---
Construction or development............... --- --- --- --- --- ---
Consumer.................................. --- --- --- --- --- ---
---- ------ ------ ------- ------- -------
Total................................ --- --- --- --- --- ---
Foreclosed assets:
One- to four-family....................... --- --- --- --- --- 3
Multi-family.............................. --- --- --- --- --- ---
Commercial real estate.................... --- --- --- 416 249 416
Construction or development............... --- --- --- --- --- ---
Consumer.................................. --- --- --- --- --- ---
---- ------ ------ --------- --------- --------
Total................................ --- --- --- 416 249 419
Renegotiated loans.......................... --- 469(1) 479(1) --- --- ---
----- ---- --- -------- --------- ---------
Total non-performing assets................. $77 $579 $617 $1,173 $1,647 $1,993
=== ==== ==== ====== ====== ======
Total as a percentage of total assets....... 0.05% 0.40% 0.43% 0.80% 1.17% 1.50%
==== ==== ==== ==== ==== ====
<FN>
- ----------
(1) Consisted of a 24% interest in a loan on a Comfort Inn located in Downers
Grove, Illinois. The loan terms were renegotiated in 1994. The loan
has been current since the renegotiation date.
</FN>
</TABLE>
For the year ended December 31, 1995 and for the nine months ended
September 30, 1996, gross interest income which would have been recorded had the
non-accruing loans been current in accordance with their original terms amounted
to $2,275 and $5,800, respectively. The amounts that were included in interest
income on such loans were $7,956 and $4,838 for the year ended December 31,
1995, and for the nine months ended September 30, 1996, respectively.
Other Loans of Concern. In addition to the non-performing assets set
forth in the table above, as of September 30, 1996, there was one other loan
with respect to which known information about the possible credit problems of
the borrowers or the cash flows of the security properties have caused
management to have concerns as to the ability of the borrowers to comply with
present loan repayment terms and which may result in the future inclusion of
such items in the non-performing asset categories. This loan was secured by a
six unit apartment building located in Orland Park, Illinois and was 30 days
delinquent at September 30, 1996.
Management considers the Bank's non-performing and "of concern" assets
in establishing its allowance for loan losses.
67
<PAGE>
The following table sets forth an analysis of the Bank's allowance for
loan losses.
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended December 31,
--------------- ---------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ---------- ---------- ---------- ---------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period.................... $600 $469 $469 $234 $497 $174 $141
Charge-offs:
One- to four-family............................. 5 --- --- --- --- --- ---
Multi-family.................................... --- --- --- --- --- --- ---
Commercial real estate.......................... --- --- --- --- 412 34 ---
Consumer........................................ --- 3 3 --- --- --- ---
----- ----- ----- ------ ------ ------ ------
5 3 3 --- 412 34 ---
----- ----- ----- ------- ----- ------ ------
Recoveries:
One- to four-family............................. --- --- --- --- --- --- ---
Multi-family.................................... --- --- --- --- --- --- ---
Commercial real estate.......................... --- --- --- 85 --- --- ---
Consumer........................................ --- --- --- --- --- --- ---
----- ----- ----- ----- ------ ----- -----
--- --- --- 85 --- --- ---
----- ----- ----- ---- ------ ----- -----
Net charge-offs................................... (5) (3) (3) 85 (412) (34) ---
Additions charged to operations................... 75 122 134 150 149 357 33
----- ----- ----- ------ ------ ------ -----
Balance at end of period.......................... $670 $588 $600 $469 $234 $497 $174
==== ==== ==== ==== ==== ==== ====
Ratio of net charge-offs (recoveries) during
the period to average loans outstanding during
the period...................................... 0.01% 0.01% 0.01% (0.23)% 1.16% 0.10% 0.00%
==== ==== ==== ==== ==== ==== ====
Ratio of net charge-offs (recoveries) during
the period to average non-performing assets..... 2.84% 2.63% 2.70% (20.88)% 25.00% 1.91% 0.00%
==== ==== ==== ===== ===== ==== ====
</TABLE>
68
<PAGE>
The distribution of the Bank's allowance for losses on loans
at the dates indicated is summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
September 30, 1996 1995 1994
-------------------------------- --------------------------------- --------------------------------
Percent Percent Percent
of loans of loans of loans
Amount Loan in Each Amount Loan in Each Amount Loan in Each
of loan Amounts Category of loan Amounts Category of loan Amounts Category
loss by of Total loss by of Total loss by of Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
--------- -------- ----- --------- -------- ----- --------- -------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family..... $239 $47,742 88.65% $195 $39,089 85.08% $ 62 $30,792 80.45%
Multi-family............ 86 2,860 5.31 102 3,386 7.37 37 3,742 9.78
Commercial real estate.. 29 586 1.09 55 1,101 2.40 47 1,566 4.09
Construction or --- --- --- --- --- --- --- --- ---
development............
Consumer................ 14 2,665 4.95 12 2,368 5.15 5 2,178 5.68
Unallocated............. 302 --- --- 236 --- --- 318 --- ---
----- ------- ------- ----- ---------- ------- ----- ------- ------
Total.............. $670 $53,853 100.00% $600 $45,944 100.00% $469 $38,278 100.00%
==== ======= ====== ==== ======= ====== ==== ======= ======
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1993 1992 1991
-------------------------------- --------------------------------- --------------------------------
Percent Percent Percent
of loans of loans of loans
Amount Loan in Each Amount Loan in Each Amount Loan in Each
of loan Amounts Category of loan Amounts Category of loan Amounts Category
loss by of Total loss by of Total loss by of Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
--------- -------- ----- --------- -------- ----- --------- -------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family..... $ 58 $28,378 75.59% $ 43 $21,310 65.67% $ 35 $20,100 58.61%
Multi-family............ 40 4,035 10.75 47 4,787 14.75 44 6,066 17.69
Commercial real estate.. 81 2,020 5.38 289 2,440 7.52 85 2,559 7.46
Construction or --- 502 1.34 --- 502 1.55 --- 500 1.46
development............
Consumer................ 7 2,606 6.94 9 3,409 10.51 10 5,068 14.78
Unallocated............. 48 --- --- 109 --- --- --- --- ---
----- ------- ------ ----- ------- ------ ---- ------ ------
Total.............. $234 $37,541 100.00% $497 $32,448 100.00% $174 $34,293 100.00%
==== ======= ====== ==== ======= ====== ==== ======= ======
</TABLE>
69
<PAGE>
The allowance for loan losses is established through a provision for
loan losses charged to earnings based on management's evaluation of the risk
inherent in its entire loan portfolio. Such evaluation, which includes a review
of all loans of which full collectibility may not be reasonably assured,
considers the market value of the underlying collateral, growth and composition
of the loan portfolio, delinquency trends, adverse situations that may affect
the borrower's ability to repay, prevailing and projected economic conditions
and other factors that warrant recognition in providing for an adequate
allowance for loan losses. In determining the general reserves under these
policies, historical charge-offs and recoveries, changes in the mix and levels
of the various types of loans, net realizable values, the current and
prospective loan portfolio and current economic conditions are considered.
While management believes that it uses the best information available
to determine the allowance for loan losses, unforeseen economic and market
conditions could result in adjustments to the allowance for loan losses, and net
earnings could be significantly affected, if circumstances differ substantially
from the assumptions used in making the final determination.
Investment Activities
General. Hemlock Federal must maintain minimum levels of investments
and other assets that qualify as liquid assets under OTS regulations. Liquidity
may increase or decrease depending upon the availability of funds and
comparative yields on investments in relation to the return on loans.
Historically, Hemlock Federal has maintained liquid assets at levels
significantly above the minimum requirements imposed by the OTS regulations and
above levels believed adequate to meet the requirements of normal operations,
including potential deposit outflows. At September 30, 1996, Hemlock Federal's
liquidity ratio for regulatory purposes was 19.4%. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Asset/Liability
Management" and "- Liquidity and Capital Resources."
Generally, the investment policy of Hemlock Federal is to invest funds
among categories of investments and maturities based upon the Bank's
asset/liability management policies, investment quality, loan and deposit
volume, liquidity needs and performance objectives. Prior to December 31, 1993,
the Bank recorded its investments in its investment securities portfolio at the
lower of cost or current market value if held for sale or at amortized cost if
held for investment. Unrealized declines in the market value of securities held
to maturity were not reflected in the financial statements; however, unrealized
losses in the market value of securities held for sale were recorded as a charge
to current earnings. Effective December 31, 1993, Hemlock Federal adopted SFAS
115. As required by SFAS 115, securities are classified into three categories:
trading, held-to-maturity and available-for-sale. Securities that are bought and
held principally for the purpose of selling them in the near term are classified
as trading securities and are reported at fair value with unrealized gains and
losses included in trading account activities in the statement of operations.
Securities that Hemlock Federal has the positive intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost. All
other securities not classified as trading or held-to-maturity are classified as
available-for-sale. At September 30, 1996, Hemlock Federal had no securities
which were classified as trading and $31.9 million of mortgage-backed and
related securities and no securities classified as held-to-maturity.
Available-for-sale securities are reported at fair value with unrealized gains
and losses included, on an after-tax basis, in a separate component of
70
<PAGE>
retained earnings. At September 30, 1996, $34.1 million of mortgage-backed and
related securities and $7.1 million of other securities were classified as
available-for-sale.
Mortgage-Backed and Related Securities. In order to supplement its
lending activities and achieve its asset liability management goals, the Bank
invests in mortgage-backed and related securities. As of September 30, 1996, all
of the mortgage-backed and related securities owned by the Bank are issued,
insured or guaranteed either directly or indirectly by a federal agency or are
rated "AAA" by a nationally recognized credit rating agency. However, it should
be noted that, while a (direct or indirect) federal guarantee or a high credit
rating may indicate a high degree of protection against default, they do not
indicate that the securities will be protected from declines in value based on
changes in interest rates or prepayment speeds.
Consistent with its asset/liability management strategy, at September
30, 1996, $44.6 million, or 67.7% of Hemlock Federal's mortgage-backed and
related securities had adjustable or floating interest rates. In addition, as
discussed below, as of the same date, the Bank had $9.2 million of fixed rate
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs") with anticipated average lives of five years or less. For
information regarding the Bank's mortgage-backed securities portfolio, see Note
2 of the Notes to the Financial Statements.
The Bank's CMOs and REMICs are securities derived by reallocating the
cash flows from mortgage-backed securities or pools of mortgage loans in order
to create multiple classes, or tranches, of securities with coupon rates and
average lives that differ from the underlying collateral as a whole. The terms
to maturity of any particular tranche is dependent upon the prepayment speed of
the underlying collateral as well as the structure of the particular CMO or
REMIC. Although a significant proportion of the Bank's CMOs and REMICs are
interests in tranches which have been structured (through the use of cash flow
priority and "support" tranches) to give somewhat more predictable cash flows,
the cash flow and hence the value of CMOs and REMICs is subject to change.
The Bank invests in CMOs and REMICs as an alternative to mortgage loans
and conventional mortgage-backed securities as part of its asset/liability
management strategy. Management believes that CMOs and REMICs represent
attractive investment alternatives relative to other investments due to the wide
variety of maturity and repayment options available through such investments. In
particular, the Bank has from time to time concluded that short and intermediate
duration CMOs and REMICs (five year or less average life) often represent a
better combination of rate and duration than adjustable rate mortgage-backed
securities.
To assess price volatility, the Federal Financial Institutions
Examination Council ("FFIEC") adopted a policy in 1992 which requires an annual
"stress" test of mortgage derivative securities. This policy, which has been
adopted by the OTS, requires the Bank to annually test its CMOs and other
mortgage-related securities to determine whether they are high-risk or
nonhigh-risk securities. Mortgage derivative products with an average life or
price volatility in excess of a benchmark 30-year, mortgage-backed, pass-through
security are considered high-risk mortgage securities. Under the policy, savings
institutions may generally only invest in low-risk mortgage securities in order
to reduce interest rate risk. In addition, all high-risk mortgage securities
acquired after February 9, 1992 which are classified as high risk
71
<PAGE>
at the time of purchase must be carried in the institution's trading account or
as assets available- for-sale. At September 30, 1996, none of the Bank's
mortgage-backed securities were classified as "high-risk."
72
<PAGE>
The following table sets forth the composition of the Bank's
mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
September 30, 1996 1995 1994 1993
----------------- ---------------- ----------------- ------------------
Carrying % of Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total Value Total
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities
held-to- maturity:
GNMA ............................... $ 3,253 4.93% $ 3,810 5.54% $ 4,306 5.80% $ 5,883 7.22%
FNMA ............................... 14,671 22.26 17,592 25.60 24,323 32.74 22,617 27.77
FHLMC .............................. 10,723 16.27 12,954 18.85 19,084 25.69 23,541 28.91
CMOs ............................... 3,213 4.87 8,750 12.73 18,327 24.67 29,398 36.10
------- ------ ------- ------ ------- ------ ------- ------
31,860 48.33 43,106 62.72 66,040 88.90 81,439 100.00
Mortgage-backed securities
available-for- sale:
GNMA ............................... -- -- -- -- -- -- -- --
FNMA ............................... 9,186 13.94 6,050 8.80 1,102 1.48 -- --
FHLMC .............................. 6,779 10.28 7,415 10.79 -- -- -- --
CMOs ............................... 18,099 27.45 12,155 17.69 7,142 9.62 -- --
------- ------ ------- ------ ------- ------ ------- ------
34,064 51.67 25,620 37.28 8,244 11.10 -- --
------- ------ ------- ------ ------- ------ ------- ------
Total mortgage-backed securities .. $65,924 100.00% $68,726 100.00% $74,284 100.00% $81,439 100.00%
======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
73
<PAGE>
The following table sets forth the contractual maturities of the Bank's
mortgage-backed securities at September 30, 1996.
<TABLE>
<CAPTION>
Due in
6 Months 6 Months 1 to 3 to 5 5 to 10 10 to 20 Over 20 Amortized Carrying
or Less to 1 Year 3 Years Years Years Years Years Cost Value
-------- --------- ------- ------ -------- -------- ------- -------- ------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal Home Loan
Mortgage Corporation .................. $ -- $1,121 $ -- $ 18 $ 333 $ 6,480 $ 9,438 $17,390 $17,502
Federal National Mortgage
Association ........................... -- 164 832 325 612 2,546 19,262 23,741 23,857
Government National Mortgage
Association ........................... -- -- -- 34 132 667 2,420 3,253 3,253
CMOs ................................... -- -- 215 213 632 3,243 17,037 21,340 21,312
------ ------ ------ ---- ------ ------- ------- ------- -------
Total ............................. $ -- $1,285 $1,047 $590 $1,709 $12,936 $48,157 $65,724 $65,924
====== ====== ====== ==== ====== ======= ======= ======= =======
Weighted average yield ................. 6.84 7.75 8.32 8.45 8.27 6.80 7.13
</TABLE>
74
<PAGE>
At September 30, 1996 the Bank did not have any mortgage-backed
securities in excess of 10% of retained earnings except for FNMA, FHLMC and GNMA
issues, amounting to $23.9 million, $17.5 million and $3.3 million,
respectively.
The market values of a portion of the Bank's mortgage-backed securities
held-to-maturity have been from time to time lower than their carrying values.
However, for financial reporting purposes, such declines in value are considered
to be temporary in nature since they have been due to changes in interest rates
rather than credit concerns. See Note 2 of the Notes to the Financial
Statements.
The following table shows mortgage-backed securities purchase, sale and
repayment activities of the Bank for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
------------------- ------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Purchases:
Adjustable-rate........................ $5,430 $8,088 $9,103 $14,768 $ 2,117
Fixed-rate............................. --- --- --- --- 22,748
CMOs................................... 10,152 7,842 11,350 23,498 34,673
------ ------ ------ ------ ------
Total purchases................. 15,582 15,930 20,453 38,266 59,538
Sales:
Adjustable-rate........................ --- --- --- --- 2,629
Fixed-rate............................. --- 575 575 --- 2,600
CMOs................................... --- 3,071 3,071 4,956 2,678
------- ------ ------ ------ ------
Total sales.................... --- 3,646 3,646 4,956 7,907
Principal repayments................... (18,103) (14,200) (22,440) (38,476) (57,663)
Discount/premium net change............ (125) (547) (564) (1,706) (2,286)
Fair value net change.................. (155) 399 639 (283) ---
------- --------- -------- --------- ---------
Net increase (decrease)......... $2,802 $ (2,064) $(5,558) $ (7,155) $ (8,318)
====== ======== ======= ======== ========
</TABLE>
As a result in part of competitive factors, the Bank's holdings of
mortgage-backed securities are larger than its loans receivable. Since
pass-through mortgage-backed securities generally carry a yield approximately 50
to 100 basis points below that of the corresponding type of residential loan
(due to the implied federal agency guarantee fee and the retention of a
servicing spread by the loan servicer), and the Bank's CMOs and REMICs also
carry lower yields (due to the implied federal agency guarantee and because such
securities tend to have shorter actual durations than 30 year loans), in the
event that the proportion of the Bank's assets consisting of mortgage-backed and
related securities increases, the Bank's asset yields could be somewhat
adversely affected. The Bank will evaluate mortgage-backed and related
securities purchases in the future based on its asset/liability objectives,
market conditions and alternative investment opportunities.
75
<PAGE>
Securities. Federally chartered savings institutions have the authority
to invest in various types of liquid assets, including United States Treasury
obligations, securities of various federal agencies, certain certificates of
deposit of insured banks and savings institutions, certain bankers' acceptances,
repurchase agreements and federal funds. Subject to various restrictions,
federally chartered savings institutions may also invest their assets in
commercial paper, investment grade corporate debt securities and mutual funds
whose assets conform to the investments that a federally chartered savings
institution is otherwise authorized to make directly.
In order to complement its lending and mortgage-backed securities
investment activities and to increase its holding of short and medium term
assets, the Bank invests in liquidity investments and in high-quality
investments, such as U.S. Treasury and agency obligations. At September 30, 1996
and December 31, 1995, the Bank's securities portfolio totaled $7.1 million and
$14.6 million, respectively. At September 30, 1996, the Bank did not own any
investment securities of a single issuer which exceeded 10% of the Bank's
retained earnings, other than federal agency obligations. See Note 2 of the
Notes to the Financial Statements for additional information regarding the
Bank's securities portfolio.
76
<PAGE>
The following table sets forth the composition of the Bank's securities
and other earning assets at the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
September 30, 1996 1995 1994 1993
------------------ ----------------- ---------------- -----------------
Carrying % of Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total Value Total
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held-to-maturity:
Federal agency obligations ............ $ -- -- % $ 1,500 10.26% $ 3,500 30.61% $6,003 100.00%
------ ------ ------- ------ ----- ------ ------- ------
-- -- 1,500 10.26 3,500 30.61 6,003 100.00
Securities available-for sale:
Federal agency obligations ............ 7,095 100.00 13,125 89.74 7,934 69.39 -- --
------ ------ ------- ------ ----- ------ ------- ------
7,095 100.00 13,125 89.74 7,934 69.39 -- --
------ ------ ------- ------ ----- ------ ------- ------
Total securities ................. $7,095 100.00% $14,625 100.00% $11,434 100.00% $ 6,003 100.00%
====== ====== ======= ====== ======= ====== ======= ======
Average remaining life of
securities: ............................ 1 year 3 years 1 year 2 years
Other earning assets:
Interest-earning deposits
with banks .......................... $14,800 90.42% $10,158 87.90% $14,027 92.31% $17,372 94.47%
FHLB stock ........................... 901 5.50 849 7.35 837 5.51 991 5.39
FHLMC stock .......................... 667 4.08 549 4.75 332 2.18 26 0.14
Federal funds sold ................... -- -- -- -- -- -- -- --
------- ------ ------- ------ ------- ------ ------- ------
Total .......................... $16,368 100.00% $11,556 100.00% $15,196 100.00% $18,389 100.00%
======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
77
<PAGE>
The composition and maturities of the securities portfolio, excluding
FHLB stock, are indicated in the following table.
<TABLE>
<CAPTION>
September 30, 1996
----------------------------------------------------------------------------
Less Than 1 to 5 5 to 10 Over
1 Year Years Years 10 years Total Securities
------ ----- ----- -------- -----------------------
Book Value Book Value Book Value Book Value Book Value Book Value
---------- ---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal agency obligations.......... $5,080 $2,006 $ --- $ --- $7,086 $7,095
------- ------- -------- ------- ------- ------
Total investment securities......... $5,080 $2,006 $ --- $ --- $7,086 $7,095
====== ====== ======= ======= ====== ======
Weighted average yield.............. 5.31% 6.17% --- --- 5.55% ---
</TABLE>
See Note 2 of the Notes to the Financial Statements for a discussion of
the Bank's securities portfolio.
Sources of Funds
General. The Bank's primary sources of funds are deposits, payments
(including prepayments) of loan principal, interest earned on loans and
securities, repayments of securities, borrowings and funds provided from
operations.
Deposits. Hemlock Federal offers deposit accounts having a wide range
of interest rates and terms. The Bank's deposits consist of passbook, NOW, money
market and various certificate accounts. The Bank relies primarily on
competitive pricing and customer service to attract and retain these deposits.
The Bank's customers may access their accounts through any of the Bank's three
offices and two automated teller machines. In addition, the Bank's customers may
access their accounts through CIRRUS, a nationwide ATM network. The Bank only
solicits deposits in its market area and does not currently use brokers to
obtain deposits.
The variety of deposit accounts offered by the Bank has allowed it to
be competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. As a result, as customers have become more interest rate
conscious, the Bank has become more susceptible to short-term fluctuations in
deposit flows.
The Bank manages the pricing of its deposits in keeping with its
asset/liability management, profitability and growth objectives. However, the
Bank has found it difficult to increase its deposits on a cost effective basis
as a result of intense competition in the communities in which it operates. In
order to improve its deposit growth, the Bank may consider the establishment of
a new branch office in the southwestern suburbs of Chicago, although the Bank
has no specific plans or arrangements regarding any such new office as of the
date hereof.
Management believes that the "core" portion of the Bank's regular
savings, NOW and money market accounts can have a lower cost and be more
resistant to interest rate changes than certificate accounts. These accounts
decreased $6.4 million since December 31, 1993. The Bank intends to utilize
customer service and marketing initiatives in an effort to maintain the volume
of such deposits. However, there can be no assurance as to whether the Bank will
be
78
<PAGE>
able to maintain or increase its core deposits in the future. The Bank is
actively exploring the feasibility of opening a new branch office in its
contiguous market area as a way to build its deposit base and continue its
existing customer relationships.
79
<PAGE>
The following table sets forth the savings flows at the Bank during the
periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
------------------- ------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Opening balance................. $130,741 $130,771 $130,771 $132,583 $128,149
Deposits........................ 157,763 159,100 210,667 200,476 202,600
Withdrawals..................... 163,489 163,192 215,972 206,731 202,860
Interest credited............... 4,144 3,892 5,275 4,443 4,694
--------- -------- -------- -------- --------
Ending balance.................. $129,159 $130,571 $130,741 $130,771 $132,583
======== ======== ======== ======== ========
Net increase (decrease)......... $ (1,582) $ (200) $ (30) $ (1,812) $ 4,434
======== ======= ========== ========= =========
Percent increase (decrease)..... (1.21)% (0.15)% (0.02)% (1.37)% 3.46%
===== ===== ===== ===== ====
</TABLE>
80
<PAGE>
The following table sets forth the dollar amount of savings deposits in
the various types of deposit programs offered by the Bank as of the dates
indicated.
<TABLE>
<CAPTION>
September 30, December 31,
------------------------------------ -----------------------------------------------------
1996 1995 1995 1994 1993
----------------- ---------------- --------------- ---------------- ----------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Transactions and Savings Deposits
Passbook Accounts 3.14%............ $ 45,689 35.37% $ 46,065 35.28% $ 46,053 35.23% $ 48,697 37.24% $ 48,482 36.57%
NOW Accounts 2.52%................. 12,979 10.05 13,616 10.43 14,021 10.72 13,331 10.20 13,202 9.96
Money Market Accounts 3.20%........ 5,265 4.08 6,004 4.60 5,999 4.59 7,236 5.53 8,640 6.52
-------- ------ -------- ------ -------- ------ --------- ------ --------- ------
Total Non-Certificates............. 63,933 49.50 65,685 50.31 66,073 50.54 69,264 52.97 70,324 53.05
Certificates:
0.00 - 3.99%....................... --- --- --- --- --- --- 17,193 13.15 36,925 27.85
4.00 - 5.99%....................... 55,993 43.35 52,656 40.33 54,033 41.33 41,235 31.53 20,356 15.35
6.00 - 7.99%....................... 9,233 7.15 12,230 9.36 10,635 8.13 3,079 2.35 4,978 3.75
-------- ----- -------- ------ -------- ------ --------- ----- --------- -------
Total Certificates.................. 65,226 50.50 64,886 49.69 64,668 49.46 61,507 47.03 62,259 46.95
-------- ----- -------- ------ -------- ------ -------- ----- -------- -------
Total Deposits...................... $129,159 100.00% $130,571 100.00% $130,741 100.00% $130,771 100.00% $132,583 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
81
<PAGE>
The following table shows rate and maturity information for the Bank's
certificates of deposit as of September 30, 1996.
Less Than 1 to 2 2 to 3 3 to 4 4 to 5
1 Year Years Years Years Years Total
------ ----- ----- ----- ----- -----
(Dollars in Thousands)
4.00 - 4.99% .......... $ 2,292 $ -- $ 3 $ -- $ -- $ 2,295
5.00 - 5.99% .......... 43,712 6,946 2,360 317 363 53,698
6.00 - 6.99% .......... 3,296 2,328 1,291 1,672 146 8,733
7.00 - 7.99% .......... 500 -- -- -- -- 500
------- ------ ------ ------ ------- -------
$49,800 $9,274 $3,654 $1,989 $ 509 $65,226
======= ====== ====== ====== ======= =======
The following table indicates the amount of the Bank's certificates of
deposit and other deposits by time remaining until maturity as of September 30,
1996.
<TABLE>
<CAPTION>
Maturity
--------------------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
------- ------ ------ --------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than
$100,000................................... $13,495 $15,365 $17,309 $13,792 $59,961
Certificates of deposit $100,000
or more.................................... 1,023 1,648 960 1,634 5,265
Public funds................................ --- --- --- --- ---
------- ------- ------- ------- -------
Total certificates of deposit.......... $14,518 $17,013 $18,269 $15,426 $65,226
======= ======= ======= ======= =======
</TABLE>
For additional information regarding the composition of the Bank's
deposits, see Note 6 of the Notes to the Financial Statements.
Borrowings. Hemlock Federal's other available sources of funds include
advances from the FHLB of Chicago and other borrowings. As a member of the FHLB
of Chicago, the Bank is required to own capital stock in the FHLB of Chicago and
is authorized to apply for advances from the FHLB of Chicago. Each FHLB credit
program has its own interest rate, which may be fixed or variable, and range of
maturities. The FHLB of Chicago may prescribe the acceptable uses for these
advances, as well as limitations on the size of the advances and repayment
provisions. See Note 7 of the Notes to Financial Statements.
82
<PAGE>
The following table sets forth the maximum month-end balance and
average balance of FHLB advances for the periods indicated. The Bank had no
other outstanding borrowings during the periods shown
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
------------------- -----------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Maximum Balance:
FHLB Advances............................. $1,500 $1,500 $1,500 $3,000 $6,000
Average Balance:
FHLB Advances............................. $1,500 $1,500 $1,500 $2,423 $3,462
Weighted average interest rate of
FHLB advances............................. 9.72% 9.72% 9.72% 9.72% 9.59%
</TABLE>
Subsidiary Activities
As a federally chartered savings bank, Hemlock Federal is permitted by
OTS regulations to invest up to 2% of its assets in the stock of, or loans to,
service corporation subsidiaries, and may invest an additional 1% of its assets
in service corporations where such additional funds are used for inner-city or
community development purposes. In addition to investments in service
corporations, federal institutions are permitted to invest an unlimited amount
in operating subsidiaries engaged solely in activities which a federal savings
association may engage in directly. At September 30, 1996, Hemlock Federal did
not have any subsidiaries.
Competition
Hemlock Federal faces strong competition both in originating real
estate loans and in attracting deposits. Competition in originating loans comes
primarily from commercial banks, credit unions, mortgage bankers and other
savings institutions, which also make loans secured by real estate located in
the Bank's market area. Hemlock Federal competes for loans principally on the
basis of the interest rates and loan fees it charges, the types of loans it
originates and the quality of services it provides to borrowers.
Competition for those deposits is principally from commercial banks,
credit unions, mutual funds, securities firms and other savings institutions
located in the same communities. The ability of the Bank to attract and retain
deposits depends on its ability to provide an investment opportunity that
satisfies the requirements of investors as to rate of return, liquidity, risk,
convenient locations and other factors. The Bank competes for these deposits by
offering competitive rates, convenient business hours and a customer oriented
staff.
83
<PAGE>
Employees
At September 30, 1996, the Bank had a total of 59 employees including
nine part-time employees. None of the Bank's employees are represented by any
collective bargaining agreement. Management considers its employee relations to
be good.
Properties
The following table sets forth information concerning the main office
and each branch office of the Bank at September 30, 1996. At September 30, 1996,
the Bank's premises had an aggregate net book value of approximately $792,000.
<TABLE>
<CAPTION>
Year Owned or Net Book Value at
Location Acquired Leased December 31, 1995
-------- -------- ------ -----------------
(In Thousands)
<S> <C> <C> <C>
Main Office:
5700 West 159th Street .......... 1974 Owned $571
Oak Forest, Illinois 60452
Full Service Branches:
8855 South Ridgeland Ave ........ 1975 Leased(1) 221
Oak Lawn, Illinois 60453
4646 South Damen Avenue ......... 1990 Leased(2) ---
Chicago, Illinois 60609
<FN>
- ---------------
(1) The land on which the Oak Lawn branch is built is leased. Under the terms
of the lease, upon the expiration of the lease in 2005, title to the
building housing the branch which is currently held by the Bank, will pass
to the landlord.
(2) The lease is currently in the process of renegotiation.
</FN>
</TABLE>
The Bank believes that its current facilities are adequate to meet the
present and foreseeable future needs of the Bank and the Holding Company.
The Bank's depositor and borrower customer files are maintained by an
independent data processing company. The net book value of the data processing
and computer equipment utilized by the Bank at September 30, 1996 was
approximately $20,000.
Legal Proceedings
From time to time, Hemlock Federal is involved as plaintiff or
defendant in various legal proceedings arising in the normal course of its
business. While the ultimate outcome of these various legal proceedings cannot
be predicted with certainty, it is the opinion of management that the resolution
of these legal actions should not have a material effect on the Holding
Company's and Hemlock Federal's financial position or results of operations.
84
<PAGE>
REGULATION
General
Hemlock Federal is a federally chartered savings bank, the deposits of
which are federally insured and backed by the full faith and credit of the
United States Government. Accordingly, Hemlock Federal is subject to broad
federal regulation and oversight extending to all its operations. Hemlock
Federal is a member of the FHLB of Chicago and is subject to certain limited
regulation by the Board of Governors of the Federal Reserve System ("Federal
Reserve Board"). As the savings and loan holding company of Hemlock Federal, the
Holding Company also is subject to federal regulation and oversight. The purpose
of the regulation of the Holding Company and other holding companies is to
protect subsidiary savings associations. Hemlock Federal is a member of the
Savings Association Insurance Fund ("SAIF") and the deposits of Hemlock Federal
are insured by the FDIC. As a result, the FDIC has certain regulatory and
examination authority over Hemlock Federal.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings
associations. As part of this authority, Hemlock Federal is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. The last regular OTS and FDIC examinations of Hemlock Federal were
as of March 1996 and February 1995, respectively. Under agency scheduling
guidelines, it is likely that another examination will be initiated in the near
future. When these examinations are conducted by the OTS and the FDIC, the
examiners may require Hemlock Federal to provide for higher general or specific
loan loss reserves. All savings associations are subject to a semi-annual
assessment, based upon the savings association's total assets, to fund the
operations of the OTS.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including Hemlock Federal and the
Holding Company. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease- and-desist or removal
orders and to initiate injunctive actions. In general, these enforcement actions
may be initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of Hemlock
Federal is prescribed by federal laws and it is prohibited from engaging in any
activities not permitted by such laws. For instance, no savings institution may
invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of total capital, except with
approval of the OTS. Federal savings associations are also generally authorized
to branch nationwide. Hemlock Federal is in compliance with the noted
restrictions.
85
<PAGE>
Hemlock Federal's general permissible lending limit for
loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired
capital and surplus (except for loans fully secured by certain readily
marketable collateral, in which case this limit is increased to 25% of
unimpaired capital and surplus). At September 30, 1996, Hemlock Federal's
lending limit under this restriction was $1.6 million. Assuming the sale of the
minimum number of shares in the Conversion at September 30, 1996, that limit
would be increased to $2.3 million. Hemlock Federal is in compliance with the
loans-to-one-borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits. Any institution
which fails to comply with these standards must submit a compliance plan. A
failure to submit a plan or to comply with an approved plan will subject the
institution to further enforcement action. The OTS and the other federal banking
agencies have also proposed additional guidelines on asset quality and earnings
standards. No assurance can be given as to whether or in what form the proposed
regulations will be adopted.
Insurance of Accounts and Regulation by the FDIC
Hemlock Federal is a member of the SAIF, which is administered by the
FDIC. Deposits are insured up to applicable limits by the FDIC and such
insurance is backed by the full faith and credit of the United States
Government. As insurer, the FDIC imposes deposit insurance premiums and is
authorized to conduct examinations of and to require reporting by FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC determines by regulation or order to pose a serious risk
to the FDIC. The FDIC also has the authority to initiate enforcement actions
against savings associations, after giving the OTS an opportunity to take such
action, and may terminate the deposit insurance if it determines that the
institution has engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF-insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members
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to repay amounts borrowed from the United States Treasury or for any other
reason deemed necessary by the FDIC.
For the first six months of 1995, the assessment schedule for BIF
members and SAIF members ranged from .23% to .31% of deposits. As is the case
with the SAIF, the FDIC is authorized to adjust the insurance premium rates for
banks that are insured by the BIF of the FDIC in order to maintain the reserve
ratio of the BIF at 1.25% of BIF insured deposits. As a result of the BIF
reaching its statutory reserve ratio the FDIC revised the premium schedule for
BIF insured institutions to provide a range of .04% to .31% of deposits. The
revisions became effective in the third quarter of 1995. In addition, the BIF
rates were further revised, effective January 1996, to provide a range of 0% to
.27%. The SAIF rates, however, were not adjusted. At the time the FDIC revised
the BIF premium schedule, it noted that, absent legislative action (as discussed
below), the SAIF would not attain its designated reserve ratio until the year
2002. As a result, SAIF insured members would continue to be generally subject
to higher deposit insurance premiums than BIF insured institutions until, all
things being equal, the SAIF attains its required reserve ratio.
In order to eliminate this disparity and any competitive disadvantage
between BIF and SAIF member institutions with respect to deposit insurance
premiums, legislation to recapitalize the SAIF was enacted in September 1996.
The legislation provides for a one-time assessment to be imposed on all deposits
assessed at the SAIF rates, as of March 31, 1995, in order to recapitalize the
SAIF. It also provides for the merger of the BIF and the SAIF on January 1, 1999
if no savings associations then exist. The special assessment rate has been
established at .657% of deposits and the assessment was paid on November 27,
1996. Based on Hemlock Federal's level of SAIF deposits at March 31, 1995,
Hemlock Federal's assessment is approximately $840,000 on a pre-tax basis. This
special assessment will significantly increase noninterest expense and adversely
affect the Bank's results of operations for the year ended September 30, 1996.
Prior to the enactment of the legislation, a portion of the SAIF
assessment imposed on savings associations was used to repay obligations issued
by a federally chartered corporation to provide financing ("FICO") for resolving
the thrift crisis in the 1980s. Although the FDIC has proposed that the SAIF
assessment be equalized with the BIF assessment schedule, effective October 1,
1996, SAIF-insured institutions will continue to be subject to a FICO assessment
as a result of this continuing obligation. Although the legislation also now
requires assessments to be made on BIF-assessable deposits for this purpose,
effective January 1, 1997, that assessment will be limited to 20% of the rate
imposed on SAIF assessable deposits until the earlier of December 31, 1999 or
when no savings association continues to exist, thereby imposing a greater
burden on SAIF member institutions such as Hemlock Federal. Thereafter, however,
assessments on BIF-member institutions will be made on the same basis as SAIF-
member institutions. The rates to be established by the FDIC to implement this
requirement for all FDIC-insured institutions is uncertain at this time, but are
anticipated to be about a 6.5 basis points assessment on SAIF deposits and 1.5
basis points on BIF deposits until BIF insured institutions participate fully in
the assessment.
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Regulatory Capital Requirements
Federally insured savings associations, such as Hemlock Federal, are
required to maintain a minimum level of regulatory capital. The OTS has
established capital standards, including a tangible capital requirement, a
leverage ratio (or core capital) requirement and a risk-based capital
requirement applicable to such savings associations. These capital requirements
must be generally as stringent as the comparable capital requirements for
national banks. The OTS is also authorized to impose capital requirements in
excess of these standards on individual associations on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual Hemlock Federal stock and related income. In addition,
all intangible assets, other than a limited amount of purchased mortgage
servicing rights, must be deducted from tangible capital for calculating
compliance with the requirement. At September 30, 1996, Hemlock Federal did not
have any intangible assets recorded as assets on its financial statements.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital.
Assuming the Bank would have been subject to the OTS capital
requirements, at September 30, 1996, Hemlock Federal had tangible capital of
$10.8 million, or 7.4% of adjusted total assets, which is approximately $8.6
million above the minimum requirement of 1.5% of adjusted total assets in effect
on that date. On a pro forma basis, after giving effect to the sale of the
minimum, midpoint and maximum number of shares of Common Stock offered in the
Conversion and investment of 50% of the net proceeds in assets not excluded for
tangible capital purposes, Hemlock Federal would have had tangible capital equal
to 10.3%, 10.8% and 11.3%, respectively, of adjusted total assets at September
30, 1996, which is $13.4 million, $14.3 million and $15.1 million, respectively,
above the requirement.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings association must maintain a core capital ratio of at
least 4% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3% ratio. At September 30, 1996,
Hemlock Federal had no intangibles which were subject to these tests.
At September 30, 1996, Hemlock Federal had core capital equal to $10.8
million, or 7.4% of adjusted total assets, which is $6.4 million above the
minimum leverage ratio requirement of 3% as in effect on that date. On a pro
forma basis, after giving effect to the sale of the minimum, midpoint and
maximum number of shares of Common Stock offered in the
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Conversion and investment of 50% of the net proceeds in assets not excluded from
core capital, Hemlock Federal would have had core capital equal to 10.3%, 10.8%
and 11.3%, respectively, of adjusted total assets at September 30, 1996, which
is $11.1 million, $11.9 million and $12.8 million, respectively, above the
requirement.
The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At September 30, 1996, Hemlock
Federal had $619,000 of general loss reserves that qualify as supplementary
capital, which was less than 1.25% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. Hemlock Federal had no
such exclusions from capital and assets at September 30, 1996.
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 50% for prudently underwritten
permanent one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan to value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by the FNMA or FHLMC.
The OTS has adopted a final rule that requires every savings
association with more than normal interest rate risk exposure to deduct from its
total capital, for purposes of determining compliance with such requirement, an
amount equal to 50% of its interest-rate risk exposure multiplied by the present
value of its assets. This exposure is a measure of the potential decline in the
net portfolio value of a savings association, greater than 2% of the present
value of its assets, based upon a hypothetical 200 basis point increase or
decrease in interest rates (whichever results in a greater decline). Net
portfolio value is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The rule provides for a two quarter
lag between calculating interest rate risk and recognizing any deduction from
capital. The rule will not become effective until the OTS evaluates the process
by which savings associations may appeal an interest rate risk deduction
determination. It is uncertain as to when this evaluation may be completed. Any
savings association with less than $300 million in assets and a total capital
ratio in excess of 12% is exempt from this requirement unless the OTS determines
otherwise. Based upon its capital level and assets size at September 30, 1996,
Hemlock Federal would qualify for an exemption from the requirement.
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On September 30, 1996, Hemlock Federal had total capital of $11.4
million (including $10.8 million in core capital and $619,000 in qualifying
supplementary capital) and risk- weighted assets of $49.5 million; or total
capital of 23.1% of risk-weighted assets. This amount was $7.5 million above the
8% requirement in effect on that date. On a pro forma basis, after giving effect
to the sale of the minimum, midpoint and maximum number of shares of Common
Stock offered in the Conversion, the infusion to Hemlock Federal of 50% of the
net Conversion proceeds and the investment of those proceeds to Hemlock Federal
in 20% risk-weighted government securities, Hemlock Federal would have had total
capital of 32.2%, 33.9% and 35.5%, respectively, of risk-weighted assets, which
is above the current 8% requirement by $12.2 million, $13.1 million and $14.0
million, respectively.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1 risked-
based capital ratio or an 8% risk-based capital ratio). Any such association
must submit a capital restoration plan and until such plan is approved by the
OTS may not increase its assets, acquire another institution, establish a branch
or engage in any new activities, and generally may not make capital
distributions. The OTS is authorized to impose the additional restrictions that
are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or
is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk-based capital ratio of less than 6%) must be
made subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association into
a lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on
Hemlock Federal may have a substantial adverse effect on Hemlock Federal's
operations and profitability and the value of the Common Stock purchased in the
Conversion. Holding Company stockholders do not have preemptive rights, and
therefore, if the Holding Company is directed by the OTS or the FDIC to issue
additional shares of Common Stock, such issuance may result in the dilution
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in the percentage of ownership of the Holding Company of those persons
purchasing shares in the Conversion.
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions on savings associations
with respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a
savings association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the regulatory capital of the association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion. See "The
Conversion--Effects of Conversion to Stock Form on Depositors and Borrowers of
the Bank" and "-Restrictions on Repurchase of Stock."
Generally, savings associations, such as Hemlock Federal, that before
and after the proposed distribution meet their capital requirements, may make
capital distributions during any calendar year equal to the greater of 100% of
net income for the year-to-date plus 50% of the amount by which the lesser of
the association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of its net income for the most recent four quarter period.
However, an association deemed to be in need of more than normal supervision by
the OTS may have its dividend authority restricted by the OTS. Hemlock Federal
may pay dividends in accordance with this general authority.
Savings associations proposing to make any capital distribution need
only submit written notice to the OTS 30 days prior to such distribution.
Savings associations that do not, or would not meet their current minimum
capital requirements following a proposed capital distribution, however, must
obtain OTS approval prior to making such distribution. The OTS may object to the
distribution during that 30-day period notice based on safety and soundness
concerns. See "- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a savings association that is a
subsidiary of a holding company may make a capital distribution with notice to
the OTS provided that it has a CAMEL 1 or 2 rating, is not of supervisory
concern, and would remain adequately capitalized (as defined in the OTS prompt
corrective action regulations) following the proposed distribution. Savings
associations that would remain adequately capitalized following the proposed
distribution but do not meet the other noted requirements must notify the OTS 30
days prior to declaring a capital distribution. The OTS stated it will generally
regard as permissible that amount of capital distributions that do not exceed
50% of the institution's excess regulatory capital plus net income to date
during the calendar year. A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. As under the
current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice. No assurance may be given as to
whether or in what form the regulations may be adopted.
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Liquidity
All savings associations, including Hemlock Federal, 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. For a discussion of what Hemlock Federal
includes in liquid assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." This liquid asset ratio requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of all
savings associations. At the present time, the minimum liquid asset ratio is 5%.
In addition, short-term liquid assets (e.g., cash, certain time
deposits, certain bankers acceptances and short-term United States Treasury
obligations) currently must constitute at least 1% of the association's average
daily balance of net withdrawable deposit accounts and current borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio requirement. At September 30, 1996, Hemlock Federal was in compliance with
both requirements, with an overall liquid asset ratio of 19.4% and a short-term
liquid assets ratio of 19.4%
Accounting
An OTS policy statement applicable to all savings associations
clarifies and re-emphasizes that the investment activities of a savings
association must be in compliance with approved and documented investment
policies and strategies, and must be accounted for in accordance with GAAP.
Under the policy statement, management must support its classification of and
accounting for loans and securities (i.e., whether held-to-maturity,
available-for-sale or trading) with appropriate documentation. Hemlock Federal
is in compliance with these amended rules.
The OTS has adopted an amendment to its accounting regulations, which
may be made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying economic substance and
inherent risk and that financial reports must incorporate any other accounting
regulations or orders prescribed by the OTS.
Qualified Thrift Lender Test
All savings associations, including Hemlock Federal, are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. This test requires a savings association to have at least 65%
of its portfolio assets (as defined by regulation) in qualified thrift
investments on a monthly average for nine out of every 12 months on a rolling
basis. Such assets primarily consist of residential housing related loans and
investments. At September 30, 1996, Hemlock Federal met the test with 91.12% of
its portfolio assets in qualified thrift investments and has always met the test
since its effectiveness.
Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to
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a national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with the examination of Hemlock
Federal, to assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by Hemlock
Federal. An unsatisfactory rating may be used as the basis for the denial of an
application by the OTS.
The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, Hemlock Federal may be required to devote additional
funds for investment and lending in its local community. Hemlock Federal was
examined for CRA compliance in March 1995 and received a rating of satisfactory.
Transactions with Affiliates
Generally, transactions between a savings association and its
affiliates are required to be on terms as favorable to the association as
transactions with non-affiliates. In addition, certain of these transactions,
such as loans to an affiliate, are restricted to a percentage of the
association's capital. Affiliates of Hemlock Federal include the Holding Company
and any company which is under common control with Hemlock Federal. In addition,
a savings association may not lend to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of most
affiliates.
Certain transactions with directors, officers or controlling persons
are also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests.
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Among other things, such loans must be made on terms substantially the same as
for loans to unaffiliated individuals.
Holding Company Regulation
The Holding Company will be a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Holding Company is
required to register and file reports with the OTS and is subject to regulation
and examination by the OTS. In addition, the OTS has enforcement authority over
the Holding Company and its non-savings association subsidiaries which also
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings association.
As a unitary savings and loan holding company, the Holding Company
generally is not subject to activity restrictions. If the Holding Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Holding Company and any of its subsidiaries (other than Hemlock Federal or
any other SAIF-insured savings association) would become subject to such
restrictions unless such other associations each qualify as a QTL and were
acquired in a supervisory acquisition.
If Hemlock Federal fails the QTL test, the Holding Company must obtain
the approval of the OTS prior to continuing after such failure, directly or
through its other subsidiaries, any business activity other than those approved
for multiple savings and loan holding companies or their subsidiaries. In
addition, within one year of such failure the Holding Company must register as,
and will become subject to, the restrictions applicable to bank holding
companies. The activities authorized for a bank holding company are more limited
than are the activities authorized for a unitary or multiple savings and loan
holding company. See "- Qualified Thrift Lender Test."
The Holding Company must obtain approval from the OTS before acquiring
control of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law
The stock of the Holding Company is registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Holding
Company is subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act.
Holding Company stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Holding Company may not
be resold without registration or unless sold in accordance with certain resale
restrictions. If the Holding Company meets specified current public information
requirements, each affiliate of the Holding Company is able
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to sell in the public market, without registration, a limited number of shares
in any three-month period.
Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking accounts).
At September 30, 1996, Hemlock Federal was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements that
may be imposed by the OTS. See "-Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System
Hemlock Federal is a member of the FHLB of Chicago, which is one of 12
regional FHLBs, that administers the home financing credit function of savings
associations. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures, established
by the board of directors of the FHLB, which are subject to the oversight of the
Federal Housing Finance Board. All advances from the FHLB are required to be
fully secured by sufficient collateral as determined by the FHLB. In addition,
all long-term advances are required to provide funds for residential home
financing. The aggregate amount of advances cannot exceed 20 times the amount of
FHLB stock held by the institutions.
As a member, Hemlock Federal is required to purchase and maintain stock
in the FHLB of Chicago. At September 30, 1996, Hemlock Federal had $901,000 in
FHLB stock, which was in compliance with this requirement. In past years,
Hemlock Federal has received substantial dividends on its FHLB stock. Over the
past five calendar years such dividends have averaged 6.0% and were 6.5% for
calendar year 1995. As a result of their holdings, the Bank could borrow up to
$18.0 million from the FHLB.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of Hemlock Federal's FHLB stock may result in a corresponding
reduction in Hemlock Federal's capital.
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For the year ended December 31, 1995, dividends paid by the FHLB of
Chicago to Hemlock Federal totaled $55,000, which constitute a $0 increase from
the amount of dividends received in calendar year 1994. The $44,000 dividend
received for the nine months ended September 30, 1996 reflects an annualized
rate of 6.5%, which is equal to the rate for calendar 1995.
Federal and State Taxation
In August 1996, legislation was enacted that repeals the reserve method
of accounting used by many thrifts to calculate their bad debt reserve for
federal income tax purposes. As a result, small thrifts such as the Bank must
recapture that portion of the reserve that exceeds the amount that could have
been taken under the experience method for post-1987 tax years. The legislation
also requires thrifts to account for bad debts for federal income tax purposes
on the same basis as commercial banks for tax years beginning after December 31,
1995. The recapture will occur over a six-year period, the commencement of which
will be delayed until the first taxable year beginning after December 31, 1997,
provided the institution meets certain residential lending requirements. The
management of the Company does not believe that the legislation will have a
material impact on the Company or the Bank.
In addition to the regular income tax, corporations, including savings
associations such as Hemlock Federal, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income. For taxable years beginning
after 1986 and before 1996, corporations, including savings associations such as
Hemlock Federal, are also subject to an environmental tax equal to 0.12% of the
excess of alternative minimum taxable income for the taxable year (determined
without regard to net operating losses and the deduction for the environmental
tax) over $2 million.
To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the association's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of December 31, 1995, Hemlock Federal's Excess for tax purposes
totaled approximately $3.1 million.
Hemlock Federal files its federal and Illinois income tax returns on a
calendar year basis using the accrual method of accounting. The Holding Company
may file a consolidated federal income tax return with Hemlock Federal.
Hemlock Federal has not been audited by the IRS with respect to
consolidated federal income tax returns in the past five years. With respect to
years examined by the IRS, either all deficiencies have been satisfied or
sufficient reserves have been established to satisfy asserted
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deficiencies. In the opinion of management, any examination of still open
returns (including returns of subsidiary and predecessors of, or entities merged
into, Hemlock Federal) would not result in a deficiency which could have a
material adverse effect on the financial condition of Hemlock Federal and its
consolidated subsidiary.
Illinois Taxation. For Illinois income tax purposes, the Bank is taxed
at an effective rate equal to 7.18% of Illinois taxable income. For these
purposes, "Illinois Taxable Income" generally means federal taxable income,
subject to certain adjustments (including the addition of interest income on
state and municipal obligations and the exclusion of interest income on United
States Treasury obligations).
Delaware Taxation. As a Delaware holding company, the Holding Company
is exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Holding Company
is also subject to an annual franchise tax imposed by the State of Delaware.
MANAGEMENT
Directors and Executive Officers of the Holding Company and of the Bank
Directors and Executive Officers of the Holding Company. The Board of
Directors of the Holding Company currently consists of seven members. The
directors of the Holding Company are currently comprised of the directors of the
Bank. See "- Directors of the Bank." Directors of the Holding Company will serve
three-year staggered terms so that one-third of the directors will be elected at
each annual meeting of stockholders. The terms of the current directors of the
Holding Company are the same as that of the Bank's board. The Holding Company
does not intend to pay directors a fee for board service. See also "- Directors
and Executive Officers of the Bank." For information regarding stock options and
restricted stock proposed to be awarded to directors following stockholder
ratification of such plans, see "- Benefit Plans."
The executive officers of the Holding Company are elected annually and
hold office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The following
table sets forth information regarding executive officers of the Holding
Company. Each executive officer of the Holding Company has held his or her
position since the incorporation of the Holding Company in December 1996.
Name Title
- ------------------------ -------------------------------------------------
Maureen G. Partynski Chairman of the Board and Chief Executive Officer
Michael R. Stevens President and Director
Rosanne Pastorek-Belczak Vice-President/Secretary and Director
Jean Thornton Vice-President/Controller
The Holding Company does not initially intend to pay executive officers
any fees in addition to fees payable to such persons as executive officers of
the Bank. For information
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regarding compensation of directors and executive officers of the Bank, see
"Management Director Compensation" and "- Executive Compensation." For
information regarding stock options and restricted stock proposed to be awarded
to directors and executive officers following stockholder ratification of the
Holding Company's stock-based plans, see "- Benefit Plans."
Board of Directors of the Bank. Prior to the Conversion, the direction
and control of the Bank, as a mutual savings institution, was vested in its
Board of Directors. Upon conversion of the Bank to stock form, each of the
directors of the Bank will continue to serve as a director of the converted
Bank. The Board of Directors of the Bank currently consists of seven members.
Each Director of the Bank has served as such at least since January, 1992,
except for Rosanne Pastorek-Belczak, who was appointed in September, 1996 to
fill the term of retiring Director Richard Majdecki. The directors serve
three-year staggered terms so that approximately one-third of the directors are
elected at each annual meeting of members. As Chairman Emeritus, Joseph P.
Gavron is not elected and he does not vote on matters before the Board. Because
the Holding Company will own all of the issued and outstanding shares of capital
stock of the Bank after the Conversion, directors of the Holding Company will
elect the directors of the Bank.
The following table sets forth certain information regarding the
directors of the Bank.
<TABLE>
<CAPTION>
Position(s) Held Director Term
Name With the Bank Age(1) Since Expires
---- ------------- ------ ----- -------
<S> <C> <C> <C> <C>
Maureen G. Partynski Chairman of the Board and 36 1984 1999
Chief Executive Officer
Michael R. Stevens President and Director 37 1992 2000
Rosanne Pastorek-Belczak Vice-President/Secretary 36 1996 1998
and Director
Frank A. Bucz Auditor/Consultant 68 1971 1998
and Director
Kenneth J. Bazarnik Director 53 1982 2000
Charles Gjondla Director 70 1982 1999
G. Gerald Schiera Director 57 1992 1998
<FN>
- -------------------
(1) At September 30, 1996.
</FN>
</TABLE>
The business experience of each director of the Holding Company and the
Chairman Emeritus of the Bank for at least the past five years is set forth
below.
Maureen G. Partynski. Ms. Partynski is the Chairman of the Board and
Chief Executive Officer of the Bank, a position she has held since 1994. From
1989 to 1994, Ms. Partynski was the President of the Bank, and she served as
Executive Vice-President from 1985 to 1989. She has worked with the Bank since
1982, and she has been a Director of the Bank since 1984. Ms. Partynski received
a Masters in Business Administration from Saint Xaviers University. Ms.
Partynski is the sister-in-law of Michael R. Stevens and the daughter of Joseph.
P. Gavron, a director emeritus of the Bank.
Michael R. Stevens. Mr. Stevens has been employed at the Bank since
1984 in various capacities, including Executive Vice-President and Financial
Manager. He has served as the
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President of the Bank since 1994, and he has been a Director since 1992. Mr.
Stevens received a Masters in Business Administration from Northwestern
University. He is the brother-in-law of Maureen G. Partynski and the son-in-law
of Joseph P. Gavron.
Rosanne Pastorek-Belczak. Ms. Pastorek-Belczak has served in her
current position as Vice-President of Marketing and Human Resources since 1989
and has acted as corporate secretary since 1996. She previously held the
position of marketing manager from 1982 to 1989. Ms. Pastorek-Belczak was
appointed a director in 1996.
Frank A. Bucz. Mr. Bucz is a retired data control supervisor of CPC
International. He also previously served as Secretary of the Bank from 1976
until 1996.
Kenneth Bazarnik. Mr. Bazarnik is a plant engineer and maintenance
manager for Foote-Jones/Illinois Gear, where he has worked since 1989. He has
been a Director of the Bank since 1982.
Charles Gjondla. Mr. Gjondla is a retired worker for Chicago's Midway
Airport. He has been a Director of the Bank since 1982.
G. Gerald Schiera. Mr. Schiera is owner of the G. Gerald Company, which
specializes in aviation and engineering consultation. He has served as Director
of the Bank since 1992.
Joseph P. Gavron. Mr. Gavron served as Chairman and President of the
Bank for 46 years before retiring in 1992. He currently serves as Chairman
Emeritus. He is the father of Maureen Partynski and the father-in-law of Michael
R. Stevens.
Executive Officers Who Are Not Directors. Each of the executive
officers of the Bank will retain his or her office in the converted Bank.
Officers are elected annually by the Board of Directors of the Bank. The
business experience of the executive officers who are not also directors is set
forth below.
Jean M. Thornton, age 36. Ms. Thornton is currently serving as
Vice-President, Controller/Treasurer. She has worked at the Bank since 1991 as
Chief Accountant, and as Treasurer since 1994.
Robert Upton, age 44. Mr. Upton was recently named the Chief Lending
Officer of the Bank. Prior to joining the Bank, Mr. Upton worked for a mortgage
banking firm and prior to that he was the vice-president of lending at a local
savings bank.
Indemnification
The Certificate of Incorporation of the Holding Company provides that a
director or officer of the Holding Company shall be indemnified by the Holding
Company to the fullest extent authorized by the General Corporation Law of the
State of Delaware against all expenses, liability and loss reasonably incurred
or suffered by such person in connection with his activities as a director or
officer or as a director or officer of another company, if the director or
officer
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held such position at the request of the Holding Company. Delaware law requires
that such director, officer, employee or agent, in order to be indemnified, must
have acted in good faith and in a manner reasonably believed to be not opposed
to the best interests of the Holding Company, and, with respect to any criminal
action or proceeding, did not have reasonable cause to believe his or her
conduct was unlawful.
The Certificate of Incorporation and Delaware law also provide that the
indemnification provisions of such Certificate and the statute are not exclusive
of any other right which a person seeking indemnification may have or later
acquire under any statute, provision of the Certificate of Incorporation, Bylaws
of the Holding Company, agreement, vote of stockholders or disinterested
directors or otherwise.
These provisions may have the effect of deterring shareholder
derivative actions, since the Holding Company may ultimately be responsible for
expenses for both parties to the action.
A similar effect would not be expected for third-party claims.
In addition, the Certificate of Incorporation and Delaware law also
provide that the Holding Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Holding
Company or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the Holding
Company has the power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law. The Holding Company may
obtain such insurance.
Meetings and Committees of Board of Directors
The Bank. The Bank's Board of Directors meets on a monthly basis. The
Board of Directors met 12 times during the fiscal year ended December 31, 1995.
During fiscal 1995, no director of the Bank attended fewer than 75% of the
aggregate of the total number of Board meetings and the total number of meetings
held by the committees of the Board of Directors on which he served.
The Bank has standing Executive, Audit, Stock Plan and Asset Liability
Committees.
The Executive Committee provides oversight of Board-related matters
in-between regularly scheduled Board Meetings, including shortage reporting,
interest rate reports and resolutions to foreclosure. The Executive Committee is
comprised of Maureen G. Partynski, Michael R. Stevens and Rosanne P. Belczak.
This committee met approximately 12 times during calendar year 1995.
The Audit Committee is comprised of three outside directors: Frank A.
Bucz, G. Gerald Schiera and Charles Gjondla. This Committee oversees and reviews
the Bank's financial and internal control matters. The Audit Committee also
reviews the Audited Financial Report with the Bank's outside auditors and the
Report of the Examination with the OTS examiners, either separately or with the
full Board. This committee meets twice annually.
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The Stock Plan Committee oversees and reviews the Bank's compensation
policies and sets the compensation levels for Executive Management. This
committee is comprised of Charles Gjondla and Kenneth Bazarnik and meets once a
year.
The Asset Liability Committee is composed of two Directors, Maureen G.
Partynski and Michael R. Stevens, and the Controller, Jean Thornton. This
committee meets at least once a month to handle the investments for the Bank and
the implementation of the Business Plan strategy as it relates to interest rate
risk and reinvestment options.
The Holding Company. In December 1996, the Board of Directors of the
Holding Company established standing executive, audit and nominating Committees.
These committees did not meet during fiscal 1995.
Director Compensation
Directors of the Bank are paid a monthly fee of $675 for service on the
Board of Directors. Chairman Emeritus Joseph P. Gavron receives $600/month, and
Director Frank Bucz receives an additional $1,250 per month as Audit Consultant.
Directors do not receive any additional compensation for committee meetings
attended.
Executive Compensation
The following table sets forth information concerning the compensation
accrued for services in all capacities to Hemlock Federal for the fiscal year
ended December 31, 1995 for the Bank's/Chairman and President. No other
executive officer's aggregate annual compensation (salary plus bonus) exceeded
$100,000 in fiscal 1995.
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<TABLE>
<CAPTION>
====================================================================================================================================
Summary Compensation Table
--------------------------
Long Term Compensation
Annual Compensation(1) Awards
------------------------------------- ----------------------------
Other Annual Restricted Stock Options/ All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Award ($)(2) SARs (#)(2) Compensation($)
- --------------------------- ---- --------- --------- --------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Maureen G. Partynski, Chairman and
Chief Executive Officer 1995 $98,250 $8,000 $--- N/A N/A $23,727(3)
Michael R. Stevens, President 1995 $121,250 $8,000 $--- N/A N/A $28,609(4)
====================================================================================================================================
<FN>
- ----------------
(1) In accordance with the transitional provisions applicable to the
revised rules on executive officer and director compensation disclosure
adopted by the SEC, as informally interpreted by the SEC's Staff,
Summary Compensation information is excluded for the fiscal years ended
December 31, 1994 and 1993.
(2) Pursuant to the proposed Stock Option Plan, the Holding Company intends
to grant Maureen G. Partynski and Michael R. Stevens an option to
purchase a number of shares equal to 2.5% and 2.5%, respectively
(33,363 and 33,363 shares at the minimum and 45,138 and 45,138 shares
at the maximum of the Estimated Valuation Range) of the total number of
shares of Common Stock issued in the Conversion at an exercise price
equal to the market value per share of the Common Stock on the date of
grant. See "- Stock Option and Incentive Plan." In addition, pursuant
to the proposed RRP, the Holding Company intends to grant to Chairman
Partynski and President Stevens a number of shares of restricted stock
equal to 1.0% and 1.0%, respectively (13,345 shares and 13,345 shares
at the minimum and 18,055 and 18,055 shares at the maximum of the
Estimated Valuation Range) of the total number of shares of Common
Stock sold in the Conversion. See "- Management Recognition Plan."
(3) This amount includes $14,201 received through the 1995 Profit Sharing
Plan and $9,526 received through the Bank's Money Purchase Pension
Plan.
(4) Includes $17,123 received through the Bank's Profit-Sharing Plan and
$11,486 received through the Bank's Money Purchase Pension Plan.
</FN>
</TABLE>
Employment Agreements and Severance Agreements. The Bank intends to
enter into employment agreements with Chairman Partynski and President Stevens
providing for an initial term of three years. The agreements have been filed
with the OTS as part of the application of the Holding Company for approval to
become a savings and loan holding company. The employment agreements become
effective upon completion of the Conversion and provide for an annual base
salary in an amount not less than each individual's respective current salary
and provide for an annual extension subject to the performance of an annual
formal evaluation by disinterested members of the Board of Directors of the
Bank. The agreements also provide for termination upon the employee's death, for
cause or in certain events specified by OTS regulations. The employment
agreements are also terminable by the employee upon 90 days' notice to the Bank.
The employment agreements provide for payment to Chairman Partynski and
President Stevens of an amount equal to 299% of their five-year annual average
base compensation, in the event there is a "change in control" of the Bank where
employment involuntarily terminates in connection with such change in control or
within twelve months thereafter. For the purposes of the employment agreements,
a "change in control" is defined as any event which would require the filing of
an application for acquisition of control or notice of change in control
pursuant to 12 C.F.R. ss. 574.3 or 4. Such events are generally triggered prior
to the acquisition or control of 10% of the Holding Company's common stock. See
"Restrictions on Acquisitions of Stock and Related Takeover Defensive
Provisions." If the employment of Chairman/CEO Partynski or President Stevens
had been terminated as of September 30, 1996 under circumstances entitling them
to severance pay as described above, they would have been entitled to receive a
lump sum cash payment of approximately $293,800
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<PAGE>
and $362,500, respectively. The agreements also provide for the continued
payment to Chairman/CEO Partynski and President Stevens of health benefits for
the remainder of the term of their contract in the event such individual is
involuntarily terminated in the event of change in control.
The Bank intends to enter into change in control severance agreements
with Officers Rosanne Pastorek-Belczak, Jean Thornton and Robert Upton. The
agreements become effective upon completion of the Conversion and provide for an
initial term of 24 months. The agreements provide for extensions of one year, on
each anniversary of the effective date of the agreement, subject to a formal
performance evaluation performed by disinterested members of the Board of
Directors of the Bank. The agreement provides for termination for cause or in
certain events specified by OTS regulations.
The agreements provide for a lump sum payment to the employee of 200%
of their annual base compensation and the continued payment for the remaining
term of the contract of life and health insurance coverage maintained by the
Bank in the event there is a "change in control" of the Bank where employment
terminates involuntarily within 12 months of such change in control. This
termination payment is subject to reduction to the extent non-deductible for
federal income tax purposes. For the purposes of the agreements, a "change in
control" is defined as any event which would require the filing of an
application for acquisition of control or notice of change in control pursuant
to 12 C.F.R. ss. 574.3 or 4 or any successor regulation. Such events are
generally triggered prior to the acquisition of control of 10% of the Company's
Common Stock. See "Restrictions on Acquisitions of Stock and Related Takeover
Defensive Provisions."
Benefit Plans
General. Hemlock Federal Bank for Savings currently provides insurance
benefits to its employees, including health and life insurance, subject to
certain deductibles and copayments. Hemlock Federal also maintains a profit
sharing plan for the benefit of its employees.
Money Purchase Pension Plan. The Bank currently maintains a Money
Purchase Pension Plan for the benefit of its employees. The Pension Plan was
frozen as of October 31, 1996. The noncontributory defined benefit pension plan
covered all employees who met certain minimum service requirements. See Note 9
to the Notes to Financial Statements. The benefits were distributed during the
year.
Employee Stock Ownership Plan. The Boards of Directors of Hemlock
Federal Bank for Savings and the Holding Company have approved the adoption of
an ESOP for the benefit of employees of Hemlock Federal Bank for Savings. The
ESOP is also designed to meet the requirements of an employee stock ownership
plan as described at Section 4975(e)(7) of the Code and Section 407(d)(6) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and, as
such, the ESOP is empowered to borrow in order to finance purchases of the
Common Stock.
It is anticipated that the ESOP will be funded with a loan from the
Holding Company (not to exceed an amount equal to 8% of the gross Conversion
proceeds). The interest rate of the
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ESOP loan will be equal to the applicable federal interest rate as determined by
the Internal Revenue Service for the month in which the loan is made, as
calculated pursuant to Section 1274(d) of the Code.
GAAP generally requires that any borrowing by the ESOP from an
unaffiliated lender be reflected as a liability in the Holding Company's
Financial Statements, whether or not such borrowing is guaranteed by, or
constitutes a legally binding contribution commitment of, the Holding Company or
the Bank. The funds used to acquire the ESOP shares will be borrowed from the
Holding Company. Since the Holding Company will finance the ESOP debt, the ESOP
debt will be eliminated through consolidation and no liability will be reflected
on the Holding Company's financial statements. In addition, shares purchased
with borrowed funds will, to the extent of the borrowings, be excluded from
stockholders' equity, representing unearned compensation to employees for future
services not yet performed. Consequently, if the ESOP purchases already-issued
shares in the open market, the Holding Company's consolidated liabilities will
increase to the extent of the ESOP's borrowings, and total and per share
stockholders' equity will be reduced to reflect such borrowings. If the ESOP
purchases newly issued shares from the Holding Company, total stockholders'
equity would neither increase nor decrease, but per share stockholders' equity
and per share net income would decrease because of the increase in the number of
outstanding shares. In either case, as the borrowings used to fund ESOP
purchases are repaid, total stockholders' equity will correspondingly increase.
All employees of the Bank are eligible to participate in the ESOP after
they attain age 21 and complete one year of service. The Bank's contribution to
the ESOP is allocated among participants on the basis of their relative
compensation. Each participant's account will be credited with cash and shares
of Holding Company Common Stock based upon compensation earned during the year
with respect to which the contribution is made. Contributions credited to a
participant's account become fully vested upon such participant's completing six
years of service. Credit will be given for prior years of service for vesting
purposes. ESOP participants are entitled to receive distributions from their
ESOP accounts only upon termination of service. Distributions will be made in
cash and in whole shares of the Holding Company's Common Stock. Fractional
shares will be paid in cash. Participants will not incur a tax liability until a
distribution is made.
Each participating employee is entitled to instruct the trustee of the
ESOP as to how to vote the shares allocated to his or her account. The trustee
will not be affiliated with the Holding Company or Hemlock Federal Bank for
Savings.
The ESOP may be amended by the Board of Directors, except that no
amendment may be made which would reduce the interest of any participant in the
ESOP trust fund or divert any of the assets of the ESOP trust fund for purposes
other than the benefit of participants or their beneficiaries.
Stock Option and Incentive Plan. Among the benefits to the Bank
anticipated from the Conversion is the ability to attract and retain personnel
through the prudent use of stock options and other stock-related incentive
programs. The Board of Directors of the Holding Company intends to adopt the
Stock Option Plan, subject to ratification by stockholders of the Holding
Company at a meeting to be held not earlier than six months after completion of
the Conversion.
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Under the terms of the proposed Stock Option Plan, stock options covering shares
representing an aggregate of up to 10% of the shares of Common Stock issued in
the Conversion may be granted to directors, officers and employees of the
Holding Company or its subsidiaries under the Stock Option Plan.
Options granted under the Stock Option Plan may be either options that
qualify under the Code as "incentive stock options" (options that afford
preferable tax treatment to recipients upon compliance with certain restrictions
and that do not normally result in tax deductions to the employer) or options
that do not so qualify. The exercise price of stock options granted under the
Stock Option Plan is required to be at least equal to the fair market value per
share of the stock on the date of grant. All grants are made in consideration of
past and future services rendered to the Bank, and in an amount deemed necessary
to encourage the continued retention of the officers and directors who are
considered necessary for the continued success of the Bank. In this regard, all
options are intended to vest in five equal annual installments commencing one
year from the date of grant, subject to the continued service of the holder of
such option.
The proposed Stock Option Plan provides for the grant of stock
appreciation rights ("SARs") at any time, whether or not the participant then
holds stock options, granting the right to receive the excess of the market
value of the shares represented by the SARs on the date exercised over the
exercise price. SARs generally will be subject to the same terms and conditions
and exercisable to the same extent as stock options.
Limited SARs may be granted at the time of, and must be related to, the
grant of a stock option or SAR. The exercise of one will reduce to that extent
the number of shares represented by the other. Limited SARs will be exercisable
only for the 45 days following the expiration of the tender or exchange offer,
during which period the related stock option or SAR will be exercisable.
However, no SAR or Limited SAR will be exercisable by a 10% beneficial owner,
director or senior officer within six months of the date of its grant. The
Holding Company has no present intention to grant any SARs or Limited SARs.
The proposed Stock Option Plan will be administered by the Holding
Company's Stock Plan Committee which will consist of at least two disinterested
directors. The Stock Plan Committee will select the recipients and terms of
awards made pursuant to the Stock Option Plan. OTS regulations limit the amount
of shares that may be awarded pursuant to stock-based plans to each individual
officer, each non-employee director and all non-employee directors as a group to
25%, 5% and 30%, respectively, of the total shares reserved for issuance under
each such stock-based plan.
The Stock Plan Committee, presently consisting of non-employee
Directors Charles Gjondla and Kenneth Bazarnik, intends to grant options in
amounts expressed as a percentage of the shares issued in the Conversion, as
follows: President Stevens - 2.5%, Chairman Partynski - 2.5%, and to all
executive officers as a group (5 persons) - 6.6%. In addition, under the terms
of the Stock Option Plan, each non-employee director of the Holding Company at
the time of stockholder ratification of the Stock Option Plan will be granted an
option to purchase shares of Common Stock equal to .4% of the shares sold in the
Conversion. The remaining balance of the available awards is unallocated and
reserved for future use. All options will expire 10 years after the date such
option was granted, which, for the option grants listed above,
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is expected to be the date of stockholder ratification of the Stock Option Plan.
All proposed option grants to officers are subject to modification by the Stock
Plan Committee based upon its performance evaluation of the option recipients at
the time of stockholder ratification of the Stock Option Plan following
completion of the Conversion.
After stockholder ratification, the Stock Option Plan will be funded
either with shares purchased in the open market or with authorized but unissued
shares of Common Stock. The use of authorized but unissued shares to fund the
Stock Option Plan could dilute the holdings of stockholders who purchased Common
Stock in the Conversion. See "Pro Forma Data." In no event will the Stock Option
Plan acquire an amount of shares, which, in the aggregate, represent more than
10% of the shares issued in the Conversion.
Under SEC regulations, so long as certain criteria are met, an optionee
may be able to exercise the option at the Purchase Price and immediately sell
the underlying shares at the then-current market price without incurring
short-swing profit liability. This ability to exercise and immediately resell,
which under the SEC regulations applies to stock option plans in general, allows
the optionee to realize the benefit of an increase in the market price for the
stock without the market risk which would be associated with a required holding
period for the stock after payment of the exercise price. Under SEC regulations,
the short-swing liability period now runs for six months before and after the
option grant. All grants are subject to ratification of the Stock Option Plan by
stockholders of the Holding Company following completion of the Conversion.
Recognition and Retention Plan. The Holding Company intends to
establish the RRP in order to provide employees with a proprietary interest in
the Holding Company in a manner designed to encourage such persons to remain
with the Holding Company and the Bank. The RRP will be subject to ratification
by stockholders at a meeting to be held not earlier than six months after the
completion of the Conversion. The Holding Company will contribute funds to the
RRP to enable it to acquire in the open market or from authorized but unissued
shares (with the decision between open market or authorized but unissued shares
based on the Holding Company's future stock price, alternate investment
opportunities and capital needs), following stockholder ratification of such
plan, an amount of stock equal to 4.0% of the shares of Common Stock issued in
the Conversion.
The Stock Plan Committee of the Board of Directors of the Holding
Company will administer the proposed RRP. Under the terms of the proposed RRP,
awards ("Awards") can be granted to key employees in the form of shares of
Common Stock held by the RRP. Awards are non-transferable and non-assignable.
OTS regulations limit the amount of shares that may be awarded pursuant to
stock-based plans to each individual officer, each non-employee director and all
non-employee directors as a group to 25%, 5% and 30%, respectively, of the total
shares reserved for issuance under each such stock-based plan.
Recipients will earn (i.e., become vested in), over a period of time,
the shares of Common Stock covered by the Award. Awards made pursuant to the RRP
will vest in five equal annual installments commencing one year from the date of
grant. Awards will be 100% vested upon termination of employment due to death or
disability. In addition, no awards under the RRP to directors and executive
officers shall vest in any year in which the Bank is not
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meeting all of its fully phased-in capital requirements. When shares become
vested and are actually distributed in accordance with the RRP, but in no event
prior to such time, the participants will also receive amounts equal to any
accrued dividends with respect thereto. Earned shares are distributed to
recipients as soon as practicable following the date on which they are earned.
The Stock Plan Committee presently intends to grant restricted stock
awards at the Purchase Price, in amounts expressed as a percentage of the shares
sold in the Conversion, as follows: to President Stevens - 1.0%, Chairman
Partynski - 1.0%, and to all executive officers as a group (4 persons) - 2.4%.
Pursuant to the terms of the proposed RRP, each non-employee director of the
Holding Company at the time of stockholder ratification of the RRP will be
awarded an amount of shares equal to .1% of the shares sold in the Conversion.
All proposed RRP awards to officers of the Bank are subject to modification by
the Stock Plan Committee based upon its performance evaluation of the award
recipients at the time of stockholder ratification of the RRP following
completion of the Conversion.
After stockholder ratification, the RRP will be funded either with
shares purchased in the open market or with authorized but unissued shares of
Common Stock issued to the RRP by the Holding Company. The use of authorized but
unissued shares to fund the RRP could dilute the holdings of stockholders who
had purchased Common Stock in the Conversion. In the event the RRP purchases
stock in the open market at prices above the initial Purchase Price, the total
RRP expense may be above that disclosed under the caption "Pro Forma Data." In
no event will the RRP acquire an amount of shares which, in the aggregate,
represent more than 4.0% of the shares issued in the Conversion.
Certain Transactions
The Bank follows a policy of granting loans to the Bank's directors,
officers and employees. The loans to executive officers and directors are made
in the ordinary course of business and on the same terms and conditions as those
of comparable transactions prevailing at the time, in accordance with the Bank's
underwriting guidelines and do not involve more than the normal risk of
collectibility or present other unfavorable features. All loans to directors and
executive officers cannot exceed $25,000 or 5% of the Bank's capital and
unimpaired surplus, whichever is greater, unless a majority of the Board of
Directors approves the credit in advance and the individual requesting the
credit abstains from voting. Loans to all directors and executive officers and
their associates, including outstanding balances and commitments totaled
$312,000 at September 30, 1996, which was 2.9% of the Bank's retained earnings
at that date. At September 30, 1996, there were no loans to any single director,
executive officer or their affiliates made at preferential rates or terms which
in the aggregate exceeded $60,000 during the three years ended December 31,
1995.
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THE CONVERSION
The Board of Directors of the Bank and the OTS have approved the Plan
of Conversion. OTS approval does not constitute a recommendation or endorsement
of the Plan of Conversion. Certain terms used in the following summary of the
material terms of the Conversion are defined in the Plan of Conversion, a copy
of which may be obtained by contacting Hemlock Federal.
General
The Board of Directors of the Bank unanimously adopted the Plan,
subject to approval by the OTS and the members of the Bank. Pursuant to the
Plan, the Bank will convert from a federally chartered mutual savings bank to a
federally chartered stock savings bank, with the concurrent formation of a
holding company.
The Conversion will be accomplished through amendment of the Bank's
federal charter to authorize capital stock, at which time the Bank will become a
wholly owned subsidiary of the Holding Company. The Conversion will be accounted
for as a pooling of interests.
Subscription Rights have been granted to the Eligible Account Holders
as of June 30, 1995, Tax-Qualified Employee Plans of the Bank and Holding
Company, Supplemental Eligible Account Holders as of December 31, 1996, Other
Members, and directors, officers, and employees of the Bank. Additionally,
subject to the availability of shares and market conditions at or near the
completion of the Subscription Offering, the Common Stock may be offered for
sale in a Public Offering and Direct Community Offering to selected persons on a
best-efforts basis through KBW. See "- Offering of Holding Company Common
Stock." Subscriptions for shares will be subject to the maximum and minimum
purchase limitations set forth in the Plan of Conversion.
Business Purposes
Hemlock Federal has several business purposes for the Conversion. The
sale of Holding Company Common Stock will have the immediate result of providing
the Bank with additional equity capital in order to support the expansion of its
existing operations, subject to market conditions. See "Business." The sale of
the Common Stock is the most effective means of increasing the Bank's permanent
capital and does not involve the high interest cost and repayment obligation of
subordinated debt. In addition, investment of that part of the net Conversion
proceeds paid by the Holding Company to the Bank is expected to provide
additional operating income to further increase the Bank's capital on a
continuing basis.
The Board of Directors of the Bank believes that a holding company
structure could facilitate the acquisition of both mutual and stock savings
institutions in the future as well as other companies. If a multiple holding
company structure is utilized in a future acquisition, the acquired savings
institution would be able to operate on a more autonomous basis as a wholly
owned subsidiary of the Holding Company rather than as a division of the Bank.
For example, the acquired savings institution could retain its own directors,
officers and corporate name as well as having representation on the Board of
Directors of the Holding Company. As of the date hereof, there are no plans or
understandings regarding the acquisition of any other institutions.
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The Board of Directors of the Bank also believes that a holding company
structure can facilitate the diversification of the Bank's business activities.
While diversification will be maximized if a unitary holding company structure
is utilized because the types of business activities permitted to a unitary
holding company are broader than those of a multiple holding company, either
type of holding company may engage in a broader range of activities than may a
thrift institution directly. Currently, there are no plans that the Holding
Company engage in any material activities apart from holding the shares of the
Bank and investing the remaining net proceeds from the sale of Common Stock in
the Conversion.
The preferred stock and additional common stock of the Holding Company
being authorized in the Conversion will be available for future acquisitions and
for issuance and sale to raise additional equity capital, generally without
stockholder approval or ratification, but subject to market conditions. Although
the Holding Company currently has no plans with respect to future issuances of
equity securities, the more flexible operating structure provided by the Holding
Company and the stock form of ownership is expected to assist the Bank in
competing more aggressively with other financial institutions in its principal
market area.
The Conversion will structure the Bank in the stock form used in the
United States by all commercial banks, most major business corporations and an
increasing number of savings institutions. The Conversion will permit the Bank's
members to become stockholders of the Holding Company, thereby allowing members
to own stock in the financial organization in which they maintain deposit
accounts or with which they have a borrowing relationship. Such ownership should
encourage stockholders to promote the Bank to potential customers, thereby
further contributing to the Bank's earnings potential.
The Bank is also expected to benefit from its management and employees
owning stock, because stock ownership is viewed as an effective performance
incentive and a means of attracting, retaining and compensating personnel.
Effects of Conversion to Stock Form on Depositors and Borrowers of the Bank
Voting Rights. Deposit account holders will have no voting rights in
the converted Bank or the Holding Company and will therefore not be able to
elect directors of either entity or to control their affairs. These rights are
currently accorded to deposit account holders with regard to the Bank.
Subsequent to Conversion, voting rights will be vested exclusively in the
Holding Company as the sole stockholder of the Bank. Voting rights as to the
Holding Company will be held exclusively by its stockholders. Each purchaser of
Holding Company Common Stock shall be entitled to vote on any matters to be
considered by the Holding Company stockholders. A stockholder will be entitled
to one vote for each share of Common Stock owned, subject to certain limitations
applicable to holders of 10% or more of the shares of the Common Stock.
See "Description of Capital Stock."
Deposit Accounts and Loans. The general terms of the Bank's deposit
accounts, the balances of the individual accounts and the existing FDIC
insurance coverage will not be affected by the Conversion. Furthermore, the
Conversion will not affect the loan accounts, the balances of these accounts, or
the obligations of the borrowers under their individual contractual arrangements
with the Bank.
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Tax Effects. The Bank has received an opinion from Silver, Freedman &
Taff, L.L.P. with regard to federal income taxation, and an opinion from Crowe,
Chizek and Company LLP with regard to Illinois taxation, to the effect that the
adoption and implementation of the Plan of Conversion set forth herein will not
be taxable for federal or Illinois tax purposes to the Bank or the Holding
Company. See "- Income Tax Consequences."
Liquidation Rights. The Bank has no plans to liquidate, either before
or subsequent to the completion of the Conversion. However, if there should ever
be a complete liquidation, either before or after Conversion, deposit account
holders would receive the protection of insurance by the FDIC up to applicable
limits. Subject thereto, liquidation rights before and after Conversion would be
as follows:
Liquidation Rights in Present Mutual Institution. In addition to the
protection of FDIC insurance up to applicable limits, in the event of a
complete liquidation of the Bank, each holder of a deposit account in
the Bank in its present mutual form would receive his or her pro rata
share of any assets of the Bank remaining after payment of claims of
all creditors (including the claims of all depositors in the amount of
the withdrawal value of their accounts). Such holder's pro rata share
of such remaining assets, if any, would be in the same proportion of
such assets as the balance in his or her deposit account was to the
aggregate balance in all deposit accounts in the Bank at the time of
liquidation.
Liquidation Rights in Proposed Converted Institution. After Conversion,
each deposit account holder, in the event of a complete liquidation of
the Bank, would have a claim of the same general priority as the claims
of all other general creditors of the Bank in addition to the
protection of FDIC insurance up to applicable limits. Therefore, except
as described below, the deposit account holder's claim would be solely
in the amount of the balance in his or her deposit account plus accrued
interest. The holder would have no interest in the assets of the Bank
above that amount.
The Plan of Conversion provides that there shall be established, upon
the completion of the Conversion, a special "liquidation account" for
the benefit of Eligible Account Holders (i.e., eligible depositors at
June 30, 1995) and Supplemental Account Holders (eligible depositors at
December 31, 1996) in an amount equal to the net worth of the Bank as
of the date of its latest consolidated statement of financial condition
contained in the final prospectus relating to the sale of shares of
Holding Company Common Stock in the Conversion. Each Eligible Account
Holder and Supplemental Eligible Account Holder would have an initial
interest in such liquidation account for each deposit account held in
the Bank on the qualifying date. An Eligible Account Holder and
Supplemental Eligible Account Holder's interest as to each deposit
account would be in the same proportion of the total liquidation
account as the balance in his or her account on June 30, 1995 and
December 31, 1996, respectively, was to the aggregate balance in all
deposit accounts of Eligible Account Holders and Supplemental Eligible
Account Holders on such dates. However, if the amount in the deposit
account of an Eligible Account Holder or Supplemental Eligible
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Account Holder on any annual closing date of the Bank is less than the
lowest amount in such account on June 30, 1995 or December 31, 1996 and
on any subsequent closing date, then the account holder's interest in
this special liquidation account would be reduced by an amount
proportionate to any such reduction, and the account holder's interest
would cease to exist if such deposit account were closed.
In addition, the interest in the special liquidation account would
never be increased despite any increase in the balance of the account
holders' related accounts after Conversion, and would only decrease.
Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders were
satisfied would be distributed to the Holding Company as the sole
stockholder of the Bank.
No merger, consolidation, purchase of bulk assets with assumption of
deposit accounts and other liabilities, or similar transaction, whether
the Bank, as converted, or another SAIF-insured institution is the
surviving institution, is deemed to be a complete liquidation for
purposes of distribution of the liquidation account and, in any such
transaction, the liquidation account would be assumed to the full
extent authorized by regulations of the OTS as then in effect. The OTS
has stated that the consummation of a transaction of the type described
in the preceding sentence in which the surviving entity is not a
SAIF-insured institution would be reviewed on a case-by-case basis to
determine whether the transaction should constitute a "complete
liquidation" requiring distribution of any then remaining balance in
the liquidation account. While the Bank believes that such a
transaction should not constitute a complete liquidation, there can be
no assurance that the OTS will not adopt a contrary position.
Common Stock. For information as to the characteristics of the Common
Stock to be issued under the Plan of Conversion, see "Dividends" and
"Description of Capital Stock." Common Stock issued under the Plan of Conversion
cannot, and will not, be insured by the FDIC or any other governmental agency.
The Bank will continue, immediately after completion of the Conversion,
to provide its services to depositors and borrowers pursuant to its existing
policies and will maintain the existing management and employees of the Bank.
Other than for payment of certain expenses incident to the Conversion, no assets
of the Bank will be distributed in the Conversion. Hemlock Federal will continue
to be a member of the FHLB System, and its deposit accounts will continue to be
insured by the FDIC. The affairs of Hemlock Federal will continue to be directed
by the existing Board of Directors and management.
Offering of Holding Company Common Stock
Under the Plan of Conversion, 1,805,500 shares of Holding Company
Common Stock will be offered for sale, subject to certain restrictions described
below, initially through the
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Offering. Federal conversion regulations require, with certain exceptions, that
all shares offered in a conversion be sold in order for the conversion to become
effective.
The Subscription Offering will expire at noon, Chicago, Illinois time,
on ____________, 1997 (the "Subscription Expiration Date") unless extended by
the Bank and the Holding Company. Depending on the availability of shares and
market conditions at or near the completion of the Subscription Offering, the
Holding Company may effect a Public Offering of shares to selected persons
through KBW. To order Common Stock in connection with the Public Offering and
Direct Community Offering, if any, an executed stock order and account
withdrawal authorization and certification must be received by KBW prior to the
termination of the Public Offering and Direct Community Offering. The date by
which orders must be received in the Public Offering, if any, will be set by the
Holding Company at the time of such offering. OTS regulations require that all
shares to be offered in the Conversion be sold within a period ending not more
than 45 days after the Subscription Expiration Date (or such longer period as
may be approved by the OTS) or, despite approval of the Plan of Conversion by
members, the Conversion will not be effected and Hemlock Federal will remain in
mutual form. This period expires on _________, 1997, unless extended with the
approval of the OTS. In addition, if the Offering is extended beyond __________,
1997, all subscribers will have the right to modify or rescind their
subscriptions and to have their subscription funds returned promptly with
interest. In the event that the Conversion is not effected, all funds submitted
and not previously refunded pursuant to the Offering will be promptly refunded
to subscribers with interest at the Bank's current passbook rate and all
withdrawal authorizations will be terminated.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities of a thrift institution sold in connection with its conversion must
be based on an appraised aggregate market value of the institution as converted
(i.e., taking into account the expected receipt of proceeds from the sale of the
securities in the conversion), as determined by an independent valuation.
Keller, which is experienced in the valuation and appraisal of business
entities, including thrift institutions involved in the conversion process, was
retained by the Bank to prepare an appraisal of the estimated pro forma market
value of the Bank and the Holding Company upon Conversion.
Keller will receive a fee of approximately $25,000 for its appraisal in
addition to its reasonable out-of-pocket expenses incurred in connection with
the appraisal. Keller has also agreed to assist in the preparation of the Bank's
business plan and to perform certain records management services for the Bank
for a separate fee of $5,000. The Bank has agreed to indemnify Keller under
certain circumstances against liabilities and expenses (including legal fees)
arising out of, related to, or based upon the Conversion.
Keller has prepared an appraisal of the estimated pro forma market
value of the Bank as converted. The Keller appraisal concluded that, at December
6, 1996, an appropriate range for the estimated pro forma market value of the
Bank and the Holding Company was from a minimum of $13,345,000 to a maximum of
$18,055,000 with a midpoint of $15,700,000. Assuming that the shares are sold at
$10.00 per share in the Conversion, the estimated number of shares to be issued
in the Conversion is expected to be between 1,334,500 and 1,805,500.
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The Purchase Price of $18,055,000 was determined by discussion among the Boards
of Directors of the Bank, the Holding Company and Keller, taking into account,
among other factors, (i) the requirement under OTS regulations that the Common
Stock be offered on a manner that would achieve the widest distribution of
shares and (ii) liquidity in the Common Stock subsequent to the Conversion.
The appraisal involved a comparative evaluation of the operating and
financial statistics of the Bank with those of other thrift institutions. The
appraisal also took into account such other factors as the market for thrift
institution stocks generally, prevailing economic conditions, both nationally
and in Illinois, which affect the operations of thrift institutions, the
competitive environment within which the Bank operates and the effect of the
Bank becoming a subsidiary of the Holding Company. No detailed individual
analysis of the separate components of the Holding Company's and the Bank's
assets and liabilities was performed in connection with the evaluation. The Plan
of Conversion requires that all of the shares subscribed for in the Offering be
sold at the same price per share. The Board of Directors reviewed the appraisal,
including the methodology and the appropriateness of the assumptions utilized by
Keller and determined that in its opinion the appraisal was not unreasonable.
The Estimated Valuation Range may be amended with the approval of the OTS in
connection with changes in the financial condition or operating results of the
Bank or market conditions generally. As described below, an amendment to the
Estimated Valuation Range above $20,076,325 would not be made without a
resolicitation of subscriptions and/or proxies except in limited circumstances.
If, upon completion of the Offering, at least the minimum number of
shares are subscribed for, Keller, after taking into account factors similar to
those involved in its prior appraisal, will determine its estimate of the pro
forma market value of the Bank and the Holding Company upon Conversion, as of
the close of the Offering.
If, based on the estimate of Keller, the aggregate pro forma market
value is not within the Estimated Valuation Range, Keller, upon the consent of
the OTS, will determine a new Estimated Valuation Range ("Amended Valuation
Range"). If the aggregate pro forma market value of the Bank as converted and
the Holding Company has increased in the Amended Valuation Range to an amount
that does not exceed $20,763,250 (i.e., 15% above the maximum of the Estimated
Valuation Range), then the number of shares to be issued may be increased to
accommodate such increase in value without a resolicitation of subscriptions
and/or proxies. In such event the Bank and the Holding Company do not intend to
resolicit subscriptions and/or proxies unless the Bank and the Holding Company
then determine, after consultation with the OTS, that circumstances otherwise
require such a resolicitation. If, however, the aggregate pro forma market value
of the Holding Company and the Bank, as converted, at that time is less than
$13,345,000 or more than $20,763,250, a resolicitation of subscribers and/or
proxies may be made, the Plan of Conversion may be terminated or such other
actions as the OTS may permit may be taken. In the event that upon completion of
the Offering, the pro forma market value of the Holding Company and Bank, as
converted, is below $13,345,000 or above $20,763,250 (15% above the maximum of
the Estimated Valuation Range), the Holding Company intends to file the revised
appraisal with the SEC by post-effective amendment to its Registration Statement
on Form S-1. See "Additional Information." If the Plan of Conversion is
terminated, all funds would be returned promptly with interest at the rate of
the Bank's current passbook rate, and holds on funds authorized for withdrawal
from deposit accounts would be
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released. If there is a resolicitation of subscriptions, subscribers will be
given the opportunity to cancel or change their subscriptions and to the extent
subscriptions are so canceled or reduced, funds will be returned with interest
at the Bank's current passbook rate and holds on funds authorized for withdrawal
from deposit accounts will be released or reduced. Stock subscriptions received
by the Holding Company and the Bank may not be withdrawn by the subscriber and,
if accepted by the Holding Company and the Bank, are final. If the Conversion is
not completed prior to _________, 1999 (two years after the date of the Special
Meeting), the Plan of Conversion will automatically terminate.
Any increase in the total number of shares of Common Stock to be
offered in the Conversion will dilute a subscriber's percentage ownership
interest and will reduce the pro forma net income and net worth on a per share
basis. A decrease in the number of shares to be issued in the Conversion will
increase a subscriber's proportionate ownership interest and will increase both
pro forma net income and net worth on a per share basis while decreasing that
amount on an aggregate basis.
No sale of the shares will take place unless, prior thereto, Keller
confirms to the OTS that, to the best of Keller's knowledge and judgment,
nothing of a material nature has occurred which would cause Keller to conclude
that the actual Purchase Price on an aggregate basis is incompatible with its
estimate of the aggregate pro forma market value of the Holding Company and the
Bank as converted at the time of the sale. If, however, the facts do not justify
such a statement, the Offering or other sale may be canceled, a new Estimated
Valuation Range set and new offering held.
In preparing its valuation of the pro forma market value of the Bank
and the Holding Company upon Conversion, Keller relied upon and assumed the
accuracy and completeness of all financial and statistical information provided
by the Bank and the Holding Company. Keller also considered information based
upon other publicly available sources which it believes are reliable. However,
Keller does not guarantee the accuracy and completeness of such information and
did not independently verify the financial statements and other data provided by
the Bank and the Holding Company or independently value the assets or
liabilities of the Bank and the Holding Company. The appraisal is not intended
to be, and must not be interpreted as, a recommendation of any kind as to the
advisability of voting to approve the Conversion or of purchasing shares of
Common Stock. The appraisal considers Hemlock Federal and the Holding Company
only as going concerns and should not be considered as any indication of the
liquidation value of Hemlock Federal or the Holding Company. Moreover, the
appraisal is necessarily based on many factors which change from time to time.
There can be no assurance that persons who purchase shares in the Conversion
will be able to sell such shares at prices at or above the Purchase Price.
Subscription Offering
In accordance with OTS regulations, non-transferable Subscription
Rights have been granted under the Plan of Conversion to the following persons
in the following order of priority: (1) Eligible Account Holders (deposit
account holders of the Bank maintaining an aggregate balance of $50 or more as
of June 30, 1995), (2) the Holding Company and the Bank's Tax- Qualified
Employee Plans; provided, however, that the Tax-Qualified Employee Plans shall
have
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first priority Subscription Rights to the extent that the total number of shares
of Common Stock sold in the Conversion exceeds the maximum of the Estimated
Valuation Range;] (3) Supplemental Eligible Accounts Holders (deposit account
holders of the Bank maintaining a balance of $50 or more as of December 31,
1996), (4) Other Members (depositors of the Bank at the close of business on
___________, the voting record date for the Special Meeting) and (5) officers,
directors and employees of the Bank. All subscriptions received will be subject
to the availability of Holding Company Common Stock after satisfaction of all
subscriptions of all persons having prior rights in the Subscription Offering,
and to the maximum and minimum purchase limitations set forth in the Plan of
Conversion.
Category No. 1 is reserved for the Bank's Eligible Account Holders.
Subscription Rights to purchase shares under this category will be allocated
among Eligible Account Holders to permit each such depositor to purchase shares
in this Category in an amount equal to the greater of $200,000 of Common Stock,
one-tenth of one percent (.10%) of the total shares offered in the Conversion,
or 15 times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the qualifying deposits of the
Eligible Account Holder and the denominator is the total amount of the
qualifying deposit of the Eligible Account Holders in the Bank, in each case on
the Eligibility Record Date. To the extent shares are oversubscribed in this
category, shares shall be allocated first to permit each subscribing Eligible
Account Holder to purchase, to the extent possible, 100 shares and thereafter
among each subscribing Eligible Account Holder pro rata in the same proportion
that his Qualifying Deposit bears to the total Qualifying Deposits of all
subscribing Eligible Account Holders whose subscriptions remain unsatisfied.
Category No. 2 provides for the issuance of Subscription Rights to
Tax-Qualified Employee Plans to purchase up to 10% of the total amount of shares
of Common Stock issued in the Subscription Offering on a second priority basis.
However, such plans shall not, in the aggregate, purchase more than 10% of the
Holding Company Common Stock issued. The ESOP intends to purchase a total of 8%
of the Common Stock issued in the Conversion under this category. Subscription
Rights received pursuant to this category shall be subordinated to all rights
received by Eligible Account Holders to purchase shares pursuant to Category No.
1; provided, however, that notwithstanding any provision of the Plan of
Conversion to the contrary, the Tax-Qualified Employee Plans shall have first
priority Subscription Rights to the extent that the total number of shares of
Common Stock sold in the Conversion exceeds the maximum of the Estimated
Valuation Range.
Category No. 3 is reserved for the Bank's Supplemental Eligible Account
Holders. Subscription Rights to purchase shares under this category will be
allocated among Supplemental Eligible Account Holders to permit each such
depositor to purchase shares in this Category in an amount equal to the greater
of $200,000 of Common Stock, one-tenth of one percent (.10%) of the total shares
of Common Stock offered in the Conversion, or 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Common Stock to be issued by a fraction of which the numerator is the amount of
the qualifying deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of the qualifying deposit of the Supplemental
Eligible Account Holders in the converting Bank in each case on December 31,
1996 (the "Supplemental Eligibility Record Date"), subject
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to the overall purchase limitation after satisfying the subscriptions of
Eligible Account Holders and Tax Qualified Employee Plans. Any non-transferable
Subscription Rights received by an Eligible Account Holder shall reduce, to the
extent thereof, the subscription rights to be distributed to such person as a
Supplemental Eligible Account Holder. In the event of an oversubscription for
shares, the shares available shall be allocated first to permit each subscribing
Supplemental Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his total allocation (including the number
of shares, if any, allocated in accordance with Category No. 1) equal to 100
shares, and thereafter among each subscribing Supplemental Eligible Account
Holder pro rata in the same proportion that his Qualifying Deposit bears to the
total Qualifying Deposits of all subscribing Supplemental Eligible Account
Holders whose subscriptions remain unsatisfied.
Category No. 4 provides, to the extent that shares are then available
after satisfying the subscriptions of Eligible Account Holders, Tax-Qualified
Employee Plans and Supplemental Eligible Account Holders, for the issuance of
Subscription Rights to Other Members to purchase in this Category up to the
greater of $200,000 of Common Stock, or one-tenth of one percent (.10%) of the
Common Stock offered in the Conversion. In the event of an oversubscription, the
shares available shall be allocated among the subscribing Other Members pro rata
in the same proportion that his number of votes on the Voting Record Date bears
to the total number of votes on the Voting Record Date of all subscribing Other
Members on such date. Such number of votes shall be determined based on the
Bank's mutual charter and bylaws in effect on the date of approval by members of
this Plan of Conversion.
Each depositor (including individual retirement accounts ("IRAs") and
Keogh account beneficiaries) as of ________, 1997 and the date of the Special
Meeting is entitled at the Special Meeting to cast one vote for each $100 or
fraction thereof, of the aggregate withdrawal value of all of such depositor's
savings accounts in the Bank as of the applicable voting record date, up to a
maximum of 1,000 votes. However, no member may vote more than 1,000 votes. In
general, accounts held in different ownership capacities will be treated as
separate memberships for purposes of applying the 1,000 vote limitation. For
example, if two persons hold a $100,000 account in their joint names and each of
the persons also holds a separate account for $100,000 in his own name, each
person would be entitled to 1,000 votes for each separate account and they would
together be entitled to cast 1,000 votes on the basis of the joint account for a
total of 3,000 votes.
Category No. 5 provides for the issuance of Subscription Rights to
officers, directors and employees of the Bank, to purchase in this Category up
to $200,000 of the Common Stock to the extent that shares are available after
satisfying the subscriptions of eligible subscribers in preference Categories 1,
2, 3 and 4. The total number of shares which may be conversion purchased under
this Category may not exceed 22% of the number of shares of Holding Company
Common Stock. In the event of an oversubscription, the available shares will be
allocated pro rata among all subscribers in this category based on the number of
shares ordered by each subscriber.
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Public Offering and Direct Community Offering
To the extent that shares remain available and subject to market
conditions at or near the completion of the Subscription Offering, the Holding
Company may offer shares pursuant to the Plan to selected persons in a Public
Offering and Direct Community Offering on a best-efforts basis through KBW in
such a manner as to promote a wide distribution of the Common Stock. Any orders
received in connection with the Public Offering and Direct Community Offering,
if any, will receive a lower priority than orders properly made in the
Subscription Offering by persons properly exercising Subscription Rights. In
addition depending on market conditions, KBW may utilize selected broker-dealers
("Selected Dealers") in connection with the sale of shares in the Public
Offering and Direct Community Offering. Common Stock sold in the Public Offering
and Direct Community Offering will be sold at $10.00 per share and hence will be
sold at the same price as all other shares in the Conversion. The Holding
Company and the Bank have the right to reject orders, in whole or in part, in
their sole discretion in the Public Offering and Direct Community Offering.
No person, together with any associate or group of persons acting in
concert, will be permitted to purchase more than $200,000 of Common Stock in the
Public Offering and Direct Community Offering. To order Common Stock in
connection with the Public Offering and Direct Community Offering, if any, an
executed stock order and account withdrawal authorization and certification must
be received by KBW prior to the termination of the Public Offering and Direct
Community Offering. The date by which orders must be received in the Public
Offering and Direct Community Offering will be set by the Holding Company at the
time of commencement of the Public Offering; provided however, if the Offering
is extended beyond _________, 1997, each subscriber will have the opportunity to
maintain, modify or rescind his or her subscription. In such event, all
subscription funds will be promptly returned with interest to each subscriber
unless he or she affirmatively indicates otherwise.
It is estimated that the Selected Dealers will receive a negotiated
commission of up to 4.5% of the Common Stock sold by the Selected Dealers,
payable by the Holding Company, and KBW will also receive a fee of 1.0% of
Common Stock sold by such firms. Such fees in the aggregate will not exceed
5.5%. See "- Marketing Arrangements.
KBW may enter into agreements with Selected Dealers to assist in the
sale of shares in the Public Offering. Selected Dealers may only solicit
indications of interest from their customers to place orders with the Holding
Company as of a certain date ("Order Date") for the purchase of shares of
Conversion Stock with the authorization of KBW. When and if KBW and the Holding
Company believe that enough indications of interest and orders have been
received to consummate the Conversion, KBW will request, as of the Order Date,
Selected Dealers to submit orders to purchase shares for which they have
received indications of interest from their customers. Selected Dealers will
send confirmation of the orders to such customers on the next business day after
the Order Date. Customers who authorize Selected Dealers to debit their
brokerage accounts are required to have the funds for payment in their account
on but not before the closing date of the Conversion. On the closing date,
Selected Dealers will remit funds to the account that the Holding Company
established for each Selected Dealer. Each customer's funds so forwarded to the
Holding Company, along with all other accounts held in the same title, will be
insured up to the applicable legal limit. After payment has been received by the
Holding
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Company from Selected Dealers, funds will earn interest at the Bank's passbook
rate until the completion of the Offering. In the event the Conversion is not
consummated as described above, funds with interest will be returned promptly to
the Selected Dealers, who, in turn, will promptly credit their customers'
brokerage account.
In the event the Holding Company determines to conduct a Public
Offering and Direct Community Offering, persons to whom a prospectus is
delivered may subscribe for shares of Common Stock by submitting a completed
stock order and account withdrawal authorization (provided by KBW) and an
executed certification along with immediately available funds (which may be
obtained by debiting a KBW account) to KBW by not later than the public offering
expiration date (as established by the Holding Company). Promptly upon receipt
of available funds, together with a properly executed stock order and account
withdrawal authorization and certification, KBW will forward such funds to
Hemlock Federal to be deposited in a subscription escrow account.
If a subscription in the Public Offering and Direct Community Offering
is accepted, promptly after the completion of the Conversion, a certificate for
the appropriate amount of shares will be forwarded to KBW as nominee for the
beneficial owner. In the event that a subscription is not accepted or the
Conversion is not consummated, the Bank will promptly refund with interest the
subscription funds to KBW which will then return the funds to subscribers'
accounts. If the aggregate pro forma market value of the Company and the Bank,
as converted, is less than $13,345,000 or more than $20,763,250, each subscriber
will have the right to modify or rescind his or her subscription.
If a Public Offering and Direct Community Offering is held, the
opportunity to subscribe for shares of Common Stock in the Public Offering is
subject to the right of the Bank and the Holding Company, in their sole
discretion, to accept or reject any such orders in whole or in part.
Additional Purchase Restrictions
The Plan also provides for certain additional limitations to be placed
upon the purchase of shares in the Conversion. Specifically, no person (other
than a Tax-Qualified Employee Plan) by himself or herself or with an associate,
and no group of persons acting in concert, may subscribe for or purchase more
than $900,000 of Common Stock. For purposes of this limitation, an associate of
a person does not include a Tax-Qualified Employee Plan or Non-Tax Qualified
Employee Plan in which the person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity. Moreover, for purposes
of this paragraph, shares held by one or more Tax Qualified or Non-Tax Qualified
Employee Plans attributed to a person shall not be aggregated with shares
purchased directly by or otherwise attributable to that person except for that
portion of a plan which is self-directed by a person. See "- Stock Pricing and
Number of Shares to be Issued" regarding potential changes in Subscription
Rights in the event of a decrease in the number of shares to be issued in the
Conversion. Officers and directors and their associates may not purchase, in the
aggregate, more than 32% of the shares to be sold in the Conversion. For
purposes of the Plan, the members of the Board of Directors are not deemed to be
acting in concert solely by reason of their Board membership. For purposes of
this limitation, an associate of an officer or director does not include a
Tax-Qualified Employee
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Plan. Moreover, any shares attributable to the officers and directors and their
associates, but held by a Tax-Qualified Employee Plan (other than that portion
of a plan which is self-directed) shall not be included in calculating the
number of shares which may be purchased under the limitations in this paragraph.
Shares purchased by employees who are not officers or directors of the Bank, or
their associates, are not subject to this limitation. The term "associate" is
used above to indicate any of the following relationships with a person: (i) any
corporation or organization (other than the Holding Company or the Bank or a
majority-owned subsidiary of the Holding Company or the Bank) of which a person
is an officer or partner or is, directly or indirectly, the beneficial owner of
10% or more of any class of equity security; (ii) any trust or other estate in
which such person has a substantial beneficial interest or as to which such
person serves as trustee or in a similar fiduciary capacity; and (iii) any
relative or spouse of such person or any relative of such spouse who has the
same home as such person or who is a director or officer of the Holding Company
or the Bank or any subsidiary of the Holding Company or the Bank.
The Boards of Directors of the Holding Company and the Bank, in their
sole discretion, may increase the maximum purchase limitations referred to above
up to 9.99% of the total shares to be offered in the Offering, provided that
orders for shares exceeding 5.0% of the shares being offered in the Offering
shall not exceed, in the aggregate, 10% of the shares being offered in the
Offering or decrease the maximum purchase limitation to one percent of the
Common Stock offered in the Conversion. Requests to purchase additional shares
of Common Stock under this provision will be allocated by the Boards of
Directors on a pro rata basis giving priority in accordance with the priority
rights set forth above. Depending on market and financial conditions, the Boards
of Directors of the Holding Company and the Bank, with the approval of the OTS
and without further approval of the members, may increase or decrease any of the
above purchase limitations.
To the extent that shares are available, each subscriber must subscribe
for a minimum of 25 shares. In computing the number of shares to be allocated,
all numbers will be rounded down to the next whole number.
Common Stock purchased in the Conversion will be freely transferable
except for shares purchased by executive officers and directors of the Bank or
the Holding Company. See "- Restrictions on Transfer of Subscription Rights and
Shares."
Marketing Arrangements
Hemlock Federal has retained KBW, a broker-dealer registered with the
Securities and Exchange Commission (the "SEC") and a member of the National
Association of Securities Dealers, Inc. (the "NASD"), to consult with and advise
the Bank and to assist in the distribution of shares in the Offering on a
best-efforts basis. KBW is headquartered in Dublin, Ohio and its phone number is
(614) 766-8400. Among the services KBW will perform are (i) training and
educating Hemlock Federal employees, who will be performing certain ministerial
functions in the Offering, regarding the mechanics and regulatory requirements
of the stock sale process, (ii) keeping records of orders for shares of Common
Stock, (iii) targeting Hemlock Federal's sales efforts including preparation of
marketing materials, (iv) assisting in the collection of proxies from Members
for use at the Special Meeting, and (v) providing its registered stock
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representatives to staff the Stock Information Center and meeting with and
assisting potential subscribers. For its services, KBW will receive a success
fee of 1.5% of the aggregate Purchase Price of Common Stock sold in the
Subscription Offering, excluding Common Stock purchased by directors, officers
and employees of the Association, or members of their immediate families and
purchases by tax-qualified plans. A management fee of $25,000, payable in four
monthly installments of $6,250, is being applied against this fee. If the
Subscription and Community Offering is terminated before completion, KBW will be
entitled to retain such monthly payments already accrued or received.
To the extent registered broker-dealers are utilized, the Holding
Company will pay a fee (to be negotiated, but not to exceed 4.5% of the
aggregate Purchase Price of shares of Common Stock sold in the Public Offering
and Direct Community Offering) to such Selected Dealers, including any
sponsoring dealer fees. The Holding Company will also pay KBW a fee of 1.0% of
the aggregate Purchase Price of shares of Common Stock sold in the Offering by
Selected Dealers, which together with the fee to be paid to Selected Dealers
will result in an aggregate fee not to exceed 5.5% of the Common Stock sold in
the Offering. Fees paid to KBW and to any other broker-dealer may be deemed to
be underwriting fees, and KBW and such other broker-dealers may be deemed to be
underwriters. The Holding Company has agreed to reimburse KBW for its reasonable
out-of-pocket expenses (not to exceed $5,000), and its legal fees and expenses
(not to exceed $35,000) and to indemnify KBW against certain claims or
liabilities, including certain liabilities under the Securities Act.
In the event there is a Public Offering and Direct Community Offering,
procedures may be implemented to permit a purchaser to pay for his or her shares
with funds held by or deposited with KBW or a "Selected Dealer." See "- Public
Offering."
Directors and executive officers of the Holding Company and the Bank
may, to a limited extent, participate in the solicitation of offers to purchase
Common Stock. Sales will be made from a Stock Information Center located away
from the publicly accessible areas (including teller windows) of the Bank's
office. Other employees of the Bank may participate in the Offering in
administrative capacities, providing clerical work in effecting a sales
transaction or answering questions of a potential purchaser provided that the
content of the employee's responses is limited to information contained in this
Prospectus or other offering document. Other questions of prospective purchasers
will be directed to executive officers or registered representatives of KBW Such
other employees have been instructed not to solicit offers to purchase Common
Stock or provide advice regarding the purchase of Common Stock. To the extent
permitted under applicable law, directors and executive officers of the Holding
Company and the Bank may participate in the solicitation of offers to purchase
Common Stock, except in the State of Texas where only a representative of KBW
will be able to offer and sell securities to Texas residents. The Holding
Company will rely on Rule 3a4-1 under the Exchange Act and sales of Common Stock
will be conducted within the requirements of Rule 3a4-1, so as to permit
officers, directors and employees to participate in the sale of Common Stock. No
officer, director or employee of the Holding Company or the Bank will be
compensated in connection with his participation by the payment of commissions
or other remuneration based either directly or indirectly on the transactions in
the Common Stock.
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A conversion center will be established at the Bank's office, in an
area separated from the Bank's banking operations. No sales activities will be
conducted in the public areas of the Bank's offices, but persons will be able to
obtain a Prospectus and sales information at such places, and employees will
inform prospective purchasers to direct their questions to the conversion center
and will provide such persons with the telephone number of the conversion
center. Completed stock orders will be accepted at such places, and will be
promptly forwarded to the conversion center for processing. No officer, director
or employee of the Bank will be compensated in connection with his participation
by the payment of commissions or other remuneration based either directly or
indirectly on the transactions in the Common Stock.
The Bank and the Holding Company will make reasonable efforts to comply
with the securities laws of all states in the United States in which persons
entitled to subscribe for shares, pursuant to the Plan of Conversion, reside.
However, no shares will be offered or sold under the Plan of Conversion to any
such person who (1) resides in a foreign country or (2) resides in a state of
the United States in which a small number of persons otherwise eligible to
subscribe for shares under the Plan of Conversion reside or as to which the Bank
and the Holding Company determine that compliance with the securities law of
such state would be impracticable for reasons of cost or otherwise, including,
but not limited to, a requirement that the Bank or the Holding Company or any of
their officers, directors or employees register, under the securities laws of
such state, as a broker, dealer, salesmen or agent. No payments will be made in
lieu of the granting of Subscription Rights to any such person.
Method of Payment for Subscriptions
To purchase shares in the Subscription Offering, an executed order form
and certification form with the required payment for each share subscribed for,
or with appropriate authorization for withdrawal from the Bank's deposit account
(which may be given by completing the appropriate blanks in the order form),
must be received by the Bank by noon, Chicago, Illinois time, on ___________,
1997. Order forms which are not received by such time or are executed
defectively or are received without full payment (or appropriate withdrawal
instructions) are not required to be accepted.
To order Common Stock in connection with the Public Offering and Direct
Community Offering, if any, an executed stock order and account withdrawal
authorization and certification must be received by KBW prior to the termination
of the Public Offering and Direct Community Offering. The date by which orders
must be received in the Public Offering and Direct Community Offering will be
set by the Holding Company at the time of commencement of the Public Offering
and Direct Community Offering; provided however, if the Offering is extended
beyond January __, 1997, each subscriber will have the opportunity to maintain,
modify or rescind his or her subscription. In such event, all subscription funds
will be promptly returned with interest to each subscriber unless he or she
affirmatively indicates otherwise. In addition, the Holding Company and the Bank
are not obligated to accept orders submitted on photocopies or facsimile order
forms.
The Holding Company and the Bank have the right to waive or permit the
correction of incomplete or improperly executed forms, but do not represent that
they will do so. Once received, an executed order form or stock order and
account withdrawal authorization may not
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be modified, amended or rescinded without the consent of the Holding Company and
the Bank unless the Conversion has not been completed by _____________, 1997.
Payment for subscriptions in the Subscription Offering, may be made (i)
in cash if delivered in person at the office of the Bank, (ii) by check or money
order or (iii) by authorization of withdrawal from deposit accounts maintained
with the Bank. Interest will be paid on payments made by cash, check, bank draft
or money order, whether or not the Conversion is complete or terminated, at the
Bank's current passbook rate from the date payment is received until the
completion or termination of the Conversion. If payment is made by authorization
of withdrawal from deposit or certificate accounts, the funds authorized to be
withdrawn from such account will continue to accrue interest at the contractual
rates until completion or termination of the Conversion. Such funds will be
unavailable to the depositor until completion or termination of the Conversion.
If a subscriber authorizes the Bank to withdraw the amount of the
Purchase Price from his certificate account, the Bank will do so as of the
effective date of Conversion. The Bank will waive any applicable penalties for
early withdrawal from certificate accounts at Hemlock Federal for the purpose of
purchasing Common Stock. If the remaining balance in a certificate account is
reduced below the applicable minimum balance requirement at the time that the
funds actually are transferred under the authorization, the rate paid on the
remaining balance of the certificate will earn interest the then-current
passbook rate.
Owners of self-directed IRAs may under certain circumstances use the
assets of such IRAs to purchase shares of Common Stock in the Offering, provided
that such IRAs are self- directed and are not maintained at the Bank. Persons
with IRAs maintained at the Bank must have their accounts transferred to an
unaffiliated institution or broker to purchase shares of Common Stock in the
Offering. In addition, the provisions of the ERISA and Internal Revenue Service
regulations require that officers, directors and 10% stockholders who use
self-directed IRA funds to purchase shares of Common Stock in the Offering make
such purchases for the exclusive benefit of the IRAs.
If the ESOP subscribes for shares during the Subscription Offering,
such plan will not be required to pay for the shares subscribed for at the time
it subscribes, but rather, may pay for such shares of Common Stock subscribed
for the Purchase Price upon consummation of the Conversion, provided that there
is in force from the time of its subscription until such time, a loan commitment
to lend to the ESOP, at such time, the aggregate Purchase Price of the shares
for which it subscribed.
For information regarding the submission of orders in connection with
the Public Offering and Direct Community Offering, see "- Public Offering and
Direct Community
Offering."
All refunds and any interest due will be paid after completion of the
Conversion. Certificates representing shares of Common Stock purchased will be
mailed to purchasers at the last address of such persons appearing on the
records of the Bank, or to such other address as may be specified in properly
completed order forms, as soon as practicable following
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consummation of the sale of all shares of Common Stock. Any certificates
returned as undeliverable will be disposed of in accordance with applicable law.
To ensure that each purchaser receives a prospectus at least 48 hours
prior to the Expiration Date in accordance with Rule 15c2-8 under the Exchange
Act, no prospectus will be mailed any later than five days prior to such date or
hand delivered any later than two days prior to such date. Execution of the
order form will confirm receipt or delivery in accordance with Rule 15c2-8.
Order forms will only be distributed with a prospectus. The Bank will accept for
processing only orders submitted on original order forms with the form of
certification. Photocopies or facsimile copies of order forms or certifications
will not be accepted. Payment by cash, check, money order, bank draft or debit
authorization to an existing account at the Bank must accompany the order form.
No wire transfers will be accepted.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (June 30,
1995), Supplemental Eligibility Record Date (December 31, 1996) and/or the
Voting Record Date (___________, 1997) must list all accounts on the stock order
form giving all names on each account and the account number
as of the applicable record date.
In addition to the foregoing, if shares are offered through Selected
Dealers, a purchaser may pay for his shares with funds held by or deposited with
a Selected Dealer. If an order form is executed and forwarded to the Selected
Dealer or if the Selected Dealer is authorized to execute the order form on
behalf of a purchaser, the Selected Dealer is required to forward the order form
and funds to the Bank for deposit in a segregated account on or before noon of
the business day following receipt of the order form or execution of the order
form by the Selected Dealer. Alternatively, Selected Dealers may solicit
indications of interest from their customers who indicated an interest and seek
their confirmation as to their intent to purchase. Those indicating an intent to
purchase shall forward executed order forms and certifications to their Selected
Dealer or authorize the Selected Dealer to execute such forms. The Selected
Dealer will acknowledge receipt of the order to its customer in writing on the
following business day and will debit such customer's account on the third
business day after the customer has confirmed his intent to purchase (the "debit
date") and on or before noon of the next business day following the debit date
will send order forms and funds to the Bank for deposit in a segregated account.
If such alternative procedure is employed, purchasers' funds are not required to
be in their accounts with Selected Dealers until the debit date.
Restrictions on Transfer of Subscription Rights and Shares
Prior to the completion of the Conversion, the OTS conversion
regulations prohibit any person with subscription rights, including the Eligible
Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account
Holders, Other Members and employees, officers and directors, from transferring
or entering into any agreement or understanding to transfer the legal or
beneficial ownership of the subscription rights issued under the Plan or the
shares of Common Stock to be issued upon their exercise. Such rights may be
executed only by the person to whom they are granted and only for his account.
Each person exercising such subscription rights will be required to certify that
he is purchasing shares solely for his own account and that
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<PAGE>
he has no agreement or understanding regarding the sale or transfer of such
shares. The OTS regulations also prohibit any person from offering or making an
announcement of an offer or intent to make an offer to purchase such
subscription rights or shares of Common Stock prior to the completion of the
Conversion.
The Bank and the Holding Company may pursue any and all legal and
equitable remedies in the event they become aware of the transfer of
subscription rights and will not honor orders known by them to involve the
transfer of such rights.
Except as to directors and executive officers of the Bank and the
Holding Company, the shares of Common Stock sold in the Conversion will be
freely transferable. Shares purchased by directors, executive officers or their
associates in the Conversion shall be subject to the restrictions that said
shares shall not be sold during the period of one year following the date of
purchase, except in the event of the death of the stockholder. Accordingly,
stock certificates issued by the Holding Company to directors, executive
officers and their associates shall bear a legend giving appropriate notice of
such restriction and, in addition, the Bank and the Holding Company will give
appropriate instructions to the transfer agent for the Common Stock with respect
to the applicable restriction upon transfer of any restricted shares. Any shares
issued at a later date as a stock dividend, stock split or otherwise, to holders
of restricted stock, shall be subject to the same restrictions that may apply to
such restricted stock. Holding Company stock (like the stock of most companies)
is subject to the requirements of the Securities Act. Accordingly, Holding
Company stock may be offered and sold only in compliance with registration
requirements or pursuant to an applicable exemption from registration.
Holding Company stock received in the Conversion by persons who are not
"affiliates" of the Holding Company may be resold without registration. Shares
received by affiliates of the Holding Company (primarily the directors, officers
and principal stockholders of the Holding Company) will be subject to the resale
restrictions of Rule 144 under the Securities Act, which are discussed below.
Rule 144 generally requires that there be publicly available certain
information concerning the Holding Company, and that sales thereunder be made in
routine brokerage transactions or through a market maker. If the conditions of
Rule 144 are satisfied, each affiliate (or group of persons acting in concert
with one or more affiliates) is entitled to sell in the public market, without
registration, in any three-month period, a number of shares which does not
exceed the greater of (i) 1% of the number of outstanding shares of Holding
Company stock, or (ii) if the stock is admitted to trading on a national
securities exchange or reported through the automated quotation system of a
registered securities bank, the average weekly reported volume of trading during
the four weeks preceding the sale.
Participation by the Board and Executive Officers
The directors and executive officers of Hemlock Federal have indicated
their intention to purchase in the Conversion an aggregate of $1,246,000 of
Common Stock, equal to 9.3%, 7.9%, 6.9% or 6.0% of the number of shares to be
issued in the Offering, at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively. The following table sets
forth information regarding Subscription Rights to
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Common Stock intended to be exercised by each of the directors of the Bank,
including members of their immediate family and their IRAs, and by all directors
and executive officers as a group. The following table assumes that 1,570,000
shares, the midpoint of the Estimated Valuation Range, of Common Stock are
issued at the Purchase Price of $10.00 per share and that sufficient shares will
be available to satisfy the subscriptions indicated. The table does not include
shares to be purchased through the ESOP (8% of shares issued in the Conversion)
or awarded under the proposed RRP (an amount of shares which may be acquired
after stockholder ratification of such plan equal to 4.0% of the shares sold in
the Conversion) or proposed Stock Option Plan (an amount of shares which may be
issued after stockholder ratification of such plan equal to 10.0% of the shares
sold in the Conversion).
<TABLE>
<CAPTION>
Number of
Aggregate Shares at Percent of
Purchase $10.00 Shares at
Name Title Price per Share(1) Midpoint
- -------------------- ------------------------- ----- ------------ --------
<S> <C> <C> <C> <C>
Maureen G. Partynski Chairman of the Board and Chief Executive $ 450,000 45,000 2.9%
Officer
Michael R. Stevens President and Director 450,000 45,000 2.9
Rosanne Pastorak-Belczak Vice President and Director 130,000 12,500 0.8
Frank A. Bucz Director 30,000 3,000 0.2
Kenneth J. Bazarnik Director 100,000 10,000 0.6
Charles Gjondla Director 1,000 100 0.01
G. Gerald Schiera Director 25,000 2,500 .2
All other executive 60,000 6,000 .4
officers as a group
All directors and 1,246,000 124,600 7.9%
executive officers as a
group (9 persons)
<FN>
- ---------------
(1) Does not include subscriptions by the ESOP, or options which are
intended to be granted under the proposed Stock Option Plan or
restricted stock awards which are intended to be granted under the
proposed RRP, subject to stockholder ratification of such plans.
</FN>
</TABLE>
Risk of Delayed Offering
The completion of the sale of all unsubscribed shares in the Offering
will be dependent, in part, upon the Bank's operating results and market
conditions at the time of the Offering. Under the Plan of Conversion, all shares
offered in the Conversion must be sold within a period ending 24 months from the
date of the Special Meeting. While the Bank and the Holding Company anticipate
completing the sale of shares offered in the Conversion within this period, if
the Board of Directors of the Bank and the Holding Company are of the opinion
that economic conditions generally or the market for publicly traded thrift
institution stocks make undesirable a sale of the Common Stock, then the
Offering may be delayed until such conditions improve.
A material delay in the completion of the sale of all unsubscribed
shares in the Public Offering or otherwise may result in a significant increase
in the costs of completing the Conversion. Significant changes in the Bank's
operations and financial condition, the aggregate
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market value of the shares to be issued in the Conversion and general market
conditions may occur during such material delay. In the event the Conversion is
not consummated within 24 months after the date of the Special Meeting of
Members, the Bank would charge accrued Conversion costs to then current period
operations.
Approval, Interpretation, Amendment and Termination
All interpretations of the Plan of Conversion, as well as the
completeness and validity of order forms and stock order and account withdrawal
authorizations, will be made by the Bank and the Holding Company and will be
final, subject to the authority of the OTS and the requirements of applicable
law. The Plan of Conversion provides that, if deemed necessary or desirable by
the Boards of Directors of the Bank and the Holding Company, the Plan of
Conversion may be substantively amended by the Boards of Directors of the Bank
and the Holding Company, as a result of comments from regulatory authorities or
otherwise, at any time with the concurrence of the OTS and the SEC. In the event
the Plan of Conversion is substantially amended, other than a change in the
maximum purchase limits set forth herein, the Holding Company intends to notify
subscribers of the change and to refund subscription funds with interest unless
subscribers affirmatively elect to increase, decrease or maintain their
subscriptions. The Plan of Conversion will terminate if the sale of all shares
is not completed within 24 months after the date of the Special Meeting of
Members. The Plan of Conversion may be terminated by the Boards of Directors of
the Holding Company and the Bank with the concurrence of the OTS, at any time. A
specific resolution approved by a two-thirds vote of the Boards of Directors of
the Holding Company and the Bank would be required to terminate the Plan of
Conversion prior to the end of such 24-month period.
