<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 31, 1997
REGISTRATION NO. 333-43591
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Pre-effective Amendment No. 1 to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BROOKLYN HEIGHTS BANCORP
(Name of Small Business Issuer in Its Charter )
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<S> <C> <C>
FEDERAL 6712 (TO BE APPLIED FOR)
(State or Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Code Identification No.)
Organization) Number)
</TABLE>
186 MONTAGUE STREET
BROOKLYN, NEW YORK 11201
(718) 855-3555
(Address and Telephone Number of Principal Executive Offices)
186 MONTAGUE STREET
BROOKLYN, NEW YORK 11201
(Address of Principal Place of Business or Intended Principal Place of Business)
STEPHEN IRVING
186 MONTAGUE STREET
BROOKLYN, NEW YORK 11201
(718) 855-3555
(Name, Address and Telephone Number of Agent for Service)
COPIES TO:
ERIC LUSE, ESQ.
ALAN SCHICK, ESQ.
LUSE LEHMAN GORMAN POMERENK & SCHICK, P.C.
5335 WISCONSIN AVENUE, N.W., SUITE 400
(202) 274-2000
WASHINGTON, D.C. 20015
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this registration statement becomes effective.
If this Form is filed to register additional shares for an offering pursuant to
Rule 462(b) under the Securities Act please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
<PAGE> 2
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CALCULATION OF REGISTRATION FEE
======================================================================================================================
PROPOSED PROPOSED
AMOUNT TO BE MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF REGISTERED OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED PER SHARE OFFERING REGISTRATION FEE
PRICE (1)
- ----------------------------------------------------------------------------------------------------------------------
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Common Stock, $1.00 par value 608,350 $10.00 $6,083,500 $1,800.00(2)
per share
======================================================================================================================
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION 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 SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
================================================================================
<PAGE> 3
PROSPECTUS
UP TO 608,350 SHARES OF COMMON STOCK
BROOKLYN HEIGHTS BANCORP
186 MONTAGUE STREET
BROOKLYN, NEW YORK 11201
================================================================================
Atlantic Liberty Savings, F.A., a federally-chartered mutual savings
association (the "Association"), is reorganizing to form a federally-chartered
mutual holding company (the "Reorganization"). As part of the Reorganization,
the Association will convert to a stock savings association and will become a
wholly-owned subsidiary of Brooklyn Heights Bancorp, a federal stock
corporation (the "Company"). The Company will become the majority-owned
subsidiary of Atlantic Liberty, MHC (the "Mutual Holding Company"), a federal
mutual holding company. Concurrently with the Reorganization, the Company is
offering for sale between 391,000 and 529,000 shares of its common stock, par
value $1.00 per share (the "Common Stock"), in a subscription offering to
qualifying depositors and borrowers, the Association's employee stock ownership
plan and to employees, officers and directors of the Association. Any
unsubscribed shares may be offered for sale to the public in a community
offering or syndicated community offering (the subscription and community
offerings are referred to collectively as the "Offering"). The Common Stock
offered for sale in the Offering will represent a minority ownership interest
of 46% of the Company's total outstanding shares of Common Stock. The
Reorganization and Offering are being made pursuant to the terms of a plan of
reorganization which must be approved by a majority of the eligible votes of
members of the Association and by the Office of Thrift Supervision (the "OTS").
The Reorganization will not go forward if the Association does not receive
these approvals and the Company does not sell at least 391,000 shares of Common
Stock.
================================================================================
OFFERING TERMS
An independent appraiser has estimated that as of December 11, 1997,
the pro forma market value of the Common Stock of the Company was between $8.5
million and $11.5 million, with a midpoint of $10 million. The 391,000 to
529,000 shares of Common Stock being sold in the Offering represent a minority
ownership interest in the Company equal to 46% of the minimum and maximum of
the estimated pro forma value of the Common Stock of the Company. Subject to
OTS approval, up to 608,350 shares of Common Stock will be offered for sale in
the Offering in the event of an increase in the pro forma market value of the
Common Stock. Based on these estimates, the Company is making the following
Offering of shares of Common Stock.
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<S> <C> <C>
- Price Per Share: $10
- Number of Shares
Minimum/Maximum/Adjusted Maximum: 391,000/529,000/608,350
- Reorganization Expenses
Minimum/Maximum/Adjusted Maximum: $500,000/$521,000/$534,000
- Net Proceeds to Brooklyn Heights Bancorp
Minimum/Maximum/Adjusted Maximum: $3,410,000/$4,769,000/$5,549,500
- Net Proceeds per share to Brooklyn Heights Bancorp
Minimum/Maximum/Adjusted Maximum: $8.73/$9.03/$9.13
</TABLE>
PLEASE REFER TO RISK FACTORS BEGINNING ON PAGE _____ OF THIS DOCUMENT.
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Ryan, Beck & Co. will use its best efforts to assist the Company in selling at
least the minimum number of shares, but does not guarantee that this number
will be sold. All funds received from subscribers will be held in an interest
bearing account at the Association until the completion or termination of the
Reorganization.
For information on how to subscribe, call the Stock Information Center at (718)
___________.
RYAN, BECK & CO.
PROSPECTUS DATED FEBRUARY ___, 1998
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SELECTED FINANCIAL AND OTHER DATA OF ATLANTIC LIBERTY SAVINGS, F.A. . . . . . . . . . . . . . . . . . . . . . . . 9
RECENT DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PROPOSED PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ATLANTIC LIBERTY, MHC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
BROOKLYN HEIGHTS BANCORP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ATLANTIC LIBERTY SAVINGS, F.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SUMMARY DESCRIPTION OF THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
MARKET AREA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
MARKET FOR THE COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
COMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
PRO FORMA DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
THE REORGANIZATION AND OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ATLANTIC LIBERTY SAVINGS, F.A. STATEMENTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . 45
BUSINESS OF ATLANTIC LIBERTY SAVINGS, F.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
MANAGEMENT OF BROOKLYN HEIGHTS BANCORP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
MANAGEMENT OF ATLANTIC LIBERTY SAVINGS, F.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
EXECUTIVE COMPENSATION AND RELATED TRANSACTIONS OF THE ASSOCIATION . . . . . . . . . . . . . . . . . . . . . . 71
REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
RESTRICTIONS ON THE ACQUISITION OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
REGISTRATION REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
LEGAL AND TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
</TABLE>
THIS DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM
THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT
CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN
"RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
PLEASE SEE THE GLOSSARY BEGINNING ON PAGE G-l FOR THE MEANING OF CAPITALIZED
TERMS THAT ARE USED IN THIS PROSPECTUS.
(i)
<PAGE> 5
QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
Q: WHAT IS THE MUTUAL HOLDING COMPANY?
A: Atlantic Liberty, MHC (the "Mutual Holding Company") is a
mutually-owned federal corporation that is being established in
connection with the mutual holding company reorganization (the
"Reorganization") of Atlantic Liberty Savings, F.A. (the
"Association"). The Mutual Holding Company will be chartered under
the laws of the United States and will be regulated by the Office of
Thrift Supervision ("OTS"). The Mutual Holding Company will own 54%
of the outstanding Common Stock of Brooklyn Heights Bancorp (the
"Company"), or 540,000 shares at the midpoint of the valuation range
established by the independent appraisal. The remaining 46% of the
Common Stock of the Company will be owned by persons who purchase
Common Stock in the Offering. Members of the Association currently
have voting rights in the Association. Following the Reorganization,
members will no longer have voting rights in the Association and all
of the current membership and voting rights of the Association's
members will be transferred to the Mutual Holding Company. The former
members of the Association who controlled 100% of the votes eligible
to be cast by the Association's members prior to the Reorganization
will, through the Mutual Holding Company, control 54% of the votes
eligible to be cast by the Company's stockholders following the
Reorganization.
Q: WHO WILL BE THE MINORITY STOCKHOLDERS OF THE COMPANY?
A: All persons who purchase Common Stock in the Offering, including the
employee stock ownership plan ("ESOP") of the Association, will be the
minority stockholders (the "Minority Stockholders") of the Company,
and will own 46% of its Common Stock upon completion of the Offering.
The Mutual Holding Company will own 54% of the Common Stock of the
Company, and will remain its majority stockholder as long as the
Mutual Holding Company remains in existence.
Q: WHAT IS THE PURPOSE OF THE REORGANIZATION AND OFFERING?
A: The primary purpose of the Reorganization and Offering is to raise
additional equity capital for the Association. The increased capital
will be used in part to expand the Association's lending activities.
The Reorganization also is intended to create a holding company and a
stock charter, which is the corporate form used by all commercial
banks and an increasing number of savings institutions. The holding
company structure will expand the investment and operating authority
currently available to the Association. The Offering also will
provide you with the opportunity to become a stockholder of the
Company.
Q: WHY IS THE ASSOCIATION FORMING A TWO-TIER MUTUAL HOLDING COMPANY AND
CONDUCTING A MINORITY STOCK OFFERING INSTEAD OF UNDERGOING A FULL
CONVERSION TO STOCK FORM?
A: The Association's Board of Directors determined that the two-tier
mutual holding company structure was in the best interests of the
Association, its members and the communities served by the
Association. A savings institution that converts from the mutual to
stock form of organization using the mutual holding company structure
sells a minority of its shares to the public. By doing so, the
converting institution raises less than half the proceeds than would
be obtained in a full conversion. Consequently, the Company and the
Association will not be as overcapitalized as if the Association had
fully converted. In addition, because the Mutual Holding Company
controls a majority of the Company's Common Stock, the Board of
Directors believes that the Reorganization will permit the Association
to achieve the benefits of being a stock company without the loss of
control that often follows a full conversion.
Q: HOW DO I ORDER THE COMMON STOCK?
A: You must complete and return the Stock Order Form to the Association,
together with your payment, on or before March ___, 1998. Please
review the Stock Order Form carefully before sending us any payment.
<PAGE> 6
Q: HOW MUCH STOCK MAY I ORDER?
A: The minimum order is 25 shares (or $250). The maximum order in the
Offering is 5,000 shares (or $50,000). For purposes of these
limitations, joint account holders may not collectively exceed the
5,000 share limit. In certain instances, your order may be grouped
together with orders by other persons who are associated with you
(such as your spouse, child or relative living in your home), or with
whom you are acting in concert, and, in that event, the aggregate
order may not exceed 5,000 shares. The maximum purchase limitation may
be decreased or increased without notifying you. However, if the
maximum purchase limitation is increased, and you previously
subscribed for the maximum number of shares, you will be notified of
the increase, as well as the opportunity to subscribe for additional
shares.
Q: WHO HAS SUBSCRIPTION RIGHTS AND WHAT ARE THE SUBSCRIPTION PRIORITIES?
A: Subscription rights to purchase Common Stock will be offered on a
priority basis to the following classes of persons:
- First, to persons who had one or more deposit accounts with
the Association aggregating at least $50 on June 30, 1996.
(The Association's ESOP will have priority over such persons
if more than 529,000 shares are sold).
- Second, to the Association's ESOP.
- Third, to persons who had one or more deposit accounts with
the Association aggregating at least $50 on December 31, 1997.
- Fourth, to depositors (who are not eligible depositors as of
June 30, 1996 or December 31, 1997) and borrowers of the
Association as of January 30, 1998.
- Fifth, to employees, officers and directors of the
Association.
Q: WHAT HAPPENS IF THERE ARE NOT ENOUGH SHARES TO FILL ALL ORDERS?
A: If the Offering is oversubscribed, you may not receive any or all of
the shares you wish to purchase. Shares will be allocated based upon
a formula set forth in the Plan of Reorganization and in accordance
with OTS regulations.
Q: WILL SHARES BE OFFERED TO ANYONE OTHER THAN PERSONS WITH SUBSCRIPTION
RIGHTS?
A: If persons with subscription rights do not subscribe for all of the
shares offered, the remaining shares will be offered to certain
members of the general public in a community offering, with a
preference for natural persons residing in Brooklyn.
Q: WHAT PARTICULAR FACTORS SHOULD I CONSIDER WHEN DECIDING WHETHER OR NOT
TO BUY COMMON STOCK?
A: Before you decide to purchase Common Stock, you should read the entire
Prospectus, including the Risk Factors section on pages _____ of the
Prospectus.
Q: AS A DEPOSITOR OR BORROWER OF THE ASSOCIATION, WHAT WILL HAPPEN IF I
DO NOT ORDER ANY COMMON STOCK?
A: You presently have membership rights in the Association, which include
the right to elect directors and vote on certain other matters.
However, once the Reorganization is completed these membership rights
in the Association will be converted into membership rights in the
Mutual Holding Company, regardless of whether
2
<PAGE> 7
or not you purchase Common Stock. You will retain your membership
rights in the Mutual Holding Company so long as your existing
borrowings from the Association remain outstanding or so long as you
remain a depositor of the Association. If you purchase Common Stock,
you will also have voting rights in the Company, but such rights will
depend on the amount of Common Stock that you own and not on your
deposit account or lending relationship at the Association. YOU ARE
NOT REQUIRED TO PURCHASE COMMON STOCK. YOUR DEPOSIT ACCOUNT,
CERTIFICATE ACCOUNTS AND ANY LOANS YOU MAY HAVE WITH THE ASSOCIATION
WILL NOT BE AFFECTED BY THE REORGANIZATION.
Q: WHO CAN HELP ANSWER ANY OTHER QUESTIONS I MAY HAVE ABOUT THE OFFERING?
A: In order to make an informed investment decision, you should read this
entire Prospectus. This question and answer section highlights
selected information and may not contain all of the information that
is important to you. In addition, you may contact:
STOCK INFORMATION CENTER
ATLANTIC LIBERTY SAVINGS, F.A.
186 MONTAGUE STREET
BROOKLYN, NEW YORK 11201
(718) ________
SELLING OR ASSIGNING YOUR SUBSCRIPTION RIGHTS IS ILLEGAL. ALL PERSONS
EXERCISING THEIR SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY THAT THEY ARE
PURCHASING SHARES SOLELY FOR THEIR OWN ACCOUNT AND THAT THEY HAVE NO AGREEMENT
OR UNDERSTANDING REGARDING THE SALE OR TRANSFER OF SUCH SHARES. THE
ASSOCIATION INTENDS TO PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE
EVENT IT BECOMES AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS. ORDERS KNOWN TO
INVOLVE THE TRANSFER OF SUBSCRIPTION RIGHTS WILL NOT BE HONORED. IN ADDITION,
PERSONS WHO VIOLATE THE PURCHASE LIMITATIONS MAY BE SUBJECT TO SANCTIONS AND
PENALTIES IMPOSED BY THE OFFICE OF THRIFT SUPERVISION.
3
<PAGE> 8
SUMMARY
This summary highlights selected information from this Prospectus and
does not contain all the information that you need to know before making an
informed investment decision. To understand the Offering fully, you should read
the entire Prospectus carefully, including the financial statements and the
notes to the financial statements of Atlantic Liberty Savings, F.A. Financial
information contained in the Prospectus at and for the two years ended March
31, 1997 is derived in part from the audited financial statements of Atlantic
Liberty Savings, F.A. All financial information contained in the Prospectus at
and for the six months ended September 30, 1997 and 1996 is derived from
unaudited financial statements.
You should note as you read this Prospectus that at times capitalized
terms are used. These capitalized terms are generally defined in the glossary
that is at the end of this Prospectus. Defined terms are used to help you
differentiate between the various components of the transaction, to simplify
the discussion and to avoid unnecessary repetition by not having to define or
describe a term each time it is used. For example, to avoid confusion, all of
the steps that are part of the transactions described in this Prospectus are
referred to as the "Reorganization," and the issuance of 46% of the Company's
Common Stock is referred to as the Offering. References to the "Association"
refer to Atlantic Liberty Savings, F.A. References to "the Company" refer to
Brooklyn Heights Bancorp, and references to the "Mutual Holding Company" refer
to Atlantic Liberty, MHC. To further assist you in reading this Prospectus, in
addition to including a glossary, each term defined in the glossary is also
defined the first time that it is used in the Prospectus.
THE REORGANIZATION AND OFFERING
The Reorganization involves a number of steps, including the
following:
- The Association will establish the Company and the Mutual
Holding Company, neither of which will have any assets prior
to the completion of the reorganization.
- The Association will convert from the mutual form of
organization to the capital stock form of organization and
issue 100% of its capital stock to the Company.
- The Company will issue between 850,000 and 1,150,000 shares of
its common stock in the Reorganization; 54% of these shares
(or between 459,000 shares and 621,000 shares) will be issued
to the Mutual Holding Company, and 46% (or between 391,000
shares and 529,000 shares) will be sold to depositors in the
Offering.
- Membership interests that depositors had in the Association
will become membership interests in the Mutual Holding
Company. As a result, former members of the Association who
controlled 100% of the votes eligible to be cast by the
Association's members prior to the reorganization will,
through the Mutual Holding Company, control 54% of the votes
eligible to be cast by the Company's stockholders immediately
following the reorganization.
DESCRIPTION OF THE MUTUAL HOLDING COMPANY STRUCTURE
The mutual holding company structure differs in significant respects
from the savings and loan holding company structure that is used in a standard
mutual to stock conversion. A savings institution that converts from the
mutual to stock form of organization using the mutual holding company structure
sells only a minority of its shares at the time of the reorganization and
offering. By doing so, a converting institution will raise less than half the
proceeds that would be raised in a traditional mutual to stock conversion.
Because less than half the proceeds are raised in the Offering, the Company and
the Association will not be as overcapitalized as if the Association had
converted in a standard conversion. The shares that are issued to the Mutual
Holding Company may be subsequently
4
<PAGE> 9
sold to the Association's depositors if the mutual holding company converts
from the mutual to the stock form of organization. See "Conversion of the
Mutual Holding Company to the Stock Form of Organization." In addition,
because the Mutual Holding Company controls a majority of the Company's Common
Stock, the Reorganization and Offering will permit the Association to achieve
the benefits of a stock company without a loss of control that often follows a
standard conversion from mutual to stock form. Sales of locally based,
independent savings institutions to larger, regional financial institutions can
result in closed branches, fewer choices for consumers, employee layoffs and
the loss of community support for and involvement by financial institutions.
Because the Mutual Holding Company is a mutual corporation, its
actions will not necessarily always be in the interests of the Company's
stockholders. In making business decisions, the Mutual Holding Company's Board
of Directors will consider a variety of constituencies, including the
depositors of the Association, the employees of the Company and the
Association, and the communities in which the Association operates. As the
majority stockholder of the Company, the Mutual Holding Company is also
interested in the continued success and profitability of the Association and
the Company. Consequently, the Mutual Holding Company will act in a manner
which furthers the general interest of all of its constituencies, including,
but not limited to, the interest of the stockholders of the Company. The
Mutual Holding Company believes that the interests of the stockholders of the
Company, and those of the Mutual Holding Company's other constituencies, are in
many circumstances the same, such as the increased profitability of the Company
and Association and continued service to the communities in which the
Association operates.
CONVERSION OF THE MUTUAL HOLDING COMPANY TO THE STOCK FORM OF ORGANIZATION
Office of Thrift Supervision regulations and the Plan of
Reorganization permit the Mutual Holding Company to convert from the mutual to
the capital stock form of organization. There can be no assurance that such a
transaction will ever occur, and the Board of Directors has no current
intention or plan to undertake such a transaction. If the Mutual Holding
Company were to convert to the capital stock form of organization, certain
depositors would receive the right to subscribe for additional shares of the
new stock holding company that would be formed in the transaction. In such a
transaction, each share of Common Stock outstanding and held by persons other
than the Mutual Holding Company would be automatically converted into shares of
common stock of the new stock holding company. The number of shares that each
stockholder would receive would be determined pursuant an exchange ratio that
ensures that after the transaction, subject to an adjustment to reflect any
dividends that the Mutual Holding Company may have waived and any assets that
the Mutual Holding Company may have other than common stock of the Company, the
percentage of the to-be outstanding shares of the new stock holding company
issued to such stockholders in exchange for their Common Stock would be equal
to the percentage of the outstanding shares of Common Stock held by such
stockholders immediately prior to the transaction.
THE COMPANIES
Atlantic Liberty, MHC
186 Montague Street
Brooklyn, New York 11201
(718) 855-3555
The Mutual Holding Company is not an operating company and has not
engaged in any business to date. Upon completion of the Reorganization, the
Mutual Holding Company will be chartered under Federal law and will own 54% of
the outstanding Common Stock of the Company. So long as the Mutual Holding
Company exists, it will own at least 50.1% of the Company's voting stock.
Following completion of the Reorganization, persons who were members of the
Association will become members of the Mutual Holding Company so long as their
existing borrowings from the Association remain oustanding or they continue to
maintain a deposit account with the Association.
5
<PAGE> 10
Brooklyn Heights Bancorp
186 Montague Street
Brooklyn, New York 11201
(718) 855-3555
The Company is not an operating company and has not engaged in any
business to date. The Company will be chartered under Federal law and will own
100% of the common stock of the Association. The Company will sell 46% of its
Common Stock in the Offering, and the remaining 54% of the Common Stock will be
issued to the Mutual Holding Company.
Atlantic Liberty Savings, F.A.
186 Montague Street
Brooklyn, New York 11201
(718) 855-3555
The Association is a community-oriented federal mutual savings
association, providing banking and financial services to individuals, families
and small businesses from its two offices in Brooklyn, New York. Historically,
the Association has emphasized residential mortgage lending. At September 30,
1997, the Association had total assets of $109.9 million, total deposits of
$100.5 million, and retained earnings of $7.2 million. See pages _____ to
_____.
THE OFFERING
The Company is offering for sale between 391,000 and 529,000 shares of
its Common Stock, par value $1.00 per share (the "Common Stock"), at a price of
$10.00 per share. The Offering may be increased to 608,350 shares without
further notice to you if the estimated pro forma market value of the Common
Stock (the "Independent Valuation") is increased as a result of changes in
market or financial conditions prior to the completion of the Offering. The
shares sold in the Offering will represent a minority ownership interest of 46%
of the shares of Common Stock of the Company (the "Minority Ownership
Interest"). The remaining 54% of the shares of Common Stock of the Company
will be issued to the Mutual Holding Company.
STOCK PURCHASE PRIORITIES
The Common Stock is being offered for sale in the following order of
priority in a Subscription Offering:
(i) the Association's Eligible Account Holders (holders of deposit
accounts totaling $50 or more as of June 30, 1996);
(ii) the Association's ESOP;
(iii) the Association's Supplemental Eligible Account Holders
(holders of deposit accounts totaling $50 or more as of
December 31, 1997);
(iv) other members (depositors and borrowers of the Association as
of the Voting Record Date who are not Eligible Account Holders
or Supplemental Eligible Account Holders); and
(v) employees, officers and directors of the Association.
6
<PAGE> 11
Any shares of Common Stock not subscribed for in the Subscription
Offering may be offered for sale in a Community Offering and Syndicated
Community Offering. See pages _____ to _____. Ryan, Beck & Co. will assist in
selling the Common Stock on a best efforts basis.
THE OFFERING RANGE AND OFFERING PRICE PER SHARE
Feldman Financial Advisors, Inc. ("Feldman Financial"), an appraisal
firm independent of the Association and experienced in appraisals of savings
associations, has estimated that in its opinion, as of December 11, 1997, the
aggregate pro forma market value of the Company and the Association ranged from
$8.5 million to $11.5 million (the "Estimated Valuation Range") with a midpoint
of $10 million. The Company is offering to sell 46% of its Common Stock in
the Offering and, based on the Independent Valuation, 46% of the Common Stock
ranged in value from $3.9 million to $5.3 million, with a midpoint of $4.6
million (the "Offering Range"). The Company is offering its Common Stock for
sale at $10.00 per share, representing 391,000 shares and 529,000 shares at the
minimum and maximum of the Offering Range, respectively, with a midpoint of
460,000 shares. The $10.00 per share offering price was determined in
consultation with Ryan, Beck & Co., Inc. and represents the price most commonly
used in initial public stock offerings involving financial institutions. The
Independent Valuation was based in part upon the Association's financial
condition and operations and the effect of the additional capital raised by the
sale of Common Stock in the Offering. In addition to the 391,000 to 529,000
shares to be sold in the Offering, between 459,000 and 621,000 shares will be
issued to the Mutual Holding Company, which will represent 54% of the
outstanding shares of Common Stock of the Company. The Independent Valuation
will be updated prior to the completion of the Offering. If the Independent
Valuation increases, there will be a corresponding change in the total number
of shares issued to the Mutual Holding Company in the Reorganization and sold
to subscribers in the Offering, but the percentage of shares of the Company's
Common Stock owned by the Mutual Holding Company and the Minority Stockholders
will not change as a result of a change in the Independent Valuation. If the
Independent Valuation increases by 15%, or up to $13,225,000, the number of
shares sold in the Offering will, subject to OTS approval, increase to 608,350
shares and the number of shares issued to the Mutual Holding Company will
increase to 714,150 shares. Prospective purchasers will be given the
opportunity to change or withdraw their purchase orders only if the Estimated
Valuation Range decreases below the minimum or increases by more than 15% above
the maximum of such range, or if fewer than 391,000 shares or more than 608,350
shares are sold in the Offering. See pages _____ to _____.
TERMINATION OF THE OFFERING
The Subscription Offering will terminate at 10:00 a.m., New York
time, on ___________, 1998. The Community Offering, if one is held, is expected
to begin immediately after the termination of the Subscription Offering, but
may begin at any time during the Subscription Offering. The Community Offering
may terminate on or after __________, 1998, but in any event, no later than
__________, 1998, without OTS approval.
BENEFITS TO MANAGEMENT AND EMPLOYEES FROM THE OFFERING
Full-time employees of the Association will participate in an ESOP,
which is a form of retirement plan, that will purchase shares of Common Stock.
The Association also intends to implement a stock award plan (the "Stock Award
Plan") and a stock option plan (the "Stock Option Plan") following completion
of the Reorganization. The Stock Award Plan would award up to 4% of the Common
Stock issued in the Offering to executive officers and directors of the
Association at no cost to them. The Stock Option Plan would grant options for
up to 10% of the Common Stock issued in the Offering to employees, officers and
directors of the Association. Stock awards and stock options would be granted
at fair market value. The Stock Award Plan and Stock Option Plan may not be
adopted until at least six months after the completion of the Reorganization,
and are subject to shareholder approval and compliance with OTS regulations.
See pages _____ to _____.
7
<PAGE> 12
USE OF THE PROCEEDS RAISED FROM THE SALE OF COMMON STOCK
The Company will retain up to 50% of the net proceeds from the
Offering and will contribute the remainder of the net proceeds to the
Association. The Company intends to use part of the net proceeds to make a
loan to the ESOP to fund its purchase of up to 8% of the Common Stock sold in
the Offering. The remainder of the net proceeds will be used for general
corporate purposes, and initially are expected to be invested in U.S.
government securities and other federal agency securities. See pages _____ to
_____.
DIVIDENDS
Management of the Company does not initially intend to pay an annual
dividend. Future decisions as to whether or not to declare dividends by the
Company will depend upon a number of factors excluding investment opportunities
available to the Company or the Association and the Company's financial
condition and results of operations. If the Company decides to pay dividends
on the Common Stock, the Mutual Holding Company may waive its receipt of cash
dividends, subject to regulatory approval. See page _____.
MARKET FOR THE COMMON STOCK
The Company has never issued capital stock. The Company expects that
the Common Stock will be quoted on the OTC Electronic Bulletin Board, but there
can be no assurance that an active and liquid trading market in the Common
Stock will develop or be maintained. Ryan, Beck & Co. has indicated its
intention to make a market in the Common Stock, subject to compliance with
applicable provisions of federal and state securities laws and other regulatory
requirements, although Ryan, Beck & Co. is not required to do so. If you
purchase shares, you may not be able to sell them when you want to at a price
that is equal to or more than the price you paid. See pages _____ to _____.
PROHIBITION ON TRANSFER OF SUBSCRIPTION RIGHTS
SELLING OR ASSIGNING YOUR SUBSCRIPTION RIGHTS IS ILLEGAL. IF YOU
EXERCISE YOUR SUBSCRIPTION RIGHTS YOU WILL BE REQUIRED TO CERTIFY THAT YOU ARE
PURCHASING SHARES SOLELY FOR YOUR OWN ACCOUNT AND THAT YOU HAVE NO AGREEMENT OR
UNDERSTANDING REGARDING THE SALE OR TRANSFER OF SUCH SHARES. THE ASSOCIATION
INTENDS TO PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT THE
ASSOCIATION BECOMES AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS, AND THE
ASSOCIATION WILL NOT HONOR ORDERS KNOWN TO INVOLVE THE TRANSFER OF SUCH RIGHTS.
IN ADDITION, PERSONS WHO VIOLATE THE PURCHASE LIMITATIONS MAY BE SUBJECT TO
SANCTIONS AND PENALTIES IMPOSED BY THE OTS.
IMPORTANT RISKS IN PURCHASING AND OWNING THE COMMON STOCK
Before you decide to purchase Common Stock in the Offering, you should
read the Risk Factors section on pages _____ of this Prospectus, in addition to
the other sections of this Prospectus.
8
<PAGE> 13
SELECTED FINANCIAL AND OTHER DATA OF
ATLANTIC LIBERTY SAVINGS, F.A.
The following selected historical financial data at March 31, 1997
and 1996 and for the two years then ended is derived in part from the audited
financial statements of the Association. The historical financial information
at and for the six months ended September 30, 1997 and 1996 is derived from
unaudited financial statements. The unaudited financial statements include all
adjustments, consisting of normal recurring accruals. The operating data for
the six months ended September 30, 1997 may not be indicative of results that
can be expected for the full year. The following selected financial data of
the Association is qualified in its entirety by, and should be read in
conjunction with, the financial statements, including notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
(UNAUDITED)
AT OR FOR THE
SIX MONTHS ENDED AT OR FOR THE
SEPTEMBER 30, YEAR ENDED MARCH 31,
------------------------- ------------------------
1997 1996 1997 1996
----------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets . . . . . . . . . . . . . . . . . . $ 109,887 $ 105,297 $ 109,794 $ 105,742
Loans receivable, net . . . . . . . . . . . . . 65,486 57,321 60,059 54,505
Mortgage-backed securities held to maturity . . . 19,017 18,152 19,030 19,226
Investments securities held for investment . . . 13,150 18,880 17,258 16,155
Deposits . . . . . . . . . . . . . . . . . . . . 100,539 95,728 100,798 97,396
Retained earnings--substantially restricted . . 7,208 7,397 6,873 6,750
SELECTED OPERATING DATA:
Total interest income . . . . . . . . . . . . . $ 4,065 $ 3,615 $ 7,248 $ 7,151
Total interest expense . . . . . . . . . . . . . 2,304 2,189 4,363 4,149
---------- ---------- ---------- ---------
Net interest income . . . . . . . . . . . . . 1,761 1,426 2,885 3,002
Provision for loan losses . . . . . . . . . . . 105 65 771 275
---------- ---------- ---------- ---------
Net interest income after provision for loan
losses . . . . . . . . . . . . . . . . . . . . 1,656 1,361 2,114 2,727
---------- ---------- ---------- ---------
Gain (loss) on disposal of foreclosed real estate 28 123 148 (135)
Other non-interest income . . . . . . . . . . . 168 743 1,105 340
---------- ---------- ---------- ---------
Total non-interest income . . . . . . . . . . . 196 866 1,253 205
---------- ---------- ---------- ---------
Total non-interest expense . . . . . . . . . . . 1,267 1,819 3,391 2,596
---------- ---------- ---------- ---------
Income (loss) before taxes . . . . . . . . . . . 585 408 (24) 336
Income tax (expense) benefit . . . . . . . . . . (250) 240 147 (140)
---------- ---------- ---------- ---------
Net income . . . . . . . . . . . . . . . . . . . $ 335 $ 648 $ 123 $ 196
========== ========== ========== =========
</TABLE>
9
<PAGE> 14
<TABLE>
<CAPTION>
At or for the
Six Months Ended At or for the
September 30, Year Ended March 31,
-------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
SELECTED OPERATIONS DATA:
PERFORMANCE RATIOS:
Return on average assets (ratio of net income to
average total assets) (1) . . . . . . . . . . . 0.62% 1.24% 0.12% 0.05%
Return on average equity (ratio of net
income to average equity) (1) . . . . . . . . . 9.12% 18.45% 5.98% 0.76%
Net interest margin (1) (2) . . . . . . . . . . . 3.40% 2.87% 2.87% 3.10%
Interest rate spread (3) . . . . . . . . . . . . . 3.21% 2.75% 2.71% 2.97%
Ratio of operating expense to average total assets (1) 2.34% 3.48% 3.21% 2.56%
Ratio of average interest-earning assets to
average interest-bearing liabilities . . . . . . 103.81% 102.85% 103.61% 103.26%
ASSET QUALITY RATIOS:
Non-performing loans to total assets at end of period 1.60% 4.44% 3.04% 4.55%
Allowance for loan losses to non-performing loans 54.97% 15.92% 47.10% 24.17%
Allowance for loan losses to loans receivable, net 1.65% 1.18% 1.63% 1.37%
CAPITAL RATIOS:
Retained earnings to total assets at end of period 6.57% 7.02% 6.26% 6.38%
Average retained earnings to average assets . . . 6.78% 6.72% 6.47% 6.69%
OTHER DATA:
Number of full-service offices . . . . . . . . . . 2 2 2 2
</TABLE>
- -------------------------
(1) Annualized
(2) Net income divided by average interest earning assets.
(3) Net interest rate spread represents the difference between the average
yield on interest earning assets and the average cost of interest bearing
liabilities.
10
<PAGE> 15
RECENT DEVELOPMENTS
Set forth below are selected financial and other data of the
Association at and for the periods indicated. Information at December 31, 1997
and for the nine months ended December 31, 1997 and 1996 were derived from
unaudited financial statements. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments necessary for a fair statement
of results for or as of the periods indicated, have been included. The results
of operations and other data for the nine month period ended December 31, 1997
are not necessarily indicative of the results of operations for the full fiscal
year. The selected financial and other data does not purport to be complete
and is qualified in its entirety by reference to the detailed information and
Financial Statements and Notes thereto presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, MARCH 31,
1997 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets . . . . . . . . . . . . . . . . . . $ 112,881 $ 109,794
Loans receivable, net . . . . . . . . . . . . . . 67,687 60,059
Mortgage-backed securities:
Held for investment . . . . . . . . . . . . 18,223 19,030
Investment securities:
Held for investment . . . . . . . . . . . . 14,946 17,258
Deposits . . . . . . . . . . . . . . . . . . . . 103,495 100,798
Retained earnings-substantially restricted . . . 7,189 6,873
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
----------------------------------
1997 1996
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
SELECTED OPERATING DATA:
Total interest income . . . . . . . . . . . . . . $ 5,968 $ 5,400
Total interest expense . . . . . . . . . . . . . 3,491 3,264
-------- --------
Net interest income . . . . . . . . . . . . 2,477 2,136
-------- --------
Provision for loan losses . . . . . . . . . . . . 121 80
Net interest income after provision for
loan losses . . . . . . . . . . . . . . . . 2,356 2,056
-------- --------
Gain on the disposal of foreclosed real estate . 31 116
Other noninterest income . . . . . . . . . . . . 340 1,097
-------- --------
Total noninterest income . . . . . . . . . . . . 371 1,213
-------- --------
Total noninterest expense . . . . . . . . . . . . 2,076 2,793
-------- --------
Income before taxes and
extraordinary items . . . . . . . . . . . . 651 476
Income tax (expense) benefit . . . . . . . . . . (335) 228
-------- --------
Net income . . . . . . . . . . . . . . . . . . . $ 316 $ 704
======== ========
</TABLE>
11
<PAGE> 16
<TABLE>
<CAPTION>
AT OR FOR THE NINE MONTHS
ENDED DECEMBER 31,
----------------------------------
1997 1996
-------- ---------
<S> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on assets (ratio of net income
to average total assets) . . . . . . . . . 0.39% 0.90%
Return on retained earnings (ratio of
net income to average equity) . . . . . . 5.78% 13.96%
Interest rate spread . . . . . . . . . . . . 3.02% 2.70%
Net interest margin (2) . . . . . . . . . . 3.18% 2.85%
Ratio of operating expense to average
total assets . . . . . . . . . . . . . . . 2.55% 3.55%
Ratio of average interest-earning assets
to average interest-bearing liabilities . 103.56% 103.51%
ASSET QUALITY RATIOS:
Non-performing assets to total assets
at end of period . . . . . . . . . . . . . 1.45% 2.01%
Allowance for loan losses to
non-performing loans . . . . . . . . . . . 39.47% 23.48%
Allowance for loan losses to
loans receivable, net . . . . . . . . . . 0.96% 0.87%
CAPITAL RATIOS:
Retained earnings to total assets at
end of period . . . . . . . . . . . . . . 6.37% 6.87%
Average retained earnings to
average assets . . . . . . . . . . . . . . 6.70% 6.41%
OTHER DATA:
Number of full-service offices . . . . . . . 2 2
</TABLE>
- -------------------------
(1) Ratios annualized where appropriate.
(2) Net interest income divided by average interest earning assets.
12
<PAGE> 17
FINANCIAL CONDITION
The Association's assets increased $3.1 million, or 2.8%, to $112.9
million at December 31, 1997 from $109.8 million at March 31, 1997. The
increase in total assets resulted from an increase in loans receivable, net to
$67.7 million from $60.1 million, which was partially offset by decreases in
investment securities to $14.9 million from $17.3 million and mortgage-backed
securities to $18.2 million from $19.0 million. Asset growth was primarily
funded by an increase in deposits to $103.5 million from $100.8 million.
Retained earnings increased to $7.2 million from $6.9 million. The increase in
retained earnings was attributable to net income of $316,000 for the nine
months ended December 31, 1997. At December 31, 1997 the Association exceeded
all regulatory capital requirements. At December 31, 1997 tangible, core and
risk based capital ratios were 6.55%, 7.12% and 15.45%, respectively. At
December 31, 1997, the Association's ratio of retained earnings to total assets
was 6.37%, as compared to 6.87% at March 31, 1997.
RESULTS OF OPERATIONS
GENERAL. The Association had net income of $316,000 for the nine
months ended December 31, 1997, compared to net income of $704,000 for the nine
months ended December 31, 1996. The decrease in net income was primarily
attributable to a decrease in noninterest income to $340,000 for the nine
months ended December 31, 1997 from $1.2 million for the comparable period in
1996, and an income tax expense of $335,000 for the nine months ended December
31, 1997 as compared to income tax benefit of $228,000 resulting from the
Association's payment of a special SAIF assessment for the comparable period
ended December 31, 1996.
INTEREST INCOME. Interest income for the nine months ended December
31, 1997 increased by $568,000, or 10.5% to $6.0 million from $5.4 million.
The increase in interest income was due primarily to increased loan
originations during the nine months ended December 31, 1997, as compared to the
same period in 1996, as well as approximately $200,000 received as interest on
a mortgage loan previously classified as a nonperforming loan.
INTEREST EXPENSE. Interest expense for the nine months ended December
31, 1997 increased by $227,000, or 7.0%, to $3.5 million from $3.3 million.
The increase in interest expense was attributable primarily to an increase in
deposits.
NET INTEREST INCOME. Net interest income increased by $341,000, or
16.0% to $2.5 million for the nine months ended December 31, 1997 from $2.1
million for the nine months ended December 31, 1996.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the nine
months ended December 31, 1997 was $121,000, as compared to $80,000 for the
nine months ended December 31, 1996. Management increased the provision for
loan losses in order to reflect the risks inherent in the Association's
participation in six pools of loans and a commercial real estate loan upon
which the Association began foreclosure proceedings.
NONINTEREST INCOME. Noninterest income decreased $842,000, or 69.4%
to $371,000 for the nine months ended December 31, 1997 from $1.2 million for
the comparative nine month period. The decrease in noninterest income
primarily resulted from nonrecurring income during the nine months ended
December 31, 1996 consisting of insurance proceeds of $556,000, and the
settlement of a lawsuit totaling $195,000.
NONINTEREST EXPENSE. Noninterest expense decreased $717,000, or
25.7%, to $2.1 million from $2.8 million. Noninterest expense consists of
compensation and benefits, deposit insurance premiums and other expenses. The
decrease in noninterest expense was primarily attributable to a decrease in
deposit insurance premiums resulting from the recapitalization of the SAIF.
INCOME TAXES. The Association had an income tax expense of $335,000
for the nine months ended December 31, 1997 compared to a tax benefit of
$228,000 for the comparable nine months period in 1996. The income tax benefit
was attributable to the effect of the special SAIF assessment in 1996.
13
<PAGE> 18
RISK FACTORS
In addition to the other information in this Prospectus, you should
consider carefully the following risk factors in evaluating an investment in
the Common Stock.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES AND THE CURRENT INTEREST RATE
ENVIRONMENT
The Association's profitability, like that of most financial
institutions, substantially depends on its net interest income, which is the
difference between the interest income earned on interest earning-assets (such
as mortgage loans) and the interest expense paid on interest-bearing
liabilities (such as deposits). The Association's net interest income is
affected primarily by market interest rates and the amount, maturity and yield
on the Association's interest earning assets relative to the amount, maturity
and cost of its interest-bearing liabilities. Approximately 53.4% of the
Association's mortgage loans have terms of up to 15 years and fixed rates of
interest, while deposit accounts have significantly shorter terms to maturity.
Because the Association's interest-earning assets generally have fixed rates of
interest and have longer effective maturities than interest-bearing
liabilities, the yield on interest-earning assets generally will adjust more
slowly to changes in market interest rates than the cost of the Association's
interest-bearing liabilities.
Savings institutions, such as the Association, often use interest rate
"gap" analysis as a measure of interest rate risk. This technique measures the
relative dollar amounts of interest-earning assets and interest-bearing
liabilities that reprice within a specific time period, either through maturity
or interest rate adjustment. Interest rate "gap" analysis is a common, though
imperfect, measure of interest rate risk. The "gap" is the difference between
the amounts of such assets and liabilities that are subject to repricing within
a specific time period, expressed as a percentage of total assets. A negative
gap for a given period means that the amount of interest-bearing liabilities
maturing or otherwise repricing within that period exceeds the amount of
interest-earning assets maturing or otherwise repricing within the same period.
A positive gap for a given period means that the amount of interest-earning
assets maturing or other repricing within that period exceeds the amount of
interest-bearing liabilities maturing or otherwise repricing within the same
period. At September 30, 1997, the dollar amount of the Association's
interest-bearing liabilities maturing or repricing within one year exceeded the
amount of the Association's interest earning assets maturing or repricing
within the same period by $15.2 million, resulting in a negative one year
interest rate gap of 13.79%. As a result, based on the model, the
Association's net interest income would be adversely affected by material and
prolonged increases in interest rates. In addition, rising interest rates may
adversely affect earnings because the demand for loans typically decreases in a
higher interest rate environment. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Interest Rate Risk."
Management also monitors the Association's interest rate risk exposure
with a model that estimates the change in the Association's net portfolio value
("NPV") in response to a range of assumed changes in market interest rates.
NPV is the present value of expected cash flows from assets, liabilities and
off-balance sheet items. Under the model, assuming an instantaneous 200 basis
point increase in market interest rates, the Association's NPV as of September
30, 1997 would decrease by $2.2 million or 24%.
Changes in interest rates also can affect the average life of loans
and mortgage-backed securities. The relatively lower interest rates in recent
periods have resulted in increased prepayments of loans and mortgage-backed
securities, as borrowers have refinanced their mortgages to reduce their
borrowing costs. Under these circumstances, the Association is subject to
reinvestment risk to the extent that it is not able to reinvest such
prepayments at rates which are comparable to the rates on the prepaid loans or
securities. Moreover, volatility in interest rates also can result in the flow
of funds away from the Association into other investments such as U.S.
Government and corporate securities and investments which generally pay higher
rates of return than the rates paid on deposits by savings institutions.
14
<PAGE> 19
RISKS ASSOCIATED WITH MULTI-FAMILY AND COMMERCIAL REAL ESTATE LENDING
At September 30, 1997, $13.0 million, or 19.8%, of the Association's
loan portfolio consisted of multi-family real estate loans and $11.9 million,
or 18.1% of the Association's loan portfolio, consisted of commercial real
estate loans. The Association's primary lending area includes a significant
number of multi-family dwellings and apartment buildings. As a result, the
Association will continue to originate multi-family and commercial real estate
loans to meet the financing needs of its community. Loans secured by
multi-family or commercial real estate typically have higher interest rates
than the interest rates on one-to-four family loans because of the higher
credit risks involved in such loans. The repayment of loans secured by
multi-family and commercial real estate properties typically depends on the
successful operation or management of the property securing the loan, as well
as the conditions in the real estate market or the local economy. If the cash
flow from the property is reduced, the borrower's ability to repay the loan may
be impaired. Moreover, multi-family and commercial real estate loans are also
more difficult to monitor and evaluate than loans secured by one-to-four family
properties. See "Business of Atlantic Liberty Savings, F.A.--Lending
Activities."
POSSIBLE INCREASE IN INDEPENDENT VALUATION AND NUMBER OF SHARES SOLD - DILUTION
OF OWNERSHIP INTERESTS OF PURCHASERS
As a result of changes in market and economic conditions, the
Independent Valuation may increase when it is updated at the conclusion of the
Offering, and, in such event, the number of shares to be sold in the Offering
will increase. INVESTORS WILL NOT BE RESOLICITED UNLESS THE INDEPENDENT
VALUATION INCREASES BY MORE THAN 15%, OR TO MORE THAN $13,225,000, OR THE
NUMBER OF SHARES SOLD IN THE OFFERING INCREASES BY MORE THAN 15%, OR TO MORE
THAN 608,350 SHARES. If the Independent Valuation increases, then the
interests of those who purchase shares in the Offering will be diluted because
more shares will be outstanding at the conclusion of the Offering. See "Pro
Forma Data" and "The Reorganization and Stock Offering--Stock Pricing and
Number of Shares to be Issued."
REDUCED RETURN ON EQUITY AFTER REORGANIZATION
Return on equity (net income for a given period divided by average
equity during that period) is a ratio used by many investors to compare the
performance of a particular financial institution to its peers. The
Association's return on equity for the year ended March 31, 1997 and six months
ended September 30, 1997 was, and the Company's post-Reorganization return on
equity is expected to be less than the average return on equity for publicly
traded thrift institutions and their holding companies. See "Selected
Financial and Other Data of Atlantic Liberty Savings, F.A." for numerical
information regarding the Association's historical return on equity and
"Capitalization" for a discussion of the Company's estimated pro forma
consolidated capitalization as a result of the Reorganization. In addition,
the expenses associated with the ESOP and the Stock Award Plan (see "Pro Forma
Data"), along with other post-Reorganization expenses, are expected to
contribute initially to reduced earnings. In the short-term, the Association
will have difficulty in improving its interest rate spread and thus the return
on equity to stockholders. Consequently, for the foreseeable future, investors
should not expect a return on equity that will meet or exceed the average
return on equity for publicly traded thrift institutions, and no assurances can
be given that this goal can be attained.
CONTROL BY THE MUTUAL HOLDING COMPANY
As the majority stockholder of the Company, the Mutual Holding Company
will be able to elect all of the directors of the Company and direct its
business and affairs. The Company will be controlled by its Board of Directors
which will consist initially of those persons who currently are directors of
the Association. After the Reorganization, the initial Board of Directors of
the Mutual Holding Company will also consist of those persons who currently are
members of the Board of Directors of the Association. As a result, it is
expected that the Board of Directors of the Mutual Holding Company will
exercise control over the Mutual Holding Company and, consequently, may be
capable of perpetuating the Board of Directors and management of the Mutual
Holding Company, the Company and the Association. THE PURCHASERS OF THE COMMON
STOCK IN THE OFFERING WILL BE MINORITY
15
<PAGE> 20
STOCKHOLDERS OF THE COMPANY AND WILL HAVE LIMITED INFLUENCE IN ELECTING
DIRECTORS OR OTHERWISE DIRECTING THE AFFAIRS OF THE COMPANY AS LONG AS THE
MUTUAL HOLDING COMPANY REMAINS IN EXISTENCE. THE COMPANY'S FEDERAL CHARTER
WILL PROHIBIT CUMULATIVE VOTING. THEREFORE, THE MUTUAL HOLDING COMPANY WILL
HAVE THE POWER TO ELECT ALL THE DIRECTORS OF THE COMPANY. NO ASSURANCES CAN BE
GIVEN THAT THE MUTUAL HOLDING COMPANY WILL NOT TAKE ACTION THAT THE MINORITY
STOCKHOLDERS BELIEVE TO BE CONTRARY TO THEIR INTERESTS.
WAIVER OF DIVIDENDS BY THE MUTUAL HOLDING COMPANY
The Company does not initially intend to pay dividends on its Common
Stock. However, in the event the Company pays cash dividends, the Mutual
Holding Company may, if permitted by regulatory authorities, waive the receipt
of such dividends if the Mutual Holding Company's board of directors determines
that such waiver is in the best interests of the Mutual Holding Company. The
Board of Directors of the Association, which will be the initial Board of
Directors of the Mutual Holding Company, currently believes that it will be in
the best interests of the Mutual Holding Company to waive the receipt of cash
dividends. A waiver of cash dividends by the Mutual Holding Company will
result in a greater likelihood that dividends will be paid to Minority
Stockholders. There is no assurance that the Mutual Holding Company will waive
the receipt of cash dividends, and any dividend waiver by the Mutual Holding
Company will require the prior approval of the OTS.
CONVERSION OF MUTUAL HOLDING COMPANY TO STOCK FORM - IMPACT OF WAIVED DIVIDENDS
ON MINORITY STOCKHOLDERS
OTS regulations permit a mutual holding company to convert to stock
form. The Plan provides that in a Conversion Transaction, the Mutual Holding
Company may merge into the Company or the Association, with either the Company
or the Association as the surviving entity, and depositors of the Association
will have the right to subscribe for shares of Common Stock of the Company or
its successor. The additional shares of Common Stock would be sold at their
aggregate pro forma market value as determined by an independent appraisal at
the time of the Conversion Transaction. Pursuant to the Plan, in any
Conversion Transaction, the Minority Stockholders will be entitled to maintain
the same percentage ownership interest in the Company after the Conversion
Transaction as their percentage ownership interest in the Company immediately
before the Conversion Transaction (the "Minority Ownership Interest"), subject
only to the following adjustments if required by federal law, regulation or
policy to reflect: (i) the cumulative effect of the aggregate amount of
dividends waived by the Mutual Holding Company, and (ii) the market value of
the Mutual Holding Company's assets other than its Common Stock of the Company.
Pursuant to OTS policy and the Association's Plan, the benefit to Minority
Stockholders of any dividends waived by the Mutual Holding Company must be
taken into account in any conversion of the Mutual Holding Company to stock
form (a "Conversion Transaction"), and would likely reduce the percentage of
Common Stock of the Company owned by Minority Stockholders following a
Conversion Transaction.
The adjustment referred to in clause (i) of the preceding paragraph
would require that the Minority Ownership Interest be adjusted by multiplying
the Minority Ownership Interest by the following fraction:
(Company stockholders' equity immediately prior to Conversion Transaction) -
(aggregate amount of dividends waived by Mutual Holding Company)
----------------------------------------------------------------------------
Company stockholders' equity immediately prior to Conversion Transaction
The adjustment referred to in clause (ii) above would further adjust
the Minority Ownership Interest by multiplying it by the following fraction:
(pro forma market value of Company) - (market value of assets of Mutual Holding
Company other than Company Common Stock)
- -------------------------------------------------------------------------------
pro forma market value of Company
At the sole discretion of the Board of Directors of the Mutual Holding
Company and the Company, a Conversion Transaction may be effected in any other
manner necessary to qualify the Conversion Transaction as a tax-free
reorganization under applicable federal and state tax laws, provided such
Conversion Transaction does not diminish the rights and ownership interest of
Minority Stockholders. Management of the Association has no current
16
<PAGE> 21
intention to conduct a Conversion Transaction. A Conversion Transaction would
require the approval of applicable federal regulators and a majority of the
eligible votes of the members of the Mutual Holding Company.
COMPETITION
Numerous commercial banks and savings banks have branches in the
immediate vicinity of the Association. There is strong competition from
financial institutions in the Association's local market in both originating
loans and attracting deposits. The Association's primary competitors are other
savings banks, commercial banks, mortgage banking companies and credit unions.
Such competition may have an adverse effect on the Association's growth and
profitability in the future. See "Competition."
GEOGRAPHIC CONCENTRATION OF LOANS
The Association's real estate mortgage loans are secured by properties
located primarily in Brooklyn, New York. The median household income in the
borough of Brooklyn is below the median household income nationally, as well as
for the State of New York. In addition, the unemployment rates in the markets
served by the Association are higher than the surrounding suburbs. A weakening
in the local real estate market or in the local economy could increase the
number of delinquent or non-performing loans and reduce the value of the
collateral securing such loans, which would reduce the Association's net
income.
INTENT TO REMAIN INDEPENDENT
The Association has operated as an independent community-oriented
savings association since 1888. The Association intends to continue to operate
as an independent community-oriented savings association following the
Reorganization. The Association and the Company will be controlled by the
Mutual Holding Company, and, under current OTS policy, control of the Mutual
Holding Company may not be sold to a third party. Accordingly, you are urged
not to subscribe for shares of Common Stock if you are anticipating a sale of
control of the Association or the Company. See "Business of Atlantic Liberty
Savings, F.A."
LACK OF ACTIVE MARKET FOR THE COMMON STOCK
The Company has never issued capital stock to the public, and due to
the relatively small size of the Offering there can be no assurance that an
active and liquid trading market for the Common Stock will develop or be
maintained. It is anticipated that the Common Stock will be quoted on the OTC
Electronic Bulletin Board. Ryan, Beck & Co. has indicated its intention to
make a market in the Common Stock, subject to compliance with applicable
provisions of federal and state securities laws and other regulatory
requirements, although Ryan, Beck & Co. is not required to do so. If the
Common Stock cannot be quoted and traded on the OTC Bulletin Board, it is
expected that the transactions in the Common Stock will be reported in Pink
Sheets of the National Quotation Bureau, Inc. If you purchase shares of Common
Stock, you may not be able to sell them when you want to at a price that equals
or exceeds the price you paid for the Common Stock.
EXPENSES ASSOCIATED WITH ESOP AND STOCK AWARD PLAN
The Association will recognize material employee compensation and
benefit expenses assuming the ESOP and the Stock Award Plan are implemented.
The actual aggregate amount of these new expenses cannot be predicted at the
present time 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 Stock Award Plan. 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
17
<PAGE> 22
Operations--Impact of New Accounting Standards--FASB Statement on Accounting
for Stock-Based Compensation," "Management of The
Association--Benefits--Employee Stock Ownership Plan" and "--Benefits--Stock
Award Plan."
POSSIBLE DILUTIVE EFFECT OF STOCK AWARD PLAN AND STOCK OPTION PLAN
If the Reorganization and Offering are completed and stockholders
approve the Stock Award Plan and Stock Option Plan, the Company intends to
issue shares of Common Stock to officers and directors of the Association
through these plans. If the shares for these plans are issued from the
Company's authorized but unissued Common Stock, the book value and earnings per
share of minority stockholders would be diluted, and the trading price of the
Company's Common Stock may be reduced. See "Pro Forma Data" and "Executive
Compensation and Related Transactions of the Association."
FINANCIAL INSTITUTION REGULATION AND FUTURE OF THE THRIFT INDUSTRY
The Association is subject to extensive regulation, supervision, and
examination by the OTS and the FDIC. Legislation has been introduced in
Congress that would consolidate the OTS with the Office of the Comptroller of
the Currency. If this legislation is enacted into law, the Association may be
required to become a state or national commercial bank, and may become
regulated by a different government agency. It is not possible to predict at
this time whether such legislation will be enacted into law, or the impact of
any such legislation on the operations of the Association, the Company or the
Mutual Holding Company. See "Regulation."
RISK OF DELAYED OFFERING
Although the Reorganization and Offering are expected to be completed
within the time periods indicated in this Prospectus, it is possible that
adverse market, economic or other factors may significantly delay the
completion of the Reorganization and Offering, which could significantly
increase the costs of the Reorganization and Offering. See "The
Reorganization."
PROPOSED PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the approximate purchases of Common
Stock by each director and executive officer and their Associates in the
Offering. All shares will be purchased for investment purposes and not for
purposes of resale. The table assumes that 460,000 shares (the midpoint of the
Offering Range) of Common Stock will be sold at $10.00 per share and that
sufficient shares will be available to satisfy subscriptions.
<TABLE>
<CAPTION>
TOTAL SHARES AGGREGATE PRICE
PROPOSED TO BE OF INTENDED PERCENT OF
NAME POSITION SUBSCRIBED FOR(1) PURCHASES SHARES %
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John A. Maher Chairman of the Board 5,000(3) $ 50,000 1.1%
and Secretary
Stephen Irving President, Chief Executive 2,500 25,000 0.5%
Officer and Director
Nunzio D'Addona Director 5,000(3) 50,000 1.1%
Eugene F. O'Connor Director 5,000(3) 50,000 1.1%
Edward W. Kelle Director and Vice 2,500 25,000 0.5%
Chairman of the Board
Fred W. McPhilliamy Director 2,500 25,000 0.5%
Martin D. Dehler Director 5,000(3) 50,000 1.1%
</TABLE>
18
<PAGE> 23
<TABLE>
<S> <C> <C> <C> <C>
Barry Donohue Vice President 1,000 10,000 0.2%
Steven Parisi Vice President 1,000 10,000 0.2%
------ -------- ----
All directors and officers 29,500 $295,000 6.4%
as a group (9 persons) (2)
</TABLE>
- ---------------------------
(1) Does not include shares subject to stock options which may be granted under
the Stock Option Plan, or shares which may be awarded under the Stock Award
Plan.
(2) Assuming (i) that all shares awarded under the Stock Award Plan are
purchased on the open market upon the full vesting of the restricted stock
awards to directors and officers contemplated under the Stock Award Plan
and (ii) the exercise in full of all options expected to be granted to
directors and officers under the Stock Option Plan, all directors and
officers as a group would beneficially own 84,240 shares (19.6%), 93,900
shares (18.6%), 103,560 shares (17.7%), and 114,669 shares (17.1%) at the
minimum, midpoint, maximum, and 15% above the maximum of the Offering
Range, respectively. See "Executive Compensation and Related Transactions
of Atlantic Liberty -- Stock Award Plan," "--Stock Option Plan."
(3) Represents the maximum number of shares that may be subscribed for in the
Offering.
ATLANTIC LIBERTY, MHC
The Mutual Holding Company will at all times own a majority of the
outstanding shares of Common Stock. Each member of the Association immediately
prior to the Reorganization will receive the same membership rights in the
Mutual Holding Company after the Reorganization that such person had in the
Association before the Reorganization so long as such member continues to
maintain a deposit account with the Association after the Reorganization, or,
in the case of a borrower member, such member's borrowings from the
Association, as of the effective date of the Reorganization, remain
outstanding. Borrowers will not receive membership rights for any new
borrowings from the Stock Association after the completion of the
Reorganization. The Mutual Holding Company will be chartered as a federal
mutual holding company and will be subject to regulation by the OTS.
Although many federal mutual holding companies waive the receipt of
cash dividends declared by their subsidiaries, the Mutual Holding Company
intends to make such a determination at the time the Company declares a
dividend. OTS regulations require the Mutual Holding Company to give the OTS
prior written notice of any such waiver, and the conditions pursuant to which
the OTS generally approves dividend waivers are described in
"Regulation--Holding Company Regulation." The Mutual Holding Company's Board
of Directors will waive dividends paid by the Company if the Board determines
that such a waiver is in the Mutual Holding Company's members' best interest
because, among other reasons: (i) the Mutual Holding Company has no need for
the dividend considering its business operations; (ii) the cash that would be
received could be invested by the Company or the Association at a more
favorable rate of return; (iii) such waiver may increase the capital of the
Association and enhance its business so that members will continue to have
access to the services of the Association; and (iv) such waiver preserves the
net worth of the Mutual Holding Company through its principal asset (the
Company, and indirectly, the Association), which would be available for
distribution in the unlikely event of a voluntary liquidation of the Company
and the Association after satisfaction of claims of depositors and creditors.
The Board of Directors may consider other factors in determining whether such
waiver is consistent with its fiduciary duties to members of the Mutual Holding
Company. Any waiver of dividends by the Mutual Holding Company is likely to
result in an adjustment to the ratio pursuant to which shares of Common Stock
are exchanged for shares of the resulting company in a Conversion Transaction.
The Mutual Holding Company's Board of Directors may accept dividends
paid by the Company in an amount necessary to pay the Mutual Holding Company's
expenses, and will accept additional dividends if it determines that accepting
such dividends is in the Mutual Holding Company's members' best interest
because, among other reasons: (i) the Mutual Holding Company may increase its
direct ownership of the Company, and indirect ownership of the Association, by
using cash dividends to purchase additional shares of Common Stock in the open
market from time to time; and (ii) such dividends may be used to promote
activities that are in the interest of members and the members'
19
<PAGE> 24
community. Any purchases of Common Stock by the Mutual Holding Company will
increase the percentage of the Company's Common Stock held by the Mutual
Holding Company and, in a Conversion Transaction, will decrease the aggregate
number of shares of the resulting company issued to Minority Stockholders in
exchange for their shares of Common Stock.
Immediately after the Reorganization, it is expected that the only
business activity of the Mutual Holding Company will be to own a majority of
the Common Stock. The Mutual Holding Company, however, will be authorized to
engage in any other business activities that are permissible for mutual holding
companies under federal law, including investing in loans and securities.
The office of the Mutual Holding Company is located at 186 Montague
Street, Brooklyn, New York 11201. The telephone number is (718) 855-3555.
BROOKLYN HEIGHTS BANCORP
The Company will be formed as a federal corporation and will own 100%
of the Association's common stock. The Company has not engaged in any business
to date and, for that reason, its financial statements are not included in this
Prospectus. The Company has received approval from the OTS to become a savings
and loan holding company through the acquisition of all of the capital stock of
the Association to be issued and outstanding upon completion of the
Reorganization. The Company will have all of the powers set forth in its
Federal charter and under Federal law. The Company will be subject to the same
restrictions on its permissible business activities under federal law that are
applicable to the Mutual Holding Company.
The Company will retain up to 50% of the net proceeds of the Offering.
Part of the net proceeds will be used to fund a loan to the ESOP, which is
expected to purchase up to 8% of the Common Stock in the Offering. The
remainder of the net proceeds will be used for general corporate purposes. The
Company has no present plans regarding diversification, acquisitions or
expansion. The Company initially will not conduct any active business and does
not intend to employ any persons other than its officers, although it may
utilize the Association's support staff from time to time.
The office of the Company is located at 186 Montague Street, Brooklyn,
New York 11201. The telephone number is (718) 855-3555.
ATLANTIC LIBERTY SAVINGS, F.A.
Originally organized in 1888 as a New York building and loan
association, the Association converted to a Federal savings association in
1983. The Association currently conducts its business from its main office and
one full-service branch office, both of which are located in Brooklyn, New
York. At September 30, 1997, the Association had total assets of $109.9
million, deposits of $100.5 million and retained earnings of $7.2 million, or
6.54% of assets. For the six months ended September 30, 1997 and the year ended
March 31, 1997, the Association had net income of $335,000 and $123,000,
respectively. For the same periods it had a return on average assets of 0.62%
and 0.12%, respectively, and a return on average equity of 9.12% and 5.98%,
respectively.
The Association is primarily engaged in the business of offering
savings and certificates of deposit to the general public, and using the funds
from such deposits to make mortgage loans secured by one-to-four family
residential real estate. The Association also makes loans secured by
multi-family and commercial real estate. At September 30, 1997, the
Association had no outstanding borrowings.
SUMMARY DESCRIPTION OF THE REORGANIZATION
Pursuant to the Plan, the Association will reorganize into a two-tier
mutual holding company structure by forming: (i) the Mutual Holding Company as
a federally-chartered mutual holding company; (ii) the Company as a
20
<PAGE> 25
federally-chartered stock holding company that will sell 46% of its Common
Stock in the Offering and issue the remaining 54% of its Common Stock to the
Mutual Holding Company; and (iii) the Stock Association as a
federally-chartered stock savings association which will be the successor to
the Association in its current mutual form, and which will be wholly-owned by
the Company.
---------------------------- -----------------------------
Atlantic Liberty, Public
MHC Stockholders
(Including ESOP)
---------------------------- -----------------------------
54% of the 46% of the
Common Common
Stock Stock
------------------------------------------------------------------
Brooklyn Heights Bancorp
------------------------------------------------------------------
100% of the
Common Stock
------------------------------------------------------------------
Atlantic Liberty Savings, F.A.
------------------------------------------------------------------
The Reorganization will structure the Association in the stock form of
ownership, which is the corporate form used by commercial banks, most major
businesses and a large number of savings institutions. The primary purpose of
the Reorganization is to raise equity capital and establish a holding company
to enable the Association to compete more effectively in the financial services
marketplace. See "The Reorganization and Offering--Reasons for the
Reorganization."
MARKET AREA
The Association is a community-oriented savings institution that
offers a variety of financial products and services from its main office and
one branch office located in Brooklyn, New York. The Association's primary
lending area is concentrated in the neighborhoods surrounding both of the
Association's office locations. One-to-four family residential real estate in
the Association's market area is characterized by a large number of attached
and semi-detached houses, including a number of two-and three-family homes and
cooperative apartments. Most of the Association's deposit customers are
residents of the greater New York metropolitan area. The economy of the
Association's market area is characterized by the large number of small retail
establishments. The Association's customer base is comprised of middle-income
households, and to a lesser extent low-to moderate-income households. The
median household income for Brooklyn is below the median household income
nationally, and in the State of New York. In addition, the unemployment rate
in the market served by the Association is higher than in the surrounding
suburbs.
The Association has significant competition in originating loans from
savings and loan associations, savings banks, mortgage banking companies,
insurance companies and commercial banks, many of which have greater financial
and marketing resources than the Association. The Association also faces
significant competition in attracting deposits from savings and loan
associations, savings banks, commercial banks and credit unions. The
Association faces additional competition for deposits from money market funds
and other corporate and government securities funds, and from other financial
service providers such as brokerage firms and insurance companies.
21
<PAGE> 26
USE OF PROCEEDS
The Company will retain up to 50% of the net proceeds from the
Offering (or $2.0 million at the midpoint), and will use the balance of the net
proceeds to purchase all of the Common Stock issued by the Association. A
portion of the net proceeds retained by the Company will be loaned to the ESOP
to fund its purchase of up to 8% of the Common Stock sold in the Offering
(assuming such amount of shares can be purchased in the Offering, the ESOP loan
would be $368,600 at the midpoint). On a short-term basis, the remaining net
proceeds retained by the Company may be invested in U.S. Government securities
and other federal agency securities. On a longer-term basis, the Company will
use the net proceeds for general corporate purposes. The Company may also use
a portion of the net proceeds to fund the purchase of Common Stock equal to 4%
of the shares sold in the Offering for the Stock Award Plan. The Stock Award
Plan may not be adopted by the Company's Board of Directors earlier than six
months following the completion of the Reorganization, and is subject to the
approval of stockholders.
The Association intends to use a portion of the net proceeds that it
receives from the Company to make one-to-four family mortgage loans,
multi-family real estate loans and commercial real estate loans, subject to
market conditions. On an interim basis, a portion of the net proceeds may be
invested in U.S. Government securities and other Federal agency securities. See
"Business of Atlantic Liberty Savings, F.A.--Investments."
The following table shows estimated gross and net proceeds based on
the sale of Common Stock at the minimum, midpoint, maximum and 15% above the
maximum, of the Offering Range.
<TABLE>
<CAPTION>
MINIMUM, MIDPOINT, MAXIMUM, 15% ABOVE MAXIMUM,
391,000 460,000 529,000 608,350
SHARES SOLD AT PRICE SHARES SOLD AT PRICE SHARES SOLD AT PRICE SHARES SOLD AT PRICE
OF $10.00 OF $10.00 OF $10.00 OF $10.00(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross proceeds . . . . . . $ 3,910,000 $ 4,600,000 $ 5,290,000 $ 6,083,500
Less:
Estimated underwriting
commissions and other
expenses(1) . . . . . . 500,000 510,000 521,000 534,000
------------- ------------- ------------ -------------
Estimated net proceeds(1) . $ 3,410,000 $ 4,090,000 $ 4,769,000 $ 5,549,500
============= ============= ============ =============
</TABLE>
- -------------------------
(1) In calculating estimated net proceeds it has been assumed that no sales
will be made through selected dealers.
(2) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Offering Range of up to 15% to
reflect changes in market and financial conditions following the
commencement of the Subscription Offering and the Community Offering, if
any, as well as to reflect the demand for the Common Stock.
The actual net proceeds may differ from the estimated net proceeds
calculated above for various reasons, including variances in the actual amount
of legal and accounting expenses incurred in connection with the Reorganization
and Offering, commissions paid for sales made through other dealers, and the
actual number of shares of Common Stock sold in the Offering. Any variance in
the actual net proceeds from the estimates provided in the table above is not
expected to be material.
DIVIDENDS
The Company has no present plans to pay a dividend on the Common
Stock. Dividends will be subject to determination and declaration by the Board
of Directors in its discretion, which will take into account the Company's
consolidated financial condition and results of operations, tax considerations,
industry standards, economic conditions, capital levels, regulatory
restrictions on dividend payments by the Association to the Company, general
business practices and other factors. See "Regulation--Savings Association
Regulatory Capital" and "--Dividend Limitations."
The Company will not be subject to OTS regulatory restrictions on the
payment of dividends, although its ability to pay dividends will depend in part
upon the receipt of dividends from the Association. The Association must
22
<PAGE> 27
provide the OTS with 30 days prior notice of its intention to pay a dividend or
other capital distribution to the Company. Additional limits on the dollar
amount of any capital distribution by the Association to the Company are set
forth in OTS regulations. The Company will not undertake any action within a
year from the completion of the Reorganization towards the furtherance of a
return of capital. See "Regulation--Dividend Limitations."
If permitted by regulatory authorities, the Mutual Holding Company
may waive the receipt of any cash dividends declared on the Common Stock if the
Mutual Holding Company's Board of Directors determines that such waiver is in
the best interests of the Mutual Holding Company. The Board of Directors may
conclude that such waiver, which permits retention of capital by the Company,
is in the best interest of the Mutual Holding Company because, among other
reasons, (i) the Mutual Holding Company has no need for the dividend
considering its current business operations, and (ii) the cash that would be
received could be invested by the Company at a more favorable rate of return.
The Board of Directors may consider other factors in determining whether such
waiver is consistent with its fiduciary duties to the Mutual Holding Company.
A waiver of dividends by the Mutual Holding Company will result in a greater
likelihood that dividends will be paid to stockholders other than the Mutual
Holding Company. There is no assurance that the Mutual Holding Company will
waive the receipt of dividends.
In addition to the foregoing, the portion of the Association's
earnings which has been appropriated for bad debt reserves and deducted for
federal income tax purposes cannot be used by the Association to pay cash
dividends to the Company without the payment of federal income taxes by the
Association at the then current income tax rate on the amount deemed
distributed, which would include the amount of any federal income taxes
attributable to the distribution. See "Taxation-- Federal Taxation" and Note 9
to the Financial Statements. The Company does not contemplate any distribution
by the Association that would result in a recapture of the Association's bad
debt reserve or otherwise create federal tax liabilities.
MARKET FOR THE COMMON STOCK
The Company has never issued Common Stock to the public. Consequently,
there is no established market for the Common Stock. The Company intends to
have the Common Stock traded on the OTC Electronic Bulletin Board, an
electronic communications network that provides brokers and dealers with
quotation information. Ryan, Beck & Co. has advised the Association that it
intends to act as a market maker for the Common Stock, subject to compliance
with applicable provisions of federal and state securities laws and other
regulatory requirements, but it is under no obligation to do so.
The existence of a public trading market will depend upon the presence
in the market of both willing buyers and willing sellers at any given time. The
presence of a sufficient number of buyers and sellers at any given time is a
factor over which neither the Company nor any broker or dealer has control.
The absence of an active and liquid trading market may make it difficult to
sell the Common Stock and may have an adverse effect on the price of the Common
Stock. Purchasers should consider the potentially illiquid and long-term nature
of their investment in the Common Stock.
COMPETITION
Numerous financial institutions that provide similar services operate
in the Association's market area, including commercial banks, savings
associations, credit unions and certain nonbanking consumer lenders. The
Association also competes with money market funds with respect to deposit
accounts and with insurance companies with respect to individual retirement
accounts. The Association's office locations are in close proximity to many
competing financial institutions.
The Association attracts and retains deposits by offering personalized
service, convenient office locations and competitive interest rates. Loan
originations are obtained primarily through (i) direct contacts by employees
with individuals, businesses and attorneys in the Association's community, (ii)
personalized service that the Association provides borrowers, and (iii)
competitive pricing. Competition is affected by, among other things, the
general
23
<PAGE> 28
availability of lendable funds, general and local economic conditions, current
interest rate levels, and other factors that management cannot readily predict.
CAPITALIZATION
The following table presents the Association's historical
capitalization at September 30, 1997, and the pro forma consolidated
capitalization of the Company as of that date, giving effect to the sale of
Common Stock offered by this Prospectus based on the number of shares indicated
in the table, and subject to the other assumptions set forth below. The pro
forma data set forth below may change significantly at the time the Company
completes the Reorganization and Offering due to, among other factors, a change
in the Independent Valuation or a change in the current estimated expenses of
the Reorganization and Offering. If the Offering Range changes so that between
391,000 and 608,350 shares are not sold in the Offering, subscriptions will be
returned to subscribers who do not affirmatively elect to continue their
subscriptions at the revised Offering Range.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
PRO FORMA COMPANY
CAPITALIZATION BASED ON SALE OF
------------------------------------------------
391,000 460,000 529,000 608,350
SHARES SHARES SHARES SHARES
ATLANTIC SOLD AT SOLD AT SOLD AT SOLD AT
LIBERTY PRICE OF PRICE OF PRICE OF PRICE OF
HISTORICAL $10.00 $10.00 $10.00 $10.00(8)
- ---------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposits(1) . . . . . . . . . . . . . . . . . $100,539 $ 100,539 $ 100,539 $100,539 $100,539
Stockholders equity (2):
Preferred Stock, $1.00 par value per share:
authorized - 10,000,000 shares; assumed
outstanding - none . . . . . . . . . . . . . $ -- $ -- $ -- $ -- $ --
Common stock, $1.00 par value per share
20,000,000 authorized shares; minority
shares to be outstanding as shown(3)(4) -- 391 460 529 608
Paid-in capital(3) . . . . . . . . . . . . . . -- 3,019 3,630 4,240 4,942
Less: Common stock acquired by ESOP(5) . . . . -- (313) (368) (423) (487)
Common stock to be acquired by SAP(6) -- (156) (184) (212) (243)
Retained earnings, substantially restricted(7). 7,208 7,208 7,208 7,208 7,208
-------- --------- --------- -------- --------
Total stockholders' equity . . . . . . . . . . $ 7,208 $ 10,149 $ 10,746 $ 11,342 $ 12,028
======== ========= ========= ======== ========
</TABLE>
- -------------------------
(1) Excludes withdrawals from deposit accounts for the purchase of Common
Stock. Such withdrawals will reduce pro forma deposits by the amount
thereof.
(2) Pro forma stockholders' equity is not intended to represent the fair
market value of the Common Stock, the net fair market value of the
Company's assets and liabilities or the amounts, if any, that would be
available for distribution to stockholders in the event of liquidation.
Such pro forma data may be affected by a change in the number of shares
to be sold in the Offering and by other factors.
(3) The number of shares to be issued in the Offering may be increased or
decreased based on market and financial conditions prior to the
completion of the Offering. Assumes estimated expenses of $500,000,
$510,000, $521,000 and $534,000 at the minimum, midpoint, maximum and
adjusted maximum of the Offering Range, respectively. See "Use of
Proceeds."
(4) Does not reflect additional shares of Common Stock that could be
purchased pursuant to the Stock Option Plan, if implemented, under which
directors, executive officers and other employees of the Company would
be granted options to purchase an aggregate amount of Common Stock equal
to 10% of the shares issued in the Offering (54,000 shares at the
midpoint of the Offering Range). Implementation of the Stock Option
Plan requires shareholder approval, which is expected to be sought at
the first annual meeting of stockholders to be held no earlier than six
months following the Reorganization.
24
<PAGE> 29
(5) Assumes purchases by the ESOP of a number of shares equal to 8% of the
shares sold to the public in the Offering. The funds used to acquire the
ESOP shares will be borrowed from the Company. See "Use of Proceeds."
The Association intends to make contributions to the ESOP sufficient to
service and ultimately retire its debt. The Common Stock acquired by
the ESOP is reflected as a reduction of shareholders' equity. As the
ESOP debt is repaid, shares will be released and allocated to
participants' accounts, and a corresponding reduction in the charge
against stockholders' equity will occur. See "Executive Compensation
and Related Transactions of Atlantic Liberty-- Employee Stock Ownership
Plan and Trust."
(6) Assuming the receipt of shareholder approval, the Company intends to
implement the Stock Award Plan. Assuming such implementation, the Stock
Award Plan will purchase an amount of shares equal to 4% of the Common
Stock sold in the Offering. Such shares may be purchased from
authorized but unissued shares or in the open market. Under the terms
of the Stock Award Plan, assuming it is adopted within one year of the
Reorganization, shares awarded to officers and directors will vest at
the rate of 20% per year. The Common Stock to be purchased by the Stock
Award Plan represents unearned compensation and is, accordingly,
reflected as a reduction to pro forma stockholders' equity. As shares of
the Common Stock granted pursuant to the Stock Award Plan vest, a
corresponding reduction in the charge against capital will occur. In
the event that authorized but unissued shares are acquired, the
interests of existing stockholders will be diluted. Assuming that
460,000 shares of Common Stock, the midpoint of the Offering Range, are
issued in the Reorganization, and that all awards under the Stock Award
Plan are from authorized but unissued shares, the Company estimates that
the per share book value for the Common Stock would be diluted by $.92
per share, or 3.9% on a pro forma basis as of September 30, 1997. The
dilution would be $1.02 per share (3.87%) and $.84 per share (3.95%) at
the minimum and maximum levels, respectively, of the Offering Range on
a pro forma basis at September 30, 1997.
(7) Retained earnings are substantially restricted, see "Financial
Statements."
(8) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Independent Valuation and Offering
Range of up to 15% to reflect changes in market and financial conditions
following the commencement of the Subscription Offering and Community
Offering, if any.
PRO FORMA DATA
The following tables set forth the pro forma combined consolidated net
income of the Company for the year ended March 31, 1997 and the six-months
ended September 30, 1997, as though the Offering had been consummated at the
beginning of the year and the six month period, and the investable net proceeds
had been invested at 6.0% for the year ended March 31, 1997 which was the one
year treasury bill rate at March 31, 1997, and at 5.36% for the six months
ended September 30, 1997, which was the one year treasury bill rate at
September 30, 1997, respectfully. The one year treasury bill rate was used to
calculate the reinvestment of net proceeds because it more appropriately
reflects a market rate of return than the arithmetic average yield of the
Association's interest earning assets and cost of deposits. Management
believes the difference in income that would be generated by using the one year
Treasury Bill rate as opposed to the arithmetic average yield of the
Association's interest earning assets and cost of deposits to be immaterial.
The pro forma after-tax return for the Company on a consolidated basis is
assumed to be 3.84% for the year ended March 31, 1997 and 3.43% for the six
months ended September 30, 1997, after giving effect to (i) the yield on
investable net proceeds from the Offering and (ii) adjusting for taxes using a
combined federal and state income tax rate of 45%. Historical and per share
amounts have been calculated by dividing historical amounts and pro forma
amounts by the indicated number of shares of Common Stock, assuming that such
number of shares had been outstanding during each of the entire periods. The
391,000, 460,000, 529,000 and 608,350 shares represent 46% of minimum,
midpoint, maximum and adjusted maximum, respectively of the Estimated Valuation
Range.
Book value represents the difference between the stated amount of
consolidated assets and consolidated liabilities of the Company computed in
accordance with generally accepted accounting principles. Book value does not
necessarily reflect current market value of assets and liabilities, or the
amounts, if any, that would be available for distribution to shareholders in
the event of liquidation. See "The Reorganization--Principal Effects of
Reorganization--Effect on Liquidation Rights." Book value also does not reflect
the federal income tax consequences of the restoration to income of the
Association's bad debt reserve for income tax purposes, which would be required
in the unlikely event of liquidation or if a substantial portion of retained
earnings were otherwise used for a purpose other than absorption of bad debt
losses. See "Taxation--Federal Taxation." Pro forma book value includes only
net proceeds from the Offering as though it occurred as of the indicated date
and does not include earnings on the proceeds for the period then ended.
25
<PAGE> 30
The pro forma net income derived from the assumptions set forth above
should not be considered indicative of the actual results of operations of the
Company that would have been attained for the year ended March 31, 1997 and
the six months ended September 30, 1997 if the Offering had been actually
consummated at the beginning of such year and six month period, and the
assumptions regarding investment yields should not be considered indicative of
the actual yield expected to be achieved during any future period. The pro
forma book values at the date indicated should not be considered as reflecting
the potential trading value of the Common Stock. There can be no assurance that
an investor will be able to sell the Common Stock purchased in the Offering at
prices within the range of the pro forma book values of the Common Stock or at
or above the Purchase Price. The pro forma data may not total due to rounding
differences.
26
<PAGE> 31
<TABLE>
<CAPTION>
At or for the Six Months Ended September 30, 1997
Based on the sale of common stock for $10.00 per share
------------------------------------------------------
391,000 460,000 529,000 608,350
Shares Shares Shares Shares
Sold Sold Sold Sold (1)
-------------- --------- ---------- -----------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Gross proceeds . . . . . . . . . . . . . . . . . . . . . $ 3,910 $ 4,600 $ 5,290 $ 6,084
Less Offering expenses . . . . . . . . . . . . . . . . . 500 510 521 534
-------- -------- --------- ---------
Estimated net proceeds . . . . . . . . . . . . . . . . $ 3,410 $ 4,090 $ 4,769 $ 5,550
======== ======== ========= =========
Common Stock Purchased by ESOP . . . . . . . . . . . . . (313) (368) (423) (487)
Common Stock Purchased by Stock Award Plan . . . . . . . (156) (184) (212) (243)
-------- -------- --------- ---------
Estimated Investable Proceeds . . . . . . . . . . . . . $ 2,941 $ 3,538 $ 4,134 $ 4,820
======== ======== ========= =========
Net earnings:
Historical . . . . . . . . . . . . . . . . . . . . . . $ 335 $ 335 $ 335 $ 335
Pro forma income on net proceeds (2) . . . . . . . . . 43 52 61 71
Pro forma ESOP adjustment (3) . . . . . . . . . . . . . (9) (10) (12) (13)
Pro forma Stock Award Plan adjustment (4) . . . . . . . (9) (10) (12) (13)
-------- -------- --------- ---------
Pro forma net earnings . . . . . . . . . . . . . . . $ 361 $ 367 $ 373 $ 379
======== ======== ========= =========
Per share net earnings: (5) (6)
Historical . . . . . . . . . . . . . . . . . . . . . . $ .41 $ .35 $ .30 $ .26
Pro forma income on net proceeds (2) . . . . . . . . . .05 .05 .05 .06
Pro forma ESOP adjustment (3) . . . . . . . . . . . . . (.01) (.01) (.01) (.01)
Pro forma Stock Award Plan adjustment (4) . . . . . (.01) (.01) (.01) (.01)
-------- -------- --------- ---------
Pro forma net earnings per share (5) (7) . . . . . . $ .44 $ .38 $ .34 $ .30
======== ======== ========= =========
Stockholders' equity:
Historical (8) . . . . . . . . . . . . . . . . . . . . $ 7,158 $ 7,158 $ 7,158 $ 7,158
Estimated adjusted net proceeds (9) . . . . . . . . . . 3,410 4,090 4,769 5,550
Common stock acquired by ESOP (3) . . . . . . . . . . . (313) (368) (423) (487)
Common stock acquired by Stock Award Plan (4) . . . . . (156) (184) (212) (243)
-------- -------- --------- ---------
Pro forma stockholders' equity . . . . . . . . . . . . $ 10,099 $ 10,696 $ 11,292 $ 11,977
======== ======== ========= =========
Stockholders' equity per share: (5) (8)
Historical . . . . . . . . . . . . . . . . . . . . . . $ 8.42 $ 7.161 $ 6.22 $ 5.41
Estimated adjusted net proceeds (9) . . . . . . . . . . 4.01 4.09 4.15 4.20
Common stock acquired by ESOP (3) . . . . . . . . . . . (.37) (.37) (.37) (.37)
Common stock acquired by Stock Award Plan (4) . . . . . (.18) (.18) (.18) (.18)
-------- -------- --------- ---------
Pro forma stockholders' equity per share (5) (7) . . . $ 11.88 $ 10.70 $ 9.82 $ 9.06
======== ======== ========= =========
Offering price to pro forma stockholders' equity . . . . 84.17% 93.49% 101.84% 110.42%
======== ======== ========= =========
Offering price to pro forma net earnings per share (5) . 11.37x 13.18x 14.91x 16.84x
======== ======== ========= =========
Minority Ownership Interest (10) . . . . . . . . . . . . 46.00% 46.00% 46.00% 46.00%
======== ======== ========= =========
</TABLE>
(footnotes on second following page)
27
<PAGE> 32
<TABLE>
<CAPTION>
At or for the Year Ended March 31, 1997
Based on the Sale of common stock for $10.00 Per Share
------------------------------------------------------
391,000 460,000 529,000 608,350
Shares Shares Shares Shares
Sold Sold Sold Sold (1)
--------------- -------- -------- -----------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Gross proceeds . . . . . . . . . . . . . . . . . . . . . $ 3,910 $ 4,600 $ 5,290 $ 6,084
Less Offering expenses . . . . . . . . . . . . . . . . . 500 510 521 534
--------- -------- -------- ---------
Estimated net proceeds . . . . . . . . . . . . . . . . $ 3,410 $ 4,090 $ 4,769 $ 5,550
========= ======== ======== =========
Common Stock Purchased by ESOP . . . . . . . . . . . . . (313) (368) (423) (487)
Common Stock Purchased by Stock Option Plan . . . . . . . (156) (184) (212) (243)
--------- -------- -------- ---------
Estimated Investable Proceeds . . . . . . . . . . . . . $ 2,941 $ 3,538 $ 4,134 $ 4,820
========= ======== ======== =========
Net earnings:
Historical . . . . . . . . . . . . . . . . . . . . . . $ 123 $ 123 $ 123 $ 123
Pro forma income on net proceeds (2) . . . . . . . . . 87 104 122 142
Pro forma ESOP adjustment (3) . . . . . . . . . . . . . (17) (20) (23) (27)
Pro forma stock award plan adjustment (4) . . . . . . . (17) (20) (23) (27)
--------- -------- -------- ---------
Pro forma net earnings . . . . . . . . . . . . . . . $ 175 $ 187 $ 198 $ 212
========= ======== ======== =========
Per share net earnings: (5) (6)
Historical . . . . . . . . . . . . . . . . . . . . . . $ .15 $ .13 $ .11 $ .10
Pro forma income on net proceeds (2) . . . . . . . . . .11 .11 .11 .11
Pro forma ESOP adjustment (3) . . . . . . . . . . . . . (.02) (.02) (.02) (.02)
Pro forma stock award plan adjustment (4) . . . . . . . (.02) (.02) (.02) (.02)
--------- -------- -------- ---------
Pro forma net earnings per share (5) (7) . . . . . . $ .21 $ .19 $ .18 $ 0.17
========= ======== ======== =========
Stockholders' equity:
Historical (8) . . . . . . . . . . . . . . . . . . . . $ 6,823 $ 6,823 $ 6,823 $ 6,823
Estimated adjusted net proceeds (9) . . . . . . . . . . 3,410 4,090 4,769 5,550
Common stock acquired by ESOP (3) . . . . . . . . . . . (313) (368) (423) (487)
Common stock acquired by stock award plan (4) . . . . . (156) (184) (212) (243)
--------- -------- -------- ---------
Pro forma stockholders' equity . . . . . . . . . . . . $ 9,764 $ 10,361 $ 10.957 $ 11,642
========= ======== ======== =========
Stockholders' equity per share: (5) (8)
Historical . . . . . . . . . . . . . . . . . . . . . . $ 8.03 $ 6.82 $ 5.93 $ 5.16
Estimated adjusted net proceeds (9) . . . . . . . . . . 4.01 4.09 4.15 4.20
Common stock acquired by ESOP (3) . . . . . . . . . . . (.37) (.37) (.37) (.37)
Common stock acquired by stock award plan (4) . . . . . (.18) (.18) (.18) (.18)
--------- -------- -------- ---------
Pro forma stockholders' equity per share (5) (7) . . . $ 11.49 $ 10.36 $ 9.53 $ 8.80
========= ======== ======== =========
Offering price to pro forma stockholders' equity . . . . 87.06% 96.52% 104.95% 113.59%
========= ======== ======== =========
Offering price to pro forma net earnings per share (5) . 46.85x 51.72x 56.02x 60.40x
========= ======== ======== =========
Minority Ownership Interest (10) . . . . . . . . . . . . 46.00% 46.00% 46.00% 46.00%
========= ======== ======== =========
</TABLE>
(footnotes on following page)
28
<PAGE> 33
(1) Assumes that at the conclusion of the Offering the Independent
Valuation increases by 15% to $13,225,000 and that the Association
increases the number of shares sold in the Offering to 608,350.
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock. Since funds on deposit at the
Association may be withdrawn to purchase shares of Common Stock (which
will reduce deposits by the amount of such purchases), the net amount
of funds available to the Association for investment following receipt
of the net proceeds of the Offering will be reduced by the amount of
such withdrawals.
(3) Assumes that 8% of the shares of Common Stock sold in the Offering
will be purchased by the ESOP. The funds used to acquire such shares
will be borrowed by the ESOP from the Company. The Association
intends to make annual contributions to the ESOP in an amount at least
equal to the principal and interest requirements of the debt, which is
expected to have a maturity of 10 years. The pro forma net earnings
assume that: (i) the Association's total annual contribution is
equivalent to the debt service requirement for the six months ended
September 30, 1997, and the year ended March 31, 1997, and was made at
the end of each period; (ii) the interest rate applicable to the debt
was 8.5% for each period; and (iii) the marginal statutory tax rate
applicable to the debt was 45% for each period. The amount borrowed
is reflected as a contra equity account and as a reduction of
stockholders' equity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Impact of New
Accounting Standards." To the extent that insufficient shares are
available in the Offering to satisfy the purchases of the ESOP, the
ESOP may, following the Offering, purchase such number of shares in
the open market.
