<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1997
REGISTRATION NO. 333-35573
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
HERITAGE FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 6036
(STATE OR OTHER (PRIMARY SICC NO.) 91-1857900
JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR IDENTIFICATION NUMBER)
ORGANIZATION)
----------------
201 5TH AVENUE S.W.
OLYMPIA, WASHINGTON 98501
(360) 943-1500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DONALD V. RHODES
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
HERITAGE FINANCIAL CORPORATION
201 5TH AVENUE S.W.
OLYMPIA, WASHINGTON 98501
(360) 943-1500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES OF COMMUNICATIONS TO:
J. JAMES GALLAGHER, ESQ.
SANDRA L. GALLAGHER, ESQ.
GORDON, THOMAS, HONEYWELL, MALANCA,
PETERSON & DAHEIM, P.L.L.C.
1201 PACIFIC AVENUE, SUITE 2200
TACOMA, WASHINGTON 98402
(253) 572-5050
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
===============================================================================================
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT BEING PURCHASE PRICE AGGREGATE AMOUNT OF
SECURITIES BEING REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par
value.................. 9,748,636 shares $10.00 $97,486,360 $29,541.32
===============================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee. As
described in the Prospectus, the actual number of shares to be issued and
sold are subject to adjustment based upon the estimated pro forma market
value of the registrant and market and financial conditions.
----------------
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
HERITAGE FINANCIAL CORPORATION [LOGO]
(HOLDING COMPANY FOR HERITAGE SAVINGS BANK)
UP TO 8,477,075 SHARES OF COMMON STOCK (ANTICIPATED MAXIMUM)
$10.00 PER SHARE
Heritage Financial Corporation (the "Company"), a Washington corporation, is
offering up to 8,477,075 shares (which may be increased to 9,748,636 shares
under certain circumstances described below) of its common
(continued on following page)
FOR ADDITIONAL INFORMATION ON HOW TO SUBSCRIBE FOR COMMON STOCK, PLEASE CALL
THE STOCK INFORMATION CENTER AT (360) 705-9190.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE 14.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC"), THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM ("FEDERAL
RESERVE") OR ANY OTHER FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION
OR OTHER STATE AGENCY, INCLUDING THE WASHINGTON DEPARTMENT OF FINANCIAL
INSTITUTIONS, DIVISION OF BANKS (THE "DIVISION"), NOR HAS THE SEC, THE
FDIC, THE FEDERAL RESERVE OR ANY OTHER AGENCY OR ANY STATE SECURITIES
COMMISSION OR OTHER STATE AGENCY PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND
ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY, NOR
ARE THEY INSURED OR GUARANTEED BY THE COMPANY OR THE BANK.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ESTIMATED FEES,
UNDERWRITING
PURCHASE COMMISSIONS AND OTHER ESTIMATED NET
PRICE(1) EXPENSES(2) PROCEEDS(3)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Per Share............ $ 10.00 $ 0.25 $ 9.75
- ------------------------------------------------------------------------------
Midpoint Per Share........... $ 10.00 $ 0.24 $ 9.76
- ------------------------------------------------------------------------------
Maximum Per Share............ $ 10.00 $ 0.22 $ 9.78
- ------------------------------------------------------------------------------
Maximum Per Share, as
adjusted(4)................. $ 10.00 $ 0.21 $ 9.79
- ------------------------------------------------------------------------------
Minimum Total................ $42,500,000 $1,070,000 $41,430,000
- ------------------------------------------------------------------------------
Midpoint Total............... $50,000,000 $1,180,000 $48,820,000
- ------------------------------------------------------------------------------
Maximum Total................ $57,500,000 $1,290,000 $56,210,000
- ------------------------------------------------------------------------------
Maximum Total, as
adjusted(4)................. $66,125,000 $1,417,000 $64,708,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) Based upon the minimum, midpoint, maximum and 15% above the maximum of the
Valuation Price Range as hereinafter defined, respectively, determined in
accordance with an independent appraisal prepared by RP Financial, LC.
("RP Financial"). Does not include shares of Common Stock to be issued to
Minority Stockholders in the Exchange.
(2) Consists of the estimated costs to the Company and the Bank to be incurred
in connection with the Conversion, including estimated fixed expenses of
$460,000 and marketing fees to be paid to the Agent in connection with the
Offerings, which are estimated to be $720,000 at the midpoint of the
Valuation Price Range, as hereinafter defined. See "The Conversion--
Marketing Arrangements." The actual fees and expenses may vary
substantially from the estimates. See "Pro Forma Data." The fees paid to
the Agent may be deemed to be underwriting fees. See "The Conversion--
Marketing Arrangements" for information relating to indemnification of the
Agent.
(3) Actual net proceeds may vary substantially from estimated amounts
depending on the number of shares sold in the Offerings and other factors.
Includes the proposed purchase of shares of Conversion Stock by the ESOP
which will be funded by a loan to the ESOP from the Company. See
"Capitalization" and "Pro Forma Data."
(4) Gives effect to an increase in the number of shares which could occur
without a resolicitation of subscribers or any right of cancellation of
stock orders due to an increase in the Valuation Price Range of up to 15%
above the maximum of the Valuation Price Range to reflect regulatory
considerations and changes in market and financial conditions following
commencement of the Offerings. See "The Conversion--Stock Pricing and
Number of Shares to be Issued."
----------------
RYAN, BECK & CO.
----------------
The date of this Prospectus is , 1997.
<PAGE>
(continued from previous page)
stock, no par value per share (the "Common Stock" or "Company Common Stock"),
in connection with the conversion and reorganization (the "Conversion") of
Heritage Financial Corporation, MHC (the "Mutual Holding Company" or "MHC")
from a state chartered mutual holding company to a Washington stock
corporation. Heritage Savings Bank, a Washington stock savings bank ("Heritage
Bank" or the "Bank") is a 66.31% owned subsidiary of the MHC. The Conversion
will cause the Bank to become a wholly owned subsidiary of the Company and
will be effected pursuant to a Plan of Conversion and Reorganization (the
"Plan of Conversion" or "Plan"). At June 30, 1997, the Mutual Holding Company
held $120,000 in assets, in addition to 1,200,000 shares of common stock, par
value $1.00 per share, of the Bank ("Bank Common Stock"). The remaining
609,616 shares, or approximately 33.69% of the Bank Common Stock (the
"Minority Shares"), are owned by members of the public, including the Bank's
employees, directors, and existing Employee Stock Ownership Plan ("ESOP")
(together, the "Minority Stockholders"). The Minority Shares, as of
consummation of the Conversion (the "Effective Time"), will be exchanged for
Company Common Stock.
THE OFFERINGS. Pursuant to the Plan, nontransferable subscription rights to
subscribe for up to 5,750,000 shares (subject to adjustment up to 6,612,500
shares) of Common Stock (the "Conversion Stock") have been granted to certain
depositors and borrowers of the Bank as of specified record dates (the
"Subscription Offering"). In order of priority, the Subscription Offering is
being made to (i) depositors with $50.00 or more on deposit at the Bank as of
June 30, 1996 ("Eligible Account Holders"); (ii) the Bank's ESOP, a tax
qualified employee benefit plan; (iii) depositors with $50.00 or more on
deposit at the Bank as of September 30, 1997 ("Supplemental Eligible Account
Holders"); and (iv) depositors of the Bank as of October 24, 1997 ("Voting
Record Date") other than Eligible Account Holders and Supplemental Eligible
Account Holders, and borrowers with loans outstanding on July 21, 1993 which
continue to be outstanding as of October 24, 1997 ("Other Members").
Commencing concurrently with the Subscription Offering, the Company is
offering the shares of Conversion Stock not subscribed for in the Subscription
Offering in order of priority to (i) the Minority Stockholders as of October
24, 1997 who are not Eligible Account Holders, Supplemental Eligible Account
Holders or Other Members ("Minority Stockholders' Offering") and (ii) to
certain members of the general public to whom a copy of this Prospectus is
delivered by or on behalf of the Company (the "Community Offering"). The
Mutual Holding Company and the Bank have determined that the Bank's local
community consists of the counties of Thurston, Mason, Pierce, King,
Snohomish, Kitsap and Grays Harbor in the State of Washington (the "Local
Community"). In the Community Offering, a preference may be given to stock
orders from natural persons who are residents of the Local Community. It is
anticipated that shares of Conversion Stock not subscribed for in the
Subscription, Minority Stockholders' and Community Offerings, will be offered
on a best efforts basis by a selling group of broker-dealers to members of the
general public to whom a copy of this Prospectus is delivered by or on behalf
of the Company (the "Syndicated Community Offering"). The Subscription
Offering, Minority Stockholders' Offering, Community Offering and any
Syndicated Community Offering are referred to collectively as the "Offerings."
The Company reserves the right, in its absolute discretion, to accept or
reject, in whole or in part, any or all stock orders in the Minority
Stockholders' Offering, Community Offering or Syndicated Community Offering
either at the time of receipt of an order or as soon as practicable following
the termination of the Offerings. If an order is rejected in part, the
subscriber does not have the right to cancel the remainder of the order.
Purchase of shares of Conversion Stock in the Offerings are subject to
limitations. See "The Conversion--Limitations on Purchases and Ownership of
Shares."
The Company and the Bank have engaged Ryan Beck & Co., Inc. (hereinafter
referred to as "Ryan Beck" or the "Agent") to consult with and advise them in
the Conversion, and the Agent has agreed to use its best efforts to assist in
the sale of Conversion Stock in the Offerings and to manage any Syndicated
Community Offering. The Agent is not obligated to take or purchase any shares
of Common Stock in the Offerings. See "The Conversion--Marketing
Arrangements."
<PAGE>
(continued from previous page)
THE SUBSCRIPTION OFFERING WILL EXPIRE AT NOON, PACIFIC TIME, ON , 1997
("EXPIRATION DATE"), UNLESS EXTENDED BY THE COMPANY FOR UP TO DAYS TO
, 1997. THE COMMUNITY OFFERING AND MINORITY STOCKHOLDERS' OFFERING ARE ALSO
EXPECTED TO TERMINATE AT NOON, PACIFIC TIME, ON , 1997, BUT MAY BE
EXTENDED. If the Conversion is not consummated within 45 days after the last
day of the Subscription Offering (which may conclude no later than ,
1997) and the Company elects to extend the Offerings, with the approval of the
Division, if necessary, subscribers will be notified in writing of the time
period within which they must notify the Company of any intention to increase,
decrease or rescind stock orders. If an affirmative response to any such
resolicitation is not received by the Company, a subscriber's stock order will
be rescinded and subscription funds will be returned promptly, together with
interest from the date such funds were received by the Company, and all
withdrawal authorizations from deposit accounts at the Bank will be
terminated. If the Offerings are not extended or, in any event, if the
Conversion is not consummated by , 1997, all stock orders will be
rescinded, funds returned and withdrawal authorizations terminated, as
described above.
THE EXCHANGE. In addition to the Offerings, each share of Bank Common Stock
held by the Mutual Holding Company will be canceled and each share of Bank
Common Stock held by the Minority Stockholders will be converted into shares
of Common Stock (the "Exchange Shares") pursuant to a ratio (the "Exchange
Ratio") that will result in the Minority Stockholders owning in the aggregate
approximately 32.17% of the Company (the "Exchange"), before giving effect to
certain items, including any shares of Conversion Stock purchased by such
Minority Stockholders in the Offerings. The dilution of Minority Stockholder
ownership interest from the 33.69% current ownership interest in the Bank to
an approximate 32.17% ownership interest in the Company reflects a policy of
the FDIC requiring the Exchange Ratio to be adjusted downward to reflect the
aggregate amount of Bank Common Stock dividends waived by the MHC and certain
assets held by the MHC. The Exchange Ratio is expected to be between 3.3064
and 4.4734, resulting in a range of between 2,015,664 and 2,727,075 Exchange
Shares to be issued in the Conversion (which may be increased to 3,136,136
shares, as described below). THE ACTUAL EXCHANGE RATIO WILL BE BASED ON THE
NUMBER OF SHARES OF CONVERSION STOCK SOLD IN THE OFFERINGS AND THE MINORITY
STOCKHOLDERS' PERCENTAGE OWNERSHIP INTEREST IN THE BANK IMMEDIATELY PRIOR TO
THE EFFECTIVE TIME. THE EXCHANGE RATIO IS NOT DEPENDENT ON THE MARKET VALUE OF
THE MINORITY SHARES. SEE "SUMMARY--THE EXCHANGE RATIO."
INDEPENDENT VALUATION. Pursuant to applicable Washington law and regulations
of the FDIC, the offering of Conversion Stock in the Offerings is required to
be based on an independent valuation of the pro forma market value of the Bank
and the Mutual Holding Company. RP Financial prepared an independent appraisal
which states that the aggregate pro forma market value of the Bank, inclusive
of the sale in the Offerings of the MHC's ownership interest in the Bank was
$73,713,696 at the midpoint as of the October 10, 1997 update of the original
August 15, 1997 appraisal (the "Appraisal"). The Appraisal was multiplied by
67.83%, which is the Mutual Holding Company's percentage ownership interest in
the Bank as adjusted upward from the actual interest of 66.31% to reflect
$1,230,000 of dividends declared by the Bank and waived by the Mutual Holding
Company and the $120,000 in assets, other than Bank Common Stock, held by the
MHC. The resulting amount, $50,000,000, is the midpoint of the dollar amount
of Conversion Stock to be offered in the Offerings. The minimum and maximum of
the offering range were set at 15% below and above the midpoint, respectively,
resulting in an offering range of $42,500,000 to $57,500,000 (the "Valuation
Price Range") of Conversion Stock. The Boards of Directors of the Company and
the Bank determined that the Conversion Stock would be sold at $10.00 per
share (the "Purchase Price"), resulting in a range of 4,250,000 to 5,750,000
shares of Conversion Stock being offered.
THE 8,477,075 SHARES OF COMMON STOCK OFFERED HEREBY (SUBJECT TO ADJUSTMENT
UP TO 9,748,636 SHARES AS DESCRIBED HEREIN) INCLUDE UP TO 5,750,000 SHARES OF
CONVERSION STOCK AND UP TO 2,727,075 SHARES OF EXCHANGE SHARES. The Valuation
Price Range, and therefore the number of shares offered, may be increased or
decreased prior to completion of the Conversion to reflect regulatory
considerations and changes in market and economic conditions. In any case,
however, through the Exchange Ratio, the Conversion Stock and the Exchange
<PAGE>
(continued from previous page)
Shares will represent approximately 67.83% and 32.17%, respectively, of Common
Stock outstanding, unless the Company issues unissued shares to the ESOP
immediately following the Conversion. See "The Conversion--Stock Pricing and
Number of Shares to be Issued."
No resolicitation of subscribers will be made and subscribers will not be
permitted to modify or cancel their subscriptions unless (i) the gross
proceeds from the sale of the Conversion Stock are less than the minimum or
more than 15% above the maximum of the current Valuation Price Range or (ii)
the Offerings are extended beyond .
PURCHASE LIMITATIONS AND OWNERSHIP LIMITATION. The Plan sets forth purchase
limitations applicable to the Offerings. The minimum stock order is 25 shares.
Except for the ESOP, which is expected to purchase 2% of the Conversion Stock
sold, no person (or persons through a single subscription right), together
with any associate or group of persons acting in concert, may subscribe for
more than $250,000 in all categories of the Offerings combined. In addition to
these purchase limitations, no person, together with any associate or group of
persons acting in concert may, upon completion of the Conversion, own more
than 2% of the Common Stock outstanding. This ownership limitation pertains to
the aggregate of Conversion Stock purchased and Exchange Shares received by
the subscriber. Notwithstanding the foregoing, no Minority Stockholder will be
required to dispose of Minority Shares if, without purchasing Conversion
Stock, the Exchange will result in ownership of in excess of 2% of the Common
Stock. The purchase limitations and ownership limitation may be changed at the
discretion of the Company, as described herein. See "The Conversion--
Limitations on Purchases and Ownership of Shares."
REQUIRED APPROVALS. The consummation of the Conversion is subject to the
receipt of regulatory approvals from the Division, the FDIC and the Federal
Reserve, the ratification by members of the MHC and the approval of the
Minority Stockholders of the Bank in the manner set forth herein. See "The
Conversion--General."
MARKET FOR COMMON STOCK. The Company has received conditional approval to
have the Common Stock quoted on the National Association of Securities Dealers
Automated Quotation ("Nasdaq") National Market under the symbol "HFWA." There
can be no assurance that an active and liquid trading market for the Common
Stock will develop, or, if developed, be maintained. The Minority Shares,
which will be exchanged for Common Stock, are not traded on any exchange and
there is currently no established trading market for them.
<PAGE>
[MAP SHOWS LOCATION OF THE COMPANY'S
OFFICES IN THURSTON, MASON AND PIERCE COUNTIES IN
THE STATE OF WASHINGTON]
THE CONVERSION IS CONTINGENT UPON THE RECEIPT OF ALL REQUIRED REGULATORY
APPROVALS, RATIFICATION BY MEMBERS OF THE MHC, APPROVAL BY THE STOCKHOLDERS OF
THE BANK, AND THE SALE OF AT LEAST THE MINIMUM NUMBER OF SHARES OFFERED
PURSUANT TO THE PLAN.
<PAGE>
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE
NOT INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY, NOR ARE
THEY INSURED OR GUARANTEED BY THE COMPANY OR THE BANK.
SUMMARY
The information set forth below should be read in conjunction with and is
qualified in its entirety by, the more detailed information and Consolidated
Financial Statements (including the Notes thereto) presented elsewhere in this
Prospectus. The purchase of Common Stock is subject to certain risks. This
Prospectus contains certain forward-looking statements within the meaning of
the federal securities laws. Actual results and timing of certain events could
differ materially from those projected in the forward-looking statements due to
a number of factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
HERITAGE FINANCIAL CORPORATION
The Company is a Washington corporation organized in August 1997 at the
direction of the Bank to hold all of the capital stock of the Bank upon
consummation of the Conversion. The Company has not engaged in any significant
business to date. Upon completion of the Conversion, the Company will be
regulated by the Federal Reserve. The Company has filed an application with the
Federal Reserve Bank of San Francisco to become a bank holding company and for
approval to acquire the Bank. Immediately following the Conversion, the only
significant assets of the Company will be the capital stock of the Bank, a
portion of the net proceeds of the Offerings and a note receivable from the
ESOP evidencing a loan from the Company to fund the purchase of Conversion
Stock by the Bank's ESOP. See "Use of Proceeds." Management believes that the
holding company structure and proceeds of the Offerings can facilitate possible
future acquisitions of other financial institutions, such as commercial banks
or savings institutions, or branches of other financial institutions and
thereby further expansion in existing and new market areas. The holding company
structure will also provide increased flexibility to the Company to diversify
into a variety of banking-related activities and to repurchase its stock. There
are no present plans, arrangements, agreements, or understandings, written or
oral, regarding any such acquisitions, activities or repurchases.
The main office of the Company is located at 201 5th Avenue S.W., Olympia,
Washington 98501 and its telephone number is (360) 943-1500.
HERITAGE BANK
The Bank was established in 1927 and has maintained its headquarters in
Olympia, Thurston County, Washington (the state capital) continuously since
that date and currently serves Thurston, Pierce and Mason Counties in the South
Puget Sound region of Washington as its primary market area. In 1992, the Bank
converted from a federally chartered mutual savings bank to a state chartered
mutual savings bank. In connection with the organization of the Mutual Holding
Company in 1994 (the "MHC Reorganization"), the Bank merged into an interim
institution formed as a subsidiary of the Mutual Holding Company, thereby
becoming a stock savings bank and a subsidiary of the Mutual Holding Company.
The Bank sold approximately 33.3% of its shares of common stock to the general
public and to an ESOP in connection with the MHC Reorganization. The MHC was
issued the remaining 66.7%. Stock options exercised by Minority Stockholders
have increased total outstanding shares to 1,809,616 at June 30, 1997.
The Bank is regulated by the Division as its primary state regulator and by
the FDIC as its primary federal regulator. The Bank's deposits have been
federally insured since 1935 by the FDIC (under the Savings Association
Insurance Fund ("SAIF")) and its predecessor, the Federal Savings and Loan
Insurance Corporation. The Bank has been a member of the Federal Home Loan Bank
("FHLB") System since 1932. At
1
<PAGE>
June 30, 1997, the Bank had total assets of $242.2 million, total deposits of
$209.8 million and stockholders' equity of $27.7 million, or 11.44% of total
assets, on a consolidated basis.
The Bank traditionally has offered a variety of savings products and
originated one- to four-family mortgage loans (principally for sale in the
secondary market) and, to a lesser extent, multifamily, commercial real estate
and construction loans. Beginning in fiscal 1994, the Bank began to implement a
growth strategy which is intended to broaden its products and services from
traditional thrift products and services to those more closely related to
commercial banking. That strategy entails:
. Geographic and Product Expansion
. Loan Portfolio Diversification
. Development of Relationship Banking
. Maintenance of Asset Quality
The Bank's strategy to date has resulted in the following changes in the
Bank's operations.
Geographic and Product Expansion. Since the end of fiscal 1994, the Bank has
doubled its number of offices, to ten full service locations. New branches were
opened in the West Olympia and Indian Summer areas of Thurston County in fiscal
1995, and an office was opened in Lakewood, Pierce County, in fiscal 1996. In
October 1996, an office was established in Tacoma, Pierce County, and the tenth
office was opened, in downtown Tacoma, in the spring of 1997. During the last
four years, the Bank has constructed new buildings in Lacey, Thurston County,
and Shelton, Mason County, to replace existing branch buildings and to better
serve customers in these markets. The Bank has installed Automated Teller
Machines at six of its offices. The Bank intends to continue its growth
strategy on a basis it considers prudent. The number and timing of future
branch openings will depend on various factors, including maintaining an
infrastructure to accommodate growth, targeting promising market areas, and, in
the case of acquisitions of financial institutions or branches, identifying
favorable opportunities.
Concurrent with geographic expansion, the Bank has (i) developed business
checking accounts and commercial lending products and other services for
businesses and high net worth individuals; (ii) introduced Visa debit and
credit cards; (iii) installed an automated voice response system for customer
account inquiries and (iv) developed products to assist realtors and potential
borrowers to obtain information about loan programs and qualifications. To
accommodate new products and to improve internal operating and reporting, the
Bank converted to a new data processing system with a data service bureau and
installed a personal computer network.
Loan Portfolio Diversification. Since initiating its expansion activities,
total loans increased to $208.2 million at June 30, 1997 from $130.4 million at
June 30, 1993. During this period, the Bank targeted growth in commercial
loans, taking advantage of market opportunities and the higher interest rates
and shorter terms of such loans relative to residential mortgage loans. As a
result, commercial loans increased to $39.4 million, or 18.95% of total loans,
from $1.2 million, or 0.92% of total loans, at June 30, 1993. One- to four-
family residential loans increased in amounts outstanding but decreased to
49.68% from 56.29% of total loans, and multifamily and commercial real estate
loans similarly increased in amounts outstanding while decreasing to 24.60%
from 30.97% of total loans during that period. Most of the Bank's commercial
business loans are collateralized by real estate, but repayment is expected
from a source other than operation or sale of the real estate. See "Business of
the Bank--Lending Activities."
Development of Relationship Banking. In fiscal 1994, the Bank initiated
efforts to develop a business banking department under the direction of a
senior officer with commercial banking experience in Thurston County. The new
department concentrated its efforts on development of expanded lending and
deposit relationships with existing and new customers of the Bank in Thurston
and Mason counties. In June 1996, the Bank hired a former south Puget Sound
Regional Manager for a large commercial bank. The management
2
<PAGE>
addition was made for the purpose of enhancing the Bank's relationship banking
capacity and to establish a commercial banking presence in Pierce County. Since
that time, the Bank has also hired six additional lending officers who have
experience lending to small businesses and individuals in the Pierce County
market. While the banking market is very competitive, recent mergers of
regional commercial banks with significant presence in the Bank's principal
market areas have, in management's view, provided a greater opportunity for
community banks to fill a personal service niche which the Bank believes has
been created by the mergers. Management believes that the Bank can develop a
larger market share in the Pierce County market, while continuing to expand in
the Thurston and Mason County markets, by delivering efficient and personalized
banking service and developing relationships with small businesses and high net
worth individuals who are seeking a relationship with a responsive, service
oriented provider of financial services and products.
Maintenance of Asset Quality. While pursuing its growth strategy, the Bank
will continue its policy of seeking to employ consistent underwriting and loan
monitoring procedures, in order to maintain asset quality. The Bank's loan
portfolio grew 59.6% between June 30, 1993 and June 30, 1997. Nonperforming
loans remained less than $436,000 during the four year period, as did total
nonperforming assets. At June 30, 1997, nonperforming loans constituted 0.06%
of the Bank's total loans and the allowance for loan losses to nonperforming
loans was 2069.17%. See "Business of the Bank--Delinquencies and Nonperforming
Assets."
The Bank conducts business from its main office located at 201 5th Avenue
S.W., Olympia, Washington 98501 and its nine branch offices located in
Thurston, Pierce and Mason Counties of Washington. The Bank's telephone number
is (360) 943-1500.
THE MUTUAL HOLDING COMPANY
The MHC is a Washington chartered mutual holding company which was
incorporated in January 1994, in connection with the MHC Reorganization. The
Mutual Holding Company's only significant assets are approximately 66.31% of
the outstanding shares of Bank Common Stock and $120,000 in cash. Subsequent to
the MHC Reorganization, the Mutual Holding Company has engaged in no
significant activity other than holding the Bank Common Stock. Accordingly, the
information set forth in this Prospectus includes the Mutual Holding Company
but relates primarily to the Bank and its subsidiary. The Consolidated
Financial Statements reflect only the financial condition and results of
operations of the Bank and its subsidiaries.
THE CONVERSION AND THE OFFERINGS
On July 1, 1997, the Boards of Directors of the Bank and the Mutual Holding
Company adopted the Plan, which was subsequently amended. In August 1997 the
Bank incorporated the Company under Washington law as a wholly-owned subsidiary
of the Bank. Pursuant to the Plan, (i) the Mutual Holding Company will convert
from the mutual to stock form of organization and simultaneously merge into the
Bank, with the Bank being the surviving institution, and the shares of Bank
Common Stock currently held by the Mutual Holding Company will be canceled and
(ii) the Bank will then merge with an interim bank ("Interim"), with the Bank
being the surviving institution and becoming a wholly-owned subsidiary of the
Company.
Consummation of the Conversion is conditioned upon: (i) approval of the Plan
by the Division; (ii) the nonobjection of the FDIC; (iii) approval by the
Federal Reserve of the Company's acquisition of the Bank; (iv) approval of the
Plan by at least a majority of the total number of votes eligible to be cast by
members of the Mutual Holding Company; (v) approval of the Plan by a majority
of the votes cast by the Minority Stockholders; and (vi) successful completion
of the Offerings. Special Meetings of Members of the Mutual Holding Company and
stockholders of the Bank, called for the purpose of submitting the Plan for
approval, will be held on , 1997 (the "Special Meetings"). It is possible
that there could be a significant delay in the completion of the Conversion as
a result of, among other things, delays in receiving approval by the Division
or
3
<PAGE>
the Federal Reserve, or a notice of nonobjection to the Conversion from the
FDIC, or by difficulty in completing the Offerings due to market conditions.
See "Risk Factors--Risk of Delayed Offering."
The Board of Directors of the Bank believes that the Conversion offers a
number of advantages which will be important to the future growth and
performance of the Bank. The Conversion is intended to: (i) provide
substantially increased capital to expand the operations of the Bank; (ii)
improve future access to capital markets; (iii) enhance the Company's and the
Bank's ability to expand directly or through mergers and acquisitions and to
diversify operations into new business activities (although there are no
specific agreements, arrangements or understandings, written or oral, regarding
any such mergers or diversified activities); and (iv) afford customers and
others the opportunity to become stockholders of the Company and thereby
participate more directly in any future growth of the Company and the Bank.
Additionally, by converting to the stock holding company form of organization,
the Company will be structured in the form used by many commercial banks and
business entities and a growing number of savings institutions.
The Company is offering up to 5,750,000 (or 6,612,500 if the Valuation Price
Range is increased by 15%) shares of Conversion Stock at $10.00 per share to
holders of subscription rights in the following order of priority: (i) Eligible
Account Holders; (ii) the Bank's ESOP; (iii) Supplemental Eligible Account
Holders; and (iv) Other Members. In the event the number of shares offered in
the Conversion is increased above the maximum of the Valuation Price Range, the
Bank's ESOP shall have a second priority right, after Eligible Account Holders,
to purchase any such shares exceeding the maximum of the Valuation Price Range
up to an aggregate of 2% of the Conversion Stock sold in the Offerings.
Concurrently, and subject to the prior rights of holders of subscription
rights, any shares of Conversion Stock not subscribed for in the Subscription
Offering are being offered by the Company, in order of priority, in (i) the
Minority Stockholders' Offering to Minority Stockholders and (ii) in the
Community Offering to certain members of the general public. Preference may be
given in the Community Offering to natural persons who are permanent residents
of the Local Community. The Bank has engaged Ryan Beck to consult with and
advise the Company and the Bank in the Offerings and Ryan Beck has agreed to
use its best efforts to assist the Company in the sale of Conversion Stock in
the Offerings. Ryan Beck is not obligated to take or purchase any shares of
Conversion Stock in the Offerings. If all shares of Conversion Stock are not
sold through the Subscription, Minority Stockholders', and Community Offerings,
then the Company expects to offer the remaining shares to the general public in
a Syndicated Community Offering managed by Ryan Beck. All shares of Conversion
Stock will be sold at the $10.00 Purchase Price per share in the Offerings. See
"Use Of Proceeds," "Pro Forma Data" and "The Conversion--Stock Pricing and
Number of Shares to be Issued."
The Subscription Offering will expire at Noon, Pacific Time, on ,
unless extended by the Bank and the Company. The Minority Stockholders'
Offering, Community Offering and Syndicated Community Offering may terminate on
the same date, however in no event later than , 1997, unless extended
pursuant to regulatory approval. See "The Conversion."
EFFECTS OF THE EXCHANGE ON MINORITY STOCKHOLDERS
The following are effects of the Conversion on Minority Stockholders,
assuming that at the minimum, midpoint, maximum and 15% above the maximum of
the Valuation Price Range, one Minority Share will be exchanged for 3.3064,
3.8899, 4.4734 and 5.1444 shares of Common Stock, respectively. See "Pro Forma
Data."
Effect of the Exchange on Stockholders' Equity Per Share. The Conversion will
increase the stockholders' equity per share of Minority Stockholders. At June
30, 1997, stockholders' equity was $15.31 for each share of the Bank Common
Stock outstanding, including shares held by the Mutual Holding Company. Based
on the pro forma information set forth in "Pro Forma Data" assuming the sale of
5,000,000 shares of Conversion Stock at the midpoint of the Valuation Price
Range, at June 30, 1997, the pro forma stockholders' equity per share of Common
Stock was $10.20, and the pro forma stockholders' equity for the aggregate
number of Exchange
4
<PAGE>
Shares to be received for each Minority Share was $39.68. The pro forma
stockholders' equity at June 30, 1997 for the aggregate number of Exchange
Shares to be received for each Minority Share was $35.87, $43.44 and $47.79 at
the minimum, maximum, and adjusted maximum of the Valuation Price Range.
Effect of the Exchange on Earnings Per Share. The Conversion will also affect
Minority Stockholders' pro forma earnings per share. For the year ended June
30, 1997, the earnings per share was $1.26 for each share of the Bank Common
Stock outstanding, including shares held by the Mutual Holding Company. Based
on the pro forma information set forth in "Pro Forma Data," assuming the sale
of 5,000,000 shares of Common Stock at the midpoint of the Valuation Price
Range, the pro forma earnings per share of Common Stock was $0.59 for such
period, and the pro forma earnings for the aggregate number of Exchange Shares
to be received for each Minority Share was $2.30. For the year ended June 30,
1997, the pro forma earnings per share for the aggregate number of Exchange
Shares to be received for each Minority Share was $2.12, $2.46 and $2.62 at the
minimum, maximum, and adjusted maximum of the Valuation Price Range.
Effect of the Exchange on Market Value. The aggregate number of Exchange
Shares to be received for each Minority Share will have a calculated estimated
value of $33.06, $38.90, $44.73 and $51.44 at the minimum, midpoint, maximum
and adjusted maximum of the Valuation Price Range based on the $10.00 Purchase
Price of the Conversion Stock. The most recent known stock trade of Minority
Shares preceding the date of this Prospectus was August 8, 1997 at a price of
$18.00.
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING SHARES
To ensure that each purchaser receives a Prospectus at least 48 hours prior
to the Expiration Date, Prospectuses may not be mailed later than five days
prior to such date or be hand delivered later than two days prior to such date.
Order forms may only be distributed with a Prospectus. Execution of a stock
order form will confirm receipt or delivery of the Prospectus. The Company will
not be required to accept orders submitted on photocopied or telecopied stock
order forms. Payment in full by check, bank draft, money order, or withdrawal
authorization from any existing certificate of deposit or other deposit account
at the Bank must accompany each stock order form. The Bank is prohibited from
lending funds for the purchase of the Conversion Stock. See "The Conversion--
Procedure for Purchasing Shares in Offerings."
To help ensure that each prospective purchaser is properly identified as to
such person's stock purchase priority and to assist in stock allocation in the
event of oversubscription, depositors as of the Eligibility Record Date and
Supplemental Eligibility Record Date must list on the order form all Bank
deposit accounts as of the applicable date, giving all account holders names
for each account number. Failure to list all accounts may result in the
subscriber's loss of subscription rights.
PURCHASE LIMITATIONS AND OWNERSHIP LIMITATION
The Plan sets forth purchase limitations applicable to the Offerings. The
minimum stock order is 25 shares. Except for the ESOP, which is expected to
purchase 2% of the Conversion Stock sold, no person (or persons through a
single subscription right), together with any associate or group of persons
acting in concert, may subscribe for more than $250,000 in all categories of
the Offerings combined. In addition to these purchase limitations, no person,
together with any associate or group of persons acting in concert may, upon
completion of the Conversion, own more than 2% of the Common Stock outstanding.
This ownership limitation pertains to the aggregate of Conversion Stock
purchased and Exchange Shares received by the subscriber. Notwithstanding the
foregoing, no Minority Stockholder will be required to dispose of Minority
Shares if, without purchasing Conversion Stock, the Exchange will result in
ownership of in excess of 2% of the Common Stock. The purchase limitations and
ownership limitation may be changed at the discretion of the Company, as
described herein. See "The Conversion--Limitations on Purchases and Ownership
of Shares".
5
<PAGE>
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION
Pursuant to applicable Washington law and regulations of the FDIC, the
offering of Conversion Stock in the Offerings is required to be based on an
independent valuation of the pro forma market value of the Bank and the Mutual
Holding Company. RP Financial prepared an independent appraisal, which states
that the aggregate pro forma market value of the Bank and the Mutual Holding
Company, inclusive of the sale of an approximate 67.83% ownership interest in
the Offerings, was $73,713,696 at the midpoint as of the October 10, 1997
update of the original August 15, 1997 Appraisal. The Appraisal was multiplied
by 67.83%, which is the Mutual Holding Company's percentage ownership interest
in the Bank as adjusted upward from the actual interest of 66.31% to reflect
$1,230,000 of dividends declared by the Bank and waived by the Mutual Holding
Company and the $120,000 in assets held by the MHC. The resulting amount,
$50,000,000, is the midpoint of the dollar amount of Conversion Stock to be
offered in the Offerings. The minimum and maximum of the offering range were
set at 15% below and above the midpoint, respectively, resulting in an offering
range of $42,500,000 to $57,500,000 of Conversion Stock. The Boards of
Directors of the Company and the Bank determined that the Conversion Stock
would be sold at $10.00 per share Purchase Price, resulting in a range of
4,250,000 to 5,750,000 shares of Conversion Stock being offered. The $10.00
Purchase Price in the Offerings is a uniform price for all subscribers,
including the Bank's Board of Directors, its management and ESOP. See "The
Conversion--Stock Pricing and Number of Shares to be Issued."
THE APPRAISAL IS BASED ON A NUMBER OF FACTORS AND IS NOT INTENDED AND SHOULD
NOT BE CONSTRUED AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF
PURCHASING CONVERSION STOCK NOR CAN ASSURANCE BE GIVEN THAT PURCHASERS OF THE
CONVERSION STOCK OR RECIPIENTS OF THE EXCHANGE SHARES WILL BE ABLE TO SELL SUCH
SHARES AFTER THE CONVERSION AT A PRICE THAT IS EQUAL TO OR ABOVE THE PURCHASE
PRICE. Further, the pro forma stockholders' equity reflected in "Pro Forma
Data" is not intended to represent the fair market value of the Common Stock
and may be greater than amounts that would be available for distribution to
stockholders in the event of liquidation.
If necessary, depending on regulatory considerations and changes in market
and financial conditions or material changes in the financial condition or
performance of the Bank, the Valuation Price Range may be revised based on an
updated Appraisal prepared by RP Financial and approved by applicable
regulatory agencies. The actual number of shares of Conversion Stock sold must
be supported by a final Appraisal. No resolicitation of subscribers will be
made and subscribers will not be permitted to modify or cancel their
subscriptions unless the gross proceeds from the sale of the Conversion Stock
are less than the minimum or more than 15% above the maximum of the current
Valuation Price Range or the Offerings are extended beyond .
THE EXCHANGE RATIO
The Bank and the Mutual Holding Company must demonstrate to the satisfaction
of the Division and the FDIC that the basis for the Exchange is fair and
reasonable. The Boards of Directors of the Bank and the Company have determined
that each Minority Share will, on the Effective Time, be converted into
Exchange Shares through the Exchange Ratio. The Exchange Ratio ensures that
Minority Stockholders will own approximately the same aggregate percentage of
the outstanding Common Stock (which will consist of Conversion Stock plus
Exchange Shares) as they own of the outstanding Bank Common Stock immediately
prior to the Effective Time. The Minority Stockholders, however, will
experience a dilution in ownership interest, from a 33.69% current ownership
interest in the Bank to an approximately 32.17% interest in the Company. This
is because the FDIC requires that the Exchange Ratio be adjusted downward to
reflect the aggregate amount of Bank Common Stock dividends waived by the
Mutual Holding Company and the amount of assets other than Bank Common Stock
held by the Mutual Holding Company. See "The Conversion--The Exchange."
Based on the 609,616 Minority Shares outstanding at June 30, 1997, the
Exchange Ratio is expected to be within a range of 2,015,664 to 2,727,075
Exchange Shares for the Minority Shares outstanding immediately prior to the
Effective Time. See "The Conversion--Stock Pricing and Number of Shares to be
Issued."
6
<PAGE>
The following table sets forth, based upon the minimum, midpoint, maximum and
15% above the maximum of the Valuation Price Range: (i) the total number of
shares of Conversion Stock and Exchange Shares to be issued in the Conversion;
(ii) the percentage of the total Common Stock represented by the Conversion
Stock and the Exchange Shares; and (iii) the Exchange Ratio. The table assumes
that there is no cash paid in lieu of issuing fractional Exchange Shares.
<TABLE>
<CAPTION>
CONVERSION STOCK EXCHANGE SHARES TOTAL SHARES
TO BE ISSUED(1) TO BE ISSUED(1) OF COMMON
----------------- ----------------- STOCK TO BE EXCHANGE
AMOUNT PERCENT AMOUNT PERCENT OUTSTANDING(2) RATIO
--------- ------- --------- ------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Minimum................. 4,250,000 67.83% 2,015,664 32.17% 6,265,664 3.3064
Midpoint................ 5,000,000 67.83 2,371,369 32.17 7,371,369 3.8899
Maximum................. 5,750,000 67.83 2,727,075 32.17 8,477,075 4.4734
15% above maximum ...... 6,612,500 67.83 3,136,136 32.17 9,748,636 5.1444
</TABLE>
- --------
(1) Assumes that outstanding options to purchase 42,717 shares of Bank Common
Stock at June 30, 1997 are not exercised prior to consummation of the
Conversion. Assuming that all of such options are exercised prior to such
consummation, the percentages represented by the Conversion Stock and the
Exchange Shares would amount to 66.40% and 33.60% respectively, and the
Exchange Ratio would amount to 3.2968, 3.8786, 4.4604 and 5.1294 at the
minimum, midpoint, maximum and 15% above the maximum of the Valuation Price
Range, respectively.
(2) Assumes that the Company does not issue authorized, but unissued shares to
the ESOP immediately following the Conversion.
THE ACTUAL EXCHANGE RATIO IS NOT DEPENDENT ON THE MARKET VALUE OF MINORITY
SHARES. IT WILL BE CALCULATED BASED UPON THE NUMBER OF SHARES OF CONVERSION
STOCK SOLD IN THE OFFERINGS AND THE MINORITY STOCKHOLDERS' PERCENTAGE OWNERSHIP
INTEREST IN THE BANK IMMEDIATELY PRIOR TO THE EFFECTIVE TIME. THE EXCHANGE
RATIO IS NOT DEPENDENT ON THE MARKET VALUE OF THE MINORITY SHARES.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
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 to transfer the shares of Conversion Stock to be issued upon
their exercise. Each person exercising subscription rights will be required to
certify that a purchase of Conversion Stock is solely for the purchaser's own
account and that there is no agreement or understanding regarding the sale or
transfer of such shares. The Company and the Bank will pursue any and all legal
and equitable remedies in the event they become aware of the transfer of
subscription rights and will not honor subscriptions known by them to involve
the transfer of such rights.
Following the Conversion there generally will be no restrictions on the
transfer or sale of shares by purchasers other than affiliates of the Company
and the Bank. See "Supervision and Regulation--Federal Securities Laws" and
"The Conversion--Restrictions on Transferability by Directors and Officers and
NASD Members."
BENEFITS OF THE CONVERSION TO MANAGEMENT
ESOP. The Bank currently has an ESOP, a tax-qualified employee benefit plan
for officers and employees of the Company and the Bank, which intends to
purchase 2% of the Conversion Shares. The ESOP owned 21,763 shares of Bank
Common Stock at June 30, 1997, all of which were allocated to participants'
accounts. For additional information concerning the ESOP, see "Management--
Benefits--Employee Stock Ownership Plan" and "Risk Factors--Possible Dilutive
Effects of Benefit Plans."
MRP. The Company intends to seek stockholder approval of a Management
Recognition Plan and Trust ("MRP") at a meeting of stockholders occurring no
earlier than six months following consummation of the
7
<PAGE>
Conversion. The MRP, which will be funded with a number of shares of Common
Stock equal to up to 1% of the number of shares of Conversion Stock issued in
the Conversion, is a non-tax-qualified restricted stock plan intended for the
benefit of key employees and directors of the Company and the Bank. If
stockholder approval of the MRP is obtained, it is expected that shares of
Common Stock of the Company will be awarded at no cost to such recipients. For
additional information concerning the MRP and shares intended to be awarded
thereunder, see "Management--Benefits--Management Recognition Plan."
Stock Option Plan. The Company intends to seek stockholder approval of a
stock option plan ("1998 Stock Option Plan"), which will reserve a number of
shares of Common Stock equal to up to 10% of the number of shares of Conversion
Stock in the Conversion, at a meeting of stockholders occurring no earlier than
six months following consummation of the Conversion. If stockholder approval of
the 1998 Stock Option Plan is obtained, it is expected that options to acquire
up to 575,000 shares of Common Stock will be awarded to key employees and
directors of the Company and the Bank (based on the issuance of the maximum of
the Valuation Price Range). The exercise price of such options will be 100% of
the fair market value of the Common Stock on the date the option is granted.
Options granted to officers and directors are valuable only to the extent that
such options are exercisable and the market price for the underlying share of
Common Stock is in excess of the exercise price. An option effectively
eliminates the market risk of holding the underlying security since no
consideration is paid for the option until it is exercised and, therefore, the
recipient may, within the limits of the term of the option wait to exercise the
option until such time as the market price exceeds the exercise price. For
additional information concerning the 1998 Stock Option Plan and options
intended to be granted thereunder, see "Management--Benefits--1998 Stock Option
Plan."
Employment and Severance Agreements. Effective October 1, 1997, the Company
entered into an employment agreement with Mr. Donald V. Rhodes, the Chief
Executive Officer of the Company and the Bank, for a term which initially
expires on March 14, 2001 and renews annually thereafter unless terminated by
either the Company or Mr. Rhodes. The Bank has also entered into severance
agreements with Messrs. John D. Parry and Brian L. Vance, both Executive Vice
Presidents, and with a total of 7 additional key members of management. The
agreement with Mr. Rhodes provides that he will be entitled to compensation for
up to three years in the event of a change in control of the Bank or the
Company and two years in certain other circumstances. The agreements with
Messrs. Parry and Vance provide that each will be entitled to compensation for
up to two years in the event of a change in control of the Bank or the Company.
The agreements with the additional officers provide that each will be entitled
to compensation for one year in the event of a change in control of the Bank or
the Company. See "Management--Executive Compensation--Employment and Severance
Agreements."
For information concerning the possible voting control of officers, directors
and employees following the Conversion, see "Risk Factors--Voting Power of
Directors and Executive Officers."
USE OF PROCEEDS
Depending upon the number of shares sold and the expenses of the Conversion,
net proceeds from the sale of the Conversion Stock are estimated to range from
$41.4 million to $56.2 million (or $64.7 million if the Valuation Price Range
is increased by 15%). See "Pro Forma Data." After giving effect to the proposed
purchase of shares by the ESOP and MRP, the Company plans to contribute to the
Bank 50% of the net proceeds and retain the remaining net proceeds. This would
result in the Company retaining approximately $24.4 million of net proceeds
(50% of $48.8 million) based on the issuance of 5,000,000 shares at the
midpoint of the Valuation Price Range.
Because shares of Conversion Stock may be purchased in the Offerings by Bank
customers using funds on deposit at the Bank, the net amount of funds available
to the Bank following the Offerings will be reduced to the extent that shares
are purchased with funds on deposit. Net proceeds contributed to the Bank will
increase the Bank's capital. The Bank will use the funds contributed to it for
general corporate purposes, including increased
8
<PAGE>
lending, possible purchase of loan participation, and investment in securities
of the type currently held by the Bank. In addition, depending on the level of
market interest rates following consummation of the Conversion, the Bank may
use a portion of the proceeds to retire any outstanding FHLB advances.
A portion of the net proceeds retained by the Company will be used for a loan
by the Company to the Bank's ESOP to fund the ESOP's purchase of shares in the
Offerings. The remaining net proceeds will initially be invested primarily in
U.S. Government and agency securities and other investment securities of the
type currently held by the Bank. Such proceeds will be available for additional
contributions to the Bank in the form of debt or equity, to support future
internal growth of the Bank and the Company, for possible future acquisitions
of financial institutions or branches, as a source of dividends to the
stockholders of the Company, and for future repurchases of Common Stock to the
extent permitted under applicable law and regulations. Currently, as discussed
below under "Use of Proceeds," there are no specific plans, arrangements,
agreements or understandings, written or oral, regarding any such acquisitions
or repurchases.
MARKET FOR COMMON STOCK
The Company has received conditional approval to have the Common Stock listed
on the Nasdaq National Market under the symbol "HFWA." Ryan Beck has agreed to
act as a market maker for the Company's Common Stock following consummation of
the Conversion. No assurance can be given that an active and liquid trading
market for the Common Stock will develop, or, if developed, be maintained.
Further, no assurance can be given that purchasers will be able to sell their
shares at or above the Purchase Price after the Conversion. See "Risk Factors--
Absence of Prior Market for the Common Stock" and "Market for Common Stock."
DIVIDENDS
The Board of Directors of the Company intends to declare cash dividends on
the Common Stock commencing with the first full quarter following consummation
of the Conversion. The first quarterly dividend is expected to be in an amount
that will be equivalent to $0.40, annually, on existing Minority Shares. Based
upon the Valuation Price Range, the Exchange Ratio is expected to be 3.3064,
3.8899, 4.4734 and 5.1444 at the minimum, midpoint, maximum and 15% above the
maximum of the Valuation Price Range, respectively, resulting in an initial
quarterly dividend of $0.030, $0.026, $0.022 and $0.019 per share,
respectively, on the Exchange Shares following consummation of the Conversion.
However, no assurances can be given as to the amount of a dividend or that a
dividend will be paid, or if paid, that the dividend will not be reduced or
eliminated in future periods. See "Dividend Policy," "The Conversion--Effects
of Conversion to Stock Form on Depositors and Borrowers of the Bank" and
"Supervision and Regulation--The Company."
DISSENTERS' RIGHTS
The Plan of Conversion provides that stockholders of the Bank have the right
to dissent from the mergers of the Bank with the MHC and with an interim bank
formed to facilitate the Conversion, with the Bank as the surviving entity in
each merger, and, subject to certain conditions, to receive payment of the
"value" of their shares of Bank Common Stock, as provided in the Washington
Business Corporation Act ("WBCA"), Revised Code of Washington, Chapter 23B.13.
See "The Conversion--The Exchange" and "--Dissenters' Rights."
RISK FACTORS
See "Risk Factors" for a discussion of certain risks that should be
considered by all prospective investors.
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth selected consolidated financial and other data
of the Bank at the dates and for the periods indicated. This information is
derived from and is qualified in its entirety by reference to the detailed
information and Consolidated Financial Statements and Notes thereto presented
elsewhere in this Prospectus.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Net interest income.... $ 6,363 $ 6,788 $ 8,227 $ 8,332 $ 9,512
Provision for loan
losses................ 926 -- -- -- (270)
Noninterest income..... 4,648 4,019 3,040 4,298 3,347
Noninterest
expense(1)............ 6,178 7,421 7,425 8,422 11,105
Federal income tax
expense (benefit)..... 2,061 1,154 1,308 1,435 (245)
Net income............. 1,846 2,232 2,534 2,773 2,269
Earnings per share(2).. N.A. $ 0.35 $ 1.41 $ 1.54 $ 1.26
PERFORMANCE RATIOS:
Net interest
spread(3)............. 3.35% 3.45% 4.14% 3.84% 4.06%
Net interest
margin(4)............. 3.72 3.83 4.57 4.31 4.50
Efficiency ratio(1).... 56.11 68.67 65.90 66.68 77.89
Return on average
assets................ 1.03 1.18 1.30 1.31 0.99
Return on average
equity................ 15.11 13.05 11.67 11.38 8.62
<CAPTION>
AT JUNE 30
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........... $ 179,236 $ 194,102 $ 204,897 $ 222,052 $ 242,164
Loans receivable, net.. 121,356 123,258 150,526 161,744 199,118
Loans held for sale.... 7,435 4,110 5,944 5,286 6,323
Deposits............... 153,266 165,922 174,797 191,119 209,781
FHLB advances.......... -- -- -- -- 890
Other borrowed funds... 7,174 4,100 3,252 -- --
Stockholders' equity... $ 12,863 $ 20,662 $ 23,065 $ 25,633 $ 27,714
Book value per share... N.A. $ 11.48 $ 12.78 $ 14.20 $ 15.31
Equity to assets
ratio................. 7.18% 10.64% 11.26% 11.54% 11.44%
ASSET QUALITY RATIOS:
Nonperforming loans to
loans................. 0.07% 0.07% 0.06% 0.03% 0.06%
Allowance for loan
losses to loans....... 1.27 1.32 1.09 1.11 1.32
Allowance for loan
losses to
nonperforming loans... 1,709.28 1,776.04 1,791.67 3,672.55 2,069.17
Nonperforming assets to
total assets.......... 0.14 0.05 0.05 0.02 0.05
OTHER DATA:
Number of full service
banking offices....... 5 5 7 8 10
Number of full-time
equivalent employees.. 98 119 116 136 145
</TABLE>
- --------
(1) The efficiency ratio is recurring noninterest expense divided by the sum of
net interest income and noninterest income. The Bank paid a one-time
deposit assessment of $1.1 million to the FDIC, Savings Association
Insurance Fund in November 1996 which was excluded from the calculation of
the efficiency ratio for 1997.
(2) The Bank became a stock bank as of January 31, 1994. Per share data prior
to 1994 is not applicable. The earnings per share data for 1994 is
calculated using only the earnings for the five months ended June 30, 1994.
Weighted average number of shares of Bank Common Stock outstanding during
the years ended June 30, 1994, 1995, 1996 and 1997 were 1,800,000
1,800,000, 1,805,166 and 1,807,910, respectively.
(3) Net interest spread is the difference between the average yield on interest
earning assets and the average cost of interest bearing liabilities.
(4) Net interest margin is net interest income divided by average interest
earning assets.
10
<PAGE>
RECENT DEVELOPMENTS
The following table sets forth selected consolidated financial and other data
at the dates and for the periods indicated. The data at September 30, 1997, and
for the three months ended September 30, 1997 and 1996, are unaudited and, in
the opinion of management, contain all adjustments (none of which were other
than normal recurring entries) necessary for a fair presentation of the results
for such unaudited periods. The selected operations data for the three months
ended September 30, 1997 are not necessarily indicative of the results of
operations for the entire fiscal year. This information should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
presented elsewhere in this Prospectus.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS
ENDED SEPTEMBER 30,
--------------------
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
OPERATIONS DATA:
Net interest income.................................... $ 2,213 $ 2,645
Provision for loan losses.............................. -- 30
Noninterest income..................................... 867 893
Noninterest expense.................................... 3,414 2,563
Federal income tax expense (benefit)................... (1,051) 335
Net income............................................. 717 610
Earnings per share..................................... $ 0.40 $ 0.34
PERFORMANCE RATIOS:(1)
Net interest spread(2)................................. 3.83% 4.22%
Net interest margin(3)................................. 4.30% 4.70%
Efficiency ratio(4).................................... 75.49% 72.44%
Return on average assets............................... 1.28% 1.00%
Return on average equity............................... 11.23% 8.87%
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, AT SEPTEMBER 30,
1997 1997
----------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................. $ 242,164 $248,704
Loans receivable, net........................ 199,188 202,028
Loans held for sale.......................... 6,323 5,451
Deposits..................................... 209,781 216,948
FHLB advances................................ 890 --
Other borrowed funds......................... -- --
Stockholders' Equity......................... 27,714 28,324
Book value per share......................... $ 15.31 $ 15.65
Equity to assets ratio....................... 11.44% 11.39%
ASSET QUALITY RATIO:
Nonperforming loans to loans................. 0.06% 0.23%
Allowance for loan losses to loans........... 1.32 1.32
Allowance for loan losses to nonperforming
loans....................................... 2,069.17 564.37
Nonperforming assets to total assets......... 0.05 0.20
OTHER DATA:
Number of full service banking offices....... 10 10
Number of full-time equivalent employees..... 145 145
</TABLE>
- --------
(1) On an annualized basis, except for calculation of the efficiency ratio.
(2) Net interest spread is the difference between the average yield on interest
earning assets and the average cost of interest bearing liabilities.
(3) Net interest margin is net interest income divided by average interest
earning assets.
(4) The efficiency ratio is recurring noninterest expense divided by the sum of
net interest income and noninterest income, excluding nonrecurring items.
The Bank accrued a one-time deposit assessment of $1.1 million to the
Savings Association Insurance Fund in September 1996 which was excluded
from the calculation of the efficiency ratio for the three months ended
September 30, 1996.
11
<PAGE>
NONPERFORMING ASSETS AND DELINQUENCIES
At September 30, 1997, the Bank had $493,000 of loans accounted for on a
nonaccrual basis ($344,000 in single family mortgage loans and $149,000 in an
undeveloped land loan) compared to $133,000 at June 30, 1997. At September 30,
1997 and June 30, 1997, the Bank had no accruing loans which were contractually
past due 90 days or more, no restructured loans and no real estate owned.
The allowance for loan losses was $2.8 million at September 30, 1997 and June
30, 1997. There were no charge-offs and no recoveries for the three months
ended September 30, 1997.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
AND 1996
Net Income. Net income for the three months ended September 30, 1997, was
$610,000, or $0.34 per share, compared to $717,000, or $0.40 per share, for the
three months ended September 30, 1996. During the quarter ended September 30,
1996, based on recent legislation the Bank accrued $1.1 million for a one-time
special assessment by the FDIC on all SAIF-insured institutions to recapitalize
the SAIF deposit insurance fund. The Bank also reversed a $938,000 deferred tax
liability related to the potential recapture of the pre-1988 additions to the
tax bad debt reserve. Excluding the impact of these two nonrecurring items, net
income for the three months ended September 30, 1996, would have been $498,000,
or $0.28 per share. Thus, on a comparable fully taxed basis, net income in the
first quarter of 1997 increased by $112,000, or $0.06 per share. The increase
in net income on such a comparable basis was primarily attributable to an
increase in net interest income partially offset by an increase in noninterest
expense.
Net Interest Income. Net interest income increased $431,000, or 19.5%, to
$2.6 million for the three months ended September 30, 1997, compared to $2.2
million for the three months ended September 30, 1996. The increase was
primarily due to a $19.4 million, or 9.4%, increase in the average balance of
earning assets resulting from a $37.3 million increase in the average balance
of loans and a decline in other interest earning assets.
Net interest margin for the three months ended September 30, 1997 increased
to 4.70% from 4.30% for the same period in 1996. The increase in margin was
attributable to growth in assets and a shift from lower yielding investments,
interest earning deposits and mortgage-backed securities into higher yielding
loans, particularly commercial loans, coupled with a decrease in the average
cost of interest bearing deposits, particularly certificates of deposit.
Provisions for Loan Losses. The provision for loan losses for the three
months ended September 30, 1997 was $30,000. There was no provision for loan
losses during the same period in 1996. The allowance for loan losses at
September 30, 1997 and June 30, 1997 was $2.8 million, or 1.32% of loans. At
September 30, 1997, management deemed the allowance for loan losses adequate to
cover reasonably foreseeable losses in the Bank's loan portfolio.
Noninterest Income. There was no significant change in total noninterest
income in the period ended September 30, 1997, compared with the same period in
1996. In August 1997, the Bank recognized income of $36,000 from a settlement
with a title company concerning a boundary line adjustment at the Bank's
Spanaway branch. Service charges on deposits increased $12,000, or 10.6%, due
to growth in business and personal checking accounts. Gains on sales of loans
decreased $34,000, or 5.9%, due to a lower volume of mortgage loans sold in the
1997 quarter.
Noninterest Expense. Excluding the impact of the $1.1 million one-time SAIF
assessment which the Bank accrued in September 1996, noninterest expense
increased $238,000, or 10.2%, for the three months ended September 30, 1997,
compared with the same period in 1996. The increase was attributable to the
Bank's expansion of its branch network in Pierce County and the continued
development of the Bank's relationship banking capacity. Salaries and employee
benefits increased $157,000, or 11.9%, $81,000 of which resulted from the
hiring of two additional experienced commercial lending officers in Pierce
County and three branch staff for
12
<PAGE>
the two new Pierce County branches (80th and Pacific Branch opened in October
1996 and Pierce County Business Banking Center opened in April 1997). The
remaining increase in salaries and employee benefits was primarily the result
of lower capitalized loan costs during the three months ended September 30,
1997, due to a lower volume of mortgage loans originated. Occupancy expense
increased $49,000, or 13.2%, as a result of the operating costs of the two
Pierce County branch facilities opened after September 1996. FDIC premiums and
special assessments decreased $851,000, or 97.4%, due to the absence of the
nonrecurring $1.1 million special SAIF assessment mentioned above. Excluding
this special assessment, FDIC premiums decreased $78,000, or 71.4%, as the FDIC
reduced the Bank's federal deposit insurance premiums from 0.23% (on an
annualized basis) of insured deposits for the quarter ended September 30, 1996,
to 0.06% of insured deposits for the quarter ended September 30, 1997.
Income Taxes. Provision for federal income taxes was $335,000 for the three
months ended September 30, 1997, compared to a federal income tax benefit of
$1.1 million for the three months ended September 30, 1996. The federal income
tax benefit for the 1996 quarter reflects the reversal of the $938,000 deferred
tax liability mentioned above and the impact of the $1.1 million special SAIF
assessment.
13
<PAGE>
RISK FACTORS
Before investing in shares of the Common Stock offered hereby, prospective
investors should carefully consider the matters presented below, in addition
to matters discussed elsewhere in this Prospectus.
RISKS OF PURSUING GROWTH STRATEGY
The Bank's ability to pursue its growth strategy successfully is
significantly dependent upon generating an increasing volume of loans and
deposits, through internal growth or by acquisitions of banks or branches, at
acceptable risk levels and upon acceptable terms. The Bank has expanded its
loans to $208.2 million at June 30, 1997, from $130.4 million at June 30,
1993, an increase of 59.6%. During that same period, the commercial loan
portfolio increased to $39.4 million from $1.2 million, and the Bank's full
service offices increased to ten from five. Commercial loans generally involve
a higher level of credit risk than do residential loans and many of the
commercial loans, though granted to customers known to officers of the Bank,
are relatively unseasoned since they have been on the books of the Bank for a
short period of time. There can be no assurance that it will not incur
significant credit losses in the future. Heritage Bank is continuing to
emphasize its established mortgage banking business of originating and selling
residential mortgage loans while broadening its products and services to those
more closely related to commercial banking. There can be no assurance of the
Bank's ability to sustain income derived from its mortgage banking business at
recent levels or to increase such income.
Moreover, there can be no assurance that the Bank will be successful in
expanding its asset base and fee income to a level acceptable to management
and in managing the costs and implementation risks associated with its growth
strategy, identifying and acquiring attractive banks or branches on terms
favorable to the Bank, integrating such acquisitions, or preventing deposit
erosion at acquired institutions or branches. Acquisitions and branching by
the Company or the Bank will also be subject to regulatory approvals and there
can be no assurance that the Company or the Bank will succeed in securing such
approvals. The Bank's ability to pursue its growth strategy also may be
adversely affected by general economic conditions. See "Business of the Bank--
General" and "--Competition."
IMPORTANCE OF MORTGAGE BANKING OPERATIONS
Mortgage banking activities significantly influence the Bank's results of
operations. The Bank's mortgage banking operations involve the origination and
sale of mortgage loans primarily for the purpose of generating income. The
profitability of mortgage banking operations depends primarily on managing the
volume of loan originations and sales and the expenses associated with loan
originations so that gains on the sale of loans together with any recurring
fee income exceeds the costs of this activity. Changes in the level of
interest rates and the condition of the local and national economies affect
the amount of loans originated by the Bank and demanded by investors to whom
the loans are sold. Generally, the Bank's loan origination and sale activity
and, therefore, its results of operations, may be adversely affected by an
increasing interest rate environment to the extent such environment results in
decreased loan demand by borrowers and/or investors. Accordingly, the volume
of loan originations and the profitability of this activity can vary
significantly from period to period. During the years ended June 30, 1996 and
1997, the Bank's single family mortgage originations totaled $140.1 million
and $104.2 million, respectively. In addition, the Bank's results of
operations are affected by the amount of noninterest expenses associated with
mortgage banking activities, such as compensation and benefits, occupancy and
equipment expenses, and other operating expenses. During periods of reduced
loan demand, the Bank's results of operations may be adversely affected to the
extent that it is unable to reduce expenses commensurate with the decline in
loan originations. During the years ended June 30, 1996 and 1997, the Bank's
net gains on sales of loans were $3.0 million and $2.0 million, respectively.
In comparison, the Bank's pre-tax income for these periods was $4.2 million
and $2.0 million, respectively.
HIGH OVERHEAD EXPENSES
Competition in the banking industry has led many banks to focus on expense
reduction as a method of increasing stockholder returns. The Bank, however,
has embarked on a growth strategy as a method of increasing
14
<PAGE>
profitability. That strategy has involved incurring substantial expenses
concentrated in: (i) personnel hired in anticipation of growth and expanded
market share; (ii) maintaining the Bank's mortgage origination capacity while
mortgage origination volumes have fluctuated; (iii) facilities expansion; and
(iv) upgrading of data processing capabilities. As a result of pursuing its
growth strategy and emphasis on personal service, the Bank's expense ratios
are higher than those of many similarly sized banking companies. At June 30,
1997, the Bank's efficiency ratio was 77.89%, and there can be no assurance
that it will decline to the levels of certain of the Bank's more efficient
competitors, many of whom are following strategies different from those of the
Bank. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Failure by the Bank to improve its efficiency ratio
over time could adversely affect the value of the Common Stock.
EXPANSION OF NONRESIDENTIAL LENDING
The Bank has changed the relative concentration of its loan portfolio in
recent years. One- to four-family permanent residential loans decreased to
49.68% of total loans at June 30, 1997 from 56.29% of total loans at June 30,
1993. During that same time commercial business loans increased to 18.95% of
total loans from 0.92% of total loans. At June 30, 1997, $104.8 million, or
50.3%, of the Bank's total loan portfolio consisted of loans other than one-
to four-family permanent residential loans. Included among these other loans
are multi-family and commercial real estate, construction, commercial and
consumer loans. Although such loans typically have higher yields than one- to
four-family residential loans, such loans are typically more sensitive to
economic conditions, involve higher concentrations of investment in a single
borrower or project (with the exception of consumer loans) are more difficult
to monitor and carry a higher level of credit risk than do permanent
residential loans. There can be no assurance that the Bank's attempt to
address these risks by utilizing conservative underwriting procedures,
requiring real estate as collateral for most commercial business loans, and
limiting its out-of-area loans and its multi-family and commercial
construction loans will be successful. See "Business of the Bank--Lending
Activities."
POTENTIAL ADVERSE IMPACT OF CHANGES IN INTEREST RATES
The financial condition and operations of the Bank, and of financial
institutions in general, are influenced significantly by general economic
conditions, by the related monetary and fiscal policies of the federal
government and by the regulations of the Division and the FDIC. Deposit flows
and the cost of funds are influenced by interest rates of competing
investments and general market rates of interest. Lending activities are
affected by the demand for mortgage financing and for consumer and other types
of loans, which in turn is affected by the interest rates at which such
financing may be offered and by other factors affecting the supply of housing
and the availability of funds. The Bank's profitability is dependent to a
large extent on its net interest income, which is the difference between the
interest income received from its interest earning assets and the interest
expense incurred in connection with its interest bearing liabilities. The Bank
is vulnerable to an increase in interest rates to the extent that its interest
earning assets have longer effective maturities than its interest bearing
liabilities. Under such circumstances, material and prolonged increases in
interest rates generally would adversely affect net interest income, while
material and prolonged decreases in interest rates generally would have a
favorable effect on net interest income. See "Management's Discussion and
Analysis of Financial Condition and Result of Operations--Asset/Liability
Management."
Changes in the level of interest rates also affect the amount of other loans
originated by the Bank and, thus, the amount of loan and commitment fees, as
well as the value of the Bank's investment securities and other interest
earning assets. Decreases in rates may result in borrower prepayments,
subjecting the Bank to reinvestment risk. Moreover, volatility in interest
rates also can result in disintermediation, or the flow of funds away from
savings institutions into direct investments, such as U.S. Government and
corporate securities and other investment vehicles which, because of the
absence of federal insurance premiums and reserve requirements, generally pay
higher rates of return than insured savings institutions.
15
<PAGE>
COMPETITION
The Bank's strategy involves the significant expansion of the Bank
throughout its principal market areas in the South Puget Sound region of
Washington. During the past several years, substantial consolidation among
financial institutions in Washington has occurred. The Bank anticipates a
continuation of the consolidation trend in Washington. Many other financial
institutions, most of which have greater resources than the Bank, compete with
the Bank for banking business in the Bank's market area. Among the advantages
of some of these institutions are their superior technological resources, and
their ability to make larger loans, finance extensive advertising campaigns,
access international money markets and allocate their investment assets to
regions of highest yield and demand. The Bank does not have a significant
market share of the deposit-taking or lending activities in the areas in which
it conducts operations. There can be no assurance that the Bank will be able
to compete effectively in this competitive environment in the future. The Bank
also faces deposit competition from securities firms, mortgage bankers,
insurance companies and other investment vehicles such as mutual funds. See
"Business of the Bank--Competition."
ANTI-TAKEOVER PROVISIONS
Provisions in the Company's Governing Instruments and Washington
Law. Certain provisions included in the Company's Articles of Incorporation
and in the Washington Business Corporation Act will assist the Company in
maintaining its independence as a separate, publicly owned corporation. These
provisions may discourage potential takeover attempts, particularly those
which have not been negotiated with the Board of Directors. As a result, these
provisions may preclude takeover attempts which certain stockholders may deem
to be in their interest and perpetuate existing management. These provisions
include, among other things, a provision limiting voting rights of beneficial
owners of more than 10% of the Common Stock. In addition, the Articles of
Incorporation provide for the election of directors to staggered terms of
three years and for their removal without cause only upon the vote of holders
of 66 2/3% of the outstanding voting shares and provisions for approval of
certain business combinations. The Articles of Incorporation also contain
provisions regarding the timing and content of stockholder proposals and
nominations. Certain provisions of the Articles of Incorporation of the
Company cannot be amended by stockholders unless an 66 2/3% stockholder vote
is obtained. The Board of Directors believes that these provisions are in the
best interest of the Company and its stockholders.
Policy of Independence. Potential investors should not invest with the
expectation that the Company or the Bank may be merged into or its assets sold
to another company in the foreseeable future. The Board of Directors of the
Company believes it is in the long-term best interest of the Company and its
stockholders to remain independent and the Board has adopted a statement of
policy that the Company intends to remain independent for the foreseeable
future. See "Restrictions on Acquisition of the Company and the Bank."
GEOGRAPHIC CONCENTRATION
Substantially all of the Bank's loans are collateralized by real estate
located in the Puget Sound region of Washington. The Bank's growth and
profitability are dependent upon economic conditions in the region.
Unfavorable changes in economic conditions affecting the region, such as in
the aerospace, natural resources or software industries, or significant
decline in foreign trade or in the large military base presence in the area
may have an adverse impact on the risk of loss associated with the loan
portfolio and on operations of the Company in general.
VOTING POWER OF DIRECTORS AND EXECUTIVE OFFICERS
Directors and executive officers of the Company (11 persons), at June 30,
1997, beneficially owned 159,103 shares (including 33,216 unexercised stock
options exercisable within 60 days under the existing 1994 and 1997 Stock
Option Plans), or 8.6%, of the outstanding Bank Common Stock on a fully
diluted basis. Based on their anticipated purchases of Conversion Stock at the
midpoint of the Valuation Price Range, they expect to hold approximately
576,682 shares, or 7.8%, of the shares of Common Stock outstanding upon
consummation of the Conversion (excluding 129,206 unexercised stock options
exercisable within 60 days). See "Conversion Stock
16
<PAGE>
to be Purchased by Management Pursuant to Subscription Rights" and
"Management--Beneficial Ownership of Bank Common Stock."
Directors and officers are also expected to control the voting of
approximately 2% of the shares of Common Stock issued in the Conversion
through the ESOP. Under the terms of the ESOP, the unallocated shares will be
voted by the ESOP trustees in the same proportion as the votes cast by
participants with respect to the allocated shares. At a meeting of
stockholders to be held no earlier than six months following the consummation
of the Conversion, the Company intends to seek stockholder approval of the
Company's MRP. Assuming the receipt of stockholder approval, the Company
expects to acquire Common Stock on behalf of the MRP in an amount equal to 1%
of the Conversion Stock, or 57,500 shares at the maximum of the Valuation
Price Range. These shares will be acquired either through open market
purchases or from authorized but unissued Common Stock. Under the terms of the
MRP, the MRP committee or the MRP trustees will have the power to vote
unallocated and unvested shares in the same proportion as they receive
instructions from recipients with respect to allocated shares which have not
been earned and distributed. The trustees will not vote allocated shares which
have not been distributed if they do not receive instructions from the
recipient. The Company intends to reserve for future issuance pursuant to the
1998 Stock Option Plan a number of authorized shares of Common Stock equal to
up to 10% of the Conversion Stock issued in the Conversion (575,000 shares at
the maximum of the Valuation Price Range) and to seek stockholder approval of
the 1998 Stock Option Plan at a meeting of stockholders to be held no earlier
than six months following consummation of the Conversion. Consequently,
assuming (1) the receipt of stockholder approval for the MRP and the 1998
Stock Option Plan, (ii) the open market purchase of shares on behalf of the
MRP, (iii) the purchase by the ESOP of 2% of the Conversion Stock sold in the
Offerings, and (iv) the exercise of stock options equal to 10% of the number
of shares of Common Stock issued in the Conversion, directors, officers and
employees of the Holding Company and the Bank would have voting control on a
fully diluted basis of 21.5% of the Common Stock, based on the issuance of the
maximum of the Valuation Price Range. Management's potential voting control
could, together with additional stockholder support, preclude or make more
difficult takeover attempts that certain stockholders deem to be in their best
interest and may tend to perpetuate existing management.
NEW EXPENSES ASSOCIATED WITH ESOP AND MRP
The Company will recognize additional material employee compensation and
benefit expenses as a result of the ESOP's purchase of Conversion Stock in the
Offerings and the expected subsequent implementation of the MRP. The actual
aggregate amount of these new expenses cannot be currently predicted because
applicable accounting practices require that they be based on the fair market
value of the shares of Common Stock when the expenses are recognized, which
would occur when shares are committed to be released in the case of the ESOP
and over the vesting period of awards made to recipients in the case of the
MRP. These expenses have been reflected in the pro forma financial information
under "Pro Forma Data" assuming the Purchase Price ($10.00 per share) as fair
market value. Actual expenses, however, will be based on the fair market value
of the Common Stock at the time of recognition, which may be higher or lower
than the Purchase Price.
EXPECTED LOWER RETURN ON EQUITY AFTER THE CONVERSION
As a result of the Conversion, stockholders' equity will be substantially
increased. The increase in equity is likely to adversely affect the Company's
ability to maintain a return on average equity (net income divided by average
stockholders' equity) at historical levels, absent a corresponding increase in
net income. There can be no assurance that the Company will be able to
increase net income in future periods in amounts commensurate with the
increase in equity resulting from the Conversion. "Management--Benefits--
Employee Stock Ownership Plan" and "--Management Recognition Plan."
POSSIBLE DILUTIVE EFFECTS OF BENEFIT PLANS
Subject to stockholder approval, the MRP intends to acquire an amount of
Common Stock of the Company up to 1% of the shares issued in the Conversion.
Such shares of Common Stock of the Company may be acquired
17
<PAGE>
by the Company in the open market or from authorized but unissued shares of
Common Stock of the Company. In the event that the MRP acquires authorized but
unissued shares of Common Stock from the Company, the voting interests of
existing stockholders will be diluted and net income per share and
stockholders' equity per share will be decreased. See "Pro Forma Data" and
"Management--Benefits--Management Recognition Plan."
The 1998 Stock Option Plan, if approved by stockholders, will provide for
options for up to a number of shares of Common Stock of the Company equal to
up to 10% of the shares issued in the Conversion. Such shares will likely be
authorized but unissued shares of Common Stock of the Company; therefore, upon
exercise of the options will result in the dilution of the voting interests of
existing stockholders and will decrease net income per share and stockholders'
equity per share. See "Management--Benefits--1998 Stock Option Plan."
If the ESOP is unable to purchase 2% of the Conversion Stock in the
Offerings due to oversubscription by Eligible Account Holders, it may acquire
authorized but unissued shares of Common Stock, which would reduce the voting
interests of stockholders and would decrease net income per share and
stockholders' equity per share.
ABSENCE OF PRIOR MARKET FOR THE COMMON STOCK
The Company has not previously issued capital stock and, consequently, there
is no existing market for the Common Stock. The Company has received
conditional approval to list the Common Stock on the Nasdaq National Market
under the symbol "HFWA." One of the requirements for initial quotation of the
Common Stock is the presence of three market makers. Ryan Beck has advised the
Company that it intends to make a market in the Common Stock following the
completion of the Conversion so long as the volume of trading activity and
certain other market-making considerations justify it doing so. While the
Company anticipates that it will be able to obtain the commitment from at
least two other broker-dealers to act as market makers for the Common Stock,
there can be no assurance there will be three or more market makers for the
Common Stock. Making a market involves maintaining bid and ask quotations and
being able, as principal, to effect transactions in reasonable quantities at
those prices, subject to securities laws and regulatory constraints.
Additionally, the development of a liquid public market depends on the
existence of willing buyers and sellers, the presence of which is not within
the control of the Company, the Bank or any market maker. The number of active
buyers and sellers of the Common Stock at any particular time may be limited.
Under such circumstances, investors in the Common Stock could have difficulty
disposing of their shares on short notice. Investors should not view the
Common Stock as a short term investment. There can be no assurance that an
active and liquid trading market for the Common Stock will develop or that, if
developed, it will continue, nor is there any assurance that persons
purchasing shares or receiving Exchange Shares will be able to sell them at or
above the Purchase Price. See "Market for Common Stock."
POSSIBLE INCREASE IN VALUATION PRICE RANGE AND NUMBER OF SHARES ISSUED
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Valuation Price Range of up to 15% to reflect
regulatory considerations and changes in market and financial conditions
following the commencement of the Offerings. In the event that the Valuation
Price Range is so increased, it is expected that the Company will issue up to
6,612,500 shares of Common Stock at the Purchase Price for an aggregate price
of up to $66,125,000. An increase in the number of shares will decrease a
subscriber's proportionate share of the pro forma net income per share and
stockholders' equity per share and will increase the Company's pro forma
consolidated stockholders' equity and net income. Such an increase will also
increase the Purchase Price as a percentage of pro forma stockholders' equity
per share and net income per share. See "Pro Forma Data."
RISK OF DELAYED OFFERING
It is possible that there could be a significant delay in the completion of
the Conversion as a result of delays in receiving approval of or non objection
from a necessary regulatory authority, receiving member or stockholder
18
<PAGE>
approval or completing the Offerings. If the Conversion is not completed by
(45 days after the last day of the fully extended Subscription
Offering) and the Division consents to an extension of time to complete the
Conversion, subscribers will be given the right to modify or rescind their
subscriptions. In such event, unless an affirmative indication is received
from subscribers that they wish to continue to subscribe for shares, their
funds will be returned promptly, together with interest at the Bank's passbook
rate, or their withdrawal authorizations will be terminated.
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS
If the subscription rights granted to Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members are deemed to have an ascertainable
value, receipt of such rights may result in a taxable gain (either as capital
gain or ordinary income) to those Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members who receive and/or exercise the
subscription rights, in an amount equal to such value. Additionally, the Bank
could be required to recognize a gain for tax purposes on such distribution.
Whether subscription rights are considered to have ascertainable value is an
inherently factual determination. The Bank has been advised by RP Financial
that such rights have no value, however, RP Financial's conclusion is not
binding on the Internal Revenue Service ("IRS"). See "The Conversion--Effects
of Conversion to Stock Form on Depositors and Borrowers of the Bank--Tax
Effects."
19
<PAGE>
USE OF PROCEEDS
Depending upon the number of shares sold and the expenses of the Conversion,
net proceeds from the sale of the Conversion Stock are estimated to range from
$41.4 million to $56.2 million (or $64.7 million if the Valuation Price Range
is increased by 15%). See "Pro Forma Data." The Company plans to contribute to
the Bank 50% of the net proceeds and retain the remaining net proceeds. This
would result in the Company retaining approximately $24.4 million of net
proceeds (50% of $48.8 million) based on the issuance of 5,000,000 shares at
the midpoint of the Valuation Price Range.
Receipt of the net proceeds of the sale of the Conversion Stock will
increase the Bank's capital. The Bank will use the funds contributed to it for
general corporate purposes, including increased lending, possible purchase of
loan participations or investment in U.S. Government or agency securities and
mortgage backed securities of the type currently held by the Bank. In
addition, depending on the level of market interest rates following
consummation of the Conversion, the Bank may use a portion of the proceeds to
retire any outstanding FHLB advances.
In connection with the Conversion and the establishment of the ESOP, the
Company intends to loan the ESOP the amount necessary for it to acquire 2% of
the shares issued in the Conversion. The Company's loan to fund the ESOP may
range from $850,000 to $1,000,000 to $1,150,000 based on the sale of 4,250,000
shares (at the minimum of the Valuation Price Range), 5,000,000 shares (at the
midpoint of the Valuation Price Range), and 5,750,000 shares (at the maximum
of the Valuation Price Range), respectively, at $10.00 per share. If 15% above
the maximum of the Valuation Price Range, or 6,612,500 shares, are sold in the
Conversion, the Company's loan to the ESOP would be approximately $1,323,000.
The remaining net proceeds retained by the Company initially will be
invested primarily in investment securities of the type currently held by the
Bank. Such proceeds will be available for additional contributions to the Bank
in the form of debt or equity, to support future acquisition and
diversification activities, as a source of dividends to the stockholders of
the Company and for future repurchases of Common Stock to the extent permitted
under applicable law and regulations. Currently, there are no specific plans,
arrangements, agreements or understandings, written or oral, regarding any
diversification or acquisition activities. The Conversion will also facilitate
the Company's access to the capital markets.
Upon completion of the Conversion, the Board of Directors will have the
authority to adopt stock repurchase plans, subject to statutory and regulatory
requirements. Since the Company has not yet issued stock, there is currently
insufficient information upon which an intention to repurchase stock could be
based. The facts and circumstances upon which the Board of Directors may
determine to repurchase stock in the future may include but are not limited
to: (i) market and economic factors such as the price at which the stock is
trading in the market, the volume of trading, the attractiveness of other
investment alternatives in terms of the rate of return and risk involved in
the investment, the ability to increase the book value and/or earnings per
share of the remaining outstanding shares, and an improvement in the Company's
return on equity; (ii) the avoidance of dilution to stockholders by not having
to issue additional shares to cover the exercise of stock options or to fund
employee stock benefit plans; (iii) the ability of the Company to utilize
pooling of interests accounting treatment in connection with future mergers
and acquisitions; and (iv) any other circumstances in which repurchases would
be in the best interests of the Company and its stockholders. Any stock
repurchases will be subject to a determination by the Board of Directors that
both the Company and the Bank will be capitalized in excess of all applicable
regulatory requirements after any such repurchases and that capital will be
adequate taking into account, among other things, the level of nonperforming
and other risk assets, the Company's and the Bank's current and projected
results of operations and asset/liability structure, the economic environment
and tax and other regulatory considerations.
20
<PAGE>
DIVIDEND POLICY
GENERAL
The Board of Directors of the Company intends to declare cash dividends on
the Common Stock commencing with the first full quarter following consummation
of the Conversion. The first quarterly dividend is expected to be in an amount
that will be equivalent to $0.40, annually, on existing Minority Shares. Based
upon the Valuation Price Range, the Exchange Ratio is expected to be 3.3064,
3.8899, 4.4734 and 5.1444 at the minimum, midpoint, maximum and 15% above the
maximum of the Valuation Price Range, respectively, resulting in an initial
quarterly dividend of $0.030, $0.026, $0.022 and $0.019 per share,
respectively, on the Exchange Shares following consummation of the Conversion.
In addition, the Board of Directors may determine to pay periodic special cash
or stock dividends in addition to, or in lieu of, regular cash dividends.
Declarations or payments of any future dividends (regular and special) will be
subject to determination by the Company's Board of Directors, which will take
into account the amount of the net proceeds retained by the Company, the
Company's financial condition, results of operations, tax considerations,
capital requirements, industry standards, economic conditions and other
factors, including the regulatory restrictions that affect the payment of
dividends by the Bank to the Company discussed below. Under Washington law,
the Company is prohibited from paying a dividend if, as a result of its
payment, the Company would be unable to pay its debts as they became due in
the normal course of business, or if the Company's total liabilities would
exceed its total assets. In order to pay such cash dividends, however, the
Company must have available cash either from the net proceeds raised in the
Offerings and retained by the Company, dividends received from the Bank or
earnings on Company assets. No assurances can be given that any dividends,
either regular or special, will be declared or, if declared, what the amount
of dividends will be or whether such dividends, if commenced, will continue.
CURRENT REGULATORY RESTRICTIONS
Dividends from the Company will depend, in part, upon receipt of dividends
from the Bank because the Company initially will have no source of income
other than dividends from the Bank and earnings from the investment of the net
proceeds from the Conversion retained by the Company. The Division has the
authority under its supervisory powers to prohibit the payment of dividends by
the Bank to the Company. For a period of ten years after the Conversion, the
Bank may not, without prior approval of the Division, declare or pay a cash
dividend in an amount in excess of one-half of (i) the greater of the Bank's
net income for the current fiscal year or (ii) the average of the Bank's net
income for the current fiscal year and not more than two of the immediately
preceding fiscal years. In addition, the Bank may not declare or pay a cash
dividend on its capital stock if the effect thereof would be to reduce the net
worth of the Bank below the amount required for the liquidation account to be
established pursuant to the Plan of Conversion. See "Supervision and
Regulation--Banking Subsidiary" and "The Conversion--Effects of Conversion to
Stock Form on Depositors and Borrowers of the Bank--Liquidation Account."
TAX CONSIDERATIONS
In addition to the foregoing, earnings of the Bank appropriated to bad debt
reserves and deducted for federal income tax purposes cannot be used by the
Bank to pay cash dividends to the Company without the payment of federal
income taxes by the Bank at the then current income tax rate on the amount
deemed distributed, which would include the amount of any federal income taxes
attributable to the distribution. See "Business of the Bank--Federal Taxation"
and Note 10 of Notes to the Consolidated Financial Statements included
elsewhere herein. The Company does not contemplate any distribution by the
Bank that would result in a recapture of the Bank's bad debt reserve or create
the above-mentioned federal tax liabilities.
21
<PAGE>
MARKET FOR COMMON STOCK
The Company has not previously issued capital stock, and, consequently,
there is no established market for the Common Stock. The Board of Directors of
the Company and the Bank determined that the Common Stock would be sold at
$10.00 per share. The Company has received conditional approval to have its
Common Stock quoted on the Nasdaq National Market under the symbol "HFWA" upon
completion of the Conversion. One of the requirements for initial quotation of
the Common Stock on the Nasdaq National Market is that there be at least three
market makers for the Common Stock. Making a market involves maintaining bid
and ask quotations and being able, as principal, to effect transactions in
reasonable quantities at those quoted prices, subject to various securities
laws and other regulatory requirements. Ryan Beck has advised the Company that
it intends to make a market in the Common Stock following the completion of
the Conversion, subject to compliance with applicable laws and regulations.
While the Company anticipates that prior to the completion of the Conversion
it will be able to obtain the commitment from at least two other broker-
dealers to act as market makers for the Common Stock, there can be no
assurance there will be three or more market makers for the Common Stock.
Additionally, the development of a liquid public market depends on the
existence of willing buyers and sellers, the presence of which is not within
the control of the Company, the Bank or any market maker. The number of active
buyers and sellers of the Common Stock at any particular time may be limited.
Under such circumstances, investors in the Common Stock could have difficulty
disposing of their shares on short notice. Investors should not view the
Common Stock as a short term investment. There can be no assurance that an
active and liquid trading market for the Common Stock will develop or that, if
developed, it will continue, nor is there any assurance that persons
purchasing shares will be able to sell them at or above the Purchase Price or
that quotations will be available on the Nasdaq National Market as
contemplated.
22
<PAGE>
CAPITALIZATION
The following table presents the historical consolidated capitalization of
the Bank at June 30, 1997, and the pro forma consolidated capitalization of
the Company after giving effect to the assumptions set forth under "Pro Forma
Data," based on the sale of the number of shares of Conversion Stock set forth
below in the Conversion at the minimum, midpoint, maximum and 15% above the
maximum of the Valuation Price Range.
<TABLE>
<CAPTION>
COMPANY PRO FORMA CONSOLIDATED CAPITALIZATION
BASED UPON THE SALE OF
----------------------------------------------------------
MAXIMUM AS
MINIMUM MIDPOINT MAXIMUM ADJUSTED
4,250,000 5,000,000 5,750,000 6,612,500
SHARES AT SHARES AT SHARES AT SHARES AT
PURCHASE PURCHASE PURCHASE PURCHASE
CAPITALIZATION PRICE OF PRICE OF PRICE OF PRICE OF
AS OF JUNE 30, $10.00 $10.00 $10.00 $10.00 PER
1997 PER SHARE PER SHARE PER SHARE SHARE(1)
-------------- --------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposits(2)............. $209,781 $209,781 $209,781 $209,781 $209,781
Borrowings:
FHLB advances.......... 890 890 890 890 890
-------- -------- -------- -------- --------
Total deposits and
borrowings............ $210,671 $210,671 $210,671 $210,671 $210,671
======== ======== ======== ======== ========
Stockholders' equity:(3)
Preferred stock (no par
value per share);
2,500,000 shares
authorized; none
outstanding(4)........ -- -- -- -- --
Common Stock (no par
value per share);
15,000,000 shares
authorized(5)......... 1,810 -- -- -- --
Additional paid-in
capital............... 4,103 47,343 54,733 62,123 70,621
Retained earnings...... 21,801 21,921 21,921 21,921 21,921
Less:
Common Stock acquired
by ESOP(6)........... -- (850) (1,000) (1,150) (1,323)
Common Stock acquired
by MRP(6)............ -- (425) (500) (575) (661)
-------- -------- -------- -------- --------
Total stockholders'
equity................. $ 27,714 $ 67,989 $ 75,154 $ 82,319 $ 90,558
======== ======== ======== ======== ========
</TABLE>
- -------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Valuation Price Range of up to 15%
to reflect regulatory considerations and changes in market and financial
conditions following the commencement of the Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Conversion Stock in the Offerings. Such withdrawals would reduce pro
forma deposits by the amount of such withdrawals.
(3) Assumes (i) that the 609,616 Minority Shares outstanding at June 30, 1997
are converted into 2,015,664, 2,371,369, 2,727,075 and 3,136,136 Exchange
Shares at the minimum, midpoint, maximum and 15% above the maximum of the
Valuation Price Range, respectively, and (ii) that no fractional shares
of Exchange shares will be issued by the Company. Pro forma retained
earnings include $120,000 of assets held by the MHC.
(4) The Bank has 5,000,000 shares of Preferred Stock authorized, $1.00 par
value per share, none of which are outstanding. The Company has 2,500,000
shares of Preferred Stock authorized, no par value per share, none of
which are outstanding or will be outstanding after the completion of the
Conversion.
(5) The Bank has 10,000,000 shares of Common Stock authorized, $1.00 par
value per share, of which 1,809,616 were outstanding as of June 30, 1997.
The Company has 15,000,000 shares of Common Stock authorized, no par
value per share.
(6) Assumes that 2% and 1% of the shares sold in the Offerings will be
purchased by the ESOP and MRP, respectively. No shares actually will be
purchased by the MRP in the Offerings. Such purchases by the MRP would
occur only upon receipt of stockholder approval which is expected no
earlier than six months after completion of the Conversion. A purchase by
the MRP in the Offerings has been included on a pro forma basis to give
an indication of its effect on capitalization. The pro forma presentation
does not show the impact of (a) results of operations after the
Conversion, (b) changing market prices of shares of Common Stock after
the Conversion, (c) a smaller than 1% purchase by the MRP, or (d) the
purchase by the MRP or ESOP of Common Stock out of authorized but
unissued shares. Assumes that the funds used to acquire the ESOP shares
will be borrowed from the Company for a 15 year term at the prime rate.
For an estimate of the impact of the loan on earnings, see "Pro Forma
Data." If the ESOP obtained a loan from a third party, other borrowings
would increase by the amount of Common Stock acquired by the ESOP. The
Bank intends to make contributions to the ESOP sufficient to service and
ultimately retire its debt. The amount to be acquired by the ESOP and MRP
is reflected as a reduction of stockholders' equity. There can be no
assurance that stockholder approval of the MRP will be obtained. See
"Management--Benefits--Employee Stock Ownership Plan" and "--Management
Recognition Plan".
23
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following table presents the Bank's historical and pro forma capital
position relative to its capital requirements at June 30, 1997. The amount of
capital infused into the Bank for purposes of the following table is 50% of
the net proceeds of the Offerings, plus the $120,000 of MHC assets, less the
ESOP and MRP deductions. For purpose of the table below, the amount expected
to be borrowed by the ESOP and the cost of the shares expected to be acquired
by the MRP are deducted from pro forma regulatory capital. For a discussion of
the assumptions underlying the pro forma capital calculations presented below,
see "Use of Proceeds," "Capitalization" and "Pro Forma Data." The definitions
of the terms used in the table are those provided in the applicable
regulations.
<TABLE>
<CAPTION>
PRO FORMA AT JUNE 30, 1997
-----------------------------------------------------------------------------------
MINIMUM OF MIDPOINT OF MAXIMUM OF 15% OF MAXIMUM OF
VALUATION PRICE VALUATION PRICE VALUATION PRICE VALUATION PRICE
RANGE RANGE RANGE RANGE
------------------- ----------------------- ------------------- -------------------
4,250,000 SHARES AT 5,000,000 SHARES AT 5,750,000 SHARES AT 6,612,500 SHARES AT
PURCHASE PRICE OF PURCHASE PRICE OF PURCHASE PRICE OF PURCHASE PRICE OF
JUNE 30, 1997 $10.00 PER SHARE $10.00 PER SHARE $10.00 PER SHARE $10.00 PER SHARE
------------------ ------------------ ----------------------- ------------------- -------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED
TOTAL TOTAL TOTAL TOTAL TOTAL
AMOUNT ASSETS(1) AMOUNT ASSETS(1) AMOUNT ASSETS(1) AMOUNT ASSETS(1) AMOUNT ASSETS(1)
------- ---------- ------- ---------- ----------- ------------- ------ ---------- ------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 (leverage)
capital............ $27,714 11.68% $47,274 18.35% 50,744 19.43% 54,214 20.47% 58.204 21.64%
Tier 1 (leverage)
capital
requirement(2)..... 7,118 3.00 7,728 3.00 7,837 3.00 7,945 3.00 8.070 3.00
------- ----- ------- ----- ----------- ---------- ------ ----- ------ -----
Excess.............. $20,596 8.68% 39,546 15.35 42,907 16.43 46,269 17.47 50,134 18.64%
======= ===== ======= ===== =========== ========== ====== ===== ====== =====
Tier 1 risk based
capital............ $27,714 15.65% 47,274 26.09 50,744 27.89 54,214 29.68 58,204 31.72%
Tier 1 risk based
capital
requirement........ 7,085 4.00 7,249 4.00 7,278 4.00 7,307 4.00 7,340 4.00
------- ----- ------- ----- ----------- ---------- ------ ----- ------ -----
Excess.............. $20,629 11.65% 40,025 22.09 43,466 23.89 46,907 25.68 50,864 27.72%
======= ===== ======= ===== =========== ========== ====== ===== ====== =====
Total risk based
capital............ $29,935 16.90% 49,539 27.34 53,018 29.14 56,497 30.93 60,498 32.97%
Total risk based
capital
requirement........ 14,171 8.00 14,497 8.00 14,555 8.00 14,613 8.00 14,680 8.00
------- ----- ------- ----- ----------- ---------- ------ ----- ------ -----
Excess.............. $15,764 8.90% 35,042 19.34 38,463 21.14 41,884 22.93 45,818 24.97%
======= ===== ======= ===== =========== ========== ====== ===== ====== =====
</TABLE>
- -------
(1) For the risk-based capital calculations, the portion of the net proceeds
contributed to the Bank (after ESOP and MRP deductions) were assumed to
be invested in U.S. Government Agency debt securities with a weighted
average risk-weighing of 20%.
(2) As a Washington state chartered savings bank, the Bank is subject to the
capital requirements of the FDIC and the Division. The FDIC requires
state-chartered banks, including the Bank, to have a minimum leverage
ratio of Tier 1 capital to total assets of at least 3%, provided,
however, that all institutions, other than those (i) receiving the
highest rating during the examination process and (ii) not anticipating
any significant growth, are required to maintain a ratio of 1% to 2%
above the stated minimum, with an absolute total capital to risk-weighted
assets of at least 8%. The Bank has not been notified by the FDIC of any
leverage capital requirement specifically applicable to it. However, for
the purposes of this table, the Bank has assumed that its leverage
capital requirement is 3% of total average assets.
24
<PAGE>
CONVERSION STOCK TO BE PURCHASED BY MANAGEMENT PURSUANT TO
SUBSCRIPTION RIGHTS
The following table sets forth, for each director and executive officer and
for all of the directors and executive officers as a group, (i) Exchange
Shares to be held upon consummation of the Conversion based upon their
beneficial ownership of Bank Common Stock (excluding options) as of June 30,
1997, (ii) proposed purchase of Conversion Stock, assuming shares are
available to satisfy their subscriptions, and (iii) total shares of Common
Stock to be held upon consummation of the Conversion, in each case assuming
that the Conversion Stock is sold at the midpoint of the Valuation Price
Range. No individual has entered into a binding agreement with respect to such
intended purchases, and, therefore, actual purchases could be more or less
than indicated below. Directors and executive officers and their associates
may not purchase in excess of 20% of the shares sold in the Conversion.
Directors, officers and employees will pay the Purchase Price ($10.00 per
share) for each share for which they subscribe.
<TABLE>
<CAPTION>
PROPOSED PURCHASE
OF CONVERSION TOTAL COMMON STOCK
NUMBER OF STOCK TO BE HELD
EXCHANGE ------------------ ------------------
SHARES TO NUMBER NUMBER
BE HELD OF OF PERCENTAGE
(1)(2) AMOUNT SHARES SHARES OF TOTAL
--------- -------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
Donald V. Rhodes
Director, Chairman of the
Board, President and Chief
Executive Officer of the
Company; Chairman of the
Board and President of the
Bank......................... 108,061 $250,000 25,000 133,061 1.81%
Lynn M. Brunton
Director..................... 58,348 50,000 5,000 63,348 0.86
John A. Clees
Director..................... 46,678 40,000 4,000 50,678 0.69
Daryl D. Jensen
Director..................... 70,018 50,000 5,000 75,018 1.02
H. Edward Odegard
Director..................... 58,348 25,000 2,500 60,848 0.83
James P. Senna
Director..................... 38,899 75,000 7,500 46,399 0.63
Philip S. Weigand
Director..................... 68,431 50,000 5,000 73,431 1.00
John D. Parry
Executive Vice President--
Administration............... 12,447 70,000 7,000 19,447 0.26
Brian L. Vance
Executive Vice President--
Loan Administration.......... 7,779 150,000 15,000 22,779 0.31
James Hastings
Senior Vice President and
Treasurer.................... 4,278 50,000 5,000 9,278 0.13
Wendy Gauksheim
Senior Vice President--
Corporate Services Officer... 16,395 60,000 6,000 22,395 0.30
------- -------- ------ ------- ----
All directors and executive
officers as a group
(11 persons)................. 489,682 $820,000 87,000 576,682 7.82%
======= ======== ====== ======= ====
</TABLE>
- --------
(1) Excludes 67,546 shares which may be received upon the exercise of
outstanding stock options granted under the existing 1994 and 1997 Stock
Option Plans. Based upon the Exchange Ratio of 3.8899 Exchange Shares for
each Minority Share at the midpoint of the Valuation Price Range, the
persons named in the table would have options to purchase Common Stock as
follows: Mr. Rhodes, 77,798 shares; Ms. Brunton, 12,965 shares; Mr.
Clees, 12,965 shares; Mr. Jensen, 12,965 shares; Mr. Odegard, 12,965
shares; Mr. Senna, 12,965 shares; Mr. Weigand, 11,215 shares; Mr. Parry,
38,899 shares; Mr. Vance, 38,899 shares; Mr. Hastings, 25,284 shares; Ms.
Gauksheim, 5,835 shares; and all directors and executive officers as a
group, 262,755 shares.
(2) Excludes stock options that may be granted under 1998 Stock Option Plan
and awards that may be granted under the MRP if such plans are approved
by stockholders at an annual or special meeting at least six months
following the Conversion. See "Management--Benefits."
25
<PAGE>
PRO FORMA DATA
Applicable law requires that the aggregate Purchase Price of the Common
Stock to be issued in the Conversion be based upon an independent appraisal of
the estimated pro forma market value of the Common Stock. At October 10, 1997,
the Valuation Price Range of the Offerings as set forth in the Appraisal is
from a minimum of $42.5 million to a maximum of $57.5 million, with a midpoint
of $50.0 million or, at a price per share of $10.00, a minimum number of
shares of 4,250,000, a maximum number of shares of 5,750,000 and a midpoint
number of shares of 5,000,000. The actual net proceeds from the sale of the
Conversion Stock cannot be determined until the Conversion is completed.
However, net proceeds are currently based upon the following assumptions: (i)
all of the shares of Conversion Stock will be sold in the Subscription and
Minority Stockholders' Offerings; (ii) Ryan Beck will receive a management and
advisory fee of $50,000 and a marketing fee of 1.5% of the aggregate dollar
amount of Conversion Stock sold in the Subscription and Minority Stockholders'
Offerings; (iii) approximately 4.4%, 4.0%, 3.7% and 3.5% of the Conversion
Stock issued in the Conversion at the minimum, midpoint, maximum, and 15%
above the maximum, of the Valuation Price Range, respectively, will be sold to
the ESOP and to directors, officers and employees or members of such persons'
immediate families, for which no fee will be paid to Ryan Beck, and (iv)
Conversion expenses, excluding the fees paid to Ryan Beck, will be
approximately $460,000. Actual fees and expenses may vary from this estimate,
because the fees paid will depend upon the percentages and total number of
shares sold in the various categories of Offerings and other factors. See "The
Conversion--Marketing Arrangements."
The pro forma consolidated net income of the Company for the year ended June
30, 1997 has been calculated as if the Conversion had been completed at the
beginning of the period and the estimated net proceeds received by the Company
and the Bank had been invested at 6.74%, the arithmetic average of the yield
earned by the Bank on its interest earning assets and the rates paid on its
deposits. As discussed under "Use of Proceeds," the Company expects to retain
50% of the net Conversion proceeds from which it will fund the ESOP loan. A
pro forma after-tax return of 4.45% is used for both the Company and the Bank
for the 12 month period, after giving effect to an incremental tax rate of
34.0%.
Historical and pro forma per share amounts have been calculated by dividing
historical and pro forma amounts by the indicated number of shares of Common
Stock. Per share amounts have been computed as if the Common Stock had been
outstanding at the beginning of the period or at June 30, 1997, but without
any adjustment of per share historical or pro forma stockholders' equity to
reflect the earnings on the estimated net proceeds.
The following table summarizes the historical net income and stockholders'
equity of the Bank and the pro forma consolidated net income and stockholders'
equity of the Company at and for the year ended June 30, 1997, based on the
minimum, midpoint, maximum, and a 15% increase in the maximum of the Valuation
Price Range. No effect has been given to (i) the shares to be reserved for
issuance under the Company's 1998 Stock Option Plan, which is expected to be
adopted by stockholders at a meeting to be held no earlier than six months
following consummation of the Conversion; (ii) withdrawals from deposit
accounts for the purpose of purchasing Conversion Stock in the Conversion;
(iii) the issuance of shares from authorized but unissued shares to the ESOP
in the event of over-subscription in the Offering by Eligible Account Holders;
or (iv) the establishment of a liquidation account for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders. See "Management--
Benefits--1998 Stock Option Plan" and "The Conversion--Stock Pricing and
Number of Shares to be Issued."
THE FOLLOWING PRO FORMA INFORMATION MAY NOT BE REPRESENTATIVE OF THE
FINANCIAL EFFECTS OF THE CONVERSION AT THE DATE ON WHICH THE CONVERSION
ACTUALLY OCCURS AND SHOULD NOT BE TAKEN AS INDICATIVE OF FUTURE RESULTS OF
OPERATIONS. STOCKHOLDERS' EQUITY REPRESENTS THE DIFFERENCE BETWEEN THE STATED
AMOUNTS OF CONSOLIDATED ASSETS AND LIABILITIES OF THE COMPANY COMPUTED IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. STOCKHOLDERS' EQUITY
HAS NOT BEEN INCREASED OR DECREASED TO REFLECT THE DIFFERENCE BETWEEN THE
CARRYING VALUE OF LOANS AND OTHER ASSETS AND THEIR MARKET VALUE. STOCKHOLDERS'
EQUITY IS NOT INTENDED TO REPRESENT FAIR MARKET VALUE NOR DOES IT REPRESENT
AMOUNTS THAT WOULD BE AVAILABLE FOR DISTRIBUTION TO STOCKHOLDERS IN THE EVENT
OF LIQUIDATION.
26
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED JUNE 30, 1997
----------------------------------------------
15% ABOVE
MINIMUM OF MIDPOINT OF MAXIMUM OF MAXIMUM OF
VALUATION VALUATION VALUATION VALUATION
PRICE RANGE PRICE RANGE PRICE RANGE PRICE RANGE
----------- ----------- ----------- ----------
4,250,000 5,000,000 5,750,000 6,612,500
SHARES AT SHARES AT SHARES AT SHARES AT
PURCHASE PURCHASE PURCHASE PURCHASE
PRICE OF PRICE OF PRICE OF PRICE OF
$10.00 PER $10.00 PER $10.00 PER $10.00 PER
SHARE SHARE SHARE SHARE
---------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds................... $42,500 $50,000 $57,500 $66,125
Less: expenses................... (1,070) (1,180) (1,290) (1,417)
--------- --------- --------- ---------
Estimated Net Proceeds.......... $41,430 $48,820 $56,210 $64,708
Less: Common Stock purchased by
ESOP(2)......................... (850) (1,000) (1,150) (1,323)
Less: Common Stock purchased by
MRP(3).......................... (425) (500) (575) (661)
--------- --------- --------- ---------
Estimated Net Proceeds for
Reinvestment................... $40,155 $47,320 $54,485 $62,724
========= ========= ========= =========
For the 12 Months Ended June 30,
1997
Consolidated Net Income:
Historical(5)................... $ 2,269 $ 2,269 $ 2,269 $ 2,269
Pro forma income on net
proceeds(1).................... 1,786 2,105 2,424 2,790
Earnings on assets at MHC....... 5 5 5 5
Pro forma ESOP Adjustment(2).... (37) (44) (51) (58)
Pro forma MRP Adjustment(3)..... (56) (66) (76) (87)
--------- --------- --------- ---------
Pro forma Net Income............ $ 3,967 $ 4,269 $ 4,571 $ 4,919
========= ========= ========= =========
Earnings Per Share (reflects SOP
93-6)(4):
Historical(5)................... $ 0.37 $ 0.31 $ 0.27 $ 0.24
Pro forma income on net proceeds
............................... 0.29 0.30 0.30 0.29
Earnings on assets at MHC....... 0.00 0.00 0.00 0.00
Pro forma ESOP Adjustment(2).... (0.01) (0.01) (0.01) (0.01)
Pro forma MRP adjustment(3)..... (0.01) 0.01) (0.01) (0.01)
--------- --------- --------- ---------
Pro forma Earnings Per Share.... $ 0.64 $ 0.59 $ 0.55 $ 0.51
========= ========= ========= =========
Offering price as a multiple of
pro forma earnings per share.... 15.63x 16.95x 18.18x 19.61x
At June 30, 1997
Stockholders' Equity:
Historical(5)................... $27,714 $27,714 $27,714 $27,714
Assets at MHC................... 120 120 120 120
Estimated Net Proceeds.......... 41,430 48,820 56,210 64,708
Less: Common Stock purchased by
ESOP(2)........................ (850) (1,000) (1,150) (1,323)
Less: Common Stock purchased by
MRP(3)......................... (425) (500) (575) (661)
--------- --------- --------- ---------
Pro forma Stockholders' Equity.. $67,989 $75,154 $82,319 $90,558
========= ========= ========= =========
Stockholders' equity per share
(does not reflect SOP 93-6):
Historical(5)................... $ 4.42 $ 3.76 $ 3.27 $ 2.84
Assets at MHC................... 0.02 0.02 0.01 0.01
Estimated net proceeds.......... 6.62 6.63 6.64 6.65
Less: Common Stock purchased by
ESOP(2)........................ (0.14) (0.14) (0.14) (0.14)
Less: Common Stock purchased by
MRP(3)......................... (0.07) (0.07) (0.07) (0.07)
--------- --------- --------- ---------
Pro forma Stockholders' Equity
Per Share...................... $ 10.85 $ 10.20 $ 9.71 $ 9.29
========= ========= ========= =========
Offering price as a percentage
of pro forma stockholders'
equity per share............... 92.17% 98.04% 102.99% 107.64%
Offering price as a percentage
of pro forma tangible equity... 92.17% 98.04% 102.99% 107.64%
Number of shares used in book
value per share calculations... 6,265,664 7,371,369 8,477,075 9,748,636
</TABLE>
27
<PAGE>
- --------
(1) No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing Conversion Stock. The net amount of funds available
to the Bank for investment following the Offerings will be reduced to the
extent that shares are purchased with funds on deposit.
(2) Assumes that 2% of the Conversion Stock issued in the Conversion will be
purchased by the ESOP. The funds used to acquire such shares will be
borrowed by the ESOP (at an interest rate equal to the prime rate as
published in The Wall Street Journal on the closing date of the
Conversion, which rate is currently 8.50%) from the net proceeds of the
Offerings retained by the Company. The amount of this borrowing has been
reflected as a reduction from gross proceeds to determine estimated net
proceeds for reinvestment. The Bank intends to make contributions to the
ESOP at least equal to the principal and interest requirement of the
debt. As the debt is repaid, stockholders' equity will be increased. The
Bank's payment of the ESOP debt is based upon equal installments of
principal over a 15 year period, assuming a federal income tax rate of
34.0%. Interest income earned by the Company on the ESOP debt offsets the
interest paid by the Bank on the ESOP loan. No reinvestment is assumed on
proceeds contributed to fund the ESOP. The ESOP expense reflects adoption
of Statement of Position ("SOP") 93-6, which will require recognition of
compensation expense as shares are committed to be released to employee's
accounts and the exclusion of unallocated shares from earnings per share
computations. The valuation of shares committed to be released would be
based upon the average market value of the shares during the year, which,
for purposes of this calculation, was assumed to be equal to the $10.00
per share Purchase Price. See "Management--Benefits--Employee Stock
Ownership Plan."
(3) Assumes that the required stockholder approval has been received, that
the shares were acquired by the MRP at the beginning of the period
presented in open market purchases at $10.00 per share, that 20% of the
amount contributed was an amortized expense during such period, and that
the federal income tax rate is 34.0%. For purposes of this table,
compensation expense is recognized on a straight-line basis over the five
year term of shares issued under the MRP. In the event the fair market
value per share is greater than $10.00 per share on the date shares are
awarded under the MRP, total MRP expense would increase. See "Risk
Factors--New Expenses Associated with ESOP and MRP." The total of the
estimated MRP purchases was multiplied by 20% (the total percent of
shares for which expense is recognized in the first year) resulting in
pre-tax MRP expense of $85,000, $100,000, $115,000 and $132,200 at the
minimum, midpoint, maximum and 15% above the maximum of the Valuation
Price Range, respectively, for the year ended June 30, 1997. The issuance
of authorized but unissued shares of Common Stock pursuant to the MRP in
the amount of 1% of the Conversion Stock issued in the Offerings would
dilute the voting interests of existing stockholders from 32.17% to
31.95%, and under such circumstances pro forma net income per share for
the year ended June 30, 1997 would be $0.64, $0.58, $0.54 and $0.51 at
the minimum, midpoint, maximum and 15% above the maximum of the Valuation
Price Range, respectively, and stockholders' equity per share at June 30,
1997 would be $10.78, $10.13, $9.65 and $9.23 at the minimum, midpoint,
maximum and 15% above the maximum of such range, respectively. No effect
has been given to the shares reserved for issuance under the proposed
1998 Stock Option Plan. If stockholders approve the 1998 Stock Option
Plan following the Conversion, the Company will have reserved for
issuance under the 1998 Stock Option Plan authorized by unissued shares
of Common Stock representing an amount of shares equal to up to 10% of
the Conversion Stock sold in the Offerings. See "Management--Benefits--
1998 Stock Option Plan" and "--Benefits--Management Recognition Plan" and
"Risk Factors--Possible Dilutive Effect of Benefit Plans."
(4) Per share amounts are based upon shares outstanding of 6,183,497,
7,274,702, 8,365,908 and 9,620,794, at the minimum, midpoint, maximum and
15% above the maximum of the Valuation Price Range for the year ended
June 30, 1997, respectively, which includes the Conversion Stock and
Exchange Shares, less the number of shares assumed to be held by the ESOP
not released within the first year following the Conversion.
(5) Historical per share amounts have been computed as if the Conversion
Stock expected to be issued in the Conversion had not been outstanding at
the beginning of the period, and without any adjustment of historical net
income or historical retained earnings to reflect the investment of the
estimated net proceeds of the sale of shares in the Conversion, the
additional ESOP expense or the proposed MRP expense, as described above.
28
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of Heritage Savings Bank and
Subsidiaries for each of the fiscal years in the three year period ended June
30, 1997 are a part of the consolidated financial statements of Heritage
Savings Bank and subsidiaries, and should be read in conjunction therewith,
which financial statements have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The Consolidated Financial
Statements as of June 30, 1996 and 1997, and for each of the years in the
three year period ended June 30, 1997, and the report thereon, are included
elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
INTEREST INCOME:
Loans..................... $13,115 $14,894 $16,743
Mortgage backed
securities............... 722 552 464
Investment securities and
FHLB dividends........... 1,118 854 757
Interest bearing
deposits................. 268 575 548
------- ------- -------
Total interest income... 15,223 16,875 18,512
------- ------- -------
INTEREST EXPENSE:
Deposits.................. 6,639 8,528 8,999
Borrowed funds............ 357 15 1
------- ------- -------
Total interest expense.. 6,996 8,543 9,000
------- ------- -------
Net interest income..... 8,227 8,332 9,512
PROVISION FOR LOAN LOSSES... -- -- (270)
------- ------- -------
Net interest income after
provision for loan
losses................... 8,227 8,332 9,782
------- ------- -------
NONINTEREST EXPENSE:
Gains on sales of loans,
net...................... 1,665 3,049 2,006
Commissions on sales of
annuities and
securities............... 241 296 220
Service charges on
deposits................. 207 353 462
Rental income............. 209 221 210
Gain on sale of premises.. 356 -- 84
Other income.............. 362 379 365
------- ------- -------
Total noninterest
income................. 3,040 4,298 3,347
------- ------- -------
NONINTEREST EXPENSE:
Salaries and employee
benefits................. 4,176 4,711 5,468
Building occupancy........ 979 1,254 1,717
FDIC premiums and special
assessment............... 380 407 1,262
Data processing........... 462 493 534
Marketing................. 200 162 257
Office supplies and
printing................. 257 229 243
Other..................... 971 1,166 1,624
------- ------- -------
Total noninterest
expense................ 7,425 8,422 11,105
------- ------- -------
Income before federal
income tax expense..... 3,842 4,208 2,024
Federal income tax expense
(benefit).................. 1,308 1,435 (245)
------- ------- -------
Net income.............. $ 2,534 $ 2,773 $ 2,269
======= ======= =======
Earnings per common share... $1.41 $1.54 $1.26
</TABLE>
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion is intended to assist in understanding the
financial condition and results of operations of the Bank. The information
contained in this section should be read in conjunction with the Consolidated
Financial Statements and accompanying Notes thereto and the other sections
contained in this Prospectus. The Mutual Holding Company's only material
activity is to hold Bank Common Stock and invest its available funds in
accounts at the Bank. The MHC has not conducted any operations to date and
therefore has no reported results of operations.
OPERATING STRATEGY
The Bank traditionally has offered a variety of savings products and
originated one- to four-family mortgage loans (principally for sale in the
secondary market) and, to a lesser extent, multi-family, commercial real
estate and construction loans. Beginning in fiscal 1994, the Bank began to
implement a growth strategy which is intended to broaden its products and
services from traditional thrift products and services to those more closely
related to commercial banking. That strategy entails (1) geographic and
product expansion, (2) loan portfolio diversification, (3) development of
relationship banking, and (4) maintenance of asset quality. (See "Business of
the Bank--Implementation of Growth Strategy" and "--Lending Activities") The
Bank intends to continue to fund its assets primarily with retail deposits,
although FHLB advances may be used as a supplemental source of funds, and it
believes that the capital raised in the Offerings will enhance its ability to
continue implementing its growth strategy.
Concurrent with geographic expansion, the Bank has (i) developed business
checking accounts and commercial lending products and other services for
businesses and high net worth individuals; (ii) introduced Visa(TM) debit and
credit cards; (iii) installed an automated voice response system for customer
account inquiries and (iv) developed products to assist realtors and potential
borrowers to obtain information about loan programs and qualifications. To
accommodate new products and to improve internal operating and reporting, the
Bank converted to a new data processing system with a data service bureau and
installed a personal computer network.
The Bank has incurred substantial expenses as it carried out its growth
strategy. Those expenses have been concentrated in (i) personnel hired in
anticipation of growth and expanded market share; (ii) maintaining the Bank's
mortgage origination capacity while mortgage origination volumes have
fluctuated; (iii) facilities expansion and (iv) upgrading of data processing
capabilities, and have reduced the Bank's return on average assets and return
on equity for fiscal year 1997. Management believes that those expenditures
will continue to have a negative impact on earnings in the near term, but that
the investments are necessary to produce an expected improvement in earnings
as the Bank seeks to broaden its product mix and expand its market share
throughout its market area.
The Bank's profitability depends primarily on its net interest income, which
is the difference between the income it receives on its loan and investment
portfolio and its cost of funds, which consists of interest paid on deposits
and borrowed funds. The Bank also generates noninterest income through service
charges and fees and income from mortgage banking operations. The Bank's
noninterest expenses consist primarily of compensation and employee benefits,
occupancy, deposit insurance premiums, data processing and other operating
costs. Like most financial institutions, the Bank's interest income and cost
of funds are affected significantly by general economic conditions,
particularly changes in market interest rates, and by government policies and
the actions of regulatory authorities.
NET INTEREST INCOME
Changes in net interest income result from changes in volume, net interest
spread and net interest margin. Volume refers to the average dollar amounts of
interest earning assets and interest bearing liabilities. Net interest spread
refers to the difference between the average yield on interest earning assets
and the average cost of interest bearing liabilities. Net interest margin
refers to net interest income divided by average interest earning assets and
30
<PAGE>
is influenced by the level and relative mix of interest earning assets and
interest bearing liabilities. During the years ended June 30, 1995, 1996 and
1997, average interest earning assets amounted to $180.2 million, $193.5
million and $211.2 million, respectively. During these same periods, average
interest bearing liabilities were $162.5 million, $175.1 million and $191.1
million, respectively, and net interest margins were 4.57%, 4.31% and 4.50%,
respectively.
The following table sets forth for the periods indicated information for the
Bank with respect to average balances of assets and liabilities, as well as
the total dollar amounts of interest income from interest earning assets and
interest expense on interest bearing liabilities, resultant yields or costs,
net interest income, net interest spread, net interest margin and the ratio of
average interest earning assets to average interest bearing liabilities. The
average loan balances presented in the table are net of allowances for loan
losses. Nonaccrual loans have been included in the tables as loans carrying a
zero yield.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-------------------------------------------------------------------------------------
1995 1996 1997
--------------------------- --------------------------- ---------------------------
INTEREST INTEREST INTEREST
AVERAGE EARNED/ AVERAGE AVERAGE EARNED/ AVERAGE AVERAGE EARNED/ AVERAGE
BALANCE(1) PAID RATE BALANCE(1) PAID RATE BALANCE(1) PAID RATE
---------- -------- ------- ---------- -------- ------- ---------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans................... $142,598 $13,115 9.20% $160,823 $14,894 9.26% $182,791 $16,743 9.16%
Mortgage backed
securities............. 9,231 722 7.82 6,715 552 8.22 5,598 464 8.29
Investment securities
and FHLB stock......... 22,516 1,118 4.97 15,096 854 5.66 12,360 757 6.12
Interest earning
deposits............... 5,837 268 4.59 10,820 575 5.31 10,414 548 5.26
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest earning
assets................. 180,182 $15,223 8.45% $193,454 $16,875 8.72% $211,163 $18,512 8.77%
Noninterest earning
assets................. 14,818 18,002 18,974
-------- -------- --------
Total assets........... $195,000 $211,456 $230,137
======== ======== ========
INTEREST BEARING
LIABILITIES:
Certificates of
deposit................ $ 89,602 $ 4,415 4.93% $109,559 $ 6,336 5.78% $119,133 $ 6,599 5.54%
Savings accounts........ 28,178 927 3.29 28,407 1,030 3.63 29,703 1,055 3.55
Interest bearing demand
and money market
accounts............... 40,594 1,297 3.19 36,930 1,162 3.15 42,271 1,345 3.18
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest bearing
deposits.............. 158,374 6,639 4.19 174,896 8,528 4.88 191,107 8,999 4.71
FHLB advances........... 658 41 6.23 -- -- 27 1 4.99
Other borrowed funds.... 3,453 316 9.15 171 15 8.77 -- -- --
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest bearing
liabilities........... 162,485 6,996 4.31% 175,067 8,543 4.88 191,134 9,000 4.71%
Demand and other
noninterest bearing
deposits............... 6,001 6,537 7,955
Other noninterest
bearing liabilities.... 4,797 5,489 4,711
Stockholders' equity.... 21,717 24,363 26,337
-------- -------- --------
Total liabilities and
stockholders' equity.. $195,000 $211,456 $230,137
======== ======== ========
Net interest income..... $ 8,227 $ 8,332 $ 9,512
Net interest spread..... 4.14% 3.84% 4.06%
Net interest margin..... 4.57% 4.31% 4.50%
Average interest earning
assets to average
interest bearing
liabilities............ 110.89% 110.51% 110.48%
</TABLE>
31
<PAGE>
The following table sets forth the amounts of the changes in the Bank's net
interest income attributable to changes in volume and changes in interest
rates. Changes attributable to the combined effect of volume and interest
rates have been allocated proportionately to changes due to volume and the
changes due to interest rates.
<TABLE>
<CAPTION>
1995 COMPARED TO 1996 COMPARED TO
1996 INCREASE 1997 INCREASE
(DECREASE) DUE TO (DECREASE) DUE TO
---------------------- ---------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ------ ------ ------ ----- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans.......................... $1,676 $ 103 $1,779 $2,034 $(185) $1,849
Mortgage backed securities..... (197) 27 (170) (92) -- (88)
Investment securities and FHLB
stock......................... (368) 104 (264) (155) 58 (97)
Interest earning deposits...... 229 78 307 (22) (5) (27)
------ ------ ------ ------ ----- ------
Total interest income........ $1,340 $ 312 $1,652 $1,765 $(128) $1,637
====== ====== ====== ====== ===== ======
Certificates of deposit........ $ 984 $ 937 $1,921 $ 554 $(291) $ 263
Savings accounts............... 8 95 103 47 (22) 25
Interest bearing demand
deposits...................... (118) (17) (135) 168 15 183
------ ------ ------ ------ ----- ------
Total interest on deposits... 874 1,015 1,889 769 (298) 471
FHLB advances.................. (41) -- (41) 1 -- 1
Other borrowed funds........... (300) (1) (301) (15) -- (15)
------ ------ ------ ------ ----- ------
Total interest expense....... $ 533 $1,014 $1,547 $ 755 $(298) $ 457
====== ====== ====== ====== ===== ======
</TABLE>
RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
Net Income. Net income was $2.3 million, or $1.26 per share, for the year
ended June 30, 1997 compared to $2.8 million, or $1.54 per share, for the year
ended June 30, 1996, an 18.2% decline, primarily as a result of noninterest
expense increasing more rapidly than net interest income, coupled with a
decrease in noninterest income. The increase in noninterest expenses was
attributable to two factors: (1) the expansion in Pierce County of the Bank's
branch office network and development of the Bank's relationship banking
capacity; and (2) the legislatively-mandated, one-time assessment levied by
the FDIC on all SAIF-insured institutions to recapitalize the SAIF deposit
insurance fund. The decrease in noninterest income was principally the result
of lower gains on sales of loans due to a decline in the volume of
originations of residential mortgage loans.
Net Interest Income. Net interest income increased $1.2 million, or 14.2%,
in 1997 compared to 1996 primarily due to a $22.0 million increase in the
average balance of loans. The growth in average loan balances was most
pronounced in commercial loans ($17.7 million of the total $22.0 million
increase). Net interest income increased as a result of an improved net
interest spread coupled with average interest earning assets increasing more
rapidly than average interest bearing liabilities, with the difference funded
by noninterest bearing deposits.
Net interest margin, which is net income divided by average interest earning
assets, for 1997 increased to 4.50% from 4.31% in 1996. The increase was
primarily the result of a growth in earning assets at increased rates coupled
with a decline in the average cost of interest bearing deposits (particularly
for certificates of deposit). Certificates of deposit with scheduled
maturities of one year or less increased to 90% of certificate accounts as of
June 30, 1997 compared to 83% as of June 30, 1996, while average rates on
certificates decreased to 5.54% from 5.78%. The increase in the average yield
on interest earning assets was the result of shifting funds from lower
yielding investments and mortgage backed securities into higher yielding loans
and the overall growth in loans, particularly commercial loans.
Provision for Loan Losses. In 1997, the Bank recorded a $1.2 million
recovery on a multifamily mortgage loan which had been partially charged off
in a prior year. In reviewing the adequacy of the Bank's allowance for loan
losses as of June 30, 1997, management determined that the allowance balance
was more than adequate to cover any potential losses in the Bank's loan
portfolio and therefore reduced the allowance balance through a $270,000
negative provision for loan losses.
32
<PAGE>
Management considers the allowance for loan losses at June 30, 1997 to be
adequate to cover reasonably foreseeable loan losses based on management's
assessment of various factors affecting the loan portfolio, including the
level of problem loans, business conditions, estimated collateral values, loss
experience and credit concentrations.
Noninterest Income. Total noninterest income decreased $951,000, or 22.1%,
in 1997 compared with 1996. The major component of this category, gains on
sales of loans, decreased $1.0 million, or 34.2% from 1996 to 1997 due to a
lower volume of mortgage loans sold ($87.0 million in 1997 compared to $119.5
million in 1996). The decrease in volume of originations of one- to four-
family residential mortgage loans in 1997 compared with 1996 was due to
weakness in the residential mortgage market and the loss of two key producers
by the end of fiscal 1996. Commissions on sales of annuities and securities
declined $76,000, or 25.7%, as a result of lower sales volume due to staff
turnover. Service charges on deposits increased $109,000, or 30.8%, due to
growth in personal and business checking accounts. In June 1997, the Bank sold
its former branch premises in Shelton, recognizing an $84,000 gain on the
sale.
Noninterest Expense. Total noninterest expense increased $2.7 million, or
31.9%, in 1997 compared with 1996. The increase was attributable to: (i) the
Bank's expansion of its branch network in Pierce County and development of the
Bank's relationship banking capacity; and (ii) a one-time special assessment
of $1.1 million required by legislation enacted in August 1996, to
recapitalize the SAIF fund of the FDIC. Total noninterest expense (less the
nonrecurring SAIF assessment of $1.1 million) was 77.89% of adjusted revenue
(the sum of net interest income plus noninterest income), for the year ended
June 30, 1997 as compared to 66.68% for the same period in 1996.
Salaries and employee benefits increased $757,000, or 16.1%. The increase
reflects the hiring of a Senior Loan Administrator (in June 1996) and six
commercial lending officers for the Pierce County market (four of which were
hired in June 1996), the staffing additions for the 80th and Pacific branch
(which opened in October 1996) and the full year effect of staffing additions
for the Lakewood branch (which opened in February 1996). Occupancy expense
increased $463,000, or 36.9%, as result of the operating costs of the new
branch facilities opened during 1996 and 1997 and the full year depreciation
impact of the installation of a bank-wide personal computer network in March
1996. FDIC premiums and special assessment increased $855,000, or 210%, due to
the $1.1 million special assessment mentioned above. The Bank's federal
deposit insurance premiums were reduced by the FDIC from 0.23% (on an
annualized basis) of insured deposits for the quarter ended September 30, 1996
to 0.06% of insured deposits for the semi-annual period ended June 30, 1997.
Income Taxes. The Bank recorded a Federal income tax benefit of $245,000 for
the year ended June 30, 1997 as a result of the reversal of $938,000 deferred
tax liability related to the potential recapture of the pre-1988 additions to
the tax bad debt reserve which could have been triggered by the MHC
Reorganization in January 1994. Based on subsequent legislation, the Bank
reversed the $938,000 deferred tax liability as a reduction of Federal income
tax expense during the year ended June 30, 1997.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
Net income. Net income increased $239,000, or 9.4%, for the year ended June
30, 1996 to $2.8 million from $2.5 million for the year ended June 30, 1995.
This increase resulted primarily from noninterest income increasing more
rapidly than noninterest expenses, while net interest income rose slightly.
Net Interest Income. Net interest income increased $105,000, or 1.3%, in
1996 compared with 1995 despite growth in average loans of $18.2 million, or
12.8%, due principally to a decrease in net interest spread to 3.84% in 1996
from 4.14% in 1995. Average interest bearing liabilities increased by $16.5
million (concentrated in certificates of deposit), or 10.4%, in 1996, while
average interest earning assets increased by $13.3 million, or 7.4%. The
average rate on interest bearing liabilities rose to 4.88% from 4.31% in 1995,
while the average rate on interest earning assets increased to 8.72% from
8.45%.
33
<PAGE>
The increase in loans resulted from a greater emphasis on commercial lending
coupled with an increase in residential and commercial real estate mortgage
loans. The growth in certificates of deposit reflected rate promotions offered
in concert with the new branch openings in 1995 and 1996 and was accompanied
by a reduction of $3.7 million, or 9.0%, in lower cost interest bearing demand
deposits.
Provision for Loan Losses. There were no provisions for loan losses in 1995
or 1996 as management deemed the allowance for loan losses at June 30, 1995
and 1996 adequate to provide for reasonably foreseeable loan losses at those
dates.
Noninterest Income. Noninterest income increased $1.3 million, or 41.4%, to
$4.3 million for 1996, from $3.0 million for 1995. Gains on sales of loans
increased $1.4 million, or 83.1%, due to a larger volume of mortgage loan
originations ($140.2 million in 1996 versus $93.6 million in 1995) and
mortgage loans sold ($119.5 million in 1996 versus $63.3 million in 1995).
Commissions on sales of annuities and securities increased $55,000, or 23%, as
a result of higher sales volume and a shift in relative mix of sales from
lower fee producing securities sales into variable annuities. Service charges
on deposits increased $146,000, or 71%, due to growth in personal and business
noninterest bearing checking accounts. The gain on sale of premises in 1995
occurred due to the sale of a former branch facility in Lacey.
Noninterest Expense. Noninterest expense for 1996 increased $997,000, or
13.4%, from 1995 due principally to an increase in compensation and occupancy
expense. Salaries, bonuses and employee benefits increased by $535,000, or
12.8%, due to staffing additions related to new branches opened (Indian Summer
in January 1995 and Lakewood in February 1996), increases in mortgage banking
support staff and information systems support, management bonuses and
increases in employee benefit plan contributions. Occupancy expense increased
$275,000, or 28.1%, due to the operating costs of the new branch facilities
opened in 1995 and 1996 and the depreciation impact of the installation of a
personal computer network in March 1996. Federal deposit insurance premiums
increased as a result of higher average deposit levels in 1996, while data
processing expenses increased due to greater transaction processing levels
related to checking accounts (business and personal). Marketing expenses
decreased by $38,000 as a result of one less new branch opening in 1996.
Office supplies and printing decreased by $28,000 due to management's efforts
in controlling the growth of these expenditures. Other noninterest expenses
increased $195,000 as a result of branch expansion and growth in customer
accounts, increased professional services and higher business and occupation
taxes due to increased revenues in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are customer deposits, loan repayments,
loan sales, maturing investment securities and advances from the FHLB of
Seattle. These funds, together with retained earnings, equity and other
borrowed funds, are used to make loans, acquire investment securities and
other assets and to fund continuing operations. While maturities and scheduled
amortization of loans are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by the level of interest rates,
economic conditions and competition.
The Bank must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to fund loan originations and deposit
withdrawals, to satisfy other financial commitments and to fund operations.
The Bank generally maintains sufficient cash and short term investments to
meet short term liquidity needs. At June 30, 1997, cash and cash equivalents
totaled $7.6 million, or 3.1% of total assets, and investment securities
classified as held to maturity with maturities of one year or less amounted to
$3.8 million, or 1.6% of total assets. At June 30, 1997, the Bank maintained a
credit facility with the FHLB of Seattle for up to 20% of assets or $48.4
million (of which only $890,000 was outstanding at that date).
To fund the growth of the Bank, management's strategy has been to build core
deposits (which the Bank defines to include all deposits except public funds)
through the development of its branch office network and commercial banking
relationships. Total deposits increased $18.7 million, or 9.8%, to $209.8
million at June 30,
34
<PAGE>
1997 from $191.1 million at June 30, 1996. Of this increase, $3.6 million was
in the form of a short term public deposit which matured and was withdrawn in
July 1997. Historically, the Bank has been able to retain a significant amount
of its deposits as they mature. Management anticipates that the Bank will
continue to rely on the same sources of funds in the future and will use those
funds primarily to make loans and purchase investment securities.
Heritage Bank is subject to certain regulatory capital requirements. As of
June 30, 1996 and 1997, the Bank was classified as a "well capitalized"
institution under the criteria established by the FDIC Act. See "Historical
and Pro Forma Regulatory Capital Compliance."
ASSET/LIABILITY MANAGEMENT
The Bank's primary financial objective is to achieve long term profitability
while controlling its exposure to fluctuations in market interest rates. To
accomplish this objective, management has formulated an interest rate risk
management policy that attempts to manage the mismatch between asset and
liability maturities while maintaining an acceptable interest rate sensitivity
position. The principal strategies which the Bank employs to control its
interest rate sensitivity are: (i) sale of most long term, fixed rate, one-to
four-family residential mortgage loan originations in the secondary mortgage
market; (ii) retention of some adjustable rate mortgage loans; (iii) the
origination of commercial loans and residential construction loans at variable
interest rates for terms generally one year or less; and (iv) keeping
investment securities with generally short term maturities. Additionally, the
Bank offers noninterest bearing demand deposit accounts to businesses and
individuals. The Bank's longer term objective is to reduce its dependency on
certificates of deposit, which tend to be a higher cost source of funds and
most susceptible to movement from the Bank if market interest rates increase,
by increasing its proportion of noninterest bearing demand deposits, interest
bearing demand deposits and money market accounts and savings deposits.