Restrictions on Repurchase of Stock
For a period of three years following Conversion, the Holding Company
may not repurchase any shares of its capital stock, except in the case of an
offer to repurchase on a pro rata basis made to all holders of capital stock of
the Holding Company. Any such offer shall be subject to the prior approval of
the OTS. Furthermore, the Holding Company may not repurchase any of its stock
(i) if the result thereof would be to reduce the regulatory capital of the Bank
below the amount required for the liquidation account to be established pursuant
to OTS regulations and (ii) except in compliance with the requirements of the
OTS' capital distribution rule.
The above limitations are subject to the OTS conversion rules which
generally provide that the Holding Company may repurchase its capital stock
provided (i) no repurchases occur within one year following the Conversion
(subject to certain exceptions), (ii) repurchases during the second and third
year after conversion are part of an open market stock repurchase program that
does not allow for a repurchase of more than 5% of the Holding Company's
outstanding capital stock during a 12-month period, (iii) the repurchases do not
cause the Bank to become undercapitalized, and (iv) the Holding Company provides
notice to the OTS at lease 10 days prior to the commencement of a repurchase
program and the OTS does not object to such regulations. In addition, the above
limitations do not preclude repurchases of capital stock by the Holding Company
in the event applicable federal regulatory limitations are subsequently
liberalized.
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Income Tax Consequences
Consummation of the Conversion is expressly conditioned upon prior
receipt by the Bank of either a ruling from the IRS or an opinion of Silver,
Freedman & Taff, L.L.P. with respect to federal taxation, and an opinion of
Crowe, Chizek and Company LLP with respect to Illinois taxation, to the effect
that consummation of the Conversion will not be taxable to the converted Bank or
the Holding Company. The full text of the Silver, Freedman & Taff, L.L.P.
opinion, the Keller Letter (hereinafter defined) and the Crowe, Chizek and
Company LLP opinion, which opinions are summarized herein, were filed with the
SEC as exhibits to the Holding Company's Registration Statement on Form S-1. See
"Additional Information."
An opinion which is summarized below has been received from Silver,
Freedman & Taff, L.L.P. with respect to the proposed Conversion of the Bank to
the stock form. The Silver, Freedman Taff, L.L.P. opinion states that (i) the
Conversion will qualify as a reorganization under Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended, and no gain or loss will be
recognized to the Bank in either its mutual form or its stock form by reason of
the proposed Conversion, (ii) no gain or loss will be recognized to the Bank in
its stock form upon the receipt of money and other property, if any, from the
Holding Company for the stock of the Bank; and no gain or loss will be
recognized to the Holding Company upon the receipt of money for Common Stock of
the Holding Company; (iii) the assets of the Bank in either its mutual or its
stock form will have the same basis before and after the Conversion; (iv) the
holding period of the assets of the Bank in its stock form will include the
period during which the assets were held by the Bank in its mutual form prior to
Conversion; (v) gain, if any, will be realized by the depositors of the Bank
upon the constructive issuance to them of withdrawable deposit accounts of the
Bank in its stock form, nontransferable subscription rights to purchase Holding
Company Common Stock and/or interests in the Liquidation Account (any such gain
will be recognized by such depositors, but only in an amount not in excess of
the fair market value of the subscription rights and Liquidation Account
interests received); (vi) the basis of the account holder's savings accounts in
the Bank after the Conversion will be the same as the basis of his or her
savings accounts in the Bank prior to the Conversion; (vii) the basis of each
account holder's interest in the Liquidation Account is assumed to be zero;
(viii) based on the Keller Letter, as hereinafter defined, the basis of the
subscription rights will be zero; (ix) the basis of the Holding Company Common
Stock to its stockholders will be the purchase price thereof; (x) a
stockholder's holding period for Holding Company Common Stock acquired through
the exercise of subscription rights shall begin on the date on which the
subscription rights are exercised and the holding period for the Conversion
Stock purchased in the Offering will commence on the date following the date on
which such stock is purchased; (xi) the Bank in its stock form will succeed to
and take into account the earnings and profits or deficit in earnings and
profits, of the Bank, in its mutual form, as of the date of Conversion; (xii)
the Bank, immediately after Conversion, will succeed to and take into account
the bad debt reserve accounts of the Bank, in mutual form, and the bad debt
reserves will have the same character in the hands of the Bank after Conversion
as if no Conversion had occurred; and (xiii) the creation of the Liquidation
Account will have no effect on the Bank's taxable income, deductions or addition
to reserve for bad debts either in its mutual or stock form.
The opinion from Silver, Freedman & Taff, L.L.P. is based, among other
things, on certain assumptions, including the assumptions that the exercise
price of the Subscription Rights
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to purchase Holding Company Common Stock will be approximately equal to the fair
market value of that stock at the time of the completion of the proposed
Conversion. With respect to the Subscription Rights, the Bank will receive a
letter from Keller (the "Keller Letter") which, based on certain assumptions,
will conclude that the Subscription Rights to be received by Eligible Account
Holders, Supplemental Eligible Account Holders and other eligible subscribers do
not have any economic value at the time of distribution or at the time the
Subscription Rights are exercised, whether or not a Public Offering takes place.
The Bank has also received an opinion of Silver, Freedman & Taff,
L.L.P. to the effect that, based in part on the Keller Letter: (i) no taxable
income will be realized by depositors as a result of the exercise of
non-transferable Subscription Rights to purchase shares of Holding Company
Common Stock at fair market value; (ii) no taxable income will be recognized by
borrowers, directors, officers and employees of the Bank on the receipt or
exercise of Subscription Rights to purchase shares of Holding Company Common
Stock at fair market value; and (iii) no taxable income will be realized by the
Bank or Holding Company on the issuance of Subscription Rights to eligible
subscribers to purchase shares of Holding Company Common Stock at fair market
value.
Notwithstanding the Keller Letter, if the Subscription Rights are
subsequently found to have a fair market value and are deemed a distribution of
property, it is Silver, Freedman & Taff, L.L.P.'s opinion that gain or income
will be recognized by various recipients of the Subscription Rights (in certain
cases, whether or not the rights are exercised) and the Bank and/or the Holding
Company may be taxable on the distribution of the Subscription Rights.
With respect to Illinois taxation, the Bank has received an opinion
from Crowe, Chizek and Company LLP to the effect that the Illinois tax
consequences to the Bank, in its mutual or stock form, the Holding Company,
eligible account holders, parties receiving Subscription Rights, parties
purchasing conversion stock, and other parties participating in the Conversion
will be the same as the federal income tax consequences described above.
Unlike a private letter ruling, the opinions of Silver, Freedman &
Taff, L.L.P. and Crowe, Chizek and Company LLP, as well as the Keller Letter,
have no binding effect or official status, and no assurance can be given that
the conclusions reached in any of those opinions would be sustained by a court
if contested by the IRS or the Delaware or Illinois tax authorities.
RESTRICTIONS ON ACQUISITIONS OF STOCK AND
RELATED TAKEOVER DEFENSIVE PROVISIONS
Although the Boards of Directors of the Bank and the Holding Company
are not aware of any effort that might be made to obtain control of the Holding
Company after Conversion, the Board of Directors, as discussed below, believe
that it is appropriate to include certain provisions as part of the Holding
Company's certificate of incorporation to protect the interests of the Holding
Company and its stockholders from takeovers which the Board of Directors of
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the Holding Company might conclude are not in the best interests of the Bank,
the Holding Company or the Holding Company's stockholders.
The following discussion is a general summary of material provisions of
the Holding Company's certificate of incorporation and bylaws and certain other
regulatory provisions which may be deemed to have an "anti-takeover" effect. The
following description of certain of these provisions is necessarily general and,
with respect to provisions contained in the Holding Company's certificate of
incorporation and bylaws and the Bank's proposed stock charter and bylaws,
reference should be made in each case to the document in question, each of which
is part of the Bank's Conversion Application filed with the OTS and the Holding
Company's Registration Statement filed with the SEC. See "Additional
Information."
Provisions of the Holding Company's Certificate of Incorporation and Bylaws
Directors. Certain provisions of the Holding Company's certificate of
incorporation and bylaws will impede changes in majority control of the Board of
Directors. The Holding Company's certificate of incorporation provides that the
Board of Directors of the Holding Company will be divided into three classes,
with directors in each class elected for three-year staggered terms except for
the initial directors. Thus, assuming a Board of eight directors, it would take
two annual elections to replace a majority of the Holding Company's Board. The
Holding Company's certificate of incorporation also provides that the size of
the Board of Directors may be increased or decreased only by a majority vote of
the whole Board or by a vote of 80% of the shares eligible to be voted at a duly
constituted meeting of stockholders called for such purpose. The bylaws also
provide that any vacancy occurring in the Board of Directors, including a
vacancy created by an increase in the number of directors, shall be filled for
the remainder of the unexpired term by a majority vote of the directors then in
office. Final ly, the bylaws impose certain notice and information requirements
in connection with the nomi nation by stockholders of candidates for election to
the Board of Directors or the proposal by stockholders of business to be acted
upon at an annual meeting of stockholders.
The certificate of incorporation provides that a director may only be
removed for cause by the affirmative vote of 80% of the shares eligible to vote.
Restrictions on Call of Special Meetings. The certificate of
incorporation of the Holding Company provides that a special meeting of
stockholders may be called only pursuant to a resolution of the Board of
Directors and for only such business as directed by the Board.
Stockholders are not authorized to call a special meeting.
Absence of Cumulative Voting. The Holding Company's certificate of
incorporation does not provide for cumulative voting rights in the election of
directors.
Authorization of Preferred Stock. The certificate of incorporation of
the Holding Company authorizes 100,000 shares of serial preferred stock, $.01
par value. The Holding Company is authorized to issue preferred stock from time
to time in one or more series subject to applicable provisions of law, and the
Board of Directors is authorized to fix the designations, powers, preferences
and relative participating, optional and other special rights of such shares,
including voting rights (which could be multiple or as a separate class) and
conversion rights.
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In the event of a proposed merger, tender offer or other attempt to gain control
of the Holding Company that the Board of Directors does not approve, it might be
possible for the Board of Directors to authorize the issuance of a series of
preferred stock with rights and preferences that would impede the completion of
such a transaction. If the Holding Company issued any preferred stock which
disparately reduced the voting rights of the Common Stock within the meaning of
Rule 19c-4 under the Exchange Act, the Common Stock could be required to be
delisted from the Nasdaq System. An effect of the possible issuance of preferred
stock, therefore, may be to deter a future takeover attempt. The Board of
Directors has no present plans or understandings for the issuance of any
preferred stock and does not intend to issue any preferred stock except on terms
which the Board deems to be in the best interests of the Holding Company and its
stockholders.
Limitation on Voting Rights. The certificate of incorporation of the
Holding Company provides that in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of Common Stock (the "Limit"), be entitled or permitted to any vote in respect
of the shares held in excess of the Limit. This limitation would not inhibit any
person from soliciting (or voting) proxies from other beneficial owners for more
than 10% of the Common Stock or from voting such proxies. Beneficial ownership
is to be determined pursuant to Rule 13d-3 of the General Rules and Regulations
of the Exchange Act, and in any event includes shares beneficially owned by any
affiliate of such person, shares which such person or his affiliates (as defined
in the certificate of incorporation) have the right to acquire upon the exercise
of conversion rights or options and shares as to which such person and his
affiliates have or share investment or voting power but shall not include shares
beneficially owned by directors, officers and employees of the Bank or the
Holding Company. This provision will be enforced by the Board of Directors to
limit the voting rights of persons beneficially owning more than 10% of the
stock and thus could be utilized in a proxy contest or other solicitation to
defeat a proposal that is desired by a majority of the stockholders.
Procedures for Certain Business Combinations. The Holding Company's
certificate of incorporation requires that certain business combinations
(including transactions initiated by management) between the Holding Company (or
any majority-owned subsidiary thereof) and a 10% or more stockholder either (i)
be approved by at least 80% of the total number of outstanding voting shares,
voting as a single class, of the Holding Company, (ii) be approved by two-thirds
of the continuing Board of Directors (i.e., persons serving prior to the 10%
stockholder becoming such) or (iii) involve consideration per share generally
equal to that paid by such 10% stockholder when it acquired its block of stock.
It should be noted that, since the Board and management (9 persons)
intend to purchase approximately $1,091,000 of the shares offered in the
Conversion and may control the voting of additional shares through the ESOP and
proposed RRP and Stock Option Plan, the Board and management may be able to
block the approval of combinations requiring an 80% vote even where a majority
of the stockholders vote to approve such combinations.
Amendment to Certificate of Incorporation and Bylaws. Amendments to the
Holding Company's certificate of incorporation must be approved by the Holding
Company's Board of Directors and also by a majority of the outstanding shares of
the Holding Company's voting
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stock, provided, however, that approval by at least 80% of the outstanding
voting stock is generally required for certain provisions (i.e., provisions
relating to number, classification, election and removal of directors; amendment
of bylaws; call of special stockholder meetings; offers to acquire and
acquisitions of control; director liability; certain business combinations;
power of indemnification; and amendments to provisions relating to the foregoing
in the certificate of incorporation).
The bylaws may be amended by a majority vote of the Board of Directors
or the affirmative vote of at least 80% of the total votes eligible to be voted
at a duly constituted meeting of stockholders.
Purpose and Takeover Defensive Effects of the Holding Company's
Certificate of Incorporation and Bylaws. The Board of Directors of the Bank
believes that the provisions described above are prudent and will reduce the
Holding Company's vulnerability to takeover attempts and certain other
transactions which have not been negotiated with and approved by its Board of
Directors. These provisions will also assist the Bank in the orderly deployment
of the conversion proceeds into productive assets during the initial period
after the Conversion. The Board of Directors believes these provisions are in
the best interest of the Bank and of the Holding Company and its stockholders.
In the judgment of the Board of Directors, the Holding Company's Board will be
in the best position to determine the true value of the Holding Com pany and to
negotiate more effectively for what may be in the best interests of its
stockholders. Accordingly, the Board of Directors believes that it is in the
best interests of the Holding Company and its stockholders to encourage
potential acquirors to negotiate directly with the Board of Directors of the
Holding Company and that these provisions will encourage such negotiations and
discourage hostile takeover attempts. It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at prices reflective of the true value of the
Holding Company and which is in the best interests of all stockholders.
Attempts to take over financial institutions and their holding
companies have recently become increasingly common. Takeover attempts which have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms which may be less favorable than
might otherwise be available. A transaction which is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value for the Holding
Company and its stockholders, with due consideration given to matters such as
the management and business of the acquiring corporation and maximum strategic
development of the Holding Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above then
current market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
which is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive the
Holding Company's remaining stockholders of the benefits of certain
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protective provisions of the Exchange Act, if the number of beneficial owners
becomes less than the 300 required for Exchange Act registration.
Despite the belief of the Bank and the Holding Company as to the
benefits to stock holders of these provisions of the Holding Company's
certificate of incorporation and bylaws, these provisions may also have the
effect of discouraging a future takeover attempt which would not be approved by
the Holding Company's Board, but pursuant to which stockholders may receive a
substantial premium for their shares over then current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have any opportunity to do so. Such provisions will also render the removal
of the Holding Company's Board of Directors and of management more difficult.
The Board will enforce the voting limitation provisions of the charter in proxy
solicitations and accordingly could utilize these provisions to defeat proposals
that are favored by a majority of the stockholders. The Boards of Directors of
the Bank and the Holding Company, however, have concluded that the potential
benefits outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the Conversion, the Holding Company may adopt additional
charter provisions regarding the ac quisition of its equity securities that
would be permitted to a Delaware corporation. The Holding Company and the Bank
do not presently intend to propose the adoption of further restrictions on the
acquisition of the Holding Company's equity securities.
Other Restrictions on Acquisitions of Stock
Delaware Anti-Takeover Statute. The Delaware General Corporation Law
(the "DGCL") provides that buyers who acquire more than 15% of the outstanding
stock of a Delaware corporation, such as the Holding Company, are prohibited
from completing a hostile takeover of such corporation for three years. However,
the takeover can be completed if (i) the buyer, while acquiring the 15%
interest, acquires at least 85% of the corporation's outstanding stock (the 85%
requirement excludes shares held by directors who are also officers and certain
shares held under employee stock plans), or (ii) the takeover is approved by the
target corporation's board of directors and two-thirds of the shares of
outstanding stock of the corporation (excluding shares held by the bidder).
However, these provisions of the DGCL do not apply to Delaware
corporations with less than 2,000 stockholders or which do not have voting stock
listed on a national exchange or listed for quotation with a registered national
securities association. No prediction can be made as to whether the Holding
Company will be listed on Nasdaq National Market or have 2,000 stockholders.
Hemlock Federal may exempt itself from the requirements of the statute by
adopting an amendment to its Certificate of Incorporation or Bylaws electing not
to be governed by this provision. At the present time, the Board of Directors
does not intend to propose any such amendment.
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
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completion of a conversion from offering, or making an announcement of an offer
or intent to make an offer, to purchase such subscription rights or stock. For
three years following conversion, this regulation prohibits any person, without
the prior approval of the OTS, from acquiring or making an offer to acquire (if
the offer is opposed by the savings association) more than 10% of the stock of
any converted savings institution if such person is, or after consummation of
such acquisition would be, the beneficial owner of more than 10% of such stock.
In the event that any person, directly or indirectly, violates this regulation,
the securities beneficially owned by such person in excess of 10% may not be
counted as shares entitled to vote and may not be voted by any person or counted
as voting shares in connection with any matter submitted to a vote of
stockholders. Like the charter provisions outlined above, these federal
regulations can make a change in control more difficult, even if desired by the
holders of the majority of the shares of the stock. The Board of Directors
reserves the right to ask the OTS or other federal regulators to enforce these
restrictions against persons seeking to obtain control of the Holding Company,
whether in a proxy solicitation or otherwise. The policy of the Board is that
these legal restrictions must be observed in every case, including instances in
which an acquisition of control of the Holding Company is favored by a majority
of the stockholders.
Federal law provides that no company, "directly or indirectly or acting
in concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions," may acquire "control" of a savings
association at any time without the prior approval of the OTS. In addition,
federal regulations require that, prior to obtaining control of a savings
association, a person, other than a company, must give 60 days' prior notice to
the OTS and have received no OTS objection to such acquisition of control. Any
company that acquires such control becomes a "savings and loan holding company"
subject to registration, examination and regulation as a savings and loan
holding company. Under federal law (as well as the regulations referred to
below) the term "savings association" includes state and federally chartered
SAIF- insured institutions and federally chartered savings banks whose accounts
are insured by the FDIC's BIF and holding companies thereof.
Control, as defined under federal law, in general means ownership,
control of or holding irrevocable proxies representing more than 25% of any
class of voting stock, control in any manner of the election of a majority of a
savings association's directors, or a determination by the OTS that the acquiror
has the power to direct, or directly or indirectly to exercise a controlling
influence over, the management or policies of the institution. Acquisition of
more than 10% of any class of a savings association's voting stock, if the
acquiror also is subject to any one of eight "control factors," constitutes a
rebuttable determination of control under the OTS regulations. Such control
factors include the acquiror being one of the two largest stockholders. The
determination of control may be rebutted by submission to the OTS, prior to the
acquisition of stock or the occurrence of any other circumstances giving rise to
such determination, of a statement setting forth facts and circumstances which
would support a finding that no control relationship will exist and containing
certain undertakings. The OTS regulations provide that persons or companies
which acquire beneficial ownership exceeding 10% or more of any class of a
savings association's stock must file with the OTS a certification that the
holder 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.
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DESCRIPTION OF CAPITAL STOCK
Holding Company Capital Stock
The 3,100,000 shares of capital stock authorized by the Holding Company
certificate of incorporation are divided into two classes, consisting of
3,000,000 shares of Common Stock (par value $.01 per share) and 100,000 shares
of serial preferred stock (par value $.01 per share). The Holding Company
currently expects to issue between 1,334,500 and 1,805,500 shares (subject to
increase to 2,076,325) of Common Stock in the Conversion and no shares of serial
preferred stock. The aggregate par value of the issued shares will constitute
the capital account of the Holding Company on a consolidated basis. Upon payment
of the Purchase Price, all shares issued in the Conversion will be duly
authorized, fully paid and nonassessable. The balance of the purchase price of
Common Stock, less expenses of Conversion, will be reflected as paid-in capital
on a consolidated basis. See "Capitalization."
Each share of the Common Stock will have the same relative rights and
will be identical in all respects with each other share of the Common Stock. The
Common Stock of the Holding Company will represent non-withdrawable capital,
will not be of an insurable type and will not
be insured by the FDIC.
Under Delaware law, the holders of the Common Stock will possess
exclusive voting power in the Holding Company. Each stockholder will be entitled
to one vote for each share held on all matters voted upon by stockholders,
subject to the limitation discussed under "Restrictions on Acquisitions of Stock
and Related Takeover Defensive Provisions - Provisions of the Holding Company's
Certificate of Incorporation and Bylaws - Limitation on Voting Rights." If the
Holding Company issues preferred stock subsequent to the Conversion, holders of
the preferred stock may also possess voting powers.
Liquidation or Dissolution. In the event of any liquidation,
dissolution or winding up of the Bank, the Holding Company, as the sole holder
of the Bank's capital stock would be entitled to receive, after payment or
provision for payment of all debts and liabilities of the Bank (including all
deposit accounts and accrued interest thereon) and after distribution of the
balance in the special liquidation account to Eligible and Supplemental Account
Holders, all assets of the Bank available for distribution. In the event of
liquidation, dissolution or winding up of the Holding Company, the holders of
its Common Stock would be entitled to receive, after payment or provision for
payment of all its debts and liabilities, all of the assets of the Holding
Company available for distribution. See "The Conversion - Effects of Conversion
to Stock Form on Depositors and Borrowers of the Bank." If preferred stock is
issued subsequent to the Conversion, the holders thereof may have a priority
over the holders of Common Stock in the event of liquidation or dissolution.
No Preemptive Rights. Holders of the Common Stock will not be entitled
to preemptive rights with respect to any shares which may be issued. The Common
Stock will not be subject to call for redemption, and, upon receipt by the
Holding Company of the full purchase price therefor, each share of the Common
Stock will be fully paid and nonassessable.
Preferred Stock. After Conversion, the Board of Directors of the
Holding Company will be authorized to issue preferred stock in series and to fix
and state the voting powers,
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designations, preferences and relative, participating, optional or other special
rights of the shares of each such series and the qualifications, limitations and
restrictions thereof. Preferred stock may rank prior to the Common Stock as to
dividend rights, liquidation preferences, or both, and may have full or limited
voting rights. The holders of preferred stock will be entitled to vote as a
separate class or series under certain circumstances, regardless of any other
voting rights which such holders may have.
Except as discussed above, the Holding Company has no present plans for
the issuance of the additional authorized shares of Common Stock or for the
issuance of any shares of preferred stock. In the future, the authorized but
unissued and unreserved shares of Common Stock will be available for general
corporate purposes, including but not limited to possible issuance as stock
dividends or stock splits, in future mergers or acquisitions, under a cash
dividend reinvestment and stock purchase plan, in a future underwritten or other
public offering, or under a stock based employee plan. The authorized but
unissued shares of preferred stock will similarly be available for issuance in
future mergers or acquisitions, in a future underwritten public offering or
private placement or for other general corporate purposes. Except as described
herein or as otherwise required to approve the transaction in which the
additional authorized shares of common stock or authorized shares of preferred
stock would be issued, no stockholder approval will be required for the issuance
of these shares. Accordingly, the Board of Directors of the Holding Company,
without stockholder approval, can issue preferred stock with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock.
Restrictions on Acquisitions. See "Restrictions on Acquisitions of
Stock and Related Takeover Defensive Provisions" for a description of certain
provisions of the Holding Company's certificate of incorporation and bylaws
which may affect the ability of the Holding Company's stockholders to
participate in certain transactions relating to acquisitions of control of the
Holding Company.
Dividends. The Holding Company's Board of Directors may consider a
policy of paying cash dividends on the Common Stock in the future. No decision
has been made, however, as to the amount or timing of such dividends, if any.
The declaration and payment of dividends are subject to, among other things, the
Holding Company's then current and projected consolidated operating results,
financial condition, regulatory restrictions, future growth plans and other
factors the Board deems relevant. Therefore, no assurance can be given that any
dividends will be declared.
The ability of the Holding Company to pay cash dividends to its
stockholders will be dependent, in part, upon the ability of the Bank to pay
dividends to the Holding Company. OTS regulations do not permit the Bank to
declare or pay a cash dividend on its stock or repurchase shares of its stock if
the effect thereof would be to cause its regulatory capital to be reduced below
the amount required for the liquidation account or to meet applicable regulatory
capital requirements. See "Regulation - Limitations on Dividends and Other
Capital Distributions" for information regarding OTS regulations governing the
Bank's ability to pay dividends to the Holding Company.
Delaware law generally limits dividends of the Holding Company to an
amount equal to the excess of its net assets over its paid-in capital or, if
there is no such excess, to its net
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earnings for the current and immediately preceding fiscal year. In addition, as
the Holding Company does not anticipate, for the immediate future, engaging in
activities other than (i) investing in cash, short-term securities and
investment and mortgage-backed securities similar to those invested in by the
Bank and (ii) holding the stock of Hemlock Federal, the Holding Company's
ability to pay dividends will be limited, in part, by the Bank's ability to pay
dividends, as set forth above.
Earnings appropriated to the Bank's "Excess" bad debt reserves and
deducted for federal income tax purposes cannot be used by the Bank to pay cash
dividends to the Holding Company without adverse tax consequences. See
"Regulation - Federal and State Taxation."
LEGAL AND TAX MATTERS
The legality of the Common Stock and the federal income tax
consequences of the Conversion will be passed upon for Hemlock Federal by the
firm of Silver, Freedman & Taff, L.L.P. (a limited liability partnership
including professional corporations), 7th Floor, East Tower, 1100 New York
Avenue, NW, Washington, DC 20005. Silver, Freedman & Taff, L.L.P. has consented
to the references herein to its opinions. The Illinois income tax consequences
of the Conversion will be passed upon by Crowe, Chizek and Company LLP. Crowe,
Chizek and Company LLP has consented to references herein to its opinion. KBW
has been represented in the Conversion by Stevens & Lee, #1 Glenhardie Corporate
Center, 1275 Drummers Lane, Wayne, Pennsylvania 19087.
EXPERTS
The financial statements of Hemlock Federal as of December 31, 1995,
1994 and 1993 included in this Prospectus have been audited by Crowe, Chizek and
Company LLP, independent auditors, as indicated in their report which is
included herein and has been so included in reliance upon such report, given the
authority of that firm as experts in accounting and auditing.
Keller has consented to the inclusion herein of the summary of its
letter to the Bank setting forth its opinion as to the estimated pro forma
market value of the Holding Company and the Bank as converted and to the
reference to its opinion that subscription rights received by Eligible Account
Holders, Supplemental Eligible Account Holders and other eligible subscribers do
not have any economic value.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement
under the Securities Act with respect to the Common Stock offered hereby. As
permitted by the rules and regulations of the SEC, this Prospectus does not
contain all the information set forth in the Registration Statement. However,
the prospectus does contain a description of the material provisions of the
documents contained therein. Such information can be examined without charge at
the public reference facilities of the SEC located at 450 Fifth Street, NW,
Washington, DC 20549, and copies of such material can be obtained from the SEC
at prescribed rates. In addition, the SEC maintains a Web site. The address of
the SEC's 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
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descriptions thereof which describe only the material provisions of such
documents; each such statement is qualified by reference to such contract or
document.
The Bank has filed an Application for Conversion with the OTS with
respect to the Conversion. Pursuant to the rules and regulations of the OTS,
this Prospectus omits certain information contained in that Application. The
Application may be examined at the principal offices of the OTS, 1700 G Street,
NW, Washington, DC 20552 and at the Chicago District Office of the OTS, Suite
1300, 200 West Madison Street, Chicago, Illinois 60606, without charge.
In connection with the Conversion, the Holding Company will register
the Common Stock with the SEC under Section 12(g) of the Exchange Act, and, upon
such registration, the Holding Company and the holders of its Common Stock will
become subject to the proxy solicitation rules, reporting requirements and
restrictions on stock purchases and sales by directors, officers and greater
than 10% stockholders, the annual and periodic reporting and certain other
requirements of the Exchange Act. Under the Plan, the Holding Company has
undertaken that it will not terminate such registration for a period of at least
three years following the Conversion.
A copy of the Certificate of Incorporation and Bylaws of the Holding
Company are available without charge from the Bank.
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HEMLOCK FEDERAL BANK FOR SAVINGS
Oak Forest, Illinois
FINANCIAL STATEMENTS
December 31, 1995, 1994, and 1993
September 30, 1996 and 1995 (unaudited)
CONTENTS
REPORT OF INDEPENDENT AUDITORS............................................. F-2
FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL CONDITION..................................... F-3
STATEMENTS OF INCOME.................................................. F-4
STATEMENTS OF CHANGES IN EQUITY....................................... F-5
STATEMENTS OF CASH FLOWS.............................................. F-6
NOTES TO FINANCIAL STATEMENTS......................................... F-8
All schedules are omitted because the required information
is not applicable or is included in the
Financial Statements and related notes.
Financial Statements of the Holding Company have not
been provided because Hemlock Federal Financial Corporation
has not conducted any operations to date and
has not been capitalized.
F-1
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REPORT OF INDEPENDENT AUDITORS
Board of Directors
Hemlock Federal Bank for Savings
Oak Forest, Illinois
We have audited the accompanying statements of financial condition of Hemlock
Federal Bank for Savings, as of December 31, 1995 and 1994, and the related
statements of income, changes in equity, and cash flows for the years ended
December 31, 1995, 1994, and 1993. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hemlock Federal Bank for
Savings as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for the years ended December 31, 1995, 1994, and 1993, in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Bank changed its method
of accounting for debt securities as of January 1, 1994, to adopt the provisions
of Statement of Financial Accounting Standards No. 115. As discussed in Note 1
to the financial statements, in 1993, the Bank changed its method of accounting
for income taxes to conform with the provisions of Statement of Financial
Accounting Standards No. 109.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Oak Brook, Illinois
February 9, 1996
F-2
<PAGE>
HEMLOCK FEDERAL BANK FOR SAVINGS
STATEMENTS OF FINANCIAL CONDITION
December 31, 1995 and 1994
September 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
(Unaudited) December 31,
September 30, -----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
ASSETS
Cash and due from bank $ 1,576,017 $ 3,143,758 $ 2,799,329
Interest-bearing deposits in financial institutions 14,800,145 10,157,563 14,027,243
------------ ------------ ------------
Cash and cash equivalents 16,376,162 13,301,321 16,826,572
Securities available-for-sale (Note 2) 41,826,047 39,293,603 16,509,851
Securities held-to-maturity (fair value: 1996 --
$32,567,314; 1995 -- $45,748,852; 1994 --
$68,024,680) (Note 2) 31,859,466 44,605,765 69,539,968
Loans receivable, net (Note 3) 53,120,886 45,232,108 37,658,560
Federal Home Loan Bank stock, at cost 901,000 849,400 836,600
Accrued interest receivable 845,063 1,106,528 884,389
Premises and equipment, net (Note 5) 1,035,935 1,044,406 1,082,308
Prepaid expenses and other assets 1,018,036 193,152 538,921
------------ ------------ ------------
Total assets $146,982,595 $145,626,283 $143,877,169
============ ============ ============
LIABILITIES AND EQUITY
Deposits (Note 6) $129,158,919 $130,740,879 $130,770,765
Advances from Federal Home Loan Bank
(Note 7) 1,500,000 1,500,000 1,500,000
Advance payments by borrowers for taxes
and insurance 287,554 651,687 734,776
Due to broker 2,053,472 -- --
Accrued interest payable and other liabilities 2,621,979 856,393 492,677
------------ ------------ ------------
Total liabilities 135,621,924 133,748,959 133,498,218
Commitments and contingencies (Notes 12
and 13)
Equity
Retained earnings, substantially restricted
(Notes 10 and 11) 10,842,080 11,346,378 10,394,344
Net unrealized gain (loss) on securities
available-for-sale, net of income taxes
of $331,558, $339,457, and $(5,986) in 1996,
1995, and 1994, respectively (Note 2) 518,591 530,946 (15,393)
------------ ------------ ------------
Total equity 11,360,671 11,877,324 10,378,951
------------ ------------ ------------
Total liabilities and equity $146,982,595 $145,626,283 $143,877,169
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
HEMLOCK FEDERAL BANK FOR SAVINGS
STATEMENTS OF INCOME
Years ended December 31, 1995, 1994, and 1993
Nine months ended September 30, 1996 and 1995 (unaudited)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
----------------------- ------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income
Loans $3,008,033 $2,455,533 $3,382,711 $3,064,080 $3,147,221
Mortgage-backed securities 3,555,947 3,658,078 4,904,228 4,508,129 5,138,005
Securities 489,988 698,502 897,783 400,103 326,566
Other interest-earning assets 619,505 553,174 749,956 528,914 202,624
---------- ---------- ---------- ---------- ----------
Total interest income 7,673,473 7,365,287 9,934,678 8,501,226 8,814,416
Interest expense
Deposits 4,123,512 3,884,094 5,268,569 4,435,674 4,642,792
Other borrowings (Note 7) 111,643 110,508 147,749 236,928 305,186
---------- ---------- ---------- ---------- ----------
Total interest expense 4,235,155 3,994,602 5,416,318 4,672,602 4,947,978
---------- ---------- ---------- ---------- ----------
Net interest income 3,438,318 3,370,685 4,518,360 3,828,624 3,866,438
Provision for loan losses (Note 3) 75,000 121,500 133,470 150,000 148,786
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 3,363,318 3,249,185 4,384,890 3,678,624 3,717,652
Noninterest income
Fees and service charges 297,488 252,154 352,251 308,179 345,002
Rental income 32,480 28,560 39,173 68,715 48,025
Gain (loss) on sale of securities
(Note 2) (80,313) (160,680) (160,680) (89,099) 269,565
Miscellaneous income 71,075 77,938 106,517 95,579 64,403
---------- ---------- ---------- ---------- ----------
Total noninterest income 320,730 197,972 337,261 383,374 726,995
Noninterest expense
Compensation and employee
benefits (Notes 8 and 9) 1,293,264 1,195,947 1,634,726 1,536,264 1,420,636
Occupancy and equipment
expenses 510,930 450,632 637,172 515,217 681,266
Data processing 153,413 151,321 201,561 203,875 234,861
Federal insurance premiums 1,066,024 223,405 298,137 301,887 232,609
(Gain) loss on sale of real estate
owned, including provision for
losses -- (223,409) (223,409) -- 120,792
Advertising and promotion 86,916 82,696 124,001 94,148 86,343
Charitable foundation contribution 1,000,000 -- -- -- --
Other 418,182 400,821 538,759 528,093 536,157
---------- ---------- ---------- ---------- ----------
Total noninterest expense 4,528,729 2,281,413 3,210,947 3,179,484 3,312,664
---------- ---------- ---------- ---------- ----------
Income (loss) before provision
(benefit) for income taxes (844,681) 1,165,744 1,511,204 882,514 1,131,983
Provision (benefit) for income
taxes (Note 10) (340,383) 432,844 559,170 343,216 411,116
---------- ---------- ---------- ---------- ----------
Income before cumulative effect
of a change in accounting method (504,298) 732,900 952,034 539,298 720,867
Cumulative effect on prior years
of a change in accounting
method for income taxes -- -- -- -- 256,000
---------- ---------- ---------- ---------- ----------
Net income (loss) $(504,298) $732,900 $952,034 $539,298 $976,867
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
HEMLOCK FEDERAL BANK FOR SAVINGS
STATEMENTS OF CHANGES IN EQUITY
Years ended December 31, 1995, 1994, and 1993
Nine months ended September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Unrealized
Gains (Losses)
Retained on Securities
Earnings Available-for-Sale Total
-------- ------------------ -----
<S> <C> <C> <C>
Balance at January 1, 1993 $ 8,878,179 $ -- $ 8,878,179
Net income for the year ended
December 31, 1993 976,867 -- 976,867
----------- --------- -----------
Balance at December 31, 1993 9,855,046 -- 9,855,046
Effect of adopting SFAS No. 115,
as of January 1, 1994, net of
income tax of $161,220 (Note 2) -- 252,165 252,165
Net income for the year ended
December 31, 1994 539,298 -- 539,298
Decrease in unrealized gain on
securities available-for-sale, net
of income tax of $(167,206) -- (267,558) (267,558)
----------- --------- -----------
Balance at December 31, 1994 10,394,344 (15,393) 10,378,951
Net income for the year ended
December 31, 1995 952,034 -- 952,034
Reclassification of securities from,
held-to-maturity to available-
for-sale, net of tax of $54,498 (Note 2) -- 86,178 86,178
Change in unrealized gain (loss) on
securities available-for-sale, net of
income tax of $290,945 -- 460,161 460,161
----------- --------- -----------
Balance at December 31, 1995 11,346,378 530,946 11,877,324
Net loss for the nine months
ended September 30, 1996 (unaudited) (504,298) -- (504,298)
Change in unrealized gain (loss)
on securities available-for-sale,
net of income tax of $(7,899) -- (12,355) (12,355)
----------- --------- -----------
Balance at September 30, 1996 (unaudited) $10,842,080 $ 518,591 $11,360,671
=========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
HEMLOCK FEDERAL BANK FOR SAVINGS
STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994, and 1993
Nine months ended September 30, 1996 and 1995 (unaudited)
<TABLE>
<CAPTION>
Unaudited
September 30, December 31,
---------------------------- -------------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income (loss) $ (504,298) $ 732,900 $ 952,034 $ 539,298 $ 976,867
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities
Cumulative effect of a change
in accounting method -- -- -- -- (256,000)
Depreciation 115,830 100,039 133,588 158,146 178,357
Amortization of premiums
and discounts on investment
and mortgage-backed
securities, net 122,851 400,100 745,790 1,638,259 2,189,161
Net (gain) loss on sale of
securities 80,313 160,680 160,680 89,099 (269,565)
Provision for losses on
real estate owned -- -- -- -- 120,792
Provision for loan losses 75,000 121,500 133,470 150,000 148,786
FHLB stock dividends (51,600) (12,800) (12,800) -- --
Change in deferred income
taxes (702,527) 98,381 112,540 2,517 (67,484)
Gain on sale of REO -- (223,409) (223,409) -- --
(Increase) decrease in accrued
interest receivable 261,465 (202,816) (222,139) 110,391 196,642
Increase (decrease) in accrued
interest payable and other
liabilities 1,773,485 206,620 18,273 (119,225) (139,807)
Decrease in deferred loan fees (74,951) (52,896) (66,432) (33,200) (27,979)
(Increase) decrease in other
assets (122,357) (81,601) 233,228 (84,790) (1,303)
----------- ----------- ----------- ----------- -----------
Net cash provided by
operating activities 973,211 1,246,698 1,964,823 2,450,495 3,048,467
Cash flows from investing
activities
Purchase of securities
available-for-sale (21,283,935) (31,556,919) (39,682,993) (29,719,559) --
Proceeds from sales of
available-for-sale securities 2,919,688 4,913,964 4,913,964 4,914,990 --
Proceeds from sale of invest-
ment securities -- -- -- -- 7,900,762
Proceeds from sales of
securities held-to-maturity -- 575,152 575,152 -- --
Principal payments on
mortgage-backed securities
and collateralized mortgage
obligations 18,103,156 14,200,342 22,439,602 38,475,954 57,663,091
Purchase of securities held-
to-maturity -- (4,640,362) (5,109,961) (33,254,477) 64,113,570)
Proceeds from maturities of
securities 12,305,000 17,000,000 19,000,000 19,252,875 7,960,000
</TABLE>
(Continued)
F-6
<PAGE>
HEMLOCK FEDERAL BANK FOR SAVINGS
STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994, and 1993
Nine months ended September 30, 1996 and 1995 (Unaudited)
<TABLE>
<CAPTION>
Unaudited
September 30, December 31,
---------------------------- -------------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash flows from investing
activities (Continued)
Proceeds from redemption
of FHLB stock $ -- $ -- $ -- $ 154,200 $ --
Proceeds from sale of Federal
Home Loan Mortgage
Corporation stock -- -- -- -- 298,840
Net increase in loans (7,888,827) (6,165,208) (7,640,586) (734,594) (5,750,853)
Property and equipment
expenditures (107,359) (90,667) (95,686) (54,320) (13,893)
Real estate owned expenditures -- -- -- (56,955) --
Proceeds from sale of real estate
owned -- 223,409 223,409 473,292 40,460
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities 4,047,723 (5,540,289) (5,377,099) (548,594) 3,984,837
Cash flows from financing
activities
Net increase (decrease) in deposits (1,581,960) (199,910) (29,886) (1,811,876) 4,433,941
Increase (decrease) in advance
payments by borrowers for
taxes and insurance (364,133) 347,273 (83,089) 105,854 232,968
Repayment of FHLB advances -- -- -- (1,500,000) --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used
in) financing activities (1,946,093) 147,363 (112,975) (3,206,022) 4,666,909
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents 3,074,841 (4,146,228) (3,525,251) (1,304,121) 11,700,213
Cash and cash equivalents at
beginning of year 13,301,321 16,826,572 16,826,572 18,130,693 6,430,480
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at
end of year $16,376,162 $12,680,344 $13,301,321 $16,826,572 $18,130,693
=========== =========== =========== =========== ===========
Supplemental disclosures of cash
flow information
Cash paid during the year for
Interest $ 4,239,073 $ 3,970,772 $ 5,395,870 $ 4,668,130 $ 4,989,976
Income taxes 316,000 211,998 370,880 460,864 345,234
Supplemental schedule of noncash
investing activities
Transfer of loans to foreclosed
real estate -- -- -- -- 328,630
Transfer of debt securities to
available-for-sale from held-to-
maturity on December 31, 1995 -- -- 9,310,934 -- --
Transfer of debt securities on January 1, 1994 to:
Held-to-maturity -- -- -- 70,394,259 --
Available-for-sale -- -- -- 17,074,080 --
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
HEMLOCK FEDERAL BANK FOR SAVINGS
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994, and 1993
September 30, 1996 and 1995 (unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Hemlock Federal Bank for Savings (the Bank) is a
federally-chartered mutual savings bank and member of the Federal Home Loan Bank
(FHLB) system which maintains insurance on deposit accounts with the Savings
Association Insurance Fund (SAIF) of the Federal Deposit Insurance Corporation.
Basis of Presentation: The financial statements for the nine-month periods ended
September 30, 1996 and 1995 are unaudited, but in the opinion of management,
reflect all necessary adjustments consisting only of normal recurring items
necessary for fair presentation.
Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
Securities: Securities are classified as held-to-maturity when the Bank has the
positive intent and ability to hold those securities to maturity. Accordingly,
they are stated at cost, adjusted for amortization of premiums and accretion of
discounts. All other securities are classified as available-for-sale since the
Bank may decide to sell those securities in response to changes in market
interest rates, liquidity needs, changes in yields or alternative investments
and for other reasons. These securities are carried at fair value with
unrealized gains and losses charged or credited, net of income taxes, to a
valuation allowance included as a separate component of equity. Realized gains
and losses on disposition are based on the net proceeds and the adjusted
carrying amounts of the securities sold, using the specific identification
method.
Loans Receivable: Loans receivable are stated at unpaid principal balances, less
the allowance for loan losses, and deferred loan origination fees and discounts.
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is maintained. Increases to the allowance are recorded
by a provision for loan losses charged to expense. Estimating the risk of the
loss and the amount of loss on any loan is necessarily subjective. Accordingly,
the allowance is maintained by management at a level considered adequate to
cover losses that are currently anticipated based on past loss experience,
general economic conditions, information about specific borrower situations
including their financial position and collateral values, and other factors and
estimates which are subject to change over time. While management may
periodically allocate portions of the allowance for specific problem loan
situations, including impaired loans discussed below, the whole allowance is
available for any charge-offs that occur. Loans are charged off in whole or in
part when management's estimate of the undiscounted cash flows from the loan are
less than the recorded investment in the loan, although collection efforts
continue and future recoveries may occur.
(Continued)
F-8
<PAGE>
HEMLOCK FEDERAL BANK FOR SAVINGS
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994, and 1993
September 30, 1996 and 1995 (unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In May 1993, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" (SFAS No. 114). SFAS No. 114 (as modified by No. 118, effective for
the Bank beginning January 1, 1995) requires the measurement of impaired loans,
based on the present value of expected cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's observable
market price or the fair value of collateral if the loan is collateral
dependent. Under this standard, loans considered to be impaired are reduced to
the present value of expected future cash flows or to the fair value of
collateral, by allocating a portion of the allowance for loan losses to such
loans. If these allocations cause the allowance for loan losses to require
increase, such increase is reported as a provision for loan losses. The effect
of adopting the Statement was not material to the Bank's consolidated financial
position or results of operations during 1995.
Smaller balance homogenous loans are defined as residential first mortgage loans
secured by one-to-four family residences, residential construction loans, and
share loans and are evaluated collectively for impairment. Commercial real
estate loans are evaluated individually for impairment. Normal loan evaluation
procedures, as described in the second preceding paragraph, are used to identify
loans which must be evaluated for impairment. In general, loans classified as
doubtful or loss are considered impaired while loans classified as substandard
are individually evaluated for impairment. Depending on the relative size of the
credit relationship, late or insufficient payments of 30 to 90 days will cause
management to reevaluate the credit under its normal loan evaluation procedures.
While the factors which identify a credit for consideration for measurement of
impairment, or nonaccrual, are similar, the measurement considerations differ. A
loan is impaired when the economic value estimated to be received is less than
the value implied in the original credit agreement. A loan is placed in
nonaccrual when payments are more than 90 days past due unless the loan is
adequately collateralized and in the process of collection. Although impaired
loan and nonaccrual loan balances are measured differently, impaired loan
disclosures under SFAS Nos. 114 and 118 are not expected to differ significantly
from nonaccrual and renegotiated loan disclosures.
Recognition of Income on Loans: Interest on real estate and certain consumer
loans is accrued over the term of the loans based upon the principal balance
outstanding. Where serious doubt exists as to the collectibility of a loan, the
accrual of interest is discontinued. Under SFAS No. 114 as amended by SFAS No.
118, the carrying values of impaired loans are periodically adjusted to reflect
cash payments, revised estimates of future cash flows, and increases in the
present value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such. Other cash payments are
reported as reductions in carrying value, while increases or decreases due to
changes in estimates of future payments and due to the passage of time are
reported as adjustments to the provision for loan losses.
(Continued)
F-9
<PAGE>
HEMLOCK FEDERAL BANK FOR SAVINGS
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994, and 1993
September 30, 1996 and 1995 (unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loan fees, net of direct loan origination costs, are deferred and amortized over
the contractual life of the loan as a yield adjustment.
Real Estate Owned: Real estate owned represents property obtained through
foreclosure or in settlement of debt obligations and is carried at the lower of
cost (fair value at date of foreclosure) or fair value less estimated selling
expenses. Valuation allowances are recognized when the fair value less selling
expenses is less than the cost of the asset. Changes in the valuation allowance
are charged or credited to income.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the respective premises and equipment.
Maintenance and repairs are charged to expense as incurred and improvements
which extend the useful lives of assets are capitalized.
Income Taxes: Effective January 1, 1993, the Bank adopted Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes". The
adoption of SFAS No. 109 changed the Bank's method of accounting for income
taxes from the deferred method (APB 11) to an asset and liability approach.
Previously, the Bank deferred the past tax effects of timing differences between
financial reporting and taxable income. The asset and liability approach
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities, using enacted tax rates. The effect
of adopting SFAS No. 109 is shown as a cumulative effect of a change in
accounting principle in the 1993 statement of income in the amount of $256,000,
which represents the effect on prior years.
Statement of Cash Flows: Cash and cash equivalents include cash on hand, amounts
due from banks, and daily federal funds sold. The Bank reports net cash flows
for customer loan transactions and deposit transactions.
Reclassifications: Certain 1995, 1994 and 1993 items have been reclassified to
conform to the September 30, 1996 presentation.
NOTE 2 - SECURITIES
Effective January 1, 1994, the Bank adopted the provisions of Statement of
Financial Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain
Investments in Debt and Equity Securities". SFAS No. 115 requires corporations
to classify debt securities as either held-to-maturity, trading, or
available-for-sale. The net unrealized gain on securities available-for-sale at
January 1, 1994, due to the adoption of SFAS No. 115, is included as a separate
component in the statement of changes in equity and represents primarily the
effect of adjusting securities available-for-sale to fair value.
(Continued)
F-10
<PAGE>
HEMLOCK FEDERAL BANK FOR SAVINGS
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994, and 1993
September 30, 1996 and 1995 (unaudited)
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
September 30, 1996
(Unaudited)
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---- ----- -------- -----
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. government agencies $ 7,086,301 $ 18,912 $ (10,508) $ 7,094,705
FHLMC certificates 6,666,932 125,684 (13,714) 6,778,902
FHLMC stock 25,740 641,593 -- 667,333
FNMA certificates 9,069,834 133,064 (16,591) 9,186,307
Collateralized mortgage obligations 18,127,091 34,436 (62,727) 18,098,800
----------- ---------- --------- -----------
$40,975,898 $ 953,689 $(103,540) $41,826,047
=========== ========== ========== ===========
Securities held-to-maturity
GNMA certificates $ 3,252,685 $ 44,041 $ -- $ 3,296,726
FHLMC certificates 10,722,953 455,987 (16,350) 11,162,590
FNMA certificates 14,670,820 240,979 (27,877) 14,883,922
Collateralized mortgage obligations 3,213,008 26,793 (15,725) 3,224,076
----------- ---------- --------- -----------
$31,859,466 $ 767,800 $ (59,952) $32,567,314
=========== ========== =========== ===========
December 31, 1995
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---- ----- -------- -----
Securities available-for-sale
U.S. government agencies $13,132,845 $ 31,211 $ (38,945) $13,125,111
FHLMC certificates 7,176,085 239,152 (680) 7,414,557
FHLMC stock 25,740 523,022 -- 548,762
FNMA certificates 5,989,017 64,708 (3,913) 6,049,812
Collateralized mortgage obligations 12,099,513 69,016 (13,168) 12,155,361
----------- ---------- --------- -----------
$38,423,200 $ 927,109 $ (56,706) $39,293,603
=========== ========== ========== ===========
Securities held-to-maturity
U.S. government agencies $ 1,500,000 $ 4,667 $ -- $ 1,504,667
GNMA certificates 3,810,140 140,316 -- 3,950,456
FHLMC certificates 12,954,233 523,207 (5,499) 13,471,941
FNMA certificates 17,591,634 396,545 (2,113) 17,986,066
Collateralized mortgage obligations 8,749,758 89,175 (3,211) 8,835,722
----------- ---------- --------- -----------
$44,605,765 $1,153,910 $ (10,823) $45,748,852
=========== ========== ========== ===========
</TABLE>
(Continued)
F-11
<PAGE>
HEMLOCK FEDERAL BANK FOR SAVINGS
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994, and 1993
September 30, 1996 and 1995 (unaudited)
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
December 31, 1994
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---- ----- -------- -----
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. government agencies $ 7,978,316 $ 11,884 $ (56,045) $ 7,934,155
FHLMC stock 25,740 306,146 -- 331,886
FNMA certificates 1,102,336 -- (846) 1,101,490
Collateralized mortgage obligations 7,424,838 -- (282,518) 7,142,320
----------- ---------- ----------- -----------
$16,531,230 $ 318,030 $ (339,409) $16,509,851
=========== ========== =========== ===========
Securities held-to-maturity
U.S. government agencies $ 3,500,000 $ -- $ (89,500) $ 3,410,500
GNMA certificates 4,306,116 25,307 (154,434) 4,176,989
FHLMC certificates 19,083,742 101,767 (318,322) 18,867,187
FNMA certificates 24,323,450 30,674 (637,462) 23,716,662
Collateralized mortgage obligations 18,326,660 87,254 (560,572) 17,853,342
----------- ---------- ----------- -----------
$69,539,968 $ 245,002 $(1,760,290) $68,024,680
=========== ========== =========== ===========
</TABLE>
On December 31, 1995, the Bank reclassified a portion of its held-to-maturity
securities to available-for-sale in accordance with "A Guide to Implementation
of Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities", in order to improve the Bank's flexibility in meeting liquidity
needs. The amortized cost and unrealized gain on securities transferred to
available-for-sale were $9,310,934 and $140,676, respectively.
The amortized cost and estimated market value of debt securities at December 31,
1995 and September 30, 1996, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
(Unaudited)
September 30, 1996 December 31, 1995
--------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Securities available-for-sale
Due in one year or less $ 5,080,101 $ 5,089,535 $ 3,293,086 $ 3,293,528
Due after one year through
five years 2,006,200 2,005,170 7,834,456 7,821,685
Due after five years through
ten years -- -- 2,005,303 2,009,898
----------- ----------- ----------- -----------
7,086,301 7,094,705 13,132,845 13,125,111
FHLMC stock 25,740 667,333 25,740 548,762
Mortgage-backed securities and
collateralized mortgage obligations 33,863,855 34,064,009 25,264,615 25,619,730
----------- ----------- ----------- -----------
$40,975,896 $41,826,047 $38,423,200 $39,293,603
=========== =========== =========== ===========
</TABLE>
(Continued)
F-12
<PAGE>
HEMLOCK FEDERAL BANK FOR SAVINGS
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994, and 1993
September 30, 1996 and 1995 (unaudited)
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
(Unaudited)
September 30, 1996 December 31, 1995
--------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Securities held-to-maturity
Due after one year through
five years $ -- $ -- $ 1,500,000 $ 1,504,667
Mortgage-backed securities and
collateralized mortgage obligations 31,859,466 32,567,314 43,105,765 44,244,185
----------- ----------- ----------- -----------
$31,859,466 $32,567,314 $44,605,765 $45,748,852
=========== =========== =========== ===========
</TABLE>
At September 30, 1996, all of the Bank's mortgage-backed and related securities
were guaranteed or insured by quasi-governmental agencies (e.g. GNMA, FNMA,
FHLMC).
The carrying value of mortgage-backed securities and collateralized mortgage
obligations are net of unamortized premiums of $119,773, and unaccreted
discounts of $312,130 at September 30, 1996 (unaudited).
The carrying value of mortgage-backed securities and collateralized mortgage
obligations are net of unamortized premiums of $192,818, and unaccreted
discounts of $259,665 at December 31, 1995.
The carrying value of mortgage-backed securities and collateralized mortgage
obligations are net of unamortized premiums of $707,728 and unaccreted discounts
of $127,484 at December 31, 1994.
Sales of available-for-sale securities are summarized as follows:
(Unaudited)
For the nine months ended For the years ended
September 30, December 31,
------------------------- -------------------------
1996 1995 1995 1994
---- ---- ---- ----
Proceeds $2,919,688 $4,913,964 $4,913,964 $4,914,990
Gross gains -- -- -- --
Gross losses 80,313 156,726 156,726 89,099
Sales of held-to-maturity securities are summarized as follows:
1995
----
Proceeds $575,152
Gross gains 2,026
Gross losses 5,980
The Bank received proceeds of $7,900,762 on the sale of investment securities
for the year ended December 31, 1993. Gross gains and gross losses on those
sales were $303,632 and $34,067, respectively.
(Continued)
F-13
<PAGE>
HEMLOCK FEDERAL BANK FOR SAVINGS
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994, and 1993
September 30, 1996 and 1995 (unaudited)
NOTE 2 - SECURITIES (Continued)
On February 13, 1995, the Bank sold six securities classified as
held-to-maturity. These sales were permissible under the provisions of SFAS No.
115, since the securities had been paid down to less than 15% of the original
par value.
NOTE 3 - LOANS RECEIVABLE
Loans receivable consist of the following at:
<TABLE>
<CAPTION>
(Unaudited) December 31,
September 30, ---------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
First mortgage loans
Principal balances:
Secured by one-to-four family residences $47,742,823 $39,088,166 $30,791,642
Secured by multifamily 2,860,211 3,386,466 3,742,471
Secured by commercial real estate 585,594 1,101,429 1,565,654
----------- ----------- -----------
51,188,628 43,576,061 36,099,767
Less:
Loans in process 53,431 27,639 --
Net deferred loan origination fees 8,965 83,916 150,348
----------- ----------- -----------
Total first mortgage loans 51,126,232 43,464,506 35,949,419
Consumer and other loans
Principal balances:
Home equity loans 2,200,939 1,980,641 1,907,907
Loans on deposits 174,691 157,703 150,437
Automobile loans 289,109 229,258 119,923
----------- ----------- -----------
Total consumer and other loans 2,664,739 2,367,602 2,178,267
Less allowance for loan losses 670,085 600,000 469,126
----------- ----------- -----------
$53,120,886 $45,232,108 $37,658,560
=========== =========== ===========
</TABLE>
Nonaccrual and renegotiated loans totaled approximately $77,000 and $579,000 at
September 30, 1996 (unaudited) and December 31, 1995, respectively. The
approximate amounts of interest income that would have been recorded under the
original terms of such loans and the interest income actually recognized are
summarized below:
(Unaudited)
For the nine
months ended December 31,
September 30, ------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
Interest that would have
been recorded $ 5,800 $ 55,855 $ 60,972 $ 67,460
Interest income recognized (4,838) (50,057) (45,269) (995)
------- -------- -------- --------
Interest income forgone $ 962 $ 5,798 $ 15,703 $ 66,465
======= ======== ======== ========
(Continued)
F-14
<PAGE>
HEMLOCK FEDERAL BANK FOR SAVINGS
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994, and 1993
September 30, 1996 and 1995 (unaudited)
NOTE 3 - LOANS RECEIVABLE (Continued)
The Bank is not committed to lend additional funds to debtors whose loans have
been modified.
There were no impaired loans at September 30, 1996 (unaudited) or December 31,
1995.
Loans serviced for others consisted of approximately $2,018,144, $2,729,130,
$2,539,000, $3,165,000, and $4,206,984 at September 30, 1996 and 1995
(unaudited) and December 31, 1995, 1994, and 1993, respectively. These loans
were sold to the Federal Home Loan Mortgage Corporation.
The Bank's lending activities have been concentrated primarily in Cook County,
Illinois, where its main office is located. The largest portion of the Bank's
loans are originated for the purpose of enabling borrowers to purchase
residential real estate property secured by first liens on such property. At
December 31, 1995, approximately 85% of the Bank's loans were secured by
owner-occupied, one-to-four family residential property. The Bank requires
collateral on all loans and generally maintains loan-to-value ratios of 80% or
less.
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
(Unaudited)
For the nine months ended For the years ended
September 30, December 31,
--------------------- ----------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $600,000 $469,126 $469,126 $234,480 $497,365
Provision charged to income 75,000 121,500 133,470 150,000 148,786
Charge-offs (5,315) (2,596) (2,596) -- (412,143)
Recoveries 400 -- -- 84,646 472
-------- -------- -------- -------- --------
$670,085 $588,030 $600,000 $469,126 $234,480
======== ======== ======== ======== ========
</TABLE>
NOTE 4 - REAL ESTATE OWNED
Activity in the allowance for losses for foreclosed real estate for the years
ended December 31, 1994 and 1993 is summarized below:
1994 1993
---- ----
Balance at beginning of year $ 827,363 $713,461
Provision charged to income -- 120,792
Charge-offs, net of recoveries (827,363) (6,890)
--------- --------
Balance at end of year $ -- $827,363
========= ========
There was no activity during 1995 or 1996 (unaudited).
(Continued)
F-15
<PAGE>
HEMLOCK FEDERAL BANK FOR SAVINGS
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994, and 1993
September 30, 1996 and 1995 (unaudited)
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment consists of the following at:
(Unaudited) December 31,
September 30, -------------------------
1996 1995 1994
---- ---- ----
Land $ 76,730 $ 76,730 $ 76,730
Building and landscaping 1,464,915 1,521,237 1,532,684
Leasehold improvements -- -- 46,370
Furniture, fixtures, and equipment 440,374 509,260 564,561
---------- ---------- ----------
Total cost 1,982,019 2,107,227 2,220,345
Accumulated depreciation (946,084) (1,062,821) (1,138,037)
---------- ----------- ----------
$1,035,935 $1,044,406 $1,082,308
========== ========== ==========
NOTE 6 - DEPOSITS
Savings and certificate of deposit accounts with balances greater than $100,000
totaled $5,265,000 at September 30, 1996 (unaudited) and $6,532,000 and
$4,538,000 at December 31, 1995 and 1994, respectively. Deposits greater than
$100,000 are not insured.
At September 30, 1996 (unaudited), scheduled maturities of certificates of
deposit are as follows:
September 30, 1997 $49,799,929
September 30, 1998 9,273,901
September 30, 1999 3,653,814
September 30, 2000 1,989,064
September 30, 2001 and thereafter 509,167
-----------
$65,225,875
===========
At December 31, 1995, scheduled maturities of certificates of deposit are as
follows:
December 31, 1996 $46,869,103
December 31, 1997 10,832,895
December 31, 1998 3,908,872
December 31, 1999 1,625,498
December 31, 2000 and thereafter 1,431,110
-----------
$64,667,478
===========
(Continued)
F-16
<PAGE>
HEMLOCK FEDERAL BANK FOR SAVINGS
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994, and 1993
September 30, 1996 and 1995 (unaudited)
NOTE 6 - DEPOSITS (Continued)
Interest Expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
(Unaudited)
For the nine months ended For the years ended
September 30 December 31
------------------------ ------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Passbook savings $1,080,666 $1,082,307 $1,441,611 $1,371,690 $1,380,845
NOW and money market 372,455 391,204 518,766 497,957 538,427
Certificates of deposit 2,670,391 2,410,583 3,308,192 2,566,027 2,723,520
--------- --------- --------- --------- ---------
$4,123,512 3,884,094 5,268,569 4,435,674 4,642,792
========== ========= ========= ========= =========
</TABLE>
NOTE 7 - ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank of Chicago were as follows:
Interest (Unaudited)
Maturity Date Rate 1996 1995 1994
------------- ---- ---- ---- ----
August 19, 1997 9.72% $1,500,000 $1,500,000 $1,500,000
========== ========== ==========
Interest expense on advances was $111,643 and $110,508 at September 30, 1996 and
1995 (unaudited) and for the years ended December 31, 1995, 1994, and 1993 was
$147,749, $236,928, and $305,186, respectively.
The Bank maintains a collateral pledge agreement covering secured advances
whereby the Bank has agreed to at all times keep on hand, free of all other
pledges, liens, and encumbrances, whole first mortgage loans on improved
residential property not more than 90-days delinquent aggregating no less than
167% of the outstanding secured advances from the Federal Home Loan Bank of
Chicago.
NOTE 8 - EMPLOYEE PROFIT SHARING PLAN
An employee profit sharing plan was approved by the Board of Directors effective
January 1, 1985. The plan covers employees having over one year of service (one
thousand working hours) and who are at least 21 years of age. Contributions to
the profit sharing plan are determined and approved annually by the Bank's Board
of Directors. Contributions of $103,230 and $82,282 were approved and funded for
the nine months ended September 30, 1996 and 1995 (unaudited), respectively.
Contributions of $132,347, $114,885, and $106,117 were approved and funded for
the years ended December 31, 1995, 1994, and 1993, respectively.
F-17
<PAGE>
NOTE 9 - MONEY PURCHASE PLAN
A money purchase plan was approved by the Board of Directors effective January
1, 1993. The plan covers employees having over one year of service (one thousand
working hours) and who are at least 21 years of age. The Bank contributes an
amount equal to ten percent of participants' salaries. Contributions of $70,873
and $58,219 were funded for the nine months ended September 30, 1996 and 1995
(unaudited), respectively, and $90,863, $81,490, and $74,824 were funded for the
years ended December 31, 1995, 1994, and 1993, respectively.
NOTE 10 - INCOME TAXES
An analysis of the provision for income taxes consists of the following:
(Unaudited)
For the nine months ended For the years ended
September 30, December 31,
---------------------- ----------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
Current
Federal $ 330,793 $302,207 $413,908 $332,179 $420,600
State 31,351 32,256 32,722 8,520 58,000
Deferred (702,527) 98,381 112,540 2,517 (67,484)
--------- -------- -------- -------- --------
$(340,383) $432,844 $559,170 $343,216 $411,116
========= ======== ======== ======== ========
The provision for income taxes differs from that computed at the statutory
corporate tax rate as follows:
<TABLE>
<CAPTION>
(Unaudited)
For the nine months ended
September 30,
----------------------
1996 1995
---- ----
<S> <C> <C> <C> <C>
Provision for federal income taxes
computed at statutory rate of 34% $(287,192) (34.0)% $396,353 34.0%
State income taxes, net of federal
tax effect (63,370) (7.5) 21,289 1.8
Other 10,179 1.2 15,202 1.3
--------- ------ -------- -----
$(340,383) (40.3)% $432,844 37.1%
========= ====== ======== =====
</TABLE>
<TABLE>
<CAPTION>
For the years ended
-------------------
1995 1994 1993
---- ---- ----
Provision for federal income taxes
<S> <C> <C> <C> <C> <C> <C>
computed at statutory rate of 34% $513,809 34.0% $300,055 34.0% $384,874 34.0%
State income taxes, net of federal
tax effect 27,420 1.8 24,194 2.7 35,460 3.1
Other 17,941 1.2 18,967 2.2 (9,218) (0.8)
-------- ----- -------- ----- -------- -----
$559,170 37.0% $343,216 38.9% $411,116 36.3%
======== ===== ======== ===== ======== =====
</TABLE>
F-18
<PAGE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
(Unaudited) December 31,
September 30, ----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Charitable contributions $ 387,400 $ -- $ --
Special SAIF assessment 325,288 -- --
Unrealized loss on securities available-for-sale -- -- 5,986
Deferred loan fees -- 22,208 58,082
Loans, principally due to allowance for loan losses 134,495 107,344 181,701
Other -- -- 1,280
--------- --------- --------
Total deferred tax assets 847,183 129,552 247,049
Unrealized gain on securities available-for-sale (331,558) (339,457) --
Depreciation (42,139) (48,843) (57,782)
Federal Home Loan Bank stock dividends (62,372) (42,382) (37,423)
Deferred loan fees (6,827) -- --
Other -- (5,009) --
--------- --------- --------
Total deferred tax liabilities (442,896) (435,691) (95,205)
--------- --------- --------
Net deferred tax assets (liabilities) $ 404,287 $(306,139) $151,844
========= ========= ========
</TABLE>
NOTE 10 - INCOME TAXES (Continued)
Management has not recorded a valuation allowance based on taxes paid in prior
years.
The Bank has qualified under provisions of the Internal Revenue Code which
permit it to deduct from taxable income a provision for bad debts which differs
from the provision charged to income on the financial statements. Retained
earnings at September 30, 1996 (unaudited) and December 31, 1995 and 1994,
include approximately $3,114,000 for which no deferred federal income tax
liability has been recorded. Tax legislation passed in August 1996 now requires
all thrift institutions to deduct a provision for bad debts for tax purposes
based on actual loss experience and recapture the excess bad debt reserve
accumulated in the tax years after 1986. The related amount of deferred tax
liability which mush be recaptured is $126,000 and is payable over a six-year
period.
F-19
<PAGE>
NOTE 11 - REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier I
capital as defined in the regulations to risk-weighted assets as defined, and of
Tier I capital to average assets as defined. As of September 30, 1996
(unaudited), the most recent notification from the Office of Thrift Supervision
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk- based, Tier I risk-based, and Tier I leverage
ratios. There are no conditions or events since that notification that
management believes have changed the institution's category.
As of September 30, 1996 (unaudited), the Bank's total risk-based, Tier I
risk-based, and Tier I leverage ratios exceeded the regulatory minimums for
being considered well capitalized. The total risk-based capital ratio was 23.83%
and exceeded the well capitalized standard of 10.0% by approximately $6,828,000.
Tier I risk-based capital was 22.59% and was greater than the well capitalized
minimum of 6.0% by approximately $8,187,000. The Tier I leverage ratio was
7.63%, approximately $3,846,000 greater than the well capitalized minimum of
5.0%.
Current regulations also require savings institutions to have minimum regulatory
tangible capital equal to 1.5% of total assets, a core capital ratio of 3%, and
a risk-based capital ratio equal to 8% of risk-adjusted assets as defined by
regulation.
The following is a reconciliation of capital under generally accepted accounting
principles (GAAP) to regulatory capital at September 30, 1996 (unaudited) and
December 31, 1995 (in thousands).
F-20
<PAGE>
<TABLE>
<CAPTION>
September 30, 1996
(Unaudited)
-----------------------------------------------------------------------
% of % of Risk- % of Risk-
Tangible Tangible Core Tangible based adjusted
Capital Assets Capital Assets Capital Assets
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
GAAP capital $11,361 7.77% $11,361 7.77% $11,361 22.95%
Regulatory general
valuation allowances - - - - 619 1.25
Unrealized gain on
securities available-
for-sale (519) (0.36) (519) (0.36) (519) (1.05)
------- ----- ------- ----- ------- -----
Regulatory capital -
computed 10,842 7.41 10,842 7.41 11,461 23.15
Minimum capital
requirement 2,213 1.50 4,426 3.00 3,960 8.00
------- ----- ------- ----- ------- -----
Excess regulatory
capital over minimum $8,629 5.91% $ 6,416 4.41% $ 7,501 15.15%
====== ===== ======= ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------------------------
% of % of Risk- % of Risk-
Tangible Tangible Core Tangible based adjusted
Capital Assets Capital Assets Capital Assets
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
GAAP capital $11,877 8.13% $11,877 8.13% $11,877 25.65%
Regulatory general
valuation allowances -- -- -- -- 619 1.25
Unrealized gain on
securities available-
for-sale (531) (.36) (531) (.36) (531) (1.15)
------- ----- ------- ----- ------- -----
Regulatory capital -
computed 11,346 7.77 11,346 7.77 11,925 25.75
Minimum capital
requirement 2,191 1.50 4,382 3.00 3,704 8.00
------- ----- ------- ----- ------- -----
Excess regulatory
capital over minimum $9,155 6.27% $ 6,964 4.77% $ 8,221 17.75%
====== ===== ======= ===== ======= =====
</TABLE>
Accordingly, management considers the capital requirements to have been met.
FIRREA also includes restrictions on loans to one borrower, certain types of
investments and loans, loans to officers, directors, brokered deposits, and
transactions with affiliates. The Bank is in compliance with these restrictions.
F-21
<PAGE>
Federal regulations require the Bank to comply with a Qualified Thrift Lender
(QTL) test which requires that 65% of assets be maintained in housing-related
finance and other specified assets. If the QTL test is not met, limits are
placed on growth, branching, new investment, FHLB advances, and dividends, or
the institution must convert to a commercial bank charter. Management considers
the QTL test to have been met.
NOTE 12 - OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business of meeting the financing needs of its customers. These
financial instruments include commitments to fund loans and previously approved
unused lines of credit. The Bank's exposure to credit loss in the event of
nonperformance by the parties to these financial instruments is represented by
the contractual amount of the instruments. The Bank uses the same credit policy
for commitments as it uses for on-balance-sheet items. These financial
instruments are summarized as follows:
Contract Amount
----------------------------------
(Unaudited) December 31,
September 30, --------------------
1996 1995 1994
---- ---- ----
Financial instruments whose contract amounts
represent credit risk
Commitments to extend credit, including
loans in process $259,000 $615,000 $590,000
At September 30, 1996 (unaudited) and December 31, 1995 and 1994, commitments to
extend credit, including loans in process, consisted of $154,000, $615,000, and
$408,000, respectively, in fixed rate commitments. These commitments are due to
expire within 30 to 45 days of issuance and have rates ranging from 7.75% to
8.00% in 1996, 6.875% to 7.75% in 1995, and 8.75% to 9.375% in 1994.
Financial instruments which potentially subject the Bank to concentrations of
credit risk include interest-bearing deposit accounts in other financial
institutions and loans. At September 30, 1996 (unaudited) and December 31, 1995
and 1994, the Bank had deposit accounts with balances totaling approximately
$14,676,000, $10,039,000 and $13,915,000, respectively, at the Federal Home Loan
Bank of Chicago. Concentrations of loans are described in Note 3.
F-22
<PAGE>
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Bank is, from time to time, a party to certain lawsuits arising in the
ordinary course of its business. The Bank believes that none of these lawsuits
would, if adversely determined, have a material adverse effect on its financial
condition, results of operations, or capital.
At September 30, 1996 and December 31, 1995, the Bank was obligated under
noncancelable operating leases for office space. Net rent expenses under
operating leases, including the proportionate share of taxes, insurance, and
maintenance costs, were approximately $70,000 for both the nine months ended
September 30, 1996 and 1995 (unaudited) and $93,000, $91,280, and $78,677 for
the years ended December 31, 1995, 1994, and 1993, respectively. The leases
expire January 31, 1996 and April 1, 1997. Projected minimum rental payments
under the terms of the leases, not including taxes, insurance, and maintenance,
are as follows:
(Unaudited)
September 30, December 31,
1996 1995
---- ----
1996 $10,500 $47,415
1997 10,500 10,500
------- -------
$21,000 $57,915
======= =======
The deposits of savings associations such as the Bank are presently insured by
the Savings Association Insurance Fund (SAIF), which, along with the Bank
Insurance Fund (BIF), is one of the two insurance funds administered by the
Federal Deposit Insurance Corporation (FDIC). However, it is not anticipated
that SAIF will be adequately recapitalized until 2002, absent a substantial
increase in premium rates or the imposition of special assessments or other
significant developments, such as a merger of the SAIF and the BIF. Accordingly,
a recapitalization plan was signed into law on September 30, 1996 which provides
for a special assessment of an estimated .65% of all SAIF-insured deposit
balances as of March 31, 1995. The Bank's liability for the special assessment,
estimated to total approximately $514,000 (unaudited) net of taxes, was recorded
in the third quarter of 1996.
The Bank established the Hemlock Federal Bank for Savings Charitable Foundation,
Inc. (the Foundation). The Foundation is a not-for-profit corporation
incorporated in the state of Illinois. The Bank accrued a firm commitment to
make a $1,000,000 contribution during the quarter ended September 30, 1996
(unaudited).
F-23
<PAGE>
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The approximate carrying amount and estimated fair value of financial
instruments consist of the following:
<TABLE>
<CAPTION>
(In thousands)
(Unaudited)
September 30, 1996 December 31, 1995
----------------------- -----------------------
Approximate Approximate
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $16,376 $16,376 $13,301 $13,301
Securities 73,686 74,394 83,900 85,042
Loans, net of allowance for loan losses 53,121 52,741 45,232 46,338
Federal Home Loan Bank stock 901 901 849 849
Accrued interest receivable 845 845 1,107 1,107
Financial Liabilities
Interest-bearing demand deposits $(18,244) $(18,244) $(20,020) $(20,020)
Savings deposits (45,689) (45,689) (46,054) (46,054)
Time deposits (65,226) (65,284) (64,667) (64,841)
Advances from Federal Home
Loan Bank (1,500) (1,500) (1,500) (1,593)
Advance payments by borrowers
for taxes and insurance (288) (288) (652) (652)
Accrued interest payable (112) (112) (116) (116)
</TABLE>
For purposes of the above, the following assumptions were used:
Cash and Cash Equivalents: The estimated fair values for cash and cash
equivalents are based on their carrying values due to the short-term nature of
these assets.
Securities and Mortgage-backed Securities: The fair values of investment and
mortgage-backed securities are based on the quoted market value for the
individual security or its equivalent.
Loans: The estimated fair value for loans has been determined by calculating the
present value of future cash flows based on the current rate the Bank would
charge for similar loans with similar maturities, applied for an estimated time
period until the loan is assumed to be repriced or repaid.
F-24
<PAGE>
Deposit Liabilities: The estimated fair value for time deposits has been
determined by calculating the present value of future cash flows based on
estimates of rates the Bank would pay on such deposits, applied for the time
period until maturity. The estimated fair values of interest-bearing demand and
savings deposits are assumed to approximate their carrying values as management
establishes rates on these deposits at a level that approximates the local
market area. Additionally, these deposits can be withdrawn on demand.
Advances from Federal Home Loan Bank: The fair value of the Federal Home Loan
Bank advance was determined by calculating the present value of future cash
flows using the current rate for an advance with a similar length to maturity.
Accrued Interest: The fair values of accrued interest receivable and payable are
assumed to equal their carrying values.
Off-Balance-Sheet Instruments: Off-balance-sheet items consist principally of
unfunded loan commitments. The fair value of these commitments is not material.
Other assets and liabilities of the Bank not defined as financial instruments,
such as property and equipment, are not included in the above disclosures. Also
not included are nonfinancial instruments typically not recognized in financial
statements such as the value of core deposits, loan servicing rights, customer
goodwill, and similar items.
While the above estimates are based on management's judgment of the most
appropriate factors, there is no assurance that if the Bank disposed of these
items on September 30, 1996 or December 31, 1995, the fair value would have been
achieved, because the market value may differ depending on the circumstances.
The estimated fair values at September 30, 1996 and December 31, 1995 should not
necessarily be considered to apply at subsequent dates.
NOTE 15 - ADOPTION OF PLAN OF CONVERSION (UNAUDITED)
On September 10, 1996, the Board of Directors of the Bank, subject to regulatory
approval and approval by the members of the Bank, adopted a Plan of Conversion
to convert from a federal mutual savings bank to a federal stock savings bank
with the concurrent formation of a holding company and the adoption of a federal
thrift charger. The conversion is expected to be accomplished through the
amendment of the Bank's charter and the sale of the holding company's common
stock in an amount equal to the consolidated pro forma market value of the
holding company and the Bank after giving effect to the conversion. A
subscription offering of the shares of common stock will be offered initially to
the Bank's eligible deposit account holders, then to other members of the Bank.
Any shares of the holding company's common stock not sold in the subscription
offering will be offered for sale to the general public, giving preference to
the Bank's market area.
F-25
<PAGE>
The Board of Directors of the Bank or the holding company intend to adopt an
Employee Stock Ownership Plan and various stock option and incentive plans,
subject to ratification by the stockholders of the holding company after
conversion, if such stockholder approval is required by any regulatory body
having jurisdiction to require such approval. In addition, the Board of
Directors is authorized to enter into employment contracts with key employees.
At the time of conversion, the Bank will establish a liquidation account in an
amount equal to its total net worth as of the latest statement of financial
condition appearing in the final prospectus. The liquidation account will be
maintained for the benefit of eligible depositors who continue to maintain their
accounts at the Bank after the conversion. The liquidation account will be
reduced annually to the extent that eligible depositors have reduced their
qualifying deposits. Subsequent increases will not restore an eligible account
holder's interest in the liquidation account. In the event of a complete
liquidation, each eligible depositor will be entitled to receive a distribution
from the liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held. The liquidation account balance is
not available for payment of dividends.
Conversion costs will be deferred and deducted from the proceeds of the shares
sold in the conversion. If the conversion is not completed, all costs will be
charged to expense. At September 30, 1996, $26,000 has been deferred.
F-26
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representation other than as contained in this Prospectus in connection with the
offering made hereby, and, if given or made, such other information or
representation must not be relied upon as having been authorized by the Holding
Company or the Bank. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby to any
person in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so, or to any person to whom it is unlawful to make such offer or solicitation
in such jurisdiction. Neither the delivery of this Prospectus nor any sale
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Holding Company or the Bank since any of
the dates as of which information is furnished herein or since the date hereof.
--------------
TABLE OF CONTENTS
Page
----
Prospectus Summary........................................ 4
Selected Financial Information............................ 15
Recent Financial Data..................................... 18
Hemlock Federal Financial Corporation..................... 24
Hemlock Federal........................................... 24
Use of Proceeds........................................... 25
Dividends................................................. 26
Market for Common Stock................................... 27
Pro Forma Data............................................ 27
Pro Forma Regulatory Capital Analysis..................... 32
Capitalization............................................ 33
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 34
Business ................................................. 48
Regulation................................................ 78
Management ............................................... 90
The Conversion............................................ 101
Restrictions on Acquisitions of Stock and Related
Takeover Defensive Provisions.......................... 121
Description of Capital Stock.............................. 127
Legal and Tax Matters..................................... 129
Experts................................................... 129
Additional Information.................................... 129
Index to Financial Statements............................. F-1
Until the later of ________, 1997 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.
================================================================================
================================================================================
1,805,500 Shares
HEMLOCK FEDERAL FINANCIAL
CORPORATION
(Proposed Holding Company for Hemlock Federal Bank for Savings)
COMMON STOCK
______________
PROSPECTUS
______________
CHARLES WEBB & COMPANY
A Division of Keefe, Bruyette & Woods, Inc.
______________, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Set forth below is an estimate of the amount of fees and expenses (other
than underwriting discounts and coimmissions) to be incurred in connection with
the issuance of the shares.
SEC registration fees.............................................. $ 6,292
NASD fee........................................................... 2,576
Nasdaq registration fee............................................ 15,382
OTS filing fees.................................................... 8,400
Counsel fees and expenses.......................................... 105,000
Accounting fees and expenses....................................... 75,000
Appraisal and business plan fees and expenses...................... 40,000
Conversion agent fees and expenses................................. 15,000
Marketing agent's expenses......................................... 20,000
Marketing agent's counsel fees and expenses........................ 25,000
Printing, postage and mailing...................................... 50,000
Blue sky fees and expenses......................................... 5,000
Other expenses..................................................... 7,350
-----
TOTAL......................................................... $ 375,000
=======
- -------------------
(1) Based on maximum of Estimated Valuation Range and assumptions set forth
under "Pro Forma Data" in the Prospectus.
Item 14. Indemnification of Directors and Officers
Article Eleventh of the Holding Company's Certificate of Incorporation
provides for indemnification of directors and officers of the Holding Company
against any and all liabilities, judgments, fines and reasonable settlements,
costs, expenses and attorneys' fees incurred in any actual, threatened or
potential proceeding, except to the extent that such indemnification is limited
by Delaware law and such law cannot be varied by contract or bylaw. Article
Eleventh also provides for the authority to purchase insurance with respect
thereto.
Section 145 of the General Corporation Law of the State of Delaware
authorizes a corporation's Board of Directors to grant indemnity under certain
circumstances to directors and officers, when made, or threatened to be made,
parties to certain proceedings by reason of such status with the corporation,
against judgments, fines, settlements and expenses, including
II-1
<PAGE>
attorneys' fees. In addition, under certain circumstances such persons may be
indemnified against expenses actually and reasonably incurred in defense of a
proceeding by or on behalf of the corporation. Similarly, the corporation, under
certain circumstances, is authorized to indemnify directors and officers of
other corporations or enterprises who are serving as such at the request of the
corporation, when such persons are made, or threatened to be made, parties to
certain proceedings by reason of such status, against judgments, fines,
settlements and expenses, including attorneys' fees; and under certain
circumstances, such persons may be indemnified against expenses actually and
reasonably incurred in connection with the defense or settlement of a proceeding
by or in the right of such other corporation or enterprise. Indemnification is
permitted where such person (i) was acting in good faith; (ii) was acting in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation or other corporation or enterprise, as appropriate; (iii) with
respect to a criminal proceeding, has no reasonable cause to believe his conduct
was unlawful; and (iv) was not adjudged to be liable to the corporation or other
corporation or enterprise (unless the court where the proceeding was brought
determines that such person is fairly and reasonably entitled to indemnity).
Unless ordered by a court, indemnification may be made only following a
determination that such indemnification is permissible because the person being
indemnified has met the requisite standard of conduct. Such determination may be
made (i) by the Board of Directors of the Holding Company by a majority vote of
a quorum consisting of directors not at the time parties to such proceeding; or
(ii) if such a quorum cannot be obtained or the quorum so directs, then by
independent legal counsel in a written opinion; or (iii) by the stockholders.
Section 145 also permits expenses incurred by directors and officers in
defending a proceeding to be paid by the corporation in advance of the final
disposition of such proceedings upon the receipt of an undertaking by the
director or officer to repay such amount if it is ultimately determined that he
is not entitled to be indemnified by the corporation against such expenses.
Item 15. Recent Sales of Unregistered Securities
The Registrant is newly incorporated, solely for the purpose of acting as
the holding company of Hemlock Federal Bank for Savings pursuant to the Plan of
Conversion (filed as Exhibit 2 herein), and no sales of its securities have
occurred to date.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
(a) Exhibits:
<S> <C>
1.1 Letter Agreement regarding marketing and consulting services*
1.2 Form of Agency Agreement
2 Plan of Conversion*
3.1 Certificate of Incorporation of the Holding Company*
3.2 Bylaws of the Holding Company*
3.3 Charter of Hemlock Federal in stock form
3.4 Bylaws of Hemlock Federal in stock form
4 Form of Stock Certificate of the Holding Company*
5 Opinion of Silver, Freedman & Taff, L.L.P. with respect to legality of stock*
8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal income
tax consequences of the Conversion
8.2 Opinion of Crowe, Chizek and Company LLP with respect to Illinois income
tax consequences of the Conversion
8.3 Opinion of Keller & Company, Inc. with respect to Subscription Rights*
10.1 Form of Proposed Stock Option and Incentive Plan*
10.2 Form of Employment Agreement with Maureen G. Partynski
10.3 Form of Employment Agreement with Michael R. Stevens
10.4 Form of Change-In-Control Severance Agreement with Rosanne Pastorek-
Belczak
10.5 Form of Change-In-Control Severance Agreement with Jean M. Thornton
10.6 Form of Change-In-Control Severance Agreement with Robert Upton
10.7 Employee Stock Ownership Plan*
10.8 Form of Proposed Recognition and Retention Plan
10.9 Hemlock Federal's Defined Contribution Plan and Trust
22 Subsidiaries*
24.1 Consent of Silver, Freedman & Taff, L.L.P.
24.2 Consent of Crowe, Chizek and Company LLP
24.3 Consent of Keller & Company, Inc.*
25 Power of Attorney (set forth on signature page)
99.1 Appraisal
99.2 Proxy Statement and form of proxy to be furnished to Hemlock Federal
account holders*
99.3 Stock Order Form and Order Form Instructions*
99.4 Certification*
99.5 Question and Answer Brochure
99.6 Advertising, Training and Community Informational Meeting Materials*
<FN>
* Previously filed.
</FN>
</TABLE>
II-3
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and it will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant
II-4
<PAGE>
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Oak Forest, Illinois on
February __, 1997.
HEMLOCK FEDERAL FINANCIAL CORPORATION
By: /s/ Maureen G. Partynski
------------------------
Maureen G. Partynski,
Chairman of the Board and
Chief Executive Officer
(Duly Authorized
Representative)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Maureen G. Partynski or Michael R. Stevens his
true and lawful attorney-in-fact and agent, with full power of substitution and
re-substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming said attorney-in-fact and agent or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ Maureen G. Partynski /s/ Michael R. Stevens
- ------------------------------------- -----------------------------
Maureen G. Partynski, Chairman of the Michael R. Stevens,
Board and Chief Executive Officer President and Director
(Principal Executive and Operating Officer)
Date: February __, 1997 Date: February __, 1997
II-6
<PAGE>
/s/ Rosanne Pastorek-Belczak /s/ Frank A. Bucz
- ----------------------------------------- ---------------------------------
Rosanne Pastorek-Belczak, Vice President, Frank A. Bucz, Auditor/Consultant
Secretary and Director and Director
Date: February __, 1997 Date: February __, 1997
/s/ Kenneth J. Bazarnik /s/ Charles Gjondla
- ----------------------------- -------------------------
Kenneth J. Bazarnik, Director Charles Gjondla, Director
Date: February __, 1997 Date: February __, 1997
/s/ G. Gerald Schiera /s/ Jean M. Thornton
- --------------------------- ---------------------------------
G. Gerald Schiera, Director Jean M. Thornton, Vice President
and Controller/Treasurer
(Principal Financial and
Accounting Officer:
Date: February __, 1997 Date: February __, 1997
II-7
<PAGE>
As filed with the Securities and Exchange Commission on February __, 1997
Registration No. 333-18895
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
EXHIBITS TO THE
PRE-EFFECTIVE AMENDMENT NO. ONE TO THE
FORM S-1
UNDER
THE SECURITIES ACT OF 1933
HEMLOCK FEDERAL FINANCIAL CORPORATION
5700 West 159th Street
Oak Forest, Illinois 60452-3198
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits:
<S> <C>
1.1 Letter Agreement regarding marketing and consulting services*
1.2 Form of Agency Agreement
2 Plan of Conversion*
3.1 Certificate of Incorporation of the Holding Company*
3.2 Bylaws of the Holding Company*
3.3 Charter of Hemlock Federal in stock form
3.4 Bylaws of Hemlock Federal in stock form
4 Form of Stock Certificate of the Holding Company*
5 Opinion of Silver, Freedman & Taff, L.L.P. with Respect to Legality of Stock*
8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal income tax
consequences of the Conversion
8.2 Opinion of Crowe, Chizek and Company LLP with respect to Illinois income tax
consequences of the Conversion
8.3 Opinion of Keller & Company, Inc. with respect to Subscription Rights*
10.1 Form of Proposed Stock Option and Incentive Plan*
10.2 Form of Employment Agreement with Maureen G. Partynski
10.3 Form of Employment Agreement with Michael R. Stevens
10.4 Form of Change-In-Control Severance Agreement with Rosanne Pastorek-Belczak
10.5 Form of Change-In-Control Severance Agreement with Jean M. Thornton
10.6 Form of Change-In-Control Severance Agreement with Robert Upton
10.7 Employee Stock Ownership Plan*
10.8 Form of Proposed Recognition and Retention Plan
10.9 Hemlock Federal's Defined Contribution Plan and Trust
22 Subsidiaries*
24.1 Consent of Silver, Freedman & Taff, L.L.P.
24.2 Consent of Crowe, Chizek and Company LLP
24.3 Consent of Keller & Company, Inc.*
25 Power of Attorney (set forth on signature page)
99.1 Appraisal
99.2 Proxy Statement and form of proxy to be furnished to Hemlock Federal account
holders*
99.3 Stock Order Form and Order Form Instructions*
99.4 Certification*
99.5 Question and Answer Brochure
99.6 Advertising, Training and Community Informational Meeting Materials*
<FN>
* Previously Filed.
</FN>
</TABLE>
HEMLOCK FEDERAL FINANCIAL CORPORATION
(a Delaware Corporation)
1,805,500 Shares
(Subject to Increase up to 2,076,325 Shares)
COMMON STOCK ($.01 Par Value)
Subscription Price $10.00 Per Share
AGENCY AGREEMENT
----------------
__________ __, 1997
Charles Webb & Company
211 Bradenton Avenue
Dublin, Ohio 43017
Ladies and Gentlemen:
Hemlock Federal Financial Corporation (the "Holding Company") and
Hemlock Federal Bank for Savings (the "Bank") hereby confirm their agreement
with Charles Webb & Company ("Webb" or the "Agent"), a Division of Keefe,
Bryette & Woods, Inc., as follows:
Section 1. The Offering. The Holding Company is offering up to
1,805,500 shares of common stock, par value $.01 per share (the "Common Stock")
(subject to an increase up to 2,076,325 shares), in a concurrent subscription
offering (the "Subscription Offering") and community offering (the "Community
Offering") (together the "Subscription and Community Offering") in connection
with the conversion of the Bank from a federally chartered mutual savings bank
to a federally chartered stock savings bank and the issuance of all of the
Bank's outstanding common stock to the Holding Company (the "Conversion")
pursuant to the Bank's plan of conversion (the "Plan"). Non-transferable rights
to subscribe for the Common Stock ("Subscription Rights") will be granted, in
the following priority in the Subscription Offering: (1) the Bank's depositors
with account balances of $50.00 or more as of June 30, 1995 ("Eligible Account
Holders"); (2) tax-qualified employee benefit plans of the Bank and the Holding
Company ("Tax-Qualified Employee Plans"); (3) the Bank's depositors with account
balances of $50.00 or more as of December 31, 1996 ("Supplemental Eligible
Account Holders"); (4) members and certain borrowers of the Bank at the close of
business on ____________; and (5) employees, officers and directors of the Bank.
The Holding Company will issue such number of shares of its Common Stock upon
the Conversion as is subscribed for, up to 1,805,500 shares (the "Shares")
(subject to increase up to 2,076,325 shares) at a purchase price of $10.00 per
share (the "Purchase Price"). The Holding Company is simultaneously offering all
shares of Common Stock not subscribed for in the Subscription Offering, if any,
in a direct Community
1
<PAGE>
Offering to members of the general public. Depending on market conditions,
shares may be offered in the Community Offering by approved broker-dealer firms
which are members of the National Association of Securities Dealers, Inc.
("NASD") ("Assisting Brokers"). If the number of Shares is increased or
decreased in accordance with the Plan, the term "Shares" shall mean such greater
or lesser number, where applicable.
The Holding Company has filed with the U.S. Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-1 (File No.
333-18895) containing a prospectus relating to the Subscription and Community
Offering for the registration of the Shares under the Securities Act of 1933, as
amended (the "1933 Act"), and has filed such amendments thereto as have been
required to the date hereof (the "Registration Statement"). The prospectus, as
amended, included in the Registration Statement at the time it initially became
effective is hereinafter called the "Prospectus," except that if any prospectus
is filed by the Holding Company pursuant to Rule 424(b) or (c) of the
regulations of the Commission under the 1933 Act differing from the prospectus
included in the Registration Statement at the time it initially becomes
effective, the term "Prospectus" shall refer to the prospectus filed pursuant to
Rule 424(b) or (c) from and after the time said prospectus is filed with the
Commission and shall include any supplements and amendments thereto from and
after their dates of effectiveness or use, respectively.
The Bank has filed with the Office of Thrift Supervision, Department of
the Treasury (the "OTS") pursuant to Title 12, Part 563b of the Code of Federal
Regulations (the "Conversion Regulations") an Application for Conversion on Form
AC, including the Prospectus, and has filed amendments thereto as required by
the OTS (as so amended, the "Application"). The Application has been approved by
the OTS. The Holding Company has filed with the OTS its application on Form
H-(e)1-S (the "Holding Company Application") to acquire the Bank under the Home
Owners Loan Act, as amended, and the regulations promulgated thereunder
("HOLA").
Section 2. Appointment of the Agent. Subject to the terms and
conditions of this Agreement, the Holding Company and the Bank hereby appoint
Webb as their financial advisor and marketing agent to utilize its best efforts
to solicit subscriptions for Shares of the Company's Common Stock and to advise
and assist the Company and the Bank with respect to the Company's sale of the
Shares in the Offering.
On the basis of the representations and warranties and subject to the
terms and conditions of this Agreement, the Agent accepts such appointment and
agrees to consult with and advise the Company and the Bank as to the matters set
forth in the letter agreement ("Letter Agreement"), dated September 2, 1996,
between the Bank and Webb (a copy of which is attached hereto as Exhibit A). It
is acknowledged by the Holding Company and the Bank that the Agent shall not be
obligated to purchase any Shares
2
<PAGE>
and shall not be obligated to take any action which is inconsistent with any
applicable law, regulation, decision or order. Subscriptions will be offered by
means of Order Forms as described in the Prospectus. Except as provided in the
paragraph below, the appointment of the Agent hereunder shall terminate upon
completion of the Subscription and Community Offering.
Webb agrees to act as financial advisor to the Bank and the Holding
Company for a period of one year following the consummation of the Conversion
for no additional fee to render general advice on financial matters, including
dividend policy, and share repurchase programs, assistance with shareholder
reporting and shareholder relations matters, general advice on mergers and
acquisitions, and other related financial matters which are brought to the
attention of the Bank or the Holding Company. Thereafter, if the parties wish to
continue the relationship, a fee will be negotiated and an agreement with
respect to specific advisory services will be entered into at that time. Should
discussions commence for a specific acquisition transaction by, or a sale of,
the Bank or the Holding Company during the period in which the Agent is acting
as financial advisor to the Bank and the Holding Company, the general financial
advisory relationship as set forth in this paragraph will terminate with respect
to the specific transaction. If the Bank or the Holding Company and the Agent
wish to have the Agent initiate, negotiate and/or process a specific
transaction, an appropriate fee will be negotiated at that time.
Section 3. Refund of Purchase Price. In the event that the Conversion
is not consummated for any reason, including but not limited to the inability to
sell the Common Stock during the Subscription and Community Offering (including
any permitted extension thereof), this Agreement shall terminate and any persons
who have subscribed for any of the shares of Common Stock shall have refunded to
them the full amount which has been received from such person, together with
interest at the Bank's current passbook rate, from the date payment is received
as provided in the Prospectus. Upon termination of this Agreement, neither the
Agent nor the Bank and the Holding Company shall have any obligation to the
other except that (i) the Holding Company and the Bank, as applicable, shall
remain liable for any amounts due pursuant to Sections 4(a), 8, 10 and 11
hereof, unless the transaction is not consummated due to the breach by the Agent
of a warranty, representation or covenant; and (ii) the Agent shall remain
liable for any amount due pursuant to Sections 10 and 11 hereof, unless the
transaction is not consummated due to the breach by the Holding Company or Bank
of a warranty, representation or covenant.
Section 4. Fees. In addition to the expenses specified in Section 8
hereof, as compensation for the Agent's services as agents under this Agreement,
the Agent will receive the following fees from the Holding Company and the Bank.
3
<PAGE>
(a) A management fee to Webb in the amount of $25,000 payable
in four consecutive monthly installments of $6,250, commencing with the
signing of the Letter Agreement. Such fees shall be deemed to be earned
when due. Should the Conversion be terminated for any reason not
attributable to the action or inaction of the Agent, the Agent shall
have earned and be entitled to be paid fees accruing through the stage
at which point the termination occurred.
(b) A fee of 1.5% of the aggregate Purchase Price of the
Shares sold in the Subscription Offering and the Community Offering,
excluding those shares purchased by the Bank's officers, directors or
employees (or members of their immediate families) or by any
Tax-Qualified Employee Plan (except IRA's) created by the Bank or
Holding Company for some or all of its directors or employees.
(c) Should an extension of the Subscription and Community
Offering period be required, the Agent shall be paid a ____% marketing
fee of the aggregate Purchase Price of the shares sold during any
extension of the Offering, other than those shares sold pursuant to
paragraph 4(d).
(d) A fee not to exceed 5.5% of the aggregate Purchase Price
of the Shares sold by Assisting Brokers in any extension of the
Offerings and the Agent will pay Assisting Brokers which assisted in
the subscription or purchase of Shares in the Syndicated Community
Offering, a fee competitive with gross underwriting discounts charged
at such time for comparable amounts of stock sold at a comparable price
per share in a similar market environment. The decision to utilize
Assisting Brokers will be made jointly by the Agent on the one hand,
and the Bank and the Holding Company, on the other hand. In the event,
with respect to any stock purchases, fees are paid pursuant to this
subsection (d), such fees shall be paid in lieu of, and not in addition
to, payments to the Agent pursuant to subsection (b).
The fees specified in subsections (b), (c) and (d) shall be payable in
same-day funds on the Closing Date.
Section 5. Closing. If the minimum number of the shares of Common Stock
permitted to be sold-in the Conversion on the basis of the most recent updated
Conversion appraisal are subscribed for at or before the termination of the
Subscription and Community Offering and the other conditions to the completion
of the Conversion are satisfied, the Holding Company agrees to issue on the
Closing Date the shares of Common Stock which have been sold against payment
therefor from the escrow or other accounts maintained for the subscribers as set
forth in the Plan and to deliver certificates evidencing ownership of such
shares of Common Stock in such authorized denominations and registered in such
names as may be indicated on the subscription Order Forms directly to the
purchasers thereof as promptly as practicable
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after the Closing Date. The Closing shall be held at the offices of counsel to
the Holding Company, or at such other place as shall be agreed upon among the
Holding Company, the Bank and the Agent at 10:00 a.m. on a business day selected
by the Holding Company which business day shall be no less than two business
days following the giving of prior notice by the Holding Company to the Agent or
at such other time as shall be agreed upon by the Holding Company, the Bank and
the Agent. At the Closing, the Bank and the Holding Company shall deliver to the
Agent in same- day funds the commissions, fees and expenses owing to the Agent
as set forth in Sections 4 and 8 hereof and the opinions required hereby and
other documents deemed reasonably necessary by the Agent shall be executed and
delivered to effect the sale of the shares as contemplated hereby and pursuant
to the terms of the Prospectus. The Holding Company shall notify the Agent by
telephone, confirmed in writing, when funds shall have been received for the
minimum number of shares of the Common Stock. The date upon which the Holding
Company shall release the Shares for delivery in accordance with the terms
hereof is referred to herein as the "Closing Date."
Section 6.A. Representations and Warranties of the Holding Company and
the Bank. The Holding Company and the Bank jointly and severally represent and
warrant to the Agent that:
(a) The Holding Company and the Bank have all such power,
authority, authorizations, approvals and orders as may be required to
enter into this Agreement, to carry out the provisions and conditions
hereof and to issue and sell the capital stock of the Bank to the
Holding Company and the Shares to be sold by the Holding Company as
provided herein and as described in the Prospectus. The consummation of
the Conversion, the execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated
have been duly and validly authorized by all necessary corporate action
on the part of the Holding Company and the Bank and this Agreement has
been validly executed and delivered by the Holding Company and the Bank
and is the valid, legal and binding agreement of the Holding Company
and the Bank enforceable in accordance with its terms, except to the
extent, if any, that the provisions of Sections 10 and 11 hereof may be
unenforceable as against public policy, and except to the extent that
such enforceability may be limited by bankruptcy laws, insolvency laws,
or other laws affecting the enforcement of creditors' rights generally,
or the rights of creditors of savings institutions insured by the FDIC
(including the laws relating to the rights of the contracting parties
to equitable remedies).
(b) As of the Closing Date, the Bank shall have completed all
conditions precedent to the Conversion in accordance with the Plan and
shall have complied in all material respects with applicable laws,
regulations (except as modified or waived in writing by the OTS),
decisions and orders, including all terms, conditions, requirements and
provisions precedent to
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the Conversion imposed upon it by the OTS as set forth in
correspondence received from the OTS. The Plan has been approved by the
OTS, and to the best knowledge of the Bank, no person has challenged or
sought to obtain judicial review of the actions of the OTS in approving
the Conversion pursuant to Section 5(i)(2)(B) of the HOLA or any other
statute or regulation.
(c) The Registration Statement was declared effective by the
Commission on __________, 1997; and no stop order has been issued with
respect thereto and no proceedings therefor have been initiated or to
the best knowledge of the Bank threatened by the Commission. At the
time the Registration Statement, including the Prospectus contained
therein (including any amendment or supplement thereto), became
effective, the Registration Statement complied as to form in all
material respects with the requirements of the 1933 Act and the
regulations promulgated thereunder and the Registration Statement
including the Prospectus contained therein (including any amendment or
supplement thereto), any Blue Sky Application or any Sales Information
(as such terms are defined in Section 10 hereof) authorized by the
Holding Company or the Bank for use in connection with the Subscription
and Community Offering did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and at the
time any Rule 424(b) or (c) Prospectus was filed with or mailed to the
Commission for filing and at the Closing Date referred to in Section 5,
the Registration Statement including the Prospectus contained therein
(including any amendment or supplement thereto) and any Blue Sky
Application or any Sales Information authorized by the Holding Company
or the Bank for use in connection with the Subscription and Community
Offering will not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the representations and warranties
in this Section 6A shall not apply to statements or omissions made in
reliance upon and in conformity with written information furnished to
the Holding Company or the Bank by the Agent expressly regarding the
Agent for use under the caption "The Conversion - Marketing
Arrangements" or written statements or omissions from any sales
information or information filed pursuant to state securities or blue
sky laws or regulations regarding the Agent.
(d) The Application, including the Prospectus, was approved by
the OTS on __________, 1997; and the Proxy Statement of the Bank and
the Prospectus have been approved for use by the OTS. At the time of
the approval of the Application, including the Prospectus, by the OTS
(including any amendment or supplement thereto) and at all times
subsequent thereto until the Closing Date, the Application, including
the Prospectus, will comply as to form in all material respects with
the Conversion Regulations
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and any other applicable rules and regulations of the OTS (except as
modified or waived in writing by the OTS). The Application, including
the Prospectus (including any amendment or supplement thereto), does
not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that representations or
warranties in this subsection (d) shall not apply to statements or
omissions made in reliance upon and in conformity with written
information furnished to the Bank by the Agent expressly regarding the
Agent for use in the Prospectus contained in the Application under the
caption "The Conversion -- Marketing Arrangements" or written
statements or omissions from any sales information or information filed
pursuant to state securities or blue sky laws or regulations regarding
the Agent.
(e) No order has been issued by the OTS, the Commission or the
FDIC (and hereinafter reference to the FDIC shall include the SAIF), or
any state regulatory authority, preventing or suspending the use of the
Prospectus and no action by or before any such government entity to
revoke any approval, authorization or order of effectiveness related to
the Conversion is, to the best knowledge of the Bank or the Holding
Company, pending or threatened.
(f) At the Closing Date, the Plan will have been adopted by
the Board of Directors of both the Holding Company and the Bank, the
Holding Company and the Bank will have completed all conditions
precedent to the Conversion specified in the Plan and the offer and
sale of the Shares will have been conducted in all material respects in
accordance with the Plan, the Conversion Regulations (except as
modified or waived in writing by the OTS) and with all other applicable
laws, regulations, decisions and orders, including all terms,
conditions, requirements and provisions precedent to the Conversion
imposed upon the Holding Company or the Bank by the OTS, the Commission
or any other regulatory authority and in the manner described in the
Prospectus. At the Closing Date, to the best knowledge of the Holding
Company and the Bank, no person will have sought to obtain review of
the final action of the OTS in approving the Plan or in approving the
Conversion or the Holding Company Application pursuant to the HOLA or
any other statute or regulation.
(g) The Holding Company has filed with the OTS the Holding
Company Application and has received, as of the Closing Date, approval
of its acquisition of the Bank from the OTS.
(h) Keller & Company, Inc., which prepared the appraisal, has
advised the Holding Company and the Bank in writing that it is
independent with respect to each within the meaning of the Conversion
Regulations.
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(i) Crowe, Chizek and Company which certified the financial
statements filed as part of the Registration Statement and the
Application, have advised the Holding Company and the Bank in writing
that they are, with respect to the Holding Company and the Bank,
independent certified public accountants within the meaning of 12
C.F.R. Sections 563c.3 and 571.2(c)(3) and under the 1933 Act and the
regulations promulgated thereunder.
(j) The financial statements and the schedules and notes
thereto which are included in the Registration Statement and which are
a part of the Prospectus present fairly the financial position and
retained earnings of the Bank as of the dates indicated and the results
of operations and cash flows for the periods specified. The financial
statements comply in all material respects with the applicable
accounting requirements of Title 12 of the Code of Federal Regulations
and generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods presented except as otherwise noted
therein and present fairly in all material respects the information
required to be stated therein and are consistent with the most recent
financial statements and other reports filed by the Bank with the OTS
and the FDIC except that accounting principles employed in such filings
conform to requirements of such authorities and not necessarily to
GAAP. The other financial, statistical and pro forma information and
related notes included in the Prospectus fairly present the information
shown therein on a basis consistent with the audited and unaudited
financial statements included in the Prospectus, and as to the pro
forma adjustments, the adjustments made therein have been properly
applied on the basis described therein.
(k) Since the respective dates as of which information is
given in the Registration Statement, including the Prospectus: (i)
there has not been any material adverse change in the financial
condition or in the earnings, capital, properties or business affairs
of the Holding Company or the Bank or of the Holding Company and the
Bank considered as one enterprise, whether or not arising in the
ordinary course of business; (ii) there has not been any material
increase in the aggregate amount of loans past due ninety (90) days or
more, real estate acquired by foreclosure or loans characterized as "in
substance foreclosure" or any change in total assets of the Bank in an
amount greater than $___ million; nor has the Bank issued any
securities or incurred any liability or obligation for borrowings other
than in the ordinary course of business; (iii) there have not been any
material transactions entered into by the Holding Company or the Bank,
other than those in the ordinary course of business; and (iv) the
capitalization, liabilities, assets, properties and business of the
Holding Company and the Bank conform in all material respects to the
descriptions thereof contained in the Prospectus and, neither the Bank
nor the Holding Company has any material liabilities of any kind,
contingent or
8
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otherwise, except as set forth in or contemplated by the Registration
Statement and the Prospectus.
(l) The Holding Company is a corporation duly organized and in
good standing under the laws of the State of Delaware, with corporate
power and authority to own its properties and to conduct its business
as described in the Prospectus, and is duly qualified to transact
business and is in good standing in each jurisdiction in which the
conduct of its business requires such qualification unless the failure
to qualify in one or more of such jurisdictions would not have a
material adverse effect on the financial condition, earnings, capital,
properties or business affairs of the Holding Company and the Bank
considered as a whole.
(m) The Bank is a duly organized and validly existing
federally chartered savings bank in mutual form and upon the Conversion
will become a duly organized and validly existing federally chartered
savings bank in stock form, in both instances duly authorized to
conduct its business as described in the Prospectus; the activities of
the Bank are permitted by the rules, regulations and practices of the
OTS; the Bank has obtained all licenses, permits and other governmental
authorizations currently required for the conduct of its business
except those that individually or in the aggregate would not materially
adversely affect the financial condition of the Holding Company and the
Bank taken as a whole; all such licenses, permits and other
governmental authorizations are in full force and effect and the Bank
is in good standing under the laws of the United States and is duly
qualified as a foreign corporation to transact business in each
jurisdiction in which failure to so qualify would have a material
adverse effect upon the financial condition, earnings, capital,
properties or business affairs of the Bank; all of the issued and
outstanding capital stock of the Bank after the Conversion will be duly
and validly issued and fully paid and nonassessable; and the Holding
Company will directly own all of such capital stock free and clear of
any mortgage, pledge, lien, encumbrance, claim or restriction. The Bank
does not own equity securities or any equity interest in any other
business enterprise except as described in the Prospectus.
(n) The Bank is a member of the Federal Home Loan Bank of
Chicago ("FHLB of Chicago"); the deposit accounts of the Bank are
insured by the FDIC up to applicable limits; and upon the Conversion,
the liquidation account for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders will be duly established in
accordance with the Conversion Regulations.
(o) Upon Conversion, the authorized, issued and outstanding
equity capital of the Holding Company will be as described in the
Prospectus under the caption "Capitalization," and no shares of Common
Stock have been or will be issued and outstanding prior to the Closing
Date; the shares of Common Stock to be subscribed for in the
Subscription and Community Offering
9
<PAGE>
have been duly and validly authorized for issuance, and when issued and
delivered by the Holding Company pursuant to the Plan against payment
of the consideration calculated as set forth in the Plan and the
Prospectus, will be duly and validly issued and fully paid and
nonassessable; the issuance of the shares of Common Stock is not
subject to preemptive rights; and the terms and provisions of the
shares of Common Stock will conform in all material respects to the
description thereof contained in the Prospectus. Upon issuance of the
Shares, good title to the Shares will be transferred from the Holding
Company to the purchaser thereof against payment therefor, subject to
such claims as may be asserted against the purchasers thereof by third
party claimants.
(p) As of the date hereof and as of the Closing Date, neither
the Holding Company nor the Bank is in violation of its certificate of
incorporation or charter, respectively, or its bylaws (and the Bank
will not be in violation of its charter or bylaws in capital stock form
as of the Closing Date) or in material default in the performance or
observance of any obligation, agreement, covenant, or condition
contained in any contract, lease, loan agreement, indenture or other
instrument to which it is a party or by which it, or any of its
property, may be bound which would result in a material adverse change
in the condition (financial or otherwise), earnings, capital,
properties or business affairs of the Holding Company or Bank
considered as one enterprise or which would materially affect their
properties or assets. The consummation of the transactions herein
contemplated will not (i) conflict with or constitute a breach of, or
default under, the certificate of incorporation and bylaws of the
Holding Company, the charter and bylaws of the Bank (in either mutual
or capital stock form), or materially conflict with or constitute a
material breach of, or default under any material contract, lease or
other instrument to which the Holding Company or the Bank has a
beneficial interest, or any applicable law, rule, regulation or order
that is material to the financial condition of the Holding Company and
the Bank on a consolidated basis; (ii) violate any authorization,
approval, judgment, decree, order, statute, rule or regulation
applicable to the Holding Company or the Bank except for such
violations which would not have a material adverse effect on the
financial condition and results of operations of the Holding Company
and the Bank on a consolidated basis; or (iii) with the exception of
the liquidation account established in the Conversion, result in the
creation of any material lien, charge or encumbrance upon any property
of the Holding Company or the Bank.
(q) No material default exists, and no event has occurred
which with notice or lapse of time, or both, would constitute a
material default on the part of the Holding Company or the Bank, in the
due performance and observance of any term, covenant or condition of
any indenture, mortgage, deed of trust, note, bank loan or credit
agreement or any other material instrument or agreement to which the
Holding Company or the Bank
10
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is a party or by which any of them or any of their property is bound or
affected in any respect which, in any such case, is material to the
Holding Company or the Bank considered as one enterprise, and such
agreements are in full force and effect; and no other party to any such
agreements has instituted or, to the best knowledge of the Holding
Company or the Bank, threatened any action or proceeding wherein the
Holding Company or the Bank is alleged to be in default thereunder
under circumstances where such action or proceeding, if determined
adversely to the Holding Company or the Bank, as the case may be, would
have a material adverse effect upon the Holding Company and the Bank
considered as one enterprise.
(r) The Holding Company and the Bank have good and marketable
title to all assets which are material to the business of the Holding
Company and the Bank and to those assets described in the Prospectus as
owned by them free and clear of all material liens, charges,
encumbrances, restrictions or other claims, except such as are
described in the Prospectus or which do not have a material adverse
effect on the business of the Holding Company and the Bank taken as a
whole; and all of the leases and subleases which are material to the
business of the Holding Company and the Bank, as described in the
Registration Statement or Prospectus, are in full force and effect.
(s) Except as described in the Prospectus, the Holding Company
and the Bank are not in material violation of any directive from the
OTS, the FDIC, the Commission or any other agency to make any material
change in the method of conducting their respective businesses; the
Holding Company and the Bank have conducted and are conducting their
respective businesses so as to comply in all material respects with all
applicable statutes and regulations (including, without limitation,
regulations, decisions, directives and orders of the OTS, the
Commission and the FDIC) and, except as set forth in the Prospectus,
there is no charge, investigation, action, suit or proceeding before or
by any court, regulatory authority or governmental agency or body
pending or, to the best knowledge of either the Holding Company or the
Bank, threatened, which would reasonably be expected to materially and
adversely affect the Conversion, the performance of this Agreement, or
the consummation of the transactions contemplated in the Plan as
described in the Registration Statement, or which would reasonably be
expected to result in any material adverse change in the financial
condition or in the earnings, capital, properties or business affairs
of the Holding Company and the Bank considered as one enterprise.
(t) Bank has received an opinion of its special counsel,
Silver, Freedman & Taff, L.L.P. with respect to the federal income tax
consequences of the Conversion of the Bank from mutual to stock form,
as described in the Registration Statement and the Prospectus, and an
opinion from Crowe, Chizek and Company with respect to the Illinois tax
consequences of the
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proposed transaction; and the facts and representations upon which such
opinions are based are truthful, accurate and complete, and neither the
Bank nor the Holding Company will take any action inconsistent
therewith.
(u) The Holding Company and the Bank have timely filed all
required federal and state tax returns, have paid all taxes that have
become due and payable in respect of such returns, except where
permitted to be extended, have made adequate reserves for similar
future tax liabilities and no deficiency has been asserted with respect
thereto by any taxing authority.
(v) No approval, authorization, consent or other order of any
regulatory or supervisory or other public authority is required for the
execution and delivery by the Holding Company and the Bank of this
Agreement, or the issuance of the Shares, except for the approval of
the OTS and the Commission (which have been received) and any necessary
qualification, notification, or registration or exemption under the
securities or blue sky laws of the various states in which the shares
are to be offered and except as may be required under the rules and
regulations of the NASD and/or the Nasdaq.
(w) The Holding Company and the Bank have made appropriate
arrangements for placing the funds received from subscriptions for
Shares in special interest bearing accounts with the Bank until all
Shares are sold and paid for, with provision for refund to the
purchasers in the event that the Conversion is not completed for
whatever reason or for delivery to the Holding Company if all Shares
are sold.
(x) Prior to the Conversion, the Bank was not authorized to
issue shares of capital stock and neither the Holding Company nor the
Bank has: (i) issued any securities within the last 18 months (except
for notes to evidence other bank loans and reverse repurchase
agreements or other liabilities); (ii) had any material dealings with
respect to sales of securities within the 12 months prior to the date
hereof with any member of the NASD, or any person related to or
associated with such member, other than discussions and meetings
relating to the proposed Subscription and Community Offering and
routine purchases and sales of U.S. government and agency and other
securities; (iii) entered into a financial or management consulting
agreement except as contemplated hereunder; or (iv) engaged any
intermediary between the Agent and the Holding Company and the Bank in
connection with the offering of Shares, and no person is being
compensated in any manner for such service.
(y) To the best knowledge of the Holding Company and the Bank,
neither the Holding Company, the Bank nor the employees of the Holding
Company or the Bank have made any payment of funds of the Holding
Company or the Bank as a loan to any person for the purchase of the
Shares.
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Any certificates signed by an officer of the Holding Company or the
Bank and delivered to the Agent or its counsel that refer to this Agreement
shall be deemed to be a representation and warranty by the Holding Company or
the Bank to the Agent as to the matters covered thereby with the same effect as
if such representation and warranty were set forth herein.
Section 6.B. Representations and Warranties of the Agent.
Webb represents and warrants to the Company and the Bank that:
(a) Webb is a corporation and is validly existing in good
standing under the laws of the State of Ohio with full power and
authority to provide the services to be furnished to the Bank and the
Holding Company hereunder.
(b) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary action on the part of Webb, and
this Agreement has been duly and validly executed and delivered by Webb
and is the legal, valid and binding agreement of Webb, enforceable in
accordance with its terms.
(c) Each of Webb and its employees, agents and representatives
who shall perform any of the services hereunder shall be duly
authorized and empowered, and shall have all licenses, approvals and
permits necessary to perform such services.
(d) The execution and delivery of this Agreement by Webb, the
consummation of the transactions contemplated hereby and compliance
with the terms and provisions hereof will not conflict with, or result
in a breach of, any of the terms, provisions or conditions of, or
constitute a default (or event which with notice or lapse of time or
both would constitute a default) under, the certificate of
incorporation of Webb or any agreement, indenture or other instrument
to which Webb is a party or by which it or its property is bound.
(e) No action, suit, charge or proceeding is pending, or to
the knowledge of Webb threatened, against Webb which, if determined
adversely to Webb, would have a material adverse effect upon the
ability of Webb to perform obligations under this Agreement.
(f) No approval, authorization, consent or other order of any
regulatory or supervisory or other public authority is required for the
execution and delivery by Webb of this Agreement, except as may have
been received.
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Section 7.A. Covenants of the Holding Company and the Bank. The Holding
Company and the Bank hereby jointly and severally covenant with the Agent as
follows:
(a) The Holding Company has filed the Registration Statement
with the Commission. The Holding Company will not, at any time after
the date the Registration Statement is declared effective, file any
amendment or supplement to the Registration Statement without providing
the Agent and its counsel an opportunity to review such amendment or
file any amendment or supplement to which amendment the Agent or its
counsel shall reasonably object.
(b) The Bank has filed the Application with the OTS. The Bank
will not, at any time after the date the Application is approved, file
any amendment or supplement to the Application without providing the
Agent and its counsel an opportunity to review such amendment or
supplement or file any amendment or supplement to which amendment or
supplement the Agent or its counsel shall reasonably object.
(c) The Holding Company and the Bank will use their best
efforts to cause any post-effective amendment to the Registration
Statement to be declared effective by the Commission and any
post-effective amendment to the Application to be approved by the OTS,
and will immediately upon receipt of any information concerning the
events listed below notify the Agent (i) when the Registration
Statement, as amended, has become effective; (ii) when the Application,
as amended, has been approved by the OTS; (iii) of the receipt of any
comments from the Commission, the OTS, the FDIC or any other
governmental entity with respect to the Conversion or the transactions
contemplated by this Agreement; (iv) of any request by the Commission,
the OTS, the FDIC or any other governmental entity for any amendment or
supplement to the Registration Statement or the Application or for
additional information; (v) of the issuance by the Commission, the OTS,
the FDIC or any other governmental agency of any order or other action
suspending the Subscription and Community Offering or the use of the
Registration Statement or the Prospectus or any other filing of the
Holding Company and the Bank under the Conversion Regulations or other
applicable law, or the threat of any such action; (vi) of the issuance
by the Commission, the OTS, the FDIC or any state authority of any stop
order suspending the effectiveness of the Registration Statement or of
the initiation or threat of initiation or threat of any proceedings for
that purpose; or (vii) of the occurrence of any event mentioned in
paragraph (g) below. The Holding Company and the Bank will make every
reasonable effort to prevent the issuance by the Commission, the OTS,
the FDIC or any state authority of any such order and, if any such
order shall at any time be issued, to obtain the lifting thereof at the
earliest possible time.
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(d) The Holding Company and the Bank will provide the Agent
and its counsel notice of its intention to file, and reasonable time to
review prior to filing any amendment or supplement to the Holding
Company Application and will not file any such amendment or supplement
to which the Agent shall reasonably object or which shall be reasonably
disapproved by its counsel.
(e) The Holding Company and the Bank will deliver to the Agent
and to its counsel conformed copies of each of the following documents,
with all exhibits: the Application and the Holding Company Application,
as originally filed and of each amendment or supplement thereto, and
the Registration Statement, as originally filed and each amendment
thereto. Further, the Holding Company and the Bank will deliver such
additional copies of the foregoing documents to counsel to the Agent as
may be required for any NASD filings. In addition, the Holding Company
and the Bank will also deliver to the Agent such number of copies of
the Prospectus, as amended or supplemented, as the Agent may reasonably
request.
(f) The Holding Company and the Bank will comply in all
material respects with any and all terms, conditions, requirements and
provisions with respect to the Conversion and the transactions
contemplated thereby imposed by the Commission, by applicable state law
and regulations, and by the 1933 Act, the Securities Exchange Act of
1934 (the "1934 Act") and the rules and regulations of the Commission
promulgated under such statutes, to be complied with prior to or
subsequent to the Closing Date; and when the Prospectus is required to
be delivered, the Holding Company and the Bank will comply in all
material respects, at their own expense, with all material requirements
imposed upon them by the OTS, the Conversion Regulations (except as
modified or waived in writing by the OTS), the FDIC, the Commission, by
applicable state law and regulations and by the 1933 Act, the 1934 Act
and the rules and regulations of the Commission promulgated under such
statutes, in each case as from time to time in force, so far as
necessary to permit the continuance of sales or dealing in shares of
Common Stock during such period in accordance with the provisions
hereof and the Prospectus.
(g) If any event relating to or affecting the Holding Company
or the Bank shall occur, as a result of which it is necessary, in the
reasonable opinion of counsel for the Holding Company or the Bank or
for the Agent, to amend or supplement the Registration Statement or the
Prospectus in order to make them not misleading in light of the
circumstances existing at the time of their use, the Holding Company
and the Bank will, at their expense, forthwith prepare, file with the
Commission and the OTS, and furnish to the Agent, a reasonable number
of copies of an amendment or amendments of, or a supplement or
supplements to, the Registration Statement and the Prospectus (in form
and substance satisfactory to counsel for the Agent after a
15
<PAGE>
reasonable time for review) which will amend or supplement the
Registration Statement and/or the Prospectus so that as amended or
supplemented it will not contain an untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances existing at the time,
not misleading. For the purpose of this subsection, the Holding Company
and the Bank each will furnish such information with respect to itself
as the Agent may from time to time reasonably request.
(h) Pursuant to the terms of the Plan, the Holding Company
will endeavor in good faith, in cooperation with the Agent, to register
or to qualify the Shares for offering and sale under the applicable
securities laws of the jurisdictions in which the Subscription Offering
and Community Offering will be conducted; provided, however, that the
Holding Company shall not be obligated to file any general consent to
service of process or to qualify to do business in any jurisdiction in
which it is not so qualified. In each jurisdiction where any of the
Shares shall have been registered or qualified as above provided, the
Holding Company will make and file such statements and reports in each
year as are or may be required by the laws of such jurisdictions.
(i) The liquidation account for the benefit of account holders
as of June 30, 1995 and December 31, 1996 will be duly established and
maintained in accordance with the requirements of the OTS, and such
Eligible Account Holders and Supplemental Eligible Account Holders who
continue to maintain their savings accounts in the Bank will have an
inchoate interest in their pro rata portion of the liquidation account
which shall have a priority superior to that of the holders of shares
of Common Stock in the event of a complete liquidation of the Bank.
(j) The Holding Company and the Bank will not sell or issue,
contract to sell or otherwise dispose of, for a period of 90 days after
the date hereof, without the Agent's prior written consent, which
consent shall not be unreasonably withheld, any shares of Common Stock
other than in connection with any plan or arrangement described in the
Prospectus.
(k) For the period of three years from the date of this
Agreement, the Holding Company will furnish to the Agent upon request
(i) a copy of each report of the Holding Company furnished to or filed
with the Commission under the 1934 Act or any national securities
exchange or system on which any class of securities of the Holding
Company is listed or quoted, (ii) a copy of each report of the Holding
Company mailed to holders of Common Stock or non-confidential report
filed with the Commission or the OTS or any other supervisory or
regulatory authority or any national securities exchange or system on
which any class of the securities of the Holding Company is listed or
quoted, and (iii) from time to time, such other publicly available
information concerning the Holding Company and the Bank as the Agent
may reasonably request.
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(l) The Holding Company and the Bank will use the net proceeds
from the sale of the Common Stock in the manner set forth in the
Prospectus under the caption "Use of Proceeds."
(m) Prior to the Closing Date, the Holding Company and the
Bank will inform the Agent of any event or circumstances of which it is
aware as a result of which the Registration Statement and/or
Prospectus, as then supplemented or amended, would include an untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein not misleading.
(n) The Holding Company and the Bank will distribute the
Prospectus or other offering materials in connection with the offering
and sale of the Common Stock only in accordance with the Conversion
Regulations, the 1933 Act and the 1934 Act and the rules and
regulations promulgated under such statutes, and the laws of any state
in which the shares are qualified for sale.
(o) The Holding Company shall register its Common Stock under
Section 12(g) of the 1934 Act, concurrent with the effective date of
the Registration Statement. The Holding Company shall maintain the
effectiveness of such registration for not less than three years or
such shorter period as permitted by the OTS.
(p) For so long as the Holding Company's Common Stock is
registered under the 1934 Act, the Holding Company will furnish to its
stockholders as soon as practicable after the end of each fiscal year
such reports and other information as are required to be furnished to
its stockholders under the 1934 Act (including consolidated financial
statements of the Holding Company and its subsidiaries, certified by
independent public accountants).
(q) The Holding Company will comply with the provisions of
Rule 158 of the 1933 Act.
(r) The Holding Company will file with the Commission such
reports on Form SR as may be required pursuant to Rule 463 under the
1933 Act.
(s) Holding Company will use its best efforts to obtain
approval for and maintain quotation of the Common Stock on the Nasdaq
National Market effective on or prior to the Closing Date.
(t) The Bank will maintain appropriate arrangements for
depositing all funds received from persons mailing subscriptions for or
orders to purchase Shares in the Subscription and Community Offering on
an interest bearing basis at the rate described in the Prospectus until
the Closing Date and satisfaction of all conditions precedent to the
release of the Bank's obligation to refund payments received from
persons
17
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subscribing for or ordering Shares in the Subscription and Community
Offering in accordance with the Plan as described in the Prospectus or
until refunds of such funds have been made to the persons entitled
thereto or withdrawal authorizations canceled in accordance with the
Plan and as described in the Prospectus. The Bank will maintain such
records of all funds received to permit the funds of each subscriber to
be separately insured by the FDIC (to the maximum extent allowable) and
to enable the Bank to make the appropriate refunds of such funds in the
event that such refunds are required to be made in accordance with the
Plan and as described in the Prospectus.