(4) Subsequent to the completion of the Offering, and subject to the
approval by stockholders other than the Mutual Holding Company at the
first annual meeting of stockholders if established within the first
year following completion of the Reorganization, the Stock Award Plan
intends to purchase an aggregate number of shares of common stock
equal to 4.0% of the shares to be issued in the Offering. The shares
may be acquired directly from the Company from authorized but unissued
shares, or through open market purchases. The funds to be used by the
Stock Award Plan to purchase the shares will be provided by the
Company or the Association. Assumes that the Stock Award Plan
acquires the shares from the Company at the Purchase Price with funds
contributed by the Company, and that 20% of the amount contributed to
the Stock Award Plan is amortized as an expense in the year ended
March 31, 1997 and 10% is amortized as an expense for the six months
ended September 30, 1997.
(5) Assumes 850,000 shares, 1,000,000 shares, 1,150,000 shares, and
1,322,500 shares are outstanding at the minimum, midpoint, maximum,
and adjusted maximum of the Valuation Range. Such number of shares
includes shares sold in the Offering, shares issued to the Mutual
Holding Company in the Reorganization, and shares assumed to be issued
by the Company pursuant to the Stock Award Plan (which will not be
established within the first year after the conclusion of the Offering
unless approved by Minority Stockholders) in an amount equal to 4% of
the number of shares issued in the Offering. No effect has been given
to the issuance of additional shares of Common Stock pursuant to the
Company's stock option plans (which will not be established within the
first year after the conclusion of the Offering unless approved by
Minority Stockholders.
(6) Annualized where appropriate.
(7) If the Stock Award Plan purchases 18,400 shares of Common Stock in the
open market after the Offering (i.e., 4% of the number of shares
issued at the midpoint of the Offering Range) at an assumed fair
market value of $10.00 per share, the pro forma stockholders' equity
and earnings per share before the cumulative effect of accounting
change would be $9.49 and $.20, respectively, at and for the six
months ended September 30, 1997, and $9.78 and $.35, respectively, at
and for the fiscal year ended March 31, 1997.
(8) Stockholders' equity represents the excess of the carrying value of
the assets of the Association over its liabilities. The amounts shown
do not reflect the federal income tax consequences of the potential
restoration to income of the bad debt reserves for income tax
purposes, which would be required in the event of liquidation. See
Note 16 of Notes to the Financial Statements.
(9) Includes assumed proceeds from sale to the Stock Award Plans for
$10.00 per share of a number of authorized but unissued shares equal
to 4% of the number of shares sold in the Offering. Purchases by the
Stock Award Plans will be made at the fair market value of such shares
at the time of purchase, which may be more or less than $10.00.
(10) "Minority Ownership Interest" represents the aggregate of the number
of shares of common stock sold in the Offering and intended to be
awarded pursuant to the Stock Award Plans, as a percentage of 391,000
shares, 460,000 shares, 529,000 shares, and 608,350 shares at the
minimum, midpoint, maximum and adjusted maximum of the Offering Range.
29
<PAGE> 34
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following table compares the Association's historical and pro
forma regulatory capital levels as of September 30, 1997 to the OTS' capital
requirements after giving effect to the Offering.
<TABLE>
<CAPTION>
PRO FORMA BASED UPON SALE OF
---------------------------------------------------
MINIMUM OF MIDPOINT OF
OFFERING OFFERING
RANGE OF RANGE OF
HISTORICAL AT 391,000 SHARES 460,000 SHARES
SEPTEMBER 30, 1997 AT $10.00 PER SHARE AT $10.00 PER SHARE
------------------------- -------------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ----------- ----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ATLANTIC LIBERTY
- ----------------
Capital under generally
accepted accounting
principles . . . . . . . . . . . . . $ 7,208 6.6% $ 8,678 7.8% $ 8,977 8.0%
======== ========= ========= ========= ======== ========
Tangible capital(2) . . . . . . . . . $ 7,208 6.6% 8,678 7.8% 8,977 8.0%
Tangible capital requirement(3) . . . 1,645 1.5% 1,670 1.5% 1,675 1.5%
-------- --------- --------- --------- -------- --------
Excess . . . . . . . . . . . . . . $ 5,563 5.1% $ 7,008 6.3% $ 7,302 6.5%
======== ========= ========= ========= ======== ========
Core capital(2) . . . . . . . . . . . $ 7,208 6.6% 8,678 7.8% 8,977 8.0%
Core capital requirement(2) (4) . . . 3,289 3.0% 3,341 3.0% 3,350 3.0%
-------- --------- --------- --------- -------- --------
Excess . . . . . . . . . . . . . . $ 3,919 3.6% $ 5,338 4.8% $ 5,627 5.0%
======== ========= ========= ========= ======== ========
Risk-based capital(2)(3) . . . . . . $ 7,822 15.7% 9,292 18.5% 9,591 19.1%
Risk-based capital
requirement . . . . . . . . . . . . 3,977 8.0% 4,009 8.0% 4,014 8.0%
-------- --------- --------- --------- -------- --------
Excess . . . . . . . . . . . . . . $ 3,845 7.7% $ 5,283 10.5% $ 5,577 11.1%
======== ========= ========= ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA BASED UPON SALE OF
------------------------------------------------------
MAXIMUM OF MAXIMUM, AS ADJUSTED,
OFFERING OF OFFERING
RANGE OF RANGE OF
529,000 SHARES 608,350 SHARES
AT $10.00 PER SHARE AT $10.00 PER SHARE(1)
------------------------ ------------------------
AMOUNT PERCENT AMOUNT PERCENT
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ATLANTIC LIBERTY
- ----------------
Capital under generally
accepted accounting
principles . . . . . . . . . . . . . $ 9,275 8.3% $ 9,618 8.6%
========= ======== ========= ========
Tangible capital(2) . . . . . . . . . 9,275 8.3% 9,618 8.6%
Tangible capital requirement(3) . . . 1,679 1.5% 1,684 1.5%
--------- -------- --------- --------
Excess . . . . . . . . . . . . . . $ 7,596 6.8% $ 7,933 7.1%
========= ======== ========= ========
Core capital(2) . . . . . . . . . . . 9,275 8.3% 9,616 8.6%
Core capital requirement(2) (4) . . . 3,359 3.0% 3,369 3.0%
--------- -------- --------- --------
Excess . . . . . . . . . . . . . . $ 5,916 5.3% $ 6,249 5.6%
========= ======== ========= ========
Risk-based capital(2)(3) . . . . . . 9,889 19.7% 10,232 20.3%
Risk-based capital
requirement . . . . . . . . . . . . 4,019 8.0% 4,024 8.0%
--------- -------- --------- --------
Excess . . . . . . . . . . . . . . $ 5,870 11.7% $ 6,207 12.3%
========= ======== ========= ========
</TABLE>
- ----------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Offering Range of up to 15% to
reflect changes in market and financial conditions following
commencement of the Subscription Offering and the Community Offering, if
any, as well as to reflect demand for the Common Stock.
(2) Tangible and core capital levels are shown as a percentage of total
assets; risk-based capital levels are shown as a percentage of
risk-weighted assets.
(3) Pro forma risk-based capital amounts and percentages assume net proceeds
have been invested in 20% risk-weighted assets.
(4) The current OTS core capital requirement for savings associations is 3%
of total adjusted assets. The OTS has proposed core capital
requirements which would require a core capital ratio of 3% of total
adjusted assets for thrifts that receive the highest supervisory rating
for safety and soundness and a core capital ratio of 4% to 5% for all
other thrifts.
30
<PAGE> 35
THE REORGANIZATION AND OFFERING
THE BOARD OF DIRECTORS OF THE ASSOCIATION AND THE OTS HAVE APPROVED THE
PLAN SUBJECT TO THE PLAN'S APPROVAL BY MEMBERS AT A SPECIAL MEETING OF
MEMBERS, AND SUBJECT TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY
THE OTS IN ITS APPROVAL. OTS APPROVAL, HOWEVER, DOES NOT CONSTITUTE A
RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY THE OTS.
GENERAL
On August 19, 1997 the Board of Directors unanimously adopted the Plan,
pursuant to which the Association will reorganize from a federally chartered
mutual savings and loan association into a two-tier federal mutual holding
company structure. The Plan has been approved by the OTS subject to, among
other things, approval of the Plan by the Association's members as of the
Voting Record Date. A special meeting of members has been called for this
purpose, to be held on __________, 1998, (the "Special Meeting"). The
Reorganization will be completed as follows:
(i) the Association will organize an interim stock savings bank as a
wholly-owned subsidiary ("Interim One");
(ii) Interim One will organize an interim stock savings bank as a
wholly-owned subsidiary ("Interim Two");
(iii) Interim One will organize the Company as a wholly-owned
subsidiary;
(iv) the Association will amend its charter to read in the form of a
federal stock savings association charter at which time the
Association will become the Stock Association, and Interim One
will exchange its charter for a federal mutual holding company
charter to become the Mutual Holding Company;
(v) simultaneously with step (vi), Interim Two will merge with and
into the Stock Association, and the Stock Association will be the
surviving institution;
(vi) all of the stock constructively issued by the Stock Association
will be transferred to the Mutual Holding Company in exchange for
membership interests in the Mutual Holding Company; and
(vii) the Mutual Holding Company will contribute the Stock
Association's stock to the Company, and the Stock Association
will become a wholly-owned subsidiary of the Company.
Concurrently with the Reorganization the Company will offer for sale 46%
of its Common Stock representing 46% of the pro forma market value of the
Company and the Association.
The Association has mailed to each person eligible to vote at the
Special Meeting a proxy statement (the "Proxy Statement") containing
information concerning the business purposes of the Reorganization and the
effects of the Plan and the Reorganization on voting rights, liquidation
rights, the continuation of the Association's business and existing savings
accounts, FDIC insurance and loans. The Proxy Statement also describes the
manner in which the Plan may be amended or terminated. Included with the Proxy
Statement is a proxy card which should be used to vote on the Plan.
The following is a summary of the material aspects of the Plan, the
Subscription Offering, and the Community Offering. The Plan should be consulted
for a more detailed description of its terms.
REASONS FOR REORGANIZATION
In order to secure equity financing, the Reorganization will structure
the Association in the stock form of ownership, which is the corporate form
used by commercial banks, most major businesses and a large number of savings
institutions. The primary purpose of the Reorganization is to establish a
holding company and to convert the Association to the stock form of ownership
in order to compete and expand more effectively in the financial services
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marketplace. The Reorganization also will enable customers, employees,
management and directors to have an equity ownership interest in the
Association, which management believes will enhance the long-term growth and
performance of the Association and the Company by enabling the Association to
attract and retain qualified employees who have a direct interest in the
financial success of the Association. The Reorganization will permit the
Company to issue capital stock, which is a source of capital not available to
mutual savings associations. Since the Company will not be offering all of its
Common Stock for sale in the Offering, the Reorganization will result in less
capital raised in comparison to a standard mutual-to-stock conversion. The
Reorganization, however, also will allow the Association to raise additional
capital in the future because a majority of the Company's Common Stock will be
available for sale in the event of a conversion of the Mutual Holding Company
to stock form. The Reorganization also will provide the Bank with greater
flexibility to structure and finance the expansion of its operations, both
directly and through the Company, including the potential acquisition of other
financial institutions, and to diversify into other financial services, to the
extent permissible by applicable law and regulation. Although there are no
current arrangements, understandings or agreements regarding any such
opportunities, the Company will be in a position after the Reorganization,
subject to regulatory limitations and the Company's financial position, to take
advantage of any such opportunities that may arise. Lastly, the Reorganization
will enable the Association to better manage its capital by providing broader
investment opportunities through the holding company structure and by enabling
the Company to repurchase its common stock as market conditions permit.
Although the Reorganization and Offering will create a stock savings
Association and stock holding company, only a minority of the Common Stock will
be offered for sale in the Offering. As a result, the Association's mutual
form of ownership and its ability to provide community-oriented financial
services will be preserved through the mutual holding company structure.
The Board of Directors believes that these advantages outweigh the
potential disadvantages of the mutual holding company structure to Minority
Stockholders, which may include: (i) the inability of stockholders other than
the Mutual Holding Company to obtain majority ownership of the Company and the
Stock Association, which may result in the perpetuation of the management and
Board of Directors of the Stock Association and the Company; and (ii) that the
mutual holding company structure is a relatively new form of corporate
ownership, and new regulatory policies relating to the mutual interest in the
Mutual Holding Company that may be adopted from time-to-time may have an
adverse impact on Minority Stockholders. A majority of the voting stock of the
Company will be owned by the Mutual Holding Company, which will be controlled
by its Board of Directors. While this structure will permit management to
focus on the Company's and the Association's long-term business strategy for
growth and capital redeployment without undue pressure from stockholders, it
will also serve to perpetuate the existing management and directors of the
Association. The Mutual Holding Company will be able to elect all members of
the Board of Directors of the Company, and will be able to control the outcome
of all matters presented to the stockholders of the Company for resolution by
vote except for certain matters, such as the approval of the stock plans and
the stock option plans, that, if established within the first year after the
conclusion of the Offering, must be approved by a majority of the votes of the
Minority Stockholders of the Company. No assurance can be given that the
Mutual Holding Company will not take action adverse to the interests of the
Minority Stockholders. For example, the Mutual Holding Company could revise
the dividend policy, prevent the sale of control of the Company, or defeat a
candidate for the Board of Directors of the Company or other proposals put
forth by the Minority Stockholders.
The Reorganization does not preclude the conversion of the Mutual
Holding Company from the mutual to stock form of organization following the
reorganization. No assurance can be given when, if ever, the Mutual Holding
Company will convert to stock form or what conditions the OTS or other
regulatory agencies may impose on such a transaction.
Following the completion of the Reorganization, all depositors who had
liquidation rights with respect to the Association as of the Effective date of
the Reorganization will continue to have such rights solely with respect to the
Mutual Holding Company so long as they continue to hold deposit accounts with
the Association. In addition, all persons who become depositors of the
Association subsequent to the Reorganization will have such liquidation rights
with respect to the Mutual Holding Company.
All insured deposit accounts of the Association that are transferred to
the Stock Association will continue to be federally insured by the FDIC and the
SAIF up to the legal maximum limit in the same manner as deposit accounts
existing in the Association immediately prior to the Reorganization. Upon
completion of the Reorganization, the Association may exercise any and all
powers, rights and privileges of, and shall be subject to all limitations
applicable to, capital stock savings associations under Federal law and OTS
regulations. Although the Company will have the power to issue shares of
capital stock to persons other than the Mutual Holding Company, as long as the
Mutual Holding Company is in existence, the Mutual Holding Company will be
required to own a majority of the voting stock
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of the Company. The Company may issue any amount of non-voting stock to
persons other than the Mutual Holding Company, and the Company must own 100% of
the voting stock of the Association. The Association and the Company may issue
any amount of non-voting stock or debt to persons other than the Mutual Holding
Company.
TAX EFFECTS OF THE REORGANIZATION
The Association intends to proceed with the Reorganization on the basis
of an opinion from its special counsel, Luse Lehman Gorman Pomerenk & Schick,
P.C., Washington, D.C., as to certain tax matters that are material to the
Reorganization. The opinion is based, among other things, on certain
representations made by the Association, including the representation that the
exercise price of the subscription rights to purchase the Common Stock will be
approximately equal to the fair market value of the stock at the time of the
completion of the Reorganization. With respect to the subscription rights, the
Association has received an opinion of Feldman Financial which, based on
certain assumptions, concludes that the subscription rights to be received by
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members do not have any economic value at the time of distribution or the time
the subscription rights are exercised, whether or not a Community Offering
takes place, and Luse Lehman Gorman Pomerenk & Schick, P.C.'s opinion is given
in reliance thereon. Luse Lehman Gorman Pomerenk & Schick, P.C.'s opinion
provides substantially as follows:
1. The change in the Association's form from a mutual savings
association to a stock savings association (the "Stock Association")
will qualify as a reorganization under Section 368(a)(1)(F) of the
Internal Revenue Code, as amended ("Code"), and no gain or loss will
be recognized to the Association in either its mutual form or stock
form by reason of the Reorganization.
2. No gain or loss will be recognized by the Association or the Stock
Association upon the transfer of the Association's assets to the
Stock Association solely in exchange for shares of Stock Association
stock and the assumption by the Stock Association of the liabilities
of the Association.
3. Stock Association's holding period in the assets received from the
Association will include the period during which such assets were
held by the Association.
4. Stock Association's basis in the assets of the Association will be
the same as the basis of such assets in the Association immediately
prior to the Reorganization.
5. The Stock Association will succeed to and take into account the
Association's earnings and profits or deficit in earnings and
profits, as of the date of the Reorganization.
6. The Stock Association's depositors will recognize no gain or loss
solely by reason of the Reorganization.
7. The Mutual Holding Company and the Minority Stockholders will
recognize no gain or loss upon the transfer of Stock Association
stock and cash, respectively, to the Company in exchange for Common
Stock of the Company.
8. The Company will recognize no gain or loss upon its receipt of
property from the Mutual Holding Company and Minority Stockholders in
exchange for Common Stock of the Company.
9. The basis of the Company Common Stock to the Minority Stockholders
will be the actual purchase price thereof, and the holding period for
Common Stock acquired through the exercise of subscription rights
will begin on the date the rights are exercised.
The opinions of Luse Lehman Gorman Pomerenk & Schick, P.C., unlike a
letter ruling issued by the Internal Revenue Service, are not binding on the
Service and the conclusions expressed herein may be challenged at a future
date. The Service has issued favorable rulings for transactions substantially
similar to the proposed Reorganization, but any such ruling may not be cited as
precedent by any taxpayer other than the taxpayer to whom the ruling is
addressed. The Association does not plan to apply for a letter ruling
concerning the transactions described herein.
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The Association has also received an opinion from O'Reilly, Marsh,
Kearney & Corteselli, P.C. that implementation of the Plan will not result in
any New York income tax liability to the Association, its depositors and
borrowers, the Company or the Mutual Holding Company.
OFFERING OF COMMON STOCK
Under the Plan, up to 529,000 shares of common stock are being offered
for sale, initially through the Subscription Offering (subject to a possible
increase to 608,350 shares). See "--Subscription Offering." The Plan requires,
with certain exceptions, that a number of shares equal to at least 391,000
shares be sold in order for the Reorganization to be effective.
The Subscription Offering expires at __________, New York time, on
__________, 1998. OTS regulations and the Plan require that the sale of Common
Stock be completed within 45 days after the close of the Subscription Offering.
This 45-day period expires on ____________, 1998. In the event the Association
is unable to complete the sale of common stock within this 45-day period, the
Association may request an extension of this time period from the OTS. No
single extension granted by the OTS, however, may exceed 90 days. No assurance
can be given that an extension would be granted if requested. The OTS, however,
has granted extensions due to the inability of mutual financial institutions to
complete a stock offering as a result of the development of adverse conditions
in the stock market. If an extension is granted, the Association would promptly
notify subscribers of the granting of the extension of time and would promptly
return subscriptions unless subscribers affirmatively elect to continue their
subscriptions during the period of extension. Such extensions may not be made
beyond _____________, 2001.
Shares may also be offered to the public in a Community Offering, if one
is to be held. In the event a Community Offering is held, it may begin
immediately after the Subscription Offering, or any time during the
Subscription Offering. The Community Offering may end on or after the
Subscription Offering, but not later than April __, 1998, unless further
extended with the approval of the OTS. The actual number of shares to be sold
in the Offering will depend upon market and financial conditions at the time of
the Offering, provided that no fewer than 391,000 shares or more than 608,350
shares are sold in the Offering. The per share price to be paid by prospective
purchasers in the Community Offering, if any, for any remaining shares will be
$10.00, the same price paid by subscribers in the Subscription Offering. See "-
Stock Pricing."
As permitted by OTS regulations, the Plan provides that if, for any
reason, purchasers cannot be found for an insignificant numbers of unsubscribed
shares of the common stock, the Board of Directors will seek to make other
arrangements for the sale of the remaining shares. Such other arrangements will
be subject to the approval of the OTS. If such other purchase arrangements
cannot be made, the Plan will terminate. In the event that the Offering is not
completed, the Association will remain a mutual savings association, all
subscription funds will be promptly returned to subscribers with interest
earned thereon at the passbook rate, which is currently _____% per annum
(except for payments to have been made through withdrawal authorizations which
will have continued to earn interest at the contractual account rates), and all
withdrawal authorizations will be canceled.
SUBSCRIPTION OFFERING
In accordance with OTS regulations, nontransferable rights to subscribe
for the purchase of the Company's Common Stock have been granted under the Plan
to the following persons in the following order of priority: (1) Eligible
Account Holders; (2) the ESOP; (3) Supplemental Eligible Account Holders; (4)
depositors and borrowers other than Eligible Account Holders and Supplemental
Eligible Account Holders, at the close of business on January 30, 1998, the
voting record date for the Special Meeting ("Other Members"), and (5), and
employees, officers and directors. All subscriptions received will be subject
to the availability of Common Stock after satisfaction of all subscriptions of
all persons having prior rights in the Subscription Offering, and to the
maximum and minimum purchase limitations set forth in the Plan (and described
below). The June 30, 1996 date for determining who qualifies as Eligible
Account Holders, and the December 31, 1997 date for determining who qualifies
as Supplemental Eligible Account Holders, were selected in accordance with
federal regulations applicable to the Reorganization.
CATEGORY I: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder will
receive, without cost to him or her, nontransferable subscription rights to
subscribe for up to 5,000 shares of the Common Stock; provided, however, that
no Eligible Account Holder may purchase alone or with his or her Associates (as
defined in this Prospectus) and persons acting in concert, more than 5,000
shares of Common Stock. The Company may, in its sole discretion and without
further notice to, or solicitation of, subscribers or other prospective
purchasers, increase the maximum
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purchase limitation up to 5% of the maximum number of shares offered in the
Offering, or decrease the maximum purchase limitation to as low as 1.0% of the
maximum number of shares offered in the Offering.
If sufficient shares are not available in this Category I, the
Association will allocate shares in a manner that will allow each Eligible
Account Holder purchase the lesser of 100 shares or the amount subscribed for.
Thereafter, unallocated shares will be allocated to subscribing Eligible
Account Holders in the proportion that the amounts of their respective
qualifying deposits bear to the total amount of qualifying deposits of all
subscribing Eligible Account Holders. To ensure a proper allocation of Common
Stock, each Eligible Account Holder must list on the Stock Order Form all
accounts in which he and she has an ownership interest as of June 30, 1996.
Failure to list all such qualifying deposit accounts may result in the
inability of the Company or the Association to fill all or part of a
subscription order. Neither the Company, the Association nor any of their
agents shall be responsible for orders on which all qualifying deposit accounts
have not been fully and accurately disclosed.
The "qualifying deposits" of an Eligible Account Holder is the aggregate
amount of the deposit balances (provided such aggregate balance is not less
than $50.00) in his or her deposit accounts, including money market accounts,
as of the close of business on June 30, 1996. Subscription rights received by
directors and officers in this category based upon their increased deposits in
the Association during the year preceding June 30, 1996, are subordinated to
the subscription rights of other Eligible Account Holders. Notwithstanding the
foregoing, shares of Common Stock with a value in excess of $50,000, may be
sold to the ESOP before satisfying the subscriptions of Eligible Account
Holders in the event the number of shares sold in the Offering is increased by
more than 529,000 shares. For allocation purposes, qualifying deposits will be
divided in the case of multiple orders.
CATEGORY II: THE EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP"). The ESOP will
receive nontransferable subscription rights to purchase up to 10% of the total
number of shares of Common Stock offered in the Offering, provided that shares
remain available after satisfying the subscription rights of Eligible Account
Holders. The ESOP currently intends to purchase 8% of the shares sold in the
Offering. If the ESOP is unable to purchase all or part of the shares of Common
Stock for which it subscribes, the ESOP may purchase such shares on the open
market or may purchase authorized but unissued shares of the Company. Any
purchase by the ESOP of authorized but unissued shares would dilute the
interests of the Company's shareholders.
CATEGORY III: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. Each Supplemental
Eligible Account Holder will receive, without payment therefor, nontransferable
subscription rights to subscribe for up to 5,000 shares of the Common Stock;
provided, however, that no Supplemental Eligible Account Holder may purchase
alone or with his or her Associates and persons acting in concert, more than
5,000 shares of common stock. Such subscription rights will be applicable only
to shares that remain available after the subscriptions of Eligible Account
Holders and the ESOP have been satisfied. The Company may, in its sole
discretion, and without further notice to, or solicitation of, subscribers or
other prospective purchasers, increase the maximum purchase limitation to up to
5% of the maximum number of shares offered in the Offering or decrease the
maximum purchase limitation to as low as 1.0% of the maximum number of shares
offered in the Offering.
If sufficient shares are not available in this Category III, the
Association will allocate shares in a manner that will allow each Supplemental
Eligible Account Holder to purchase the lesser of 100 shares or the amount
subscribed for. Thereafter, unallocated shares will be allocated to subscribing
Supplemental Eligible Account Holders in the proportion that the amounts of
their respective qualifying deposits bear to the total amount of qualifying
deposits of all subscribing Supplemental Eligible Account Holders. To ensure a
proper allocation of Common Stock, each Supplemental Eligible Account Holder
must list on the Stock Order Form all accounts in which he or she has an
ownership interest as of December 31, 1997. Failure to list all such
qualifying deposit accounts may result in the inability of the Company or the
Association to fill all or part of a subscription order. Neither the Company,
the Association nor any of their agents shall be responsible for orders on
which all qualifying deposit accounts have not been fully and accurately
disclosed.
The "qualifying deposits" of a Supplemental Eligible Account Holder is
the aggregate amount of the deposit balances (provided such aggregate balance
is not less than $50.00) in his or her deposit accounts, including money market
accounts, as of the close of business on December 31, 1997.
CATEGORY IV: OTHER MEMBERS. Each Other Member will receive, without cost
to him or her, nontransferable subscription rights to subscribe for up to 5,000
shares of the Common Stock; provided, however, that no Other Member may
purchase alone or with his or her Associates and persons acting in concert,
more than 5,000 shares of
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Common Stock. Such subscription rights will be applicable only shares that
remain available after the subscriptions of Eligible Account Holders, the ESOP,
and Supplemental Eligible Account Holders have been satisfied. The Company may
in its sole discretion increase the maximum purchase limitation to up to 5% of
the maximum number of shares offered in the Offering or decrease the maximum
purchase limitation to as low as 1.0% of the maximum number of shares offered
in the Offering.
If sufficient shares are not available in this Category IV, shares will
be allocated pro rata among subscribing Other Members in the same proportion
that the number of shares subscribed for by each Other Member bears to the
total number of shares subscribed for by all Other Members.
CATEGORY V: EMPLOYEES, OFFICERS AND DIRECTORS. Employees, officers and
directors of the Association will receive, without cost to them,
nontransferable subscription rights to subscribe for up to 5,000 shares of the
Common Stock; provided that no employee, officer or director may purchase alone
or with his or her Associates and persons acting in concert more than 5,000
shares of common stock. For purposes of the Plan directors, officers and
employees are not Associates of one another, nor are they acting in concert
solely as a result of their positions as directors, officers or employees of
the Association. Such subscription rights will only be awarded after
subscriptions of Eligible Account holders, the ESOP, Supplemental Eligible
Account Holders and other Members have been satisfied. If sufficient shares
are not available in this Category V, shares will be allocated among directors,
officers and employees on a pro rata basis based on the size of each person's
order.
TIMING OF OFFERING AND METHOD OF PAYMENT. The Subscription Offering will
expire at __________, New York time, on ___________, 1998 (the "Expiration
Date"). The Expiration Date may be extended by the Association and the Company
for successive 90-day periods, subject to OTS approval, to ___________, 2000.
If the Offering is extended beyond ______________, 2000, subscribers will be
given the right to increase, decrease, confirm or modify their orders.
Before the Expiration Date, or any extension of such date, each
subscriber must return the Order Forms to the Association, properly completed,
together with checks or money orders in an amount equal to the Purchase Price
multiplied by the number of shares for which subscription is made. Payment for
stock purchases can also be accomplished through authorization on the order
form of withdrawals from accounts with the Association (including a certificate
of deposit). The Association has the right to reject any orders transmitted by
facsimile and any payments made by wire transfer.
Until completion or termination of the Reorganization, subscribers who
elect to make payment through authorization of withdrawal from accounts with
the Association will not be permitted to reduce the deposit balance in any such
accounts below the amount required to purchase the shares for which they
subscribed. In such cases interest will continue to be credited on deposits
authorized for withdrawal until the completion of the Reorganization. Interest
at the passbook rate, which is currently _____ per annum, will be paid on
amounts submitted by check. Authorized withdrawals from certificate accounts
for the purchase of Common Stock will be permitted without the imposition of
early withdrawal penalties or loss of interest. However, withdrawals from
certificate accounts that reduce the balance of such accounts below the
required minimum for specific interest rate qualification will cause the
cancellation of the certificate accounts at the effective date of the
Reorganization, and the remaining balance will earn interest at the passbook
savings rate or will be returned to the depositor. Stock subscriptions received
and accepted by the Association are final. Subscriptions may be withdrawn only
in the event that the Reorganization is not completed by __________, 1998.
MEMBERS IN NON-QUALIFIED STATES OR FOREIGN COUNTRIES. The Association
will make reasonable efforts to comply with the securities laws of all states
in the United States in which persons entitled to subscribe for stock pursuant
to the Plan reside. However, no person will be offered or sold any stock in
the Subscription Offering if such person resides in a foreign country or
resides in a state in the United States with respect to which all of the
following apply: (i) a small number of persons otherwise eligible to subscribe
for shares of Common Stock reside in such state; (ii) the granting of
subscription rights or the offer or sale of Common Stock to such persons would
require the Association or the Company or its respective officers and
directors, under the securities laws of such state, to register as a broker,
dealer, salesman or selling agent, or to register or otherwise qualify the
Common Stock for sale in such state; and (iii) such registration, qualification
or filing in its judgment or in the judgment of the Company would be
impracticable or unduly burdensome for reasons of cost or otherwise.
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To assist in the Offering, the Association has established a Stock
Information Center that you may contact at (718) _________ . Callers to the
Stock Information Center will be able to request a Prospectus and other
information relating to the Offering.
COMMUNITY OFFERING
To the extent shares remain available for purchase after filling all
orders received in the Subscription Offering, the Company may offer shares of
the common stock in a Community Offering to the general public, with preference
given to residents in Brooklyn, the borough where the Association maintains its
offices. The right of any person to purchase shares in the Community Offering
is subject to the Association's right to accept or reject such purchase in
whole or in part. The Association may terminate the Community Offering as soon
as it has received orders for at least the minimum number of shares available
for purchase in the Offering.
Persons wishing to purchase stock in the Community Offering, if
conducted, should return the Order Form to the Association, properly completed,
together with a check or money order in the amount equal to the Purchase Price
multiplied by the number of shares which that person desires to purchase. Order
Forms will be accepted until the completion of the Community Offering. However,
the Association may terminate the Community Offering as soon as orders are
received for at least the minimum number of shares available for purchase in
the Offering.
The maximum number of shares of Common Stock which may be purchased in
the Community Offering by any person (including such person's Associates) or
persons acting in concert is 5,000 in the aggregate. A member who, together
with his Associates and persons acting in concert, has subscribed for shares in
the Subscription Offering may subscribe for a number of additional shares in
the Community Offering that does not exceed the lesser of (i) 5,000 shares or
(ii) the number of shares which, when added to the number of shares subscribed
for by the member (and his Associates and persons acting in concert) in the
Subscription Offering, would not exceed 5,000. The Association reserves the
right to reject any orders received in the Community Offering in whole or in
part.
If all the Common Stock offered in the Subscription Offering is
subscribed for, no Common Stock will be available for purchase in the Community
Offering. In the event of an oversubscription, purchase orders received during
the Community Offering will be filled up to a maximum of 1,000 shares of Common
Stock issued in the Offering, with any remaining unfilled purchase orders to be
allocated on a pro rata basis based on a fair and equitable manner. If the
Community Offering continues for more than 45 days after the expiration of the
Subscription Offering, subscribers will have the right to increase, decrease or
rescind subscriptions for stock previously submitted. All sales of Common Stock
in the Community Offering will be at the same price per share as the sales of
Common Stock in the Subscription Offering.
Cash and checks received in the Community Offering will be placed in an
interest bearing account with the Association, and will earn interest at the
passbook rate, which is currently _____% per annum, from the date of deposit
until completion or termination of the Reorganization. In the event that the
Reorganization is not consummated for any reason, all funds submitted pursuant
to the Community Offering will be promptly refunded with interest as described
above.
SYNDICATED COMMUNITY OFFERING
Any shares of Common Stock not sold in the Subscription Offering or in
the Community Offering, if any, may be offered for sale to the general public
by a selling group of broker-dealers to be managed by Ryan Beck & Co. in a
Syndicated Community Offering, subject to terms, conditions and procedures as
may be determined by the Association and the Company in a manner that is
intended to achieve the widest distribution of the Common Stock subject to the
rights of the Company to accept or reject in whole or in part all orders in the
Syndicated Community Offering. It is expected that the Syndicated Community
Offering will commence as soon as practicable after termination of the
Subscription Offering and the Community Offering, if any. The Syndicated
Community Offering shall be completed within 45 days after the termination of
the Subscription Offering, unless such period is extended as provided herein.
If for any reason a Syndicated Community Offering of unsubscribed shares
of Common Stock cannot be effected and any shares remain unsold after the
Subscription Offering and any Community Offering, the Boards of Directors of
the Company and the Association will seek to make other arrangements to sell
the remaining shares.
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Such other arrangements will be subject to OTS approval and to compliance with
applicable state and federal securities laws.
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING COMMON STOCK
To ensure that each purchaser receives a Prospectus at least 48 hours
prior to the end of the Offering, in accordance with Rule 15c2-8 under the
Securities Exchange Act of 1934, no Prospectus will be mailed later than five
days or hand delivered any later than two days prior to the end of the
Offering. Execution of the Order Form will confirm receipt or delivery of a
Prospectus in accordance with Rule 15c2-8. Order Forms will be distributed
only with a Prospectus. Neither the Company, the Association, nor Ryan, Beck &
Co. is obligated to deliver a Prospectus and an Order Form by any means other
than the U.S. Postal Service.
To ensure that Eligible Account Holders, Supplemental Eligible Account
Holders, and Other Members are properly identified as to their stock purchase
priorities, such parties must list all deposit accounts, or in the case of
other members who are borrowers only, loans held at the Association, on the
Order Form giving all names on each deposit account and/or loan and the account
and/or loan numbers at the applicable eligibility date.
Full payment by check, cash (except by mail), money order, bank draft or
withdrawal authorization (payment by wire transfer will not be accepted) must
accompany an original Order Form. THE COMPANY IS NOT OBLIGATED TO ACCEPT AN
ORDER SUBMITTED ON PHOTOCOPIED OR TELECOPIED ORDER FORMS. ORDERS CANNOT AND
WILL NOT BE ACCEPTED WITHOUT THE EXECUTION OF THE CERTIFICATION APPEARING ON
THE ORDER FORM.
If the ESOP purchases shares of Common Stock, it will not be required to
pay for such shares until consummation of the Offering, provided that there is
in force from the time the order is received a loan commitment to lend to the
ESOP the amount of funds necessary to purchase the number of shares ordered.
DELIVERY OF CERTIFICATES
Certificates representing shares issued in the Subscription Offering and
in the Community Offering, if any, pursuant to Order Forms will be mailed to
the persons entitled to them at the last addresses of such persons appearing on
the books of the Association or to such other addresses as may be specified in
properly completed Order Forms as soon as practicable following consummation of
the Reorganization. The Company will not accept orders registered "in care of"
or instructed to be mailed to a third party. Any certificates returned as
undeliverable will be held by the Company until claimed by the person legally
entitled to them or otherwise disposed of in accordance with applicable law.
Purchasers may not be able to sell the shares of Common Stock which they
purchase until certificates for the common stock are available and delivered to
them, even though trading of the common stock may have commenced. Shares sold
prior to receipt of a stock certificate are the responsibility of the
purchaser.
MARKETING AGENT
To assist the Association and the Company in marketing the Common Stock,
Ryan, Beck & Co. has been retained as the Association's financial advisor.
Ryan, Beck & Co. is a broker-dealer registered with the Securities and Exchange
Commission (the "SEC") and a member of the National Association of Securities
Dealers, Inc. (the "NASD"). Ryan, Beck & Co. will assist the Company and the
Association in the Offering by providing advisory assistance to the
Association, helping with the supervision and administration of the Stock
Information Center and assisting in the marketing of the Common Stock in the
Offering. For providing these services, Ryan, Beck & Co. will be paid an
advisory and marketing fee of $120,000. Ryan, Beck & Co. will also be
reimbursed for out-of-pocket expenses, which are not to exceed $10,000 without
the Association's consent (excluding certain reimbursable expenses), and for
legal fees, which are not to exceed $30,000 without the Association's consent.
Offers and sales in the Community Offering will be on a best efforts basis and,
as a result, Ryan, Beck & Co. is not obligated to purchase any shares of the
Common Stock. Ryan, Beck & Co. intends to make a market in the Common Stock,
although it is under no obligation to do so.
The Association has also agreed to indemnify Ryan, Beck & Co., under
certain circumstances, against liabilities and expenses (including legal fees)
arising out of Ryan, Beck & Co.'s engagement, including liabilities under the
Securities Act of 1933 (the"1933 Act").
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<PAGE> 43
SELECTED DEALERS
Depending on market conditions, the Common Stock may be offered for sale
to the general public on a best efforts basis in the Syndicated Community
Offering by a selling group of broker-dealers ("Selected Dealers") to be
managed by Ryan Beck & Co. Selected Dealers, which may include Ryan, Beck &
Co. will receive commissions at an agreed upon rate for all shares sold by such
Selected Dealers. During the Community Offering, Selected Dealers may only
solicit indications of interest from their customers to place orders with us as
of a certain date (the "Order Date") for the purchase of shares of Common
Stock. When and if the Company, the Association and Ryan, Beck & Co. believe
that enough indications of interest and orders have been received in the
Subscription Offering and the Community Offering, if any, to consummate the
Offering, Ryan, Beck & Co. will request, as of the Order Date, Selected Dealers
to submit orders to purchase shares for which they have previously received
indications of interest from the customers. Selected Dealers will send
confirmations of the orders to such customers on the next business day after
the Order Date. Selected Dealers will debit the accounts of their customers on
the date which will be three business days from the Order Date (the "Settlement
Date"). On the Settlement Date, funds received by Selected Dealers will be
remitted to the Association. The Association will pay a fee equal to 5.5% of
the total dollar amount of common stock sold by Selected Dealers. It is
anticipated that the Reorganization and Offering will be consummated on the
Settlement Date. However, if consummation is delayed after payment has been
received by the Association from Selected Dealers, funds will earn interest at
the passbook rate, which is currently _____% per annum until the completion of
the offering. Funds will be returned promptly in the event the Reorganization
and Offering is not consummated.
LIMITATIONS ON COMMON STOCK PURCHASES
The Plan includes a number of limitations on the number of shares of
Common Stock which may be purchased in the Offering. These are summarized
below:
1. The aggregate amount of outstanding Common Stock owned or
controlled by persons other than the Mutual Holding Company at
the close of the Offering shall be less than 50% of the total
outstanding Common Stock.
2. No Person, Associate thereof, or group of persons acting in
concert, may purchase more than $50,000 of Common Stock offered
in the Offering to persons other than the Mutual Holding Company
except that: (i) the Company may, in its sole discretion and
without further notice to or solicitation of subscribers or other
prospective purchasers, increase the maximum purchase limitation
to up to 5% of the number of shares offered in the Offering;
(ii) Tax-Qualified Employee Plans may purchase up to 10% of the
shares offered in the Offering; and (iii) shares held by any
Tax-Qualified Employee Plan and attributable to a person will not
be aggregated with other shares purchased directly by or
otherwise attributable to such person.
3. The aggregate amount of Common Stock acquired in the Offering by
all officers and directors of the Association or any affiliate of
the Association, and any person acting in concert with such
officer or director and their Associates, exclusive of any stock
acquired by such persons in the secondary market, may not exceed
34% of the outstanding shares of Common Stock held by persons
other than the Mutual Holding Company at the close of the
Offering. In calculating the number of shares held by officers
or directors of the Association or any Affiliate of the
Association and any person acting in concert with any such
officer or director and their Associates under this paragraph or
under the provisions of Section 4 of this section, shares held by
any Tax-Qualified Employee Benefit Plans of the Association that
are attributable to such persons shall not be counted.
4. The aggregate amount of Common Stock acquired in the Offering by
all officers and directors of the Association or any affiliate of
the Association and any person acting in concert with any such
officer or director and their Associates, exclusive of any Common
Stock acquired by such plans or persons in the secondary market,
may not exceed 34% of the stockholders' equity of the Company
other than the Mutual Holding Company at the close of the
Offering.
5. The Boards of Directors of the Association and the Company may,
in their sole discretion, increase the maximum purchase
limitation to up to 9.9%, provided that the percentage amount by
which any order for Common Stock exceeds 5% of the total number
of shares of Common Stock offered in
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<PAGE> 44
the Offering shall not, when aggregated with the percentage
amount by which any other order exceeds 5% of the total number of
shares of Common Stock offered in the Offering, exceed 10% of the
total shares of Common Stock offered in the Offering (except that
this limitation shall not apply to purchases by Tax-Qualified
Employee Plans). If such 5% limitation is increased, subscribers
for the maximum amount will be, and certain other large
subscribers in the sole discretion of the Company and the
Association may be, given the opportunity to increase their
subscriptions up to the then applicable limit. Requests to
purchase additional shares of Common Stock under this provision
will be determined by the Board of Directors of the Company, in
its sole discretion.
6. Notwithstanding any other provision of this Plan, no person shall
be entitled to purchase any Common Stock to the extent such
purchase would be illegal under any federal law or state law or
regulation or would violate regulations or policies of the
National Association of Securities Dealers, Inc., particularly
those regarding free riding and withholding. The Company and/or
its agents may ask for an acceptable legal opinion from any
purchaser as to the legality of such purchase and may refuse to
honor any purchase order if such opinion is not timely furnished.
7. The Board of Directors of the Company has the right in its sole
discretion to reject any order submitted by a person whose
representations the Board of Directors believes to be false or
who it otherwise believes, either alone or acting in concert with
others, is violating, circumventing, or intends to violate, evade
or circumvent the terms and conditions of this Plan.
OTS regulations define "acting in concert" as (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.
THE ASSOCIATION WILL PRESUME THAT CERTAIN PERSONS ARE ACTING IN CONCERT BASED
UPON VARIOUS FACTS, INCLUDING THE FACT THAT PERSONS HAVE JOINT ACCOUNT
RELATIONSHIPS OR THE FACT THAT SUCH PERSONS HAVE FILED JOINT SCHEDULES 13D WITH
THE SEC WITH RESPECT TO OTHER COMPANIES.
Directors are not treated as Associates of one another solely because of
their board membership. Compliance with the foregoing limitations does not
necessarily constitute compliance with other regulatory restrictions on
acquisitions of the Common Stock. For a further discussion of limitations on
purchases of the Common Stock during and subsequent to Reorganization, see "--
Restrictions on Sale of Stock by Directors and Officers," "-- Restrictions on
Purchase of Stock by Directors and Officers Following Reorganization," and
"Restrictions on Acquisition of the Company."
RESTRICTIONS ON REPURCHASE OF STOCK BY THE COMPANY
Repurchases of its shares by the Company will be restricted for a period
of three years from the date of the completion of Reorganization. OTS
regulations currently prohibit the Company from repurchasing any of its shares
within three years following the Reorganization except in exceptional
circumstances. The Company may not, for a period of three years from the date
of the Reorganization, repurchase any of its capital stock from any person,
except in the event of an offer to purchase by the Company on a pro rata basis
from all of its shareholders (excluding the Mutual Holding Company) which is
approved in advance by the OTS, the repurchasing of qualifying shares of a
director or purchases of shares required to fund a tax qualified or non-tax
qualified plan.
RESTRICTIONS ON SALE OF STOCK BY DIRECTORS AND OFFICERS
Any shares of the Common Stock purchased in the Offering by directors
and officers of the Association or the Company may not be sold or otherwise
disposed of for value for a period of one year following the date of purchase,
except for any disposition of such shares (i) following the death of the
original purchaser or (ii) by reason of an exchange of securities in connection
with a merger or acquisition approved by the applicable regulatory authorities.
Sales of shares of the Common Stock by the Company's directors and officers
will also be subject to certain insider trading and other transfer restrictions
under the federal securities laws. See "Regulation -- Federal Securities Laws"
and "Description of Capital Stock."
40
<PAGE> 45
Each certificate for such restricted shares will bear a legend
prominently stamped on its face giving notice of the restrictions on transfer,
and instructions will be issued to the Company's transfer agent to the effect
that any transfer within such time period of any certificate or record
ownership of such shares other than as provided above is a violation of the
restriction. Any shares of Common Stock issued pursuant to a stock dividend,
stock split or otherwise with respect to restricted shares will be subject to
the same restrictions on sale.
RESTRICTIONS ON PURCHASE OF STOCK BY DIRECTORS AND OFFICERS IN THE
REORGANIZATION AND OFFERING
OTS regulations provide that for a period of three years following the
Reorganization, without prior written approval of the OTS, neither directors or
officers of the Association or the Company, nor their Associates, may purchase
the Common Stock of the Company except from a dealer registered with the SEC.
This restriction, however, does not apply to negotiated transactions involving
more than 1% of the Company's outstanding Common Stock, to shares purchased
pursuant to stock option or other incentive stock plans approved by the
Company's shareholders, or to shares purchased by employee benefit plans
maintained by the Company which may be attributable to individual officers or
directors.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND COMMON STOCK
Prior to the completion of the Reorganization, OTS regulations and the
Plan prohibit any person with subscription rights, including Eligible Account
Holders, Supplemental Eligible Account Holders and Other Members and directors,
officers and employees from transferring or entering into any agreement or
understanding to transfer the legal or beneficial ownership of the subscription
rights issued under the Plan or the shares of Common Stock to be issued upon
their exercise. Such rights may be exercised only by the person to whom they
are granted and only for his or her account. Each person exercising such
subscription rights will be required to certify that he or she is purchasing
shares solely for his or her own account and that there is no agreement or
understanding regarding the sale or transfer of such shares. The regulations
also prohibit any person from offering or making an announcement of an offer or
intent to make an offer to purchase such subscription rights or shares of
Common Stock prior to the completion of the Reorganization and Offering. THE
ASSOCIATION INTENDS TO PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE
EVENT IT BECOMES AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS AND WILL NOT
HONOR ORDERS KNOWN TO INVOLVE THE TRANSFER OF SUCH RIGHTS. IN ADDITION, PERSONS
WHO VIOLATE THE PURCHASE LIMITATIONS MAY BE SUBJECT TO SANCTIONS AND PENALTIES
IMPOSED BY THE OTS.
STOCK PRICING
The aggregate purchase price of the Company common stock being sold in
the Reorganization will be based on the appraised aggregate pro forma market
value of the Common Stock, as determined by the Independent Valuation. Feldman
Financial, which is experienced in the valuation and appraisal of financial
institutions, including savings associations forming mutual holding companies,
has been retained to prepare the Independent Valuation. Feldman Financial will
receive a fee of $14,000 for its appraisal and business plan services,
including out-of-pocket expenses. The Association has agreed to indemnify
Feldman Financial, under certain circumstances, against liabilities and
expenses (including legal fees) arising out of Feldman Financial's engagement.
The Independent Valuation states that the pro forma market value of the
Common Stock was $10 million as of December 11, 1997. A copy of the appraisal
is on file and available for inspection at the offices of the OTS, 1700 G
Street, N.W., Washington, D.C. 20552 and the Northeast Regional Office of the
OTS, 10 Exchange Place, Jersey City, New Jersey. The Independent Valuation has
also been filed as an exhibit to the Company's Registration Statement with the
SEC, and may be reviewed at the SEC's public reference facilities. See
"Additional Information." The Independent Valuation involved a comparative
valuation of the Association's operating and financial statistics with those of
other financial institutions. The Independent Valuation also took into account
such other factors as the market for savings associations generally, prevailing
economic conditions, both nationally and in New York, which affect the
operations of savings associations, the competitive environment within which
the Association operates, and the effect of the Association becoming a
subsidiary of the Company. No detailed individual analysis of the separate
components of the Association's and the Company's assets and liabilities was
performed in connection with the valuation. The Board of Directors reviewed
with management Feldman Financial's methods and assumptions, and accepted
Feldman Financial's appraisal as reasonable and adequate. The Association has
determined to establish an Offering Range of 391,000 shares to 529,000 shares
at the minimum and maximum of the Estimated Valuation Range. Notwithstanding
any change in the number of shares sold in the Offering due to a change to the
Independent Valuation, the Minority Ownership Interest sold in the Offering
will remain 46%. The Association, in consultation with Ryan,
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<PAGE> 46
Beck & Co., has determined to offer the Common Stock in the Offering at a price
of $10.00 per share. The Association's decision regarding the Purchase Price
was based solely on its determination that $10.00 per share is a customary
purchase price in initial public offerings for mutual savings associations
converting to stock form. The Offering Range may be increased or decreased to
reflect market and financial conditions prior to the completion of the
Offering.
Promptly after the completion of the Subscription Offering and the
Community Offering, if any, Feldman Financial will confirm to the Association
that, to the best of its knowledge and judgment, nothing of a material nature
has occurred which would cause it to conclude that the amount of the aggregate
proceeds received from the sale of the Common Stock in the Offering was
incompatible with Feldman Financial's estimate of the Company's total pro forma
market value at the time of the sale. If, however, the facts do not justify
such a statement, a new Offering Range and price per share may be set. Under
such circumstances, the Company will be required to resolicit subscriptions. In
that event, subscribers would have the right to modify or rescind their
subscriptions and to have their subscription funds returned promptly with
interest and holds on funds authorized for withdrawal from deposit accounts
would be released or reduced; provided that if the Association's pro forma
market value upon reorganization has increased to an amount which does not
exceed $13,225,000 (15% above the maximum of the Independent Valuation), the
Company and the Association do not intend to resolicit subscriptions unless it
is determined after consultation with the OTS that a resolicitation is
required.
Depending upon market and financial conditions, the number of shares
issued may be more or less than the range in number of shares shown above. In
the event of an increase in the maximum number of shares being offered, persons
who exercise their maximum subscription rights will be notified of such
increase and of their right to purchase additional shares. Conversely, in the
event of a decrease in the maximum number of shares being offered, persons who
exercise their maximum subscription rights will be notified of such decrease
and of the concomitant reduction in the number of shares for which
subscriptions may be made. In the event of a resolicitation, subscribers will
be afforded the opportunity to increase, decrease or maintain their previously
submitted order. The Company will be required to resolicit if the price per
share is changed such that the total aggregate purchase price is not within the
minimum and 15% above the maximum of the Offering Range.
THE INDEPENDENT VALUATION IS NOT INTENDED AND MUST NOT BE CONSTRUED AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF VOTING TO APPROVE THE
REORGANIZATION OR OF PURCHASING THE SHARES OF THE COMMON STOCK. MOREOVER,
BECAUSE SUCH VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A
NUMBER OF MATTERS (INCLUDING CERTAIN ASSUMPTIONS AS TO THE AMOUNT OF NET
PROCEEDS AND THE EARNINGS THEREON), ALL OF WHICH ARE SUBJECT TO CHANGE FROM
TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING SHARES IN THE
OFFERING WILL THEREAFTER BE ABLE TO SELL THE SHARES AT PRICES RELATED TO THE
FOREGOING VALUATION OF THE PRO FORMA MARKET VALUE.
NUMBER OF SHARES TO BE ISSUED
It is anticipated that the total offering of Common Stock (the number of
shares of Common Stock issued in the Offering multiplied by the Purchase Price
of $10.00 per share) will be within the current minimum and 15% above the
maximum of the Offering Range. Unless otherwise required by the OTS, no
resolicitation of subscribers will be made and subscribers will not be
permitted to modify or cancel their subscriptions so long as the change in the
number of shares to be issued in the Offering, in combination with the Purchase
Price, results in an offering of at least the minimum and no more than 15%
above the maximum of the Offering Range.
Any increase in the total number of shares of Common Stock to be issued
in the Offering would decrease both an individual subscriber's ownership
interest and the Company's pro forma net worth and net income on a per share
basis while increasing (assuming no change in the per share price) pro forma
net income and net worth on an aggregate basis. A decrease in the number of
shares to be issued in the Offering would increase both an individual
subscriber's ownership interest and the Company's pro forma net worth and net
income on a per share basis while decreasing (assuming no change in the per
share price) pro forma net income and net worth on an aggregate basis. For a
presentation of the effects of such changes, see "Pro Forma Data."
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<PAGE> 47
INTERPRETATION AND AMENDMENT OF THE PLAN
To the extent permitted by law, all interpretations of the Plan by the
Association and the Company will be final. The Plan provides that, if deemed
necessary or desirable by the Boards of Directors of the Company and the
Association, the Plan may be substantively amended by the Boards of Directors,
as a result of comments from regulatory authorities or otherwise, with the
concurrence of the OTS. Moreover, if the Plan is so amended, subscriptions
which have been received prior to such amendment will not be refunded unless
otherwise required by the OTS.
CONDITIONS AND TERMINATION
Completion of the Reorganization requires the approval of the Plan by
the affirmative vote of not less than a majority of the total number of votes
of members eligible to be cast at the Special Meeting and the sale of all
shares of the Common Stock within 24 months following approval of the Plan by
the members. If these conditions are not satisfied, the Plan will be terminated
and the Association will continue business in the mutual form of organization.
The Plan may be terminated by the Board of Directors of the Association at any
time prior to the Special Meeting and, with the approval of the OTS, by such
Board of Directors at any time thereafter. Furthermore, OTS regulations and the
Plan require that the Company complete the sale of Common Stock within 45 days
after the close of the Subscription Offering. The OTS may grant an extension of
this time period if necessary, but no assurance can be given that an extension
would be granted. See "-- Offering of common stock."
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<PAGE> 48
ATLANTIC LIBERTY SAVINGS, F.A.
STATEMENTS OF OPERATIONS
The following Statements of Operations of the Association for the
fiscal years ended March 31, 1997 and 1996 have been audited by Sol Masch &
Company, independent certified public accountants, whose report on the
financial statements appears elsewhere in this Prospectus. The Statements of
Operations for the six months ended September 30, 1997 and 1996 were not
audited by independent public accountants but in the opinion of management
reflect all adjustments, consisting of normal recurring accruals, necessary for
a fair presentation of the results of operations for those periods. Operating
results at and for the six months ended September 30, 1997 are not necessarily
indicative of the results that may be expected for any other interim period or
for the fiscal year ending March 31, 1998. These Statements of Operations
should be read in conjunction with the Financial Statements of the Association
and the Notes thereto included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, MARCH 31,
------------------------ ---------------------
1997 1996 1997 1996
---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable
First mortgage loans . . . . . . . . . . . . . . . $2,799,995 $2,319,224 $4,676,981 $4,628,730
Consumer and other loans . . . . . . . . . . . . . 7,856 -- -- 50,660
Investment securities . . . . . . . . . . . . . . . 646,827 718,795 1,433,772 1,341,263
Mortgage-backed and related securities . . . . . . . 610,276 576,740 1,137,225 1,130,330
---------- ---------- ---------- ----------
Total interest income . . . . . . . . . . . . . . 4,064,954 3,614,759 7,247,978 7,150,983
---------- ---------- ---------- ----------
Interest expense:
Deposits . . . . . . . . . . . . . . . . . . . . . . 2,300,345 2,185,940 4,356,710 4,143,186
Borrowed funds . . . . . . . . . . . . . . . . . . . 3,585 3,265 6,668 6,257
---------- ---------- ---------- ----------
Total interest expense . . . . . . . . . . . . . . 2,303,930 2,189,205 4,363,378 4,149,443
---------- ---------- ---------- ----------
Net interest income . . . . . . . . . . . . . . . 1,761,024 1,425,554 2,884,600 3,001,540
Provision for loan losses . . . . . . . . . . . . . . . 105,473 65,643 771,178 274,980
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 1,655,551 1,359,911 2,113,422 2,726,560
---------- ---------- ---------- ----------
Noninterest income:
Loan servicing fees . . . . . . . . . . . . . . . . 72 260 373 590
Income from real estate operations . . . . . . . . . 80,165 57,129 154,212 173,157
Gain (loss) on disposal of foreclosed real estate . 28,838 123,089 148,394 (135,247)
Other . . . . . . . . . . . . . . . . . . . . . . . 87,712 686,617 950,607 166,896
---------- ---------- ---------- ----------
Total noninterest income . . . . . . . . . . . . . 196,787 867,095 1,253,586 205,396
---------- ---------- ---------- ----------
Noninterest expense:
General and administrative:
Compensation and benefits . . . . . . . . . . . . 747,473 699,737 1,667,416 1,435,244
Occupancy and equipment . . . . . . . . . . . . . 135,627 130,724 276,019 266,342
SAIF deposit insurance premium . . . . . . . . . . 31,318 703,515 762,696 208,903
Other . . . . . . . . . . . . . . . . . . . . . . 352,606 285,023 684,677 684,828
---------- ---------- ---------- ----------
Total noninterest expense . . . . . . . . . . . 1,267,024 1,818,999 3,390,808 2,595,317
---------- ---------- ---------- ----------
Income (loss) before income taxes . . . . . . . . 585,314 408,007 (23,800) 336,639
Income tax (expense) benefit . . . . . . . . . . . . (249,922) 239,584 147,325 (140,551)
---------- ---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . $ 335,392 $ 647,591 $ 123,525 $ 196,088
========== ========== ========== ==========
</TABLE>
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<PAGE> 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Brooklyn Heights Bancorp will be formed as a federal corporation for
the purpose of issuing the Common Stock and owning all of the capital stock of
the Association issued in the Reorganization. Consequently, the Company has no
operating history. All information in this section should be read in
conjunction with the financial statements and notes thereto included in this
Prospectus.
The Association's principal business has historically consisted of
offering savings and other deposits to the general public and using the funds
from such deposits to make loans secured by residential real estate. The
primary goals of management are to increase the Association's profitability,
enhance its banking franchise and monitor its capital position. The
Association's results of operations depend primarily upon its net interest
income, which is the difference between income earned on interest earning
assets, such as loans and investments, and the interest expense paid on
deposits. The Association's operations are affected to a much lesser degree by
noninterest income, such as loan origination and commitment fees, gain (loss)
from the sale of foreclosed real estate and other sources of income. The
Association's net income is also affected by, among other things, provisions
for loan losses and noninterest expenses. The Association's principal
operating expenses, aside from interest expense, consist of compensation and
benefits, occupancy and equipment, SAIF deposit insurance premiums and other
expenses. The Association's results of operations also are affected
significantly by general economic and competitive conditions, particularly
changes in market interest rates, government legislation and policies affecting
fiscal affairs, housing and financial institutions, monetary policies of the
Federal Reserve System, and the actions of bank regulatory authorities.
Management intends to initially invest the net proceeds from the Offering in
interest earning assets and believes that the Company and the Association will
derive additional interest income from such sources.
Like many financial institutions, the Association relies upon
computers for the daily conduct of its business and for data processing
generally. There is concern that on January 1, 2000 computers will be unable
to "read" the new year and as a consequence, there may be widespread computer
malfunctions. Management has reviewed this issue and has been advised by the
Association's data processing service center that they have addressed this
issue and that it should not affect the Association's external data processing.
In addition, management has assessed the electronic system programs,
applications and other electronic components used in the operations of the
Association and has concluded that no computer malfunctions are expected to
occur with the Association's computer systems on January 1, 2000. The
Association has tested its computer applications and hardware to ensure that
they will be able to read the year 2000. The Association has contacted each of
its vendors to ensure that they will be able to provide service in light of the
year 2000 issue. Most vendors have represented to management that they have
addressed the year 2000 issue and they will be able to provide the services for
which the Association has contracted. Management will continue to monitor this
issue and report to the Board of Directors on a quarterly basis until full
compliance is obtained from all vendors. To the best of management's
knowledge, no significant additional costs will be incurred in connection with
the year 2000 issue.
OPERATING STRATEGY
In guiding the Association's operations, management has implemented
various strategies designed to continue the institution's profitability
consistent with safety and soundness. These strategies include: (i)
emphasizing one-to-four family residential real estate lending; (ii) monitoring
and improving asset quality; (iii) managing interest-rate risk and (iv)
controlling operating expenses. It is anticipated, subject to market
conditions, that the strategies presently in place will be continued following
completion of the Reorganization.
EMPHASIS ON RESIDENTIAL REAL ESTATE LENDING. Historically, the
Association has emphasized one-to-four family residential lending within the
Borough of Brooklyn. As of September 30, 1997, approximately 61.2% of the
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<PAGE> 50
loan portfolio consisted of one-to-four family residential real estate loans.
As of such date, 19.8% of the loan portfolio consisted of multi-family real
estate loans, and 18.1% of the loan portfolio consisted of commercial real
estate loans. During the six months ended September 30, 1997 and the year
ended March 31, 1997, the Association originated $9.7 million and $12.7
million, respectively, of loans secured by real estate. The Association uses
various methods to increase loan originations, including advertising and
establishing relationships with realtors, homebuilders and customers.
MONITORING ASSET QUALITY. At September 30, 1997, the Association's
ratio of nonperforming loans to total assets was 1.60%. At March 31, 1997 and
1996, the Association's ratio of nonperforming loans to total assets was 3.04%
and 4.55%, respectively. The Association has reduced its level of
nonperforming loans by emphasizing sound underwriting and collection
procedures, and by selling nonperforming and foreclosed assets.
MANAGING INTEREST-RATE RISK. Interest rate "gap" analysis is a
common, though imperfect, measure of interest rate risk, which measures the
relative dollar amounts of interest-earning assets and interest-bearing
liabilities that reprice within a specific time period, either through maturity
or interest rate adjustment. The "gap" is the difference, expressed as a
percentage of total interest earning assets, between the amounts of such assets
and liabilities that are subject to repricing. At September 30, 1997, the
Association had a negative one year "gap" of 13.79%. A negative "gap" for a
given period means that the amount of interest-bearing liabilities maturing or
otherwise repricing within that period exceeds the amount of interest-earning
assets maturing or otherwise repricing within the same period. Consequently,
the Association's net interest income likely would be impacted negatively by an
increase in market interest rates. See "--Interest Rate Risk."
CONTROL OF GENERAL AND ADMINISTRATIVE EXPENSES. The Association
closely monitors its general and administrative expenses and seeks to control
such expenses while maintaining the necessary personnel to properly serve its
customers. For the six months ended September 30, 1997 and the years ended
March 31, 1997 and 1996, the Association's ratio of operating expenses
(exclusive of the SAIF special assessment), as a percentage of average assets,
was 2.34%, 3.21% and 2.56%, respectively.
Following the completion of the Reorganization and Offering,
noninterest expenses are likely to increase as a result of added expenses
associated with being a public company and complying with the financial and
business reports required to be filed with regulatory agencies. In addition,
compensation expense will increase as a result of the implementation of the
ESOP and Stock Award Plan. See "Risk Factors - Expenses Associated with ESOP
and Stock Award Plan."
MANAGEMENT OF MARKET RISK - INTEREST RATE RISK
The Association's most significant form of market risk is interest
rate risk, as the majority of the Association's assets and liabilities are
sensitive to changes in interest rates. The Association's interest rate risk
management program focuses primarily on evaluating and managing the composition
of the Association's assets and liabilities in the context of various interest
rate scenarios. Factors beyond management's control, such as market interest
rates and competition, also have an impact on interest income and interest
expense.
In the absence of other factors, the yield or return on the
Association's interest-earning assets generally will increase from existing
levels when interest rates rise over an extended period of time, and conversely
interest income will decrease when interest rates decrease. In general,
interest expense will increase when interest rates rise over an extended period
of time, and conversely interest expense will decrease when interest rates
decrease. The cost of funds for an institution with a negative "gap" would
generally be expected to increase more quickly than the yield on its
interest-earnings assets in a rising interest rate environment, and such
institution's net interest income generally would be expected to be adversely
affected by rising interest rates. Changes in market interest rates generally
would have the opposite effect on an institution with a positive "gap."
46
<PAGE> 51
The Association's one-year interest sensitivity "gap" as a percentage
of total interest-earning assets at September 30, 1997 was a negative 13.79%
using various assumptions described below. The Association's interest rate
sensitivity is moderated by the relatively short terms offered on its mortgage
loans, as well as its investment in ARM loan mutual funds. The Association
generally does not originate fixed rate residential mortgage loans for terms
that exceed 15 years. Multi-family and commercial real estate loans are
originated for terms of up to 10 years. In addition, at September 30, 1997,
$13.6 million, or 13.6% of total deposits consisted of medium- and longer-term
certificates of deposits which have been opened with the Association at the
direction of the local county and surrogate courts for the benefit of minor
children or persons judged to be incompetent. In most cases such funds must be
maintained at the Association until the beneficiary becomes 18 or is deemed
competent by a court, as the case may be.
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at September 30, 1997 which are
projected to reprice or mature in each of the future time periods specified.
Adjustable rate loans are assumed to reprice at a rate of 32.5% per year.
Fixed rate loans are assumed to mature at a rate of 12.8% per year,
non-residential fixed rate mortgage loans are assumed to mature at a rate of
11.1% per year, and non-residential adjustable rate loans are assumed to mature
at a rate of 16.3% per year. Investments and adjustable rate mortgage-backed
securities are assumed to reprice at an annual rate of 25.5% and 29.4%,
respectively. Passbook accounts and money market deposit accounts are assumed
to decay at a rate of 33% annually. The excess (deficiency) of
interest-earning assets over interest-bearing liabilities which are expected to
mature or reprice during a given period is referred to as the "gap" associated
with that period. In making the gap computations, none of the assumptions made
regarding prepayment rates and deposit decay rates have been used for any other
interest-earning assets or interest-bearing liabilities. In addition, the
table reflects expected principal payments assuming that interest rates do not
change the scheduled terms of the loans. The interest rate sensitivity of the
Association's assets and liabilities illustrated in the following table would
vary substantially if different assumptions were used or if actual experience
differs from that indicated by such assumptions.
<TABLE>
<CAPTION>
TERMS TO REPRICING AT SEPTEMBER 30, 1997
--------------------------------------------------------
1 YEAR 1 YEAR TO MORE THAN
OR LESS 5 YEARS 5 YEARS TOTAL
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans:
Adjustable rate . . . . . . . . . . . . $ 8,752 $ 10,231 -- $ 18,983
Fixed rate . . . . . . . . . . . . . . . 3,645 10,102 $ 8,918 22,665
Non-residential mortgage (adjustable rate) 5,959 6,921 -- 12,880
Non-residential mortgage (fixed rate) . . 1,912 7,621 1,424 10,957
Investments:
Investment securities . . . . . . . . . 583 12,567 -- 13,150
Mortgage securities . . . . . . . . . . 18,327 55 635 19,017
-------- --------- -------- ----------
Total rate sensitive assets $ 39,178 $ 47,497 $ 10,977 $ 97,652
======== ========= ======== ==========
Liabilities:
Money market deposits . . . . . . . . . $ 2,227 $ 3,611 $ 911 $ 6,749
Certificates of deposit . . . . . . . . 41,145 19,429 12 60,586
Passbook accounts . . . . . . . . . . . 7,114 11,534 2,911 21,559
NOW accounts . . . . . . . . . . . . . . 1,414 2,291 579 4,284
Other savings . . . . . . . . . . . . . 2,429 3,938 994 7,361
-------- --------- -------- ----------
Total rate sensitive liabilities. . . . $ 54,329 $ 40,803 $ 5,407 $ 100,539
======== ========= ======== ==========
Periodic/Cumulative Gap . . . . . . . . . . (15,151) 6,694 5,570
Gap as a percentage of total assets . . . (13.79)% 6.09% 5.07%
</TABLE>
47
<PAGE> 52
NET PORTFOLIO VALUE. Management monitors the Association's interest
rate sensitivity through the use of a model which estimates the change in net
portfolio value ("NPV") in response to a range of assumed changes in market
interest rates. NPV is the present value of expected cash flows from assets,
liabilities, and off-balance sheet items. The model estimates the effect on
the Association's NPV of instantaneous and permanent 100 to 400 basis point
increases and decreases in market interest rates with no effect given to any
steps that management might take to counter the effect of interest rate
movements.
The table below sets forth as of June 30, 1997, the latest date for
which such information is available, the estimated changes in (i) the
Association's NPV, and (ii) the Association's net interest income that would
result from the designated instantaneous changes in the U.S. Treasury yield
curve, as calculated by the Risk Management Division of the OTS.
<TABLE>
<CAPTION>
Net Portfolio Value
-------------------------------------------------------
Changes in
Interest Rates Estimated Amount of NPV as % of
(basis points) $NPV $ Change(1) Percent Change Portfolio Value of Assets
-------------- ------------- ----------- --------------------- -----------------------------------
(Dollars in Thousands) NPV Ratio(2) Change(3)
------------ ---------------
<S> <C> <C> <C> <C> <C>
+400 4,154 -4,805 -54% 4.04% -416 bp
+300 5,483 -3,476 -39% 5.24% -296 bp
+200 6,769 -2,190 -24% 6.37% -183 bp
+100 7,928 -1,031 -12% 7.35% -85 bp
0 8,959 8.20%
-100 9,418 459 +5% 8.55% +35 bp
-200 9,465 506 +6% 8.53% +34 bp
-300 9,963 1,004 +11% 8.89% +69 bp
-400 10,870 1,911 +21% 9.57% +137 bp
</TABLE>
- --------------------
(1) Represents the increase (decrease) of the estimated NPV at the indicated
change in interest rates compared to the NPV assuming no change in interest
rates.
(2) Calculated as the estimated NPV divided by the portfolio value of total
assets ("PV").
(3) Calculated as the increase (decrease) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming no
change in interest rates.
Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions including relative levels of market
interest rates, loan prepayments and deposit decay, and should not be relied
upon as indicative of actual results. Further, the computations do not reflect
any actions management may undertake in response to changes in interest rates.
The tables set forth above indicate that, in the event of a 200 basis
point decrease in interest rates, the Association would be expected to
experience a 6% increase in NPV. In the event of a 200 basis point increase in
interest rates, the Association would be expected to experience a 24% decrease
in NPV.
Certain shortcomings are inherent in the method of analysis presented
in the NPV computations and in the "gap" computations presented in the tables
above. Although certain assets and liabilities may have similar maturities or
periods within which they will reprice, they may react differently to changes
in market interest rates. The interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, adjustable-rate mortgages have interest rate caps which restrict
changes in interest rates on a short-term basis and over the life of the
assets. The proportion of adjustable-rate loans could be reduced in future
periods if market interest rates decline and remain at
48
<PAGE> 53
lower levels for a sustained period due to increased refinancing activity.
Further, in the event of a change in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those assumed in the
tables. Finally, the ability of many borrowers to service their
adjustable-rate debt may decrease in the event of a sustained increase in
market interest rates. However, management does not view the Association's
interest rate sensitivity position at September 30, 1997 to be unacceptable in
view of current and foreseeable interest rate trends.
AVERAGE BALANCE SHEET
The following tables sets forth information relating to average
balances of the Association's assets and liabilities for the six months ended
September 30, 1997 and 1996 and the years ended March 31, 1997 and 1996. For
the periods indicated, the table reflects the average yield on interest-earning
assets and the average cost of interest-bearing liabilities (derived by
dividing income or expense by the monthly average balance of interest-earning
assets or interest-bearing liabilities, respectively) as well as the net yield
on interest-earning assets. Nonaccruing loans were included in the computation
of average balances.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED SEPTEMBER 30, (4)
----------------------------------------------------------------
AT SEPTEMBER 30, 1997 1997 1996
---------------------- -------------------------------- ------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE YIELD/RATE BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
-------- ---------- --------- --------- ---------- -------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans . . . . . . . . . . . . . . $ 65,486 8.58% $ 62,238 $ 2,808 9.02% $ 54,366 $2,319 8.53%
Mortgage-backed securities 19,017 6.42% 19,472 610 6.27% 18,623 577 6.19%
Investment securities . . . . . . 13,150 7.09% 15,317 466 6.09% 17,943 482 5.37%
Interest bearing cash balances 6,413 5.63% 6,617 181 5.46% 8,270 237 5.74%
-------- -------- ------- -------- ------
Total interest-earning assets 104,066 7.79% 103,644 4,065 7.84% 99,202 3,615 7.29%
------- ------
Other assets . . . . . . . . . . 5,821 4,700 5,276
--------- -------- --------
Total assets . . . . . . . . . $ 109,887 $108,344 $104,478
========= ======== ========
Interest bearing liabilities:
Deposits . . . . . . . . . . . . $ 100,539 4.58% $ 99,074 2,300 4.65% $ 95,729 2,186 4.57%
Advance payments by
borrowers(1) . . . . . . . . . 763 0.94% 767 4 0.94% 726 3 0.90%
-------- -------- ------- -------- ------
Total interest-bearing liabilities 101,302 4.55% 99,841 2,304 4.63% 96,455 2,189 4.54%
------- ------
Other liabilities . . . . . . . . 1,377 1,155 999
Retained earnings . . . . . . . 7,208 7,348 7,024
--------- -------- --------
Total liabilities and retained
earnings . . . . . . . . . . $ 109,887 $108,344 $104,478
========= ======== ========
Net interest income and interest
rate spread(2) . . . . . . . . . 3.24% $ 1,761 3.21% $1,426 2.75%
====== ======= ====== ====== ======
Net yield on average
interest-earning assets(3) . . . 3.36% 3.40% 2.87%
Ratio of interest-earning assets
to interest-bearing liabilities 102.73% 103.81% 102.85%
====== ====== ======
</TABLE>
- -----------------
(1) Advance payments by borrowers balances includes noninterest bearing and
interest-bearing escrow deposits.
(2) Net interest rate spread represents the difference between the average
yield on interest earning assets and the average cost of interest bearing
liabilities.
(3) Net yield on interest earnings assets represents net interest income as a
percentage of average interest earnings assets.
(4) Annualized where appropriate.
49
<PAGE> 54
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-------------------------------------------------------------------------
1997 1996
------------------------------------ -----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
-------- --------- ------------- --------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans . . . . . . . . . . . . . . . . . . $ 56,004 $ 4,677 8.35% $ 53,821 $ 4,679 8.69%
Mortgage-backed securities . . . . . . . 18,537 1,137 6.10% 17,905 1,131 6.31%
Investment securities . . . . . . . . . . 17,774 1,004 5.65% 14,795 792 5.35%
Interest bearing cash balances . . . . . 8,224 430 5.23% 10,351 549 5.31%
-------- -------- -------- -------
Total interest-earning assets . . . . . 100,539 7,248 7.21% 96,872 7,151 7.39%
-------- -------
Other assets . . . . . . . . . . . . . . 4,894 4,423
-------- --------
Total assets . . . . . . . . . . . . . $105,433 $101,295
======== ========
Interest bearing liabilities:
Deposits . . . . . . . . . . . . . . . . $ 96,250 4,356 4.53% $ 93,201 4,143 4.45%
Advance payments by borrowers(1) . . . . 790 7 0.84% 616 6 1.02%
-------- -------- -------- -------
Total interest-bearing liabilities . . 97,040 4,363 4.50% 93,817 4,149 4.42%
-------- -------
Other liabilities . . . . . . . . . . . . 1,562 705
Retained earnings . . . . . . . . . . . . 6,831 6,773
-------- --------
Total liabilities and retained earnings $105,433 $101,295
======== ========
Net interest income and interest rate
spread(2) . . . . . . . . . . . . . . . $ 2,885 2.71% $ 3,002 2.97%
======== ====== ======= ======
Net yield on average interest-earning
assets(3) . . . . . . . . . . . . . . . 2.87% 3.10%
======
Ratio of interest-earning assets to
interest-bearing liabilities . . . . . 103.61% 103.26%
====== ======
</TABLE>
- ---------------
(1) Advance payments by borrowers balances includes noninterest bearing and
interest-bearing escrow deposits.
(2) Net interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on interest earnings assets represents net interest income as a
percentage of average interest earnings assets.
RATE/VOLUME ANALYSIS
The following table analyzes the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between (i) changes
attributable to volume (changes in volume multiplied by the prior period's
rate), (ii) changes attributable to rate (changes in rate multiplied by the
prior period's volume), and (iii) the net or total change (the sum of the
previous columns). The change attributable to both rate and volume (changes in
rate multiplied by changes in volume) has been allocated equally to both the
changes attributable to volume and the changes attributable to rate.
50
<PAGE> 55
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, 1997 VS. 1996 YEAR ENDED MARCH 31, 1997 VS. 1996
---------------------------------- ----------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
---------------------------------- ----------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
--------- --------- -------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Investments . . . . . . . . . . $ (171) $ 99 $ (72) $ 92 $ 1 $ 93
Mortgage Securities . . . . . . 27 6 33 (12) 18 6
Loans . . . . . . . . . . . . . 319 170 489 473 (475) (2)
-------- ------- ------- ------- -------- ------
Total interest income . . . 175 275 450 553 (456) (97)
-------- ------- ------- ------- -------- ------
Interest expense:
Deposits . . . . . . . . . . . 104 10 114 145 68 213
Borrowings . . . . . . . . . . -- 1 1 1 -- 1
-------- ------- ------- ------- -------- ------
Total interest expense . . . 104 11 115 146 68 214
-------- ------- ------- ------- -------- ------
Net interest income . . . . . . . . $ 71 $ 264 $ 335 $ 407 $ (524) $ (117)
======== ======= ======= ======= ======== ======
</TABLE>
COMPARISON OF FINANCIAL CONDITION
At September 30, 1997, the Association's assets totaled $109.9 million
as compared to $109.8 million at March 31, 1997, an increase of $93,000 or
.09%. Loans receivable, net, increased by $5.4 million, while investment and
mortgage backed securities decreased by $4.1 million and $13,000, respectively.
The increase in loans receivable, net resulted primarily from $5.2 million in
loan originations (net of principal repayments) during the six months ended
September 30, 1997, which were funded from maturing investment and mortgage
securities. Deposits decreased to $100.5 million at September 30, 1997 from
$100.8 million at March 31, 1997. The decrease in deposits was the result of
withdrawals in excess of deposits plus interest credited. Total retained
earnings increased $335,000 to $7.2 million at September 30, 1997 from $6.9
million at March 31, 1997, as a result of net income for the six months ended
September 30, 1997. At September 30, 1997, the Association continued to exceed
all applicable regulatory capital requirements with tangible, core and risk
based capital ratios to total assets of 6.6%, 6.6% and 15.7%, respectively.
Retained earnings are substantially restricted as a result of OTS and FDIC
regulations requiring the maintenance of minimum capital ratios as a percentage
of assets, and OTS regulations limiting capital distributions.
At March 31, 1997, the Association's assets totaled $109.8 million as
compared to $105.7 million at March 31, 1996, an increase of $4.1 million, or
3.8%. Loans receivable, net increased $5.5 million, investment securities
increased $1.1 million and mortgage-backed securities decreased $196,000. The
increase in loans receivable, net resulted primarily from the origination of
$4.8 million in loans (net of principal repayments). Deposits increased to
$100.8 million at March 31, 1997 from $97.4 million at March 31, 1996. The
increases in loans receivable, net and investment securities was funded from
increased deposits and interest received from loans and investments. Total
retained earnings increased to $6.9 million from $6.8 million reflecting net
income of $123,000 for the year ended March 31, 1997.
As a result of the Offering, the Association's total assets will
increase immediately and the additional capital will enable the Association to
increase its asset size more than would the case be if the Offering did not
occur. In addition, the Offering will result in an increase in the Company's
equity, as compared to the Association's equity prior to the Offering, in an
amount equal to the net proceeds of the Offering less (i) $50,000 to capitalize
the Mutual Holding Company and (ii) the cost of the shares purchased by the
ESOP. A portion of the Company's increased equity will also be used to fund
the Stock Award Plan's purchase of shares, subject to the approval of the Stock
Award Plan by shareholders.
51
<PAGE> 56
COMPARISON OF RESULTS OF OPERATIONS
NET INCOME. The Association had net income of $335,000 and $648,000
for the six months ended September 30, 1997 and 1996, respectively. The
decrease in net income was primarily attributable to a $670,000 decrease in
noninterest income and an income tax expense of $250,000 for the six months
ended September 30, 1997, as compared to an income tax benefit of $240,000 for
the comparable period in 1996, which were partially offset by a $335,000
increase in net interest income and a $552,000 decrease in noninterest expense.
Net income totalled $124,000 and $196,000 for the years ended March
31, 1997 and 1996, respectively. The decrease in net income was attributable
to an increase of noninterest expense to $3.4 million from $2.6 million which
was primarily attributable to a special SAIF premium paid in September 1996 of
$594,000 before taxes. In addition, net interest income decreased to $2.9
million from $3.0 million and the provision for loan losses increased to
$771,000 from $275,000. The increase in the provision for loan losses
reflected updated financial information regarding six pools of loans in which
the Association is a participant as well as management's assessment of the need
to increase the provision for loan losses on a commercial loan that was
subsequently sold. Noninterest income increased to $1.3 million from $205,000.
The increase in noninterest income was mainly the result of the Association
recognizing a one time benefit of $791,000 from the proceeds of a life
insurance policy and the proceeds received in settlement of a lawsuit, as well
as an income tax benefit of $147,000 for the year ended March 31, 1997 .
INTEREST INCOME. Interest income increased $450,000 or 12.5%, to
$4.1 million from $3.6 million for the six months ended September 30, 1997 and
1996, respectively. The average yield on interest earning assets increased to
7.84% from 7.29%. This was partially attributable to a one-time recapture of
interest due on a nonperforming loan. In addition, the average balance of
interest earning assets increased to $103.6 million for the six months ended
September 30, 1997 from $99.2 million for the six months ended September 30,
1996.
Interest income on loans receivable increased by $489,000, or 21.1%,
to $2.8 million for the six months ended September 30, 1997 from $2.3 million
for the six months ended September 30, 1996. The increase in interest income
on loans receivable was attributable to an increase in the average balance of
loans receivable to $62.2 million from $54.3 million, as well as an increase in
the average yield on loans receivable to 9.02% from 8.53%. The increase in the
yield on loans receivable was attributable in large part to the payment of
interest due on a nonperforming loan. Interest income on mortgage-backed
securities increased $34,000, or 5.9%, to $610,000 from $576,000. The increase
in interest income on mortgage-backed securities was attributable to an
increase in the average balance of mortgage-backed securities to $19.5 million
from $18.6 million, as well as an increase in the average yield on
mortgage-backed securities to 6.27% from 6.19%. Interest income on interest
bearing cash balances decreased $56,000, or 23.6%, to $181,000 for the six
months ended September 30, 1997 from $237,000 for the six months ended
September 30, 1996. The decrease in interest income from interest bearing cash
balances was attributable to a decrease in the average balance of interest
bearing cash balances to $6.6 million from $8.3 million, as well as a decrease
in the average yield to 5.46% from 5.74%. Interest income from investment
securities decreased to $466,000 from $482,000. The decrease in interest
income from investment securities was attributable to a decrease in the average
balance of investment securities to $15.3 million from $17.9 million, which was
partially offset by an increase in the average yield to 6.09% from 5.37%.
Following the Offering, management intends to invest the net proceeds in
interest earning assets and consequently management believes that the Company
and Association will derive additional interest income from such sources,
although there can be no assurances that interest income will be higher than in
the past.
Interest income increased $97,000, or 1.4%, to $7.2 million for the
year ended March 31, 1997 from $7.1 million for the year ended March 31, 1996.
The increase in interest income was attributable to an increase in the average
balance of interest earning assets to $100.5 million from $96.9 million,
partially offset by a decrease in the average yield on interest earning assets
to 7.21% from 7.39%. The increase in the average balance of interest earning
assets resulted from the increases in the average balance of investments,
mortgage-backed securities and loans. The decrease in the average yield
reflected an increase in nonperforming assets during fiscal 1997, one of which
was a
52
<PAGE> 57
loan that was subsequently sold, and the other was an investment security pool
of loans on which the Association is now receiving monthly interest payments.
Interest income on loans receivable decreased $2,000 for the year
ended March 31, 1997 compared to the year ended March 31, 1996. The slight
decrease was attributable to a decrease in the average yield to 8.35% from
8.69%, partially offset by a $2.2 million increase in the average balance of
loans receivable to $56.0 million from $53.8 million. Interest income on
mortgage-backed securities remained the same at $1.1 million for each of the
years ended March 31, 1997 and 1996. Interest income on interest-bearing cash
balances decreased by $119,000, or 21.7%, to $430,000 from $549,000. The
decrease in interest income on interest bearing cash balances was attributable
to a decrease in the average balance to $8.2 million from $10.4 million as a
result of investing cash from federal funds to real estate mortgages. Interest
income from investment securities increased $212,000 due to increased yields on
the reinvestment of maturing securities and an increase in the average balance
of investment securities by $3.0 million, or 20.1%.
INTEREST EXPENSE. Interest expense increased by $115,000, or 5.3%, to
$2.3 million for the six months ended September 30, 1997. The increase in
interest expense resulted primarily from an increase in the average balance of
interest bearing liabilities to $99.8 million for the six months ended
September 30, 1997 from $96.5 million for the six months ended September 30,
1996. The average cost of interest bearing liabilities increased to 4.63%
from 4.54%. The increase in the average balance of interest bearing
liabilities was attributable almost entirely to an increase in the balance of
deposits.
Total interest expense increased $214,000 or 5.2% to $4.4 million for
the year ended March 31, 1997 from $4.1 million for the year ended March 31,
1996. The increase in interest expense for the year ended March 31, 1997 was
attributable to an increase in the average balance of deposits to $96.3 million
from $93.2 million, as well as an increase in the average cost of such deposits
to 4.53% from 4.45%.
NET INTEREST INCOME. For the six months ended September 30, 1997 and
1996 net interest income before the provision for loan losses was $1.8 million
and $1.4 million, respectively. The ratio of interest earning assets to
interest bearing liabilities increased to 103.81% from 102.85%. The
Association's net interest rate spread increased to 3.21% from 2.75%.
For the years ended March 31, 1997 and 1996, net interest income
before the provision for loan losses was $2.9 million and $3.0 million
respectively. The ratio of interest earning assets to interest bearing
liabilities increased to 103.61% from 103.26%. The net interest rate spread
decreased to 2.71% from 2.97%.
PROVISION FOR LOAN LOSSES. For the six months ended September 30,
1997 and 1996, the Association added $105,000 and $65,000 to its allowance for
loan losses. For the years ended March 31, 1997 and 1996, the Association's
provision for loan losses was $771,000 and $275,000 respectively. The increase
in the allowance for the year ended March 31, 1997 was based on management's
decision to increase the provision to reflect the risks inherent in the
Association's participation in six pools of loans (consisting of single family
adjustable rate loans), a commercial real estate loan upon which the
Association commenced foreclosure proceedings and a loan on a commercial
condominium unit that was subsequently sold for cash. The Association's
participation in the six pools of loans originally occurred in 1986 in the
amount of $4.0 million. The payment of principal and interest on the
underlying loans was guaranteed by the Thrift Association Security Corp., a
service corporation owned by savings and loans throughout New York State. The
loans underlying the participation eventually were serviced by the Resolution
Trust Corporation, and upon its dissolution, by the FDIC. The FDIC determined
not to honor the original guarantee of principal and interest, and consequently
the Association receives payments on its participation interest only to the
extent that the FDIC receives payments from the mortgagors of the underlying
loans. At September 30, 1997, the principal balance outstanding on the
Association's participation interest was $1.1 million. The commercial real
estate loan was originated in 1986 in a principal amount of $618,000. The
owner of the commercial property rented it to two tenants. One tenant
subsequently discontinued payments of monthly rents and the borrower was
53
<PAGE> 58
unable to meet its monthly obligations to the Association. The Association is
unable at this time to determine whether it will incur a loss on the sale of
this property. Management regularly reviews its loan portfolio to determine
whether any loans require classification or the establishment of reserves. At
September 30, 1997 the Association had loans with aggregate principal balances
of $610,000 which were 60 to 89 days delinquent, and total nonperforming loans
including loans greater than 90 days delinquent of $1.8 million which
represented 1.60% of total assets.
NONINTEREST INCOME. Noninterest income for the six months ended
September 30, 1997 and 1996 was $197,000 and $867,000. The decrease in
noninterest income was primarily attributable to nonrecurring other noninterest
income during the six months ended September 30, 1996 consisting of primarily
insurance proceeds of $615,000, $22,000 received from fees for safe deposit
box rentals and $29,000 in other service fees. Gain on the disposal of
foreclosed real estate decreased to $29,000 from $123,000. These decreases
were partially offset by an increase in income from real estate operations to
$80,000 from $57,000.
Noninterest income for the years ended March 31, 1997 and 1996 totaled
$1.3 million and $205,000, respectively. The $1.1 million, or 510%, increase
in noninterest income was primarily attributable to nonrecurring other
noninterest income consisting primarily of insurance proceeds of $596,000, the
settlement of a lawsuit totaling $195,000, $46,000 in safe deposit box rental
fees and $33,000 in other service fees. In addition, gain on disposal of
foreclosed real estate was $148,000 compared to a loss on the sale of
foreclosed real estate of $135,000 in 1996. Income from real estate operations
decreased $19,000, or 11%, to $154,000 from $173,000. Income from loan
servicing fees decreased to $373 from $590.
NONINTEREST EXPENSE. Noninterest expense for the six months ended
September 30, 1997 and 1996 was $1.3 million and $1.8 million, respectively.
Noninterest expense consists of compensation and benefits which increased
slightly to $747,000 from $700,000, deposit insurance premiums which decreased
$673,000, or 95.6%, to $31,000 from $704,000, and other noninterest expense
(consisting of postage, professional fees, audits and examinations, data
processing, office supplies and insurance and surety bond premiums) which
increased $67,000, or 23.5%, to $353,000 from $285,000. The increase in other
noninterest expense was primarily attributable to the Association increasing
its advertising expense by $60,000.
Noninterest expense for the years ended March 31, 1997 and 1996 was
$3.4 million and $2.6 million respectively, an increase of $800,000, or 30.7%.
The increase in noninterest expense in fiscal 1997 as compared to fiscal 1996
was primarily due to an increase in deposit insurance premiums to $763,000 from
$209,000. The increased deposit premiums include the special one-time SAIF
assessment of $594,000. In addition, compensation and benefits expense
increased $232,000, or 16.2%, due to a restating of the directors deferred
compensation plan. There was also a $10,000, or 3.6%, increase in occupancy
and equipment expense.
Following the completion of the Reorganization and Offering,
noninterest expenses are likely to increase as a result of added expenses
associated with being a public company and complying with the financial and
business reports required to be filed with regulatory agencies. In addition,
compensation expense will increase as a result of the implementation of the
ESOP and Stock Award Plan. See "Risk Factors - Expenses Associated with ESOP
and Stock Award Plan."
INCOME TAXES. The provision for federal income taxes was $250,000 for
the six months ended September 30, 1997 compared to a federal income tax
benefit of $240,000 for the six months ended September 30, 1996. The federal
income tax benefit for the six months ended September 30, 1996 was attributable
to the tax benefit resulting from the special SAIF assessment. The Association
had an income tax benefit of $147,000 and income tax expense of $140,000 for
the years ended March 31, 1997 and 1996, respectively. The income tax benefit
was attributable to the effect of the payment of the special SAIF assessment in
1996.