The Bank's asset and liability management strategies have resulted in a
negative one year "gap" of 9.18% as of June 30, 1997. This one year gap is the
difference between the dollar amount of its interest earning assets and
interest bearing liabilities that mature or reprice within one year as a
percentage of total interest earning amounts, based on certain estimates and
assumptions as discussed below. Although management believes that the
implementation of its operating strategies has reduced the potential effects
of changes in market interest rates on the Bank's results of operations, the
negative gap indicates that increases in market interest rates may adversely
affect the Bank's results.
35
<PAGE>
The following table sets forth the estimated maturity or repricing and the
resulting interest rate sensitivity gap of the Bank's interest earning assets
and interest bearing liabilities at June 30, 1997 based upon estimates of
expected mortgage prepayment rates and deposit decay rates consistent with
national trends. The Bank has adjusted mortgage loan maturities for loans held
for sale by reflecting these loans in the zero to three month category which
is consistent with their sale in the secondary mortgage market. The amounts in
the table are derived from the Bank's internal data, and because certain
assumptions have been utilized in presenting this data, the amounts may not be
consistent with financial information appearing elsewhere in this Prospectus
that have been prepared in accordance with generally accepted accounting
principles. The amounts in the tables also could be significantly affected by
external factors, such as changes in prepayment assumptions, early withdrawal
of deposits and competition.
<TABLE>
<CAPTION>
ESTIMATED MATURITY OR REPRICING WITHIN
----------------------------------------------------------
0-3 4-12 1-5 5-10 MORE THAN
MONTHS MONTHS YEARS YEARS 10 YEARS TOTAL
------- -------- ------- ------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans.................. $45,321 $ 77,607 $57,294 $23,942 $4,029 $208,193
Mortgage backed
securities............ -- 35 23 207 4,894 5,159
Investment securities.. 321 3,496 4,689 -- -- 8,506
FHLB stock............. 1,511 -- -- -- -- 1,511
Interest earning
deposits.............. 175 -- -- -- -- 175
------- -------- ------- ------- ------ --------
Total interest earning
assets............... $47,328 $ 81,138 $62,006 $24,149 $8,923 $223,544
Noninterest earning
assets................ 18,620
--------
Total assets.......... $242,164
========
INTEREST BEARING
LIABILITIES
Deposits
Certificates of
deposit............... $35,412 $ 78,394 $12,866 $ 109 -- $126,781
Savings accounts....... 2,417 6,084 15,074 3,998 801 28,374
Interest bearing demand
and money market
deposits.............. 9,879 15,921 15,889 2,863 585 45,137
------- -------- ------- ------- ------ --------
Total interest bearing
deposits............. 47,708 100,399 43,829 6,970 1,386 200,292
FHLB advances.......... 890 -- -- -- -- 890
------- -------- ------- ------- ------ --------
Total interest bearing
liabilities.......... $48,598 $100,399 $43,829 $ 6,970 $1,386 $201,182
Noninterest bearing
liabilities and
equity................ 40,982
--------
Total liabilities and
equity............... $242,164
========
RATE SENSITIVITY GAP.... $(1,270) $(19,261) $18,177 $17,179 $7,537 $ 22,362
Cumulative rate
sensitivity gap:
Amount................. (1,270) (20,531) (2,354) 14,825 22,362
As a percentage of
interest earning
assets................ (0.57)% (9.18)% (1.05)% 6.63%
======= ======== ======= =======
</TABLE>
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other types may lag behind
changes in market interest rates. Additionally, certain assets, such as
adjustable rate mortgages, have features which restrict changes in the
interest rates of such assets both on a short term basis and over the lives of
such assets. Further, in the event of a change in market interest rates,
prepayment and early withdrawal levels could deviate significantly from those
assumed in calculating the tables. Finally, the ability of many borrowers to
service their adjustable rate debt may decrease in the event of a substantial
increase in market interest rates.
36
<PAGE>
MARKET RISK DISCLOSURES ON FINANCIAL INSTRUMENTS
The table below provides information as of June 30, 1997 about the Bank's
financial instruments that are sensitive to changes in interest rates. The
table presents principal cash flows and related weighted average interest
rates by expected maturity dates. The data in this table may not be consistent
with the amounts in the preceding table which represents amounts by the
repricing date or maturity date (whichever occurs sooner) adjusted by
estimates such as mortgage prepayments and deposit decay or early withdrawal
rates.
<TABLE>
<CAPTION>
BY EXPECTED MATURITY DATE
------------------------------------------------------------------------
YEAR ENDED JUNE 30
------------------------------------------------------------------------
AFTER FAIR
1998 1999 2000 2001 2002 2002 TOTAL VALUE
-------- ------- ------ ------ ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT SECURITIES
Amounts maturing:
Fixed rate............. $ 3,817 $ 4,689 $ -- $ -- $ -- $ -- $ 8,506 $ 8,498
Weighted average
interest rate......... 5.87% 5.83% 5.85%
MORTGAGE BACKED
SECURITIES
Amounts maturing:
Fixed rate............. $ -- $ -- $ -- $ 23 $ -- $ 5,101 $ 5,124 $ 5,343
Weighted average
interest rate......... 8.50% 8.30% 8.30%
Adjustable rate........ -- -- -- -- -- 35 35 37
Weighted average
interest rate......... 8.28% 5.85%
-------- ------- ------ ------ ------- -------- -------- --------
Totals................ $ -- $ -- $ -- $ 23 $ -- $ 5,136 $ 5,159 $ 5,380
8.50% 8.30% 8.30%
LOANS
Amounts maturing
Fixed rate............. $ 8,373 $ 1,910 $1,641 $ 930 $ 7,967 $ 86,982 $107,803 $ 98,896
Weighted average
interest rate......... 8.94% 8.93% 9.15% 9.31% 8.90% 8.59% 8.66%
Adjustable rate........ 29,351 5,908 1,001 2,704 3,913 57,513 100,390 110,948
Weighted average
interest rate......... 9.62% 9.05% 9.48% 9.67% 9.01% 8.69% 9.03%
-------- ------- ------ ------ ------- -------- -------- --------
Totals................ $ 37,724 $ 7,818 $2,642 $3,634 $11,880 $144,495 $208,193 $209,845
9.47% 9.02% 9.27% 9.57% 8.94% 8.63% 8.84%
CERTIFICATES OF DEPOSIT
Amounts maturing:
Fixed rate............. $113,806 $10,437 $2,299 $ 61 $ 69 $ 109 $126,781 $126,568
Weighted average
interest rate......... 5.46% 5.56% 5.75% 5.35% 5.14% 6.60% 5.47%
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The primary impact of inflation on the Bank's operations is increased
operating costs. Unlike most industrial companies, virtually all the assets
and liabilities of a financial institution are monetary in nature. As a
result, interest rates generally have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Although interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services, increases in inflation
generally have resulted in increased interest rates.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Statements Board ("FASB") issued Statement of
Accounting Standards ("SFAS") No. 128, "Earnings Per Share". SFAS No. 128
establishes standards for computing and presenting earnings per share ("EPS")
and applies to entities with publicly-held common stock or potential common
stock. It replaces the presentation of primary EPS with a presentation of
basis EPS and requires the dual presentation of basic and diluted EPS on the
fact of the income statement. SFAS No. 128 is effective for the financial
statements for the periods ending after December 15, 1997. SFAS No. 128
requires restatement of all prior period EPS data presented. The impact of its
adoption is not expected to be material to the Company.
37
<PAGE>
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS 130 establishes standards for reporting comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of
financial statements. This Statement requires that the Bank (a) classify items
of other comprehensive income by their nature in its financial statements and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of
the statement of financial condition. This Statement is effective for the year
ending June 30, 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information". SFAS 131 requires public companies to
report financial and descriptive information about its operating segments.
Operating segments are components of a business about which separate financial
information is available that is evaluated regularly by the chief operating
decision-maker in deciding how to allocate resources and in assessing
performance. The adoption of SFAS 131 is required for the fiscal year ended
June 30, 1999 and the Bank is currently evaluating the effect of this
Statement.
On January 28, 1997, the SEC amended their rules and regulations to require
public companies to provide enhanced descriptions of accounting policies for
derivative financial instruments and derivative commodity instruments in the
footnotes to their financial statements. The accounting policy requirement
became effective for all filings that include financial statements for periods
ending after June 15, 1997. The Bank had no derivative financial instruments
or derivative commodity instruments at June 30,1997 or at any time during the
three year period then ended. The Bank believes that it is in compliance with
this amended rule.
BUSINESS OF THE COMPANY
GENERAL
The Company was organized as a Washington business corporation at the
direction of the Board of Directors of the Bank in August 1997 for the purpose
of becoming a holding company for the Bank upon completion of the Conversion.
The Company has filed an application with the Federal Reserve Bank of San
Francisco to become a bank holding company and for approval to acquire the
Bank. Immediately following the Conversion, the only significant assets of the
Company will be the capital stock of the Bank, that portion of the net
proceeds of the Offerings to be retained by the Company and a note receivable
from the ESOP evidencing a loan from the Company to fund the Bank's ESOP. See
"Use of Proceeds." Management believes that the holding company structure and
proceeds of the Offerings may facilitate possible future acquisitions of other
financial institutions, such as commercial banks or savings institutions, or
branches of other financial institutions and thereby further expansion into
existing and new market areas. The holding company structure will also provide
increased flexibility to the Company to diversify into a variety of banking-
related activities and to repurchase its stock.
BUSINESS
Prior to the Conversion, the Company will not engage in any significant
operations. Upon completion of the Conversion, the Company's sole business
activity will be the ownership of the stock of the Bank. Following the
Conversion, the Company will be engaged in the business of directing, planning
and coordinating the business activities of the Bank. In the future, the
Company may acquire or organize other operating subsidiaries, including other
financial institutions, although there are no current plans, arrangements,
agreements or understandings, written or oral, to do so.
Initially, the Company will neither own nor lease any property but will
instead use the premises, equipment and furniture of the Bank with the payment
of appropriate rental fees in accordance with applicable laws and regulations.
Since the Company will only hold the capital stock of the Bank, the
competitive conditions applicable to the Company will be the same as those
confronting the Bank. See "Business of the Bank--Competition."
38
<PAGE>
BUSINESS OF THE BANK
GENERAL
The Bank is a state-chartered stock savings bank headquartered in Olympia,
Washington, the state capital of Washington. The Bank was originally chartered
in 1927 and since 1935 its savings accounts have been federally insured. At
June 30, 1997, the Bank had $242.2 million of total assets, $214.5 million of
total liabilities, including $209.8 million of deposits, and $27.7 million of
stockholders' equity. The Bank presently has ten full service offices in its
market areas of Thurston, Pierce and Mason Counties.
IMPLEMENTATION OF GROWTH STRATEGY
Geographic and Product Expansion. Since the end of fiscal 1994, the Bank has
doubled its number of offices, to ten full service locations. New branches
were opened in the West Olympia and Indian Summer areas of Thurston County in
fiscal 1995, and an office was opened in Lakewood, Pierce County, in fiscal
1996. In October 1996, an office was established in Tacoma, Pierce County, and
the tenth office was opened, in downtown Tacoma, in the Spring of 1997. During
the last four years, the Bank has constructed new buildings in Lacey, Thurston
County, and Shelton, Mason County, to replace existing branch buildings and to
better service customers in these markets. The Bank has installed Automated
Teller Machines at six of its offices.
Concurrent with geographic expansion, the Bank has (i) developed business
checking accounts and commercial lending products and other services for
businesses and high net worth individuals; (ii) introduced Visa(TM) debit and
credit cards; (iii) installed an automated voice response system for customer
account inquiries and (iv) developed products to assist realtors and potential
borrowers to obtain information about loan programs and qualifications. To
accommodate new products and to improve internal operating and reporting, the
Bank converted to a new data processing system with a data service bureau and
installed a personal computer network.
Loan Portfolio Diversification. Since initiating its expansion activities,
the Bank has supplemented its traditional mortgage loan products with an
increased emphasis on variable interest rate commercial loans. Total loans
increased to $208.2 million at June 30, 1997 from $130.4 million at June 30,
1993, commercial loans increased to $39.4 million, or 18.95% of total loans,
from $1.2 million, or 0.92% of total loans at June 30, 1993. One- to four-
family residential loans increased in amounts outstanding but decreased to
49.68% from 56.29% of total loans, and multi-family and commercial real estate
loans similarly increased in amounts outstanding while decreasing to 24.60%
from 30.97% of total loans during that period. Most of the loans categorized
by the Bank as commercial business loans are collateralized by real estate,
but repayment is expected from a source other than operations or sale of the
real estate. See "--Lending Activities."
Development of Relationship Banking. In fiscal 1994, the Bank initiated
efforts to develop a business banking department under the direction of a
senior officer with commercial banking experience in Thurston County. The new
department concentrated its efforts on development of expanded lending and
deposit relationships with existing and new customers of the Bank in Mason and
Thurston counties. In June 1996, the Bank hired a former south Puget Sound
Regional Manager for a large commercial bank as Senior Vice President--Loan
Administration. The management addition was made for the purpose of enhancing
the Bank's relationship banking capacity and to establish a commercial banking
presence in Pierce County. Since that time, the Bank has also hired six
additional lending officers who have experience lending to small businesses
and individuals in the Pierce County market. While the banking market is very
competitive, recent mergers of regional commercial banks with significant
presence in the Bank's principal market areas have, in management's view,
provided a greater opportunity for community banks to fill a personal service
niche which the Bank believes has been created by the mergers. Management
believes that the Bank can develop a larger market share in the Pierce County
market while continuing to expand in the Thurston and Mason County markets, by
delivering an efficient and personalized banking service and developing
relationships with small businesses and high net worth individuals who are
seeking a relationship with a responsive, service oriented provider of
financial products and services.
39
<PAGE>
Maintenance of Asset Quality. While pursuing its growth strategy, the Bank
will continue its policy of seeking to employ consistent underwriting and loan
monitoring procedures, in order to maintain asset quality. The Bank's loan
portfolio grew 59.6% between June 30, 1993 and June 30, 1997. Nonperforming
loans remained at less than $436,000 during the four year period, as did total
nonperforming assets. At June 30, 1997, nonperforming loans constituted 0.06%
of the Bank's total loans and the allowance for loan losses to nonperforming
loans was 2069.17%.
The Bank's main office is located at 201 5th Avenue S.W., Olympia,
Washington 98501 and its telephone number is (360) 943-1500.
MARKET AREAS
The Bank has been, and intends to continue to be, a community-oriented
financial institution offering financial services to meet the needs of the
communities it serves. Headquartered in Olympia, Thurston County, Washington,
the Bank conducts business from ten full service offices, five in Thurston
County, one in Mason County and four in Pierce County. The Bank has two
mortgage origination offices, one in Thurston and one in Pierce County, both
of which operate within banking offices.
Olympia enjoys a stable economic climate, largely due to government
employment and military personnel, both retired and active. State government
is by far the largest and most important employer in Thurston County,
employing over 40% of the total county work force. Federal, county, and
municipal government comprise nearly 50% of the county's employment base. Fort
Lewis and McChord Air Force Base are both located in the Bank's primary market
area.
Thurston County has a population of 197,600 as of April 1, 1997 and was one
of the fastest growing metropolitan counties in the state of Washington as
reported in the national 1990 census. Thurston County's growth has been
spurred by an increase in government employment in the 1980's and the
expansion of a large retirement population, including many former military
personnel.
Pierce County, where Tacoma is located, has a population of 674,300 as of
April 1, 1997. Its economy is well-diversified, with the principal industry
being aerospace, shipping, military-related government employment, agriculture
and forest products. Pierce County's economy is expected to benefit over the
next few years because of Intel Corporation's decision to build a computer
chip facility in DuPont and the expansion of the Matsushita semiconductor
plant in Puyallup, east of Tacoma. The Puget Sound Economic Forecaster, a
regional publication providing economic forecasts and commentary, predicts
that Pierce County will likely have the strongest economic performance in the
Puget Sound region through 1999. Forbes magazine recently published its
prediction that the Tacoma area would be among the top twenty-five cities in
the United States in terms of job growth, especially in the areas of computers
and semiconductors.
The Bank's market area also includes Shelton and the surrounding Mason
County area. The population of Mason County is approximately 47,900 and its
economy is substantially dependent upon timber and the forest products
industries.
LENDING ACTIVITIES
General. The Bank traditionally has originated one- to four-family mortgage
loans and, to a lesser extent, multifamily, commercial real estate and
construction loans. In fiscal 1994, the Bank implemented a growth strategy
which is intended to broaden its products and services from traditional thrift
products and services to those more closely related to commercial banking. In
this regard, in 1993, the Bank began to emphasize relationship banking, in
order to improve customer loyalty through maximizing the number of lending and
deposit relationships with a customer. The focus also included expanding the
Bank's commercial business lending capabilities. In early fiscal 1997, several
commercial loan officers, experienced in the Puget Sound region, were hired to
continue the expansion. The loan officers, in addition to bringing to the Bank
some previous
40
<PAGE>
customer relationships, have taken advantage of the opportunity to attract
customers of banks that have been acquired in the recent wave of mergers with
out-of-area acquirors. Such customers often perceive that non-local decision
makers do not provide the efficient, personal service they were used to
receiving. It is possible that the large out-of-area acquirors will begin to
better serve small business and professionals. Heritage Bank anticipates,
however, that it will, by then, have more fully developed its reputation as a
commercial lender. As the Bank pursues its strategy, management is continuing
to emphasize strong asset quality.
The Bank's overall lending operations are guided by loan policies which are
reviewed and approved annually by its Board of Directors, and which outline
the basic policies and procedures by which lending operations are conducted.
Generally, the policies address the types of loans, underwriting and
collateral requirements, terms, interest rate and yield considerations, and
compliance with laws and regulations. The Bank supplements its own supervision
of the loan underwriting and approval process with periodic but informal loan
audits by an experienced internal loan quality specialist, who reviews credit
quality, loan documentation and compliance with laws and regulations.
During the loan process, the Bank assesses both the borrower's ability to
repay the loan and the adequacy of the underlying collateral. Potential
residential borrowers complete an application which is submitted to a loan
officer of the Bank. As part of the loan application process, qualified
independent fee appraisers inspect and appraise the property which is offered
to secure the loan. The Bank also obtains information concerning the income,
financial condition, employment, and credit history of the applicant. The
Bank's loan officers and the loan underwriting department analyze the loan
application and the property to be used as collateral. Loans to be sold on the
secondary market are approved or denied based on guidelines established by
secondary market agencies such as the Federal National Mortgage Association
("FNMA"), the Federal Housing Authority (the "FHA") or the Veteran's
Administration (the "VA"). Loans to be placed in the portfolio are approved or
denied by a loan committee consisting of the loan officer and the Chief
Executive Officer. Loan requests for less than $1.5 million and where the
borrower's total bank liability is less than $1.5 million may be approved by
the Chief Executive Officer. Loan requests for over $1.5 million or any
request where the borrower's total bank liabilities exceeds $1.5 million must
be approved by the Chief Executive Officer and either the Board of Directors
or the Board Executive Committee.
41
<PAGE>
The following table sets forth at the dates indicated the Bank's loan
portfolio composition by type of loan. These balances are net of deferred loan
fees and prior to deduction for the allowance for loan losses.
<TABLE>
<CAPTION>
AT JUNE 30
----------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
---------------- ---------------- ---------------- ---------------- ----------------
% OF % OF % OF % OF % OF
TOTAL TOTAL TOTAL TOTAL TOTAL
BALANCE LOANS BALANCE LOANS BALANCE LOANS BALANCE LOANS BALANCE LOANS
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 1,203 0.92% $ 4,902 3.80% $ 9,983 6.31% $ 18,269 10.82% $ 39,445 18.95%
Real estate mortgages
One- to four-family
residential(1)........ 73,431 56.29 70,019 54.25 90,985 57.52 93,157 55.15 103,439 49.68
Five or more family
residential and
commercial
properties............ 40,395 30.97 39,731 30.78 38,494 24.33 42,560 25.20 51,209 24.60
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total real estate
mortgages............. 113,826 87.26 109,750 85.03 129,479 81.85 135,717 80.35 154,648 74.28
Real estate construction
One- to four-family
residential........... 12,115 9.29 13,251 10.26 16,504 10.43 14,509 8.59 12,683 6.09
Five or more family
residential and
commercial
properties............ 2,970 2.28 -- -- 1,538 0.97 393 0.23 1,029 0.50
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total real estate
construction(2)....... 15,085 11.57 13,251 10.26 18,042 11.40 14,902 8.82 13,712 6.59
Consumer................ 997 0.76 1,934 1.50 1,812 1.15 1,105 0.65 1,467 0.70
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Gross loans............. $131,111 100.51% $129,837 100.59% $159,316 100.71% $169,993 100.64% $209,272 100.52%
Less deferred loan
fees................... (662) (0.51) (763) (0.59) (1,126) (0.71) (1,090) (0.64) (1,079) (0.52)
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans............. $130,449 100.00% $129,074 100.00% $158,190 100.00% $168,903 100.00% $208,193 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
- --------
(1) Includes loans held for sale of $7,435, $4,110, $5,944, $5,286 and $6,322,
respectively.
(2) Balances are net of undisbursed loan proceeds.
The following table presents at June 30, 1997, (i) the aggregate maturities
of loans in the named categories of the Bank's loan portfolio and (ii) the
aggregate amounts of fixed rate and variable or adjustable rate loans in the
named categories that mature after one year:
<TABLE>
<CAPTION>
MATURING
-------------------------------
WITHIN 1-5 AFTER
1 YEAR YEARS 5 YEARS TOTAL
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial.................................. $17,341 $ 8,791 $13,313 $39,445
Real estate construction.................... 10,718 2,364 630 13,712
------- ------- ------- -------
Total..................................... $28,059 $11,155 $13,943 $53,157
======= ======= ======= =======
Fixed rate loans............................ $ 6,444 $ 5,395 $11,839
Variable or adjustable rate loans........... 4,711 8,548 13,259
------- ------- -------
Total..................................... $11,155 $13,943 $25,098
======= ======= =======
</TABLE>
REAL ESTATE LENDING
One- to Four-Family Residential Real Estate Lending. The majority of
residential loans have been originated through the Bank and are secured by
one- to four-family residences located in the Bank's primary market area. The
Bank's underwriting standards require that one- to four-family portfolio loans
generally be owner-occupied and that loan amounts not exceed 80% (90% with
private mortgage insurance) of the current appraised value or cost, whichever
is lower, of the underlying collateral. Terms typically range from 15 to 30
years. The Bank offers both fixed-rate mortgages and adjustable rate mortgages
("ARMs"), with repricing based on a Treasury Bill or other index. The Bank's
ability to generate volume in ARMs however, is largely a function
42
<PAGE>
of consumer preference and the interest rate environment. The Bank's current
policy is not to make ARMs with discounted initial interest rates (i.e.,
"teasers"). The Bank generally sells all government guaranteed mortgages both
fixed rate and adjustable rate. In addition, in connection with management's
strategies to control the Bank's interest rate sensitivity position, the Bank
determines from time to time to what extent it will retain or sell other ARMs
and other fixed rate mortgages. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Asset/Liability Management." At
June 30, 1997, the Bank had $103.4 million, or 49.7%, of the Bank's total
loans receivable, in one-to-four family residential mortgage loans of which
$80.3 million, or 77.6% of this category, are at fixed interest rates.
Multifamily and Commercial Real Estate Lending. The Bank has made, and
anticipates continuing to make, on a selective basis, multifamily and
commercial real estate loans in the Bank's primary market areas. Commercial
real estate loans are made for small shopping centers, warehouses and
professional offices, generally owner occupied. Cash flow coverage to debt
servicing requirements is generally 1.2 times or more. The Bank's underwriting
standards generally require that the loan-to-value ratio for multifamily and
commercial real estate loans not exceed 80% of appraised value or cost,
whichever is lower.
At June 30, 1997, the Bank had $51.2 million, or 24.6% of the Bank's total
loans receivable, in multifamily and commercial real estate loans secured by
properties located primarily in the Bank's primary market area. Of the $51.2
million, $9.9 million, or 19.3% of this category, are at fixed interest rates.
Multifamily and commercial real estate loans generally range in principal
balance from $1.0 million to $2.0 million. At June 30, 1997, the largest such
loan had an outstanding principal balance of $3.1 million and was secured by a
144 unit apartment complex located in the Bank's primary market area. At June
30, 1997, this loan was performing according to its terms.
Multifamily and commercial real estate mortgage lending affords the Bank an
opportunity to receive interest at rates higher than those generally available
from one- to four-family residential lending. However, loans secured by such
properties usually are greater in amount, more difficult to evaluate and
monitor and, therefore, involve a greater degree of risk than one- to four-
family residential mortgage loans. Because payments on loans secured by
multifamily and commercial real estate properties are often dependent on the
successful operation and management of the properties, repayment of such loans
may be affected by adverse conditions in the real estate market or the
economy. The Bank seeks to minimize these risks by strictly scrutinizing the
financial condition of the borrower, the quality of the collateral and the
management of the property securing the loan. The Bank also generally obtains
personal guarantees from financially capable borrowers based on a review of
personal financial statements.
Construction Loans. The Bank originates one- to four-family residential
construction loans for the construction of custom homes (where the home buyer
is the borrower) and provides financing to builders for the construction of
pre-sold homes and speculative residential construction. The Bank loans to
builders who have demonstrated a favorable record of performance and
profitable operations and who are building in markets that management
understands and in which it is comfortable with the economic conditions. The
Bank further endeavors to limit its construction lending risk through
adherence to strict underwriting procedures. Loans to one builder are
generally limited on a case-by-case basis with unsold home limits based on
builder strengths. Heritage Bank's underwriting standards require that the
loan-to-value ratio for pre-sold homes and speculative residential
construction not exceed 80% of appraised value or builder's cost less
overhead, whichever is less. Speculative construction and land development
loans are generally priced with a variable rate of interest using the prime
rate as the index. The Bank generally requires builders to have some tangible
form of equity in each construction project. That objective may be achieved by
restricting draws to less than the acquisition cost of land plus a percentage
of the builder's costs less overhead incurred to date, requiring that loan
fees be paid from outside funds, requiring the builder to place equity funds
in a construction loan account or by not reimbursing fees incurred by the
builder such as legal fees, architectural fees, and building permits. Also,
the Bank generally requires prompt and thorough documentation of all draw
requests and utilizes outside inspectors to inspect the project prior to
paying any draw requests from builders.
43
<PAGE>
Construction lending affords the Bank the opportunity to achieve higher
interest rates and fees with shorter terms to maturity than does its single-
family permanent mortgage lending. Construction lending, however, is generally
considered to involve a higher degree of risk than single-family permanent
mortgage lending because of the inherent difficulty in estimating both a
property's value at completion of the project and the estimated costs of the
project. The nature of these loans is such that they are generally more
difficult to evaluate and
monitor. If the estimate of construction cost proves to be inaccurate, the
Bank may be required to advance funds beyond the amount originally committed
to permit completion of the project. If the estimate of value upon completion
proves to be inaccurate, the Bank may be confronted with a project whose value
is insufficient to assure full repayment. Projects may also be jeopardized by
disagreements between borrowers and builders and by the failure of builders to
pay subcontractors. Loans to builders to construct homes for which no
purchaser has been identified carry more risk because the payoff for the loan
depends on the builder's ability to sell the property prior to the time that
the construction loan is due.
At June 30, 1997, the Bank had $13.7 million, or 6.6% of the Bank's total
loans receivable, in real estate construction loans. The majority of these
construction loans, $12.7 million, are for one-to-four family residential
properties. Of the $13.7 million total, most of these loans have variable
interest rates and only $2.8 million have fixed interest rates.
The Bank has reduced its activity in residential construction lending with
originations of $16.3 million for fiscal 1997, $20.5 million in fiscal 1996
and $21.3 million for fiscal 1995. The reductions reflect changes in market
conditions rather than a decision to deemphasize residential construction
lending.
COMMERCIAL BUSINESS LENDING
The Bank offers commercial loans to sole proprietorships, partnerships and
corporations in real estate related industries and firms in the health care,
legal and other professions. The types of commercial loans offered are
business lines of credit which are secured by real estate or securities,
business term loans secured by real estate for either working capital or lot
acquisition, Small Business Association ("SBA") loans and unsecured business
loans. Unsecured credit is reserved for business customers with impeccable
character and demonstrated capability to repay. All unsecured loans in excess
of $150,000 require the approval of the Chief Executive Officer. All unsecured
loans in excess of $500,000 require approval of the Board of Directors.
Commercial business lending generally involves greater risk than residential
mortgage lending and involves risks that are different from those associated
with residential and commercial real estate lending. Real estate lending is
generally considered to be collateral based lending with loan amounts based on
predetermined loan to collateral values and liquidation of the underlying real
estate collateral is viewed as the primary source of repayment in the event of
borrower default. Although the Bank's commercial business loans are often
collateralized by real estate, the decision to grant a commercial business
loan depends primarily on the creditworthiness and cash flow of the borrower
(and any guarantors), while liquidation of collateral is a secondary source of
repayment.
As of June 30, 1997, the Bank had $39.4 million, or 18.9% of the Bank's
total loans receivable, in commercial business loans. Collateral for these
loans is generally owner occupied business or residential real estate. The
Bank generally limits its exposure to any one borrowing relationship to $1.5
million, though loan relationships up to $4.0 million have been approved.
CONSUMER LENDING
The Bank does not actively solicit consumer loans, which are offered
primarily as a convenience to existing customers. While these types of loans
are primarily secured by real estate, they also include savings and
certificate of deposit loans, vehicle and recreational vehicle loans, stock
secured loans and secured and unsecured lines of credit.
44
<PAGE>
ORIGINATION AND SALES OF LOANS
The Bank originates real estate and other loans at each of the Bank's
offices with approximately two-thirds of the residential mortgage volumes
generated from its two loan origination offices. Walk-in customers and
referrals from real estate brokers are important sources of loan originations.
Consistent with the Bank's asset/liability management strategy, the Bank
sells a majority of its fixed rate and ARM residential mortgage loans into the
secondary market. Commitments to sell mortgage loans generally are made during
the period between the taking of the loan application and the closing of the
mortgage loan. The timing of making these sale commitments is dependent upon
the timing of the borrower's election to lock-in the mortgage interest rate
and fees prior to loan closing. Most of these sale commitments are made on a
"best
efforts" basis whereby the Bank is only obligated to sell the mortgage if the
mortgage loan is approved and closed by the Bank.
When the Bank sells mortgage loans, it typically also sells the servicing of
the loans (i.e., collection of principal and interest payments). The Bank
serviced $23.3 million and $19.2 million in loans for others as of June 30,
1996 and 1997, respectively. The Bank received fee income of $75,000 during
fiscal 1997 for these servicing activities.
The following table presents summary information concerning the Bank's
origination and sale of residential mortgage loans and the gains achieved on
such activities.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1995 1996 1997
------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
One- to four-family residential mortgage loans:
Originated..................................... $93,564 $140,232 $104,145
Sold........................................... 63,261 119,544 87,003
Gains on sales of loans, net..................... $ 1,665 $ 3,049 $ 2,006
</TABLE>
The decrease in volume of originations of one- to four-family residential
mortgage loans in 1997 compared with 1996 was due to weakness in the
residential mortgage market and the loss of two key producers by the end of
fiscal 1996. The Bank has a minimal amount of purchased loans and loan
participations.
COMMITMENTS AND CONTINGENT LIABILITIES
In the ordinary course of business, the Bank enters into various types of
transactions that include commitments to extend credit that are not included
in the Consolidated Financial Statements. The Bank applies the same credit
standards to these commitments as it uses in all its lending activities and
has included these commitments in its lending risk evaluations. The Bank's
exposure to credit loss under commitments to extend credit is represented by
the amount of these commitments. At June 30, 1997, the Bank had outstanding
commitments to extend credit, including letters of credit, in the amount of
$17.8 million.
DELINQUENCIES AND NONPERFORMING ASSETS
Delinquency Procedures. When a borrower fails to make a required payment on
a loan, the Bank attempts to cause the delinquency to be cured by contacting
the borrower. In the case of loans other than commercial business loans, a
late notice is sent 15 days after the due date. If the delinquency is not
cured by the 30th day, a second notice is mailed and, if appropriate, the
borrower is contacted by telephone. Additional written and verbal contacts are
made with the borrower between 60 and 90 days after the due date.
In the event a real estate loan payment is past due for 45 days or more,
loan servicing personnel perform an in-depth review of the loan status, the
condition of the property, and the circumstances of the borrower. Based upon
the results of its review, the Bank may negotiate and accept a repayment
program with the borrower, accept a voluntary deed in lieu of foreclosure or,
when deemed necessary, initiate foreclosure proceedings. If foreclosed
45
<PAGE>
on, real property is sold at a public sale and the Bank may bid on the
property to protect its interest. A decision as to whether and when to
initiate foreclosure proceedings is made by the loan committee and is based on
such factors as the amount of the outstanding loan in relation to the value of
the property securing the original indebtedness, the extent of the
delinquency, and the borrower's ability and willingness to cooperate in curing
the delinquency.
Real estate acquired by the Bank by deed in lieu of foreclosure or as a
result of foreclosure is classified as real estate owned ("REO") until it is
sold. When property is acquired, it is recorded at the lower of cost or
estimated fair value at the date of acquisition, not to exceed net realizable
value, and any write-down resulting therefrom is charged to the allowance for
loan losses. Upon acquisition, all costs incurred in maintaining the property
are expensed. Costs relating to the development and improvement of the
property, however, are capitalized to the extent of the property's net
realizable value.
The Bank considers loans as in-substance foreclosed if the borrower has
little or no equity in the property based upon its estimated fair value, if
repayment can be expected only to come from operation or sale of the
collateral, and if the borrower has effectively abandoned control of the
collateral or has continued to retain control of the collateral but because of
the borrower's current financial status, it is doubtful that the borrower will
be able to repay the loan in the foreseeable future.
Delinquencies in the commercial business loan portfolio are handled on a
case-by-case basis. Generally, notices are sent and personal contact is made
with the borrower when the loan is 15 days past due. Loan officers are
responsible for collecting loans they originate or which are assigned to them.
Depending on the nature of the loan and the type of collateral securing the
loan, the Bank may negotiate and accept a modified payment program or take
such other actions as the circumstances warrant.
Classification of Assets. Federal regulations require that the Bank classify
its assets on a regular basis. In addition, in connection with examinations of
the Bank, the Division 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 as Loss is considered uncollectible and of such
little value that continuance as an asset 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 Loss, the institution must charge off such amount. In
March 1997, the FDIC performed its most recent examination of the Bank and the
regulators' assessment of the Bank's classified assets is consistent with the
Bank's internal classifications.
46
<PAGE>
Nonperforming Assets. Nonperforming assets consist of nonaccrual loans,
restructured loans and real estate owned. The following table sets forth at
the dates indicated information with respect to nonaccrual loans, restructured
loans and real estate owned of the Bank.
<TABLE>
<CAPTION>
AT JUNE 30,
-------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans................. $ 97 $ 96 $ 96 $ 51 $ 133
Restructured loans............... -- -- -- -- --
------- ------- ------- ------- -------
Total nonperforming loans...... 97 96 96 51 133
Real estate owned................ 157 -- -- -- --
------- ------- ------- ------- -------
Total nonperforming assets..... $ 254 $ 96 $ 96 $ 51 $ 133
======= ======= ======= ======= =======
Accruing loans past due 90 days
or more......................... -- -- -- -- --
Potential problem loans.......... $ 3,662 $ 3,568 $ 3,718 $ 1,613 $ 68
Allowance for loan losses........ 1,658 1,705 1,720 1,873 2,752
Nonperforming loans to loans..... 0.07% 0.07% 0.06% 0.03% 0.06%
Allowance for loan losses to
loans........................... 1.27% 1.32% 1.09% 1.11% 1.32%
Allowance for loan losses to
nonperforming loans............. 1709.28% 1776.04% 1791.67% 3672.55% 2069.17%
Nonperforming assets to total
assets.......................... 0.14% 0.05% 0.05% 0.02% 0.05%
</TABLE>
Nonaccrual Loans. The Bank's financial statements are prepared on the
accrual basis of accounting, including the recognition of interest income on
its loan portfolio, unless a loan is placed on a nonaccrual basis. Loans are
placed on nonaccrual status when there are serious doubts about the
collectibility of principal or interest. The Bank's policy is to place a loan
on nonaccrual status when the loan becomes past due for 90 days or more.
Amounts received on nonaccrual loans generally are applied first to principal
and then to interest only after all principal has been collected.
At June 30, 1997, the Bank had $133,000 of nonaccrual loans which represents
one single family mortgage. Interest on nonaccrual loans foregone was
approximately $990 for the year ended June 30, 1997. There was no interest
foregone on nonaccrual loans in fiscal 1995 and 1996.
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level considered adequate
by management to provide for reasonably foreseeable loan losses based on
management's assessment of various factors affecting the loan portfolio,
including a review of problem loans, business conditions and loss experience
and an overall evaluation of the quality of the underlying collateral, holding
and disposal costs and costs of capital. The allowance is increased by
provisions for loan losses charged to operations and reduced by loans charged
off, net of recoveries.
While management believes that it uses the best information available to
determine the allowance for loan losses, unforeseen market conditions could
result in adjustments to the allowance for loan losses, and net income could
be significantly affected, if circumstances differ substantially from the
assumptions used in determining the allowance.
47
<PAGE>
The following table sets forth for the periods indicated information
regarding changes in the Bank's allowance for loan losses:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total loans outstanding at
end of period(1)........... $130,449 $129,074 $158,190 $168,903 $208,193
Average loans outstanding
during period.............. 125,829 123,800 144,266 161,501 184,617
Allowance balance at
beginning of period........ 2,511 1,658 1,705 1,720 1,873
Provision for loan losses... 926 -- -- -- (270)
Charge-offs:
Real estate(2)............ (1,866) -- -- -- --
Commercial................ -- -- -- -- (3)
Consumer.................. -- -- -- -- --
-------- -------- -------- -------- --------
Total charge-offs....... (1,866) -- -- -- (3)
-------- -------- -------- -------- --------
Recoveries:
Real estate(2)............ 87 47 15 153 1,152
Commercial................ -- -- -- -- --
Consumer.................. -- -- -- -- --
-------- -------- -------- -------- --------
Total recoveries........ 87 47 15 153 1,152
-------- -------- -------- -------- --------
Net (charge-offs)
recoveries........... (1,779) 47 15 153 1,149
-------- -------- -------- -------- --------
Allowance balance at end of
period..................... $ 1,658 $ 1,705 $ 1,720 $ 1,873 $ 2,752
======== ======== ======== ======== ========
Ratio of net (charge-offs)
recoveries during period to
average loans outstanding.. (1.41)% 0.04% 0.01% 0.09% 0.62%
======== ======== ======== ======== ========
</TABLE>
- --------
(1) Includes loans held for sale.
(2) During this five year period, all of the charge-offs and recoveries shown
under the real estate category relate to real estate mortgages. None of
the above activity related to real estate construction loans.
The following table shows the allocation of the allowance for loan losses
for the last five years. The allocation is based upon an evaluation of defined
loan problems, historical ratios of loan losses for the Bank and industry wide
and other factors which may affect future loan losses in the categories shown
below:
<TABLE>
<CAPTION>
AT JUNE 30
-------------------------------------------------------------------------------
1993 1994 1995 1996 1997
--------------- --------------- --------------- --------------- ---------------
% OF % OF % OF %OF % OF
TOTAL TOTAL TOTAL TOTAL TOTAL
AMOUNT LOANS(1) AMOUNT LOANS(1) AMOUNT LOANS(1) AMOUNT LOANS(1) AMOUNT LOANS(1)
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE APPLICABLE TO:
Commercial.............. $ 34 0.9% $ 144 3.8% $ 200 6.3% $ 446 10.8% $1,094 18.8%
Real estate mortgages:
One- to four-family
residential........... 100 56.0 92 53.9 115 57.1 110 54.8 128 49.4
Five or more family
residential and
commercial
properties............ 1,190 30.8 1,120 30.6 1,136 24.2 959 25.0 748 24.5
Real estate
construction:
One- to four-family
residential........... 175 9.2 248 10.2 182 10.4 239 8.5 197 6.1
Five or more family
residential and
commercial
properties............ 89 2.3 -- 0.0 29 0.9 12 0.2 31 0.5
Consumer................ 6 0.8 13 1.5 10 1.1 3 0.7 7 0.7
Unallocated............. 64 88 48 103 546
------ ------ ------ ------ ------
Total.................. $1,658 100.0% $1,705 100.0% $1,720 100.0% $1,873 100.0% $2,752 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
- --------
(1) Represents the total of all outstanding loans in each category as a
percent of total loans outstanding.
48
<PAGE>
INVESTMENT ACTIVITIES
Investment securities are those securities which the Bank has the ability to
hold to maturity and the intent to hold on a long-term basis or until
maturity. Events which may be reasonably anticipated are considered when
determining the Bank's intent to hold investment securities for the
foreseeable future. Investment securities are carried at cost, adjusted for
amortization of premiums and accretion of discounts. At June 30, 1997, the
Bank had no securities classified as available for sale or trading.
The investment policy of the Bank, which is established by the Board of
Directors and monitored by the Audit and Finance Committee, is designed
primarily to provide and maintain liquidity, to generate a favorable return on
investments without incurring undue interest rate and credit risk, and to
complement the Bank's lending activities. This policy dictates that
investments will be made with the intent of holding them to maturity. The
Bank's policy permits investment in various types of liquid assets permissible
under applicable regulations, which include U.S. Treasury obligations, U.S.
Government agency obligations, certain certificates of deposit of insured
banks, FHLB stock and federal funds. Investment in non-investment grade bonds
is not permitted under this policy.
The following table summarizes the amortized cost, gross unrealized gains
and losses and the resulting fair value of securities held for investment:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
June 30, 1995:
U.S. Government and its agencies...... $18,094 $ 24 $ (70) $18,048
Mortgage backed securities............ 7,465 314 (5) 7,774
------- ---- ----- -------
Total held for investment........... 25,559 338 (75) 25,822
June 30, 1996:
U.S. Government and its agencies...... 15,292 5 (127) 15,170
Mortgage backed securities............ 5,979 159 (2) 6,136
------- ---- ----- -------
Total held for investment........... 21,271 164 (129) 21,306
June 30, 1997:
U.S. Government and its agencies...... 8,506 9 (17) 8,498
Mortgage backed securities............ 5,159 224 (3) 5,380
------- ---- ----- -------
Total held for investment........... $13,665 $233 $ (20) $13,878
======= ==== ===== =======
</TABLE>
For the above indicated dates, the Bank had no securities available for sale
or trading.
The following table sets forth certain information regarding the carrying
value, weighted average yields and maturities or periods to repricing of the
Bank's investment securities and mortgage backed securities at June 30, 1997.
<TABLE>
<CAPTION>
US GOVERNMENT AND ITS MORTGAGE BACKED
AGENCIES SECURITIES TOTAL
---------------------- ---------------------- -----------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE YIELD COST VALUE YIELD COST VALUE YIELD
--------- ------ ----- --------- ------ ----- --------- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Less than one year...... $3,817 $3,820 5.87% $ 35 $ 37 8.28% $ 3,851 $ 3,857 5.90%
One to five years....... 4,689 4,678 5.83 23 24 8.50 4,712 4,702 5.84
Five to ten years....... -- -- -- 207 209 7.92 207 209 7.92
After ten years......... -- -- -- 4,894 5,110 8.32 4,894 5,110 8.32
------ ------ ------ ------ ------- -------
Total................. $8,506 $8,498 $5,159 $5,380 $13,665 $13,878
====== ====== ====== ====== ======= =======
</TABLE>
49
<PAGE>
The Bank held $1.5 million of FHLB stock at June 30, 1997. The stock has no
contractual maturity and amounts in excess of the required minimum for FHLB
membership may be redeemed at par. At June 30, 1997, the Bank was required to
maintain an investment in the stock of FHLB of Seattle of at least $1.4
million.
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
General. The Bank's primary sources of funds are customer deposits and loan
repayments. Scheduled loan repayments are a relatively stable source of funds,
while deposit inflows and outflows and unscheduled loan prepayments, which are
influenced significantly by general interest rate levels, interest rates
available on other investments, competition, economic condition and other
factors, are not. Although the Bank's deposit balances have been increasing,
such balances have been influenced in the past by adverse changes in the
thrift industry and may be affected by such developments in the future.
Borrowings may be used on a short term basis to compensate for reductions in
other sources of funds (such as deposit inflows at less than projected
levels). Borrowings may also be used on a longer term basis to support
expanded lending activities and to match the maturity or repricing intervals
of assets.
Deposit Activities. The Bank offers a variety of accounts for depositors
designed to attract both short term and long term deposits. These accounts
include certificates of deposit ("CDs"), regular savings accounts, money
market accounts, checking and negotiable order of withdrawal ("NOW") accounts,
and individual retirement accounts ("IRAs"). These accounts generally earn
interest at rates established by management based on competitive market
factors and management's desire to increase or decrease certain types or
maturities of deposits. At June 30, 1997, the Bank had no brokered deposits.
The more significant deposit accounts offered by Heritage Bank are described
below.
CERTIFICATES OF DEPOSIT. The Bank offers several types of CDs with
maturities ranging from 30 days to five years and which require a minimum
deposit of $100. In addition, the Bank offers a CD that has a maturity of
four to 11 months and a minimum deposit of $2,500 and permits additional
deposits at the initial rate throughout the certificate term. Interest is
credited quarterly or at maturity. Finally, jumbo CDs are offered in
amounts of $100,000 or more for terms of 30 days to 12 months. The jumbo
CDs pay simple interest and are credited either quarterly or at maturity.
REGULAR SAVINGS ACCOUNTS. The Bank offers savings accounts that allow for
unlimited deposits and withdrawals, provided that a $100 minimum balance is
maintained. Interest is compounded daily and credited quarterly.
MONEY MARKET ACCOUNTS. Money market accounts pay a variable interest rate
that is tiered depending on the balance maintained in the account. Minimum
opening balances vary. Interest is compounded daily and paid monthly.
CHECKING AND NOW ACCOUNTS. Checking and NOW accounts are non-interest and
interest bearing and may be charged service fees based on activity and
balances. NOW accounts pay interest, but require a higher minimum balance
to avoid services charges.
INDIVIDUAL RETIREMENT ACCOUNTS. IRAs permit contributions of up to $2,000
per year and pay interest at fixed rates. Maturities are available from one
to five years and interest is compounded daily and credited quarterly.
50
<PAGE>
SOURCES OF FUNDS
Deposit Activities. The following table sets forth for the periods indicated
the average balances outstanding and the weighted average interest rates for
each major category of deposits:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
----------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------------ ------------------ ------------------ ------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
AVERAGE RATE AVERAGE RATE AVERAGE RATE AVERAGE RATE AVERAGE RATE
BALANCE(1) PAID BALANCE(1) PAID BALANCE(1) PAID BALANCE(1) PAID BALANCE(1) PAID
---------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest bearing demand
and money market
Accounts............... $ 27,018 3.26% $ 34,932 2.99% $ 40,594 3.19% $ 36,930 3.15% $ 42,271 3.18%
Savings................. 27,283 3.63 31,520 3.26 28,178 3.29 28,407 3.63 29,703 3.55
Certificates of
deposit................ 95,622 5.32 88,904 4.68 89,602 4.93 109,559 5.78 119,133 5.54
Total interest bearing
deposits.............. 149,923 4.64 155,355 4.02 158,374 4.19 174,895 4.88 191,107 4.71
Demand and other
noninterest bearing
deposits............... 4,256 6,183 6,001 6,537 7,955
-------- -------- -------- -------- --------
Total deposits......... $154,179 4.51% $161,538 3.86% $164,375 4.04% $181,432 4.70% $199,063 4.52%
======== ======== ======== ======== ========
</TABLE>
- --------
(1) Average balances were calculated using average daily balances.
The following table sets forth for the periods indicated the change in the
balances of deposits during the year and the impact of interest credited
thereon.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net increase in deposits........................ $ 8,875 $16,322 $18,662
Less: Interest credited....................... (6,639) (8,528) (8,999)
------- ------- -------
Net increase before interest credited........... $ 2,236 $ 7,794 $ 9,663
======= ======= =======
</TABLE>
The following table shows the amount and maturity of certificates of deposit
that had balance of $100,000 or more as of June 30, 1997:
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------
(IN THOUSANDS)
<S> <C>
Remaining maturity:
Three months or less...................................... $ 8,330
Over three months through six months...................... 1,670
Over six months through 12 months......................... 6,234
Over twelve months........................................ 1,748
-------
Total................................................... $17,982
=======
</TABLE>
At June 30, 1996 and 1997 certificates of deposits with balances of $100,000
or more totaled $11.7 million and $18.0 million, respectively.
In the unlikely event the Bank is liquidated after the Conversion,
depositors will be entitled to full payment of their deposit accounts prior to
any payment being made to the Company's stockholders. Substantially all of the
Bank's depositors are residents of the State of Washington.
Borrowings. Savings deposits are the primary source of funds for the Bank's
lending and investment activities and for its general business purposes. The
Bank has in the past, however, relied upon advances from the FHLB of Seattle
to supplement its supply of lendable funds and to meet deposit withdrawal
requirements.
51
<PAGE>
The FHLB of Seattle has served as one of the Bank's secondary sources of
liquidity. Advances from the FHLB of Seattle are typically secured by the
Bank's first mortgage loans, and stock issued by the FHLB of Seattle, which is
held by the Bank. At June 30, 1997, the Bank had advances from the FHLB of
Seattle totaling $890,000.
The FHLB functions as a central reserve bank providing credit for savings
and loan associations and certain other member financial institutions. As a
member, the Bank is required to own capital stock in the FHLB and is
authorized to apply for advances on the security of such stock and certain of
its mortgage loans and other assets (principally securities which are
obligations of, or guaranteed by, the United States) provided certain
standards related to creditworthiness have been met. Advances are made
pursuant to several different programs. Each credit program has its own
interest rate and range of maturities. Depending on the program, limitations
on the amount of advances are based either on a fixed percentage of an
institution's net worth or on the FHLB's assessment of the institution's
creditworthiness. Under its current credit policies, the FHLB of Seattle
generally limits advances to 20.0% of a member's assets, and short term
borrowings of less than one year may not exceed 10.0% of the institution's
assets. The FHLB of Seattle determines specific lines of credit for each
member institution.
In August 1986, Heritage Capital Corporation ("HCC"), a special purpose
wholly owned finance subsidiary, issued and sold $21.9 million aggregate
principal amount of collateralized mortgage obligations. These bonds,
including interest, were repaid in quarterly installments from principal and
interest payments on the underlying collateral. In August 1995, HCC called and
repaid the then remaining unpaid balance of the bonds in accordance with the
terms of the indenture. HCC was then liquidated.
COMPETITION
The Bank competes for loans and deposits with other thrifts, commercial
banks, credit unions, mortgage bankers and other institutions in the scope and
type of services offered, interest rates paid on deposits, pricing of loans,
and number and locations of branches, among other things. Many of these
competitors have substantially greater resources than the Bank. Particularly
in times of high interest rates, the Bank also faces significant competition
for investors' funds from short term money market securities and other
corporate and government securities.
The Bank competes for loans principally through the range and quality of the
services it provides, interest rates and loan fees, and the locations of its
branches. The Bank actively solicits deposit-related clients and competes for
deposits by offering depositors a variety of savings accounts, checking
accounts and other services.
Competition has intensified as a result of changes in Washington banking
laws that permit (i) statewide branching of Washington-domiciled financial
institutions and (ii) out-of-state holding companies to acquire Washington-
based financial institutions, provided that the laws of the state in which the
out-of-state institutions conduct their principal operations similarly permit
a Washington-based institution to acquire financial institutions domiciled in
their state. During the past several years, substantial consolidation among
financial institutions in Washington has occurred. Management believes that
due to this consolidation, customers in the Bank's market areas will seek a
relationship with smaller, service-oriented institutions like the Bank.
PROPERTIES
The Company's executive offices and the main office of the Bank are located
in approximately 18,000 square feet of the headquarters building and adjacent
office space which is owned and located in downtown Olympia. At June 30, 1997,
the Bank had five offices located in Thurston County, including the main
office, all of which are owned, with one office located on leased land, one
office in Shelton, Mason County, which is owned, and four offices in Tacoma
and surrounding areas of Pierce County, all but one of which is owned.
EMPLOYEES
At June 30, 1997, the Bank had 145 full-time equivalent employees. The Bank
believes that employees play a vital role in the success of a service company.
None of the Bank's employees are covered by a collective bargaining agreement
with the Bank and management believes that they have a good relationship with
the employees.
52
<PAGE>
SUBSIDIARIES
At June 30, 1997, the Bank has one wholly-owned subsidiary, Sound Service
Associates, Inc. Sound Service Associates, Inc.'s operations consist of the
sale of tax-deferred annuities, mutual funds and other securities.
LEGAL PROCEEDINGS
Periodically and in the ordinary course of business, various claims and
lawsuits are brought against the Bank, such as claims to enforce liens,
condemnation proceedings on properties in which the Bank holds security
interest, claims involving the making and servicing of real property loans and
other issues incident to the Bank's business. In the opinion of the Bank's
management and outside legal counsel, the ultimate liability, if any,
resulting from such claims or lawsuits will not have a material adverse effect
on the financial position or results of operations of the Bank.
FEDERAL TAXATION
General. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax
rules applicable to the Bank.
The Bank has been permitted under the Internal Revenue Code to deduct an
annual addition to a reserve for bad debts in determining taxable income,
subject to certain limitations. The deduction was based on either specified
experience formulas or a percentage of taxable income before such deduction.
The Bank used the percentage of taxable income method for the years ended June
30, 1995 and 1996. This deduction has historically been greater than the loan
loss provisions recorded for financial accounting purposes. Deferred income
taxes are provided on differences between the bad debt reserve for tax and
financial reporting purposes only to the extent of the tax reserves arising
subsequent to June 30, 1988. Savings institutions were not required to provide
a deferred tax liability for the tax bad debt reserves accumulated as of June
30, 1988 which for the Bank amounted to $938,000. Starting in the fiscal year
ended June 30, 1994, the Bank established and maintained a deferred income tax
liability of $938,000 due to the potential recapture of the pre-1988 tax bad
debt reserve which could have been triggered by the formation of the mutual
holding company; a change to a commercial bank charter (which management had
been contemplating); or possible legislation which was being debated in
Congress.
Legislation enacted in August 1996 eliminated certain conditions under which
recapture of the pre-1988 additions to the tax bad debt reserve would be
required. Such conditions are principally conversion to a commercial bank
charter or merger with a commercial bank. The pre-1988 reserves would be
required to be recaptured under certain other conditions such as payment of
dividends in excess of accumulated earnings and profits or other distributions
made in connection with the dissolution or liquidation of the Bank. Based on
this legislation, the Bank reversed the $938,000 deferred tax liability as a
reduction of Federal income tax expense during the year ended June 30, 1997.
The legislation also repealed the reserve method for determining income tax
deductions described above. Under the legislation, the Bank will be required
to recapture the post-1988 additions to its bad debt reserve as taxable income
over a six to eight year period. The Bank has provided the appropriate
deferred tax liability for these post-1988 additions in the prior years so
this legislation had no adverse impact on the results of operations for the
year ended June 30, 1997.
STATE TAXATION
The State of Washington does not currently have a net income tax. A business
and occupation tax based on a percentage of gross receipts is assessed on the
Bank at 1.6% of gross receipts; however interest received on loans secured by
first mortgages or deeds of trust on residential properties is not subject to
such tax. The Bank was most recently audited in August 1995 by the Washington
State Department of Revenue for the period January 1991 through September
1994.
53
<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers of the Bank. The Board is presently comprised
of seven members who are elected annually and until their successors are
elected and qualified. Executive officers are elected to serve annually at the
discretion of the Board of Directors. All persons listed below are expected to
serve as the directors and executive officers of the Company and the Bank
following the Conversion.
DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION WITH BANK SINCE
- ---- --- ------------------ --------
<S> <C> <C> <C>
Donald V. Rhodes......... 61 Director, Chairman of the Board, 1989
President and Chief Executive Officer of
the Company; Chairman of the Board,
President and Chief Executive Officer of
the Bank (1)(2)
Lynn M. Brunton.......... 59 Director (1)(2)(3) 1990
John A. Clees............ 49 Director (1)(2)(3) 1990
Daryl D. Jensen.......... 58 Director (1)(3) 1985
H. Edward Odegard........ 66 Director (2) 1987
James P. Senna........... 62 Director 1976
Philip S. Weigand........ 59 Director (1)(2) 1985
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
<CAPTION>
NAME AGE POSITION WITH BANK
- ---- --- ------------------
<S> <C> <C> <C>
John D. Parry............ 51 Executive Vice President--Administration
Brian L. Vance........... 43 Executive Vice President--Loan
Administration
James Hastings........... 45 Senior Vice President and Treasurer
Wendy K. Gauksheim....... 37 Senior Vice President--Corporate
Services Officer and Corporate Secretary
of the Bank
</TABLE>
- --------
(1) Serves as a member of the Executive Committee.
(2) Serves as a member of the Audit and Finance Committee.
(3) Serves as a member of the Personnel and Compensation Committee.
The principal occupation during the past five years of each director and
executive officer of the Bank is set forth below. All directors and executive
officers have held their present positions with Heritage Bank for five years
unless otherwise stated.
DONALD V. RHODES has been a director, President and Chief Executive Officer
of the Bank since 1989. He was elected as Chairman of the Board in 1990. Since
1985, Mr. Rhodes has also served as Chairman, President and Chief Executive
Officer of Washington Independent Bancshares, Inc., and as Chairman and Chief
Executive Officer of that company's wholly owned subsidiary, Central Valley
Bank, at June 30, 1997 a $48.6 million in assets commercial bank headquartered
in Toppenish, Washington.
LYNN M. BRUNTON is presently a community volunteer. As a community volunteer
she serves as a member of the St. Peter Hospital Community Board and is
actively involved in several local and community organizations.
JOHN A. CLEES is the President of Clees Miles CPA Group, since October 1995
and was managing partner of Gattis, Clees and Company, an accounting firm
located in Olympia, Washington prior to that time.
DARYL D. JENSEN is the President and a director of Sunset Life Insurance
Company of America, and serves as a director of its parent company, Kansas
City Life Insurance Company.
54
<PAGE>
H. EDWARD ODEGARD is recently retired. Mr. Odegard was the co-owner and
manager of The Valley Athletic Club, Tumwater, Washington, from 1974 to 1993.
JAMES P. SENNA is the President and Chief Executive Officer of Shee Atika,
Incorporated, Sitka, Alaska.
PHILIP S. WEIGAND is a retired Lieutenant Colonel after 20 years of service
with the U.S. Marine Corps and is currently a real estate agent with Virgil
Adams Real Estate, located in Olympia, Washington.
JOHN D. PARRY has been employed by Heritage Bank since 1994, currently
serving as Executive Vice President--Administration. Prior to joining the
Bank, Mr. Parry was Senior Vice President in charge of Washington banking
operations of the Washington Division, Great American First Savings Bank, a
California headquartered thrift institution.
BRIAN L. VANCE has been employed by Heritage Bank since 1996, currently
serving as Executive Vice President--Loan Administration. Prior to joining the
Bank, Mr. Vance was employed for over 20 years with West One Bank, an Idaho
headquartered commercial bank, in both Idaho and Washington. Prior to leaving
West One, he was Senior Vice President and Regional Manager of banking
operations for the South Puget Sound Region.
JAMES HASTINGS has been employed by Heritage Bank since 1985, currently
serving as Senior Vice President and Treasurer. Mr. Hastings is a Certified
Public Accountant with over 20 years of banking and thrift experience either
in public accounting or with financial institutions.
WENDY K. GAUKSHEIM has been employed by Heritage Bank since 1987, currently
serving as Senior Vice President--Corporate Services Officer.
55
<PAGE>
BENEFICIAL OWNERSHIP OF BANK COMMON STOCK
The following table sets forth, as of June 30, 1997, certain information as
to the beneficial ownership of Bank Common Stock by: (i) persons known by the
Bank to beneficially own more than 5% of the outstanding shares of Common
Stock, except for MHC; (ii) the directors of the Bank; (iii) the executive
officers of the Bank; and (iv) by all officers and directors as a group. For
purposes of this table, an individual is considered to beneficially own shares
of Bank Common Stock if he or she has or shares voting power (which includes
the power to vote or direct the voting of the shares) or investment power
(which includes the power to dispose of or direct the disposition of the
shares). Unless otherwise indicated, all shares are owned directly by the
officers and directors or by the officers and directors indirectly through a
trust, corporation or association, or by the officers and directors or their
spouses as custodians or trustees for the shares of minor children. Shares
which are subject to stock options that are exercisable within 60 days of June
30, 1997 are deemed to be beneficially owned. For information regarding
proposed purchases of Conversion Stock by the directors and officers and their
anticipated ownership of Common Stock upon consummation of the Conversion, see
"Conversion Stock to be Purchased by Management Pursuant to Subscription
Rights."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AT JUNE 30, 1997
------------------------------
PERCENT OF OUTSTANDING
NAME NUMBER BANK COMMON STOCK
---- ------- ----------------------
<S> <C> <C>
Donald V. Rhodes (1)........................ 37,780 2.1%
Lynn M. Brunton (2)......................... 17,000 0.9
John A. Clees (3)........................... 14,000 0.8
Daryl D. Jensen (4)......................... 20,000 1.1
H. Edward Odegard (5)....................... 17,000 0.9
James P. Senna (6).......................... 12,000 0.7
Philip S. Weigand (7)....................... 19,142 1.0
John D. Parry (8)........................... 8,200 0.4
Brian L. Vance (9).......................... 3,666 0.2
James Hastings (10)......................... 6,100 0.3
Wendy K. Gauksheim.......................... 4,215 0.2
------- ---
All officers and directors as a group (11
persons)................................... 159,103 8.6%
======= ===
</TABLE>
- --------
(1) Includes 10,000 shares of Bank Common Stock which may be received upon
the exercise of stock options that are exercisable within 60 days of June
30, 1997.
(2) Includes 2,000 shares of Bank Common Stock which may be received upon the
exercise of stock options that are exercisable within 60 days of June 30,
1997.
(3) Includes 2,000 shares of Bank Common Stock which may be received upon the
exercise of stock options that are exercisable within 60 days of June 30,
1997.
(4) Includes 2,000 shares of Bank Common Stock which may be received upon the
exercise of stock options that are exercisable within 60 days of June 30,
1997.
(5) Includes 2,000 shares of Bank Common Stock which may be received upon the
exercise of stock options that are exercisable within 60 days of June 30,
1997.
(6) Includes 2,000 shares of Bank Common Stock which may be received upon the
exercise of stock options that are exercisable within 60 days of June 30,
1997.
(7) Includes 1,550 shares of Bank Common Stock which may be received upon the
exercise of stock options that are exercisable within 60 days of June 30,
1997.
(8) Includes 5,000 shares of Bank Common Stock which may be received upon the
exercise of stock options that are exercisable within 60 days of June 30,
1997.
(9) Includes 1,666 shares of Bank Common Stock which may be received upon the
exercise of stock options that are exercisable within 60 days of June 30,
1997.
(10) Includes 5,000 shares of Bank Common Stock which may be received upon the
exercise of stock options that are exercisable within 60 days of June 30,
1997.
56
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of the Bank is conducted through meetings and activities of the
Board of Directors and its committees. During the fiscal year ended June 30,
1997, the Board of Directors held 12 meetings, including one special meeting.
No director attended fewer than 75% of the total meetings of the Board of
Directors or of committees on which such director served.
The Executive Committee of the Board of Directors consists of Donald V.
Rhodes, Chairman of the Board, and directors Jensen, Weigand, Clees and
Brunton. The Executive Committee did not meet during the fiscal year ended
June 30, 1997. The Executive Committee meets as necessary between meetings of
the full Board of Directors.
The Audit and Finance Committee, consists of John Clees, who acts as
Chairman, and directors Rhodes, Weigand, Odegard and Brunton. Mr. Rhodes will
no longer participate as a member of the Audit and Finance Committee
subsequent to completion of the Conversion. The Audit and Finance Committee
met four times during the fiscal year ended June 30, 1997. The Bank's
management and external auditors provide the Committee with reports and
findings regarding compliance policies and procedures, internal controls, and
operating procedures.
The other standing committee of the Board is the Personnel and Compensation
Committee, which reviews and recommends remuneration arrangements for senior
management. The Committee, which met three times during the fiscal year ended
June 30, 1997, consists of director Daryl Jensen, who acts as Chairman, and
directors Brunton and Clees.
In addition to the committees described above, the Bank has from time to
time established other committees whose members consist of its directors and
officers. These committees include the Strategic Planning Committee, the
Donations Committee, and the Community Reinvestment Act Committee.
DIRECTORS' COMPENSATION
Directors receive an annual retainer of $6,000 and a monthly fee of $500 for
each meeting attended. Directors also received $100 for each committee meeting
attended with the Chairman of the Committee receiving $150.
57
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following information is furnished for the
Chief Executive Officer of the Bank and for the executive officers of the Bank
who received salary and bonus in excess of $100,000 for the year ended June
30, 1997. No other executive officers of the Bank received salary and bonus in
excess of $100,000 during the year ended June 30, 1997.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------- -------------------------
RESTRICTED SECURITIES
NAME AND PRINCIPAL STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS AWARDS ($)(1) OPTIONS (#) COMPENSATION(2)
- ------------------ ---- -------- ------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Donald V. Rhodes,....... 1997 $148,906 $19,470 10,000 $16,350
Chairman, President and 1996 135,385 64,350 -- 15,026
Chief Executive Officer 1995 135,560 47,190 $50,000 -- 13,200
John D. Parry,.......... 1997 95,621 13,644 5,000 13,686
Executive Vice 1996 90,406 28,803 -- 11,634
President-- 1995 85,195 23,459 5,000 --
Administration
Brian L. Vance,......... 1997 91,004 14,994 5,000 --
Executive Vice 1996 -- -- 5,000 --
President--Loan
Administration
James Hastings,......... 1997 87,984 11,680 1,500 10,184
Senior Vice President 1996 87,684 27,070 -- 7,883
and Treasurer 1995 84,916 21,356 -- 7,316
</TABLE>
- --------
(1) At June 30, 1997, the value of the aggregate restricted stock holdings
outstanding was estimated at $90,000. Dividends are paid on the
outstanding shares of restricted stock.
(2) Includes the Bank's contribution to its defined contribution retirement
plan and existing ESOP and 401(k) for Messrs. Rhodes, Parry, Vance and
Hastings, respectively.
EMPLOYMENT AGREEMENTS
In connection with the Conversion, the Bank and Company entered into an
employment agreement with Mr. Donald Rhodes effective as of October 1, 1997.
The agreement provides an annual base salary for Mr. Rhodes of $174,000, which
may be increased at the discretion of the Board of Directors of the Bank or
the Company or by an authorized Committee thereof. In addition to base salary,
the agreement provides for Mr. Rhodes' participation in employee benefit plans
and other fringe benefits applicable to senior executives of the Bank. The
term of the agreement will run until Mr. Rhodes attains age 65 (March 14,
2001), and will then be automatically renewed for additional terms of one year
each unless notice is given one year prior to the expiration date of any term
that renewal will not be effected. In the event the employment of Mr. Rhodes
is terminated by the Company at any time for "cause" or by Mr. Rhodes without
"good reason," both as defined in the agreement, no termination benefit will
be payable. If Mr. Rhodes is terminated without cause or he terminates the
agreement for good reason, a severance benefit will be payable in an amount
equal to two times the amount of his then-current annual base salary, or the
amount of such salary which would otherwise have been paid to him during the
then-remaining term of the agreement, whichever is greater.
The agreement also provides for the payment of a severance benefit to Mr.
Rhodes in the event of his termination of employment in certain cases
preceding, and for any reason following by up to two years, a change of
control of the Bank or the Company. Under the terms of the agreement, Mr.
Rhodes is entitled to receive his then-current base salary for three years
following such termination or until the term of the agreement, whichever is
longer. In such circumstances, he is also entitled to all benefits in his
agreement, to be fully vested as to unvested options, and to have restrictions
lapse with regard to any restricted stock or other restricted securities.
58
<PAGE>
The Bank has entered into severance agreements with Messrs. John Parry,
Executive Vice President-Administration, and Brian Vance, Executive Vice
President-Loan Administration. The terms of each of these severance agreements
is five years. The agreements provide that Messrs. Parry and Vance would each
receive a severance benefit in an amount equal to two times the amount of
their then-current annual base salary, if their employment is terminated in
certain cases preceding, and for any reason following by up to two years, a
change of control of the Bank or the Company. The Bank has also entered into
severance agreements with seven additional Executives that provide each
Executive with a severance agreement equal to the Executive's then-current
base salary in the event their employment is terminated for any reason within
up to two years following a change in control of the Bank or the Company.
For purposes of the agreements, "change of control" includes, among other
things, the acquisition by any person of 25% or more of the outstanding
securities of the Bank or the Company; replacement of incumbent directors or
election of newly-elected directors constituting a majority of the Board of
the Company where such replacement or election has not been supported by the
Board; dissolution, or sale of 50% or more in value of the assets, of either
the Company, the Bank or any of their respective subsidiaries; or the merger
of the Company into any corporation, 25% or more of the outstanding common
stock of which is owned by other than owners of the common stock of the
Company prior to such merger.
The employment agreement for Mr. Rhodes and the severance agreements for
Messrs. Parry and Vance provide that in the event any of those Executives
receive an amount under the provisions of the agreements which results in
imposition of a tax on the Executive under the provisions of the Internal
Revenue Code Section 4999 (relating to Golden Parachute payments) the employer
is obligated to reimburse the Executive for that amount, exclusive of any tax
imposed by reason of receipt of reimbursement under the employment agreements.
The agreements restrict the right of Messrs. Rhodes, Parry and Vance to
compete against the Bank or the Company in the State of Washington for a
period of two years in the case of Mr. Rhodes and one year in the case of
Messrs. Parry and Vance following termination of employment, except in the
case of Mr. Rhodes, where such employment is terminated without cause or for
good reason.
BENEFITS
General. Following three months of employment, the Bank provides medical,
dental, life and disability insurance benefits for full-time employees,
subject to certain deductibles and copayments. Dependent medical and dental
coverage are available at the employee's expense.
Pension Plan. The Bank maintains a defined contribution retirement plan. The
plan allows participation to all employees upon completion of one year of
service and the attainment of 21 years of age. It is the Bank's policy to fund
plan costs as accrued. Employee vesting occurs over a period of seven years,
at which time they become fully vested. The Bank accrued a contribution in the
amount of $246,000 to the pension plan in fiscal 1997.
401(k) Plan. The Bank maintains a salary savings 401(k) plan for its
employees. All persons employed as of July 1, 1984 automatically participate
in the plan. All employees hired after that date who are at least 21 years of
age and with one year of service to the Bank may participate in the plan.
Employees who participate may contribute a portion of their salary which is
matched by the employer at 50% up to certain specified limits. Employee
vesting in employer portions is similar to the retirement plan described
above.
Employee Stock Ownership Plan. The Board of Directors has authorized the
amendment of the Bank's existing ESOP for employees of the Bank to become
effective upon the completion of the Conversion. The ESOP is intended to
satisfy the requirements for an employee stock ownership plan under the Code
and the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
The Common Stock owned by the existing
59
<PAGE>
ESOP are Minority Shares that will be converted into Exchange Shares on the
Effective Time of the Conversion. Full-time employees of the Company and the
Bank who have been credited with at least 1,000 hours of service during a 12-
month period and who have attained age 21 are eligible to participate in the
ESOP. The ESOP owned 21,763 shares of Bank Common Stock at June 30, 1997, all
of which were allocated to participants' accounts. There was no debt incurred
in connection with the acquisition of those shares.
In order to fund the purchase of up to 2% of the Conversion Stock to be
issued in the Offerings, it is anticipated that the ESOP will borrow funds
from the Company. Such loan will equal 100% of the aggregate purchase price of
the Conversion Stock. The loan to the ESOP will be repaid principally from the
Bank's contributions to the ESOP and dividends payable on Common Stock held by
the ESOP over the fifteen-year term of the loan. The interest rate for the
ESOP loan is expected to be the prime rate as published in The Wall Street
Journal on the closing date of the Conversion. See "Pro Forma Data." In the
event of oversubscription by Eligible Account Holders, the Company may issue
shares of Common Stock to the ESOP at the Purchase Price immediately following
the Offerings to satisfy the ESOP's order to purchase 2% of Conversion Stock
in the Offerings and/or the ESOP may purchase shares of Common Stock in the
open market. Purchases of additional shares of Common Stock from the Company
would dilute the interests of other stockholders. In any plan year, the Bank
may make additional discretionary contributions to the ESOP for the benefit of
plan participants in either cash or shares of Common Stock, which may be
acquired through the purchase of outstanding shares in the market or from
individual stockholders or which constitute authorized but unissued shares or
shares held in treasury by the Company. The timing, amount, and manner of such
discretionary contributions will be affected by several factors, including
applicable regulatory policies, the requirements of applicable laws and
regulations, and market conditions.
Shares purchased by the ESOP with the proceeds of the loan will be held in a
suspense account and released on a pro rata basis as the loan is repaid.
Discretionary contributions to the ESOP and shares released from the suspense
account will be allocated among participants on the basis of each
participant's proportional share of total compensation. Forfeitures will be
reallocated among the remaining plan participants and may reduce the amount of
the Bank's contributions. Benefits may be payable upon a participant's
retirement, early retirement, death, disability, or termination of employment.
The Bank's contributions to the ESOP are not fixed so benefits payable under
the ESOP cannot be estimated.
A committee appointed by the Board of Directors of the Bank serves as
trustee of the ESOP. Under the ESOP, the trustee must vote all allocated
shares held in the ESOP in accordance with the instructions of plan
participants. Unallocated shares and allocated shares for which no
instructions are received must be voted in the same ratio on any matter as
those shares for which instructions are given. The ESOP is subject to the
requirements of ERISA and the regulations of the IRS and the Department of
Labor issued thereunder.
Pursuant to SOP 93-6, Employers' Accounting for Employee Stock Ownership
Plans, the measure of compensation expense recorded by an employer for a
leveraged ESOP is the fair market value of the ESOP shares when allocated to
participants' accounts. See "Pro Forma Data" for a discussion of the effects
of SOP 93-6 on the reporting of ESOP-related compensation expense.
If the ESOP purchases unissued shares from the Company, total stockholders'
equity would neither increase nor decrease. However, on a per share basis,
stockholders' equity and net earnings would decrease because of the increase
in the number of outstanding shares.
Existing Stock Option Plans. In September 1994, the Bank's stockholders
approved the adoption of the 1994 Stock Option Plan, providing for the award
of a restricted stock award to a key officer, incentive stock options to
employees and nonqualified stock options to directors of the Bank at the
discretion of the Board of Directors. On September 24, 1996, the stockholders
of the Bank approved the adoption of the 1997 Stock Option Plan which is
generally similar to the 1994 plan. The 1997 plan does not affect any options
granted under the 1994 plan.
60
<PAGE>
Under both of these stock option plans, on the date of grant, the exercise
price of the option must at least equal the market value per share of Bank
Common Stock. The 1994 plan provides for the grant of options and stock awards
of up to 67,000 shares. The 1997 plan provides for the granting of options for
up to 50,000 common shares. All shares under the 1994 plan have been awarded
and all shares subject to option are fully vested. A total of 5,000 shares
were issued under the 1994 plan as a restricted stock award subject to lapse
provisions that end in 1999. A total of 5,002 shares remain available for
grant under the 1997 plan. All awards made under the plan require vesting over
a three year period beginning January 31, 1998. Under both existing plans,
options must be exercised within five years of vesting. Outstanding options
will be converted in the Exchange, using the Exchange Ratio, to become options
for Company Common Stock. Set forth below is certain information for Messrs.
Rhodes, Parry, Vance and Hastings concerning options granted in fiscal year
1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
PERCENTAGE
NUMBER OF OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE PER EXPIRATION GRANT DATE
NAME GRANTED IN 1997 SHARE DATE(1) VALUE(2)
- ---- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Donald V. Rhodes.......... 10,000 19.2% $18.45 1/31/05 $31,900
John D. Parry............. 5,000 9.6 18.45 1/31/05 15,950
Brian L. Vance............ 5,000 9.6 18.45 1/31/05 15,950
James Hastings............ 1,500 2.9 18.45 1/31/05 4,785
</TABLE>
- --------
(1) One third of the options vest (become exercisable) on January 31, 1998,
1999 and 2000. These options expire five years after they become
exercisable.
(2) Calculated using the minimum value method.
1998 Stock Option Plan. The Board of Directors of the Company intends to
adopt the Stock Option Plan and to submit the Stock Option Plan to the
stockholders for approval at a meeting held no earlier than six months
following consummation of the Conversion. The approval of a majority vote of
the Company's stockholders is required prior to the implementation of the
Stock Option Plan. The Stock Option Plan will comply with all applicable
regulatory requirements.
The Stock Option Plan will be designed to attract and retain qualified
management personnel and nonemployee directors, to provide such officers, key
employees and nonemployee directors with a proprietary interest in the Company
as an incentive to contribute to the success of the Company and the Bank, and
to reward officers and key employees for outstanding performance and the
attainment of targeted objectives. The Stock Option Plan will provide for the
grant of incentive stock options ("ISOs"), intended to comply with the
requirements of Section 422 of the Code, and nonqualified stock options
("NQOs"). Upon receipt of stockholder approval of the Stock Option Plan, stock
options may be granted to key employees of the Company and its subsidiaries,
including the Bank and to nonemployee directors. The Stock Option Plan will be
administered and interpreted by a committee of the Board of Directors
("Committee") which is "disinterested" pursuant to applicable regulations
under the federal securities laws. Unless sooner terminated, the Stock Option
Plan will continue in effect for a period of ten years from the date the Stock
Option Plan is adopted by the Board of Directors.
A number of authorized shares of Common Stock equal to up to 10% of the
number of shares of Conversion Stock sold in connection with the Conversion
(575,000 shares based on the issuance of 5,750,000 shares at the maximum of
the Valuation Price Range) will be reserved for future issuance under the
Stock Option Plan; provided that the aggregate number of options granted under
the 1994, 1997 and 1998 Stock Option Plans cannot exceed 10% of the aggregate
number of Conversion Shares and Exchange Shares issued in the Conversion. Such
shares will be authorized but unissued shares or treasury shares. In the event
of a stock split, reverse stock split, stock dividend, or similar event, the
number of shares of Common Stock under the Stock Option Plan, the number of
shares to which any award relates and the exercise price per share under any
option may be adjusted by the Committee to reflect the increase or decrease in
the total number of shares of Common Stock outstanding.
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Under the Stock Option Plan, the Committee will determine which officers and
nonemployee directors will be granted options, whether such options will be
ISOs or NQOs (provided that nonemployee directors will receive only NQOs), the
number of shares subject to each option, and the exercisability of such
options. The per share exercise price of an option will at least equal 100% of
the fair market value of a share of Common Stock on the date the option is
granted.
Each stock option that is awarded to an officer, key employee or nonemployee
director will remain exercisable at any time on or after the date it vests
through the earlier to occur of the tenth anniversary of the date of grant or
three months after the date on which the optionee terminates employment or
participation on the Board (one year in the event of the optionee's
termination or death or disability), unless such period is extended by the
Committee. However, unvested options will be immediately exercisable in the
event of the recipient's death, disability, retirement, or a change in control
of the Company. A "change in control" is deemed to occur when (a) a person
other than the Company purchases shares of Common Stock pursuant to a tender
or exchange offer for such shares; (b) any person (as such term is used in
Sections 13(d) and 14(d)(2) of Securities Exchange Act of 1934, as amended
("Exchange Act") who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities; (c) the
membership of the Board of Directors changes as the result of a contested
election; or (d) stockholders of the Company approve a merger, consolidation,
sale or disposition of all or substantially all of the Company assets, or a
plan of partial or complete liquidation. All stock options are nontransferable
except by will or the laws of descent or distribution.
Under current provisions of the Code, the federal tax treatment of ISOs and
NQOs is different. With respect to ISOs, an optionee who satisfies certain
holding period requirements will not recognize income at the time the option
is granted or at the time the option is exercised. If the holding period
requirements are satisfied, the optionee will generally recognize capital gain
or loss upon a subsequent disposition of the shares of Common Stock received
upon the exercise of a stock option. If the holding period requirements are
not satisfied, the difference between the fair market value of the Common
Stock on the date of grant and the option exercise price, if any, will be
taxable to the optionee at ordinary income tax rates. A federal income tax
deduction generally will not be available to the Company as a result of the
grant or exercise of an ISO, unless the optionee fails to satisfy the holding
period requirements. With respect to NQOs the grant of an NQO is generally not
a taxable event for the optionee and no tax deduction will be available to the
Company. However, upon the exercise of an NQO, the difference between the fair
market value of the Common Stock on the date of exercise and the option
exercise price will generally be treated as compensation to the optionee upon
exercise, and the Company will be entitled to a compensation expense deduction
in the amount of income realized by the optionee.
Although no specific award determinations have been made at this time, the
Company and the Bank anticipate that if stockholder approval is obtained it
would provide awards to its nonemployee directors, officers and employees to
the extent and under terms and conditions permitted by applicable regulations.
The size of individual awards will be determined prior to submitting the 1998
Stock Option Plan for stockholder approval, and disclosure of anticipated
awards will be included in the proxy materials for such meeting.
Management Recognition Plan. Following the Conversion, the Board of
Directors of the Company intends to adopt an MRP for officers, employees, and
nonemployee directors of the Company and the Bank. The MRP will enable the
Company and the Bank to provide participants with a proprietary interest in
the Company as an incentive to contribute to the success of the Company and
the Bank.
The MRP will be submitted to stockholders for approval at a meeting no
earlier than six months following the consummation of the Conversion. The
approval of a majority vote of the Company's stockholders is required prior to
implementation of the MRP. The MRP will comply with all applicable regulatory
requirements. The MRP expects to acquire a number of shares of Common Stock
equal to 1% of the Conversion Stock sold in connection with the Conversion
(57,500 shares based on the issuance of 5,750,000 shares in the Conversion at
the maximum of the Valuation Price Range). Such shares will be acquired on the
open market with funds contributed by the Company to a trust which the Company
may establish in conjunction with the MRP ("MRP Trust") or may be acquired
from authorized but unissued or treasury shares of the Company.
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A committee of the Board of Directors of the Company will administer the
MRP, the members of which will also serve as trustees of the MRP Trust, if
formed. The trustees will be responsible for the investment of all funds
contributed by the Company to the MRP Trust. Shares of Common Stock granted
pursuant to the MRP will be in the form of restricted stock payable ratably
over a minimum five-year period following the date of grant. Compensation
expense in the amount of the fair market value of the Common Stock at the date
of grant will be recognized pro rata over the number of years during which the
shares are payable. An MRP award recipient is entitled to voting, dividend,
and other stockholder rights while the shares are restricted. During the
period of restriction, all shares will be held in escrow by the Company or by
the MRP Trust. If a recipient terminates employment for reasons other than
death, disability, retirement, or a change in control of the Company, the
recipient will forfeit all rights to allocated shares which are then subject
to restriction. In the event of the recipient's death, disability, retirement,
or a change in control of the Company, all restrictions will expire and all
allocated shares will become unrestricted. A "change in control" is deemed to
occur when (a) a person other than the Company purchases shares of Common
Stock pursuant to a tender or exchange offer for such shares; (b) any person
(as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) who
is or becomes the beneficial owner, directly or indirectly, of securities of
the Company representing 25% or more of the combined voting power of the
Company's then outstanding securities; (c) the membership of the Board of
Directors changes as the result of a contested election; or (d) stockholders
of the Company approve a merger, consolidation, sale or disposition of all or
substantially all of the Company's assets, or a plan of partial or complete
liquidation.
All unallocated shares may be transferred by the Company to the MRP Trust.
The trustees of the MRP Trust will be authorized to vote such shares in the
same proportion as they receive instructions from award recipients with
respect to allocated shares which have not been earned and distributed.
The Board of Directors of the Company may terminate the MRP at any time and,
upon termination, all unallocated shares of Common Stock will revert to the
Company.
A recipient of an MRP award in the form of restricted stock will generally
not recognize income upon an award of shares of Common Stock, and the Company
will not be entitled to a federal income tax deduction, until the termination
of the restrictions. Upon such termination, the recipient will recognize
ordinary income in an amount equal to the fair market value of the Common
Stock at that time, and the Company will be entitled to a deduction in the
same amount after satisfying federal income tax withholding requirements.
However, the recipient may elect to recognize ordinary income in the year the
restricted stock is granted in an amount equal to the fair market value of the
shares at that time, determined without regard to the restrictions. In that
event, the Company will be entitled to a deduction in such year and in the
same amount. Any gain or loss recognized by the recipient upon subsequent
disposition of the stock will be either a capital gain or capital loss.
Although no specific award determinations have been made at this time, the
Company and the Bank anticipate that if stockholder approval is obtained it
would provide awards to its directors, officers and employees to the extent
and under terms and conditions permitted by applicable regulations. Under
current policy of the FDIC, if the 1997 MRP is implemented within one year of
the consummation of the Conversion, (i) no officer or employees could receive
an award covering in excess of 25%; (ii) no nonemployee director could receive
in excess of 5%; and (iii) nonemployee directors, as a group, could not
receive in excess of 30% of the number of shares reserved for issuance under
the MRP. The size of individual awards will be determined prior to submitting
the MRP for stockholder approval, and disclosure of anticipated awards will be
included in the proxy materials for such meeting.
CERTAIN TRANSACTIONS
LOANS TO DIRECTORS AND EXECUTIVE OFFICERS
Certain of the Bank and Company directors and executive officers and their
immediate families are also customers and depositors of the Bank and it is
anticipated that such individuals will continue to be customers of
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the Bank in the future. All transactions between the Bank and the Bank's
directors, executive officers and their immediate families were made in the
ordinary course of business on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons, and in the opinion of management did not
involve more than the normal risk of collectibility or present other
unfavorable features. At June 30, 1997, loans to directors and executive
officers represented 3.9% of the Bank's stockholders' equity.
TRANSACTIONS WITH CENTRAL VALLEY BANK
In addition to his position as Chairman, President and Chief Executive
Officer of the Company and the Bank, Mr. Donald V. Rhodes is the Chairman of
the Board and Chief Executive Officer of Washington Independent Bancshares,
Inc. ("WIB"), a closely held bank holding company, and its subsidiary, Central
Valley Bank, N.A. ("CVB"), which is headquartered in Toppenish, Washington.
Mr. Daryl D. Jensen, a director of the Company and the Bank, is also a
director of WIB and CVB. WIB had total assets of $48.6 million at June 30,
1997. CVB serves a market area in central Washington approximately 150 miles
east of Olympia. Mr. Rhodes beneficially owns 7.82% of WIB's common stock and
Mr. Jensen beneficially owns 3.87% of such common stock. While Mr. Rhodes
currently devotes and intends to continue devoting a majority of his time to
Heritage Bank matters, there can be no assurance that this will continue to be
the case.
Since June 30, 1995, the Bank has entered into contractual agreements to
purchase loan participations in an aggregate amount of $1.1 million from
Central Valley Bank. The aggregate outstanding balance of such participations
at June 30, 1997 was $531,300, consisting of two loan participations. Both
participations are current and performing as agreed. In the opinion of
management, the participations are on terms no less favorable than could have
been obtained from an unaffiliated party. The agreement to purchase the
participations was approved through the Bank's normal credit approval process,
and Mr. Rhodes abstained from any participation in the process.
SUPERVISION AND REGULATION
The Company and the Bank are subject to extensive Federal and Washington
state legislation, regulation and supervision. These laws and regulations are
primarily intended to protect depositors and the FDIC rather than shareholders
of the Company. The laws and regulations affecting banks and bank holding
companies have changed significantly over recent years, and there is reason to
expect that similar changes will continue in the future. Any change in
applicable laws, regulations or regulatory policies may have a material effect
on the business, operations and prospects of the Company. The Company is
unable to predict the nature or the extent of the effects on its business and
earnings that any fiscal or monetary policies or new federal or state
legislation may have in the future. The following information is qualified in
its entirety by reference to the particular statutory and regulatory
provisions described herein.
The Company. The Company is subject to regulation as a bank holding company
within the meaning of the Bank Holding Company Act of 1956, as amended, (the
"BHCA"). As such, the Company is supervised by the Federal Reserve.
The Federal Reserve has the authority to order bank holding companies to
cease and desist from unsound practices and violations of conditions imposed
by it. The Federal Reserve is also empowered to assess civil money penalties
against companies and individuals who violate the BHCA or orders or
regulations thereunder in amounts up to $1.0 million per day or order
termination of non-banking activities of non-banking subsidiaries of bank
holding companies, and to order termination of ownership and control of a non-
banking subsidiary by a bank holding company. Certain violations may also
result in criminal penalties. The FDIC is authorized to exercise comparable
authority under the Federal Deposit Insurance Act and other statutes with
respect to state nonmember banks such as the Bank.
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The Federal Reserve takes the position that a bank holding company is
required to serve as a source of financial and managerial strength to its
subsidiary banks and may not conduct its operations in an unsafe or unsound
manner. In addition, it is the Federal Reserve's position that in serving as a
source of strength to its subsidiary banks, bank holding companies should be
prepared to use available resources to provide adequate capital funds to their
subsidiary banks during periods of financial stress or adversity and should
maintain the financial flexibility and capital raising capacity to obtain
additional resources for assisting their subsidiary banks. A bank holding
company's failure to meet its obligations to serve as a source of strength to
its subsidiary banks will generally be considered by the Federal Reserve to be
an unsafe and unsound banking practice, a violation of the Federal Reserve's
regulations or both. The Federal Deposit Insurance Act requires an
undercapitalized institution to submit to the Federal Reserve a capital
restoration plan with a guarantee by each company having control of the bank.
The BHCA prohibits a bank holding company, with certain exceptions, from
acquiring direct or indirect ownership or control of any company which is not
a bank or from engaging in any activities other than those of banking,
managing or controlling banks and certain other subsidiaries, or furnishing
services to or performing services for its subsidiaries. One principal
exception to these prohibitions allows a bank holding company to acquire an
interest in companies whose activities are found by the Federal Reserve, by
order or by regulation, to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. The Company must obtain
the approval of the Federal Reserve before it acquires all, or substantially
all, of the assets of any bank, or ownership or control of more than 5% of the
voting shares of a bank.
The Company is required under the BHCA to file an annual report and periodic
reports with the Federal Reserve and such additional information as the
Federal Reserve may require pursuant to the BHCA. The Federal Reserve may
examine a bank holding company and any of its subsidiaries and charge the
company for the cost of such an examination.
The Company and any subsidiaries which it may control are deemed
"affiliates" within the meaning of the Federal Reserve Act, and transactions
between bank subsidiaries of the Company and its affiliates are subject to
certain restrictions. With certain exceptions, the Company and its
subsidiaries are prohibited from tying the provision of certain services, such
as extensions of credit, to other services offered by the Company or its
affiliates.
Banking regulations require bank holding companies and banks to maintain a
minimum "leverage" ratio of core capital to adjusted quarterly average total
assets of at least 3%. In addition, banking regulators have adopted risk-based
capital guidelines under which risk percentages are assigned to various
categories of assets and off-balance sheet items to calculate a risk-adjusted
capital ratio. Tier I capital generally consists of common shareholders'
equity (which does not include unrealized gains and losses on securities),
less goodwill and certain identifiable intangible assets, while Tier II
capital includes the allowance for loan losses and subordinated debt, both
subject to certain limitations. Regulatory risk-based capital guidelines
require a minimum Tier I capital of 4% of risk-adjusted assets and minimum
total capital ratio (combined Tier I and Tier II) of 8%. For a discussion of
the Bank's capital ratios, see "Banking Subsidiary."
Banking Subsidiary. The Bank is a Washington state-chartered savings bank,
the deposits of which are insured by the FDIC. It is subject to regulation by
the FDIC and the Division. Although the Bank is not a member of the Federal
Reserve System, the Federal Reserve supervisory authority over the Company can
also affect the Bank.
Among other things, applicable federal and state statutes and regulations
which govern a bank's operations relate to minimum capital requirements,
required reserves against deposits, investments, loans, legal lending limits,
mergers and consolidations, borrowings, issuance of securities, payment of
dividends, establishment of branches and other aspects of its operations. The
Division and the FDIC also have authority to prohibit banks under their
supervision from engaging in what they consider to be unsafe and unsound
practices.
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The Bank is required to file periodic reports with the FDIC and the Division
and is subject to periodic examinations and evaluations by those regulatory
authorities. Based upon such an evaluation, the regulators may revalue the
assets of an institution and require that it establish specific reserves to
compensate for the differences between the regulator-determined value and the
book value of such assets. These examinations must be conducted every 12
months, except that certain well-capitalized banks may be examined every 18
months. The FDIC and the Division may each accept the results of an
examination by the other in lieu of conducting an independent examination.
As a subsidiary of a bank holding company, the Bank is subject to certain
restrictions in its dealings with the Company and with other companies that
may become affiliated with the Company.
Dividends paid by the Bank will provide substantially all of the Company's
cash flow. Applicable federal and Washington state regulations restrict
capital distributions by institutions such as the Bank, including dividends.
Such restrictions are tied to the institution's capital levels after giving
effect to such distributions. At June 30, 1997, the Bank's leverage ratio was
11.7% compared with 11.6% at June 30, 1996. Tier I and total capital ratios
for the Bank at June 30, 1997 were 15.6% and 16.9%, respectively, compared
with 17.7% and 18.9%, respectively, at June 30, 1996. The FDIC has established
the qualifications necessary to be classified as a "well-capitalized" bank,
primarily for assignment of FDIC risk-based insurance premium rates discussed
below. To qualify as "well-capitalized," banks must have a Tier I risk-
adjusted capital ratio of at least 6%, a total risk-adjusted capital ratio of
at least 10%, and a leverage ratio of at least 5%. The Bank qualified as
"well-capitalized" at June 30, 1997.
Federal laws generally bar institutions which are not well capitalized from
accepting brokered deposits. The FDIC has issued rules which prohibit under-
capitalized institutions from soliciting or accepting such deposits.
Adequately capitalized institutions are allowed to solicit such deposits, but
only to accept them if a waiver is obtained from the FDIC.
Other Regulatory Developments. Congress has enacted significant federal
banking legislation in recent years. Included in this legislation have been
the FIRREA and the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"). FIRREA, among other things, (i) created two deposit insurance
funds administered by the FDIC, the Bank Insurance Fund ("BIF") and the SAIF;
(ii) permitted commercial banks that meet certain housing-related asset
requirements to secure advances and other financial services from local FHLBs;
(iii) restructured the federal regulatory agencies for savings associations;
and (iv) greatly enhanced the regulators' enforcement powers over financial
institutions and their affiliates.
FDICIA went substantially farther than FIRREA in establishing a more
rigorous regulatory environment. Under FDICIA, regulatory authorities are
required to enact a number of new regulations, substantially all of which are
now effective. These regulations include, among other things, (i) a new method
for calculating deposit insurance premiums based on risk, (ii) restrictions on
acceptance of brokered deposits except by well-capitalized institutions, (iii)
additional limitations on loans to executive officers and directors of banks,
(iv) the employment of interest rate risk in the calculation of risk-based
capital, (v) safety and soundness standards that take into consideration,
among other things, management, operations, asset quality, earnings and
compensation, (vi) a five-tiered rating system from well-capitalized to
critically undercapitalized, along with the prompt corrective action the
agencies may take depending on the category, and (vii) new disclosure and
advertising requirements with respect to interest paid on savings accounts.
FDICIA and regulations adopted by the FDIC impose additional requirements
for annual independent audits and reporting when a bank begins a fiscal year
with assets of $500 million or more. Such banks, or their holding companies,
are also required to establish audit committees consisting of directors who
are independent of management. The Bank had less than $500 million in assets
at June 30, 1997.
Also, the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Banking Act") provides banks with greater opportunities
to merge with other institutions and to open branches
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nationwide. The Interstate Banking Act also allows a bank holding company
whose principal operations are in one state to apply to the Federal Reserve
for approval to acquire a bank that is headquartered in a different state.
States cannot "opt out" but may impose minimum time periods, not to exceed
five years, for the target bank's existence.
The Interstate Banking Act also allows bank subsidiaries of bank holding
companies to establish "agency" relationships with their depository
institution affiliates. In an agency relationship, a bank can accept deposits,
renew time deposits, close and service loans, and receive payments for a
depository institution affiliate. States cannot "opt out."
In addition, the Interstate Banking Act allows banks whose principal
operations are located in different states to apply to federal regulators to
merge. This provision takes effect June 1, 1997, unless states enact laws to
either (i) authorize such transactions at an earlier date or (ii) prohibit
such transactions entirely. The Interstate Banking Act also allows banks to
apply to establish de novo branches in states in which they do not already
have a branch office. This provision took effect June 1, 1997, but (i) states
must enact laws to permit such branching and (ii) a bank's primary federal
regulator must approve any such branch establishment. The Washington
legislature passed legislation that allows, subject to certain conditions,
mergers or other combinations, relocations of banks' main office and branching
across state lines in advance of the June 1, 1997 date established by federal
law.
Further effects on the Company and the Bank may result from the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "Community
Development Act"). The Community Development Act (i) establishes and funds
institutions that are focused on investing in economically distressed areas
and (ii) streamlines the procedures for certain transactions by financial
institutions with federal banking agencies.
Among other things, the Community Development Act requires the federal
banking agencies to (i) consider the burdens that are imposed on financial
institutions when new regulations are issued or new compliance burdens are
created and (ii) coordinate their examinations of financial institutions when
more than one agency is involved. The Community Development Act also
streamlines the procedures for forming certain one-bank holding companies and
engaging in authorized non-banking activities.
The Bank's deposit accounts are insured by the FDIC under the SAIF to the
maximum extent permitted by law. The Bank pays deposit insurance premiums to
the FDIC based on a risk-based assessment system established by the FDIC for
all SAIF-member institutions. Under applicable regulations, institutions are
assigned to one of three capital groups that are based solely on the level of
an institution's capital ("well capitalized", "adequately capitalized" or
"undercapitalized"). The matrix so created results in nine assessment risk
classifications, with rates that until September 30, 1996 ranged from 0.23%
for well capitalized, financially sound institutions with only a few minor
weaknesses to 0.31% for undercapitalized institutions that pose a substantial
risk of loss to the SAIF unless effective corrective action is taken. The
Bank's assessments expensed for the year ended June 30, 1997 equaled $1.3
million, which includes the $1.1 million special SAIF assessment.
Pursuant to recent changes in federal law, the FDIC imposed a special
assessment on each depository institution with SAIF-assessable deposits which
resulted in the SAIF achieving its designated reserve ratio. In connection
therewith, the FDIC reduced the assessment schedule for SAIF members,
effective January 1, 1997, to a range of 0% to 0.27%, with most institutions,
including the Bank, paying 0%. This assessment schedule is the same as that
for the BIF, which reached its designated reserve ratio in 1995. In addition,
since January 1, 1997, SAIF members are charged an assessment of 0.065% of
SAIF-assessable deposits for the purpose of paying interest on the obligations
issued by the Financing Corporation ("FICO") in the 1980s to help fund the
thrift industry cleanup. BIF-assessable deposits will be charged an assessment
to help pay interest on the FICO bonds at a rate of approximately .013% until
the earlier of December 31, 1999 or the date upon which the last savings
association ceases to exist, after which time the assessment will be the same
for all insured deposits.
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Recent legislative changes provide for the merger of the BIF and SAIF into
the Deposit Insurance Fund on January 1, 1999, but only if no insured
depository institution is a savings association on that date. The recent
change contemplates the development of a common charter for all federally
chartered depository institutions and the abolition of separate charters for
national banks and federal savings associations. It is not known what form the
common charter may take and what effect, if any, the adoption of a new charter
would have on the operation of the Bank.
In addition to the changes to the BIF and SAIF assessment rates implemented
by the recent legislation, various regulatory relief provisions were enacted.
The new legislation includes, among other things, changes to (i) the Truth in
Lending Act and the Real Estate Settlement Procedures Act to coordinate and
simplify the two laws' disclosure requirements; (ii) eliminate civil liability
for violations of the Truth in Savings Act after five years; (iii) streamline
the application process for a number of bank holding company and bank
applications; (iv) establish a privilege from discovery in any civil or
administrative proceeding or bank examination for any fair lending self-test
results conducted by, or on behalf of, a financial institution in certain
circumstances; (v) repeal the FDICIA requirement that independent public
accountants attest to compliance with designated safety and soundness
regulations; (vi) impose a continuous regulatory review of regulations to
identify and eliminate outdated and unnecessary rules; and (vii) various other
miscellaneous provisions to reduce bank regulatory burden.
FEDERAL SECURITIES LAWS
The Company has filed a Registration Statement with the SEC under the
Securities Act of 1933, as amended ("Securities Act") for the registration of
the Common Stock to be issued in the Conversion. Upon completion of the
Conversion, the Common Stock will be registered with the SEC under the
Exchange Act and generally may not be deregistered for at least three years
thereafter. The Company will then be subject to the information, proxy
solicitation, insider trading restrictions and other requirements of the
Exchange Act.
The registration under the Securities Act of the Common Stock to be issued
in the Conversion does not cover the resale of such shares. Shares of the
Common Stock purchased by persons who are not affiliates of the Company may be
resold without registration. Shares purchased by an affiliate of the Company
may comply with the resale restrictions of Rule 144 under the Securities Act.
If the Company meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of the Company who complies with the
other conditions of Rule 144 (including those that require the affiliate's
sale to be aggregated with those of certain other persons) would be able to
sell in the public market, without registration, a number of shares not to
exceed, in any three-month period, the greater of (i) 1% of the outstanding
shares of the Company or (ii) the average weekly volume of trading in such
shares during the preceding four calendar weeks. Provision may be made in the
future by the Company to permit affiliates to have their shares registered for
sale under the Securities Act under certain circumstances. There are currently
no demand registration rights outstanding. However, in the event the Company,
at some future time, determines to issue additional shares from its authorized
but unissued shares, the Company might offer registration rights to certain of
its affiliates who want to sell their shares.
THE CONVERSION
The Division has given approval to the Plan subject to the satisfaction of
certain conditions imposed by the Division in its approval. In addition, the
Conversion will not be consummated until the Bank receives from the FDIC a
notice of nonobjection to the Conversion and the Federal Reserve approves the
application of the Company to become a bank holding company and to acquire the
Bank. The Division's approval, however, does not constitute a recommendation
or endorsement of the Plan.
GENERAL
On July 1, 1997, the Boards of Directors of the Mutual Holding Company and
the Bank unanimously adopted the Plan of Conversion, which was subsequently
amended, pursuant to which the Bank will reorganize
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into the stock holding company form of organization and the Company, a newly
formed Washington corporation, will offer and sell the Common Stock. It is
intended that following the Conversion all of the common stock of the Bank
will be held by the Company. THE FOLLOWING DISCUSSION OF THE PLAN OF
CONVERSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN OF
CONVERSION, WHICH IS AVAILABLE FROM THE BANK UPON REQUEST. The Division has
approved the Plan of Conversion subject to the satisfaction of certain
conditions imposed by the Division in its approval. In addition, completion of
the Conversion is subject to (i) the nonobjection of the FDIC; (ii) approval
by the Federal Reserve of the Company's acquisition of the Bank; (iii)
approval of the Plan by at least a majority of the total number of votes
eligible to be cast by members of the Mutual Holding Company (iv) approval of
the Plan by two-thirds of the outstanding shares of Bank Common Stock and a
majority of the outstanding shares of Bank Common Stock held by the Minority
Stockholders; and (v) successful completion of the Offerings. It is possible
that there could be a significant delay in the completion of the Conversion as
a result of delays in receiving a notice of nonobjection to the Conversion
from the FDIC or in receiving the approval of the Federal Reserve. See "Risk
Factors--Risk of Delayed Offering."
The Plan of Conversion provides generally that (i) the Mutual Holding
Company, which currently owns 66.31% of the Bank, will convert from mutual to
stock form and simultaneously merge with the Bank, with the Bank being the
surviving entity, and the shares of Bank Common Stock currently held by the
Mutual Holding Company will be canceled; (ii) the Bank will then merge into
Interim, a to be formed wholly-owned subsidiary of the Company, with the Bank
being the surviving entity (and with the 1,200,000 shares of the Company's
Common Stock currently held by the Bank being canceled); and (iii) the
Conversion Stock will be offered by the Company in the Offerings. Applicable
law requires that a minimum number of shares of Conversion Stock offered for
sale in the Conversion be sold in order for the Conversion to become
effective. The Conversion will be effected only upon completion of the sale of
at least $42.5 million of Conversion Stock to be issued pursuant to the Plan
of Conversion.
As part of the Conversion, the Company is making a Subscription Offering of
its Conversion Stock to holders of subscription rights in the following order
of priority: (i) Eligible Account Holders; (ii) the Bank's ESOP; (iii)
Supplemental Eligible Account Holders; and (iv) Other Members. Commencing
concurrently with the Subscription Offering, the Company is offering the
shares of Conversion Stock not subscribed for in the Subscription Offering in
order of priority to (i) the Minority Stockholders who are not Eligible
Account Holders, Supplemental Eligible Account Holders or Other Members and
(ii) to certain members of the general public to whom a copy of this
Prospectus is delivered by or on behalf of the Company.
Shares of Common Stock not sold in the Subscription, Minority Stockholders'
and Community Offerings may be offered in the Syndicated Community Offering.
If a Syndicated Community Offering is determined not to be feasible, the Board
of Directors of the Bank will consult with the regulatory authorities to
determine an appropriate alternative method for selling the unsubscribed
shares of Conversion Stock. The Plan of Conversion provides that the
Conversion must be completed within 24 months after the date of the approval
of the Plan of Conversion by the members of the Mutual Holding Company. No
sales of Conversion Stock may be completed in the Offerings unless the Plan of
Conversion is approved by the members of the Mutual Holding Company and
Minority Stockholders of the Bank.
The completion of the Offerings is subject to market conditions and other
factors beyond the Bank's control. No assurance can be given as to the length
of time after approval of the Plan of Conversion at the Special Meetings that
will be required to complete the sale of the Conversion Stock or to receive
the required approvals of regulatory authorities. If delays are experienced,
significant changes may occur in the estimated pro forma market value of the
Conversion Stock, together with corresponding changes in the net proceeds
realized by the Company from the sale of the Conversion Stock. In the event
the Conversion is terminated, the Bank would be required to charge all
Conversion expenses against current income.
Orders for shares of Conversion Stock will not be filled until at least
4,250,000 shares of Conversion Stock have been sold, the Division and the FDIC
approve the final Appraisal, the Federal Reserve approves the application of
the Company to become a bank holding company and acquire the Bank and the
Conversion closes. If the Conversion is not completed by , 1997 (45 days
after the last day of the fully extended
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Subscription Offering) and the Division consents to an extension of time to
complete the Conversion, subscribers will be given the right to increase,
decrease or rescind their subscriptions. Unless an affirmative indication is
received from subscribers that they wish to continue to subscribe for shares,
the funds will be returned promptly, together with accrued interest at the
Bank's passbook rate from the date payment was received by the Company, and
all withdrawal authorizations from deposit accounts of those subscribers will
be terminated. If such period is not extended, or, in any event, if the
Conversion is not completed by , all withdrawal authorizations will be
terminated and all funds held will be promptly returned together with accrued
interest at the Bank's passbook rate from the date payment is received.
PURPOSES OF CONVERSION
The Mutual Holding Company, as a Washington-chartered mutual holding
company, does not have stockholders and has no authority to issue capital
stock. By converting to the stock holding company form of organization, the
Company will be structured in the form used by many commercial banks and
business entities and a growing number of savings institutions. Management of
the Bank believes that the Conversion offers a number of advantages which will
be important to the future growth and performance of the Bank. The Conversion
is intended to: (i) provide substantially increased capital to expand the
operations of the Bank; (ii) to improve future access to capital markets;
(iii) enhance the Company's and the Bank's ability to expand directly or
through mergers and acquisitions and to diversify operations into new business
activities (although there are no specific agreements, arrangements or
understandings, written or oral, regarding any such mergers or diversified
activities); and (iv) afford customers and others the opportunity to become
stockholders of the Company and thereby participate more directly in any
future growth of the Bank. While the Bank, prior to the consummation of the
Conversion, has the ability to raise additional capital through the sale of
additional shares of its common stock, that ability is limited by the mutual
holding company structure which, among other things, requires that the Mutual
Holding Company hold a majority of the outstanding shares of Bank Common
Stock. The Conversion also will result in an increase in the number of shares
of Common Stock to be outstanding as compared to the number of outstanding
shares of Minority Shares, which will increase the likelihood of the
development of an active and liquid trading market. See "Market for Common
Stock." In addition, the Conversion permits the Company to engage in
repurchases of its outstanding stock without adverse federal income tax
consequences, unlike the Bank and MHC. Currently, the Company has no plans to
engage in any stock repurchases.
After completion of the Conversion, there will be a substantial amount of
authorized but unissued Common Stock available for issuance to raise
additional equity capital or to be used in connection with possible
acquisitions. At the present time, the Company has no plans with respect to
specific acquisitions or additional offerings of securities, other than the
issuance of authorized but unissued shares upon exercise of stock options, the
possible issuance of authorized but unissued shares to the MRP. Following the
Conversion, the Company will be able to use stock-based incentive programs to
attract and retain executive and other personnel for itself and its
subsidiaries. For a description of the programs which have been adopted by the
Company, see "Management--Benefits--1998 Stock Option Plan."
EFFECTS OF CONVERSION TO STOCK FORM ON DEPOSITORS AND BORROWERS OF THE BANK
Voting Rights. Depositors and borrowers will have no voting rights in the
Bank or the Company and therefore will not be able to elect directors of the
Bank or the Company or to control their affairs. Subsequent to the Conversion,
voting rights will be vested exclusively in the Company, as the sole
stockholder, with respect to the Bank and the holders of the Common Stock as
to matters pertaining to the Company. Each holder of Common Stock shall be
entitled to vote on any matter to be considered by the stockholders of the
Company. A stockholder will be entitled to one vote for each share of Common
Stock owned.
Savings Accounts and Loans. The Bank's savings accounts, account balances
and existing FDIC insurance coverage of savings accounts will not be affected
by the Conversion. Furthermore, the Conversion will not affect
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the loan accounts, loan balances or obligations of borrowers under their
individual contractual arrangements with the Bank.
Tax Effects. The Bank has received an opinion from KPMG Peat Marwick LLP
that for federal income tax purposes: (1) the conversion of the Mutual Holding
Company from mutual to stock form and the simultaneous merger of the Mutual
Holding Company with and into the Bank, with the Bank being the surviving
institution, will qualify as a conversion within the meaning of Section
368(a)(1)(A) of the Code, (2) no gain or loss will be recognized by the Bank
upon the receipt of the assets of the Mutual Holding Company in such merger,
(3) the merger of the Bank with and into Interim, with the Bank being the
surviving institution, will qualify as a conversion within the meaning of
Section 368(a)(1)(A) of the Code, (4) no gain or loss will be recognized by
Interim upon the transfer of its assets to the Bank, (5) no gain or loss will
be recognized by the Bank upon the receipt of the assets of Interim, (6) no
gain or loss will be recognized by the Company upon the sale of shares of
Common Stock in the Offering, (7) the Eligible Account Holders and
Supplemental Eligible Account Holders will recognize gain, if any, upon the
issuance to them of withdrawable savings accounts in the Bank following the
Conversion, interests in the liquidation account and nontransferable
subscription rights to purchase Common Stock, but only to the extent of the
value, if any, of the subscription rights, and (8) the tax basis to the
holders of Common Stock purchased in the Offering will be the amount paid
therefor, and the holding period for the shares of Common Stock will begin on
the date of consummation of the Offerings if purchased through the exercise of
subscription rights and on the day after the date of purchase if purchased in
the Community Offering or Syndicated Community Offering. Unlike a private
letter ruling issued by the IRS, an opinion of a tax advisor is not binding on
the IRS and the IRS could disagree with the conclusions reached therein. In
the event of such disagreement, no assurance can be given that the conclusions
reached in an opinion of a tax advisor would be sustained by a court if
contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that the
receipt of subscription rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan will be taxable to
the extent, if any, that the subscription rights are deemed to have a fair
market value. RP Financial, whose findings are not binding upon the IRS, has
issued a letter indicating that it believes the subscription rights do not
have any value, based on the fact that such rights are acquired by the
recipients without cost, are nontransferable and of short duration, and afford
the recipients the right only to purchase shares of the Conversion Stock at a
price equal to its estimated fair market value, which will be the same price
paid by purchasers in the Offerings. If the subscription rights are deemed to
have a fair market value, the receipt of such rights may be taxable to those
Eligible Account Holders, Supplemental Eligible Account Holders, and Other
Members who exercise their subscription rights by purchasing Conversion Stock.
The Bank could also recognize a gain on the distribution of such subscription
rights. Eligible Account Holders, Supplemental Eligible Account Holders, and
Other Members are encouraged to consult with their own tax advisers as to the
tax consequences in the event the subscription rights are deemed to have a
fair market value.
The Bank has also received an opinion from Gordon, Thomas, Honeywell,
Malanca, Peterson & Daheim, P.L.L.C. that no gross receipts will be recognized
for Washington business and occupation tax purposes by either the Bank or its
Eligible Account Holders and Supplemental Eligible Account Holders as a result
of the implementation of the Plan of Conversion.
The opinions of KPMG Peat Marwick LLP and Gordon, Thomas, Honeywell,
Malanca, Peterson & Daheim, P.L.L.C. and the letter from RP Financial are
filed as exhibits to the Registration Statement. See "Additional Information."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.
Liquidation Account. In the unlikely event of a complete liquidation of the
Mutual Holding Company in its present mutual form, each depositor in the Bank
would receive a pro rata share of any assets of the Mutual Holding Company
remaining after payment of claims of all creditors (including the claims of
all depositors up
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to the withdrawal value of their accounts). Each depositor's pro rata share of
such remaining assets would be in the same proportion as the value of his
deposit account to the total value of all deposit accounts in the Bank at the
time of liquidation. After the Conversion, each depositor, in the event of a
complete liquidation of the Bank, would have a claim as a creditor of the same
general priority as the claims of all other general creditors of the Bank.
However, except as described below, his or her claim would be solely in the
amount of the balance in his or her deposit account plus accrued interest.
Each stockholder would not have an interest in the value or assets of the Bank
or the Company above that amount.
The Plan of Conversion provides for the establishment, upon the completion
of the Conversion, of a special "liquidation account" for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders in an
amount equal to the amount of any dividends waived by the MHC plus the greater
of (1) the Bank's retained earnings of $12.9 million at June 30, 1993, the
date of the latest statement of financial condition contained in the final
offering circular utilized in the MHC Reorganization, or (2) 66.31% of the
Bank's total stockholders' equity as reflected in its latest statement of
financial condition contained in the final Prospectus utilized in the
Offerings. As of the date of this Prospectus, the initial balance of the
liquidation account would be $18.4 million. Each Eligible Account Holder and
Supplemental Eligible Account Holder, if he were to continue to maintain his
deposit account at the Bank, would be entitled, upon a complete liquidation of
the Bank after the Conversion to an interest in the liquidation account prior
to any payment to the Company as the sole stockholder of the Bank. Each
Eligible Account Holder and Supplemental Eligible Account Holder would have an
initial interest in such liquidation account for each deposit account,
including passbook accounts, transaction accounts such as checking accounts,
money market deposit accounts and certificates of deposit, held in the Bank at
the close of business on June 30, 1996 or September 30, 1997, as the case may
be. Each Eligible Account Holder and Supplemental Eligible Account Holder will
have a pro rata interest in the total liquidation account for each of his
deposit accounts based on the proportion that the balance of each such deposit
account on the June 30, 1996 Eligibility Record Date or the September 30, 1997
Supplemental Eligibility Record Date, as the case may be, bore to the balance
of all deposit accounts in the Bank on such date.
If, however, on any June 30 annual closing date of the Bank, commencing June
30, 1997, the amount in any deposit account is less than the amount in such
deposit account on June 30, 1996 or September 30, 1997, as the case may be, or
any other annual closing date, then the interest in the liquidation account
relating to such deposit account would be reduced by the proportion of any
such reduction, and such interest will cease to exist if such deposit account
is closed. In addition, no interest in the liquidation account would ever be
increased despite any subsequent increase in the related deposit account. Any
assets remaining after the above liquidation rights of Eligible Account
Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Bank.
THE OFFERINGS
THE OFFERINGS ARE EXPECTED TO EXPIRE ON THE EXPIRATION DATE, UNLESS EXTENDED
OR CONTINUED AS DESCRIBED ON THE COVER PAGE OF THIS PROSPECTUS. ALL PURCHASES
ARE SUBJECT TO THE MAXIMUM PURCHASE LIMITATIONS IN THE OFFERINGS AND THE
OVERALL OWNERSHIP LIMITATIONS DESCRIBED UNDER "THE CONVERSION--LIMITATIONS ON
PURCHASE AND OWNERSHIP OF SHARES". FOR ADDITIONAL INFORMATION ON HOW TO
SUBSCRIBE FOR CONVERSION STOCK, PLEASE CALL THE STOCK INFORMATION CENTER AT
(360) 705-9190.
Subscription Offering. In accordance with the Plan, nontransferable
subscription rights to purchase the Conversion Stock have been granted to all
persons and entities entitled to purchase the Conversion Stock in the
Subscription Offering. The amount of the Conversion Stock which these parties
may purchase will be subject to the availability of the Conversion Stock for
purchase. Subscription priorities have been established for the allocation of
available stock. If all the Conversion Stock offered is subscribed and
purchased in categories of higher priority, no shares will be available for
purchase to prospective purchasers in the remaining categories. These
priorities are as follows:
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CATEGORY 1: Eligible Account Holders. Each depositor with $50.00 or more on
deposit at the Bank as of June 30, 1996 will receive nontransferable
subscription rights to subscribe for up to the greater of the purchase
limitation established by the Bank for the Community Offering, one-tenth of
one percent (.10%) of the total offering of shares of Conversion Stock, or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock to be issued by a
fraction of which the numerator is the amount of the qualifying deposit of the
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders. If the exercise of subscription
rights in this category results in an oversubscription, shares of Conversion
Stock will be allocated among subscribing Eligible Account Holders so as to
permit each Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his total allocation equal to 100 shares
or the number of shares subscribed for, whichever is less. Thereafter,
unallocated shares will be allocated among subscribing Eligible Account
Holders proportionately, based on the amount of their respective qualifying
deposits, as compared to total qualifying deposits of all subscribing Eligible
Account Holders. Subscription rights received by officers and directors in
this category based on their increased deposits in the Bank in the one year
period preceding June 30, 1996 are subordinated to the subscription rights of
other Eligible Account Holders.
CATEGORY 2: ESOP. The Plan of Conversion provides that the ESOP shall
receive nontransferable Subscription Rights to purchase up to 2% of the shares
of Conversion Stock issued in the Conversion. The ESOP intends to purchase 2%
of the shares of Conversion Stock issued in the Conversion. In the event the
number of shares offered in the Conversion is increased above the maximum of
the Estimated Valuation Range, the ESOP shall have a second priority right
after Eligible Account Holders to purchase any available additional shares. In
the event of an oversubscription by Eligible Account Holders and, as a result,
the ESOP is unable to fill its order for up to 2% of the Conversion Stock,
then the Company may issue such shares of Common Stock as are necessary for
the ESOP to acquire a number of shares equal to 2% of the shares of Conversion
Stock issued in the Conversion and/or the ESOP may purchase shares of Common
Stock in the open market.
CATEGORY 3: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit as of September 30, 1997 will receive
nontransferable subscription rights to subscribe for up to the greater of the
purchase limitation established by the Bank for the Community Offering, one-
tenth (.10%) of one percent of the total offering of Conversion Stock or
fifteen times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of qualifying deposits of the
Supplemental Eligible Account Holder and the denominator is the total amount
of qualifying deposits of all Supplemental Eligible Account Holders. If the
exercise of subscription rights in this category results in an
oversubscription, shares of Conversion Stock will be allocated among
subscribing Supplemental Eligible Account Holders so as to permit each
Supplemental Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his total allocation equal 100 shares or
the number of shares actually subscribed for, whichever is less. Thereafter,
unallocated shares will be allocated among subscribing Supplemental Eligible
Account Holders proportionately, based on the amount of their respective
qualifying deposits as compared to total qualifying deposits of all
Supplemental Eligible Account Holders.
CATEGORY 4: Other Members. Each depositor of the Bank as of the Voting
Record Date (October 24, 1997) and each borrower with a loan outstanding on
July 21, 1993, which continues to be outstanding as of the Voting Record Date,
will receive nontransferable Subscription Rights to subscribe for up to the
purchase limitation established by the Bank, to the extent shares are
available after filling subscriptions by Eligible Account Holders, the Bank's
ESOP and Supplemental Eligible Account Holders. In the event of an
oversubscription in this category, the available shares will be allocated
proportionately based on the amount of the respective subscriptions.
CATEGORY 5: Minority Stockholders. Minority Stockholders as of the Voting
Record Date will receive nontransferable subscription rights to purchase
shares up to the purchase limitation established by the Bank, to
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the extent available after filling the Subscription Offering subscriptions. In
the event of an oversubscription, the available shares will be allocated
proportionately on the basis of the amounts of their respective subscriptions.
Subscription rights are nontransferable. Persons selling or otherwise
transferring their rights to subscribe for Conversion Stock in the
Subscription Offering or subscribing for Conversion Stock on behalf of another
person will be subject to forfeiture of such rights and possible further
sanctions and penalties imposed by government agencies. Each person exercising
subscription rights will be required to certify that he or she is purchasing
such shares solely for his or her own account and that he or she has no
agreement or understanding with any other person for the sale or transfer of
such shares.
Community Offering. Concurrently with the Subscription Offering and the
Minority Stockholders' Offering, the Company is offering shares of the
Conversion Stock to certain members of the general public in a Community
Offering. Preference may be given first to natural persons residing in the
Local Community (such persons are referred to as "Preferred Subscribers").
Purchasers, together with their associates and groups acting in concert, may
order up to $250,000 in aggregate purchase price of Conversion Stock subject
to maximum purchase limitations in the Offerings and the overall ownership
limitation. If the amount of available stock is insufficient to fill the
orders of Preferred Subscribers stock will be allocated first to each
Preferred Subscriber in an amount equal to the lesser of 100 shares or the
number of shares subscribed for by each such Preferred Subscriber, if
possible. Thereafter, unallocated shares will be allocated among the Preferred
Subscribers whose order remains unsatisfied proportionately, on the basis of
the amounts of the respective subscriptions. If the orders of Preferred
Subscribers are completely filled, but there are insufficient shares to fill
the orders of others, available shares will be allocated to the other members
of the general public who purchase in the Community Offering applying the same
allocation described above for Preferred Subscribers. THE RIGHT OF ANY PERSON
TO PURCHASE SHARES IN THE COMMUNITY OFFERING IS SUBJECT TO THE ABSOLUTE RIGHT
OF THE COMPANY AND THE BANK TO ACCEPT OR REJECT SUCH ORDERS IN WHOLE OR IN
PART.
If all of the Common Stock offered in the Subscription Offering and the
Minority Stockholders' Offering is subscribed for, no Conversion Stock will be
available for purchase in the Community Offering and all funds submitted
pursuant to the Community Offering will be promptly refunded with interest.
Syndicated Community Offering. The Plan provides that all shares of
Conversion Stock not purchased in the Subscription, Minority Stockholders' and
Community Offerings may be offered for sale to certain members of the general
public in a Syndicated Community Offering through a syndicate of registered
broker-dealers to be managed by Ryan Beck acting as agent of the Company to
assist the Company and the Bank in the sale of the Common Stock. The Company
and the Bank have the right to reject orders, in whole or part, in their sole
discretion in the Syndicated Community Offering. Neither Ryan Beck nor any
other registered broker-dealer shall have any obligation to take or purchase
any shares of the Conversion Stock in the Syndicated Community Offering;
however, Ryan Beck has agreed to use its best efforts in the sale of shares in
the Syndicated Community Offering.
No person, together with any associate or group of persons acting in
concert, will be permitted to subscribe in the Syndicated Community Offering
for in excess of $250,000 of Conversion Stock. See "--Marketing Arrangements"
for a description of the commission to be paid to the selected dealers and to
Ryan Beck.
If a syndicate of selected dealers is formed to assist in the Syndicated
Community Offering, a purchaser may pay for his shares with funds held by or
deposited with a selected dealer. Selected dealers are expected to solicit
indications of interest from their customers to place orders for shares. Such
selected dealers shall subsequently contact their customers who indicated an
interest and seek their confirmation as to their intent to purchase. The
selected dealer will then acknowledge confirmation of the order by 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"). On or before noon of the next
business day following the debit date, the selected dealer will send funds to
the Bank for deposit in a segregated account. Although purchasers' funds are
not required to be in their accounts with selected dealers until the debit
date, once a
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confirmation of an intent to purchase has been given to the selected dealer,
the purchaser has no right to rescind his order.
The Syndicated Community Offering may run concurrent to the Subscription,
Minority Stockholders' and Community Offering or subsequent to such offerings.
The Syndicated Community Offering will terminate no more than 45 days
following the Expiration Date, unless extended by the Company with any
required regulatory approval, but in no case later than .
THE SUBSCRIPTION OFFERING WILL EXPIRE AT NOON, PACIFIC TIME, ON , 1997
("EXPIRATION DATE"), UNLESS EXTENDED BY THE COMPANY FOR UP TO DAYS TO
, 1997. THE MINORITY STOCKHOLDERS' OFFERING AND COMMUNITY OFFERING ARE
ALSO EXPECTED TO TERMINATE AT NOON, PACIFIC TIME, ON , 1997, BUT MAY BE
EXTENDED. Such extensions may be granted without notice to subscribers. If the
Conversion is not consummated within 45 days after the last day of the
Subscription Offering (which may conclude no later than , 1997) and the
Company elects to extend the Offerings, with the approval of the Division, if
necessary, subscribers will be notified in writing of the time period within
which they must notify the Company of any intention to increase, decrease or
rescind stock orders. If an affirmative response to any such resolicitation is
not received by the Company, a subscriber's stock order will be rescinded and
subscription funds will be returned promptly, together with interest from the
date such funds were received by the Company, and all withdrawal
authorizations from deposit accounts at the Bank will be terminated. No single
extension may exceed 90 days. If the Offerings are not extended or, in any
event, if the Conversion is not consummated by , 1997, all stock orders
will be rescinded, funds returned and withdrawal authorizations terminated, as
described above.
In the event the Company is unable to find purchasers from the general
public for an insignificant number of unsubscribed shares, other purchase
arrangements will be made by the Board of Directors of the Bank, if feasible.
Such other arrangements will be subject to the approval of the Division.
Persons in Non-Qualified States. The Company and the Bank will make
reasonable efforts to comply with the securities laws of all states in the
United States in which persons entitled to subscribe for stock pursuant to the
Plan reside. However, the Company and the Bank are not required to offer stock
in the Subscription Offering to any person who resides in a foreign country or
resides in a state of the United States with respect to which (i) a small
number of persons otherwise eligible to subscribe for shares of Conversion
Stock reside in such state; or (ii) the Company or the Bank determines that
compliance with the securities laws of such state would be impracticable for
reasons of cost or otherwise, including but not limited to a request that the
Company and the Bank or their officers, directors or trustees register as a
broker, dealer, salesman or selling agent, under the securities laws of such
state, or a request to register or otherwise qualify the subscription rights
or Conversion Stock for sale or submit any filing with respect thereto in such
state. Where the number of persons eligible to subscribe for shares in one
state is small, the Company and the Bank will base their decision as to
whether or not to offer the Conversion Stock in such state on a number of
factors, including the size of accounts held by account holders in the state,
the cost of registering or qualifying the shares or the need to register the
Company, its officers, directors or employees as brokers, dealers or salesmen.
THE EXCHANGE
General. The regulations and policies governing mutual holding companies
provide that in a conversion of a mutual holding company to the stock holding
company form of organization, the Minority Stockholders will be entitled to
exchange their Minority Shares for Exchange Shares, provided the Bank and the
Mutual Holding Company demonstrate to the satisfaction of the Division and the
FDIC that the basis for the exchange is fair and reasonable. The Boards of
Directors of the Bank and the Company have determined that each Minority Share
will, at the Effective Time of the Conversion, be converted into and become
the right to receive a number of Exchange Shares determined pursuant to the
Exchange Ratio that ensures that after the Conversion and before giving effect
to purchases of Conversion Stock by Minority Stockholders in the Offering, and
receipt by Minority Stockholders of cash in lieu of fractional shares,
Minority Stockholders will own approximately the same
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aggregate percentage of the Common Stock as they own of the Bank Common Stock
immediately prior to the Effective Time adjusted downward to reflect the
aggregate amount of Bank Common Stock dividends waived by the Mutual Holding
Company and the amount of assets, other than Bank Common Stock, held by the
Mutual Holding Company. The Mutual Holding Company had assets of $120,000 and
waived $1,230,000 in dividends, as of June 30, 1997. No Bank common stock
dividends are expected to be declared after such date.
The adjustments described above decrease the Minority Stockholders'
ownership interest to 32.17% from 33.69% based on the following calculation:
Bank Stockholders' Equity at 6/30/97--Aggregate Dividends Waived by MHC x
Minority Stockholders' 33.69% Ownership = 32.1925%
Bank Stockholders' Equity at 6/30/97
The adjustments described above would further adjust the Minority
Stockholders' ownership interest as follows:
32.1925% x Pro Forma Market Value of the Company--Market Value of Assets of
MHC Other than Bank Common Stock = 32.17%
Pro Forma Market Value of the Company
To determine the Exchange Ratio, multiply the reciprocal of the adjusted
Minority Stockholders' ownership interest was multiplied by the number of
shares to be issued in the Conversion, and divide the result by the number of
Minority Shares outstanding (609,616) shares as of June 30, 1997. Immediately
prior to consummation of the Conversion, the Bank will recalculate the
Minority Stockholders' ownership interest pursuant to the above formula, which
will take into account changes in stockholders' equity and percentage
ownership at such date.
The following table sets forth, based upon the minimum, midpoint, maximum
and 15% above the maximum of the Valuation Price Range, the following: (i) the
total number of shares of Conversion Stock and Exchange Shares to be issued in
the Conversion, (ii) the percentage of the total Common Stock represented by
the Conversion Stock and the Exchange Shares, and (iii) the Exchange Ratio.
The table assumes that there is no cash paid in lieu of issuing fractional
Exchange Shares.
<TABLE>
<CAPTION>
CONVERSION STOCK EXCHANGE SHARES TOTAL SHARES
TO BE ISSUED(1) TO BE ISSUED(1) OF COMMON
----------------- ----------------- STOCK TO BE EXCHANGE
AMOUNT PERCENT AMOUNT PERCENT OUTSTANDING RATIO
--------- ------- --------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Minimum.............. 4,250,000 67.83% 2,015,664 32.17% 6,265,664 3.3064
Midpoint............. 5,000,000 67.83 2,371,369 32.17 7,371,369 3.8899
Maximum.............. 5,750,000 67.83 2,727,075 32.17 8,477,075 4.4734
15% above maximum.... 6,612,500 67.83 3,136,136 32.17 9,748,636 5.1444
</TABLE>
- --------
(1) Assumes that outstanding options to purchase 42,717 shares of Bank Common
Stock at June 30, 1997 are not exercised prior to consummation of the
Conversion. Assuming that all of such options are exercised prior to such
consummation, the percentages represented by the Conversion Stock and the
Exchange Shares would amount to 66.40% and 33.60%, respectively, and the
Exchange Ratio would amount to 3.2968, 3.8786, 4.4604 and 5.1294 at the
minimum, midpoint, maximum and 15% above the maximum of the Valuation
Price Range, respectively.
(2) Assumes that the Company does not issue authorized but unissued shares to
the ESOP immediately following the Conversion.
The actual Exchange Ratio is not dependent on the market value of the
Minority Shares. It will be determined based upon the number of shares of
Conversion Stock issued in the Offerings and the Minority Stockholders'
percentage ownership in the Bank prior to consummation of the Conversion
adjusted downward to take into account the effect of the aggregate amount of
dividends declared by the Bank and waived by the Mutual Holding Company and
the assets of the Mutual Holding Company). At the minimum, midpoint and
maximum of the Valuation Price Range, one Minority Share will be exchanged for
3.3064, 3.8899 and 4.4734
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<PAGE>
shares of common Stock, respectively (which have calculated equivalent
estimated value of $33.06, $38.90 and $44.73 based on the Purchase Price of
Conversion Stock in the Offerings and the aforementioned Exchange Ratios).
However, there can be no assurance as to the actual market value of a share of
Common Stock after the Conversion or that such shares can be sole at or above
the $10.00 per share Purchase Price. Any increase or decrease in the number of
shares of Conversion Stock will result in a corresponding change in the number
of Exchange Shares, so that upon consummation of the Conversion, the
Conversion Stock and the Exchange Stock will represent approximately 67.83%
and 32.17%, respectively, of the Company's total outstanding shares of Common
Stock. Each holder of a certificate or certificates evidencing issued and
outstanding Minority Shares will be entitled to receive in exchange therefor a
certificate or certificates representing the number of full shares of Common
Stock for which the Minority Shares will have been converted based on the
Exchange Ratio. To effect the Exchange, a duly appointed agent of the Bank
will promptly mail to each such holder of record of an outstanding certificate
which immediately prior to the consummation of the Conversion evidenced
Minority Shares, a letter of transmittal (which will specify that delivery
shall be effected, and risk of loss and title to such certificate shall pass,
only upon delivery of such certificate to the Exchange Agent) advising such
holder of the terms of the Exchange effected by the Conversion and of the
procedure for surrendering to the Exchange Agent such certificate in exchange
for a certificate or certificates evidencing Common Stock. MINORITY
STOCKHOLDERS SHOULD NOT FORWARD TO THE BANK OR THE EXCHANGE AGENT CERTIFICATES
UNTIL THEY HAVE RECEIVED THE TRANSMITTAL LETTER.