(u) The Holding Company will promptly register as a savings
and loan holding company under the HOLA.
(v) The Holding Company and the Bank will take such actions
and furnish such information as are reasonably requested by the Agent
in order for the Agent to ensure compliance with the "Interpretation of
the Board of Governors of the NASD on Free Riding and Withholding."
(w) The Holding Company and the Bank will conduct their
businesses in compliance in all material respects with all applicable
federal and state laws, rules, regulations, decisions, directives and
orders including, all decisions, directives and orders of the
Commission, the OTS and the FDIC.
(x) The Bank will not amend the Plan of Conversion without
notifying the Agent prior thereto.
(y) The Holding Company shall provide the Agent with any
information necessary to carry out the allocation of the Shares in the
event of an oversubscription and such information shall be accurate and
reliable.
(z) The Holding Company will not deliver the Shares until the
Holding Company and the Bank have satisfied or caused to be satisfied
each condition set forth in Section 9A hereof, unless such condition is
waived in writing by the Agent.
Section 7.B. Covenants of Agent. Webb hereby covenants
with the Company and the Bank as follows:
(a) During the period when the Prospectus is used, Webb will
comply, in all material respects and at its own expense, with all
requirements imposed upon it by the OTS and, to the extent applicable,
by the 1933 Act and the rules and regulations promulgated thereunder.
(b) Webb will distribute any Prospectus or offering materials
in connection with the offering and sale of the Common Stock only in
accordance with the Conversion Regulations and the requirements of the
1933 Act and 1934 Act and the rules and regulations promulgated
thereunder; and
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(c) Webb shall perform the calculations process in connection
with the allocation of shares in the event of an over- subscription.
Section 8. Payment of Expenses. Whether or not the Conversion is
completed or the sale of the Shares by the Holding Company is consummated, the
Holding Company and the Bank will pay for all expenses incident to the
performance of this Agreement, including without limitation: (a) the preparation
and filing of the Application; (b) the preparation, printing, filing, delivery
and shipment of the Registration Statement, including the Prospectus, and all
amendments and supplements thereto; (c) all filing fees and expenses in
connection with the qualification or registration of the Shares for offer and
sale by the Holding Company under the securities or "blue sky" laws, including
without limitation filing fees, reasonable legal fees and disbursements of
counsel in connection therewith, and in connection with the preparation of a
blue sky law survey; (d) the filing fees of the NASD; and (e) the reasonable
expenses of the Agent, including without limitation, accounting, communications,
legal and travel expenses. Any such expense incurred by the Agent shall be
reimbursed by the Holding Company and the Bank. If this Agreement is terminated
in accordance with the provisions of Sections 3, 9, or 13, the Bank will pay the
Agent the fees earned pursuant to Section 4 and will reimburse the Agent for the
reasonable expenses of the Agent, including without limitation accounting,
communication, legal and travel expenses. Non-legal expenses shall not exceed
$5,000 without the prior approval of the Holding Company or the Bank. Legal fees
and expenses shall not exceed $35,000 without the prior approval of the Holding
Company or the Bank.
Section 9.A. Conditions to the Agent's Obligations. The obligations of
the Agent hereunder and the occurrence of the Closing and the Conversion are
subject to the condition that all representations and warranties and other
statements of the Holding Company and the Bank herein contained are at and as of
the commencement of the Subscription and Community Offering and at and as of the
Closing Date, true and correct in all material respects, the condition that the
Holding Company and the Bank shall have performed in all material respects all
of their obligations hereunder to be performed on or before such dates and to
the following further conditions:
(a) The Registration Statement shall have been declared
effective by the Commission and the Application approved by the OTS not
later than 5:30 p.m. on the date of this Agreement, and no stop order
or other action suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings
therefor initiated or, to the Company's or the Bank's best knowledge,
threatened by the Commission or any state authority and no order or
other action suspending the authorization for use of the Prospectus or
the consummation of the Conversion shall have been issued or
19
<PAGE>
proceedings therefor initiated or, to the Company's or Bank's best
knowledge, threatened by the OTS, the Commission, or any other
governmental body.
(b) At the Closing Date, the Agent shall have received:
(1) The favorable opinion, dated as of the Closing
Date, of Silver, Freedman & Taff, LLP, special counsel for the
Holding Company and the Bank, in form and substance
satisfactory to counsel for the Agent to the effect that:
(i) The Holding Company is a
corporation duly organized and validly
existing and in good standing under the laws
of the State of Delaware, with corporate
power and authority to own its properties
and to conduct its business as described in
the Prospectus, and to such counsel's
knowledge is duly qualified to transact
business and is in good standing in each
jurisdiction in which the conduct of its
business requires such qualification and in
which the failure to qualify would have a
material adverse effect on the financial
condition, earnings, capital, properties or
business affairs of the Holding Company.
(ii) The Bank is a duly organized
and validly existing federally chartered
mutual savings bank and, at the Closing
Date, upon satisfaction of the conditions
set forth in the Plan, will become a duly
organized and validly existing federally
chartered stock savings bank with full power
and authority to own its properties and to
conduct its business as described in the
Prospectus and to enter into this Agreement
and perform its obligations hereunder; the
activities of the Bank as described in the
Prospectus are permitted by the rules,
regulations and practices of the OTS; the
issuance and sale of the capital stock of
the Bank to the Holding Company has been
duly and validly authorized by all necessary
corporate action on the part of the Holding
Company and the Bank and, upon payment
therefor in accordance with the terms of the
Plan, will be validly issued, fully paid and
nonassessable; and will be owned of record
and beneficially by the Holding Company,
free and clear of any mortgage, pledge,
lien, encumbrance, claim or restriction.
(iii) The Bank is a member of the
FHLB of Chicago and the savings accounts of
the Bank are insured by the FDIC up to the
maximum amount allowed by law and to such
counsel's knowledge no proceedings for the
termination or revocation of such insurance
are pending or threatened; and the
description of the liquidation account as
set forth in the Prospectus under the
caption "The Conversion - Effects of
Conversion to Stock Form on Depositors and
Borrowers of the Bank - Liquidation Rights"
has been reviewed by such counsel and, to
the extent that such information constitutes
matters of law or legal conclusions, is
accurate in all material respects.
20
<PAGE>
(iv) Upon Conversion, the
authorized, issued and outstanding capital
stock of the Holding Company and the Bank
will be as set forth in the Prospectus under
the caption "Capitalization," and no shares
of Common Stock have been or will be issued
and outstanding prior to the Closing Date;
the shares of Common Stock of the Holding
Company to be subscribed for in the
Subscription and Community Offering have
been duly and validly authorized for
issuance, and when issued and delivered by
the Holding Company pursuant to the Plan
against payment of the consideration
calculated as set forth in the Plan, will be
fully paid and nonassessable; and the
issuance of the shares of Common Stock is
not subject to preemptive rights, except for
the subscription rights under the Plan.
(v) The execution and delivery of
this Agreement and the consummation of the
transactions contemplated hereby have been
duly authorized by all necessary action on
the part of the Holding Company and the
Bank; and this Agreement constitutes a
valid, legal and binding obligation of each
of the Holding Company and the Bank,
enforceable in accordance with its terms,
except to the extent that the provisions of
Sections 10 and 11 hereof may be
unenforceable as against public policy, and
except to the extent that such
enforceability may be limited by bankruptcy
laws, insolvency laws, or other laws
affecting the enforcement of creditors'
rights generally, or the rights of creditors
of savings institutions insured by the FDIC
(including the laws relating to the rights
of the contracting parties to equitable
remedies).
(vi) The Plan has been duly adopted
as required by the directors of the Holding
Company and the Bank and members of the
Bank.
(vii) Subject to the satisfaction
of the conditions to the OTS's approval of
the Conversion and the Holding Company
Application to acquire the Bank, no further
approval, registration, authorization,
consent or other order of any federal
regulatory agency, public board or body is
required in connection with the execution
and delivery of this Agreement, the offer,
sale and issuance of the Shares and the
consummation of the Conversion (other than
compliance with state securities or Blue Sky
laws as to which such counsel need express
no opinion and other than as may be required
under the rules and regulations of the NASD
or the Nasdaq System).
(viii) The Application, including
the Prospectus as filed with the OTS, has
been approved by the OTS. The OTS has issued
its order of approval under the savings and
loan holding company provisions of the HOLA,
and the purchase by the Holding Company of
all of the issued and outstanding capital
stock of the Bank has been authorized by the
OTS and no action has been taken, or, to
such counsel's knowledge, is pending or
threatened, to revoke any such authorization
or approval.
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<PAGE>
(ix) The Registration Statement has
become effective under the 1933 Act, no stop
order suspending the effectiveness of the
Registration Statement has been issued, and,
to the best of such counsel's knowledge, no
proceedings for that purpose have been
instituted or threatened.
(x) The material tax consequences
of the Conversion are set forth in the
Prospectus under the caption "The
Conversion-Income Tax Consequences." The
information in the Prospectus under the
caption "The Conversion-Income Tax
Consequences" has been reviewed by such
counsel and fairly describes such opinions
rendered by Silver Freedman & Taff, L.L.P.
and Crowe, Chizek and Company to the Holding
Company and the Bank with respect to such
matters.
(xi) The terms and provisions of
the shares of Common Stock conform to the
description thereof contained in the
Registration Statement and the Prospectus
and such description describes in all
material respects the rights of the holders
thereof, the information in the Prospectus
under the captions "Restrictions on
Acquisitions of Stock and Related Takeover
Defensive Provisions" and "Description of
Capital Stock," to the extent that they
constitute matters of law or legal
conclusions, has been prepared by such
counsel and is accurate in all material
respects; and the forms of certificates
proposed to be used to evidence the shares
of Common Stock are in due and proper form.
(xii) At the time the Application,
including the Prospectus contained therein,
was approved, the Application (as amended or
supplemented) complied as to form in all
material respects with the requirements of
the Conversion Regulation and all applicable
laws, rules and regulations and decisions
and orders of the OTS, except as modified or
waived in writing by the OTS, (other than
the financial statements, notes to financial
statements, financial tables and other
financial and statistical data included
therein and the appraisal valuation as to
which counsel need express no opinion). To
such counsel's knowledge, no person has
sought to obtain regulatory or judicial
review of the final action of the OTS
approving the Application or in approving
the Holding Company Application.
(xiii) At the time that the
Registration Statement became effective (i)
the Registration Statement (as amended or
supplemented) (other than the financial
statements, notes to financial statements,
financial tables or other financial and
statistical data included therein and the
appraisal valuation as to which counsel need
express no opinion), complied as to form in
all material respects with the requirements
of the 1933 Act and the rules and
regulations promulgated thereunder; and (ii)
the Prospectus (other than the financial
statements, notes to financial statements,
financial tables and other financial and
statistical data included therein and the
appraisal valuation, as to which counsel
need express no opinion) complied
22
<PAGE>
as to form in all material respects with the
requirements of the 1933 Act and the rules
and regulations promulgated thereunder, the
Conversion Regulations, the rules,
regulations and decisions and orders of the
OTS, except as modified or waived in writing
by the OTS.
(xiv) To the best of such counsel's
knowledge, there are no legal or
governmental proceedings pending, or
threatened (i) asserting the invalidity of
this Agreement or (ii) seeking to prevent
the Conversion or the offer, sale or
issuance of the Shares.
(xv) The information in the
Prospectus under the captions "Regulation,"
"The Conversion" and "Legal Matters," to the
extent that it constitutes matters of law,
summaries of legal matters, documents or
proceedings, or legal conclusions, has been
prepared by such counsel and is accurate in
all material respects (except as to the
financial statements and other financial
data included therein as to which such
counsel need express no opinion).
(xvi) To the best of counsel's
knowledge, the Holding Company and the Bank
have obtained all material licenses, permits
and other governmental authorizations
required for the conduct of their respective
businesses as described in the Registration
Statement and the Prospectus, except where
the failure to obtain such licenses, permits
and other governmental authorizations would
not have a material adverse effect on the
financial condition of the Holding Company
or the Bank considered as one enterprise, or
on the earnings, capital, properties or
business affairs of the Holding Company or
the Bank considered as one enterprise, and
all such licenses, permits and other
governmental authorizations are in full
force and effect and the Holding Company and
the Bank are in all material respects
complying therewith.
(xvii) Neither the Holding Company
nor the Bank is in violation of its
certificate of incorporation or its charter,
respectively, or its bylaws (and the Bank
will not be in violation of its charter or
bylaws in stock form upon consummation of
the Conversion) or to the best of such
counsel's knowledge, in violation of any
material obligation, agreement, covenant or
condition contained in any material
contract, indenture, mortgage, loan
agreement, note, lease or other instrument
to which it is a party or by which it or its
property may be bound, which violation would
have a material adverse effect on the
financial condition of the Holding Company
or the Bank considered as one enterprise, or
on the earnings, capital, properties or
business affairs of the Holding Company and
the Bank considered as one enterprise; the
execution and delivery of this Agreement by
the Holding Company and the Bank, the
incurrence of the obligations herein set
forth and the consummation of the
transactions contemplated herein, will not
materially conflict with, constitute a
material breach of, or
23
<PAGE>
default under, or result in the creation or
imposition of any material lien, charge or
encumbrance upon any property or assets of
the Holding Company or the Bank which are
material to their business considered as one
enterprise, pursuant to any contract,
indenture, mortgage, loan agreement, note,
lease or other instrument to which the
Holding Company or the Bank is a party or by
which any of them may be bound, or to which
any of the property or assets of the Holding
Company or the Bank is subject. In addition,
such action will not result in any material
violation of the provisions of the
certificate of incorporation or bylaws of
the Holding Company or the Bank or any
material violation of any applicable law,
act, regulation or to such counsel's
knowledge, order or court order, writ,
injunction or decree.
(xviii) To the best of counsel's
knowledge, the Holding Company and the Bank
are not in violation in any material respect
of any directive from the OTS or the FDIC to
make any material change in the method of
conducting their business.
(2) The letter of Silver, Freedman & Taff, L.L.P.,
special counsel for the Holding Company and the Bank, in form
and substance to the effect that:
In addition, during the preparation of the
Registration Statement and the Prospectus, Silver,
Freedman & Taff participated in conferences with
certain officers of and other representatives of the
Bank and the Holding Company, counsel to the Agent,
representatives of the independent public accountants
for the Bank and the Holding Company and
representatives of the Agent at which the contents of
the Registration Statement and the Prospectus and
related matters were discussed and, although Silver,
Freedman & Taff is not passing upon and does not
assume the accuracy of the statements contained in
the Registration Statement and Prospectus, on the
basis of the foregoing without independent
verification (relying as to materiality as to factual
matters on certificates of officers and other factual
representations by the Bank and the Holding Company),
nothing has come to Silver, Freedman & Taff's
attention that caused Silver, Freedman & Taff to
believe that the Registration Statement at the time
it was declared effective by the SEC or the
Prospectus as of its date, contained or contains any
untrue statement of a material fact or omitted to
state any material fact required to be stated therein
or necessary to make the statements therein, in light
of the circumstances under which they were made, not
misleading (it being understood that counsel need
express no comment or opinion with respect to the
financial statements, schedules and other financial
and statistical data included, or statistical or
appraisal methodology employed, in the Registration
Statement or Prospectus).
The opinion shall be limited to matters
governed by the laws of the United States or the
State of Delaware. In rendering such
24
<PAGE>
opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction
other than the United States or Delaware, to the
extent such counsel deems proper and specified in
such opinion, upon the opinion of other counsel of
good standing, as long as such other opinion
indicates that the Agent may rely on the opinion, and
(B) as to matters of fact, to the extent such counsel
deems proper, on certificates of responsible officers
of the Company and the Bank and public officials;
provided copies of any such opinion(s) or
certificates of public officials are delivered to you
together with the opinion to be rendered hereunder by
special counsel to the Company and the Bank. The
opinion of such counsel for the Company shall state
that it has no reason to believe that the Agent is
not justified in relying thereon.
(3) The favorable opinion, dated as of the Closing
Date, of Stevens & Lee, P.C., counsel for the Agent, with
respect to such matters as the Agent may reasonably require,
such opinion may rely as to matters of fact, upon certificates
of officers and directors of the Holding Company and the Bank
delivered pursuant hereto or as such counsel may reasonably
request.
(c) Concurrently with the execution of this Agreement, the
Agent shall receive a letter from Crowe, Chizek and Company, dated the
date hereof and addressed to the Agent, (i) such letter confirming that
Crowe, Chizek and Company is a firm of independent public accountants
within the meaning of the Code of Professional Ethics of the American
Institute of Certified Public Accountants, the 1933 Act and the
regulations promulgated thereunder and 12 C.F.R. Section 571.2(c)(3),
and no information concerning its relationship with or interests in the
Holding Company or the Bank is required by the Application or Item 10
of the Registration Statement, and stating in effect that in Crowe,
Chizek and Company's opinion the financial statements of the Bank
included in the Prospectus comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act, the 1934
act and the related published rules and regulations of the Commission
thereunder and the Conversion Regulations and generally accepted
accounting principles; (ii) stating in effect that, on the basis of
certain agreed upon procedures (but not an audit examination in
accordance with generally accepted auditing standards) consisting of a
reading of the latest available unaudited interim financial statements
of the Bank prepared by the Bank, a reading of the minutes of the
meetings of the Board of Directors and members of the Bank, a review of
interim financial information in accordance with Statement on Auditing
Standards No. 71, and consultations with officers of the Bank
responsible for financial and accounting matters, nothing came to their
attention which caused them to believe that: (A) such unaudited
financial statements, including Recent Developments, if any, are not in
conformity with generally accepted accounting principles applied on a
basis substantially consistent with that of the audited financial
statements included in the Prospectus;
25
<PAGE>
or (B) during the period from the date of the latest unaudited
consolidated financial statements included in the Prospectus to a
specified date not more than five business days prior to the date
hereof, there was any material increase in borrowings (defined as
advances from the Federal Home Loan Bank of Chicago, securities sold
under agreements to repurchase and any other form of debt other than
deposits) of the Holding Company or the Bank (other than as disclosed
in the Prospectus or in the ordinary course of business); or (C) there
was any decrease in retained earnings of the Bank at the date of such
letter as compared with amounts shown in the latest unaudited statement
of condition included in the Prospectus or there was any decrease in
net income or net interest income of the Bank for the number of full
months commencing immediately after the period covered by the latest
unaudited income statement included in the Prospectus and ended on the
latest month end prior to the date of the Prospectus or in such letter
as compared to the corresponding period in the preceding year; and
(iii) stating that, in addition to the audit examination referred to in
its opinion included in the Prospectus and the performance of the
procedures referred to in clause (ii) of this subsection (f), they have
compared with the general accounting records of the Holding Company
and/or the Bank, as applicable, which are subject to the internal
controls of the Holding Company and/or the Bank, as applicable,
accounting system and other data prepared by the Holding Company and/or
the Bank, as applicable, directly from such accounting records, to the
extent specified in such letter, such amounts and/or percentages set
forth in the Prospectus as the Agent may reasonably request, and they
have found such amounts and percentages to be in agreement therewith
(subject to rounding).
(d) At the Closing Date, the Agent shall receive letters from
Crowe, Chizek and Company dated the Closing Date, addressed to the
Agent, confirming the statements made by its letter delivered by it
pursuant to subsection (f) of this Section 9A, the "specified date"
referred to in clause (ii)(B) thereof to be a date specified in such
letter, which shall not be more than five business days prior to the
Closing Date.
(e) At the Closing Date, counsel to the Agent shall have been
furnished with such documents and opinions as counsel for the Agent may
require for the purpose of enabling them to advise the Agent with
respect to the issuance and sale of the Common Stock as herein
contemplated and related proceedings, or in order to evidence the
accuracy of any of the representations and warranties, or the
fulfillment of any of the conditions herein contained.
(f) At the Closing Date, the Agent shall receive a certificate
of the Chief Executive Officer and Chief Financial Officer of each of
the Holding Company and the Bank, dated the Closing Date, to the effect
that (i) they have carefully examined the Prospectus and at the time
the Prospectus became authorized for final use, the Prospectus did not
contain an untrue statement
26
<PAGE>
of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; (ii) there has not been, since
the respective dates as of which information is given in the
Prospectus, any material adverse change in the financial condition or
in the earnings, capital, properties, business prospects or business
affairs of the Holding Company or the Bank, considered as one
enterprise, whether or not arising in the ordinary course of business;
(iii) the representations and warranties contained in Section 6A of
this Agreement are true and correct with the same force and effect as
though made at and as of the Closing Date; (iv) the Holding Company and
the Bank have complied in all material respects with all material
agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Date including the conditions
contained in this Section 9A; (v) no stop order has been issued or, to
the best of their knowledge, is threatened, by the Commission or any
other governmental body; (vi) no order suspending the Subscription and
Community Offering, the Conversion, the acquisition of all of the
shares of the Bank by the Holding Company or the effectiveness of the
Prospectus has been issued and to the best of their knowledge, no
proceedings for any such purpose have been initiated or threatened by
the OTS, the Commission, the FDIC, or any other federal or state
authority; (vii) to the best of their knowledge, no person has sought
to obtain regulatory or judicial review of the action of the OTS in
approving the Plan or to enjoin the Conversion.
(g) At the Closing Date, the Agent shall receive a letter from
Keller & Company, Inc. dated as of the Closing Date, confirming its
appraisal.
(h) The Holding Company or the Bank shall not have sustained
since the date of the latest audited financial statements included in
the Registration Statement and Prospectus, any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth in the Registration Statement and the Prospectus, and
since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall not have been
any material change in the long-term debt of the Holding Company or the
Bank other than debt incurred in relation to the purchase of Shares by
the Holding Company's or Bank's tax-qualified employee plans, or any
material change, or any development involving a prospective material
change in, or affecting the general affairs of, management, financial
position, stockholders' equity or results of operations of the Holding
Company or the Bank, otherwise than as set forth or contemplated in the
Registration Statement and the Prospectus, the effect of which, in any
such case described above, is in the Agent's reasonable judgment
sufficiently material and adverse as to make it impracticable or
inadvisable to proceed with the Subscription
27
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and Community Offering or the delivery of the Shares on the terms and
in the manner contemplated in the Prospectus.
(i) Prior to and at the Closing Date: (i) in the reasonable
opinion of the Agent, there shall have been no material adverse change
in the financial condition or in the earnings, capital, properties or
business affairs of the Holding Company or the Bank independently, or
of the Holding Company and the Bank, considered as one enterprise, from
that as of the latest dates as of which such condition is set forth in
the Prospectus, except as referred to therein; (ii) there shall have
been no material transaction entered into by the Holding Company and
the Bank, considered as one enterprise, from the latest date as of
which the financial condition of the Holding Company or the Bank is set
forth in the Prospectus other than transactions referred to or
contemplated therein; (iii) the Holding Company or the Bank shall not
have received from the OTS or the FDIC any direction (oral or written)
to make any material change in the method of conducting their business
with which it has not complied in all material respects (which
direction, if any, shall have been disclosed to the Agent) and which
would reasonably be expected to have a material and adverse effect on
the condition (financial or otherwise) or on the earnings, capital,
properties or business affairs of the Holding Company or the Bank
considered as one enterprise; (iv) neither the Holding Company nor the
Bank shall have been in default (nor shall an event have occurred
which, with notice or lapse of time or both, would constitute a
default) under any provision of any agreement or instrument relating to
any material outstanding indebtedness; (v) no action, suit or
proceeding, at law or in equity or before or by any federal or state
commission, board or other administrative agency, shall be pending or,
to the knowledge of the Holding Company or the Bank, threatened against
the Holding Company or the Bank or affecting any of their properties
wherein an unfavorable decision, ruling or finding would reasonably be
expected to have a material and adverse effect on the financial
condition or on the earnings, capital, properties or business affairs
of the Holding Company or the Bank, considered as one enterprise; and
(vi) the Shares have been qualified or registered for offering and sale
under the securities or blue sky laws of the jurisdictions as to which
the Holding Company and the Agent shall have agreed.
(j) At or prior to the Closing Date, the Agent shall receive
(i) a copy of the letter from the OTS authorizing the use of the
Prospectus and approving the Application, (ii) a copy of the order from
the Commission declaring the Registration Statement effective, (iii) a
copy of certificate of existence for the Bank from the OTS, (iv) a
certificate of good standing from the State of Delaware evidencing the
good standing of the Holding Company and (v) a copy of the letter from
the OTS approving the Holding Company Application.
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<PAGE>
(k) As soon as available after the Closing Date, the Agent
shall receive a certified copy of the Bank's stock charter.
(l) Subsequent to the date hereof, there shall not have
occurred any of the following: (i) a suspension or limitation in
trading in securities generally on the New York Stock Exchange or
American Stock Exchange or in the over-the-counter market, or
quotations halted generally on the Nasdaq Stock Market, or minimum or
maximum prices for trading have been fixed, or maximum ranges for
prices for securities have been required by either of such exchanges or
the NASD or by order of the Commission or any other governmental
authority; (ii) a general moratorium on the operations of commercial
banks or other federally-insured financial institutions or general
moratorium on the withdrawal of deposits from commercial banks or other
federally-insured financial institutions declared by either federal or
state authorities; (iii) the engagement by the United States in
hostilities which have resulted in the declaration, on or after the
date hereof, of a national emergency or war; or (iv) a material decline
in the price of equity or debt securities if the effect of any of (i)
through (iv) herein, in the Agent's reasonable judgment, makes it
impracticable or inadvisable to proceed with the Subscription and
Community Offering or the delivery of the Shares on the terms and in
the manner contemplated in the Registration Statement and the
Prospectus.
Section 9.B. Conditions to the Holding Company and the Bank's
Obligations. The obligations of the Holding Company and the Bank hereunder are
subject to the accuracy of the representations, warranties and covenants of the
Agent, to the performance by the Agent of its obligations hereunder and to the
satisfaction of the conditions contained in Paragraph (a) of Section 9A
hereunder.
Section 10. Indemnification.
(a) The Holding Company and the Bank agree to indemnify and
hold harmless the Agent, its officers, directors, agents, servants and
employees and each person, if any, who controls the Agent within the
meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act,
against any and all loss, liability, claim, damage or expense
whatsoever (including but not limited to settlement expenses), joint or
several, that the Agent or any of them may suffer or to which the Agent
and any such persons may become subject under all applicable federal
and state laws or otherwise, and to promptly reimburse the Agent and
any such persons upon written demand for any reasonable expenses
(including fees and disbursements of counsel) incurred by the Agent or
any of them in connection with investigating, preparing or defending
any actions, proceedings or claims (whether commenced or threatened) to
the extent such losses, claims, damages, liabilities or actions (i)
arise out of or are based upon any untrue statement or alleged untrue
statement of a
29
<PAGE>
material fact contained in the Registration Statement (or any amendment
or supplement thereto), preliminary or final Prospectus (or any
amendment or supplement thereto), the Application, or any blue sky
application or other instrument or document of the Holding Company or
the Bank or based upon written information supplied by the Holding
Company or the Bank filed in any state or jurisdiction to register or
qualify any or all of the Shares under the securities laws thereof
(collectively, the "Blue Sky Application"), or any application or other
document, advertisement, or communication ("Sales Information")
prepared, made or executed by or on behalf of the Holding Company or
the Bank with its consent or based upon written information furnished
by or on behalf of the Holding Company or the Bank, whether or not
filed in any jurisdiction in order to qualify or register the Shares
under the securities laws thereof, (ii) arise out of or based upon the
omission or alleged omission to state in any of the foregoing documents
or information, a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; (iii) arise from any theory
of liability whatsoever relating to or arising from or based upon the
Registration Statement (or any amendment or supplement thereto),
preliminary or final Prospectus (or any amendment or supplement
thereto), the Application, any Blue Sky Application or Sales
Information or other documentation distributed in connection with the
Conversion; provided, however, that no indemnification is required
under this paragraph (a) to the extent such losses, claims, damages,
liabilities or actions arise out of or are based upon any untrue
material statements or alleged untrue material statements in, or
material omission or alleged material omission from, the Registration
Statement (or any amendment or supplement thereto) or the preliminary
or final Prospectus (or any amendment or supplement thereto) the
Application, the Blue Sky Application or Sales Information or other
documentation distributed in connection with the Conversion made in
reliance upon and in conformity with written information furnished to
the Holding Company or the Bank by the Agent with respect to the Agent
expressly for use in the Registration Statement (or any amendment or
supplement thereto) or Prospectus (or any amendment or supplement
thereto) under the caption "The Conversion - Marketing Arrangements"
therein or statistical information regarding the Holding Company
prepared by the Agent for use in the Sales Information except for
information derived from the Prospectus. Provided further, that the
Holding Company and the Bank will not be responsible for any loss,
liability, claim, damage or expense to the extent they result primarily
from actions taken or omitted to be taken by the Agent in bad faith or
from the Agent's gross negligence, and the Agent agrees to repay to the
Holding Company any amounts advanced by it to the Agent in connection
with matters as to which the Agent is found not to be entitled to
indemnification hereunder. Notwithstanding the foregoing, the
indemnification provided for in this paragraph (a) shall not apply to
the Bank to the extent that such indemnification by the
30
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Bank would constitute a covered transaction under Section 23A of the
Federal Reserve Act.
(b) The Agent agrees to indemnify and hold harmless the
Holding Company, its directors and officers, agents, servants and
employees and each person, if any, who controls the Holding Company
within the meaning of Section 15 of the 1933 Act or Section 20(a) of
the 1934 Act against any and all loss, liability, claim, damage or
expense whatsoever (including but not limited to settlement expenses),
joint or several which they, or any of them, in connection with
investigating, preparing or defending any actions, proceedings or
claims (whether commenced or threatened) to the extent such losses,
claims, damages, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment of supplement
thereto), the Application, the Holding Company Application or any Blue
Sky Application or Sales Information or are based upon the omission or
alleged omission to state in any of the foregoing documents a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that the Agent's obligations under
this Section 10(b) shall exist only if and only to the extent that such
untrue statement or alleged untrue statement was made in, or such
material fact or alleged material fact was omitted from, the
Registration Statement (or any amendment or supplement thereto) or the
Prospectus (or any amendment or supplement thereto) in reliance upon
and in conformity with written information furnished to the Holding
Company by the Agent expressly for use under the caption "The
Conversion -- Marketing Arrangements" therein or statistical
information regarding the Holding Company prepared by the Agent for use
in the Sales information except for information derived from the
Prospectus.
(c) Each indemnified party shall give prompt written notice to
each indemnifying party of any action, proceeding, claim (whether
commenced or threatened), or suit instituted against it in respect of
which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve it from any liability which it may
have on account of this Section 10 or otherwise. An indemnifying party
may participate at its own expense in the defense of such action. In
addition, if it so elects within a reasonable time after receipt of
such notice, an indemnifying party, jointly with any other indemnifying
parties receiving such notice, may assume defense of such action with
counsel chosen by it and approved by the indemnified parties that are
defendants in such action, unless such indemnified parties reasonably
object to such assumption on the ground that there may be legal
defenses available to them that are different from or in addition to
those available to such indemnifying party. If an indemnifying party
assumes the defense of such action, the indemnifying parties shall not
be liable for any fees and expenses of counsel for the indemnified
parties
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<PAGE>
incurred thereafter in connection with such action, proceeding or
claim, other than reasonable costs of investigation. In no event shall
the indemnifying parties be liable for the fees and expenses of more
than one separate firm of attorneys (and any special counsel that said
firm may retain) for all indemnified parties in connection with any one
action, proceeding or claim or separate but similar or related actions,
proceedings or claims in the same jurisdiction arising out of the same
general allegations or circumstances.
(d) The agreements contained in this Section 10 and in Section
11 hereof and the representations and warranties of the Holding Company
and the Bank set forth in this Agreement shall remain operative and in
full force and effect regardless of (i) any investigation made by or on
behalf of the Agent or its officers, directors or controlling persons,
agents or employees or by or on behalf of the Holding Company or the
Bank or any officers, directors or controlling persons, agents or
employees of the Holding Company or the Bank or any controlling person,
director or officer of the Holding Company or the Bank; (ii) delivery
of and payment hereunder for the Shares; or (iii) any termination of
this Agreement.
Section 11. Contribution.
(a) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Section 10
is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Holding Company and the Bank, or the
Agent, as the case may be, the Holding Company and the Bank, or the
Agent, as the case may be, shall contribute to the aggregate losses,
claims, damages and liabilities (including any investigation, legal and
other expenses incurred in connection therewith and any amount paid in
settlement of any action, suit or proceeding of any claims asserted,
but after deducting any contribution received by the Holding Company
and the Bank or the Agent, as the case may be from persons other than
the other party thereto, who may also be liable for contribution) in
such proportion so that the Agent is responsible for that portion
represented by the percentage that the fees paid to the Agent pursuant
to Section 4 of this Agreement (not including expenses) bears to the
gross proceeds received by the Holding Company from the sale of the
Shares in the Subscription and Community Offering and the Holding
Company and the Bank shall be responsible for the balance. If, however,
the allocation provided above is not permitted by applicable law or if
the indemnified party failed to give the notice required under Section
10 above, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative fault of the Holding
Company and the Bank on the one hand and the Agent on the other in
connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions, proceedings or
claims in
32
<PAGE>
respect thereof), but also the relative benefits received by the
Holding Company and Bank on the one hand and the Agent on the other
from the offering, as well as any other relevant equitable
considerations. The relative benefits received by the Holding Company
and the Bank on the one hand and the Agent on the other shall be deemed
to be in the same proportion as the total gross proceeds from the
Subscription and Community Offering (before deducting expenses)
received by the Holding Company bear to the total fees (not including
expenses) received by the Agent. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Holding
Company and/or the Bank on the one hand or the Agent on the other and
the parties relative intent, good faith, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Holding Company and the Agent agree that it would not be
just and equitable if contribution pursuant to this Section 11 were
determined by pro-rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to
above in this Section 11. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or
action, proceedings or claims in respect thereof) referred to above in
this Section 11 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action, proceeding or claim. It is
expressly agreed that the Agent shall not be liable for any loss,
liability, claim, damage or expense or be required to contribute any
amount which in the aggregate exceeds the amount paid (excluding
reimbursable expenses) to the Agent under this Agreement. It is
understood that the above-stated limitation on the Agent's liability is
essential to the Agent and that the Agent would not have entered into
this Agreement if such limitation had not been agreed to by the parties
to this Agreement. No person found guilty of any fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act)
shall be entitled to contribution from any person who was not found
guilty of such fraudulent misrepresentation. The obligations of the
Holding Company, the Bank, and the Agent under this Section 11 and
under Section 10 shall be in addition to any liability which the
Holding Company, the Bank, and the Agent may otherwise have. For
purposes of this Section 11, each of the Agent's, the Holding Company's
and the Bank's officers and directors and each person, if any, who
controls the Agent or the Holding Company and the Bank within the
meaning of the 1933 Act and the 1934 Act shall have the same rights to
contribution as the Holding Company, the Bank and the Agent. Any party
entitled to contribution, promptly after receipt of notice of
commencement of any action, suit, claim or proceeding against such
party in respect of which a claim for contribution may be made against
another party under this Section 11, will notify such party from whom
contribution may be sought, but the omission to so notify such party
shall not relive the party from whom contribution may
33
<PAGE>
be sought from any other obligation it may have hereunder or otherwise
than under this Section 11.
Section 12. Representations, Warranties and Indemnities to Survive
Delivery. All representations, warranties and indemnities and other statements
contained in this Agreement, or contained in certificates of officers of the
Holding Company and the Bank or the Agent submitted pursuant hereto, shall
remain operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of the
Agent or controlling person, or by or on behalf of the Holding Company and the
Bank and shall survive the issuance of the Shares, and any legal representative,
successor or assign of the Agent, the Bank and the Holding Company, and any
indemnified person shall be entitled to the benefit of the respective
agreements, indemnities, warranties and representations.
Section 13. Termination. Webb may terminate this Agreement by giving
the notice indicated below in this Section at any time after this Agreement
becomes effective as follows:
(a) In the event the Holding Company fails to sell the minimum
number of the Shares within the period specified in accordance with the
provisions of the Plan or as required by the Conversion Regulations and
applicable law, this Agreement shall terminate upon refund by the Bank
to each person who has subscribed for or ordered any of the Shares the
full amount which it may have received from such person, together with
interest in accordance with Section 3, and no party to this Agreement
shall have any obligation to the other hereunder, except as set forth
in Sections 3, 4, 8, 10 and 11 hereof.
(b) If any of the conditions specified in Section 9A shall not
have been fulfilled when and as required by this Agreement, or by the
Closing Date, or waived in writing by the Agent, this Agreement and all
of the Agent's obligations hereunder may be canceled by the Agent by
notifying the Bank of such cancellation in writing or by telegram at
any time at or prior to the Closing Date, and, any such cancellation
shall be without liability of any party to any other party except as
otherwise provided in Sections 3, 4, 8, 10 and 11 hereof.
(c) If Webb elects to terminate this Agreement as provided in
this Section, the Holding Company and the Bank shall be notified by the
Agent as provided in Section 14 hereof.
Section 14. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to Webb shall be
directed to Charles Webb & Company at 211 Bradenton Avenue, Dublin, Ohio 43017,
Attention: Mr. Charles R. Webb (with a copy to David W. Swartz, Esquire, Stevens
& Lee, One Glenhardie Corporate Center,
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<PAGE>
1275 Drummers Lane, P.O. Box 236, Wayne, Pennsylvania 19087- 0236), and notices
to the Holding Company and the Bank shall be directed to 5700 West 159th Street,
Oak Forest, Illinois 60452- 3198, Attention: Maureen G. Partynski, Chairman of
the Board and Chief Executive Officer (with a copy to Kip A. Weissman, P.C.,
Silver, Freedman & Taff, L.L.P. 1100 New York Avenue, N.W., Washington, D.C.
20005).
Section 15. Parties. This Agreement shall inure to the benefit of and
be binding upon the Agent and the Holding Company and the Bank, and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the parties hereto and their respective successors and the controlling
persons and officers and directors referred to in Sections 10 and 11 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provisions herein contained. It is
understood and agreed that this Agreement is the exclusive agreement among the
parties, supersedes any prior Agreement among the parties and may not be varied
except by a writing signed by all parties.
Section 16. Partial Invalid. In the event that any term, provision or
covenant herein or the application thereof to any circumstances or situation
shall be invalid or unenforceable, in whole or in part, the remainder hereof and
the application of said term, provision or covenant to any other circumstance or
situation shall not be affected thereby, and each term, provision or covenant
herein shall be valid and enforceable to the full extent permitted by law.
Section 17. Construction. This Agreement shall be construed in
accordance with the laws of the State of [Illinois].
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
35
<PAGE>
instrument along with all counterparts will become a binding agreement between
you and us in accordance with its terms.
Very truly yours,
HEMLOCK FEDERAL BANK FOR HEMLOCK FEDERAL FINANCIAL
SAVINGS CORPORATION
By:________________________ By:_____________________________
Maureen G. Partynski, Maureen G. Partynski,
Chairman of the Board Chairman of the Board
and Chief Executive Officer and Chief Executive Officer
The foregoing Agency Agreement is hereby confirmed and accepted as of the date
first set and above written.
CHARLES WEBB & COMPANY
By:______________________________
Patricia A. McJoynt,
Executive Vice President and
Chief Operating Officer
36
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORPORATION
(A Delaware Corporation)
Up to __________ Shares
(Par Value $.0l Per Share)
SELECTED DEALERS' AGREEMENT
---------------------------
_______________, 1997
Ladies and Gentlemen:
We have agreed to assist Hemlock Federal Financial Corporation (the
"Company"), a Delaware corporation, in connection with the offer and sale of up
to ______________ shares of the Company's common stock, $0.01 par value (the
"Common Stock"), to be issued in connection with the conversion of Hemlock
Federal Bank for Savings ("Hemlock Federal" or the "Bank"), a federally
chartered mutual savings bank in accordance with the Plan of Conversion of the
Bank (the "Plan") and the sale of all the Bank's issued and outstanding common
stock to the Company (the "Conversion"). The price per share of the Common Stock
has been fixed at $10.00. The Common Stock and certain of the terms on which it
is being offered, are more fully described in the enclosed prospectus dated
______________, 1997 (the "Prospectus").
In connection with the Conversion, the Company is offering the Common
Stock in a Subscription Offering (to the Eligible Account Holders, Tax-qualified
Employee Plans, Supplemental Eligible Account Holders, Other Members of the
Bank, and to directors, officers and employees of the Bank) and in a Community
Offering to members of the general public (Other Subscribers). The Common Stock
is also being offered in accordance with the Plan by a selling group of
broker-dealers.
We are offering the selected dealers (of which you are one) the
opportunity to participate in the solicitation of offers to buy the Common Stock
and we will pay you a fee in the amount of _______ percent (______%) of the
dollar amount of the Common Stock sold on behalf of the Company by you, as
evidenced by the authorized designation of your firm on the order form or forms
for such Common Stock accompanying the funds transmitted for payment therefor to
the special account established by the Bank for the purpose of holding such
funds. Any purchase of Common Stock made pursuant to this Agreement is subject
to a maximum purchase limitation of $200,000 of the Common Stock offered in the
Conversion exclusive of an increase in the total number of shares issued
pursuant to an increase in the Estimated Valuation Range (as defined in the
Plan). It is understood, of course,
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<PAGE>
that payment of your fee will be made to you directly by the Company for the
Common Stock sold on behalf of the Company by you, as evidenced in accordance
with the preceding sentence. As soon as practicable after the closing date of
the offering, the Company will remit to you the fees to which you are entitled
hereunder.
Each order form for the purchase of Common Stock must set forth the
identity and address of each person to whom the certificates for such Common
Stock should be issued and delivered. Such order form should clearly identify
your firm. You shall instruct any subscriber who elects to send his order form
to you to make any accompanying check payable to the Bank.
This offer is made subject to the terms and conditions herein set forth
and contained in the Plan and is made only to selected dealers who are (i)
members in good standing of the National Association of Securities Dealers, Inc.
(the "NASD") who are to comply with all applicable rules of the NASD, including,
without limitation, the NASD's Interpretation With Respect to Free-Riding and
Withholding and Section 24 of Article III of the NASD's Rules of Fair Practice,
or (ii) foreign dealers not eligible for membership in the NASD who agree (A)
not to sell any Common Stock within the United States, its territories or
possessions or to persons who are citizens thereof or resident therein and (B)
in making other sales to comply with the above-mentioned NASD Interpretation,
Sections 8, 24 and 36 of the above-mentioned Article III as if they were NASD
members and Section 25 of such Article III as it applies to non-member brokers
or dealers in a foreign country.
Orders for Common Stock will be strictly subject to confirmation and
we, acting on behalf of the Company, reserve the right in our uncontrolled
discretion to reject any order in whole or in part, to accept or reject orders
in the order of their receipt or otherwise, and to allot. Neither you nor any
other person is authorized by the Company or by us to give any information or
make any representations other than those contained in the Prospectus in
connection with the sale of any of the Common Stock. No selected dealer is
authorized to act as agent for us when soliciting offers to buy the Common Stock
from the public or otherwise. No selected dealer shall engage in any stabilizing
(as defined in Rule 10b-7 promulgated under the Securities Exchange Act of 1934)
with respect to the Company's Common Stock during the offering.
We and each selected dealer assisting in selling Common Stock pursuant
hereto agree to comply with the applicable requirements of the Securities
Exchange Act of 1934 and applicable state rules and regulations. In addition, we
and each selected dealer confirm that the Securities and Exchange Commission
interprets Rule 15c2-8 promulgated under the Securities Exchange Act of 1934 as
requiring that a Prospectus be
2
<PAGE>
supplied to each person who is expected to receive a confirmation of sale 48
hours prior to delivery of such person's order form.
We and each selected dealer within the meaning of Rule 15c3-1(a)(1)
further agree to the extent that our customers desire to pay for shares with
funds held by or to be deposited with us, in accordance with the interpretation
of the Securities and Exchange Commission of Rule 15c2-4 promulgated under the
Securities Exchange Act of 1934, either (a) upon receipt of an executed order
form or direction to execute an order form on behalf of a customer to forward
the offering price for the Common Stock ordered on or before twelve noon of the
business day following receipt or execution of an order form by us to the Bank
for deposit in a segregated account or (b) to solicit indications of interest in
which event (i) we will subsequently contact any customer indicating interest to
confirm the interest and give instructions to execute and return an order form
or to receive authorization to execute the order form on the customer's behalf,
(ii) we will mail acknowledgements of receipt of orders to each customer
confirming interest on the business day following such confirmation, (iii) we
will debit accounts of such customers on the fifth business day (the "debit
date") following receipt of the confirmation referred to in (i), and (iv) we
will forward completed order forms together with such funds to the Bank on or
before twelve noon on the next business day following the debit date for deposit
in a segregated account. We and each selected dealer acknowledge that if the
procedure in (b) is adopted, our customers' funds are not required to be in
their accounts until the debit date.
Unless earlier terminated by us, this Agreement shall terminate upon
the closing date of this offering. We may terminate this Agreement or any
provisions hereof at any time by written or telegraphic notice to you. Of
course, our obligations hereunder are subject to the successful completion of
the offering.
You agree that at any time or times prior to the termination of this
Agreement you will, upon our request, report to us the number of shares of
Common Stock sold on behalf of the Company by you under this Agreement.
We shall have full authority to take such actions as we may deem
advisable in respect of all matters pertaining to the offering. We shall be
under no liability to you except for lack of good faith and for obligations
expressly assumed by us in this Agreement.
Upon application to us, we will inform you as to the states in which we
believe the Common Stock has been qualified for sale under, or are exempt from
the requirements of, the respective blue sky laws of such states, but we assume
no responsibility or obligation as to your rights to sell Common Stock in any
state.
3
<PAGE>
Additional copies of the Prospectus and any supplements thereto will be
supplied in reasonable quantities upon request.
Any notice from us to you shall be deemed to have been duly given if
mailed, telephoned, or telegraphed to you at the address to which this Agreement
is mailed.
This Agreement shall be construed in accordance with the laws of the
State of Ohio.
Please confirm your agreement hereto by signing and returning the
confirmation accompanying this letter at once to us at Charles Webb & Company,
211 Bradenton, Dublin, Ohio 43017-3514. The enclosed duplicate copy will
evidence the agreement between us.
CHARLES WEBB & COMPANY
By:______________________________
Patricia A. McJoynt
Executive Vice President
Agreed and accepted as of ________________, 1997
- ---------------------------------
By:________________________
4
EXHIBIT 3.3
Charter of
HEMLOCK FEDERAL BANK FOR SAVINGS
SECTION 1. Corporate title. The full corporate title of the bank is
Hemlock Federal Bank for Savings.
SECTION 2. Office. The home office of the bank shall be located in the
City of Oak Forest, County of Cook, in the State of Illinois.
SECTION 3. Duration. The duration of the bank is perpetual.
SECTION 4. Purpose and Powers. The purpose of the bank is to pursue any
or all of the lawful objectives of a federal bank chartered under section 5 of
the Home Owners' Loan Act and to exercise all of the express, implied, and
incidental powers conferred thereby and by all acts amendatory thereof and
supplemental thereto, subject to the Constitution and laws of the United States
as they are now in effect, or as they may hereafter be amended, and subject to
all lawful and applicable rules, regulations, and orders of the Office of Thrift
Supervision ("Office").
SECTION 5. Capital Stock. The total number of shares of all classes of
the capital stock which the bank has the authority to issue is three million
(3,000,000) of which two million five hundred thousand (2,500,000) shall be
common stock of par value of $.01 per share, and of which five hundred thousand
(500,000) shall be serial preferred stock of par value $.01 per share. The
shares may be issued from time to time as authorized by the board of directors
without further approval of stockholders, except as otherwise provided in this
Section 5 or to the extent that such approval is required by governing law, rule
or regulation. The consideration for the issuance of the shares shall be paid in
full before their issuance and shall not be less than the par value. Neither
promissory notes nor future services shall constitute payment or part payment
for the issuance of shares of the bank. The consideration for the shares shall
be cash, tangible or intangible property (to the extent direct investment in
such property would be permitted to the savings bank), labor, or services
actually performed for the bank or any combination of the foregoing. In the
absence of actual fraud in the transaction, the value of such property, labor,
or services, as determined by the board of directors of the bank, shall be
conclusive. Upon payment of such consideration, such shares shall be deemed to
be fully paid and nonassessable. In the case of a stock dividend, that part of
the surplus of the bank which is transferred to stated capital upon the issuance
of shares as a share dividend shall be deemed to be the consideration for their
issuance.
Except for shares issuable in connection with the conversion of the
bank from the mutual to the stock form of organization, no shares of capital
stock (including shares issuable upon conversion, exchange, or exercise of other
securities) shall be issued, directly or indirectly, to officers, directors, or
controlling persons of the bank other than as part of a general public
<PAGE>
offering or as qualifying shares to a director, unless their issuance or the
plan under which they would be issued has been approved by a majority of the
total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series, or to more than one vote per share, except
as to the cumulation of votes for the election of directors: Provided, That this
restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of
preferred stock, voting as a class or series, to elect some
members of the board of directors, less than a majority
thereof, in the event of default in the payment of dividends
on any class or series of preferred stock;
(ii) To any provision which would require the holders of preferred
stock, voting as a class or series, to approve the merger or
consolidation of the bank with another corporation or the
sale, lease, or conveyance (other than by mortgage or pledge)
of properties or business in exchange for securities of a
corporation other than the bank if the preferred stock is
exchanged for securities of such other corporation: Provided,
That no provision may require such approval for transactions
undertaken with the assistance or pursuant to the direction of
the Office; or the Federal Deposit Insurance Corporation.
(iii) To any amendment which would adversely change the specific
terms of any class or series of capital stock as set forth in
this Section 5 (or in any supplementary sections hereto),
including any amendment which would create or enlarge any
class or series ranking prior thereto in rights and
preferences. An amendment which increases the number of
authorized shares of any class or series of capital stock, or
substitutes the surviving bank in a merger or consolidation
for the bank, shall not be considered to be such an adverse
change.
A description of the different classes and series (if any) of the
bank's capital stock and a statement of the designations, and the relative
rights, preferences, and limitations of the shares of each class and series (if
any) of capital stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of 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 holder, except as to
the cumulation of votes for the election of directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full amount
of dividends and of sinking fund, retirement fund, or other retirement payments,
if any, to which such holders are respectively entitled in
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preference to the common stock, then dividends may be paid on the common stock
and on any class or series of stock entitled to participate therewith as to
dividends out of any assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
bank, the holders of the common stock (and the holders of any class or series of
stock entitled to participate with the common stock in the distribution of
assets) shall be entitled to receive, in cash or in kind, the assets of the bank
available for distribution remaining after: (i) Payment or provision for payment
of the bank's debts and liabilities; (ii) distributions or provision for
distributions in settlement of its liquidation account; and (iii) distributions
or provisions for distributions to holders of any class or series of stock
having preference over the common stock in the liquidation, dissolution, or
winding up of the bank. Each share of common stock shall have the same relative
rights as and be identical in all respects with all the other shares of common
stock.
B. Preferred Stock. The bank may provide in supplementary sections to
its charter for one or more classes of preferred stock, which shall be
separately identified. The shares of any class may be divided into and issued in
series, with each series separately designated so as to distinguish the shares
thereof from the shares of all other series and classes. The terms of each
series shall be set forth in a supplementary section to the charter. All shares
of the same class shall be identical except as to the following relative rights
and preferences, as to which there may be variations between different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative
and, if so, from which date(s), the payment date(s) for
dividends, and the participating or other special rights, if
any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if
so, the price(s) at which, and the terms and conditions on
which, such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution, or
winding up of the bank;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application,
including the price(s) at which such shares may be redeemed or
purchased through the application of such fund;
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(g) Whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes of
stock of the bank and, if so, the conversion price(s), or the
rate(s) of exchange, and the adjustments thereof, if any, at
which such conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued
shares of serial preferred stock and whether such shares may
be reissued as shares of the same or any other series of
serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption
of supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established
by a supplementary charter section adopted by the board of directors, the bank
shall file with the Secretary to the Office a dated copy of that supplementary
section of this charter established and designating the series and fixing and
determining the relative rights and preferences thereof.
SECTION 6. Preemptive Rights. Holders of the capital stock of the bank
shall not be entitled to preemptive rights with respect to any shares of the
bank which may be issued.
SECTION 7. Liquidation Account. Pursuant to the requirements of the
Office's regulations (12 C.F.R. Part 563b) the bank shall establish and maintain
a liquidation account for the benefit of its savings account holders as of
December 31, 1993 ("eligible savers") and March 31, 1995 ("supplemental eligible
savers"). In the event of a complete liquidation of the bank, it shall comply
with such regulations with respect to the amount and the priorities on
liquidation of each eligible saver's and supplemental eligible saver's inchoate
interest in the liquidation account, to the extent it is still in existence:
Provided, That an eligible saver's and supplemental eligible saver's inchoate
interest in the liquidation account shall not entitle such eligible saver or
supplemental eligible saver to any voting rights at meetings of the bank's
stockholders.
SECTION 8. Certain Provisions Applicable for Five Years.
Notwithstanding anything contained in the bank's charter or bylaws to the
contrary, for a period of five years from the
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date of completion of the conversion of the bank from mutual to stock form, the
following provisions shall apply:
A. Beneficial Ownership Limitation. No person 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 bank. This limitation shall not apply
to a transaction in which the bank forms a holding company without change in the
respective beneficial ownership interests of its stockholders other than
pursuant to the exercise of any dissenter and appraisal rights, the purchase of
shares by underwriters in connection with a public offering, or the purchase of
shares by a tax-qualified employee stock benefit plan which is exempt from the
approval requirements under Section 574.3(c)(1)(vi) of the Office's regulations.
In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10% shall be considered
"excess shares" and 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
matters submitted to the stockholders for a vote.
For purposes of this Section 8, the following definitions apply:
(1) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, a bank, 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 the equity
securities of the bank.
(2) The term "offer" includes every offer to buy or otherwise 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.
(3) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) 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 arrangements,
whether written or otherwise.
B. Cumulative Voting Limitation. Stockholders shall not be permitted to
cumulate their votes for election of directors.
C. Call for Special Meetings. Special meetings of stockholders relating
to changes in control of the bank or amendments to its charter shall be called
only upon direction of the board of directors.
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SECTION 9. Directors. The bank shall be under the direction of a board
of directors. The authorized number of directors, as stated in the bank's
bylaws, shall not be fewer than five nor more than fifteen except when a greater
number is approved by the Director of the Office.
SECTION 10. Amendment of charter. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is first proposed by the board of directors of the bank, then
preliminarily approved by the Office, which preliminary approval may be granted
by the Office pursuant to regulations specifying preapproved charter amendments,
and thereafter approved by the stockholders by a majority of the total votes
eligible to be cast at a legal meeting. Any amendment, addition, alteration,
change, or repeal so acted upon shall be effective upon filing with the Office
in accordance with regulatory procedures or on such other date as the Office may
specify in its preliminary approval.
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HEMLOCK FEDERAL BANK FOR SAVINGS
ATTEST: By:
------------------------ ---------------------------------
Rosanne Pastorek-Belcazk Maureen G. Partynski
Secretary Chairman and Chief Executive Officer
DIRECTOR OF THE OFFICE OF
THRIFT SUPERVISION
ATTEST: By:
--------------------------------- --------------------------------
Secretary of the Office of Thrift Director of the Office
Supervision of Supervision
Declared effective this ____ day of ____________.199__
7
EXHIBIT 3.4
BYLAWS OF
HEMLOCK FEDERAL BANK FOR SAVINGS
ARTICLE I
HOME OFFICE
The home office of the bank shall be in the City of Oak Forest, in the
County of Cook, in the State of Illinois.
ARTICLE II
SHAREHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the bank or at such other place
in the State in which the principal place of business of the bank is located as
the board of directors may determine.
Section 2. Annual Meeting. A meeting of shareholders of the bank for
the election of directors and for the transaction of any other business of the
bank shall be held annually within 120 days after the end of the bank's fiscal
year on the fourth Wednesday of each April, if not a legal holiday, and if a
legal holiday, then on the next day following which is not a legal holiday, at
2:00 p.m., or at such other date and time within such 120-day period as the
board of directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
Chairman of the Board, the president, or a majority of the board of directors,
and shall be called by the Chairman of the Board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the out standing capital stock of the bank entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the bank addressed to the Chairman
of the Board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws. The
board of directors shall designate, when present, either the chairman of the
board 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(s) for which the meeting is called shall
be delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the
<PAGE>
direction of the chairman of the board, the president, or the secretary, or the
directors calling the meeting, to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the mail, addressed to the shareholder at the address as it appears
on the stock transfer books or records of the bank as of the record date
prescribed in Section 6 of this Article II with postage prepaid. When any
shareholders' meeting, either annual or special, is adjourned for 30 days or
more, notice of the adjourned meeting shall be given as in the case of an
original meeting. It shall not be necessary to give any notice of the time and
place of any meeting adjourned for less than 30 days or of the business to be
transacted at the meeting, other than an announcement at the meeting at which
such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders enti tled to receive payment of any dividend,
or in order to make a determination of shareholders for any other proper
purpose, the board of directors shall fix in advance a date as the record date
for any such determination of shareholders. Such date in any case shall be not
more than 60 days and, in case of a meeting of shareholders, not fewer than 10
days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the bank shall make a complete list of the shareholders entitled to
vote at such meeting, or any adjournment, arranged in alphabetical order, with
the address and the number of shares held by each. This list of shareholders
shall be kept on file at the home office of the bank and shall be subject to
inspection by any shareholder at any time during usual business hours for a
period of 20 days prior to such meeting. Such list shall also be produced and
kept open at the time and place of the meeting and shall be subject to
inspection by any shareholder during the entire time of the meeting. The
original stock transfer book shall constitute prima facie evidence of the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures prescribed in Section 552.6(d) of the Office's
regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the bank
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
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Section 9. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies solicited on behalf of the management shall
be voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid more
than eleven months from the date of its execution except for a proxy coupled
with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the bank to the contrary, at any meeting of the shareholders of
the bank any one or more of such shareholders may cast, in person or by proxy,
all votes to which such ownership is entitled. In the event an attempt is made
to cast conflicting votes, in person or by proxy, by the several persons in
whose names shares of stock stand, the vote or votes to which those persons are
enti tled 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 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer into his or her 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 shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the bank nor shares
held by another corporation, if a majority of the shares entitled to vote for
the election of directors of such other corporation are held by the bank, shall
be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Unless otherwise provided in the charter
of the bank, every shareholder entitled to vote at an election for directors
shall have the right to vote, in person or by proxy, the number of shares owned
by the shareholder for as many persons as there are directors to be elected and
for whose election the shareholder has a right to vote, or to cumulate the votes
by giving one candidate as many votes as the number of such directors to be
elected multiplied by the number of shares shall equal or by distributing such
votes on the same principle among any number of candidates.
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Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10% of the votes represented at the meeting shall, make such
appointment at the meeting. If appointed at the meeting, the majority of the
votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots or consents; hearing and determining all challenges and questions in any
way arising in connection with the rights to vote; counting and tabulating all
votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the bank. No nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by shareholders are made in writing and
delivered to the secretary of the bank at least five days prior to the date of
the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the bank. Ballots bearing the names of all
the persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
Section 15. New Business. At an annual meeting of shareholders only
such new business shall be conducted, and only such proposals shall be acted
upon, as shall have been properly brought before the meeting. For any new
business proposed by management to be properly brought before the annual
meeting, such new business shall be approved by the board of directors, either
directly or through its approval of proxy solicitation materials related
thereto, and shall be stated in writing and filed with the secretary of the bank
at least 20 days before the date of the annual meeting, and all business so
stated, proposed and filed shall be considered at the annual meeting. Any
shareholder may make any other proposal at the annual meeting and the same may
be discussed and considered, but unless properly brought before the meeting such
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<PAGE>
proposal shall not be acted upon at the meeting. For a proposal to be properly
brought before an annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the secretary of the bank. To be
timely, a shareholder's notice must be delivered to or received at the principal
executive offices of the bank, not less than 20 days prior to the meeting;
provided, however, that in the event that less than 30 days notice of the date
of the meeting is given to shareholders (which notice shall be accompanied by a
proxy or information statement which describes each matter proposed by the board
of directors to be acted upon at the meeting), notice by the shareholder to be
timely must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the annual meeting was
mailed. A shareholder's notice to the secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting: (a) a brief
description of the proposal desired to be brought before the annual meeting; (b)
the name and address of the shareholder proposing such business; and (c) the
class and number of shares of the bank which are owned of record by the
shareholder. Notwithstanding anything in the bylaws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 15.
Section 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of shareholders, or any other action which may be taken at a
meeting of shareholders, may be taken without a meeting if consent in writing,
setting forth the action so taken, shall be given by all of the shareholders
entitled to vote with respect to the subject matter.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the bank shall
be under the direction of its board of directors. The board of directors shall
annually elect a chairman of the board and a president from among its members
and shall designate, when present, either the chairman of the board or the
president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of
five members and shall be divided into three classes as nearly equal in number
as possible. The members of each class shall be elected for a term of three
years and until their successors are elected and qualified. One class shall be
elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The board of
directors may provide, by resolution, the time and place, within the bank's
normal lending territory, for the holding of additional regular meetings without
other notice than such resolution.
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Section 4. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the bank unless
the bank is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within the bank's normal lending
territory, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other. Such participation
shall constitute presence in person but shall not constitute attendance for the
purpose of compensation pursuant to Section 12 of this Article.
Section 6. Notice. Written notice of any special meeting shall be given
to each director at least two days prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 6 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
Section 10. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office of the bank addressed to
the chairman of the board
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or the president. Unless otherwise specified, such resignation shall take effect
upon receipt by the chairman of the board or the president. More than three
consecutive absences from regular meetings of the board of directors, unless
excused by resolution of the board of directors, shall automatically constitute
a resignation, effective when such resignation is accepted by the board of
directors.
Section 11. Vacancies. Any vacancy occurring on the board of directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the board of directors for a
term of office continuing only until the next election of directors by the
shareholders.
Section 12. Compensation. Directors, as such, may receive a stated
salary for their services. By resolution of the board of directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
actual attendance at each regular or special meeting of the board of directors.
Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the board of
directors may determine.
Section 13. Presumption of Assent. A director of the bank who is
present at a meeting of the board of directors at which action on any bank
matter is taken shall be presumed to have assented to the action taken unless
his or her dissent or abstention shall be entered in the minutes of the meeting
or unless he or she shall file a written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the secretary of the bank within five
days after the date a copy of the minutes of the meeting is received. Such right
to dissent shall not apply to a director who voted in favor of such action.
Section 14. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of the
shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
7
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ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the bank, or recommending to the shareholders a plan of
merger, consolidation, or conversion; the sale, lease, or other disposition of
all or substantially all of the property and assets of the bank otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
bank; a revocation of any of the foregoing; or the approval of a transaction in
which any member of the executive committee, directly or indirectly, has any
material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted
to be taken by the executive committee at a meeting may be taken without a
meeting if a consent in writing,
8
<PAGE>
setting forth the action so taken, shall be signed by all of the members of the
executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the bank. Unless otherwise specified,
such resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
establish an audit, loan, or other committee composed of directors as it may
determine to be necessary or appropriate for the conduct of the business of the
bank and may prescribe the duties, constitution and procedures thereof.
ARTICLE V
OFFICERS
Section 1. Positions. The officers of the bank shall be a president,
one or more vice presidents, a secretary and a chief financial officer, each of
whom shall be elected by the board of directors. The Board of Directors may also
designate the Chairman of the Board as an officer. The president shall be the
chief executive officer, unless the Board of Directors designates the Chairman
of the Board as chief executive officer. The president shall be a director of
the bank. The offices of the secretary and chief financial officer may be held
by the same person and a vice president may also be either the secretary or the
chief financial officer. 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 bank may require. The officers shall have such authority and
perform such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
Section 2. Election and Term of Office. The officers of the bank shall
be elected annually at the first meeting of the board of directors held after
each annual meeting of the
9
<PAGE>
shareholders. If the election of officers is not held at such meeting, such
election shall be held as soon thereafter as possible. Each officer shall hold
office until a successor has been duly elected and qualified or until the
officer's death, resignation, or removal in the manner hereinafter provided.
Election or appointment of an officer, employee or agent shall not of itself
create contractual rights. The board of directors may authorize the bank to
enter into an employment contract with any officer in accordance with
regulations of the Office; but no such contract shall impair the right of the
board of directors to remove any officer at any time in accordance with Section
3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of
directors whenever in its judgment the best interests of the bank will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the board of directors.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. To the extent permitted by regulations of the
Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of di rectors may authorize any officer,
employee, or agent of the bank to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the bank. Such authority may be
general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the bank
and no evidence of indebtedness shall be issued in its name unless authorized by
the board of directors. Such authority may be general or confined to specific
instances.
Section 3. Checks, Drafts, etc. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the bank shall be signed by one or more officers, employees, or agents
of the bank in such manner as shall from time to time be determined by the board
of directors.
Section 4. Deposits. All funds of the bank not otherwise employed shall
be deposited from time to time to the credit of the bank in any duly authorized
depositories as the board of directors may select.
10
<PAGE>
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the bank shall be in such form as shall be determined by the
board of directors and approved by the Office. Such certificates shall be signed
by the chief executive officer or by any other officer of the bank authorized by
the board of directors, attested by the secretary or an assistant secretary, and
sealed with the corporate seal or a facsimile thereof. The signatures of such
offi cers upon a certificate may be facsimiles if the certificate is manually
signed on behalf of a transfer agent or a registrar other than the bank itself
or one of its employees. Each certificate for shares of capital stock shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the bank. All
certificates surrendered to the bank for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares has been surrendered and cancelled, except that in the case of a lost or
destroyed certificate, a new certificate may be issued upon such terms and
indemnity to the bank as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of
the bank shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the bank. Such transfer shall be made only on surrender for cancellation of the
certificate for such shares. The person in whose name shares of capital stock
stand on the books of the bank shall be deemed by the bank to be the owner for
all purposes.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the bank shall end on the last day of December of
each year. The bank shall be subject to an annual audit as of the end of its
fiscal year by independent public accountants appointed by and responsible to
the board of directors. The appointment of such accountants shall be subject to
annual ratification by the shareholders.
11
<PAGE>
ARTICLE IX
DIVIDENDS
Subject to the terms of the bank's charter and the regulations and
orders of the Office, the board of directors may, from time to time, declare,
and the bank may pay, dividends on its outstanding shares of capital stock.
ARTICLE X
CORPORATE SEAL
The board of directors shall provide a bank seal which shall be two
concentric circles between which shall be the name of the bank. The year of
incorporation or an emblem may appear in the center.
ARTICLE XI
AMENDMENTS
These bylaws may be amended in a manner consistent with the regulations
of the Office at any time by a majority of the full board of directors or by a
majority of the votes cast by the shareholders of the bank at any legal meeting.
12
EXHIBIT 8.1
[SILVER, FREEDMAN & TAFF LETTERHEAD]
January 27, 1997
Board of Directors
Hemlock Federal Bank for Savings
5700 W. 159th Street
Oak Forest, Illinois 60452-3198
RE: Federal Income Tax Opinion Relating To The Conversion Of
Hemlock Federal Bank for Savings From A Federally-Chartered
Mutual Savings Bank To A Federally-Chartered Stock Savings
Bank Under Section 368(a)(1)(F) of the Internal Revenue Code
of 1986, As Amended
Gentlemen:
In accordance with your request set forth hereinbelow is the
opinion of this firm relating to the federal income tax consequences of the
conversion of Hemlock Federal Bank for Savings ("Mutual") from a
federally-chartered mutual savings bank to a federally-chartered stock savings
bank ("Stock Bank") pursuant to the provisions of Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended (the "Code").
Capitalized terms used herein which are not expressly defined
herein shall have the meaning ascribed to them in the Plan of Conversion dated
September 10, 1996 (the "Plan").
The following assumptions have been made in connection with
our opinions hereinbelow:
1. The Conversion is implemented in accordance with the terms
of the Plan and all conditions precedent contained in the Plan shall be
performed or waived prior to the consummation of the Conversion.
<PAGE>
Board of Directors
Hemlock Federal Bank for Savings
January 27, 1997
Page 2
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2. No amount of the savings accounts and deposits of Mutual,
as of the Eligibility Record Date or the Supplemental Eligibility Record Date,
will be excluded from participating in the liquidation account of Stock Bank. To
the best of the knowledge of the management of Mutual 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 Mutual 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.
3. Holding Company and Stock Bank each have no plan or
intention to redeem or otherwise acquire any of the Holding Company Conversion
Stock to be issued in the proposed transaction.
4. Immediately following the consummation of the proposed
transaction, Stock Bank will possess the same assets and liabilities as Mutual
held immediately prior to the proposed transaction, plus substantially all of
the net proceeds from the sale of its stock to Holding Company except for assets
used to pay expenses of the Conversion. The liabilities transferred to Stock
Bank were incurred by Mutual in the ordinary course of business.
5. No cash or property will be given to deposit account
holders in lieu of Subscription Rights or an interest in the liquidation account
of Stock Bank.
6. Following the Conversion, Stock Bank will continue to
engage in its business in substantially the same manner as Mutual engaged in
business prior to the Conversion, and it has no plan or intention to sell or
otherwise dispose of any of its assets, except in the ordinary course of
business.
7. There is no plan or intention for Stock Bank to be
liquidated or merged with another corporation following the consummation of the
Conversion.
8. The fair market value of each savings account plus an
interest in the liquidation account of Stock Bank will, in each instance, be
approximately equal to the fair market value of each savings account of Mutual
plus the interest in the residual equity of Mutual surrendered in exchange
therefor.
9. Mutual utilizes a reserve for bad debts in accordance with
Section 593 of the Code and following the Conversion, Stock Bank shall likewise
continue to utilize a reserve for bad debts in accordance with Section 593 of
the Code.
<PAGE>
Board of Directors
Hemlock Federal Bank for Savings
January 27, 1997
Page 3
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10. Mutual, Stock Bank and Holding Company are each
corporations within the meaning of Section 7701(a)(3) of the Code. Mutual and
Stock Bank are domestic building and loan associations within the meaning of
Section 7701(a)(19)(C) of the Code.
11. Holding Company has no plan or intention to sell or
otherwise dispose of the stock of Stock Bank received by it in the proposed
transaction.
12. Both Stock Bank and Holding Company have no plan or
intention, either currently or at the time of Conversion, to issue additional
shares of common stock following the proposed transaction, other than shares
that may be issued to employees and/or directors pursuant to certain stock
option and stock incentive plans or that may be issued to employee benefit
plans.
13. If all of the net proceeds from the sale of Holding
Company Conversion Stock had been contributed by Holding Company to Stock Bank
in exchange for common stock of Stock Bank in the transaction, as opposed to
Holding Company retaining a portion of such net proceeds (the "retained
proceeds"), and Stock Bank immediately thereafter made a distribution of the
retained proceeds to Holding Company, 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
Stock Bank under Section 593(e) of the Code.
14. Assets used to pay expenses of the Conversion and all
distributions (except for regular, normal interest payments and other payments
in the normal course of business made by Mutual immediately preceding the
transaction) will in the aggregate constitute less than 1% of the net assets of
Mutual and any such expenses and distributions will be paid by Stock Bank from
the proceeds of the sale of Holding Company Conversion Stock.
15. All distributions to deposit account holders in their
capacity as deposit account holders (except for regular, normal interest
payments made by Mutual), will, in the aggregate, constitute less than 1% of the
fair market value of the net assets of Mutual.
16. At the time of the proposed transaction, the fair market
value of the assets of Mutual on a going concern basis (including intangibles)
will equal or exceed the amount of its liabilities plus the amount of
liabilities to which such assets are subject. Mutual will have a positive
regulatory net worth at the time of the Conversion.
17. Mutual 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
<PAGE>
Board of Directors
Hemlock Federal Bank for Savings
January 27, 1997
Page 4
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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. Mutual's Eligible Account Holders and Supplemental
Eligible Account Holders will pay expenses of the Conversion solely attributable
to them, if any.
19. The liabilities of Mutual assumed by Stock Bank plus the
liabilities, if any, to which the transferred assets are subject were incurred
by Mutual in the ordinary course of its business and are associated with the
assets being transferred.
20. There will be no purchase price advantage for Mutual's
deposit account holders who purchase Holding Company Conversion Stock.
21. Neither Mutual nor Stock Bank is an investment company as
defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
22. None of the compensation to be received by any deposit
account holder- employees of Mutual or Holding Company will be separate
consideration for, or allocable to, any of their deposits in Mutual. No interest
in the liquidation account of 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 the third parties bargaining at arm's-length for similar
services. No shares of Holding Company Conversion Stock will be issued to or
purchased by any deposit account holder-employee of Mutual or Holding Company at
a discount or as compensation in the proposed transaction.
23. No creditors of Mutual or the depositors in their role as
creditors, have taken any steps to enforce their claims against Mutual by
instituting bankruptcy or other legal proceedings, in either a court or
appropriate regulatory agency, that would eliminate the proprietary interests of
the Members prior to the Conversion of Mutual including depositors as the equity
holders of Mutual.
24. The proposed transaction does not involve the payment to
Stock Bank or Mutual of financial assistance from federal agencies within the
meaning of Notice 89-102, 1989-40 C.B. 1.
<PAGE>
Board of Directors
Hemlock Federal Bank for Savings
January 27, 1997
Page 5
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25. On a per share basis, the purchase price of Holding
Company Conversion Stock will be equal to the fair market value of such stock at
the time of the completion of the proposed transaction.
26. Mutual has received or will receive an opinion from Keller
& Co. ("Appraiser's Opinion"), which concludes that the 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,
since they are acquired by the recipients without cost, are non-transferable and
of short duration, and afford the recipients a right only to purchase Holding
Company Conversion Stock at a price equal to its estimated fair market value,
which will be the same price as the Public Offering Price for unsubscribed
shares of Holding Company Conversion Stock.
27. Mutual will not have any net operating losses, capital
loss carryovers or built- in losses at the time of the Conversion.
OPINION
Based solely on the assumptions set forth hereinabove and our
analysis and examination of applicable federal income tax laws, rulings,
regulations, judicial precedents and the Appraiser's Opinion, we are of the
opinion that if the transaction is undertaken in accordance with the above
assumptions:
(1) The Conversion will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Code. Neither Mutual nor Stock Bank will
recognize any gain or loss as a result of the transaction (Rev. Rul. 80-105,
1980-1 C.B. 78). Mutual and Stock Bank will each be a party to a reorganization
within the meaning of Section 368(b) of the Code.
(2) Stock Bank will recognize no gain or loss upon the receipt
of money and other property, if any, in the Conversion, in exchange for its
shares. (Section 1032(a) of the Code.)
(3) No gain or loss will be recognized by Holding Company upon
the receipt of money for Holding Company Conversion Stock. (Section 1032(a) of
the Code.)
(4) The basis of Mutual's assets in the hands of Stock Bank
will be the same as the basis of those assets in the hands of Mutual immediately
prior to the transaction. (Section 362(b) of the Code.)
<PAGE>
Board of Directors
Hemlock Federal Bank for Savings
January 27, 1997
Page 6
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(5) Stock Bank's holding period of the assets of Mutual will
include the period during which such assets were held by Mutual prior to the
Conversion. (Section 1223(2) of the Code).
(6) Stock Bank, for purposes of Section 381 of the Code, will
be treated as if there had been no reorganization. The tax attributes of Mutual
enumerated in Section 381(a) of the Code will be taken into account by Stock
Bank as if there had been no reorganization. Accordingly, the tax year of Mutual
will not end on the effective date of the Conversion. The part of the tax year
of Mutual before the Conversion will be includible in the tax year of Stock Bank
after the Conversion. Therefore, Mutual will not have to file a federal income
tax return for the portion of the tax year prior to the Conversion. (Rev. Rul.
57-276, 1957-1 C.B. 126).
(7) Depositors will realize gain, if any, upon the
constructive issuance to them of withdrawable deposit accounts of Stock Bank,
Subscription Rights and/or interests in the liquidation account of 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 Mutual upon the distribution to
them of Subscription Rights or upon the exercise or lapse of the Subscription
Rights to acquire Holding Company Conversion Stock at fair market value; (b) no
taxable income will be realized by the depositors of Mutual as a result of the
exercise or lapse of the Subscription Rights to purchase Holding Company
Conversion Stock at fair market value. Rev. Rul. 56-572, 1956-2 C.B. 182; and
(c) no taxable income will be realized by Mutual, Stock Bank or Holding Company
on the issuance or distribution of Subscription Rights to depositors of Mutual
to purchase shares of Holding Company Conversion 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, income may be
recognized by various recipients of the Subscription Rights (in certain cases,
whether or not the rights are exercised) and Holding Company and/or 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.
<PAGE>
Board of Directors
Hemlock Federal Bank for Savings
January 27, 1997
Page 7
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(8) The creation of the liquidation account on the records of
Stock Bank will have no effect on Mutual's or Stock Bank's taxable income,
deductions, or additions to the reserve for bad debts under Section 593 of the
Code, or distributions to shareholders under Section 593(e).
(9) Pursuant to the provisions of Section 381(c)(4) of the
Code and Section 1.381(c)(4)-1(a)(1)(ii) of the Income Tax Regulations, Stock
Bank will succeed to and take into account, immediately after the
reorganization, the dollar amounts of those accounts of Mutual which represent
bad debt reserves in respect of which Mutual 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
Mutual or Stock Bank as a result of the Conversion for the taxable year of the
reorganization, and such bad debt reserves will have the same character in the
hands of Stock Bank as they would have had in the hands of Mutual if no
reorganization 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
Mutual or Stock Bank for the taxable year of the transfer if Mutual or Stock
Bank fails to meet the requirements of Section 593(a)(2) of the Code during such
taxable year.
(10) A depositor's basis in the savings deposits of Stock Bank
will be the same as the basis of his savings deposits in Mutual. (Section 1012
of the Code). Based upon the Appraiser's Opinion, the basis of the Subscription
Rights will be zero. The basis of the interest in the liquidation account of
Stock Bank received by Eligible Account Holders and Supplemental Eligible
Account Holders will be equal to the cost of such property, i.e., the fair
market value of the proprietary interest in Mutual, which in this transaction we
assume to be zero.
(11) The basis of Holding Company Conversion Stock to its
shareholders will be the purchase price thereof. (Section 1012 of the Code).
(12) A shareholder's holding period for Holding Company
Conversion Stock acquired through the exercise of the Subscription Rights shall
begin on the date on which the Subscription Rights are exercised. (Section
1223(6) of the Code). The holding period for the Holding Company Conversion
Stock purchase 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).
(13) Regardless of any book entries that are made for the
establishment of a liquidation account, the reorganization will not diminish the
accumulated earnings and profits of Mutual 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 Regulations. Stock Bank will succeed to and
take into
<PAGE>
Board of Directors
Hemlock Federal Bank for Savings
January 27, 1997
Page 8
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account the earnings and profits or deficit in earnings and profits, of Mutual
as of the date of Conversion.
The above opinions are effective to the extent that Mutual is
solvent. No opinion is expressed about the tax treatment of the transaction if
Mutual is insolvent. Whether or not Mutual is solvent will be determined at the
end of the taxable year in which the transaction is consummated.
No opinion is expressed as to the tax treatment of the
transaction under the provisions of any of the other sections of the Code and
Income Tax Regulations which may also be applicable thereto, or to the tax
treatment of any conditions existing at the time of, or effects resulting from,
the transaction which are not specifically covered by the opinions set forth
above.
Respectfully submitted,
SILVER, FREEDMAN & TAFF, L.L.P.
/s/ Barry P. Taff, P.C.
-------------------------------
EXHIBIT 8.2
January 27, 1997
Board of Directors
Hemlock Federal Savings Bank
5700 W. 159th Street
Oak Forest, IL 60452
RE: Illinois Income Tax Opinion relating to the conversion of Hemlock
Federal Bank for Savings from a Federally-Chartered Mutual Savings Bank
to a Federally-Chartered Stock Savings Bank under Section 368(a)(1)(F)
of the Internal Revenue Code of 1986, as amended.
Ladies and Gentlemen:
In accordance with your request, we render our opinion relating to the Illinois
income tax consequences of the conversion of Hemlock Federal Bank for Savings.
Statement of Facts
The facts and circumstances surrounding the proposed charter conversion are
quite detailed and are described at length in the Plan of Conversion and the
federal tax opinion issued by Silver, Freedman, & Taff, L.L.P, which are hereby
incorporated herein. However, a brief summary of the proposed Plan of Conversion
is as follows:
Hemlock Federal Savings Bank for Savings ("Mutual") is a federally chartered
mutual savings bank. As a mutual savings bank, Mutual has no authorized stock.
For what are stated to be valid business reasons, Mutual wishes to amend its
charter to permit it to continue operations in the form of a federally-chartered
stock savings bank ("Stock Bank"). The fair market value of Stock Bank deposit
accounts received by Mutual deposit account holders will be equal to the fair
market value of Mutual deposit accounts surrendered as a result of the
conversion process.
Opinion
You have provided us with a copy of the federal income tax opinion of the
transaction prepared by Silver, Freedman, & Taff, L.L.P., dated January 27,
1997, in which they have opined that the Conversion will be a transaction
described in Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as
amended.
<PAGE>
Our opinion regarding the Illinois tax consequences is based on the facts and
assumptions and incorporates the capitalized terms contained in the Silver,
Freedman, & Taff, L.L.P. federal tax opinion. Our opinion on the Illinois tax
consequences assumes that the final federal income tax consequences of the
proposed transaction are those outlined in the Silver, Freedman, & Taff, L.L.P.
federal tax opinion.
Should it finally be determined that the facts and the federal income tax
consequences are not as outlined in the Silver, Freedman, & Taff, L.L.P. federal
tax opinion, the Illinois tax consequences and our Illinois tax opinion will
differ from what is contained herein. Our opinion is based on the current
Illinois tax law which is subject to change.
Our opinion adopts and relies upon the facts, assumptions, and conclusions as
set forth in the Silver, Freedman, & Taff, L.L.P. federal tax opinion letter.
Based upon that information, we render the following opinion with respect to the
Illinois income tax consequences of the Conversion.
(1) No gain or loss shall be recognized by Mutual or Stock Bank as a
result of the Conversion. ITA Sec. 403(a)(35 ILCS 5/403(a))
(2) Stock Bank will recognize no gain or loss upon the receipt of money
and other property, if any, in the Conversion, in exchange for its
stock. ITA Sec. 403(a)(35 ILCS 5/403(a))
(3) No gain or loss will be recognized by the Holding Company upon the
receipt of money for Holding Company Conversion Stock. ITA Sec.
403(a)(35 ILCS 5/403(a)).
(4) The basis of Mutual's assets in the hands of Stock Bank will be the
same as the basis of those assets in the hands of Mutual immediately
prior to the transaction. ITA Sec. 403(a)(35 ILCS 5/403(a))
(5) Stock Bank's holding period of the assets of Mutual will include the
period during which such assets were held by Mutual prior to the
Conversion. ITA Sec. 403(a)(35 ILCS 5/403(a))
(6) The tax attributes of Mutual will be taken into account by Stock Bank
as if there had been no reorganization. Accordingly, the tax year of
Mutual will not end on the effective date of the Conversion. The part
of the tax year of Mutual before the conversion will be includable in
the tax year of Stock Bank after the conversion. Therefore, Mutual
will not have to file a Illinois income tax return for the portion of
the tax year prior to the conversion. ITA Sec. 401(a)(35 ILCS
5/401(a))
(7) Depositors will realize gain, if any, upon the constructive issuance
to them of withdrawable deposit accounts of Stock Bank, Subscription
Rights and/or interests in the liquidation account of 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
<PAGE>
Board of Directors
January 27, 1997
Page 3
no value at the time of distribution or exercise, no gain or loss was
required to be recognized by depositors upon receipt or distribution
of Subscription Rights. 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 Mutual upon the distribution to them of Subscription
Rights or upon the exercise or lapse of the Subscription Rights to
acquire Holding Company Conversion Stock at fair market value; (b) no
taxable income will be realized by the depositors of Mutual as a
result of the exercise or lapse of the Subscription Rights to purchase
Holding Company Conversion Stock at fair market value; and (c) no
taxable income will be realized by Mutual or Stock Bank on the
issuance or distribution of Subscription Rights to depositors of
Mutual to purchase shares of Holding Company Conversion Stock at fair
market value. ITA Sec. 203(a)(1)(35 ILCS 5/203(a)(1))
Notwithstanding the Appraiser's Opinion, if the Subscription Rights are
subsequently found to have a fair market value, income may be recognized by
various recipients of the Subscription Rights (in certain cases, whether or not
the rights are exercised) and Holding Company and/or Stock Bank may be taxable
on the distribution of the Subscription Rights.
(8) The creation of the liquidation account on the records of Stock Bank
will have no effect on Mutual's or Stock Bank's taxable income,
deductions, or additions to the reserve for bad debts or distributions
to shareholders. ITA Sec. 403(a)(35 ILCS 5/403(a))
(9) Stock Bank will succeed to and take into account, immediately after
the reorganization, the dollar amounts of those accounts of Mutual
which represent bad debt reserves in respect of which Mutual had 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 Mutual or Stock Bank as a
consequence of the Conversion for the taxable year of the
reorganization, and such bad debt reserves will have the same
character in the hands of Stock Bank as they would have had in the
hands of Mutual if no reorganization had occurred. ITA Sec. 402(a)(35
ILCS 5/402(a)) No opinion is being expressed as to whether the bad
debt reserves will be required to be restored to the gross income of
either Mutual or Stock Bank for the taxable year of the transfer if
Mutual or Stock Bank fails to meet the requirements of Section
593(a)(2) of the Internal Revenue Code during such taxable year.
(10) A depositor's basis in the savings deposits of Stock Bank will be the
same as the basis of his savings deposits in Mutual. Based upon the
Appraiser's Opinion, the basis of the Subscription Rights will be
zero. The basis of the interest in the liquidation account of Stock
Bank received by Eligible Account Holders and Supplemental Eligible
Account Holders will be equal to the cost of such proprietary; i.e.,
the fair market value of the proprietary interest in Mutual, which in
this transaction we assumed to be zero. ITA Sec. 203(a)(1)(35 ILCS
5/203(a)(1))
<PAGE>
Board of Directors
January 27, 1997
Page 4
(11) The basis of Holding Company Conversion Stock to its shareholders will
be the purchase price thereof. ITA Sec. 203(a)(1)(35 ILCS 5/203(a)(1))
(12) A shareholder's holding period for Holding Company Conversion Stock
acquired through the exercise of the Subscription Rights shall begin
on the date on which the Subscription Rights are exercised. The
holding period for the Holding Company Conversion 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. ITA Sec. 203(a)(1)(35 ILCS
5/203(a)(1))
(13) Regardless of any book entries that were made for the establishment of
a liquidation account, the reorganization will not diminish the
accumulated earnings and profits of Mutual available for the
subsequent distribution of dividends. Stock Bank will succeed to and
take into account the earnings and profits, or deficit in earnings and
profits, of Mutual as of the date of Conversion. ITA Sec. 403(a)(35
ILCS 5/403(a))
The above opinions are effective to the extent that Mutual is solvent. No
opinion is expressed about the tax treatment of the transaction if Mutual is
insolvent. Whether or not Mutual is solvent will be determined at the end of the
taxable year in which the transaction is consummated.
Our opinion is based upon legal authorities currently in effect, which
authorities are subject to modification or challenge at any time and perhaps
with retroactive effect. Further, no opinion is expressed under the provisions
of any of the other sections of the Illinois Code and Income Tax Regulations
which may also be applicable thereto, or to the tax treatment of any conditions
existing at the time of, or effects resulting from, the transaction which are
not specifically covered by the opinions set forth above.
If any fact contained in this opinion letter or the Silver, Freedman, & Taff,
L.L.P. federal tax opinion changes to alter the federal tax treatment, it is
imperative we be notified to determine the affect on the Illinois income tax
consequences, if any.
Very truly yours,
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this ________ day of ______________________, 1996, by and between Hemlock
Federal Bank for Savings (hereinafter referred to as the "Bank" whether in
mutual or stock form), and Maureen G.
Partynski (the "Employee").
WHEREAS, the Employee is currently serving as Chairman of the Board and
Chief Executive Officer of the Bank; and
WHEREAS, the Bank has adopted a plan of conversion whereby the Bank
will convert to capital stock form as the subsidiary of Hemlock Federal
Financial Corporation (the "Holding Company"), subject to the approval of the
Bank's members and the Office of Thrift Supervision (the "Conversion"); and
WHEREAS, the board of directors of the Bank ("Board of Directors")
recognizes that, as is the case with publicly held corporations generally, the
possibility of a change in control of the Holding Company and/or the Bank may
exist and that such possibility, and the uncertainty and questions which it may
raise among management, may result in the departure or distraction of key
management personnel to the detriment of the Bank, the Holding Company and their
respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Bank to enter into this Agreement with the Employee in order to assure
continuity of management of the Bank and to reinforce and encourage the
continued attention and dedication of the Employee to his assigned duties
without distraction in the face of potentially disruptive circumstances arising
from the possibility of a change in control of the Holding Company or the Bank,
although no such change is now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
(i) results in a change in control of the Bank or the Holding Company within the
meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574 as in effect
on the date hereof; or (ii) would be required to be reported in response to Item
1 of the current report on Form 8-K, as in effect on the date hereof, pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"); (2) any person (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly of securities of the Bank or the
Holding Company representing 20% or more of the Bank's or the Holding Company's
outstanding securities; (3) individuals who are members of the board of
directors
<PAGE>
of the Bank or the Holding Company on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the nominating committee serving under an Incumbent
Board, shall be considered a member of the Incumbent Board; or (4) a
reorganization, merger, consolidation, sale of all or substantially all of the
assets of the Bank or the Holding Company or a similar transaction in which the
Bank or the Holding Company is not the resulting entity. The term "change in
control" shall not include an acquisition of securities by an employee benefit
plan of the Bank or the Holding Company or the acquisition of securities of the
Bank by the Holding Company in connection with the Conversion. In the
application of 12 C.F.R. Part 574 to a determination of a Change in Control,
determinations to be made by the OTS or its Director under such regulations
shall be made by the Board of Directors.
(b) The term "Commencement Date" means the date of completion of the
Conversion.
(c) The term "Date of Termination" means the earlier of (1) the date
upon which the Bank gives notice to the Employee of the termination of his
employment with the Bank or (2) the date upon which the Employee ceases to serve
as an Employee of the Bank.
(d) The term "Involuntarily Termination" means termination of the
employment of Employee without his express written consent, and shall include a
material diminution of or interference with the Employee's duties,
responsibilities and benefits as Chairman of the Board and Chief Executive
Officer of the Bank, including (without limitation) any of the following actions
unless consented to in writing by the Employee: (1) a change in the principal
workplace of the Employee to a location outside of a 30 mile radius from the
Bank's headquarters office as of the date hereof; (2) a material reduction in
the number or seniority of other Bank personnel reporting to the Employee or a
material reduction in the frequency with which, or in the nature of the matters
with respect to which such personnel are to report to the Employee, other than
as part of a Bank- or Holding Company-wide reduction in staff; (3) a material
adverse change in the Employee's salary, perquisites, benefits, contingent
benefits or vacation, other than as part of an overall program applied uniformly
and with equitable effect to all members of the senior management of the Bank or
the Holding Company; (4) a material permanent increase in the required hours of
work or the workload of the Employee; and (5) a material demotion of the
Employee. The term "Involuntary Termination" does not include Termination for
Cause or termination of employment due to retirement, death, disability or
suspension or temporary or permanent prohibition from participation in the
conduct of the Bank's affairs under Section 8 of the Federal Deposit Insurance
Act ("FDIA").
(e) The terms "Termination for Cause" and "Terminated for Cause" mean
termination of the employment of the Employee because of the Employee's personal
dishonesty, incompetence, willful misconduct, breach of a fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. The Employee shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors of the
Bank at a meeting of the Board called and held for such purpose (after
reasonable notice to the Employee and an
2
<PAGE>
opportunity for the Employee, together with the Employee's counsel, to be heard
before the Board), stating that in the good faith opinion of the Board the
Employee has engaged in the conduct described in the preceding sentence and
specifying the particulars thereof in detail.
2. Term. The term of this Agreement shall be a period of three years
commencing on the Commencement Date, subject to earlier termination as provided
herein. Beginning on the first annual anniversary date following the
Commencement Date, and on each annual anniversary date thereafter, the term of
this Agreement shall be extended for a period of one year in addition to the
then-remaining term, provided that (1) the Bank has not given notice to the
Employee in writing at least 90 days prior to such renewal date that the term of
this Agreement shall not be extended further; and (2) prior to such renewal
date, the Board of Directors of the Bank has explicitly reviewed and approved
the extension. Reference herein to the term of this Agreement shall refer to
both such initial term and such extended terms.
3. Employment. The Employee is employed as Chairman of the Board and
Chief Executive Officer of the Bank. As Chairman of the Board and Chief
Executive Officer, Employee shall render such administrative and management
services as are customarily performed by persons situated in similar executive
capacities, and shall have such other powers and duties of an officer of the
Bank as the Board of Directors may prescribe from time to time.
4. Compensation.
(a) Salary. The Bank agrees to pay the Employee during the term of this
Agreement the salary established by the Board of Directors, which shall be at
least the Employee's salary in effect as of the Commencement Date. The amount of
the Employee's salary shall be reviewed by the Board of Directors, beginning not
later than the first anniversary of the Commencement Date. Adjustments in salary
or other compensation shall not limit or reduce any other obligation of the Bank
under this Agreement. The Employee's salary in effect from time to time during
the term of this Agreement shall not thereafter be reduced.
(b) Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other executive officers of the Bank
in discretionary bonuses as authorized and declared by the Board of Directors to
its executive employees. No other compensation provided for in this Agreement
shall be deemed a substitute for the Employee's right to participate in such
bonuses when and as declared by the Board of Directors.
(c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Bank, provided that the Employee
accounts for such expenses as required under such policies and procedures.
3
<PAGE>
5. Benefits.
(a) Participation in Retirement and Employee Benefit Plans. The
Employee shall be entitled to participate in all plans relating to pension,
thrift, profit-sharing, group life insurance, medical and dental coverage,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof, in which the Bank's executive officers participate. In
addition, the Employee shall be entitled to be considered for benefits under all
of the stock and stock option related plans adopted for the benefit of the
Bank's executive or other employees.
(b) Fringe Benefits. The Employee shall be eligible to participate in,
and receive benefits under, any other fringe benefit plans which are or may
become applicable to the Bank's executive officers.
6. Vacations; Leave. The Employee shall be entitled to annual paid
vacation in accordance with the policies established by the Bank's Board of
Directors for executive employees and to voluntary leave of absence, with or
without pay, from time to time at such times and upon such conditions as the
Board of Directors of the Bank may determine in its discretion.
7. Termination of Employment.
(a) Involuntary Termination. The Board of Directors may terminate the
Employee's employment at any time, but, except in the case of Termination for
Cause, termination of employment shall not prejudice the Employee's right to
compensation or other benefits under this Agreement. In the event of Involuntary
Termination other than in connection with or within twelve (12) months after a
Change in Control, (1) the Bank shall pay to the Employee during the remaining
term of this Agreement, his salary at the rate in effect immediately prior to
the Date of Termination, payable in such manner and at such times as such salary
would have been payable to the Employee under Section 2 if the Employee had
continued to be employed by the Bank, and (2) the Bank shall provide to the
Employee during the remaining term of this Agreement health benefits as
maintained by the Bank for the benefit of its executive officers from time to
time during the remaining term of the Agreement.
(b) Termination for Cause. In the event of termination for cause, the
Bank shall pay the Employee his salary through the date of termination, and the
Bank shall have no further obligation to the Employee under this Agreement.
(c) Voluntary Termination. The Employee's employment may be voluntarily
terminated by the Employee at any time upon 90 days written notice to the Bank
or upon such shorter period as may be agreed upon between the Employee and the
Board of Directors of the Bank. In the event of such voluntary termination, the
Bank shall be obligated to continue to pay the Employee his salary and benefits
only through the date of termination, at the time such payments are due, and the
Bank shall have no further obligation to the Employee under this Agreement.
(d) Change in Control. In the event of Involuntary Termination in
connection with or within 12 months after a change in control which occurs at
any time while the Employee is employed under this Agreement, the Bank shall,
subject to Section 8 of this Agreement, (1) pay to the Employee in a lump sum in
cash within 25 business days after the Date of Termination an amount equal to
299% of the Employee's "base amount" as defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"); and (2) provide to the Employee
during the remaining term of this
4
<PAGE>
Agreement such health benefits as are maintained for executive officers of the
Bank from time to time during the remaining term of this Agreement.
(e) Death; Disability. In the event of the death of the Employee while
employed under this Agreement and prior to any termination of employment, the
Employee's estate, or such person as the Employee may have previously designated
in writing, shall be entitled to receive from the Bank the salary of the
Employee through the last day of the calendar month in which the Employee died.
If the Employee becomes disabled as defined in the Bank's then current
disability plan or if the Employee is otherwise unable to serve in his present
capacity, the Employee shall be entitled to receive group and other disability
income benefits of the type then provided by the Bank for executive officers. In
the event of such disability, this Agreement shall not be suspended. However,
the Bank shall be obligated to pay the Employee compensation pursuant to
Sections 4(a) and (b) hereof only to the extent the Employee's salary, in the
absence of such disability, would exceed (on an after tax basis) the disability
income benefits received pursuant to this paragraph. In addition, the Bank shall
have the right, upon resolution of its Board, to discontinue paying cash
compensation pursuant to Sections 4(a) and (b) beginning six months following a
determination that Employee qualifies for the foregoing disability income
benefits.
(f) Temporary Suspension or Prohibition. If the Employee is suspended
and/or temporarily prohibited from participating in the conduct of the Bank's
affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA, 12
U.S.C. ss. 1818(e)(3) and (g)(1), the Bank's obligations under this Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (1) pay the Employee all or part of the compensation withheld while
its obligations under this Agreement were suspended and (ii) reinstate in whole
or in part any of its obligations which were suspended.
(g) Permanent Suspension or Prohibition. If the Employee is removed
and/or permanently prohibited from participating in the conduct of the Bank's
affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA, 12
U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the Bank under this
Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(h) Default of the Bank. If the Bank is in default (as defined in
Section 3(x)(1) of the FDIA), all obligations under this Agreement shall
terminate as of the date of default, but this provision shall not affect any
vested rights of the contracting parties.
(i) Termination by Regulators. All obligations under this Agreement
shall be terminated, except to the extent determined that continuation of this
Agreement is necessary for the continued operation of the Bank: (1) by the
Director of the Office of Thrift Supervision (the "Director") or his or her
designee, at the time the Federal Deposit Insurance Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the FDIA; or (2) by the Director or his or her
designee, at the time the Director or his or her designee approves a supervisory
merger to resolve problems related to operation of the Bank or when the Bank is
determined by the Director to be in an unsafe or unsound condition. Any rights
of the parties that have already vested, however, shall not be affected by any
such action.
5
<PAGE>
(j) Section 563.39(b). So long as 12 C.F.R. ss. 563.39(b)(1995) remains
in effect and applicable to the Bank, in the event that any of the termination
provisions of this Agreement conflict with 12 C.F.R. ss. 563.39(b)(1995), the
latter shall prevail.
8. Certain Reduction of Payments by the Bank.
(a) Notwithstanding any other provisions of this Agreement, if payments
under this Agreement, together with any other payments received or to be
received by the Employee in connection with a Change in Control would cause any
amount to be nondeductible by the Bank or the Holding Company for federal income
tax purposes pursuant to Section 280G of the Code, then benefits under this
Agreement shall be reduced (not less than zero) to the extent necessary so as to
maximize payments to the Employee without causing any amount to become
nondeductible by the Bank or the Holding Company. The Employee shall determine
the allocation of such reduction among payments to the Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
1828(k) and any regulations promulgated thereunder.
(c) Notwithstanding any other provisions of this Agreement, payments
under Section 7 of this Agreement shall not exceed three times the Employee's
average annual compensation based on the most recent five taxable years.
9. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation earned by
the Employee as the result of employment by another employer, by retirement
benefits after the date of termination or otherwise.
10. Attorneys Fees. In the event the Bank exercises its right of
Termination for Cause, but it is determined by a court of competent jurisdiction
or by an arbitrator pursuant to Section 18 that cause did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Bank has failed to make timely payment of any amounts owed to the
Employee under this Agreement, the Employee shall be entitled to reimbursement
for all reasonable costs, including attorneys' fees, incurred in challenging
such termination or collecting such amounts. Such reimbursement shall be in
addition to all rights to which the Employee is otherwise entitled under this
Agreement.
11. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Bank shall require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank, by an assumption
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Bank would be required to perform it if no such succession or
assignment had
6
<PAGE>
taken place. Failure of the Bank to obtain such an assumption agreement prior to
the effectiveness of any such succession or assignment shall be a breach of this
Agreement and shall entitle the Employee to compensation from the Bank in the
same amount and on the same terms as the compensation pursuant to Section 7(d)
hereof. For purposes of implementing the provisions of this Section 12(a), the
date on which any such succession becomes effective shall be deemed the Date of
Termination.
(b) This Agreement and all rights of the Employee hereunder shall inure
to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Bank at its home office
to the attention of the Board of Directors with a copy to the Secretary of the
Bank, or, if to the Employee, to such home or other address as the Employee has
most recently provided in writing to the Bank.
13. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. Paragraph Headings. The paragraph headings used in this Agreement
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Illinois.
17. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Bank then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
7
<PAGE>
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: HEMLOCK FEDERAL BANK FOR
SAVINGS
___________________________________ By: _____________________
Rosanne Pastorek-Belczak, Secretary Michael R. Stevens
Its: President
EMPLOYEE
_________________________
8
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this ________ day of ______________________, 1996, by and between Hemlock
Federal Bank for Savings (hereinafter referred to as the "Bank" whether in
mutual or stock form), and Michael R.
Stevens (the "Employee").
WHEREAS, the Employee is currently serving as the President of the
Bank; and
WHEREAS, the Bank has adopted a plan of conversion whereby the Bank
will convert to capital stock form as the subsidiary of Hemlock Federal
Financial Corporation (the "Holding Company"), subject to the approval of the
Bank's members and the Office of Thrift Supervision (the "Conversion"); and
WHEREAS, the board of directors of the Bank ("Board of Directors")
recognizes that, as is the case with publicly held corporations generally, the
possibility of a change in control of the Holding Company and/or the Bank may
exist and that such possibility, and the uncertainty and questions which it may
raise among management, may result in the departure or distraction of key
management personnel to the detriment of the Bank, the Holding Company and their
respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Bank to enter into this Agreement with the Employee in order to assure
continuity of management of the Bank and to reinforce and encourage the
continued attention and dedication of the Employee to his assigned duties
without distraction in the face of potentially disruptive circumstances arising
from the possibility of a change in control of the Holding Company or the Bank,
although no such change is now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
(i) results in a change in control of the Bank or the Holding Company within the
meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574 as in effect
on the date hereof; or (ii) would be required to be reported in response to Item
1 of the current report on Form 8-K, as in effect on the date hereof, pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"); (2) any person (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly of securities of the Bank or the
Holding Company representing 20% or more of the Bank's or the Holding Company's
outstanding securities; (3) individuals who are members of the board of
directors
<PAGE>
of the Bank or the Holding Company on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the nominating committee serving under an Incumbent
Board, shall be considered a member of the Incumbent Board; or (4) a
reorganization, merger, consolidation, sale of all or substantially all of the
assets of the Bank or the Holding Company or a similar transaction in which the
Bank or the Holding Company is not the resulting entity. The term "change in
control" shall not include an acquisition of securities by an employee benefit
plan of the Bank or the Holding Company or the acquisition of securities of the
Bank by the Holding Company in connection with the Conversion. In the
application of 12 C.F.R. Part 574 to a determination of a Change in Control,
determinations to be made by the OTS or its Director under such regulations
shall be made by the Board of Directors.
(b) The term "Commencement Date" means the date of completion of the
Conversion.
(c) The term "Date of Termination" means the earlier of (1) the date
upon which the Bank gives notice to the Employee of the termination of his
employment with the Bank or (2) the date upon which the Employee ceases to serve
as an Employee of the Bank.
(d) The term "Involuntarily Termination" means termination of the
employment of Employee without his express written consent, and shall include a
material diminution of or interference with the Employee's duties,
responsibilities and benefits as President of the Bank, including (without
limitation) any of the following actions unless consented to in writing by the
Employee: (1) a change in the principal workplace of the Employee to a location
outside of a 30 mile radius from the Bank's headquarters office as of the date
hereof; (2) a material reduction in the number or seniority of other Bank
personnel reporting to the Employee or a material reduction in the frequency
with which, or in the nature of the matters with respect to which such personnel
are to report to the Employee, other than as part of a Bank- or Holding
Company-wide reduction in staff; (3) a material adverse change in the Employee's
salary, perquisites, benefits, contingent benefits or vacation, other than as
part of an overall program applied uniformly and with equitable effect to all
members of the senior management of the Bank or the Holding Company; (4) a
material permanent increase in the required hours of work or the workload of the
Employee; and (5) a material demotion of the Employee. The term "Involuntary
Termination" does not include Termination for Cause or termination of employment
due to retirement, death, disability or suspension or temporary or permanent
prohibition from participation in the conduct of the Bank's affairs under
Section 8 of the Federal Deposit Insurance Act ("FDIA").
(e) The terms "Termination for Cause" and "Terminated for Cause" mean
termination of the employment of the Employee because of the Employee's personal
dishonesty, incompetence, willful misconduct, breach of a fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. The Employee shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors of the
Bank at a meeting of the Board called and held for such purpose (after
reasonable notice to the Employee and an
2
<PAGE>
opportunity for the Employee, together with the Employee's counsel, to be heard
before the Board), stating that in the good faith opinion of the Board the
Employee has engaged in the conduct described in the preceding sentence and
specifying the particulars thereof in detail.
2. Term. The term of this Agreement shall be a period of three years
commencing on the Commencement Date, subject to earlier termination as provided
herein. Beginning on the first annual anniversary date following the
Commencement Date, and on each annual anniversary date thereafter, the term of
this Agreement shall be extended for a period of one year in addition to the
then-remaining term, provided that (1) the Bank has not given notice to the
Employee in writing at least 90 days prior to such renewal date that the term of
this Agreement shall not be extended further; and (2) prior to such renewal
date, the Board of Directors of the Bank has explicitly reviewed and approved
the extension. Reference herein to the term of this Agreement shall refer to
both such initial term and such extended terms.
3. Employment. The Employee is employed as the President of the Bank.
As President, Employee shall render such administrative and management services
as are customarily performed by persons situated in similar executive
capacities, and shall have such other powers and duties of an officer of the
Bank as the Board of Directors may prescribe from time to time.
4. Compensation.
(a) Salary. The Bank agrees to pay the Employee during the term of this
Agreement the salary established by the Board of Directors, which shall be at
least the Employee's salary in effect as of the Commencement Date. The amount of
the Employee's salary shall be reviewed by the Board of Directors, beginning not
later than the first anniversary of the Commencement Date. Adjustments in salary
or other compensation shall not limit or reduce any other obligation of the Bank
under this Agreement. The Employee's salary in effect from time to time during
the term of this Agreement shall not thereafter be reduced.
(b) Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other executive officers of the Bank
in discretionary bonuses as authorized and declared by the Board of Directors to
its executive employees. No other compensation provided for in this Agreement
shall be deemed a substitute for the Employee's right to participate in such
bonuses when and as declared by the Board of Directors.
(c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Bank, provided that the Employee
accounts for such expenses as required under such policies and procedures.
5. Benefits.
(a) Participation in Retirement and Employee Benefit Plans. The
Employee shall be entitled to participate in all plans relating to pension,
thrift, profit-sharing, group life insurance, medical and dental coverage,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof, in which the Bank's executive officers participate. In
addition, the Employee shall be
3
<PAGE>
entitled to be considered for benefits under all of the stock and stock option
related plans adopted for the benefit of the Bank's executive or other
employees.
(b) Fringe Benefits. The Employee shall be eligible to participate in,
and receive benefits under, any other fringe benefit plans which are or may
become applicable to the Bank's executive officers.
6. Vacations; Leave. The Employee shall be entitled to annual paid
vacation in accordance with the policies established by the Bank's Board of
Directors for executive employees and to voluntary leave of absence, with or
without pay, from time to time at such times and upon such conditions as the
Board of Directors of the Bank may determine in its discretion.
7. Termination of Employment.
(a) Involuntary Termination. The Board of Directors may terminate the
Employee's employment at any time, but, except in the case of Termination for
Cause, termination of employment shall not prejudice the Employee's right to
compensation or other benefits under this Agreement. In the event of Involuntary
Termination other than in connection with or within twelve (12) months after a
Change in Control, (1) the Bank shall pay to the Employee during the remaining
term of this Agreement, his salary at the rate in effect immediately prior to
the Date of Termination, payable in such manner and at such times as such salary
would have been payable to the Employee under Section 2 if the Employee had
continued to be employed by the Bank, and (2) the Bank shall provide to the
Employee during the remaining term of this Agreement health benefits as
maintained by the Bank for the benefit of its executive officers from time to
time during the remaining term of the Agreement.
(b) Termination for Cause. In the event of termination for cause, the
Bank shall pay the Employee his salary through the date of termination, and the
Bank shall have no further obligation to the Employee under this Agreement.
(c) Voluntary Termination. The Employee's employment may be voluntarily
terminated by the Employee at any time upon 90 days written notice to the Bank
or upon such shorter period as may be agreed upon between the Employee and the
Board of Directors of the Bank. In the event of such voluntary termination, the
Bank shall be obligated to continue to pay the Employee his salary and benefits
only through the date of termination, at the time such payments are due, and the
Bank shall have no further obligation to the Employee under this Agreement.
(d) Change in Control. In the event of Involuntary Termination in
connection with or within 12 months after a change in control which occurs at
any time while the Employee is employed under this Agreement, the Bank shall,
subject to Section 8 of this Agreement, (1) pay to the Employee in a lump sum in
cash within 25 business days after the Date of Termination an amount equal to
299% of the Employee's "base amount" as defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"); and (2) provide to the Employee
during the remaining term of this Agreement such health benefits as are
maintained for executive officers of the Bank from time to time during the
remaining term of this Agreement.
4
<PAGE>
(e) Death; Disability. In the event of the death of the Employee while
employed under this Agreement and prior to any termination of employment, the
Employee's estate, or such person as the Employee may have previously designated
in writing, shall be entitled to receive from the Bank the salary of the
Employee through the last day of the calendar month in which the Employee died.
If the Employee becomes disabled as defined in the Bank's then current
disability plan or if the Employee is otherwise unable to serve in his present
capacity, the Employee shall be entitled to receive group and other disability
income benefits of the type then provided by the Bank for executive officers. In
the event of such disability, this Agreement shall not be suspended. However,
the Bank shall be obligated to pay the Employee compensation pursuant to
Sections 4(a) and (b) hereof only to the extent the Employee's salary, in the
absence of such disability, would exceed (on an after tax basis) the disability
income benefits received pursuant to this paragraph. In addition, the Bank shall
have the right, upon resolution of its Board, to discontinue paying cash
compensation pursuant to Sections 4(a) and (b) beginning six months following a
determination that Employee qualifies for the foregoing disability income
benefits.
(f) Temporary Suspension or Prohibition. If the Employee is suspended
and/or temporarily prohibited from participating in the conduct of the Bank's
affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA, 12
U.S.C. ss. 1818(e)(3) and (g)(1), the Bank's obligations under this Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (1) pay the Employee all or part of the compensation withheld while
its obligations under this Agreement were suspended and (ii) reinstate in whole
or in part any of its obligations which were suspended.
(g) Permanent Suspension or Prohibition. If the Employee is removed
and/or permanently prohibited from participating in the conduct of the Bank's
affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA, 12
U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the Bank under this
Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(h) Default of the Bank. If the Bank is in default (as defined in
Section 3(x)(1) of the FDIA), all obligations under this Agreement shall
terminate as of the date of default, but this provision shall not affect any
vested rights of the contracting parties.
(i) Termination by Regulators. All obligations under this Agreement
shall be terminated, except to the extent determined that continuation of this
Agreement is necessary for the continued operation of the Bank: (1) by the
Director of the Office of Thrift Supervision (the "Director") or his or her
designee, at the time the Federal Deposit Insurance Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the FDIA; or (2) by the Director or his or her
designee, at the time the Director or his or her designee approves a supervisory
merger to resolve problems related to operation of the Bank or when the Bank is
determined by the Director to be in an unsafe or unsound condition. Any rights
of the parties that have already vested, however, shall not be affected by any
such action.
(j) Section 563.39(b). So long as 12 C.F.R. ss. 563.39(b)(1995) remains
in effect and applicable to the Bank, in the event that any of the termination
provisions of this Agreement conflict with 12 C.F.R. ss. 563.39(b)(1995), the
latter shall prevail.
5
<PAGE>
8. Certain Reduction of Payments by the Bank.
(a) Notwithstanding any other provisions of this Agreement, if payments
under this Agreement, together with any other payments received or to be
received by the Employee in connection with a Change in Control would cause any
amount to be nondeductible by the Bank or the Holding Company for federal income
tax purposes pursuant to Section 280G of the Code, then benefits under this
Agreement shall be reduced (not less than zero) to the extent necessary so as to
maximize payments to the Employee without causing any amount to become
nondeductible by the Bank or the Holding Company. The Employee shall determine
the allocation of such reduction among payments to the Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
1828(k) and any regulations promulgated thereunder.
(c) Notwithstanding any other provisions of this Agreement, payments
under Section 7 of this Agreement shall not exceed three times the Employee's
average annual compensation based on the most recent five taxable years.
9. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation earned by
the Employee as the result of employment by another employer, by retirement
benefits after the date of termination or otherwise.
10. Attorneys Fees. In the event the Bank exercises its right of
Termination for Cause, but it is determined by a court of competent jurisdiction
or by an arbitrator pursuant to Section 17 that cause did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Bank has failed to make timely payment of any amounts owed to the
Employee under this Agreement, the Employee shall be entitled to reimbursement
for all reasonable costs, including attorneys' fees, incurred in challenging
such termination or collecting such amounts. Such reimbursement shall be in
addition to all rights to which the Employee is otherwise entitled under this
Agreement.
11. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Bank shall require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank, by an assumption
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Bank would be required to perform it if no such succession or
assignment had taken place. Failure of the Bank to obtain such an assumption
agreement prior to the effectiveness of any such succession or assignment shall
be a breach of this Agreement and shall entitle the Employee to compensation
from the Bank in the same amount and on the same terms as the compensation
pursuant to Section 7(d) hereof. For purposes of implementing the provisions of
this
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<PAGE>
Section 12(a), the date on which any such succession becomes effective shall be
deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall inure
to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Bank at its home office
to the attention of the Board of Directors with a copy to the Secretary of the
Bank, or, if to the Employee, to such home or other address as the Employee has
most recently provided in writing to the Bank.
13. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
14. Paragraph Headings. The paragraph headings used in this Agreement
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Illinois.
17. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Bank then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
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<PAGE>
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: HEMLOCK FEDERAL BANK FOR
SAVINGS
___________________________________ By: _____________________________
Rosanne Pastorek-Belczak, Secretary Maureen G. Partynski
Its: Chairman and Chief Executive
Officer
EMPLOYEE
___________________________________
8
EXHIBIT 10.4
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") is made and
entered into as of this _______ day of __________________, 1996, by and between
Hemlock Federal Bank for Savings (hereinafter referred to as the "Bank" whether
in mutual or stock form), and Rosanne Pastorek-Belczak (the "Employee").
WHEREAS, the Employee is currently serving as Vice President and
Secretary of the Bank; and WHEREAS, the Bank has adopted a plan of
conversion whereby the Bank will convert to capital
stock form as the subsidiary of Hemlock Federal Financial Corporation (the
"Holding Company"), subject to the approval of the Bank's members and the Office
of Thrift Supervision (the "Conversion"); and
WHEREAS, the board of directors of the Bank ("Board of Directors")
recognizes that, as is the case with publicly held corporations generally, the
possibility of a change in control of the Holding Company and/or the Bank may
exist and that such possibility, and the uncertainty and questions which it may
raise among management, may result in the departure or distraction of key
management personnel to the detriment of the Bank, the Holding Company and their
respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Bank to enter into this Agreement with the Employee in order to assure
continuity of management of the Bank and to reinforce and encourage the
continued attention and dedication of the Employee to the Employee's assigned
duties without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Holding Company or
the Bank, although no such change is now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee to take effect as stated in Section 2
hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
<PAGE>
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
(i) results in a change in control of the Bank or the Holding
Company within the meaning of the Home Owners' Loan Act of 1933
and 12 C.F.R. Part 574 as in effect on the date hereof; or (ii)
would be required to be reported in response to Item 1 of the
current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act"); (2) any person (as the term is used in
Section 13(d) and 14(d) of the Exchange Act) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly of securities of the Bank or the
Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding securities; (3) individuals who are
members of the board of directors of the Bank or the Holding
Company on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose
election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for
election by the Holding Company's stockholders was approved by the
nominating committee serving under an Incumbent Board, shall be
considered a member of the Incumbent Board; or (4) a
reorganization, merger, consolidation, sale of all or
substantially all of the assets of the Bank or the Holding Company
or a similar transaction in which the Bank or the Holding Company
is not the resulting entity. The term "Change in Control" shall
not include an acquisition of securities by an employee benefit
plan of the Bank or the Holding Company or the acquisition of
securities of the Bank by the Holding Company in connection with
the Conversion.
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<PAGE>
(b) The term "Commencement Date" means the date of completion of the
Bank's conversion to stock form.
(c) The term "Date of Termination" means the earlier of (1) the date
upon which the Bank gives notice to the Employee of the
termination of the Employee's employment with the Bank or (2) the
date upon which the Employee ceases to serve as an employee of the
Bank.
(d) The term "Involuntarily Termination" means termination of the
employment of Employee without the Employee's express written
consent, and shall, subject to the last sentence in this
paragraph, include a material diminution of or interference with
the Employee's duties, responsibilities and benefits as Vice
President and Secretary of the Bank, including (without
limitation) any of the following actions unless consented to in
writing by the Employee: (1) a change in the principal workplace
of the Employee to a location outside of a 30 mile radius from the
Bank's headquarters office as of the date hereof; (2) a material
demotion of the Employee; (3) a material reduction in the number
or seniority of other Bank personnel reporting to the Employee or
a material reduction in the frequency with which, or in the nature
of the matters with respect to which, such personnel are to report
to the Employee, other than as part of a Bank- or Holding
Company-wide reduction in staff; (4) a material adverse change in
the Employee's salary, other than as part of an overall program
applied uniformly and with equitable effect to all members of the
senior management of the Bank or the Holding Company; and (5) a
material permanent increase in the required hours of work or the
workload of the Employee. The term "Involuntary Termination" does
not include Termination for Cause or termination of employment due
to retirement, death, disability or suspension or temporary or
permanent prohibition from participation in the conduct of the
Bank's affairs under Section 8 of the Federal Deposit Insurance
Act ("FDIA") and shall not include a material diminution of or
interference with the Employee's duties,
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<PAGE>
responsibilities and benefits unless the employee or the Bank
submits written notice of involuntary termination within 120 days
thereof.
(e) The terms "Termination for Cause" and "Terminated For Cause" mean
termination of the employment of the Employee because of the
Employee's personal dishonesty, incompetence, willful misconduct,
breach of a fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law,
rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of
any provision of this Agreement.
2. Term. The term of this Agreement shall be a period of two years
commencing on the Commencement Date, subject to earlier termination as provided
herein. Beginning on the first anniversary of the Commencement Date, and on each
anniversary thereafter until the first anniversary of the Commencement Date
after the Employee reaches age 65, the term of this Agreement shall be extended
for a period of one year in addition to the then-remaining term, provided that,
prior to such anniversary, the Board of Directors of the Bank explicitly reviews
and approves the extension. Reference herein to the term of this Agreement shall
refer to both such initial term and such extended terms.
3. Severance Benefits; Regulatory Provisions.
(a) Involuntary Termination in Connection With a Change in Control. In
the event of Involuntary Termination in connection with or within
24 months after a Change in Control which occurs during the term
of this Agreement, the Bank shall, subject to Section 4 of this
Agreement, (1) pay to the Employee in a lump sum in cash within 25
business days after the Date of Termination an amount equal to
200% of the Employee's "base amount" as defined in Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"); and
(2) provide to the Employee during the remaining term of this
Agreement such health insurance benefits as the Bank maintained
for executive officers at the Date of Termination on terms
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<PAGE>
as favorable to the Employee as applied at the Date of
Termination. The total of payments to the Employee under this
section shall not exceed three times his average compensation from
the Bank over the five most recent taxable years (or, if employed
by the Bank for a shorter period, over the period of his
employment by the Bank).
(b) Temporary Suspension or Prohibition. If the Employee is suspended
and/or temporarily prohibited from participating in the conduct of
the Bank's affairs by a notice served under Section 8(e)(3) or
(g)(1) of the FDIA, 12 U.S.C.ss. 1818(e)(3) and (g)(1), the Bank's
obligations under this Agreement shall be suspended as of the date
of service, unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Employee all or part of the compensation
withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations
which were suspended.
(c) Permanent Suspension or Prohibition. If the Employee is removed
and/or permanently prohibited from participating in the conduct of
the Bank's affairs by an order issued under Section 8(e)(4) or
(g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all
obligations of the Bank under this Agreement shall terminate as of
the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) Default of the Bank. If the Bank is in default (as defined in
Section 3(x)(1) of the FDIA), all obligations under this Agreement
shall terminate as of the date of default, but this provision
shall not affect any vested rights of the contracting parties.
(e) Termination by Regulators. All obligations under this Agreement
shall be terminated, except to the extent determined that
continuation of this Agreement is necessary for the continued
operation of the Bank: (1) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee, at the time
the Federal Deposit Insurance Corporation or the Resolution Trust
Corporation enters into an agreement to provide assistance to or
on
5
<PAGE>
behalf of the Bank under the authority contained in Section 13(c)
of the FDIA; or (2) by the Director or his or her designee, at the
time the Director or his or her designee approves a supervisory
merger to resolve problems related to operation of the Bank or
when the Bank is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by any such action.
4. Certain Reduction of Payments by the Bank.
(a) Notwithstanding any other provision of this Agreement, if the
value and amounts of benefits under this Agreement, together with
any other amounts and the value of benefits received or to be
received by the Employee in connection with a Change in Control
would cause any amount to be nondeductible by the Bank or the
Holding Company for federal income tax purposes pursuant to
Section 280G of the Code, then amounts and benefits under this
Agreement shall be reduced (not less than zero) to the extent
necessary so as to maximize amounts and the value of benefits to
the Employee without causing any amount to become nondeductible by
the Bank or the Holding Company pursuant to or by reason of such
Section 280G. The Employee shall determine the allocation of such
reduction among payments and benefits to the Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. ss. 1828(k) and any regulations promulgated
thereunder.
5. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation earned by
the Employee as the result of employment by another employer, by retirement
benefits after the date of termination or otherwise.
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<PAGE>
6. Attorneys and/or Fees. If the Employee is purportedly Terminated for
Cause and the Bank denies payments and/or benefits under Section 3(a) of this
Agreement on the basis that the Employee experienced Termination for Cause
rather than Involuntary Termination, but it is determined by a court of
competent jurisdiction or by an arbitrator pursuant to Section 13 that cause as
contemplated by Section 2(e) of this Agreement did not exist for termination of
the Employee's employment, or if in any event it is determined by any such court
or arbitrator that the Bank has failed to make timely payment of any amounts or
provision of any benefits owed to the Employee under this Agreement, the
Employee shall be entitled to reimbursement for all reasonable costs, including
attorneys' fees, incurred in challenging such termination of employment or
collecting such amounts or benefits. Such reimbursement shall be in addition to
all rights to which the Employee is otherwise entitled under this Agreement.
7. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or
obligations hereunder without first obtaining the written consent
of the other party; provided, however, that the Bank shall require
any successor or assign (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Bank, by an assumption agreement
in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and
to the same extent that the Bank would be required to perform it
if no such succession or assignment had taken place. Failure of
the Bank to obtain such an assumption agreement prior to the
effectiveness of any such succession or assignment shall be a
breach of this Agreement and shall entitle the Employee to
compensation from the Bank in the same amount and on the same
terms as the compensation pursuant to Section 3(a) hereof. For
purposes of implementing the provisions of this
7
<PAGE>
Section 7(a), the date on which any such succession becomes
effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall
inure to the benefit of and be enforceable by the Employee's
personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the
Employee should die while any amounts would still be payable to
the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Employee's
devisee, legatee or other designee or if there is no such
designee, to the Employee's estate.
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Bank at its home office,
to the attention of the Board of Directors with a copy to the Secretary of the
Bank, or, if to the Employee, to such home or other address as the Employee has
most recently provided in writing to the Bank.
9. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
10. Headings. The headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
11. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
12. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Illinois.
8
<PAGE>
13. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Bank then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: HEMLOCK FEDERAL BANK FOR SAVINGS
- ----------------------------------------- ---------------------------------
Michael R. Stevens, President By: Maureen G. Partynski
- -----------------------------------------
Its: Chairman and Chief
Executive Officer
EMPLOYEE
_________________________________
9
EXHIBIT 10.5
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") is made and
entered into as of this _______ day of __________________, 1996, by and between
Hemlock Federal Bank for Savings (hereinafter referred to as the "Bank" whether
in mutual or stock form), and Jean M. Thornton (the "Employee").
WHEREAS, the Employee is currently serving as Vice President and
Controller/Treasurer of the Bank; and
WHEREAS, the Bank has adopted a plan of conversion whereby the Bank will
convert to capital stock form as the subsidiary of Hemlock Federal Financial
Corporation (the "Holding Company"), subject to the approval of the Bank's
members and the Office of Thrift Supervision (the "Conversion"); and
WHEREAS, the board of directors of the Bank ("Board of Directors")
recognizes that, as is the case with publicly held corporations generally, the
possibility of a change in control of the Holding Company and/or the Bank may
exist and that such possibility, and the uncertainty and questions which it may
raise among management, may result in the departure or distraction of key
management personnel to the detriment of the Bank, the Holding Company and their
respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Bank to enter into this Agreement with the Employee in order to assure
continuity of management of the Bank and to reinforce and encourage the
continued attention and dedication of the Employee to the Employee's assigned
duties without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Holding Company or
the Bank, although no such change is now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee to take effect as stated in Section 2
hereof;
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
(i) results in a change in control of the Bank or the Holding
Company within the meaning of the Home Owners' Loan Act of 1933
and 12 C.F.R. Part 574 as in effect on the date hereof; or (ii)
would be required to be reported in response to Item 1 of the
current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act"); (2) any person (as the term is used in
Section 13(d) and 14(d) of the Exchange Act) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly of securities of the Bank or the
Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding securities; (3) individuals who are
members of the board of directors of the Bank or the Holding
Company on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose
election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for
election by the Holding Company's stockholders was approved by the
nominating committee serving under an Incumbent Board, shall be
considered a member of the Incumbent Board; or (4) a
reorganization, merger, consolidation, sale of all or
substantially all of the assets of the Bank or the Holding Company
or a similar transaction in which the Bank or the Holding Company
is not the resulting entity. The term "Change in Control" shall
not include an acquisition of securities by an employee benefit
plan of the Bank or the Holding Company or the
2
<PAGE>
acquisition of securities of the Bank by the Holding Company in
connection with the Conversion.