At September 30, 1997 and March 31, 1997, the Association's return on
average assets was 0.67% and 0.12%, respectively. At September 30, 1997 and
March 31, 1997, the return on average equity was 9.12% and
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<PAGE> 59
5.98%, respectively. The return on average assets and return on average equity
for the Association were significantly below the average of financial
institutions in the Association's market area and nationally and reflect the
Association's below average net income during the periods presented. See "Risk
Factors - Reduced Return on Equity after Reorganization."
CAPITAL RESOURCES AND LIQUIDITY
The objective of the Association's liquidity management is to ensure
the availability of sufficient cash flows to meet all financial commitments and
to capitalize on opportunities for expansion. Liquidity management addresses
the Association's ability to meet deposit withdrawals on demand or at
contractual maturity, to repay borrowings as they mature, and to fund new loans
and investments as opportunities arise.
The Association's primary sources of internally generated funds are
principal and interest payments on loans receivable, cash flows generated from
operations, and cash flows generated by investments. External sources of funds
include increases in deposits and advances from the FHLB of New York.
At September 30, 1997, the Association had outstanding $4.4 million in
commitments to originate mortgage loans. If the Association requires funds
beyond its internal funding capabilities, advances from the FHLB of New York
are available. At September 30, 1997, approximately $41 million in
certificates of deposit were scheduled to mature within a year. The
Association's experience has been that virtually all of its maturing
certificate of deposit accounts are renewed.
The Association is required under applicable federal regulations to
maintain specified levels of "liquid" investments in qualifying types of U.S.
Government, federal agency and other investments having maturities of five
years of less. Current OTS regulations require that a savings association
maintain liquid assets of not less than 5% of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less, of
which short-term liquid assets must consist of not less than 1%. Monetary
penalties may be imposed for failure to meet applicable liquidity requirements.
At September 30, 1997, the Association's liquidity, as measured for regulatory
purposes, was 28%, or $25 million in excess of the minimum OTS requirement.
Following the Reorganization, the Company will initially conduct no
business other than holding the capital stock of the Association and the loan
it will make to the ESOP. The Company expects to retain up to 50% of the net
proceeds of the Offering. See "Use of Proceeds." In the future, the Company's
primary source of funds, other than income from its investments and principal
and interest payments received on the ESOP loan, is expected to be capital
distributions from the Stock Association. As a stock savings association, the
Stock Association may not declare or pay a cash dividend on or repurchase any
of its capital stock if the effect of such transaction would be to reduce its
net worth to an amount which is less than the minimum amount required by
applicable federal regulations. At September 30, 1997, the Association was in
compliance with all applicable capital requirements.
IMPACT OF INFLATION AND CHANGING PRICES
The Financial Statements and related Notes have been prepared in
accordance with generally accepted accounting principles, which generally
requires the measurement of financial position and operating results in terms
of historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The impact of inflation is
reflected in the increased cost of the Association's operations. Unlike most
industrial companies, nearly all the assets and liabilities of the Association
are financial. As a result, the Association's net income is directly impacted
by changes in interest rates, which are indirectly influenced by inflationary
expectations. The Association's ability to match the interest sensitivity of
its financial assets to the interest sensitivity of its financial liabilities
as part of its interest rate risk management program, may reduce the effect of
changes in interest rates on the Association's net income. Changes in interest
rates do not necessarily move to the same extent
55
<PAGE> 60
as changes in the price of goods and services. In the current interest rate
environment, liquidity and the maturity structure of the Association's assets
and liabilities are critical to the maintenance of acceptable levels of net
income.
IMPACT OF NEW ACCOUNTING STANDARDS
FASB STATEMENT ON EARNINGS PER SHARE. In March 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128. The Statement establishes standards for computing
and presenting earnings per share and applies to entities with publicly held
common stock or potential common stock. This Statement simplifies the
standards for computing earnings per share previously found in Accounting
Principles Board ("APB") Opinion No. 15, "Earnings per Share" ("EPS"), and
makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with the presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures, and requires a
reconciliation of the numerator and the denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted EPS is computed similarly
to fully diluted EPS pursuant to APB Opinion No. 15. This Statement supersedes
Opinion 15 and AICPA Accounting Interpretation 1.102 of Opinion 15. This
Statement will be effective for the Association's fiscal year ending March 31,
1998. Management does not believe the impact of adopting SFAS No. 128 will be
material to the Association's financial statements.
FASB STATEMENT ON ACCOUNTING FOR STOCK-BASED COMPENSATION. In
November 1995, the FASB issued SFAS No. 123. SFAS No. 123 defines a "fair
value based method" of accounting for an employee stock option whereby
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period. FASB has encouraged all entities to
adopt the fair value based method; however, it will allow entities to continue
the use of the "intrinsic value based method" prescribed by APB Opinion No. 25.
Under the intrinsic value based method, compensation cost is the excess of the
market price of the stock at the grant date over the amount an employee must
pay to acquire the stock. However, most stock option plans have no intrinsic
value at the grant date and, as such, no compensation cost is recognized under
APB Opinion No. 25. Entities electing to continue use of the accounting
treatment of APB Opinion No. 25 must make certain pro forma disclosures as if
the fair value based method had been applied. The accounting requirements of
SFAS No. 123 are effective for transactions entered into in fiscal years
beginning after December 15, 1995. Pro forma disclosures must include the
effects of all awards granted in fiscal years beginning after December 15,
1994. The Association expects to use the "intrinsic value based method" as
prescribed by APB Opinion No. 25. Accordingly, management does not believe the
impact of adopting SFAS No. 123 will be material to the Association's financial
statements.
FASB STATEMENT ON TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. In June 1996, the FASB issued SFAS No. 125.
This Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under the financial-components
approach, after a transfer of financial assets, an entity recognizes all
financial and servicing assets it controls and liabilities it has incurred and
derecognizes financial assets it no longer control and liabilities that have
been extinguished. The financial-components approach focuses on the assets and
liabilities that exist after the transfer. If a transfer does not meet the
criteria for a sale, the transfer is accounted for as a secured borrowing with
pledge of collateral. This Statement is effective for transfer and servicing
of financial assets and extinguishments of liabilities occurring after December
31, 1996, and is to be applied prospectively. The effective date for certain
provisions of this Statement have been postponed for one year. Management
anticipates that the adoption of the Statement should have no material impact
on its financial statements.
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<PAGE> 61
FASB STATEMENT ON REPORTING COMPREHENSIVE INCOME. In June 1997, the
FASB issued SFAS No. 130. This Statement establishes standards of reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. This Statement will be effective for the
Association's fiscal year ending March 31, 1999, and the Association does not
intend to early adopt. Had the Association early-adopted this Statement, it
would have reported comprehensive income in the same amounts as reported net
income for the years ended March 31, 1997 and 1996, respectively.
FASB STATEMENT ON SEGMENT AND RELATED INFORMATION. In June 1997, the
FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which changes the way public companies report information
about segments of their business on their annual financial statements and
requires them to report selected segment information in their quarterly reports
issued to shareholders. It also requires entity wide disclosures about the
products and services an entity provides, the foreign countries in which it
holds assets and reports revenues, and its major customers. This statement is
effective for fiscal years beginning after December 15, 1997. This statement
is not expected to have an impact on the Association.
BUSINESS OF ATLANTIC LIBERTY SAVINGS, F.A.
GENERAL
The Association was organized in 1888 and became a state-chartered
savings and loan association in 1935 and a federal association in 1983. Since
then, the Association has conducted its business from its main office and
branch office, both of which are located in Brooklyn, New York. The Association
is primarily engaged in the business of offering savings and other deposits to
the general public, and using the funds from such deposits to make one-to-four
family mortgage loans secured by properties in Brooklyn, New York. The
Association also makes multi-family residential real estate loans and
commercial real estate loans primarily in Brooklyn, New York. The Association's
deposit accounts are insured up to applicable limits by the FDIC.
LENDING ACTIVITIES
Historically, the Association's principal lending activity has been
the origination of first mortgage loans for the purchase or refinancing of
one-to-four family residential real property. Generally, the Association
retains all loans that it originates. One-to-four family residential real
estate mortgage loans represented $40.0 million, or 61.18%, of the
Association's loan portfolio at September 30, 1997. The Association also
offers multi-family and commercial real estate loans. Multi-family real estate
loans totaled $13.0 million, or 19.8%, of the loan portfolio at September 30,
1997. Commercial real estate totaled approximately $11.9 million, or 18.1% of
the loan portfolio at September 30, 1997. Subsequent to September 30, 1997,
the Association began offering home equity loans to existing customers.
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<PAGE> 62
LOAN PORTFOLIO COMPOSITION. The following table sets forth the
composition of the Association's loan portfolio by type of loan type and
security as of the dates indicated, including a reconciliation of gross loans
receivable after consideration of the allowance for loan losses deferred fees
and discounts.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
--------------------- -----------------------------------------------
1997 1997 1996
--------------------- --------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- --------- --------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
- -----------------
One-to-four family . . . . . . . $40,064 61.18% $36,862 61.38% $30,605 56.15%
Multi-family . . . . . . . . . . 12,974 19.81 10,555 17.57 11,166 20.49
Commercial . . . . . . . . . . . 11,861 18.11 11,917 19.84 12,784 23.45
------- ------ ------- ------ ------- ------
Total real estate loans . . . 64,899 99.10 59,334 98.79 54,555 100.09%
Other loans:
- ------------
Deposit accounts . . . . . . . . 1,828 2.79 1,830 3.05 816 1.50
Less:
- -----
Deferred fees and discounts . . (158) (0.25) (127) (0.21) (121) (0.22)
Allowance for losses . . . . . . (1,083) (1.65) (978) (1.63) (745) (1.37)
------- ------ ------- ------ ------- ------
Total loans receivable, net . $65,486 100.00% $60,059 100.00% $54,505 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
The following table shows the composition of the Association's loan
portfolio by fixed and adjustable rates at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
---------------------- ------------------------------------------------
1997 1997 1996
---------------------- ------------------------ ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- --------- --------- ---------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
- ----------------
Real estate:
One-to-four family . . . . . . $21,932 33.49% $18,270 30.42% $12,750 23.39%
Multi-family . . . . . . . . . 6,487 9.91 7,230 12.04 7,792 14.30
Commercial . . . . . . . . . . 5,682 8.68 5,697 9.49 7,815 14.34
------- ------ ------- ------ ------- ------
Total real estate loans . 34,101 52.08 31,197 51.95 28,357 52.03
------- ------ ------- ------ ------- ------
Adjustable Rate Loans:
- ---------------------
Real estate:
One-to-four family . . . . . . 18,132 27.69 18,592 30.95 17,855 32.76
Multi-family . . . . . . . . . 6,487 9.91 3,325 5.53 3,374 6.19
Commercial . . . . . . . . . . 6,179 9.43 6,220 10.36 4,969 9.11
------- ------ ------- ------ ------- ------
Total real estate loans . 30,798 47.03 28,137 46.84 26,198 48.06
------- ------ ------- ------ ------- ------
Deposit accounts . . . . . . . . 1,828 2.79 1,830 3.05 816 1.50
------- ------ ------- ------ ------- ------
Total loans . . . . . . . . . 66,727 101.90 61,164 101.84 55,371 101.59
Less:
- ----
Deferred fees and discounts . . (158) (0.25) (127) (0.21) (121) (0.22)
Allowance for loan losses . . . (1,083) (1.65) (978) (1.63) (745) (1.37)
------- ------ ------- ------ ------- ------
Total loans receivable, net . . $65,486 100.00% $60,059 100.00% $54,505 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
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<PAGE> 63
LOAN MATURITY AND REPRICING SCHEDULE. The following table illustrates
the interest rate sensitivity and contractual amortization of the Association's
mortgage loan portfolio at September 30, 1997. Mortgage loans with adjustable
or renegotiable interest rates are shown as maturing in the period during which
the contract is due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
MULTI-FAMILY AND
ONE-TO-FOUR FAMILY COMMERCIAL TOTAL
--------------------- ------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ------- -------- ------ -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Due during the twelve months
- ----------------------------
ending September 30,
- --------------------
1998 (1) . . . . . . . . . . . . . . . . . $ 299 9.82% $ 2,870 9.42% $ 3,169 9.46%
1999 . . . . . . . . . . . . . . . . . . . 13 7.78 304 9.67 317 9.61
2000 . . . . . . . . . . . . . . . . . . . 1,317 7.86 203 10.00 1,520 8.26
2001 and 2002 . . . . . . . . . . . . . . . 676 8.96 993 9.50 1,669 9.28
2003 to 2007 . . . . . . . . . . . . . . . 2,302 8.51 5,112 9.09 7,414 8.92
2008 to 2022 . . . . . . . . . . . . . . . 32,952 7.73 15,353 9.02 48,305 8.13
2023 and following . . . . . . . . . . . . 2,505 7.40 -- -- 2,505 7.40
------- ------- -------
Total . . . . . . . . . . . . . . . . . $40,064 $24,835 $64,899
======= ======= =======
</TABLE>
- --------------------------
(1) Includes demand loans having no stated maturity.
The total amount of loans due after September 30, 1998 which have
predetermined interest rates is $30.9 million and the total amount of loans
due after such dates which have floating or adjustable interest rates is $30.8
million.
ONE-TO-FOUR FAMILY RESIDENTIAL LOANS. The Association's primary
lending activity consists of the origination of one-to-four family residential
mortgage loans secured by property located in the Association's primary lending
area. Generally one-to-four family residential mortgage loans are originated in
amounts up to 75% of the lesser of the appraised value or purchase price of the
property, with private mortgage insurance required on loans with a
loan-to-value ratio in excess of 80%. Generally fixed rate loans are originated
for terms of up to 15-years. The Association does not sell the loans that it
originates.
The Association also offers adjustable-rate mortgage ("ARM") loans
with one, three and five year adjustment periods. The interest rate on ARM
loans is indexed to the corresponding 1, 3 and 5 year Treasury constant
maturity rates. A substantial portion of the ARM loans in the Association's
portfolio at September 30, 1997 provide for maximum rate adjustments of 2% per
year and 5% over the term of the loan. Residential ARM loans amortize over
terms of up to 25 years. The Association has sought to increase its
origination of ARM loans; however, in the current low interest rate environment
borrowers have shown a preference for fixed rate loans.
ARM loans decrease the risk associated with changes in market interest
rates by periodically repricing, but involve other risks because as interest
rates increase, the underlying payments by the borrower increase, thus
increasing the potential for default by the borrower. At the same time, the
marketability of the underlying collateral may be adversely affected by higher
interest rates. Upward adjustment of the contractual interest rate is also
limited by the maximum periodic and lifetime interest rate adjustment permitted
by the loan documents, and, therefore, is potentially limited in effectiveness
during periods of rapidly rising interest rates. At September 30, 1997, 45.3%
of the Association's one-to-four family residential loans had adjustable rates
of interest.
All one-to-four family residential mortgage loans originated by the
Association include "due-on-sale" clauses, which give the Association the
right to declare a loan immediately due and payable in the event that, among
other things, the borrower sells or otherwise disposes of the real property
subject to the mortgage and the loan is not repaid.
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<PAGE> 64
However, the Association occasionally permits assumptions of existing
residential mortgage loans on a case-by-case basis.
At September 30, 1997, approximately $40 million, or 61.2% of the
Association's loan portfolio, consisted of one-to-four family residential
loans. Approximately $1.2 million (which were comprised of four loans secured
by one-to-four family properties), were included in non-performing loans as of
that date. See "--Non-Performing and Problem Assets."
MULTI-FAMILY REAL ESTATE LOANS. Loans secured by multi-family real
estate totaled approximately $13 million, or 19.8%, of the total loan portfolio
at September 30, 1997. Multi-family real estate loans generally are secured by
multi-family rental properties (including walk-up apartments and mixed-use
properties). Substantially all multi-family real estate loans were secured by
properties located within the Association's primary lending area. At September
30, 1997, the Association's multi-family real estate loans had an average
principal balance of approximately $232,000 and the largest multi-family real
estate loan had a principal balance of $594,000. Multi-family real estate
loans generally are offered with both fixed and adjustable interest rates.
Multi-family loans are originated for terms of up to 10 years with a fixed rate
of interest for the initial five year period and with a five year renewal
option. At the time of renewal, the loan's interest rate will adjust to either
the prevailing prime rate plus 200 basis points or to the 5 year Treasury Note
rate plus 250 basis points, at the borrower's option. Multi-family real estate
loans are underwritten to mature between 5 and 10 years, and to amortize over a
period of up to 20 years.
In underwriting multi-family real estate loans, the Association
reviews the expected net operating income generated by the real estate to
ensure that it is at least 125% of the amount of the monthly debt service, the
age and condition of the collateral, the financial resources and income level
of the borrower, and the borrower's experience in owning or managing similar
properties. Multi-family real estate loans are originated in amounts up to 65%
of the appraised value of the property securing the loan. Personal guarantees
are generally obtained from all multi-family real estate borrowers.
Loans secured by multi-family real estate generally involve a greater
degree of credit risk than one-to-four family residential mortgage loans and
carry larger loan balances. This increased credit risk is a result of several
factors, including the concentration of principal in a limited number of loans
and borrowers, the effects of general economic conditions on income producing
properties, and the increased difficulty of evaluating and monitoring these
types of loans. Furthermore, the repayment of loans secured by multi-family
real estate typically depends upon the successful operation of the related real
estate property. If the cash flow from the project is reduced, the borrower's
ability to repay the loan may be impaired.
COMMERCIAL REAL ESTATE LOANS. At September 30, 1997, $11.9 million, or
18.1% of the total loan portfolio consisted of commercial real estate loans.
Commercial real estate loans are secured by office buildings, private schools,
religious facilities and other commercial properties. The Association generally
originates fixed rate and adjustable rate commercial real estate loans with
maximum terms of up to 10 years. The maximum loan-to-value ratio of commercial
real estate loans is 65%. At September 30, 1997, the largest commercial loan
had a principal balance of $1.1 million and was secured by commercial
condominium units. This loan was sold subsequent to September 30, 1997 and
resulted in no gain or loss to the Association. As of September 30, 1997,
non-performing loans included one commercial real estate loan totalling
$549,000.
In underwriting commercial real estate loans, the Association reviews
the expected net operating income generated by the real estate to ensure that
it is at least 125% of the amount of the monthly debt service, the age and
condition of the collateral, the financial resources and income level of the
borrower and the borrower's business experience. Personal guarantees are
generally obtained from all commercial real estate borrowers.
Loans secured by commercial real estate generally are larger than
one-to-four family residential loans and involve a greater degree of risk.
Commercial real estate loans often involve large loan balances to single
borrowers
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<PAGE> 65
or groups of related borrowers. Payments on these loans depend to a large
degree on results of operations and management of the properties or underlying
businesses, and may be affected to a greater extent by adverse conditions in
the real estate market or the economy in general. Accordingly, the nature of
the loans makes them more difficult for management to monitor and evaluate.
ORIGINATION, PURCHASE AND SALE OF LOANS. Historically, the Association
has originated mortgage loans pursuant to underwriting standards that generally
conform with the FNMA guidelines. Loan origination activities are primarily
concentrated in Brooklyn, New York. New loans are generated primarily from
customer referrals, brokers and other parties with whom the Association does
business, and from the efforts of employees and advertising. Loan applications
are underwritten and processed at the Association's main office.
The loan approval process is intended to assess the borrower's ability
to repay the loan, the viability of the loan, and the adequacy of the value of
the property that will secure the loan. To assess the borrower's ability to
repay, the Association reviews the employment and credit history and
information on the historical and projected income and expenses of mortgagors.
Loans up to $350,000 may be approved by management. All other one- to-four
family residential mortgage loans in excess of $350,000 must be approved by the
Board of Directors. All multi-family and commercial real estate loans must be
approved by the Board of Directors. In addition, the Board of Directors
ratifies all loan commitments.
The Association requires appraisals of all real property securing
loans. Appraisals are performed by independent appraisers who are licensed by
the state, and who are approved by the Board of Directors annually. The
Association requires fire and extended coverage insurance in amounts at least
equal to the principal amount of the loan. Where appropriate, flood insurance
is also required. Private mortgage insurance for all residential mortgage
loans with loan-to-value ratios of greater than 80% is also required.
The following table shows the loan origination and repayment
activities of the Association for the periods indicated. The Association did
not purchase or sell any loans during the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, MARCH 31,
--------------------- ---------------------
1997 1996 1997 1996
-------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Originations by Type:
- ---------------------
Adjustable rate:
Real estate:
One-to four-family . . . . . . . . . . . . . . . . $ 772 $ 138 $ 703 $ 352
Multi-family . . . . . . . . . . . . . . . . . . . 2,279 460 810 450
Commercial . . . . . . . . . . . . . . . . . . . . 2,244 1,132 3,093 3,051
Non-real estate:
Consumer . . . . . . . . . . . . . . . . . . . . . N/A N/A N/A N/A
------ ------- ------ ------
Total adjustable rate . . . . . . . . . . . . . 5,295 1,730 4,606 3,853
------ ------- ------ ------
Fixed rate:
Real estate:
One-to four-family . . . . . . . . . . . . . . . . 4,422 3,385 7,368 1,704
Multi-family . . . . . . . . . . . . . . . . . . . -- -- 60 --
Commercial . . . . . . . . . . . . . . . . . . . . -- -- 650 --
Construction . . . . . . . . . . . . . . . . . . . -- -- N/A N/A
------ ------- ------ ------
Total fixed-rate . . . . . . . . . . . . . . . . 4,422 3,385 8,078 1,704
------ ------- ------ ------
Total loans originated . . . . . . . . . . . . . 9,717 5,115 12,684 5,557
Principal Repayments:
- ---------------------
Total reductions . . . . . . . . . . . . . . . . . . 4,534 2,299 7,904 5,936
------ ------- ------ ------
Net increase (decrease) . . . . . . . . . . . . $5,183 $ 2,816 $4,780 $(379)
====== ======= ====== ======
</TABLE>
61
<PAGE> 66
LATE FEES. The Association realizes income from late charges. Late
charges are generally assessed if payment is not received within a specified
number of days after it is due. The Association currently does not charge loan
origination fees.
NONPERFORMING AND PROBLEM ASSETS
After a mortgage loan becomes eight days past due, the Association
delivers a computer generated delinquency notice to the borrower. A second
delinquency notice is sent once the loan becomes 16 days past due. When loans
become 30 days past due, the Association sends an additional delinquency notice
and attempts to make personal contact by letter or telephone with the borrower
to establish acceptable repayment schedules. In addition, with respect to a
loan secured by a one-to-four family residence, after 45 days the Association
will attempt to assist the borrower in obtaining credit counseling. When a
mortgage loan is 90 days delinquent and no acceptable resolution has been
reached, the Association will send the borrower a five day demand letter. If
the delinquency is not cured within 120 days, the Association will generally
refer the matter to its attorney. Management is authorized to begin
foreclosure proceedings on any loan after determining that it is prudent to do
so.
Mortgage loans are reviewed on a regular basis and such loans are
placed on non-accrual status when they are specifically determined to be
impaired or when they become 90 days delinquent. When loans are placed on a
non-accrual status, unpaid accrued interest is fully reserved, and further
income is recognized only to the extent received.
NONPERFORMING LOANS. At September 30, 1997, $1.8 million or 1.60% of
the Association's total assets were nonperforming (nonperforming loans and
non-accruing loans). Real estate owned ("REO") properties totaled $274,000 as
of September 30, 1997.
The table below sets forth the amounts and categories of the
Association's nonperforming loans as of September 30, 1997 and March 31, 1997
and 1996. Foreclosed assets include assets acquired in settlement of loans.
The Association's policy is to review monthly all earned but uncollected
interest on all loans to determine if any portion thereof should be classified
as uncollectible for any loan that is more than 90 days past due. Delinquent
loans that are 90 days or more past due are considered nonperforming assets.
During the periods presented, the Association did not have any troubled debt
restructurings.
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
------------- ---------------------
1997 1997 1996
--------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Non-accruing loans
One-to-four family . . . . . . . . . . . . . . . . . . . . . . . . $ 1,203 $1,894 $1,898
Multi-family . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,217 1,758
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . 549 230 1,147
------- ------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,752 3,341 4,803
------- ------ ------
Total nonperforming loans . . . . . . . . . . . . . . . . . . . . . . $ 1,752 $3,341 $4,803
======= ====== ======
Total as a percentage of total assets . . . . . . . . . . . . . . . . 1.60% 3.04% 4.55%
</TABLE>
For the six months ended September 30, 1997 and the year ended March
31, 1997, gross interest income which would have been recorded had the
non-accruing loans been current in accordance with their original terms
amounted to $21,000 and $269,000, respectively. Interest income on such loans
for the six months ended September 30, 1997 and the year ended March 31, 1997
was $43,000 and $20,000, respectively. Interest income received during the six
months ended September 30, 1997 included interest for prior periods.
62
<PAGE> 67
At September 30, 1997, loans delinquent from 60 to 89 days totaled
approximately $610,000.
<TABLE>
<CAPTION>
LOANS DELINQUENT FOR:
------------------------------------------------------------------
60-89 DAYS 90 DAYS AND OVER TOTAL
-------------------------------- --------------------------------- ----------------------------------
PERCENT PERCENT PERCENT
OF LOAN OF LOAN OF LOAN
NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY
--------- --------- ------------ --------- ---------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One-to-four family . 4 $469,119 1.17% 60 (1) $1,203,198 3.00% 64 $1,672,317 4.17%
Commercial . . . . . 2 141,000 1.19% 1 4.63% 3 5.82%
- -------- --- ---------- --- ----------
549,000 6,900,000
---------- ----------
Total . . . . . . 6 $610,119 61 $1,752,198 67 $2,362,317
= ======== === ========== === ==========
</TABLE>
- -------------------------
(1) Includes 59 loans totalling $1.1 million which are included in six
pools of loans in which the Association is a participant.
CLASSIFIED ASSETS. Federal regulations and the Association's Asset
Classification Policy provide for the classification of loans and other assets,
such as debt and equity securities, considered by the OTS to be of lesser
quality as "substandard," "doubtful" or "loss" assets. An asset is considered
"substandard" if it is inadequately protected by the current net worth and
paying capacity of the obliger or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the institution will sustain "some loss" if the deficiencies are not
corrected. Assets classified as "doubtful" have all of the weaknesses inherent
in those classified "substandard," with the added characteristic that the
weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. The Association
will classify an asset as "Special Mention" if the asset has a potential
weakness that warrants management's close attention. While such assets are not
impaired, management has concluded that if the potential weakness in the asset
is not addressed the value of the asset may deteriorate, adversely affecting
the repayment of the asset.
An insured institution is required to establish general allowances for
loan losses in an amount deemed prudent by management for loans classified
substandard or doubtful, as well as for other problem loans. General allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies problem assets as "loss," it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset so classified or to charge off such amount. An institution's
determination as to the classification of its assets and the amount of its
valuation allowances is subject to review by the OTS which can order the
establishment of additional general or specific loss allowances.
On the basis of management's review of its assets, at September 30,
1997, the Association had classified a total of $5.5 million of its loans and
other assets as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
(IN THOUSANDS)
<S> <C>
Special Mention . . . . . . . . . . . . . . . . . . . $ 665
Substandard . . . . . . . . . . . . . . . . . . . . . 2,262
Doubtful assets(1) . . . . . . . . . . . . . . . . . . 2,560
Loss assets . . . . . . . . . . . . . . . . . . . . . 23
--------
Total . . . . . . . . . . . . . . . . . . . . $ 5,510
========
General loss allowance . . . . . . . . . . . . . . . . $ 174
Specific loss allowance . . . . . . . . . . . . . . . 909
Charge-offs . . . . . . . . . . . . . . . . . . . . . --
</TABLE>
- ------------
(1) Doubtful assets includes a loan with a principal amount of $1.1 million
which was sold subsequent to September 30, 1997.
63
<PAGE> 68
The loan portfolio is reviewed on a regular basis to determine whether
any loans require classification in accordance with applicable regulations. Not
all classified assets constitute non-performing assets.
ALLOWANCE FOR LOAN LOSSES
The Association provides for loan losses on the allowance method.
Accordingly, all loan losses are charged to the related allowance and all
recoveries are credited to it. Additions to the allowance for loan losses are
provided by charges to operations based on various factors which, in
management's judgment, deserve current recognition in estimating possible
losses. Such factors considered by management include the market value of the
underlying collateral, growth and composition of the loan portfolio, the
relationship of the allowance for loan losses to outstanding loans, delinquency
trends, and economic conditions. The carrying value of loans are periodically
evaluated and the allowance is adjusted accordingly. While management uses the
best information available to make evaluations, future adjustments to the
allowance may be necessary if conditions differ substantially from the
assumptions used in making the evaluations.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Association's allowance for loan
losses. Such agencies may require the Association to recognize additions to
the allowance based on their judgments of information available to them at the
time of their examination.
SUMMARY OF LOAN LOSS EXPERIENCE. The following table analyzes changes
in the allowance for the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, MARCH 31,
-------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period . . . . . . . . . . $ 978 $ 745 $ 745 $ 619
------- ------- ------ ------
Charge-offs:
One-to-four family . . . . . . . . . . . . . . . -- 90 318 58
Commercial real estate . . . . . . . . . . . . . -- 47 220 91
------- ------- ------ ------
Total Charge-offs . . . . . . . . . . . . . . -- 137 538 149
------- ------- ------ ------
Provisions for loan losses . . . . . . . . . . . 105 66 771 275
------- ------- ------ ------
Balance at end of period . . . . . . . . . . . . $ 1,083 $ 674 $ 978 $ 745
======= ======= ====== ======
Ratio of net charge-offs during the period to
average loans outstanding during the period . . . 0.00% 0.25% 0.96% 0.28%
======= ======= ====== ======
</TABLE>
64
<PAGE> 69
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES. The following table presents
an analysis of the allocation of the allowance for loan losses at the dates
indicated. The allocation of the allowance to each category is not necessarily
indicative of future loss in any particular category and does not restrict the
use of the allowance to absorb losses in other categories.
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
---------------------------- ------------------------------------------------------
1997 1997 1996
---------------------------- ------------------------- -------------------------
PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS
LOAN IN EACH LOAN IN EACH LOAN IN EACH
AMOUNT OF AMOUNTS CATEGORY AMOUNT OF AMOUNTS CATEGORY AMOUNT OF AMOUNTS CATEGORY
LOAN LOSS BY TO NET LOAN LOSS BY TO NET LOAN LOSS BY TO NET
ALLOWANCESCATEGORY LOANS ALLOWANCES CATEGORY LOANS ALLOWANCES CATEGORY LOANS
------------------ ----- ---------- -------- ----- ---------- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to-four family . $ 289 $40,064 61.18% $ 126 $36,862 61.38% $ 187 $30,605 56.15%
Multi-family . . . . 465 12,974 19.81 314 10,555 17.57 317 11,166 20.49
Commercial real estate 155 11,861 18.11 78 11,917 19.84 228 12,784 23.45
Unallocated . . . . . 174 -- 70 -- 13 --
------- ------- ------ ------- ------ -------
Total . . . . . $ 1,083 $64,899 $ 978 $59,334 $ 745 $54,555
======= ======= ====== ======= ====== =======
</TABLE>
INVESTMENTS
INVESTMENTS AND MORTGAGE-BACKED SECURITIES. The Association's
investment portfolio consists of short-term U.S. Treasury and federal agency
securities, interest earning deposits in other financial institutions, federal
funds sold, and FHLB stock. The maturity on government agency securities is
generally less than five years. At September 30, 1997, approximately $13.2
million, or 11.97%, of the Association's total assets consisted of such
investments.
The Association also invests in mortgage-backed securities, all of
which are guaranteed by the U.S. Government or agencies thereof, and all of
which are held for investment. At September 30, 1997 mortgage-backed
securities totaled $19.1 million, or 17.31% of total assets.
The following table sets forth the carrying value of the Association's
investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
--------------------- ----------------------------------------------
1997 1997 1996
--------------------- --------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- -------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Investment securities held to maturity:
U.S. Government securities . . . . $ -- -- $ 3,604 13.93% $ 3,604 13.46%
Federal agency obligations . . . . 12,567 64.24% 13,071 50.51 12,023 44.89
------- ------ ------ ------- ------- ------
Subtotal . . . . . . . . . . . . 12,567 64.24 16,675 64.44 15,627 58.35
FHLB stock . . . . . . . . . . . . 583 2.98 583 2.25 528 1.97
------- ------ ------ ------- ------- ------
Total investment securities . . 13,150 67.22 17,258 66.69 16,155 60.32
Other interest-earning deposits
with banks . . . . . . . . . . . . 6,413 32.78 8,618 33.31 10,626 39.68
------- ------ ------- ------- ------- ------
Total . . . . . . . . . . . . . $19,563 100.00% $25,876 100.00% $26,781 100.00%
======= ====== ======= ======= ======= ======
</TABLE>
65
<PAGE> 70
The following table sets forth the composition of the Association's
mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
------------------------ ---------------------------------------------------
1997 1997 1996
------------------------ ----------------------- --------------------------
BOOK VALUE % OF TOTAL BOOK VALUE % OF TOTAL BOOK VALUE % OF TOTAL
---------- ---------- ---------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities held
to maturity:
GNMA . . . . . . . . . . . . . . $ 559 2.94% $ 611 3.21% $ 728 3.79%
FNMA . . . . . . . . . . . . . . . 6,468 34.02 6,894 36.23 7,823 40.68
FHLMC . . . . . . . . . . . . . . 3,905 20.53 4,291 22.55 5,051 26.27
CMOs/REMICS . . . . . . . . . . . 3,880 20.40 4,155 21.83 4,437 23.08
Other (1) . . . . . . . . . . . . 4,205 22.11 3,079 16.18 1,187 6.18
-------- ------ ------- ------- -------- ------
Total mortgage-backed securities $ 19,017 100.00% $19,030 100.00% $ 19,226 100.00%
======== ====== ======= ======= ======== ======
</TABLE>
- ------------------------
(1) Consists of a mutual fund which invests primarily in adjustable rate
mortgage loans.
The composition and maturities of the investment securities portfolio
at September 30, 1997, excluding FHLB stock, are indicated in the following
table.
<TABLE>
<CAPTION>
LESS THAN 1 TO 5 5 TO 10 OVER TOTAL INVESTMENTS AND
1 YEAR YEARS YEARS 10 YEARS MORTGAGE-BACKED SECURITIES
----------- ----------- ---------- ----------- --------------------------
BOOK VALUE BOOK VALUE BOOK VALUE BOOK VALUE BOOK VALUE MARKET VALUE
----------- ------------ ---------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Federal agency obligations . . . . $ 3,100 $ 9,467 -- -- $12,567 $12,450
Mortgage-backed securities . . . . -- 4,205 -- $14,812 19,017 19,157
------- ------- ------- ------- -------
Total investment securities . . . . $ 3,100 $13,672 -- $14,812 $31,584 $31,607
======= ======= ======= ======= =======
Weighted average yield . . . . . . 4.43% 6.18% -- 6.39% 6.11%
</TABLE>
SOURCES OF FUNDS
GENERAL. Deposits have traditionally been the primary source of funds
for use in lending and investment activities. In addition to deposits, funds
are derived from scheduled loan payments, investment maturities, loan
prepayments, retained earnings, income on earning assets and borrowings. While
scheduled loan payments and income on earning assets are relatively stable
sources of funds, deposit inflows and outflows can vary widely and are
influenced by prevailing interest rates, market conditions and levels of
competition. Borrowings from the FHLB of New York may be used in the short-term
to compensate for reductions in deposits and to fund loan growth, although the
Association has not had to borrow funds in recent periods.
DEPOSITS. Deposits are obtained primarily from customers who live or
work in the New York City metropolitan area. The Association offers a
selection of deposit instruments, including passbook savings accounts, money
market accounts, fixed-term certificates of deposit, and individual retirement
accounts. Deposits are not actively solicited outside of the New York City
metropolitan area, and most of the Association's depositors are residents of
Brooklyn. Deposit account terms vary, with the principal differences being the
minimum balance required, the amount of time the funds must remain on deposit
and the interest rate. The Association does not pay broker fees for any
deposits.
Interest rates paid, maturity terms, service fees and withdrawal
penalties are established on a periodic basis. Deposit rates and terms are
based primarily on current operating strategies and market rates, liquidity
requirements, rates paid by competitors and growth goals. Personalized customer
service and long-standing relationships with customers are relied upon to
attract and retain deposits.
66
<PAGE> 71
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and other prevailing interest rates and
competition. The variety of deposit accounts offered allows the Association to
be competitive in obtaining funds and responding to changes in consumer demand.
In recent years, the Association has become more susceptible to short-term
fluctuations in deposit flows as customers have become more interest rate
conscious. Deposits are priced to reflect the Association interest rate risk
management and profitability objectives. Based on experience, management
believes that passbook accounts and money market accounts are relatively stable
sources of deposits. However, the ability to attract and maintain certificates
of deposit, and the rates paid on these deposits, have been and will continue
to be significantly affected by market conditions. At September 30, 1997,
$60.6 million, or 60.26% of the Association's deposit accounts were
certificates of deposit, of which $41.1 million have maturities of one year or
less. A significant portion of the certificates of deposit consist of accounts
that were opened at the direction of the county or surrogate court for the
benefit of minors or others who are deemed to be incompetent to handle their
affairs. At September 30, 1997, $13.6 million of the certificates of deposit
consisted of such court-directed deposits. Court-directed deposits must remain
at the Association until the intended beneficiary attains his or her majority
or is deemed competent to handle his or her own affairs.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
--------------------- ----------------------------------------------
1997 1997 1996
--------------------- --------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- --------- ---------- --------- --------- --------
Transaction and savings deposit accounts: (DOLLARS IN THOUSANDS)
- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Savings accounts . . . . . . $ 21,556 21.4% $ 21,593 21.4% $ 23,585 24.2%
NOW accounts . . . . . . . . 4,285 4.3 4,723 4.7 3,974 4.1
Money market accounts . . . . 6,749 6.7 6,999 6.9 8,240 8.5
Money market statement savings 7,360 7.3 6,785 6.7 3,498 3.6
--------- ------ -------- ------- -------- ------
Total non-certificates . . $ 39,950 39.7 $ 40,100 39.7 $ 39,297 40.4
--------- ------ -------- ------- -------- ------
Certificates of deposits:
- ------------------------
4.00 - 5.99% . . . . . . . . 41,532 41.3 44,449 44.1 30,974 31.8
6.00 - 7.99% . . . . . . . . 18,551 18.5 15,752 15.6 26,721 27.4
8.00 - 9.99% . . . . . . . . 506 .5 497 0.5 404 0.4
--------- ------ -------- ------- -------- ------
Total certificates . . . . 60,589 60.3 60,698 60.3 58,099 59.7
--------- ------ -------- ------- -------- ------
Total deposits . . . . . . $ 100,539 100.00% $100,798 100.00% $ 97,396 100.00%
========= ====== ======== ======= ======== ======
</TABLE>
The following table shows weighted average rate and maturity information
regarding certificates of deposit as of September 30, 1997.
<TABLE>
<CAPTION>
WEIGHTED
TOTAL AVERAGE PERCENT OF
BALANCE RATE TOTAL
----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Certificate accounts maturing in quarter ending:
December 31, 1997 . . . . . . . . . . . $ 12,983 5.42% 21.43%
March 31, 1998 . . . . . . . . . . . . 12,921 5.44% 21.33%
June 30, 1998 . . . . . . . . . . . . . 7,968 5.66% 13.15%
September 30, 1998 . . . . . . . . . . 7,274 5.60% 12.01%
December 31, 1998 . . . . . . . . . . . 2,733 5.50% 4.51%
March 31, 1999 . . . . . . . . . . . . 2,277 5.68% 3.76%
June 30, 1999 . . . . . . . . . . . . . 1,724 6.22% 2.84%
September 30, 1999 . . . . . . . . . . 1,373 6.08% 2.27%
December 31, 1999 . . . . . . . . . . . 1,522 6.21% 2.51%
March 31, 2000 . . . . . . . . . . . . 1,569 6.57% 2.59%
June 30, 2000 . . . . . . . . . . . . . 1,091 7.06% 1.80%
September 30, 2000 . . . . . . . . . . 710 6.30% 1.17%
Thereafter . . . . . . . . . . . . . . 6,444 6.03% 10.63%
-------- -------
Total . . . . . . . . . . . . $ 60,589 5.68% 100.00%
======== =======
</TABLE>
67
<PAGE> 72
The following table sets forth the deposit activities of the
Association for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED AT OR FOR THE
SEPTEMBER 30, YEAR ENDED MARCH 31,
-------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Opening balance . . . . . . . . . . . . . . . . $ 100,798 $ 97,396 $ 97,396 $ 90,537
Deposits . . . . . . . . . . . . . . . . . . . . 57,223 45,629 98,186 84,269
Withdrawals . . . . . . . . . . . . . . . . . . 59,784 49,483 99,141 81,554
Interest credited . . . . . . . . . . . . . . . 2,302 2,186 4,357 4,144
--------- --------- -------- --------
Ending balance . . . . . . . . . . . . . . . . . $ 100,539 $ 95,728 $100,798 $ 97,396
========= ========= ======== ========
Net increase (decrease) . . . . . . . . . . . . $ (259) $ (1,668) $ 3,402 $ 6,859
========= ========= ======== ========
Percent increase (decrease) . . . . . . . . . . (.25)% (1.71)% 3.49% 7.58%
</TABLE>
The following table indicates the amount of the Association's
certificates of deposit and other deposits by time remaining until maturity as
of September 30, 1997. Of the amounts set forth below, $13.6 million consists
of court-directed deposits.
<TABLE>
<CAPTION>
Maturity
--------------------------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
----------- ----------- ----------- ---------- -----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000 $ 9,916 $ 10,374 $ 12,611 $ 17,020 $ 49,921
Certificates of deposit of $100,000 or more 3,067 2,547 2,631 2,423 10,668
--------- --------- -------- -------- ---------
Total certificates of deposit . . . . . . $ 12,983 $ 12,921 $ 15,242 $ 19,443 $ 60,589
========= ========= ======== ======== =========
</TABLE>
Total deposits at September 30, 1997 were approximately $100.5 million
compared to deposits at September 30, 1996 of $95.7 million.
BORROWINGS. The Association had no borrowings outstanding at September
30, 1997.
PROPERTIES
The following table provides certain information with respect to the
Association's offices as of September 30, 1997:
<TABLE>
<CAPTION>
NET BOOK VALUE OF REAL
LOCATION LEASED OR OWNED YEAR LEASED OR ACQUIRED PROPERTY
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Main Office Owned 1983 $594,026
186 Montague Street
Brooklyn, NY 11201
Branch Office Owned 1978 $523,364
1402 Avenue J
Brooklyn, NY 11230
</TABLE>
The net book value of the Association's premises, land and equipment
was approximately $1,526,558 at September 30, 1997.
68
<PAGE> 73
SERVICE CORPORATION SUBSIDIARY
The Association does not have any subsidiary corporations. However,
OTS regulations permit federal savings associations to invest in the capital
stock, obligations or other specified types of securities of subsidiaries
(referred to as "service corporations") and to make loans to such subsidiaries
and joint ventures in which such subsidiaries are participants in an aggregate
amount not exceeding 2% of the association's assets, plus an additional 1% of
assets if the amount over 2% is used for specified community or inner-city
development purposes. In addition, federal regulations permit associations to
make specified types of loans to such subsidiaries (other than special purpose
finance subsidiaries) in which the association owns more than 10% of the stock,
in an aggregate amount not exceeding 50% of the association's regulatory
capital if the association's regulatory capital is in compliance with
applicable regulations.
EMPLOYEES
As of September 30, 1997, the Association employed 24 persons on a
full-time basis and six persons on a part-time basis. None of the
Association's employees is represented by a collective bargaining group and
management considers employee relations to be good.
LEGAL PROCEEDINGS
Although the Association is involved, from time to time, in various
legal proceedings in the normal course of business, there are no material legal
proceedings to which the Association presently is a party or to which any of
its property is subject.
MANAGEMENT OF BROOKLYN HEIGHTS BANCORP
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Board of Directors of the Company consists of the same individuals
who serve as directors of the Association. The Company's Federal charter and
bylaws require that directors be divided into three classes with each class of
directors to serve for a three-year period. Approximately one-third of the
directors will be elected each year. The Company's officers will be elected
annually by its Board of Directors and will serve at the Board's discretion.
The Company's President and Chief Executive Officer will be Stephen Irving, the
Chairman of the Board and Corporate Secretary will be John A. Maher and the
Treasurer will be Stephen Parisi. For information regarding the directors and
officers, See "Management of Atlantic Liberty Savings, F.A."
MANAGEMENT OF ATLANTIC LIBERTY SAVINGS, F.A.
DIRECTORS AND OFFICERS OF THE ASSOCIATION
The Board of Directors currently consists of seven persons. Each
director holds office for a term of three years, and one-third of the Board is
elected at each annual meeting of members.
The Board of Directors met 13 times during the fiscal year ended March
31, 1997. No director attended fewer than 75% of the aggregate number of
meetings of the Board of Directors and the Board's committees in the past 12
months.
Listed below are the current directors and officers of the
Association:
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<TABLE>
<CAPTION>
AGE AT CURRENT TERM
NAME SEPTEMBER 30, 1997 POSITION DIRECTOR SINCE EXPIRES
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John A. Maher 66 Chairman of the 1961 2000
Board and Secretary
Stephen Irving 45 President, Chief 1996 1998
Executive Officer
and Director
Nunzio D'Addona 73 Director 1965 2000
Martin D. Dehler 56 Director 1996 1999
Edward W. Kelle 61 Vice Chairman of 1962 1999
the Board
Fred W. McPhilliamy 66 Director 1986 1998
Eugene F. O'Connor 79 Director 1972 1999
Barry M. Donohue 56 Vice President
Stephen Parisi 49 Vice President
</TABLE>
The business experience for the past five years for each of the
Association's directors and officers is as follows:
John A. Maher has been a professor at The Dickinson School of Law
since 1973. Mr. Maher has also served as a consultant and arbitrator for
various businesses and nonprofit organizations. In 1997 Mr. Maher was named a
Commissioner of the Pennsylvania Securities Commission.
Stephen Irving has been the President and Chief Executive Officer of
the Association since 1996. He joined the Association in 1980 as a Vice
President. In 1983 Mr. Irving was elected Senior Vice President in charge of
operations.
Nunzio D'Addona is President of Home Abstract Co., a title insurance
company.
Martin D. Dehler, Esq. is an attorney and bank consultant. He is the
former Chairman and Chief Executive Officer of New York Bancorp, and its
subsidiary Home Federal Savings Bank.
Edward W. Kelle is the President of K&L Brokerage, Inc., an insurance
agency. Mr. Kelle is also the Secretary and Treasurer of John J. Kelle, Inc.,
an insurance agency.
Fred W. McPhilliamy is the President of The Helen Keller Services for
the Blind, a not-for-profit organization.
Eugene F. O'Connor, Esq. is a retired attorney. Prior to his
retirement in 1993, Mr. O'Connor was Chief Calendar Clerk of the Supreme
Court, Kings County, and thereafter Bankruptcy Clerk, U.S. District Court
(Southern District of New York).
Barry M. Donohue is the Vice President of Mortgage Lending at the
Association. Mr. Donohue previously was Senior Vice President of Crossland
Savings Bank until 1992 when he joined the Association.
Stephen Parisi is a Vice President and Treasurer of the Association.
He joined the Association in 1983.
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COMMITTEES OF THE BOARDS OF DIRECTORS OF THE ASSOCIATION AND THE COMPANY
The Board of Directors of the Association has the following
committees: The Audit Committee meets quarterly to review audit reports. It
also recommends to the Board of Directors the appointment of the independent
auditors for the upcoming fiscal year.
The Management and Compensation Committee acts as the Association's
Compensation Committee. No employee director is a member of the Management and
Compensation Committee. The Association has no nominating committee.
EXECUTIVE COMPENSATION AND RELATED TRANSACTIONS OF THE ASSOCIATION
REMUNERATION OF NAMED EXECUTIVE OFFICER
The following table sets forth information as to annual, and other
compensation for services in all capacities to the President and Chief
Executive Officer for the fiscal year ended March 31, 1997. No other executive
officer earned over $100,000 in salary and bonuses during fiscal year 1997.
<TABLE>
<CAPTION>
==========================================================================================================================
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------
LONG-TERM COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
- ---------------------------------------------------------------------------------------------------------
OTHER RESTRICTED OPTIONS/
NAME AND PRINCIPAL FISCAL ANNUAL STOCK SARS ALL OTHER
POSITION YEAR(1) SALARY BONUS COMPENSATION AWARD (#) COMPENSATION
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen Irving 1997 $114,623 $15,000 $13,602(2) -- -- $1,471(3)
==========================================================================================================================
</TABLE>
- -------------------------
(1) In accordance with the rules on executive officer and director
compensation disclosure adopted by the SEC, Summary Compensation
information is excluded for the fiscal years ended March 31, 1996 and
1995, as the Association was not a public company during such periods.
(2) Includes $8,700 of director fees.
(3) Represents life insurance premiums paid by the Association.
COMPENSATION OF DIRECTORS
Nonemployee Directors of the Association receive $500 for each regular
meeting of the Board of Directors and $500 for each committee meeting of the
Board of Directors. Each committee chairman receives an additional $100 for
each committee meeting. In addition, each outside director receives an annual
retainer of $12,000. Mr. Irving receives an annual retainer of $6,000.
Directors of the Company are not currently paid directors' fees. The
Company may, if it believes it is necessary to attract qualified directors or
is otherwise beneficial to the Company, adopt a policy of paying directors'
fees.
DEFERRED COMPENSATION PLAN. The Association provides directors with a
non-qualified deferred compensation plan ("Deferred Compensation Plan") under
which directors of the Association may elect to defer on a pre-tax basis, all
or a portion of their monthly directors' fees and/or annual retainer. The
Deferred Compensation Plan is an
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<PAGE> 76
amendment of a deferred compensation plan that was effective until December 31,
1996. Under the amended Deferred Compensation Plan, a director's deferred fees
and/or annual retainer will be credited to a deferred compensation account.
Each deferred compensation account will earn simple interest at the rate of 8%
per annum. Upon retirement, a director's benefit will be paid over 10 years
with interest on the unpaid balance accruing at the rate of 8% per annum.
Under the prior deferred compensation plan, benefits will be paid over
15 years (9 years with respect to one director and 10 years with respect to
another). The deferred compensation benefits payable under the prior plan
range from $675 to $1,622 per month. The Association has accrued $460,000
toward its obligation under the prior plan. The Association has purchased life
insurance policies on the lives of the individual directors with an aggregate
face value of $410,000, with the Association as the owner and beneficiary of
the life insurance policy. The Association is the owner and beneficiary of the
life insurance policies. For calendar year 1996, under the prior plan four
directors deferred a total of $16,800 of their fees and retainers; for the
period January 1, 1997 through September 30, 1997, four directors elected to
defer $28,000 of their fees and annual retainers paid under the Deferred
Compensation Plan. Mr. Stephen Irving did not elect to defer any portion of
his annual retainer. All future obligations payable under the Deferred
Compensation Plan are payable from the general assets of the Association.
BENEFITS
INSURANCE PLANS. The Association's officers and employees are covered
by a contributory medical insurance plan.
DEFINED BENEFIT PENSION PLAN. The Association maintains a qualified
noncontributory defined benefit plan ("Retirement Plan") for employees. All
employees age 21 or older who have worked at the Association for a period of
one year and who have been credited with 1,000 or more hours of employment with
the Association during the year are eligible to accrue benefits under the
Retirement Plan. The Association annually contributes an amount to the
Retirement Plan necessary to satisfy the actuarially determined minimum funding
requirements in accordance with the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
At the normal retirement age of 65, the plan is designed to provide a
single life annuity with no ancillary benefits. For a married participant, the
normal form of benefit is an actuarially reduced joint and survivor annuity
where, upon the participant's death, the participant's spouse is entitled to
receive a benefit equal to 50% of the amount paid during the participant's
lifetime. The joint and survivor annuity will be actuarially equivalent to the
single life annuity. The monthly retirement benefit provided is an amount equal
to (i) 2% of a participant's average monthly compensation based on the average
of the five consecutive years of the last 10 calendar years providing the
highest monthly average compensation, multiplied by (ii) the participant's
years of credited service to the normal retirement date. For years beginning
after December 31, 1992, the amount of monthly retirement benefit provided is
an amount equal to 2% of a participant's average monthly compensation reduced
by 1/15 for each year of service that such participant's years of service at
normal retirement date are less than 15. Retirement benefits are also payable
upon retirement due to early and late retirement, disability or death. A
reduced benefit is payable upon early retirement at or after age 55 and the
completion of 10 years of service with the Association. Upon termination of
employment other than as specified above, a participant who has a vested
benefit under the Retirement Plan is eligible to receive his or her accrued
benefit reduced for early retirement or a deferred retirement benefit
commencing on such participant's normal retirement date. Benefits are payable
in various annuity forms as well as in the form of a single lump sum payment.
At December 31, 1996, the market value of the Retirement Plan trust fund
equaled approximately $1.1 million. For the plan year ended December 31, 1996,
the Association made a contribution of $151,000 to the Retirement Plan.
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<PAGE> 77
The following table indicates the annual retirement benefit that would
be payable under the Retirement Plan upon retirement at age 65 in calendar year
1997, expressed in the form of a single life annuity for the final average
salary and benefit service classification specified below.
<TABLE>
<CAPTION>
=============================================================================================================
YEARS OF BENEFIT SERVICE AT RETIREMENT
- -------------------------------------------------------------------------------------------------------------
FINAL
AVERAGE COMPENSATION 15 20 25 30 35 40
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$25,000 $7,500 $10,000 $12,800 $15,000 $17,500 $20,000
- -------------------------------------------------------------------------------------------------------------
$50,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000
- -------------------------------------------------------------------------------------------------------------
$75,000 $22,500 $30,000 $37,500 $45,000 $52,500 $60,000
- -------------------------------------------------------------------------------------------------------------
$100,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000
- -------------------------------------------------------------------------------------------------------------
$150,000 $45,000 $60,000 $75,000 $90,000 $105,000 $120,000
- -------------------------------------------------------------------------------------------------------------
$160,000 and above $48,000 $64,000 $80,000 $96,000 $112,000 $125,000
=============================================================================================================
</TABLE>
As of December 31, 1996, Mr. Irving had 16 years of credited service
under the plan.
SALARY REDUCTION PLAN. The Association maintains a Salary Reduction
Plan for employees, which is a qualified, tax-exempt profit sharing plan with a
cash-or-deferred feature under Section 401(k) of the Internal Revenue Code (the
"401(k) Plan"). All employees who have attained age 21 1/2 and have completed
six months of employment are eligible to participate on the date that such
requirements are first satisfied.
Under the 401(k) Plan, participants are permitted to make salary
reduction contributions to the plan from their compensation up to the maximum
amount permitted under certain Internal Revenue Code (the "Code"). For these
purposes, "compensation" includes regular salary, wages and bonuses, including
any salary reduction contributions made under the 401(k) Plan, but does not
include overtime and commissions, or compensation in excess of the Code Section
401(a)(17) limits. The participants' salary reduction contribution will be
matched by the Association, in the amount of $.60 per $1.00 up to a maximum of
10% of the participants' salary. All employee contributions and earnings
thereon are fully and immediately vested. All employer matching contributions
vest at the rate of 20% per year beginning in the second year until a
participant is 100% vested after six years of service. Participants will also
vest in employer matching contributions upon the attainment of their normal
retirement date (i.e., age 65), death or disability regardless of their years
of service. A participant may also withdraw salary reduction contributions in
the event the participant suffers a financial hardship.
The 401(k) Plan permits employees to direct the investment of their
own accounts into various investment options.
Plan benefits will be paid to each participant in a lump sum payment.
At December 31, 1996, the market value of the 401(k) Plan trust fund equaled
approximately $833,000. The contribution to the 401(k) Plan for the Plan year
ended December 31, 1996 was $81,916. During the year ended December 31, 1996,
the Association contributed $5,100 to the 401(k) plan for the account of Mr.
Irving.
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<PAGE> 78
EMPLOYMENT AGREEMENTS. The Association intends to enter into
employment agreements with Messrs. Irving, Donohue and Parisi each for a term
of up to 36 months. If the agreement is not renewed, each agreement will
expire within 36 months following the anniversary date of the agreement. Under
each agreement, the executive will be entitled to receive his salary in effect
on the commencement date of the agreement, as increased from time to time (but
not decreased), discretionary bonuses, and other fringe and employee benefits
which are or may become applicable to executive personnel. Each agreement
provides for termination by the Association for cause at any time. In the
event the Association terminates the executive's employment for reasons other
than for cause or in connection with or within 12 months following a change in
control of the Association or the Company, the Association will pay the
executive's salary during the remaining term of the agreement and will also
provide the executive with health benefits during such period which are
substantially the same as those provided to the executive during employment.
In the event of executive's termination of employment in connection with or
within 12 months following a change in control, the Association will pay the
executive a lump sum cash payment equal to 299% of the average of the
executive's taxable compensation paid over the last five calendar years before
the year in which the change in control occurs (the executive's "base amount").
In addition, the Association will provide the executive during the remaining
term of the agreement with substantially the same health benefits as he had
during employment.
In the event of the executive's disability during the term of the
agreement, the agreement will continue in effect, but any payments under the
agreement will be reduced by payments made to the executive under any
disability plan maintained by the Association. In the event of the executive's
death during the term of the agreement, the Association will pay the
executive's salary to the executive's beneficiary or to his estate.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
The Association has established an ESOP for eligible employees
effective in January 1998, subject to the completion of the Offering. Employees
with at least one year of employment with the Association and who have attained
age 21 are eligible to participate. As part of the Offering, the ESOP intends
to borrow funds from the Company and use those funds to purchase a number of
shares equal to up to 8.0% of the Common Stock to be sold in the Offering.
Collateral for the loan will be the Common Stock purchased by the ESOP. The
loan will be repaid principally from the Association's discretionary
contributions to the ESOP and dividends on unallocated shares over a period of
no more than 10 years. It is anticipated that the interest rate for the loan
will be a floating rate equal to the prime rate published in The Wall Street
Journal from time to time. Shares purchased by the ESOP will be held in a
suspense account for allocation among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense
accounts in an amount proportional to the repayment of the ESOP loan will be
allocated among ESOP participants on the basis of compensation in the year of
allocation. Participants in the ESOP will receive credit for service prior to
the effective date of the ESOP. Benefits generally vest over a seven year
period. A participant will vest in 20% of his or her account balance after 2
years of credited service and will vest in an additional 20% for each
subsequent year of credited service until a participant is 100% vested after
seven years. A participant who terminates employment for reasons other than
death, retirement, disability or following a change in control prior to seven
years of credited serve will forfeit the nonvested portion of his or her
benefits under the ESOP. Benefits will be payable in the form of Common Stock
and cash upon death, retirement, early retirement, disability or separation
from service. Contributions by the Association to the ESOP are discretionary,
subject to the loan terms and tax law limits, and, therefore, benefits payable
under the ESOP cannot be estimated. In November 1993, the American Institute of
Certified Public Accountants (the "AICPA") issued Statement of Position ("SOP")
93-6, which requires the Association to record compensation expense in an
amount equal to the fair market value of the shares released from the suspense
account.
In connection with the establishment of the ESOP, the Association will
establish a committee of non-employee directors to administer the ESOP. The
Association will either appoint its non-employee directors or an independent
financial institution to serve as trustee of the ESOP. The ESOP committee may
instruct the trustee regarding investment of funds contributed to the ESOP. The
ESOP trustee, subject to its fiduciary duty, must vote all allocated
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<PAGE> 79
shares held in the ESOP in accordance with the instructions of participating
employees. Under the ESOP, nondirected shares, and shares held in the suspense
account, will be voted in a manner calculated to most accurately reflect the
instructions it has received from participants regarding the allocated stock so
long as such vote is in accordance with the provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
STOCK OPTION PLAN
At a meeting of the Company's shareholders to be held no earlier than
six months after the completion of the Reorganization, the Board of Directors
intends to submit for shareholder approval the Stock Option Plan for directors
and officers of the Association and of the Company. If approved by the
shareholders, Common Stock in an aggregate amount equal to 10% of the shares
sold in the Offering would be reserved for issuance by the Company upon the
exercise of the stock options granted under the Stock Option Plan. Ten percent
of the shares sold in the Offering would amount to 39,100 shares, 46,000
shares, 52,900 shares or 60,835 shares at the minimum, mid-point, maximum and
15% above the maximum of the Offering Range, respectively. No options would be
granted under the Stock Option Plan until the date on which shareholder
approval is received.
It is anticipated that options would be granted for terms of 10 years
(in the case of incentive options) or 10 years and one day (in the case of
non-qualified options), and at an option price per share equal to the fair
market value of the shares on the date of grant of the stock options. If the
Stock Option Plan is adopted within one year following the Reorganization,
options will become exercisable at a rate of 20% at the end of each 12 months
of service with the Association after the date of grant, subject to early
vesting in the event of death or disability. Options granted under the Stock
Option Plan would be adjusted for capital changes such as stock splits and
stock dividends. Notwithstanding the foregoing, awards will be 100% vested upon
termination of employment due to death or disability, and if the Stock Option
Plan is adopted more than 12 months after the Reorganization, awards would be
100% vested upon normal retirement or a change in control of the Association or
the Company. Unless the Company decides to call an earlier special meeting of
shareholders, the date of grant of these options is expected to be the date of
the Company's annual meeting of shareholders to be held at least six months
after the Reorganization. Under OTS rules, if the Stock Option Plan is adopted
within the first 12 months after the Reorganization, no individual officer can
receive more than 25% of the awards under the plan, no outside director can
receive more than 5% of the awards under the plan, and all outside directors as
a group can receive no more than 30% of the awards under the plan in the
aggregate.
The Stock Option Plan would be administered by a committee of
non-employee members of the Company's Board of Directors. Options granted
under the Stock Option Plan to employees may be treated as "incentive" stock
options which offer beneficial tax treatment to the employee but no tax
deduction to the Company. Non-qualified stock options may also be granted
under the Stock Option Plan, and will be granted to the non-employee directors
who receive grants of stock options. In the event an option recipient
terminates his or her employment or service as an employee or director, the
options would terminate during certain specified periods.
STOCK AWARD PLAN
At a meeting of the Company's shareholders to be held no earlier than
six months after the completion of the Reorganization, the Board of Directors
also intends to submit a Stock Award Plan for shareholder approval. The Stock
Award Plan will grant directors and officers an ownership interest in the
Company in a manner designed to encourage their continued service with the
Association. The Association will contribute funds to the Stock Award Plan from
time to time to enable it to acquire an aggregate amount of Common Stock equal
to up to 4% of the shares of common stock sold in the Offering, either directly
from the Company or in open market purchases. Four percent of the shares sold
in the Offering would amount to 15,640 shares, 18,400 shares, 21,160 or 24,334
shares at the minimum, midpoint, maximum and 15% above the maximum of the
Offering Range, respectively. In the event that additional authorized but
unissued shares would be acquired by the Stock Award Plan after the
Reorganization, the interests of existing shareholders would be diluted.
Executive officers and directors will be awarded Common Stock
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<PAGE> 80
under the Stock Award Plan without having to pay cash for the shares. No
awards under the Stock Award Plan would be made until the date the Stock Award
Plan is approved by the Company's shareholders.
Awards would be nontransferable and nonassignable, and during the
lifetime of the recipient could only be earned by him or her. If the Stock
Award Plan is adopted within one year following the Reorganization, the shares
which are subject to an award would vest and be earned by the recipient at a
rate of 20% of the shares awarded at the end of each full 12 months of service
with the Association after the date of grant of the award. Any Common Stock
purchased by the Stock Award Plan will represent unearned compensation and,
accordingly, will be reflected on the Company's financial statement as a
reduction to stockholders' equity. As shares of the Common Stock awarded under
the Stock Award Plan vest, a corresponding reduction in the charge to capital
will occur. Awards would be adjusted for capital changes such as stock
dividends and stock splits. Notwithstanding the foregoing, awards would be 100%
vested upon termination of employment or service due to death or disability,
and if the Stock Award Plan is adopted more than 12 months after the
Reorganization, awards would be 100% vested upon normal retirement or a change
in control of the Association or the Company. If employment or service were to
terminate for other reasons, the award recipient would forfeit any nonvested
award. If employment or service is terminated for cause (as would be defined in
the Stock Award Plan), shares not already delivered under the Stock Award Plan
would be forfeited. Under OTS rules, if the Stock Award Plan is adopted within
the first 12 months after the Reorganization, no individual officer may receive
more than 25% of the awards under the plan, no outside director may receive
more than 5% of the awards under the plan, and all outside directors as a group
may receive no more than 30% of the awards under the plan in the aggregate.
When shares become vested under the Stock Award Plan, the participant
will recognize income equal to the fair market value of the common stock
earned, determined as of the date of vesting, unless the recipient makes an
election under Section 83(b) of the Code to be taxed earlier. The amount of
income recognized by the participant would be a deductible expense for tax
purposes for the Company. If the Stock Award Plan is adopted within one year
following the Reorganization, dividends and other earnings will accrue and be
payable to the award recipient when the shares vest. Shares not yet vested
under the Stock Award Plan will be voted by the Trustee of the Stock Award
Plan, taking into account the best interests of the recipients of the awards
under the plan.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Association offers to directors, officers, and employees real
estate mortgage loans secured by their principal residence. All loans to the
Association's directors, officers and employees are made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions, and do not involve more than minimal risk of
collectibility.
Directors Maher and Dehler, in addition to their duties as directors
of the Association, provide consulting services to the Association. Mr. Maher
receives a set fee of $30,000 which represents annual consulting fees from the
Association for providing advice regarding regulatory compliance, development
of new products and representation before government and businesses. Mr.
Dehler receives a set fee of $12,000 which represents annual consulting fees
from the Association for providing advice on strategic planning in order to
enhance the Association's franchise.
REGULATION
GENERAL
As a federally chartered, SAIF-insured savings association, the
Association is subject to extensive regulation by the OTS and the FDIC. For
example, the Association must obtain OTS approval before it may engage in
certain activities and must file reports with the OTS regarding its activities
and financial condition. The OTS periodically examines the Association's books
and records and, in conjunction with the FDIC in certain situations, has
examination and enforcement powers. This supervision and regulation are
intended primarily for the protection of depositors and
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<PAGE> 81
the FDIC insurance funds. The Association's semi- annual assessment owed to the
OTS, which is based upon a specified percentage of assets, is approximately
$31,187.
The Association is also subject to federal and state regulation as to
such matters as loans to officers, directors, or principal shareholders,
required reserves, limitations as to the nature and amount of its loans and
investments, regulatory approval of any merger or consolidation, and the
issuance or retirements of its securities. In addition, the Association's
activities and operations are subject to a number of additional detailed,
complex and sometimes overlapping federal and state laws and regulations.
These include state usury and consumer credit laws, state laws relating to
fiduciaries, the Federal Truth-In-Lending Act and Regulation Z, the Federal
Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting Act,
the Community Reinvestment Act, anti-redlining legislation and antitrust laws.
The United States Congress is considering legislation that would
require all federal savings associations, such as the Association, to either
convert to a national bank or a state-chartered bank by a specified date to be
determined. In addition, under the legislation, the Mutual Holding Company and
the Company likely would not be regulated as savings and loan holding companies
but rather as bank holding companies. This proposed legislation would abolish
the OTS and transfer its functions to other federal banking regulators. No
assurance can be given as to whether or in what form the legislation will be
enacted or its effect on the Company and the Association.
SAVINGS AND LOAN HOLDING COMPANY REGULATION
Upon completion of the Reorganization, the Mutual Holding Company and
the Company will be regulated as savings and loan holding companies under the
Home Owners' Loan Act (the "HOLA"). As such, the Mutual Holding Company and
the Company will register with and will be subject to OTS regulation and
examination and supervision as well as certain reporting requirements. The OTS
has indicated that the Company will be regulated in the same manner as a mutual
holding company pursuant to Section 10(o) of the HOLA. As a federally-insured
subsidiary of a savings and loan holding company, the Company will be subject
to certain restrictions in dealing with the Mutual Holding Company and with
other persons affiliated with the Mutual Holding Company and the Company, and
will continue to be subject to examination and supervision by the OTS.
Pursuant to Section 10(o) of the HOLA, and OTS regulations and policy,
a mutual holding company and a federally chartered mid-tier holding company may
engage in the following activities: (i) investing in the stock of a savings
association; (ii) acquiring a mutual association through the merger of such
association into a savings association subsidiary of such holding company or an
interim savings association subsidiary of such holding company; (iii) merging
with or acquiring another holding company, one of whose subsidiaries is a
savings association; (iv) investing in a corporation, the capital stock of
which is available for purchase by a savings association under federal law or
under the law of any state where the subsidiary savings association or
associations share their home offices; (v) furnishing or performing management
services for a savings association subsidiary of such company; (vi) holding,
managing or liquidating assets owned or acquired from a savings subsidiary of
such company; (vii) holding or managing properties used or occupied by a
savings association subsidiary of such company properties used or occupied by a
savings association subsidiary of such company; (viii) acting as trustee under
deeds of trust; (ix) any other activity (A) that the Federal Reserve Board, by
regulation, has determined to be permissible for bank holding companies under
Section 4(c) of the Bank Holding Company Act of 1956, unless the Director, by
regulation, prohibits or limits any such activity for savings and loan holding
companies; or (B) in which multiple savings and loan holding companies were
authorized (by regulation) to directly engage on March 5, 1987; and (x)
purchasing, holding, or disposing of stock acquired in connection with a
qualified stock issuance if the purchase of such stock by such savings and loan
holding company is approved by the Director. If a mutual holding company
acquires or merges with another holding company, the holding company acquired
or the holding company resulting from such merger or acquisition may only
invest in assets and engage in activities listed in (i) through (x) above, and
has a period of two years to cease any non-conforming activities and divest of
any non-conforming investments.
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HOLA prohibits a savings and loan holding company, including the
Company and the Mutual Holding Company, directly or indirectly, or through one
or more subsidiaries, from acquiring another savings institution or holding
company thereof, without prior written approval of the OTS. It also prohibits
the acquisition or retention of, with certain exceptions, more than 5% of a
non-subsidiary savings institution, a non-subsidiary holding company, or a
non-subsidiary company engaged in activities other than those permitted by the
HOLA; or acquiring or retaining control of an institution that is not federally
insured. In evaluating applications by holding companies to acquire savings
institutions, the OTS must consider the financial and managerial resources,
future prospects of the company and institution involved, the effect of the
acquisition on the risk to the insurance fund, the convenience and needs of the
community and competitive factors.
OTS is prohibited from approving any acquisition that would result in
a multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies; and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
In addition, OTS regulations require the Mutual Holding Company to
notify the OTS of any proposed waiver of its right to receive dividends. The
OTS reviews dividend waiver notices on a case-by-case basis, and, in general,
does not object to a waiver if: (i) the mutual holding company's board of
directors determines that waiver is consistent with its fiduciary duties to the
mutual holding company's members; (ii) for as long as the savings association
subsidiary is controlled by the mutual holding company, the dollar amount of
dividends waived by the mutual holding company is considered as a restriction
in the retained earnings of the savings association, which restriction, if
material, is disclosed in the public financial statements of the savings
association as a note to the financial statements; (iii) the amount of any
dividend waived by the mutual holding company is available for declaration as a
dividend solely to the mutual holding company, and, in accordance with SFAS 5,
where the savings association determines that the payment of such dividend to
the mutual holding company is probable, an appropriate dollar amount is
recorded as a liability; (iv) the amount of any waived dividend is considered
as having been paid by the savings association in evaluating any proposed
dividend under OTS capital distribution regulations; and (v) in the event the
mutual holding company converts to stock form, the appraisal submitted to the
OTS in connection with the conversion application takes into account the
aggregate amount of the dividends waived by the mutual holding company.
FEDERAL HOME LOAN BANK SYSTEM
The Association is a member of the FHLB of New York, which is one of
twelve regional FHLBs. Each FHLB serves as a reserve or central bank for its
members within its assigned region. It is funded primarily from funds deposited
by savings associations and proceeds derived from the sale of consolidated
obligations of the FHLB system. It makes loans to members ("FHLB advances") in
accordance with policies and procedures established by the Board of Directors
of the FHLB. All FHLB advances must be fully secured by sufficient collateral
as determined by the FHLB. The Federal Housing Finance Board ("FHFB"), an
independent agency, controls the FHLB System, including the FHLB of New York.
As a member, the Association is required to purchase and maintain
stock in the FHLB of New York in an amount equal to at least 1% of its
aggregate unpaid residential mortgage loans, home purchase contracts, or
similar obligations at the beginning of each year. At September 30, 1997, the
Association's investment in stock of the FHLB of New York was $582,000. The
FHLB imposes various limitations on advances such as limiting the amount of
certain types of real estate-related collateral to 30% of a member's capital
and limiting total advances to a member. Interest rates charged for advances
vary depending upon maturity, the cost of funds to the FHLB of New York and the
purpose of the borrowing.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community
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investment and low- and moderate-income housing projects. These contributions
have adversely affected the level of FHLB dividends paid and could continue to
do so in the future. For the fiscal year ended March 31, 1997, dividends paid
by the FHLB of New York to the Association totaled approximately $33,755 for an
annual rate of 5.79%.
INSURANCE OF DEPOSITS
DEPOSIT INSURANCE. The FDIC is an independent federal agency that
insures deposits of banks and thrift institutions up to certain specified
limits and regulates such institutions for safety and soundness. The FDIC
administers two separate insurance funds, the BIF for commercial banks and
state savings banks, and the SAIF for savings associations such as the
Association and banks that have acquired deposits from savings associations.
The FDIC is required to maintain designated levels of reserves in each fund.
ASSESSMENTS. The FDIC is authorized to establish separate annual
assessment rates for deposit insurance for members of the BIF and members of
the SAIF. The FDIC may increase assessment rates for either fund if necessary
to restore the fund's ratio of reserves to insured deposits to the target level
within a reasonable time, and may decrease these rates if the target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments vary depending on the risk the
institution poses to its deposit insurance fund. An institution's risk level is
determined based on its capital levels, and the FDIC's level of supervisory
concern about the institution.
In 1996, federal legislation was enacted to recapitalize the SAIF and
eliminate the significant premium disparity between the BIF and the SAIF. Under
the new law, the Association was charged a one-time special assessment equal to
$.657 per $100 of assessable deposits at March 31,1995. The Association
recognized this one-time assessment as a non-recurring operating expense of
$594,000 ($238,000 after tax) during the three-month period ending September
30, 1996. The assessment was fully deductible for both federal and state income
tax purposes. Beginning January 1,1997, the Association's annual deposit
insurance premium was reduced from .23% to .0644% of total assessable deposits.
BIF institutions pay lower assessments than comparable SAIF institutions
because BIF institutions pay only 20% of the rate paid by SAIF institutions on
their deposits with respect to obligations issued by the Financing Corporation
("FICO") which provided some of the financing to resolve failing thrift
institutions in the 1980's. The 1996 law also provides for the merger of the
SAIF and the BIF by 1999, but not until such time as bank and thrift charters
are combined. Until the charters are combined, savings associations with SAIF
deposits may not transfer deposits to the BIF without paying various exit and
entrance fees, and SAIF institutions will continue to pay higher FICO
assessments. Such exit and entrance fees need not be paid if a SAIF institution
converts to a bank charter or merges with a bank, as long as the resulting bank
continues to pay applicable insurance assessments to the SAIF, and as long as
certain other conditions are met.
SAVINGS ASSOCIATION REGULATORY CAPITAL
Currently, savings associations are subject to three separate minimum
capital-to-assets requirements: (i) a leverage limit, (ii) a tangible capital
requirement, and (iii) a risk-based capital requirement. The leverage limit
requires that savings associations maintain "core capital" of at least 3% of
total assets. Core capital is generally defined as common shareholders' equity
(including retained income), noncumulative perpetual preferred stock and
related surplus, certain minority equity interests in subsidiaries, qualifying
supervisory goodwill, purchased mortgage servicing rights and purchased credit
card relationships (subject to certain limits) less nonqualifying intangibles.
Under the tangible capital requirement, a savings association must maintain
tangible capital (core capital less all intangible assets except purchased
mortgage servicing rights which may be included after making the above-noted
adjustment in an amount up to 100% of tangible capital) of at least 1.5% of
total assets. Under the risk-based capital requirements, a minimum amount of
capital must be maintained by a savings association to account for the relative
risks inherent in the type and amount of assets held by the savings association.
The risk-based capital requirement requires a savings association to maintain
capital (defined generally for these purposes as core capital plus general
valuation allowances and permanent or maturing capital instruments such as
preferred stock and subordinated debt,
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less assets required to be deducted) equal to 8.0% of risk-weighted assets.
Assets are ranked as to risk in one of four categories (0-100%). A credit
risk-free asset, such as cash, requires no risk-based capital, while an asset
with a significant credit risk, such as a non-accrual loan, requires a risk
factor of 100%. Moreover, a savings association must deduct from capital, for
purposes of meeting the core capital, tangible capital and risk-based capital
requirements, its entire investment in and loans to a subsidiary engaged in
activities not permissible for a national bank (other than exclusively agency
activities for its customers or mortgage banking subsidiaries). At September
30, 1997, the Association was in compliance with all capital requirements
imposed by law.
The OTS has promulgated a rule which sets forth the methodology for
calculating an interest rate risk component to be used by savings associations
in calculating regulatory capital. The OTS has delayed the implementation of
this rule, however. The rule requires savings associations with "above normal"
interest rate risk (institutions whose portfolio equity would decline in value
by more than 2% of assets in the event of a hypothetical 200-basis-point move
in interest rates) to maintain additional capital for interest rate risk under
the risk-based capital framework. If the OTS were to implement this regulation,
the Association would be exempt from its provisions because it has less than
$300 million in assets and a risk-based capital ratio in excess of 12%. The
Association nevertheless measure its interest rate risk in conformity with the
OTS regulation. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Asset Liability Management."
If an association is not in compliance with the capital requirements,
the OTS is required to prohibit asset growth and to impose a capital directive
that may restrict, among other things, the payment of dividends and officers
compensation. In addition, the OTS and the FDIC generally are authorized to
take enforcement actions against a savings association that fails to meet its
capital requirements. These actions may include restricting the operations and
activities of the association, imposing a capital directive, cease and desist
order, or civil money penalties, or imposing harsher measures such as
appointing a receiver or conservator or forcing the association to merge into
another institution.
PROMPT CORRECTIVE REGULATORY ACTION
Federal law requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to institutions that
do not meet minimum capital requirements. For these purposes, federal law
establishes five capital tiers: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. At September 30, 1997, the Association was categorized as
"well capitalized," meaning that the Association's total risk-based capital
ratio exceeded 10%, Tier I risk-based capital ratio exceeded 6%, leverage
capital ratio exceeded 5%, and the Association was not subject to a regulatory
order, agreement or directive to meet and maintain a specific capital level for
any capital measure.
The FDIC may order savings associations which have insufficient
capital to take corrective actions. For example, a savings association which is
categorized as "undercapitalized" would be subject to growth limitations and
would be required to submit a capital restoration plan, and a holding company
that controls such a savings association would be required to guarantee that
the savings association complies with the restoration plan. "Significantly
undercapitalized" savings associations would be subject to additional
restrictions. Savings associations deemed by the FDIC to be "critically
undercapitalized" would be subject to the appointment of a receiver or
conservator.
DIVIDEND LIMITATIONS
An OTS regulation imposes limitations upon all "capital distributions"
by savings associations, including cash dividends, payments by an association
to repurchase or otherwise acquire its shares, payments to shareholders of
another institution in a cash-out merger and other distributions charged
against capital. The regulation establishes a three-tiered system of
regulation, with the greatest flexibility given to well-capitalized
associations. A savings association which has total capital (immediately prior
to and after giving effect to the capital distribution) that is at least equal
to its fully phased-in capital requirements would be a Tier 1 institution
("Tier 1 Institution"). An association
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that has total capital at least equal to its minimum capital requirements, but
less than its capital requirements, would be a Tier 2 institution ("Tier 2
Institution"). An institution having total capital that is less than its
minimum capital requirements would be a Tier 3 institution ("Tier 3
Institution"). However, an institution which otherwise qualifies as a Tier 1
Institution may be designated by the OTS as a Tier 2 or Tier 3 Institution if
the OTS determines that the institution is "in need of more than normal
supervision." The Association is currently a Tier 1 Institution.
A Tier 1 Institution may, after prior notice but without the approval
of the OTS, make capital distributions during a calendar year up to the greater
of (a) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" at the beginning of
the calendar year (the smallest excess over its capital requirements), or (b)
75% of its net income over the most recent four-quarter period. Any additional
amount of capital distributions would require prior regulatory approval.
Accordingly, at September 30, 1997, the Association had available approximately
$2.0 million for distribution, without consideration of any capital infusion
from the Reorganization.
The OTS has proposed revisions to these regulations which would permit
savings associations to declare dividends in amounts which would assure that
they remain adequately capitalized following the dividend declaration. Savings
associations in a holding company system which are rated Camel 1 or 2 and which
are not in troubled condition would need to file a prior notice with the OTS
concerning such dividend declaration.
LIMITATIONS ON RATES PAID FOR DEPOSITS
FDIC regulations place limitations on the ability of insured
depository institutions to accept, renew or roll over deposits by offering
rates of interest which are significantly higher than the prevailing rates of
interest on deposits offered by other insured depository institutions having
the same type of charter in the institution's normal market area. Under these
regulations, "well-capitalized" depository institutions may accept, renew or
roll such deposits over without restriction, "adequately capitalized"
depository institutions may accept, renew or roll such deposits over with a
waiver from the FDIC (subject to certain restrictions on payments of rates),
and "undercapitalized" depository institutions may not accept, renew or roll
such deposits over. The regulations contemplate that the definitions of "well
capitalized," "adequately capitalized" and "undercapitalized" will be the same
as the definition adopted by the agencies to implement the corrective action
provisions of federal law. Management does do not believe that these
regulations will have a materially adverse effect on the Association's current
operations.
SAFETY AND SOUNDNESS STANDARDS
The federal banking agencies have also adopted safety and soundness
standards for all insured depository institutions. The standards, which were
issued in the form of guidelines rather than regulations, relate to internal
controls, information systems, internal audit systems, loan underwriting and
documentation, compensation and interest rate exposure. In general, the
standards are designed to assist the federal banking agencies in identifying
and addressing problems at insured depository institutions before capital
becomes impaired. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan may result in enforcement
proceedings. On August 27, 1996, the federal banking agencies added asset
quality and earning standards to the safety and soundness guidelines.
LOANS TO ONE BORROWER
Under OTS regulations, a savings association may not make a loan or
extend credit to a single or related group of borrowers in excess of 15% of
unimpaired capital and surplus. Additional amounts may be lent, not in excess
of 10% of unimpaired capital and surplus, if such loans or extensions of credit
are fully secured by readily marketable collateral, including certain debt and
equity securities, but not including real estate. In some cases, a savings
association may lend up to 30% of unimpaired capital and surplus to one
borrower for purposes of developing domestic residential housing, provided that
the association meets its regulatory capital requirements and the OTS
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authorizes the association to use this expanded lending authority. At
September 30, 1997, the Association had one loan to a single or related group
of borrowers in excess of its lending limits. Subsequently, this loan was
sold. Management does not believe that the loans-to-one-borrower limits will
have a significant impact on the Association's business operations or earnings
following the Reorganization.
QUALIFIED THRIFT LENDER
Savings associations must meet a QTL test. If the Association
maintains an appropriate level of qualified thrift investments ("QTIs")
(primarily residential mortgages and related investments, including certain
mortgage-related securities) and otherwise qualify as a QTL, it may exercise
full borrowing privileges from the FHLB of New York. The required percentage
of QTIs is 65% of portfolio assets (defined as all assets minus intangible
assets, property used by the association in conducting its business and liquid
assets equal to 10% of total assets). Certain assets are subject to a
percentage limitation of 20% of portfolio assets. In addition, savings
associations may include shares of stock of the FHLBs, FNMA, and FHLMC as QTIs.
Compliance with the QTL test is determined on a monthly basis in nine out of
every twelve months.
Recent legislation also expands the QTL test to provide savings
associations with greater authority to lend and diversify their portfolios. In
particular, credit card and education loans may now be made by savings
associations without regard to any percentage-of-assets limit, and commercial
loans may be made in an amount up to 10% of total assets, plus an additional
10% for small business loans. Loans for personal, family and household
purposes (other than credit card, small business and educational loans) are now
included without limit with other assets that, in the aggregate, may account
for up to 20% of total assets. At September 30, 1997, under the expanded QTL
test, approximately 87.6% of the Association's portfolio assets were qualified
thrift investments.
A savings association that fails to meet the QTL test must either
convert to a bank (but its deposit insurance assessments and payments will be
those of and paid to the SAIF) or be subject to the following penalties: (i) it
may not enter into any new activity except for those permissible for a national
bank and for a savings association; (ii) its branching activities will be
limited to those of a national bank; (iii) it will not be eligible for any new
FHLB advances; and (iv) it will be bound by regulations applicable to national
banks regarding the payment of dividends. Three years after failing the QTL
test the association must (i) dispose of any investment or activity not
permissible for a national bank and a savings association, and (ii) repay all
outstanding FHLB advances. If such a savings association is controlled by a
savings and loan holding company, then such holding company must, within a
prescribed time period, become registered as a bank holding company and become
subject to all rules and regulations applicable to bank holding companies
(including restrictions as to the scope of permissible business activities).
ACQUISITIONS AND BRANCHING
The Bank Holding Company Act specifically authorizes a bank holding
company, upon receipt of appropriate regulatory approvals, to acquire control
of any savings association or holding company thereof wherever located.
Similarly, a savings and loan holding company may acquire control of a bank.
Moreover, federal savings associations may acquire or be acquired by any
insured depository institution. Regulations promulgated by the FRB restrict the
branching authority of savings associations acquired by bank holding companies.
Savings associations acquired by bank holding companies may be converted to
banks if they continue to pay SAIF premiums, but as such they become subject to
branching and activity restrictions applicable to banks.
Subject to certain exceptions, commonly-controlled banks and savings
associations must reimburse the FDIC for any losses suffered in connection with
a failed bank or savings association affiliate. Institutions are commonly
controlled if one is owned by another or if both are owned by the same holding
company. Such claims by the FDIC under this provision are subordinate to claims
of depositors, secured creditors, and holders of subordinated debt, other than
affiliates.
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The OTS has adopted regulations which permit nationwide branching to
the extent permitted by federal statute. Federal statutes permit federal
savings associations to branch outside of their home state if the association
meets the domestic building and loan test in Section 7701(a)(19) of the Code or
the asset composition test of Section 7701(c) of the Code. Branching that would
result in the formation of a multiple savings and loan holding company
controlling savings associations in more than one state is permitted if the law
of the state in which the savings association to be acquired is located
specifically authorizes acquisitions of its state-chartered associations by
state-chartered associations or their holding companies in the state where the
acquiring association or holding company is located.
Finally, The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Riegle-Neal Act") permits bank holding companies to acquire
banks in other states and, with state consent and subject to certain
limitations, allows banks to acquire out-of-state branches either through
merger or de novo expansion.
TRANSACTIONS WITH AFFILIATES
The Association is subject to Sections 22(h), 23A and 23B of the
Federal Reserve Act, which restrict financial transactions between banks and
affiliated companies. The statute limits credit transactions between a bank or
savings association and its executive officers and its affiliates, prescribes
terms and conditions for bank affiliate transactions deemed to be consistent
with safe and sound banking practices, and restricts the types of collateral
security permitted in connection with a bank's extension of credit to an
affiliate.
FEDERAL SECURITIES LAW
The shares of Common Stock of the Company will be registered with the
SEC under the Securities Exchange Act of 1934 (the "1934 Act"). The Company
will be subject to the information, proxy solicitation, insider trading
restrictions and other requirements the 1934 Act and the rules of the SEC
thereunder. After three years following the reorganization to stock form, if
the Company has fewer than 300 shareholders, it may deregister its shares under
the 1934 Act and cease to be subject to the foregoing requirements.
Shares of Common Stock held by persons who are affiliates of the
Company may not be resold without registration unless sold in accordance with
the resale restrictions of Rule 144 under the 1933 Act. If the Company meets
the current public information requirements under Rule 144, each affiliate of
the Company that 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.
COMMUNITY REINVESTMENT ACT MATTERS
Federal law requires that ratings of depository institutions under the
Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure
includes both a four-unit descriptive rating--outstanding, satisfactory, needs
to improve, and substantial noncompliance--and a written evaluation of an
institution's performance. Each FHLB is required to establish standards of
community investment or service that its members must maintain for continued
access to long-term advances from the FHLBs. The standards take into account a
member's performance under the CRA and its record of lending to first time home
buyers. The OTS has designated the Association's record of meeting community
credit needs as "satisfactory."
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TAXATION
FEDERAL TAXATION
Historically, savings associations, such as the Association, have been
permitted to compute bad debt deductions using either the experience method or
the percentage of taxable income method. However, for years beginning after
December 31, 1995, no savings association may use the percentage of taxable
income method of computing its allowable bad debt deduction for tax purposes.
Instead, all savings associations are required to compute their allowable
deduction using either the experience method or the specific charge off method.
As a result of the repeal of the percentage of taxable income method, reserves
taken after 1987 using the percentage of taxable income method generally must
be included in future taxable income over a six-year period, although a
two-year delay may be permitted for associations meeting a residential mortgage
loan origination test. In addition, the pre-1988 reserve, for which no
deferred taxes have been recorded, need not be recaptured into income unless
(i) the savings association no longer qualifies as a bank under the Code, or
(ii) the savings association pays out excess dividends contributions.
Depending on the composition of its items of income and expense, a
savings association may be subject to the alternative minimum tax. A savings
association must pay an alternative minimum tax on the amount (if any) by which
20% of alternative minimum taxable income ("AMTI"), as reduced by an exemption
varying with AMTI, exceeds the regular tax due. AMTI equals regular taxable
income increased or decreased by certain tax preferences and adjustments,
including depreciation deductions in excess of that allowable for alternative
minimum tax purposes, tax-exempt interest on most private activity bonds issued
after August 7, 1986 (reduced by any related interest expense disallowed for
regular tax purposes), the amount of the bad debt reserve deduction claimed in
excess of the deduction based on the experience method and 75% of the excess of
adjusted current earnings over AMTI (before this adjustment and before any
alternative tax net operating loss). AMTI may be reduced only up to 90% by net
operating loss carryovers, but alternative minimum tax paid can be credited
against regular tax due in later years.
For federal income tax purposes, the Association has been reporting
its income and expenses on the accrual method of accounting. The Association's
federal income tax returns have not been audited during the past five years.