No holder of a certificate representing shares of Bank Common Stock will be
entitled to receive any dividends in respect of the Common Stock into which
such shares shall have been converted by virtue of the conversion until the
certificate representing such shares of Bank Common Stock is surrendered in
exchange for certificates representing shares of Common Stock. In the event
that dividends are declared and paid by the Company in respect of Common Stock
after the consummation of the Conversion but prior to surrender of
certificates representing shares of Bank Common Stock, dividends payable in
respect of shares of Common Stock not then issued will accrue (without
interest). Any such dividends will be paid (without interest) upon surrender
of the certificates representing such shares of Bank Common Stock. The Company
will be entitled, after the consummation of the Conversion, to treat
certificates representing shares of Bank Common Stock as evidencing ownership
of the number of full shares of Common Stock into which the shares of Bank
Common Stock represented by such certificates shall have been converted,
notwithstanding the failure on the part of the holder thereof to surrender
such certificates.
The Company shall not be obligated to deliver a certificate or certificates
representing shares of Common Stock to which a holder of Bank Common Stock
would otherwise be entitled as a result of the Conversion until such holder
surrenders the certificate or certificates representing the shares of Bank
Common Stock for exchange as provided above, or, in default thereof, an
appropriate affidavit of loss and indemnity agreement and/or a bond as may be
required in each case by the Company.
DISSENTERS' RIGHTS
The Plan of Conversion provides that stockholders of the Bank have the right
to dissent from the mergers of the Bank with the MHC and with an interim bank
formed to facilitate the Conversion, with the Bank as the surviving entity in
each Merger, and, subject to certain conditions, to receive payment of the
"value" of their shares of Bank Common Stock, as provided in Washington law.
Under Washington state law (RCW 23B.13), a stockholder of the Bank may
exercise "dissenters' rights" and receive the fair value of his or her shares
in cash, if certain procedures are followed. To exercise these rights, a Bank
stockholder must (i) deliver to the Bank, before the vote on approval of the
Conversion is taken, written notice of intent to demand payment for his or her
shares if the Conversion is effected, and (ii) not vote in favor of the
Conversion. Following consummation of the Conversion, the Company will send a
Dissenters' Notice to each Bank stockholder who has properly perfected his or
her dissenters' rights. A dissenting shareholder must also follow the
procedures set forth in the Dissenters' Notice. The Dissenters' Notice will
include instructions to completing the exercise of dissenters' rights,
including that the dissenting stockholder must (1) make written
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<PAGE>
demand for payment of the fair value of his or her shares in the form sent to
the stockholder by the corporation along with the Dissenters' Notice (this
notice will prescribe a time period within which the demand must be made), (2)
certify that the beneficial ownership of his or Bank Common Stock shares was
acquired before the date set forth in the Dissenters' Notice, and (3)
surrender his or her stock certificates representing shares of the Bank Common
Stock in accordance with the Dissenters' Notice. If a stockholder exercises
dissenters' rights, the dissenting stockholder is entitled to receive the fair
value of his or her shares in cash. Such value may be higher or lower than the
value of Exchange Shares issuable pursuant to the Conversion.
A vote against the Conversion will not in and of itself satisfy the
requirements of the Washington statute; a stockholder who does not deliver to
the Bank prior to the Special Meeting a written notice of the stockholder's
intent to demand payment for the fair value of the shares of Bank Common Stock
held will lose the right to exercise dissenters' rights. In addition, any
stockholder electing to exercise dissenters' rights must either vote against
the Conversion or abstain from voting. The failure of a stockholder to comply
strictly with the statutory requirements will result in a loss of dissenters'
rights. A copy of the relevant statutory provisions is attached as Appendix
and Minority Stockholders are urged to refer to this Appendix for a complete
statement concerning dissenters' rights. The foregoing summary of such rights
is qualified in its entirety by reference to such Appendix .
MARKETING ARRANGEMENTS
The Bank and the Company have engaged Ryan Beck, a National Association of
Securities Dealers ("NASD") member firm as a financial and marketing advisor
in connection with the Offerings, and Ryan Beck has agreed to use its best
efforts to assist the Company with the solicitation of subscriptions for
shares of Conversion Stock in the Offerings. The services to be rendered by
Ryan Beck include the following: (i) consulting as to the securities marketing
implications of any aspect of the Plan or related corporate documents; (ii)
reviewing all offering documents, including the Prospectus, stock order forms
and related offering materials; (iii) assisting in the design and
implementation of a marketing strategy for the Offerings; (iv) organizing and
supervising the Stock Information Center, including the proxy solicitation in
connection with the Special Meetings to approve the Conversion; (v) training
Bank personnel with respect to the Conversion and their roles in the process;
(vi) assisting management in scheduling and preparing for meetings with
potential investors and broker-dealers; (vii) soliciting stock orders; and
(viii) providing such other general advice and assistance as may be requested
to promote the successful completion of the Conversion. In addition, Ryan Beck
will manage any Syndicated Community Offering.
The engagement of Ryan Beck and the services performed thereunder, including
any "due diligence" investigation of the operations of the Bank, should not be
construed as an endorsement or recommendation of the suitability of an
investment in the Common Stock or a verification of the accuracy or
completeness of the information contained herein. Ryan Beck has not prepared
any report or opinion constituting a recommendation or advice to the Bank or
to persons who may purchase shares in the Offerings regarding the suitability
of an investment in the Common Stock or as to the prices at which the Common
Stock may trade.
Based upon negotiations between the Bank, the Company and Ryan Beck, Ryan
Beck will receive a management and advisory fee of $50,000, a marketing fee
equal to 1.50% of the aggregate Purchase Price of Conversion Stock sold in the
Subscription and Minority Stockholders' Offerings, and a marketing fee of 2.0%
on such sales in the Community Offering. No fees will be paid to Ryan Beck on
subscriptions by any director, officer or employee of the Bank or the Company
or members of their immediate families or the ESOP. In the event that a
selected dealers agreement is entered into in connection with a Syndicated
Community Offering, the Bank will pay a fee to such selected dealers of up to
7.0% including a management fee to Ryan Beck of 1.50% for shares sold by NASD
member firms, other than Ryan Beck. Fees to Ryan Beck and to any other NASD
member firm may be deemed to be underwriting fees and Ryan Beck and such
broker-dealers may be deemed to be underwriters.
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<PAGE>
Ryan Beck will also be reimbursed for its reasonable out-of-pocket expenses,
including legal fees of its counsel, up to $35,000, and other expenses not to
exceed $15,000 without Company approval. The Bank and the Company have agreed
to indemnity Ryan Beck in connection with certain claims or liabilities,
including certain liabilities under the Securities Act. Ryan Beck has received
advances towards its fees totaling $25,000. Total fees to Ryan Beck, including
the $50,000 management and advisory fee, are estimated to be $610,000 and
$830,000 at the minimum and the maximum of the Valuation Price Range,
respectively. See "Pro Forma Data" for the assumptions used to arrive at these
estimates.
The management and employees of the Bank may participate in the Offerings in
clerical capacities, providing administrative support in effecting sales
transactions or answering questions of a mechanical nature, such as the proper
execution of the order form. Management of the Bank may answer questions
regarding the business of the Bank. Other questions of prospective purchasers,
including investment related questions, will be directed to Ryan Beck
registered representatives. The management and employees of the Bank have been
instructed not to solicit offers to purchase Conversion Stock or to provide
advice regarding the purchase of Conversion Stock. None of the Bank's
employees or directors who participate in the Offerings will receive any
special compensation or other remuneration for such activities.
None of the Bank's personnel participating in the Offerings are registered
or licensed as a broker or dealer or an agent of a broker or dealer. The
Bank's personnel will assist in the above-described sales activities pursuant
to an exemption from registration as a broker or dealer provided by Rule 3a4-l
("Rule 3a4-l ") promulgated under the Exchange Act. Rule 3a4-l generally
provides that an "associated person of an issuer" of securities shall not be
deemed a broker solely by reason of participation in the sale of securities of
such issuer if the associated person meets certain conditions. Such conditions
include, but are not limited to, that the associated person participating in
the sale of an issuer's securities not be compensated in connection therewith
at the time of participation, that such person not be associated with a broker
or dealer and that such person observe certain limitations on his
participation in the sale of securities. For purposes of this exemption,
"associated person of an issuer" is defined to include any person who is a
director, officer or employee of the issuer or a company that controls, is
controlled by or is under common control with the issuer.
PROCEDURE FOR PURCHASING SHARES IN OFFERINGS
To ensure that each purchaser receives a Prospectus at least 48 hours before
the Expiration Date in accordance with Rule l5c2-8 of the Exchange Act, no
Prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the stock
order form will confirm receipt or delivery in accordance with Rule 15c2-8.
Stock order forms will only be distributed with a Prospectus.
To purchase shares in the Subscription, Minority Stockholders' and Community
Offerings, an executed stock order form, with the required payment for each
share subscribed for, or with appropriate authorization for withdrawal from
the subscriber's deposit accounts with the Bank must be received by the Bank
at any of its branch offices by Noon, Pacific Time, on the Expiration Date.
Stock 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. In addition, the Bank is not
obligated to accept orders submitted on photocopied or facsimilied stock order
forms. Notwithstanding the foregoing, the Company shall have the right, in its
sole discretion, to permit institutional investors to submit irrevocable
orders together with a legally binding commitment for payment and to
thereafter pay for the shares of Conversion Stock for which they subscribe in
the Community Offering at any time prior to 48 hours before the completion of
the Conversion. The Company and the Bank have the right to waive or permit the
correction of incomplete or improperly executed stock order forms, but do not
represent that they will do so. Pursuant to the Plan of Conversion, the
interpretation by the Company and the Bank of the terms and conditions of the
Plan of Conversion and acceptability of the order form will be final. Once
received, an executed stock order form may not be modified, amended or
rescinded without the consent of the Bank unless the Company conducts a
resolicitation of subscribers.
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<PAGE>
In order to help ensure that prospective purchasers are properly identified
as to their stock purchase priorities, depositors as of the Eligibility Record
Date (June 30, 1996) or the Supplemental Eligibility Record Date (September
30, 1997) must list all accounts on the stock order form, all account holders'
names in each Bank deposit account, and the account number.
Payment for subscriptions may be made (i) in cash if delivered in person at
any branch office of the Bank; (ii) by check, bank draft or money order; or
(iii) by authorization of withdrawal from deposit accounts maintained with the
Bank. Interest will be paid on payments made by cash, check, bank draft or
money order at the Bank's passbook rate of interest from the date payment is
received until the completion or termination of the Conversion. If payment is
made by authorization of withdrawal from deposit accounts, the funds
authorized to be withdrawn will continue to accrue interest at the contractual
rates until completion or termination of the Conversion, but a hold will be
placed on such funds, thereby making them unavailable to the depositor. At the
completion of the Conversion, withdrawals will be made and the funds received
in the Offerings will be used to purchase the shares of Conversion Stock. The
shares issued in the Conversion cannot and will not be insured by the FDIC or
any other governmental agency.
The Bank will waive any applicable penalties for early withdrawal from
certificate accounts at the Bank. If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the
time that the funds actually are transferred under the authorization, the
certificate will be canceled at the time of the withdrawal, without penalty,
and the remaining balance will earn interest at the passbook rate.
The ESOP will not be required to pay for the shares subscribed for at the
time it subscribes, but rather, may pay for such shares of Conversion Stock
subscribed for at the Purchase Price upon consummation of the Offerings;
provided, that there is in force from the time of its subscription until such
time, a loan commitment from an unrelated financial institution or the Company
to lend to the ESOP, at such time, the aggregate Purchase Price of the shares
for which it subscribed.
Owners of self-directed IRAs may use the assets of such IRAs to purchase
shares of Conversion Stock in the Offerings, provided that such IRAs are not
maintained at the Bank. Persons with self-directed IRAs maintained at the Bank
must have their accounts transferred to an unaffiliated institution or broker
to purchase shares of Conversion Stock in the Offerings. In addition, the
provisions of ERISA and IRS regulations require that officers, directors and
ten percent shareholders who use self-directed IRA funds to purchase shares of
Conversion Stock in the Offerings, make such purchases for the exclusive
benefit of IRAs.
Certificates representing, shares of Conversion Stock purchased, and any
refund due, will be mailed to purchasers at such address as may be specified
in properly completed stock order forms as soon as practicable following
consummation of the sale of all shares of Conversion Stock. Any certificates
returned as undeliverable will be disposed of in accordance with applicable
law. Until certificates for the Common Stock are available and delivered to
subscribers and purchasers, subscribers and purchasers may not be able to sell
the shares of Common Stock for which they subscribed or purchased.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
The Plan of Conversion requires that the aggregate purchase price of the
securities sold in connection with the Conversion be based upon an estimated
pro forma value of the Bank and the MHC (i.e., taking into account the
expected receipt of proceeds from the sale of securities in the Conversion) as
determined by an independent appraisal. The Bank and the Company have retained
RP Financial to prepare an appraisal of the pro forma market value of the
common stock and a business plan. A COPY OF THE APPRAISAL IS AVAILABLE FOR
INSPECTION AT EACH OFFICE OF THE BANK. RP Financial will receive a fee
expected to total approximately $35,000 for its appraisal services and
preparation of a business plan, plus reasonable out-of-pocket expenses
incurred in connection with the appraisal. The Bank has agreed to indemnify RP
Financial under certain circumstances against liabilities and expenses
(including legal fees) arising out of, related to, or based upon the
Conversion.
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<PAGE>
RP Financial prepared the Appraisal dated August 15, 1997 and as updated on
October 10, 1997, which states that the aggregate pro forma market value of
the Bank and the Mutual Holding Company inclusive of the sale of an
approximate 67.83% ownership interest in the Offerings was $53,034,770 at the
midpoint as of August 15, 1997 and $73,713,696 at the midpoint as updated on
October 10, 1997. The Appraisal was multiplied by 67.83%, which is the Mutual
Holding Company's percentage ownership interest in the Bank as adjusted upward
from the 66.31% to reflect $1,230,000 of dividends declared by the Bank and
waived by the Mutual Holding Company and the $120,000 in assets held by the
MHC. The resulting amount, $50,000,000, is the midpoint of the dollar amount
of Conversion Stock to be offered in the Offerings. The minimum and maximum of
the offering range were set at 15% below and above the midpoint, respectively,
resulting in an offering range of $42,500,000 to $57,500,000 of Conversion
Stock. The Boards of Directors of the Company and the Bank determined that the
Conversion Stock would be sold at $10.00 per share, resulting in a range of
4,250,000 to 5,750,000 shares of Conversion Stock being offered. The Plan of
Conversion requires that all of the shares subscribed for in the Offerings be
sold at the same price per share.
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 the State of Washington, 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 Company. No detailed
individual analysis of the separate components of the MHC's and the Bank's
assets and liabilities was performed in connection with the evaluation. The
Board of Directors reviewed the appraisal, including the methodology and the
appropriateness of the assumptions utilized by RP Financial, and the Board
accepted the valuation.
Following commencement of the Subscription and Community Offerings, the
maximum of the Valuation Price Range may be increased up to 15% and the number
of shares of Conversion Stock to be issued in the Conversion may be increased
to 6,612,500 shares due to regulatory considerations, changes in market
conditions or general financial and economic conditions, without the
resolicitation of subscribers. See "--Limitations on Purchases and Ownership
of Shares" as to the method of distribution and allocation of additional
shares that may be issued in the event of an increase in the Valuation Price
Range to fill unfilled orders in the Offerings.
No sale of the shares will take place until RP Financial confirms to the
Division and the FDIC that, to the best of RP Financial's knowledge and
judgment, nothing of a material nature has occurred which would cause it to
conclude that the aggregate Purchase Price (i.e. gross proceeds) received in
the Offerings is incompatible with its Appraisal. If, however, the facts do
not justify such a statement, the Offerings may be canceled, a new Valuation
Price Range and price per share set and new Subscription, Minority
Stockholders, Community and Syndicated Community Offerings held.
If, based on RP Financial's estimate, the pro forma market value of Common
Stock as of such date is not more than 15% above the maximum and not less than
the minimum of the Valuation Price Range, then (1) with the approval of the
Division and the FDIC, the number of shares of Conversion Stock to be issued
may be increased or decreased, pro rata to the increase or decrease in value
without resolicitation of subscriptions, to no more than 6,612,500 shares or
no less than 4,250,000 shares, and (2) all shares purchased in the Offerings
will be purchased for the Purchase Price of $10.00 per share. See "--
Limitations on Purchases and Ownership of Shares" for a description of the
distribution and allocation of additional shares that may be issued in the
event of an increase in the Valuation Price Range to fill unfilled orders in
the Subscription, Minority Stockholders' and Community Offerings.
In formulating the Appraisal, RP Financial relied upon the truthfulness,
accuracy and completeness of all documents the Bank furnished it. RP Financial
also considered financial and other information from regulatory agencies,
other financial institutions and other public sources, as appropriate. While
RP Financial believes this information to be reliable, RP Financial does not
guarantee the accuracy or completeness of such information and did not
independently verify the financial statements and other data provided by the
Bank and the Company or independently value the assets or liabilities of the
Company and the Bank. THE APPRAISAL BY RP
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<PAGE>
FINANCIAL IS NOT INTENDED TO BE, AND MUST NOT BE INTERPRETED AS, A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF VOTING TO APPROVE THE
CONVERSION OR OF PURCHASING SHARES OF COMMON STOCK. MOREOVER, BECAUSE THE
APPRAISAL IS NECESSARILY BASED ON MANY FACTORS WHICH CHANGE FROM TIME TO TIME,
THERE IS NO ASSURANCE THAT PERSONS WHO PURCHASE CONVERSION STOCK OR RECEIVE
EXCHANGE SHARES IN THE CONVERSION WILL BE ABLE TO SELL SHARES THEREAFTER AT
PRICES AT OR ABOVE THE PURCHASE PRICE.
LIMITATIONS ON PURCHASES AND OWNERSHIP OF SHARES
The Plan of Conversion sets forth purchase limitations applicable to the
Offerings. The minimum stock order is 25 shares. Except for the ESOP, which is
expected to purchase 2% of the Conversion Stock sold, no person (or persons
through a single subscription right), together with any associate or group or
persons acting in concert, may subscribe for more than $250,000 in all
categories of the Offerings combined. In addition to these purchase
limitations, no person, together with any associate or group of persons acting
in concert may, upon completion of the Conversion, own more than 2% of the
Common Stock outstanding. This ownership limitation pertains to the aggregate
of Conversion Stock purchased and Exchange Shares received by the subscriber.
Notwithstanding the foregoing, no Minority Stockholder will be required to
dispose of Minority Shares if, without purchasing Conversion Stock, the
Exchange will result in ownership of in excess of 2% of the Common Stock. The
purchase limitations and ownership limitation may be changed at the discretion
of the Company, as described herein.
The Bank's and the Company's Boards of Directors may, in their sole
discretion, increase the maximum purchase limitation to 9.99% of the shares of
Conversion Stock sold in the Conversion, provided that orders for shares which
exceed 5% of the shares of Conversion Stock sold in the Conversion may not
exceed, in the aggregate, 10% of the shares sold in the Conversion. If the
Board of Directors decides to increase the purchase limitation above $250,000,
all persons who subscribed for the maximum number of shares will be given the
opportunity to increase their subscriptions accordingly, subject to the rights
and preferences of any person who has priority subscription rights.
In the event of an increase in the total number of shares offered in the
Conversion due to an increase in the Valuation Price Range of up to 15% (the
"Adjusted Maximum"), the additional shares will be allocated in the following
priority in accordance with the Plan: (i) in the event that there is an
oversubscription by Eligible Account Holders, to fill their unfulfilled
subscriptions; (ii) to fill the ESOP's subscription of up to 2% of the
Adjusted Maximum number of shares; (iii) in the event that there is an
oversubscription by Supplemental Eligible Account Holders, to fill their
unfulfilled subscriptions; (iv) in the event that there is an oversubscription
by Other Members, to fill their unfulfilled subscriptions; (v) in the event
that there is an oversubscription by Minority Stockholders to fill their
subscriptions; and (iv) to fill unfulfilled subscriptions in the Community
Offering with preference to Preferred Subscribers.
The term "associate" of a person is defined in the Plan to mean (i) any
corporation or organization (other than the Bank or a majority-owned
subsidiary of the Bank or the Company) of which such person is an officer or
partner or is, directly or indirectly, the beneficial owner of 10% or more of
any class of equity securities; (ii) any trust or other estate in which such
person has a substantial beneficial interest or as to which such person serves
as trustee or in a similar fiduciary capacity (excluding tax-qualified
employee plans); and (iii) any relative or spouse of such person, or any
relative of such spouse, who has the same home as such person or who is a
director or officer of the Bank, or any of its subsidiaries, or the Mutual
Holding Company. For example, a corporation of which a person serves as an
officer would be an associate of such person and, therefore, all shares
purchased by such corporation would be included with the number of shares
which such person could purchase individually under the above limitations.
The term "acting in concert" is defined in the Plan to mean (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express
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agreement; or (ii) a combination or pooling of voting or other interests in
the securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written
or otherwise. A person or company which acts in concert with another person or
company ("other party") shall also be deemed to be acting in concert with any
person or company who is also acting in concert with that other party, except
that any tax-qualified employee stock benefit plan will not be deemed to be
acting in concert with its trustee or a person who serves in a similar
capacity solely for the purpose of determining whether stock held by the
trustee and stock held by the plan will be aggregated. The term "officer" is
defined in the Plan to mean an executive officer of the Bank, the Company or
the MHC.
The term "resident" as used herein means any person who, on the date of the
Prospectus, maintained a bona fide residence within the Local Community (i.e.,
the counties of Thurston, Mason, Pierce, King, Snohomish, Kitsap, and Grays
Harbor in the State of Washington) and has manifested an intent to remain
within the Local Community for a period of time. To the extent the person is a
corporation or other business entity, the principal place of business or
headquarters shall be within the Local Community. To the extent the person is
a personal benefit plan, the circumstances of the beneficiary shall apply with
respect to this definition. In the case of all other benefit plans, the
circumstances of the trustee shall be examined for purposes of this
definition. The Bank may utilize deposit or loan records or such other
evidence provided to it to make a determination as to whether a person is bona
fide resident of the Local Community. In all cases, however, such
determination shall be in the sole discretion of the Bank and shall be
determined on a case-by-case basis without regard to prior determination.
Common Stock purchased in the Offerings or received in the Exchange pursuant
to the Conversion will be freely transferable, except for shares purchased by
directors and officers of the Bank and the Company and by NASD members. See
"--Restrictions on Transferability by Directors and Officers and NASD
Members."
RESTRICTIONS ON TRANSFERABILITY BY DIRECTORS AND OFFICERS AND NASD MEMBERS
Shares of Conversion Stock purchased by directors and officers of the
Company may not be sold for a period of one year following completion of the
Conversion, except in the event of the death of the stockholder or in any
exchange of the Common Stock in connection with a merger or acquisition of the
Company. Shares of Common Stock received by directors or officers upon
exercise of options issued pursuant to the Stock Option Plan are not subject
to this restriction. Accordingly, shares of Common Stock issued by the Company
to directors and officers shall bear a legend giving appropriate notice of the
restriction and, in addition, the Company will give appropriate instructions
to the transfer agent for the Common Stock with respect to the restriction on
transfers. Any shares issued to directors and officers as a stock dividend,
stock split or otherwise with respect to restricted Common Stock shall be
subject to the same restrictions.
Purchases of outstanding shares of Common Stock of the Company by directors,
executive officers (or any person who was an executive officer or director of
the Bank after adoption of the Plan of Conversion) and their associates during
the three-year period following Conversion may be made only through a broker
or dealer registered with the SEC, except with the prior written approval of
the Division. This restriction does not apply, however, to negotiated
transactions involving more than 1% of the Company's outstanding Common Stock
or to the purchase of stock pursuant to the Stock Option Plan.
The Company has filed with the SEC a registration statement under the
Securities Act for the registration of the Common Stock to be issued pursuant
to the Conversion. The registration under the Securities Act of shares of the
Common Stock to be issued in the Conversion does not cover the resale of such
shares. Shares of Common Stock purchased by persons who are not affiliates of
the Company may be resold without registration. Shares purchased by an
affiliate of the Company will be subject to the resale restrictions of Rule
144 under the Securities Act. If the Company meets the current public
information requirements of Rule 144 under the Securities Act, each affiliate
of the Company who complies with the other conditions of Rule 144 (including,
those that require the affiliate's sale to be aggregated with those of certain
other persons) would be able to sell in the public market, without
registration, a number of shares not to exceed, in any three-month period, the
greater of (i) 1% of the outstanding shares of the Company or (ii) the average
weekly volume of trading, in such shares during the
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preceding, four calendar weeks. Provision may be made in the future by the
Company to permit affiliates to have their shares registered for sale under
the Securities Act under certain circumstances.
In addition, under guidelines of the NASD, members of the NASD and their
associates are subject to certain restrictions on the transfer of securities
purchased in accordance with subscription rights and to certain reporting
requirements upon purchase of such securities.
RESTRICTIONS ON ACQUISITION OF THE COMPANY AND THE BANK
The following discussion is a summary of certain provisions of Washington
and Federal law and regulations and Washington corporate law, as well as the
Articles of Incorporation and Bylaws of the Company, relating to stock
ownership and transfers, the Board of Directors and business combinations, all
of which may be deemed to have "anti-takeover" effects. The description of
these provisions is necessarily general and reference should be made to the
actual law and regulations and to the Articles of Incorporation and Bylaws of
the Company. See "Additional Information" as to how to obtain a copy of these
documents.
WASHINGTON LAW
As required by Washington law, as soon as practicable following the
Conversion, the Bank will enter into an agreement with the Division which will
provide that for a period of three years following the date of Conversion, any
company significantly engaged in an unrelated business activity (either
directly or through an affiliate thereof) shall not be permitted to acquire
control of the Bank. For purposes of this agreement, a person or company shall
be deemed to have "control" of the Bank if the person directly or indirectly
or acting, in concert with one or more other persons or through one or more
subsidiaries, owns, controls, or holds with power to vote, or holds proxies
representing, more than 25% of the voting shares of the Company, or controls
in any manner the election of a majority of the directors of the Company. A
company shall be deemed to be "significantly engaged" in an unrelated business
activity if such activity represents on either an actual or a pro forma basis
more than 15% of its consolidated net worth at the close of its preceding
fiscal year or of its consolidated net earnings for such fiscal year. The term
"unrelated business activity" means any business activity not authorized for a
savings bank or any subsidiary thereof.
In addition, for a period of three years following completion of the
Conversion, no person or entity may make directly, or indirectly, any offer to
acquire or actually acquire capital stock of the Bank (or the Company) if,
after consummation of such acquisition, such person would be the beneficial
owner of more than 10% of the Bank's (or Company's) capital stock, without the
prior approval of the Division. However, approval is not required for
purchases directly from the Bank or Company or the underwriters or selling
group acting on their behalf with a view towards public resale, or for
purchases not exceeding 1% per annum of the shares outstanding.
FEDERAL BANKING LAW
Federal Change in Bank Control Law. The Change in Bank Control Act requires
any person or group of persons acting in concert who at any time intend to
acquire control of an insured depository institution or its parent holding
company to give 60 days prior written notice to the "appropriate Federal
banking agency." The Federal Reserve is the "appropriate Federal banking
agency" for bank holding companies. Control for these purposes exists when the
acquiring party owns or controls at least 10% of any class of voting
securities of a bank holding company registered under the Exchange Act or has
the power to direct the management or policies of an institution.
Federal Bank Holding Company Law. The BHCA provides that no company may
acquire "control" of a bank or bank holding company) without the prior
approval of the Federal Reserve. Any company that acquires such control
becomes a "bank holding company" subject to registration, examination and
regulation by the Federal Reserve. Pursuant to the BHCA, a company has control
over a bank or bank holding company if it has
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the power to vote 25% or more of any class of voting stock of the bank or bank
holding company, controls the election of a majority of the directors of the
bank or bank holding company, or exercises a controlling, influence over the
management or policies of the bank or bank holding company. The Federal
Reserve may find that a company controls a bank or bank holding company if the
company owns or controls more than 10% of any class of voting securities of
the bank or bank holding company and certain other relationships exist between
the company and the bank or bank holding company. The Federal Reserve may
prohibit an acquisition of control if it finds, among other things, that (i)
the acquisition would result in a monopoly or substantially, lessen
competition, (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the institution, or (iii) the
competence, experience or integrity of the acquiring person indicates that it
would not be in the interest of the depositors or the public to permit the
acquisition of control by such person.
ANTI-TAKEOVER PROVISIONS
A number of provisions of the Company's Articles of Incorporation and Bylaws
deal with matters of corporate government and certain rights of stockholders.
The following discussion is a general summary of certain provisions of the
Company's Articles of Incorporation and Bylaws and regulatory provisions
relating to stock ownership and transfers, the Board of Directors and business
combinations which might be deemed to have a potential "anti-takeover" effect.
These provisions may have the effect of discouraging a future takeover attempt
which is not approved by the Board of Directors but which individual Company
stockholders may deem to be in their best interests or in which stockholders
may receive a substantial premium for their shares over then current market
prices. As a result, stockholders who might desire to participate in such a
transaction may not have an opportunity to do so. Such provisions will also
render the removal of incumbent Board of Directors or management of the
Company more difficult. The following description of certain of the provisions
of the Articles of Incorporation and Bylaws of the Company is necessarily
general, and reference should be made in each case to such Articles of
Incorporation and Bylaws, which are incorporated herein by reference. See
"Additional Information" as to how to obtain a copy of these documents.
Policy of Independence. In addition to Article and Bylaw provisions which
might be deemed to have potential "anti-takeover" effects, the Company's Board
of Directors has adopted a statement of policy that the Company intends to
remain independent for the foreseeable future. Thus, potential investors
should not invest in Company Common Stock with the expectation that the
Company or the Bank may be merged into or its assets sold to another company
in the foreseeable future.
Restrictions on Acquisitions of Securities. The Articles of Incorporation
provide that for a period of five years from the effective date of the
Conversion, no person may acquire directly or indirectly acquire the
beneficial ownership of more than 10% of any class of equity security of the
Company, unless such offer or acquisition shall have been approved in advance
by a two-thirds vote of the Company's Continuing Directors (as defined in the
Articles of Incorporation). This provision does not apply to any employee
stock benefit plan of the Company. In addition, during such five-year period,
no shares beneficially owned in violation of the foregoing percentage
limitation, as determined by the Company's Board of Directors, shall be
entitled to vote in connection with any matter submitted to stockholders for a
vote. Additionally, the Articles of Incorporation provides for further
restrictions on voting rights of shares owned in excess of 10% of any class of
equity security of the Company beyond five years after the Conversion.
Specifically, the Articles of Incorporation provides that if, at any time
after five years from the Conversion, any person acquires the beneficial
ownership of more than 10% of any class of equity security of the Company,
then, with respect to each vote in excess of 10%, the record holders of voting
stock of the Company beneficially owned by such person shall be entitled to
cast only one-hundredth of-one vote with respect to each vote in excess 10% of
the voting power of the outstanding shares of voting stock of the Company
which such record holders would otherwise be entitled to cast without giving
effect to the provision, and the aggregate voting power of such record holders
shall be allocated proportionately among such record holders. An exception
from the restriction is provided if the acquisition of more than 10% of the
securities received the prior approval by a two-thirds vote of the Company's
"Continuing Directors." Under the Company's Articles of Incorporation, the
restriction on voting shares beneficially owned in violation of the foregoing
limitations is imposed automatically. In order to prevent the imposition of
such restrictions, the Board
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of Directors must take affirmative action approving in advance a particular
offer to acquire or acquisition. Unless the Board took such affirmative
action, the provision would operate to restrict the voting by beneficial
owners of more than 10% of the Company's Common Stock in a proxy contest.
Board of Directors. The Board of Directors of the Company is divided into
three classes, each of which shall contain approximately one-third of the
whole number of the members of the Board. The members of each class shall be
elected for a term of three years, with the terms of office of all members of
one class expiring each year so that approximately one-third of the total
number of directors are elected each year. The Company's Articles of
Incorporation provides that the size of the Board shall be as set forth in the
Bylaws. The Bylaws currently set the number of directors at eight. The
Articles of Incorporation provides that any vacancy occurring in the Board,
including a vacancy created by an increase in the number of directors, shall
be filled by a vote of two-thirds of the directors then in office and any
director so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of the class to which the director has been
chosen expires. The classified Board is intended to provide for continuity of
the Board of Directors and to make it more difficult and time consuming for a
stockholder group to fully use its voting, power to gain control of the Board
of Directors without the consent of the incumbent Board of Directors of the
Company. The Articles of Incorporation of the Company provide that a director
may be removed from the Board of Directors prior to the expiration of his term
only for cause and only upon the vote of 66.66% of the outstanding shares of
voting stock. In the absence of this provision, the vote of the holders of a
majority of the shares could remove the entire Board, but only with cause, and
replace it with persons of such holders' choice.
Cumulative Voting Special Meetings and Action by Written Consent. The
Articles of Incorporation do not provide for cumulative voting for any
purpose. Moreover, the Articles of Incorporation provides that special
meetings of stockholders of the Company may be called only by the Board of
Directors of the Company and that stockholders may take action only at a
meeting and not by written consent.
Authorized Shares. The Articles of Incorporation authorize the issuance of
15,000,000 shares of Common Stock and 2,500,000 shares of preferred stock. The
shares of Common Stock and preferred stock were authorized in an amount
greater than that to be issued in the Conversion to provide the Company's
Board of Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and the
exercise of employee stock options. However, these additional authorized
shares may also be used by the Board of Directors consistent with its
fiduciary duty to deter future attempts to gain control of the Company. The
Board of Directors also has sole authority to determine the terms of any one
or more series of preferred stock, including voting rights, conversion rates,
and liquidation preferences. As a result of the ability to fix voting rights
for a series of preferred stock, the Board has the power to the extent
consistent with its fiduciary duty to issue a series of preferred stock to
persons friendly to management in order to attempt to block a tender offer,
merger or other transaction by which a third party seeks control of the
Company, and thereby assist members of management to retain their positions.
The Company's Board currently has no plans for the issuance of additional
shares, other than the issuance of shares of Common Stock upon exercise of
stock options.
Stockholder Vote Required to Approve Business Combinations with Principal
Stockholders. The Articles of Incorporation require the approval of the
holders of at least 66.66% of the Company's outstanding shares of voting stock
to approve certain "Business Combinations" (as defined therein) involving a
"Related Person" (as defined therein) except in cases where the proposed
transaction has been approved in advance by a majority of those members of the
Company's Board of Directors who are unaffiliated with the Related Person and
were directors prior to the time when the Related Person became an Related
Person. The term "Related Person" is defined to include any individual,
corporation, partnership or other entity (other than the Company or its
subsidiary) which owns beneficially or controls, directly or indirectly, 10%
or more of the outstanding shares of voting stock of the Company or an
affiliate of such person or entity. This provision of the Articles of
Incorporation applies to any "Business Combination" which is defined to
include: (i) any merger or consolidation of the Company with or into any
Related Person; (ii) any sale, lease, exchange, mortgage, transfer, or other
disposition of 25% or more of the assets of the Company or combined assets of
the Company and its subsidiaries to a Related Person; (iii) any, merger or
consolidation of a Related Person with or into the Company
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or a subsidiary of the Company; (iv) any sale, lease, exchange, transfer, or
other disposition of 25% or more of the assets of a Related Person to the
Company or a subsidiary of the Company; (v) the issuance of any securities of
the Company or a subsidiary of the Company to a Related Person; (vi) the
acquisition by the Company or a subsidiary, of the Company of any securities
of a Related Person; (vii) any reclassification of common stock of the Company
or any recapitalization involving the common stock of the Company; or (viii)
any agreement or other arrangement providing for any of the foregoing.
Under Washington law, absent this provision, business combinations,
including mergers, consolidations and sales of substantially all of the assets
of a corporation must, subject to certain exceptions, be approved by the vote
of the holders of a majority of the outstanding shares of common stock of the
Company and any other affected class of stock. One exception under Washington
law to the majority approval requirement applies to stockholders owning 15% or
more of the common stock of a corporation for a period of less than three
years. Such 15% stockholder, in order to obtain approval of a business
combination, must obtain the approval of two-thirds of the outstanding stock,
excluding the stock owned by such 15% stockholder, or satisfy other
requirements under Washington law relating to board of director approval of
his acquisition of the shares of the Company. The increased stockholder vote
required to approve a business combination may have the effect of foreclosing
mergers and other business combinations which a majority of stockholders deem
desirable and place the power to prevent such a merger or combination in the
hands of a minority of stockholders.
Amendment of Articles of Incorporation and Bylaws. Amendments to the
Company's Articles of Incorporation must be approved by a majority of its
Board of Directors and also by a majority of the outstanding shares of its
voting stock, provided, however, that an affirmative vote of at least 66.66%
of the outstanding voting stock entitled to vote (after giving effect to the
provision limiting voting rights) is required to amend or repeal certain
provisions of the Articles of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
directors, director and officer indemnification by the Company and amendment
of the Company's Bylaws and Articles of Incorporation. The Company's Bylaws
may, be amended by its Board of Directors, or by a vote of 66.66% of the total
votes eligible to be voted at a duly constituted meeting of stockholders.
Stockholder Nominations and Proposals. The Articles of Incorporation of the
Company requires a stockholder who intends to nominate a candidate for
election to the Board of Directors, or to raise new business at a stockholder
meeting to give not less than 30 nor more than 50 days' advance notice to the
Secretary of the Company. The notice provision requires a stockholder who
desires to raise new business to provide certain information to the Company
concerning the nature of the new business, the stockholder and the
stockholder's interest in the business matter. Similarly, a stockholder
wishing to nominate any person for election as a director must provide the
Company with certain information concerning the nominee and the proposing
stockholder.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The Company is authorized to issue 15,000,000 shares of Common Stock having
no par value per share and 2,500,000 shares of preferred stock having no par
value per share. The Company, currently expects to issue up to 8,477,075
shares of Common Stock (at the maximum of the Valuation Price Range) and no
shares of preferred stock in the Conversion. Each share of the Common Stock
will have the same relative rights as, and will be identical in all respects
with, each other share of Common Stock. Upon payment of the Purchase Price for
the Common Stock, in accordance with the Plan of Conversion, all such stock
will be duly authorized, fully paid and nonassessable.
THE COMMON STOCK OF THE COMPANY WILL REPRESENT NONWITHDRAWABLE CAPITAL, WILL
NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE FDIC.
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COMMON STOCK
Dividends. The Company can pay dividends out of statutory surplus or from
certain net profits if, as and when declared by its Board of Directors. The
payment of dividends by the Company is subject to limitations which are
imposed by law and applicable regulation. See "Dividend Policy" and
"Supervision and Regulation." The holders of Common Stock of the Company will
be entitled to receive and share equally in such dividends as may be declared
by the Board of Directors of the Company out of funds legally available
therefor. If the Company issues preferred stock, the holders thereof may have
a priority over the holders of the Common Stock with respect to dividends.
Voting Rights. Upon Conversion, the holders of Common Stock of the Company
will possess exclusive voting rights in the Company. They will elect the
Company's Board of Directors and act on such other matters as are required to
be presented to them under Washington law or as are otherwise presented to
them by the Board of Directors. Except as discussed in "Restrictions on
Acquisition of the Company and the Bank," each holder of Common Stock will be
entitled to one vote per share and will not have any right to accumulate votes
in the election of directors. If the Company issues preferred stock, holders
of the Company preferred stock may also possess voting rights. Certain matters
require a vote of 66.66% of the outstanding shares entitled to vote thereon.
See "Restrictions on Acquisition of the Company and the Bank."
Liquidation. In the event of any liquidation, dissolution or winding up of
the Bank, the Company, as 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 Account Holders and Supplemental Eligible Account Holders
(see "The Conversion"), all assets of the Bank available for distribution. In
the event of liquidation, dissolution or winding up of the 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 Company available for distribution. If Company preferred stock is issued,
the holders thereof may have a priority over the holders of the Common Stock
in the event of liquidation or dissolution.
Preemptive Rights. Holders of the Common Stock of the Company will not be
entitled to preemptive rights with respect to any shares which may be issued.
The Common Stock is not subject to redemption.
PREFERRED STOCK
None of the shares of the authorized Company preferred stock will be issued
in the Conversion and there are no plans to issue the preferred stock. Such
stock may be issued with such designations, powers, preferences and rights as
the Board of Directors may from time to time determine. The Board of Directors
can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights which could dilute the voting
strength of the holders of the Common Stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
RESTRICTIONS ON ACQUISITION
Acquisitions of the Company are restricted by provisions in its Articles of
Incorporation and Bylaws and by the rules and regulations of various
regulatory agencies. See "Supervision and Regulation" and "Restrictions on
Acquisition of the Company and the Bank."
COMPARISON OF STOCKHOLDERS' RIGHTS
GENERAL. As a result of the Conversion, holders of the Bank Common Stock
will become stockholders of the Company, a Washington corporation. There are
certain differences in stockholder rights arising from distinctions between
the Bank's Washington State Stock Articles and Bylaws and the Company's
Articles of
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Incorporation and Bylaws and from distinctions between laws with respect to
savings institutions and the Washington Business Corporation Act ("WBCA").
The discussion herein is not intended to be a complete statement of the
differences affecting the rights of stockholders, but rather summarizes the
material differences and similarities affecting the rights of stockholders.
The discussion is qualified in its entirety by reference to the Articles of
Incorporation and Bylaws of the Company and the Bank ("Articles" and "Bylaws")
and the WBCA. See "Additional Information" for procedures for obtaining a copy
of the Company's Articles and Bylaws.
AUTHORIZED CAPITAL STOCK. The Company's authorized capital stock consists of
15,000,000 shares of Common Stock, no par value per share, and 2,500,000
shares of preferred stock, no par value per share ("Preferred Stock"). The
Bank's authorized capital stock consists of 10,000,000 shares of Bank Common
Stock, par value $1.00 per share, and 5,000,000 shares of blank check
preferred stock, par value $1.00 per share. The shares of Common Stock and
Preferred Stock were authorized in an amount greater than that to be issued in
the Conversion to provide the Company's Board of Directors with flexibility to
effect, among other transactions, financings, acquisitions, stock dividends,
stock splits and grants of employee stock options. The Board of Directors has
sole authority to determine the terms of any one or more series of Preferred
Stock, including dividends, voting rights, conversion rates, if any, and
liquidation preferences.
ISSUANCE OF CAPITAL STOCK. Pursuant to applicable laws and regulations, the
MHC is required to own not less than a majority of the outstanding Bank Common
Stock. There will be no such restriction applicable to the Company following
consummation of the Conversion.
Neither the Articles of the Bank or the Company contain restrictions on the
issuance of shares of capital stock to directors, officers or controlling
persons. Thus, stock-related compensation plans such as stock option plans
could be adopted by either Company without stockholder approval and shares of
capital stock could be issued directly to directors or officers without
stockholder approval. Unlike the Bank, the Company will be subject to
jurisdiction of the NASD. The Rules of the NASD generally require corporations
with securities which are quoted on the Nasdaq National Market to obtain
stockholder approval of most stock compensation plans for directors, officers
and key employees of the corporation. Moreover, although generally not
required, stockholder approval of stock related compensation plans may be
sought in certain instances in order to qualify such plans for favorable
federal income tax and securities law treatment under current laws and
regulations. The Company plans to submit the stock compensation plans
discussed herein to its stockholders for approval.
VOTING RIGHTS. Neither the Bank's Articles or Bylaws nor the Company's
Articles or Bylaws currently provide for cumulative voting in elections of
directors. For additional information regarding voting rights, see "--
Limitations on Acquisitions of Voting Stock and Voting Rights" below.
PAYMENT OF DIVIDENDS. The ability of the Bank to pay dividends on its
capital stock is restricted by applicable Washington banking law and by
federal income tax considerations related to savings institutions such as the
Bank. See "Supervision and Regulation--Banking Subsidiary." Although the
Company is not subject to these restrictions as a Washington corporation, such
restrictions will indirectly affect the Company because dividends from the
Bank will be a primary source of funds of the Company for the payment of
dividends to stockholders of the Company.
Certain restrictions generally imposed on Washington corporations may also
have an impact on the Company's ability to pay dividends. The WBCA provides
that dividends may be paid only if, after giving effect to the dividend, the
Company will be able to pay its debts as they become due in the ordinary
course of business and the Company's total assets will not be less than the
sum of its total liabilities plus the amount that would be needed, if the
Company were to be dissolved at the time of the dividend, to satisfy the
preferential rights of persons whose right to payment is superior to those
receiving the dividend.
BOARD OF DIRECTORS. The Company's Articles require the Board of Directors of
the Company to be divided into three classes as nearly equal in number as
possible and that the members of each class shall be elected for a
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term of three years and until their successors are elected and qualified, with
one class being elected annually. No such provision is contained in the
Articles or Bylaws of the Bank.
Under the Bank's Bylaws, any vacancies in the Board of Directors of the Bank
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the Board of Directors. Persons elected by the
directors of the Bank to fill vacancies may only serve until the next annual
meeting of stockholders. Under the Company's Articles, any vacancy occurring
in the Board of Directors of the Company, including any vacancy created by
reason of an increase in the number of directors, may be filled by the
remaining directors, and any director so chosen shall hold office for the
remainder of the term to which the director has been elected and until his or
her successor is elected and qualified.
Under the Bank's Bylaws, any director may be removed with or without cause
by the holders of a majority of the outstanding voting shares. The Company's
Articles provide that any director may be removed for cause by a majority of
the directors of the Company or by the holders of at least 66 2/3% of the
outstanding voting shares of the Company.
LIMITATIONS ON LIABILITY. The Company's Articles provide that directors
shall not be personally liable for monetary damages to the Company or Bank for
conduct other than conduct that is adjudged to involve intentional misconduct
and other acts defined in the Articles as "Egregious Conduct." This provision
might, in certain instances, discourage or deter shareholders or management
from bringing a lawsuit against directors for a breach of their duties even
though such an action, if successful, might have benefited the Company.
INDEMNIFICATION OF DIRECTORS AND OFFICERS-DIRECTORS. Directors and persons
who serve as officers and directors of the Bank and the Company are
indemnified with respect to certain actions pursuant to their respective
Articles, which comply with applicable Washington law regarding
indemnification. The WBCA allows the Company to indemnify the aforementioned
persons for expenses, settlements, judgments and fines in suits in which such
person has made a party by reason of the fact that he or she is or was an
agent of the Company. No such indemnification may be given if the acts or
omissions of the person are adjudged to be in violation of law, if such person
is liable to the corporation for an unlawful distribution, or if such person
personally received a benefit to which he or she was not entitled.
SPECIAL MEETINGS OF STOCKHOLDERS. The Company's and the Bank's Articles
provide that special meetings of the stockholders may be called by the
Chairman, President, a majority of the Board of Directors or the holders of
not less than one tenth of the outstanding capital stock of the Company
entitled to vote at the meeting.
STOCKHOLDER NOMINATIONS. The Company's Articles and the Bank's Bylaws
generally provide that any stockholder desiring to make a nomination for the
election of directors at a meeting of stockholders must submit written notice
to the Company at least 14 days and not more than 50 days in advance of the
meeting, together with certain information relating to the nomination. Failure
to comply with these advance notice requirements will preclude such
nominations from being considered at the meeting. Management believes that it
is in the best interests of the Company and its stockholders to provide
sufficient time to enable management to disclose to stockholders information
about a dissident slate of nominations for directors. This advance notice
requirement may also give management time to solicit its own proxies in an
attempt to defeat any dissident slate of nominations, should management
determine that doing so is in the best interest of stockholders generally.
Similarly, adequate advance notice of stockholder proposals will give
management time to study such proposals and to determine whether to recommend
to the stockholders that such proposals be adopted. In certain instances, such
provisions could make it more difficult to oppose management's nominees, even
if stockholders believe such nominees or proposals are in their best
interests.
STOCKHOLDER ACTION WITHOUT A MEETING. The Bylaws of the Company and the Bank
provide that any action to be taken or which may be taken at any annual or
special meeting of stockholders may be taken if a consent in writing, setting
forth the actions so taken, is given by the holders of all outstanding shares
entitled to vote.
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STOCKHOLDER'S RIGHT TO EXAMINE BOOKS AND RECORDS. The WBCA provides that a
stockholder may inspect books and records upon written demand stating the
purpose of the inspection, if such purpose is reasonably related to such
person's interest as a stockholder.
LIMITATIONS ON ACQUISITIONS OF VOTING STOCK AND VOTING RIGHTS. The Company's
Articles of Incorporation provide that no person shall directly or indirectly
offer to acquire or acquire the beneficial ownership of (i) more than 10% of
the issued and outstanding shares of any class of an equity security of the
Company, or (ii) any securities convertible into, or exercisable for, any
equity securities of the Company if, assuming conversion or exercise by such
person of all securities of which such person is the beneficial owner which
are convertible into, or exercisable for, such equity securities (but of no
securities convertible into, or exercisable for, such equity securities of
which such person is not the beneficial owner), such person would be the
beneficial owner of more than 10% of any class of an equity security of the
Company. The term "person" is broadly defined in the Articles to prevent
circumvention of this restriction.
The foregoing restrictions do not apply to (i) any offer with a view toward
public resale made exclusively to the Company by underwriters or a selling
group acting on its behalf, (ii) any employee benefit plan established by the
Company or the Bank, and (iii) any other offer or acquisition approved in
advance by the affirmative vote of two-thirds of the Company's Board of
Directors. In the event that shares are acquired in violation of this
restriction, all shares beneficially owned by any person in excess of 10%
during the period ending five years from the Effective Time of the Conversion
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
stockholders for a vote. If at any time after five years from the Effective
Time of the Conversion shares are acquired in violation of this restriction,
all shares beneficially owned in excess of 10% shall be counted at one
hundredth of a vote.
Neither the Articles nor the Bylaws of the Bank contains a provision which
restricts voting rights of certain stockholders of the Bank in the manner set
forth above.
REGISTRATION REQUIREMENTS
The Company will register the Common Stock with the SEC pursuant to Section
12(g) of the Exchange Act upon the completion of the Conversion and will not
deregister its Common Stock for a period of at least three years following the
completion of the Conversion. Upon such registration, the proxy and tender
offer rules, insider trading reporting and restrictions, annual and periodic
reporting and other requirements of the Exchange Act will be applicable to the
Company and its stockholders.
LEGAL AND TAX OPINIONS
The legality of the Common Stock has been passed upon for the Company by
Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim, P.L.L.C. The federal
tax consequences of the Offerings have been opined upon by KPMG Peat Marwick
LLP and the Washington tax consequences of the Offerings have been opined upon
by Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim, P.L.L.C., Tacoma and
Seattle, Washington, and they have consented to the references herein to their
opinions. Certain legal matters will be passed upon for Ryan Beck by Breyer
and Aguggia, Washington, D.C.
EXPERTS
The consolidated financial statements of Heritage Savings Bank and
Subsidiaries as of June 30, 1996 and 1997, and for each of the years in the
three year period ended June 30, 1997 have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, upon the
authority of said firm as experts in accounting and auditing.
91
<PAGE>
RP Financial has consented to the publication herein of the summary of its
letter to the Bank setting forth its opinion as to the estimated pro forma
market value of the Common Stock and to the use of its name and statements
with respect to it appearing herein.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-1
(File No. 333-35573) under the Securities Act with respect to the Common Stock
offered in the Conversion. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the SEC. Such
information may be inspected at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 500 West
Madison Street, Suite 1400, Room 1100, Chicago, Illinois 60661; and 7 World
Trade Center (13th Floor), New York, New York 10048. Copies may be obtained at
prescribed rates from the Public Reference Section of the SEC at 450 Fifth
Street N.W., Washington, D.C. 20549.
The Bank has filed with the Division an Application for Approval of
Conversion, which includes proxy materials for the Mutual Holding Company's
Special Meeting, the Minority Stockholder Meeting and certain other
information. This Prospectus omits certain information contained in such
Application. The Application, including the proxy materials, exhibits and
certain other information that are a part thereof, may be inspected, without
charge, at the offices of the Division at the General Administration Building,
Third Floor West, 210 11th Avenue West, Olympia, Washington 98504.
92
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
HERITAGE SAVINGS BANK AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Independent Auditors' Report............................................ F-2
Consolidated Statements of Financial Condition as of June 30, 1996 and
1997................................................................... F-3
Consolidated Statements of Income for the Years Ended June 30, 1995,
1996 and 1997.......................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended June
30, 1994, 1995, 1996 and 1997.......................................... F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1995,
1996 and 1997.......................................................... F-6
Notes to the Consolidated Financial Statements.......................... F-7
</TABLE>
Separate financial statements on the Company have not been included since it
will not engage in material transactions until after the Conversion. The
Company, which has been inactive to date, has no significant assets,
liabilities, revenues, expenses or contingent liabilities.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Heritage Savings Bank
We have audited the accompanying consolidated statements of financial
condition of Heritage Savings Bank and subsidiaries as of June 30, 1996 and
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the years in the three-year period ended June 30,
1997. These consolidated financial statements are the responsibility of the
Savings Bank's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally acceptable auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Heritage Savings Bank and subsidiaries as of June 30, 1996 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended June 30, 1997 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Seattle, Washington
August 8, 1997
F-2
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
<TABLE>
<CAPTION>
JUNE 30
-----------------
1996 1997
-------- -------
<S> <C> <C>
ASSETS
Cash on hand and in banks................................... $ 6,308 7,412
Interest earning deposits................................... 11,774 175
Investment securities held to maturity...................... 15,292 8,506
Mortgage backed securities held to maturity................. 5,979 5,159
Loans held for sale......................................... 5,286 6,323
Loans receivable............................................ 163,617 201,870
Less: Allowance for loan losses............................. (1,873) (2,752)
-------- -------
Loans, net.............................................. 161,744 199,118
Premises and equipment, net................................. 11,209 12,202
Federal Home Loan Bank stock................................ 1,400 1,511
Accrued interest receivable................................. 1,385 1,380
Prepaid expenses and other assets........................... 1,675 378
-------- -------
$222,052 242,164
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits.................................................... 191,119 209,781
Advances from Federal Home Loan Bank........................ -- 890
Advance payments by borrowers for taxes and insurance....... 535 473
Accrued expenses and other liabilities...................... 3,515 2,605
Deferred Federal income taxes............................... 1,250 701
-------- -------
196,419 214,450
-------- -------
Stockholders' equity:
Preferred stock, $1 par value per share. 5,000,000 shares
authorized; none outstanding............................. -- --
Common stock, $1 par value per share 10,000,000 shares
authorized; 1,805,666 and 1,809,616 shares outstanding,
respectively............................................. 1,806 1,810
Additional paid-in capital................................ 4,067 4,103
Retained earnings, substantially restricted............... 19,760 21,801
-------- -------
Total stockholders' equity.............................. 25,633 27,714
Commitments and contingencies
-------- -------
$222,052 242,164
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30
---------------------
1995 1996 1997
------- ------ ------
<S> <C> <C> <C>
Interest income:
Loans................................................. $13,115 14,894 16,743
Mortgage backed securities............................ 722 552 464
Investment securities and Federal Home Loan Bank
dividends............................................ 1,118 854 757
Interest bearing deposits............................. 268 575 548
------- ------ ------
Total interest income............................... 15,223 16,875 18,512
------- ------ ------
Interest expense:
Deposits.............................................. 6,639 8,528 8,999
Borrowed funds........................................ 357 15 1
------- ------ ------
Total interest expense.............................. 6,996 8,543 9,000
------- ------ ------
Net interest income............................... 8,227 8,332 9,512
Provision for loan losses............................... -- -- (270)
------- ------ ------
Net interest income after provision for loan
losses........................................... 8,227 8,332 9,782
------- ------ ------
Noninterest income:
Gains on sales of loans, net.......................... 1,665 3,049 2,006
Commissions on sales of annuities and securities...... 241 296 220
Services charges on deposits.......................... 207 353 462
Rental income......................................... 209 221 210
Gain on sale of premises.............................. 356 -- 84
Other income.......................................... 362 379 365
------- ------ ------
Total noninterest income............................ 3,040 4,298 3,347
------- ------ ------
Noninterest expense:
Salaries and employee benefits........................ 4,176 4,711 5,468
Building occupancy.................................... 979 1,254 1,717
FDIC premiums and special assessment.................. 380 407 1,262
Data processing....................................... 462 493 534
Marketing............................................. 200 162 257
Office supplies and printing.......................... 257 229 243
Other................................................. 971 1,166 1,624
------- ------ ------
Total noninterest expense........................... 7,425 8,422 11,105
------- ------ ------
Income before Federal income tax expense
(benefit)........................................ 3,842 4,208 2,024
Federal income tax expense (benefit).................... 1,308 1,435 (245)
------- ------ ------
Net income........................................ $ 2,534 2,773 2,269
======= ====== ======
Earnings per common share............................... $ 1.41 1.54 1.26
======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Balance at June 30, 1994............... $1,800 4,017 14,845 20,662
Restricted stock award................. 5 45 -- 50
Net income............................. -- -- 2,534 2,534
Cash dividend paid..................... -- -- (181) (181)
------ ----- ------ ------
Balance at June 30, 1995............... $1,805 4,062 17,198 23,065
Exercise of stock options.............. 1 5 -- 6
Net income............................. -- -- 2,773 2,773
Cash dividend paid..................... (211) (211)
------ ----- ------ ------
Balance at June 30, 1996............... 1,806 4,067 19,760 25,633
Exercise of stock options.............. 4 36 -- 40
Net income............................. -- -- 2,269 2,269
Cash dividend paid..................... -- -- (228) (228)
------ ----- ------ ------
Balance at June 30, 1997............... $1,810 4,103 21,801 27,714
====== ===== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 2,534 2,773 2,269
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 157 349 996
Deferred loan fees, net of amortization......... 363 35 11
Provision for loan losses....................... -- -- (270)
Net increase in loans held for sale............. (1,816) 615 (1,037)
Deferred Federal income tax expense (benefit)... 41 262 (549)
Federal Home Loan Bank stock dividends.......... (108) (99) (111)
Net change in accrued interest receivable,
prepaid expenses and other assets, and accrued
expenses and other liabilities................. 70 411 392
------- ------- -------
Net cash provided by operating activities..... 1,241 4,346 1,701
------- ------- -------
Cash flows from investing activities:
Loans originated, net of principal payments and
loan sales....................................... (27,649) (11,211) (37,115)
Principal payments of mortgage backed securities.. 2,771 1,493 825
Proceeds from:
Sale of Federal Home Loan Bank Stock............ 860 -- --
Maturities of investment securities held to
maturity....................................... 6,900 13,300 9,160
Purchase of investment securities held to
maturity......................................... (2,132) (10,445) (2,345)
Purchase of premises and equipment................ (2,696) (2,204) (2,023)
------- ------- -------
Net cash used in investing activities......... (21,946) (9,067) (31,498)
------- ------- -------
Cash flows from financing activities:
Net increase in deposits.......................... 8,875 16,322 18,662
Net increase in FHLB advances..................... -- -- 890
Net decrease in other borrowed funds.............. (848) (3,252) --
Net decrease (increase) in advance payments by
borrowers for taxes and insurance................ 100 (100) (62)
Cash dividends paid............................... (181) (211) (228)
Issuance of restricted stock award and exercise of
stock options.................................... 50 6 40
------- ------- -------
Net cash provided by financing activities..... 7,996 12,765 19,302
------- ------- -------
Net increase (decrease) in cash and cash
equivalents.................................. (12,709) 8,044 (10,495)
Cash and cash equivalents at beginning of year...... 22,747 10,038 18,082
------- ------- -------
Cash and cash equivalents at end of year............ $10,038 18,082 7,587
======= ======= =======
Supplemental disclosures of cash flow information:
Cash payments for:
Interest expense................................ $ 6,631 8,527 8,945
Federal income taxes............................ 1,265 1,395 620
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
The business of Heritage Savings Bank (the "Bank"), which is focused in
Thurston, Mason and Pierce counties, consists primarily of attracting deposits
from the general public and originating for sale or investment purposes first
mortgage loans on residential properties located in western Washington. The
Bank also makes residential construction loans, income property loans,
business loans and consumer loans, primarily second mortgage loans. Although
the Bank has a diversified loan portfolio and its market area enjoys a stable
economic climate, a substantial portion of its borrowers ability to repay
these loans is dependent upon the economic stability of the major employers,
Federal, State and local governments.
Loans originated by the Bank that are secured by real estate have loan to
value ratios of generally no more than 80% of the appraised amount. The Bank
currently requires customers to obtain private mortgage insurance on all fixed
and adjustable rate mortgage loans above an 80% loan-to-value ratio.
Heritage Savings Bank, a Washington State stock savings bank, is majority-
owned by Heritage Financial Corporation, M.H.C. (HFC), a Washington State
mutual holding company.
(b) Basis of Presentation
The accounting and reporting policies of the Bank and its subsidiaries conform
to generally accepted accounting principles and to general practices within
the financial institutions industry, where applicable. In preparing the
consolidated financial statements, management makes estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of financial statements and the
reported amounts of income and expense during the reported periods. Actual
results could differ from these estimates. All significant intercompany
balances and transactions among the Bank and its subsidiaries have been
eliminated in consolidation.
The accompanying consolidated financial statements include the accounts of the
Bank and its wholly-owned subsidiaries, Sound Service Associates, Inc. and
Heritage Capital Corporation. Sound Service Associates, Inc. operations
primarily consist of the sale of tax-deferred investment products. Heritage
Capital Corporation was incorporated as a limited purpose financing subsidiary
to issue collateralized mortgage obligations which were retired in August
1995. Certain amounts in the consolidated financial statements for prior years
have been reclassified to conform to the current consolidated financial
statement presentation.
(c) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents includes cash
on hand and in banks and interest bearing deposits.
(d) Investment Securities
Investment securities are recorded at cost, adjusted for amortization of
premiums or accretion of discounts using the interest method. These
investments are carried at cost because the Bank has the ability, and it is
management's intent, to hold them to maturity. The Bank has no investment
securities classified available for sale or held for trading purposes.
F-7
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(e) Loans Receivable and Mortgage-Backed Securities
Loans and mortgage backed securities are generally recorded at cost, net of
discounts, unearned fees and deferred fees. Discounts and premiums on
purchased loans and mortgage-backed securities are amortized using the
interest method over the remaining contractual life, adjusted for actual
prepayments. Mortgage loans held for sale are carried at the lower of
amortized cost or market value determined on an aggregate basis. Any loan that
management determines will not be held to maturity is classified as held for
sale at the time of origination, purchase or securitization. Unrealized losses
on such loans are included in the consolidated statements of income. Mortgage
backed securities are carried at amortized cost because the Bank has the
ability, and it is management's intent, to hold them to maturity.
(f) Loan Fees
Loan origination fees and certain direct origination costs are deferred and
amortized as an adjustment of the loans yields over the contractual lives,
adjusted for prepayment of the loans, using the interest method. In the event
loans are sold, the deferred net loan origination fees or costs are recognized
as a component of the gains or losses on the sales of loans.
(g) Allowance for Loan Losses
A valuation allowance for loans is based on management's estimate of the
amount necessary to recognize possible losses inherent in the loan portfolio.
In determining the level to be maintained, management evaluates many factors
including the borrowers ability to repay, economic and market trends and
conditions, holding costs and absorption periods. In the opinion of
management, the present allowance is adequate to absorb reasonably foreseeable
loan losses.
Effective July 1, 1995, the Bank adopted Statement of Financial Accounting
Standards (SFAS) No. 114, Accounting for Creditors for Impairment of a Loan,
and its amendment, SFAS No. 118, Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures. These statements require that
impaired loans are measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a practical
expedient, based on the loan's observable market price or the fair value of
collateral; if the loan is collateral dependent. In accordance with SFAS No.
114, the Bank excludes smaller balance, homogeneous loans from its impairment
evaluation. The adoption of this statement had no impact on these financial
statements.
While management uses available information to recognize losses on these
loans, future additions to the allowances may be necessary based on changes in
economic conditions, particularly in the western Washington region. In
addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Banks allowance for losses on
loans. Such agencies may require the Bank to make additions to the allowance
based on their judgments about information available to them at the time of
their examinations.
(h) Nonaccrual Loans
The accrual of interest on loans is discontinued and the loan is considered
impaired when, in the opinion of management, the collectibility of principal
or interest is in doubt or generally when the loans are contractually past due
90 days or more with respect to principal or interest. When accrual of
interest is discontinued on a loan, the interest accrued but not collected is
charged against operations. Thereafter, payments received are generally
applied to principal. However, based on management's assessment of the
ultimate collectibility of an impaired or nonaccrual loan, interest income may
be recognized on a cash basis. Impaired loans and other nonaccrual loans
(smaller balance, homogeneous loans) are returned to an accrual status when
management determines that the circumstances have improved to the extent that
there has been a sustained period of repayment performance and both principal
and interest are deemed collectible.
F-8
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(i) Mortgage Banking Operations
The Bank sells mortgage loans primarily on a servicing released basis and
recognizes a cash or a present value gain or loss. A cash gain or loss is
recognized to the extent that the sales proceeds of the mortgage loans sold
exceed or are less than the net book value at the time of sale.
In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, which
provides consistent standards for distinguishing transfers of assets that are
sales from transfers that are secured borrowings. This Standard supersedes
SFAS No. 122, Accounting for Mortgage Servicing Rights, in the measurement and
valuation of mortgage servicing rights. This Standard is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and is to be applied prospectively only.
The adoption of this pronouncement did not have a material impact on the
financial statements of the Bank.
Loan servicing income is recorded when earned. Loan servicing costs are
charged to expense as incurred.
(j) Real Estate Owned
Real estate acquired by the Bank in satisfaction of debt is recorded at fair
value at time of foreclosure and is carried at the lower of the new cost basis
or fair value. Subsequently, foreclosed assets are carried at the lower of
cost or fair value less estimated costs to sell. Costs related to the
improvement of the property are capitalized subject to the above limitations;
those related to holding the property, net of rental income, are charged to
expense.
(k) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets. The estimated useful lives used to
compute depreciation and amortization include buildings and building
improvements, 30 to 40 years; and furniture, fixtures and equipment, 3 to 10
years.
During 1995, the FASB issued SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This
pronouncement deals with the measurement and reporting of long-lived assets
that either will be held and used in operations or that will be disposed of.
The adoption did not have a material impact on the results of operations or
financial condition of the Bank.
(l) Federal Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
the deferred tax assets and liabilities of a change in tax rate is recognized
in income in the period that includes the enactment date.
(m) Recent Financial Accounting Pronouncements
SFAS No. 128, "Earnings Per Share," issued in February 1997, establishes
standards for computing and presenting earnings per share ("EPS") and applies
to entities with publicly-held common stock or potential common stock. It
replaces the presentation of primary EPS with a presentation of basic EPS and
requires the dual presentation of basic and diluted EPS on the fact of the
income statement. SFAS No. 128 is effective for the financial statements for
the periods ending after December 15, 1997. SFAS No. 128 requires restatement
of all prior period EPS data presented. The impact of its adoption is not
expected to be material to the Bank.
F-9
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In June 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes standards for reporting comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of financial
statements. This Statement requires that the Bank (a) classify items of other
comprehensive income by their nature in its financial statements and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
statement of financial condition. This Statement is effective for the year
ending June 30, 1999.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires public
companies to report financial and descriptive information about its operating
segments. Operating segments are components of a business about which separate
financial information is available that is evaluated regularly by the chief
operating decision-maker in deciding how to allocate resources and in
assessing performance. The adoption of SFAS 131 is required for the fiscal
year ended June 30, 1999 and the Bank is currently evaluating the effect of
this Statement.
On January 28, 1997, the Securities and Exchange Commission amended their
rules and regulations to require public companies to provide enhanced
descriptions of accounting policies for derivative financial instruments and
derivative commodity instruments in the footnotes to their financial
statements. The accounting policy requirements become effective for all
filings that include financial statements for periods ending after June 15,
1997. The Bank had no derivative financial instruments or derivative commodity
instruments at June 30, 1997 or at any time during the three year period then
ended. The Bank believes that it is in compliance with this amended rule.
(2) LOANS RECEIVABLE AND LOANS HELD FOR SALE
Loans receivable and loans held for sale at June 30 consist of the following:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Commercial loans........................................... $ 18,269 $ 39,445
-------- --------
Real Estate Mortgages:
One to four family residential........................... 93,157 103,439
Five or more family residential and commercial real
estate.................................................. 42,560 51,209
-------- --------
Total real estate mortgage............................. 135,717 154,648
-------- --------
Real Estate Construction:
One to four family residential........................... 14,509 12,683
Five or more family residential and commercial real
estate.................................................. 393 1,029
-------- --------
Total real estate construction......................... 14,902 13,712
Consumer................................................... 1,105 1,467
-------- --------
Subtotal................................................. 169,993 209,272
Unamortized yield adjustments.............................. (1,090) (1,079)
-------- --------
Total Loans Receivable and Loans Held for Sale......... $168,903 $208,193
======== ========
</TABLE>
Loans to directors and officers amounted to $1,534 and $1,087 as of June 30,
1996 and 1997, respectively.
Accrued interest on loans receivable amounted to $1,001 and $1,198 as of June
30, 1996 and 1997, respectively. The Bank had $51 and $133 of impaired loans
which are nonaccruing as of June 30, 1996 and 1997, respectively. The weighted
average interest rate on loans was 8.6% and 8.8% as of June 30, 1996 and 1997,
respectively.
F-10
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Details of certain mortgage banking activities at June 30 are as follows:
<TABLE>
<CAPTION>
1996 1997
------- ------
<S> <C> <C>
Loans held for sale at lower of cost or market............ $ 5,286 6,323
Loans serviced for others................................. 23,257 19,162
Commitments to sell mortgage loans........................ 10,170 8,134
Commitments to fund loans (at interest rates approximating
market rates)
Fixed rate.............................................. 5,533 1,902
Variable or adjustable rate............................. 877 193
</TABLE>
Servicing fee income from loans serviced for others amounted to $114, $90, and
$75 for the years ended June 30, 1995, 1996 and 1997, respectively.
Commitments to sell mortgage loans are made primarily during the period
between the taking of the loan application and the closing of the mortgage
loan. The timing of making these sale commitments is dependent upon the timing
of the borrowers election to lock-in the mortgage interest rate and fees prior
to loan closing. Most of these sale commitments are made on a best-effort
basis whereby the Bank is only obligated to sell the mortgage if the mortgage
loan is approved and closed by the Bank.
(3) MORTGAGE BACKED SECURITIES
The amortized cost and fair values of mortgage backed securities held to
maturity at June 30 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
1996
Federal Home Loan Mortgage
Corporation....................... $1,290 29 -- 1,319
Federal National Mortgage
Association....................... 1,784 42 (2) 1,824
Government National Mortgage
Association....................... 2,905 88 -- 2,993
------ --- --- -----
$5,979 159 (2) 6,136
====== === === =====
1997
Federal Home Loan Mortgage
Corporation....................... $1,062 47 (1) 1,108
Federal National Mortgage
Association....................... 1,371 51 (2) 1,420
Government National Mortgage
Association....................... 2,726 126 -- 2,852
------ --- --- -----
$5,159 224 (3) 5,380
====== === === =====
</TABLE>
The amortized cost and fair values of mortgage backed securities, by
contractual maturity, at June 30, 1997 are shown below:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- -----
<S> <C> <C>
Due after three years through five years................... $ 23 24
Due after five years through ten years..................... 207 209
After ten years............................................ 4,929 5,147
------ -----
Totals................................................... $5,159 5,380
====== =====
</TABLE>
F-11
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Mortgage backed securities included net unamortized discounts of $77 and $71
as of June 30, 1996 and 1997, respectively. Accrued interest receivable on
mortgage backed securities was $50 and $43 at June 30, 1996 and 1997,
respectively.
(4) ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<S> <C>
Balance at June 30, 1994.............. $1,705
Recoveries............................ 15
------
Balance at June 30, 1995.............. $1,720
Recoveries............................ 153
------
Balance at June 30, 1996.............. $1,873
Provision............................. (270)
Recovery.............................. 1,152
Chargeoff............................. (3)
------
Balance at June 30, 1997.............. $2,752
======
</TABLE>
In May 1996, the Bank sold its interest in two loans which were partially
charged off. This sale resulted in an excess of net proceeds over the book
basis of these loans of $1.3 million. The Bank recorded a recovery of $148 in
1996 which was the pro rata portion of the sale proceeds received in cash
versus the amount the Bank financed for the purchaser. The additional $1,152
was recognized as a recovery in 1997 as the Bank received additional
collateral on this financing.
(5) INVESTMENT SECURITIES
The amortized cost and fair values of investment securities held to maturity
at June 30 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
1996
U.S. Government and its agencies... $15,292 5 (127) 15,170
======= === ==== ======
1997
U.S. Government and its agencies... $ 8,506 -- (17) 8,498
======= === ==== ======
</TABLE>
The amortized cost and fair value of investment securities, by contractual
maturity, at June 30, 1997 are shown below:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- -----
<S> <C> <C>
Due in one year or less.................................... $3,817 3,820
Due after one year through three years..................... 4,689 4,678
------ -----
Totals................................................... $8,506 8,498
====== =====
</TABLE>
There were no sales of investment securities during the years ended June 30,
1995, 1996 and 1997.
Accrued interest on investment securities amounted to $111 and $125 as of June
30, 1996 and 1997, respectively.
F-12
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At June 30, 1996 and 1997, investment securities with amortized cost values of
$897 and $1,244, respectively, were pledged to secure public deposits and for
other purposes as required or permitted by law.
(6) PREMISES AND EQUIPMENT
A summary of premises and equipment at June 30 follows:
<TABLE>
<CAPTION>
1996 1997
------- ------
<S> <C> <C>
Land........................................................ $ 2,903 3,371
Buildings and building improvements......................... 7,724 8,029
Furniture, fixtures and equipment........................... 4,478 4,983
------- ------
15,105 16,383
Less accumulated depreciation............................... 3,896 4,181
------- ------
$11,209 12,202
======= ======
</TABLE>
The Bank holds property for investment which is recorded at the lower of cost
or fair value of $1,072 and $659 as of June 30, 1996 and 1997, respectively.
(7) DEPOSITS
Deposits at June 30 consist of the following:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE 1996 1997
INTEREST RATE AT ---------------- ----------------
JUNE 30, 1997 AMOUNT PERCENT AMOUNT PERCENT
---------------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Demand deposits.............. -- $ 7,510 3.9% $ 9,489 4.5%
NOW accounts................. 2.38% 17,978 9.4 20,641 9.8
Money market accounts........ 3.91 19,331 10.1 24,496 11.7
Savings accounts............. 3.51 29,543 15.5 28,374 13.6
Certificate accounts:
Below 3%................... -- -- 102 --
3% to 4%................... 404 0.2 366 0.2
4% to 5%................... 12,183 6.4 14,044 6.7
5% to 6%................... 71,575 37.5 103,691 49.4
6% to 7%................... 27,783 14.5 7,806 3.7
7% to 8%................... 4,777 2.5 737 0.4
8% to 10%.................. 35 -- 35 --
---- -------- ----- -------- -----
5.47 116,757 61.1 126,781 60.4
==== ======== ===== ======== =====
4.47% $191,119 100.0% $209,781 100.0%
==== ======== ===== ======== =====
</TABLE>
The combined weighted average interest rate of deposits was 4.66% and 4.47% at
June 30, 1996 and 1997, respectively. Accrued interest payable on deposits was
$24 and $78 at June 30, 1996 and 1997, respectively.
F-13
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest expense, by category, for the year ended June 30 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ----- -----
<S> <C> <C> <C>
NOW accounts................................................. $ 360 404 490
Money market accounts........................................ 1,522 1,489 1,603
Savings accounts............................................. 342 300 307
Certificate accounts......................................... 4,415 6,335 6,599
------ ----- -----
$6,639 8,528 8,999
====== ===== =====
</TABLE>
Scheduled maturities of certificate accounts at June 30 are as follows:
<TABLE>
<CAPTION>
1996 1997
-------- -------
<S> <C> <C>
Within one year......................................... $ 96,928 113,806
Between one and two years............................... 12,138 10,437
Between two and three years............................. 5,995 2,299
Between three and four years............................ 1,465 61
Between four and five years............................. 125 69
Over five years......................................... 106 109
-------- -------
$116,757 126,781
======== =======
</TABLE>
As of June 30, 1996 and 1997, certificates of deposit issued in denominations
in excess of $100 totaled $9,130 and $15,481, respectively.
(8) FHLB ADVANCES AND STOCK
The Bank is required to maintain an investment in the stock of the Federal
Home Loan Bank of Seattle in an amount equal to at least 1% of the unpaid
principal balances of the Bank's residential mortgage loans or 5% of its
outstanding advances from the FHLB, whichever is greater. Purchases and sales
of stock are made directly with the FHLB at par value.
A summary of FHLB Advances follows:
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED
JUNE 30
-------------------------
1995 1996 1997
-------- ---------------
<S> <C> <C> <C>
Balance at June 30........ $ -- $ -- $ 890
Average balance........... 658 -- 27
Maximum amount outstanding
at any month end......... 3,875 -- 1,300
Average interest rate:
During the year......... 6.24% -- 5.41%
At June 30.............. -- -- 6.45%
</TABLE>
The $890 outstanding balance of FHLB Advances at June 30, 1997 matured on July
1, 1997.
Advances from the FHLB are collateralized by a blanket pledge on FHLB stock
owned by the Bank, deposits at the FHLB and all mortgages or deeds of trust
securing such properties. In accordance with the pledge agreement, the Bank
must maintain unencumbered collateral in an amount equal to varying
percentages ranging from 100% to 125% of outstanding advances depending on the
type of collateral.
The Bank may borrow from the FHLB in amounts up to 20% of the Bank's total
assets.
F-14
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) OTHER BORROWED FUNDS
In August 1986, the Bank issued $21.9 million in collateralized mortgage
obligations. The bonds have been repaid in quarterly installments, including
interest, from principal and interest payments received on the underlying
collateral (Federal National Mortgage Association and Federal Home Loan
Mortgage Corporation mortgage backed securities). Under the terms of the bond
indenture, the Bank may call the bonds when their outstanding balance is equal
to or less than 10% of the original issue amount which amounts to $2.2
million. On August 1, 1995, the Bank called and repaid the then outstanding
balance of the remaining bonds.
(10) FEDERAL INCOME TAXES
Federal income tax expense (benefit) at June 30 consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------ ----- ----
<S> <C> <C> <C>
Current............................................... $1,267 1,173 304
Deferred.............................................. 41 262 (549)
------ ----- ----
$1,308 1,435 (245)
====== ===== ====
</TABLE>
Federal income tax expense differs from that computed by applying the Federal
statutory income tax rate of 34% for the year ended June 30 as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ----- ----
<S> <C> <C> <C>
Income tax expense at Federal statutory rate........ $1,306 1,431 688
Reversal of provision for base year bad debt
reserve............................................ -- -- (938)
Other, net.......................................... 2 4 5
------ ----- ----
$1,308 1,435 (245)
====== ===== ====
</TABLE>
The Bank has been permitted under the Internal Revenue Code to deduct an
annual addition to a reserve for bad debts in determining taxable income,
subject to certain limitations. The deduction was based on either specified
experience formulas or a percentage of taxable income before such deduction.
The Bank used the percentage of taxable income method for the years ended June
30, 1995 and 1996. This deduction was historically greater than the loan loss
provisions recorded for financial accounting purposes. Deferred income taxes
are provided on differences between the bad debt reserve for tax and financial
reporting purposes only to the extent of the tax reserves arising subsequent
to June 30, 1988. Savings institutions were not required to provide a deferred
tax liability for the tax bad debt reserves accumulated as of June 30, 1988
which for the Bank amounted to $938. Starting in the fiscal year ended June
30, 1994, the Bank established and maintained a deferred income tax liability
of $938 due to the potential recapture of the pre-1988 tax bad debt reserve
which could have been triggered by the formation of the mutual holding
company; a change to a commercial bank charter (which management had been
contemplating); or possible legislation which was being debated in Congress.
Legislation enacted in August 1996 eliminated certain conditions under which
recapture of the pre-1988 additions to the tax bad debt reserve would be
required. Such conditions are principally conversion to a commercial bank
charter or merger with a commercial bank. The pre-1988 reserves would be
required to be recaptured under certain other conditions such as payment of
dividends in excess of accumulated earnings and profits or other distributions
made in connection with the dissolution or liquidation of the Bank. Based on
this legislation, the Bank reversed the $938 deferred tax liability as a
reduction of Federal income tax expense during the year ended June 30, 1997.
F-15
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The legislation also repealed the reserve method for determining income tax
deductions described above. Under the legislation, the Bank will be required
to recapture the post-1988 additions to its bad debt reserve as taxable income
over a six to eight year period. The Bank has provided the appropriate
deferred tax liability for these post-1988 additions in the prior years so
this legislation had no adverse impact on the results from operations for the
year ended June 30, 1997.
The following table presents major components of the deferred Federal income
tax liability resulting from differences between financial reporting and tax
bases at June 30:
<TABLE>
<CAPTION>
1996 1997
------ -----
<S> <C> <C>
Deferred tax liabilities:
Provision for base year tax bad debt reserve.............. $ 938 --
Deferred loan fees........................................ 241 412
Premises and equipment.................................... 236 358
FHLB stock................................................ 287 324
Other..................................................... 37 11
------ -----
Total deferred tax liabilities.......................... 1,739 1,105
====== =====
Deferred tax assets:
Loan loss allowances...................................... (407) (292)
Vacation benefits......................................... (60) (64)
Other..................................................... (22) (48)
------ -----
Total deferred tax assets............................... (489) (404)
------ -----
Deferred taxes payable, net............................. $1,250 701
====== =====
</TABLE>
(11) CONTINGENCIES
The Bank is involved in numerous business transactions which, in some cases,
depend on regulatory determination as to compliance with rules and
regulations. Also, the Bank has certain litigation and negotiations in
progress. All such matters are attributable to activities arising from normal
operations. In the opinion of management, after review with legal counsel, the
eventual outcome of the aforementioned matters is unlikely to have a
materially adverse effect on the Bank's consolidated financial statements or
its financial position.
(12) STOCKHOLDERS' EQUITY
(a) Stock Offering and Reorganization
On July 1, 1997, the Board of Directors of Heritage Financial Corporation,
MHC, approved a Plan of Conversion and Reorganization whose purpose is to
convert the current Mutual Holding Company to the stock form of organization.
The Mutual Holding Company currently owns a majority of the common stock of
Heritage Savings Bank. The Holding Company will offer its common stock upon
the terms and conditions set forth in the Plan of Conversion. As a part of the
Conversion, each minority stockholder of the Bank will receive common stock of
the Holding Company in exchange for their shares of common stock of the Bank.
Conversion costs will be deferred and reduce the proceeds from the shares sold
in the conversion. If the conversion is not completed, all costs will be
charged as an expense. As of June 30, 1997, no significant conversion costs
have been incurred.
F-16
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(b) Earnings Per Common Share
Earnings per common share is computed based on the weighted average number of
shares of common stock outstanding during the year which amounted to 1,805,166
and 1,807,910 shares for the years ended June 30, 1996 and 1997, respectively.
Common stock equivalents have not been considered because they do not have a
dilutive impact.
(c) Regulatory Capital
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.
Pursuant to minimum capital requirements of the Federal Deposit Insurance
Corporation, the Bank is required to maintain a leverage ratio (capital to
assets ratio) of 3% and risk-based capital ratios of Tier 1 capital and total
capital (to total risk-weighted assets) of 4% and 8%, respectively. At June
30, 1997, the Bank exceeded the minimum capital requirements and the
requirements for well capitalized institutions as shown below. As of June 30,
1996 and 1997, the Bank was classified as a "well capitalized" institution
under the criteria established by the FDIC Act.
<TABLE>
<CAPTION>
WELL-
MINIMUM CAPITALIZED
REQUIREMENTS REQUIREMENTS ACTUAL
-----------------------------------------
$ % $ % $ %
------- -------------- ------------- ----
<S> <C> <C> <C> <C> <C> <C>
AS OF JUNE 30, 1996:
Leverage ratio...................... $ 6,652 3% $ 11,087 5% $25,633 11.6%
Risk-based capital:
Tier 1............................ 5,799 4% 8,699 6% 25,633 17.7%
Total............................. 11,598 8% 14,498 10% 27,446 18.9%
AS OF JUNE 30, 1997:
Leverage ratio...................... 7,118 3% 11,864 5% 27,714 11.7%
Risk-based capital:
Tier 1............................ 7,085 4% 10,628 6% 27,714 15.6%
Total............................. 14,171 8% 17,714 10% 29,935 16.9%
</TABLE>
On September 30, 1996, legislation was signed into law to recapitalize the
Savings Association Insurance Fund (SAIF). The effect of this legislation was
to require a one-time assessment on all federally insured savings
institutions' deposits under SAIF at .657% of insured deposits at March 31,
1995. The Bank's assessment was approximately $1.1 million which was charged
to earnings in the quarter ended September 30, 1996 and paid in November 1996.
(d) Cash Dividend
At the Board of Directors meeting on August 28, 1996, a cash dividend of $.375
per share on the Bank's issued and outstanding common stock was declared. The
dividend was paid in October 1996 to shareholders of record as of September
30, 1996 and was paid only to shareholders other than HFC. The dividend waiver
on the 1,200,000 shares owned by HFC was approved by regulatory agencies. The
Bank's ability to pay dividends is predicated upon its earning capability and
is subject to legal and regulatory restrictions.
F-17
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) STOCK OPTION PLANS
In September 1994, the Bank's stockholders approved the adoption of the 1994
stock option plan, providing for the award of a restricted stock award to a
key officer, incentive stock options to employees and nonqualified stock
options to directors of the Bank at the discretion of the Board of Directors.
On September 24, 1996, the stockholders of the Bank approved the adoption of
the 1997 stock option plan which is generally similar to the 1994 plan. The
1997 plan does not affect any options granted under the 1994 plan.
Under both of these stock option plans, on the date of grant, the exercise
price of the option must at least equal the market value per share of the
Bank's common stock. The 1994 plan provides for the grant of options and stock
awards up to 67,000 shares. The 1997 plan provides for the granting of options
for up to 50,000 common shares.
Stock options are generally exercisable ratably over three years and expire
five years after they become exercisable which amounts to an average term of
seven years.
The following table summarizes activity on stock options for the years ended
June 30, 1996 and 1997:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
-------------------------- -------------------------
SHARES UNDER OPTION SHARES AVG. OPTION PRICE SHARES AVG. OPTION PRICE
- ------------------- ------- ----------------- ------ -----------------
<S> <C> <C> <C> <C>
Balance at July 1,
1994................... 50,000 $ 10.20
Options granted......... -- --
Became exercisable...... -- -- 15,000 $ 10.22
Less: Exercised -- --
Expired or
canceled............ (5,000) 10.00
------- ------- ------ -------
Balance at June 30,
1995................... 45,000 $ 10.22 15,000 $ 10.22
======= ======= ====== =======
Options granted......... 7,000 16.00
Became exercisable...... 15,000 10.22
Less: Exercised......... (666) 10.00 (666) 10.00
Expired or
canceled............ -- -- -- --
------- ------- ------ -------
Balance at June 30,
1996................... 51,334 $ 11.01 29,334 $ 10.23
======= ======= ====== =======
Options granted......... 59,998 18.45 -- --
Became exercisable...... -- -- 17,333 11.00
Less: Exercised......... (3,950) 10.00 (3,950) 10.00
Expired or
canceled............ -- -- -- --
------- ------- ------ -------
Balance at June 30,
1997................... 107,382 $ 15.21 42,717 $ 10.56
======= ======= ====== =======
</TABLE>
A restricted stock award of 5,000 shares has been awarded to the chairman and
requires five years of continuous employment from the date of award. These
5,000 shares were issued to the Chairman during the year ended June 30, 1995
and recorded as compensation expense using the fair value of the shares on the
date of award.
F-18
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Financial data pertaining to outstanding stock options at June 30, 1997 were
as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF REMAINING CONTRACTUAL
EXERCISE PRICE OPTION SHARES LIFE (IN YEARS)
-------------- ------------- ---------------------
<S> <C> <C>
$10.00 35,384 3.6
$12.00 5,000 4.0
$16.00 7,000 6.0
$18.45 59,998 6.6
------- ---
107,382 5.4
======= ===
</TABLE>
During 1995, the FASB issued the SFAS No. 123, Accounting for Stock-based
Compensation, effective for years beginning after December 15, 1995. The
statement requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) application
of the fair value recognition provision in the statement. Under the fair value
recognition method, compensation cost is measured at the grant date of the
option, based on the value of the award and is recognized over the vesting
period. Under existing rules ("intrinsic value based method"), compensation
cost is the excess, if any, of the market value of the stock at grant date
over the amount an employee must pay to acquire the stock. None of the Bank
stock options have any intrinsic value at grant date and, under Accounting
Principles Board Opinion No. 25 (APB No. 25), no compensation cost has been
recognized for them. SFAS No. 123 does not alter the existing accounting rules
for employee stock-based programs. Companies may continue to follow rules
outlined in APB No. 25, but they will now be required to disclose the pro
forma amounts of net income and earnings per share that would have been
reported had they elected to follow the fair value recognition provision of
SFAS No. 123. Effective July 1, 1996, the Bank adopted the disclosure
requirements of SFAS No. 123, but has determined that it will continue to
measure its employee stock-based compensation arrangements under the
provisions of APB Opinion 25. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost for the Bank's
stock option plans been determined consistent with SFAS 123, the Bank's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------
1995 1996 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net income:
As reported...................................... $ 2,534 $ 2,773 $ 2,269
Pro forma........................................ 2,534 2,772 2,239
Earnings per share:
As reported...................................... $ 1.41 $ 1.54 $ 1.26
Pro forma........................................ 1.41 1.54 1.24
</TABLE>
No options were granted during 1995; therefore, there is no pro forma impact
on net income for the year ended June 30, 1995.
The compensation expense included in the pro forma net income attributable to
fully diluted common stock and fully diluted earnings per share is not likely
to be representative of the effect on reported net income for future years
because options vest over several years and additional awards generally are
made each year.
The fair value of options granted is estimated on the date of grant using the
minimum value method with the following weighted average assumptions used for
grants in 1996 and 1997: annual dividend yield of 3% for both years; risk-free
interest rates of 6.50% for both years; and expected lives of seven years for
both years. The weighted average grant date fair value per share of options
granted during the years ended June 30, 1996 and 1997 was $3.09 and $3.19,
respectively.
F-19
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) EMPLOYEE BENEFIT PLANS
The Bank maintains a defined contribution retirement plan. The plan allows
participation to all employees upon completion of one year of service and the
attainment of 21 years of age. It is the Bank's policy to fund plan costs as
accrued. Employee vesting occurs over a period of seven years, at which time
they become fully vested. Charges of approximately $172, $192 and $246 are
included in the consolidated statements of income for the years ended June 30,
1995, 1996 and 1997, respectively.
The Bank also maintains a salary savings 401(k) plan for its employees. All
persons employed as of July 1, 1984 automatically participate in the plan. All
employees hired after that date who are at least 21 years of age and with one
year of service to the Bank may participate in the plan. Employees who
participate may contribute a portion of their salary which is matched by the
employer at 50% up to certain specified limits. Employee vesting in employer
portions is similar to the retirement plan described above. Employer
contributions for the years ended June 30, 1995, 1996 and 1997 were $84, $82
and $87, respectively.
The Bank has established an Employee Stock Ownership Plan (ESOP) effective
July 1, 1993, which allows participation to all employees upon completion of
one year of service and the attainment of 21 years of age. The ESOP is funded
by employer contributions in cash or common stock. Employee vesting occurs
over a period of seven years. The Bank contributed $0 and $44 to the ESOP for
the years ended June 30, 1995 and 1996. The Bank has accrued $75 for its ESOP
contribution for the year ended June 30, 1997.
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
Because broadly traded markets do not exist for most of the Bank's financial
instruments, the fair value calculations attempt to incorporate the effect of
current market conditions at a specific time. Fair valuations are management's
estimates of values. These calculations are subjective in nature, involve
uncertainties and matters of significant judgment and do not include tax
ramifications; therefore, the results cannot be determined with precision,
substantiated by comparison to independent markets and may not be realized in
an actual sale or immediate settlement of the instruments. There may be
inherent weaknesses in any calculation technique, and changes in the
underlying assumptions used, including discount rates and estimates of future
cash flows, could significantly affect the results. For all of these reasons,
the aggregation of the fair value calculations presented herein do not
represent, and should not be construed to represent, the underlying value of
the Bank.
When possible, quoted market prices are used to determine fair value. In cases
where a quoted market price is not available, the fair value of financial
instruments is estimated using the present value of future cash flows or other
valuation methods.
(a) Financial Instruments With Book Value Equal to Fair Value
The fair value of financial instruments that are short-term or reprice
frequently and that have little or no risk are considered to have a fair value
equal to book value. Assets that are included in this category include cash
and due from banks and interest-bearing deposits. Liabilities included in this
category include deposits with no contractual maturity such as demand
accounts, checking accounts, money market accounts, passbook savings accounts
and FHLB advances which reprice daily.
(b) Investment Securities
The fair value of all investment securities excluding Federal Home Loan Bank
(FHLB) stock was based upon quoted market prices. FHLB stock is not publicly
traded, however it may be redeemed on a dollar-for-dollar basis, for any
amount the Bank is not required to hold. The fair value is therefore equal to
the book value.
F-20
<PAGE>
HERITAGE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(c) Loans
The loan portfolio is composed of single family and income property mortgages
(both fixed rate and adjustable rate), construction, business and consumer
loans. For most loans, fair value is estimated using market prices for
mortgage backed securities with similar rates and average maturities adjusted
for servicing costs or calculated by discounting expected cash flows over the
estimated life of the loans using a current market rate reflecting the risk
associated with comparable loans. Construction loans which are variable rate
and short-term are reflected with fair values equal to book value.
(d) Deposits
Deposits are comprised of passbook, commercial and basic checking, money
market and fixed maturity accounts. For deposits with no contractual maturity
such as demand accounts, checking accounts, money market accounts and passbook
savings accounts, SFAS 107 stipulates that the fair value is equal to the book
value. The fair value of fixed maturity deposits is based on discounted cash
flows using the difference between the deposit rate and an alternative cost of
funds rate.
(e) Off-Balance Sheet Financial Instruments
The fair value of off-balance sheet commitments to extend credit is considered
equal to its notional amount.
The table below presents the book value amount of the Bank's financial
instruments and their corresponding fair values at June 30:
<TABLE>
<CAPTION>
1996 1997
--------------------- ---------------------
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash on hand and in banks.......... $ 6,308 6,308 7,412 7,412
Interest bearing deposits.......... 11,774 11,774 175 175
Investment securities.............. 15,292 15,170 8,506 8,498
FHLB stock......................... 1,400 1,400 1,511 1,511
Mortgage backed securities......... 5,979 6,136 5,159 5,380
Loans.............................. 167,030 167,237 205,441 207,094
FINANCIAL LIABILITIES
Savings, money market and demand... 74,362 74,362 83,000 83,000
Time certificates.................. 116,757 116,460 126,781 126,568
-------- ------- ------- -------
Total deposits..................... $191,119 190,822 209,781 209,568
-------- ------- ------- -------
FHLB advances...................... $ -- -- 890 890
</TABLE>
F-21
<PAGE>
===============================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 1
Selected Consolidated Financial and Other Data........................... 10
Risk Factors............................................................. 14
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 21
Market for Common Stock.................................................. 22
Capitalization........................................................... 23
Historical and Pro Forma Regulatory Capital Compliance................... 24
Conversion Stock to be Purchased by Management Pursuant to Subscription
Rights.................................................................. 25
Pro Forma Data........................................................... 26
Heritage Savings Bank and Subsidiaries Consolidated Statements of
Income.................................................................. 29
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 30
Business of the Company.................................................. 38
Business of the Bank..................................................... 39
Management............................................................... 54
Certain Transactions..................................................... 63
Supervision and Regulation............................................... 64
The Conversion........................................................... 68
Restrictions on Acquisition of the Company and the Bank.................. 84
Description of Capital Stock of the Company.............................. 87
Comparison of Stockholders' Rights....................................... 88
Registration Requirements................................................ 91
Legal and Tax Opinions................................................... 91
Experts.................................................................. 91
Additional Information................................................... 92
Index to Consolidated Financial Statements............................... F-1
</TABLE>
===============================================================================
===============================================================================
8,477,075 SHARES
[LOGO]
HERITAGE FINANCIAL CORPORATION
COMMON STOCK
----------------
PROSPECTUS
----------------
LOGO
, 1997
===============================================================================
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the Securities and Exchange Commission registration fee.
<TABLE>
<S> <C>
Commission registration fee.................................... $ 21,254
NASD Filing fee................................................ 5,000
Legal.......................................................... 125,000
Accounting Fees and Expenses................................... 75,000
Appraisal and Business Plan Fees and Expenses.................. 35,000
Conversion Agent Fees and Expenses............................. 11,500
Marketing Agent Fixed Fee...................................... 50,000
Marketing Agent Counsel Fees and Expenses...................... 40,000
Printing, Postage and Mailing.................................. 80,000
Transfer Agent and Registrar Fees, Expenses.................... 7,500
Miscellaneous Expenses......................................... 9,746
--------
Total........................................................ $460,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation provide, among other things, for the
indemnification of directors, and authorize the Board to pay reasonable
expenses incurred by, or to satisfy a judgment or fine against, a current or
former director in connection with any personal legal liability incurred by
the individual while acting for the Company within the scope of his or her
employment, and which was not the result of conduct finally adjudged to be
"egregious" conduct. "Egregious" conduct is defined as intentional misconduct,
a knowing violation of law, or participation in any transaction from which the
person will personally receive a benefit in money, property, or services to
which that person is not legally entitled. The Articles of Incorporation also
include a provision that limits the liability of directors of the Company from
any personal liability to the Company or its shareholders for conduct not
found to have been egregious.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) List of Exhibits
<TABLE>
<C> <S>
1.1 Form of proposed Agency Agreement among Heritage Financial
Corporation, Heritage Bank and Ryan Beck & Co., Inc.*
1.2 Engagement Letter by and between Heritage Financial Corporation,
Heritage Bank and Ryan Beck & Co., Inc.*
2 Amended and Restated Plan of Conversion and Reorganization of
Heritage Financial Corporation, M.H.C.*
3.1 Articles of Incorporation of the Registrant. (Filed as an exhibit to
the Registration Statement on Form S-1 (Registration No. 333-35573)
and incorporated herein by reference.)
3.2 Bylaws of the Registrant. (Filed as an exhibit to the Registration
Statement on Form S-1 (Registration No. 333-35573) and incorporated
herein by reference.)
4. Form of Certificate for Common Stock.*
5 Opinion of Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim,
P.L.L.C. regarding legality of the Common Stock. (Filed as an
exhibit to the Registration Statement on Form S-1 (Registration No.
333-35573) and incorporated herein by reference.)
8.1 Federal Tax Opinion of KPMG Peat Marwick LLP.*
8.2 State Tax Opinion of Gordon, Thomas, Honeywell, Malanca, Peterson &
Daheim, P.L.L.C.*
8.3 Letter from RP Financial, LC. as to the value of subscription
rights. (Filed as an exhibit to the Registration Statement on Form
S-1 (Registration No. 333-35573) and incorporated herein by
reference.)
10.1 Proposed Form of Stock Option Plan. (Filed as an exhibit to the
Registration Statement on Form S-1 (Registration No. 333-35573) and
incorporated herein by reference.)
10.2 Proposed form of Management Recognition Plan and Trust Agreement.
(Filed as an exhibit to the Registration Statement on Form S-1
(Registration No. 333-35573) and incorporated herein by reference.)
10.3 Employment Agreement between the Registrant and Donald V. Rhodes
effective as of October 1, 1997.*
10.4 Severance Agreement between the Registrant and Brian Vance effective
as of October 1, 1997.*
10.5 Severance Agreement between the Registrant and John Parry effective
as of October 1, 1997.*
10.6 Form of Severance Agreement to be entered into between the
Registrant and seven additional executives effective as of October
1, 1997.*
23.1 Consent of KPMG Peat Marwick LLP. (Filed as an exhibit to the
Registration Statement on Form S-1 (Registration No. 333-35573) and
incorporated herein by reference.)
23.2 Consent of Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim,
P.L.L.C. (included in opinion filed as Exhibit 5 to this
Registration Statement).
23.3 Consent of RP Financial, LC. (Filed as an exhibit to the
Registration Statement on Form S-1 (Registration No. 333-35573) and
incorporated herein by reference.)
24 Power of Attorney. (Filed as an exhibit to the Registration
Statement on Form S-1 (Registration No. 333-35573) and incorporated
herein by reference.)
27 Financial Data Schedule. (Filed as an exhibit to the Registration
Statement on Form S-1 (Registration No. 333-35573) and incorporated
herein by reference.)
99.1 Order and Acknowledgment Form.*
99.2 Solicitation and Marketing Materials.*
99.3(a) Appraisal Report of RP Financial, LC. (Filed as an exhibit to the
Registration Statement on Form S-1 (Registration No. 333-35573) and
incorporated herein by reference.)
99.3(b) Updated Appraisal Report of RP Financial, LC.*
</TABLE>
- --------
* Filed herewith
II-2
<PAGE>
(b) Financial Statement Schedules.
Not applicable.
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, as amended ("Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution of previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against 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
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
OLYMPIA, STATE OF WASHINGTON, ON OCTOBER 24, 1997.
HERITAGE FINANCIAL CORPORATION
/s/ Donald V. Rhodes
By: _________________________________
DONALD V. RHODES CHAIRMAN,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
ON OCTOBER 24, 1997 IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ Donald V. Rhodes Chairman, President and Chief
- ------------------------------------- Executive Officer
DONALD V. RHODES
PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER:
/s/ James Hastings Senior Vice President and Treasurer
- -------------------------------------
JAMES HASTINGS
A MAJORITY OF THE BOARD OF
DIRECTORS:
/s/ Lynn M. Brunton
_____________________________________
LYNN M. BRUNTON
/s/ John A. Clees
_____________________________________
JOHN A. CLEES
/s/ Daryl D. Jensen
_____________________________________
DARYL D. JENSEN
</TABLE>
II-4
<PAGE>
SIGNATURE
---------
/s/ H. Edward Odegard*
_____________________________________
H. EDWARD ODEGARD
/s/ James P. Senna*
_____________________________________
JAMES P. SENNA
/s/ Philip S. Weigand*
_____________________________________
PHILIP S. WEIGAND
*By: /s/ Donald V. Rhodes
_____________________________________
DONALD V. RHODES
ATTORNEY-IN-FACT
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE NO.
------- --------
<C> <S> <C>
1.1 Form of proposed Agency Agreement among Heritage Financial
Corporation, Heritage Bank and Ryan Beck & Co., Inc.*
1.2 Engagement Letter by and between Heritage Financial
Corporation, Heritage Bank and Ryan Beck & Co., Inc.*
2 Amended and Restated Plan of Conversion and Reorganization
of Heritage Financial Corporation, M.H.C.*
3.1 Articles of Incorporation of the Registrant. (Filed as an
exhibit to the Registration Statement on Form S-1
(Registration No. 333-35573) and incorporated herein by
reference.)
3.2 Bylaws of the Registrant. (Filed as an exhibit to the
Registration Statement on Form S-1 (Registration No. 333-
35573) and incorporated herein by reference.)
4. Form of Certificate for Common Stock.*
5 Opinion of Gordon, Thomas, Honeywell, Malanca, Peterson &
Daheim, P.L.L.C. regarding legality of the Common Stock.
(Filed as an exhibit to the Registration Statement on Form
S-1 (Registration No. 333-35573) and incorporated herein
by reference.)
8.1 Federal Tax Opinion of KPMG Peat Marwick LLP.*
8.2 State Tax Opinion of Gordon, Thomas, Honeywell, Malanca,
Peterson & Daheim, P.L.L.C.*
8.3 Letter from RP Financial, LC. as to the value of
subscription rights. (Filed as an exhibit to the
Registration Statement on Form S-1 (Registration No. 333-
35573) and incorporated herein by reference.)
10.1 Proposed Form of Stock Option Plan. (Filed as an exhibit to
the Registration Statement on Form S-1 (Registration No.
333-35573) and incorporated herein by reference.)
10.2 Proposed form of Management Recognition Plan and Trust
Agreement. (Filed as an exhibit to the Registration
Statement on Form S-1 (Registration No. 333-35573) and
incorporated herein by reference.)
10.3 Employment Agreement between the Registrant and Donald V.
Rhodes effective as of October 1, 1997.*
10.4 Severance Agreement between the Registrant and Brian Vance
effective as of October 1, 1997.*
10.5 Severance Agreement between the Registrant and John Parry
effective as of October 1, 1997.*
10.6 Form of Severance Agreement between the Registrant and
seven additional executives, effective October 1, 1997.*
23.1 Consent of KPMG Peat Marwick LLP. (Filed as an exhibit to
the Registration Statement on Form S-1 (Registration No.
333-35573) and incorporated herein by reference.)
23.2 Consent of Gordon, Thomas, Honeywell, Malanca, Peterson &
Daheim, P.L.L.C. (included in opinion filed as Exhibit 5
to this Registration Statement).
23.3 Consent of RP Financial, LC. (Filed as an exhibit to the
Registration Statement on Form S-1 (Registration No. 333-
35573) and incorporated herein by reference.)
24 Power of Attorney. (Filed as an exhibit to the Registration
Statement on Form S-1 (Registration No. 333-35573) and
incorporated herein by reference.)
27 Financial Data Schedule. (Filed as an exhibit to the
Registration Statement on Form S-1 (Registration No. 333-
35573) and incorporated herein by reference.)
99.1 Order and Acknowledgment Form.*
99.2 Solicitation and Marketing Materials.*
99.3(a) Appraisal Report of RP Financial, LC. (Filed as an exhibit
to the Registration Statement on Form S-1 (Registration
No. 333-35573) and incorporated herein by reference.)
99.3(b) Updated Appraisal Report of RP Financial, LC.*
</TABLE>
- --------
* Filed herewith
<PAGE>
EXHIBIT 1.1
HERITAGE FINANCIAL CORPORATION
HERITAGE SAVINGS BANK
COMMON STOCK
(NO PAR VALUE)
AGENCY AGREEMENT
_______________, 1997
Ryan, Beck & Co., Inc.
220 S. Orange Ave.
Livingston, NJ 07039
Gentlemen:
Heritage Savings Bank (the "Savings Bank") and its proposed stock holding
company, Heritage Financial Corporation (the "Company") hereby confirm their
agreement with Ryan, Beck & Co., Inc. ("Agent" or "you") as follows:
INTRODUCTION
Heritage Financial Corporation, MHC (the "Mutual Holding Company"), the
majority shareholder of the Savings Bank, the Savings Bank and the Company have
adopted a Plan of Conversion and Reorganization (the "Plan") whereby the Mutual
Holding Company will merge with and into the Savings Bank and the Savings Bank
will become a subsidiary of the Company, a Washington chartered stock
corporation. The reorganization and the share exchange and stock offering
described below are referred to herein collectively as the "Conversion."
The Company will offer shares (the "Shares") of its common stock, no par
value (the "Common Stock"), in an initial public offering as follows: (a) to the
holders of the outstanding common stock of the Savings Bank, other than the
Savings Bank's current majority shareholder, the Mutual Holding Company, (the
"Minority Stockholders") in mandatory exchange (the "Exchange") for their shares
of the Savings Bank (the "Minority Shares"); (b) in a Subscription Offering to
certain eligible account holders, the Savings Bank's tax-qualified employee
stock benefit plans, certain other depositors and borrowers; (c) to the extent
shares are available, to the Minority Shareholders in a Minority Stockholders'
Offering; and (d) to the extent shares are available, in a Community Offering to
members of the general public with preference given to natural persons residing
in the counties that the Savings Bank considers its local community. The
Subscription Offering, Minority Stockholders' Offering and the Community
Offering (but not the Shares
<PAGE>
applicable to the Exchange) are referred to herein as the "Offering".
The Company will conduct these offerings in compliance with Washington law,
the Washington Department of Financial Institutions, Division of Banks (the
"Division") and the Federal Deposit Insurance Corporation (the "FDIC") rules
(together, the "Banking Regulations"), the Securities Act of 1933 (the "1933
Act") and the rules and regulations issued thereunder (the "1933 Act
Regulations") by the Securities and Exchange Commission (the "SEC"). The Company
has filed a bank holding company application with the Board of Governors of the
Federal Reserve System (the "FRB"). Each term not defined herein shall have the
meaning given it in the Prospectus contained in the Company's registration
statement on Form S-1 (File No. 333-__________) (the "Registration Statement")
filed with the SEC and in its Application for Conversion (the "Application")
filed with the Division and the FDIC.
SECTION 1. APPOINTMENT OF AGENT; COMPENSATION TO THE AGENT
Subject to the terms and conditions set forth below, the Company hereby
appoints Ryan Beck as its agent to consult with, advise and assist it, and to
solicit purchase orders for Shares on its behalf, in connection with the
Offering. On the basis of the representations, warranties and agreements herein
contained, and subject to the terms and conditions herein set forth, Ryan Beck
accepts such appointment and agrees to consult with and advise the Company as to
the matters set forth in Section 3 of the engagement letter between the Agent
and the Bank dated June 26, 1997, included as Exhibit A attached hereto, and to
use its best efforts to solicit purchase orders for Shares according to this
Agreement; provided, however, that the Agent shall not be responsible for
obtaining purchase orders for any specific number of Shares, shall not be
required to purchase any Shares and shall not be obligated to take any action
which is inconsistent with all applicable laws, regulations, decisions or
orders. If requested by the Company, Ryan Beck may also assemble and manage a
selling group of broker-dealers which are members of the National Association of
Securities Dealers, Inc. ("NASD") to participate in the solicitation of purchase
orders for the Shares under a selected dealers' agreement ("Selected Dealers'
Agreement"), the form of which is set forth as Exhibit B to this Agreement.
The Company acknowledges that, having appointed the Agent hereunder, only
personnel employed by the Agent, and such other personnel as are assigned to
specific purposes or services contemplated by this Agreement to be performed by
the Agent, will be involved in providing the services described herein. In
forming a selling group in connection with the Offering, the Agent may include
the brokerage offices of the Agent located in Livingston, New Jersey. In such
event, you would be required to execute and abide by the terms of a Selected
Dealers' Agreement, and would be entitled to the same compensation as any other
member of the selling group as set forth therein.
In addition to the reimbursement of the expenses specified in Section 6, 7
and 8 hereof, the Agent will receive the following compensation in connection
with the Conversion:
2
<PAGE>
(1) an advisory and management fee of $50,000;
(2) a fee equal to 1.5% of the aggregate dollar amount of the Shares sold
in the Offering to members of the Mutual Holding Company and the shareholders of
the Savings Bank, other than those shares sold pursuant to (3) and (4) below (no
fee will be payable, however, with respect to Shares sold to officers,
directors, employees, immediate family members of officers, directors,
employees, ("Insiders") and qualified and non-qualified employee benefit plans
of the Savings Bank and of the Insiders). For purposes of this paragraph, the
term "immediate family members" shall be limited to spouses, parents, siblings,
mothers and fathers in-law, children and their spouses;
(3) a fee equal to 2.0% of the aggregate dollar amount of the Shares sold
in the Offering to all persons other than those described in (2) above or
pursuant to (4) below; and
(4) a fee equal to 1.5% of the aggregate dollar amount of the Shares sold
pursuant to the Selected Dealers' Agreement, provided that such fee along with
the fee payable directly by the Savings Bank to selected dealers shall not
exceed 7.0% of the aggregate dollar amount of all Shares sold pursuant to the
Selected Dealers' Agreement.
If (i) the Company or the Savings Bank abandons or terminates the Plan,
(ii) the Conversion is not consummated by June 30, 1998, or (iii) Ryan Beck
terminates this Agreement pursuant to Section 10(b), then the Agent shall not
receive the fees described in (a)-(c) above but shall receive compensation of
$50,000 for its advisory and administrative services, in addition to
reimbursement of its reasonable out-of-pocket expenses as set forth in Section
6. In the event there is a resolicitation of subscriptions and you are required
to provide significant additional services, the Company, the Savings Bank and
the Agent shall negotiate in good faith an agreement to provide Agent additional
compensation. In addition, in the event of unforeseen developments that
otherwise require significant additional effort and expense on your part, the
Company and the Savings Bank, in their sole discretion, may agree to negotiate
in good faith an agreement to provide additional compensation and to cover such
additional expenses.
The compensation specified above shall be payable (to the extent not
already paid) to the Agent in next day clearing house funds on the earlier of:
(i) the consummation of the Conversion; or (ii) a determination by the Company
and the Savings Bank on one hand or the Agent on the other to terminate or
abandon the Conversion. The $25,000 paid to the Agent upon execution of the
engagement letter and the $25,000 paid to the Agent upon the execution of this
Agreement will be considered advance payments of compensation due hereunder.
The Company and the Savings Bank agree to reimburse the Agent for the costs and
expenses specified in Section 6, to the extent such costs and expenses are
reasonably incurred by the Agent, promptly upon receiving a reasonable
accounting of such costs and expenses from time to time.
3
<PAGE>
SECTION 2. CLOSING DATE; RELEASE OF FUNDS AND DELIVERY OF CERTIFICATES
If all conditions precedent to the consummation of the Conversion,
including, without limitation, the sale of the minimum number of Shares as set
forth in the Prospectus are satisfied, the Company agrees to issue or to cause
to be issued the Shares sold in the Offering and to authorize the release for
delivery of certificates for such Shares on the Closing Date (as hereinafter
defined) against payment therefor to the Company by release of funds from the
special interest-bearing account referred to in Section 5(o) hereof and by the
authorized withdrawal of funds from deposit accounts of those who choose to
purchase Shares in the Offering according to relevant section of the Plan;
provided, however, that no such funds shall be released to the Company or
withdrawn until the conditions specified in Section 9 hereof shall have been
complied with to the reasonable satisfaction of the Agent and its counsel. Such
release, withdrawal and payment shall be made at the Closing Date, on a business
day and at a time and place selected by the Agent, which date and place are
acceptable to the Company on at least two business days prior notice to the
Company (it being understood that such business day shall not be more than 10
business days after the later of the termination of the Offering or the receipt
of all necessary regulatory approvals, or such other time or place as shall be
agreed upon by the Agent, the Company and the Savings Bank). Certificates for
Shares shall be delivered directly to the purchasers thereof or in accordance
with their directions. The hour and date upon which the Company shall release or
deliver the Shares sold in the Offering, according to the terms hereof, are
herein called the "Closing Date."
SECTION 3. PROSPECTUS; THE OFFERING.
There will be a maximum and minimum number of shares to be offered in the
Offering and the anticipated price is $10.00 per share. The minimum and/or
maximum number of Shares may be increased or decreased by the Company, subject
to the provisions of the Plan, market conditions or a change in the estimated
pro forma market value of the Company.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
The Company and the Savings Bank represent and warrant to the Agent as
follows:
(a) The SEC declared the Registration Statement effective on ________,
1997. The Division granted conditional approval of the Application on ________,
1997, the FRB granted approval of the bank holding company application on
________, 1997, and the FDIC issued its conditional approval on ________, 1997.
At the time the Registration Statement was declared effective the Registration
Statement complied and at all times subsequent thereto until and at the Closing
Date the Registration Statement will comply in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations, unless otherwise
expressly permitted by the SEC. At the time the Application was conditionally
approved the Application complied and at all times subsequent thereto until and
at the Closing Date the Application will comply in all material respects with
the Banking Regulations and all other requirements established by the Division
and the FDIC,
4
<PAGE>
unless otherwise expressly permitted by the Division and the FDIC. When the
Application was conditionally approved by the Division and when the Registration
Statement was declared effective by the SEC, and at all times subsequent thereto
until and at the Closing Date, the Application, the Registration Statement, any
preliminary or final Prospectus (including all amendments and supplements), and
any written information ("Blue Sky Information") supplied by the Company or the
Savings Bank or its representatives (including counsel) that is filed along with
other information authorized by the Company to be filed in any state or
jurisdiction to register or qualify any or all of the Shares under the
securities laws thereof (collectively "Blue Sky Applications") or any
application or other document, advertisement or communication prepared, made or
executed by or on behalf of the Company with its consent after review and
authorized by the Company for use in connection with the Offering ("Sales
Information") did not and will not contain an untrue statement of a material
fact or omit any material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that the
--------
representations and warranties in this Section 4(a) shall not apply to
statements in or omissions from such Application, Prospectus or Sales
Information or Blue Sky Application made in reliance upon and in conformity with
information furnished in writing to the Company by the Agent expressly regarding
the Agent for use under the captions "The Conversion -- Marketing Arrangements."
(b) At the Closing Date, the Company will have completed all conditions
precedent to the Conversion and the offer and sale of the Shares in accordance
with the Plan, the Banking Regulations and all other applicable laws,
regulations, decisions and orders, including all terms, conditions, requirements
and provisions precedent to the Conversion imposed upon the Company or the
Savings Bank by the Division, the FDIC, the FRB, the SEC or any other regulatory
authority other than those which the Division, the FDIC, the SEC or other
regulatory authorities waive or expressly permit to be completed after the
Conversion is consummated.
(c) No order has been issued by the Division, the FDIC, the FRB, the SEC or
any other Federal or state regulatory or blue sky 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 pending or, to the best of the
Company's knowledge, threatened.
(d) RP Financial, LC. ("RP Financial"), which prepared the appraisal of the
Company in connection with the Conversion, is independent with respect to the
Company and the Savings Bank within the meaning of the Plan and the Banking
Regulations.
(e) KPMG Peat Marwick, LLP, the firm which audited the financial statements
filed as part of the Application and Prospectus, are, with respect to the
Company and the Savings Bank independent certified public accountants as
required by the regulations under the 1933 Act and the Securities Exchange Act
of 1934, as amended (the "1934 Act").
(f) The financial statements, together with the related schedules and notes
thereto included in the Application and the Registration Statement and which are
part of the Prospectus,
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present fairly the financial condition, results of operations, retained earnings
and cash flows of the Savings Bank and its wholly-owned subsidiaries, at and for
the dates indicated and the periods specified and comply as to form in all
material respects with the applicable accounting requirements of the Banking
Regulations and generally accepted accounting principles ("GAAP"). Said
financial statements have been prepared in conformity with GAAP applied on a
consistent basis during the periods involved, present fairly in all material
respects the information required to be stated therein and are consistent with
the most recent financial statements and other reports filed by the Savings Bank
with the Division 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 present fairly the information shown therein on
a basis consistent with the audited financial statements of the Savings Bank
included in the Prospectus, and as to the pro forma adjustments, the adjustments
made therein have been properly applied on the basis described therein.
(g) Since the respective dates as of which information is given in the
Application, the Registration Statement and the Prospectus, except as may
otherwise be stated therein: (i) there has not been any material adverse change,
financial or otherwise, in the condition of the Company or the Savings Bank or
in the earnings, capital or properties of the Company or the Savings Bank,
whether or not arising in the ordinary course of business, (ii) there has not
been any material increase in the long term debt of the Company or the Savings
Bank other than in the ordinary course of business and neither the Company nor
the Savings Bank has issued any securities or incurred any material liability or
obligation for borrowing other than in the ordinary course of business; (iii)
there have not been any material transactions entered into by the Company or the
Savings Bank, except those transactions entered into in the ordinary course of
business; and (iv) the capitalization, liabilities, earnings, assets, properties
and business of the Company and the Savings Bank conform in all material
respects to the descriptions thereof contained in the Prospectus. Furthermore,
neither the Company nor the Savings Bank has any material liability of any kind,
contingent or otherwise, except as set forth in the Prospectus.
(h) The Savings Bank is a Washington chartered stock savings bank with
corporate authority to conduct its business and own its property as described in
the Application and the Registration Statement. The Company has been duly
organized as a Washington corporation and has the corporate authority to conduct
its business and own its property as described in the Application and the
Registration Statement. The Company and the Savings Bank have obtained all
licenses, permits and other governmental authorizations currently required for
the conduct of their respective businesses; all such licenses, permits and
governmental authorizations currently are in full force and effect, and each is
in all material respects complying with all laws, rules, regulations and orders
applicable to the operation of its business; neither the Company nor the Savings
Bank has received notice of any proceeding or action relating to the revocation
or modification of any such license, permit or governmental authorization which,
singly or in the aggregate, if subject to an unfavorable decision, ruling or
finding, might materially and adversely affect the conduct of the business, or
the condition, financial or otherwise, or the earnings, affairs or prospects of
either the Company or the Savings Bank. The Savings Bank is in good standing
with the Division and the
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FDIC. The Company is in good standing with the State of Washington. Each of the
Company and the Savings Bank is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which its
ownership of property or leasing of properties or the conduct of its business
requires such qualification, unless the failure to be so qualified in one or
more of such jurisdictions would not have a material adverse effect on its
condition, financial or otherwise, or its business, operations or income of the
Company and the Savings Bank on a consolidated basis. The Savings Bank does not
own equity securities or any equity interest in any other business enterprise
except as described in the Prospectus.
(i) The deposit accounts of the Savings Bank are insured by the Savings
Association Insurance Fund ("SAIF") as administered by the FDIC up to the
maximum amount allowed under law.
(j) Upon consummation of the Conversion, (i) the authorized, issued and
outstanding equity capital of the Company will be as set forth in the
Prospectus; (ii) the Shares will have been duly and validly authorized for
issuance and, when issued and delivered by the Company pursuant to the Plan
against payment of the consideration calculated as set forth in the Plan and in
the Prospectus, will be duly and validly issued and fully paid and
nonassessable; (iii) the issuance of the Shares will not violate any preemptive
rights; (iv) the terms and provisions of the Shares will conform in all material
respects to the description thereof contained in the Application and the
Prospectus; and (v) the Company will own 100% of the capital stock of the
Savings Bank. Upon the issuance of the Shares, good title to the Shares will be
transferred to the purchasers thereof against payment therefor, subject to such
claims as may be asserted against the purchasers thereof by third-party
claimants.
(k) The Plan, the consummation of the Conversion, the execution, delivery
and performance of this Agreement and the consummation of the transactions
hereby contemplated have been duly and validly authorized by the Boards of
Directors of the Company and the Savings Bank and all other corporate action on
the part of the Company and the Savings Bank necessary to approve this
Agreement, the Plan and the transactions contemplated thereby has been taken,
excepting only the required approval of the shareholders of the Savings Bank and
the voting members of the Mutual Holding Company. This agreement has been
validly executed and delivered by the Company and the Savings Bank and is the
valid, legal and binding obligation of the Company and the Savings Bank,
enforceable according to its terms, except to the extent that the rights to
indemnity hereunder may be limited under applicable laws or regulations, and
subject to bankruptcy, insolvency, reorganization or other laws relating to or
affecting the enforcement of creditors' rights generally and equitable
principles limiting the right to obtain specific enforcement or similar
equitable relief. The consummation of the transactions herein contemplated will
not: (i) conflict with or constitute a breach of, or default under, the Articles
of Incorporation or bylaws of the Company or the Articles of Incorporation or
bylaws of the Savings Bank or any material contract, lease or other instrument
to which the Company or the Savings Bank is a party or in which either the
Company or the Savings Bank has a beneficial interest, or any applicable law,
rule, regulation or order; (ii) violate any authorization, approval, judgment,
decree, order, statute, rule or
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regulation applicable to the Company or the Savings Bank; or (iii) result in the
creation of any lien, charge or encumbrance upon any property of the Company or
the Savings Bank.
(l) The Company and the Savings 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 Shares of the Company as provided in the Plan and as described in the
Prospectus, subject to the satisfaction or waiver of the conditions of the
Division's and the FDIC's approval of the Application, and except as may be
required under the Blue Sky laws of the various States.
(m) The Company and the Savings Bank have good and marketable title to all
properties and assets which are material to their respective businesses. The
properties and assets described in the Application and the Prospectus are owned
by them, free and clear of all liens, except such liens as are described in the
Application and the Prospectus or are not materially significant to the business
of the Company and the Savings Bank. All of the leases and subleases material to
the business of the Company and the Savings Bank under which the either company
holds properties, including those described in the Application, are in full
force and effect.
(n) Other than as disclosed in the Prospectus, neither the Company nor the
Savings Bank is in violation of any material directive from the Division, the
FDIC, the FRB, or any other agency to make any material change in the method of
conducting its business so as to comply in all material respects with all
applicable statutes and regulations (including, without limitation, regulations,
decisions, directives and orders of the Division, the FDIC and the FRB) and,
there is no suit, proceeding, charge, investigation or action before or by any
court, regulatory authority or governmental agency or body, domestic or foreign,
now pending or, to the knowledge of the Company or the Savings Bank, threatened,
which might materially and adversely affect the Offering, the performance of
this Agreement or the consummation of the transactions contemplated in the Plan
and as described in the Application, or which might result in any material
adverse change in the condition (financial or otherwise), earnings, capital or
properties, of the Company or the Savings Bank, or which would materially affect
their properties and assets.
(o) The Savings Bank is in compliance in all material respects with the
applicable financial record-keeping and reporting requirements of the Currency
and Foreign Transaction Reporting Act of 1970, as amended, and the regulations
and rules thereunder.
(p) The only subsidiaries of the Savings Bank are Sound Service Associates,
Inc. and Heritage Capital Corporation (the "Subsidiaries"). The Subsidiaries
have been duly incorporated and are validly existing as corporations in good
standing under the laws of the jurisdiction of their incorporation, have full
corporate power and authority to own, lease and operate their properties and to
conduct its business as described in the Registration Statement and Prospectus,
and are duly qualified to transact business and are in good standing in each
jurisdiction in which such qualification is required, except where the failure
to so qualify would not have a material adverse effect on the financial
condition, results of operations or business of the Company, the Savings
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Bank and the Subsidiaries, taken as a whole; the activities of the Subsidiaries
are permitted to subsidiaries of a Washington-chartered savings bank by federal
and Washington law and the rules, regulations, resolutions and practices of the
FRB, the FDIC and the Division; all of the issued and outstanding capital stock
of the Subsidiaries has been duly authorized and validly issued, is fully paid
and nonassessable and is owned by the Savings Bank, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equitable
claim.
(q) The Company and the Savings Bank have received the opinion of KPMG Peat
Marwick LLP with respect to the federal income tax consequences of the
Conversion, the acquisition of the capital stock of the Savings Bank by the
Company and the sale and exchange of the Shares as described in the Prospectus.
The Company and the Savings Bank have receive the opinion of its counsel,
Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim, P.L.L.C., with respect to
the Washington income tax consequences of the Conversion, the acquisition of the
capital stock of the Savings Bank by the Company and the sale and exchange of
the Shares as described in the Prospectus. All material aspects of such
opinions are accurately summarized in the Prospectus, and the facts and
representations upon which such opinions are based are accurate and complete,
and neither the Company nor the Savings Bank will take any action inconsistent
therewith.
(r) As of the date hereof, neither the Company nor the Savings Bank is or
will be in violation of its Articles of Incorporation or bylaws. No default
exists, and no event has occurred which with notice or lapse of time, or both,
would constitute a default on the part of the Company or the Savings 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 instrument or agreement to which the Company, the Savings Bank or its
subsidiary is a party or by which they or their properties are bound or affected
in any respect which, in any such case, is material to the Company, the Savings
Bank and its subsidiary taken as a whole and no other party to any such
agreements has instituted or, to the knowledge of the Company or the Savings
Bank, threatened any action or proceeding wherein the Company or the Savings
Bank would or might be alleged to be in material default thereunder.
(s) Since the date of the financial information contained in the
Prospectus, except as otherwise may be indicated or contemplated in the
Application and Prospectus, neither the Company nor the Savings Bank has: (i)
issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, except borrowings from the same or similar
sources indicated in the Prospectus in the ordinary course of its business, or
(ii) entered into any transaction which is material in light of the business and
properties of the Company and the Savings Bank, taken as a whole, excluding
origination, purchase and sale of loans and other investments made in the
ordinary course of its business.
(t) The Savings Bank has filed all federal, state and local tax returns
required to be filed and has made timely payments of all taxes due and payable
with respect to such returns (except for any taxes which it might in good faith
be contesting) and no deficiency has been asserted with
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respect thereto by any taxing authority.
(u) Neither the Company nor the Savings Bank has made any payment of funds
as a loan for the purchase of the Shares.
(v) Neither the Company nor the Savings Bank has: (i) placed any securities
within the last 18 months (except for stock issued by the Savings Bank in its
reorganization into the mutual holding company structure in 1993 and notes to
evidence bank loans and mortgage-backed securities in the ordinary course of
business); (ii) had any material dealings within the 12 months prior to the date
hereof with any member of the NASD, or any person related to or associated with
such member, other than discussions and meetings relating to the proposed
Conversion and routine purchases and sales of securities for or from its
portfolio; (iii) entered into a financial or management consulting agreement,
except as contemplated hereunder; and (iv) engaged any intermediary between the
Agent and the Company in connection with any offering of the Shares, and no
person is being compensated in any manner for such service.
(w) To the best of the Company's knowledge, the Company has taken all
necessary action to make such filings and/or qualify or register the Shares for
offer and sale in the Conversion under the laws of the states wherein such
shares will be offered where such States require such filings or qualification
and/or registration.
(x) Neither the Company nor the Savings Bank has relied upon the Agent or
its legal or other advisors for any legal, tax or accounting advice in
connection with the Conversion.
(y) All supplemental sales literature, i.e., "marketing materials", used by
---
the Company in connection with the Offering, required by the Banking Regulations
or SEC regulations to be filed, has been filed with and cleared by the Division,
the FDIC and the SEC.
(z) The Company and the Savings Bank are in compliance with all laws, rules
and regulations relating to environmental protection, and neither the Company
nor the Savings Bank has been notified or is otherwise aware that either of them
is potentially liable, or is considered potentially liable, under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, or any similar state law. There are no actions, suits, regulatory
investigations or other proceedings pending, or, to the best knowledge of the
Company and the Savings Bank, threatened against the Company or the Savings Bank
relating to environmental protection, nor does the Company or the Savings Bank
have any reason to believe any such proceedings may be brought against either of
them. No disposal, release or discharge of hazardous or toxic substances,
pollutants or contaminants, including petroleum and gas products, as any of such
terms may be defined under federal, state or local law, has occurred on, in, at
or about any of the facilities or properties of the Company or the Savings Bank.
(aa) The records of Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members (as those terms are defined in the Plan) delivered to
the Agent by the Savings
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Bank or its agent for use during the Conversion have been reviewed by the
Savings Bank and are believed to be accurate, reliable and complete and the
Agent shall have no liability to any person relating to the reliability,
accuracy or completeness of such records or for any denial or allocation of a
subscription to purchase shares to any person based upon such records.
Any certificate signed by an officer of the Company or of the Savings Bank
and delivered to the Agent or its counsel that refers to this Agreement and is
referred to therein as a "representation" or "warranty" shall be deemed to be a
representation and warranty by the Company or by the Savings Bank, respectively,
to the Agent and its counsel as to the matters covered thereby with the same
effect as if such representation and warranty were set forth herein.
SECTION 5. COVENANTS OF THE COMPANY AND THE SAVINGS BANK
The Company and the Savings Bank hereby covenant with you as follows:
(a) The Company and the Savings Bank will not file any amendment or
supplement to the Application or the Registration Statement without notifying
you of its intention to do so and shall provide you and your counsel with the
opportunity to review such amendment or supplement in advance of filing.
(b) The Company will use its best efforts to cause the bank holding company
application to be approved by the FRB and to satisfy all conditions imposed by
the FRB in its approval of the bank holding company application. The Company
will, immediately upon receipt of any information concerning the events listed
below, notify you in writing: (i) approval of the bank holding company
application; (ii) receipt of any comments from the Division, the FDIC, the FRB,
the SEC or any other governmental entity with respect to the Application, bank
holding company application and the Prospectus, or the transactions contemplated
by this Agreement; (iii) requests by the Division, the FDIC, the FRB, the SEC or
any other governmental entity for any amendment or supplement to the
Application, bank holding company application or the Prospectus or for
additional information; (iv) issuance by the Division, the FDIC, the FRB, the
SEC or any other governmental entity of any order or other action suspending the
Conversion or the use of the Application, bank holding company application or
the Prospectus or any other filing of the Company under the Banking Regulations
or other applicable law, or the threat of any such action; (v) issuance by the
Division, the FDIC, the FRB, the SEC or any state authority of any stop order
suspending the effectiveness of the Application, bank holding company
application or the Prospectus or of the initiation or threat of any proceedings
for that purpose; or (vi) occurrence of any event set forth in paragraph (f)
below. The Company will make every reasonable effort to prevent the issuance by
the Division, the FDIC, the FRB, the SEC 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. The Company will provide copies of the
foregoing comments, requests and orders to you upon its receipt of such items.
(c) The Company will deliver to you and to your counsel two conformed
copies of each
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of the following documents, with all exhibits: the Application and the
Registration Statement, as originally filed and of each amendment or supplement
thereto. In addition, the Company will deliver to you and your counsel such
number of copies of the Prospectus, as amended or supplemented, as you may
reasonably request.
(d) The Company will furnish to you, from time to time during the period
when the Prospectus (or any later prospectus related to this Offering) is
required to be delivered under the 1933 Act or the 1934 Act, such number of
copies of such Prospectus (as amended or supplemented) as you may reasonably
request for the purposes contemplated by the 1933 Act or the 1934 Act or the
respective applicable rules and regulations of the SEC as applicable thereunder.
The Company authorizes the Agent to use the Prospectus (as amended or
supplemented, if amended or supplemented) for any lawful manner in connection
with the sale of the Shares by the Agent.
(e) The Company will comply with any and all terms, conditions,
requirements and provisions with respect to the Conversion and the transactions
contemplated thereby imposed by the SEC, the Division, the FDIC, the FRB or any
other governmental agency, including the terms, conditions, requirements and
provisions contained in the Banking Regulations and the rules and regulations of
the SEC promulgated under the 1934 Act ("1934 Act Regulations"), to be complied
with prior and subsequent to the Closing Date. When the Prospectus is required
to be delivered, the Company will comply, at its own expense, with all
requirements imposed upon it by the Division and the FDIC and by the 1933 Act,
the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations, in each
case as from time to time in force, in accordance with the provisions thereof
and the Prospectus.
(f) If, at any time during the period when the Prospectus relating to the
Shares is required to be delivered to purchasers of Shares, any event relating
to or affecting the Company shall occur, as a result of which it is necessary,
in the reasonable opinion of counsel for the Company or, in your reasonable
opinion, after consultation with your counsel, to amend or supplement the
Application or Prospectus in order to make the Application or Prospectus not
misleading in light of the circumstances existing at the time it is delivered to
a purchaser, the Company will, at its expense, forthwith prepare, file with the
Division, the FDIC and the SEC and furnish to you a reasonable number of copies
of an amendment or amendments of, or a supplement or supplements to, the
Application or Prospectus (in form and substance reasonably satisfactory to you
and your counsel after a reasonable time for review) which will amend or
supplement the Application or Prospectus so that as amended or supplemented it
will not contain any untrue statement of a material fact or omit a material fact
necessary in order to make the statements therein, in light of the circumstances
existing at the time the Prospectus is delivered to a purchaser, not misleading.