(b) The term "Commencement Date" means the date of completion of the
Bank's conversion to stock form.
(c) The term "Date of Termination" means the earlier of (1) the date
upon which the Bank gives notice to the Employee of the
termination of the Employee's employment with the Bank or (2) the
date upon which the Employee ceases to serve as an employee of the
Bank.
(d) The term "Involuntarily Termination" means termination of the
employment of Employee without the Employee's express written
consent, and shall, subject to the last sentence in this
paragraph, include a material diminution of or interference with
the Employee's duties, responsibilities and benefits as Vice
President and Controller/Treasurer of the Bank, including (without
limitation) any of the following actions unless consented to in
writing by the Employee: (1) a change in the principal workplace
of the Employee to a location outside of a 30 mile radius from the
Bank's headquarters office as of the date hereof; (2) a material
demotion of the Employee; (3) a material reduction in the number
or seniority of other Bank personnel reporting to the Employee or
a material reduction in the frequency with which, or in the nature
of the matters with respect to which, such personnel are to report
to the Employee, other than as part of a Bank- or Holding
Company-wide reduction in staff; (4) a material adverse change in
the Employee's salary, other than as part of an overall program
applied uniformly and with equitable effect to all members of the
senior management of the Bank or the Holding Company; and (5) a
material permanent increase in the required hours of work or the
workload of the Employee. The term "Involuntary Termination" does
not include Termination for Cause or termination of employment due
to retirement, death, disability or suspension or temporary or
permanent prohibition from participation in the
3
<PAGE>
conduct of the Bank's affairs under Section 8 of the Federal
Deposit Insurance Act ("FDIA") and shall not include a material
diminution of or interference with the Employee's duties,
responsibilities and benefits unless the employee or the Bank
submits written notice of involuntary termination within 120 days
thereof.
(e) The terms "Termination for Cause" and "Terminated For Cause" mean
termination of the employment of the Employee because of the
Employee's personal dishonesty, incompetence, willful misconduct,
breach of a fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law,
rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of
any provision of this Agreement.
2. Term. The term of this Agreement shall be a period of two years
commencing on the Commencement Date, subject to earlier termination as provided
herein. Beginning on the first anniversary of the Commencement Date, and on each
anniversary thereafter until the first anniversary of the Commencement Date
after the Employee reaches age 65, the term of this Agreement shall be extended
for a period of one year in addition to the then-remaining term, provided that,
prior to such anniversary, the Board of Directors of the Bank explicitly reviews
and approves the extension. Reference herein to the term of this Agreement shall
refer to both such initial term and such extended terms.
3. Severance Benefits; Regulatory Provisions.
(a) Involuntary Termination in Connection With a Change in Control. In
the event of Involuntary Termination in connection with or within
24 months after a Change in Control which occurs during the term
of this Agreement, the Bank shall, subject to Section 4 of this
Agreement, (1) pay to the Employee in a lump sum in cash within 25
business days after the Date of Termination an amount equal to
200% of the Employee's "base amount" as defined in Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"); and
(2)
4
<PAGE>
provide to the Employee during the remaining term of this
Agreement such health insurance benefits as the Bank maintained
for executive officers at the Date of Termination on terms as
favorable to the Employee as applied at the Date of Termination.
The total of payments to the Employee under this section shall not
exceed three times his average compensation from the Bank over the
five most recent taxable years (or, if employed by the Bank for a
shorter period, over the period of his employment by the Bank).
(b) Temporary Suspension or Prohibition. If the Employee is suspended
and/or temporarily prohibited from participating in the conduct of
the Bank's affairs by a notice served under Section 8(e)(3) or
(g)(1) of the FDIA, 12 U.S.C.ss. 1818(e)(3) and (g)(1), the Bank's
obligations under this Agreement shall be suspended as of the date
of service, unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Employee all or part of the compensation
withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations
which were suspended.
(c) Permanent Suspension or Prohibition. If the Employee is removed
and/or permanently prohibited from participating in the conduct of
the Bank's affairs by an order issued under Section 8(e)(4) or
(g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all
obligations of the Bank under this Agreement shall terminate as of
the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) Default of the Bank. If the Bank is in default (as defined in
Section 3(x)(1) of the FDIA), all obligations under this Agreement
shall terminate as of the date of default, but this provision
shall not affect any vested rights of the contracting parties.
(e) Termination by Regulators. All obligations under this Agreement
shall be terminated, except to the extent determined that
continuation of this Agreement is necessary for the continued
operation of the Bank: (1) by the Director of the Office of Thrift
Supervision (the
5
<PAGE>
"Director") or his or her designee, at the time the Federal
Deposit Insurance Corporation or the Resolution Trust Corporation
enters into an agreement to provide assistance to or on behalf of
the Bank under the authority contained in Section 13(c) of the
FDIA; or (2) by the Director or his or her designee, at the time
the Director or his or her designee approves a supervisory merger
to resolve problems related to operation of the Bank or when the
Bank is determined by the Director to be in an unsafe or unsound
condition. Any rights of the parties that have already vested,
however, shall not be affected by any such action.
4. Certain Reduction of Payments by the Bank.
(a) Notwithstanding any other provision of this Agreement, if the
value and amounts of benefits under this Agreement, together with
any other amounts and the value of benefits received or to be
received by the Employee in connection with a Change in Control
would cause any amount to be nondeductible by the Bank or the
Holding Company for federal income tax purposes pursuant to
Section 280G of the Code, then amounts and benefits under this
Agreement shall be reduced (not less than zero) to the extent
necessary so as to maximize amounts and the value of benefits to
the Employee without causing any amount to become nondeductible by
the Bank or the Holding Company pursuant to or by reason of such
Section 280G. The Employee shall determine the allocation of such
reduction among payments and benefits to the Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. ss. 1828(k) and any regulations promulgated
thereunder.
5. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any
6
<PAGE>
compensation earned by the Employee as the result of employment by another
employer, by retirement benefits after the date of termination or otherwise.
6. Attorneys and/or Fees. If the Employee is purportedly Terminated for
Cause and the Bank denies payments and/or benefits under Section 3(a) of this
Agreement on the basis that the Employee experienced Termination for Cause
rather than Involuntary Termination, but it is determined by a court of
competent jurisdiction or by an arbitrator pursuant to Section 13 that cause as
contemplated by Section 2(e) of this Agreement did not exist for termination of
the Employee's employment, or if in any event it is determined by any such court
or arbitrator that the Bank has failed to make timely payment of any amounts or
provision of any benefits owed to the Employee under this Agreement, the
Employee shall be entitled to reimbursement for all reasonable costs, including
attorneys' fees, incurred in challenging such termination of employment or
collecting such amounts or benefits. Such reimbursement shall be in addition to
all rights to which the Employee is otherwise entitled under this Agreement.
7. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or
obligations hereunder without first obtaining the written consent
of the other party; provided, however, that the Bank shall require
any successor or assign (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Bank, by an assumption agreement
in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and
to the same extent that the Bank would be required to perform it
if no such succession or assignment had taken place. Failure of
the Bank to obtain such an assumption agreement prior to the
effectiveness of any such succession or assignment shall be a
breach of this Agreement and shall entitle the Employee to
compensation from the Bank in the same amount and on the same
terms as the compensation
7
<PAGE>
pursuant to Section 3(a) hereof. For purposes of implementing the
provisions of this Section 7(a), the date on which any such
succession becomes effective shall be deemed the Date of
Termination.
(b) This Agreement and all rights of the Employee hereunder shall
inure to the benefit of and be enforceable by the Employee's
personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the
Employee should die while any amounts would still be payable to
the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Employee's
devisee, legatee or other designee or if there is no such
designee, to the Employee's estate.
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Bank at its home office,
to the attention of the Board of Directors with a copy to the Secretary of the
Bank, or, if to the Employee, to such home or other address as the Employee has
most recently provided in writing to the Bank.
9. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
10. Headings. The headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
11. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
8
<PAGE>
12. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Illinois.
13. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Bank then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: HEMLOCK FEDERAL BANK FOR SAVINGS
___________________________________ _____________________________________
Rosanne Pastorek-Belczak, Secretary By: Maureen G. Partynski
Its: Chairman and Chief
Executive Officer
EMPLOYEE
_____________________________________
9
EXHIBIT 10.6
CHANGE IN CONTROL SEVERANCE AGREEMENT
-------------------------------------
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") is made and
entered into as of this _______ day of __________________, 1996, by and between
Hemlock Federal Bank for Savings (hereinafter referred to as the "Bank" whether
in mutual or stock form), and Robert Upton (the "Employee").
WHEREAS, the Employee is currently serving as Chief Lending Officer of
the Bank; and
WHEREAS, the Bank has adopted a plan of conversion whereby the Bank will
convert to capital stock form as the subsidiary of Hemlock Federal Financial
Corporation (the "Holding Company"), subject to the approval of the Bank's
members and the Office of Thrift Supervision (the "Conversion"); and
WHEREAS, the board of directors of the Bank ("Board of Directors")
recognizes that, as is the case with publicly held corporations generally, the
possibility of a change in control of the Holding Company and/or the Bank may
exist and that such possibility, and the uncertainty and questions which it may
raise among management, may result in the departure or distraction of key
management personnel to the detriment of the Bank, the Holding Company and their
respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Bank to enter into this Agreement with the Employee in order to assure
continuity of management of the Bank and to reinforce and encourage the
continued attention and dedication of the Employee to the Employee's assigned
duties without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Holding Company or
the Bank, although no such change is now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee to take effect as stated in Section 2
hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1
<PAGE>
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
(i) results in a change in control of the Bank or the Holding
Company within the meaning of the Home Owners' Loan Act of 1933
and 12 C.F.R. Part 574 as in effect on the date hereof; or (ii)
would be required to be reported in response to Item 1 of the
current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act"); (2) any person (as the term is used in
Section 13(d) and 14(d) of the Exchange Act) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly of securities of the Bank or the
Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding securities; (3) individuals who are
members of the board of directors of the Bank or the Holding
Company on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose
election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for
election by the Holding Company's stockholders was approved by the
nominating committee serving under an Incumbent Board, shall be
considered a member of the Incumbent Board; or (4) a
reorganization, merger, consolidation, sale of all or
substantially all of the assets of the Bank or the Holding Company
or a similar transaction in which the Bank or the Holding Company
is not the resulting entity. The term "Change in Control" shall
not include an acquisition of securities by an employee benefit
plan of the Bank or the Holding Company or the acquisition of
securities of the Bank by the Holding Company in connection with
the Conversion.
(b) The term "Commencement Date" means the date of completion of the
Bank's conversion to stock form.
2
<PAGE>
(c) The term "Date of Termination" means the earlier of (1) the date
upon which the Bank gives notice to the Employee of the
termination of the Employee's employment with the Bank or (2) the
date upon which the Employee ceases to serve as an employee of the
Bank.
(d) The term "Involuntarily Termination" means termination of the
employment of Employee without the Employee's express written
consent, and shall, subject to the last sentence in this
paragraph, include a material diminution of or interference with
the Employee's duties, responsibilities and benefits as Chief
Lending Officer of the Bank, including (without limitation) any of
the following actions unless consented to in writing by the
Employee: (1) a change in the principal workplace of the Employee
to a location outside of a 30 mile radius from the Bank's
headquarters office as of the date hereof; (2) a material demotion
of the Employee; (3) a material reduction in the number or
seniority of other Bank personnel reporting to the Employee or a
material reduction in the frequency with which, or in the nature
of the matters with respect to which, such personnel are to report
to the Employee, other than as part of a Bank- or Holding
Company-wide reduction in staff; (4) a material adverse change in
the Employee's salary, other than as part of an overall program
applied uniformly and with equitable effect to all members of the
senior management of the Bank or the Holding Company; and (5) a
material permanent increase in the required hours of work or the
workload of the Employee. The term "Involuntary Termination" does
not include Termination for Cause or termination of employment due
to retirement, death, disability or suspension or temporary or
permanent prohibition from participation in the conduct of the
Bank's affairs under Section 8 of the Federal Deposit Insurance
Act ("FDIA") and shall not include a material diminution of or
interference with the Employee's duties, responsibilities and
benefits unless the employee or the Bank submits written notice of
involuntary termination within 120 days thereof.
3
<PAGE>
(e) The terms "Termination for Cause" and "Terminated For Cause" mean
termination of the employment of the Employee because of the
Employee's personal dishonesty, incompetence, willful misconduct,
breach of a fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law,
rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of
any provision of this Agreement.
2. Term. The term of this Agreement shall be a period of two years
commencing on the Commencement Date, subject to earlier termination as
provided herein. Beginning on the first anniversary of the Commencement
Date, and on each anniversary thereafter until the first anniversary of
the Commencement Date after the Employee reaches age 65, the term of this
Agreement shall be extended for a period of one year in addition to the
then-remaining term, provided that, prior to such anniversary, the Board
of Directors of the Bank explicitly reviews and approves the extension.
Reference herein to the term of this Agreement shall refer to both such
initial term and such extended terms. 3. Severance Benefits; Regulatory
Provisions.
(a) Involuntary Termination in Connection With a Change in Control. In
the event of Involuntary Termination in connection with or within
24 months after a Change in Control which occurs during the term
of this Agreement, the Bank shall, subject to Section 4 of this
Agreement, (1) pay to the Employee in a lump sum in cash within 25
business days after the Date of Termination an amount equal to
200% of the Employee's "base amount" as defined in Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"); and
(2) provide to the Employee during the remaining term of this
Agreement such health insurance benefits as the Bank maintained
for executive officers at the Date of Termination on terms as
favorable to the Employee as applied at the Date of Termination.
The total of payments to the Employee under this section shall not
exceed three times his average compensation
4
<PAGE>
from the Bank over the five most recent taxable years (or, if
employed by the Bank for a shorter period, over the period of his
employment by the Bank).
(b) Temporary Suspension or Prohibition. If the Employee is suspended
and/or temporarily prohibited from participating in the conduct of
the Bank's affairs by a notice served under Section 8(e)(3) or
(g)(1) of the FDIA, 12 U.S.C.ss. 1818(e)(3) and (g)(1), the Bank's
obligations under this Agreement shall be suspended as of the date
of service, unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Employee all or part of the compensation
withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations
which were suspended.
(c) Permanent Suspension or Prohibition. If the Employee is removed
and/or permanently prohibited from participating in the conduct of
the Bank's affairs by an order issued under Section 8(e)(4) or
(g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all
obligations of the Bank under this Agreement shall terminate as of
the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) Default of the Bank. If the Bank is in default (as defined in
Section 3(x)(1) of the FDIA), all obligations under this Agreement
shall terminate as of the date of default, but this provision
shall not affect any vested rights of the contracting parties.
(e) Termination by Regulators. All obligations under this Agreement
shall be terminated, except to the extent determined that
continuation of this Agreement is necessary for the continued
operation of the Bank: (1) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee, at the time
the Federal Deposit Insurance Corporation or the Resolution Trust
Corporation enters into an agreement to provide assistance to or
on behalf of the Bank under the authority contained in Section
13(c) of the FDIA; or (2) by the Director or his or her designee,
at the time the Director or his or her designee approves a
5
<PAGE>
supervisory merger to resolve problems related to operation of the
Bank or when the Bank is determined by the Director to be in an
unsafe or unsound condition. Any rights of the parties that have
already vested, however, shall not be affected by any such action.
4. Certain Reduction of Payments by the Bank.
(a) Notwithstanding any other provision of this Agreement, if the
value and amounts of benefits under this Agreement, together with
any other amounts and the value of benefits received or to be
received by the Employee in connection with a Change in Control
would cause any amount to be nondeductible by the Bank or the
Holding Company for federal income tax purposes pursuant to
Section 280G of the Code, then amounts and benefits under this
Agreement shall be reduced (not less than zero) to the extent
necessary so as to maximize amounts and the value of benefits to
the Employee without causing any amount to become nondeductible by
the Bank or the Holding Company pursuant to or by reason of such
Section 280G. The Employee shall determine the allocation of such
reduction among payments and benefits to the Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. ss. 1828(k) and any regulations promulgated
thereunder.
5. No Mitigation. The Employee shall not be required to mitigate the amount
of any salary or other payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any
payment or benefit provided for in this Agreement be reduced by any
compensation earned by the Employee as the result of employment by
another employer, by retirement benefits after the date of termination or
otherwise.
6. Attorneys and/or Fees. If the Employee is purportedly Terminated for
Cause and the Bank denies payments and/or benefits under Section 3(a) of
this Agreement on the basis that the Employee experienced Termination for
Cause rather than Involuntary Termination, but it is determined by a
6
<PAGE>
court of competent jurisdiction or by an arbitrator pursuant to Section
13 that cause as contemplated by Section 2(e) of this Agreement did not
exist for termination of the Employee's employment, or if in any event it
is determined by any such court or arbitrator that the Bank has failed to
make timely payment of any amounts or provision of any benefits owed to
the Employee under this Agreement, the Employee shall be entitled to
reimbursement for all reasonable costs, including attorneys' fees,
incurred in challenging such termination of employment or collecting such
amounts or benefits. Such reimbursement shall be in addition to all
rights to which the Employee is otherwise entitled under this Agreement.
7. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or
obligations hereunder without first obtaining the written consent
of the other party; provided, however, that the Bank shall require
any successor or assign (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Bank, by an assumption agreement
in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and
to the same extent that the Bank would be required to perform it
if no such succession or assignment had taken place. Failure of
the Bank to obtain such an assumption agreement prior to the
effectiveness of any such succession or assignment shall be a
breach of this Agreement and shall entitle the Employee to
compensation from the Bank in the same amount and on the same
terms as the compensation pursuant to Section 3(a) hereof. For
purposes of implementing the provisions of this Section 7(a), the
date on which any such succession becomes effective shall be
deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall
inure to the benefit of and be enforceable by the Employee's
personal and legal representatives, executors,
7
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administrators, successors, heirs, distributees, devisees and
legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued
to live, all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Agreement to the
Employee's devisee, legatee or other designee or if there is no
such designee, to the Employee's estate.
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered or sent
by certified mail, return receipt requested, postage prepaid, to the Bank
at its home office, to the attention of the Board of Directors with a
copy to the Secretary of the Bank, or, if to the Employee, to such home
or other address as the Employee has most recently provided in writing to
the Bank.
9. Amendments. No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties, except as herein otherwise
provided.
10. Headings. The headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
11. Severability. The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not affect
the validity or enforceability of the other provisions hereof.
12. Governing Law. This Agreement shall be governed by the laws of the United
States to the extent applicable and otherwise by the laws of the State of
Illinois.
13. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Bank then in
effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: HEMLOCK FEDERAL BANK FOR SAVINGS
- ----------------------------------- -----------------------------------------
Rosanne Pastorek-Belczak, Secretary By: Maureen G. Partynski
Its: Chairman and Chief Executive Officer
EMPLOYEE
-----------------------------------------
9
Exhibit 10.8
HEMLOCK FEDERAL FINANCIAL CORPORATION
1997 RECOGNITION AND RETENTION PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, executive officers and employees of the
Corporation and its Affiliates.
2. Definitions. The following definitions are applicable to the Plan:
"Award" - means the grant of Restricted Stock pursuant to the terms of
Section 12 of the Plan or by the Committee, as provided in the Plan.
"Affiliate" - means any "parent corporation" or "subsidiary corporation" of
the Corporation, as such terms are defined in Section 424(e) and (f),
respectively, of the Code.
"Bank" - means Hemlock Federal Bank for Savings, a savings institution and
its successors.
"Beneficiary" - means the person or persons designated by a Participant to
receive any benefits payable under the Plan in the event of such Participant's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Participant's surviving spouse, if
any, or if none, his estate.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee of the Board of Directors of the
Corporation referred to in Section 6 hereof.
"Continuous Service" - means the absence of any interruption or termination
of service as a director, director emeritus, advisory director, executive
officer or employee of the Corporation or any Affiliate. Service shall not be
considered interrupted in the case of sick leave, military leave or any other
leave of absence approved by the Corporation or any Affiliate or in the case of
transfers between payroll locations of the Corporation or its Affiliates or
between the Corporation, its Affiliates or its successor. With respect to any
director emeritus or advisory director, continuous service shall mean
availability to perform such functions as may be required of such individuals.
"Conversion" - means the conversion of the Bank from the mutual to the
stock form of organization.
"Corporation" - means Hemlock Federal Financial Corporation, a Delaware
corporation.
"Disability" - means any physical or mental impairment which qualifies an
employee, director, director emeritus or advisor director for disability
benefits under any applicable long-term disability plan maintained by the Bank
or an Affiliate, or, if no such plan applies to such individual, which renders
such employee or director, in the judgment of the Committee, unable to perform
his customary duties and responsibilities.
"ERISA" - means the Employee Retirement Income Security Act of 1974, as
amended.
"Non-Employee Director" - means a director who a) is not currently an
officer or employee of the Corporation; b) is not a former employee of the
Corporation who receives compensation for prior services (other than from a
tax-qualified retirement plan); c) has not been an officer of the Corporation;
d) does not receive remuneration from the Corporation in any capacity other than
as a director; and e) does not possess
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an interest in any other transactions or is not engaged in a business
relationship for which disclosure would be required under Item 404(a) or (b) of
Regulation S-K.
"Participant" - means any director, director emeritus, advisory director,
executive officer or employee of the Corporation or any Affiliate who is
selected by the Committee to receive an Award or a director who is granted an
award pursuant to Section 12.
"Plan" - means the 1997 Recognition and Retention Plan of the Corporation.
"Restricted Period" - means the period of time selected by the Committee
for the purpose of determining when restrictions are in effect under Section 3
hereof with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" - means Shares which have been contingently awarded to a
Participant by the Committee subject to the restrictions referred to in Section
3 hereof, so long as such restrictions are in effect.
"Shares" - means the common stock, par value $0.01 per share, of the
Corporation.
3. Terms and Conditions of Restricted Stock. The Committee shall have full
and complete authority, subject to the limitations of the Plan, to grant Awards
and, in addition to the terms and conditions contained in paragraphs (a) through
(f) of this Section 3, to provide such other terms and conditions (which need
not be identical among Participants) in respect of such Awards, and the vesting
thereof, as the Committee shall determine, subject to Office of Thrift
Supervision Regulations.
(a) At the time of an award of Restricted Stock, the Committee shall establish
for each Participant a Restricted Period, during which or at the expiration
of which, as the Committee shall determine and provide in the agreement
referred to in paragraph (d) of this Section 3, the Shares awarded as
Restricted Stock shall vest, and subject to any such other terms and
conditions as the Committee shall provide, shares of Restricted Stock may
not be sold, assigned, transferred, pledged, voted or otherwise encumbered
by the Participant, except as hereinafter provided, during the Restricted
Period. Except for such restrictions, and subject to paragraphs (c) and (e)
of this Section 3 and Section 4 hereof, the Participant as owner of such
shares shall have all the rights of a stockholder.
No director who is not an employee of the Corporation shall be granted
Awards with respect to more than 5% of the total shares subject to the
Plan. All non-employee directors of the Corporation, in the aggregate, may
not be granted Awards with respect to more than 30% of the total shares
subject to the Plan and no individual shall be granted Awards with respect
to more than 25% of the total shares subject to the Plan. No Awards shall
begin vesting earlier than one year from the date the Plan is approved by
stockholders of the Corporation and no Award shall vest at a rate in excess
of 20% per year, except in the event of death or disability. In the event
Office of Thrift Supervision Regulations are amended (the "Amended
Regulations") to permit shorter vesting periods, any Award made pursuant to
this Plan, which Award is subject to the requirements of such Amended
Regulations, may vest, at the sole discretion of the Committee, in
accordance with such Amended Regulations.
Subject to compliance with Office of Thrift Supervision Regulations, the
Committee shall have the authority, in its discretion, to accelerate the
time at which any or all of the restrictions shall lapse with respect to an
Award, or to remove any or all of such restrictions, whenever it may
determine that such action is appropriate by reason of changes in
applicable tax or other laws or other changes in circum stances occurring
after the commencement of such Restricted Period.
(b) Except as provided in Section 5 hereof, if a Participant ceases to maintain
Continuous Service for any reason (other than death or disability), unless
the Committee shall otherwise determine, all Shares of Restricted Stock
theretofore awarded to such Participant and which at the time of such
termination of
2
<PAGE>
Continuous Service are subject to the restrictions imposed by paragraph (a)
of this Section 3 shall upon such termination of Continuous Service be
forfeited and returned to the Corporation. If a Participant ceases to
maintain Continuous Service by reason of death or disability, Restricted
Stock then still subject to restrictions imposed by paragraph (a) of this
Section 3 will be free of those restrictions.
(c) Each certificate in respect of Shares of Restricted Stock awarded under the
Plan shall be registered in the name of the Participant and deposited by
the Participant, together with a stock power endorsed in blank, with the
Corporation and shall bear the following (or a similar) legend:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) contained in the 1996 Recognition and Retention Plan of
Hemlock Federal Financial Corporation. Copies of such Plan are on file
in the offices of the Secretary of Hemlock Federal Financial
Corporation, 5700 W. 159th Street, Oak Forest, Illinois 60452-3198.
(d) At the time of any Award, the Participant shall enter into an Agreement
with the Corporation in a form specified by the Committee, agreeing to the
terms and conditions of the Award and such other matters as the Committee,
in its sole discretion, shall determine (the "Restricted Stock Agreement").
(e) The payment to the Participant of dividends or other distributions declared
or paid on such shares by the Corporation shall be deferred until the
lapsing of the restrictions imposed under paragraph (a) of this Section 3,
and such dividends or other distributions shall be held by the Corporation
for the account of the Participant until such time. There shall be credited
at the end of each year (or portion thereof) interest on the amount of the
deferred dividends or other distributions at a rate per annum as the
Committee, in its discretion, may determine. Payment of deferred dividends
or other distributions, together with interest accrued thereon, shall be
made upon the earlier to occur of the lapsing of the restrictions imposed
under paragraph (a) of this Section 3 or upon death or disability of the
Participant.
(f) At the lapsing of the restrictions imposed by paragraph (a) of this Section
3, the Corporation shall deliver to the Participant (or where the relevant
provision of paragraph (b) of this Section 3 applies in the case of a
deceased Participant, to his legal representative, beneficiary or heir) the
certificate(s) and stock power deposited with it pursuant to paragraph (c)
of this Section 3 and the Shares represented by such certificate(s) shall
be free of the restrictions referred to in paragraph (a) of this Section 3.
4. Adjustments Upon Changes in Capitalization. In the event of any change
in the outstanding Shares subsequent to the effective date of the Plan by reason
of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number and class of shares with respect to which Awards theretofore have been
granted under the Plan shall be appropriately adjusted by the Committee, whose
determination shall be conclusive. Any shares of stock or other securities
received as a result of any of the foregoing by a Participant with respect to
Restricted Stock shall be subject to the same restrictions and the
certificate(s) or other instruments representing or evidencing such shares or
securities shall be legended and deposited with the Corporation in the manner
provided in Section 3 hereof.
5. Assignments and Transfers. During the Restricted Period, no Award nor
any right or interest of a Participant under the Plan in any instrument
evidencing any Award under the Plan may be assigned, encumbered or transferred
except (i) in the event of the death of a Participant, by will or the laws of
descent and distribution, or (ii) pursuant to a qualified domestic relations
order as defined in the Code or Title I of ERISA or the rules thereunder.
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<PAGE>
6. Administration. The Plan shall be administered by a Committee
consisting of two or more members, each of whom shall be a Non-Employee
Director. The members of the Committee shall be appointed by the Board of
Directors of the Corporation. Except as limited by the express provisions of the
Plan, the Committee shall have sole and complete authority and discretion,
subject to Office of Thrift Supervision Regulations, to (i) select Participants
and grant Awards; (ii) determine the number of Shares to be subject to types of
Awards generally, as well as individual Awards granted under the Plan; (iii)
determine the terms and conditions upon which Awards shall be granted under the
Plan; (iv) prescribe the form and terms of instruments evidencing such grants;
and (v) establish from time to time regulations for the administration of the
Plan, interpret the Plan, and make all determinations deemed necessary or
advisable for the administration of the Plan. The Committee may maintain, and
update from time to time as appropriate, a list designating selected directors
as Non-Employee Directors. The purpose of such list shall be to evidence the
status of such individuals as Non-Employee Directors, and the Board of Directors
may appoint to the Committee any individual actually qualifying as a
Non-Employee Director, regardless of whether identified as such on said list.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be acts of the Committee.
7. Shares Subject to Plan. Subject to adjustment by the operation of
Section 4 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan is 4% of the total Shares issued in the Association's
Conversion. The Shares with respect to which Awards may be made under the Plan
may be either authorized and unissued Shares or issued Shares heretofore or
hereafter reacquired and held as treasury Shares. An Award shall not be
considered to have been made under the Plan with respect to Restricted Stock
which is forfeited and new Awards may be granted under the Plan with respect to
the number of Shares as to which such forfeiture has occurred.
The Corporation's obligation to deliver Shares with respect to an Award
shall, if the Committee so requests, be conditioned upon the receipt of a
representation as to the investment intention of the Participant to whom such
Shares are to be delivered, in such form as the Committee shall determine to be
necessary or advisable to comply with the provisions of the Securities Act of
1933 or any other Federal, state or local securities legislation or regulation.
It may be provided that any representation requirement shall become inoperative
upon a registration of the Shares or other action eliminating the necessity of
such representation under such Securities Act or other securities legislation.
The Corporation shall not be required to deliver any Shares under the Plan prior
to (i) the admission of such shares to listing on any stock exchange on which
Shares may then be listed, and (ii) the completion of such registration or other
qualification of such Shares under any state or Federal law, rule or regulation,
as the Committee shall determine to be necessary or advisable.
8. Employee Rights Under the Plan. No director, director emeritus, advisory
director, officer or employee shall have a right to be selected as a Participant
nor, having been so selected, to be selected again as a Participant and no
director, officer, employee or other person shall have any claim or right to be
granted an Award under the Plan or under any other incentive or similar plan of
the Corporation or any Affiliate. Neither the Plan nor any action taken
thereunder shall be construed as giving any officer or employee any right to be
retained in the employ of the Corporation, the Bank or any Affiliate.
9. Withholding Tax. Upon the termination of the Restricted Period with
respect to any shares of Restricted Stock (or at such earlier time, if any, that
an election is made by the Participant under Section 83(b) of the Code, or any
successor provision thereto, to include the value of such shares in taxable
income), the Corporation may, in its sole discretion, withhold from any payment
or distribution made under this Plan sufficient Shares or withhold sufficient
cash to cover any applicable withholding and employment taxes. The Corporation
shall have the right to deduct from all dividends paid with respect to shares of
Restricted Stock
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<PAGE>
the amount of any taxes which the Corporation is required to withhold with
respect to such dividend payments. No discretion or choice shall be conferred
upon any Participant with respect to the form, timing or method of any such tax
withholding.
10. Amendment or Termination. The Board of Directors of the Corporation may
amend, suspend or terminate the Plan or any portion thereof at any time, subject
to Office of Thrift Supervision Regulations, but (except as provided in Section
4 hereof) no amendment shall be made without approval of the stockholders of the
Corporation which shall (i) increase the aggregate number of Shares with respect
to which Awards may be made under the Plan, (ii) materially increase the
benefits accruing to Participants, (iii) materially change the requirements as
to eligibility for participation in the Plan or (iv) change the class of persons
eligible to participate in the Plan; provided, however, that no such amendment,
suspension or termination shall impair the rights of any Participant, without
his consent, in any Award theretofore made pursuant to the Plan.
11. Term of Plan. The Plan shall become effective upon its ratification by
the stockholders of the Corporation. It shall continue in effect for a term of
ten years unless sooner terminated under Section 11 hereof.
12. Director Awards. By, and simultaneously with, the ratification of this
Plan by the stockholders of the Corporation, each member of the Board of
Directors of the Corporation who is not a full-time employee of the Corporation,
is hereby granted an Award equal to _____% of the shares sold in the Conversion.
Each of the Awards granted in this Section 12 shall be earned in five equal
annual installments, with the first installment vesting on the first anniversary
of the date of grant, as long as the director maintains Continuous Service with
the Corporation or its affiliates, provided, however, that no Award shall be
earned in any fiscal year in which the Bank fails to meet all of its fully
phased-in capital requirements.
5
HEMLOCK FEDERAL BANK FOR SAVINGS DEFINED
CONTRIBUTION PLAN AND TRUST
Sponsored By
HARRIS TRUST AND SAVINGS BANK
Chicago, Illinois
BASIC PLAN DOCUMENT #02
JULY 1995
Copyright 1995 McKAY HOCHMAN CO., INC.
<PAGE>
THIS DOCUMENT IS COPYRIGHTED UNDER THE LAWS OF THE UNITED STATES. ITS USE,
DUPLICATION OR REPRODUCTION, INCLUDING THE USE OF ELECTRONIC MEANS, IS
PROHIBITED BY LAW WITHOUT THE EXPRESS CONSENT OF THE AUTHOR.
TABLE OF CONTENTS
-----------------
PARAGRAPH PAGE
- --------- ----
ARTICLE I
DEFINITIONS
1.1 Adoption Agreement 1
1.2 Annual Additions 1
1.3 Annuity Starting Date 1
1.4 Applicable Calendar Year 1
1.5 Applicable Life Expectancy 2
1.6 Break In Service 2
1.7 Code 2
1.8 Compensation 2
1.9 Custodian 4
1.10 Defined Benefit Plan 4
1.11 Defined Benefit (Plan) Fraction 4
1.12 Defined Contribution Dollar Limitation 4
1.13 Defined Contribution Plan 4
1.14 Defined Contribution (Plan) Fraction 4
1.15 Designated Beneficiary 5
1.16 Disability 5
1.17 Distribution Calendar Year 5
1.18 Early Retirement Age 5
1.19 Earned Income 5
1.20 Effective Date 5
1.21 Election Period 5
1.22 Eligible Retirement Plan 5
1.23 Eligible Rollover Distribution 5
1.24 Employee 6
1.25 Employer 6
1.26 Entry Date 6
1.27 ERISA 6
1.28 Excess Amount 6
1.29 First Distribution Calendar Year 6
1.30 Fund 6
1.31 Highest Average Compensation 6
1.32 Hour Of Service 7
1.33 Key Employee 8
1.34 Leased Employee 8
1.35 Limitation Year 8
1.36 Mandatory Contribution 8
1.37 Master Or Prototype Plan 8
1.38 Maximum Permissible Amount 8
1.39 Named Fiduciary 8
1.40 Net Profit 8
1.41 Normal Retirement Age 9
1.42 Owner-Employee 9
1.43 Paired Plans 9
1.44 Participant 9
<PAGE>
1.45 Participant's Benefit 9
1.46 Permissive Aggregation Group 9
1.47 Plan 9
1.48 Plan Administrator 9
1.49 Plan Year 9
1.50 Present Value 9
1.51 Projected Annual Benefit 9
1.52 Qualified Deferred Compensation Plan 10
1.53 Qualified Domestic Relations Order 10
1.54 Qualified Early Retirement Age 10
1.55 Qualified Joint And Survivor Annuity 10
1.56 Qualified Voluntary Contribution 10
1.57 Required Aggregation Group 10
1.58 Required Beginning Date 10
1.59 Rollover Contribution 10
1.60 Self-Employed Individual 10
1.61 Service 11
1.62 Shareholder Employee 11
1.63 Simplified Employee Pension Plan 11
1.64 Sponsor 11
1.65 Spouse (Surviving Spouse) 11
1.66 Super Top-Heavy Plan 11
1.67 Taxable Wage Base 11
1.68 Top-Heavy Determination Date 11
1.69 Top-Heavy Plan 11
1.70 Top-Heavy Ratio 11
1.71 Transfer Contribution 13
1.72 Trust 13
1.73 Trustee 13
1.74 Valuation Date 13
1.75 Vested Account Balance 13
1.76 Voluntary Contribution 13
1.77 Welfare Benefit Fund 13
1.78 Year Of Service 14
ARTICLE II
ELIGIBILITY REQUIREMENTS
2.1 Participation 15
2.2 Change In Classification Of Employment 15
2.3 Computation Period 15
2.4 Employment Rights 15
2.5 Service With Controlled Groups 15
2.6 Owner-Employees 15
2.7 Leased Employees 16
ARTICLE III
EMPLOYER CONTRIBUTIONS
3.1 Amount 17
3.2 Expenses And Fees 17
3.3 Responsibility For Contributions 17
3.4 Return Of Contributions 17
<PAGE>
ARTICLE IV
EMPLOYEE CONTRIBUTIONS
4.1 Voluntary Contributions 18
4.2 Qualified Voluntary Contributions 18
4.3 Rollover Contribution 18
4.4 Transfer Contribution 19
4.5 Employer Approval Of Transfer Contributions 19
4.6 Direct Rollover Of Benefits 19
ARTICLE V
PARTICIPANT ACCOUNTS
5.1 Separate Accounts 20
5.2 Adjustments To Participant Accounts 20
5.3 Allocating Employer Contributions 20
5.4 Allocating Investment Earnings And Losses 21
5.5 Participant Statements 21
ARTICLE VI
RETIREMENT BENEFITS AND DISTRIBUTIONS
6.1 Normal Retirement Benefits 22
6.2 Early Retirement Benefits 22
6.3 Benefits On Termination Of Employment 22
6.4 Restrictions On Immediate Distributions 23
6.5 Normal Form Of Payment 24
6.6 Commencement Of Benefits 24
6.7 Claims Procedures 25
6.8 In-Service Withdrawals 25
6.9 Hardship Withdrawals 26
6.10 Determination Of Qualified Domestic
Relations Order (QDRO) 27
6.11 Participant Loans 28
6.12 Insurance Policies 29
ARTICLE VII
DISTRIBUTION REQUIREMENTS
7.1 Joint And Survivor Annuity Requirements 32
7.2 Minimum Distribution Requirements 32
7.3 Limits On Distribution Periods 32
7.4 Required Distributions On Or After The
Required Beginning Date 32
7.5 Required Beginning Date 33
7.6 Transitional Rule 34
7.7 Designation Of Beneficiary For Death Benefit 35
7.8 Nonexistence Of Beneficiary 35
7.9 Distribution Beginning Before Death 35
7.10 Distribution Beginning After Death 35
<PAGE>
ARTICLE VIII
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
8.1 Applicability Of Provisions 37
8.2 Payment Of Qualified Joint And Survivor
Annuity 37
8.3 Payment of Qualified Pre-Retirement
Survivor Annuity 37
8.4 Qualified Election 37
8.5 Notice Requirements For Qualified Joint
And Survivor Annuity 38
8.6 Notice Requirements For Qualified Pre-Retirement
Survivor Annuity 38
8.7 Special Safe-Harbor Exception For
Certain Profit-Sharing Plans 38
8.8 Transitional Joint And Survivor
Annuity Rules 39
8.9 Automatic Joint And Survivor Annuity
And Early Survivor Annuity 39
8.10 Annuity Contracts 40
ARTICLE IX
VESTING
9.1 Employee Contributions 41
9.2 Employer Contributions 41
9.3 Computation Period 41
9.4 Requalification Prior To Five Consecutive
One-Year Breaks In Service 41
9.5 Requalification After Five Consecutive
One-Year Breaks In Service 41
9.6 Calculating Vested Interest 41
9.7 Forfeitures 42
9.8 Amendment Of Vesting Schedule 42
9.9 Service With Controlled Groups 42
9.10 Restoration Of Benefit 42
ARTICLE X
LIMITATIONS ON ALLOCATIONS
10.1 Participation In This Plan Only 43
10.2 Disposition Of Excess Annual Additions 43
10.3 Participation In This Plan And Another Master
Or Prototype Defined Contribution Plan,
Welfare Benefit Fund, Or Individual Medical
Under Two Plans 44
10.5 Participation In This Plan And Another
Defined Contribution Plan Which Is Not
A Master Or Prototype Plan 45
10.6 Participation In This Plan And A Defined
Benefit Plan 45
<PAGE>
ARTICLE XI
ADMINISTRATION
11.1 Plan Administrator 46
11.2 Trustee 46
11.3 Administrative Fees And Expenses 48
11.4 Division Of Duties And Indemnification 48
11.5 Co-Fiduciary Liability 49
ARTICLE XII
TRUST FUND
12.1 The Fund 50
12.2 Control Of Plan Assets 50
12.3 Exclusive Benefit Rules 50
12.4 Assignment And Alienation Of Benefits 50
ARTICLE XIII
INVESTMENTS
13.1 Fiduciary Standards 51
13.2 Funding Arrangement 51
13.3 Investment And Administrative
Powers Of The Trustee 51
13.4 Employer Investment Directions 54
13.5 Investment Manager Directions 54
13.6 Employee Investment Direction 55
13.7 Voting Of Proxies On Employer Stock 56
ARTICLE XIV
TOP-HEAVY PROVISIONS
14.1 Applicability Of Rules 58
14.2 Minimum Contribution 58
14.3 Minimum Vesting 59
14.4 Limitations On Allocations 59
ARTICLE XV
AMENDMENT AND TERMINATION
15.1 Amendment By Sponsor 60
15.2 Amendment By Employer 60
15.3 Termination 60
15.4 Qualification Of Employer's Plan 61
15.5 Mergers And Consolidations 61
15.6 Resignation And Removal 61
15.7 Qualification Of Prototype 62
ARTICLE XVI
GOVERNING LAW 63
<PAGE>
PROTOTYPE DEFINED CONTRIBUTION PLAN AND TRUST
Sponsored By
HARRIS TRUST AND SAVINGS BANK
The Sponsor hereby establishes the following Prototype Retirement Plan and Trust
for use by those of its customers who qualify and wish to adopt a qualified
retirement program. Any Plan and Trust established hereunder shall be
administered for the exclusive benefit of Participants and their beneficiaries
under the following terms and conditions:
ARTICLE I
DEFINITIONS
1.1 Adoption Agreement The document attached to this Plan by which an
Employer elects to establish a qualified retirement plan and trust under the
terms of this Prototype Plan and Trust.
1.2 Annual Additions The sum of the following amounts credited to a
Participant's account for the Limitation Year:
(a) Employer contributions,
(b) Employee contributions (under Article IV),
(c) forfeitures,
(d) amounts allocated after March 31, 1984 to an individual medical
account, as defined in Code Section 415(l)(2), which is part of a
pension or annuity plan maintained by the Employer (these amounts
are treated as Annual Additions to a Defined Contribution Plan
though they arise under a Defined Benefit Plan), and
(e) amounts derived from contributions paid or accrued after 1985, in
taxable years ending after 1985, which are either attributable to
post-retirement medical benefits, allocated to the account of a Key
Employee, or a Welfare Benefit Fund maintained by the Employer are
also treated as Annual Additions to a Defined Contribution Plan.For
purposes of this paragraph, an Employee is a Key Employee if he or
she meets the requirements of paragraph 1.33 at any time during the
Plan Year or any preceding Plan Year. Welfare Benefit Fund is
defined at paragraph 1.77.
Excess Amounts applied in a Limitation Year to reduce Employer contributions
will be considered Annual Additions for such Limitation Year, pursuant to the
provisions of Article X.
1.3 Annuity Starting Date The first day of the first period for which an
amount is paid as an annuity or any other form.
1.4 Applicable Calendar Year The First Distribution Calendar Year, and in
the event of the recalculation of life expectancy, each succeeding calendar
year. If payments commence in accordance with paragraph 7.4(e) before the
Required Beginning Date, the Applicable Calendar Year is the year such payments
commence. If
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distribution is in the form of an immediate annuity purchased after the
Participant's death with the Participant's remaining interest, the Applicable
Calendar Year is the year of purchase.
1.5 Applicable Life Expectancy Used in determining the required minimum
distribution. The life expectancy (or joint and last survivor expectancy)
calculated using the attained age of the Participant (or Designated Beneficiary)
as of the Participant's (or Designated Beneficiary's) birthday in the Applicable
Calendar Year reduced by one for each calendar year which has elapsed since the
date life expectancy was first calculated. If life expectancy is being
recalculated, the Applicable Life Expectancy shall be the life expectancy as so
recalculated. The life expectancy of a non-Spouse Beneficiary may not be
recalculated.
1.6 Break In Service A 12 - consecutive month period during which an
Employee fails to complete more than 500 Hours of Service.
1.7 Code The Internal Revenue Code of 1986, including any amendments
thereto.
1.8 Compensation The Employer may select one of the following three
safe-harbor definitions of Compensation in the Adoption Agreement. Compensation
shall only include amounts earned while a Participant if Plan Year is chosen as
the applicable computation period.
(a) Code Section 3401(a) Wages. Compensation is defined as wages within
the meaning of Code Section 3401(a) for the purposes of Federal
income tax withholding at the source but determined without regard
to any rules that limit the remuneration included in wages based on
the nature or location of the employment or the services performed
[such as the exception for agricultural labor in Code Section
3401(a)(2)].
(b) Code Section 6041 and 6051 Wages. Compensation is defined as wages
as defined in Code Section 3401(a) and all other payments of
Compensation to an Employee by the Employer (in the course of the
Employer's trade or business) for which the Employer is required to
furnish the Employee a written statement under Code Section 6041(d)
and 6051(a)(3). Compensation must be determined without regard to
any rules under Code Section 3401(a) that limit the remuneration
included in wages based on the nature or location of the employment
or the services performed [such as the exception for agricultural
labor in Code Section 3401(a)(2)].
(c) Code Section 415 Compensation. For purposes of applying the
limitations of Article X and Top-Heavy minimums, the definition of
Compensation shall be Code Section 415 Compensation defined as
follows: a Participant's Earned Income, wages, salaries, and fees
for professional services and other amounts received (without
regard to whether or not an amount is paid in cash) for personal
services actually rendered in the course of employment with the
Employer maintaining the Plan to the extent that the amounts are
includible in gross income [including, but not limited to,
commissions paid salesmen, Compensation for services on the basis
of a percentage of profits, commissions on insurance premiums,
tips, bonuses, fringe benefits and reimbursements or other expense
allowances under a nonaccountable plan (as described in Regulation
1.62-2(c)], and excluding the following:
(1) Employer contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for
the taxable year in which contributed, or Employer
contributions under a Simplified Employee Pension Plan or
any distributions from a plan of deferred compensation,
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(2) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the
Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture,
(3) Amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option; and
(4) other amounts which received special tax benefits, or
contributions made by the Employer (whether or not under a
salary reduction agreement) towards the purchase of an
annuity contract described in Code Section 403(b) (whether or
not the contributions are actually excludible from the gross
income of the Employee).
For purposes of applying the limitations of Article X and Top-Heavy minimums,
the definition of Compensation shall be Code Section 415 Compensation described
in this paragraph 1.8(c). Also, for purposes of applying the limitations of
Article X, Compensation for a Limitation Year is the Compensation actually paid
or made available during such Limitation Year. Notwithstanding the preceding
sentence, Compensation for a Participant in a Defined Contribution Plan who is
permanently and totally disabled [as defined in Code Section 22(e)(3)] is the
Compensation such Participant would have received for the Limitation Year if the
Participant had been paid at the rate of Compensation paid immediately before
becoming permanently and totally disabled. Such imputed Compensation for the
disabled Participant may be taken into account only if the Participant is not a
highly compensated employee [as defined in Code Section 414(q)] and
contributions made on behalf of such Participant are nonforfeitable when made.
If the Employer fails to pick the applicable period in the Adoption Agreement,
the Plan Year shall be used. Unless otherwise specified by the Employer in the
Adoption Agreement, Compensation shall be determined as provided in Code Section
3401(a) [as defined in this paragraph 1.8(a)]. In Nonstandardized Adoption
Agreements 003 and 004, the Employer may choose to eliminate or exclude
categories of Compensation which do not violate the provisions of Code Sections
401(a)(4), 414(s) the regulations thereunder and Revenue Procedure 89-65.
Beginning with 1989 Plan Years, the annual Compensation of each Participant
which may be taken into account for determining all benefits provided under the
Plan (including benefits under Article XIV) for any year shall not exceed
$200,000, as adjusted under Code Section 415(d). In determining the Compensation
of a Participant for purposes of this limitation, the rules of Code Section
414(q)(6) shall apply, except in applying such rules, the term "family" shall
include only the Spouse of the Participant and any lineal descendants of the
Participant who have not attained age 19 before the end of the Plan Year. If, as
a result of the application of such rules the adjusted $200,000 limitation is
exceeded, then (except for purposes of determining the portion of Compensation
up to the integration level if this Plan provides for permitted disparity), the
limitation shall be prorated among the affected individuals in proportion to
each such individual's Compensation as determined under this section prior to
the application of this limitation.
If a Plan has a Plan Year that contains fewer than 12 calendar months, then the
annual Compensation limit for that period is an amount equal to the $200,000 as
adjusted for the calendar year in which the Compensation period begins,
multiplied by a fraction the numerator of which is the number of full months in
the short Plan Year and the denominator of which is 12. If Compensation for any
prior Plan Year is taken into account in determining an Employee's contributions
or benefits for the current year, the Compensation for such prior year is
subject to the applicable annual Compensation limit in effect for that prior
year. For this purpose, for years beginning before January 1, 1990, the
applicable annual Compensation limit is $200,000. For Plan Years beginning on or
after January 1, 1994, the annual Compensation of each Participant taken into
account for determining all benefits provided under the Plan for any Plan Year
shall not exceed $150,000, as adjusted for increases in the cost-of-living
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in accordance with Code Section 401(a)(17). The cost-of-living adjustment in
effect for a calendar year applies to any determination period beginning in such
calendar year.
Compensation shall not include deferred compensation other than contributions
through a salary reduction agreement to a cash or deferred plan under Code
Section 401(k), a Simplified Employee Pension Plan under Code Section
402(h)(1)(B), a cafeteria plan under Code Section 125 or a tax-deferred annuity
under Code Section 403(b). Unless elected otherwise by the Employer in the
Adoption Agreement, these deferred amounts will be considered as Compensation
for Plan purposes. These deferred amounts are not counted as Compensation for
purposes of Articles X and XIV. When applicable to a Self-Employed Individual,
Compensation shall mean Earned Income.
1.9 Custodian The Sponsor of this Prototype may serve as a Custodian
pursuant to a separate agreement.
1.10 Defined Benefit Plan A Plan under which a Participant's benefit is
determined by a formula contained in the Plan and no individual accounts are
maintained for Participants.
1.11 Defined Benefit (Plan) Fraction A fraction, the numerator of which
is the sum of the Participant's Projected Annual Benefits under all the Defined
Benefit Plans (whether or not terminated) maintained by the Employer, and the
denominator of which is the lesser of 125 percent of the dollar limitation
determined for the Limitation Year under Code Sections 415(b) and (d) or 140
percent of the Highest Average Compensation, including any adjustments under
Code Section 415(b).
Transitional Rule: Notwithstanding the above, if the Participant was a
Participant as of the first day of the first Limitation Year beginning after
1986, in one or more Defined Benefit Plans maintained by the Employer which were
in existence on May 6, 1986, the denominator of this fraction will not be less
than 125 percent of the sum of the annual benefits under such plans which the
Participant had accrued as of the close of the last Limitation Year beginning
before 1987, disregarding any changes in the terms and conditions of the Plan
after May 5, 1986. The preceding sentence applies only if the Defined Benefit
Plans individually and in the aggregate satisfied the requirements of Section
415 for all Limitation Years beginning before 1987.
1.12 Defined Contribution Dollar Limitation Thirty thousand dollars ($30,000)
or if greater, one-fourth of the defined benefit dollar limitation set forth
in Code Section 415(b)(1) as in effect for the Limitation Year.
1.13 Defined Contribution Plan A Plan under which individual accounts are
maintained for each Participant to which all contributions, forfeitures,
investment income and gains or losses, and expenses are credited or deducted. A
Participant's benefit under such Plan is based solely on the fair market value
of his or her account balance.
1.14 Defined Contribution (Plan) Fraction A fraction, the numerator of which
is the sum of the Annual Additions to the Participant's account under all the
Defined Contribution Plans (whether or not terminated) maintained by the
Employer for the current and all prior Limitation Years (including the Annual
Additions attributable to the Participant's nondeductible Employee contributions
to all Defined Benefit Plans, whether or not terminated, maintained by the
Employer, and the Annual Additions attributable to all Welfare Benefit Funds, as
defined in paragraph 1.77 and individual medical accounts, as defined in Code
Section 415(1)(2), maintained by the Employer), and the denominator of which is
the sum of the maximum aggregate amounts for the current and all prior
Limitation Years of Service with the Employer (regardless of whether a Defined
Contribution Plan was maintained by the Employer). The maximum aggregate amount
in the Limitation Year is the lesser of 125 percent of the dollar limitation
determined under Code Sections 415(b) and (d) in effect under Code Section
415(c)(1)(A) or 35 percent of the Participant's Compensation for such year.
Transitional Rule: If the Employee was a Participant as of the end of the first
day of the first Limitation Year beginning after 1986, in one or more Defined
Contribution Plans maintained by the Employer which were in existence on May 6,
1986, the numerator of this fraction will be adjusted if the sum of this
fraction and the Defined
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Benefit Fraction would otherwise exceed 1.0 under the terms of this Plan. Under
the adjustment, an amount equal to the product of (1) the excess of the sum of
the fractions over 1.0 times (2) the denominator of this fraction will be
permanently subtracted from the numerator of this fraction. The adjustment is
calculated using the fractions as they would be computed as of the end of the
last Limitation Year beginning before 1987, and disregarding any changes in the
terms and conditions of the Plan made after May 6, 1986, but using the Section
415 limitation applicable to the first Limitation Year beginning on or after
January 1, 1987. The Annual Addition for any Limitation Year beginning before
1987, shall not be re-computed to treat all Employee contributions as Annual
Additions.
1.15 Designated Beneficiary The individual who is designated as the
beneficiary under the Plan in accordance with Code Section 401(a)(9) and the
regulations thereunder.
1.16 Disability An illness or injury of a potentially permanent nature,
expected to last for a continuous period of not less than 12 months, certified
by a physician selected by or satisfactory to the Employer which prevents
the Employee from engaging in any occupation for wage or profit for which
the Employee is reasonably fitted by training, education or experience.
1.17 Distribution Calendar Year A calendar year for which a minimum
distribution is required.
1.18 Early Retirement Age The age set by the Employer in the Adoption
Agreement (but not less than 55), which is the earliest age at which a
Participant may retire and receive his or her benefits under the Plan.
1.19 Earned Income Net earnings from self-employment in the trade or
business with respect to which the Plan is established, determined without
regard to items not included in gross income and the deductions allocable to
such items, provided that personal services of the individual are a material
income-producing factor. Earned Income shall be reduced by contributions made by
an Employer to a qualified plan to the extent deductible under Code Section 404.
For tax years beginning after 1989, net earnings shall be determined taking into
account the deduction for one-half of self-employment taxes allowed to the
Employer under Code Section 164(f) to the extent deductible.
1.20 Effective Date With respect to the Employer's Plan, the date on which
the Plan or amendment to such Plan becomes effective as provided in the Adoption
Agreement. For amendments reflecting statutory and regulatory changes post Tax
Reform Act of 1986, the Effective Date will be the earlier of the date upon
which such amendment is first administratively applied or the first day of the
Plan Year following the date of adoption of such amendment. With respect to the
Trustee, the date of the appointment of the Trustee as indicated by the
Trustee's acceptance of the Employer's Plan as provided in the Adoption
Agreement.
1.21 Election Period The period which begins on the first day of the Plan
Year in which the Participant attains age 35 and ends on the date of the
Participant's death. If a Participant separates from Service prior to the first
day of the Plan Year in which age 35 is attained, the Election Period shall
begin on the date of separation, with respect to the account balance as of the
date of separation.
1.22 Eligible Retirement Plan An individual retirement account (IRA) as
described in Code Section 408(a), an individual retirement annuity (IRA) as
described in Code Section 408(b), an annuity plan as described in Code Section
403(a), or a qualified trust as described in Code Section 401(a), which accepts
Eligible Rollover Distributions. However in the case of an Eligible Rollover
Distribution to a Surviving Spouse, an Eligible Retirement Plan is an individual
retirement account or individual retirement annuity.
1.23 Eligible Rollover Distribution Any distribution of all or any portion
of the balance to the credit of the Participant except that an Eligible Rollover
Distribution does not include:
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(a) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the
life (or life expectancy) of the Participant or the joint lives (or
joint life expectancies) of the Participant and the Participant's
Designated Beneficiary, or for a specified period of ten years or
more;
(b) any distribution to the extent such distribution is required under
Code Section 401(a)(9); and
(c) the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net
unrealized appreciation with respect to Employer securities).
A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan
specified by the Participant.
1.24 Employee Any person employed by the Employer (including Self-Employed
Individuals and partners), all Employees of a member of an affiliated service
group [as defined in Code Section 414(m)], Employees of a controlled group of
corporations [as defined in Section 414(b) of the Code], all Employees of any
incorporated or unincorporated trade or business which is under common control
[as defined in Section 414(c) of the Code], Leased Employees [as defined in Code
Section 414(n)] and any Employee required to be aggregated by Code Section
414(o). All such Employees shall be treated as employed by a single Employer.
1.25 Employer The Self-Employed Individual, partnership, corporation or other
organization which adopts this Plan including any firm that succeeds the
Employer and adopts this Plan. For purposes of Article X, Limitations on
Allocations, Employer shall mean the Employer that adopts this Plan, and all
members of a controlled group of corporations [as defined in Code Section 414(b)
as modified by Section 415(h)], all commonly controlled trades or businesses [as
defined in Section 414(c) as modified by Section 415(h)] or affiliated service
groups [as defined in Section 414(m)] of which the adopting Employer is a part,
and other entity required to be aggregated with the Employer pursuant to
regulations under Code Section 414(o).
1.26 Entry Date The date on which an Employee commences participation in the
Plan as determined by the Employer in the Adoption Agreement. Unless the
Employer specifies otherwise in the Adoption Agreement, entry into the Plan
shall be on the first day of the Plan Year or the first day of the seventh month
of the Plan Year coinciding with or following the date on which an Employee
meets the eligibility requirements.
1.27 ERISA The Employee Retirement Income Security Act of 1974, including
any amendments.
1.28 Excess Amount The excess of the Participant's Annual Additions for the
Limitation Year over the Maximum Permissible Amount.
1.29 First Distribution Calendar Year For distributions beginning before the
Participant's death, the First Distribution Calendar Year is the calendar year
immediately preceding the calendar year which contains the Participant's
Required Beginning Date. For distributions beginning after the Participant's
death, the First Distribution Calendar Year is the calendar year in which
distributions are required to begin pursuant to paragraph 7.10.
1.30 Fund All contributions received by the Trustee under this Plan and
Trust, investments thereof and earnings and appreciation thereon. All such
contributions and the earnings thereon less payments made under the terms of the
Plan, shall constitute the Fund.
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1.31 Highest Average Compensation The average Compensation for the three
consecutive Years of Service with the Employer that produces the highest
average. A Year of Service with the Employer is the 12-consecutive month period
defined in the Adoption Agreement.
1.32 Hour Of Service
(a) Each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for the Employer. These hours shall
be credited to the Employee for the computation period in which the
duties are performed; and
(b) Each hour for which an Employee is paid, or entitled to payment, by
the Employer on account of a period of time during which no duties
are performed (irrespective of whether the employment relationship
has terminated) due to vacation, holiday, illness, incapacity
(including Disability), layoff, jury duty, military duty or leave
of absence. No more than 501 Hours of Service shall be credited
under this paragraph for any single continuous period (whether or
not such period occurs in a single computation period). Hours under
this paragraph shall be calculated and credited pursuant to Section
2530.200b-2 of the Department of Labor Regulations which are
incorporated herein by this reference; and
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The same
Hours of Service shall not be credited both under paragraph (a) or
paragraph (b), as the case may be, and under this paragraph (c).
These hours shall be credited to the Employee for the computation
period or periods to which the award or agreement pertains rather
than the computation period in which the award, agreement or
payment is made.
(d) Hours of Service shall be credited for employment with the Employer
and with other members of an affiliated service group [as defined
in Code Section 414(m)], a controlled group of corporations [as
defined in Code Section 414(b)], or a group of trades or businesses
under common control [as defined in Code Section 414(c)] of which
the adopting Employer is a member, and any other entity required to
be aggregated with the Employer pursuant to Code Section 414(o) and
the regulations thereunder. Hours of Service shall also be credited
for any individual considered an Employee for purposes of this Plan
under Code Section 414(n) or Code Section 414(o) and the
regulations thereunder.
(e) Solely for purposes of determining whether a Break in Service, as
defined in paragraph 1.6, for participation and vesting purposes
has occurred in a computation period, an individual who is absent
from work for maternity or paternity reasons shall receive credit
for the Hours of Service which would otherwise have been credited
to such individual but for such absence, or in any case in which
such hours cannot be determined, 8 Hours of Service per day of such
absence. For purposes of this paragraph, an absence from work for
maternity or paternity reasons means an absence by reason of the
pregnancy of the individual, by reason of a birth of a child of the
individual, by reason of the placement of a child with the
individual in connection with the adoption of such child by such
individual, or for purposes of caring for such child for a period
beginning immediately following such birth or placement. The Hours
of Service credited under this paragraph shall be credited in the
computation period in which the absence begins if the crediting
is necessary to prevent a Break in Service in that period, or in
all other cases, in the following computation period. No more than
501 hours will be credited under this paragraph.
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(f) Unless specified otherwise in the Adoption Agreement, Hours of
Service shall be determined on the basis of the actual hours for
which an Employee is paid or entitled to payment.
1.33 Key Employee Any Employee or former Employee (and the beneficiaries of
such Employee) who at any time during the determination period was an officer of
the Employer if such individual's annual Compensation exceeds 50% of the dollar
limitation under Code Section 415(b)(1)(A) (the defined benefit maximum annual
benefit), an owner (or considered an owner under Code Section 318) of one of the
ten largest interests in the Employer if such individual's Compensation exceeds
100% of the dollar limitation under Code Section 415(c)(1)(A), a 5% owner of the
Employer, or a 1% owner of the Employer who has an annual Compensation of more
than $150,000. For purposes of determining who is a Key Employee, annual
Compensation shall mean Compensation as defined for Article X, but including
amounts deferred through a salary reduction agreement to a cash or deferred plan
under Code Section 401(k), a Simplified Employee Pension Plan under Code Section
402(h)(1)(B), a cafeteria plan under Code Section 125 or a tax-deferred annuity
under Code Section 403(b). The determination period is the Plan Year containing
the Determination Date and the four preceding Plan Years. The determination of
who is a Key Employee will be made in accordance with Code Section 416(i)(1) and
the regulations thereunder.
1.34 Leased Employee Any person (other than an Employee of the recipient)
who pursuant to an agreement between the recipient and any other person
("leasing organization") has performed services for the recipient [or for the
recipient and related persons determined in accordance with Code Section 414(n)
(6)] on a substantially full-time basis for a period of at least one year, and
such services are of a type historically performed by Employees in the business
field of the recipient Employer.
1.35 Limitation Year The calendar year or such other 12-consecutive month period
designated by the Employer in the Adoption Agreement for purposes of determining
the maximum Annual Addition to a Participant's account. All qualified plans
maintained by the Employer must use the same Limitation Year. If the Limitation
Year is amended to a different 12-consecutive month period, the new Limitation
Year must begin on a date within the Limitation Year in which the amendment is
made.
1.36 Mandatory Contribution An Employee contribution which was not tax-
deductible when made and which was required for participation in the Plan. These
contributions may no longer be made to the Plan, for Plan Years beginning after
the Plan Year in which this Plan is adopted (or restated) by the Employer.
1.37 Master Or Prototype Plan A plan, the form of which is the subject of a
favorable opinion letter from the Internal Revenue Service.
1.38 Maximum Permissible Amount The maximum Annual Addition that may be
contributed or allocated to a Participant's account under the Plan for any
Limitation Year shall not exceed the lesser of:
(a) the Defined Contribution Dollar Limitation, or
(b) 25% of the Participant's Compensation for the Limitation Year.
The Compensation limitation referred to in (b) shall not apply to any
contribution for medical benefits [within the meaning of Code Section 401(h) or
Code Section 419A(f)(2)] which is otherwise treated as an Annual Addition under
Code Section 415(l)(1) or 419(d)(2). If a short Limitation Year is created
because of an amendment changing the Limitation Year to a different
12-consecutive month period, the Maximum Permissible Amount will not exceed the
Defined Contribution Dollar Limitation multiplied by the following fraction:
number of months in the short Limitation Year divided by 12.
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1.39 Named Fiduciary The "named fiduciary" (as defined or described in ERISA)
with respect to the Plan shall be the Plan Administrator.
1.40 Net Profit The current and accumulated operating earnings of the Employer
before Federal and state income taxes, excluding nonrecurring or unusual items
of income, and before contributions to this and any other qualified plan of the
Employer. Alternatively, the Employer may fix another definition in the Adoption
Agreement.
1.41 Normal Retirement Age The age set by the Employer in the Adoption
Agreement at which a Participant may retire and receive his or her benefits
under the Plan.
1.42 Owner-Employee A sole proprietor, or a partner owning more than 10% of
either the capital or profits interest of the partnership.
1.43 Paired Plans Two or more Plans maintained by the Sponsor designed so
that a single or any combination of Plans adopted by an Employer will meet the
antidiscrimination rules, the contribution and benefit limitations, and the
Top-Heavy provisions of the Code.
1.44 Participant Any Employee who has met the eligibility requirements and
is participating in the Plan.
1.45 Participant's Benefit The account balance as of the last Valuation Date
in the calendar year immediately preceding the Distribution Calendar Year
(valuation calendar year), increased by the amount of any contributions or
forfeitures allocated to the account balance as of the dates in the valuation
calendar year after the Valuation Date and decreased by distributions made in
the valuation calendar year after the Valuation Date. A special exception exists
for the second distribution Calendar Year. For purposes of this paragraph, if
any portion of the minimum distribution for the First Distribution Calendar Year
is made in the second Distribution Calendar Year on or before the Required
Beginning Date, the amount of the minimum distribution made in the second
distribution calendar year shall be treated as if it had been made in the
immediately preceding Distribution Calendar Year.
1.46 Permissive Aggregation Group Used for Top-Heavy testing purposes, it is
the Required Aggregation Group of plans plus any other plan or plans of the
Employer which, when considered as a group with the Required Aggregation Group,
would continue to satisfy the requirements of Code Sections 401(a)(4) and 410.
1.47 Plan The Employer's retirement plan as embodied herein and in the Adoption
Agreement.
1.48 Plan Administrator The Administrator of the Plan (as defined or
described in ERISA) shall be the Employer.
1.49 Plan Year The 12-consecutive month period designated by the Employer in
the Adoption Agreement.
1.50 Present Value When determining the Present Value of accrued benefits,
with respect to any Defined Benefit Plan maintained by the Employer for Top-
Heavy test and limitation on allocation purposes, interest and mortality rates
shall be determined in accordance with the provisions of the respective plan. If
applicable, interest and mortality assumptions will be specified in Section 10
of Adoption Agreements 001 through 004 and Section 7 of Adoption Agreements 005
and 006.
1.51 Projected Annual Benefit Used to test the maximum benefit which may be
obtained from a combination of retirement plans, it is the annual retirement
benefit (adjusted to an actuarial equivalent straight life annuity if such
benefit is expressed in a form other than a straight life annuity or Qualified
Joint and Survivor Annuity) to which the Participant would be entitled under the
terms of a Defined Benefit Plan or plans, assuming:
(a) the Participant will continue employment until Normal Retirement
Age under the Plan (or current age, if later), and
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(b) the Participant's Compensation for the current Limitation Year and
all other relevant factors used to determine benefits under the
plan will remain constant for all future Limitation Years.
1.52 Qualified Deferred Compensation Plan Any pension, profit-sharing, stock
bonus, or other plan which meets the requirements of Code Section 401 and
includes a trust exempt from tax under Code Section 501(a) or any annuity plan
described in Code Section 403(a).
1.53 Qualified Domestic Relations Order A QDRO is a signed Domestic Relations
Order issued by a State Court which creates, recognizes or assigns to an
alternate payee(s) the right to receive all or part of a Participant's Plan
benefit and which meets the requirements of Code Section 414(p). An alternate
payee is a Spouse, former Spouse, child, or other dependent who is treated as a
beneficiary under the Plan as a result of the QDRO.
1.54 Qualified Early Retirement Age For purposes of paragraph 8.9, Qualified
Early Retirement Age is the latest of:
(a) the earliest date, under the Plan, on which the Participant may
elect to receive retirement benefits,
(b) the first day of the 120th month beginning before the Participant
reaches Normal Retirement Age, or
(c) the date the Participant begins participation.
1.55 Qualified Joint And Survivor Annuity An immediate annuity for the life of
the Participant with a survivor annuity for the life of the Participant's Spouse
which is at least 50% of but not more than the amount of the annuity payable
during the joint lives of the Participant and the Participant's Spouse. The
exact amount of the Survivor Annuity is to be specified by the Employer in the
Adoption Agreement. If not designated by the Employer, the Survivor Annuity will
be 50% of the amount paid to the Participant during his or her lifetime. The
Qualified Joint and Survivor Annuity will be the amount of benefit which can be
provided by the Participant's Vested Account Balance.
1.56 Qualified Voluntary Contribution A tax-deductible Voluntary Employee
Contribution. These contributions may no longer be made to the Plan.
1.57 Required Aggregation Group Used for Top-Heavy testing purposes, it
consists of:
(a) each qualified plan of the Employer in which at least one Key
Employee participates or participated at any time during the
determination period (regardless of whether the plan has
terminated), and
(b) any other qualified plan of the Employer which enables a plan
described in (a) to meet the requirements of Code Sections 401(a)(4)
or 410.
1.58 Required Beginning Date The date on which a Participant is required to
take his or her first minimum distribution under the Plan. The rules are set
forth at paragraph 7.5.
1.59 Rollover Contribution A contribution made by a Participant of an amount
distributed to such Participant from another Qualified Deferred Compensation
Plan in accordance with Code Sections 402(a)(5), (6), and (7).
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1.60 Self-Employed Individual An individual who has Earned Income for the
taxable year from the trade or business for which the Plan is established
including an individual who would have had Earned Income but for the fact that
the trade or business had no Net Profits for the taxable year.
1.61 Service The period of current or prior employment with the Employer. If
the Employer maintains a plan of a predecessor employer, service for such
predecessor shall be treated as Service for the Employer.
1.62 Shareholder Employee An Employee or officer who owns [or is consid-
ered as owning within the meaning of Code Section 318(a)(i)], on any day during
the taxable year of an electing small business (S Corporation) corporation, more
than 5% of such corporation's outstanding stock.
1.63 Simplified Employee Pension Plan An individual retirement account which
meets the requirements of Code Section 408(k), and to which the Employer makes
contributions pursuant to a written formula. These plans are considered for
contribution limitation and Top-Heavy testing purposes.
1.64 Sponsor The Sponsor of this Prototype Plan which is the Harris Trust and
Savings Bank, or any of its successor(s) or assign(s).
1.65 Spouse (Surviving Spouse) The Spouse or Surviving Spouse of the
Participant, provided that a former Spouse will be treated as the Spouse or
Surviving Spouse and a current Spouse will not be treated as the Spouse or
Surviving Spouse to the extent provided under a Qualified Domestic Relations
Order as described in Code Section 414(p).
1.66 Super Top-Heavy Plan A Plan described at paragraph 1.69 hereof under
which the Top-Heavy Ratio [as defined at paragraph 1.70] exceeds 90%.
1.67 Taxable Wage Base For plans with an allocation formula which takes into
account the Employer's contribution under the Federal Insurance Contributions
Act (FICA), the maximum amount of earnings which may be considered wages for
such Plan Year under the Social Security Act [Code Section 3121(a)(1)] or the
amount selected by the Employer in the Adoption Agreement.
1.68 Top-Heavy Determination Date For any Plan Year subsequent to the first
Plan Year, the last day of the preceding Plan Year. For the first Plan Year, the
last day of that year.
1.69 Top-Heavy Plan For any Plan Year beginning after 1983, the Employer's
Plan is Top-Heavy if any of the following conditions exist:
(a) If the Top-Heavy Ratio for the Employer's Plan exceeds 60% and this
Plan is not part of any Required Aggregation Group or Permissive
Aggregation Group of Plans.
(b) If the Employer's Plan is a part of a Required Aggregation Group of
plans but not part of a Permissive Aggregation Group and the
Top-Heavy Ratio for the group of plans exceeds 60%.
(c) If the Employer's Plan is a part of a Required Aggregation Group
and part of a Permissive Aggregation Group of plans and the Top-
Heavy Ratio for the Permissive Aggregation Group exceeds 60%.
1.70 Top-Heavy Ratio
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(a) If the Employer maintains one or more Defined Contribution plans
(including any Simplified Employee Pension Plan) and the Employer
has not maintained any Defined Benefit Plan which during the 5-year
period ending on the Determination Date(s) has or has had accrued
benefits, the Top-Heavy Ratio for this Plan alone, or for the
Required or Permissive Aggregation Group as appropriate, is a
fraction,
(1) the numerator of which is the sum of the account balances of
all Key Employees as of the Determination Date(s) [including
any part of any account balance distributed in the 5-year
period ending on the Determination Date(s)], and
(2) the denominator of which is the sum of all account balances
[including any part of any account balance distributed in the
5-year period ending on the Determination Date(s)], both
computed in accordance with Code Section 416 and the
regulations thereunder.
Both the numerator and denominator of the Top-Heavy Ratio are
increased to reflect any contribution not actually made as of the
Determination Date, but which is required to be taken into account
on that date under Code Section 416 and the regulations thereunder.
(b) If the Employer maintains one or more Defined Contribution Plans
(including any Simplified Employee Pension Plan) and the Employer
maintains or has maintained one or more Defined Benefit Plans which
during the 5-year period ending on the Determination Date(s) has or
has had any accrued benefits, the Top-Heavy Ratio for any Required
or Permissive Aggregation Group as appropriate is a fraction,
(1) the numerator of which is the sum of account balances under
the aggregated Defined Contribution Plan or Plans for all Key
Employees, determined in accordance with (a) above, and the
Present Value of accrued benefits under the aggregated Defined
Benefit Plan or Plans for all Key Employees as of the
Determination Date(s), and
(2) the denominator of which is the sum of the account balances
under the aggregated Defined Contribution Plan or Plans for
all Participants, determined in accordance with (a) above, and
the PresentValue of accrued benefits under the Defined Benefit
Plan or Plans for all Participants as of the Determination
Date(s), all determined in accordance with Code Section 416
and the regulations thereunder.
The accrued benefits under a Defined Benefit Plan in both the
numerator and denominator of the Top-Heavy Ratio are increased
for any distribution of an accrued benefit made in the 5-year
period ending on the Determination Date.
(c) For purposes of (a) and (b) above, the value of account balances
and the Present Value of accrued benefits will be determined as of
the most recent Valuation Date that falls within or ends with the
12-month period ending on the Determination Date, except as
provided in Code Section 416 and the regulations thereunder for
the first and second Plan Years of a Defined Benefit Plan. The
account balances and accrued benefits of a Participant (1) who is
not a Key Employee but who was a Key Employee in a prior year, or
(2) who has not been credited with at least
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one Hour of Service with any Employer maintaining the Plan at any
time during the 5-year period ending on the Determination Date,
will be disregarded. The calculation of the Top-Heavy Ratio, and
the extent to which distributions, rollovers, and transfers are
taken into account, will be made in accordance with Code Section
416 and the regulations thereunder. Qualified Voluntary Employee
Contributions will not be taken into account for purposes of
computing the Top-Heavy Ratio. When aggregating plans, the value
of account balances and accrued benefits will be calculated with
reference to the Determination Dates that fall within the same
calendar year. The accrued benefit of a Participant other than a
Key Employee shall be determined under(1) the method, if any, that
uniformly applies for accrual purposes under all Defined Benefit
Plans maintained by the Employer, or (2) if there is no such
method, as if such benefit accrued not more rapidly than the
slowest accrual rate permitted under the fractional rule of Code
Section 411(b)(1)(C).
1.71 Transfer Contribution A non-taxable transfer of a Participant's benefit
directly from a Qualified Deferred Compensation Plan to this Plan.
1.72 Trust The Trust established pursuant to the Trust document to implement and
carry out the provisions of the Plan.
1.73 Trustee The Sponsor of this Prototype Plan shall serve as Trustee.
1.74 Valuation Date The last day of the Plan Year or such other date as agreed
to by the Employer and the Trustee on which Participant accounts are revalued in
accordance with Article V hereof. For Top-Heavy purposes, the date selected by
the Employer as of which the Top-Heavy Ratio is calculated.
1.75 Vested Account Balance The aggregate value of the Participant's Vested
Account Balances derived from Employer and Employee contributions (including
Rollovers), whether vested before or upon death, including the proceeds of
insurance contracts, if any, on the Participant's life. The provisions of
Article VIII shall apply to a Participant who is vested in amounts attributable
to Employer contributions, Employee contributions (or both) at the time of death
or distribution.
For purposes of paragraph 8.7, Vested Account Balance shall mean, in the case of
a money purchase pension plan, the Participant's separate account balance
attributable solely to Qualified Voluntary Contributions. For profit-sharing
plans the above definition shall apply.
1.76 Voluntary Contribution An Employee contribution which is not tax-
deductible and which is not required as a condition for participation in the
Plan. Such contributions are no longer permitted under this Prototype Plan, for
Plan Years beginning after the Plan Year in which this Plan is adopted (or
restated) by the Employer.
1.77 Welfare Benefit Fund Any fund that is part of a plan of the Employer, or
has the effect of a plan, through which the Employer provides welfare benefits
to Employees or their beneficiaries. For these purposes, Welfare Benefits means
any benefit other than those with respect to which Code Section 83(h) (relating
to transfers of property in connection with the performance of services), Code
Section 404 (relating to deductions for contributions to an Employees' trust or
annuity and Compensation under a deferred payment plan), Code Section 404A
(relating to certain foreign deferred compensation plans), and the election
under Code Section 463 (relating to the accrual of vacation pay) apply. For
purposes of this paragraph a "Fund" is any social club, voluntary employee
benefit association, supplemental unemployment benefit trust or qualified group
legal service organization
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described in Code Section 501(c)(7), (9), (17) or (20); any trust, corporation,
or other organization not exempt from income tax, or to the extent provided in
regulations, any account held for an Employer by any person.
1.78 Year Of Service A 12-consecutive month period during which an Employee is
credited with not less than 1,000 (or such lesser number as specified by the
Employer in the Adoption Agreement) Hours of Service.
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ARTICLE II
ELIGIBILITY REQUIREMENTS
2.1 Participation Employees who meet the eligibility requirements in the
Adoption Agreement on the Effective Date of the Plan shall become Participants
as of the Effective Date of the Plan. If so elected in the Adoption Agreement,
all Employees employed on the Effective Date of the Plan may participate, even
if they have not satisfied the Plan's specified eligibility requirements. Other
Employees shall become Participants on the Entry Date specified in the Adoption
Agreement. Depending on the Plan's eligibility requirements, the Entry Date may
actually be earlier than the date on which the Employee satisfies the
eligibility requirements. The Employee must satisfy the eligibility requirements
specified in the Adoption Agreement and be employed on the Entry Date to become
a Participant in the Plan. In the event an Employee who is not a member of the
eligible class of Employees becomes a member of the eligible class, such
Employee shall participate immediately if such Employee has satisfied the
minimum age and Service requirements and would have previously become a
Participant had he or she been in the eligible class. A former Participant shall
again become a Participant upon returning to the employ of the Employer at the
next Entry Date or if earlier, the next Valuation Date. For this purpose,
Participant's Compensation and Service shall be considered from date of rehire.
2.2 Change In Classification Of Employment In the event a Participant becomes
ineligible to participate because he or she is no longer a member of an eligible
class of Employees, such Employee shall participate upon his or her return to an
eligible class of Employees.
2.3 Computation Period To determine Years of Service and Breaks in Service for
purposes of eligibility, the 12-consecutive month period shall commence on the
date on which an Employee first performs an Hour of Service for the Employer and
each anniversary thereof, such that the succeeding 12-consecutive month period
commences with the Employee's first anniversary of employment and so on. If,
however, the period so specified is one year or less, the succeeding
12-consecutive month period shall commence on the first day of the Plan Year
prior to the anniversary of the date they first performed an Hour of Service
regardless of whether the Employee is entitled to be credited with 1,000 (or
such lesser number as specified by the Employer in the Adoption Agreement) Hours
of Service during their first employment year.
2.4 Employment Rights Participation in the Plan shall not confer upon a
Participant any employment rights, nor shall it interfere with the Employer's
right to terminate the employment of any Employee at any time.
2.5 Service With Controlled Groups All Years of Service with other members of a
controlled group of corporations [as defined in Code Section 414(b)], trades or
businesses under common control [as defined in Code Section 414(c)], or members
of an affiliated service group [as defined in Code Section 414(m)] shall be
credited for purposes of determining an Employee's eligibility to participate.
2.6 Owner-Employees If this Plan provides contributions or benefits for one or
more Owner-Employees who control both the business for which this Plan is
established and one or more other trades or businesses, this Plan and the plan
established for other trades or businesses must, when looked at as a single
plan, satisfy Code Sections 401(a) and (d) for the Employees of this and all
other trades or businesses.
If the Plan provides contributions or benefits for one or more Owner-Employees
who control one or more other trades or businesses, the Employees of the other
trades or businesses must be included in a plan which satisfies Code Sections
401(a) and (d) and which provides contributions and benefits not less favorable
than provided for Owner-Employees under this Plan.
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If an individual is covered as an Owner-Employee under the plans of two or more
trades or businesses which are not controlled and the individual controls a
trade or business, then the contributions or benefits of the Employees under the
plan of the trades or businesses which are controlled must be as favorable as
those provided for him under the most favorable plan of the trade or business
which is not controlled.
For purposes of the preceding sentences, an Owner-Employee, or two or more
Owner-Employees, will be considered to control a trade or business if the
Owner-Employee, or two or more Owner-Employees together:
(a) own the entire interest in an unincorporated trade or business,
or
(b) in the case of a partnership, own more than 50% of either the
capital interest or the profits interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or more
Owner-Employees shall be treated as owning any interest in a partnership which
is owned, directly or indirectly, by a partnership which such Owner-Employee, or
such two or more Owner-Employees, are considered to control within the meaning
of the preceding sentence.
2.7 Leased Employees Any Leased Employee shall be treated as an Employee of the
recipient Employer, however, contributions or benefits provided by the leasing
organization which are attributable to services performed for the recipient
Employer shall be treated as provided by the recipient Employer. A Leased
Employee shall not be considered an Employee of the recipient if such Employee
is covered by a money purchase pension plan providing:
(a) a non-integrated Employer contribution rate of at least 10% of
Compensation, [as defined in Code Section 415(c)(3) but including
amounts, contributed by the Employer pursuant to a salary
reduction agreement, which are excludable from the Employee's
gross income under a cafeteria plan covered by Code Section 125,
a cash or deferred profit-sharing plan under Code Section 401(k),
a Simplified Employee Pension Plan under Code Section
402(h)(1)(B) and a tax-sheltered annuity under Code Section
403(b)],
(b) immediate participation, and
(c) full and immediate vesting.
This exclusion is only available if Leased Employees do not constitute more than
twenty percent (20%) of the recipient's non-highly compensated work force.
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ARTICLE III
EMPLOYER CONTRIBUTIONS
3.1 Amount The Employer intends to make periodic contributions to the Plan in
accordance with the formula or formulas selected in the Adoption Agreement.
However, the Employer's contribution for any Plan Year shall be subject to the
limitations on allocations contained in Article X.
3.2 Expenses And Fees The Employer shall also be authorized to reimburse the
Fund for all expenses and fees incurred in the administration of the Plan or
Trust and paid out of the assets of the Fund. Such expenses shall include, but
shall not be limited to, fees for professional services, printing and postage.
Brokerage commissions may not be reimbursed.
3.3 Responsibility For Contributions Neither the Trustee nor the Sponsor shall
be required to determine if the Employer has made a contribution or if the
amount contributed is in accordance with the Adoption Agreement or the Code. The
Employer shall have sole responsibility in this regard. The Trustee shall be
accountable solely for contributions actually received by it within the limits
of Article XI.
3.4 Return Of Contributions Contributions made to the Fund by the Employer shall
be irrevocable except as provided below:
(a) Any contribution forwarded to the Trustee because of a mistake of
fact, may be returned to the Employer provided that the
contribution is returned to the Employer within one year of the
date the contribution is made.
(b) In the event that the Commissioner of Internal Revenue determines
that the Plan is not initially qualified under the Internal
Revenue Code, any contribution made incident to that initial
qualification by the Employer must be returned to the Employer
within one year after the date the initial qualification is
denied, but only if the application for the qualification is made
by the time prescribed by law for filing the Employer's return
for the taxable year in which the Plan is adopted, or such later
date as the Secretary of the Treasury may prescribe.
(c) Contributions forwarded to the Trustee are presumed to be
deductible and are conditioned on their deductibility.
Contributions which are determined to not be deductible will be
returned to the Employer, provided that the contribution (to the
extent determined to not be deductible) is returned to the
Employer within one year of the date of such determination.
The Trustee shall return to the Employer any contribution (or portion thereof)
meeting the requirements of this paragraph 3.4 only as directed by the Employer
in writing and the Trustee may rely upon the certification of the Employer that
the applicable one-year period has not elapsed.
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ARTICLE IV
EMPLOYEE CONTRIBUTIONS
4.1 Voluntary Contributions An Employee may no longer make Voluntary
Contributions to the Plan established hereunder for Plan Years beginning after
the Plan Year in which this Plan is adopted or restated by the Employer.
Employee contributions for Plan Years beginning after 1986, together with any
matching contributions as defined in Code Section 401(m), will be limited so as
to meet the antidiscrimination test of Code Section 401(m). Voluntary and/or
Mandatory Contributions already made may stay in the Trust Fund.
4.2 Qualified Voluntary Contributions A Participant may no longer make Qualified
Voluntary Contributions to the Plan. Amounts already contributed may stay in the
Trust Fund until distributed to the Participant. Such amounts will be maintained
in a separate account which will be nonforfeitable at all times. The account
will share in the gains and losses of the Trust in the same manner as described
at paragraph 5.4 of the Plan. No part of the Qualified Voluntary Contribution
account will be used to purchase life insurance. Subject to Article VIII, Joint
and Survivor Annuity Requirements (if applicable), the Participant may withdraw
any part of the Qualified Voluntary Contribution account by making a written
application to the Plan Administrator.
4.3 Rollover Contribution Unless provided otherwise in the Adoption Agreement, a
Participant may make a Rollover Contribution to any Defined Contribution Plan
established hereunder of all or any part of an amount distributed or
distributable to him or her from a Qualified Deferred Compensation Plan
provided:
(a) the amount distributed to the Participant is deposited to the
Plan no later than the sixtieth day after such distribution was
received by the Participant;
(b) the amount distributed is not one of a series of substantially
equal periodic payments made for the life (or life expectancy) of
the Participant or the joint lives (or joint life expectancies)
of the Participant and the Participant's Designated Beneficiary,
or for a specified period of ten years or more;
(c) the amount distributed is not required under Code Section
401(a)(9);
(d) if the amount distributed included property such property is
rolled over, or if sold the proceeds of such property may be
rolled over; and
(e) the amount distributed is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to Employer securities).
In addition, if the Adoption Agreement allows Rollover Contributions, the Plan
will also accept any Eligible Rollover Distribution (as defined at paragraph
1.23) directly to the Plan.
Rollover Contributions, which relate to distributions prior to January 1, 1993,
must be made in accordance with paragraphs (a) through (e) and additionally meet
the requirements of paragraph (f):
(f) The distribution from the Qualified Deferred Compensation Plan
constituted the Participant's entire interest in such Plan and
was distributed within one taxable year to the Participant:
(1) on account of separation from Service, a Plan termination,
or in the case of a profit-sharing or stock bonus plan, a
complete discontinuance
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of contributions under such plan within the meaning of Code
Section 402(a)(6)(A), or
(2) in one or more distributions which constitute a qualified
lump sum distribution within the meaning of Code Section
402(e)(4)(A), determined without reference to subparagraphs
(B) and (H).
Such Rollover Contribution may also be made through an Individual Retirement
Account qualified under Code Section 408 where the IRA was used as a conduit
from the Qualified Deferred Compensation Plan, the Rollover Contribution is made
in accordance with the rules provided under paragraphs (a) through (e) and the
Rollover Contribution does not include any regular IRA contributions, or
earnings thereon, which the Participant may have made to the IRA. Rollover
Contributions, which relate to distributions prior to January 1, 1993, may be
made through an IRA in accordance with paragraphs (a) through (f) and additional
requirements as provided in the previous sentence. The Trustee shall not be held
responsible for determining the tax-free status of any Rollover Contribution
made under this Plan.
4.4 Transfer Contribution Unless provided otherwise in the Adoption Agreement a
Participant may, subject to the provisions of paragraph 4.5, also arrange for
the direct transfer of his or her benefit from a Qualified Deferred Compensation
Plan to this Plan. For accounting and record keeping purposes, Transfer
Contributions shall be treated in the same manner as Rollover Contributions.
In the event the Employer accepts a Transfer Contribution from a plan in which
the Employee was directing the investments of his or her account, the Employer
may continue to permit the Employee to direct his or her investments in
accordance with paragraph 13.6 with respect only to such Transfer Contribution.
Notwithstanding the above, the Employer may refuse to accept such Transfer
Contributions.
4.5 Employer Approval Of Transfer Contributions The Employer maintaining a
safe-harbor Profit-Sharing Plan in accordance with the provisions of paragraph
8.7, acting in a nondiscriminatory manner, may in its sole discretion refuse to
allow Transfer Contributions to its profit-sharing plan, if such contributions
are directly or indirectly being transferred from a Defined Benefit Plan, a
money purchase pension plan (including a target benefit plan), a stock bonus
plan, or another profit-sharing plan which would otherwise provide for a life
annuity form of payment to the Participant.
4.6 Direct Rollover Of Benefits Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a Participant's election under this
paragraph, for distributions made on or after January 1, 1993, a Participant may
elect, at the time and in the manner prescribed by the Plan Administrator, to
have any portion of an Eligible Rollover Distribution paid directly to an
Eligible Retirement Plan specified by the Participant in a Direct Rollover. Any
portion of a distribution which is not paid directly to an Eligible Retirement
Plan shall be distributed to the Participant. For purposes of this paragraph, a
Surviving Spouse or a Spouse or former Spouse who is an alternate payee under a
Qualified Domestic Relations Order as defined in Code Section 414(p), will be
permitted to elect to have any Eligible Rollover Distribution paid directly to
an individual retirement account (IRA) or an individual retirement annuity
(IRA).
The Plan provisions otherwise applicable to distributions continue to apply to
Rollover and Transfer Contributions.
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ARTICLE V
PARTICIPANT ACCOUNTS
5.1 Separate Accounts The Employer shall establish a separate bookkeeping
account for each Participant showing the total value of his or her interest in
the Fund. Each Participant's account shall be separated for bookkeeping purposes
into the following sub-accounts:
(a) Employer contributions.
(b) Mandatory Contributions (if previously accepted).
(c) Voluntary Contributions (if previously accepted), and additional
amounts including, if applicable, either repayments of loans
previously defaulted on and treated as "deemed distributions" [on
which a tax report has been issued], and amounts paid out upon a
separation from Service which have been included in income and
which are repaid after being re-hired by the Employer.
(d) Qualified Voluntary Contributions (if previously accepted).
(e) Rollover Contributions and Transfer Contributions.
5.2 Adjustments To Participant Accounts As of each Valuation Date of the Plan,
the Employer shall add to each account:
(a) the Participant's share of the Employer's contribution and
forfeitures as determined in the Adoption Agreement,
(b) any Voluntary, Rollover or Transfer Contributions made by the
Participant,
(c) any repayment of amounts previously paid out to a Participant
upon a separation from Service and repaid by the Participant
since the last Valuation Date, and
(d) the Participant's proportionate share of any investment earnings
and increase in the fair market value of the Fund since the last
Valuation Date, as determined at paragraph 5.4.
The Employer shall deduct from each account:
(e) any withdrawals or payments made from the Participant's account
since the last Valuation Date, and
(f) the Participant's proportionate share of any decrease in the fair
market value of the Fund since the last Valuation Date, as
determined at paragraph 5.4.
5.3 Allocating Employer Contributions The Employer's contribution shall be
allocated to Participants in accordance with the allocation formula selected by
the Employer in the Adoption Agreement, and the minimum contribution and
allocation requirements for Top-Heavy Plans. Beginning with the 1990 Plan Year
and thereafter, for Plans on Standardized Adoption Agreements 001, 002, 005 and
006, Participants who are credited with more than 500 Hours of Service or are
employed on the last day of the Plan Year must receive a full allocation of
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Employer contributions. In Nonstandardized Adoption Agreements 003 and 004,
Employer contributions shall be allocated to the accounts of Participants
employed by the Employer on the last day of the Plan Year. In the case of a
non-Top-Heavy, Nonstandardized Plan, Participants must also have completed a
Year of Service unless otherwise specified in the Adoption Agreement. For
Nonstandardized Adoption Agreements 003 and 004, the Employer may only apply the
last day of the Plan Year and Year of Service requirements if the Plan satisfies
the requirements of Code Sections 401(a)(26) and 410(b) and the regulations
thereunder. If when applying the last day and Year of Service requirements the
Plan fails to satisfy the aforementioned requirements, additional Participants
will be eligible to receive an allocation of Employer contributions until the
requirements are satisfied. Participants who are credited with a Year of
Service, but not employed at Plan Year end are the first category of additional
Participants eligible to receive an allocation. If the requirements are still
not satisfied, Participants credited with more than 500 Hours of Service and
employed at Plan Year end are the next category of Participants eligible to
receive and allocation. Finally, if necessary to satisfy the said requirements,
any Participant credited with more than 500 Hours of Service will be eligible
for an allocation of Employer contributions.
5.4 Allocating Investment Earnings And Losses A Participant's share of
investment earnings and any increase or decrease in the fair market value of the
Fund shall be based on the proportionate value of all active accounts (other
than accounts with segregated investments) as of the last Valuation Date less
withdrawals since the last Valuation Date. If Employer contributions are made
monthly, quarterly, or on some other systematic basis, the adjusted value of
such accounts for allocation of investment income and gains or losses shall
include one-half the Employer contributions for such period. If Employer
contributions are not made on a systematic basis, it is assumed that they are
made at the end of the valuation period and therefore will not receive an
allocation of investment earnings and gains or losses for such period. Account
balances not yet forfeited shall receive an allocation of earnings and/or
losses. Accounts with segregated investments shall receive only the income or
loss on such segregated investments.
Alternatively, at the Plan Administrator's option, all Employer contributions
will be credited with an allocation of the actual investment earnings and gains
and losses from the actual date of deposit of each such contribution until the
end of the period. Accounts with segregated investments shall receive only the
income or loss on such segregated investments. In no event shall the selection
of a method of allocating gains and losses be used to discriminate in favor of
the highly compensated employees.
5.5 Participant Statements Upon completing the allocations described above for
the Valuation Date coinciding with the end of the Plan Year, the Employer shall
prepare a statement for each Participant showing the additions to and
subtractions from his or her account since the last such statement and the fair
market value of his or her account as of the current Valuation Date. Employers
so choosing may prepare Participant statements for each Valuation Date.
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ARTICLE VI
RETIREMENT BENEFITS AND DISTRIBUTIONS
6.1 Normal Retirement Benefits A Participant shall be entitled to receive the
balance held in his or her account from Employer contributions upon reaching
Normal Retirement Age or at such earlier dates as the provisions of this Article
VI may allow. If the Participant elects to continue working past his or her
Normal Retirement Age, he or she will continue as an active Plan Participant.
Unless the Employer elects otherwise in the Adoption Agreement, distribution
shall be made to such Participant at his or her request prior to his or her
actual retirement date. Settlement shall be made in the normal form, or if
elected, in one of the optional forms of payment provided below.
6.2 Early Retirement Benefits If the Employer so provides in the Adoption
Agreement, an early retirement benefit will be available to individuals who meet
the age and Service requirements. An individual who meets the Early Retirement
Age requirements and separates from Service, will become fully vested,
regardless of any vesting schedule which otherwise might apply. If a Participant
separates from Service before satisfying the age requirement, but after having
satisfied the Service requirement, the Participant will be entitled to elect an
Early Retirement benefit upon satisfaction of the age requirement.
6.3 Benefits On Termination Of Employment
(a) If a Participant terminates employment prior to Normal Retirement
Age, such Participant shall be entitled to receive the vested
balance held in his or her account payable at Normal Retirement
Age in the normal form, or if elected, in one of the optional
forms of payment provided hereunder. If applicable, the Early
Retirement Benefit provisions may be elected. Unless provided
otherwise in the Adoption Agreement, a former Participant may
make application to the Employer requesting early payment of any
deferred vested and nonforfeitable benefit due.
(b) If a Participant terminates employment, and the value of that
Participant's Vested Account Balance derived from Employer and
Employee contributions is not greater than $3,500, the
Participant may receive a lump sum distribution of the value of
the entire vested portion of such account balance and the
non-vested portion will be treated as a forfeiture. The Employer
shall continue to follow their consistent policy, as may be
established, regarding immediate cash-outs of Vested Account
Balances of $3,500 or less. For purposes of this Article, if the
value of a Participant's Vested Account Balance is zero, the
Participant shall be deemed to have received a distribution of
such Vested Account Balance immediately following termination.
Likewise, if the Participant is reemployed prior to incurring 5
consecutive 1-year Breaks in Service they will be deemed to have
immediately repaid such distribution. For Plan Years beginning
prior to 1989, a Participant's Vested Account Balance shall not
include Qualified Voluntary Contributions. Notwithstanding the
above, if the Employer maintains or has maintained a policy of
not distributing any amounts until the Participant's Normal
Retirement Age, the Employer can continue to uniformly apply such
policy.
(c) If a Participant terminates Service with a Vested Account Balance
derived from Employer and Employee contributions in excess of
$3,500, and elects (with his or her Spouse's consent) to receive
100% of the value of his or her Vested Account Balance in a lump
sum, the non-vested portion will be treated as a forfeiture.
Except as provided at paragraph 6.4(c), the Participant (and his
or her Spouse) must consent to any distribution,
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when the Vested Account Balance described above exceeds $3,500 or
if at the time of any prior distribution it exceeded $3,500. For
purposes of this paragraph, for Plan Years beginning prior to
1989, a Participant's Vested Account Balance shall not include
Qualified Voluntary Contributions.
(d) Distribution of less than 100% of the Participant's Vested
Account Balance shall only be permitted if the Participant is
fully vested upon termination of employment.
(e) If a Participant who is not 100% vested receives or is deemed to
receive a distribution pursuant to subsection (a), (b) or (c) of
this paragraph, and such Participant's non-vested benefit is
forfeited hereunder, and if such Participant resumes employment
covered under this Plan, the Participant shall have the right to
repay to the Plan the full amount of the distribution
attributable to Employer contributions on or before the earlier
of the date that the Participant incurs 5 consecutive 1-year
Breaks in Service following the date of distribution or five
years after the first date on which the Participant is
subsequently reemployed. In such event, the Participant's
forfeiture shall be restored to his or her account as of the
Valuation Date at the end of the Plan Year following the date on
which repayment of the distribution is received. Restoration of
the forfeiture amount shall be accomplished in accordance with
the procedure selected by the Employer in the Adoption Agreement.
(f) A Participant shall also have the option, to postpone payment of
his or her Plan benefits until the first day of April following
the calendar year in which he or she attains age 70-1/2. Any
balance of a Participant's account resulting from his or her
Employee contributions not previously withdrawn, if any, may be
withdrawn by the Participant immediately following separation
from Service.
(g) If a Participant ceases to be an active Employee as a result of a
Disability as defined at paragraph 1.16, such Participant shall
be able to make an application for a Disability retirement
benefit payment. The Participant's account balance will be deemed
"immediately distributable" as set forth in paragraph 6.4, and
will be fully vested pursuant to paragraph 9.2.
6.4 Restrictions On Immediate Distributions
(a) An account balance is immediately distributable if any part of
the account balance could be distributed to the Participant (or
Surviving Spouse) before the Participant attains (or would have
attained if not deceased) the later of the Normal Retirement Age
or age 62.
(b) If the value of a Participant's Vested Account Balance derived
from Employer and Employee contributions exceeds (or at the time
of any prior distribution exceeded) $3,500, and the account
balance is immediately distributable, the Participant and his or
her Spouse (or where either the Participant or the Spouse has
died, the survivor) must consent to any distribution of such
account balance. The consent of the Participant and the Spouse
shall be obtained in writing within the 90-day period ending on
the Annuity Starting Date, which is the first day of the first
period for which an amount is paid as an annuity or any other
form. The Plan Administrator shall notify the Participant and the
Participant's Spouse of the right to defer any distribution until
the later of the date on which the Participant attains (or would
have attained if not deceased) the Normal Retirement Age or age
62. Such notification shall include a general description of the
material features, and an explanation of the relative values of
the optional forms of
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<PAGE>
benefit available under the Plan, in a manner that would satisfy
the notice requirements of Code Section 417(a)(3), and shall be
provided no less than 30 days and no more than 90 days prior to
the Annuity Starting Date.
(c) Notwithstanding the foregoing, only the Participant need consent
to the commencement of a distribution in the form of a Qualified
Joint and Survivor Annuity while the account balance is
immediately distributable. Furthermore, if payment in the form of
a Qualified Joint and Survivor Annuity is not required with
respect to the Participant pursuant to paragraph 8.7 of the Plan,
only the Participant need consent to the distribution of an
account balance that is immediately distributable. Neither the
consent of the Participant nor the Participant's Spouse shall be
required to the extent that a distribution is required to satisfy
Code Section 401(a)(9) or Code Section 415. In addition, upon
termination of this Plan, if the Plan does not offer an annuity
option (purchased from a commercial provider), the Participant's
account balance may, without the Participant's consent, be
distributed to the Participant or transferred to another Defined
Contribution Plan [other than an employee stock ownership plan as
defined in Code Section 4975(e)(7)] within the same controlled
group.
(d) For purposes of determining the applicability of the foregoing
consent requirements to distributions made before the first day
of the first Plan Year beginning after 1988, the Participant's
Vested Account Balance shall not include amounts attributable to
Qualified Voluntary Contributions.
(e) If a distribution is one to which Code Sections 401(a)(11) and
417 do not apply, such distribution may commence less than 30
days after the notice required under Regulations Section
1.411(a)-11(c) is given, provided that:
(1) the Participant is clearly informed of his or her right to a
period of at least 30 days after receiving the notice to
consider the decision of whether or not to elect a
distribution (and, if applicable, a particular distribution
option), and
(2) the Participant, after receiving the notice, affirmatively
elects to receive a distribution.
6.5 Normal Form Of Payment The normal form of payment for a profit- sharing plan
satisfying the requirements of paragraph 8.7 hereof shall be a lump sum with no
option for annuity payments. For all other plans, the normal form of payment
hereunder shall be a Qualified Joint and Survivor Annuity as provided under
Article VIII. A Participant whose Vested Account Balance derived from Employer
and Employee contributions exceed $3,500, or if at the time of any prior
distribution it exceeded $3,500, shall (with the consent of his or her Spouse)
have the right to receive his or her benefit in a lump sum or in monthly,
quarterly, semi-annual or annual payments from the Fund over any period not
extending beyond the life expectancy of the Participant and his or her
Designated Beneficiary. For purposes of this paragraph, for Plan Years beginning
prior to 1989, a Participant's Vested Account Balance shall not include
Qualified Voluntary Contributions. The normal form of payment shall be
automatic, unless the Participant files a written request with the Employer
prior to the date on which the benefit is automatically payable, electing a lump
sum or installment payment option. No amendment to the Plan may eliminate one of
the optional distribution forms listed above.
6.6 Commencement Of Benefits
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<PAGE>
(a) Unless the Participant elects otherwise, distribution of benefits
will begin no later than the 60th day after the close of the Plan
Year in which the latest of the following events occurs:
(1) the Participant attains age 65 (or Normal Retirement Age if
earlier),
(2) the tenth anniversary of the year in which the Participant
commenced participation in the Plan, or
(3) the Participant terminates Service with the Employer.
(b) Notwithstanding the foregoing, the failure of a Participant and
Spouse (if necessary) to consent to a distribution while a
benefit is immediately distributable, within the meaning of
paragraph 6.4 hereof, shall be deemed an election to defer
commencement of payment of any benefit sufficient to satisfy this
paragraph.
(c) Unless the Employer provides otherwise in the Adoption Agreement,
distributions of benefits will be made within 60 days following
the close of the Plan Year during which a distribution is
requested or otherwise becomes payable.
6.7 Claims Procedures Upon retirement, death, or other severance of employment,
the Participant or his or her representative may make application to the
Employer requesting payment of benefits due and the manner of payment. If no
application for benefits is made, the Employer shall automatically pay any
vested benefit due hereunder in the normal form at the time prescribed at
paragraph 6.5. If an application for benefits is made, the Employer shall
accept, reject, or modify such request and shall notify the Participant in
writing setting forth the response of the Employer and in the case of a denial
or modification the Employer shall:
(a) state the specific reason or reasons for the denial,
(b) provide specific reference to pertinent Plan provisions on which
the denial is based,
(c) provide a description of any additional material or information
necessary for the Participant or his representative to perfect
the claim and an explanation of why such material or information
is necessary, and
(d) explain the Plan's claim review procedure as contained in this
paragraph.
In the event the request is rejected or modified, the Participant or his or her
representative may within 60 days following receipt by the Participant or
representative of such rejection or modification, submit a written request for
review by the Employer of its initial decision. Within 60 days following such
request for review, the Employer shall render its final decision in writing to
the Participant or representative stating specific reasons for such decision. If
the Participant or representative is not satisfied with the Employer's final
decision, the Participant or representative can institute an action in a Federal
court of competent jurisdiction; for this purpose, process would be served on
the Employer.
6.8 In-Service Withdrawals An Employee may withdraw all or any part of the fair
market value of his or her Mandatory Contributions, Voluntary Contributions,
Qualified Voluntary Contributions or Rollover Contributions, upon written
request to the Employer. Transfer Contributions, which originate from a Plan
meeting the safe-harbor provisions of paragraph 8.7, may also be withdrawn by an
Employee upon written request to the Employer. Transfer Contributions not
meeting the safe-harbor provisions may only be withdrawn upon retirement, death,
Disability, termination or termination of the Plan, and will be subject to
Spousal consent requirements
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<PAGE>
contained in Code Sections 411(a)(11) and 417. No such withdrawals are permitted
from a money purchase plan until the Participant reaches Normal Retirement Age.
Such request shall include the Participant's address, social security number,
birthdate, and amount of the withdrawal. If at the time a distribution of
Qualified Voluntary Contributions is received the Participant has not attained
age 59-1/2 and is not disabled, as defined at Code Section 22(e)(3), the
Participant will be subject to a Federal income tax penalty, unless the
distribution is rolled over to a qualified plan or individual retirement plan
within 60 days of the date of distribution. A Participant may withdraw all or
any part of the fair market value of his or her pre-1987 Voluntary Contributions
with or without withdrawing the earnings attributable thereto. Post-1986
Voluntary Contributions may only be withdrawn along with a portion of the
earnings thereon. The amount of the earnings to be withdrawn is determined by
using the formula: DA[1-(V / V + E)], where DA is the distribution amount, V is
the amount of Voluntary Contributions and V + E is the amount of Voluntary
Contributions plus the earnings attributable thereto. A Participant withdrawing
his or her other contributions prior to attaining age 59-1/2, will be subject to
a Federal tax penalty to the extent that the withdrawn amounts are includible in
income. Unless the Employer provides otherwise in the Adoption Agreement, any
Participant in a profit-sharing plan who is 100% fully vested in his or her
Employer contributions may withdraw all or any part of the fair market value of
any of such contributions that have been in the account at least two years, plus
the investment earnings thereon, after attaining age 59-1/2 without separation
from Service. Such distributions shall not be eligible for redeposit to the
Fund. A withdrawal under this paragraph shall not prohibit such Participant from
sharing in any future Employer contribution he or she would otherwise be
eligible to share in. A request to withdraw amounts pursuant to this paragraph
must if applicable, be consented to by the Participant's Spouse. The consent
shall comply with the requirements of paragraph 6.4 relating to immediate
distributions.
6.9 Hardship Withdrawals If permitted by the Employer in the Adoption Agreement,
a Participant in a profit-sharing plan may request a hardship withdrawal prior
to attaining age 59-1/2. If the Participant has not attained age 59-1/2, the
Participant may be subject to a Federal income tax penalty. Such request shall
be in writing to the Employer who shall have sole authority to authorize a
hardship withdrawal, pursuant to the rules below. Hardship withdrawals are
subject to the Spousal consent requirements contained in Code Sections
411(a)(11) and 417. Only the following reasons are valid to obtain hardship
withdrawal:
(a) medical expenses [within the meaning of Code Section 213(d)] of
the Participant, his or her Spouse, children and other
dependents,
(b) the purchase (excluding mortgage payments) of the principal
residence for the Participant,
(c) payment of tuition and related educational expenses for the next
twelve (12) months of post-secondary education for the
Participant, his or her Spouse, children or other dependents, or
(d) the need to prevent eviction of the Employee from or a
foreclosure on the mortgage of, the Employee's principal
residence.
Furthermore, the distribution may not be in excess of the amount of the
immediate and heavy financial need [(a) through (d)] above. The Participant must
certify that other assets are not available to meet the hardship.
If a distribution is made at a time when a Participant has a nonforfeitable
right to less than 100% of the account balance derived from Employer
contributions and the Participant may, by virtue of continuing Service, increase
the nonforfeitable percentage in the account:
(e) a separate account will be established for the Participant's
interest in the Plan as of the time of the distribution, and
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<PAGE>
(f) at any relevant time the Participant's nonforfeitable portion of
the separate account will be equal to an amount ("X") determined
by the formula:
X = P [AB + (R X D)] - (R X D)
For purposes of applying the formula: "P" is the nonforfeitable percentage at
the relevant time, "AB" is the account balance at the relevant time, "D" is the
amount of the distribution and "R" is the ratio of the account balance at the
relevant time to the account balance after distribution.
6.10 Determination Of Qualified Domestic Relations Order (QDRO) A Qualified
Domestic Relations Order shall specifically state all of the following in order
to be deemed a QDRO:
(a) The name and last known mailing address (if any) of the
Participant and of each alternate payee covered by the Order.
However, if the QDRO does not specify the current mailing address
of the alternate payee, but the Plan Administrator has
independent knowledge of that address, the QDRO will still be
valid.
(b) The dollar amount or percentage of the Participant's benefit to
be paid by the Plan to each alternate payee, or the manner in
which the amount or percentage will be determined.
(c) The number of payments or period for which the order applies.
(d) The specific plan (by name) to which the order applies.
The order shall not be deemed a QDRO if it requires the Plan to provide:
(e) any type or form of benefit, or any option not already provided
for in the Plan;
(f) increased benefits, or benefits in excess of the Participant's
vested rights;
(g) payment of a benefit earlier than allowed by the Plan's earliest
retirement provisions or in the case of a profit-sharing plan,
prior to the allowability of in-service withdrawals; or
(h) payment of benefits to an alternate payee which are required to
be paid to another alternate payee under another QDRO.
Promptly, upon receipt of a Domestic Relations Order which may or may not be
"Qualified", the Plan Administrator shall notify the Participant and any
alternate payee(s) named in the Order of such receipt, and include a copy of
this paragraph 6.10. The Plan Administrator shall then forward the Order to the
Plan's legal counsel for an opinion as to whether or not the Order is in fact
"Qualified" as defined in Code Section 414(p). Within a reasonable time after
receipt of the Order, not to exceed 60 days, the Plan's legal counsel shall make
a determination as to its "Qualified" status and the Participant and any
alternate payee(s) shall be promptly notified in writing of the determination.
If the "Qualified" status of the Order is in question, there will be a delay in
any payout to any payee including the Participant, until the status is resolved.
In such event, the Plan Administrator shall segregate the amount that would have
been payable to the alternate payee(s) if the Order had been deemed a QDRO. If
the Order is not Qualified, or the status is not resolved (for example, it has
been sent back to the Court for clarification or modification) within 18 months
beginning with the date the first payment would have to be made under the Order,
the Plan Administrator
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<PAGE>
shall pay the segregated amounts plus interest to the person(s) who would have
been entitled to the benefits had there been no Order. If a determination as to
the Qualified status of the Order is made after the 18-month period described
above, then the Order shall only be applied on a prospective basis. If the Order
is determined to be a QDRO, the Participant and alternate payee(s) shall again
be notified promptly after such determination. Once an Order is deemed a QDRO,
the Plan Administrator shall pay to the alternate payee(s) all the amounts due
under the QDRO, including segregated amounts plus interest which may have
accrued during a dispute as to the Order's qualification.
Unless specified otherwise in the Adoption Agreement, the earliest retirement
age with regard to the Participant against whom the Order is entered shall be
the date the Order is determined to be Qualified. This will only allow payouts
to alternate payee(s) and not the Participant.
6.11 Participant Loans If permitted by the Employer in the Adoption Agreement, a
Plan Participant may make application to the Employer requesting a loan from the
Fund. The Employer shall have the sole right to approve or disapprove a
Participant's application provided that loans shall be made available to all
Participants on a reasonably equivalent basis. Loans shall not be made available
to Highly Compensated Employees [as defined in Code Section 414(q)] in an amount
greater than the amount made available to other Employees. Any loan granted
under the Plan shall be made subject to the following rules:
(a) No loan, when aggregated with any outstanding Participant
loan(s), shall exceed the lesser of (i) $50,000 reduced by the
excess, if any, of the highest outstanding balance of loans
during the one year period ending on the day before the loan is
made, over the outstanding balance of loans from the Plan on the
date the loan is made or (ii) one-half of the fair market value
of a Participant's Vested Account Balance built up from Employer
contributions, Voluntary Contributions, and Rollover
Contributions. If the Participant's Vested Account Balance is
$20,000 or less, the maximum loan shall not exceed the lesser of
$10,000 or 100% of the Participant's Vested Account Balance. For
the purpose of the above limitation, all loans from all Plans of
the Employer and other members of a group of employers described
in Code Sections 414(b), 414(c), and 414(m) are aggregated. An
assignment or pledge of any portion of the Participant's interest
in the Plan and a loan, pledge, or assignment with respect to any
insurance contract purchased under the Plan, will be treated as a
loan under this paragraph.
(b) All applications must be made on forms provided by the Employer
and must be signed by the Participant.
(c) Any loan shall bear interest at a rate reasonable at the time of
application, considering the purpose of the loan and the rate
being charged by representative commercial banks in the local
area for a similar loan unless the Employer sets forth a
different method for determining loan interest rates in its loan
procedures. The loan agreement shall also provide that the
payment of principal and interest be amortized in level payments
not less than quarterly.
(d) The term of such loan shall not exceed five years except in the
case of a loan for the purpose of acquiring any house, apartment,
condominium, or mobile home (not used on a transient basis) which
is used or is to be used within a reasonable time as the
principal residence of the Participant. The term of such loan
shall be determined by the Employer considering the maturity
dates quoted by representative commercial banks in the local area
for a similar loan.
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<PAGE>
(e) The principal and interest paid by a Participant on his or her
loan shall be credited to the Fund in the same manner as for any
other Plan investment. If elected in the Adoption Agreement,
loans may be treated as segregated investments of the individual
Participants. This provision is not available if its election
will result in discrimination in operation of the Plan.
(f) If a Participant's loan application is approved by the Employer,
such Participant shall be required to sign a note, loan
agreement, and assignment of 50% of his or her interest in the
Fund as collateral for the loan. The Participant, except in the
case of a profit-sharing plan satisfying the requirements of
paragraph 8.7 must obtain the consent of his or her Spouse, if
any, within the 90 day period before the time his or her account
balance is used as security for the loan. A new consent is
required if the account balance is used for any renegotiation,
extension, renewal or other revision of the loan, including an
increase in the amount thereof. The consent must be written, must
acknowledge the effect of the loan, and must be witnessed by a
Plan representative or notary public. Such consent shall
subsequently be binding with respect to the consenting Spouse or
any subsequent Spouse.
(g) If a valid Spousal consent has been obtained, then,
notwithstanding any other provision of this Plan, the portion of
the Par-ticipant's Vested Account Balance used as a security
interest held by the Plan by reason of a loan outstanding to the
Participant shall be taken into account for purposes of
determining the amount of the account balance payable at the time
of death or distribution, but only if the reduction is used as
repayment of the loan. If less than 100% of the Participant's
Vested Account Balance (determined without regard to the
preceding sentence) is payable to the Surviving Spouse, then the
account balance shall be adjusted by first reducing the Vested
Account Balance by the amount of the security used as repayment
of the loan, and then determining the benefit payable to the
Surviving Spouse.
(h) The Employer may also require additional collateral in order to
adequately secure the loan.
(i) A Participant's loan shall immediately become due and payable if
such Participant terminates employment for any reason or fails to
make a principal and/or interest payment as provided in the loan
agreement. If such Participant terminates employment, the
Employer shall immediately request payment of principal and
interest on the loan. If the Participant refuses payment
following termination, the Employer shall reduce the
Participant's Vested Account Balance by the remaining principal
and interest on his or her loan. If the Participant's Vested
Account Balance is less than the amount due, the Employer shall
take whatever steps are necessary to collect the balance due
directly from the Participant. However, no foreclosure on the
Participant's note or attachment of the Participant's account
balance will occur until a distributable event occurs in the
Plan.
(j) No loans will be made to Owner-Employees (as defined in paragraph
2.6) or Shareholder Employees (as defined in paragraph 1.62),
unless the Employer obtains a prohibited transaction exemption
from the Department of Labor.
6.12 Insurance Policies If permitted by the Employer in the Adoption Agreement,
Employees may elect the purchase of life insurance policies under the Plan. If
elected, the maximum annual premium for a whole life policy shall not exceed 50%
of the aggregate Employer contributions allocated to the account of a
Participant. For profit-sharing plans the 50% test need only be applied against
Employer contributions allocated in the last two years.
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<PAGE>
Whole life policies are policies with both nondecreasing death benefits and
nonincreasing premiums. The maximum annual premium for term contracts or
universal life policies and all other policies which are not whole life shall
not exceed 25% of aggregate Employer contributions allocated to the account of a
Participant. The two-year rule for profit-sharing plans again applies. The
maximum annual premiums for a Participant with both a whole life and a term
contract or universal life policies shall be limited to one-half of the whole
life premium plus the term premium, but shall not exceed 25% of the aggregate
Employer contributions allocated to the account of a Participant, subject to the
two year rule for profit-sharing plans. Any policies purchased under this Plan
shall be held subject to the following rules:
(a) The Trustee shall be applicant and owner of any policies issued.
(b) All policies or contracts purchased hereunder, shall be endorsed
as nontransferable, and must provide that proceeds will be
payable to the Trustee; however, the Trustee shall be required to
pay over all proceeds of the contracts to the Participant's
Designated Beneficiary in accordance with the directions of the
Employer. Under no circumstances shall the Trust retain any part
of the proceeds.
(c) Each Participant shall be entitled to designate a beneficiary
under the terms of any contract issued; however, such designation
will be given to the Trustee which must be the named beneficiary
on any policy. Such designation shall remain in force, until
revoked by the Participant, by filing a new beneficiary form with
the Trustee. A Participant's Spouse will be the Designated
Beneficiary of the proceeds in all circumstances unless a
Qualified Election has been made in accordance with paragraph
8.4. The beneficiary of a deceased Participant shall receive, in
addition to the proceeds of the Participant's policy or policies,
the amount credited to such Participant's investment account.
(d) A Participant who is uninsurable or insurable at substandard
rates, may elect to receive a reduced amount of insurance, if
available, or may waive the purchase of any insurance.
(e) All dividends or other returns received on any policy purchased
shall be applied to reduce the next premium due on such policy,
or if no further premium is due, such amount shall be credited to
the Fund as part of the account of the Participant for whom the
policy is held.
(f) If Employer contributions are inadequate to pay all premiums on
all insurance policies, the Trustee may, at the direction of the
Employer, utilize other amounts remaining in each Participant's
account to pay the premiums on his or her respective policy or
policies, allow the policies to lapse, reduce the policies to a
level at which they may be maintained, or borrow against the
policies on a prorated basis, provided that the borrowing does
not discriminate in favor of the policies on the lives of
officers, Shareholders, and highly compensated Employees.
(g) On retirement or termination of employment of a Participant, the
Employer shall direct the Trustee to cash surrender the
Participant's policy and credit the proceeds to his or her
account for distribution under the terms of the Plan. However,
before so doing, the Company shall direct the Trustee to first
offer to transfer ownership of the policy to the Participant in
exchange for payment by the Participant of the cash value of the
policy at the time of transfer. Such payment shall be credited to
the Participant's account for distribution under the terms of the
Plan. All distributions resulting from the application of this
paragraph shall be subject to the Joint and Survivor Annuity
Rules of Article VIII, if applicable.
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<PAGE>
(h) The Employer shall be solely responsible to see that these
insurance provisions are administered properly and that if there
is any conflict between the provisions of this Plan and any
insurance contracts issued that the terms of this Plan will
control.
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ARTICLE VII
DISTRIBUTION REQUIREMENTS
7.1 Joint And Survivor Annuity Requirements All distributions made under the
terms of this Plan must comply with the provisions of Article VIII including, if
applicable, the safe-harbor provisions thereunder.
7.2 Minimum Distribution Requirements All distributions required under this
Article shall be determined and made in accordance with the minimum distribution
requirements of Code Section 401(a)(9) and the regulations thereunder, including
the minimum distribution incidental benefit rules found at Section 1.401(a)(9)-2
of the Regulations. The entire interest of a Participant must be distributed, or
begin to be distributed, no later than the Participant's Required Beginning
Date. Life expectancy and joint and last survivor life expectancy are computed
by using the expected return multiples found in Tables V and VI of Section
1.72-9 of the Income Tax Regulations.
7.3 Limits On Distribution Periods As of the First Distribution Calendar Year,
distributions, if not made in a single sum, may only be made over one of the
following periods (or a combination thereof):
(a) the life of the Participant,
(b) the life of the Participant and a Designated Beneficiary,
(c) a period certain not extending beyond the life expectancy of the
Participant, or
(d) a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a Designated Beneficiary.
7.4 Required Distributions On Or After The Required Beginning Date
(a) If a Participant's account balance is to be distributed over (1)
a period not extending beyond the life expectancy of the
Participant or the joint life and last survivor expectancy of the
Participant and the Participant's Designated Beneficiary or (2) a
period not extending beyond the life expectancy of the Designated
Beneficiary, the amount required to be distributed for each
calendar year, beginning with distributions for the First
Distribution Calendar Year, must at least equal the quotient
obtained by dividing the Participant's account balance by the
Applicable Life Expectancy.
(b) For calendar years beginning before 1989, if the Participant's
Spouse is not the Designated Beneficiary, the method of
distribution selected must have required that at least 50% of the
Present Value of the amount available for distribution was to be
paid within the life expectancy of the Participant.
(c) For calendar years beginning after 1988, the amount to be
distributed each year, beginning with distributions for the First
Distribution Calendar Year shall not be less than the quotient
obtained by dividing the Participant's benefit by the lesser of
(1) the Applicable Life Expectancy or (2) if the Participant's
Spouse is not the Designated Beneficiary, the applicable divisor
determined from the table set forth in Q&A-4 of Section
1.401(a)(9)-2 of the Income Tax Regulations. Distributions after
the death of the Participant shall be distributed using the
Applicable Life Expectancy as the relevant divisor without regard
to Regulations Section 1.401(a)(9)-2.
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(d) The minimum distribution required for the Participant's First
Distribution Calendar Year must be made on or before the
Participant's Required Beginning Date. The minimum distribution
for other calendar years, including the minimum distribution for
the Distribution Calendar Year in which the Participant's
Required Beginning Date occurs, must be made on or before
December 31 of that Distribution Calendar Year.
(e) If the Participant's benefit is distributed in the form of an
annuity purchased from an insurance company, distributions
thereunder shall be made in accordance with the requirements of
Code Section 401(a)(9) and the regulations thereunder.
(f) For purposes of determining the amount of the required
distribution for each Distribution Calendar Year, the account
balance to be used is the account balance determined as of the
last valuation preceding the Distribution Calendar Year. This
balance will be increased by the amount of any contributions or
forfeitures allocated to the account balance after the valuation
date in such preceding calendar year. Such balance will also be
decreased by distributions made after the valuation date in such
preceding calendar year.
(g) For purposes of subparagraph 7.4(f), if any portion of the
minimum distribution for the First Distribution Calendar Year is
made in the second Distribution Calendar Year on or before the
Required Beginning Date, the amount of the minimum distribution
made in the second Distribution Calendar Year shall be treated as
if it had been made in the immediately preceding Distribution
Calendar Year.
7.5 Required Beginning Date
(a) General Rule. The Required Beginning Date of a Participant is the
first day of April of the calendar year following the calendar
year in which the Participant attains age 70-1/2.
(b) Transitional Rules. The Required Beginning Date of a Participant
who attained age 70-1/2 before 1988, shall be determined in
accordance with (1) or (2) below:
(1) Non-5-percent owners. The Required Beginning Date of a
Participant who is not a 5-percent owner is the first day of
April of the calendar year following the calendar year in
which the later of retirement or attainment of age 70-1/2
occurs. In the case of a Participant who is not a 5-percent
owner who attains age 70-1/2 during 1988 and who has not
retired as of January 1, 1989, the Required Beginning Date
is April 1, 1990.
(2) 5-percent owners. The Required Beginning Date of a
Participant who is a 5-percent owner during any year
beginning after 1979, is the first day of April following
the later of:
(i) the calendar year in which the Participant attains age
70-1/2, or
(ii) the earlier of the calendar year with or within which
ends the Plan Year in which the Participant becomes a
5-percent owner, or the calendar year in which the
Participant retires.
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(c) A Participant is treated as a 5-percent owner for purposes of
this paragraph if such Participant is a 5-percent owner as
defined in Code Section 416(i) (determined in accordance with
Section 416 but without regard to whether the Plan is Top-Heavy)
at any time during the Plan Year ending with or within the
calendar year in which such owner attains age 66-1/2 or any
subsequent Plan Year.
(d) Once distributions have begun to a 5-percent owner under this
paragraph, they must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a subsequent year.
7.6 Transitional Rule
(a) Notwithstanding the other requirements of this Article and
subject to the requirements of Article VIII, Joint and Survivor
Annuity Requirements, distribution on behalf of any Employee,
including a 5-percent owner, may be made in accordance with all
of the following requirements (regardless of when such
distribution commences):
(i) The distribution by the Trust is one which would not have
disqualified such Trust under Code Section 401(a)(9) as in
effect prior to amendment by the Deficit Reduction Act of
1984.
(ii) The distribution is in accordance with a method of
distribution designated by the Employee whose interest in
the Trust is being distributed or, if the Employee is
deceased, by a beneficiary of such Employee.
(iii)Such designation was in writing, was signed by the Employee
or the beneficiary, and was made before 1984.
(iv) The Employee had accrued a benefit under the Plan as of
December 31, 1983.
(v) The method of distribution designated by the Employee or the
beneficiary specifies the time at which distribution will
commence, the period over which distributions will be made,
and in the case of any distribution upon the Employee's
death, the beneficiaries of the Employee listed in order of
priority.