STATE TAXATION
NEW YORK STATE AND NEW YORK CITY TAXATION. The Company and the
Association will report income on a combined calendar year basis to both New
York State and New York City. New York State Franchise Tax on corporations is
imposed in an amount equal to the greater of (a) 9% of "entire new income"
allocable to New York State, (b) 3% of "alternative entire net income"
allocable to New York State, (c) 0.01% of the average value of assets allocable
to New York State or (d) nominal minimum tax. Entire net income is based on
federal taxable income, subject to certain modifications. Alternative entire
net income is equal to entire net income without certain modifications. The
New York City Corporation Tax is imposed using similar alternative taxable
income methods and rates.
A temporary Metropolitan Transportation Business Tax Surcharge on
banking corporations doing business in the Metropolitan District has been
applied since 1982. The Association transacts a significant portion of its
business within this District and is subject to this surcharge. For the tax
year ended December 31, 1996, the surcharge rate is 17% of the State franchise
tax liability. For 1996, an additional 2.5% tax surcharge on the New York
State Franchise Tax was imposed on the Company. New York City does not impose
surcharges applicable to the Company.
For further information relating to the tax consequences of the
Reorganization, see "The Reorganization--Principal Effects of Reorganization --
Tax Effects."
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RESTRICTIONS ON THE ACQUISITION OF THE COMPANY
GENERAL
The following discussion is a general summary of regulatory and other
restrictions on the acquisition of the Common Stock. In addition, the
following discussion generally summarizes certain provisions of the Company's
Federal Charter ("Charter") and Bylaws and certain regulatory provisions that
may be deemed to have an "anti-takeover" effect.
MUTUAL HOLDING COMPANY STRUCTURE
The mutual holding company structure restricts the ability of
stockholders of the Company to effect a change of control of management because
the Mutual Holding Company, as long as it remains in existence, will control a
majority of the voting stock of the Company. In addition, the Mutual Holding
Company will be owned by members of the Association (i.e., depositors) and such
members have granted proxies to the Board of Directors of the Association. In
the future proxies will be granted to the Mutual Holding Company. As such, the
Board of Directors of the Mutual Holding Company will be able to exert voting
control over the Company.
CHANGE IN BANK CONTROL ACT AND SAVINGS AND LOAN HOLDING COMPANY PROVISIONS OF
THE HOLA
The Change in Bank Control Act provides that no person, acting
directly or indirectly or through or in concert with one or more other persons,
may acquire control of a savings association unless the OTS has been given 60
days' prior written notice. The Home Owners' Loan Act provides that no company
may acquire "control" of a savings association without the prior approval of
the OTS. Any company that acquires such control becomes a "savings and loan
holding company" subject to registration, examination, and regulation by the
OTS. Pursuant to federal regulations, control of a savings association is
conclusively deemed to have been acquired by, among other things, the
acquisition of more than 25% of any class of voting stock of an association or
the ability to control the election of a majority of the directors of an
association. Moreover, control is presumed to have been acquired, subject to
rebuttal, upon the acquisition of more than 10% of any class of voting stock,
or of more than 25% of any class of stock, of a savings association, where
certain enumerated "control factors" are also present in the acquisition. The
OTS may prohibit an acquisition of control if (i) it 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 of
the public to permit the acquisition of control by such person. The foregoing
restrictions do not apply to the acquisition of the Company's capital stock by
one or more tax-qualified employee stock benefit plans, provided that the plan
or plans do not have beneficial ownership in the aggregate of more than 25% of
any class of equity security of the Company.
THE COMPANY'S CHARTER AND BYLAWS
The Company's Charter and Bylaws contain provisions that affect
corporate governance as well as the voting and ownership rights of
stockholders. The following discussion is a general summary of certain
provisions of the Company's Charter and Bylaws relating to provisions which may
be deemed to have an "anti-takeover" effect. The description of these
provisions is necessarily general, and reference should be made in each case to
the Charter and Bylaws of the Company.
CLASSIFIED BOARD OF DIRECTORS AND RELATED PROVISIONS
The Company's Charter provides that the Board of Directors is to be
divided into three classes which shall be as nearly equal in number as
possible. The initial directors in each class will hold office for terms of
either one year, two years or three years, and, upon reelection, will serve
for terms of three years and until their successors are
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elected and qualified. Each director serves until his successor is elected and
qualified. The Bylaws provide that a director may be removed only by the
affirmative vote of the holders of at least a majority of the outstanding
shares entitled to vote.
A classified board of directors may make it more difficult for
stockholders, including those holding a majority of the outstanding shares, to
force an immediate change in the composition of a majority of the Board of
Directors. Because the terms of only one-third of the incumbent directors
expire each year, it requires at least two annual elections for the
stockholders to change a majority, whereas a majority of a non-classified board
may be changed in one year. In the absence of provisions in the Company's
Charter or Bylaws that classify the Board of Directors, all of the directors
would be elected each year.
Management of the Company believes that the staggered election of
directors tends to promote continuity of management, although continuity of
management has not been a problem in the past, because only one-third of the
Board of Directors is subject to election each year. Staggered terms guarantee
that in the ordinary course approximately two-thirds of the directors at any
one time have had at least one year's experience as directors of the Company,
and moderate the pace of changes in the Board of Directors by extending the
minimum time required to elect a majority of directors from one to two years.
ABSENCE OF CUMULATIVE VOTING
The Company's Charter provides that there shall be no cumulative
voting for the election of directors.
AUTHORIZATION OF PREFERRED STOCK
The Federal Charter authorizes 10,000,000 shares of serial preferred
stock, without par value. The Company is authorized to issue preferred stock
from time to time in one or more series subject to applicable provisions of
law, and the Board of Directors is authorized to fix the designations, and
relative preferences, limitations, voting rights, if any, including without
limitation, conversion rights of such shares (which could be multiple or as a
separate class). In the event of a proposed merger, tender offer or other
attempt to gain control of the Company that the Board of Directors does not
approve, it might be possible for the Board of Directors to authorize the
issuance of a series of preferred stock with rights and preferences that would
impede the completion of such a transaction. An effect of the possible
issuance of preferred stock, therefore, may be to deter a future takeover
attempt. The Board of Directors has no present plans or understandings for the
issuance of any preferred stock but it may issue any preferred stock on terms
which the Board deems to be in the best interests of the Company and its
stockholders.
INSIDER VOTING CONTROL
Directors and executive officers are expected to purchase up to 29,500
shares of Common Stock in the Offering and are expected to control the voting
of 6.4% of the shares of Common Stock sold in the Offering, assuming the sale
of 460,000 shares, and may control the voting of an additional 8% of the shares
of Common Stock sold in the Offering through the ESOP. In addition, current
officers and directors of the Association will be officers and directors of the
Mutual Holding Company which, after the Reorganization and Stock Offering, will
own 54% of the total number of shares outstanding. The Company intends to
adopt a Stock Option Plan which may award options to purchase shares of Common
Stock in an amount equal to up to 10% of the shares sold in the Offering and a
Stock Award Plan which may award shares of Common Stock in an amount equal to
4% of the shares sold in the Offering.
86
<PAGE> 91
DESCRIPTION OF CAPITAL STOCK
COMPANY CAPITAL STOCK
The 30,000,000 shares of capital stock authorized by the Company's
Federal Charter are divided into two classes, consisting of 20,000,000 shares
of common stock ($1.00 par value) and 10,000,000 shares of serial preferred
stock. The Company currently expects to issue between 391,000 and 529,000
shares, with an adjusted maximum of 608,350 shares, of Common Stock in the
Offering. The aggregate stated value of the issued shares will constitute the
capital account of the Company on a consolidated basis. The balance of the
Purchase Price of Common Stock, less expenses of the Reorganization and
Offering, will be reflected as paid-in capital on a consolidated basis. See
"Capitalization." Upon payment of the Purchase Price for the Common Stock, all
such stock will be duly authorized, fully paid, validly issued and
nonassessable.
COMMON STOCK. Each share of the Common Stock will have the same
relative rights and will be identical in all respects with each other share of
the Common Stock. THE COMMON STOCK OF THE COMPANY WILL REPRESENT
NON-WITHDRAWABLE CAPITAL, WILL NOT BE OF AN INSURABLE TYPE AND WILL NOT BE
INSURED BY THE FDIC.
The holders of the Common Stock will possess exclusive voting power in
the Company. Each stockholder will be entitled to one vote for each share held
on all matters voted upon by stockholders. If the Company issues preferred
stock subsequent to the Reorganization, holders of the preferred stock may also
possess voting powers.
LIQUIDATION OR DISSOLUTION. In the unlikely event of the complete
liquidation or dissolution of the Association, the holders of the Common Stock
will be entitled to receive all the assets of the Association available for
distribution in or in kind, after payment or provision for payment of (i) all
debts and liabilities of the Association, (ii) any accrued dividend claims, and
(iii) the liquidation preference of any serial preferred stock that may be
issued in the future.
NO PREEMPTIVE RIGHTS. Holders of the Common Stock will not be
entitled to preemptive rights with respect to any shares which may be issued.
The Common Stock may not be redeemed at the option of the stockholders and,
upon receipt by the Company of the full purchase price for the stock, each
share of the Common Stock will be fully paid and nonassessable.
PREFERRED STOCK. After the Reorganization, the Board of Directors of
the Company will be authorized to issue preferred stock in series and to fix
and state the voting powers, designations, preferences and relative,
participating, optional or other special rights of the shares of each such
series and the qualifications, limitations and restrictions thereof. Preferred
stock may rank prior to the Common Stock as to dividend rights, liquidation
preferences, or both, and may have full or limited voting rights. The holders
of preferred stock will be entitled to vote as a separate class or series under
certain circumstances, regardless of any other voting rights which such holders
may have.
Except as discussed in this Prospectus, the Company has no present
plans for the issuance of the additional authorized shares of Common Stock or
for the issuance of any shares of preferred stock. In the future, the
authorized but unissued and unreserved shares of Common Stock will be available
for general corporate purposes including but not limited to possible issuance
as stock dividends or stock splits, in future mergers or acquisitions, under a
cash dividend reinvestment and stock purchase plan, in a future underwritten or
other public offering or under an employee stock ownership plan, stock option
or restricted stock plan. The authorized but unissued shares of preferred
stock will similarly be available for issuance in future mergers or
acquisitions, in a future underwritten public offering or private placement or
for other general corporate purposes. Except as described above or as
otherwise required to approve the transaction in which the additional
authorized shares of Common Stock or authorized shares of preferred stock would
be issued, no stockholder approval will be required for the issuance of these
shares. Accordingly, the Board
87
<PAGE> 92
of Directors of the Company, without stockholder approval, can issue preferred
stock with voting and conversion rights which could adversely affect the voting
power of the holders of Common Stock.
DIVIDENDS. When the Reorganization is completed, the Company's only
asset will be the common stock of the Association and up to 50% of the net
proceeds of the Offering. As a result, dividends from the Association will be
an important source of future income for the Company. Should the Association
elect to retain its income, the ability of the Company to pay dividends to its
own shareholders may be adversely affected. Furthermore, if at any time in the
future the Company owns less than 100% of the outstanding stock of the
Association, certain tax benefits under the Code as to inter-company
distributions would not be fully available to the Company and it would be
required to pay federal income tax on a portion of the dividends received from
the Association, thereby reducing the amount of income available for
distribution to the shareholders of the Company.
TRANSFER AGENT
________________________ will act as transfer agent and registrar for
the Common Stock. __________________'s phone number is (_____) ________________
or (800) __________________.
REGISTRATION REQUIREMENTS
The Company's Common Stock will be registered pursuant to Section
12(g) of the 1934 Act and may not be deregistered for a period of at least
three years following the Reorganization. As a result of the registration under
the 1934 Act, certain holders of Common Stock will be subject to certain
reporting and other requirements imposed by the 1934 Act. For example,
beneficial owners of more than 5% of the outstanding Common Stock will be
required to file reports pursuant to Section 13(d) or Section 13(g) of the 1934
Act, and officers, directors and 10% shareholders of the Company will generally
be subject to reporting requirements of Section 16(a) and to the liability
provisions for profits derived from purchases and sales of Company Common Stock
occurring within a six-month period pursuant to Section 16(b) of the 1934 Act.
In addition, certain transactions in Common Stock, such as proxy solicitations
and tender offers, will be subject to the disclosure and filing requirements
imposed by Section 14 of the 1934 Act and the regulations promulgated
thereunder.
LEGAL AND TAX MATTERS
Luse Lehman Gorman Pomerenk & Schick, P.C., 5335 Wisconsin Avenue,
N.W., Suite 400, Washington, D.C. 20015, special counsel to the Association,
will pass upon the legality and validity of the shares of Common Stock being
issued in the Offering. Luse Lehman Gorman Pomerenk & Schick, P.C. has issued
an opinion concerning certain federal income tax aspects of the Reorganization
and that the Reorganization, as proposed, constitutes a tax-free reorganization
under federal law. O'Reilly, Marsh & Corteselli, P.C., 1000 Franklin Avenue,
Garden City, New York 11530, has issued an opinion concerning certain state
income tax aspects of the Reorganization. Luse Lehman Gorman Pomerenk &
Schick, P.C. and O'Reilly, Marsh & Corteselli, P.C. have consented to the
references herein to their opinions. Certain legal matters related to the
Offering will be passed upon for Ryan, Beck & Co. by Stevens & Lee, P.C., 1275
Drummers Lane, Wayne, Pennsylvania 19087.
EXPERTS
The Association's financial statements at March 31,1997 and 1996, and
for each of the two years in the period ended March 31, 1997 appearing in this
Prospectus and Registration Statement have been audited by Sol Masch & Co.
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
Feldman Financial has consented to the publication of the summary
herein of its appraisal report as to the estimated pro forma market value of
the Common Stock of the Company to be issued in the Offering, to the reference
88
<PAGE> 93
to its opinion relating to the value of the subscription rights, and to the
filing of the Independent Valuation as an exhibit to the registration statement
filed by the Company under the 1933 Act.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
1933 Act with respect to the Common Stock offered hereby. As permitted by the
rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information can be
inspected and copied at the SEC's public reference facilities located at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's Regional Office in
New York (Seven World Trade Center, 13th Floor, New York, New York 10048) and
Chicago (Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511) and copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. This information can also be found
on the SEC's website, located at http://www.sec.gov.
In connection with the Reorganization, the Association filed with the
OTS a notice of its intent to reorganize into a mutual holding company and to
conduct a minority stock issuance, and the Company filed with the OTS an
application to become a savings and loan holding company. This Prospectus omits
certain information contained in such applications. The applications may be
inspected at the offices of the OTS, 1700 G Street, N.W., Washington, D.C.
20552 and at the Northeast Regional Office of the OTS, 10 Exchange Place,
Jersey City, New Jersey 07302.
89
<PAGE> 94
GLOSSARY
1933 Act Securities Act of 1933, as amended.
1934 Act Securities Exchange Act of 1934, as amended.
Associate The term "Associate" of a person means:
(i) any corporation or organization (other
than the Association or its subsidiaries or
the Company) of which such person is a
director, officer, partner or 10%
shareholder;
(ii) any trust or other estate in which such
person has a substantial beneficial interest
or serves as trustee or in a similar
fiduciary capacity; provided, however that
such term shall not include any employee
stock benefit plan of the Company or the
Association in which such a person has a
substantial beneficial interest or serves as
a trustee or in a similar fiduciary capacity,
and
(iii) any relative or spouse of such person,
or relative of such spouse, who either has
the same home as such person or who is a
director or officer of the Association or its
subsidiaries or the Company.
Association Atlantic Liberty Savings, F.A. in its
pre-Reorganization mutual form
ATM Automated Teller Machine
BIF Bank Insurance Fund of the FDIC
Code The Internal Revenue Code of 1986, as amended
Common Stock The shares of Common Stock, par value of
$1.00 per share, issued by Brooklyn Heights
Bancorp in connection with the Reorganization
and Offering
Community Offering The offering for sale to members of the
general public of any shares of Common Stock
not subscribed for in the Subscription
Offering
Company Brooklyn Heights Bancorp
Eligible Account Holders Deposit account holders of the Association
with aggregate account balances of at least
$50 as of the close of business on June 30,
1996
ERISA Employee Retirement Income Security Act of
1974, as amended
ESOP The Atlantic Liberty Savings, F.A. Employee
Stock Ownership Plan and Trust
Estimated Valuation Range The range of the estimated pro forma market
value of the total number of shares of Common
Stock to be issued by the Company to the
Mutual Holding Company and to Minority
Stockholders, as determined by Feldman
Financial.
Expiration Date ______________, New York Time, on
__________,1998
G-1
<PAGE> 95
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
Feldman Financial Feldman Financial Advisors, Inc.
FHLB Federal Home Loan Bank
FNMA Federal National Mortgage Association
Independent Valuation The estimated pro forma market value of the
Company and the Association prepared by
Feldman Financial
IRA Individual retirement account or arrangement
IRS Internal Revenue Service
Minority Ownership Interest The shares of Common Stock of the Company
owned by persons other than the Mutual
Holding Company
Mutual Holding Company Atlantic Liberty, MHC, a federal mutual
holding company and majority stockholder of
the Company
NASD National Association of Securities Dealers,
Inc.
NPV Net portfolio value
Offering The Subscription Offering and to the extent
shares remain available for subscription, the
Community Offering and Syndicated Community
Offering.
Offering Range The offering of the Common Stock in the
Offering at an aggregate Purchase Price
ranging from $3,910,000 to $5,290,000,
subject to adjustment up to $6,083,500
Order Form The form for ordering stock accompanied by a
certification concerning certain matters
Other Members Persons holding a deposit account at the
Association (other than Eligible Account
Holders and Supplemental Eligible Account
Holders) on the Voting Record Date or who
have borrowings outstanding from the
Association on the Voting Record Date, and
who are entitled to vote at the Special
Meeting
OTS Office of Thrift Supervision
Plan or Plan of Reorganization The Atlantic Liberty Savings, F.A. Plan of
Reorganization from a Mutual Savings
Association to a Mutual Holding Company and
Stock Issuance Plan, which will (i)
reorganize the Association from a
federally-chartered mutual savings
association to a federally chartered mutual
holding company and (ii) establish the
Company as a mid-tier stock holding company
which will own all of the outstanding capital
stock of the Association.
Purchase Price $10.00 per share price of the Common Stock
G-2
<PAGE> 96
QTI Qualified thrift investment
QTL Qualified thrift lender
REO Real Estate Owned
Reorganization The simultaneous (i) reorganization of the
Association into the mutual holding company
form of ownership, (ii) offering of 46% of
the Common Stock of the Company to qualifying
depositors, the ESOP and the public, and
(iii) issuance of the remaining 54% of the
Common Stock of the Company to the Mutual
Holding Company. The Reorganization will
create (i) the Mutual Holding Company as a
federal mutual holding company, (ii) the
Company as a federal stock holding company
that is majority-owned by the Mutual Holding
Company and (iii) the Stock Association, as a
federal stock savings association
wholly-owned by the Company.
SAIF Savings Association Insurance Fund of the
FDIC
SEC Securities and Exchange Commission
Special Meeting Special Meeting of members of the Association
called for the purpose of approving the Plan
Stock Association Atlantic Liberty Savings, F.A., in its
post-Reorganization stock form.
Stock Award Plan The stock award plan that will grant Common
Stock to certain officers and directors of
the Association, that will be submitted for
approval of the Company's stockholders no
earlier than six months after the completion
of the Reorganization
Stock Option Plan The stock option plan that will grant options
to purchase up to 10% of the Common Stock
issued in the Stock Offering to certain
officers and directors, which will be
submitted for approval at a meeting of the
Company's stockholders no earlier than six
months after the completion of the
Reorganization
Subscription Offering The offering of non-transferable rights to
subscribe for the Common Stock, in order of
priority, to Eligible Account Holders, the
ESOP, Supplemental Eligible Account Holders,
Other Members and employees, officers and
directors of the Association
Supplemental Eligible
Account Holders Depositor account holders of the Association
with aggregate account balances of at least
$50 as of the close of business on December
31, 1997, who are not Eligible Account
Holders or Supplemental Eligible Account
Holders
Voting Record Date The close of business on _____________, 1998,
the date for determining members entitled to
vote at the Special Meeting
G-3
<PAGE> 97
ATLANTIC LIBERTY SAVINGS, F.A.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Statements of Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
</TABLE>
######
All schedules are omitted as they are not required or are not applicable, or
required information is shown in the applicable financial statements or notes
thereto.
Financial statements are not provided for the Company because to date the
Company has not engaged in any operations.
<PAGE> 98
ATLANTIC LIBERTY SAVINGS, F.A.
FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
<PAGE> 99
SOL MASCH & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
P.O. BOX 670
CROTON-ON-HUDSON, NEW YORK 10520-0670
------
(914) 734-2300
FAX: (914) 734-2470
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Atlantic Liberty Savings, F.A.
We have audited the accompanying statements of financial condition of Atlantic
Liberty Savings, F.A. as of March 31, 1997 and 1996, and the related statements
of operations, retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Association's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Atlantic Liberty Savings, F.A.
as of March 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/S/ SOL MASCH & COMPANY
Croton-on-Hudson, New York
August 5, 1997
F-1
<PAGE> 100
ATLANTIC LIBERTY SAVINGS, F.A.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1996 1997 1996
---- ---- ---- ----
UNAUDITED
---------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $9,440,915 $7,587,021 $10,285,364 $11,225,391
Investment securities, held-to-maturity (estimated market
value of $32,190,133 $36,630,451, $35,599,705, and $34,955,723
(Note 2) 32,167,166 37,031,695 36,288,248 35,381,278
Loans receivable, net (Notes 3 and 4) 65,485,670 57,320,968 60,058,821 54,504,599
Accrued interest receivable (Note 5) 194,795 232,007 222,810 216,026
Foreclosed real estate, net of allowance for losses of $6,979,
$29,258, $21,979, and $143,222)(Note 6) 274,253 390,596 384,753 1,313,595
Real estate held for investment (Note 6) 78,468 78,468 78,468 78,468
Premises and equipment (Note 7) 1,526,558 1,572,428 1,544,083 1,631,916
Other assets 719,076 1,083,323 931,285 1,390,356
------- --------- ------- ---------
Total assets $109,886,901 $105,296,506 $109,793,832 $105,741,629
------------ ------------ ------------ ------------
Liabilities and Retained Earnings
Deposits (Note 8) $100,539,486 $95,728,403 $100,797,875 $97,395,595
Advances from borrowers for taxes and insurance 763,195 785,687 993,965 802,200
Income taxes payable (Note 9) 28,179 0 0 0
Other liabilities 1,347,529 1,385,230 1,128,872 794,239
--------- --------- --------- -------
Total liabilities 102,678,389 97,899,320 102,920,712 98,992,034
Commitments and contingencies (Note 13)
Retained earnings (Note 16) 7,208,512 7,397,186 6,873,120 6,749,595
--------- --------- --------- ---------
Total liabilities and retained earnings $109,886,901 $105,296,506 $109,793,832 $105,741,629
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 101
ATLANTIC LIBERTY SAVINGS, F.A.
STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, MARCH 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $6,873,120 $6,749,595 $6,749,595 $6,553,507
Net income 335,392 647,591 123,525 196,088
------- ------- ------- -------
Balance at end of period $7,208,512 $7,397,186 $6,873,120 $6,749,595
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 102
ATLANTIC LIBERTY SAVINGS, F.A.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, MARCH 31,
1997 1996 1997 1996
---- ---- ---- ----
UNAUDITED
---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $335,392 $647,591 $123,525 $196,088
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of:
Deferred loan origination fees (13,691) (10,242) (19,879) (31,470)
Premiums and discounts on investment securities,
mortgage-backed and related securities, and loans 1,684 11,950 18,106 1,456
Provision for loan losses 105,473 65,643 771,178 274,981
Net gain (loss) on sale of foreclosed real estate (28,838) (123,089) (148,394) 135,247
Depreciation of premises and equipment 48,249 59,488 119,847 111,202
Decrease (Increase) in other assets 212,209 307,032 459,071 (704,977)
Increase in accrued expenses and other liabilities 218,657 590,992 334,633 317,992
Decrease (Increase) in accrued interest receivable 28,015 (15,981) (6,784) 56,274
Increase (Decrease) in income taxes payable 28,179 0 0 (44,500)
------ - - -------
Total adjustments 599,937 885,793 1,527,778 116,205
------- ------- --------- -------
Net cash provided by operating activities 935,329 1,533,384 1,651,303 312,293
------- --------- --------- -------
Cash flows from investing activities:
Net increase in loan originations less principal
payment on loans (5,274,945) (2,910,853) (6,468,988) (2,010,562)
Proceeds from maturities and principal reductions of
investment securities 5,244,659 1,372,516 5,994,079 7,126,404
Purchases of marketable securities (1,125,261) (3,034,882) (6,864,555) (10,585,696)
Purchase of Federal Home Loan Bank stock 0 0 (54,600) 0
Proceeds from sales of foreclosed real estate 139,338 1,085,171 1,240,703 1,119,050
Purchases of premises and equipment (30,724) 0 (32,014) (229,885)
------- - -------- ---------
Net cash used by investing activities (1,046,933) (3,488,048) (6,185,375) (4,580,689)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Net increase (decrease) in deposit accounts (502,075) (1,667,192) 3,402,280 6,932,728
Net increase in advance payments from borrowers for
taxes and insurance (230,770) (16,513) 191,765 29,664
-------- ------- ------- ------
Net cash provided by financing activities (732,845) (1,683,705) 3,594,045 6,962,392
-------- ---------- --------- ---------
Net increase (decrease) in cash/equivalents (844,449) (3,638,369) (940,027) 2,693,996
Cash/Equivalents at beginning of period 10,285,364 11,225,391 11,225,391 8,531,395
---------- ---------- ---------- ---------
Cash/Equivalents at end of period $9,440,915 $7,587,022 $10,285,364 $11,225,391
---------- ---------- ----------- -----------
Supplemental Disclosures
Cash paid for:
Interest on deposits $2,302,380 $2,187,048 $4,363,127 $4,150,258
Income taxes $0 $48,000 $48,000 $207,969
Transfers from loans to real estate acquired
through foreclosure $0 $39,083 $163,467 $1,317,963
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 103
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Atlantic Liberty Savings, F.A.'s primary business activities include attracting
deposits from the general public and originating residential property loans
(one-to-four family home mortgage, cooperative apartment and multi-family
property loans). The Association also makes commercial real estate and consumer
loans. The Association is subject to competition from other financial
institutions. Deposits at the Association are insured up to the applicable
limits by the Savings Association Insurance Fund, (SAIF), administered by the
Federal Deposit Insurance Corporation, (FDIC).
(b) CASH EQUIVALENTS
For purposes of the statements of cash flows, the Association considers all
highly liquid debt instruments with original maturities when purchased of three
months or less to be cash equivalents.
(c) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management obtains independent
appraisals for significant properties.
A majority of the Association's loan portfolio consists of single-family
residential loans. Accordingly, the ultimate collectibility of a substantial
portion of the Association's loan portfolio and the recovery of a substantial
portion of the carrying amount of foreclosed real estate are susceptible to
changes in market conditions.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the
Association's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Association to recognize additions to the allowances
based on their judgments about information available to them at the time of
their examination. Because of these factors, it is reasonably possible that the
allowances for losses on loans and foreclosed real estate may change materially
in the near term.
(d) INVESTMENT SECURITIES
Bonds, notes, debentures, and mortgage-backed securities are carried at cost,
adjusted for premiums and discounts that are recognized in interest income using
the interest method over the period to maturity. The Association has the
positive intent and ability to hold such investments to maturity. Should any be
sold, gains and losses will be recognized based on the specific identification
method.
Premiums and discounts are amortized to expense or accreted to income over the
term of the related securities using the interest method, adjusted for
prepayments.
Federal law requires a member institution of the Federal Home Loan Bank,
(FHLB), system to hold stock of its district FHLB according to a predetermined
formula. This stock is recorded at cost and is classified as held-to-maturity.
F-5
<PAGE> 104
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
(e) LOANS RECEIVABLE
Loans receivable that Management has the intent and ability to hold until
maturity or payoff are stated at unpaid principal balances, less the allowance
for loan losses, and net deferred loan-origination fees and discounts.
Discounts on consumer and other loans are recognized over the lives of the loans
using the interest method.
The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Association's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
Uncollectible interest on loans that are in excess of ninety days past due is
charged off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income equal to
all interest previously accrued, and income is subsequently recognized only to
the extent that cash payments are received until, in management's judgment, the
borrower's ability to make periodic interest and principal payments is back to
normal, in which case the loan is returned to accrual status.
(f) LOAN-ORIGINATION FEES AND RELATED COSTS
Loan fees and certain direct loan origination costs are deferred, and the net
fee or cost is recognized as an adjustment to interest income over the
contractual life of the loans, adjusted for prepayments based on the
Association's prepayment experience.
(g) REAL ESTATE HELD FOR INVESTMENT AND FORECLOSED REAL ESTATE
Real estate properties acquired through loan foreclosure are initially recorded
at fair value at the date of foreclosure. Thereafter, they are carried at the
lower of carrying value or fair value, less costs to sell. Real estate
properties held for investment are carried at the lower of cost, including cost
of improvements and amenities incurred subsequent to acquisition, or net
realizable value. Costs relating to development and improvement of property are
capitalized, whereas costs relating to the holding of property are expensed.
Valuations are periodically performed by independent appraisers, and an
allowance for losses is established by a charge to operations if the carrying
value of a property exceeds its fair value less estimated costs to sell.
Profit on real estate sales transactions is not recognized by the full accrual
method until a sale is consummated, the buyer's initial and continuing
investments are adequate to demonstrate a commitment to pay for the property,
the Association's receivable is not subject to future subordination, and the
Association has transferred to the buyer the usual risks and rewards of
ownership.
(h) PREMISES AND EQUIPMENT
Land is carried at cost. Buildings and furniture, fixtures, and equipment are
carried at cost, less accumulated depreciation. Buildings and furniture,
fixtures, and equipment are depreciated using the straight-line method over the
estimated useful lives of the assets, which lives range between 5 and 30 years.
(i) FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, (SFAS 107), requires
F-6
<PAGE> 105
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
disclosure of fair value information about financial instruments, whether or
not recognized in the balance sheet. In cases where quoted market prices are
not available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instruments. Statement No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Association.
The following methods and assumptions were used by the Association in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the statement of
financial condition for cash and cash equivalents approximate those assets' fair
values.
Investment securities: Fair values for investment securities are based on quoted
market prices, where available, from securities dealers.
Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying amounts. The fair
values for other loans (for example, fixed rate commercial real estate and
rental property mortgage loans) are estimated using discounted cash flow
analysis, based on interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Loan fair value estimates include
judgments regarding future expected loss experience and risk characteristics.
The carrying amount of accrued interest receivable approximates its fair value.
Deposits and advances from borrowers for taxes and insurance: The fair values
disclosed for deposits with no stated maturity, (for example, interest-bearing
checking accounts and passbook accounts) are equal to the amount payable on
demand at the reporting date (that is, their carrying amounts). The fair values
for certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated contractual maturities on such time deposits. The
fair value of advances from borrowers for taxes and insurance, which has no
stated maturity, is equal to the amount on deposit.
Limitations: Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instruments.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Association's entire holdings or of a
particular financial instrument. Because no market exists for a significant
portion of the Association's financial instruments, fair value estimates are
based on judgements regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgement and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Management is concerned that reasonable comparability between financial
institutions may not be likely due to the wide range of permitted valuation
techniques and the estimates and assumptions that must be made.
(j) INTERIM FINANCIAL STATEMENTS
The accompanying financial statements and related information contained in these
footnotes as of September 30, 1997 and September 30, 1996 and for the six months
ended September 30, 1997 and September 30, 1996 are unaudited but, in
management's opinion, reflect all adjustments, consisting only of normal
recurring accruals, necessary for fair presentation.
F-7
<PAGE> 106
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
(2) INVESTMENT SECURITIES
Investment securities at September 30, 1997 is summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
HELD-TO-MATURITY:
<S> <C> <C> <C> <C>
U.S. Government and agencies $12,567,585 $4,919 122,169 $12,450,335
Federal Home Loan Bank Stock 582,700 0 0 582,700
Asset Management fund, Inc. adjustable rate mortgage portfolio 4,204,511 160,000 0 4,364,511
Mortgage-backed securities:
FNMA certificates 6,468,038 12,572 30,290 6,450,320
FHLMC certificates 3,904,801 94,082 25,913 3,972,970
GNMA certificates 559,032 29,206 0 588,238
FNMA CMO's 1,859,314 0 97,692 1,761,622
FHLMC CMO's 2,021,185 11,245 12,993 2,019,437
--------- ------ ------ ---------
Total mortgage-backed securities 14,812,370 147,105 166,888 14,792,587
---------- ------- ------- ----------
Total securities held-to-maturity $32,167,166 $312,024 $289,057 $32,190,133
----------- -------- -------- -----------
</TABLE>
Investment securities at March 31,1997 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
HELD-TO-MATURITY:
U.S. Government and agencies $16,675,255 $630 311,293 $16,364,592
Federal Home Loan Bank Stock 582,700 0 0 582,700
Asset Management fund, Inc. adjustable rate mortgage portfolio 3,079,250 0 2,338 3,076,912
Mortgage-backed securities:
FNMA certificates 6,894,345 15,477 42,814 6,867,009
FHLMC certificates 4,290,911 50,912 27,743 4,314,080
GNMA certificates 610,700 16,295 0 626,995
FNMA CMO's 1,859,410 0 136,117 1,723,293
FHLMC CMO's 2,295,677 18,889 270,442 2,044,124
--------- ------ ------- ---------
Total mortgage-backed securities 15,951,043 101,573 477,115 15,575,501
---------- ------- ------- ----------
Total securities held-to-maturity $36,288,248 $102,203 $790,746 $35,599,705
----------- -------- -------- -----------
</TABLE>
F-8
<PAGE> 107
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 and 1996
Investment securities at March 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
HELD-TO-MATURITY:
U.S. Government and agencies $15,627,252 $2,073 286,244 $15,343,081
Federal Home Loan Bank Stock 528,100 0 0 528,100
Asset Management fund, Inc. adjustable rate mortgage portfolio 1,187,408 0 9,560 1,177,848
Mortgage-backed securities:
FNMA certificates 7,821,925 27,206 23,150 7,825,981
FHLMC certificates 5,050,837 81,545 19,966 5,112,416
GNMA certificates 728,477 14,264 0 742,741
FNMA CMO's 1,859,746 0 82,897 1,776,849
FHLMC CMO's 2,577,533 6,250 135,076 2,448,707
--------- ----- ------- ---------
Total mortgage-backed securities 18,038,518 129,265 261,089 17,906,694
---------- ------- ------- ----------
Total securities held-to-maturity $35,381,278 $131,338 $556,893 $34,955,723
----------- -------- -------- -----------
</TABLE>
The amortized cost and fair value of investment securities are shown below.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997 MARCH 31, 1996
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY:
Due in one year or less $3,100,856 $3,074,805 $3,101,712 $3,074,514 $3,909,503 $3,891,069
Due after one year through five years 9,466,728 9,375,530 11,573,543 11,311,948 7,707,749 7,560,121
Due after five years through ten years 0 0 2,000,000 1,978,130 4,000,000 3,891,890
Federal Home Loan Bank Stock 582,700 582,700 582,700 582,700 528,100 528,100
Mortgage-backed securities 19,016,882 19,157,098 19,030,293 18,652,413 19,225,926 19,084,542
---------- ---------- ---------- ----------- ----------- -----------
$32,167,166 $32,190,133 $36,288,248 $35,599,705 $35,371,278 $34,955,722
----------- ----------- ----------- ------------ ----------- -----------
</TABLE>
(3) LOANS RECEIVABLE, NET
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997 MARCH 31, 1996
------------------ -------------- --------------
<S> <C> <C> <C>
First mortgage loans (principally conventional):
Principal balances:
Secured by one-to-four family residences $40,064,269 $36,862,365 $30,604,762
Secured by other residential properties 12,973,968 10,554,762 11,166,411
Commercial mortgages 11,860,580 11,917,073 12,784,146
---------- ---------- ----------
64,898,817 59,334,200 54,555,319
Less:
Net deferred loan-origination fees 157,061 127,444 120,782
------- ------- -------
Total first mortgage loans 64,741,756 59,206,756 54,434,537
---------- ---------- ----------
Consumer loans:
Principal balances:
Secured 243,686 0 0
Unsecured 1,583,534 1,829,894 815,278
--------- --------- -------
Total consumer loans 1,827,220 1,829,894 815,278
Less: Allowances for loan and lease losses 1,083,302 977,829 745,216
--------- ------- -------
$65,485,674 $60,058,821 $54,504,599
----------- ----------- -----------
</TABLE>
F-9
<PAGE> 108
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 MARCH 31, 1997 MARCH 31, 1996
------------------ ------------------ -------------- --------------
<S> <C> <C> <C> <C>
Balance at beginning of year $977,829 $745,216 $ 745,216 $619,611
Provision charged to income 105,473 65,643 771,178 274,981
Recoveries 0 0 0 0
Charge-offs and recoveries, net 0 (136,987) (538,566) (149,376)
- --------- --------- ---------
$1,083,302 $673,873 $ 977,829 $745,216
---------- --------- ---------- ---------
</TABLE>
Loans having carrying values of $5,158,662, $5,999,134, $5,073,887, and
$6,290,620 at September 30, 1997 and 1996 and March 31, 1997 and 1996,
respectively, are considered to be impaired. A loan is impaired when, based on
current information and events, it is probable that the Association will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. Included in impaired loans are loans aggregating $4,341,129,
$4,344,764, $3,739,472, and $4,529,916 at September 30, 1997 and 1996 and March
31, 1997 and 1996, respectively, for which there is a specific allowance for
credit losses of $709,681, $665,337, $515,130, and $727,975 at September 30,
1997 and 1996 and March 31, 1997 and 1996, respectively. The average recorded
investment in impaired loans was $4,760,827, $6,056,567, $5,498,004, and
$5,869,763 at September 30, 1997 and 1996 and March 31, 1997 and 1996,
respectively. No interest income is recognized on impaired loans which are on
nonaccrual. Had interest income on nonaccrual loans been recorded at the
contractual rates and due dates, the Association would have recorded additional
interest income of $21,034, $253,147, $323,615, and $228,989, for the periods
ended September 30, 1997 and 1996 and March 31, 1997 and 1996, respectively.
(4) LOAN SERVICING
Mortgage loans serviced for others arc not included in the accompanying balance
sheets. The unpaid principal balances of these loans are summarized as follow:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997 MARCH 31, 1996
------------------ -------------- --------------
<S> <C> <C> <C>
Mortgage loan serviced for:
Agency of the City of New York $25,693 $31,473 $42,947
Private lender 0 0 65,080
- - ------
$25,693 $31,473 $108,027
------- ------- --------
</TABLE>
The Association does not maintain custodial escrow accounts for these loans.
(5) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997 MARCH 31, 1996
------------------ -------------- --------------
<S> <C> <C> <C>
U.S. Government and agency securities $45,126 $95,877 $63,943
Mortgage-backed securities 102,894 106,804 125,944
Loans receivable, net of valuation allowances totaling
$21,034, $458,256, and $448,745 as of September 30,
1997, and March 31, 1997 and 1996, respectively 46,775 20,129 26,139
------ ------ ------
$194,795 $222,810 $216,026
-------- -------- --------
</TABLE>
F-10
<PAGE> 109
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
(6) REAL ESTATE
Income from real estate operations is summarized as folows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED MARCH 31,
SEPTEMBER 30, 1997 1997 1996
------------------ ---- ----
<S> <C> <C> <C>
Real estate held for investment $2,187 $ 5,327 ($287)
Property used in the Association's business 80,557 192,064 186,870
Foreclosed real estate (2,579) (43,179) (13,426)
$80,165 $154,212 $173,157
------- -------- --------
</TABLE>
Gain (Loss) on disposal of real estate owned is summarized as follws:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED MARCH 31,
SEPTEMBER 30, 1997 1997 1996
------------------ ---- ----
<S> <C> <C> <C>
Real estate sales $139,338 $1,240,703 $1,119,050
Cost of sales (110,500) (1,389,097) (983,803)
--------- ---------- ---------
$28,838 ($148,394) $135,247
------- ---------- --------
</TABLE>
Activity in the allowance for losses on real estate owned is summarized as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 MARCH 31, 1997 MARCH 31 1996
------------------ ------------------ -------------- -------------
<S> <C> <C> <C> <C>
Balance at beginning of year $21,979 $143,222 $143,222 $93,811
Provision charged to income 0 (541) (7,220) 152,709
Recoveries 0 0 0 0
Charge-offs and recoveries, net (15,000) (113,423) (114,023) (103,298)
-------- --------- --------- ---------
$6,979 $29,258 $21,979 $143,222
------ ------- ------- --------
</TABLE>
(7) PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997 MARCH 31, 1996
------------------ -------------- --------------
<S> <C> <C> <C>
Land $400,000 $400,000 $400,000
Buildings 1,819,848 1,792,590 1,772,294
Furniture, fixtures, and equipment 458,634 446,183 480,375
------- ------- -------
2,678,482 2,638,773 2,652,669
Less: Accumulated depreciation 1,151,924 1,094,690 1,020,753
--------- --------- ---------
$1,526,558 $1,544,083 $1,631,916
---------- ---------- ----------
</TABLE>
F-11
<PAGE> 110
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
(8) DEPOSITS
Deposit account balances are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997 MARCH 31, 1996
WEIGHTED WEIGHTED WEIGHTED
TYPE OF ACCOUNT AVERAGE RATE AMOUNT AVERAGE RATE AMOUNT AVERAGE RATE AMOUNT
- --------------- ------------ ------ ------------ ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Savings accounts 2.50% $21,359,393 2.50% $21,492,808 2.50% $23,485,774
Certificates of deposit 5.68% 60,589,308 5.56% 60,697,580 5.77% 58,098,921
NOWaccounts 2.50% 4,285,253 2.50% 4,722,508 2.50% 3,974,160
Money market accounts 3.00% 6,749,003 3.00% 6,998,669 3.00% 8,239,909
Money market statement savings 5.00% 7,360,086 5.00% 6,784,612 5.00% 3,497,955
Holiday clubs 2.50% 196,443 2.50% 101,697 2.50% 98,875
------- ------- ------
$100,539,486 $100,797,875 $97,395,595
------------ ------------ -----------
</TABLE>
Scheduled maturities of certificates of deposit are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
WEIGHTED
AVERAGE RATE AMOUNT PERCENT
------------ ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1 year or less 5.50% $41,148 67.91%
Greater than 1 year through 2 years 5.79% 8,107 13.38%
Greater than 2 years through 3 years 6.52% 4,892 8.07%
Greater than 3 years through 4 years 5.90% 2,533 4.18%
Greater than 4 years through 5 years 6.10% 3,897 6.43%
Over 5 years 6.63% 12 0.02%
-- -----
$60,589 100.00%
------- -------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
WEIGHTED
AVERAGE RATE AMOUNT PERCENT
------------ ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1 year or less 5.36% $40,763 67.16%
Greater than 1 year through 2 years 5.66% 9,406 15.50%
Greater than 2 years through 3 years 6.38% 4,241 6.99%
Greater than 3 years through 4 years 6.45% 2,639 4.35%
Greater than 4 years through 5 years 5.97% 3,558 5.86%
Over 5 years 6.01% 91 0.15%
-- -----
$60,698 100.00%
------- -------
</TABLE>
F-12
<PAGE> 111
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
MARCH 31, 1996
WEIGHTED
AVERAGE RATE AMOUNT PERCENT
------------ ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1 year or less 5.66% $40,282 69.33%
Greater than I year through 2 years 6.01% 8,103 13.95%
Greater than 2 years through 3 years 5.60% 4,810 8.28%
Greater than 3 years through 4 years 6.57% 2,420 4.17%
Greater than 4 years through 5 years 6.42% 2,482 4.27%
Over 5 years 6.50% 2 0.00%
- -----
$58,099 100.00%
------- -------
</TABLE>
Certificates of deposit in excess of $100,000 were approximately $10.7 million,
$13.3 million and $11.3 million at September 30, 1997 and at March 31, 1997 and
1996, respectively.
Interest expense on deposit balances is summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 MARCH 31, 1997 MARCH 31 1996
------------------ ------------------ -------------- -------------
<S> <C> <C> <C> <C>
NOW, money market, passbook
savings, and holiday clubs $596,905 $557,488 $1,129,447 $1,008,836
Certificates of deposit 1,706,440 1,628,453 3,227,262 3,134,350
--------- --------- --------- ---------
$2,303,345 $2,185,940 $4,356,710 $4,143,186
---------- ---------- ---------- ----------
</TABLE>
(9) INCOME TAXES
The Association files federal income tax returns on a calendar year basis. In
calculating tax liability, the Association is allowed a special bad debt
deduction based on specified experience formulas.
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 MARCH 31, 1997 MARCH 31 1996
------------------ ------------------ -------------- -------------
<S> <C> <C> <C> <C>
Federal:
Current $150,635 ($97,926) ($61,669) $ 147,357
Deferred 7,745 (24,944) (20,040) (62,443)
----- -------- -------- --------
158,380 (122,870) (81,709) 84,914
State and local:
Current $57,404 ($72,301) ($45,397) $92,830
Deferred 34,138 (44,413) (20,219) (37,193)
------ -------- -------- --------
$249,922 ($239,584) ($147,325) $140,551
-------- ---------- ---------- --------
</TABLE>
F-13
<PAGE> 112
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
The total tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34% to income before income tax expense as a result
of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 MARCH 31, 1997 MARCH 31 1996
------------------ ------------------ -------------- --------------
<S> <C> <C> <C> <C>
Expected income tax expense at federal
tax rate $199,007 $138,722 ($8,092) $114,457
State and local tax (benefit) expense,
net of federal income tax benefit 81,016 (116,564) (88,525) 61,267
Deferred directors' compensation (8,500) (1,050) 98,743 (135,835)
Other nondeductible expenses (21,602) (51,559) 53,076 100,662
Life insurance death benefit 0 (209,133) (202,527) 0
- --------- --------- -
$249,921 ($239,584) ($147,325) $140,551
-------- ---------- ---------- --------
The Association's effective tax rate 43% 0% 0% 42%
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at September 30, 1997,
March 31, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997 MARCH 31, 1996
------------------ -------------- --------------
<S> <C> <C> <C>
Deferred tax assets:
Deferred directors' compensation $232,228 $218,176 $255,204
Deferred loan fees 13,704 17,971 33,480
Net operating loss carryforward 0 93,212 0
Allowance for loan losses 51,428 22,304 0
------ ------ -
Total gross deferred tax assets 297,360 351,663 288,684
Deferred tax liabilities:
Depreciation (18,742) (31,163) (8,443)
-------- -------- -------
(18,742) (31,163) (8,443)
-------- -------- -------
Net deferred tax asset $278,618 $320,500 $280,241
-------- -------- --------
</TABLE>
Management has determined that it is not required to establish a valuation
reserve for its gross deferred tax assets since it is more likely than not that
the deferred tax assets will be realized through future reversals of existing
temporary differences.
(10) EMPLOYEE BENEFITS
The Association has a qualified noncontributory, defined benefit pension plan.
Eligibility is based on a minimum age of twenty-one with twelve months of
service. Normal retirement age is at sixty-five with early retirement at age
fifty-five.
The components of net pension expense are summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 MARCH 31, 1997 MARCH 31 1996
------------------ ------------------ -------------- -------------
<S> <C> <C> <C> <C>
Service cost $50,391 $44,188 $88,376 $105,645
Interest cost 88,810 100,148 100,148 98,490
Expected return on assets (102,659) (100,231) (101,881) (80,433)
Amortization of unrecognized transition asset (8,677) 10,171 10,171 10,171
Amortization of unrecognized loss 0 0 0 0
Amortization of unrecognized past service liability 0 0 0 0
- - - -
$27,865 $54,276 $96,814 $133,873
------- ------- ------- --------
</TABLE>
F-14
<PAGE> 113
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
The following sets forth the plan's funded status at September 30, 1997, 1996,
and at March 31, 1997 and 1996, as determined by the plan's actuary:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, MARCH 31, MARCH 31
1997 1996 1997 1996
------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation for services rendered, including
vested benefits of $845,056, $1,070,724, $1,070,724,
and $964,905 at September 30, l997, 1996 and March 31,
1997 and 1996, respectively $1,005,521 $827,756 $861,656 $1,169,085
---------- -------- -------- ----------
Projected benefit obligation $1,407,915 $1,165,686 $1,209,874 $1,611,142
Market value of plan assets 1,757,432 1,229,268 1,466,562 1,472,934
--------- --------- --------- ---------
Plan assets greater (less) than projected benefit obligation 349,517 63,582 256,688 (138,208)
Unrecognized net transition asset being amortized over 22.8 years,
25.36 years, 25.36 years, and 25.36 years at September 30, 1997,
1996 and March 31,1997 and 1996, respectively (189,169) 237,615 237,615 247,787
Unrecognized net loss (188,213) (338,786) (485,683) (92,891)
Unrecognized past service liability 0 0 0 0
- - - -
Prepaid (Accrued) pension expense ($27,865) ($37,589) $8,620 $16,688
--------- --------- ------ -------
Assumed long-term rate 7.00% 7.00% 7.00% 7.00%
Assumed rate of compensation increase 4.00% 4.00% 4.00% 4.00%
Assumed discount rate 7.00% 7.00% 7.00% 7.00%
</TABLE>
The Association also has a defined contribution plan under Section 401(k) of the
U.S. Internal Revenue Code. All employees of at least 20-1/2 years of age and
with at least six months of service are eligible for voluntary participation.
Under this plan, the participant may contribute up to 10% of his/her base pay.
The Association will then contribute up to 60% of the amount of the
participant's contribution, the benefits from which vest over a five year
vesting program at 20% per year. The Association has contributed $15,375,
$14,634, $30,152, and $33,146 for the periods ended September 30, 1997 and 1996
and March 31, 1997 and 1996, respectively.
(11) DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
A financial instrument is defined in SFAS 107 as cash, evidence of an ownership
interest in an entity or a contract that creates a contractual obligation or
right to deliver or receive cash or another financial instrument from a second
entity on potentially favorable or unfavorable terms. SFAS 107 defines the fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale.
The following table represents the carrying amounts and fair values of the
Association's financial instruments:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997 MARCH 31, 1996
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Financial assets:
Cash and cash equivalents $9,441 $9,441 $10,285 $10,285 $11,225 $11,225
Investment securities 32,167 32,190 36,288 35,600 35,381 34,956
Loans 65,486 66,044 60,059 59,933 54,505 55,038
Accrued interest receivable 195 195 223 223 216 216
Financial liabiities:
Deposits 100,539 100,611 100,798 100,514 97,396 98,190
Advance payments by borrowers for taxes
and insurance 763 763 994 994 802 802
</TABLE>
F-15
<PAGE> 114
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
COMMITMENTS TO ORIGINATE LOANS: The fair value of commitments to originate loans
is estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and present
creditworthiness of the parties.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
CONTRACT CARRYING ESTIMATED CONTRACT CARRYING ESTIMATED
AMOUNT AMOUNT FAIR VALUE AMOUNT AMOUNT FAIR VALUE
------ ------ ---------- ------ ------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Commitments to originate loans $4,422 $19 $19 $4,925 $18 $18
------ --- --- ------ --- ---
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996
CONTRACT CARRYING ESTIMATED CONTRACT CARRYING ESTIMATED
AMOUNT AMOUNT FAIR VALUE AMOUNT AMOUNT FAIR VALUE
------ ------ ---------- ------ ------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Commitments to originate loans $6,635 $34 $34 $2,203 $4 $4
------ --- --- ------ -- --
</TABLE>
The amounts shown under "carrrying amount" represent deferred income arising
from these unrecognized financial instruments.
(12) RELATED PARTIES
The Association has entered into transactions with its directors and officers as
follows:
As of and for the six months ended September 30, 1997: The aggregate amount of
loans to such related parties amounted to $817,611. During the six months, new
loans were made amounting to $200,000. Repayments during the period amounted to
$13,703. The aggregate amount of deposit accounts to such related parties
amounted to $718,171.
As of and for the year ended March 31, 1997: The aggregate amount of loans to
such related parties amounted to $631,303. During the fiscal year, new loans
were made amounting to $130,000. Repayments during the fiscal year amounted to
$31,871. The aggregate amount of deposit accounts to such related parties
amounted to $736,565.
As of and for the year ended March 31, 1996: The aggregate amount of loans to
such related parties amounted to $617,892. During the fiscal year, no new loans
were made. Repayments during the fiscal year amounted to $232,666. The aggregate
amount of deposit accounts to such related parties amounted to $570,378.
(13) DIRECTORS' DEFERRED COMPENSATION
The Association provides directors with a deferred compensation plan under which
directors may elect to defer, for the calendar year on a pre-tax basis, all or a
portion of their monthly directors' fees and/or annual retainer, until death,
retirement, or other termination of service. The plan is a restatement of a
deferred compensation plan that was effective until December 31, 1996. Under the
plan, a director's deferred fees and/or annual retainer will be credited to a
deferred compensation account. Each deferred compensation account will earn
simple interest at the rate of 8% per annum. Upon retirement, a director's
benefit will be paid over 10 years.
Under the prior plan, benefits will be paid over 15 years, (9 years with respect
to one director, and 10 years with respect to another director, based on their
life expectancies). The deferred compensation benefits payable under the prior
plan range from between $675 and $1,622 per month. The Association has accrued
$460,000 toward this benefit and has purchased life insurance policies on the
lives of the individual directors with an aggregate face value of $410,000, to
assist it in meeting its benefit obligations under the prior plan. For calendar
year 1996, under the
F-16
<PAGE> 115
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
prior plan, 4 directors elected to defer $16,800 of the directors' fees and
annual retainers paid, for the period January 1, 1997 through August 31, 1997.
Under the restated plan, 4 directors elected to defer $44,000 of the directors'
fees and annual retainers paid. The Association's president did not elect to
defer any portion of the annual retainer.
(13) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Association has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements. In addition, the Association is defendant in
certain claims and legal actions arising in the ordinary course of business. In
the opinion of management, after consultation with counsel, the ultimate
disposition of these matters is not expected to have a material adverse effect
on the financial position of the Association.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates ninety days subsequent to issuance or
other termination clauses. Commitments to originate loans amounted to
$4,422,000, $6,635,000, and $2,202,750 at September 30, 1997, and March 31,
1997 and 1996, respectively of the amount of commitments at September 30,
1997 referred to above, commitments to originate fixed-rate loans amounted to
$1,188,000 with interest rates ranging from 7 1/2% to 9%.
(14) SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Most of the Association's business activity is with customers located within New
York State. Generally, the loans are secured by one-to-four family residences.
The loans are expected to be repaid from the borrowers' cash flows.
(15) SAIF PREMIUM
The Association pays deposit insurance premiums to the Savings Association
Insurance Fund, (SAIF), of the Federal Deposit Insurance Corporation, (FDIC).
The Association's deposit insurance premium rate through September 30, 1997 was
.23% of its assess deposit base, resulting in total premiums assessed amounting
to $31,318, $703,515, $762,696, and $208,903, for the periods ended September
30, 1997, 1996, and March 31, 1997 and 1996, respectively. In addition, on
September 30, 1996, the President signed into law the Deposit Insurance Funds
Act of 1996 to recapitalize the SAIF administered by the FDIC and to provide for
repayment of the Financial Institution Collateral Obligation bonds issued by the
United States Treasury Department. The FDIC levied a one-time special assessment
on SAIF deposit equal to 65.7 cents per $100 of the SAIF-assessable deposit base
as of March 31, 1995. The one-time special assessment amounted to an expense to
the Association of $594,447, which amount is included in the September 30, 1996
and March 31, 1997 amounts referred to above.
F-17
<PAGE> 116
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
(16) REGULATORY STRUCTURE
The Association is subject to various regulatory capital requirements
administered by the federal Office of Thrift Supervision. 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 Association's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Association must meet specific capital guidelines that involve
quantitative measures of the Association's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Association's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation require the Association to
maintain minimum amounts and ratios (set forth in the table below) of total and
Tier I capital (as defined in the regulations). Management believes, as of
September 30, 1997, the Association meets all capital adequacy requirements to
which it is subject.
As of September 30, 1997, the most recent notification from the Office of Thrift
Supervision categorized the Association as satisfactorily capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the
institution's category.
The Association's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
ASSOCIATION'S ACTUAL MINIMUM CAPITAL ADEQUACY
AMOUNT RATIO AMOUNT RATIO
------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AS OF SEPTEMBER 30, 1997:
Tangible capital $7,209 6.56% $1,648 1.50%
Tier I (Core) capital 7,209 6.56% 3,297 3.00%
Total risk-based capital 7,830 15.75% 3,977 8.00%
AS OF SEPTEMBER 30, 1996:
Tangible capital 7,397 7.03% 1,579 1.50%
Tier I (Core) capital 7,397 7.03% 3,159 3.00%
Total risk-based capital 8,001 16.56% 3,865 8.00%
AS OF MARCH 31, 1997:
Tangible capital 6,873 6.26% 1,647 1.50%
Tier I (Core) capital 6,873 6.26% 3,294 3.00%
Total risk-based capital 7,482 15.36% 3,897 8.00%
AS OF MARCH 31, 1996:
Tangible capital 6,750 6.38% 1,586 1.50%
Tier I (Core) capital 6,750 6.38% 3,172 3.00%
Total risk-based capital 7,352 15.25% 3,857 8.00%
</TABLE>
The following provides a reconciliation of the Association's capital to
regulatory capital:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 MARCH 31, 1997 MARCH 31 1996
------------------ ------------------ -------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Association's capital $7,209 $7,397 $6,873 $6,750
Add: Allowance for loan losses 621 604 609 603
--- --- --- ---
Total risk-based capital $7,830 $8,001 $7,482 $7,352
------ ------ ------ ------
</TABLE>
F-18
<PAGE> 117
ATLANTIC LIBERTY SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED MARCH 31, 1997 AND 1996
(17) ADOPTION OF PLAN OF CONVERSION
On August 19, 1997, the Board of Directors of Atlantic Liberty Savings, F.A., a
federally chartered mutual savings association (the "Association") adopted the
Plan, pursuant to which the Association will form a federally chartered mutual
holding company (the "Reorganization"). As part of the Reorganization, the
Association will convert to a stock savings and loan association and will
become a wholly-owned subsidiary of Brooklyn Heights Bankcorp, a federal stock
corporation (the "Company"). The Company will become a majority-owned
subsidiary of Atlantic Liberty, MHC, (the "Mutual Holding Company"), owning 54%
thereof. Concurrently with the Reorganization, the Company will offer for sale
46% of its shares of its common stock in a subscription offering to qualifying
depositors and borrowers, the Association's employee stock ownership plan and
to employees, officers and directors of the Association. The retained earnings
of the Association will be substantially restricted after the Reorganization by
OTS regulations limiting capital distributions. Costs incurred in the
Reorganization approximated $80,000 at September 30, 1997. Additional costs
are expected to be incurred in subsequent months. Costs incurred in the
Reorganization will be offset against proceeds if the Reorganization is
completed as planned, or charged to expense in the event the Reorganization is
not completed.
The Association plans to establish an Employee Stock Ownership Plan (ESOP) for
the benefit of eligible employees, to become effective upon consummation of the
Reorganization. The ESOP intends to purchase up to 8% of the Company's common
stock issued in the Reorganization utilizing the proceeds of a loan from the
Company. The loan will be repaid over a period of 10 years and the collateral
for the loan will be the common stock purchased by the ESOP. The Association
also plans to establish a stock award plan and would award up to 4% of the
common stock issued in the offering to executive officers and directors the
Association at no cost to them. The stock award plan may not be adopted until
at least six months after the completion of the Reorganization and are subject
to shareholder approval and compliance with OTS regulations.
F-19
<PAGE> 118
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ATLANTIC LIBERTY SAVINGS, F.A. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY TO ANY PERSON IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
BROOKLYN HEIGHTS BANCORP
(Proposed Holding Company for
Atlantic Liberty Savings, F.A.)
UP TO 608,350 SHARES
Common Stock
($1.00 par value per share)
PROSPECTUS
RYAN, BECK & CO.
________________ __, 1998
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED
Until _____________, or 25 days after the commencement of the offering of
Common Stock, all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
<PAGE> 119
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS OF ATLANTIC LIBERTY
SAVINGS, F.A., AND BROOKLYN HEIGHTS BANCORP
Generally, federal regulations define areas for indemnity coverage for federal
savings associations, and proposed federal regulations define areas for
indemnity coverage for federal MHC subsidiary holding companies, as follows:
(a) Any person against whom any action is brought by
reason of the fact that such person is or was a director or officer of the
savings association shall be indemnified by the savings association for:
(i) Reasonable costs and expenses, including
reasonable attorneys' fees, actually paid or incurred by such
person in connection with proceedings related to the defense
or settlement of such action;
(ii) Any amount for which such person becomes
liable by reason of any judgment in such action;
(iii) Reasonable costs and expenses, including
reasonable attorneys' fees, actually paid or incurred in any
action to enforce his rights under this section, if the person
attains a final judgment in favor of such person in such
enforcement action.
(b) Indemnification provided for in subparagraph (a)
shall be made to such officer or director only if the
requirements of this subsection are met:
(i) The savings association shall make the
indemnification provided by subparagraph (a) in connection
with any such action which results in a final judgment on the
merits in favor of such officer or director.
(ii) The savings association shall make the
indemnification provided by subparagraph (a) in case of
settlement of such action, final judgment against such
director or officer or final judgment in favor of such
director or officer other than on the merits except in
relation to matters as to which he shall be adjudged to be
liable for negligence or misconduct in the performance of
duty, only if a majority of the directors of the savings
association determines that such a director or officer was
acting in good faith within what he was reasonably entitled to
believe under the circumstances was the scope of his
employment or authority and for a purpose which he was
reasonably entitled to believe under the circumstances was in
the best interest of the savings association or its members.
(c) As used in this paragraph:
(i) "Action" means any action, suit or other
judicial or administrative proceeding, or threatened
proceeding, whether civil, criminal, or otherwise, including
any appeal or other proceeding for review;
(ii) "Court" includes, without limitation, any
court to which or in which any appeal or any proceeding for
review is brought;
(iii) "Final Judgment" means a judgment, decree, or
order which is appealable and as to which the period for
appeal has expired and no appeal has been taken;
(iv) "Settlement" includes the entry of a judgment
by consent or by confession or upon a plea of guilty or of
nolo contendere.
<PAGE> 120
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
Amount
------
<S> <C> <C>
* Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . $ 120,000
* Printing, Postage and Mailing . . . . . . . . . . . . . . . . 80,000
* Appraisal and Business Plan Fees and Expenses . . . . . . . . 14,000
* Accounting Fees and Expenses . . . . . . . . . . . . . . . . . 25,000
** Underwriter's Fees and Expenses . . . . . . . . . . . . . . . 160,000
* Filing Fees (NASD, OTS and SEC) . . . . . . . . . . . . . . . 18,000
* Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . 15,000
----------
* Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 432,000
==========
</TABLE>
- ------------------
* Estimated
** Brooklyn Heights Bancorp has retained Ryan, Beck & Co. ("Ryan Beck")
to assist in the sale of common stock on best efforts basis in the
Offerings. Ryan Beck will receive fees of $120,000, exclusive of
estimated expenses of $40,000.
<PAGE> 121
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
ITEM 27. EXHIBITS:
The exhibits filed as part of this registration statement are
as follows:
(a) LIST OF EXHIBITS
1.1 Engagement Letter between Atlantic Liberty Savings, F.A. and Ryan,
Beck & Co.*
1.2 Agency Agreement among Brooklyn Heights Bancorp, Atlantic Liberty
Savings, F.A. and Ryan, Beck & Co.
2 Plan of Reorganization from Mutual Savings Association to Mutual
Holding Company and Stock Issuance Plan*
3.1 Proposed Federal Holding Company Charter of Brooklyn Heights Bancorp*
3.2 Proposed Bylaws of Brooklyn Heights Bancorp*
4 Form of Common Stock Certificate of Brooklyn Heights Bancorp*
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding
legality of securities being registered
8.1 Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
8.2 Form of State Tax Opinion
8.3 Opinion of Feldman Financial Advisors, Inc. with respect to
Subscription Rights*
10.1 Form of Employment Agreement*
10.2 Form of Employee Stock Ownership Plan*
21 Subsidiaries of the Registrant*
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in
Opinions included on Exhibits 5 and 8.1)
23.2 Consent of Sol Masch & Co.
23.3 Consent of Feldman Financial Advisors, Inc.
24 Power of Attorney (set forth on signature page)*
27.1 EDGAR Financial Data Schedule*
99.1 Appraisal Agreement between Atlantic Liberty Savings, F.A. and Feldman
Financial Advisors, Inc.*
99.2 Appraisal Report of Feldman Financial Advisors, Inc.*
99.3 Proxy Statement*
99.4 Marketing Materials*
99.5 Order and Acknowledgment Form and Certification Form*
- --------------------------
* Previously filed
<PAGE> 122
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any duration from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
The small business issuer will provide to the underwriter at the
closing specified in the Underwriting Agreement certificates in such
documentation and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE> 123
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Brooklyn, New York on February 2, 1998.
BROOKLYN HEIGHTS BANCORP (IN FORMATION)
By: /s/ Stephen Irving
--------------------------
Stephen Irving
President, Chief Executive Officer and Director
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned directors and officers of Brooklyn Heights
Bancorp (the "Company") hereby severally constitute and appoint Stephen Irving
as our true and lawful attorney and agent, to do any and all things in our
names in the capacities indicated below which said Stephen Irving may deem
necessary or advisable to enable the Company to comply with the Securities Act
of 1933, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with the registration statement on Form SB-2
relating to the offering of the Company's Common Stock, including specifically,
but not limited to, power and authority to sign for us in our names in the
capacities indicated below the registration statement and any and all
amendments (including post-effective amendments) thereto; and we hereby
approve, ratify and confirm all that said Stephen Irving shall do or cause to
be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Stephen Irving President, Chief Executive February 4, 1998
- ------------------------- Officer and Director
Stephen Irving (Principal Executive Officer)
/s/ Stephen Parisi Vice President and Treasurer February 4, 1998
- ------------------------- (Principal Financial and
Stephen Parisi Accounting Officer)
/s/ John A. Maher Chairman of the Board February 4, 1998
- -------------------------
John A. Maher
/s/ Nunzio D'Addona Director February 4, 1998
- -------------------------
Nunzio D'Addona
/s/ Martin D. Dehler Director February 4, 1998
- -------------------------
Martin D. Dehler
/s/ Edward W. Kelle Director February 4, 1998
- -------------------------
Edward W. Kelle
/s/ Fred W. McPhilliamy Director February 4, 1998
- -------------------------
Fred W. McPhilliamy
/s/ Eugene F. O'Connor Director February 4, 1998
- -------------------------
Eugene F. O'Connor
</TABLE>
<PAGE> 124
EXHIBIT INDEX
1.1 Engagement Letter between Atlantic Liberty Savings, F.A. and Ryan,
Beck & Co.*
1.2 Agency Agreement among Brooklyn Heights Bancorp, Atlantic Liberty
Savings, F.A. and Ryan, Beck & Co.
2 Plan of Reorganization from Mutual Savings Association to Mutual
Holding Company and Stock Issuance Plan*
3.1 Proposed Federal Holding Company Charter of Brooklyn Heights Bancorp*
3.2 Proposed Bylaws of Brooklyn Heights Bancorp*
4 Form of Common Stock Certificate of Brooklyn Heights Bancorp*
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding
legality of securities being registered
8.1 Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
8.2 Form of State Tax Opinion
8.3 Opinion of Feldman Financial Advisors, Inc. with respect to
Subscription Rights*
10.1 Form of Employment Agreement*
10.2 Form of Employee Stock Ownership Plan*
21 Subsidiaries of the Registrant*
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in
Opinions included on Exhibits 5 and 8.1)
23.2 Consent of Sol Masch & Co.
23.3 Consent of Feldman Financial Advisors, Inc.
24 Power of Attorney (set forth on signature page)*
27.1 EDGAR Financial Data Schedule*
99.1 Appraisal Agreement between Atlantic Liberty Savings, F.A. and Feldman
Financial Advisors, Inc.*
99.2 Appraisal Report of Feldman Financial Advisors, Inc.*
99.3 Proxy Statement*
99.4 Marketing Materials*
99.5 Order and Acknowledgment Form and Certification Form*
- --------------------------
* Previously filed
<PAGE> 1
EXHIBIT 1.2
STEVENS & LEE
D R A F T
2/3/98
BROOKLYN HEIGHTS BANCORP
(a Federal Corporation)
529,000 Shares
(Subject to Increase Up to 608,350 Shares)
COMMON STOCK ($1.00 Par Value)
Subscription Price $10.00 Per Share
AGENCY AGREEMENT
February __, 1998
Ryan, Beck & Co., Inc.
80 Main Street
West Orange, New Jersey 07052
Ladies and Gentlemen:
Brooklyn Heights Bancorp (the "Holding Company"), Atlantic Liberty,
M.H.C. (the "MHC") and Atlantic Liberty Savings, F.A. (the "Association")
(collectively, the "Primary Parties") hereby confirm, jointly and severally,
their agreement with Ryan, Beck & Co., Inc. (the "Agent"), as follows:
SECTION 1. THE OFFERING. The Holding Company is offering up to
529,000 shares of common stock, par value $1.00 per share (the "Common Stock")
(subject to an increase up to 608,350 shares), in (i) a subscription offering
(the "Subscription Offering"), and, if necessary, (ii) a direct community
offering (the "Direct Community Offering") and (iii) a syndicated community
offering (the "Syndicated Community Offering"), in connection with the
conversion and reorganization of the Association from a mutual savings
association to a stock savings association and wholly-owned subsidiary of the
Holding Company (the "Reorganization"), all pursuant to the Plan of
Reorganization from a Mutual Savings Association to Mutual Stock Holding
Company and Agreement and Stock Issuance Plan (the "Plan"). References to the
Association herein shall include the Association in its current mutual form or
post-Reorganization stock form as a wholly-owned subsidiary of the Holding
Company. Pursuant to the Plan, the Reorganization will be effected as follows:
(i) the Association will organize an interim stock savings
bank as a wholly-owned subsidiary ("Interim One");
(ii) Interim One will organize an interim stock savings bank
as a wholly-owned subsidiary ("Interim Two");
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(iii) Interim One will organize the Holding Company as a
wholly-owned subsidiary;
(iv) the Association will amend its charter to read in the
form of a federal stock savings association charter, and Interim One will
become the MHC by exchanging its charter for a federal mutual holding company
charter;
(v) simultaneously with step (vi), Interim Two will merge
with and into the Association, and the Association will be the surviving
institution;
(vi) all of the Association's issued and outstanding stock
will be transferred to the MHC in exchange for membership interests in the MHC;
(vii) the MHC will contribute all of the Association's issued
and outstanding stock to the Holding Company, and the Association will become a
wholly-owned subsidiary of the Holding Company; and
(viii) the Holding Company will offer and sell shares of its
Common Stock (the "Conversion Shares" or "Shares") in the Subscription
Offering, Direct Community Offering, and Syndicated Community Offering
(collectively, the "Conversion Offerings" or "Offering") so that, upon
completion of the Conversion Offerings, the purchasers of Conversion Shares in
the Conversion Offerings will own 46% of the outstanding Common Stock and the
MHC will own 54% of the outstanding Common Stock. The Holding Company will
issue the Shares at a purchase price of $10.00 per share (the "Purchase
Price"). If the number of Conversion Shares is increased or decreased in
accordance with the Plan, the term "Shares" shall mean such greater or lesser
number, where applicable.
In the Subscription Offering, non-transferable rights to subscribe for
between 391,000 and 529,000 shares (subject to an increase up to 608,350
shares) of the Common Stock ("Subscription Rights") will be granted, in the
following priority: (1) the Association's depositors with account balances of
$50.00 or more as of June 30, 1996 ("Eligible Account Holders"); (2) the
Association's tax-qualified Employee Stock Ownership Plan ("ESOP"); (3) the
Association's depositors with account balances of $50.00 or more as of December
31, 1997 ("Supplemental Eligible Account Holders"); (4) depositors (other than
Eligible Account Holders and Supplemental Eligible Account Holders) and
borrowers of the Association as of ____________, 1998 (the "Voting Record
Date") (collectively, "Other Members") and (5) employees, officers and
directors of the Association, subject to the priorities and purchase
limitations set forth in the Plan. The Holding Company may offer all shares of
Common Stock offered but not subscribed for in the Subscription Offering, if
any, in the Direct Community Offering to members of the general public, with
first preference given to residents of Brooklyn, New York. In
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the event a Direct Community Offering is held, it may be held at any time
during or immediately after the Subscription Offering. Depending on market
conditions, shares not subscribed for in the Subscription Offering or purchased
in the Direct Community Offering may be offered in the Syndicated Community
Offering to eligible members of the general public on a best efforts basis by
approved broker-dealer firms ("Assisting Brokers") which are members of the
National Association of Securities Dealers, Inc. ("NASD").
The Holding Company has filed with the U.S. Securities and Exchange
Commission (the "Commission") a Registration Statement on Form SB-2 (File No.
333-43591) in order to register the Shares under the Securities Act of 1933, as
amended (the "1933 Act"), and has filed such amendments thereto as have been
required to the date hereof (the "Registration Statement"). The prospectus, as
amended, included in the Registration Statement at the time it initially became
effective is hereinafter called the "Prospectus," except that if any prospectus
is filed by the Holding Company pursuant to Rule 424(b) or (c) of the
regulations of the Commission under the 1933 Act differing from the prospectus
included in the Registration Statement at the time it initially becomes
effective, the term "Prospectus" shall refer to the prospectus filed pursuant
to Rule 424(b) or (c) from and after the time said prospectus is filed with the
Commission and shall include any supplements and amendments thereto from and
after their dates of effectiveness or use, respectively.
In connection with the Reorganization, the Association filed with the
Office of Thrift Supervision, Department of the Treasury (the "OTS"), pursuant
to Title 12, Parts 575 and 563b of the Code of Federal Regulations (the "MHC
Regulations"), a Notice of Mutual Holding Company Reorganization and
Application for Approval of an Issuance by a Subsidiary of a Mutual Holding
Company, including exhibits and the Prospectus, and has filed amendments
thereto as required by the OTS (as so amended, the "MHC Notice and
Application"). The Holding Company filed with the OTS its application on Form
H-(e)1 (the "Holding Company Application") to acquire the Association under the
Home Owners Loan Act, as amended, and the regulations promulgated thereunder
("HOLA"). The Association's application with the OTS for approval of the
formation of Interim Two and the merger of Interim Two with and into the
Association (the "Merger Application") was filed as an exhibit to the Holding
Company Application. The MHC Notice and Application and the Holding Company
Application (including the Merger Application) shall collectively be
hereinafter referred to as the "OTS Applications."
SECTION 2. APPOINTMENT OF THE AGENT. Subject to the terms and
conditions of this Agreement, the Primary Parties hereby appoint Agent as their
financial advisor and marketing agent to utilize its best efforts to solicit
subscriptions for the Conversion Shares and to advise and assist the Primary
Parties
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<PAGE> 4
with respect to the sale of the Conversion Shares in the Conversion Offerings.
On the basis of the representations and warranties of the Primary
Parties contained in, and subject to the terms and conditions of, this
Agreement, the Agent accepts such appointment and agrees to consult with and
advise MHC, the Holding Company and the Association as to the matters set forth
in the letter agreement ("Letter Agreement"), dated July 28, 1997, between the
Association and Agent (a copy of which is attached hereto as Exhibit A). It is
acknowledged by the Primary Parties that the Agent shall not be obligated to
purchase any Shares and shall not be obligated to take any action which is
inconsistent with any applicable law, regulation, decision or order.
Subscriptions for Conversion Shares will be offered by means of order forms as
described in the Prospectus. Except as provided in the paragraph below, the
appointment of the Agent hereunder shall terminate upon consummation of the
Offerings.
If selected broker-dealers are used to assist in the sale of
Conversion Shares in the Syndicated Community Offering, the Primary Parties
hereby appoint, subject to the terms and conditions of this Agreement, Agent to
manage such broker-dealers in the Syndicated Community Offering. On the basis
of the representations and warranties of the Primary Parties contained in, and
subject to the terms and conditions of, this Agreement, Agent accepts such
appointment and agrees to manage the selling group of broker-dealers in the
Syndicated Community Offering.
Agent agrees to make available to the Association, MHC and the Holding
Company for a period of 18 months following the consummation of the
Reorganization its Strategic Advisory Services ("STARS") program. If the
Association elects to participate in the STARS program, the Agent will meet
with the Association at its request and will render general advice on the
financial matters listed in Section 9 of the Letter Agreement (but not
including (i) any in-depth merger and acquisition analyses or studies which are
available under Agent's normal fee schedule, or (ii) advice with respect to a
specific acquisition transaction by, or sale of, the Association or the Holding
Company). If the Association elects to participate in the STARS program, the
Agent will waive the regular retainer fee and hourly charges for the first 18
months of such participation. The Association would be required, however, to
reimburse Agent for its reasonable out-of-pocket expenses incurred in
conjunction with the performance of these services. Such out-of-pocket
expenses include travel (coach class only), legal and other miscellaneous
expenses. Agent would not be permitted to incur any single expense in excess
of $1,000 pursuant to this paragraph without the prior approval of the
Association. If negotiations for a transaction conducted during the 18-month
participation period result in the execution of a definitive agreement and/or
consummation of a transaction for which Agent customarily would be entitled to
a fee for its advisory or other investment banking
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<PAGE> 5
services, Agent shall receive a contingent advisory fee in accordance with the
terms of a separate engagement letter to be entered into with respect to such
transaction. Nothing in this Agreement shall require the Holding Company or
the Association to obtain such financial advisory services from Agent. After
the completion of such 18-month participation period, if the parties wish to
continue the relationship, a fee will be negotiated and an agreement with
respect to specific advisory services will be entered into at that time.
SECTION 3. REFUND OF PURCHASE PRICE. In the event that the
Reorganization is not consummated for any reason, including but not limited to
the inability to sell the Conversion Shares during the Offerings (including any
permitted extension thereof), this Agreement shall terminate and any persons
who have subscribed for any of the Conversion Shares shall have refunded to
them the full amount which has been received from such person, together with
interest at the Association's current passbook rate, from the date payment is
received as provided in the Prospectus. Upon termination of this Agreement,
neither the Agent nor the Primary Parties shall have any obligation to the
other except that (i) the Primary Parties shall remain liable for any amounts
due pursuant to Sections 4(a), 8, 10 and 11 hereof, unless the transaction is
not consummated due to the breach by the Agent of a warranty, representation or
covenant; and (ii) the Agent shall remain liable for any amount due pursuant to
Sections 10 and 11 hereof, unless the transaction is not consummated due to the
breach by the Primary Parties of a warranty, representation or covenant.
SECTION 4. FEES. In addition to the expenses specified in Section 8
hereof, as compensation for the Agent's services under this Agreement, the
Agent has received or will receive the following fees from the Primary Parties:
(a) An initial fee in the amount of $25,000. Such fee
has been earned and paid in full.
(b) A marketing and advisory fee of $120,000. In the
event fees are paid pursuant to this subsection (b), such fees shall be paid in
lieu of, and not in addition to, payments to the Agent pursuant to subsection
(a).
(c) A fee not to exceed 5.5% of the aggregate Purchase
Price of the Conversion Shares sold by Assisting Brokers in any Syndicated
Community Offering. The Agent will pay the Assisting Brokers that assist in
the purchase of Conversion Shares in the Syndicated Community Offering a fee
competitive with gross underwriting discounts charged at such time for
comparable amounts of stock sold at a comparable price per share in a similar
market environment. The decision to utilize Assisting Brokers will be made
jointly by the Agent on the one hand, and the Primary Parties, on the other
hand, and it is agreed that
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<PAGE> 6
Agent will manage the Assisting Brokers in the Syndicated Offering.
SECTION 5. CLOSING. If the minimum number of Conversion Shares
permitted to be sold in the Reorganization on the basis of the most recently
updated Appraisal (as defined in Section 6(h)) are subscribed for at or before
the termination of the Offerings, and the other conditions to the completion of
the Reorganization are satisfied, the Holding Company agrees to issue the
Shares on the Closing Date (as hereinafter defined) against payment therefor by
the means authorized by the Plan and to deliver certificates evidencing
ownership of the Conversion Shares in such authorized denominations and
registered in such names as may be indicated on the subscription order forms
directly to the purchasers thereof as promptly as practicable after the Closing
Date. The Closing shall be held at the offices of special counsel to the
Primary Parties, or at such other place as shall be agreed upon among the
Primary Parties and the Agent, at 10:00 a.m. on a business day selected by the
Holding Company which business day shall be no less than two business days
following the giving of prior notice by the Holding Company to the Agent or at
such other time as shall be agreed upon by the Primary Parties and the Agent.
At the Closing, the Primary Parties shall deliver to the Agent in same-day
funds the commissions, fees and expenses owing to the Agent as set forth in
Sections 4 and 8 hereof and the opinions required hereby and other documents
deemed reasonably necessary by the Agent shall be executed and delivered to
effect the sale of the Shares as contemplated hereby and pursuant to the terms
of the Prospectus. The Holding Company shall notify the Agent when funds shall
have been received for the minimum number of shares of the Common Stock. The
date upon which the Holding Company shall release the Conversion Shares for
delivery in accordance with the terms hereof is referred to herein as the
"Closing Date."
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE PRIMARY PARTIES. The
Primary Parties jointly and severally represent and warrant to the Agent that:
(a) The Primary Parties 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 as provided herein and as described in the Prospectus. The
consummation of the Reorganization, the execution, delivery and performance of
this Agreement and the consummation of the transactions herein contemplated
have been duly and validly authorized by all necessary corporate action on the
part of the Primary Parties and this Agreement has been validly executed and
delivered by the Primary Parties and, assuming valid execution and delivery by
the Agent, is the valid, legal and binding agreement of the Primary Parties
enforceable in accordance with its terms, except to the extent, if any, that
the provisions of Sections 10 and 11 hereof may be unenforceable as against
public
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<PAGE> 7
policy, and except to the extent that such enforceability may be limited by
bankruptcy laws, insolvency laws, or other laws affecting the enforcement of
creditors' rights generally, or the rights of creditors of savings institutions
insured by the FDIC (including the laws relating to the rights of the
contracting parties to equitable remedies).
(b) The Plan has been approved by the OTS.
(c) The Registration Statement was declared effective by
the Commission on February __, 1998; and no stop order has been issued with
respect thereto and no proceedings therefor have been initiated or to the best
knowledge of the Primary Parties threatened by the Commission. At the time the
Registration Statement, including the Prospectus contained therein (including
any amendment or supplement thereto), became effective, the Registration
Statement complied as to form in all material respects with the requirements of
the 1933 Act and the regulations promulgated thereunder and the Registration
Statement, including the Prospectus contained therein (including any amendment
or supplement thereto), any Blue Sky Application or any Sales Information (as
such terms are defined in Section 10 hereof) authorized by the Primary Parties
for use in connection with the Offerings did not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, and at the time any Rule 424(b) or
(c) Prospectus was filed with the Commission and at the Closing Date referred
to in Section 5, the Registration Statement, including the Prospectus contained
therein (including any amendment or supplement thereto), and any Blue Sky
Application or any Sales Information authorized by the Primary Parties for use
in connection with the Offerings will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the representations and warranties in
this Section 6(c) shall not apply to statements or omissions made in reliance
upon and in conformity with written information furnished to the Primary
Parties by the Agent expressly regarding the Agent for use under the captions
"Market for the Common Stock" and "The Reorganization and Offering -- Marketing
Agent" and "-- Selected Dealers," or written statements or omissions from any
sales information or information filed pursuant to state securities or blue sky
laws or regulations regarding the Agent.
(d) The MHC Notice and Application, including the
Prospectus, was approved by the OTS on February __, 1998; and the Proxy
Statement of the Association relating to the special meeting of the members of
the Association at which the Plan shall be considered for approval by the
Association's eligible voting members (the "Proxy Statement"), was authorized
for use by the OTS on February __, 1998. At the time of the approval of the
MHC
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<PAGE> 8
Notice and Application, including the Prospectus, by the OTS (including any
amendment or supplement thereto) and at all times subsequent thereto until the
Closing Date, the MHC Notice and Application, including the Prospectus, did and
will comply as to form in all material respects with the MHC Regulations and
any other applicable rules and regulations of the OTS (except as modified or
waived in writing by the OTS). At the time of the approval of the MHC Notice
and Application, and as of the date of this Agreement, the MHC Notice and
Application, including the Prospectus (including any amendment or supplement
thereto), did not and does not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that representations or
warranties in this subsection (d) shall not apply to statements or omissions
made in reliance upon and in conformity with written information furnished to
the Primary Parties by the Agent expressly regarding the Agent for use in the
Prospectus contained in the Application for Conversion under the captions
"Market for the Common Stock" and "The Conversion -- Marketing Agent" and
"-- Selected Dealers" or written statements or omissions from any sales
information or information filed pursuant to state securities or blue sky laws
or regulations regarding the Agent.
(e) No order has been issued by the OTS, the Commission,
or any state regulatory authority, preventing or suspending the use of the
Prospectus and no action by or before any such government entity to revoke any
approval, authorization or order of effectiveness related to the Reorganization
is pending or, to the best knowledge of the Primary Parties, threatened.
(f) The Plan has been duly adopted by the Board of
Directors of the Association. To the best knowledge of the Primary Parties, no
person has, or at the Closing Date will have, sought to obtain review of the
final action of the OTS in approving the Plan, the Reorganization, or the OTS
Applications, pursuant to the HOLA or any other statute or regulation.
(g) The Holding Company has filed with the OTS the
Holding Company Application (including the Merger Application) and the OTS has
approved of the Holding Company's acquisition of the Association.
(h) Feldman Financial Advisors, Inc., which prepared the
appraisal of the aggregate pro forma market value of the Holding Company and
the Association on which the Offerings were based (the "Appraisal"), has
advised the Primary Parties in writing that it is independent with respect to
each of the Primary Parties within the meaning of the Conversion Regulations.
(i) Sol Masch & Co., which certified the financial
statements filed as part of the Registration Statement and the
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<PAGE> 9
MHC Notice and Application, has advised the Primary Parties in writing that it
is, with respect to each of the Primary Parties, an independent certified
public accountant within the meaning of 12 C.F.R. Sections 563c.3 and
571.2(c)(3) and under the 1933 Act and the regulations promulgated thereunder.
(j) The financial statements and the notes thereto which
are included in the Registration Statement and which are a part of the
Prospectus present fairly the financial condition and retained earnings of the
Association as of the dates indicated and the results of operations and cash
flows for the periods specified. The financial statements comply in all
material respects with the applicable accounting requirements of Title 12 of
the Code of Federal Regulations, Regulation S-X of the Commission and generally
accepted accounting principles ("GAAP") applied on a consistent basis during
the periods presented except as otherwise noted therein, present fairly in all
material respects the information required to be stated therein, and are
consistent with the most recent financial statements and other reports filed by
the Association with the OTS 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 and unaudited
financial statements included in the Prospectus, and as to the pro forma
adjustments, the adjustments made therein have been properly applied on the
basis described therein.
(k) Since the respective dates as of which information is
given in the Registration Statement, including the Prospectus: (i) there has
not been any material adverse change in the financial condition or in the
earnings, capital, properties or business affairs of any of the Primary Parties
or of the Primary Parties considered as one enterprise, whether or not arising
in the ordinary course of business; (ii) there has not been any change in total
assets of the Association in an amount greater than $50.0 million, any material
increase in the aggregate amount of loans past due ninety (90) days or more, or
any real estate acquired by foreclosure or loans characterized as "in substance
foreclosure"; nor has the Association issued any securities or incurred any
liability or obligation for borrowings other than in the ordinary course of
business; (iii) there have not been any material transactions entered into by
any of the Primary Parties, other than those in the ordinary course of
business; and (iv) the capitalization, liabilities, assets, properties and
business of the Primary Parties conform in all material respects to the
descriptions thereof contained in the Prospectus and, none of the Primary
Parties has any material liabilities of any kind, contingent or otherwise,
except as disclosed in the Registration Statement or the Prospectus.
(l) The Holding Company is a corporation organized and in
good standing under the federal laws of the United States,
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<PAGE> 10
with corporate power and authority to own its properties and to conduct its
business as described in the Prospectus, and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct of
its business requires such qualification unless the failure to qualify in one
or more of such jurisdictions would not have a material adverse effect on the
financial condition, earnings, capital, properties or business affairs of the
Primary Parties. The Holding Company has obtained all licenses, permits and
other governmental authorizations currently required for the conduct of its
business, except those that individually or in the aggregate would not
materially adversely affect the financial condition, earnings, capital, assets
or properties of the Primary Parties taken as a whole; and all such licenses,
permits and governmental authorizations are in full force and effect, and the
Holding Company is complying in all material respects therewith.
(m) The MHC is duly organized and is validly existing as a
federally chartered mutual holding company under the laws of the United States,
duly authorized to conduct its business and own its property as described in
the Registration Statement and the Prospectus; the MHC has obtained all
licenses, permits and other governmental authorizations required for the
conduct of its business except those that individually or in the aggregate
would not materially adversely affect the financial condition, earnings,
capital, assets or properties of the Primary Parties taken as a whole; all such
licenses, permits and governmental authorizations are in full force and effect
and the MHC is complying therewith in all material respects; the MHC is duly
qualified as a foreign corporation to transact business in each jurisdiction in
which the failure to be so qualified in one or more of such jurisdictions would
have a material adverse effect on the financial condition, earnings, capital,
assets properties or business of the Primary Parties.
(n) The MHC does not own any equity securities or any equity
interest in any business enterprise except as described in the Prospectus.
(o) The MHC is not authorized to issue any shares of
capital stock.
(p) The Association is duly organized and validly
existing federally chartered association in mutual form, duly authorized to
conduct its business as described in the Prospectus; the activities of the
Association are permitted by the rules, regulations and practices of the OTS;
the Association has obtained all licenses, permits and other governmental
authorizations currently required for the conduct of its business except those
that individually or in the aggregate would not materially adversely affect the
financial condition of the Primary Parties taken as a whole; all such licenses,
permits and other governmental authorizations are in full force and effect and
the Association is in good standing under the laws of the
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<PAGE> 11
United States and is duly qualified as a foreign corporation to transact
business in each jurisdiction in which failure to so qualify would have a
material adverse effect upon the financial condition, earnings, capital,
properties or business affairs of the Association; all of the issued and
outstanding capital stock of the Association after the Reorganization will be
duly and validly issued and fully paid and nonassessable; and the Holding
Company will directly own all of such capital stock free and clear of any
mortgage, pledge, lien, encumbrance, claim or restriction. The Association
does not own equity securities or any equity interest in any other business
enterprise except as otherwise described in the Prospectus.
(q) The Association is a member of the Federal Home Loan
Bank of New York ("FHLB of New York"); the deposit accounts of the Association
are insured by the FDIC up to applicable limits. Upon consummation of the
Reorganization, the rights of the members of the Association in its mutual form
shall be transferred to MHC in accordance with the Plan and the requirements of
the MHC Regulations.
(r) The Association is not authorized to issue any shares
of capital stock.