For the purpose of this Agreement, the Company will timely furnish to you such
information with respect to itself as you may from time to time reasonably
request.
(g) The Company will take all necessary actions, in cooperation with you,
and furnish such information as may be required to qualify or register the
Shares for offering and sale by the Company under the applicable securities or
blue sky laws of such jurisdictions as you may
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reasonably designate; provided, however, that the Company shall not be obligated
to file any general consent to service of process or to qualify to do business
in any jurisdiction in which it is not so qualified. In each jurisdiction where
any of the Shares shall have been qualified or registered as above provided, the
Company and the Savings Bank will make and file such statements and reports in
each fiscal period as are or may be required by the laws of such jurisdiction.
(h) The Company will not sell or issue, contract to sell or otherwise
dispose of any shares of, or securities convertible into or exercisable for,
shares of Common Stock for a period of 90 days after the closing date, excluding
transactions related to stock options or other stock based upon management
compensation plans.
(i) During the period during which the Common Stock is registered under the
1934 Act or for three years from the Closing Date, whichever period is greater,
the Company will furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including statements of income,
stockholders' equity and cash flow of the Company and the Savings Bank as of the
end of and for such year, certified by independent public accountants in
accordance with Regulation S-X under the 1934 Act) and make available as soon as
practicable after the end of the first three quarters of the fiscal year
(beginning with the fiscal quarter ending after the Closing Date) financial
information of the Company and the Savings Bank for such quarter in reasonable
detail. In addition, such annual results and quarterly results shall be made
public through the issuance of press releases as the Company deems appropriate
at the same time or prior to the time it is furnished or made available to
stockholders of the Company.
(j) The Company will furnish to you during the period of three years from
the date hereof: (i) as soon as available, a copy of each of its reports
furnished to or filed with the SEC under the 1934 Act or any national securities
exchange or system on which any class of securities of the Company is listed or
quoted, (including, but not limited to, reports on Forms 10-K, 10-Q and 8-K and
all proxy statements and annual reports to stockholders), a copy of each other
report of the Company mailed to its stockholders, each press release and
material news items and articles released by the Company or the Savings Bank as
you may reasonably request in writing, and (ii) from time to time, such other
nonconfidential information concerning the Company or the Savings Bank as you
may reasonably request in writing.
(k) The Company and the Savings Bank will use the net proceeds from the
sale of the Shares in the manner set forth in the Prospectus under the caption
"Use of Proceeds."
(l) Other than as permitted by the Banking Regulations and the laws of any
state in which the Shares are qualified for sale, the Company will not
distribute any Prospectus or other offering material in connection with the
offer and sale of the Shares.
(m) The Company and the Savings Bank will file with the Division, the FDIC
or the FRB, as applicable, such post-Conversion reports as may be required
pursuant to the Banking Regulations or the Division and the FDIC approval of the
Conversion.
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(n) The Company will register the Common Stock with the SEC under Section
12(g) of the 1934 Act prior to or upon completion of the Conversion.
(o) The Company will maintain appropriate arrangements for depositing all
funds received from persons mailing orders to purchase Shares in the Offering in
an interest-bearing account at the rate described in the Prospectus or until
refunds of such funds have been made to the persons entitled thereto. The
Company will maintain such records of all funds received as are necessary to
enable the Company to make appropriate refunds of such funds in the event that
such refunds are required to be made.
(p) The Company 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 NASD interpretation relating to "Free Riding and Withholding."
(q) Prior to the Closing Date, the Company and the Savings Bank will
conduct their respective 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 FRB, the
Division and FDIC.
(r) The Company will not amend the Plan, without the Agent's prior consent,
which consent shall not be unreasonably withheld, in any manner that would
materially and adversely affect the sale of the Shares or the terms of this
Agreement, except as provided elsewhere herein.
(s) The Company will use its best efforts to obtain approval for quotation
of the Common Stock on the Nasdaq National Market effective on or before the
Closing Date.
(t) The Company and the Savings Bank will use all reasonable efforts to
comply with, or cause to be complied with, the conditions precedent to the
several obligations of the Agent specified in Section 9 hereof.
(u) The Company will promptly register as a bank holding company under the
Bank Holding Company Act and the regulations thereunder.
(v) The Company shall advise the Agent, if necessary, as to the allocation
of deposits, in the case of Eligible Account Holders and Supplemental Eligible
Account Holders, and votes, in the case of Other Members, and of the Shares in
the event of an oversubscription, and shall provide the Agent final instructions
as to the allocation of the Shares ("Allocation Instructions") in such event and
the Allocation Instructions shall be accurate, reliable and complete. The Agent
shall be entitled to rely on the Allocation Instructions and shall have no
liability in respect of its reliance thereon, including without limitation, no
liability for or related to any denial or grant of a subscription in whole or in
part.
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SECTION 6. PAYMENT OF EXPENSES
The Company and the Savings Bank agree to pay all reasonable and customary
expenses incident to the performance of their obligations under this Agreement,
including the following: (i) the preparation, issuance and delivery of
certificates for the Shares to the purchasers in the Offering and the cost of
printing all other documents applicable to the Conversion; (ii) the fees and
disbursements of the Company's and the Savings Bank's counsel, accountants and
other advisors; (iii) the qualification of the Shares under all applicable
securities or Blue Sky laws, including filing fees and the fees and
disbursements of the Company's counsel in connection therewith and in connection
with the preparation of a Blue Sky Survey, concerning such jurisdictions as you
shall reasonably request; (iv) the printing and delivery of the Prospectus as
originally filed as amended or supplemented and all other documents in
connection with this Agreement; (v) filing fees incurred in connection with the
review of the Conversion by the Division, the FDIC, the SEC and the NASD; (vi)
fees and expenses relating to the Appraisal; (vii) fees and expenses relating to
advertising expenses, temporary personnel expenses, expenses related to
operations of a facility to coordinate the Offering, investor meeting expenses,
and other reasonable miscellaneous expenses relating to the marketing by the
Agent of the Shares; and (viii) the fees and charges of any transfer agent,
registrar and other agents. In the event the Agent incurs any of such expenses
on behalf of the Company or the Savings Bank, the Company and the Savings Bank
shall reimburse the Agent for such reasonable expenses regardless of whether the
Conversion is successfully completed, and such reimbursements shall not be
included in the expenses limitation discussed in the following paragraph. Ryan,
Beck will not incur any single expense of more than $2,000 on behalf of the
Company or the Savings Bank without the prior approval of the Company or the
Savings Bank.
The Company and the Savings Bank shall reimburse the Agent for all
reasonable actual out-of-pocket expenses, including legal fees and expenses,
incurred by you in connection with the services provided by you to the Company
and the Savings Bank pursuant to this Agreement; the total out-of-pocket or
reimbursable expenses of the Agent, excluding legal fees of its counsel, shall
not exceed $15,000, unless otherwise agreed to by both parties in writing. The
maximum reimbursable legal fees of the Agent's counsel (excluding expenses of
counsel) shall not exceed $35,000, unless otherwise agreed to by both parties in
writing. The Agent will provide the Company and the Savings Bank with a
detailed accounting of all reimbursable expenses and will bill the Company and
the Savings Bank quarterly. In the event of a material delay in the Offering
which would require an update of the financial information presented in the
Prospectus, the Company, the Savings Bank and the Agent shall negotiate in good
faith an agreement to cover the Agent's additional expenses in connection
therewith, including attorney's fees and expenses. In addition, in the event of
unforeseen developments that otherwise require significant additional effort and
expense on the part of the Agent, the Company and the Savings Bank, in their
sole discretion, may agree to negotiate in good faith an agreement to cover such
additional expenses.
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SECTION 7. INDEMNIFICATION
(a) The Company and the Savings Bank jointly and severally agree to
indemnify and hold harmless you, your officers, directors, agents, and employees
and each person, if any, who controls you 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 you or any of them may suffer or to
which you or any of them may become subject under all applicable federal and
state laws or otherwise, and to promptly reimburse you and any such persons upon
written demand for any expenses (including reasonable fees and disbursements of
yours and your counsel and all of your reasonable travel and other out-of-pocket
expenses including hourly charges of your directors, officers and employees at
their normal hourly billing rates) incurred by you 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 statements, of any material fact contained in the Application
(or any amendment or supplement thereto), the Prospectus (or any amendment or
supplement thereto), the Blue Sky Information, or the Sales Information, or any
instrument or document prepared by the Company, the Savings Bank or their
representatives; (ii) arise out of or are based upon the omission or alleged
omission to state in any of the foregoing documents or information, a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; or,
(iii) arise from any theory of liability whatsoever relating to or arising from
or based upon any of the foregoing documents or information or other
documentation prepared by the Company or the Savings Bank and distributed in
connection with the Conversion; or (iv) are based on the treatment of the
Exchange Shares; except 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 any of the foregoing documents or information made in reliance
upon and in conformity with information furnished in writing to the Company by
you regarding you expressly for use under the caption "The Conversion --
Marketing Arrangements." Provided further, however, there shall be excluded
from such indemnification any such claim, damage, loss, liability or expense
that arises primarily out of or is based primarily upon any action or failure to
act by you, other than action or failure to act undertaken at the request or
with the consent of the Company or the Savings Bank beyond those services
contemplated by this Agreement, that is found in a final judicial determination
to constitute willful misconduct or gross negligence on the part of the Agent.
(b) You agree to indemnify and hold harmless the Company and the Savings
Bank, their officers, directors, agents, employees and each person, if any, who
controls the Company and the Savings Bank 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, may suffer
or to which they, or any of them, may become subject under all applicable
federal and state laws or otherwise, and to promptly reimburse the Company and
the Savings Bank, and any such persons upon written
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demand for any expenses (including fees and disbursements of counsel) incurred
by them, 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 Application (or any amendment or supplement thereto) or
the Prospectus (or any amendment or supplement thereto), any Blue Sky
Application, the 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 light of the
circumstances under which they were made, not misleading; provided however that
----------------
your obligations under this Section 7(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 any of the
foregoing documents or information in reliance upon and in conformity with
information furnished in writing to the Company or the Savings Bank by you
regarding you expressly for use under the caption "The Conversion -- Marketing
Arrangements." In addition, the Agent will not be liable under the foregoing
indemnification provision to the extent that any loss, claim, damage, liability
or action is found in a final judgment by a court to have resulted from the
Company or the Savings Bank's willful misconduct or gross negligence.
(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 7 and
Section 8 herein. 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 the defense of such
action with counsel chosen by it and approved by the indemnified parties that
are defendants in such action, unless such indemnified parties reasonably object
to such assumption on the ground that there may be legal defenses available to
them that are different from or in addition to those available to such
indemnifying party. If an indemnifying party assumes the defense of such
action, the indemnifying parties shall not be liable for any fees and expenses
of counsel for the indemnified parties incurred thereafter in connection with
such action, proceeding or claim, other than reasonable costs of investigation.
In no event shall the indemnifying parties be liable for the fees and expenses
of more than one separate firm of attorneys (and any special counsel that said
firm may retain) for each indemnified party in connection with any one action,
proceeding or claim or separate but similar or related actions, proceedings or
claims in the same jurisdiction arising out of the same general allegations or
circumstances. The indemnifying party shall not be liable for any settlement of
such action, proceeding or suit affected without its prior written consent.
(d) The agreement contained in this Section 7 and in Section 8 hereof and
the representations and warranties of the Company and the Savings 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 you or your officers,
directors or controlling persons, agents or employees or by or on behalf of the
Company, the Savings Bank, or any of their officers, directors or controlling
persons,
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agents or employees; (ii) delivery of and payment hereunder for the Shares; or
(iii) any termination of this Agreement.
SECTION 8. CONTRIBUTION
In order to provide for just and equitable contribution in circumstances in
which the indemnification provided for in Section 7 is due in accordance with
its terms but is for any reason held by a court to be unavailable from the
Company and the Savings Bank or you, the Company and the Savings Bank, on the
one hand, and you, on the other, shall contribute to the aggregate losses,
claims, damages and liabilities (including any investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement of, any
action, suit or proceeding of any claims asserted, but after deducting any
contribution received by the Company and the Savings Bank or you from persons
other than the other parties hereto, who may also be liable for contribution) in
such proportion so that you are responsible for that portion represented by the
percentage that the fees paid to the Agent pursuant to Section 1 of this
Agreement (not including expenses) bears to the gross proceeds received by the
Company from the sale of the Shares in the Offering (net of the Agent's fees)
and the Company and the Savings 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 7 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 benefits but also the relative fault of the Company and the
Savings Bank on the one hand and you on the other in connection with the
statements or omissions which resulted in such losses, claims, damage or
liabilities (or actions, proceedings or claims in respect thereof), as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Savings Bank on the one hand and you on the other shall be
deemed to be in the same proportion as the total gross proceeds from the
Offering (net of the Agent's fees) received by the 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 Company and the Savings
Bank on the one hand or you on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The parties agree that it would not be just and equitable
if contribution pursuant to this Section 8 were determined by pro-rata
allocation or by other method of allocation which does not take into account the
equitable considerations referred to above in this Section 8. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions, proceedings or claims in respect thereof) referred to
above in this Section 8 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 required to contribute to the Company or the Savings Bank
for any loss, liability, claim, damage or expense any amount which in the
aggregate exceeds the amount paid to the Agent under this Agreement. It is
understood that the above-stated limitation on the Agent's liability for
contribution to the Company and the Savings Bank is essential to the Agent and
that the Agent would not have entered into this
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Agreement if such limitation had not been agreed to by the parties to this
Agreement. No person found guilty of any fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not found guilty of such fraudulent misrepresentation.
The obligations of the Company and the Savings Bank under this Section 8 and
under Section 7 shall be in addition to any liability which the Company or the
Savings Bank may otherwise have.
For purposes of this Section 8 each of your officers and directors and each
person, if any, who controls you within the meaning of the 1933 Act and the 1934
Act shall have the same rights to contribution as you and each person, if any,
who controls the Company and the Savings Bank within the meaning of the 1933 Act
and the 1934 Act, and each officer and director and each person, if any, who
controls the Company and the Savings Bank, shall have the same rights to
contribution as the Company and the Savings Bank. Any party entitled to
contribution shall notify such other party promptly after receipt of notice of
commencement of any action, suit, claim or proceeding against such party in
respect to which a claim for contribution may be made against another party, but
the omission to so notify such party shall not relieve the party from whom
contribution may be sought from any other obligation it may have hereunder or
otherwise than under this Section 8.
SECTION 9. CONDITIONS OF YOUR OBLIGATIONS
Your obligations hereunder, as to the Shares to be delivered at the Closing
Date, are subject in your discretion, to the condition that all representations
and warranties and other statements of the Company and the Savings Bank herein
are, at and as of commencement of the Offering and at and as of the Closing
Date, true and correct in all material respects, the condition that the Company
and the Savings Bank shall have performed in all material respects all of their
obligations hereunder on or before such dates, and to the following further
conditions:
(a) The Registration Statement shall have been declared effective not later
than 5:30 pm. on the date of this Agreement, or with your consent, not to be
unreasonably withheld, at a later time and date; and at the Closing Date no
order suspending the approval of the Application shall have been issued or
proceedings therefor initiated or threatened by any state authority, and no
order or other action suspending the effectiveness of the Registration Statement
shall have been issued or proceedings therefor initiated or to the best of the
Company's or the Savings Bank's knowledge threatened by the SEC, the FDIC, the
FRB or any state or other governmental authority.
(b) At the Closing Date you shall have received:
(1) The opinions, dated as of the Closing Date and addressed to Ryan
Beck and for its benefit, of Gordon, Thomas, Honeywell, Malanca, Peterson &
Daheim, P.L.L.C., in form and substance satisfactory to counsel for the Agent,
providing that:
(i) The Company has been duly organized and is validly existing
as a
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corporation in good standing under the laws of the State of Washington. The
Company has full corporate authority to conduct its business and own its
properties as described in the Application, the Registration Statement and
the Prospectus. The Company is qualified as a foreign corporation to
transact business in each jurisdiction in which its ownership of property
or leasing of properties or the conduct of its business requires such
qualification unless the failure to be so qualified in one or more such
jurisdictions would not have a material adverse effect on the condition,
financial or otherwise, or the business, operations, income or prospects of
the Company and the Savings Bank, taken as a whole. The Savings Bank has
been organized and is validly existing as a state-chartered stock savings
bank under the laws of the State of Washington. The Savings Bank has full
corporate authority to conduct its business and own its properties as
described in the Application, the Registration Statement and the
Prospectus. The Savings Bank is qualified as a foreign corporation to
transact business in each jurisdiction in which its ownership of property
or leasing of properties or the conduct of its business requires such
qualification unless the failure to be so qualified in one or more such
jurisdictions would not have a material adverse effect on the condition,
financial or otherwise, or the business, operations, income or prospects of
the Company and the Savings Bank, taken as a whole.
(ii) The Subsidiaries have been duly incorporated and are
validly existing as corporations in good standing under the laws of the
state of Washington, have full corporate power and authority to own, lease
and operate their properties and to conduct their business as described in
the Prospectus and are duly qualified as foreign corporations to transact
business and are in good standing in each jurisdiction in which such
qualification is required, except where the failure to so qualify would not
have a material adverse effect upon the financial condition, results of
operations or business of the Company, the Savings Bank and the
Subsidiaries, taken as a whole; the activities of the Subsidiaries as
described in the Prospectus are permitted to subsidiaries of a bank holding
company and of a Washington chartered savings bank by federal and
Washington law and the rules, regulations, resolutions and practices of the
FRB, the FDIC and the Division; all of the issued and outstanding capital
stock of the Subsidiaries has been duly authorized and validly issued, is
fully paid and nonassessable and is owned directly by the Savings Bank, to
the best of such counsel's knowledge, free and clear of any security
interest, mortgage, pledge, lien, encumbrance or claim.
(iii) The Savings Bank is a member of the Federal Home Loan Bank
of Seattle. The deposit accounts of the Savings Bank are insured by the
SAIF up to the maximum amount allowed under law.
(iv) Upon consummation of the Conversion, the authorized,
issued and outstanding capital stock of the Company will be as set forth in
the Prospectus and no shares of Common Stock, or securities exercisable
into or exchangeable for Common Stock (except for those issued to the
Savings Bank as contemplated by the Plan), have been issued by the Company
prior to the Closing Date; the Shares issued in the Conversion have been
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duly and validly authorized for issuance, and when issued and delivered by
the Company pursuant to the Prospectus against payment of the consideration
calculated as set forth in the Plan, will be duly and validly issued and
fully paid and nonassessable and at such time all such capital stock shall
be free and clear of any mortgage, pledge, lien, encumbrance or claim
(legal or equitable) created by the Company; and the issuance of the Shares
is not subject to preemptive rights. The Common Stock conforms to the
description thereof contained in the Prospectus, and the form of
certificate used to evidence the Common Stock is in due and proper form and
complies with all applicable statutory requirements. Upon consummation of
the Conversion, all of the issued and outstanding capital stock of the
Savings Bank will be duly and validly issued, fully paid and nonassessable,
and at such time the Company will own, beneficially and legally, all of the
outstanding capital stock of the Savings Bank, free and clear of any
mortgage, pledge, lien, encumbrance or claim (legal or equitable).
(v) This Agreement has been authorized by all necessary
corporate action by the Company and the Savings Bank, has been executed and
delivered by the Company and the Savings Bank and is the legal, valid and
binding agreement of the Company and the Savings Bank, enforceable in
accordance with its terms, except as the rights of indemnification and
contribution may be limited under applicable laws or regulations, and
subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general applicability relating to or affecting creditors' rights or
the rights of creditors of savings associations, the deposits of which are
insured by the FDIC, to general principles of equity (whether considered in
an action at law or in equity).
(vi) The Plan has been approved by the required vote of the
Directors, depositors and shareholders of the Savings Bank.
(vii) The Application has been approved by the Division and the
FDIC and no order suspending the approval has been issued or proceedings
therefor initiated or, to the knowledge of such counsel, threatened by the
Division or the FDIC. To such counsel's knowledge, no person has sought to
obtain the review of the final actions of the Division and the FDIC in
approving the Application.
(viii) Subject to the satisfaction of the conditions to the
approval of the Application by the Division and the FDIC no further
approval, registration, authorization, consent or other order of any
regulatory agency, public board or body is required in connection with the
execution and delivery of this Agreement, the consummation of the
Conversion, and the issuance of the Shares, except as may be required under
the securities or blue sky laws of various jurisdictions. The Conversion
has been consummated in all material respects according to all applicable
provisions of the Banking Regulations, federal and state law, applicable
Blue Sky laws and all applicable rules and regulations promulgated
thereunder.
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(ix) The Registration Statement has been declared effective
under the 1933 Act. No stop order suspending its effectiveness has been
issued under the 1933 Act nor, to the knowledge of such counsel,
proceedings therefor initiated or threatened by the SEC or any state
authority.
(x) At such time as the Application was approved and at such
time when the Registration Statement was declared effective: (i) the
Application and the Registration Statement, and any amendment or supplement
thereto (other than the financial statements and other financial, pro forma
and statistical data included therein, and the Independent Valuation as to
which no opinion need be rendered), complied as to form in all material
respects with the Banking Regulations and with the 1933 Act and the 1933
Act Regulations, respectively, and (ii) the Prospectus (other than the
financial, statements and other financial, pro forma and statistical data
included therein, and the Independent Valuation as to which no opinion need
be rendered) complied as to form in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations.
(xi) The information in the Prospectus under the captions
"RISK FACTORS -- Anti-Takeover Provisions", "BUSINESS OF THE BANK --
Federal Taxation", "-- State Taxation," "SUPERVISION AND REGULATION", "THE
CONVERSION", "RESTRICTIONS ON ACQUISITION OF THE COMPANY AND THE BANK",
"DESCRIPTION OF CAPITAL STOCK OF THE COMPANY", and "COMPARISON OF
STOCKHOLDERS' RIGHTS", to the extent that it constitutes matters of law,
summaries of legal matters, or proceedings, or legal conclusions, has been
reviewed by such counsel and is correct in all material respects.
(xii) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or the
Savings Bank which are required to be disclosed in the Application and the
Prospectus, other than those disclosed therein, and all pending legal and
governmental proceedings to which the Company or the Savings Bank is a
party or to which any of their property is the subject which is not
discussed in the Application and the Prospectus, including ordinary routine
litigation incidental to the business, are, considered in the aggregate,
not material, provided that for this purpose, any litigation or
governmental proceeding is not considered to be "threatened" unless the
potential litigant or governmental authority has manifested to the
management of the Company or the Savings Bank, or to counsel, a present
intention to initiate such litigation or proceeding.
(xiii) To such counsel's knowledge, there are no contracts,
indentures, mortgages, loan agreements, notes, leases or other instruments
required to be described or referred to in the Application and the
Prospectus or required to be filed as exhibits thereto other than those
described or referred to therein or filed as exhibits thereto, the
descriptions thereof or references thereto are correct in all material
respects, and no default exists in the due performance or observance of any
material obligation, agreement, covenant or
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condition contained in any contract, indenture, mortgage, loan agreement,
note or lease or other instrument so described, referred to or filed.
(xiv) To such counsel's knowledge, the Company and the Savings
Bank have obtained all material licenses, permits and other governmental
authorizations currently required for the conduct of their businesses and
all such material licenses, permits and other governmental authorizations
are in full force and effect, and the Company and the Savings Bank are in
all material respects complying therewith.
(xv) Neither the Company nor the Savings Bank is in violation
of its Articles of Incorporation or, to 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; to such counsel's knowledge the execution,
delivery and performance of this Agreement and the consummation of the
Conversion will not conflict with or constitute a breach of, or default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or the Savings Bank
pursuant to any material contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which the either company is a party or
by which either of them may be bound, or to which any of the property or
assets of either company is subject; and such action will not result in any
violation of the provisions of the Articles of Incorporation or bylaws of
the Company or the Savings Bank or any applicable law, regulation or order.
All provisions of the Company's and the Savings Bank's respective Articles
of Incorporation and bylaws comply in all material respects with applicable
law.
(xvi) To such counsel's knowledge all of the leases and
subleases material to the business of the Savings Bank under which the
Savings Bank and any subsidiary holds properties, as described in the
Application and Prospectus, are in full force and effect.
(xvii) To such counsel's knowledge, the Savings Bank is not in
violation of any directive from the Division or FDIC to make any material
change in the method of conducting its business.
In rendering such opinion, such counsels may rely (i) as to matters of
fact, to the extent such counsel deems proper, on such certificates of
responsible officers of the Company and the Savings Bank and public officials;
provided copies of any such opinion(s) or certificates are delivered to you
together with the opinion to be rendered hereunder by counsels to the Company
and the Savings Bank; and (ii) on the practices and policies of the Division and
the FDIC in approving similar transactions under the Banking Regulations.
(2) The letter of Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim,
P.L.L.C. special counsel for the Company and the Savings Bank, addressed to the
Agent, dated the Closing Date, in form and substance to the effect that:
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Nothing has come to the attention of counsel that would lead them to
believe that the Application or any amendment or supplement thereto (other than
the financial statements and other financial, pro forma and statistical data
included therein, the Independent Valuation data and information relating to
Ryan Beck as to which no view need be rendered), or the Prospectus or any
supplemental sales literature reviewed by such counsel and authorized by the
Company and the Savings Bank for use in the Offering (when read in conjunction
with the Prospectus), contains an untrue statement of a material fact or omits
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.
(3) The favorable opinion, dated as of the Closing Date, of Breyer &
Aguggia, your counsel, with respect to such matters as you may reasonably
require. Such opinion may rely upon the opinions of counsel to the Company and
the Savings Bank, and as to matters of fact, upon certificates of officers and
directors of the Company and the Savings Bank delivered pursuant hereto or as
such counsel shall reasonably request.
(c) At the Closing Date, you shall receive a certificate of the Chief
Executive Officer and the Treasurer of the Company and the Savings Bank, dated
the Closing Date, to the effect that: (i) since the respective dates as of which
information is given in the Application and the Prospectus, there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, capital, properties, affairs or prospects of the Company or the
Savings Bank, whether or not arising in the ordinary course of business; (ii)
the representations and warranties in Section 4 are true and correct with the
same force and effect as though expressly made at and as of the Closing Date;
(iii) the Company and the Savings Bank have complied with all agreements and
satisfied all conditions on their part to be performed or satisfied at or prior
to the Closing Date under the Agreement and the Plan and will comply with all
obligations under this Agreement and the Plan to be satisfied by them after the
Conversion; (iv) the Company and the Savings Bank have conducted the Conversion
in all material respects according to the Plan and all applicable laws and
regulations and in the manner described in the Prospectus; (v) no stop order
suspending the effectiveness of the Application has been initiated or threatened
by the Division, the FDIC, other federal authority or any other state authority;
and (vi) no order suspending the Conversion, or the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been initiated or threatened by the SEC, other federal authority or any state
authority.
(d) 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 condition,
financial or otherwise, in the earnings, affairs or prospects of the Company or
the Savings Bank 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 Company or the Savings
Bank from the latest date as of which the financial condition of the Savings
Bank is set forth in the Prospectus other than transactions as contemplated by
and disclosed in the Prospectus or transactions specifically referred to or
contemplated therein; (iii) the Savings Bank shall not have received from the
Division or
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FDIC any direction (oral or written) to make any material change in the method
of conducting its business with which it has not complied (which direction, if
any, shall have been disclosed to the Agent) or which materially and adversely
would affect the business, operations or financial condition or income of the
Savings Bank; (iv) neither the Company nor the Savings Bank shall have been in
material default (nor shall an event have occurred which, with notice or lapse
of time or both, would constitute a material default) under any provision of any
agreement or instrument relating to any material outstanding indebtedness; (v)
no action, suit or proceedings, at law or in equity before any court or by any
federal or state commission, board or other administrative agency, shall be
pending or, to the knowledge of the Company or the Savings Bank, threatened
against the Company or the Savings Bank or affecting any of their properties
wherein an unfavorable decision, ruling or finding would materially and
adversely affect the business, operations, financial condition or income of the
Company or the Savings Bank; (vi) the Shares shall have been qualified or
registered for offering and sale under the securities or blue sky laws of the
jurisdictions as set forth in the Blue Sky Memorandum of the law firm of Gordon,
Thomas, Honeywell, Malanca, Peterson & Daheim, P.L.L.C.; and (vii) no suit has
been filed seeking judicial review of the final action of the Division and the
FDIC in approving the Plan.
(e) Concurrently with the execution of this Agreement, the Agent shall
receive a letter from KPMG Peat Marwick LLP dated the date hereof and addressed
to the Agent: (i) confirming that KPMG Peat Marwick LLP is a firm of independent
public accountants within the meaning of the Code of Ethics of the American
Institute of Certified Public Accountants, the 1933 Act and the 1933 Act
Regulations and no information concerning its relationship with or interests in
the Savings Bank is required to be disclosed in the Prospectus, and stating that
in its opinion the consolidated financial statements of the Savings Bank
included in the Prospectus and covered by its opinion included therein comply as
to form in all material respects with the applicable accounting requirements of
the '33 Act and the '33 Act Regulations; (ii) stating in effect that, on the
basis of certain agreed upon procedures (but not an examination in accordance
with generally accepted auditing standards) consisting of the performance of the
procedures specified by the American Institute of Certified Public Accountants
for review of interim financial information, including, but not limited to, a
reading of the latest available unaudited interim consolidated financial
statements of the Savings Bank prepared by the Savings Bank, a reading of the
minutes of the meetings of the Board of Directors and stockholders of the
Savings Bank and consultations with officers of the Savings Bank responsible for
financial and accounting matters, nothing came to its attention which caused it
to believe that: (A) during the period from the date of the latest audited
consolidated financial statements included in the Prospectus to a specified date
not more than four business days prior to the date hereof, there was any
material increase in borrowings by the Savings Bank; or (D) there was any
material decrease in stockholders' equity of the Savings Bank at the date of
such letter from the amounts shown in the latest audited statement of condition
included in the Prospectus or there was any material decrease in net income, net
interest income or non-interest income of the Savings Bank or any material
increase in non-interest income or provision for loan losses of the Savings 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 as compared to the
corresponding period in the preceding year
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except as set forth in the Prospectus; and (iii) stating that, in addition to
the examination referred to in its opinion included in the Prospectus and the
performance of the procedures referred to in clause (ii) of this subsection (e),
it has compared with the general accounting records of the Savings Bank, as
applicable, which are subject to the internal controls of the Savings Bank's
accounting system and other data prepared by the Savings Bank directly from such
accounting records, to the extent specified in such letter, such amounts and/or
percentages set forth in the Prospectus as you may reasonably request; and they
have found such amounts and/or percentages to be in agreement therewith (subject
to rounding).
(f) At the Closing Date, you shall receive a letter from KPMG Peat Marwick
LLP dated the Closing Date, addressed to the Agent, confirming the statements
made by it in the letter delivered by it pursuant to subsection (e) of this
Section 9, the "specified date" referred to in clause (ii) (A) thereof to be a
date specified in such letter, which shall not be more than five business days
prior to the Closing Date.
(g) At the Closing Date, you shall have received a letter from RP
Financial, dated the Closing Date, confirming its appraisal. Such appraisal
shall be in the form and substance reasonably satisfactory to you and shall be
consistent with the terms of the Plan.
(h) At the Closing Date, your counsel shall have been furnished with such
documents and opinions as they may reasonably require for the purpose of
enabling them to pass upon the sale of the Shares as herein contemplated and
related proceedings or in order to evidence the occurrence or completeness of
any of the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company and the
Savings Bank in connection with the Conversion and the Offering and the sale of
the Shares as herein contemplated shall be satisfactory in form and substance to
you and your counsel.
(i) Neither the Company nor the Savings Bank shall have sustained since
the date of the latest unaudited financial statements included in the
Application 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 or contemplated in the Application and
Prospectus, and since the respective dates as of which information is given in
the Application and Prospectus, there shall not have been any material change in
the consolidated long-term debt of the Company or the Savings Bank or any
change, or any development involving a prospective change, in or affecting the
general affairs of management, financial position, stockholders' equity, cash
flow or results of operation of the Company or the Savings Bank, otherwise than
as set forth or contemplated in the Application and Prospectus, the effect of
which, in any such case described above, is in your reasonable judgment
sufficiently material and adverse as to make it impracticable or inadvisable to
proceed with the Conversion or the delivery of the Shares on the terms and in
the manner contemplated in the Prospectus.
(j) Subsequent to the date hereof, there shall not have occurred any of the
following: (i)
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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 fixed, or maximum ranges for prices for securities required
by either of such exchanges or the NASD or by order of the SEC or any other
governmental authority; (ii) a general moratorium on the operation of commercial
banks or savings banks in Washington or a general moratorium on the withdrawal
of deposits from commercial banks, or savings banks in Washington declared by
either federal or Washington authorities; (iii) the engagement by the United
States in hostilities which have resulted in the declaration, on or after the
date hereof, of a national emergency or war; or (iv) a material decline in the
price of equity or debt securities if the effect of such a decline, in your
judgment, makes it impracticable or inadvisable to proceed with the Conversion
or the delivery of the Shares on the terms and in the manner contemplated in the
Application and Prospectus.
If any of the conditions specified in this Section 9 shall not have been
fulfilled when and as required by this Agreement, or by June 30, 1998, this
Agreement and all of your obligations hereunder may be canceled by you by
notifying the Company and the Savings 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 Section 1, 6, 7 and 8 hereof. Notwithstanding the above, if this
Agreement is canceled pursuant to this paragraph, the Company and the Savings
Bank agree to reimburse you for all of your reasonable out-of-pocket expenses
(including without limitation the fees and expenses of your counsel), subject to
the limits expressed in Section 6 hereof, reasonably incurred by you, and your
counsel in connection with preparation of the Application, the Prospectus and
contemplation of the proposed Reorganization.
SECTION 10. TERMINATION
(a) In the event the Savings Bank fails to sell the minimum number of the
Shares as set forth in the Prospectus and does not modify the Conversion within
the period specified in, and in accordance with the provisions of, the Plan or
as required by the Banking Regulations and applicable law, this Agreement shall
terminate upon refund by the Company to each person who has ordered any of the
Shares the full amount which it may have received from such persons, together
with interest as provided in the Prospectus, and no party to this Agreement
shall have any obligation to the other hereunder, except for payment by the
Company and the Savings Bank as set forth in Sections 1, 6, 7, 8 and 9 hereof
and payment by the Agent pursuant to the provisions set forth in Sections 7 and
8 hereof.
(b) This Agreement may be terminated by the Agent, with respect to the
Agent's obligations hereunder, by notifying the Company and the Savings Bank at
any time at or prior to the Closing Date, if any of the conditions specified in
Section 9 hereof shall not have been fulfilled or waived in writing by the Agent
when and as required by this Agreement, if the Company and the Savings Bank
abandon or terminate the Plan, or if the Conversion has not been completed by
June 30, 1998.
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SECTION 11. SURVIVAL
The respective indemnities, agreements, representations, warranties and
other statements of the Company, the Savings Bank and you, as set forth in this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of you or any of your officers or directors or any person controlling you, or
the Company or the Savings Bank, or any officer, director or person controlling
the Company or the Savings Bank, and shall survive termination of the Agreement
and the receipt or delivery of any payment for the Shares.
SECTION 12. ARBITRATION
Any claims, controversies, demands, disputes or differences between or
among the parties hereto or any persons bound hereby arising out of, or by
virtue of, or in connection with, or otherwise relating to this Agreement shall
be submitted to and settled by arbitration conducted in Newark, New Jersey
before one or three arbitrators, each of whom shall be knowledgeable in the
field of securities law and investment banking. Such arbitration shall
otherwise be conducted in accordance with the rules then obtaining of the
American Arbitration Association. The parties hereto agree to share equally the
responsibility for all fees of the arbitrators, abide by any decision rendered
as final and binding, and waive the right to appeal the decision or otherwise
submit the dispute to a court of law for a jury or non-jury trial. The parties
hereto specifically agree that neither party may appeal or subject the award or
decision of any such arbitrator to appeal or review in any court of law or in
equity or by any other tribunal, arbitration system or otherwise. Judgement
upon any award granted by such an arbitrator may be enforced in any court having
jurisdiction thereof.
SECTION 13. MISCELLANEOUS
(a) Notices hereunder, except as otherwise provided herein, shall be given
in writing or by telegraph, addressed (a) to the Agent at 220 S. Orange Avenue,
Livingston, New Jersey 07039 (Attention: Ben A. Plotkin, President), with a copy
to John F. Breyer, Jr., Breyer & Aguggia, 1300 I Street, NW, Suite 470 East,
Washington, DC 20005 and (b) to the Company and the Savings Bank at their
principal office (Attention: Donald V. Rhodes, President and Chief Executive
Officer) with a copy to J. James Gallagher, Esquire, Gordon, Thomas Honeywell,
Malanca, Peterson & Daheim, P.L.L.C., 1201 Pacific Avenue, Suite 2200, Tacoma,
Washington 98402.
(b) This Agreement is made solely for the benefit of and will be binding
upon the parties hereto and their respective successors and the controlling
persons, directors and officers referred to in Section 7 hereof, and no other
person will have any right or obligation hereunder. The term "successors" shall
not include any purchaser of any of the Shares.
(c) To the extent that terms in this Agreement are co-terminus with terms
included in the letter of intent dated June 26, 1997 entered into by the Savings
Bank, the Mutual Holding
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Company and the Agent (the "Letter Agreement"), the terms of this Agreement
shall supersede the terms of the Letter Agreement and shall be the controlling
terms.
(d) This Agreement shall be governed by and construed in accordance with
the laws of the State of New Jersey except as superseded by federal or other
state law.
(e) Time shall be of the essence of this Agreement.
(f) This Agreement may be signed in various counterparts which together
will constitute one agreement.
If the foregoing correctly sets forth the arrangement among the Savings
Bank, the Company and the Agent, please indicate acceptance thereof in the space
provided below for that purpose, whereupon this letter and your acceptance shall
constitute a binding agreement.
Very truly yours,
HERITAGE FINANCIAL CORPORATION HERITAGE SAVINGS BANK
By:______________________________ By:______________________________
Donald V. Rhodes Donald V. Rhodes
President and Chief President and Chief
Executive Officer Executive Officer
Accepted as of the date first
above written.
Ryan, Beck & Co., Inc.
By:______________________________
Ben A. Plotkin
President
29
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EXHIBIT B
HERITAGE FINANCIAL CORPORATION
HERITAGE SAVINGS BANK
Common Stock
(No Par Value)
SELECTED DEALERS' AGREEMENT
___________________, 1997
Gentlemen:
We have agreed to assist Heritage Financial Corporation (the "Holding
Company"), the proposed holding company of Heritage Savings Bank, in connection
with the offer and sale of a minimum of and a maximum of shares of common stock,
no par value ("Common Stock"). The price per share has been fixed at $10.00. The
Common Stock, the number of shares to be issued, and certain of the terms on
which they are being offered, are more fully described in the Prospectus of the
Company dated ______________, 1997 (the "Prospectus").
The Company has offered the Common Stock to certain depositors of the
Savings Bank; the Company's and the Savings Bank's employee benefit plans and
certain members of the Company's community and the general public, subject to
the purchase and other limitations contained in the Plan (the "Offering").
Common Stock is also being offered according to 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. 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 the Common Stock accompanying the funds transmitted for payment therefor to
the' special account established by the Company for the purpose of holding such
funds. It is understood
1
<PAGE>
that payment of your fee will be made only out of compensation received by us
for the Common Stock sold on behalf of the Company by you, as evidenced
according to the preceding sentence. As soon as practicable after the closing
date of the Offering, we will remit to you, only out of our compensation as
provided above, 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 Heritage Financial Corporation.
This offer is made subject to the terms and conditions herein set
forth and is made only to selected dealers who are (i) members in good standing
of the National Association of Securities Dealers, Inc. ("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 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 either the Company or 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 orders to buy the Common Stock
from the public or otherwise. No selected dealer shall engage in any
stabilization (as defined in Regulation M promulgated under the Securities
Exchange Act of 1934, as amended ("1934 Act")) 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 1934 Act and
applicable state rules and regulations. In addition, we and each selected dealer
confirm that the Securities and Exchange Commission ("SEC") interprets Rule
15c2-8 promulgated under the 1934 Act as requiring that a Prospectus be supplied
to each person who is expected to receive a confirmation of sale 48 hours prior
to delivery of such person's order form.
We and each selected dealer further agree to the extent that your
customers desire to pay for shares with funds held by or to be deposited with
us, according to the interpretation of the SEC of Rule 15c-2-4 promulgated under
the 1934 Act, 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 of
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<PAGE>
the Common Stock ordered on or before twelve noon local New Jersey time of the
next business day following receipt or execution of an order form by us to the
Company 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 ("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 Company 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 terminated earlier by us, this Agreement shall terminate upon
the closing date of the Offering. We may terminate this Agreement or any
provisions thereof at any tune by written or telegraphic notice to you. Our
obligations hereunder are subject to the successful completion of the Offering.
You agree that at any time or times prior to the termination of this
Agreement you will, upon our request, report to us the number of shares of
Common Stock sold on behalf of the Company by you under this Agreement.
We shall have full authority to take such actions as we may deem
advisable in respect of all matters pertaining to the Offering. We shall be
under no liability to you except for lack of good faith and for obligations
expressly assumed by us in this Agreement.
Upon application to us, we will inform you as to the states in which
we believe the Common Stock has been qualified for sale under or are exempt from
the requirements of, the respective blue sky laws of such states, but we assume
no responsibility or obligation as to your rights to sell Common Stock in any
state.
Additional copies of the Prospectus and any supplements thereto will
be supplied in reasonable quantities upon request.
Any notice from us to you shall be deemed to have been duly given if
mailed, telephoned, or telegraphed to you at the address to which this Agreement
is mailed.
This Agreement shall be construed in accordance with the laws of the
State of New Jersey.
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<PAGE>
Please confirm your agreement hereto by signing this agreement and
returning it at once to the attention of the undersigned at Ryan, Beck & Co.,
Inc., 220 S. Orange Avenue, Livingston, New Jersey 07039. The enclosed
duplicate copy will evidence the agreement between us.
RYAN, BECK & CO., INC.
By:__________________________
Ben A. Plotkin
President
Dated:___________________, 1997
[Name of Firm]
By: _____________________
4
<PAGE>
EXHIBIT 1.2
[Ryan, Beck & Co. LOGO]
CONFIDENTIAL
June 26, 1997
Mr. Donald V. Rhodes
Chairman, President & Chief Executive Officer
Heritage Savings Bank
201 5th Avenue SW
Olympia, WA 98501
Re: Stock Conversion--Subscription Enhancement and Administrative Services
----------------------------------------------------------------------
Dear Mr. Rhodes:
Ryan, Beck & Co. ("Ryan, Beck") is pleased to submit this engagement letter
setting forth the terms of the proposed engagement between Ryan, Beck,
Heritage Savings Bank (the "Institution") and Heritage Financial, M.H.C. (the
"MHC") in connection with the proposed conversion of the MHC from the mutual
to the capital stock form of organization.
1. BACKGROUND ON RYAN, BECK & CO.
Ryan, Beck is one of the nation's leading investment bankers for financial
institutions. Ryan, Beck was organized in 1946 and has been publicly held
since 1986. The firm is a registered broker-dealer with the Securities and
Exchange Commission, a member of the National Association of Securities
Dealers, Inc., the Securities Industry Association and a member of the
Securities Investor Protection Corporation. Ryan, Beck's corporate finance
department is one of the largest such groups devoted solely to financial
institution matters in the country. Moreover, Ryan, Beck is one of the largest
market makers in bank and thrift stocks.
2. PLAN OF CONVERSION
The Institution proposes to cause the MHC to convert from the mutual to the
stock form of organization (the "Conversion") pursuant to applicable
regulations and form a new stock holding company (the "Company"). Accordingly,
the Institution's and the MHC's Boards of Directors will adopt a plan of
conversion (the "Plan") and will convene a meeting of the MHC's members and a
meeting of the Institution's stockholders as soon as practicable thereafter to
obtain member and stockholder approval of the Plan in accordance with
applicable federal regulations. The Plan contemplates a Subscription and
Community Offering (the "Offering") and an exchange of existing minority
shares for shares of the Company.
In connection with the MHC's Conversion, Ryan, Beck proposes to act as:
. marketing representative;
. proxy solicitor for both member and stockholder votes;
. information agent for the exchange of shares;
. financial advisor; and
. conversion manager to the Institution and the MHC with respect to the
Conversion and the offering of the shares of common stock of the Company
(the "Common Stock") in the Offering.
<PAGE>
[Ryan, Beck & Co. logo]
Mr. Donald V. Rhodes
June 26, 1997
Page 2
Specific terms of the services contemplated hereunder shall be set forth in
a definitive agency agreement (the "Definitive Agreement") between Ryan, Beck,
the MHC, the Company and/or the Institution to be executed on the date the
offering document is declared effective by the appropriate regulatory
authorities. The purchase price of the Common Stock offered in the Offering
will be that price which is established by an independent appraisal in
accordance with applicable regulations and mutually acceptable to the parties
hereto.
3. SERVICES TO BE PROVIDED BY RYAN, BECK & CO.
a. Advisory Services--Thorough planning is essential to a successful
conversion. Ryan, Beck serves as lead coordinator of the marketing and
logistic efforts necessary to prepare for the Offering. Our actions are
intended to clearly define responsibilities and timetables, while avoiding
costly surprises. We assume responsibility for the initial preparation of
marketing materials--saving you time and legal expense. Moreover, as your
investment banker, Ryan, Beck will evaluate the financial, marketing and
regulatory issues involved in the offering. Our specific responsibilities
include:
--Assisting in structuring the proposed Conversion with a focus on
valuation and distribution issues;
--Participating in drafting the Offering Circular and facilitating the
regulatory approval process;
--Developing a marketing plan including direct mail, advertising, community
meetings and telephone solicitation;
--Providing specifications and assistance in selecting a data processing
agent, printer and other professionals;
--Chairing a planning session, and subsequently coordinating the logistic
effort of the professionals involved in preparing for the offering;
--Calculating the number of new phone lines required;
--Providing a list of equipment and supplies needed for the Conversion
Center; and
--Drafting marketing materials including letters, brochures, slide show
script and advertisements.
b. Administrative Services and Conversion Center Management--Ryan, Beck
manages your "best efforts" community offering. A successful conversion
requires an enormous amount of attention to detail. Working knowledge and
familiarity with the law and "lore" of the Office of Thrift Supervision,
Securities and Exchange Commission and NASD is essential. Ryan, Beck's
experience in managing many thrift conversions will minimize the burden on
your management and disruption to normal banking business. At the same
time, our legal, accounting and regulatory background ensures that details
are attended to in a professional fashion. A conversion requires accurate
and timely recordkeeping and reporting.
Furthermore, customer inquiries must be handled professionally and
accurately. The Conversion Center centralizes all data and the work effort
relating to the conversion. Ryan, Beck will assist the Institution in the
establishment and supervision of the Conversion Center. We will train
Conversion Center staff to solicit proxy votes, help record stock orders,
answer customer inquiries and handle special situations as they arise.
Conversion Center activities include the following:
--Providing experienced on-site registered representatives to minimize
disruption of day-to-day business;
--Identifying and organizing space for the on-site Conversion Center, the
focal point of conversion activity;
--Administering the Conversion Center;
<PAGE>
[Ryan, Beck & Co. logo]
Mr. Donald V. Rhodes
June 26, 1997
Page 3
--Preparing procedures for processing proxies, stock orders and cash, and
for handling requests for information;
--Providing scripts, training and guidance for the telephone team in
soliciting proxies and in the stock sales telemarketing effort;
--Educating the Institution's directors, officers and employees about the
conversion, their roles and relevant securities laws;
--Training branch managers and customer-contact employees on the proper
response to stock purchase inquiries;
--Training and supervising Conversion Center staff assisting with proxy and
order processing;
--Preparing daily sales reports for management and ensure funds received
balance to such reports;
--Furnishing computer software for purposes of tracking sales prospects,
processing proxies and stock orders and preparing daily sales reports;
--Coordinating functions with the data processing agent, printer, transfer
agent, stock certificate printer and other professionals;
--Organizing and implementing a proxy solicitation campaign;
--Designing and implementing procedures for handling IRA and Keogh orders;
and
--Interfacing with Depository Trust Company regarding the exchange of
shares.
c. Securities Marketing Services--Ryan, Beck uses various sales techniques
including direct mail, advertising, community investor meetings, telephone
solicitation, and if necessary, selling group formation. The sales approach
is tailored to fit your specific situation. Our techniques are designed to
attract a stockholder base comprised largely of community-oriented
individuals loyal to the Institution. Our specific actions include:
--Assigning licensed registered representatives from our staff to work at
the Conversion Center to solicit orders on behalf of the Institution from
eligible prospects who have been targeted as likely and desirable
stockholders;
--Assisting management in developing a list of potential investors who are
reviewed as priority prospects;
--Responding to inquiries concerning the investment opportunity;
--Organizing, coordinating and participating in community informational
meetings. These meetings are intended to both relieve customer anxiety and
attract potential investors. The meetings generate widespread publicity
for the conversion while providing local exposure of the Institution and
promoting favorable stockholder relations;
--Continually advising management on market conditions and the community's
responsiveness to the Offering; and
--If appropriate, assembling a selling group of selected local and
institutional broker-dealers to assist in selling stock during the
Offering. In so doing, preparing broker "fact sheets" and arranging "road
shows" for the purpose of stimulating local and institutional interest in
the Stock and informing the brokerage community and institutional
investors of the particulars of the Offering.
<PAGE>
[Ryan, Beck & Co. logo]
Mr. Donald V. Rhodes
June 26, 1997
Page 4
4. COMPENSATION
a. For its services hereunder, the Institution will pay to Ryan, Beck the
following compensation in connection with the Conversion:
(1) An advisory and management fee of $50,000 in connection with the
advisory, administrative and proxy solicitation services set forth in
section 3.a. and 3.b. hereof (the "Management Fee");
(2) A fee of one and one-half percent (1.50%) of the dollar amount of the
Common Stock sold in the Offering to members of the MHC and
stockholders of the Bank, other than those shares sold pursuant to (3)
or (4) below. No fee shall be payable pursuant to this subsection in
connection with the sale of stock to officers, directors, employees or
immediate family of such persons ("Insiders") and qualified and non-
qualified employee benefit plans of the Institution or the Insiders.
(3) A fee of two percent (2.0%) of the dollar amount of the Common Stock
sold in the Offering to all persons other than those described in (2)
above or pursuant to (4) below.
(4) For stock sold by a selling group of NASD member firms (which may
include Ryan, Beck & Co.) under a selected dealers' agreement (the
"Selling Group"), a fee equal to one and one-half percent (1.5%), which
fee along with the fee payable directly by the Institution to selected
dealers shall not exceed seven percent (7.0%) in the aggregate. Ryan,
Beck will not commence sales of the stock through members of the
Selling Group without the prior approval of the Institution.
Such fees (less the amount of any advance payments) are to be paid to Ryan,
Beck at the closing of the Conversion. As advance payments, the Institution
will pay Ryan, Beck $25,000 upon execution of this letter and $25,000 upon
commencement of the Offering, each of which will be offset against
compensation due hereunder. If, pursuant to a resolicitation undertaken by
the Institution, Ryan, Beck is required to provide significant additional
services, or expend significant additional time, the parties shall mutually
agree to the dollar amount of the additional compensation due.
b. If (i) the Plan is abandoned or terminated by the Institution; (ii) the
Community Offering is not consummated by June 30, 1998; (iii) Ryan, Beck
terminates this relationship because there has been a material adverse
change in the financial condition or operations of the Institution since
June 30, 1997; or (iv) immediately prior to commencement of the Offering,
Ryan, Beck terminates this relationship because the disclosure documents
fail to satisfactorily disclose all relevant information or because of the
existence of market conditions which might render the sale of the shares by
the Institution hereby contemplated inadvisable, Ryan, Beck shall not be
entitled to the compensation set forth above under subparagraph (a), but in
addition to reimbursement of its reasonable out-of-pocket expenses as set
forth in paragraph 7 below, shall be entitled to receive for its advisory
and administrative services a fee of $50,000; provided however if (i) the
Institution abandons or terminates the offering of the Common Stock prior
to filing a registration statement; or (ii) Ryan, Beck terminates this
relationship due to a failure to receive approval of its Commitment
Committee, Ryan, Beck shall be entitled to receive for its advisory and
administrative services a fee of $25,000.
5. MARKET MAKING
Ryan, Beck agrees to use its best efforts to maintain a market and to
solicit other broker-dealers to make a market in the Common Stock after the
Conversion.
<PAGE>
[Ryan, Beck & Co. logo]
Mr. Donald V. Rhodes
June 26, 1997
Page 5
6. DOCUMENTS
The Institution and the MHC and its counsel will complete, file with the
appropriate regulatory authorities and, as appropriate, amend from time to
time, the information to be contained in the MHC's Application for Conversion
and any related exhibits thereto. In this connection, the Institution and its
counsel will prepare prospectus and any other necessary disclosure documents
relating to the offering of the Common Stock in conformance with applicable
rules and regulations. As the Institution's financial advisor, Ryan, Beck will
in conjunction with counsel, conduct an examination of the relevant documents
and records of the Institution and will make such other reasonable
investigation as deemed necessary and appropriate under the circumstances. The
Institution and the MHC agree to make all such documents, records and other
information deemed necessary by Ryan, Beck, or its counsel, available to them
upon reasonable request. Ryan, Beck's counsel will prepare, subject to the
approval of the Institution's counsel, the Definitive Agreement.
7. EXPENSES AND REIMBURSEMENT
The Institution will bear all of its expenses in connection with the
Conversion and the offering of its Common Stock including, but not limited to,
the Institution's attorney fees, NASD filing fees, "blue sky" legal fees,
expenses for appraisal, auditing and accounting services, advertising
expenses, printing expenses, temporary personnel expenses and the preparation
of stock certificates. In the event Ryan, Beck incurs such expenses on behalf
of the Institution, the Institution shall pay or reimburse Ryan, Beck for such
reasonable fees and expenses regardless of whether the Conversion is
successfully completed. Ryan, Beck will not incur any single expense of more
than $2,000, pursuant to this paragraph without the prior approval of the
Institution.
The Institution also agrees to reimburse Ryan, Beck for reasonable out-of-
pocket expenses, including legal fees and expenses, incurred by Ryan, Beck in
connection with the services contemplated hereunder. Ryan, Beck will not incur
legal fees (excluding expenses of counsel) in excess of $35,000. Other out-of-
pocket expenses will not exceed $15,000 without the approval of the
Institution. The parties acknowledge, however, that such caps may be exceeded
in the event of any material delay in the Offering not attributable to Ryan,
Beck which would require an update of the financial information contained in
the Offering Circular. We will provide you with a detailed accounting of all
reimbursable expenses and will bill you quarterly.
8. BLUE SKY
To the extent required by applicable state law, Ryan, Beck and the
Institution will need to obtain or confirm exemptions, qualifications or
registration of the Common Stock under applicable state securities laws and
NASD policies. The cost of such legal work and related filing fees will be
paid by the Institution to the law firm furnishing such legal work. The
Institution will cause the counsel performing such services to prepare a Blue
Sky memorandum related to the Offering including Ryan, Beck's participation
therein and shall furnish Ryan, Beck a copy thereof addressed to Ryan, Beck or
upon which such counsel shall state Ryan, Beck may rely.
9. INDEMNIFICATION
The Definitive Agreement will provide for indemnification of the type
usually found in underwriting agreements as to certain liabilities, including
liabilities under the Securities Act of 1933. The Institution and the MHC also
agree to defend, indemnify and hold harmless Ryan, Beck and its officers,
directors, employees and agents against all claims, losses, actions,
judgements, damages or expenses, including but not limited to
<PAGE>
[Ryan, Beck & Co. logo]
Mr. Donald V. Rhodes
June 26, 1997
Page 6
attorneys' fees, arising solely out of the engagement described herein, except
that such indemnification shall not apply to Ryan, Beck's own negligence, if
such negligence is determined to be material. This indemnification shall be
superseded by the indemnification provisions of the Definitive Agreement.
10. ARBITRATION
Any claims, controversies, demands, disputes or differences between or among
the parties hereto or any persons bound hereby arising out of, or by virtue
of, or in connection with, or otherwise relating to this Agreement shall be
submitted to and settled by arbitration conducted in Seattle, Washington
before one or three arbitrators, each of whom shall be knowledgeable in the
field of securities law and investment banking. Such arbitration shall
otherwise be conducted in accordance with the rules then obtaining of the
American Arbitration Association. The parties hereto agree to share equally
the responsibility for all fees of the arbitrators, abide by any decision
rendered as final and binding, and waive the right to appeal the decision or
otherwise submit the dispute to a court of law for a jury or non-jury trial.
The parties hereto specifically agree that neither party may appeal or subject
the award or decision of any such arbitrator to appeal or review in any court
of law or in equity or by any other tribunal, arbitration system or otherwise.
Judgement upon any award granted by such an arbitrator may be enforced in any
court having jurisdiction thereof.
11. NASD MATTERS
Ryan, Beck has an obligation to file certain documents and to make certain
representations to the National Association of Security Dealers ("NASD") in
connection with the Conversion. The Institution and the MHC agrees to
cooperate with Ryan, Beck and provide such information as may be necessary for
Ryan, Beck to comply with all NASD requirements applicable to it in connection
with its participation as contemplated herein in the Conversion. Ryan, Beck is
and will remain through completion of the Conversion a member in a good
standing of the NASD and will comply with all applicable NASD requirements.
12. OBLIGATIONS
(a) Except as set forth below, this engagement letter is merely a statement of
intent. While Ryan, Beck and the Institution agree in principle to the
contents hereof and propose to proceed promptly and in good faith to work
out the arrangements with respect to the Conversion, any legal obligations
between Ryan, Beck & Co. and the Institution shall be only: (i) those set
forth herein in paragraphs 3 and 4 regarding services and payments; (ii)
those set forth in paragraph 7 regarding reimbursement for certain
expenses; (iii) those set forth in paragraph 9 regarding indemnification;
(iv) those set forth in paragraph 10 regarding arbitration and (v) as set
forth in a duly negotiated and executed Definitive Agreement.
(b) The obligations of Ryan, Beck under the Definitive Agreement and hereunder
shall be subject to, among other things, there being, in Ryan, Beck's
opinion, which shall have been formed in good faith after reasonable
determination and consideration of all relevant factors: (i) no material
adverse change in the condition or operation of the Institution; (ii)
satisfactory disclosure of all relevant information in the disclosure
documents and a determination that the sale of stock is reasonable given
such disclosures; (iii) no market conditions which might render the sale
of the shares by the Institution hereby contemplated inadvisable; and (iv)
agreement that the price established by the independent appraiser is
reasonable in the then prevailing market conditions.
<PAGE>
[Ryan, Beck & Co. logo]
Mr. Donald V. Rhodes
June 26, 1997
Page 7
Please acknowledge your agreement to the foregoing by signing in the place
provided below and returning one copy of this letter to our office together
with the retainer payment of $25,000. We look forward to working with you.
RYAN, BECK & CO.
BY: /s/ Ben A. Plotkin
--------------------------------------
Ben A. Plotkin--President and Chief Executive Officer
Accepted and Agreed to This Day of July, 1997.
HERITAGE SAVINGS BANK
BY: /s/ Donald V. Rhodes
--------------------------------------
Donald V. Rhodes--President, Chairman and Chief Executive Officer
HERITAGE FINANCIAL, M.H.C.
BY: /s/ Donald V. Rhodes
--------------------------------------
Donald V. Rhodes--President, Chairman and Chief Executive Officer
<PAGE>
Exhibit 2
AMENDED AND RESTATED
PLAN OF CONVERSION AND REORGANIZATION
OF
HERITAGE FINANCIAL CORPORATION, MHC
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
1. INTRODUCTION........................................................ 1
2. DEFINITIONS......................................................... 2
3. PROCEDURES FOR CONVERSION........................................... 8
4. HOLDING COMPANY APPLICATIONS AND APPROVALS.......................... 11
5. SALE OF SUBSCRIPTION SHARES......................................... 11
6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK............. 12
7. RETENTION OF CONVERSION PROCEEDS BY THE HOLDING COMPANY............. 14
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)... 14
9. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY)............. 15
10. SUBSCRIPTION RIGHTS OF SUPPLEMENT ELIGIBLE ACCOUNT HOLDERS
(THIRD PARTY)....................................................... 15
11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY).............. 16
12. MINORITY STOCKHOLDERS (FIFTH PRIORITY).............................. 17
13. COMMUNITY OFFERING (SIXTH PRIORITY)................................. 17
14. SYNDICATED COMMUNITY OFFERING....................................... 19
15. LIMITATION ON PURCHASES AND OWNERSHIP............................... 20
16. PAYMENT FOR CONVERSION STOCK........................................ 22
17. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS........ 23
18. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT..... 25
19. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES................... 25
20. ESTABLISHMENT OF LIQUIDATION ACCOUNT................................ 26
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
21. VOTING RIGHTS OF STOCKHOLDERS......................................... 27
22. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION...................... 27
23. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS
FOLLOWING THE CONVERSION.............................................. 28
24. TRANSFER OF DEPOSIT ACCOUNTS.......................................... 29
25. REGISTRATION AND MARKETING............................................ 29
26. TAX RULINGS OR OPINIONS............................................... 29
27. STOCK BENEFIT PLANS AND EMPLOYMENT AGREEMENTS......................... 30
28. RESTRICTIONS ON ACQUISITION OF BANK AND HOLDING COMPANY............... 31
29. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK.......................... 32
30. CHARTER AND BYLAWS.................................................... 32
31. CONSUMMATION OF CONVERSION AND EFFECTIVE DATE......................... 33
32. EXPENSES OF CONVERSION................................................ 33
33. AMENDMENT OR TERMINATION OF PLAN...................................... 33
34. CONDITIONS TO CONVERSION.............................................. 34
35. INTERPRETATION........................................................ 34
</TABLE>
<PAGE>
PLAN OF CONVERSION AND REORGANIZATION OF
HERITAGE FINANCIAL CORPORATION, MHC
1. INTRODUCTION
This Plan of Conversion and Reorganization (the "Plan") provides for the
conversion of Heritage Financial Corporation, MHC, a state of Washington mutual
holding company (the "Mutual Holding Company") into Heritage Financial
Corporation, a capital stock corporation organized under the state law of
Washington (the "Holding Company"). The Mutual Holding company currently owns a
majority of the common stock of Heritage Savings Bank (the "Bank"), a stock
savings bank which is headquartered in Olympia, Washington. The purpose of the
Conversion is to convert the Mutual Holding Company to the capital stock form of
organization which will provide the Holding Company and the Bank with greater
flexibility and capital resources to respond to changing regulatory and market
conditions and to effect corporate transactions, including mergers and
acquisitions. The Holding Company will offer its Common Stock upon the terms
and conditions set forth herein to Eligible Account Holders, the Employee Plans
established by the Bank or the Holding Company, Supplemental Eligible Account
Holders, Other members, and Minority Stockholders in the respective priorities
set forth in this Plan. Any shares of Conversion Stock not subscribed for by
the foregoing classes of persons will be offered for sale to certain members of
the public who reside in the Bank's Community directly by the Holding Company
through a Community Offering or a Syndicated Community Offering or through an
underwritten firm commitment public offering, or through a combination thereof.
As part of the Conversion, each Minority Stockholder will receive Common Stock
of the Holding Company in exchange for Minority Shares. The Conversion will
result in the voting interests of the Mutual Holding Company's members being
transferred to persons who purchase Conversion Stock in the Offering and persons
who exchange common stock to the Bank for Common Stock of the Holding company.
The Conversion will have no impact on depositors, borrowers or customers of the
Bank. After the Conversion, the Bank will continue to be regulated by the
Division as its chartering authority. The Bank also will continue to be a
member of the Federal Home Loan Bank System and all its insured savings deposits
will continue to be insured by the FDIC to the extent provided by applicable
law.
This Plan, as amended, has been adopted by the Board of Directors of the
Mutual Holding Company, and must also be adopted by (i) the affirmative vote of
a
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majority of the total number of votes entitled to be cast by Voting Members of
the Mutual Holding Company at a Special Meeting of Members to be called for that
purpose, (ii) holders of at least two-thirds of the outstanding common stock of
the Bank at the Special Meeting of Stockholders, and (iii) at least a majority
of the votes cast, in person or by proxy, of the Minority Stockholders. Prior
to the submission of this Plan to the Voting Members and stockholders of the
Bank for consideration, the Plan must be approved by the Applicable Regulatory
Authorities.
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
ACCOUNT HOLDER: Any Person holding a Deposit Account in the Bank.
ACTING IN CONCERT: The term Acting in Concert means (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. A
person or company which acts in concert with another person or company ("other
party") shall also be deemed to be acting in concert with any person or company
who is also acting in concert with that other party, except that any tax-
qualified employee stock benefit plan will not be deemed to be acting in concert
with its trustee or a person who serves in a similar capacity solely for the
purpose of determining whether stock held by the trustee and stock held by the
plan will be aggregated.
AFFILIATE: Any person that controls, is controlled by, or is under common
control with another person.
APPLICABLE REGULATORY AUTHORITIES: The Division, FDIC or Fed, as
applicable in the circumstances.
ASSOCIATE: The term Associate when used to indicate a relationship with
any person, means (i) any corporation or organization (other than the Bank or a
majority-owned subsidiary of the Bank) of which such person is an officer or
partner or is, directly or indirectly, the beneficial owner of 10 percent or
more of any class of equity securities, (ii) any trust or other estate in which
such person has a substantial beneficial interest or as to which such person
serves as trustee or in a similar fiduciary capacity except that for the
purposes of Sections 8 through 15 hereof, the term "Associate" does not include
any Non-Tax-Qualified Employee Stock Benefit Plan or any Tax-Qualified
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Employee Stock Benefit Plan in which a person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary capacity, and except
that, for purposes of aggregating total shares that may be held by Officers and
Directors the term "Associate" does not include any Tax-Qualified Employee Stock
Benefit Plan, and (iii) any relative or spouse of such person, or any relative
of such spouse, who has the same home as such person or who is a director or
officer of the Bank or the Holding Company, if utilized, or any of its parents
or subsidiaries.
BANK: Heritage Savings Bank in its current stock form or in the form
following the Conversion, as the context of the reference indicates.
BANK MERGER: The merger of the Interim Bank with the Bank as set forth in
this Plan pursuant to which the Bank will become a wholly owned subsidiary of
the Holding Company.
CODE: The Internal Revenue Code of 1986, as amended.
COMMON STOCK: The shares of common stock, no par value per share, to be
issued by the Holding Company.
COMMUNITY: The Washington counties of Thurston, Mason, Pierce, King,
Snohomish, Kitsap and Grays Harbor, which constitute the Bank's "local
community".
COMMUNITY OFFERING: The offering for sale to certain members of the
general public directly by the Holding Company of any shares not subscribed for
in the Subscription Offering.
CONTROL (including the terms "controlled by", "controlling" and "under
common control with") means the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
CONVERSION: The conversion and reorganization of the Mutual Holding
Company to stock form pursuant to this Plan, including the MHC Merger, the Bank
Merger, the Share Exchange and the Offering, and all steps incident or necessary
thereto.
CONVERSION STOCK: The Subscription Shares and the Exchange Shares issued
in the Conversion.
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DEPOSIT ACCOUNT: The term Deposit Account means any withdrawable account
as defined in Revised Code of Washington ("RCW") 32.32.180, including
certificates of deposit.
DIRECTOR: A member of the Board of Directors of the Bank, the Holding
Company or the Mutual Holding Company, as appropriate in the context.
DIVISION: Washington Department of Financial Institutions, Division of
Banks.
ELIGIBLE ACCOUNT HOLDER: Any Person holding a Qualifying Deposit on the
Eligibility Record Date for purposes of determining subscription rights and
establishing subaccount balances in the Liquidation Account.
ELIGIBILITY RECORD DATE: The date for determining Eligible Account Holders
of the Bank which is June 30, 1996.
EMPLOYEES: All Persons who are employed by the Bank or the Mutual Holding
Company.
EMPLOYEE PLANS: The Tax-Qualified Employee Stock Benefit Plans of the Bank
or the Holding Company.
ESOP: An Employee Stock Ownership Plan and related trust established by
the Bank or the Holding Company.
ESTIMATED PRICE RANGE: The range of the estimated pro forma market value
of the total number of shares of Conversion Stock to be issued in the
Conversion, as determined by the Independent Appraiser prior to the Subscription
Offering and as it may be amended from time to time thereafter.
EXCHANGE RATIO: The rate at which shares of Holding Company Common Stock
are exchanged for Minority Shares upon consummation of the Conversion. The
Exchange Ratio shall be determined as of the closing of the Conversion and shall
be the rate that will result in the Minority Stockholders owning in the
aggregate the same percentage of the outstanding shares of Common Stock of the
Holding Company immediately upon completion of the Conversion as the percentage
of Bank common stock owned by them in the aggregate immediately prior to the
consummation of the Conversion before giving effect to (i) the payment of cash
in lieu of issuing fractional shares of Holding Company Common Stock, and (ii)
any shares of Common Stock purchased by the Minority Stockholders in the
Conversion.
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EXCHANGE SHARES: Shares of Common Stock, no par value per share, of the
Holding Company issued to Minority Stockholders in exchange for Minority Shares.
FDIC: The Federal Deposit Insurance Corporation.
FED: Board of Governors of the Federal Reserve System or the Federal
Reserve Bank of San Francisco.
HOLDING COMPANY: The Washington corporation formed for the purpose of
acquiring all of the shares of capital stock of the Bank in connection with the
Conversion. Shares of Common Stock of the Holding Company will be issued in the
Conversion to Participants and others.
INDEPENDENT APPRAISER: The appraiser retained by the Mutual Holding
Company and the Bank to prepare an appraisal of the pro forma market value of
the Conversion Stock.
INTERIM BANK: One or more interim bank subsidiaries of the Bank or the
Holding Company established by the Bank or the Holding Company to effect the
Conversion.
LIQUIDATION ACCOUNT: The account established for the Members as set forth
in Section 20.
MHC MERGER: The merger of the Mutual Holding Company with the Bank as set
forth in this Plan.
MINORITY SHARES: Any outstanding common stock of the Bank held by persons
other than the Mutual Holding Company.
MINORITY STOCKHOLDER: Any owner of Minority Shares immediately prior to
the closing of the Conversion.
MINORITY STOCK OFFERING: The offering of the Bank's common stock to
persons other than the Mutual Holding Company in connection with the formation
of the Mutual Holding Company.
MUTUAL HOLDING COMPANY: Heritage Financial Corporation, MHC, the mutual
holding company of the Bank.
OFFERING: The offering for sale, pursuant to this Plan, of Common Stock in
a Subscription Offering, Community Offering, and Syndicated Community Offering
(or
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<PAGE>
underwritten public offering), as the case may be. The term "Offering" does not
include the Common Stock of the Holding Company issued in exchange for Minority
Shares pursuant to this Plan.
OFFICER: An executive officer of the Bank, the Holding Company or the
Mutual Holding Company as appropriate in the context.
ORDER FORM: Any form (together with any attached cover letter) sent by the
Bank to any Participant or Person containing among other things a description of
the alternatives available to such Person under the Plan and by which any such
Person may make elections regarding subscriptions for Conversion Stock in the
Subscription Offering.
OTHER MEMBER: Any Member on the Voting Record Date who is not an Eligible
Account Holder or Supplemental Account Holder.
PARTICIPANT: Any Eligible Account Holder, Employee Plan, Supplemental
Eligible Account Holder, Other Member or Minority Stockholder.
PERSON: An individual, a corporation, a partnership, an association, a
joint-stock company, a trust (including Individual Retirement Accounts and KEOGH
Accounts), any unincorporated organization, a government or political
subdivision thereof or any other entity.
PLAN: The Plan of Conversion and Reorganization of the Mutual Holding
Company, including the MHC Merger and the Bank Merger, as it exists on the date
hereof and as it may hereafter be amended in accordance with its terms.
PLAN OF MERGER: This document effecting the merger of the Mutual Holding
Company with and into the Bank and cancellation of Bank shares held by the
Mutual Holding Company.
PROSPECTUS: The one or more documents used in offering the Conversion
Stock in the Offering and the Exchange Shares.
QUALIFYING DEPOSIT: The aggregate balance of all Deposit Accounts in the
Bank of (i) an Eligible Account Holder at the close of business on the
Eligibility Record Date, provided such aggregate balance is not less than $50,
and (ii) a Supplemental Eligible Account Holder at the close of business on the
Supplemental Eligibility Record Date, provided such aggregate balance is not
less than $50.
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RECOGNITION PLANS: The Bank's Recognition and Retention Plans and Trusts
adopted by the Board of Directors of the Bank and/or the Holding Company.
RESIDENT: Any person who occupies a dwelling within the Community, has a
present intent to remain within the Community for a period of time, and
manifests the genuiness of that intent by establishing an ongoing physical
presence within the Community together with an indication that such presence
within the Community is something other than merely transitory in nature. To
the extent the person is a corporation or other business entity, the principal
place of business or headquarters shall be in the Community. To the extent a
person is a personal benefit plan, the circumstances of the beneficiary shall
apply with respect to this definition. In the case of all other benefit plans,
circumstances of the trustee shall be examined for purposes of this definition.
The Bank may utilize such evidence provided to it to make a determination as to
whether a person is a resident. In all cases, however, such a determination
shall be in the sole discretion of the Bank. A Participant must be a "Resident"
for purposes of determining whether such person "resides" in the Community as
such term is used in this Plan.
SEC: The Securities and Exchange Commission.
SHARE EXCHANGE: The Exchange of Minority Shares for Holding Company Common
Stock in the Conversion.
SPECIAL MEETING OF MEMBERS: The special meeting of members of the Mutual
Holding Company and any adjournments thereof held to consider and vote upon this
Plan.
SPECIAL MEETING OF STOCKHOLDERS: The special meeting of stockholders of
the Bank and any adjournments thereof held to consider and vote upon the Plan.
SUBSCRIPTION OFFERING: The offering of Conversion Stock to Participants.
SUBSCRIPTION PRICES: The price per share of Conversion Stock to be paid by
Participants in the Subscription Offering and Persons of the Community Offering.
SUBSCRIPTION SHARES: The no par value common stock offered and issued by
the Holding Company in the Offering, Subscription Shares do not include Bank
common stock held by the Minority Stockholders exchanged for shares of Common
Stock of the Holding Company in the Share Exchange.
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<PAGE>
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER: Any Person, other than Directors and
Officers of the Bank and their Associates, holding a Qualifying Deposit on the
Supplemental Eligibility Record Date, who is not a Eligible Account Holder.
SUPPLEMENTAL ELIGIBILITY RECORD DATE: The date for determining
Supplemental Eligible Account Holders, as determined according to applicable
law.
SYNDICATED COMMUNITY OFFERING: The offering of Conversion Stock following
the Subscription and Community Offerings through a syndicate of broker-dealers.
TAX-QUALIFYING EMPLOYEE STOCK BENEFIT PLAN: Any defined benefit plan or
defined contribution plan, such as an employee stock ownership plan, stock bonus
plan, profit-sharing plan or other plan, which, with its related trust, meets
the requirements to be "qualified" under Section 401 of the Internal Revenue
Code. The Bank may make scheduled discretionary contributions to a tax-
qualified employee stock benefit plan, provided such contributions do not cause
the Bank to fail to meets its regulatory capital requirement. A "Non-Tax-
Qualified Employee Stock Benefit Plan" is any defined benefit plan or defined
contribution plan which is not so qualified.
VOTING MEMBER: Any Person who at the close of business on the Voting
Record Date is entitled to vote as a member of the Mutual Holding Company
pursuant to its charter and bylaws.
VOTING RECORD DATE: The date fixed by the Directors in accordance with
applicable law for determining eligibility to vote at the Special Meeting of
Members and/or the Special Meeting of Stockholders.
3. PROCEDURES FOR CONVERSION
A. After approval of the Plan by the Board of Directors of the Bank, the
Plan shall be submitted together with all other requisite material to the
Division , FDIC and Fed, as applicable for its approval. Notice of the adoption
of the Plan by the Board of Directors of the Holding Company and the submission
of the Plan to applicable regulators for approval will be published in a
newspaper having general circulation in each community in which an office of the
Bank is located and copies of the Plan will be made available at each office of
the Bank for inspection by the Members. Upon receipt of notice from the
applicable regulators to do so, the Mutual Holding Company also will cause to be
published a notice of the filing of an application to convert in accordance with
the provisions of the Plan.
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B. The Plan will be submitted to a vote of (i) the Voting Members at the
Special Meeting of Members, and (ii) the Stockholders of the Bank at the Special
Meeting of Stockholders. The Mutual Holding Company may, at its option, mail to
all Members of the Voting Record Date, at their last known address appearing on
the records of the Bank, a proxy statement in either long or summary form
describing the Plan which will be submitted to a vote of the members at the
Special Meeting of Members. The Holding Company will also mail to all
Participants either a Prospectus and Order Form for the purchase of Conversion
Stock or a letter informing them of their right to receive a Prospectus and
Order Form and a postage prepaid card to request such materials, subject to the
provisions of Sections 17 and 18 hereof. In addition, all Participants will
receive, or be given the opportunity to request by either returning a postage
prepaid card which will be distributed with the proxy statement or letter, a
copy of the Plan as well as the certificate of incorporation or bylaws of the
Holding Company. Upon approval of the Plan by a majority of the total
outstanding votes of the Voting Members, and two-thirds of the outstanding
shares of common stock held by the stockholders of the Bank (including a
majority of the outstanding shares of common stock held by the Minority
Stockholders), the Mutual Holding Company, the Holding Company and the Bank will
take all other necessary steps pursuant to applicable laws and regulations to
consummate the Conversion and Offering. The Conversion must be completed within
24 months of the approval of the Plan by the Voting Members, unless a longer
time period is permitted by governing laws and regulations.
C. The Conversion will be effected as follows, or in any other manner
approved by the applicable regulators which is consistent with the purposes of
this Plan and applicable laws and regulations. The choice of which method to
use to effect the Conversion will be made by the Board of Directors of the
Mutual Holding Company immediately prior to the closing of the Conversion. Each
of the steps set forth below shall be deemed to occur in such order as is
necessary to consummate the Conversion pursuant to the Plan, the intent of the
Board of Directors of the Mutual Holding Company and the Bank, and Applicable
Regulatory Authorities regulations. Approval of the Plan by the Members and
stockholders of the Bank shall also constitute approval of each of the
conditions to the implementation of the Plan, including the Bank Merger and the
MHC Merger, as discussed herein.
1. The Bank will organize the Holding Company (which will become the
stock holding company of the Bank) as a first tier subsidiary of the
Bank.
2. The Holding Company will organize Interim Bank as a wholly-owned
subsidiary of the Holding Company.
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3. The Mutual Holding Company will merge with and into the Bank (the "MHC
Merger") pursuant to the Plan of Merger attached hereto as Exhibit A
between the Mutual Holding Company and the Bank whereby the shares of
Bank common stock held by the Mutual Holding Company will be canceled
and each Eligible Account Holder and Supplement Eligible Account
Holder will receive an interest in the Liquidation Account of the Bank
in exchange for such Member's interest in the Mutual Holding Company.
4. Interim Bank will merge with and into the Bank (the "Bank Merger")
with the Bank as the resulting entity pursuant to the Plan of
Reorganization attached hereto as Exhibit B between the Bank, the
Holding Company and the Interim Bank whereby each Minority Stockholder
shall receive Common Stock of the Holding Company in exchange for
Minority Shares, based on the Exchange Ratio, with cash paid in lieu
of fractional shares based upon the Actual Purchase Price.
5. All of the shares of common stock of Interim Bank held by the Holding
Company shall be converted into shares of common stock of the Bank.
6. Contemporaneously with the Bank Merger, the Holding Company will offer
for sale in the Offering Shares of Conversion Stock representing the
pro forma market value of the Holding Company immediately prior to the
Conversion.
D. As part of the Conversion, each of the Minority Shares shall
automatically, without further action of the holder thereof, be converted into
and become the right to receive Common Stock based upon the Exchange Ratio
established by the Board of Directors of the Holding Company and the Bank,
subject to approval by Applicable Regulatory Authorities. The basis for
exchange of Minority Shares for Common Stock shall be fair and reasonable and
may, at the election of the Board of Directors, be supported by the opinion of
an independent financial adviser. Options to purchase shares of Bank common
stock which are outstanding immediately prior to the consummation of the
conversion shall be converted into options to purchase shares of Common Stock,
with the number of shares subject to the option and the exercise price per share
to be adjusted based upon the Exchange Ratio so that the aggregate exercise
price remains unchanged, and with the duration of the option remaining
unchanged.
E. Concurrently with the filing of the Conversion Application with the
Applicable Regulatory Authorities, the Holding Company shall also seek to
register the
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Conversion Stock with the SEC and any appropriate state securities authorities.
In addition, if required by applicable law and regulations, the Bank shall
prepare preliminary proxy materials as well as other applications and
information for review by the Applicable Regulatory Authorities in connection
with the solicitation of Voting Members and Minority Stockholder approval of the
Bank Merger and the MHC Merger.
F. The Articles of Incorporation of the Bank shall be amended upon
consummation of the Conversion to reflect the establishment of the Liquidation
Account. The Bylaws of the Bank shall be unaffected by the Conversion.
G. The home office and branch offices of the Bank shall be unaffected by
the Conversion. The executive offices of the Holding Company shall be located
at the current offices of the Mutual Holding Company.
H. Stockholders of the Bank shall have the right to dissent from the MHC
Merger and the Bank Merger in the manner provided by Chapter 23B of the
Washington Business Corporation Act, Revised Code of Washington Chapter 23B.13.
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Board of Directors of the Holding Company will take all necessary steps
to complete the Conversion and the Offering. The Holding Company shall make
timely applications for any requisite regulatory approvals, including an
Application on Form Y-3 to be filed with the Fed and a Registration Statement on
Form S-1 to be filed with the SEC. The Bank will be a wholly-owned subsidiary
of the Holding Company unless the Holding Company is eliminated in the
Conversion.
5. SALE OF SUBSCRIPTION SHARES
The Subscription Shares will be offered simultaneously in the Subscription
Offering to the Participants in the respective priorities set forth in Sections
8 and 13 of this Plan. The Subscription Offering may be commenced as early as
the mailing of the Proxy Statement for the Special Meeting of Members and must
be commenced in time to complete the Conversion within the time period specified
in Section 3. The Common Stock will not be insured by the FDIC. The Bank will
not knowingly lend funds or otherwise extend credit to any Person to purchase
shares of the Common Stock.
Any shares of Common Stock not subscribed for in the Subscription Offering
will be offered for sale in the Community Offering as provided in Section 13 of
this
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Plan. The Subscription Offering may be commenced prior to the Special Meeting of
Members and, in that event, the Community Offering may also be commended prior
to the Special Meeting of Members. The offer and sale of Common Stock prior to
the Special Meeting of Members shall, however, be conditioned upon approval of
the Plan by the Voting Members and stockholders of the Bank.
If feasible, any shares of Common Stock remaining after the Subscription
and Community Offerings, will be sold in a Syndicated Community Offering as
provided in Section 14 of this Plan in a manner that will achieve the widest
distribution of the Common Stock. The sale of all Common Stock subscribed for
in the Subscription and Community Offerings will be consummated simultaneously
on the date the sale of Common Stock in the Syndicated Community Offering is
Consummated and only if all unsubscribed for Common Stock is sold.
6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The total number of shares (or a range thereof) of Common Stock to be
issued and offered for sale in the Offering will be determined jointly by the
Board of Directors of the Bank and Board of Directors of the Holding Company
immediately prior to the commencement of the Subscription and Community
Offerings, subject to adjustment thereafter if necessitated by market or
financial conditions, with the approval of the Applicable Regulatory
Authorities, if necessary. In particular, the total number of shares may be
increased by up to 15% of the number of shares offered in the Subscription and
Community Offerings if the Estimated Price Range is increased subsequent to the
commencement of the Subscription and Community Offerings to reflect changes in
market and financial conditions and the aggregate purchase price is not more
than 15% above the maximum of the Estimated Price Range.
All shares sold in the Offering will be sold at a uniform price per share
referred to in this Plan as the Subscription Price. The aggregate purchase
price for all shares of Common Stock will not be inconsistent with the estimated
consolidated pro forma market value of the Holding Company. The estimated
consolidated pro forma market value of the Holding Company will be determined
for such purpose by the Independent Appraiser. Prior to the commencement of the
Subscription and Community Offerings, an Estimated Price Range will be
established, which range will vary within 15% above to 15% below the midpoint of
such range. The number of shares of Conversion Stock to be issued and the
purchase price per share may be increased or decreased by the Holding Company.
In the event that the aggregate purchase price of the Conversion Stock is below
the minimum of the Estimated Price Range, or materially above the
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maximum of the Estimated Price Range, resolicitation of purchasers may be
required, provided that up to a 15% increase above the maximum of the Estimated
Price Range will not be deemed material so as to require a resolicitation. Any
such resolicitation shall be effected in such manner and within such time as the
Bank shall establish, with the approval of the Applicable Regulatory Authorities
if required. Up to a 15% increase in the number of shares to be issued which is
supported by an appropriate change in the estimated pro forma market value of
the Holding Company will not be deemed to be material so as to require a
resolicitation of subscriptions. Based upon the independent valuation as updated
prior to the commencement of the Subscription and Community Offerings, the Board
of Directors of the Holding Company will fix the Subscription Price. If there is
a Syndicated Community Offering of shares of Common Stock not subscribed for in
the Subscription and Community Offerings, the price per share at which the
Common Stock is sold in such Syndicated Community Offering shall be equal to the
Subscription Price.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the Holding company and to the Applicable Regulatory Authorities
that, to the best knowledge of the Independent Appraiser, nothing of a material
nature has occurred which, taking into account all relevant factors, would cause
the Independent Appraiser to conclude that the aggregate value of the Common
Stock at the Subscription Price is incompatible with its estimate of the
aggregate consolidated pro forma market value of the Holding Company. An
increase in the aggregate value of the Common Stock by up to 15% would not be
deemed to be material. If such confirmation is not received, the Holding
Company may cancel the Subscription and Community Offerings and/or the
Syndicated Community Offering, extend the Conversion, establish a new
Subscription Price and/or Estimated Price Range, extend, reopen or hold new
Subscription and Community Offerings and/or Syndicated Community Offering to
take such other action as the Applicable Regulatory Authorities may permit.
The Common Stock to be issued in the Conversion shall be fully paid and
nonassessable.
7. RETENTION OF CONVERSION PROCEEDS BY THE HOLDING COMPANY
Upon the consummation of the Conversion, the Holding Company will own all
of the capital stock of the Bank.
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The Holding Company will apply to the Applicable Regulatory Authorities to
retain 50% of the proceeds of the Offering. The Holding Company believes that
the Offering proceeds will provide economic strength to the Holding company and
the Bank for the future of a highly competitive and regulated environment and
would facilitate the possible expansion through acquisitions of financial
service organizations, possible diversification into other related businesses
and for other business and investment purposes, including the possible payment
of dividends and possible future repurchases of the Common Stock as permitted by
the Applicable Regulatory Authorities.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment,
nontransferable subscription rights to subscribe for shares of Common Stock
equal to an amount up to the greater of $250,000 in aggregate purchase price of
the Conversion Stock issued in the Conversion, or one-tenth of one percent
(.10%) of the total offering of shares of Conversion Stock, or fifteen times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of conversion Stock to be issued by a fraction of which
the numerator is the amount of the Qualifying Deposit of the Eligible Account
Holder and the denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders, in each case on the Eligibility Record Date, subject
to the maximum purchase limitations specified in Section 15A and the minimum
purchase limitation in Section 15C and exclusive of any increase in the total
number of shares due to an increase in the Estimated Price Range up to 15%.
B. In the event that Eligible Account Holders exercise Subscription Rights
for a number of shares of Conversion Stock in excess of the total number of such
shares eligible for subscription, the shares of Conversion Stock shall be
allocated among the subscribing Eligible Account Holders as of the Eligibility
Record Date so as to permit each subscribing Eligible Account Holder, to the
extent possible, to purchase a number of shares sufficient to make his or her
total allocation to Conversion Stock equal to the lesser of 100 shares or the
number of share subscribed for by the Eligible Account Holder. Any shares
remaining after that allocation will be allocated among the subscribing Eligible
Account Holders as of the Eligibility Record Date whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposit of each
Eligible Account Holder whose subscription remains unsatisfied bears to the
total amount of the Qualifying Deposits of all Eligible Account Holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more Eligible Account Holders as of the Eligibility
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Record Date, the excess shall be reallocated (one or more times as necessary)
among those Eligible Account Holders whose subscriptions are still not fully
satisfied on the same principle until all available shares have been allocated.
C. Subscription rights as Eligible Account Holders received by Directors
and Officers and their Associates which are based on deposits made by such
persons during the twelve (12) months preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
9. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY)
The Employee Plans of the Holding Company and the Bank shall receive,
without payment, subscription rights to purchase in the aggregate up to 8% of
the Common Stock offered in the Subscription Offering, including any shares of
Common Stock to be issued in the Subscription Offering as a result of an
increase in the Estimated Price Range after commencement of the Subscription
Offering and prior to completion of the Conversion. Consistent with applicable
laws and regulations and practices and policies of the Applicable Regulatory
Authorities, the Employee Plans may use funds contributed by the Holding Company
or the Bank and/or borrowed from an independent financial institution to
exercise such subscription rights, and the Holding Company and the Bank may make
scheduled discretionary contributions thereto, provided that such contributions
do not cause the Holding Company or the Bank to fail to meet any applicable
regulatory capital requirements. The Employee Plans shall not be deemed to be
Associates or Affiliates of or Persons Acting in Concert with any Director or
Officer of the Holding company or the Bank.
10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PARTY)
A. Each Supplemental Eligible Account Holder shall receive, without
payment, nontransferable subscription rights to subscribe for shares of Common
Stock equal to an amount up to the greater of $250,000 in aggregate purchase
price of the Conversion Stock issued in the Conversion, or one-tenth of one
percent (.10%) of the total offering of shares of Conversion Stock, or fifteen
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock to be issued by a
fraction of which the numerator is the amount of the Qualifying Deposit of the
Supplemental Eligible Account Holder and the denominator is the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders, in each case
on the Supplemental Eligibility Record Date, subject to
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the availability of sufficient shares after filling in full all subscription
orders of the Eligible Account Holders and Employee Plans under sections 8 and 9
hereof, subject to the maximum purchase limitation specified in Section 15A and
the minimum purchase limitation in Section 15C and exclusive of any increase in
the total number of shares issued due to an increase in the Estimated Price
Range of up to 15%.
B. In the event that Supplemental Eligible Account Holders exercise
Subscription Rights for a number of shares of Conversion Stock in excess of the
total number of such shares eligible for subscription, the shares of Conversion
Stock shall be allocated among the subscribing Supplemental Eligible Account
Holders as of the Supplemental Eligibility Record Date so as to permit each such
subscribing Supplemental Eligible Account Holder, to the extent possible, to
purchase a number of shares sufficient to make his or her total allocation of
Conversion Stock equal to the lessor of 100 shares or the number of shares
subscribed for by each such Supplemental Eligible account Holder. Any shares
remaining after that allocation will be allocated among the subscribing
Supplemental Eligible Account Holders as of the Supplemental Eligibility Record
date whose subscriptions remain unsatisfied in the proportion that the amount of
Qualifying Deposit of each such Supplemental Eligible Account Holder bears to
the total amount of the Qualifying Deposits of all Supplemental Eligible Account
Holders as of the Supplemental Eligibility Record Date.
11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, nontransferable
subscription rights to subscribe for shares of Common Stock equal to an amount
up to the greater of $250,000 in aggregate purchase price of the Conversion
Stock issued in the Conversion or one-tenth of one percent (.10%) of the total
offering of shares of Conversion Stock, subject to the maximum purchase
limitation specified in Section 15A and the minimum purchase limitation
specified in Section 15C and exclusive of any increase in the total number of
shares issued due to an increase in the Estimated Price Range of up to 15%.
B. In the event that such Other Members subscribe for a number of shares
of Conversion Stock which, when added to the shares of conversion stock
subscribed for by the Eligible Account Holders, Employee Plans and Supplemental
Eligible Account Holders, is in excess of the total number of shares of
Conversion Stock being issued, the subscriptions of such Other Members will be
allocated first to Other Members as of the Voting Record Date in proportion to
the amounts of their relative
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subscriptions and thereafter to nonresident Other Members in proportion to the
amounts of their relative subscriptions.
12. MINORITY STOCKHOLDERS (FIFTH PRIORITY)
A. Each Minority Stockholder as of the Voting Record Date shall receive,
without payment, nontransferable subscription rights to subscribe for shares of
Common Stock equal to an amount up to the greater of $250,000 in aggregate
purchase price of the Conversion Stock issued in the Conversion or one-tenth of
one percent (.10%) of the total offering of shares of Conversion Stock, subject
to the maximum purchase limitation specified in Section 15A and the minimum
purchase limitation specified in Section 15C and exclusive of an increase in the
total number of shares issued due to an increase in the Estimated Price Range of
up to 15%.
B. In the event that such Minority Stockholders subscribe for a number of
shares of Conversion Stock which, when added to the shares of Conversion Stock
subscribed for by Eligible Account Holders, Employee Plans, Supplemental
Eligible Account Holders and Other Members, is in excess of the total number of
shares of Conversion Stock being issued, the subscriptions of such Minority
Stockholders will be allocated among subscribing Minority Stockholders in
proportion to the amounts of their relative subscriptions.
13. COMMUNITY OFFERING (SIXTH PRIORITY)
If less than the total number of shares of Common Stock to be subscribed
for in the Offering are sold in the Subscription Offering, it is expected that
shares remaining unsubscribed for will be made available for purchase in the
Community Offering to certain members of the general public, which may subscribe
together with any Associate or group of persons Acting in Concert for up to
$250,000 in aggregate purchase price of the shares of Conversion Stock issued in
the Conversion subject to the maximum purchase limitation specified in Section
15A and the minimum purchase limitation specified in Section 15C and exclusive
of an increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%. The shares may be made available in the
Community Offering through a direct community marketing program which may
provide for utilization of a broker, dealer, consultant or investment banking
firm experienced and expert in the sale of savings institutions securities.
Such entities may be compensated on a fixed fee basis or on a commission basis,
or a combination thereof. In offering the unsubscribed for shares to the public
in the Community Offering, a number of shares equal to the lesser of 25% of the
Conversion Stock or 25% of the Common Stock not subscribed for in the
Subscription
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Offering, at the discretion of the Holding Company, may be initially reserved
for institutional investors. Shares offered in the Community Offering will be
available for purchase by the general public and preference may be given to
natural persons residing in the Bank's Local Community which consists of the
counties of Thurston, Mason, Pierce, King, Snohomish, Kitsap, and Grays Harbor
in the State of Washington (such natural persons referred to as the "Preferred
Subscribers"). Any excess of shares, and those not subscribed for by
institutional investors, will be available for purchase by the general public.
The Holding Company shall make distribution of the Conversion Stock to be sold
in the Community Offering in such a manner as to promote a wide distribution of
Conversion Stock. The Holding Company reserves the right to reject any or all
orders in whole or in part, which are received in the Community Offering. The
number of shares of Conversion Stock that any person may purchase in the
Community Offering shall not exceed the maximum purchase limitation specified in
Section 15A nor be less than the minimum purchase limitation specified in
Section 15C.
To the extent that there are shares remaining after all subscriptions by
institutional investors are filled, if the Preferred Subscribers in the
Community Offering, whose orders would otherwise be accepted, subscribe for more
shares than are available for purchase, the shares available to them will be
allocated among the Preferred Subscribers in the manner which permits each such
person to the extent possible, to purchase the number of shares necessary to
make his total allocation of Conversion Stock equal to the lesser of 100 shares
or the number of shares subscribed for by such persons. Thereafter, unallocated
shares will be allocated among the Preferred Subscribers whose subscriptions
remain unsatisfied in the proportion that the number subscribed for by each
bears to the total number of shares subscribed for by all Preferred Subscribers
whose subscriptions remain unsatisfied. To the extent that there are shares
remaining after all subscriptions by Preferred Subscribers, any remaining shares
will be allocated among members of the general public using the foregoing
allocation as applied to Preferred Subscribers. The Holding Company may
establish all other terms and conditions of such offer. It is expected that the
Community Offering will commence concurrently with the Subscription Offering.
The Community Offering must be completed within 45 days after the completion of
the Subscription Offering unless otherwise extended by the Applicable Regulatory
Authorities.
14. SYNDICATED COMMUNITY OFFERING
If feasible, the Board of Directors may determine to offer all shares of
Common Stock not subscribed for in the Subscription and Community Offerings will
be sold in a Syndicated Community Offering, subject to such terms, conditions
and procedures as may be determined by the Holding Company, in a manner that
will achieve the widest distribution of the Common Stock subject to the right of
the Holding Company to
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accept or reject in whole or in part all subscriptions in the Syndicated
Community Offering. In the Syndicated Community Offering, any person together
with any Associate or group of Persons acting in concert may purchase up to
$250,000 in aggregate purchase price of the shares of Conversion Stock offered
in the Conversion subject to the maximum purchase limitation specified in
Section 15A and the minimum purchase limitation specified in Section 15C and
exclusive of an increase in the total number of shares issued due to an increase
in the Estimated Price Range of up to 15%. Provided that the Subscription
Offering has commenced, the Bank may commence the Syndicated Community Offering
at any time after the mailing to the Members of the Proxy Statement to be used
in connection with the Special Meeting of Members, provided that the completion
of the offer and sale of the Conversion Stock shall be conditioned upon the
approval of this Plan by the Voting Members. If the Syndicated Community
Offering is not sooner commenced pursuant to the provisions of the preceding
sentence, the Syndicated Community Offering will be commenced as soon as
practicable following the date upon which the Subscription and Community
Offerings terminate.
Alternatively, if a Syndicated Community Offering is not held, the Bank
shall have the right to sell any shares of Conversion Stock remaining following
the Subscription and Community Offerings in an underwritten firm commitment
public offering. The provisions of Section 15 hereof shall not be applicable to
sales to underwriters for purposes of such an offering but shall be applicable
to the sales by the underwriters to the public. The price to be paid by the
underwriters in such an offering shall be equal to the Actual Purchase Price
less an underwriting discount to be negotiated among such underwriters and the
Bank, which will in no event exceed an amount deemed to be acceptable by the
Applicable Regulatory Authorities.
If for any reason a Syndicated Community Offering or an underwritten firm
commitment public offering of shares of Conversion Stock not sold in the
Subscription and Community Offerings cannot be effected, or in the event that
any insignificant residue of shares of Conversion Stock is not sold in the
Subscription and Community Offerings or in the Syndicated Community or
underwritten firm commitment public offering, other arrangements will be made
for the disposition of unsubscribed shares by the Bank, if possible. Such other
purchase arrangements will be subject to the approval of the Applicable
Regulatory Authorities.
15. LIMITATION ON PURCHASES AND OWNERSHIP
The following limitations shall apply to all purchases of shares of
Conversion Stock and ownership of Conversion Stock upon completion of the
Conversion:
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A. The maximum number of shares of Common Stock which may be subscribed
for or purchased in all categories in the Offering by any Person or Participant
together with any Associate or group of Persons Acting in Concert shall not
exceed shares with an aggregate purchase price of $250,000, except for the
Employee Plans which may subscribe for up to 8% of the Common Stock offered in
the Subscription Offering (including shares issued in the event of an increase
in the Estimated Price Range of 15%); provided, however, that, in the event the
maximum purchase limitation is increased to allow purchase of shares of
Conversion Stock with an aggregate purchase price that exceeds $250,000, orders
for Conversion Stock in the Community Offering and in the Syndicated Offering
(or, alternatively, an underwritten firm commitment public offering), if any,
shall, as determined by the Bank, first be filled to a maximum of $250,000 in
aggregate purchase price of shares of Conversion Stock offered and thereafter
remaining shares shall be allocated, on an equal number of shares basis per
order until all orders have been filled.
B. The maximum number of shares of Common Stock which may be purchased in
all categories of the Conversion by Officers and Directors of the Bank and their
Associates in the aggregate, shall not exceed 20% of the Conversion Stock issued
in the Conversion.
C. A minimum of 25 shares of Common Stock must be purchased by each Person
purchasing shares in the Offering to the extent those shares are available;
provided, however, that in the event the minimum number of shares of Common
Stock purchased times the price per share exceeds $500, then such minimum
purchase requirement shall be reduced to such number of shares which when
multiplied by the price per share shall not exceed $500, as determined by the
Board.
If the number of shares of Common Stock otherwise allocable pursuant to
Sections 8 through 14, inclusive, to any Person or that Person's Associates
would be in excess of $250,000 in aggregate purchase price, the number of shares
of Common Stock allocated to each such person shall be reduced to $250,000 in
aggregate purchase price, and then the number of shares allocated to each group
consisting of a Person and that Person's Associates shall be reduced so that the
aggregate allocation to that Person and his or her Associates complies with the
above limits, and such maximum number of shares shall be reallocated among that
Person and his or her Associates as they may agree, or in the absence of an
agreement, in proportion to the shares subscribed by each (after first applying
the maximums applicable to each Person, separately).
In addition to their purchase limitations, no person, together with any
associate or group of persons acting in concert may, upon completion of the
Conversion, own
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more than 2% of the Common Stock outstanding; provided that no Minority
Stockholders will be required to dispose of Minority Shares if, without
purchasing Conversion Stock, the Exchange Rate will result in ownership of an
excess of 2% of the Common Stock.
Depending upon market or financial conditions, the Board of Directors of
the Holding Company, with the approval of the Applicable Regulatory Authorities
and without further approval of the Members, may decrease or further increase
the purchase and ownership limitations in this Plan, provided that the maximum
purchase limitations may not be increased to a percentage in excess of 9.99%.
In the event that the maximum purchase limitation is increased, orders for
Common Stock exceeding 50% of the shares of Conversion Stock issued in the
Conversion shall not exceed, in the aggregate, 10% of the total shares of
Conversion Stock sold in the Conversion. If the Holding Company increases the
maximum purchase limitations, the Holding Company is only required to resolicit
Persons who subscribed for the maximum purchase amount and may, in the sole
discretion of the Holding Company resolicit certain other large subscribers.
In the event of an increase in the total number of shares offered in the
Conversion due to an increase in the Estimated Price Range of up to 15% (the
"Adjusted Maximum"), the additional shares will be used in the following order
of priority: (i) to fill the Employee Plans' subscription to the Adjusted
Maximum; (ii) in the event that there is an oversubscription at the Eligible
Account Holder, Supplemental Eligible Account Holder, Other Member, or Minority
Stockholder levels, to fill unfulfilled subscriptions of such subscribers
according to such respective priorities exclusive of the Adjusted Maximum; and
(iii) to fill unfulfilled subscriptions in the Community Offering exclusive of
the Adjusted Maximum with preference given to natural persons residing in the
Community.
For purposes of this Section 15, the Directors of the Bank and the Holding
Company shall not be deemed to be associates or a group affiliated with each
other or otherwise Acting in Concert solely as a result of their being Directors
of the Bank or the Holding Company.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
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16. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community and Syndicated Community Offerings must be delivered in full to the
Holding Company, together with a properly completed and executed Order Form, or
purchase order in the case of the Syndicated Community Offering, on or prior to
the expiration date of the Offering; provided, however, that if the Employee
Plans subscribe for shares during the Subscription Offering, such plans will not
be required to pay for the shares at the time they subscribe but rather may pay
for such shares of Conversion Stock subscribed for by such plans at the
Subscription Price upon consummation of the Conversion.
Notwithstanding the foregoing, the Holding Company shall have the right, in
its sole discretion, to permit institutional investors to submit contractually
irrevocable orders in the Offering and to thereafter submit payment by wire
transfer for the Conversion Stock for which they are subscribing in the Offering
at any time prior to 48 hours before the completion of the Conversion, unless
such 48 hour period is waived by the Holding Company in its sole discretion.
Payment for Conversion Stock subscribed for shall be made either in cash
(if delivered in person), check, money order, certified or teller's check or
bank draft. Alternatively, subscribers in the Subscription and Community
Offerings may pay for the shares subscribed for by authorizing the Bank on the
Order Form to make a withdrawal from the subscriber's Deposit Account at the
Bank in an amount equal to the Subscription Price of such shares. Such
authorized withdrawal, whether from a savings passbook or certificate account,
shall be without penalty as to premature withdrawal. If the authorized
withdrawal is from a certificate account, and the remaining balance does not
meet the applicable minimum balance requirement, the certificate shall be
canceled at the time of withdrawal, without penalty, and the remaining balance
will earn interest at the passbook rate. Funds for which a withdrawal is
authorized will remain in the subscriber's Deposit Account but may not be used
by the subscriber during the Subscription and Community Offerings. Thereafter,
the withdrawal will be given effect only to the extent necessary to satisfy the
subscription (to the extent it can be filled) at the Subscription Price per
share. Interest will continue to be earned on any amounts authorized for
withdrawal until such withdrawal is given effect. Interest will be paid by the
Bank at not less than the passbook annual rate on payments for Conversion Stock
received in cash or by check. Such interest will be paid from the date payment
is received by the Bank until consummation or termination of the Conversion. If
for any reason the Conversion is not consummated, all payments made by
subscribers in the Subscription, Community
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and Syndicated Community Offerings will be refunded to them with interest. In
case of amounts authorized for withdrawal from Deposit Accounts, refunds will be
made by canceling the authorization for withdrawal. The Bank is prohibited by
regulation from knowingly making any loans or granting any lines of credit for
the purchase of stock in the Conversion, and therefore, will not do so.
17. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Prospectus prepared by the Holding Company
and Bank has been declared effective by the SEC, Order Forms will be distributed
to the Eligible Account Holders, Employee Plans, Supplemental Eligible Account
Holders, Other Members and Minority Stockholders at their last known addresses
appearing on the records of the Bank for the purpose of Subscribing for shares
of Conversion Stock in the Subscription Offering and will be made available for
use by those Persons entitled to purchase in the Community Offering.
Notwithstanding the foregoing, the Bank may elect to send Order Forms only to
those Persons who request them after receipt of such notice in a form approved
by the Applicable Regulatory Authorities and which is adequate to apprise the
Eligible Account Holders, Employee Plans, Supplemental Eligible Account Holders,
Other Members and Minority Stockholders of the pendency of the Subscription
Offering. Such notice may be included with the proxy statement for the Special
Meeting of Members and the proxy statement for the Special Meeting of
Stockholders and may also be included in the notice of the pendency of the
Conversion and the Special Meeting of Members sent to all Eligible Account
Holders in accordance with regulations of the Applicable Regulatory Authorities.
Each Order Form will be preceded or accompanied by a prospectus describing
the Holding Company, the Bank, the Conversion Stock and the Subscription and
Community Offerings. Each Order Form will contain, among other things, the
following:
A. A specified date by which all Order Forms must be received by the
Holding Company, which date shall be not less than twenty (20), nor more than
forty-five (45) days, following the date on which the Order Forms are mailed by
the Holding Company, and which date will constitute the termination of the
Subscription Offering;
B. The Subscription Price per share for shares of Conversion Stock to be
sold in the Subscription and Community Offerings;
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C. A description of the minimum and maximum number of shares of Conversion
Stock which may be subscribed for pursuant to the exercise of Subscription
Rights or otherwise purchased in the Community Offering;
D. Instructions as to how the recipient of the Order Form is to indicate
thereon the number of shares of Conversion Stock for which such person elects to
subscribe and the available alternative methods of payment therefor;
E. An acknowledgment that the recipient of the Order Form has received a
final copy of the prospectus prior to execution of the Order Form;
F. A statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering to the Holding Company within the subscription
period such properly completed and executed Order Form, together with payment,
in the full amount of the aggregate purchase price as specified in the Order
Form for the shares of Conversion Stock for which the recipient elects to
subscribe in the Subscription Offering (or by authorizing on the Order Form that
the Bank withdraw said amount from the subscriber's Deposit Account at the
Bank); and
G. A statement to the effect that the executed Order Form, once received
by the Holding Company, may not be modified or amended by the subscriber without
the consent of the Holding Company.
Notwithstanding the above, the Holding Company reserves the right in its
sole discretion to accept or reject orders received on photocopied or
facsimilied order forms.
18. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
Holding Company or the Bank by the United States Postal Service or the Holding
Company is unable to locate the addressee, (b) are not received back by the
Holding Company or are received by the Holding Company after the expiration date
specified thereon, (c) are defectively filled out or executed, (d) are not
accompanied by the full required payment, or, in the case of institutional
investors in the Community Offering, by delivering irrevocable orders together
with a legally binding commitment to pay in cash, check, money order or wire
transfer the full amount of the Purchase Price prior to 48 hours before the
completion of the Conversion, unless waived by the Holding Company, for the
shares of Conversion Stock subscribed for (including cases in which
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deposit accounts from which withdrawals are authorized are insufficient to cover
the amount of the required payment), or (e) are not mailed pursuant to a "no
mail" order placed in effect by the account holder, the subscription rights of
the Person to whom such rights have been granted will lapse as though such
Person failed to return the completed Order Form within the time period
specified thereon; provided, however, that the Holding Company may, but will not
be required to, waive any immaterial irregularity on any Order Form or require
the submission of corrected Order Forms or the remittance of full payment for
subscribed shares by such date as the Holding Company may specify. The
interpretation of the Holding Company of terms and conditions of this Plan and
of the Order Forms will be final, subject to the authority of the Applicable
Regulatory Authorities.
19. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
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 of Conversion Stock pursuant to this Plan reside. However,
no such Person will be issued subscription rights or be permitted to purchase
shares of Conversion Stock in the Subscription Offering if such Person resides
in a foreign country; or in a State of the United States with respect to which
all of the following apply: A. a small number of Persons otherwise eligible to
subscribe for shares under the Plan reside in such state; B. the issuance of
subscription rights or the offer or sale of shares of Conversion Stock to such
Persons would require the Holding Company under the securities laws of such
state, to register as a broker, dealer, salesman or agent or to register or
otherwise qualify its securities for sale in such state; such registration or
qualification would be impracticable for reasons of cost or otherwise.
20. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The Bank shall establish at the time of Conversion a liquidation account in
an amount equal to 66.31% (the Mutual Holding Company stock ownership interest
in the Bank) of the Bank's total stockholders' equity as reflected in its June
30, 1997 statement of financial condition, which is the latest statement of
financial condition expected to be contained in the final Prospectus utilized in
the Conversion. The liquidation account will be maintained by the Bank for the
benefit of the Eligible Account Holders and Supplemental Eligible Account
Holders who continue to maintain their Deposit Accounts at the Bank. Each
Eligible Account Holder shall, with respect to his Deposit Account, hold a
related inchoate interest in a portion of the liquidation account balance, in
relation to his Deposit Account balance at the Eligibility Record Date or to
such balance as it may be subsequently reduced, as hereinafter provided.
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In the unlikely event of a complete liquidation of the Bank (and only in
such event), following all liquidation payments to creditors (including those to
Account Holders to the Extent of their Deposit Accounts) each Eligible Account
Holder and Supplemental Eligible Account Holder shall be entitled to receive a
liquidating distribution from the liquidation account, in the amount of the then
adjusted subaccount balance for his Deposit Account then held, before any
liquidation distribution may be made to any holders of the Bank's capital stock.
No merger, consolidation, purchase of bulk assets with assumption of Deposit
Accounts and other liabilities, or similar transactions with an FDIC-insured
institution, in which the Bank is not the surviving institution, shall be deemed
to be a complete liquidation for this purpose. In such transactions, the
liquidation account shall be assumed by the surviving institution.
The initial subaccount balance for a Deposit Account held by an Eligible
Account Holder and Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction, the
numerator of which is the amount of the Qualifying Deposits of such account
holder and the denominator of which is the total amount of all Qualifying
Deposits of all Eligible Account Holders and Supplemental Account Holders. Such
initial subaccount balance shall not be increased, but shall be subject to
downward adjustment as described below.
If, at the close of business on any June 30 annual closing date, commencing
on or after the effective date of the Conversion, the deposit balance in the
Deposit Account of an Eligible Account Holder or Supplemental Eligible Account
Holder is less than the lesser of (i) the balance in the Deposit Account at the
close of business on any other annual closing date subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date, or (ii) the amount of the
Qualifying Deposit in such Deposit Account as of the Eligibility Record Date or
Supplemental Eligibility Record Date, the subaccount balance for such Deposit
Account shall be adjusted by reducing such subaccount balance in an amount
proportionate to the reduction in such deposit balance. In the event of such
downward adjustment, the subaccount balance shall not be subsequently increased,
notwithstanding any subsequent increase in the deposit balance of the related
Deposit Account. If any such Deposit Account is closed, the related subaccount
shall be reduced to zero.
The creation and maintenance of the liquidation account shall not operate
to restrict the use or application of any of the net worth accounts of the Bank,
except that the Bank shall not declare or pay a cash dividend on, or repurchase
any of, its capital stock if the effect thereof would cause its net worth to be
reduced below (i) the amount required for the liquidation account; or (ii) the
net worth requirements contained in the Rules and Regulations of the Applicable
Regulatory Authorities.
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<PAGE>
21. VOTING RIGHTS OF STOCKHOLDERS
Following consummation of the Conversion, voting rights with respect to the
Bank shall be held and exercised exclusively by the holders of its capital
stock. The holders of the voting capital stock of the Holding Company shall
have the exclusive voting rights with respect to the Holding Company.
22. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased or received by Directors or
Officers of the Holding Company or the Bank in the Conversion shall be subject
to the restriction that, except as provided in Section 22B, below, or as may be
approved by the Applicable Regulatory Authorities, no interest in such shares
may be sold or otherwise disposed of for value for a period of one (1) year
following the date of purchase.
B. The restriction on disposition of shares of Conversion Stock set forth
in Section 22A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the Bank or the Holding Company, as the case may be,
which has been approved by the Applicable Regulatory Authorities; and
(ii) Any disposition of such shares following the death of the person
to whom such shares were initially sold under the terms of the Plan.
C. With respect to all shares of Conversion Stock subject to restrictions
on resale or subsequent disposition, each of the following provisions shall
apply:
(i) Each certificate representing shares restricted within the meaning
of Section 22A, above, shall bear a legend prominently stamped on its face
giving notice of the restriction;
(ii) Instructions shall be issued to the stock transfer agent for the
Holding Company not to recognize or effect any transfer of any certificate
or record of ownership of any such shares in violation of the restriction
on transfer; and
(iii) Any shares of capital stock of the Holding Company issued with
respect to a stock dividend, stock split, or otherwise with respect to
ownership of outstanding shares of Conversion Stock subject to the
restriction on transfer
-27-
<PAGE>
hereunder shall be subject to the same restriction as is applicable to such
Conversion Stock.
23. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE
CONVERSION
For a period of three years following the Conversion, no Officer, Director
or their Associates shall purchase, without the prior written approval of the
Applicable Regulatory Authorities, any outstanding shares of Common Stock of the
Holding Company except from a broker-dealer registered with the SEC. This
provision shall not apply to negotiated transactions involving more than 1% of
the outstanding shares of Common Stock of the Holding Company, the exercise of
any options pursuant to a stock option plan or purchase of common stock of the
Holding Company made by or held by any Tax-Qualified Employee Stock Benefit Plan
or Non-Tax-Qualified Employee Stock Benefit Plan of the Bank or the Holding
Company (including the Employee Plans or the Recognition Plans) which may be
attributable to any Officer or Trustee. As used herein, the term "negotiated
transaction" means a transaction in which the securities are offered and the
terms and arrangements relating to any sale are arrived at through direct
communications between the seller or any person acting on its behalf and the
purchaser or his investment representative. The term "investment
representative" shall mean a professional investment advisor acting as agent for
the purchaser and independent of the seller and not acting on behalf of the
seller in connection with the transaction.
24. TRANSFER OF DEPOSIT ACCOUNTS
Each person holding a Deposit Account at the Bank at the time of Conversion
shall retain an identical Deposit Account at the Bank following Conversion in
the same amount and subject to the same terms and conditions (except as to
voting and liquidation rights).
25. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
Holding Company will register the securities issued in connection with the
Conversion pursuant to the Securities Exchange Act of 1934 and will not
deregister such securities for a period of at least three years thereafter,
except that the maintenance of registration for three years requirement may be
fulfilled by any successor to the Bank or any holding company of the Bank. In
addition, the Bank or Holding Company will use its best efforts to encourage and
assist a market-maker to establish and maintain a market for
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<PAGE>
the Conversion Stock and to list those securities on a national or regional
securities exchange or the NASDAQ National Market.
26. TAX RULINGS OR OPINIONS
Consummation of the Conversion is expressly conditioned upon prior receipt
by the Mutual Holding Company and the Bank of either a ruling or an opinion of
counsel with respect to federal tax laws, and either a ruling or an opinion of
counsel with respect to Washington tax laws, to the effect that consummation of
the transactions contemplated by the Conversion and this Plan will not result in
a taxable reorganization under the provisions of the applicable codes or
otherwise result in any adverse tax consequences to the Mutual Holding Company,
the Holding Company or the Bank, or the account holders receiving subscription
rights before or after the Conversion, except in each case to the extent, if
any, that subscription rights are deemed to have value on the date such rights
are issued.
27. STOCK BENEFIT PLANS AND EMPLOYMENT AGREEMENTS
A. The Holding Company and the Bank are authorized to adopt Tax-Qualified
Employee Stock Benefit Plans in connection with the Conversion, including
without limitation, an ESOP. Existing as well as any newly created Tax-
Qualified Employee Stock Benefit Plans may purchase shares of Conversion Stock
in the Conversion, to the extent permitted by the terms of such benefit plans
and this Plan.
B. As a result of the Conversion, the Holding Company shall be deemed to
have ratified and approved the Bank's 1994 Stock Option Plan, 1997 Stock Option
Plan, Employee Stock Ownership Plan, and 1994 Management and Directors
Recognition Plans and shall have agreed to issue (and reserve for issuance)
Holding Company Common Stock in lieu of Bank common stock pursuant to the terms
of such benefit plans. Upon consummation of the Conversion, the Bank common
stock held by such benefit plans shall be converted into Holding Company Common
Stock based upon the Exchange Ratio. Also upon consummation of the Conversion,
(i) all rights to purchase, sell or receive Bank common stock and all rights to
elect to make payment in Bank common stock under any agreement between the Bank
and any Director, Officer or Employee thereof or under any plan or program of
the Bank shall automatically, by operation of law, be converted into and shall
become an identical right to purchase, sell or receive Holding Company Common
Stock and an identical right to make payment in Holding Company Common Stock
under any such agreement between the Bank and any Director, Officer or Employee
thereof or under such plan or program of the Bank, and (ii) rights outstanding
under existing Stock Option Plans shall be assumed by the
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<PAGE>
Holding Company and thereafter shall be rights only for shares of Holding
Company Common Stock, with each such right being for a number of shares of
Holding Company common stock based upon the Exchange Ratio and the number of
shares of Savings Bank Common Stock that were available thereunder immediately
prior to consummation of the Conversion, and the price adjusted to reflect the
Exchange Ratio but with no change in any other term or condition of such right.
C. The Holding Company and the Bank are authorized to enter into
employment agreements and their executive officers.
D. The Holding Company and the Savings Bank are authorized to adopt stock
option plans, restricted stock grant plans and other Non-Tax-Qualified Employee
Stock Benefit Plans, provided that no such plans be established, no stock
options shall be grated, and no shares of Conversion Stock shall be purchased
pursuant to any of such plans prior to the earlier of (i) the one-year
anniversary of the consummation of the Conversion or (ii) the receipt of
stockholder approval of such plans at the first annual meeting of stockholders
following the Conversion.
28. RESTRICTIONS ON ACQUISITION OF BANK AND HOLDING COMPANY
A. In accordance with Applicable Regulatory Authorities regulations, for a
period of three years from the date of consummation of the Conversion, no
Person, other than the Holding Company, shall directly or indirectly offer to
acquire to acquire the beneficial ownership of more than 10% of any class of an
equity security of the Bank without the prior written consent of the Applicable
Regulatory Authorities.
B. (i) The charter of the Bank contains a provision stipulating that no
person, except the Holding Company, for a period of five years following the
date of Conversion shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of an equity security of the
Bank, without the prior written approval of the Applicable Regulatory
Authorities. In addition, such charter may also provide that for a period of
five years following Conversion, shares beneficially owned in violation of the
above-described charter provision shall not be entitled to vote and shall not be
voted by any person or counted as voting stock in connection with any matter
submitted to stockholders for a vote. In additional, special meetings of the
stockholders relating to changes in control or amendment of the charter may only
be called by the Board of Directors, and shareholders shall not be permitted to
cumulate their votes for the election of directors.
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<PAGE>
(ii) The Articles of Incorporation of the Holding Company will contain
a provision stipulating that in no event shall any record owner of any
outstanding shares of the Holding Company's common stock who beneficially owns
in excess of 10% of such outstanding shares to be entitled or permitted to any
vote in respect to any shares held in excess of 10%. In addition, the Articles
of Incorporation and Bylaws of the Holding Company contain provisions which
provide for staggered terms of the directors, noncumulative voting for
directors, limitations on the call of special meetings, a fair price provision
for certain business combinations and certain notice requirements.
C. For the purposes of Section 28.B(i):
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution.
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value;
(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise, and;
(iv) The term "security" includes non-transferable subscription rights
issued pursuant to a plan of conversion as well as a "security" as defined in 15
U.S.C. (S) 8c(a)(10).
29. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
A. The Holding Company may not repurchase any shares of its capital stock
during the first three years following consummation of the Conversion, other
than pursuant to (i) an offer to repurchase made by the Holding Company on a pro
rata basis to all of its stockholders and which is approved by the Applicable
Regulatory Authorities, (ii) the repurchase of qualifying shares of a director,
if any (iii) purchases in the open market by a Tax-Qualified or Non-Tax-
Qualified Employee Stock Benefit Plan in an amount reasonable and appropriate to
fund the plan, or (iv) a repurchase program approved by the Applicable
Regulatory Authorities.
B. The Bank shall not declare or pay a cash dividend on, or repurchase of
any of, its capital stock if the effect thereof would cause its regulatory
capital to be
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<PAGE>
reduced below (i) the amount required for the Liquidation Account or (ii) the
regulatory capital requirements of Applicable Regulatory Authorities. Otherwise,
the Bank may declare dividends to make capital distributions in accordance with
applicable law and regulations.
C. Notwithstanding anything to the contrary in this Plan, the Holding
Company may repurchase capital stock to the extent and subject to the
requirements set forth in applicable statutes or regulations, or as otherwise
may be approved by the Applicable Regulatory Authorities.
30. CHARTER AND BYLAWS
By voting to adopt this Plan, Members of the Mutual Holding Company will be
voting to adopt a Stock Certificate of Incorporation and Bylaws for a Washington
corporation attached as Exhibits C and D to this Plan.
31. CONSUMMATION OF CONVERSION AND EFFECTIVE DATE
The Effective Date of the Conversion shall be the date upon which the
Articles of Combination shall be filed with the Division of Banks with respect
to the MHC Merger and the Bank Merger, with the Bank being the surviving
institution in each case. The Articles of Combination shall be filed with the
Applicable Regulatory Authorities after all requisite regulatory, member and
stockholder approvals have been obtained, all applicable waiting periods have
expired, and sufficient subscriptions and orders for Conversion Stock have been
received. The Closing of the sale of all shares of Conversion Stock sold in the
Subscription Offering, Community Offering and/or Syndicated Community Offering
shall occur simultaneously on the effective date of the Closing.
32. EXPENSES OF CONVERSION
The Mutual Holding Company, the Bank and the Holding Company may retain and
pay for the services of legal, financial and other advisors to assist in
connection with any or all aspects of the Conversion, including the Offering,
and such parties shall use their best efforts to assure that such expenses shall
be reasonable.
33. AMENDMENT OR TERMINATION OF PLAN
If deemed necessary or desirable, this Plan may be substantively amended as
a result of comments from regulatory authorities or otherwise at any time prior
to solicitation of proxies from Members and Bank stockholders to vote on this
Plan by the
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<PAGE>
Board of Directors of the Mutual Holding Company, and at any time thereafter by
the Board of Directors of the Mutual Holding Company with the concurrence of the
Applicable Regulatory Authorities. Any amendment to this Plan made after
approval by the Members and Bank stockholders with the approval of the
Applicable Regulatory Authorities shall not necessitate further approval by the
Members unless otherwise required by the Applicable Regulatory Authorities. This
Plan may be terminated by the Board of Directors of the Mutual Holding Company
at any time prior to the Special Meeting of Members and the Special Meeting of
Stockholders to vote on this Plan, and at any time thereafter with the
concurrence of the Applicable Regulatory Authorities.
By adoption of the Plan, the Members of the Mutual Holding Company
authorize the Board of Directors of the Mutual Holding Company to amend or
terminate the Plan under the circumstances set forth in this Section.
34. CONDITIONS TO CONVERSION
Consummation of the Conversion pursuant to this Plan is expressly
conditioned upon the following:
A. Prior receipt by the Mutual Holding Company and the Bank of rulings of
the United States Internal Revenue Service and the Washington State taxing
authorities, or opinions of counsel or tax advisors as described in Section 26
hereof;
B. The sale of all of the Conversion Stock offered in the Conversion; and
C. The completion of the Conversion within the time period specified in
Section 3 of this Plan.
35. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the Bank
shall be final, subject to the authority of the Applicable Regulatory
Authorities.
This Amended and Restated Plan of Conversion and Reorganization was adopted
on this 28th day of August, 1997.
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EXHIBIT A
---------
PLAN OF MERGER
This Plan of merger, dated as of ________________________, 1997, is
made by and between Heritage Financial Corporation MHC ("MHC"), a Washington
state-charted mutual holding company and Heritage Savings Bank, ("Bank" or
"Surviving Corporation"), a Washington State chartered savings bank
(collectively, the "Constituent Corporations").
WITNESSETH:
WHEREAS, the MHC and the Bank have adopted a Plan of Conversion from
mutual holding company form to stock holding company form ("Plan of Conversion")
pursuant to which (i) the MHC will convert to a Washington State chartered
interim stock bank ("Interim Bank A"), and simultaneously merge with and into
the Bank, with the Bank as the surviving entity ("MHC Merger"), (ii) the Bank
will form a new stock corporation as a wholly-owned first tier subsidiary of the
Bank ("Heritage Financial"), and Heritage Financial will form a wholly-owned
first tier subsidiary Washington State chartered interim savings Bank ("Interim
Bank B"), (iii) the Bank and Interim Bank B will merge, pursuant to which the
Bank will become a wholly-owned subsidiary of Heritage Financial ("Bank
Merger"), and (iv) Heritage Financial will offer shares of its common stock in
the manner set forth in the Plan of Conversion; and
WHEREAS, the MHC and the Bank desire to provide for the terms and
conditions of the MHC Merger;
NOW, THEREFORE, the MHC and the Bank hereby agree as follows:
1. EFFECTIVE DATE. The conversion of MHC to Interim Bank A and the
MHC Merger will become effective on the date specified in the Certificate of
Charter Conversion and Merger relating to the MHC Merger issued by the Director
of the Department of the Financial Institutions of the State of Washington,
Division of Banks ("Director") ("Effective Date").
2. THE MHC MERGER AND EFFECT THEREOF. Subject to the terms and
conditions set forth herein and the prior approval of the Conversion, as defined
in the Plan of Conversion, by the Director and any other applicable regulatory
authority and the expiration of all applicable waiting periods, the MHC shall
convert from the mutual form to a interim stock bank and simultaneously merge
with and into the Bank,
<PAGE>
which shall be the Surviving Corporation. Upon consummation of the MHC Merger,
the Surviving Corporation shall be considered the same business and corporate
entity as each of the Constituent Corporations and the Surviving Corporation
shall be subject to and be deemed to have assumed all of the property, rights,
privileges, powers, franchises, debts, liabilities, obligations, duties and
relationships of each of the Constituent Corporations and shall have succeeded
to all of each of their relationships, fiduciary or otherwise, as fully and to
the same extent as if such property, rights, privileges, powers, franchises,
debts, obligations, duties and relationships had been originally acquired,
incurred or entered into by the Surviving Corporation. In addition, any
reference to either of the Constituent Corporations in any contract or document,
whether executed or taking effect before or after the Effective Date, shall be
considered a reference to the Surviving Corporation if not inconsistent with the
other provisions of the contract or document; and any pending action or other
judicial proceeding to which either of the Constituent Corporations is a party
shall not be deemed to have abated or to have been discontinued by reason of the
MHC Merger, but may be prosecuted to final judgment, order or decree in the same
manner as if the MHC Merger had not occurred, or the Surviving Corporation may
be substituted as a party to such action or proceeding, and any judgment, order
or decree may be rendered for or against it that might have been rendered for or
against either of the Constituent Corporations if the MHC Merger had not
occurred.
3. CANCELLATION OF BANK COMMON STOCK HELD BY THE MUTUAL HOLDING
COMPANY AND MEMBER INTERESTS; LIQUIDATION ACCOUNT. (a) On the Effective Date:
(i) each share of common stock, $1.00 par value per share, of the Bank ("Bank
Common Stock") issued and outstanding immediately prior to the Effective Date
and held by the MHC shall, by virtue of the MHC Merger and without any action on
the part of the holder thereof, be canceled, (ii) the interests in the MHC of
any person, firm or entity who or which qualified as a member of the MHC in
accordance with its mutual charter and bylaws and the laws of the State of
Washington prior to the MHC's conversion from mutual to stock form ("Members")
shall, by virtue of the MHC Merger and without any action on the part of any
Member, be canceled, and (iii) the Bank shall establish a liquidation account on
behalf of each depositor member of the MHC as provided for in the Plan of
Conversion.
(b) At or after the Effective Date and prior to the Bank Merger, each
certificate or certificates therefore, evidencing issued and outstanding shares
of Bank Common Stock, other than any such certificate or certificates held by
the MHC, which shall be canceled, shall continue to represent issued and
outstanding shares of Bank Common Stock.
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<PAGE>
4. RIGHTS OF DISSENT AND APPRAISAL. Holders of the Bank Common Stock
shall have the right to dissent from the MHC Merger in the manner provided by
Chapter 23B of the Washington Business Corporation Act, Revised Code of
Washington, Chapter 23B.13.
5. NAME OF SURVIVING CORPORATION. The name of the Surviving
Corporation shall be "Heritage Savings Bank."
6. DIRECTORS OF THE SURVIVING CORPORATION. Upon and after the
Effective Date, until changed in accordance with the Articles and Bylaws of the
Surviving Corporation and applicable law, the number of directors of the
Surviving Corporation shall be seven. The names of those persons who, upon and
after the Effective Date, shall be directors of the Surviving Corporation are
set forth below. Each such director shall serve for one year and until a
successor is elected and qualified.
Name
----
Donald V. Rhodes
Lynn M. Brunton
John A. Clees
Daryl D. Jensen
H. Edward Odegard
James P. Senna
Philip S. Weigand
The address of each such director is 201 5th Avenue SW, Olympia,
Washington 98501.
7. OFFICERS OF THE SURVIVING CORPORATION. Upon and after the
Effective Date, until changed in accordance with the Articles and Bylaws of the
Surviving Corporation and applicable law, the officers of the Bank immediately
prior to the Effective Date shall be the officers of the Surviving Corporation.
8. OFFICES. Upon the Effective Date, all offices of the Bank shall be
offices of the Surviving corporation. As of the Effective Date, the home office
of the Surviving Corporation shall remain at 201 5th Avenue SW, Olympia,
Washington, 98501, and the locations of the branch offices of the Surviving
Corporation shall be as follows:
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<PAGE>
Thurston County Home Loan Center Tumwater Branch
520 Water Street 5301 Capitol Blvd.
Olympia, WA 98501 Tumwater, WA 98501
Lacey Branch West Olympia Branch
4400 Pacific Avenue S.E. 900 Cooper Point Road S.W.
Lacey, WA 98503 Olympia, WA 98502
Shelton Branch Indian Summer Branch
301 East Wallace Kneeland Blvd. 5800 Rainier Loop S.E.
Suite 115 Lacey, WA 98513
Shelton, WA 98584
Spanaway Branch Lakewood Branch
15211 Pacific Avenue So. 9802 Gravelly Lake Dr. S.W.
Tacoma, WA 98444 Tacoma, WA 98499
80th and Pacific Branch Pierce County Business Banking Branch
8002 Pacific Avenue 1201 Pacific Avenue
Tacoma, WA 98408 Fountain Court, Suite 5
Tacoma, WA 98402
9. ARTICLES AND BYLAWS. On and after the Effective Date, the
Articles of the Bank as in effect immediately prior to the Effective Date shall
be the Articles of the Surviving Corporation until amended in accordance with
the terms thereof and applicable law, except that the Articles shall be amended
to provide for the establishment of a liquidation account in accordance with
applicable law and the Plan of Conversion.
10. STOCKHOLDER AND MEMBER APPROVALS. The affirmative votes of the
holders of Bank Common Stock and of the Members as set forth in the Plan of
Conversion shall be required to approve the Plan of Conversion, of which this
Plan of Merger is a part, on behalf of the Bank and the MHC, respectively.
11. ABANDONMENT OF PLAN. This Plan of Merger may be abandoned by
either the MHC or the Bank at any time before the Effective Date in the manner
set forth in the Plan of Conversion.
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<PAGE>
12. AMENDMENTS. This Plan of merger may be amended in the manner set
forth in the Plan of Conversion by a subsequent writing signed by the parties
hereto upon the approval of the Board of Directors of the Constituent
Corporations.
13. SUCCESSORS. This Agreement shall be binding on the successors of
the Constituent Corporations.
14. GOVERNING LAWS. This Agreement shall be governed by and construed
in accordance with the laws of the State of Washington, except to the extent
superseded by the laws of the United States.
IN WITNESS WHEREOF, the MHC and the Bank have caused this Plan of
Merger to be executed by their duly authorized officers as of the day and year
first above written.