(b) A distribution upon death will not be covered by this
transitional rule unless the information in the designation
contains the required information described above with respect to
the distributions to be made upon the death of the Employee.
(c) For any distribution which commences before 1984, but continues
after 1983, the Employee, or the beneficiary, to whom such
distribution is being made, will be presumed to have designated
the method of distribution under which the distribution is being
made if the method of distribution was specified in writing and
the distribution satisfies the requirements in subparagraphs
(a)(i) and (v) above.
(d) If a designation is revoked, any subsequent distribution must
satisfy the requirements of Code Section 401(a)(9) and the
regulations thereunder. If a designation is revoked subsequent to
the date distributions are required to begin, the Trust must
distribute by the
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end of the calendar year following the calendar year in which the
revocation occurs the total amount not yet distributed which
would have been required to have been distributed to satisfy Code
Section 401(a)(9) and the regulations thereunder, but for the
Section 242(b)(2) election of the Tax Equity and Fiscal
Responsibility Act of 1982. For calendar years beginning after
1988, such distributions must meet the minimum distribution
incidental benefit requirements in Section 1.401(a)(9)-2 of the
Income Tax Regulations. Any changes in the designation will be
considered to be a revocation of the designation. However, the
mere substitution or addition of another beneficiary (one not
named in the designation) under the designation will not be
considered to be a revocation of the designation, so long as such
substitution or addition does not alter the period over which
distributions are to be made under the designation, directly or
indirectly (for example, by altering the relevant measuring
life). In the case in which an amount is transferred or rolled
over from one plan to another plan, the rules in Q&A J-2 and Q&A
J-3 of the regulations shall apply.
7.7 Designation Of Beneficiary For Death Benefit Each Participant shall file a
written designation of beneficiary with the Employer upon qualifying for
participation under this Plan. Such designation shall remain in force until
revoked by the Participant by filing a new beneficiary form with the Employer.
The Participant may elect to have a portion of his or her account balance
invested in an insurance contract. If an insurance contract is purchased under
the Plan the Trustee must be named as beneficiary under the terms of the
contract. However, the Participant shall designate a beneficiary to receive the
proceeds of the contract after settlement is received by the Trustee. Under a
profit-sharing plan satisfying the requirements of paragraph 8.7, the Designated
Beneficiary shall be the Participant's Surviving Spouse, if any, unless such
Spouse properly consents otherwise.
7.8 Nonexistence Of Beneficiary Any portion of the amount payable hereunder
which is undisposed of because of the Participant's or former Participant's
failure to designate a beneficiary, or because all of the Designated
Beneficiaries predeceased the Participant, shall be paid to his or her Spouse.
If the Participant has no Spouse at the time of death, payment shall be made to
the personal representative of his or her estate in a lump sum.
7.9 Distribution Beginning Before Death If the Participant dies after
distribution of his or her interest has begun, the remaining portion of such
interest will continue to be distributed at least as rapidly as under the method
of distribution being used prior to the Participant's death.
7.10 Distribution Beginning After Death If the Participant dies before
distribution of his or her interest begins, distribution of the Participant's
entire interest shall be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant's death except to the extent
that an election is made to receive distributions in accordance with (a) or (b)
below:
(a) if any portion of the Participant's interest is payable to a
Designated Beneficiary, distributions may be made over the life
or over a period certain not greater than the life expectancy of
the Designated Beneficiary commencing on or before December 31 of
the calendar year immediately following the calendar year in
which the Participant died;
(b) if the Designated Beneficiary is the Participant's Surviving
Spouse, the date distributions are required to begin in
accordance with (a) above shall not be earlier than the later of
(1) December 31 of the calendar year immediately following the
calendar year in which the Participant died or (2) December 31 of
the calendar year in which the Participant would have attained
age 70-1/2.
If the Participant has not made an election pursuant to this paragraph 7.10 by
the time of his or her death, the Participant's Designated Beneficiary must
elect the method of distribution no later than the earlier of (1) December
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31 of the calendar year in which distributions would be required to begin under
this section, or (2) December 31 of the calendar year which contains the fifth
anniversary of the date of death of the Participant. If the Participant has no
Designated Beneficiary, or if the Designated Beneficiary does not elect a method
of distribution, then distribution of the Participant's entire interest must be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
For purposes of this paragraph, if the Surviving Spouse dies after the
Participant, but before payments to such Spouse begin, the provisions of this
paragraph with the exception of paragraph (b) herein, shall be applied as if the
Surviving Spouse were the Participant. For the purposes of this paragraph and
paragraph 7.9 distribution of a Participant's interest is considered to begin on
the Participant's Required Beginning Date (or, if the preceding sentence is
applicable, the date distribution is required to begin to the Surviving Spouse).
If distribution in the form of an annuity described in paragraph 7.4(e)
irrevocably commences to the Participant before the Required Beginning Date, the
date distribution is considered to begin is the date distribution actually
commences.
For purposes of paragraph 7.9 and this paragraph, if an amount is payable to
either a minor or an individual who has been declared incompetent, the benefits
shall be paid to the legally appointed guardian for the benefit of said minor or
incompetent individual, unless the court which appointed the guardian has
ordered otherwise.
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ARTICLE VIII
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
8.1 Applicability Of Provisions The provisions of this Article shall apply to
any Participant who is credited with at least one Hour of Service with the
Employer on or after August 23, 1984 and such other Participants as provided in
paragraph 8.8.
8.2 Payment Of Qualified Joint And Survivor Annuity Unless an optional form of
benefit is selected pursuant to a Qualified Election within the 90-day period
ending on the Annuity Starting Date, a married Participant's Vested Account
Balance will be paid in the form of a Qualified Joint and Survivor Annuity and
an unmarried Participant's Vested Account Balance will be paid in the form of a
life annuity. The Participant may elect to have such annuity distributed upon
attainment of the Early Retirement Age under the Plan.
8.3 Payment Of Qualified Pre-Retirement Survivor Annuity Unless an optional form
of benefit has been selected within the Election Period pursuant to a Qualified
Election, if a Participant dies before benefits have commenced then the
Participant's Vested Account Balance shall be paid to the Surviving Spouse in
the form of a life annuity. The Surviving Spouse may elect to have such annuity
distributed within a reasonable period after the Participant's death.
A Participant who does not meet the age 35 requirement set forth in the Election
Period as of the end of any current Plan Year may make a special Qualified
Election to waive the qualified pre-retirement survivor annuity for the period
beginning on the date of such election and ending on the first day of the Plan
Year in which the Participant will attain age 35. Such election shall not be
valid unless the Participant receives a written explanation of the qualified
pre-retirement survivor annuity in such terms as are comparable to the
explanation required under paragraph 8.4. Qualified pre-retirement survivor
annuity coverage will be automatically reinstated as of the first day of the
Plan Year in which the Participant attains age 35. Any new waiver on or after
such date shall be subject to the full requirements of this Article.
8.4 Qualified Election A Qualified Election is an election to either waive a
Qualified Joint and Survivor Annuity or a qualified pre-retirement survivor
annuity. Any such election shall not be effective unless:
(a) the Participant's Spouse consents in writing to the election;
(b) the election designates a specific beneficiary, including any
class of beneficiaries or any contingent beneficiaries, which may
not be changed without spousal consent (or the Spouse expressly
permits designations by the Participant without any further
spousal consent);
(c) the Spouse's consent acknowledges the effect of the election; and
(d) the Spouse's consent is witnessed by a Plan representative or
notary public.
Additionally, a Participant's waiver of the Qualified Joint and Survivor Annuity
shall not be effective unless the election designates a form of benefit payment
which may not be changed without spousal consent (or the Spouse expressly
permits designations by the Participant without any further spousal consent). If
it is established to the satisfaction of the Plan Administrator that there is no
Spouse or that the Spouse cannot be located, a waiver will be deemed a Qualified
Election. Any consent by a Spouse obtained under this provision (or
establishment that the consent of a Spouse may not be obtained) shall be
effective only with respect to such Spouse. A consent that permits designations
by the Participant without any requirement of further consent by such Spouse
must acknowledge
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that the Spouse has the right to limit consent to a specific beneficiary, and a
specific form of benefit where applicable, and that the Spouse voluntarily
elects to relinquish either or both of such rights. A revocation of a prior
waiver may be made by a Participant without the consent of the Spouse at any
time before the commencement of benefits. The number of revocations shall not be
limited. No consent obtained under this provision shall be valid unless the
Participant has received notice as provided in paragraphs 8.5 and 8.6 below.
8.5 Notice Requirements For Qualified Joint And Survivor Annuity The Plan
Administrator shall provide each Participant a written explanation of:
(a) the terms and conditions of a Qualified Joint and Survivor
Annuity;
(b) the Participant's right to make and the effect of an election to
waive the Qualified Joint and Survivor Annuity form of benefit;
(c) the rights of a Participant's Spouse; and
(d) the right to make, and the effect of, a revocation of a previous
election to waive the Qualified Joint and Survivor Annuity.
Such notice shall be provided not less than 30 days and no more than 90 days
prior to the Annuity Starting date.
8.6 Notice Requirements For Qualified Pre-Retirement Survivor Annuity The Plan
Administrator shall provide each Participant a written explanation of the
qualified pre-retirement survivor annuity in such terms and in such manner as
would be comparable to the explanation provided for meeting the requirements of
paragraph 8.5 applicable to a Qualified Joint and Survivor Annuity. Such
explanation shall be provided within whichever of the following periods ends
last:
(a) the period beginning with the first day of the Plan Year in which
the Participant attains age 32 and ending with the close of the
Plan Year preceding the Plan Year in which the Participant
attains age 35;
(b) a reasonable period ending after the individual becomes a
Participant; or
(c) a reasonable period ending after this Article first applies to
the Participant. Notwithstanding the foregoing, notice must be
provided within a reasonable period ending after separation from
Service in the case of a Participant who separates from Service
before attaining age 35.
For purposes of applying the preceding paragraph, a reasonable period ending
after the events described in (b) and (c) is the end of the two-year period
beginning one year prior to the date the applicable event occurs, and ending one
year after that date. In the case of a Participant who separates from Service
before the Plan Year in which age 35 is attained, notice shall be provided
within the two-year period beginning one year prior to separation and ending one
year after separation. If such a Participant subsequently returns to employment
with the Employer, the applicable period for such Participant shall be
re-determined.
8.7 Special Safe-Harbor Exception For Certain Profit-Sharing Plans
(a) This paragraph shall apply to a Participant in a profit-sharing
plan, and to any distribution made on or after the first day of
the first Plan Year beginning after 1988, from or under a
separate account attributable solely to Qualified Voluntary
Contributions, as maintained
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on behalf of a Participant in a money purchase pension plan,
(including a target benefit plan) if the following conditions are
satisfied:
(1) the Participant does not or cannot elect payments in the
form of a life annuity; and
(2) on the death of a Participant, the Participant's Vested
Account Balance will be paid to the Participant's Surviving
Spouse, but if there is no Surviving Spouse, or if the
Surviving Spouse has consented in a manner conforming to a
Qualified Election, then to the Participant's Designated
Beneficiary.
The Surviving Spouse may elect to have distribution of the Vested
Account Balance commence within the 90-day period following the
date of the Participant's death. The account balance shall be
adjusted for gains or losses occurring after the Participant's
death in accordance with the provisions of the Plan governing the
adjustment of account balances for other types of distributions.
These safe-harbor rules shall not be operative with respect to a
Participant in a profit-sharing plan if that plan is a direct or
indirect transferee of a Defined Benefit Plan, money purchase
pension plan, a target benefit plan, stock bonus plan, or
profit-sharing plan which is subject to the survivor annuity
requirements of Code Section 401(a)(11) and Code Section 417, and
would therefore have a Qualified Joint and Survivor Annuity as
its normal form of benefit.
(b) The Participant may waive the spousal death benefit described in
this paragraph at any time provided that no such waiver shall be
effective unless it satisfies the conditions (described in
paragraph 8.4) that would apply to the Participant's waiver of
the qualified pre-retirement survivor annuity.
(c) If this paragraph 8.7 is operative, then all other provisions of
this Article other than paragraph 8.8 are inoperative.
8.8 Transitional Joint And Survivor Annuity Rules Special transition rules apply
to Participants who are not receiving benefits on August 23, 1984.
(a) Any living Participant not receiving benefits on August 23, 1984,
who would otherwise not receive the benefits prescribed by the
previous paragraphs of this Article, must be given the
opportunity to elect to have the prior paragraphs of this Article
apply if such Participant is credited with at least one Hour of
Service under this Plan or a predecessor Plan in a Plan Year
beginning on or after January 1, 1976 and such Participant had at
least 10 Years of Service for vesting purposes when he or she
separated from Service.
(b) Any living Participant not receiving benefits on August 23, 1984,
who was credited with at least one Hour of Service under this
Plan or a predecessor Plan on or after September 2, 1974, and who
is not otherwise credited with any Service in a Plan Year
beginning on or after January 1, 1976, must be given the
opportunity to have his or her benefits paid in accordance with
paragraph 8.9.
(c) The respective opportunities to elect [as described in (a) and
(b) above] must be afforded to the appropriate Participants
during the period commencing on August 23, 1984 and ending on the
date benefits would otherwise commence to said Participants.
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8.9 Automatic Joint And Survivor Annuity And Early Survivor Annuity Any
Participant who has elected pursuant to paragraph 8.8(b) and any Participant who
does not elect under paragraph 8.8(a) or who meets the requirements of paragraph
8.8(a), except that such Participant does not have at least 10 years of vesting
Service when he or she separates from Service, shall have his or her benefits
distributed in accordance with all of the following requirements if benefits
would have been payable in the form of a life annuity.
(a) Automatic Joint and Survivor Annuity. If benefits in the form of
a life annuity become payable to a married Participant who:
(1) begins to receive payments under the Plan on or after Normal
Retirement Age, or
(2) dies on or after Normal Retirement Age while still working
for the Employer, or
(3) begins to receive payments on or after the Qualified Early
Retirement Age, or
(4) separates from Service on or after attaining Normal
Retirement (or the Qualified Early Retirement Age) and after
satisfying the eligibility requirements for the payment of
benefits under the Plan and thereafter dies before beginning
to receive such benefits,
then such benefits will be received under this Plan in the form
of a Qualified Joint and Survivor Annuity, unless the Participant
has elected otherwise during the Election Period. The Election
Period must begin at least 6 months before the Participant
attains Qualified Early Retirement Age and end not more than 90
days before the commencement of benefits. Any election hereunder
will be in writing and may be changed by the Participant at any
time.
(b) Election of Early Survivor Annuity. A Participant who is employed
after attaining the Qualified Early Retirement Age will be given
the opportunity to elect, during the Election Period, to have a
survivor annuity payable on death. If the Participant elects the
survivor annuity, payments under such annuity must not be less
than the payments which would have been made to the Spouse under
the Qualified Joint and Survivor Annuity if the Participant had
retired on the day before his or her death. Any election under
this provision will be in writing and may be changed by the
Participant at any time. The Election Period begins on the later
of:
(1) the 90th day before the Participant attains the Qualified
Early Retirement Age, or
(2) the date on which participation begins,
and ends on the date the Participant terminates employment.
8.10 Annuity Contracts Any annuity contract distributed herefrom must be
nontransferable. The terms of any annuity contract purchased and distributed by
the Plan to a Participant or Spouse shall comply with the requirements of this
Plan.
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ARTICLE IX
VESTING
9.1 Employee Contributions A Participant shall always have a 100% vested and
nonforfeitable interest in his or her Mandatory Contributions, Voluntary
Contributions, Qualified Voluntary Contributions, Rollover Contributions, and
Transfer Contributions plus the earnings thereon. No forfeiture of Employer
related contributions (including any minimum contributions made under paragraph
14.2 hereof) will occur solely as a result of an Employee's withdrawal of any
Employee contributions.
9.2 Employer Contributions A Participant shall acquire a vested and
nonforfeitable interest in his or her account attributable to Employer
contributions in accordance with the table selected in the Adoption Agreement,
provided that if a Participant is not already fully vested, he or she shall
become so upon attaining Normal Retirement Age, Early Retirement Age, on death
prior to normal retirement, on retirement due to Disability, or on termination
of the Plan.
9.3 Computation Period The computation period for purposes of determining Years
of Service and Breaks in Service for purposes of computing a Participant's
nonforfeitable right to his or her account balance derived from Employer
contributions shall be determined by the Employer in the Adoption Agreement. If
the Employer provides for other than full and immediate vesting and does not
designate otherwise, the computation period shall be the Plan Year. In the event
a former Participant with no vested interest in his or her Employer contribution
account requalifies for participation in the Plan after incurring a Break in
Service, such Participant shall be credited for vesting with all pre-break and
post-break Service.
9.4 Requalification Prior To Five Consecutive One-Year Breaks In Service The
account balance of such Participant shall consist of any undistributed amount in
his or her account as of the date of re-employment plus any future contributions
added to such account plus the investment earnings on the account. The Vested
Account Balance of such Participant shall be determined by multiplying the
Participant's account balance (adjusted to include any distribution or redeposit
made under paragraph 6.3 hereof) by such Participant's vested percentage. All
Service of the Participant, both prior to and following the break, shall be
counted when computing the Participant's vested percentage.
9.5 Requalification After Five Consecutive One-Year Breaks In Service If such
Participant is not fully vested upon re-employment, a new account shall be
established for such Participant to separate his or her deferred vested and
nonforfeitable account, if any, from the account to which new allocations will
be made. The Participant's deferred account to the extent remaining shall be
fully vested and shall continue to share in earnings and losses of the Fund.
When computing the Participant's vested portion of the new account, all
pre-break and post-break Service shall be counted. However, notwithstanding this
provision, no such former Participant who has had five consecutive one-year
Breaks in Service shall acquire a larger vested and nonforfeitable interest in
his or her prior account balance as a result of requalification hereunder.
9.6 Calculating Vested Interest A Participant's vested and nonforfeitable
interest shall be calculated by multiplying the fair market value of his or her
account attributable to Employer contributions on the Valuation Date preceding
distribution by the decimal equivalent of the vested percentage as of his or her
termination date. The amount attributable to Employer contributions for purposes
of the calculation includes amounts previously paid out pursuant to paragraph
6.3 and not repaid. The Participant's vested and nonforfeitable interest, once
calculated above, shall be reduced to reflect those amounts previously paid out
and not repaid. The Participant's vested and nonforfeitable interest so
determined shall continue to share in the investment earnings and any increase
or decrease in the fair market value of the Fund up to the Valuation Date
preceding or coinciding with payment.
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9.7 Forfeitures Any balance in the account of a Participant who has separated
from Service to which he or she is not entitled under the foregoing provisions,
shall be forfeited and applied as provided in the Adoption Agreement. If not
specified otherwise in the Adoption Agreement, forfeitures will be allocated to
Participants in the same manner as the Employer's contribution. A forfeiture may
only occur if the Participant has received a distribution from the Plan or if
the Participant has incurred five consecutive one-year Breaks in Service.
Forfeitures shall inure only to the accounts of Participants of the adopting
Employer's Plan. If not specified otherwise in the Adoption Agreement,
forfeitures shall be allocated at the end of the Plan Year during which the
former Participant incurs five consecutive one-year Breaks in Service.
9.8 Amendment Of Vesting Schedule No amendment to the Plan shall have the effect
of decreasing a Participant's vested interest determined without regard to such
amendment as of the later of the date such amendment is adopted or the date it
becomes effective. Further, if the vesting schedule of the Plan is amended, or
the Plan is amended in any way that directly or indirectly affects the
computation of any Participant's nonforfeitable percentage, or if the Plan is
deemed amended by an automatic change to or from a Top-Heavy vesting schedule,
each Participant with at least three Years of Service with the Employer may
elect, within a reasonable period after the adoption of the amendment or change,
to have his or her nonforfeitable percentage computed under the Plan without
regard to such amendment or change. For Participants who do not have at least
one Hour of Service in any Plan Year beginning after 1988, the preceding
sentence shall be applied by substituting "Five Years of Service" for "Three
Years of Service" where such language appears. The period during which the
election may be made shall commence with the date the amendment is adopted or
deemed to be made and shall end on the later of:
(a) 60 days after the amendment is adopted;
(b) 60 days after the amendment becomes effective; or
(c) 60 days after the Participant is issued written notice of the
amendment by the Employer or the Trustee. If the Trustee is asked
to so notify, the Fund will be charged for the costs thereof.
No amendment to the Plan shall be effective to the extent that it has the effect
of decreasing a Participant's accrued benefit. Notwithstanding the preceding
sentence, a Participant's account balance may be reduced to the extent permitted
under Code Section 412(c)(8) (relating to financial hardships). For purposes of
this paragraph, a Plan amendment which has the effect of decreasing a
Participant's account balance or eliminating an optional form of benefit, with
respect to benefits attributable to Service before the amendment shall be
treated as reducing an accrued benefit.
9.9 Service With Controlled Groups All Years of Service with other members of a
controlled group of corporations [as defined in Code Section 414(b)], trades or
businesses under common control [as defined in Code Section 414(c)], or members
of an affiliated service group [as defined in Code Section 414(m)] shall be
considered for purposes of determining a Participant's nonforfeitable
percentage.
9.10 Restoration Of Benefit If all or any portion of a distribution required to
be paid to a Participant or beneficiary remains unpaid solely because of the
inability of the Plan Administrator, after sending a registered letter, return
receipt requested, to the last known address of such Participant or beneficiary,
and after exhausting all other reasonable efforts to ascertain the whereabouts
of such Participant or beneficiary, the amount so distributable shall be treated
as a forfeiture under paragraph 9.7. In the event such Participant or
beneficiary is subsequently located, his or her benefit under the Plan shall be
restored as provided in the Adoption Agreement.
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ARTICLE X
LIMITATIONS ON ALLOCATIONS
10.1 Participation In This Plan Only If the Participant does not participate in,
and has never participated in another qualified plan, a Welfare Benefit Fund (as
defined in paragraph 1.77) or an individual medical account, as defined in Code
Section 415(l)(2), maintained by the adopting Employer, which provides an Annual
Addition as defined in paragraph 1.2, the amount of Annual Additions which may
be credited to the Participant's account for any Limitation Year will not exceed
the lesser of the Maximum Permissible Amount or any other limitation contained
in this Plan. If the Employer contribution that would otherwise be contributed
or allocated to the Participant's account would cause the Annual Additions for
the Limitation Year to exceed the Maximum Permissible Amount, the amount
contributed or allocated will be reduced so that the Annual Additions for the
Limitation Year will equal the Maximum Permissible Amount. Prior to determining
the Participant's actual Compensation for the Limitation Year, the Employer may
determine the Maximum Permissible Amount for a Participant on the basis of a
reasonable estimation of the Participant's Compensation for the Limitation Year,
uniformly determined for all Participants similarly situated. As soon as is
administratively feasible after the end of the Limitation Year, the Maximum
Permissible Amount for the Limitation Year will be determined on the basis of
the Participant's actual Compensation for the Limitation Year.
10.2 Disposition Of Excess Annual Additions If pursuant to paragraph 10.1 or as
a result of the allocation of forfeitures, there is an Excess Amount, the excess
will be disposed of under one of the following methods as determined in the
Adoption Agreement. If no election is made in the Adoption Agreement then method
"(a)" below shall apply.
(a) Suspense Account Method
(1) Any nondeductible Employee Voluntary Contributions, to the
extent they would reduce the Excess Amount, will be returned
to the Participant;
(2) If after the application of paragraph (1) an Excess Amount
still exists, and the Participant is covered by the Plan at
the end of the Limitation Year, the Excess Amount in the
Participant's account will be used to reduce Employer
contributions (including any allocation of forfeitures) for
such Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary;
(3) If after the application of paragraph (1) an Excess Amount
still exists, and the Participant is not covered by the Plan
at the end of the Limitation Year, the Excess Amount will be
held unallocated in a suspense account. The suspense account
will be applied to reduce future Employer contributions
(including allocation of any forfeitures) for all remaining
Participants in the next Limitation Year, and each
succeeding Limitation Year if necessary;
(4) If a suspense account is in existence at any time during the
Limitation Year pursuant to this paragraph, it will not
participate in the allocation of investment gains and
losses. If a suspense account is in existence at any time
during a particular Limitation Year, all amounts in the
suspense account must be allocated and reallocated to
Participants'
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accounts before any Employer contributions or any Voluntary
Contributions may be made to the Plan for that Limitation
Year. Excess Amounts may not be distributed to Participants
or former Participants.
(b) Spillover Method
(1) Any Excess Amount which would be allocated to the account of
an individual Participant under the Plan's allocation
formula will be reallocated to other Participants in the
same manner as other Employer contributions. No such
reallocation shall be made to the extent that it will result
in an Excess Amount being created in such Participant's own
account.
(2) To the extent that amounts cannot be reallocated under (1)
above, the suspense account provisions of (a) above will
apply.
10.3 Participation In This Plan And Another Master Or Prototype Defined
Contribution Plan, Welfare Benefit Fund Or Individual Medical Account Maintained
By The Employer The Annual Additions which may be credited to a Participant's
account under this Plan for any Limitation Year will not exceed the Maximum
Permissible Amount reduced by the Annual Additions credited to a Participant's
account under the other Master or Prototype Defined Contribution Plans, Welfare
Benefit Funds, and individual medical accounts as defined in Code Section
415(l)(2), maintained by the Employer, which provide an Annual Addition as
defined in paragraph 1.2, for the same Limitation Year. If the Annual Additions,
with respect to the Participant under other Defined Contribution Plans and
Welfare Benefit Funds maintained by the Employer, are less than the Maximum
Permissible Amount and the Employer contribution that would otherwise be
contributed or allocated to the Participant's account under this Plan would
cause the Annual Additions for the Limitation Year to exceed this limitation,
the amount contributed or allocated will be reduced so that the Annual Additions
under all such plans and funds for the Limitation Year will equal the Maximum
Permissible Amount. If the Annual Additions with respect to the Participant
under such other Defined Contribution Plans and Welfare Benefit Funds in the
aggregate are equal to or greater than the Maximum Permissible Amount, no amount
will be contributed or allocated to the Participant's account under this Plan
for the Limitation Year. Prior to determining the Participant's actual
Compensation for the Limitation Year, the Employer may determine the Maximum
Permissible Amount for a Participant in the manner described in paragraph 10.1.
As soon as administratively feasible after the end of the Limitation Year, the
Maximum Permissible Amount for the Limitation Year will be determined on the
basis of the Participant's actual Compensation for the Limitation Year.
10.4 Disposition Of Excess Annual Additions Under Two Plans If, pursuant to
paragraph 10.3 or as a result of forfeitures, a Participant's Annual Additions
under this Plan and such other plans would result in an Excess Amount for a
Limitation Year, the Excess Amount will be deemed to consist of the Annual
Additions last allocated except that Annual Additions attributable to a Welfare
Benefit Fund or individual medical account as defined in Code Section 415(l)(2)
will be deemed to have been allocated first regardless of the actual allocation
date. If an Excess Amount was allocated to a Participant on an allocation date
of this Plan which coincides with an allocation date of another plan, the Excess
Amount attributed to this Plan will be the product of:
(a) the total Excess Amount allocated as of such date, times
(b) the ratio of:
(1) the Annual Additions allocated to the Participant for the
Limitation Year as of such date under the Plan, to
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(2) the total Annual Additions allocated to the Participant for
the Limitation Year as of such date under this and all the
other qualified Master or Prototype Defined Contribution
Plans.
Any Excess Amount attributed to this Plan will be disposed of in the manner
described in paragraph 10.2.
10.5 Participation In This Plan And Another Defined Contribution Plan Which Is
Not A Master Or Prototype Plan If the Participant is covered under another
qualified Defined Contribution Plan maintained by the Employer which is not a
Master or Prototype Plan, Annual Additions which may be credited to the
Participant's account under this Plan for any Limitation Year will be limited in
accordance with paragraphs 10.3 and 10.4 as though the other plan was a Master
or Prototype Plan, unless the Employer provides other limitations in the
Adoption Agreement.
10.6 Participation In This Plan And A Defined Benefit Plan If the Employer
maintains, or at any time maintained, a qualified Defined Benefit Plan (other
than Paired Plan #04001, #04002, #04003 or #04004) covering any Participant in
this Plan, the sum of the Participant's Defined Benefit Plan Fraction and
Defined Contribution Plan Fraction will not exceed 1.0 in any Limitation Year.
For any Plan Year during which the Plan is Top-Heavy, the Defined Benefit and
Defined Contribution Plan Fractions shall be calculated in accordance with Code
Section 416(h). The Annual Additions which may be credited to the Participant's
account under this Plan for any Limitation Year will be limited in accordance
with the Adoption Agreement.
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ARTICLE XI
ADMINISTRATION
11.1 Plan Administrator The Employer shall be the Plan Administrator which is
the Named Fiduciary. The duties of the Plan Administrator shall include:
(a) appointing the Plan's attorney, accountant, actuary, or any other
party needed to administer the Plan,
(b) directing the Trustee with respect to payments from the Fund,
(c) communicating with Employees regarding their participation and
benefits under the Plan, including the administration of all
claims procedures,
(d) filing any returns and reports with the Internal Revenue Service,
Department of Labor, or any other governmental agency,
(e) reviewing and approving any financial reports, investment
reviews, or other reports prepared by any party appointed by the
Employer under paragraph (a),
(f) establishing a funding policy and investment objectives
consistent with the purposes of the Plan and the Employee
Retirement Income Security Act of 1974, and
(g) construing and resolving any question of Plan interpretation. The
Plan Administrator's interpretation of Plan provisions including
eligibility and benefits under the Plan is final, and unless it
can be shown to be arbitrary and capricious will not be subject
to "de novo" review.
11.2 Trustee The Trustee shall be responsible for the administration and
protection of the Fund, and its duties and responsibilities shall include those
provided for below:
(a) The Employer shall, from time to time, make contributions to the
Trustee as provided in the Plan. The Employer shall also remit to
the Trustee the contributions paid by the participating
Employees. The Trustee shall be accountable to the Employer for
all contributions received from the Employer, but the Trustee
shall have no duty to see that the contributions received comply
with the provisions of the Plan, nor shall the Trustee be obliged
or have any right to enforce or collect any contribution from the
Employer or otherwise see that the funds are deposited according
to the provisions of the Plan. The Trustee shall not be
responsible for establishing a funding policy for the Plan.
(b) Payments of benefits under the Plan shall be made from the Fund
by the Trustee or a paying agent to such persons or accounts, in
such manner, at such times and in such amounts as the Employer
may in writing from time to time direct. The Trustee shall be
fully protected in making payments out of the Fund in accordance
with such written directions. The Trustee shall not be
responsible for the application of any payments it is directed to
make or for the adequacy of the Fund to meet and discharge any
and all liabilities under the Plan.
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If any payment of benefits directed to be made from the Fund by
the Trustee is not claimed, the Trustee shall notify the Employer
of that fact promptly. The Employer shall use its best efforts to
ascertain the whereabouts of the payee or distributee of benefits
returned unclaimed. The Trustee shall dispose of such payments as
the Employer shall direct. The Trustee shall have no obligation
to search for or ascertain the whereabouts of any payee or
distributee of benefits from the Fund. The Trustee shall not be
liable for any payment made by it in good faith without actual
knowledge of the changed status or condition of any recipient
thereof.
The Employer may either directly or through the appointment of a
sub-agent assume the responsibility for making benefit payments
under the Plan as an agent of the Trustee by written agreement
between the parties. If the Employer or its sub-agent assumes
such responsibility, the Employer or its sub-agent shall open a
commercial banking account in the name of the Trust in any
federally insured banking institution, including one which may be
the Trustee, for the exclusive purpose of making benefit payments
in accordance with the Plan. The Employer or its sub-agent shall
authorize one or more of its officers, or their designees, to
sign, manually or by facsimile signature, all checks, drafts, and
orders, including orders of direction in informal or letter form,
against any funds in such checking account. The Employer or its
sub-agent shall keep accurate and detailed records covering all
receipts and disbursements made from the account and shall
prepare an appropriate accounting and reconciliation with respect
thereto on a monthly basis. The Employer or its sub-agent shall,
on an annual basis, supply the Trustee a summary of the account
records and a certification that all disbursements were properly
made. The Employer or its sub-agent shall pay, prepare, file and
furnish all local, state and Federal tax deposits, returns and
reports required by any government agency or authority with
respect to distributions from qualified plans. The Trustee shall
make deposits from the Trust to the checking account as directed
in writing from time to time by the Employer or its sub-agent,
and the Trustee shall have no duty to question the propriety of
any such direction or account for the funds retained in or
disbursed by or on behalf of the Employer or its sub-agent, but
until so disbursed said funds shall be held in Trust for such
purposes.
(c) The Trustee shall maintain accurate and detailed records and
accounts of all investments, receipts, disbursements and other
transactions hereunder; and all accounts, books and records
relating thereto shall be open at all reasonable times to
inspection and audit by such person or persons as the Employer
may designate. The Trustee shall submit to the auditors for the
Employer or to anyone the Employer designates, such valuations,
reports or other information as they may reasonably require.
All monies and other property and the income therefrom shall be
held and invested as a single Fund. The Trustee shall establish
and maintain for operational and accounting purposes such other
accounts and records as the Employer and the Trustee may from
time to time consider necessary. In no event shall the
maintenance of any account or record by the Trustee mean that any
person shall have an interest in any specific asset of the Fund.
Within ninety (90) days following the close of each calendar year
(or following the close of such other annual period as may be
agreed upon by the Trustee and the Employer) or following the
resignation or removal of the Trustee, and as often as may
reasonably be requested by the Employer, the Trustee shall file
with the Employer a written account setting forth a description
of all securities and other property purchased and sold, and all
receipts, disbursements and other transactions effected by it
hereunder upon its own
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authority or pursuant to the directions of the Employer, an
investment manager or Participant during such annual or shorter
period, and showing the securities and other properties held at
the end of such period, and their fair market value.
The Employer may approve such accounting by written notice of
approval delivered to the Trustee or by failure to express
objection to such accounting in writing delivered to the Trustee
within six (6) months from the date upon which the accounting was
delivered to the Employer. Upon the receipt of a written approval
of the accounting, or upon the passage of the period of time
within which objection may be filed without written objections
having been delivered to the Trustee, such accounting shall be
deemed to be approved, and the Trustee shall be released and
discharged as to all items, matters and things set forth in such
account, as fully as if such accounting had been settled and
allowed by decree of a court of competent jurisdiction in an
action or proceeding in which the Trustee, the Employer and all
persons having or claiming to have any interest in the Fund or
under the Plan were parties. If the Trustee and the Employer
cannot agree with respect to any act or transaction reported in
any statement, the Trustee shall have the right to have its
accounts settled by judicial proceedings, in which event only the
Trustee and the Employer shall be necessary parties.
11.3 Administrative Fees And Expenses All reasonable costs, charges and expenses
incurred by the Trustee in connection with its duties under this Agreement,
including such reasonable compensation of the Trustee as may be agreed upon from
time to time between the Employer and the Trustee, shall be paid from the Fund
unless paid or advanced by the Employer. The Trustee may deduct such costs,
charges, expenses and compensation from the Fund upon written notice to the
Employer. When directed in writing by the Employer, the Trustee also shall pay
from the Fund all expenses in connection with the administration of the Plan to
the extent the Employer does not itself pay such expenses. In addition, the
Employer may direct the Trustee in writing to reimburse the Employer for any
reasonable, direct Plan expenses which have been properly and actually incurred
and for which the Employer has not been otherwise reimbursed. Notwithstanding
the foregoing, no compensation other than reimbursement for expenses shall be
paid to a Plan Administrator who is the Employer or a full-time Employee of the
Employer. In the event any part of the Trust becomes subject to tax, all taxes
incurred shall be paid from the Fund unless the Plan Administrator or Employer
directs the Trustee not to pay such tax and the Employer indemnifies the Trustee
to its satisfaction. The Trustee shall be fully protected in making payments
under this paragraph.
11.4 Division Of Duties And Indemnification
(a) The Trustee shall not be obligated to inquire whether any payee
of funds or any distributee of benefits designated by the
Employer is entitled thereto or whether any payment, allocation
or distribution directed or authorized by the Employer is proper,
or within the terms of the Plan, and shall not be accountable for
any payment, allocation or distribution made by the Trustee in
good faith on the order or direction of the Employer.
(b) The Trustee shall be fully protected for any action taken or
omitted pursuant to any direction, consent, certificate, or other
document which the person acting in reliance thereon may consider
pertinent, reliable and genuine, and to have been signed, made or
presented by the proper party or parties. All directions by the
Employer, the Plan Administrator or other authorized person shall
be in writing, except investment directions may be provided to
the Trustee through a telephone operated voice response system
pursuant to the provisions of paragraph 13.6 below. The Employer
shall deliver to the Trustee certificates evidencing the
individual or individuals authorized to act as set forth in the
Adoption Agreement or as the Employer may subsequently inform the
Trustee in
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writing and shall deliver to the Trustee specimens of their
signatures. The Trustee shall not recognize or take notice of an
appointment of any representative of the Employer or Plan
Administrator unless and until the Employer shall have notified
the Trustee in writing of such appointment and the extent of such
representative's authority. The Trustee may assume that such
appointment and authority continue in effect until it receives
written notice to the contrary from the Employer. Any action
taken or omitted to be taken by the Trustee by authority of any
representative of the Employer or Plan Administrator within the
scope of his authority shall be as effective for all purposes
hereof as if such action or nonaction had been authorized by the
Employer or Plan Administrator. The Trustee, the Employer and any
representative of the Employer or the Plan Administrator shall
each be fully protected in acting and relying upon any evidence
described in this paragraph.
(c) The Trustee shall have no power, authority or duty with respect
to the determination of the rights or interests of any persons in
and to the Fund or under the Plan nor to examine into the
determination of any right or interest.
(d) The Employer has allocated fiduciary responsibility to various
fiduciaries according to the terms of the Plan and this Trust
document. In carrying out its responsibilities, the Trustee and
each fiduciary hereunder shall act solely in the interest of the
Participants and beneficiaries and with the care, skill, prudence
and diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a like
character and with like aims.
(e) The Trustee shall be indemnified and saved harmless by the
Employer, from and against any and all liability, including all
expenses reasonably incurred in its defense, to which the Trustee
shall be subjected by reason of 1) any action taken upon the
direction of the Employer, the Plan Administrator, Participant,
an investment manager or any other authorized person; 2) any
action taken or omitted or any investment or disbursement of any
part of the Fund made by the Trustee at the direction of a
Participant or an investment manager, or any inaction with
respect to the Fund in the absence of directions from a
Participant or an investment manager; and 3) any action taken by
the Trustee pursuant to a notification of an order to purchase or
sell securities issued by an investment manager directly to a
broker or dealer under a power of attorney. The costs and
expenses of enforcing this right of indemnification shall be paid
by the Employer. In addition, to the extent the Effective Date of
the appointment of the Trustee is later than the Effective Date
of the amended Plan, the Trustee will have no liability for the
acts or the omissions of any prior trustee or prior custodian.
The Employer agrees to hold the Trustee harmless with respect to
the prior acts or omissions of any prior trustee or prior
custodian.
11.5 Co-Fiduciary Liability A fiduciary, with respect to the Plan, shall not be
liable for a breach of fiduciary responsibility of another fiduciary with
respect to the Plan except to the extent that:
(a) it participates knowingly in, or knowingly undertakes to conceal,
an act or omission of such other fiduciary, knowing such act or
omission is a breach; or
(b) it has knowledge of a breach by such other fiduciary, unless it
makes reasonable efforts under the circumstances to remedy the
breach.
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ARTICLE XII
TRUST FUND
12.1 The Fund The Fund shall consist of all contributions received by the
Trustee, made under Article III and Article IV of the Plan and the investment
thereof and earnings thereon. All such contributions and the earnings thereon
less payments made under the terms of the Plan, shall constitute the Fund. The
Fund shall be administered as provided in this document.
12.2 Control Of Plan Assets The assets of the Fund or evidence of ownership
shall be held by the Trustee under the terms of the Plan and Trust document. If
the assets represent amounts transferred from another trustee under a former
plan, the Trustee named hereunder shall not be responsible for the propriety of
any investment under the former plan.
12.3 Exclusive Benefit Rules No part of the Fund shall be used for, or diverted
to, purposes other than for the exclusive benefit of Participants, former
Participants with a vested interest, and the beneficiary or beneficiaries of
deceased Participants having a vested interest in the Fund at death.
12.4 Assignment And Alienation Of Benefits No right or claim to, or interest in,
any part of the Fund, or any payment from the Fund, shall be assignable,
transferable, or subject to sale, mortgage, pledge, hypothecation, commutation,
anticipation, garnishment, attachment, execution, or levy of any kind. The
Trustee shall not recognize any attempt to assign, transfer, sell, mortgage,
pledge, hypothecate, commute, or anticipate the same, except to the extent
required by law. The preceding sentences shall also apply to the creation,
assignment, or recognition of a right to any benefit payable with respect to a
Participant pursuant to a domestic relations order, unless such order is
determined by the Plan Administrator to be a Qualified Domestic Relations Order,
as defined in Code Section 414(p), or any domestic relations order entered
before January 1, 1985 which the Plan Administrator deems to be qualified.
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ARTICLE XIII
INVESTMENTS
13.1 Fiduciary Standards The Trustee shall invest and reinvest principal and
income of the Fund in accordance with the provisions of this Article and in
accordance with the investment objectives established by the Employer, provided
that:
(a) such investments are prudent under the Employee Retirement Income
Security Act of 1974 and the regulations promulgated thereunder;
(b) such investments are sufficiently diversified to minimize the
risk of large losses unless under the circumstances it is clearly
prudent not to do so; and
(c) in determining whether the requirements of prudence and
diversification stated in Sections 404(a)(1)(B) and (C),
respectively, of ERISA have been met, all the investments of the
Fund shall be considered in their entirety, and the portion
managed by the Trustee hereunder shall be only one consideration
in making such a determination. If the Employer maintains the
right to direct the Trustee regarding investments of the Trust or
if one or more investment managers in addition to the Trustee are
appointed, the Employer so acting or appointing shall be
responsible for seeing that the requirement of proper
diversification of the total Plan assets mentioned above has been
met, and neither the Trustee nor any investment manager shall
have any such responsibility therefor.
13.2 Funding Arrangement Pursuant to execution of the Adoption Agreement, the
Employer appoints the Sponsor to serve as Trustee of the Fund. The Fund shall be
invested in any of the investment alternatives available to the Trustee under
paragraph 13.3 as provided herein.
13.3 Investment And Administrative Powers Of The Trustee Unless otherwise
provided pursuant to paragraphs 13.4, 13.5 and 13.6, the Trustee shall be
responsible for the investment and reinvestment of the Fund, subject to
investment objectives as may be established from time to time by the Employer
and communicated to the Trustee in writing. Subject to the preceding sentence,
the Trustee shall have the following powers and rights with respect to the Fund,
in addition to those vested in it elsewhere in this Agreement or by law:
(a) To invest the Fund in such bonds, notes, debentures, mortgages,
equipment trust certificates, investment trust certificates,
insurance and annuity contracts, preferred or common stock
(including common stock of the Employer), registered investment
companies (including, specifically, the HT Insight Funds, Inc.,
provided that the requirements of Prohibited Transaction
Exemption 77-4 are met) or in such other property, real or
personal, as the Trustee may deem advisable;
(b) To deposit any part or all of the money and property of the Fund
in any common, group or collective investment trust which
provides for the pooling or commingling of the assets of plans
described in Code Section 401(a) and exempt from tax under Code
Section 501(a), or any comparable provisions of any future
legislation that amends, supplements or supersedes those
sections, including any such trust which is maintained by the
Trustee, an investment manager, or a bank as trustee, pursuant to
all the terms and conditions of such common, group or collective
investment trust, the provisions of which are hereby incorporated
in and made a part of this agreement. In addition, the Trustee is
specifically authorized to deposit any part or all of the money
and property of the Fund with
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HARRIS TRUST AND SAVINGS BANK, Chicago, Illinois, as trustee of
the HARRIS TRUST AND SAVINGS BANK TRUST FOR COLLECTIVE INVESTMENT
OF EMPLOYEE BENEFIT ACCOUNTS, restated by Declaration of Trust
effective August 31, 1993, and as amended (the "Harris Collective
Trust");
(c) To hold a reasonable portion of the Fund in cash to provide for
the payment of current expenses and benefits under the Plan and
Trust and otherwise as permitted by law, and may deposit any cash
so held in its banking department without liability to the Fund
for interest thereon; the Harris Trust and Savings Bank, as
Trustee, shall have the power and authority to invest Plan assets
in deposits in itself or in its affiliates, which deposits shall
bear a reasonable rate of interest;
(d) To manage, sell, contract to sell, grant options to purchase,
convey, exchange, transfer, abandon, improve, repair, insure,
lease for any term even though commencing in the future or
extending beyond the term of the Trust, and otherwise deal with
all property, real or personal, in such manner, for such
consideration and on such terms and conditions as the Trustee may
decide; and no person dealing with the Trustee shall be required
to see to the application of any money or property delivered to
the Trustee or to inquire into the validity or propriety of any
transaction with the Trustee;
(e) To borrow such sum or sums from time to time from such person or
entity (including the Trustee) as the Trustee considers necessary
or desirable and in the best interest of the Fund, and for that
purpose to mortgage or pledge any part of the Fund;
(f) To compromise, contest, arbitrate or abandon claims or demands by
or against the Fund;
(g) To have, with respect to the Fund, all of the rights of an
individual owner, including the power to give proxies, to
participate in voting trusts, mergers, consolidations,
foreclosures, reorganizations or liquidations, and to exercise or
sell stock subscription or conversion rights (except that proxies
and other matters associated with shares of Employer Stock shall
be given as provided in paragraph 13.7;
(h) To hold any securities or other property in the name of the
Trustee or a nominee, or in such form as it deems best, with or
without disclosing the trust relationship;
(i) To retain any funds or property subject to any dispute without
liability for payment of interest, and to withhold payment or
delivery thereof until final adjudication of the dispute by a
court of competent jurisdiction;
(j) To begin, maintain or defend any litigation necessary in
connection with the administration of the Plan or the Trust, and
the Employer shall indemnify the Trustee against all expenses and
liabilities sustained or anticipated by it by reason thereof
(including reasonable attorneys' fees);
(k) To pay out of any benefit distributable from the Fund any estate,
inheritance, income or other tax, charge or assessment
attributable thereto, but the Trustee shall give the Employer
notice of its intention to make such payments as far in advance
as may be practicable, and shall defer such payments if the
Employer so requests and indemnifies the Trustee to its
satisfaction. The Employer and the Trustee, or either, before
making payment of any benefit, may require such release or other
documents from any lawful taxing authority and such indemnity
from the intended payee as they respectively consider necessary
for their protection;
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(l) To buy, sell, and exercise call and put options on stocks, fixed
income securities, stock and fixed income indices, market index
and interest rate futures contracts, and to buy and sell futures
contracts;
(m) To engage in the lending of securities pursuant to regulations of
the Department of Labor and any other applicable regulatory
authority;
(n) To deposit securities with a clearing corporation as defined in
Article 8 of the Illinois Uniform Commercial Code. The
certificates representing securities, including those in bearer
form, may be held in bulk form with, and may be merged into,
certificates of the same class of the same issuer which
constitute assets of other accounts or owners, without
certification as to the ownership attached. Utilization of a
book-entry system may be made for the transfer or pledge of
securities held by the Trustee or by a clearing corporation. The
Trustee shall at all times, however, maintain a separate and
distinct record of the securities owned by the Trust;
(o) To participate in and use the Federal Book-Entry Account System,
a service provided by the Federal Reserve Bank for its member
banks for deposit of eligible securities;
(p) To employ (and pay) agents, experts and counsel (who may be
counsel to the Employer) and to delegate discretionary powers to,
and reasonably rely upon information and advice furnished by such
agents, experts and counsel;
(q) To invest any portion of the Fund as directed by the Employer, or
an investment manager or Participant, if permitted by the
Employer (for purposes of this sub-section, hereinafter referred
to together as "authorized persons"), by making deposits from
time to time with an insurance company or companies under one or
more insurance contracts, policies or agreements or combination
thereof and to exercise any and all rights, privileges, options
and elections thereunder only to the extent directed by the
Employer or other authorized persons. The Trustee shall have no
duty to inquire into the terms and provisions of any application
or other documents executed by it upon direction of the Employer
or other authorized persons or of any insurance contract, policy
or agreement acquired by or delivered to it nor to see that the
terms and the provisions of the Plan in respect thereof have been
complied with;
(r) To make loans to Participants as directed by the Employer;
(s) To invest any portion of the Fund as directed by the Employer (or
an investment manager or Participant, if permitted by the
Employer) in the common stock, debt obligations, or any other
securities issued by the Employer or by an affiliate of the
Employer within the limitations provided under Sections 406, 407,
and 408 of the Employee Retirement Income Security Act of 1974,
and further provided that such investment does not constitute a
prohibited transaction under Code Section 4975. If the investment
of a portion of the Fund in Employer securities is directed by
the Employer pursuant to this sub-section, the Employer shall be
responsible to determine the propriety of such investment of the
Fund, and, if the investment of a portion of the Fund in Employer
securities is directed by an investment manager or a Participant,
the Employer shall be responsible for determining the propriety
of establishing such investment fund; and
(t) To perform any and all other acts in its judgment necessary or
appropriate for the proper and advantageous management,
investment and distribution of the Fund.
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13.4 Employer Investment Directions Notwithstanding anything in this Agreement
to the contrary, the Employer shall have the right from time to time to direct
the Trustee with respect to the acquisition, retention, management and
disposition of the assets from time to time comprising the Fund. If the Employer
exercises this right, it shall also direct the Trustee to segregate that portion
of the Fund to be managed by the Employer into one or more accounts, to be known
as "Employer directed accounts". The Trustee shall follow all directions of the
Employer with respect to the assets of an Employer directed account and shall
have no duty or obligation to review the assets from time to time so acquired,
nor to make any recommendations with respect to the investment, reinvestment or
retention thereof. The Trustee shall vote the proxies associated with the assets
held in an employer directed account as directed by the Employer. The Trustee
shall have no liability to the Employer or any beneficiary of the Trust for
acting without question on the direction of, or for failure to act in the
absence of directions from the Employer. The Trustee shall be indemnified and
held harmless by the Employer from and against any and all loss, liability or
expense to which the Trustee shall be subjected by reason of carrying out any
directions of the Employer made pursuant to this paragraph, including all
expenses reasonably incurred in its defense if the Employer fails to provide
such defense as well as all costs, fees and expenses, including reasonable
attorneys' fees the Trustee may incur in enforcing its rights to
indemnification. Notwithstanding the foregoing provisions, the Trustee, without
further prior approval from the Employer shall have the power, right and
authority to invest cash balances held by it from time to time as part of an
Employer directed account and, further, the Trustee is hereby directed by the
Employer to exercise this power, right and authority by investing such cash
balances in short-term cash equivalents having ready marketability, including,
but not limited to, savings accounts, certificates of deposit (including savings
accounts and certificates of deposit with the Trustee in its banking capacity,
so long as such accounts bear a reasonable rate of interest), the Harris
Collective Trust, United States treasury bills, commercial paper, and similar
types of securities, and the Trustee without prior approval or direction shall
have the power, right and authority to sell such short-term investments as may
be necessary to carry out the instructions of the Employer with respect to
investing the funds managed by the Employer. In addition, pending receipt of
directions from the Employer, reasonable amounts of cash received by the Trustee
may be retained by the Trustee, in its discretion, in cash, without any
liability for interest for any funds managed by the Employer.
13.5 Investment Manager Directions Notwithstanding anything in this Agreement to
the contrary, the Employer shall have the right from time to time to appoint and
remove an investment manager and to direct the segregation of any part or all of
the Fund into one or more accounts, to be known as "investment manager accounts"
and if it does so, it shall appoint an individual, partnership or corporation as
investment manager to manage the portion or portions of the Fund so segregated.
An "investment manager" is a fiduciary other than an ERISA "named fiduciary" or
the Trustee under this instrument who: (i) has the power to manage, acquire, or
dispose of any portion of the Fund; (ii) is registered as an investment adviser
under the Investment Advisers Act of 1940, is a bank as defined in that Act, or
is an insurance company qualified to perform the service described herein; and
(iii) has acknowledged in writing that it is a fiduciary with respect to the
Plan. Written notice of any such appointment or removal shall be given to the
Trustee and the investment manager so appointed. As long as the investment
manager is acting, such investment manager shall direct the Trustee to invest
and the Trustee shall invest the assets of the investment manager account in
such bonds, notes, debentures, mortgages, equipment trust certificates,
preferred or common stocks, registered investment companies, insurance and
annuity contracts, or in such other property, real or personal, as the
investment manager deems advisable. The investment manager shall have full
authority and the responsibility to direct the Trustee with respect to the
acquisition, retention, management, and disposition of all of the assets from
time to time comprising the investment manager account being managed by such
investment manager and the voting of proxies thereon, and the Trustee shall have
no duty or obligation to review the assets from time to time comprising such
investment manager account, to make recommendations with respect to the
investment, reinvestment, or retention thereof, nor with respect to the voting
of proxies thereon, nor to determine whether any direction from such investment
manager is proper or within the terms of this Agreement.
Notwithstanding the foregoing provisions, the Trustee, without further prior
approval of the Employer or direction from the investment manager, shall have
the power, right and authority to invest cash balances held by it from time to
time as part of an investment manager account and, further, the Trustee is
hereby directed by the Employer to
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exercise this power, right and authority by investing such cash balances in
short-term cash equivalents having ready marketability, including, specifically,
the Harris Collective Trust, in addition to, savings accounts, certificates of
deposit (including savings accounts and certificates of deposit with the Trustee
in its banking capacity, so long as such accounts bear a reasonable rate of
interest), United States treasury bills, commercial paper, and similar types of
securities, and the Trustee without prior approval or direction shall have the
power, right and authority to sell such short-term investments as may be
necessary to carry out the instructions of the investment manager with respect
to investing the investment manager account. In addition, pending receipt of
directions from the investment manager, reasonable amounts of cash received by
the Trustee from time to time for any investment manager account may be retained
by the Trustee, in its discretion, in cash, without any liability for interest.
The Trustee shall have the right to request that some part or all of the
directions made by an investment manager pursuant to the terms of this Agreement
be in writing and shall assume no liability hereunder for failure to act
pursuant to directions which fail to conform to such request.
It is understood and agreed by the parties that while the Trustee will perform
certain ministerial and custodial duties with respect to the assets held in an
investment manager account, such duties will be performed in the normal course
by officers and other Employees of the Trustee who may be unfamiliar with
investment management, and that such duties will not include the exercise of any
discretionary authority or other authority to manage and control assets
comprising the investment manager account. The Trustee shall have no liability
or responsibility to the Employer or any beneficiary of the Trust for acting
without question on the direction of, or for failure to act in the absence of
directions from the investment manager for any investment manager account
previously established, and the appointment of any investment manager for that
account shall continue in force until receipt of written notice to the contrary
from the Employer. In addition, the Trustee shall have no responsibility to
invest or manage any asset held in an investment manager account until the
Trustee is (1) notified by the Employer in writing of the termination of the
investment manager's authority over the assets of such account and (2) directed
in writing to terminate the investment manager account and to transfer the
assets of such account to the Fund.
If the Employer appoints an investment manager (including a bank or trust
company) which decides to invest in a collective investment fund it advises or
maintains, then, upon direction of the Employer, the Trustee shall enter into
those agreements necessary for the purpose of investing in such collective
investment fund.
13.6 Employee Investment Direction If approved by the Employer in the Adoption
Agreement, Participants shall be given the option to direct the investment of
their personal contributions, their share of the Employer's contributions, and
their existing account balance among alternative investment funds established by
the Employer as part of the overall Fund. If such option is made available,
Participants shall provide said investment directions to the Employer who will
then instruct the Trustee with respect to the Employee's investment directions,
or, if the Employer so elects, Participants shall have the option of either
providing such investment directions to the Employer who will then instruct the
Trustee, or to the Trustee directly through a telephone operated voice response
system provided by the Trustee. Any investment direction received from a
Participant which is provided to the Trustee through a voice response system
shall be deemed to be a direction of the Employer, as to that investment
direction, in the event such direction is determined not to be a proper
Participant direction. The following rules shall apply to the administration of
such funds.
(a) At the time an Employee becomes eligible to participate in the
Plan, he or she shall file with the Employer an investment
designation form provided by the Employer stating the percentage
of his or her contributions to be invested in the available
funds, or if approved by the Employer, the Employee may designate
such percentages of his or her contributions to be invested in
the available funds by using a telephone operated voice response
system provided by the Trustee.
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(b) In accordance with the procedures established by the Plan
Administrator, a Participant may change his or her election with
respect to future contributions by filing with the Employer a new
investment designation form provided by the Employer, or, if
approved by the Employer, the Participant may designate such
changes by using a telephone operated voice response system
provided by the Trustee.
(c) In accordance with the procedures established by the Plan
Administrator, a Participant may elect to transfer all or part of
his or her balance from one investment fund to another by filing
with the Employer an investment designation form provided by the
Employer, or, if approved by the Employer, the Participant may
designate such transfers by using a telephone operated voice
response system provided by the Trustee.
(d) The Employer shall be responsible when transmitting Employee and
Employer contributions to show the dollar amount to be credited
to each investment fund for each Employee.
(e) Except as otherwise provided in the Plan, neither the Trustee,
nor the Employer, nor any fiduciary of the Plan shall be liable
to a Participant or any of his or her beneficiaries for any loss
resulting from action taken at the direction of such Participant
either directly to the Employer or to the Trustee through a
telephone operated voice response system.
(f) Except for proxies and other matters associated with shares of
Employer Stock which shall be voted or given pursuant to
paragraph 13.7, all proxies and other matters associated with
assets of the Fund subject to the investment direction of
Participants, shall be voted or given by the Trustee.
13.7 Voting Of Proxies On Employer Stock Each Participant under the Plan is, for
purposes of this section, hereby designated a "named fiduciary" within the
meaning of ERISA Section 403(a)(1), with respect to shares of common stock of
the Employer ("Employer Stock") held in his account and with respect to his
"proportionate share" [as determined in subparagraphs (a) and (b) below] of
unallocated shares of Employer Stock and, for purposes of voting rights, shares
of Employer Stock held in the accounts of Participants for which the Trustee has
not received voting instructions ("non-voted Employer Stock"). For purposes of
this section, the term "Participant" shall include the beneficiary of a deceased
Participant who is entitled to receive amounts held in such Participant's
accounts under the terms of the Plan.
(a) Voting Shares of Employer Stock. Each Participant shall have the
right to instruct the Trustee in writing as to the manner in
which to cast the votes attributable to all shares of Employer
Stock allocated to his account. The Trustee shall vote, in person
or by proxy, shares of such stock held by the Trustee which are
allocated to a Participant's account in accordance with
instructions received from such Participant. Each Participant
shall also be deemed to have instructed the Trustee to vote, in
accordance with his vote on shares of Employer Stock allocated to
his account, his "proportionate share" (as determined in the last
sentence of this subparagraph) of the votes attributable to all
shares of non-voted Employer Stock and all unallocated shares of
Employer Stock. The Employer shall use its best efforts to timely
distribute or cause to be distributed to each Participant the
information distributed to stockholders of the Employer in
connection with any stockholders' meeting, together with a form
requesting confidential instructions to the Trustee on how such
votes attributable to shares of Employer Stock shall be cast on
each such matter. Upon timely receipt of such instructions, the
Trustee shall, on each such matter, cast as directed the
appropriate number of votes attributable to shares (including
fractional shares) of Employer Stock. The instructions received
by the Trustee
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from individual Participants shall be held by the Trustee in
strict confidence and shall not be divulged or released to any
person, including Employees, officers and directors of the
Employer; provided, however, that, to the extent necessary for
the operation of the Plan, such instructions may be released by
the Trustee to a recordkeeper, auditor or other person providing
services to the Plan. The "proportionate share" of any
Participant of the votes attributable to all shares of non-voted
Employer Stock and all unallocated shares of Employer Stock shall
be a fraction, the numerator of which shall be the number of
votes attributable to shares of the Employer Stock which are held
in such Participant's account as of the record date for such vote
for which he provides instructions to the Trustee and the
denominator of which shall be the number of votes attributable to
all shares of Employer Stock held for the Plan (other than
unallocated shares) on such date for which instructions are
received by the Trustee.
(b) Tender Offers Relating To Shares Of Employer Stock. Each
Participant shall have the right to instruct the Trustee in
writing as to the manner in which to respond to a tender or
exchange offer (including, but not limited to, a tender offer or
exchange offer within the meaning of the Securities Act of 1934,
as amended) with respect to all shares of Employer Stock
allocated to his account. The Trustee shall respond to such
tender or exchange offer in respect of shares of Employer Stock
allocated to a Participant's account in accordance with
instructions received from such Participant. Each Participant
shall also be deemed to have instructed the Trustee as to the
manner in which to respond to a tender or exchange offer, in
accordance with his instructions given or deemed to have been
given with respect to shares of Employer Stock allocated to his
accounts, with respect to his "proportionate share" of all
unallocated shares of Employer Stock. The Employer shall use its
best efforts to timely distribute or cause to be distributed to
each Participant the information distributed to stockholders of
the Employer in connection with any tender or exchange offer,
together with a form requesting confidential instructions to the
Trustee on how to respond to such tender or exchange offer on
behalf of the Participant. Upon timely receipt of such
instructions, the Trustee shall respond to such tender or
exchange offer as instructed by the Participant. If, and to the
extent that, the Trustee shall not receive timely instructions
from a Participant given a right to instruct the Trustee to
tender or exchange with respect to the shares described in the
first sentence of this subparagraph, such Participant shall be
deemed to have timely instructed the Trustee not to tender or
exchange such shares of Employer Stock. The instructions received
by the Trustee from Participants shall be held by the Trustee in
strict confidence and shall not be divulged or released to any
person, including Employees, officers and directors of the
Employer; provided, however, that, to the extent necessary for
the operation of the Plan, such instructions may be released by
the Trustee to a recordkeeper, auditor or other person providing
services to the Plan. The "proportionate share" of any
Participant of all the unallocated shares of Employer Stock shall
be a fraction, the numerator of which shall be the number of
votes attributable to shares of Employer Stock which are held in
such Participant's account as of the date of the announcement of
the tender or exchange offer and the denominator of which shall
be the number of votes attributable to all shares of Employer
Stock held for the Plan (other than unallocated shares) on such
date.
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ARTICLE XIV
TOP-HEAVY PROVISIONS
14.1 Applicability Of Rules If the Plan is or becomes Top-Heavy in any Plan Year
beginning after 1983, the provisions of this Article will supersede any
conflicting provisions in the Plan or Adoption Agreement.
14.2 Minimum Contribution Notwithstanding any other provision in the Employer's
Plan, for any Plan Year in which the Plan is Top-Heavy, the aggregate Employer
contributions and forfeitures allocated on behalf of any Participant (without
regard to any Social Security contribution) under this Plan and any other
Defined Contribution Plan of the Employer shall be determined as follows:
(a) When the Employer maintains one Plan or a combination of Paired
or non-paired Defined Contribution Plans and no Defined Benefit
Plans which are Top-Heavy or Super Top-Heavy, the Employer will
contribute the lesser of 3% of such Participant's Compensation or
the largest percentage of Employer contributions and forfeitures,
as a percentage of the first $200,000, as adjusted under Code
Section 415(d), of the Key Employee's Compensation, allocated on
behalf of any Key Employee for that year.
(b) Minimum Top-Heavy Contributions for Paired Defined Contribution
and Defined Benefit Plans where the Plans are not Super
Top-Heavy:
(1) If an Employee participates in Paired Defined Contribution
Plan #02001 or #02002 and also participates in Paired
Defined Benefit Plan #04001, #04002, #04003 or #04004, the
Employer shall provide a minimum non-integrated benefit of
3% of the highest 5-consecutive year average Compensation
for each non-Key Employee who participates in such Defined
Benefit Plan, not to exceed a cumulative accrued benefit of
30%.
(2) If an Employee participates in Paired Defined Contribution
Plan #02001 or #02002, but does not participate in Paired
Defined Benefit Plan #04001, #04002, #04003 or #04004, the
Employer shall make a minimum non-integrated allocation of
Employer contributions and forfeitures (in the aggregate
under all Defined Contribution Plans) of 4% of each eligible
Participant's Top-Heavy Compensation.
(c) Minimum Top-Heavy Contributions for Paired Defined Contribution
and Defined Benefit Plans where the Plans are Super Top-Heavy:
(1) If an Employee participates in Defined Contribution Plan
#02001 or #02002 and in Paired Defined Benefit Plan #04001,
#04002, #04003 or #04004, the Employer shall provide a
minimum non-integrated benefit of 2% of the highest
5-consecutive year average Compensation for each non-Key
Employee who participates in such Defined Benefit Plan, not
to exceed a cumulative accrued benefit of 20%.
(2) If an Employee participates in Defined Contribution Plan
#02001 or #02002, but does not participate in Paired Defined
Benefit Plan #04001, #04002, #04003 or #04004, the minimum
contribution requirements at paragraph 14.2(b)(2) shall
apply except that the minimum non-integrated allocation
percentage shall be 3% instead of 4%.
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(d) If the Employer maintains or maintained a Defined Benefit Plan
which is not paired, the provisions of the "Limitations on
Allocations" section of the Adoption Agreement shall apply.
Each Participant who is employed by the Employer on the last day of the Plan
Year shall be entitled to receive an allocation of the Employer's minimum
contribution for such Plan Year. The minimum allocation applies even though
under other Plan provisions the Participant would not otherwise be entitled to
receive an allocation, or would have received a lesser allocation for the year
because the Participant fails to make Mandatory Contributions to the Plan, the
Participant's Compensation is less than a stated amount, or the Participant
fails to complete 1,000 Hours of Service (or such lesser number designated by
the Employer in the Adoption Agreement during the Plan Year.) A Paired
profit-sharing Plan designated to provide the minimum Top-Heavy contribution
must do so regardless of profits. Unless the Employer specifies otherwise in the
Adoption Agreement, the minimum Top-Heavy contribution will be allocated to the
accounts of all eligible Participants, even if they are Key Employees.
For purposes of computing the minimum allocation, Compensation shall mean
Compensation as defined in paragraph 1.8(c) of the Plan.
The Top-Heavy minimum contribution does not apply to any Participant to the
extent the Participant is covered under any other plan(s) of the Employer and
the Employer has provided in the Adoption Agreement that the minimum allocation
or benefit requirements applicable to Top-Heavy Plans will be met in the other
plan(s).
14.3 Minimum Vesting For any Plan Year in which this Plan is Top-Heavy, the
minimum vesting schedule elected by the Employer in the Adoption Agreement will
automatically apply to the Plan. If the vesting schedule selected by the
Employer in the Adoption Agreement is less liberal than the allowable schedule,
the schedule will automatically be modified. If the vesting schedule under the
Employer's Plan shifts in or out of the Top-Heavy schedule for any Plan Year,
such shift is an amendment to the vesting schedule and the election in paragraph
9.8 of the Plan applies. The minimum vesting schedule applies to all benefits
within the meaning of Code Section 411(a)(7) except those attributable to
Employee contributions, including benefits accrued before the effective date of
Code Section 416 and benefits accrued before the Plan became Top-Heavy. Further,
no reduction in vested benefits may occur in the event the Plan's status as
Top-Heavy changes for any Plan Year. However, this paragraph does not apply to
the account balances of any Employee who does not have an Hour of Service after
the Plan initially becomes Top-Heavy and such Employee's account balance
attributable to Employer contributions and forfeitures will be determined
without regard to this paragraph.
14.4 Limitations On Allocations In any Plan Year in which the Top-Heavy Ratio
exceeds 90% (i.e., the Plan becomes Super Top-Heavy), the denominators of the
Defined Benefit Fraction (as defined in paragraph 1.11) and Defined Contribution
Fraction (as defined in paragraph 1.14) shall be computed using 100% of the
dollar limitation instead of 125%.
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ARTICLE XV
AMENDMENT AND TERMINATION
15.1 Amendment By Sponsor The Sponsor may amend any or all provisions of this
Plan and Trust at any time without obtaining the approval or consent of any
Employer which has adopted this Plan and Trust provided that no amendment shall
authorize or permit any part of the corpus or income of the Fund to be used for
or diverted to purposes other than for the exclusive benefit of Participants and
their beneficiaries, or eliminate an optional form of distribution. In the case
of a mass-submitted plan, the mass-submitter shall amend the Plan on behalf of
the Sponsor.
15.2 Amendment By Employer The Employer may amend any option in the Adoption
Agreement, and may include language as permitted in the Adoption Agreement,
(a) to satisfy Code Section 415, or
(b) to avoid duplication of minimums under Code Section 416,
because of the required aggregation of multiple plans.
The Employer may add certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will not cause the Plan
to be treated as individually designed.
If the Employer amends the Plan and Trust other than as provided above,
including providing for a waiver of minimum funding under Code Section 412(d),
the Employer's Plan shall no longer participate in this Prototype Plan and will
be considered an individually designed plan for which the Employer must obtain a
separate determination letter.
15.3 Termination This Trust shall terminate upon the first to occur of the
following:
(a) Thirty (30) days after the receipt by the Trustee of written
notice of such termination from the Employer;
(b) The dissolution, consolidation or reorganization of the Employer,
or the sale by the Employer of all or substantially all of its
assets without provision for continuing this Trust, except that
in any such event provision may be made for the continuance of
this Trust by any successor to the Employer or any purchaser of
all or substantially all of its assets, and in that event such
successor or purchaser shall be substituted for the Employer
hereunder.
Upon termination of this Trust the Trustee shall first reserve
such reasonable amounts as it may deem necessary to provide for
the payment of any expenses or fees then or thereafter chargeable
to the Fund. Subject to such reserve, the balance of the Fund
shall be liquidated and distributed by the Trustee to or for the
benefit of the Employees or former Employees of the Employer, or
their beneficiaries, as directed by the Employer after compliance
with applicable requirements of ERISA, as amended from time to
time, or other applicable law accompanied by a certification that
the disposition is in accordance with the terms of the Plan and
the Trustee need not question the propriety of such
certification. The Employer shall have full responsibility to see
that such distribution is proper and within the terms of the Plan
and this Trust. The Employer
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shall secure any necessary governmental approval for such
termination, and shall send a copy of such approval to the
Trustee before any disbursements are made. Such disbursement may
be effected by payment in cash, the maintenance of another or
substituted trust fund, by the purchase of annuities or
otherwise. The Employer shall have no beneficial interest in the
Fund either during its continuance or upon termination of this
Trust except as permitted by applicable law.
Upon termination of this Trust, the Trustee shall continue to
have such of the powers provided in this Agreement as are
necessary or desirable for the orderly liquidation and
distribution of the Fund.
15.4 Qualification Of Employer's Plan If the adopting Employer fails to attain
or retain Internal Revenue Service qualification, such Employer's Plan shall no
longer participate in this Prototype Plan and will be considered an individually
designed plan.
15.5 Mergers And Consolidations
(a) In the case of any merger or consolidation of the Employer's Plan
with, or transfer of assets or liabilities of the Employer's Plan
to, any other plan, Participants in the Employer's Plan shall be
entitled to receive benefits immediately after the merger,
consolidation, or transfer which are equal to or greater than the
benefits they would have been entitled to receive immediately
before the merger, consolidation, or transfer if the Plan had
then terminated.
(b) Any corporation into which the Trustee or any successor trustee
may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which
the Trustee or any successor trustee may be a party, or any
corporation to which all or substantially all the trust business
of the Trustee or any successor trustee may be transferred, shall
be the successor of such Trustee without the filing of any
instrument or performance of any further act, before any court.
15.6 Resignation And Removal
(a) The Trustee may resign at any time by giving sixty (60) days'
prior written notice to the Employer. Upon such resignation of
the Trustee, the Employer agrees to promptly discontinue its
participation in this Prototype Plan and Trust as provided in
paragraph 15.6(b) below.
(b) The Employer may discontinue its participation in this Prototype
Plan and Trust effective upon sixty (60) days prior written
notice to the Sponsor. In such event, the Employer shall, prior
to the effective date thereof, amend the Plan to eliminate any
reference to this Prototype Plan and Trust and appoint a
successor trustee or arrange for another funding agent. The
Employer may appoint a successor trustee in writing by delivery
to the removed or resigning Trustee of (i) an instrument in
writing executed by the Employer appointing such successor
trustee, and (ii) an acceptance in writing executed by the
successor trustee so appointed. If the Employer fails to amend
the Plan and appoint a successor trustee or other funding agent
within the said sixty (60) days, or such longer period as the
Trustee may specify in writing, the Plan shall be deemed
individually designed and the Employer shall be deemed to be the
successor trustee. In such event, the Employer must obtain its
own determination letter regarding the Plan.
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(c) The Employer's obligation to indemnify the Trustee under this
Agreement shall survive the termination of the Trustee with
respect to any act or omission by the Trustee arising under or in
connection with its duties under this Agreement.
(d) Upon the appointment of a successor trustee, the removed or
resigning Trustee shall transfer and deliver the assets of the
Fund to such successor after reserving such reasonable amounts as
it shall deem necessary to provide for any expenses, fees, or
taxes then or thereafter chargeable against the Fund. Each
successor trustee shall succeed to the title to the Fund vested
in its predecessor, without the signing or filing of any further
instrument, but any resigning or removed Trustee shall execute
all documents and do all acts necessary to vest such title of
record in any successor trustee. Each successor trustee shall
have and enjoy all powers, both discretionary and ministerial, of
its predecessor. No successor trustee shall be personally liable
for any act or failure to act of any predecessor Trustee; and,
upon the approval by the Employer of the account rendered
pursuant to Article XI of this Agreement, a successor trustee may
accept the account rendered and the property delivered to it by
its predecessor Trustee as a full and compete discharge to the
predecessor Trustee without incurring any liability or
responsibility for so doing.
15.7 Qualification Of Prototype The Sponsor intends that this Prototype Plan
will meet the requirements of the Code as a qualified Prototype Retirement Plan
and Trust. Should the Commissioner of Internal Revenue or any delegate of the
Commissioner at any time determine that the Plan and Trust fails to meet the
requirements of the Code, the Sponsor will amend the Plan and Trust to maintain
its qualified status.
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ARTICLE XVI
GOVERNING LAW
Construction, validity and administration of the Prototype Plan and Trust, and
any Employer Plan and Trust as embodied in the Prototype document and
accompanying Adoption Agreement, shall be governed by Federal law to the extent
applicable and to the extent not applicable by the laws of the
State/Commonwealth in which the principal office of the Sponsor is located.
63
EXHIBIT 24.1
CONSENT OF COUNSEL
We consent to the use of our opinions, to the incorporation by
reference of such opinions as an exhibits to the Form S-1 and to the reference
to our firm under the headings "The Conversion - Income Tax Consequences" and
"Legal and Tax Matters" in the Prospectus included in this Form S-1. In giving
this consent, we do not admit that we are within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
/s/ Silver, Freedman & Taff, L.L.P.
SILVER, FREEDMAN & TAFF, L.L.P.
Washington, D.C.
February __, 1997
EXHIBIT 24.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Hemlock Federal Bank for Savings
We consent to the use in this Registration Statement on Form S-1 filed with the
Securities and Exchange Commission and Form AC filed with the Office of Thrift
Supervision on February 3, 1997, of our report dated February 9, 1996, on the
financial statements of Hemlock Federal Bank for Savings for the year ended
December 31, 1995. We also consent to the reference to us under the headings
"The Conversion - Income Tax Consequences", "Experts", and "Legal and Tax
Matters" in this Registration Statement on Forms S-1 and AC.
/s/Crowe, Chizek and Company LLP
--------------------------------
Crowe, Chizek and Company LLP
Oak Brook, Illinois
February 3, 1997
CONVERSION VALUATION APPRAISAL REPORT
Prepared for:
Hemlock Federal Financial Corporation
and
Hemlock Federal Bank for Savings
Oak Forest, Illinois
As Of:
December 6, 1996
Prepared By:
Keller & Company, Inc.
555 Metro Place North
Suite 524
Dublin, Ohio 43017
(614)766-1426
KELLER & COMPANY
<PAGE>
CONVERSION VALUATION APPRAISAL REPORT
Prepared for:
Hemlock Federal Financial Corporation
and
Hemlock Federal Bank for Savings
Oak Forest, Illinois
As Of:
December 6, 1996
Prepared By:
Michael R. Keller
President
<PAGE>
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
December 30, 1996
Board of Directors
Hemlock Federal Bank for Savings
5700 West 159th Street
Oak Forest, IL 60452
Gentlemen:
We hereby submit an independent appraisal of the pro forma market value of the
to-be-issued stock of Hemlock Federal Financial Corporation (the "Corporation"),
which is the newly formed holding company of Hemlock Federal Bank for Savings,
Oak Forest, Illinois ("Hemlock Federal" or the "Bank"). The Corporation will
hold all of the shares of the common stock of the Bank. Such stock is to be
issued in connection with the Bank's conversion from a federally chartered
mutual savings bank to a federally chartered stock savings bank in accordance
with the Bank's Plan of Conversion. This appraisal was prepared and provided to
the Bank in accordance with the conversion requirements and regulations of the
Office of Thrift Supervision of the United States Department of the Treasury.
Keller & Company, Inc. is an independent financial institution consulting firm
that serves both banks and thrift institutions. The firm is a full-service
consulting organization, as described in more detail in Exhibit A, specializing
in market studies, business and strategic plans, stock valuations, conversion
appraisals, and fairness opinions for thrift institutions and banks. The firm
has affirmed its independence in this transaction with the preparation of its
Affidavit of Independence, a copy of which is included as Exhibit C.
Our appraisal is based on the assumption that the data provided to us by Advance
and the material provided by the independent auditor, Crowe Chizek & Company,
Oakbrook Terrace, Illinois, are both accurate and complete. We did not proceed
to verify the financial statements provided to us, nor did we conduct
independent valuations of the Bank's assets and liabilities. We have also used
information from other public sources, but we cannot assure the accuracy of such
material.
<PAGE>
Board of Directors
Hemlock Federal Bank for Savings
December 30, 1996
Page 2
In the completion of this appraisal, we held discussions with the management of
Advance, with the law firm of Silver, Freedman and Taff, L.L.P., Washington,
D.C., the Bank's conversion counsel, and with Crowe Chizek & Company. Further,
we viewed the Bank's local economy and primary market area.
This valuation must not be considered as a recommendation as to the purchase of
stock in the Corporation, and we can provide no guarantee or assurance that any
person who purchases shares of the Corporation's stock in this conversion will
be able to later sell such shares at a price equivalent to the price designated
in this appraisal.
Our valuation will be updated as required and will give consideration to any new
developments in the Bank's operation that have an impact on operations or
financial condition. Further, we will give consideration to any changes in
general market conditions and to specific changes in the market for
publicly-traded thrift institutions. Based on the material impact of any such
changes on the pro forma market value of the Bank as determined by this firm, we
will proceed to make necessary adjustments to the Bank's appraised value in such
appraisal update.
It is our opinion that as of December 6, 1996, the pro forma market value or
appraised value of the Corporation is $15,700,000. Further, a range for this
valuation is from a minimum of $13,345,000 to a maximum of $18,055,000, with a
super-maximum of $20,763,250.
Very truly yours,
KELLER & COMPANY, INC.
Michael R. Keller
President
<PAGE>
TABLE OF CONTENTS
PAGE
INTRODUCTION 1
I. Description of Hemlock Federal Bank for Savings
General 4
Performance Overview 8
Income and Expense 10
Yields and Costs 16
Interest Rate Sensitivity 18
Lending Activities 20
Non-Performing Assets 24
Investments 26
Deposit Activities 26
Borrowings 27
Subsidiaries 28
Office Properties 28
Management 28
II. Description of Primary Market Area 29
III. Comparable Group Selection
Introduction 34
General Parameters
Merger/Acquisition 35
Mutual Holding Companies 36
Trading Exchange 36
IPO Date 37
Geographic Location 37
Asset Size 38
Balance Sheet Parameters
Introduction 39
Cash and Investments to Assets 39
Mortgage-Backed Securities to Assets 40
One- to Four-Family Loans to Assets 40
Total Net Loans to Assets 41
Total Net Loans and Mortgage-Backed Securities to Assets 41
Borrowed Funds to Assets 41
Equity to Assets 42
Performance Parameters
Introduction 43
<PAGE>
TABLE OF CONTENTS (cont.)
PAGE
III. Comparable Group Selection (cont.)
Performance Parameters (cont.)
Return on Average Assets 43
Return on Average Equity 44
Net Interest Margin 44
Operating Expenses to Assets 45
Noninterest Income to Assets 45
Asset Quality Parameters
Introduction 46
Nonperforming Assets to Asset Ratio 46
Repossessed Assets to Assets 47
Loans Loss Reserves to Assets 47
The Comparable Group 47
Summary of Comparable Group Institutions 49
IV. Analysis of Financial Performance 51
V. Market Value Adjustments
Earnings Performance 54
Market Area 58
Financial Condition 59
Dividend Payments 60
Subscription Interest 61
Liquidity of Stock 62
Management 62
Marketing of the Issue 63
VI. Valuation Methods 65
Price to Book Value Ratio Method 66
Price to Earnings Method 67
Price to Net Assets Method 68
Valuation Conclusion 69
<PAGE>
LIST OF EXHIBITS
NUMERICAL PAGE
EXHIBITS
1 Statements of Financial Condition - September 30,
1996 and December 31, 1995 70
2 Consolidated Balance Sheets - December 31, 1991
through 1994 71
3 Consolidated Statements of Income - Nine Months Ended
September 30, 1995 and 1996 and December 31, 1995 72
4 Consolidated Statements of Income - December 31,
1992 through 1995 73
5 Selected Financial Condition Data 74
6 Income and Expense Trends 75
7 Normalized Earnings Trend 76
8 Performance Indicators 77
9 Volume/Rate Analysis 78
10 Yield and Cost Trends 79
11 Interest Rate Sensitivity of Net Portfolio Value (NPV) 80
12 Loan Portfolio Composition 81
13 Loan Maturity Schedule 82
14 Loan Originations 83
15 Delinquent Loans 84
16 Nonperforming Assets 85
17 Classified Assets 86
18 Allowance for Loan Losses 87
19 Investment Portfolio Composition 88
20 Mix of Deposits 89
21 Deposit Activity 90
22 Borrowed Funds Activity 91
23 Offices of Hemlock Federal Bank for Savings 92
24 List of Key Officers and Directors 93
25 Key Demographic Data and Trends 94
26 Key Housing Data 95
27 Major Sources of Employment by Industry Group 96
28 Unemployment Rates 97
29 Market Share of Deposits 98
30 National Interest Rates by Quarter 99
31 Thrift Stock Prices and Pricing Ratios 100
32 Key Financial Data and Ratios 111
33 Recently Converted Thrift Institutions 123
34 Acquisitions and Pending Acquisitions 125
<PAGE>
LIST OF EXHIBITS (cont.)
NUMERICAL PAGE
EXHIBITS
35 Thrift Stock Prices and Pricing Ratios -
Mutual Holding Companies 127
36 Key Financial Data and Ratios -
Mutual Holding Companies 128
37 Balance Sheets Parameters -
Comparable Group Selection 129
38 Operating Performance and Asset Quality Parameters -
Comparable Group Selection 133
39 Balance Sheet Ratios -
Final Comparable Group 138
40 Operation Performance and Asset Quality Ratios
Final Comparable Group 139
41 Balance Sheet Totals - Final Comparable Group 140
42 Market Area Comparison - Final Comparable Group 141
43 Balance Sheet - Asset Composition
Most Recent Quarter 142
44 Balance Sheet - Liability and Equity
Most Recent Quarter 143
45 Income and Expense Comparison
Trailing Four Quarters 144
46 Income and Expense Comparison as a Percent of
Average Assets - Trailing Four Quarters 145
47 Yields, Costs & Earnings Ratios
Trailing Four Quarters 146
48 Dividends, Reserves and Supplemental Data 147
49 Valuation Analysis and Conclusions 148
50 Market Pricings and Financial Ratios - Stock Prices
Comparable Group 149
51 Pro Forma Mid-Point Valuation 150
52 Pro Forma Minimum Valuation 151
53 Pro Forma Maximum Valuation 152
54 Pro Forma Superrange Valuation 153
55 Summary of Valuation Premium or Discount 154
<PAGE>
ALPHABETICAL EXHIBITS PAGE
A Background and Qualifications 155
B RB 20 Certification 159
C Affidavit of Independence 160
<PAGE>
INTRODUCTION
Keller & Company, Inc. is an independent appraisal firm for financial
institutions and has prepared this Conversion Appraisal Report ("Report") to
provide the pro forma market value of the to-be-issued common stock of HEMLOCK
FEDERAL FINANCIAL CORPORATION (the "Corporation"), a Delaware corporation,
formed as a holding company to own all of the to-be-issued shares of common
stock of Hemlock Federal Bank for Savings, Oak Forest, Illinois ("Hemlock
Federal" or the "Bank"). The stock is to be issued in connection with the Bank's
Application for Approval of Conversion from a federally chartered mutual savings
bank to a federally chartered stock savings bank. The Application is being filed
with the Office of Thrift Supervision ("OTS") of the Department of the Treasury
and the Securities and Exchange Commission ("SEC"). In accordance with the
Bank's conversion, there will be a simultaneous issuance of all the Bank's stock
to the Corporation, which will be formed by the Bank. Such Application for
Conversion has been reviewed by us, including the Prospectus and related
documents, and discussed with the Bank's management and the Bank's conversion
counsel, Silver, Freedman & Taff, Washington, D.C.
This conversion appraisal was prepared based on the guidelines provided
by OTS entitled "Guidelines for Appraisal Reports for the Valuation of Savings
Institutions Converting from the Mutual to Stock Form of Organization," in
accordance with the OTS application requirements of Regulation ss.563b and the
OTS's Revised Guidelines for Appraisal Reports, and represents a full appraisal
report. The Report provides detailed exhibits based on the Revised Guidelines
and a discussion on each of the fourteen factors that need to be considered. Our
valuation will be updated in accordance with the Revised Guidelines and will
consider any changes in market conditions for thrift institutions.
The pro forma market value is defined as the price at which the stock
of the Corporation after conversion would change hands between a typical willing
buyer and a
1
<PAGE>
Introduction (cont.)
typical willing seller when the former is not under any compulsion to buy and
the latter is not under any compulsion to sell, and with both parties having
reasonable knowledge of relevant facts in an arms-length transaction. The
appraisal assumes the Bank is a going concern and that the shares issued by the
Corporation in the conversion are sold in non- control blocks.
In preparing this conversion appraisal, we have reviewed the audited
financial statements for the five fiscal years ended December 31, 1991 through
1995, as well as the unaudited financial statements for the nine months ended
September 30, 1995 and 1996, and discussed them with Hemlock Federal's
management and with Hemlock Federal's independent auditors, Crowe, Chizek and
Company, LLP. We have also discussed and reviewed with management other
financial matters and have reviewed internal projections. We have reviewed the
Corporation's preliminary Form S-1 and the Bank's preliminary Form AC and
discussed them with management and with the Bank's conversion counsel.
We have visited Hemlock Federal's home office and two branches and have
traveled the surrounding area. We have studied the economic and demographic
characteristics of the primary market area, the larger lending area, and
analyzed the Bank's primary market area relative to Illinois and the United
States. We have also examined the competitive market within which Hemlock
Federal operates, giving consideration to the area's presence, numerous
financial institution offices and credit union offices and other key
characteristics, both positive and negative.
We have given consideration to the market conditions for securities in
general and for publicly-traded thrift stocks in particular. We have examined
the performance of selected publicly-traded thrift institutions and compared the
performance of Hemlock Federal to those selected institutions.
2
<PAGE>
Introduction (cont.)
Our valuation is not intended to represent and must not be interpreted
to be a recommendation of any kind as to the desirability of purchasing the
to-be-outstanding shares of common stock of the Corporation. Giving
consideration to the fact that this appraisal is based on numerous factors that
can change over time, we can provide no assurance that any person who purchases
the stock of the Corporation in this mutual-to-stock conversion will
subsequently be able to sell such shares at prices similar to the pro forma
market value of the Corporation as determined in this conversion appraisal.
3
<PAGE>
I. DESCRIPTION OF HEMLOCK FEDERAL BANK FOR SAVINGS
GENERAL
Hemlock Federal Bank for Savings, Oak Forest, Illinois, was chartered
in 1904 as a state chartered savings and loan association. In 1959, the Bank
converted to a federally chartered institution, and in 1983, the Bank converted
to a federally-chartered savings bank and adopted its current name of Hemlock
Federal Bank for Savings.
Hemlock Federal conducts its business from its home office in Oak
Forest, Illinois and its two branch offices, located in southwest Chicago and
Oak Lawn. The Bank's retail deposit market includes parts of Cook and Will
Counties, with its lending market extending farther into these two counties.
Hemlock Federal's deposits are insured up to applicable limits by the Federal
Deposit Insurance Corporation ("FDIC") in the Savings Association Insurance Fund
("SAIF"). The Bank is also subject to certain reserve requirements of the Board
of Governors of the Federal Reserve Bank (the "FRB"). Hemlock Federal is a
member of the Federal Home Loan Bank (the "FHLB") of Chicago and is regulated by
the OTS, and by the FDIC. As of September 30, 1996, Hemlock Federal had assets
of $146,983,000, deposits of $129,159,000 and equity of $10,842,000.
Hemlock Federal is a community-oriented institution which has been
principally engaged in the business of serving the financial needs of the public
in its local communities and throughout its market area. Hemlock Federal is
currently actively involved in the origination of residential mortgage loans for
the purchase of one- to four-family dwellings, comprising 89.1 percent of its
loan originations during the nine months ended September 30, 1996, and 86.1
percent of its loan originations during the fiscal year ended December 31, 1995.
At September 30, 1996, 88.7 percent of its gross loans consisted of residential
real estate loans on one- to four-family dwellings compared to a much lower 58.6
percent at December 31, 1991, with the primary sources of funds being retail
deposits from residents in its local communities and FHLB advances. The Bank has
been an originator of commercial real estate loans, and is an originator of
multi-family loans, construction
4
<PAGE>
General (cont.)
and land loans and consumer loans. Consumer loans include automobile loans,
loans on savings accounts and home equity loans. Consumer loans represented a
moderate 5.0 percent share of the Bank's total gross loans at September 30,
1996.
The Bank had $17.0 million, or 11.6 percent of its assets in cash and
investments including FHLB stock and FHLMC stock. The Bank had an additional
$65.9 million, or 44.9 percent of its assets in mortgage-backed securities, with
the combined total of investment securities, mortgage-backed securities and cash
and cash equivalents being $82.9 million or a strong 56.5 percent of assets.
Deposits, FHLB advances and retained earnings have been the primary sources of
funds for the Bank's lending and investment activities.
The management of Hemlock Federal is aware of the emphasis being placed
on matching the maturities of assets and liabilities and monitoring the Bank's
interest rate sensitivity position and market value of portfolio equity. The
Bank understands the nature of interest rate risk and the potential earnings
impact during times of rapidly changing rates, either rising or falling. Hemlock
Federal also recognizes the need and importance of attaining a competitive net
interest margin due to its dependence on net interest income as its primary
source of income.
The Bank's gross amount of stock to be sold in the subscription and
community offering will be $15,700,000 or 1,570,000 shares at $10 per share
based on the midpoint of the appraised value, with net conversion proceeds of
$15,126,944 reflecting conversion expenses of $573,056. The actual cash proceeds
to the Bank of $7.6 million will represent fifty percent of the net conversion
proceeds. The ESOP will represent 8.0 percent of the gross shares issued or
125,600 shares, representing $1,256,000 at $10 per share. The Bank's net
proceeds will be invested in adjustable-rate and fixed-rate mortgage loans and
initially invested in short term investments. The Bank may also use the proceeds
to expand services, expand operations or other financial service organizations,
diversification
5
<PAGE>
General (cont.)
into other businesses, or for any other purposes authorized by law. The Holding
Company will use its proceeds to fund the ESOP and to invest in short- and
intermediate-term government securities.
Hemlock Federal has seen modest overall deposit growth over the past
four fiscal years with deposits increasing 8.3 percent from December 31, 1991,
to December 31, 1995, or an average of 2.1 percent per year. From December 31,
1995, to September 30, 1996, deposits decreased by 1.2 percent or 1.6 percent,
annualized, compared to a 0.02 percent decrease in fiscal 1995. The Bank
anticipates modest growth in the future. The Bank has focused on increasing its
residential real estate loan portfolio during the past four years, increasing
its investment, decreasing its dollar level of mortgage-backed securities,
monitoring its earnings and maintaining its capital to assets ratio. Equity to
assets increased from 6.09 percent of assets at December 31, 1991, to 7.79
percent at December 31, 1995, and to 7.30 percent at September 30, 1996.
Hemlock Federal's primary lending strategy has been to focus on the
origination and retention of adjustable-rate and fixed-rate residential mortgage
loans, resulting in a higher level of one- to four-family residential mortgage
loans.
Hemlock Federal's share of one- to four-family mortgage loans has risen
significantly, increasing from 58.6 percent of gross loans at December 31, 1991,
to 88.7 percent as of September 30, 1996. Construction and land loans decreased
from 1.5 percent of gross loans at December 31, 1991, to zero at September 30,
1996. Multi- family loans decreased from 17.7 percent of gross loans at December
31, 1991 to 5.3 percent at September 30, 1996. Commercial real estate loans
decreased from 7.5 percent at December 31, 1991 to 1.1 percent at September 30,
1996. The Bank's share of consumer loans witnessed a decrease in its share of
loans from 14.8 percent at December 31, 1991 to 5.0 percent at September 30,
1996.
6
<PAGE>
General (cont.)
Management's internal strategy has also included an emphasis on
maintaining an adequate and appropriate allowance for loan losses relative to
total loans in recognition of the Bank's increase in loan originations, its past
experience with problem loans, and the more stringent requirements within the
industry to establish and maintain a higher level of general valuation
allowances. At December 31, 1991, Hemlock Federal had $174,000 in its loan loss
allowance or 0.52 percent of net loans, which increased to $670,000 and
represented a higher 1.26 percent of net loans at September 30, 1996.
Interest income from loans and investments has been the basis of
earnings with the net interest margin being the key determinant of net earnings.
With a dependence on net interest margin for earnings, current management will
focus on strengthening the Bank's net interest margin without undertaking
excessive credit risk and will not pursue any significant change in its interest
rate risk position.
7
<PAGE>
PERFORMANCE OVERVIEW
Hemlock Federal's financial position for the past five fiscal years of
December 31, 1991, through December 31, 1995, and for the nine months ended
September 30, 1996, is highlighted through the use of selected financial data in
Exhibit 5. Hemlock Federal has focused on strengthening its equity position,
controlling its overhead ratio, increasing its savings and loan levels, and
strengthening its net interest margin. Hemlock Federal has experienced a modest
rise in assets from 1991 to 1995 and a smaller rate of increase in deposits with
a smaller than average increase in equity over the past four fiscal years. Due
to the Bank's minimal growth, the resultant impact has been a modest increase in
the Bank's equity to assets ratio from 1991 to 1995.
Hemlock Federal witnessed a total increase in assets of $12.4 million
or 9.3 percent for the period of December 31, 1991, to December 31, 1995,
representing an average annual increase in assets of 2.3 percent. For the year
ended December 31, 1995, assets increased $1.7 million or 1.2 percent. For the
nine months ended September 30, 1996, the Bank's assets increased $1.4 million
or 0.9 percent. Over the past four fiscal periods, the Bank experienced its
largest dollar rise in assets of $7.9 million in fiscal year 1992, which
represented a 6.0 percent increase in assets funded by a rise in deposits. This
increase was succeeded by a $5.5 million or 3.9 percent increase in assets in
fiscal year 1993, a decrease in 1994 and an increase of 1.2 percent in 1995. For
the nine months ended September 30, 1996, assets increased $1.4 million or 0.9
percent.
The Bank's net loan portfolio, including mortgage loans and
non-mortgage loans, increased from $33.8 million at December 31, 1991, to $53.1
million at September 30, 1996, and represented a total increase of $19.4
million, or 57.4 percent. The average annual increase during that period was
12.08 percent. That increase was the result of higher levels of loan
originations of one- to four-family loans. For the year ended December 31, 1995,
loans increased $7.6 million or 20.1 percent. For the nine months ended
September 30, 1996, net loans then increased $7.9 million or 17.4 percent,
representing 23.3 percent, annualized.
8
<PAGE>
Performance Overview (cont.)
Hemlock Federal has pursued obtaining funds through deposit growth in
accordance with the demand for loans and has also made use of FHLB advances
during the past five years. The Bank's competitive rates for savings in its
local market in conjunction with its focus on services have been the sources for
attracting retail deposits. Deposits increased moderately from 1991 to 1992,
followed by a modest increase in fiscal year 1993 and then minimal decreases in
1994 and in 1995, with an average annual rate of increase of 2.1 percent from
December 31, 1991, to December 31, 1995. For the nine months ended September 30,
1996, deposits decreased by $1.6 million or 1.2 percent. The Bank's strongest
fiscal year deposit growth was in fiscal year 1992, when deposits increased $7.4
million or 6.2 percent.
Hemlock Federal has been able to increase its equity each fiscal year
from 1991 through 1995. At December 31, 1991, the Bank had equity (GAAP basis)
of $8.1 million representing a 6.09 percent equity to assets ratio, increasing
to $11.3 million at December 31, 1995, and representing a 7.65 percent equity to
assets ratio. At September 30, 1996, equity was a lower $10.8 million or 7.38
percent of assets with the decrease due to the impact of the one-time SAIF
assessment and the Bank's establishment of a $1.0 million foundation, Hemlock
Federal Bank for Savings Charitable Foundation, Inc. ("Foundation"). The modest
rise in the equity to assets ratio is the result of the Bank's steady earnings
performance in 1991 through 1995. Equity increased 39.8 percent from December
31, 1991, to December 31, 1995, representing an average annual increase of 10.0
percent and decreased 4.44 percent for the nine months ended September 30, 1996,
or 5.92 percent, annualized.
9
<PAGE>
INCOME AND EXPENSE
Exhibit 6 presents selected operating data for Hemlock Federal,
reflecting the Bank's income and expense trends. This table provides selected
audited income and expense figures in dollars for the fiscal years of 1991
through 1995 and unaudited income and expense figures for the nine months ended
September 30, 1995 and 1996.
Hemlock Federal has witnessed a decrease in its dollar level of
interest income from December 31, 1991, through December 31, 1995, ranging from
a high of $10.8 million in 1991 to a low of $8.5 million in 1994, followed by an
increase to $9.9 million in 1995 and representing a four year decrease of 8.0
percent, or an average decrease of 2.0 percent per year. This overall trend was
a combination of a decrease from 1991 to 1994 followed by an increase in 1995.
In fiscal year 1995, interest income increased $1.4 million, or 16.9 percent to
$9.9 million. For the nine months ended September 30, 1996, interest income was
$7.7 million, compared to $7.4 million for the nine months ended September 30,
1995, suggesting a continuation of the fiscal 1996 rising trend. The overall
increase in interest income was due primarily to the Bank's increase in its loan
portfolio.
The Bank's interest expense experienced a similar declining trend from
fiscal year 1991 to 1994, followed by a moderate increase in 1995. Interest
expense decreased $2.9 million, or 38.1 percent, from 1991 to 1994, compared to
a decrease in interest income of $2.3 million, or 21.3 percent, for the same
time period. Interest expense then increased $744,000 or 15.9 percent from 1994
to 1995, compared to an increase in interest income of $1.4 million or 16.7
percent. Such increase in interest income, notwithstanding the increase in
interest expense, resulted in a moderate dollar increase in annual net interest
income to $690,000 for the fiscal year ended December 31, 1995, and an increase
in net interest margin. Net interest income increased from $3,256,000 in 1991 to
its highest level of $4,519,000 in 1995. For the nine months ended September 30,
1996, Hemlock Federal's actual net interest income was $3,438,000, or
$4,584,000, annualized, which was higher than the $4,519,000 for the fiscal year
ended December 31, 1995.
10
<PAGE>
Income and Expense (cont.)
The Bank has made provisions for loan losses in each of the past five
fiscal years of 1991 through 1995 and also in the nine months ended September
30, 1996. The amounts of those provisions were determined in recognition of the
Bank's current levels of nonperforming assets and delinquent loans, historical
experience with problem loans, the Bank's rise in lending activity and current
industry norms. The loan loss provisions were $33,000 in 1991, $357,000 in 1992,
$149,000 in 1993, $150,000 in 1994, $134,000 in 1995 and $75,000 for the nine
months ended September 30, 1996. The impact of these loan loss provisions has
been to provide Hemlock Federal with a general valuation allowance of $670,000
at September 30, 1996, or 1.24 percent of gross loans and 870.1 percent of
nonperforming assets.
Total other income or noninterest income indicated volatile levels in
fiscal years 1991 to 1995, due primarily to the impact of gains and losses on
securities. The highest level of noninterest income was in fiscal year 1992 at
$896,000 or 0.63 percent of assets with $466,000 in gains on the sale of
securities. The lowest level of $337,000 was in 1995, representing 0.23 percent
of assets and reflects a $161,000 loss on the sale of securities. The average
noninterest income level for the past five fiscal years was $630,400 or 0.44
percent of average assets using actual noninterest income. When one excludes
gains and losses on securities, the average level of noninterest income was a
lower $468,400 or 0.33 percent of average assets. In the nine months ended
September 30, 1996, noninterest income was $321,000 or 0.29 percent of assets on
an annualized basis. Noninterest income consists primarily of fees and service
charges.
The Bank's general and administrative expenses or noninterest expenses
increased from $3,100,000 for the fiscal year of 1991 to $3,211,000 for the
fiscal year ended December 31, 1995. The dollar increase in noninterest expenses
was $111,000 from 1991 to 1995, representing an average annual increase of
$27,750 or 1.0 percent. The average annual increase in other expenses was due to
the Bank's normal rise in overhead expenses. On a percent of assets basis,
operating expenses increased from a higher 2.44 percent of average assets for
the fiscal year ended December 31, 1991, to a lower 2.16 percent for
11
<PAGE>
Income and Expense (cont.)
the fiscal year ended December 31, 1994, then up to 2.23 percent in 1995, which
was modestly lower than current industry averages of approximately 2.35 percent.
For the nine months ended September 30, 1996, Hemlock Federal's ratio of
operating expenses to average assets was a much higher 3.68 percent due to the
impact of the one-time SAIF assessment and the Bank's formation of the
Foundation. When one excludes these one-time expenses, the Bank's ratio of
operating expenses to assets decreases to 2.44 percent, which is similar to
industry norms.
The net earnings position of Hemlock Federal has indicated profitable
performance in each of the past five fiscal years ended December 31, 1991
through 1995, but a loss for the nine months ended September 30, 1996, due to
the one-time SAIF assessment and the cost of establishing the Foundation. The
annual net income figures for the past five fiscal years of 1991, 1992, 1993,
1994 and 1995 have been $568,000, $764,000, $977,000, $539,000 and $952,000,
representing returns on average assets of 0.45 percent, 0.65 percent, 0.68
percent, 0.37 percent, and 0.66 percent, respectively. The average return on
assets for the past five fiscal years was 0.56 percent. For the nine months
ended September 30, 1996, the Bank had a net loss of $504,000, representing an
annualized return on assets of (0.46) percent.
Exhibit 7 provides the Bank's normalized earnings or core earnings for
fiscal years 1993 to 1995 and for the twelve months ended September 30, 1996.
The Bank's normalized earnings eliminate any nonrecurring income and expense
items. There were no adjustments for fiscal years 1993 to 1995, however, the net
income in 1993 does exclude an accounting adjustment of $256,000, which was
recognized on net income after taxes and resulted in net income of $977,000.
There were two adjustments to net income for the twelve months ended September
30, 1996. There were two negative noninterest expense adjustments of $898,000 to
adjust for the one time SAIF assessment and a negative adjustment of $1.0
million to adjust for the establishment of the Foundation.
12
<PAGE>
Income and Expense (cont.)
The key performance indicators comprised of selected operating ratios,
asset quality ratios and capital ratios are shown in Exhibit 8 to reflect the
results of performance. The Bank's return on assets increased from 0.45 percent
in fiscal year 1991 to its highest level of 0.68 percent in fiscal year 1993,
decreasing its lowest level of 0.37 percent in fiscal year 1994, and then up to
0.66 percent in 1995. Its lowest level for any period was for the nine months
ended September 30, 1996, and was (0.46) percent.
The Bank's average net interest rate spread increased from 2.38 percent
in fiscal year 1991 to 2.68 percent in fiscal year 1992, then declined during
the next two fiscal years to 2.49 percent in 1994 and then increased to 3.01
percent in fiscal 1995. For the nine months ended September 30, 1996, net
interest spread was a lower 2.96 percent, annualized. The Bank's net interest
margin indicated a similar trend, increasing from 2.65 percent in fiscal year
1991 to 2.90 percent in fiscal year 1992, then decreasing to 2.69 percent by
fiscal 1994, and then increasing to 3.25 percent for fiscal year 1995 and then
decreasing to 3.24 percent for the nine months ended September 30, 1996. Hemlock
Federal's net interest rate spread increased 30 basis points in 1992 to 2.68
percent from 2.38 percent in 1991 and then decreased 14 basis points in 1993 to
2.54 percent. Net interest rate spread decreased 5 basis points to 2.49 percent
for fiscal year 1994 and then increased 52 basis points to 3.01 percent for the
fiscal year ended December 31, 1995. The Bank's net interest margin followed a
similar trend, increasing 25 basis points to 2.90 percent in 1992 and then
decreasing 16 basis points to 2.74 percent in 1993. Net interest margin
decreased another 5 basis points to 2.69 percent in 1994 and then increased 56
basis points to 3.25 percent in 1995. For the nine months ended September 30,
1996, Hemlock Federal's annualized net interest spread was a slightly lower 2.96
percent, and its net interest margin was a lower 3.24 percent.
The Bank's return on average equity increased from 1991 to 1993, but
decreased from 1993 through 1995. The return on average equity increased from
7.20 percent in 1991 to 10.40 percent in fiscal year 1993, and then decreased to
5.27 percent in fiscal year
13
<PAGE>
Income and Expense (cont.)
1994. The return on equity then increased to 8.72 percent in fiscal year 1995.
For the nine months ended September 30, 1996, return on average equity was a
negative 5.80 percent, annualized.
Hemlock Federal's ratio of interest-earning assets to interest-bearing
liabilities increased gradually from 104.53 percent at December 31, 1991, to
106.3 percent at December 31, 1995, to a greater 107.16 percent at September 30,
1996.
The Bank's ratio of operating expenses to average assets decreased from
2.44 percent in fiscal year 1991 to 2.18 percent in 1992, increasing to 2.23
percent in fiscal 1995. For the nine months ended September 30, 1996, operating
expenses to assets increased to 4.13 percent as a result of the impact of the
one-time SAIF assessment and the cost of establishing the Foundation. When one
excludes these two items, the Bank's operating expenses to assets decrease to
2.44 percent. Another key noninterest expense ratio reflecting efficiency of
operation is the ratio of noninterest expenses to net interest income and
noninterest income referred to as the "efficiency ratio." The industry norm is
60.0 percent with the lower ratio indicating higher efficiency. The Bank has
been characterized with a lower level of efficiency reflected in its higher
efficiency ratio, which decreased from 76.26 percent in 1991 to 66.12 percent in
1995, more in line with industry norms.
Earnings performance can be affected by an institution's asset quality
position. The ratio of nonperforming assets to total assets is a key indicator
of asset quality. Hemlock Federal witnessed a moderate decrease in its
nonperforming asset ratio from 1991 to 1995. Nonperforming assets consist of
loans delinquent 90 days or more, nonaccruing loans, renegotiated loans and
repossessed assets. The ratio of nonperforming assets to total assets was 1.50
percent at December 31, 1991, and decreased to 1.17 percent at December 31,
1992. The ratio continued to decrease during the next three fiscal years to 0.80
percent in 1993, 0.43 percent in 1994 and to 0.40 percent in 1995. At September
30, 1996, Hemlock Federal's ratio of nonperforming assets to total assets
decreased to 0.05 percent, due to the
14
<PAGE>
Income and Expense (cont.)
elimination of renegotiated loans. The Bank's allowance for loan losses was 0.51
percent of loans at December 31, 1991, and increased significantly during the
next four fiscal years, resulting primarily from the increase in allowance for
loan losses to 1.31 percent in 1995 and 1.24 percent at September 30, 1996. As a
percentage of nonperforming assets, Hemlock Federal's allowance for loan losses
increased from 8.73 percent in 1991, to 19.95 percent in 1993 and then to 103.63
percent in 1995. During the nine months ended September 30, 1996, the ratio
increased to 870.13 percent reflective of the decrease in nonperforming assets
from $579,000 in 1995 to $77,000 at September 30, 1996.
Exhibit 9 provides the changes in net interest income due to rate and
volume changes for the past two fiscal years of 1994 and 1995 and for the nine
months ended September 30, 1996. In fiscal year 1994, net interest income
decreased $38,000, due to a decrease in interest income of $314,000 reduced by a
$276,000 decrease in interest expense. The decrease in interest income was due
to a decrease due to a change in volume of $317,000 reduced by an increase due
to rate of $3,000. The decrease in interest expense was due to a decrease due to
rate of $99,000 reduced by an increase due to a change in volume of $31,000.
In fiscal year 1995, net interest income increased $690,000, due to a
$1,434,000 increase in interest income reduced by a $744,000 increase in
interest expense. The increase in interest income was due to a $1,520,000
increase due to volume reduced by a $986,000 decrease due to rate. The increase
in interest expense was due to a $873,000 increase due to volume reduced by a
$129,000 decrease due to rate.
For the nine months ended September 30, 1996, compared to the nine
months ended September 30, 1995, net interest income increased $67,000 due to a
$308,000 increase in interest income reduced by a $241,000 increase in interest
expense. The rise in interest income was due to a $297,000 increase due to rate
accented by an $11,000 increase due to volume. The rise in interest expense was
due to an increase due to volume of $153,000 accented by an increase due to rate
of $88,000.
15
<PAGE>
YIELDS AND COSTS
The overview of yield and cost trends for the years ended December 31,
1993 to 1995, for the nine months ended September 30, 1995, and September 30,
1996, and at September 30, 1996, can be seen in Exhibit 10, which offers a
summary of key yields on interest-earning assets and costs of interest-bearing
liabilities.
Hemlock Federal's weighted average yield on its loan portfolio
decreased 64 basis points from fiscal year 1993 to 1995, from 8.85 percent to
8.21 percent, and then decreased 23 basis points to 7.98 percent for the nine
months ended September 30, 1996. The yield on mortgage-backed securities
increased 133 basis points from fiscal year 1993 to 1995 from 5.47 percent to
6.80 percent and then increased 34 basis points to 7.14 percent for the nine
months ended September 30, 1996. The yield on investment securities decreased 40
basis points from 6.48 percent in 1993 to 6.08 percent in 1995 and then remained
at 6.08 percent for the nine months ended September 30, 1996. The yield on other
earning assets increased 372 basis points from 3.16 percent in 1993 to 6.88
percent in 1995 and then decreased 94 basis points to 5.94 percent for the nine
months ended September 30, 1996. The combined weighted average yield on all
interest-earning assets increased 90 basis points to 7.15 percent from 1993 to
1995. The yield on interest-earning assets for the nine months ended September
30, 1996, was a higher 7.24 percent, while the yield at September 30, 1996, was
a lower 6.88 percent.
Hemlock Federal's weighted average cost of interest-bearing liabilities
decreased 22 basis points to 3.49 percent from fiscal year 1993 to 1994, which
was less than the Bank's 27 basis point decrease in yield, resulting in the
decline in the Bank's interest rate spread of 5 basis points from 2.54 percent
to 2.49 percent from 1993 to 1994. The Bank's average cost of interest-bearing
liabilities then increased from 1994 to 1995 by 65 basis points to 4.14 percent
compared to a 117 basis point increase in yield on interest-earning assets. The
result was an increase in the Bank's interest rate spread of 52 basis points to
3.01 percent for fiscal year 1995. For the nine months ended September 30, 1996,
the Bank's cost of funds increased 14 basis points to 4.28 percent, compared to
a 9 basis point increase in yield on interest-earning assets, resulting in a
lower net interest rate spread by
16
<PAGE>
Yields and Costs (cont.)
5 basis points to 2.96 percent compared to 3.01 percent for the fiscal year
ended December 31, 1995. At September 30, 1996, the Bank's net interest rate
spread decreased another 40 basis points to 2.56 percent. The Bank's net
interest margin decreased from 2.74 percent in fiscal year 1993 to 2.69 percent
in fiscal year 1994, then increasing to 3.25 percent for the year ended December
31, 1995. The Bank's net interest margin for the nine months ended September 30,
1996, decreased 1 basis point to 3.24 percent.
17
<PAGE>
INTEREST RATE SENSITIVITY
Hemlock Federal has monitored its interest rate sensitivity position
due to its higher share of fixed rate mortgage loans by maintaining a higher
level of liquid assets, which was 19.37 percent of assets at September 30, 1996,
and purchasing a higher level of adjustable rate mortgage-backed securities.
Hemlock Federal recognized the thrift industry's significant interest rate risk
exposure in the 1980's, which caused a negative impact on earnings and market
value of portfolio equity as a result of significant fluctuations in interest
rates, specifically rising rates. Such exposure was due to the disparate rate of
maturity and/or repricing of assets relative liabilities commonly referred to as
an institution's "gap." The larger an institution's gap, the greater the risk
(interest rate risk) of earnings loss due to a decrease in net interest margin
and a decrease in market value of equity or portfolio loss. In response to the
potential impact of interest rate volatility and negative earnings impact, many
institutions have taken steps in the 1990's to minimize their gap position. This
frequently results in a decline in the institution's net interest margin and
overall earnings performance. Hemlock Federal has responded to the interest rate
sensitivity issue by purchasing adjustable rate mortgage-backed securities,
while retaining its fixed-rate mortgage loans.
The Bank measures its interest rate risk through the use of its net
portfolio value ("NPV") of the expected cash flows from interest-earning assets
and interest-bearing liabilities and any off-balance sheet contracts. The NPV
for the Bank is calculated on a quarterly basis, both internally and by the OTS,
as well as the change in the NPV for the Bank under rising and falling interest
rates. Such changes in NPV under changing rates is reflective of the Bank's
interest rate risk exposure. The Bank also calculates its gap position on a
quarterly basis.
18
<PAGE>
Interest Rate Sensitivity (cont.)
There are numerous factors which have a measurable influence on
interest rate sensitivity in addition to changing interest rates. Such key
factors to consider when analyzing interest rate sensitivity include the loan
payoff schedule, accelerated principal payments, deposit maturities, interest
rate caps on adjustable-rate mortgage loans, deposit withdrawals, etc.
Exhibit 11 provides the Bank's NPV as of September 30, 1996, and the
change in the Bank's NPV under rising and declining interest rates. Such
calculations are provided by OTS, and the focus of this exposure table is a 200
basis points change in interest rates either up or down.
The Bank's change in its NPV at September 30, 1996, based on a rise in
interest rates of 200 basis points was a 14.0 percent decrease, representing a
dollar decrease in equity value of $2,395,000. In contrast, based on a decline
in interest rates of 200 basis points, the Bank's NPV was estimated to decrease
1.0 percent or $215,000 at September 30, 1996. The Bank's exposure at September
30, 1996, increases to a 36.0 percent decrease under a 400 basis point rise in
rates, and the NPV is estimated to increase 5.0 percent based on a 400 basis
point decrease in rates.
The Bank is aware of its moderate interest rate risk exposure under
rapidly rising rates and minimal exposure under falling rates.
19
<PAGE>
LENDING ACTIVITIES
Hemlock Federal has focused its lending activity on the origination of
conventional mortgage loans secured by one- to four-family dwellings. Exhibit 12
provides a summary of Hemlock Federal's loan portfolio, by loan type, at
December 31, 1991 through 1995, and at September 30, 1996.
Residential loans secured by one- to four-family dwellings, excluding
residential construction loans was the primary loan type representing a
significant 88.7 percent of the Bank's gross loans as of September 30, 1996.
This share has seen a strong increase from 58.6 percent at December 31, 1991.
The second largest real estate loan type as of September 30, 1996, was
multi-family loans, which comprised 5.3 percent of gross loans compared to a
much larger 17.7 percent as of December 31, 1991. The multi-family loan category
was also the second largest real estate loan type in 1991. The third key real
estate loan type was commercial real estate loans, which represented 1.1 percent
of gross loans as of September 30, 1996, compared to a larger 7.5 percent at
December 31, 1991. Commercial real estate loans were the third largest real
estate loan type at December 31, 1991. These three real estate loan categories
represented 95.1 percent of gross loans at September 30, 1996, compared to a
smaller 83.8 percent of gross loans at December 31, 1991. Construction loans
were the fourth real estate loan category in 1991 and represented 1.5 percent of
gross loans compared to zero percent at September 30, 1996.
The consumer loan category was the remaining loan type at September 30,
1996, and represented 4.95 percent of gross loans compared to 14.8 percent at
December 31, 1991. Consumer loans were the third largest overall loan type at
September 30, 1996, and also the third largest loan type in 1991. The Bank
originates savings account loans, automobile loans and home equity loans. The
overall mix of loans has witnessed a significant change from fiscal year-end
1991 to September 30, 1996, with the Bank having increased its share of one- to
four-family loans to offset its decrease in consumer loans, multi-family loans
and commercial real estate loans.
20
<PAGE>
Lending Activities (cont.)
The emphasis of Hemlock Federal's lending activity is the origination
of conventional mortgage loans secured by one- to four-family residences. Such
residences are located in Hemlock Federal's lending market area. The Bank also
originates interim construction loans on single-family residences primarily to
individual owners and to developers and residential land loans. At September 30,
1996, 88.7 percent of Hemlock Federal's gross loans consisted of loans secured
by one- to four-family residential properties, excluding construction loans.
Construction and land loans were zero at September 30, 1996.
The Bank originates adjustable-rate mortgage loans, ("ARMs") with
adjustment/maturity periods of one and three years. The interest rates on ARMs
are indexed to the one year average monthly U. S. Treasury Constant Maturity
Index ("CMT"). ARMs have a maximum rate adjustment of 2.0 percent at each
adjustment period and a 6.0 percent maximum adjustment over the life of the loan
with payments based on up to a 30 year loan term. The Bank retains all the ARMs
which it originates.
The majority of ARMs have terms of 15 years or less, and fixed rate
loans have normal terms of up to 30 years. The Bank originates and retains fixed
rate mortgage loans which include seven year balloon mortgage loans with a 30
year amortization period. Historically, the majority of Hemlock Federal's
mortgage loan portfolio has been fixed-rate mortgage loans, which represented
90.6 percent of mortgage loans at September 30, 1997. All of Hemlock Federal's
commercial real estate loans, multi-family loans and consumer loans are fixed
rate. Overall, 91.6 percent of Hemlock Federal loans due after September 30,
1997, are fixed-rate with 8.4 percent adjustable rate.
The normal loan to value ratio for conventional mortgage loans to
purchase or refinance one-to four-family dwellings generally does not exceed 80
percent at Hemlock Federal, even though the Bank will grant loans with up to a
90 percent loan to value ratio.
21
<PAGE>
Lending Activities (cont.)
Mortgage loans originated by the Bank include due-on-sale clauses enabling the
Bank to declare the loan immediately due and payable in the event the borrower
sells or disposes of the property subject to the mortgage, and the loan is not
repaid. The Bank normally exercises its rights under these clauses.
Hemlock Federal has also been an originator of multi-family loans, and
has been less active in commercial real estate loans in the past. The Bank will
continue to make multi-family loans but no longer originates commercial real
estate loans. The Bank had a total of $2.9 million in multi-family loans at
September 30, 1996, or 5.3 percent of gross loans, compared to $6.1 million or
17.7 percent of gross loans at December 31, 1991. Commercial real estate loans
have decreased from $2.6 million or 7.5 percent of gross loans at December 31,
1991, to $586,000 or 1.1 percent of gross loans at September 30, 1996. The major
portion of commercial real estate loans is secured by a motel and is located in
the Bank's lending market.
Hemlock Federal has also been involved in consumer lending. Consumer
loans consist of automobile loans, home equity loans, and savings account loans
and represented a combined total of 5.0 percent of gross loans at September 30,
1996, down from 14.8 percent in 1991. At September 30, 1996, consumer loans
totaled $2.7 million.
Exhibit 13 provides a loan maturity schedule and breakdown and summary
of Hemlock Federal's fixed- and adjustable-rate loans, indicating a majority of
fixed-rate loans. At September 30, 1996, 91.6 percent of the Bank's total loans
due after September 30, 1997, were fixed-rate and 8.4 percent were
adjustable-rate. While most loans are fixed-rate, it is evident that all
consumer loans are fixed-rate and a lesser 90.6 percent of one- to four-family
residential mortgage loans are fixed-rate. The Bank has a moderate 22.0 percent
of its loans at September 30, 1996, due in 10 years or less and an additional
41.5 percent due in 11 to 23 years.
22
<PAGE>
Lending Activities (cont.)
As indicated in Exhibit 14, Hemlock Federal experienced a significant
decrease in both its one-to four-family loan originations and total loan
originations from fiscal year 1993 to 1994 and then a significant increase in
1995. Total loan originations in fiscal year 1995 were $13.6 million compared to
$7.8 million in fiscal year 1994, with fiscal year 1993 indicating a higher
$17.1 million, reflective of higher levels of one- to four-family originations
in 1993. The decrease in fixed rate one- to four-family residential loan
originations from 1993 to 1994 constituted 95.5 percent of the $9.3 million
aggregate decrease in total loan originations from 1993 to 1994. Loan
originations then increased from $7.8 million in 1994 to $13.6 million in 1995
with 83.3 percent of the $5.8 million increase due to the increase in fixed rate
one-to-four-family mortgage loans. Loan originations for the nine months ended
September 30, 1996, were $13.8 million, up from $10.4 million for the nine
months ended September 30, 1995. On an annualized basis, loan originations would
be $18.4 million in 1996 compared to $13.6 million in 1995.
Loan originations on one- to four-family residences represented 88.0
percent of total loan originations in fiscal year 1993, compared to a lower 82.4
percent in fiscal year 1994 and a higher 86.1 percent in fiscal year 1995. One-
to four-family loan originations increased to 89.1 percent of total loan
originations for the nine months ended September 30, 1996. Overall, loan
originations exceeded principal payments and repayments in fiscal 1993 by $5.3
million, exceeded reductions in fiscal year 1994 by $618,000, and then exceeded
reductions in fiscal 1995 by a much higher $7.6 million. For the nine months
ended September 30, 1996, originations exceeded reductions by $7.9 million.
23
<PAGE>
NONPERFORMING ASSETS
Hemlock Federal understands asset quality risk and the direct
relationship of such risk to delinquent loans and nonperforming assets including
real estate owned and renegotiated loans. The quality of assets has been a key
concern to financial institutions throughout many regions of the country. A
sharp increase in nonperforming assets has often been related to specific
regions of the country and has frequently been associated with higher risk
loans, including purchased nonresidential real estate loans. Hemlock Federal has
been faced with such problems historically and has made a concerted effort to
reduce its nonperforming assets during the past five years.
Exhibit 15 provides a summary of Hemlock Federal's delinquent loans at
September 30, 1996, indicating a modest level of delinquent loans. Loans
delinquent 90 days or more totaled $77,000 at September 30, 1996, or 0.14
percent of loans with delinquent loans of 60 to 89 days totaling $209,000 or
0.39 percent of gross loans. At September 30, 1996, total delinquent loans were
$286,000 or 0.53 percent of gross loans.
Hemlock Federal's management reviews all delinquent loans on a monthly
basis, to assess their collectibility and to initiate any direct contact with
the borrower. When a loan is delinquent 30 days or more, the Bank sends the
borrower a late payment notice. The Bank then initiates both written and oral
communication with the borrower if the loan remains delinquent. When the loan
becomes delinquent at least 90 days, the Bank will consider foreclosure
proceedings. Most loans delinquent 90 days or more are placed on a non-accrual
status, and after 120 days, the Bank pursues foreclosure procedures. Hemlock
Federal had no real estate owned as of September 30, 1996, or December 31, 1994
and 1995.
Exhibit 16 provides a summary of Hemlock Federal's nonperforming assets
at September 30, 1996, and at December 31, 1991 through 1995. Nonperforming
assets consist of non-accrual loans, which includes loans delinquent 90 days or
more, real estate owned and renegotiated loans. The Bank has recently carried a
lower than average level of nonperforming assets when compared to its peer group
and the thrift industry in
24
<PAGE>
Nonperforming Assets (cont.)
general. Hemlock Federal's level of nonperforming assets ranged from a high
dollar amount of $1,993,000 or 1.50 percent of total assets at December 31,
1991, to a low fiscal year dollar amount of $579,000 or 0.40 percent of assets
at December 31, 1995. At September 30, 1996, Hemlock Federal's nonperforming
assets consisted of $77,000 in nonaccrual loans with no real estate owned and no
renegotiated loans representing 0.05 percent of assets, its lowest ratio over
the past five years.
Hemlock Federal's level of nonperforming assets is higher than its
level of classified assets. The Bank's level of classified assets were zero at
September 30, 1996 (reference Exhibit 17). The Bank did have $267,000 in assets
classified as special mention.
Exhibit 18 shows Hemlock Federal's allowance for loan losses at
September 30, 1996, and for fiscal years 1991 through 1995, indicating the
activity and the resultant balances. Hemlock Federal has witnessed a significant
increase in its balance of allowance for loan losses from $174,000 in 1991 to
$670,000 at September 30, 1996, with provisions of $33,000 in 1991, $357,000 in
1992, $149,000 in 1993, $150,000 in 1994 and $134,000 in fiscal 1995. During the
nine months ended September 30, 1996, the Bank had provisions of $75,000. The
Bank had net charge-offs of $34,000 in 1992, $412,000 in 1993, $3,000 in 1995,
and $5,000 for the nine months ended September 30, 1996, with a net recovery of
$85,000 in 1994. The Bank's ratio of allowance for loan losses to gross loans
increased from 0.51 percent at December 31, 1991, to 1.31 percent at December
31, 1995, due to an increase in allowances with a significant increase in loans.
The allowance for loan losses to gross loans was a lesser 1.27 percent at
September 30, 1996. Allowance for loan losses to nonperforming assets was 8.73
percent at December 31, 1991, and a much higher 870.13 percent at September 30,
1996, reflecting the increase in allowances and the significant decrease in
nonperforming assets.
25
<PAGE>
INVESTMENTS
The investment and securities portfolio of Hemlock Federal has been
comprised of Federal agency securities, mortgage-backed securities,
interest-earning deposits with banks, FHLMC stock and FHLB stock. Exhibit 19
provides a summary of Hemlock Federal's investment portfolio at December 31,
1993 through 1995, and at September 30, 1996. Investment securities totaled
$23.5 million at September 30, 1996, compared to $26.2 million at December 31,
1995, and $24.4 million at December 31, 1993. The primary component of
investment securities at September 30, 1996, was interest-earning deposits with
banks representing 63.1 percent of investments, followed by Federal agency
obligations representing 30.2 percent. The securities portfolio had a weighted
average yield of 6.00 percent, and the mortgage-backed securities had a weighted
average yield of 7.14 percent at September 30, 1996.