(s) Upon consummation of the Reorganization, the
authorized, issued and outstanding equity capital of the Holding Company will
be within the range set forth in the Prospectus under the caption
"Capitalization," and, except for the shares of Common Stock held by MHC, no
shares of Common Stock have been or will be issued and outstanding prior to the
Closing Date; the shares of Common Stock issued and to be issued to the MHC,
and the shares of Common Stock to be subscribed for in the Offering have been
duly and validly authorized for issuance, and when issued and delivered by the
Holding Company pursuant to the Plan against payment of the consideration
calculated as set forth in the Plan and the Prospectus, will be duly and
validly issued and fully paid and nonassessable; the issuance of the Shares is
not subject to preemptive rights, except for the Subscription Rights granted
pursuant to the Plan; and the terms and provisions of the shares of Common
Stock will conform in all material respects to the description thereof
contained in the Prospectus. Upon issuance of the Shares, good title to the
Shares will be transferred from the Holding Company to the purchasers of Shares
against payment therefor in the Offering as set forth in the Plan and the
Prospectus.
(t) None of the Primary Parties are in violation of their
respective articles of incorporation or charter or their respective bylaws, or
in material default in the performance or observance of any obligation,
agreement, covenant, or condition contained in any contract, lease, loan
agreement, indenture or other instrument to which they are a party or by which
they, or any of their respective property, may be bound which would result in a
material adverse change in the condition (financial or
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otherwise), earnings, capital, properties or business affairs of the Primary
Parties considered as one enterprise or which would materially affect their
properties or assets. The consummation of the transactions herein contemplated
will not (i) conflict with or constitute a breach of, or default under, the
articles of incorporation or bylaws of the Holding Company, or the charter or
bylaws of MHC or the Association, or materially conflict with or constitute a
material breach of, or default under, any material contract, lease or other
instrument to which any of the Primary Parties has a beneficial interest, or
any applicable law, rule, regulation or order that is material to the financial
condition of the Primary Parties on a consolidated basis; (ii) violate any
authorization, approval, judgment, decree, order, statute, rule or regulation
applicable to the Primary Parties except for such violations which would not
have a material adverse effect on the financial condition and results of
operations of the Primary Parties on a consolidated basis; or (iii) with the
exception of the liquidation account established in the Reorganization, result
in the creation of any material lien, charge or encumbrance upon any property
of the Primary Parties.
(u) No material default exists, and no event has occurred
which with notice or lapse of time, or both, would constitute a material
default on the part of any of the Primary Parties, in the due performance and
observance of any term, covenant or condition of any indenture, mortgage, deed
of trust, note, bank loan or credit agreement or any other material instrument
or agreement to which any of the Primary Parties is a party or by which any of
them or any of their property is bound or affected in any respect which, in any
such case, is material to the Primary Parties considered as one enterprise, and
such agreements are in full force and effect; and no other party to any such
agreements has instituted or, to the best knowledge of the Primary Parties,
threatened any action or proceeding wherein any of the Primary Parties is
alleged to be in default thereunder under circumstances where such action or
proceeding, if determined adversely to any of the Primary Parties, would have a
material adverse effect upon the Primary Parties considered as one enterprise.
(v) The Primary Parties have good and marketable title to
all assets which are material to the businesses of the Primary Parties and to
those assets described in the Prospectus as owned by them free and clear of all
material liens, charges, encumbrances, restrictions or other claims, except
such as are described in the Prospectus or which do not have a material adverse
effect on the businesses of the Primary Parties taken as a whole; and all of
the leases and subleases which are material to the businesses of the Primary
Parties, as described in the Registration Statement or Prospectus, are in full
force and effect.
(w) Except as may be described in the Prospectus, the
Primary Parties are not in material violation of any directive
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from the OTS, the FDIC, the Commission or any other agency to make any material
change in the method of conducting their respective businesses; the Primary
Parties have conducted and are conducting their respective businesses so as to
comply in all respects with all applicable statutes and regulations (including,
without limitation, regulations, decisions, directives and orders of the OTS,
the Commission and the FDIC), except where the failure to so comply would not
reasonably be expected to result in any material adverse change in the
financial condition, results of operations, capital, properties or business
affairs of the Primary Parties considered as one enterprise and, except as set
forth in the Prospectus, there is no charge, investigation, action, suit or
proceeding before or by any court, regulatory authority or governmental agency
or body pending or, to the best knowledge any of the Primary Parties,
threatened, which would reasonably be expected to materially and adversely
affect the Reorganization, the performance of this Agreement, or the
consummation of the transactions contemplated in the Plan as described in the
Registration Statement, or which would reasonably be expected to result in any
material adverse change in the financial condition, results of operations,
capital, properties or business affairs of the Primary Parties considered as
one enterprise.
(x) The Primary Parties have received an opinion of their
special counsel, Luse Lehman Gorman Pomerenk & Schick ("Luse Lehman"), with
respect to the federal income tax consequences of the Reorganization, as
described in the Registration Statement and the Prospectus, and an opinion from
O'Reilly, Marsh, Kearney & Corteselli, P.C. ("OMK&C") with respect to the tax
consequences of the proposed transaction under the laws of the State of New
York; and the facts and representations upon which such opinions are based are
truthful, accurate and complete, and none of the Primary Parties will take any
action inconsistent therewith.
(y) The Association has timely filed all required federal
and state tax returns, has paid all taxes that have become due and payable in
respect of such returns, except where permitted to be extended, has made
adequate reserves for similar future tax liabilities, and, except as disclosed
in the Prospectus, no deficiency has been asserted with respect thereto by any
taxing authority.
(z) No approval, authorization, consent or other order of
any regulatory or supervisory or other public authority is required for the
execution and delivery by the Primary Parties of this Agreement, or the
issuance of the Shares, except for the approval of the OTS and the Commission
(which have been received) and any necessary qualification, notification, or
registration or exemption under the securities or blue sky laws of the various
states in which the Shares are to be offered.
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(aa) None of the Primary Parties has: (i) issued any
securities within the last 18 months (except for (a) notes to evidence bank
loans or other liabilities in the ordinary course of business or as described
in the Prospectus, and (b) shares of Common Stock issued to the MHC with
respect to the initial capitalization of the Holding Company); (ii) had any
dealings with respect to sales of securities within the 12 months prior to the
date hereof with any member of the NASD, or any person related to or associated
with such member, other than discussions and meetings relating to the Offering
and purchases and sales of U.S. government and agency and other securities in
the ordinary course of business; (iii) entered into a financial or management
consulting agreement except for the Letter Agreement and as contemplated
hereunder; or (iv) engaged any intermediary between the Agent and the Primary
Parties in connection with the Offering or the offering of shares of the common
stock of the Association, and no person is being compensated in any manner for
such services.
(ab) Neither the Primary Parties nor, to the best knowledge
of the Primary Parties, any employees of the Primary Parties have made any
payment of funds of the Primary Parties as a loan to any person for the
purchase of Conversion Shares, except for the Holding Company's loan to the
ESOP the proceeds of which will be used to purchase Conversion Shares, or has
made any other payment of funds prohibited by law, and no funds have been set
aside to be used for any payment prohibited by law.
(ac) The Association complies in all material respects with
the applicable financial recordkeeping and reporting requirements of the
Currency and Foreign Transactions Reporting Act of 1970, as amended, and the
regulations and rules thereunder.
(ad) The Primary Parties have not relied upon Agent or its
counsel for any legal, tax or accounting advice in connection with the
Reorganization.
(ae) The records of Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members are accurate and complete in all
material respects.
(af) The Primary Parties comply with all laws, rules and
regulations relating to environmental protection, and none of them has been
notified or is otherwise aware that any 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 other Federal, state
or local environmental laws and regulations; no action, suit, regulatory
investigation or other proceeding is pending, threatened against the Primary
Parties relating to environmental protection, nor do the Primary parties have
any reason to believe any such proceedings may be brought against any of them;
and no disposal, release or discharge of hazardous or toxic substances,
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<PAGE> 15
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 facilities or properties owned or leased by any of the
Primary Parties or, to the best knowledge of the Association, in which the
Association has a security interest.
(ag) All of the loans represented as assets on the most
recent financial statements or selected financial information of the
Association included in the Prospectus meet or are exempt from all requirements
of federal, state and local law pertaining to lending, including, without
limitation, truth in lending (including the requirements of Regulations Z and
12 C.F.R. Part 226), real estate settlement procedures, consumer credit
protection, equal credit opportunity and all disclosure laws applicable to such
loans, except for violations which, if asserted, would not result in a material
adverse effect on the financial condition, results of operations or business of
the Primary Parties taken as a whole.
(ah) None of the Primary Parties are required to be
registered as an investment company under the Investment Company Act of 1940.
Any certificates signed by an officer of any of the Primary Parties
and delivered to the Agent or its their counsel that refer to this Agreement
shall be deemed to be a representation and warranty by the Primary Parties to
the Agent as to the matters covered thereby with the same effect as if such
representation and warranty were set forth herein.
SECTION 7. COVENANTS OF THE PRIMARY PARTIES. The Primary Parties
hereby jointly and severally covenant with the Agent as follows:
(a) The Holding Company will not, at any time after the
date the Registration Statement is declared effective, file any amendment or
supplement to the Registration Statement without providing the Agent and its
counsel an opportunity to review such amendment or file any amendment or
supplement to which amendment the Agent or its counsel shall reasonably object.
(b) The Primary Parties will not, at any time after the
date any OTS Application is approved, file any amendment or supplement to such
OTS Application without providing the Agent and its counsel an opportunity to
review such amendment or supplement or file any amendment or supplement to
which amendment or supplement the Agent or its counsel shall reasonably object.
(c) The Primary Parties will use their best efforts to
cause the OTS to approve the Holding Company's acquisition of the Association,
and will use their best efforts to cause any post-effective amendment to the
Registration Statement to be declared effective by the Commission and any
post-effective amendment to
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<PAGE> 16
the OTS Applications to be approved by the OTS, and will immediately upon
receipt of any information concerning the events listed below notify the Agent
(i) when the Registration Statement, as amended, has become effective; (ii)
when the MHC Notice and Application, as amended, has been approved by the OTS;
(iii) when the Holding Company Application, as amended, has been approved by
the OTS; (iv) when the Merger Application has been approved by the OTS; (v) of
the receipt of any comments from the Commission, the OTS, or any other
governmental entity with respect to the Reorganization or the transactions
contemplated by this Agreement; (vi) of any request by the Commission, the OTS,
any other governmental entity for any amendment or supplement to the
Registration Statement or the OTS Applications or for additional information;
(vii) of the issuance by the Commission, the OTS, or any other governmental
agency of any order or other action suspending the Offerings or the use of the
Registration Statement or the Prospectus or any other filing of the Primary
Parties under the Conversion Regulations or other applicable law, or the threat
of any such action; (viii) of the issuance by the Commission, the OTS, the FDIC
or any state authority of any stop order suspending the effectiveness of the
Registration Statement or of the initiation or threat of initiation or threat
of any proceedings for that purpose; or (ix) of the occurrence of any event
mentioned in paragraph (f) below. The Primary Parties will make every
reasonable effort to prevent the issuance by the Commission, the OTS, the FDIC
or any state authority of any order referred to in (vii) and (viii) above and,
if any such order shall at any time be issued, to obtain the lifting thereof at
the earliest possible time.
(d) The Primary Parties will deliver to the Agent and to
its counsel conformed copies of each of the following documents, with all
exhibits: each of the OTS Applications as originally filed and of each
amendment or supplement thereto, and the Registration Statement, as originally
filed and each amendment thereto. Further, the Primary Parties will deliver
such additional copies of the foregoing documents to counsel to the Agent as
may be required for any NASD filings. In addition, the Primary Parties will
also deliver to the Agent such number of copies of the Prospectus, as amended
or supplemented, as the Agent may reasonably request.
(e) The Primary Parties will comply in all material
respects with any and all terms, conditions, requirements and provisions with
respect to the Reorganization and the transactions contemplated thereby imposed
by the Commission, by applicable state law and regulations, and by the 1933
Act, the Securities Exchange Act of 1934 (the "1934 Act") and the rules and
regulations of the Commission promulgated under such statutes, to be complied
with prior to or subsequent to the Closing Date; and when the Prospectus is
required to be delivered, the Primary Parties will comply in all material
respects, at their own expense, with all material requirements imposed upon
them by the OTS, the Conversion Regulations (except
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<PAGE> 17
as modified or waived in writing by the OTS), the Commission, by applicable
state law and regulations and by the 1933 Act, the 1934 Act and the rules and
regulations of the Commission promulgated under such statutes, in each case as
from time to time in force, so far as necessary to permit the continuance of
sales or dealing in shares of Common Stock during such period in accordance
with the provisions hereof and the Prospectus.
(f) The Primary Parties will inform the Agent of any
event or circumstances of which it is aware as a result of which the
Registration Statement and/or Prospectus, as then supplemented or amended,
would include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading.
If it is necessary, in the reasonable opinion of counsel for the Primary
Parties, to amend or supplement the Registration Statement or the Prospectus in
order to correct such untrue statement of a material fact or to make the
statements therein not misleading in light of the circumstances existing at the
time of their use, the Primary Parties will, at their expense, forthwith
prepare, file with the Commission and the OTS, and furnish to the Agent, a
reasonable number of copies of an amendment or amendments of, or a supplement
or supplements to, the Registration Statement and the Prospectus (in form and
substance reasonably satisfactory to counsel for the Agent after a reasonable
time for review) which will amend or supplement the Registration Statement
and/or the Prospectus so that as amended or supplemented it will not contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances existing
at the time, not misleading. For the purpose of this subsection, each of the
Primary Parties will furnish such information with respect to itself as the
Agent may from time to time reasonably request.
(g) Pursuant to the terms of the Plan, the Holding
Company will endeavor in good faith, in cooperation with the Agent, to register
or to qualify the Shares for offering and sale or to exempt such Shares from
registration and to exempt the Holding Company and its officers, directors and
employees from registration as broker-dealers, under the applicable securities
laws of the jurisdictions in which the Offering will be conducted; provided,
however, that the Holding Company shall not be obligated to file any general
consent to service of process or to qualify to do business in any jurisdiction
in which it is not so qualified. In each jurisdiction where any of the Shares
shall have been registered or qualified as above provided, the Holding Company
will make and file such statements and reports in each year as are or may be
required by the laws of such jurisdictions.
(h) The Holding Company will not sell or issue, contract
to sell or otherwise dispose of, for a period of 90 days after the date hereof,
without the Agent's prior written consent, which consent shall not be
unreasonably withheld, any shares of
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<PAGE> 18
Common Stock other than in connection with any plan or arrangement described in
the Prospectus.
(i) For the period of three years from the date of this
Agreement, the Holding Company will furnish to the Agent upon request (i) a
copy of each report of the Holding Company furnished to or filed with the
Commission under the 1934 Act or any national securities exchange or system on
which any class of securities of the Holding Company is listed or quoted, (ii)
a copy of each report of the Holding Company mailed to holders of Common Stock
or non-confidential report filed with the Commission or the OTS or any other
supervisory or regulatory authority or any national securities exchange or
system on which any class of the securities of the Holding Company is listed or
quoted, and (iii) from time to time, such other publicly available information
concerning the Primary Parties as the Agent may reasonably request.
(j) The Primary Parties will use the net proceeds from
the sale of the Common Stock in the manner set forth in the Prospectus under
the caption "Use of Proceeds."
(k) The Holding Company and the Association will
distribute the Prospectus or other offering materials in connection with the
offering and sale of the Common Stock only in accordance with the Conversion
Regulations, the 1933 Act and the 1934 Act and the rules and regulations
promulgated under such statutes, and the laws of any state in which the shares
are qualified for sale.
(l) The Holding Company shall register its Common Stock
under Section 12(g) of the 1934 Act, concurrent with the effective date of the
Registration Statement. The Holding Company shall maintain the effectiveness
of such registration for not less than three years or such shorter period as
permitted by the OTS.
(m) For so long as the Common Stock is registered under
the 1934 Act, the Holding Company will furnish to its stockholders as soon as
practicable after the end of each fiscal year such reports and other
information as are required to be furnished to its stockholders under the 1934
Act (including consolidated financial statements of the Holding Company and its
subsidiaries, certified by independent public accountants).
(n) The Holding Company will comply with the provisions
of Rule 158 of the 1933 Act.
(o) The Holding Company will file with the Commission,
within the required time period, such reports on Form SR as may be required
pursuant to Rule 463 under the 1933 Act.
(p) The Primary Parties will maintain appropriate
arrangements for depositing all funds received from persons
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<PAGE> 19
mailing subscriptions for or orders to purchase Conversion Shares on an
interest bearing basis at the rate described in the Prospectus until the
Closing Date and satisfaction of all conditions precedent to the release of the
Holding Company's obligation to refund payments received from persons
subscribing for or ordering Conversion Shares in the Conversion Offerings, in
accordance with the Plan as described in the Prospectus, or until refunds of
such funds have been made to the persons entitled thereto or withdrawal
authorizations canceled in accordance with the Plan and as described in the
Prospectus. The Primary Parties will maintain such records of all funds
received to permit the funds of each subscriber to be separately insured by the
FDIC (to the maximum extent allowable) and to enable the Primary Parties to
make the appropriate refunds of such funds in the event that such refunds are
required to be made in accordance with the Plan and as described in the
Prospectus.
(q) The MHC and the Holding Company will each promptly
register as a savings and loan holding company under the HOLA.
(r) The Primary Parties will take such actions and
furnish such information as are reasonably requested by the Agent in order for
the Agent to ensure compliance with the "Interpretation of the Board of
Governors of the NASD on Free Riding and Withholding."
(s) The Primary Parties will conduct their businesses in
compliance in all material respects with all applicable federal and state laws,
rules, regulations, decisions, directives and orders including, all decisions,
directives and orders of the Commission, the OTS and the FDIC.
(t) The Primary Parties will not amend the Plan without
notifying the Agent prior thereto.
(u) The Holding Company shall provide the Agent with any
information necessary to carry out the allocation of the Conversion Shares in
the event of an oversubscription, and such information shall be accurate and
reliable in all material respects.
(v) The Holding Company will not deliver the Shares until
the Primary Parties have satisfied or caused to be satisfied each condition set
forth in Section 9 hereof, unless such condition is waived in writing by the
Agent.
(w) Upon completion of the sale by the Holding Company of
the Shares contemplated by the Plan and the Prospectus, (i) the MHC shall have
been formed pursuant to the Plan and shall own at all times more than 50% of
the issued and outstanding shares of Common Stock, (ii) all of the issued and
outstanding shares of capital stock of the Association shall be owned by the
Holding Company, (iii) the Holding Company shall have no direct subsidiaries
other than the Association, and (iv) the
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Reorganization shall have been effected in accordance with all applicable
statutes, regulations, decisions and orders; and all terms, conditions,
requirements and provisions with respect to the Reorganization (except those
that are conditions subsequent) imposed by the Commission, the OTS or any other
governmental agency, if any, shall have been complied with by the Primary
Parties in all material respects or appropriate waivers shall have been
obtained and all notice and waiting periods shall have been satisfied, waived
or elapsed.
(x) Prior to the Closing Date, the Plan shall have been
approved by the eligible voting members of the Association in accordance with
the Conversion Regulations and the provisions of the Association's charter and
bylaws.
(y) As of the Closing Date, the Primary Parties shall have
completed all conditions precedent to the Reorganization in accordance with the
Plan and shall have complied in all material respects with applicable laws,
regulations (except as modified or waived in writing by the OTS), decisions and
orders, including all terms, conditions, requirements and provisions precedent
to the Reorganization imposed upon it by the OTS as set forth in correspondence
received from the OTS.
(z) On or before the Closing Date, the Primary Parties will
have completed all conditions precedent to the Reorganization specified in the
Plan and the offer and sale of the Shares will have been conducted in all
material respects in accordance with the Plan, the Conversion Regulations
(except as modified or waived in writing by the OTS) and with all other
applicable laws, regulations, decisions and orders, including all terms,
conditions, requirements and provisions precedent to the Reorganization imposed
upon any of the Primary Parties by the OTS, the Commission or any other
regulatory authority and in the manner described in the Prospectus.
SECTION 8. PAYMENT OF EXPENSES. Whether or not the Reorganization is
completed or the sale and exchange of the Shares by the Holding Company is
consummated, the Primary Parties will pay for all expenses incident to the
performance of this Agreement, including without limitation: (a) the
preparation and filing of the OTS Applications; (b) the preparation, printing,
filing, delivery and shipment of the Registration Statement, including the
Prospectus, and all amendments and supplements thereto; (c) all filing fees and
expenses in connection with the qualification or registration of the Shares for
offer and sale by the Holding Company or the Association under the securities
or "blue sky" laws, including without limitation filing fees, reasonable legal
fees and disbursements of counsel in connection therewith, and in connection
with the preparation of a blue sky law survey; (d) the filing fees of the NASD;
and (e) the reasonable expenses of the Agent, including without limitation,
accounting, communications, legal and travel expenses. Any such expense
incurred by the Agent shall be reimbursed by the Primary
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Parties. Notwithstanding the foregoing, the Primary Parties shall not be
required to reimburse Agent for more than $30,000 in legal fees and $10,000 in
non-legal out-of-pocket expenses, except in the event of any material delay in
the Offering that would require an update of the financial information in
tabular form contained in the Registration Statement to reflect a period later
than that set forth in the original Registration Statement filing. Not later
than three days prior to the Closing Date, the Agent will provide the
Association with a detailed accounting of all reimbursable expenses to be paid
at the Closing.
SECTION 9. CONDITIONS TO THE AGENT'S OBLIGATIONS. The obligations of
the Agent hereunder and the occurrence of the Closing and the Reorganization
are subject to the condition that all representations and warranties and other
statements of the Primary Parties herein contained are, at and as of the
commencement of the Offering and at and as of the Closing Date, true and
correct, the condition that the Primary Parties shall have performed all of
their obligations hereunder to be performed on or before such dates and to the
following further conditions:
(a) The Registration Statement shall have been declared
effective by the Commission and the MHC Notice and Application approved by the
OTS prior to the commencement of the Offering, the Holding Company Application
shall have been approved, and no stop order or other action suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act or proceedings therefor initiated or, to any of the Primary Parties'
best knowledge, threatened by the Commission or any state authority and no
order or other action suspending the authorization for use of the Prospectus or
the consummation of the Reorganization shall have been issued or proceedings
therefor initiated or, to any of the Primary Parties' best knowledge,
threatened by the OTS, the Commission, or any other governmental body.
(b) At the Closing Date, the Agent shall have received:
(1) The favorable opinion, dated as of the
Closing Date, of Luse Lehman, in form and substance satisfactory to counsel for
the Agent to the effect that:
(i) The Holding Company is a corporation
duly organized and validly existing and in good standing under the federal laws
of the United States of America, with corporate power and authority to own its
properties and to conduct its business as described in the Prospectus, and is
duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business requires such qualification
and in which the failure to qualify would have a material adverse effect on the
financial condition, earnings, capital, properties or business affairs of the
Primary Parties.
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(ii) The Association is a duly organized and
validly existing federally chartered mutual savings association with full power
and authority to own its properties and to conduct its business as described in
the Prospectus and to enter into this Agreement and perform its obligations
hereunder; the activities of the Association as described in the Prospectus are
permitted by the rules, regulations and practices of the OTS; the issuance and
sale of the capital stock of the Association to the Holding Company in the
Reorganization has been duly and validly authorized by all necessary corporate
action on the part of the Holding Company and the Association and, upon payment
therefor in accordance with the terms of the Plan, will be validly issued,
fully paid and nonassessable; and will be owned of record and beneficially by
the Holding Company, free and clear of any mortgage, pledge, lien, encumbrance,
claim or restriction.
(iii) The Association is a member of the
FHLB of New York and the Association is an insured depository institution under
the provisions of the Federal Deposit Insurance Act, as amended, and to such
counsel's knowledge no proceedings for the termination or revocation of such
insurance are pending or threatened.
(iv) The MHC has been duly organized and is
validly existing as a federally chartered mutual holding company, duly
authorized to conduct its business and own its properties as described in the
Registration Statement and Prospectus.
(v) Upon consummation of the Reorganization,
(a) the authorized, issued and outstanding capital stock of the Holding Company
will be within the range set forth in the Prospectus under the caption
"Capitalization," and no shares of Common Stock have been or will be issued and
outstanding prior to the Closing Date (except for the shares issued to the MHC
upon incorporation of the Holding Company); (b) the shares of Common Stock of
the Holding Company issued to the MHC will have been duly and validly
authorized for issuance and fully paid and nonassessable; (c) the shares of
Common Stock of the Holding Company to be subscribed for in the Offering will
have been duly and validly authorized for issuance, and when issued and
delivered by the Holding Company pursuant to the Plan against payment of the
consideration calculated as set forth in the Plan, will be fully paid and
nonassessable; and (d) the issuance of the shares of Common Stock is not
subject to preemptive rights under the charter, articles of incorporation or
bylaws of any of the Primary Parties, or arising or outstanding by operation of
law or, to the best knowledge of such counsel, under any contract, indenture,
agreement, instrument or other document, except for the subscription rights
under the Plan.
(vi) The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Primary Parties; and this Agreement
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<PAGE> 23
constitutes a valid, legal and binding obligation of each of the Primary
Parties, enforceable in accordance with its terms, except to the extent that
the provisions of Sections 10 and 11 hereof may be unenforceable as against
public policy, and except to the extent that such enforceability may be limited
by bankruptcy laws, insolvency laws, or other laws affecting the enforcement of
creditors' rights generally, or the rights of creditors of savings institutions
insured by the FDIC (including the laws relating to the rights of the
contracting parties to equitable remedies).
(vii) The Plan has been duly adopted by the
board of directors of the Association and by the members of the Association, in
the manner required by the MHC Regulations and the Association's respective
charter and bylaws.
(viii) The OTS Applications have been
approved by the OTS and the Prospectus and the Proxy Statement have been
authorized for use by the OTS, and subject to the satisfaction of any
conditions set forth in such OTS approvals, no further approval, registration,
authorization, consent or other order of any federal regulatory agency, public
board or body is required in connection with the execution and delivery of this
Agreement, the offer, sale and issuance of the Shares and the consummation of
the Reorganization.
(ix) The purchase by the Holding Company of
all of the issued and outstanding capital stock of the Association has been
authorized by the OTS and no action has been taken, or, to such counsel's
knowledge, is pending or threatened, to revoke any such authorization or
approval.
(x) The Registration Statement has become
effective under the 1933 Act, no stop order suspending the effectiveness of the
Registration Statement has been issued, and, to the best of such counsel's
knowledge, no proceedings for that purpose have been instituted or threatened.
(xi) The material tax consequences of the
Reorganization are set forth in the Prospectus under the caption "The
Reorganization and Offering -- Tax Effects of the Reorganization." The
information in the Prospectus under the caption "The Reorganization and
Offering -- Tax Effects of the Reorganization" has been reviewed by such
counsel and fairly describes such opinions rendered by such counsel and OMK&C
to the Primary Parties with respect to such matters.
(xii) The terms and provisions of the shares
of Common Stock conform to the description thereof contained in the
Registration Statement and the Prospectus and such description describes in all
material respects the rights of the holders thereof; the information in the
Prospectus under the captions "The Reorganization and Offering -- Absence of
Cumulative Voting" and "-- Authorization of Preferred Stock,"
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<PAGE> 24
"Restrictions on the Acquisition of the Company" and "Description of Capital
Stock," to the extent that they constitute matters of law or legal conclusions,
has been prepared by such counsel and is accurate in all material respects; and
the forms of certificates proposed to be used to evidence the shares of Common
Stock are in due and proper form.
(xiii) At the time the MHC Notice and
Application was approved, the MHC Notice and Application (as amended or
supplemented) including the Prospectus contained therein, complied as to form
in all material respects with the requirements of the MHC Regulations and all
applicable laws, rules and regulations and decisions and orders of the OTS,
except as modified or waived in writing by the OTS (other than the financial
statements, notes to financial statements, financial tables and other financial
and statistical data included therein and the appraisal valuation as to which
counsel need express no opinion). To such counsel's knowledge, no person has
sought to obtain regulatory or judicial review of the final action of the OTS
approving the OTS Applications.
(xiv) At the time that the Registration
Statement became effective the Registration Statement, including the Prospectus
contained therein (as amended or supplemented) (other than the financial
statements, notes to financial statements, financial tables or other financial
and statistical data included therein and the appraisal valuation as to which
counsel need express no opinion), complied as to form in all material respects
with the requirements of the 1933 Act and the rules and regulations promulgated
thereunder.
(xv) To the best of such counsel's
knowledge, there are no legal or governmental proceedings pending, or
threatened (i) asserting the invalidity of this Agreement or (ii) seeking to
prevent the Reorganization or the offer, sale or issuance of the Shares.
(xvi) The information in the Prospectus
under the captions "Regulation," "Taxation," and "The Reorganization and
Offering," to the extent that it constitutes matters of law, summaries of legal
matters, documents or proceedings, or legal conclusions, has been prepared by
such counsel and is accurate in all material respects (except as to the
financial statements and other financial data included therein as to which such
counsel need express no opinion).
(xvii) None of the Primary Parties are
required to be registered as an investment company under the Investment Company
Act of 1940.
(xviii) The Association has duly adopted a
federal stock charter and bylaws effective upon consummation of the
Reorganization, and none of the Primary Parties is in violation of its articles
of incorporation or its charter, as the
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case may be, or its bylaws or, to the best of such counsel's knowledge, any
material obligation, agreement, covenant or condition contained in any material
contract, indenture, mortgage, loan agreement, note, lease or other instrument
filed as an exhibit to, or incorporated by reference in, the Registration
Statement, which violation would have a material adverse effect on the
financial condition of the Primary Parties considered as one enterprise, or on
the earnings, capital, properties or business affairs of the Primary Parties
considered as one enterprise; the execution and delivery of this Agreement by
the Primary Parties, the incurrence of the obligations herein set forth and the
consummation of the transactions contemplated herein, will not materially
conflict with, constitute a material breach of, or default under, or result in
the creation or imposition of any material lien, charge or encumbrance upon any
property or assets of any of the Primary Parties which are material to their
business considered as one enterprise, pursuant to any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which any of the
Primary Parties is a party or by which any of them may be bound, or to which
any of the property or assets of the Primary Parties are subject. In addition,
the execution and delivery of and performance under this Agreement by the
Primary Parties, the incurrence of the obligations set forth herein and the
consummation of the transactions contemplated herein will not result in any
material violation of the provisions of the articles of incorporation or
charter, as the case may be, or the bylaws of any of the Primary Parties or any
material violation of any applicable law, act, regulation, or to such counsel's
knowledge, order or court order, writ, injunction or decree.
The opinion may be limited to matters governed by the laws of the
United States and the State of New York. In rendering such opinion, such
counsel may rely (A) as to matters involving the application of laws of any
jurisdiction other than the United States, to the extent such counsel deems
proper and specified in such opinion, upon the opinion of other counsel of good
standing, as long as such other opinion indicates that the Agent may rely on
the opinion, and (B) as to matters of fact, to the extent such counsel deems
proper, on certificates of responsible officers of the Primary Parties and
public officials; provided copies of any such opinion(s) or certificates of
public officials are delivered to Agent together with the opinion to be
rendered hereunder by special counsel to the Primary Parties. The opinion of
such counsel for the Primary Parties shall state that it has no reason to
believe that the Agent is not justified in relying thereon.
(2) The letter of Luse Lehman in form and
substance to the effect that during the preparation of the Registration
Statement and the Prospectus, Luse Lehman participated in conferences with
certain officers of and other representatives of the Primary Parties, counsel
to the Agent, representatives of the independent public accountants for the
Primary Parties and representatives of the Agent at which the
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contents of the Registration Statement and the Prospectus and related matters
were discussed and has considered the matters required to be stated therein and
the statements contained therein and, although (without limiting the opinions
provided pursuant to Section 9(b)(1)) Luse Lehman has not independently
verified the accuracy, completeness or fairness of the statements contained in
the Registration Statement and Prospectus, on the basis of the foregoing,
nothing has come to the attention of Luse Lehman that caused Luse Lehman to
believe that the Registration Statement at the time it was declared effective
by the SEC and as of the date of such letter, contained or contains any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (it being understood
that counsel need express no comment or opinion with respect to the financial
statements, schedules and other financial and statistical data included, or
statistical or appraisal methodology employed, in the Registration Statement or
Prospectus).
(3) The favorable opinion, dated as of the
Closing Date, of Stevens & Lee, counsel for the Agent, with respect to such
matters as the Agent may reasonably require; such opinion may rely, as to
matters of fact, upon certificates of officers and directors of the Primary
Parties delivered pursuant hereto or as such counsel may reasonably request.
(c) Concurrently with the execution of this Agreement,
the Agent shall receive a letter from Sol Masch & Co., dated the date hereof
and addressed to the Agent, (i) such letter confirming that Sol Masch & Co. is
a firm of independent public accountants within the meaning of the Code of
Professional Ethics of the American Institute of Certified Public Accountants,
the 1933 Act and the regulations promulgated thereunder and 12 C.F.R. Section
571.2(c)(3), and no information concerning its relationship with or interests
in the Primary Parties is required by the OTS Applications or Item 10 of the
Registration Statement, and stating in effect that in Sol Masch & Co.'s opinion
the financial statements of the Association included in the Prospectus comply
as to form in all material respects with the applicable accounting requirements
of the 1933 Act, the 1934 act and the related published rules and regulations
of the Commission thereunder and the Conversion Regulations and generally
accepted accounting principles consistently applied; (ii) stating in effect
that, on the basis of certain agreed upon procedures (but not an audit
examination in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited interim financial
statements of the Association prepared by the Association, a reading of the
minutes of the meetings of the Board of Directors of the Association and the
members of the Association, a review of interim financial information in
accordance with Statement on Auditing Standards No. 71, and consultations with
officers of the Association responsible for financial and accounting matters,
nothing came to
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their attention which caused them to believe that: (A) such unaudited
financial statements, including recent developments, if any, are not in
conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements included
in the Prospectus; or (B) during the period from the date of the latest
unaudited consolidated financial statements included in the Prospectus to a
specified date not more than three business days prior to the date hereof,
there was any increase in borrowings (defined as advances from the FHLB of New
York, securities sold under agreements to repurchase and any other form of debt
other than deposits) of any of the Primary Parties or in nonperforming loans of
the Association; or (C) there was any decrease in retained earnings of the
Association at the date of such letter as compared with amounts shown in the
latest unaudited statement of condition included in the Prospectus or there was
any decrease in net income or net interest income of the Association for the
number of full months commencing immediately after the period covered by the
latest unaudited income statement included in the Prospectus and ended on the
latest month end prior to the date of the Prospectus or in such letter as
compared to the corresponding period in the preceding year; and (iii) stating
that, in addition to the audit examination referred to in its opinion included
in the Prospectus and the performance of the procedures referred to in clause
(ii) of this subsection (c), they have compared with the general accounting
records of the Primary Parties, which are subject to the internal controls of
the accounting system of the Primary Parties and other data prepared by the
Primary Parties directly from such accounting records, to the extent specified
in such letter, such amounts and/or percentages set forth in the Prospectus as
the Agent may reasonably request, and they have found such amounts and
percentages to be in agreement therewith (subject to rounding).
(d) At the Closing Date, the Agent shall receive a letter
from Sol Masch & Co. dated the Closing Date, addressed to the Agent, confirming
the statements made by its letter delivered by it pursuant to subsection (c) of
this Section 9, the "specified date" referred to in clause (ii)(B) thereof to
be a date specified in such letter, which shall not be more than three business
days prior to the Closing Date.
(e) At the Closing Date, counsel to the Agent shall have
been furnished with such documents and opinions as counsel for the Agent may
require for the purpose of enabling them to advise the Agent with respect to
the issuance and sale of the Common Stock as herein contemplated and related
proceedings, or in order to evidence the accuracy of any of the representations
and warranties, or the fulfillment of any of the conditions herein contained.
(f) At the Closing Date, the Agent shall receive a
certificate of the Chief Executive Officer and Chief Financial Officer of each
of the Primary Parties, dated the Closing Date,
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to the effect that (i) they have carefully examined the Prospectus and at the
time the Prospectus became authorized for final use, the Prospectus did not
contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; (ii) there has not
been, since the respective dates as of which information is given in the
Prospectus, any material adverse change in the financial condition or in the
earnings, capital, properties, business prospects or business affairs of the
Primary Parties, considered as one enterprise, whether or not arising in the
ordinary course of business; (iii) the representations and warranties contained
in Section 6 of this Agreement are true and correct with the same force and
effect as though made at and as of the Closing Date; (iv) the Primary Parties
have complied in all material respects with all material agreements and
satisfied all conditions on its part to be performed or satisfied at or prior
to the Closing Date including the conditions contained in this Section 9; (v)
no stop order has been issued or, to the best of their knowledge, is
threatened, by the Commission or any other governmental body; (vi) no order
suspending the Offering, the Reorganization, the acquisition of all of the
shares of the Association by the Holding Company, the acquisition by MHC of
shares of the Common Stock or the effectiveness of the Prospectus has been
issued and to the best of their knowledge, no proceedings for any such purpose
have been initiated or threatened by the OTS, the Commission, the FDIC, or any
other federal or state authority; (vii) to the best of their knowledge, no
person has sought to obtain regulatory or judicial review of the action of the
OTS in approving the Plan or to enjoin the Reorganization.
(g) At the Closing Date, the Agent shall receive a letter
from Feldman Financial Advisors, Inc., dated as of the Closing Date, (i)
confirming that said firm is independent of the Primary Parties and is
experienced and expert in the area of corporate appraisals within the meaning
of the Conversion Regulations, (ii) stating in effect that the Appraisal
complies in all material respects with the applicable requirements of the
Conversion Regulations, and (iii) further stating that its opinion of the
aggregate pro forma market value of the Primary Parties, as converted,
expressed in the Appraisal as most recently updated, remains in effect.
(h) None of the Primary Parties shall have sustained,
since the date of the latest audited financial statements included in the
Registration Statement and Prospectus, any material loss or interference with
its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth in the Registration
Statement and the Prospectus, and since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
shall not have
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been any material change, or any development involving a prospective material
change in, or affecting the general affairs of, management, financial position,
retained earnings, long-term debt, stockholders' equity or results of
operations of any of the Primary Parties, otherwise than as set forth or
contemplated in the Registration Statement and the Prospectus, the effect of
which, in any such case described above, is in the Agent's reasonable judgment
sufficiently material and adverse as to make it impracticable or inadvisable to
proceed with the Offering or the delivery of the Shares on the terms and in the
manner contemplated in the Prospectus.
(i) Prior to and at the Closing Date: (i) in the
reasonable opinion of the Agent, there shall have been no material adverse
change in the financial condition or in the earnings, capital, properties or
business affairs of any of the Primary Parties independently, or of the Primary
Parties, considered as one enterprise, from that as of the latest dates as of
which such condition is set forth in the Prospectus, except as referred to
therein; (ii) there shall have been no material transaction entered into by the
Primary Parties, considered as one enterprise, from the latest date as of which
the financial condition of the Primary Parties is set forth in the Prospectus,
other than transactions referred to or contemplated therein; (iii) none of the
Primary Parties shall have received from the OTS or the FDIC any direction
(oral or written) to make any material change in the method of conducting their
business with which it has not complied in all material respects (which
direction, if any, shall have been disclosed to the Agent) and which would
reasonably be expected to have a material and adverse effect on the condition
(financial or otherwise) or on the earnings, capital, properties or business
affairs of the Primary Parties considered as one enterprise; (iv) none of the
Primary Parties shall have been in default (nor shall an event have occurred
which, with notice or lapse of time or both, would constitute a default) under
any provision of any agreement or instrument relating to any material
outstanding indebtedness; (v) no action, suit or proceeding, at law or in
equity or before or by any federal or state commission, board or other
administrative agency, shall be pending or, to the knowledge of the Primary
Parties, threatened against any of the Primary Parties or affecting any of
their properties wherein an unfavorable decision, ruling or finding would
reasonably be expected to have a material and adverse effect on the financial
condition or on the earnings, capital, properties or business affairs of the
Primary Parties, considered as one enterprise; and (vi) the Shares have been
qualified or registered for offering and sale under the securities or blue sky
laws of the jurisdictions requested by the Agent.
(j) At or prior to the Closing Date, the Agent shall
receive (i) a copy of the letter from the OTS authorizing the use of the
Prospectus and approving the MHC Notice and Application, (ii) a copy of the
order from the Commission declaring the
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Registration Statement effective, (iii) a copy of certificate of existence for
the Association from the OTS, (iv) a certificate of good standing from the
appropriate federal authority evidencing the good standing of the Holding
Company, (v) a copy of the letter from the OTS approving the Holding Company
Application, (vi) a certificate from the FDIC evidencing the Association's
insurance of accounts, (vii) a certificate of the FHLB of New York evidencing
the Association's membership therein, (viii) a certificate from the OTS
evidencing the existence of the MHC, (ix) a copy of the letters from the OTS
approving the Merger Application and (x) any other documents that Agent shall
reasonably request.
(k) The Primary Parties shall not have sustained, since
the date of the latest audited financial statements included in the
Registration Statement and Prospectus, any loss or interference with their
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 Registration
Statement or otherwise provided to the Agent in writing and in any such case
described above, which is, in Agent's judgment, sufficiently material and
adverse as to make it impracticable or inadvisable to proceed with the Offering
or the delivery of the Common Stock on the terms and in the manner contemplated
in the Prospectus.
(l) Subsequent to the date hereof, there shall not have
occurred any of the following: (i) a suspension or limitation in trading in
securities generally on the New York Stock Exchange or American Stock Exchange
or in the over-the-counter market, or quotations halted generally on the Nasdaq
Stock Market, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices for securities have been required by either of such
exchanges or the NASD or by order of the Commission or any other governmental
authority; (ii) a general moratorium on the operations of commercial banks or
other federally-insured financial institutions or general moratorium on the
withdrawal of deposits from commercial banks or other federally-insured
financial institutions declared by either federal or state authorities; (iii)
the engagement by the United States in hostilities which have resulted in the
declaration, on or after the date hereof, of a national emergency or war; or
(iv) a material decline in the price of equity or debt securities if the effect
of any of (i) through (iv) herein, in the Agent's reasonable judgment, makes it
impracticable or inadvisable to proceed with the Offering or the delivery of
the Shares on the terms and in the manner contemplated in the Registration
Statement and the Prospectus.
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SECTION 10. INDEMNIFICATION.
(a) The Primary Parties jointly and severally agree to
indemnify and hold harmless the Agent, its officers, directors, agents,
servants and employees and each person, if any, who controls the Agent within
the meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act,
against any and all loss, liability, claim, damage or expense whatsoever
(including but not limited to settlement expenses), joint or several, that the
Agent or any of such officers, directors, agents, servants, employees and
controlling Persons (collectively, the "Related Persons") may suffer or to
which the Agent or the Related Persons may become subject under all applicable
federal and state laws or otherwise, and to promptly reimburse the Agent and
any Related Persons upon written demand for any reasonable expenses (including
fees and disbursements of counsel) incurred by the Agent or any Related Persons
in connection with investigating, preparing or defending any actions,
proceedings or claims (whether commenced or threatened) to the extent such
losses, claims, damages, liabilities or actions (i) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment or supplement
thereto), preliminary or final Prospectus (or any amendment or supplement
thereto), the OTS Applications, or any blue sky application or other instrument
or document of the Primary Parties or based upon written information supplied
by any of the Primary Parties filed in any state or jurisdiction to register or
qualify any or all of the Shares under the securities laws thereof
(collectively, the "Blue Sky Applications"), or any application or other
document, advertisement, or communication ("Sales Information") prepared, made
or executed by or on behalf of any of the Primary Parties with its consent or
based upon written information furnished by or on behalf of any of the Primary
Parties, whether or not filed in any jurisdiction in order to qualify or
register the Shares under the securities laws thereof, (ii) arise out of or
based upon the omission or alleged omission to state in any of the foregoing
documents or information, a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; (iii) arise from any theory of liability
whatsoever relating to or arising from or based upon the Registration Statement
(or any amendment or supplement thereto), preliminary or final Prospectus (or
any amendment or supplement thereto), the OTS Applications, any Blue Sky
Applications or Sales Information or other documentation distributed in
connection with the Reorganization; or (iv) result from any claims made with
respect to the accuracy, reliability and completeness of the records of
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members or for any denial or reduction of a subscription or order to purchase
Common Stock, whether as a result of a properly calculated allocation pursuant
to the Plan or otherwise, based upon such records; provided, however, that no
indemnification is required under this paragraph (a) to the extent such losses,
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claims, damages, liabilities or actions arise out of or are based upon any
untrue material statements or alleged untrue material statements in, or
material omission or alleged material omission from, the Registration Statement
(or any amendment or supplement thereto) or the preliminary or final Prospectus
(or any amendment or supplement thereto), the OTS Applications, the Blue Sky
Applications or Sales Information or other documentation distributed in
connection with the Reorganization made in reliance upon and in conformity with
written information furnished to the Primary Parties by the Agent with respect
to the Agent expressly for use in the Registration Statement (or any amendment
or supplement thereto) or Prospectus (or any amendment or supplement thereto)
under the captions "Market for the Common Stock" and "The Reorganization and
Offering -- Marketing Agent" and "--Selected Dealers" or statistical
information regarding the Holding Company prepared by the Agent for use in the
Sales Information, except for information derived from the Prospectus.
Provided further, that the Primary Parties will not be responsible for any
loss, liability, claim, damage or expense to the extent they result primarily
from actions taken or omitted to be taken by the Agent in bad faith or from the
Agent's gross negligence or willful misconduct, and the Agent agrees to repay
to the Primary Parties any amounts advanced to it by the Primary Parties in
connection with matters as to which it is found not to be entitled to
indemnification hereunder.
(b) The Agent agrees to indemnify and hold harmless the
Primary Parties, their directors and officers, agents, servants and employees
and each person, if any, who controls any of the Primary Parties 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
Primary Parties and any such persons upon written demand for any reasonable
expenses (including fees and disbursements of counsel) incurred by them in
connection with investigating, preparing or defending any actions, proceedings
or claims (whether commenced or threatened) to the extent such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment of supplement thereto), the OTS
Applications or any Blue Sky Applications or Sales Information or are based
upon the omission or alleged omission to state in any of the foregoing
documents a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Agent's obligations under
this Section 10(b) shall exist only if and only to the extent that such untrue
statement or alleged untrue statement was made in, or such material fact or
alleged material fact was omitted from, the Registration Statement (or
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any amendment or supplement thereto) or the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to the Primary Parties by the Agent expressly for use under the
captions "Market for the Common Stock" and "The Reorganization and Offering --
Marketing Agent" and "--Selected Dealers" or statistical information regarding
the Holding Company prepared by the Agent for use in the Sales information
(except for statistical information derived from the Prospectus).
(c) Each indemnified party shall give prompt written
notice to each indemnifying party of any action, proceeding, claim (whether
commenced or threatened), or suit instituted against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have on account of
this Section 10 or otherwise. An indemnifying party may participate at its own
expense in the defense of such action. In addition, if it so elects within a
reasonable time after receipt of such notice, an indemnifying party, jointly
with any other indemnifying parties receiving such notice, may assume defense
of such action with counsel chosen by it and approved by the indemnified
parties that are defendants in such action, unless such indemnified parties
reasonably object to such assumption on the ground that there may be legal
defenses available to them that are different from or in addition to those
available to such indemnifying party. If an indemnifying party assumes the
defense of such action, the indemnifying parties shall not be liable for any
fees and expenses of counsel for the indemnified parties incurred thereafter in
connection with such action, proceeding or claim, other than reasonable costs
of investigation. In no event shall the indemnifying parties be liable for the
fees and expenses of more than one separate firm of attorneys (and any special
counsel that said firm may retain) for all indemnified parties in connection
with any one action, proceeding or claim or separate but similar or related
actions, proceedings or claims in the same jurisdiction arising out of the same
general allegations or circumstances.
(d) The agreements contained in this Section 10 and in
Section 11 hereof and the representations and warranties of the Primary Parties
set forth in this Agreement shall remain operative and in full force and effect
regardless of (i) any investigation made by or on behalf of the Agent or its
officers, directors, controlling persons, agents or employees or by or on
behalf of any of the Primary Parties or any officers, directors, controlling
persons, agents or employees of any of the Primary Parties; (ii) delivery of
and payment hereunder for the Shares; or (iii) any termination of this
Agreement.
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SECTION 11. CONTRIBUTION.
(a) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 10 is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Primary Parties on the one hand, or the Agent
on the other hand, as the case may be, the Primary Parties on the one hand, or
the Agent on the other hand, as the case may be, shall contribute to the
aggregate losses, claims, damages and liabilities (including any investigation,
legal and other expenses incurred in connection therewith and any amount paid
in settlement of any action, suit or proceeding of any claims asserted, but
after deducting any contribution received by the Primary Parties on the one
hand, or the Agent on the other hand, as the case may be, from persons other
than the other party thereto, who may also be liable for contribution) in such
proportion so that (i) the Agent is responsible for that portion represented by
the percentage that the fees paid to the Agent pursuant to Section 4 of this
Agreement (not including expenses), less any portion of such fees paid by Agent
to Assisting Brokers, bear to the gross proceeds received by the Primary
Parties from the sale of the Conversion Shares in the Conversion Offerings, and
(ii) the Primary Parties shall be responsible for the balance. If, however,
the allocation provided above is not permitted by applicable law or if the
indemnified party failed to give the notice required under Section 10 above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative fault of the Primary Parties on the one hand and the Agent on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions, proceedings or claims in
respect thereof), but also the relative benefits received by the Primary
Parties on the one hand and the Agent on the other from the Offering, as well
as any other relevant equitable considerations. The relative benefits received
by the Primary Parties on the one hand and the Agent on the other hand shall be
deemed to be in the same proportion as the total gross proceeds from the
Conversion Offerings (before deducting expenses) received by the Primary
Parties bear, with respect to the Agent, to the total fees (not including
expenses) received by the Agent less the portion of such fees paid by the Agent
to Assisting Brokers. 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 Primary Parties on the one hand or the
Agent on the other and the parties relative intent, good faith, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Primary Parties and the Agent agree that it would not be just
and equitable if contribution pursuant to this Section 11 were determined by
pro-rata allocation or by any other method of allocation which does not take
account of the equitable
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considerations referred to above in this Section 11. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or action, proceedings or claims in respect thereof) referred to
above in this Section 11 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action, proceeding or claim. It is expressly agreed that
the Agent shall not be liable for any loss, liability, claim, damage or expense
or be required to contribute any amount which in the aggregate exceeds the
amount paid (excluding reimbursable expenses) to the Agent under this Agreement
less the portion of such fees paid by the Agent to Assisting Brokers. It is
understood that the above-stated limitation on the Agent's liability is
essential to the Agent and that the Agent would not have entered into this
Agreement if such limitation had not been agreed to by the parties to this
Agreement. No person found guilty of any fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not found guilty of such fraudulent misrepresentation.
The duties, obligations and liabilities of the Primary Parties and the Agent
under this Section 11 and under Section 10 shall be in addition to any duties,
obligations and liabilities which the Primary Parties and the Agent may
otherwise have. For purposes of this Section 11, each of the Agent's and the
Primary Parties' officers and directors and each person, if any, who controls
the Agent or any of the Primary Parties within the meaning of the 1933 Act and
the 1934 Act shall have the same rights to contribution as the Primary Parties
and the Agent. Any party entitled to contribution, promptly after receipt of
notice of commencement of any action, suit, claim or proceeding against such
party in respect of which a claim for contribution may be made against another
party under this Section 11, will notify such party from whom contribution may
be sought, but the omission to so notify such party shall not relive the party
from whom contribution may be sought from any other obligation it may have
hereunder or otherwise than under this Section 11.
SECTION 12. REPRESENTATIONS, WARRANTIES AND INDEMNITIES TO SURVIVE
DELIVERY. All representations, warranties and indemnities and other statements
contained in this Agreement, or contained in certificates of officers of the
Primary Parties or the Agent submitted pursuant hereto, shall remain operative
and in full force and effect, regardless of any termination or cancellation of
this Agreement or any investigation made by or on behalf of the Agent or its
controlling persons, or by or on behalf of the Primary Parties and shall
survive the issuance of the Shares, and any legal representative, successor or
assign of the Agent, any of the Primary Parties, and any indemnified person
shall be entitled to the benefit of the respective agreements, indemnities,
warranties and representations.
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SECTION 13. TERMINATION. Agent may terminate this Agreement by
giving the notice indicated below in this Section at any time after this
Agreement becomes effective as follows:
(a) In the event the Holding Company fails to sell the
minimum number of the Conversion Shares within the period specified in
accordance with the provisions of the Plan or as required by the Conversion
Regulations and applicable law, this Agreement shall terminate upon refund by
the Primary Parties to each person who has subscribed for or ordered any of the
Conversion Shares the full amount which it may have received from such person,
together with interest in accordance with Section 3, and no party to this
Agreement shall have any obligation to the other hereunder, except as set forth
in Sections 3, 4, 8, 10 and 11 hereof.
(b) If any of the conditions specified in Section 9 shall
not have been fulfilled when and as required by this Agreement, or by the
Closing Date, or waived in writing by the Agent, this Agreement and all of the
Agent's obligations hereunder may be canceled by the Agent by notifying the
Association of such cancellation in writing at any time at or prior to the
Closing Date, and, any such cancellation shall be without liability of any
party to any other party except as otherwise provided in Sections 3, 4, 8, 10
and 11 hereof.
(c) If Agent elects to terminate this Agreement as
provided in this Section, the Association shall be notified by the Agent as
provided in Section 14 hereof.
(d) If this Agreement is terminated in accordance with the
provisions of Sections 3, 9, or 13, the Primary Parties shall pay the Agent the
fees earned pursuant to Section 4 and will reimburse the Agent for its
reasonable expenses pursuant to Section 8, including without limitation
accounting, communication, legal and travel expenses.
SECTION 14. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to Agent shall
be directed to Ryan, Beck & Co., 80 Main Street, West Orange, New Jersey 07052,
Attention: Richard Weiss (with a copy to Edward C. Hogan, Esquire, Stevens &
Lee, 1415 Route 70 East, Suite 506, Cherry Hill, New Jersey 07034); notices to
the Primary Parties shall be directed to Atlantic Liberty Savings, F.A., 186
Montague Street, Brooklyn, NY 11201-3601, Attention: Stephen Irving, President
and Chief Executive Officer (with a copy to Eric Luse, Esquire, Luse Lehman
Gorman Pomerenk & Schick, 5335 Wisconsin Avenue, N.W., Suite 400, Washington,
D.C. 20015).
SECTION 15. PARTIES. This Agreement shall inure to the benefit of
and be binding upon the Agent and the Primary Parties, and their respective
successors. Nothing expressed or mentioned
36
<PAGE> 37
in this Agreement is intended or shall be construed to give any person, firm or
corporation, other than the parties hereto and their respective successors and
the controlling persons and officers and directors referred to in Sections 10
and 11 and their heirs and legal representatives, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provisions herein
contained. It is understood and agreed that this Agreement is the exclusive
agreement among the parties, supersedes any prior Agreement among the parties
and may not be varied except by a writing signed by all parties.
SECTION 16. PARTIAL INVALIDITY. In the event that any term,
provision or covenant herein or the application thereof to any circumstances or
situation shall be invalid or unenforceable, in whole or in part, the remainder
hereof and the application of said term, provision or covenant to any other
circumstance or situation shall not be affected thereby, and each term,
provision or covenant herein shall be valid and enforceable to the full extent
permitted by law.
SECTION 17. CONSTRUCTION. This Agreement shall be construed in
accordance with the laws of the State of New Jersey.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become
37
<PAGE> 38
a binding agreement between you and us in accordance with its terms.
Very truly yours,
BROOKLYN HEIGHTS BANCORP
By:
-----------------------------
Stephen Irving,
President and Chief Executive
Officer
ATLANTIC LIBERTY, M.H.C.
By:
-----------------------------
Stephen Irving,
President and Chief Executive
Officer
ATLANTIC LIBERTY SAVINGS, F.A.
By:
----------------------------
Stephen Irving,
President and Chief Executive
Officer
The foregoing Agency Agreement is
hereby confirmed and accepted as
of the date first set and above written.
RYAN, BECK & CO., INC.
By:
----------------------------
Ben A. Plotkin, President and
Chief Executive Officer
<PAGE> 39
BROOKLYN HEIGHTS BANCORP
(A Federal Corporation)
Up to 529,000 Shares
(Par Value $1.00 Per Share)
SELECTED DEALERS' AGREEMENT
_______________, 1998
Ladies and Gentlemen:
We have agreed to assist Brooklyn Heights Bancorp (the "Holding
Company"), a federal corporation, and Atlantic Liberty Savings, F.A. ("Atlantic
Liberty" or the "Association"), a federally chartered mutual savings
association, in connection with the offer and sale by the Holding Company of up
to 529,000 shares of the common stock, $1.00 par value per share (the "Common
Stock"). Theses shares are to be issued in connection with the reorganization
of the Association from a mutual savings association to a stock savings
association and wholly owned subsidiary of the Holding Company (the
"Reorganization"), in accordance with the Plan of Reorganization from a Mutual
Savings Association to Mutual Holding Company and Agreement and Stock Issuance
Plan (the "Plan"). Under the Plan, the Holding Company will become, upon
consummation of the Reorganization, a majority-owned subsidiary of Atlantic
Liberty, M.H.C., a federally chartered mutual holding company. The offering
price per share of the Common Stock has been fixed at $10.00. The Common Stock
and certain of the terms on which it is being offered are more fully described
in the enclosed prospectus dated ______________, 1998 (the "Prospectus").
Capitalized terms not otherwise defined herein shall have the meaning ascribed
to them in the Prospectus.
In connection with the Reorganization, the Holding Company is offering
the Common Stock in a Subscription Offering to the Eligible Account Holders,
the ESOP, the Supplemental Eligible Account Holders and the Other Members. The
Holding Company is also offering all shares of Common Stock offered but not
subscribed for in the Subscription Offering in the Community Offering to
members of the general public, with preference given first to residents of
Brooklyn, New York. The Common Stock is also being offered in accordance with
the Plan by a selling group of broker-dealers in the Syndicated Community
Offering.
We are offering the selected dealers (of which you are one) the
opportunity to participate in the solicitation of offers to buy the Common
Stock and we will pay you a fee in the amount of _______ percent (______%) of
the dollar amount of the Common
1
<PAGE> 40
Stock sold on behalf of the Holding Company by you, as evidenced by the
authorized designation of your firm on the order form or forms for such Common
Stock accompanying the funds transmitted for payment therefor to the special
account established by the Association for the purpose of holding such funds.
Any purchase of Common Stock made pursuant to this Agreement is subject to the
maximum purchase limitations provided for in the Plan and described in the
Prospectus. It is understood, of course, that payment of your fee will be made
to you directly by the Holding Company for the Common Stock sold on behalf of
the Holding Company by you, as evidenced in accordance with the preceding
sentence. As soon as practicable after the closing date of the Offering, the
Holding Company will remit to you the fees to which you are entitled hereunder.
Each order form for the purchase of Common Stock must set forth the
identity and address of each person to whom the certificates for such Common
Stock should be issued and delivered. Such order form should clearly identify
your firm. You shall instruct any subscriber who elects to send his order form
to you to make any accompanying check payable to the Association.
This offer is made subject to the terms and conditions herein set
forth and contained in the Plan and is made only to selected dealers who are
(i) members in good standing of the National Association of Securities Dealers,
Inc. (the "NASD") who are to comply with all applicable rules of the NASD,
including, without limitation, the NASD's Interpretation With Respect to
Free-Riding and Withholding and Section 24 of Article III of the NASD's Rules
of Fair Practice, or (ii) foreign dealers not eligible for membership in the
NASD who agree (A) not to sell any Common Stock within the United States, its
territories or possessions or to persons who are citizens thereof or resident
therein and (B) in making other sales to comply with the above-mentioned NASD
Interpretation, Sections 8, 24 and 36 of the above-mentioned Article III as if
they were NASD members and Section 25 of such Article III as it applies to
non-member brokers or dealers in a foreign country.
Orders for Common Stock will be strictly subject to confirmation and
we, acting on behalf of the Holding Company, reserve the right in our
uncontrolled discretion to reject any order in whole or in part, to accept or
reject orders in the order of their receipt or otherwise, and to allot.
Neither you nor any other person is authorized by the Holding Company or by us
to give any information or make any representations other than those contained
in the Prospectus in connection with the sale of any of the Common Stock. No
selected dealer is authorized to act as agent for us when soliciting offers to
buy the Common Stock from the public or otherwise. No selected dealer shall
engage in any stabilizing (as defined in Regulation M promulgated under the
Securities Exchange Act of 1934) with respect to the Common Stock during the
offering.
2
<PAGE> 41
We and each selected dealer assisting in selling Common Stock pursuant
hereto agree to comply with the applicable requirements of the Securities
Exchange Act of 1934 and applicable state rules and regulations. In addition,
we and each selected dealer confirm that the Securities and Exchange Commission
interprets Rule 15c2-8 promulgated under the Securities Exchange Act of 1934 as
requiring that a Prospectus be supplied to each person who is expected to
receive a confirmation of sale 48 hours prior to delivery of such person's
order form.
We and each selected dealer within the meaning of Rule 15c3-1(a)(1)
further agree to the extent that our customers desire to pay for shares with
funds held by or to be deposited with us, in accordance with the interpretation
of the Securities and Exchange Commission of Rule 15c2-4 promulgated under the
Securities Exchange Act of 1934, either (a) upon receipt of an executed order
form or direction to execute an order form on behalf of a customer to forward
the offering price for the Common Stock ordered on or before twelve noon of the
business day following receipt or execution of an order form by us to the
Holding 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 third business day (the "Debit Date") following receipt of the confirmation
referred to in (i), and (iv) we will forward completed order forms together
with such funds to the Holding 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 earlier terminated by us, this Agreement shall terminate upon
the closing date of the Offering. We may terminate this Agreement or any
provisions hereof at any time by written or telegraphic notice to you. Of
course, our obligations hereunder are subject to the successful completion of
the Offering.
You agree that at any time or times prior to the termination of this
Agreement you will, upon our request, report to us the number of shares of
Common Stock sold on behalf of the Holding 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
3
<PAGE> 42
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.
Please confirm your agreement hereto by signing and returning the
confirmation accompanying this letter at once to us at Ryan, Beck & Co., Inc.,
80 Main Street, West Orange, New Jersey 07052. The enclosed duplicate copy
will evidence the agreement between us.
RYAN, BECK & CO., INC.
By:
-------------------------------
Ben A. Plotkin
President and Chief Executive
Officer
Agreed and accepted as of ________________, 1998
- ------------------------------
By:
-------------------------
4
<PAGE> 1
EXHIBIT 5
[Letterhead of Luse Lehman Gorman Pomerenk & Schick]
(202) 274-2008
February 4, 1998
The Board of Directors
Atlantic Liberty Savings, F.A.
186 Montague Street
Brooklyn, New York 11201
RE: BROOKLYN HEIGHTS BANCORP
COMMON STOCK PAR VALUE $1.00 PER SHARE
Gentlemen:
You have requested the opinion of this firm as to certain matters in
connection with the offer and sale (the "Offering") of Brooklyn Heights Bancorp
(the "Company") Common Stock, par value $1.00 per share ("Common Stock"). We
have reviewed the Company's proposed Federal Charter, Registration Statement on
Form SB-2 ("Form SB-2"), as well as applicable statutes and regulations
governing the Company and the offer and sale of the Common Stock.
We are of the opinion that upon the declaration of effectiveness of
the Form SB-2 and the incorporation of Brooklyn Heights Bancorp as a federal
corporation, the Common Stock, when sold, will be legally issued, fully paid
and non-assessable.
We hereby consent to our firm being referenced under the caption
"Legal Opinions."
Very truly yours,
LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
By: /s/ ALAN SCHICK
--------------------------
Alan Schick, Esq.
<PAGE> 1
EXHIBIT 8.1
FORM OF
FEDERAL TAX OPINION
February 4, 1998
Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
186 Montague Street
New York, NY 11201-3601
RE: MUTUAL HOLDING COMPANY FORMATION AND STOCK ISSUANCE
Ladies and Gentlemen:
We have been requested as special counsel to Atlantic Liberty Savings,
F.A., a federally-chartered mutual savings association (the "Bank" or the
"Stock Bank", as the context requires), Atlantic Liberty, MHC, a
federally-chartered mutual holding company ("Mutual Holding Company") and
Brooklyn Heights Bancorp, a federally-chartered savings and loan holding
company ("Stock Holding Company"), to express our opinion concerning certain
Federal income tax matters relating to the Plan of Reorganization (as defined
herein).
In connection therewith, we have examined the Plan of Reorganization
and certain other documents of or relating to the Reorganization (as defined
below), some of which are described or referred to in the Plan of
Reorganization and which we deemed necessary to examine in order to issue the
opinions set forth below. Unless otherwise defined, all terms used herein have
the meanings given to such terms in the Plan of Reorganization.
In our examination, we have assumed the authenticity of original
documents, the accuracy of copies and the genuineness of signatures. We have
further assumed the absence of adverse facts not apparent from the face of the
instruments and documents we examined.
In issuing our opinions, we have assumed that the Plan of
Reorganization has been duly and validly authorized and has been approved and
adopted by the board of directors of the Bank at a meeting duly called and
held; that the Bank will comply with the terms and conditions of the Plan of
Reorganization, and that the various representations and warranties which are
provided to us are accurate, complete, true and correct. Accordingly, we
express no opinion concerning the effect, if any, of variations from the
foregoing. We specifically express no opinion concerning tax matters
<PAGE> 2
Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
February 4, 1998
Page 2
relating to the Plan of Reorganization under state and local tax laws and under
Federal income tax laws except on the basis of the documents and assumptions
described above.
For purposes of this opinion, we are relying on the representations
provided to us by the Bank, which are incorporated herein by reference.
In issuing the opinions set forth below, we have referred solely to
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations thereunder, current
administrative rulings, notices and procedures and court decisions. Such laws,
regulations, administrative rulings, notices and procedures and court decisions
are subject to change at any time. Any such change could affect the continuing
validity of the opinions set forth below. This opinion is as of the date
hereof, and we disclaim any obligation to advise you of any change in any
matter considered herein after the date hereof.
In rendering our opinions, we have assumed that the persons and
entities identified in the Plan of Reorganization will at all times comply with
the requirements of Code sections 368 and 351, the other applicable state and
Federal laws and the representations of the Bank. In addition, we have assumed
that the activities of the persons and entities identified in the Plan of
Reorganization will be conducted strictly in accordance with the Plan of
Reorganization. Any variations may affect the opinions we are rendering.
We emphasize that the outcome of litigation cannot be predicted with
certainty and, although we have attempted in good faith to opine as to the
probable outcome of the merits of each tax issue with respect to which an
opinion was requested, there can be no assurance that our conclusions are
correct or that they would be adopted by the IRS or a court.
SUMMARY OF OPINIONS
Based on the facts, representations and assumptions set forth herein,
we are of the opinion that:
<PAGE> 3
Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
February 4, 1998
Page 3
WITH RESPECT TO THE EXCHANGE OF THE BANK'S CHARTER FOR A STOCK CHARTER
("BANK CONVERSION"):
1. Bank's exchange of its charter for a federal stock savings
association charter is a mere change in identity and form and therefore
qualifies as a reorganization within the meaning of Section 368(a)(1)(F) of the
Internal Revenue Code.
2. No gain or loss will be recognized by Bank upon the transfer
of its assets to Stock Bank solely in exchange for shares of Stock Bank stock
and the assumption by Stock Bank of the liabilities of Bank. (Code Sections
361(a) and 357(a)).
3 No gain or loss will be recognized by Stock Bank upon the
receipt of the assets of Bank in exchange for shares of Stock Bank common
stock. (Code Section 1032(a)).
4. Stock Bank's holding period in the assets received from Bank
will include the period during which such assets were held by the Bank. (Code
Section 1223(2)).
5. Stock Bank's basis in the assets of Bank will be the same as
the basis of such assets in the hands of Bank immediately prior to the proposed
transaction. (Code Section 362(b)).
6. Bank members will recognize no gain or loss upon the
constructive receipt of Stock Bank common stock solely in exchange for their
membership interests in Bank. (Code Section 354(a)(1)).
7. The basis of the Stock Bank common stock to be constructively
received by the Bank's members will be the same as their basis in their
membership interests in the Bank surrendered in exchange therefor. (Code
Section 358(a)(1)).
8. The holding period of the Stock Bank common stock
constructively received by the members of the Bank will include the period
during which the Bank members held their membership interests, provided that
the membership interests were held as capital assets on the date of the
exchange. (Code Section 1223(1)).
9. The Stock bank will suceed to and take into account the Bank's
earnings and profits or deficit in earnings and profits, as of the date of the
proposed transaction. (Code Section 381).
<PAGE> 4
Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
February 4, 1998
Page 4
WITH RESPECT TO THE TRANSFER OF STOCK BANK STOCK TO MUTUAL HOLDING
COMPANY FOR MEMBERSHIP INTERESTS (THE "351 TRANSACTION"):
10. The exchange of stock by the Stock Bank stockholders in
exchange for membership interests in the Mutual Holding Company will constitute
a tax-free exchange of property solely for voting "stock" pursuant to Section
351 of the Internal Revenue Code.
11. Stock Bank's stockholders will recognize no gain or loss upon
the transfer of the Stock Bank stock they constructively received in the Bank
conversion to the Mutual Holding Company solely in exchange for membership
interests in the Mutual Holding Company. (Code Section 351).
12. Stock Bank stockholder's basis in the Mutual Holding Company
membership interests received in the transaction will be the same as the basis
of the property transferred in exchange therefor, reduced by the sum of the
liabilities assumed by Mutual Holding Company or to which assets transferred
are taken subject. (Code Section 358(a)(1)).
13. Stock Bank stockholder's holding period for the membership
interests in Mutual Holding Company received in the transaction will include
the period during which the property exchanged was held by Stock Bank
stockholders, provided that such property was a capital asset on the date of
the exchange. (Code Section 1223(1)).
14. Mutual Holding Company will recognize no gain or loss upon the
receipt of property from Stock Bank stockholders in exchange for membership
interests in the Mutual Holding Company. (Code Section 1032(a)).
15. Mutual Holding Company's basis in the property received from
Stock Bank stockholders will be the same as the basis of such property in the
hands of Stock Bank stockholders immediately prior to the transaction. (Code
Section 362(a)).
16. Mutual Holding Company's holding period for the property
received from Stock Bank's stockholders will include the period during which
such property was held by Stock Bank stockholders. (Code Section 1223(2)).
<PAGE> 5
Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
February 4, 1998
Page 5
17. Stock Bank depositors will recognize no gain or loss solely by
reason of the transaction.
WITH RESPECT TO THE TRANSFERS TO THE STOCK HOLDING COMPANY IN EXCHANGE
FOR COMMON STOCK IN THE STOCK HOLDING COMPANY
18. The Mutual Holding Company and the persons who purchased
Common Stock of the Stock Holding Company in the Subscription and Community
Offering ("Minority Stockholders") will recognize no gain or loss upon the
transfer of Stock Bank stock and cash, respectively, to the Stock Holding
Company in exchange for stock in the Stock Holding Company. Code Sections
351(a) and 357(a).
19. Stock Holding Company will recognize no gain or loss on its
receipt of Stock Bank stock and cash in exchange for Stock Holding Company
Stock. (Code Section 1032(a)).
20. The basis of the Stock Holding Company Common Stock to the
Minority Stockholders will be the actual purchase price thereof, and a
shareholders holding period for Common Stock acquired through the exercise of
subscription rights will begin on the date the rights are exercised.
PROPOSED TRANSACTION
On August 19, 1997, the board of directors of the Bank adopted that
certain Plan of Reorganization From A Mutual Savings Association to A Mutual
Holding Company (the "Plan of Reorganization"). For what are represented to be
valid business purposes, the Bank's board of directors has decided to convert
to a mutual holding company structure pursuant to statutes. The following
steps are proposed:
(i) The Bank will organize an interim federal stock savings
bank (Interim One) as its wholly-owned subsidiary;
(ii) Interim One will organize a federal mid-tier holding
company as its wholly-owned subsidiary (Stock Holding
Company); and
<PAGE> 6
Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
February 4, 1998
Page 6
(iii) Interim One will also organize another interim federal
stock savings bank as its wholly-owned subsidiary
(Interim Two).
The following transactions will occur simultaneously:
(iv) The Bank will exchange its charter for a federal stock
savings bank charter and become a stock savings bank that
will constructively issue its common stock to members of
the Bank;
(v) Interim One will cancel its outstanding stock and
exchange its charter for a federal mutual holding company
charter and thereby become the Mutual Holding Company;
(vi) Interim Two will merge with and into the Bank with the
Bank as the surviving entity, the former members of the
Bank who constructively hold stock in the Bank will
exchange their stock in the Bank for membership interests
in the Mutual Holding Company; and
(vii) The Mutual Holding Company will contribute the Bank's
stock to the Stock Holding Company, a wholly-owned
subsidiary of the Mutual Holding Company for additional
shares of Bank Stock.
(viii) Contemporaneously, with the contribution set forth in
"(vii)" the Stock Holding Company will offer to sell up
to 49.9% of its Common Stock in the Subscription Offering
and, if applicable, the Direct Community Offering.
These transactions are referred to herein collectively as the
"Reorganization."
Those persons who, as of the date of the Bank Conversion (the
"Effective Date"), hold depository rights with respect to the Bank will
thereafter have such rights solely with respect to the Stock Bank. Each
deposit account with the Bank at the time of the exchange will become a deposit
account in the Stock Bank in the same amount and upon the same terms and
conditions. Following the completion of the Reorganization, all depositors and
borrowers who had membership rights with respect to the Bank immediately prior
to the Reorganization will continue to have such rights solely with respect to
the Mutual Holding Company so long as they continue to hold deposit accounts or
borrowings with the Stock Bank. All new depositors of the Stock Bank after the
completion of the
<PAGE> 7
Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
February 4, 1998
Page 7
Reorganization will have ownership rights solely with respect to the Mutual
Holding Company so long as they continue to hold deposit accounts with the
Stock Bank.
The shares of Interim Two common stock owned by the Mutual Holding
Company prior to the Reorganization shall be converted into and become shares
of common stock of the Stock Bank on the Effective Date. The shares of Stock
Bank common stock constructively received by the Stock Bank stockholders
(formerly the members holding liquidation rights of the Bank) will be
transferred to the Mutual Holding Company by such persons in exchange for
liquidation rights in the Mutual Holding Company.
The Stock Holding Company will have the power to issue shares of
capital stock (including common and preferred stock) to persons other than the
Mutual Holding Company. So long as the Mutual Holding Company is in existence,
however, it must own a majority of the voting stock of Stock Holding Company.
Stock Holding Company may issue any amount of non-voting stock to persons
other than Mutual Holding Company. No such non-voting stock will be issued as
of the date of the Reorganization.
* * *
The opinions set forth above represent our conclusions as to the
application of existing Federal income tax law to the facts of the instant
transaction, and we can give no assurance that changes in such law, or in the
interpretation thereof, will not affect the opinions expressed by us.
Moreover, there can be no assurance that contrary positions may not be taken by
the IRS, or that a court considering the issues would not hold contrary to such
opinions.
All of the opinions set forth above are qualified to the extent that
the validity of any provision of any agreement may be subject to or affected by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally. We do not express any opinion as
to the availability of any equitable or specific remedy upon any breach of any
of the covenants, warranties or other provisions contained in any agreement.
We have not examined, and we express no opinion with respect to the
applicability of, or liability under, any Federal, state or local law,
ordinance, or regulation governing or pertaining to environmental matters,
hazardous wastes, toxic substances, asbestos, or the like.
<PAGE> 8
Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
February 4, 1998
Page 8
It is expressly understood that the opinions set forth above represent
our conclusions based upon the documents reviewed by us and the facts presented
to us. Any material amendments to such documents or changes in any significant
fact would affect the opinions expressed herein.
We have not been asked to, and we do not, render any opinion with
respect to any matters other than those expressly set forth above. This
opinion is rendered for your use only, in connection with the Stock Holding
Company's Registration Statement on Form SB-2 (the "SB-2") filed with the
Securities and Exchange Commission (the "SEC"), the Stock Holding Company's
Application H-(e)1-s filed with the Office of Thrift Supervision (the "OTS"),
and the Association's Combined Form MHC-1/MHC-2 Notice of Mutual Holding
Company Reorganization and Application for Approval of a Minority Stock Issuance
by a Subsidiary of a Mutual Holding Company. We also consent to the references
to our firm in the Stock Holding Company's Prospectus under the headings "The
Reorganization and Offering -- Tax Effects of the Reorganization" and "Legal
and Tax Matters."
Very truly yours,
/s/ LUSE LEHMAN GORMAN POMERENK & SCHICK
LUSE LEHMAN GORMAN POMERENK & SCHICK
A Professional Corporation
<PAGE> 1
EXHIBIT 8.2
[O'REILLY, MARSH & CORTESELLI P.C. LETTERHEAD]
February 4, 1998
Board of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
186 Montague Street
Brooklyn, New York 11201-3601
RE: MUTUAL HOLDING COMPANY FORMATION AND STOCK ISSUANCE
Ladies and Gentlemen:
As requested, contained herein is the opinion of this firm relating to the
state and local tax consequences of the proposed Plan of Reorganization (as
defined herein) with respect to Atlantic Liberty Savings, F.A., a
federally-chartered mutual savings association (the "Bank" or the "Stock Bank"
as the context requires), Atlantic Liberty MHC, a federally-chartered mutual
holding company (the "Mutual Holding Company") and Brooklyn Heights Bancorp, a
federally-chartered savings and loan holding company ("Stock Holding Company").
The scope of the firm's opinion and the discussion contained herein are limited
to the following taxes:
- New York State Sales or Use Tax
- New York State License and Maintenance Fees on Foreign Corporations
- New York State Stock Transfer Tax
- New York State Real Estate Transfer Tax
- New York State Real Property Transfer Gains Tax
- New York State Banking Franchise Tax
- Personal Income Tax
- New York City Banking Franchise Tax
<PAGE> 2
2
O'REILLY, MARSH & CORTESELLI P.C.
In arriving at the firm's opinion, we have examined originals and copies,
certified or otherwise identified to our satisfaction, of such documents,
corporate records, certificates of public officials, certificates of officers
of the Bank, other instruments and matters of law, as we have deemed necessary
for the purposes of this opinion. As to various questions of fact material to
the opinions hereinafter set forth, we have relied upon representations or
certificates of officers of the Bank, as well as the Proxy Statement,
Prospectus and Plan of Reorganization. As to various federal tax law issues
and questions of fact material to the opinions hereinafter set forth, we have
relied on the federal tax opinion prepared by Luse, Lehman, Gorman, Pomerenk &
Schick, a professional corporation.
We have assumed the genuineness of all signatures, the authenticity of
documents submitted to us as originals, and the conformity to authentic
original documents of all documents submitted to us as certified, conformed, or
photostatic copies. In addition, we have assumed, without investigation and
without expressing an opinion, that the Plan has been duly and validly
authorized and has been approved and adopted by the Bank's Board of Directors.
The firm's opinion assumes that the Bank will comply with the terms and
conditions of the Plan and will properly implement the Plan. The firm's
opinion does not, and is not meant to, address the effects of any variations
from the Plan. Any variations may affect the opinions we are rendering. The
firm's opinion is based on current New York State and New York City laws,
regulations promulgated thereunder and caselaw.
We emphasize that the outcome of litigation cannot be predicted with certainty
and, although we have attempted in good faith to opine as to the probably
outcome of the merits of each tax issue with respect to which an opinion was
requested, there can be no assurance that our conclusions are correct or that
they would be adopted by the Department of Taxation and Finance or a court.
OPINION
NEW YORK STATE
A. NEW YORK STATE SALES OR USE TAX
For purposes of the New York State Sales or Use Tax, imposed by
Article 28 of the New York Tax Law, the proposed conversion will be tax-free.
New York State places a tax on the sale or use of tangible personal property.
Although broadly
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O'REILLY, MARSH & CORTESELLI P.C.
defined, "tangible personal property" does not include intangible personal
property. Stock has been defined by New York caselaw as intangible personal
property in the nature of a chose in action. Thus, no tax liability will be
incurred due to the exclusion of stock from the definition of "tangible
personal property."
B. NEW YORK STATE LICENSE AND MAINTENANCE FEES ON FOREIGN CORPORATIONS
For purposes of the New York State license and maintenance fees on
foreign corporations, the proposed conversion will result in tax liability. No
liability will be incurred from the Stock Bank issuance of stock to Holding
Company, but a license fee will be imposed on the Holding Company. An
exemption exists for certain banking corporations as defined in Tax Law Section
1452, but the Holding Company will be unable to qualify for the exemption since
the Holding Company will not be engaged in a "banking business." As such, it
will be subject to a license fee and a rate of one-twentieth of one per centum
(1/20%) of the apportioned par value of shares issued by the foreign
corporation. This fee is a one-time tax which would be imposed on any
additional shares issued by the Holding Company in the future. Furthermore, an
annual maintenance fee is imposed.
C. NEW YORK STATE STOCK TRANSFER TAX
For purposes of the New York State Stock transfer tax, imposed by
Article 12 of the New York Tax Law, the proposed conversion will be tax-free.
Caselaw holds that the tax does not apply to a corporation's original issuance
of stock. Thus, no tax will be imposed on the original issuance of Bank's
stock or Holding Company's stock.
D. NEW YORK STATE REAL ESTATE TRANSFER TAX
For purposes of the New York State real estate transfer tax imposed by
Article 31 of the New York Tax Law, the proposed conversion may result in tax
liability. Every conveyance of an interest in real property is subject to the
tax, however, certain exemptions do exist. It should be noted that the issue
of whether a mutual to stock conversion with a publicly-traded foreign holding
company acquiring the stock of the stock institution qualifies as a "mere
change" exemption has not been decided under New York caselaw or tax law
regulations. Under current regulations and on the basis of private letter
rulings, a position may be taken that the proposed conversion will qualify as a
"mere change" exemption and be tax-free.
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O'REILLY, MARSH & CORTESELLI P.C.
E. NEW YORK STATE REAL PROPERTY TRANSFER GAINS TAX
For purposes of the New York State real property transfer gains tax,
imposed by Article 31-B of the New York Tax Law, the proposed conversion will
not result in tax liability, as this Article was repealed effective June 15,
1996.
F. NEW YORK STATE BANKING FRANCHISE TAX
For purposes of the New York State banking and franchise tax, imposed by
Article 32 of the New York Tax Law, the proposed conversion will be tax-free.
The New York State banking franchise tax is based on net income for federal
income tax purposes, with some New York modifications. No adjustments to
income are provided with respect to transactions which are tax-free under
Internal Revenue Code Section 368(a)(1)(F). Thus, no gain or loss will be
recognized since the proposed conversion will constitute a tax-free
reorganization within the meaning of Section 368(a)(1)(F) of the Internal
Revenue Code of 1986, as amended (the "Code" or "IRC"). It should be noted,
however, that the Mutual Holding Company will be subject to New York State
banking franchise tax and will be required to file a combined New York State
banking franchise tax return with the Stock Bank and Stock Holding Company.
G. PERSONAL INCOME TAX
The beneficial ownership interest of the Bank is held by its
depositors by reason of their right to their respective deposit accounts and
interest on those accounts. After the Plan of Reorganization, each holder of a
deposit account in the Bank immediately preceding the reorganization will
continue as an account holder in the Stock Bank after the reorganization. The
reorganization will not affect the deposit balance, interest rate, and other
terms of such accounts, nor the basis of deposit accounts held by each account
holder for New York State tax purposes.
Section 611(a) of Article 22 of the Tax Law provides: "[t]he New York taxable
income of a resident individual shall be his New York adjusted gross income
less his New York deduction and New York exemptions, as determined under this
part."
Section 612(a) of the Tax Law provides: "[t]he New York adjusted gross income
of a resident individual means his federal adjusted gross income as defined in
the laws of the United States for the taxable year, with the modifications
specified in this section."
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O'REILLY, MARSH & CORTESELLI P.C.
Section 612 of the Tax Law does not contain any modification that affects the
shareholders or stockholders of the banks or corporations that are each a party
to a transaction, that for Federal income tax purposes constitutes a tax-free
transaction pursuant to Section 351(a) of the IRC.
Accordingly, if for Federal income tax purposes, no taxable income will be
realized by New York State resident individuals who are eligible account
holders and new stockholders of Stock Bank as a result of the Plan of
Reorganization, no taxable income will be realized by such eligible account
holders and new stockholders of Stock Bank for New York State personal income
tax purposes under Article 22 of the Tax Law. Also, with respect to
nonresident individuals of New York State, no taxable income will be realized
by eligible account holders and new stockholders of Stock Bank for New York
State personal income tax purposes under Article 22 of the Tax Law.
NEW YORK CITY
A. NEW YORK CITY BANKING FRANCHISE
For purposes of the New York City banking franchise tax, imposed by Part 4,
Chapter 6 of Title 11 of the New York City Administrative Code, the proposed
conversion will be tax-free. The New York City banking franchise tax is based
on net income for federal income tax purposes with some New York modifications.
No adjustments to income are provided with respect to transactions which are
tax-free under IRC Section 368(a)(1)(F). Thus, no gain or loss will be
recognized since the proposed conversion will constitute a tax free
reorganization within the meaning of Section 368(a)(1)(F) of the Code. Similar
to New York State, the Mutual Holding Company would be required to file a
combined return for New York City banking franchise tax purposes.
BACKGROUND
On August 19, 1997, the board of directors of the Bank adopted a certain Plan
of Reorganization From A Mutual Savings Association to A Mutual Holding Company
(the "Plan of Reorganization"). For what are represented to be valid business
purposes, the Bank's board of directors has decided to convert to a mutual
holding company structure pursuant to statutes. The following steps are
proposed:
(i) The Bank will organize in interim federal stock savings bank
(Interim One) as its wholly-owned subsidiary.
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O'REILLY, MARSH & CORTESELLI P.C.
(ii) Interim One will organize a federal mid-tier holding company as
its wholly-owned subsidiary (Stock Holding Company); and
(iii) Interim One will also organize another interim federal stock
savings bank as its wholly-owned subsidiary (Interim Two).
The following transactions will occur simultaneously:
(iv) The Bank will exchange its charter for a federal stock savings
bank charter and become a stock savings bank that will constructively issue its
common stock to members of the Bank;
(v) Interim One will cancel its outstanding stock and exchange its
charter for a federal mutual holding company charter and thereby become the
Mutual Holding Company;
(vi) Interim Two will merge with and into the Bank with the Bank as
the surviving entity, the former members of the Bank who constructively hold
stock in the Bank will exchange their stock in the Bank for membership
interests in the Mutual Holding Company; and
(vii) The Mutual Holding Company will contribute the Bank's stock to
the Stock Holding Company, a wholly-owned subsidiary of the Mutual Holding
Company for additional shares of Bank Stock.
(viii) Contemporaneously, with the contribution set forth in "(vii)"
the Stock Holding Company will offer to sell up to 49.9% of its Common Stock in
the Subscription Offering and, if applicable, the Direct Community Offering.
These transactions are referred to herein collectively as the "Reorganization."
Those persons who, as of the date of the Bank Conversion (the "Effective
Date"), hold depository rights with respect to the Bank will thereafter have
such rights solely with respect to the Stock Bank. Each deposit account with
the Bank at the time of the exchange will become a deposit account in the Stock
Bank in the same amount and upon the same terms and conditions. Following the
completion of the Reorganization, all depositors and borrowers who had
membership rights with respect to the Bank immediately prior to the
Reorganization will continue to have such rights solely with respect to the
Mutual Holding Company so long as they continue to hold deposit accounts or
borrowings with the Stock Bank. All new depositors of the Stock Bank
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O'REILLY, MARSH & CORTESELLI P.C.
after the completion of the Reorganization will have ownership rights solely
with respect to the Mutual Holding Company so long as they continue to hold
deposit accounts with the Stock Bank.
The shares of Interim Two common stock owned by the Mutual Holding Company
prior to the Reorganization shall be converted into and become shares of common
stock of the Stock Bank on the Effective Date. The shares of Stock Bank common
stock constructively received by the Stock Bank stockholders (formerly the
members holding liquidation rights of the Bank) will be transferred to the
Mutual Holding Company by such persons in exchange for liquidation rights in
the Mutual Holding Company.
The Stock Holding Company will have the power to issue shares of capital stock
(including common and preferred stock) to persons other than the Mutual Holding
Company. So long as the Mutual Holding Company is in existence, however, it
must own a majority of the voting stock of Stock Holding Company. Stock
Holding Company may issue any amount of non-voting stock to persons other than
Mutual Holding Company. No such non-voting stock will be issued as of the date
of the Reorganization.
ANALYSIS
NEW YORK STATE
A. NEW YORK STATE SALES OR USE TAX
New York State imposes a sales or use tax on tangible personal
property and certain enumerated services. Tax Law Section 1101, et seq. The
sales tax is a transactions tax and is imposed on the receipts from the retail
sale of tangible personal property. Although the term "tangible personal
property" encompasses corporeal personal property of any nature having a
material existence, it does not include intangible personal property. 20 NYCRR
Section 526.8. New York caselaw holds that a share of stock is intangible
personal property in the nature of a chose in action. Agar v. Orda, 264 N.Y.
248, 190 N.E. 479 (1934); Pierpont v. Hoyt, 260 N.Y. 26, 182 N.E. 235 (1933).
Accordingly, the transfer of stock in return for money does not constitute a
taxable transaction. Thus, the proposed conversion will be tax-free for
purposes of the New York State sales and use tax.
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O'REILLY, MARSH & CORTESELLI P.C.
B. NEW YORK STATE LICENSE AND MAINTENANCE FEES ON FOREIGN CORPORATIONS
New York State imposes a license tax on foreign corporations doing
business in the state. The tax is based on the foreign corporation's capital
structure and is separate from the corporate franchise tax. Tax Law Section
181 et seq. Furthermore, an annual maintenance fee of $300.00 is required.
Tax Law Section 181.2. The license tax and maintenance fee are imposed for the
privilege of exercising the corporation's franchise or carrying on business in
a corporate capacity in New York.
An exemption exists for certain banking corporations as defined in the New York
State banking franchise tax, but the Holding Company will be unable to qualify
for the exemption since the Holding Company will not be engaged in a "banking
business." As such, it will be subject to a license fee and a rate of
one-twentieth of one per centum (1/20%) of the apportioned par value of shares
issued by the foreign corporation. This fee is a one-time tax which would be
imposed on any additional shares issued by the Holding Company in the future.
C. NEW YORK STATE STOCK TRANSFER TAX
New York State imposes a tax on the sale and transfer of shares of
stock on a transactional basis. Tax Law Section 270 et seq. The original
issuance of stock by a corporation is exempt from the tax. Terminals and
Transportation Corporation v. State, 169 Misc. 703, 8 N.Y.S.2d 282 affirmed 257
App. Div. 1028, 14 N.Y.S.2d 493 (1938). Furthermore, many State Department of
Taxation and Finance Opinions of Counsel confirm this exemption. Accordingly,
no tax will be imposed on the original issuance of stock pursuant to the
proposed conversion.