HERITAGE FINANCIAL
Attest: CORPORATION, MHC.
/s/ Wendy K. Gauksheim
- ------------------------------- By: /s/ Donald V. Rhodes
Wendy K. Gauksheim ----------------------------------
Corporate Secretary Donald V. Rhodes
Chairman, President and Chief
Executive Officer
HERITAGE SAVINGS BANK
Attest:
By /s/ Donald V. Rhodes
----------------------------------
/s/ Wendy K. Gauksheim Donald V. Rhodes
- ------------------------------- Chairman, President and Chief
Wendy K. Gauksheim Executive Officer
Corporate Secretary
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<PAGE>
EXHIBIT B
---------
PLAN OF REORGANIZATION
This Plan of Reorganization, dated as of _________________________, 1997,
is made by and among Heritage Savings Bank, ("Bank" or the "Surviving
Corporation"), a Washington State chartered savings bank and majority owned
subsidiary of Heritage Financial Corporation, MHC, a Washington State chartered
mutual holding company; and Heritage Financial Corporation ("Holding Company"),
a Washington stock corporation organized by the Bank acting for itself and its
to-be formed wholly-owned interim Washington state chartered interim stock bank
("Interim Bank B").
WITNESSETH:
WHEREAS, the Bank has organized the Holding Company as a first-tier, wholly
owned subsidiary for the purpose of becoming the stock holding company of the
Bank upon completion of the Conversion, as defined in the Plan of Conversion and
Reorganization from mutual holding company form to stock holding company form
(the "Plan of Conversion") adopted by the Boards of Directors of the MHC and the
Bank; and
WHEREAS, the MHC owns as of the date hereof 66.31% of the outstanding
common stock of the Bank, par value $1.00 per share ("Bank Common Stock") and
will convert to a Washington state chartered interim stock savings bank
("Interim Bank A") and simultaneously merge with and into the Bank pursuant to
the Plan of Conversion and the Plan of Merger included as Annex A thereto ("MHC
Merger"), pursuant to which all shares of Bank Common Stock held by the MHC will
be canceled; and
WHEREAS, the formation of a stock holding company by the Bank will be
facilitated by causing the Holding Company to become the sole stockholder of a
newly-formed Interim Bank B and then merging Interim Bank B with and into the
Bank, pursuant to which the Bank will reorganize as a wholly owned subsidiary of
the Holding Company ("Reorganization") and, in connection therewith, all
outstanding shares of Bank Common Stock not held by the MHC will be converted
automatically into and become shares of common stock of the Holding Company, no
par value per share ("Holding Company Common Stock"); and
<PAGE>
WHEREAS, the Bank and Interim Bank B ("Constituent Corporations") and the
Holding Company desire to provide for the terms and conditions of the
Reorganization.
NOW, THEREFORE, the Bank, Interim Bank B and the Holding Company hereby
agree as follows:
1. EFFECTIVE DATE. The Reorganization shall become effective on the
effectiveness of the Conversion and the dated specified in the Certificate of
Charter Conversion and Merger relating to the MHC Merger issued by the Director
of the Department of the Financial Institutions of the State of Washington,
Division of Banks ("Director") ("Effective Date").
2. THE MERGER AND EFFECT THEREOF. Subject to the terms and conditions set
forth herein and the prior approval of the Conversion, as defined in the Plan of
Conversion, by the Director and any other applicable regulatory authority and
the expiration of all applicable waiting periods, Interim Bank B shall merge
with and into the Bank, with the Bank as the Surviving Corporation. Upon
consummation of the Reorganization, the Surviving Corporation shall be
considered the same business and corporate entity as each of the Constituent
Corporations and thereupon and thereafter all the property, rights, privileges,
powers and franchises of each of the Constituent Corporations shall vest in the
Surviving Corporation and the Surviving Corporation shall be subject to and be
deemed to have assumed all of the property, rights, privileges, powers,
franchises, debts, obligations, duties of each of the Constituent Corporations
and shall have succeeded to all or each of their relationships, fiduciary or
otherwise, fully and to the same extent as if such property, rights, privileges,
powers, franchises, debts, obligations, duties and relationships had been
originally acquired, incurred or entered into by the Surviving Corporation. In
addition, any reference to either of the Constituent Corporations in any
contract or document, whether executed or taking effect before or after the
Effective Date, shall be considered a reference to the Bank if not inconsistent
with the other provisions of the contract or document; and any pending action or
other judicial proceeding to which either of the Constituent Corporations is a
party shall not be deemed to have abated or to have been discontinued by reason
of the Reorganization, but may be prosecuted to final judgment, order or decree
in the same manner as if the Reorganization had not occurred or the Surviving
Corporation may be substituted as a party to such action or proceeding, and any
judgment, order or decree may be rendered for or against it that might have been
rendered for or against either of the Constituent Corporations if the
Reorganization had not occurred.
-2-
<PAGE>
3. CONVERSION OF STOCK.
(a) On the Effective Date: (i) each share of Bank Common Stock issued and
outstanding immediately prior to the Effective Date shall, by virtue of the
Reorganization and without any action on the part of the holder thereof, be
converted into the right to receive Holding Company Common Stock based on the
Exchange Ratio, as defined in the Plan of Conversion, plus the right to receive
cash in lieu of any fractional share interest, as determined in accordance with
Section 3(c) hereof, (ii) each share of common stock, par value $1.00 per share,
of Interim Bank B ("Interim B Common Stock") issued and outstanding immediately
prior to the Effective Date shall, by virtue of the Reorganization and without
any action on the part of the holder thereof, be converted into one share of
Bank Common Stock, and (iii) each share of Holding Company Common Stock issued
and outstanding immediately prior to the Effective Date shall, by virtue of the
Reorganization and without any action on the part of the holder thereof, be
cancelled. By voting in favor of this Plan of Reorganization, the Holding
Company, as the sole stockholder of Interim Bank B, shall have agreed (i) to
issue shares of Holding Company Common Stock in accordance with the terms hereof
and (ii) to cancel all previously issued and outstanding shares of Holding
Company Common Stock upon the effectiveness of the Reorganization.
(b) On and after the Effective Date, there shall be no registrations or
transfers on the stock transfer books of Interim Bank B or the Bank of shares of
Interim B Common Stock or Bank Common Stock which were outstanding immediately
prior to the Effective Date.
(c) Notwithstanding any other provision hereof, no fractional shares of
Holding Company Common Stock shall be issued to holders of Bank Common Stock.
In lieu thereof, the holder of shares of Bank Common Stock entitled to a
fraction of a share of Holding Company Common Stock shall, at the time of
surrender of the certificate or certificates representing such holder shares,
receive an amount of cash equal to the product arrived at by multiplying such
fraction of a share of Holding Company Common Stock by the Purchase Price, as
defined in the Plan of Conversion. No such holder shall be entitled to
dividends, voting rights or any other rights in respect of any fractional share.
4. EXCHANGE OF SHARES.
(a) At or after the Effective Date, each holder of a certificate or
certificates theretofore evidencing issued and outstanding shares of Bank Common
Stock, upon surrender of the same to an agent, duly appointed by the Holding
Company ("Exchange
-3-
<PAGE>
Agent"), shall be entitled to receive in exchange therefor certificate(s)
representing the number of full shares of Holding Company Common Stock for which
the shares of Bank Common Stock theretofore represented by the certificate or
certificates so surrendered shall have been converted as provided in Section
3(a) hereof. The Exchange Agent shall mail to each holder of record of Bank
Common Stock which is to be exchanged for Holding Company Common Stock as
provided in Section 3(a) hereof, a form of letter of transmittal advising such
holder of the terms of the exchange effected by the Reorganization and of the
procedure for surrendering stock certificates to the Exchange Agent in exchange
for stock certificate(s) evidencing Holding Company Common Stock.
(b) No holder of a certificate theretofore representing shares of Bank
Common Stock shall be entitled to receive any dividends in respect of the
Holding Company Common Stock into which such shares shall have been converted by
virtue of the Bank Merger until the certificate representing such shares of Bank
Common Stock is surrendered in exchange for certificates representing shares of
Holding Company Common Stock. Any such dividends shall be paid (without
interest) upon surrender of the certificates representing such shares of Bank
Common Stock. The Holding Company shall be entitled, after the Effective Date,
to treat certificates representing shares of Bank Common Stock as evidencing
ownership of the number of full shares of Holding Company Common Stock into
which the shares of Bank Common Stock represented by such certificates shall
have been converted, notwithstanding the failure on the part of the holder
thereof to surrender such certificates.
(c) The Holding Company shall not be obligated to deliver a certificate or
certificates representing shares of Holding Company Common Stock to which a
holder of Bank Common Stock would otherwise be entitled as a result of the
Reorganization until such holder surrenders the certificate or certificates
representing the shares of Bank Common Stock for exchange as provided in this
Section 4, or, in default thereof, an appropriate Affidavit of Loss and
Indemnification Agreement and/or an indemnity bond as may be required in each
case by the Holding Company. If any certificate evidencing shares of Holding
Company Common Stock is to be issued in a name other than that in which the
certificate evidencing Bank Common Stock surrendered in exchanged therefor is
registered, it shall be a condition of the issuance thereof that the certificate
so surrendered shall be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange pay to the Exchange Agent
any transfer or other tax required by reason of the issuance of a certificate
for shares of Holding Company Common Stock in any name other than that of the
registered Holder of the certificate surrendered or otherwise establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
-4-
<PAGE>
(d) If, between the date hereof and the Effective Date, the shares of Bank
Common Stock shall be changed into a different number or class of shares by
reason of any reclassification, recapitalization, split-up, combination,
exchange of shares or readjustment or a stock dividend thereon shall be declared
with a record date within said period, the Exchange Ratio specified in Section
3(a) hereof shall be adjusted accordingly.
5. RIGHTS OF DISSENT AND APPRAISAL. Holders of the Bank Common Stock shall
have the right to dissent from the MHC Merger in the manner provided by Chapter
23B of the Washington Business Corporation Act, Revised Code of Washington,
Chapter 23B.13.
6. NAME OF SURVIVING CORPORATION. The name of the Surviving Corporation
shall be "Heritage Savings Bank."
7. DIRECTORS OF THE SURVIVING CORPORATION. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the number of directors of the Surviving
Corporation shall be seven. The names of those person who, upon and after the
Effective Date, shall be directors of the Surviving Corporation are set forth
below. Each such director shall serve for the term which expires at the annual
meeting of stockholders of the Surviving Corporation in the year set forth after
his respective name, and until a successor is elected and qualified.
Name
----
Donald V. Rhodes
Lynn M. Brunton
John A. Clees
Daryl D. Jensen
H. Edward Odegard
James P. Senna
Philip S. Weigand
The address of each such director is 201 5th Avenue SW, Olympia, Washington
98501.
-5-
<PAGE>
8. OFFICERS OF THE SURVIVING CORPORATION. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the officers of the Bank immediately prior to
the Effective Date shall be the officers of the Surviving Corporation.
9. OFFICES. Upon the Effective Date, all offices of the Bank shall be
offices of the Surviving corporation. As of the Effective Date, the home office
of the Surviving Corporation shall remain at 201 5th Avenue SW, Olympia,
Washington, 98501, and the locations of the branch offices of the Surviving
Corporation shall be as follows:
Thurston County Home Loan Center Tumwater Branch
520 Water Street 5301 Capitol Blvd.
Olympia, WA 98501 Tumwater, WA 98501
Lacey Branch West Olympia Branch
4400 Pacific Avenue S.E. 900 Cooper Point Road S.W.
Lacey, WA 98503 Olympia, WA 98502
Shelton Branch Indian Summer Branch
301 East Wallace Kneeland Blvd. 5800 Rainier Loop S.E.
Suite 115 Lacey, WA 98513
Shelton, WA 98584
Spanaway Branch Lakewood Branch
15211 Pacific Avenue So. 9802 Gravelly Lake Dr. S.W.
Tacoma, WA 98444 Tacoma, WA 98499
80th and Pacific Branch Pierce County Business Banking
8002 Pacific Avenue Branch
Tacoma, WA 98408 1201 Pacific Avenue
Fountain Court, Suite 5
Tacoma, WA 98402
10. ARTICLES AND BYLAWS. On and after the Effective Date, the Articles and
Bylaws of the Bank as in effect immediately prior to the Effective Date shall be
the Articles and Bylaws of the Surviving Corporation until amended in accordance
with the terms thereof and applicable law.
-6-
<PAGE>
11. STOCK COMPENSATIONS. By voting in favor of this Agreement, the Holding
Company shall have approved adoption of the existing Bank's 1994 Stock Option
Plan, 1997 Stock Option Plan and Employee Stock Ownership Plan (collectively,
the "Plans") as plans of the Holding Company and shall have agreed to issue
Holding Company Common Stock in lieu of Bank Common Stock pursuant to the terms
of such Plans. As of the Effective Date, rights outstanding under the Plans
shall be assumed by the Holding Company and thereafter shall be rights only for
shares of Holding Company Common Stock, with each such right being for a number
of shares of Holding Company Common Stock equal to the number of shares of Bank
Common Stock that were available thereunder immediately prior to the Effective
Date times the Exchange Ratio, as defined in the Plan of Conversion, and the
price of each such right shall be adjusted to reflect the Exchange Ratio and so
that the aggregate purchase price of the right is unaffected, but with no change
in any other term or condition of such right. The Holding Company shall make
appropriate amendments to the Plans to reflect the adoption of the plans by the
Holding Company without adverse effect upon the rights outstanding thereunder.
12. STOCKHOLDER APPROVAL. The affirmative votes of the holders of Bank
Common Stock set forth in the Plan of Conversion shall be required to approve
the Plan of Conversion, of which this Plan of Reorganization is a part, on
behalf of the Bank. The approval of the Holding Company, as the sole holder of
the Interim Bank B Common Stock, shall be required to approve the Plan of
Conversion, of which this Plan of Reorganization is a part, on behalf of Interim
Bank B.
13. REGISTRATION; OTHER APPROVALS. In addition to the approvals set forth
in Sections 1 and 12 hereof and in the Plan of Conversion, the obligations of
the parties hereto to consummate the Reorganization shall be subject to the
Registration Statement for the Holding Company Common Stock to be issued
hereunder being deemed effective by the Securities and Exchange Commission, and
no stop order being in effect regarding such Registration Statement, as well as
the receipt of all other approvals, consents or waivers as the parties may deem
necessary or advisable.
14. ABANDONMENT OF PLAN. This Plan of Reorganization may be abandoned by
either the Bank or Interim Bank B at any time before the Effective Date in the
manner set forth in the Plan of Conversion.
15. AMENDMENTS. This Plan of Reorganization may be amended in the manner
set forth in the Plan of Conversion by a subsequent writing signed by the
parties hereto upon the approval of the Board of Directors of each of the
parties hereto.
-7-
<PAGE>
16. SUCCESSORS. This Agreement shall be binding on the successors of the
Constituent Corporations.
17. GOVERNING LAWS. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington, except to the extent
superseded by the laws of the United States.
IN WITNESS WHEREOF, the Parties hereto have caused this Plan of
Reorganization to be duly executed on its behalf by its officers thereunto duly
authorized, all as of the date first above.
HERITAGE FINANCIAL CORPORATION
Attest:
/s/ Wendy K. Gauksheim By: /s/ Donald V. Rhodes
- ----------------------- -------------------------------
Wendy K. Gauksheim Donald V. Rhodes
Corporate Secretary Chairman, President and Chief
Executive Officer
HERITAGE SAVINGS BANK
Attest:
/s/ Wendy K. Gauksheim By: /s/ Donald V. Rhodes
- ----------------------- -------------------------------
Wendy K. Gauksheim Donald V. Rhodes
Corporate Secretary Chairman, President and Chief
Executive Officer
-8-
<PAGE>
EXHIBIT C
ARTICLES OF INCORPORATION
OF
HERITAGE FINANCIAL CORPORATION
The undersigned, being the Chairman, President and Chief Executive Officer
of Heritage Financial Corporation, executes in duplicate the following Articles
of Incorporation for the corporation.
ARTICLE 1
(Name)
The name of the corporation shall be HERITAGE FINANCIAL CORPORATION.
ARTICLE 2
(Duration)
The corporation's period of duration shall be perpetual.
ARTICLE 3
(Purpose)
The purpose for which the corporation is organized is the transaction of
any and all lawful business for which corporations may be incorporated under the
Washington Business Corporation Act.
ARTICLE 4
(Shares Authorized)
Section 4.1 The aggregate number of shares which the corporation shall
-----------
have authority to issue is 15,000,000 common shares with no par value
(hereinafter referred to as "the common stock") and 2,500,000 preferred shares
with no par value (hereinafter referred to as "the preferred stock"). The
preferred stock is senior to the common stock, and the common stock is subject
to the rights and preferences of the preferred stock as provided in the
following section.
<PAGE>
Section 4.2 The board of directors is hereby vested with authority to
-----------
divide any or all of the preferred stock into one or more series and, within the
limitations set forth in the Washington Business Corporation Act, as amended
from time to time, to fix and determine or to amend the relative rights and
preferences of the preferred stock or of any series so established.
ARTICLE 5
(Preemptive Rights)
No shareholder shall have the preemptive right to acquire unissued shares
of the corporation.
ARTICLE 6
(Cumulative Voting)
Each shareholder entitled to vote at any election for directors shall have
the right to vote, in person or by proxy, the number of shares owned by him for
as many persons as there are directors to be elected and for whose election he
has a right to vote, and no shareholder shall be entitled to cumulate his votes.
ARTICLE 7
(Amendment of Articles)
The corporation reserves the right to amend, alter, change or repeal any
provision of its Articles of Incorporation to the extent permitted by the laws
of the State of Washington. All rights of shareholders are granted subject to
this reservation.
ARTICLE 8
(Registered Office and Agent)
The address of the initial registered office of the corporation is 1201
Pacific Avenue, Suite 2200, Tacoma, WA 98402. The name of its initial
registered agent at that address is Gordon, Thomas, Honeywell, Malanca, Peterson
& Daheim, P.L.L.C., attention: J. James Gallagher.
<PAGE>
ARTICLE 9
(Directors)
9.1. Number, Vacancies. The number of directors of the corporation shall
-----------------
be such number, not less than 5 nor more than 25 (exclusive of directors, if
any, to be elected by holders of preferred stock of the corporation, voting
separately as a class), as shall be provided from time to time in or in
accordance with the Bylaws; provided, however, that no decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director, and provided further, that no action shall be taken to decrease or
increase the number of directors from time to time unless at least two-thirds of
the directors then in office shall concur in said action. Vacancies in the
board of directors of the corporation, however caused, and newly created
directorships shall be filled by a vote of two-thirds of the directors then in
office, whether or not a quorum, and any director so chosen shall hold office
for a term expiring at the annual meeting of shareholders at which the term of
the class to which the director has been chose expires and when the director's
successor is elected and qualified.
9.2 Classified Board. The board of directors of the corporation shall be
----------------
divided into three classes of directors which shall be designated Class 1, Class
2 and Class 3. The members of each class shall be elected for a term of three
years and until their successors are elected and qualified. Such classes shall
be as nearly equal in number as the then total number of directors constituting
the entire board of directors shall permit, with the terms of office of all
members of one class expiring each year. Subject to the provisions of Section
9.1, should the number of directors not be equally divisible by three, the
excess director or directors shall be assigned to Classes 2 or 3 as follows:
(i) if there shall be an excess of one directorship over a number equally
divisible by three, such extra directorship shall be classified in Class 3; and
(ii) if there be an excess of two directorships over a number equally divisible
by three, one shall be classified in Class 2 and the other in Class 3. At the
first annual meeting of stockholders, directors in Class 1 shall be elected to
hold office for a term expiring at the third succeeding annual meeting
thereafter. At the second annual meeting of stockholders, directors of Class 2
shall be elected to hold office for a term expiring at the third succeeding
meeting thereafter. At the third annual meeting of stockholders, directors of
Class 3 shall be elected to hold office for a term expiring at the third
succeeding meeting thereafter. Thereafter, at each succeeding annual meeting,
directors of each class shall be elected for three year terms. Notwithstanding
the foregoing, the director whose term shall expire at any annual meeting shall
continue to serve until such
<PAGE>
time as his successor shall have been duly elected and shall have qualified
unless his position on the board of directors shall have been abolished by
action taken to reduce the size of the board of directors prior to said meeting.
Should the number of directors of the corporation be reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as specified in the immediately
preceding paragraph. The board of directors shall designate, by the name of the
incumbent(s), the position(s) to be abolished. Notwithstanding the foregoing,
no decrease in the number of directors shall have the effect of shortening the
term of any incumbent director. Should the number of directors of the
corporation be increased, the additional directorships shall be allocated among
classes as appropriate so that the number of directors in each class is as
specified in the immediately preceding paragraph.
Whenever the holders of any one or more series of preferred stock of the
corporation shall have the right, voting separately as a class, to elect one or
more directors of the corporation, the board of directors shall consist of said
directors so elected in addition to the number of directors fixed as provided in
Section 9.1. Notwithstanding the foregoing, and except as otherwise may be
required by law, whenever the holders of any one or more series of preferred
stock of the corporation shall have the right, voting separately as a class, to
elect one or more directors of the corporation, the terms of the director or
directors elected by such holders shall expire at the next succeeding annual
meeting of stockholders.
ARTICLE 10
(Nominations to Board of Directors)
Nominations for election to the board of directors may be made by the board
of directors or by any stockholder of any outstanding class of stock of the
corporation entitled to vote for the election of directors. Nominations, other
than those made by the board of directors, shall be made in writing and shall be
delivered or mailed, U.S. mail, postage prepaid, to the Chairman of the
corporation not less than fourteen (14) days nor more than fifty (50) days prior
to any meeting of shareholders called for the election of directors; provided,
however, that if less than twenty-one days' notice of the meeting is given to
shareholders, such nomination shall be delivered or mailed, U.S. mail, postage
prepaid, to the Chairman of the corporation not later than the close of business
on the seventh day following the day on which the notice of meeting was mailed.
Such notification shall contain the following information to the extent known to
the notifying shareholder:
<PAGE>
(a) The name and address of each proposed nominee;
(b) The principal occupation of each proposed nominee;
(c) The total number of shares of stock of the corporation that will be
voted for each proposed nominee;
(d) The name and address of the notifying shareholder; and
(e) The number of shares of common stock of the corporation owned by the
notifying shareholder.
Nominations not made in accordance herewith may, in his discretion, be
disregarded by the Chairman of the meeting, and upon his instructions, the vote
teller may disregard all votes cast for such nominee.
ARTICLE 11
(Removal of Directors)
Notwithstanding any other provision of these Articles of Incorporation or
the Bylaws of the corporation, any director or the entire board of directors of
the corporation may be removed, at any time, but only for cause and only by the
affirmative vote of the holders of at least 66-2/3% of the outstanding shares of
capital stock of the corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
stockholders called for that purpose. Notwithstanding the foregoing, whenever
the holders of any one or more series of preferred stock of the corporation
shall have the right, voting separately as a class, to elect one or more
directors of the corporation, the preceding provisions of this Article 11 shall
not apply with respect to the director or directors elected by such holders of
preferred stock.
ARTICLE 12
(Acquisition of Capital Stock)
12.1 Five Year Prohibition. For a period of five years from the effective
---------------------
date of the completion of the conversion of Heritage Savings Bank to become a
wholly-owned subsidiary of this corporation, no person shall directly or
indirectly offer to acquire or acquire beneficial ownership of more than 10% of
any class of equity security of the corporation, unless such offer or
acquisition shall have been approved in advance by two-thirds vote of the
Continuing Directors, as defined in Article 14. In addition, for a period for
five years from the completion of the conversion of Heritage Savings Bank to
become a wholly-owned
<PAGE>
subsidiary of this corporation upon such conversion, and notwithstanding any
provision to the contrary in these Articles of Incorporation or in the Bylaws of
the corporation, where any person directly or indirectly acquires beneficial
ownership of more than 10% of any class of equity security of the corporation in
violation of this Article 12, the securities beneficially owned in excess of 10%
shall not be counted as shares entitled to vote, shall not be voted by any
person or counted as voting shares in connection with any matter submitted to
the stockholders for a vote, and shall not be counted as outstanding for
purposes of determining a quorum or the affirmative vote necessary to approve
any matter submitted to the stockholders for a vote.
12.2 Prohibition after Five Years. If, at any time after five years from
----------------------------
the effective date of the completion of the conversion of Heritage Savings Bank
to become a wholly-owned subsidiary of the corporation upon such conversion, any
person shall acquire the beneficial ownership of more than 10% of any class of
equity security of the Corporation without the prior approval by a two-thirds
vote of the Continuing Directors (as defined in Article 14), then the record
holders of voting stock of the corporation beneficially owned by such acquiring
person shall have only the voting rights set forth in this Section 12.2 on any
matter requiring their vote or consent. With respect to each vote in excess of
10% of the voting power of the outstanding shares of voting stock of the
corporation which such record holders would otherwise be entitled to cast
without giving effect to this Section 12.2, the record holders in the aggregate
shall be entitled to cast only one-hundredth of a vote, and the aggregate voting
power of such record holders, so limited for all shares of voting stock of the
corporation beneficially owned by such acquiring person, shall be allocated
proportionately among such record holders. For each such record holder, this
allocation shall be accomplished by multiplying the aggregate voting, as so
limited, of the outstanding shares of voting stock of the corporation
beneficially owned by such acquiring person by a fraction whose numerator is the
number of votes represented by the shares of voting stock of the corporation
that are beneficially owned by such acquiring person. A person who is a record
owner of shares of voting stock of the corporation that are beneficially owned
simultaneously by more than one person shall have, with respect to such shares,
the right to cast the least number of votes that such person would be entitled
to cast under this Section 12.2 by virtue of such shares being so beneficially
owned by any of such acquiring persons.
Section 12.3 Definitions. The term "person" means an individual, a group
-----------
acting in concert, a corporation, a partnership, an association, a joint stock
company, a trust, an unincorporated organization or similar company, a syndicate
or
<PAGE>
any other group acting in concert formed for the purpose of acquiring, holding
or disposing of securities of the corporation. The term "acquire" includes every
type of acquisition, whether effected by purchase, exchange, operation of law or
otherwise. The term "group acting in concert" includes (a) knowing participation
in a joint activity or conscious parallel action towards a common goal whether
or not pursuant to an express agreement, and (b) a combination or pooling of
voting or other interest in the corporation's outstanding shares for a common
purpose, pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. The term "beneficial ownership"
shall have the meaning defined in Rule 13d-3 of the General Rules and
Regulations under the Securities Exchange At of 1934, as amended.
Section 12.4 Exclusion for Employee Benefit Plans, Directors, Officers,
----------------------------------------------------------
Employees and Certain Proxies. The restrictions contained in this Article 12
- -----------------------------
shall not apply to (i) any underwriter or member of an underwriting or selling
group involving a public sale or resale of securities of the corporation or a
subsidiary thereof; provided, however, that upon completion of the sale or
resale of such securities, no such underwriter or member of such selling group
is a beneficial owner of more than 10% of any class of equity security of the
corporation, (ii) any proxy granted to one or more Continuing Directors (as
defined in Article 14) by a stockholder of the corporation or (iii) any employee
benefit plans of the corporation. In addition, the Continuing Directors of the
corporation, the officers and employees of the corporation and its subsidiaries,
the directors of subsidiaries of the corporation, the employee benefit plans of
the corporation and its subsidiaries, entities organized or established by the
corporation or any subsidiary thereof pursuant to the terms of such plans and
trustees and fiduciaries with respect to such plans acting in such capacity
shall not be deemed to be a group with respect to their beneficial ownership or
voting stock of the corporation solely by virtue of their being directors,
officers or employees of the corporation or subsidiary thereof or by virtue of
the Continuing Directors of the corporation, the officers and employees of the
corporation and its subsidiaries and the directors of subsidiaries of the
corporation being fiduciaries or beneficiaries of an employee benefit plan of
the corporation or a subsidiary of the corporation. Notwithstanding the
foregoing, no director, officer or employee of the corporation or any of its
subsidiaries or group of any of them shall be exempt from the provisions of this
Article 12 should any such person or group become a beneficial owner or more
than 10% of any class or equity security of the corporation.
Section 12.5 Determinations. A majority of the Continuing Directors (as
--------------
defined in Article 14) shall have the power to
<PAGE>
construe and apply the provisions of the Article and to make all determinations
necessary or desirable to implement such provisions, including but not limited
to matters with respect to (i) the number of shares beneficially owned by any
person, (ii) whether a person has an agreement, arrangement, or understanding
with another as to the matters referred to in the definition of beneficial
ownership, (iii) the application of any other definition or operative provision
of this Article 12 to the given facts or (iv) any other matter relating to the
applicability or effect of this Article 12 in good faith and on the basis of
such information and assistance as was then reasonably available for such
purpose shall be conclusive and binding upon the corporation and its
stockholders.
ARTICLE 13
(Business Transactions with Officers, Directors and Shareholders)
The corporation may enter into a contract and otherwise transact business
as vendor, purchaser, or otherwise, with its directors, officers and
shareholders, and with corporations, associations, firms and entities in which
they are or may become interested as directors, officers, shareholders, members
or otherwise, as freely as though such adverse interest did not exist, even
though the vote, action or presence of such director, officer or shareholder may
be necessary to obligate the corporation upon such contract or transaction; and
in the absence of fraud, no such contract or transaction shall be avoided and no
such director, officer or shareholder shall be held liable to account to the
corporation, by reason of such adverse interest or any fiduciary relationship to
the corporation arising out of such office or stock ownership, for any profit or
benefit realized by him through any such contract or transaction; provided that
the nature of the interest of such director, officer or shareholder, though not
necessarily the details or extent thereof, be disclosed or known to the board of
directors or shareholders of the corporation, at the meeting thereof at which
such contract or transaction is authorized or confirmed. A general notice that
a director, officer or shareholder of the corporation is interested in any
corporation, association, firm or entity shall be sufficient disclosure as to
such director, officer or shareholder with respect to all contracts and
transactions with that corporation, association, firm or entity.
ARTICLE 14
(Certain Business Combinations)
Section 14.1 In addition to the requirements of any applicable statute,
------------
and notwithstanding any other provisions of
<PAGE>
any other articles of these Articles of Incorporation, the affirmative vote of
not less than 66 2/3% of the total shares attributable to persons other than a
Control Person (as defined below), considered for the purposes of this Article
11 as one class, which are entitled to be voted in an election of directors
shall be required for the approval of any Business Combination (as defined
below) between the corporation and any Control Person.
Section 14.2 The approval requirements of Section 11.1 shall not apply if
------------
either:
(a) The Business Combination is approved by at least a majority of
Continuing Directors (as defined below) of the corporation; or
(b) All the following conditions are satisfied:
(i) The cash or fair market value of the property, securities or
other consideration to be received per share in the Business Combination by
holders of the common stock of the corporation is not less than the higher of:
(A) the highest price per share (including brokerage commissions, soliciting
dealers' fees and dealer-management compensation) paid by such Control Person in
acquiring any of its holdings of the corporation's common stock; (B) the highest
per share market price of the common stock during the three-month period
immediately preceding the date of the proxy statement described in (iii) below;
or (C) the per share value of the common stock at the end of the fiscal quarter
immediately prior to the Business Combination, as determined by an appraisal
prepared by persons, selected by the Continuing Directors, who are independent
of the corporation and the Control Person, and who are experienced and expert in
the area of corporate appraisal.
(ii) After becoming a Control Person and prior to the consummation of
such Business Combination (A) such Control Person shall not have acquired any
newly issued shares of capital stock, directly or indirectly, from the
corporation (except upon conversion of convertible securities acquired by it
prior to becoming a Control Person or upon compliance with the provisions of
this Article 11 or as a result of a pro rata stock dividend or stock split), and
(B) such Control Person shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or tax credits provided by the
corporation, or made any major changes in the corporation's business or equity
capital structure; and
<PAGE>
(iii) A proxy statement responsive to the requirements of the
Securities Exchange Act of 1934, whether or not the corporation is then subject
to such requirements, shall be mailed to the public stockholders of the
corporation for the purpose of soliciting stockholder approval of such Business
Combination.
Section 14.3 For the purpose of this Article 14:
------------
(a) The term "Business Combination" shall mean (i) any merger or
consolidation of the corporation with or into a Control Person, (ii) any sale,
lease, exchange, transfer or other disposition, including without limitation a
mortgage or any other security device, of all or any Substantial Part (as
defined below) of the assets of the corporation (including without limitation
any voting securities of a subsidiary) or of a subsidiary, to a Control Person,
(iii) any merger or consolidation of a Control Person with or into the
corporation or a subsidiary of the corporation, (iv) any sale, lease, exchange,
transfer or other disposition of all or any Substantial Part of the assets of a
Control Person to the corporation or a subsidiary of the corporation, (v) the
issuance of any securities of the corporation or a subsidiary of the corporation
to a Control Person, (vi) the acquisition by the corporation or a subsidiary of
the corporation of any securities of a Control Person, (vii) any
reclassification of common stock of the corporation, or any recapitalization
involving common stock of the corporation, consummated within five years after a
Control Person becomes a Control Person, or (viii) any agreement, contract or
other arrangement providing for any of the transactions described in this
definition of Business Combination;
(b) The term "Continuing Director" shall mean (i) a director who was a
member of the board of directors of the corporation immediately prior to the
time that a Control Person became the beneficial owner (as this term is defined
in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934 on the date on which this amendment becomes effective) of 10% or
more of the outstanding shares of common stock of the corporation or (ii) a
person so designated before initially becoming a director by a majority of the
then Continuing Directors.
(c) The term "Control Person" shall mean and include any individual,
corporation, partnership or other person or entity which, together with their
Affiliates and Associates (as those terms are defined on the date on which this
amendment becomes effective in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934) is the beneficial owner in the
aggregate of 20% or more of the outstanding shares of common stock of the
corporation, and any Affiliate or
<PAGE>
Associate of any such individual, corporation, partnership or other person or
entity;
(d) The term "Substantial Part" shall mean more than 10% of the total
assets of the corporation in question, as of the end of its most recent fiscal
year prior to the time the determination is being made;
(e) Without limitation, any shares of common stock of the corporation which
any Control Person has the right to acquire at any time pursuant to any
agreement, or upon exercise of conversion rights, warrants or options, or
otherwise, shall be deemed outstanding and beneficially owned by such Control
Person for purposes of this Article 14; and
(f) For the purposes of Section 14.2(b)(i) of this Article 14, the phrase
"other consideration to be received" shall include, without limitation, common
stock of the corporation retained by its existing public stockholders in the
event of a Business Combination with such Control Person in which the
corporation is the surviving corporation.
Section 14.4 For the purposes of this Article 14, a majority of the
------------
Continuing Directors shall have the power and duty to determine on the basis of
information known to them (a) whether a proposed transaction is subject to the
provisions of this Article 14, (b) the amount of shares of the corporation
Beneficially Owned by any person, (c) whether a person is an Affiliate or
Associate of another, and (d) such other matters as to which a determination may
be required by the provisions of this Article 14.
Section 14.5 The provisions set forth in this Article 14 may not be
------------
repealed or amended in any respect or in any manner including any merger or
consolidation of the corporation with any other corporation unless the surviving
corporation's Articles of Incorporation contain an article to the same effect as
this Article 14, except by the affirmative vote of the holders of not less than
66-2/3% of the outstanding shares of common stock of the corporation, subject to
the provisions of any series of preferred stock which may at the time be
outstanding; provided, however, that if there is a Control Person such action
must be approved by not less than 66-2/3% of the total shares entitled to be
voted in an election of directors attributable to shares owned by person other
than the Control Persons.
ARTICLE 15
(Consideration of Non-Monetary Factors)
<PAGE>
The board of directors of the corporation, when evaluating any offer of
another party to (a) make a tender or exchange offer for any equity security of
the corporation, (b) merge or consolidate the corporation with another
corporation, or (c) purchase or otherwise acquire all or substantially all of
the properties and assets of the corporation, shall, in connection with the
exercise of its judgment in determining what is in the best interests of the
corporation and its stockholders, give due consideration to all relevant
factors, including without limitation the social and economic effects on the
employees, customers, suppliers and other constituents of the corporation and
its subsidiaries and on the communities in which the corporation and its
subsidiaries operate or are located.
ARTICLE 16
(Indemnification - Limitation of Liability)
Section 16.1 - Defined Terms. As used in this Article 16:
----------------------------
(a) "Egregious conduct" by a person shall mean acts or omissions that
involve intentional misconduct or a knowing violation of law, conduct violating
section 23A.08.450 of the Revised Code of Washington, or participation in any
transaction from which the person will personally receive a benefit in money,
property, or services to which the person is not legally entitled.
(b) "Finally adjudged" shall mean stated in a judgment based upon
clear and convincing evidence by a court having jurisdiction, from which there
is no further right to appeal.
(c) "Director" shall mean any person who is a director of the
corporation and any person who, while a director of the corporation, is serving
at the request of the corporation as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, or other enterprise, or is a fiduciary or party in
interest in relation to any employee benefit plan covering any employee of the
corporation or of any employer in which it has an ownership interest; and
"conduct as a director" shall include conduct while a director is acting in any
of such capacities.
(d) "Officer-director" shall mean any person who is simultaneously
both an officer and director of the corporation and any person who, while
simultaneously both an officer and director of the corporation, is serving at
the request of the corporation as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, or other enterprise, or is a fiduciary or
<PAGE>
party in interest in relation to any employee benefit plan covering any employee
of the corporation or of any employer in which it has an ownership interest; and
"conduct as an officer-director" shall include conduct while an officer-director
is acting as an officer of the corporation or in any of such other capacities.
(e) "Subsidiary corporation" shall mean any corporation at least
eighty percent of the voting stock of which is held beneficially by this
corporation.
Section 16.2 - Liability of Directors. No director, officer-director,
-------------------------------------
former director or former officer-director of the corporation shall be
personally liable to the corporation or its shareholders for monetary damages
for conduct as a director or officer-director unless the conduct is finally
adjudged to have been egregious conduct, as defined herein.
Section 16.3 - Liability of Subsidiary Directors. No director, officer-
------------------------------------------------
director, former director, or former officer-director of a subsidiary
corporation shall be personally liable in any action brought directly by this
corporation as a shareholder of the subsidiary corporation or derivatively on
behalf of the subsidiary corporation (or by any shareholder of this corporation
double-derivatively on behalf of this corporation and the subsidiary
corporation) for monetary damages for conduct as a director or officer-director
of such subsidiary corporation unless the conduct is finally adjudged to have
been egregious conduct, as defined herein.
Section 16.4 - Indemnification of Directors. The corporation shall
-------------------------------------------
indemnify any person who is, or is threatened to be made, a party to any action,
suit, or proceeding, whether civil, criminal, administrative, or investigative,
and whether by or in the right of the corporation or its shareholders or by any
other party, by reason of the fact that the person is or was a director or
officer-director of the corporation or of a subsidiary corporation against
judgments, penalties or penalty taxes, fines, settlements (even if paid or
payable to the corporation or its shareholders or to a subsidiary corporation)
and reasonable expenses, including attorneys' fees, actually incurred in
connection with such proceeding unless the liability and expenses were on
account of conduct finally adjudged to be egregious conduct, as defined herein.
The reasonable expenses, including attorneys' fees, of such person incurred in
connection with such proceeding shall be paid or reimbursed by the corporation,
upon request of such person, in advance of the final disposition of such
proceeding upon receipt by the corporation of a written, unsecured promise by
the person to repay such amount if it shall be finally adjudged that the person
is not eligible for
<PAGE>
indemnification. All expenses incurred by such person in connection with such
proceeding shall be considered reasonable unless finally adjudged to be
unreasonable.
Section 16.5 - Procedure. No action by the board of directors, the
------------------------
shareholders, independent counsel, or any other person or persons shall be
necessary or appropriate to the determination of the corporation's
indemnification obligation in any specific case, to the determination of the
reasonableness of any expenses incurred by a person entitled to indemnification
under this Article 16, nor to the authorization of indemnification in any
specific case.
Section 16.6 - Internal Claims Excepted. Notwithstanding section 16.4, the
---------------------------------------
corporation shall not be obligated to indemnify any person for any expenses,
including attorneys' fees, incurred to assert any claim against the corporation
(except a claim based on section 16.7) or any person related to or associated
with it, including any person who would be entitled hereby to indemnification in
connection with the claim.
Section 16.7 - Enforcement of Rights. The corporation shall indemnify any
------------------------------------
person granted indemnification rights under this Article 16 against any
reasonable expenses incurred by the person to enforce such rights.
Section 16.8 - Set-off of Claims. Any person granted indemnification
--------------------------------
rights herein may directly assert such rights in set-off of any claim raised
against the person by or in the right of the corporation and shall be entitled
to have the same tribunal which adjudicates the corporation's claim adjudicate
the person's entitlement to indemnification by the corporation.
Section 16.9 - Continuation of Rights. The indemnification rights provided
-------------------------------------
in this Article 16 shall continue as to a person who has ceased to be a director
or officer-director and shall inure to the benefit of the heirs, executors, and
administrators of such person.
Section 16.10 - Effect of Amendment or Repeal. Any amendment or repeal of
---------------------------------------------
this Article 16 shall not adversely affect any right or protection of a
director, officer-director, former director or former officer-director existing
at the time of such amendment or repeal with respect to acts or omissions
occurring prior to such amendment or repeal.
Section 16.11 - Severability of Provisions. Each of the substantive
------------------------------------------
provisions of this Article 13 is separate and independent of the others, so that
if any provision hereof shall be held to be invalid or unenforceable for any
reason, such
<PAGE>
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions.
ARTICLE 17
(Amendments)
The corporation reserves the right to amend or repeal any provision
contained in these Articles of Incorporation in the manner prescribed by the
Washington Business Corporation Act and all rights conferred upon stockholders
are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of these Articles of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of the
corporation required by law or by these Articles of Incorporation, the
affirmative vote of the holders of 66-2/3% of the voting power of all the then-
outstanding shares of the capital stock of the corporation entitled to vote
generally in the election of Directors (after giving effect to the provisions of
Article 12), voting together as a single class, shall be required to amend or
repeal this Article 17, Article 9, Article 12, Article 14 or Article 16.
The name and address of the incorporator is Donald V. Rhodes, Heritage
Bank, 201 5th Avenue S.W., Olympia, Washington 98502.
Executed in duplicate this 18th day of August, 1997.
HERITAGE FINANCIAL CORPORATION
By: /s/ Donald V. Rhodes
-----------------------------------------
Donald V. Rhodes
Chairman, President and
Chief Executive Officer
<PAGE>
CONSENT TO APPOINTMENT AS REGISTERED AGENT
The undersigned hereby consents to serve as registered agent, in the State
of Washington, for the following corporation: Heritage Financial Corporation.
DATED this 18th day of August, 1997.
/s/ J. James Gallagher
-------------------------------------
J. James Gallagher
Gordon, Thomas, Honeywell, Malanca,
Peterson & Daheim P.L.L.C.
1201 Pacific Avenue
2200 First Interstate Plaza
Tacoma, WA 98401
<PAGE>
EXHIBIT D
BYLAWS OF
HERITAGE FINANCIAL CORPORATION
August 28, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 - MEETINGS OF SHAREHOLDERS.........................................1
- ---------
Section 1.1 - Shareholder Meetings......................................1
Section 1.2 - Annual Meeting............................................1
Section 1.3 - Special Meetings..........................................1
Section 1.4 - Notice....................................................1
Section 1.5 - Quorum....................................................2
Section 1.6 - Adjournment...............................................2
Section 1.7 - Chairman of Meeting.......................................2
Section 1.8 - Secretary of Meeting......................................2
Section 1.9 - Conduct of Meetings.......................................2
Section 1.10 - Consent to Action........................................2
Section 1.11 - Proxies..................................................2
Section 1.12 - Shareholder Advisor......................................3
Section 1.13 - Recording of Proceedings.................................3
Section 1.14 - Record Date..............................................3
Section 1.15 - List of Shareholders.....................................3
ARTICLE 2 - DIRECTORS........................................................4
- ---------
Section 2.1 - Management of Corporation.................................4
Section 2.2 - Number of Directors.......................................4
Section 2.3 - Qualifications and Nominations of Directors...............4
Section 2.4 - Annual Meetings...........................................4
Section 2.5 - Place of Meetings.........................................4
Section 2.6 - Regular Meetings..........................................4
Section 2.7 - Special Meetings..........................................4
Section 2.8 - Notices...................................................4
Section 2.9 - Quorum....................................................5
Section 2.10 - Attendance by Conference Telecommunication...............5
Section 2.11 - Consent to Action........................................5
Section 2.12 - Compensation.............................................5
Section 2.13 - Manifestation of Dissent.................................6
ARTICLE 3 - COMMITTEES OF THE BOARD OF DIRECTORS.............................6
- ---------
i
<PAGE>
Section 3.1 - Executive Committee.......................................5
Section 3.2 - Audit Committee...........................................6
Section 3.3 - Other Committees..........................................7
Section 3.4 - Rules of Procedure........................................7
ARTICLE 4 - OFFICERS AND EMPLOYEES...........................................7
- ---------
Section 4.1 - Officers..................................................7
Section 4.2 - Election..................................................7
Section 4.3 - Removal and Vacancy.......................................8
Section 4.4 - Compensation..............................................8
Section 4.5 - Exercise of Rights as Stockholders........................8
Section 4.6 - Duties of Chairman of the Board...........................8
Section 4.7 - Duties of Vice Chairman...................................9
Section 4.8 - Duties of President.......................................9
Section 4.9 - Duties of Vice President..................................9
Section 4.10 - Duties of Secretary......................................9
Section 4.11 - Duties of Treasurer......................................9
Section 4.11 - Other Officers...........................................9
Section 4.12 - Clerks and Agents.......................................10
ARTICLE 5 - SHARES AND CERTIFICATES FOR SHARES..............................10
- ---------
Section 5.1 - Consideration............................................10
Section 5.2 - Stock Certificates.......................................10
Section 5.3 - Lost Certificates........................................10
Section 5.4 - Transfer of Shares.......................................11
Section 5.5 - Holder of Record.........................................11
Section 5.6 - Issuance of Shares.......................................11
Section 5.7 - Subscriptions............................................11
Section 5.8 - Payment of Subscriptions.................................11
Section 5.9 - Default in Payment of Subscriptions......................12
ARTICLE 6 - SEAL............................................................11
- ---------
Section 6.1 - Corporate Seal...........................................12
ARTICLE 7 - MISCELLANEOUS PROVISIONS........................................12
- ---------
Section 7.1 - Fiscal Year..............................................12
Section 7.2 - Records..................................................12
ii
<PAGE>
ARTICLE 8 - BYLAWS..........................................................13
- ---------
Section 8.1 - Inspection...............................................13
Section 8.2 - Amendments...............................................13
iii
<PAGE>
BYLAWS OF
HERITAGE FINANCIAL CORPORATION
ARTICLE 1
---------
Meetings of Shareholders
------------------------
SECTION 1.1 - Shareholder Meetings. Shareholder meetings shall be held at
----------------------------------
the principal office of the corporation, or at such other location within or
without the State of Washington as shall be determined by the Board of Directors
and stated in the Notice of Meeting.
SECTION 1.2 - Annual Meeting. The regular annual meeting of the
----------------------------
shareholders for the election of directors and for the transaction of such other
business as may properly be brought before the meeting shall be held on such day
and at such time following the close of the corporation's fiscal year as shall
be determined each year by the Board of Directors. If such annual meeting is
omitted by oversight or otherwise during such period, a subsequent annual
meeting may nonetheless be held, and any business transacted or elections held
at such meeting shall be as valid as if the annual meeting had been held during
the period provided above.
SECTION 1.3 - Special Meetings. Special meetings of the shareholders may
------------------------------
be called at any time by the Chairman, the President, a majority of the Board of
Directors, or any shareholder or shareholders holding in the aggregate not less
than one-tenth of all shares entitled to vote at the special meeting.
Shareholders may hold a meeting at any time and place without notice or call,
upon appropriate waivers signed by all shareholders who are entitled to vote at
a shareholders' meeting.
SECTION 1.4 - Notice. Written notice stating the place, day, and hour of
--------------------
the meeting, and in case of a special meeting the purpose or purposes for which
the meeting is called, shall be delivered not less than ten (10) days nor more
that sixty (60) days before the date of the meeting, either personally or by
mail, by or at the direction of the President, the Secretary, or the person or
persons 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 United States mail, postage prepaid, addressed to the
shareholder at his address as it appears on the stock transfer books of the
corporation. Each shareholder shall be responsible for providing the Secretary
with the shareholder's current mailing
1
<PAGE>
address to which notices of meetings and all other corporate notices may be
sent. A shareholder may waive any notice required for any meeting by executing a
written waiver of notice either before or after said meeting and such waiver
shall be equivalent to the giving of such notice. The attendance of a
shareholder at a shareholders' meeting, in person or by proxy, shall constitute
a waiver of notice of the meeting.
SECTION 1.5 - Quorum. A majority of the shares entitled to vote,
--------------------
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. When a quorum is present at any meeting, the affirmative vote of
the majority of the shares represented at the meeting and entitled to vote on
the subject matter shall be the act of the shareholders, unless otherwise
provided by law.
SECTION 1.6 - Adjournment. A majority of the shares entitled to vote,
-------------------------
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders.
SECTION 1.7 - Chairman of Meeting. The Chairman, or in his absence, the
---------------------------------
President or the Vice Chairman, shall preside at all meetings of the
shareholders unless the Board of Directors shall otherwise determine. The Board
of Directors may appoint any shareholder to act as chairman of the meeting.
SECTION 1.8 - Secretary of Meeting. The Secretary shall act as a secretary
----------------------------------
at all meeting of the shareholders, and in his absence, the presiding officer
may appoint any person to act as secretary.
SECTION 1.9 - Conduct of Meetings. Shareholder meetings shall be conducted
---------------------------------
in an orderly and fair manner, but the presiding officer shall not be bound by
any technical rules of parliamentary procedure.
SECTION 1.10 - Voting. Each outstanding share entitled to vote shall have
---------------------
one vote on each matter submitted to a vote at a meeting of shareholders.
SECTION 1.11 - Proxies. At all meetings of shareholders, a shareholder may
----------------------
vote by a proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven (11) months from the date of its execution, unless otherwise provided in
the proxy.
2
<PAGE>
SECTION 1.12 - Shareholder Advisor. A shareholder or holder of a valid
----------------------------------
proxy may be accompanied at any shareholders' meeting by one personal advisor,
but no such advisor may address the meeting without the consent of the presiding
officer.
SECTION 1.13 - Recording of Proceedings. The proceedings of a
---------------------------------------
shareholders' meeting may not be mechanically or electronically recorded other
than by the Secretary or acting secretary without the express approval of all
individuals in attendance at the meeting.
SECTION 1.14 - Record Date. For the purpose of determining shareholders
--------------------------
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purpose, the Board
of Directors may fix in advance a date as the record date for any such
determination of shareholders. Such date in any case shall not be more than
sixty (60) days and, in case of a meeting of shareholders, not less than ten
(10) days prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If no record date is fixed by the
Board of Directors, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders. 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 thereof.
SECTION 1.15 - List of Shareholders. The Secretary of the corporation
-----------------------------------
shall make a complete record of the shareholders entitled to vote at a meeting
of shareholders, or any adjournment thereof, arranged in alphabetical order,
with the address of and the number of shares held by each as shown on the
corporation's stock transfer books on the record date. Such record shall be
kept on file at the registered office of the corporation for a period of ten
(10) days prior to the meeting of shareholders. Such record shall be produced
and kept open at the time and place of the shareholders' meeting and shall be
subject to the inspection of any shareholder during the meeting for any proper
purpose.
3
<PAGE>
ARTICLE 2
---------
Directors
---------
SECTION 2.1 - Management of Corporation. All corporate powers shall be
---------------------------------------
exercised by, or under authority of, and the business and affairs of the
corporation shall be managed under the direction of the Board of Directors
(hereinafter sometimes referred to as the "Board").
SECTION 2.2 - Number of Directors. The initial number of directors is
---------------------------------
stated in the Articles of Incorporation. The number to be elected by the
shareholders shall consist of not less than five (5) nor more than twenty-five
(25) persons. The exact number within such minimum and maximum limits shall be
fixed and determined by resolution of the Board of Directors.
SECTION 2.3 - Nominations of Directors. Any nomination to the Board of
--------------------------------------
Directors (other than one proposed by the existing Board of the corporation)
must be made in the manner set forth in the Articles of Incorporation.
SECTION 2.4 - Annual Meetings. Immediately after the annual meeting of
-----------------------------
shareholders, the Directors shall meet to elect officers and transact any other
business they deem appropriate.
SECTION 2.5 - Place of Meetings. Meetings of the Board of Directors,
-------------------------------
regular or special, may be held within or without this state.
SECTION 2.6 - Regular Meetings. Regular meetings of the Board of Directors
------------------------------
may be held without notice at such time and at such place as the Board may by
vote from time to time designate.
SECTION 2.7 - Special Meetings. Special meetings of the Board of Directors
------------------------------
may be called by the Chairman, the President or the Vice Chairman or by any two
(2) directors.
SECTION 2.8 - Notices. Notices of special meetings of the Board of
---------------------
Directors stating the date, time, place and in general terms the purpose or
purposes thereof shall be delivered to each director, by mailing written notice
at least two (2) days before the meeting or by telephoning, telegraphing or
personally advising each director at least one (1) day before the meeting. A
special meeting shall be held not more than twenty (20) days after the delivery
of said notice. If mailed, such notice shall be deemed to be delivered when
deposited in the United
4
<PAGE>
States mail, postage prepaid, addressed to the director at the address provided
to the Secretary. An entry of the service of notice, given in the manner above
provided, shall be made in the minutes of the proceedings of the Board of
Directors, and such entry, if read and approved at the subsequent meeting of the
Board, shall be conclusive on the question of service. Attendance of a director
at a special 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 was not lawfully called or
convened. A director also may waive any notice required for any meeting by
executing a written waiver of notice either before or after said meeting, and
such waiver shall be the equivalent of giving such notice.
SECTION 2.9 Quorum. A majority of the directors shall constitute a quorum
------------------
for the transaction of business. Unless otherwise provided in the Articles of
Incorporation or these Bylaws, 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. A majority of those present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn from time to time,
without further notice, until a quorum shall attend. When a quorum shall
attend, any business may be transacted which might have been transacted at the
meeting had the same been held on the date stated in the notice of meeting.
SECTION 2.10 - Attendance by Conference Telecommunication. Members of the
---------------------------------------------------------
Board of Directors may participate in a meeting of such Board by means of a
conference telephone or similar communications equipment, by means of which all
persons participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.
SECTION 2.11 - Consent to Action. Any action which may be taken at a
--------------------------------
meeting of the Board of Directors, or at a meeting of any committee of the
Board, 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 or all the members of
the committee. Such consent shall have the same force and effect as a unanimous
vote at a duly convened meeting.
SECTION 2.12 - Compensation. The directors shall receive such reasonable
---------------------------
compensation for their services as directors and as members of any committee
appointed by the Board as may be prescribed by the Board of Directors, and may
be reimbursed by the corporation for ordinary and reasonable expenses incurred
in the performance of their duties.
SECTION 2.13 - Manifestation of Dissent. A director of the corporation who
---------------------------------------
5
<PAGE>
is present at a meeting of the Board at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
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 corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
ARTICLE 3
---------
Committees of the Board of Directors
------------------------------------
SECTION 3.1 - Executive Committee. By resolution adopted by a majority of
---------------------------------
the entire Board of Directors, the Board may designate from among its members an
Executive Committee of not less than three (3) nor more than seven (7) members,
one of whom shall be the Chairman, who shall also act as chairman of the
Executive Committee. Any member of the Board may serve as an alternate member
of the Executive Committee in the absence of a regular member or members. The
Executive Committee shall have and may exercise all of the authority of the
Board of Directors during the intervals between meetings of the Bank, except
that the committee shall not have the authority to: (1) authorize or approve a
distribution or issuance of shares, except according to a general formula or
method prescribed by the Board of Directors, (2) approve or propose to
shareholders actions or proposals requiring shareholder approval, (3) fill
vacancies on the Board of Directors or any committee thereof, (4) amend the
Articles of Incorporation pursuant to RCW 23B.10.020, (5) adopt, amend or repeal
Bylaws, (6) approve a plan of merger not requiring shareholder approval, or (7)
authorize or approve the issuance or sale or contract for sale of shares, or
determine the designation and relative rights, preferences, and limitations of a
class or series of shares, except within certain limits specifically prescribed
by the Board of Directors.
SECTION 3.2 - Audit Committee. By resolution adopted by a majority of the
-----------------------------
entire Board of Directors, the Board may appoint from among its members an Audit
Committee of three (3) or more, none of whom shall be active officers
of the corporation, and may designate one (1) of such members as chairman of the
Committee. The Board may also designate one or more directors as alternates to
serve as a member or members of the Committee in the absence of a regular member
or members. The Committee shall establish and maintain continuing
communications between the Board and the corporation's independent auditors,
6
<PAGE>
internal auditors, and members of financial management with respect to the audit
of the corporation's accounts and financial affairs and the audit of the
corporation's controlled subsidiaries. The Committee shall have such other
powers and perform such other duties as may from time to time be prescribed by
the Board of Directors.
SECTION 3.3 - Other Committees. By resolution adopted by a majority of the
------------------------------
entire Board of Directors, the Board may designate from among its members such
other committees as it may deem necessary, each of which shall consist of not
less than two (2) directors and have such powers and duties as may from time to
time be prescribed by the Board.
SECTION 3.4 - Rules of Procedure. The majority of the members of any
--------------------------------
committee may fix its rules of procedure. All actions by any committee shall be
reported in written minutes available at any reasonable time to any Board
member. Such actions shall be subject to revision, alteration and approval by
the Board of Directors; provided, that no rights or acts of third parties who
have relied in good faith on the authority granted herein shall be affected by
such revision or alteration.
ARTICLE 4
---------
Officers and Employees
----------------------
SECTION 4.1 - Officers. The Board of Directors may elect a Chairman and a
----------------------
Vice Chairman of the Board and shall elect a President. It shall also elect one
or more Vice Presidents, a Secretary and a Treasurer and such additional
officers as in the opinion of the Board the business of the corporation
requires. The Board may also elect or appoint, or in its discretion delegate to
the Chairman the authority to appoint, from time to time such other or
additional officers as are desirable for the conduct of the business of the
corporation.
SECTION 4.2 - Election. None of the officers, except the Chairman, Vice
----------------------
Chairman, and President, need be directors. The officers shall be elected
annually by the Board of Directors at the meeting of the Board following the
annual meeting of shareholders, and they shall hold office at the pleasure of
the Board of Directors.
SECTION 4.3 - Removal and Vacancy. Any officer, agent, or employee of the
---------------------------------
corporation may be removed by the Board of Directors at any time with or without
cause. Such removal, however, shall be without prejudice to the contract
rights, if any, of the persons so removed. Election or appointment of an
officer or
7
<PAGE>
agent or employee shall not of itself create contract rights. If any corporate
office becomes vacant by reason of death, resignation, removal or otherwise, the
Board of Directors or the executive officer possessing delegated authority to
appoint such an officer, shall have power to fill such vacancies. In case of the
absence or disability of any officer, the Board of Directors or the Chairman may
delegate the powers or duties of any such officer to another officer for the
time being.
SECTION 4.4 - Compensation. The compensation of the Chairman shall be
--------------------------
fixed by the Board of Directors. Unless fixed by the Board of Directors, the
compensation for all other officers, employees or agents of the corporation
shall be established by or at the direction of the Chairman.
SECTION 4.5 - Exercise of Rights as Stockholders. Unless otherwise ordered
------------------------------------------------
by the Board of Directors, the Chairman or his designee acting by written
designation, shall have full power and authority on behalf of the corporation to
attend and to vote at any meeting of shareholders of any corporation in which
this corporation may hold stock, other than in a fiduciary capacity, and may
exercise on behalf of this corporation any and all of the rights and powers
incident to the ownership of such stock at any such meeting, and shall have
power and authority to execute and deliver proxies and consents on behalf of
this corporation in connection with the exercise by this corporation of the
rights and powers incident to the ownership of such stock. The Board of
Directors, from time to time, may confer like powers upon any other person or
persons.
SECTION 4.6 - Duties of Chairman of the Board. Unless the Board shall
---------------------------------------------
otherwise determine, the Chairman shall preside at all meetings of the
shareholders and at meetings of the Board of Directors and the Executive
Committee. The Chairman shall see that all orders and resolutions of the Board
of Directors and the Executive Committee are carried into effect and shall be
the person to whom the Vice Chairman and President, and all other officers
designated by the Chairman, shall report. The Chairman may delegate such duties
as he sees fit to delegate to the Vice Chairman, the President, or other
officers of the corporation. The Chairman may appoint agents or employees other
than those appointed by the Board of Directors, and shall perform such other
duties as may be prescribed from time to time by the Board of Directors or by
the Bylaws.
8
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SECTION 4.7 - Duties of Vice Chairman. The Vice Chairman may assist the
-------------------------------------
Chairman in the performance of the Chairman's duties and shall have such powers
and exercise such other duties as shall be delegated to such officer by the
Chairman or the Board. In the absence of the Chairman, the Vice Chairman shall
perform all of the duties and assume all of the responsibilities of the
Chairman.
SECTION 4.8 - Duties of President. The President shall, subject to the
---------------------------------
authority granted to the Chairman and the Vice Chairman, be the chief operating
officer of the corporation and shall have general supervision over the day-to-
day business of the corporation. The President shall have such other authority
and shall exercise such other duties as shall, from time to time, be delegated
to such officer by the Chairman or by the Board.
SECTION 4.9 - Duties of Vice President. The Vice Presidents shall have
--------------------------------------
such powers and perform such duties as may be assigned to them by the Board of
Directors or the Chairman. A Vice President designated by the Board of
Directors shall perform all of the duties of the President in case of absence or
disability of the President
SECTION 4.10 - Duties of Secretary. The Secretary shall, subject to the
----------------------------------
direction of the Chairman keep the minutes of all meetings of the shareholders
and of the Board of Directors, and to the extent ordered by the Board of
Directors or the Chairman the minutes of all meetings of all committees. He
shall cause notice to be given of the meetings of the shareholders, of the Board
of Directors, and of any committee appointed by the Board. He shall have
custody of the corporate seal and general charge of the records, documents, and
papers of the corporation not pertaining to the performance of the duties vested
in other officers, which shall at all reasonable times be open to the
examination of any director. Without limiting the generality of the foregoing,
the Secretary shall have charge (directly or through such transfer agents or
registrars as the Board of Directors may appoint) of the issuance, transfer, and
registration of certificates for shares of the corporation and of the records
pertaining thereto. Said records shall be kept in such manner as to show at any
time the number of shares of the corporation issued and outstanding, the manner
in which and the time when such shares were paid for, the names and addresses of
the holders of record thereof, the numbers and classes of shares held by each,
and the time when each became such holder of record. He shall perform such
other duties as may be assigned to him by the Board of Directors or the
Chairman.
SECTION 4.11 - Duties of Treasurer. Except as otherwise set forth herein,
----------------------------------
the Treasurer shall, subject to the direction of the Chairman have general
custody
9
<PAGE>
of all the property, funds and securities of the corporation and have general
supervision of the collection and disbursement of funds of the corporation. He
shall provide for the keeping of proper records of all transactions of the
corporation. He shall perform such other duties as may be assigned to him by the
Board of Directors or the Chairman.
SECTION 4.12 - Other Officers. Such other officers as shall be appointed
-----------------------------
by the Board of Directors, or the Chairman, acting pursuant to delegated
authority of the Board, shall exercise such powers and perform such duties as
pertain to their several offices, or as may be conferred upon or assigned to
them by the Board of Directors or the Chairman or his designee.
SECTION 4.13 - Clerks and Agents. The Chairman, or any other officer of
--------------------------------
the corporation authorized by him, may, subject to the supervision of the Board
of Directors, appoint such custodians, bookkeepers and other clerks, agents, and
employees as he shall deem advisable for the prompt and orderly transaction of
the business of the corporation and shall define their duties, fix the salaries
to be paid to them and dismiss them.
ARTICLE 5
---------
Shares and Certificates for Shares
----------------------------------
SECTION 5.1 - Consideration. Certificates for shares of the corporation
---------------------------
shall be issued only when fully paid for.
SECTION 5.2 - Stock Certificates. The certificates shall be in such form
--------------------------------
as designated by the Board of Directors, shall be numbered in the order in which
they shall be issued, and shall be signed, either manually or in facsimile, by
the President and by the Secretary, or by such officers as may be designated by
the Board of Directors. If a corporate seal is maintained, it or a facsimile
thereof may be affixed to the certificates. Each certificate shall state upon
its face the name of the corporation and that the corporation is organized under
the laws of the State of Washington, the name of the person to whom it is
issued, and the number and class of shares and the designation of the series, if
any, the certificate represents.
SECTION 5.3 - Lost Certificates. No new certificates shall be issued until
-------------------------------
the former certificate for the shares represented thereby shall have been
surrendered and cancelled, except in the case of lost or destroyed certificates,
and in that case only after the receipt of a bond or other security by the
corporation,
10
<PAGE>
satisfactory to the Board of Directors, indemnifying the corporation and all
persons against loss in consequence of the issuance of such new certificate.
SECTION 5.4 - Transfer of Shares. Shares of the corporation may be
--------------------------------
transferred by endorsement by the signature of the owner, his agent, attorney or
legal representative, and the delivery of the certificate; but no transfer shall
be valid except between the parties thereto, until the same shall have been
entered upon the books of the corporation, so as to show the names of the
parties, by and to whom transferred, the numbers and designation of the shares
and the date of transfer.
SECTION 5.5 - Holder of Record. The person registered on the books of the
------------------------------
corporation as the owner of the issued shares shall be recognized by the
corporation as the person exclusively entitled to have and to exercise the
rights and privileges incident to the ownership of such shares. Notwithstanding
the preceding sentence, the Board of Directors may adopt by resolution a
procedure whereby a shareholder may certify in writing to the corporation that
all or a portion of the shares registered in the name of such shareholder are
held for the account of a specified person or persons. Upon receipt by the
corporation of a certification complying with such an adopted procedure, the
person specified in the certification shall be deemed, for the purpose or
purposes set forth in the certification, to be the holders of record of the
number of shares specified in place of the shareholder making the certification.
SECTION 5.6 - Issuance of Shares. Any shares authorized but not issued by
--------------------------------
this corporation shall be issued, sold, or otherwise transferred by this
corporation only upon authorization of the Board of Directors.
SECTION 5.7 - Subscriptions. A subscription for shares of this corporation
---------------------------
shall be in writing and upon such terms as may be approved by the Board of
Directors.
SECTION 5.8 - Payment of Subscriptions. A subscription for shares shall be
--------------------------------------
paid in accordance with the terms set forth in the subscription or related
subscription agreement, if any. If the subscription or subscription agreement
does not require payment on or before a stated date or at a fixed period after a
stated date, then payment shall be made in such manner and at such times as may
be determined by the Board of Directors and expressed by it in a written call
for payment; provided that the call shall be uniform as to all shares of the
same class or series and that the call shall be mailed to each subscriber at his
last post office address known to the corporation at least thirty (30) days in
advance of the date upon which payment or the first installment, if installment
payments are called for,
11
<PAGE>
is due.
SECTION 5.9 - Default in Payment of Subscriptions. If a payment required
-------------------------------------------------
by a subscription, a subscription agreement, or a call of the Board of Directors
is not paid when due, then the corporation may make written demand for payment
upon the defaulting subscriber by personal service or by mailing a copy of the
demand to the subscriber at his last post office address known to the
corporation. If the payment is not made within twenty (20) days of the serving
or mailing of the demand for payment, the corporation may terminate the
subscription, forfeit the subscriber's rights thereunder, retain as liquidated
damages any sums previously paid on the subscription, and hold and dispose of
the shares as though never subject to the subscription. In lieu of forfeiture,
the corporation may proceed to collect the amount due in the same manner as any
debt due the corporation.
ARTICLE 6
---------
Seal
----
SECTION 6.1 - Corporate Seal. In the exercise of its discretion the Board
----------------------------
of Directors may adopt and maintain a suitable seal for the corporation.
ARTICLE 7
---------
Miscellaneous Provisions
------------------------
SECTION 7.1 - Fiscal Year. The fiscal year of the corporation shall be the
-------------------------
June 30.
SECTION 7.2 - Records. The Articles of Incorporation, the Bylaws, and the
---------------------
proceedings of all meetings of the shareholders, the Board of Directors and
standing committees of the Board shall be recorded in appropriate minute books
provided for that purpose. The minutes of each meeting shall be signed by the
Secretary or other officer appointed to act as Secretary.
ARTICLE 8
---------
Bylaws
------
SECTION 8.1 - Inspection. A copy of the Bylaws, with all amendments
------------------------
thereto, shall at all times be kept in a convenient place at the principal
office of the corporation, and shall be open for inspection by all shareholders
during normal
12
<PAGE>
business hours.
SECTION 8.2 - Amendments. The Bylaws may be amended, altered or repealed,
------------------------
at any regular meeting of the Board of Directors, by a vote of the majority of
the whole Board of Directors, provided that a written statement of the proposed
action shall have been personally delivered or mailed to all directors at least
two (2) days prior to any such meeting.
I HEREBY CERTIFY that the foregoing are the Bylaws of Heritage Financial
Corporation in effect on this 28th day of August, 1997.
/s/ Wendy K. Gauksheim
----------------------
Secretary
13
<PAGE>
Exhibit 4
- --------------------------------------------------------------------------------
INCORPORATED UNDER THE LAWS OF
NO. _____ STATE OF WASHINGTON SHARES _____
[PICTURE OF
EAGLE HERITAGE FINANCIAL CORPORATION
APPEARS HERE]
Authorized Common Stock: 15,000,000
This Certifies that ________________________________________ is the owner of
______________________Shares of common stock each of the Capital Stock of
HERITAGE FINANCIAL CORPORATION
transferable only on the books of the Corporation by the holder
hereof in person or by Attorney upon surrender of this
[SEAL Certificate properly endorsed
APPEARS
HERE] IN WITNESS WHEREOF, the said Corporation has caused this
Certificate to be signed by its duly authorized officers and to
be sealed with the Seal of the Corporation
this ____________ day of _____________ A.D.
---------------------------- --------------------------
President Secretary
- ------------------------- SHARES (No Par Value) EACH ---------------------------
<PAGE>
CERTIFICATE
FOR
SHARES
[PICTURE OF EAGLE APPEARS HERE]
OF THE
CAPITAL STOCK
ISSUED TO
-------------------------
DATED
-------------------------
For Value Received, _________ hereby sell, assign and transfer unto _______
________________________________________________________________________________
_______________________________________ Shares of the Capital Stock represented
by the within Certificate, and do hereby irrevocably constitute and appoint
________________________________________________________________________________
to transfer the said Stock on the books of the within named Corporation with
full power of substitution in the premises.
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
Dated ________________ 19__
In presence of
--------------------------------------------
------------------------------
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
EXHIBIT 8.1
October 27, 1997
PRIVATE & CONFIDENTIAL
The Boards of Directors
Heritage Financial Corporation, MHC
Heritage Savings Bank
Olympia, Washington
You have requested the opinions of KPMG Peat Marwick LLP ("KPMG") regarding
certain federal income tax consequences of two integrated transactions described
below. All section references herein are, unless otherwise specified, to the
Internal Revenue Code of 1986, as amended (the "Code").
In rendering the tax opinions contained herein, we have examined such corporate
records, certificates and other documents as we have considered necessary or
appropriate. In our examination, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such copies.
In order to facilitate a full and complete understanding of the FACTS AND
REPRESENTATIONS upon which our opinions would be based, prior to finalization of
this opinion, a draft dated October 15, 1997 was circulated for review and
concurrence by Heritage Financial Corporation, MHC. The opinions contained
herein are based solely upon the FACTS AND REPRESENTATIONS as contained herein.
If any of the FACTS or REPRESENTATIONS are not correct or complete it is
imperative that we be so informed in writing immediately as such could cause us
to change our opinions.
FACTS
- -----
Heritage Financial Corporation, MHC (the "Mutual Holding Company") is a state-
chartered mutual holding company organized in the state of Washington. The
Mutual Holding Company maintains its books on the accrual method of accounting
and files a tax return on a June 30 year end basis. As a mutual holding
company, the Mutual Holding Company has no capital stock.
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Page 2
The Boards of Directors
Heritage Financial Corporation, MHC
Heritage Savings Bank
October 27, 1997
Heritage Savings Bank (the "Bank") is a state-chartered stock savings bank
organized in Washington. The Mutual Holding Company owns approximately 66.3
percent of the issued and outstanding stock of the Bank. The remaining 33.7
percent of the Bank's stock is held by the public.
The Mutual Holding Company and the Bank were organized on January 31, 1994 in
connection with the reorganization of Heritage Bank, a Mutual Savings Bank, (the
"Mutual Bank") from a state mutual savings bank into the Mutual Holding Company
(the "1994 Reorganization"). In June of 1993 the Bank received rulings from the
Internal Revenue Service (the "Service") holding that the 1994 Reorganization
constituted a tax-free transaction under Section 351 of the Code. The Bank
issued common stock to the Mutual Holding Company in exchange for substantially
all of the assets and all of the liabilities of the Mutual Bank. As part of the
1994 Reorganization, the Bank issued a portion of its stock to the public in
exchange for cash whereby immediately after the 1994 Reorganization the public
owned approximately 33.3 percent of the outstanding Bank Stock and the Mutual
Holding Company owned the remaining 66.7 percent.
The principal business of the Bank is the acceptance of savings deposits from
the general public and originating for sale or investment purposes first
mortgage loans on residential properties located in western Washington. The
Bank also makes residential construction loans, income property loans, business
loans, consumer loans and second mortgage loans. The Bank's income is derived
largely from interest and fees in connection with its lending activities. Its
principal expenses are interest paid on savings deposits and operating expenses.
Currently, the management of the Bank and the Mutual Holding Company believe it
would be in their best interest, as well as the best interest of their
stockholders and members (respectively) to operate in the corporate structure
specified below. The proposed transactions will result in the Bank being wholly
owned by Heritage Financial Corporation, a capital stock corporation organized
under the state law of Washington (the "Holding Company"), which is a more
common structure and form of ownership than a mutual holding company. The new
corporate structure would also provide greater organizational flexibility, and
enable the resulting institutions to increase their equity capital base
available for expansion of services, facilities, possible future acquisitions of
other financial institutions, possible diversification into other related
financial services activities, and enhance their ability to render services to
the public in a competitive manner. In addition, the proposed transactions will
result in the raising of additional
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The Boards of Directors
Heritage Financial Corporation, MHC
Heritage Savings Bank
October 27, 1997
capital for the Bank and the Holding Company. As well, the proposed transactions
have been structured to re-unite the accumulated earnings and profits tax
attribute retained by the Mutual Holding Company with the retained earnings of
the Bank through a tax-free reorganization. This would increase the Bank's
ability to pay dividends in the future.
The Bank and the Mutual Holding Company have adopted the Amended and Restated
Plan of Conversion and Reorganization of Heritage Financial Corporation, MHC
referred to herein as the "Plan of Conversion". The Mutual Holding Company and
the Bank represent that the Plan of Conversion shall be submitted together with
all requisite material to the Washington Department of Financial Institutions,
Division of Banks (the "Division"), the Federal Deposit Insurance Corporation,
and the Board of Governors of the Federal Reserve System or the Federal Reserve
Bank of San Francisco.
For valid business reasons, as described above and in the prospectus to be used
in the public offerings of Holding Company Stock described herein
("Prospectus"), the present corporate structure of the Mutual Holding Company
and the Bank will be changed pursuant to the following proposed transactions:
(1) The Bank will form the Holding Company as a new, wholly owned, first
tier subsidiary of the Bank.
(2) The Holding Company will form an interim corporation ("Interim Bank B")
as a new, wholly owned first tier subsidiary that is a state-chartered
stock bank.
(3) Pursuant to the Plan of Merger between the Mutual Holding Company and
the Bank, the Mutual Holding Company will convert from the mutual form
to a state interim stock bank ("Interim Bank A") and Interim Bank A will
immediately merge with and into the Bank with the Bank being the
surviving corporation ("Merger 1"). Pursuant to Merger 1, the common
stock of the Bank which was previously held by the Mutual Holding
Company will be canceled and eligible members of the Mutual Holding
Company will receive an interest in a liquidation account (the "Bank
Liquidation Interests") of the Bank in exchange for such member's
interest in the Mutual Holding Company.
The initial balance of the liquidation account will equal 66.31 percent
of the Bank's total shareholder equity as reflected in its June 30, 1997
statement of
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The Boards of Directors
Heritage Financial Corporation, MHC
Heritage Savings Bank
October 27, 1997
financial condition, which is the latest statement of financial
condition expected to be contained in the Prospectus to be utilized in
the Mutual Holding Company's mutual-to-stock conversion (the
"Conversion") plus an amount equal to the aggregate amount of Bank
Common Stock dividends waived by the Mutual Holding Company since
January 1, 1994, when the Mutual Holding Company was formed, and the
amount of assets other than Bank Common Stock (approximately $120,000)
held by the Mutual Holding Company.
(4) Immediately following Merger 1, pursuant to the Plan of Reorganization
among the Bank, the Holding Company and Interim Bank B, Interim Bank B
will merge with and into the Bank, with the Bank surviving ("Merger 2").
Merger 2 will be completed in accordance with applicable federal and
state laws. The stock of the Bank held by the public, which then will
constitute all of the outstanding shares of the Bank, will automatically
be converted into common stock of the Holding Company ("Holding Company
Stock") based upon a exchange ratio which ensures that the public
shareholders will own, in the aggregate, approximately the same
percentage of stock of the Holding Company outstanding upon completion
of the Conversion as the percentage of the stock of the Bank owned by
them in the aggregate immediately prior to the consummation of the
Conversion, before giving effect to (a) cash paid in lieu of issuing
fractional shares of stock of the Holding Company, (b) an adjustment
downward to reflect the aggregate amount of Bank Common Stock dividends
waived by the Mutual Holding Company since January 1, 1994, when the
Mutual Holding Company was formed and the amount of assets other than
Bank Common Stock (approximately $120,000) held by the Mutual Holding
Company, and (c) any shares of stock of the Holding Company purchased by
such public stockholders in the offering described below.
(5) All of the shares of common stock of Interim Bank B held by the Holding
Company shall be converted into one share of common stock of the Bank
which will continue to be owned by the Holding Company. The shares of
Holding Company issued prior to the effective date of the conversion
shall be canceled.
(6) Simultaneously with the consummation of Merger 2, the Holding Company
will sell additional shares of Holding Company Stock, with priority
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The Boards of Directors
Heritage Financial Corporation, MHC
Heritage Savings Bank
October 27, 1997
subscription rights granted to certain members of the Mutual Holding
Company at specified dates, and to tax qualified employee benefit plans,
directors, employees, the public stockholders of the Bank and members of
the public.
REPRESENTATIONS
- ---------------
Representations related to the conversion of MHC into Interim Bank A:
- ---------------------------------------------------------------------
(1) The fair market value of the mutual interests in the Mutual Holding
Company will approximately equal the fair market value of the interest
in the liquidation account in Interim Bank A constructively received in
exchange therefor. All proprietary rights in the Mutual Holding Company
are being surrendered in the exchange.
(2) Immediately following such conversion, Interim Bank A will possess the
same assets and liabilities as the Mutual Holding Company held
immediately prior to the proposed transaction. Assets used to pay
expenses of the conversion and all distributions will in the aggregate
constitute less than one percent of the assets of the Mutual Holding
Company, net of liabilities associated with such assets. Following such
conversion, Interim Bank A will continue to engage in its business in
substantially the same manner as engaged in Mutual Holding Company prior
to such Conversion. Except for the Merger, as described above, Interim
Bank A has no plan or intention to sell or otherwise dispose of any of
its assets, except in the ordinary course of business.
(3) Compensation to be paid to the mutual owner-employees of Mutual Holding
Company will be commensurate with the amounts paid to third parties
bargaining at arm's length for similar services.
(4) The aggregate fair market value of the "qualifying deposits" entitled to
interests in the liquidation account to be established constructively by
Interim Bank A will equal or exceed 99 percent of the aggregate fair
market value of all savings accounts in Bank as of the close of business
on such date.
(5) No shares of Interim Bank A stock will be issued in the transaction.
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The Boards of Directors
Heritage Financial Corporation, MHC
Heritage Savings Bank
October 27, 1997
(6) Holders of Mutual Holding Company equity interests will constructively
receive only interests in the liquidation account of Interim Bank A in
the conversion.
(7) Mutual Holding Company and Interim Bank A are corporations within the
meaning of Section 7701(a)(3) of the Code.
(8) Bank's savings depositors will pay expenses of the conversion solely
attributable to them, if any. Mutual Holding Company, the Stock
Association and the Association will pay their own expenses for the
transaction and will not pay any expenses solely attributable to the
savings depositors or to the Holding Company stockholders.
(9) The liabilities of Mutual Holding Company, if any, assumed by Interim
Bank A, plus the liabilities, if any, to which the transferred assets
are subject were incurred by Mutual Holding Company in the ordinary
course of its business.
(10) The Mutual Holding Company is not under the jurisdiction of a court in
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of
the Code.
(11) At the time of the proposed transaction, the fair market value of the
assets of Mutual Holding Company on a going concern basis will exceed
the amount of its liabilities plus the amount of liability to which its
assets are subject.
Representations related to Merger 1:
- ------------------------------------
(1) The fair market value of the Bank Liquidation Interests received by each
Mutual Holding Company member will approximately equal the fair market
value of the Mutual Holding Company liquidation interests surrendered in
Merger 1.
(2) To the best of the knowledge of management of the Mutual Holding
Company, there is no plan on the part of any members of the Mutual
Holding Company to reduce their ownership interest in the Bank
Liquidation Interests to an interest having a value, as of the date of
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The Boards of Directors
Heritage Financial Corporation, MHC
Heritage Savings Bank
October 27, 1997
Merger 1, of less than 50 percent of the value of all of the formerly
outstanding liquidation interests of the Mutual Holding Company as of
the same date. For purposes of this representation, liquidation
interests of the Mutual Holding Company exchanged for cash or other
property, surrendered by dissenters or exchanged for cash in lieu of
fractional shares of Bank stock will be treated as outstanding Mutual
Holding Company liquidation interests on the date of Merger 1.
(3) The Bank has no plan or intention to reacquire any of the Bank
Liquidation Interests issued in Merger 1.
(4) The Bank has no plan or intention to sell or otherwise dispose of any of
the assets of the Mutual Holding Company acquired in the transaction,
except for the dispositions made in the ordinary course of business or
transfers described in Section 368(a)(2)(C) of the Code.
(5) The Liabilities of the Mutual Holding Company assumed by the Bank and
the liabilities to which the transferred assets of the Mutual Holding
Company are subject were incurred by the Mutual Holding Company in the
ordinary course of its business.
(6) Following the transaction the Bank will continue the historic business
of the Mutual Holding Company or use a significant portion of the Mutual
Holding Company's assets in a business and Bank will continue its
business in a significantly unchanged manner.
(7) The Bank, the Mutual Holding Company and the members of the Mutual
Holding Company will pay their respective expenses, if any, incurred in
connection with Merger 1.
(8) There is no intercorporate indebtedness existing between the Mutual
Holding Company and the Bank that was issued, acquired, or will be
settled at a discount.
(9) No two parties to Merger 1 are investment companies as defined in
Section 368(a)(2(F)(iii) and (iv) of the Code.
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The Boards of Directors
Heritage Financial Corporation, MHC
Heritage Savings Bank
October 27, 1997
(10) The Mutual Holding Company 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.
(11) The fair market value of the assets of the Mutual Holding Company
transferred to the Bank will equal or exceed the sum of the liabilities
assumed by the Bank plus the amount of liabilities, if any, to which the
transferred assets are subject.
Representations related to Merger 2:
- ------------------------------------
(1) The fair market value of the Holding Company Stock received by the Bank
shareholders will approximately equal the fair market value of the Bank
stock surrendered in Merger 2.
(2) To the best of the knowledge of management of the Bank, there is no plan
on the part of any Bank stockholders to reduce their ownership interest
in the Holding Company Stock to an interest having a value, as of the
date of Merger 2, of less than 50 percent of the value of all of the
formerly outstanding stock of the Bank as of the same date. For
purposes of this representation, stock of the Bank exchanged for cash or
other property, surrendered by dissenters or exchanged for cash in lieu
of fractional shares of Holding Company stock will be treated as
outstanding Bank stock on the date of Merger 2. Moreover, shares of the
Bank stock and shares of Holding Company Stock held by Bank shareholders
and otherwise sold, redeemed, or disposed of prior or subsequent to
Merger 2 will be considered in making this representation
(3) Following Merger 2, the Bank will hold at least 90 percent of the fair
market value of its net assets and at least 70 percent of the fair
market value of its gross assets and at least 90 percent of the fair
market value of Interim Bank B's net assets and at least 70 percent of
the fair market value of Interim Bank B's gross assets held immediately
prior to Merger. For purposes of this representation, amounts paid by
the Bank or Interim Bank B to dissenters, amounts paid by the Bank or
Interim Bank B to shareholders who receive cash or other property,
amount used by the Bank or Interim Bank B to pay reorganization
expenses, and all redemptions and distributions (except for regular,
normal dividends) made by the Bank will be included as
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The Boards of Directors
Heritage Financial Corporation, MHC
Heritage Savings Bank
October 27, 1997
assets of the Bank or Interim Bank B, respectively, immediately prior to
the transaction.
(4) Prior to Merger 2, the Holding Company will be in control of Interim
Bank B within the meaning of Section 368(c) of the Code.
(5) The Bank has no plan or intention to issue additional shares of its
stock that would result in the Holding Company losing control of the
Bank within the meaning of Section 368(c) of the Code.
(6) The Holding Company has no plan or intention to reacquire any of its
stock issued in Merger 2.
(7) The Holding Company has no plan or intention to liquidate the Bank: to
merge the Bank with or into another corporation; to sell or otherwise
dispose of the Bank stock except for transfers of stock to a corporation
controlled by the Holding Company; or to cause the Bank to sell or
otherwise dispose of any of its assets or any of the assets acquired
form Interim Bank B, except for dispositions made in the ordinary course
of business or transfers of assets to a corporation controlled by the
Bank.
(8) Interim Bank B will have no liabilities assumed by the Bank, and will
not transfer to the Bank any assets subject to liabilities, in Merger 2.
(9) Following Merger 2, the Bank will continue its historic business or use
a significant portion of its historic assets in a business.
(10) The Holding Company, Interim Bank B, Bank and the shareholders of the
Bank will pay their respective expenses, if any, incurred in connection
with Merger 2.
(11) There is no intercorporate indebtedness existing between the Holding
Company and the Bank or between the Interim Bank B and that was issued,
acquired, or will be settled at a discount.
(12) In Merger 2, shares of the Bank stock representing control of the Bank,
as defined in Section 368(c) of the Code, will be exchanged solely for
voting stock of the Holding Company. For purposes of this
representation, shares
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The Boards of Directors
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Heritage Savings Bank
October 27, 1997
of Bank stock exchanged for cash or other property originating with the
Holding Company will be treated as outstanding Bank stock on the date of
Merger 2.
(13) At the time of Merger 2, the Bank will not have outstanding any
warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in the Bank, if
exercised or converted would affect the Holding Company's acquisition or
retention of control of the Bank, as defined in Section 368(c) of the
Code.
(14) The Holding Company does not own, nor has it owned during the past five
years, any shares of the Bank stock.
(15) No two parties to Merger 2 are investment companies as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(16) On the date of Merger 2, the fair market value of the assets of the Bank
will exceed the sum of its liabilities, plus the amount of liabilities,
if any, to which the assets are subject.
(17) The Bank is not under the jurisdiction of a court in a title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
ANALYSIS
- --------
Momentary existence of Interim Bank A
- -------------------------------------
A question can be raised whether the brief existence of Stock Interim should be
respected. If the existence is not respected, Bank could be treated as
acquiring the Mutual Holding Company assets directly from MHC. However, because
the form of the state law mergers will be (a) merger of Mutual Holding Company
into Interim Bank A and (b) Interim Bank A into Bank, the acquisition may not
qualify under section 368(a)(1)(A) if there is no state law merger of Mutual
Holding Company directly into Bank.
Generally, a mere change in form that qualifies as a reorganization described by
section 368(a)(1)(F) will be treated separately from its surrounding steps. For
example, in Rev. Rul. 69-516, 1969-2 C.B. 66, a corporation changed its state of
incorporation and then
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The Boards of Directors
Heritage Financial Corporation, MHC
Heritage Savings Bank
October 27, 1997
transferred its assets to an other corporation solely for stock of the acquiring
corporation. The ruling respected the change of the state of incorporation of
the target corporation, notwithstanding the fact that the target immediately
transferred all of its assets to the acquiring corporation. Specifically, the
ruling holds that the change of the state of incorporation will be a
reorganization within the meaning of section 368(a)(1)(F) and the asset
acquisition by the second corporation will qualify under section 368(a)(1)(C).
Similarly, Rev. Rul. 96-29, 1996-1 C.B. 72, emphasizes that a section
368(a)(1)(F) reorganization will generally be viewed as separate from
surrounding transactions.
Accordingly, KPMG believes that the conversion of Mutual Holding Company into
Interim Bank A should be viewed separately from the merger of Interim Bank A
into Bank, notwithstanding the brief existence of Interim Bank A. Under this
analysis, the conversion shall be analyzed under section 368(a)(1)(F) and the
downstream merger of Interim Bank A into Bank should be respected as a statutory
merger for purposes of section 368(a)(1)(A).
Rev. Proc. 94-76
- ----------------
Historically, a downstream merger of a parent into its subsidiary could qualify
as a reorganization. See, e.g., Anna Gilmore v. Commissioner, 44 B.T.A. 881
(1941), acq. 1942-2 C.B. 2; George v. Commissioner, 26 T.C. 396 (1956) acq.
1956-2 C.B. 5; Rev. Rul. 78-47, 1978 C.B. 113; Rev. Rul 70-223, 190-1 C.B. 79;
and Rev. Rul. 85-197, 1985-2 C.B. 120; cf, G.C.M. 39404 (Apr. 15, 1982) (Service
permitted upstream merger of less than 80 percent owned subsidiary); see also
PLR 9506036 (Nov. 15, 1994).
However, the Service announced in Rev. Proc. 94-76, 1994-2 C.B. 825, that it
would not issue advance rulings in cases involving a combination by
reorganization of a parent and its less than 80 percent owned subsidiary. The
revenue procedure explained that such cases were under extensive study by the
Service. Following the Tax Reform Act of 1986, there was concern that the
disappearance of the parent's gain in its subsidiary stock may be inconsistent
with the repeal of the General Utilities doctrine (which generally requires a
corporation to recognize gain on a disposition of its assets). The study
project considered whether the Service should address the disappearance of the
stock gain with regulations under section 337(d). In Notice 96-6, 1996-5 I.R.B.
27, the Service announced that combining transactions were no longer an area
under extensive study by the Service. However, the Service still refuses to
issue advance rulings in the area. See section 3.01(23) of Rev. Proc. 97-3
I.R.B. 84, 88.
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The Boards of Directors
Heritage Financial Corporation, MHC
Heritage Savings Bank
October 27, 1997
Given the issuance of Rev. Proc. 94-76, a question may be raised whether the
downstream merger of Interim Bank A into Bank can qualify as a reorganization
because Interim Bank A owns less than 80 percent of Bank. However, as evidenced
by the citations above, both the courts and the Service have agreed for over
half a century that downstream reorganizations such as Merger 1 can be bona fide
tax-free reorganizations. Any change would present a change to an extremely
long standing principle of tax law.
It is noteworthy that Rev. Proc. 94-76 does not indicate any potential effective
date should the IRS decide to change this long standing tax principle.
Normally, when the IRS believes that change to a tax policy is required, it
announces an effective date to notify taxpayers that transactions after such
date may well suffer adverse tax consequences. See, e.g., Notice 94-76, Notice
94-73, and Notice-87-14. The Service could argue that because section 337(d)
grants the Service extremely broad authority to issue regulations to enforce
General Utilities repeal, it clearly has the authority to change the long
standing tax policy on downstream mergers. It is also noteworthy that in over
ten years, the Service has not issued any regulation under section 337(d) that
would adversely impact the second merger.
Therefore, while the matter is not free from doubt, it is the professional
judgment of KPMG that because:
(1) Downstream mergers such as Merger 1 have been bona fide tax-free
reorganizations for over 50 years;
(2) Rev. Proc. 94-76 merely announced a study project which was formally
closed without any conclusion about a change in tax policy; and
(3) Rev. Proc. 94-76 does not announce any date regarding any potential
change of tax policy;
any adverse change in tax policy regarding transactions such as the merger
occasioned by Rev. Proc. 94-76 will be prospective in effect.
Liquidation accounts as a class of stock
- ----------------------------------------
In order to qualify under section 368(a)(2)(E), Bank shareholders must receive
solely voting stock in Holding Company in exchange for an amount of Bank stock
constituting control of Bank. Section 368(a)(2)(E)(ii). Section 368(c) defines
control as 80 percent of stock possessing at least 80 percent of the total
combined voting power of all classes of stock entitled to vote and at least 80
percent of the total number of shares of all other
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The Boards of Directors
Heritage Financial Corporation, MHC
Heritage Savings Bank
October 27, 1997
classes of stock of the corporation. Liquidation accounts of Bank will remain
outstanding after the acquisition of Bank by Holding Company. Accordingly, if
the liquidation accounts are treated as a class of non-voting stock of Bank, the
section 368(a)(2)(E)(ii) control requirement will not be satisfied in the
acquisition.
The Service has held that liquidation accounts can be treated as equity for
purposes of the continuity of proprietary interest requirement for corporate
reorganizations. See Rev. Rul. 80-105, 80-1 C.B. 78. Also, mutual interests
have been treated as stock in the context of a corporate acquisition. See Rev.
Rul. 69-3, 1969-1 C.B. 1969-1 C.B. 103 (section 354 applies to the exchange of a
mutual interest in one corporation for a mutual interest in another). While
acknowledging the role of a liquidation account as equity (Rev. Rul. 80-105),
the Service historically has not accorded liquidation accounts the status of
stock.
For example, in PLR 9510044 (March 10, 1995), a mutual holding company merged
downstream into its subsidiary bank. The mutual owners received liquidation
accounts in the bank. The newly formed holding company then acquired the bank
stock in a reverse triangular reorganization purporting to qualify under section
368(a)(2)(E). The Service specifically held that it would disregard the
liquidation accounts in the bank for purposes of applying the control
requirement under section 368(a)(2)(E)(ii). While a PLR may not be used or
cited as precedent pursuant to section 6110(j)(3) of the Code, it illustrates
the Service's analysis and position on this issue.
If Merger 1 and Merger 2 are consummated as described herein, based solely upon
information contained in the documents reviewed by us, and the FACTS and
REPRESENTATIONS above, KPMG renders the following opinions with respect to the
proposed transactions:
Conversion of Mutual Holding Company to Interim Bank A
- ------------------------------------------------------
(1) The conversion of Mutual Holding Company from a state mutual holding
company to Interim Bank A, a state stock savings, as described above,
should constitute a reorganization within the meaning of Section
368(a)(1)(F) of the Code, and no gain or loss will be recognized to
either the Mutual Holding Company or to Interim Bank A as a result of
such conversion (Revenue Ruling 80-105, 1980-1 C.B. 78). The Mutual
Holding Company and Interim Bank A will each be a party to a
reorganization within
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The Boards of Directors
Heritage Financial Corporation, MHC
Heritage Savings Bank
October 27, 1997
the meaning of Section 368(b) of the Code (Revenue Ruling 72-206, 1972-1
C.B. 104).
(2) Interim Bank A's basis of the assets received from the Mutual Holding
Company will equal the basis of such assets in the hands of Mutual
Holding Company immediately before the conversion (Section 362(b) of the
Code).
(3) Interim Bank A's holding period of the assets received from Mutual
Holding Company include the period during which Mutual Holding Company
held such assets prior to the Conversion (Section 1223(2) of the Code).
(4) Owners of mutual interests in Mutual Holding Company will recognize no
gain or loss on their constructive exchange of their mutual interests
for liquidation accounts in Interim Bank A (Rev. Rul. 69-3 and Rev. Rul.
69-646).
(5) The part of the taxable year of Mutual Holding Company before the
conversion and the part of the taxable year of Interim Bank A after the
conversion will constitute a single taxable year of Interim Bank A. (See
Revenue Ruling 57-276, 1957-1 C.B. 126). Consequently, the Mutual
Holding Company will not be required to file a federal income tax return
for any portion of such taxable year (Section 1.381(b)-1(a)(2) of the
Treasury Regulations).
(6) As provided by Section 381(c)(2) of the Code and Section 1.381(c)(2)-1
of the Treasury Regulations, Interim Bank A will succeed to and take
into account the earnings and profits or deficit in earnings and profits
of Mutual Holding Company.
(7) For purposes of Section 381 of the Code, the Interim Bank A will be
treated the same as the Mutual Holding Company would have been had there
been no reorganization. Accordingly, the taxable year of the Mutual
Holding Company will not end on the effective date of the proposed
transaction merely because of the transfer of assets of the Mutual
Holding Company to the Interim Bank A and the tax attributes of Mutual
Holding Company enumerated in Section 381(c) will be taken into account
by Interim Bank A as if there had been no reorganization (Section
1.381(b)-1(a)(2)) of the Treasury Regulations).
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The Boards of Directors
Heritage Financial Corporation, MHC
Heritage Savings Bank
October 27, 1997
Downstream merger of Interim Bank A into Bank and Holding Company formation
- ---------------------------------------------------------------------------
(1) Merger 1 should qualify as a reorganization within the meaning of
Section 368(a)(1)(A) of the Code. Therefore, both Interim Bank A and the
Bank will be a party to a "reorganization" as defined in Section 368(b)
of the Code.
(2) Interim Bank A will recognize no gain or loss pursuant to Merger 1.
(3) Bank will recognize no gain or loss upon the receipt of the assets of
Interim Bank A in Merger 1.
(4) Merger 2 will qualify as a reorganization within the meaning of Section
368(a)(1)(A) of the Code. Pursuant to Section 368(a)(2)(E) of the Code,
Merger 2 is not disqualified from qualifying as a reorganization within
the meaning of Section 368(a)(1)(A) because Holding Company Stock will
be conveyed to the Bank's public stockholders in exchange for their Bank
Stock. Therefore, the Bank, the Holding Company, and Interim Bank B will
each be a party to a reorganization as defined in Section 368(b) of the
Code.
(5) Interim Bank B will recognize no gain or loss upon the transfer of its
assets to the Bank pursuant to Merger 2.
(6) Bank will recognize no gain or loss upon the receipt of the assets of
Interim Bank B.
(7) Holding Company will recognize no gain or loss upon the receipt of Bank
Stock solely in exchange for Holding Company Stock.
(8) Bank's public shareholders will recognize no gain or loss upon their
receipt of Holding Company Stock solely in exchange for their shares of
Bank Stock.
(9) A Bank public shareholder's basis of the Holding Company Stock received
in exchange for its Bank stock will equal the basis of the Bank stock
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The Boards of Directors
Heritage Financial Corporation, MHC
Heritage Savings Bank
October 27, 1997
surrendered in exchange therefor, before giving effect to any payment of
cash in lieu of fraction shares.
(10) A Bank public shareholder's holding period of the Holding Company Stock
received in exchange for its Bank stock will include the Holding period
of the Bank Stock, provided that the Bank Stock was held as a capital
asset on the date of the exchange.
(11) Holding Company will recognize no gain or loss upon the sale of Holding
Company Stock to investors.
(12) The Eligible Account Holders, Supplemental Eligible Account Holders, and
Other Members (as such terms are defined in the Plan of Conversion) will
recognize gain, if any, upon the issuance to them of: (i) withdrawable
savings accounts in the Bank following the Conversion, (ii) Bank
Liquidation Interest, and (iii) nontransferable subscription rights to
purchase Holding Company Stock but only to the extent of the value, if
any, of the subscription rights.
(13) The tax basis to the holders of Holding Company Stock purchased in the
public stock offerings will be the amount paid therefor, and the holding
period for such shares will begin on the date of consummation of such
offerings if purchased through the exercise of subscription rights.
SCOPE OF OPINION
- ----------------
The opinions expressed above are rendered only with respect to the specific
matters discussed herein and we express no opinion with respect to any other
federal or state income tax or legal aspect of the offering. If any of the
above stated facts, circumstances, or assumptions are not entirely complete or
accurate, it is imperative that we be informed immediately because the
inaccuracy of incompleteness could have a material effect on our conclusions.
In rendering our opinions, we are relying upon the relevant provisions of the
Code, the regulations thereunder, and judicial and administrative
interpretations thereof, which are subject to change or modification by
subsequent legislative, regulatory, administrative, or judicial decisions. Any
such changes also could have an effect on the validity of our opinions. Unless
you specifically request otherwise, we will not update these opinions for
subsequent changes or modifications to the law and regulations or to the
judicial and administrative interpretations thereof. The opinions contained
herein are not binding upon the Internal
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The Boards of Directors
Heritage Financial Corporation, MHC
Heritage Savings Bank
October 27, 1997
Revenue Service, any other tax authority, or any court and no assurance can be
given that a position contrary to that expressed herein will not be asserted by
a tax authority and ultimately sustained by a court.
USE OF OPINION
- --------------
This opinion is solely for the information and use of the Bank and the Mutual
Holding Company in connection with Merger 1 and Merger 2, and may not be used or
relied upon for any other purpose and may not be circulated, quoted, or
otherwise referred to, nor is it to be filed with any governmental agency or
other person without our express written consent.
CONSENT
- -------
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-1 ("Form S-1O") to be filed by the Holding
Company with the Securities and Exchange Commission, to the Mutual Holding
Company's Application for Conversion as filed with the Division and the FDIC.
/s/ KPMG Peat Marwick LLP
<PAGE>
EXHIBIT 8.2
October 28, 1997
Board of Directors
Heritage Savings Bank
201 5th Avenue S.W.
Olympia, WA 98501
Dear Sirs:
You have asked for our opinion regarding the Washington State tax consequences
in connection with (i) the proposed conversion of Heritage Financial
Corporation, MHC, a Washington state chartered mutual holding company (the
"Mutual Holding Company" or "MHC"), from mutual to stock form by means of a
conversion to stock form ("Interim Bank A") and simultaneous merger with and
into Heritage Savings Bank, a Washington state chartered stock savings bank
("Bank"), and (ii) the acquisition of Bank by Heritage Financial Corporation, a
Washington state chartered stock corporation ("Holding Company"), by means of
the merger of Bank with a Washington chartered interim stock bank ("Interim Bank
B"), which will be organized as a wholly-owned subsidiary of the Holding
Company.
Except as defined herein all capitalized terms have the same meaning as in the
Plan of Conversion adopted by the Board of Directors of MHC and the Bank on July
1, 1997 as amended ("Plan of Conversion").
FACTS
For purposes of our opinion, we have relied upon the terms of the Plan of
Conversion, the opinions rendered in the federal income tax opinion prepared by
the certified public accounting offices of KPMG Peat Marwick LLP dated October
27, 1997, relating to the above described transactions under the Internal
Revenue Code of 1986 (the "Code") and the facts and assumptions set forth in the
Affidavit of management delivered to KPMG Peat Marwick in connection with the
federal tax opinion (the "Affidavit").
It is the opinion of KPMG Peat Marwick LLP that, for federal income tax
purposes: (1) the conversion of the Mutual Holding Company from mutual to stock
form as
<PAGE>
October 28, 1997
Page 2
Interim Bank A should qualify as a reorganization within the meaning of
(S)368(a)(1)(F) of the Code and the simultaneous merger of Interim Bank A with
and into the Bank, with the Bank being the surviving institution, should qualify
as a reorganization within the meaning of Section 368(a)(1)(A) of the Code; (2)
no gain or loss will be recognized by Interim Bank A upon its merger, with and
into the Bank; (3) no gain or loss will be recognized by the Bank upon the
receipt of the assets of Interim Bank A in such merger; (4) the merger of
Interim Bank B, with and into Bank, will qualify as a reorganization within the
meaning of Section 368(a)(1)(A) of the Code; (5) no gain or loss will be
recognized by Interim Bank B upon the transfer of its assets to the Bank; (6) no
gain or loss will be recognized by the Bank upon the receipt of the assets of
Interim Bank B; (7) no gain or loss will be recognized by Holding Company upon
the sale of its shares of common stock to investors; (8) no gain or loss will be
recognized by the Bank existing stockholders other than the MHC upon their
receipt of Holding Company stock; (9) the Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members will recognize gain, if any, upon the
issuance to them of (i) withdrawable savings accounts in the Bank following the
Conversion, (ii) Bank Liquidation Interest and (iii) nontransferable
Subscription Rights to purchase Holding Company common stock, but only to the
extent of the value, if any, of the Subscription Rights; and (10) the tax basis
to the holders of common stock purchased in the Offering will be the amount paid
therefor, and the holding period for such shares will begin on the date of
consummation of the Offerings if purchased through the exercise of Subscription
Rights.
OPINION
Based on the terms of the Plan of Conversion, the facts and assumptions set
forth in the Affidavit and the opinions rendered in the KPMG Peat Marwick LLP
opinion letter, all of which are incorporated herein by reference, and our
review and analysis of Washington State tax law, it is our opinion that if the
transaction is undertaken in accordance with the Plan of Conversion, the
following should be the result for Washington State business and occupation,
sales and use, and excise tax purposes:
1. No Washington business and occupation, sales or use taxes should be
incurred by either the Bank or its Eligible Account Holders, Supplemental
Eligible Account Holders or Other Members as a result of the implementation
of the Plan of Conversion.
2. No Washington State real estate excise tax should be imposed in connection
with the transaction.
<PAGE>
October 28, 1997
Page 3
ANALYSIS
WAC 458-20-106 (Rule 106) provides that the business and occupation tax does not
apply to casual and isolated sales. Rule 106 specifically provides under the
heading of "Retail Sales Tax," "a transfer of capital assets to or by a business
is deemed not taxable to the extent the transfer is accomplished through an
adjustment of the beneficial interest in the business." The Department of
Revenue has previously held that this provision applies to the business and
occupation tax as well as the retail sales tax. Det. No. 87-22,WTD 259 (1987).
Rule 106 contains six separate examples of instances when sales tax will not
apply, including: transfers of capital assets pursuant to a reorganization
under 26 U.S.C. Section 368 (Internal Revenue Code, Section 368).
The Use Tax is also not applicable. WAC 453-20-106 states:
Where there has been transfer of the capital assets to or by a business,
the use of such property is not deemed taxable to the extent the transfer
was accomplished through an adjustment of the beneficial interest in the
business, provided, the transferor previously paid sales or use tax on the
property transferred. (See the exempt situations listed under the retail
sales tax subdivision of this rule.)
The State of Washington imposes an excise tax on real estate sales. The term
"sale" includes the transfer or acquisition for valuable consideration within
any twelve-month period of a controlling interest in any entity that holds an
interest in real property located in Washington. All acquisitions by persons
acting in concert are aggregated for purposes of determining whether a transfer
or acquisition of a controlling interest has taken place. The term "sale,"
however, specifically excludes certain transactions including:
(o) A transfer that for federal income tax purposes does not involve the
recognition of gain or loss for entity formation, liquidation or
dissolution, and reorganization, including but not limited to
nonrecognition of gain or loss because of application of Section 332, 337,
351, 368(a)(1), 721, or 731 of the Internal Revenue Code of 1986, as
amended (RCW 82.45.010(3)(o)).
Based on KPMG Peat Marwick's opinion that the Conversion from a mutual to a
stock holding company format involves transactions that qualify under Section
368(a)(1) of the Code, the transaction should fall within the statutory
exemptions and the real estate excise tax should not be imposed on the Bank.
<PAGE>
October 28, 1997
Page 4
ASSUMPTIONS AND LIMITATIONS
Our opinion is based solely upon:
The representations, information, documents, and facts ("representations")
referred to in this letter.
Our assumption (without independent verification or review) that all of the
representations and all of the original, copies, and signatures of
documents are accurate, true and authentic.
Our assumption (without independent verification or review) that there will
be timely execution and delivery of, and performance as required by the
representations and documents.
Our assumption (without independent verification or review) that all
documents pertaining to the proposed transaction and provided for our
review are accurate, true and authentic.
Our opinion is limited to those expressed above and we express no opinion with
regard to any sections of Washington state law other than those referred to
above. We express no opinion with regard to taxation of the proposed
transaction described herein under the laws of any other state or local
jurisdiction. We express the opinions contained herein as on the date of this
letter only.
No opinion is expressed as to the federal income tax treatment of the
transaction as covered by the KPMG Peat Marwick LLP opinion letter or to the tax
treatment for Washington tax purposes of any existing conditions or effects of
the transaction which are not specifically set forth in the KPMG Peat Marwick
LLP opinion or in our opinion above.
This opinion letter is solely for your information and inclusion in Form S-1 as
filed with the Securities and Exchange Commission, in the Application for
Approval of Conversion filed with the Washington Department of Financial
Institutions and the Federal Deposit Insurance Corporation, and as incorporated
by reference into the Application to the Board of Governors of the Federal
Reserve System on Form F.R.Y-3 with regard to the transaction described herein.
Other than the uses indicated in the
<PAGE>
October 28, 1997
Page 5
preceding sentence, our opinion may not be relied upon, distributed, or
disclosed by anyone without our prior written consent.
Very truly yours,
GORDON, THOMAS, HONEYWELL,
MALANCA, PETERSON & DAHEIM, P.L.L.C.
/S/ J. JAMES GALLAGHER
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
BY AND AMONG
HERITAGE FINANCIAL CORPORATION,
HERITAGE SAVINGS BANK
AND
DONALD V. RHODES
THIS EMPLOYMENT AGREEMENT is made and entered into effective this ____
day of _______________, 1997, by and between HERITAGE FINANCIAL CORPORATION, a
Washington corporation (the "Company"), HERITAGE SAVINGS BANK, a Washington
banking corporation (the "Bank") and DONALD V. RHODES ("Executive").
RECITALS
1. The Company has been formed for the purpose of being the parent
corporation of the Bank. Upon completion of a currently pending conversion and
reorganization transaction, the Bank will be a first tier wholly owned
subsidiary of the Company.
2. Executive is the President and Chief Executive Officer of the Company
and the President and Chief Executive Officer of the Bank (hereinafter, the
Company and the Bank are collectively referred to as the "Employer"), and has
developed an intimate and thorough knowledge of Employer's business methods and
operations.
3. The retention of the Executive's services for and on behalf of the
Employer is of material importance to the preservation and enhancement of the
value of the Employer's business.
In consideration of the mutual promises made in this Agreement, the
parties agree as follows:
AGREEMENT
1. EMPLOYMENT.
----------
Employer hereby employs Executive and Executive hereby accepts employment
with Employer on the terms and conditions set forth in this Agreement.
2. TERM.
----
The original term of this Agreement will commence as of the date first
above written and will continue until March 14, 2001, the date that Executive
attains age 65, after which time this Agreement will automatically renew for
additional terms of one year each. Subject to the terms and conditions set
forth below, this Agreement may be terminated by either party by
-1-
<PAGE>
giving written notice to the other party at least one year prior to the
expiration date of the original term or any renewal term.
3. DUTIES.
------
3.1 Executive will be the Chairman, President and Chief Executive
Officer of Employer and such other subsidiaries or affiliates as the respective
Boards of Directors of the Company and the Bank (collectively, the "Board")
shall determine. In such capacities, Executive will render those executive
management services and perform those tasks in connection with the affairs of
the Employer which are normal and customary to the position of Chief Executive
Officer. Unless otherwise agreed by Executive and the Board, Executive shall
preside at all meetings of the Board and the Executive Committee. Executive
will be the person to whom all other officers of the Employer and, as
appropriate, subsidiaries or affiliates of Employer, shall report.
3.2 Executive will perform such other duties as may be appropriate to
his office and as may be prescribed from time to time by the Board. Executive
may delegate such duties as he sees fit to any Executive Vice President or other
officer(s) of the Employer.
3.3 Executive will devote his best efforts and all necessary time,
attention, and effort to the business and affairs of the Employer and any
affiliated companies as such business and affairs now exist or hereafter may be
changed or supplemented, in order to properly discharge his responsibilities
under this Agreement.
4. SALARY, BONUS, AND OTHER COMPENSATION.
-------------------------------------
4.1 Base Salary.
-----------
4.1.1 During the term of this Agreement, Employer will pay to
Executive an annual base salary of not less than $174,000 per year effective
beginning on October 1, 1997. Payment of such salary will be made in accordance
with Employer's normal payroll practices applicable to senior executives and
will be subject to required withholding for federal income tax and other
purposes.
4.1.2 The Company will guarantee payment of any portion of
Executive's compensation that may be allocated to the Bank or any other
subsidiary or affiliate of the Company.
4.1.3 If this Agreement terminates prior to the end of the
original or any renewal term, then Employer will pay Executive such amount of
Executive's then-current annual base salary as is provided in Section 5.
4.2 Bonus. During the term of this Agreement, Executive will be
-----
eligible to participate in the bonus pool, if any, established by the Board for
Employer's senior
-2-
<PAGE>
executives, and will be entitled to participate in Employer's Short-Term
Incentive Compensation Plan, which shall include specific performance targets as
the same shall be determined and/or amended on an annual basis by the Board or
Employer's Compensation Committee.
4.3 Benefits. In addition to the base salary and bonus payable to
--------
Executive pursuant to this Section 4, Executive will be entitled to the
following benefits, which shall not be less than those provided in benefit
programs generally maintained for senior executives of the Employer:
4.3.1 Participation in health insurance, disability insurance,
and other health and welfare benefit programs generally available to senior
executives;
4.3.2 Participation in retirement plans, including defined
contribution and 401(k) Plans and any supplements or additions to those plans;
4.3.3 Participation in stock bonus or stock option plans
generally available to senior executives of the Employer;
4.3.4 Other employment benefits, as may be approved from time to
time by Employer;
4.3.5 Memberships in clubs as deemed appropriate; and
4.3.6 Reimbursement for Executive's reasonable expenses incurred
in promoting the business of Employer. Executive shall present from time to
time itemized accounts of any such expenses, within limits of Employer policy
and the rules and regulations of the Internal Revenue Service.
5. TERMINATION OF AGREEMENT.
------------------------
5.1 Early Termination.
-----------------
5.1.1 This Agreement may be terminated at any time by either the
Employer or Executive and shall terminate automatically upon Executive's death
or Disability (as defined in Section 8). No termination by the Board other than
termination for Cause (as defined below) shall prejudice the Executive's right
to compensation or other benefits under this Agreement.
5.1.2 Except as provided in Section 6 with respect to a Change
of Control, if Executive voluntarily terminates his employment effective before
the end of the original or any renewal term without "Good Reason" as defined in
section 8 Executive will be entitled to such compensation and benefits as he
would have the right to receive upon
-3-
<PAGE>
termination for Cause under subsection 5.1.4, and Executive's unvested stock
options shall terminate in the manner provided in such subsection.
5.1.3 Except in the event of a Change of Control as
provided in Section 6, if (i) Employer terminates this Agreement without Cause
or (ii) Executive terminates this Agreement for Good Reason, and either
termination is effective before the end of the original or any renewal term,
Employer shall pay Executive upon the effective date of such termination all
salary and benefits earned and all reimbursable expenses incurred through such
termination date and, in addition, a severance benefit in an amount equal to the
greater of two times the amount of his then-current base annual salary, or the
amount of such salary which would otherwise have been paid to Executive during
the then-remaining term of the Agreement. In such event, all forfeiture
provisions regarding restricted stock awards or vesting requirements regarding
options shall lapse or be considered completed as of the effective date of
termination.
5.1.4 If Employer terminates this Agreement for Cause
effective before the end of the original or any renewal term, Employer shall pay
Executive upon the effective date of such termination only such salary earned
and expenses reimbursable hereunder incurred through such termination date.
Executive shall have no right to receive compensation or other benefits for any
period after termination for Cause, and in the case of termination for Cause
before the effective date of a Change of Control, Executive's unvested stock
options, if any, shall terminate immediately.
5.1.5 In the event of termination of this Agreement by
reason of Executive's death or Disability, Employer shall pay Executive only
such salary earned and expenses reimbursable hereunder incurred through upon the
date of Executive's death or the effective date of Executive's Disability, and
all forfeiture provisions regarding restricted stock awards or vesting
requirements concerning options shall lapse or be considered completed, as
applicable.
5.1.6 The Board, acting in good faith, shall make the final
determination of whether Employee is suffering under any Disability and, for
purposes of making such determination, may require Employee to submit himself to
a physical examination by a physician mutually agreed upon by Employee and the
Board at Employer's expense. For purposes of this Agreement, the date of such
determination shall constitute the effective date of such Disability.
5.2 Exercise of Stock Options. Executive's rights to vested but
-------------------------
unexercised stock options will continue for a period of one year after early
termination (provided that the terms of any option grant agreement shall not be
extended by this provision), except in the case of a termination for Cause or
without Good Reason.
-4-
<PAGE>
6. CHANGE OF CONTROL.
-----------------
6.1 Benefits. The parties recognize that a "Change of Control," as
--------
defined below, could be detrimental to Executive's continued employment.
Accordingly, in order to give further assurances to the Executive to enter into
this Agreement, if there is a Change of Control and either (a) within 730 days
following the effective date of such Change of Control Executive or Employer
terminates Executive's employment; or (b) at any time from and after sixty days
prior to the public announcement by Employer or any other party of the
transaction which will result in the Change of Control, Employer (or its
successor) terminates Executive's employment without Cause, then Executive, upon
the date of termination of his employment, subject to the remaining provisions
of this Section 6.1, shall be paid by Employer a severance benefit in an amount
equal to the greater of three times the amount of his then-current base annual
salary or the amount of such salary which would otherwise have been paid to
Executive during the then-remaining term of this Agreement, and vesting of all
stock options and lapse of all restrictions with respect to restricted stock
awards shall occur. As a condition to receipt of the benefits described in this
Section 6, upon request by the Board Executive will not voluntarily terminate
his employment with Employer until after the effective date of the Change of
Control in order to assist the Bank and the Company in evaluating and
effectuating the Change of Control.
6.2 Reimbursement. In the event the provisions of this Section 6
-------------
result in imposition of a tax on Executive under the provisions of Internal
Revenue Code (S) 4999, Employer agrees to reimburse Executive for the same,
exclusive of any tax imposed by reason of receipt of reimbursement under this
Section 6.2.
7. RESTRICTIVE COVENANT.
--------------------
7.1 Noncompetition. Executive agrees that except as otherwise set
--------------
forth in this Agreement, he will not during the term of this Agreement and for a
period of two years after his termination, directly or indirectly, become
interested in, as principal shareholder, director, or officer, any financial
institution that competes with Employer or its successor or any of its
affiliates within the State of Washington, provided that such covenant shall not
apply in the event that Executive's employment is terminated without Cause or
for Good Reason. The provisions restricting competition by Executive may be
waived by action of the Board. Executive recognizes and agrees that any
breach of this covenant by Executive will cause immediate and irreparable injury
to Employer, and Executive hereby authorizes recourse by Employer to injunction
and/or specific performance, as well as to other legal or equitable remedies to
which Employer may be entitled.
7.2 Noninterference. During the noncompetition period described in
---------------
Section 7.1, Executive shall not solicit or attempt to solicit any other
employee of Employer or its affiliates to leave the employ of those companies,
or in any way interfere with the relationship between Employer and any other
employee of Employer.
-5-
<PAGE>
7.3 Interpretation. If a court or any other administrative body
--------------
with jurisdiction over a dispute related to this Agreement should determine that
the restrictive covenant set forth above is unreasonably broad, the parties
hereby authorize said court or administrative body to narrow same so as to make
it reasonable, given all relevant circumstances, and to enforce same. The
covenants in this paragraph shall survive termination of this Agreement.
8. DEFINITIONS.
-----------
8.1 Cause. "Cause" shall mean only (i) willful misfeasance or gross
-----
negligence in the performance of his duties, (ii) conduct demonstrably and
significantly harmful to the Company (which would include willful violation of
any final cease and desist order applicable to Employer or a financial
institution subsidiary), or (iii) conviction of a felony.
8.2 Change of Control. "Change of Control" shall mean the occurrence
-----------------
of one or more of the following events:
8.2.1 One person or entity acquiring or otherwise becoming the
owner of twenty-five percent (25%) or more of the Company's outstanding common
stock.
8.2.2 Replacement of incumbent directors or election of newly-
elected directors constituting a majority of the Board of the Company where such
replacement or election has not been supported by the Board.
8.2.3 Dissolution, or sale of fifty percent (50%) or more in
value of the assets, of either the Company or the Bank.
8.2.4 The merger of the Company into any corporation, twenty-
five percent (25%) or more of the outstanding common stock of which is owned by
other than owners of the common stock of the Company prior to such merger.
8.3 Disability. "Disability" shall mean a medically reimbursable
----------
physical or mental impairment that may be expected to result in death, or to be
of long, continued duration, and that renders Employee incapable of performing
the duties required under this Agreement.
8.4 Good Reason. "Good Reason" shall mean (i) termination by
-----------
Executive as a result of any material breach of this Agreement by Employer,
(ii) termination by Executive or Employer following a Change of Control pursuant
to Section 6.1, (iii) Any reduction of Executive's salary or any reduction or
elimination of any compensation or benefit plan, which reduction or elimination
is not of general application to substantially all employees of the Bank or such
employees of any successor entity or of any entity in control of the Bank,
-6-
<PAGE>
or (iv) the assignment to Executive of any authority or duties substantially
inconsistent with Executive's position.
9. MISCELLANEOUS.
-------------
9.1 This Agreement contains the entire agreement between the parties
with respect to Executive's employment with Employer and his covenant not to
compete with Employer, and is subject to modification or amendment only upon
amendment in writing signed by both parties.
9.2 This Agreement shall bind and inure to the benefit of the heirs,
legal representatives, successors, and assigns of the parties. The provisions
of Section 7.1 of this Agreement are intended to confer upon Employer and any of
its subsidiaries and affiliates the benefits of Executive's covenant not to
compete.
9.3 If any provision of this Agreement is invalid or otherwise
unenforceable, all other provisions shall remain unaffected and shall be
enforceable to the fullest extent permitted by law.
9.4 Notwithstanding any other provision in this Agreement, Employer
shall make no payment of any severance benefit provided for herein to the extent
that such payment would be prohibited by the provisions of Part 359 of the
regulations of the Federal Deposit Insurance Corporation as the same may be
amended from time to time, and if such payment is so prohibited, Employer shall
use its best efforts to secure the consent of the FDIC or other applicable
banking agencies to make such payments in the highest amount permissible, up to
the amount provided for in this Agreement.
9.5 This Agreement is made with reference to and is intended to be
construed in accordance with the laws of the State of Washington. Venue for any
action arising out of or concerning this Agreement shall lie in Thurston County,
Washington. In the event of a dispute under this Agreement not involving
injunctive relief, the dispute shall be arbitrated pursuant to the Superior
Court Mandatory Arbitration Rules ("MAR") adopted by the Washington State
Supreme Court, irrespective of the amount in controversy. This Agreement shall
be deemed as stipulation to that effect pursuant to MAR 1.2 and 8.1 The
arbitrator, in his or her discretion, may award attorney's fees to the
prevailing party or parties.
9.6 Any notice required to be given under this Agreement to either
party shall be given by personal service or by depositing a copy thereof in the
United States registered or certified mail, postage prepaid, addressed to the
following address, or such other address as addressee shall designate in
writing:
-7-
<PAGE>
Employer: Heritage Savings Bank
-------- 201 5th Avenue S.W.
Olympia, WA 98501
Attn: ___________________
Executive: Donald V. Rhodes
--------- 3544 Sunset Beach Drive N.W.
Olympia, WA 98502
IN WITNESS WHEREOF, the parties have executed this Agreement effective on the
date first above written.
HERITAGE FINANCIAL CORPORATION HERITAGE SAVINGS BANK
By: ____________________________ By: _________________________
Its: ____________________________ By: _________________________
EXECUTIVE:
_________________________________
-8-
<PAGE>
EXHIBIT 10.4
SEVERANCE AGREEMENT
BETWEEN
HERITAGE SAVINGS BANK
AND
BRIAN VANCE
THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into effective
this ____ day of _______________, 1997, by and between HERITAGE SAVINGS BANK, a
Washington banking corporation (the "Bank") and BRIAN VANCE ("Executive").
RECITALS
1. The Bank currently receives the exclusive services of Executive as its
employee, and both the Bank and Executive desire that this employment
relationship continue.
2. In order to encourage Executive to continue his employment relationship
with the Bank, thereby allowing the Bank to maximize the benefits obtainable by
its shareholder and the shareholders of its holding company, Heritage Financial
Corporation (the "Company"), from any such change, the Bank desires to provide a
severance benefit to Executive.
In consideration of the mutual promises, covenants, agreements and
undertakings contained in this Agreement, the parties hereby contract and agree
as follows:
AGREEMENT
1. TERM. The term of this Agreement ("Term") shall commence as of the
----
date first above written and shall end on the fifth anniversary of such date,
unless extended in writing by the parties.
2. SEVERANCE PAYMENT.
-----------------
2.1. Determination of Payment. In the case of a Termination Event,
------------------------
as defined in Section 4, the Bank shall pay to Executive upon the effective date
of termination a severance payment ("Severance Payment") in an amount equal to
two times the amount of Executive's then-current annual base salary in addition
to all salary and benefits earned through such termination date. In such event,
all future provisions regarding restricted stock awards or vesting requirements
regarding options shall lapse or be considered completed as of the effective
date of the termination.
2.2. Reimbursement of Excise Tax. In the event the provisions of
---------------------------
this Section 2 result in imposition of a tax on Executive under the provisions
of Internal Revenue Code (S) 4999, the Bank agrees to reimburse Executive for
the same, exclusive of any tax imposed by reason of receipt of reimbursement
under this Section 2.2.
3. OTHER COMPENSATION AND TERMS OF EMPLOYMENT. Except with respect to the
------------------------------------------
Severance Payment, this Agreement shall have no effect on the determination of
any
<PAGE>
compensation payable by the Bank to the Executive, or upon any of the other
terms of Executive's employment with the Bank.
4. TERMINATION EVENTS. A Termination Event shall be deemed to occur upon,
------------------
and only upon, one or more of the following:
4.1 Termination of Executive's employment by either party for any
reason within 730 days following the effective date of a Change of Control (as
defined below); or
4.2 Termination of Executive's employment by the Bank without Cause
prior to a Change of Control if such termination occurs at any time from and
after sixty days prior to the public announcement by the Bank or any other party
of a transaction which will result in a Change of Control; provided that (i) the
effective date of the Change of Control occurs within eighteen (18) months of
Executive's termination, and further provided that (ii) as a condition to the
receipt of the Severance Payment, upon request by the Board of Directors of the
Bank, Executive will not voluntarily terminate his employment with the Bank
until after the effective date of the Change of Control in order to assist the
Bank in evaluating and effectuating the Change of Control.
5. RESTRICTIVE COVENANT.
--------------------
5.1 Noncompetition. Executive agrees that he will not during the
--------------
term of this Agreement and for a period of one year following the payment to
Executive of a Severance Payment directly or indirectly become interested in, as
principal shareholder, director, or officer, any financial institution that
competes with Bank, including any successor, or any of its affiliates within the
State of Washington. The provisions restricting competition by Executive may be
waived by action of the Board. Executive recognizes and agrees that any breach
of this covenant by Executive will cause immediate and irreparable injury to
Bank, and Executive hereby authorizes recourse by Bank to injunction and/or
specific performance, as well as to other legal or equitable remedies to which
Bank may be entitled.
5.2 Noninterference. During the noncompetition period described in
---------------
Section 5.1, Executive shall not solicit or attempt to solicit any other
employee of Bank or its affiliates to leave the employ of those companies, or in
any way interfere with the relationship between Bank and any other employee of
Bank.
5.3 Interpretation. If a court or any other administrative body
--------------
with jurisdiction over a dispute related to this Agreement should determine that
the restrictive covenant set forth above is unreasonably broad, the parties
hereby authorize said court or administrative body to narrow same so as to make
it reasonable, given all relevant circumstances, and to enforce same. The
covenants in this paragraph shall survive termination of this Agreement.
-2-
<PAGE>
6. DEFINITIONS.
-----------
6.1. Cause. "Cause" shall mean only (i) willful misfeasance, failure
-----
to follow direction by a senior officer or gross negligence in the performance
of Executive's duties, (ii) conduct demonstrably and significantly harmful to
the Bank (which would include willful violation of any final cease and desist
order applicable to the Bank), or (iii) conviction of a felony.
6.2. Change of Control. "Change of Control" shall mean the
-----------------
occurrence of one or more of the following events:
6.2.1. One person or entity acquiring or otherwise becoming the owner
of twenty-five percent (25%) or more of the Company's outstanding common stock;
6.2.2. Replacement of incumbent directors or election of newly-
elected directors constituting a majority of the Board of the Company where such
replacement or election has not been supported by the Board;
6.2.3. Dissolution, or sale of fifty percent (50%) or more in value
of the assets, of either the Company, the Bank or any of their respective
subsidiaries; or
6.2.4 The merger of the Company into any corporation, twenty-five
percent (25%) or more of the outstanding common stock of which is owned by other
than owners of the common stock of the Company prior to such merger.
7. MISCELLANEOUS.
-------------
7.1 This Agreement contains the entire agreement between the parties
with respect to the subject matter, and is subject to modification or amendment
only upon amendment in writing signed by both parties.
7.2 This Agreement shall bind and inure to the benefit of the heirs,
legal representatives, successors, and assigns of the parties.
7.3 If any provision of this Agreement is invalid or otherwise
unenforceable, all other provisions shall remain unaffected and shall be
enforceable to the fullest extent permitted by law.
7.4 Notwithstanding any other provision in this Agreement, Bank shall
make no payment of any severance benefit provided for herein to the extent that
such payment would be prohibited by the provisions of Part 359 of the
regulations of the Federal Deposit Insurance Corporation as the same may be
amended from time to time, and if such payment is so prohibited, Bank shall use
its best efforts to secure the consent of the FDIC or other applicable banking
agencies to make such payments in the highest amount permissible, up to the
amount provided for in this Agreement.
-3-
<PAGE>
7.5 This Agreement is made with reference to and is intended to be
construed in accordance with the laws of the State of Washington. Venue for any
action arising out of or concerning this Agreement shall lie in Thurston County,
Washington. In the event of a dispute under this Agreement, the dispute shall
be arbitrated pursuant to the Superior Court Mandatory Arbitration Rules ("MAR")
adopted by the Washington State Supreme Court, irrespective of the amount in
controversy. This Agreement shall be deemed as stipulation to that effect
pursuant to MAR 1.2 and 8.1 The arbitrator, in his or her discretion, may award
attorney's fees to the prevailing party or parties.
7.6 Any notice required to be given under this Agreement to either
party shall be given by personal service or by depositing a copy thereof in the
United States registered or certified mail, postage prepaid, addressed to the
following address, or such other address as addressee shall designate in
writing:
Bank: Heritage Savings Bank
----
201 5th Avenue S.W.
Olympia, WA 98501
Attn: ___________________
Executive: Brian Vance
---------
________________________
________________________
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date first above written.
HERITAGE SAVINGS BANK: EXECUTIVE:
By: ____________________________ ____________________________
Its: ___________________________
-4-
<PAGE>
EXHIBIT 10.5
SEVERANCE AGREEMENT
BETWEEN
HERITAGE SAVINGS BANK
AND
JOHN PARRY
THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into effective
this ____ day of _______________, 1997, by and between HERITAGE SAVINGS BANK, a
Washington banking corporation (the "Bank") and JOHN PARRY ("Executive").
RECITALS
1. The Bank currently receives the exclusive services of Executive as its
employee, and both the Bank and Executive desire that this employment
relationship continue.
2. In order to encourage Executive to continue his employment relationship
with the Bank, thereby allowing the Bank to maximize the benefits obtainable by
its shareholder and the shareholders of its holding company, Heritage Financial
Corporation (the "Company"), from any such change, the Bank desires to provide a
severance benefit to Executive.
In consideration of the mutual promises, covenants, agreements and
undertakings contained in this Agreement, the parties hereby contract and agree
as follows:
AGREEMENT
1. TERM. The term of this Agreement ("Term") shall commence as of the
----
date first above written and shall end on the fifth anniversary of such date,
unless extended in writing by the parties.
2. SEVERANCE PAYMENT.
-----------------
2.1. Determination of Payment. In the case of a Termination Event,
------------------------
as defined in Section 4, the Bank shall pay to Executive upon the effective date
of termination a severance payment ("Severance Payment") in an amount equal to
two times the amount of Executive's then-current annual base salary in addition
to all salary and benefits earned through such termination date. In such event,
all future provisions regarding restricted stock awards or vesting requirements
regarding options shall lapse or be considered completed as of the effective
date of the termination.
2.2. Reimbursement of Excise Tax. In the event the provisions of
---------------------------
this Section 2 result in imposition of a tax on Executive under the provisions
of Internal Revenue Code (S) 4999, the Bank agrees to reimburse Executive for
the same, exclusive of any tax imposed by reason of receipt of reimbursement
under this Section 2.2.
3. OTHER COMPENSATION AND TERMS OF EMPLOYMENT. Except with respect to the
------------------------------------------
Severance Payment, this Agreement shall have no effect on the determination of
any
<PAGE>
compensation payable by the Bank to the Executive, or upon any of the other
terms of Executive's employment with the Bank.
4. TERMINATION EVENTS. A Termination Event shall be deemed to occur upon,
------------------
and only upon, one or more of the following:
4.1 Termination of Executive's employment by either party for any
reason within 730 days following the effective date of a Change of Control (as
defined below); or
4.2 Termination of Executive's employment by the Bank without Cause
prior to a Change of Control if such termination occurs at any time from and
after sixty days prior to the public announcement by the Bank or any other party
of a transaction which will result in a Change of Control; provided that (i) the
effective date of the Change of Control occurs within eighteen (18) months of
Executive's termination, and further provided that (ii) as a condition to the
receipt of the Severance Payment, upon request by the Board of Directors of the
Bank, Executive will not voluntarily terminate his employment with the Bank
until after the effective date of the Change of Control in order to assist the
Bank in evaluating and effectuating the Change of Control.