The Bank had mortgage-backed securities with a book value of $65.9
million at September 30, 1996, which decreased from $68.7 million at December
31, 1995, and decreased from $81.4 million at December 31, 1993. Mortgage-backed
securities are included with total investments and shown in Exhibit 19. Total
investment and mortgage-backed securities were $89.4 million or a strong 60.8
percent of assets at September 30, 1996, down from 72.2 percent at December 31,
1993.
DEPOSIT ACTIVITIES
The change in the mix of deposits from December 31, 1993, to September
30, 1996, is provided in Exhibit 20. There has been a relatively modest change
in both total deposits and in the deposit mix during this period. Certificates
of deposit witnessed a relatively small increase in their share of deposits,
rising from a modest 47.0 percent of deposits at December 31, 1993, to 50.5
percent of deposits at September 30, 1996. The major component of certificates
had rates between 4.00 percent and 5.99 percent and represented 85.8 percent of
certificates at September 30, 1996. At December 31, 1993, the major component of
certificates was the 3.99 percent and under category with 59.3
26
<PAGE>
Deposit Activities (cont.)
percent of certificates. Passbook accounts decreased modestly in dollar amount
from $48.5 million to $45.7 million, and their share decreased from 36.6 percent
to 35.4 percent from December 31, 1993, to September 30, 1996, respectively. NOW
accounts indicated a minimal dollar decrease declining from $13.2 million at
December 31, 1993, to $13.0 million at September 30, 1996, and their share of
deposits stayed basically constant at 10.0 percent. MMDA accounts witnessed a
decrease in deposits from $8.6 million at December 31, 1993, to $5.3 million at
September 30, 1996, with their share decreasing from 6.5 percent to 4.1 percent
over that time period.
Exhibit 21 shows the Bank's deposit activity for the three years ended
December 31, 1993 to 1995, and for the nine months ended September 30, 1995 and
1996. Excluding interest credited, withdrawals exceeded deposits during each of
the periods. Including interest credited, there was a net increase in deposits
of $4.4 million or 3.5 percent in fiscal 1993, followed by a $1.8 million net
decrease or 1.4 percent in 1994. In fiscal year 1995, a net decrease in deposits
of $30,000 resulted in a 0.02 percent decrease in deposits, including interest
credited. For the nine months ended September 30, 1996, the Bank had a net
decrease in deposits of $1.6 million or 1.2 percent.
BORROWINGS
Hemlock Federal has relied on retail deposits as its primary source of
funds but is also making use of FHLB advances. Exhibit 22 shows the Bank's
borrowed funds activity for the past three fiscal years and for the nine months
ended September 30, 1996. The Bank had a maximum of FHLB advances totaling $6.0
million in fiscal 1993, representing 4.1 percent of assets with such advances
having decreased to $1.5 million at September 30, 1996, and representing 1.1
percent of assets. The cost of FHLB advances has actually increased from 9.60
percent at December 31, 1993, to 9.72 percent at September 30, 1996.
27
<PAGE>
SUBSIDIARIES
Hemlock Federal has no wholly-owned subsidiary.
OFFICE PROPERTIES
Hemlock Federal has three full service offices, with the home office
located in Oak Forest and branches in Oak Lawn and Southwest Chicago. (reference
Exhibit 23). Hemlock Federal owns its home office, leases the land for its Oak
Lawn branch and leases its Chicago branch. The Bank's investment in its office
premises, excluding furniture, fixtures and equipment, totaled $1.0 million or
.68 percent of assets at September 30, 1996.
MANAGEMENT
The chairman of the board and chief executive officer of Hemlock
Federal is Maureen G. Partynski, who has held that position since 1994,
previously serving as president of the Bank from 1989 to 1994 and executive vice
president from 1985 to 1989. Ms. Partynski has been employed by the Bank since
1982 and a director since 1984. Ms. Partynski has a Masters in Business
Administration from Saint Xaviers University. The president of Hemlock Federal
is Michael R. Stevens, who has held that position since 1994. Mr. Stevens, a
director since 1992, has been employed by Hemlock Federal since 1984 in various
positions, including executive vice president and financial manager. Mr. Stevens
has a Masters in business Administration from Northwestern University. Mr.
Stevens is the brother-in-law of Ms. Partynski and the son-in-law of Joseph P.
Gavron, chairman emeritus.
28
<PAGE>
II. DESCRIPTION OF PRIMARY MARKET AREA
Hemlock Federal's primary market area includes southern Cook County and
northeastern Will County, Illinois, including a portion of the city of Chicago
("market area"). The Bank's home office is located in Oak Forest and its two
branches are in Oak Lawn and southwest Chicago, with the market area focused on
Chicago's southwest suburbs. The Chicago branch is actually located in a
low-to-moderate-income inner-city community referred to as the "Back of the
Yards" community and was originally the location of the Bank's home office.
The Bank's market area trends and economic performance have been
basically dependent on the overall economic trends in the market area counties.
The market area is characterized by dense population and similar levels of per
capita income and median household income to those of Illinois, as well as
significant deposit levels. The market area counties' employment base is
strongest in the category of services, followed by wholesale/retail, with these
two categories totaling 59.9 percent of employment in the market area counties
in 1994. The Bank's immediately surrounding area represents the core of the
Bank's deposit customers, while the Bank's lending activity extends farther into
Cook County.
Exhibit 25 provides a summary of key demographic data and trends for
the market area counties, Illinois, and the United States for the periods of
1990, 1996, and 2001. From 1990 to 1996, the market area counties showed a
smaller increase in population than Illinois or the United States, with a
majority of the 1.9 percent increase occurring in Will County. Overall, the
period of 1990 to 1996 was characterized by a rise in the national population
level by 5.6 percent compared to an increase in population of 3.5 percent in
Illinois and a smaller increase of 0.6 percent in Cook County, which increased
from 5,105,067 residents to 5,136,877 residents. Will County, however,
experienced a strong population increase of 19.4 percent during those six years
from 357,313 residents to 426,597 residents. During the period of 1996 through
2001, population is projected to continue to rise in the United States by 5.5
percent, in Illinois by 0.9 percent, in Cook County by 0.5 percent and in Will
County by a much higher 13.0 percent. The five year
29
<PAGE>
Description of Primary Market Area (cont.)
combined population increase for the market area counties is projected to be 1.5
percent, reflecting a total increase of 79,795 residents from 5,563,474
residents in 1996 to 5,643,269 residents in 2001.
From 1990 to 1996, the market area increased its households by 2.1
percent from 1,996,421 to 2,038,407. By the year 2001, the market area
households are projected to increase by a smaller 1.5 percent to 2,068,929
households. Illinois and the United States witnessed increases in households
(families) of 3.4 percent and 5.6 percent, respectively, from 1990 to 1996, and
that trend is projected to slow modestly from 1996 to 2001. Those increases
exceed the market area counties' increases in households for the same periods.
Hemlock Federal's market area had a per capita income level lower than
Illinois but higher than the United States in 1990. By 1996, the per capita
income in the Bank's market area exceeded that of Illinois and remained higher
than the United States. Cook County's per capita income was $18,013 and Will
County's per capita income was $17,559 in 1996, compared to $17,337 for Illinois
and $16,738 for the United States. In 1996, the per capita income of the Bank's
market area was 3.7 percent higher than Illinois and 7.4 percent higher than the
United States. From 1990 to 1996, the market area counties exhibited a higher
rate of median household income growth than Illinois but a slightly lower rate
of growth than the United States. In 1990, the market area had a median
household income of $29,536 compared to $31,424 in Illinois, and $28,255 in the
United States. By 1996, the ranking remained the same, with the market area at
$35,964, Illinois at $36,318, and the United States at $34,530, although the
market area experienced a 21.8 percent growth rate compared to Illinois at a
lower 15.6 percent increase and the United States at a similar 22.2 percent
increase. In 2001, the market area's median household income is projected to
decrease by 7.6 percent, while the median household income for Illinois and the
United States is projected to decrease by 6.4 percent and 3.9 percent,
respectively.
30
<PAGE>
Description of Primary Market Area (cont.)
Exhibit 26 provides a summary of 1990 key housing data for Hemlock
Federal's market area counties, Illinois, and the United States. The Bank's
market area was characterized by a lower share of owner-occupied housing at 56.8
percent compared to both Illinois and the United States at 64.2 percent.
Reciprocally, the market area supported a rate of renter-occupied housing of
43.2 percent compared to a lower 35.8 percent in Illinois and the United States.
The median housing value for the market area was $100,253, which was 25.2
percent higher than Illinois' value of $80,100 and 27.7 percent higher than the
United States median housing value of $79,098. The Bank's market area had a
median rent of $477, which was higher than Illinois at $445 and the United
States at $447.
The mix of personal income sources by industry groups for the market
area was similar to the mix in Illinois and the United States, in that the three
were dominated by the services industry. The major business source of personal
income by industry group in Hemlock Federal's market area, Illinois, and the
United States, based on number of employees, was the services industry
representing 35.3 percent, 32.8 percent, 34.1 percent, respectively (reference
Exhibit 27). The wholesale/retail sector was the second major source of
employment in all three geographical categories at 24.6 percent in the market
area, 26.9 percent in Illinois, and 27.5 percent in the United States. The
manufacturing sector was the third major source of employment in the market area
at 19.1 percent, in Illinois at 20.8 percent and in the United States at 19.2
percent. The remaining employment sectors combined to represent 19.2 percent of
employment in the market area, 19.5 percent in Illinois and 19.2 percent in the
United States. The marker area had a smaller share of employment from the
agricultural and mining sector than either Illinois or the United States and
larger higher share of employment from the finance, insurance and real estate
sector and the transportation and utilities sector.
The unemployment rate is another key economic indicator. Exhibit 28
shows the average unemployment rates for Hemlock Federal's market area,
Illinois, and the United States in 1994, 1995, and September, 1996. The market
area had a modestly higher
31
<PAGE>
Description of Primary Market Area (cont.)
unemployment rate than Illinois in 1994 and 1995, and an identical rate to
Illinois in September, 1996. The market area experienced a decrease in its
unemployment rate from 5.9 percent in 1994 to 5.2 percent in September, 1996,
which was lower than the United States at 5.8 percent and identical to Illinois
at 5.2 percent. Unemployment in the Bank's market area declined 11.9 percent
from 5.9 percent in 1994 to 5.2 percent in September, 1996, compared to a 3.7
percent decrease in Illinois and a 4.9 percent decrease in the United States
during that time period.
Exhibit 29 provides deposit data for banks, thrifts and credit unions
in the Bank's market area counties. The Bank's market penetration in the market
area was $130.6 million or 4.3 percent of thrift deposits and 1.2 percent of all
financial institution and credit union deposits, which totaled $113.0 billion.
Given the size and the population of the market area counties, however, such
modest market share of deposits is not necessarily an accurate representation of
the Bank's strength in its immediate area.
Exhibit 30 provides interest rate data for each quarter for the years
1992 through 1995 and for the first three quarters of 1996. The interest rates
tracked are the prime rate, as well as 90-day, one-year and thirty-year Treasury
bills. Interest rates experienced a declining trend in the first two quarters of
1992, but then began to rise in the second half of the year. In 1993 rates
experienced slight volatility until the last two quarters, which indicated the
beginning of a rising trend. This rising trend continued throughout all of 1994
and into the first quarter of 1995 with prime at 9.00 percent. However,
throughout the remainder of 1995, interest rates saw dramatic decreases, as the
prime rate fell to its 1994 year end level of 8.50 percent. The prime rate
decreased again to 8.25 percent in the first quarter of 1996 and has remained at
that level through the third quarter of the year. Rates on T-bills, however,
experienced moderate fluctuation in 1996, increasing in the first two quarters
but indicating a moderating trend in the third quarter, with 30-Year Treasury
Bills witnessing the widest fluctuation.
32
<PAGE>
SUMMARY
To summarize, the market area counties represent a large and basically
stable market in all aspects, including population, income levels, employment
and housing values. The population, the number of households, the per capita
income level, and the median household income level in the market area displayed
a trend of modest growth in the mid 1990's. The market area counties also had
higher median rents and median housing values compared to state and national
averages, which generally correspond to high mortgage loan levels. Further, the
market area counties have a strongly competitive financial institution market,
dominated by banks, with a strong deposit base of approximately $113.0 billion
in deposits.
33
<PAGE>
III. COMPARABLE GROUP SELECTION
Introduction
Integral to the valuation of Hemlock Federal Financial Corporation is
the selection of an appropriate group of publicly-traded thrift institutions,
hereinafter referred to as the "comparable group". This section identifies the
comparable group and describes each parameter used in the selection of each
institution in the group, resulting in a comparable group based on such specific
and detailed parameters, current financials and recent trading prices. The
various characteristics of the selected comparable group provide the primary
basis for making the necessary adjustments to the Corporation's pro forma value
relative to the comparable group. There is also a recognition and consideration
of financial comparisons with all publicly-traded, SAIF- insured thrifts in the
United States and all publicly-traded, SAIF-insured thrifts in the Midwest and
Illinois.
Exhibits 31 and 32 present Thrift Stock Prices and Pricing Ratios and
Key Financial Data and Ratios, respectively, both individually and in aggregate,
for the universe of 332 publicly-traded, SAIF-insured thrifts in the United
States ("all thrifts"), excluding mutual holding companies, used in the
selection of the comparable group and other financial comparisons. Exhibits 31
and 32 also subclassify all thrifts by region, including the 152 publicly-traded
Midwest thrifts ("Midwest thrifts") and the 27 publicly-traded thrifts in
Illinois ("Illinois thrifts"), and by trading exchange. Exhibit 33 presents
prices, pricing ratios and price trends for the 49 SAIF-insured thrifts
completing their conversions between January 1, 1996, and December 6, 1996.
The selection of the comparable group was based on the establishment of
both general and specific parameters using financial, operating and asset
quality characteristics of Hemlock Federal as determinants for defining those
parameters. The determination of parameters was also based on the uniqueness of
each parameter as a normal indicator of
34
<PAGE>
Introduction (cont.)
a thrift institution's operating philosophy and perspective. The parameters
established and defined are considered to be both reasonable and reflective of
Hemlock Federal's basic operation. Inasmuch as the comparable group must consist
of at least ten institutions, the parameters relating to asset size and
geographic location have been expanded as necessary in order to fulfill this
requirement.
GENERAL PARAMETERS
Merger/Acquisition
The comparable group will not include any institution that is in the
process of a merger or acquisition due to the price impact of such a pending
transaction. The thrift institutions that were potential comparable group
candidates but were not considered due to their involvement in a
merger/acquisition or a potential merger/acquisition include the following:
Institution State
----------- -----
Marshalltown Financial Corp. Iowa
FCB Financial Corporation Wisconsin
OSB Financial Corporation Wisconsin
Four other thrift institutions in Hemlock Federal's market area,
although not comparable group candidates, are currently involved in
merger/acquisition activity or have been recently so involved, as indicated in
Exhibit 34.
35
<PAGE>
Mutual Holding Companies
The comparable group will not include any mutual holding companies.
Mutual holding companies typically demonstrate higher price to book valuation
ratios that are the result of their minority ownership structure that are
inconsistent with those of conventional, publicly-traded institutions. Exhibit
35 presents pricing ratios and Exhibit 36 presents key financial data and ratios
for the 19 publicly-traded, SAIF-insured mutual holding companies in the United
States. The following thrift institutions were potential comparable group
candidates, but were not considered due to their mutual holding company form:
Institution State
----------- -----
Jacksonville Savings Bank, MHC Illinois
Wayne Savings & Loan Co., MHC Illinois
Webster City Federal Savings Bank, MHC Iowa
Guaranty Federal Savings Bank, MHC Missouri
Pulaski Bank, Savings Bank, MHC Missouri
Trading Exchange
It is necessary that each institution in the comparable group be listed
on one of the three major stock exchanges, the New York Stock Exchange, the
American Stock Exchange, or the over-the-counter ("OTC") and listed on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"). Such a listing indicates that an institution's stock has
demonstrated trading activity and is responsive to normal market conditions,
which are requirements for listing. Of the 351 publicly-traded, SAIF- insured
institutions, including 19 mutual holding companies, 14 are traded on the New
York Stock Exchange, 17 are traded on the American Stock Exchange and 320 are
listed on NASDAQ.
36
<PAGE>
IPO Date
Another general parameter for the selection of the comparable group is
the initial public offering ("IPO") date, which must be at least four quarterly
periods prior to the trading date of December 6, 1996, used in this report, in
order to insure at least four consecutive quarters of reported data as a
publicly-traded institution. The resulting parameter is a required IPO date
prior to June 30, 1995.
Geographic Location
The geographic location of an institution is a key parameter due to the
impact of various economic and thrift industry conditions on the performance and
trading prices of thrift institution stocks. Although geographic location and
asset size are the two parameters that have been developed incrementally to
fulfill the comparable group requirements, the geographic location parameter has
definitely eliminated regions of the United States distant to Hemlock Federal,
including the western and southwestern states, the southeastern states and the
New England states.
The geographic location parameter consists of Illinois, its surrounding
states of Indiana, Kentucky, Missouri, Iowa and Wisconsin, as well as the state
of Ohio, for a total of seven states. To extend the geographic parameter beyond
those states could result in the selection of similar thrift institutions with
regard to financial conditions and operating characteristics, but with different
pricing ratios due to their geographic regions. The result could then be an
unrepresentative comparable group with regard to price relative to the
parameters and, therefore, an inaccurate value.
37
<PAGE>
Asset Size
Asset size was another key parameter used in the selection of the
comparable group. The range of total assets for any potential comparable group
institution was $400 million or less, due to the greater similarity of asset mix
and operating strategies of institutions in this asset range compared to Hemlock
Federal, with assets of approximately $147 million. Such an asset size parameter
was necessary to obtain a comparable group of at least ten institutions.
In connection with asset size, we did not consider the number of
offices or branches in selecting or eliminating candidates since this
characteristic is directly related to operating expenses, which are recognized
as an operating performance parameter.
SUMMARY
Exhibits 37 and 38 show the 63 institutions considered as comparable
group candidates after applying the general parameters, with the shaded lines
denoting the institutions ultimately selected for the comparable group using the
balance sheet, performance and asset quality parameters established in this
section.
38
<PAGE>
BALANCE SHEET PARAMETERS
Introduction
The balance sheet parameters focused on seven balance sheet ratios as
determinants for selecting a comparable group, as presented in Exhibit 37. The
balance sheet ratios consist of the following:
1. Cash and Investments/Assets
2. Mortgage-Backed Securities/Assets
3. One- to Four-Family Loans/Assets
4. Total Net Loans/Assets
5. Total Net Loans and Mortgage-Backed Securities/Assets
6. Borrowed Funds/Assets
7. Equity/Assets
The parameters enable the identification and elimination of thrift
institutions that are distinctly and functionally different from Hemlock Federal
with regard to asset mix. The balance sheet parameters also distinguish
institutions with a significantly different capital position from Hemlock
Federal. The ratio of deposits to assets was not used as a parameter as it is
directly related to and affected by an institution's equity and borrowed funds
ratios, which are separate parameters.
Cash and Investments to Assets
Hemlock Federal's level of cash and investments to assets was 16.4
percent at September 30, 1996, and reflects the Bank's lower level of
investments than national and regional averages. The Bank's investments consist
primarily of Federal agency securities, equity securities, FHLB time deposits,
deposits with other institutions and collateralized mortgage obligations (CMOs).
During its last five fiscal years, Hemlock Federal's ratio of cash and
investments excluding mortgage-backed securities to assets has ranges from a
high of 31.5 percent in 1994 to a low of 11.0 percent in 1991, averaging 21.3
percent. It should be noted that Federal Home Loan Bank stock is not included in
cash and
39
<PAGE>
Cash and Investments to Assets (cont.)
investments, but rather is part of other assets in order to be consistent with
reporting requirements and sources of statistical and comparative analysis.
The parameter range for cash and investments is broad due to the
volatility of this parameter and to prevent the elimination of otherwise good
potential comparable group candidates. The range has been defined as 40.0
percent or less of assets, with a midpoint of 20.0 percent, similar to the
Bank's five year average.
Mortgage-Backed Securities to Assets
At September 30, 1996, Hemlock Federal's ratio of mortgage-backed
securities to assets was 44.9 percent, much higher than both the regional
average of 10.0 percent and the national average of 12.4 percent. Recognizing
the Bank's higher share of mortgage-backed securities and that many institutions
purchase mortgage-backed securities as an alternative to lending relative to
cyclical loan demand and prevailing interest rates, this parameter is moderately
broad at 45.0 percent or less of assets and a midpoint of 22.5 percent.
One- to Four-Family Loans to Assets
Hemlock Federal's lending activity is focused on the origination of
residential mortgage loans secured by one- to four-family dwellings, which
constituted 88.7 percent of the Bank's total loans at September 30, 1996. One-
to four-family loans represented 32.5 percent of the Bank's total assets at
September 30, 1996, which is below industry averages. The parameter for this
characteristic requires any comparable group institution to have from 25.0
percent to 65.0 percent of its assets in one- to four-family loans with a
midpoint of 45.0 percent.
40
<PAGE>
Total Net Loans to Assets
At September 30, 1996, Hemlock Federal had a ratio of total net loans
to assets of 36.1 percent and a five fiscal year average of 26.1 percent, which
is considerably lower than the national and regional averages of 65.9 percent
and 68.5 percent, respectively. The parameter for the selection of the
comparable group is from 30.0 percent to 80.0 percent with a midpoint of 55.0
percent. The wider range is simply due to the fact that, as the referenced
national and regional averages indicate, many institutions purchase a greater
volume of investment securities and/or mortgage-backed securities as a cyclical
alternative to lending, but may otherwise be similar to Hemlock Federal.
Total Net Loans and Mortgage-Backed Securities to Assets
As discussed previously, Hemlock Federal's shares of mortgage-backed
securities to assets and total net loans to assets were 44.9 percent and 36.1
percent, respectively, for a combined share of 81.0 percent. Recognizing the
industry and regional ratios of 12.4 percent and 10.0 percent, respectively, of
mortgage-backed securities to assets, the parameter range for the comparable
group in this category is 55.0 percent to 95.0 percent, with a midpoint of 75.5
percent.
Borrowed Funds to Assets
Hemlock Federal had FHLB advances of $1.5 million or 1.0 percent of
total assets at September 30, 1996, which is the same as its balance at December
31, 1995 and 1994, but lower than its balance of $3.0 million at December 31,
1991 through 1993. For its most recent five fiscal years, the Bank had an
average ratio of borrowed funds to assets of 1.7 percent, with only minor
fluctuation, from a high of 2.3 percent at December 31,
41
<PAGE>
Borrowed Funds to Assets (cont.)
1991, to a low of 1.0 percent at December 31, 1995. The use of borrowed funds by
some thrift institutions indicates an alternative to retail deposits and may
provide a source of term funds for lending. The federal insurance premium on
deposits has also increased the attractiveness of borrowed funds, although the
lower premium beginning in 1997 may result in some moderation of that trend.
The public demand for longer term funds increased in 1995 and the first
half of 1996 due to the higher cost of deposits. The result was competitive
rates on longer term Federal Home Loan Bank advances, and an increase in
borrowed funds by many institutions as an alternative to higher cost, long term
certificates. The ratio of borrowed funds to assets, therefore, does not
typically indicate higher risk or more aggressive lending, but primarily an
alternative to retail deposits.
The range of borrowed funds to total assets is 25.0 percent or less
with a midpoint of 12.5 percent, similar to the national average of 14.5
percent.
Equity to Assets
Hemlock Federal's equity to assets ratio as of September 30, 1996, was
7.73 percent. After conversion, based on the midpoint value of $15,700,000 and
net proceeds to the Bank of approximately $7.6 million, Hemlock Federal's equity
is projected to stabilize in the area of 13.0 percent to 14.0. Based on those
historical and pro forma equity ratios, we have defined the equity ratio
parameter to be 5.0 percent to 18.0 percent with a midpoint ratio of 11.5
percent.
42
<PAGE>
PERFORMANCE PARAMETERS
Introduction
Exhibit 38 presents five parameters identified as key indicators of
Hemlock Federal's earnings performance and the basis for such performance. The
primary performance indicator is the Bank's return on average assets ("ROAA").
The second performance indicator is the Bank's return on average equity
("ROAE"). To measure the Bank's ability to generate net interest income, we have
used net interest margin. The supplemental source of income for the Bank is
noninterest income, and the parameter used to measure this factor is noninterest
income to assets. The final performance indicator that has been identified is
the Bank's ratio of operating expenses, also referred to as noninterest
expenses, to assets, a key factor in distinguishing different types of
operations, particularly institutions that are aggressive in secondary market
activities, which often results in much higher operating costs and overhead
ratios.
Return on Average Assets
The key performance parameter is the ROAA. As a result of the special
SAIF assessment realized in the third quarter of 1996 and the Bank's $1.0
million contribution to the charitable foundation it established in that same
quarter, both categorized as non-recurring expense items, Hemlock Federal's ROAA
will incorporate core income, rather than net income, and will be compared to
the core ROAA of candidate comparable group institutions. The Bank's core ROAA
was 0.58 percent for the twelve months ended September 30, 1996, based on core
earnings after taxes, as detailed in Item I of this report and presented in
Exhibit 7. The Bank's ROAA over the past five fiscal years, based on net
earnings, has ranged from a low of 0.37 percent in 1991 to a high of 0.68
percent in 1993 with an average ROAA of 0.56 percent.
43
<PAGE>
Return on Average Assets (cont.)
Considering the historical and current earnings performance of Hemlock
Federal, the range for the ROAA parameter based on core or normalized income has
been defined as 0.30 percent to a high of 1.00 percent with a midpoint of 0.65
percent.
Return on Average Equity
The ROAE, also using core income, has been used as a secondary
parameter to eliminate any institutions with an unusually high or low ROAE that
is inconsistent with the Bank's position. This parameter does not provide as
much meaning for a newly converted thrift institution as it does for established
stock institutions, due to the newness of the capital structure of the newly
converted thrift and the inability to accurately reflect a mature ROAE for the
newly converted thrift relative to other stock institutions.
The pro forma consolidated ROAE for the Bank and the Corporation for
the year following conversion be approximately 7.00 percent based on the
midpoint valuation. Prior to conversion, the Bank's ROAE was 7.52 percent for
the twelve months ended September 30, 1996, based on core income, with a five
year average net ROAE of 8.11 percent. The parameter range for the comparable
group, based on net income, is from 2.0 percent to 12.0 percent with a midpoint
of 7.0 percent.
Net Interest Margin
Hemlock Federal had a net interest margin of 3.17 percent based on the
twelve month period ended September 30, 1996. The Bank's range of net interest
margin for the past five fiscal years has been from a low of 2.29 percent in
1991 to a high of 3.58 percent in 1993 with an average of 2.85 percent.
44
<PAGE>
Net Interest Margin (cont.)
The parameter range for the selection of the comparable group is from a
low of 2.75 percent to a high of 3.75 percent with a midpoint of 3.25 percent.
Operating Expenses to Assets
Net of non-recurring items, Hemlock Federal had a higher than average
2.42 percent ratio of operating expenses to average assets ratio for the twelve
months ended September 30, 1996. For its five most recent fiscal years, the
Bank's operating expenses have been stable and generally lower than in its most
recent four quarters, ranging from a low of 2.16 percent in 1994 to a high of
2.44 percent in 1991 with an average of 2.26 percent, similar to the current
industry average of 2.32 percent.
The operating expense, net of non-recurring expense to assets parameter
for the selection of the comparable group is from a low of 1.75 percent to a
high of 3.25 percent with a midpoint of 2.50 percent.
Noninterest Income to Assets
For its most recent four quarters, Hemlock Federal experienced a
somewhat lower than average dependence on noninterest income as a source of
additional income. The Bank's noninterest income, including gains and losses on
the sale of assets, to average assets was 0.31 percent for the twelve months
ended September 30, 1996, which is below the industry average of 0.44 percent
for that period. Hemlock Federal's ratio of noninterest income to average assets
has declined significantly and consistently during its past five fiscal years
from 0.66 percent in 1991 to 0.23 percent in 1995, averaging 0.46 percent.
45
<PAGE>
Noninterest Income to Assets (cont.)
The range for this parameter for the selection of the comparable group
is 0.80 percent or less of average assets, with a midpoint of 0.40 percent.
ASSET QUALITY PARAMETERS
Introduction
The final set of financial parameters used in the selection of the
comparable group are asset quality parameters, also shown in Exhibit 38. The
purpose of these parameters is to insure that any thrift institution in the
comparable group has an asset quality position similar to that of Hemlock
Federal. The three defined asset quality parameters are the ratios of
nonperforming assets to total assets, repossessed assets to total assets and
loan loss reserves to total assets at the end of the most recent period.
Nonperforming Assets to Assets Ratio
Hemlock Federal's ratio of nonperforming assets to assets was 0.05
percent at September 30, 1996, which is lower than the national average of 0.87
percent, lower than the Midwest regional average of 0.59 percent and lower than
its ratio of 0.40 percent at December 31, 1995. For the five fiscal years ended
December 31, 1991 to 1995, the Bank's ratio decreased from a high of 1.50
percent at December 31, 1991, to a low of 0.40 percent at December 31, 1995,
with a five year average of 0.86 percent.
The parameter range for nonperforming assets to assets has been defined
as 1.00 percent of assets or less with a midpoint of 0.50 percent.
46
<PAGE>
Repossessed Assets to Assets
Hemlock Federal was absent repossessed assets at September 30, 1996,
and at December 31, 1995 and 1994. The Bank's ratios of repossessed assets to
total assets were 0.28 percent, 0.18 percent and 0.31 percent at December 31,
1993, 1992 and 1991, respectively, for a five year average of 0.15 percent.
National and regional averages were 0.56 percent and 0.47 percent, respectively,
at September 30, 1996.
The range for the repossessed assets to total assets parameter is 0.25
percent of assets or less with a midpoint of 0.13 percent.
Loans Loss Reserves to Assets
Hemlock Federal had a loan loss reserve or allowance for loan losses of
$670,000, representing a loan loss allowance to total assets ratio of 0.46
percent at September 30, 1996, which is higher than its ratio of 0.41 percent at
December 31, 1995. For its last five fiscal years, the Bank's loan loss reserve
averaged 0.28 percent of assets from a low of 0.13 percent in 1991 to a high of
0.41 percent in 1995.
The loan loss allowance to assets parameter range used for the
selection of the comparable group focused on a minimum required ratio of 0.15
percent of assets.
THE COMPARABLE GROUP
With the application of the parameters previously identified and
applied, the final comparable group represents ten institutions identified in
Exhibits 39, 40 and 41. The comparable group institutions range in size from
$76.4 million to $390.9 million with an average asset size of $198.3 million and
have an average of 5.7 offices per institution compared to Hemlock Federal with
assets of $147.0 million and three offices. One of the
47
<PAGE>
The Comparable Group (cont.)
comparable group institutions was converted in 1990, three in 1992, three in
1993, two in 1994, and one in 1995.
Exhibit 42 presents a comparison of Hemlock Federal's market area
demographic data with that of each of the institutions in the comparable group.
48
<PAGE>
SUMMARY OF COMPARABLE GROUP INSTITUTIONS
Community Bank Shares of Indiana, Inc., New Albany, Indiana, is the
holding company for Community Savings Bank, F.S.B. Community Savings operates
seven full service offices in Floyd and Clark Counties, Indiana, and offers a
full range of mortgage, consumer and commercial loans. At the end of its most
recent quarter, the Bank had assets of $234.6 million and equity of $25.5
million, and reported a core ROAA of 0.89 percent for its four most recent
quarters.
First Financial Bancorp, Inc., Belvidere, Illinois, is the holding
company for First Federal Savings Bank of Belvidere. The Bank serves Boone and
Winnebago Counties in Illinois with two full service offices in Belvidere and a
loan origination office in Rockford, Illinois. The Bank has assets of $97.1
million and equity of $7.5 million, and reported a core ROAA of 0.36 percent.
Glenway Financial Corp., Cincinnati, Ohio, is the holding company for
Centennial Savings Bank. The Bank serves the Hamilton County market area from
its six full service offices. The Bank has total assets of $283.7 million, total
equity of $26.3 million, and a core ROAA of 0.60 percent.
Harvest Home Financial Corporation, Cincinnati, Ohio, is the holding
company for Harvest Home Savings Bank, which operates three offices serving the
Greater Cincinati area. The Bank had assets of 76.4 million and equity of 12.8
million at the end of its most recent quarter, and reported a core ROAA of 0.75
percent for its trailing four quarters.
Horizon Financial Services Corporation, Oskaloosa, Iowa, is the holding
company for Horizon Federal Savings Bank, which converted to stock form in June,
1994. Horizon Federal has total assets of $76.7 million and equity of $8.2
million, and indicated a core ROAA of 0.33 percent in its most recent four
quarters.
49
<PAGE>
Summary of Comparable Group Institutions (cont.)
Kankakee Bancorp, Kankakee, Illinois, is the holding company of
Kankakee Federal Savings Bank and is located near the Chicago Metropolitan Area.
It operates nine offices, seven of which are in Kankakee County. One other
office is in nearby Champaign, Illinois, and another is located near St. Louis,
Missouri, in Carlyle, Illinois. The Bank has total assets of $352.9 million and
equity of $35.4 million. For its most recent four quarters, the Bank reported a
core ROAA of 0.59 percent.
Mid-Iowa Financial Corp., Newton, Iowa, is the holding company for
Mid-Iowa Savings Bank, FSB. The Bank operates 6 offices in the central Iowa area
and focuses its lending activity on one-to-four family mortgage loans. The Bank
has total assets of $115.2 million, total equity of $10.8 million and a core
ROAA of 0.93 percent.
Midwest Bancshares, Inc., Burlington, Iowa, is the holding company for
Midwest Federal Savings and Loan Association. The Association serves its
customers through five offices in Des Moines, Lee and Louisa Counties, Iowa. The
Bank has total assets of $137.7 million, total equity of $9.1 million, and
reported a core ROAA of 0.72 percent for its most recent four quarters.
OHSL Financial Corp., Cincinnati, Ohio, is the holding company for Oak
Hills Savings and Loan Company, F.A. The Company's headquarters and three
offices are all in Hamilton County, and serve the Greater Cincinnati
Metropolitan Area. The Company has total assets of $217.6 million and equity of
$25.2 million, and reported a core ROAA of 0.85 percent for its (new)most recent
four quarters.
SuburbFed Financial Corporation, Flossmoor, Illinois, is the holding
company for Suburban Federal Savings, a federal savings bank. The Bank operates
12 offices located in Chicago's Southland and northwest Indiana. With assets of
$390.0 million and equity of $25.4 million, the Bank reported a core ROAA of
0.48 percent for its most recent four quarters.
50
<PAGE>
IV. ANALYSIS OF FINANCIAL PERFORMANCE
This section reviews and compares the financial performance of Hemlock
Federal to all thrifts, regional thrifts, Illinois thrifts and the ten
institutions constituting Hemlock Federal's comparable group, as selected and
described in the previous section. The comparative analysis focuses on financial
condition, earning performance and pertinent ratios as shown in Exhibits 43
through 48.
As presented in Exhibits 43 and 44, at September 30, 1996, Hemlock
Federal's total equity of 7.73 percent of assets was lower than the 9.93 percent
for the comparable group, the 12.94 for all thrifts, the 14.43 percent ratio for
Midwest thrifts, and the 14.61 percent ratio for Illinois thrifts. The Bank had
a 36.14 percent share of net loans in its asset mix, considerably lower than the
comparable group at 64.10 percent, and also much lower than all thrifts at 65.93
percent, Midwest thrifts at 68.49 percent and Illinois thrifts at 66.10 percent.
Hemlock Federal's share of net loans, lower than industry averages, is the
result of its much higher level of mortgage-backed securities at 44.85 percent
of total assets. The comparable group had a lower 12.84 percent share of
mortgage-backed securities, and a higher 20.48 percent share of cash and
investments compared to the Bank at 16.42 percent. All thrifts had 12.40 percent
of assets in mortgage-backed securities and 18.15 percent in cash and
investments. Hemlock Federal's share of deposits of 87.87 percent was
significantly higher than the comparable group and the three geographic
categories, reflecting the Bank's minimal 1.02 percent share of FHLB advances.
The comparable group had deposits of 75.17 percent and borrowings of 13.72
percent. All thrifts averaged a 70.87 percent share of deposits and 14.48
percent of borrowed funds, while Midwest thrifts had a 69.41 percent share of
deposits and an 14.57 percent share of borrowed funds. Illinois thrifts averaged
a 71.78 percent share of deposits and a 12.32 percent share of borrowed funds.
Hemlock Federal was absent goodwill and other intangibles, compared to 0.10
percent for the comparable group, 0.20 percent for all thrifts, 0.15 percent for
Midwest thrifts and 0.14 percent for Illinois thrifts.
51
<PAGE>
Analysis of Financial Performance (cont.)
Operating performance indicators are summarized in Exhibits 45 and 46
and provide a synopsis of key sources of income and key expense items for
Hemlock Federal in comparison to the comparable group, all thrifts, and regional
thrifts for the trailing four quarters.
As shown in Exhibit 47, for the twelve months ended September 30, 1996,
Hemlock Federal had a yield on average interest-earning assets lower than the
comparable group and also lower than the three geographical categories. The
Bank's yield on interest-earning assets was 7.07 percent compared to the
comparable group at 7.48 percent, all thrifts at 7.71 percent, Midwest thrifts
at 7.70 percent and Illinois thrifts at 7.51 percent.
The Bank's cost of funds for the twelve months ended September 30,
1996, was also lower than the comparable group and the three geographical
averages. Hemlock Federal had an average cost of interest-bearing liabilities of
4.31 percent compared to 4.87 percent for the comparable group, 4.89 percent for
all thrifts, 4.97 percent for Midwest thrifts and 4.82 for Illinois thrifts. The
Bank's interest income and interest expense ratios resulted in an interest rate
spread of 2.76 percent, which was higher than the comparable group at 2.61
percent, slightly lower than all thrifts at 2.82 percent, and higher than
Midwest thrifts at 2.72 percent and Illinois thrifts at 2.69 percent. Hemlock
Federal demonstrated a net interest margin of 3.17 percent for the twelve months
ended September 30, 1996, based on average interest-earning assets, which was
higher than the comparable group at 3.07 percent. All thrifts averaged a higher
3.39 percent net interest margin for the trailing four quarters, as did Midwest
thrifts at 3.36 percent and Illinois thrifts at 3.33 percent.
Hemlock Federal's major source of income is interest earnings, as is
evidenced by the operations ratios presented in Exhibit 46. The Bank made an
$87,000 provision for loan losses during the twelve months ended September 30,
1996, representing 0.06 percent
52
<PAGE>
Analysis of Financial Performance (cont.)
of average assets. The comparable group indicated a provision representing 0.09
percent of assets, with all thrifts at 0.13 percent and Midwest thrifts and
Illinois thrifts both at 0.09 percent.
The Bank's non-interest income was $461,000 or 0.31 percent of average
assets for the twelve months ended September 30, 1996. Such non-interest income
was moderately lower than the comparable group at 0.41 percent, all thrifts at
0.44 percent, Midwest thrifts at 0.41 percent and Illinois thrifts at 0.40. For
the twelve months ended September 30, 1996, Hemlock Federal's operating expense
ratio, net of non-recurring expense, was 2.42 percent, higher than the
comparable group and the three geographical averages. The comparable group's
operating expense ratio was 2.31 percent, while all thrifts averaged 2.32
percent, Midwest thrifts averaged 2.31 percent and Illinois thrifts averaged
2.30 percent. It should be noted that the 65.7 basis point special SAIF
assessment is reflected as a non-recurring expense in the range of 0.45 percent
to 0.50 percent of average assets for most institutions. Hemlock Federal's SAIF
assessment of $898,000, together with its $1.0 million contribution to the
charitable foundation established by the Bank in the third quarter of 1996,
constituted the Bank's total non-recurring expense of $1,898,000 or 1.29 percent
of average assets.
The overall impact of Hemlock Federal's income and expense ratios is
reflected in the Bank's core income and return on assets. The Bank had an ROAA,
based on core income, of 0.58 percent for the twelve months ended September 30,
1996. For its most recent four quarters, the comparable group had a higher ROAA
of 0.65 percent based on core income. All thrifts averaged a higher core ROAA of
0.79 percent, while Midwest thrifts and Illinois thrifts averaged a higher 0.77
percent and 0.80 percent, respectively.
53
<PAGE>
V. MARKET VALUE ADJUSTMENTS
This is a conclusive section where adjustments are made to determine
the pro forma market value or appraised value of the Corporation based on a
comparison of Hemlock Federal with the comparable group. These adjustments will
take into consideration such key items as earnings performance, market area,
financial condition, dividend payments, subscription interest, liquidity of the
stock to be issued, management, and market conditions or marketing of the issue.
It must be noted, however, that all of the institutions in the comparable group
have their differences, and as a result, such adjustments become necessary.
EARNINGS PERFORMANCE
In analyzing earnings performance, consideration was given to the level
of net interest income, the level and volatility of interest income and interest
expense relative to changes in market area conditions and to changes in overall
interest rates, the quality of assets as it relates to the presence of problem
assets which may result in adjustments to earnings, the level of current and
historical classified assets and real estate owned, the level of valuation
allowances to support any problem assets or nonperforming assets, the level and
volatility of non-interest income, and the level of non-interest expenses.
As discussed earlier, the Bank's historical business philosophy has
focused on strengthening its net interest income and maintaining a stable net
earnings level, maintaining its current low ratio of nonperforming assets,
strengthening its level of interest sensitive assets relative to interest
sensitive liabilities and thereby improving its sensitivity measure and its
overall interest rate risk, maintaining an adequate level of loan loss reserves
to reduce the impact of any unforeseen losses, and closely monitoring and
striving to reduce its current level of overhead expenses. The Bank's current
philosophy will
54
<PAGE>
Earnings Performance (cont.)
continue to focus on increasing its net interest spread and net interest margin,
increasing its net income and return on assets, and increasing its level of
mortgage loans to assets.
Earnings are often related to an institution's ability to generate
loans. The Bank was an active originator of mortgage loans in fiscal years 1993
and 1995, with 1994 indicating a lower level of origination activity. During the
twelve months ended September 30, 1996, originations of $17.0 million exceeded
those in 1995 by $3.3 million or 24.9 percent, with such increase constituting
approximately half each of adjustable-rate and fixed-rate one- to four-family
mortgage loans. Originations of multi-family and consumer loans were generally
similar to 1995. Total originations during the twelve months ended September 30,
1996, were more than twice those in 1994 and very similar to the $17.1 million
of originations in 1993. The Bank's net increase in loans outstanding for the
twelve months ended September 30, 1996, was higher than in both 1995 and due to
the higher level of originations, and also higher than in 1993 due to a lower
level of principal repayments.
Hemlock Federal experienced a significant decreasing trend in principal
repayment levels in 1994 and 1995. Notwithstanding an increase in principal
repayments during the twelve months ended September 30, 1996, related to
moderating interest rates in late 1995, which was more than offset by the
previously mentioned increase in originations during that period, the Bank's net
loans increased by $16.1 million or 43.4 percent from December 31, 1993, to
September 30, 1996. The Bank's focus in fiscal years 1993, 1994 and 1995, and
for the twelve months ended September 30, 1996, was on the origination of one-
to four-family mortgage loans, with that loan category constituting 86.0
percent, 82.3 percent, 86.1 percent and 88.3 percent of total origination in
those four periods, respectively. In those four periods, the second largest
category of originations was consumer loans, with multi-family loans being the
third largest. The impact of these primary lending efforts has been to generate
a yield on average interest-earning assets of
55
<PAGE>
Earnings Performance (cont.)
7.07 percent for Hemlock Federal for the twelve months ended September 30, 1996,
compared to 7.48 percent for the comparable group, 7.71 percent for all thrifts
and 7.70 for Midwest thrifts. The Bank's level of interest income to average
assets was 7.16 percent for the twelve months ended September 30, 1996, which
was lower than the comparable group at 7.27 percent, Midwest thrifts at 7.25
percent and all thrifts at 7.42 percent for their most recent four quarters.
The Bank's net interest margin of 3.17 percent, based on average
interest-earning assets for the twelve months ended September 30, 1996, was
higher than the comparable group at 3.07 percent but lower than all thrifts at
3.39 percent. Hemlock Federal's cost of interest-bearing liabilities of 4.31
percent for the twelve months ended September 30, 1996, was lower than the
comparable group at 4.87 percent, lower than Midwest thrifts at 4.97 percent and
lower than all thrifts at 4.89 percent. Hemlock Federal's net interest spread of
2.76 percent for the twelve months ended September 30, 1996, was very modestly
higher than the comparable group at 2.61 percent and Midwest thrifts at 2.72,
but lower than all thrifts at 2.82 percent.
The Bank's ratio of noninterest income to assets was 0.31 percent for
the twelve months ended September 30, 1996, lower than the comparable group at
0.41 percent, all thrifts at 0.44 percent and Midwest thrifts at 0.41 percent.
The Bank has indicated recent noninterest income lower than the comparable
group, but its recent operating expenses have nevertheless been higher than the
comparable group as well as all thrifts and Midwest thrifts. For the twelve
months ended September 30, 1996, Hemlock Federal had an operating expenses to
assets ratio of 2.42 percent, net of non-recurring expense, compared to a lower
2.31 percent for the comparable group, 2.32 percent for all thrifts and 2.31
percent for Midwest thrifts.
For the twelve months ended September 30, 1996, Hemlock Federal
generated lower levels of noninterest income, higher levels of noninterest
expenses, and a slightly higher net interest margin relative to its comparable
group. As a result, the Bank's core
56
<PAGE>
Earnings Performance (cont.)
income level was lower than its comparable group for the twelve months ended
September 30, 1996, and also lower than all thrifts and Midwest thrifts during
that time period. Based on net earnings, the Bank had a return on average assets
of 0.45 percent in 1991, 0.65 percent in 1992, 0.68 percent in 1993, 0.37
percent in 1994 and 0.66 percent in 1996, and had a return on average assets of
0.58 percent for the twelve months ended September 30, 1996. For its most recent
four quarters, the comparable group had a higher core ROAA of 0.65 percent,
while all thrifts indicated an even higher 0.79 percent. The Bank's core or
normalized earnings, as shown in Exhibit 7, were higher than its net earnings
due to both the special SAIF assessment realized in the third quarter of 1996
and the contribution to the charitable foundation, also in the third quarter of
1996, as previously discussed. The Bank's permitted contributions to the
foundation of up to ten percent of net income on an annual basis will impact
earnings in the future.
Hemlock Federal's earnings stream will continue to be dependent on both
the overall trends in interest rates and also on the consistency and reliability
of its non-interest income, the latter indicating a considerable decrease since
1993, due to losses rather than gains on the sale of securities and a decrease
in other noninterest income. The Bank's cost of interest-bearing liabilities
will continue to adjust upward as deposits reprice at higher rates and continue
their gradual movement toward medium term instruments. This upward pressure on
savings costs is likely to continue based on current rates, although the rate of
increase may subside somewhat during the next few years. It has also been
recognized that in addition to Hemlock Federal's current ROAA being lower than
that of its comparable group for the most recent four quarters, the Bank also
experienced a generally flat trend in its ROAA, with moderate downward
fluctuation, from 1991 to 1995 and for the twelve months ended September 30,
1996. The Bank's net interest margin and net interest spread for the twelve
months ended September 30, 1996, are higher than at December 31, 1991, although
they also indicated moderate intervening fluctuation and a slower rate of
increase in 1994 and 1995 than in the prior three years. In recognition of the
foregoing earnings related factors, a moderate downward adjustment has been made
to Hemlock Federal's pro forma market value for earnings performance.
57
<PAGE>
MARKET AREA
Hemlock Federal's primary market area for retail deposits consists of
portions of Cook and Will Counties, Illinois, the former county being the
location of the Bank's home office and two branch offices. As discussed in
Section II, this market area has evidenced similar rates of population growth
and unemployment compared to the comparable group markets, the state of
Illinois, and the United States. The unemployment rate in Hemlock Federal's
market area counties averaged 5.2 percent in September, 1996, compared to an
identical 5.2 percent for Illinois and 5.8 percent for the United States. The
per capita income level in Hemlock Federal's market area is similar to the state
average, and higher than the national average and the comparable group average.
The median household income in the Bank's market area is modestly higher than
the comparable group, slightly higher than the Illinois average and modestly
higher than the national average. The market area is also characterized by
median housing values higher than the comparable group, Illinois and the United
States. The market area is generally urban and suburban, with the services
sector being the major business and employment sector, followed by the
wholesale/retail sector and then the manufacturing sector. The level of
financial competition in the Bank's market area is intense and dominated by the
banking industry, with the additional presence of credit unions. Hemlock Federal
had net decreases in deposits in fiscal years 1994, 1995 and for the twelve
months ended September 30, 1996, as withdrawals, including interest, exceeded
deposits. In recognition of all these factors, we believe that no adjustment is
warranted for the Bank's market area.
58
<PAGE>
FINANCIAL CONDITION
The financial condition of Hemlock Federal is discussed in Section I
and shown in Exhibits 1, 2, 5, 15, 16 and 17, and is compared to the comparable
group in Exhibits 41, 43 and 44. The Bank's total equity ratio before conversion
was 7.73 percent at September 30, 1996, which was lower than the comparable
group at 9.93 percent, all thrifts at 12.94 percent and Midwest thrifts at 14.43
percent. With a conversion at the midpoint, the Corporation's pro forma equity
to assets ratio will increase to approximately 14.5 percent, and the Bank's pro
forma equity to assets ratio will increase to approximately 11.2 percent.
The Bank's mix of assets indicates some areas of significant variation
from its comparable group. Hemlock Federal had a lower share of net loans at
36.14 percent of total assets at September 30, 1996, compared to the comparable
group at 64.10 percent and all thrifts at 65.93 percent. The Bank's share of
mortgage-backed securities was a significantly higher 44.85 percent compared to
12.84 percent for the comparable group and 12.40 percent for all thrifts. The
Bank's 87.87 percent share of deposits was lower than that of the comparable
group at 75.17, reflecting Hemlock Federal's much lower 1.02 percent share of
borrowed funds, compared to the comparable group at 13.72 percent.
The Bank was absent both repossessed assets and goodwill, compared to
minimal shares of 0.04 percent and 0.10 percent, respectively, for the
comparable group. All thrifts indicated repossessed assets of 0.56 percent and
goodwill and other intangible assets of 0.20 percent. The financial condition of
Hemlock Federal is further affected by its low level of nonperforming assets at
0.05 percent of assets at September 30, 1996, compared to a higher 0.41 percent
for the comparable group. It should be recognized, however, that the Bank's
historical ratio of nonperforming assets to total assets decreased from 1.50
percent at December 31, 1991, to 0.40 at December 31, 1995, averaging 0.86
percent for those five years, before decreasing to its September 30, 1996, level
of 0.05 percent.
59
<PAGE>
Financial Condition (cont.)
The Bank had a lower share of high risk real estate loans at 2.34
percent compared to 9.42 percent for the comparable group and 13.19 percent for
all thrifts. Hemlock Federal had $670,000 in allowances for loan losses or
870.13 percent of nonperforming assets at September 30, 1996, compared to the
comparable group's lower 128.08 percent, with Midwest thrifts at 150.96 percent
and all thrifts at a lower 92.70 percent. The Bank's ratio is reflective of its
historically higher levels of non-performing assets and classified loans.
Hemlock Federal has also experienced moderate levels of interest rate risk, as
reflected by its exposure under conditions of rising interest rates.
Overall, we believe that a minimum downward adjustment is warranted for
Hemlock Federal's current financial condition.
DIVIDEND PAYMENTS
Hemlock Federal has not indicated its intention to pay an initial cash
dividend. The future payment of cash dividends will be dependent upon such
factors as earnings performance, capital position, growth level, and regulatory
limitations. Nine of the ten institutions in the comparable group pay cash
dividends for an average dividend yield of 2.52 percent for those nine
institutions, and an average dividend yield of 2.27 percent for all ten
institutions.
Currently, many thrifts are not committing to initial cash dividends,
similar to the absence of such a dividend commitments in 1995. In our opinion,
no adjustment to the pro forma market value is warranted at this time related to
dividend payments.
60
<PAGE>
SUBSCRIPTION INTEREST
The general interest in thrift conversion offerings was often difficult
to gauge in 1995. Based upon recent offerings, subscription and community
interest weakened significantly in early 1995 but regained some strength by the
second half of the year. In the first half of 1996, interest in new issues was
mixed, with the number of conversions decreasing from the same period in 1995.
The third quarter of 1996 suggests some renewed interest in thrift conversion
offerings. Overall, such interest has appears to be directly related to the
financial performance and condition of the thrift institution converting and the
strength of the local economy, as well as general market conditions and
aftermarket price trends.
Hemlock Federal will focus its offering to depositors and residents in
the market area. The board of directors and officers anticipate purchasing
approximately $1.2 million or approximately 8.0 percent of the conversion stock
based on the appraised midpoint valuation. Hemlock Federal will form an 8.0
percent ESOP, which plans to purchase stock in the initial offering.
Additionally, the Prospectus restricts to $175,000 the amount of conversion
stock that may be purchased by a single account holder, or by such persons and
associates acting in concert.
As previously discussed, in the third quarter of 1996, the Bank
established a charitable foundation through the cash contribution of $1.0
million, which was in excess of net earnings and resulted in a reduction in the
Bank's retained earnings. The foundation is intended to demonstrate Hemlock
Federal's commitment to its community, but also will have the effect of diluting
the equity per share of the initial shareholders. At the midpoint value, the
$1.0 million contribution will reduce the book value of each share by
approximately $0.64 or 6.4 percent, based on an initial offering of $15.7
million at $10.00 per share.
61
<PAGE>
Subscription Interest (cont.)
The Bank has secured the services of Charles Webb & Company, a division
of Keefe, Bruyette and Woods, Inc. ("KBW") to assist the Bank in the marketing
and sale of the conversion stock. Based on the size of the offering, current
market conditions, local market interest and the terms of the offering, and the
establishment of the charitable foundation, we believe that no adjustment is
warranted for the Bank's anticipated subscription interest.
LIQUIDITY OF THE STOCK
Hemlock Federal will offer its shares through concurrent subscription
and community offerings with the assistance of KBW. If necessary, KBW will
conduct a syndicated community offering upon the completion of the subscription
and community offering. Hemlock Federal will pursue at least two market makers
for the stock. The Bank's offering is similar in size to that of the comparable
group. Therefore, we believe that no adjustment to the pro forma market value is
warranted at this time relative to the liquidity of the stock.
MANAGEMENT
The chairman of the board and chief executive officer of Hemlock
Federal is Maureen G. Partynski, who has held that position since 1994,
previously serving as president of the Bank from 1989 to 1994 and executive vice
president from 1985 to 1989. Ms. Partynski has been employed by the Bank since
1982 and a director since 1984. The president of Hemlock Federal is Michael R.
Stevens, who has held that position since 1994. Mr. Stevens, a director since
1992, has been employed by Hemlock Federal since 1984 in various positions,
including executive vice president and financial manager. Mr. Stevens has an
M.B.A. from Northwestern University.
62
<PAGE>
Management (cont.)
Ms. Partynski, Mr. Stevens and senior management of Hemlock Federal
have been able to increase lending activity, as well as the Bank's equity level
and equity ratio, over the past few years and the Bank's asset quality has
improved significantly since 1991. Earnings, however, have shown moderate
fluctuation and the Bank's return on assets has been fairly flat with some
downward fluctuation, remaining lower than the comparable group and industry
averages. Net interest margin is currently slightly above the comparable group
average, but below the industry average. The Bank's level of non-interest
expense is currently higher than the comparable group, all thrifts and Midwest
thrifts, and non-interest income has indicated a considerable decline since
1993. It is our opinion that no adjustment to the pro forma market value is
warranted for management.
MARKETING OF THE ISSUE
The response to a newly issued thrift institution stock is more
difficult to predict, due to the volatility of new thrift stocks. Further, with
each conversion, there is a high level of uncertainty with regard to the stock
market particularly thrift institution stocks and interest rate trends. The
impact of recent increases in interest rates has made it more difficult for more
thrift institutions to strengthen their earnings and resulted in downward market
prices. Recent conflicts of opinion on interest rate trends and the recent rise
in interest rates have resulted in some significant stock volatility. Further,
the impact of the difference in a thrift's premium level on deposits compared to
BIF-insured institutions is another key concern, along with the one time
assessment of SAIF-insured thrifts to increase the capitalization of the SAIF
insurance fund.
The necessity to build a new issue discount into the stock price of a
converting thrift has prevailed in the thrift industry in recognition of higher
uncertainty among investors as a result of the thrift industry's dependence on
interest rate trends. We believe that a new issue discount applied to the price
to book valuation approach continues and is considered to be reasonable and
necessary in the pricing of the Corporation, and we have
63
<PAGE>
Marketing of the Issue (cont.)
made a maximum downward adjustment to the Corporation's pro forma market value
in recognition of the new issue discount.
64
<PAGE>
VI. VALUATION METHODS
Under normal stock market conditions, the most frequently used method
for determining the pro forma market value of common stock for thrift
institutions by this firm is the price to book value ratio method. The focus on
the price to book value method is due to the volatility of earnings in the
thrift industry. As earnings in the thrift industry improved in late 1993, 1994
and 1995, there has been more emphasis placed on the price to earnings method,
but the price to book value method continues to be the primary valuation method.
These two pricing methods have both been used in determining the pro forma
market value of the Corporation.
In recognition of the volatility and variance in earnings due to
fluctuations in interest rates, the continued differences in asset and liability
repricing and the frequent disparity in value between the price to book approach
and the price to earnings approach, a third valuation method has been used, the
price to net assets method. The price to net assets method is used less often
for valuing ongoing institutions; however, this method becomes more useful in
valuing converting institutions when the equity position and earnings
performance of the institutions under consideration are different.
In addition to the pro forma market value, we have defined a valuation
range with the minimum of the range being 85.0 percent of the pro forma market
value, the maximum of the range being 115.0 percent of the pro forma market
value, and a super maximum being 115.0 percent of the maximum. The pro forma
market value or appraised value will also be referred to as the "midpoint
value".
65
<PAGE>
PRICE TO BOOK VALUE METHOD
The price to book value method focuses on a thrift institution's
financial condition, and does not give as much consideration to the
institution's performance as measured by net earnings. Therefore, this method is
sometimes considered less meaningful for institutions that do provide a
consistent earnings trend. Due to the earnings volatility of many thrift stocks,
the price to book value method is frequently used by investors who rely on an
institution's financial condition rather than earnings performance.
Consideration was given to the adjustments to the Bank's pro forma
market value discussed in Section V. A minimum upward adjustment was made for
management. Minimum downward adjustments were made for financial condition and
market area. A moderate downward adjustment was made for Hemlock Federal's
earnings performance and a maximum downward adjustment was made for the
marketing of the issue. No adjustment was made for dividend payments,
subscription interest and the liquidity of the Bank's stock.
Exhibit 50 shows the average and median price to book value ratios for
the comparable group which were 93.54 percent and 98.18 percent, respectively.
The total comparable group indicated a moderately wide range, from a low of
72.29 percent (Harvest Home Financial Corporation) to a high of 104.05 percent
(Midwest Bancshares, Inc.). This variance cannot be attributed to any one factor
such as the institution's equity ratio or earnings performance. Excluding the
low and the high in this group, the price to book value range narrowed modestly
from a low of 81.32 percent to a high of 100.52 percent.
Taking into consideration all of the previously mentioned items in
conjunction with the adjustments made in Section V, we have determined a pro
forma price to book value ratio of 63.72 percent at the midpoint, ranging from a
low of 59.04 percent at the minimum to a high of 71.53 percent at the super
maximum for the Corporation.
66
<PAGE>
Price to Book Value Method (cont.)
The Corporation's price to book value ratio of 63.72 is strongly
influenced by the Bank's financial condition, local market and subscription
interest in thrift stocks. Further, the Bank's equity to assets after conversion
will be approximately 11.00 percent compared to 9.93 percent for the comparable
group. Based on this price to book value ratio and the Bank's equity of
$11,361,000 at September 30, 1996, the indicated pro forma market value for the
Bank using this approach is $15,702,027 at the midpoint (reference Exhibit 51).
PRICE TO EARNINGS METHOD
The focal point of this method is the determination of the earnings
base to be used and secondly, the determination of an appropriate price to
earnings multiple. The recent earnings position of Hemlock Federal is displayed
in Exhibit 3, indicating an after tax net loss for the twelve months ended
September 30, 1996, of $285,000. Exhibit 7 indicates the derivation of the
Bank's identical core or normalized earnings of $856,000 for the twelve months
ended September 30, 1996. To arrive at the pro forma market value of the Bank by
means of the price to earnings method, we deemed net earnings to be not
meaningful and used the core earnings base of $856,000.
In determining the price to core earnings multiple, we reviewed the
range of price to core earnings multiples for the comparable group and all
publicly-traded thrifts. The average price to core earnings multiple for the
comparable group was 15.93, while the median was 15.10. The comparable group's
price to core earnings multiple was lower than the average for all
publicly-traded, SAIF-insured thrifts of 17.68, but slightly higher than their
median of 15.38. The range in the price to core earnings multiple for the
comparable group was from a low of 10.38 (Midwest Bancshares, Inc.) to a high of
26.68 (Horizon Financial Services Corp.). The primary range in the price to core
earnings multiple for the comparable group, excluding the high and low ranges,
was from a low price to core earnings multiple of 10.63 to a high of 22.36 times
earnings for eight of the ten institutions in the group.
67
<PAGE>
Price to Earnings Method (cont.)
Consideration was given to the adjustments to the Corporation's pro
forma market value discussed in Section V. In recognition of these adjustments,
we have determined a price to core earnings multiple of 14.40 at the midpoint,
based on Hemlock Federal's core earnings of $856,000 for twelve months ended
September 30, 1996. Based on the Bank's core earnings base of $856,000
(reference Exhibit 49), the pro forma market value of the Corporation using the
price to earnings method is $15,705,384 at the midpoint.
PRICE TO NET ASSETS METHOD
The final valuation method is the price to net assets method. This
method is not as frequently used due to the fact that it does not focus as much
on an institution's equity position or earnings performance. Exhibit 50
indicates that the average price to net assets ratio for the comparable group
was 9.09 percent and the median was 9.02 percent. The range in the price to net
assets ratios for the comparable group varied from a low of 6.53 percent
(SuburbFed Financial Corp.) to a high of 12.08 percent (Harvest Home Financial
Corp.). It narrows very modestly with the elimination of the two extremes in the
group to a low of 6.85 percent and a high of 11.45 percent.
Based on the adjustments made previously for Hemlock Federal, it is our
opinion that an appropriate price to net assets ratio for the Corporation is
9.68 percent at the midpoint, which is slightly higher than the comparable group
at 9.09 percent and ranges from a low of 8.35 percent at the minimum to 12.42
percent at the super maximum. Based on the Bank's September 30, 1996, asset base
of $146,983,000, the indicated pro forma market value of the Corporation using
the price to net assets method is $15,698,882 at the midpoint (reference Exhibit
49).
68
<PAGE>
VALUATION CONCLUSION
Exhibit 55 provides a summary of the valuation premium or discount for
each of the valuation ranges when compared to the comparable group based on each
of the valuation approaches. At the midpoint value, the price to book value
ratio of 63.72 percent for the Corporation represents a discount of 31.88
percent relative to the comparable group and decreases to 23.53 percent at the
super maximum. The price to core earnings multiple of 14.40 for the Corporation
at the midpoint value indicates a discount of 9.57 percent, changing to a
premium of 11.57 percent at the super maximum. The price to assets ratio at the
midpoint represents a premium of 6.51 percent, increasing to a premium of 36.66
percent at the super maximum.
It is our opinion that as of December 6, 1996, the pro forma market
value of the Corporation is $15,700,000 at the midpoint, representing 1,570,000
shares at $10.00 per share. The pro forma valuation range of the Corporation is
from a minimum of $13,345,000 or 1,334,500 shares at $10.00 per share to a
maximum of $18,055,000 or 1,805,500 shares at $10.00 per share, with such range
being defined as 15 percent below the appraised value to 15 percent above the
appraised value. The super maximum is $20,763,250 or 2,076,325 shares at $10.00
per share (reference Exhibits 51 to 54).
The appraised value of Hemlock Federal Financial Corporation as of
December 6, 1996, is $15,700,000 at the midpoint.
69
<PAGE>
EXHIBIT A
PROFILE OF THE FIRM
KELLER & COMPANY, INC. is a full service consulting firm to financial
institutions, serving clients throughout the United States from its office in
Dublin, Ohio. The firm consults primarily in the areas of regulatory and
compliance matters, financial analysis and strategic planning, stock valuations
and appraisals, mergers and acquisitions, mutual to stock conversions,
conversion/mergers and branching. Since its inception in 1985, KELLER & COMPANY
has provided a wide range of consulting services to over 100 financial
institutions including thrifts, banks, mortgage companies and holding companies.
KELLER & COMPANY is an affiliate member of the Community Bankers of America,
Community Bankers Association of Ohio, the Ohio League of Financial
Institutions, and the Tri State League of Financial Institutions.
Each of the firm's senior consultants has over eighteen years front line
experience and accomplishment in various areas of the financial institution and
real estate industries. Each consultant provides to clients distinct and diverse
areas of expertise. Specific services and projects have included financial
institution charter and deposit insurance applications, market studies,
institutional mergers and acquisitions, branch sales and acquisitions,
operations and performance analyses, business plans, strategic planning,
financial projections and modeling, stock valuations, fairness opinions,
conversion appraisals, capital plans, policy development and revision, lending,
underwriting and investment criteria, data processing and management information
systems, and incentive compensation programs.
It is the goal of KELLER & COMPANY to provide specific and ongoing services that
are pertinent and responsive to the needs of the individual client institution
within the changing industry environment, and to offer those services at
reasonable fees on a timely basis. In recent years, KELLER & COMPANY has become
one of the leading consulting firms in the nation.
<PAGE>
CONSULTANTS IN THE FIRM
MICHAEL R. KELLER has over twenty years experience as a consultant to the
financial institution industry. Immediately following his graduation from
college, he was employed by the Ohio Division of Financial Institutions, working
for two years in the northeastern Ohio district as an examiner of financial
institutions before pursuing graduate studies at the Ohio State University.
Mr. Keller later worked as an associate for a management consulting firm
specializing in services to financial institutions. During his eight years with
the firm, he specialized in mergers and acquisitions, branch acquisitions and
sales, branch feasibility studies, stock valuations, charter applications, and
site selection analyses. By the time of his departure, he had attained the
position of vice president, with experience in almost all facets of banking
operations.
Prior to forming Keller & Company, Mr. Keller also worked as a senior consultant
in a larger consulting firm. In that position, he broadened his activities and
experience, becoming more involved with institutional operations, business and
strategic planning, regulatory policies and procedures, conversion appraisals,
and fairness opinions. Mr. Keller established the firm in November 1985 to
better serve the needs of the financial institution industry.
Mr. Keller graduated from Wooster College with a B.A. in Economics in 1972, and
later received an M.B.A. in Finance in 1976 from the Ohio State University where
he took two courses in corporate stock valuations.
<PAGE>
Consultants in the Firm (cont.)
JOHN A. SHAFFER has over twenty years experience in banking, finance, real
estate lending, and development.
From 1971 to 1974, Mr. Shaffer was employed by a large real estate investment
trust as a lending officer, specializing in construction and development loans.
By 1974, having gained experience in loan underwriting, management and workout,
he joined Chemical Association of New York and was appointed Vice President for
Loan Administration of Chemical Mortgage Company in Columbus, Ohio. At Chemical,
he managed all commercial and residential loan servicing, administering a
portfolio in excess of $1 billion. His responsibilities also included the
analysis, management and workout of problem commercial loans and properties, and
the structuring, negotiation, acquisition and sale of loan servicing and
mortgage and equity securities.
Mr. Shaffer later formed an independent real estate and financial consulting
firm, serving corporate and institutional clients, and also investing in and
developing real estate. His primary activities have included the planning,
analysis, financing, implementation, and administration of real estate projects,
as well as financial projection and modeling, cost and profit analysis, loan
management, budgeting, cash flow management and project design.
Mr. Shaffer graduated from Syracuse University with a B.S. in Business
Administration, later receiving an M.B.A. in Finance and a Ph.D. in Economics
from New York University.
<PAGE>
EXHIBIT B
RB 20
CERTIFICATION
I hereby certify that I have not been the subject of any criminal, civil or
administrative judgments, consents, undertakings or orders, or any past
administrative proceedings (excluding routine or customary audits, inspections
and investigation) issued by any federal or state court, any department, agency,
or commission of the U.S. Government, any state or municipality, any
self-regulatory trade or professional organization, or any foreign government or
governmental entity, which involve:
(i) commission of a felony, fraud, moral turpitude, dishonesty or breach
of trust;
(ii) violation of securities or commodities laws or regulations;
(iii) violation of depository institution laws or regulations;
(iv) violation of housing authority laws or regulations;
(v) violation of the rules, regulations, codes or conduct or ethics of a
self-regulatory trade or professional organization;
(vi) adjudication of bankruptcy or insolvency or appointment of a receiver,
conservator, trustee, referee, or guardian.
I hereby certify that the statements I have made herein are true, complete and
correct to the best of my knowledge and belief.
Conversion Appraiser
- ------------------------------ -------------------------------------
Date Michael R. Keller
159
<PAGE>
EXHIBIT C
AFFIDAVIT OF INDEPENDENCE
STATE OF OHIO,
COUNTY OF FRANKLIN, ss:
I, Michael R. Keller, being first duly sworn hereby depose and say that:
The fee which I received directly from the applicant, Hemlock Federal Bank for
Savings, Oak Forest, Illinois, in the amount of $17,000 for the performance of
my appraisal was not related to the value determined in the appraisal; that the
undersigned appraiser is independent and has fully disclosed to the Office of
Thrift Supervision any relationships which may have a material bearing upon the
question of my independence; and that any indemnity agreement with the applicant
has been fully disclosed in a written statement to the Office of Thrift
Supervision. Further, affiant sayeth naught.
MICHAEL R. KELLER
Sworn to before me and subscribed in my presence this 30th day of December,
1996.
NOTARY PUBLIC
<PAGE>
NUMERICAL
EXHIBITS
<PAGE>
EXHIBIT 1
HEMLOCK FEDERAL BANK FOR SAVINGS
OAK FOREST, ILLINOIS
Statements of Financial Condition
At September 30, 1996, and at December 31, 1995
(In thousands)
(Unaudited)
September 30, December 31,
1996 1995
---- ----
ASSETS
Cash and due from bank ........................... $ 1,576 $ 3,144
Interest-bearing deposits in
financial institutions ......................... 14,800 10,157
-------- --------
Cash and cash equivalents .................... 16,376 13,301
Securities available-for-sale .................... 41,826 39,294
Securities held-to-maturity
(fair value: 1995 $45,748,852) ................. 31,860 44,606
Loans receivable, net ............................ 53,121 45,232
Federal Home Loan Bank stock, at cost ............ 901 849
Accrued interest receivable ...................... 845 1,107
Premises and equipment, net ...................... 1,036 1,044
Prepaid expenses and other assets ................ 1,018 193
-------- --------
Total assets ................................. $146,983 $145,626
======== ========
LIABILITIES AND MEMBERS' EQUITY
Deposits ......................................... $129,159 $130,741
Advances from Federal Home
Loan Bank ...................................... 1,500 1,500
Advance payments by borrowers for
taxes and insurance ............................ 288 652
Due to broker .................................... 2,053 --
Accrued interest payable and other
liabilities .................................... 2,622 856
-------- --------
Total liabilities ............................ 135,622 133,749
MEMBERS' EQUITY
Retained earnings, substantially
restricted ................................. 10,842 11,346
Net unrealized gain (loss) on
securities available-for-sale .............. 519 531
-------- --------
Total members' equity ........................ 11,361 11,877
-------- --------
$146,983 $145,626
======== ========
Source: Hemlock Federal Bank for Savings' audited and unaudited
financial statements
70
<PAGE>
EXHIBIT 2
HEMLOCK FEDERAL BANK FOR SAVINGS
OAK FOREST, ILLINOIS
Consolidated Balance Sheets
At December 31, 1991 through 1994
(In thousands)
<TABLE>
<CAPTION>
1994 1993 1992 1991
---- ---- ---- ----
<S> <C> <C> <C> <C>
Assets
Cash and due from bank ........................................... $ 938 $ 759 $ 934 $ 753
Interest-bearing deposits in financial institutions .............. 15,888 17,372 5,496 5,687
------ ------ ----- -----
Cash and cash equivalents .................................... 16,826 18,131 6,430 6,440
Securities available-for-sale .................................... 16,510 -- -- --
Securities held-to-maturity (fair value: 1995
$45,748,852; 1994 $68,024,680) ............................... 69,514 -- -- --
Investment securities (market value: 1993 - $6,000,000; ......... -- 6,003 9,291 1,717
1992 - $9,482,000; 1991 - $1,788,000)
Mortgage-backed securities (market value: 1993 -
$83,285,000; 1992 - $91,242,000; 1991 - $88,148,000) ......... -- 81,439 89,757 86,980
Real estate owned ................................................ 0 416 249 419
Loans receivable, net ............................................ 37,659 37,041 31,739 33,750
Federal Home Loan Bank stock, at cost ............................ 837 991 991 939
Federal Home Loan mortgage Corporation (FHLMC)
stock ........................................................ 26 26 49 106
Accrued interest receivable ...................................... 884 995 1,191 1,246
Premises and equipment, net ...................................... 1,082 1,186 1,351 1,465
Prepaid expenses and other assets ................................ 539 450 126 177
--------- -------- -------- --------
$143,877 $146,678 $141,174 $133,239
========= ======== ======== ========
Liabilities and Members' Equity
Deposits ......................................................... 130,771 132,250 127,660 120,105
Advances from Federal Home Loan Bank ............................. 1,500 3,000 3,000 3,000
Advance payments by borrowers for taxes and insurance ............ 735 853 884 978
Accrued interest payable and other liabilities ................... 492 720 752 1,042
--- --- --- -----
133,498 136,823 132,296 125,125
------- ------- ------- -------
Members' equity
Retained earnings, substantially restricted .................. 10,394 9,855 8,878 8,114
Net unrealized gain (loss) on securities available-
for-sale, net of income taxes of $339,457 and
$5,986 in 1995 and 1994, respectively .................... (15) -- -- --
--------- -------- -------- --------
10,379 9,855 8,878 8,114
--------- -------- -------- --------
$143,877 $146,678 $141,174 $133,239
========= ======== ======== ========
</TABLE>
Source: Hemlock Federal Bank for Savings' audited financial statements
71
<PAGE>
EXHIBIT 3
HEMLOCK FEDERAL BANK FOR SAVINGS
OAK FOREST, ILLINOIS
Consolidated Statements of Income
For the nine months ended September 30, 1995 and 1996, and
For the year ended December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
For the nine months Year ended
ended September 30, December 31,
1996 1995 1995
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Interest income:
Loans ....................................... $ 3,008 $ 2,456 $ 3,382
Mortgage-backed securities .................. 3,556 3,658 4,904
Securities .................................. 490 698 898
Other interest-earning assets ............... 619 553 750
--- --- ---
Total interest income ................. 7,673 7,365 9,934
Interest expense:
Deposits .................................... 4,123 3,884 5,268
Other borrowings ............................ 112 110 148
--- --- ---
Total interest expense ................ 4,235 3,994 5,416
----- ----- -----
Net interest income .................... 3,438 3,370 4,518
Provision for loan losses ...................... 75 121 133
-- --- ---
Net interest income after
provision for loan losses ............ 3,363 3,249 4,385
Noninterest income
Fees and service charges .................... 298 252 352
Rental income ............................... 32 28 39
Gain (loss) on sale of securities ........... (80) (161) (160)
Miscellaneous income ........................ 71 78 106
-- -- ---
Total noninterest income ............... 321 197 337
Noninterest expense
Compensation and employee benefits .......... 1,293 1,196 1,635
Occupancy and equipment expenses ............ 511 451 637
Data processing ............................. 153 151 201
Federal insurance premiums .................. 1,066 223 298
Gain on sale of real estate owned ........... -- (223) (223)
Advertising and promotion ................... 87 82 124
Charitable Foundation ....................... 418 -- --
Other ....................................... 1,000 401 538
----- --- ---
Total noninterest expense .............. 4,528 2,281 3,210
Income before provision for income taxes (844) 1,165 1,511
Provision (benefit) for income taxes ... (340) 433 559
---- --- ---
Net income (loss) ...................... $ (504) $ 732 $ 952
------- ------- -------
Source: Hemlock Federal Bank for Savings' audited and unaudited financial statements
</TABLE>
72
<PAGE>
EXHIBIT 4
HEMLOCK FEDERAL BANK FOR SAVINGS
OAK FOREST, ILLINOIS
Consolidated Statements of Income
Years ended December 31, 1992 through 1995
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------
1994 1993 1992 1991
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Interest income:
Loans ................................................... $ 3,064,080 $3,147,221 $ 3,115,754 $ 3,473,700
Mortgage-backed securities .............................. 4,508,129 5,138,005 6,051,373 6,115,501
Securities .............................................. 929,017 529,190 892,557
Interest and dividends on investments ................... 1,171,187
--------- --------- ---------- ---------
Total interest income ............................. 8,501,226 8,814,416 10,059,684 10,760,388
--------- --------- ---------- ----------
Interest expense:
Deposits ................................................ 4,435,674 4,642,792 5,903,226 7,250,551
Other borrowings ........................................ 236,928 305,186 292,541 291,741
------- ------- ------- -------
Total interest expense ............................ 4,672,602 4,947,978 6,195,767 7,542,292
--------- --------- --------- ---------
Net interest income ............................... 3,828,624 3,866,438 3,863,917 3,218,096
Provision for loan losses .................................... 150,000 148,786 356,655 33,510
------- ------- ------- ------
Net interest income after provision
for loan losses ............................... 3,678,624 3,717,652 3,507,262 3,184,586
Noninterest income:
Fees and service charges ................................ 308,179 122,743 111,005 39,725
Insurance commissions ................................... 21,394
Rental income ........................................... 68,715 48,025 43,998 51,527
Gain (loss) on sale of securities ....................... (89,099) 269,565 466,195 418,152
Gain on sale of insurance customer list ................. 53,252
--------- --------- -------- ------
Miscellaneous income .................................... 95,579 286,662 275,395 272,039
------ ------- ------- -------
Total noninterest income ........................... 383,374 726,995 896,593 856,089
------- ------- ------- -------
Noninterest expense
Compensation and employee benefits ...................... 1,536,264 1,420,636 1,295,022 1,310,855
Occupancy and equipment expenses ........................ 515,217 681,266 671,380 655,646
Data processing ......................................... 203,875 234,861 237,276 193,360
Federal insurance premiums .............................. 301,887 275,625 304,650 283,594
Provision for losses on real estate owned, net
of gains from sales ................................ -- 120,792 (10,230) 123,444
Advertising and promotion ............................... 94,148 86,343 92,263 125,820
Other ................................................... 528,093 493,141 442,810 415,881
------- ------- ------- -------
Total noninterest expenses ......................... 3,179,484 3,312,664 3,033,171 3,108,600
--------- --------- --------- ---------
Income before provision for income taxes ........... 882,514 1,131,983 1,370,684 932,075
Provision for income taxes ................................... 343,216 411,116 606,250 363,916
------- ------- ------- -------
Net income before cumulative effect of a
change in accounting method ........................ $ 539,298 $ 720,867 $ 764,434 $ 568,159
Cumulative effect on prior years of a change in
accounting method for income taxes ...................... -- 256,000 -- --
------- ------- ------- -------
Net income ......................................... $ 539,298 $ 976,867 $ 764,434 $ 568,159
=========== ========== ============ ===========
</TABLE>
Source: Hemlock Federal Bank for Savings audited financial statements
73
<PAGE>
EXHIBIT 5
Selected Financial Condition Data
At September 30, 1996, and at December 31, 1991 through 1995
<TABLE>
<CAPTION>
September 30, December 31,
------------ --------------------------------------------------------------
1996(1) 1995 1994 1993 1992 1991
------- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets ................................... $146,983 $145,626 $143,877 $146,679 $141,175 $133,239
Cash and cash equivalents ...................... 16,376 13,301 16,827 18,131 6,430 6,440
Loans receivable, net(2) ....................... 53,121 45,232 37,659 37,041 31,739 33,750
Mortgage-backed securities:(3)
Held-to-maturity ............................. 31,860 43,106 66,040 81,439 89,757 86,980
Available for sale ........................... 34,064 25,620 8,244 -- -- --
Investment securities:(3)
Held-to-maturity ............................. -- 1,500 3,500 6,003 9,291 1,717
Available for sale ........................... 7,095 13,125 7,934 -- -- --
FHLMC stock .................................... 667 549 332 26 49 106
Deposits ....................................... 129,159 130,741 130,771 132,583 128,149 120,703
Total borrowings ............................... 1,500 1,500 1,500 3,000 3,000 3,000
Retained earnings -
substantially restricted ..................... 10,842 11,346 10,394 9,855 8,878 8,114
<FN>
- -------------
(1) Financial information at September 30, 1996 and for the nine month periods
ended September 30, 1996 and 1995 is derived from unaudited financial data,
but in the opinion of management, reflects all adjustments (consisting only
of normal recurring adjustments) which are necessary to present fairly the
results for such interim periods. Interim results at and for the nine
months ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996.
(2) The allowance for loan losses at September 30, 1996, December 31, 1995,
1994, 1993, 1992 and 1991 was $670,000, $600,000, $469,000, $234,000,
$497,000 and $174,000, respectively.
(3) The Bank adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
effective as of January 1, 1994. Prior to the adoption of SFAS No. 115,
investment securities and mortgage-backed securities held for sale were
carried at the lower of amortized cost or market value, as adjusted for
amortization of premiums and accretion of discounts over the remaining
terms of the securities from the dates of purchase.
</FN>
</TABLE>
Source: Hemlock Federal Financial Corp.'s prospectus
74
<PAGE>
EXHIBIT 6
Income and Expense Trends
For the Fiscal Years Ended December 31, 1991 through 1995 and
For the Nine Months Ended September 30, 1995 and 1996
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30,(1) December 31,
----------------- ------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operations Data:
Total interest income ....................... $ 7,673 $ 7,365 $ 9,935 $ 8,501 $8,815 $10,060 $10,798
Total interest expense ...................... 4,235 3,994 5,416 4,672 4,948 6,196 7,542
----- ----- ----- ----- ----- ----- -----
Net interest income ....................... 3,438 3,371 4,519 3,829 3,867 3,864 3,256
Provision for loan losses ................... 75 122 134 150 149 357 33
-- --- --- --- --- --- --
provision for loan losses ................. 3,363 3,249 4,385 3,679 3,718 3,507 3,223
Fees and service charges .................... 297 252 352 308 345 326 226
Gain (loss) on sales of
morgage-backed securities
and investment securities ................. (80) (161) (161) (89) 270 466 324
Other non-interest income ................... 104 107 146 164 112 104 259
--- --- --- --- --- --- ---
Total non-interest income ................... 321 198 337 383 727 896 809
Total non-interest expense .................. 4,529 2,281 3,211 3,180 3,313 3,033 3,100
----- ----- ----- ----- ----- ----- -----
Income (loss) before taxes
and cumulative effect ..................... (845) 1,166 1,511 882 1,132 1,370 932
Income tax provision (benefit) .............. (341) 433 559 343 411 606 364
Cumulative effect ........................... -- -- -- -- 256 -- --
------- ------- ------- ------- ------ ------- -------
Net income (loss) ........................... $ (504) $ 733 $ 952 $ 539 $ 977 $ 764 $ 568
======= ======= ======= ======= ====== ======= =======
<FN>
- -------------
(1) Financial information at September 30, 1996 and for the nine month periods
ended September 30, 1996 and 1995 is derived from unaudited financial data,
but in the opinion of management, reflects all adjustments (consisting only
of normal recurring adjustments) which are necessary to present fairly the
results for such interim periods. Interim results at and for the nine
months ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996.
</FN>
</TABLE>
Source: Hemlock Federal Financial Corp.'s prospectus
75
<PAGE>
EXHIBIT 7
Normalized Earnings Trend
For the Twelve Months Ended September 30, 1996, and
For the Fiscal Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
Twelve months
Ended Fiscal years ended
September 30, December 31,
------------- ---------------------
1996 1995 1994 1993
---- ---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Net income after taxes .................. $ (285) $ 952 $539 $ 977
Net income before taxes and effect
of accounting adjustments ........... (500) 1,511 882 1,132
Income adjustments ...................... -- -- -- --
Expense adjustments
SAIF assessment ..................... (898) -- -- --
Foundation .......................... (1,000) -- -- --
Normalized earnings before taxes ........ 1,398 1,511 882 1,132
Taxes ................................... 542(1) 559 343 411
----- --- --- ---
Normalized earnings after taxes ......... $ 856 $ 952 $539 $ 721
------- ------ ---- ------
<FN>
- ------------
(1) Based on tax rate of 38.74 percent
</FN>
</TABLE>
Source: Hemlock Federal Bank for Savings' audited and unaudited
financial statements
76
<PAGE>
EXHIBIT 8
Performance Indicators
For The Nine Months Ended September 30, 1995 and 1996
For the Fiscal Years Ended December 31, 1991 through 1995
<TABLE>
<CAPTION>
Nine Months Ended
September 30, (1) Years ended December 31
----------------- ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net
income to average total assets) .............. (0.46)% 0.68% 0.66% 0.37% 0.68% 0.65% 0.45%
Return on equity (ratio of net
income to average equity) (3) ................ (5.80)% 9.05% 8.72% 5.27% 10.40% 8.95% 7.20%
Interest rate spread information:
Average during period ........................ 2.96% 3.00% 3.01% 2.49% 2.54% 2.68% 2.38%
End of period ................................ 2.56% 2.83% 3.11% 2.93% 3.58% 2.84% 2.29%
Net interest margin(2) ....................... 3.24% 3.24% 3.25% 2.69% 2.74% 2.90% 2.65%
Ratio of operating expense to average
total assets ............................. 4.13% 2.12% 2.23% 2.16% 2.30% 2.18% 2.44%
Ratio of average interest-earning assets
to average interest-bearing
liabilities ............................. 107.16% 106.24% 106.31% 106.27% 105.58% 104.84% 104.53%
Quality Ratios:
Non-performing assets to total assets
at end of period ........................ 5.05% 0.32% 0.40% 0.43% 0.80% 1.17% 1.50%
Allowance for loan losses to
non-performing loans .................... 870.13% 125.11% 103.63% 76.01% 19.95% 30.18% 8.73%
Allowance for loan losses to gross loans
receivable .............................. 1.24% 1.32% 1.31% 1.23% 0.62% 1.53% 0.51%
Capital Ratios: (3)
Equity to total assets at end of period ..... 7.38% 7.65% 7.79% 7.22% 6.72% 6.29% 6.09%
Average equity to average assets ............ 7.94% 7.53% 7.59% 7.01% 6.51% 6.14% 6.21%
<FN>
- ---------------
(1) Ratios for the nine-month periods have been annualized.
(2) Net interest income divided by average interest-earning assets.
(3) Ratios are exclusive of SFAS 115 valuation.
</FN>
</TABLE>
Source: Hemlock Federal Financial Corp.'s Prospectus
77
<PAGE>
EXHIBIT 9
Volume/Rate Analysis
For the Nine Months Ended September 30, 1996 and 1995
For the Fiscal Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Nine Months Ended Year ended December 31,
September 30, ------------------------------------------------------
1996 vs. 1995 1995 vs. 1994 1994 vs. 1993
--------------------------- --------------------------- ------------------------
Increase Increase Increase
(Decrease) (Decrease) (Decrease)
Due to Total Due to Total Due to Total
---------------- Increase -------------- Increase ------------- Increase
Volume Rate (Decrease Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- --------- ------ ---- ---------- ------ ---- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning Assets
Loans receivable ............................ $(269) $ 821 $ 552 $ (16) $ 335 $ 319 $(218) $ 135 $ (83)
Mortgage-backed securities .................. 366 (468) (102) 1,059 (663) 396 (57) (573) (630)
Securities .................................. 54 (262) (208) 172 326 498 (121) 194 73
Other interest earning assets ............... (140) 206 66 305 (84) 221 79 247 326
---- --- -- --- --- --- -- --- ---
Total interest-earning
assets ................................ $ 11 $ 297 $ 308 $ 1,520 $ (86) $ 1,434 $(317) $ 3 $(314)
===== ===== ===== ======= ===== ======= ===== ===== =====
Interest bearing liabilities:
Passbook savings ............................ $ 9 $ (10) $ (1) $ 142 $ (73) $ 69 $ (76) $ 67 $ (9)
NOW ......................................... 1 2 3 29 5 34 (14) 10 (4)
MMDA ........................................ 7 (29) (22) 31 (43) (12) (6) (31) (37)
Certificates of Deposit ..................... 135 125 260 669 73 742 (138) (20) (158)
Borrowings .................................. 1 -- 1 2 (91) (89) 31 (99) (68)
---- ----- ----- ------- --- --- -- --- ---
Total interest-bearing
liabilities ........................... $ 153 $ 88 $ 241 $ 873 $(129) $ 744 $(203) $ (73) $(276)
===== ===== ===== ======= ===== ======= ===== ===== =====
Net interest income ........................... $(142) $ 209 $ 67 $ 647 $ 43 $ 690 $(114) $ 76 $ (38)
===== ===== ===== ======= ===== ======= ===== ===== =====
</TABLE>
Source: Hemlock Federal Financial Corp.'s prospectus
78
<PAGE>
EXHIBIT 10
Yield and Cost Trends
At October 31 and
For the Four Months Ended October 31, 1996 and 1995, and
For the Fiscal Years Ended June 30, 1996 through 1994
<TABLE>
<CAPTION>
Four Months Ended
At October 31, Year ended June 30,
October 31, ---------------------- -----------------------------------
1996 1996(3) 1995(3) 1996 1995 1994
---------- ---------- --------- --------- --------- ---------
Average Average Average Average Average Average
Rate Rate Rate Rate Rate Rate
---------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) ......................... 7.92% 8.04% 8.25% 8.17% 7.78% 7.32%
Interest-bearing deposits ................... 5.45% 5.70% 5.32% 5.57% 5.28% 2.92%
Investment securities(2) .................... 5.59% 5.24% 5.47% 5.45% 5.33% 5.43%
FHLB stock .................................. 7.04% 7.14% 6.72% 7.03% 6.43% 4.86%
---- ---- ---- ---- ---- ----
Total interest-earning
assets ................................... 7.83% 7.90% 8.01% 7.91% 7.60% 6.98%
Interest-earning liabilities:
Savings deposits ............................ 3.05% 3.05% 3.08% 3.05% 3.09% 3.09%
Demand and NOW deposits ..................... 2.42% 2.38% 2.34% 2.36% 2.45% 2.41%
Certificate accounts ........................ 6.00% 5.83% 5.79% 5.84% 5.02% 4.53%
Borrowings .................................. -- 5.68% -- -- -- --
---- ---- ---- ---- ---- -----
Total interest-bearing
liabilities .............................. 5.17% 5.00% 4.88% 4.94% 4.30% 3.93%
Net interest rate spread(3) .................... 2.66% 2.90% 3.13% 2.97% 3.30% 3.05%
Net yield on average
interest-earning assets(4) .................... -- 3.32% 3.55% 3.41% 3.66% 3.35%
<FN>
- -------------
(1) Amount is net of loans in process, net deferred loan origination fees and
allowance for loan losses and includes non-performing loans.
(2) Includes unamortized discounts and premiums.
(3) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
</FN>
</TABLE>
Source: Peoples Sidney Financial Corp.'s prospectus
79
<PAGE>
EXHIBIT 11
Interest Rate Sensitivity of Net Portfolio Value (NPV)
At September 30, 1996
Estimated Increase
Change in Estimated Ratio of (Decrease) in NPV
Interest Rates NPV NPV to ---------------------
(Basis Points) Amount Total Assets Amount Percent
-------------- ------ ------------ ------ -------
(Dollars in Thousands)
+400 $ 10,725 7.40% $ (5,980) (36.00)%
+300 12,548 8.52% (4,158) (25.00)%
+200 14,310 9.57% (2,395) (14.00)%
+100 15,794 10.43% (911) (5.00)%
-- 16,705 10.93% -- --
-100 16,969 11.04% 263 2.00%
-200 16,490 10.73% (215) (1.00)%
-300 16,780 10.86% 75 0.00%
-400 17,485 11.22% 780 5.00%
Source: Hemlock Federal Financial Corp.'s prospectus
80
<PAGE>
EXHIBIT 12
Loan Portfolio Composition
At September 30, 1996, and at December 31, 1991 through 1995
<TABLE>
<CAPTION>
At September 30, At December 31,
--------------------- --------------------------------------------------------------------
1996 1995 1994 1993
--------------------- ---------------------- --------------------- ---------------------
Amount Percent Amount Percent Amount Percent Amount Percent
---------- --------- ---------- ---------- ---------- --------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family ........ $ 47,742 88.65% $ 39,089 85.08% $30,792 80.45% $ 28,378 75.59%
Multi-family ............... 2,860 5.31% 3,386 7.37% 3,742 9.78% 4,035 10.75%
Commercial ................. 586 1.09% 1,101 2.40% 1,566 4.09% 2,020 5.38%
Construct./devel ........... -- -- -- -- -- -- 502 1.34%
-------- ---------- ------- ------ ------- ------- -------- -------
Total real estate
loans ................... 51,188 95.05% 43,576 94.85% 36,100 94.32% 34,935 93.06%
-------- ---------- ------- ------ ------- ------- -------- -------
Other Loans:
Consumer loans:
Deposit account .......... 175 0.32% 158 0.34% 150 0.39% 172 0.46%
Automobile ............... 289 0.54% 229 0.50% 120 0.31% 223 0.59%
Home equity .............. 2,201 4.09% 1,981 4.31% 1,908 4.98% 2,211 5.89%
-------- ---------- ------- ------ ------- ------- -------- -------
Total consumer loans ..... 2,665 4.95% 2,368 5.15% 2,178 5.68% 2,606 6.94%
-------- ---------- ------- ------ ------- ------- -------- -------
Total other loans ........ 53,853 100.00% 45,944 100.00% 38,278 100.00% 37,541 100.00%
========= ======= ======= =======
Less:
Loans in process ........... (53) (28) -- (82)
------
Deferred fees and
discounts ................ (9) (84) (150) (184)
Allowance for losses ....... (670) (600) (469) (234)
------- -------- ------ -------
Total loans
receivable, net ......... $ 53,121 $45,232 $37,659 $37,041
======== ======== ======= =======
</TABLE>
At December 31,
-----------------------------------------
1992 1991
----------------- ------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
Real Estate Loans:
One- to four-family ... $ 21,310 65.67% $20,100 58.61%
Multi-family .......... 4,787 14.75% 6,066 17.69%
Commercial ............ 2,440 7.52% 2,559 7.46%
Construct./devel ...... 502 1.55% 500 1.46%
-------- ------ ------- ------
Total real estate
loans .............. 29,039 89.49% 29,225 85.22%
-------- ------ ------- ------
Other Loans:
Consumer loans:
Deposit account ..... 187 0.58% 145 0.42%
Automobile .......... 360 1.11% 529 1.54%
Home equity ......... 2,862 8.82% 4,394 12.82%
-------- ------ ------- ------
Total consumer loans 3,409 10.51% 5,068 14.78%
-------- ------ ------- ------
Total other loans ... 32,448 100.00% 34,293 100.00%
======= =======
Less:
Loans in process ...... -- (196)
--------
Deferred fees and
discounts ........... (212) (173)
Allowance for losses .. (497) (174)
-------- --------
Total loans
receivable, net .... $ 31,739 $ 33,750
======== =========
Source: Hemlock Federal Financial Corp.'s prospectus
81
<PAGE>
EXHIBIT 13
Loan Maturity Schedule
At September 30, 1996
At September 30, 1996
------------------------------------------------------
Multi-
Family
One- to and
Four- Commercial Residential
Family Real Estate Construction Consumer Total
-------- ----------- ------------ -------- -------
(In thousands)
Amounts due:
1997 ................ $ 5 $ 0 $ 0 $ 43 $ 48
1998 ................ 16 52 50 202 320
1999 and 2000 ....... 88 87 444 569 1,188
2001 to 2005 ........ 7,952 922 0 1,433 10,307
2006 to 2020 ........ 20,371 1,494 92 418 22,375
2021 and following .. 19,310 305 0 0 19,615
------- ------ ------- ------ -------
Total ..... $47,742 $2,860 $ 586 $2,665 $53,853
======= ====== ======= ====== =======
Fixed rate loans ........ $49,338
Adjustable rate loans ... 4,515
-------
Total ..... $53,853
=======
Source: Hemlock Federal Financial Corp.'s prospectus
82
<PAGE>
EXHIBIT 14
Loan Originations
For The Nine Months Ended September 30, 1995 and 1996, and
For the Years Ended December 31, 1993 through 1995
For the
nine months ended For the years
-------------------- December 31,
Sept. 30, Sept. 30, ---------------------------
1996 1995 1995 1994 1993
-------- -------- ------ ------ ------
(In thousands)
Originations by type:
Adjustable rate:
Real estate:
One- to four-family .... $ 2,277 $ 771 $ 1,042 $ 594 $ 347
Total adjustable-rate .... 2,277 771 1,042 594 347
Fixed rate
Real estate:
One- to four-family .... 9,997 8,203 10,670 5,856 14,691
Multi-family ........... 404 410 534 645 617
Non-real estate:
Consumer ............... 1,104 1,015 1,363 733 1,428
Total fixed-rate ......... 11,505 9,628 12,567 7,234 16,736
------- ------- ------- ------ -------
Total loans originated . 13,782 10,399 13,609 7,828 17,083
------- ------- ------- ------ -------
Sales and Repayments:
Principal repayments ..... (5,873) (4,237) (5,943) (7,091) (11,990)
Increase (decrease) in
other items, net ....... (20) (66) (93) (119) 209
------- ------- ------- ------ -------
Net increase (decrease) . $ 7,889 $ 6,096 $ 7,573 $ 618 $ 5,302
======= ======= ======= ====== =======
Source: Hemlock Federal Financial Corp.'s prospectus
83
<PAGE>
EXHIBIT 15
Delinquent Loans
At September 30, 1996
Loans Delinquent For:
----------------------------------------------------
60-89 Days 90 Days and Over
------------------------ -------------------------
Percent Percent
of Loan of Loan
Number Amount Category Number Amount Category
------ ------ -------- ------ ------ --------
(Dollars in thousands)
Real Estate:
One- to Four-family ..... 4 $208 0.44% 1 $ 77 0.16%
Multi-family ............ -- -- -- -- -- --
Commercial .............. -- -- -- -- -- --
Construction or
development ........... -- -- -- -- -- --
Consumer ................. 2 1 0.04% -- -- --
Commercial business ...... -- -- -- -- -- --
------ ------ ------- ------ ------ -------
Total ............. 6 $ 209 0.39% 1 $ 77 0.14%
====== ====== ======= ====== ====== =======
Total Delinquent Loans
-------------------------
Percent
of Loan
Number Amount Category
------ ------ --------
Real Estate:
One- to Four-family .... 5 $ 285 0.60%
Multi-family ........... -- -- --
Commercial ............. -- -- --
Construction or
development .......... -- -- --
Consumer ................ 2 1 0.04%
Commercial business ..... -- -- --
------ ------ -------
Total ............ 7 $ 286 0.53%
====== ======= =======
Source: Hemlock Federal Financial Corp.'s prospectus
84
<PAGE>
EXHIBIT 16
Nonperforming Assets
At September 30, 1996, and at December 31, 1991 through 1995
December 31,
September 30, -------------------------------
1996 1995 1994 1993 1992 1991
------------- ---- ---- ---- ---- ----
(Dollars in thousands)
Non-accruing loans:
One- to four-family ...... $ 77 $110 $ 30 $ 147 $ 86 $ 175
Multi-family ............. -- -- 108 108 108 108
Commercial real estate ... -- -- -- -- 694 791
Construction or
development ............ -- -- -- 502 502 500
Consumer ................. -- -- -- -- 8 --
----- ---- ---- ----- ----- -----
Total .................. 77 110 138 757 1,398 1,574
Accruing loans delinquent more than 90 days:
One- to four-family ...... -- -- -- -- -- --
Multi-family ............. -- -- -- -- -- --
Commercial real estate ... -- -- -- -- -- --
Construction or
development............. -- -- -- -- -- --
Consumer ................. -- -- -- -- -- --
----- ---- ---- ----- ----- -----
Total .................. -- -- -- -- -- --
----- ---- ---- ----- ----- -----
Foreclosed assets:
One- to four-family ...... -- -- -- -- -- 3
Multi-family ............. -- -- -- -- -- --
Commercial real estate ... -- -- -- 416 249 416
Construction or
development ............ -- -- -- -- -- --
Consumer ................. -- -- -- -- -- --
----- ---- ---- ----- ----- -----
Total .................. -- -- -- 416 249 419
----- ---- ---- ----- ----- -----
Renegotiated loans ......... -- 469 479 -- -- --
Total non-performing assets. $ 77 $579 $617 $1,173 $1,647 $1,993
===== ==== ==== ====== ====== ======
Total as a percentage
of total assets .......... 0.05% 0.40% 0.43% 0.80% 1.17% 1.50%
===== ==== ==== ==== ==== =====
Source: Hemlock Federal Financial Corp.'s prospectus
85
<PAGE>
EXHIBIT 17
Classified Assets
At September 30, 1996
(Dollars in thousands)
Special Mention Assets 267
Classified Assets:
Substandard $ -
Doubtful -
Loss -
---------
Total classified assets $ 0
=========
General loss allowance $ 670
=========
Specific loss allowance $ -
=========
Charge-offs $ -
=========
Source: Hemlock Federal Financial Corp.'s prospectus
86
<PAGE>
EXHIBIT 18
Allowance for Loan Losses
For the Nine Months Ended September 30, 1995 and 1996 and
For the Fiscal Years Ended December 31, 1991 through 1995
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
--------------------- ---------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- --------- ---------- ------------ ------------ ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $ 600 $ 469 $ 469 $ 234 $ 497 $ 174 $ 141
Charge-offs
One- to four-family 5 --- --- --- --- --- ---
Multi-family --- --- --- --- --- --- ---
Commercial real estate --- --- --- --- 412 34 ---
Construction or development --- --- --- --- --- --- ---
Consumer --- 3 3 --- --- --- ---
---------- --------- ---------- ------------ ------------ ------------ -------------
5 3 3 --- 412 34 ---
---------- --------- ---------- ------------ ------------ ------------ -------------
Recoveries:
One- to four-family --- --- --- --- --- --- ---
Multi-family --- --- --- --- --- --- ---
Commercial real estate --- --- --- 85 --- --- ---
Construction or development --- --- --- --- --- --- ---
Consumer --- --- --- --- --- --- ---
---------- --------- ---------- ------------ ------------ ------------ -------------
--- --- --- 85 --- --- ---
---------- --------- ---------- ------------ ------------ ------------ -------------
Net charge-offs (5) (3) (3) 85 (412) (34) ---
Additions charged to operations 75 122 134 150 149 357 33
---------- --------- ---------- ------------ ------------ ------------ -------------
Balance at end of period $ 670 $ 588 $ 600 $ 469 $ 234 $ 497 $ 174
========== ========= ========== ============ ============ ============ =============
Ratio of net charge-offs (recoveries)
during the period to average loans
outstanding 0.01% 0.01% 0.01% 0.23% 1.16% 0.10% 0.00%
========== ========= ========== ============ ============ ============ =============
Ratio of net charge-offs (recoveries)
during the period to average
non-performing assets 2.84% 2.63% 2.70% 20.88% 25.00% 1.91% 0.00%
========== ========= ========== ============ ============ ============ =============
</TABLE>
Source: Hemlock Federal Financial Corp.'s prospectus
<PAGE>
EXHIBIT 19
Investment Portfolio Composition
At September 30, 1996, and
At December 31, 1993 through 1995
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------
At September 30, 1995 1994 1993
1996
-------------------- --------- ---------- --------- ---------- --------------------
Carrying % of Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total Value Total
--------- --------- --------- --------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held-to-maturity:
U.S. government securities $ --- --- $ --- --- $ --- --- $ --- ---
Federal agency obligations --- --- 1,500 10.26% 3,500 30.61% 6,003 100.00%
--------- --------- --------- --------- --------- --------- --------- ---------
--- --- 1,500 10.26% $ 3,500 30.61% $ 6,003 100.00%
Securities available-for-sale:
U.S. government securities --- --- --- --- --- --- --- ---
Federal agency obligations 7,095 100.00% 13,125 89.74% 7,934 69.39% --- ---
--------- --------- --------- --------- --------- --------- --------- ---------
Total securities 7,095 100.00% $ 14,625 100.00% $ 11,434 69.39% $ 6,003 100.00%
========= ========= ========= ========= =========
Other interest-earning assets:
Interest-bearing deposits
with banks $ 14,800 90.42% $ 10,158 87.90% $ 14,027 92.31% $ 17,372 94.47%
FHLB Stock 901 5.50% 849 7.35% $ 837 5.51% 991 5.39%
FHLMC Stock 667 4.08% 549 4.75% $ 332 2.18% 26 0.14%
--------- ---------
Total $ 16,368 100.0% $ 11,556 100.00% $ 15,196 100.00% $ 18,389 100.00%
========= ========= ========= =========
Mortgage-backed securities
held-to-maturity:
GNMA $ 3,253 4.93% $ 3,810 5.54% $ 4,306 5.80% 5,883 7.22%
FNMA 14,671 22.26% 17,592 25.60% 24,323 32.74% 22,617 27.77%
FHLMC 10,723 16.27% 12,954 18.85% 19,084 25.69% 23,541 28.91%
CMOs/REMICs 3,213 4.87% 8,750 12.73% 18,327 24.67% 29.398 36.10%
--------- --------- --------- --------- --------- --------- --------- ---------
$ 31,860 48.33% $ 43,106 62.72% $ 66,040 88.90% $ 81,439 100.00%
Mortgage-backed securities
available-for-sale:
GNMA $ --- --- $ --- --- $ --- $ --- ---
FNMA 9,186 13.94% 6,050 8.80% 1,102 1.48% --- ---
FHLMC 6,779 10.28% 7,415 10.79% --- --- --- ---
CMOs/REMICs 18,099 27.45% 12,155 17.69% $ 7,142 9.62% --- ---
--------- --------- --------- --------- --------- --------- --------- ---------
34,064 51.67% 25,620 37.28% $ 8,244 11.10% $ --- ---
Total mortgage-backed securities $65,924 100.00% $ 68,726 100.00% $ 74,284 100.00% $ 81,439 100.00%
========= ========= ========= =========
</TABLE>
Source: Hemlock Federal Financial Corp.'s Prospectus
<PAGE>
EXHIBIT 20
Mix of Deposits
At September 30, 1995 and 1996, and at December 31, 1993 through 1995
<TABLE>
<CAPTION>
September 30, December 31,
---------------------------------------- ----------------------------------------------------------
1996 1995 1995 1994 1993
-------------------- ------------------- ------------------- ------------------ ------------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
-------------------- ------------------- ------------------- ------------------ ------------------
(Dollars in thousands)
Transaction and Savings Deposits
- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook Accounts $ 45,689 35.37% $ 46,065 35.28% $ 46,053 35.23% $ 48,697 37.24% $ 48,482 36.57%
NOW accounts 12,979 10.05% 13,616 10.43% 14,021 10.72% 13,331 10.20% 13,202 9.96%
Money Market Accounts 5,265 4.08% 6,004 4.60% 5,999 4.59% 7,236 5.53% 8,640 6.52%
---------- -------- --------- --------- -------- --------- ------------------ -------- --------
Total Non-Certificates $ 63,933 49.50% $ 65,685 50.31% $ 66,073 50.54% $ 69,264 52.97% $ 70,324 53.05%
Certificates:
0.00 - 3.99% - - - - - - 17,193 13.15% 36,925 27.85%
4.00 - 5.99% 55,993 43.35% 52,656 40.33% 54,033 41.33% 41,235 31.53% 20,356 15.35%
6.00 - 7.99% 9,233 7.15% 12,230 9.36% $ 10,635 8.13% 3,079 2.35% 4,978 3.75%
---------- -------- --------- --------- -------- --------- --------- -------- -------- --------
Total Certificates 65,226 50.50% 64,886 49.69% $ 64,668 49.46% 61,507 47.03% 62,259 46.95%
---------- -------- --------- --------- -------- --------- --------- -------- -------- --------
Total Deposits $129,159 100.00% $130,571 100.00% $130,741 100.00% $130,771 100.00% $132,583 100.00%
========== ========= ======== ========= ========
</TABLE>
Source: Hemlock Federal Financial Corp's Prospectus
<PAGE>
EXHIBIT 21
Deposit Activity
For the Nine Months Ended September 30, 1995 and 1996,
For the Years Ended December 31, 1993 through 1995
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year ended December 31,
----------------------- ----------------------------------
1996 1995 1995 1994 1993
----------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Opening balance $ 130,741 $ 130,771 $ 130,771 $ 132,583 $ 128,149
Deposits 157,763 159,100 210,667 200,476 202,600
Withdrawals 163,489 163,192 215,972 206,731 202,860
Interest credited 4,144 3,892 5,275 4,443 4,694
----------- ---------- ---------- ---------- ----------
Ending balance $ 129,159 $ 130,571 $ 130,741 $ 130,771 $ 132,583
=========== ========== ========== ========== ==========
Net increase (decrease) $ (1,582) $ (200) $ (30) $ (1,812) $ 4,434
=========== ========== ========== ========== ==========
Percent increase (decrease) (1.21)% (1.50)% (0.02)% (1.37)% 3.46%
=========== ========== ========== ========== ==========
</TABLE>
Source: Hemlock Federal Financial Corp.'s prospectus
<PAGE>
EXHIBIT 22
Borrowed Funds Activity
For the Nine Months Ended September 30, 1995 and 1996 and
For The Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
--------------------- ------------------------------
1996 1995 1995 1994 1993
--------------------- -------- -------- --------
(Dollars in thousands)
Maximum Balance:
<S> <C> <C> <C> <C> <C>
FHLB Advances $1,500 $1,500 $1,500 $3,000 $6,000
Average Balance:
FHLB Advances $1,500 $1,500 $1,500 $2,423 $3,462
Nine Months Ended Year Ended
September 30, December 31,
--------------------- ------------------------------
1996 1995 1995 1994 1993
--------------------- -------- -------- --------
(Dollars in thousands)
FHLB Advances $1,500 $1,500 $1,500 $1,500 $3,000
Securities sold under agreement to repurchase - - - - -
Other borrowings - - - - -
-------- --------- -------- -------- --------
Total borrowings $1,500 $1,500 $1,500 $1,500 $3,000
======== ========= ======== ======== ========
Weighted average interest rate of
FHLB advances 9.72% 9.72% 9.72% 9.72% 9.60%
</TABLE>
Source: Hemlock Federal Financial Corp's Prospectus
<PAGE>
EXHIBIT 23
OFFICES OF HEMLOCK FEDERAL BANK FOR SAVINGS
OAK FOREST, ILLINOIS
Date
Description/Address Leased/Owned Acquired
- ------------------------------- -------------------- -----------------
Main Office:
5700 West 159th Street Owned 1974
Oak Forest, Illinois
60452
Branch Offices
8855 South Ridgeland Ave. Leased(1) 1975
Oak Lawn, Illinois
60453
4646 South Damen Ave. Leased(2) 1990
Chicago, Illinois
60609
- -------------
(1) The land on which the Oak Lawn branch is built is leased. Under the terms
of the lease, title to the building housing the branch which is currently
held by the Bank will pass to the landlord.
(2) The lease is currently in the process of renegotiation.
Source: Hemlock Federal Financial Corp.'s prospectus
92
<PAGE>
EXHIBIT 24
LIST OF KEY OFFICERS AND DIRECTORS
At September 30, 1996
Position(s) Director Term
Name Held with the Bank Age(1) Since Expires
- ------------------------ ------------------------- ------ -------- -------
Maureen G. Partynski Chairman of the Board,
Chief Executive Officer 36 1984 1999
Michael R. Stevens President and Director 37 1992 1997
Rosanne Pastorek-Belczak Vice-President/
Secretary and Director 36 1996 1998
Frank A. Bucz Auditor/
Consultant and Director 68 1971 1998
Kenneth J. Bazarnik Director 53 1982 1997
Charles Gjondla Director 70 1982 1999
G. Gerald Schiera Director 57 1982 1998
(1) At September 30, 1996
Source: Hemlock Federal Financial Corp.'s Prospectus
93
<PAGE>
EXHIBIT 25
Key Demographic Data and Trends
Market Area, Cook County, Will County, Illinois and the United States
1990, 1995 and 2000
1990 1996 %Chg. 2001 % Chg.
---- ---- ----- ---- ------
Population
- ----------
Market Area 5,462,380 5,563,474 1.9% 5,643,269 1.4%
Cook County 5,105,067 5,136,877 0.6% 5,161,249 0.5%
Will County 357,313 426,597 19.4% 482,020 13.0%
Illinois 11,430,602 11,829,940 3.5% 5,181,677 0.9%
United States 248,718,291 262,755,270 5.6% 277,083,635 5.5%
Households
- ----------
Market Area 1,996,421 2,038,407 2.1% 2,068,929 1.5%
Cook County 1,879,488 1,898,703 1.0% 1,911,022 0.6%
Will County 116,933 139,704 19.5% 157,907 13.0%
Illinois 4,202,240 4,344,448 3.4% 4,481,231 3.1%
United States 91,947,410 97,069,804 5.6% 102,201,641 5.3%
Per Capita Income
- -----------------
Market Area $ 12,860 $ 17,978 39.8% --- ---
Cook County 12,882 18,013 39.8% --- ---
Will County 12,552 17,559 39.9% --- ---
Illinois 13,705 17,337 26.5% --- ---
United States 12,313 16,738 35.9% --- ---
Median
Household Income
- -----------------
Market Area $ 29,536 $ 35,964 21.8% $ 33,247 (7.6)%
Cook County 30,060 36,764 22.3% 34,136 (7.1)%
Will County 21,109 25,094 18.9% 22,483 (10.4)%
Illinois 31,424 36,318 15.6% 34,009 (6.4)%
United States 28,255 34,530 22.2% 33,189 (3.9)%
Source: Data Users Center and CACI
94
<PAGE>
EXHIBIT 26
Major Sources of Employment by Industry Group
Market Area, Cook County, Will County, Illinois and the United States
1994
Market United
Industry Group Area Illinois States
- -------------- ------ -------- ------
Agriculture/Mining 0.4% 0.8% 1.3%
Construction 3.6% 4.0% 4.8%
Manufacturing 19.1% 20.8% 19.2%
Transportation/Utilities 7.1% 6.2% 5.8%
Wholesale/Retail 24.6% 26.9% 27.5%
Finance, Insurance, &
Real Estate 9.9% 8.5% 7.3%
Services 35.3% 32.8% 34.1%
Source: Bureau of the Census
<PAGE>
EXHIBIT 27
Key Housing Data
Market Area, Cook County, Will County, Illinois and the United States
1990
Occupied Housing Units
- ----------------------
Market Area 1,996,421
Illinois 4,202,240
United States 91,947,410
Occupancy Type
- --------------
Market Area
Owner-Occupied 56.8%
Renter-Occupied 43.2%
Illinois
Owner-Occupied 64.2%
Renter-Occupied 35.8%
United States
Owner-Occupied 64.2%
Renter-Occupied 35.8%
Median Housing Values
- ---------------------
Market Area $ 100,253
Illinois 80,100
United States 78,500
Median Rent
- -----------
Market Area $ 477
Illinois 445
United States 447
Source: Bureau of the Census
<PAGE>
EXHIBIT 28
Unemployment Rates
Market Area, Illinois and the United States
1994, 1995 and 1996
Location 1994 1995 1996*
- -------- ---- ---- ----
Market Area 5.9% 5.6% 5.2%
Illinois 5.4% 5.2% 5.2%
United States 6.1% 5.2% 5.8%
* September, 1996
Source: Illinois Bureau of Employment Services
<PAGE>
EXHIBIT 29
Market Share of Deposits
Cook and Will Counties, Illinois
June 30, 1995
<TABLE>
<CAPTION>
Market Hemlock Hemlock
Area Federal's Federal's
Deposits Share Share
($000) ($000) (%)
--------------- ----------------- -----------------
<S> <C> <C> <C>
Banks $ 78,832,482 -0- -0-
Thrifts 30,107,999 $ 130,639 4.3%
Credit Unions 4,027,097 -0- -0-
--------------- ----------------- -----------------
Total deposits $112,967,578 $ 130,639 1.2%
</TABLE>
Source: Sheshunoff
<PAGE>
EXHIBIT 30
National Interest Rates by Quarter
1992-1996
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
1992 1992 1992 1992
---- ---- ---- ----
Prime Rate 6.50% 6.50% 6.00% 6.00%
90-Day Treasury Bills 4.14% 3.63% 2.73% 3.13%
1-Year Treasury Bills 4.49% 4.03% 3.04% 3.57%
30-Year Treasury Bills 7.98% 7.78% 7.67% 7.39%
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
1993 1993 1993 1993
---- ---- ---- ----
Prime Rate 6.00% 6.00% 6.00% 6.00%
90-Day Treasury Bills 2.93% 3.07% 2.96% 3.05%
1-Year Treasury Bills 3.27% 3.43% 3.35% 3.58%
30-Year Treasury Bills 6.92% 6.67% 6.03% 6.35%
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
1994 1994 1994 1994
---- ---- ---- ----
Prime Rate 6.25% 7.25% 7.75% 8.50%
90-Day Treasury Bills 3.54% 4.23% 5.14% 5.66%
1-Year Treasury Bills 4.40% 5.49% 6.13% 7.15%
30-Year Treasury Bills 7.11% 7.43% 7.82% 7.88%
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
1995 1995 1995 1995
---- ---- ---- ----
Prime Rate 9.00% 9.00% 8.75% 8.50%
90-Day Treasury Bills 5.66% 5.58% 5.40% 5.06%
1-Year Treasury Bills 6.51% 5.62% 5.45% 5.14%
30-Year Treasury Bills 7.43% 6.71% 5.69% 5.97%
1st Qtr. 2nd Qtr. 3rd Qtr.