D. NEW YORK STATE REAL ESTATE TRANSFER TAX ("NYS RETT")
New York State imposes a transfer tax on conveyances of interest in
realty located within the state. Tax Law Section 1415. Every conveyance of an
interest in real property located in New York is subject to tax at the time of
transfer of $2.00 for each $500.00 (or fraction thereof) of consideration given
with an additional tax on conveyance of residential real property, where the
consideration is greater than $1,000,000.00. Included in the definition of a
taxable transfer is the transfer of a "controlling interest" in an entity with
New York State real property interests. Tax Law Section 1440. A "controlling
interest" is defined as ownership of fifty percent or more of the combined
voting power of the shares of a corporation. Tax Law Section 1440.2.
The transfer of 100% of the Stock Bank's stock to the Holding Company pursuant
to a proposed conversion will be deemed a transfer of a controlling interest in
the Stock
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O'REILLY, MARSH & CORTESELLI P.C.
Bank (an entity with an interest in real property located in New York State)
and, thus, potentially subject to the New York State RETT.
Certain exemptions do apply. The tax does not apply to conveyances to
effectuate a mere change in identity or form of ownership or organization if
there is no change in beneficial ownership. Tax Law Section 1405.
Some support exists for the contention that the proposed conversion is tax-free
under "mere change" exemption. Two private letter rulings have held that the
conversion of a mutual savings bank to a stock institution is exempt from the
real estate transfer taxes the rulings primarily addressed the New York State
Real Property Transfer Gains Tax but the analysis is the same). It should be
noted, however, that both private letter rulings involved mergers of insolvent
banks under IRC Section 368(a)(1)(g). Nevertheless, the substantive reasoning
behind the rulings appear to be applicable to the proposed conversion. As
such, there exists a strong position that the proposed conversion will qualify
as a "mere change" exemption and be tax-free.
E. NEW YORK STATE REAL PROPERTY TRANSFER GAINS TAX ("GAINS TAX")
New York State no longer imposes an additional tax on gains
attributable to the transfer of real property, or an interest therein, located
in New York State where the consideration given is in excess of $1,000,000.00.
Article 31-B of the Tax Law was repealed effective June 15, 1996.
F. NEW YORK STATE BANKING FRANCHISE TAX
New York State imposes a special franchise tax on banking corporations doing
business in New York State. Tax Law Section 1451. The tax is imposed for the
privilege of doing business or exercising the corporate franchise for the
taxable year. The tax is based on net income for federal income tax purposes
with some New York modifications. The proposed conversion presents the issue
of whether the transactions will result in gains taxable under this special
franchise tax.
A corporation organized as a bank is subject to the New York State banking
franchise tax only if it is doing business in New York. It is not necessary
for a non-New York bank to be doing a full-scale banking business in New York
to be subject to the tax. Tax Law Section 1452(a). It is sufficient that it
is engaged in a banking business anywhere and is doing business in New York.
The term "doing business" is used in a comprehensive sense and encompasses most
corporate activities. See 20, Codes, Rules and Regulations ("NYCRR") of the
State of New York, NYCRR Section 16-2.7.
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O'REILLY, MARSH & CORTESELLI P.C.
The determination of whether a corporation is "doing business" in New York
State is dependent upon the facts of each case. Consideration is given to such
factors as: (i) the nature, continuity, frequency and regularity of the
activities of the corporation in New York State; (ii) the purposes for which
the corporation was organized; (iii) the location of the corporation's officers
and other places of business; (iv) the employment in New York State of agents,
officers and employees; and (v) the location of the actual seat of management
or control of the corporation.
Given that the Stock Bank and Holding Companies will maintain headquarters and
officers in New York State, all entities will be subject to the tax. The
Holding Companies will be required to file a combined New York State banking
franchise tax return with the Stock Bank. Permission must be requested from
the New York State to file a combined return. 20 NYCRR Section 21-2.5.
Although the entities will be subject to the New York State banking franchise
tax, the proposed conversion, taken as a single transaction will not result in
tax liability. The New York State banking franchise tax is based on net income
for federal income tax purposes with some New York modifications. 20 NYCRA
Section 18-2.2. No adjustments to income are provided with respect to
transactions which are tax-free for federal income tax purposes under IRC
Section 368(a)(1)(F). Furthermore, a New York State advisory opinion
specifically provided that a bank's change in form from a mutual savings bank
to a stock savings bank under an IRC Section 368(a)(1)(F) tax-free
reorganization was tax-free for purposes of the New York State banking
franchise tax. Goldome Bank for Savings, State Tax Commission, Petition No.
C831021A, 7/2/85. Thus, the proposed conversion is tax-free for the purposes
of the New York State banking franchise tax.
G. PERSONAL INCOME TAX
Accordingly, if for Federal income tax purposes, no taxable income
will be realized by New York State resident individuals who are eligible
account holders and new stockholders of Stock Bank as a result of the Plan of
Reorganization, no taxable income will be realized by such eligible account
holders and new stockholders of Stock Bank for New York State personal income
tax purposes under Article 22 of the Tax Law. Also, with respect to
nonresident individuals of New York State, no taxable income will be realized
by eligible account holders and new stockholders of
Stock Bank for New York State personal income tax purposes under Article 22 of
the Tax Law.
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O'REILLY, MARSH & CORTESELLI P.C.
NEW YORK CITY
A. NEW YORK CITY BANKING FRANCHISE TAX
An annual tax is imposed on every banking corporation doing business
in New York City in a corporate or organized capacity by the New York City
Administrative Code Section 11-612 (Part 4, Chapter 6 of Title 11). The tax is
based on the apportioned net income, as reported for federal tax purposes with
certain adjustments. A corporation organized as a bank is subject to the New
York City banking franchise tax only if it is doing business in the City of New
York. As issue is whether any of the bank entities in the proposed conversion
is "doing business" in New York City and thus, subject to the New York City
banking franchise tax.
New York City has adopted regulations similar to the state for determining the
level of corporate activity and/or presence that constitutes "doing business"
within New York City. The term "doing business" is used in a comprehensive
sense. Rule Section 3.01 states that "[e]very corporation organized for profit
and carrying out any of the purposes of its organization is deemed doing
business for purposes of the tax." Given that the Holding Companies and Stock
Bank will maintain operations in New York City, both entities will be subject
to the New York City banking franchise tax.
Taken as a single transaction, the proposed conversion will not result in tax
liability. Analogous to New York State, New York City bases the tax on net
income for federal income tax purposes with some modifications. No adjustments
to income are provided with respect to transactions which are income tax-free
under IRC Section 368(a)(1)(F). Since the proposed conversion is tax-free for
federal income tax purposes under IRC Section 368(a)(1)(F), no gain or loss
will be recognized for purposes of New York City banking franchise tax.
QUALIFICATION
The opinions set forth above represent our conclusions as to the application of
existing New York State and New York City banking franchise tax law to the
facts of the instant transaction, and we can give no assurance that changes in
such law, or in the interpretation thereof, will not affect the opinions
expressed by us. Moreover, there can be no assurance that contrary positions
may not be taken by the Department of Taxation and Finance, or that a court
considering the issues would not hold contrary to such opinions.
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O'REILLY, MARSH & CORTESELLI P.C.
All of the opinions set forth above are qualified to the extent that the
validity of any provision of any agreement may be subject to or affected by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally. We do not express any opinion as
to the availability of any equitable or specific remedy upon any breach of any
of the covenants, warranties or other provisions contained in any agreement.
We have not examined, and we express no opinion with respect to the
applicability of, or liability under, any Federal, state or local law,
ordinance, or regulation governing or pertaining to environmental matters,
hazardous wastes, toxic substances, asbestos, or the like.
It is expressly understood that the opinions set forth above represent our
conclusions based upon the documents reviewed by us and the facts presented to
us. Any material amendments to such documents or changes in any significant
fact would affect the opinions expressed herein.
The opinions set forth herein are based on current law, including statutes,
regulations, and judicial and administrative interpretations thereof. Such
statutes and regulations could be amended with retroactive effect, and such
interpretations could change. Additionally, the taxing authorities could
disagree with the conclusions contained in this opinion, and no assurance can
be given that such conclusions would be sustained by a court, if these matters
were contested.
The opinions set forth herein do not, and are not meant to, address the tax
return filing requirements of New York State of New York City.
The opinions set forth herein are furnished solely for the benefit of the Board
of Directors of Atlantic Liberty Savings, F.A. and prospective investors in
connection with the proposed transactions and is not to be relied upon or used
for any other purposes without the firm's prior written consent.
Notwithstanding the foregoing, we hereby consent to the reference to this firm
and our opinions in any Registration Statement filed by the Stock Holding
Company and all amendments thereto and the Application for Conversion filed by
the Bank and all amendments thereto, relating to the Plan.
VERY TRULY YOURS,
/s/ O'REILLY, MARSH & CORTESELLI P.C.
O'REILLY, MARSH & CORTESELLI P.C.
<PAGE> 1
EXHIBIT 23.2
[SOL MASCH & COMPANY LETTERHEAD]
To the Board of Directors
Atlantic Liberty Savings, F.A.
Brooklyn, New York
We consent to the use in the Registration Statement of Brooklyn Heights
Bancorp on Form SB-2 and the Notice of Intent to organize into a mutual holding
company and conduct a minority stock offering on combined application
MHC-1/MHC-2 of our report dated August 5, 1997, except for note 17, as to which
date is November 14, 1997, on the financial statements of Atlantic Liberty
Savings, F.A. as of and for the years ended March 31, 1997 and 1996, and to the
references to our firm under the headings "Legal and Tax Matters" and "Experts"
in the related prospectus.
/s/ SOL MASCH & COMPANY
Croton-on-Hudson, New York
February 4, 1998
<PAGE> 1
EXHIBIT 23.3
[FELDMAN FINANCIAL ADVISORS, INC. LETTERHEAD]
February 4, 1998
Board of Directors
Atlantic Liberty Savings, F.A.
186 Montague Street
Brooklyn, New York 11201
Gentlemen:
We hereby consent to the use of our name and summary of our valuation opinion,
as referenced in the Application for Approval of Reorganization (the
"Application") filed by Atlantic Liberty Savings, F.A. (the "Association") with
the Office of Thrift Supervision, regarding the estimated aggregate pro forma
market value of the Association in connection with its reorganization from
mutual to stock form and simultaneous offering for sale of a minority ownership
interest of shares of common stock by Brooklyn Heights Bancorp (the "Company").
We also consent to reference in the Application the summary of our opinion as
to the value of subscription rights granted by the Association. We further
consent to the use of our name and summary opinions as noted above in the
Registration Statement and Prospectus filed by the Company with the Securities
and Exchange Commission.
Sincerely,
/s/ FELDMAN FINANCIAL ADVISORS, INC.
FELDMAN FINANCIAL ADVISORS, INC.
<PAGE> 1
EXHIBIT 99.2
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------------------------------------------------------
1725 K STREET, NW - SUITE 205
WASHINGTON, DC 20006
(202) 467-6862 - FAX (202) 467-6963
ATLANTIC LIBERTY SAVINGS, F.A.
BROOKLYN, NEW YORK
CONVERSION VALUATION APPRAISAL REPORT
VALUED AS OF DECEMBER 11, 1997
PREPARED BY
FELDMAN FINANCIAL ADVISORS, INC.
WASHINGTON, D.C.
<PAGE> 2
FELDMAN FINANCIAL ADVISORS, INC.
- --------------------------------------------------------------------------------
1725 K STREET, NW - SUITE 205
WASHINGTON, DC 20006
December 11, 1997 (202) 467-6862 - FAX (202) 467-6963
Board of Directors
Atlantic Liberty Savings, F.A.
186 Montague Street
Brooklyn, New York 11201
Gentlemen:
At your request, we have completed and hereby provide an independent
appraisal of the aggregate estimated pro forma market value of Atlantic Liberty
Savings, F.A. ("Atlantic Liberty" or the "Association") in connection with its
mutual holding company reorganization (the "Reorganization"). The transaction
structure will include the formation of a federal stock savings association as
the successor to the Association in its mutual form, and concurrent formation of
Brooklyn Heights Bancorp, Inc., a federal stock corporation (the "Stock
Company"), as a majority-owned subsidiary of Atlantic Liberty, MHC (the "Mutual
Company"). The Stock Company will offer shares of its common stock for sale to
eligible depositors and to the Association's and Stock Company's employee stock
benefit plans in a Subscription Offering. Shares not subscribed for in the
Subscription Offering will be offered for sale to certain members of the general
public in a Community Offering.
This appraisal report is being furnished pursuant to the filing of
regulatory applications for the Reorganization by the Association with the
Office of Thrift Supervision and the Federal Deposit Insurance Corporation.
Feldman Financial Advisors, Inc. ("Feldman Financial") is a financial consulting
and economic research firm that specializes in financial valuations and analyses
of business enterprises and securities in the thrift, banking, and mortgage
industries. The background of Feldman Financial is presented in Exhibit I.
In preparing our appraisal, we conducted an analysis of the Association
that included discussions with the Association's management, the Association's
independent auditors, Sol Masch & Company, the Association's offering manager,
Ryan, Beck & Co., and the Association's Reorganization counsel, Luse Lehman
Gorman Pomerenk & Schick, P.C. In addition, where appropriate, we considered
information based on other available published sources that we believe are
reliable; however, we cannot guarantee the accuracy and completeness of such
information.
We also reviewed, among other factors, the economy in the Association's
primary market area and compared the Association's financial condition and
operating performance with that of selected publicly traded financial
institutions. We reviewed conditions in the securities markets in general and in
the market for thrift institution common stocks in particular.
Our appraisal is based on the Association's representation that the
information contained in the regulatory applications and additional evidence
furnished to us by the Association and its independent auditors are truthful,
accurate, and complete. We did not independently verify the financial statements
and other information provided by the Association and its independent auditors,
nor did we independently value the assets or liabilities of the Association. The
valuation considers the Association only as a going concern and should not be
considered as an indication of the liquidation value of the Association.
<PAGE> 3
FELDMAN FINANCIAL ADVISORS, INC.
Board of Directors
Atlantic Liberty Savings, F.A.
December 11, 1997
Page Two
It is our opinion that, as of December 11, 1997, the aggregate estimated
pro forma market value of the Association was within the valuation range of
$8,500,000 to $11,500,000 with a midpoint of $10,000,000. The valuation range
was based upon a 15 percent decrease from the midpoint to determine the minimum
and a 15 percent increase to establish the maximum. Assuming an additional 15
percent increase above the maximum value results in an adjusted maximum of
$13,225,000.
The Board of Directors has determined to offer for sale in the
Reorganization a minority ownership interest equal to 46% of all the common
stock to be issued and outstanding. Therefore, the total amount of common stock
to be sold in the Reorganization will be equal to $3,910,000 at the minimum
valuation, $4,600,000 at the midpoint valuation, $5,290,000 at the maximum
valuation, and $6,083,500 at the adjusted maximum.
Our valuation is not intended, and must not be construed, to be a
recommendation of any kind as to the advisability of purchasing shares of common
stock in the Reorganization. Moreover, because the 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 stock in the Reorganization will thereafter be able to sell
such shares at prices related to the foregoing estimate of the Association's pro
forma market value. Feldman Financial is not a seller of securities within the
meaning of any federal or state securities laws and any report prepared by
Feldman Financial shall not be used as an offer or solicitation with respect to
the purchase or sale of any securities.
The valuation reported herein will be updated as appropriate. These
updates will consider, among other factors, any developments or changes in the
Association's operating performance, financial condition, or management
policies, and current conditions in the securities markets for thrift
institution common stocks. Should any such new developments or changes be
material, in our opinion, to the valuation of the Association, appropriate
adjustments to the estimated pro forma market value will be made. The reasons
for any such adjustments will be explained in detail at that time.
Respectfully,
FELDMAN FINANCIAL ADVISORS, INC.
By: /s/ TRENT R. FELDMAN
-----------------------------
Trent R. Feldman
President
<PAGE> 4
FELDMAN FINANCIAL ADVISORS, INC.
TABLE OF CONTENTS
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<S> <C> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
I. CHAPTER ONE - BUSINESS OF ATLANTIC LIBERTY
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Income and Expense Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Asset and Liability Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Asset Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Market Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
II. CHAPTER TWO - COMPARISONS WITH PUBLICLY HELD COMPANIES
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Selection Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Recent Financial Comparisons . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
III. CHAPTER THREE - MARKET VALUE ADJUSTMENTS
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Earnings Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Market Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Liquidity of the Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Subscription Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Stock Market Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Recent Acquisition Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
New Issue Discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Mutual Holding Company Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Adjustments Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Valuation Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Valuation Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
IV. APPENDIX - EXHIBITS
I Background of Feldman Financial Advisors, Inc. . . . . . . . . . . . . . . I-1
II-1 Statement of Financial Condition . . . . . . . . . . . . . . . . . . . . . II-1
II-2 Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . II-2
II-3 Loan Portfolio Composition . . . . . . . . . . . . . . . . . . . . . . . . II-3
II-4 Net Lending Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . II-4
II-5 Investment Portfolio Composition . . . . . . . . . . . . . . . . . . . . . II-5
II-6 Deposit Account Distribution . . . . . . . . . . . . . . . . . . . . . . . II-6
II-7 Office Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-7
III Market Valuation and Financial Data for All Public Thrifts . . . . . . . . III-1
IV-1 Pro Forma Conversion Assumptions . . . . . . . . . . . . . . . . . . . . . IV-1
IV-2 Pro Forma Valuation Range: Full Conversion . . . . . . . . . . . . . . . . IV-2
IV-3 Pro Forma Valuation Range: MHC Offering . . . . . . . . . . . . . . . . . IV-3
IV-4 Comparative Valuation Ratios . . . . . . . . . . . . . . . . . . . . . . . IV-4
IV-5 Pro Forma Full Conversion Analysis at Maximum Value . . . . . . . . . . . . IV-5
</TABLE>
<PAGE> 5
FELDMAN FINANCIAL ADVISORS, INC.
LIST OF TABLES
<TABLE>
<CAPTION>
TAB PAGE
- --- ----
<S> <C> <C>
I. CHAPTER ONE - BUSINESS OF ATLANTIC LIBERTY
Table 1 - Selected Financial Condition Data and Operating Data . . . . . . . . . . 9
Table 2 - Selected Operations Data and Performance Ratios . . . . . . . . . . . . 10
Table 3 - Income Statement Summary . . . . . . . . . . . . . . . . . . . . . . . . 16
Table 4 - Income Statement Ratios . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table 5 - Yield and Cost Summary . . . . . . . . . . . . . . . . . . . . . . . . . 19
Table 6 - NPV Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table 7 - Non-performing Asset Summary . . . . . . . . . . . . . . . . . . . . . . 23
Table 8 - Allowance for Loan and Lease Losses . . . . . . . . . . . . . . . . . . . 24
Table 9 - Key Demographic Indicators . . . . . . . . . . . . . . . . . . . . . . . 29
Table 10 - Deposit Trends for Brooklyn and New York City MSA . . . . . . . . . . . . 30
Table 11 - Deposit Market Share for Brooklyn . . . . . . . . . . . . . . . . . . . 31
II. CHAPTER TWO - COMPARISONS WITH PUBLICLY HELD COMPANIES
Table 12 - Comparative Group Operating Summary . . . . . . . . . . . . . . . . . . . 37
Table 13 - Key Financial Comparisons . . . . . . . . . . . . . . . . . . . . . . . . 38
Table 14 - General Financial Performance Ratios . . . . . . . . . . . . . . . . . . 43
Table 15 - Income and Expense Analysis . . . . . . . . . . . . . . . . . . . . . . . 44
Table 16 - Yield-Cost Structure and Growth Rates . . . . . . . . . . . . . . . . . . 45
Table 17 - Balance Sheet Composition . . . . . . . . . . . . . . . . . . . . . . . . 46
Table 18 - Capital Regulatory and Credit Risk Ratios . . . . . . . . . . . . . . . . 47
III. CHAPTER THREE - MARKET VALUE ADJUSTMENTS
Table 19 - Comparative Stock Market Performance . . . . . . . . . . . . . . . . . . 56
Table 20 - Selected Interest Rate Benchmarks . . . . . . . . . . . . . . . . . . . . 57
Table 21 - Recent New York Acquisition Activity . . . . . . . . . . . . . . . . . . 59
Table 22 - Recent Thrift Conversion Activity . . . . . . . . . . . . . . . . . . . . 61
Table 23 - Comparative Valuation Analysis . . . . . . . . . . . . . . . . . . . . . 67
Table 24 - Comparative Discount and Premium Analysis . . . . . . . . . . . . . . . 68
</TABLE>
<PAGE> 6
FELDMAN FINANCIAL ADVISORS, INC.
INTRODUCTION
As requested, Feldman Financial Advisors, Inc. ("Feldman Financial")
has prepared an independent appraisal of the aggregate estimated pro forma
market value of Atlantic Liberty Savings, F.A. ("Atlantic Liberty" or the
"Association") in connection with its mutual holding company reorganization
(the "Reorganization"). The transaction structure will include the formation
of the federally-chartered stock savings bank, Atlantic Liberty Savings, F.A.,
as the successor to the Association in its mutual form, and concurrent
formation of Brooklyn Heights Bancorp, a federal stock corporation. (the "Stock
Company") as a majority-owned subsidiary of Atlantic Liberty, MHC, a federal
mutual holding company (the "Mutual Company"). Under the Reorganization,
Atlantic Liberty will become a wholly owned subsidiary of the Stock Company and
the Stock Company will become the majority-owned subsidiary of the Mutual
Company. The Stock Company will offer shares of its common stock for sale (the
"Stock Offering") to eligible depositors and to the Association's and Stock
Company's employee stock benefit plans in a Subscription Offering. Shares not
subscribed for in the Subscription Offering will be offered for sale to certain
members of the general public in a Community Offering.
The Mutual Company will own at least 51% of the common shares of the
Stock Company as long as the Mutual Company remains in existence. The
Association will be a wholly owned subsidiary of the Stock Company. The Stock
Company expects to sell in the Stock Offering a minority ownership interest
equal to 46% of its common stock. The remaining issued and outstanding shares
of the Stock Company will be owned by the Mutual Company.
In the course of preparing this appraisal report, we reviewed and
discussed with the Association's management, and with the Association's
independent auditors, Sol Masch & Company, the audited financial statements of
the Association's operations for the years ended
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FELDMAN FINANCIAL ADVISORS, INC.
March 31, 1996 and 1997 and the unaudited financial statements for the six
months ended September 30, 1996 and 1996. We also discussed matters related to
the Reorganization with the Association's legal counsel, Luse Lehman Gorman
Pomerenk & Schick, P.C., and with the Association's offering manager, Ryan Beck
& Co. We also reviewed and discussed with management other financial matters
of the Association.
Where appropriate, we considered information based upon other
available public sources, which we believe to be reliable; however, we cannot
guarantee the accuracy or completeness of such information. We visited the
Association's primary market area and examined the prevailing economic
conditions. We also examined the competitive environment within which the
Association operates and assessed the Association's relative strengths and
weaknesses.
We examined and compared the Association's financial performance with
selected segments of the thrift industry and selected publicly traded thrifts.
We reviewed conditions in the securities markets in general and the market for
thrift institution common stocks in particular. We included in our analysis an
examination of the potential effects of the Reorganization on the Association's
operating characteristics and financial performance as they relate to the
estimated pro forma market value of the Association.
In preparing our valuation, we have relied upon and assumed the
accuracy and completeness of financial and statistical information provided by
the Association and its independent auditors. We did not independently verify
the financial statements and other information provided by the Association and
its independent auditors, nor did we independently value the assets or
liabilities of the Association. The valuation considers the Association only
as a going concern and should not be considered as an indication of the
liquidation value of the Association.
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FELDMAN FINANCIAL ADVISORS, INC.
OUR VALUATION IS NOT INTENDED, AND MUST NOT BE CONSTRUED, TO BE A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING SHARES OF
COMMON STOCK IN THE REORGANIZATION. MOREOVER, BECAUSE SUCH VALUATION IS
NECESSARILY BASED ON 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 REORGANIZATION WILL
THEREAFTER BE ABLE TO SELL SUCH SHARES AT PRICES RELATED TO THE FOREGOING
VALUATION OF THE PRO FORMA MARKET VALUE THEREOF. FELDMAN FINANCIAL IS NOT A
SELLER OF SECURITIES WITHIN THE MEANING OF ANY FEDERAL AND STATE SECURITIES
LAWS AND ANY REPORT PREPARED BY FELDMAN FINANCIAL SHALL NOT BE USED AS AN OFFER
OR SOLICITATION WITH RESPECT TO THE PURCHASE OR SALE OF ANY SECURITIES.
The valuation reported herein will be updated as appropriate. These
updates will consider, among other factors, any developments or changes in the
Association's financial performance or management policies, and current
conditions in the securities market for thrift institution common stocks.
Should any such developments or changes be material, in our opinion, to the
Reorganization valuation of the Association, appropriate adjustments to the
estimated pro forma market value will be made. The reasons for any such
adjustments will be explained in detail at that time.
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FELDMAN FINANCIAL ADVISORS, INC.
I. BUSINESS OF ATLANTIC LIBERTY SAVINGS
GENERAL
Atlantic Liberty was organized originally in 1888 as a New York
building and loan association and converted to a Federal savings association in
1983. The Association currently conducts its business from its home office and
one branch, both located in Brooklyn, New York. The Association is subject to
regulation by the Office of Thrift Supervision ("OTS") and the Federal Deposit
Insurance Corporation ("FDIC"), the insurer of its deposit accounts up to
applicable limits through the Bank Insurance Fund. The Association is a member
of the Federal Home Loan Association ("FHLB") of New York. As of September 30,
1997, the Association had total assets of $110 million, total deposits of $101
million, and total equity of $7.2 million or 6.56% of total assets.
Atlantic Liberty emphasizes the origination of residential mortgage
loans. The mortgage loans are secured primarily by one-to-four family
residential real estate. The Association also makes loans secured by
multi-family and commercial real estate, which reflects the large number of
multi-family and commercial properties in the neighborhoods surrounding the
Association's offices. To a lesser extent, the Association also makes consumer
loans. Of the Association's total loan portfolio at September 30, 1997, 61.2%
consisted of loans secured by one-to-four family residential properties, 19.8%
were secured by multi-family real estate, and 18.1% by commercial real estate.
The Association also invests in securities and other short-term investments.
At September 30, 1997, investment securities and short-term investments
amounted to $32.2 million or 29.3% of the Association's assets.
The Association offers traditional deposit accounts consisting of
savings, certificates of deposit, money market accounts, NOW accounts, and
demand accounts. Guardian accounts,
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FELDMAN FINANCIAL ADVISORS, INC.
which are deposits mandated by the court for minor children, have made up a
significant portion of the Association's deposits for more than 15 years. As
of September 30, 1997, guardian accounts were $13.6 million, or 13.6% of the
Association's total deposits.
The Association operates two full-service banking offices in Brooklyn.
The majority of the Association's deposits are gathered from Brooklyn and the
New York metropolitan area. The Association's primary lending area extends
throughout Brooklyn. Because a significant concentration of the Association's
assets are secured by residential real estate located in its primary lending
territory, the Association's asset quality is highly dependent upon the real
estate market conditions in the local economy. As the economic environment of
Brooklyn has improved through the 1990's, the Association's level of
non-performing loans has continued to improve and was 1.6% of total assets as
of September 30, 1997.
Atlantic Liberty historically has generated relatively low
profitability returns. Net income for fiscal 1997 was $123,525, or 0.12% of
average assets. Included in this amount was a one-time charge of $594,000
($356,000 after-taxes) for the special SAIF assessment. Adjusting for this
expense, the Association would have earned approximately $479,400, or 0.45% of
average assets. The adjusted return for fiscal 1997 is a decline from the
0.19% return on average assets in fiscal 1996, largely because of the one-time
SAIF assessment, interest expense as a percent of assets increased while
interest income as a percent of assets decreased even more, and the provision
for loan losses almost tripled. It was the income tax benefit in 1997 that
enabled the Association to show a profit.
For the six months ended September 30, 1997, the Association recorded
net income of $335,392 compared to $647,591 for the same period ending
September 30, 1996. The lower income is due primarily to the income tax
benefit received in the 1996 period, while an income tax
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FELDMAN FINANCIAL ADVISORS, INC.
expense was incurred during the same period in 1997. Income before taxes for
the six months ended September 30 was $585,314 in 1997 compared to $408,007 in
1996.
The Association's capital has substantially exceeded all applicable
regulatory capital requirements and has increased from $6.75 million, or 6.38%
of assets, at March 31, 1996, to $7.21 million, or 6.56% of assets, at
September 30, 1997.
The Association seeks to generate future earnings growth through
continued emphasis on residential real estate lending. Management intends to
monitor economic conditions in the Association's market area and adjust the mix
of its lending activities in response to changing conditions in order to
maintain sound asset quality and profitability. Management believes
opportunities for growth exist in its market area and plans to manage growth to
ensure compliance with regulatory capital requirements and to achieve overall
strategic objectives, without unduly increasing the risk profile of the balance
sheet. Management believes that the Association can continue to meet its
financial and strategic objectives by seeking business primarily within its
market area.
The Board of Directors of Atlantic Liberty has determined that the
Reorganization is in the best interest of the Association and its customers,
and has discerned several business purposes for effecting the proposed
Reorganization. The Reorganization will structure the Association in the stock
form, which is used by commercial Associations, most major business
corporations, and an increasing majority of savings institutions. Formation of
the Stock Company will permit the Association to issue common stock, which is a
source of capital not available to mutual institutions.
At the same time, the Association's mutual form of ownership will be
preserved in the mutual holding company ("MHC") structure, which will permit
the Mutual Company to control at
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FELDMAN FINANCIAL ADVISORS, INC.
least a majority of the common stock issued in the Reorganization. The MHC
structure will enable the Association to raise significantly less capital than
the extraordinary amount of funds that otherwise would result from a full
conversion in today's stock market. The Reorganization will not foreclose the
opportunity for the resulting Mutual Holding Company to convert from mutual to
stock form in the future. Additionally, the middle-tier Stock Company allows
greater flexibility to structure mergers and acquisitions, diversify business
operations, and to repurchase shares of common stock, thereby affording the MHC
structure some of the advantages that were previously available only to thrifts
that opted for fully-converted stock companies.
The Stock Company will offer for sale 46% of its common shares in the
Stock Offering. The sale of common stock will provide the Association with new
equity capital to support future growth and expanded operations. Management
believes that the sale of common stock in selected proportions and at
appropriate intervals facilitates the orderly and manageable expansion of the
Association's capital base. The ability to issue common stock also will enable
the Association to establish stock benefit plans for management and employees,
thereby improving the Association's capacity to attract and retain qualified
personnel. The additional capital, along with the holding company
organizational structure, will help to facilitate expansion through mergers and
acquisitions.
The increased capital resulting from the Stock Offering will enable
the Association to take advantage of additional lending opportunities within
its market area. Based on the Association's expanded capital base, the
Association will be able to increase its lending limits and borrower
concentrations without jeopardizing credit risk management. The Association
will be better able to accommodate the growing financing needs of its larger,
more successful real estate customers. The Association may also explore other
means of expanding loan originations through
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FELDMAN FINANCIAL ADVISORS, INC.
securitizations and loan participations. In addition, adjacent geographic
markets may be considered for new business development opportunities consistent
with the Association's current lines of business. The Association intends to
implement any such growth and expansion plans with a disciplined and deliberate
approach.
The remainder of Chapter I examines in more detail the trends
addressed in this section, including the impact of changes in the Association's
economic and competitive environment, and recent management initiatives. The
discussion is supplemented by the exhibits in the Appendix. Exhibit II-1
summarizes the Association's statements of financial condition as of September
30, 1996 and 1997 and for the fiscal years ending March 31, 1996 and 1997.
Exhibit II-2 presents the Association's statements of income for the six-months
ended September 30, 1996 and 1997 and the fiscal years ended March 31, 1996 and
1997.
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FELDMAN FINANCIAL ADVISORS, INC.
FINANCIAL CONDITION
Table 1 presents selected data concerning Atlantic Liberty's financial
position as of the six-month periods ended September 30, 1996 and 1997 and the
fiscal years ended March 31, 1996 and 1997. Table 2 displays ratios and
operating data for the Association over the same periods.
Table 1
SELECTED FINANCIAL CONDITION AND OPERATING DATA
At or for the Six-month Periods Ending September 30, 1996 and 1997
And the Years Ending March 31, 1996 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
===============================================================================================================
(unaudited)
At or for the 6 months ended At or for the year ended
September 30, March 31,
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
- ---------------------------------------------------
Total assets $ 109,887 $ 105,297 $ 109,794 $ 105,742
Loans receivable, net 65,486 57,321 60,059 54,505
MBS, held for investment 19,017 18,152 19,030 19,226
Investment securities, held for investment 13,150 18,880 17,258 16,155
Deposits 100,539 95,728 100,798 97,396
Retained earnings 7,209 7,397 6,873 6,750
- --------------------------------------------------------------------------------------------------------------
SELECTED OPERATING DATA:
- ---------------------------------------------------
Total interest income $ 4,065 $ 3,615 $ 7,248 $ 7,151
Total interest expense 2,304 2,189 4,363 4,149
----- ----- ----- -----
Net interest income 1,761 1,426 2,885 3,002
Provision for loan losses 105 66 771 275
--- -- --- ---
Net interest income after provision 1,656 1,360 2,113 2,727
----- ----- ----- -----
Gain (loss) on disposal of foreclosed real estate 29 123 148 (135)
Other non-interest income 168 744 1,105 340
--- --- ----- ---
Total non-interest income 197 867 1254 205
--- --- ---- ---
Total non-interest expense 1,267 1,819 3,391 2,595
Income (loss) before tax 585 408 (24) 337
Income tax (expense) benefit (250) 240 147 (141)
----- --- --- -----
Net income $ 335 $ 648 $ 124 $ 196
==============================================================================================================
</TABLE>
Source: Atlantic Liberty, preliminary prospectus.
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<PAGE> 15
FELDMAN FINANCIAL ADVISORS, INC.
Table 2
SELECTED OPERATIONS DATA AND PERFORMANCE RATIOS
At or for the Six-month Periods Ending September 30, 1996 and 1997
And the Years Ending March 31, 1996 and 1997
<TABLE>
<CAPTION>
==============================================================================================================
(unaudited)
At or for the
six months ended At or for the year ended
September 30, March 31,
------------- ---------
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PERFORMANCE RATIOS:
- ---------------------------------------------------
Return on average assets 0.62% 1.24% 0.12% 0.19%
Return on average equity 9.14% 18.45% 5.98% 0.76%
Net interest margin 3.40% 2.87% 2.81% 3.10%
Interest rate spread 3.21% 2.75% 2.71% 2.97%
Operating expense to average total assets 2.34% 3.48% 3.22% 2.56%
Average interest earning assets to
average interest bearing liabilities 103.81% 102.85% 103.61% 103.26%
- --------------------------------------------------------------------------------------------------------------
ASSET QUALITY RATIOS:
- ---------------------------------------------------
Non-performing loans to total assets at period end 1.60% N.A. 3.04% 4.55%
Allowance for loan losses to non-performing loans 61.82% N.A. 29.27% 15.51%
Allowance for loan losses to loans receivable, net 1.65% 1.18% 1.63% 1.37%
- --------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS:
- ---------------------------------------------------
Retained earnings to total assets at end of period 6.56% 7.02% 6.26% 6.38%
Average retained earnings to average assets 6.78% 6.72% 6.47% 6.69%
- --------------------------------------------------------------------------------------------------------------
OTHER DATA:
- ---------------------------------------------------
Number of full-service offices 2 2 2 2
==============================================================================================================
</TABLE>
Source: Atlantic Liberty, preliminary prospectus, Feldman Financial
calculations
Asset Composition
The Association's asset base grew 4.4% between September 30, 1996 and
September 30, 1997. Total assets increased by $4.6 million over this one-year
period, primarily as a result of the expanding loan portfolio. The
Association's growth was internally generated without augmentation from mergers
or acquisitions of other company operations. The ratio of net loans to assets
increased from 54.4% at September 30, 1996, to 59.6% at September 30, 1997.
During the same time period the ratio of cash and securities to assets
decreased from 42.4% to 37.9%.
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FELDMAN FINANCIAL ADVISORS, INC.
The Association's loan portfolio is predominantly secured by real
estate properties. As displayed in Exhibit II-3, the Association's net loan
portfolio at September 30, 1997 totaled $65.5 million, of which 61.2% ($40.1
million) were one-to-four family loans, 19.8% ($13.0 million) were multi-family
loans, 18.1% ($11.9 million) were commercial real estate loans, and 2.8% ($1.8
million) were savings account loans.
Between March 31, 1996, and September 30, 1997, the Association's
one-to-four family loans increased by $9.5 million, multi-family loans
increased by $1.8 million, and commercial real estate loans decreased by
$923,000. While the market for these loans was strong in the Association's
lending area, the competition for such business was also active. Exhibit II-4
summarizes the Association's net lending activity during recent periods.
One-to-four family loans generally are originated in amounts up to 75%
of the lesser of the appraised value or purchase price of the property, with
private mortgage insurance required on loans with a long-to-value ratio in
excess of 80%. Fixed-rate loans generally are originated for up to a 15-year
term and are retained in the Association's loan portfolio. Adjustable-rate
mortgages ("ARMs") are offered with a 1, 3 and 5 year adjustment period with
interest rates indexed to the corresponding 1, 3, and 5 year Treasury constant
maturity rates.
Multi-family real estate loans generally are secured by multi-family
rental properties, including walk-up apartments and mixed-use properties.
Substantially all multi-family real estate loans were secured by properties
within the Association's market area. Multi-family loans are offered with both
fixed and adjustable interest rates and have terms of up to 10 years, with an
amortization period of up to 20 years and a fixed-rate of interest for the
initial five-year period and a five-year renewal option. Upon renewal, the
loan's interest rate will adjust to either the prevailing prime rate plus 200
basis points or to the 5 year Treasure Note rate plus 250 basis
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<PAGE> 17
FELDMAN FINANCIAL ADVISORS, INC.
points, at the borrower's option. Loans secured by apartment buildings and
other multi-family residential properties generally involve larger principal
amounts and a greater degree of risk than one-to-four family residential
mortgage loans. Because payments of loans secured by multi-family properties
are often dependent on successful operation or management of the properties,
repayment of such loans may be subject to a greater extent to adverse
conditions in the real estate market or the economy.
Another major segment of the Association's loan portfolio involves
commercial real estate lending. The Association generally originates loans
that are secured by office buildings, private schools, religious facilities,
and other commercial properties. The Association's underwriting policies and
procedures for originating commercial real estate mortgage loans are similar to
those followed for originating multi-family mortgage loans. To underwrite
commercial real estate loans, the Association reviews net operating income
generated by the real estate to ensure that it is at least 125% of the amount
of the monthly debt service, the age and condition of the collateral, the
financial resources and income level of the borrower, and the borrower's
business experience. Generally, personal guarantees are obtained from
commercial real estate borrowers. The Association considers loans secured by
commercial real estate properties to involve greater risk than multi-family
mortgage loans since they are even more dependent on the ability of the
borrowers to profitably manage a business and are more susceptible to adverse
conditions in the real estate market and economy. As a result, to offset the
greater risk, the Association may require a somewhat higher debt service
coverage ratio and, in certain instances, a higher interest rate on commercial
real estate loans than for multi-family mortgage loans.
Exhibit II-5 displays the composition of the Association's investment
portfolio. Investment securities totaled $32.17 million or 29.3% of total
assets at September 30, 1997,
- 12 -
<PAGE> 18
FELDMAN FINANCIAL ADVISORS, INC.
consisting primarily of U.S. Government and Agency obligations ($12.6 million),
FHLB stock ($583,000), Asset Management Fund, Inc. ($4.2 million), and
mortgage-backed securities ($14.8 million. All investments are
held-to-maturity. The fair value of the Association's investment securities as
of September 30, 1997, was $32.2 million, or $23,000 more than the book value.
The Association views its investment portfolio as an alternative
interest-earning asset vehicle into which to deploy excess funds during periods
of weak loan demand or perceived higher risks. The investment portfolio
provides asset diversification and the opportunity to achieve capital
appreciation through long-term investment in equity securities. The
Association's current investment strategy has emphasized the purchase of U.S.
Government and Agency obligations and mortgage-backed securities. Atlantic
Liberty has never utilized hedging instruments and had no outstanding contracts
involving such instruments at September 30, 1997.
Liability Composition
Deposits, repayments and prepayments of loans, proceeds from sales of
loans and securities, proceeds from maturing securities, and cash flows from
operations are the primary sources of the Association's funds for use in
lending, borrowing, and other general purposes. The Association's deposits at
September 30, 1997 totaled $100.5 million, representing 97.9% of total
liabilities. The Association's deposit accounts consist of transaction
accounts (non-interest NOW accounts, interest-bearing NOW accounts, Super Now
accounts, passbook accounts, and money market savings accounts) and certificate
of deposit accounts. Exhibit II-6 presents a summary of the Association's
deposit portfolio as of September 30, 1997.
Transaction accounts amounted to $40.0 million or 39.7% of the
Association's total deposits at September 30, 1997. Certificate of deposit
accounts amounted to $60.6 million or
- 13 -
<PAGE> 19
FELDMAN FINANCIAL ADVISORS, INC.
60.3% of deposits at that date. Certificates of deposit have remained
relatively stable as a percent of deposits from March 31, 1996 through
September 30, 1997. Of the Association's $60.6 million of certificate
accounts, $41.1 million or 67.9% were scheduled to mature within one year.
The Association's deposit base increased at a rate of 5.0% between
September 30, 1996 and September 30, 1997. During the past few years, the
strength of the stock market has affected deposit flows as some customers have
opted to place their funds in instruments such as mutual funds rather in
deposit products perceived to have less attractive returns. The Association
obtains deposits predominantly from the areas in which its branch offices are
located. Atlantic Liberty relies mainly on competitive pricing of its deposit
products, customer service, and long-standing relationships with customers to
attract and retain deposits.
Equity Capital
The Association's equity capital was $7.2 million, or 6.56% of total
assets, at September 30, 1997. Equity dipped slightly from $7.4 million as of
September 30, 1997, but increased by $459,000 between March 31, 1996 and
September 30, 1997. For regulatory purposes at September 30, 1997, the
Association's Tier 1 leverage capital ratio measured 6.6% and its total
risk-based capital ratio was 15.7%. The Association not only met its minimum
regulatory capital requirements but also surpassed the levels necessary to
qualify for the designation of well capitalized.
- 14 -
<PAGE> 20
FELDMAN FINANCIAL ADVISORS, INC.
INCOME AND EXPENSE TRENDS
Table 3 compares the main components of the Association's earnings
performance for the six months periods ending September 30, 1997 and 1996 and
for the fiscal years ended March 31, 1996 and 1997. Table 4 displays the
components of interest income, annualized, as a percent of average assets for
the corresponding periods.
Net income for fiscal 1997 was $123,525, or 0.12% of average assets.
Included in this amount was a one-time charge of $594,000 ($356,000
after-taxes) for the special SAIF assessment. Adjusting for this expense, the
Association would have earned approximately $479,400, or 0.45% of average
assets. The adjusted return for fiscal 1997 is a decrease from the 0.19%
return on average assets in fiscal 1996, due to the higher interest expense
ratio, lower interest income ratio, significantly higher loan loss provision,
and the one-time SAIF assessment.
For the six months ended September 30, 1997, the Association recorded
net income of $335,000 compared to $648,000 for the same period ending
September 30, 1996. The lower income is due primarily to the income tax
benefit received in the 1996 period, while an income tax expense was incurred
during the same period in 1997. Income before taxes for the six months ended
September 30 was $585,000 in 1997 compared to $408,000 in 1996.
The Association's average interest-earning assets remained virtually
unchanged from September 30, 1996 to September 30, 1997. At the same time, the
net interest spread increased from 2.75% to 3.21% due to higher yields on
earning assets, which increased from 7.29% for the six-months ended September
30, 1996 to 7.84% for the same period in 1997. The increased yields benefited
from the receipt of past due interest on non-accrual loans. The Association's
average cost of interest bearing liabilities rose only slightly from 4.54% for
the six-months ended September 30, 1996 to 4.63% for the same period in 1997.
- 15 -
<PAGE> 21
FELDMAN FINANCIAL ADVISORS, INC.
Table 3
INCOME STATEMENT SUMMARY
For the Six Month Periods Ended September 30, 1996 and 1997
And the Years Ended March 31, 1996 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
================================================================================================================
(unaudited)
At or for the 6 months ended At or for the year ended
September 30, March 31,
------------- ---------
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans receivable $ 2,808 $ 2,319 $ 4,677 $ 4,679
Investment securities 647 719 1,434 1,341
Mortgage-backed and related securities 610 577 1,137 1,130
--- --- ----- -----
Total interest income 4,065 3,615 7,248 7,151
Deposits 2,300 2,186 4,357 4,143
Borrowed funds 4 3 7 6
- - - -
Total interest expense 2,304 2,189 4,363 4,149
----- ----- ----- -----
Net interest income 1,761 1,426 2,885 3,002
Provision for loan losses 105 66 771 275
--- -- --- ---
Net interest income after provision 1,656 1,360 2,113 2,727
----- ----- ----- -----
Income from real estate operations 80 57 154 173
Gain (loss) on disposal of foreclosed real estate 29 123 148 (135)
Other 88 687 951 167
--- --- --- ---
Total non-interest income 197 867 1,254 205
--- --- ----- ---
Compensation and benefits 747 700 1,667 1,435
Occupancy and equipment 136 131 276 266
SAIF deposit insurance premium 31 704 763 209
Other 353 285 685 685
--- --- --- ---
Total non-interest expense 1,267 1,819 3,391 2,595
Income (loss) before tax 585 408 (24) 337
Income tax (expense) benefit (250) 240 147 (141)
----- --- --- -----
Net income $ 335 $ 648 $ 124 $ 196
================================================================================================================
</TABLE>
Source: Atlantic Liberty, preliminary prospectus.
- 16 -
<PAGE> 22
FELDMAN FINANCIAL ADVISORS, INC.
Table 4
INCOME STATEMENT RATIOS
For the Six Month Periods Ended September 30, 1996 and 1997
And the Years Ended March 31, 1996 and 1997
(Percent of Average Assets)
<TABLE>
<CAPTION>
================================================================================================================
(unaudited)
At or for the 6 months ended At or for the year ended
September 30, March 31,
------------- ---------
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans receivable 5.18 4.44 4.44 4.62
Investment securities 1.19 1.38 1.36 1.32
Mortgage-backed and related securities 1.13 1.10 1.08 1.12
---- ---- ---- ----
Total interest income 7.50 6.92 6.87 7.06
Deposits 4.25 4.18 4.13 4.09
Borrowed funds 0.01 0.01 0.01 0.01
---- ---- ---- ----
Total interest expense 4.25 4.19 4.14 4.10
---- ---- ---- ----
Net interest income 3.25 2.73 2.74 2.96
Provision for loan losses 0.19 0.12 0.73 0.27
---- ---- ---- ----
Net interest income after provision 3.06 2.61 2.01 2.69
---- ---- ---- ----
Income from real estate operations 0.15 0.11 0.15 0.17
Gain (loss) on disposal of foreclosed real estate 0.05 0.24 0.14 (0.13)
Other 0.16 1.32 0.90 0.17
----- ---- ---- ----
Total non-interest income 0.36 1.66 1.19 0.20
---- ---- ---- ----
Compensation and benefits 1.38 1.34 1.58 1.42
Occupancy and equipment 0.25 0.25 0.26 0.26
SAIF deposit insurance premium 0.06 1.35 0.72 0.21
Other 0.65 0.55 0.65 0.68
---- ---- ---- ----
Total non-interest expense 2.34 3.48 3.22 2.56
Income (loss) before tax 1.08 0.78 (0.02) 0.33
Income tax (expense) benefit (0.46) 0.46 0.14 (0.14)
------ ---- ---- ------
Net income 0.62 1.24 0.12 0.19
================================================================================================================
</TABLE>
Source: Atlantic Liberty, preliminary prospectus, Feldman Financial
calculations.
- 17 -
<PAGE> 23
FELDMAN FINANCIAL ADVISORS, INC.
For the six months ended September 30, 1997 and 1996, the Association
added $105,000 and $66,000, respectively, to its allowance for loan losses.
For the years ended March 31, 1997 and 1996, the provision for loan losses was
$771,000 and $275,000, respectively. The increase in the loss provision for
the 1997 fiscal year reflects management's decision to increase the provision
to reflect risks inherent in a participation in six pools of loans, a
commercial real estate loan in foreclosure proceedings, and a loan on a
commercial condominium unit that subsequently has been sold.
Total non-interest income decreased to $197,000 for the six-months
ended September 30, 1997 from $867,000 for the same period in 1996. The
decrease was primarily attributable to nonrecurring income during the six
months ended September 30, 1996, consisting of insurance proceeds of $556,000,
and the settlement of a lawsuit totaling $195,000. Income from real estate
operations of $80,000 during the six months ended September 30, 1997 and
$57,000 during the same period in 1996. The same insurance and lawsuit
proceeds contributed to the $1.3 million in non-interest income during fiscal
year 1996 when compared to $205,000 for fiscal year 1997.
The Association's total non-interest expense decreased from $1.8
million for the six months ended September 30, 1996, to $1.3 million during the
same period in 1997. The primary reason for the decrease was the special
one-time SAIF assessment of $594,000 included in the 1996 expenses. The same
one-time SAIF assessment was the primary contributor to the increase in
operating expenses from $2.6 million in fiscal year 1996 to $3.4 million in
fiscal year 1997. In addition, compensation and benefits increased by $232,000
during the same period due to a restating of the directors deferred
compensation plan. Occupancy and equipment expense increased by only $10,000
from fiscal year 1996 to fiscal year 1997.
- 18 -
<PAGE> 24
FELDMAN FINANCIAL ADVISORS, INC.
The Association's earnings before income taxes increased from a
benefit of $141,000 in fiscal 1996 to an expense of $147,000 in 1997. The
provision for federal income taxes was $250,000 for the six months ended
September 30, 1997, compared to a tax benefit of $240,000 for the same period
in 1996. The tax benefit was attributable primarily to the special SAIF
assessment.
Table 5
YIELD AND COST SUMMARY
For the Six Months Ended September 30, 1997
And Fiscal Years Ended March 31, 1996 and 1997
<TABLE>
<CAPTION>
================================================================================================
Six months ended Fiscal year ended
September 30, March 31,
------------- -----------------
1997 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted Average Yields
-----------------------
Loans 9.02% 8.35% 8.69%
Mortgage-backed securities 6.27 6.10 6.31
Investment securities 6.09 5.65 5.35
Other assets 5.46 5.23 5.31
---- ---- ----
Total interest-earning assets 7.84 7.21 7.39
Weighted Average Costs
----------------------
Deposits 4.65 4.53 4.45
Advance payments by borrowers 0.94 0.84 1.02
---- ---- ----
Total interest-bearing liabilities 4.63 4.50 4.42
Net interest rate spread (1) 3.21 2.71 2.97
Net interest margin (2) 3.40 2.81 3.10
================================================================================================
</TABLE>
(1) Average yield on interest-earning assets less average cost of
interest-bearing liabilities.
(2) Net interest income (tax equivalent basis) divided by average interest-
earning assets.
Source: Atlantic Liberty, preliminary prospectus.
- 19 -
<PAGE> 25
FELDMAN FINANCIAL ADVISORS, INC.
ASSET AND LIABILITY MANAGEMENT
The Association's principal financial objective is to sustain
long-term profitability while reducing its exposure to fluctuating interest
rates. Atlantic Liberty has sought to reduce exposure of its earnings to
market interest rates by managing the mismatch between asset and liability
rates, maturities and re-pricings. The focus of the Association's
asset/liability management is to evaluate the overall interest rate risk
inherent in the Association's assets and liabilities, determine the level of
risk appropriate given the Association's strategy, operating environment
capital and liquidity requirements and performance objectives, and manage the
risk consistent with the guidelines approved by the Board of Directors.
Through such management, the Association seeks to reduce the vulnerability of
its operations to changes in interest rates.
The Association seeks to manage interest rate risk with the continued
objective of balancing the contrasting strategies of minimizing exposure to
interest rate sensitivity versus maximizing net interest margins. In order to
manage interest rate risk consistent with performance objectives, the
Association has utilized the following strategies to manage interest rate risk:
(1) emphasizing the origination and retention of one-to-four family residential
ARM loans and fixed rate loans with maturities of 15 years or less; (2)
emphasizing the origination and retention of commercial and multi-family
residential real estate loans with shorter maturities and/or adjustable rates;
and (3) investing in shorter term securities which generally bear lower yields
as compared to longer term investments, but which better position the
Association for increases in market rates.
In recent years, the Association has measured interest rate risk
sensitivity by computing the "gap" between the assets and liabilities which
were expected to mature or reprice within certain time periods, based upon
assumptions regarding loan prepayment and deposit decay rates
- 20 -
<PAGE> 26
FELDMAN FINANCIAL ADVISORS, INC.
formerly provided by the OTS. The OTS now requires the computation of amounts
by which the net present value of the Association's cash flows from assets,
liabilities and off balance sheet items (the Association's net portfolio value
"NPV") would change in the event of a range of assumed changes in market
interest rates. These computations estimate the effect on the Association's
NPV from instantaneous and permanent 1% to 4% (100 to 400 basis points)
increases and decreases in market interest rates.
Table 6 presents the Association's NPV at September 30, 1997 as
calculated by the OTS. As shown by the table, the Association's current NPV
position is more sensitive to increases in interest rates than to drops in
interest rates due to the shorter maturities of its liability portfolio.
Table 6
NPV CALCULATION
at September 30, 1997
<TABLE>
<CAPTION>
Percentage Change in Net Portfolio Value
Changes in Projected
Market Change (1)
Interest Rates ----------
--------------
(basis points)
<S> <C>
+400 (54)%
+300 (39)%
+200 (24)%
+100 (12)%
0 0%
(100) 5%
(200) 6%
(300) 11%
(400) 21%
</TABLE>
(1) Calculated as the amount of change in the estimated NPV divided by the
estimated NPV assuming no changes in interest rates.
Source: Atlantic Liberty, preliminary prospectus
- 21 -
<PAGE> 27
FELDMAN FINANCIAL ADVISORS, INC.
ASSET QUALITY
The Association improved its asset quality from March 31, 1996 to
September 30, 1997. Management believes the Association's improved asset
quality is primarily attributable to a better economic environment, utilization
of comprehensive loan underwriting policies, application of a risk rating
methodology, systematic loan reviews, active monitoring of loan concentrations,
conservative collateralizaton practices, and consistent and forceful collection
and workout efforts.
In order to effectively monitor problem loans, the Board of
Directors is informed monthly of the status of all mortgage loans delinquent
more than 60 days, all loans in foreclosure, and all foreclosed and repossessed
property owned by the Association.
The Association's ratio of non-performing assets to total assets
decreased from 4.55% at March 31, 1996 to 1.60% at September 30, 1997. Total
non-performing assets were $2.026,000 as of September 30, 1997. The
Association's real estate owned ("REO") was $274,000 as of the same date.
The Association's allowance for loan losses totaled $1.1 million, or
1.7% of net loans and 62% of non-performing loans at September 30, 1997. The
balance of the allowance for loan losses increased by $338,000 since March 31,
1996. Based on its internal asset quality rating system, the Association had
designated as of September 30, 1997 outstanding loans of $2.3 million as
substandard and $665,000 as special mention.
- 22 -
<PAGE> 28
FELDMAN FINANCIAL ADVISORS, INC.
Table 7
NON-PERFORMING ASSET SUMMARY
As of September 30, 1997, and March 31, 1996 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
===============================================================================================================
March 31,
-----------------------
September 30, 1997 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans accounted for on a non-accrual basis:
One- to four-family residential $ 1,203 $ 1,894 $1,898
Multi-family 0 1,217 1,758
Commercial real estate 549 230 1,147
--- --- -----
Total non-performing loans $ 1,752 $ 3,341 $ 4,803
Accruing loans which are 90 days or more past due 0 0 0
- - -
Total non-performing loans $ 1,752 $ 3,341 $ 4,803
======= ======= =======
Total as a percent of total assets 1.60% 3.04% 4.55%
Troubled debt restructurings 0 0 0
Real estate owned, net 274 385 1,314
--- --- -----
Total non-performing assets $ 2,026 $ 3,726 $ 6,117
======= ======= =======
===============================================================================================================
</TABLE>
Source: Atlantic Liberty, preliminary prospectus
- 23 -
<PAGE> 29
FELDMAN FINANCIAL ADVISORS, INC.
Table 8
ALLOWANCE FOR LOAN AND LEASE LOSSES
For the Six Month Periods Ended September 30, 1996 and 1997
And the Years Ended March 31, 1996 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
=================================================================================================================
(unaudited)
For the six months ended For the year ended
September 30, March 31,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 978 $ 745 $ 745 $ 619
Charge offs:
One-to-four family -- 90 318 58
Commercial real estate -- 47 220 91
-- -- --- --
Total Charge-offs -- 137 538 149
Provision for loan losses 105 66 771 275
--- -- --- ---
Balance at end of period $ 1,083 $ 674 $ 978 $ 745
- -----------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs during the period to
average loans outstanding during the period 0% 0.25% 0.96% 0.28%
=================================================================================================================
</TABLE>
Source: Atlantic Liberty, preliminary prospectus
- 24 -
<PAGE> 30
FELDMAN FINANCIAL ADVISORS, INC.
PROPERTIES
The Association conducts its business through two full-service banking
offices located in Brooklyn, New York. Exhibit II-7 provides a general summary
of the Association's offices. The Association owns both of its office
facilities. The net book value of the Association's premises, land and
equipment at September 30, 1997 totaled $1.5 million or 1.4% of total assets.
The Association operates an automated teller machine at each branch
location. The Association expects to continue its ongoing analysis to
determine the efficiency and effectiveness of its branches in delivering
services and products to the local community. The Association's branch network
generally comprises modest but efficient office facilities with favorable
locations and convenience. The Association currently has no plans to add
additional branch facilities, but will monitor feasible expansion
opportunities.
- 25 -
<PAGE> 31
FELDMAN FINANCIAL ADVISORS, INC.
SUBSIDIARIES
The Association has no subsidiary corporations.
- 26 -
<PAGE> 32
FELDMAN FINANCIAL ADVISORS, INC.
MARKET AREA
The Association's two offices are located in Brooklyn, with the main
office in Brooklyn Heights and the branch office in Flatbush, approximately 10
miles from the main office. The main office is located in what is considered
downtown Brooklyn, within the financial, legal and government complex in that
area. The branch office is located in one of the main business avenues
surrounded by middle income one- and two-family homes and some multi-family
apartment buildings.
The Association draws the majority of its business from the Brooklyn
Heights district surrounding its main branch and the Flatbush community
surrounding its branch office. The market area is characterized by a large
number of two- and three-family residences as well as a significant number of
multi-family dwellings and apartment complexes. To meet the needs of its
immediate lending area, the Association generates a number of multi-family and
commercial real estate loans.
Brooklyn is home to approximately 30% of the residents of New York
City and provides approximately 15% of New York City's jobs. The majority of
Brooklyn residents work in the borough of Manhattan. The largest industries in
Brooklyn include health and medical services, social services, apparel, food
stores, and wholesale trade/non-durable goods. The largest employers in
Brooklyn include Kings County Hospital, Brooklyn State Hospital, Long Island
University, and Brooklyn College.
Table 9 displays selected demographic data for the United States, the
state of New York, the New York City Metropolitan Statistical Area ("New York
City MSA") and Kings County (which is Brooklyn). Both Kings County and New
York show minimal negative projected poulation change in the next five years,
while the New York City MSA and the U.S. both show
- 27 -
<PAGE> 33
FELDMAN FINANCIAL ADVISORS, INC.
modest projected population growth. Income levels in Kings County are
projected to increase in line with the increase expected fort he U.S. and for
New York State.
Table 10 shows deposit trends for Brooklyn and the New York City MSA.
Table 11 shows deposit concentrations within Brooklyn. As of June 30, 1996,
Atlantic Liberty had a 0.4% market share of deposits and ranked 8 out of the
numerous financial institutions in Brooklyn. From 1994 to 1996, Atlantic
Liberty's deposits grew 7.4% compared to the overall decline of 0.3% in total
deposits in Brooklyn.
In summary, the Association's market area is characterized as a
metropolitan area with moderate incomes for the area, a stable population, and
moderate per capita growth expected. Competition for originating loans and
attracting deposits is intense and expected to escalate as merging financial
institutions seek to leverage combined resources and to advance their
competitive positions. In addition, non-depository competitors have
significantly penetrated the traditional customer base of thrifts and banks as
a result of the sustained performance of the stock market. However, the region
presents excellent opportunities for increasing a small financial institution's
customer base as more consolidations occur and community banks become
increasingly scarce. In addition, with its many close communities, Brooklyn is
an attractive market that can be served well by a community financial
institution such as Atlantic Liberty.
- 28 -
<PAGE> 34
FELDMAN FINANCIAL ADVISORS, INC.
TABLE 9
KEY ECONOMIC INDICATORS
United States, New York, New York City MSA, Kings County
<TABLE>
<CAPTION>
===============================================================================================
UNITED NEW YORK KINGS
KEY ECONOMIC INDICATORS STATES NEW YORK MSA COUNTY
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
POPULATION
- ----------
Total Population - 1997 267,240,272 18,177,296 8,647,379 2,268,241
5-year projection percent change 4.5% -0.1% 5.0% -1.7%
1990 - 1997 percent change 7.5% 1.0% 1.2% -1.4%
HOUSEHOLDS
- ----------
Total Households - 1997 98,741,200 66,684 3,274,724 810,706
5-year projection percent change 4.9% 0.0% 0.2% -1.8%
1990 - 1997 percent change 7.4% 0.7% 0.7% -2.1%
PER CAPITA INCOME
- -----------------
Per Capita Income - 1997 $18,885 $21,221 $22,734 $16,139
5-year projection percent change 21.7% 19.7% 21.2% 20.6%
1990 - 1997 percent change 31.2% 28.8% 31.0% 31.0%
AVERAGE HOUSEHOLD INCOME
- ------------------------
Average Household Income - 1997 $51 $57,084 $59,431 $44,844
5-year projection percent change 20.7% 18.3% 18.9% 19.9%
1990 - 1997 percent change 31.3% 29.1% 31.3% 31.7%
MEDIAN HOUSEHOLD INCOME
- -----------------------
Median Household Income - 1997 $37,079 $39,912 $38,147 $31,350
5-year projection percent change 13.1% 9.7% 8.8% 9.9%
1990 - 1997 percent change 23.2% 20.7% 20.2% 21.6%
===============================================================================================
</TABLE>
- 29 -
<PAGE> 35
FELDMAN FINANCIAL ADVISORS, INC.
Table 10
DEPOSIT TRENDS FOR BROOKLYN AND NEW YORK CITY MSA
For All Banks, Savings Banks, Thrifts and Credit Unions
Deposit Data as of June 30th Date
(Dollars in Thousands)
<TABLE>
<CAPTION>
==========================================================================================================
'94-'96 1996 1996
1994 1995 1996 PERCENT NO. OF AVG. DEPS
AREA DEPOSITS DEPOSITS DEPOSITS CHANGE OFFICES PER OFFICE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Brooklyn $25,768,569 $25,758,275 $25,753,943 -0.1% 337 $76,421
New York City MSA 230,231,027 223,887,546 237,134,268 3.0% 2,282 103,915
==========================================================================================================
</TABLE>
- 30 -
<PAGE> 36
FELDMAN FINANCIAL ADVISORS, INC.
TABLE 11
DEPOSIT MARKET SHARE FOR BROOKLYN
For Banks, Savings Banks, and Thrifts (and Excluding Credit Unions)
June 30, 1994 to June 30, 1996
<TABLE>
<CAPTION>
==================================================================================================================================
1996 1995 1994
--------------------- ------------------ ---------------------- 1994-1996
HOLDING CO. OR NUMBER OF DEPOSITS % OF DEPOSITS % OF DEPOSITS % OF GROWTH
INSTITUTION NAME BRANCHES TYPE ($000S) TOTAL ($000S) TOTAL ($000S) TOTAL RATE (%)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Chase Manhattan Corp 72 B $4,223,905 16.7% $4,275,354 16.9% $4,393,321 17.3% -3.9%
Dime Bancorp 24 SB 4,120,352 16.3% 4,181,634 16.5% 4,386,616 17.3% -6.1%
Republic NY Corp 34 B 3,758,827 14.8% 3,818,719 15.1% 4,076,399 16.1% -7.8%
Greenpoint Financial 16 SB 3,087,232 12.2% 3,416,368 13.5% 3,059,435 12.1% 0.9%
Citicorp 28 B 2,119,778 8.4% 2,040,018 8.0% 1,987,612 7.8% 6.6%
Independence Comm 18 SB 1,920,137 7.6% 1,889,264 7.5% 1,845,719 7.3% 4.0%
Astoria Financial Corp 9 T 1,372,721 5.4% 1,352,976 5.3% 1,396,909 5.5% -1.7%
Popular, Inc. 12 B 568,267 2.2% 523,918 2.1% 522,319 2.1% 8.8%
Dime Community Bancorp 6 SB 520,040 2.1% 158,236 0.6% 157,247 0.6% 230.7%
North Fork Bancorp 10 B 452,139 1.8% 445,766 1.8% 443,636 1.7% 1.9%
Emigrant Bancorp 3 SB 445,822 1.8% 438,195 1.7% 452,433 1.8% -1.5%
TR Financial 2 SB 438,306 1.7% 405,805 1.6% 338,433 1.3% 29.5%
Fleet Financial 15 B 384,252 1.5% 399,742 1.6% 410,270 1.6% -6.3%
First Empire State 4 B 346,949 1.4% 318,318 1.3% 226,874 0.9% 52.9%
HSBC Holdings PLC 5 B 292,346 1.2% 282,311 1.1% 265,934 1.0% 9.9%
ABN Amro No. Amer. 3 B 180,132 0.7% 170,743 0.7% 172,507 0.7% 4.4%
Carver Bancorp, Inc. 3 T 132,501 0.5% 131,358 0.5% 130,450 0.5% 1.6%
National Bank of Greece 2 B 126,537 0.5% 117,096 0.5% 104,922 0.4% 20.6%
Brooklyn Federal SB 2 T 112,906 0.4% 114,009 0.4% 117,118 0.5% -3.6%
Flatbush FS&L 3 T 101,129 0.4% 104,188 0.4% 109,574 0.4% -7.7%
Atlantic Liberty 2 T 96,906 0.4% 92,048 0.4% 90,191 0.4% 7.4%
All Others (37) 24 NA 511,412 2.0% 677,867 2.7% 696,358 2.7% -26.6%
-- ------- ---- ------- ---- ------- ---- ------
Total in Kings County 297 $25,312,596 100.0% $25,353,933 100.0% $25,384,277 100.0% -0.3%
==================================================================================================================================
</TABLE>
- 31 -
<PAGE> 37
FELDMAN FINANCIAL ADVISORS, INC.
SUMMARY
Atlantic Liberty has carved out a niche as a traditional,
community-oriented thrift offering primarily residential real estate mortgage
loans, including multi-family and commercial real estate loans. Going forward,
the Association will continue to serve its market area with loans tailored to
meet the unique needs of an urban area by offering mortgage products designed
for one-to-four family, multi-family and commercial real estate loans. The
Association will continue to offer deposit products for the retail customer.
In addition, the Association will closely monitor its credit requirements and
asset quality, maintaining its high credit standards while attracting new
customers. The sound capital position and recently increased reserve levels
serve as an important aspect of such risk management.
The Association's franchise is concentrated in Brooklyn, largely in
the Brooklyn Heights area. The Association's long-standing presence in the
local community provides it with a loyal customer base and a degree of market
penetration locally. It may be the case, however, that customers seeking a
full range of competitive products and services may not be content with the
Association's limited offerings as compared to other financial competitors. As
the Association seeks to manage both sides of the balance sheet, assets and
liabilities, it may face increased pressure to improve and expand its retail
banking franchise. Such action would require additional investment, but could
generate a cost-effective source of funds along with additional lending
business. On the other hand, the Association has a strong knowledge of its
local market area and may be able to continue to strengthen its niche in the
local community through superior customer service, community contacts and
products designed to meet the area's specific needs.
- 32 -
<PAGE> 38
FELDMAN FINANCIAL ADVISORS, INC.
II. COMPARISONS WITH PUBLICLY HELD COMPANIES
GENERAL
The comparative market approach provides a sound basis for determining
estimates of going-concern valuations where a regular and active market exists
for the stocks of peer institutions. The comparative market approach was
utilized in determining the estimated aggregate pro forma market value of
Atlantic Liberty because: (i) reliable market and financial data are readily
available for comparable institutions; (ii) the comparative market method is
required by the applicable regulatory guidelines; and (iii) other alternative
valuation methods (such as income capitalization, liquidation analysis, or
discounted cash flow) are unlikely to produce a valuation relevant to the
future trading patterns of the related equity interest. The generally employed
valuation method in initial public offerings, where possible, is the
comparative market approach, which also can be relied upon to determine pro
forma market value in an initial thrift stock offering.
The comparative market approach derives valuation benchmarks from the
trading patterns of selected peer institutions which due to certain factors,
such as financial performance and operating strategies, enable the appraiser to
estimate the potential value of the subject institution in a stock conversion
offering. The pricing and trading history of recent initial public offerings
of thrifts also are examined to provide any evidence of the new issue discount
that must be considered. In Chapter II, our valuation analysis focuses on the
selection and comparison of Atlantic Liberty with a comparable group of
publicly held thrifts (the "Comparative Group"). Chapter III details any
additional discounts or premiums we believe are appropriate to the
Association's pro forma conversion valuation.
-33-
<PAGE> 39
FELDMAN FINANCIAL ADVISORS, INC.
SELECTION CRITERIA
Selected market price and financial performance data for thrifts
listed on the New York and American Stock Exchanges and those thrifts traded on
the over-the-counter markets listed on the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") are shown in Exhibit III.
Several criteria were used to select the individual members of the Comparative
Group from the overall universe of publicly held thrifts.
- Operating characteristics - An institution's operating
characteristics are the most important factors because they affect
investors' expected rates of return on a company's stock under
various business/economic scenarios, and they influence the
market's general perception of the quality and attractiveness of a
given company. Operating characteristics, which may vary in
importance during the business cycle, include financial variables
such as profitability, balance sheet growth, capitalization, asset
quality, and other factors such as lines of business and
management strategies.
- Degree of marketability and liquidity - Marketability of a stock
reflects the relative ease and promptness with which a security
may be sold when desired, at a representative current price,
without material concession in price merely because of the
necessity of sale. Marketability also connotes the existence of
buying interest as well as selling interest and is usually
indicated by trading volumes and the spread between the bid and
asked price for a security. Liquidity of the stock issue refers
to the organized market exchange process whereby the security can
be converted into cash. We attempted to limit our selection to
companies that have access to a regular trading market. We
eliminated from the comparative group companies with market prices
that were materially influenced by publicly announced or widely
rumored acquisitions. However, the expectation of continued
industry consolidation is currently embedded in thrift and bank
stock valuations.
- Geographic Location - The region of the country where a company
operates is also of importance in selecting the comparative group.
The operating environment for savings institutions varies from
region to region with respect to business and economic
environments, real estate market conditions, speculative takeover
activity, and investment climates. Economic and investor climates
can also vary greatly within a region, particularly due to
takeover activity.
- 34 -
<PAGE> 40
FELDMAN FINANCIAL ADVISORS, INC.
The Association's lending operations conform to the typical lending
profile of a traditional thrift institution. The balance sheet of Atlantic
Liberty is concentrated heavily in residential mortgage loans. The
Association's modest earnings are lower than the average thrift. In determining
the Comparative Group composition, we focused on the Association's level of
earnings, asset size and capital as well as its residential real estate lending
activities. As with any composition of a group of comparable companies, the
identification process was broadened sufficiently to assemble a meaningful
number of candidates. Specifically, we initiated a search for companies by
applying the selection criteria identified below. Companies that met a
majority of the following parameters were considered for inclusion in the
Comparative Group:
- Asset size - total assets ranging between $60 million and $250
million.
- Capital level - regulatory capital ratios that would generally
qualify for well capitalized designation.
- Profitability - return on average assets ("ROAA") less than 90
basis points.
- Balance sheet composition - level of loans to assets greater than
35% and lower than 90%, accompanied by modest concentration of
non-earning assets with reliance upon deposits as the chief
funding source.
- Loan concentration - more than 50% of loans are residential
mortgage loans.
- Asset quality - ratio of non-performing assets to total assets
less than 2.25%.
- Geographic location - additional consideration given to companies
located in New York and surrounding states.
Our search for comparable publicly held thrifts initially targeted
well-capitalized, profitable thrifts with significant residential real estate
lending activities. Many public thrifts exhibited all of these distinct
operating and financial characteristics.
As a result of applying the aforementioned criteria and analyzing the
screening results, the selection process has produced a reliable representation
of publicly traded thrifts with operations
- 35 -
<PAGE> 41
FELDMAN FINANCIAL ADVISORS, INC.
comparable to those of Atlantic Liberty. A general overview of the 12 members
selected for the Comparative Group is presented in Table 12. The asset sizes
of the Comparative Group companies range from $69 million at Albion Banc Corp.
to $248 million at Skaneateles Bancorp Inc., with an overall average size of
$148 million. While some differences inevitably exist between the Association
and the individual companies, we believe that the chosen Comparative Group on
the whole provides a meaningful basis of comparison for valuation purposes.
- 36 -
<PAGE> 42
FELDMAN FINANCIAL ADVISORS, INC.
Table 12
COMPARATIVE GROUP OPERATING SUMMARY
As of the Latest Period Ended September 30, 1997
<TABLE>
<CAPTION>
Total Equity/
No. of Conv. Assets Assets
Company City State Offices Date ($000) (%)
------- ---- ----- ------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Atlantic Liberty Savings F.A. Brooklyn NY 2 -- 109,887 6.56
COMPARATIVE GROUP
- -----------------
Albion Banc Corp. (1) Albion NY 2 07/26/93 68,628 8.73
Broadway Financial Corp.(1) Los Angeles CA 3 01/09/96 122,245 10.75
Cecil Bancorp Inc. Elkton MD 2 11/10/94 64,313 11.57
Elmira Savings Bank (The)(1) Elmira NY 6 03/01/85 227,828 6.30
Great American Bancorp Champaign IL 3 06/30/95 139,568 20.43
HFS Bank FSB (1) Hobart IN 4 NA 153,775 7.56
LSB Financial Corp. Lafayette IN 4 02/03/95 200,266 8.63
Prestige Bancorp Inc. Pleasant Hills PA 4 06/27/96 137,834 11.21
SFS Bancorp Inc. Schenectady NY 4 06/30/95 174,093 12.47
Skaneateles Bancorp Inc. Skaneateles NY 9 06/02/86 247,643 7.00
Tappan Zee Financial Inc. Tarrytown NY 1 10/05/95 124,603 17.15
Westwood Financial Corp.(1) Westwood NJ 2 06/07/96 111,394 9.13
</TABLE>
(1) Financial data as of June 30, 1997.
- 37 -
<PAGE> 43
FELDMAN FINANCIAL ADVISORS, INC.
Table 13
KEY FINANCIAL COMPARISONS
ATLANTIC LIBERTY AND THE COMPARATIVE GROUP
As of the Twelve Months Ended September 30, 1997
<TABLE>
<CAPTION>
Comp.
Atlantic Group
Liberty Average
-------- -------
<S> <C> <C>
PROFITABILITY
- -------------
LTM Return on Average Assets (0.17)% 0.55 %
Core Return on Average Assets (2.65) 0.64
LTM Return on Average Equity (0.22) 5.31
Core Return on Average Equity (3.39) 6.28
INCOME AND EXPENSE (% of avg. assets)
- ------------------
Total Interest Income 7.08 7.46
Total Interest Expense 4.13 3.85
Net Interest Income 2.95 3.61
Provision for Loan Losses 0.75 0.13
Other Operating Income 0.56 0.39
Net Gains & Nonrecurring Income 0.05 0.01
General & Administrative Expense 2.62 2.79
Real Estate Expense (Income) 0.00 0.01
Nonrecurring Expense 0.00 0.16
YIELD-COST DATA
- ---------------
Yield on Earning Assets 7.43 7.76
Cost of Funds 4.56 4.47
---- ----
Net Interest Spread 2.87 3.29
ASSET UTILIZATION (% of avg. assets)
- -----------------
Avg. Interest-earning Assets 93.36 96.27
Avg. Interest-bearing Liabilities 90.26 86.06
----- -----
Net Interest-earning Assets 3.09 10.21
</TABLE>
- 38 -
<PAGE> 44
FELDMAN FINANCIAL ADVISORS, INC.
Table 13 (continued)
KEY FINANCIAL COMPARISONS
ATLANTIC LIBERTY AND THE COMPARATIVE GROUP
As of the Twelve Months Ended June 30, 1997
<TABLE>
<CAPTION>
Comp.
Atlantic Group
Liberty Average
-------- -------
<S> <C> <C>
BALANCE SHEET COMPOSITION (% of assets)
- -------------------------
Cash and Securities 37.86 % 23.85 %
Loans Receivable, net 59.59 72.72
Real Estate 0.32 0.21
Intangible Assets 0.00 0.12
Other Assets 0.65 3.10
Total Deposits 91.49 79.55
Borrowed Funds 0.00 8.49
Other Liabilities 1.95 1.05
Total Equity 6.56 10.91
LOAN PORTFOLIO (% of total loans)
- --------------
Residential Mortgage Loans 61.18 68.98
Other Real Estate Mortgage Loans 37.92 11.40
Nonmortgage Loans 0.03 19.62
GROWTH RATES
- ------------
Total Assets (0.34) 11.62
Total Loans 5.85 10.84
Total Deposits (0.46) 10.34
CREDIT RISK RATIOS
- ------------------
Nonperforming Loans / Total Loans 2.96 0.84
Nonperforming Assets / Total Assets 2.04 0.96
Reserves / Nonperforming Loans 54.97 90.23
Reserves / Total Loans 1.65 0.70
</TABLE>
- 39 -
<PAGE> 45
FELDMAN FINANCIAL ADVISORS, INC.
RECENT FINANCIAL COMPARISONS
Table 13 summarizes certain key financial comparisons between Atlantic
Liberty and the comparative group. Tables 14 through 18 contain detailed
financial comparisons of the Association with the individual Comparative Group
companies based on measures of profitability, income and expense components,
yield-cost structure, capital levels, credit risk, balance sheet composition,
and growth rates. Comparative financial data for both Atlantic Liberty and the
Comparative Group companies were utilized as of or for the last twelve months
("LTM") ended September 30, 1997.
Atlantic Liberty's ROAA was negative 0.17% as compared to the
Comparative Group's average ROAA of 0.55%. The Association's negative 0.22%
core ROAA (excluding gains on sale and other non-recurring items) also trailed
the Comparative Group's average core ROAA of 0.64%. In contrast to the
Comparative Group, the Association's profitability was restrained due to a
higher level of loan loss provisions, lower interest income and higher interest
expense. None of the members of the Comparative Group reported lower levels of
profitability than the Association. Only one other institution, Broadway
Financial Corp, reported negative ROAA and ROAE and Broadway Financial's core
ROAA and ROAE were positive.
The Association's net interest income of 2.95% relative to average
assets was positioned below the Comparative Group's average of 3.61%. The
Association's relatively low level of net interest income is attributable to
its high deposit to loan ratio and relatively low loan to asset ratio and its
comparatively lower capital base.
The Association's net interest rate spread was 2.87% over the observed
period, measuring below the Comparative Group's average of 3.29%. The
Association's cost of funds at 4.56%
- 40 -
<PAGE> 46
FELDMAN FINANCIAL ADVISORS, INC.
was only slightly higher than the Comparative Group's average of 4.47%. The
Association's yield on interest-earning assets measured 7.43%, somewhat below
the Comparative Group's average of 7.76%.
The Association's net interest-earning asset balance averaged 3.09% of
total assets and was positioned well below the Comparative Group's average of
10.21%. This disadvantage primarily reflected the Association's lower capital
level compared to the Comparative Group. The Association's 6.56% ratio of
equity to assets fell below the Comparative Group's average equity ratio of
10.91%.
The Association's non-interest operating income totaled 0.56% in
relation to average assets, higher than the Comparative Group's average of
0.39%. Atlantic Liberty enjoyed a benefit from gains on sale of foreclosed
real estate and from income from real estate operations.
The Association increased its level of provision for loan losses, as
explained in Chapter 1, in reaction to specific loans. The Comparative Group
exhibited varying levels of provisions, with an overall average of 0.13%
relative to average assets compared to the Association's 0.75%. The
Association had non-earning assets equal to 2.04% of average assets in
comparison to 0.96% for the Comparative Group on the whole. Atlantic Liberty's
reserves to total loans, at 1.65% of total loans was higher than the
Comparative Group's average of 0.70%. However, the Comparative Groups ratio of
reserves to non-performing loans, at 90.23% was higher than the Association's
ratio of 54.97%, due to the Association's higher level of non-performing loans.
The Association's 2.62% ratio of operating expense to average assets was lower
the Comparative Group average of 2.79%.
Total net loans at the Association amounted to 59.59% of assets at
Atlantic Liberty, slightly below the Comparative Group's average concentration
of 72.72%. The two companies
- 41 -
<PAGE> 47
FELDMAN FINANCIAL ADVISORS, INC.
exhibiting loan concentrations lower than the Association were Tappan Zee
Financial Inc. (46.02%) and Westwood Financial Corp. (36.95%). The
Association's holdings of cash and investment securities were 37.9% of total
assets, higher than the Comparative Group's average of 23.8%. Again, only
Tappan Zee Financial Inc. (51.66%) and Westwood Financial Corp. (60.51%) showed
higher concentrations of investment securities than the Association. The
Association's 61.2% proportion of one-to-four family residential mortgages to
total loans was slightly lower than the Comparable Group's average of 69.0%,
while the Association's ratio of other mortgage loans to loans, at 37.9%, is
higher than the Comparable Group's average of 11.4%. The Association had
virtually no non-mortgage loans compared to the Comparable Group's average of
19.6% of loans.
The Association's asset and deposit growth rates, at (0.34)% and
(0.46)% respectively, trailed the Comparative Group's averages of 11.62% and
10.34%, as did its 5.85% loan growth rate trail the Comparative Group's rate of
10.8%. The Association's recent loan growth has been internally generated with
an emphasis on selective origination of assets at attractive yields and with
prudent credit risk considerations.
In summary, the Association's earnings performance trailed that of the
Comparative Group. The Comparative Group's higher capital base provided
substantial source of interest-free funds not available to the Association. In
addition, the Comparative Group's net interest margin is higher than the
Association's and its asset quality is stronger. The Association has a higher
ratio of non-residential mortgages to loans and a lower ratio of total loans to
assets.
- 42 -
<PAGE> 48
FELDMAN FINANCIAL ADVISORS, INC.
===============================================================================
Table 14
GENERAL FINANCIAL PERFORMANCE RATIOS
As of or for the Latest Twelve Months Ended September 30, 1997
===============================================================================
<TABLE>
<CAPTION>
Total Tang. Total Net
Total Total Equity/ Equity/ NPAs/ Interest LTM LTM Core Core
Assets Deposits Assets Assets Assets Margin ROAA ROAE ROAA ROAE
($mil.) ($mil.) (%) (%) (%) (%) (%) (%) (%) (%)
------- -------- ------- ------- ------ -------- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ATLANTIC LIBERTY SAVINGS F.A 109,887 100,539 6.56 6.56 2.04 3.01 (0.17) (2.65) (0.22) (3.39)
COMPARATIVE GROUP AVERAGE 147,683 118,111 10.91 10.80 0.96 3.75 0.55 5.31 0.64 6.28
Albion Banc Corp. (1) 68,628 52,322 8.73 8.73 0.72 3.62 0.11 1.14 0.37 4.03
Broadway Financial Corp.(1) 122,245 107,550 10.75 10.75 2.06 4.62 (0.11) (0.95) 0.30 2.60
Cecil Bancorp Inc. 64,313 52,677 11.57 11.57 1.42 4.16 0.88 7.56 0.80 6.89
Elmira Savings Bank (The)(1) 227,828 207,386 6.30 6.05 0.66 3.76 0.36 5.70 0.35 5.53
Great American Bancorp 139,568 109,578 20.43 20.43 NA 4.36 0.53 2.38 0.59 2.65
HFS Bank FSB (1) 153,775 112,048 7.56 7.56 0.59 3.37 0.65 8.37 0.93 11.96
LSB Financial Corp. 200,266 135,494 8.63 8.63 1.05 3.51 0.78 8.67 0.69 7.65
Prestige Bancorp Inc. 137,834 90,066 11.21 11.21 0.33 3.24 0.62 5.10 0.62 5.11
SFS Bancorp Inc. 174,093 149,854 12.47 12.47 NA 3.48 0.69 5.45 0.69 5.45
Skaneateles Bancorp Inc. 247,643 208,156 7.00 6.81 1.78 4.04 0.70 10.32 0.68 9.99
Tappan Zee Financial Inc. 124,603 101,343 17.15 17.15 NA 3.84 0.85 4.87 0.84 4.76
Westwood Financial Corp.(1) 111,394 90,852 9.13 8.21 0.00 3.02 0.49 5.12 0.85 8.78
</TABLE>
Source: Atlantic Liberty; SNL Securities; Feldman Financial
(1) Data as of June 30, 1997.
- 43 -
<PAGE> 49
FELDMAN FINANCIAL ADVISORS, INC.
===============================================================================
Table 15
INCOME AND EXPENSE ANALYSIS
For the Latest Twelve Months Ended September 30, 1997
===============================================================================
<TABLE>
<CAPTION>
As a Percent of Average Assets
-----------------------------------------------------------------------------------------------------
Net Other Gains & Loan Gen. & Real Pretax
Interest Interest Interest Oper. Non-rec. Loss Admin. Estate Non-rec. Core
Income Expense Income Income Income Prov. Expense Expense Expense Earnings
-------- -------- -------- ------ -------- ----- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ATLANTIC LIBERTY SAVINGS F.A. 7.08 4.13 2.95 0.56 0.05 0.75 2.62 0.00 0.00 0.14
COMPARATIVE GROUP AVERAGE 7.46 3.85 3.61 0.39 0.01 0.13 2.79 0.01 0.16 1.05
Albion Banc Corp. (1) 7.51 4.06 3.46 0.42 0.02 0.22 3.15 (0.06) 0.43 0.57
Broadway Financial Corp.(1) 7.61 3.12 4.49 0.35 0.01 0.36 3.79 0.24 0.64 0.46
Cecil Bancorp Inc. 7.94 3.85 4.09 0.47 0.12 0.16 2.91 0.00 0.00 1.49
Elmira Savings Bank (The)(1) 7.61 4.02 3.58 0.77 0.02 0.18 3.54 (0.00) 0.00 0.61
Great American Bancorp 7.28 3.19 4.09 0.51 (0.09) 0.17 3.45 (0.01) 0.00 0.99
HFS Bank FSB (1) 7.73 4.47 3.26 0.44 (0.01) 0.05 2.14 (0.01) 0.42 1.52
LSB Financial Corp. 7.80 4.47 3.33 0.32 0.14 0.04 2.46 0.00 0.00 1.16
Prestige Bancorp Inc. 6.94 3.80 3.15 0.27 0.00 0.07 2.35 0.00 0.00 0.99
SFS Bancorp Inc. 7.20 3.82 3.39 0.23 0.00 0.07 2.55 (0.01) 0.00 1.01
Skaneateles Bancorp Inc. 7.68 3.87 3.81 0.66 0.03 0.19 3.26 0.02 0.00 0.97
Tappan Zee Financial Inc. 7.38 3.63 3.75 0.12 0.03 0.05 2.36 0.02 0.00 1.43
Westwood Financial Corp.(1) 6.88 3.95 2.93 0.16 (0.10) 0.02 1.56 0.00 0.45 1.41
</TABLE>
Source: Atlantic Liberty; SNL Securities; Feldman Financial
(1) Data as of June 30, 1997.
- 44 -
<PAGE> 50
FELDMAN FINANCIAL ADVISORS, INC.
===============================================================================
Table 16
YIELD-COST STRUCTURE AND GROWTH RATES
For the Latest Twelve Months Ended September 30, 1997
===============================================================================
<TABLE>
<CAPTION>
Avg. Avg. Net
Earn. Costing Earn. Yield on Cost Net Asset Loan Deposit
Assets/ Funds/ Assets/ Earn. of Interest Growth Growth Growth
Assets Assets Assets Assets Funds Spread Rate Rate Rate
------- ------- ------- -------- ----- -------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ATLANTIC LIBERTY SAVINGS F.A. 93.36 90.26 3.09 7.43 4.56 2.87 4.36 14.24 5.03
COMPARATIVE GROUP AVERAGE 96.27 86.06 10.21 7.76 4.47 3.29 11.62 10.84 10.34
Albion Banc Corp. (1) 95.37 88.19 7.18 7.88 4.60 3.28 18.77 4.02 10.14
Broadway Financial Corp.(1) 97.09 86.96 10.13 7.84 3.59 4.25 9.28 6.90 11.74
Cecil Bancorp Inc. 98.39 86.41 11.97 8.07 4.45 3.62 6.66 7.15 9.81
Elmira Savings Bank (The)(1) 95.37 86.69 8.68 7.98 4.64 3.34 2.09 6.08 0.47
Great American Bancorp 93.83 76.90 16.93 7.76 4.15 3.61 12.68 20.58 21.15
HFS Bank FSB (1) 96.73 91.07 5.66 7.99 4.90 3.09 12.27 14.60 13.61
LSB Financial Corp. 94.90 90.52 4.38 8.22 4.93 3.29 12.61 12.32 16.50
Prestige Bancorp Inc. 97.10 86.83 10.28 7.15 4.37 2.78 32.05 27.78 9.86
SFS Bancorp Inc. 97.24 86.05 11.19 7.41 4.44 2.97 4.86 NA 5.63
Skaneateles Bancorp Inc. 94.29 85.53 8.76 8.15 4.53 3.62 2.37 4.14 2.28
Tappan Zee Financial Inc. 97.76 80.32 17.44 7.54 4.51 3.03 3.95 4.05 11.34
Westwood Financial Corp.(1) 97.17 87.22 9.95 7.09 4.53 2.56 21.80 11.65 11.54
</TABLE>
Source: Atlantic Liberty; SNL Securities; Feldman Financial
(1) Data as of June 30, 1997.
- 45 -
<PAGE> 51
FELDMAN FINANCIAL ADVISORS, INC.