5. RESTRICTIVE COVENANT.
--------------------
5.1 Noncompetition. Executive agrees that he will not during the
--------------
term of this Agreement and for a period of one year following the payment to
Executive of a Severance Payment directly or indirectly become interested in, as
principal shareholder, director, or officer, any financial institution that
competes with Bank, including any successor, or any of its affiliates within the
State of Washington. The provisions restricting competition by Executive may be
waived by action of the Board. Executive recognizes and agrees that any breach
of this covenant by Executive will cause immediate and irreparable injury to
Bank, and Executive hereby authorizes recourse by Bank to injunction and/or
specific performance, as well as to other legal or equitable remedies to which
Bank may be entitled.
5.2 Noninterference. During the noncompetition period described in
---------------
Section 5.1, Executive shall not solicit or attempt to solicit any other
employee of Bank or its affiliates to leave the employ of those companies, or in
any way interfere with the relationship between Bank and any other employee of
Bank.
5.3 Interpretation. If a court or any other administrative body with
--------------
jurisdiction over a dispute related to this Agreement should determine that the
restrictive covenant set forth above is unreasonably broad, the parties hereby
authorize said court or administrative body to narrow same so as to make it
reasonable, given all relevant circumstances, and to enforce same. The
covenants in this paragraph shall survive termination of this Agreement.
-2-
<PAGE>
6. DEFINITIONS.
-----------
6.1. Cause. "Cause" shall mean only (i) willful misfeasance, failure
-----
to follow direction by a senior officer or gross negligence in the performance
of Executive's duties, (ii) conduct demonstrably and significantly harmful to
the Bank (which would include willful violation of any final cease and desist
order applicable to the Bank), or (iii) conviction of a felony.
6.2. Change of Control. "Change of Control" shall mean the
-----------------
occurrence of one or more of the following events:
6.2.1. One person or entity acquiring or otherwise becoming the
owner of twenty-five percent (25%) or more of the Company's outstanding common
stock;
6.2.2. Replacement of incumbent directors or election of newly-
elected directors constituting a majority of the Board of the Company where such
replacement or election has not been supported by the Board;
6.2.3. Dissolution, or sale of fifty percent (50%) or more in value
of the assets, of either the Company, the Bank or any of their respective
subsidiaries; or
6.2.4 The merger of the Company into any corporation, twenty-five
percent (25%) or more of the outstanding common stock of which is owned by other
than owners of the common stock of the Company prior to such merger.
7. MISCELLANEOUS.
-------------
7.1 This Agreement contains the entire agreement between the parties
with respect to the subject matter, and is subject to modification or amendment
only upon amendment in writing signed by both parties.
7.2 This Agreement shall bind and inure to the benefit of the heirs,
legal representatives, successors, and assigns of the parties.
7.3 If any provision of this Agreement is invalid or otherwise
unenforceable, all other provisions shall remain unaffected and shall be
enforceable to the fullest extent permitted by law.
7.4 Notwithstanding any other provision in this Agreement, Bank shall
make no payment of any severance benefit provided for herein to the extent that
such payment would be prohibited by the provisions of Part 359 of the
regulations of the Federal Deposit Insurance Corporation as the same may be
amended from time to time, and if such payment is so prohibited, Bank shall use
its best efforts to secure the consent of the FDIC or other applicable banking
agencies to make such payments in the highest amount permissible, up to the
amount provided for in this Agreement.
-3-
<PAGE>
7.5 This Agreement is made with reference to and is intended to be
construed in accordance with the laws of the State of Washington. Venue for any
action arising out of or concerning this Agreement shall lie in Thurston County,
Washington. In the event of a dispute under this Agreement, the dispute shall
be arbitrated pursuant to the Superior Court Mandatory Arbitration Rules ("MAR")
adopted by the Washington State Supreme Court, irrespective of the amount in
controversy. This Agreement shall be deemed as stipulation to that effect
pursuant to MAR 1.2 and 8.1 The arbitrator, in his or her discretion, may award
attorney's fees to the prevailing party or parties.
7.6 Any notice required to be given under this Agreement to either
party shall be given by personal service or by depositing a copy thereof in the
United States registered or certified mail, postage prepaid, addressed to the
following address, or such other address as addressee shall designate in
writing:
Bank: Heritage Savings Bank
----
201 5th Avenue S.W.
Olympia, WA 98501
Attn: ___________________
Executive: John Parry
---------
________________________
________________________
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date first above written.
HERITAGE SAVINGS BANK: EXECUTIVE:
By: ____________________________ ____________________________
Its: ___________________________
-4-
<PAGE>
EXHIBIT 10.6
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into effective
this ____ day of _______________, 1997, by and between HERITAGE SAVINGS BANK, a
Washington banking corporation (the "Bank") and _______________________
("Executive").
RECITALS
1. The Bank currently receives the exclusive services of Executive as its
employee, and both the Bank and Executive desire that this employment
relationship continue.
2. In order to encourage Executive to continue his employment relationship
with the Bank, thereby allowing the Bank to maximize the benefits obtainable by
its shareholder and the shareholders of its holding company, Heritage Financial
Corporation (the "Company"), from any such change, the Bank desires to provide a
severance benefit to Executive.
In consideration of the mutual promises, covenants, agreements and
undertakings contained in this Agreement, the parties hereby contract and agree
as follows:
AGREEMENT
1. TERM. The term of this Agreement ("Term") shall commence as of the
----
date first above written and shall end on the fifth anniversary of such date,
unless extended in writing by the parties.
2. SEVERANCE PAYMENT.
-----------------
2.1. Determination of Payment. In the case of a Termination Event,
------------------------
as defined in Section 4, the Bank shall pay to Executive upon the effective
date of termination a severance payment ("Severance Payment") in an amount equal
to the amount of Executive's then-current annual base salary in addition to all
salary and benefits earned through such termination date. In such event, all
future provisions regarding restricted stock awards or vesting requirements
regarding options shall lapse or be considered completed as of the effective
date of the termination.
3. OTHER COMPENSATION AND TERMS OF EMPLOYMENT. Except with respect to the
------------------------------------------
Severance Payment, this Agreement shall have no effect on the determination of
any compensation payable by the Bank to the Executive, or upon any of the other
terms of Executive's employment with the Bank.
4. TERMINATION EVENTS. A Termination Event shall be deemed to occur upon,
------------------
and only upon, one or more of the following:
4.1 Termination of Executive's employment by either party for any
reason within 730 days following the effective date of a Change of Control (as
defined below); or
<PAGE>
4.2 Termination of Executive's employment by the Bank without Cause
prior to a Change of Control if such termination occurs at any time from and
after sixty days prior to the public announcement by the Bank or any other party
of a transaction which will result in a Change of Control; provided that the
effective date of the Change of Control occurs within eighteen (18) months of
Executive's termination.
5. DEFINITIONS.
-----------
5.1. Cause. "Cause" shall mean only (i) willful misfeasance, failure
-----
to follow direction by a senior officer or gross negligence in the performance
of Executive's duties, (ii) conduct demonstrably and significantly harmful to
the Bank (which would include willful violation of any final cease and desist
order applicable to the Bank), or (iii) conviction of a felony.
5.2. Change of Control. "Change of Control" shall mean the
-----------------
occurrence of one or more of the following events:
5.2.1. One person or entity acquiring or otherwise becoming the owner
of twenty-five percent (25%) or more of the Company's outstanding common stock;
5.2.2. Replacement of incumbent directors or election of newly-
elected directors constituting a majority of the Board of the Company where such
replacement or election has not been supported by the Board;
5.2.3. Dissolution, or sale of fifty percent (50%) or more in value
of the assets, of either the Company, the Bank or any of their respective
subsidiaries; or
5.2.4 The merger of the Company into any corporation, twenty-five
percent (25%) or more of the outstanding common stock of which is owned by other
than owners of the common stock of the Company prior to such merger.
6. MISCELLANEOUS.
-------------
6.1 This Agreement contains the entire agreement between the parties
with respect to the subject matter, and is subject to modification or amendment
only upon amendment in writing signed by both parties.
6.2 This Agreement shall bind and inure to the benefit of the heirs,
legal representatives, successors, and assigns of the parties.
6.3 If any provision of this Agreement is invalid or otherwise
unenforceable, all other provisions shall remain unaffected and shall be
enforceable to the fullest extent permitted by law.
6.4 Notwithstanding any other provision in this Agreement, Bank shall
make no payment of any severance benefit provided for herein to the extent that
such payment would be prohibited by the provisions of Part 359 of the
regulations of the Federal Deposit Insurance
-2-
<PAGE>
Corporation as the same may be amended from time to time, and if such payment is
so prohibited, Bank shall use its best efforts to secure the consent of the FDIC
or other applicable banking agencies to make such payments in the highest amount
permissible, up to the amount provided for in this Agreement.
6.5 This Agreement is made with reference to and is intended to be
construed in accordance with the laws of the State of Washington. Venue for any
action arising out of or concerning this Agreement shall lie in Thurston County,
Washington. In the event of a dispute under this Agreement, the dispute shall
be arbitrated pursuant to the Superior Court Mandatory Arbitration Rules ("MAR")
adopted by the Washington State Supreme Court, irrespective of the amount in
controversy. This Agreement shall be deemed as stipulation to that effect
pursuant to MAR 1.2 and 8.1 The arbitrator, in his or her discretion, may award
attorney's fees to the prevailing party or parties.
6.6 Any notice required to be given under this Agreement to either
party shall be given by personal service or by depositing a copy thereof in the
United States registered or certified mail, postage prepaid, addressed to the
following address, or such other address as addressee shall designate in
writing:
Bank : Heritage Savings Bank
---- 201 5th Avenue S.W.
Olympia, WA 98501
Attn: ___________________
Executive: _________________________
--------- _________________________
_________________________
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date first above written.
HERITAGE SAVINGS BANK: EXECUTIVE
By: ____________________________ _________________________
Its: ___________________________
-3-
<PAGE>
Exhibit 99.1
[HERITAGE FINANCIAL LOGO]
STOCK ORDER FORM
PLEASE READ AND COMPLETE THIS STOCK ORDER FORM. INSTRUCTIONS ARE INCLUDED ON
THE REVERSE SIDE OF THIS FORM.
- --------------------------------------------------------------------------------
DEADLINE FOR DELIVERY 10:00 A.M., PACIFIC TIME, ON , 1997
Please mail the Stock Order Form in the enclosed envelope to the address listed
below or hand-deliver to any Heritage Savings Bank office. Heritage Financial
is not required to accept copies of Stock Order Forms.
<TABLE>
<CAPTION>
NUMBER OF SHARES OFFICE USE ONLY
<S> <C> <C> <C> <C> <C>
(1) Number of Price Total
Shares per Share Amount Due ------------- ------- -----
[_____________] X $10.00 = [$_____] Date Received Batch # Order
(25 Share Minimum)
</TABLE>
METHOD OF PAYMENT PURCHASER INFORMATION
(2) [_] Enclosed is a check or money (4) [_] Check here if you were a
order payable to HERITAGE FINANCIAL Heritage Savings Bank stockholder
CORPORATION for $ . on , 1997.
(3) [_] I authorize Heritage Savings (a) [_] Check here if you are a
Bank to make the withdrawal(s) from Heritage Savings Bank employee, or a
the Heritage Savings Bank account(s) member of the immediate family of a
listed below, and understand that the Heritage Savings employee.
amounts I authorize will not be
available for withdrawal once this (5) Check the box which applies.
Stock Order Form is submitted:
(a) [_] Check here if you were a
ACCOUNT NUMBER(S) AMOUNT(S) Depositor of Heritage Savings Bank
$ on June 30, 1996. List any account(s)
- ------------------------------------- you had on that date below.
$
- ------------------------------------- (b) [_] Check here if you were NOT
$ a depositor at June 30, 1996,
- ------------------------------------- but you were a depositor on
$ September 30, 1997. List any
- ------------------------------------- account(s) you had on that date
Total Withdrawal $ below.
THERE IS NO EARLY WITHDRAWAL PENALTY (c) [_] Check here if you were not
FOR THE PURCHASE OF STOCK. a depositor at either of the above
dates, but were a depositor on
, 1997. List any accounts
you had on that date below.
(d) [_] Check here if you have never
been a Heritage Savings Bank depositor.
ACCOUNT TITLE (NAME(S) ACCOUNT
ON ACCOUNT) NUMBER
------------------------------------
------------------------------------
------------------------------------
IF ADDITIONAL SPACE IS NEEDED,
PLEASE USE THE BACK OF THIS STOCK
ORDER FORM.
STOCK REGISTRATION (PLEASE PRINT CLEARLY)
(6) (7)
- -----------------------------------------------------------------------------
(First Name) (M.I.) (Last Name) Social Security # or Tax ID#
(stock certificate will show
this number)
- -----------------------------------------------------------------------------
(First Name) (M.I.) (Last Name) Social Security # or Tax ID#
(8)
- -----------------------------------------------------------------------------
(Street Address) (Daytime Phone Number)
- -----------------------------------------------------------------------------
(City) (State) (Zip) (Evening Phone Number)
(9) Form of Stock Ownership (check one)
<TABLE>
<S> <C> <C> <C>
[_] Individual [_] Joint Tenants [_] Tenants in Common [_] Uniform Transfer to Minors
[_] Individual [_] Corporation [_] Fiduciary (Under [_] Other
Retirement Agreement Dated
Account (IRA) , 199 )
</TABLE>
NASD AFFILIATION (IF APPLICABLE)
[_] Check here and initial below if you are a member of the NASD ("National
Association of Securities Dealers") or a person associated with an NASD
member or a member of the immediate family of any such person to whose
support such person contributes, directly or indirectly, or if you have an
account in which an NASD member, or person associated with an NASD member,
has a beneficial interest. I agree (i) not to sell, transfer, or hypothecate
the stock for a period of 90 days following issuance; and (ii) to report this
subscription in writing to the applicable NASD member I am associated with
within one day of payment for the stock. _______ (Please initial)
ACKNOWLEDGMENT AND SIGNATURE (VERY IMPORTANT)
I(we) acknowledge receipt of the Prospectus dated , 1997, and I(we) have
read the terms and conditions described therein (including the section
entitled "Risk Factors"). I(we) understand that, after receipt by Heritage
Financial, this order may not be modified or withdrawn without the consent of
Heritage Financial. I(we) hereby certify that the shares which are being
subscribed for are for my(our) account only, and that I(we) have no present
agreement or understanding regarding any subsequent sale or transfer of such
shares and I(we) confirm that my(our) order does not conflict with the
purchase limitation and ownership limitation provisions in the Plan of
Conversion. I(we) acknowledge that the common stock being ordered is not a
deposit or savings account, is not federally-insured, and is not guaranteed
by Heritage Financial, or the Washington state government. Under penalties of
perjury, I(we) certify that (1) the Social Security #(s) or Tax ID#(s) given
above is(are) correct; and (2) I(we) am(are) not subject to backup
withholding tax (You must cross out #2 above if you have been notified by the
Internal Revenue Service that you are subject to backup withholding because
of underreporting interest or dividends on your tax return).
Please sign and date this form. Only one signature is required, unless
authorizing a withdrawal from a Heritage Savings Bank deposit account
requiring more than one signature to withdraw funds. If signing as a
custodian, corporate officer, etc., please include your full title.
STOCK INFORMATION CENTER:
------------------------------------------- Heritage Savings Bank
Signature Title (if applicable) Date 201 5th Ave., S.W.
Olympia, WA 98501
-------------------------------------------
Signature (if required) Date QUESTIONS? Call (800)
- or (360) -
9:00 am to 4:00 pm,
Monday-Friday
THIS ORDER NOT VALID UNLESS SIGNED
THE SHARES OF COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
<PAGE>
STOCK ORDER FORM INSTRUCTIONS
1--Indicate the number of shares of Heritage Financial common stock that you
wish to purchase and indicate the amount due. The minimum purchase is 25
shares or $250. The maximum aggregate purchase in the Offering, i.e. the
SUBSCRIPTION, MINORITY STOCKHOLDERS' AND COMMUNITY OFFERING, combined, is
$250,000 for an individual (or persons exercising subscription rights through
a single eligible account at Heritage Savings Bank), together with associates
or group acting in concert. The categories of the Offering are described in
the Prospectus, page . Heritage Financial Corporation reserves the right to
accept or reject orders placed in the Community Offering or Minority
Stockholders Offering. NOTICE TO HERITAGE SAVINGS BANK STOCKHOLDERS: See the
Prospectus, page for the overall limitation on ownership of Heritage
Financial common stock.
2--Payment for shares may be made by check or money order payable to HERITAGE
FINANCIAL CORPORATION. Funds received in this form of payment will be cashed
immediately and deposited into a separate account established for the purposes
of this Offering. You will earn interest at Heritage Savings Bank's passbook
rate from the time funds are received until the Offering is consummated.
3--You may pay for your shares by withdrawal from your Heritage Savings Bank
deposit account(s). Indicate the account number(s) and the amount(s) to be
withdrawn. These funds will be unavailable to you from the time this Stock
Order Form is received until the Offering is consummated. The funds will
continue to earn interest at the account's contractual rate until the Offering
is consummated. PLEASE CONTACT THE STOCK INFORMATION CENTER EARLY IN THE
OFFERING PERIOD, IF YOU ARE INTENDING TO UTILIZE HERITAGE SAVINGS BANK IRA
FUNDS (OR ANY OTHER IRA FUNDS) TO MAKE YOUR STOCK PURCHASE.
4--Please check one or both of these boxes, if applicable.
5--Check the applicable box. THIS INFORMATION IS VERY IMPORTANT BECAUSE
ELIGIBILITY DATES ARE UTILIZED TO PRIORITIZE YOUR ORDER IN THE EVENT THAT WE
RECEIVE MORE STOCK ORDERS THAN AVAILABLE STOCK. List the name(s) on the
deposit account(s) and account number(s) that you held at the applicable date.
Please see the portion of the Prospectus entitled "The Conversion--The
Offerings" for a detailed explanation of how shares will be allocated in the
event the Offering is oversubscribed. Failure to complete this section could
result in a loss of all or part of your stock allocation.
(Continued from previous page)
ACCOUNT TITLE (NAME(S) ON ACCOUNT) ACCOUNT NUMBER
-------------------------- ---------------------
-------------------------- ---------------------
-------------------------- ---------------------
-------------------------- ---------------------
6--Please CLEARLY PRINT the name(s) and address in which you want the stock
certificate registered and mailed. If you are exercising subscription rights
by purchasing in the Subscription Offering as a Heritage Savings Bank (i)
eligible depositor as of 6/30/96 or (ii) eligible depositor as of 9/30/97 or
depositor or eligible borrower as of /97, you must register the stock in
the name of one of the account holders listed on your account as of the
applicable date. However, adding the name(s) of other persons who are not
account holders, or were account holders at a later date than yourself, will
be a violation of your subscription right and will result in a loss of your
purchase priority. NOTE: ONE STOCK CERTIFICATE WILL BE GENERATED PER ORDER
FORM. IF VARIOUS REGISTRATIONS AND SHARE AMOUNTS ARE DESIRED ON VARIOUS
CERTIFICATES, A SEPARATE STOCK ORDER FORM MUST BE COMPLETED FOR EACH
CERTIFICATE DESIRED.
7--Enter the Social Security Number or Tax ID Number of the registered
owner(s). The first number listed will be identified with the stock
certificate.
8--Be sure to include at least one phone number, in the event you must be
contacted regarding this Stock Order Form.
9--Please check the one type of ownership applicable to your registration. An
explanation of each follows:
GUIDELINES FOR REGISTERING STOCK
For reasons of clarity and standardization, the stock transfer industry has
developed uniform stockholder registrations which we will utilize in the
issuance of your Heritage Financial Stock Certificate(s). If you have any
questions, please consult your legal advisor.
Stock ownership must be registered in one of the following manners:
- ------------------------------------
INDIVIDUAL: Avoid the use of two initials. Include the first given name,
middle initial and last name of the stockholder. Omit words of
limitation that do not affect ownership rights such as "special
account," "single man," "personal property," etc. If the stock is
held individually upon the individual's death, the stock will be
owned by the individual's estate and distributed as indicated by
the individual's will or otherwise in accordance with law.
- ------------------------------------
JOINT: Joint ownership of stock by two or more persons shall be inscribed
on the certificate with one of the following types of joint
ownership. Names should be joined by "and"; do not connect with
"or." Omit titles such as "Mrs.," "Dr.," etc.
JOINT TENANTS--Joint Tenancy with Right of Survivorship and not as
Tenants in Common may be specified to identify two or more owners
where ownership is intended to pass automatically to the surviving
tenant(s).
TENANTS IN COMMON--Tenants in Common may be specified to identify
two or more owners. When stock is held as tenancy in common, upon
the death of one co-tenant, ownership of the stock will be held by
the surviving co-tenant(s) and by the heirs of the deceased co-
tenant. All parties must agree to the transfer or sale of shares
held in this form of ownership.
- ------------------------------------
UNIFORM Stock may be held in the name of a custodian for a minor under the
TRANSFER Uniform Transfers to Minors laws of individual states. There may
TO MINORS: be only one custodian and one minor designated on a stock
certificate. The standard abbreviation of custodian is "CUST,",
while the description "Uniform Transfers to Minors Act" is
abbreviated "UNIF TRAN MIN ACT." Standard U.S. Postal Service
state abbreviations should be used to describe the appropriate
state. For example, stock held by John P. Jones under the Uniform
Transfers to Minors Act will be abbreviated:
JOHN P. JONES CUST SUSAN A. JONES
UNIF TRAN MIN ACT WA
- ------------------------------------
FIDUCIARIES:Stock held in a fiduciary capacity must contain the following:
1. The name(s) of the fiduciary:
--If an individual, list the first given name, middle
initial, and last name.
--If a corporation, list the corporate title.
--If an individual and a corporation, list the corporation's
title before the individual.
2. The fiduciary capacity:
--Administrator
--Conservator
--Committee
--Executor
--Trustee
--Personal Representative
--Custodian
3. The type of document governing the fiduciary relationship.
Generally, such relationships are either under a form of living
trust agreement or pursuant to a court order. Without a
document establishing a fiduciary relationship, your stock may
not be registered in a fiduciary capacity.
4. The date of the document governing the relationship. The date
of the document need not be used in the description of a trust
created by a will.
5. Either of the following:
The name of the maker, donor or testator
OR
The name of the beneficiary
Example of Fiduciary Ownership:
JOHN D. SMITH, TRUSTEE FOR TOM A. SMITH
UNDER AGREEMENT DATED 6/9/74
<PAGE>
EXHIBIT 99.2
[RYAN, BECK LOGO]
Dear Sir/Madam:
At the request of Heritage Bank and Heritage Financial Corporation, we are
enclosing materials regarding the offering of Heritage Financial Corporation
common stock. The materials include a Prospectus and Question and Answer
Brochure describing the stock offering. Ryan, Beck & Co., Inc., has been
retained by Heritage Financial Corporation as selling agent in connection with
the stock offering.
We have been asked to forward these materials to you in view of certain
regulatory requirements and the securities laws of your state.
Sincerely,
[LOGO TO COME]
Ryan, Beck & Co.
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF
COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
NOTE: To accompany one of the preceding letters for prospects in states where
the offer must be made by a broker-dealer.
<PAGE>
[HERITAGE FINANCIAL LOGO]
LETTER TO MEMBERS ELIGIBLE TO VOTE
Dear Customer:
It is my pleasure to inform you of an investment opportunity and to request
your vote on our Plan of Conversion (the "Plan"). In connection with the Plan,
we will change from a mutual holding company corporate structure to a fully
stockholder-owned structure (the "Conversion"). To effect the change, Heritage
Financial Corporation, a company that we recently organized to serve as the
Bank's parent company, is conducting a stock offering of up to shares
of its common stock at a purchase price of $10 per share.
THE VOTE:
YOUR VOTE IS IMPORTANT IN ORDER FOR US TO IMPLEMENT THE PLAN. We have
received conditional regulatory approval of our Plan, but we must also receive
the approval of the Bank's customers eligible to vote on the Plan. Included
herein is a Proxy Statement describing the Plan of Conversion and business
reasons for the change in corporate structure. We have also included a
Question and Answer Brochure. PLEASE VOTE AND SIGN THE ENCLOSED PROXY CARD(S).
PLEASE MAIL THE CARD(S) IN THE ENCLOSED PROXY REPLY ENVELOPE, TO BE RECEIVED
BY P.M., PACIFIC TIME, ON DECEMBER , 1997.
NOT VOTING MUST BE TREATED THE SAME AS VOTING "AGAINST" THE PLAN, SO YOUR
VOTE IS VERY IMPORTANT. I HOPE YOU WILL VOTE "FOR".
VOTING DOES NOT OBLIGATE YOU TO PURCHASE STOCK IN THE OFFERING.
THE PLAN WILL NOT RESULT IN CHANGES IN THE ACCOUNT NUMBERS OR TERMS OF YOUR
DEPOSIT ACCOUNTS OR LOANS. YOUR DEPOSIT ACCOUNTS WILL CONTINUE TO BE INSURED
BY THE FDIC.
THE PLAN DOES NOT INVOLVE ANY OUTSIDE COMPANIES OR PERSONS. OUR CUSTOMERS
WILL CONTINUE TO ENJOY THE SAME SERVICES IN THE SAME OFFICES WITH THE SAME
STAFF AND BOARD OF DIRECTORS.
THE STOCK OFFERING:
AS AN ELIGIBLE DEPOSITOR OR BORROWER OF HERITAGE BANK, YOU HAVE A PURCHASE
PRIORITY (BUT NO OBLIGATION TO BUY) IN THE OFFERING. Please read the enclosed
Prospectus carefully before making an investment decision. If you would like
to place an order for common stock, you may do so WITHOUT PAYING A COMMISSION.
Please complete the enclosed Stock Order Form and return it in the Order Reply
Envelope, along with payment or authorization to withdraw funds (WITHOUT
PENALTY FOR EARLY WITHDRAWAL) from any Heritage Bank deposit account(s) that
you may have. ORDERS MUST BE RECEIVED BY THE BANK BY 10:00 A.M., PACIFIC TIME,
ON DECEMBER , 1997.
(over)
<PAGE>
If you wish to purchase common stock through an existing Heritage Bank IRA
or any other IRA you may have, please be sure to call the Stock Information
Center within the first two weeks of the Offering period, as IRA-related
procedures require additional processing time.
Upon consummation of the Offering, we expect that Heritage Financial common
stock will be listed on the Nasdaq National Market under the symbol "HFWA".
Our Board of Directors believes that this transaction is in the best
interests of our customers. The net proceeds of the Offering will be available
for lending and investing, and the additional capital will support continued
growth and expansion of products and services.
IF YOU HAVE ANY QUESTIONS, PLEASE REFER TO THE ENCLOSED QUESTION AND ANSWER
BROCHURE OR CALL OUR STOCK INFORMATION CENTER AT A NUMBER SHOWN BELOW.
I hope that you will take advantage of this opportunity to share in our
future.
Sincerely,
/s/ Donald V. Rhodes
Donald V. Rhodes
Chairman of the Board, President and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF
COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
- -------------------------------------------------------------------------------
STOCK INFORMATION CENTER
(888) 849-1078 OR (360) 705-9190
9:00 A.M. TO 4:00 P.M., MONDAY THROUGH FRIDAY
LOCATED AT HERITAGE BANK'S MAIN OFFICE
LETTER TO MEMBERS ELIGIBLE TO VOTE
Page 2
<PAGE>
[HERITAGE FINANCIAL LOGO]
LETTER TO REGISTERED PUBLIC STOCKHOLDERS
Dear Stockholder:
As you know, Heritage Bank conducted an initial stock offering in early 1994
in connection with reorganizing into the mutual holding company form of
organization. We are now completing the transition to full public ownership
through another stock offering. Pursuant to a Plan of Conversion (the "Plan"),
our holding company will convert from the mutual form (no stockholders) to a
stockholder-owned holding company, Heritage Financial Corporation. In
connection with the Plan, Heritage Financial is offering for sale up to
4,140,000 shares of its common stock at a purchase price of $10 per share.
In addition to the shares of Heritage Financial common stock that are for
sale in the Offering, additional shares are designated for exchange. Shares of
Heritage Bank common stock owned by you and other public stockholders at the
conclusion of the transaction will be exchanged for shares of Heritage
Financial common stock (the "Exchange"). Additionally, the mutual holding
company's shares of Heritage Bank stock will be canceled. As soon as
practicable after the consummation of the transaction, each stockholder of
Heritage Bank common stock will receive a transmittal form explaining the
procedure for effecting the Exchange.
We are pleased to inform you that we have received conditional approval for
Heritage Financial common stock to be listed on the Nasdaq National Market
under the symbol "HFWA".
The Plan of Conversion requires the approval of the Bank's stockholders.
Included herein is a Proxy Statement describing the Plan of Conversion and
business reasons for the transaction. We have also included a Question and
Answer Brochure. PLEASE VOTE AND SIGN THE ENCLOSED PROXY CARD. PLEASE MAIL THE
CARD IN THE ENCLOSED PROXY REPLY ENVELOPE, TO BE RECEIVED BY :00 P.M.,
PACIFIC TIME, ON , 1997.
ON BEHALF OF THE BOARD OF DIRECTORS I URGE YOU TO VOTE "FOR" THE PLAN.
YOU HAVE THE OPPORTUNITY TO PURCHASE HERITAGE FINANCIAL COMMON STOCK IN THE
OFFERING. AS A STOCKHOLDER OF THE BANK ON , 1997, YOU HAVE A PURCHASE
PREFERENCE OVER MEMBERS OF THE GENERAL PUBLIC. Please read the enclosed
Prospectus carefully before making an investment decision. If you choose to
participate in the Offering, you may do so WITHOUT PAYING A COMMISSION. Please
complete the enclosed Stock Order Form and return it in the Order Reply
Envelope, along with payment or authorization to withdraw funds (WITHOUT
PENALTY FOR EARLY WITHDRAWAL) from any Heritage Bank deposit account(s) that
you may have. ORDERS MUST BE RECEIVED BY THE BANK BY 10:00 A.M., PACIFIC TIME,
ON , 1997.
If you wish to purchase common stock through an existing Heritage Bank IRA
or any other IRA you may have, please be sure to call the Stock Information
Center within the first two weeks of the Offering period, as IRA-related
procedures require additional processing time.
(over)
<PAGE>
LETTER TO REGISTERED PUBLIC STOCKHOLDERS
Page 2
The Board of Directors believes that the conversion of the mutual holding
company and the related Offering and Exchange are consistent with the goal of
enhancing value for stockholders. The net proceeds of the Offering will be
available for lending and investing, and the additional capital will support
continued growth.
IF YOU HAVE ANY QUESTIONS, PLEASE REFER TO THE ENCLOSED QUESTION AND ANSWER
BROCHURE OR CALL THE STOCK INFORMATION CENTER AT A NUMBER SHOWN BELOW.
We look forward to continued association with you as a Heritage Financial
stockholder.
Sincerely,
/s/ Donald V. Rhodes
Donald V. Rhodes
Chairman of the Board, President and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF
COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
- -------------------------------------------------------------------------------
STOCK INFORMATION CENTER
(888) 849-1078 OR (360) 705-9190
9:00 A.M. TO 4:00 P.M., MONDAY THROUGH FRIDAY
LOCATED AT HERITAGE BANK'S MAIN OFFICE
<PAGE>
[HERITAGE FINANCIAL LOGO]
LETTER TO CLOSED ACCOUNTS (Can Buy, Not Vote)
Dear Friend:
It is my pleasure to inform you of an investment opportunity. As you may
know, Heritage Bank concluded an initial stock offering in 1994. We are now
conducting another stock offering. Heritage Financial Corporation, a company
that we recently organized to serve as the Bank's parent company, is
conducting a stock offering of up to 4,140,000 shares of its common stock at a
purchase price of $10 per share.
AS AN ELIGIBLE DEPOSITOR OF HERITAGE BANK ON JUNE 30, 1996, WHOSE ACCOUNT
WAS CLOSED THEREAFTER, YOU HAVE A PURCHASE PRIORITY IN THE OFFERING. Enclosed
please find a Prospectus, Stock Order Form, Question and Answer Brochure and
Reply Envelope. Please read the Prospectus carefully before making an
investment decision. If you choose to participate in the Offering, you may do
so WITHOUT PAYING A COMMISSION. Please complete the enclosed Stock Order Form
and return it in the enclosed Reply Envelope, along with payment. ORDERS MUST
BE RECEIVED BY THE BANK BY 10:00 A.M., PACIFIC TIME, ON , 1997.
If you wish to purchase common stock through an IRA, please be sure to call
the Stock Information Center within the first two weeks of the Offering
period, as IRA-related procedures require additional processing time.
Upon consummation of the Offering, we expect that Heritage Financial common
stock will be listed on the Nasdaq National Market under the symbol "HFWA".
IF YOU HAVE ANY QUESTIONS, PLEASE REFER TO THE ENCLOSED QUESTION AND ANSWER
BROCHURE OR CALL THE STOCK INFORMATION CENTER AT A NUMBER SHOWN BELOW.
I hope that you will take advantage of this opportunity to share in our
future.
Sincerely,
/s/ Donald V. Rhodes
Donald V. Rhodes
Chairman of the Board, President and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF
COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
- -------------------------------------------------------------------------------
STOCK INFORMATION CENTER
(888) 849-1078 OR (360) 705-9190
9:00 A.M. TO 4:00 P.M., MONDAY THROUGH FRIDAY
LOCATED AT HERITAGE BANK'S MAIN OFFICE
<PAGE>
[HERITAGE FINANCIAL LOGO]
POTENTIAL INVESTOR LETTER (CALL-INS)
Dear Friend:
It is my pleasure to inform you of an investment opportunity. Heritage
Financial Corporation, a company that we recently organized to serve as the
Bank's parent company, is conducting a stock offering of up to 4,140,000
shares of its common stock at a purchase price of $10 per share.
Enclosed please find a Prospectus, Stock Order Form, Question and Answer
Brochure and Reply Envelope. Please read the Prospectus carefully before
making an investment decision. If you choose to participate in the Offering,
you may do so WITHOUT PAYING A COMMISSION. Please complete the Stock Order
Form and return it in the enclosed Reply Envelope, along with payment. ORDERS
MUST BE RECEIVED BY THE BANK BY 10:00 A.M., PACIFIC TIME, ON , 1997.
If you wish to purchase common stock through an IRA, please be sure to call
the Stock Information Center within the first two weeks of the Offering
period, as IRA-related procedures require additional processing time.
Upon consummation of the Offering, we expect that Heritage Financial common
stock will be listed on the Nasdaq National Market under the symbol "HFWA".
IF YOU HAVE ANY QUESTIONS, PLEASE REFER TO THE ENCLOSED QUESTION AND ANSWER
BROCHURE OR CALL THE STOCK INFORMATION CENTER AT A NUMBER SHOWN BELOW.
Thank you for your interest in Heritage Bank.
Sincerely,
/s/ Donald V. Rhodes
Donald V. Rhodes
Chairman of the Board, President and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF
COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
- -------------------------------------------------------------------------------
STOCK INFORMATION CENTER
(888) 849-1078 OR (360) 705-9190
9:00 A.M. TO 4:00 P.M., MONDAY THROUGH FRIDAY
LOCATED AT HERITAGE BANK'S MAIN OFFICE
<PAGE>
LOBBY POSTER (optional)
[HERITAGE FINANCIAL LOGO]
HOLDING COMPANY FOR HERITAGE BANK
UP TO 4,140,000 SHARES
COMMON STOCK
$10 PER SHARE
PURCHASE PRICE
WE ARE CONDUCTING AN OFFERING OF COMMON STOCK!
If you have any questions or would like to obtain a copy of the Prospectus,
please call our Stock Information Center at (888) 849-1078 or (360) 705-9190,
from 9:00 a.m. to 4:00 p.m., Monday through Friday.
Our Stock Information Center is located in our main office.
THIS NOTICE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY THESE SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF
COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
TOMBSTONE NEWSPAPER ADVERTISEMENT (optional)
[HERITAGE FINANCIAL LOGO]
HOLDING COMPANY FOR HERITAGE BANK
UP TO 4,140,000 SHARES
COMMON STOCK
$10 PER SHARE
PURCHASE PRICE
Heritage Financial Corporation, newly organized to be the holding company of
Heritage Bank, is conducting an offering of common stock. Shares may be
purchased directly from Heritage Financial during the offering period.
THIS OFFERING EXPIRES ON , 1997
To receive a Prospectus, please call the Stock Information Center at (888)
849-1078 or (360) 705-9190, from 9:00 a.m. to 4:00 p.m., Monday through
Friday.
THIS ADVERTISEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN
OFFER TO BUY THESE SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE
SHARES OF COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS
ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
CUSTOMER PROXYGRAM--PLAN OF CONVERSION
[YELLOW PAPER]
REMINDER
WE NEED YOUR VOTE!
(NOT VOTING MUST BE CONSIDERED AS VOTING AGAINST THE PLAN)
In order to implement the Plan, we must receive a majority of our
customers' votes IN FAVOR of the Plan, which authorizes our Stock
Offering.
We recently mailed to you a large envelope including a Proxy
Statement describing our Plan. If you have not returned the proxy
card(s) that we included with the Proxy Statement, please vote, sign,
and mail the enclosed replacement proxy card, using the enclosed Reply
Envelope.
VOTING DOES NOT OBLIGATE YOU TO PURCHASE STOCK IN OUR STOCK OFFERING.
If you recently mailed your proxy card(s), please accept our thanks
and disregard this request.
Thank you for your cooperation.
WE HOPE YOU WILL VOTE FOR THE PLAN OF CONVERSION
---
QUESTIONS?
Please call our Stock Information Center at (888) 849-1078 or (360) 705-
9190, 9:00 a.m. to 4:00 p.m., Monday through Friday.
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY THESE SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF
COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
[STOCK ORDER ACKNOWLEDGEMENT LETTER]
Name:
Address:
Dear Friend:
We are pleased to confirm receipt of your remittance (and/or authorized
account withdrawal) of $ and your order for the purchase of Heritage
Financial Corporation common stock. THIS NOTICE HOWEVER, CANNOT CONFIRM THE
NUMBER OF SHARES THAT YOU WILL RECEIVE AT THE CONCLUSION OF THE OFFERING. The
procedure for allocation of common stock depends on the orders received and is
described in detail in the Heritage Financial Prospectus, dated , 1997.
Allocations will be made after the conclusion of the offering period, ,
1997. Your stock certificate will be registered in the name(s) shown above.
Please verify the spelling and accuracy of your name and address.
If this information is incorrect, please contact our Stock Information
Center at (888) 849-1078 or (360) 705-9190.
STOCK INFORMATION CENTER
9:00 A.M. TO 4:00 P.M., MONDAY THROUGH FRIDAY
LOCATED AT HERITAGE BANK'S MAIN OFFICE
NOTE: To be mailed by data processing agent.
<PAGE>
[HERITAGE FINANCIAL LOGO]
"BLUE SKY" LETTER FOR MEMBERS AND INDIVIDUAL PUBLIC STOCKHOLDERS
Dear Friend:
I am pleased to request your vote on our Plan of Conversion (the "Plan"). As
you may know, Heritage Bank conducted an initial stock offering in 1994 in
connection with reorganizing into the mutual holding company form of
organization. We are now conducting another stock offering. In connection with
the Plan, Heritage Financial is conducting a stock offering, and our holding
company will convert from the mutual form (no stockholders) to a stockholder-
owned holding company. We have named the new company Heritage Financial. In
connection with the Plan, Heritage Financial is offering for sale up to
4,140,000 shares of its common stock at a purchase price of $10 per share.
YOUR PARTICIPATION IS IMPORTANT IN ORDER TO ACCOMPLISH THIS TRANSACTION. We
have received conditional regulatory approval of our Plan, subject to the
approval of the Bank's depositors and stockholders. Included herein is a Proxy
Statement describing the Plan of Conversion and business reasons for the
transaction. We have also included a Question and Answer Brochure. PLEASE VOTE
AND SIGN THE ENCLOSED PROXY CARD(S) AND PROMPTLY RETURN THEM, USING THE
ENCLOSED REPLY ENVELOPE.
YOUR VOTE IS VERY IMPORTANT; ON BEHALF OF THE BOARD OF DIRECTORS I URGE YOU
TO VOTE "FOR" THE PLAN.
THERE WILL BE NO CHANGE IN THE TERMS OF YOUR DEPOSIT ACCOUNTS OR LOANS. YOUR
DEPOSIT ACCOUNTS WILL CONTINUE TO BE INSURED BY THE FDIC.
OUR CUSTOMERS WILL CONTINUE TO ENJOY THE SAME SERVICES IN THE SAME OFFICES
WITH THE SAME STAFF AND BOARD OF DIRECTORS.
Although you may vote on the Plan, unfortunately, Heritage Financial is
unable to offer or sell its common stock to you. The small number of members
in your state makes it impractical to register or qualify Heritage Financial,
its officers, directors or employees under your state securities laws.
(over)
<PAGE>
"BLUE SKY" LETTER FOR MEMBERS AND INDIVIDUAL PUBLIC STOCKHOLDERS
Page 2
If you have any questions about your voting rights or the Plan, please call
the Stock Information Center at a number shown below.
Sincerely,
/s/ Donald V. Rhodes
Donald V. Rhodes
Chairman of the Board, President and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF
COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
- -------------------------------------------------------------------------------
STOCK INFORMATION CENTER
(888) 849-1078 OR (360) 705-9190
9:00 A.M. TO 4:00 P.M., MONDAY THROUGH FRIDAY
LOCATED AT HERITAGE BANK'S MAIN OFFICE
<PAGE>
[HERITAGE FINANCIAL LOGO]
LETTER TO "STREET NAME" BENEFICIAL OWNERS
Dear Stockholder:
As you know, Heritage Bank conducted an initial stock offering in early 1994
in connection with reorganizing into the mutual holding company form of
organization. We are now completing the transition to full public ownership
through another stock offering. Pursuant to a Plan of Conversion, our holding
company will convert from the mutual form (no stockholders) to a stockholder-
owned holding company, Heritage Financial Corporation. In connection with the
Plan, Heritage Financial is offering for sale up to 4,140,000 shares of common
stock at a purchase price of $10 per share.
In addition to the shares of Heritage Financial common stock that are for
sale in the Offering, additional shares are designated for exchange. Shares of
Heritage Bank common stock owned by you and other public stockholders at the
conclusion of the transaction will be exchanged for shares of Heritage
Financial common stock (the "Exchange"). Additionally, the mutual holding
company's shares of Heritage Bank will be canceled.
We are pleased to inform you that we have received conditional approval for
Heritage Financial common stock to be listed on the Nasdaq National Market
under the symbol "HFWA".
The Plan of Conversion requires the approval of the Bank's stockholders.
Included herein is a Proxy Statement and Prospectus describing the Plan of
Conversion and business reasons for the transaction. We have also included a
Question and Answer Brochure. PLEASE VOTE AND SIGN THE ENCLOSED PROXY CARD AND
PROMPTLY RETURN THEM, USING THE ENCLOSED REPLY ENVELOPE.
ON BEHALF OF THE BOARD OF DIRECTORS I URGE YOU TO VOTE "FOR" THE PLAN.
The Board of Directors believes that the conversion of the mutual holding
company and the related Offering and Exchange are consistent with the goal of
enhancing value for stockholders. The net proceeds of the Offering will be
available for lending and investing, and the additional capital will support
continued growth.
IF YOU HAVE ANY QUESTIONS, PLEASE REFER TO THE ENCLOSED QUESTION AND ANSWER
BROCHURE OR CALL THE STOCK INFORMATION CENTER AT A NUMBER SHOWN BELOW.
If you would like to receive a Stock Order Form, please call the Stock
Information Center. The Offering will conclude on .
(over)
<PAGE>
LETTER TO "STREET NAME" BENEFICIAL OWNERS
Page 2
We look forward to continued association with you as a Heritage Financial
stockholder.
Sincerely,
/s/ Donald V. Rhodes
Donald V. Rhodes
Chairman of the Board, President and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF
COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
- -------------------------------------------------------------------------------
STOCK INFORMATION CENTER
(888) 849-1078 OR (360) 705-9190
9:00 A.M. TO 4:00 P.M., MONDAY THROUGH FRIDAY
LOCATED AT HERITAGE BANK'S MAIN OFFICE
(NOTE: This letter is used for all beneficial owners whose mailing must be
done through proxy delivery channels.)
<PAGE>
PRESS RELEASE--EFFECTIVE DATE
CONTACT: DONALD V. RHODES, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
TELEPHONE: (360) 943-1500
FOR IMMEDIATE RELEASE
, 1997
- -------------------------------------------------------------------------------
HERITAGE BANK ANNOUNCES COMMENCEMENT OF STOCK OFFERING.
OLYMPIA, WASHINGTON: Donald V. Rhodes, Chairman, President and CEO of
Heritage Bank, announced today that Heritage Financial, the proposed holding
company for the Bank, has received regulatory approval to conduct an offering
of common stock pursuant to an amended Plan of Conversion. In accordance with
the Plan, Heritage Financial Corporation, M.H.C., mutual holding company of
Heritage Bank, will merge with Heritage Bank, which will become a wholly-owned
subsidiary of Heritage Financial, a newly-chartered corporation. The mutual
holding company owns 66% of Heritage Bank's outstanding shares of common
stock. The remaining 34% of the outstanding shares are owned by Heritage
Bank's public stockholders. At the conclusion of the transaction, the mutual
holding company will cease to exist, and its shares of Heritage Bank will be
canceled.
In connection with the Conversion, Heritage Financial is offering for sale
between 3,060,000 and 4,140,000 shares of common stock (subject to a possible
15% increase) at a purchase price of $10 per share. The amount and pricing of
the stock is based on an independent appraisal of the organization, estimated
to be $53.0 million at August 15, 1997.
The FDIC, the State of Washington and the Federal Reserve Board have granted
contingent approval of various regulatory applications, and the Securities and
Exchange Commission has declared effective the Registration Statement for the
offering of Heritage Financial common stock. The Plan is also subject to the
approval of depositors and stockholders of Heritage Bank, both as of ,
199 .
The common stock is being offered on a priority basis in a Subscription
Offering to (1) eligible depositors of Heritage Bank on , 199 and (2)
eligible depositors on , 199 . Shares not sold in the Subscription
Offering will be offered in a concurrent Public Stockholders Offering to
public stockholders of Heritage Bank as of , 199 . Any remaining shares
will be available to the general public in a concurrent Community Offering.
The best efforts offering, which is being managed by Ryan, Beck & Co., Inc.,
is expected to conclude on , 1997.
In addition to the shares of stock that are for sale in the Offering, up to
shares of Heritage Financial common stock (subject to a possible 15%
increase) will be exchanged for outstanding shares of Heritage Bank's common
stock. It is presently expected that each share of stock of the Bank held by
the public stockholders will be exchanged for between approximately
and shares of common stock of Heritage Financial (the "Exchange Ratio"),
based on the offering range of between and shares. The Exchange Ratio
may change significantly as a result of updates of the independent appraisal
or regulatory review of the transaction. The final Exchange Ratio will be
determined based upon the number of shares sold in the offering and the public
stockholders' ownership interest in the Bank at the conclusion of the
transaction. As a result of the exchange of shares, public stockholders of the
Bank will own approximately % of Heritage Financial. The dilution of
ownership interest from % reflects a downward adjustment, pursuant to FDIC
policy, to take into account the amount of various assets of the mutual
holding company and dividends declared by the Bank and waived by the mutual
holding company. In order to effect the exchange of shares, the public
stockholders will automatically receive transmittal forms shortly after the
conclusion of the offering.
(over)
<PAGE>
PRESS RELEASE--EFFECTIVE DATE
Page 2
Heritage Bank is a Washington chartered stock savings bank headquartered in
Olympia. It has a branch offices in . Heritage Savings emphasizes
traditional deposit and mortgage loan products. At , 199 , Heritage Savings
had unaudited total assets, deposits, and stockholders' equity of
approximately $ million, $ million and $ million, respectively.
After the Conversion, Heritage Bank will operate as a subsidiary of Heritage
Financial. Its deposits will continue to be insured by the FDIC. Heritage
Financial has applied to have its common stock listed on the Market under
the symbol "HFWA" upon consummation of the transaction.
Further information, including the details of the offering and business and
financial information about the Bank and Heritage Financial, is described in
the Prospectus. The Prospectus should be received by the Bank's depositors and
public stockholders on or about , 1997. Copies of the Prospectus will be
available after that date by calling (888) 849-1078 or (360) 705-9190.
THIS RELEASE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS WHEN ACCOMPANIED BY
A STOCK ORDER FORM. THE SHARES OF COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR
SAVINGS DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
EXHIBIT 99.3(B)
- --------------------------------------------------------------------------------
CONVERSION APPRAISAL UPDATE REPORT
HERITAGE FINANCIAL CORPORATION, M.H.C.
PROPOSED HOLDING COMPANY FOR
HERITAGE BANK
OLYMPIA, WASHINGTON
STOCK PRICES AS OF:
OCTOBER 10, 1997
- --------------------------------------------------------------------------------
PREPARED BY:
RP FINANCIAL, LC.
1700 NORTH MOORE STREET
SUITE 2210
ARLINGTON, VIRGINIA 22209
<PAGE>
[Letterhead Appears Here]
October 10, 1997
Boards of Directors
Heritage Financial Corporation, M.H.C
Heritage Bank
201 5th Avenue
Olympia, Washington 98501
Gentlemen:
We have completed and hereby provide an updated appraisal of the
estimated pro forma market value of the common stock which is to be issued by
Heritage Financial Corporation, Olympia, Washington (the "Holding Company"),
in connection with the mutual-to-stock conversion of Heritage Financial
Corporation, a Washington-chartered mutual holding company (the "Mutual
Holding Company"). The Mutual Holding Company currently has a majority
ownership interest in, and its principal asset consists of, the common stock
of Heritage Bank ("Heritage" or the "Bank").
We understand that the Board of Directors of the Mutual Holding
Company and the Bank, have adopted a Plan of Conversion, incorporated herein
by reference, in which the Mutual Holding Company will be combined with the
Bank simultaneously with the Mutual Holding Company's conversion to stock
form and a newly-formed Washington stock corporation, to be known as Heritage
Financial Corporation, will become the holding company of the Bank. Pursuant
to the reorganization, the Mutual Holding Company will cease to exist and the
outstanding shares of Common Stock held by the Mutual Holding Company will be
cancelled (67.82 percent of the outstanding Common Stock as of the date
hereof adjusted for the impact of waived dividends and the value of Mutual
Holding Company assets), and the outstanding Minority Shares (32.18 percent
of the outstanding Common Stock as of the date hereof) will be converted into
the Exchange Shares pursuant to the Exchange Ratio. The Exchange Ratio will
result in the holders of the outstanding Minority Shares owning in the
aggregate approximately the same percentage of the Common Stock to be
outstanding upon the completion of the Conversion and Reorganization (i.e.,
the Conversion Shares and the Exchange Shares). Specifically, minority
shareholders of the Bank will own the same percentage of Heritage Common
Stock as owned by them immediately before consummation of the Conversion and
Reorganization adjusted for the impact of waived dividends and the value of
Mutual Holding Company assets but before giving effect to any (i) payment of
cash in lieu of issuing fractional Exchange Shares and (ii) shares of
Conversion Stock purchased by the Bank's stockholders in the Conversion
Offerings. Other than shares of the Bank, the only material asset of the
Mutual Holding Company is approximately $120,000 of cash that will be merged
with the Bank's assets upon completion of the reorganization.
This appraisal is furnished pursuant to the requirements of 563b.7 and
has been prepared in accordance with the "Guidelines for Appraisal Reports
for the Valuation of Savings and Loan Associations Converting from Mutual to
Stock Form of Organization" (Valuation Guidelines) of the Office of Thrift
Supervision ("OTS"), including the most recent revisions as of October 21,
1994, and applicable regulatory interpretations thereof. Such Valuation
Guidelines are relied upon by the Washington Department of Financial
Institutions, Division of Banks (the "Division") and the Federal Deposit
Insurance Corporation ("FDIC") in evaluating conversion appraisals in the
absence of separate written valuation guidelines by the respective agencies.
________________________________________________________________________________
<PAGE>
RP Financial, LC.
Boards of Directors
October 10, 1997
Page 2
This updated appraisal reflects the following: (1) a review of recent
developments in the Bank's financial condition, including updated financial data
through September 30, 1997; (2) an updated comparison of Heritage's financial
condition and operating results versus the Peer Group companies identified in
the Original Appraisal; (3) a review of stock market conditions since the
Original Appraisal date, along with updated stock prices as of October 10, 1997;
and (4) and incorporates the impact of revised pro forma assumptions including a
reduction in the ESOP stock purchases from 8 percent to 2 percent of the
offering and a reduction in purchases by the Recognition Plans from 4 percent to
1 percent of the offering.
Pro forma market value is defined as the price at which Heritage's stock,
immediately upon completion of the conversion offering, would change hands
between a willing buyer and a willing seller, neither being under any compulsion
to buy or sell and both having reasonable knowledge of relevant facts.
Our valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing shares of the
common stock. Moreover, because such valuation is necessarily based upon
estimates and projections of a number of matters, all of which are subject to
change from time to time, no assurance can be given that persons who purchase
shares of common stock in the conversion will thereafter be able to buy or sell
such shares at prices related to the foregoing valuation of the pro forma market
value thereof. RP Financial is not a seller of securities within the meaning of
any federal and state securities laws and any report prepared by RP Financial
shall not be used as an offer or solicitation with respect to the purchase or
sale of any securities. RP Financial maintains a policy which prohibits the
company, its principals or employees from purchasing stock of its client
institutions.
Discussion of Relevant Considerations
- -------------------------------------
1. Financial Results
-----------------
Table 1 presents summary balance sheet details as of June 30, 1997,
and updated unaudited financial information through September 30, 1997. The
overall composition of Heritage's September 30, 1997 balance sheet changed
modestly to the June 30, 1997 data, with the Bank posting a moderate increase in
assets consistent with recent trends. Updated earnings for the Bank reflect a
slight decline, although net income adjusted to exclude the special SAIF
assessment and gains on the sale of premises on a tax-effected basis increased
modestly.
Heritage's total assets increased moderately by $6.5 million, or 2.7
percent, from June 30, 1997 to September 30, 1997. The composition of the
Bank's interest-earning assets ("IEA") reflected modest change. While the loan
portfolio continued to grow, primarily in the area of permanent residential
mortgage loans and commercial loans, the concentration of loans equaled 81.2
percent of assets as of September 30, 1997, which reflects a decrease from the
82.2 percent ratio reported as of June 30, 1997.
The balance of interest-earning assets consisted of cash, investments
and mortgage-backed securities ("MBS"). Heritage's portfolio of cash,
investments, and MBS reflects modest overall growth, primarily as a result of a
modest increase noted in the cash and interest-bearing deposit account, which
increased from $7.6 million as of June 30, 1997, to $12.4 million as of
September 30, 1997. The cash and investment portfolio increased primarily as a
result of an influx of deposits, and somewhat lower loan origination volumes as
well as some unanticipated loan repayments. The Bank's philosophy with respect
to the management of cash and investments has been to maintain the portfolio at
relatively modest levels in short- to intermediate-term high quality securities.
No major changes to the composition and practices with respect to the management
of the investment portfolio are anticipated over the near term and, accordingly,
the level of cash and investments is expected to remain at low to moderate
levels. The level of cash and investments is
<PAGE>
RP Financial, LC.
Boards of Directors
October 10, 1997
Page 3
expected to increase initially following conversion although it is management's
expectation that such funds at the Bank level will gradually be redeployed into
lending activities.
Asset quality ratios remained favorable for the Bank, with the ratio
of non-performing assets to total assets equaling 0.20 percent as of September
30, 1997, as compared to 0.19 percent as of June 30, 1997. Furthermore,
allowances for loan losses as a percent of non-performing loans equaled 564.37
percent while allowances for loan losses as a percent of total loans remained
unchanged at 1.32 percent as of September 30, 1997.
Table 1
Heritage Bank
Summary Balance Sheet Data
<TABLE>
<CAPTION>
At June 30, 1997 At Sept. 30, 1997
---------------- -----------------
(% of (% of
Amount Assets) Amount Assets)
------ ------ ------ ------
($000) (%) ($000) (%)
<S> <C> <C> <C> <C>
Balance Sheet Data
- ------------------
Total Assets $242,164 100.0% $248,704 100.0%
Loans Receivable, Net 199,032 82.2 202,028 81.2
Loans Held for Sale 6,409 2.6 5,451 2.2
Mortgage-Backed Securities 5,159 2.1 4,927 2.0
Cash & Interest-Bearing Deposits 7,587 3.1 12,397 5.0
Investment Securities 8,506 3.5 9,483 3.8
Deposits 209,781 86.6 216,948 87.2
FHLB Advances 890 0.4 0 0.00
Stockholders' Equity 27,714 11.4 28,324 11.4
</TABLE>
Source: Heritage's prospectus and internal financial reports.
Heritage's operations continued to be funded primarily with retail
deposits, and deposits increased modestly to equal $216.9 million as of
September 30, 1997. Deposit growth in recent periods has been facilitated by
the opening of five new retail branch offices since the beginning of fiscal
1995. In the future, the Bank will be seeking to continue to increase retail
deposits by offering a competitive array of products and services, with the
objective of growing the deposit base in conjunction with the overall growth in
its southern Puget Sound markets. The employment of borrowed funds by Heritage
has been relatively limited over the last five fiscal years as the Bank has
preferred to build its franchise through the expansion of the retail deposit
base; the Bank retired its small balance of outstanding FHLB advances during the
quarter ended September 30, 1997 given the increase in deposits.
Positive earnings during the quarter ended September 30, 1997
supported the increase in the Bank's capital to $28.3 million at September 30,
1997, versus a comparative balance of $27.7 million at June 30, 1997. Asset
growth during the quarter resulted in the Bank's capital ratio remaining
unchanged at 11.4 percent of assets.
Table 2 presents summary information pertaining to the Bank's
operating results for the twelve months ended June 30, 1997, and updated
unaudited financial information for the twelve months ended
<PAGE>
RP Financial,LC.
Boards of Directors
October 10, 1997
Page 4
Table 2
Heritage Bank
Summary Operating Results
<TABLE>
<CAPTION>
12 Months Ended 12 Months Ended
June 30, 1996 Sept. 30, 1997
--------------- ---------------
(% of (% of
Avg. Avg.
Amount Assets) Amount Assets)
------ ------- ------ ------
($000) (%) ($000) (%)
<S> <C> <C> <C> <C>
Summary Income Statement
- ------------------------
Interest Income $ 18,512 8.00% $ 19,104 8.11%
Interest Expense (9,000) (3.89) (9,161) (3.89)
-------- -------- -----
Net Interest Income $ 9,512 4.11% $ 9,944 4.22%
Provision for Loan Losses 270 0.12 240 0.10
-------- ------ -------- -----
Net Interest Income After Provisions $ 9,782 4.22% $ 10,184 4.32%
Other Non-Interest Income 1,257 0.54 1,281 0.54
Operating Expense (10,016) (4.33) (10,254) (4.35)
------- ------ -------- -----
Net Operating Income $ 1,023 0.44% $ 1,210 0.51%
Gain on the Sale of Loans 2,006 0.87 1,972 0.84
Special SAIF Assessment (1,089) (0.47) 0 0.00
Gains on the Sale of Premises 84 0.04 120 0.05
-------- ------ -------- -----
Net Non-Operating Income ($1,005) (0.43)% $ 120 0.05%
Net Income Before Tax 2,024 1.39 3,302 1.40
Income Taxes 245 0.11 (1,141) (0.48)
-------- ------ -------- -----
Net Income (Loss) $ 2,269 0.98% $ 2,162 0.92%
Adjusted Net Income Calculations
- --------------------------------
Net Operating Income $ 1,023 0.44% $ 1,210 0.51%
Tax Effect (348) (0.15) (411) (0.17)
-------- ----- -------- -----
Adjusted Net Income $ 675 0.29% $ 798 0.34%
Net Oper. Inc. & Gains on Sale of Loans $ 3,029 1.31% $ 3,182 1.35%
Tax Effect (1,030) (0.44) (1,082) (0.46)
-------- ----- -------- -----
Adjusted Net Income $ 1,999 0.86% $ 2,100 0.89%
Efficiency Ratio
Excluding Gains on the Sale of Loans 93.01% 91.36%
Including Gains on the Sale of Loans 78.40 77.71
Effective Tax Rate (12.10)(1) 34.56
</TABLE>
(1) Excluding the reversal of the deferred tax liability of $938,000, the
effective tax rate would have equaled 34.2 percent.
Sources: Heritage's prospectus, data provided by Heritage and RP Financial
calculations.
<PAGE>
RP Financial, LC.
Boards of Directors
October 10, 1997
Page 5
September 30, 1997. Updated earnings for the Bank declined slightly, to equal
$2.2 million, or 0.92 percent of assets, for the twelve months ended September
30, 1997. Earnings adjusted to exclude gains on sale and the impact of the
special SAIF assessment increased modestly, primarily as a result of growth in
net operating income.
The Bank's updated net interest income increased to $9.9 million as of
September 30, 1997 from $9.5 million as of June 30, 1997, and the ratio of net
interest income to average increased to 4.22 percent from 4.11 percent,
respectively. Net interest income increased principally as a result of higher
interest income as measured as a percent of average assets, as interest expense
as a percent of average assets remained substantially unchanged.
Operating expenses were also higher as the larger asset size and
higher level of business activity increased overall operating costs. For the
twelve months ended September 30, 1997, Heritage's operating expenses equaled
$10.3 million, equal to 4.34 percent of average assets, as compared to $10.0
million, or 4.33 percent of average assets, for the twelve months ended June 30,
1997. Heritage's operating expenses remain inflated relative to thrift industry
averages by its diversification into construction and commercial lending, as
well as its mortgage banking activities. Additionally, the Bank's operating
expenses have been subject to upward pressures owing to the doubling of
Heritage's branch offices to a total of ten over the last three fiscal years and
the implementation of the business banking strategy and the employment of a
total of seven additional commercial loan officers since 1993.
As discussed in the Original Appraisal, management believes the Bank
is making the requisite investment in fixed assets and personnel to realize
growth in the Bank's franchise value and future earnings over the longer term.
Heritage expects that operating expenses will continue to increase in the future
as the Bank continues to grow and expand. In this regard, management believes
it will continue to open new branches over time and/or acquire other branches or
smaller financial institutions which will also serve to increase operating
expenses (no new branches or acquisitions are planned at this time).
Furthermore, Heritage expects to experience upward pressure on expense levels
due to inflation, the cost of stock based benefit plans resulting from the
second step conversion and the costs of an expanded shareholder base.
Heritage's diversified lending operations coupled with its various fee
generating activities (i.e., secondary market loan sales) continue to support
non-interest income. For both periods shown in Table 1, non-interest income
equaled $1.3 million, or 0.54 percent of average assets.
Gains on the sale of loans has been a regular contributor to the
Bank's revenues over the last five fiscal years and declined modestly over the
most recent twelve month period to equal $1.2 million, or 0.54 percent of
average assets. Non-operating expenses declined substantially based on updated
financial data as the special SAIF assessment, recorded during the quarter ended
September 30, 1996, was eliminated from trailing twelve month earnings. At the
same time, gains on the sale of premises increased modestly to equal $120,000,
or 0.05 percent of assets, for the twelve months ended September 30, 1997.
Asset quality for the Bank remained relatively strong, and the Bank
posted loan loss recoveries as a result, equal to $240,000, or 0.10 percent of
assets.
As discussed in the Original Appraisal, Heritage reported an income
tax benefit for the twelve months ended June 30, 1997, equal to $245,000,
primarily as a result of a $938,000 deferred tax liability established at the
time of the mutual holding company reorganization for the potential recapture of
pre-1988 tax bad debt reserves. Heritage reported a $1.1 million tax expenses
for the twelve months ended September 30, 1997, as the reversal of the deferred
tax liability was eliminated from trailing twelve month earnings.
<PAGE>
RP Financial, LC.
Boards of Directors
October 10, 1997
Page 6
2. Peer Group Financial Comparisons
--------------------------------
Tables 3 and 4 present the financial characteristics and operating
results for Heritage, the Peer Group and all publicly-traded SAIF-insured
thrifts. Heritage's financial information is based on results through September
30, 1997, while financial data for the Peer Group is as of June 30, 1997, which
is the latest data which is publicly available.
In general, the comparative balance sheet ratios for the Bank and the
Peer Group did not vary significantly from the ratios exhibited in the Original
Appraisal. Relative to the Peer Group, the Bank's interest-earning asset
composition continued to reflect a higher level of loans and lower levels of MBS
and investments. Furthermore, as discussed in the Original Appraisal: (1) both
Heritage and the Peer Group are primarily mortgage lenders; and (2) Heritage has
diversified its loan portfolio to include a greater proportion of high risk
weight loans including construction, multi-family and commercial mortgage loans
and commercial business loans. Overall, Bank's interest-earning assets amounted
to 94.2 percent of assets, which was below the Peer Group ratio of 96.6 percent.
The mix of deposits and borrowings maintained by Heritage and the Peer
Group also did not change significantly. Heritage's funding composition
continued to reflect a higher concentration of deposits and a lower level of
borrowed funds. Updated interest-bearing liabilities to assets ratios equaled
87.2 percent and 84.2 percent for the Bank and the Peer Group, respectively,
with Heritage's higher ratio continuing to be largely attributable to the
maintenance of a lower capital position. Heritage posted an updated equity-to-
assets ratio of 11.4 percent, versus a comparative ratio of 14.3 percent for the
Peer Group. Overall, Heritage's updated interest-earning assets to interest-
bearing liabilities ("IEA/IBL") ratio equaled 108.0 percent, which remained
below the comparative Peer Group average of 114.7 percent. As noted in the
Original Appraisal, the additional capital realized from the stock conversion
should serve to largely address the lower IEA/IBL ratio currently maintained by
the Bank.
Updated growth rates for Heritage and the Peer Group growth rates
reflect growth for the twelve months ended September 30, 1997 and June 30, 1997.
Asset growth rates of positive 8.7 percent and 20.3 percent were posted by the
Bank and the Peer Group, respectively. The Bank's asset growth measures reflect
that strong loan growth was recorded during the period (positive growth rate of
20.4 percent), with funding for the loan portfolio being largely provided by the
cash and investments portfolio (shrinkage of 29.3 percent). The Peer Group's
stronger asset growth was skewed upward by the strong growth posted by First
Savings Bancorp of Washington and WesterFed of Montana which completed
acquisitions during the year. (The median growth rate for the Peer Group
equaled 14.8 percent which more closely approximated the average for the Bank.)
Paralleling growth trends observed with respect to Heritage's operations, the
Peer Group's growth was primarily realized in the loan and MBS portfolio while
growth in the cash and investments portfolio was nominal.
Heritage's operations were funded both through growth of deposits,
which increased by 9.7 percent for the twelve months ended September 30, 1997.
The Peer Group's deposit growth was skewed somewhat by the aforementioned
institutions that completed an acquisition, but the median deposit growth
nonetheless exceeded the level posted by Heritage. Despite recording a
relatively comparable return on average assets ratio, Bank posted a stronger
capital growth rate than the Peer Group (positive 8.3 percent 2.9 percent for
the Peer Group). Higher dividend payments and stock repurchases (the Peer Group
is comprised of full stock companies) contributed to the Peer Group's capital
shrinkage. Following the increase in capital realized from conversion proceeds,
the Bank's capital growth rate will be depressed by (1) a higher pro forma
capital position and comparatively lower marginal returns, (2) dividends which
will be paid on all outstanding shares (dividends on shares owned by the mutual
holding company have been waived to date) and (3) potential capital management
programs.
<PAGE>
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 3
Balance Sheet Composition and Growth Rates
Comparable Institution Analysis
As of June 30, 1997
<TABLE>
<CAPTION>
Balance Sheet as a Percent of Assets
----------------------------------------------------------------------------------------
Cash and Borrowed Subd. Net Goodwill Tng Net MEMO:
Investments Loans MBS Deposits Funds Debt Worth & Intang Worth Pref.Stock
----------- ----- ------ -------- -------- ------ ------ --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Heritage Bank
-------------
September 30, 1997 8.8 83.4 2.0 87.2 0.0 0.0 11.4 0.0 11.4 0.0
SAIF-Insured Thrifts 18.0 67.2 11.5 70.8 14.6 0.2 12.7 0.2 12.5 0.0
State of WA 16.1 69.1 11.0 68.7 19.6 0.1 10.1 0.5 9.6 0.2
Comparable Group Average 21.0 67.6 8.0 66.6 17.6 0.0 14.3 0.4 13.9 0.0
Mid-West Companies 22.1 74.5 0.0 57.4 25.1 0.0 16.5 0.0 16.5 0.0
North-West Companies 17.2 71.1 8.9 67.5 18.2 0.0 12.7 0.3 12.4 0.0
Western Companies (Excl CA) 26.5 57.4 11.7 71.1 11.6 0.0 15.5 0.8 14.7 0.0
Comparable Group
----------------
Mid-West Companies
------------------
CMRN Cameron Fin. Corp. of MO 11.4 84.0 0.0 60.0 16.9 0.0 21.7 0.0 21.7 0.0
FFHH FSF Financial Corp. of MN 32.7 65.1 0.0 54.7 33.3 0.0 11.4 0.0 11.4 0.0
North-West Companies
--------------------
FMSB First Mutual SB of Bellevue WA 3.5 79.9 14.4 79.8 12.0 0.0 6.8 0.0 6.8 0.0
FWWB First Savings Bancorp of WA(1) 29.2 64.1 3.1 54.1 29.1 0.0 14.8 1.2 13.6 0.0
HRZB Horizon Financial Corp. of WA 9.2 78.1 10.5 82.6 0.0 0.0 15.6 0.0 15.6 0.0
IWBK Interwest SB of Oak Harbor WA 29.6 60.1 6.4 64.1 28.5 0.0 6.8 0.1 6.6 0.0
KFBI Klamath First Bancorp of OR 14.7 73.0 10.3 57.2 21.4 0.0 19.5 0.0 19.5 0.0
Western Companies (Excl CA)
---------------------------
FFBA First Colorado Bancorp of Co 20.6 73.1 3.7 75.9 9.4 0.0 12.9 0.2 12.7 0.0
UBMT United Fin. Corp. of MT(1) 42.7 33.1 20.6 71.5 4.6 0.0 22.6 0.0 22.6 0.0
WSTR WesterFed Fin. Corp. of MT 16.3 66.0 10.8 66.0 20.8 0.0 10.9 2.2 8.7 0.0
<CAPTION>
Balance Sheet Annual Growth Rates Regulatory Capital
------------------------------------------------------------ ----------------------------
Cash and Loans Borrows. Net Tng Net
Assets Investments & MBS Deposits &Subdebt Worth Worth Tangible Core Reg.Cap.
------ ----------- ----- -------- -------- ----- -------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Heritage Bank
-------------
September 30, 1997 8.68 -29.26 20.35 9.68 NM 8.33 8.33 11.68 11.68 16.90
SAIF-Insured Thrifts 12.28 8.85 13.00 8.32 17.66 0.85 0.09 11.01 11.07 23.21
State of WA 14.74 15.73 12.70 17.00 7.65 9.62 9.14 8.59 9.85 19.21
Comparable Group Average 20.32 7.58 22.17 20.34 20.81 2.86 -0.49 11.84 11.89 23.09
Mid-West Companies 16.24 1.98 20.23 5.58 34.25 -6.22 -6.22 13.71 13.71 22.85
North-West Companies 19.53 -1.64 18.76 22.12 -1.33 5.97 4.59 11.84 11.90 25.61
Western Companies (Excl CA) 24.35 23.61 29.12 27.22 36.23 3.74 -5.14 9.98 10.05 18.32
Comparable Group
----------------
Mid-West Companies
------------------
CMRN Cameron Fin. Corp. of MO 18.35 2.30 18.47 1.28 NM -2.59 -2.59 17.11 17.11 25.59
FFHH FSF Financial Corp. of MN 14.13 1.66 22.00 9.88 34.25 -9.85 -9.85 10.30 10.30 20.10
North-West Companies
--------------------
FMSB First Mutual SB of Bellevue W 11.82 4.10 11.49 21.47 -26.73 15.38 15.38 6.90 6.90 11.94
FWWB First Savings Bancorp of WA(1) 35.58 19.16 41.09 45.69 NM -3.57 -11.30 NM 13.65 24.77
HRZB Horizon Financial Corp. of WA 5.10 -17.96 8.40 5.49 NM 1.19 1.19 NM 15.38 30.39
IWBK Interwest SB of Oak Harbor WA 29.61 NM 11.06 32.30 24.07 28.92 29.75 NM 6.79 NM
KFBI Klamath First Bancorp of OR 15.55 -11.85 21.78 5.64 NM -12.07 -12.07 16.77 16.77 35.32
Western Companies (Excl CA)
---------------------------
FFBA First Colorado Bancorp of Co 0.57 -10.68 4.44 3.82 14.14 -20.54 -20.68 11.41 11.56 22.10
UBMT United Fin. Corp. of MT(1) 3.01 -14.65 24.34 -2.31 NM -0.86 -0.86 NM NM NM
WSTR WesterFed Fin. Corp. of MT 69.46 96.17 58.59 80.14 58.33 32.63 6.12 8.54 8.54 14.54
</TABLE>
(1) Financial information is for the quarter ending March 31, 1997.
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP Financial, LC. calculations. The
information provided in this table has been obtained from sources
we believe are reliable, but we cannot guarantee the accuracy or
completeness of such information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 4
Income as a Percent of Average Assets and Yields, Costs, Spreads
Comparable Institution Analysis
For the Twelve Months Ended June 30, 1997
<TABLE>
<CAPTION>
Net Interest Income Other Income
---------------------------- --------------------
Loss NII Total
Net Provis. After Loan R.E. Other Other
Income Income Expense NII on IEA Provis. Fees Oper. Income Income
------ ------ ------- ----- ------- ------- ---- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Heritage Bank
- -------------
September 30, 1997 0.92 8.11 3.89 4.22 -0.10 4.32 0.00 0.00 0.54 0.54
SAIF-Insured Thrifts 0.65 7.38 4.09 3.29 0.13 3.16 0.12 0.01 0.29 0.42
State of WA 0.83 7.58 4.28 3.30 0.14 3.16 0.12 0.00 0.40 0.52
Comparable Group Average 0.96 7.53 4.11 3.43 0.12 3.31 0.18 0.01 0.19 0.37
Mid-West Companies 0.86 7.70 4.17 3.53 0.13 3.39 0.06 0.00 0.18 0.24
North-West Companies 1.06 7.78 4.31 3.47 0.15 3.32 0.14 0.01 0.18 0.34
Western Companies (Excl CA) 0.86 7.01 3.72 3.29 0.05 3.24 0.31 0.01 0.20 0.52
Comparable Group
- ----------------
Mid-West Companies
- ------------------
CMRN Cameron Fin. Corp. of MO 1.06 8.01 3.99 4.03 0.24 3.78 0.08 0.00 0.02 0.10
FFHH FSF Financial Corp. of MN 0.66 7.39 4.36 3.03 0.03 3.00 0.05 0.00 0.33 0.38
North-West Companies
- --------------------
FMSB First Mutual SB of Bellevue WA 1.02 8.29 4.71 3.58 0.37 3.21 0.21 0.00 0.14 0.36
FWWB First Savings Bancorp of WA(1) 1.05 7.58 4.10 3.48 0.16 3.32 0.09 0.00 0.19 0.28
HRZB Horizon Financial Corp. of WA 1.56 7.73 4.16 3.56 0.03 3.53 0.21 0.00 0.05 0.27
IWBK Interwest SB of Oak Harbor WA 0.87 7.89 4.55 3.34 0.12 3.23 0.21 0.05 0.47 0.73
KFBI Klamath First Bancorp of OR 0.81 7.42 4.03 3.38 0.05 3.33 0.00 0.01 0.06 0.06
Western Companies (Excl CA)
- ---------------------------
FFBA First Colorado Bancorp of Co 0.86 7.02 3.89 3.13 0.09 3.04 0.00 0.01 0.34 0.35
UBMT United Fin. Corp. of MT(1) 1.09 6.86 3.30 3.56 0.00 3.56 0.41 0.00 0.23 0.64
WSTR WesterFed Fin. Corp. of MT 0.63 7.16 3.97 3.19 0.06 3.13 0.52 0.00 0.04 0.56
<CAPTION>
G&A/Other Exp. Non-Op. Items Yields, Costs, and Spreads
-------------- ------------- --------------------------
MEMO: MEMO:
G&A Goodwill Net Extrao. Yield Cost Yld-Cost Assets/ Effective
Expense Amort. Gains Items On Assets Of Funds Spread FTE Emp. Tax Rate
------- ------- ----- -------- --------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Heritage Bank
- -------------
September 30, 1997 4.35 0.00 0.05 0.00 8.85 4.67 4.18 1,789 34.56
SAIF-Insured Thrifts 2.22 0.02 -0.31 0.00 7.41 4.65 2.76 4,443 37.03
State of WA 2.19 0.06 -0.15 0.00 7.16 4.45 2.71 3,907 35.10
Comparable Group Average 1.96 0.01 -0.22 0.00 7.79 4.98 2.80 4,130 35.48
Mid-West Companies 1.89 0.00 -0.34 0.00 7.94 5.19 2.75 4,102 38.67
North-West Companies 1.86 0.01 -0.19 0.00 8.00 5.16 2.84 4,256 34.23
Western Companies (Excl CA) 2.18 0.03 -0.20 0.00 7.32 4.55 2.76 3,936 35.44
Comparable Group
- ----------------
Mid-West Companies
- ------------------
CMRN Cameron Fin. Corp. of MO 1.78 0.00 -0.41 0.00 8.33 5.36 2.97 4,002 37.23
FFHH FSF Financial Corp. of MN 2.01 0.00 -0.27 0.00 7.56 5.02 2.54 4,203 40.12
North-West Companies
- --------------------
FMSB First Mutual SB of Bellevue WA 1.98 0.00 0.03 0.00 8.52 5.14 3.38 3,823 32.92
FWWB First Savings Bancorp of WA(1) 2.15 0.04 0.08 0.00 7.82 5.40 2.42 3,463 29.64
HRZB Horizon Financial Corp. of WA 1.47 0.00 0.04 0.00 7.91 5.05 2.86 4,322 33.89
IWBK Interwest SB of Oak Harbor WA 2.24 0.01 -0.47 0.00 8.22 4.92 3.30 3,117 34.31
KFBI Klamath First Bancorp of OR 1.47 0.00 -0.63 0.00 7.55 5.29 2.26 6,558 40.38
Western Companies (Excl CA)
- ---------------------------
FFBA First Colorado Bancorp of Co 2.01 0.02 0.02 0.00 7.21 4.66 2.55 5,153 37.75
UBMT United Fin. Corp. of MT(1) 2.09 0.00 -0.38 0.00 7.15 4.36 2.79 3,715 37.16
WSTR WesterFed Fin. Corp. of MT 2.45 0.07 -0.25 0.00 7.59 4.65 2.95 2,940 31.40
</TABLE>
(1) Financial information is for the quarter ending March 31, 1997.
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP Financial, LC. calculations. The information
provided in this table has been obtained from sources we believe are
reliable, but we cannot guarantee the accuracy or completeness of such
information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
RP Financial, LC.
Boards of Directors
October 10, 1997
Page 9
Table 4 displays the latest trailing 12 month operating results for
Heritage and the Peer Group. Updated earnings for the Bank relative to the Peer
Group did not change significantly from the Original Appraisal, and thus, the
return on average assets for the Bank and the Peer Group continued to compare
closely. Specifically, the Peer Group's return on average assets ratio equaled
0.96 percent versus 0.92 percent for Heritage. The Bank's operations continue to
compare favorably to the Peer Group with respect to net interest income and non-
interest income, which is partially reflective of the higher yields and fee
income generated by Heritage's construction and commercial lending operations.
The benefits of the Bank's higher revenues, however, are offset by its higher
operating expenses.
Heritage's net interest margin equaled 4.22 percent based on updated
financial data and continued to exceed the Peer Group average 3.43 percent. A
number of factors contribute to Heritage's favorable level of net interest
income including a strong spread supported by higher yields and lower cost of
funds. Asset yields are supported by Heritage's greater proportionate investment
in higher yielding loans and the composition of the loan portfolio which is
heavily weighted toward comparatively higher yielding loans including commercial
and construction loans.
Consistent with the financial data reported in the Original Appraisal,
Heritage's operating expenses remain well above the Peer Group average, equal to
4.35 percent and 1.96 percent, respectively. The Bank's higher operating expense
ratio can in part be explained by its higher risk weight lending emphasis, which
are personnel intensive but which also generate notably higher yields and fee
revenues. Additionally, the Bank's secondary market activities generate gains on
sale and compensation expense without a corresponding level of assets reflected
on the books. The Bank also maintains a relatively large number of branches for
its asset size, as the number of branches has doubled over the last three years
as Heritage has sought to expand its franchise. Overall, the relatively high
level of personnel maintained by the Bank is indicated by an assets per full
time equivalent employee measure of $1.8 million, which was well below the Peer
Group average of $4.1 million.
Non-operating items, including gains on the sale of loans, continued
to have a greater impact on the Bank's operations relative to the Peer Group.
Overall, gains on the sale of loans and premises combined to equal 0.89 percent
for Heritage while non-operating expenses averaged 0.22 percent for the Peer
Group. As discussed previously, the impact of the special SAIF assessment has
been eliminated from Heritage's trailing twelve month earnings through September
30, 1997 (the Peer Group reflects the special assessment since the latest
reported data is through June 30, 1997).
Both the Bank and the Peer Group companies are currently in a fully
taxable position with effective tax rates in the range of 34 to 36 percent.
3. Stock Market Conditions
-----------------------
Since the date of the Original Appraisal, the overall stock market has
strengthened in volatile trading. The DJIA moved at least 100 points for five
consecutive days from August 18, 1997 through August 21, 1997, which set a
record for volatility. Profit worries among some of the large blue chip
companies and mixed inflation readings were factors contributing to the roller-
coaster performance of the stock market. Despite strengthening bond prices,
stocks traded lower through the end of August. Bond prices moved higher on
inflation data which showed that prices stayed low during the second quarter,
even though second quarter GDP growth was revised upward to annual rate of 3.6
percent compared to an original estimate of 2.2 percent. Volatility returned to
the stock market in early-September, with the DJIA posting a record breaking
point increase of 257.36 on September 2, 1997. The rally was sparked by economic
data that indicated manufacturing growth slowed in August, thereby easing
investors' inflation worries. However, the rally was not sustained, as
<PAGE>
RP Financial, LC.
Boards of Directors
October 10, 1997
Page 10
the DJIA pulled back following the one day rally. The pull back was largely
attributed to profit worries, which more than offset favorable inflation news
indicated by a slight increase in the national unemployment rate for August (4.9
percent in August versus 4.8 percent in July). Stocks fluctuated in a narrow
trading range in mid-September, in anticipation of third quarter earnings and
August economic data. The low inflation reading indicated by the August consumer
price index sent stock and bond prices sharply higher on September 16, 1997,
with the DJIA posting a 175 point increase and the yield on the 30-year U.S.
Treasury bond posting its second largest decline in the 1990s. Stocks traded in
a narrow at the end of September 1997 in anticipation of third quarter earnings,
while the stable inflation environment pushed bond prices to their highest level
in two years. The release of September employment data on October 10, 1997
caused bond and stock prices to soar in early trading activity, as the September
unemployment rate was unchanged at 4.9 percent and fewer jobs than expected were
added to the economy during September. However, most of the initial gains were
erased by news of rising tensions between Iraq and Iran. On October 10, 1997,
the DJIA closed at 8045.21, an increase of 4.6 percent since the date of the
Original Appraisal.
Since the date of the Original Appraisal, thrift issues in general
have outperformed the overall stock market. Generally favorable second quarter
earnings and the 30-year U.S. Treasury bond yield declining supported a
generally positive trend in thrift prices since mid-August. Thrift stock prices
were supported during the second half of August, as the Federal Reserve left
short-term interest rates unchanged at its August meeting. Thrift stocks
participated in the one day stock market rally on September 2, 1997, as
evidenced by a 1.95 percent increase in the SNL Index. News of NationsBank's
proposed acquisition of Barnett Banks for more than four times its book value
appears to have further contributed to the one day run-up in thrift prices.
During late-September and early-October, interest rate-sensitive issues in
general continued to benefit from the declining interest rate environment and
expectations of strong third quarter earnings. Prices of thrift and bank stocks
also continued to be positively influenced by industry consolidation and the
rising acquisition multiples being paid for thrift and bank franchises. On
October 10, 1997, the SNL Index for all publicly-traded thrifts closed at 762.9,
an increase of 15.7 percent since the date of the Original Appraisal.
Consistent with the SNL index, the pricing measures for all publicly-
traded SAIF-insured thrifts and the Peer Group generally increased since the
date of the Original Appraisal. Overall, the increases posted by all publicly-
traded SAIF-insured thrifts were below the comparative increases posted by the
Peer Group. More detailed pricing information for all publicly-traded SAIF-
insured institutions, as well as the Peer Group and recent conversions, is shown
on the following page.
The "new issue" market is separate and distinct from the market for
seasoned issues like the Peer Group companies. Accordingly, as discussed in the
Original Appraisal, RP Financial has considered the pro forma pricing and
trading level of recently converted companies in this updated appraisal. In
general, the pace of conversion activity has been relatively strong and investor
reception to these offerings has been strong with most offerings oversubscribed.
In initial trading activity, all of the new issues traded higher. The two second
steps which had completed their conversion offerings over the last three months
increased by a much lesser amount, equal to 25.7 percent after one week.
<PAGE>
RP Financial, LC.
Boards of Directors
October 10, 1997
Page 11
Average Pricing Characteristics
<TABLE>
<CAPTION>
At Aug. 15, Oct. 10, %
1997 1997 Change
---- ---- ------
<S> <C> <C> <C>
Peer Group
- ----------
Price/Earnings(x) 21.71x 23.73x 9.3%
Price/Core Earnings (x) 19.61 21.53 9.8
Price/Book (%) 151.65% 173.22% 14.2
Price/Tangible Book(%) 156.63 179.15 14.4
Price/Assets (%) 19.95 22.61 13.3
Avg. Market Capitalization ($Mil) $148.05 167.20 12.9
Price/Share 21.84 24.72 13.2
SAIF-Insured Thrifts
- --------------------
Price/Earnings(x) 21.03x 22.53x 7.1%
Price/Core Earnings (x) 18.56 19.94 7.4
Price/Book (%) 138.23% 155.64% 12.6
Price/Tangible Book (%) 142.95 159.27 11.4
Price/Assets (%) 17.28 19.17 10.9
Avg. Market Capitalization ($Mil) 147.75 172.95 17.1
Price/Share 21.88 24.63 12.6
Recent Conversions Last Three Months(1)
- ---------------------------------------
Price/Core Earnings (x) 27.98x 26.43x (5.5)%
Price/Tangible Book (%) 118.89% 129.84 9.2
Second Step Conversions Last Three Months(1)
- --------------------------------------------
Price/Core Earnings 27.98x 26.43x (5.5)%
Price/Tangible Book Value 104.72 138.10 31.9
</TABLE>
(1) Ratios based on conversions completed for prior three months.
Shown in Table 5 is a summary of recently completed conversions which
closed in the last three months. Relative to the date of the Original Appraisal,
which reflected pricing ratios as of August 15, 1997, the newly converted
companies increased in value by 6.9 percent on a price-to-book basis, from an
average 118.89 percent pro forma P/TB ratio at August 15, 1997, to 129.84
percent as of October 10, 1997. We consider the P/E multiple to be less
meaningful given the characteristics of conversion pricing coupled with the fact
that most companies reported not meaningful pro forma P/E ratios (i.e., in
excess of 30 times annual earnings)
Table 6 reflects the pricing characteristics and after-market trends
for second step conversions of mutual holding companies. Heritage's P/B ratio is
priced at a premium relative to these transactions reflecting today's strong
market for thrift issues generally as well as new issues.
<PAGE>
RP FINANCIAL, LC.
- -------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 5
Market Pricing Comparatives
Prices As of October 10, 1997
<TABLE>
<CAPTION>
Market Per Share Data
------------------
Capitalization Core Book Pricing Ratios(3) Dividends(4)
-------------- -------------------------------- --------------------------
Price Market 12-Mth Value Amount/ Payout
Financial Institution Share(1) Value EPS(2) Share P/E P/B P/A P/TB P/CORE Share Yield Ratio(5)
- --------------------- -------- ------ ------- ------ ----- ----- ----- ------ ------- -------- ------- ---------
($) ($Mil) ($) ($) (X) (%) (%) (%) (X) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAIF-insured Thrifts 24.63 172.95 1.14 15.58 22.53 155.64 19.17 159.59 19.94 0.37 1.57 30.29
Special Selection Grouping(B) 14.75 72.77 0.38 11.55 26.43 129.84 23.93 129.84 26.43 0.30 0.76 14.29
Comparable Group
- ----------------
Special Comparative Group(B)
- ----------------------------
FSNJ Bayonne Banchsares of NJ 12.81 115.20 -0.04 9.91 NM 129.26 18.64 129.26 NM 0.17 1.33 NM
OTFC Oregon Trail Fin. Corp of OR 16.44 77.19 0.59 13.29 27.86 123.70 29.71 123.70 27.86 0.00 0.00 0.00
RVSB Riverview Bancrop of WA 14.00 85.79 0.56 9.18 25.00 152.51 32.99 152.51 25.00 0.24 1.71 42.86
SHSB SHS Bancorp, Inc. of PA 15.75 12.92 0.41 13.83 NM 113.88 14.39 113.88 NM 0.00 0.00 0.00
<CAPTION>
Financial characteristics(6)
-----------------------------------------------
Total Equity/ NPAs/ Reported Core
------------ -------------
Financial Institution Assets Assets Assets ROA ROE ROA ROE
- --------------------- ------ ------- ------ ------ ----- ------ ------
($Mil) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
SAIF-insured Thrifts 1,152 12.93 0.79 0.64 5.47 0.85 7.45
Special Selection Grouping(B) 307 18.18 0.73 0.60 2.77 0.68 3.28
Comparable Group
- ----------------
Special Comparative Group(B)
- ----------------------------
FSNJ Bayonne Banchsares of NJ 618 14.42 1.22 -0.35 -2.42 -0.06 -0.40
OTFC Oregon Trail Fin. Corp of OR 260 24.02 0.10 1.07 4.44 1.07 4.44
RVSB Riverview Bancrop of WA 260 21.63 0.14 1.32 6.10 1.32 6.10
SHSB SHS Bancorp, Inc. of PA 90 12.64 1.44 0.37 2.96 0.37 2.96
</TABLE>
(1) Average of High/Low or Bid/Ask price per share.
(2) EPS (estimate core basis) is based on actual trailing twelve month data,
adjusted to omit non-operating items (including the SAIF assessment) on a
tax effected basis.
(3) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB =
Price to tangible book value; and P/CORE = Price to estimated core earnings.
(4) Indicated twelve month dividend, based on last quarterly dividend declared.
(5) Indicated dividend as a percent of trailing twelve month estimated core
earnings.
(6) ROA (return on assets) and ROE (return on equity) are indicated ratios based
on trailing twelve month earnings and average equity and assets balances.
(7) Excludes from averages those companies the subject of actual or rumored
acquisition activities or unusual operating characteristics.
(8) Includes Converted Last 3 Mths (no MHC);
Source: Corporate reports, offering circulars, and RP Financial, LC.
calculations. The information provided in this report has been obtained
from sources we believe are reliable, but we cannot guarantee the
accuracy or completeness of such information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
RP Financial, LC.
October 10, 1997
--------------------------------------------------------------
Table 6
Recent Conversions (Last Three Months)
Conversion Pricing Characteristics: Sorted Chronologically
--------------------------------------------------------------
<TABLE>
<CAPTION>
Institutional Information Pre-Conversion Data Offering Insider Purchases
-------------------------------
Financial Info. Asset Quality Information
- ---------------------------------------------------------------------------------------------------------------------------------
Benefit Plans
----------------
Conversion Equity/ NPAs/ Res. Gross % of Exp./ Recog. Mgmt.
Institution State Date Ticker Assets Assets Assets Cov. Proc. Mid. Proc. ESOP Plans & Dirs.
- ----------- ------ ----- ------ ------- ------- ------- ----- ------- ----- ------ ----------------------------
($Mil) (%) (%)(2) (%) ($Mil) (%) (%) (%) (%) (%)(3)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oregon Trail Financial Corp. OR 10/06/97 OTFC 220 10.08% 0.12% 280% 46.9 132% 2.3% 8.0% 4.0% 3.9%
Riverview Bancorp, Inc. (8) WA *10/01/97 RVSB 230 11.24% 0.14% 245% 35.7 132% 2.8% 8.0% 4.0% 2.9%
SHS Bancorp, Inc. PA 10/01/97 SHSB 83 5.52% 1.41% 36% 8.2 132% 5.7% 8.0% 4.0% 5.2%
Ohio State Financial Serv OH *09/29/97 P. Sheet 34 14.45% 0.47% 86% 6.3 94% 5.7% 8.0% 4.0% 8.3%
Citizens Bancorp IN 09/19/97 P. Sheet 46 12.28% 0.45% 84% 10.6 132% 4.6% 8.0% 4.0% 16.1%
WSB Holding Company PA 08/29/97 P. Sheet 33 6.04% 2.34% 26% 3.3 132% 8.5% 8.0% 4.0% 31.0%
Bayonne Bancshares (8) NJ 08/22/97 FSNJ 577 8.33% 0.81% 53% 48.7 132% 3.8% 8.0% 4.0% 10.0%
Averages: $186 10.29% 0.81% 109% 28.0 127% 4.6% 8.0% 4.0% 9.7%
Medians: $89 11.53% 0.61% 68% 16.5 132% 4.3% 8.0% 4.0% 6.8%
Averages, Excluding 2nd Step $83 9.67% 0.96% 128% $15.1 125% 5.3% 8.0% 4.0% 12.9%
Medians, Excluding 2nd Steps 46 10.08% 0.47% 84% 8.2 132% 5.7% 8.0% 4.0% 8.3%
<CAPTION>
Institutional Information Pro Forma Data
-----------------------------------
Pricing Ratios(Fin. Characteristics
- --------------------------------------------------------------------------------------------------
Conversion
Institution State Date Ticker P/TB P/E(5) P/A ROA TE/A ROE
- --------------------------------------------------------------------------------------------------
(%) (x) (%) (%) (%) (%)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oregon Trail Financial Corp. OR 10/06/97 OTFC 75.3% 13.6 18.1% 1.0% 20.7% 5.1%
Riverview Bancorp, Inc. (8) WA *10/01/97 RVSB 109.0% 17.7 23.6% 1.3% 21.6% 6.2%
SHS Bancorp, Inc. PA 10/01/97 SHSB 72.3% 24.5 9.1% 0.4% 12.6% 3.0%
Ohio State Financial Serv OH *09/29/97 P. Sheet 62.3% 13.4 16.0% 1.2% 25.7% 4.6%
Citizens Bancorp IN 09/19/97 P. Sheet 72.9% 14.8 14.8% 1.1% 46.3% 2.4%
WSB Holding Company PA 08/29/97 P. Sheet 71.4% 16.6 9.2% 0.6% 12.9% 4.3%
Bayonne Bancshares (8) NJ 08/22/97 FSNJ 100.9% NM 14.6% NM 14.4% NM
Averages: 79.2% 15.9 15.8% 0.8% 23.4% 3.5%
Medians: 72.5% 17.3 15.4% 1.1% 23.7% 4.2%
Averages, Excluding 2nd Step 70.8% 20.7 13.4% 1.1% 23.6% 3.9%
Medians, Excluding 2nd Steps 72.3% 14.8 14.8% 1.0% 20.7% 4.3%
<CAPTION>
Institutional Information Post-IPO Pricing Trends
- ------------------------------------------------------------------------------------------------------------
Closing Price:
- ------------------------------------------------------------------------------------------------------------
First After After
Conversion IPO Trading % First % First %
Institution State Date Ticker Price Day Chg. Week(6) Chg. Month(7) Chg.
----- ---- ------ ----- ------- ---- ------- ---- -------- ----
($) ($) (%) ($) (%) ($) (%)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oregon Trail Financial Corp. OR 10/06/97 OTFC 10.00 $16.75 67.5% $16.75 67.5% N.A. N.A.
Riverview Bancorp, Inc. (8) WA *10/01/97 RVSB 10.00 13.25 32.5% 13.63 36.2% 13.63 36.2%
SHS Bancorp, Inc. PA 10/01/97 SHSB 10.00 14.75 47.5% 16.25 62.5% 16.25 62.5%
Ohio State Financial Serv OH *09/29/97 P. Sheet 10.00 15.50 55.0% 15.50 55.0% 14.88 48.7%
Citizens Bancorp IN 09/19/97 P. Sheet 10.00 14.00 40.0% 14.00 40.0% 14.75 47.5%
WSB Holding Company PA 08/29/97 P. Sheet 10.00 13.50 35.0% 14.50 45.0% 13.75 37.5%
Bayonne Bancshares (8) NJ 08/22/97 FSNJ 10.00 11.75 17.5% 11.88 18.8% 12.38 23.8%
Averages:$11.25 $16.76 44.6% $17.06 47.7% $17.73 47.6%
Medians:$10.00 $14.31 43.1% $14.63 46.3% $14.56 45.6%
Averages, Excluding 2nd Step$10.00 $14.90 49.0% $15.40 54.0% $14.91 49.1%
Medians, Excluding 2nd Steps 10.00 14.75 47.5% 15.50 55.0% 14.81 48.1%
</TABLE>
Note: * - Appraisal performed by RP Financial; "NT" - Not Traded; "NA" - Not
Applicable, Not Available.
(1) Non-OTS regulated thrifts. October 10, 1997
(2) As reported in summary pages of prospectus.
(3) As reported in prospectus.
(4) Does not take into account the adoption of SOP 93-6.
(5) Excludes impact of special SAIF assessment on earnings
(6) Latest price if offering less than one week old.
(7) Latest price if offering more than one week but less than one month old.
(8) Second-step conversions.
(9) Simultaneously converted to commercial bank charter.
- -------------------------------------------------------------------------------
<PAGE>
RP Financial, LC.
October 13, 1997
------------------------------------------------
Pricing Characteristics and After-Market Trends
Second Step Conversions
------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Institutional Information Pre-Conversion Data Offering Insider Purchases
-----------------------------
Financial Info. Asset Quality Information
- ---------------------------------------------------------------------------------------------------------------------------------
Benefit Plans
-------------
Conversion Equity/ NPAs/ Res. Gross % of Exp./ Recog. Mgmt.
Institution State Date Ticker Assets Assets Assets Cov. Proc. Mid. Proc. ESOP Plans & Dirs. P/TB
($Mil (%) (%)(2 (%) ($Mil) (%) (%) (%) (%) (%)(3) (%)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Riverview Bancorp, Inc. WA 10/01/97 RVSB $230 11.24% 0.14% 245% $35.7 132% 2.8% 8.0% 4.0% 2.9% 109.0%
Bayonne Bancshares NJ 08/22/97 FSNJ 577 8.33% 0.81% 53% 48.7 132% 3.8% 8.0% 4.0% 10.0% 100.9%
Montgomery Fin. Corp. IN 07/01/97 MONT 94 9.83% 0.91% 20% 11.9 132% 4.5% 8.0% 4.0% 4.6% 89.1%
Cumberland Mtn. Bncshrs. KY *04/01/97 P. Sheet 92 5.14% 1.31% 19% 4.4 132% 8.0% 6.2% 4.0% 4.5% 81.2%
Kenwood Bancorp OH *07/01/96 P. Sheet 48 6.88% 0.00% NM 1.6 102% 22.2% 8.0% 4.0% 6.4% 67.6%
Commonwealth Bancorp PA *06/17/96 CMSB 2,054 6.71% 0.51% 109% 98.7 110% 1.9% 8.0% 4.0% 0.1% 109.3%
Westwood Financial Corp. NJ 06/07/96 WWFC 85 7.05% 0.00% NM 3.9 99% 9.9% 0.0% 0.0% 2.5% 80.0%
Jacksonville Bancorp TX 04/01/96 JXVL 198 10.47% 1.41% 36% 16.2 106% 4.4% 8.0% 4.0% 2.0% 77.7%
North Central Bancshares IA 03/21/96 FFFD 180 16.47% 0.17% 562% 26 106% 3.5% 3.2% 0.0% 0.5% 74.2%
Fidelity Financial of Ohio OH *03/04/96 FFOH 227 13.23% 0.50% 69% 22.8 132% 3.2% 8.0% 4.0% 5.6% 82.6%
First Colorado Bancorp CO *01/02/96 FFBA 1,400 12.71% 0.31% 20% 134.1 105% 1.9% 10.0% 2.0% 2.0% 87.0%
Charter Financial IL *12/29/95 CBSB 293 12.17% 0.27% 281% 29.2 116% 3.4% 3.3% 0.0% 0.1% 81.4%
American Nat'l Bancorp MD *11/03/95 ANBK 426 6.80% 2.23% 67% 21.8 132% 3.3% 8.0% 4.0% 0.6% 83.9%
First Defiance Fin. Corp. OH *10/02/95 FDEF 476 15.27% 0.24% 135% 64.8 132% 2.3% 8.0% 4.0% 0.9% 85.6%
Community Bank Shares IN *04/10/95 CBIN 205 7.00% 0.33% 80% 10.1 132% 4.4% 8.0% 0.0% 17.9% 85.5%
Fed One Bancorp WV *01/19/95 FOBC 305 9.2% 0.32% 142% 16.1 85% 7.7% 7.0% 4.0% 0.9% 67.9%
Home Financial Corp. FL *10/25/94 HOFL 1,005 13.4% 0.91% 44% 175.6 112% 3.1% 8.0% 4.0% 0.6% 86.4%
Jefferson Bancorp LA *08/18/94 JEBC 257 6.3% 0.9% 25% 16.1 107% 3.9% 7.0% 3.0% 1.5% 71.7%
Average:$426 9.11% 0.59% 112% $38.7 106% 4.9% 6.6% 2.8% 3.3% 76.5%
Medians: 257 9.83% 0.50% 69% $22.8 116% 3.8% 8.0% 4.0% 2.0% 83.9%
<CAPTION>
Pro Forma Data Post-IPO Pricing Trends
---------------------------------------------------------------------------------------
Pricing Ratios(4) Fin. Characteristics Closing Price:
------------------------------------------- ---------------------------------------
First After After
IPO Trading % First % First %
P/E(7)P/Core P/A ROA TE/A ROE Price Day Chg. Week(5) Chg. Month(6) Chg.
(x) (x) (%) (%) (%) (%) ($) ($) (%) ($) (%) ($) (%)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Riverview Bancorp, Inc. 17.7 17.7 23.6% 1.3% 21.6% 6.2% $10.00 $13.25 32.5% $13.63 36.3% NA NA
Bayonne Bancshares NM NM 14.6% -0.5% 14.4% -6.6% $10.00 11.75 17.5% 11.94 19.4% $12.38 23.8%
Montgomery Fin. Corp. 24.1 24.1 16.0% 0.7% 17.9% 3.7% 10.00 11.13 11.3% 11.25 12.5% 12.13 21.3%
Cumberland Mtn. Bncshrs. 13.8 13.8 7.1% 0.5% 8.8% 5.9% 10.00 11.88 18.8% 12.25 22.5% 12.63 26.3%
Kenwood Bancorp NM NM 6.0% 0.1% 8.8% 1.7% 10.00 NT NA NT NA NT NA
Commonwealth Bancorp 12.1 12.5 8.4% 0.7% 6.7% 10.4% 10.00 10.50 5.0% 10.75 7.5% 10.00 0.0%
Westwood Financial Corp. 10.1 10.1 7.3% 0.7% 9.2% 7.9% 10.00 10.75 7.5% 10.38 3.8% 10.62 6.2%
Jacksonville Bancorp 14.9 14.9 12.6% 0.8% 16.2% 5.2% 10.00 9.75 -2.5% 9.63 -3.8% 9.88 -1.2%
North Central Bancshares 12.1 12.5 19.7% 1.6% 26.5% 6.1% 10.00 10.88 8.8% 10.69 6.9% 10.44 4.4%
Fidelity Financial of Ohio 18.1 18.1 16.6% 0.9% 20.0% 4.6% 10.00 10.50 5.0% 10.00 0.0% 10.13 1.3%
First Colorado Bancorp 12.7 13.4 13.2% 1.0% 15.2% 6.9% 10.00 11.44 14.4% 11.63 16.3% 12.00 20.0%
Charter Financial 12.3 12.3 15.5% 1.3% 19.1% 6.6% 10.00 10.81 8.1% 10.88 8.8% 11.38 13.8%
American Nat'l Bancorp 17.7 17.7 9.0% 0.5% 10.7% 4.7% 10.00 9.38 -6.3% 9.75 -2.5% 9.88 -1.3%
First Defiance Fin. Corp. 18.2 18.2 20.6% 1.1% 24.1% 4.7% 10.00 10.38 3.8% 10.31 3.1% 10.13 1.3%
Community Bank Shares 10.3 9.0 9.3% 0.9% 10.9% 8.3% 10.00 12.00 20.0% 12.75 27.5% 12.25 22.5%
Fed One Bancorp 9.0 9.0 8.8% 1.0% 13.0% 7.6% 10.00 11.00 10.0% 11.00 10.0% 11.62 16.2%
Home Financial Corp. 10.6 12.4 21.3% 2.0% 24.6% 8.2% 10.00 9.59 -4.1% 10.00 0.0% 10.31 3.1%
Jefferson Bancorp 10.2 10.2 7.9% 0.8% 11.1% 7.0% 10.00 13.00 30.0% 14.25 42.5% 14.25 42.5%
13.2 13.3 12.2% 0.9% 14.3% 5.9% $8.95 10.44 8.8% $10.60 9.5% $9.86 10.4%
12.7 13.4 13.2% 0.9% 15.2% 6.2%$10.00 $10.94 8.4% $10.94 8.1% $10.62 6.2%
</TABLE>
October 13, 1997
Note:"NT" -- Not Traded; "NA" -- Not Applicable, Not Avaibable.
(1) Non-OTS regulated thrifts.
(2) As reported in summary pages of prospectus.
(3) As reported in prospectus.
(4) Does not take into account the adoption of SOP 93-6.
(5) Latest price if offering less than one week old.
(6) Latest price if offering more than one week but less than one month old.
(7) Price to core earnings if converted after 9/30/96 due to impact of SAIF
assessment.
- ------------------------------------------------------------------------------
<PAGE>
RP Financial, LC.
Boards of Directors
October 10, 1997
Page 15
Summary of Adjustments
- ----------------------
We have changed only one key valuation parameter since the Original Appraisal,
as shown below.
<TABLE>
<CAPTION>
Previous Current
Key Valuation Parameters: Valuation Adjustment Valuation Adjustment
- ------------------------ -------------------- --------------------
<S> <C> <C>
Financial Condition No Adjustment No Change
Profitability, Growth and Viability of Earnings Moderate Downward No Change
Asset Growth No Adjustment No Change
Primary Market Area No Adjustment No Change
Dividends No Adjustment No Change
Liquidity of the Shares Slight Downward No Change
Marketing of the Issue No Adjustment Moderate Upward
Management No Adjustment No Change
Effect of Government Regulations & Regulatory Reform No Adjustment No Change
</TABLE>
There were no material changes in the updated financial condition of
the Bank and the Peer Group and in their updated operating results. Heritage's
balance sheet remained substantially unchanged while reported and adjusted
earnings also remained relatively consistent in relation to the Peer Group. The
factors concerning the valuation parameters of asset growth, primary market
area, dividends, liquidity of the shares, management and effect of government
regulation and regulatory reform did not change since the Original Appraisal
date. Accordingly, those parameters were not discussed further in this update.
The new issue market for thrift stocks remains strong with all the
recent issues being oversubscribed and trading above their IPO price.
Additionally, we also considered the increase in the Peer Group prices in the
range of 9 to 14 percent coupled with the continued retention of earnings by
Heritage through the quarter ended September 30, 1997. We have also considered
the results of recent second step offerings of mutual holding companies
including the offering of Riverview Bancorp, Inc., Camas, Washington, which was
oversubscribed and increased by more than 30 percent in aftermarket trading.
Valuation Approaches
- --------------------
In applying the accepted valuation methodology promulgated by the
regulatory agencies, i.e., the pro forma market value approach, we considered
the three key pricing ratios in valuing Heritage's to-be-issued stock -- the
price/earnings ("P/E"), price/book ("P/B"), and price/assets ("P/A")
approaches --all performed on a pro forma basis including the effects of the
conversion proceeds from selling the MHC's interest to the public. In computing
the pro forma impact of the conversion and the related pricing ratios, the
valuation parameters for effective tax rate, reinvestment rate, offering
expenses and stock benefit plan assumptions have been derived from the
assumptions set forth in the prospectus. In this regard, Heritage has reduced
the anticipated level of ESOP and Recognition Plan purchases from 8 percent and
4 percent of the total offering, respectively, to 2 percent and 1 percent,
respectively. The amortization of the ESOP remains unchanged at 15 years and the
recognition plan will continue to be amortized over 5 years. The pro assumptions
are summarized in Exhibits 3 and 4.
Consistent with the Original Appraisal, this updated appraisal
continues to be based primarily on fundamental analysis techniques applied to
the Peer Group, including the P/E approach, the P/B approach and the P/A
approach. To capture the anticipated aftermarket trading of Heritage's stock,
the updated appraisal
<PAGE>
RP Financial, LC.
Boards of Directors
October 10, 1997
Page 16
also incorporates a technical analysis of recently completed stock conversions,
including principally the P/B approach which (as discussed in the Original
Appraisal) is the most meaningful pricing ratio as the pro forma P/E ratios
reflect an assumed reinvestment rate and do not yet reflect the actual use of
proceeds.
Based on the foregoing, we have concluded that the pro forma market
value range of Heritage's stock is subject to an increase. Therefore, as of
October 10, 1997, the pro forma market value of Heritage's conversion stock has
been increased from $53,034,770 to $73,713,700 (please note that this figure
reflects rounding of the stock offering amount). This updated midpoint value
reflects a 39 percent increase in value relative to the Original Appraisal, and
incorporates the valuation impact of the reduction of the stock benefit plans
and the strength of the new issue market, including the market for second step
conversions.
The Bank has adopted Statement of Position ("SOP" 93-6) which will
cause earnings per share computations to be based on shares issued and
outstanding excluding shares owned by an ESOP where there is not a commitment to
release such shares. For the purpose of preparing the pro forma pricing tables
and exhibits, we have reflected all shares issued in the offering including
shares purchased by the ESOP as outstanding to capture the full dilutive impact
of such stock to the Bank's shareholders. However, we have considered the impact
of the Bank's adoption of SOP 93-6 in the determination of Heritage's pro forma
value.
1. P/TB Approach. Based on the updated midpoint value of $73.7
-------------
million, Heritage's pro forma P/TB ratio at the midpoint equaled 97.24 percent.
The resulting discount relative to the Peer Group's average and median P/TB
ratio equaled 43.9 and 45.7 percent, respectively, versus 42.2 percent and 35.9
percent, respectively in the Original Appraisal. RP Financial considered the
discount under the P/TB approach to be reasonable in light of the valuation
adjustments discussed previously, the nature of the calculation of the pro forma
P/TB ratio which mathematically results in a ratio discounted to book value,
comparatively lower ROE and the resulting pricing ratios under the earnings and
assets approaches.
2. P/E Approach. The application of the P/E valuation method
------------
requires calculating the Bank's pro forma market value by applying a valuation
P/E multiple times the pro forma earnings base. Ideally, the pro forma earnings
base is composed principally of the Bank's recurring earnings base, that is,
earnings adjusted to exclude any one-time non-operating items, plus the
estimated after-tax earnings benefit of the reinvestment of net conversion
proceeds. The typical financial institution's earnings are more heavily
influenced by standard sources of profitability rather than on gains, and thus
we look to base the valuation primarily on "core" profitability. In the case of
Heritage, however, gains on sale of loans stemming from the Bank's mortgage
banking activities have represented approximately 80 percent of pre-tax profits
on average over the last five fiscal years. In Table 2, we evaluated the Bank's
adjusted earnings inclusive and exclusive of the gains on sale of loans, both
excluding non-operating items (the gain on the sale of premises). In evaluating
the Peer Group, we have computed core earnings, which excludes all gains/losses
as well as the impact of the SAIF assessment and extraordinary items. (Note: the
adjustments applied to the Peer Group's earnings in the calculation of core
earnings are shown in Exhibit 2, including the SAIF assessment.) The same
adjustments applied to the Bank would result in "core" earnings being very low,
given the Bank's earnings composition. For these reasons, we have considered
both reported earnings of $2.162 million and "core" earnings of $0.798 million
(computed in the same fashion as the Peer Group's core earnings) in reaching a
valuation conclusion. We have also considered the Bank's adjusted earnings to
account only for the non-operating items (the gain on sale of premises),
approximating $2.1 million. In comparison, the Bank's business plan indicates an
annual earnings rate of $2.26 million on a pre-conversion basis.
Based on Heritage's reported and core earnings, and incorporating the
impact of the pro forma assumptions discussed previously, including the revised
benefit plan assumptions, as well as the revised $73,713,700 midpoint value, the
indicated pro forma P/E multiples at the midpoint and supermaximum relative to
the Peer Group medians are as follows:
<PAGE>
RP Financial, LC.
Boards of Directors
October 10, 1997
Page 17
<TABLE>
<CAPTION>
Peer
Heritage Heritage Group
Midpoint Supermax Median
<S> <C> <C> <C>
Reported Earnings 17.72x 20.27x 20.58x
"Core" Earnings (excludes gain on sale of loans) 26.37x 28.29x 18.04x
Adjusted Earnings (includes gains on sale of loans) 17.99x 20.53x N/A
</TABLE>
RP Financial also considered the impact of SOP 936 in examining the
Bank's P/E ratios.
The implied conversion pricing ratios relative to the Peer
Group's pricing ratios are indicated in Table 8, and the updated pro forma
calculations are detailed in Exhibits 3 and 4.
3. P/A Approach. P/A ratios are generally not as a reliable
------------
indicator of market value, as investors do not place significant weight on total
assets as a determinant of market value. Investors place significantly greater
weight on book value and earnings -- which have received greater weight in our
valuation analysis. At the $73.7 million midpoint value, Heritage exhibited a
pro forma P/A ratio of 24.89 percent. In comparison to the Peer Group's median
P/A ratio of 23.53 percent, Heritage's P/A ratio indicated a premium of 5.8
percent (versus a discount of 2.6 percent at the midpoint valuation in the
Original Appraisal).
Summary
- -------
We have concluded that the Bank's estimated pro forma market value
should be increased since the date of the Original Appraisal based on the
revised benefit plan assumptions (i.e., the ESOP and Recognition Plans are
purchasing 2 percent and 1 percent of the offering, respectively), trends
exhibited in the market for thrift stocks and the growth of the Bank's capital
and earnings based on updated financial data. Accordingly, it is our opinion, as
of October 10, 1997 the aggregate pro forma market value of the Bank, inclusive
of the sale of the MHC's ownership interest in the Subscription and Community
Offering was $73,713,700 at the midpoint. Based on this valuation and the
approximate 67.83 percent ownership interest being sold in the Subscription and
Community Offerings, the midpoint value of the Holding Company's stock offering
was $50,000,000 (i.e., 0.6783 x $73,713,700), equal to 5,000,000 shares at a per
share value of $10.00. Pursuant to regulatory conversion guidelines, the 15
percent offering range includes a minimum offering value of $42,500,000 and a
maximum value of $57,500,000. Based on the $10.00 per share offering price, this
range equates to an offering of 4,250,000 shares at the minimum to 5,750,000
shares at the maximum. The Holding Company's offering also includes a provision
for a superrange, which if exercised, would result in an offering size of
$66,125,000, equal to 6,612,500 shares at the $10.00 per share offering price.
The comparative pro forma valuation ratios relative to the Peer Group are shown
in Table 8, and the key valuation assumptions are detailed in Exhibit 3. The pro
forma calculations for the range are detailed in Exhibit 4.
Establishment of Exchange Ratio
- -------------------------------
The conversion regulations provide that in a conversion of a mutual
holding company, the minority stockholders are entitled to exchange their shares
of the Bank's common stock for common stock of the Holding Company. The Board of
Trustees of the Mutual Holding Company has independently established a formula
to determine the exchange ratio. The formula has been designed to preserve the
current aggregate percentage ownership in the Bank represented by the Minority
Shares, adjusted for the impact of waived dividends and Mutual Holding Company
assets, which is an approximate 32.17 percent ownership interest.
<PAGE>
RP Financial, LC.
Boards of Directors
October 10, 1997
Page 18
Pursuant to the formula, the Exchange Ratio will be determined at the end of the
Holding Company's stock offering based on the total number of shares sold in the
Subscription and Community offerings. Based upon this formula, and the valuation
conclusion and offering range concluded above, the Exchange Ratio would be
3.3064 shares, 3.8899 shares, 4.4734 shares and 5.1444 shares of Heritage
Financial Corp. stock issued for each Minority Share, at the minimum, midpoint,
maximum and supermaximum of the offering, respectively.
The Exchange Ratio formula and share exchange procedures were
determined independently by the Board of Directors. RP Financial expresses no
opinion on the proposed exchange of Holding Company shares for the Minority
Shares or on the proposed Exchange Ratio.
Table 9
Heritage Bank
Calculation of Exchange Ratios
<TABLE>
<CAPTION>
Shares Price/ Exchange Implied
Offered Share Shares(1) Exch. Ratio(2)
--------- -------- ----------- --------------
<S> <C> <C> <C> <C>
Super Maximum 6,612,500 $10.00 3,136,136 5.1444
Maximum 5,750,000 10.00 2,727,075 4.4734
Midpoint 5,000,000 10.00 2,371,369 3.8899
Minimum 4,250,000 10.00 2,015,664 3.3064
</TABLE>
(1) Calculated to preserve the Minority Shares percentage ownership
in the Holding Company at 32.17 percent.
(2) Calculated as pro forma exchange shares divided by 609,616
existing Minority Shares outstanding.
Respectfully submitted,
RP FINANCIAL, LC.
/s/ Ronald S. Riggins
Ronald S. Riggins
/s/ James P. Hennessey
James P. Hennessey
Senior Vice President
<PAGE>
RP FINANCIAL, L.C.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 8
Public Market Pricing
Heritage Bank and the Comparables
As of October 10, 1997
<TABLE>
<CAPTION>
Market Per Share Data
--------------
Capitalization Core Book Pricing Ratios(3) Dividends(4)
-------------- ----------------- -----------
Price/ Market 12-Mth Value/ Amount/
Share(1) Value EPS(2) Share P/E P/B P/A P/TB P/CORE Share
-------- ----- ------ ----- --- --- --- ---- ----- -----
($) ($Mil) ($) ($) (X) (%) (%) (%) (X) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Heritage Bank
- -------------
Superrange 10.00 97.49 0.49 9.36 20.27 106.86 31.28 106.86 28.29 0.08
Range Maximum 10.00 84.77 0.53 9.79 19.00 102.16 27.94 102.16 27.36 0.08
Range Midpoint 10.00 73.71 0.56 10.28 17.72 97.24 24.89 97.24 26.37 0.10
Range Minimum 10.00 62.66 0.62 10.95 16.24 91.29 21.68 91.29 25.13 0.12
SAIF-Insured Thrifts(7)
- -----------------------
Averages 24.63 172.95 1.14 15.58 22.53 155.64 19.17 159.27 19.94 0.37
Medians -- -- -- -- 22.85 149.53 17.30 151.38 19.96 --
All Non-MHC State of WA(7)
- --------------------------
Averages 24.70 318.65 1.24 12.71 21.39 192.40 22.09 200.84 19.29 0.34
Medians -- -- -- -- 20.58 177.98 23.54 198.56 18.04 --
Comparable Group Averages
- -------------------------
Averages 24.72 167.20 1.16 14.74 23.73 173.22 22.61 179.15 21.53 0.45
Medians -- -- -- -- 25.11 161.19 23.53 168.11 20.52 --
State of WA
- -----------
CASB Cascade SB of Everett WA(7) 13.75 35.34 0.71 8.78 29.26 156.61 9.60 156.61 19.37 0.00
FMSB First Mutual SB of Bellevue WA 29.50 79.71 1.52 10.91 18.91 270.39 18.45 270.39 19.41 0.20
FWWB First Savings Bancorp of WA 26.25 276.12 0.84 14.13 29.49 185.77 27.40 201.92 NM 0.28
FBHW FirstBank Corp. of Clarkson WA 17.12 33.97 0.44 14.00 NM 122.29 22.06 122.29 NM 0.00
HRZB Horizon Financial Corp. of WA 17.50 129.80 1.05 10.91 16.36 160.40 25.03 160.40 16.67 0.44
IWBK Interwest SB of Oak Harbor WA 40.50 325.46 2.47 15.46 22.25 261.97 17.76 267.86 16.40 0.64
RVSB Riverview Bancorp of WA 14.00 85.79 0.56 9.18 25.00 152.51 32.99 152.51 25.00 0.24
STSA Sterling Financial Corp. of WA 21.12 117.58 0.90 12.41 NM 170.19 6.97 195.19 23.47 0.00
WFSL Washington FS&LA of Seattle WA 31.62 1500.75 2.14 14.66 16.30 215.69 26.05 236.15 14.78 0.92
WAHU Washington Mutual Inc. of WA(7) 67.87 8575.85 2.42 19.30 NM NM 17.59 NM 28.05 1.08
Comparable Group
- ----------------
CMRN Cameron Fin. Corp. of MO 19.25 50.57 0.97 17.18 24.68 112.05 24.30 112.05 19.85 0.28
FFHH FSF Financial Corp. of MN 20.31 61.60 0.99 14.16 26.04 143.43 16.29 143.43 20.52 0.50
FFBA First Colorado Bancorp of CO 20.75 343.64 0.77 11.76 26.60 176.45 22.76 178.88 26.95 0.48
FMSB First Mutual SB of Bellevue WA 29.50 79.71 1.52 10.91 18.91 270.39 18.45 270.39 19.41 0.20
FWWB First Savings Bancorp of WA 26.25 276.12 0.84 14.13 29.49 185.77 27.40 201.92 NM 0.28
HRZB Horizon Financial Corp. of WA 17.50 129.80 1.05 10.91 16.36 160.40 25.03 160.40 16.67 0.44
IWBK Interwest SB of Oak Harbor WA 40.50 325.46 2.47 15.46 22.25 261.97 17.76 267.86 16.40 0.64
KFBI Klamath First Bancorp of OR 23.00 230.44 0.83 14.20 NM 161.97 31.66 161.97 27.71 0.30
UBMT United Fin. Corp. of MT 24.00 29.35 1.16 19.95 25.53 120.30 27.25 120.30 20.69 0.98
WSTR Westerfed Fin. Corp. of NT 26.12 145.36 1.02 18.73 NM 139.46 15.21 174.25 25.61 0.44
<CAPTION>
Dividends(4) Financial Charateristics(6) MEMO:
----------- ---------------------------
Payout Total Equity/ NPAs/ Reported Core Exchange
Yield Ratio(5) Assets Assets Assets ROA ROE ROA ROE Ratio
----- ------- ------ ------ ------ --- --- --- ---
(%) (%) ($Mil) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Heritage Bank
- -------------
Superrange 0.78 15.76 312 29.28 0.16 1.54 5.27 1.11 3.78 5.1444
Range Maximum 0.84 16.02 303 27.35 0.16 1.47 5.38 1.02 3.73 4.7434
Range Midpoint 1.03 18.22 296 25.59 0.17 1.40 5.49 0.94 3.69 3.8899
Range Minimum 1.21 19.65 289 23.75 0.17 1.33 5.62 0.86 3.63 3.3064
SAIF-Insured Thrifts(7)
- -----------------------
Averages 1.57 30.29 1,152 12.93 0.79 0.64 5.47 0.85 7.45
Medians -- -- -- -- -- -- -- -- --
All Non-MHC State of WA(7)
- --------------------------
Averages 1.31 25.02 1,456 12.47 0.64 1.04 8.91 1.09 10.15
Medians -- -- -- -- -- -- -- -- --
Comparable Group Averages
- -------------------------
Averages 1.91 37.26 768 14.30 0.28 0.96 7.36 1.11 8.40
Medians -- -- -- -- -- -- -- -- --
State of WA
- -----------
CASB Cascade SB of Everett WA(7) 0.00 0.00 368 6.13 0.41 0.35 5.65 0.52 8.53
FMSB First Mutual SB of Bellevue WA 0.68 13.16 432 6.82 0.01 1.02 15.34 1.00 14.95
FWWB First Savings Bancorp of WA 1.07 33.33 1,008 14.75 0.30 1.05 6.25 1.00 5.90
FBHW FirstBank Corp. of Clarkson WA 0.00 0.00 154 18.04 2.07 0.70 3.86 0.57 3.14
HRZB Horizon Financial Corp. of WA 2.51 41.90 519 15.60 NA 1.57 9.99 1.54 9.80
IWBK Interwest SB of Oak Harbor WA 1.58 25.91 1,833 6.78 0.64 0.87 12.91 1.18 17.52
RVSB Riverview Bancorp of WA 1.71 42.86 260 21.63 0.14 1.32 6.10 1.32 6.10
STSA Sterling Financial Corp. of WA 0.00 0.00 1,686 4.10 0.61 0.10 2.46 0.3 7.91
WFSL Washington FS&LA of Seattle WA 2.91 22.99 5,660 12.08 0.73 1.67 14.37 1.84 15.85
WAHU Washington Mutual Inc. of WA(7) 1.59 44.63 48,764 5.00 0.81 0.35 6.81 0.74 14.45
Comparable Group
- ----------------
CMRN Cameron Fin. Corp. of MO 1.45 28.87 208 21.69 0.73 1.07 4.43 1.33 5.51
FFHH FSF Financial Corp. of MN 2.46 50.51 378 11.35 0.03 0.66 5.22 0.84 6.63
FFBA First Colorado Bancorp of CO 2.31 62.34 1,510 12.90 0.23 0.86 6.02 0.84 5.94
FMSB First Mutual SB of Bellevue WA 0.68 13.16 432 6.82 0.01 1.02 15.34 1.00 14.95
FWWB First Savings Bancorp of WA 1.07 33.33 1,008 14.75 0.30 1.05 6.25 1.00 5.90
HRZB Horizon Financial Corp. of WA 2.51 41.90 519 15.60 NA 1.57 9.99 1.54 9.80
IWBK Interwest SB of Oak Harbor WA 1.58 25.91 1,833 6.78 0.64 0.87 12.91 1.18 17.52
KFBI Klamath First Bancorp of OR 1.30 36.14 728 19.55 0.08 0.81 3.67 1.23 5.54
UBMT United Fin. Corp. of MT 4.08 NM 108 22.65 NA 1.09 4.70 1.34 5.80
WSTR Westerfed Fin. Corp. of NT 1.68 43.14 956 10.91 0.25 0.63 5.09 0.79 6.41
<CAPTION>
MEMO:
Offering
($Mil)
<S> <C>
Heritage Bank
- -------------
Superrange 66.1
Range Maximum 57.5
Range Midpoint 50.0
Range Minimum 42.5
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(701) 528-1700 Table 8
Public Marketing Pricing
Heritage Bank and the Comparables
As of October 10, 1997
<TABLE>
<CAPTION>
Market Per Share Data
-------------------
Capitalization Core Book Pricing Ratios(3) Dividends(4)
---------------- ----------------------------------- ------------------------
Price/ Market 12-Mth Value/ Amount/ Payout
Share(1) Value EPS(2) Share P/E P/B P/A P/TB P/CORE Share Yield Ratio(5)
-------- ------ ------ ----- --- ---- ---- ---- ------ ------- ----- --------
($) ($Mil) ($) ($) (K) (%) (%) (%) (X) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
Financial Characteristics(6)
------------------------------------------------------------------------
Total Equity/ NPAs/ Reported Core
--------------------- ---------------
Assets Assets Assets ROA ROE ROA ROE
------ ------- ------ ------ -------- ----- ------
($Mil) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
(1) Average of high/low or bid/ask price per share.
(2) EPS (core basis) is based on actual trailing twelve month data, adjusted to
omit the impact of non-operating items (including the SAIF assessment) on a
tax effected basis, and is shown on a pro forma basis where appropriate.
(3) P/E * Price to Earnings; P/B * Price to Book; P/A * Price to Assets; P/TB *
Price to Tangible Book; P/CORE * Price to Core Earnings.
(4) Indicated twelve month dividend, based on last quarterly dividend declared.
(5) Indicated twelve month dividend as a percent of trailing twelve month
estimated core earnings.
(6) ROA (return on assets) and ROE (return on equity) are indicated ratios based
on trailing twelve month common earnings and average common equity and total
assets balances.
(7) Excludes from averages and medians those companies the subject of actual or
rumored acquisition activities or unusual operating characteristics.
Sources: Corporate reports, offering circulars, and RP Financial,Inc.
calculations. The information provided in this report has been obtained
from sources we believe are reliable, but we cannot guarantee the
accuracy or completeness of such information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
EXHIBITS
<PAGE>
RP Financial, LC.
LIST OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
1 Stock Prices: As of October 10, 1997
2 Peer Group Core Earnings Analysis
3 Pro Forma Analysis Sheet
4 Pro Forma Effect of Conversion Proceeds
5 Firm Qualifications Statement
</TABLE>
<PAGE>
EXHIBIT 1
Stock Prices
As of October 10, 1997
<PAGE>
RP FINANCIAL, LC.
-----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit IV-1
Weekly Thrift Market Line - Part One
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Market Capitalization Price Change Data
----------------------- -----------------------------------------------
Shares Market 52 Week (1) % Change From
--------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
--------------------- ------- ------- ------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
Market Averages. SAIF-Insured Thrifts(no MHC)
---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts(302) 24.36 5,521 178.7 25.15 15.54 23.85 2.14 238.02 43.47
NYSE Traded Companies(9) 45.41 36,632 1,885.2 46.55 25.75 44.17 3.22 342.18 51.61
AMEX Traded Companies(17) 20.12 3,580 84.8 21.79 13.80 19.84 1.42 303.95 32.66
NASDAQ Listed OTC Companies(276) 23.89 4,563 125.4 24.62 15.30 23.39 2.14 224.22 43.84
California Companies(21) 30.37 18,905 853.5 31.12 17.56 29.67 2.57 164.06 51.06
Florida Companies(5) 31.74 13,095 447.4 32.18 16.92 28.52 7.96 205.30 56.86
Mid-Atlantic Companies(60) 25.64 6,318 175.1 26.19 15.71 25.20 1.75 217.97 53.27
Mid-West Companies(144) 22.75 3,422 99.2 23.48 14.85 22.23 2.30 262.77 39.27
New England Companies(9) 30.35 5,009 186.0 30.83 17.58 29.65 2.72 421.94 57.18
North-West Companies(8) 23.97 11,479 333.1 25.26 17.14 23.68 1.17 184.69 38.11
South-East Companies(42) 23.73 3,527 81.4 25.34 16.30 23.66 0.81 208.65 36.26
South-West Companies(7) 20.63 1,898 44.5 21.12 12.79 20.16 2.93 25.93 46.64
Western Companies (Excl CA)(6) 22.50 5,288 116.5 22.85 15.78 21.82 3.16 337.62 33.43
Thrift Strategy(240) 23.26 3,648 93.8 24.01 15.16 22.79 2.09 213.51 41.65
Mortgage Banker Strategy(37) 29.30 14,018 588.7 30.26 17.51 28.90 1.47 307.33 53.72
Real Estate Strategy(10) 26.59 7,817 242.0 27.46 15.32 25.95 1.81 230.40 51.57
Diversified Strategy(11) 37.88 25,590 1,043.1 39.02 21.15 35.80 5.98 227.26 51.47
Retail Banking Strategy(4) 18.03 3,472 72.9 19.22 12.00 17.50 2.79 410.71 32.23
Companies Issuing Dividends(255) 24.56 5,375 177.6 25.39 15.72 24.09 2.05 251.12 42.14
Companies Without Dividends(47) 23.19 6,367 184.9 23.76 14.49 22.43 2.64 150.33 52.75
Equity/Assets less than 6%(23) 28.83 17,625 619.4 29.64 16.48 27.97 2.62 200.64 53.18
Equity/Assets 6-12%(142) 27.47 5,885 214.5 28.16 16.51 26.81 2.66 254.04 51.00
Equity/Assets >12%(137) 20.62 3,183 71.9 21.51 14.45 20.32 1.56 192.41 33.69
Converted Last 3 Mths (no MHC)(3) 15.00 4,836 68.4 15.35 12.16 14.96 0.26 0.00 63.39
Actively Traded Companies(41) 34.04 17,298 735.9 34.97 20.13 33.15 3.19 263.43 54.97
Market Value Below $20 Million(50) 18.60 835 14.4 18.94 12.77 17.88 3.97 266.50 38.39
Holding Company Structure(267) 24.40 5,315 178.0 25.18 15.67 23.86 2.28 223.00 42.54
Assets Over $1 Billion(60) 35.88 17,646 698.1 36.76 21.12 34.96 2.46 279.61 50.17
Assets $500 Million-$1 Billion(49) 23.84 5,718 120.6 24.75 14.39 23.61 1.35 264.60 51.68
Assets $250-$500 Million(66) 24.53 2,624 60.5 25.20 15.63 24.06 1.90 219.20 48.71
Assets less than $250 Million(127) 19.27 1,452 26.5 20.04 13.42 18.81 2.41 144.09 34.18
Goodwill Companies(124) 28.66 9,073 309.5 29.42 17.22 28.00 2.32 270.53 49.01
Non-Goodwill Companies(177) 21.45 3,127 90.5 22.27 14.42 21.05 1.95 189.25 39.41
Acquirors of FSLIC Cases(10) 39.33 33,589 1,695.9 40.25 22.86 38.14 4.35 328.81 55.97
<CAPTION>
Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
Financial Institution EPS(3) EPS(3) Share Share(4) Share
--------------------- -------- ------- ------- ------- -------
($) ($) ($) ($) ($)
Market Averages. SAIF-Insured Thrifts(no MHC)
---------------------------------------------
<S> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts(302) 0.85 1.16 15.77 15.45 153.86
NYSE Traded Companies(9) 1.96 2.77 20.08 19.19 358.54
AMEX Traded Companies(17) 0.55 0.84 15.60 15.41 109.57
NASDAQ Listed OTC Companies(276) 0.84 1.12 15.63 15.33 149.50
California Companies(21) 0.96 1.43 17.01 16.41 262.00
Florida Companies(5) 0.98 0.88 13.59 12.87 185.74
Mid-Atlantic Companies(60) 0.98 1.36 16.19 15.55 168.74
Mid-West Companies(144) 0.82 1.08 15.71 15.38 135.55
New England Companies(9) 0.81 1.39 17.48 16.28 242.59
North-West Companies(8) 0.87 1.12 14.11 19.67 128.61
South-East Companies(42) 0.76 0.99 15.03 14.70 119.15
South-West Companies(7) 0.62 1.09 14.77 14.00 192.60
Western Companies (Excl CA)(6) 0.89 1.05 15.96 15.27 106.34
Thrift Strategy(240) 0.80 1.10 15.97 15.76 139.46
Mortgage Banker Strategy(37) 1.12 1.48 15.48 14.45 229.08
Real Estate Strategy(10) 0.90 1.39 14.35 14.06 220.82
Diversified Strategy(11) 1.60 1.86 14.01 13.46 198.90
Retail Banking Strategy(4) 0.18 0.00 13.14 12.70 169.23
Companies Issuing Dividends(255) 0.91 1.22 15.88 15.38 150.76
Companies Without Dividends(47) 0.51 0.79 15.11 15.89 171.81
Equity/Assets less than 6%(23) 0.96 1.57 13.78 12.91 286.16
Equity/Assets 6-12%(142) 1.04 1.39 16.12 15.40 194.07
Equity/Assets >12%(137) 0.66 0.87 15.76 15.92 93.44
Converted Last 3 Mths (no MHC)(3) 0.25 0.32 12.34 26.38 77.83
Actively Traded Companies(41) 1.46 2.00 17.37 16.73 234.07
Market Value Below $20 Million(50) 0.52 0.82 15.27 15.23 121.47
Holding Company Structure(267) 0.83 1.13 16.01 15.73 150.93
Assets Over $1 Billion(60) 1.33 1.85 17.82 16.52 253.25
Assets $500 Million-$1 Billion(49) 0.91 1.11 14.07 13.60 153.29
Assets $250-$500 Million(66) 0.87 1.18 16.43 16.61 161.24
Assets less than $250 Million(127) 0.62 0.85 15.15 15.09 105.53
Goodwill Companies(124) 1.07 1.42 16.38 15.23 201.11
Non-Goodwill Companies(177) 0.71 0.99 15.36 15.61 122.15
Acquirors of FSLIC Cases(10) 1.66 2.43 18.85 17.79 305.74
</TABLE>
(1) Average of high/low or bid/ask price per share.