1996 1996 1996
---- ---- ----
Prime Rate 8.25% 8.25% 8.25%
90-Day Treasury Bills 5.18% 5.25% 5.16%
1-Year Treasury Bills 5.43% 5.91% 5.38%
30-Year Treasury Bills 6.73% 7.14% 6.47%
Source: The Wall Street Journal
<PAGE>
EXHIBIT 31
KELLER & COMPANY
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
-----------------------------------------------------------------------
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ------ -------- -------- ------- --------- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PLE Pinnacle Bank AL AMSE 17.000 19.250 4.000 -3.55 -3.55 16.65 215.39 0.72
SRN Southern Banc Company, Inc AL AMSE 13.500 13.750 11.375 -1.82 1.89 14.22 78.06 NA
SZB SouthFirst Bancshares, Inc. AL AMSE 12.875 16.000 10.625 5.10 0.98 15.12 104.89 2.48
FFBH First Federal Bancshares
of AR AR NASDAQ 16.000 16.375 12.750 1.59 6.67 16.17 98.88 NA
FTF Texarkana First Financial
Corp AR AMSE 14.250 16.875 10.000 -0.87 0.88 16.93 84.04 NA
AHM Ahmanson & Company (H.F.) CA NYSE 31.750 33.500 2.688 1.60 25.12 18.86 479.53 0.88
AFFFZ America First Financial Fund CA NASDAQ 29.125 30.750 14.500 0.43 -3.72 24.84 370.61 1.60
BPLS Bank Plus Corp. CA NASDAQ 11.250 14.000 5.000 1.12 12.50 8.62 182.16 0.00
BVFS Bay View Capital Corp. CA NASDAQ 39.000 41.500 11.250 -2.50 3.65 29.17 516.27 0.60
BYFC Broadway Financial Corp. CA NASDAQ 9.250 11.000 9.000 -11.90 -5.13 14.12 131.35 NA
CAL Cal Fed Bancorp, Inc. CA NYSE 24.250 200.000 6.250 4.30 5.43 13.24 285.81 0.00
CFHC California Financial Holding CA NASDAQ 29.000 29.000 5.909 24.06 27.12 18.32 283.71 0.44
CENF CENFED Financial Corp. CA NASDAQ 28.750 30.375 5.000 7.48 18.56 21.35 423.62 0.34
CSA Coast Savings Financial CA NYSE 34.750 36.375 1.625 4.12 10.76 22.24 460.03 0.00
DSL Downey Financial Corp. CA NYSE 27.875 29.000 2.081 9.31 12.63 22.60 291.90 0.47
FSSB First FS&LA of San
Bernardino CA NASDAQ 9.000 14.500 6.875 -5.26 -8.86 14.34 305.62 0.00
FED FirstFed Financial Corp. CA NYSE 22.250 26.600 1.125 3.49 21.09 17.49 399.02 0.00
GLN Glendale Federal Bank, FSB CA NYSE 21.250 589.500 5.250 11.84 21.43 14.72 320.24 0.00
GDW Golden West Financial CA NYSE 64.250 67.500 3.875 -0.39 16.82 39.57 645.07 0.38
GWF Great Western Financial CA NYSE 30.000 31.125 3.950 8.11 20.00 17.84 316.87 0.96
HTHR Hawthorne Financial Corp. CA NASDAQ 7.375 35.500 2.250 -6.35 -1.67 12.25 318.47 0.00
HEMT HF Bancorp, Inc. CA NASDAQ 11.000 11.375 8.188 1.15 17.33 12.70 159.88 0.00
HBNK Highland Federal Bank FSB CA NASDAQ 17.250 17.500 11.000 3.76 21.05 14.57 204.34 0.00
MBBC Monterey Bay Bancorp, Inc. CA NASDAQ 14.750 15.625 8.750 -1.67 11.32 15.14 100.37 0.05
PFFB PFF Bancorp, Inc. CA NASDAQ 14.125 14.125 10.375 11.33 21.51 14.46 125.30 NA
PROV Provident Financial Holdings CA NASDAQ 13.875 14.250 10.125 7.77 23.33 16.57 113.20 NA
QCBC Quaker City Bancorp, Inc. CA NASDAQ 16.375 17.500 7.500 -6.43 14.41 17.54 194.18 0.00
REDF RedFed Bancorp Inc. CA NASDAQ 13.156 14.500 7.750 7.40 29.94 9.86 122.31 0.00
SGVB SGV Bancorp, Inc. CA NASDAQ 11.000 11.625 7.750 8.64 24.82 12.06 133.08 0.00
WES Westcorp CA NYSE 22.500 23.875 3.703 -4.26 7.78 12.10 122.43 0.38
FFBA First Colorado Bancorp, Inc. CO NASDAQ 16.875 17.750 3.189 5.47 20.54 11.79 79.58 NA
MORG Morgan Financial Corp. CO NASDAQ 12.000 13.000 6.750 6.67 -7.69 12.18 96.43 0.88
EGFC Eagle Financial Corp. CT NASDAQ 30.250 30.500 6.198 14.15 19.80 22.31 310.23 0.92
FFES First Federal of East
Hartford CT NASDAQ 22.750 23.750 4.000 18.18 16.67 22.05 360.52 0.59
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRICING RATIOS
------------------------------------------
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
PLE Pinnacle Bank 15.89 102.10 7.89 10.06
SRN Southern Banc Company, Inc NA 94.94 17.29 NA
SZB SouthFirst Bancshares, Inc. 21.82 85.15 12.27 37.87
FFBH First Federal Bancshares
of AR NA 98.95 16.18 NA
FTF Texarkana First Financial
Corp NA 84.17 16.96 NA
AHM Ahmanson & Company (H.F.) 63.50 168.35 6.62 16.45
AFFFZ America First Financial Fund 16.93 117.25 7.86 11.47
BPLS Bank Plus Corp. NM 130.51 6.18 NM
BVFS Bay View Capital Corp. NM 133.70 7.55 15.98
BYFC Broadway Financial Cor p. NA 65.51 7.04 NA
CAL Cal Fed Bancorp, Inc. 24.74 183.16 8.48 15.54
CFHC California Financial Holding 29.29 158.30 10.22 17.26
CENF CENFED Financial Corp. 13.69 134.66 6.79 11.06
CSA Coast Savings Financial 68.14 156.25 7.55 16.87
DSL Downey Financial Corp. 23.42 123.34 9.55 14.44
FSSB First FS&LA of San
Bernardino NM 62.76 2.94 NM
FED FirstFed Financial Corp. 96.74 127.22 5.58 19.69
GLN Glendale Federal Bank, FSB NM 144.36 6.64 21.68
GDW Golden West Financial 10.60 162.37 9.96 8.69
GWF Great Western Financial 22.39 168.16 9.47 14.35
HTHR Hawthorne Financial Corp. 13.41 60.20 2.32 12.72
HEMT HF Bancorp, Inc. NM 86.61 6.88 32.35
HBNK Highland Federal Bank FSB NM 118.39 8.44 33.17
MBBC Monterey Bay Bancorp, Inc. 105.36 97.42 14.70 36.88
PFFB PFF Bancorp, Inc. NA 97.68 11.27 NA
PROV Provident Financial Holdings NA 83.74 12.26 NA
QCBC Quaker City Bancorp, Inc. 44.26 93.36 8.43 18.40
REDF RedFed Bancorp Inc. NM 133.43 10.76 NM
SGVB SGV Bancorp, Inc. NM 91.21 8.27 31.43
WES Westcorp 17.44 185.95 18.38 42.45
FFBA First Colorado Bancorp, Inc. NA 143.13 21.21 NA
MORG Morgan Financial Corp. 18.75 98.52 12.44 14.29
EGFC Eagle Financial Corp. 10.47 135.59 9.75 16.99
FFES First Federal of East
Hartford 15.07 103.17 6.31 9.93
</TABLE>
100
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
-----------------------------------------------------------------------
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ------ -------- -------- ------- --------- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NTMG Nutmeg Federal S&LA CT NASDAQ 7.250 8.000 4.645 0.00 0.00 7.08 131.98 0.08
WBST Webster Financial
Corporation CT NASDAQ 37.125 37.625 3.864 9.19 16.02 24.86 491.39 0.66
IFSB Independence Federal Savings DC NASDAQ 7.625 10.250 0.250 1.67 7.02 13.02 193.66 0.22
BANC BankAtlantic Bancorp, Inc. FL NASDAQ 12.625 13.750 0.223 -4.72 2.02 9.49 147.45 0.14
BKUNA BankUnited Financial Corp. FL NASDAQ 9.000 12.750 2.320 2.86 18.03 7.85 144.48 0.00
FFFG F.F.O. Financial Group, Inc. FL NASDAQ 2.750 10.000 0.563 0.00 0.00 2.23 36.90 0.00
FFLC FFLC Bancorp, Inc. FL NASDAQ 20.000 20.750 12.750 0.00 9.59 21.58 133.05 0.36
FFML First Family Financial Corp. FL NASDAQ 22.500 23.000 5.000 3.45 4.65 15.97 313.24 0.12
FFPB First Palm Beach Bancorp,
Inc. FL NASDAQ 24.875 25.500 14.000 4.19 8.74 21.17 293.34 0.40
FFPC Florida First Bancorp, Inc FL NASDAQ 11.375 11.500 0.750 2.25 2.25 6.12 87.53 0.24
CCFH CCF Holding Company GA NASDAQ 14.500 15.125 10.750 1.75 17.17 14.86 70.15 NA
EBSI Eagle Bancshares GA NASDAQ 15.000 19.000 1.875 -2.84 -6.25 12.62 141.06 0.56
FGHC First Georgia Holding, Inc. GA NASDAQ 8.000 8.000 1.222 18.52 14.29 5.92 71.17 0.07
FLFC First Liberty Financial Corp. GA NASDAQ 20.063 21.500 2.667 9.93 32.28 11.39 165.11 0.35
FLAG FLAG Financial Corp. GA NASDAQ 11.125 15.000 3.200 1.14 5.95 9.89 112.38 0.32
NFSL Newnan Holdings, Inc. GA NASDAQ 25.250 26.750 2.955 0.00 12.22 14.52 161.25 0.30
CASH First Midwest Financial, Inc. IA NASDAQ 24.750 24.750 13.250 1.02 6.45 21.94 192.34 0.41
GFSB GFS Bancorp, Inc. IA NASDAQ 20.750 21.000 11.000 0.61 -1.19 19.61 169.53 0.35
HZFS Horizon Financial Svcs Corp. IA NASDAQ 14.938 16.375 10.375 1.27 3.02 18.37 171.12 0.32
MFCX Marshalltown Financial Corp. IA NASDAQ 15.250 16.750 8.500 -1.61 -6.15 13.70 87.98 0.00
MIFC Mid-Iowa Financial Corp. IA NASDAQ 6.375 7.875 2.474 2.00 -1.92 6.42 68.49 0.08
MWBI Midwest Bancshares, Inc. IA NASDAQ 27.000 27.125 11.750 0.00 10.20 25.95 394.15 0.54
FFFD North Central Bancshares,
Inc. IA NASDAQ 13.375 13.438 8.071 3.88 12.63 13.98 51.94 NA
PMFI Perpetual Midwest Financial IA NASDAQ 19.063 22.000 10.000 0.33 10.51 17.68 206.43 0.30
SFFC StateFed Financial
Corporation IA NASDAQ 16.500 19.750 10.500 -2.94 3.13 18.47 102.67 0.40
AVND Avondale Financial Corp. IL NASDAQ 16.875 17.125 11.500 18.42 19.47 16.31 170.09 0.00
CBCI Calumet Bancorp, Inc. IL NASDAQ 32.750 33.875 10.333 11.97 16.96 33.48 207.31 0.00
CBSB Charter Financial, Inc. IL NASDAQ 13.000 13.000 6.361 1.96 11.83 13.08 75.29 NA
CNBA Chester Bancorp, Inc. IL NASDAQ 13.250 13.750 12.625 4.95 NA NA NA NA
CBK Citizens First Financial
Corp. IL AMSE 13.625 13.875 9.500 14.74 25.29 14.31 94.56 NA
CSBF CSB Financial Group, Inc. IL NASDAQ 10.000 10.125 8.810 -0.63 9.59 12.40 40.12 NA
DFIN Damen Financial Corp. IL NASDAQ 12.250 12.875 11.000 3.70 7.69 14.02 62.20 NA
EGLB Eagle BancGroup, Inc. IL NASDAQ 13.500 13.750 10.500 1.89 13.68 16.76 125.69 NA
FBCI Fidelity Bancorp, Inc. IL NASDAQ 17.000 17.250 9.500 0.74 1.49 17.04 166.03 0.24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRICING RATIOS
------------------------------------------
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
NTMG Nutmeg Federal S&LA 27.88 102.40 5.49 21.97
WBST Webster Financial
Corporation 16.88 149.34 7.56 13.45
IFSB Independence Federal Savings 29.33 58.56 3.94 19.55
BANC BankAtlantic Bancorp, Inc. 13.15 133.03 8.56 13.29
BKUNA BankUnited Financial Corp. 90.00 114.65 6.23 18.37
FFFG F.F.O. Financial Group, Inc. 34.38 123.32 7.45 12.50
FFLC FFLC Bancorp, Inc. 25.32 92.68 15.03 16.39
FFML First Family Financial Corp. 18.91 140.89 7.18 18.44
FFPB First Palm Beach Bancorp,
Inc. 42.89 117.50 8.48 31.49
FFPC Florida First Bancorp, Inc 21.06 185.87 13.00 14.58
CCFH CCF Holding Company NA 97.58 20.67 NA
EBSI Eagle Bancshares 14.56 118.86 10.63 11.45
FGHC First Georgia Holding, Inc. 13.79 135.14 11.24 14.81
FLFC First Liberty Financial Corp. 13.65 176.15 12.15 16.45
FLAG FLAG Financial Corp. NM 112.49 9.90 111.25
NFSL Newnan Holdings, Inc. 10.56 173.90 15.66 10.61
CASH First Midwest Financial, Inc. 14.14 112.81 12.87 14.31
GFSB GFS Bancorp, Inc. 14.41 105.81 12.24 11.59
HZFS Horizon Financial Svcs Corp. 67.90 81.32 8.73 26.68
MFCX Marshalltown Financial Corp. NM 111.31 17.33 46.21
MIFC Mid-Iowa Financial Corp. 10.63 99.30 9.31 10.63
MWBI Midwest Bancshares, Inc. 11.64 104.05 6.85 10.38
FFFD North Central Bancshares,
Inc. NA 95.67 25.75 NA
PMFI Perpetual Midwest Financial 59.57 107.82 9.23 26.11
SFFC StateFed Financial
Corporation 17.93 89.33 16.07 13.87
AVND Avondale Financial Corp. 29.61 103.46 9.92 27.22
CBCI Calumet Bancorp, Inc. 18.30 97.82 15.80 14.18
CBSB Charter Financial, Inc. NA 99.39 17.27 NA
CNBA Chester Bancorp, Inc. NA NA NA NA
CBK Citizens First Financial
Corp. NA 95.21 14.41 NA
CSBF CSB Financial Group, Inc. NA 80.65 24.93 NA
DFIN Damen Financial Corp. NA 87.38 19.69 NA
EGLB Eagle BancGroup, Inc. NA 80.55 10.74 NA
FBCI Fidelity Bancorp, Inc. 23.61 99.77 10.24 15.89
</TABLE>
101
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
-----------------------------------------------------------------------
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ------ -------- -------- ------- --------- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FFBI First Financial Bancorp, Inc. IL NASDAQ 15.875 16.250 9.000 2.42 2.42 16.60 214.77 0.00
FMBD First Mutual Bancorp, Inc. IL NASDAQ 14.375 14.750 11.125 4.55 10.04 16.40 82.29 0.29
FFDP FirstFed Bancshares IL NASDAQ 17.000 17.625 8.000 0.00 3.03 15.76 183.98 0.33
GTPS Great American Bancorp IL NASDAQ 14.750 15.125 11.875 0.85 9.26 18.05 63.52 0.48
HNFC Hinsdale Financial Corp. IL NASDAQ 25.875 27.750 9.000 11.29 10.11 20.58 241.51 0.00
HBEI Home Bancorp of Elgin, Inc. IL NASDAQ 12.875 13.125 11.813 4.04 NA 14.12 52.86 NA
HMCI HomeCorp, Inc. IL NASDAQ 18.000 19.875 5.000 -5.26 -1.37 18.10 301.66 0.00
KNK Kankakee Bancorp, Inc. IL AMSE 24.750 26.375 13.625 10.00 22.22 24.99 249.43 0.40
LBCI Liberty Bancorp, Inc. IL NASDAQ 24.250 30.625 12.750 2.11 1.04 25.55 268.11 0.60
MAFB MAF Bancorp, Inc. IL NASDAQ 34.750 35.250 2.727 12.10 31.13 23.06 301.62 0.33
NBSI North Bancshares, Inc. IL NASDAQ 16.000 16.500 11.000 -1.54 1.59 16.50 109.02 0.30
PFED Park Bancorp, Inc. IL NASDAQ 11.750 12.500 10.188 -2.08 13.93 15.38 65.42 NA
PSFI PS Financial, Inc. IL NASDAQ 11.625 11.875 11.625 NA NA NA NA NA
SWBI Southwest Bancshares IL NASDAQ 18.500 18.833 7.833 0.00 3.25 14.71 141.73 0.72
SPBC St. Paul Bancorp, Inc. IL NASDAQ 27.625 28.750 3.833 2.31 5.24 20.55 236.49 0.40
STND Standard Financial, Inc. IL NASDAQ 19.875 20.125 9.125 3.92 22.31 16.26 144.45 0.24
SFSB SuburbFed Financial Corp. IL NASDAQ 20.375 20.500 6.667 4.49 18.12 20.27 312.10 0.32
WCBI Westco Bancorp IL NASDAQ 21.500 22.250 7.667 0.00 0.00 18.34 118.32 0.47
FBCV 1ST Bancorp IN NASDAQ 30.500 34.286 4.190 1.24 -3.17 31.54 384.65 0.40
AMFC AMB Financial Corp. IN NASDAQ 12.500 12.938 9.750 -0.99 19.75 14.40 74.32 NA
ASBI Ameriana Bancorp IN NASDAQ 15.750 16.000 2.750 6.78 18.87 13.27 121.95 0.55
ATSB AmTrust Capital Corp. IN NASDAQ 10.375 11.250 7.750 6.41 15.28 13.54 136.60 0.00
CBCO CB Bancorp, Inc. IN NASDAQ 23.000 25.500 7.125 -7.07 21.05 16.67 172.08 0.00
CBIN Community Bank Shares IN NASDAQ 12.500 14.750 12.000 0.00 -2.91 12.84 118.26 0.33
FFWC FFW Corp. IN NASDAQ 20.750 21.500 12.500 -1.19 6.41 22.04 220.14 0.54
FFED Fidelity Federal Bancorp IN NASDAQ 10.000 14.773 1.534 -4.76 -9.09 5.03 105.01 0.85
FISB First Indiana Corporation IN NASDAQ 25.375 26.000 1.797 3.57 10.62 16.30 179.09 0.54
HFGI Harrington Financial Group IN NASDAQ 10.125 11.000 9.875 0.00 -3.57 7.13 164.14 0.00
HBFW Home Bancorp IN NASDAQ 18.500 19.000 12.500 2.78 12.98 16.96 109.43 0.05
HBBI Home Building Bancorp IN NASDAQ 18.000 21.250 10.000 2.86 -1.37 18.84 136.56 0.30
HOMF Home Federal Bancorp IN NASDAQ 35.250 35.250 3.222 13.71 34.29 23.20 284.51 0.48
HWEN Home Financial Bancorp IN NASDAQ 13.125 13.750 9.875 0.96 2.94 15.31 76.46 NA
INCB Indiana Community Bank, SB IN NASDAQ 15.500 16.750 11.000 -3.13 16.98 12.10 98.37 3.35
IFSL Indiana Federal Corporation IN NASDAQ 21.750 23.000 4.000 10.13 8.75 14.76 170.80 0.81
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRICING RATIOS
------------------------------------------
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
FFBI First Financial Bancorp, Inc. 72.16 95.63 7.39 22.36
FMBD First Mutual Bancorp, Inc. 46.37 87.65 17.47 29.95
FFDP FirstFed Bancshares 44.74 107.87 9.24 34.69
GTPS Great American Bancorp 70.24 81.72 23.22 38.82
HNFC Hinsdale Financial Corp. 23.52 125.73 10.71 16.80
HBEI Home Bancorp of Elgin, Inc. NA 91.18 24.36 NA
HMCI HomeCorp, Inc. 64.29 99.45 5.97 19.35
KNK Kankakee Bancorp, Inc. 25.26 99.04 9.92 17.31
LBCI Liberty Bancorp, Inc. 31.09 94.91 9.04 16.06
MAFB MAF Bancorp, Inc. 17.29 150.69 11.52 12.11
NBSI North Bancshares, Inc. 48.48 96.97 14.68 26.67
PFED Park Bancorp, Inc. NA 76.40 17.96 NA
PSFI PS Financial, Inc. NA NA NA NA
SWBI Southwest Bancshares 19.07 125.76 13.05 13.70
SPBC St. Paul Bancorp, Inc. 21.92 134.43 11.68 13.88
STND Standard Financial, Inc. 27.23 122.23 13.76 19.11
SFSB SuburbFed Financial Corp. 32.34 100.52 6.53 15.44
WCBI Westco Bancorp 20.48 117.23 18.17 14.73
FBCV 1ST Bancorp 4.39 96.70 7.93 NM
AMFC AMB Financial Corp. NA 86.81 16.82 NA
ASBI Ameriana Bancorp 23.51 118.69 12.92 15.44
ATSB AmTrust Capital Corp. 28.82 76.62 7.60 69.17
CBCO CB Bancorp, Inc. 13.29 137.97 13.37 11.22
CBIN Community Bank Shares 18.94 97.35 10.57 12.63
FFWC FFW Corp. 11.53 94.15 9.43 9.52
FFED Fidelity Federal Bancorp 34.48 198.81 9.52 26.32
FISB First Indiana Corporation 16.37 155.67 14.17 20.46
HFGI Harrington Financial Group 23.01 142.01 6.17 16.07
HBFW Home Bancorp 21.02 109.08 16.91 21.02
HBBI Home Building Bancorp NM 95.54 13.18 NM
HOMF Home Federal Bancorp 13.45 151.94 12.39 11.75
HWEN Home Financial Bancorp NA 85.73 17.17 NA
INCB Indiana Community Bank, SB 110.71 128.10 15.76 32.98
IFSL Indiana Federal Corporation 20.52 147.36 12.73 14.50
</TABLE>
102
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
-----------------------------------------------------------------------
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ------ -------- -------- ------- --------- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOGN Logansport Financial Corp. IN NASDAQ 11.750 14.750 11.250 -20.34 -16.07 12.04 60.28 3.40
MARN Marion Capital Holdings IN NASDAQ 20.500 21.500 14.250 -0.61 1.23 21.50 94.75 0.76
MFBC MFB Corp. IN NASDAQ 17.000 19.250 10.500 3.03 9.68 19.09 106.67 0.00
NEIB Northeast Indiana Bancorp IN NASDAQ 13.500 14.000 11.250 4.85 10.20 14.29 81.92 0.30
PFDC Peoples Bancorp IN NASDAQ 20.500 22.500 5.375 3.80 3.14 18.35 120.41 0.56
PERM Permanent Bancorp, Inc. IN NASDAQ 18.500 19.250 9.750 5.71 12.12 18.73 197.93 0.23
SOBI Sobieski Bancorp, Inc. IN NASDAQ 15.000 15.000 10.000 9.09 25.00 15.62 91.22 0.00
FFSL First Independence Corp. KS NASDAQ 19.625 21.250 10.875 -1.88 3.29 22.29 186.04 0.38
LARK Landmark Bancshares, Inc. KS NASDAQ 16.500 17.000 9.750 1.54 5.60 17.48 115.35 0.40
MCBS Mid Continent Bancshares Inc. KS NASDAQ 23.375 23.375 9.750 23.03 22.22 19.06 168.45 0.40
CKFB CKF Bancorp, Inc. KY NASDAQ 19.750 20.750 11.375 0.00 0.00 16.80 63.63 0.42
CLAS Classic Bancshares, Inc. KY NASDAQ 11.875 12.125 10.375 3.26 0.00 14.21 103.00 NA
FFKY First Federal Financial Corp. KY NASDAQ 20.250 22.000 3.063 -4.71 -3.57 11.73 85.14 0.47
FLKY First Lancaster Bancshares KY NASDAQ 16.000 16.250 13.125 10.34 10.34 14.08 39.47 NA
FTSB Fort Thomas Financial Corp. KY NASDAQ 14.250 17.750 11.250 1.79 1.79 13.75 56.47 0.25
FKKY Frankfort First Bancorp, Inc. KY NASDAQ 11.375 15.875 10.000 1.11 5.81 9.84 37.42 4.36
GWBC Gateway Bancorp, Inc. KY NASDAQ 14.000 16.250 11.000 -1.75 5.66 15.64 62.39 1.50
GTFN Great Financial Corporation KY NASDAQ 29.297 29.875 13.875 -0.27 4.63 19.27 199.57 0.46
HFFB Harrodsburg First Fin
Bancorp KY NASDAQ 18.250 19.000 12.375 0.00 12.31 15.47 50.75 NA
KYF Kentucky First Bancorp, Inc. KY AMSE 11.500 15.250 11.250 -22.69 -15.60 13.78 61.94 0.38
SFNB Security First Network Bank KY NASDAQ 12.625 41.500 11.000 -17.21 -54.50 5.98 13.62 NA
ANA Acadiana Bancshares, Inc. LA AMSE 14.625 15.125 11.690 2.63 9.86 17.03 97.05 NA
CZF CitiSave Financial Corp LA AMSE 13.500 16.500 12.750 -1.82 -3.57 12.61 78.61 2.30
ISBF ISB Financial Corporation LA NASDAQ 17.125 18.500 12.938 5.38 15.13 17.09 97.26 0.32
MERI Meritrust Federal SB LA NASDAQ 31.500 34.000 13.500 1.61 2.44 21.67 298.46 0.60
TSH Teche Holding Co. LA AMSE 13.000 14.500 11.375 -3.70 0.00 14.76 107.20 0.50
AFCB Affiliated Community Bancorp MA NASDAQ 22.625 23.000 16.060 5.23 4.62 19.47 197.35 NA
BFD BostonFed Bancorp, Inc. MA AMSE 14.750 15.125 10.000 7.27 13.46 14.42 120.93 NA
ANBK American National Bancorp MD NASDAQ 12.125 12.625 4.639 3.19 5.43 12.93 135.04 0.03
EQSB Equitable Federal Savings
Bank MD NASDAQ 27.500 27.500 11.250 1.85 11.11 23.64 446.29 0.00
FCIT First Citizens Financial
Corp. MD NASDAQ 18.438 19.091 0.375 -2.96 10.91 13.51 228.36 0.00
FFWM First Financial-W. Maryland MD NASDAQ 31.750 32.250 7.167 10.92 32.29 19.00 162.64 0.48
HRBF Harbor Federal Bancorp, Inc. MD NASDAQ 15.500 15.875 9.750 3.33 8.77 15.66 121.87 0.35
MFSL Maryland Federal Bancorp MD NASDAQ 33.500 33.500 4.329 6.59 19.24 29.02 360.37 0.60
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRICING RATIOS
------------------------------------------
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
LOGN Logansport Financial Corp. 16.55 97.59 19.49 13.99
MARN Marion Capital Holdings 20.50 95.35 21.64 16.02
MFBC MFB Corp. 23.94 89.05 15.94 24.64
NEIB Northeast Indiana Bancorp 18.24 94.47 16.48 15.17
PFDC Peoples Bancorp 14.96 111.72 17.03 11.45
PERM Permanent Bancorp, Inc. 71.15 98.77 9.35 23.42
SOBI Sobieski Bancorp, Inc. 150.00 96.03 16.44 34.88
FFSL First Independence Corp. 14.32 88.04 10.55 12.50
LARK Landmark Bancshares, Inc. 22.92 94.39 14.30 17.37
MCBS Mid Continent Bancshares Inc. 14.70 122.64 13.88 12.05
CKFB CKF Bancorp, Inc. 24.09 117.56 31.04 24.38
CLAS Classic Bancshares, Inc. NA 83.57 11.53 NA
FFKY First Federal Financial Corp. 19.66 172.63 23.78 17.31
FLKY First Lancaster Bancshares NA 113.64 40.54 NA
FTSB Fort Thomas Financial Corp. 17.38 103.64 25.23 17.38
FKKY Frankfort First Bancorp, Inc. 33.46 115.60 30.40 25.28
GWBC Gateway Bancorp, Inc. 26.92 89.51 22.44 26.92
GTFN Great Financial Corporation 23.63 152.03 14.68 22.71
HFFB Harrodsburg First Fin
Bancorp NA 117.97 35.96 NA
KYF Kentucky First Bancorp, Inc. 20.54 83.45 18.57 16.20
SFNB Security First Network Bank NM 211.12 92.69 NM
ANA Acadiana Bancshares, Inc. NA 85.88 15.07 NA
CZF CitiSave Financial Corp 19.85 107.06 17.17 15.34
ISBF ISB Financial Corporation 22.83 100.20 17.61 16.63
MERI Meritrust Federal SB 20.59 145.36 10.55 12.60
TSH Teche Holding Co. 19.12 88.08 12.13 13.27
AFCB Affiliated Community Bancorp NA 116.20 11.46 NA
BFD BostonFed Bancorp, Inc. NA 102.29 12.20 NA
ANBK American National Bancorp 71.32 93.77 8.98 18.37
EQSB Equitable Federal Savings
Bank 8.76 116.33 6.16 8.79
FCIT First Citizens Financial
Corp. 20.49 136.48 8.07 14.29
FFWM First Financial-W. Maryland 24.42 167.11 19.52 17.54
HRBF Harbor Federal Bancorp, Inc. 53.45 98.98 12.72 25.00
MFSL Maryland Federal Bancorp 13.40 115.44 9.30 16.75
</TABLE>
103
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
-----------------------------------------------------------------------
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ------ -------- -------- ------- --------- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WSB Washington Savings Bank, FSB MD AMSE 4.938 6.917 0.281 6.77 -3.65 5.10 58.47 0.14
WHGB WHG Bancshares Corp. MD NASDAQ 12.688 13.750 10.875 -2.87 10.33 14.36 60.23 NA
MCBN Mid-Coast Bancorp, Inc. ME NASDAQ 18.750 20.250 8.095 -3.85 -1.32 21.36 243.20 0.50
BWFC Bank West Financial Corp. MI NASDAQ 11.000 12.250 8.500 4.76 0.00 12.21 70.41 0.28
CFSB CFSB Bancorp, Inc. MI NASDAQ 18.250 21.818 3.169 0.00 0.00 13.03 168.26 0.43
DNFC D & N Financial Corp. MI NASDAQ 14.875 18.875 2.500 0.85 14.42 10.16 185.59 0.00
MSBF MSB Financial, Inc. MI NASDAQ 19.250 19.750 10.750 1.32 6.94 19.27 96.13 0.45
MSBK Mutual Savings Bank, FSB MI NASDAQ 5.750 25.500 3.000 12.20 0.00 9.23 158.53 0.00
OFCP Ottawa Financial Corp. MI NASDAQ 16.750 16.750 10.250 3.47 3.08 14.55 159.73 0.33
SJSB SJS Bancorp MI NASDAQ 25.250 25.875 10.810 10.99 27.04 17.24 165.52 0.41
SFB Standard Federal Bancorp MI NYSE 56.125 58.000 4.750 5.15 30.90 28.72 492.23 0.76
THR Three Rivers Financial Corp. MI AMSE 13.625 14.375 11.375 4.81 4.81 14.86 102.64 0.30
BDJI First Federal Bancorporation MN NASDAQ 17.875 18.000 10.625 10.00 21.19 17.59 153.10 0.00
FFHH FSF Financial Corp. MN NASDAQ 14.250 14.438 7.750 3.16 18.75 15.50 101.96 0.50
HMNF HMN Financial, Inc. MN NASDAQ 18.000 18.250 9.313 2.86 12.94 17.90 120.97 0.00
MIVI Mississippi View Holding Co. MN NASDAQ 12.750 12.750 8.500 4.08 8.51 14.02 76.20 0.16
QCFB QCF Bancorp, Inc. MN NASDAQ 16.250 17.000 11.000 3.17 8.33 18.34 104.00 0.00
TCB TCF Financial Corp. MN NYSE 43.000 45.000 2.813 8.18 13.16 14.98 204.03 0.69
WEFC Wells Financial Corp. MN NASDAQ 12.563 13.250 9.000 -2.42 2.56 13.36 96.87 0.00
CMRN Cameron Financial Corp MO NASDAQ 15.625 15.625 10.688 4.17 7.76 16.26 61.69 0.28
CAPS Capital Savings Bancorp, Inc. MO NASDAQ 13.500 14.750 6.125 11.34 40.26 10.41 123.26 0.18
CBES CBES Bancorp, Inc. MO NASDAQ 14.000 14.250 12.625 4.67 NA 16.56 94.36 NA
CNSB CNS Bancorp, Inc. MO NASDAQ 14.625 14.625 11.000 6.36 14.71 14.60 59.82 NA
FBSI First Bancshares, Inc. MO NASDAQ 16.500 17.000 10.250 7.32 -1.49 18.89 127.91 0.20
FTNB Fulton Bancorp, Inc. MO NASDAQ 14.125 14.750 12.500 -0.88 NA NA NA NA
GSBC Great Southern Bancorp, Inc. MO NASDAQ 16.750 17.750 1.146 -2.90 17.54 7.63 75.33 0.36
HFSA Hardin Bancorp, Inc. MO NASDAQ 12.000 13.000 11.000 -2.04 6.67 14.66 87.36 0.30
JSBA Jefferson Savings Bancorp MO NASDAQ 23.500 30.750 13.250 2.17 0.00 21.59 269.82 0.24
JOAC Joachim Bancorp, Inc. MO NASDAQ 14.500 15.250 11.500 3.57 13.73 14.05 47.51 NA
LXMO Lexington B&L Financial Corp. MO NASDAQ 12.875 12.875 9.500 5.10 27.94 14.81 48.45 NA
MBLF MBLA Financial Corp. MO NASDAQ 20.000 26.000 12.750 -6.98 -8.05 20.67 167.95 0.40
NASB North American Savings Bank MO NASDAQ 31.000 33.750 2.500 -1.59 -1.59 22.21 326.41 0.56
NSLB NS&L Bancorp, Inc. MO NASDAQ 14.000 14.000 11.750 4.67 16.67 15.83 67.92 0.45
PCBC Perry County Financial Corp. MO NASDAQ 17.250 21.500 12.375 0.00 -1.43 17.70 94.30 0.30
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRICING RATIOS
------------------------------------------
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
WSB Washington Savings Bank, FSB 9.50 96.82 8.45 10.29
WHGB WHG Bancshares Corp. NA 88.36 21.07 NA
MCBN Mid-Coast Bancorp, Inc. 24.04 87.78 7.71 13.99
BWFC Bank West Financial Corp. 25.00 90.09 15.62 44.00
CFSB CFSB Bancorp, Inc. 17.06 140.06 10.85 12.76
DNFC D & N Financial Corp. 12.29 146.41 8.01 9.79
MSBF MSB Financial, Inc. 15.52 99.90 20.02 12.50
MSBK Mutual Savings Bank, FSB 52.27 62.30 3.63 NM
OFCP Ottawa Financial Corp. 35.64 115.12 10.49 17.45
SJSB SJS Bancorp 97.12 146.46 15.25 32.79
SFB Standard Federal Bancorp 37.67 195.42 11.40 14.85
THR Three Rivers Financial Corp. 26.72 91.69 13.27 17.03
BDJI First Federal Bancorporation 42.56 101.62 11.68 19.43
FFHH FSF Financial Corp. 29.69 91.94 13.98 21.27
HMNF HMN Financial, Inc. 19.15 100.56 14.88 16.67
MIVI Mississippi View Holding Co. 12.50 90.94 16.73 14.01
QCFB QCF Bancorp, Inc. 13.77 88.60 15.63 10.76
TCB TCF Financial Corp. 18.53 287.05 21.08 15.64
WEFC Wells Financial Corp. 23.26 94.03 12.97 13.96
CMRN Cameron Financial Corp 15.63 96.09 25.33 15.94
CAPS Capital Savings Bancorp, Inc. 20.45 129.68 10.95 13.37
CBES CBES Bancorp, Inc. NA 84.54 14.84 NA
CNSB CNS Bancorp, Inc. NA 100.17 24.45 NA
FBSI First Bancshares, Inc. 20.89 87.35 12.90 14.22
FTNB Fulton Bancorp, Inc. NA NA NA NA
GSBC Great Southern Bancorp, Inc. 17.09 219.53 22.24 14.96
HFSA Hardin Bancorp, Inc. 32.43 81.86 13.74 17.65
JSBA Jefferson Savings Bancorp 36.15 108.85 8.71 13.66
JOAC Joachim Bancorp, Inc. NA 103.20 30.52 NA
LXMO Lexington B&L Financial Corp. NA 86.93 26.57 NA
MBLF MBLA Financial Corp. 24.69 96.76 11.91 18.52
NASB North American Savings Bank 8.49 139.58 9.50 8.99
NSLB NS&L Bancorp, Inc. 20.59 88.44 20.61 23.73
PCBC Perry County Financial Corp. 20.29 97.46 18.29 18.35
</TABLE>
104
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
-----------------------------------------------------------------------
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ------ -------- -------- ------- --------- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RFED Roosevelt Financial Group MO NASDAQ 18.625 19.750 2.167 5.67 2.76 10.76 214.61 0.61
SMFC Sho-Me Financial Corp. MO NASDAQ 21.625 22.000 9.375 -1.70 8.13 19.96 177.43 0.00
SMBC Southern Missouri Bancorp,
Inc MO NASDAQ 14.188 17.500 8.875 1.34 -0.44 15.39 97.77 0.50
CFTP Community Federal Bancorp MS NASDAQ 17.250 17.250 12.250 7.81 28.97 15.67 47.64 NA
FFBS FFBS BanCorp, Inc. MS NASDAQ 23.000 24.250 12.000 4.55 6.98 16.62 80.06 0.45
MGNL Magna Bancorp, Inc. MS NASDAQ 18.500 22.500 0.844 0.00 -11.90 9.16 94.77 0.35
GBCI Glacier Bancorp, Inc. MT NASDAQ 24.500 25.250 1.495 -2.00 2.08 11.54 122.11 0.61
SFBM Security Bancorp MT NASDAQ 30.250 30.250 4.250 2.76 39.08 20.83 257.50 0.69
UBMT United Financial Corp. MT NASDAQ 19.750 22.500 5.625 6.76 5.33 19.89 88.24 0.87
WSTR WesterFed Financial Corp. MT NASDAQ 18.625 18.750 11.375 10.37 23.14 17.81 128.80 0.38
CFNC Carolina Fincorp, Inc. NC NASDAQ 13.000 13.375 13.000 NA NA NA NA NA
COOP Cooperative Bankshares, Inc. NC NASDAQ 20.750 22.500 3.467 7.79 9.21 16.90 219.35 0.00
SOPN First Savings Bancorp, Inc. NC NASDAQ 18.500 21.000 13.500 1.37 8.82 17.90 70.30 0.69
GSFC Green Street Financial Corp. NC NASDAQ 15.500 16.125 12.125 1.64 10.71 14.47 41.00 NA
HFNC HFNC Financial Corp. NC NASDAQ 17.438 18.250 13.125 -3.12 -1.06 14.41 49.15 NA
KSAV KS Bancorp, Inc. NC NASDAQ 20.875 22.000 11.625 8.44 4.38 20.83 144.97 1.10
MBSP Mitchell Bancorp, Inc. NC NASDAQ 13.875 13.875 10.190 9.90 14.43 15.02 35.70 NA
PDB Piedmont Bancorp, Inc. NC AMSE 17.875 19.125 12.000 10.00 19.17 13.54 48.01 NA
SSB Scotland Bancorp, Inc NC AMSE 14.000 14.125 11.625 8.74 13.13 13.47 37.29 NA
SSFC South Street Financial Corp. NC NASDAQ 14.000 14.625 12.125 14.29 NA NA NA NA
SSM Stone Street Bancorp, Inc. NC AMSE 19.500 20.125 16.250 0.00 12.23 20.49 58.28 NA
UFRM United Federal Savings Bank NC NASDAQ 8.375 8.750 1.750 3.87 15.52 6.44 86.00 0.19
CFB Commercial Federal
Corporation NE NYSE 45.750 48.500 1.625 5.78 15.82 25.96 481.20 0.50
EBCP Eastern Bancorp NH NASDAQ 22.125 24.000 3.000 -7.81 14.94 17.41 237.89 0.49
NHTB New Hampshire Thrift Bncshrs NH NASDAQ 11.750 13.375 1.750 -2.08 18.99 11.31 155.47 0.50
FBER 1st Bergen Bancorp NJ NASDAQ 12.000 12.125 9.000 2.13 20.00 13.41 78.76 NA
CJFC Central Jersey Financial NJ NASDAQ 37.500 39.250 2.645 4.17 13.21 21.04 174.07 0.80
COFD Collective Bancorp, Inc. NJ NASDAQ 33.375 36.375 1.351 3.89 24.19 17.87 257.83 0.90
FSPG First Home Bancorp, Inc. NJ NASDAQ 18.250 19.000 2.531 -2.67 1.39 15.50 240.00 0.48
FSFI First State Financial
Services NJ NASDAQ 15.000 15.375 1.625 10.09 15.38 10.17 169.47 0.22
FMCO FMS Financial Corporation NJ NASDAQ 17.125 17.750 1.500 2.82 10.48 13.71 210.13 0.20
IBSF IBS Financial Corp. NJ NASDAQ 15.438 16.250 8.409 -3.51 7.39 13.42 69.00 0.24
LVSB Lakeview Financial NJ NASDAQ 23.250 24.318 7.335 0.00 12.42 19.47 190.05 0.22
LFBI Little Falls Bancorp, Inc. NJ NASDAQ 12.500 13.500 9.500 6.38 20.48 14.45 97.11 NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRICING RATIOS
------------------------------------------
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
RFED Roosevelt Financial Group 23.58 173.09 8.68 10.96
SMFC Sho-Me Financial Corp. 19.84 108.34 12.19 15.45
SMBC Southern Missouri Bancorp,
Inc 21.50 92.19 14.51 15.42
CFTP Community Federal Bancorp NA 110.08 36.21 NA
FFBS FFBS BanCorp, Inc. 26.14 138.39 28.73 20.18
MGNL Magna Bancorp, Inc. 15.04 201.97 19.52 12.17
GBCI Glacier Bancorp, Inc. 15.12 212.31 20.06 13.46
SFBM Security Bancorp 23.45 145.22 11.75 18.79
UBMT United Financial Corp. 18.63 99.30 22.38 15.43
WSTR WesterFed Financial Corp. 24.83 104.58 14.46 17.41
CFNC Carolina Fincorp, Inc. NA NA NA NA
COOP Cooperative Bankshares, Inc. NM 122.78 9.46 NM
SOPN First Savings Bancorp, Inc. 22.29 103.35 26.32 17.96
GSFC Green Street Financial Corp. NA 107.12 37.80 NA
HFNC HFNC Financial Corp. NA 121.01 35.48 NA
KSAV KS Bancorp, Inc. 19.33 100.22 14.40 12.89
MBSP Mitchell Bancorp, Inc. NA 92.38 38.87 NA
PDB Piedmont Bancorp, Inc. NA 132.02 37.23 NA
SSB Scotland Bancorp, Inc NA 103.93 37.54 NA
SSFC South Street Financial Corp. NA NA NA NA
SSM Stone Street Bancorp, Inc. NA 95.17 33.46 NA
UFRM United Federal Savings Bank 38.07 130.05 9.74 20.43
CFB Commercial Federal
Corporation 17.07 176.23 9.51 11.95
EBCP Eastern Bancorp 25.43 127.08 9.30 19.75
NHTB New Hampshire Thrift Bncshrs 19.58 103.89 7.56 13.20
FBER 1st Bergen Bancorp NA 89.49 15.24 NA
CJFC Central Jersey Financial 27.37 178.23 21.54 20.05
COFD Collective Bancorp, Inc. 14.97 186.77 12.94 12.18
FSPG First Home Bancorp, Inc. 8.82 117.74 7.60 8.00
FSFI First State Financial
Services NM 147.49 8.85 NM
FMCO FMS Financial Corporation 16.79 124.91 8.15 9.90
IBSF IBS Financial Corp. 35.90 115.04 22.37 22.37
LVSB Lakeview Financial 10.67 119.41 12.23 15.50
LFBI Little Falls Bancorp, Inc. NA 86.51 12.87 NA
</TABLE>
105
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
-----------------------------------------------------------------------
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ------ -------- -------- ------- --------- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OCFC Ocean Financial Corp. NJ NASDAQ 25.875 26.500 19.625 3.50 15.00 27.23 131.37 NA
PBCI Pamrapo Bancorp, Inc. NJ NASDAQ 18.875 26.125 2.563 -0.66 -3.82 16.91 112.34 0.95
PFSB PennFed Financial Services,
Inc NJ NASDAQ 20.125 20.750 9.063 -0.62 15.00 20.23 235.41 0.00
PULS Pulse Bancorp NJ NASDAQ 16.000 18.000 4.000 -4.48 -5.19 12.61 164.76 0.70
SFIN Statewide Financial Corp. NJ NASDAQ 13.938 14.000 11.250 9.85 11.50 13.09 132.56 NA
WYNE Wayne Bancorp, Inc. NJ NASDAQ 14.188 14.750 10.750 1.34 5.10 16.10 107.38 NA
WWFC Westwood Financial
Corporation NJ NASDAQ 15.250 16.000 10.250 10.91 40.23 14.76 144.82 NA
AABC Access Anytime Bancorp, Inc. NM NASDAQ 5.750 10.417 1.750 0.00 4.55 6.82 148.75 0.00
GUPB GFSB Bancorp, Inc. NM NASDAQ 15.250 15.250 12.875 6.55 7.96 16.36 88.44 0.80
AFED AFSALA Bancorp, Inc. NY NASDAQ 12.000 12.125 11.313 0.00 NA NA NA NA
ALBK ALBANK Financial Corporation NY NASDAQ 31.625 32.750 9.167 12.95 6.97 23.97 267.91 0.46
ALBC Albion Banc Corp. NY NASDAQ 17.375 18.750 10.500 2.96 2.21 23.06 239.39 0.31
ASFC Astoria Financial Corporation NY NASDAQ 35.000 37.750 12.688 4.09 30.84 26.32 337.78 0.42
BFSI BFS Bankorp, Inc. NY NASDAQ 49.500 55.000 2.500 -1.00 -4.81 30.70 393.26 0.00
CARV Carver Bancorp, Inc. NY NASDAQ 8.000 10.750 6.250 1.59 0.78 14.96 157.73 0.00
FIBC Financial Bancorp, Inc. NY NASDAQ 14.500 16.250 8.500 3.57 -3.33 14.40 148.98 0.28
HAVN Haven Bancorp, Inc. NY NASDAQ 28.688 28.875 10.000 4.80 6.00 21.73 361.96 0.50
LISB Long Island Bancorp, Inc. NY NASDAQ 30.750 32.875 12.090 1.65 8.85 21.06 217.65 0.40
NYB New York Bancorp Inc. NY NYSE 33.625 36.250 2.425 -7.24 11.16 13.69 264.98 0.80
PEEK Peekskill Financial Corp. NY NASDAQ 13.375 14.500 11.125 -4.46 4.90 14.39 48.83 NA
PKPS Poughkeepsie Savings Bank, FS NY NASDAQ 5.125 26.750 0.875 0.00 3.79 5.59 68.58 0.10
RELY Reliance Bancorp, Inc. NY NASDAQ 18.625 19.500 8.875 2.76 3.47 16.78 205.28 0.49
SFED SFS Bancorp, Inc. NY NASDAQ 15.000 16.000 11.000 -2.44 15.38 16.56 129.87 0.06
TPNZ Tappan Zee Financial, Inc. NY NASDAQ 14.000 14.125 11.250 4.18 15.46 13.96 77.88 NA
YFCB Yonkers Financial Corporation NY NASDAQ 12.125 13.000 9.310 -6.73 4.30 13.72 72.68 NA
ASBP ASB Financial Corp. OH NASDAQ 17.750 18.250 11.375 21.37 22.41 15.82 66.69 0.35
CAFI Camco Financial Corporation OH NASDAQ 16.000 19.286 12.245 -3.03 -8.57 13.81 182.15 0.43
COFI Charter One Financial OH NASDAQ 41.000 44.000 3.281 -2.38 11.46 19.48 295.65 0.82
CTZN CitFed Bancorp, Inc. OH NASDAQ 28.250 32.500 6.167 -6.87 13.00 20.39 320.17 0.19
CIBI Community Investors Bancorp OH NASDAQ 16.500 18.250 10.750 -8.33 4.76 16.99 142.29 0.22
DCBI Delphos Citizens Bancorp,
Inc. OH NASDAQ 11.875 12.500 11.875 NA NA NA NA NA
EFBI Enterprise Federal Bancorp OH NASDAQ 15.750 18.000 11.250 6.78 22.33 15.23 103.11 3.00
FFDF FFD Financial Corp. OH NASDAQ 13.500 13.750 10.000 11.91 32.51 14.72 58.73 NA
FFYF FFY Financial Corp. OH NASDAQ 25.750 25.875 12.250 4.57 7.01 19.98 117.75 0.60
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRICING RATIOS
------------------------------------------
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
OCFC Ocean Financial Corp. NA 95.02 19.70 NA
PBCI Pamrapo Bancorp, Inc. 20.30 111.62 16.80 13.78
PFSB PennFed Financial Services,
Inc 18.81 99.48 8.55 11.50
PULS Pulse Bancorp 17.02 126.88 9.71 11.35
SFIN Statewide Financial Corp. NA 106.48 10.51 NA
WYNE Wayne Bancorp, Inc. NA 88.12 13.21 NA
WWFC Westwood Financial
Corporation NA 103.32 10.53 NA
AABC Access Anytime Bancorp, Inc. NM 84.31 3.87 NM
GUPB GFSB Bancorp, Inc. 24.60 93.22 17.24 19.30
AFED AFSALA Bancorp, Inc. NA NA NA NA
ALBK ALBANK Financial Corporation 18.60 131.94 11.80 14.44
ALBC Albion Banc Corp. NM 75.35 7.26 39.49
ASFC Astoria Financial Corporation 22.01 132.98 10.36 14.77
BFSI BFS Bankorp, Inc. 9.46 161.24 12.59 8.08
CARV Carver Bancorp, Inc. NM 53.48 5.07 19.51
FIBC Financial Bancorp, Inc. 22.66 100.69 9.73 12.39
HAVN Haven Bancorp, Inc. 14.86 132.02 7.93 9.53
LISB Long Island Bancorp, Inc. 23.12 146.01 14.13 19.10
NYB New York Bancorp Inc. 12.55 245.62 12.69 11.48
PEEK Peekskill Financial Corp. NA 92.95 27.39 NA
PKPS Poughkeepsie Savings Bank, FS 5.39 91.68 7.47 3.46
RELY Reliance Bancorp, Inc. 21.16 111.00 9.07 12.76
SFED SFS Bancorp, Inc. 27.78 90.58 11.55 14.85
TPNZ Tappan Zee Financial, Inc. NA 100.29 17.98 NA
YFCB Yonkers Financial Corporation NA 88.37 16.68 NA
ASBP ASB Financial Corp. 45.51 112.20 26.62 29.10
CAFI Camco Financial Corporation 12.12 115.86 8.78 10.53
COFI Charter One Financial 77.36 210.47 13.87 12.54
CTZN CitFed Bancorp, Inc. 20.93 138.55 8.82 13.45
CIBI Community Investors Bancorp 18.75 97.12 11.60 12.50
DCBI Delphos Citizens Bancorp,
Inc. NA NA NA NA
EFBI Enterprise Federal Bancorp 16.76 103.41 15.27 24.23
FFDF FFD Financial Corp. NA 91.71 22.99 NA
FFYF FFY Financial Corp. 26.82 128.88 21.87 17.40
</TABLE>
106
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
-----------------------------------------------------------------------
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ------ -------- -------- ------- --------- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FFOH Fidelity Financial of Ohio OH NASDAQ 11.188 11.500 3.112 6.55 14.75 12.46 62.76 NA
FDEF First Defiance Financial OH NASDAQ 12.250 12.500 5.790 7.69 13.95 12.17 52.89 NA
FFBZ First Federal Bancorp, Inc. OH NASDAQ 14.750 15.500 3.125 11.32 11.32 8.25 117.49 0.21
FFHS First Franklin Corporation OH NASDAQ 17.000 17.500 3.500 4.62 11.48 17.06 188.47 0.30
FFSW FirstFederal Financial Svcs OH NASDAQ 37.750 39.000 2.232 3.42 24.79 15.07 307.48 0.46
GFCO Glenway Financial Corp. OH NASDAQ 19.875 23.333 15.419 7.43 -1.85 22.88 246.43 0.65
HHFC Harvest Home Financial Corp. OH NASDAQ 9.875 13.750 8.750 5.33 0.00 13.66 81.72 0.40
HVFD Haverfield Corporation OH NASDAQ 19.250 19.750 5.165 0.00 12.41 14.47 183.89 0.54
INBI Industrial Bancorp OH NASDAQ 12.500 16.000 9.875 1.01 19.05 10.92 57.68 3.90
LONF London Financial Corporation OH NASDAQ 13.000 13.500 9.750 13.04 20.93 15.02 70.30 NA
MFFC Milton Federal Financial
Corp. OH NASDAQ 14.625 17.125 10.000 14.71 6.36 14.76 79.71 1.43
OHSL OHSL Financial Corp. OH NASDAQ 20.375 22.000 11.500 -5.23 0.62 20.58 177.96 0.74
PFFC Peoples Financial Corp. OH NASDAQ 13.000 13.250 10.875 8.33 NA NA NA NA
PTRS Potters Financial Corp. OH NASDAQ 18.906 19.000 9.000 3.59 16.34 20.35 247.93 0.29
PVFC PVF Capital Corp. OH NASDAQ 14.500 15.750 4.316 -3.33 7.41 9.67 148.61 0.00
SFSL Security First Corp. OH NASDAQ 15.500 17.250 1.625 -3.13 16.98 11.19 120.64 0.42
SSBK Strongsville Savings Bank OH NASDAQ 22.500 22.500 15.500 5.88 7.14 16.56 214.24 0.46
SBCN Suburban Bancorporation, Inc. OH NASDAQ 15.250 18.500 10.500 -3.17 -5.43 17.76 142.34 0.55
WOFC Western Ohio Financial Corp. OH NASDAQ 20.313 24.375 14.750 -2.11 -1.51 24.34 159.01 1.00
WEHO Westwood Homestead Fin. Corp. OH NASDAQ 11.500 11.875 10.375 4.55 NA 15.10 45.82 NA
WFCO Winton Financial Corp. OH NASDAQ 11.500 15.000 3.750 -14.81 2.22 10.61 142.40 0.41
FFWD Wood Bancorp, Inc. OH NASDAQ 16.375 17.250 8.000 -3.68 12.93 13.40 101.74 0.24
KFBI Klamath First Bancorp OR NASDAQ 14.875 15.063 12.500 5.31 3.48 14.98 57.87 NA
BRFC Bridgeville Savings Bank PA NASDAQ 16.000 16.000 11.750 4.92 6.67 14.12 48.78 0.59
CVAL Chester Valley Bancorp Inc. PA NASDAQ 18.500 20.000 3.879 -7.50 2.78 15.36 173.84 0.37
CMSB Commonwealth Bancorp, Inc. PA NASDAQ 14.125 14.500 5.790 6.60 29.89 12.67 116.13 NA
FSBI Fidelity Bancorp, Inc. PA NASDAQ 19.750 20.500 3.756 3.95 10.49 15.86 231.49 0.32
FBBC First Bell Bancorp, Inc. PA NASDAQ 17.063 17.375 10.000 8.34 22.98 13.71 74.37 0.20
FKFS First Keystone Financial PA NASDAQ 19.250 20.875 10.250 -1.28 8.45 17.86 227.65 0.00
SHEN First Shenango Bancorp, Inc. PA NASDAQ 22.875 23.750 12.750 3.98 10.24 20.42 170.09 0.44
GAF GA Financial, Inc. PA AMSE 14.750 15.375 10.250 9.26 19.19 15.50 66.17 NA
HARL Harleysville Savings Bank PA NASDAQ 18.250 20.000 3.535 -2.01 2.82 15.18 244.21 0.40
LARL Laurel Capital Group, Inc. PA NASDAQ 16.000 16.500 3.627 0.00 3.23 13.87 133.34 0.35
MLBC ML Bancorp, Inc. PA NASDAQ 14.625 14.750 6.219 4.93 13.59 12.55 159.14 0.34
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRICING RATIOS
------------------------------------------
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
FFOH Fidelity Financial of Ohio NA 89.79 17.83 NA
FDEF First Defiance Financial NA 100.66 23.16 NA
FFBZ First Federal Bancorp, Inc. 17.56 178.79 12.55 13.05
FFHS First Franklin Corporation 35.42 99.65 9.02 15.89
FFSW FirstFederal Financial Svcs 22.60 250.50 12.28 17.40
GFCO Glenway Financial Corp. 30.58 86.87 8.07 13.43
HHFC Harvest Home Financial Corp. 15.67 72.29 12.08 15.67
HVFD Haverfield Corporation 26.37 133.03 10.47 13.85
INBI Industrial Bancorp 27.78 114.47 21.67 14.88
LONF London Financial Corporation NA 86.55 18.49 NA
MFFC Milton Federal Financial
Corp. 29.85 99.09 18.35 23.21
OHSL OHSL Financial Corp. 21.91 99.00 11.45 14.76
PFFC Peoples Financial Corp. NA NA NA NA
PTRS Potters Financial Corp. NM 92.90 7.63 21.48
PVFC PVF Capital Corp. 13.68 149.95 9.76 7.29
SFSL Security First Corp. 15.35 138.52 12.85 10.92
SSBK Strongsville Savings Bank 17.58 135.87 10.50 13.55
SBCN Suburban Bancorporation, Inc. 69.32 85.87 10.71 19.55
WOFC Western Ohio Financial Corp. 32.24 83.46 12.77 33.86
WEHO Westwood Homestead Fin. Corp. NA 76.16 25.10 NA
WFCO Winton Financial Corp. 9.27 108.39 8.08 11.06
FFWD Wood Bancorp, Inc. 19.97 122.20 16.09 14.75
KFBI Klamath First Bancorp NA 99.30 25.70 NA
BRFC Bridgeville Savings Bank 32.00 113.31 32.80 24.62
CVAL Chester Valley Bancorp Inc. 18.69 120.44 10.64 12.59
CMSB Commonwealth Bancorp, Inc. NA 111.48 12.16 NA
FSBI Fidelity Bancorp, Inc. 21.01 124.53 8.53 12.12
FBBC First Bell Bancorp, Inc. 17.06 124.46 22.94 14.71
FKFS First Keystone Financial 26.01 107.78 8.46 12.26
SHEN First Shenango Bancorp, Inc. 19.89 112.02 13.45 20.80
GAF GA Financial, Inc. NA 95.16 22.29 NA
HARL Harleysville Savings Bank 15.47 120.22 7.47 9.61
LARL Laurel Capital Group, Inc. 12.12 115.36 12.00 9.36
MLBC ML Bancorp, Inc. 13.42 116.53 9.19 14.34
</TABLE>
107
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
-----------------------------------------------------------------------
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ------ -------- -------- ------- --------- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PVSA Parkvale Financial
Corporation PA NASDAQ 26.250 26.500 2.150 7.14 16.15 16.96 228.71 0.44
PBIX Patriot Bank Corp. PA NASDAQ 13.500 13.854 10.258 -0.92 8.00 12.94 109.83 NA
PWBC PennFirst Bancorp, Inc. PA NASDAQ 13.500 15.915 4.019 -0.92 -1.82 12.52 179.28 0.86
PWBK Pennwood Savings Bank PA NASDAQ 12.500 12.500 9.000 4.17 25.00 15.17 75.76 NA
PHFC Pittsburgh Home Financial
Corp PA NASDAQ 13.250 13.250 9.500 11.58 26.19 13.92 89.51 NA
PRBC Prestige Bancorp, Inc. PA NASDAQ 12.875 13.750 9.750 5.10 19.77 15.77 108.39 NA
PSAB Prime Bancorp, Inc. PA NASDAQ 19.375 20.682 3.194 0.32 0.65 15.44 181.82 0.68
PFNC Progress Financial
Corporation PA NASDAQ 8.500 18.750 0.750 7.94 33.33 5.01 98.44 0.02
SVRN Sovereign Bancorp, Inc. PA NASDAQ 12.750 13.625 1.005 7.93 17.91 7.76 189.82 0.08
THRD TF Financial Corporation PA NASDAQ 15.875 16.250 9.750 0.79 8.55 18.10 154.64 0.30
THBC Troy Hill Bancorp, Inc. PA NASDAQ 20.000 20.063 10.250 0.00 46.79 16.87 93.14 0.40
WVFC WVS Financial Corporation PA NASDAQ 23.000 23.500 13.000 1.10 5.75 19.72 153.04 2.10
YFED York Financial Corp. PA NASDAQ 16.750 18.409 4.301 -2.90 15.16 12.37 155.68 0.52
AMFB American Federal Bank, FSB SC NASDAQ 19.000 19.453 0.625 5.56 12.59 9.90 127.32 0.44
CFCP Coastal Financial Corp. SC NASDAQ 20.000 22.000 1.918 -8.05 2.56 8.04 131.77 0.41
FFCH First Financial Holdings Inc. SC NASDAQ 23.000 24.250 4.000 8.24 22.67 14.91 243.20 0.64
FSFC First Southeast Financial
Corp SC NASDAQ 9.625 20.250 9.125 -8.33 1.32 7.55 75.05 10.40
PALM Palfed, Inc. SC NASDAQ 14.500 18.500 3.500 10.48 3.57 10.10 126.23 0.06
SCCB S. Carolina Community
Bancshrs SC NASDAQ 15.250 20.500 12.625 1.67 -1.61 16.84 58.79 0.60
HFFC HF Financial Corp. SD NASDAQ 17.250 17.500 5.500 2.99 12.65 16.46 190.48 0.34
TWIN Twin City Bancorp TN NASDAQ 17.500 18.250 10.500 2.94 1.45 15.58 124.41 0.77
BNKU Bank United Corp. TX NASDAQ 27.125 27.375 22.500 8.50 12.44 16.81 339.05 NA
CBSA Coastal Bancorp, Inc. TX NASDAQ 23.750 24.750 9.875 6.15 21.02 18.04 576.05 0.38
ETFS East Texas Financial Services TX NASDAQ 16.125 16.750 11.000 7.50 11.21 19.24 101.72 0.10
FBHC Fort Bend Holding Corp. TX NASDAQ 25.250 25.500 10.375 24.69 49.63 21.24 343.87 0.28
LOAN Horizon Bancorp TX NASDAQ 18.500 18.500 7.250 2.78 27.59 7.99 101.33 0.15
JXVL Jacksonville Bancorp, Inc. TX NASDAQ 14.500 15.000 7.141 9.43 26.09 13.34 82.33 NA
BFSB Bedford Bancshares, Inc. VA NASDAQ 17.750 18.750 10.250 -1.39 7.58 16.95 111.36 0.39
CNIT CENIT Bancorp, Inc. VA NASDAQ 39.000 40.500 10.875 -1.89 -3.11 29.55 419.95 0.60
CFFC Community Financial Corp. VA NASDAQ 21.250 22.500 4.250 -4.49 -1.16 17.59 126.40 0.48
ESX Essex Bancorp, Inc. VA AMSE 2.000 19.250 0.750 3.20 6.67 -0.16 162.92 0.00
FFFC FFVA Financial Corp. VA NASDAQ 20.500 21.750 8.250 2.50 18.84 16.87 105.54 0.38
FFRV Fidelity Financial Bankshares VA NASDAQ 24.563 25.250 2.381 4.52 7.97 12.07 143.23 0.18
GSLC Guaranty Financial Corp. VA NASDAQ 8.750 9.500 6.313 2.94 2.94 6.89 125.36 0.05
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRICING RATIOS
------------------------------------------
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
PVSA Parkvale Financial
Corporation 16.61 154.78 11.48 11.82
PBIX Patriot Bank Corp. NA 104.33 12.29 NA
PWBC PennFirst Bancorp, Inc. 19.01 107.83 7.53 13.37
PWBK Pennwood Savings Bank NA 82.40 16.50 NA
PHFC Pittsburgh Home Financial
Corp NA 95.19 14.80 NA
PRBC Prestige Bancorp, Inc. NA 81.64 11.88 NA
PSAB Prime Bancorp, Inc. 16.28 125.49 10.66 12.19
PFNC Progress Financial
Corporation 14.41 169.66 8.63 11.64
SVRN Sovereign Bancorp, Inc. 15.55 164.30 6.72 16.14
THRD TF Financial Corporation 20.89 87.71 10.27 14.84
THBC Troy Hill Bancorp, Inc. 22.99 118.55 21.47 19.80
WVFC WVS Financial Corporation 13.07 116.63 15.03 11.50
YFED York Financial Corp. 17.27 135.41 10.76 13.29
AMFB American Federal Bank, FSB 15.32 191.92 14.92 12.18
CFCP Coastal Financial Corp. 16.13 248.76 15.18 18.35
FFCH First Financial Holdings Inc. 20.72 154.26 9.46 12.43
FSFC First Southeast Financial
Corp NM 127.48 12.82 13.56
PALM Palfed, Inc. 32.22 143.56 11.49 19.86
SCCB S. Carolina Community
Bancshrs 29.33 90.56 25.94 22.43
HFFC HF Financial Corp. 16.12 104.80 9.06 12.87
TWIN Twin City Bancorp 18.62 112.32 14.07 14.34
BNKU Bank United Corp. NM 161.36 8.00 NM
CBSA Coastal Bancorp, Inc. 18.13 131.65 4.12 10.75
ETFS East Texas Financial Services 19.20 83.81 15.85 21.22
FBHC Fort Bend Holding Corp. 42.80 118.88 7.34 16.40
LOAN Horizon Bancorp 16.37 231.54 18.26 21.02
JXVL Jacksonville Bancorp, Inc. NA 108.70 17.61 NA
BFSB Bedford Bancshares, Inc. 15.17 104.72 15.94 11.91
CNIT CENIT Bancorp, Inc. 24.84 131.98 9.29 16.12
CFFC Community Financial Corp. 16.60 120.81 16.81 12.88
ESX Essex Bancorp, Inc. NM NM 1.23 NM
FFFC FFVA Financial Corp. 20.50 121.52 19.42 16.14
FFRV Fidelity Financial Bankshares 26.70 203.50 17.15 18.33
GSLC Guaranty Financial Corp. 17.50 127.00 6.98 14.58
</TABLE>
108
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
-----------------------------------------------------------------------
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ------ -------- -------- ------- --------- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIFB Life Bancorp, Inc. VA NASDAQ 18.000 18.000 8.313 5.69 12.94 14.77 142.66 0.44
VABF Virginia Beach Fed. Financial VA NASDAQ 9.375 9.938 1.625 5.63 17.19 8.03 121.60 0.16
VFFC Virginia First Financial
Corp. VA NASDAQ 12.750 14.625 1.250 -5.56 0.99 10.64 136.05 0.08
CASB Cascade Financial Corp. WA NASDAQ 14.375 17.500 2.662 -4.17 -15.44 10.04 165.99 0.00
FWWB First SB of Washington
Bancorp WA NASDAQ 18.375 19.000 12.375 8.89 8.09 14.84 87.05 NA
IWBK InterWest Bancorp, Inc. WA NASDAQ 32.250 33.000 8.478 5.31 16.22 14.02 216.23 0.48
MSEA Metropolitan Bancorp WA NASDAQ 19.250 19.500 3.636 10.00 11.19 14.01 207.23 0.00
STSA Sterling Financial Corp. WA NASDAQ 13.750 15.000 1.878 0.00 -3.51 10.53 276.54 0.00
WFSL Washington Federal, Inc. WA NASDAQ 25.750 27.500 1.723 7.29 15.73 14.20 125.69 0.90
AADV Advantage Bancorp, Inc. WI NASDAQ 31.750 34.500 10.600 1.60 -3.79 25.08 299.58 0.29
ABCW Anchor BanCorp Wisconsin WI NASDAQ 34.875 36.250 9.800 0.36 -2.11 23.88 408.68 0.39
FCBF FCB Financial Corp. WI NASDAQ 19.250 19.500 10.000 4.05 8.45 18.93 109.48 0.66
FFEC First Fed Bncshrs Eau Claire WI NASDAQ 18.375 18.375 8.375 1.73 20.49 14.27 106.31 0.24
FTFC First Federal Capital Corp. WI NASDAQ 24.000 24.000 1.449 5.49 14.29 15.10 238.20 0.60
FFHC First Financial Corp. WI NASDAQ 28.000 30.250 1.392 3.23 21.74 13.41 187.05 0.57
FNGB First Northern Capital Corp. WI NASDAQ 16.000 18.625 3.063 -13.51 1.59 15.84 138.77 0.59
HALL Hallmark Capital Corp. WI NASDAQ 17.500 17.750 9.875 2.94 16.67 18.82 268.67 0.00
MWFD Midwest Federal Financial WI NASDAQ 21.500 24.500 4.167 -1.15 22.86 10.19 121.39 0.22
NWEQ Northwest Equity Corp. WI NASDAQ 11.250 12.250 6.875 -2.17 9.76 13.55 102.77 0.37
OSBF OSB Financial Corp. WI NASDAQ 27.000 27.000 14.500 12.50 13.68 27.93 215.89 0.60
RELI Reliance Bancshares, Inc. WI NASDAQ 7.000 10.125 6.750 -30.00 -16.42 11.43 18.73 NA
SECP Security Capital Corporation WI NASDAQ 71.000 71.500 25.000 7.58 14.98 56.90 379.63 0.60
STFR St. Francis Capital Corp. WI NASDAQ 26.500 28.000 12.625 2.91 2.91 23.12 256.44 0.40
FOBC Fed One Bancorp WV NASDAQ 15.875 16.625 5.358 0.79 2.42 16.62 137.01 0.55
CRZY Crazy Woman Creek Bancorp WY NASDAQ 11.500 12.000 10.000 -2.13 5.75 14.62 48.69 NA
TRIC Tri-County Bancorp, Inc. WY NASDAQ 18.250 19.000 11.375 -3.95 -0.68 20.81 130.55 0.50
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRICING RATIOS
------------------------------------------
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
LIFB Life Bancorp, Inc. 23.68 121.87 12.62 15.65
VABF Virginia Beach Fed. Financial 187.50 116.75 7.71 34.72
VFFC Virginia First Financial
Corp. 7.24 119.83 9.37 13.14
CASB Cascade Financial Corp. 21.46 143.18 8.66 19.97
FWWB First SB of Washington
Bancorp NA 123.82 21.11 NA
IWBK InterWest Bancorp, Inc. 20.41 230.03 14.91 15.07
MSEA Metropolitan Bancorp 18.33 137.40 9.29 12.03
STSA Sterling Financial Corp. NM 130.58 4.97 20.22
WFSL Washington Federal, Inc. 13.70 181.34 20.49 12.32
AADV Advantage Bancorp, Inc. 38.25 126.59 10.60 14.77
ABCW Anchor BanCorp Wisconsin 15.36 146.04 8.53 12.11
FCBF FCB Financial Corp. 20.48 101.69 17.58 16.45
FFEC First Fed Bncshrs Eau Claire 25.17 128.77 17.28 19.34
FTFC First Federal Capital Corp. 16.55 158.94 10.08 14.55
FFHC First Financial Corp. 17.07 208.80 14.97 12.28
FNGB First Northern Capital Corp. 24.62 101.01 11.53 15.38
HALL Hallmark Capital Corp. 17.50 92.99 6.51 13.16
MWFD Midwest Federal Financial 19.72 210.99 17.71 20.09
NWEQ Northwest Equity Corp. 16.54 83.03 10.95 13.72
OSBF OSB Financial Corp. 245.45 96.67 12.51 26.73
RELI Reliance Bancshares, Inc. NA 61.24 37.37 NA
SECP Security Capital Corporation 23.83 124.78 18.70 17.53
STFR St. Francis Capital Corp. 14.56 114.62 10.33 14.80
FOBC Fed One Bancorp 17.84 95.52 11.59 12.03
CRZY Crazy Woman Creek Bancorp NA 78.66 23.62 NA
TRIC Tri-County Bancorp, Inc. 24.01 87.70 13.98 17.55
</TABLE>
109
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
-----------------------------------------------------------------------
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- ------ -------- -------- ------- --------- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ALL THRIFTS
AVERAGE 18.656 22.585 8.027 2.69 9.80 16.07 163.61 0.49
MEDIAN 16.750 18.250 9.146 2.78 9.26 15.37 133.21 0.38
HIGH 71.000 589.500 25.000 24.69 49.63 56.90 645.07 10.40
LOW 2.000 6.917 0.223 -30.00 -54.50 -0.16 13.62 0.00
AVERAGE FOR STATE
IL 18.222 19.026 9.370 4.11 10.76 18.10 161.14 0.28
AVERAGE BY REGION
MIDWEST 18.726 20.380 8.905 2.26 8.56 16.77 150.20 0.50
NEW ENGLAND 20.819 21.736 6.401 4.48 11.46 17.81 249.88 0.53
MID ATLANTIC 18.637 20.212 7.183 2.47 11.91 16.04 167.78 0.39
SOUTHEAST 16.310 18.287 7.153 2.73 7.64 13.48 124.28 0.67
SOUTHWEST 17.658 18.861 10.331 5.46 13.15 15.13 175.74 0.57
WEST 21.438 43.024 6.556 3.20 12.04 16.65 234.68 0.33
AVERAGE BY EXCHANGE
NYSE 35.183 94.248 3.243 3.85 16.32 20.15 366.41 0.45
AMEX 13.892 16.218 9.929 2.67 6.86 14.31 101.44 0.80
OTC/NASDAQ 18.228 19.871 8.119 2.64 9.69 15.99 158.43 0.48
</TABLE>
<TABLE>
<CAPTION>
PRICING RATIOS
------------------------------------------
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
-------- --------- ------ ----------
<S> <C> <C> <C> <C>
ALL THRIFTS
AVERAGE 27.25 118.20 14.29 17.68
MEDIAN 20.49 108.70 12.29 15.38
HIGH 245.45 287.05 92.69 111.25
LOW 4.39 53.48 1.23 3.46
AVERAGE FOR STATE
IL 35.333 102.066 13.907 20.459
AVERAGE BY REGION
MIDWEST 29.65 114.13 15.49 18.24
NEW ENGLAND 19.91 114.19 8.59 15.61
MID ATLANTIC 20.24 116.06 12.64 14.68
SOUTHEAST 27.85 126.63 16.60 19.44
SOUTHWEST 22.22 118.78 13.23 16.08
WEST 31.73 127.82 11.20 19.07
AVERAGE BY EXCHANGE
NYSE 34.40 178.73 10.53 17.24
AMEX 19.84 96.60 17.08 17.17
OTC/NASDAQ 27.13 116.77 14.29 17.72
</TABLE>
110
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 32
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY
------------------------------------------- ----------------------------------
Total Total Total Core Core
Assets Equity Tang. Equity ROAA ROAA ROAE ROAE
State ($000) ($000) ($000) (%) (%) (%) (%)
----- -------- ------ ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PLE Pinnacle Bank AL 191,659 14,819 14,298 0.50 0.79 6.40 10.08
SRN Southern Banc Company, Inc AL 107,874 19,654 19,444 0.22 0.57 1.20 3.13
SZB SouthFirst Bancshares, Inc. AL 90,542 13,050 13,050 0.57 0.32 3.50 1.96
FFBH First Federal Bancshares of AR AR 509,605 83,339 83,339 NA NA NA NA
FTF Texarkana First Financial Corp AR 164,064 33,043 33,043 1.83 1.83 9.59 9.59
AHM Ahmanson & Company (H.F.) CA 50,588,224 2,472,634 2,151,546 0.23 0.53 3.96 9.13
AFFFZ America First Financial Fund CA 2,227,591 153,517 150,376 0.45 0.75 6.61 11.07
BPLS Bank Plus Corp. CA 3,323,209 158,009 157,665 -1.98 -1.64 -34.45 -28.61
BVFS Bay View Capital Corp. CA 3,428,175 193,695 182,821 -0.08 0.55 -1.22 8.20
BYFC Broadway Financial Corp. CA 117,253 13,515 13,515 -0.16 0.21 -1.73 2.22
CAL Cal Fed Bancorp, Inc. CA 14,126,700 654,600 654,600 0.40 0.60 7.55 11.41
CFHC California Financial Holding CA 1,339,378 86,475 86,228 0.37 0.62 5.47 9.24
CENF CENFED Financial Corp. CA 2,160,973 108,930 108,715 0.51 0.64 10.40 13.01
CSA Coast Savings Financial CA 8,549,032 413,326 406,818 0.12 0.46 2.40 9.23
DSL Downey Financial Corp. CA 4,954,337 383,644 377,337 0.43 0.69 5.28 8.46
FSSB First FS&LA of San Bernardino CA 100,334 4,709 4,498 -1.07 -1.24 -19.94 -23.18
FED FirstFed Financial Corp. CA 4,196,726 183,941 181,029 0.06 0.29 1.28 6.22
GLN Glendale Federal Bank, FSB CA 15,104,367 937,937 880,008 0.06 0.47 0.88 7.34
GDW Golden West Financial CA 37,011,423 2,270,144 2,270,144 1.00 1.22 15.60 19.04
GWF Great Western Financial CA 43,548,593 2,616,781 2,321,357 0.48 0.72 7.57 11.45
HTHR Hawthorne Financial Corp. CA 827,784 43,442 43,442 0.89 0.63 17.24 12.18
HEMT HF Bancorp, Inc. CA 1,004,374 79,809 NA -0.08 0.26 -0.71 2.37
HBNK Highland Federal Bank FSB CA 469,165 33,450 33,450 -0.09 0.21 -1.27 3.02
MBBC Monterey Bay Bancorp, Inc. CA 327,127 45,762 45,339 0.13 0.39 0.91 2.66
PFFB PFF Bancorp, Inc. CA 2,485,552 286,860 283,663 -0.06 0.31 -0.57 3.08
PROV Provident Financial Holdings CA 580,166 84,931 84,931 NA NA NA NA
QCBC Quaker City Bancorp, Inc. CA 737,999 66,669 66,445 0.22 0.49 2.24 5.02
REDF RedFed Bancorp Inc. CA 866,269 69,868 69,868 -0.77 -0.47 -12.78 -7.86
SGVB SGV Bancorp, Inc. CA 344,852 31,261 31,261 -0.01 0.27 -0.06 2.62
WES Westcorp CA 3,181,347 314,304 313,353 1.09 0.44 11.09 4.51
FFBA First Colorado Bancorp, Inc. CO 1,514,552 224,416 221,593 0.84 1.16 5.50 7.66
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
------------------------------------------------
Number of Mkt. Value
IPO Shares of Shares
State Date Exchange Outstg. ($M)
----- ---- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
PLE Pinnacle Bank AL 12/17/86 AMSE 889,824 16.35
SRN Southern Banc Company, Inc AL 10/05/95 AMSE 1,382,013 17.97
SZB SouthFirst Bancshares, Inc. AL 02/14/95 AMSE 863,200 11.01
FFBH First Federal Bancshares of AR AR 05/03/96 NASDAQ 5,153,751 77.31
FTF Texarkana First Financial Corp AR 07/07/95 AMSE 1,952,263 30.75
AHM Ahmanson & Company (H.F.) CA 10/25/72 NYSE 105,496,154 2953.89
AFFFZ America First Financial Fund CA NA NASDAQ 6,010,589 181.82
BPLS Bank Plus Corp. CA NA NASDAQ 18,242,965 193.83
BVFS Bay View Capital Corp. CA 05/09/86 NASDAQ 6,640,242 236.56
BYFC Broadway Financial Corp. CA 01/09/96 NASDAQ 892,688 8.82
CAL Cal Fed Bancorp, Inc. CA 03/01/83 NYSE 49,427,074 1149.18
CFHC California Financial Holding CA 04/01/83 NASDAQ 4,720,970 109.76
CENF CENFED Financial Corp. CA 10/25/91 NASDAQ 5,101,260 126.26
CSA Coast Savings Financial CA 12/23/85 NYSE 18,583,617 594.68
DSL Downey Financial Corp. CA 01/01/71 NYSE 16,972,905 428.57
FSSB First FS&LA of San Bernardino CA 02/02/93 NASDAQ 328,296 3.20
FED FirstFed Financial Corp. CA 12/16/83 NYSE 10,517,597 207.72
GLN Glendale Federal Bank, FSB CA 10/01/83 NYSE 47,165,668 837.19
GDW Golden West Financial CA 05/29/59 NYSE 57,375,909 3349.32
GWF Great Western Financial CA NA NYSE 137,431,563 3641.94
HTHR Hawthorne Financial Corp. CA NA NASDAQ 2,599,275 18.84
HEMT HF Bancorp, Inc. CA 06/30/95 NASDAQ 6,281,875 60.46
HBNK Highland Federal Bank FSB CA NA NASDAQ 2,295,983 32.72
MBBC Monterey Bay Bancorp, Inc. CA 02/15/95 NASDAQ 3,259,063 43.59
PFFB PFF Bancorp, Inc. CA 03/29/96 NASDAQ 19,837,500 245.49
PROV Provident Financial Holdings CA 06/28/96 NASDAQ 5,125,215 64.71
QCBC Quaker City Bancorp, Inc. CA 12/30/93 NASDAQ 3,800,600 55.11
REDF RedFed Bancorp Inc. CA 04/08/94 NASDAQ 7,082,781 85.88
SGVB SGV Bancorp, Inc. CA 06/29/95 NASDAQ 2,591,276 24.94
WES Westcorp CA 05/01/86 NYSE 25,985,142 561.93
FFBA First Colorado Bancorp, Inc. CO 01/02/96 NASDAQ 19,030,844 294.98
</TABLE>
111
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY
------------------------------------------- ----------------------------------
Total Total Total Core Core
Assets Equity Tang. Equity ROAA ROAA ROAE ROAE
State ($000) ($000) ($000) (%) (%) (%) (%)
----- -------- ------ ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MORG Morgan Financial Corp. CO 75,053 9,480 9,480 0.74 0.97 5.10 6.67
EGFC Eagle Financial Corp. CT 1,406,583 101,148 74,158 1.00 0.61 13.82 8.49
FFES First Federal of East Hartford CT 942,648 57,665 57,538 0.44 0.67 6.89 10.44
NTMG Nutmeg Federal S&LA CT 93,924 5,488 5,488 0.32 0.38 5.13 6.05
WBST Webster Financial Corporation CT 3,984,454 216,667 171,059 0.55 0.68 9.77 11.91
IFSB Independence Federal Savings DC 247,888 16,672 14,440 0.13 0.19 1.98 2.94
BANC BankAtlantic Bancorp, Inc. FL 2,170,480 139,727 129,822 0.85 0.86 11.95 12.04
BKUNA BankUnited Financial Corp. FL 824,360 69,111 66,654 0.36 0.60 4.31 7.14
FFFG F.F.O. Financial Group, Inc. FL 311,028 18,805 18,805 0.21 0.64 3.28 9.97
FFLC FFLC Bancorp, Inc. FL 335,993 54,495 54,495 0.63 0.96 3.72 5.65
FFML First Family Financial Corp. FL 170,718 8,704 8,704 0.41 0.42 7.37 7.57
FFPB First Palm Beach Bancorp, Inc. FL 1,494,020 107,825 105,000 0.22 0.30 2.78 3.80
FFPC Florida First Bancorp, Inc. FL 297,244 20,797 20,797 0.59 0.87 8.60 12.65
CCFH CCF Holding Company GA 79,325 16,807 16,807 0.97 0.92 4.91 4.68
EBSI Eagle Bancshares GA 642,136 57,438 57,438 0.65 0.86 7.78 10.29
FGHC First Georgia Holding, Inc. GA 144,022 11,955 10,646 0.89 0.83 10.65 9.96
FLFC First Liberty Financial Corp. GA 991,226 75,953 65,464 1.03 0.87 13.29 11.17
FLAG FLAG Financial Corp. GA 228,914 20,149 20,149 -0.07 0.10 -0.75 1.11
NFSL Newnan Holdings, Inc. GA 255,946 23,042 17,832 2.09 2.10 18.60 18.70
CASH First Midwest Financial, Inc. IA 342,095 39,029 36,450 1.06 1.05 8.14 8.05
GFSB GFS Bancorp, Inc. IA 85,206 9,855 9,855 0.91 1.12 7.59 9.36
HZFS Horizon Financial Svcs Corp. IA 76,652 8,227 8,227 0.13 0.33 1.13 2.83
MFCX Marshalltown Financial Corp. IA 124,183 19,338 19,338 0.06 0.39 0.39 2.56
MIFC Mid-Iowa Financial Corp. IA 115,260 10,807 10,791 0.93 0.93 10.00 10.00
MWBI Midwest Bancshares, Inc. IA 137,707 9,068 9,068 0.66 0.72 9.51 10.36
FFFD North Central Bancshares, Inc. IA 197,921 56,069 56,069 1.52 1.79 6.51 7.71
PMFI Perpetual Midwest Financial IA 395,707 33,890 33,890 0.18 0.38 1.92 4.06
SFFC StateFed Financial Corporation IA 81,059 14,583 14,583 0.98 1.25 4.97 6.35
AVND Avondale Financial Corp. IL 612,840 58,773 58,773 0.39 0.40 3.69 3.86
CBCI Calumet Bancorp, Inc. IL 492,779 79,583 79,583 0.99 1.25 5.97 7.58
CBSB Charter Financial, Inc. IL 366,983 63,777 59,323 1.18 1.17 7.39 7.36
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
------------------------------------------------
Number of Mkt. Value
IPO Shares of Shares
State Date Exchange Outstg. ($M)
----- ---- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
MORG Morgan Financial Corp. CO 01/11/93 NASDAQ 778,314 8.95
EGFC Eagle Financial Corp. CT 02/03/87 NASDAQ 4,534,067 123.55
FFES First Federal of East Hartford CT 06/23/87 NASDAQ 2,614,711 52.29
NTMG Nutmeg Federal S&LA CT NA NASDAQ 711,634 5.07
WBST Webster Financial Corporation CT 12/12/86 NASDAQ 8,108,472 285.82
IFSB Independence Federal Savings DC 06/06/85 NASDAQ 1,280,030 9.60
BANC BankAtlantic Bancorp, Inc. FL 11/29/83 NASDAQ 14,720,333 198.72
BKUNA BankUnited Financial Corp. FL 12/11/85 NASDAQ 5,705,716 44.22
FFFG F.F.O. Financial Group, Inc. FL 10/13/88 NASDAQ 8,430,000 22.66
FFLC FFLC Bancorp, Inc. FL 01/04/94 NASDAQ 2,525,337 46.40
FFML First Family Financial Corp. FL 10/22/92 NASDAQ 545,000 11.72
FFPB First Palm Beach Bancorp, Inc. FL 09/29/93 NASDAQ 5,093,096 118.41
FFPC Florida First Bancorp, Inc. FL 11/06/86 NASDAQ 3,395,815 37.78
CCFH CCF Holding Company GA 07/12/95 NASDAQ 1,130,738 13.85
EBSI Eagle Bancshares GA 04/01/86 NASDAQ 4,552,200 72.84
FGHC First Georgia Holding, Inc. GA 02/11/87 NASDAQ 2,023,711 13.66
FLFC First Liberty Financial Corp. GA 12/06/83 NASDAQ 6,003,285 88.05
FLAG FLAG Financial Corp. GA 12/11/86 NASDAQ 2,036,990 21.90
NFSL Newnan Holdings, Inc. GA 03/01/86 NASDAQ 1,587,297 37.30
CASH First Midwest Financial, Inc. IA 09/20/93 NASDAQ 1,778,577 39.13
GFSB GFS Bancorp, Inc. IA 01/06/94 NASDAQ 502,600 10.30
HZFS Horizon Financial Svcs Corp. IA 06/30/94 NASDAQ 447,937 6.72
MFCX Marshalltown Financial Corp. IA 03/31/94 NASDAQ 1,411,475 22.94
MIFC Mid-Iowa Financial Corp. IA 10/14/92 NASDAQ 1,682,880 10.10
MWBI Midwest Bancshares, Inc. IA 11/12/92 NASDAQ 349,379 9.08
FFFD North Central Bancshares, Inc. IA 03/21/96 NASDAQ 3,810,505 47.63
PMFI Perpetual Midwest Financial IA 03/31/94 NASDAQ 1,916,897 38.34
SFFC StateFed Financial Corporation IA 01/05/94 NASDAQ 789,485 12.93
AVND Avondale Financial Corp. IL 04/07/95 NASDAQ 3,602,968 51.79
CBCI Calumet Bancorp, Inc. IL 02/20/92 NASDAQ 2,377,028 67.45
CBSB Charter Financial, Inc. IL 12/29/95 NASDAQ 4,874,380 55.76
</TABLE>
112
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY
------------------------------------------- ----------------------------------
Total Total Total Core Core
Assets Equity Tang. Equity ROAA ROAA ROAE ROAE
State ($000) ($000) ($000) (%) (%) (%) (%)
----- -------- ------ ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CNBA Chester Bancorp, Inc. IL 154,771 12,055 12,055 NA NA NA NA
CBK Citizens First Financial Corp. IL 266,411 40,329 40,329 0.21 0.50 2.02 4.82
CSBF CSB Financial Group, Inc. IL 41,524 12,837 12,837 0.89 0.89 3.67 3.67
DFIN Damen Financial Corp. IL 234,555 52,870 52,870 0.76 0.97 3.21 4.11
EGLB Eagle BancGroup, Inc. IL 163,740 21,829 21,829 NA NA NA NA
FBCI Fidelity Bancorp, Inc. IL 475,862 48,828 48,670 0.50 0.75 4.08 6.08
FFBI First Financial Bancorp, Inc. IL 97,143 7,510 7,510 0.12 0.36 1.28 3.97
FMBD First Mutual Bancorp, Inc. IL 316,381 63,066 63,066 0.46 0.71 1.89 2.94
FFDP FirstFed Bancshares IL 602,914 51,633 49,216 0.23 0.29 2.63 3.23
GTPS Great American Bancorp IL 123,866 31,731 31,731 0.37 0.67 1.31 2.39
HNFC Hinsdale Financial Corp. IL 650,897 55,471 53,868 0.46 0.64 5.69 7.94
HBEI Home Bancorp of Elgin, Inc. IL 370,532 98,960 98,960 NA NA NA NA
HMCI HomeCorp, Inc. IL 340,449 20,424 20,424 0.10 0.33 1.57 5.34
KNK Kankakee Bancorp, Inc. IL 352,926 35,356 32,905 0.42 0.59 4.16 5.87
LBCI Liberty Bancorp, Inc. IL 664,114 63,281 63,124 0.32 0.61 3.30 6.33
MAFB MAF Bancorp, Inc. IL 3,162,622 241,843 206,905 0.54 0.94 8.11 14.13
NBSI North Bancshares, Inc. IL 116,881 17,686 17,686 0.34 0.61 1.97 3.52
PFED Park Bancorp, Inc. IL 176,732 41,544 41,544 NA NA NA NA
PSFI PS Financial, Inc. IL 53,520 11,724 11,724 2.01 2.17 9.49 10.26
SWBI Southwest Bancshares IL 376,277 39,057 39,057 0.82 1.13 6.79 9.32
SPBC St. Paul Bancorp, Inc. IL 4,276,208 371,631 370,353 0.59 0.90 6.44 9.74
STND Standard Financial, Inc. IL 2,339,731 263,329 262,852 0.55 0.75 4.39 6.01
SFSB SuburbFed Financial Corp. IL 390,910 25,390 25,254 0.23 0.48 3.21 6.81
WCBI Westco Bancorp IL 307,772 47,700 47,700 0.99 1.33 6.33 8.54
FBCV 1ST Bancorp IN 257,960 21,150 21,150 1.74 -0.22 22.20 -2.75
AMFC AMB Financial Corp. IN 83,542 16,184 16,184 0.49 0.76 3.00 4.66
ASBI Ameriana Bancorp IN 399,721 43,495 43,440 0.61 0.91 5.10 7.67
ATSB AmTrust Capital Corp. IN 72,108 7,148 7,069 0.26 0.11 2.45 1.08
CBCO CB Bancorp, Inc. IN 200,008 19,380 19,380 1.11 1.31 11.67 13.77
CBIN Community Bank Shares IN 234,600 25,464 25,410 0.59 0.89 5.03 7.63
FFWC FFW Corp. IN 154,551 15,474 15,474 0.89 1.07 8.31 10.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
------------------------------------------------
Number of Mkt. Value
IPO Shares of Shares
State Date Exchange Outstg. ($M)
----- ---- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
CNBA Chester Bancorp, Inc. IL 10/08/96 NASDAQ NA NA
CBK Citizens First Financial Corp. IL 05/01/96 AMSE 2,817,500 32.40
CSBF CSB Financial Group, Inc. IL 10/09/95 NASDAQ 1,035,000 9.57
DFIN Damen Financial Corp. IL 10/02/95 NASDAQ 3,770,778 45.72
EGLB Eagle BancGroup, Inc. IL 07/01/96 NASDAQ 1,302,705 16.77
FBCI Fidelity Bancorp, Inc. IL 12/15/93 NASDAQ 2,866,108 46.57
FFBI First Financial Bancorp, Inc. IL 10/04/93 NASDAQ 452,309 7.01
FMBD First Mutual Bancorp, Inc. IL 07/05/95 NASDAQ 3,844,600 51.12
FFDP FirstFed Bancshares IL 07/01/92 NASDAQ 3,277,016 54.07
GTPS Great American Bancorp IL 06/30/95 NASDAQ 1,950,112 26.81
HNFC Hinsdale Financial Corp. IL 07/07/92 NASDAQ 2,695,085 63.33
HBEI Home Bancorp of Elgin, Inc. IL 09/27/96 NASDAQ 7,009,250 83.23
HMCI HomeCorp, Inc. IL 06/22/90 NASDAQ 1,128,579 20.74
KNK Kankakee Bancorp, Inc. IL 01/06/93 AMSE 1,414,918 29.54
LBCI Liberty Bancorp, Inc. IL 12/24/91 NASDAQ 2,477,022 58.83
MAFB MAF Bancorp, Inc. IL 01/12/90 NASDAQ 10,485,480 270.00
NBSI North Bancshares, Inc. IL 12/21/93 NASDAQ 1,072,131 16.89
PFED Park Bancorp, Inc. IL 08/12/96 NASDAQ 2,701,441 30.56
PSFI PS Financial, Inc. IL 11/27/96 NASDAQ NA NA
SWBI Southwest Bancshares IL 06/24/92 NASDAQ 2,654,909 47.57
SPBC St. Paul Bancorp, Inc. IL 05/18/87 NASDAQ 18,081,846 474.65
STND Standard Financial, Inc. IL 08/01/94 NASDAQ 16,197,116 263.20
SFSB SuburbFed Financial Corp. IL 03/04/92 NASDAQ 1,252,519 20.35
WCBI Westco Bancorp IL 06/26/92 NASDAQ 2,601,143 55.92
FBCV 1ST Bancorp IN 04/07/87 NASDAQ 670,643 20.29
AMFC AMB Financial Corp. IN 04/01/96 NASDAQ 1,124,125 12.37
ASBI Ameriana Bancorp IN 03/02/87 NASDAQ 3,277,852 48.35
ATSB AmTrust Capital Corp. IN 03/28/95 NASDAQ 527,859 4.75
CBCO CB Bancorp, Inc. IN 12/28/92 NASDAQ 1,162,263 24.12
CBIN Community Bank Shares IN 04/10/95 NASDAQ 1,983,722 24.30
FFWC FFW Corp. IN 04/05/93 NASDAQ 702,060 13.91
</TABLE>
113
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY
------------------------------------------- ----------------------------------
Total Total Total Core Core
Assets Equity Tang. Equity ROAA ROAA ROAE ROAE
State ($000) ($000) ($000) (%) (%) (%) (%)
----- -------- ------ ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FFED Fidelity Federal Bancorp IN 261,834 12,546 12,546 0.31 0.40 5.90 7.62
FISB First Indiana Corporation IN 1,485,436 135,162 133,316 0.90 1.04 10.11 11.59
HFGI Harrington Financial Group IN 534,576 23,230 23,230 0.25 0.41 5.91 9.81
HBFW Home Bancorp IN 315,901 48,974 48,974 0.84 0.84 4.99 4.99
HBBI Home Building Bancorp IN 42,560 5,498 5,498 -0.32 -0.01 -2.37 -0.07
HOMF Home Federal Bancorp IN 633,395 51,656 49,783 0.99 1.13 11.96 13.66
HWEN Home Financial Bancorp IN 38,683 7,746 7,746 0.51 0.77 4.68 7.05
INCB Indiana Community Bank, SB IN 90,697 11,157 11,157 0.15 0.48 1.02 3.38
IFSL Indiana Federal Corporation IN 809,123 69,957 65,277 0.69 0.98 7.20 10.25
LOGN Logansport Financial Corp. IN 79,726 15,926 15,926 1.24 1.48 4.78 5.71
MARN Marion Capital Holdings IN 174,597 39,608 39,608 1.13 1.42 4.76 5.96
MFBC MFB Corp. IN 210,559 37,691 37,691 0.73 0.72 3.71 3.63
NEIB Northeast Indiana Bancorp IN 160,032 27,916 27,916 1.02 1.22 4.97 5.96
PFDC Peoples Bancorp IN 280,012 42,677 42,677 1.15 1.50 7.50 9.77
PERM Permanent Bancorp, Inc. IN 421,658 39,907 39,460 0.15 0.43 1.39 4.15
SOBI Sobieski Bancorp, Inc. IN 80,648 13,807 13,807 0.11 0.46 0.61 2.52
FFSL First Independence Corp. KS 108,539 13,003 13,003 0.78 0.89 6.20 7.10
LARK Landmark Bancshares, Inc. KS 213,734 32,389 32,389 0.70 0.93 4.20 5.54
MCBS Mid Continent Bancshares Inc. KS 339,731 36,807 36,785 1.07 1.31 8.54 10.41
CKFB CKF Bancorp, Inc. KY 59,898 15,104 15,104 1.28 1.27 4.70 4.67
CLAS Classic Bancshares, Inc. KY 136,218 18,798 15,712 0.40 0.67 1.67 2.83
FFKY First Federal Financial Corp. KY 357,281 49,307 46,102 1.25 1.41 8.80 9.97
FLKY First Lancaster Bancshares KY 37,842 13,502 13,502 NA NA NA NA
FTSB Fort Thomas Financial Corp. KY 88,874 21,638 21,638 1.33 1.33 5.39 5.39
FKKY Frankfort First Bancorp, Inc. KY 128,710 33,855 33,855 0.79 1.06 2.44 3.28
GWBC Gateway Bancorp, Inc. KY 69,496 17,425 17,425 0.84 1.14 3.30 4.50
GTFN Great Financial Corporation KY 2,830,684 273,377 262,063 0.71 0.72 6.48 6.56
HFFB Harrodsburg First Fin Bancorp KY 109,578 30,828 30,828 1.17 1.17 4.52 4.52
KYF Kentucky First Bancorp, Inc. KY 86,009 19,134 19,134 0.89 1.17 3.68 4.84
SFNB Security First Network Bank KY 110,432 50,521 49,939 -18.24 -14.37 -56.67 -44.64
ANA Acadiana Bancshares, Inc. LA 265,079 46,521 46,521 NA NA NA NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
------------------------------------------------
Number of Mkt. Value
IPO Shares of Shares
State Date Exchange Outstg. ($M)
----- ---- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
FFED Fidelity Federal Bancorp IN 08/31/87 NASDAQ 2,493,516 28.05
FISB First Indiana Corporation IN 08/02/83 NASDAQ 8,294,482 203.21
HFGI Harrington Financial Group IN NA NASDAQ 3,256,738 32.97
HBFW Home Bancorp IN 03/30/95 NASDAQ 2,886,815 44.02
HBBI Home Building Bancorp IN 02/08/95 NASDAQ 311,660 5.30
HOMF Home Federal Bancorp IN 01/23/88 NASDAQ 2,226,282 65.12
HWEN Home Financial Bancorp IN 07/02/96 NASDAQ 505,926 6.20
INCB Indiana Community Bank, SB IN 12/15/94 NASDAQ 922,039 13.83
IFSL Indiana Federal Corporation IN 02/04/87 NASDAQ 4,737,130 95.93
LOGN Logansport Financial Corp. IN 06/14/95 NASDAQ 1,322,500 19.51
MARN Marion Capital Holdings IN 03/18/93 NASDAQ 1,842,642 37.77
MFBC MFB Corp. IN 03/25/94 NASDAQ 1,973,980 27.14
NEIB Northeast Indiana Bancorp IN 06/28/95 NASDAQ 1,953,586 25.15
PFDC Peoples Bancorp IN 07/07/87 NASDAQ 2,325,494 44.77
PERM Permanent Bancorp, Inc. IN 04/04/94 NASDAQ 2,130,336 35.15
SOBI Sobieski Bancorp, Inc. IN 03/31/95 NASDAQ 884,060 11.27
FFSL First Independence Corp. KS 10/08/93 NASDAQ 583,421 11.08
LARK Landmark Bancshares, Inc. KS 03/28/94 NASDAQ 1,852,996 30.34
MCBS Mid Continent Bancshares Inc. KS 06/27/94 NASDAQ 2,016,750 38.32
CKFB CKF Bancorp, Inc. KY 01/04/95 NASDAQ 941,300 18.36
CLAS Classic Bancshares, Inc. KY 12/29/95 NASDAQ 1,322,500 15.54
FFKY First Federal Financial Corp. KY 07/15/87 NASDAQ 4,196,569 82.88
FLKY First Lancaster Bancshares KY 07/01/96 NASDAQ 958,812 13.30
FTSB Fort Thomas Financial Corp. KY 06/28/95 NASDAQ 1,573,775 27.54
FKKY Frankfort First Bancorp, Inc. KY 07/10/95 NASDAQ 3,440,000 36.98
GWBC Gateway Bancorp, Inc. KY 01/18/95 NASDAQ 1,113,872 15.87
GTFN Great Financial Corporation KY 03/31/94 NASDAQ 14,183,732 402.46
HFFB Harrodsburg First Fin Bancorp KY 10/04/95 NASDAQ 2,159,085 33.20
KYF Kentucky First Bancorp, Inc. KY 08/29/95 AMSE 1,388,625 18.92
SFNB Security First Network Bank KY NA NASDAQ 8,110,007 188.56
ANA Acadiana Bancshares, Inc. LA 07/16/96 AMSE 2,731,250 37.55
</TABLE>
114
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY
------------------------------------------- ----------------------------------
Total Total Total Core Core
Assets Equity Tang. Equity ROAA ROAA ROAE ROAE
State ($000) ($000) ($000) (%) (%) (%) (%)
----- -------- ------ ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CZF CitiSave Financial Corp LA 75,635 12,101 12,097 0.78 1.03 4.30 5.69
ISBF ISB Financial Corporation LA 685,827 112,314 108,960 0.80 1.08 4.34 5.84
MERI Meritrust Federal SB LA 231,058 16,774 16,774 0.55 0.90 7.33 12.04
TSH Teche Holding Co. LA 379,590 52,282 52,282 0.72 1.05 4.29 6.20
AFCB Affiliated Community Bancorp MA 1,005,416 98,062 97,373 0.64 0.93 6.11 8.78
BFD BostonFed Bancorp, Inc. MA 796,885 88,838 88,838 0.32 0.51 2.67 4.27
ANBK American National Bancorp MD 486,639 44,533 44,533 0.15 0.53 1.44 5.20
EQSB Equitable Federal Savings Bank MD 267,776 14,182 14,182 0.78 0.78 14.98 14.89
FCIT First Citizens Financial Corp. MD 668,459 39,548 39,548 0.45 0.65 7.38 10.54
FFWM First Financial-W. Maryland MD 345,505 40,368 40,368 0.86 1.19 7.00 9.68
HRBF Harbor Federal Bancorp, Inc. MD 213,804 27,482 27,482 0.27 0.56 1.73 3.55
MFSL Maryland Federal Bancorp MD 1,130,517 91,046 89,622 0.74 0.59 8.98 7.15
WSB Washington Savings Bank, FSB MD 246,742 21,505 21,505 0.91 0.84 11.60 10.70
WHGB WHG Bancshares Corp. MD 97,570 23,264 23,264 NA NA NA NA
MCBN Mid-Coast Bancorp, Inc. ME 55,956 4,915 4,915 0.34 0.58 3.83 6.45
BWFC Bank West Financial Corp. MI 139,516 24,189 24,189 0.66 0.36 3.39 1.86
CFSB CFSB Bancorp, Inc. MI 811,964 62,854 62,854 0.70 0.93 8.52 11.29
DNFC D & N Financial Corp. MI 1,408,131 78,149 77,110 0.71 0.92 12.54 16.27
MSBF MSB Financial, Inc. MI 62,832 12,596 12,596 1.40 1.70 6.19 7.49
MSBK Mutual Savings Bank, FSB MI 677,577 39,468 39,468 0.07 -0.04 1.26 -0.80
OFCP Ottawa Financial Corp. MI 827,275 75,351 59,565 0.40 0.81 3.11 6.28
SJSB SJS Bancorp MI 151,881 15,817 15,817 0.17 0.48 1.50 4.16
SFB Standard Federal Bancorp MI 15,353,682 895,703 728,964 0.34 0.86 5.22 13.19
THR Three Rivers Financial Corp. MI 87,369 12,651 12,597 0.52 0.78 3.43 5.15
BDJI First Federal Bancorporation MN 107,256 12,323 12,323 0.31 0.68 2.20 4.82
FFHH FSF Financial Corp. MN 354,636 47,649 47,649 0.51 0.71 3.25 4.50
HMNF HMN Financial, Inc. MN 565,385 83,669 83,669 0.81 0.93 4.92 5.68
MIVI Mississippi View Holding Co. MN 69,322 12,752 12,752 1.31 1.16 6.73 5.96
QCFB QCF Bancorp, Inc. MN 148,321 26,161 26,161 1.24 1.53 6.18 7.65
TCB TCF Financial Corp. MN 7,114,466 522,515 500,478 1.19 1.40 16.00 18.89
WEFC Wells Financial Corp. MN 201,316 27,768 27,768 0.56 0.93 3.82 6.38
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
------------------------------------------------
Number of Mkt. Value
IPO Shares of Shares
State Date Exchange Outstg. ($M)
----- ---- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
CZF CitiSave Financial Corp LA 07/14/95 AMSE 962,207 13.47
ISBF ISB Financial Corporation LA 04/07/95 NASDAQ 7,051,260 109.29
MERI Meritrust Federal SB LA NA NASDAQ 774,176 23.81
TSH Teche Holding Co. LA 04/19/95 AMSE 3,541,000 47.80
AFCB Affiliated Community Bancorp MA 10/19/95 NASDAQ 5,094,666 103.80
BFD BostonFed Bancorp, Inc. MA 10/24/95 AMSE 6,589,617 87.31
ANBK American National Bancorp MD 10/31/95 NASDAQ 3,603,646 42.34
EQSB Equitable Federal Savings Bank MD 09/10/93 NASDAQ 600,000 14.85
FCIT First Citizens Financial Corp. MD 12/17/86 NASDAQ 2,927,170 53.42
FFWM First Financial-W. Maryland MD 02/11/92 NASDAQ 2,124,336 57.36
HRBF Harbor Federal Bancorp, Inc. MD 08/12/94 NASDAQ 1,754,420 25.00
MFSL Maryland Federal Bancorp MD 06/02/87 NASDAQ 3,137,062 90.00
WSB Washington Savings Bank, FSB MD NA AMSE 4,220,206 22.16
WHGB WHG Bancshares Corp. MD 04/01/96 NASDAQ 1,620,062 18.02
MCBN Mid-Coast Bancorp, Inc. ME 11/02/89 NASDAQ 230,086 4.37
BWFC Bank West Financial Corp. MI 03/30/95 NASDAQ 1,981,475 22.29
CFSB CFSB Bancorp, Inc. MI 06/22/90 NASDAQ 4,825,541 86.86
DNFC D & N Financial Corp. MI 02/13/85 NASDAQ 7,587,453 108.12
MSBF MSB Financial, Inc. MI 02/06/95 NASDAQ 653,601 11.93
MSBK Mutual Savings Bank, FSB MI 07/17/92 NASDAQ 4,274,154 22.97
OFCP Ottawa Financial Corp. MI 08/19/94 NASDAQ 5,179,279 84.81
SJSB SJS Bancorp MI 02/16/95 NASDAQ 917,622 19.73
SFB Standard Federal Bancorp MI 01/21/87 NYSE 31,192,373 1427.05
THR Three Rivers Financial Corp. MI 08/24/95 AMSE 851,240 10.96
BDJI First Federal Bancorporation MN 04/04/95 NASDAQ 700,566 11.38
FFHH FSF Financial Corp. MN 10/07/94 NASDAQ 3,478,194 44.35
HMNF HMN Financial, Inc. MN 06/30/94 NASDAQ 4,673,690 74.78
MIVI Mississippi View Holding Co. MN 03/24/95 NASDAQ 909,714 10.58
QCFB QCF Bancorp, Inc. MN 04/03/95 NASDAQ 1,426,200 21.39
TCB TCF Financial Corp. MN 06/17/86 NYSE 34,870,195 1311.99
WEFC Wells Financial Corp. MN 04/11/95 NASDAQ 2,078,125 27.02
</TABLE>
115
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY
------------------------------------------- ----------------------------------
Total Total Total Core Core
Assets Equity Tang. Equity ROAA ROAA ROAE ROAE
State ($000) ($000) ($000) (%) (%) (%) (%)
----- -------- ------ ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CMRN Cameron Financial Corp MO 175,841 46,337 46,337 1.60 1.56 5.77 5.64
CAPS Capital Savings Bancorp, Inc. MO 231,245 19,524 19,524 0.63 0.93 6.28 9.31
CBES CBES Bancorp, Inc. MO 96,716 16,977 16,977 NA NA NA NA
CNSB CNS Bancorp, Inc. MO 98,898 24,129 24,129 NA NA NA NA
FBSI First Bancshares, Inc. MO 154,306 22,789 22,750 0.67 0.95 4.00 5.73
FTNB Fulton Bancorp, Inc. MO 85,496 9,117 9,117 0.75 0.70 7.00 6.58
GSBC Great Southern Bancorp, Inc. MO 657,659 66,553 66,548 1.36 1.55 13.40 15.21
HFSA Hardin Bancorp, Inc. MO 87,807 14,737 14,737 0.44 0.78 2.39 4.25
JSBA Jefferson Savings Bancorp MO 1,128,339 81,681 67,311 0.23 0.60 3.21 8.43
JOAC Joachim Bancorp, Inc. MO 36,127 10,681 10,681 0.41 0.70 1.49 2.51
LXMO Lexington B&L Financial Corp. MO 61,294 18,738 18,738 NA NA NA NA
MBLF MBLA Financial Corp. MO 227,391 27,986 27,986 0.58 0.76 4.07 5.33
NASB North American Savings Bank MO 740,298 50,380 48,478 1.26 1.19 17.33 16.38
NSLB NS&L Bancorp, Inc. MO 57,288 13,351 13,351 0.97 0.83 4.08 3.50
PCBC Perry County Financial Corp. MO 80,394 15,088 15,088 0.88 0.98 4.36 4.81
RFED Roosevelt Financial Group MO 9,047,562 505,867 482,922 0.42 0.85 7.88 15.83
SMFC Sho-Me Financial Corp. MO 292,094 29,800 29,800 0.69 0.89 5.95 7.63
SMBC Southern Missouri Bancorp, Inc MO 160,124 25,204 25,204 0.67 0.94 4.04 5.68
CFTP Community Federal Bancorp MS 204,022 67,139 67,139 1.15 1.42 4.38 5.42
FFBS FFBS BanCorp, Inc. MS 125,727 24,631 24,631 1.09 1.41 5.51 7.11
MGNL Magna Bancorp, Inc. MS 1,302,239 125,821 119,855 1.37 1.69 13.79 16.99
GBCI Glacier Bancorp, Inc. MT 412,042 38,926 38,889 1.36 1.53 14.25 16.00
SFBM Security Bancorp MT 382,309 30,930 26,638 0.53 0.63 6.21 7.37
UBMT United Financial Corp. MT 107,945 24,320 24,320 1.20 1.45 5.24 6.34
WSTR WesterFed Financial Corp. MT 566,109 78,289 78,289 0.58 0.83 4.25 6.09
CFNC Carolina Fincorp, Inc. NC 94,110 8,641 8,641 0.64 0.61 7.01 6.74
COOP Cooperative Bankshares, Inc. NC 327,198 25,207 25,207 -1.14 -0.09 -12.26 -0.98
SOPN First Savings Bancorp, Inc. NC 263,203 67,014 67,014 1.27 1.57 4.89 6.01
GSFC Green Street Financial Corp. NC 176,231 62,180 62,180 1.23 1.53 3.31 4.13
HFNC HFNC Financial Corp. NC 845,074 247,764 247,764 1.04 1.30 3.52 4.40
KSAV KS Bancorp, Inc. NC 96,150 13,815 13,803 0.82 1.15 5.30 7.40
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
------------------------------------------------
Number of Mkt. Value
IPO Shares of Shares
State Date Exchange Outstg. ($M)
----- ---- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
CMRN Cameron Financial Corp MO 04/03/95 NASDAQ 2,850,180 39.19
CAPS Capital Savings Bancorp, Inc. MO 12/29/93 NASDAQ 1,876,000 21.11
CBES CBES Bancorp, Inc. MO 09/30/96 NASDAQ 1,024,958 12.94
CNSB CNS Bancorp, Inc. MO 06/12/96 NASDAQ 1,653,125 21.49
FBSI First Bancshares, Inc. MO 12/22/93 NASDAQ 1,206,376 19.30
FTNB Fulton Bancorp, Inc. MO 10/18/96 NASDAQ NA NA
GSBC Great Southern Bancorp, Inc. MO 12/14/89 NASDAQ 8,730,104 130.95
HFSA Hardin Bancorp, Inc. MO 09/29/95 NASDAQ 1,005,100 11.94
JSBA Jefferson Savings Bancorp MO 04/08/93 NASDAQ 4,181,795 94.09
JOAC Joachim Bancorp, Inc. MO 12/28/95 NASDAQ 760,437 10.27
LXMO Lexington B&L Financial Corp. MO 06/06/96 NASDAQ 1,265,000 12.65
MBLF MBLA Financial Corp. MO 06/24/93 NASDAQ 1,353,961 28.77
NASB North American Savings Bank MO 09/27/85 NASDAQ 2,267,984 66.91
NSLB NS&L Bancorp, Inc. MO 06/08/95 NASDAQ 843,424 10.54
PCBC Perry County Financial Corp. MO 02/13/95 NASDAQ 852,566 14.92
RFED Roosevelt Financial Group MO 01/23/87 NASDAQ 42,157,516 721.95
SMFC Sho-Me Financial Corp. MO 07/01/94 NASDAQ 1,646,290 32.51
SMBC Southern Missouri Bancorp, Inc MO 04/13/94 NASDAQ 1,637,813 23.95
CFTP Community Federal Bancorp MS 03/26/96 NASDAQ 4,282,339 58.35
FFBS FFBS BanCorp, Inc. MS 07/01/93 NASDAQ 1,570,443 34.55
MGNL Magna Bancorp, Inc. MS 03/13/91 NASDAQ 13,741,018 271.39
GBCI Glacier Bancorp, Inc. MT 03/30/84 NASDAQ 3,374,282 80.98
SFBM Security Bancorp MT 11/20/86 NASDAQ 1,484,682 42.50
UBMT United Financial Corp. MT 09/23/86 NASDAQ 1,223,312 22.63
WSTR WesterFed Financial Corp. MT 01/10/94 NASDAQ 4,395,108 70.87
CFNC Carolina Fincorp, Inc. NC 11/25/96 NASDAQ NA NA
COOP Cooperative Bankshares, Inc. NC 08/21/91 NASDAQ 1,491,698 27.60
SOPN First Savings Bancorp, Inc. NC 01/06/94 NASDAQ 3,744,000 67.39
GSFC Green Street Financial Corp. NC 04/04/96 NASDAQ 4,298,125 66.89
HFNC HFNC Financial Corp. NC 12/29/95 NASDAQ 17,192,500 309.47
KSAV KS Bancorp, Inc. NC 12/30/93 NASDAQ 663,263 13.02
</TABLE>
116
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY
------------------------------------------- ----------------------------------
Total Total Total Core Core
Assets Equity Tang. Equity ROAA ROAA ROAE ROAE
State ($000) ($000) ($000) (%) (%) (%) (%)
----- -------- ------ ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MBSP Mitchell Bancorp, Inc. NC 34,980 14,718 14,718 NA NA NA NA
PDB Piedmont Bancorp, Inc. NC 132,067 37,236 37,236 1.25 1.54 4.77 5.86
SSB Scotland Bancorp, Inc NC 68,622 24,791 24,791 1.18 1.50 4.31 5.49
SSFC South Street Financial Corp. NC 217,954 20,867 20,867 0.27 0.56 2.47 5.11
SSM Stone Street Bancorp, Inc. NC 106,373 37,381 37,381 NA NA NA NA
UFRM United Federal Savings Bank NC 263,582 19,736 19,736 0.27 0.49 3.38 6.13
CFB Commercial Federal Corporation NE 6,667,758 359,656 321,307 0.61 0.87 10.29 14.70
EBCP Eastern Bancorp NH 868,678 63,580 60,052 0.40 0.53 5.20 7.00
NHTB New Hampshire Thrift Bncshrs NH 264,016 19,201 19,201 0.40 0.60 5.25 7.87
FBER 1st Bergen Bancorp NJ 249,986 42,563 42,563 0.11 0.57 0.93 4.77
CJFC Central Jersey Financial NJ 464,472 56,144 52,534 0.81 1.11 6.79 9.33
COFD Collective Bancorp, Inc. NJ 5,252,483 364,049 340,790 0.89 1.10 12.81 15.76
FSPG First Home Bancorp, Inc. NJ 487,209 31,456 30,761 0.91 1.00 14.00 15.37
FSFI First State Financial Services NJ 665,937 39,955 37,756 0.02 -0.12 0.23 -1.74
FMCO FMS Financial Corporation NJ 518,540 33,826 33,071 0.52 0.87 7.86 13.11
IBSF IBS Financial Corp. NJ 742,051 144,284 144,284 0.61 0.99 2.98 4.81
LVSB Lakeview Financial NJ 472,698 48,415 38,569 1.24 0.85 11.87 8.17
LFBI Little Falls Bancorp, Inc. NJ 280,601 41,767 38,460 0.15 0.42 1.36 3.71
OCFC Ocean Financial Corp. NJ 1,190,063 246,702 246,702 NA NA NA NA
PBCI Pamrapo Bancorp, Inc. NJ 362,975 54,628 54,173 0.85 1.25 5.44 8.01
PFSB PennFed Financial Services,Inc NJ 1,142,473 90,148 72,354 0.53 0.84 5.83 9.12
PULS Pulse Bancorp NJ 502,500 38,459 38,459 0.74 1.12 7.02 10.55
SFIN Statewide Financial Corp. NJ 662,067 65,357 65,198 0.38 0.87 3.41 7.88
WYNE Wayne Bancorp, Inc. NJ 239,611 35,925 35,925 NA NA NA NA
WWFC Westwood Financial Corporation NJ 93,648 9,546 8,367 NA NA NA NA
AABC Access Anytime Bancorp, Inc. NM 108,912 4,991 4,991 -0.57 -0.22 -12.00 -4.61
GUPB GFSB Bancorp, Inc. NM 79,708 14,745 14,745 0.80 1.02 3.53 4.50
AFED AFSALA Bancorp, Inc. NY 133,046 8,195 8,126 NA NA NA NA
ALBK ALBANK Financial Corporation NY 3,509,729 314,038 269,641 0.76 0.97 7.71 9.82
ALBC Albion Banc Corp. NY 59,860 5,767 5,767 -0.10 0.20 -1.00 1.91
ASFC Astoria Financial Corporation NY 7,266,185 566,244 463,735 0.50 0.71 6.03 8.51
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
------------------------------------------------
Number of Mkt. Value
IPO Shares of Shares
State Date Exchange Outstg. ($M)
----- ---- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
MBSP Mitchell Bancorp, Inc. NC 07/12/96 NASDAQ 979,897 12.25
PDB Piedmont Bancorp, Inc. NC 12/08/95 AMSE 2,750,800 42.64
SSB Scotland Bancorp, Inc NC 04/01/96 AMSE 1,840,000 25.53
SSFC South Street Financial Corp. NC 10/03/96 NASDAQ NA NA
SSM Stone Street Bancorp, Inc. NC 04/01/96 AMSE 1,825,050 32.85
UFRM United Federal Savings Bank NC 07/01/80 NASDAQ 3,065,064 23.75
CFB Commercial Federal Corporation NE 12/31/84 NYSE 13,856,566 595.83
EBCP Eastern Bancorp NH 11/17/83 NASDAQ 3,651,534 75.77
NHTB New Hampshire Thrift Bncshrs NH 05/22/86 NASDAQ 1,698,136 21.01
FBER 1st Bergen Bancorp NJ 04/01/96 NASDAQ 3,174,000 35.31
CJFC Central Jersey Financial NJ 09/01/84 NASDAQ 2,668,269 92.39
COFD Collective Bancorp, Inc. NJ 02/07/84 NASDAQ 20,372,024 580.60
FSPG First Home Bancorp, Inc. NJ 04/20/87 NASDAQ 2,030,009 36.54
FSFI First State Financial Services NJ 12/18/87 NASDAQ 3,929,455 51.08
FMCO FMS Financial Corporation NJ 12/14/88 NASDAQ 2,467,763 38.25
IBSF IBS Financial Corp. NJ 10/13/94 NASDAQ 10,754,467 159.97
LVSB Lakeview Financial NJ 12/22/93 NASDAQ 2,487,274 58.14
LFBI Little Falls Bancorp, Inc. NJ 01/05/96 NASDAQ 2,889,663 33.23
OCFC Ocean Financial Corp. NJ 07/03/96 NASDAQ 9,059,124 216.29
PBCI Pamrapo Bancorp, Inc. NJ 11/14/89 NASDAQ 3,230,964 61.39
PFSB PennFed Financial Services,Inc NJ 07/15/94 NASDAQ 4,853,020 88.27
PULS Pulse Bancorp NJ 09/18/86 NASDAQ 3,049,878 51.47
SFIN Statewide Financial Corp. NJ 10/02/95 NASDAQ 4,994,545 65.55
WYNE Wayne Bancorp, Inc. NJ 06/27/96 NASDAQ 2,231,383 30.68
WWFC Westwood Financial Corporation NJ 06/07/96 NASDAQ 646,672 8.41
AABC Access Anytime Bancorp, Inc. NM 08/08/86 NASDAQ 732,198 4.39
GUPB GFSB Bancorp, Inc. NM 06/30/95 NASDAQ 901,313 12.84
AFED AFSALA Bancorp, Inc. NY 10/01/96 NASDAQ NA NA
ALBK ALBANK Financial Corporation NY 04/01/92 NASDAQ 13,100,163 376.63
ALBC Albion Banc Corp. NY 07/26/93 NASDAQ 250,051 4.13
ASFC Astoria Financial Corporation NY 11/18/93 NASDAQ 21,511,444 623.83
</TABLE>
117
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY
------------------------------------------- ----------------------------------
Total Total Total Core Core
Assets Equity Tang. Equity ROAA ROAA ROAE ROAE
State ($000) ($000) ($000) (%) (%) (%) (%)
----- -------- ------ ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BFSI BFS Bankorp, Inc. NY 643,180 50,214 50,214 1.58 1.85 20.12 23.60
CARV Carver Bancorp, Inc. NY 365,056 34,612 33,049 -0.03 0.24 -0.32 2.52
FIBC Financial Bancorp, Inc. NY 266,763 25,787 25,644 0.47 0.86 4.31 7.88
HAVN Haven Bancorp, Inc. NY 1,564,697 93,923 93,380 0.58 0.85 9.07 13.40
LISB Long Island Bancorp, Inc. NY 5,363,791 519,094 519,094 0.64 0.78 6.16 7.44
NYB New York Bancorp Inc. NY 2,940,907 151,903 151,903 1.16 1.27 20.26 22.19
PEEK Peekskill Financial Corp. NY 186,510 54,950 54,950 1.06 1.37 3.65 4.72
PKPS Poughkeepsie Savings Bank, FSB NY 860,853 70,129 70,129 1.48 2.34 17.88 28.26
RELY Reliance Bancorp, Inc. NY 1,829,440 149,552 100,979 0.50 0.80 5.19 8.31
SFED SFS Bancorp, Inc. NY 166,030 21,174 21,174 0.45 0.80 3.22 5.79
TPNZ Tappan Zee Financial, Inc. NY 119,865 21,478 21,478 0.69 0.94 3.93 5.33
YFCB Yonkers Financial Corporation NY 259,534 48,999 48,999 0.66 0.99 4.65 6.97
ASBP ASB Financial Corp. OH 114,298 25,353 25,353 0.57 0.89 2.45 3.83
CAFI Camco Financial Corporation OH 378,078 28,673 28,673 0.78 0.89 9.63 10.96
COFI Charter One Financial OH 13,826,085 910,786 841,393 0.19 1.14 2.92 17.07
CTZN CitFed Bancorp, Inc. OH 2,747,617 175,029 153,260 0.46 0.73 6.79 10.65
CIBI Community Investors Bancorp OH 94,799 11,319 11,319 0.68 0.98 5.03 7.23
DCBI Delphos Citizens Bancorp, Inc. OH 88,022 10,799 10,799 1.10 1.10 8.94 8.94
EFBI Enterprise Federal Bancorp OH 213,876 31,594 31,536 0.92 0.64 5.39 3.74
FFDF FFD Financial Corp. OH 85,434 21,416 21,416 0.69 0.94 3.78 5.18
FFYF FFY Financial Corp. OH 602,557 102,228 102,228 0.83 1.27 4.59 7.03
FFOH Fidelity Financial of Ohio OH 255,870 50,786 50,786 0.60 0.90 3.45 5.18
FDEF First Defiance Financial OH 524,247 120,608 120,608 0.92 1.20 3.71 4.81
FFBZ First Federal Bancorp, Inc. OH 184,467 13,998 13,979 0.81 1.09 10.65 14.28
FFHS First Franklin Corporation OH 218,329 19,766 19,599 0.28 0.61 2.94 6.47
FFSW FirstFederal Financial Svcs OH 1,110,723 82,384 71,473 0.92 1.00 11.57 12.57
GFCO Glenway Financial Corp. OH 283,727 26,340 25,816 0.25 0.60 2.66 6.26
HHFC Harvest Home Financial Corp. OH 76,399 12,769 12,769 0.75 0.75 4.14 4.14
HVFD Haverfield Corporation OH 350,603 27,593 27,552 0.40 0.78 4.77 9.23
INBI Industrial Bancorp OH 320,372 60,641 60,641 0.73 1.35 3.31 6.15
LONF London Financial Corporation OH 37,189 7,945 7,945 NA NA NA NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
------------------------------------------------
Number of Mkt. Value
IPO Shares of Shares
State Date Exchange Outstg. ($M)
----- ---- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
BFSI BFS Bankorp, Inc. NY 05/12/88 NASDAQ 1,635,488 85.05
CARV Carver Bancorp, Inc. NY 10/25/94 NASDAQ 2,314,375 18.23
FIBC Financial Bancorp, Inc. NY 08/17/94 NASDAQ 1,790,622 27.75
HAVN Haven Bancorp, Inc. NY 09/23/93 NASDAQ 4,322,904 110.51
LISB Long Island Bancorp, Inc. NY 04/18/94 NASDAQ 24,644,157 711.60
NYB New York Bancorp Inc. NY 01/28/88 NYSE 11,098,800 351.00
PEEK Peekskill Financial Corp. NY 12/29/95 NASDAQ 3,819,563 52.52
PKPS Poughkeepsie Savings Bank, FSB NY 11/19/85 NASDAQ 12,551,825 64.33
RELY Reliance Bancorp, Inc. NY 03/31/94 NASDAQ 8,911,739 167.10
SFED SFS Bancorp, Inc. NY 06/30/95 NASDAQ 1,278,472 17.74
TPNZ Tappan Zee Financial, Inc. NY 10/05/95 NASDAQ 1,539,062 19.24
YFCB Yonkers Financial Corporation NY 04/18/96 NASDAQ 3,570,750 45.08
ASBP ASB Financial Corp. OH 05/11/95 NASDAQ 1,713,960 23.78
CAFI Camco Financial Corporation OH NA NASDAQ 2,075,641 38.92
COFI Charter One Financial OH 01/22/88 NASDAQ 46,764,869 1870.59
CTZN CitFed Bancorp, Inc. OH 01/23/92 NASDAQ 8,581,791 215.98
CIBI Community Investors Bancorp OH 02/07/95 NASDAQ 666,246 10.66
DCBI Delphos Citizens Bancorp, Inc. OH 11/21/96 NASDAQ NA NA
EFBI Enterprise Federal Bancorp OH 10/17/94 NASDAQ 2,074,328 29.04
FFDF FFD Financial Corp. OH 04/03/96 NASDAQ 1,454,750 15.64
FFYF FFY Financial Corp. OH 06/28/93 NASDAQ 5,117,198 122.81
FFOH Fidelity Financial of Ohio OH 03/04/96 NASDAQ 4,076,964 40.77
FDEF First Defiance Financial OH 10/02/95 NASDAQ 9,911,932 105.31
FFBZ First Federal Bancorp, Inc. OH 07/13/92 NASDAQ 1,570,116 21.59
FFHS First Franklin Corporation OH 01/26/88 NASDAQ 1,158,434 16.51
FFSW FirstFederal Financial Svcs OH 03/31/87 NASDAQ 3,612,349 109.27
GFCO Glenway Financial Corp. OH 11/30/90 NASDAQ 1,151,335 21.01
HHFC Harvest Home Financial Corp. OH 10/10/94 NASDAQ 934,857 11.69
HVFD Haverfield Corporation OH 03/19/85 NASDAQ 1,906,591 36.23
INBI Industrial Bancorp OH 08/01/95 NASDAQ 5,554,500 68.04
LONF London Financial Corporation OH 04/01/96 NASDAQ 529,000 5.55
</TABLE>
118
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY
------------------------------------------- ----------------------------------
Total Total Total Core Core
Assets Equity Tang. Equity ROAA ROAA ROAE ROAE
State ($000) ($000) ($000) (%) (%) (%) (%)
----- -------- ------ ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MFFC Milton Federal Financial Corp. OH 180,831 33,479 33,479 0.67 0.86 3.28 4.22
OHSL OHSL Financial Corp. OH 217,627 25,167 25,167 0.57 0.85 4.60 6.85
PFFC Peoples Financial Corp. OH 78,252 10,080 10,080 NA NA NA NA
PTRS Potters Financial Corp. OH 125,497 10,301 10,301 0.03 0.40 0.27 4.19
PVFC PVF Capital Corp. OH 345,279 22,463 22,463 0.94 1.21 14.18 18.25
SFSL Security First Corp. OH 599,822 55,612 54,531 0.90 1.27 9.69 13.68
SSBK Strongsville Savings Bank OH 542,191 41,919 41,099 0.64 0.83 7.74 10.11
SBCN Suburban Bancorporation, Inc. OH 209,942 25,386 25,386 0.17 0.56 1.28 4.36
WOFC Western Ohio Financial Corp. OH 347,704 53,223 49,994 0.52 0.49 2.63 2.47
WEHO Westwood Homestead Fin. Corp. OH 119,866 39,489 39,489 NA NA NA NA
WFCO Winton Financial Corp. OH 282,833 21,083 20,544 0.94 0.80 12.39 10.50
FFWD Wood Bancorp, Inc. OH 152,374 20,068 20,068 0.89 1.14 6.32 8.10
KFBI Klamath First Bancorp OR 671,969 153,411 153,411 0.99 1.43 3.69 5.31
BRFC Bridgeville Savings Bank PA 54,835 15,869 15,869 0.97 1.23 3.38 4.29
CVAL Chester Valley Bancorp Inc. PA 284,386 25,122 25,122 0.60 0.89 6.55 9.72
CMSB Commonwealth Bancorp, Inc. PA 2,084,922 227,440 174,590 0.46 0.66 4.77 6.75
FSBI Fidelity Bancorp, Inc. PA 317,874 21,778 21,734 0.42 0.73 6.00 10.42
FBBC First Bell Bancorp, Inc. PA 576,981 106,362 106,362 1.40 1.63 6.71 7.77
FKFS First Keystone Financial PA 294,241 23,084 23,084 0.32 0.68 3.92 8.33
SHEN First Shenango Bancorp, Inc. PA 384,088 46,118 46,118 0.75 1.02 5.65 7.63
GAF GA Financial, Inc. PA 588,912 126,906 126,906 0.74 1.07 4.52 6.54
HARL Harleysville Savings Bank PA 315,495 19,617 19,617 0.55 0.88 8.07 12.97
LARL Laurel Capital Group, Inc. PA 201,911 21,008 21,008 1.06 1.40 10.00 13.22
MLBC ML Bancorp, Inc. PA 1,888,847 138,067 133,614 0.75 0.70 9.17 8.62
PVSA Parkvale Financial Corporation PA 924,365 68,560 68,323 0.73 1.02 10.23 14.28
PBIX Patriot Bank Corp. PA 489,558 51,401 51,401 0.40 0.67 3.05 5.10
PWBC PennFirst Bancorp, Inc. PA 700,794 48,949 44,382 0.42 0.61 5.47 7.88
PWBK Pennwood Savings Bank PA 46,225 9,254 9,254 NA NA NA NA
PHFC Pittsburgh Home Financial Corp PA 195,330 30,372 30,372 0.44 0.71 3.77 6.11
PRBC Prestige Bancorp, Inc. PA 104,379 15,186 15,186 NA NA NA NA
PSAB Prime Bancorp, Inc. PA 677,306 57,515 53,986 0.73 0.94 7.97 10.32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
------------------------------------------------
Number of Mkt. Value
IPO Shares of Shares
State Date Exchange Outstg. ($M)
----- ---- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
MFFC Milton Federal Financial Corp. OH 10/07/94 NASDAQ 2,268,569 30.63
OHSL OHSL Financial Corp. OH 02/10/93 NASDAQ 1,222,879 23.85
PFFC Peoples Financial Corp. OH 09/13/96 NASDAQ NA NA
PTRS Potters Financial Corp. OH 12/31/93 NASDAQ 506,169 7.97
PVFC PVF Capital Corp. OH 12/30/92 NASDAQ 2,323,338 36.01
SFSL Security First Corp. OH 01/22/88 NASDAQ 4,971,820 71.47
SSBK Strongsville Savings Bank OH NA NASDAQ 2,530,800 56.94
SBCN Suburban Bancorporation, Inc. OH 09/30/93 NASDAQ 1,474,932 24.34
WOFC Western Ohio Financial Corp. OH 07/29/94 NASDAQ 2,186,669 43.19
WEHO Westwood Homestead Fin. Corp. OH 09/30/96 NASDAQ 2,615,905 28.12
WFCO Winton Financial Corp. OH 08/04/88 NASDAQ 1,986,152 28.30
FFWD Wood Bancorp, Inc. OH 08/31/93 NASDAQ 1,497,636 23.40
KFBI Klamath First Bancorp OR 10/05/95 NASDAQ 11,612,470 165.48
BRFC Bridgeville Savings Bank PA 10/07/94 NASDAQ 1,124,125 17.14
CVAL Chester Valley Bancorp Inc. PA 03/27/87 NASDAQ 1,635,885 30.67
CMSB Commonwealth Bancorp, Inc. PA 06/17/96 NASDAQ 17,953,361 213.20
FSBI Fidelity Bancorp, Inc. PA 06/24/88 NASDAQ 1,373,151 26.09
FBBC First Bell Bancorp, Inc. PA 06/29/95 NASDAQ 7,758,150 115.40
FKFS First Keystone Financial PA 01/26/95 NASDAQ 1,292,500 23.59
SHEN First Shenango Bancorp, Inc. PA 04/06/93 NASDAQ 2,258,197 47.42
GAF GA Financial, Inc. PA 03/26/96 AMSE 8,900,000 116.81
HARL Harleysville Savings Bank PA 08/04/87 NASDAQ 1,291,895 23.25
LARL Laurel Capital Group, Inc. PA 02/20/87 NASDAQ 1,514,285 24.04
MLBC ML Bancorp, Inc. PA 08/11/94 NASDAQ 11,869,210 166.92
PVSA Parkvale Financial Corporation PA 07/16/87 NASDAQ 4,041,607 92.96
PBIX Patriot Bank Corp. PA 12/04/95 NASDAQ 4,457,447 53.86
PWBC PennFirst Bancorp, Inc. PA 06/13/90 NASDAQ 3,908,944 52.77
PWBK Pennwood Savings Bank PA 07/15/96 NASDAQ 610,128 6.64
PHFC Pittsburgh Home Financial Corp PA 04/01/96 NASDAQ 2,182,125 25.91
PRBC Prestige Bancorp, Inc. PA 06/27/96 NASDAQ 963,023 11.56
PSAB Prime Bancorp, Inc. PA 11/21/88 NASDAQ 3,725,066 69.84
</TABLE>
119
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY
------------------------------------------- ----------------------------------
Total Total Total Core Core
Assets Equity Tang. Equity ROAA ROAA ROAE ROAE
State ($000) ($000) ($000) (%) (%) (%) (%)
----- -------- ------ ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PFNC Progress Financial Corporation PA 367,171 18,687 18,568 0.60 0.73 11.58 14.22
SVRN Sovereign Bancorp, Inc. PA 9,364,636 460,081 345,557 0.57 0.76 10.88 14.45
THRD TF Financial Corporation PA 663,092 71,697 62,221 0.63 0.87 4.49 6.22
THBC Troy Hill Bancorp, Inc. PA 99,470 18,013 18,013 1.02 1.20 4.84 5.66
WVFC WVS Financial Corporation PA 265,820 34,250 34,250 1.24 1.42 8.69 9.93
YFED York Financial Corp. PA 1,154,446 91,752 91,752 0.61 0.82 7.21 9.73
AMFB American Federal Bank, FSB SC 1,394,874 108,255 100,060 1.04 1.30 12.99 16.17
CFCP Coastal Financial Corp. SC 452,809 27,641 27,641 1.04 0.92 17.09 15.04
FFCH First Financial Holdings Inc. SC 1,546,149 94,795 94,795 0.48 0.80 7.55 12.56
FSFC First Southeast Financial Corp SC 329,336 33,125 33,125 -0.03 0.82 -0.19 4.81
PALM Palfed, Inc. SC 659,902 52,804 50,339 0.37 0.59 4.46 7.22
SCCB S. Carolina Community Bancshrs SC 43,232 12,386 12,386 0.85 1.14 2.96 3.94
HFFC HF Financial Corp. SD 554,139 49,809 49,664 0.59 0.75 6.55 8.22
TWIN Twin City Bancorp TN 107,067 13,411 13,411 0.78 0.99 5.78 7.33
BNKU Bank United Corp. TX 10,712,377 531,043 514,121 1.14 1.11 16.53 16.03
CBSA Coastal Bancorp, Inc. TX 2,859,448 90,627 74,659 0.24 0.40 7.11 11.93
ETFS East Texas Financial Services TX 115,339 21,815 21,815 0.81 0.74 4.17 3.82
FBHC Fort Bend Holding Corp. TX 281,694 17,397 16,067 0.27 0.58 3.81 8.24
LOAN Horizon Bancorp TX 140,524 11,629 11,272 1.46 1.13 16.45 12.71
JXVL Jacksonville Bancorp, Inc. TX 217,702 35,277 35,277 0.68 1.02 5.13 7.63
BFSB Bedford Bancshares, Inc. VA 127,360 18,227 18,227 1.10 1.40 6.98 8.91
CNIT CENIT Bancorp, Inc. VA 685,962 48,274 43,971 0.40 0.62 5.61 8.57
CFFC Community Financial Corp. VA 160,791 22,380 22,380 1.02 1.29 7.45 9.42
ESX Essex Bancorp, Inc. VA 171,498 14,834 14,597 -2.57 -1.56 -38.94 -23.61
FFFC FFVA Financial Corp. VA 530,095 78,740 77,102 0.99 1.25 6.28 7.91
FFRV Fidelity Financial Bankshares VA 329,233 27,747 27,736 0.66 0.95 7.73 11.00
GSLC Guaranty Financial Corp. VA 115,229 6,337 6,337 0.44 0.51 7.22 8.39
LIFB Life Bancorp, Inc. VA 1,404,760 145,446 140,652 0.65 0.93 4.87 7.02
VABF Virginia Beach Fed. Financial VA 604,060 39,878 39,878 0.03 0.21 0.51 3.26
VFFC Virginia First Financial Corp. VA 781,358 61,113 59,254 1.43 0.81 17.98 10.16
CASB Cascade Financial Corp. WA 340,380 20,586 20,586 0.49 0.49 7.75 7.73
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
------------------------------------------------
Number of Mkt. Value
IPO Shares of Shares
State Date Exchange Outstg. ($M)
----- ---- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
PFNC Progress Financial Corporation PA 07/18/83 NASDAQ 3,730,000 24.01
SVRN Sovereign Bancorp, Inc. PA 08/12/86 NASDAQ 49,333,762 542.67
THRD TF Financial Corporation PA 07/13/94 NASDAQ 4,288,078 63.25
THBC Troy Hill Bancorp, Inc. PA 06/27/94 NASDAQ 1,067,917 21.43
WVFC WVS Financial Corporation PA 11/29/93 NASDAQ 1,736,960 37.56
YFED York Financial Corp. PA 02/01/84 NASDAQ 7,415,656 118.82
AMFB American Federal Bank, FSB SC 01/19/89 NASDAQ 10,955,485 193.09
CFCP Coastal Financial Corp. SC 09/26/90 NASDAQ 3,436,403 61.17
FFCH First Financial Holdings Inc. SC 11/10/83 NASDAQ 6,357,549 127.15
FSFC First Southeast Financial Corp SC 10/08/93 NASDAQ 4,388,231 41.14
PALM Palfed, Inc. SC 12/15/85 NASDAQ 5,227,739 70.57
SCCB S. Carolina Community Bancshrs SC 07/07/94 NASDAQ 735,410 11.03
HFFC HF Financial Corp. SD 04/08/92 NASDAQ 2,909,108 45.82
TWIN Twin City Bancorp TN 01/04/95 NASDAQ 860,576 14.84
BNKU Bank United Corp. TX NA NASDAQ 31,595,596 785.94
CBSA Coastal Bancorp, Inc. TX NA NASDAQ 4,963,859 97.42
ETFS East Texas Financial Services TX 01/10/95 NASDAQ 1,133,890 16.58
FBHC Fort Bend Holding Corp. TX 06/30/93 NASDAQ 819,198 15.77
LOAN Horizon Bancorp TX NA NASDAQ 1,386,757 12.13
JXVL Jacksonville Bancorp, Inc. TX 04/01/96 NASDAQ 2,644,405 33.72
BFSB Bedford Bancshares, Inc. VA 08/22/94 NASDAQ 1,143,669 19.30
CNIT CENIT Bancorp, Inc. VA 08/06/92 NASDAQ 1,633,438 64.52
CFFC Community Financial Corp. VA 03/30/88 NASDAQ 1,272,048 26.08
ESX Essex Bancorp, Inc. VA NA AMSE 1,052,637 2.37
FFFC FFVA Financial Corp. VA 10/12/94 NASDAQ 5,022,552 92.92
FFRV Fidelity Financial Bankshares VA 05/01/86 NASDAQ 2,298,647 52.87
GSLC Guaranty Financial Corp. VA NA NASDAQ 919,168 8.27
LIFB Life Bancorp, Inc. VA 10/11/94 NASDAQ 9,846,840 157.55
VABF Virginia Beach Fed. Financial VA 11/01/80 NASDAQ 4,967,465 43.16
VFFC Virginia First Financial Corp. VA 01/01/78 NASDAQ 5,743,372 78.97
CASB Cascade Financial Corp. WA 09/16/92 NASDAQ 2,050,581 32.81
</TABLE>
120
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY
------------------------------------------- ----------------------------------
Total Total Total Core Core
Assets Equity Tang. Equity ROAA ROAA ROAE ROAE
State ($000) ($000) ($000) (%) (%) (%) (%)
----- -------- ------ ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FWWB First SB of Washington Bancorp WA 946,986 149,348 137,105 1.02 1.23 5.22 6.32
IWBK InterWest Bancorp, Inc. WA 1,712,151 111,021 108,152 0.82 1.10 11.48 15.51
MSEA Metropolitan Bancorp WA 753,052 50,902 46,229 0.52 0.79 7.68 11.69
STSA Sterling Financial Corp. WA 1,531,295 84,320 73,508 0.14 0.37 2.45 6.39
WFSL Washington Federal, Inc. WA 5,114,978 577,702 550,245 1.63 1.81 13.85 15.38
AADV Advantage Bancorp, Inc. WI 1,016,385 88,867 81,965 0.31 0.80 3.18 8.22
ABCW Anchor BanCorp Wisconsin WI 1,891,584 110,522 107,583 0.68 0.93 9.99 13.68
FCBF FCB Financial Corp. WI 269,285 46,554 46,554 0.91 1.11 4.92 6.02
FFEC First Fed Bncshrs Eau Claire WI 728,822 97,828 94,090 0.69 0.91 4.78 6.27
FTFC First Federal Capital Corp. WI 1,469,422 93,175 87,850 0.71 0.78 10.18 11.21
FFHC First Financial Corp. WI 5,595,612 401,102 387,461 0.91 1.27 12.54 17.55
FNGB First Northern Capital Corp. WI 607,977 69,407 69,407 0.53 0.82 4.25 6.56
HALL Hallmark Capital Corp. WI 387,671 27,181 27,181 0.41 0.55 5.33 7.11
MWFD Midwest Federal Financial WI 194,707 16,340 15,621 1.04 1.02 11.26 10.99
NWEQ Northwest Equity Corp. WI 95,501 11,591 11,591 0.71 0.91 5.18 6.70
OSBF OSB Financial Corp. WI 250,465 31,046 31,046 0.03 0.45 0.27 3.60
RELI Reliance Bancshares, Inc. WI 47,987 29,299 NA NA NA NA NA
SECP Security Capital Corporation WI 3,494,427 555,207 555,207 0.84 1.14 4.99 6.76
STFR St. Francis Capital Corp. WI 1,404,116 125,179 119,345 0.81 0.79 8.04 7.90
FOBC Fed One Bancorp WV 341,528 39,875 37,833 0.70 1.00 5.72 8.10
CRZY Crazy Woman Creek Bancorp WY 51,517 15,469 15,469 0.79 1.05 3.10 4.10
TRIC Tri-County Bancorp, Inc. WY 79,475 12,670 12,670 0.66 0.92 3.82 5.27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
------------------------------------------------
Number of Mkt. Value
IPO Shares of Shares
State Date Exchange Outstg. ($M)
----- ---- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
FWWB First SB of Washington Bancorp WA 11/01/95 NASDAQ 10,878,482 180.85
IWBK InterWest Bancorp, Inc. WA NA NASDAQ 7,918,074 233.58
MSEA Metropolitan Bancorp WA 01/09/90 NASDAQ 3,633,905 63.14
STSA Sterling Financial Corp. WA NA NASDAQ 5,537,328 75.45
WFSL Washington Federal, Inc. WA 11/17/82 NASDAQ 40,695,450 961.43
AADV Advantage Bancorp, Inc. WI 03/23/92 NASDAQ 3,392,694 110.26
ABCW Anchor BanCorp Wisconsin WI 07/16/92 NASDAQ 4,628,574 152.74
FCBF FCB Financial Corp. WI 09/24/93 NASDAQ 2,459,614 42.43
FFEC First Fed Bncshrs Eau Claire WI 10/12/94 NASDAQ 6,855,379 123.40
FTFC First Federal Capital Corp. WI 11/02/89 NASDAQ 6,168,777 138.80
FFHC First Financial Corp. WI 12/24/80 NASDAQ 29,915,306 717.97
FNGB First Northern Capital Corp. WI 12/29/83 NASDAQ 4,381,147 73.38
HALL Hallmark Capital Corp. WI 01/03/94 NASDAQ 1,442,950 24.17
MWFD Midwest Federal Financial WI 07/08/92 NASDAQ 1,603,980 30.07
NWEQ Northwest Equity Corp. WI 10/11/94 NASDAQ 929,267 10.45
OSBF OSB Financial Corp. WI 07/01/92 NASDAQ 1,160,134 27.12
RELI Reliance Bancshares, Inc. WI 04/19/96 NASDAQ 2,562,344 22.10
SECP Security Capital Corporation WI 01/03/94 NASDAQ 9,204,798 596.01
STFR St. Francis Capital Corp. WI 06/21/93 NASDAQ 5,475,509 140.99
FOBC Fed One Bancorp WV 01/19/95 NASDAQ 2,492,799 38.64
CRZY Crazy Woman Creek Bancorp WY 03/29/96 NASDAQ 1,058,000 12.17
TRIC Tri-County Bancorp, Inc. WY 09/30/93 NASDAQ 608,749 11.11
</TABLE>
121
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED INSTITUTIONS
(EXCLUDING MUTUAL HOLDING COMPANIES)
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY
------------------------------------------- ----------------------------------
Total Total Total Core Core
Assets Equity Tang. Equity ROAA ROAA ROAE ROAE
State ($000) ($000) ($000) (%) (%) (%) (%)
----- -------- ------ ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ALL THRIFTS
AVERAGE 1,357,746 100,859 95,327 0.57 0.79 5.26 7.28
MEDIAN 317,128 37,536 37,309 0.65 0.85 5.03 7.11
HIGH 50,588,224 2,616,781 2,321,357 2.09 2.34 22.20 28.26
LOW 34,980 4,709 4,498 -18.24 -14.37 -56.67 -44.64
AVERAGE FOR STATE
IL 649,235 69,564 67,783 0.59 0.80 4.29 6.25
AVERAGE BY REGION
MIDWEST 923,766 81,157 76,084 0.56 0.79 5.34 7.23
NEW ENGLAND 850,598 85,826 81,930 0.53 0.62 5.18 6.17
MID ATLANTIC 585,732 59,717 57,138 0.63 0.87 5.45 7.57
SOUTHEAST 744,862 57,108 54,722 0.71 0.89 6.78 8.45
SOUTHWEST 1,235,862 83,786 71,876 0.39 0.65 3.54 6.24
WEST 5,735,022 336,615 323,077 0.28 0.52 2.20 5.48
AVERAGE BY EXCHANGE
NYSE 16,410,582 936,699 866,065 0.55 0.76 8.26 11.98
AMEX 232,125 36,135 35,942 0.53 0.78 1.97 4.16
OTC/NASDAQ 774,936 68,630 65,392 0.57 0.79 5.31 7.24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
------------------------------------------------
Number of Mkt. Value
IPO Shares of Shares
State Date Exchange Outstg. ($M)
----- ---- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
ALL THRIFTS
AVERAGE 5,948,974 133.91
MEDIAN 2,509,427 38.33
HIGH 137,431,563 3,641.94
LOW 230,086 2.37
AVERAGE FOR STATE
IL 4,077,678 75.99
AVERAGE BY REGION
MIDWEST 4,866,044 115.54
NEW ENGLAND 7,026,144 140.95
MID ATLANTIC 3,892,094 72.31
SOUTHEAST 4,135,628 74.24
SOUTHWEST 7,734,871 91.47
WEST 16,588,197 432.84
AVERAGE BY EXCHANGE
NYSE 43,074,889 1,339.25
AMEX 2,554,019 33.13
OTC/NASDAQ 4,510,313 86.62
</TABLE>
122
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 33
RECENTLY CONVERTED, SAIF-INSURED THRIFT INSTITUTIONS
PRICES AND PRICING RATIOS
<TABLE>
<CAPTION>
PRO FORMA RATIOS CURRENT RATIOS
-------------------------------- ----------------------------------
Price/ Price/ Price/ Price/
Price/ Book Tang. Bk. Price/ Price/ Book Tang. Bk. Price/
IPO Earnings Value Value Assets Earnings Value Value Assets
Date (X) (%) (%) (%) (X) (%) (%) (%)
---------- -------- ------- -------- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FFBA First Colorado Bancorp, Inc. CO 01/02/96 NA NA NA NA NM 143.13 144.97 21.21
LFBI Little Falls Bancorp, Inc. NJ 01/05/96 31.90 71.40 71.43 13.40 NM 86.51 93.91 12.87
BYFC Broadway Financial Corp. CA 01/09/96 13.30 68.50 68.48 8.00 NM 65.51 65.51 7.04
FFOH Fidelity Financial of Ohio OH 03/04/96 NA NA NA NA NM 89.79 89.79 17.83
FFFD North Central Bancshares, Inc. IA 03/21/96 NA NA NA NA 25.72 95.67 95.67 25.75
CFTP Community Federal Bancorp MS 03/26/96 14.00 71.40 71.35 22.20 61.61 110.08 110.08 36.21
GAF GA Financial, Inc. PA 03/26/96 13.80 70.50 70.52 15.70 28.37 95.16 95.16 22.29
CRZY Crazy Woman Creek Bancorp WY 03/29/96 16.40 69.70 69.72 22.00 57.50 78.66 78.66 23.62
PFFB PFF Bancorp, Inc. CA 03/29/96 26.60 69.00 68.99 9.50 NM 97.68 98.78 11.27
WHG WHG Bancshares Corp. MD 04/01/96 15.50 71.10 71.08 16.00 NA 88.36 88.36 21.07
SSB Scotland Bancorp, Inc NC 04/01/96 16.20 74.80 74.83 24.20 50.00 103.93 103.93 37.54
PHFC Pittsburgh Home Financial Corp PA 04/01/96 17.50 72.80 72.83 12.20 NM 95.19 95.19 14.80
JXVL Jacksonville Bancorp, Inc. TX 04/01/96 NA NA NA NA NM 108.70 108.70 17.61
LONF London Financial Corporation OH 04/01/96 22.40 68.50 68.46 13.40 NA 86.55 86.55 18.49
SSM Stone Street Bancorp, Inc. NC 04/01/96 19.70 74.90 74.92 24.40 32.50 95.17 95.17 33.46
AMFC AMB Financial Corp. IN 04/01/96 18.20 70.80 70.83 14.00 NM 86.81 86.81 16.82
FBER 1st Bergen Bancorp NJ 04/01/96 21.70 74.80 74.81 12.50 NM 89.49 89.49 15.24
FFDF FFD Financial Corp. OH 04/03/96 17.40 69.90 69.87 19.80 NM 91.71 91.71 22.99
GSFC Green Street Financial Corp. NC 04/04/96 14.80 71.00 71.03 22.20 43.06 107.12 107.12 37.80
YFCB Yonkers Financial Corporation NY 04/18/96 16.10 74.90 74.93 14.60 101.04 88.37 88.37 16.68
RELI Reliance Bancshares, Inc. WI 04/19/96 22.50 72.50 72.47 38.90 29.17 61.24 NA 37.37
CBK Citizens First Financial Corp. IL 05/01/96 15.30 73.10 73.10 11.00 NM 95.21 95.21 14.41
FFBH First Federal Bancshares of AR AR 05/03/96 9.80 63.40 63.39 10.20 NM 98.95 98.95 16.18
LXMO Lexington B&L Financial Corp. MO 06/06/96 14.40 69.10 69.10 20.20 NA 86.93 86.93 26.57
WWF Westwood Financial Corporation NJ 06/07/96 NA NA NA NA NM 103.32 117.85 10.53
CNSB CNS Bancorp, Inc. MO 06/12/96 26.10 69.30 69.35 16.20 NM 100.17 100.17 24.45
CMS Commonwealth Bancorp, Inc. PA 06/17/96 NA NA NA NA NM 111.48 145.17 12.16
PRBC Prestige Bancorp, Inc. PA 06/27/96 24.60 61.90 61.90 9.50 NM 81.64 81.64 11.88
WYN Wayne Bancorp, Inc. NJ 06/27/96 16.70 60.90 60.94 9.70 NM 88.12 88.12 13.21
PROV Provident Financial Holdings CA 06/28/96 18.20 60.90 60.87 8.20 NM 83.74 83.74 12.26
EGLB Eagle BancGroup, Inc. IL 07/01/96 58.10 57.10 57.11 7.90 NA 80.55 80.55 10.74
FLKY First Lancaster Bancshares KY 07/01/96 19.00 72.50 72.51 21.30 NA 113.64 113.64 40.54
HWE Home Financial Bancorp IN 07/02/96 12.40 66.20 66.23 13.10 NA 85.73 85.73 17.17
OCFC Ocean Financial Corp. NJ 07/03/96 13.80 69.20 69.21 13.90 NA 95.02 95.02 19.70
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRICES AND TREND FROM IPO DATE