===============================================================================
Table 17
BALANCE SHEET COMPOSITION
As of the Latest Twelve Months Ended September 30, 1997
===============================================================================
<TABLE>
<CAPTION>
As a Percent of Total Assets
--------------------------------------------------------------------------------------------------
Cash & Net Real Intang. Other Total Borrowed Other Total Total
Securities Loans Estate Assets Assets Deposits Funds Liabs. Liabs. Equity
---------- ----- ------ ------- ------ -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ATLANTIC LIBERTY SAVINGS F.A. 37.86 59.59 0.32 0.00 0.65 91.49 0.00 1.95 93.44 6.56
COMPARATIVE GROUP AVERAGE 23.85 72.72 0.21 0.12 3.10 79.55 8.49 1.05 89.09 10.91
Albion Banc Corp. (1) 24.72 71.11 0.00 0.00 4.17 76.24 13.50 1.53 91.27 8.73
Broadway Financial Corp.(1) 15.72 80.05 1.31 0.00 2.92 87.98 0.00 1.27 89.25 10.75
Cecil Bancorp Inc. 12.66 85.26 0.27 0.00 1.81 81.91 5.14 1.38 88.43 11.57
Elmira Savings Bank (The)(1) 21.12 74.99 0.28 0.26 3.34 91.03 1.98 0.70 93.70 6.30
Great American Bancorp 14.99 78.62 0.00 0.00 6.40 78.51 0.00 1.06 79.57 20.43
HFS Bank FSB (1) 11.99 85.08 0.25 0.00 2.68 72.86 18.95 0.62 92.44 7.56
LSB Financial Corp. 8.92 87.77 0.00 0.00 3.31 67.66 23.32 0.39 91.37 8.63
Prestige Bancorp Inc. 29.45 67.62 0.01 0.00 2.91 65.34 22.62 0.83 88.79 11.21
SFS Bancorp Inc. 23.53 73.97 0.06 0.00 2.44 86.08 0.00 1.45 87.53 12.47
Skaneateles Bancorp Inc. 10.89 85.14 0.39 0.20 3.38 84.05 7.42 1.52 93.00 7.00
Tappan Zee Financial Inc. 51.66 46.02 0.00 0.00 2.32 81.33 0.00 1.52 82.85 17.15
Westwood Financial Corp.(1) 60.51 36.95 0.00 0.99 1.54 81.56 8.98 0.34 90.87 9.13
</TABLE>
Source: Atlantic Liberty; SNL Securities; Feldman Financial
(1) Data as of June 30, 1997.
- 46 -
<PAGE> 52
FELDMAN FINANCIAL ADVISORS, INC.
===============================================================================
Table 18
REGULATORY CAPITAL AND CREDIT RISK RATIOS
As of or for the Latest Twelve Months Ended September 30, 1997
===============================================================================
<TABLE>
<CAPTION>
Tangible Core Risk- Total Resid. Other Nonmtg.
Capital Capital based NPLs/ NPAs/ Resrvs./ Resrvs./ Mtgs./ Mtgs./ Loans/
Ratio Ratio Capital Loans Assets NPLs Loans Loans Loans Loans
-------- ------- ------- ------ ------- -------- -------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ATLANTIC LIBERTY SAVINGS F.A. 0.00 0.00 0.00 2.96 2.04 54.97 1.65 61.18 37.92 0.03
COMPARATIVE GROUP AVERAGE 8.59 8.37 14.74 0.84 0.96 90.23 0.70 68.98 11.40 19.62
Albion Banc Corp. (1) NA NA NA 1.01 0.72 53.94 0.54 87.69 4.47 7.84
Broadway Financial Corp.(1) 8.69 8.69 14.05 1.05 2.06 96.54 1.01 0.00 0.00 100.00
Cecil Bancorp Inc. 11.72 11.72 18.85 1.35 1.42 22.24 0.30 81.24 10.01 8.74
Elmira Savings Bank (The)(1) 6.04 6.04 9.19 0.49 0.66 172.63 0.85 41.91 13.43 44.66
Great American Bancorp NA NA NA NA NA NA 0.42 56.61 23.57 19.83
HFS Bank FSB (1) 7.56 7.56 12.97 0.40 0.59 161.91 0.66 78.46 16.06 5.48
LSB Financial Corp. 8.07 8.07 10.77 1.18 1.05 69.89 0.83 64.00 31.93 4.07
Prestige Bancorp Inc. 11.24 11.24 23.39 0.47 0.33 84.20 0.40 84.19 1.66 14.14
SFS Bancorp Inc. NA NA NA NA NA NA NA 95.42 4.10 0.48
Skaneateles Bancorp Inc. NA 6.79 10.04 1.62 1.78 60.52 0.98 68.28 15.74 15.99
Tappan Zee Financial Inc. NA NA NA NA NA NA 1.17 77.66 14.71 7.63
Westwood Financial Corp.(1) 6.84 6.84 18.68 - - NM 0.55 92.32 1.05 6.63
</TABLE>
Source: Atlantic Liberty; SNL Securities; Feldman Financial
(1) Data as of June 30, 1997.
- 47 -
<PAGE> 53
FELDMAN FINANCIAL ADVISORS, INC.
III. MARKET VALUE ADJUSTMENTS
This concluding chapter of the appraisal identifies certain
additional adjustments to Atlantic Liberty's estimated pro forma market value
relative to the Comparative Group selected in Chapter II. Adjustments are also
necessary to reflect the equity market's likely reception of a new thrift stock
offering under current conditions. The adjustments discussed in this chapter
are made from the viewpoints of potential investors, which include depositors
holding subscription rights exercisable in the Subscription Offering and
unrelated parties who may purchase stock in the Community Offering. It is
assumed that these potential investors are aware of all relevant and necessary
facts as they would pertain to the value of the Association relative to other
publicly held financial institutions and relative to alternative investments.
In determining the aggregate pro forma market value of the
Association pursuant to its Reorganization, we have assumed that the
Association would be valued, initially, based on a full standard conversion
and, subsequently, with the mutual holding company structure in place based on
a sale of a 46% minority ownership interest. Our appraised value is predicated
on a continuation of the current operating environment for the Association and
thrift institutions in general. Changes in the Association's operating
performance along with changes in the local and national economy, the stock
market, interest rates, the regulatory environment, and other external factors
may occur from time to time, often with great unpredictability, which could
impact materially the value of the Association or thrift stocks in general.
Therefore, the valuation range provided herein is subject to a more current
re-evaluation prior to the actual completion of the Stock Offering.
-48-
<PAGE> 54
FELDMAN FINANCIAL ADVISORS, INC.
In addition to the comparative operating fundamentals discussed
in Chapter II, it is important to address additional market value adjustments
based on certain financial and other criteria, which include, among other
factors:
(1) Earnings Prospects
(2) Market Area
(3) Management
(4) Dividend Policy
(5) Liquidity of the Issue
(6) Subscription Interest
(7) Stock Market Conditions
(8) New Issue Discount
(9) Mutual Holding Company Issues
EARNINGS PROSPECTS
Earnings prospects are dependent upon the sensitivity of asset
yields and liability costs to changes in market interest rates, the credit
quality of assets, the stability of non-interest components of income and
expense, and the ability to leverage the balance sheet. Each of the foregoing
is an important factor to investors in assessing earnings prospects. The
Association's earnings structure is predicated on the ability to manage the
expansion into higher risk, higher yielding loans at profitable spreads over
its cost of funds and operating expenses while maintaining strong credit
quality. Historically, the Association has operated as traditional thrift,
offering primarily one-to-four family residential loans. However, the bulk of
its recent loan origination activity has been concentrated in the commercial
and multi-family real estate lending sector.
The Association's profitability has been adversely affected over
the past two and one-half fiscal years by a below-average net interest margin,
increased loan loss provisions, and the one-time special SAIF assessment. In
contrast to its peers, the Association's net interest margin is restrained by a
comparatively low equity position and its funding dependency on higher costing
- 49 -
<PAGE> 55
FELDMAN FINANCIAL ADVISORS, INC.
certificate accounts as opposed to core deposits. In addition, the expanded
diversification of its loan portfolio has compelled the Association to guard
against broader credit exposure by fortifying its allowance for loan losses.
The Association's post-Reorganization capital level will be additionally
fortified to help the Association manage these business risks.
Although economic conditions in the Association's market area
are anticipated to remain stable, an unexpected business downturn or dramatic
interest rate increases could suppress the Association's ability to expand its
lending initiatives, disrupt asset quality, and strain earnings. Given the
Association's recent history of low profitability, these are significant risk
factors to Atlantic Liberty's capacity to generate sustainable and predictable
levels of profits. While the Reorganization will provide the Association with
additional capital, that capital must be marginally deployed to produce
earnings improvements above and beyond the additional costs associated with
being a publicly traded stock company. We believe that investors will view the
Association's recent earnings record as unproven in terms of generative
competitive results in the current operating environment. Therefore, we
believe a downward adjustment is necessary to reflect this factor.
MARKET AREA
The members of the Comparative Group are located primarily in
the Mid-Atlantic region of the country. Five are based in New York and one
each from New Jersey, Pennsylvania, and Maryland. The other four companies are
located in urban areas or suburbs of metropolitan areas. All of the
Comparative Group companies have a significant base of real estate mortgage
lending. The Association's primary market area is situated in a major
metropolitan area and characterized by moderate income levels and a stable
population base. We do not believe that, on the whole, the
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<PAGE> 56
FELDMAN FINANCIAL ADVISORS, INC.
market area conditions of the Comparative Group are materially different from
those facing the Association. Accordingly, we believe that no adjustment is
warranted for market area.
MANAGEMENT
Management's principal challenge is to generate profitable
results, monitor credit risks, and control operating costs while the
Association competes in an increasingly competitive financial services
environment. The Association's management team has been in place at the helm
for a relatively short time frame. A portion of this tenure has been directed
at improving the Association's operating systems and managing the higher risk
elements of the loan portfolio. With the Reorganization on the horizon,
management is prepared to demonstrate its effectiveness in implementing the
Association business strategies, maintaining the Association's competitive
profile in its lending markets, and promoting a favorable image within the
local community, which constitutes an important factor in cultivating local
depositor and borrower relationships. Accordingly, we assume that the
Association has sufficient managerial resources in place to implement its
operating goals and objectives. Therefore, we believe that no additional
adjustment is warranted.
DIVIDEND POLICY
The Company has no present plans to a pay a dividend on the
common stock after the Reorganization is completed. Dividends will be subject
to determination and declaration by the Board of Directors in its discretion,
which will take into account the Mutual Company's consolidated financial
condition and operating results, tax considerations, industry standards,
economic conditions, capital levels, regulatory restrictions on dividend
payment by the Association to the Stock Company, general business practices,
and other factors. All twelve of
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<PAGE> 57
FELDMAN FINANCIAL ADVISORS, INC.
the companies in the Comparative Group currently pay regular dividends.
Furthermore, payment of cash dividends has become commonplace among publicly
owned thrifts with relatively high capital levels. Given the lack of initial
intent by the Mutual Company to implement a regular dividend policy following
the Stock Offering, we believe that a downward adjustment is warranted.
LIQUIDITY OF THE ISSUE
Following the completion of the Stock Offering, the Mutual
Company intends to have its stock issue traded on the OTC Electronic Bulletin
Board. Ten of the twelve Comparative Group companies are traded on the Nasdaq
National Market, while one (Cecil Bancorp) is traded on the Bulletin Board and
another (HFS Bank FSB) is provided with price quotations on the "pink sheet"
service. There is no assurance that an active and liquid trading market will
develop for the Company's stock issue on the OTC Bulletin Board. Furthermore,
the relatively small market capitalization of the aggregate public stock to be
floated increases the consideration of a potentially illiquid stock issue.
Therefore, given these overall factors, we believe a downward adjustment should
be applied regarding the possible lack of stock liquidity.
SUBSCRIPTION INTEREST
In recent years, initial public offerings of thrift stocks have
attracted a great deal of investor interest. During 1996, increased pro forma
valuations and more restrained aftermarket performance did little to deter
investors from actively participating in thrift stock conversions. Almost
two-thirds of the conversions in 1996 were oversubscribed by depositors alone
with no shares remaining for community offerings. Contributing to this huge
demand is the growing
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<PAGE> 58
FELDMAN FINANCIAL ADVISORS, INC.
scarcity factor of mutual candidates for thrift stock conversions. The annual
number of conversion offerings and aggregate amount of gross proceeds have both
declined over past years.
The visibility of thrift conversions moved to the forefront once
again in late 1996 and early 1997 with the conversion of Roslyn Savings Bank,
which received orders totaling approximately $1.7 billion for an offering that
was ultimately valued at $424 million. Conversion activity has continued at a
brisk pace in 1997 on the heels of a record-setting stock market. Staten
Island Bancorp received orders of $817 million in November 1997 for its maximum
stock offering of $383 million, which contributed to a resolicitation at a
higher offering range. Notwithstanding the demand for thrift stocks in initial
offerings, a strong subscription does not always indicate that the valuation
range should be increased or the offering should be priced in the upper end of
the valuation range. Many conversion investors do not routinely purchase in
the after-market, particularly at higher stock prices or involving stock issues
with limited liquidity. As such, absent actual results of the Association's
Subscription Offering, we do not believe any adjustment is warranted at this
time.
STOCK MARKET CONDITIONS
Table 19 graphically displays the performance of the SNL Thrift
Index of all publicly traded thrifts and the SNL Thrift MHC Index as compared
to the Standard & Poor's 500-Stock Index ("S&P 500") over the past two years.
Both the SNL Thrift Index and SNL Thrift MHC Index have substantially
outperformed the S&P 500 during this period, advancing by 136.5% and 99.98%
respectively, since year-end 1995 through month-end November 1997 as compared
to the broader market S&P 500 Index up 55.1%.
Table 20 graphically depicts selected interest rate levels over
the past three years. General market interest rates declined throughout 1995
and propelled the stock market to new heights. Interest rates turned upward
during the first half of 1996, responding to concerns about inflationary
pressures. Thrift stocks, which had significantly outperformed the overall
market in
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<PAGE> 59
FELDMAN FINANCIAL ADVISORS, INC.
1995, trailed the broader market through mid-year of 1996. However, as
interest rates declined modestly and stabilized during the second half of 1996,
thrift stocks regained momentum and were sparked additionally by another wave
of mergers and acquisitions. Resolution of the SAIF recapitalization appeared
to break a logjam that resulted in the announcements of a number of
acquisitions of relatively large thrifts.
Speculation about higher rates and the sustainability of thrift
stock valuations stalled the rally in early 1997. The market sell-off was
prompted in part as reaction to suggestions from the Federal Reserve Chairman
that the stock market was overheated and that the central bank might raise
rates to head off inflation. However, a flurry of bank and thrift merger
activity during mid-1997 pumped further speculative fervor into thrift stocks.
Also, general interest levels remained stable over the past several months.
On October 27, 1997, investors sold off stocks in a frenzy as
turmoil in global securities markets spilled over into the U.S. market. The
Dow Jones Industrial Average dropped 554 points or 7.2%, representing the
largest one-day point decline in its history. Market observers generally
attributed the slide to fallout from recent disorder in global markets,
especially in Asia, where investors fear that economic troubles will hurt
profits of American companies with overseas interests. Many analysts also felt
that valuation levels for U.S. stocks had been bid up and were due for
correction. The SNL Thrift Index fell by 5.2% on this day, trailing the
decline of the broader S&P 500 at 6.9%. Spurred by unprecedented trading
volume, domestic stocks rebounded firmly in subsequent days as investors
pointed to the firm underpinning of the U.S. economy.
Through December 11, 1997, the S&P 500 has continued to
fluctuate due to the problems related to the Asian economies while the SNL
Thrift Index and SNL Thrift MHC Index have
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<PAGE> 60
FELDMAN FINANCIAL ADVISORS, INC.
continued to climb to record levels. On a year-to-date basis, the SNL Thrift
Index was up 62.8%, as compared to the S&P 500 at 28.9%. The SNL MHC Index has
advanced ahead of other thrift indices, registering a 101.6% increase through
December 11, 1997. Notwithstanding the spillover effect of merger activity,
many stock analysts believe that the financial sector is headed for more
sluggishness as valuation multiples continue to enter ground-breaking
territory, but operating fundamentals remain strong enough to avert a major
correction independent of the overall market.
- 55 -
<PAGE> 61
FELDMAN FINANCIAL ADVISORS, INC.
Table 19
COMPARATIVE STOCK MARKET PERFORMANCE
Month-end Index Data, Year-end 1995=100
<TABLE>
<CAPTION>
Dec-95 Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96
<S> <C> <C> <C> <C> <C> <C> <C>
ALL PUBLIC THRIFTS 100 98.45949535 99.22974768 101.4873838 101.0092961 101.7264276 102.8419655
S&P 500 100 103.2635168 103.9779185 104.805975 106.218542 108.6377659 108.8813119
ALL THRIFT MHCS 100 99.912759 102.8571429 101.308615 100.1090513 93.60959651 93.95856052
<CAPTION>
Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96
<S> <C> <C> <C> <C> <C> <C>
ALL PUBLIC THRIFTS 103.5590969 108.4462151 114.0239044 121.3014608 129.0305445 128.4462151
S&P 500 103.9129729 105.8613411 111.592791 114.5153434 122.9095632 120.2630297
ALL THRIFT MHCS 90.51254089 92.32279171 100.959651 103.9258451 113.5005453 117.3391494
<CAPTION>
Jan-97 Feb-97 Mar-97 Apr-97 May-97 Jun-97 Jul-97
<S> <C> <C> <C> <C> <C> <C> <C>
ALL PUBLIC THRIFTS 138.1407703 149.5618 140.16 142.68 153.49 165.87 181.81
S&P 500 127.6505926 128.3975 122.9 130.1 137.73 143.72 154.94
ALL THRIFT MHCS 127.742639 132.955289 130.9269357 128.1788441 137.1210469 149.1384951 163.7949836
<CAPTION>
Aug-97 Sep-97 Oct-97 Nov-97
<S> <C> <C> <C> <C>
ALL PUBLIC THRIFTS 176.52 195.88 199.84 199.877504
S&P 500 146.05 153.81 148.5 155.124
ALL THRIFT MHCS 185.7579062 213.3478735 232.431843 236.4998625
</TABLE>
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<PAGE> 62
FELDMAN FINANCIAL ADVISORS, INC.
Table 20
SELECTED INTEREST RATE BENCHMARKS
Month-end Indicators
<TABLE>
<CAPTION>
Dec-94 Jan-95 Feb-95 Mar-95 Apr-95 May-95 Jun-95 Jul-95 Aug-95 Sep-95 Oct-95 Nov-95 Dec-95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIME RATE 8.5 8.5 9 9 9 9 9 8.75 8.75 8.75 8.75 8.75 8.55
FNMA FIXED MTG. 9.28 8.99 8.55 8.64 8.46 7.8 7.84 7.97 7.82 7.76 7.6 7.37 7.1528
1-YR. TREASURY 6.73 6.39 6.04 6.09 5.93 5.47 5.34 5.34 5.33 5.35 5.26 5.08 4.8935
<CAPTION>
Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIME RATE 8.5 8.25 8.25 8.25 8.25 8.25 8.25 8.25 8.25 8.25 8.25 8.25
FNMA FIXED MTG. 7.11 7.64 7.91 8.19 8.34 8.19 8.26 8.37 8.15 7.81 7.62 7.84
1-YR. TREASURY 4.66 4.96 5.12 5.33 5.45 5.38 5.53 5.6 5.4 5.14 5.1 5.22
<CAPTION>
Jan-97 Feb-97 Mar-97 Apr-97 May-97 Jun-97 Jul-97 Aug-97 Sep-97 Oct-97 Nov-97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIME RATE 8.25 8.25 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5
FNMA FIXED MTG. 7.85 7.93 8.24 8.06 7.98 7.76 7.38 7.64 7.44 7.3 7.28
1-YR. TREASURY 5.3 5.37 6 5.9 5.77 5.66 5.42 5.56 5.44 5.35 5.35
</TABLE>
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<PAGE> 63
FELDMAN FINANCIAL ADVISORS, INC.
RECENT ACQUISITION ACTIVITY
Acquisition speculation is one factor impacting the prices of
newly converted thrifts in the after-market. Table 21 summarizes recent
acquisition activity involving thrifts and banks based in New York. Overall
acquisition premiums for New York financial institutions have been similar to
the ratios reported nationwide. During 1996 and 1997 year-to-date, there were
16 acquisitions involving New York banks and thrifts. Much of the acquisition
activity involved sales of mid-sized to large thrifts in the New York City and
Rochester metropolitan areas. Consistent with nationwide trends, acquisition
values for New York banks and thrifts advanced noticeably higher in 1997 versus
1996.
The state's financial institution deposit marketplace comprises
a large number of middle-tier banks and thrifts. Larger institutions, such as
Chase Manhattan, Citicorp, Bank of New York, and Republic New York, have
continued to grow aggressively statewide. In addition, newcomers such as First
Union, Fleet Financial, and Charter One have staked out selected market
territories. Because of the relatively large number of independent, mid-tier
stockholder-owned institutions, consolidation activity is expected to continue
in New York. We believe that while acquisition premiums are a significant
factor to consider in determining the Association's estimated pro forma market
value, such speculative behavior is reflected to some degree in the general
trading valuation levels of thrift stocks. Furthermore, because of its mutual
holding company organizational structure, the Association will be shielded from
acquisition activity. We do not believe any adjustment is warranted at this
time.
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<PAGE> 64
FELDMAN FINANCIAL ADVISORS, INC.
Table 21
SUMMARY OF RECENT NEW YORK ACQUISITION ACTIVITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Seller Financial Data
-----------------------------------------
Total TanEq./ YTD YTD
Bank/ Assets Assets ROAA ROAE
Buyer St. Seller St. Thrift ($M) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALL NEW YORK ACQUISITIONS -- 1997 AVERAGE 1,742 9.35 0.79 9.48
ALL NEW YORK ACQUISITIONS -- 1996 AVERAGE 2,015 7.09 0.80 11.33
First Empire State NY ONBANCorp Inc. NY B 5,532 5.88 0.91 14.69
HUBCO, Inc NJ Poughkeepsie Finl NY T 880 8.37 0.54 6.43
North Fork Bancorp NY New York Bancorp NY T 3,284 5.08 1.61 30.99
Commercial Bank-NY NY First Bank -Americas NY B 445 8.15 0.01 0.15
Pathfinder Bancorp NY Oswego County SB NY B 114 10.26 (0.76) (7.74)
Private Investor FO Chinese American Bk NY B 338 23.23 1.02 4.41
Charter One Fin'l OH RCSB Financial NY T 4,032 7.85 0.96 12.26
Reliance Bancorp Inc NY Continental Bank NY B 173 7.10 1.61 20.79
Flushing Financial NY New York FSB NY T 82 9.34 1.32 3.59
Astoria Financial Cp NY Greater New York SB NY T 2,542 8.25 0.72 9.20
Dime Bancorp NY BFS Bankorp, Inc. NY T 643 7.81 1.58 20.12
Safra Holdings NY United Mizrahi B&TC NY B 307 6.87 0.37 5.35
Excel Bank NA NY Union Chelsea NB NY B 195 7.62 0.01 0.08
HSBC Holdings Plc FO First FSLA-Rochester NY T 7,348 5.41 0.75 13.91
North Fork Bancorp NY North Side SB NY T 1,580 7.74 1.29 17.19
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Acquisition Ratios
--------------------------------------
Offer Price/ Price/ Price/ Dep.
Date Status Value Book TanBk. EPS Prem.
Buyer St. Seller St. Anncd. (1) ($M) (%) (%) (x) (%)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ALL NEW YORK ACQUISITIONS -- 1997 AVERAGE 389 213.6 221.3 21.7 14.7
ALL NEW YORK ACQUISITIONS -- 1996 AVERAGE 253 160.7 161.6 18.1 7.4
First Empire State NY ONBANCorp Inc. NY 10/28/97 P 880 262.4 275.0 18.4 18.7
HUBCO, Inc NJ Poughkeepsie Finl NY 10/23/97 P 144 181.4 181.4 48.2 13.4
North Fork Bancorp NY New York Bancorp NY 10/07/97 P 832 480.1 480.1 20.0 43.8
Commercial Bank-NY NY First Bank -Americas NY 09/05/97 C 48 132.4 143.0 NA 4.1
Pathfinder Bancorp NY Oswego County SB NY 09/05/97 P NA NA NA NA NA
Private Investor FO Chinese American Bk NY 07/23/97 P 40 133.3 133.3 10.2 4.7
Charter One Fin'l OH RCSB Financial NY 05/21/97 C 648 198.1 203.2 17.1 16.1
Reliance Bancorp Inc NY Continental Bank NY 05/05/97 C 26 198.2 237.2 NA 12.3
Flushing Financial NY New York FSB NY 04/25/97 C 13 169.1 170.5 13.1 10.4
Astoria Financial Cp NY Greater New York SB NY 03/31/97 C 345 167.4 167.4 24.6 8.5
Dime Bancorp NY BFS Bankorp, Inc. NY 12/03/96 C 92 169.4 169.4 9.9 10.3
Safra Holdings NY United Mizrahi B&TC NY 10/24/96 C 30 142.0 142.0 37.9 5.0
Excel Bank NA NY Union Chelsea NB NY 09/10/96 C NA NA NA NA NA
HSBC Holdings Plc FO First FSLA-Rochester NY 08/22/96 C 652 163.0 165.1 12.8 6.1
North Fork Bancorp NY North Side SB NY 07/15/96 C 216 168.5 170.1 11.8 8.0
</TABLE>
(1) P = pending; C = completed.
- 59 -
<PAGE> 65
FELDMAN FINANCIAL ADVISORS, INC.
NEW ISSUE DISCOUNT
A "new issue" discount that reflects investor concerns and
investment risks inherent in all initial stock offerings is a factor to be
considered in valuations of initial thrift stock offerings. The magnitude of
the new issue discount typically expands during periods of declining thrift
stock prices as investors require larger inducements, and narrows during strong
market conditions.
The thrift conversion market continues to respond to the
after-market performance of recent offerings. Table 22 presents a summary of
publicly traded thrifts that have completed standard conversions since January
1, 1997. While the overall stock market performance during the second half of
1997 slowed compared to the first half, the market for thrift conversions has
continued to gain momentum. After-market performance in the second half of
1997 has outpaced the performance of the first half of 1997 even though pro
forma pricing valuations have increased.
Recently, the thrift conversion market has proven to be
resilient with the typical offering selling out in the subscription phase and
being priced at or near the adjusted maximum of the valuation range. With
valuations increasing to reflect the strength of recent offerings, it is
uncertain when the market will reach its tolerance for higher valuations
accompanied by the prospect of companies generating lackluster returns on
equity. The average price/book ratio for the thirty-one publicly traded
conversions completed thus far in 1997 was 71.1% and the average price/earnings
ratio was 22.1x.
In the after-market, full conversions have been trading upward
to and above 90% of book value. To price a new offering at 90% of pro forma
book value, because of the
- 60 -
<PAGE> 66
FELDMAN FINANCIAL ADVISORS, INC.
Table 22
RECENT THRIFT CONVERSION ACTIVITY
Summary of 1997 Offerings Year-to-Date
<TABLE>
<CAPTION>
=================================================================================================================================
Pro Forma Ratios
Gross Expense/ -------------------
Total Offering Gross Price/ Price/
IPO Assets Proceeds Proceeds Book Earnings
Company St. Exchange Date ($M) ($M) (%) (%) (x)
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE -- FULL CONVERSION OFFERINGS 196 40.8 4.2 # 71.1 22.1
AVERAGE -- MHC OFFERINGS 133 8.6 5.3 102.6 24.9
AVERAGE -- 2ND STAGE OFFERINGS 348 30.3 NA NA NA
High Country Bancorp, Inc. CO NASDAQ 12/10/97 76 13.2 4.4 77.7 30.5
First SecurityFed Financial IL NASDAQ 10/31/97 260 64.1 1.5 73.4 21.3
Oregon Trail Financial Corp. OR NASDAQ 10/06/97 204 46.9 2.3 76.6 18.5
Roebling Savings Bank (MHC) NJ OTC-BB 10/02/97 34 2.0 7.7 102.0 26.3
SHS Bancorp Inc. PA NASDAQ 10/01/97 82 8.2 5.6 70.7 13.9
Ohio State Financial Services OH NASDAQ 09/29/97 34 6.3 5.4 63.3 17.0
Citizens Bancorp Inc. IN OTC-BB 09/18/97 45 10.6 4.6 73.5 18.4
WSB Holding Co. PA OTC-BB 08/29/97 33 3.3 8.5 71.4 NA
Bayonne Bancshares Inc. (2nd stage) NJ NASDAQ 08/22/97 602 48.7 NA NA NA
Peoples Home Savings Bk (MHC) PA NASDAQ 07/10/97 202 12.4 4.7 106.2 30.1
FirstSpartan Financial Corp. SC NASDAQ 07/09/97 376 88.6 1.6 73.0 26.0
GSB Financial Corp. NY NASDAQ 07/09/97 96 22.5 4.1 73.4 23.2
FirstBank Corp. ID NASDAQ 07/02/97 133 19.8 3.5 71.9 19.2
Community First Banking Co. GA NASDAQ 07/01/97 353 48.3 2.9 72.7 36.1
Montgomery Financial Corp. (2nd stage) IN NASDAQ 07/01/97 94 11.9 NA NA NA
Security Bancorp, Inc. TN OTC-BB 06/30/97 44 4.4 6.9 72.9 18.1
Sistersville Bancorp Inc. WV OTC-BB 06/26/97 26 6.6 6.8 65.4 26.7
SFB Bancorp Inc. TN OTC-BB 05/30/97 47 7.7 5.2 69.6 17.7
Rocky Ford Financial Inc. CO Pink Sheet 05/22/97 20 4.2 8.3 68.8 17.7
HCB Bancshares Inc. AR NASDAQ 05/07/97 171 26.5 2.8 72.0 29.0
Peoples-Sidney Financial Corp. OH NASDAQ 04/28/97 87 17.9 3.2 71.2 11.5
First Carnegie Deposit (MHC) PA NASDAQ 04/04/97 136 10.4 3.9 98.8 NM
Pulaski Savings Bank (MHC) NJ NASDAQ 04/03/97 159 9.5 5.0 103.2 18.2
Hemlock Federal Financial Corp IL NASDAQ 04/02/97 147 20.8 3.1 71.6 37.5
GS Financial Corp. LA NASDAQ 04/01/97 87 34.4 2.4 63.8 38.7
Market Financial Corp. OH NASDAQ 03/27/97 46 13.4 3.5 71.1 26.2
Vermilion Bancorp Inc. IL OTC-BB 03/26/97 35 4.0 7.2 71.4 NA
Empire Federal Bancorp Inc. MT NASDAQ 01/27/97 87 25.9 2.4 68.1 21.5
FirstFed America Bancorp Inc. MA AMSE 01/15/97 724 87.1 2.4 72.0 13.6
Roslyn Bancorp Inc. NY NASDAQ 01/13/97 1,597 423.7 2.2 72.0 9.3
Advance Financial Bancorp WV NASDAQ 01/02/97 92 10.8 4.5 71.1 16.8
<CAPTION>
=====================================================================================================================
Current 1st Day 1st Day YTD
IPO Stock Price/ Price Price
Price Price Book Change Change
Company St. ($) ($) (%) (%) (%)
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
AVERAGE -- FULL CONVERSION OFFERINGS 10.8 17.8 102.8 44.4 63.2
AVERAGE -- MHC OFFERINGS NA NA 137.6 34.1 84.4
AVERAGE -- 2ND STAGE OFFERINGS NA NA NA 14.4 25.6
High Country Bancorp, Inc. CO 10.00 14.75 112.2 44.4 47.5
First SecurityFed Financial IL 10.00 15.19 110.6 50.6 51.9
Oregon Trail Financial Corp. OR 10.00 16.13 128.4 67.5 61.3
Roebling Savings Bank (MHC) NJ 10.00 17.75 168.3 65.0 77.5
SHS Bancorp Inc. PA 10.00 15.75 104.3 47.5 57.5
Ohio State Financial Services OH 10.00 15.25 98.2 55.0 52.5
Citizens Bancorp Inc. IN 10.00 14.31 102.9 40.0 43.1
WSB Holding Co. PA 10.00 14.37 96.4 35.0 43.7
Bayonne Bancshares Inc. (2nd stage) NJ 10.00 12.63 NA 17.5 26.3
Peoples Home Savings Bk (MHC) PA 10.00 18.38 148.7 40.0 83.8
FirstSpartan Financial Corp. SC 20.00 37.94 133.9 83.4 89.7
GSB Financial Corp. NY 10.00 15.75 107.4 46.3 57.5
FirstBank Corp. ID 10.00 17.00 113.7 58.1 70.0
Community First Banking Co. GA 20.00 37.50 115.9 59.4 87.5
Montgomery Financial Corp. (2nd stage) IN 10.00 12.50 NA 11.3 25.0
Security Bancorp, Inc. TN 10.00 15.81 105.6 45.0 58.1
Sistersville Bancorp Inc. WV 10.00 15.13 89.9 37.5 51.3
SFB Bancorp Inc. TN 10.00 14.50 96.1 38.1 45.0
Rocky Ford Financial Inc. CO 10.00 14.25 128.7 87.1 42.5
HCB Bancshares Inc. AR 10.00 13.50 90.8 26.3 35.0
Peoples-Sidney Financial Corp. OH 10.00 18.00 89.5 25.6 80.0
First Carnegie Deposit (MHC) PA 10.00 18.63 114.8 16.3 86.3
Pulaski Savings Bank (MHC) NJ 10.00 19.00 118.6 15.0 90.0
Hemlock Federal Financial Corp IL 10.00 17.13 92.2 28.8 71.3
GS Financial Corp. LA 10.00 17.56 85.3 33.8 75.6
Market Financial Corp. OH 10.00 15.13 91.9 29.4 51.3
Vermilion Bancorp Inc. IL 10.00 13.50 88.3 23.8 35.0
Empire Federal Bancorp Inc. MT 10.00 17.00 90.2 32.5 70.0
FirstFed America Bancorp Inc. MA 10.00 20.56 98.1 36.3 105.6
Roslyn Bancorp Inc. NY 10.00 22.06 108.0 50.0 120.6
Advance Financial Bancorp WV 10.00 17.75 91.5 28.8 77.5
</TABLE>
- 61 -
<PAGE> 67
FELDMAN FINANCIAL ADVISORS, INC.
mathematics of the calculation, would require dramatic increases in capital and
produce very marginal returns on equity. This would likely produce price
declines in the after-market. Accordingly, thrift conversions continue to be
priced at discounts to publicly traded companies. This is due to the
relatively high pro forma equity ratios, expected low returns on equity, and
the uncertainty regarding the ability of an institution to leverage the balance
sheet. These are especially relevant issues to the Association given that it
is already well capitalized.
Investors are aware that at pro forma price/book ratios
approaching the current trading range of a majority of public thrifts,
price/earnings ratios of converting thrifts would be excessive, returns on
equity very low, and capital levels dramatically high. Standard thrift
conversions are being discounted by 30% to 40% relative to the overall market
based upon price/book measures and at lesser discounts based upon the
price/earnings ratios.
MUTUAL HOLDING COMPANY ISSUES
Market evidence indicates that minority ownership interests are
discounted to majority ownership interests, which convey the ability to effect
changes, influence business policies, and transfer control. In the thrift MHC
ownership structure, public shareholders hold an aggregate minority ownership
interest that is subordinate to the MHC. However, the governing board of the
MHC is quite often similar to that managing the subsidiary bank. Furthermore,
the public shareholders in a fully converted thrift offering also assume a
minority ownership role since there are limitations on the purchase and
accumulation of stock interests.
The most significant impediment that the MHC poses is the
ability to avert a sale of control by acquisition. Until recent, the trading
activity of other publicly held MHCs indicated that this inability to be
acquired suppressed the comparative market valuation of MHCs versus
- 62 -
<PAGE> 68
FELDMAN FINANCIAL ADVISORS, INC.
fully converted thrift stock issues. However, the anticipation of second-stage
conversion announcements, the strong advancements posted by MHCs in general,
and a growing cadre of research analysts advancing the investment attributes of
MHC from prior trading levels have combined to propel MHC stock price
performance in 1997. On a fully converted basis, we have determined that
thrift MHCs are trading at comparable price/earnings ratios to the overall
thrift stock norm, but at discounts on a price/book basis. This discount is
not so much a qualitative abstraction but rather a recognition that the
resulting high pro forma capital ratios have a restraining impact on the
price/book measure. Many MHCs have completed full second-stage conversions
within a relatively short time frame. As previously noted, the imminent
expectation of second-stage offerings has resulted in speculative upward price
movements of current MHCs. Overall, we do not believe that an adjustment is
warranted for these combination of factors.
ADJUSTMENTS CONCLUSION
Individual discounts and premiums are not necessarily additive
and may, to some extent, offset or overlay each other. Currently, conversions
are generally priced at substantial discounts to peer institutions relative to
price/book ratios, but at lesser discounts to the comparable institutions'
price/earnings ratios. It is the role of the appraiser to balance the relative
dynamics of price/book and price/earnings discounts and premiums. We believe
that relative to the Comparative Group, the Association's pro forma valuation
measures should be discounted on the basis of earnings prospects, initial
dividend policy, and the new issue discount encountered by higher capitalized
companies on a price/book basis.
- 63 -
<PAGE> 69
FELDMAN FINANCIAL ADVISORS, INC.
VALUATION APPROACH
Table 23 displays the market price and valuation data of the
Comparative Group, all publicly traded thrifts and all MHCs as of December 11,
1997. Table 23 also includes the Association's pro forma valuation ratios on a
full conversion and MHC offering basis. Table 24 provides a summary of the
relative magnitude of valuation ratio discounts and premiums. Exhibit IV
displays the pro forma conversion assumptions and calculations utilized in
analyzing the Association's valuation ratios.
Investors continue to make decisions to purchase thrift
conversion stocks and more seasoned thrift issues based primarily upon
consideration of price/earnings ratio comparisons and secondarily, price/book
valuations. As evidenced by the trading valuation ratios of such Comparative
Group members with average earnings results, the price/earnings ratio functions
as a reliable valuation benchmark for companies with differing capital levels.
The Association's reported earnings results for the last twelve months are
unusually low due to increased loan loss provisions and tax timing differences.
Thus, we have relied on the quarterly earnings results for the three months
ended September 30, 1997 as a more normalized earnings stream. On an
annualized basis, the Association produced net income of $520,000 for the
recent quarter.
Utilizing a discount of approximately 20% to the corresponding
Comparative Group average price/earning ratio, the Association's resulting pro
forma price/earnings ratio at the midpoint is 13.7x, reflecting a full
conversion value of $10.0 million. The resulting maximum price/earnings ratios
of 15.2x and an adjusted maximum of 16.9x produce full conversion values of
$11.5 million and $13.2 million, respectively. At the adjusted maximum
valuation level, where most thrift offerings are being closed in the current
market environment, the Association's price/earnings ratio is positioned at the
Comparative Group's average price/earnings ratio of
- 64 -
<PAGE> 70
FELDMAN FINANCIAL ADVISORS, INC.
16.8x for the recent quarter. We believe that this is an appropriate discount
given the level of earnings performance evidenced by the Association and the
Comparative Group on the whole.
The Association's resulting pro forma price/book ratios of 69.6%
at the maximum and 73.8% at the adjusted maximum represent significant
discounts to the Comparative Group's average price/book ratio of 126.5%.
However this disparity is distorted by the differing levels of capital. On a
full conversion basis, the Association's equity to assets ratio would measure
13.86% at the maximum valuation and 14.86% at the adjusted maximum. Among the
Comparative Group companies, only Great American Bancorp and Tappan Zee
Financial exhibited higher equity ratios. The Association's price/assets
ratios of 9.65% at the maximum and 10.97% at the adjusted maximum valuation
trailed the Comparative Group's average price/assets ratio of 13.77%.
VALUATION CONCLUSION
It is our opinion that, as of December 11, 1997, the aggregate
estimated pro forma market value of the Association was within the valuation
range of $8,500,000 to $11,500,000 with a midpoint of $10,000,000. The
valuation range was based upon a 15 percent decrease from the midpoint to
determine the minimum and a 15 percent increase to establish the maximum.
Assuming an additional 15 percent increase above the maximum value results in
an adjusted maximum of $13,225,000. Exhibit IV displays the conversion
calculations and assumptions utilized in determining the Association's
estimated pro forma market value on a full conversion basis and on the MHC
Reorganization basis. The Board of Directors has determined to offer for sale
in the Reorganization a minority ownership interest equal to 46% of all the
common stock to be issued and outstanding. Therefore, the total amount of
common stock to be sold in the
- 65 -
<PAGE> 71
FELDMAN FINANCIAL ADVISORS, INC.
Reorganization will be equal to $3,910,000 at the minimum valuation, $4,600,000
at the midpoint valuation, $5,290,000 at the maximum valuation, and $6,083,500
at the adjusted maximum.
- 66 -
<PAGE> 72
FELDMAN FINANCIAL ADVISORS, INC.
Table 23
COMPARATIVE VALUATION ANALYSIS
Atlantic Liberty and the Comparative Group
Market Price Data as of December 11, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Current Total Price/ Price/ Price/ Price/ Price/ Total Current
Stock Market LTM Qtr. Book Tang. Total Equity/ Dividend
Price Value EPS(1) EPS(1) Value Book Assets Assets Yield
Company ($) ($M) (x) (x) (%) (%) (%) (%) (%)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ATLANTIC LIBERTY:
MHC OFFERING VALUATION
----------------------
PRO FORMA ADJ. MAXIMUM 10.00 13.2 NM 20.3 110.4 110.4 11.53 10.45 NA
PRO FORMA MAXIMUM 10.00 11.5 NM 18.1 101.8 101.8 10.09 9.91 NA
PRO FORMA MIDPOINT 10.00 10.0 NM 16.1 93.5 93.5 8.82 9.43 NA
PRO FORMA MINIMUM 10.00 8.5 NM 14.3 84.2 84.2 7.54 8.95 NA
FULL CONVERSION VALUATION
-------------------------
PRO FORMA ADJ. MAXIMUM 10.00 13.2 NM 16.9 73.8 73.8 10.97 14.86 NA
PRO FORMA MAXIMUM 10.00 11.5 NM 15.2 69.6 69.6 9.65 13.86 NA
PRO FORMA MIDPOINT 10.00 10.0 NM 13.7 65.3 65.3 8.48 12.97 NA
PRO FORMA MINIMUM 10.00 8.5 NM 12.1 60.3 60.3 7.28 12.07 NA
COMPARATIVE GROUP AVERAGE -- 20.4 18.7 16.8 125.7 126.5 13.77 11.03 1.58
ALL PUBLIC THRIFT AVERAGE -- 215.5 17.5 16.9 154.3 160.1 18.40 13.00 1.43
NEW YORK PUBLIC THRIFT AVG. -- 452.0 19.4 18.7 160.6 178.8 18.34 11.90 1.40
Comparative Group
-----------------
Albion Banc Corp. 28.00 7.0 21.1 18.9 115.5 115.5 9.89 8.56 1.14
Broadway Financial Corp. 13.00 10.8 33.3 29.6 88.0 88.0 8.66 10.57 1.54
Cecil Bancorp Inc. 19.50 9.2 15.9 12.8 123.3 123.3 14.26 11.57 2.05
Elmira Savings Bank (The) 30.00 22.3 23.1 16.3 149.5 153.5 9.75 6.20 2.03
Great American Bancorp 18.50 31.4 47.4 35.6 100.3 100.3 22.49 20.43 2.16
HFS Bank FSB 16.75 15.1 11.5 10.7 127.0 127.0 9.82 7.73 2.63
LSB Financial Corp. 27.75 25.4 16.6 15.1 137.1 137.1 12.70 8.63 1.23
Prestige Bancorp Inc. 19.25 17.6 21.2 20.1 114.0 114.0 12.78 11.21 0.62
SFS Bancorp Inc. 24.50 30.2 24.8 24.5 138.9 138.9 17.32 12.47 1.14
Skaneateles Bancorp Inc. 18.75 26.9 15.9 15.6 155.0 159.6 10.86 6.81 1.42
Tappan Zee Financial Inc. 19.25 28.7 26.7 28.3 134.1 134.1 22.99 17.15 1.46
Westwood Financial Corp.(2) 27.63 17.8 23.0 36.4 173.2 193.6 16.15 8.42 0.72
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Price/earnings ratios greater than 25.0 are excluded from averages.
(2) Excluded from comparative group average due to acquisition takeover
announcement.
- 67 -
<PAGE> 73
FELDMAN FINANCIAL ADVISORS, INC.
Table 24
COMPARATIVE DISCOUNT AND PREMIUM ANALYSIS
Market Price Data as of December 11, 1997
<TABLE>
<CAPTION>
Relative Premiums (Discounts)
----------------------------------------
Atlantic Comp. All All
Valuation Liberty Group Public New York
Ratio Symbol Savings Average Thrifts(1) Thrifts(2)
--------- ------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
---------------------------------------
PRICE / LTM EPS (3) P/E 18.7 17.5 19.4
--------- ---------------------------------------
Adj. Maximum (x) NM NA NA NA
Maximum NM NA NA NA
Midpoint NM NA NA NA
Minimum NM NA NA NA
---------
---------------------------------------
PRICE / QTR. EPS (3) P/E 16.8 16.9 18.7
--------- ---------------------------------------
Adj. Maximum (x) 16.9 0% -0% -10%
Maximum 15.2 -9% -10% -19%
Midpoint 13.7 -18% -19% -27%
Minimum 12.1 -28% -29% -35%
---------
---------------------------------------
PRICE / BOOK VALUE P/B 125.7 154.3 160.6
--------- ---------------------------------------
Adj. Maximum (%) 73.8 -41% -52% -54%
Maximum 69.6 -45% -55% -57%
Midpoint 65.3 -48% -58% -59%
Minimum 60.3 -52% -61% -62%
---------
---------------------------------------
PRICE / TANGIBLE BOOK P/B 126.5 160.1 178.8
--------- ---------------------------------------
Adj. Maximum (%) 73.8 -42% -54% -59%
Maximum 69.6 -45% -57% -61%
Midpoint 65.3 -48% -59% -63%
Minimum 60.3 -52% -62% -66%
---------
---------------------------------------
PRICE / TOTAL ASSETS P/A 13.77 18.40 18.34
--------- ---------------------------------------
Adj. Maximum (%) 10.97 -20% -40% -40%
Maximum 9.65 -30% -48% -47%
Midpoint 8.48 -38% -54% -54%
Minimum 7.28 -47% -60% -60%
---------
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 392 publicly traded thrifts nationwide.
(2) Includes 28 publicly traded thrifts based in New York.
(3) Price/earnings ratio averages exclude values greater than 25.
- 68 -
<PAGE> 74
FELDMAN FINANCIAL ADVISORS, INC.
EXHIBIT I
BACKGROUND OF FELDMAN FINANCIAL ADVISORS, INC.
OVERVIEW OF FIRM
FELDMAN FINANCIAL ADVISORS provides consulting services to financial
institutions and mortgage companies in the areas of corporate valuations,
mergers and acquisitions, strategic planning, branch sales and purchases,
developing and implementing regulatory business and capital plans, enhancing
franchise value, portfolio analysis and restructuring, advising on retail
branch strategies, evaluating bank management, regulatory analysis, and expert
witness testimony and analysis.
FELDMAN FINANCIAL ADVISORS was incorporated in February 1996 by a group of
consultants who were previously associated with Kaplan Associates. Each of the
principals at Feldman Financial Advisors has more than 10 years experience in
consulting and all were officers of their former employer. Our principals
collectively have worked with more than 1,000 banks, thrifts and mortgage
companies nationwide. The firm's office is located in downtown Washington,
D.C.
BACKGROUND OF SENIOR PROFESSIONAL STAFF
TRENT FELDMAN, President - Trent is a nationally recognized expert in valuing
financial institutions, providing strategic advice to financial institutions,
and advising on mergers and acquisitions for banks and thrifts of all sizes.
Trent was with Kaplan Associates for 14 years and was one of three founding
principals at that firm. Trent also has worked in the Chairman's Office of the
Federal Home Loan Bank Board, the Federal Savings and Loan Insurance
Corporation, and with the California state legislature. Trent holds Bachelors
and Masters degrees from the University of California at Los Angeles.
PETER WILLIAMS, Principal - Peter specializes in merger and acquisition
analysis, corporate valuations, strategic business plans and retail branch
analysis. Peter was with Kaplan Associates for 13 years. Peter also served as
a Corporate Planning Analyst with the Wilmington Trust Company in Delaware.
Peter holds a BA in Economics from Yale University and an MBA in Finance from
George Washington University.
MICHAEL GREEN, Principal - Mike is an expert in mergers and acquisition
analysis, financial institution valuations, and business plans. During Mike's
10 years at Kaplan Associates, his experience also included mark-to-market
analysis, goodwill valuations and core deposit studies. Mike holds a BS in
Finance and Economics from Rutgers College.
LINDA FARRELL, Principal - Linda is nationally known for her expertise in
branch purchases and sales, and she specializes in small bank mergers and
acquisitions, retail banking analysis, business plans and management reviews.
Linda was with Kaplan Associates for 12 years. Linda also was a Senior Vice
President of Retail Banking at Western Savings in Salt Lake City and a
consultant with both Arthur Young & Company and Richard T. Pratt Associates.
Linda holds a BA in English from Oklahoma State University and an MBA from the
University of Utah.
GREG IZYDORCZYK, Vice President - Greg specializes in merger and acquisition
analysis and corporate valuations and also has experience in mark-to-market
analysis and business plans. Greg was with Kaplan Associates for three years.
Greg also has four years experience as a Senior Auditor in the commercial
banking industry for First Virginia and Integra Financial. Greg worked as a
Financial Analyst with Airbus Industrie of North America for two years
performing analysis on the airline industry and airline capital markets (debt
and leasing) in North America, preparing financial proposals in conjunction
with commercial sales proposals and analyzing the Company's current and
potential financing portfolio. Greg holds a BS in Finance from Pennsylvania
State University and an MBA in Finance from the Katz Graduate School,
University of Pittsburgh.
<PAGE> 75
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit II-1
STATEMENT OF FINANCIAL CONDITION
As of September 30, 1996 and 1997
and March 31, 1996 and 1997
<TABLE>
<CAPTION>
September 30, March 31,
1997 1996 1997 1996
------------ ------------ ------------ -----------
Unaudited
---------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $9,440,915 $7,587,021 $10,285,364 $11,225,391
Investment securities, held-to-maturity 32,167,166 37,031,695 36,288,248 35,381,278
Loans receivable, net 65,485,670 57,320,968 60,058,821 54,504,599
Accrued interest receivable 194,795 232,007 222,810 216,026
Foreclosed real estate, net of allowance for losses 274,253 390,596 384,753 1,313,595
Real estate held for investment 78,468 78,468 78,468 78,468
Premises and equipment 1,526,558 1,572,428 1,544,083 1,631,916
Other assets 719,076 1,083,323 931,285 1,390,356
----------- ----------- ----------- -----------
Total assets $109,886,901 $105,296,506 $109,793,832 $105,741,629
----------- ----------- ----------- -----------
Liabilities and Retained Earnings
Deposits $100,539,486 $95,728,403 $100,797,875 $97,395,595
Advances from borrowers for taxes and insurance 763,195 785,687 993,965 802,200
Income taxes payable 28,179 0 0 0
Other liabilities 1,347,529 1,385,230 1,128,872 794,239
----------- ----------- ----------- -----------
Total liabilities 102,678,389 97,899,320 102,920,712 98,992,034
Commitments and contingencies
Retained earnings 7,208,512 7,397,186 6,873,120 6,749,595
------------ ------------ ------------ ------------
Total liabilities and retained earnings $109,886,901 $105,296,506 $109,793,832 $105,741,629
----------- ----------- ----------- -----------
</TABLE>
Source: Atlantic Liberty, preliminary prospectus.
II-1
<PAGE> 76
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit II-2
STATEMENT OF OPERATIONS
For the Six Months Ended September 30, 1996 and 1997
and For the Years Ended March 31, 1996 and 1997
<TABLE>
<CAPTION>
Six Months Ended Years Ended
September 30, March 31,
--------------------- --------------------------
1997 1996 1997 1996
--------- ---------- ---------- -----------
Unaudited
---------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable
First mortgage loans $2,799,995 $2,319,224 $4,676,981 $4,628,730
Consumer and other loans 7,856 -- -- 50,660
Investment securities 646,827 718,795 1,433,772 1,341,263
Mortgage-backed and related
securities 610,276 576,740 1,137,225 1,130,330
---------- ---------- --------- ----------
Total interest income 4,064,954 3,614,759 7,247,978 7,150,983
---------- ---------- --------- ----------
Interest expense:
Deposits 2,300,345 2,185,940 4,356,710 4,143,186
Borrowed funds 3,585 3,265 6,668 6,257
---------- ---------- --------- ----------
Total interest expense 2,303,930 2,189,205 4,363,378 4,149,443
---------- ---------- --------- ----------
Net interest income 1,761,024 1,425,554 2,884,600 3,001,540
Provision for loan losses 105,473 65,643 771,178 274,980
---------- ---------- --------- ----------
Net interest income after
provision for
loan losses 1,655,551 1,359,911 2,113,422 2,726,560
---------- ---------- --------- ----------
Noninterest income:
Loan servicing fees 72 260 373 590
Income from real estate
operations 80,165 56,129 154,212 173,157
Gain (loss) on disposal of
foreclosed real estate 28,838 123,089 148,394 (135,247)
Other 87,712 686,617 950,607 166,896
---------- ---------- --------- ----------
Total noninterest income 196,787 867,095 1,253,586 205,396
---------- ---------- --------- ----------
Noninterest expense:
General and administrative:
Compensation and benefits 747,473 699,737 1,667,416 1,435,244
Occupancy and equipment 135,627 130,724 276,019 266,342
SAIF deposit insurance
premium 31,318 703,515 762,696 208,903
Other 352,606 285,023 684,677 684,828
---------- ---------- --------- ----------
Total noninterest
expense 1,267,024 1,818,999 3,390,808 2,595,317
---------- ---------- --------- ----------
Income (loss) before
income taxes 585,314 408,007 (23,800) 336,639
Income tax (expense) benefit (249,922) 239,584 147,325 (140,551)
---------- ---------- --------- ----------
Net income $ 335,392 $ 647,591 $ 123,525 $ 196,088
========= ========= ========= =========
</TABLE>
Source: Atlantic Liberty, preliminary prospectus.
II-2
<PAGE> 77
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit II-3
LOAN PORTFOLIO COMPOSITION
At September 30, 1997
and At March 31, 1996 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
At September 30, At March 31,
---------------------- -------------------------------------------------
1997 1997 1996
---------------------- -------------------- ---------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
-----------------
One-to-four family $ 40,064 61.18% $36,862 61.38% $30,605 56.15%
Multi-family 12,974 19.81 10,555 17.57 11,166 20.49
Commercial 11,861 18.11 11,917 19.84 12,784 23.45
------- ------ ------- ------ ------- ------
Total real estate loans 64,899 99.10 59,334 98.79 54,555 100.09
Other loans:
-----------
Deposit accounts 1,828 2.79 1,830 3.05 816 1.50
Less:
----
Deferred fees and discounts (158) (0.24) (127) (0.21) (121) (0.22)
Allowance for losses (1,083) (1.65) (978) (1.63) (745) (1.37)
------- ------- -------- ------- -------- -------
Total loans receivable, net $ 65,486 100.00% $ 60,059 100.00% $ 54,505 100.00%
======= ======= ======= ====== ======= ======
</TABLE>
Composition of loan portfolio by fixed and adjustable rates:
<TABLE>
<CAPTION>
At September 30, At March 31,
-------------------- --------------------------------------------------
1997 1997 1996
-------------------- -------------------- ----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
----------------
Real estate:
One-to-four family $ 21,932 33.49% $ 18,270 30.42% $ 12,750 23.39%
Multi-family 6,487 9.91 7,230 12.04 7,792 14.30
Commercial 5,682 8.68 5,697 9.49 7,815 14.34
-------- ------ -------- ------ -------- -----
Total real estate loans 34,101 52.08 31,197 51.95 28,357 52.03
------- ----- ------- ----- ------- -----
Adjustable Rate Loans:
---------------------
Real estate:
One-to-four family 18,132 27.69 18,592 30.95 17,855 32.76
Multi-family 6,487 9.91 3,325 5.53 3,374 6.19
Commercial 6,179 9.43 6,220 10.36 4,969 9.11
------- ------ ------- ----- ------- -----
Total real estate loans 30,798 47.03 28,137 46.84 26,198 48.06
------- ------ ------- ----- ------- -----
Deposit accounts 1,828 2.79 1,830 3.05 816 1.50
------- ------- ------- ------- -------- ------
Total loans 66,727 101.90 61,164 101.84 55,371 101.59
Less:
----
Deferred fees and discounts
Allowance for loan losses (158) (0.25) (127) (0.21) (121) (0.22)
Total loans receivable, net (1,083) (1.65) (978) (1.63) (745) (1.37)
------- ------- -------- ------- -------- -------
$ 65,486 100.00% $ 60,059 100.00% $ 54,505 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
Source: Atlantic Liberty, preliminary prospectus.
II-3
<PAGE> 78
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit II-4
NET LENDING ACTIVITY
For the Six Months Ended September 30, 1996 and 1997
and the Years Ended March 31, 1996 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended Years Ended
September 30, March 31,
------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Origination by Type:
- -------------------
Adjustable rate:
Real estate:
One-to four-family $ 772 $ 138 $ 703 $ 352
Multi-family 2,279 460 810 450
Commercial 2,244 1,132 3,093 3,051
Non-real estate:
Consumer N/A N/A N/A N/A
------- ------ ------ ------
Total adjustable rate 5,295 1,730 4,606 3,853
------- ------ ------ ------
Fixed rate:
Real estate:
One-to four-family 4,422 3,385 7,368 1,704
Multi-family -- -- 60 --
Commercial -- -- 650 --
Construction -- -- N/A N/A
------- ------- ------ ------
Total fixed-rate 4,422 3,385 8,078 1,704
------- ------- ------ ------
Total loans originated 9,717 5,115 12,684 5,557
Principal Repayments:
- --------------------
Total reductions 4,534 2,299 7,904 5,936
------- ------- ------ ------
Net increase (decrease) $ 5,183 $ 2,816 $ 4,780 $ (379)
======= ======= ======= ======
</TABLE>
Source: Atlantic Liberty, preliminary prospectus.
II-4
<PAGE> 79
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit II-5
INVESTMENT PORTFOLIO COMPOSITION
At September 30, 1997
and At March 31, 1996 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
At September 30,
-----------------------------------
1997
-----------------------------------
Amount Percent
------ -------
Investment securities held
for investment:
<S> <C> <C>
U.S. Government securities $ -- --
Federal agency obligations 12,567 64.24%
------ ------
Subtotal 12,567 64.24
FHLB stock 583 2.98
------ -------
Total investment securities 13,150 67.22
Other interest-earning deposits
with banks 6,413 32.78
------ -------
Total $19,563 100.00%
====== =======
</TABLE>
<TABLE>
<CAPTION>
At March 31,
-----------------------------------------------------------------------------
1997 1996
----------------------------------- -------------------------------------
Amount Percent Amount Percent
------ ------- ------ -------
Investment securities
held for investment:
<S> <C> <C> <C> <C>
U.S. Government securities $ 3,604 13.93% $ 3,604 13.46%
Federal agency obligations 13,071 50.51 12,023 44.89
------ ------ ------ ------
Subtotal 16,675 64.44 15,627 58.35
FHLB stock 583 2.25 528 1.97
------ ------- ------ -------
Total investment securities 17,258 66.69 16,155 60.32
Other interest-earning deposits
with banks 8,618 33.31 10,626 39.68
------ ------- ------ -------
Total $25,876 100.00% $26,781 100.00%
====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
At September 30,
-----------------------------------
1997
-----------------------------------
Book %
Value of Total
----- --------
Mortgage-backed securities
held for investment:
<S> <C> <C>
GNMA $ 559 2.94%
FNMA 6,468 34.02
FHLMC 3,905 20.53
CMOs/REMICS 3,880 20.40
Other 4,205 22.11
-------- -------
Total mortgage-backed
securities $ 19,017 100.00%
====== =======
</TABLE>
<TABLE>
<CAPTION>
At March 31,
----------------------------------------------------------------------------
1997 1996
----------------------------------- ------------------------------------
Book % Book %
Value of Total Value of Total
----- -------- ----- --------
Mortgage-backed securities
held for investment:
<S> <C> <C> <C> <C>
GNMA $ 611 3.21% $ 728 3.79%
FNMA 6,894 36.23 7,823 40.68
FHLMC 4,291 22.55 5,051 26.27
CMOs/REMICS 4,155 21.83 4,437 23.08
Other 3,079 16.18 1,187 6.18
----- ------- ----- -------
Total mortgage-backed
securities $ 19,030 100.00% $19,226 100.00%
====== ======= ====== =======
</TABLE>
Source: Atlantic Liberty, preliminary prospectus.
II-5
<PAGE> 80
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit II-6
DEPOSIT ACCOUNT DISTRIBUTION
At September 30, 1997
and At March 31, 1996 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
At September 30,
-------------------------------------
1997
-------------------------------------
Amount Percent
------ -------
Transaction and savings
- -----------------------
deposit accounts:
- ----------------
<S> <C> <C>
Savings accounts $ 21,556 21.4%
NOW accounts 4,285 4.3
Money market accounts 6,749 6.7
Money market statement savings 7,360 7.3
-------- -------
Total non-certificates $ 39,950 39.7
-------- ------
Certificates of deposits:
- -------------------------
4.00 - 5.99% 41,532 41.3
6.00 - 7.99% 18,551 18.5
8.00 - 9.99% 506 .5
-------- --------
Total certificates 60,589 60.3
-------- -------
Total deposits $ 100,539 100.00%
======== ======
</TABLE>
<TABLE>
<CAPTION>
At March 31,
--------------------------------------------------------------------------------
1997 1996
------------------------------------- --------------------------------------
Amount Percent Amount Percent
------ ------- ------ -------
Transaction and savings
- -----------------------
deposit accounts:
- ----------------
<S> <C> <C> <C> <C>
Savings accounts $ 21,593 21.4% $ 23,585 24.2%
NOW accounts 4,723 4.7 3,974 4.1
Money market accounts 6,999 6.9 8,240 8.5
Money market statement savings 6,785 6.7 3,498 3.6
-------- ------- -------- --------
Total non-certificates $ 40,100 39.7 $ 39,297 40.4
-------- ------- -------- --------
Certificates of deposits:
- -------------------------
4.00 - 5.99% 44,449 44.1 30,974 31.8
6.00 - 7.99% 15,752 15.6 26,721 27.4
8.00 - 9.99% 497 0.5 404 0.4
-------- ------- -------- -------
Total certificates 60,698 60.3 58,099 59.7
-------- ------- -------- -------
Total deposits $ 100,798 100.00% $ 97,396 100.00%
======== ======= ======== =======
</TABLE>
Certificates of deposits as of September 30, 1997:
<TABLE>
<CAPTION>
As of September 30,
-------------------------------------
1997
-------------------------------------
Total Percent
Balance of Total
------- --------
Certificate accounts maturing
in quarter ending:
<S> <C> <C>
December 31, 1997 $ 12,983 21.43%
March 31, 1998 12,921 21.33
June 30, 1998 7,968 13.15
September 30, 1998 7,274 12.01
December 31, 1998 2,733 4.51
March 31, 1999 2,277 3.76
June 30, 1999 1,724 2.84
September 30, 1999 1,373 2.27
December 31, 1999 1,522 2.51
March 31, 2000 1,569 2.59
June 30, 2000 1,091 1.80
September 30, 2000 710 1.17
Thereafter 6,444 10.63
------- -------
Total $ 60,589 100.00%
======= =======
</TABLE>
Source: Atlantic Liberty, preliminary prospectus.
II-6
<PAGE> 81
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit II-7
OFFICE FACILITIES
As of September 30, 1997
<TABLE>
<CAPTION>
Net Book Value
Original of Real Property
Year Leased and Equipment at
Location Leased or Owned or Acquired September 30,
1997
- ---------------------------------- ----------------- ----------------------- --------------------------------
<S> <C> <C> <C>
MAIN OFFICE
- -----------
186 Montague Street
Brooklyn, NY 11202 Owned 1983 $594,026
BRANCH OFFICE
- -------------
1402 Avenue J
Brooklyn, NY 11230 Owned 1978 $523,364
</TABLE>
Note: The total net book value of the Association's premises, land and
equipment was approximately $1,526,588 at September 30, 1997.
Source: Atlantic Liberty, preliminary prospectus.
II-7
<PAGE> 82
RFELDMAN FINANCIAL ADVISORS, INC.
Exhibit III
MARKET VALUATION AND FINANCIAL DATA FOR ALL PUBLIC THRIFTS
<TABLE>
<CAPTION>
================================================================================================================================
LTM LTM Stock Total Price/ Price/ Price/
Total Core Core Price Market LTM QTR Book
Assets ROAA ROAE 12/11/97 Value EPS EPS Value
Company Ticker St. ($000) (%) (%) ($) ($M) (x) (x) (%)
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1ST Bancorp FBCV IN 260,935 0.36 4.40 26.000 26.98 14.36 15.12 119.54
1st Bergen Bancorp FBER NJ 284,739 0.77 4.94 19.500 55.86 26.71 27.08 143.70
Abington Bancorp Inc. ABBK MA 501,622 0.76 11.05 37.000 67.52 17.54 16.23 190.43
Acadiana Bancshares Inc. ANA LA 274,018 0.95 5.44 23.625 62.77 22.08 20.37 137.27
Access Anytime Bancorp Inc. AABC NM 105,639 1.34 20.89 10.750 12.83 8.60 2.49 143.14
Advance Financial Bancorp AFBC WV 105,717 0.86 5.92 17.750 19.25 NA 22.19 118.25
Affiliated Community Bancorp AFCB MA 1,128,579 1.08 11.05 33.000 214.44 18.97 19.19 190.97
AFSALA Bancorp Inc. AFED NY 159,181 0.71 5.54 18.750 26.03 NA 20.38 117.78
ALBANK Financial Corp. ALBK NY 3,716,954 1.05 11.35 46.125 593.99 17.34 17.21 172.82
Albion Banc Corp. ALBC NY 70,810 0.49 5.46 28.000 7.00 21.05 18.92 115.46
Algiers Bancorp Inc. ALGC LA 45,325 0.26 1.28 13.875 8.54 42.05 NM 90.45
Alliance Bancorp Inc. ABCL IL 1,371,184 0.84 9.35 26.500 212.56 22.84 16.99 164.60
Alliance Bncorp of New England ANE CT 241,918 0.76 10.93 16.750 27.25 14.57 13.51 152.97
AMB Financial Corp. AMFC IN 103,388 0.73 4.46 16.750 16.14 16.75 13.09 112.04
Ambanc Holding Co. AHCI NY 529,309 (0.61) (4.74) 17.000 73.21 NM 22.37 121.60
Ameriana Bancorp ASBI IN 393,028 0.83 7.60 20.250 65.44 18.08 16.33 148.57
American Bank of Connecticut BKC CT 609,923 1.10 13.05 49.125 113.64 15.40 14.62 211.56
AmTrust Capital Corp. ATSB IN 69,685 0.23 2.27 13.750 7.24 24.55 28.65 95.09
Anchor BanCorp Wisconsin ABCW WI 1,954,749 0.93 14.53 34.875 317.01 17.61 17.10 252.35
Andover Bancorp Inc. ANDB MA 1,280,601 1.03 12.93 37.500 193.22 15.06 14.88 185.64
Argo Bancorp Incorporated ARGO IL 229,026 (0.09) (1.23) 34.125 16.60 14.84 NM 94.27
ASB Financial Corp. ASBP OH 112,449 0.91 5.53 13.500 22.53 19.85 21.09 131.07
Astoria Financial Corp. ASFC NY 7,904,363 0.77 9.80 56.750 ,172.79 19.64 17.52 192.31
Avondale Financial Corp. AVND IL 596,918 (1.94) (20.35) 16.375 57.22 NM NM 124.24
Bancorp Connecticut Inc. BKCT CT 423,800 1.24 12.06 25.000 127.20 24.04 23.15 279.02
Bank Plus Corp. BPLS CA 3,920,257 0.30 6.27 12.500 241.76 18.38 17.36 136.46
Bank United Corp. BNKU TX 11,967,072 0.54 10.48 42.500 ,342.81 17.56 16.87 224.39
Bank West Financial Corp. BWFC MI 164,854 0.57 3.72 16.000 41.96 25.81 17.39 180.38
BankAtlantic Bancorp Inc. BANC FL 2,844,996 0.54 9.57 15.375 339.59 16.18 16.71 218.71
BankPlus FSB BNKP IL 195,076 0.73 11.40 18.000 12.36 9.33 8.82 104.59
BankUnited Financial Corp. BKUNA FL 2,145,406 0.48 7.49 13.625 129.88 25.23 22.71 171.60
Baxley Federal Savings Bank BAXF GA 103,219 1.43 9.18 18.000 9.93 6.62 6.43 72.73
Bay View Capital Corp. BVCC CA 3,162,207 0.61 9.92 34.375 426.98 26.04 37.36 232.11
Bayonne Bancshares Inc. FSNJ NJ 609,053 0.53 5.77 12.250 110.87 NA NA 115.78
Bedford Bancshares Inc. BFSB VA 139,179 1.19 8.34 28.250 32.27 19.22 18.59 156.60
Big Foot Financial Corp. BFFC IL 215,162 NA NA 19.250 48.37 NA 48.13 128.59
Big Sky Bancorp Incorporated FFLN MT 62,758 0.94 7.94 23.813 7.42 13.69 13.53 98.32
BostonFed Bancorp Inc. BFD MA 960,704 0.66 6.87 19.750 111.59 17.48 16.46 128.00
Broadway Financial Corp. BYFC CA 124,740 0.31 2.75 13.000 10.80 33.33 29.55 88.02
Calumet Bancorp Inc. CBCI IL 488,346 1.41 8.96 33.250 105.28 16.46 16.96 132.95
Camco Financial Corp. CAFI OH 502,186 0.99 10.23 24.875 79.96 14.38 11.73 166.05
</TABLE>
<TABLE>
<CAPTION>
=========================================================================
Price/ Price/
Tang. Total Div.
Book Assets Yield
Company Ticker St. (%) (%) (%)
=========================================================================
<S> <C> <C> <C> <C> <C>
1ST Bancorp FBCV IN 121.84 10.34 1.08
1st Bergen Bancorp FBER NJ 143.70 19.62 1.03
Abington Bancorp Inc. ABBK MA 210.11 13.46 1.08
Acadiana Bancshares Inc. ANA LA 137.27 22.91 1.52
Access Anytime Bancorp Inc. AABC NM 143.14 12.15 -
Advance Financial Bancorp AFBC WV 118.25 18.21 1.80
Affiliated Community Bancorp AFCB MA 191.97 19.00 1.82
AFSALA Bancorp Inc. AFED NY 117.78 16.35 1.28
ALBANK Financial Corp. ALBK NY 196.19 15.98 1.56
Albion Banc Corp. ALBC NY 115.46 9.89 1.14
Algiers Bancorp Inc. ALGC LA 90.45 18.84 1.44
Alliance Bancorp Inc. ABCL IL 166.56 15.50 1.66
Alliance Bncorp of New England ANE CT 156.69 11.26 1.19
AMB Financial Corp. AMFC IN 112.04 15.61 1.67
Ambanc Holding Co. AHCI NY 121.60 13.83 1.18
Ameriana Bancorp ASBI IN 148.68 16.65 3.16
American Bank of Connecticut BKC CT 219.50 18.63 2.93
AmTrust Capital Corp. ATSB IN 96.02 10.39 1.46
Anchor BanCorp Wisconsin ABCW WI 256.81 16.22 0.92
Andover Bancorp Inc. ANDB MA 185.64 15.09 2.03
Argo Bancorp Incorporated ARGO IL 95.29 7.25 2.11
ASB Financial Corp. ASBP OH 131.07 20.04 2.96
Astoria Financial Corp. ASFC NY 227.36 14.84 1.06
Avondale Financial Corp. AVND IL 124.24 9.59 -
Bancorp Connecticut Inc. BKCT CT 279.02 30.01 2.00
Bank Plus Corp. BPLS CA 136.76 6.17 -
Bank United Corp. BNKU TX 229.61 11.22 1.51
Bank West Financial Corp. BWFC MI 180.38 25.45 1.33
BankAtlantic Bancorp Inc. BANC FL 264.18 11.94 0.86
BankPlus FSB BNKP IL 104.59 6.34 -
BankUnited Financial Corp. BKUNA FL 218.00 6.05 -
Baxley Federal Savings Bank BAXF GA 72.73 9.62 4.44
Bay View Capital Corp. BVCC CA 277.89 13.50 0.93
Bayonne Bancshares Inc. FSNJ NJ 115.78 18.20 1.39
Bedford Bancshares Inc. BFSB VA 156.60 23.19 1.98
Big Foot Financial Corp. BFFC IL 128.59 22.48 -
Big Sky Bancorp Incorporated FFLN MT 98.32 11.82 -
BostonFed Bancorp Inc. BFD MA 132.91 11.62 1.42
Broadway Financial Corp. BYFC CA 88.02 8.66 1.54
Calumet Bancorp Inc. CBCI IL 132.95 21.56 -
Camco Financial Corp. CAFI OH 179.47 15.92 2.17
</TABLE>
III-1
<PAGE> 83
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit III
MARKET VALUATION AND FINANCIAL DATA FOR ALL PUBLIC THRIFTS
<TABLE>
<CAPTION>
=================================================================================================================================
LTM LTM Stock Total Price/ Price/ Price/
Total Core Core Price Market LTM QTR Book
Assets ROAA ROAE 12/11/97 Value EPS EPS Value
Company Ticker St. ($000) (%) (%) ($) ($M) (x) (x) (%)
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cameron Financial Corp CMRN MO 212,504 1.25 5.45 21.000 53.80 21.65 20.19 120.48
Carolina Fincorp Inc. CFNC NC 114,069 1.16 5.32 17.750 32.86 NA 22.19 127.51
Carver Bancorp Inc. CNY NY 415,561 0.18 2.08 16.625 38.47 NM 27.71 110.25
Cascade Financial Corp. CASB WA 426,451 0.61 9.55 13.250 44.88 18.66 19.49 158.49
Catskill Financial Corp. CATB NY 289,619 1.37 5.11 17.375 80.92 21.19 19.74 112.75
CBES Bancorp Inc. CBES MO 106,635 1.13 6.28 21.875 22.42 17.09 17.09 124.29
CCF Holding Company CCFH GA 109,342 (0.15) (1.17) 19.750 16.20 131.67 NM 138.99
Cecil Bancorp Inc. CECB MD 64,313 0.80 6.89 19.500 9.17 15.85 12.83 123.26
CENIT Bancorp Inc. CNIT VA 701,708 0.78 10.96 66.500 110.02 20.15 16.30 214.45
Central Co-operative Bank CEBK MA 358,424 0.83 8.20 26.875 52.81 17.92 17.68 148.89
Century Bancorp Inc. CENB NC 100,937 1.59 6.25 83.000 33.81 NA 19.76 110.59
CFSB Bancorp Inc. CFSB MI 859,962 1.14 14.86 35.875 182.25 19.18 16.92 275.33
Charter One Financial COFI OH 15,196,993 1.24 18.34 62.000 3,953.61 17.17 16.32 286.64
Chester Valley Bancorp Inc. CVAL PA 322,321 0.93 10.83 27.125 59.39 19.94 17.39 210.43
CitFed Bancorp Inc. CTZN OH 3,294,554 0.87 13.46 38.250 496.65 20.03 18.39 240.26
Citizens Bancorp Inc. CIBC IN 51,365 1.46 10.06 15.120 16.00 NA NA 104.71
Citizens First Financial Corp. CBK IL 277,962 0.54 3.70 18.063 46.67 31.14 34.74 110.82
CKF Bancorp Inc. CKFB KY 59,868 1.37 5.63 18.500 16.71 14.80 17.79 109.40
Classic Bancshares Inc. CLAS KY 132,186 0.62 4.25 16.250 21.12 18.68 18.47 107.40
CNS Bancorp Inc. CNSB MO 97,411 0.80 3.23 21.500 35.54 42.16 41.35 149.93
Coastal Bancorp Inc. CBSA TX 2,929,560 0.40 11.94 29.125 145.40 12.39 14.00 144.68
Coastal Financial Corp. CFCP SC 494,003 1.05 16.81 22.250 103.39 18.70 16.86 319.23
Commercial Federal Corp. CFB NE 7,207,143 0.94 15.97 52.875 1,141.65 17.74 16.95 256.80
Commonwealth Bancorp Inc. CMSB PA 2,278,099 0.58 5.76 21.250 345.20 21.04 21.25 163.21
Community Federal Bancorp CFTP MS 215,953 1.45 4.71 18.500 85.63 26.43 33.04 138.06
Community Financial Corp. CFFC VA 183,278 1.13 8.22 26.500 33.84 17.67 25.48 139.55
Community First Banking Co. CFBC GA 394,570 0.48 4.41 39.500 95.34 NA NA 125.44
Community Investors Bancorp CIBI OH 94,328 0.97 8.37 16.250 14.66 15.48 14.51 134.41
Cooperative Bankshares Inc. COOP NC 359,535 0.63 8.21 18.250 54.45 26.45 28.52 196.87
Crazy Woman Creek Bancorp CRZY WY 59,952 1.30 4.79 15.375 14.68 21.06 18.30 103.33
CSB Financial Group Inc. CSBF IL 48,844 0.51 1.99 13.500 12.71 79.41 56.25 103.93
Cumberland Mountain Bancshares CMBN KY 128,838 0.86 12.51 16.250 11.03 NA 9.45 124.81
D & N Financial Corp. DNFC MI 1,754,069 0.83 14.74 26.500 218.47 16.36 15.41 237.03
Delphos Citizens Bancorp Inc. DCBI OH 107,796 1.61 8.03 17.250 33.80 NA 17.97 117.75
Dime Bancorp Inc. DME NY 19,413,597 0.66 12.47 26.000 2,638.79 20.97 17.11 250.48
Dime Community Bancorp Inc. DIME NY 1,385,356 1.04 6.55 23.500 296.68 21.96 25.54 158.68
Dime Financial Corp. DIBK CT 921,510 1.90 23.53 30.000 154.87 10.17 9.26 206.33
Downey Financial Corp. DSL CA 5,853,968 0.70 9.58 28.375 759.14 19.17 18.19 181.77
Eagle BancGroup Inc. EGLB IL 172,160 0.24 2.00 19.250 22.91 42.78 53.47 113.04
Eagle Bancshares EBSI GA 872,706 0.76 8.90 19.000 108.27 22.09 16.38 150.91
East Side Financial Inc. ESDF IL 74,057 0.85 5.43 23.125 7.33 11.34 12.04 60.58
</TABLE>
<TABLE>
<CAPTION>
=========================================================================
Price/ Price/
Tang. Total Div.
Book Assets Yield
Company Ticker St. (%) (%) (%)
=========================================================================
<S> <C> <C> <C> <C> <C>
Cameron Financial Corp CMRN MO 120.48 25.32 1.33
Carolina Fincorp Inc. CFNC NC 127.51 28.81 1.35
Carver Bancorp Inc. CNY NY 114.66 9.26 -
Cascade Financial Corp. CASB WA 158.49 10.52 -
Catskill Financial Corp. CATB NY 112.75 27.94 1.84
CBES Bancorp Inc. CBES MO 124.29 21.02 1.83
CCF Holding Company CCFH GA 138.99 14.82 2.79
Cecil Bancorp Inc. CECB MD 123.26 14.26 2.05
CENIT Bancorp Inc. CNIT VA 234.15 15.68 1.50
Central Co-operative Bank CEBK MA 165.38 14.73 1.19
Century Bancorp Inc. CENB NC 110.59 33.50 2.41
CFSB Bancorp Inc. CFSB MI 275.33 21.19 1.90
Charter One Financial COFI OH 312.03 26.02 1.61
Chester Valley Bancorp Inc. CVAL PA 210.43 18.43 1.62
CitFed Bancorp Inc. CTZN OH 264.34 15.07 0.63
Citizens Bancorp Inc. CIBC IN 104.71 31.15 -
Citizens First Financial Corp. CBK IL 110.82 16.79 -
CKF Bancorp Inc. CKFB KY 109.40 27.91 2.70
Classic Bancshares Inc. CLAS KY 126.46 15.98 1.72
CNS Bancorp Inc. CNSB MO 149.93 36.48 1.12
Coastal Bancorp Inc. CBSA TX 172.13 4.96 1.65
Coastal Financial Corp. CFCP SC 319.23 20.93 1.62
Commercial Federal Corp. CFB NE 286.90 15.84 0.62
Commonwealth Bancorp Inc. CMSB PA 209.36 15.15 1.32
Community Federal Bancorp CFTP MS 138.06 39.65 1.62
Community Financial Corp. CFFC VA 139.55 18.46 2.11
Community First Banking Co. CFBC GA 127.13 24.16 1.52
Community Investors Bancorp CIBI OH 134.41 15.54 1.97
Cooperative Bankshares Inc. COOP NC 196.87 15.14 -
Crazy Woman Creek Bancorp CRZY WY 103.33 24.49 2.60
CSB Financial Group Inc. CSBF IL 110.02 26.02 -
Cumberland Mountain Bancshares CMBN KY 124.81 8.56 -
D & N Financial Corp. DNFC MI 239.39 12.46 0.76
Delphos Citizens Bancorp Inc. DCBI OH 117.75 31.36 -
Dime Bancorp Inc. DME NY 263.16 13.59 0.62
Dime Community Bancorp Inc. DIME NY 184.17 21.42 1.02
Dime Financial Corp. DIBK CT 212.46 16.81 1.47
Downey Financial Corp. DSL CA 184.13 12.97 1.13
Eagle BancGroup Inc. EGLB IL 113.04 13.31 -
Eagle Bancshares EBSI GA 150.91 12.41 3.16
East Side Financial Inc. ESDF IL 60.58 9.90 4.67
</TABLE>
III-2
<PAGE> 84
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit III
MARKET VALUATION AND FINANCIAL DATA FOR ALL PUBLIC THRIFTS
<TABLE>
<CAPTION>
==============================================================================================================================
LTM LTM Stock Total Price/ Price/ Price/
Total Core Core Price Market LTM QTR Book
Assets ROAA ROAE 12/11/97 Value EPS EPS Value
Company Ticker St. ($000) (%) (%) ($) ($M) (x) (x) (%)
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
East Texas Financial Services ETFS TX 115,949 0.62 3.44 20.000 20.53 25.64 23.81 98.33
Elmira Savings Bank (The) ESBK NY 228,268 0.34 5.40 30.000 22.25 23.08 16.30 149.48
Emerald Financial Corp. EMLD OH 603,493 0.97 12.70 19.625 99.53 16.49 16.35 211.48
Empire Federal Bancorp Inc. EFBC MT 110,540 NA NA 16.250 42.12 NA 23.90 104.77
Enterprise Federal Bancorp EFBI OH 274,888 0.78 6.14 28.250 56.10 22.97 25.22 178.57
Equitable Federal Savings Bank EQSB MD 308,197 0.73 14.49 48.500 29.21 23.54 14.61 187.98
Essex Bancorp Inc. ESX VA 191,886 0.02 0.30 4.625 4.89 NM NM NM
Falmouth Bancorp Inc. FCB MA 96,391 0.75 3.04 20.500 29.82 37.27 28.47 130.74
FCB Financial Corp. FCBF WI 522,991 1.09 6.92 28.250 109.59 22.60 16.05 150.91
Fed One Bancorp FOBC WV 357,721 0.94 8.26 26.000 61.71 19.40 19.70 149.00
FFBS BanCorp Inc. FFBS MS 134,952 1.41 7.42 22.250 34.98 18.54 18.54 147.64
FFD Financial Corp. FFDF OH 88,220 0.97 3.92 18.625 26.91 14.90 27.39 125.34
FFLC Bancorp Inc. FFLC FL 383,382 0.94 6.42 22.000 84.36 24.44 22.92 160.23
FFVA Financial Corp. FFFC VA 567,266 1.35 9.97 33.750 152.68 20.71 19.18 189.18
FFW Corp. FFWC IN 181,468 1.03 10.34 41.750 29.98 16.97 15.81 169.44
FFY Financial Corp. FFYF OH 610,974 1.26 8.58 32.000 131.66 17.30 16.33 157.64
Fidelity Bancorp Inc. FBCI IL 497,862 0.81 7.81 23.375 65.33 16.94 15.38 125.27
Fidelity Bancorp Inc. FSBI PA 380,951 0.76 11.19 27.500 42.76 16.08 13.75 165.17
Fidelity Federal Bancorp FFED IN 235,336 0.73 13.74 10.000 27.91 14.29 13.16 194.17
Fidelity Financial of Ohio FFOH OH 528,704 0.94 7.07 15.250 85.09 19.55 17.33 123.58
Financial Bancorp Inc. FIBC NY 296,956 0.98 10.16 24.375 41.67 16.25 15.23 155.16
First Allen Parish Bancorp FALN LA 33,228 0.97 7.10 16.500 4.36 12.79 12.13 95.76
First Bancshares Inc. FBSI MO 162,755 1.08 7.68 26.000 28.43 15.29 13.27 125.36
First Bell Bancorp Inc. FBBC PA 681,215 1.09 9.27 18.625 121.26 16.06 15.52 169.01
First Citizens Corp. FSTC GA 337,197 1.75 18.43 26.750 73.39 12.92 15.20 215.03
First Coastal Corp. FCME ME 148,571 3.97 44.97 14.750 20.05 3.28 15.36 138.37
First Colorado Bancorp Inc. FFBA CO 1,512,605 1.20 8.96 24.625 413.47 22.18 19.24 205.21
First Defiance Financial FDEF OH 574,364 1.00 4.67 15.000 134.35 25.00 25.00 118.95
First Essex Bancorp Inc. FESX MA 1,209,698 0.77 10.65 20.625 155.24 14.95 15.17 173.32
First Federal Bancorp Inc. FFBZ OH 203,703 0.97 12.73 20.000 31.50 17.54 17.24 220.75
First Federal Bancorporation BDJI MN 111,492 0.63 5.72 28.000 18.83 23.14 20.59 157.75
First Federal Bancshares of AR FFBH AR 547,119 1.01 6.51 23.625 115.67 19.52 20.37 141.98
First Federal Capital Corp. FTFC WI 1,559,672 0.90 13.94 30.000 274.95 18.07 15.63 261.78
First Federal Financial Corp. FFKY KY 382,585 1.62 11.85 22.250 92.25 15.24 14.64 176.59
First Federal Finl Bncp Inc. FFFB OH 59,315 0.67 3.57 16.125 10.68 48.86 31.01 99.97
First Federal of East Hartford FFES CT 987,416 0.60 9.47 37.125 99.58 19.85 19.75 152.15
First Financial Bancorp Inc. FFBI IL 84,242 0.42 5.18 21.000 8.72 NM 18.10 116.02
First Financial Holdings Inc. FFCH SC 1,712,931 0.85 13.85 48.000 305.68 21.52 21.05 291.79
First Franklin Corp. FFHS OH 231,189 0.65 7.31 26.000 30.99 25.49 19.70 148.66
First Georgia Holding Inc. FGHC GA 156,383 0.78 9.53 8.250 25.18 27.50 17.19 195.96
First Home Bancorp Inc. FSPG NJ 525,092 0.91 13.69 28.875 78.21 16.79 17.19 216.94
</TABLE>
<TABLE>
<CAPTION>
========================================================================
Price/ Price/
Tang. Total Div.