(2) Or since offering price if converted or first listed in 1994 or 1995.
Percent change figures are actual year-to-date and are not annualized
(3) EPS (earnings per share) is based on actual trailing twelve month data
and is not shown on a pro forma basis.
(4) Excludes intangibles (such as goodwill, value of core deposits, etc.).
(5) ROA (return on assets) and ROE (return on equity) are indicated ratios
based on trailing twelve month common earnings and average common
equity and assets balances.
(6) Annualized, based on last regular quarterly cash dividend announcement.
(7) Indicated dividend as a percent of trailing twelve month earnings.
(8) Excluded from averages due to actual or rumored acquisition activities
or unusual operating characteristics.
(9) For MHC institutions, market value reflects share price multiplied by
public (non-MHC) shares.
* All thrifts are SAIF insured unless otherwise noted with an asterisk.
Parentheses following market averages indicate the number of
institutions included in the respective averages. All figures have been
adjusted for stock splits, stock dividends, and secondary offerings.
Source: Corporate reports and offering circulars for publicly traded
companies, and RP Financial, Inc. calculations. The information
provided in this report has been obtained from sources we believe
are reliable, but we cannot guarantee the accuracy or completeness
of such information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
RP FINANCIAL, LC.
-----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit IV-1 (continued)
Weekly Thrift Market Line - Part One
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Market Capitalization Price Change Data
----------------------- -----------------------------------------------
Shares Market 52 Week (1) % Change From
--------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
--------------------- ------- ------- ------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
Market Averages. BIF-Insured Thrifts(no MHC)
--------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BIF-Insured Thrifts(64) 26.88 8,048 237.4 27.59 15.94 26.52 1.53 249.51 53.23
NYSE Traded Companies(2) 43.81 74,382 2,666.3 45.09 27.69 43.47 3.06 134.79 47.44
AMEX Traded Companies(6) 25.52 4,007 97.8 26.23 15.05 25.41 0.23 128.73 56.75
NASDAQ Listed OTC Companies(56) 26.35 5,835 155.4 27.05 15.57 25.96 1.62 270.86 53.04
California Companies(4) 21.62 6,822 159.4 22.16 12.37 21.75 -0.70 513.78 48.96
Mid-Atlantic Companies(15) 28.52 17,788 561.8 29.34 16.57 28.20 1.46 178.46 52.90
Mid-West Companies(2) 12.75 942 12.0 12.75 9.50 12.37 3.07 0.00 25.99
New England Companies(34) 26.50 4,649 129.9 27.27 15.35 26.12 1.66 263.14 57.25
North-West Companies(4) 24.42 6,879 161.9 24.42 13.31 23.00 5.75 166.94 59.13
South-East Companies(5) 31.70 2,083 46.4 32.42 22.60 31.65 -0.56 0.00 34.57
Thrift Strategy(44) 27.10 4,980 169.0 27.83 16.32 26.72 1.76 242.17 52.64
Mortgage Banker Strategy(8) 27.86 25,700 622.4 28.35 15.76 27.31 2.17 273.89 60.17
Real Estate Strategy(6) 20.50 4,200 85.3 21.53 11.85 20.81 -1.48 357.07 42.48
Diversified Strategy(6) 29.19 13,224 433.5 29.84 16.34 28.69 0.94 182.86 59.79
Companies Issuing Dividends(52) 28.16 8,449 256.9 28.90 16.82 27.81 1.27 240.20 51.73
Companies Without Dividends(12) 19.01 5,594 117.9 19.60 10.53 18.61 3.10 342.57 62.25
Equity/Assets less than 6%(5) 18.86 30,528 695.6 19.12 9.53 18.23 3.48 174.55 88.30
Equity/Assets 6-12%(43) 28.77 6,271 223.0 29.61 16.49 28.40 1.52 264.03 55.06
Equity/Assets >12%(16) 23.88 6,576 146.5 24.40 16.25 23.63 0.99 53.24 36.98
Actively Traded Companies(19) 29.04 11,777 323.7 29.72 16.55 28.41 2.85 302.83 55.61
Market Value Below $20 Million(6) 16.82 940 15.4 17.12 10.80 16.32 2.91 320.00 38.47
Holding Company Structure(42) 26.57 6,929 189.7 27.34 16.02 26.34 0.96 247.46 50.17
Assets Over $1 Billion(15) 31.84 22,938 743.6 32.51 18.44 31.57 1.00 242.04 55.79
Assets $500 Million-$1 Billion(16) 29.06 5,024 121.9 29.81 17.13 28.61 1.45 227.52 54.59
Assets $250-$500 Million(15) 22.51 2,968 62.5 23.37 12.94 22.12 2.18 276.69 51.53
Assets less than $250 Million(18) 23.94 1,478 29.9 24.53 15.16 23.62 1.48 260.93 51.11
Goodwill Companies(30) 28.53 12,019 377.5 29.23 16.92 28.13 1.62 237.99 53.47
Non-Goodwill Companies(34) 25.39 4,474 111.3 26.12 15.06 25.07 1.44 269.67 53.03
<CAPTION>
Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
Financial Institution EPS(3) EPS(3) Share Share(4) Share
--------------------- -------- ------- ------- ------- -------
($) ($) ($) ($) ($)
Market Averages. BIF-Insured Thrifts(no MHC)
--------------------------------------------
<S> <C> <C> <C> <C> <C>
BIF-Insured Thrifts(64) 1.57 1.56 15.61 14.79 155.54
NYSE Traded Companies(2) 2.11 2.21 20.33 13.43 244.47
AMEX Traded Companies(6) 1.14 1.11 16.02 13.92 167.23
NASDAQ Listed OTC Companies(56) 1.60 1.59 15.37 14.96 150.47
California Companies(4) 1.37 1.27 12.48 12.46 155.24
Mid-Atlantic Companies(15) 1.22 1.30 15.94 14.08 167.40
Mid-West Companies(2) 0.21 0.32 12.77 12.04 50.95
New England Companies(34) 1.89 1.83 14.36 13.80 167.32
North-West Companies(4) 1.17 1.14 11.98 11.61 108.54
South-East Companies(5) 1.29 1.33 26.77 26.77 98.52
Thrift Strategy(44) 1.53 1.52 16.49 15.55 149.68
Mortgage Banker Strategy(8) 1.51 1.57 14.44 14.00 187.42
Real Estate Strategy(6) 1.52 1.45 11.02 11.01 129.69
Diversified Strategy(6) 2.12 2.08 13.04 12.03 187.10
Companies Issuing Dividends(52) 1.53 1.52 16.32 15.38 160.69
Companies Without Dividends(12) 1.81 1.77 11.28 11.18 123.96
Equity/Assets less than 6%(5) 1.13 1.04 7.41 7.19 136.87
Equity/Assets 6-12%(43) 1.88 1.85 15.32 14.20 182.24
Equity/Assets >12%(16) 0.82 0.88 18.77 18.63 86.48
Actively Traded Companies(19) 1.87 1.81 15.29 14.53 179.62
Market Value Below $20 Million(6) 1.44 1.50 13.44 13.25 85.19
Holding Company Structure(42) 1.50 1.49 15.91 15.22 141.22
Assets Over $1 Billion(15) 1.79 1.80 15.24 13.73 182.56
Assets $500 Million-$1 Billion(16) 1.85 1.78 16.33 15.03 183.85
Assets $250-$500 Million(15) 1.20 1.20 13.19 12.91 133.59
Assets less than $250 Million(18) 1.42 1.43 17.63 17.48 120.12
Goodwill Companies(30) 1.61 1.59 15.69 13.97 188.18
Non-Goodwill Companies(34) 1.53 1.53 15.54 15.54 126.16
</TABLE>
(1) Average of high/low or bid/ask price per share.
(2) Or since offering price if converted or first listed in 1994 or 1995.
Percent change figures are actual year-to-date and are not annualized
(3) EPS (earnings per share) is based on actual trailing twelve month data
and is not shown on a pro forma basis.
(4) Excludes intangibles (such as goodwill, value of core deposits, etc.).
(5) ROA (return on assets) and ROE (return on equity) are indicated ratios
based on trailing twelve month common earnings and average common
equity and assets balances.
(6) Annualized, based on last regular quarterly cash dividend announcement.
(7) Indicated dividend as a percent of trailing twelve month earnings.
(8) Excluded from averages due to actual or rumored acquisition activities
or unusual operating characteristics.
(9) For MHC institutions, market value reflects share price multiplied by
public (non-MHC) shares.
* All thrifts are SAIF insured unless otherwise noted with an asterisk.
Parentheses following market averages indicate the number of
institutions included in the respective averages. All figures have been
adjusted for stock splits, stock dividends, and secondary offerings.
Source: Corporate reports and offering circulars for publicly traded
companies, and RP Financial, Inc. calculations. The information
provided in this report has been obtained from sources we believe
are reliable, but we cannot guarantee the accuracy or completeness
of such information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700 (continued)
Weekly Thrift Market Line - Part One
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Market Capitalization Price Change Data
----------------------- -----------------------------------------------
Shares Market 52 Week (1) % Change From
--------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
--------------------- ------- ------- ------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Market Averages. MHC Institutions
---------------------------------
SAIF-Insured Thrifts(20) 29.80 5,158 63.8 30.22 13.87 27.34 8.46 369.88 99.98
BIF-Insured Thrifts(2) 33.12 32,163 451.4 33.12 12.75 28.38 17.67 358.96 139.04
NASDAQ Listed OTC Companies(22) 30.19 8,335 109.4 30.56 13.73 27.46 9.55 366.24 105.56
Florida Companies(3) 34.75 5,931 97.7 35.38 16.25 33.22 4.66 0.00 81.42
Mid-Atlantic Companies(10) 30.60 6,470 73.1 30.82 12.57 27.21 11.53 345.00 145.29
Mid-West Companies(7) 26.45 2,109 24.6 27.05 14.32 24.60 7.61 394.75 71.11
New England Companies(1) 36.12 61,054 883.2 36.12 16.25 32.50 11.14 358.96 87.64
Thrift Strategy(21) 29.82 5,040 61.0 30.21 13.58 27.15 9.45 369.88 106.94
Diversified Strategy(1) 36.12 61,054 883.2 36.12 16.25 32.50 11.14 358.96 87.64
Companies Issuing Dividends(21) 31.00 8,683 114.9 31.37 13.74 28.10 10.14 366.24 105.56
Companies Without Dividends(1) 17.25 2,760 21.4 17.50 13.62 17.25 0.00 0.00 0.00
Equity/Assets 6-12%(16) 31.79 10,134 135.6 32.13 13.99 28.46 11.38 366.24 111.94
Equity/Assets >12%(6) 25.00 2,487 24.2 25.44 12.91 24.22 3.60 0.00 82.17
Actively Traded Companies(1) 44.50 7,990 151.5 44.50 14.05 36.00 23.61 345.00 164.57
Holding Company Structure(1) 44.50 7,990 151.5 44.50 14.05 36.00 23.61 345.00 164.57
Assets Over $1 Billion(5) 41.34 25,911 351.2 41.34 14.29 35.83 15.26 351.98 144.77
Assets $500 Million-$1 Billion(3) 34.75 5,931 97.7 35.38 16.25 33.22 4.66 0.00 81.42
Assets $250-$500 Million(5) 30.42 2,845 37.1 31.42 15.69 28.08 8.55 394.75 76.63
Assets less than $250 Million(9) 23.39 2,207 18.5 23.64 12.09 21.61 8.28 0.00 101.20
Goodwill Companies(8) 38.31 18,874 258.2 38.65 15.61 33.79 13.02 366.24 120.96
Non-Goodwill Companies(14) 25.76 2,586 28.2 26.15 12.71 24.01 7.65 0.00 94.00
MHC Institutions(22) 30.19 8,335 109.4 30.56 13.73 27.46 9.55 366.24 105.56
<CAPTION>
Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
Financial Institution EPS(3) EPS(3) Share Share(4) Share
--------------------- -------- ------- ------- ------- -------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
Market Averages. MHC Institutions
---------------------------------
SAIF-Insured Thrifts(20) 0.50 0.79 11.86 11.60 110.67
BIF-Insured Thrifts(2) 0.81 0.73 9.79 9.78 101.80
NASDAQ Listed OTC Companies(22) 0.54 0.78 11.61 11.39 109.62
Florida Companies(3) 0.62 0.94 13.91 13.87 142.53
Mid-Atlantic Companies(10) 0.45 0.69 11.05 10.65 101.45
Mid-West Companies(7) 0.49 0.84 11.84 11.81 107.32
New England Companies(1) 1.39 1.03 10.93 10.92 128.90
Thrift Strategy(21) 0.48 0.77 11.66 11.42 108.42
Diversified Strategy(1) 1.39 1.03 10.93 10.92 128.90
Companies Issuing Dividends(21) 0.55 0.80 11.73 11.49 111.30
Companies Without Dividends(1) 0.36 0.54 9.71 9.71 82.81
Equity/Assets 6-12%(16) 0.54 0.81 11.68 11.38 122.04
Equity/Assets >12%(6) 0.52 0.69 11.41 11.41 69.26
Actively Traded Companies(1) 0.72 1.14 12.18 10.86 129.26
Holding Company Structure(1) 0.72 1.14 12.18 10.86 129.26
Assets Over $1 Billion(5) 0.87 1.00 11.55 10.64 132.45
Assets $500 Million-$1 Billion(3) 0.62 0.94 13.91 13.87 142.53
Assets $250-$500 Million(5) 0.57 0.96 12.57 12.53 120.57
Assets less than $250 Million(9) 0.34 0.57 10.71 10.71 85.88
Goodwill Companies(8) 0.78 0.99 12.05 11.41 140.51
Non-Goodwill Companies(14) 0.41 0.67 11.38 11.38 92.77
MHC Institutions(22) 0.54 0.78 11.61 11.39 109.62
</TABLE>
(1) Average of high/low or bid/ask price per share.
(2) Or since offering price if converted or first listed in 1994 or 1995.
Percent change figures are actual year-to-date and are not annualized
(3) EPS (earnings per share) is based on actual trailing twelve month data
and is not shown on a pro forma basis.
(4) Excludes intangibles (such as goodwill, value of core deposits, etc.).
(5) ROA (return on assets) and ROE (return on equity) are indicated ratios
based on trailing twelve month common earnings and average common
equity and assets balances.
(6) Annualized, based on last regular quarterly cash dividend
announcement.
(7) Indicated dividend as a percent of trailing twelve month earnings.
(8) Excluded from averages due to actual or rumored acquisition activities
or unusual operating characteristics.
(9) For MHC institutions, market value reflects share price multiplied by
public (non-MHC) shares.
* All thrifts are SAIF insured unless otherwise noted with an asterisk.
Parentheses following market averages indicate the number of
institutions included in the respective averages. All figures have
been adjusted for stock splits, stock dividends, and secondary
offerings.
Source: Corporate reports and offering circulars for publicly traded
companies, and RP Financial, Inc. calculations. The information
provided in this report has been obtained from sources we believe
are reliable, but we cannot guarantee the accuracy or completeness
of such information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
RP FINANCIAL, LC.
-----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700 (continued)
Weekly Thrift Market Line - Part One
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Market Capitalization Price Change Data
----------------------- -----------------------------------------------
Shares Market 52 Week (1) % Change From
--------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
--------------------- ------- ------- ------- ------- ------ ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NYSE Traded Companies
---------------------
AHM Ahmanson and Co. H.F. of CA 57.31 97,336 5,578.3 59.31 29.00 57.12 0.33 205.65 76.34
CSA Coast Savings Financial of CA 57.37 18,616 1,068.0 58.87 31.37 54.00 6.24 396.28 56.66
CFB Commercial Federal Corp. of NE 50.37 21,553 1,085.6 50.37 27.92 49.00 2.80 ***.** 57.41
DME Dime Bancorp, Inc. of NY* 23.62 103,719 2,449.8 23.62 14.25 21.94 7.66 134.79 60.14
DSL Downey Financial Corp. of CA 25.94 26,733 693.5 25.94 15.87 24.87 4.30 138.86 38.79
FED FirstFed Fin. Corp. of CA 36.56 10,575 386.6 37.50 20.50 36.37 0.52 126.38 66.18
GSB Glendale Fed. Bk, FSB of CA 33.37 50,349 1,680.1 33.94 17.50 32.00 4.28 105.35 43.53
GDW Golden West Fin. Corp. of CA 90.56 56,739 5,138.3 93.81 59.87 90.44 0.13 245.78 43.47
GPT GreenPoint Fin. Corp. of NY* 64.00 45,044 2,882.8 66.56 41.12 65.00 -1.54 N.A. 34.74
NYB New York Bancorp, Inc. of NY 35.06 21,591 757.0 35.37 16.44 30.50 14.95 394.50 81.00
WES Westcorp Inc. of Orange CA 22.12 26,195 579.4 23.87 13.25 23.19 -4.61 201.77 1.10
AMEX Traded Companies
---------------------
ANA Acadiana Bancshares of LA* 24.62 2,731 67.2 24.75 13.75 23.75 3.66 N.A. 65.57
BKC American Bank of Waterbury CT* 41.62 2,306 96.0 41.62 27.00 40.75 2.13 121.97 48.64
BFD BostonFed Bancorp of MA 21.75 5,947 129.3 22.25 13.12 21.37 1.78 N.A. 47.46
CFX CFX Corp of NH* 22.00 13,144 289.2 22.87 13.81 22.62 -2.74 84.87 41.94
CNY Carver Bancorp, Inc. of NY 12.75 2,314 29.5 13.37 7.37 12.87 -0.93 104.00 54.55
CBK Citizens First Fin.Corp. of IL 18.62 2,594 48.3 19.00 11.62 18.25 2.03 N.A. 29.58
ESX Essex Bancorp of VA(8) 4.31 1,057 4.6 7.94 1.00 4.62 -6.71 -74.27 96.80
FCB Falmouth Co-Op Bank of MA* 20.50 1,455 29.8 21.25 12.00 20.62 -0.58 N.A. 56.25
FAB FirstFed America Bancorp of MA 21.62 8,707 188.2 22.12 13.62 21.94 -1.46 N.A. N.A.
GAF GA Financial Corp. of PA 19.50 7,985 155.7 19.50 12.87 18.69 4.33 N.A. 28.97
JSB JSB Financial, Inc. of NY 48.75 9,845 479.9 49.44 35.62 49.31 -1.14 323.91 28.29
KNK Kankakee Bancorp of IL 33.75 1,425 48.1 33.75 21.88 32.62 3.46 237.50 36.36
KYF Kentucky First Bancorp of KY 14.06 1,319 18.5 15.12 10.56 14.25 -1.33 N.A. 29.35
MBB MSB Bancorp of Middletown NY* 27.44 2,844 78.0 28.87 15.50 27.75 -1.12 174.40 39.86
PDB Piedmont Bancorp of NC 10.87 2,751 29.9 19.12 9.25 11.12 -2.25 N.A. 3.52
SSB Scotland Bancorp of NC 12.00 1,914 23.0 19.25 12.00 12.69 -5.44 N.A. -15.01
SZB SouthFirst Bancshares of AL 20.87 848 17.7 20.87 12.25 20.37 2.45 N.A. 57.51
SRN Southern Banc Company of AL 17.00 1,230 20.9 17.37 12.25 16.25 4.62 N.A. 29.57
SSM Stone Street Bancorp of NC 21.00 1,898 39.9 27.25 18.12 21.00 0.00 N.A. 2.44
TSH Teche Holding Company of LA 22.62 3,438 77.8 23.50 13.00 22.25 1.66 N.A. 57.41
FTF Texarkana Fst. Fin. Corp of AR 26.81 1,790 48.0 26.81 13.62 24.37 10.01 N.A. 71.53
THR Three Rivers Fin. Corp. of MI 18.62 824 15.3 18.62 12.87 16.44 13.26 N.A. 33.00
TBK Tolland Bank of CT* 16.94 1,560 26.4 18.00 8.25 16.94 0.00 133.66 88.22
WSB Washington SB, FSB of MD 8.13 4,247 34.5 8.13 4.38 8.00 1.63 550.40 66.94
NASDAQ Listed OTC Companies
---------------------------
FBCV 1st Bancorp of Vincennes IN 37.00 698 25.8 41.00 27.14 37.00 0.00 N.A. 29.82
AFED AFSALA Bancorp, Inc. of NY 19.00 1,455 27.6 19.00 11.37 18.00 5.56 N.A. 58.33
ALBK ALBANK Fin. Corp. of Albany NY 45.00 12,825 577.1 45.87 27.50 44.37 1.42 93.55 43.45
AMFC AMB Financial Corp. of IN 16.50 964 15.9 16.50 12.50 15.81 4.36 N.A. 24.53
ASBP ASB Financial Corp. of OH 13.37 1,721 23.0 18.25 11.50 13.12 1.91 N.A. 2.85
ABBK Abington Savings Bank of MA* 32.50 1,852 60.2 33.00 18.25 32.00 1.56 390.94 66.67
AABC Access Anytime Bancorp of NM 8.50 1,193 10.1 8.50 5.25 8.37 1.55 25.93 54.55
AFBC Advance Fin. Bancorp of WV 17.75 1,084 19.2 17.75 12.75 17.12 3.68 N.A. N.A.
AADV Advantage Bancorp of WI 57.75 3,234 186.8 58.00 31.25 55.50 4.05 527.72 79.07
AFCB Affiliated Comm BC, Inc of MA 31.25 6,465 202.0 32.12 16.00 28.75 8.70 N.A. 82.75
ALBC Albion Banc Corp. of Albion NY 29.12 250 7.3 29.25 16.50 26.50 9.89 124.00 73.85
ABCL Allied Bancorp of IL 26.75 8,017 214.5 28.37 15.50 24.25 10.31 301.05 60.47
<CAPTION>
Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
Financial Institution EPS(3) EPS(3) Share Share(4) Share
--------------------- ------- ------- ----- -------- ------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
NYSE Traded Companies
---------------------
AHM Ahmanson and Co. H.F. of CA 1.98 3.16 20.35 17.34 488.33
CSA Coast Savings Financial of CA 0.99 2.48 24.06 23.76 488.97
CFB Commercial Federal Corp. of NE 2.05 2.89 19.77 17.53 329.27
DME Dime Bancorp, Inc. of NY* 1.05 1.33 10.21 9.74 193.67
DSL Downey Financial Corp. of CA 0.86 1.43 15.26 15.05 220.16
FED FirstFed Fin. Corp. of CA 1.13 2.07 19.14 18.93 396.52
GSB Glendale Fed. Bk, FSB of CA 0.79 1.85 17.81 15.83 322.12
GDW Golden West Fin. Corp. of CA 6.74 8.22 43.90 43.90 689.03
GPT GreenPoint Fin. Corp. of NY* 3.17 3.09 30.44 17.11 295.27
NYB New York Bancorp, Inc. of NY 1.98 2.32 7.73 7.73 152.08
WES Westcorp Inc. of Orange CA 1.11 0.55 12.71 12.67 140.42
AMEX Traded Companies
---------------------
ANA Acadiana Bancshares of LA* 0.47 0.47 16.70 16.70 95.82
BKC American Bank of Waterbury CT* 3.13 2.69 21.77 20.90 262.73
BFD BostonFed Bancorp of MA 0.74 0.96 14.42 13.94 164.10
CFX CFX Corp of NH* 1.10 1.31 10.52 9.84 141.44
CNY Carver Bancorp, Inc. of NY -0.74 0.01 14.93 14.32 178.81
CBK Citizens First Fin.Corp. of IL 0.30 0.59 14.74 14.74 104.69
ESX Essex Bancorp of VA(8) -0.05 0.05 0.49 0.31 179.83
FCB Falmouth Co-Op Bank of MA* 0.52 0.49 15.40 15.40 64.49
FAB FirstFed America Bancorp of MA -0.21 0.50 14.26 14.26 117.25
GAF GA Financial Corp. of PA 0.80 1.02 14.25 14.10 93.89
JSB JSB Financial, Inc. of NY 2.78 2.65 35.54 35.54 155.52
KNK Kankakee Bancorp of IL 1.62 2.02 26.59 24.99 239.77
KYF Kentucky First Bancorp of KY 0.58 0.75 11.17 11.17 67.44
MBB MSB Bancorp of Middletown NY* 0.49 0.51 21.15 10.38 286.18
PDB Piedmont Bancorp of NC -0.19 0.30 7.42 7.42 44.62
SSB Scotland Bancorp of NC 0.51 0.62 13.44 13.44 36.30
SZB SouthFirst Bancshares of AL -0.03 0.25 16.06 16.06 114.72
SRN Southern Banc Company of AL 0.12 0.43 14.58 14.43 85.72
SSM Stone Street Bancorp of NC 0.80 0.96 16.13 16.13 55.91
TSH Teche Holding Company of LA 0.78 1.08 15.53 15.53 118.17
FTF Texarkana Fst. Fin. Corp of AR 1.31 1.62 15.03 15.03 95.73
THR Three Rivers Fin. Corp. of MI 0.62 0.90 15.54 15.48 115.45
TBK Tolland Bank of CT* 1.11 1.16 10.60 10.30 152.71
WSB Washington SB, FSB of MD 0.30 0.44 5.05 5.05 60.83
NASDAQ Listed OTC Companies
---------------------------
FBCV 1st Bancorp of Vincennes IN 1.18 0.50 32.00 31.34 387.52
AFED AFSALA Bancorp, Inc. of NY 0.82 0.82 14.74 14.74 109.40
ALBK ALBANK Fin. Corp. of Albany NY 2.29 2.82 25.85 22.59 280.88
AMFC AMB Financial Corp. of IN 0.66 0.73 14.61 14.61 97.70
ASBP ASB Financial Corp. of OH 0.39 0.56 10.29 10.29 65.35
ABBK Abington Savings Bank of MA* 2.16 1.92 18.73 16.87 270.66
AABC Access Anytime Bancorp of NM -0.45 -0.11 6.53 6.53 87.72
AFBC Advance Fin. Bancorp of WV 0.51 0.77 14.88 14.88 96.46
AADV Advantage Bancorp of WI 1.27 2.81 29.05 27.16 315.25
AFCB Affiliated Comm BC, Inc of MA 1.53 1.74 16.49 16.40 168.67
ALBC Albion Banc Corp. of Albion NY 0.27 0.96 23.96 23.96 274.51
ABCL Allied Bancorp of IL 0.61 0.89 15.60 15.41 175.16
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit IV-1 (continued)
Weekly Thrift Market Line - Part One
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Market Capitalization Price Change Data
----------------------- -----------------------------------------------
Shares Market 52 Week (1) % Change From
--------------- ---------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
--------------------- ------- ------- -------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
---------------------------------------
ATSB AmTrust Capital Corp. of IN 14.25 526 7.5 14.25 9.12 13.50 5.56 N.A. 42.50
AHCI Ambanc Holding Co., Inc. of NY* 17.12 4,392 75.2 17.37 10.00 17.00 0.71 N.A. 52.18
ASBI Ameriana Bancorp of IN 21.88 3,230 70.7 22.00 14.00 20.50 6.73 137.05 36.75
AFFFZ America First Fin. Fund of CA(8) 42.62 6,011 256.2 43.12 28.00 42.62 0.00 127.31 40.89
ANBK American Nat'l Bancorp of MD(8) 20.12 3,613 72.7 20.50 11.37 20.12 0.00 N.A. 66.01
ABCW Anchor Bancorp Wisconsin of WI 31.75 9,049 287.3 31.75 17.25 30.00 5.83 116.13 77.67
ANDB Andover Bancorp, Inc. of MA* 36.37 5,148 187.2 37.50 21.41 36.50 -0.36 238.33 41.96
ASFC Astoria Financial Corp. of NY 56.50 20,978 1,185.3 56.50 32.25 55.87 1.13 115.24 53.24
AVND Avondale Fin. Corp. of IL 18.37 3,495 64.2 18.87 12.75 17.50 4.97 N.A. 7.30
BKCT Bancorp Connecticut of CT* 31.75 2,534 80.5 36.00 21.25 35.25 -9.93 262.86 41.11
BPLS Bank Plus Corp. of CA 13.31 19,308 257.0 13.75 9.62 13.44 -0.97 N.A. 15.74
BWFC Bank West Fin. Corp. of MI 21.25 1,753 37.3 21.25 10.25 20.87 1.82 N.A. 100.09
BANC BankAtlantic Bancorp of FL 15.25 22,473 342.7 17.12 12.12 15.50 -1.61 266.59 14.06
BKUNA BankUnited SA of FL 13.25 8,869 117.5 13.31 8.00 13.12 0.99 144.01 32.50
BVCC Bay View Capital Corp. of CA 28.62 12,979 371.5 28.69 17.62 28.37 0.88 44.91 35.06
FSNJ Bayonne Banchsares of NJ 12.81 8,993 115.2 13.06 5.37 12.87 -0.47 N.A. 63.39
BFSB Bedford Bancshares of VA 24.50 1,142 28.0 25.25 16.75 24.50 0.00 133.33 39.05
BFFC Big Foot Fin. Corp. of IL 19.50 2,513 49.0 19.62 12.31 18.62 4.73 N.A. 50.00
BSBC Branford SB of CT(8)* 5.75 6,559 37.7 6.31 3.19 6.00 -4.17 171.23 48.58
BYFC Broadway Fin. Corp. of CA 11.75 835 9.8 11.75 9.00 11.37 3.34 N.A. 27.03
CBES CBES Bancorp of MO 21.50 1,025 22.0 21.50 13.25 21.25 1.18 N.A. 50.88
CCFH CCF Holding Company of GA 19.50 820 16.0 19.50 13.12 17.12 13.90 N.A. 32.20
CENF CENFED Financial Corp. of CA 39.00 5,729 223.4 39.75 22.95 37.25 4.70 148.72 46.67
CFSB CFSB Bancorp of Lansing MI 29.69 5,096 151.3 31.00 16.36 28.75 3.27 229.89 67.46
CKFB CKF Bancorp of Danville KY 18.50 925 17.1 20.75 17.50 19.00 -2.63 N.A. -8.64
CNSB CNS Bancorp of MO 18.00 1,653 29.8 20.00 13.00 20.00 -10.00 N.A. 19.05
CSBF CSB Financial Group Inc of IL* 12.75 942 12.0 12.75 9.50 12.37 3.07 N.A. 25.99
CBCI Calumet Bancorp of Chicago IL 48.94 2,111 103.3 48.94 27.75 48.00 1.96 141.68 47.19
CAFI Camco Fin. Corp. of OH 22.87 3,214 73.5 22.87 14.05 22.50 1.64 N.A. 51.26
CMRN Cameron Fin. Corp. of MO 19.25 2,627 50.6 19.25 14.50 18.87 2.01 N.A. 20.31
CAPS Capital Savings Bancorp of MO 17.50 1,892 33.1 18.25 11.12 16.75 4.48 32.08 34.62
CFNC Carolina Fincorp of NC* 17.12 1,851 31.7 17.87 13.00 17.75 -3.55 N.A. 28.05
CASB Cascade SB of Everett WA(8) 13.75 2,570 35.3 16.80 10.40 13.25 3.77 7.42 6.59
CATB Catskill Fin. Corp. of NY* 16.50 4,720 77.9 17.25 12.37 16.87 -2.19 N.A. 17.86
CNIT Cenit Bancorp of Norfolk VA 65.00 1,650 107.3 67.87 38.50 67.25 -3.35 309.32 56.63
CEBK Central Co-Op. Bank of MA* 24.00 1,965 47.2 24.87 14.75 23.00 4.35 357.14 37.14
CENB Century Bancshares of NC* 80.75 407 32.9 82.12 62.00 80.00 0.94 N.A. 24.23
CBSB Charter Financial Inc. of IL 20.75 4,150 86.1 21.56 12.50 21.37 -2.90 N.A. 66.00
COFI Charter One Financial of OH 63.25 46,186 2,921.3 65.00 38.75 63.25 0.00 261.43 50.60
CVAL Chester Valley Bancorp of PA 23.25 2,162 50.3 23.25 13.90 23.25 0.00 105.21 64.89
CTZN CitFed Bancorp of Dayton OH 54.25 8,638 468.6 54.25 28.08 52.25 3.83 502.78 64.39
CLAS Classic Bancshares of KY 16.25 1,305 21.2 16.25 11.25 15.75 3.17 N.A. 39.85
CMSB Cmnwealth Bancorp of PA 19.00 17,096 324.8 19.50 11.75 18.37 3.43 N.A. 26.67
CBSA Coastal Bancorp of Houston TX 31.00 4,972 154.1 33.25 21.25 32.00 -3.13 N.A. 35.55
CFCP Coastal Fin. Corp. of SC 24.37 4,641 113.1 27.75 14.25 24.25 0.49 143.70 54.73
CMSV Commty. Svgs, MHC of FL (48.5) 38.00 5,090 93.9 39.25 16.75 36.50 4.11 N.A. 85.37
CFTP Community Fed. Bancorp of MS 17.50 4,629 81.0 20.00 13.50 17.50 0.00 N.A. 2.94
CFFC Community Fin. Corp. of VA 23.50 1,275 30.0 23.50 20.50 23.00 2.17 235.71 13.25
CFBC Community First Bnkg Co. of GA 39.25 2,414 94.7 40.00 31.87 40.00 -1.88 N.A. N.A.
CIBI Community Inv. Bancorp of OH 15.25 929 14.2 16.00 10.33 15.25 0.00 N.A. 34.60
COOP Cooperative Bk.for Svgs. of NC 15.50 2,983 46.2 17.00 9.25 16.87 -8.12 210.00 53.16
CRZY Crazy Woman Creek Bncorp of WY 15.12 955 14.4 15.12 11.25 15.12 0.00 N.A. 26.00
DNFC D&N Financial Corp. of MI 23.75 8,191 194.5 24.00 13.75 22.75 4.40 171.43 41.79
DCBI Delphos Citizens Bancorp of OH 17.75 2,039 36.2 18.00 11.75 17.75 0.00 N.A. 47.92
DIME Dime Community Bancorp of NY 22.50 13,093 294.6 23.12 13.25 22.00 2.27 N.A. 52.54
<CAPTION>
Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
Financial Institution EPS(3) EPS(3) Share Share(4) Share
- --------------------- -------- ------- ------- ------- --------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ----------------------------------------
ATSB AmTrust Capital Corp. of IN 0.25 0.41 14.19 14.05 137.35
AHCI Ambanc Holding Co., Inc. of NY* -0.64 -0.67 14.29 14.29 110.42
ASBI Ameriana Bancorp of IN 0.75 1.05 13.49 13.48 123.14
AFFFZ America First Fin. Fund of CA(8) 5.51 6.76 30.76 30.38 364.44
ANBK American Nat'l Bancorp of MD(8) 0.37 0.86 12.54 12.54 139.86
ABCW Anchor Bancorp Wisconsin of WI 1.55 2.00 13.24 13.00 212.83
ANDB Andover Bancorp, Inc. of MA* 2.57 2.65 19.59 19.59 243.00
ASFC Astoria Financial Corp. of NY 1.96 2.80 28.59 24.01 365.36
AVND Avondale Fin. Corp. of IL -0.85 -2.63 15.85 15.85 173.75
BKCT Bancorp Connecticut of CT* 2.15 2.03 17.32 17.32 169.05
BPLS Bank Plus Corp. of CA -0.46 0.04 9.27 9.26 183.03
BWFC Bank West Fin. Corp. of MI 0.53 0.47 12.89 12.89 88.80
BANC BankAtlantic Bancorp of FL 0.98 0.71 6.83 5.61 121.50
BKUNA BankUnited SA of FL 0.29 0.48 7.59 6.15 203.77
BVCC Bay View Capital Corp. of CA 0.97 1.58 15.12 12.69 238.56
FSNJ Bayonne Banchsares of NJ -0.24 -0.04 9.91 9.91 68.72
BFSB Bedford Bancshares of VA 1.14 1.46 16.80 16.80 118.61
BFFC Big Foot Fin. Corp. of IL 0.04 0.35 14.34 14.34 84.46
BSBC Branford SB of CT(8)* 0.32 0.32 2.64 2.64 28.44
BYFC Broadway Fin. Corp. of CA -0.19 0.29 14.65 14.65 146.40
CBES CBES Bancorp of MO 0.84 1.03 17.34 17.34 98.61
CCFH CCF Holding Company of GA 0.05 0.07 14.36 14.36 122.93
CENF CENFED Financial Corp. of CA 1.98 2.82 20.85 20.81 400.68
CFSB CFSB Bancorp of Lansing MI 1.37 1.73 12.65 12.65 165.90
CKFB CKF Bancorp of Danville KY 1.17 0.86 15.75 15.75 65.74
CNSB CNS Bancorp of MO 0.25 0.46 14.84 14.84 59.50
CSBF CSB Financial Group Inc of IL* 0.21 0.32 12.77 12.04 50.95
CBCI Calumet Bancorp of Chicago IL 2.72 3.45 36.46 36.46 235.23
CAFI Camco Fin. Corp. of OH 1.11 1.24 14.58 13.45 152.41
CMRN Cameron Fin. Corp. of MO 0.78 0.97 17.18 17.18 79.22
CAPS Capital Savings Bancorp of MO 0.82 1.15 11.28 11.28 128.18
CFNC Carolina Fincorp of NC* 0.68 0.65 13.75 13.75 60.24
CASB Cascade SB of Everett WA(8) 0.47 0.71 8.78 8.78 143.24
CATB Catskill Fin. Corp. of NY* 0.85 0.86 15.08 15.08 60.22
CNIT Cenit Bancorp of Norfolk VA 3.75 3.44 31.12 28.58 430.03
CEBK Central Co-Op. Bank of MA* 1.44 1.46 17.07 15.20 163.33
CENB Century Bancshares of NC* 4.33 4.36 74.45 74.45 247.27
CBSB Charter Financial Inc. of IL 1.05 1.47 13.71 12.13 94.76
COFI Charter One Financial of OH 2.98 3.73 21.15 19.80 315.35
CVAL Chester Valley Bancorp of PA 0.89 1.27 12.52 12.52 149.71
CTZN CitFed Bancorp of Dayton OH 1.94 2.73 22.83 20.57 358.59
CLAS Classic Bancshares of KY 0.45 0.63 14.84 12.52 100.81
CMSB Cmnwealth Bancorp of PA 0.69 0.88 12.89 10.08 133.89
CBSA Coastal Bancorp of Houston TX 1.45 2.52 19.85 16.50 596.15
CFCP Coastal Fin. Corp. of SC 0.95 1.04 6.68 6.68 108.33
CMSV Commty. Svgs, MHC of FL (48.5) 0.73 1.09 15.46 15.46 137.48
CFTP Community Fed. Bancorp of MS 0.59 0.72 12.40 12.40 45.16
CFFC Community Fin. Corp. of VA 1.32 1.67 18.86 18.86 137.58
CFBC Community First Bnkg Co. of GA 1.05 1.06 28.74 28.35 186.68
CIBI Community Inv. Bancorp of OH 0.63 0.96 11.96 11.96 99.36
COOP Cooperative Bk.for Svgs. of NC -0.90 0.22 9.02 9.02 118.15
CRZY Crazy Woman Creek Bncorp of WY 0.58 0.71 14.67 14.67 56.83
DNFC D&N Financial Corp. of MI 1.10 1.45 10.95 10.84 196.42
DCBI Delphos Citizens Bancorp of OH 0.72 0.72 14.93 14.93 52.56
DIME Dime Community Bancorp of NY 0.94 1.01 14.58 12.56 100.44
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700 Exhibit IV-1 (continued)
Weekly Thrift Market Line - Part One
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Market Capitalization Price Change Data
------------------------ -----------------------
Shares Market 52 Week (1) % Change From
--------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
---------------------- ------- ------- ------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
------------------------------------------
DIBK Dime Financial Corp. of CT* 31.25 5,147 160.8 31.75 16.50 30.50 2.46 197.62 81.16
EGLB Eagle BancGroup of IL 19.00 1,238 23.5 19.00 13.12 18.50 2.70 N.A. 27.77
EBSI Eagle Bancshares of Tucker GA 19.37 5,660 109.6 20.94 13.62 19.37 0.00 167.17 24.97
EGFC Eagle Financial Corp. of CT 40.25 6,279 252.7 40.25 26.50 39.50 1.90 360.00 31.97
ETFS East Texas Fin. Serv. of TX 21.37 1,025 21.9 21.37 14.75 20.50 4.24 N.A. 30.54
EMLD Emerald Financial Corp of OH 17.00 5,062 86.1 17.00 10.50 16.50 3.03 N.A. 51.11
EIRE Emerald Island Bancorp, MA* 25.00 2,246 56.2 25.87 12.40 25.50 -1.96 228.08 56.25
EFBC Empire Federal Bancorp of MT 18.00 2,592 46.7 18.25 12.50 18.00 0.00 N.A. N.A.
EFBI Enterprise Fed. Bancorp of OH 25.50 1,985 50.6 27.37 14.00 25.25 0.99 N.A. 75.86
EQSB Equitable FSB of Wheaton MD 43.75 602 26.3 43.75 26.25 42.50 2.94 N.A. 54.87
FCBF FCB Fin. Corp. of Neenah WI 27.50 4,073 112.0 28.13 18.25 27.50 0.00 N.A. 48.65
FFBS FFBS Bancorp of Columbus MS 23.00 1,557 35.8 26.00 21.00 21.25 8.24 N.A. 0.00
FFDF FFD Financial Corp. of OH 18.37 1,455 26.7 18.37 11.50 17.37 5.76 N.A. 38.64
FFLC FFLC Bancorp of Leesburg FL 34.12 2,301 78.5 34.12 18.25 30.75 10.96 N.A. 58.70
FFFC FFVA Financial Corp. of VA 33.00 4,521 149.2 34.75 17.75 33.62 -1.84 N.A. 60.98
FFWC FFW Corporation of Wabash IN 32.25 711 22.9 32.25 20.25 30.25 6.61 N.A. 47.39
FFYF FFY Financial Corp. of OH 27.62 4,145 114.5 28.25 24.00 27.87 -0.90 N.A. 9.13
FMCO FMS Financial Corp. of NJ 29.00 2,388 69.3 31.50 15.63 27.25 6.42 222.22 58.90
FFHH FSF Financial Corp. of MN 20.31 3,033 61.6 21.00 13.62 19.75 2.84 N.A. 34.33
FOBC Fed One Bancorp of Wheeling WV 25.87 2,373 61.4 27.00 15.37 26.00 -0.50 158.70 64.25
FBCI Fidelity Bancorp of Chicago IL 25.00 2,792 69.8 25.62 16.37 25.62 -2.42 N.A. 47.06
FSBI Fidelity Bancorp, Inc. of PA 23.50 1,550 36.4 23.50 16.82 22.25 5.62 204.01 29.26
FFFL Fidelity FSB, MHC of FL (47.7) 31.50 6,771 101.6 31.50 15.75 29.94 5.21 N.A. 77.46
FFED Fidelity Fed. Bancorp of IN 9.25 2,487 23.0 11.75 7.50 9.38 -1.39 31.21 -5.13
FFOH Fidelity Financial of OH 15.50 5,579 86.5 16.37 10.12 15.75 -1.59 N.A. 34.78
FIBC Financial Bancorp, Inc. of NY 22.50 1,722 38.7 23.94 14.00 22.75 -1.10 N.A. 50.00
FBSI First Bancshares of MO 25.50 1,096 27.9 25.50 15.00 23.00 10.87 100.00 53.43
FBBC First Bell Bancorp of PA 17.25 6,511 112.3 17.50 13.12 17.25 0.00 N.A. 30.19
FBER First Bergen Bancorp of NJ 17.87 3,000 53.6 19.50 11.00 18.75 -4.69 N.A. 55.39
SKBO First Carnegie,MHC of PA(45.0) 19.00 2,300 19.7 19.50 11.62 19.12 -0.63 N.A. N.A.
FSTC First Citizens Corp of GA 35.25 1,833 64.6 35.25 21.25 35.00 0.71 182.00 39.60
FCME First Coastal Corp. of ME* 14.37 1,359 19.5 15.75 6.62 14.25 0.84 N.A. 85.42
FFBA First Colorado Bancorp of Co 20.75 16,561 343.6 21.50 15.00 21.00 -1.19 528.79 22.06
FDEF First Defiance Fin.Corp. of OH 16.00 9,366 149.9 16.00 10.87 15.75 1.59 N.A. 29.35
FESX First Essex Bancorp of MA* 19.12 7,527 143.9 20.50 11.75 20.00 -4.40 218.67 45.73
FFES First FS&LA of E. Hartford CT 35.75 2,676 95.7 37.12 18.75 36.75 -2.72 450.00 55.43
FFSX First FS&LA. MHC of IA (46.1) 33.00 2,828 43.0 35.00 20.75 29.50 11.86 394.75 69.23
BDJI First Fed. Bancorp. of MN 23.75 683 16.2 23.75 16.00 22.00 7.95 N.A. 28.38
FFBH First Fed. Bancshares of AR 21.75 4,896 106.5 21.75 15.50 21.50 1.16 N.A. 37.05
FTFC First Fed. Capital Corp. of WI 28.00 9,141 255.9 29.00 15.00 28.50 -1.75 273.33 78.69
FFKY First Fed. Fin. Corp. of KY 21.25 4,170 88.6 23.00 17.75 21.00 1.19 34.92 4.94
FFBZ First Federal Bancorp of OH 18.75 1,572 29.5 20.50 13.25 20.50 -8.54 87.50 17.19
FFCH First Fin. Holdings Inc. of SC 38.00 6,357 241.6 39.25 19.50 38.50 -1.30 210.20 68.89
FFBI First Financial Bancorp of IL 19.50 415 8.1 19.50 15.50 19.50 0.00 N.A. 22.87
FFHC First Financial Corp. of WI(8) 35.50 36,209 1,285.4 36.87 20.40 35.25 0.71 125.40 44.90
FFHS First Franklin Corp. of OH 23.00 1,192 27.4 23.75 14.25 23.00 0.00 75.30 39.39
FGHC First Georgia Hold. Corp of GA 8.50 3,052 25.9 9.50 4.17 9.00 -5.56 121.93 49.91
FSPG First Home Bancorp of NJ 23.25 2,708 63.0 23.25 13.50 23.25 0.00 287.50 67.63
FFSL First Independence Corp. of KS 14.62 997 14.6 14.75 9.81 14.75 -0.88 N.A. 40.98
FISB First Indiana Corp. of IN 24.00 10,561 253.5 26.00 17.37 24.75 -3.03 77.78 12.15
FKFS First Keystone Fin. Corp of PA 32.75 1,228 40.2 33.25 18.25 32.25 1.55 N.A. 70.13
FLKY First Lancaster Bncshrs of KY 16.12 959 15.5 16.25 14.00 15.87 1.58 N.A. 10.26
FLFC First Liberty Fin. Corp. of GA 25.25 7,725 195.1 25.50 16.50 25.25 0.00 397.05 37.45
CASH First Midwest Fin. Corp. of IA 19.87 2,734 54.3 20.75 15.00 19.87 0.00 N.A. 29.62
FMBD First Mutual Bancorp of IL 19.50 3,507 68.4 19.75 13.50 19.00 2.63 N.A. 30.00
<CAPTION> Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
Financial Institution EPS(3) EPS(3) Share Share(4) Share
--------------------- -------- ------- ------- ------- -------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
---------------------------------------
DIBK Dime Financial Corp. of CT* 2.82 2.83 13.52 13.08 169.78
EGLB Eagle BancGroup of IL -0.12 0.27 16.69 16.69 140.80
EBSI Eagle Bancshares of Tucker GA 0.64 0.87 12.45 12.45 149.91
EGFC Eagle Financial Corp. of CT 0.19 1.08 22.02 17.19 320.65
ETFS East Texas Fin. Serv. of TX 0.34 0.70 19.97 19.97 109.95
EMLD Emerald Financial Corp of OH 0.81 1.00 9.03 8.89 119.14
EIRE Emerald Island Bancorp, MA* 1.52 1.60 13.39 13.39 189.23
EFBC Empire Federal Bancorp of MT 0.35 0.46 14.76 14.76 42.30
EFBI Enterprise Fed. Bancorp of OH 0.82 0.92 15.94 15.92 129.32
EQSB Equitable FSB of Wheaton MD 2.20 3.51 25.80 25.80 511.96
FCBF FCB Fin. Corp. of Neenah WI 0.60 0.71 11.65 11.65 66.58
FFBS FFBS Bancorp of Columbus MS 0.95 1.20 16.15 16.15 83.98
FFDF FFD Financial Corp. of OH 0.98 0.55 14.76 14.76 60.48
FFLC FFLC Bancorp of Leesburg FL 1.07 1.54 22.68 22.68 168.23
FFFC FFVA Financial Corp. of VA 1.32 1.60 16.29 15.95 123.62
FFWC FFW Corporation of Wabash IN 1.89 2.36 24.11 21.72 253.24
FFYF FFY Financial Corp. of OH 1.28 1.82 19.82 19.82 144.57
FMCO FMS Financial Corp. of NJ 1.56 2.29 15.24 14.97 232.38
FFHH FSF Financial Corp. of MN 0.78 0.99 14.16 14.16 124.71
FOBC Fed One Bancorp of Wheeling WV 0.99 1.41 16.63 15.86 150.32
FBCI Fidelity Bancorp of Chicago IL 0.95 1.33 18.22 18.18 175.45
FSBI Fidelity Bancorp, Inc. of PA 1.08 1.72 15.83 15.83 234.39
FFFL Fidelity FSB, MHC of FL (47.7) 0.50 0.79 12.36 12.27 147.58
FFED Fidelity Fed. Bancorp of IN 0.05 0.31 5.20 5.20 96.50
FFOH Fidelity Financial of OH 0.51 0.75 12.17 10.74 94.06
FIBC Financial Bancorp, Inc. of NY 0.87 1.55 15.35 15.28 164.04
FBSI First Bancshares of MO 1.29 1.56 20.26 20.23 149.61
FBBC First Bell Bancorp of PA 1.06 1.23 10.78 10.78 109.72
FBER First Bergen Bancorp of NJ 0.38 0.66 13.47 13.47 94.92
SKBO First Carnegie,MHC of PA(45.0) 0.33 0.33 10.52 10.52 63.97
FSTC First Citizens Corp of GA 1.45 1.43 16.26 12.20 178.05
FCME First Coastal Corp. of ME* 4.50 4.36 10.35 10.35 112.13
FFBA First Colorado Bancorp of Co 0.78 0.77 11.76 11.60 91.17
FDEF First Defiance Fin.Corp. of OH 0.43 0.59 12.57 12.57 58.96
FESX First Essex Bancorp of MA* 1.32 1.15 11.54 10.02 165.46
FFES First FS&LA of E. Hartford CT 1.52 2.50 23.63 23.63 367.56
FFSX First FS&LA. MHC of IA (46.1) 0.69 1.19 13.74 13.63 165.69
BDJI First Fed. Bancorp. of MN 0.47 1.00 17.60 17.60 161.92
FFBH First Fed. Bancshares of AR 0.81 1.11 16.36 16.36 109.31
FTFC First Fed. Capital Corp. of WI 1.18 1.37 10.64 9.97 167.40
FFKY First Fed. Fin. Corp. of KY 1.14 1.36 12.39 11.66 90.50
FFBZ First Federal Bancorp of OH 0.88 1.23 9.66 9.65 128.03
FFCH First Fin. Holdings Inc. of SC 1.43 2.10 16.03 16.03 262.26
FFBI First Financial Bancorp of IL -0.85 0.94 17.63 17.63 203.69
FFHC First Financial Corp. of WI(8) 1.51 2.03 11.67 11.37 163.81
FFHS First Franklin Corp. of OH 0.36 1.21 17.17 17.06 190.39
FGHC First Georgia Hold. Corp of GA 0.32 0.25 4.21 3.86 51.24
FSPG First Home Bancorp of NJ 1.64 2.14 12.85 12.64 192.91
FFSL First Independence Corp. of KS 0.47 0.75 11.60 11.60 111.21
FISB First Indiana Corp. of IN 1.17 1.43 13.77 13.60 144.00
FKFS First Keystone Fin. Corp of PA 1.35 1.93 19.09 19.09 261.24
FLKY First Lancaster Bncshrs of KY 0.47 0.57 14.71 14.71 44.64
FLFC First Liberty Fin. Corp. of GA 1.32 1.08 12.30 11.09 166.85
CASH First Midwest Fin. Corp. of IA 1.00 1.27 15.62 13.84 137.10
FMBD First Mutual Bancorp of IL 0.10 0.32 15.30 11.59 119.10
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit IV-1 (continued)
Weekly Thrift Market Line - Part One
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Market Capitalization Price Change Data
--------------------- ----------------------------------------
Shares Market 52 Week (1) % Change From
------------ ----------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
- --------------------- ------- ------ --------- -------- ------ ------ ----- ------ ------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
FMSB First Mutual SB of Bellevue WA* 29.50 2,702 79.7 29.50 12.73 27.25 8.26 280.65 85.42
FNGB First Northern Cap. Corp of WI 13.00 8,834 114.8 14.00 8.00 13.62 -4.55 79.06 59.90
FFPB First Palm Beach Bancorp of FL 40.25 5,031 202.5 40.56 22.75 39.37 2.24 N.A. 70.41
FSLA First SB SLA MHC of NJ (47.5) 44.50 7,990 151.5 44.50 14.05 36.00 23.61 345.00 164.57
SOPN First SB, SSB, Moore Co. of NC 23.94 3,679 88.1 25.00 17.50 24.50 -2.29 N.A. 27.68
FWWB First Savings Bancorp of WA* 26.25 10,519 276.1 26.25 16.56 24.75 6.06 N.A. 42.90
SHEN First Shenango Bancorp of PA 32.50 2,072 67.3 33.37 20.50 32.87 -1.13 N.A. 44.44
FSFC First So.east Fin. Corp. of SC(8) 16.00 4,388 70.2 16.75 9.25 16.25 -1.54 N.A. 70.58
FBNW FirstBank Corp of Clarkston WA 17.12 1,984 34.0 19.00 15.50 17.00 0.71 N.A. N.A.
FFDB FirstFed Bancorp of AL 19.75 1,148 22.7 19.75 12.50 17.75 11.27 N.A. 58.00
FSPT FirstSpartan Fin. Corp. of SC 38.50 4,430 170.6 39.00 35.00 38.75 -0.65 N.A. N.A.
FLAG Flag Financial Corp of GA 17.50 2,037 35.6 18.00 10.25 16.75 4.48 78.57 62.79
FLGS Flagstar Bancorp, Inc of MI 19.50 13,670 266.6 21.50 13.00 20.50 -4.88 N.A. N.A.
FFIC Flushing Fin. Corp. of NY* 23.06 7,979 184.0 24.00 17.37 23.00 0.26 N.A. 27.26
FBHC Fort Bend Holding Corp. of TX 23.00 1,654 38.0 24.00 9.38 22.50 2.22 N.A. 80.39
FTSB Fort Thomas Fin. Corp. of KY 14.37 1,495 21.5 14.75 9.25 14.00 2.64 N.A. -1.71
FKKY Frankfort First Bancorp of KY 10.25 3,280 33.6 12.25 8.00 10.00 2.50 N.A. -9.85
FTNB Fulton Bancorp of MO 23.00 1,719 39.5 26.50 12.50 22.50 2.22 N.A. 49.64
GFSB GFS Bancorp of Grinnell IA 16.44 988 16.2 16.44 10.12 14.75 11.46 N.A. 54.80
GUPB GFSB Bancorp of Gallup NM 21.88 801 17.5 22.00 13.75 21.75 0.60 N.A. 37.87
GSLA GS Financial Corp. of LA 17.00 3,438 58.4 17.00 13.37 16.37 3.85 N.A. N.A.
GOSB GSB Financial Corp. of NY 15.50 2,248 34.8 16.75 14.25 16.25 -4.62 N.A. N.A.
GWBC Gateway Bancorp of KY(8) 19.00 1,076 20.4 19.00 13.75 18.00 5.56 N.A. 33.33
GBCI Glacier Bancorp of MT 22.00 6,812 149.9 22.50 15.33 19.37 13.58 355.49 34.72
GFCO Glenway Financial Corp. of OH 32.00 1,140 36.5 32.00 18.25 30.25 5.79 N.A. 56.10
GTPS Great American Bancorp of IL 19.00 1,760 33.4 19.50 13.87 18.50 2.70 N.A. 28.29
GTFN Great Financial Corp. of KY(8) 43.75 13,791 603.4 43.75 28.25 43.00 1.74 N.A. 50.24
GSBC Great Southern Bancorp of MO 21.50 8,105 174.3 21.50 15.21 19.75 8.86 636.30 20.72
GDVS Greater DV SB,MHC of PA (19.9)* 30.12 3,272 19.6 30.12 9.25 24.25 24.21 N.A. 190.45
GSFC Green Street Fin. Corp. of NC 20.12 4,298 86.5 20.75 14.87 20.25 -0.64 N.A. 29.81
GFED Guarnty FS&LA,MHC of MO (31.0)(8) 26.75 3,125 25.9 27.87 10.50 24.75 8.08 N.A. 121.81
HCBB HCB Bancshares of AR 13.87 2,645 36.7 14.12 12.62 13.62 1.84 N.A. N.A.
HEMT HF Bancorp of Hemet CA 16.50 6,282 103.7 17.12 10.50 17.12 -3.62 N.A. 48.38
HFFC HF Financial Corp. of SD 25.87 2,979 77.1 27.00 15.00 26.50 -2.38 417.40 49.45
HFNC HFNC Financial Corp. of NC 16.62 17,192 285.7 22.06 14.87 15.87 4.73 N.A. -6.99
HMNF HMN Financial, Inc. of MN 25.25 4,212 106.4 25.75 17.00 25.50 -0.98 N.A. 39.35
HALL Hallmark Capital Corp. of WI 29.25 1,443 42.2 29.25 17.00 27.00 8.33 N.A. 64.79
HARB Harbor FSB, MHC of FL (46.6)(8) 65.75 4,970 152.3 65.75 29.50 55.87 17.68 N.A. 83.92
HRBF Harbor Federal Bancorp of MD 23.00 1,693 38.9 23.50 15.00 23.50 -2.13 130.00 46.03
HFSA Hardin Bancorp of Hardin MO 18.06 859 15.5 18.50 12.00 18.12 -0.33 N.A. 44.48
HARL Harleysville SA of PA 26.12 1,652 43.2 28.00 14.00 26.12 0.00 47.15 65.32
HFGI Harrington Fin. Group of IN 13.25 3,257 43.2 13.50 9.75 13.50 -1.85 N.A. 23.26
HARS Harris SB, MHC of PA (24.3) 53.50 11,223 145.7 53.50 15.00 47.06 13.68 N.A. 193.15
HFFB Harrodsburg 1st Fin Bcrp of KY 16.12 2,025 32.6 19.00 14.75 16.12 0.00 N.A. -14.57
HHFC Harvest Home Fin. Corp. of OH 13.00 915 11.9 13.00 9.25 12.75 1.96 N.A. 33.33
HAVN Haven Bancorp of Woodhaven NY 44.75 4,377 195.9 44.75 26.62 43.00 4.07 N.A. 56.36
HTHR Hawthorne Fin. Corp. of CA 20.00 3,035 60.7 20.00 6.62 19.00 5.26 -27.27 146.00
HMLK Hemlock Fed. Fin. Corp. of IL 17.37 2,076 36.1 17.37 12.50 16.50 5.27 N.A. N.A.
HBNK Highland Federal Bank of CA 31.50 2,300 72.5 31.50 14.75 31.00 1.61 N.A. 85.29
HIFS Hingham Inst. for Sav. of MA* 29.00 1,303 37.8 29.00 15.50 27.75 4.50 535.96 54.67
HBEI Home Bancorp of Elgin IL 18.06 6,856 123.8 19.31 12.25 17.75 1.75 N.A. 33.78
HBFW Home Bancorp of Fort Wayne IN 24.25 2,525 61.2 24.75 16.75 24.50 -1.02 N.A. 27.63
HBBI Home Building Bancorp of IN 23.25 312 7.3 23.25 17.00 22.00 5.68 N.A. 17.72
HCFC Home City Fin. Corp. of OH 16.00 952 15.2 16.25 12.00 15.75 1.59 N.A. 20.75
HOMF Home Fed Bancorp of Seymour IN 32.50 3,396 110.4 34.25 19.83 33.00 -1.52 223.38 26.21
<CAPTION>
Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
Financial Institution EPS(3) EPS(3) Share Share(4) Share
- --------------------- ------ ----- ----- ------- ------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
FMSB First Mutual SB of Bellevue WA* 1.56 1.52 10.91 10.91 159.89
FNGB First Northern Cap. Corp of WI 0.44 0.63 8.14 8.14 72.19
FFPB First Palm Beach Bancorp of FL -0.09 0.08 21.76 21.23 331.23
FSLA First SB SLA MHC of NJ (47.5) 0.72 1.14 12.18 10.86 129.26
SOPN First SB, SSB, Moore Co. of NC 1.06 1.27 18.26 18.26 79.97
FWWB First Savings Bancorp of WA* 0.89 0.84 14.13 13.00 95.79
SHEN First Shenango Bancorp of PA 1.69 2.20 21.75 21.75 198.56
FSFC First So.east Fin. Corp. of SC(8) 0.53 0.80 7.99 7.99 79.43
FBNW FirstBank Corp of Clarkston WA 0.54 0.44 14.00 14.00 77.62
FFDB FirstFed Bancorp of AL 0.95 1.45 14.48 13.20 153.77
FSPT FirstSpartan Fin. Corp. of SC 1.00 1.16 27.63 27.63 104.97
FLAG Flag Financial Corp of GA -0.03 0.17 10.44 10.44 108.95
FLGS Flagstar Bancorp, Inc of MI 0.00 0.00 6.07 6.07 111.13
FFIC Flushing Fin. Corp. of NY* 0.93 0.97 16.68 16.68 107.79
FBHC Fort Bend Holding Corp. of TX 0.37 0.86 11.62 10.82 192.67
FTSB Fort Thomas Fin. Corp. of KY 0.33 0.50 10.40 10.40 64.84
FKKY Frankfort First Bancorp of KY -0.11 0.22 6.81 6.81 40.26
FTNB Fulton Bancorp of MO 0.51 0.61 14.69 14.69 58.50
GFSB GFS Bancorp of Grinnell IA 0.88 1.08 10.66 10.66 93.18
GUPB GFSB Bancorp of Gallup NM 0.79 1.00 17.41 17.41 117.09
GSLA GS Financial Corp. of LA 0.34 0.34 16.36 16.36 35.85
GOSB GSB Financial Corp. of NY 0.52 0.44 13.78 13.78 50.92
GWBC Gateway Bancorp of KY(8) 0.52 0.72 16.04 16.04 59.32
GBCI Glacier Bancorp of MT 1.10 1.23 8.12 7.90 83.33
GFCO Glenway Financial Corp. of OH 1.06 1.78 23.89 23.57 251.83
GTPS Great American Bancorp of IL 0.19 0.24 16.68 16.68 77.83
GTFN Great Financial Corp. of KY(8) 1.59 1.51 20.40 19.53 220.89
GSBC Great Southern Bancorp of MO 1.15 1.30 7.45 7.45 87.33
GDVS Greater DV SB,MHC of PA (19.9)* 0.23 0.42 8.64 8.64 74.69
GSFC Green Street Fin. Corp. of NC 0.56 0.68 14.73 14.73 40.62
GFED Guarnty FS&LA,MHC of MO (31.0)(8) 0.37 0.56 8.80 8.80 63.83
HCBB HCB Bancshares of AR 0.09 0.10 14.27 13.73 75.75
HEMT HF Bancorp of Hemet CA -0.40 -2.74 12.87 10.53 156.71
HFFC HF Financial Corp. of SD 1.23 1.67 17.78 17.78 188.54
HFNC HFNC Financial Corp. of NC 0.43 0.59 9.37 9.37 52.08
HMNF HMN Financial, Inc. of MN 0.94 1.17 19.42 19.42 134.58
HALL Hallmark Capital Corp. of WI 1.33 1.68 20.56 20.56 284.01
HARB Harbor FSB, MHC of FL (46.6)(8) 2.05 2.64 18.85 18.23 224.69
HRBF Harbor Federal Bancorp of MD 0.58 0.90 16.48 16.48 127.80
HFSA Hardin Bancorp of Hardin MO 0.58 0.89 15.69 15.69 125.75
HARL Harleysville SA of PA 1.46 2.00 13.31 13.31 203.79
HFGI Harrington Fin. Group of IN 0.61 0.51 7.67 7.67 137.18
HARS Harris SB, MHC of PA (24.3) 0.79 0.99 14.59 12.76 182.15
HFFB Harrodsburg 1st Fin Bcrp of KY 0.55 0.73 14.49 14.49 53.80
HHFC Harvest Home Fin. Corp. of OH 0.23 0.50 11.35 11.35 90.82
HAVN Haven Bancorp of Woodhaven NY 2.09 3.11 24.20 24.12 407.02
HTHR Hawthorne Fin. Corp. of CA 0.64 1.38 13.07 13.07 284.38
HMLK Hemlock Fed. Fin. Corp. of IL 0.10 0.55 14.88 14.88 79.26
HBNK Highland Federal Bank of CA 0.96 1.41 16.39 16.39 219.30
HIFS Hingham Inst. for Sav. of MA* 1.86 1.86 15.62 15.62 166.99
HBEI Home Bancorp of Elgin IL 0.25 0.43 13.73 13.73 51.43
HBFW Home Bancorp of Fort Wayne IN 0.72 1.15 17.62 17.62 132.62
HBBI Home Building Bancorp of IN 0.29 0.74 18.51 18.51 144.44
HCFC Home City Fin. Corp. of OH 0.61 0.80 15.00 15.00 73.49
HOMF Home Fed Bancorp of Seymour IN 2.02 2.35 17.05 16.53 201.06
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700 Exhibit IV-1 (continued)
Weekly Thrift Market Line - Part One
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Market Capitalization Price Change Data
---------------------------- -------------------------------------------------
Shares Market 52 Week (1) % Change From
---------------- -------------------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
- --------------------- ---------- ------ ---------- --------- ------ ------ ------ ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
HWEN Home Financial Bancorp of IN 17.00 470 8.0 17.25 12.00 16.75 1.49 N.A. 33.33
HPBC Home Port Bancorp, Inc. of MA* 24.50 1,842 45.1 24.50 15.75 24.12 1.58 206.25 48.48
HMCI Homecorp, Inc. of Rockford IL 19.25 1,693 32.6 19.25 11.83 17.50 10.00 92.50 50.98
HZFS Horizon Fin'l. Services of IA 26.00 426 11.1 26.00 14.50 20.00 30.00 N.A. 71.96
HRZB Horizon Financial Corp. of WA* 17.50 7,417 129.8 17.50 10.65 17.00 2.94 53.24 49.06
IBSF IBS Financial Corp. of NJ 17.87 11,012 196.8 18.75 12.94 17.12 4.38 N.A. 31.49
ISBF ISB Financial Corp. of LA 26.75 6,901 184.6 27.75 15.63 26.87 -0.45 N.A. 48.61
ITLA Imperial Thrift & Loan of CA* 20.62 7,836 161.6 21.12 14.00 20.75 -0.63 N.A. 37.47
IFSB Independence FSB of DC 15.00 1,281 19.2 15.00 7.00 14.50 3.45 650.00 87.50
INCB Indiana Comm. Bank, SB of IN 15.00 922 13.8 19.00 14.50 15.25 -1.64 N.A. -7.69
INBI Industrial Bancorp of OH 18.00 5,277 95.0 18.00 12.00 17.50 2.86 N.A. 41.18
IWBK Interwest SB of Oak Harbor WA 40.50 8,036 325.5 43.25 27.62 40.31 0.47 305.00 25.58
IPSW Ipswich SB of Ipswich MA* 13.50 2,376 32.1 14.12 4.87 12.75 5.88 N.A. 125.00
JXVL Jacksonville Bancorp of TX 18.94 2,490 47.2 19.00 12.62 18.25 3.78 N.A. 29.55
JXSB Jcksnville SB,MHC of IL (45.6) 22.50 1,272 13.1 23.25 11.50 22.00 2.27 N.A. 69.81
JSBA Jefferson Svgs Bancorp of MO 42.00 5,005 210.2 43.00 22.25 40.87 2.76 N.A. 61.54
JOAC Joachim Bancorp of MO 15.63 722 11.3 15.63 14.00 15.00 4.20 N.A. 7.79
KSAV KS Bancorp of Kenly NC 20.50 885 18.1 20.50 14.06 18.75 9.33 N.A. 37.49
KSBK KSB Bancorp of Kingfield ME(8)* 14.00 1,238 17.3 16.00 7.08 13.12 6.71 N.A. 82.53
KFBI Klamath First Bancorp of OR 23.00 10,019 230.4 24.25 13.94 24.25 -5.15 N.A. 46.03
LSBI LSB Fin. Corp. of Lafayette IN 26.75 932 24.9 26.75 16.43 26.00 2.88 N.A. 44.05
LVSB Lakeview SB of Paterson NJ 43.25 2,302 99.6 44.50 21.48 42.75 1.17 N.A. 73.90
LARK Landmark Bancshares of KS 26.50 1,711 45.3 27.25 16.00 25.25 4.95 N.A. 47.22
LARL Laurel Capital Group of PA 25.00 1,443 36.1 25.00 15.00 24.87 0.52 95.31 51.52
LSBX Lawrence Savings Bank of MA* 15.81 4,274 67.6 15.81 6.75 13.00 21.62 359.59 94.46
LFED Leeds FSB, MHC of MD (36.3) 31.25 3,455 39.2 32.25 13.50 30.50 2.46 N.A. 95.31
LXMO Lexington B&L Fin. Corp. of MO 16.75 1,138 19.1 16.75 11.50 16.50 1.52 N.A. 24.07
LIFB Life Bancorp of Norfolk VA 24.94 9,847 245.6 26.62 16.75 26.25 -4.99 N.A. 38.56
LFBI Little Falls Bancorp of NJ 18.50 2,745 50.8 18.75 11.50 18.50 0.00 N.A. 45.10
LOGN Logansport Fin. Corp. of IN 16.00 1,260 20.2 16.00 11.12 15.75 1.59 N.A. 42.22
LONF London Financial Corp. of OH 18.00 515 9.3 18.00 11.25 16.00 12.50 N.A. 27.48
LISB Long Island Bancorp, Inc of NY 46.56 23,968 1,116.0 47.50 28.25 45.75 1.77 N.A. 33.03
MAFB MAF Bancorp of IL 33.00 15,393 508.0 34.75 17.50 33.25 -0.75 288.24 42.43
MBLF MBLA Financial Corp. of MO 26.25 1,298 34.1 27.00 19.00 26.25 0.00 N.A. 38.16
MFBC MFB Corp. of Mishawaka IN 23.75 1,690 40.1 23.75 15.50 23.75 0.00 N.A. 42.90
MLBC ML Bancorp of Villanova PA(8) 29.00 11,293 327.5 29.00 13.75 28.25 2.65 N.A. 105.38
MSBF MSB Financial Corp. of MI 16.00 1,249 20.0 18.00 9.12 17.25 -7.25 N.A. 68.42
MGNL Magna Bancorp of MS(8) 31.50 13,754 433.3 32.31 16.75 30.00 5.00 530.00 80.00
MARN Marion Capital Holdings of IN 26.87 1,768 47.5 28.00 19.25 26.25 2.36 N.A. 39.58
MRKF Market Fin. Corp. of OH 14.75 1,336 19.7 15.25 12.25 14.75 0.00 N.A. N.A.
MFCX Marshalltown Fin. Corp. of IA(8) 17.06 1,411 24.1 17.25 14.25 17.00 0.35 N.A. 14.73
MFSL Maryland Fed. Bancorp of MD 47.62 3,210 152.9 50.50 30.71 46.50 2.41 353.52 37.04
MASB MassBank Corp. of Reading MA* 47.50 3,575 169.8 47.75 24.84 46.00 3.26 381.74 66.14
MFLR Mayflower Co-Op. Bank of MA* 21.00 890 18.7 21.00 14.75 20.00 5.00 320.00 23.53
MECH Mechanics SB of Hartford CT* 25.87 5,290 136.9 27.25 15.37 25.62 0.98 N.A. 64.25
MDBK Medford Bank of Medford, MA* 36.12 4,541 164.0 36.50 24.00 35.50 1.75 416.00 40.27
MERI Meritrust FSB of Thibodaux LA 47.25 774 36.6 48.00 30.75 48.00 -1.56 N.A. 49.43
MWBX MetroWest Bank of MA* 8.37 13,953 116.8 9.00 4.00 8.25 1.45 103.16 55.87
MCBS Mid Continent Bancshares of KS(8) 41.50 1,958 81.3 41.50 18.75 40.00 3.75 N.A. 77.58
MIFC Mid Iowa Financial Corp. of IA 10.50 1,676 17.6 10.50 6.00 10.12 3.75 110.00 64.84
MCBN Mid-Coast Bancorp of ME 26.50 233 6.2 27.00 18.00 27.00 -1.85 364.10 39.47
MWBI Midwest Bancshares, Inc. of IA 42.50 348 14.8 42.50 25.50 41.00 3.66 325.00 60.38
MWFD Midwest Fed. Fin. Corp of WI 24.75 1,628 40.3 26.50 16.75 26.00 -4.81 395.00 33.78
MFFC Milton Fed. Fin. Corp. of OH 15.00 2,310 34.7 16.00 12.75 14.50 3.45 N.A. 3.45
MIVI Miss. View Hold. Co. of MN 18.50 819 15.2 18.50 11.75 18.25 1.37 N.A. 54.17
<CAPTION>
Current Per Share Financials
------------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
Financial Institution EPS(3) EPS(3) Share Share(4) Share
- ---------------------- ---------- ------- ------- -------- -------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
HWEN Home Financial Bancorp of IN 0.54 0.68 15.31 15.31 90.44
HPBC Home Port Bancorp, Inc. of MA* 1.72 1.71 11.39 11.39 107.90
HMCI Homecorp, Inc. of Rockford IL 0.27 0.85 12.81 12.81 195.87
HZFS Horizon Fin'l. Services of IA 0.65 1.04 19.75 19.75 201.81
HRZB Horizon Financial Corp. of WA* 1.07 1.05 10.91 10.91 69.93
IBSF IBS Financial Corp. of NJ 0.33 0.58 11.59 11.59 66.59
ISBF ISB Financial Corp. of LA 0.77 1.04 16.58 14.06 136.06
ITLA Imperial Thrift & Loan of CA* 1.45 1.45 11.92 11.87 108.50
IFSB Independence FSB of DC 0.29 0.66 13.38 11.73 205.12
INCB Indiana Comm. Bank, SB of IN 0.19 0.53 12.37 12.37 101.63
INBI Industrial Bancorp of OH 0.45 0.88 11.63 11.63 65.68
IWBK Interwest SB of Oak Harbor WA 1.82 2.47 15.46 15.12 228.05
IPSW Ipswich SB of Ipswich MA* 0.84 0.66 4.55 4.55 79.70
JXVL Jacksonville Bancorp of TX 0.90 1.18 13.55 13.55 90.84
JXSB Jcksnville SB,MHC of IL (45.6) 0.36 0.79 13.43 13.43 127.94
JSBA Jefferson Svgs Bancorp of MO 0.69 1.63 21.24 16.18 259.13
JOAC Joachim Bancorp of MO 0.23 0.38 13.63 13.63 48.39
KSAV KS Bancorp of Kenly NC 1.08 1.40 16.22 16.21 119.91
KSBK KSB Bancorp of Kingfield ME(8)* 1.04 1.08 8.10 7.62 113.08
KFBI Klamath First Bancorp of OR 0.55 0.83 14.20 14.20 72.65
LSBI LSB Fin. Corp. of Lafayette IN 1.51 1.33 18.44 18.44 208.28
LVSB Lakeview SB of Paterson NJ 2.78 1.93 19.91 15.92 209.23
LARK Landmark Bancshares of KS 1.13 1.33 18.38 18.38 133.31
LARL Laurel Capital Group of PA 1.61 2.03 14.73 14.73 146.91
LSBX Lawrence Savings Bank of MA* 1.40 1.38 7.45 7.45 85.71
LFED Leeds FSB, MHC of MD (36.3) 0.68 0.95 13.53 13.53 83.07
LXMO Lexington B&L Fin. Corp. of MO 0.55 0.71 14.74 14.74 52.05
LIFB Life Bancorp of Norfolk VA 1.01 1.23 15.94 15.49 151.14
LFBI Little Falls Bancorp of NJ 0.29 0.51 14.51 13.40 109.29
LOGN Logansport Fin. Corp. of IN 0.74 0.96 12.67 12.67 65.99
LONF London Financial Corp. of OH 0.48 0.73 14.60 14.60 74.25
LISB Long Island Bancorp, Inc of NY 1.44 1.67 22.17 21.95 246.53
MAFB MAF Bancorp of IL 1.84 2.43 16.79 14.67 215.78
MBLF MBLA Financial Corp. of MO 1.11 1.42 21.98 21.98 180.91
MFBC MFB Corp. of Mishawaka IN 0.77 1.16 20.05 20.05 146.89
MLBC ML Bancorp of Villanova PA(8) 1.27 1.15 12.70 12.48 183.32
MSBF MSB Financial Corp. of MI 0.65 0.80 10.16 10.16 59.81
MGNL Magna Bancorp of MS(8) 1.35 1.49 10.06 9.79 98.39
MARN Marion Capital Holdings of IN 1.38 1.65 22.10 22.10 98.02
MRKF Market Fin. Corp. of OH 0.32 0.32 14.82 14.82 42.35
MFCX Marshalltown Fin. Corp. of IA(8) 0.30 0.65 14.23 14.23 90.38
MFSL Maryland Fed. Bancorp of MD 2.17 3.14 30.22 29.84 360.57
MASB MassBank Corp. of Reading MA* 2.73 2.59 26.94 26.94 253.26
MFLR Mayflower Co-Op. Bank of MA* 1.39 1.31 13.67 13.44 141.20
MECH Mechanics SB of Hartford CT* 2.76 2.76 15.93 15.93 155.69
MDBK Medford Bank of Medford, MA* 2.45 2.29 21.24 19.79 236.19
MERI Meritrust FSB of Thibodaux LA 1.99 3.10 24.22 24.22 295.20
MWBX MetroWest Bank of MA* 0.52 0.52 3.02 3.02 40.60
MCBS Mid Continent Bancshares of KS(8) 1.87 2.12 19.59 19.59 208.68
MIFC Mid Iowa Financial Corp. of IA 0.71 1.00 7.00 7.00 74.91
MCBN Mid-Coast Bancorp of ME 1.06 1.66 22.06 22.06 256.39
MWBI Midwest Bancshares, Inc. of IA 1.81 3.01 29.09 29.09 421.10
MWFD Midwest Fed. Fin. Corp of WI 1.79 1.37 11.21 10.81 127.18
MFFC Milton Fed. Fin. Corp. of OH 0.39 0.54 11.37 11.37 86.68
MIVI Miss. View Hold. Co. of MN 0.59 0.88 16.08 16.08 85.20
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit IV-1 (continued)
Weekly Thrift Market Line - Part One
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Market Capitalization Price Change Data
----------------------- -----------------------------------------------
Shares Market 52 Week (1) % Change From
--------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
- --------------------- -------- ------ ---------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
MBSP Mitchell Bancorp of NC* 17.25 931 16.1 17.37 12.12 17.25 0.00 N.A. 21.05
MBBC Monterey Bay Bancorp of CA 20.00 3,242 64.8 20.50 14.50 20.00 0.00 N.A. 35.59
MONT Montgomery Fin. Corp. of IN 13.00 1,653 21.5 14.00 11.00 12.37 5.09 N.A. 0.00
MSBK Mutual SB, FSB of Bay City MI 13.62 4,274 58.2 14.62 5.12 14.12 -3.54 55.66 147.64
NHTB NH Thrift Bancshares of NH 22.00 2,048 45.1 22.00 11.62 21.00 4.76 376.19 74.33
NSLB NS&L Bancorp of Neosho MO 19.50 707 13.8 19.50 13.00 19.00 2.63 N.A. 43.17
NMSB Newmil Bancorp. of CT* 12.75 3,834 48.9 14.25 7.50 14.00 -8.93 100.16 30.77
NASB North American SB of MO 52.00 2,229 115.9 55.00 30.75 51.00 1.96 ***.** 51.82
NBSI North Bancshares of Chicago IL 24.12 997 24.0 24.50 15.75 24.50 -1.55 N.A. 46.18
FFFD North Central Bancshares of IA 18.87 3,258 61.5 19.25 12.37 19.25 -1.97 N.A. 39.16
NBN Northeast Bancorp of ME* 21.25 1,275 27.1 21.25 13.00 19.75 7.59 80.85 51.79
NEIB Northeast Indiana Bncrp of IN 20.12 1,763 35.5 20.25 12.87 19.50 3.18 N.A. 47.72
NWEQ Northwest Equity Corp. of WI 17.50 839 14.7 17.50 11.25 16.12 8.56 N.A. 44.39
NWSB Northwest SB, MHC of PA (30.7) 31.25 23,376 224.3 31.25 11.87 27.75 12.61 N.A. 133.73
NSSY Norwalk Savings Society of CT* 36.25 2,410 87.4 37.00 22.75 35.00 3.57 N.A. 55.11
NSSB Norwich Financial Corp. of CT* 31.25 5,413 169.2 31.25 18.00 29.62 5.50 346.43 59.28
NTMG Nutmeg FS&LA of CT 11.75 738 8.7 11.75 7.00 10.75 9.30 N.A. 56.67
OHSL OHSL Financial Corp. of OH 27.25 1,196 32.6 27.25 19.50 26.00 4.81 N.A. 27.52
OCFC Ocean Fin. Corp. of NJ 36.25 8,606 312.0 36.50 24.00 36.44 -0.52 N.A. 42.16
OCN Ocwen Financial Corp. of FL 55.81 26,800 1,495.7 55.81 23.50 43.87 27.22 N.A. 108.64
OTFC Oregon Trail Fin. Corp of OR 16.44 4,695 77.2 16.75 16.37 16.50 -0.36 N.A. N.A.
OFCP Ottawa Financial Corp. of MI 27.25 5,402 147.2 28.00 14.66 28.00 -2.68 N.A. 78.22
PFFB PFF Bancorp of Pomona CA 20.50 18,716 383.7 21.12 12.50 19.25 6.49 N.A. 37.86
PSFI PS Financial of Chicago IL 17.06 2,182 37.2 18.00 11.62 17.12 -0.35 N.A. 45.19
PVFC PVF Capital Corp. of OH 19.06 2,556 48.7 21.75 13.18 19.00 0.32 333.18 33.10
PCCI Pacific Crest Capital of CA* 16.62 2,938 48.8 17.75 8.25 16.87 -1.48 N.A. 44.52
PAMM PacificAmerica Money Ctr of CA(8)* 26.50 3,799 100.7 27.00 11.75 26.75 -0.93 N.A. 82.76
PALM Palfed, Inc. of Aiken SC(8) 25.37 5,284 134.1 26.50 13.00 25.75 -1.48 65.06 81.21
PBCI Pamrapo Bancorp, Inc. of NJ 25.75 2,843 73.2 26.75 18.50 24.75 4.04 357.37 28.75
PFED Park Bancorp of Chicago IL 17.25 2,431 41.9 18.12 11.37 17.75 -2.82 N.A. 32.69
PVSA Parkvale Financial Corp of PA 33.75 4,055 136.9 33.75 23.60 32.50 3.85 307.61 29.81
PEEK Peekskill Fin. Corp. of NY 17.12 3,193 54.7 17.25 13.25 17.00 0.71 N.A. 20.14
PFSB PennFed Fin. Services of NJ 33.50 4,822 161.5 33.50 18.87 33.00 1.52 N.A. 65.43
PWBC PennFirst Bancorp of PA 18.50 5,306 98.2 19.50 12.27 19.00 -2.63 131.83 49.31
PWBK Pennwood SB of PA* 18.75 580 10.9 18.75 11.00 17.75 5.63 N.A. 36.36
PBKB People's SB of Brockton MA* 19.87 3,595 71.4 20.00 10.12 19.87 0.00 234.51 87.10
PFDC Peoples Bancorp of Auburn IN 32.00 2,274 72.8 32.50 19.25 29.25 9.40 82.86 58.02
PBCT Peoples Bank, MHC of CT (40.1)* 36.12 61,054 883.2 36.12 16.25 32.50 11.14 358.96 87.64
PFFC Peoples Fin. Corp. of OH 14.44 1,491 21.5 19.00 12.00 14.00 3.14 N.A. 6.96
PHBK Peoples Heritage Fin Grp of ME* 42.19 27,371 1,154.8 43.12 22.62 41.50 1.66 175.57 50.68
PSFC Peoples Sidney Fin. Corp of OH 16.37 1,785 29.2 17.25 12.56 16.50 -0.79 N.A. N.A.
PERM Permanent Bancorp of IN 24.87 2,011 50.0 26.50 16.75 24.06 3.37 N.A. 22.81
PMFI Perpetual Midwest Fin. of IA 23.81 1,883 44.8 25.00 18.25 23.25 2.41 N.A. 23.69
PERT Perpetual of SC, MHC (46.8)(8) 57.50 1,505 40.5 58.00 20.25 56.00 2.68 N.A. 137.11
PCBC Perry Co. Fin. Corp. of MO 21.37 828 17.7 22.25 17.00 20.87 2.40 N.A. 25.71
PHFC Pittsburgh Home Fin. of PA 19.62 1,969 38.6 19.62 11.50 19.37 1.29 N.A. 46.75
PFSL Pocahnts Fed, MHC of AR (47.0)(8) 34.75 1,632 26.7 35.00 14.25 32.50 6.92 N.A. 98.57
PTRS Potters Financial Corp of OH 28.50 487 13.9 28.50 17.00 26.00 9.62 N.A. 42.50
PKPS Poughkeepsie Fin. Corp. of NY 9.87 12,595 124.3 9.94 5.00 9.00 9.67 27.35 88.00
PHSB Ppls Home SB, MHC of PA (45.0) 17.25 2,760 21.4 17.50 13.62 17.25 0.00 N.A. N.A.
PRBC Prestige Bancorp of PA 19.25 915 17.6 19.37 12.00 19.25 0.00 N.A. 42.59
PETE Primary Bank of NH(8)* 27.50 2,089 57.4 29.00 12.14 27.25 0.92 N.A. 80.45
PFNC Progress Financial Corp. of PA 14.62 4,005 58.6 15.12 7.02 14.50 0.83 32.79 83.21
PSBK Progressive Bank, Inc. of NY* 35.25 3,821 134.7 38.00 20.83 35.00 0.71 163.65 54.95
PROV Provident Fin. Holdings of CA 20.62 4,920 101.5 21.12 12.50 19.75 4.41 N.A. 47.29
<CAPTION>
Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
Financial Institution EPS(3) EPS(3) Share Share(4) Share
- --------------------- -------- ------- ------- -------- ------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
MBSP Mitchell Bancorp of NC* 0.51 0.60 15.39 15.39 35.49
MBBC Monterey Bay Bancorp of CA 0.29 0.55 14.43 13.30 127.33
MONT Montgomery Fin. Corp. of IN 0.36 0.36 11.72 11.72 62.55
MSBK Mutual SB, FSB of Bay City MI 0.18 0.07 9.57 9.57 157.56
NHTB NH Thrift Bancshares of NH 0.54 0.80 11.78 10.03 153.95
NSLB NS&L Bancorp of Neosho MO 0.41 0.64 16.52 16.52 84.46
NMSB Newmil Bancorp. of CT* 0.68 0.65 8.27 8.27 84.26
NASB North American SB of MO 4.10 3.86 25.37 24.52 330.46
NBSI North Bancshares of Chicago IL 0.58 0.81 16.96 16.96 119.95
FFFD North Central Bancshares of IA 1.02 1.18 14.81 14.81 65.34
NBN Northeast Bancorp of ME* 1.10 1.06 14.04 12.30 205.33
NEIB Northeast Indiana Bncrp of IN 0.98 1.15 15.19 15.19 100.01
NWEQ Northwest Equity Corp. of WI 0.88 1.11 13.22 13.22 115.48
NWSB Northwest SB, MHC of PA (30.7) 0.58 0.82 8.49 8.00 89.47
NSSY Norwalk Savings Society of CT* 2.42 2.76 20.64 19.90 256.17
NSSB Norwich Financial Corp. of CT* 1.42 1.35 14.70 13.27 131.66
NTMG Nutmeg FS&LA of CT 0.33 0.45 7.72 7.72 138.80
OHSL OHSL Financial Corp. of OH 1.12 1.57 21.21 21.21 192.34
OCFC Ocean Fin. Corp. of NJ 0.04 1.49 27.35 27.35 168.27
OCN Ocwen Financial Corp. of FL 2.65 1.60 9.10 8.69 103.99
OTFC Oregon Trail Fin. Corp of OR 0.59 0.59 13.29 55.39 55.34
OFCP Ottawa Financial Corp. of MI 0.74 1.20 13.92 11.17 159.45
PFFB PFF Bancorp of Pomona CA 0.21 0.61 14.51 14.36 140.60
PSFI PS Financial of Chicago IL 0.70 0.71 14.66 14.66 37.88
PVFC PVF Capital Corp. of OH 1.43 1.83 10.28 10.28 145.96
PCCI Pacific Crest Capital of CA* 1.11 1.04 8.95 8.95 126.32
PAMM PacificAmerica Money Ctr of CA(8)* 1.82 1.82 6.63 6.63 29.57
PALM Palfed, Inc. of Aiken SC(8) 0.13 0.76 10.37 10.37 125.83
PBCI Pamrapo Bancorp, Inc. of NJ 1.16 1.60 16.62 16.49 130.49
PFED Park Bancorp of Chicago IL 0.62 0.86 16.27 16.27 72.22
PVSA Parkvale Financial Corp of PA 1.72 2.54 18.54 18.40 244.45
PEEK Peekskill Fin. Corp. of NY 0.57 0.75 14.71 14.71 57.18
PFSB PennFed Fin. Services of NJ 1.43 2.09 20.17 16.87 274.11
PWBC PennFirst Bancorp of PA 0.63 0.91 12.44 11.63 153.97
PWBK Pennwood SB of PA* 0.57 0.92 15.04 15.04 86.17
PBKB People's SB of Brockton MA* 1.16 0.69 8.56 8.20 152.65
PFDC Peoples Bancorp of Auburn IN 1.39 1.82 19.23 19.23 126.46
PBCT Peoples Bank, MHC of CT (40.1)* 1.39 1.03 10.93 10.92 128.90
PFFC Peoples Fin. Corp. of OH 0.53 0.53 15.78 15.78 58.01
PHBK Peoples Heritage Fin Grp of ME* 2.36 2.39 15.77 13.29 204.27
PSFC Peoples Sidney Fin. Corp of OH 0.32 0.48 14.40 14.40 57.78
PERM Permanent Bancorp of IN 0.72 1.30 19.74 19.45 215.43
PMFI Perpetual Midwest Fin. of IA 0.25 0.61 18.00 18.00 210.96
PERT Perpetual of SC, MHC (46.8)(8) 1.00 1.41 20.13 20.13 170.24
PCBC Perry Co. Fin. Corp. of MO 0.90 1.04 18.80 18.80 97.95
PHFC Pittsburgh Home Fin. of PA 0.69 0.88 14.21 14.06 130.15
PFSL Pocahnts Fed, MHC of AR (47.0)(8) 1.39 1.93 14.76 14.76 232.05
PTRS Potters Financial Corp of OH 1.16 2.06 21.97 21.97 248.85
PKPS Poughkeepsie Fin. Corp. of NY 0.24 0.37 5.85 5.85 69.88
PHSB Ppls Home SB, MHC of PA (45.0) 0.36 0.54 9.71 9.71 82.81
PRBC Prestige Bancorp of PA 0.47 0.83 16.51 16.51 148.33
PETE Primary Bank of NH(8)* 1.24 1.47 14.33 14.31 206.65
PFNC Progress Financial Corp. of PA 0.52 0.62 5.50 4.86 104.53
PSBK Progressive Bank, Inc. of NY* 2.30 2.26 19.67 17.56 230.00
PROV Provident Fin. Holdings of CA 0.39 0.34 17.37 17.37 125.10
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit IV-1 (continued)
Weekly Thrift Market Line - Part One
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Market Capitalization Price Change Data
------------------------ -----------------------------------------------
Shares Market 52 Week (1) % Change From
--------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
PULB Pulaski SB, MHC of MO (29.8) 28.25 2,094 17.6 28.25 13.75 28.00 0.89 N.A. 94.83
PLSK Pulaski SB, MHC of NJ (46.0) 21.75 2,070 20.7 21.75 11.50 18.00 20.83 N.A. N.A.
PULS Pulse Bancorp of S. River NJ 29.50 3,071 90.6 29.50 15.50 28.75 2.61 138.48 87.30
QCFB QCF Bancorp of Virginia MN 25.00 1,426 35.7 26.25 15.75 25.00 0.00 N.A. 36.99
QCBC Quaker City Bancorp of CA 23.87 4,703 112.3 24.56 12.40 22.75 4.92 218.27 57.04
QCSB Queens County Bancorp of NY* 37.25 15,271 568.8 37.50 17.45 37.06 0.51 N.A. 76.96
RARB Raritan Bancorp. of Raritan NJ* 28.00 2,412 67.5 28.62 14.17 28.00 0.00 334.78 80.65
REDF RedFed Bancorp of Redlands CA 19.47 7,174 139.7 20.25 11.50 17.62 10.50 N.A. 44.22
RELY Reliance Bancorp, Inc. of NY 33.00 8,776 289.6 33.44 17.50 33.00 0.00 N.A. 69.23
RELI Reliance Bancshares Inc of WI(8)* 8.87 2,528 22.4 10.12 6.50 8.56 3.62 N.A. 31.41
FRBK Republic First Bancorp of CA* 27.62 9,693 267.7 27.62 14.87 27.62 0.00 513.78 64.90
RIVR River Valley Bancorp of IN 17.50 1,190 20.8 17.50 13.25 17.00 2.94 N.A. 27.27
RVSB Riverview Bancorp of WA 14.00 6,128 85.8 13.50 10.00 14.00 0.00 N.A. 122.22
RSLN Roslyn Bancorp, Inc. of NY* 23.44 43,642 1,023.0 24.31 15.00 23.25 0.82 N.A. N.A.
SCCB S. Carolina Comm. Bnshrs of SC 24.00 700 16.8 25.25 15.00 23.62 1.61 N.A. 60.00
SBFL SB Fngr Lakes MHC of NY (33.1) 26.75 1,785 15.8 27.00 12.75 25.00 7.00 N.A. 94.55
SFED SFS Bancorp of Schenectady NY 22.53 1,236 27.8 23.00 14.75 22.50 0.13 N.A. 52.75
SGVB SGV Bancorp of W. Covina CA 19.00 2,342 44.5 19.00 9.38 18.50 2.70 N.A. 68.89
SHSB SHS Bancorp, Inc. of PA 15.75 820 12.9 16.25 14.75 15.50 1.61 N.A. N.A.
SISB SIS Bancorp Inc of MA* 37.00 5,577 206.3 37.00 22.12 34.87 6.11 N.A. 61.78
SWCB Sandwich Co-Op. Bank of MA* 37.50 1,915 71.8 39.00 21.75 38.00 -1.32 335.03 26.05
SFSL Security First Corp. of OH 18.50 7,574 140.1 19.25 9.83 19.00 -2.63 77.88 53.15
SFNB Security First Netwrk Bk of GA(8) 10.12 8,620 87.2 23.75 5.50 11.00 -8.00 N.A. -1.27
SMFC Sho-Me Fin. Corp. of MO(8) 47.75 1,499 71.6 47.75 18.87 43.25 10.40 N.A. 119.54
SOBI Sobieski Bancorp of S. Bend IN 18.75 760 14.3 19.25 13.00 18.87 -0.64 N.A. 29.31
SOSA Somerset Savings Bank of MA(8)* 5.19 16,652 86.4 5.25 1.94 5.00 3.80 1.37 163.45
SSFC South Street Fin. Corp. of NC* 18.75 4,496 84.3 20.00 12.12 19.50 -3.85 N.A. 33.93
SCBS Southern Commun. Bncshrs of AL 18.25 1,137 20.8 18.25 13.00 16.75 8.96 N.A. 37.74
SMBC Southern Missouri Bncrp of MO 18.00 1,633 29.4 18.00 14.00 17.62 2.16 N.A. 20.00
SWBI Southwest Bancshares of IL 24.12 2,657 64.1 24.12 17.92 20.75 16.24 141.20 32.16
SVRN Sovereign Bancorp of PA 18.87 70,010 1,321.1 19.00 9.64 18.56 1.67 322.15 72.49
STFR St. Francis Cap. Corp. of WI 40.25 5,308 213.6 40.25 25.00 38.75 3.87 N.A. 54.81
SPBC St. Paul Bancorp, Inc. of IL 28.00 33,988 951.7 28.50 13.73 25.87 8.23 151.57 78.69
SFFC StateFed Financial Corp. of IA 26.75 784 21.0 26.87 16.44 25.75 3.88 N.A. 62.12
SFIN Statewide Fin. Corp. of NJ 22.50 4,710 106.0 22.62 12.62 21.88 2.83 N.A. 56.58
STSA Sterling Financial Corp. of WA 21.12 5,567 117.6 22.00 13.00 19.75 6.94 132.34 49.58
SFSB SuburbFed Fin. Corp. of IL 33.25 1,262 42.0 33.25 17.75 32.00 3.91 398.50 75.00
ROSE T R Financial Corp. of NY* 32.37 17,519 567.1 33.00 14.37 33.00 -1.91 N.A. 82.37
THRD TF Financial Corp. of PA 25.50 4,083 104.1 25.69 14.75 25.37 0.51 N.A. 56.92
TPNZ Tappan Zee Fin., Inc. of NY 20.75 1,497 31.1 20.75 13.00 18.37 12.96 N.A. 52.35
ESBK The Elmira SB FSB of Elmira NY* 30.00 706 21.2 31.00 14.75 29.62 1.28 108.77 64.38
TSBS Trenton SB,FSB MHC of NJ(35.9)(8) 39.12 9,037 127.0 39.12 14.00 34.50 13.39 N.A. 144.50
TRIC Tri-County Bancorp of WY 27.00 609 16.4 27.37 18.00 25.94 4.09 N.A. 50.00
TWIN Twin City Bancorp of TN 14.50 1,280 18.6 14.50 11.25 13.50 7.41 N.A. 26.09
UFRM United FS&LA of Rocky Mount NC 12.25 3,074 37.7 12.75 7.50 12.25 0.00 276.92 44.12
UBMT United Fin. Corp. of MT 24.00 1,223 29.4 24.25 18.50 23.75 1.05 128.57 24.68
VABF Va. Beach Fed. Fin. Corp of VA 16.25 4,976 80.9 17.25 8.62 17.12 -5.08 246.48 72.14
VFFC Virginia First Savings of VA(8) 24.25 5,810 140.9 24.50 12.37 24.06 0.79 ***.** 90.20
WHGB WHG Bancshares of MD 15.75 1,462 23.0 16.50 12.62 16.25 -3.08 N.A. 20.05
WSFS WSFS Financial Corp. of DE* 18.44 12,421 229.0 18.75 8.87 18.37 0.38 154.34 80.96
WVFC WVS Financial Corp. of PA* 32.50 1,747 56.8 32.50 21.50 29.37 10.66 N.A. 32.01
WRNB Warren Bancorp of Peabody MA* 19.75 3,781 74.7 21.37 12.75 20.12 -1.84 486.05 31.67
WFSL Washington FS&LA of Seattle WA 31.62 47,462 1,500.7 33.31 21.02 29.94 5.61 116.72 31.26
WAMU Washington Mutual Inc. of WA(8)* 67.87 126,357 8,575.8 70.25 38.12 67.87 0.00 265.68 56.71
WYNE Wayne Bancorp of NJ 22.50 2,120 47.7 24.87 13.69 24.00 -6.25 N.A. 47.54
<CAPTION>
Current Per Share Financial
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
Financial Institution EPS(3) EPS(3) Share Share(4) Share
- --------------------- -------- ------- ------- ------- -------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
PULB Pulaski SB, MHC of MO (29.8) 0.59 0.82 11.04 11.04 84.92
PLSK Pulaski SB, MHC of NJ (46.0) 0.21 0.51 10.20 10.20 85.68
PULS Pulse Bancorp of S. River NJ 1.20 1.80 13.63 13.63 169.39
QCFB QCF Bancorp of Virginia MN 1.41 1.41 19.23 19.23 109.91
QCBC Quaker City Bancorp of CA 0.60 0.98 14.94 14.93 170.40
QCSB Queens County Bancorp of NY* 1.43 1.45 11.39 11.39 96.06
RARB Raritan Bancorp. of Raritan NJ* 1.46 1.55 12.48 12.27 157.31
REDF RedFed Bancorp of Redlands CA 0.31 0.80 10.75 10.71 127.16
RELY Reliance Bancorp, Inc. of NY 1.25 1.85 18.54 13.36 225.25
RELI Reliance Bancshares Inc of WI(8)* 0.16 0.17 9.08 9.08 18.60
FRBK Republic First Bancorp of CA* 1.56 1.33 16.56 16.55 230.89
RIVR River Valley Bancorp of IN 0.46 0.62 14.63 14.41 118.02
RVSB Riverview Bancorp of WA 0.56 0.56 9.18 9.18 42.44
RSLN Roslyn Bancorp, Inc. of NY* 0.59 0.93 14.58 14.51 72.39
SCCB S. Carolina Comm. Bnshrs of SC 0.60 0.79 17.09 17.09 66.57
SBFL SB Fngr Lakes MHC of NY (33.1) 0.15 0.50 11.63 11.63 121.93
SFED SFS Bancorp of Schenectady NY 0.60 1.07 17.44 17.44 139.85
SGVB SGV Bancorp of W. Covina CA 0.31 0.75 12.77 12.56 174.78
SHSB SHS Bancorp, Inc. of PA 0.41 0.41 13.83 13.83 109.44
SISB SIS Bancorp Inc of MA* 3.31 3.29 18.52 18.52 257.23
SWCB Sandwich Co-Op. Bank of MA* 2.34 2.39 20.83 19.94 262.09
SFSL Security First Corp. of OH 0.88 1.10 8.13 7.99 86.25
SFNB Security First Netwrk Bk of GA(8) -3.30 -3.38 3.02 2.97 9.12
SMFC Sho-Me Fin. Corp. of MO(8) 2.08 2.35 19.81 19.81 219.35
SOBI Sobieski Bancorp of S. Bend IN 0.32 0.62 16.26 16.26 107.54
SOSA Somerset Savings Bank of MA(8)* 0.25 0.24 1.96 1.96 30.90
SSFC South Street Fin. Corp. of NC* 0.45 0.57 13.58 13.58 53.77
SCBS Southern Commun. Bncshrs of AL 0.19 0.47 13.54 13.54 61.66
SMBC Southern Missouri Bncrp of MO 0.65 0.63 16.17 16.17 98.22
SWBI Southwest Bancshares of IL 1.04 1.44 15.66 15.66 142.39
SVRN Sovereign Bancorp of PA 0.62 0.96 6.25 4.71 155.67
STFR St. Francis Cap. Corp. of WI 1.77 1.95 24.43 21.59 310.01
SPBC St. Paul Bancorp, Inc. of IL 0.93 1.34 11.67 11.64 135.68
SFFC StateFed Financial Corp. of IA 1.17 1.42 19.43 19.43 109.28
SFIN Statewide Fin. Corp. of NJ 0.76 1.29 13.90 13.88 142.93
STSA Sterling Financial Corp. of WA 0.28 0.90 12.41 10.82 302.93
SFSB SuburbFed Fin. Corp. of IL 1.23 1.79 21.92 21.84 338.12
ROSE T R Financial Corp. of NY* 1.84 1.66 12.58 12.58 202.74
THRD TF Financial Corp. of PA 0.84 1.13 17.44 15.30 156.93
TPNZ Tappan Zee Fin., Inc. of NY 0.53 0.49 14.35 14.35 80.07
ESBK The Elmira SB FSB of Elmira NY* 1.13 1.10 20.32 19.48 322.70
TSBS Trenton SB,FSB MHC of NJ(35.9)(8) 0.86 0.73 11.79 10.81 69.82
TRIC Tri-County Bancorp of WY 1.10 1.40 22.50 22.50 146.89
TWIN Twin City Bancorp of TN 0.44 0.62 10.78 10.78 83.86
UFRM United FS&LA of Rocky Mount NC 0.19 0.33 6.70 6.70 89.63
UBMT United Fin. Corp. of MT 0.94 1.16 19.95 19.95 88.08
VABF Va. Beach Fed. Fin. Corp of VA 0.26 0.58 8.50 8.50 124.16
VFFC Virginia First Savings of VA(8) 1.81 1.66 11.34 10.95 140.67
WHGB WHG Bancshares of MD 0.34 0.34 14.16 14.16 68.56
WSFS WSFS Financial Corp. of DE* 1.47 1.48 6.32 6.27 121.45
WVFC WVS Financial Corp. of PA* 1.69 2.12 18.83 18.83 168.69
WRNB Warren Bancorp of Peabody MA* 2.01 1.71 9.82 9.82 94.69
WFSL Washington FS&LA of Seattle WA 1.94 2.14 14.66 13.39 121.37
WAMU Washington Mutual Inc. of WA(8)* 1.14 2.42 19.30 18.32 385.92
WYNE Wayne Bancorp of NJ 0.50 0.50 16.44 16.44 123.13
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700 Exhibit IV-1 (continued)
Weekly Thrift Market Line - Part One
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Market Capitalization Price Change Data
------------------------ -----------------------------------------------
Shares Market 52 Week (1) % Change From
---------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
--------------------- -------- ------ --------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
---------------------------------------
WAYN Wayne S&L Co. MHC of OH (47.8) 27.00 2,251 29.0 27.00 12.83 24.25 11.34 N.A. 65.34
WCFB Wbstr Cty FSB MHC of IA (45.2) 21.50 2,100 20.4 21.75 12.75 19.25 11.69 N.A. 56.36
WBST Webster Financial Corp. of CT 62.25 11,985 746.1 62.87 33.62 59.81 4.08 559.43 69.39
WEFC Wells Fin. Corp. of Wells MN 16.62 1,959 32.6 17.50 12.50 17.50 -5.03 N.A. 26.68
WCBI WestCo Bancorp of IL 28.75 2,474 71.1 29.25 20.00 26.25 9.52 187.50 33.72
WSTR WesterFed Fin. Corp. of MT 26.12 5,565 145.4 26.37 16.62 25.75 1.44 N.A. 43.12
WOFC Western Ohio Fin. Corp. of OH 28.75 2,339 67.2 29.25 19.62 28.00 2.68 N.A. 32.18
WWFC Westwood Fin. Corp. of NJ(8) 27.50 645 17.7 27.62 13.00 27.50 0.00 N.A. 66.67
WEHO Westwood Hmstd Fin Corp of OH 17.25 2,795 48.2 18.00 10.37 17.50 -1.43 N.A. 42.33
WFI Winton Financial Corp. of OH 19.25 1,986 38.2 19.25 11.25 18.12 6.24 N.A. 67.39
FFWD Wood Bancorp of OH 17.00 2,119 36.0 18.00 10.50 18.00 -5.56 N.A. 50.04
YFCB Yonkers Fin. Corp. of NY 20.37 3,036 61.8 20.50 12.12 20.00 1.85 N.A. 58.28
YFED York Financial Corp. of PA 25.75 7,008 180.5 26.75 16.00 25.75 0.00 172.49 58.46
<CAPTION>
Current Per Share Financials
-----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
EPS(3) EPS(3) Share Share(4) Share
-------- ------- ------ -------- -------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
WAYN Wayne S&L Co. MHC of OH (47.8) 0.35 0.74 10.44 10.44 112.94
WCFB Wbstr Cty FSB MHC of IA (45.2) 0.48 0.64 10.53 10.53 45.09
WBST Webster Financial Corp. of CT 1.60 2.86 24.91 21.28 495.93
WEFC Wells Fin. Corp. of Wells MN 0.73 1.08 14.64 14.64 103.13
WCBI WestCo Bancorp of IL 1.41 1.78 19.20 19.20 125.96
WSTR WesterFed Fin. Corp. of MT 0.81 1.02 18.73 14.99 171.72
WOFC Western Ohio Fin. Corp. of OH 0.52 0.72 23.38 21.79 169.51
WWFC Westwood Fin. Corp. of NJ(8) 0.78 1.34 15.76 14.04 172.70
WEHO Westwood Hmstd Fin Corp of OH 0.30 0.45 14.17 14.17 48.18
WFI Winton Financial Corp. of OH 1.60 1.34 11.36 11.12 159.81
FFWD Wood Bancorp of OH 0.79 0.94 9.52 9.52 77.36
YFCB Yonkers Fin. Corp. of NY 0.76 1.02 14.14 14.14 94.89
YFED York Financial Corp. of PA 1.01 1.29 14.28 14.28 165.87
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit IV-1
Weekly Thrift Market Line - Part Two
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Key Financial Ratios Asset Quality Ratios
---------------------------------------------------------- -----------------------
Tang.
Equity/ Equity/ Reported Earnings Core Earnings NPAs Resvs/ Resvs/
---------------------- ---------------
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Market Averages. SAIF-Insured Thrifts(no MHCs)
- ----------------------------------------------
SAIF-Insured Thrifts(302) 12.99 13.02 0.64 5.52 3.22 0.85 7.47 0.80 131.30 0.82
NYSE Traded Companies(9) 5.88 5.64 0.61 10.41 4.01 0.80 14.37 1.25 74.44 1.28
AMEX Traded Companies(17) 16.09 15.99 0.55 2.87 2.14 0.87 5.21 0.65 149.41 0.69
NASDAQ Listed OTC Companies(276) 13.05 13.09 0.65 5.51 3.25 0.85 7.37 0.79 132.43 0.81
California Companies(21) 7.44 7.18 0.30 4.48 2.19 0.43 6.99 1.88 70.98 1.33
Florida Companies(5) 7.63 7.18 0.92 11.46 3.26 0.74 9.13 1.53 85.76 0.81
Mid-Atlantic Companies(60) 11.07 10.73 0.62 6.30 3.50 0.85 8.73 0.90 93.57 0.92
Mid-West Companies(144) 14.09 13.90 0.69 5.40 3.41 0.89 7.11 0.63 157.79 0.71
New England Companies(9) 7.87 7.46 0.36 4.81 2.65 0.63 8.55 0.63 116.41 1.00
North-West Companies(8) 17.06 27.69 0.86 6.30 3.29 1.04 8.22 0.61 146.76 0.58
South-East Companies(42) 16.10 15.90 0.70 4.83 2.76 0.94 6.61 0.83 128.84 0.83
South-West Companies(7) 10.60 10.34 0.38 2.97 2.25 0.66 6.49 0.64 102.37 0.70
Western Companies (Excl CA)(6) 16.22 15.79 0.98 6.62 3.95 1.15 7.68 0.29 169.72 0.72
Thrift Strategy(240) 14.22 14.33 0.66 5.05 3.22 0.89 6.95 0.72 134.33 0.74
Mortgage Banker Strategy(37) 7.36 6.90 0.48 7.03 3.17 0.64 9.49 0.99 111.38 1.02
Real Estate Strategy(10) 7.34 7.14 0.55 6.98 3.61 0.76 10.25 1.42 97.09 1.35
Diversified Strategy(11) 7.66 7.42 1.06 13.44 4.18 1.08 14.25 1.31 120.54 1.12
Retail Banking Strategy(4) 8.35 8.13 0.11 2.31 0.80 0.04 1.83 1.42 211.39 1.87
Companies Issuing Dividends(255) 13.29 13.03 0.69 5.92 3.49 0.91 7.88 0.70 134.93 0.77
Companies Without Dividends(47) 11.26 12.96 0.38 3.21 1.61 0.50 5.11 1.42 109.57 1.07
Equity/Assets less than 6%(23) 4.96 4.66 0.37 7.44 3.06 0.56 11.41 1.43 85.24 1.04
Equity/Assets greater than 6-12%(142) 8.62 8.28 0.57 6.66 3.40 0.75 8.85 0.91 125.91 0.94
Equity/Assets greater than 12%(137) 18.52 18.95 0.76 4.11 3.06 0.99 5.49 0.57 145.10 0.66
Converted Last 3 Mths (no MHC)(3) 17.02 42.38 0.36 1.66 1.44 0.46 2.33 0.92 112.16 0.84
Actively Traded Companies(41) 8.66 8.42 0.72 8.69 4.02 0.95 11.96 1.14 117.94 0.98
Market Value Below $20 Million(50) 15.00 14.98 0.55 3.39 2.66 0.79 5.42 0.77 114.85 0.66
Holding Company Structure(267) 13.48 13.56 0.64 5.28 3.15 0.85 7.22 0.80 126.41 0.80
Assets Over $1 Billion(60) 7.82 7.30 0.62 8.12 3.49 0.81 10.96 0.97 100.59 0.98
Assets $500 Million-$1 Billion(49) 10.28 9.99 0.63 6.46 3.38 0.79 8.02 0.95 170.38 1.06
Assets $250-$500 Million(66) 11.42 12.32 0.60 5.35 3.26 0.82 7.47 0.75 127.51 0.74
Assets less than $250 Million(127) 17.14 17.09 0.68 4.08 3.01 0.91 5.68 0.69 133.23 0.69
Goodwill Companies(124) 9.08 8.48 0.62 7.06 3.58 0.79 9.11 0.86 112.24 0.88
Non-Goodwill Companies(177) 15.62 16.07 0.66 4.48 2.97 0.89 6.37 0.75 144.92 0.77
Acquirors of FSLIC Cases(10) 7.19 6.79 0.57 7.79 3.63 0.82 11.71 1.54 51.84 0.89
<CAPTION>
Pricing Ratios Dividend Data(6)
----------------------------------------- -----------------------
Price/ Price/ Ind. Divi-
Price/ Price/ Price/ Tang. Core Div./ dend Payout
Earning Book Assets Book Earnings Share Yield Ratio(7)
------- ------- ------- ------ -------- ------- ------- ---------
(X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market Averages. SAIF-Insured Thrifts(no MHCs
- ---------------------------------------------
SAIF-Insured Thrifts(302) 22.53 152.81 18.69 156.55 19.86 0.36 1.56 34.98
NYSE Traded Companies(9) 20.92 212.94 13.56 212.28 17.33 0.32 0.81 18.69
AMEX Traded Companies(17) 24.70 130.00 20.33 131.25 19.70 0.40 1.97 45.49
NASDAQ Listed OTC Companies(276) 22.44 152.36 18.77 156.61 19.97 0.36 1.56 35.19
California Companies(21) 22.30 170.53 11.98 170.64 19.15 0.15 0.47 12.75
Florida Companies(5) 18.31 183.32 21.03 206.83 23.75 0.24 0.75 14.53
Mid-Atlantic Companies(60) 23.01 154.87 16.69 159.68 18.89 0.39 1.49 37.17
Mid-West Companies(144) 21.90 146.18 19.28 148.58 19.74 0.36 1.67 35.29
New England Companies(9) 24.58 170.56 13.13 185.31 20.89 0.46 1.39 34.62
North-West Companies(8) 22.14 168.25 25.25 162.16 22.04 0.31 1.07 22.86
South-East Companies(42) 23.69 156.10 23.33 161.02 21.38 0.44 1.95 44.15
South-West Companies(7) 22.73 141.88 14.09 150.39 18.12 0.33 1.48 50.80
Western Companies (Excl CA)(6) 24.55 155.03 22.77 162.50 21.95 0.56 2.52 56.60
Thrift Strategy(240) 22.72 144.61 19.59 148.66 19.87 0.38 1.67 37.55
Mortgage Banker Strategy(37) 22.82 188.55 13.54 197.00 20.49 0.31 1.03 27.16
Real Estate Strategy(10) 16.56 181.63 13.07 184.89 18.09 0.13 0.66 12.64
Diversified Strategy(11) 21.84 238.62 22.39 234.89 18.04 0.46 1.31 30.22
Retail Banking Strategy(4) 21.59 141.54 11.18 146.03 22.47 0.20 1.18 18.18
Companies Issuing Dividends(255) 22.52 154.16 19.09 158.39 19.74 0.43 1.82 41.39
Companies Without Dividends(47) 22.64 144.74 16.36 145.68 20.89 0.00 0.00 0.00
Equity/Assets less than 6%(23) 21.60 194.54 10.77 198.20 19.77 0.22 0.75 15.26
Equity/Assets greater than 6-12%(142) 22.01 169.04 14.68 176.55 18.53 0.38 1.40 33.52
Equity/Assets greater than 12%(137) 23.38 131.51 23.85 132.46 21.43 0.37 1.84 40.90
Converted Last 3 Mths (no MHC)(3) 27.86 122.28 20.91 90.94 27.86 0.06 0.44 0.00
Actively Traded Companies(41) 21.95 194.71 16.31 196.38 18.16 0.49 1.53 32.11
Market Value Below $20 Million(50) 22.80 122.42 18.03 122.78 20.77 0.33 1.79 40.59
Holding Company Structure(267) 22.92 150.43 19.15 153.28 20.00 0.37 1.60 36.30
Assets Over $1 Billion(60) 22.29 194.52 15.78 207.35 19.05 0.43 1.19 29.99
Assets $500 Million-$1 Billion(49) 22.18 169.57 17.20 175.22 19.80 0.35 1.43 36.72
Assets $250-$500 Million(66) 22.72 153.65 17.12 156.17 19.36 0.37 1.53 32.46
Assets less than $250 Million(127) 22.71 128.76 21.36 129.46 20.62 0.34 1.78 38.70
Goodwill Companies(124) 21.98 173.11 15.43 183.93 19.21 0.40 1.41 33.12
Non-Goodwill Companies(177) 22.98 139.05 20.87 138.48 20.38 0.34 1.65 36.44
Acquirors of FSLIC Cases(10) 22.48 199.72 13.93 201.48 19.09 0.38 1.21 23.87
</TABLE>
(1) Average of high/low or bid/ask price per share.
(2) Or since offering price if converted or first listed in 1994 or 1995.
Percent change figures are actual year-to-date and are not annualized
(3) EPS (earnings per share) is based on actual trailing twelve month data
and is not shown on a pro forma basis.
(4) Excludes intangibles (such as goodwill, value of core deposits, etc.).
(5) ROA (return on assets) and ROE (return on equity) are indicated ratios
based on trailing twelve month common earnings and average common equity
and assets balances; ROI (return on investment) is current EPS divided by
current price.
(6) Annualized, based on last regular quarterly cash dividend announcement.
(7) Indicated dividend as a percent of trailing twelve month earnings.
(8) Excluded from averages due to actual or rumored acquisition activities or
unusual operating characteristics.
* All thrifts are SAIF insured unless otherwise noted with an asterisk.
Parentheses following market averages indicate the number of institutions
included in the respective averages. All figures have been adjusted for
stock splits, stock dividends, and secondary offerings.
Source: Corporate reports and offering circulars for publicly traded companies,
and RP Financial, Inc. calculations. The information provided in this
report has been obtained from sources we believe are reliable, but we
cannot guarantee the accuracy or completeness of such information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit IV-1 (continued)
Weekly Thrift Market Line - Part Two
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Key Financial Ratios Asset Quality Ratios
---------------------------------------------------------- -----------------------
Tang.
Equity/ Equity/ Reported Earnings Core Earnings NPAs Resvs/ Resvs/
---------------------- ---------------
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Market Averages. BIF-Insured Thrifts(no MHCs)
- ---------------------------------------------
BIF-Insured Thrifts(64) 11.70 11.33 1.12 11.06 5.92 1.12 10.90 0.83 160.24 1.43
NYSE Traded Companies(2) 7.79 5.41 0.81 10.28 4.70 0.87 11.56 2.23 29.91 1.08
AMEX Traded Companies(6) 11.89 11.10 0.74 7.96 4.22 0.74 8.04 0.99 209.73 1.25
NASDAQ Listed OTC Companies(56) 11.84 11.60 1.17 11.48 6.17 1.18 11.23 0.75 159.41 1.47
California Companies(4) 8.41 8.40 1.07 12.37 6.45 1.01 11.55 1.32 77.71 1.37
Mid-Atlantic Companies(15) 11.42 10.75 0.83 8.44 4.03 0.91 9.04 0.84 164.21 1.37
Mid-West Companies(2) 25.06 23.63 0.43 1.59 1.65 0.66 2.42 0.56 57.14 0.57
New England Companies(34) 8.98 8.69 1.27 13.80 7.48 1.23 13.21 0.87 165.32 1.66
North-West Companies(4) 12.39 12.00 1.21 10.53 4.93 1.18 10.22 0.16 215.39 1.03
South-East Companies(5) 27.80 27.80 1.14 4.44 3.32 1.23 4.76 0.63 179.97 0.75
Thrift Strategy(44) 12.92 12.50 1.12 9.98 5.74 1.13 9.77 0.81 170.29 1.38
Mortgage Banker Strategy(8) 8.83 8.62 0.86 11.23 5.23 0.95 11.87 0.71 135.17 1.41
Real Estate Strategy(6) 8.88 8.87 1.37 15.11 7.49 1.29 14.24 1.08 103.33 1.46
Diversified Strategy(6) 6.77 6.23 1.23 17.81 7.35 1.21 17.45 1.03 155.58 2.06
Companies Issuing Dividends(52) 11.91 11.50 1.04 10.54 5.25 1.04 10.40 0.76 167.72 1.37
Companies Without Dividends(12) 10.46 10.27 1.60 14.68 9.98 1.59 14.42 1.21 119.09 1.84
Equity/Assets less than 6%(5) 5.45 5.32 0.97 17.27 6.12 0.87 15.46 1.41 68.96 1.56
Equity/Assets 6-12%(43) 8.62 8.15 1.20 12.95 6.96 1.18 12.73 0.88 150.11 1.53
Equity/Assets greater than 12%(16) 22.10 21.90 0.92 4.15 2.95 1.03 4.63 0.52 215.58 1.12
Actively Traded Companies(19) 8.86 8.44 1.18 13.70 6.58 1.13 13.05 0.80 147.19 1.51
Market Value Below $20 Million(6) 20.96 20.64 1.55 4.88 9.12 1.69 5.70 1.31 63.72 1.25
Holding Company Structure(42) 13.20 12.84 1.17 10.25 5.82 1.19 10.19 0.72 171.02 1.49
Assets Over $1 Billion(15) 9.09 8.43 1.06 12.66 5.62 1.09 12.80 0.96 131.86 1.50
Assets $500 Million-$1 Billion(16) 9.48 8.95 1.16 12.71 6.31 1.12 12.15 0.84 142.79 1.54
Assets $250-$500 Million(15) 10.85 10.70 0.98 10.53 5.29 0.97 10.34 0.67 198.56 1.59
Assets less than $250 Million(18) 17.55 17.40 1.26 8.00 6.42 1.30 8.00 0.86 167.74 1.10
Goodwill Companies(30) 9.26 8.47 0.93 11.23 5.56 0.94 11.10 0.99 126.82 1.49
Non-Goodwill Companies(34) 13.90 13.90 1.28 10.90 6.24 1.28 10.71 0.69 191.18 1.38
<CAPTION>
Pricing Ratios Dividend Data(6)
----------------------------------------- ----------------------
Price/ Price/ Ind. Divi-
Price/ Price/ Price/ Tang. Core Div./ dend Payout
Earning Book Assets Book Earnings Share Yield Ratio(7)
------- ------- ------- ------- -------- ------- ------- -------
(X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market Averages. BIF-Insured Thrifts(no MHCs)
- ---------------------------------------------
BIF-Insured Thrifts(64) 16.88 180.21 19.35 185.15 17.52 0.46 1.60 27.61
NYSE Traded Companies(2) 21.34 220.80 16.94 242.51 19.24 0.58 1.12 23.39
AMEX Traded Companies(6) 16.19 161.73 18.26 188.68 15.62 0.61 2.21 34.16
NASDAQ Listed OTC Companies(56) 16.72 180.83 19.58 183.48 17.57 0.44 1.55 27.36
California Companies(4) 15.63 175.16 14.71 175.43 16.99 0.00 0.00 0.00
Mid-Atlantic Companies(15) 20.31 178.37 19.57 189.81 20.07 0.46 1.53 34.48
Mid-West Companies(2) 0.00 99.84 25.02 105.90 0.00 0.00 0.00 0.00
New England Companies(34) 14.88 190.74 16.63 194.32 15.67 0.51 1.81 27.34
North-West Companies(4) 21.59 205.52 23.63 210.91 18.04 0.31 1.42 28.47
South-East Companies(5) 21.91 126.11 34.05 126.11 24.54 0.68 1.96 40.74
Thrift Strategy(44) 17.36 171.29 20.41 178.08 18.00 0.51 1.72 31.47
Mortgage Banker Strategy(8) 18.05 199.66 16.79 206.17 18.65 0.37 1.35 18.95
Real Estate Strategy(6) 13.87 186.63 16.56 186.81 14.34 0.20 0.94 11.07
Diversified Strategy(6) 14.02 231.19 15.44 228.23 14.50 0.45 1.46 21.37
Companies Issuing Dividends(52) 17.73 180.44 19.81 186.05 18.34 0.54 1.86 32.74
Companies Without Dividends(12) 11.90 178.82 16.53 179.97 12.51 0.00 0.00 0.00
Equity/Assets less than 6%(5) 17.06 262.99 14.33 268.91 19.87 0.18 0.95 16.86
Equity/Assets 6-12%(43) 16.00 188.88 16.60 195.47 16.26 0.51 1.70 26.82
Equity/Assets greater than 12%(16) 22.31 133.04 28.42 134.68 22.35 0.40 1.50 34.81
Actively Traded Companies(19) 15.89 194.03 16.86 197.97 16.86 0.52 1.73 27.19
Market Value Below $20 Million(6) 9.15 125.81 24.62 127.55 17.11 0.28 1.45 26.27
Holding Company Structure(42) 17.23 173.90 21.09 179.66 17.70 0.48 1.67 27.97
Assets Over $1 Billion(15) 18.35 207.83 19.14 209.69 17.99 0.50 1.55 26.13
Assets $500 Million-$1 Billion(16) 15.94 186.18 17.19 202.14 17.02 0.53 1.69 27.04
Assets $250-$500 Million(15) 16.56 175.66 17.77 178.69 16.53 0.36 1.49 25.28
Assets less than $250 Million(18) 16.65 152.72 23.44 154.13 18.69 0.46 1.67 32.19
Goodwill Companies(30) 17.53 185.72 16.38 196.84 17.93 0.49 1.63 27.12
Non-Goodwill Companies(34) 16.23 175.08 22.01 175.08 17.15 0.44 1.57 28.07
</TABLE>
(1) Average of high/low or bid/ask price per share.
(2) Or since offering price if converted or first listed in 1994 or 1995.
Percent change figures are actual year-to-date and are not annualized
(3) EPS (earnings per share) is based on actual trailing twelve month data
and is not shown on a pro forma basis.
(4) Excludes intangibles (such as goodwill, value of core deposits, etc.).
(5) ROA (return on assets) and ROE (return on equity) are indicated ratios
based on trailing twelve month common earnings and average common equity
and assets balances; ROI (return on investment) is current EPS divided by
current price.
(6) Annualized, based on last regular quarterly cash dividend announcement.
(7) Indicated dividend as a percent of trailing twelve month earnings.
(8) Excluded from averages due to actual or rumored acquisition activities or
unusual operating characteristics.
* All thrifts are SAIF insured unless otherwise noted with an asterisk.
Parentheses following market averages indicate the number of institutions
included in the respective averages. All figures have been adjusted for
stock splits, stock dividends, and secondary offerings.
Source: Corporate reports and offering circulars for publicly traded companies,
and RP Financial, Inc. calculations. The information provided in this
report has been obtained from sources we believe are reliable, but we
cannot guarantee the accuracy or completeness of such information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
RP FINANCIAL, LC.
-----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit IV-1 (continued)
Weekly Thrift Market Line - Part Two
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Key Financial Ratios
----------------------------------------------------------
Tang.
Equity/ Equity/ Reported Earnings Core Earnings
---------------------- ---------------
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5)
--------------------- ------- ------- ------- ------- ------- ------- -------
(%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
Market Averages. MHC Institutions
---------------------------------
SAIF-Insured Thrifts(20) 11.79 11.61 0.51 4.47 1.69 0.79 7.04
BIF-Insured Thrifts(2) 10.02 10.02 0.72 8.22 2.31 0.71 7.56
NASDAQ Listed OTC Companies(22) 11.58 11.42 0.54 4.91 1.76 0.78 7.10
Florida Companies(3) 9.81 9.78 0.47 4.51 1.75 0.72 6.91
Mid-Atlantic Companies(10) 11.60 11.31 0.47 4.37 1.47 0.72 6.75
Mid-West Companies(7) 12.88 12.86 0.56 4.28 1.86 0.89 7.17
New England Companies(1) 8.48 8.47 1.12 13.72 3.85 0.83 10.17
Thrift Strategy(21) 11.77 11.61 0.50 4.36 1.63 0.77 6.91
Diversified Strategy(1) 8.48 8.47 1.12 13.72 3.85 0.83 10.17
Companies Issuing Dividends(21) 11.57 11.40 0.54 4.98 1.74 0.78 7.19
Companies Without Dividends(1) 11.73 11.73 0.43 3.71 2.09 0.65 5.56
Equity/Assets 6-12%(16) 9.83 9.62 0.46 4.91 1.67 0.70 7.33
Equity/Assets >12%(6) 17.27 17.27 0.78 4.91 2.06 1.02 6.34
Actively Traded Companies(1) 9.42 8.40 0.58 6.17 1.62 0.91 9.77
Holding Company Structure(1) 9.42 8.40 0.58 6.17 1.62 0.91 9.77
Assets Over $1 Billion(5) 8.85 8.21 0.72 8.18 2.20 0.84 9.29
Assets $500 Million-$1 Billion(3) 9.81 9.78 0.47 4.51 1.75 0.72 6.91
Assets $250-$500 Million(5) 11.27 11.25 0.53 4.61 1.85 0.86 7.83
Assets less than $250 Million(9) 13.50 13.50 0.46 3.49 1.50 0.73 5.77
Goodwill Companies(8) 8.68 8.23 0.62 7.01 2.08 0.78 8.78
Non-Goodwill Companies(14) 13.16 13.16 0.49 3.76 1.58 0.77 6.18
MHC Institutions(22) 11.58 11.42 0.54 4.91 1.76 0.78 7.10
<CAPTION>
Asset Quality Ratios Pricing Ratios
----------------------- -----------------------------------------
Price/ Price/
NPAs Resvs/ Resvs/ Price/ Price/ Price/ Tang. Core
Financial Institution Assets NPAs Loans Earning Book Assets Book Earnings
--------------------- ------- ------- ------- ------- ------- ------- ------- -------
(%) (%) (%) (X) (%) (%) (%) (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market Averages. MHC Institutions
---------------------------------
SAIF-Insured Thrifts(20) 0.51 145.36 0.72 0.00 221.63 28.37 221.94 28.11
BIF-Insured Thrifts(2) 1.85 82.27 1.77 25.99 0.00 34.17 0.00 0.00
NASDAQ Listed OTC Companies(22) 0.70 136.35 0.84 25.99 221.63 29.05 221.94 28.11
Florida Companies(3) 0.45 64.99 0.46 0.00 250.32 24.49 251.26 0.00
Mid-Atlantic Companies(10) 0.89 148.38 1.02 0.00 206.49 30.50 206.49 0.00
Mid-West Companies(7) 0.44 154.71 0.52 0.00 225.28 28.47 225.67 28.11
New England Companies(1) 0.90 121.39 1.60 25.99 0.00 28.02 0.00 0.00
Thrift Strategy(21) 0.68 137.50 0.80 0.00 221.63 29.12 221.94 28.11
Diversified Strategy(1) 0.90 121.39 1.60 25.99 0.00 28.02 0.00 0.00
Companies Issuing Dividends(21) 0.70 136.35 0.81 25.99 225.62 29.57 225.97 28.11
Companies Without Dividends(1) 0.00 0.00 1.40 0.00 177.65 20.83 177.65 0.00
Equity/Assets 6-12%(16) 0.79 95.58 0.95 25.99 223.48 26.59 223.96 28.11
Equity/Assets >12%(6) 0.15 380.97 0.50 0.00 217.91 37.07 217.91 0.00
Actively Traded Companies(1) 0.68 83.02 1.06 0.00 0.00 34.43 0.00 0.00
Holding Company Structure(1) 0.68 83.02 1.06 0.00 0.00 34.43 0.00 0.00
Assets Over $1 Billion(5) 0.74 89.86 1.13 25.99 0.00 31.69 0.00 0.00
Assets $500 Million-$1 Billion(3) 0.45 64.99 0.46 0.00 250.32 24.49 251.26 0.00
Assets $250-$500 Million(5) 0.29 334.04 0.43 0.00 243.25 27.15 243.90 27.73
Assets less than $250 Million(9) 1.01 83.46 0.95 0.00 204.16 29.59 204.16 28.48
Goodwill Companies(8) 0.57 127.39 0.89 25.99 247.51 28.00 249.42 27.73
Non-Goodwill Companies(14) 0.80 143.06 0.82 0.00 216.45 29.63 216.45 28.48
MHC Institutions(22) 0.70 136.35 0.84 25.99 221.63 29.05 221.94 28.11
<CAPTION>
Dividend Data(6)
-----------------------
Ind. Divi-
Div./ dend Payout
Financial Institution Share Yield Ratio(7)
--------------------- ------- ------- -------
($) (%) (%)
<S> <C> <C> <C>
Market Averages. MHC Institutions
---------------------------------
SAIF-Insured Thrifts(20) 0.55 1.89 51.85
BIF-Insured Thrifts(2) 0.52 1.54 48.92
NASDAQ Listed OTC Companies(22) 0.55 1.85 51.36
Florida Companies(3) 0.90 2.61 0.00
Mid-Atlantic Companies(10) 0.38 1.24 47.43
Mid-West Companies(7) 0.68 2.63 69.57
New England Companies(1) 0.68 1.88 48.92
Thrift Strategy(21) 0.54 1.85 51.85
Diversified Strategy(1) 0.68 1.88 48.92
Companies Issuing Dividends(21) 0.58 1.96 61.64
Companies Without Dividends(1) 0.00 0.00 0.00
Equity/Assets 6-12%(16) 0.49 1.52 51.36
Equity/Assets >12%(6) 0.74 2.91 0.00
Actively Traded Companies(1) 0.44 0.99 61.11
Holding Company Structure(1) 0.44 0.99 61.11
Assets Over $1 Billion(5) 0.51 1.24 59.66
Assets $500 Million-$1 Billion(3) 0.90 2.61 0.00
Assets $250-$500 Million(5) 0.62 2.06 69.57
Assets less than $250 Million(9) 0.46 1.88 0.00
Goodwill Companies(8) 0.57 1.55 61.64
Non-Goodwill Companies(14) 0.54 2.01 0.00
MHC Institutions(22) 0.55 1.85 51.36
</TABLE>
(1) Average of high/low or bid/ask price per share.