----------------------------------------------------------
1 Day 1 Week 1 Mo.
IPO After After After
IPO Price IPO % IPO % IPO %
Date ($) ($) Change ($) Change ($) Change
-------- ------ ------- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FFBA First Colorado Bancorp, Inc. CO 01/02/96 NA 11.44 NA 11.63 NA 12.00 NA
LFBI Little Falls Bancorp, Inc. NJ 01/05/96 10.00 11.31 13.13 11.38 13.75 11.00 10.00
BYFC Broadway Financial Corp. CA 01/09/96 10.00 10.38 3.75 10.25 2.50 10.25 2.50
FFOH Fidelity Financial of Ohio OH 03/04/96 NA 10.50 NA 10.00 NA 10.13 NA
FFFD North Central Bancshares, Inc. IA 03/21/96 NA 10.88 NA 10.69 NA 10.44 NA
CFTP Community Federal Bancorp MS 03/26/96 10.00 12.63 26.25 12.88 28.75 12.63 26.25
GAF GA Financial, Inc. PA 03/26/96 10.00 11.38 13.75 11.50 15.00 11.00 10.00
CRZY Crazy Woman Creek Bancorp WY 03/29/96 10.00 NA NA 10.75 7.50 10.50 5.00
PFFB PFF Bancorp, Inc. CA 03/29/96 10.00 11.38 13.75 11.63 16.25 11.63 16.25
WHG WHG Bancshares Corp. MD 04/01/96 10.00 11.13 11.25 11.06 10.60 11.25 12.50
SSB Scotland Bancorp, Inc NC 04/01/96 10.00 12.25 22.50 12.50 25.00 11.75 17.50
PHFC Pittsburgh Home Financial Corp PA 04/01/96 10.00 11.00 10.00 11.00 10.00 10.63 6.25
JXVL Jacksonville Bancorp, Inc. TX 04/01/96 NA 11.11 NA 9.63 NA 9.88 NA
LONF London Financial Corporation OH 04/01/96 10.00 10.81 8.12 10.63 6.25 10.13 1.25
SSM Stone Street Bancorp, Inc. NC 04/01/96 15.00 17.50 16.67 18.00 20.00 17.75 18.33
AMFC AMB Financial Corp. IN 04/01/96 10.00 10.50 5.00 10.50 5.00 10.50 5.00
FBER 1st Bergen Bancorp NJ 04/01/96 10.00 10.00 0.00 9.50 (5.00) 9.63 (3.75)
FFDF FFD Financial Corp. OH 04/03/96 10.00 10.50 5.00 10.50 5.00 10.31 3.10
GSFC Green Street Financial Corp. NC 04/04/96 10.00 12.88 28.75 12.25 22.50 12.31 23.10
YFCB Yonkers Financial Corporation NY 04/18/96 10.00 9.75 (2.50) 10.13 1.25 9.94 (0.60)
RELI Reliance Bancshares, Inc. WI 04/19/96 8.00 8.38 4.69 8.25 3.13 7.94 (0.75)
CBK Citizens First Financial Corp. IL 05/01/96 10.00 10.50 5.00 10.00 0.00 10.13 1.25
FFBH First Federal Bancshares of AR AR 05/03/96 10.00 13.00 30.00 13.25 32.50 13.69 36.90
LXMO Lexington B&L Financial Corp. MO 06/06/96 10.00 9.50 (5.00) 9.75 (2.50) 10.13 1.25
WWF Westwood Financial Corporation NJ 06/07/96 NA 10.75 NA 10.38 NA 10.63 NA
CNSB CNS Bancorp, Inc. MO 06/12/96 10.00 11.00 10.00 11.63 16.25 11.50 15.00
CMS Commonwealth Bancorp, Inc. PA 06/17/96 NA 10.50 NA 10.75 NA 10.00 NA
PRBC Prestige Bancorp, Inc. PA 06/27/96 10.00 10.38 3.75 10.25 2.50 9.75 (2.50)
WYN Wayne Bancorp, Inc. NJ 06/27/96 10.00 11.13 11.25 11.38 13.75 11.25 12.50
PROV Provident Financial Holdings CA 06/28/96 10.00 10.97 9.70 10.81 8.10 10.13 1.25
EGLB Eagle BancGroup, Inc. IL 07/01/96 10.00 11.25 12.50 11.25 12.50 11.13 11.25
FLKY First Lancaster Bancshares KY 07/01/96 10.00 13.50 35.00 13.38 33.75 13.75 37.50
HWE Home Financial Bancorp IN 07/02/96 10.00 10.25 2.50 9.88 (1.25) 10.50 5.00
OCFC Ocean Financial Corp. NJ 07/03/96 20.00 21.25 6.25 20.13 0.63 21.00 5.00
</TABLE>
123
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
RECENTLY CONVERTED, SAIF-INSURED THRIFT INSTITUTIONS
PRICES AND PRICING RATIOS
<TABLE>
<CAPTION>
PRO FORMA RATIOS CURRENT RATIOS
-------------------------------- ----------------------------------
Price/ Price/ Price/ Price/
Price/ Book Tang. Bk. Price/ Price/ Book Tang. Bk. Price/
IPO Earnings Value Value Assets Earnings Value Value Assets
Date (X) (%) (%) (%) (X) (%) (%) (%)
---------- -------- ------- -------- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MBSP Mitchell Bancorp, Inc. NC 07/12/96 94.50 68.10 68.13 25.80 NA 92.38 92.38 38.87
PWB Pennwood Savings Bank PA 07/15/96 13.30 65.80 65.76 12.80 NA 82.40 82.40 16.50
ANA Acadiana Bancshares, Inc. LA 07/16/96 NA 69.90 69.92 12.70 NA 85.88 85.88 15.07
PFED Park Bancorp, Inc. IL 08/12/96 17.80 64.90 64.93 14.50 NA 76.40 76.40 17.96
PFFC Peoples Financial Corp. OH 09/13/96 26.70 62.70 62.69 16.00 NA NA NA NA
HBEI Home Bancorp of Elgin, Inc. IL 09/27/96 17.40 70.60 70.59 18.70 NA 91.18 91.18 24.36
CBES CBES Bancorp, Inc. MO 09/30/96 13.20 61.10 61.06 10.60 NA 84.54 84.54 14.84
WEH Westwood Homestead Fin. Corp. OH 09/30/96 92.80 71.70 71.71 22.70 NA 76.16 76.16 25.10
AFED AFSALA Bancorp, Inc. NY 10/01/96 14.10 69.70 69.73 9.90 NA NA NA NA
SSFC South Street Financial Corp. NC 10/03/96 27.00 74.10 74.06 21.20 NA NA NA NA
CNBA Chester Bancorp, Inc. IL 10/08/96 14.10 70.10 70.08 13.90 NA NA NA NA
FTNB Fulton Bancorp, Inc. MO 10/18/96 15.50 70.50 70.48 16.70 NA NA NA NA
DCBI Delphos Citizens Bancorp, Inc. OH 11/21/96 12.10 70.20 70.20 18.80 NA NA NA NA
CFNC Carolina Fincorp, Inc. NC 11/25/96 17.70 74.70 74.68 16.40 NA NA NA NA
PSFI PS Financial, Inc. IL 11/27/96 14.50 69.90 69.92 29.00 NA NA NA NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRICES AND TREND FROM IPO DATE
----------------------------------------------------------
1 Day 1 Week 1 Mo.
IPO After After After
IPO Price IPO % IPO % IPO %
Date ($) ($) Change ($) Change ($) Change
-------- ------ ------- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MBSP Mitchell Bancorp, Inc. NC 07/12/96 10.00 NA NA 10.63 6.25 11.00 10.00
PWB Pennwood Savings Bank PA 07/15/96 10.00 9.50 (5.00) 9.13 (8.75) 9.63 (3.75)
ANA Acadiana Bancshares, Inc. LA 07/16/96 12.00 12.00 0.00 11.75 (2.08) 12.38 3.13
PFED Park Bancorp, Inc. IL 08/12/96 10.00 10.25 2.50 10.44 4.38 10.50 5.00
PFFC Peoples Financial Corp. OH 09/13/96 10.00 10.88 8.75 11.50 15.00 12.75 27.50
HBEI Home Bancorp of Elgin, Inc. IL 09/27/96 10.00 11.81 18.13 12.50 25.00 12.63 26.25
CBES CBES Bancorp, Inc. MO 09/30/96 10.00 12.63 26.25 13.44 34.38 13.25 32.50
WEH Westwood Homestead Fin. Corp. OH 09/30/96 10.00 10.75 7.50 10.63 6.25 10.50 5.00
AFED AFSALA Bancorp, Inc. NY 10/01/96 10.00 11.38 13.75 11.31 13.13 11.56 15.63
SSFC South Street Financial Corp. NC 10/03/96 10.00 NA NA 12.50 25.00 12.38 23.75
CNBA Chester Bancorp, Inc. IL 10/08/96 10.00 12.94 29.38 12.63 26.25 12.63 26.25
FTNB Fulton Bancorp, Inc. MO 10/18/96 10.00 12.50 25.00 12.88 28.75 14.75 47.50
DCBI Delphos Citizens Bancorp, Inc. OH 11/21/96 10.00 12.13 21.25 12.13 21.25 NA NA
CFNC Carolina Fincorp, Inc. NC 11/25/96 10.00 13.00 30.00 13.00 30.00 NA NA
PSFI PS Financial, Inc. IL 11/27/96 10.00 11.64 16.41 11.69 16.88 NA NA
</TABLE>
124
<PAGE>
EXHIBIT 34
KELLER & COMPANY
Columbus, Ohio
614-766-1426
RECENT THRIFT ACQUISITIONS AND PENDING ACQUISITIONS
COUNTY, CITY OR MARKET AREA OF HEMLOCK FEDERAL BANK FOR SAVINGS
1.Target institution:
Name Barrington Bancorp
City and state Barrington, IL
Asset size $69,700,000
Acquiring institution:
Name First Chicago NBD
City and state Chicago, IL
Asset size $115,500,000,000
Transaction:
Purchase price $17,100,000
Price/earnings (x) 61.00
Price/book value (%) 148.6
Date completed 06/06/96
2.Target institution:
Name N.S. Bancorp
City and state Chicago, IL
Asset size $1,160,200,000
Acquiring institution:
Name MAF Bancorp
City and state Clarendon Hills, IL
Asset size $1,870,000,000
Transaction:
Purchase price $267,000,000
Price/earnings (x) 12.50
Price/book value (%) 107.00
Date completed 05/30/96
<PAGE>
3.Target institution:
Name DeerBank Corp.
City and state Chicago, IL
Asset size $757,800,000
Acquiring institution:
Name NBD
City and state Detroit, MI
Asset size $48,500,000,000
Transaction:
Purchase price $106,000,000
Price/earnings (x) 14.20
Price/book value (%) 186.00
Date completed 07/01/95
4.Target institution:
Name Financial Security Corp
City and state Chicago, IL
Asset size $258,500,000
Acquiring institution:
Name Pinnacle Banc Group, Inc.
City and state Oak Brook, IL
Asset size $830,700,000
Transaction:
Purchase price $43,000,000
Price/earnings (x) 20.70
Price/book value (%) 109.00
Date completed 09/30/96
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
THRIFT STOCK PRICES AND PRICING RATIOS
PUBLICLY-TRADED, SAIF INSURED MUTUAL HOLDING COMPANIES
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
PER SHARE
------------------------------------------------------------------
Latest All Time All Time Monthly Quarterly Book 12 Month
Price High Low Change Change Value Assets Div.
State Exchange ($) ($) ($) (%) (%) ($) ($) ($)
----- -------- --- --- --- --- --- --- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PFSL Pocahontas FS&LA, MHC AR NASDAQ 17.250 17.250 9.500 13.11 18.97 13.97 234.87 0.77
CMSV Community Savings, MHC FL NASDAQ 18.375 19.375 10.000 8.09 13.95 15.39 128.32 0.70
FFFL Fidelity FSB of Florida, MHC FL NASDAQ 17.250 18.000 9.091 4.55 15.97 11.94 127.51 0.65
HARB Harbor Federal Savings Bk, MHC FL NASDAQ 33.000 34.250 11.875 5.60 14.78 17.19 214.30 1.13
FFSX First Fed SB of Siouxland, MHC IA NASDAQ 28.000 29.250 8.239 5.66 19.61 19.39 243.28 0.65
WCFB Webster City Federal SB, MHC IA NASDAQ 13.500 13.500 8.813 0.00 1.89 10.30 45.00 0.70
JXSB Jacksonville Savings Bank, MHC IL NASDAQ 12.000 14.250 10.000 4.35 -2.04 13.01 112.95 0.40
LFED Leeds Federal Savings Bk, MHC MD NASDAQ 15.250 16.750 9.875 8.93 16.19 12.81 79.51 0.65
GFED Guaranty Federal SB, MHC MO NASDAQ 11.000 12.500 8.000 -2.22 12.82 8.49 58.61 0.32
PULB Pulaski Bank, Savings Bk, MHC MO NASDAQ 14.750 16.500 10.500 0.00 14.56 10.93 85.70 0.80
FSLA First Savings Bank, MHC NJ NASDAQ 18.000 18.500 5.072 10.00 22.79 12.59 136.03 0.35
FSNJ First Savings Bk of NJ, MHC NJ NASDAQ 17.000 19.500 10.750 6.25 13.33 15.53 212.17 0.50
SBFL SB of the Finger Lakes, MHC NY NASDAQ 13.500 17.000 8.125 -3.57 -8.47 11.22 110.61 0.40
WAYN Wayne Savings & Loan Co. MHC OH NASDAQ 23.000 24.000 11.255 8.24 18.71 15.04 167.49 0.87
GDVS Greater Delaware Valley SB, MHC PA NASDAQ 10.125 13.000 9.250 8.00 1.25 8.30 70.97 0.36
HARS Harris Savings Bank, MHC PA NASDAQ 18.500 20.500 12.750 13.85 24.37 13.15 153.68 0.57
NWSB Northwest Savings Bank, MHC PA NASDAQ 13.250 13.750 7.375 11.58 20.45 8.01 81.35 0.31
PERT Perpetual Bank, MHC SC NASDAQ 21.375 21.625 20.250 4.27 NA 19.33 139.46 NA
RVSB Riverview Savings Bank, MHC WA NASDAQ 16.750 17.250 9.711 3.08 15.52 10.73 99.84 0.21
ALL MUTUAL HOLDING COMPANIES
AVERAGE 17.467 18.776 10.023 5.78 13.04 13.02 131.66 0.57
MEDIAN 17.000 17.250 9.711 5.66 15.15 12.81 127.51 0.61
HIGH 33.000 34.250 20.250 13.85 24.37 19.39 243.28 1.13
LOW 10.125 12.500 5.072 -3.57 -8.47 8.01 45.00 0.21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRICING RATIOS
----------------------------------
Price/ Price/ Price/ Price/Core
Earnings Bk. Value Assets Earnings
(X) (%) (%) (X)
--- --- --- ---
<S> <C> <C> <C> <C>
PFSL Pocahontas FS&LA, MHC 14.87 123.48 7.34 11.13
CMSV Community Savings, MHC 17.01 119.40 14.32 16.70
FFFL Fidelity FSB of Florida, MHC 36.70 144.47 13.53 22.12
HARB Harbor Federal Savings Bk, MHC 18.86 191.97 15.40 14.04
FFSX First Fed SB of Siouxland, MHC 29.17 144.40 11.51 16.97
WCFB Webster City Federal SB, MHC 33.75 131.07 30.00 34.62
JXSB Jacksonville Savings Bank, MHC 57.14 92.24 10.62 22.64
LFED Leeds Federal Savings Bk, MHC 25.00 119.05 19.18 17.73
GFED Guaranty Federal SB, MHC 30.56 129.56 18.77 37.93
PULB Pulaski Bank, Savings Bk, MHC 19.41 134.95 17.21 23.41
FSLA First Savings Bank, MHC 29.51 142.97 13.23 16.36
FSNJ First Savings Bk of NJ, MHC NM 109.47 8.01 32.69
SBFL SB of the Finger Lakes, MHC NM 120.32 12.21 112.50
WAYN Wayne Savings & Loan Co. MHC 53.49 152.93 13.73 22.55
GDVS Greater Delaware Valley SB, MHC NM 121.99 14.27 144.64
HARS Harris Savings Bank, MHC NM 140.68 12.04 28.46
NWSB Northwest Savings Bank, MHC 25.00 165.42 16.29 15.77
PERT Perpetual Bank, MHC 22.50 110.58 15.33 16.19
RVSB Riverview Savings Bank, MHC 17.45 156.10 16.78 15.23
ALL MUTUAL HOLDING COMPANIES
AVERAGE 28.69 134.27 14.72 32.72
MEDIAN 25.00 131.07 14.27 22.12
HIGH 57.14 191.97 30.00 144.64
LOW 14.87 92.24 7.34 11.13
</TABLE>
127
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
KEY FINANCIAL DATA AND RATIOS
PUBLICLY-TRADED, SAIF INSURED MUTUAL HOLDING COMPANIES
AS OF DECEMBER 6, 1996
<TABLE>
<CAPTION>
ASSETS AND EQUITY PROFITABILITY
----------------- -------------
Total Total Total Core Core
Assets Equity Tang. Equity ROAA ROAA ROAE ROAE
State ($000) ($000) ($000) (%) (%) (%) (%)
----- ------ ------ ------ --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PFSL Pocahontas FS&LA, MHC AR 381,562 22,689 22,689 0.54 0.72 8.98 11.96
CMSV Community Savings, MHC FL 626,045 75,066 75,066 0.88 0.90 7.10 7.25
FFFL Fidelity FSB of Florida, MHC FL 857,366 80,316 79,486 0.39 0.65 3.90 6.42
HARB Harbor Federal Savings Bk, MHC FL 1,057,443 84,832 81,245 0.91 1.22 10.51 14.12
FFSX First Fed SB of Siouxland, MHC IA 458,154 36,514 36,166 0.40 0.70 4.82 8.34
WCFB Webster City Federal SB, MHC IA 94,492 21,628 21,628 0.87 1.19 3.88 5.30
JXSB Jacksonville Savings Bank, MHC IL 143,710 16,555 16,513 0.19 0.46 1.57 3.87
LFED Leeds Federal Savings Bk, MHC MD 274,696 44,241 44,241 0.77 1.10 4.69 6.75
GFED Guaranty Federal SB, MHC MO 183,150 26,538 26,538 0.61 0.50 4.23 3.42
PULB Pulaski Bank, Savings Bk, MHC MO 179,457 22,881 22,881 0.88 0.74 7.15 5.95
FSLA First Savings Bank, MHC NJ 974,771 90,227 79,066 0.47 0.85 4.98 8.94
FSNJ First Savings Bk of NJ, MHC NJ 649,720 47,551 47,551 -0.60 0.25 -7.63 3.12
SBFL SB of the Finger Lakes, MHC NY 197,437 20,020 20,020 -0.06 0.11 -0.51 1.00
WAYN Wayne Savings & Loan Co. MHC OH 250,856 22,527 22,527 0.25 0.61 2.70 6.50
GDVS Greater Delaware Valley SB, MHC PA 232,264 27,151 27,151 -0.21 0.10 -1.73 0.81
HARS Harris Savings Bank, MHC PA 1,723,684 147,474 124,398 0.03 0.48 0.24 4.51
NWSB Northwest Savings Bank, MHC PA 1,901,532 187,167 178,037 0.70 1.06 6.49 9.90
PERT Perpetual Bank, MHC SC 209,827 29,091 NA 0.73 1.02 6.02 8.39
RVSB Riverview Savings Bank, MHC WA 219,224 23,566 21,074 0.99 1.16 9.05 10.60
ALL MUTUAL HOLDING COMPANIES
AVERAGE 558,705 54,002 52,571 0.46 0.73 4.02 6.69
MEDIAN 274,696 29,091 31,659 0.54 0.72 4.69 6.50
HIGH 1,901,532 187,167 178,037 0.99 1.22 10.51 14.12
LOW 94,492 16,555 16,513 -0.60 0.10 -7.63 0.81
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPITAL ISSUES
--------------
Number of Mkt. Value
IPO Shares of Shares
State Date Exchange Outstg. ($M)
----- ---- -------- ------- ----
<S> <C> <C> <C> <C> <C>
PFSL Pocahontas FS&LA, MHC AR 04/05/94 NASDAQ 1,624,594 25.18
CMSV Community Savings, MHC FL 10/24/94 NASDAQ 4,878,888 78.06
FFFL Fidelity FSB of Florida, MHC FL 01/07/94 NASDAQ 6,724,052 104.22
HARB Harbor Federal Savings Bk, MHC FL 01/06/94 NASDAQ 4,934,454 146.18
FFSX First Fed SB of Siouxland, MHC IA 07/13/92 NASDAQ 1,883,240 43.44
WCFB Webster City Federal SB, MHC IA 08/15/94 NASDAQ 2,100,000 27.83
JXSB Jacksonville Savings Bank, MHC IL 04/21/95 NASDAQ 1,272,300 15.35
LFED Leeds Federal Savings Bk, MHC MD 05/02/94 NASDAQ 3,454,736 46.21
GFED Guaranty Federal SB, MHC MO 04/10/95 NASDAQ 3,125,000 32.03
PULB Pulaski Bank, Savings Bk, MHC MO 05/11/94 NASDAQ 2,094,000 29.32
FSLA First Savings Bank, MHC NJ 07/10/92 NASDAQ 7,165,594 107.48
FSNJ First Savings Bk of NJ, MHC NJ 01/09/95 NASDAQ 3,062,321 46.70
SBFL SB of the Finger Lakes, MHC NY 11/11/94 NASDAQ 1,785,000 25.88
WAYN Wayne Savings & Loan Co. MHC OH 06/25/93 NASDAQ 1,497,746 28.46
GDVS Greater Delaware Valley SB, MHC PA 03/03/95 NASDAQ 3,272,500 32.73
HARS Harris Savings Bank, MHC PA 01/25/94 NASDAQ 11,216,400 168.25
NWSB Northwest Savings Bank, MHC PA 11/07/94 NASDAQ 23,376,000 286.36
PERT Perpetual Bank, MHC SC 10/26/93 NASDAQ 1,504,601 NA
RVSB Riverview Savings Bank, MHC WA 10/26/93 NASDAQ 2,195,781 32.94
ALL MUTUAL HOLDING COMPANIES
AVERAGE 4,587,748 70.92
MEDIAN 3,062,321 38.19
HIGH 23,376,000 286.36
LOW 1,272,300 15.35
</TABLE>
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
HEMLOCK FEDERAL BANK FOR SAVINGS
COMPARABLE GROUP SELECTION
BALANCE SHEET PARAMETERS
<TABLE>
<CAPTION>
General Parameters:
States: IA IL IN KY MO OH WI
IPO Date: <= 06/30/95
Asset size: <= $400,000 Total Total
Cash & 1-4 Fam. Net Net Loans Borrowed
Total Invest./ MBS/ Loans/ Loans/ & MBS/ Funds/ Equity/
Assets Assets Assets Assets Assets Assets Assets Assets
IPO Date ($000) (%) (%) (%) (%) (%) (%) (%)
-------- ------ --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HEMLOCK FEDERAL -- 146,983 16.42 44.85 32.48 36.14 80.99 1.02 7.73
DEFINED PARAMETERS FOR Prior to 25.00- 30.00 - 55.00- 5.00-
INCLUSION IN COMPARABLE GROUP 06/30/95 <400,000 <40.00 <45.00 65.00 80.00 95.00 <25.00 18.00
HBBI Home Building Bancorp IN 02/08/95 42,560 17.52 13.56 49.43 66.04 79.60 9.34 12.92
NSLB NS&L Bancorp, Inc. MO 06/08/95 57,288 35.89 9.79 47.86 51.87 61.66 0.00 23.31
CKFB CKF Bancorp, Inc. KY 01/04/95 59,898 10.11 0.01 68.82 88.19 88.20 0.44 25.22
GWBC Gateway Bancorp, Inc. KY 01/18/95 69,496 30.79 41.82 23.19 26.10 67.93 0.00 25.07
ATSB AmTrust Capital Corp. IN 03/28/95 72,108 NA NA 39.62 71.79 NA 23.44 9.91
HHFC Harvest Home Financial Corp. OH 10/10/94 76,399 32.87 10.04 48.65 54.89 64.93 6.54 16.71
HZFS Horizon Financial Svcs Corp. IA 06/30/94 76,652 30.92 0.00 42.30 65.98 65.98 16.50 10.73
LOGN Logansport Financial Corp. IN 06/14/95 79,726 18.29 9.06 48.64 69.77 78.83 3.76 19.98
PCBC Perry County Financial Corp. MO 02/13/95 80,394 45.57 39.07 12.83 13.81 52.88 3.11 18.77
SOBI Sobieski Bancorp, Inc. IN 03/31/95 80,648 9.92 19.25 56.26 67.39 86.64 7.07 17.12
SFFC StateFed Financial Corporation IA 01/05/94 81,059 13.14 0.00 51.37 81.80 81.80 23.44 17.99
GFSB GFS Bancorp, Inc. IA 01/06/94 85,206 7.20 3.85 57.85 87.53 91.38 22.66 11.57
FTSB Fort Thomas Financial Corp. KY 06/28/95 88,874 10.73 0.97 67.98 85.44 86.42 5.07 24.35
INCB Indiana Community Bank, SB IN 12/15/94 90,697 11.77 3.35 43.34 81.20 84.56 0.00 12.30
CIBI Community Investors Bancorp OH 02/07/95 94,799 22.89 2.30 54.85 73.37 75.67 13.05 11.94
NWEQ Northwest Equity Corp. WI 10/11/94 95,501 7.46 8.14 54.85 80.65 88.79 21.64 12.14
FFBI First Financial Bancorp, Inc. IL 10/04/93 97,143 15.02 7.29 59.20 75.18 82.47 23.21 7.73
ASBP ASB Financial Corp. OH 05/11/95 114,298 27.24 9.00 43.01 60.90 69.90 2.11 22.18
MIFC Mid-Iowa Financial Corp. IA 10/14/92 115,260 19.74 25.74 39.55 52.80 78.54 20.82 9.38
</TABLE>
129
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
HEMLOCK FEDERAL BANK FOR SAVINGS
COMPARABLE GROUP SELECTION
BALANCE SHEET PARAMETERS
<TABLE>
<CAPTION>
General Parameters:
States: IA IL IN KY MO OH WI
IPO Date: <= 06/30/95
Asset size: <= $400,000 Total Total
Cash & 1-4 Fam. Net Net Loans Borrowed
Total Invest./ MBS/ Loans/ Loans/ & MBS/ Funds/ Equity/
Assets Assets Assets Assets Assets Assets Assets Assets
IPO Date ($000) (%) (%) (%) (%) (%) (%) (%)
-------- ------ --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HEMLOCK FEDERAL -- 146,983 16.42 44.85 32.48 36.14 80.99 1.02 7.73
DEFINED PARAMETERS FOR Prior to 25.00- 30.00- 55.00- 5.00-
INCLUSION IN COMPARABLE GROUP 06/30/95 <400,000 <40.00 <45.00 65.00 80.00 95.00 <25.00 18.00
NBSI North Bancshares, Inc. IL 12/21/93 116,881 31.40 6.77 52.69 59.88 66.65 20.32 15.13
GTPS Great American Bancorp IL 06/30/95 123,866 NA NA 36.10 73.52 NA 0.00 25.62
PTRS Potters Financial Corp. OH 12/31/93 125,497 31.55 20.89 32.08 44.68 65.57 12.67 8.21
MWBI Midwest Bancshares, Inc. IA 11/12/92 137,707 15.67 22.42 46.16 58.88 81.29 18.81 6.58
FFWD Wood Bancorp, Inc. OH 08/31/93 152,374 16.97 3.19 58.74 77.99 81.18 11.10 13.17
FBSI First Bancshares, Inc. MO 12/22/93 154,306 17.21 0.59 61.06 79.51 80.10 13.32 14.77
FFWC FFW Corp. IN 04/05/93 154,551 18.80 12.01 42.56 66.94 78.95 24.46 10.01
NEIB Northeast Indiana Bancorp IN 06/28/95 160,032 10.95 0.00 60.91 86.98 86.98 33.12 17.44
SMBC Southern Missouri Bancorp, Inc MO 04/13/94 160,124 NA NA 42.42 62.22 NA 7.84 15.74
MARN Marion Capital Holdings IN 03/18/93 174,597 9.87 0.02 50.24 83.09 83.12 3.40 22.69
CMRN Cameron Financial Corp MO 04/03/95 175,841 13.19 0.01 60.19 83.88 83.89 1.85 26.35
LSBI LSB Financial Corp. IN 02/03/95 177,840 6.65 2.16 52.73 87.76 89.92 24.87 9.40
MFFC Milton Federal Financial Corp. OH 10/07/94 180,831 23.41 9.51 56.53 64.56 74.07 9.67 18.51
FFBZ First Federal Bancorp, Inc. OH 07/13/92 184,467 7.94 0.90 54.46 86.90 87.80 20.58 7.59
MWFD Midwest Federal Financial WI 07/08/92 194,707 14.76 8.89 30.97 72.43 81.32 11.35 8.39
CBCO CB Bancorp, Inc. IN 12/28/92 200,008 45.53 4.34 37.50 45.14 49.49 22.00 9.69
SBCN Suburban Bancorporation, Inc. OH 09/30/93 209,942 5.34 13.00 56.98 79.74 92.74 26.93 12.09
MFBC MFB Corp. IN 03/25/94 210,559 20.81 11.77 64.12 65.90 77.67 8.31 17.90
EFBI Enterprise Federal Bancorp OH 10/17/94 213,876 18.97 13.55 48.21 65.28 78.83 18.70 14.77
</TABLE>
130
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
HEMLOCK FEDERAL BANK FOR SAVINGS
COMPARABLE GROUP SELECTION
BALANCE SHEET PARAMETERS
<TABLE>
<CAPTION>
General Parameters:
States: IA IL IN KY MO OH WI
IPO Date: <= 06/30/95
Asset size: <= $400,000 Total Total
Cash & 1-4 Fam. Net Net Loans Borrowed
Total Invest./ MBS/ Loans/ Loans/ & MBS/ Funds/ Equity/
Assets Assets Assets Assets Assets Assets Assets Assets
IPO Date ($000) (%) (%) (%) (%) (%) (%) (%)
-------- ------ --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HEMLOCK FEDERAL -- 146,983 16.42 44.85 32.48 36.14 80.99 1.02 7.73
DEFINED PARAMETERS FOR Prior to 25.00- 30.00- 55.00- 5.00-
INCLUSION IN COMPARABLE GROUP 06/30/95 <400,000 <40.00 <45.00 65.00 80.00 95.00 <25.00 18.00
OHSL OHSL Financial Corp. OH 02/10/93 217,627 19.82 6.55 47.73 71.52 78.06 9.33 11.56
FFHS First Franklin Corporation OH 01/26/88 218,329 11.02 18.62 53.72 68.05 86.67 3.28 9.05
MBLF MBLA Financial Corp. MO 06/24/93 227,391 41.49 8.98 43.39 48.79 57.77 49.27 12.31
CAPS Capital Savings Bancorp, Inc. MO 12/29/93 231,245 9.84 12.18 63.34 76.11 88.29 22.92 8.44
CBIN Community Bank Shares IN 04/10/95 234,600 37.91 1.73 38.16 57.76 59.49 9.13 10.85
FBCV 1ST Bancorp IN 04/07/87 257,960 27.18 1.02 58.93 67.93 68.94 38.34 8.20
FFED Fidelity Federal Bancorp IN 08/31/87 261,834 4.75 4.55 43.91 85.17 89.72 24.60 4.79
PFDC Peoples Bancorp IN 07/07/87 280,012 18.77 0.23 71.92 79.64 79.87 0.00 15.24
WFCO Winton Financial Corp. OH 08/04/88 282,833 8.68 4.40 48.24 84.63 89.03 15.69 7.45
GFCO Glenway Financial Corp. OH 11/30/90 283,727 6.81 10.21 64.42 79.88 90.09 8.45 9.28
SMFC Sho-Me Financial Corp. MO 07/01/94 292,094 7.81 2.87 63.97 86.57 89.44 28.25 10.20
WCBI Westco Bancorp IL 06/26/92 307,772 27.05 0.00 57.07 71.33 71.33 0.00 15.50
HBFW Home Bancorp IN 03/30/95 315,901 22.44 0.00 72.55 75.91 75.91 0.00 15.50
HMCI HomeCorp, Inc. IL 06/22/90 340,449 7.53 6.09 41.90 80.02 86.11 2.44 6.00
CASH First Midwest Financial, Inc. IA 09/20/93 342,095 22.44 9.67 22.10 65.12 74.78 27.85 11.41
PVFC PVF Capital Corp. OH 12/30/92 345,279 6.68 3.50 31.80 88.46 91.95 12.76 6.51
WOFC Western Ohio Financial Corp. OH 07/29/94 347,704 NA NA 56.23 74.64 NA 28.70 15.31
HVFD Haverfield Corporation OH 03/19/85 350,603 13.75 0.60 65.36 82.89 83.49 8.84 7.87
KNK Kankakee Bancorp, Inc. IL 01/06/93 352,926 21.28 8.78 43.23 66.70 75.48 8.79 10.02
FFKY First Federal Financial Corp. KY 07/15/87 357,281 8.28 0.74 67.91 86.79 87.54 11.13 13.80
</TABLE>
131
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
HEMLOCK FEDERAL BANK FOR SAVINGS
COMPARABLE GROUP SELECTION
BALANCE SHEET PARAMETERS
<TABLE>
<CAPTION>
General Parameters:
States: IA IL IN KY MO OH WI
IPO Date: <= 06/30/95
Asset size: <= $400,000 Total Total
Cash & 1-4 Fam. Net Net Loans Borrowed
Total Invest./ MBS/ Loans/ Loans/ & MBS/ Funds/ Equity/
Assets Assets Assets Assets Assets Assets Assets Assets
IPO Date ($000) (%) (%) (%) (%) (%) (%) (%)
-------- ------ --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HEMLOCK FEDERAL -- 146,983 16.42 44.85 32.48 36.14 80.99 1.02 7.73
DEFINED PARAMETERS FOR Prior to 25.00- 30.00- 55.00- 5.00-
INCLUSION IN COMPARABLE GROUP 06/30/95 <400,000 <40.00 <45.00 65.00 80.00 95.00 <25.00 18.00
SWBI Southwest Bancshares IL 06/24/92 376,277 19.33 6.50 42.63 69.08 75.58 14.13 10.38
HALL Hallmark Capital Corp. WI 01/03/94 387,671 20.57 15.15 44.61 62.62 77.78 26.64 7.01
SFSB SuburbFed Financial Corp. IL 03/04/92 390,910 4.74 35.65 38.16 57.42 93.07 15.62 6.50
PMFI Perpetual Midwest Financial IA 03/31/94 395,707 13.64 6.97 33.56 76.14 83.11 19.80 8.56
ASBI Ameriana Bancorp IN 03/02/87 399,721 15.53 10.13 55.53 71.27 81.40 10.67 10.88
</TABLE>
132
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
HEMLOCK FEDERAL BANK FOR SAVINGS
COMPARABLE GROUP SELECTION
OPERATING PERFORMANCE AND ASSET QUALITY PARAMETERS
Most Recent Four Quarters
<TABLE>
<CAPTION>
General Parameters:
States: IA IL IN KY MO OH WI
IPO Date: <= 06/30/95
Asset size: <= $400,000
OPERATING PERFORMANCE ASSET QUALITY (1)
--------------------------------------------- -----------------------
Net Operating Noninterest
Total Core Core Interest Expenses/ Income/ NPA/ REO/ Reserves/
Assets ROAA ROAE Margin(2) Assets(3) Assets Assets Assets Assets
IPO Date ($000) (%) (%) (%) (%) (%) (%) (%) (%)
-------- ------ --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HEMLOCK FEDERAL
BANK FOR SAVINGS -- 146,983 0.58 7.52 3.17 2.42 0.31 0.05 0.00 0.46
DEFINED PARAMETERS FOR Prior to 0.30- 2.00- 2.75- 1.75-
INCLUSION IN COMPARABLE GROUP 06/30/95 <400,000 1.00 12.00 3.75 3.25 <0.80 <1.00 <0.25 >0.15
HBBI Home Building Bancorp IN 02/08/95 42,560 -0.01 -0.07 3.57 2.51 0.28 0.35 0.00 0.18
NSLB NS&L Bancorp, Inc. MO 06/08/95 57,288 0.83 3.50 3.26 2.22 0.28 0.02 0.00 0.08
CKFB CKF Bancorp, Inc. KY 01/04/95 59,898 1.27 4.67 3.78 1.82 0.08 1.47 0.00 0.20
GWBC Gateway Bancorp, Inc. KY 01/18/95 69,496 1.14 4.50 2.95 1.20 0.02 0.45 0.00 0.12
ATSB AmTrust Capital Corp. IN 03/28/95 72,108 0.11 1.08 2.85 2.97 0.57 2.58 0.06 0.69
HHFC Harvest Home Financial Corp. OH 10/10/94 76,399 0.75 4.14 3.12 1.98 0.06 0.19 0.00 0.15
HZFS Horizon Financial Svcs Corp. IA 06/30/94 76,652 0.33 2.83 3.42 2.66 0.43 0.92 0.24 0.50
LOGN Logansport Financial Corp. IN 06/14/95 79,726 1.48 5.71 3.94 1.63 0.13 0.36 0.00 0.29
PCBC Perry County Financial Corp. MO 02/13/95 80,394 0.98 4.81 2.78 1.23 0.03 NA NA 0.01
SOBI Sobieski Bancorp, Inc. IN 03/31/95 80,648 0.46 2.52 3.28 2.67 0.21 0.11 0.00 0.25
SFFC StateFed Financial Corporation IA 01/05/94 81,059 1.25 6.35 3.74 1.67 0.07 1.27 0.00 0.30
GFSB GFS Bancorp, Inc. IA 01/06/94 85,206 1.12 9.36 3.39 1.73 0.13 1.63 0.00 0.81
FTSB Fort Thomas Financial Corp. KY 06/28/95 88,874 1.33 5.39 4.14 2.42 0.40 1.27 0.00 0.36
INCB Indiana Community Bank, SB IN 12/15/94 90,697 0.48 3.38 4.34 3.92 0.97 NA NA NA
CIBI Community Investors Bancorp OH 02/07/95 94,799 0.98 7.23 3.76 2.11 0.12 0.88 0.11 0.47
NWEQ Northwest Equity Corp. WI 10/11/94 95,501 0.91 6.70 4.02 2.69 0.43 1.19 0.17 0.47
</TABLE>
133
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
HEMLOCK FEDERAL BANK FOR SAVINGS
COMPARABLE GROUP SELECTION
OPERATING PERFORMANCE AND ASSET QUALITY PARAMETERS
Most Recent Four Quarters
<TABLE>
<CAPTION>
General Parameters:
States: IA IL IN KY MO OH WI
IPO Date: <= 06/30/95
Asset size: <= $400,000
OPERATING PERFORMANCE ASSET QUALITY (1)
--------------------------------------------- -----------------------
Net Operating Noninterest
Total Core Core Interest Expenses/ Income/ NPA/ REO/ Reserves/
Assets ROAA ROAE Margin(2) Assets(3) Assets Assets Assets Assets
IPO Date ($000) (%) (%) (%) (%) (%) (%) (%) (%)
-------- ------ --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HEMLOCK FEDERAL
BANK FOR SAVINGS -- 146,983 0.58 7.52 3.17 2.42 0.31 0.05 0.00 0.46
DEFINED PARAMETERS FOR Prior to 0.30- 2.00- 2.75- 1.75-
INCLUSION IN COMPARABLE GROUP 06/30/95 <400,000 1.00 12.00 3.75 3.25 <0.80 <1.00 <0.25 >0.15
FFBI First Financial Bancorp, Inc. IL 10/04/93 97,143 0.36 3.97 3.06 2.85 0.43 0.43 0.00 0.46
ASBP ASB Financial Corp. OH 05/11/95 114,298 0.89 3.83 3.53 2.20 0.16 1.89 0.58 0.77
MIFC Mid-Iowa Financial Corp. IA 10/14/92 115,260 0.93 10.00 2.83 2.15 0.80 0.05 0.00 0.24
NBSI North Bancshares, Inc. IL 12/21/93 116,881 0.61 3.52 3.32 2.51 0.17 0.00 0.00 0.18
GTPS Great American Bancorp IL 06/30/95 123,866 0.67 2.39 4.87 3.62 0.41 0.13 0.00 0.26
PTRS Potters Financial Corp. OH 12/31/93 125,497 0.40 4.19 3.28 2.62 0.20 2.20 0.00 1.67
MWBI Midwest Bancshares, Inc. IA 11/12/92 137,707 0.72 10.36 2.94 1.87 0.16 0.47 0.03 0.49
FFWD Wood Bancorp, Inc. OH 08/31/93 152,374 1.14 8.10 4.32 2.50 0.23 0.29 0.02 0.35
FBSI First Bancshares, Inc. MO 12/22/93 154,306 0.95 5.73 3.46 2.06 0.24 0.65 0.00 0.34
FFWC FFW Corp. IN 04/05/93 154,551 1.07 10.00 3.11 1.75 0.32 0.10 0.03 0.32
NEIB Northeast Indiana Bancorp IN 06/28/95 160,032 1.22 5.96 3.94 1.92 0.17 0.20 0.00 0.64
SMBC Southern Missouri Bancorp, Inc MO 04/13/94 160,124 0.94 5.68 3.15 2.02 0.34 0.71 0.10 0.40
MARN Marion Capital Holdings IN 03/18/93 174,597 1.42 5.96 4.18 2.22 0.18 0.95 0.10 1.15
CMRN Cameron Financial Corp MO 04/03/95 175,841 1.56 5.64 4.19 1.67 0.13 0.96 0.05 0.72
LSBI LSB Financial Corp. IN 02/03/95 177,840 0.45 4.33 3.52 2.43 0.28 1.37 0.00 0.96
MFFC Milton Federal Financial Corp. OH 10/07/94 180,831 0.86 4.22 3.51 2.15 0.13 0.34 0.02 0.27
</TABLE>
134
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
HEMLOCK FEDERAL BANK FOR SAVINGS
COMPARABLE GROUP SELECTION
OPERATING PERFORMANCE AND ASSET QUALITY PARAMETERS
Most Recent Four Quarters
<TABLE>
<CAPTION>
General Parameters:
States: IA IL IN KY MO OH WI
IPO Date: <= 06/30/95
Asset size: <= $400,000
OPERATING PERFORMANCE ASSET QUALITY (1)
--------------------------------------------- -----------------------
Net Operating Noninterest
Total Core Core Interest Expenses/ Income/ NPA/ REO/ Reserves/
Assets ROAA ROAE Margin(2) Assets(3) Assets Assets Assets Assets
IPO Date ($000) (%) (%) (%) (%) (%) (%) (%) (%)
-------- ------ --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HEMLOCK FEDERAL
BANK FOR SAVINGS -- 146,983 0.58 7.52 3.17 2.42 0.31 0.05 0.00 0.46
DEFINED PARAMETERS FOR Prior to 0.30- 2.00- 2.75- 1.75-
INCLUSION IN COMPARABLE GROUP 06/30/95 <400,000 1.00 12.00 3.75 3.25 <0.80 <1.00 <0.25 >0.15
FFBZ First Federal Bancorp, Inc. OH 07/13/92 184,467 1.09 14.28 4.04 2.44 0.45 0.50 0.00 0.87
MWFD Midwest Federal Financial WI 07/08/92 194,707 1.02 10.99 4.13 2.98 0.87 0.24 0.00 0.76
CBCO CB Bancorp, Inc. IN 12/28/92 200,008 1.31 13.77 4.30 2.11 0.68 1.70 1.42 0.93
SBCN Suburban Bancorporation, Inc. OH 09/30/93 209,942 0.56 4.36 2.99 2.31 0.21 0.13 0.10 1.49
MFBC MFB Corp. IN 03/25/94 210,559 0.72 3.63 3.07 1.95 0.16 0.06 0.00 0.16
EFBI Enterprise Federal Bancorp OH 10/17/94 213,876 0.64 3.74 2.99 1.98 0.05 0.04 0.00 0.18
OHSL OHSL Financial Corp. OH 02/10/93 217,627 0.85 6.85 3.33 2.10 0.13 0.22 0.00 0.24
FFHS First Franklin Corporation OH 01/26/88 218,329 0.61 6.47 2.76 1.92 0.18 0.52 0.11 0.42
MBLF MBLA Financial Corp. MO 06/24/93 227,391 0.76 5.33 2.02 0.78 0.00 0.19 0.01 0.24
CAPS Capital Savings Bancorp, Inc. MO 12/29/93 231,245 0.93 9.31 3.33 2.14 0.38 0.20 0.03 0.29
CBIN Community Bank Shares IN 04/10/95 234,600 0.89 7.63 3.02 2.06 0.59 0.22 0.03 0.26
FBCV 1ST Bancorp IN 04/07/87 257,960 -0.22 -2.75 2.40 2.85 0.33 0.44 0.18 0.35
FFED Fidelity Federal Bancorp IN 08/31/87 261,834 0.40 7.62 2.39 3.24 0.22 0.17 0.03 0.71
PFDC Peoples Bancorp IN 07/07/87 280,012 1.50 9.77 3.79 1.59 0.23 0.40 0.04 0.32
WFCO Winton Financial Corp. OH 08/04/88 282,833 0.80 10.50 3.35 2.21 0.13 0.44 0.18 0.31
GFCO Glenway Financial Corp. OH 11/30/90 283,727 0.60 6.26 3.07 2.22 0.22 0.41 0.06 0.21
</TABLE>
135
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
HEMLOCK FEDERAL BANK FOR SAVINGS
COMPARABLE GROUP SELECTION
OPERATING PERFORMANCE AND ASSET QUALITY PARAMETERS
Most Recent Four Quarters
<TABLE>
<CAPTION>
General Parameters:
States: IA IL IN KY MO OH WI
IPO Date: <= 06/30/95
Asset size: <= $400,000
OPERATING PERFORMANCE ASSET QUALITY (1)
--------------------------------------------- -----------------------
Net Operating Noninterest
Total Core Core Interest Expenses/ Income/ NPA/ REO/ Reserves/
Assets ROAA ROAE Margin(2) Assets(3) Assets Assets Assets Assets
IPO Date ($000) (%) (%) (%) (%) (%) (%) (%) (%)
-------- ------ --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HEMLOCK FEDERAL
BANK FOR SAVINGS -- 146,983 0.58 7.52 3.17 2.42 0.31 0.05 0.00 0.46
DEFINED PARAMETERS FOR Prior to 0.30- 2.00- 2.75- 1.75-
INCLUSION IN COMPARABLE GROUP 06/30/95 <400,000 1.00 12.00 3.75 3.25 <0.80 <1.00 <0.25 >0.15
SMFC Sho-Me Financial Corp. MO 07/01/94 292,094 0.89 7.63 3.27 2.10 0.38 0.06 0.00 0.61
WCBI Westco Bancorp IL 06/26/92 307,772 1.33 8.54 3.61 1.72 0.24 0.53 0.00 0.29
HBFW Home Bancorp IN 03/30/95 315,901 0.84 4.99 2.91 1.51 0.07 0.04 0.00 0.44
HMCI HomeCorp, Inc. IL 06/22/90 340,449 0.33 5.34 2.99 2.63 0.52 3.64 2.86 0.43
CASH First Midwest Financial, Inc. IA 09/20/93 342,095 1.05 8.05 3.50 2.07 0.39 0.20 0.03 0.53
PVFC PVF Capital Corp. OH 12/30/92 345,279 1.21 18.25 4.09 2.50 0.37 0.68 0.00 0.73
WOFC Western Ohio Financial Corp. OH 07/29/94 347,704 0.49 2.47 3.31 2.36 0.08 NA NA 0.41
HVFD Haverfield Corporation OH 03/19/85 350,603 0.78 9.23 3.68 3.00 0.60 0.28 0.00 0.79
KNK Kankakee Bancorp, Inc. IL 01/06/93 352,926 0.59 5.87 3.07 2.46 0.37 0.90 0.05 0.67
FFKY First Federal Financial Corp. KY 07/15/87 357,281 1.41 9.97 4.14 2.23 0.56 0.54 0.06 0.50
SWBI Southwest Bancshares IL 06/24/92 376,277 1.13 9.32 3.53 1.91 0.19 0.22 0.01 0.21
HALL Hallmark Capital Corp. WI 01/03/94 387,671 0.55 7.11 2.45 1.72 0.29 0.05 0.01 0.35
SFSB SuburbFed Financial Corp. IL 03/04/92 390,910 0.48 6.81 2.88 2.79 0.72 0.28 0.00 0.24
PMFI Perpetual Midwest Financial IA 03/31/94 395,707 0.38 4.06 2.64 2.15 0.30 0.46 0.00 0.68
ASBI Ameriana Bancorp IN 03/02/87 399,721 0.91 7.67 3.18 2.18 0.53 0.48 0.03 0.28
<FN>
- ------------------
(1) Asset quality ratios reflect balance sheet totals at the end of the most
recent quarter.
(2) Based on average interest-earning assets.
(3) Net of non-recurring expense.
</FN>
</TABLE>
136
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
HEMLOCK FEDERAL BANK FOR SAVINGS
COMPARABLE GROUP SELECTION
OPERATING PERFORMANCE AND ASSET QUALITY PARAMETERS
Most Recent Four Quarters
<TABLE>
<CAPTION>
General Parameters:
States: IA IL IN KY MO OH WI
IPO Date: <= 06/30/95
Asset size: <= $400,000
OPERATING PERFORMANCE ASSET QUALITY (1)
--------------------------------------------- -----------------------
Net Operating Noninterest
Total Core Core Interest Expenses/ Income/ NPA/ REO/ Reserves/
Assets ROAA ROAE Margin(2) Assets(3) Assets Assets Assets Assets
IPO Date ($000) (%) (%) (%) (%) (%) (%) (%) (%)
-------- ------ --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HEMLOCK FEDERAL
BANK FOR SAVINGS -- 146,983 0.58 7.52 3.17 2.42 0.31 0.05 0.00 0.46
DEFINED PARAMETERS FOR Prior to 0.30- 2.00- 2.75- 1.75-
INCLUSION IN COMPARABLE GROUP 06/30/95 <400,000 1.00 12.00 3.75 3.25 <0.80 <1.00 <0.25 >0.15
<FN>
- ------------------
(1) Asset quality ratios reflect balance sheet totals at the end of the most
recent quarter.
(2) Based on average interest-earning assets.
(3) Net of non-recurring expense.
</FN>
</TABLE>
137
<PAGE>
KELLER & COMPANY
Columbus, Ohio EXHIBIT 39
614-766-1426
HEMLOCK FEDERAL BANK FOR SAVINGS
FINAL COMPARABLE GROUP
BALANCE SHEET RATIOS
<TABLE>
<CAPTION>
Cash & 1-4 Fam. Total Net
Total Invest./ MBS/ Loans/ Loans/
Assets Assets Assets Assets Assets
IPO Date ($000) (%) (%) (%) (%)
----------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
HEMLOCK FEDERAL -- 146,983 16.42 44.85 32.48 36.14
DEFINED PARAMETERS FOR Prior to 25.00- 30.00-
INCLUSION IN COMPARABLE GROUP 06/30/95 <400,000 <40.00 <45.00 65.00 80.00
HHFC Harvest Home Financial Corp. OH 10/10/94 76,399 32.87 10.04 48.65 54.89
HZFS Horizon Financial Svcs Corp. IA 06/30/94 76,652 30.92 0.00 42.30 65.98
FFBI First Financial Bancorp, Inc. IL 10/04/93 97,143 15.02 7.29 59.20 75.18
MIFC Mid-Iowa Financial Corp. IA 10/14/92 115,260 19.74 25.74 39.55 52.80
MWBI Midwest Bancshares, Inc. IA 11/12/92 137,707 15.67 22.42 46.16 58.88
OHSL OHSL Financial Corp. OH 02/10/93 217,627 19.82 6.55 47.73 71.52
CBIN Community Bank Shares IN 04/10/95 234,600 37.91 1.73 38.16 57.76
GFCO Glenway Financial Corp. OH 11/30/90 283,727 6.81 10.21 64.42 79.88
KNK Kankakee Bancorp, Inc. IL 01/06/93 352,926 21.28 8.78 43.23 66.70
SFSB SuburbFed Financial Corp. IL 03/04/92 390,910 4.74 35.65 38.16 57.42
AVERAGE 198,295 20.48 12.84 46.76 64.10
MEDIAN 177,667 19.78 9.41 44.70 62.43
HIGH 390,910 37.91 35.65 64.42 79.88
LOW 76,399 4.74 0.00 38.16 52.80
Total
Net Loans Borrowed
& MBS/ Funds/ Equity/
Assets Assets Assets
(%) (%) (%)
----------------------------
-
<S> <C> <C> <C>
HEMLOCK FEDERAL 80.99 1.02 7.73
DEFINED PARAMETERS FOR 55.00- 5.00-
INCLUSION IN COMPARABLE GROUP 95.00 <25.00 18.00
HHFC Harvest Home Financial Corp. OH 64.93 6.54 16.71
HZFS Horizon Financial Svcs Corp. IA 65.98 16.50 10.73
FFBI First Financial Bancorp, Inc. IL 82.47 23.21 7.73
MIFC Mid-Iowa Financial Corp. IA 78.54 20.82 9.38
MWBI Midwest Bancshares, Inc. IA 81.29 18.81 6.58
OHSL OHSL Financial Corp. OH 78.06 9.33 11.56
CBIN Community Bank Shares IN 59.49 9.13 10.85
GFCO Glenway Financial Corp. OH 90.09 8.45 9.28
KNK Kankakee Bancorp, Inc. IL 75.48 8.79 10.02
SFSB SuburbFed Financial Corp. IL 93.07 15.62 6.50
AVERAGE 76.94 13.72 9.94
MEDIAN 78.30 12.48 9.70
HIGH 93.07 23.21 16.71
LOW 59.49 6.54 6.50
</TABLE>
<PAGE>
KELLER & COMPANY
Columbus, Ohio EXHIBIT 40
614-766-1426
HEMLOCK FEDERAL BANK FOR SAVINGS
FINAL COMPARABLE GROUP
OPERATING PERFORMANCE AND ASSET QUALITY RATIOS
Most Recent Four Quarters
<TABLE>
<CAPTION>
OPERATING PERFORMANCE
Net Operating
Total Core Core Interest Expenses/
Assets ROAA ROAE Margin (2) Assets (3)
IPO Date ($000) (%) (%) (%) (%)
----------- -------------- ----------- ----------- ----------- ------------
HEMLOCK FEDERAL
BANK FOR SAVINGS -- 146,983 0.58 7.52 3.17 2.42
DEFINED PARAMETERS FOR Prior to 0.30- 2.00- 2.75- 1.75-
INCLUSION IN COMPARABLE GROUP 06/30/95 <400,000 1.00 12.00 3.75 3.25
<S> <C> <C> <C> <C> <C> <C>
HHFC Harvest Home Financial Corp. OH 10/10/94 76,399 0.75 4.14 3.12 1.98
HZFS Horizon Financial Svcs Corp. IA 06/30/94 76,652 0.33 2.83 3.42 2.66
FFBI First Financial Bancorp, Inc. IL 10/04/93 97,143 0.36 3.97 3.06 2.85
MIFC Mid-Iowa Financial Corp. IA 10/14/92 115,260 0.93 10.00 2.83 2.15
MWBI Midwest Bancshares, Inc. IA 11/12/92 137,707 0.72 10.36 2.94 1.87
OHSL OHSL Financial Corp. OH 02/10/93 217,627 0.85 6.85 3.33 2.10
CBIN Community Bank Shares IN 04/10/95 234,600 0.89 7.63 3.02 2.06
GFCO Glenway Financial Corp. OH 11/30/90 283,727 0.60 6.26 3.07 2.22
KNK Kankakee Bancorp, Inc. IL 01/06/93 352,926 0.59 5.87 3.07 2.46
SFSB SuburbFed Financial Corp. IL 03/04/92 390,910 0.48 6.81 2.88 2.79
AVERAGE 198,295 0.65 6.47 3.07 2.31
MEDIAN 177,667 0.66 6.54 3.07 2.19
HIGH 390,910 0.93 10.36 3.42 2.85
LOW 76,399 0.33 2.83 2.83 1.87
OPERATING
PERFORMANCE ASSET QUALITY (1)
Noninterest
Income/ NPA/ REO/ Reserves/
Assets Assets Assets Assets
(%) (%) (%) (%)
---------- --------------------------------
HEMLOCK FEDERAL
BANK FOR SAVINGS 0.31 0.05 0.00 0.46
<0.80 <1.00 <0.25 >0.15
<S> <C> <C> <C> <C>
HHFC Harvest Home Financial Corp. OH 0.06 0.19 0.00 0.15
HZFS Horizon Financial Svcs Corp. IA 0.43 0.92 0.24 0.50
FFBI First Financial Bancorp, Inc. IL 0.43 0.43 0.00 0.46
MIFC Mid-Iowa Financial Corp. IA 0.80 0.05 0.00 0.24
MWBI Midwest Bancshares, Inc. IA 0.16 0.47 0.03 0.49
OHSL OHSL Financial Corp. OH 0.13 0.22 0.00 0.24
CBIN Community Bank Shares IN 0.59 0.22 0.03 0.26
GFCO Glenway Financial Corp. OH 0.22 0.41 0.06 0.21
KNK Kankakee Bancorp, Inc. IL 0.37 0.90 0.05 0.67
SFSB SuburbFed Financial Corp. IL 0.72 0.28 0.00 0.24
AVERAGE 0.39 0.41 0.04 0.35
MEDIAN 0.40 0.35 0.02 0.25
HIGH 0.80 0.92 0.24 0.67
LOW 0.06 0.05 0.00 0.15
<FN>
(1) Asset quality ratios reflect balance sheet totals at the end of the most recent quarter.
(2) Based on average interest-earning assets.
(3) Net of non-recurring expense.
</FN>
</TABLE>
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 41
HEMLOCK FEDERAL BANK FOR SAVINGS
COMPARABLE GROUP CHARACTERISTICS AND BALANCE SHEET TOTALS
<TABLE>
<CAPTION>
Most Recent Quarter
-------------------
Int. Total
Number Conversion Total Earning Net
of (IPO) Assets Assets Loans
Offices Exchange Date ($000) ($000) ($000)
-----------------------------------------------------------
SUBJECT
HEMLOCK FEDERAL
BANK FOR SAVINGS Oak Forest IL 3 NA NA 146,983 144,294 53,121
COMPARABLE GROUP
<S> <C> <C> <C> <C> <C> <C>
CBIN Community Bank Shares of Indiana, Inc. New Albany IN 7 NASDAQ 04/10/95 234,600 225,480 135,514
FFBI First Financial Bancorp, Inc. Belvidere IL 2 NASDAQ 10/04/93 97,143 93,505 73,030
GFCO Glenway Financial Corp. Cincinnati OH 6 NASDAQ 11/30/90 283,727 270,506 226,628
HHFC Harvest Home Financial Corporation Cheviot OH 3 NASDAQ 10/10/94 76,399 73,037 41,936
HZFS Horizon Financial Services Corporation Oskaloosa IA 3 NASDAQ 06/30/94 76,652 69,421 50,577
KNK Kankakee Bancorp, Inc. Kankakee IL 9 AMSE 01/06/93 352,926 341,020 235,401
MIFC Mid-Iowa Financial Corp. Newton IA 6 NASDAQ 10/14/92 115,260 115,316 60,862
MWBI Midwest Bancshares, Inc. Burlington IA 4 NASDAQ 11/12/92 137,707 134,573 81,076
OHSL OHSL Financial Corp. Cincinnati OH 5 NASDAQ 02/10/93 217,627 211,726 155,643
SFSB SuburbFed Financial Corp. Flossmoor IL 12 NASDAQ 03/04/92 390,910 372,623 224,476
Average 5.7 198,295 190,721 128,514
Median 5.5 177,667 173,150 108,295
High 12.0 390,910 372,623 235,401
Low 2.0 76,399 69,421 41,936
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Most Recent Quarter
-------------------
Goodwill
and Total Total
Intang. Deposits Equity
($000) ($000) ($000)
-----------------------------
SUBJECT
HEMLOCK FEDERAL
BANK FOR SAVINGS Oak Forest IL 0 129,159 11,361
COMPARABLE GROUP
<S> <C> <C> <C>
CBIN Community Bank Shares of Indiana, Inc. New Albany IN 54 184,940 25,464
FFBI First Financial Bancorp, Inc. Belvidere IL 0 65,884 7,510
GFCO Glenway Financial Corp. Cincinnati OH 524 227,910 26,340
HHFC Harvest Home Financial Corporation Cheviot OH 0 58,226 12,769
HZFS Horizon Financial Services Corporation Oskaloosa IA 0 55,210 8,227
KNK Kankakee Bancorp, Inc. Kankakee IL 2,451 283,899 35,356
MIFC Mid-Iowa Financial Corp. Newton IA 16 78,705 10,807
MWBI Midwest Bancshares, Inc. Burlington IA 0 101,297 9,068
OHSL OHSL Financial Corp. Cincinnati OH 0 169,221 25,167
SFSB SuburbFed Financial Corp. Flossmoor IL 136 298,622 25,390
Average 318 152,391 18,610
Median 8 135,259 18,968
High 2,451 298,622 35,356
Low 0 55,210 7,510
</TABLE>
140
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 42
HEMLOCK FEDERAL BANK FOR SAVINGS
COMPARABLE GROUP MARKET AREA COMPARISON
<TABLE>
<CAPTION>
1990-1996 Median Median
Population Per Capita Household Housing Median
1996 Growth Income Income Value Rent
Population (%) ($) ($) ($) ($)
---------- --- --- --- --- ---
SUBJECT
HEMLOCK FEDERAL
BANK FOR SAVINGS 5,563,474 1.6 17,977 35,948 100,253 477
COMPARABLE GROUP
<S> <C> <C> <C> <C> <C> <C>
CBIN Community Bk Shares of Indiana IN 71,031 8.8 15,037 31,764 57,600 267
FFBI First Financial Bancorp, Inc. IL 5,144,275 0.8 17,825 36,543 102,100 478
GFCO Glenway Financial Corp. OH 866,222 1.2 18,004 34,401 72,243 304
HHFC Harvest Home Financial Corp. OH 866,222 1.2 18,004 34,401 72,243 304
HZFS Horizon Financial Services Corp. IA 21,869 1.6 11,303 24,119 36,410 209
KNK Kankakee Bancorp, Inc. IL 101,379 5.3 14,444 32,382 54,700 376
MIFC Mid-Iowa Financial Corp. IA 35,197 0.2 13,732 29,685 46,000 240
MWBI Midwest Bancshares, Inc. IA 43,075 1.1 13,959 29,170 41,576 242
OHSL OHSL Financial Corp. OH 866,222 1.2 18,004 34,401 72,243 304
SFSB SuburbFed Financial Corp. IL 5,144,275 0.8 17,825 36,543 102,100 478
Average 1,315,977 2.2 15,814 32,341 65,722 320
Median 483,801 1.2 16,431 33,392 64,922 304
High 5,144,275 8.8 18,004 36,543 102,100 478
Low 21,869 0.2 11,303 24,119 36,410 209
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
High Below
School College Poverty
Graduates Graduates Level
(%) (%) (%)
--- --- ---
SUBJECT
HEMLOCK FEDERAL
BANK FOR SAVINGS 74.9 23.7 13.8
COMPARABLE GROUP
<S> <C> <C> <C>
CBIN Community Bk Shares of Indiana IN 73.2 15.1 8.8
FFBI First Financial Bancorp, Inc. IL 73.4 22.8 14.2
GFCO Glenway Financial Corp. OH 75.6 23.7 13.3
HHFC Harvest Home Financial Corp. OH 75.6 23.7 13.3
HZFS Horizon Financial Services Corp. IA 74.8 13.1 13.0
KNK Kankakee Bancorp, Inc. IL 73.1 11.9 13.3
MIFC Mid-Iowa Financial Corp. IA 77.6 12.7 7.0
MWBI Midwest Bancshares, Inc. IA 78.9 12.7 9.1
OHSL OHSL Financial Corp. OH 75.6 23.7 13.3
SFSB SuburbFed Financial Corp. IL 73.4 22.8 14.2
Average 75.1 18.2 12.0
Median 75.2 19.0 13.3
High 78.9 23.7 14.2
Low 73.1 11.9 7.0
</TABLE>
141
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 43
BALANCE SHEET
ASSET COMPOSITION - MOST RECENT QUARTER
<TABLE>
<CAPTION>
As a Percent of Total Assets
----------------------------
Loan Real
Total Cash & Net Loss Estate Goodwill Other High Risk
Assets Invest. MBS Loans Reserves Owned & Intang. Assets R.E. Loans
($000) (%) (%) (%) (%) (%) (%) (%) (%)
------ --- --- --- --- --- --- --- ---
SUBJECT
HEMLOCK FEDERAL
BANK FOR SAVINGS 146,983 16.42 44.85 36.14 0.46 0.00 0.00 2.59 2.34
COMPARABLE GROUP
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CBIN Community Bank Shares 234,600 37.91 1.73 57.76 0.26 0.03 0.02 2.55 6.70
FFBI First Financial Bancorp, Inc. 97,143 15.02 7.29 75.18 0.46 0.00 0.00 2.42 6.56
GFCO Glenway Financial Corp. 283,727 6.81 10.21 79.88 0.21 0.06 0.18 3.73 13.40
HHFC Harvest Home Financial Corp. 76,399 32.87 10.04 54.89 0.15 0.00 0.00 2.20 6.48
HZFS Horizon Financial Svcs Corp. 76,652 30.92 0.00 65.98 0.50 0.24 0.00 2.29 7.73
KNK Kankakee Bancorp, Inc. 352,926 21.28 8.78 66.70 0.67 0.05 0.69 2.49 12.35
MIFC Mid-Iowa Financial Corp. 115,260 19.74 25.74 52.80 0.24 0.00 0.01 1.68 7.24
MWBI Midwest Bancshares, Inc. 137,707 15.67 22.42 58.88 0.49 0.03 0.00 3.01 7.49
OHSL OHSL Financial Corp. 217,627 19.82 6.55 71.52 0.24 0.00 0.00 2.09 20.39
SFSB SuburbFed Financial Corp. 390,910 4.74 35.65 57.42 0.24 0.00 0.03 2.12 5.86
Average 198,295 20.48 12.84 64.10 0.35 0.04 0.10 2.46 9.42
Median 177,667 19.78 9.41 62.43 0.25 0.02 0.01 2.36 7.37
High 390,910 37.91 35.65 79.88 0.67 0.24 0.69 3.73 20.39
Low 76,399 4.74 0.00 52.80 0.15 0.00 0.00 1.68 5.86
ALL THRIFTS (332)
Average 1,357,746 18.15 12.40 65.93 0.56 0.56 0.20 2.61 13.19
MIDWEST THRIFTS (154)
Average 790,095 18.12 10.01 68.49 0.47 0.47 0.15 2.56 12.32
ILLINOIS THRIFTS (27)
Average 649,235 18.87 10.47 66.10 0.40 0.16 0.14 2.55 9.88
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
As a Percent of Total Assets
----------------------------
Interest Interest Capitalized
SUBJECT Non-Perf. Earning Bearing Loan
HEMLOCK FEDERAL Assets Assets Liabilities Servicing
BANK FOR SAVINGS (%) (%) (%) (%)
--- --- --- ---
COMPARABLE GROUP
<S> <C> <C> <C> <C>
CBIN Community Bank Shares 0.22 96.11 87.47 0.00
FFBI First Financial Bancorp, Inc. 0.43 96.26 87.39 0.09
GFCO Glenway Financial Corp. 0.41 95.34 88.20 0.00
HHFC Harvest Home Financial Corp. 0.19 95.60 80.39 0.00
HZFS Horizon Financial Svcs Corp. 0.92 90.57 86.28 0.00
KNK Kankakee Bancorp, Inc. 0.90 96.63 90.29 0.00
MIFC Mid-Iowa Financial Corp. 0.05 100.05 91.11 0.00
MWBI Midwest Bancshares, Inc. 0.47 97.72 92.48 0.00
OHSL OHSL Financial Corp. 0.22 97.29 86.04 0.01
SFSB SuburbFed Financial Corp. 0.28 95.32 86.91 0.02
Average 0.41 96.09 87.66 0.01
Median 0.35 96.18 87.43 0.00
High 0.92 100.05 92.48 0.09
Low 0.05 90.57 80.39 0.00
ALL THRIFTS (332)
Average 0.87 94.92 83.40 0.12
MIDWEST THRIFTS (154)
Average 0.59 95.01 82.27 0.08
ILLINOIS THRIFTS (27)
Average 0.61 94.68 82.82 0.02
</TABLE>
142
<PAGE>
EXHIBIT 44
BALANCE SHEET COMPARISON
LIABILITIES AND EQUITY - MOST RECENT QUARTER
<TABLE>
<CAPTION>
As a Percent of Assets
----------------------
FASB 115
Total Total Total Total Other Preferred Common Unrealized
Liabilities Equity Deposits Borrowings Liabilities Equity Equity Gain
($000) ($000) (%) (%) (%) (%) (%) (%)
------ ------ --- --- --- --- --- ---
SUBJECT
HEMLOCK FEDERAL
BANK FOR SAVINGS 135,622 11,361 87.87 1.02 3.38 -- -- 0.35
COMPARABLE GROUP
<S> <C> <C> <C> <C>
CBIN Community Bank Shares 209,136 25,464 78.83 9.13 1.18 0.00 10.85 0.00
FFBI First Financial Bancorp, Inc. 89,633 7,510 67.82 23.21 1.23 0.00 7.73 (0.53)
GFCO Glenway Financial Corp. 257,387 26,340 80.33 8.45 1.94 0.00 9.28 0.00
HHFC Harvest Home Financial Corp. 63,630 12,769 76.21 6.54 0.53 0.00 16.71 (0.11)
HZFS Horizon Financial Svcs Corp. 68,425 8,227 72.03 16.50 0.74 0.00 10.73 (0.26)
KNK Kankakee Bancorp, Inc. 317,570 35,356 80.44 8.79 0.75 0.00 10.02 (0.23)
MIFC Mid-Iowa Financial Corp. 104,453 10,807 68.28 20.82 1.52 0.00 9.38 0.02
MWBI Midwest Bancshares, Inc. 128,639 9,068 73.56 18.81 1.05 0.00 6.58 (0.14)
OHSL OHSL Financial Corp. 192,460 25,167 77.76 9.33 1.35 0.00 11.56 (0.08)
SFSB SuburbFed Financial Corp. 365,520 25,390 76.39 15.62 1.49 0.00 6.50 (0.15)
Average 179,685 18,610 75.17 13.72 1.18 0.00 9.94 (0.15)
Median 160,550 18,968 76.30 12.48 1.21 0.00 9.70 (0.12)
High 365,520 35,356 80.44 23.21 1.94 0.00 16.71 0.02
Low 63,630 7,510 67.82 6.54 0.53 0.00 6.50 (0.53)
ALL THRIFTS (332)
Average 1,256,887 100,859 70.87 14.48 1.71 0.08 12.86 (0.03)
MIDWEST THRIFTS (154)
Average 721,289 68,806 69.41 14.57 1.60 0.03 14.40 (0.04)
ILLINOIS THRIFTS (27)
Average 579,671 69,564 71.78 12.32 1.59 0.00 14.30 (0.12)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
As a Percent of Assets
----------------------
Reg. Reg. Reg.
Retained Total Tangible Core Tangible Risk-Based
Earnings Equity Equity Capital Capital Capital
(%) (%) (%) (%) (%) (%)
--- --- --- --- --- ---
SUBJECT
HEMLOCK FEDERAL
BANK FOR SAVINGS 7.38 7.73 7.38 7.38 7.38 20.80
COMPARABLE GROUP
<S> <C> <C> <C> <C> <C> <C>
CBIN Community Bank Shares 5.83 10.85 10.83 10.83 9.79 20.41
FFBI First Financial Bancorp, Inc. 5.12 7.73 7.73 7.21 7.21 15.21
GFCO Glenway Financial Corp. 4.58 9.28 9.12 8.10 NA NA
HHFC Harvest Home Financial Corp. 5.26 16.71 16.71 NA NA NA
HZFS Horizon Financial Svcs Corp. 5.93 10.73 10.73 7.80 7.80 17.08
KNK Kankakee Bancorp, Inc. 6.64 10.02 9.39 8.10 8.10 15.25
MIFC Mid-Iowa Financial Corp. 6.27 9.38 9.36 7.94 7.94 22.09
MWBI Midwest Bancshares, Inc. 3.57 6.58 6.58 6.09 6.09 16.17
OHSL OHSL Financial Corp. 6.47 11.56 11.56 9.55 9.55 20.47
SFSB SuburbFed Financial Corp. 5.00 6.50 6.46 5.85 5.84 13.90
Average 5.47 9.93 9.85 7.94 7.79 17.57
Median 5.54 9.70 9.38 7.94 7.87 16.63
High 6.64 16.71 16.71 10.83 9.79 22.09
Low 3.57 6.50 6.46 5.85 5.84 13.90
ALL THRIFTS (332)
Average 6.22 12.94 12.62 10.69 10.45 23.82
MIDWEST THRIFTS (154)
Average 6.92 14.43 13.99 11.51 11.43 25.70
ILLINOIS THRIFTS (27)
Average 7.20 14.30 14.18 11.29 10.28 22.55
</TABLE>
143
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 45
INCOME AND EXPENSE COMPARISON
TRAILING FOUR QUARTERS
($000)
<TABLE>
<CAPTION>
Net Gain Total Goodwill Net Total
Interest Interest Interest Provision (Loss) Non-Int. & Intang. Real Est. Non-Int.
Income Expense Income for Loss on Sale Income Amtz. Expense Expense
------ ------- ------ -------- ------- ------ ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
HEMLOCK FEDERAL
BANK FOR SAVINGS 10,242 5,657 4,586 87 (79) 461 0 0 3,559
COMPARABLE GROUP
CBIN Community Bank Shares 15,686 9,221 6,465 45 84 1,383 1 (1) 4,561
FFBI First Financial Bancorp, Inc. 6,039 3,493 2,546 125 91 418 0 0 2,442
GFCO Glenway Financial Corp. 20,203 12,004 8,199 63 44 628 217 (6) 6,146
HHFC Harvest Home Financial Corp. 5,054 2,872 2,182 3 0 43 0 0 1,417
HZFS Horizon Financial Svcs Corp. 5,562 3,173 2,389 417 109 326 0 66 1,946
KNK Kankakee Bancorp, Inc. 25,542 15,094 10,448 77 757 1,304 200 (31) 8,699
MIFC Mid-Iowa Financial Corp. 8,025 4,916 3,109 33 0 920 1 (29) 2,415
MWBI Midwest Bancshares, Inc. 10,110 6,206 3,904 48 0 221 0 (8) 2,565
OHSL OHSL Financial Corp. 15,889 9,137 6,752 3 42 278 0 0 4,340
SFSB SuburbFed Financial Corp. 25,643 15,348 10,295 165 360 2,827 50 0 10,261
Average 13,775 8,146 5,629 98 149 835 47 (1) 4,479
Median 12,898 7,672 5,185 56 64 523 1 (1) 3,453
High 25,643 15,348 10,448 417 757 2,827 217 66 10,261
Low 5,054 2,872 2,182 3 0 43 0 (31) 1,417
ALL THRIFTS (332)
Average 101,902 62,463 39,439 3,004 1,018 7,035 696 580 27,418
MIDWEST THRIFTS (154)
Average 59,761 35,780 23,981 679 525 4,894 373 (106) 16,575
ILLINOIS THRIFTS (27)
Average 47,498 28,016 19,482 507 560 3,445 87 (389) 14,225
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Net Inc.
Non- Income Before
Recurring Before Income Extraord. Extraord. Net Core
Expense Taxes Taxes Items Items Income Income
------- ----- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
HEMLOCK FEDERAL
BANK FOR SAVINGS 1,898 (500) (215) (285) 0 (285) 856
COMPARABLE GROUP
CBIN Community Bank Shares 1,123 2,203 894 1,309 0 1,309 1,985
FFBI First Financial Bancorp, Inc. 417 71 (30) 101 0 101 313
GFCO Glenway Financial Corp. 1,504 1,158 456 702 0 702 1,651
HHFC Harvest Home Financial Corp. 0 805 270 535 0 535 535
HZFS Horizon Financial Svcs Corp. 331 130 34 96 0 96 241
KNK Kankakee Bancorp, Inc. 1,700 2,033 545 1,488 0 1,488 2,101
MIFC Mid-Iowa Financial Corp. 0 1,582 534 1,048 0 1,048 1,048
MWBI Midwest Bancshares, Inc. 675 1,389 487 902 0 902 983
OHSL OHSL Financial Corp. 927 1,802 627 1,175 0 1,175 1,750
SFSB SuburbFed Financial Corp. 1,790 1,266 435 831 0 831 1,761
Average 847 1,244 425 819 0 819 1,237
Median 801 1,328 472 867 0 867 1,350
High 1,790 2,203 894 1,488 0 1,488 2,101
Low 0 71 (30) 96 0 96 241
ALL THRIFTS (332)
Average 6,546 10,626 3,004 7,622 (161) 7,461 11,146
MIDWEST THRIFTS (154)
Average 4,558 7,616 2,643 4,973 (321) 4,652 7,577
ILLINOIS THRIFTS (27)
Average 3,220 5,566 1,916 3,650 (21) 3,629 5,359
</TABLE>
144
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 46
INCOME AND EXPENSE COMPARISON
AS A PERCENTAGE OF AVERAGE ASSETS
TRAILING FOUR QUARTERS
<TABLE>
<CAPTION>
Net Gain Total Goodwill Net Total
Interest Interest Interest Provision (Loss) Non-Int. & Intang. Real Est. Non-Int.
Income Expense Income for Loss on Sale Income Amtz. Expense Expense
(%) (%) (%) (%) (%) (%) (%) (%) (%)
------ ------- ------ -------- ------- ------ ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
HEMLOCK FEDERAL
BANK FOR SAVINGS 6.97 3.85 3.12 0.06 (0.05) 0.31 0.00 0.00 2.42
COMPARABLE GROUP
CBIN Community Bank Shares 7.07 4.16 2.91 0.02 0.04 0.62 0.00 (0.00) 2.06
FFBI First Financial Bancorp, Inc. 7.04 4.07 2.97 0.15 0.11 0.49 0.00 0.00 2.85
GFCO Glenway Financial Corp. 7.29 4.33 2.96 0.02 0.02 0.23 0.08 (0.00) 2.22
HHFC Harvest Home Financial Corp. 7.07 4.02 3.05 0.00 0.00 0.06 0.00 0.00 1.98
HZFS Horizon Financial Svcs Corp. 7.61 4.34 3.27 0.57 0.15 0.45 0.00 0.09 2.66
KNK Kankakee Bancorp, Inc. 7.23 4.27 2.96 0.02 0.21 0.37 0.06 (0.01) 2.46
MIFC Mid-Iowa Financial Corp. 7.15 4.38 2.77 0.03 0.00 0.82 0.00 (0.03) 2.15
MWBI Midwest Bancshares, Inc. 7.37 4.52 2.85 0.03 0.00 0.16 0.00 (0.01) 1.87
OHSL OHSL Financial Corp. 7.68 4.42 3.26 0.00 0.02 0.13 0.00 0.00 2.10
SFSB SuburbFed Financial Corp. 6.98 4.18 2.80 0.04 0.10 0.77 0.01 0.00 2.79
Average 7.25 4.27 2.98 0.09 0.06 0.41 0.01 0.00 2.31
Median 7.19 4.30 2.96 0.03 0.03 0.41 0.00 (0.00) 2.19
High 7.68 4.52 3.27 0.57 0.21 0.82 0.08 0.09 2.85
Low 6.98 4.02 2.77 0.00 0.00 0.06 0.00 (0.03) 1.87
ALL THRIFTS (332)
Average 7.41 4.16 3.25 0.13 0.10 0.44 0.03 0.00 2.32
MIDWEST THRIFTS (154)
Average 7.42 4.18 3.24 0.09 0.11 0.41 0.02 (0.01) 2.31
ILLINOIS THRIFTS (27)
Average 7.24 4.03 3.20 0.09 0.09 0.40 0.01 (0.04) 2.30
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Net Inc.
Non- Income Before
Recurring Before Income Extraord. Extraord. Net Core
Expense Taxes Taxes Items Items Income Income
(%) (%) (%) (%) (%) (%) (%)
------- ----- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
HEMLOCK FEDERAL
BANK FOR SAVINGS 1.29 (0.34) (0.15) (0.19) 0.00 (0.19) 0.58
COMPARABLE GROUP
CBIN Community Bank Shares
FFBI First Financial Bancorp, Inc. 0.51 0.99 0.40 0.59 0.00 0.59 0.89
GFCO Glenway Financial Corp. 0.49 0.08 (0.03) 0.12 0.00 0.12 0.36
HHFC Harvest Home Financial Corp. 0.54 0.42 0.16 0.25 0.00 0.25 0.60
HZFS Horizon Financial Svcs Corp. 0.00 1.13 0.38 0.75 0.00 0.75 0.75
KNK Kankakee Bancorp, Inc. 0.45 0.18 0.05 0.13 0.00 0.13 0.33
MIFC Mid-Iowa Financial Corp. 0.48 0.58 0.15 0.42 0.00 0.42 0.59
MWBI Midwest Bancshares, Inc. 0.00 1.41 0.48 0.93 0.00 0.93 0.93
OHSL OHSL Financial Corp. 0.49 1.01 0.36 0.66 0.00 0.66 0.72
SFSB SuburbFed Financial Corp. 0.45 0.87 0.30 0.57 0.00 0.57 0.85
0.49 0.34 0.12 0.23 0.00 0.23 0.48
Average 0.39 0.70 0.24 0.46 0.00 0.46 0.65
Median 0.48 0.72 0.23 0.49 0.00 0.49 0.66
High 0.54 1.41 0.48 0.93 0.00 0.93 0.93
Low 0.00 0.08 (0.03) 0.12 0.00 0.12 0.33
ALL THRIFTS (332)
Average
0.45 0.90 0.33 0.57 (0.00) 0.57 0.79
MIDWEST THRIFTS (154)
Average
0.45 0.91 0.36 0.56 (0.00) 0.55 0.77
ILLINOIS THRIFTS (27)
Average 0.43 0.89 0.30 0.59 (0.00) 0.58 0.80
</TABLE>
145
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 47
YIELDS, COSTS AND EARNINGS RATIOS
TRAILING FOUR QUARTERS
<TABLE>
<CAPTION>
Yield on Cost of Net Net
Int. Earning Int. Bearing Interest Interest Core Core
Assets Liabilities Spread Margin * ROAA ROAA ROAE ROAE
(%) (%) (%) (%) (%) (%) (%) (%)
--- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
HEMLOCK FEDERAL
BANK FOR SAVINGS 7.07 4.31 2.76 3.17 (0.19) 0.58 (2.49) 7.52
COMPARABLE GROUP
CBIN Community Bank Shares 7.32 4.77 2.55 3.02 0.59 0.89 5.03 7.63
FFBI First Financial Bancorp, Inc. 7.27 4.66 2.61 3.06 0.12 0.36 1.28 3.97
GFCO Glenway Financial Corp. 7.56 4.90 2.66 3.07 0.25 0.60 2.66 6.26
HHFC Harvest Home Financial Corp. 7.23 4.95 2.28 3.12 0.75 0.75 4.14 4.14
HZFS Horizon Financial Svcs Corp. 7.95 4.97 2.98 3.42 0.13 0.33 1.13 2.83
KNK Kankakee Bancorp, Inc. 7.52 4.80 2.72 3.07 0.42 0.59 4.16 5.87
MIFC Mid-Iowa Financial Corp. 7.30 4.90 2.40 2.83 0.93 0.93 10.00 10.00
MWBI Midwest Bancshares, Inc. 7.60 4.94 2.66 2.94 0.66 0.72 9.51 10.36
OHSL OHSL Financial Corp. 7.84 5.14 2.70 3.33 0.57 0.85 4.60 6.85
SFSB SuburbFed Financial Corp. 7.18 4.65 2.53 2.88 0.23 0.48 3.21 6.81
Average 7.48 4.87 2.61 3.07 0.47 0.65 4.57 6.47
Median 7.42 4.90 2.64 3.07 0.50 0.66 4.15 6.54
High 7.95 5.14 2.98 3.42 0.93 0.93 10.00 10.36
Low 7.18 4.65 2.28 2.83 0.12 0.33 1.13 2.83
ALL THRIFTS (332)
Average 7.71 4.89 2.82 3.39 0.57 0.79 5.26 7.28
MIDWEST THRIFTS (154)
Average 7.70 4.97 2.72 3.36 0.55 0.77 5.12 6.87
ILLINOIS THRIFTS (27)
Average 7.51 4.82 2.69 3.33 0.59 0.80 4.29 6.25
<FN>
- -----------
* Based on average interest-earning assets.
</FN>
</TABLE>
146
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 48
DIVIDENDS, RESERVES AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
DIVIDENDS RESERVES AND SUPPLEMENTAL DATA - MOST RECENT PERIOD
------------------------------------- ----------------------------------------------------
12 Month 12 Month Net
12 Month Common Current Dividend Reserves/ Reserves/ Chargeoffs/ Provisions/
Preferred Div./ Dividend Payout Gross Non-Perf. Average Net
Dividends Share Yield Ratio Loans Assets Loans Chargeoffs
($000) ($) (%) (%) (%) (%) (%) (%)
--- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUBJECT
HEMLOCK FEDERAL
BANK FOR SAVINGS NA NA NA NA 1.24 870.13 0.01 1,740.00
COMPARABLE GROUP
CBIN Community Bank Shares 0 0.33 2.72 50.00 0.46 117.84 0.00 NM
FFBI First Financial Bancorp, Inc. 0 0.00 0.00 0.00 0.61 106.97 0.02 NM
GFCO Glenway Financial Corp. 0 0.66 3.42 99.63 0.27 52.03 0.06 54.55
HHFC Harvest Home Financial Corp. 0 3.40 4.05 63.49 0.26 75.00 0.00 NM
HZFS Horizon Financial Svcs Corp. 0 0.32 2.14 145.45 0.76 45.26 0.21 365.38
KNK Kankakee Bancorp, Inc. 0 0.40 1.62 40.82 0.99 74.47 0.08 51.11
MIFC Mid-Iowa Financial Corp. 0 0.08 1.26 13.33 0.44 513.21 -0.01 NM
MWBI Midwest Bancshares, Inc. 0 0.54 2.22 23.28 0.82 103.85 0.00 NM
OHSL OHSL Financial Corp. 0 0.76 3.73 79.57 0.33 107.97 0.01 -100.00
SFSB SuburbFed Financial Corp. 0 0.32 1.57 50.79 0.42 84.20 -0.11 NM
Average 0 0.68 2.27 56.64 0.54 128.08 0.03 92.76
Median 0 0.37 2.18 50.40 0.45 94.03 0.01 52.83
High 0 3.40 4.05 145.45 0.99 513.21 0.21 365.38
Low 0 0.00 0.00 0.00 0.26 45.26 -0.11 -100.00
ALL THRIFTS (332)
Average 324 0.38 1.35 43.19 0.63 92.70 0.10 113.68
MIDWEST THRIFTS (154)
Average 46 0.54 1.86 75.69 0.68 150.96 0.06 228.83
ILLINOIS THRIFTS (27)
Average 0 0.22 1.22 50.11 0.61 122.23 0.08 144.34
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESERVES AND SUPPLEMENTAL DATA-
MOST RECENT PERIOD
---------------------------------
1 Year Total
Repricing Effective Assets/
Gap Tax Rate Employee
(%) (%) ($000)
--------- --------- -------
<S> <C> <C> <C>
SUBJECT
HEMLOCK FEDERAL
BANK FOR SAVINGS NA 42.97 3,340
COMPARABLE GROUP
CBIN Community Bank Shares NA NM 2,861
FFBI First Financial Bancorp, Inc -9.43 NM 2,776
GFCO Glenway Financial Corp. NA NM NA
HHFC Harvest Home Financial Corp. NA 32.85 4,494
HZFS Horizon Financial Svcs Corp. NA NM NA
KNK Kankakee Bancorp, Inc. 7.36 NM 3,208
MIFC Mid-Iowa Financial Corp. (3.02) 34.73 3,202
MWBI Midwest Bancshares, Inc. -4.61 NM 3,624
OHSL OHSL Financial Corp. NA NM 3,510
SFSB SuburbFed Financial Corp. NA NM 2,589
Average -2.43 33.79 3,283
Median -3.82 33.79 3,205
High 7.36 34.73 4,494
Low (9.43) 32.85 2,589
ALL THRIFTS (332)
Average (2.28) 14.69 4,124
MIDWEST THRIFTS (154)
Average (5.31) 25.41 3,987
ILLINOIS THRIFTS (27)
Average (6.12) -4.08 3,819
</TABLE>
147
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 49
VALUATION ANALYSIS AND CONCLUSIONS
Hemlock Federal Financial Corp./Hemlock Federal Bank for Savings
Stock Prices as of December 6, 1996
<TABLE>
<CAPTION>
Valuation assumptions: Comparable Group All Thrifts
Symbol Value Average Median Average Median
------ ----- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Post conv. price to earnings P/E NM 30.70 23.59 27.25 20.49
Post conv. price to book value P/B 63.81% 93.54% 98.18% 118.20% 108.70%
Post conv. price to assets P/A 9.68% 9.09% 9.02% 14.29% 12.29%
Post conv. price to core earnings P/E 14.45 15.93 15.10 17.68 15.38
Pre conversion net earnings ($) $ (285,000) For the twelve months ended September 30, 1996.
Pre conversion book value ($) B $ 11,361,000 At September 30, 1996.
Pre conversion assets ($) A $146,983,000 At September 30, 1996.
Pre conversion core earnings ($) Y $ 856,000 For the twelve months ended September 30, 1996.
Conversion expense ($) X $ 573,056
Proceeds not reinvested ($) Z $ 1,256,000
ESOP borrowings ($) E $ 1,256,000
ESOP cost of borrowings, net (%) S 5.83%
ESOP term of borrowings (yrs.) T 10
RRP amount ($) M $ 628,000
RRP expense ($) N $ 125,600
Tax rate (%) TAX 38.75%
Investment rate of return, net (%) R 3.30%
Investment rate of return, pretax (%) 5.39%
</TABLE>
Formulae to indicate value after conversion:
1. P/E method: Value = P/E(Y-R(X+Z)-ES-(1-TAX)E/T-(1-TAX)N)) = $15,705,384
-------------------------------------
1-(P/E)R
2. P/B method: Value = P/B(B-X-E-M) = $15,702,027
------------
1-P/B
3.P/A method: Value = P/A(A-X) = $15,698,882
--------
1-P/A
VALUATION CORRELATION AND CONCLUSIONS:
Number of Price TOTAL
Shares Per Share VALUE
------------- -------------- ---------
Appraised value - midrange 1,570,000 $10.00 $15,700,000
Minimum - 85% of midrange 1,334,500 $10.00 $13,345,000
Maximum - 115% of midrange 1,805,500 $10.00 $18,055,000
Superrange - 115% of maximum 2,076,325 $10.00 $20,763,250
148
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 50
COMPARABLE GROUP MARKET, PRICING AND FINANCIAL RATIOS
Stock Prices as of December 6, 1996
<TABLE>
<CAPTION>
Market Data Pricing Ratios
------------------------------- -----------------------------------------
Book Price/ Price/ Price/
Market Price/ 12 Mo. Value/ Price/ Book Price/ Tang. Core
Value Share EPS Share Earnings Value Assets Bk. Val. Earnings
($M) ($) ($) ($) (X) (%) (%) (%) (%)
---- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HEMLOCK FEDERAL BANK FOR
SAVINGS
Appraised value - midpoint 15.70 10.00 -0.03 15.67 NM 63.81 9.68 63.81 14.45
Minimum of range 13.35 10.00 -0.07 16.91 NM 59.14 8.35 59.14 12.70
Maximum of range 18.06 10.00 -0.01 14.76 NM 67.76 10.98 67.76 16.07
Superrange maximum 20.76 10.00 0.01 13.96 NM 71.62 12.43 71.62 17.82
ALL THRIFTS (332)
Average 143.91 18.66 0.88 16.07 27.25 118.20 14.29 122.65 17.68
Median 39.40 16.75 0.84 15.37 20.49 108.70 12.29 112.02 15.38
ILLINOIS THRIFTS (27)
Average 81.37 18.22 0.80 18.10 35.33 102.07 13.91 104.11 20.46
Median 48.72 16.88 0.73 16.60 28.42 99.04 13.05 99.45 17.06
COMPARABLE GROUP (10)
Average 17.59 17.19 0.78 18.26 30.70 93.54 9.09 94.55 15.93
Median 16.73 17.88 0.64 19.32 23.59 98.18 9.02 98.29 15.10
COMPARABLE GROUP
CBIN Community Bank Shares 24.80 12.50 0.66 12.84 18.94 97.35 10.57 97.58 12.63
FFBI First Financial Bancorp, Inc. 7.18 15.88 0.22 16.60 72.16 95.63 7.39 95.63 22.36
GFCO Glenway Financial Corp. 22.88 19.88 0.65 22.88 30.58 86.87 8.07 88.65 13.43
HHFC Harvest Home Financial Corp. 9.23 9.88 0.63 13.66 15.67 72.29 12.08 72.29 15.67
HZFS Horizon Financial Svcs Corp. 6.36 14.94 0.22 18.37 67.90 81.32 8.73 81.32 26.68
KNK Kankakee Bancorp, Inc. 35.02 24.75 0.98 24.99 25.26 99.04 9.92 106.41 17.31
MIFC Mid-Iowa Financial Corp. 10.57 6.38 0.60 6.42 10.63 99.30 9.31 99.45 10.63
MWBI Midwest Bancshares, Inc. 9.43 27.00 2.32 25.95 11.64 104.05 6.85 104.05 10.38
OHSL OHSL Financial Corp. 24.92 20.38 0.93 20.58 21.91 99.00 11.45 99.00 14.76
SFSB SuburbFed Financial Corp. 25.52 20.38 0.63 20.27 32.34 100.52 6.53 101.07 15.44
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dividends Financial Ratios
--------------------------- ----------------------
Div./ Dividend Payout Equity/
Share Yield Ratio Assets ROAA ROAE
($) (%) (%) (%) (%) (%)
----- -------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
HEMLOCK FEDERAL BANK FOR
SAVINGS
Appraised value - midpoint 0.00 0.00 0.00 15.18 -0.03 -0.22
Minimum of range 0.00 0.00 0.00 14.12 -0.06 -0.40
Maximum of range 0.00 0.00 0.00 16.20 -0.01 -0.07
Superrange maximum 0.00 0.00 0.00 17.35 0.01 0.08
ALL THRIFTS (332)
Average 0.50 1.81 62.33 12.94 0.57 5.26
Median 0.32 1.89 34.94 10.25 0.65 5.03
ILLINOIS THRIFTS (27)
Average 0.22 1.22 50.11 14.30 0.59 4.29
Median 0.24 1.51 37.08 11.25 0.46 3.69
COMPARABLE GROUP (10)
Average 0.68 2.27 56.64 9.93 0.47 4.57
Median 0.37 2.18 50.40 9.70 0.50 4.15
COMPARABLE GROUP
CBIN Community Bank Shares 0.33 2.72 50.00 10.85 0.59 5.03
FFBI First Financial Bancorp, Inc. 0.00 0.00 0.00 7.73 0.12 1.28
GFCO Glenway Financial Corp. 0.66 3.42 99.63 9.28 0.25 2.66
HHFC Harvest Home Financial Corp. 3.40 4.05 63.49 16.71 0.75 4.14
HZFS Horizon Financial Svcs Corp. 0.32 2.14 145.45 10.73 0.13 1.13
KNK Kankakee Bancorp, Inc. 0.40 1.62 40.82 10.02 0.42 4.16
MIFC Mid-Iowa Financial Corp. 0.08 1.26 13.33 9.38 0.93 10.00
MWBI Midwest Bancshares, Inc. 0.54 2.22 23.28 6.58 0.66 9.51
OHSL OHSL Financial Corp. 0.76 3.73 79.57 11.56 0.57 4.60
SFSB SuburbFed Financial Corp. 0.32 1.57 50.79 6.50 0.23 3.21
</TABLE>
149
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 51
PROJECTED EFFECT OF CONVERSION PROCEEDS
Hemlock Federal Financial Corp./Hemlock Federal Bank for Savings
At the MIDPOINT of the Range
1. Gross Conversion Proceeds
Midpoint market value $15,700,000
Less: Estimated conversion expenses 573,056
Net conversion proceeds $15,126,945
2. Generation of Additional Income
Net conversion proceeds $15,126,945
Less: Proceeds not invested (1) 1,256,000
Total conversion proceeds invested $13,870,945
Investment rate of return 3.30%
Earnings increase - return on proceeds invested $ 457,932
Less: Estimated cost of ESOP borrowings 73,225
Less: Amortization of ESOP borrowings,
net of taxes 76,930
Less: RRP expense, net of taxes 76,930
Net earnings increase $ 230,847
3. Comparative Earnings
Regular Core
------------ ---------
Before conversion - 12 months ended 09/30/96 $ -285,000 856,000
Net earnings increase 230,847 230,847
After conversion $ -54,153 1,086,847
4. Comparative Net Worth (2)
Before conversion - 09/30/96 $11,361,000
Conversion proceeds 13,242,945
After conversion $24,603,945
5. Comparative Net Assets
Before conversion - 09/30/96 $146,983,000
Conversion proceeds 15,126,945
After conversion $162,109,945
--------------------
(1) Represents ESOP borrowings.
(2) ESOP borrowings and RRP are omitted from net worth.
150
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 52
PROJECTED EFFECT OF CONVERSION PROCEEDS
Hemlock Federal Financial Corp./Hemlock Federal Bank for Savings
At the MINIMUM of the Range
1. Gross Conversion Proceeds
Minimum market value $13,345,000
Less: Estimated conversion expenses 540,545
Net conversion proceeds $12,804,455
2. Generation of Additional Income
Net conversion proceeds $12,804,455
Less: Proceeds not invested (1) 1,067,600
Total conversion proceeds invested $11,736,855
Investment rate 3.30%
Earnings increase - return on proceeds invested $ 387,478
Less: Estimated cost of ESOP borrowings 62,241
Less: Amortization of ESOP borrowings,
net of taxes 65,391
Less: RRP expense, net of taxes 65,391
Net earnings increase $ 194,456
3. Comparative Earnings
Regular Core
---------- ----------
Before conversion - 12 months ended 09/30/96 $-285,000 856,000
Net earnings increase 194,456 194,456
After conversion $ -90,544 1,050,456
4. Comparative Net Worth (2)
Before conversion - 09/30/96 $11,361,000
Conversion proceeds 11,203,055
After conversion $22,564,055
5. Comparative Net Assets
Before conversion - 09/30/96 $146,983,000
Conversion proceeds 12,804,455
After conversion $159,787,455
- ------------
(1) Represents ESOP borrowings.
(2) ESOP borrowings and RRP are omitted from net worth.
151
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 53
PROJECTED EFFECT OF CONVERSION PROCEEDS
Hemlock Federal Financial Corp./Hemlock Federal Bank for Savings
At the MAXIMUM of the Range
1. Gross Conversion Proceeds
Maximum market value $18,055,000
Less: Estimated conversion expenses 605,472
Net conversion proceeds $17,449,528
2. Generation of Additional Income
Net conversion proceeds $17,449,528
Less: Proceeds not invested (1) 1,444,400
Total conversion proceeds invested $16,005,128
Investment rate 3.30%
Earnings increase - return on proceeds invested $528,389
Less: Estimated cost of ESOP borrowings 84,209
Less: Amortization of ESOP borrowings,
net of taxes 88,470
Less: RRP expense, net of taxes 88,470
Net earnings increase $267,242
3. Comparative Earnings
Regular Core
---------- ----------
Before conversion - 12 months ended 09/30/96 $-285,000 856,000
Net earnings increase 267,242 267,242
After conversion $ -17,758 1,123,242
4. Comparative Net Worth (2)
Before conversion - 09/30/96 $11,361,000
Conversion proceeds 15,282,928
After conversion $26,643,928
5. Comparative Net Assets
Before conversion - 09/30/96 $146,983,000
Conversion proceeds 17,449,528
After conversion $164,432,528
- -------------
(1) Represents ESOP borrowings.
(2) ESOP borrowings and RRP are omitted from net worth.
152
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 54
PROJECTED EFFECT OF CONVERSION PROCEEDS
Hemlock Federal Financial Corp./Hemlock Federal Bank for Savings
At the SUPERRANGE Maximum
1. Gross Conversion Proceeds
Superrange market value $20,763,250
Less: Estimated conversion expenses 642,846
Net conversion proceeds $20,120,404
2. Generation of Additional Income
Net conversion proceeds $20,120,404
Less: Proceeds not invested (1) 1,661,060
Total conversion proceeds invested $18,459,344
Investment rate 3.30%
Earnings increase - return on proceeds invested $ 609,412
Less: Estimated cost of ESOP borrowings 96,840
Less: Amortization of ESOP borrowings,
net of taxes 101,740
Less: RRP expense, net of taxes 101,740
Net earnings increase $ 309,093
3. Comparative Earnings
Regular Core
---------- ---------
Before conversion - 12 months ended 09/30/96 $ -285,000 856,000
Net earnings increase 309,093 309,093
After conversion $ 24,093 1,165,093
4. Comparative Net Worth (2)
Before conversion - 09/30/96 $ 11,361,000
Conversion proceeds 17,628,814
After conversion $ 28,989,814
5. Comparative Net Assets
Before conversion - 09/30/96 $146,983,000
Conversion proceeds 20,120,404
After conversion $167,103,404
- --------------
(1) Represents ESOP borrowings.
(2) ESOP borrowings and RRP are omitted from net worth.
153
<PAGE>
KELLER & COMPANY
Columbus, Ohio
614-766-1426
EXHIBIT 55
SUMMARY OF VALUATION PREMIUM OR DISCOUNT
Premium or (discount)
from comparable group
---------------------
Hemlock Federal Average Median
--------------- ------- ------
Midpoint:
Price/earnings NM NM NM
Price/book value 63.81%* (31.78)% (35.00)%
Price/assets 9.68% 6.54% 7.36%
Price/tangible book value 63.81% (32.51)% (35.08)%
Price/core earnings 14.45x (9.30)% (4.32)%
Minimum of range:
Price/earnings NM NM NM
Price/book value 59.14%* (36.77)% (39.76)%
Price/assets 8.35% (8.12)% (7.41)%
Price/tangible book value 59.14% (37.44)% (39.83)%
Price/core earnings 12.70x (20.25)% (15.87)%
Maximum of range:
Price/earnings NM NM NM
Price/book value 67.76%* (27.55)% (30.98)%
Price/assets 10.98% 20.79% 21.73%
Price/tangible book value 67.76% (28.33)% (31.06)%
Price/core earnings 16.07x 0.91% 6.45%
Super maximum of range:
Price/earnings NM NM NM
Price/book value 71.62%* (23.43)% (27.05)%
Price/assets 12.43% 36.69% 37.75%
Price/tangible book value 71.62% (24.24)% (27.13)%
Price/core earnings 17.82x 11.88% 18.02%
- ------------
* Represents pricing ratio associated with primary valuation method.
154
Exhibit 99.5
FACTS ABOUT CONVERSION
The Board of Directors of Hemlock Federal Bank for Savings ("Hemlock Federal")
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 Hemlock Federal Financial Corporation,
(the "Holding Company"), the newly formed corporation that will serve as holding
company for Hemlock Federal following the conversion.
Investment in the stock of Hemlock Federal Financial Corporation involves
certain risks. For a discussion of these risks, other factors, and a complete
description of the offerings 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, Hemlock
Federal will raise additional capital enabling it to:
o support and expand its current financial and
other services.
o allow customers and friends to purchase stock
and share in the Holding Company's and
Hemlock Federal'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 OFFERING?
- ---------------------------------------------------------------
Certain past and present depositors and borrowers of Hemlock Federal, and
Hemlock Federal's Employee Stock Ownership Plan.
HOW MANY SHARES OF STOCK ARE BEING OFFERED AND AT WHAT PRICE?
- -------------------------------------------------------------
Hemlock Federal Financial Corporation is offering up to XXX,000 shares of common
stock, subject to adjustment as described in the Prospectus, at a price of
$10.00 per share through the Prospectus.
HOW MUCH STOCK MAY I BUY?
- -------------------------
The minimum order is 25 shares. No person may purchase more than $__________ of
common stock and no person, together with associates of and persons acting in
concert with such person, may purchase more than $_________of common stock.
DO MEMBERS HAVE TO BUY STOCK?
- -----------------------------
No. However, the Plan will allow Hemlock Federal's depositors and borrowers 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 Noon, Oak Forest, Illinois, Time, on
March __, 1997.
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 Hemlock Federal on these funds at the current passbook rate from the day
the funds are received until the completion or termination of the Plan. Second,
you may authorize us to withdraw funds from your Hemlock Federal 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. Please call our Conversion Information
Center for additional information.
WILL THE STOCK BE INSURED?
- --------------------------
No. Like any other common stock, the Holding
Company's stock will not be insured.
WILL DIVIDENDS BE PAID ON THE STOCK?
- ------------------------------------
The Board of Directors of the Holding Company intends 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 National Market 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! Hemlock Federal's officers and directors
plan to purchase, in the aggregate, $______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.
HOW MANY VOTES DO I HAVE?
- -------------------------
Your proxy card(s) show(s) the number of votes you have. Every depositor
entitled to vote may cast one vote for each $100, or fraction thereof, on
deposit as of the voting record date.
<PAGE>
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 9:00 A.M. AND 5:00
P.M. MONDAY, TUESDAY, OR
THURSDAY, FRIDAY BETWEEN 9:00 A.M.
AND 7:00 P.M. OR SATURDAY BETWEEN
9:00 AM AND 1:00 PM.
CONVERSION INFORMATION CENTER (708) XXX-XXXX
Hemlock Federal Financial Corporation
5700 West 159th Street
Oak Forest, Illinois
Phone (708) 687-9400
Fax (708) 687-9490
--------------
STOCK OFFERING
QUESTIONS
AND ANSWERS
--------------
Hemlock Federal
Financial Corporation
THE STOCK OFFERED IN THE CONVERSION
IS NOT A DEPOSIT OR ACCOUNT AND IS
NOT FEDERALLY INSURED OR
GUARANTEED. THIS IS NOT AN OFFER TO
SELL OR A SOLICIATION OF AN OFFER TO
BUY STOCK. THE OFFER WILL BE MADE
ONLY BY THE PROSPECTUS ACCOMPANIED
BY A STOCK ORDER FORM AND
CERTIFICATION FORM.