Book Assets Yield
Company Ticker St. (%) (%) (%)
========================================================================
<S> <C> <C> <C> <C> <C>
East Texas Financial Services ETFS TX 98.33 17.71 1.00
Elmira Savings Bank (The) ESBK NY 153.53 9.75 2.03
Emerald Financial Corp. EMLD OH 214.72 16.49 1.22
Empire Federal Bancorp Inc. EFBC MT 104.77 38.10 1.85
Enterprise Federal Bancorp EFBI OH 178.68 20.41 3.54
Equitable Federal Savings Bank EQSB MD 187.98 9.48 -
Essex Bancorp Inc. ESX VA NM 2.55 -
Falmouth Bancorp Inc. FCB MA 130.74 30.94 0.98
FCB Financial Corp. FCBF WI 150.91 20.95 2.83
Fed One Bancorp FOBC WV 155.88 17.25 2.39
FFBS BanCorp Inc. FFBS MS 147.64 25.92 2.25
FFD Financial Corp. FFDF OH 125.34 30.50 1.61
FFLC Bancorp Inc. FFLC FL 160.23 22.00 1.31
FFVA Financial Corp. FFFC VA 193.08 26.92 1.42
FFW Corp. FFWC IN 186.72 16.52 1.73
FFY Financial Corp. FFYF OH 157.64 21.55 2.50
Fidelity Bancorp Inc. FBCI IL 125.54 13.12 1.37
Fidelity Bancorp Inc. FSBI PA 165.17 11.22 1.31
Fidelity Federal Bancorp FFED IN 194.17 11.86 4.00
Fidelity Financial of Ohio FFOH OH 139.40 16.09 1.84
Financial Bancorp Inc. FIBC NY 155.85 14.03 1.64
First Allen Parish Bancorp FALN LA 95.76 13.12 1.82
First Bancshares Inc. FBSI MO 125.36 17.47 0.77
First Bell Bancorp Inc. FBBC PA 169.01 17.80 2.15
First Citizens Corp. FSTC GA 272.96 21.76 1.10
First Coastal Corp. FCME ME 138.37 13.50 -
First Colorado Bancorp Inc. FFBA CO 207.98 27.33 1.95
First Defiance Financial FDEF OH 118.95 23.39 2.13
First Essex Bancorp Inc. FESX MA 198.13 12.83 2.33
First Federal Bancorp Inc. FFBZ OH 220.99 15.46 1.40
First Federal Bancorporation BDJI MN 157.75 16.89 -
First Federal Bancshares of AR FFBH AR 141.98 21.14 1.02
First Federal Capital Corp. FTFC WI 277.78 17.63 1.60
First Federal Financial Corp. FFKY KY 187.13 24.11 2.52
First Federal Finl Bncp Inc. FFFB OH 99.97 18.01 1.74
First Federal of East Hartford FFES CT 152.15 10.08 1.62
First Financial Bancorp Inc. FFBI IL 116.02 10.35 -
First Financial Holdings Inc. FFCH SC 291.79 17.85 1.75
First Franklin Corp. FFHS OH 149.51 13.40 1.54
First Georgia Holding Inc. FGHC GA 213.73 16.10 0.65
First Home Bancorp Inc. FSPG NJ 220.25 14.89 1.39
</TABLE>
III-3
<PAGE> 85
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit III
MARKET VALUATION AND FINANCIAL DATA FOR ALL PUBLIC THRIFTS
<TABLE>
<CAPTION>
================================================================================================================================
LTM LTM Stock Total Price/ Price/ Price/
Total Core Core Price Market LTM QTR Book
Assets ROAA ROAE 12/11/97 Value EPS EPS Value
Company Ticker St. ($000) (%) (%) ($) ($M) (x) (x) (%)
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Independence Corp. FFSL KS 112,523 0.65 6.09 15.000 14.67 22.06 18.75 127.33
First Indiana Corporation FISB IN 1,547,121 0.95 9.90 29.500 311.56 18.67 17.15 208.92
First Keystone Financial FKFS PA 373,430 0.77 10.53 36.750 45.14 16.19 15.06 182.38
First Lancaster Bancshares FLKY KY 47,184 1.24 3.64 15.750 14.98 28.64 32.81 107.73
First Liberty Financial Corp. FLFC GA 1,288,919 0.94 12.81 30.875 238.68 23.57 17.15 251.02
First Midwest Financial Inc. CASH IA 404,589 0.88 8.04 22.000 59.38 17.32 16.67 136.56
First Mutual Bancorp Inc. FMBD IL 402,389 0.28 1.95 20.000 70.13 58.82 62.50 119.26
First Mutual Savings Bank FMSB WA 451,120 1.00 15.00 17.000 69.14 16.67 15.74 225.76
First Northern Capital Corp. FNGB WI 656,745 0.89 7.88 13.875 122.73 21.68 20.40 168.39
First Palm Beach Bancorp Inc. FFPB FL 1,808,420 0.50 7.31 38.750 195.60 20.95 20.18 173.07
First Savings Bancorp Inc. SOPN NC 295,315 1.76 7.28 23.750 87.80 19.31 18.55 128.87
First SB of Washington Bancorp FWWB WA 1,098,615 1.17 7.97 26.000 266.41 20.00 19.12 164.25
First SecurityFed Financial FSFF IL 267,332 NA NA 15.938 102.13 NA NA NA
First Shenango Bancorp Inc. SHEN PA 401,437 1.17 10.46 33.000 68.28 14.80 14.47 146.34
FirstBank Corp. FBNW ID 177,870 0.51 5.55 18.125 35.96 NA NA 113.35
FirstFed America Bancorp Inc. FAB MA 1,036,062 0.47 4.89 20.250 176.32 NA 23.01 129.56
FirstFed Bancorp Inc. FFDB AL 176,464 1.01 10.32 21.281 24.49 14.48 15.20 144.08
FirstFed Financial Corp. FED CA 4,104,647 0.56 11.68 38.188 404.32 17.76 17.36 190.84
FirstSpartan Financial Corp. FSPT SC 482,314 1.07 7.47 37.250 165.03 NA NA 127.70
FLAG Financial Corp. FLAG GA 238,463 0.72 7.98 18.500 37.68 18.50 18.50 173.55
Flagstar Bancorp Inc. FLGS MI 2,033,260 1.43 22.84 19.625 268.27 43.61 10.90 220.75
Flushing Financial Corp. FFIC NY 960,130 0.96 6.05 23.000 183.62 21.70 19.17 134.66
FMS Financial Corp. FMCO NJ 581,660 1.02 15.74 32.750 78.20 14.36 14.36 207.28
Fort Bend Holding Corp. FBHC TX 319,414 0.51 8.12 20.000 33.28 21.05 20.83 168.35
Fort Thomas Financial Corp. FTSB KY 97,843 1.22 7.18 14.875 22.24 18.83 16.17 140.86
Foundation Bancorp Inc. FOUN OH 36,605 0.80 4.11 15.500 7.17 23.48 22.79 104.17
Frankfort First Bancorp Inc. FKKYD KY 133,255 0.63 2.74 18.000 29.52 NM 18.75 131.58
FSF Financial Corp. FFHH MN 388,135 0.84 6.96 19.750 59.44 18.63 16.46 121.61
Fulton Bancorp Inc. FTNB MO 103,713 1.08 4.69 22.625 38.90 NA 26.93 152.05
GA Financial Inc. GAF PA 802,304 1.07 6.10 18.500 145.62 19.27 15.95 125.68
GFSB Bancorp Inc. GUPB NM 109,964 0.87 5.45 20.250 16.21 21.09 22.01 115.06
Gilmer Financial Svcs, Inc. GLMR TX 41,829 0.30 3.27 18.000 3.44 27.69 14.06 89.02
Glacier Bancorp Inc. GBCI MT 573,968 1.54 16.10 22.000 150.00 18.03 16.18 261.59
Glenway Financial Corp. GFCO OH 293,245 0.77 8.14 18.000 41.07 18.18 16.67 147.90
Golden State Bancorp Inc. GSB CA 16,432,304 0.74 11.69 34.563 1,743.90 25.23 21.60 213.88
Golden West Financial GDW CA 39,228,359 0.86 13.68 90.750 5,154.95 15.41 14.36 200.07
Great American Bancorp GTPS IL 139,568 0.59 2.65 18.500 31.39 47.44 35.58 100.33
Great Southern Bancorp Inc. GSBC MO 727,533 1.74 19.81 24.625 198.85 16.09 13.10 316.11
Green Street Financial Corp. GSFC NC 177,962 1.58 4.47 18.000 77.37 26.87 26.47 122.95
GreenPoint Financial Corp. GPT NY 13,093,985 1.05 10.01 66.750 2,858.64 18.75 17.57 198.37
GS Financial Corp. GSLA LA 131,071 1.32 3.50 17.500 60.17 NA 25.74 106.45
</TABLE>
<TABLE>
<CAPTION>
========================================================================
Price/ Price/
Tang. Total Div.
Book Assets Yield
Company Ticker St. (%) (%) (%)
========================================================================
<S> <C> <C> <C> <C> <C>
First Independence Corp. FFSL KS 127.33 13.04 1.67
First Indiana Corporation FISB IN 211.47 20.14 1.63
First Keystone Financial FKFS PA 182.38 12.09 0.54
First Lancaster Bancshares FLKY KY 107.73 31.75 3.18
First Liberty Financial Corp. FLFC GA 278.40 18.52 1.43
First Midwest Financial Inc. CASH IA 153.74 14.68 2.18
First Mutual Bancorp Inc. FMBD IL 156.49 17.43 1.60
First Mutual Savings Bank FMSB WA 225.76 15.33 1.18
First Northern Capital Corp. FNGB WI 168.39 18.69 2.31
First Palm Beach Bancorp Inc. FFPB FL 177.18 10.82 1.55
First Savings Bancorp Inc. SOPN NC 128.87 29.73 3.71
First SB of Washington Bancorp FWWB WA 177.84 24.25 1.08
First SecurityFed Financial FSFF IL NA 38.20 -
First Shenango Bancorp Inc. SHEN PA 146.34 17.01 1.82
FirstBank Corp. FBNW ID 113.35 20.22 1.55
FirstFed America Bancorp Inc. FAB MA 129.56 17.02 -
FirstFed Bancorp Inc. FFDB AL 157.40 13.88 2.35
FirstFed Financial Corp. FED CA 192.77 9.85 -
FirstSpartan Financial Corp. FSPT SC 127.70 34.22 1.61
FLAG Financial Corp. FLAG GA 173.55 15.80 1.84
Flagstar Bancorp Inc. FLGS MI 229.80 13.19 -
Flushing Financial Corp. FFIC NY 140.24 19.12 1.04
FMS Financial Corp. FMCO NJ 210.34 13.44 0.86
Fort Bend Holding Corp. FBHC TX 180.34 10.42 2.00
Fort Thomas Financial Corp. FTSB KY 140.86 22.73 1.68
Foundation Bancorp Inc. FOUN OH 104.17 19.59 6.45
Frankfort First Bancorp Inc. FKKYD KY 131.58 22.15 4.44
FSF Financial Corp. FFHH MN 121.61 15.31 2.53
Fulton Bancorp Inc. FTNB MO 152.05 37.51 0.88
GA Financial Inc. GAF PA 126.89 18.15 2.60
GFSB Bancorp Inc. GUPB NM 115.06 14.74 1.98
Gilmer Financial Svcs, Inc. GLMR TX 89.02 8.22 -
Glacier Bancorp Inc. GBCI MT 268.29 26.13 2.18
Glenway Financial Corp. GFCO OH 149.75 14.01 2.22
Golden State Bancorp Inc. GSB CA 239.02 10.61 -
Golden West Financial GDW CA 200.07 13.14 0.55
Great American Bancorp GTPS IL 100.33 22.49 2.16
Great Southern Bancorp Inc. GSBC MO 316.11 27.33 1.79
Green Street Financial Corp. GSFC NC 122.95 43.48 2.44
GreenPoint Financial Corp. GPT NY 370.01 21.83 1.50
GS Financial Corp. GSLA LA 106.45 45.91 1.60
</TABLE>
III-4
<PAGE> 86
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit III
MARKET VALUATION AND FINANCIAL DATA FOR ALL PUBLIC THRIFTS
<TABLE>
<CAPTION>
======================================================================================= =======================================
LTM LTM Stock Total Price/ Price/ Price/
Total Core Core Price Market LTM QTR Book
Assets ROAA ROAE 12/11/97 Value EPS EPS Value
Company Ticker St. ($000) (%) (%) ($) ($M) (x) (x) (%)
======================================================================================= =======================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GSB Financial Corp. GOSB NY 154,649 NA NA 17.000 38.22 NA NA NA
Guthrie Savings Inc. GTSV OK 48,100 1.03 6.65 17.625 7.36 13.56 13.35 100.60
H.F. Ahmanson & Co. AHM CA 46,799,157 0.73 14.58 62.063 5,859.45 17.94 18.47 307.70
Hallmark Capital Corp. HALL WI 418,467 0.63 8.94 14.875 42.93 16.35 16.90 140.46
Harbor Federal Bancorp Inc. HRBF MD 217,202 0.71 5.50 23.000 38.95 24.47 23.00 137.40
Hardin Bancorp Inc. HFSA MO 117,364 0.75 5.55 17.750 15.25 18.49 20.17 112.70
Harleysville Savings Bank HARL PA 345,239 1.04 16.17 28.500 47.36 14.18 14.25 207.12
Harrington Financial Group HFGI IN 521,043 0.36 7.49 12.313 40.10 18.11 30.78 159.08
Harrodsburg First Fin Bancorp HFFB KY 108,949 1.35 4.99 17.625 35.69 29.87 22.03 112.40
Harvest Home Financial Corp. HHFC OH 87,596 0.57 4.44 14.750 13.49 56.73 19.41 130.42
Haven Bancorp Inc. HAVN NY 1,833,284 0.69 11.45 21.750 190.79 17.13 20.14 173.44
Hawthorne Financial Corp. HTHR CA 891,163 1.04 18.86 21.625 66.78 16.38 11.50 154.35
Haywood Bancshares Inc. HBS NC 152,796 1.37 9.41 21.375 26.73 13.70 8.10 123.34
HCB Bancshares Inc. HCBB AR 199,946 NA NA 13.750 36.37 NA 31.25 95.29
Hemlock Federal Financial Corp HMLK IL 161,905 0.80 5.32 17.375 36.08 NA 19.74 115.37
HF Bancorp Inc. HEMT CA 1,050,377 0.18 2.17 17.125 107.58 NM 53.52 129.15
HF Financial Corp. HFFC SD 574,889 0.94 10.13 25.875 76.01 13.84 11.76 142.01
HFB Financial Corp. HFBC KY 160,876 0.91 8.86 15.500 16.80 9.87 9.23 99.23
HFNC Financial Corp. HFNC NC 866,859 1.05 4.55 14.750 253.59 22.01 14.18 155.59
HFS Bank FSB HFSK IN 153,738 0.91 11.84 16.750 15.10 11.47 10.74 126.99
High Country Bancorp Inc. HCBC CO 76,324 0.38 4.61 14.750 19.51 NA NA NA
Highland Federal Bank FSB HBNK CA 515,990 0.86 11.72 32.875 75.62 13.93 11.26 191.13
Hingham Instit. for Savings HIFS MA 216,240 1.25 12.96 27.875 36.34 14.08 13.40 173.14
HMN Financial Inc. HMNF MN 568,847 0.85 5.81 26.250 109.82 18.62 17.27 130.66
Home Bancorp HBFW IN 334,862 0.89 6.29 26.875 67.85 35.36 21.67 152.53
Home Bancorp of Elgin Inc. HBEI IL 342,518 0.80 2.90 18.250 125.12 39.67 45.63 132.53
Home Building Bancorp HBBI IN 41,746 0.73 5.65 21.250 6.62 18.48 19.68 104.01
Home City Financial Corp. HCFC OH 70,110 1.25 6.49 17.250 15.60 NA 14.87 113.49
Home Federal Bancorp HOMF IN 694,109 1.21 14.44 26.500 135.35 15.77 14.40 225.15
Home Financial Bancorp HWEN IN 41,309 0.74 4.00 17.625 8.19 23.50 23.19 112.91
Home Port Bancorp Inc. HPBC MA 201,014 1.67 15.64 22.875 42.13 13.00 12.71 196.35
Horizon Financial Corp. HRZB WA 531,028 1.55 9.95 17.000 126.47 15.32 15.18 152.19
Horizon Financial Svcs Corp. HZFS IA 87,784 0.66 6.37 11.750 10.00 15.06 10.13 114.41
IBS Financial Corp. IBSF NJ 734,751 0.78 4.44 17.250 188.88 31.94 35.94 147.56
Independence Federal Svgs Bank IFSB DC 251,561 0.23 3.40 14.000 17.94 12.84 21.88 98.38
Industrial Bancorp Inc. INBI OH 354,116 1.44 7.92 17.750 91.82 17.57 17.75 150.94
InterWest Bancorp Inc. IWBK WA 2,046,705 0.98 14.90 39.750 320.00 16.03 15.53 246.44
Ipswich Savings Bank IPSW MA 202,509 0.97 16.37 13.125 31.27 15.63 14.27 274.58
ISB Financial Corp. ISBF LA 956,048 0.72 5.76 27.625 190.63 26.31 34.53 155.63
ITLA Capital Corp. ITLA CA 901,555 1.46 13.06 18.000 141.29 12.08 11.25 146.10
Jacksonville Bancorp Inc. JXVL TX 226,182 1.33 8.42 19.750 48.26 25.65 12.04 145.76
</TABLE>
<TABLE>
<CAPTION>
==========================================================================
Price/ Price/
Tang. Total Div.
Book Assets Yield
Company Ticker St. (%) (%) (%)
===========================================================================
<S> <C> <C> <C> <C> <C>
GSB Financial Corp. GOSB NY NA 24.71 -
Guthrie Savings Inc. GTSV OK 100.60 15.30 -
H.F. Ahmanson & Co. AHM CA 362.09 12.52 1.42
Hallmark Capital Corp. HALL WI 140.46 10.26 -
Harbor Federal Bancorp Inc. HRBF MD 137.40 17.93 2.09
Hardin Bancorp Inc. HFSA MO 112.70 12.99 2.70
Harleysville Savings Bank HARL PA 207.12 13.72 1.54
Harrington Financial Group HFGI IN 159.08 7.70 0.98
Harrodsburg First Fin Bancorp HFFB KY 112.40 32.76 2.27
Harvest Home Financial Corp. HHFC OH 130.42 15.40 2.98
Haven Bancorp Inc. HAVN NY 174.00 10.41 1.38
Hawthorne Financial Corp. HTHR CA 154.35 7.49 -
Haywood Bancshares Inc. HBS NC 127.69 17.49 2.62
HCB Bancshares Inc. HCBB AR 98.85 18.19 -
Hemlock Federal Financial Corp HMLK IL 115.37 22.28 1.38
HF Bancorp Inc. HEMT CA 154.98 10.24 -
HF Financial Corp. HFFC SD 142.01 13.22 1.62
HFB Financial Corp. HFBC KY 99.23 10.44 2.71
HFNC Financial Corp. HFNC NC 155.59 29.25 1.90
HFS Bank FSB HFSK IN 126.99 9.82 2.63
High Country Bancorp Inc. HCBC CO NA 25.56 -
Highland Federal Bank FSB HBNK CA 191.13 14.66 -
Hingham Instit. for Savings HIFS MA 173.14 16.81 1.72
HMN Financial Inc. HMNF MN 130.66 19.31 -
Home Bancorp HBFW IN 152.53 20.26 0.74
Home Bancorp of Elgin Inc. HBEI IL 132.53 36.53 2.19
Home Building Bancorp HBBI IN 104.01 15.86 1.41
Home City Financial Corp. HCFC OH 113.49 22.25 2.09
Home Federal Bancorp HOMF IN 232.05 19.50 1.32
Home Financial Bancorp HWEN IN 112.91 19.83 1.14
Home Port Bancorp Inc. HPBC MA 196.35 20.96 3.50
Horizon Financial Corp. HRZB WA 152.19 23.82 2.59
Horizon Financial Svcs Corp. HZFS IA 114.41 11.39 1.53
IBS Financial Corp. IBSF NJ 147.56 25.71 2.32
Independence Federal Svgs Bank IFSB DC 110.50 7.13 1.57
Industrial Bancorp Inc. INBI OH 150.94 25.93 3.16
InterWest Bancorp Inc. IWBK WA 250.95 15.63 1.61
Ipswich Savings Bank IPSW MA 274.58 15.44 0.91
ISB Financial Corp. ISBF LA 181.86 19.94 1.81
ITLA Capital Corp. ITLA CA 146.70 15.67 -
Jacksonville Bancorp Inc. JXVL TX 145.76 21.34 2.53
</TABLE>
III-5
<PAGE> 87
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit III
MARKET VALUATION AND FINANCIAL DATA FOR ALL PUBLIC THRIFTS
<TABLE>
<CAPTION>
==================================================================================================================================
LTM LTM Stock Total Price/ Price/ Price/
Total Core Core Price Market LTM QTR Book
Assets ROAA ROAE 12/11/97 Value EPS EPS Value
Company Ticker St. ($000) (%) (%) ($) ($M) (x) (x) (%)
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jefferson Savings Bancorp JSBA MO 1,257,753 0.76 9.32 41.750 209.02 19.42 21.30 169.92
Joachim Bancorp Inc. JOAC MO 35,073 0.79 2.72 15.000 10.84 39.47 41.67 109.81
JSB Financial Inc. JSB NY 1,531,068 1.72 7.67 49.063 486.63 17.22 14.96 136.63
Kankakee Bancorp Inc. KNK IL 339,937 0.87 8.11 34.250 48.83 16.79 17.47 125.69
Kentucky First Bancorp Inc. KYF KY 88,089 1.14 6.60 14.688 19.06 18.36 16.69 130.10
Kenwood Bancorp Inc. KNWP OH 49,044 (0.06) (0.63) 11.000 3.25 NA 21.15 75.14
Klamath First Bancorp KFBI OR 980,078 1.04 5.75 21.500 215.40 24.43 24.43 137.47
KS Bancorp Inc. KSAV NC 109,937 1.20 8.77 22.500 19.92 17.05 18.15 136.86
KSB Bancorp Inc. KSBK ME 149,657 1.08 14.95 20.563 25.46 15.94 13.53 231.04
Lakeview Financial LVSB NJ 505,882 0.93 9.48 25.000 112.73 20.83 16.45 182.35
Landmark Bancshares Inc. LARK KS 227,736 0.98 6.70 23.250 39.26 17.10 17.10 122.43
Laurel Capital Group Inc. LARL PA 209,980 1.41 13.60 28.125 40.69 14.35 13.79 185.03
Lawrence Savings Bank LSBX MA 352,980 1.74 20.08 15.750 67.48 11.50 11.25 200.89
Lenox Bancorp Inc. LNXC OH 48,707 0.69 4.55 16.750 6.86 22.95 24.63 99.17
Lexington B&L Financial Corp. LXMO MO 59,236 1.32 4.46 17.125 19.50 30.04 19.46 116.26
Life Financial Corp. LFCO CA 294,102 5.42 46.82 13.000 85.04 6.02 5.42 171.96
Little Falls Bancorp Inc. LFBI NJ 324,425 0.51 3.93 20.250 52.81 30.22 28.13 139.37
Logansport Financial Corp. LOGN IN 85,801 1.47 7.54 16.000 20.17 17.78 17.39 124.42
London Financial Corporation LONF OH 38,210 0.96 4.63 15.250 7.86 18.83 14.12 103.32
Long Island Bancorp Inc. LISB NY 5,930,784 0.73 7.93 45.375 1,090.04 21.81 20.63 199.54
LSB Financial Corp. LSBI IN 200,266 0.69 7.65 27.750 25.43 16.62 15.08 137.10
MAF Bancorp Inc. MAFB IL 3,370,587 1.15 14.72 34.250 517.23 14.64 14.76 198.90
Marion Capital Holdings MARN IN 179,822 1.68 7.40 27.000 48.00 16.98 18.75 121.51
Market Financial Corp. MRKF OH 56,121 0.99 3.66 15.438 20.62 NA 25.73 103.68
Maryland Federal Bancorp MFSL MD 1,175,006 0.91 11.00 27.000 174.62 23.48 18.75 175.10
MASSBANK Corp. MASB MA 932,757 1.03 9.90 47.000 167.86 17.41 16.79 166.37
Mayflower Co-operative Bank MFLR MA 129,033 0.94 9.79 23.750 21.15 16.27 16.05 170.01
MBLA Financial Corp. MBLF MO 224,013 0.85 6.63 27.000 34.22 20.15 17.76 120.81
MCM Savings Bank FSB MCMS MO 63,865 0.25 4.03 21.000 3.82 NM 12.80 95.67
Mechanics Savings Bank MECH CT 830,741 1.79 17.83 26.750 141.59 9.98 18.58 163.81
Medford Bancorp Inc. MDBK MA 1,106,345 1.00 11.19 38.250 173.70 16.00 16.78 174.18
Meritrust Federal SB MERI LA 233,311 1.15 14.61 69.000 53.42 21.23 21.56 277.22
Metropolitan Financial Corp. METF OH 865,572 0.60 15.21 15.250 107.53 20.61 18.15 308.08
MetroWest Bank MWBX MA 585,760 1.37 18.02 8.750 122.12 16.51 15.63 279.55
MFB Corp. MFBC IN 255,921 0.83 5.62 23.500 38.79 20.61 20.26 115.71
Mid-Central Financial Corp. MCFC MN 57,123 0.93 9.77 21.750 4.86 9.98 8.63 90.78
Mid-Coast Bancorp Inc. MCBN ME 61,473 0.72 8.25 28.750 6.70 14.82 13.31 126.93
Mid-Iowa Financial Corp. MIFC IA 128,017 1.15 12.41 11.250 18.88 12.50 14.06 156.47
Midland Federal S&LA MIDF IL 109,599 0.62 8.90 21.000 7.28 9.37 10.50 89.21
Midwest Bancshares Inc. MWBI IA 149,850 0.77 11.05 17.750 18.07 15.99 11.68 174.36
Midwest Savings Bank MDWB IL 43,342 0.44 6.21 15.437 2.96 12.76 12.45 98.01
</TABLE>
<TABLE>
<CAPTION>
==========================================================================
Price/ Price/
Tang. Total Div.
Book Assets Yield
Company Ticker St. (%) (%) (%)
==========================================================================
<S> <C> <C> <C> <C> <C>
Jefferson Savings Bancorp JSBA MO 216.66 16.62 1.34
Joachim Bancorp Inc. JOAC MO 109.81 30.91 3.33
JSB Financial Inc. JSB NY 136.63 31.78 2.85
Kankakee Bancorp Inc. KNK IL 133.32 14.36 1.40
Kentucky First Bancorp Inc. KYF KY 130.10 21.64 3.40
Kenwood Bancorp Inc. KNWP OH 75.14 6.63 2.55
Klamath First Bancorp KFBI OR 151.20 21.98 1.49
KS Bancorp Inc. KSAV NC 136.94 18.12 2.67
KSB Bancorp Inc. KSBK ME 243.06 17.01 0.39
Lakeview Financial LVSB NJ 212.77 22.28 0.50
Landmark Bancshares Inc. LARK KS 122.43 17.24 1.72
Laurel Capital Group Inc. LARL PA 185.03 19.38 1.85
Lawrence Savings Bank LSBX MA 200.89 19.12 -
Lenox Bancorp Inc. LNXC OH 99.17 14.08 1.19
Lexington B&L Financial Corp. LXMO MO 116.26 32.92 1.75
Life Financial Corp. LFCO CA 171.96 28.92 -
Little Falls Bancorp Inc. LFBI NJ 151.12 16.28 0.99
Logansport Financial Corp. LOGN IN 124.42 23.51 2.50
London Financial Corporation LONF OH 103.32 20.57 1.57
Long Island Bancorp Inc. LISB NY 201.40 18.38 1.32
LSB Financial Corp. LSBI IN 137.10 12.70 1.23
MAF Bancorp Inc. MAFB IL 226.37 15.35 0.82
Marion Capital Holdings MARN IN 121.51 26.69 3.26
Market Financial Corp. MRKF OH 103.68 36.74 1.81
Maryland Federal Bancorp MFSL MD 177.17 14.86 1.56
MASSBANK Corp. MASB MA 168.88 18.00 2.04
Mayflower Co-operative Bank MFLR MA 172.73 16.39 2.86
MBLA Financial Corp. MBLF MO 120.81 15.28 1.48
MCM Savings Bank FSB MCMS MO 95.67 5.98 0.95
Mechanics Savings Bank MECH CT 163.81 17.04 -
Medford Bancorp Inc. MDBK MA 185.86 15.70 1.88
Meritrust Federal SB MERI LA 277.22 22.90 1.01
Metropolitan Financial Corp. METF OH 337.39 12.42 -
MetroWest Bank MWBX MA 279.55 20.85 1.37
MFB Corp. MFBC IN 115.71 15.16 1.36
Mid-Central Financial Corp. MCFC MN 90.78 8.51 1.38
Mid-Coast Bancorp Inc. MCBN ME 126.93 10.90 1.81
Mid-Iowa Financial Corp. MIFC IA 156.69 14.75 0.71
Midland Federal S&LA MIDF IL 89.21 6.64 1.43
Midwest Bancshares Inc. MWBI IA 174.36 12.06 1.35
Midwest Savings Bank MDWB IL 98.01 6.83 -
</TABLE>
III-6
<PAGE> 88
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit III
MARKET VALUATION AND FINANCIAL DATA FOR ALL PUBLIC THRIFTS
<TABLE>
<CAPTION>
=================================================================================================================================
LTM LTM Stock Total Price/ Price/ Price/
Total Core Core Price Market LTM QTR Book
Assets ROAA ROAE 12/11/97 Value EPS EPS Value
Company Ticker St. ($000) (%) (%) ($) ($M) (x) (x) (%)
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Milton Federal Financial Corp. MFFC OH 209,958 0.65 4.52 15.000 34.57 23.81 23.44 121.85
Mississippi View Holding Co. MIVI MN 68,546 1.05 5.95 17.500 12.95 18.23 18.23 107.36
Mitchell Bancorp Inc. MBSP NC 34,591 1.62 3.79 17.250 16.06 27.82 28.75 112.30
Monterey Bay Bancorp Inc. MBBC CA 409,663 0.42 3.79 19.250 62.17 32.63 30.08 123.40
Montgomery Financial Corp. MONT IN 101,986 0.69 5.12 12.250 20.25 NA NA 103.73
MSB Bancorp Inc. MBB NY 773,991 0.54 6.06 30.500 86.75 27.23 23.11 136.16
MSB Financial Inc. MSBF MI 77,014 1.44 8.08 19.500 24.06 21.91 20.31 188.77
Mutual Community Savings Bank MTUC NC 59,620 0.21 1.67 11.375 4.12 NM 9.81 53.81
Mutual Savings Bank FSB MSBK MI 654,127 0.02 0.35 12.750 54.56 85.00 79.69 131.04
New Hampshire Thrift Bncshrs NHTB NH 319,338 0.60 8.11 21.250 44.09 21.46 16.10 176.50
NewMil Bancorp Inc. NMSB CT 317,407 0.82 7.93 13.125 50.34 20.51 19.30 155.88
North American Savings Bank NASB MO 736,585 1.20 16.21 54.000 120.76 13.33 10.89 212.85
North Bancshares Inc. NBSI IL 122,081 0.56 3.86 25.875 24.73 34.50 53.91 151.85
North Central Bancshares Inc. FFFD IA 215,133 1.84 7.57 18.750 61.25 16.30 15.12 123.93
Northeast Bancorp NBN ME 265,442 0.61 7.89 27.500 40.75 23.11 20.22 192.71
Northeast Indiana Bancorp NEIB IN 190,319 1.20 7.78 20.000 35.25 16.53 15.15 128.95
Northwest Equity Corp. NWEQ WI 96,954 0.99 8.42 19.250 16.15 15.52 14.58 132.48
NorthWest Indiana Bancorp NWIN IN 307,522 1.11 11.81 42.500 58.71 17.28 17.42 202.28
NS&L Bancorp Inc. NSLB MO 59,711 0.77 3.72 18.500 13.09 42.05 24.34 112.05
NSS Bancorp Inc. NSSY CT 670,749 0.33 4.07 38.000 93.34 15.45 13.77 168.96
Nutmeg Federal S&LA NTMG CT 105,151 0.50 7.18 10.750 10.61 26.22 29.86 182.82
Ocean Financial Corp. OCFC NJ 1,489,220 1.00 5.71 37.125 297.55 22.64 20.63 134.36
Ocwen Financial Corp. OCN FL 2,956,300 1.74 19.54 24.750 1,497.50 16.61 17.68 358.18
Ohio State Financial Services OSFS OH 38,559 0.98 6.13 14.870 9.43 NA NA 90.29
OHSL Financial Corp. OHSL OH 234,600 0.88 7.86 26.500 32.72 16.16 16.16 123.72
Oregon Trail Financial Corp. OTFC OR 341,988 NA NA 16.000 75.12 NA NA NA
Ottawa Financial Corp. OFCP MI 866,966 0.79 8.88 28.625 152.60 23.27 23.85 202.30
Pamrapo Bancorp Inc. PBCI NJ 371,958 1.33 9.61 25.125 71.43 15.32 14.28 148.76
Park Bancorp Inc. PFED IL 174,515 1.06 4.65 17.875 43.46 21.80 22.34 107.62
Parkvale Financial Corporation PVSA PA 1,005,440 1.08 14.93 28.000 142.97 14.00 13.73 184.21
Peekskill Financial Corp. PEEK NY 181,242 1.15 4.33 17.500 55.88 26.12 25.74 118.16
Pekin Savings SB PEKS IL 84,910 0.78 9.49 62.500 10.51 25.61 14.60 147.65
PenFed Bancorp Incorporated PFBXX KY 30,485 0.88 5.09 13.000 3.86 NM NM 80.95
PennFed Financial Services Inc PFSB NJ 1,363,950 0.82 10.96 33.500 161.56 15.44 14.96 149.35
PennFirst Bancorp Inc. PWBC PA 822,350 0.66 8.61 18.625 98.91 17.91 17.25 143.71
Pennwood Bancorp Inc. PWBK PA 47,645 1.08 5.66 18.500 10.54 21.51 19.27 120.60
Peoples-Sidney Financial Corp. PSFC OH 102,835 1.04 6.37 17.250 30.80 NA 21.56 109.73
Peoples Bancorp PFDC IN 290,601 1.48 9.69 24.000 81.41 19.67 18.18 183.77
People's Bancshares Inc. PBKB MA 717,451 0.47 8.45 21.750 71.41 16.11 15.10 242.75
Peoples Financial Corp. PFFC OH 86,486 0.90 3.54 14.500 21.25 NA 25.89 91.89
Peoples Heritage Finl Group PHBK ME 6,056,083 1.30 16.37 43.500 1,196.29 17.06 15.99 264.92
</TABLE>
<TABLE>
<CAPTION>
=========================================================================
Price/ Price/
Tang. Total Div.
Book Assets Yield
Company Ticker St. (%) (%) (%)
=========================================================================
<S> <C> <C> <C> <C> <C>
Milton Federal Financial Corp. MFFC OH 121.85 16.47 4.00
Mississippi View Holding Co. MIVI MN 107.36 18.89 0.91
Mitchell Bancorp Inc. MBSP NC 112.30 46.43 2.32
Monterey Bay Bancorp Inc. MBBC CA 133.13 15.18 0.62
Montgomery Financial Corp. MONT IN 103.73 19.86 1.80
MSB Bancorp Inc. MBB NY 255.44 11.21 1.97
MSB Financial Inc. MSBF MI 188.77 31.24 1.44
Mutual Community Savings Bank MTUC NC 59.28 6.91 3.17
Mutual Savings Bank FSB MSBK MI 131.04 8.34 -
New Hampshire Thrift Bncshrs NHTB NH 205.51 13.81 2.35
NewMil Bancorp Inc. NMSB CT 155.88 15.86 2.44
North American Savings Bank NASB MO 220.23 16.39 1.48
North Bancshares Inc. NBSI IL 151.85 20.26 1.86
North Central Bancshares Inc. FFFD IA 123.93 28.47 1.33
Northeast Bancorp NBN ME 218.08 15.35 1.16
Northeast Indiana Bancorp NEIB IN 128.95 18.52 1.70
Northwest Equity Corp. NWEQ WI 132.48 16.66 2.91
NorthWest Indiana Bancorp NWIN IN 202.28 19.09 3.01
NS&L Bancorp Inc. NSLB MO 112.05 21.92 2.70
NSS Bancorp Inc. NSSY CT 174.07 13.92 1.05
Nutmeg Federal S&LA NTMG CT 182.82 10.09 1.40
Ocean Financial Corp. OCFC NJ 134.36 19.98 2.16
Ocwen Financial Corp. OCN FL 367.76 50.65 -
Ohio State Financial Services OSFS OH 90.29 24.46 -
OHSL Financial Corp. OHSL OH 123.72 13.95 3.32
Oregon Trail Financial Corp. OTFC OR NA 21.97 -
Ottawa Financial Corp. OFCP MI 250.44 17.60 1.40
Pamrapo Bancorp Inc. PBCI NJ 149.82 19.20 3.98
Park Bancorp Inc. PFED IL 107.62 24.90 -
Parkvale Financial Corporation PVSA PA 185.43 14.22 1.86
Peekskill Financial Corp. PEEK NY 118.16 30.83 2.06
Pekin Savings SB PEKS IL 147.65 12.38 1.60
PenFed Bancorp Incorporated PFBXX KY 80.95 12.66 -
PennFed Financial Services Inc PFSB NJ 176.41 11.85 0.84
PennFirst Bancorp Inc. PWBC PA 161.68 12.03 1.93
Pennwood Bancorp Inc. PWBK PA 120.60 22.12 1.73
Peoples-Sidney Financial Corp. PSFC OH 109.73 29.95 1.62
Peoples Bancorp PFDC IN 183.77 28.01 1.78
People's Bancshares Inc. PBKB MA 253.20 9.95 2.02
Peoples Financial Corp. PFFC OH 91.89 24.57 3.45
Peoples Heritage Finl Group PHBK ME 310.27 19.75 1.93
</TABLE>
III-7
<PAGE> 89
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit III
MARKET VALUATION AND FINANCIAL DATA FOR ALL PUBLIC THRIFTS
<TABLE>
<CAPTION>
==============================================================================================================================
LTM LTM Stock Total Price/ Price/ Price/
Total Core Core Price Market LTM QTR Book
Assets ROAA ROAE 12/11/97 Value EPS EPS Value
Company Ticker St. ($000) (%) (%) ($) ($M) (x) (x) (%)
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Peoples Savings Bank of Troy PESV OH 128,229 1.34 12.97 14.250 25.85 16.38 16.19 191.28
Peoples Savings Financial Corp PSVF PA 43,991 1.00 4.92 24.500 10.84 24.26 23.56 117.34
Permanent Bancorp Inc. PERM IN 433,568 0.62 6.61 26.063 54.81 21.54 21.72 128.71
Perpetual Federal Savings Bank PFOH OH 214,649 1.71 10.57 17.250 38.36 13.58 10.78 109.87
Perpetual Midwest Financial PMFI IA 401,665 0.32 3.78 27.625 51.74 33.69 23.81 151.45
Perry County Financial Corp. PCBC MO 81,105 1.07 5.72 23.250 19.25 24.22 19.38 123.60
PFF Bancorp Inc. PFFB CA 2,615,466 0.46 4.33 19.125 342.40 28.98 25.16 130.19
Piedmont Bancorp Inc. PDB NC 126,544 0.57 3.19 10.625 29.23 NM 17.71 140.54
Pioneer Financial Corporation PONE KY 76,830 1.33 11.45 42.500 NA 11.55 8.57 103.33
Pittsburgh Home Financial Corp PHFC PA 273,304 0.76 6.02 17.875 35.20 17.19 14.90 122.18
Potters Financial Corp. PTRS OH 122,716 0.96 10.72 18.500 17.85 15.81 16.52 165.03
Prestige Bancorp Inc. PRBC PA 137,834 0.62 5.11 19.250 17.61 21.15 20.05 114.04
Princeton Federal Bank FSB PRNXX KY 31,738 0.88 6.28 17.500 4.57 24.65 14.11 104.35
Progress Financial Corp. PFNC PA 436,746 0.71 13.62 15.375 61.18 17.88 19.22 262.82
Progressive Bank Inc. PSBK NY 884,617 0.94 11.17 36.250 138.79 16.48 15.90 179.63
Provident Financial Holdings PROV CA 640,634 0.36 2.55 21.750 105.19 22.66 16.99 123.16
PS Financial Inc. PSFI IL 85,698 2.10 5.43 18.250 37.85 NA 24.01 123.64
Pulse Bancorp PULS NJ 526,016 1.10 14.06 26.750 82.40 14.86 14.86 190.66
PVF Capital Corp. PVFC OH 383,278 1.31 18.82 20.750 53.75 11.53 11.28 195.20
QCF Bancorp Inc. QCFB MN 158,192 1.65 9.33 28.500 39.44 14.54 13.70 151.35
Quaker City Bancorp Inc. QCBC CA 847,024 0.69 7.79 22.000 102.81 18.33 16.67 143.51
Queens County Bancorp Inc. QCSB NY 1,541,049 1.55 11.55 36.500 551.45 25.70 24.01 275.26
Raritan Bancorp Inc. RARB NJ 407,262 1.02 13.07 27.500 65.24 17.86 18.09 217.56
RedFed Bancorp Inc. REDF CA 967,309 1.02 12.25 19.625 140.88 15.58 12.91 175.07
Redwood Financial Inc. REDW MN 64,651 0.84 3.81 12.000 10.97 27.27 21.43 91.46
Reliancd Bancshares Inc. RELI WI 46,987 1.29 2.52 8.875 21.94 34.13 16.16 96.68
Reliance Bancorp Inc. RELY NY 2,034,753 0.84 10.22 34.250 298.40 17.93 31.70 177.55
River Valley Bancorp RIVR IN 138,461 0.57 4.75 18.125 21.57 NA 15.63 122.47
Riverview Bancorp Inc. RVSB WA 282,247 1.23 11.07 15.125 92.69 NM NM 158.21
Rocky Ford Financial Inc. RFFC CO 23,708 1.08 7.03 14.125 5.98 NA NA 93.85
Roslyn Bancorp Inc. RSLN NY 3,474,150 1.17 6.80 22.000 960.13 NA 19.64 156.70
S. Carolina Community Bancshrs SCCB SC 45,619 1.15 4.37 22.500 15.72 28.85 31.25 129.68
Sandwich Bancorp Inc. SWCB MA 511,765 0.95 11.95 41.000 78.68 17.37 16.53 193.76
Scotland Bancorp Inc. SSB NC 64,399 1.88 6.36 10.250 19.61 13.85 10.68 134.69
Security Bancorp Inc. SCYT TN 49,130 NA NA 15.500 6.76 NA 11.74 103.68
Security Federal Bancorp Inc. SIYF AL 77,704 1.00 8.08 20.750 13.93 15.15 16.21 152.46
Security First Corp. SFSL OH 680,827 1.37 14.73 20.500 155.31 19.71 18.98 246.69
SFB Bancorp Inc. SFBK TN 52,757 1.16 7.65 15.500 11.89 NA 14.35 98.98
SFS Bancorp Inc. SFED NY 174,093 0.69 5.48 24.500 30.16 24.75 24.50 138.89
SGV Bancorp Inc. SGVB CA 408,975 0.31 3.95 17.250 40.41 25.37 28.75 132.90
Shelby County Bancorp SCBXX IN 88,776 0.78 9.99 25.000 4.40 10.08 8.33 62.59
</TABLE>
<TABLE>
<CAPTION>
==========================================================================
Price/ Price/
Tang. Total Div.
Book Assets Yield
Company Ticker St. (%) (%) (%)
==========================================================================
<S> <C> <C> <C> <C> <C>
Peoples Savings Bank of Troy PESV OH 191.28 20.16 0.49
Peoples Savings Financial Corp PSVF PA 117.34 24.64 4.08
Permanent Bancorp Inc. PERM IN 130.45 12.64 1.54
Perpetual Federal Savings Bank PFOH OH 109.87 17.87 3.01
Perpetual Midwest Financial PMFI IA 151.45 12.88 1.09
Perry County Financial Corp. PCBC MO 123.60 23.73 1.72
PFF Bancorp Inc. PFFB CA 131.53 13.09 -
Piedmont Bancorp Inc. PDB NC 140.54 23.10 3.77
Pioneer Financial Corporation PONE KY 103.33 NA 3.77
Pittsburgh Home Financial Corp PHFC PA 123.45 12.88 1.34
Potters Financial Corp. PTRS OH 165.03 14.55 1.08
Prestige Bancorp Inc. PRBC PA 114.04 12.78 0.62
Princeton Federal Bank FSB PRNXX KY 104.35 14.40 5.71
Progress Financial Corp. PFNC PA 294.54 14.01 0.78
Progressive Bank Inc. PSBK NY 199.39 15.69 1.88
Provident Financial Holdings PROV CA 123.16 16.42 -
PS Financial Inc. PSFI IL 123.64 44.17 2.63
Pulse Bancorp PULS NJ 190.66 15.66 2.62
PVF Capital Corp. PVFC OH 195.20 14.02 -
QCF Bancorp Inc. QCFB MN 151.35 24.93 -
Quaker City Bancorp Inc. QCBC CA 143.51 12.14 -
Queens County Bancorp Inc. QCSB NY 275.26 35.78 2.19
Raritan Bancorp Inc. RARB NJ 220.88 16.02 1.75
RedFed Bancorp Inc. REDF CA 175.69 14.56 -
Redwood Financial Inc. REDW MN 91.46 16.97 -
Reliancd Bancshares Inc. RELI WI 96.68 46.69 -
Reliance Bancorp Inc. RELY NY 241.71 14.67 1.87
River Valley Bancorp RIVR IN 124.23 15.58 0.88
Riverview Bancorp Inc. RVSB WA 164.22 32.84 -
Rocky Ford Financial Inc. RFFC CO 93.85 25.22 -
Roslyn Bancorp Inc. RSLN NY 157.48 27.64 1.27
S. Carolina Community Bancshrs SCCB SC 129.68 34.46 2.67
Sandwich Bancorp Inc. SWCB MA 201.57 15.37 3.42
Scotland Bancorp Inc. SSB NC 134.69 30.45 2.93
Security Bancorp Inc. SCYT TN 103.68 13.76 -
Security Federal Bancorp Inc. SIYF AL 152.46 17.93 -
Security First Corp. SFSL OH 250.61 22.81 1.56
SFB Bancorp Inc. SFBK TN 98.98 22.54 -
SFS Bancorp Inc. SFED NY 138.89 17.32 1.14
SGV Bancorp Inc. SGVB CA 134.98 9.88 -
Shelby County Bancorp SCBXX IN 62.59 4.96 1.60
</TABLE>
III-8
<PAGE> 90
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit III
MARKET VALUATION AND FINANCIAL DATA FOR ALL PUBLIC THRIFTS
<TABLE>
<CAPTION>
=================================================================================================================================
LTM LTM Stock Total Price/ Price/ Price/
Total Core Core Price Market LTM QTR Book
Assets ROAA ROAE 12/11/97 Value EPS EPS Value
Company Ticker St. ($000) (%) (%) ($) ($M) (x) (x) (%)
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHS Bancorp Inc. SHSB PA 88,460 0.34 4.43 16.250 13.32 NA NA NA
SIS Bancorp Inc. SISB MA 1,453,017 0.82 11.33 37.500 209.28 18.29 16.45 197.99
Sistersville Bancorp Inc. SVBC WV 32,568 NA NA 15.500 10.25 NA 22.79 94.98
Skaneateles Bancorp Inc. SKAN NY 247,643 0.68 9.99 18.750 26.90 15.89 15.63 154.96
Sobieski Bancorp Inc. SOBI IN 84,279 0.57 3.56 19.500 15.20 29.55 27.08 112.98
South Street Financial Corp. SSFC NC 240,524 1.19 6.62 18.938 85.15 NA 27.85 127.61
Southern Banc Co. SRN AL 106,164 0.47 2.77 17.750 21.84 42.26 34.13 120.42
Southern Community Bancshares SCBS AL 70,370 0.90 5.16 19.000 21.61 NA 22.62 144.05
Southern Missouri Bancorp Inc. SMBC MO 163,297 0.90 5.61 20.125 32.44 21.41 22.87 123.01
SouthFirst Bancshares Inc. SZB AL 97,283 0.17 1.24 20.625 17.48 NM 34.38 128.42
Southwest Bancshares SWBI IL 375,004 1.02 9.55 25.250 67.13 17.53 16.61 157.71
Sovereign Bancorp Inc. SVRN PA 14,601,008 0.65 12.46 21.500 1,919.42 31.62 NM 293.32
St. Francis Capital Corp. STFR WI 1,660,649 0.76 9.08 40.500 212.14 18.41 17.16 165.04
St. Landry Financial Corp. SLAN LA 58,660 0.33 2.77 16.000 6.63 NM 16.00 97.50
St. Paul Bancorp Inc. SPBC IL 4,548,436 1.07 12.11 24.750 845.65 18.33 17.68 206.59
StateFed Financial Corp. SFFC IA 87,542 1.28 7.20 13.500 21.03 18.75 22.50 136.92
Statewide Financial Corp. SFIN NJ 703,112 0.81 8.46 22.500 101.46 17.72 17.05 156.90
Sterling Financial Corp. STSA WA 1,870,513 0.54 9.50 21.375 161.75 17.52 16.19 164.68
Stone Street Bancorp Inc. SSM NC 104,773 1.56 4.57 22.250 42.23 25.00 27.81 136.34
Sturgis B&TC, FSB STUR MI 192,271 0.82 9.82 27.500 33.05 19.37 15.63 205.84
SuburbFed Financial Corp. SFSB IL 432,559 0.54 8.28 36.000 45.46 17.65 16.67 158.38
SWVA Bancshares Inc. SWVB VA 72,187 0.89 7.42 19.750 10.09 12.99 20.57 123.36
Tappan Zee Financial Inc. TPNZ NY 124,603 0.84 4.77 19.250 28.65 26.74 28.31 134.05
Teche Holding Co. TSH LA 404,097 0.94 7.01 21.000 72.19 17.65 18.75 132.83
Telebanc Financial Corp. TBFC VA 838,533 0.24 5.20 17.500 38.92 12.07 16.83 129.15
Texarkana First Financial Corp FTF AR 178,710 1.69 10.66 25.750 46.02 15.70 14.63 168.08
TF Financial Corp. THRD PA 625,338 0.67 6.02 29.250 93.23 23.98 22.16 152.26
Three Rivers Financial Corp. THR MI 94,216 0.86 6.19 20.250 16.68 19.10 17.46 128.57
Towne Financial Corp. TOFI OH 108,300 0.61 8.21 27.000 5.63 8.91 7.94 72.19
TR Financial Corp. ROSE NY 3,691,564 0.87 14.14 33.250 584.94 17.78 16.30 238.52
Trenton SB (MHC) TSBS NJ 638,942 0.90 5.26 37.750 341.48 43.39 52.43 315.37
Tri-County Bancorp Inc. TRIC WY 88,173 1.07 7.26 13.688 15.98 18.01 19.01 118.31
TSB Financial Inc. TSBF IL 29,859 0.90 7.06 14.500 3.31 12.50 10.36 84.94
Twin City Bancorp TWIN TN 106,931 0.72 5.59 14.250 18.13 19.79 15.49 131.09
Union Financial Bcshs, Inc. UFBS SC 171,245 0.99 11.31 24.250 19.88 20.04 14.10 151.75
United Federal Savings Bank UFRM NC 285,744 0.57 7.55 10.500 32.28 16.67 16.41 153.96
United Financial Corp. UBMT MT 103,082 1.40 6.01 25.250 30.89 20.53 19.13 124.75
USABancshares, Inc. USAB PA 64,269 0.47 4.08 9.750 7.14 33.62 15.23 144.87
Vermilion Bancorp Inc. VBAS IL 37,391 0.41 4.12 14.500 5.31 NA 19.08 90.97
Virginia Beach Fed. Financial VABF VA 605,486 0.49 7.24 16.500 82.16 22.00 18.75 189.66
Warren Bancorp Inc. WRNB MA 364,130 1.76 17.57 20.250 77.02 10.38 12.05 198.53
</TABLE>
<TABLE>
<CAPTION>
==========================================================================
Price/ Price/
Tang. Total Div.
Book Assets Yield
Company Ticker St. (%) (%) (%)
==========================================================================
<S> <C> <C> <C> <C> <C>
SHS Bancorp Inc. SHSB PA NA 15.06 -
SIS Bancorp Inc. SISB MA 197.99 14.40 1.49
Sistersville Bancorp Inc. SVBC WV 94.98 31.47 -
Skaneateles Bancorp Inc. SKAN NY 159.57 10.86 1.42
Sobieski Bancorp Inc. SOBI IN 112.98 18.04 1.64
South Street Financial Corp. SSFC NC 127.61 35.40 2.11
Southern Banc Co. SRN AL 121.49 20.57 1.97
Southern Community Bancshares SCBS AL 144.05 30.71 1.58
Southern Missouri Bancorp Inc. SMBC MO 123.01 19.87 2.48
SouthFirst Bancshares Inc. SZB AL 128.42 17.97 2.42
Southwest Bancshares SWBI IL 157.71 17.90 3.17
Sovereign Bancorp Inc. SVRN PA 358.93 13.15 0.37
St. Francis Capital Corp. STFR WI 186.55 12.77 1.38
St. Landry Financial Corp. SLAN LA 97.50 11.30 -
St. Paul Bancorp Inc. SPBC IL 207.11 18.59 1.62
StateFed Financial Corp. SFFC IA 136.92 24.02 1.48
Statewide Financial Corp. SFIN NJ 157.12 14.43 1.96
Sterling Financial Corp. STSA WA 179.92 8.65 -
Stone Street Bancorp Inc. SSM NC 136.34 40.31 2.02
Sturgis B&TC, FSB STUR MI 221.95 17.19 1.16
SuburbFed Financial Corp. SFSB IL 158.94 10.51 0.89
SWVA Bancshares Inc. SWVB VA 123.36 13.98 1.52
Tappan Zee Financial Inc. TPNZ NY 134.05 22.99 1.46
Teche Holding Co. TSH LA 132.83 17.86 2.38
Telebanc Financial Corp. TBFC VA 130.60 4.64 -
Texarkana First Financial Corp FTF AR 168.08 25.75 2.18
TF Financial Corp. THRD PA 172.46 14.91 1.37
Three Rivers Financial Corp. THR MI 129.06 17.70 1.98
Towne Financial Corp. TOFI OH 75.67 5.20 -
TR Financial Corp. ROSE NY 238.52 15.85 1.93
Trenton SB (MHC) TSBS NJ 350.51 53.44 0.93
Tri-County Bancorp Inc. TRIC WY 118.31 18.12 2.92
TSB Financial Inc. TSBF IL 84.94 11.09 1.72
Twin City Bancorp TWIN TN 131.09 16.95 2.81
Union Financial Bcshs, Inc. UFBS SC 185.11 11.61 2.23
United Federal Savings Bank UFRM NC 153.96 11.30 2.29
United Financial Corp. UBMT MT 124.75 29.97 3.96
USABancshares, Inc. USAB PA 147.06 11.11 -
Vermilion Bancorp Inc. VBAS IL 90.97 14.20 -
Virginia Beach Fed. Financial VABF VA 189.66 13.57 1.21
Warren Bancorp Inc. WRNB MA 198.53 21.15 2.57
</TABLE>
III-9
<PAGE> 91
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit III
MARKET VALUATION AND FINANCIAL DATA FOR ALL PUBLIC THRIFTS
<TABLE>
<CAPTION>
===================================================================================================================================
LTM LTM Stock Total Price/ Price/ Price/
Total Core Core Price Market LTM QTR Book
Assets ROAA ROAE 12/11/97 Value EPS EPS Value
Company Ticker St. ($000) (%) (%) ($) ($M) (x) (x) (%)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Washington Bancorp WBIO IA 66,146 1.16 7.08 18.250 11.88 15.08 18.25 109.81
Washington Fed Bank for Svgs WFBS IL 25,694 0.65 6.06 19.687 2.70 17.27 12.30 106.53
Washington Federal Inc. WFSL WA 5,719,589 1.85 15.62 32.000 1,520.28 14.48 14.04 211.78
Washington Mutual Inc. WAMU WA 95,607,369 0.68 11.92 68.875 17,713.00 129.95 NM 339.62
Washington Savings Bank, FSB WSB MD 267,870 0.62 7.14 7.125 30.98 29.69 14.84 138.08
Wayne Bancorp Inc. WYNE NJ 267,285 0.86 6.01 21.750 43.80 20.14 21.75 131.90
Webster Financial Corp. WBST CT 6,811,014 0.73 13.84 62.875 852.22 29.52 22.78 234.35
Wells Financial Corp. WEFC MN 204,761 1.04 7.37 18.500 36.25 16.82 15.95 124.50
West Town Bancorp Inc. WESXX IL 28,199 0.58 3.98 11.000 2.47 14.86 19.64 62.22
Westco Bancorp WCBI IL 309,070 1.41 9.19 26.500 65.56 15.59 14.10 136.46
Westcorp WES CA 3,757,362 (0.01) (0.11) 17.188 451.29 13.02 12.64 132.22
WesterFed Financial Corp. WSTR MT 999,203 0.76 6.60 24.063 134.20 19.10 18.80 126.45
Western Ohio Financial Corp. WOFC OH 397,425 0.43 3.16 26.500 62.43 39.55 220.83 113.25
Westwood Homestead Fin. Corp. WEHO OH 142,878 1.09 3.50 15.500 43.13 31.00 48.44 109.15
WHG Bancshares Corp. WHGB MD 100,235 0.85 3.72 15.875 23.21 45.36 23.35 112.11
Wilshire Financial Services WFSG OR 1,369,761 1.62 25.01 26.750 202.50 NA 8.57 280.10
Winton Financial Corp. WFI OH 324,532 0.86 12.06 19.750 39.23 12.19 11.22 168.52
Wood Bancorp Inc. FFWD OH 166,520 1.29 10.20 18.500 39.22 18.32 16.52 189.36
WSB Holding Co. WSBH PA 35,637 NA NA 13.750 4.55 NA NA 92.72
WSFS Financial Corp. WSFS DE 1,495,609 1.13 20.39 20.250 251.96 15.94 14.89 304.05
WVS Financial Corp. WVFC PA 282,235 1.28 10.65 32.000 55.94 15.46 15.09 165.12
Yonkers Financial Corporation YFCB NY 312,956 1.07 6.79 18.250 55.13 17.89 16.90 125.60
York Financial Corp. YFED PA 1,155,725 0.80 9.70 25.250 222.36 20.70 24.28 217.30
Average 1,311,512 0.92 8.41 23.69 215.54 17.52 16.85 154.26
Median 273,661 0.89 7.65 20.38 44.88 17.54 16.81 140.70
</TABLE>
<TABLE>
<CAPTION>
===========================================================================
Price/ Price/
Tang. Total Div.
Book Assets Yield
Company Ticker St. (%) (%) (%)
===========================================================================
<S> <C> <C> <C> <C> <C>
Washington Bancorp WBIO IA 109.81 17.96 2.19
Washington Fed Bank for Svgs WFBS IL 106.53 10.51 2.54
Washington Federal Inc. WFSL WA 230.71 26.58 2.88
Washington Mutual Inc. WAMU WA 366.55 18.53 1.63
Washington Savings Bank, FSB WSB MD 138.08 11.57 1.40
Wayne Bancorp Inc. WYNE NJ 131.90 16.39 0.92
Webster Financial Corp. WBST CT 272.19 12.51 1.27
Wells Financial Corp. WEFC MN 124.50 17.70 2.60
West Town Bancorp Inc. WESXX IL 62.22 8.76 -
Westco Bancorp WCBI IL 136.46 21.21 2.57
Westcorp WES CA 132.52 12.01 2.33
WesterFed Financial Corp. WSTR MT 156.76 13.43 1.91
Western Ohio Financial Corp. WOFC OH 121.34 15.71 3.77
Westwood Homestead Fin. Corp. WEHO OH 109.15 30.19 1.81
WHG Bancshares Corp. WHGB MD 112.11 23.16 2.02
Wilshire Financial Services WFSG OR 280.10 14.78 -
Winton Financial Corp. WFI OH 171.89 12.09 2.33
Wood Bancorp Inc. FFWD OH 189.36 23.55 2.16
WSB Holding Co. WSBH PA 92.72 12.77 -
WSFS Financial Corp. WSFS DE 306.35 16.85 -
WVS Financial Corp. WVFC PA 165.12 19.82 3.75
Yonkers Financial Corporation YFCB NY 125.60 17.62 1.32
York Financial Corp. YFED PA 217.30 19.24 1.90
Average 160.14 18.40 1.53
Median 144.91 16.79 1.54
</TABLE>
Note: average and median price/earnings ratios exclude values greater than 25.
III-10
<PAGE> 92
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit III
MARKET VALUATION AND FINANCIAL DATA FOR ALL PUBLIC THRIFTS
<TABLE>
<CAPTION>
=================================================================================================================================
LTM LTM Stock Total Price/ Price/ Price/
Total Core Core Price Market LTM QTR Book
Assets ROAA ROAE 12/11/97 Value EPS EPS Value
Company Ticker St. ($000) (%) (%) ($) ($M) (x) (x) (%)
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
THRIFTS UNDER ACQUISITION
- -------------------------
Advantage Bancorp Inc. AADV WI 1,037,462 0.94 10.49 66.500 215.18 21.52 19.56 217.32
America First Financial Fund AFFFZ CA 2,250,517 2.00 24.78 49.000 294.52 8.05 15.91 166.61
Anchor Savings Bank FSB ANCXX FL 164,685 0.88 11.84 1.000 4.44 2.63 2.78 33.90
Branford Savings Bank BSBC CT 182,868 1.11 11.92 6.063 39.77 20.91 25.26 225.39
Capital Savings Bancorp Inc. CAPS MO 242,259 0.94 10.77 23.250 43.98 19.54 18.75 198.72
CENFED Financial Corp. CENF CA 2,304,678 0.57 11.14 41.750 250.17 17.25 14.50 194.10
CFX Corp. CFX NH 2,821,182 0.95 11.09 28.500 684.04 26.39 NM 278.05
Charter Financial Inc. CBSB IL 393,268 1.16 7.78 23.750 98.57 22.84 13.19 173.23
Coast Savings Financial CSA CA 9,040,413 0.66 13.39 62.563 1,165.63 22.26 15.19 248.17
Eagle Financial Corp. EGFC CT 2,097,179 0.51 6.85 52.000 328.43 48.15 20.00 226.98
Emerald Isle Bancorp Inc. EIRE MA 443,503 0.92 13.23 32.000 71.99 20.38 20.00 232.22
First FS&LA of San Bernardino FSSB CA 103,538 0.05 1.22 9.850 3.23 57.94 9.85 70.06
Gateway Bancorp Inc. GWBC KY 62,609 0.94 3.59 18.750 20.28 31.78 58.59 116.10
GF Bancorp Inc. GNPI OH 49,451 0.95 7.11 32.000 9.87 23.36 44.44 144.08
GF Bancshares Incorporated GFBH GA 98,919 1.35 10.44 13.000 12.86 9.22 8.55 99.16
GFS Bancorp Inc. GFSB IA 94,496 1.27 11.03 17.063 16.86 15.23 14.71 154.98
Great Financial Corp. GTFN KY 2,893,505 0.77 8.01 49.125 679.08 22.53 20.82 233.04
Home Savings Bk of Siler City HSSC NC 56,380 0.75 4.17 14.750 13.61 32.78 92.19 142.79
HomeCorp Inc. HMCI IL 326,877 0.41 6.43 27.375 46.74 29.76 26.32 209.45
Indiana Community Bank SB INCB IN 96,089 0.53 4.30 20.500 18.90 39.42 34.17 165.59
Life Bancorp Inc. LIFB VA 1,486,357 0.86 8.10 36.000 354.51 26.09 25.71 222.63
Mid Continent Bancshares Inc. MCBS KS 405,262 1.20 11.87 46.000 90.25 21.40 23.00 227.72
Midwest Federal Financial MWFD WI 211,689 1.11 12.82 27.000 43.95 15.98 15.00 230.77
ML Bancorp Inc. MLBC PA 2,315,784 0.51 7.09 30.000 355.97 23.81 21.43 208.19
New York Bancorp Inc. NYB NY 3,244,200 1.49 28.61 38.000 810.11 16.89 15.32 479.19
North Cincinnati Savings Bank NSGB OH 60,585 0.31 3.43 16.750 6.65 33.50 23.26 114.73
Norwich Financial Corp. NSSB CT 700,860 1.07 9.54 30.250 164.33 21.15 20.44 201.00
Palfed Inc. PALM SC 668,504 0.67 8.22 28.250 149.70 58.85 39.24 263.04
Poughkeepsie Financial Corp. PKPS NY 883,981 0.54 6.44 10.500 132.25 30.00 32.81 177.66
Sho-Me Financial Corp. SMFC MO 344,849 1.24 12.97 49.750 74.58 18.56 16.58 219.84
Somerset Savings Bank SOSA MA 520,339 0.99 16.47 5.063 84.31 16.33 12.66 245.78
Westwood Financial Corp. WWFC NJ 110,425 0.78 2.50 27.625 17.83 23.02 36.35 173.20
AVERAGE 1,116,022 0.89 9.93 29.187 196.96 18.23 16.26 196.68
MEDIAN 399,265 0.93 9.99 27.938 79.45 20.38 15.91 204.60
</TABLE>
<TABLE>
<CAPTION>
=========================================================================
Price/ Price/
Tang. Total Div.
Book Assets Yield
Company Ticker St. (%) (%) (%)
=========================================================================
<S> <C> <C> <C> <C> <C>
THRIFTS UNDER ACQUISITION
- -------------------------
Advantage Bancorp Inc. AADV WI 233.58 20.74 0.60
America First Financial Fund AFFFZ CA 168.38 13.09 3.27
Anchor Savings Bank FSB ANCXX FL 34.13 2.70 -
Branford Savings Bank BSBC CT 225.39 21.75 1.32
Capital Savings Bancorp Inc. CAPS MO 198.72 18.15 1.03
CENFED Financial Corp. CENF CA 194.37 10.85 0.86
CFX Corp. CFX NH 288.46 24.25 3.09
Charter Financial Inc. CBSB IL 195.80 25.06 1.35
Coast Savings Financial CSA CA 251.06 12.89 -
Eagle Financial Corp. EGFC CT 285.24 15.66 1.92
Emerald Isle Bancorp Inc. EIRE MA 232.22 16.23 0.88
First FS&LA of San Bernardino FSSB CA 71.85 3.12 -
Gateway Bancorp Inc. GWBC KY 116.10 32.39 2.13
GF Bancorp Inc. GNPI OH 144.08 19.96 1.50
GF Bancshares Incorporated GFBH GA 99.16 13.00 16.92
GFS Bancorp Inc. GFSB IA 154.98 17.84 1.52
Great Financial Corp. GTFN KY 242.83 23.47 1.22
Home Savings Bk of Siler City HSSC NC 142.79 24.14 2.71
HomeCorp Inc. HMCI IL 209.45 14.30 -
Indiana Community Bank SB INCB IN 165.59 19.67 1.76
Life Bancorp Inc. LIFB VA 229.01 23.85 1.33
Mid Continent Bancshares Inc. MCBS KS 227.72 22.27 0.87
Midwest Federal Financial MWFD WI 238.73 20.76 1.26
ML Bancorp Inc. MLBC PA 223.21 15.37 1.33
New York Bancorp Inc. NYB NY 479.19 24.97 1.58
North Cincinnati Savings Bank NSGB OH 114.73 10.98 -
Norwich Financial Corp. NSSB CT 221.45 23.45 1.85
Palfed Inc. PALM SC 263.04 22.39 0.43
Poughkeepsie Financial Corp. PKPS NY 177.66 14.96 1.91
Sho-Me Financial Corp. SMFC MO 219.84 21.63 -
Somerset Savings Bank SOSA MA 245.78 16.20 -
Westwood Financial Corp. WWFC NJ 193.59 16.15 0.72
AVERAGE 202.75 18.20 1.67
MEDIAN 214.65 18.91 1.29
</TABLE>
Note: average and median price/earnings ratios exclude values greater than 25.
III-11
<PAGE> 93
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit III
MARKET VALUATION AND FINANCIAL DATA FOR ALL PUBLIC THRIFTS
<TABLE>
<CAPTION>
==================================================================================================================================
LTM LTM Stock Total Price/ Price/ Price/
Total Core Core Price Market LTM QTR Book
Assets ROAA ROAE 12/11/97 Value EPS EPS Value
Company Ticker St. ($000) (%) (%) ($) ($M) (x) (x) (%)
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MUTUAL HOLDING COMPANIES
- ------------------------
Ashe Federal Bank (MHC) ASFE NC 87,709 0.73 5.62 18.500 18.50 NA 27.21 168.33
Community Savings Bnkshrs(MHC) CMSV FL 709,220 0.74 6.46 34.875 177.69 32.29 28.13 215.01
Fidelity Bankshares Inc. (MHC) FFFL FL 1,045,692 0.57 6.48 30.000 203.55 31.91 25.00 237.15
First Carnegie Deposit (MHC) SKBO PA 147,102 0.54 4.45 18.875 43.41 NA 33.71 177.90
First Fed SB of Siouxland(MHC) FFSX IA 456,850 0.71 8.61 32.375 91.72 27.21 26.98 229.94
First Federal of SC, FSB (MHC) FCFS SC 73,625 0.73 8.63 12.500 12.53 48.08 13.02 196.54
First FS&LA of Alpena (MHC) FFAL MI 208,167 0.66 7.46 17.875 29.26 26.29 24.83 186.78
First Savings Bank (MHC) FSLA NJ 1,044,513 0.93 9.99 41.625 333.74 37.17 47.30 335.96
Greater Delaware Valley (MHC) GDVS PA 248,792 0.93 7.95 30.000 98.18 44.12 44.12 338.98
Guaranty Federal SB (MHC) GFED MO 210,139 0.97 6.78 26.125 81.64 42.14 38.42 298.23
Harbor Florida Bancorp (MHC) HARB FL 1,131,024 1.20 14.58 67.000 333.22 25.19 23.93 344.30
Harris Financial Inc. (MHC) HARS PA 2,110,299 0.77 9.21 19.000 641.81 36.54 31.67 371.09
Jacksonville Savings Bk (MHC) JXSB IL 164,235 0.54 5.05 28.500 36.26 36.08 29.69 209.25
Jefferson FS&LA (MHC) JFSB TN 176,047 1.41 11.57 29.000 53.98 22.31 22.66 246.60
Leeds Federal Savings Bk (MHC) LFED MD 285,425 1.19 7.30 23.000 119.19 35.38 33.82 250.27
Liberty Savings Bank (MHC) LBTM MO 160,850 0.70 6.31 22.000 29.22 52.38 27.50 175.16
Northwest Savings Bank (MHC) NWSB PA 2,100,744 0.96 9.84 14.750 689.61 34.30 33.52 340.65
Oswego City Savings Bk (MHC) PBHC NY 193,005 0.95 8.27 25.000 47.92 23.36 24.04 207.99
Pennsylvania Svgs Bk (MHC) PSBI PA 126,364 0.35 2.90 26.750 31.96 76.43 44.58 216.25
People's Bank (MHC) PBCT CT 7,731,200 0.74 8.90 35.500 2,169.97 24.83 23.36 311.13
Peoples Home Savings Bk (MHC) PHSB PA 206,426 0.80 8.55 18.750 51.75 NA NA 183.46
Perpetual Bank (MHC) PERT SC 256,211 1.11 9.03 56.250 84.63 47.67 31.96 279.29
Pocahontas FS&LA (MHC) PFSL AR 383,417 0.62 9.98 35.500 57.95 24.32 26.89 239.06
Ponchatoula Homestead (MHC) PHSXX LA 58,537 0.43 4.67 13.000 7.88 20.97 23.21 138.15
Pulaski Bank, Svgs Bank (MHC) PULB MO 180,232 0.92 7.16 30.000 62.82 51.72 28.85 267.14
Pulaski Savings Bank (MHC) PLSK NJ 178,987 0.62 6.82 19.000 39.33 NA 29.69 183.40
Roebling Savings Bank (MHC) ROEB NJ 32,306 1.17 14.90 18.750 7.98 NA NA NA
SB of the Finger Lakes (MHC) SBFL NY 227,970 0.24 2.51 30.000 53.55 68.18 68.18 251.68
Wake Forest FS&LA (MHC) WAKE NC 62,527 1.38 7.14 20.500 24.42 35.34 24.40 201.18
Wayne Savings Bancshares (MHC) WAYN OH 250,241 0.69 7.40 31.000 69.91 38.27 35.23 293.01
Webster City Federal SB (MHC) WCFB IA 94,481 1.42 6.09 21.250 44.63 32.69 33.20 202.00
AVERAGE 656,204 0.83 7.76 27.331 185.43 23.16 22.72 243.20
MEDIAN 208,167 0.74 7.40 26.125 53.98 23.36 23.93 233.55
</TABLE>
<TABLE>
<CAPTION>
==========================================================================
Price/ Price/
Tang. Total Div.
Book Assets Yield
Company Ticker St. (%) (%) (%)
==========================================================================
<S> <C> <C> <C> <C> <C>
MUTUAL HOLDING COMPANIES
- ------------------------
Ashe Federal Bank (MHC) ASFE NC 173.22 21.09 1.08
Community Savings Bnkshrs(MHC) CMSV FL 215.01 25.05 2.58
Fidelity Bankshares Inc. (MHC) FFFL FL 238.66 19.47 3.00
First Carnegie Deposit (MHC) SKBO PA 177.90 29.51 1.59
First Fed SB of Siouxland(MHC) FFSX IA 231.75 20.08 1.48
First Federal of SC, FSB (MHC) FCFS SC 196.54 17.02 -
First FS&LA of Alpena (MHC) FFAL MI 226.55 14.06 3.92
First Savings Bank (MHC) FSLA NJ 369.67 31.95 1.15
Greater Delaware Valley (MHC) GDVS PA 338.98 39.46 1.20
Guaranty Federal SB (MHC) GFED MO 298.23 38.85 1.68
Harbor Florida Bancorp (MHC) HARB FL 355.44 29.46 2.09
Harris Financial Inc. (MHC) HARS PA 419.43 30.41 1.16
Jacksonville Savings Bk (MHC) JXSB IL 209.25 22.08 1.58
Jefferson FS&LA (MHC) JFSB TN 246.60 30.66 1.72
Leeds Federal Savings Bk (MHC) LFED MD 250.27 41.76 2.20
Liberty Savings Bank (MHC) LBTM MO 175.16 18.17 3.64
Northwest Savings Bank (MHC) NWSB PA 360.64 32.83 1.09
Oswego City Savings Bk (MHC) PBHC NY 247.52 24.83 1.12
Pennsylvania Svgs Bk (MHC) PSBI PA 216.42 25.29 -
People's Bank (MHC) PBCT CT 311.40 28.07 2.14
Peoples Home Savings Bk (MHC) PHSB PA 183.46 25.07 -
Perpetual Bank (MHC) PERT SC 279.29 33.03 2.49
Pocahontas FS&LA (MHC) PFSL AR 239.06 15.11 2.54
Ponchatoula Homestead (MHC) PHSXX LA 138.15 13.46 5.85
Pulaski Bank, Svgs Bank (MHC) PULB MO 267.14 34.86 3.67
Pulaski Savings Bank (MHC) PLSK NJ 183.40 21.97 1.58
Roebling Savings Bank (MHC) ROEB NJ NA 24.70 -
SB of the Finger Lakes (MHC) SBFL NY 251.68 23.49 1.33
Wake Forest FS&LA (MHC) WAKE NC 201.18 39.06 1.95
Wayne Savings Bancshares (MHC) WAYN OH 293.01 27.94 2.00
Webster City Federal SB (MHC) WCFB IA 202.00 47.24 3.77
AVERAGE 249.90 27.29 1.92
MEDIAN 238.86 25.29 1.68
</TABLE>
Note: average and median price/earnings ratios exclude values greater than 25.
III-12
<PAGE> 94
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit III
MARKET VALUATION AND FINANCIAL DATA FOR ALL PUBLIC THRIFTS
<TABLE>
<CAPTION>
====================================================================================================================================
LTM LTM Stock Total Price/ Price/ Price/
Total Core Core Price Market LTM QTR Book
Assets ROAA ROAE 12/11/97 Value EPS EPS Value
Company Ticker St. ($000) (%) (%) ($) ($M) (x) (x) (%)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NEW YORK THRIFTS
- ----------------
AFSALA Bancorp Inc. AFED NY 159,181 0.71 5.54 18.750 26.03 NA 20.38 117.78
ALBANK Financial Corp. ALBK NY 3,716,954 1.05 11.35 46.125 593.99 17.34 17.21 172.82
Albion Banc Corp. ALBC NY 70,810 0.49 5.46 28.000 7.00 21.05 18.92 115.46
Ambanc Holding Co. AHCI NY 529,309 (0.61) (4.74) 17.000 73.21 NM 22.37 121.60
Astoria Financial Corp. ASFC NY 7,904,363 0.77 9.80 56.750 1,172.79 19.64 17.52 192.31
Carver Bancorp Inc. CNY NY 415,561 0.18 2.08 16.625 38.47 NM 27.71 110.25
Catskill Financial Corp. CATB NY 289,619 1.37 5.11 17.375 80.92 21.19 19.74 112.75
Dime Bancorp Inc. DME NY 19,413,597 0.66 12.47 26.000 2,638.79 20.97 17.11 250.48
Dime Community Bancorp Inc. DIME NY 1,385,356 1.04 6.55 23.500 296.68 21.96 25.54 158.68
Elmira Savings Bank (The) ESBK NY 228,268 0.34 5.40 30.000 22.25 23.08 16.30 149.48
Financial Bancorp Inc. FIBC NY 296,956 0.98 10.16 24.375 41.67 16.25 15.23 155.16
Flushing Financial Corp. FFIC NY 960,130 0.96 6.05 23.000 183.62 21.70 19.17 134.66
GreenPoint Financial Corp. GPT NY 13,093,985 1.05 10.01 66.750 2,858.64 18.75 17.57 198.37
GSB Financial Corp. GOSB NY 154,649 NA NA 17.000 38.22 NA NA NA
Haven Bancorp Inc. HAVN NY 1,833,284 0.69 11.45 21.750 190.79 17.13 20.14 173.44
JSB Financial Inc. JSB NY 1,531,068 1.72 7.67 49.063 486.63 17.22 14.96 136.63
Long Island Bancorp Inc. LISB NY 5,930,784 0.73 7.93 45.375 1,090.04 21.81 20.63 199.54
MSB Bancorp Inc. MBB NY 773,991 0.54 6.06 30.500 86.75 27.23 23.11 136.16
Peekskill Financial Corp. PEEK NY 181,242 1.15 4.33 17.500 55.88 26.12 25.74 118.16
Progressive Bank Inc. PSBK NY 884,617 0.94 11.17 36.250 138.79 16.48 15.90 179.63
Queens County Bancorp Inc. QCSB NY 1,541,049 1.55 11.55 36.500 551.45 25.70 24.01 275.26
Reliance Bancorp Inc. RELY NY 2,034,753 0.84 10.22 34.250 298.40 17.93 16.16 177.55
Roslyn Bancorp Inc. RSLN NY 3,474,150 1.17 6.80 22.000 960.13 NA 19.64 156.70
SFS Bancorp Inc. SFED NY 174,093 0.69 5.48 24.500 30.16 24.75 24.50 138.89
Skaneateles Bancorp Inc. SKAN NY 247,643 0.68 9.99 18.750 26.90 15.89 15.63 154.96
Tappan Zee Financial Inc. TPNZ NY 124,603 0.84 4.77 19.250 28.65 26.74 28.31 134.05
TR Financial Corp. ROSE NY 3,691,564 0.87 14.14 33.250 584.94 17.78 16.30 238.52
Yonkers Financial Corporation YFCB NY 312,956 1.07 6.79 18.250 55.13 17.89 16.90 125.60
AVERAGE 2,548,376 0.83 7.54 29.230 452.03 19.41 18.67 160.55
MEDIAN 829,304 0.84 6.80 24.438 112.77 18.75 17.57 154.96
</TABLE>
<TABLE>
<CAPTION>
==========================================================================
Price/ Price/
Tang. Total Div.
Book Assets Yield
Company Ticker St. (%) (%) (%)
==========================================================================
<S> <C> <C> <C> <C> <C>
NEW YORK THRIFTS
- ----------------
AFSALA Bancorp Inc. AFED NY 117.78 16.35 1.28
ALBANK Financial Corp. ALBK NY 196.19 15.98 1.56
Albion Banc Corp. ALBC NY 115.46 9.89 1.14
Ambanc Holding Co. AHCI NY 121.60 13.83 1.18
Astoria Financial Corp. ASFC NY 227.36 14.84 1.06
Carver Bancorp Inc. CNY NY 114.66 9.26 -
Catskill Financial Corp. CATB NY 112.75 27.94 1.84
Dime Bancorp Inc. DME NY 263.16 13.59 0.62
Dime Community Bancorp Inc. DIME NY 184.17 21.42 1.02
Elmira Savings Bank (The) ESBK NY 153.53 9.75 2.03
Financial Bancorp Inc. FIBC NY 155.85 14.03 1.64
Flushing Financial Corp. FFIC NY 140.24 19.12 1.04
GreenPoint Financial Corp. GPT NY 370.01 21.83 1.50
GSB Financial Corp. GOSB NY NA 24.71 -
Haven Bancorp Inc. HAVN NY 174.00 10.41 1.38
JSB Financial Inc. JSB NY 136.63 31.78 2.85
Long Island Bancorp Inc. LISB NY 201.40 18.38 1.32
MSB Bancorp Inc. MBB NY 255.44 11.21 1.97
Peekskill Financial Corp. PEEK NY 118.16 30.83 2.06
Progressive Bank Inc. PSBK NY 199.39 15.69 1.88
Queens County Bancorp Inc. QCSB NY 275.26 35.78 2.19
Reliance Bancorp Inc. RELY NY 241.71 14.67 1.87
Roslyn Bancorp Inc. RSLN NY 157.48 27.64 1.27
SFS Bancorp Inc. SFED NY 138.89 17.32 1.14
Skaneateles Bancorp Inc. SKAN NY 159.57 10.86 1.42
Tappan Zee Financial Inc. TPNZ NY 134.05 22.99 1.46
TR Financial Corp. ROSE NY 238.52 15.85 1.93
Yonkers Financial Corporation YFCB NY 125.60 17.62 1.32
AVERAGE 178.85 18.34 1.43
MEDIAN 157.48 16.17 1.40
</TABLE>
Note: average and median price/earnings ratios exclude values greater than 25.
III-13
<PAGE> 95
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit IV-1
PRO FORMA CONVERSION ASSUMPTIONS
1. The total amount of the net conversion proceeds was fully invested at the
beginning of the applicable period
2. The net conversion proceeds are invested to yield a return of 5.36%, which
represents the one-year U.S. Treasury bill yield as of September 30, 1997.
The effective income tax rate was assumed to be 43.0%, resulting in an
after-tax yield of 3.06%.
3. It is assumed that 8.0% of the shares offered in a full conversion would be
purchased by the Association's Employee Stock Ownership Plan ("ESOP"). For
the MHC conversion valuation, it is assumed that the ESOP purchases 8.0% of
the amount sold in the initial offering. Pro forma adjustments have been
made to earnings and equity to reflect the impact of the ESOP. The annual
ESOP expense is estimated based on a 10-year debt amortization period. No
reinvestment is assumed on proceeds used to fund the ESOP.
4. It is assumed that 4.0% of the shares offered in a full conversion would be
purchased in the open market by the Association's Stock Award Plan ("SAP").
For the MHC conversion valuation, it is assumed that the SAP acquires,
through open market purchases, 4.0% of the amount sold in the initial
offering. Pro forma adjustments have been made to earnings and equity to
reflect the impact of the SAP. The annual SAP expense is estimated based on
a 5-year vesting period. No reinvestment is assumed on proceeds used to fund
the SAP.
5. Conversion expenses are estimated at 7.0% of the total aggregate offering
for the full conversion valuation. For the MHC conversion valuation,
expenses are estimated at lower levels ranging from $500,000 at the minimum
to $534,000 at the adjusted maximum.
6. The number of shares outstanding for purposes of calculating earnings per
share is adjusted to reflect the shares assumed to held by the ESOP not
committed to be released within the first year following the conversion.
7. In conjunction with the Reorganization, the Association will capitalize
Atlantic Liberty, MHC with a capital transfer of $50,000. For the MHC
conversion valuation, such amount has been deducted from equity and total
assets.
8. No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing common stock in the conversion.
IV-1
<PAGE> 96
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit IV-2
PRO FORMA VALUATION RANGE: FULL CONVERSION
As of September 30, 1997
(In $000s, except share data)
<TABLE>
<CAPTION>
PRO FORMA MARKET CAPITALIZATION $8,500 $10,000 $11,500 $13,225
AMOUNT SOLD TO PUBLIC 100.0% 100.0% 100.0% 100.0%
----------------------------------------------------------------
MINIMUM MIDPOINT MAXIMUM ADJ. MAX
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued 850,000 1,000,000 1,150,000 1,322,500
Shares sold 850,000 1,000,000 1,150,000 1,322,500
Offering price $10.00 $10.00 $10.00 $10.00
- -------------------------------------------------------------------------------------------------------------------
Gross proceeds 8,500 10,000 11,500 13,225
Less: estimated expenses (595) (700) (805) (926)
----- ----- ----- -----
Net offering proceeds 7,905 9,300 10,695 12,299
Less: ESOP purchase (680) (800) (920) (1,058)
Less: SAP purchase (340) (400) (460) (529)
----- ----- ----- -----
Net investable proceeds 6,885 8,100 9,315 10,712
- -------------------------------------------------------------------------------------------------------------------
NET INCOME:
LTM ended September 30, 1997 (190) (190) (190) (190)
Pro forma income on net proceeds 211 248 285 328
Pro forma ESOP adjustment (39) (46) (52) (60)
Pro forma SAP adjustment (39) (46) (52) (60)
---- ---- ---- ----
Pro forma net income (57) (34) (9) 18
---- ---- --- --
Pro forma net income per share ($0.07) ($0.04) ($0.01) $0.01
- -------------------------------------------------------------------------------------------------------------------
NET INCOME (ANNUALIZED):
Quarter ended September 30, 1997 520 520 520 520
Pro forma income on net proceeds 211 248 285 328
Pro forma ESOP adjustment (39) (46) (52) (60)
Pro forma SAP adjustment (39) (46) (52) (60)
---- ---- ---- ----
Pro forma core net income 653 676 701 728
--- --- --- ---
Pro forma core income per share $0.83 $0.73 $0.66 $0.59
- -------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Total equity at September 30, 1997 7,208 7,208 7,208 7,208
Net proceeds 7,905 9,300 10,695 12,299
Less: ESOP purchase (680) (800) (920) (1,058)
Less: SAP purchase (340) (400) (460) (529)
----- ----- ----- -----
Pro forma stockholders' equity 14,093 15,308 16,523 17,920
------ ------ ------ ------
Pro forma book value per share $16.58 $15.31 $14.37 $13.55
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS:
Total assets at September 30, 1997 109,887 109,887 109,887 109,887
Net proceeds 7,905 9,300 10,695 12,299
Less: ESOP purchase (680) (800) (920) (1,058)
Less: SAP purchase (340) (400) (460) (529)
----- ----- ----- -----
Pro forma total assets 116,772 117,987 119,202 120,599
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
IV-2
<PAGE> 97
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit IV-3
PRO FORMA VALUATION RANGE: MHC OFFERING
As of September 30, 1997
(In $000s, except share data)
<TABLE>
<CAPTION>
PRO FORMA MARKET CAPITALIZATION $8,500 $10,000 $11,500 $13,225
AMOUNT SOLD TO PUBLIC 46.0% 46.0% 46.0% 46.0%
------------------------------------------------------------------------
MINIMUM MIDPOINT MAXIMUM ADJ. MAX
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued 850,000 1,000,000 1,150,000 1,322,500
Shares sold 391,000 460,000 529,000 608,350
Offering price $10.00 $10.00 $10.00 $10.00
- --------------------------------------------------------------------------------------------------------------------
Gross proceeds 3,910 4,600 5,290 6,084
Less: estimated expenses (500) (510) (521) (534)
----- ----- ----- -----
Net offering proceeds 3,410 4,090 4,769 5,550
Less: ESOP purchase (313) (368) (423) (487)
Less: SAP purchase (156) (184) (212) (243)
----- ----- ----- -----
Net investable proceeds 2,941 3,538 4,134 4,820
- --------------------------------------------------------------------------------------------------------------------
NET INCOME:
LTM ended September 30, 1997 (190) (190) (190) (190)
Pro forma income on net proceeds 90 108 127 147
Pro forma ESOP adjustment (18) (14) (16) (19)
Pro forma SAP adjustment (18) (14) (16) (18)
---- ---- ---- ----
Pro forma net income (136) (110) (95) (80)
----- ----- ---- ----
Pro forma net income ($0.17) ($0.11) ($0.09) ($0.06)
- --------------------------------------------------------------------------------------------------------------------
NET INCOME (ANNUALIZED)
Quarter ended September 30, 1997 520 520 520 520
Pro forma income on net proceeds 90 108 127 147
Pro forma ESOP adjustment (18) (14) (16) (19)
Pro forma SAP adjustment (18) (14) (16) (18)
---- ---- ---- ----
Pro forma core net income 574 600 615 630
--- --- --- ---
Pro forma core income per share $0.70 $0.62 $0.55 $0.49
- --------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Equity at September 30, 1997 7,158 7,158 7,158 7,158
Net proceeds 3,410 4,090 4,769 5,550
Less: ESOP purchase (313) (368) (423) (487)
Less: SAP purchase (156) (184) (212) (243)
----- ----- ----- -----
Pro forma stockholders' equity 10,099 10,696 11,292 11,978
------ ------ ------ ------
Pro forma book value per share $11.88 $10.70 $9.82 $9.06
- --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS:
Total assets at September 30, 1997 109,837 109,837 109,837 109,837
Net proceeds 3,410 4,090 4,769 5,550
Less: ESOP purchase (313) (368) (423) (487)
Less: SAP purchase (156) (184) (212) (243)
----- ----- ----- -----
Pro forma total assets 112,778 113,375 113,971 114,657
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
IV-3
<PAGE> 98
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit IV-4
COMPARATIVE VALUATION RATIOS -- FULL CONVERSION VALUATION
Market Price Data as of December 11, 1997
<TABLE>
<CAPTION>
Nationwide New York
Comparative Public Thrift Public Thrift
Atlantic Group Aggregate(1) Aggregate(2)
Valuation Liberty ------------------ ------------------ -------------------
Ratio Symbol Savings Mean Median Mean Median Mean Median
------ ------ ------- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRICE/LTM EPS (3) P/E
Adj. Maximum (x) NM 18.7 18.8 17.5 17.5 19.4 18.8
Maximum NM
Midpoint NM
Minimum NM
PRICE/QTR. EPS (3) P/E
Adj. Maximum (x) 16.9 16.8 16.0 16.9 16.8 18.7 17.6
Maximum 15.2
Midpoint 13.7
Minimum 12.1
PRICE/BOOK VALUE P/B
Adj. Maximum (%) 73.8 125.7 127.0 154.3 140.7 160.6 155.0
Maximum 69.6
Midpoint 65.3
Minimum 60.3
PRICE/TANGIBLE BOOK P/B
Adj. Maximum (%) 73.8 126.5 127.0 160.1 144.9 178.8 157.5
Maximum 69.6
Midpoint 65.3
Minimum 60.3
PRICE/TOTAL ASSETS P/A
Adj. Maximum (%) 10.97 13.77 12.70 18.40 16.79 18.34 16.17
Maximum 9.65
Midpoint 8.48
Minimum 7.28
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 392 publicly-traded, non-MHC, non-acquired thrifts nationwide.
(2) Includes 28 publicly-traded, non-MHC, non-acquired thrifts based in New
York.
(3) Price/earnings ratios exclude values greater than 25.
IV-4
<PAGE> 99
FELDMAN FINANCIAL ADVISORS, INC.
Exhibit IV-5
PRO FORMA FULL CONVERSION ANALYSIS AT MAXIMUM VALUE
ATLANTIC LIBERTY SAVINGS, F.A.
Financial Data as of September 30, 1997
<TABLE>
<CAPTION>
VALUATION PARAMETERS SYMBOL DATA
- -------------------- ------ -----------
<S> <C>
Net income -- LTM Y $ -190,000
Net income -- Qtr. annlzd. Y 520,000
Net worth B 7,208,000
Tangible net worth B 7,208,000
Total assets A 109,887,000
Expenses in conversion X 805,000
Other proceeds not reinvested O 1,380,000
ESOP purchase E 8.0% 920,000
ESOP expense (pre-tax) F 10.0% 92,000
SAP purchase M 4.0% 460,000
SAP expense (pre-tax) N 20.0% 92,000
Reinvestment rate (after-tax) R 3.06%
Tax rate T 43.00%
Shares for EPS S 92.80%
PRO FORMA VALUATION RATIOS AT MAXIMUM VALUE
- -------------------------------------------
Price / LTM earnings P/E 889.33 x
Price / Qtr. earnings P/E 14.78 x
Price / book value P/B 69.60%
Price / tangible book P/B 69.60%
Price / assets P/A 9.65%
PRO FORMA CALCULATION AT MAXIMUM VALUE Based on
- -------------------------------------- --------
V = (P/E / S)*((Y-R*(O+X)-(F+N)*(1-T))) = $12,238,959 [LTM earnings]
-----------------------------------
1 - (P/E / S) * R
V = (P/E / S)*((Y-R*(O+X)-(F+N)*(1-T))) = $10,819,680 [Qtr. earnings]
-----------------------------------
1 - (P/E / S) * R
V = P/B * (B - X - E - M) = $11,500,026 [Book value]
---------------------
1 - P/B
V = P/B * (B - X - E - M) = $11,500,026 [Tangible book]
---------------------
1 - P/B
V = P/A * (B - X - E - M) = $11,503,313 [Total assets]
---------------------
1 - P/A
PRO FORMA VALUATION RANGE
- -------------------------
MINIMUM = $10,000,000 X 0.85 = $ 8,500,000
MIDPOINT = $10,000,000 X 1.00 = $10,000,000
MAXIMUM = $10,000,000 X 1.15 = $11,500,000
ADJ. MAX. = $11,500,000 X 1.15 = $13,225,000
</TABLE>
IV-5