(2) Or since offering price if converted or first listed in 1994 or 1995.
Percent change figures are actual year-to-date and are not annualized
(3) EPS (earnings per share) is based on actual trailing twelve month data
and is not shown on a pro forma basis.
(4) Excludes intangibles (such as goodwill, value of core deposits, etc.).
(5) ROA (return on assets) and ROE (return on equity) are indicated ratios
based on trailing twelve month common earnings and average common
equity and assets balances; ROI (return on investment) is current EPS
divided by current price.
(6) Annualized, based on last regular quarterly cash dividend announcement.
(7) Indicated dividend as a percent of trailing twelve month earnings.
(8) Excluded from averages due to actual or rumored acquisition activities
or unusual operating characteristics.
* All thrifts are SAIF insured unless otherwise noted with an asterisk.
Parentheses following market averages indicate the number of
institutions included in the respective averages. All figures have been
adjusted for stock splits, stock dividends, and secondary offerings.
Source: Corporate reports and offering circulars for publicly traded
companies, and RP Financial, Inc. calculations. The information
provided in this report has been obtained from sources we believe
are reliable, but we cannot guarantee the accuracy or completeness
of such information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
RP FINANCIAL, LC.
-----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit IV-1 (continued)
Weekly Thrift Market Line - Part Two
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Key Financial Ratios
----------------------------------------------------------
Tang.
Equity/ Equity/ Reported Earnings Core Earnings
---------------------- ---------------
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5)
--------------------- ------- ------- ------- ------- ------- ------- -------
(%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
NYSE Traded Companies
---------------------
AHM Ahmanson and Co. H.F. of CA 4.17 3.55 0.39 9.68 3.45 0.62 15.44
CSA Coast Savings Financial of CA 4.92 4.86 0.21 4.28 1.73 0.53 10.73
CFB Commercial Federal Corp. of NE 6.00 5.32 0.65 11.03 4.07 0.91 15.55
DME Dime Bancorp, Inc. of NY* 5.27 5.03 0.56 10.57 4.45 0.71 13.39
DSL Downey Financial Corp. of CA 6.93 6.84 0.44 5.82 3.32 0.73 9.68
FED FirstFed Fin. Corp. of CA 4.83 4.77 0.29 6.19 3.09 0.53 11.34
GSB Glendale Fed. Bk, FSB of CA 5.53 4.91 0.26 4.71 2.37 0.61 11.03
GDW Golden West Fin. Corp. of CA 6.37 6.37 1.02 16.09 7.44 1.24 19.62
GPT GreenPoint Fin. Corp. of NY* 10.31 5.79 1.06 9.99 4.95 1.03 9.74
NYB New York Bancorp, Inc. of NY 5.08 5.08 1.38 26.83 5.65 1.62 31.44
WES Westcorp Inc. of Orange CA 9.05 9.02 0.87 9.10 5.02 0.43 4.51
AMEX Traded Companies
---------------------
ANA Acadiana Bancshares of LA* 17.43 17.43 0.50 3.67 1.91 0.50 3.67
BKC American Bank of Waterbury CT* 8.29 7.95 1.27 15.35 7.52 1.10 13.19
BFD BostonFed Bancorp of MA 8.79 8.49 0.51 5.08 3.40 0.66 6.58
CFX CFX Corp of NH* 7.44 6.96 0.94 11.53 5.00 1.12 13.73
CNY Carver Bancorp, Inc. of NY 8.35 8.01 -0.44 -4.95 -5.80 0.01 0.07
CBK Citizens First Fin.Corp. of IL 14.08 14.08 0.29 1.95 1.61 0.58 3.84
ESX Essex Bancorp of VA(8) 0.27 0.17 -0.03 -16.67 -1.16 0.03 16.67
FCB Falmouth Co-Op Bank of MA* 23.88 23.88 0.84 3.43 2.54 0.79 3.23
FAB FirstFed America Bancorp of MA 12.16 12.16 -0.20 -2.35 -0.97 0.47 5.61
GAF GA Financial Corp. of PA 15.18 15.02 1.00 5.26 4.10 1.27 6.71
JSB JSB Financial, Inc. of NY 22.85 22.85 1.80 8.12 5.70 1.71 7.74
KNK Kankakee Bancorp of IL 11.09 10.42 0.66 6.35 4.80 0.82 7.92
KYF Kentucky First Bancorp of KY 16.56 16.56 0.87 4.64 4.13 1.12 6.00
MBB MSB Bancorp of Middletown NY* 7.39 3.63 0.17 2.40 1.79 0.18 2.50
PDB Piedmont Bancorp of NC 16.63 16.63 -0.42 -1.94 -1.75 0.66 3.07
SSB Scotland Bancorp of NC 37.02 37.02 1.41 3.88 4.25 1.72 4.72
SZB SouthFirst Bancshares of AL 14.00 14.00 -0.03 -0.19 -0.14 0.23 1.62
SRN Southern Banc Company of AL 17.01 16.83 0.14 0.79 0.71 0.50 2.84
SSM Stone Street Bancorp of NC 28.85 28.85 1.43 4.18 3.81 1.71 5.02
TSH Teche Holding Company of LA 13.14 13.14 0.69 5.03 3.45 0.96 6.96
FTF Texarkana Fst. Fin. Corp of AR 15.70 15.70 1.41 8.40 4.89 1.74 10.38
THR Three Rivers Fin. Corp. of MI 13.46 13.41 0.57 4.02 3.33 0.82 5.83
TBK Tolland Bank of CT* 6.94 6.74 0.75 11.37 6.55 0.78 11.89
WSB Washington SB, FSB of MD 8.30 8.30 0.50 6.00 3.69 0.73 8.80
NASDAQ Listed OTC Companies
---------------------------
FBCV 1st Bancorp of Vincennes IN 8.26 8.09 0.31 3.80 3.19 0.13 1.61
AFED AFSALA Bancorp, Inc. of NY 13.47 13.47 0.79 6.46 4.32 0.79 6.46
ALBK ALBANK Fin. Corp. of Albany NY 9.20 8.04 0.84 9.16 5.09 1.04 11.28
AMFC AMB Financial Corp. of IN 14.95 14.95 0.73 4.14 4.00 0.81 4.57
ASBP ASB Financial Corp. of OH 15.75 15.75 0.60 3.24 2.92 0.86 4.66
ABBK Abington Savings Bank of MA* 6.92 6.23 0.82 12.05 6.65 0.73 10.71
AABC Access Anytime Bancorp of NM 7.44 7.44 -0.50 -8.75 -5.29 -0.12 -2.14
AFBC Advance Fin. Bancorp of WV 15.43 15.43 0.56 4.60 2.87 0.85 6.94
AADV Advantage Bancorp of WI 9.21 8.62 0.40 4.49 2.20 0.89 9.94
AFCB Affiliated Comm BC, Inc of MA 9.78 9.72 0.96 9.78 4.90 1.09 11.12
ALBC Albion Banc Corp. of Albion NY 8.73 8.73 0.11 1.14 0.93 0.38 4.07
ABCL Allied Bancorp of IL 8.91 8.80 0.52 5.89 2.28 0.76 8.60
ATSB AmTrust Capital Corp. of IN 10.33 10.23 0.18 1.81 1.75 0.30 2.96
<CAPTION>
Asset Quality Ratios Pricing Ratios
----------------------- -----------------------------------------
Price/ Price/
NPAs Resvs/ Resvs/ Price/ Price/ Price/ Tang. Core
Financial Institution Assets NPAs Loans Earning Book Assets Book Earnings
--------------------- ------- ------- ------- ------- ------- ------- ------- -------
(%) (%) (%) (X) (%) (%) (%) (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NYSE Traded Companies
---------------------
AHM Ahmanson and Co. H.F. of CA 1.90 42.90 1.25 28.94 281.62 11.74 NM 18.14
CSA Coast Savings Financial of CA 1.40 65.70 1.37 NM 238.45 11.73 241.46 23.13
CFB Commercial Federal Corp. of NE 0.89 76.36 0.91 24.57 254.78 15.30 287.34 17.43
DME Dime Bancorp, Inc. of NY* 1.57 31.98 0.85 22.50 231.34 12.20 242.51 17.76
DSL Downey Financial Corp. of CA 0.95 55.76 0.58 NM 169.99 11.78 172.36 18.14
FED FirstFed Fin. Corp. of CA 1.39 134.39 2.46 NM 191.01 9.22 193.13 17.66
GSB Glendale Fed. Bk, FSB of CA 1.46 69.38 1.36 NM 187.37 10.36 210.80 18.04
GDW Golden West Fin. Corp. of CA 1.31 42.43 0.68 13.44 206.29 13.14 206.29 11.02
GPT GreenPoint Fin. Corp. of NY* 2.89 27.84 1.30 20.19 210.25 21.68 NM 20.71
NYB New York Bancorp, Inc. of NY 1.22 48.76 0.97 17.71 NM 23.05 NM 15.11
WES Westcorp Inc. of Orange CA 0.74 134.25 1.95 19.93 174.04 15.75 174.59 NM
AMEX Traded Companies
---------------------
ANA Acadiana Bancshares of LA* 0.52 190.96 1.35 NM 147.43 25.69 147.43 NM
BKC American Bank of Waterbury CT* 1.81 48.13 1.45 13.30 191.18 15.84 199.14 15.47
BFD BostonFed Bancorp of MA 0.52 114.29 0.74 29.39 150.83 13.25 156.03 22.66
CFX CFX Corp of NH* 0.72 120.07 1.23 20.00 209.13 15.55 223.58 16.79
CNY Carver Bancorp, Inc. of NY 1.37 42.60 1.02 NM 85.40 7.13 89.04 NM
CBK Citizens First Fin.Corp. of IL 0.59 37.65 0.26 NM 126.32 17.79 126.32 NM
ESX Essex Bancorp of VA(8) 2.63 42.63 1.34 NM NM 2.40 NM NM
FCB Falmouth Co-Op Bank of MA* 0.07 806.45 0.98 NM 133.12 31.79 133.12 NM
FAB FirstFed America Bancorp of MA 0.40 235.98 1.10 NM 151.61 18.44 151.61 NM
GAF GA Financial Corp. of PA 0.12 132.49 0.43 24.38 136.84 20.77 138.30 19.12
JSB JSB Financial, Inc. of NY 1.08 33.98 0.62 17.54 137.17 31.35 137.17 18.40
KNK Kankakee Bancorp of IL 0.94 67.06 0.92 20.83 126.93 14.08 135.05 16.71
KYF Kentucky First Bancorp of KY 0.07 630.51 0.75 24.24 125.87 20.85 125.87 18.75
MBB MSB Bancorp of Middletown NY* 0.71 38.66 0.63 NM 129.74 9.59 264.35 NM
PDB Piedmont Bancorp of NC 0.91 71.58 0.79 NM 146.50 24.36 146.50 NM
SSB Scotland Bancorp of NC NA NA 0.50 23.53 89.29 33.06 89.29 19.35
SZB SouthFirst Bancshares of AL 0.75 39.15 0.40 NM 129.95 18.19 129.95 NM
SRN Southern Banc Company of AL NA NA 0.21 NM 116.60 19.83 117.81 NM
SSM Stone Street Bancorp of NC 0.27 187.50 0.62 26.25 130.19 37.56 130.19 21.88
TSH Teche Holding Company of LA 0.27 304.97 0.96 29.00 145.65 19.14 145.65 20.94
FTF Texarkana Fst. Fin. Corp of AR 0.46 145.12 0.79 20.47 178.38 28.01 178.38 16.55
THR Three Rivers Fin. Corp. of MI 1.15 44.56 0.78 NM 119.82 16.13 120.28 20.69
TBK Tolland Bank of CT* 2.13 54.09 1.87 15.26 159.81 11.09 164.47 14.60
WSB Washington SB, FSB of MD NA NA 0.92 27.10 160.99 13.37 160.99 18.48
NASDAQ Listed OTC Companies
---------------------------
FBCV 1st Bancorp of Vincennes IN 0.94 45.77 0.66 NM 115.63 9.55 118.06 NM
AFED AFSALA Bancorp, Inc. of NY 0.45 150.77 1.43 23.17 128.90 17.37 128.90 23.17
ALBK ALBANK Fin. Corp. of Albany NY 0.91 78.77 0.99 19.65 174.08 16.02 199.20 15.96
AMFC AMB Financial Corp. of IN 0.81 49.41 0.53 25.00 112.94 16.89 112.94 22.60
ASBP ASB Financial Corp. of OH 1.02 71.62 1.09 NM 129.93 20.46 129.93 23.88
ABBK Abington Savings Bank of MA* 0.20 211.97 0.69 15.05 173.52 12.01 192.65 16.93
AABC Access Anytime Bancorp of NM 1.60 29.31 0.92 NM 130.17 9.69 130.17 NM
AFBC Advance Fin. Bancorp of WV 0.58 60.53 0.43 NM 119.29 18.40 119.29 23.05
AADV Advantage Bancorp of WI 0.44 128.03 1.01 NM 198.80 18.32 212.63 20.55
AFCB Affiliated Comm BC, Inc of MA 0.39 191.75 1.20 20.42 189.51 18.53 190.55 17.96
ALBC Albion Banc Corp. of Albion NY 0.72 53.94 0.54 NM 121.54 10.61 121.54 NM
ABCL Allied Bancorp of IL 0.15 257.09 0.53 NM 171.47 15.27 173.59 NM
ATSB AmTrust Capital Corp. of IN 3.63 19.92 1.02 NM 100.42 10.37 101.42 NM
<CAPTION>
Dividend Data(6)
-----------------------
Ind. Divi-
Div./ dend Payout
Financial Institution Share Yield Ratio(7)
--------------------- ------- ------- -------
($) (%) (%)
<S> <C> <C> <C>
NYSE Traded Companies
---------------------
AHM Ahmanson and Co. H.F. of CA 0.88 1.54 44.44
CSA Coast Savings Financial of CA 0.00 0.00 0.00
CFB Commercial Federal Corp. of NE 0.28 0.56 13.66
DME Dime Bancorp, Inc. of NY* 0.16 0.68 15.24
DSL Downey Financial Corp. of CA 0.32 1.23 37.21
FED FirstFed Fin. Corp. of CA 0.00 0.00 0.00
GSB Glendale Fed. Bk, FSB of CA 0.00 0.00 0.00
GDW Golden West Fin. Corp. of CA 0.44 0.49 6.53
GPT GreenPoint Fin. Corp. of NY* 1.00 1.56 31.55
NYB New York Bancorp, Inc. of NY 0.60 1.71 30.30
WES Westcorp Inc. of Orange CA 0.40 1.81 36.04
AMEX Traded Companies
---------------------
ANA Acadiana Bancshares of LA* 0.36 1.46 NM
BKC American Bank of Waterbury CT* 1.44 3.46 46.01
BFD BostonFed Bancorp of MA 0.28 1.29 37.84
CFX CFX Corp of NH* 0.88 4.00 NM
CNY Carver Bancorp, Inc. of NY 0.20 1.57 NM
CBK Citizens First Fin.Corp. of IL 0.00 0.00 0.00
ESX Essex Bancorp of VA(8) 0.00 0.00 NM
FCB Falmouth Co-Op Bank of MA* 0.20 0.98 38.46
FAB FirstFed America Bancorp of MA 0.00 0.00 NM
GAF GA Financial Corp. of PA 0.48 2.46 60.00
JSB JSB Financial, Inc. of NY 1.40 2.87 50.36
KNK Kankakee Bancorp of IL 0.48 1.42 29.63
KYF Kentucky First Bancorp of KY 0.50 3.56 NM
MBB MSB Bancorp of Middletown NY* 0.60 2.19 NM
PDB Piedmont Bancorp of NC 0.40 3.68 NM
SSB Scotland Bancorp of NC 0.30 2.50 58.82
SZB SouthFirst Bancshares of AL 0.50 2.40 NM
SRN Southern Banc Company of AL 0.35 2.06 NM
SSM Stone Street Bancorp of NC 0.45 2.14 56.25
TSH Teche Holding Company of LA 0.50 2.21 64.10
FTF Texarkana Fst. Fin. Corp of AR 0.56 2.09 42.75
THR Three Rivers Fin. Corp. of MI 0.40 2.15 64.52
TBK Tolland Bank of CT* 0.20 1.18 18.02
WSB Washington SB, FSB of MD 0.10 1.23 33.33
NASDAQ Listed OTC Companies
---------------------------
FBCV 1st Bancorp of Vincennes IN 0.40 1.08 33.90
AFED AFSALA Bancorp, Inc. of NY 0.16 0.84 19.51
ALBK ALBANK Fin. Corp. of Albany NY 0.72 1.60 31.44
AMFC AMB Financial Corp. of IN 0.24 1.45 36.36
ASBP ASB Financial Corp. of OH 0.40 2.99 NM
ABBK Abington Savings Bank of MA* 0.40 1.23 18.52
AABC Access Anytime Bancorp of NM 0.00 0.00 NM
AFBC Advance Fin. Bancorp of WV 0.32 1.80 62.75
AADV Advantage Bancorp of WI 0.40 0.69 31.50
AFCB Affiliated Comm BC, Inc of MA 0.48 1.54 31.37
ALBC Albion Banc Corp. of Albion NY 0.32 1.10 NM
ABCL Allied Bancorp of IL 0.44 1.64 72.13
ATSB AmTrust Capital Corp. of IN 0.20 1.40 NM
</TABLE>
<PAGE>
RP FINANCIAL, LC.
------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit IV-1 (continued)
Weekly Thrift Market Line - Part Two
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Key Financial Ratios Asset Quality Ratios
---------------------------------------------------------- ---------------------
Tang.
Reported Earnings Core Earnings
Equity/ Equity/ ---------------------- --------------- NPAs Resvs/
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs
--------------------- ------ ------ ----- ----- ----- ----- ----- ------ -----
(%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
---------------------------------------
AHCI Ambanc Holding Co., Inc. of NY* 12.94 12.94 -0.59 -4.26 -3.74 -0.62 -4.45 0.63 124.04
ASBI Ameriana Bancorp of IN 10.96 10.95 0.61 5.52 3.43 0.85 7.73 0.40 71.19
AFFFZ America First Fin. Fund of CA(8) 8.44 8.34 1.49 19.31 12.93 1.83 23.69 0.40 81.55
ANBK American Nat'l Bancorp of MD(8) 8.97 8.97 0.28 2.90 1.84 0.65 6.74 0.74 102.82
ABCW Anchor Bancorp Wisconsin of WI 6.22 6.11 0.75 12.06 4.88 0.96 15.56 0.92 126.05
ANDB Andover Bancorp, Inc. of MA* 8.06 8.06 1.10 13.91 7.07 1.13 14.34 1.01 99.08
ASFC Astoria Financial Corp. of NY 7.83 6.57 0.56 7.09 3.47 0.79 10.12 0.51 37.96
AVND Avondale Fin. Corp. of IL 9.12 9.12 -0.49 -5.19 -4.63 -1.51 -16.06 3.18 96.19
BKCT Bancorp Connecticut of CT* 10.25 10.25 1.32 12.60 6.77 1.24 11.90 1.19 100.82
BPLS Bank Plus Corp. of CA 5.06 5.06 -0.26 -5.31 -3.46 0.02 0.46 2.88 58.99
BWFC Bank West Fin. Corp. of MI 14.52 14.52 0.64 3.91 2.49 0.57 3.47 0.28 51.72
BANC BankAtlantic Bancorp of FL 5.62 4.62 0.90 14.98 6.43 0.65 10.86 0.97 102.98
BKUNA BankUnited SA of FL 3.72 3.02 0.21 4.55 2.19 0.34 7.54 0.66 26.19
BVCC Bay View Capital Corp. of CA 6.34 5.32 0.39 6.37 3.39 0.63 10.37 0.83 137.32
FSNJ Bayonne Banchsares of NJ 14.42 14.42 -0.35 -2.42 -1.87 -0.06 -0.40 1.22 43.59
BFSB Bedford Bancshares of VA 14.16 14.16 1.01 6.98 4.65 1.29 8.94 0.60 79.85
BFFC Big Foot Fin. Corp. of IL 16.98 16.98 0.05 0.28 0.21 0.42 2.45 0.09 151.52
BSBC Branford SB of CT(8)* 9.28 9.28 1.16 12.75 5.57 1.16 12.75 1.42 141.26
BYFC Broadway Fin. Corp. of CA 10.01 10.01 -0.14 -1.23 -1.62 0.21 1.88 2.06 39.74
CBES CBES Bancorp of MO 17.58 17.58 0.91 5.54 3.91 1.11 6.80 NA NA
CCFH CCF Holding Company of GA 11.68 11.68 0.05 0.30 0.26 0.07 0.42 0.18 325.68
CENF CENFED Financial Corp. of CA 5.20 5.19 0.51 10.04 5.08 0.73 14.30 1.28 58.93
CFSB CFSB Bancorp of Lansing MI 7.63 7.63 0.85 10.96 4.61 1.07 13.84 0.17 308.01
CKFB CKF Bancorp of Danville KY 23.96 23.96 1.81 7.25 6.32 1.33 5.33 1.26 14.79
CNSB CNS Bancorp of MO 24.94 24.94 0.42 1.70 1.39 0.77 3.13 0.53 72.14
CSBF CSB Financial Group Inc of IL* 25.06 23.63 0.43 1.59 1.65 0.66 2.42 0.56 57.14
CBCI Calumet Bancorp of Chicago IL 15.50 15.50 1.15 7.22 5.56 1.46 9.16 1.16 102.51
CAFI Camco Fin. Corp. of OH 9.57 8.82 0.82 9.11 4.85 0.92 10.18 0.49 54.74
CMRN Cameron Fin. Corp. of MO 21.69 21.69 1.07 4.43 4.05 1.33 5.51 0.73 111.82
CAPS Capital Savings Bancorp of MO 8.80 8.80 0.67 7.61 4.69 0.93 10.68 0.31 97.24
CFNC Carolina Fincorp of NC* 22.83 22.83 1.14 4.92 3.97 1.09 4.70 0.18 194.17
CASB Cascade SB of Everett WA(8) 6.13 6.13 0.35 5.65 3.42 0.52 8.53 0.41 191.64
CATB Catskill Fin. Corp. of NY* 25.04 25.04 1.43 5.21 5.15 1.45 5.27 0.47 140.85
CNIT Cenit Bancorp of Norfolk VA 7.24 6.65 0.87 12.05 5.77 0.80 11.05 0.51 103.23
CEBK Central Co-Op. Bank of MA* 10.45 9.31 0.88 8.78 6.00 0.90 8.90 0.85 97.49
CENB Century Bancshares of NC* 30.11 30.11 1.76 5.85 5.36 1.77 5.89 0.13 423.08
CBSB Charter Financial Inc. of IL 14.47 12.80 1.13 7.49 5.06 1.59 10.49 0.56 104.84
COFI Charter One Financial of OH 6.71 6.28 0.98 14.64 4.71 1.23 18.32 0.27 164.80
CVAL Chester Valley Bancorp of PA 8.36 8.36 0.65 7.42 3.83 0.93 10.59 0.23 381.68
CTZN CitFed Bancorp of Dayton OH 6.37 5.74 0.58 9.12 3.58 0.82 12.83 0.41 143.79
CLAS Classic Bancshares of KY 14.72 12.42 0.55 3.05 2.77 0.77 4.27 0.94 65.45
CMSB Cmnwealth Bancorp of PA 9.63 7.53 0.55 5.26 3.63 0.70 6.71 0.50 86.54
CBSA Coastal Bancorp of Houston TX 3.33 2.77 0.25 7.57 4.68 0.44 13.16 0.58 39.81
CFCP Coastal Fin. Corp. of SC 6.17 6.17 0.94 15.22 3.90 1.03 16.67 0.21 436.85
CMSV Commty. Svgs, MHC of FL (48.5) 11.25 11.25 0.56 4.87 1.92 0.84 7.27 0.55 67.15
CFTP Community Fed. Bancorp of MS 27.46 27.46 1.33 4.15 3.37 1.62 5.07 0.30 91.63
CFFC Community Fin. Corp. of VA 13.71 13.71 1.01 7.32 5.62 1.28 9.26 0.39 148.67
CFBC Community First Bnkg Co. of GA 15.40 15.19 0.56 3.65 2.68 0.57 3.69 2.02 26.10
CIBI Community Inv. Bancorp of OH 12.04 12.04 0.62 5.22 4.13 0.94 7.95 0.63 82.56
COOP Cooperative Bk.for Svgs. of NC 7.63 7.63 -0.80 -10.08 -5.81 0.19 2.46 0.46 50.09
CRZY Crazy Woman Creek Bncorp of WY 25.81 25.81 1.06 3.69 3.84 1.30 4.52 0.39 136.15
DNFC D&N Financial Corp. of MI 5.57 5.52 0.61 10.68 4.63 0.80 14.08 0.34 198.09
DCBI Delphos Citizens Bancorp of OH 28.41 28.41 1.45 6.45 4.06 1.45 6.45 0.35 27.76
DIME Dime Community Bancorp of NY 14.52 12.50 0.96 5.96 4.18 1.04 6.41 0.73 112.22
DIBK Dime Financial Corp. of CT* 7.96 7.70 1.90 23.27 9.02 1.91 23.35 0.40 355.33
EGLB Eagle BancGroup of IL 11.85 11.85 -0.09 -0.77 -0.63 0.20 1.73 1.48 35.83
<CAPTION>
Pricing Ratios Dividend Data(6)
------------------------------------------ ---------------------------
Price/ Price/ Ind. Divi-
Resvs/ Price/ Price/ Price/ Tang. Core Div./ dend Payout
Financial Institution Loans Earning Book Assets Book Earnings Share Yield Ratio(7)
- --------------------- ------- -------- ------ -------- ----- --------- ------- ------ --------
(%) (X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
AHCI Ambanc Holding Co., Inc. of NY* 1.40 NM 119.80 15.50 119.80 NM 0.20 1.17 NM
ASBI Ameriana Bancorp of IN 0.38 29.17 162.19 17.77 162.31 20.84 0.64 2.93 NM
AFFFZ America First Fin. Fund of CA(8) 0.49 7.74 138.56 11.69 140.29 6.30 1.60 3.75 29.04
ANBK American Nat'l Bancorp of MD(8) 1.17 NM 160.45 14.39 160.45 23.40 0.12 0.60 32.43
ABCW Anchor Bancorp Wisconsin of WI 1.48 20.48 239.80 14.92 244.23 15.88 0.32 1.01 20.65
ANDB Andover Bancorp, Inc. of MA* 1.41 14.15 185.66 14.97 185.66 13.72 0.68 1.87 26.46
ASFC Astoria Financial Corp. of NY 0.48 28.83 197.62 15.46 235.32 20.18 0.60 1.06 30.61
AVND Avondale Fin. Corp. of IL 5.33 NM 115.90 10.57 115.90 NM 0.00 0.00 NM
BKCT Bancorp Connecticut of CT* 1.98 14.77 183.31 18.78 183.31 15.64 1.00 3.15 46.51
BPLS Bank Plus Corp. of CA 2.11 NM 143.58 7.27 143.74 NM 0.00 0.00 NM
BWFC Bank West Fin. Corp. of MI 0.20 NM 164.86 23.93 164.86 NM 0.32 1.51 60.38
BANC BankAtlantic Bancorp of FL 1.39 15.56 223.28 12.55 271.84 21.48 0.13 0.85 13.27
BKUNA BankUnited SA of FL 0.21 NM 174.57 6.50 215.45 27.60 0.00 0.00 0.00
BVCC Bay View Capital Corp. of CA 1.51 29.51 189.29 12.00 225.53 18.11 0.32 1.12 32.99
FSNJ Bayonne Banchsares of NJ 1.36 NM 129.26 18.64 129.26 NM 0.17 1.33 NM
BFSB Bedford Bancshares of VA 0.56 21.49 145.83 20.66 145.83 16.78 0.56 2.29 49.12
BFFC Big Foot Fin. Corp. of IL 0.34 NM 135.98 23.09 135.98 NM 0.00 0.00 0.00
BSBC Branford SB of CT(8)* 3.06 17.97 217.80 20.22 217.80 17.97 0.08 1.39 25.00
BYFC Broadway Fin. Corp. of CA 1.01 NM 80.20 8.03 80.20 NM 0.20 1.70 NM
CBES CBES Bancorp of MO NA 25.60 123.99 21.80 123.99 20.87 0.40 1.86 47.62
CCFH CCF Holding Company of GA 0.72 NM 135.79 15.86 135.79 NM 0.55 2.82 NM
CENF CENFED Financial Corp. of CA 1.10 19.70 187.05 9.73 187.41 13.83 0.36 0.92 18.18
CFSB CFSB Bancorp of Lansing MI 0.61 21.67 234.70 17.90 234.70 17.16 0.68 2.29 49.64
CKFB CKF Bancorp of Danville KY 0.20 15.81 117.46 28.14 117.46 21.51 0.50 2.70 42.74
CNSB CNS Bancorp of MO 0.58 NM 121.29 30.25 121.29 NM 0.24 1.33 NM
CSBF CSB Financial Group Inc of IL* 0.57 NM 99.84 25.02 105.90 NM 0.00 0.00 0.00
CBCI Calumet Bancorp of Chicago IL 1.57 17.99 134.23 20.81 134.23 14.19 0.00 0.00 0.00
CAFI Camco Fin. Corp. of OH 0.32 20.60 156.86 15.01 170.04 18.44 0.52 2.27 46.85
CMRN Cameron Fin. Corp. of MO 0.97 24.68 112.05 24.30 112.05 19.85 0.28 1.45 35.90
CAPS Capital Savings Bancorp of MO 0.39 21.34 155.14 13.65 155.14 15.22 0.24 1.37 29.27
CFNC Carolina Fincorp of NC* 0.51 25.18 124.51 28.42 124.51 26.34 0.24 1.40 35.29
CASB Cascade SB of Everett WA(8) 0.94 29.26 156.61 9.60 156.61 19.37 0.00 0.00 0.00
CATB Catskill Fin. Corp. of NY* 1.48 19.41 109.42 27.40 109.42 19.19 0.28 1.70 32.94
CNIT Cenit Bancorp of Norfolk VA 0.76 17.33 208.87 15.12 227.43 18.90 1.00 1.54 26.67
CEBK Central Co-Op. Bank of MA* 1.21 16.67 140.60 14.69 157.89 16.44 0.32 1.33 22.22
CENB Century Bancshares of NC* 0.87 18.65 108.46 32.66 108.46 18.52 2.00 2.48 46.19
CBSB Charter Financial Inc. of IL 0.79 19.76 151.35 21.90 171.06 14.12 0.32 1.54 30.48
COFI Charter One Financial of OH 0.73 21.22 299.05 20.06 NM 16.96 1.00 1.58 33.56
CVAL Chester Valley Bancorp of PA 1.10 26.12 185.70 15.53 185.70 18.31 0.42 1.81 47.19
CTZN CitFed Bancorp of Dayton OH 0.95 27.96 237.63 15.13 263.73 19.87 0.36 0.66 18.56
CLAS Classic Bancshares of KY 0.93 NM 109.50 16.12 129.79 25.79 0.28 1.72 62.22
CMSB Cmnwealth Bancorp of PA 0.79 27.54 147.40 14.19 188.49 21.59 0.28 1.47 40.58
CBSA Coastal Bancorp of Houston TX 0.51 21.38 156.17 5.20 187.88 12.30 0.48 1.55 33.10
CFCP Coastal Fin. Corp. of SC 1.15 25.65 NM 22.50 NM 23.43 0.36 1.48 37.89
CMSV Commty. Svgs, MHC of FL (48.5) 0.63 NM 245.80 27.64 245.80 NM 0.90 2.37 NM
CFTP Community Fed. Bancorp of MS 0.46 29.66 141.13 38.75 141.13 24.31 0.30 1.71 50.85
CFFC Community Fin. Corp. of VA 0.65 17.80 124.60 17.08 124.60 14.07 0.56 2.38 42.42
CFBC Community First Bnkg Co. of GA 0.83 NM 136.57 21.03 138.45 NM 0.60 1.53 57.14
CIBI Community Inv. Bancorp of OH 0.62 24.21 127.51 15.35 127.51 15.89 0.32 2.10 50.79
COOP Cooperative Bk.for Svgs. of NC 0.29 NM 171.84 13.12 171.84 NM 0.00 0.00 NM
CRZY Crazy Woman Creek Bncorp of WY 1.04 26.07 103.07 26.61 103.07 21.30 0.40 2.65 68.97
DNFC D&N Financial Corp. of MI 0.93 21.59 216.89 12.09 219.10 16.38 0.20 0.84 18.18
DCBI Delphos Citizens Bancorp of OH 0.13 24.65 118.89 33.77 118.89 24.65 0.00 0.00 0.00
DIME Dime Community Bancorp of NY 1.43 23.94 154.32 22.40 179.14 22.28 0.24 1.07 25.53
DIBK Dime Financial Corp. of CT* 3.17 11.08 231.14 18.41 238.91 11.04 0.40 1.28 14.18
EGLB Eagle BancGroup of IL 0.76 NM 113.84 13.49 113.84 NM 0.00 0.00 NM
</TABLE>
<PAGE>
RP FINANCIAL, LC.
-----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit IV-1 (continued)
Weekly Thrift Market Line - Part Two
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Key Financial Ratios Asset Quality Ratios
--------------------------------------------------------- -----------------------
Tang.
Equity/ Equity/ Reported Earnings Core Earnings NPAs Resvs/
---------------------- ---------------
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs
---------------------- ------- ------- ------ ------- ------- ------- ------- ------- --------
(%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <S> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
---------------------------------------
EBSI Eagle Bancshares of Tucker GA 8.30 8.30 0.43 5.14 3.30 0.58 6.99 1.07 63.66
EGFC Eagle Financial Corp. of CT 6.87 5.36 0.08 1.08 0.47 0.44 6.15 0.52 94.68
ETFS East Texas Fin. Serv. of TX 18.16 18.16 0.31 1.65 1.59 0.63 3.40 0.17 141.97
EMLD Emerald Financial Corp of OH 7.58 7.46 0.72 9.43 4.76 0.89 11.64 0.24 106.84
EIRE Emerald Island Bancorp, MA* 7.08 7.08 0.85 12.35 6.08 0.89 13.00 0.40 151.40
EFBC Empire Federal Bancorp of MT 34.89 34.89 0.83 2.37 1.94 1.09 3.12 0.06 312.50
EFBI Enterprise Fed. Bancorp of OH 12.33 12.31 0.70 5.12 3.22 0.79 5.74 NA NA
EQSB Equitable FSB of Wheaton MD 5.04 5.04 0.46 9.09 5.03 0.74 14.50 0.49 36.72
FCBF FCB Fin. Corp. of Neenah WI 17.50 17.50 0.92 5.20 2.18 1.09 6.16 0.15 412.16
FFBS FFBS Bancorp of Columbus MS 19.23 19.23 1.16 5.96 4.13 1.47 7.53 0.37 118.76
FFDF FFD Financial Corp. of OH 24.40 24.40 1.68 6.68 5.33 0.94 3.75 0.07 421.88
FFLC FFLC Bancorp of Leesburg FL 13.48 13.48 0.70 4.58 3.14 1.01 6.60 0.18 226.46
FFFC FFVA Financial Corp. of VA 13.18 12.90 1.11 7.86 4.00 1.34 9.52 0.18 318.63
FFWC FFW Corporation of Wabash IN 9.52 8.58 0.84 8.39 5.86 1.05 10.48 0.16 203.56
FFYF FFY Financial Corp. of OH 13.71 13.71 0.90 5.84 4.63 1.27 8.31 0.67 74.18
FMCO FMS Financial Corp. of NJ 6.56 6.44 0.69 10.76 5.38 1.02 15.79 1.06 48.50
FFHH FSF Financial Corp. of MN 11.35 11.35 0.66 5.22 3.84 0.84 6.63 0.03 636.64
FOBC Fed One Bancorp of Wheeling WV 11.06 10.55 0.68 5.85 3.83 0.97 8.33 0.40 101.18
FBCI Fidelity Bancorp of Chicago IL 10.38 10.36 0.55 5.34 3.80 0.78 7.48 0.80 21.76
FSBI Fidelity Bancorp, Inc. of PA 6.75 6.75 0.51 7.35 4.60 0.81 11.71 0.43 115.46
FFFL Fidelity FSB, MHC of FL (47.7) 8.38 8.31 0.38 4.15 1.59 0.60 6.56 0.34 62.82
FFED Fidelity Fed. Bancorp of IN 5.39 5.39 0.05 0.95 0.54 0.30 5.90 0.14 519.24
FFOH Fidelity Financial of OH 12.94 11.42 0.70 4.68 3.29 1.02 6.89 0.08 381.04
FIBC Financial Bancorp, Inc. of NY 9.36 9.31 0.56 5.74 3.87 1.00 10.23 1.81 26.91
FBSI First Bancshares of MO 13.54 13.52 0.91 6.15 5.06 1.10 7.44 0.56 52.51
FBBC First Bell Bancorp of PA 9.83 9.83 1.07 7.64 6.14 1.24 8.87 0.07 147.42
FBER First Bergen Bancorp of NJ 14.19 14.19 0.44 2.73 2.13 0.77 4.74 0.83 129.82
SKBO First Carnegie,MHC of PA(45.0) 16.45 16.45 0.52 4.42 1.74 0.52 4.42 NA NA
FSTC First Citizens Corp of GA 9.13 6.85 1.12 11.27 4.11 1.11 11.11 NA NA
FCME First Coastal Corp. of ME* 9.23 9.23 4.21 NM 31.32 4.08 NM 2.01 85.72
FFBA First Colorado Bancorp of Co 12.90 12.72 0.86 6.02 3.76 0.84 5.94 0.23 121.82
FDEF First Defiance Fin.Corp. of OH 21.32 21.32 0.75 3.36 2.69 1.03 4.62 0.45 96.96
FESX First Essex Bancorp of MA* 6.97 6.06 0.96 13.04 6.90 0.84 11.36 NA NA
FFES First FS&LA of E. Hartford CT 6.43 6.43 0.42 6.80 4.25 0.70 11.19 0.37 71.33
FFSX First FS&LA. MHC of IA (46.1) 8.29 8.23 0.43 5.21 2.09 0.73 8.99 0.11 342.10
BDJI First Fed. Bancorp. of MN 10.87 10.87 0.30 2.56 1.98 0.63 5.44 0.27 137.04
FFBH First Fed. Bancshares of AR 14.97 14.97 0.77 4.84 3.72 1.06 6.63 0.19 119.50
FTFC First Fed. Capital Corp. of WI 6.36 5.96 0.74 11.34 4.21 0.86 13.16 0.12 408.79
FFKY First Fed. Fin. Corp. of KY 13.69 12.88 1.30 9.45 5.36 1.55 11.28 0.46 99.48
FFBZ First Federal Bancorp of OH 7.55 7.54 0.73 9.58 4.69 1.02 13.38 0.53 163.59
FFCH First Fin. Holdings Inc. of SC 6.11 6.11 0.57 9.30 3.76 0.84 13.65 1.66 41.99
FFBI First Financial Bancorp of IL 8.66 8.66 -0.38 -4.73 -4.36 0.42 5.23 0.41 142.00
FFHC First Financial Corp. of WI(8) 7.12 6.94 0.96 13.35 4.25 1.28 17.95 0.26 148.86
FFHS First Franklin Corp. of OH 9.02 8.96 0.19 2.14 1.57 0.65 7.20 0.52 82.31
FGHC First Georgia Hold. Corp of GA 8.22 7.53 0.66 7.98 3.76 0.51 6.23 3.10 20.52
FSPG First Home Bancorp of NJ 6.66 6.55 0.89 13.61 7.05 1.16 17.76 0.64 114.23
FFSL First Independence Corp. of KS 10.43 10.43 0.43 3.84 3.21 0.69 6.12 0.87 69.37
FISB First Indiana Corp. of IN 9.56 9.44 0.83 8.86 4.88 1.01 10.83 1.50 91.12
FKFS First Keystone Fin. Corp of PA 7.31 7.31 0.54 7.21 4.12 0.77 10.30 1.60 30.58
FLKY First Lancaster Bncshrs of KY 32.95 32.95 1.13 3.29 2.92 1.38 3.99 1.93 15.10
FLFC First Liberty Fin. Corp. of GA 7.37 6.65 0.88 12.11 5.23 0.72 9.91 0.81 110.00
CASH First Midwest Fin. Corp. of IA 11.39 10.09 0.74 6.46 5.03 0.94 8.21 0.85 75.48
FMBD First Mutual Bancorp of IL 12.85 9.73 0.10 0.57 0.51 0.31 1.84 0.19 182.28
FMSB First Mutual SB of Bellevue WA* 6.82 6.82 1.02 15.34 5.29 1.00 14.95 0.01 NA
FNGB First Northern Cap. Corp of WI 11.28 11.28 0.64 5.50 3.38 0.91 7.88 0.06 798.69
FFPB First Palm Beach Bancorp of FL 6.57 6.41 -0.03 -0.42 -0.22 0.03 0.37 0.73 55.75
<CAPTION>
Asset Quality Ratios Pricing Ratios Dividend Data(6)
------------------------ ----------------------------------- -------------------
Price/ Price/ Ind. Divi-
Resvs/ Price/ Price/ Price/ Tang. Core Div./ dend Payout
Loans Earning Book Assets Book Earnings Share Yield Ratio(7)
------- ---------- ----- ------- ----- --------- ----- ------ -------
(%) (%) (%) (X) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
---------------------------------------
EBSI Eagle Bancshares of Tucker GA 0.95 NM 155.58 12.92 155.58 22.26 0.60 3.10 NM
EGFC Eagle Financial Corp. of CT 0.86 NM 182.79 12.55 234.15 NM 1.00 2.48 NM
ETFS East Texas Fin. Serv. of TX 0.50 NM 107.01 19.44 107.01 NM 0.20 0.94 58.82
EMLD Emerald Financial Corp of OH 0.35 20.99 188.26 14.27 191.23 17.00 0.24 1.41 29.63
EIRE Emerald Island Bancorp, MA* 0.89 16.45 186.71 13.21 186.71 15.63 0.28 1.12 18.42
EFBC Empire Federal Bancorp of MT 0.46 NM 121.95 42.55 121.95 NM 0.30 1.67 NM
EFBI Enterprise Fed. Bancorp of OH 0.28 NM 159.97 19.72 160.18 27.72 1.00 3.92 NM
EQSB Equitable FSB of Wheaton MD 0.26 19.89 169.57 8.55 169.57 12.46 0.00 0.00 0.00
FCBF FCB Fin. Corp. of Neenah WI 0.82 NM 236.05 41.30 236.05 NM 0.80 2.91 NM
FFBS FFBS Bancorp of Columbus MS 0.62 24.21 142.41 27.39 142.41 19.17 0.50 2.17 52.63
FFDF FFD Financial Corp. of OH 0.48 18.74 124.46 30.37 124.46 NM 0.30 1.63 30.61
FFLC FFLC Bancorp of Leesburg FL 0.52 NM 150.44 20.28 150.44 22.16 0.48 1.41 44.86
FFFC FFVA Financial Corp. of VA 0.98 25.00 202.58 26.69 206.90 20.63 0.48 1.45 36.36
FFWC FFW Corporation of Wabash IN 0.50 17.06 133.76 12.73 148.48 13.67 0.72 2.23 38.10
FFYF FFY Financial Corp. of OH 0.64 21.58 139.35 19.10 139.35 15.18 0.70 2.53 54.69
FMCO FMS Financial Corp. of NJ 0.92 18.59 190.29 12.48 193.72 12.66 0.28 0.97 17.95
FFHH FSF Financial Corp. of MN 0.34 26.04 143.43 16.29 143.43 20.52 0.50 2.46 64.10
FOBC Fed One Bancorp of Wheeling WV 0.93 26.13 155.56 17.21 163.11 18.35 0.62 2.40 62.63
FBCI Fidelity Bancorp of Chicago IL 0.22 26.32 137.21 14.25 137.51 18.80 0.32 1.28 33.68
FSBI Fidelity Bancorp, Inc. of PA 1.01 21.76 148.45 10.03 148.45 13.66 0.36 1.53 33.33
FFFL Fidelity FSB, MHC of FL (47.7) 0.29 NM 254.85 21.34 256.72 NM 0.90 2.86 NM
FFED Fidelity Fed. Bancorp of IN 0.87 NM 177.88 9.59 177.88 29.84 0.40 4.32 NM
FFOH Fidelity Financial of OH 0.37 NM 127.36 16.48 144.32 20.67 0.28 1.81 54.90
FIBC Financial Bancorp, Inc. of NY 0.89 25.86 146.58 13.72 147.25 14.52 0.40 1.78 45.98
FBSI First Bancshares of MO 0.36 19.77 125.86 17.04 126.05 16.35 0.20 0.78 15.50
FBBC First Bell Bancorp of PA 0.13 16.27 160.02 15.72 160.02 14.02 0.40 2.32 37.74
FBER First Bergen Bancorp of NJ 2.50 NM 132.67 18.83 132.67 27.08 0.20 1.12 52.63
SKBO First Carnegie,MHC of PA(45.0) 0.68 NM 180.61 29.70 180.61 NM 0.30 1.58 NM
FSTC First Citizens Corp of GA 1.47 24.31 216.79 19.80 288.93 24.65 0.44 1.25 30.34
FCME First Coastal Corp. of ME* 2.52 3.19 138.84 12.82 138.84 3.30 0.00 0.00 0.00
FFBA First Colorado Bancorp of Co 0.38 26.60 176.45 22.76 178.88 26.95 0.48 2.31 61.54
FDEF First Defiance Fin.Corp. of OH 0.56 NM 127.29 27.14 127.29 27.12 0.32 2.00 74.42
FESX First Essex Bancorp of MA* 1.43 14.48 165.68 11.56 190.82 16.63 0.48 2.51 36.36
FFES First FS&LA of E. Hartford CT 1.42 23.52 151.29 9.73 151.29 14.30 0.60 1.68 39.47
FFSX First FS&LA. MHC of IA (46.1) 0.52 NM 240.17 19.92 242.11 27.73 0.48 1.45 69.57
BDJI First Fed. Bancorp. of MN 0.76 NM 134.94 14.67 134.94 23.75 0.00 0.00 0.00
FFBH First Fed. Bancshares of AR 0.30 26.85 132.95 19.90 132.95 19.59 0.24 1.10 29.63
FTFC First Fed. Capital Corp. of WI 0.65 23.73 263.16 16.73 280.84 20.44 0.48 1.71 40.68
FFKY First Fed. Fin. Corp. of KY 0.52 18.64 171.51 23.48 182.25 15.63 0.56 2.64 49.12
FFBZ First Federal Bancorp of OH 1.01 21.31 194.10 14.65 194.30 15.24 0.24 1.28 27.27
FFCH First Fin. Holdings Inc. of SC 0.84 26.57 237.06 14.49 237.06 18.10 0.72 1.89 50.35
FFBI First Financial Bancorp of IL 0.91 NM 110.61 9.57 110.61 20.74 0.00 0.00 NM
FFHC First Financial Corp. of WI(8) 0.64 23.51 NM 21.67 NM 17.49 0.60 1.69 39.74
FFHS First Franklin Corp. of OH 0.62 NM 133.95 12.08 134.82 19.01 0.32 1.39 NM
FGHC First Georgia Hold. Corp of GA 0.75 26.56 201.90 16.59 220.21 NM 0.05 0.59 15.63
FSPG First Home Bancorp of NJ 1.39 14.18 180.93 12.05 183.94 10.86 0.40 1.72 24.39
FFSL First Independence Corp. of KS 0.91 NM 126.03 13.15 126.03 19.49 0.25 1.71 53.19
FISB First Indiana Corp. of IN 1.62 20.51 174.29 16.67 176.47 16.78 0.48 2.00 41.03
FKFS First Keystone Fin. Corp of PA 0.84 24.26 171.56 12.54 171.56 16.97 0.20 0.61 14.81
FLKY First Lancaster Bncshrs of KY 0.33 NM 109.59 36.11 109.59 28.28 0.50 3.10 NM
FLFC First Liberty Fin. Corp. of GA 1.29 19.13 205.28 15.13 227.68 23.38 0.40 1.58 30.30
CASH First Midwest Fin. Corp. of IA 0.93 19.87 127.21 14.49 143.57 15.65 0.36 1.81 36.00
FMBD First Mutual Bancorp of IL 0.46 NM 127.45 16.37 168.25 NM 0.32 1.64 NM
FMSB First Mutual SB of Bellevue WA* 1.27 18.91 270.39 18.45 270.39 19.41 0.20 0.68 12.82
FNGB First Northern Cap. Corp of WI 0.53 29.55 159.71 18.01 159.71 20.63 0.32 2.46 72.73
FFPB First Palm Beach Bancorp of FL 0.60 NM 184.97 12.15 189.59 NM 0.60 1.49 NM
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700 Exhibit IV-1 (continued)
Weekly Thrift Market Line - Part Two
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Key Financial Ratios Asset Quality Ratios
---------------------------------------------------------- -----------------------
Tang.
Reported Earnings Core Earnings
Equity/ Equity/ ---------------------- --------------- NPAs Resvs/ Resvs/
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
FSLA First SB SLA MHC of NJ (47.5) 9.42 8.40 0.58 6.17 1.62 0.91 9.77 0.68 83.02 1.06
SOPN First SB, SSB, Moore Co. of NC 22.83 22.83 1.44 5.83 4.43 1.73 6.99 0.08 241.60 0.31
FWWB First Savings Bancorp of WA* 14.75 13.57 1.05 6.25 3.39 1.00 5.90 0.30 215.39 0.97
SHEN First Shenango Bancorp of PA 10.95 10.95 0.89 7.82 5.20 1.16 10.18 0.53 137.62 1.15
FSFC First So.east Fin. Corp. of SC(8) 10.06 10.06 0.70 6.85 3.31 1.05 10.34 0.06 655.50 0.50
FBNW FirstBank Corp of Clarkston WA 18.04 18.04 0.70 3.86 3.15 0.57 3.14 2.07 31.12 0.78
FFDB FirstFed Bancorp of AL 9.42 8.58 0.62 6.31 4.81 0.94 9.63 0.84 49.36 0.59
FSPT FirstSpartan Fin. Corp. of SC 26.32 26.32 0.95 3.62 2.60 1.11 4.20 0.44 61.30 0.49
FLAG Flag Financial Corp of GA 9.58 9.58 -0.03 -0.29 -0.17 0.15 1.65 4.27 47.62 2.91
FLGS Flagstar Bancorp, Inc of MI 5.46 5.46 0.00 0.00 0.00 0.00 0.00 3.41 8.26 0.32
FFIC Flushing Fin. Corp. of NY* 15.47 15.47 0.93 5.55 4.03 0.97 5.78 0.29 223.21 1.15
FBHC Fort Bend Holding Corp. of TX 6.03 5.62 0.19 3.18 1.61 0.45 7.40 0.37 141.08 1.03
FTSB Fort Thomas Fin. Corp. of KY 16.04 16.04 0.54 2.94 2.30 0.81 4.45 1.48 32.73 0.54
FKKY Frankfort First Bancorp of KY 16.92 16.92 -0.28 -1.14 -1.07 0.56 2.28 0.09 86.21 0.08
FTNB Fulton Bancorp of MO 25.11 25.11 0.89 4.03 2.22 1.07 4.83 0.81 112.62 1.03
GFSB GFS Bancorp of Grinnell IA 11.44 11.44 1.00 8.59 5.35 1.22 10.55 1.00 70.07 0.82
GUPB GFSB Bancorp of Gallup NM 14.87 14.87 0.76 4.35 3.61 0.96 5.50 0.15 247.45 0.65
GSLA GS Financial Corp. of LA 45.63 45.63 1.08 3.63 2.00 1.08 3.63 0.11 293.18 0.84
GOSB GSB Financial Corp. of NY 27.06 27.06 1.02 3.77 3.35 0.86 3.19 NA NA NA
GWBC Gateway Bancorp of KY(8) 27.04 27.04 0.83 3.23 2.74 1.15 4.47 0.90 14.14 0.38
GBCI Glacier Bancorp of MT 9.74 9.48 1.44 15.09 5.00 1.61 16.87 0.27 229.89 0.85
GFCO Glenway Financial Corp. of OH 9.49 9.36 0.43 4.51 3.31 0.72 7.57 0.31 91.62 0.34
GTPS Great American Bancorp of IL 21.43 21.43 0.26 1.09 1.00 0.32 1.37 0.23 140.69 0.44
GTFN Great Financial Corp. of KY(8) 9.24 8.84 0.75 7.89 3.63 0.71 7.50 3.06 15.68 0.72
GSBC Great Southern Bancorp of MO 8.53 8.53 1.38 14.76 5.35 1.56 16.69 1.91 114.73 2.59
GDVS Greater DV SB,MHC of PA (19.9)* 11.57 11.57 0.32 2.71 0.76 0.58 4.95 2.79 43.15 1.93
GSFC Green Street Fin. Corp. of NC 36.26 36.26 1.37 3.84 2.78 1.66 4.66 0.16 83.63 0.18
GFED Guarnty FS&LA,MHC of MO (31.0)(8) 13.79 13.79 0.61 4.30 1.38 0.92 6.51 0.74 148.40 1.36
HCBB HCB Bancshares of AR 18.84 18.13 0.13 0.92 0.65 0.14 1.02 0.43 173.49 1.49
HEMT HF Bancorp of Hemet CA 8.21 6.72 -0.27 -3.07 -2.42 -1.88 -21.03 NA NA NA
HFFC HF Financial Corp. of SD 9.43 9.43 0.66 7.12 4.75 0.89 9.66 0.33 244.25 1.01
HFNC HFNC Financial Corp. of NC 17.99 17.99 0.86 3.47 2.59 1.19 4.76 0.87 97.22 1.14
HMNF HMN Financial, Inc. of MN 14.43 14.43 0.71 4.79 3.72 0.88 5.96 0.08 531.97 0.71
HALL Hallmark Capital Corp. of WI 7.24 7.24 0.48 6.83 4.55 0.61 8.62 0.16 274.03 0.64
HARB Harbor FSB, MHC of FL (46.6)(8) 8.39 8.11 0.95 11.52 3.12 1.23 14.84 0.46 222.68 1.37
HRBF Harbor Federal Bancorp of MD 12.90 12.90 0.46 3.52 2.52 0.71 5.46 0.05 379.63 0.28
HFSA Hardin Bancorp of Hardin MO 12.48 12.48 0.52 3.53 3.21 0.79 5.41 0.09 179.21 0.32
HARL Harleysville SA of PA 6.53 6.53 0.75 11.71 5.59 1.03 16.04 0.03 NA 0.77
HFGI Harrington Fin. Group of IN 5.59 5.59 0.39 8.22 4.60 0.33 6.87 0.25 18.93 0.23
HARS Harris SB, MHC of PA (24.3) 8.01 7.01 0.49 5.78 1.48 0.62 7.24 0.65 64.15 0.97
HFFB Harrodsburg 1st Fin Bcrp of KY 26.93 26.93 1.03 3.77 3.41 1.36 5.01 0.47 59.81 0.38
HHFC Harvest Home Fin. Corp. of OH 12.50 12.50 0.27 1.87 1.77 0.58 4.07 0.11 117.00 0.26
HAVN Haven Bancorp of Woodhaven NY 5.95 5.93 0.56 9.27 4.67 0.83 13.79 0.74 86.28 1.15
HTHR Hawthorne Fin. Corp. of CA 4.60 4.60 0.23 5.32 3.20 0.51 11.47 7.17 19.99 1.67
HMLK Hemlock Fed. Fin. Corp. of IL 18.77 18.77 0.13 0.98 0.58 0.73 5.40 NA NA 1.30
HBNK Highland Federal Bank of CA 7.47 7.47 0.46 6.25 3.05 0.68 9.17 3.09 55.00 2.13
HIFS Hingham Inst. for Sav. of MA* 9.35 9.35 1.21 12.60 6.41 1.21 12.60 0.41 165.13 0.89
HBEI Home Bancorp of Elgin IL 26.70 26.70 0.49 1.99 1.38 0.85 3.42 0.41 69.84 0.36
HBFW Home Bancorp of Fort Wayne IN 13.29 13.29 0.56 3.93 2.97 0.89 6.27 0.05 835.54 0.51
HBBI Home Building Bancorp of IN 12.82 12.82 0.20 1.59 1.25 0.52 4.05 0.38 47.98 0.29
HCFC Home City Fin. Corp. of OH 20.41 20.41 0.91 5.48 3.81 1.19 7.18 0.59 106.97 0.79
HOMF Home Fed Bancorp of Seymour IN 8.48 8.22 1.05 12.65 6.22 1.22 14.72 0.46 117.33 0.62
HWEN Home Financial Bancorp of IN 16.93 16.93 0.64 3.78 3.18 0.80 4.76 1.76 30.84 0.67
HPBC Home Port Bancorp, Inc. of MA* 10.56 10.56 1.67 15.78 7.02 1.66 15.69 0.08 NA 1.56
HMCI Homecorp, Inc. of Rockford IL 6.54 6.54 0.14 2.17 1.40 0.43 6.83 3.35 14.24 0.59
HZFS Horizon Fin'l. Services of IA 9.79 9.79 0.36 3.35 2.50 0.57 5.36 1.22 33.30 0.66
<CAPTION>
Pricing Ratios Dividend Data(6)
----------------------------------------- ----------------------
Price/ Price/ Ind. Divi-
Price/ Price/ Price/ Tang. Core Div./ dend Payout
Financial Institution Earning Book Assets Book Earnings Share Yield Ratio(7)
- --------------------- ------- ------- ------- ------- ------- ------- ------- -------
(X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
FSLA First SB SLA MHC of NJ (47.5) NM NM 34.43 NM NM 0.44 0.99 61.11
SOPN First SB, SSB, Moore Co. of NC 22.58 131.11 29.94 131.11 18.85 0.88 3.68 NM
FWWB First Savings Bancorp of WA* 29.49 185.77 27.40 201.92 NM 0.28 1.07 31.46
SHEN First Shenango Bancorp of PA 19.23 149.43 16.37 149.43 14.77 0.60 1.85 35.50
FSFC First So.east Fin. Corp. of SC(8) NM 200.25 20.14 200.25 20.00 0.24 1.50 45.28
FBNW FirstBank Corp of Clarkston WA NM 122.29 22.06 122.29 NM 0.00 0.00 0.00
FFDB FirstFed Bancorp of AL 20.79 136.40 12.84 149.62 13.62 0.50 2.53 52.63
FSPT FirstSpartan Fin. Corp. of SC NM 139.34 36.68 139.34 NM 0.00 0.00 0.00
FLAG Flag Financial Corp of GA NM 167.62 16.06 167.62 NM 0.34 1.94 NM
FLGS Flagstar Bancorp, Inc of MI NM NM 17.55 NM NM 0.00 0.00 NM
FFIC Flushing Fin. Corp. of NY* 24.80 138.25 21.39 138.25 23.77 0.24 1.04 25.81
FBHC Fort Bend Holding Corp. of TX NM 197.93 11.94 212.57 26.74 0.20 0.87 54.05
FTSB Fort Thomas Fin. Corp. of KY NM 138.17 22.16 138.17 28.74 0.25 1.74 NM
FKKY Frankfort First Bancorp of KY NM 150.51 25.46 150.51 NM 0.36 3.51 NM
FTNB Fulton Bancorp of MO NM 156.57 39.32 156.57 NM 0.20 0.87 39.22
GFSB GFS Bancorp of Grinnell IA 18.68 154.22 17.64 154.22 15.22 0.26 1.58 29.55
GUPB GFSB Bancorp of Gallup NM 27.70 125.67 18.69 125.67 21.88 0.40 1.83 50.63
GSLA GS Financial Corp. of LA NM 103.91 47.42 103.91 NM 0.28 1.65 NM
GOSB GSB Financial Corp. of NY 29.81 112.48 30.44 112.48 NM 0.00 0.00 0.00
GWBC Gateway Bancorp of KY(8) NM 118.45 32.03 118.45 26.39 0.40 2.11 NM
GBCI Glacier Bancorp of MT 20.00 270.94 26.40 278.48 17.89 0.48 2.18 43.64
GFCO Glenway Financial Corp. of OH NM 133.95 12.71 135.77 17.98 0.80 2.50 NM
GTPS Great American Bancorp of IL NM 113.91 24.41 113.91 NM 0.40 2.11 NM
GTFN Great Financial Corp. of KY(8) 27.52 214.46 19.81 224.01 28.97 0.60 1.37 37.74
GSBC Great Southern Bancorp of MO 18.70 288.59 24.62 288.59 16.54 0.44 2.05 38.26
GDVS Greater DV SB,MHC of PA (19.9)* NM NM 40.33 NM NM 0.36 1.20 NM
GSFC Green Street Fin. Corp. of NC NM 136.59 49.53 136.59 29.59 0.44 2.19 NM
GFED Guarnty FS&LA,MHC of MO (31.0)(8) NM NM 41.91 NM NM 0.44 1.64 NM
HCBB HCB Bancshares of AR NM 97.20 18.31 101.02 NM 0.00 0.00 0.00
HEMT HF Bancorp of Hemet CA NM 128.21 10.53 156.70 NM 0.00 0.00 NM
HFFC HF Financial Corp. of SD 21.03 145.50 13.72 145.50 15.49 0.42 1.62 34.15
HFNC HFNC Financial Corp. of NC NM 177.37 31.91 177.37 28.17 0.28 1.68 65.12
HMNF HMN Financial, Inc. of MN 26.86 130.02 18.76 130.02 21.58 0.00 0.00 0.00
HALL Hallmark Capital Corp. of WI 21.99 142.27 10.30 142.27 17.41 0.00 0.00 0.00
HARB Harbor FSB, MHC of FL (46.6)(8) NM NM 29.26 NM 24.91 1.40 2.13 68.29
HRBF Harbor Federal Bancorp of MD NM 139.56 18.00 139.56 25.56 0.48 2.09 NM
HFSA Hardin Bancorp of Hardin MO NM 115.11 14.36 115.11 20.29 0.48 2.66 NM
HARL Harleysville SA of PA 17.89 196.24 12.82 196.24 13.06 0.40 1.53 27.40
HFGI Harrington Fin. Group of IN 21.72 172.75 9.66 172.75 25.98 0.12 0.91 19.67
HARS Harris SB, MHC of PA (24.3) NM NM 29.37 NM NM 0.58 1.08 73.42
HFFB Harrodsburg 1st Fin Bcrp of KY 29.31 111.25 29.96 111.25 22.08 0.40 2.48 72.73
HHFC Harvest Home Fin. Corp. of OH NM 114.54 14.31 114.54 26.00 0.44 3.38 NM
HAVN Haven Bancorp of Woodhaven NY 21.41 184.92 10.99 185.53 14.39 0.60 1.34 28.71
HTHR Hawthorne Fin. Corp. of CA NM 153.02 7.03 153.02 14.49 0.00 0.00 0.00
HMLK Hemlock Fed. Fin. Corp. of IL NM 116.73 21.92 116.73 NM 0.24 1.38 NM
HBNK Highland Federal Bank of CA NM 192.19 14.36 192.19 22.34 0.00 0.00 0.00
HIFS Hingham Inst. for Sav. of MA* 15.59 185.66 17.37 185.66 15.59 0.48 1.66 25.81
HBEI Home Bancorp of Elgin IL NM 131.54 35.12 131.54 NM 0.40 2.21 NM
HBFW Home Bancorp of Fort Wayne IN NM 137.63 18.29 137.63 21.09 0.20 0.82 27.78
HBBI Home Building Bancorp of IN NM 125.61 16.10 125.61 NM 0.30 1.29 NM
HCFC Home City Fin. Corp. of OH 26.23 106.67 21.77 106.67 20.00 0.32 2.00 52.46
HOMF Home Fed Bancorp of Seymour IN 16.09 190.62 16.16 196.61 13.83 0.50 1.54 24.75
HWEN Home Financial Bancorp of IN NM 111.04 18.80 111.04 25.00 0.20 1.18 37.04
HPBC Home Port Bancorp, Inc. of MA* 14.24 215.10 22.71 215.10 14.33 0.80 3.27 46.51
HMCI Homecorp, Inc. of Rockford IL NM 150.27 9.83 150.27 22.65 0.00 0.00 0.00
HZFS Horizon Fin'l. Services of IA NM 131.65 12.88 131.65 25.00 0.32 1.23 49.23
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700 Exhibit IV-I(continued)
Weekly Thrift Market Line - Part Two
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Key Financial Ratios Asset Quality Ratios
---------------------------------------------------------- -----------------------
Tang.
Reported Earnings Core Earnings
Equity/ Equity/ ---------------------- --------------- NPAs Resvs/ Resvs/
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Listed OTC Companies (continued)
- ---------------------------------------
HRZB Horizon Financial Corp. of WA* 15.60 15.60 1.57 9.99 6.11 1.54 9.80 NA NA 0.84
IBSF IBS Financial Corp. of NJ 17.41 17.41 0.49 2.68 1.85 0.86 4.71 0.08 171.10 0.52
ISBF ISB Financial Corp. of LA 12.19 10.33 0.69 4.59 2.88 0.93 6.20 NA NA 0.80
ITLA Imperial Thrift & Loan of CA* 10.99 10.94 1.47 12.75 7.03 1.47 12.75 1.47 84.20 1.50
IFSB Independence FSB of DC 6.52 5.72 0.14 2.19 1.93 0.33 4.98 2.02 9.82 0.32
INCB Indiana Comm. Bank, SB of IN 12.17 12.17 0.19 1.55 1.27 0.54 4.31 0.13 541.46 0.90
INBI Industrial Bancorp of OH 17.71 17.71 0.72 3.87 2.50 1.42 7.57 0.30 156.98 0.55
IWBK Interwest SB of Oak Harbor WA 6.78 6.63 0.87 12.91 4.49 1.18 17.52 0.64 73.79 0.78
IPSW Ipswich SB of Ipswich MA* 5.71 5.71 1.21 20.39 6.22 0.95 16.02 1.52 56.87 1.18
JXVL Jacksonville Bancorp of TX 14.92 14.92 1.02 6.45 4.75 1.34 8.46 0.78 67.63 0.70
JXSB Jcksnville SB,MHC of IL (45.6) 10.50 10.50 0.30 2.72 1.60 0.66 5.97 0.66 72.96 0.61
JSBA Jefferson Svgs Bancorp of MO 8.20 6.24 0.30 3.91 1.64 0.70 9.25 0.46 140.15 0.84
JOAC Joachim Bancorp of MO 28.17 28.17 0.47 1.59 1.47 0.77 2.62 0.20 109.86 0.32
KSAV KS Bancorp of Kenly NC 13.53 13.52 0.96 6.86 5.27 1.25 8.89 0.35 80.53 0.33
KSBK KSB Bancorp of Kingfield ME(8)* 7.16 6.74 0.96 13.72 7.43 1.00 14.25 1.78 43.20 1.03
KFBI Klamath First Bancorp of OR 19.55 19.55 0.81 3.67 2.39 1.23 5.54 0.08 213.23 0.23
LSBI LSB Fin. Corp. of Lafayette IN 8.85 8.85 0.77 8.34 5.64 0.68 7.35 1.17 63.71 0.84
LVSB Lakeview SB of Paterson NJ 9.52 7.61 1.37 13.73 6.43 0.95 9.53 0.98 66.74 1.50
LARK Landmark Bancshares of KS 13.79 13.79 0.89 5.95 4.26 1.05 7.01 0.31 123.70 0.57
LARL Laurel Capital Group of PA 10.03 10.03 1.14 10.88 6.44 1.43 13.72 0.43 212.35 1.31
LSBX Lawrence Savings Bank of MA* 8.69 8.69 1.75 20.90 8.86 1.73 20.60 0.30 328.94 2.29
LFED Leeds FSB, MHC of MD (36.3) 16.29 16.29 0.84 5.20 2.18 1.18 7.27 0.03 609.09 0.31
LXMO Lexington B&L Fin. Corp. of MO 28.32 28.32 1.03 3.49 3.28 1.33 4.50 0.48 78.37 0.49
LIFB Life Bancorp of Norfolk VA 10.55 10.25 0.71 6.60 4.05 0.87 8.03 0.39 166.43 1.48
LFBI Little Falls Bancorp of NJ 13.28 12.26 0.27 1.94 1.57 0.48 3.41 1.04 33.93 0.82
LOGN Logansport Fin. Corp. of IN 19.20 19.20 1.17 5.64 4.63 1.52 7.31 0.61 44.88 0.38
LONF London Financial Corp. of OH 19.66 19.66 0.66 3.18 2.67 1.00 4.83 0.80 61.11 0.63
LISB Long Island Bancorp, Inc of NY 8.99 8.90 0.61 6.58 3.09 0.71 7.63 1.03 55.02 0.92
MAFB MAF Bancorp of IL 7.78 6.80 0.88 11.34 5.58 1.16 14.98 0.45 120.51 0.71
MBLF MBLA Financial Corp. of MO 12.15 12.15 0.67 5.10 4.23 0.85 6.52 0.25 109.19 0.50
MFBC MFB Corp. of Mishawaka IN 13.65 13.65 0.57 3.66 3.24 0.86 5.52 0.08 177.07 0.19
MLBC ML Bancorp of Villanova PA(8) 6.93 6.81 0.74 10.25 4.38 0.67 9.28 0.46 163.34 1.71
MSBF MSB Financial Corp. of MI 16.99 16.99 1.19 6.43 4.06 1.47 7.91 0.66 61.34 0.44
MGNL Magna Bancorp of MS(8) 10.22 9.95 1.39 14.23 4.29 1.53 15.70 2.92 26.42 1.11
MARN Marion Capital Holdings of IN 22.55 22.55 1.39 6.09 5.14 1.67 7.28 0.81 144.01 1.35
MRKF Market Fin. Corp. of OH 34.99 34.99 0.84 3.14 2.17 0.84 3.14 0.75 12.24 0.20
MFCX Marshalltown Fin. Corp. of IA(8) 15.74 15.74 0.34 2.15 1.76 0.73 4.66 NA NA 0.19
MFSL Maryland Fed. Bancorp of MD 8.38 8.28 0.61 7.41 4.56 0.89 10.72 0.47 85.38 0.46
MASB MassBank Corp. of Reading MA* 10.64 10.64 1.10 10.79 5.75 1.04 10.24 0.16 149.80 0.87
MFLR Mayflower Co-Op. Bank of MA* 9.68 9.52 1.03 10.64 6.62 0.97 10.03 0.96 92.14 1.52
MECH Mechanics SB of Hartford CT* 10.23 10.23 1.92 19.45 10.67 1.92 19.45 1.13 152.02 2.58
MDBK Medford Bank of Medford, MA* 8.99 8.38 1.08 12.07 6.78 1.01 11.29 0.27 219.01 1.12
MERI Meritrust FSB of Thibodaux LA 8.20 8.20 0.67 8.71 4.21 1.05 13.56 0.37 83.87 0.58
MWBX MetroWest Bank of MA* 7.44 7.44 1.38 18.37 6.21 1.38 18.37 0.91 126.64 1.48
MCBS Mid Continent Bancshares of KS(8) 9.39 9.39 1.02 9.79 4.51 1.16 11.10 0.15 71.76 0.19
MIFC Mid Iowa Financial Corp. of IA 9.34 9.34 1.00 10.76 6.76 1.40 15.15 0.02 NA 0.45
MCBN Mid-Coast Bancorp of ME 8.60 8.60 0.43 4.92 4.00 0.67 7.71 0.73 70.32 0.62
MWBI Midwest Bancshares, Inc. of IA 6.91 6.91 0.45 6.61 4.26 0.75 10.99 0.77 63.17 0.81
MWFD Midwest Fed. Fin. Corp of WI 8.81 8.50 1.43 16.39 7.23 1.09 12.55 0.12 658.13 1.05
MFFC Milton Fed. Fin. Corp. of OH 13.12 13.12 0.49 3.07 2.60 0.68 4.25 0.32 86.42 0.46
MIVI Miss. View Hold. Co. of MN 18.87 18.87 0.69 3.74 3.19 1.03 5.57 0.33 370.39 1.91
MBSP Mitchell Bancorp of NC* 43.36 43.36 1.40 3.24 2.96 1.64 3.81 2.03 26.19 0.62
MBBC Monterey Bay Bancorp of CA 11.33 10.45 0.25 2.04 1.45 0.47 3.87 0.33 111.47 0.60
MONT Montgomery Fin. Corp. of IN 18.74 18.74 0.60 4.17 2.77 0.60 4.17 0.59 29.46 0.21
MSBK Mutual SB, FSB of Bay City MI 6.07 6.07 0.11 1.93 1.32 0.04 0.75 0.11 272.91 0.67
NHTB NH Thrift Bancshares of NH 7.65 6.52 0.39 5.25 2.45 0.58 7.77 0.70 125.20 1.05
<CAPTION>
Pricing Ratios Dividend Data(6)
----------------------------------------- -----------------------
Price/ Price/ Ind. Divi-
Price/ Price/ Price/ Tang. Core Div./ dend Payout
Financial Institution Earning Book Assets Book Earnings Share Yield Ratio(7)
- --------------------- ------- ------- ------- ------- -------- ------- ------- -------
(X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
HRZB Horizon Financial Corp. of WA* 16.36 160.40 25.03 160.40 16.67 0.44 2.51 41.12
IBSF IBS Financial Corp. of NJ NM 154.18 26.84 154.18 NM 0.40 2.24 NM
ISBF ISB Financial Corp. of LA NM 161.34 19.66 190.26 25.72 0.50 1.87 64.94
ITLA Imperial Thrift & Loan of CA* 14.22 172.99 19.00 173.72 14.22 0.00 0.00 0.00
IFSB Independence FSB of DC NM 112.11 7.31 127.88 22.73 0.22 1.47 NM
INCB Indiana Comm. Bank, SB of IN NM 121.26 14.76 121.26 28.30 0.36 2.40 NM
INBI Industrial Bancorp of OH NM 154.77 27.41 154.77 20.45 0.56 3.11 NM
IWBK Interwest SB of Oak Harbor WA 22.25 261.97 17.76 267.86 16.40 0.64 1.58 35.16
IPSW Ipswich SB of Ipswich MA* 16.07 296.70 16.94 296.70 20.45 0.12 0.89 14.29
JXVL Jacksonville Bancorp of TX 21.04 139.78 20.85 139.78 16.05 0.50 2.64 55.56
JXSB Jcksnville SB,MHC of IL (45.6) NM 167.54 17.59 167.54 28.48 0.40 1.78 NM
JSBA Jefferson Svgs Bancorp of MO NM 197.74 16.21 259.58 25.77 0.40 0.95 57.97
JOAC Joachim Bancorp of MO NM 114.67 32.30 114.67 NM 0.50 3.20 NM
KSAV KS Bancorp of Kenly NC 18.98 126.39 17.10 126.47 14.64 0.60 2.93 55.56
KSBK KSB Bancorp of Kingfield ME(8)* 13.46 172.84 12.38 183.73 12.96 0.08 0.57 7.69
KFBI Klamath First Bancorp of OR NM 161.97 31.66 161.97 27.71 0.30 1.30 54.55
LSBI LSB Fin. Corp. of Lafayette IN 17.72 145.07 12.84 145.07 20.11 0.34 1.27 22.52
LVSB Lakeview SB of Paterson NJ 15.56 217.23 20.67 271.67 22.41 0.25 0.58 8.99
LARK Landmark Bancshares of KS 23.45 144.18 19.88 144.18 19.92 0.40 1.51 35.40
LARL Laurel Capital Group of PA 15.53 169.72 17.02 169.72 12.32 0.52 2.08 32.30
LSBX Lawrence Savings Bank of MA* 11.29 212.21 18.45 212.21 11.46 0.00 0.00 0.00
LFED Leeds FSB, MHC of MD (36.3) NM 230.97 37.62 230.97 NM 0.76 2.43 NM
LXMO Lexington B&L Fin. Corp. of MO NM 113.64 32.18 113.64 23.59 0.30 1.79 54.55
LIFB Life Bancorp of Norfolk VA 24.69 156.46 16.50 161.01 20.28 0.48 1.92 47.52
LFBI Little Falls Bancorp of NJ NM 127.50 16.93 138.06 NM 0.20 1.08 68.97
LOGN Logansport Fin. Corp. of IN 21.62 126.28 24.25 126.28 16.67 0.40 2.50 54.05
LONF London Financial Corp. of OH NM 123.29 24.24 123.29 24.66 0.24 1.33 50.00
LISB Long Island Bancorp, Inc of NY NM 210.01 18.89 212.12 27.88 0.60 1.29 41.67
MAFB MAF Bancorp of IL 17.93 196.55 15.29 224.95 13.58 0.28 0.85 15.22
MBLF MBLA Financial Corp. of MO 23.65 119.43 14.51 119.43 18.49 0.40 1.52 36.04
MFBC MFB Corp. of Mishawaka IN NM 118.45 16.17 118.45 20.47 0.32 1.35 41.56
MLBC ML Bancorp of Villanova PA(8) 22.83 228.35 15.82 232.37 25.22 0.40 1.38 31.50
MSBF MSB Financial Corp. of MI 24.62 157.48 26.75 157.48 20.00 0.28 1.75 43.08
MGNL Magna Bancorp of MS(8) 23.33 NM 32.02 NM 21.14 0.60 1.90 44.44
MARN Marion Capital Holdings of IN 19.47 121.58 27.41 121.58 16.28 0.88 3.28 63.77
MRKF Market Fin. Corp. of OH NM 99.53 34.83 99.53 NM 0.28 1.90 NM
MFCX Marshalltown Fin. Corp. of IA(8) NM 119.89 18.88 119.89 26.25 0.00 0.00 0.00
MFSL Maryland Fed. Bancorp of MD 21.94 157.58 13.21 159.58 15.17 0.84 1.76 38.71
MASB MassBank Corp. of Reading MA* 17.40 176.32 18.76 176.32 18.34 0.96 2.02 35.16
MFLR Mayflower Co-Op. Bank of MA* 15.11 153.62 14.87 156.25 16.03 0.68 3.24 48.92
MECH Mechanics SB of Hartford CT* 9.37 162.40 16.62 162.40 9.37 0.00 0.00 0.00
MDBK Medford Bank of Medford, MA* 14.74 170.06 15.29 182.52 15.77 0.72 1.99 29.39
MERI Meritrust FSB of Thibodaux LA 23.74 195.09 16.01 195.09 15.24 0.70 1.48 35.18
MWBX MetroWest Bank of MA* 16.10 277.15 20.62 277.15 16.10 0.12 1.43 23.08
MCBS Mid Continent Bancshares of KS(8) 22.19 211.84 19.89 211.84 19.58 0.40 0.96 21.39
MIFC Mid Iowa Financial Corp. of IA 14.79 150.00 14.02 150.00 10.50 0.08 0.76 11.27
MCBN Mid-Coast Bancorp of ME 25.00 120.13 10.34 120.13 15.96 0.52 1.96 49.06
MWBI Midwest Bancshares, Inc. of IA 23.48 146.10 10.09 146.10 14.12 0.60 1.41 33.15
MWFD Midwest Fed. Fin. Corp of WI 13.83 220.79 19.46 228.95 18.07 0.34 1.37 18.99
MFFC Milton Fed. Fin. Corp. of OH NM 131.93 17.31 131.93 27.78 0.60 4.00 NM
MIVI Miss. View Hold. Co. of MN NM 115.05 21.71 115.05 21.02 0.16 0.86 27.12
MBSP Mitchell Bancorp of NC* NM 112.09 48.61 112.09 28.75 0.40 2.32 NM
MBBC Monterey Bay Bancorp of CA NM 138.60 15.71 150.38 NM 0.12 0.60 41.38
MONT Montgomery Fin. Corp. of IN NM 110.92 20.78 110.92 NM 0.22 1.69 61.11
MSBK Mutual SB, FSB of Bay City MI NM 142.32 8.64 142.32 NM 0.00 0.00 0.00
NHTB NH Thrift Bancshares of NH NM 186.76 14.29 219.34 27.50 0.50 2.27 NM
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit IV-1 (continued)
Weekly Thrift Market Line - Part Two
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Key Financial Ratios Asset Quality Ratios
---------------------------------------------------------- ------------------------
Tang.
Reported Earnings Core Earnings
Equity/ Equity/ ---------------------- --------------- NPAs Resvs/ Resvs/
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
NSLB NS&L Bancorp of Neosho MO 19.56 19.56 0.49 2.37 2.10 0.77 3.71 0.03 210.00 0.13
NMSB Newmil Bancorp. of CT* 9.81 9.81 0.83 8.14 5.33 0.79 7.78 1.11 152.08 3.18
NASB North American SB of MO 7.68 7.42 1.26 17.18 7.88 1.19 16.18 3.11 27.16 0.98
NBSI North Bancshares of Chicago IL 14.14 14.14 0.49 3.27 2.40 0.68 4.57 NA NA 0.27
FFFD North Central Bancshares of IA 22.67 22.67 1.64 6.41 5.41 1.90 7.41 0.12 814.90 1.19
NBN Northeast Bancorp of ME* 6.84 5.99 0.58 8.14 5.18 0.56 7.84 1.11 86.32 1.22
NEIB Northeast Indiana Bncrp of IN 15.19 15.19 1.04 6.33 4.87 1.22 7.42 0.40 158.86 0.71
NWEQ Northwest Equity Corp. of WI 11.45 11.45 0.78 6.47 5.03 0.98 8.16 1.26 38.04 0.59
NWSB Northwest SB, MHC of PA (30.7) 9.49 8.94 0.69 7.05 1.86 0.98 9.96 0.72 90.87 0.88
NSSY Norwalk Savings Society of CT* 8.06 7.77 0.97 12.53 6.68 1.11 14.29 NA NA 1.54
NSSB Norwich Financial Corp. of CT* 11.17 10.08 1.09 10.08 4.54 1.04 9.58 1.29 151.12 2.83
NTMG Nutmeg FS&LA of CT 5.56 5.56 0.26 4.60 2.81 0.35 6.28 1.19 40.69 0.55
OHSL OHSL Financial Corp. of OH 11.03 11.03 0.61 5.29 4.11 0.85 7.42 0.14 161.25 0.31
OCFC Ocean Fin. Corp. of NJ 16.25 16.25 0.03 0.16 0.11 0.98 5.97 0.55 79.68 0.87
OCN Ocwen Financial Corp. of FL 8.75 8.36 2.81 33.59 4.75 1.69 20.28 5.11 17.43 1.34
OTFC Oregon Trail Fin. Corp of OR 24.02 100.09 1.07 4.44 3.59 1.07 4.44 0.10 257.62 0.41
OFCP Ottawa Financial Corp. of MI 8.73 7.01 0.48 5.21 2.72 0.78 8.44 0.34 105.17 0.42
PFFB PFF Bancorp of Pomona CA 10.32 10.21 0.16 1.41 1.02 0.46 4.09 1.73 60.66 1.46
PSFI PS Financial of Chicago IL 38.70 38.70 1.94 4.74 4.10 1.96 4.81 0.79 28.66 0.51
PVFC PVF Capital Corp. of OH 7.04 7.04 1.04 15.23 7.50 1.33 19.49 1.24 57.99 0.78
PCCI Pacific Crest Capital of CA* 7.09 7.09 1.04 13.26 6.68 0.97 12.43 1.29 79.26 1.67
PAMM PacificAmerica Money Ctr of CA(8)* 22.42 22.42 5.63 41.65 6.87 5.63 41.65 4.97 27.75 2.34
PALM Palfed, Inc. of Aiken SC(8) 8.24 8.24 0.10 1.29 0.51 0.61 7.54 2.12 51.22 1.32
PBCI Pamrapo Bancorp, Inc. of NJ 12.74 12.64 0.90 6.37 4.50 1.24 8.78 2.77 26.10 1.29
PFED Park Bancorp of Chicago IL 22.53 22.53 0.87 4.19 3.59 1.21 5.81 0.25 115.74 0.73
PVSA Parkvale Financial Corp of PA 7.58 7.53 0.73 9.76 5.10 1.08 14.42 0.27 537.53 1.97
PEEK Peekskill Fin. Corp. of NY 25.73 25.73 0.98 3.54 3.33 1.29 4.65 1.22 27.98 1.35
PFSB PennFed Fin. Services of NJ 7.36 6.15 0.57 7.43 4.27 0.84 10.86 0.59 33.53 0.28
PWBC PennFirst Bancorp of PA 8.08 7.55 0.46 6.31 3.41 0.67 9.12 0.65 93.15 1.49
PWBK Pennwood SB of PA* 17.45 17.45 0.70 4.05 3.04 1.12 6.54 0.98 57.43 1.03
PBKB People's SB of Brockton MA* 5.61 5.37 0.80 14.41 5.84 0.47 8.57 0.82 91.19 1.57
PFDC Peoples Bancorp of Auburn IN 15.21 15.21 1.12 7.33 4.34 1.47 9.59 0.36 83.87 0.38
PBCT Peoples Bank, MHC of CT (40.1)* 8.48 8.47 1.12 13.72 3.85 0.83 10.17 0.90 121.39 1.60
PFFC Peoples Fin. Corp. of OH 27.20 27.20 0.90 3.32 3.67 0.90 3.32 NA NA 0.39
PHBK Peoples Heritage Fin Grp of ME* 7.72 6.51 1.28 15.68 5.59 1.29 15.88 0.91 126.66 1.66
PSFC Peoples Sidney Fin. Corp of OH 24.92 24.92 0.61 4.54 1.95 0.92 6.81 0.84 45.79 0.44
PERM Permanent Bancorp of IN 9.16 9.03 0.34 3.64 2.90 0.62 6.57 1.09 45.43 0.99
PMFI Perpetual Midwest Fin. of IA 8.53 8.53 0.12 1.38 1.05 0.29 3.36 0.48 155.74 0.95
PERT Perpetual of SC, MHC (46.8)(8) 11.82 11.82 0.67 5.44 1.74 0.94 7.68 0.12 502.32 0.87
PCBC Perry Co. Fin. Corp. of MO 19.19 19.19 0.93 4.93 4.21 1.07 5.70 0.03 104.17 0.19
PHFC Pittsburgh Home Fin. of PA 10.92 10.80 0.62 4.71 3.52 0.79 6.00 1.60 32.18 0.76
PFSL Pocahnts Fed, MHC of AR (47.0)(8) 6.36 6.36 0.60 9.75 4.00 0.84 13.54 0.15 308.72 1.12
PTRS Potters Financial Corp of OH 8.83 8.83 0.48 5.37 4.07 0.85 9.54 0.69 252.21 2.78
PKPS Poughkeepsie Fin. Corp. of NY 8.37 8.37 0.35 4.21 2.43 0.54 6.49 4.29 25.19 1.45
PHSB Ppls Home SB, MHC of PA (45.0) 11.73 11.73 0.43 3.71 2.09 0.65 5.56 NA NA 1.40
PRBC Prestige Bancorp of PA 11.13 11.13 0.37 2.84 2.44 0.65 5.01 0.30 85.33 0.38
PETE Primary Bank of NH(8)* 6.93 6.92 0.61 9.35 4.51 0.73 11.09 0.82 75.47 1.08
PFNC Progress Financial Corp. of PA 5.26 4.65 0.54 10.30 3.56 0.65 12.28 2.03 37.35 1.08
PSBK Progressive Bank, Inc. of NY* 8.55 7.63 0.99 12.02 6.52 0.98 11.81 0.85 131.46 1.65
PROV Provident Fin. Holdings of CA 13.88 13.88 0.32 2.24 1.89 0.28 1.95 NA NA 1.31
PULB Pulaski SB, MHC of MO (29.8) 13.00 13.00 0.69 5.42 2.09 0.96 7.53 NA NA 0.33
PLSK Pulaski SB, MHC of NJ (46.0) 11.90 11.90 0.25 2.97 0.97 0.61 7.21 0.65 71.47 0.81
PULS Pulse Bancorp of S. River NJ 8.05 8.05 0.72 9.24 4.07 1.08 13.86 0.69 65.20 1.93
QCFB QCF Bancorp of Virginia MN 17.50 17.50 1.34 7.33 5.64 1.34 7.33 0.17 499.62 2.10
QCBC Quaker City Bancorp of CA 8.77 8.76 0.37 4.12 2.51 0.60 6.74 1.31 74.10 1.19
QCSB Queens County Bancorp of NY* 11.86 11.86 1.60 10.77 3.84 1.62 10.92 0.68 95.23 0.74
<CAPTION>
Pricing Ratios Dividend Data(6)
----------------------------------------- -----------------------
Price/ Price/ Ind. Divi-
Price/ Price/ Price/ Tang. Core Div./ dend Payout
Financial Institution Earning Book Assets Book Earnings Share Yield Ratio(7)
- --------------------- ------- ------- ------- ------- ------- ------- ------- -------
(X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
NSLB NS&L Bancorp of Neosho MO NM 118.04 23.09 118.04 NM 0.50 2.56 NM
NMSB Newmil Bancorp. of CT* 18.75 154.17 15.13 154.17 19.62 0.24 1.88 35.29
NASB North American SB of MO 12.68 204.97 15.74 212.07 13.47 0.80 1.54 19.51
NBSI North Bancshares of Chicago IL NM 142.22 20.11 142.22 29.78 0.48 1.99 NM
FFFD North Central Bancshares of IA 18.50 127.41 28.88 127.41 15.99 0.25 1.32 24.51
NBN Northeast Bancorp of ME* 19.32 151.35 10.35 172.76 20.05 0.32 1.51 29.09
NEIB Northeast Indiana Bncrp of IN 20.53 132.46 20.12 132.46 17.50 0.32 1.59 32.65
NWEQ Northwest Equity Corp. of WI 19.89 132.38 15.15 132.38 15.77 0.52 2.97 59.09
NWSB Northwest SB, MHC of PA (30.7) NM NM 34.93 NM NM 0.32 1.02 55.17
NSSY Norwalk Savings Society of CT* 14.98 175.63 14.15 182.16 13.13 0.40 1.10 16.53
NSSB Norwich Financial Corp. of CT* 22.01 212.59 23.74 235.49 23.15 0.56 1.79 39.44
NTMG Nutmeg FS&LA of CT NM 152.20 8.47 152.20 26.11 0.00 0.00 0.00
OHSL OHSL Financial Corp. of OH 24.33 128.48 14.17 128.48 17.36 0.88 3.23 NM
OCFC Ocean Fin. Corp. of NJ NM 132.54 21.54 132.54 24.33 0.80 2.21 NM
OCN Ocwen Financial Corp. of FL 21.06 NM 53.67 NM NM 0.00 0.00 0.00
OTFC Oregon Trail Fin. Corp of OR 27.86 123.70 29.71 29.68 27.86 0.00 0.00 0.00
OFCP Ottawa Financial Corp. of MI NM 195.76 17.09 243.96 22.71 0.36 1.32 48.65
PFFB PFF Bancorp of Pomona CA NM 141.28 14.58 142.76 NM 0.00 0.00 0.00
PSFI PS Financial of Chicago IL 24.37 116.37 45.04 116.37 24.03 0.32 1.88 45.71
PVFC PVF Capital Corp. of OH 13.33 185.41 13.06 185.41 10.42 0.00 0.00 0.00
PCCI Pacific Crest Capital of CA* 14.97 185.70 13.16 185.70 15.98 0.00 0.00 0.00
PAMM PacificAmerica Money Ctr of CA(8)* 14.56 NM 89.62 NM 14.56 0.00 0.00 0.00
PALM Palfed, Inc. of Aiken SC(8) NM 244.65 20.16 244.65 NM 0.12 0.47 NM
PBCI Pamrapo Bancorp, Inc. of NJ 22.20 154.93 19.73 156.16 16.09 1.00 3.88 NM
PFED Park Bancorp of Chicago IL 27.82 106.02 23.89 106.02 20.06 0.00 0.00 0.00
PVSA Parkvale Financial Corp of PA 19.62 182.04 13.81 183.42 13.29 0.65 1.93 37.79
PEEK Peekskill Fin. Corp. of NY NM 116.38 29.94 116.38 22.83 0.36 2.10 63.16
PFSB PennFed Fin. Services of NJ 23.43 166.09 12.22 198.58 16.03 0.28 0.84 19.58
PWBC PennFirst Bancorp of PA 29.37 148.71 12.02 159.07 20.33 0.36 1.95 57.14
PWBK Pennwood SB of PA* NM 124.67 21.76 124.67 20.38 0.32 1.71 56.14
PBKB People's SB of Brockton MA* 17.13 232.13 13.02 242.32 28.80 0.44 2.21 37.93
PFDC Peoples Bancorp of Auburn IN 23.02 166.41 25.30 166.41 17.58 0.64 2.00 46.04
PBCT Peoples Bank, MHC of CT (40.1)* 25.99 NM 28.02 NM NM 0.68 1.88 48.92
PFFC Peoples Fin. Corp. of OH 27.25 91.51 24.89 91.51 27.25 0.50 3.46 NM
PHBK Peoples Heritage Fin Grp of ME* 17.88 267.53 20.65 NM 17.65 0.76 1.80 32.20
PSFC Peoples Sidney Fin. Corp of OH NM 113.68 28.33 113.68 NM 0.28 1.71 NM
PERM Permanent Bancorp of IN NM 125.99 11.54 127.87 19.13 0.40 1.61 55.56
PMFI Perpetual Midwest Fin. of IA NM 132.28 11.29 132.28 NM 0.30 1.26 NM
PERT Perpetual of SC, MHC (46.8)(8) NM 285.64 33.78 285.64 NM 1.40 2.43 NM
PCBC Perry Co. Fin. Corp. of MO 23.74 113.67 21.82 113.67 20.55 0.40 1.87 44.44
PHFC Pittsburgh Home Fin. of PA 28.43 138.07 15.07 139.54 22.30 0.24 1.22 34.78
PFSL Pocahnts Fed, MHC of AR (47.0)(8) 25.00 235.43 14.98 235.43 18.01 0.90 2.59 64.75
PTRS Potters Financial Corp of OH 24.57 129.72 11.45 129.72 13.83 0.36 1.26 31.03
PKPS Poughkeepsie Fin. Corp. of NY NM 168.72 14.12 168.72 26.68 0.10 1.01 41.67
PHSB Ppls Home SB, MHC of PA (45.0) NM 177.65 20.83 177.65 NM 0.00 0.00 0.00
PRBC Prestige Bancorp of PA NM 116.60 12.98 116.60 23.19 0.12 0.62 25.53
PETE Primary Bank of NH(8)* 22.18 191.91 13.31 192.17 18.71 0.00 0.00 0.00
PFNC Progress Financial Corp. of PA 28.12 265.82 13.99 NM 23.58 0.11 0.75 21.15
PSBK Progressive Bank, Inc. of NY* 15.33 179.21 15.33 200.74 15.60 0.68 1.93 29.57
PROV Provident Fin. Holdings of CA NM 118.71 16.48 118.71 NM 0.00 0.00 0.00
PULB Pulaski SB, MHC of MO (29.8) NM 255.89 33.27 255.89 NM 1.10 3.89 NM
PLSK Pulaski SB, MHC of NJ (46.0) NM 213.24 25.39 213.24 NM 0.30 1.38 NM
PULS Pulse Bancorp of S. River NJ 24.58 216.43 17.42 216.43 16.39 0.70 2.37 58.33
QCFB QCF Bancorp of Virginia MN 17.73 130.01 22.75 130.01 17.73 0.00 0.00 0.00
QCBC Quaker City Bancorp of CA NM 159.77 14.01 159.88 24.36 0.00 0.00 0.00
QCSB Queens County Bancorp of NY* 26.05 NM 38.78 NM 25.69 0.67 1.80 46.85
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit IV-1 (continued)
Weekly Thrift Market Line - Part Two
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Key Financial Ratios Asset Quality Ratios
---------------------------------------------------------- ------------------------
Tang.
Reported Earnings Core Earnings
Equity/ Equity/ ---------------------- --------------- NPAs Resvs/ Resvs/
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
RARB Raritan Bancorp. of Raritan NJ* 7.93 7.80 0.96 12.55 5.21 1.02 13.33 0.29 297.45 1.29
REDF RedFed Bancorp of Redlands CA 8.45 8.42 0.25 3.24 1.59 0.65 8.37 2.19 45.70 1.15
RELY Reliance Bancorp, Inc. of NY 8.23 5.93 0.58 7.07 3.79 0.86 10.46 0.79 33.33 0.57
RELI Reliance Bancshares Inc of WI(8)* 48.82 48.82 0.86 1.78 1.80 0.92 1.89 NA NA 0.53
FRBK Republic First Bancorp of CA* 7.17 7.17 0.70 11.10 5.65 0.60 9.46 1.19 69.68 0.94
RIVR River Valley Bancorp of IN 12.40 12.21 0.46 4.24 2.63 0.62 5.72 0.49 170.62 1.03
RVSB Riverview Bancorp of WA 21.63 21.63 1.32 6.10 4.00 1.32 6.10 0.14 278.46 0.56
RSLN Roslyn Bancorp, Inc. of NY* 20.14 20.04 0.86 4.12 2.52 1.35 6.49 0.27 278.21 3.46
SCCB S. Carolina Comm. Bnshrs of SC 25.67 25.67 0.93 3.47 2.50 1.22 4.56 1.06 59.43 0.81
SBFL SB Fngr Lakes MHC of NY (33.1) 9.54 9.54 0.13 1.32 0.56 0.44 4.40 0.69 76.89 1.16
SFED SFS Bancorp of Schenectady NY 12.47 12.47 0.44 3.41 2.66 0.79 6.09 0.73 57.17 0.57
SGVB SGV Bancorp of W. Covina CA 7.31 7.19 0.20 2.37 1.63 0.47 5.74 NA NA 0.44
SHSB SHS Bancorp, Inc. of PA 12.64 12.64 0.37 2.96 2.60 0.37 2.96 1.44 35.26 0.75
SISB SIS Bancorp Inc of MA* 7.20 7.20 1.38 18.82 8.95 1.37 18.70 0.47 244.29 2.48
SWCB Sandwich Co-Op. Bank of MA* 7.95 7.61 0.95 11.65 6.24 0.97 11.90 0.83 92.55 1.09
SFSL Security First Corp. of OH 9.43 9.26 1.07 11.49 4.76 1.34 14.36 0.28 273.91 0.85
SFNB Security First Netwrk Bk of GA(8) 33.11 32.57 -29.36 NM NM -30.07 NM NA NA 1.28
SMFC Sho-Me Fin. Corp. of MO(8) 9.03 9.03 1.04 10.44 4.36 1.17 11.79 0.14 425.11 0.66
SOBI Sobieski Bancorp of S. Bend IN 15.12 15.12 0.30 1.83 1.71 0.59 3.55 0.17 145.99 0.33
SOSA Somerset Savings Bank of MA(8)* 6.34 6.34 0.81 13.81 4.82 0.78 13.26 6.28 22.01 1.81
SSFC South Street Fin. Corp. of NC* 25.26 25.26 0.92 4.51 2.40 1.17 5.71 0.27 65.44 0.39
SCBS Southern Commun. Bncshrs of AL 21.96 21.96 0.32 2.52 1.04 0.79 6.23 2.48 46.17 1.94
SMBC Southern Missouri Bncrp of MO 16.46 16.46 0.66 4.10 3.61 0.64 3.97 0.89 49.20 0.65
SWBI Southwest Bancshares of IL 11.00 11.00 0.74 6.89 4.31 1.03 9.54 NA NA NA
SVRN Sovereign Bancorp of PA 4.01 3.03 0.44 11.07 3.29 0.68 17.14 0.57 78.85 0.72
STFR St. Francis Cap. Corp. of WI 7.88 6.96 0.64 7.35 4.40 0.70 8.09 0.19 181.58 0.80
SPBC St. Paul Bancorp, Inc. of IL 8.60 8.58 0.72 8.22 3.32 1.03 11.84 0.32 232.75 1.09
SFFC StateFed Financial Corp. of IA 17.78 17.78 1.11 6.16 4.37 1.35 7.47 1.55 16.68 0.32
SFIN Statewide Fin. Corp. of NJ 9.73 9.71 0.54 5.46 3.38 0.91 9.26 0.43 95.58 0.83
STSA Sterling Financial Corp. of WA 4.10 3.57 0.10 2.46 1.33 0.32 7.91 0.61 79.43 0.82
SFSB SuburbFed Fin. Corp. of IL 6.48 6.46 0.39 5.87 3.70 0.56 8.55 0.48 41.27 0.31
ROSE T R Financial Corp. of NY* 6.20 6.20 0.98 15.73 5.68 0.89 14.19 0.46 90.99 0.80
THRD TF Financial Corp. of PA 11.11 9.75 0.55 4.76 3.29 0.74 6.40 0.33 92.84 0.62
TPNZ Tappan Zee Fin., Inc. of NY 17.92 17.92 0.70 4.22 2.55 0.65 3.90 1.73 31.27 1.18
ESBK The Elmira SB FSB of Elmira NY* 6.30 6.04 0.36 5.66 3.77 0.35 5.51 0.66 96.75 0.85
TSBS Trenton SB,FSB MHC of NJ(35.9)(8) 16.89 15.48 1.34 7.53 2.20 1.14 6.39 0.73 55.92 0.67
TRIC Tri-County Bancorp of WY 15.32 15.32 0.80 5.14 4.07 1.02 6.55 NA NA 1.11
TWIN Twin City Bancorp of TN 12.85 12.85 0.53 4.13 3.03 0.75 5.82 0.16 130.95 0.29
UFRM United FS&LA of Rocky Mount NC 7.48 7.48 0.22 2.87 1.55 0.38 4.98 0.58 135.44 0.98
UBMT United Fin. Corp. of MT 22.65 22.65 1.09 4.70 3.92 1.34 5.80 NA NA 0.22
VABF Va. Beach Fed. Fin. Corp of VA 6.85 6.85 0.21 3.15 1.60 0.47 7.02 1.26 56.59 0.93
VFFC Virginia First Savings of VA(8) 8.06 7.78 1.36 17.16 7.46 1.25 15.73 2.30 47.12 1.19
WHGB WHG Bancshares of MD 20.65 20.65 0.51 2.23 2.16 0.51 2.23 0.15 160.96 0.29
WSFS WSFS Financial Corp. of DE* 5.20 5.16 1.31 23.71 7.97 1.32 23.87 1.71 95.78 2.65
WVFC WVS Financial Corp. of PA* 11.16 11.16 1.07 8.59 5.20 1.35 10.77 0.09 733.21 1.25
WRNB Warren Bancorp of Peabody MA* 10.37 10.37 2.13 22.09 10.18 1.81 18.79 1.15 98.45 1.79
WFSL Washington FS&LA of Seattle WA 12.08 11.03 1.67 14.37 6.14 1.84 15.85 0.73 59.65 0.60
WAMU Washington Mutual Inc. of WA(8)* 5.00 4.75 0.35 6.81 1.68 0.74 14.45 0.81 93.26 1.12
WYNE Wayne Bancorp of NJ 13.35 13.35 0.44 2.94 2.22 0.44 2.94 0.91 83.50 1.15
WAYN Wayne S&L Co. MHC of OH (47.8) 9.24 9.24 0.31 3.42 1.30 0.66 7.23 0.73 50.94 0.45
WCFB Wbstr Cty FSB MHC of IA (45.2) 23.35 23.35 1.06 4.61 2.23 1.42 6.15 0.26 152.85 0.69
WBST Webster Financial Corp. of CT 5.02 4.29 0.41 8.14 2.57 0.74 14.55 0.85 103.47 1.45
WEFC Wells Fin. Corp. of Wells MN 14.20 14.20 0.72 5.07 4.39 1.06 7.49 0.28 121.72 0.37
WCBI WestCo Bancorp of IL 15.24 15.24 1.12 7.28 4.90 1.42 9.19 0.21 139.06 0.37
WSTR WesterFed Fin. Corp. of MT 10.91 8.73 0.63 5.09 3.10 0.79 6.41 0.25 191.01 0.73
WOFC Western Ohio Fin. Corp. of OH 13.79 12.85 0.33 2.24 1.81 0.45 3.10 NA NA 0.58
<CAPTION>
Pricing Ratios Dividend Data(6)
----------------------------------------- -----------------------
Price/ Price/ Ind. Divi-
Price/ Price/ Price/ Tang. Core Div./ dend Payout
Financial Institution Earning Book Assets Book Earnings Share Yield Ratio(7)
- --------------------- ------- ------- ------- ------- ------- ------- ------- -------
(X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
RARB Raritan Bancorp. of Raritan NJ* 19.18 224.36 17.80 228.20 18.06 0.48 1.71 32.88
REDF RedFed Bancorp of Redlands CA NM 181.12 15.31 181.79 24.34 0.00 0.00 0.00
RELY Reliance Bancorp, Inc. of NY 26.40 177.99 14.65 247.01 17.84 0.64 1.94 51.20
RELI Reliance Bancshares Inc of WI(8)* NM 97.69 47.69 97.69 NM 0.00 0.00 0.00
FRBK Republic First Bancorp of CA* 17.71 166.79 11.96 166.89 20.77 0.00 0.00 0.00
RIVR River Valley Bancorp of IN NM 119.62 14.83 121.44 28.23 0.16 0.91 34.78
RVSB Riverview Bancorp of WA 25.00 152.51 32.99 152.51 25.00 0.24 1.71 42.86
RSLN Roslyn Bancorp, Inc. of NY* NM 160.77 32.38 161.54 25.20 0.24 1.02 40.68
SCCB S. Carolina Comm. Bnshrs of SC NM 140.43 36.05 140.43 NM 0.60 2.50 NM
SBFL SB Fngr Lakes MHC of NY (33.1) NM 230.01 21.94 230.01 NM 0.40 1.50 NM
SFED SFS Bancorp of Schenectady NY NM 129.19 16.11 129.19 21.06 0.28 1.24 46.67
SGVB SGV Bancorp of W. Covina CA NM 148.79 10.87 151.27 25.33 0.00 0.00 0.00
SHSB SHS Bancorp, Inc. of PA NM 113.88 14.39 113.88 NM 0.00 0.00 0.00
SISB SIS Bancorp Inc of MA* 11.18 199.78 14.38 199.78 11.25 0.56 1.51 16.92
SWCB Sandwich Co-Op. Bank of MA* 16.03 180.03 14.31 188.06 15.69 1.20 3.20 51.28
SFSL Security First Corp. of OH 21.02 227.55 21.45 231.54 16.82 0.32 1.73 36.36
SFNB Security First Netwrk Bk of GA(8) NM NM 110.96 NM NM 0.00 0.00 NM
SMFC Sho-Me Fin. Corp. of MO(8) 22.96 241.04 21.77 241.04 20.32 0.00 0.00 0.00
SOBI Sobieski Bancorp of S. Bend IN NM 115.31 17.44 115.31 NM 0.32 1.71 NM
SOSA Somerset Savings Bank of MA(8)* 20.76 264.80 16.80 264.80 21.63 0.00 0.00 0.00
SSFC South Street Fin. Corp. of NC* NM 138.07 34.87 138.07 NM 0.40 2.13 NM
SCBS Southern Commun. Bncshrs of AL NM 134.79 29.60 134.79 NM 0.30 1.64 NM
SMBC Southern Missouri Bncrp of MO 27.69 111.32 18.33 111.32 28.57 0.50 2.78 NM
SWBI Southwest Bancshares of IL 23.19 154.02 16.94 154.02 16.75 0.76 3.15 73.08
SVRN Sovereign Bancorp of PA NM NM 12.12 NM 19.66 0.08 0.42 12.90
STFR St. Francis Cap. Corp. of WI 22.74 164.76 12.98 186.43 20.64 0.48 1.19 27.12
SPBC St. Paul Bancorp, Inc. of IL NM 239.93 20.64 240.55 20.90 0.40 1.43 43.01
SFFC StateFed Financial Corp. of IA 22.86 137.67 24.48 137.67 18.84 0.40 1.50 34.19
SFIN Statewide Fin. Corp. of NJ 29.61 161.87 15.74 162.10 17.44 0.44 1.96 57.89
STSA Sterling Financial Corp. of WA NM 170.19 6.97 195.19 23.47 0.00 0.00 0.00
SFSB SuburbFed Fin. Corp. of IL 27.03 151.69 9.83 152.24 18.58 0.32 0.96 26.02
ROSE T R Financial Corp. of NY* 17.59 257.31 15.97 257.31 19.50 0.60 1.85 32.61
THRD TF Financial Corp. of PA NM 146.22 16.25 166.67 22.57 0.40 1.57 47.62
TPNZ Tappan Zee Fin., Inc. of NY NM 144.60 25.91 144.60 NM 0.28 1.35 52.83
ESBK The Elmira SB FSB of Elmira NY* 26.55 147.64 9.30 154.00 27.27 0.64 2.13 56.64
TSBS Trenton SB,FSB MHC of NJ(35.9)(8) NM NM 56.03 NM NM 0.35 0.89 40.70
TRIC Tri-County Bancorp of WY 24.55 120.00 18.38 120.00 19.29 0.60 2.22 54.55
TWIN Twin City Bancorp of TN NM 134.51 17.29 134.51 23.39 0.40 2.76 NM
UFRM United FS&LA of Rocky Mount NC NM 182.84 13.67 182.84 NM 0.24 1.96 NM
UBMT United Fin. Corp. of MT 25.53 120.30 27.25 120.30 20.69 0.98 4.08 NM
VABF Va. Beach Fed. Fin. Corp of VA NM 191.18 13.09 191.18 28.02 0.20 1.23 NM
VFFC Virginia First Savings of VA(8) 13.40 213.84 17.24 221.46 14.61 0.10 0.41 5.52
WHGB WHG Bancshares of MD NM 111.23 22.97 111.23 NM 0.20 1.27 58.82
WSFS WSFS Financial Corp. of DE* 12.54 291.77 15.18 294.10 12.46 0.00 0.00 0.00
WVFC WVS Financial Corp. of PA* 19.23 172.60 19.27 172.60 15.33 0.80 2.46 47.34
WRNB Warren Bancorp of Peabody MA* 9.83 201.12 20.86 201.12 11.55 0.52 2.63 25.87
WFSL Washington FS&LA of Seattle WA 16.30 215.69 26.05 236.15 14.78 0.92 2.91 47.42
WAMU Washington Mutual Inc. of WA(8)* NM NM 17.59 NM 28.05 1.08 1.59 NM
WYNE Wayne Bancorp of NJ NM 136.86 18.27 136.86 NM 0.20 0.89 40.00
WAYN Wayne S&L Co. MHC of OH (47.8) NM 258.62 23.91 258.62 NM 0.62 2.30 NM
WCFB Wbstr Cty FSB MHC of IA (45.2) NM 204.18 47.68 204.18 NM 0.80 3.72 NM
WBST Webster Financial Corp. of CT NM 249.90 12.55 292.53 21.77 0.80 1.29 50.00
WEFC Wells Fin. Corp. of Wells MN 22.77 113.52 16.12 113.52 15.39 0.48 2.89 65.75
WCBI WestCo Bancorp of IL 20.39 149.74 22.82 149.74 16.15 0.60 2.09 42.55
WSTR WesterFed Fin. Corp. of MT NM 139.46 15.21 174.25 25.61 0.44 1.68 54.32
WOFC Western Ohio Fin. Corp. of OH NM 122.97 16.96 131.94 NM 1.00 3.48 NM
</TABLE>
<PAGE>
RP FINANCIAL, LC.
_________________________________________
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit IV-1 (continued)
Weekly Thrift Market Line - Part Two
Prices As Of October 10, 1997
<TABLE>
<CAPTION>
Key Financial Ratios Asset Quality Ratios
__________________________________________________________ ________________________
Tang.
Reported Earnings Core Earnings
Equity/ Equity/ ______________________ _______________ NPAs Resvs/ Resvs/
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans
_____________________ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
_______________________________________
WWFC Westwood Fin. Corp. of NJ(8) 9.13 8.13 0.49 5.12 2.84 0.85 8.80 0.13 159.15 0.55
WEHO Westwood Hmstd Fin Corp of OH 29.41 29.41 0.70 2.41 1.74 1.04 3.62 0.06 255.81 0.21
WFI Winton Financial Corp. of OH 7.11 6.96 1.00 14.08 8.31 0.84 11.80 0.35 78.21 0.32
FFWD Wood Bancorp of OH 12.31 12.31 1.07 8.25 4.65 1.27 9.81 0.24 143.64 0.44
YFCB Yonkers Fin. Corp. of NY 14.90 14.90 0.86 5.06 3.73 1.16 6.79 0.57 65.19 1.02
YFED York Financial Corp. of PA 8.61 8.61 0.62 7.41 3.92 0.79 9.46 2.39 23.05 0.64
<CAPTION>
Pricing Ratios Dividend Data(6)
_________________________________________ _______________________
Price/ Price/ Ind. Divi-
Price/ Price/ Price/ Tang. Core Div./ dend Payout
Financial Institution Earning Book Assets Book Earnings Share Yield Ratio(7)
_____________________ _______ _______ _______ _______ _______ _______ _______ _______
(X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
_______________________________________
WWFC Westwood Fin. Corp. of NJ(8) NM 174.49 15.92 195.87 20.52 0.20 0.73 25.64
WEHO Westwood Hmstd Fin Corp of OH NM 121.74 35.80 121.74 NM 0.28 1.62 NM
WFI Winton Financial Corp. of OH 12.03 169.45 12.05 173.11 14.37 0.46 2.39 28.75
FFWD Wood Bancorp of OH 21.52 178.57 21.98 178.57 18.09 0.40 2.35 50.63
YFCB Yonkers Fin. Corp. of NY 26.80 144.06 21.47 144.06 19.97 0.24 1.18 31.58
YFED York Financial Corp. of PA 25.50 180.32 15.52 180.32 19.96 0.60 2.33 59.41
</TABLE>
<PAGE>
EXHIBIT 2
Core Earnings Analysis
<PAGE>
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Core Earnings Analysis
Comparable Institution Analysis
For the Twelve Months Ended June 30, 1997
<TABLE>
<CAPTION>
Estimated
Net Income Less: Net Tax Effect Less: Extd Core Income Estimated
to Common Gains(Loss) @ 34% Items to Common Shares Core EPS
---------- ----------- ---------- ---------- ----------- --------- --------
($000) ($000) $000) ($000) ($000) ($000) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Comparable Group
----------------
CMRN Cameron Fin. Corp. of MO 2,037 793 -270 0 2,560 2,627 0.97
FFHH FSF Financial Corp. of MN 2,373 977 -332 0 3,018 3,033 0.99
FFBA First Colorado Bancorp of Co 12,948 -251 85 0 12,782 16,561 0.77
FMSB First Mutual SB of Bellevue WA 4,210 -137 47 0 4,120 2,702 1.52
FWWB First Savings Bancorp of WA(1) 9,314 -701 238 0 8,851 10,519 0.84
HRZB Horizon Financial Corp. of WA 7,912 -208 71 0 7,775 7,417 1.05
IWBK Interwest SB of Oak Harbor WA 14,629 7,910 -2,689 0 19,850 8,036 2.47
KFBI Klamath First Bancorp of OR 5,494 4,252 -1,446 0 8,300 10,019 0.83
UBMT United Fin. Corp. of MT(1) 1,150 400 -136 0 1,414 1,223 1.16
WSTR WesterFed Fin. Corp. of MT 4,507 1,784 -607 0 5,684 5,565 1.02
</TABLE>
(1) Financial information is for the quarter ending March 31, 1997.
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP Financial, LC. calculations. The
information provided in this table has been obtained from sources
we believe are reliable, but we cannot guarantee the accuracy or
completeness of such information.
Copyright (c) 1997 by RP Financial, LC.
<PAGE>
EXHIBIT 3
Pro Forma Analysis Sheet
<PAGE>
Exhibit 3
PRO FORMA ANALYSIS SHEET
Heritage Bank
Prices as of October 10, 1997
<TABLE>
<CAPTION>
Peer Group Washington Companies All SAIF Insured
---------------------- ---------------------- --------------------
Price Multiple Symbol Subject (1) Mean Median Mean Median Mean Median
- -------------- ------ ----------- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price-earnings ratio = P/E 17.72x 23.73x 25.11x 21.39x 20.58x 22.53x 22.85x
Price-book ratio = P/B 97.24% 173.22% 161.19% 192.40% 177.98% 155.64% 149.53%
Price-tangible book ratio = P/TB 97.24% 179.15% 168.11% 200.84% 198.56% 159.27% 151.83%
Price-assets ratio = P/A 24.89% 22.61% 23.53% 22.09% 19.29% 19.17% 17.30%
Valuation Parameters
</TABLE>
<TABLE>
<S> <C> <C> <C>
Pre-Conversion Earnings (Y) $ 2,162,000 ESOP Stock Purchases (E) 2.00%
Pre-Conversion Book Value (B) $ 28,444,000 Cost of ESOP Borrowings (S) 0.00% (4)
Pre-Conv. Tang. Book Value (TB) $ 28,444,000 ESOP Amortization (T) 15.00 years
Pre-Conversion Assets (A) $248,824,000 RRP Amount (M) 1.00%
Reinvestment Rate (2)(R) 4.45% RRP Vesting (N) 5.00 years
Est. Conversion Expenses (3)(X) 2.27% Percentage Sold (PCT) 67.83%
Tax rate (TAX) 34.00%
</TABLE>
Calculation of Pro Forma Value After Conversion
<TABLE>
<S> <C>
1. V= P/E * Y V= $73,713,696
-----------------------------------------------------
1 - P/E * PCT * ((1-X-E-M)*R - (1-TAX)*E/T - (1-TAX)*M/N)
2. V= P/B * B V= $73,713,696
-------------------------------------
1 - P/B * PCT * (1-X-E-M)
3. V= P/TB * TB V= $73,713,696
---------------------------------------
1 - P/TB * PCT * (1-X-E-M)
4. V= P/A * A V= $73,713,696
---------------------------------------
1 - P/A * PCT * (1-X-E-M)
</TABLE>
<TABLE>
<CAPTION>
Full
Gross Exchange Conversion
Conclusion Proceeds Ratio Value
- ---------- -------- ----- -----
<S> <C> <C> <C>
Minimum $42,500,000 3.3064 $62,656,642
Midpoint $50,000,000 3.8899 $73,713,696
Maximum $57,500,000 4.4734 $84,770,750
Supermaximum Value $66,125,000 5.1444 $97,486,363
</TABLE>
(1) Pricing ratios shown reflect the midpoint of the offering.
(2) Net return reflects a reinvestment rate of 6.74 percent, and a tax rate of
34.00 percent.
(3) Estimated offering expenses based on prospectus.
(4) No cost is applicable since holding company will fund the ESOP loan.
<PAGE>
EXHIBIT 4
Pro Forma Effect of Conversion Proceeds
<PAGE>
Exhibit 4
PRO FORMA EFFECT OF CONVERSION PROCEEDS
Heritage Bank
At the Minimum Value
<TABLE>
<S> <C> <C>
1. Conversion Proceeds
Full Conversion Value $62,656,642
Exchange Ratio 3.3064
Offering Proceeds $42,500,000
Less: Estimated Offering Expenses 1,031,500
-----------
Net Conversion Proceeds $41,468,500
2. Estimated Additional Income from Conversion Proceeds
Net Conversion Proceeds $41,468,500
Less: Non-Cash Stock Purchases (1) 1,275,000
-----------
Net Proceeds Reinvested $40,193,500
Estimated net incremental rate of return 4.45%
Earnings Increase $ 1,788,611
Less: Estimated cost of ESOP borrowings (2) 0
Less: Amortization of ESOP borrowings (3) 37,400
Less: Recognition Plan Vesting (4) 56,100
-----------
Net Earnings Increase $ 1,695,111
</TABLE>
<TABLE>
<CAPTION>
Net
Before Earnings After
3. Pro Forma Earnings Conversion Increase Conversion
---------- -------- ----------
<S> <C> <C> <C>
12 Months ended September 30, 1997 (reported) $ 2,162,000 $ 1,695,111 $ 3,857,111
12 Months ended September 30, 1997 (core) $ 798,000 $ 1,695,111 $ 2,493,111
<CAPTION>
Before Net Cash After
4. Pro Forma Net Worth Conversion Proceeds Conversion
---------- -------- ----------
<S> <C> <C> <C>
Reported as of September 30, 1997 $ 28,444,000 $40,193,500 $ 68,637,500
Tangible as of September 30, 1997 $ 28,444,000 $40,193,500 $ 68,637,500
<CAPTION>
5. Pro Forma Assets Conversion Proceeds Conversion
---------- -------- ----------
<S> <C> <C> <C>
Reported as of September 30, 1997 $248,824,000 $40,193,500 $289,017,500
</TABLE>
(1) Includes ESOP and Recognition Plan stock purchases equal to 2.0 percent
and 1.0 percent of the offering, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding
company.
(3) ESOP borrowings are amortized over 15 years, amortization expense is
tax-effected at a 34.00 percent rate.
(4) Recognition plan is vested over five years, amortization expense is
tax-effected at a 34.00 percent rate.
<PAGE>
Exhibit 4
PRO FORMA EFFECT OF CONVERSION PROCEEDS
Heritage Bank
At the Midpoint Value
<TABLE>
<S> <C> <C>
1. Conversion Proceeds $73,713,696
Full Conversion Value 3.8899
Exchange Ratio
Offering Proceeds $50,000,000
Less: Estimated Offering Expenses 1,135,000
-----------
Net Conversion Proceeds $48,865,000
2. Estimated Additional Income from Conversion Proceeds
Net Conversion Proceeds $48,865,000
Less: Non-Cash Stock Purchases (1) 1,500,000
-----------
Net Proceeds Reinvested $47,365,000
Estimated net incremental rate of return 4.45%
Earnings Increase $ 2,107,743
Less: Estimated cost of ESOP borrowings (2) 0
Less: Amortization of ESOP borrowings (3) 44,000
Less: Recognition Plan Vesting (4) 66,000
-----------
Net Earnings Increase $ 1,997,743
</TABLE>
<TABLE>
<CAPTION>
Net
Before Earnings After
3. Pro Forma Earnings Conversion Increase Conversion
---------- -------- ----------
<S> <C> <C> <C>
12 Months ended September 30, 1997 (reported) $ 2,162,000 $ 1,997,743 $ 4,159,743
12 Months ended September 30, 1997 (core) $ 798,000 $ 1,997,743 $ 2,795,743
<CAPTION>
Before Net Cash After
4. Pro Forma Net Worth Conversion Proceeds Conversion
---------- -------- ----------
<S> <C> <C> <C>
Reported as of September 30, 1997 $ 28,444,000 $47,365,000 $ 75,809,000
Tangible as of September 30, 1997 $ 28,444,000 $47,365,000 $ 75,809,000
<CAPTION>
5. Pro Forma Assets Conversion Proceeds Conversion
---------- -------- ----------
<S> <C> <C> <C>
Reported as of September 30, 1997 $248,824,000 $47,365,000 $296,189,000
</TABLE>
(1) Includes ESOP and Recognition Plan stock purchases equal to 2.0 percent
and 1.0 percent of the offering, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding
company.
(3) ESOP borrowings are amortized over 15 years, amortization expense is
tax-effected at a 34.00 percent rate.
(4) Recognition plan is vested over five years, amortization expense is
tax-effected at a 34.00 percent rate.
<PAGE>
Exhibit 4
PRO FORMA EFFECT OF CONVERSION PROCEEDS
Heritage Bank
At the Maximum Value
<TABLE>
<S> <C> <C>
1. Conversion Proceeds
Full Conversion Value $84,770,750
Exchange Ratio 4.4734
Offering Proceeds $57,500,000
Less: Estimated Offering Expenses 1,238,500
-----------
Net Conversion Proceeds $56,261,500
2. Estimated Additional Income from Conversion Proceeds
Net Conversion Proceeds $56,261,500
Less: Non-Cash Stock Purchases (1) 1,725,000
-----------
Net Proceeds Reinvested $54,536,500
Estimated net incremental rate of return 4.45 %
Earnings Increase $ 2,426,874
Less: Estimated cost of ESOP borrowings (2) 0
Less: Amortization of ESOP borrowings (3) 50,600
Less: Recognition Plan Vesting (4) 75,900
-----------
Net Earnings Increase $ 2,300,374
</TABLE>
<TABLE>
<CAPTION>
Net
Before Earnings After
3. Pro Forma Earnings Conversion Increase Conversion
---------- -------- ----------
<S> <C> <C> <C>
12 Months ended September 30, 1997 (reported) $ 2,162,000 $ 2,300,374 $ 4,462,374
12 Months ended September 30, 1997 (core) $ 798,000 $ 2,300,374 $ 3,098,374
<CAPTION>
Before Net Cash After
4. Pro Forma Net Worth Conversion Proceeds Conversion
---------- -------- ----------
<S> <C> <C> <C>
Reported as of September 30, 1997 $ 28,444,000 $54,536,500 $ 82,980,500
Tangible as of September 30, 1997 $ 28,444,000 $54,536,500 $ 82,980,500
<CAPTION>
5. Pro Forma Assets Conversion Proceeds Conversion
---------- -------- ----------
<S> <C> <C> <C>
Reported as of September 30, 1997 $248,824,000 $54,536,500 $303,360,500
</TABLE>
(1) Includes ESOP and Recognition Plan stock purchases equal to 2.0 percent
and 1.0 percent of the offering, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding
company.
(3) ESOP borrowings are amortized over 15 years, amortization expense is
tax-effected at a 34.00 percent rate.
(4) Recognition plan is vested over five years, amortization expense is
tax-effected at a 34.00 percent rate.
<PAGE>
Exhibit 4
PRO FORMA EFFECT OF CONVERSION PROCEEDS
Heritage Bank
At the Supermaximum Value
<TABLE>
<S> <C> <C>
1. Conversion Proceeds
Full Conversion Value $97,486,363
Exchange Ratio 5.1444
Offering Proceeds $66,125,000
Less: Estimated Offering Expenses 1,357,525
-----------
Net Conversion Proceeds $64,767,475
2. Estimated Additional Income from Conversion Proceeds
Net Conversion Proceeds $64,767,475
Less: Non-Cash Stock Purchases (1) 1,983,750
-----------
Net Proceeds Reinvested $62,783,725
Estimated net incremental rate of return % 4.45
Earnings Increase $ 2,793,876
Less: Estimated cost of ESOP borrowings (2) 0
Less: Amortization of ESOP borrowings (3) 58,190
Less: Recognition Plan Vesting (4) 87,285
-----------
Net Earnings Increase $ 2,648,401
</TABLE>
<TABLE>
<CAPTION>
Net
Before Earnings After
3. Pro Forma Earnings Conversion Increase Conversion
---------- -------- ----------
<S> <C> <C> <C>
12 Months ended September 30, 1997 (reported) $ 2,162,000 $ 2,648,401 $ 4,810,401
12 Months ended September 30, 1997 (core) $ 798,000 $ 2,648,401 $ 3,446,401
<CAPTION>
Before Net Cash After
4. Pro Forma Net Worth Conversion Proceeds Conversion
---------- -------- ----------
<S> <C> <C> <C>
Reported as of September 30, 1997 $ 28,444,000 $62,783,725 $ 91,227,725
Tangible as of September 30, 1997 $ 28,444,000 $62,783,725 $ 91,227,725
<CAPTION>
5. Pro Forma Assets Conversion Proceeds Conversion
---------- -------- ----------
<S> <C> <C> <C>
September 30, 1997 $248,824,000 $62,783,725 $311,607,725
</TABLE>
(1) Includes ESOP and Recognition Plan stock purchases equal to 2.0 percent
and 1.0 percent of the offering, respectively.
(2) ESOP stock purchases are internally financed by a loan from the holding
company.
(3) ESOP borrowings are amortized over 15 years, amortization expense is
tax-effected at a 34.00 percent rate.
(4) Recognition plan is vested over five years, amortization expense is
tax-effected at a 34.00 percent rate.
<PAGE>
EXHIBIT 5
Firm Qualifications Statement
<PAGE>
RP FINANCIAL, LC.
- -------------------------------------------
Financial Services Industry Consultants FIRM QUALIFICATION STATEMENT
RP Financial provides financial and management consulting and valuation services
to the financial services industry nationwide, particularly federally-insured
financial institutions. RP Financial establishes long-term client relationships
through its wide array of services, emphasis on quality and timeliness, hands-on
involvement by our principals and senior consulting staff, and careful
structuring of strategic plans and transactions. RP Financial's staff draws from
backgrounds in consulting, regulatory agencies and investment banking, thereby
providing our clients with considerable resources.
STRATEGIC AND CAPITAL PLANNING
RP Financial's strategic and capital planning services are designed to provide
effective workable plans with quantifiable results. Through a program known as
SAFE (Strategic Alternatives Financial Evaluations), RP Financial analyzes
strategic options to enhance shareholder value or other established objectives.
Our planning services involve conducting situation analyses; establishing
mission statements, strategic goals and objectives; and identifying strategies
for enhancement of franchise value, capital management and planning, earnings
improvement and operational issues. Strategy development typically includes the
following areas: capital formation and management, asset/liability targets,
profitability, return on equity and market value of stock. Our proprietary
financial simulation model provides the basis for evaluating the financial
impact of alternative strategies and assessing the feasibility/compatibility of
such strategies with regulations and/or other guidelines.
MERGER AND ACQUISITION SERVICES
RP Financial's merger and acquisition (M&A) services include targeting
candidates and potential acquirors, assessing acquisition merit, conducting
detailed due diligence, negotiating and structuring transactions, preparing
merger business plans and financial simulations, rendering fairness opinions and
assisting in implementing post-acquisition strategies. Through our financial
simulations, comprehensive in-house data bases, valuation expertise and
regulatory knowledge, RP Financial's M&A consulting focuses on structuring
transactions to enhance shareholder returns.
VALUATION SERVICES
RP Financial's extensive valuation practice includes valuations for a variety of
purposes including mergers and acquisitions, mutual-to-stock conversions, ESOPs,
subsidiary companies, mark-to-market transactions, loan and servicing
portfolios, non-traded securities, core deposits, FAS 107 (fair market value
disclosure), FAS 122 (loan servicing rights) and FAS 123 (stock options). Our
principals and staff are highly experienced in performing valuation appraisals
which conform with regulatory guidelines and appraisal industry standards. RP
Financial is the nation's leading valuation firm for mutual-to-stock conversions
of thrift institutions.
OTHER CONSULTING SERVICES AND DATA BASES
RP Financial offers a variety of other services including branching strategies,
feasibility studies and special research studies, which are complemented by our
quantitative and computer skills. RP Financial's consulting services are aided
by its in-house data base resources for commercial banks and savings
institutions and proprietary valuation and financial simulation models.
YEAR 2000 SERVICES
RP Financial, through a relationship with a computer research and development
company with a proprietary methodology, offers Year 2000 advisory and conversion
services to financial institutions which are more cost effective and less
disruptive than most other providers of such service.
RP Financial's Key Personnel (Years of Relevant Experience)
Ronald S. Riggins, Managing Director (17)
William E. Pommerening, Managing Director (13)
Gregory E. Dunn, Senior Vice President (15)
James P. Hennessey, Senior Vice President (12)
James J. Oren, Vice President (10)
________________________________________________________________________________
WASHINGTON HEADQUARTERS
